10-Q: Varex Imaging Reports Q2 2025 Results: Revenue and Profitability Increase Amidst Tariff Concerns

Varex Imaging Corporation reports increased revenue and profitability for the second quarter of fiscal year 2025, while navigating potential impacts from tariffs and trade investigations.

Summary

• Varex Imaging Corporation's net revenues for the three months ended April 4, 2025, were $212.9 million, compared to $206.2 million for the three months ended March 29, 2024.
• Net income attributable to Varex was $6.9 million, or $0.17 per diluted share, compared to $1.4 million, or $0.03 per diluted share, for the same period last year.
• For the six months ended April 4, 2025, net revenues were $412.7 million, compared to $396.2 million for the six months ended March 29, 2024.
• Net income attributable to Varex for the six months was $6.6 million, or $0.16 per diluted share, compared to $0.9 million, or $0.02 per diluted share, for the same period last year.
• The company is facing potential adverse impacts from tariffs, particularly between the United States and China, and is actively working to mitigate these effects.
• Varex is also cooperating with the China Ministry of Commerce (MOFCOM) in investigations related to medical products imported into China.
• The company's estimated total backlog at April 4, 2025, was approximately $316 million.
• Varex is managing its liquidity to address the $200 million Convertible Notes due in June 2025, planning to use a combination of borrowings and cash.

Sentiment

Score: 7

Explanation: The document presents a mixed sentiment. While revenue and profitability have increased, the company faces significant challenges from tariffs, trade investigations, and debt maturities. The management's proactive approach to mitigating these risks is a positive sign, but the uncertainties remain.

Positives

• Revenue increased in both the Medical and Industrial segments.
• Gross profit and gross margin improved, particularly in the Medical segment, due to improved productivity and lower material costs.
• The company has taken steps to address upcoming debt maturities by issuing additional Senior Secured Notes.
• Varex is actively working to mitigate the impact of tariffs through various strategies.
• The company's estimated total backlog at April 4, 2025, was approximately $316 million.

Negatives

• The company faces potential adverse impacts from tariffs, particularly between the United States and China.
• Varex is subject to MOFCOM investigations related to medical products imported into China, which could impact competitiveness.
• The company has a significant amount of debt, including $200 million in Convertible Notes due in June 2025.
• The company is unable to recognize a tax benefit for pre-tax book losses in certain foreign jurisdictions but has recognized tax expense for profitable jurisdictions.

Risks

• Reduction in or loss of business from key OEM customers could materially reduce sales.
• Changes in import/export regulatory regimes, tariffs, and trade wars could negatively impact the business.
• Competition and pricing pressures could result in margin erosion and loss of customers.
• Supply chain disruptions could result in delayed product delivery and increased costs.
• Inability to maintain or defend intellectual property rights could harm the company's competitive position.
• Disruption of critical information systems or material breaches in security could adversely affect the business.
• Noncompliance with regulations applicable to marketing, manufacturing, and distributing products could lead to penalties.
• Operating and financial restrictions of debt financing agreements could limit the company's flexibility.
• The MOFCOM Investigations may take approximately one year to resolve and could negatively impact the company's ability to compete in China.

Future Outlook

The company is focused on mitigating the impact of tariffs and trade investigations, managing its liquidity to address upcoming debt maturities, and continuing to invest in research and development to drive long-term growth.

Management Comments

• We remain committed to working with our customers to minimize the impact from tariffs.
• Considering the mitigation efforts we have in flight at this point, we are not currently planning to do any restructuring in China.

Industry Context

The medical imaging industry is characterized by rapid technological advancements and intense competition. Varex is navigating these challenges by focusing on innovation, maintaining strong customer relationships, and managing its cost structure. The company's performance is also influenced by global economic conditions, trade policies, and healthcare reforms.

Comparison to Industry Standards

• It is difficult to compare Varex's results directly to industry standards without specific competitor data.
• However, companies like Canon Medical Systems Corporation, Siemens Healthineers, and GE Healthcare are major players in the medical imaging market and serve as benchmarks for revenue and profitability.
• Varex's gross margin of 36.0% is within a competitive range for component suppliers in the industry, but may vary depending on product mix and market conditions.
• The company's R&D spending of 10.3% of revenue indicates a commitment to innovation, which is crucial for maintaining a competitive edge.
• The company's debt levels and leverage ratios are important metrics to monitor in comparison to industry peers, particularly in light of upcoming debt maturities.

Legal Proceedings

• The China Ministry of Commerce (MOFCOM) recently initiated two investigations related to medical products imported into China.
• The partners to the VEC joint venture filed judicial proceedings in Germany against one another disputing the validity of shareholder resolutions passed in January 2023, January 2024, and August 2024, respectively.
• Varex Germany filed an action in Germany for a negative declaratory judgment and an injunction against business damaging statements made by certain third parties, and in August 2024 and October 2024 Varex Germany and Varex Imaging Corporation filed additional lawsuits in Germany and the United States relating to intellectual property matters, breach of contracts and other matters.

Related Party Transactions

• The Company has a 40% ownership interest in dpiX Holding Company LLC (dpiX Holding), a holding company that has a 100% ownership interest in dpiX LLC (dpiX), a supplier of amorphous silicon-based thin film transistor arrays for flat panels used in the Company's digital image detectors.
• In November 2018, the Company (through one of its wholly-owned subsidiaries) and CETTEEN GmbH (CETTEEN), formed a German limited liability company that governs the affairs and conduct of the business of VEC Imaging GmbH & Co. KG (VEC), a joint venture formed to develop technology for use in X-ray imaging components.

Stakeholder Impact

• Shareholders: The increased revenue and profitability are positive for shareholders, but the risks associated with tariffs and debt should be monitored.
• Employees: The company's commitment to investing in research and development is positive for employees, but potential restructuring due to tariffs could be a concern.
• Customers: The company's focus on meeting customer needs and demands is positive, but supply chain disruptions could impact product delivery.
• Suppliers: The company's reliance on a limited number of suppliers creates a risk of supply chain disruptions.
• Creditors: The company's debt levels and upcoming maturities should be monitored by creditors.

Next Steps

• Continue to monitor and mitigate the impact of tariffs and trade investigations.
• Manage liquidity to address the $200 million Convertible Notes due in June 2025.
• Invest in research and development to drive long-term growth.
• Cooperate with the China Ministry of Commerce (MOFCOM) in investigations related to medical products imported into China.

Key Dates

Keywords

Varex Imaging, financial results, Q2 2025, tariffs, medical imaging, industrial imaging, X-ray tubes, digital detectors, revenue, net income, debt, MOFCOM, backlog