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Introduction & Market Context
Varex Imaging Corporation (NASDAQ:VREX) released its third-quarter fiscal year 2025 results on August 7, showing a mixed performance with slight revenue decline but improved profitability metrics. The imaging technology provider’s stock is responding positively to the results, with premarket trading showing a 10.37% increase to $8.62 following the earnings release.
The company’s Q3 performance exceeded the guidance provided during its previous earnings call, when it projected Q3 revenue between $180 million and $200 million. The actual revenue of $203 million came in above the high end of that range, suggesting stronger-than-anticipated demand for its products.
Quarterly Performance Highlights
Varex reported Q3 FY25 revenue of $203 million, representing a 3% year-over-year decrease from $209 million in the same quarter last year. Despite this slight revenue decline, the company achieved notable improvements in profitability metrics.
As shown in the following quarterly performance comparison:
Non-GAAP gross margin improved to 34% in Q3 FY25, up 100 basis points from 32% in Q3 FY24, demonstrating the company’s ability to enhance operational efficiency despite tariff headwinds. Adjusted EBITDA showed even stronger growth, increasing 27% year-over-year to $29 million from $23 million in the prior-year period.
The company’s bottom line also strengthened considerably, with non-GAAP diluted earnings per share rising 29% to $0.18 from $0.14 in Q3 FY24. This earnings performance continues the positive momentum seen in Q2 FY25, when the company reported non-GAAP EPS of $0.26, significantly above analyst expectations.
The key financial results for the quarter are summarized in the following overview:
Segment Performance Analysis
Varex’s business performance showed significant variation across segments. The industrial segment continued to demonstrate strength, while the medical segment presented a more mixed picture.
The company’s segment sales performance compared to its five-quarter average trend reveals divergent patterns:
Within the medical segment, Oncology, Dental, and Mammography all showed positive momentum with increased sales compared to the five-quarter average. However, CT, Fluoroscopy, and Radiography & Others experienced declining sales, indicating challenges in these areas.
The revenue breakdown by segment and geography provides further insight into the company’s diversified business:
Medical (TASE:BLWV) segment revenue totaled $142 million, representing approximately 70% of total revenue, while the Industrial segment contributed $61 million or about 30%. Geographically, Varex maintained a balanced distribution with the Americas generating $71 million, EMEA (Europe, Middle East, and Africa) $70 million, and APAC (Asia-Pacific) $62 million.
Balance Sheet and Debt Reduction
A significant development in Q3 was Varex’s substantial balance sheet transformation. The company paid off $200 million in convertible notes on June 2, 2025, resulting in a significant reduction in total debt from $567 million in Q2 FY25 to $368 million in Q3 FY25.
This debt reduction strategy is reflected in the company’s balance sheet data:
Cash, cash equivalents, and marketable securities decreased to $153 million from $226 million in the previous quarter, primarily due to the debt repayment. Despite this reduction in cash reserves, the company’s net debt leverage ratio improved to 2.0x from 2.1x in Q2 FY25 and 2.4x in Q3 FY24, indicating a strengthening financial position.
The debt reduction and cash flow metrics are detailed in the following data:
On the GAAP reporting side, Varex recorded a significant goodwill impairment charge of $93.9 million in Q3 FY25, resulting in a GAAP operating loss of $81 million and a GAAP net loss of $89 million. This non-cash impairment charge explains the substantial difference between the company’s GAAP and non-GAAP results for the quarter.
Forward Guidance and Outlook
Looking ahead, Varex provided guidance for its fourth quarter of fiscal year 2025:
The company expects Q4 FY25 revenue to range between $210 million and $230 million, suggesting a potential sequential improvement from Q3. Non-GAAP diluted EPS is projected to be between $0.10 and $0.30, with gross margin expected to be in the 32-33% range, slightly below the 34% achieved in Q3.
The guidance assumes operating expenses of approximately $51 million, interest and other expenses of $9-10 million, a tax rate of around 25%, and a diluted share count of approximately 42 million shares.
Varex continues to position itself as a vertically integrated cargo security systems provider, leveraging its core component supplier capabilities to deliver complete systems directly to end customers. This strategic positioning, combined with the company’s improved financial metrics and reduced debt load, suggests a cautiously optimistic outlook despite the mixed segment performance.
The market’s positive reaction to the results, with the stock up over 10% in premarket trading, indicates that investors are focusing on the improved profitability metrics and debt reduction rather than the slight revenue decline. As Varex moves into the final quarter of its fiscal year, the company appears to be balancing operational improvements with strategic positioning to navigate ongoing market challenges.
Full presentation:
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