Varex Imaging at Jefferies Healthcare: Navigating Tariffs and Growth

On Wednesday, 04 June 2025, Varex Imaging Corp (NASDAQ:VREX) presented at the Jefferies Global Healthcare Conference 2025, highlighting its strategic maneuvers amid both opportunities and challenges. The company discussed its strong Q2 fiscal performance, the impacts of tariffs, and its strategic initiatives to diversify and regionalize manufacturing.

Key Takeaways

• Varex Imaging reported strong Q2 results, surpassing consensus estimates due to easing hospital audits in China and the end of inventory destocking.
• The company is addressing tariff challenges by passing costs to customers and diversifying its supply chain, with new manufacturing facilities in India.
• Varex remains cautiously optimistic, maintaining guidance while acknowledging the positive yet uncertain effects of reduced tariffs.
• The industrial segment, particularly cargo inspection, shows strong growth potential, with a billion-dollar opportunity space.
• The medical segment, comprising the majority of Varex’s business, is stabilizing with ongoing investments in R&D.

Financial Results

• Q2 fiscal results exceeded expectations in revenue, gross margin, and EPS.
• Demand rebounded following a period of channel inventory destocking.
• Order momentum was strong from January, though tariff-related uncertainty emerged mid-April.

Operational Updates

• The negative impact of hospital audits in China is decreasing.
• Channel inventory levels have normalized, with destocking expected to conclude by December.
• Tariff mitigation strategies include cost pass-through to customers, supply chain diversification, and regional manufacturing.
• In India, the detectors factory is nearing completion with shipments expected soon, while the tubes factory is 12-15 months from production.

Future Outlook

• Varex neither confirmed nor denied guidance but noted the decrease in tariff rates as a positive factor amid market uncertainties.
• The India strategy is seen as timely for mitigating tariff impacts and diversifying the supply chain.
• Industrial market demand is durable, with significant opportunities in cargo inspection systems.

Q&A Highlights

• Most customers accept price increases due to tariffs, with transparency provided on pricing details.
• A stable relationship with Canon contributes 17-18% of annual revenue, supported by ongoing R&D projects.
• End market demand aligns with secular trends in modalities like fluoroscopy and oncology.

In conclusion, Varex Imaging’s strategic initiatives and operational updates provide a comprehensive outlook on its current and future positioning. For more detailed insights, refer to the full transcript below.

Full transcript - Jefferies Global Healthcare Conference 2025:

Young, Med Tech Analyst, Jefferies: The med tech analyst at Jefferies. Thanks for coming to our conference. I’m very excited to have management from Verix Imaging here as well. So to my immediate left, you got Sany Sanyal, the CEO, and next to him, the CFO, Sam Maheshwari. Thank you gentlemen for coming, and I’m looking forward to a good discussion.

I guess to start, maybe a little bit high level. So, you know, you guys are leaders in CT and x-ray tubes and detectors. You know, it’s used in medical industrial applications. You work with most of the OEMs worldwide. Can you talk a little bit about, you know, the the main value prop for what Varex brings to the table for your customers?

You know, why are OEMs choosing to outsource these critical components to VariX instead of bringing it in house?

Sunny Sanyal, CEO, Verix Imaging: Yeah. Thank you. Good morning, everyone. VariX is a market leader in imaging components that are for x-ray based imaging systems, both in medical and industrial. Our medical business is roughly 78, 80 percent of our business, so we’re overwhelmingly largely a medical company.

And that said, there are several modalities in which we lead further ahead than others, and CT is one of those stronger modalities for us. So, in our business model, the b to b business model, the main driver for why OEMs talk to us and work with us is because of our investments in innovation. We have we have, over the last twenty years, invested over a billion dollars in foundational technologies that, frankly, most OEMs don’t have. There’s only top four or five OEMs that even have the basic capabilities to make these foundational components, and the remaining 50 don’t. So that is the main reason why we are called to the table.

We’re a design partner. We have very large R and D organizations. So our value proposition is the 500 people that we have in X-ray based product development, product design, 600 or so patents in this space, and the amount of money that we put into innovation in these foundational components. And for our OEMs, that means they get bespoke components that are made uniquely for them that gives them differentiated capabilities, and we help them bring these to market faster. If they had to start by designing an x-ray tube for the next CT system, well, then it would take them five, seven years to bring a CT to market.

Instead, with our help, they can bring these to market faster, leverage our scale. We tend to aggregate scale between medical and industrial and across modalities, which puts us in a unique position.

Young, Med Tech Analyst, Jefferies: Okay. So, I guess, fair to assume that, you know, you still see the market as going more and more towards outsourcing versus insourcing?

Sunny Sanyal, CEO, Verix Imaging: So, you know, these go in cycles. And if the top four or five OEMs, we talk about companies like GE, Siemens, Phillips, Canon, they have the ability to make these tubes. And the question is, just because they have the ability, would they or not? But the majority don’t. And so our strength has been in identifying the ones who are the future winners and who are going to going to end up leading and partnering with them.

We work with pretty much every OEM. So the trend is largely more towards outsourcing than insourcing. If you just dial back to, you know, twenty years, Canon was a new player in CT twenty years ago. We identified them. The players that we work with in other parts of the world now and in China, they weren’t there ten, fifteen years ago.

Similarly, as we look forward to countries like India and the new emerging markets and the new emerging OEMs, somewhere in there also are winners. So they’re the hundred per though that’s a % outsourced market.

Young, Med Tech Analyst, Jefferies: Mhmm. Alright. Great. Maybe if you can touch upon sort of the recent fiscal 2Q results. So the numbers you printed were, pretty strong above consensus on revenue, gross margin, EPS above your guidance.

Saw some demand come back after, I guess, you know, a decently long period of channel inventory dynamics. So wanted to hear about, you know, the state of the state right now. Just the strength of the base business and what drove the upside in fiscal 2Q.

Sunny Sanyal, CEO, Verix Imaging: Yeah. I’ll just make a general comment and I’ll ask Sam, our CFO, to also fill in. In general, in throughout last year, throughout last year, throughout 2024, we were telegraphing the market trends. And the two things that we felt were holding back the market, one was the audits of the hospitals in China and then the inventory situation. We sit further up in the value chain, so we visibility to some of these things six months or so ahead of everyone else.

And I’m very happy to say that the first half results were very good, and they were they were a lot in line with what we had been telegraphing for market trends and the trend of orders. We saw good solid order coverage. And so, it played out the way we had said. The audit of the hospitals was we said would that would be reduced in its effect. And we also expected that the destocking phenomena would be behind us by December, and we saw that play out just that way as we had predicted.

And

Sam Maheshwari, CFO, Verix Imaging: I would add that the order momentum starting from January, February time frame has remained good. The order momentum was good and business was nicely recovering. But then in from mid April onwards or say April, the tariff related situation started to come in causing a numb a few areas of uncertainty. But overall, the demand is there. The patient flow, the all of that is there for the hospitals, and the Capex situation remains very much intact.

So from the base drivers of the business, those base demand drivers are there, and the order flow is good.

Young, Med Tech Analyst, Jefferies: Mhmm. Alright. That’s helpful. I guess, you know, since you brought up tariffs and you know, it’s a subject we can’t really avoid nowadays. There’s seemingly weekly or daily updates on the subject matter.

I guess can you maybe just talk about a little bit high level what you’re seeing currently given the pause? Our customers in China right now just sort of racing to get their orders in during this time? Are there any high level puts and takes you have us kind of think about during this dynamic environment?

Sunny Sanyal, CEO, Verix Imaging: Yeah. So it’s a situation remains fluid. And maybe fluid is a soft term. It’s turbulent. Since our earnings, you know, when the tariffs was at the 45% level, it’s come down quite a bit.

It’s at about 55% level on equivalent terms for input input materials. So, the situation, it is moving in a more positive direction from that perspective. So, your question about the order situation. The fundamental end market demand continues to be more or less the same. The tariffs haven’t impacted that.

We have not seen a change in the end market demand. So our the way our customers place orders, they give us a frame order for what they need with for our lead times. We have ninety, a hundred and twenty day lead times. They give us orders for a hundred and twenty days, ninety days worth, and then they give us specific guidance on what to ship when. The situation still remains that they are that they are, you know, very careful about not ordering too much because who knows?

Next next week, next ten the next ten days, something better might happen. That said, we have seen this this move has been positive and we have you know, as we had said, if the 45% tariff level is like an embargo, anything better than that will make things better. So that’s that situation. What we are currently doing is continuing to focus on the mitigation actions. We have near term, midterm, long term mitigation action plans.

The near term action is whether it’s % tariffs or 50% tariffs or 30% tariffs, we’re going to pass on the input cost to our customers. And so that has been our stance. We’ve rolled that out. We’re working with our customers on that. And then second thing we said we would do was we are redirecting our supply chain to more tariff favorable suppliers in other parts of the world.

We have been diversifying our supply supply chain. And the third thing we’re doing is we’re finding out ways to double down on our regionalization strategy of manufacturing and seeing, for the longer term, make ourselves much, much more resilient. We are already far more resilient than we were back in 2018, ’20 ’19 when this happened. So, the situation is fluid, and it’s moving in the positive direction. We’re happy to see that.

There has and our customers are responding also favorably to that, and there’s more inquiries about what we can do and when we can ship new products to them. We’re limited by lead times, times, but we’re doing our best. And we’re working with our customers.

Young, Med Tech Analyst, Jefferies: Mhmm. Okay. Got it. That’s very helpful. I guess, you know, because your products are designed in with your OEMs, They have to buy the replacement tubes and detectors from you.

I guess I’m kind of curious, what about new equipment orders in China? How much is that being impacted by the tariff situation?

Sunny Sanyal, CEO, Verix Imaging: Yep. Again, we’ll we’ll talk about China a little bit more broadly. First and foremost, now that the tariff I’m sorry. Now that the hospital audit situation is behind us in China, we are seeing increased we are hearing of increased tender activity by our Chinese customers. And so even even in this current environment, our tubes are that we’re shipping are going to both the install base and for and to fulfill new demand because we keep hearing about our customers bidding in tenders and the competitive situation there.

So that is going on. And I and I’ve not seen a connection yet between the tariffs that tariff situation and end market demand yet. So the answer to direct answer to your question is, yes. We do expect that some of our tubes and detectors that we sell in China and other parts of the world are going towards new equipment sales. That said, you know, the you know, when we had the guidance that we’ve given remains our guidance, and we are designed in.

And yes, and and yes, there is a lot of stickiness in the way our products are designed in. So the only way someone can would stop ordering our product is if they have a form fit function exact replacement for our component, or they just have to design a new system and use a new set of components and new infrastructure to for that new system, which takes a lot of time. So there’s a very large installed base of our components globally and also in China, for which we expect that for what’s what’s needed for replacement will keep coming back to us for an extended period of time, unless there is someone just comes up with something that immediately replaces us, which is not an easy thing to do for particularly for tubes. And maybe, Sam, you can comment on the guidance comment I So

Sam Maheshwari, CFO, Verix Imaging: the guidance that we had provided at that time, the tariff rates were high. Obviously, the move down of tariff rates from 145% to whatever it is is definitely a positive positive for commerce between the two countries. And so that is also positive for us. However, the challenge that any company including us, we look at the situation and anything can change tomorrow, anything can change So we have to keep that in consideration.

Given the movement that we know since the earnings date to today, it’s been positive, but we’re still looking at uncertainty as I explained. So so so we are neither confirming nor denying guidance. However, it’s definitely a positive in terms of our business outlook.

Young, Med Tech Analyst, Jefferies: Okay. Very helpful color. Can I maybe just following up on that topic just on the mitigation efforts you talked about? You know, one thing was sort of regionalizing the manufacturing process. And you do have a plant in India.

And I think you just flew in from India last night, Sam. So, you know, flying around the world to be here to talk to us today. We appreciate it. But can you give us the latest update on the India plan? You know, when do you think, you know, products will start to come out?

And how much can it serve the China market and help mitigate the tariff situation?

Sam Maheshwari, CFO, Verix Imaging: Yeah. Sure. Thanks, Young. So, yes, our activities and efforts in India are going as per our plan, and they’re going very well. One of our we have two factories that are coming up in India.

One is for detectors and another one is for tubes. For the detectors factory, we are all the construction building is all done. Equipment validation is going on and certain last few steps in terms of licensing and all of that to start shipping from that factory is awaited. So we are in the very final stages of that factory for detectors. I hope in the next few months, call it three, four months, we should be shipping from that factory in India.

The second factory is related to our tubes production, and it is a lot more involved affair in the sense it’s a larger factory, and it is still twelve to fifteen months away from producing products. I would say that our India strategy has been very timely. I say to everybody is that we are fifteen months or eighteen months ahead in this tariff regime and environment, but still I say that we are twelve months behind. I wish we had those factories running and producing and shipping products as we speak. That would have definitely helped us.

But we are quite pleased with the progress there and we are full steam ahead on both of those manufacturing locations.

Young, Med Tech Analyst, Jefferies: Okay. Very helpful. So mean, you have a lot of materials that source OUS. You know, are there any more sensitive raw materials or components or products that’s, you know, potentially being impacted by tariffs or supply chain?

Sam Maheshwari, CFO, Verix Imaging: Yeah. So there are certain components or raw materials that we buy. And just like for our customers, it also applies to us that for our product, is not easy to change the raw material that goes into the building of a tube and also that goes into certain aspects of the detector. And those supply chains are very sticky, and changing them in a matter of months is not possible. But if you’re looking at twenty four months or thirty six months type of a horizon, yes, we can make a difference there.

So right now, as we speak, we are continuing to bring in material into The US from countries in Europe, Japan, etcetera. And we are paying tariffs, so we are seeing increased costs in our cost of goods sold. And and that said, it’s not a one or a zero or a bullion type of an answer. We are wherever we can diversify the supply chain, we are diversifying. We are sourcing more from India now.

We are also sourcing more from other country other countries where the tariff rates might be lower. So there there is a move away to source from China. So move away from China in terms of sourcing for US production and source it from India production and source it from India or some other country. So that is definitely in process and in progress, and we are making good progress there. But the bigger strategy, as Sunny mentioned, is more and more more a bigger focus towards regional regionalization of manufacturing.

So produce in China, source from China, and ship to customers in China, for example. Similarly, try to do that in The US and India sits as more of a neutral country as of now. So that helps us in our diversification of supply chain.

Young, Med Tech Analyst, Jefferies: Okay. Got it. And then you mentioned passing off price as a mitigation factor as well. Just curious how receptive are customers to that? It seems pretty straightforward because we know why prices are going up.

But are you seeing any pushback from customers? Are you, you know, sharing some of the pain with them? Or are they handling it pretty well?

Sunny Sanyal, CEO, Verix Imaging: Majority of our customers are going with the flow. They know it’s inevitable. You know, nobody likes it. But we’re making it easier for them by giving them some amount of transparency, line itemizing it, and working with them to figure out how it makes it palatable for them for their internal purposes. A few of the large customers obviously want more details, more information.

So, this is going to take a little bit time for us to operationalize. But I’d say on balance, it’s it’s going just the way we expected it would, which is they would accept it, but they’re not gonna take it without asking a lot of questions, which is what they’re doing.

Sam Maheshwari, CFO, Verix Imaging: Yeah. Some something I can add, Young, here. Some of the challenges are when the tariff rates are changing on a monthly basis, so then what tariff to charge itself becomes a question mark. And, obviously, customers want details on that, and that makes it very difficult in a manufacturing flow, which is long duration in the sense it takes six to eight weeks to complete the tube. So that is one challenge, for example.

Secondly, obviously, from our customer perspective, they want to know what are we doing to minimize the tariff for the entire supply chain. For example, if I’m buying something and paying tariffs, what can we do in terms of reducing that tariff burden? So all of those discussions take time. It is applicable to the entire customer base. So you can imagine our sales is extremely busy right now as we speak on this aspect.

So those are some of the push and pull, but the basic the basic argument or the logic of passing it on to customers is not being contested by anybody. It’s just that what can we do about it as well as the appropriateness of it.

Young, Med Tech Analyst, Jefferies: Mhmm. Okay. Very helpful. I guess maybe just one more on China and somewhat separate. Wanted to hear the latest updates if there’s any on the Ministry of Commerce investigations.

Sunny Sanyal, CEO, Verix Imaging: Yeah. So this is the anti dumping investigation and also the industry investigation that was in process. But we’ve we’ve we’ve feel that this was one of the retaliatory actions. And once the pause was announced by the US government, Ministry of Commerce also announced a pause. So, it’s almost pretty much the same the next day or two.

So, it’s currently on it’s currently on pause. But we have communicated that we will collaborate and we will work with them. And so, have continued to do the work ourselves, the homework that we needed to do to continue to gather data and do our analysis, and we are doing that. But it’s on pause currently.

Young, Med Tech Analyst, Jefferies: Okay, great. So I guess maybe focusing on the Medical segment a little bit. The Medical revs ex China has been relatively stable in the fiscal first half. Can you maybe talk a little bit about sort of where are you with the channel inventory dynamics currently? Do you expect I mean you have somewhat of a lead time with your customers’ orders.

Maybe you can just update on the health of the channel inventory currently.

Sunny Sanyal, CEO, Verix Imaging: Look, we had mentioned, we talked about earlier about how we expected that destocking to play out. We believe that that has happened and it has played out the way we what we had anticipated. We were working very closely with our customers to understand their inventory positions and it’s our belief that they’re back to normal operating conditions. And they have and most of our customers don’t keep a lot of inventory. Know, the some are few of our large customers even go to the extent of having just in time inventory, but they have to maintain stock in the field for service purposes.

So, our customers tend to keep about a month’s worth of inventory and we think we are in sort of that bracket. A very few customers keep more than that, maybe sixty, ninety days. But from what we can see and hear and from we’re seeing in the ordering patterns, we’re back to historical norms.

Young, Med Tech Analyst, Jefferies: All right. Got it. So you disclosed revenue from your top customers. Your number one customer is Canon. Just looking back at that relationship, it seems like the revenue contribution has been pretty stable, 140,000,000 to 150,000,000 a year, 17% to 18 of annual revs.

They just launched a new product with you. Wanted to hear a little bit about the outlook on that relationship and if you think they’ll continue to outsource or they have the capability to insource if you’re hearing anything on that front.

Sunny Sanyal, CEO, Verix Imaging: The Cannon has been stable customer for us in that seventeen, sixteen, 17, 18 percent bracket for a very, very long time. And so that we don’t see that dynamic changing in the near term. We are continuing to be very engaged with them on R and D projects, on innovation, and we don’t typically do new product announcements. We did announce one recently about with their vertical CT scanner because it was so unique and novel. And we’re very happy that they did that using our technology.

But there are ongoing R and D projects for other revisions of their CTs and new CT models. And that relationship is very healthy and continuing.

Sam Maheshwari, CFO, Verix Imaging: Yeah. Yang, the one thing I want to add is if you look at a two, three year type of a window and look at the dollar to yen exchange rates, etcetera, in yen, it has gone up, but in dollar terms, it may appear flat. Although we do not have that much of a yen exposure in the sense billing is in dollars, but from the customer perspective, they’re paying more in terms of where they consume the product.

Young, Med Tech Analyst, Jefferies: Okay. That’s very helpful. Then maybe you can dig in a little bit on some of the end markets within medical. Think most recently, oncology, mammal, dental were above trend. Some of the other segments maybe flattish or a little bit below trend, five quarter order in trends.

Can you maybe talk a little bit about the key drivers for some of those end markets? And then, you know, your outlook on some of those you want to highlight.

Sunny Sanyal, CEO, Verix Imaging: Yeah. The end market demand for for these products are in line with secular demand rates for those modalities, fluoroscopy, for oncology, for surgery, etcetera. So, there’s nothing unusual or noteworthy for me to call out. And since the overstocking situation is behind us, you know, we had a tough time in 2024 with the inventory situation. And so, now we’ve seen it return to normal.

So, we’re we’re seeing good year over year or the five quarter comp versus sales versus the five quarter comps that were good and we expect that it to stay normal.

Young, Med Tech Analyst, Jefferies: Okay, great. And then switching over to the industrials business. It’s been growing faster than medical for a while. Think you called out sub segments like global security, cargo inspection, airport inspection, those type of markets that’s driving a lot of growth. Can you maybe provide us with some view on the sustainability of the strong growth in those key markets going forward?

Sunny Sanyal, CEO, Verix Imaging: Think demand in the industrial market is durable because it’s greenfield. It’s large, it’s greenfield and it’s diversified across many verticals. We had also, you know, in 2024 suffered from the overstocking situation, but we’ve seen growth come back as the new order demands, you know, as coverage has been good. Within that segment, we sell detectors, tubes also, and high energy linear accelerators. And more recently, we introduced systems in for cargo and for irradiation.

And we’re excited about these new systems products because they’re, again, brand new addressable market for us, and we are a very well known player in that space. Historically, we have been in those that space selling systems and we’re getting drawn into, pulled into systems tenders. And so, industrial is growing for us as well as the end markets are growing faster than medical and it’s also much larger. So we are excited about the prospect of industrial driving growth for our business.

Young, Med Tech Analyst, Jefferies: And then I guess one exciting new development is your direct to customer industrials inspections business. Think you had 25,000,000 orders last quarter, 14,000,000 the quarter before. How big is that opportunity for you? Can you maybe talk a little bit about you know, where you winning these tenders from? How’s the competitive dynamic?

How you differ from the competition? And why are customers choosing you?

Sunny Sanyal, CEO, Verix Imaging: Yeah. I think specifically, Young, I think you might be referring to cargo systems space. In the cargo inspection systems, that is a billion plus type of an addressable opportunity space. We are, as I mentioned, we get we’re very well known because of our brand recognition and our very large footprint of the critical components in this space. So, we get visibility to most of the tender and deal activity that is going on.

It’s kind of safe to say that, and we are participating actively. There are a few large players in that space, and of course, they we end up competing against them. But our distinction here is that we are one of the only, really, two companies in the world that are vertically integrated end to end. One is us, and the other is a Chinese company. And so, it gives us quite a bit of advantage in when it comes to it comes to innovation and tailoring our components to make our systems differentiated.

And so, we are we’re we’re bullish and optimistic about our ability to win business in this space for, you know, it might be difficult for us to go head to head against a large player at a country level, but there’s a lot of business happening that are in the periphery of the small sized businesses. And when I say small, we’re talking about ten, fifteen, 20, 30 plus in the type of deals that we’ve been doing. There’s a lot of that volume, and we expect to keep doing that and gather critical mass and referenceability and which is which is what’s been happening. It’s only recently that we started announcing these wins and we will continue to do that for at least some period of time to give you visibility.

Young, Med Tech Analyst, Jefferies: Alright. Great. Well, I think that’s all the time we have.

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