Varex Imaging at Oppenheimer Conference: Strategic Moves Amid Challenges

On Monday, 17 March 2025, Varex Imaging Corp (NASDAQ: VREX) participated in the Oppenheimer 35th Annual Health Care MedTech and Services Conference. The company discussed its strategic positioning amid global challenges, highlighting both positive developments and ongoing uncertainties. CEO Sunny Sanyal shared optimism regarding the Chinese market, while CFO Sam Maheshwari outlined efforts to manage tariffs and improve gross margins.

Key Takeaways

• Varex Imaging is cautiously optimistic about the Chinese market, noting gradual demand improvement.
• The company has diversified its supply chain to better handle tariffs, though indirect impacts remain uncertain.
• Photon counting technology is expected to significantly contribute to revenue by 2029.
• The medical segment’s growth largely depends on the Chinese market dynamics.
• Varex aims to expand its cargo segment with a target of $100 million in sales over the next 3-5 years.

Operational Updates

Varex Imaging’s conference call addressed macro-level challenges and opportunities, focusing on China, tariffs, and the medical segment. The company is seeing a positive shift in China, with anti-corruption efforts largely in the past and demand improving. However, a sharp rebound is not anticipated. The Chinese government’s stimulus program, aimed at upgrading equipment, is expected to expand Varex’s installed base, though the timing and impact remain unclear.

In response to tariffs, Varex has enhanced its supply chain resilience by expanding manufacturing capabilities globally, including in the US, Europe, China, and soon, India. This diversification has better positioned the company compared to the 2018-2019 tariff situation. While direct tariff costs are currently not significant, the indirect effects from US suppliers are still being evaluated. Varex plans to manage these impacts by seeking exemptions and passing costs onto customers.

Future Outlook

The medical segment continues to be a core focus for Varex, with growth heavily reliant on China’s market conditions. The company has diversified its supplier base, reducing dependency on single-source vendors. Photon counting technology is progressing well, with expectations of a $150 million revenue contribution by 2029. Varex anticipates revenue inflection from this technology by fiscal years 2026 or 2027.

The cargo segment, active during security-related events, is seeing increased activity. Varex estimates the serviceable addressable market to exceed $1 billion annually and aims for over $100 million in sales in the next 3-5 years. The company is leveraging its vertically integrated capabilities to win deals and install systems efficiently.

Financial Results and Gross Margin

Efforts to reduce inventory continue, although increased order rates put pressure on inventory levels. Varex is focused on maintaining inventory to support sales growth. Investments in the India factory and cargo inspection are currently impacting gross margins. Long-term improvements are expected from revenues in cargo, production in India, and photon counting, which is projected to have higher gross margins than the corporate average. The India factory is slated to begin production by the end of fiscal year 2025, with a second plant by 2026.

Q&A Highlights

During the Q&A session, discussions centered on navigating geopolitical and economic uncertainties, particularly regarding China and tariffs. Concerns about the impact of tariffs on material sourcing were addressed, with Varex emphasizing its preparedness and strategic measures to mitigate these challenges.

Readers are encouraged to refer to the full transcript for more detailed insights.

Full transcript - Oppenheimer 35th Annual Health Care MedTech and Services Conference:

Suraj Kalia, Senior Medical Device Analyst, Oppenheimer: Good afternoon, everyone. Suraj Kalia, senior medical device analyst at Oppenheimer. Pleased to have with us, this afternoon Sunny Sanyal, CEO, Sam Maheshwari, CFO, and Chris Belfiore, IR of Verix Imaging. As you all know, Verix is one of the key providers of x-ray tubes, detectors, and key equipment, to the radiology space, overall. And a lot of macro events going on and, you know, I think so this discussion is timely and would love to get perspectives from Sunny and Sam throughout this conversation.

Folks, to those of you attending virtually, you know, you you guys know the drill. Just ping me or any of my juniors on email, and we’d be more than happy to ask questions. Conversely, you can just put it in the chat box, and we can we can take it from there. So, Sunny, thank you so much for taking the time and joining us, joining us today. Let me start out, Sunny.

Obviously, one of the key topics I mean, most of the questions, obviously, you know, as it relates to you all are gonna be macro level. On a company specific level, you know, for the years that I’ve followed you guys, you guys keep doing everything that is within your control. It’s the things that are out of your control, unfortunately, that cause these dislocations and that’s what I’d like to spend some time. Sunny China. Right?

And I know one one is the geopolitical noise. Right? I’ll get to that in a second. But, on anti corruption, how should we think about, you know, your latest thoughts? Because I think so GE Healthcare is also talking about things getting delayed a little bit.

And I’d love to get your perspective on what you’re seeing, how you’re seeing this play out.

Sunny Sanyal, CEO, Verix Imaging: First, Suraj, thanks for having us. Great to be on this, on this event. Regarding China, you know, the bulk we see as the way we see it is that the bulk of the anti corruption related activity is largely behind us. There are still some trailing activities that are ongoing, but for us at this time, we don’t see that as being an impact for us in any significant or meaningful way. Last quarter, in fact, we saw, as we mentioned, a positive inflection in the sales side.

So the it broke the trend, the downward trend on order intake that we had seen previously. Our sentiment on on the situation in China at this point is that is is that we’re seeing it improve. We’re seeing demand improving. But as we’ve said earlier, we’re not expecting a snapback. Instead, we’re seeing a gradual increase, back towards, it’s a more secular growth rates.

So our overall belief is that we’re not still that we’re not gonna go backwards from where we were in 2024. Instead, we’re gonna go further up from here where we are. Now again, qualified with there are a lot of uncertainties around tariffs and everything else that’s going on, but at a at a very, specific demand on a base of what we’re seeing from as demand from our Chinese OEMs, we’re seeing it as more positive sentiment versus negative. There was the question about stimulus. How’s the stimulus moving along?

What’s going on? Is it impacting us? What we’re seeing is that the stimulus program, it’s starting to make its way through the system. There’s still, not very good visibility to whether some of the uptick we’re seeing is due to stimulus or is it because of natural buying behavior now, now that some of the other events such as the audit processes behind us. But what we’re seeing is that what we’re hearing from our customers is that the stimulus is primarily focused on upgrading existing equipment and encouraging hospitals with six to eight year old systems to replace those with newer systems and moving those older systems over to the rural areas.

So it would represent net new systems and, and with the installed base then growing and these older systems going over to new hospitals, that should make that should be a positive thing for us. But again, like I said, it’s gradually make its making its way through the system and I can’t really point to, pretty any sharp inflection projections there. So in terms of timing and magnitude, there’s really no real good indications on what the stimulus will bring. But overall, like I said, our sentiments regarding China are largely more positive versus negative than as we’ve been in the past.

Suraj Kalia, Senior Medical Device Analyst, Oppenheimer: Sunny, has your viewpoint changed in terms of the magnitude of the stimulus? I know there are some things you guys just don’t have visibility, but from your feet on the ground or indirect checks, where is the sentiment in terms of the dollar amount?

Sunny Sanyal, CEO, Verix Imaging: We don’t have any further insights into that. And our Chinese OEMs have not been able to give us much of an indication around that other than they see it as a positive and we see it as a positive as well.

Suraj Kalia, Senior Medical Device Analyst, Oppenheimer: Sami, I know the last time in 2019, you know, there was this whole tariff thing. It caused a dislocation, and you guys, you know, got to work and, moved manufacturing to Wuxi and and just kinda buffered yourselves somewhat this go around. Are there similarities? Are there dissimilarities? How should we think about however this is gonna unfold?

Right? It’s like day to day we are living, you know, and I cannot imagine being in your position trying to forecast, but to the extent that you can, how should we think about what happened in 2019, the dislocation for Varex and how we are buffered today?

Sunny Sanyal, CEO, Verix Imaging: Yeah. So, so as we all know, the situation is pretty fluid and dynamic. It keeps changing. But as a framing comment, let me say that, we’re in a bit of better place this time, we feel, than in the twenty eighteen twenty nineteen timeframe when the last time this happened largely because we took the actions at that time to diversify our supply chain. Our China operations and local for local operations are much much more robust now than it was at that time.

And then our ability to make detectors, which is one of our product lines that faces more stiff competition, is now broad based. We can make detectors in The US, we can make them in Europe, we can make them in China. And with India coming up in the near future, it adds to that operations resilience that we have now, that we will have now, and versus in 2018, ’20 ’19. So what’s different this time is that, you know, in 2018, ’20 ’19, when this happened, we we knew what the situation was. We knew exactly what was laid out as the tariffs here.

Things are changing on a daily basis and it’s more broad based. Last time it was all about China. This time it’s more than China and that’s the key difference. So from that perspective then we were able to estimate the impact of our direct impact on our direct costs of purchases from the markets that are affected like China. This time, it’s a little bit more than that.

We can still we can still assess the direct impact to us fairly well because that’s known to us. We know what we buy. You know who we buy from and what the tariffs are currently. The indirect impact is, slightly unknown, more unknown than it was previously because there are, US suppliers who buy from others who, you know, they have sub suppliers and sub suppliers. That part is not known.

So based on our current condition, current based on the current conditions, we feel the direct cost impact is not significant at this time for this fiscal year. And we’re still trying to understand the impact of the indirect purchases. We have exemptions in place in China, and we’ve been told that those exemptions will continue, which is, we know we had a degree of uncertainty around that the last time. Fortunately, those exemptions have They have continued. And so, here, so where we are currently, it’s, it still doesn’t feel that different other than other than, the indirect impact is to be to be determined.

Now, what we’re gonna do is we’ll take advantage of our global supply chain. We will wear we feel that there’s a stronger impact of the indirect on the indirect side, we will move where it’s possible to other suppliers from other geographies. We will if it’s absolutely necessary, we’re willing to ramp up productions in other locations, particularly for detectors where we have the abilities. And so on top of that, we will do three things. We will do everything we can to lobby for exemptions, see if and when they come up and we’ve begun that process to start ferreting that out.

We will mitigate with alternate sources, materials and suppliers, and we’re in a better place to do that this time. And third, whatever we can’t, the rest as we see, if we see it in the form of either tariffs that are being passed on by our suppliers or cost increases as a result of the tariffs, we’ll pass them. Our intention is to pass those on to our customers. So this is in a way, I’ll say we’re better prepared this time than we were in 2039 time frame. So we are just I think we’ve the things we’ve done are going to help us out this time and and making us more a little bit more resilient than the last time.

Suraj Kalia, Senior Medical Device Analyst, Oppenheimer: And Sunny, forgive me for belaboring this again on China and I will keep this as the last point. One is sourcing of materials, right? The other is the sale of the finished product and the final destination, right? Where do you think in the current environment is you sense the sensitivity is more for the current environment, specifically for Verix? Is it in terms of, especially if tariffs go ahead and all this geopolitical tension, do you think it’s more on the sourcing of materials side or you all would have to reject, like you said, the production lines or whatever on the on the finished product side?

Sunny Sanyal, CEO, Verix Imaging: No. We have so from the retaliatory tariff first of all, there’s a tariffs that the US government has put in place for materials that we buy from China. That is no different from the last time, and we have a pretty good handle on what that would be and we have alternatives. In many cases on the sales side that we have not or the inbound tariffs into China are two things one we haven’t the retaliatory tariffs have not included the types of the products and materials that we import. So we don’t see a direct impact of that from a sales perspective.

In terms of cost of materials coming into China, We have exemptions in place and we’re not seeing much of a difference there. So there is not much of a sensitivity on the sales side at this time like it was last time where there had been, you know, we were exposed on the detector side This time around, to the extent that we are selling detectors in China, those are being made locally as well. So we’re in a good local for local situation this time. Got it. Got it.

Suraj Kalia, Senior Medical Device Analyst, Oppenheimer: And Sam, if I could just put you on the spot, just I know you all have given guidance and outlook for gross margins and, you know, how the how the year will flow out. Walk to walk us through in terms of your, you know, how much, how many buffers are built into your guidance with everything that Sunny has discussed? Buffers for, you know, any upside? How are you all thinking through as the year progresses?

Sam Maheshwari, CFO, Verix Imaging: That’s a thank you, Sarai. That’s a pretty difficult question in this day and age in terms of buffers and the uncertainty that almost every company is dealing with. As Sunny said, I’ll echo the same sentence that, you know, generally, the retaliatory tariffs by other countries that can impact the sale of final product that can have a bigger impact than the cost side where we are importing things. In general, we have been more and more dual sourcing, etcetera. So in terms of moving supply chains on the raw material side, we have more flexibility this time around, and we’ve been thinking about it, for some time.

It is the retaliatory tariffs that can have a bigger impact. But last time, as Sunny said, it was mostly around detectors. But at this time, that is largely already local for local manufacturing, completed for that. And then the other products, generally CT tubes, which is the more bigger revenue exposure for us for China, those are exempted. They they have been exempted for quite some time by the Chinese government, and our current thinking is that it’ll continue to be exempted.

So so so then, that shifts our conversation more on the cost side here in The US. And we’ve been working on duty drawback, structured implementation, free trade zone structured implementation. So I would see I would say that, you know, there can be small impact. And in terms of gross margin guidance, etcetera, if anything impacts us, we would be planning to pass it down to our customers. We’ve been taking a number of initiatives to do that.

So I would say, you know, there is some planning we’ve done in terms of our gross margin guidance, But it is difficult to fully plan it out given such a widely varying outcome on on tariff situation. So I would say that there is some uncertainty. And, and the other thing I would say, this is another reason in this environment, our practice of providing quarter to quarter guidance somewhat helps us because we are not going too far out not knowing what type of a situation we are staring at. So we are planning we are planning for, some buffer, but we have to see how that works out. Fair point.

Sunny,

Suraj Kalia, Senior Medical Device Analyst, Oppenheimer: walk us through the state of the medical segment, you know, which is about 70% of your overall, overall, revenues. It’s always it’s always one of the one of the most exciting, one of the most exciting segments, you know, just given activity in some of the bigger players. But if you could just walk us through how you’re thinking about, you know, what are the stress points in the medical segment? What should we be looking for as we start going into the second half and exiting this year?

Sunny Sanyal, CEO, Verix Imaging: Yeah. So, make first, I’ll make sure I understood your question. Stress points as, like, in general, you’re, you mean

Suraj Kalia, Senior Medical Device Analyst, Oppenheimer: So growth was at a certain level. Right, Sunny? And wherever it is right now relative to, what you all were thinking, just try help us understand, is it more demand oriented? Is it regular macroenvironment oriented, or supply oriented? Just walk us through, you know, how should we think about the cadence of the medical segment in particular and the growth thereof?

Sunny Sanyal, CEO, Verix Imaging: Yes. So our medical segment historically has been pretty resilient to, to economic conditions, with the exception that China was the blip for us right last year. So for us, the real real driver for our performance for the rest of this year will be will be our, you know, whether we’re right about China or not. You know, if China continues, we’ve taken a very modest and conservative view of what we think will happen in China. So it’s really the demand side.

The demand side and the demand side I’d say is largely the biggest open risk has been and continues to be the China situation. But we have somewhat derisked that with our with our current view that we’ve taken that it’s not going to snap back and we are not expecting a snap back and we’re also not expecting it to go backwards. So to the extent that we are proven wrong on that, that’s where the pressure point will be. We are not anticipating the supply side challenges, meaning to the extent that there are orders and we have order coverage, we will be able to deliver. We are not expecting a collapse in the supply chain like it happened, you know, a couple of years ago.

And, since we now have a much more diversified group of suppliers, there’s really very, very few sole source or single source suppliers that we would be dependent on. So we feel pretty good about where we are in our ability to fulfill the demand. So as long as the demand, particularly on the China side, stays where it is, you know, we feel like the our thought process has been right on about this year.

Suraj Kalia, Senior Medical Device Analyst, Oppenheimer: Got it. And within the medical segment, Sunny, I know you guys have been very bullish on photon counting. Your larger competitors have also equally been vocal about photon counting. Talk to us about a state of affairs, you know, where you see in the CT segment. Right?

I know there was this chatter on the industrial side, but I’d be very curious how you see it playing out timeline, on the on the medical side, especially the CT side.

Sunny Sanyal, CEO, Verix Imaging: Yeah. So we’re continuing to make progress with both on the product side and the cell side, both in medical and industrial. And in medical, we are getting broad based interest from OEMs, but these are for new and novel new applications that would benefit from proton counting. And as you mentioned, our focus has been on CT because it is the largest opportunity for us. And there, we’re continuing to make pretty solid progress on the product side.

As we mentioned before, we are very far along with one global OEM. And when I say far along, I mean, they have a farm plan, there’s a project plan, and R and D work that’s going on. We’re actively engaged. There are timelines or milestones. The The customer has launch plan and they’re marching towards that as fast as they can.

So that’s the status we are with the key, you know, the lead OEM that we secured, we talked, we’ve talked about in the last couple of quarters. Besides that, there are a couple more that are in the pipeline, you know, one of which is further along than the others. It’s very difficult for us to give any more visibility than that. As you can imagine, the OEMs are very sensitive about what they’re doing in this space. So, but we will keep you posted on this type of progress that we’re as we make progress.

At least at some macro level, we’ll give you guidance. But all I can say at this point is that the interest is there, our product and our specifications of our products and the outputs that we’re able to share with the OEMs are being received well. And, you know, people are even the ones that have photon counting technology of their own that they’re trying out. They’re keeping a pulse on us and also working with us in parallel because this technology is new. And, people start out with a certain approach and then no one wants to shut down any avenue.

So we feel this is, you know, we’re we feel like this is a good thing for us. It’s just frustrating that it takes so long to bring something to market. But as we’ve said, we we are still holding on to the the the plan that we have, and in anticipating that we’ll see this become a hundred 50,000,000 type of a contribution, you know, contributing revenue contributing generating a product line for us by 2029. And, you know, we should start to see an inflection in revenues on this, you know, in our fiscal twenty six, late fiscal ’20 ’6 or ’27 timeframe.

Suraj Kalia, Senior Medical Device Analyst, Oppenheimer: Got it. Got it. And on the same token, Sunny, on the on the industrial side, right, recently, you all have been talking about the cargo segment picking up. Help us understand, you know, what are you all seeing that, you know, your commentary, at least from past years now, suddenly on cargo, has been, at least we think has been a little more bullish. The markets, you know, as you all have indicated, it’s like a billion dollar plus and healthy growth.

Where are you all in this whole dynamic? What are you all seeing that is driving optimism? And again, by the same token, right, the tariffs and geopolitical tension, do you think there is any stress in the system right now for the cargo segment?

Sunny Sanyal, CEO, Verix Imaging: Yeah. The cargo segment tends to become very active whenever there is, any any security related, upheaval. And right now, there’s a lot of that. So we saw a a period of two to three years post COVID where the visibility to demand just dropped, right? And there wasn’t much activity, but then the tenders started coming and we saw that.

And we now that we are in it ourselves directly from a systems perspective and we’re participating in tenders, we’re getting very good visibility to what is going on out there and what’s out there. So this, the estimate that it’s, it’s over a billion dollars in our serviceable addressable market for the hardware and equipment. We can see that, right? And, for us, the opportunity is for so number one, we’re seeing activity. There’s tender activity.

There’s there tenders happening that are being put out and we are bidding in them. So this is giving us confidence on the continued, the fact that this is a vibrant space and both from, from a security perspective and with the increase in activity around tariffs, there’s a need for automation in this space to understand whether what’s being transported matches what’s being said on the manifests. And so we’re seeing tenders starting to indicate those kinds of needs and requirements. For us, this is, we’re a small player in the system side of this, but we’ve been a pretty substantive player on the component side of it. And when I say components, I mean, we’ve been the major provider of linear accelerators, detectors for cargo systems, software, image acquisition software for these systems, and with a very large footprint.

So for us, the entry made sense provided we could see our way to a hundred million plus type of sales traction in this space. And in general, for us to get into any new area. We’ve said that about foot and counting, we’ve said that about radiographic detectors, same with cargo. We see this billion dollar per year type of space resulting in 100,000,000 plus type of sales for us over the next three to five years. And for that to that to that point, we have been winning deals.

We have we’ve given last time we gave an indication that we have we were in we were installing several systems. We’ve completed installations of several systems. We also won, you know, a new deal that we indicated last, last time and there’s several others that we’re in the middle of. So all this gives us and the reception all this all this gives us confidence in the space, but also the reception that we’ve been receiving from the prospects, the customers, the end customers that have been putting out these tenders has been very positive. We’re a very well known brand with deep domain knowledge.

We have a footprint. Virtually everyone out there has experienced our technologies or services in anyone that’s putting out tenders and bids. We have deep domain knowledge and the reputation for service and services is very, very strong. So we’re starting on a good foot here. Plus, I’d also highlight, other than NukeTech, we’re the only vertically integrated player here in this space with end to end capabilities for both, which is good from a implementation and service perspective, but also great for making the changes that are needed to the products to differentiate ourselves.

So at this point, this continues to be an exciting business area for us and we are bullish.

Suraj Kalia, Senior Medical Device Analyst, Oppenheimer: Got it. Gentlemen, we are almost up on time. Sam, if I could ask you one question, right? I remember when you had joined, right, your focus was on optimizing the balance sheet and one of them was inventory, just kind of making sure. And inventory, I think, is the last quarter or days of inventory picked up.

And help us understand where you are in the process of optimizing the balance sheet. And my subliminal question really is trying to understand, I remember the glory days of 40% gross margins, right? We are right now in what 34% give or take. And I know it’s a longer term outlook. Just set the stage of how we should start thinking beyond your guidance and going into next fiscal year.

Sam Maheshwari, CFO, Verix Imaging: Yeah sure. So we continue to keep working on our inventory to bring it down you know if you look at the longer term trend we have brought inventory down. From quarter to quarter, there can be perturbations, because of cyclicality and where the stuff lands, etcetera. So so our efforts to keep on bringing inventory down continue. However, where we are right now as we look forward, our order rates have been improving.

So as of now, given the order rates improvements, that would mean that we should be looking at sales growth. And whenever there is a sales growth environment, it kind of puts a negative pressure on the inventory because we need to bring in inventory to meet more of the sales, growth or sales related needs. So that is the current situation that we are in. So our efforts on inventory are ongoing and continuing. But in terms of the dollar demonstration of that on balance sheet might be muted, but we would rather try to maintain inventory but enable higher sales.

Because right now, order rates are picking up and we are seeing we are forecasting growth as we go forward here. The second question related to gross margin, you know, we have been making gross margin related improvements. The volumes have been low in the last few quarters. So as volumes pick up, they should provide us support for improving our gross margin. At the same time, I want to remind you, we are doing we are, we’ve been working on a number of initiatives including setting up our India factory.

So there definitely is friction because of it right now as we speak because there is no production there, but there is a lot of cost. So that is there in gross margin. At the same time, in the last one year or so, we’ve been also trying to ramp up our initiatives on the cargo inspection side. So there’s been a lot of investments in enabling these growth initiatives, which are at very, very nascent stage. So P and L is funding for those investments also.

So when all of these initiatives are completely done, you know, and I would say that’ll be at least 18 you’re you’re beginning to see revenues from cargo and we would be, releasing our plants to production in India towards the end of fiscal twenty five and then the second plant towards the end of fiscal twenty six. So as these plants go into production, India plants go into production, Cargo inspection picks up volume, and it becomes more steady state and growing. And photon counting also begins to happen, say, towards the second half of f ’5 ’20 ’6. All of these should help us on our gross margin compared to where we are. Photon counting, we are expecting it to be significantly above the current corporate gross margin.

So it should have a net accretive effect and the other other two would become just more efficient and provide a scale as well as benefit of a gross margin. So that’s kind of like the longer term vision for our gross margin for say f y twenty six and f y twenty seven and beyond. Hopefully, I kinda answered your questions, Suraj.

Suraj Kalia, Senior Medical Device Analyst, Oppenheimer: Fair enough. All fair points. Fair points. Gentlemen, we are up on time. Thank you so much for taking the time this afternoon and walk us through some of the key points that come up in client conversations.

We do appreciate your help and hope you have a productive day. Thank you so much.

Sunny Sanyal, CEO, Verix Imaging: Thank you, Suraj.

Suraj Kalia, Senior Medical Device Analyst, Oppenheimer: Take care.

Sunny Sanyal, CEO, Verix Imaging: One one one one one

Suraj Kalia, Senior Medical Device Analyst, Oppenheimer: Good afternoon, everyone. Suraj, IR of Verix Imaging. As you all know, Verix is one of the key providers of x-ray tubes, detectors, and key equipment to the radiology space overall. And a lot of macro events going on and, you know, I think so this discussion is timely and would love to get perspectives from Sunny and Sam throughout this conversation. Folks, to those of you attending virtually, you know, you you guys know the drill.

Just ping me or any of my juniors on email, and we’d be more than happy to ask questions. Conversely, you can just put it in the chat box, and we can we can take it from there. So, Sunny, San, thank you so much for taking the time and joining us, joining us today. Let me start out, Sunny. Obviously, one of the key topics I mean, most of the questions, obviously, you know, as it relates to you all are gonna be macro level.

On a company specific level, you know, for the years that I followed you guys, you guys keep doing everything that is within your control. It’s the things that are out of your control, unfortunately, that cause these dislocations and that’s what I’d like to spend some time. Sunny China. Right? And I know one one is the geopolitical noise.

Right? I’ll get to that in a second. But, on anti corruption, how should we think about, you know, your latest thoughts? Because I think so GE Healthcare is also talking about things getting delayed a little bit. And I’d love to get your perspective on what you’re seeing, how you’re seeing this play out.

Sunny Sanyal, CEO, Verix Imaging: First, Suraj, thanks for having us. Great to be on this, on this event. Regarding China, you know, the bulk we see as the way we see it is that the bulk of the anti corruption related activity is largely behind us. There are still still some trailing activities that are ongoing, but for us at this time, we don’t see that as being an impact for us in any significant or meaningful way. Last quarter, in fact, we saw, as we mentioned, a positive inflection in the sales side.

So the it broke the trend, the downward trend on order intake that we had seen previously. Our sentiment on on the situation in China at this point is that is is that we’re seeing it improve. We’re seeing demand improving. But as we’ve said earlier, we’re not expecting a snapback. Instead, we’re seeing a gradual increase back towards, it’s a more secular growth rates.

So our overall belief is that we’re not still that we’re not gonna go backwards from where we were in 2024. Instead, we’re gonna go further up from here where we are. Now, again, qualified with there are a lot of uncertainties around tariffs and everything else that’s going on. But at a at a very, specific demand on a base of what we’re seeing from as demand from our Chinese OEMs, we’re seeing it as more positive sentiment versus negative. There was the question about stimulus.

How’s the stimulus moving along? What’s going on? Is it impacting us? What we’re seeing is that the stimulus program, it’s starting to make its way through the system. There’s still, not very good visibility to whether some of the uptick we’re seeing is due to stimulus or is it because of natural buying behavior now?

Now that some of the other events such as the audit processes behind us, but what we’re seeing is that what we’re hearing from our customers is that the stimulus is primarily focused on upgrading existing equipment and encouraging hospitals with six to eight year old systems to replace those with newer systems and moving those older systems over to the rural areas so it would represent net new systems and, and with the installed base then growing and these older systems going over to new hospitals, that should make that should be a positive thing for us. But again, like I said, it’s gradually make its making its way through the system and I can’t really point to, a pretty any sharp inflection projections there. So in terms of timing and magnitude, there’s really no real good indications on what the stimulus will bring. But overall, like I said, our sentiments regarding China are largely more positive versus negative than as we’ve been in the past.

Suraj Kalia, Senior Medical Device Analyst, Oppenheimer: Sunny, has your viewpoint changed in terms of the magnitude of the stimulus? I know there are some things you guys just don’t have visibility, but from your feet on the ground or indirect checks, where is the sentiment in terms of the dollar amount?

Sunny Sanyal, CEO, Verix Imaging: We don’t have any further insights into that. And our Chinese OEMs have not been able to give us much of an indication around that other than they see it as a positive and we see it as a positive as well.

Suraj Kalia, Senior Medical Device Analyst, Oppenheimer: Sami, I know the last time in 2019, you know, there was this whole tariff thing, it caused a dislocation and you guys, you know, got to work and, moved manufacturing to Wuxi and and just kinda buffered yourselves somewhat. This go around, are there similarities? Are there dissimilarities? How should we think about however this is gonna unfold, right? It’s like day to day we are living, you know, and I cannot imagine being in your position trying to forecast.

But to the extent that you can, how should we think about what happened in 2019, the dislocation for Varex and how we are buffered today?

Sunny Sanyal, CEO, Verix Imaging: Yeah, so, so as we all know, the situation is pretty fluid and dynamic. It keeps changing. But as a framing comment, let me say that, we’re in a bit of better place this time, we feel, than in the 2018, ’20 ’19 timeframe when the last time this happened, largely because we took the actions at that time to diversify our supply chain. Our China operations, the local for local operations are much, much more robust now than it was at that time. And then our ability to make detectors, which is one of our product lines that faces more stiff competition, is now broad based.

We can make four detectors in The U. S, we can make them in Europe, we can make them in China. And with India coming up in the near future, it adds to that operations resilience that we have now, that we will have now, then versus in 2018, ’20 ’19. So what’s different this time is that, you know, in 2018, ’20 ’19, when this happened, we knew what the situation was. We knew exactly what was laid out as the tariffs.

Here, things are changing on a daily basis and it’s more broad based. Last time it was all about China. This time it’s more than China and that’s the key difference. So from that perspective then we were able to estimate the impact of our direct impact on our direct costs of purchases from the markets that are affected like China. This time, it’s a little bit more than that.

We can still we can still assess the direct impact to us fairly well because that’s known to us. We know what we buy, you know, who we buy from and what the tariffs are currently. The indirect impact is slightly unknown, more unknown than it was previously because there are US suppliers who buy from others who, you know, they have sub suppliers and sub suppliers. That part is not known. So based on our current condition, based on the current conditions, we feel the direct cost impact is not significant at this time for this fiscal year.

And we’re still trying to understand the impact of the indirect purchases. We have exemptions in place in China and we’ve been told that those exemptions will continue, which is, we know we had a degree of uncertainty around that the last time. Fortunately, those exemptions have they have continued. And so, here so where we are currently, it’s, it still doesn’t feel that different other than other than, the indirect impact is to be to be determined. Now, what we’re gonna do is we’ll take advantage of our global supply chain.

We will where we feel that there’s a stronger impact of the indirect on the indirect side. We will move where it’s possible to other suppliers from other geographies. We will if it if it’s absolutely necessary, we’re willing to ramp up productions in other locations, particularly for detectors where we have the abilities. And so on top of that, we will do three things. We will do everything we can to lobby for exemptions, see if and when they come up and we’ve begun that process to start ferreting that out.

We will mitigate with alternate sources, materials and suppliers, and we’re in a better place to do that this time. And third, whatever we can’t, the rest as we see, if we see it in the form of either tariffs that are being passed on by our suppliers or cost increases as a result of the tariffs, we’ll pass them. Our intention is to pass those on to our customers. So this is in a way, I’ll say we’re better prepared this time than we were in 2039 time frame. So we are just like we’ve the things we’ve done are going to help us out this time and and making us more a little bit more resilient than the last time.

Suraj Kalia, Senior Medical Device Analyst, Oppenheimer: And Sonny, forgive me for belaboring this again on China, and I’ll keep this as the last point. One is sourcing of materials, right? The other is the sale of the finished product and the final destination, right? Where do you think in the current environment is you sense the sensitivity is more for the current environment, specifically for Verix? Is it in terms of, especially if tariffs go ahead and all this geopolitical tension, do you think it’s more on the sourcing of materials side or you all would have to rejig, like you said, the production lines or whatever on the finished product

Sunny Sanyal, CEO, Verix Imaging: side? No, we have so from the retaliatory tariff first of all, there’s a tariffs that the US government has put in place for materials that we buy from China. That is no different from the last time and we have a pretty good handle on what that would be and we have alternatives. In many cases on the sales side that we have not or the inbound tariffs into China. Two things.

One, we haven’t the retaliatory tariffs have not included the types of the products and materials that we import. So we don’t see a direct impact of that from a sales perspective. In terms of cost of materials coming into China, we have exemptions in place and we’re not seeing much of a difference there. So there is not much of a sensitivity on the sales side at this time like it was last time where there had been, you know, we were exposed on the detector side. This time around to the extent that we are selling detectors in China, those are being made locally as well.

So we’re in a good local for local situation this time. Got it. Got it.

Suraj Kalia, Senior Medical Device Analyst, Oppenheimer: And, Sam, if I could just, put you on the spot, just I know you all have given guidance and outlook for gross margins and, you know, how the how the year will flow out. Walk us through in terms of your, you know, how much, how many buffers are built into your guidance with everything that Sunny has discussed, buffers for, you know, any upside? How are you all thinking through as the year progresses?

Sam Maheshwari, CFO, Verix Imaging: That’s a thank you, Sarai. That’s a pretty difficult question in this day and age in terms of buffers and the uncertainty that almost every company is dealing with. As Sunny said, I’ll echo the same sentence that, you know, generally, the retaliatory tariffs by other countries that can impact the sale of final product that can have a bigger impact than the cost side where we are importing things. In general, we have been more and more dual sourcing, etcetera. So in terms of moving supply chains on the raw material side, we have more flexibility this time around, and we’ve been thinking about it, for some time.

It is the retaliatory tariffs that can have a bigger impact. But last time, as Sunny said, it was mostly around detectors. But at this time, that is largely already local for local manufacturing, completed for that. And then the other products, generally CT tubes, which is the more bigger revenue exposure for us for China, those are exempted. They they have been exempted for quite some time by the Chinese government, and our current thinking is that it’ll continue to be exempted.

So so so then, that shifts our conversation more on the cost side here in The US. And we’ve been working on duty drawback, structured implementation, free trade zone structure implementation. So I would see I would say that, you know, there can be small impact. And in terms of gross margin guidance, etcetera, if anything impacts us, we would be planning to pass it down to our customers. We’ve been taking But it is difficult to fully plan it out given such a widely varying outcome on on tariff situation.

So I would say that there is some uncertainty. And, and the other thing I would say, this is another reason in this environment, our practice of providing quarter to quarter guidance somewhat helps us because we are not going too far out not knowing what type of a situation we are staring at. So we are planning we are planning for, some buffer, but we have to see how that works out.

Suraj Kalia, Senior Medical Device Analyst, Oppenheimer: Fair. Fair point. Sunny, walk us through the state of the medical

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