Varex Imaging at Small-Cap Virtual Conference: Strategic Moves Amid Tariffs

On Wednesday, 17 September 2025, Varex Imaging Corp (NASDAQ:VREX) presented its strategic direction during the Small-Cap Virtual Conference. Led by CFO Sam Maheshwari, the discussion centered on the company’s proactive measures to navigate tariff challenges, optimize supply chain operations, and tap into growth opportunities in China and the industrial sectors. While the company faces tariff-related margin impacts, it remains optimistic about growth prospects in fiscal year 2026.

Key Takeaways

• Varex is shifting its supply chain to India and increasing local content in China to mitigate tariffs.
• The industrial segment, especially cargo inspection systems, is experiencing strong growth.
• The company paid down $200 million in convertible loans and aims to refinance debt by 2026.
• Varex anticipates growth in fiscal year 2026, driven by new product opportunities and improved business conditions.
• Photon counting technology and cold cathode nanotube advancements are key technological developments.

Financial Results

• Varex paid down $200 million in convertible loans in June, using $75 million from the balance sheet.
• The remaining debt stands at $370 million, with refinancing plans set for 2026.
• The target long-term debt balance is approximately $325 million.
• Tariffs are expected to impact gross margins by 100 basis points, despite mitigation efforts.

Operational Updates

• Tariff mitigation strategies include bonded warehouses, foreign trade zones, and shifting supply chains to lower tariff regions.
• Varex is establishing manufacturing facilities in India to serve global markets.
• The company is capitalizing on growth opportunities in China, with infrastructure upgrades in rural hospitals driving demand.
• Inventory destocking has stabilized, with customers resuming regular purchasing patterns.

Future Outlook

• Growth is expected from new cargo systems, the operational India factory, and initial revenue from photon counting technology.
• The company is focused on deleveraging and reducing long-term debt.
• Despite geopolitical uncertainties, Varex remains cautiously optimistic about its growth prospects.

Q&A Highlights

• Photon counting technology offers significant dosage reduction and faster imaging in CT detectors.
• The company is making progress with cold cathode nanotube technology, with evaluation test kits shipped to customers.
• Varex is targeting growth in fiscal year 2026, with stabilized and improving business conditions.

For more detailed insights, readers are encouraged to refer to the full transcript below.

Full transcript - Small-Cap Virtual Conference:

Jim, Analyst, Snowden & Company: Hi, good afternoon, and welcome to the Snowden & Company September Small Cap Investor Conference. The next company to present is Varex Imaging. We have with us the CFO, Sam Maheshwari, and the Director of Investor Relations, Chris Belfiore. This session will be a fireside chat. It’ll last about 30 minutes. I have a list of questions I’ll go through, but there might be some time at the end for questions from the audience. If you do have a question, feel free to type it into that Q&A tab at the bottom of your screen. With that, we’ll get going. Quickly, Sam or Chris, could one of you just give us a brief summary of your two business units and let the audience know what components and systems Varex supplies to its two types of customers: medical and industrial?

Sam Maheshwari, CFO, Varex Imaging: Sure. Thanks, Jim, and good afternoon, and good afternoon, everybody. Thanks for joining us today. Varex has been in the business of providing X-ray components for more than 50 years now. We are the worldwide leader in providing X-ray components. We are singularly focused on X-ray components, and, you know, we bring innovation to the market. We’ve brought innovation in the past, and we continue to progress along that dimension. At the same time, we’ve also aggregated scale over time, so we are the largest producer of components in the world today. We have two segments. One is medical, where we do roughly 70% of our revenues, and then industrial, where we do around 30% of our revenue. The two larger businesses from a product line perspective within these two reported segments are X-ray tubes and X-ray detectors.

We’ve been in the tubes business for more than 40 years, as I said, and digital detectors have been there since the late 1990s or early 2000s. X-rays have been a part of it since then. We have been producing them as part of Varex. In the 2018 timeframe, we acquired a company called Direct Conversion, and through that, we acquired photon counting technology. Now our plan on a go-forward basis is also to start competing in the CT detector market by leveraging photon counting technology.

Jim, Analyst, Snowden & Company: Great. Like almost every other company we cover, tariffs have been a significant impact on your business this year. Can you talk about where we are today with regard to tariffs and what you’re doing to mitigate the impact of tariffs in 2025 and 2026?

Sam Maheshwari, CFO, Varex Imaging: Yeah, very relevant, Jim, and tariffs are very, very, it changes weekly, daily, weekly, or monthly. It’s a very dynamic environment, as you all know it. Since April or May timeframe, when tariffs became a bigger issue for almost every company, we have taken a number of steps, and we have mitigated a significant impact from the tariffs already. We are also continuing to work on mitigating the tariff impacts. We are successful in passing quite a bit of tariff-related incremental costs to our customers. We are charging our customers for that. That is one way we are mitigating the impact on Varex. At the same time, we have also been working on a number of what we call operational strategies. We have been trying to put what we call bonded warehouse or foreign trade zone in a number of countries, including U.S., China, India, etc.

We have been making good progress in that direction. We’ve also been working on redirecting material supply towards vendors in lower tariff regions. We have been trying to shift supply chain, and we’ve been making some good progress there. As you know, Jim, we’ve been working on bringing up two factories in India, and India is a significant part of our tariff mitigation strategies. There we plan to produce X-ray components, particularly the radiography-related components, and supply globally from India. Certain countries may not have tariffs on goods coming from India, but they may have tariffs on goods coming from the U.S., for example. In such a scenario, we are looking at it, and in that situation, we would be able to build some sort of resilience. Overall, I would say we have been mitigating quite a bit of it, but it still does have an impact.

We estimate about 100 basis points in gross margin impact that tariffs would have on our financials, even after mitigating quite a bit of, even after executing a number of these issues.

Jim, Analyst, Snowden & Company: Okay. You know what, I was going to ask about India a little bit later, but since you brought it up, I’ll ask about it now. I believe the first products shipping out of India will be detectors. When do you think that’ll happen?

Sam Maheshwari, CFO, Varex Imaging: Yes, that’s correct. We plan to produce detectors from one of our two India factories, and that factory is expected to go online towards the end of this fiscal year. For us, it’s just a few weeks away. We are largely complete there, and the factory will be beginning to produce within a few weeks here. We are on track there. Towards the end of this fiscal year, early, first few weeks in the next fiscal year, we should be producing and shipping detectors from there. Of course, we need to ramp it up from there on, but the factory would be live.

Jim, Analyst, Snowden & Company: The second point I assume is going to be for the X-ray tubes. What’s the schedule for that plant?

Sam Maheshwari, CFO, Varex Imaging: Yes, the second factory is related to X-ray tubes. That’s about 18 months away from this point onwards in terms of its production milestone. That is also tracking us for our goals. It could be 18 months, plus minus a few months here and there as things go. We are making pretty good progress. We are quite pleased with it. I say that, you know, particularly in the tariff regime, I wish we were producing out of India 18 months, 18 months faster than what we’ve been working on that and making productive progress.

Jim, Analyst, Snowden & Company: One of the other big issues you’ve dealt with over the past couple of years is China. I remember at the end of June quarter, you indicated that that business started to pick up after the tariffs to China were reduced to 55% from 145%. Can you give us any update on China? Is demand there stable? Do you think there’s still any impact from the anti-corruption campaign there that started last year?

Sam Maheshwari, CFO, Varex Imaging: Yeah, just to remind you, Jim, in terms of anti-corruption campaign, previously, 2024, our last fiscal year was impacted by that. At that time, we had said that we expected it to be largely behind us by February-March timeframe, and that did happen. At this point, I would say anti-corruption campaign is largely behind us. The second situation with China was related to price dumping-related investigation, and that was also put on pause, I think it was in late May, when the U.S. and the Chinese trade teams met. Immediately afterwards, the investigation on price dumping on tubes was suspended at that time. Since then, China business has stabilized for us, and it’s been a few months that it’s already been stable. Now we are actually seeing growth. We expect next fiscal year China for us to be a growth year.

We are on a path of beyond stabilization to, I would say, stable, moved from not so stable to stable and now stable to positive, and we are in a growth mode at this time. We’ve also heard from their Ministry of Healthcare that China government does have an initiative to improve and upgrade the infrastructure in rural hospitals or far-flung county hospitals, so to say. There is a movement to kind of upgrade CT systems, in particular from, say, 32-slice CT system to 64-128, which we call the mid-end CT systems. That should bode well for us. We believe the current trends we are seeing in terms of growth prospects from the China customers are probably an indication of this initiative.

Jim, Analyst, Snowden & Company: It sounds like China could be a growth driver for you for several years. It’s not just a one or two-year.

Sam Maheshwari, CFO, Varex Imaging: That’s correct. I mean, overall, the government continues to invest in infrastructure there. Obviously, this initiative that their government has announced is not a one-year initiative. It’s going to be multi-year. It’s a decent size type of initiative. It should provide good backdrop for us for a few years.

Jim, Analyst, Snowden & Company: You know, another headwind that you’ve been dealing with or had to deal with the last year or so was the inventory levels on the medical side. After COVID, some of your customers had built up inventory of tubes, and so they delayed ordering to allow that inventory to work down. Where do you think we are today? Do you think the inventory level of tubes in the channel is back to historical levels for the medical side?

Sam Maheshwari, CFO, Varex Imaging: Yeah, I would say the destocking trend that you’re talking about, Jim, is largely also behind us at this time, and customers have resumed a regular pattern of purchasing. That is behind us. Both the dual headwinds of destocking by customers ex-China and then the anti-corruption campaign inside China, both of those headwinds are behind us. At this point, we are looking at growth from China and also from customers outside of China.

Jim, Analyst, Snowden & Company: Okay. The other side of the business, the industrial side, has actually grown pretty steadily. It didn’t have to deal with that destocking issue. A big part of that was the cargo inspection systems and components. I know you had a new system that you introduced about a year ago. How is the rollout of that system going?

Sam Maheshwari, CFO, Varex Imaging: No, that rollout is going very well. Just to go back to your initial comment, there was destocking in the industrial segment also related to some of our components. The strength of the security and cargo inspection business offset all of that softness in that part of the business. Overall, industrial kept on growing. I would say business is looking pretty good. As you know, we provide components in the security inspection area. In the last 12 months, we’ve also rolled out a new initiative of cargo systems, as you mentioned here. The rollout has been going very well. We have taken in more than $50 million of orders already for the new initiative of cargo systems, and we plan to be shipping them beginning now all the way until the next 12 months. We should be slowly and steadily, based on the requested shipment dates, consuming this backlog.

There is a decent amount of demand in the market for cargo inspection and security inspection-related products. Countries are trying to be more safe and secure, so that is a push. As you know, there is a push in the U.S. for sure, fentanyl trade, etc. Cargo inspection is one area where actually the tariff environment can provide us some strength because countries are now more, or rather, I would say the port agencies or customs, they are looking at content more carefully because there might be differences in tariffs of different content that those containers are carrying. In general, there is a greater push for more imaging and more, what I call differentiated imaging, just in terms of content imaging. That should have a positive effect on demand in this side of the business for us.

Also, between the wars and the weapons and contraband goods, all of that requires more imaging. Clearly, the demand is good in this side of the cargo inspection and the security inspection area, both for components as well as for broader systems.

Jim, Analyst, Snowden & Company: What is the impact of the new system on margins? If you sell a system as opposed to components, is that dilutive to margins, accretive to margins, or about the same?

Sam Maheshwari, CFO, Varex Imaging: The system side, it just depends on deal from deal to deal. There can be a little bit up and down here and there. Overall, systems margin are typically running around where our corporate average gross margin is. It does not really have a significant dilutive or accretive effect. However, we do expect after shipment, 12 to 18 months after shipments, when these systems go into service, they should have a significant accretive impact over margins. As you know, the service side of the business is more, is richer in margin than when we ship the original hardware.

Jim, Analyst, Snowden & Company: If those margins ship over the next six months, you start to see that benefit, I would assume, in fiscal 2027, fiscal 2028, that timeframe.

Sam Maheshwari, CFO, Varex Imaging: That’s correct, yeah. Generally, in this business, we see warranty periods of 12 to 18 months, but then there’s also a lag in terms of installation even after we have made the shipments. Yeah, 18 to 24 months from shipment, I generally say a guide of 24 months from shipment, that service should begin to start accruing.

Jim, Analyst, Snowden & Company: Is it the same sales team that sells the systems as the components, and have you ramped that up?

Sam Maheshwari, CFO, Varex Imaging: We have ramped it up. Of course, we are investing in a measured manner. We are investing responsibly. As we grow the business, we would be investing in that channel. There is a different team that sells systems, but there is an overlap with the component team too. We have definitely added resources to sell the systems, so there is a little bit of an overlap, but there are dedicated system selling system agents also for us from an account management perspective. These people are in different countries as opposed to our component team, which was focused where the OEMs were, and now the end customers are in different countries. There is a little bit of a different focus for cargo systems.

Jim, Analyst, Snowden & Company: How about the manufacturing side for the systems? Do you make those in Las Vegas, and do you have capacity there to meet the demand?

Sam Maheshwari, CFO, Varex Imaging: Yeah, so Las Vegas, we continue to manufacture linear accelerators, which is the core key component in the entire system. We continue to manufacture that in Las Vegas, and then that is shipped to our plant in the UK in a city called Stoke-on-Trent. There, the entire full system is assembled together and then shipped to wherever the final installation site is from there. We already have a facility ramped up in the UK, and we are assembling, integrating, and testing our final systems there. We have begun to ship from there, and yeah, that’s going well.

Jim, Analyst, Snowden & Company: As long as we talk about manufacturing, can you just remind everybody where else you manufacture products?

Sam Maheshwari, CFO, Varex Imaging: Yeah, so in terms of our tubes, we are producing them in Salt Lake. Detectors, we are producing them in Salt Lake. We are producing them in Walluf, Germany, and we are producing them in Wuxi, China. We are final assembling tubes in Wuxi, China as well. We have a connector and cables business again for X-ray systems. That factory is in Calamba, Philippines. Now we are in the process of bringing up two factories in India, one for tubes and one for detectors. On the industrial side, we have a number of our products produced in Salt Lake, particularly the tubes. The linear accelerators are produced in Las Vegas. The final cargo systems are produced in the UK.

Jim, Analyst, Snowden & Company: If we go back to tariffs, I assume one of the ways you mitigate the impact of tariffs is you manufacture in some of these other regions, you know, to sell locally and get around the tariffs that way.

Sam Maheshwari, CFO, Varex Imaging: Yeah, you know, we’ve been on this journey of increasing our local-for-local content. So produce more and more locally, supply the product, particularly for China. We are continuously increasing our local content there. Of course, we do need certain pieces which are extremely IP-driven. We will keep them here in Salt Lake. However, we are continuously increasing our content of manufacturing in China, only for China consumption. We are also, strategy-wise, here where we can supply U.S. from U.S., and then India and Europe, we are looking at it broadly to supply the rest of the world and anywhere else. For example, India and Europe do not face any tariffs going into China. We might outsource a little bit more IP content to Europe and India so that we can mitigate the potential China tariff. Essentially trying to build more resilience.

Jim, Analyst, Snowden & Company: All right. Earlier in the presentation, you talked a little bit about the acquisition you did in 2018 of the photon counting technology. You’ve been developing that for the last five or six years. How is that development going? I know you have the new THOR detector that’s based on that technology. Have you started shipping those yet? Can you just give us an update on photon counting?

Sam Maheshwari, CFO, Varex Imaging: Yeah, photon counting is a very important, innovative new product. We’ve talked about its benefits. It allows significant dosage reduction, the speed of X-ray imaging, because one of the things why X-rays, generally X-ray imaging has been slow. It goes slow, as you also may have known from your experiences. Photon counting breaks that barrier and can allow up to 10,000 frames per second. The images are of a much superior quality. For a human body, for medical application, it allows literally counting off the photons, billions of photons per second, per minute, something like that. It is extremely compute-intensive and provides a very high-quality image. From that perspective, it is quite promising. What we have been planning to do, and it is a bit more costly. Its initial application is in the CT area, particularly in the medical side.

Up until now, we’ve not been competing in the CT detector market, so to say. With photon counting, we plan to compete in the CT detector market also. These detectors could be reasonably high in terms of their ASP. They could be $200,000, $250,000, $300,000 per system or something like that for CTs, for high-end CTs. It is a meaningful amount of money per unit. So far, we’ve made significant progress with two customers. We started out with one customer and, as you know, we have a platform of products, but then we customize for every specific customer that you know is our business model. We’ve been customizing for this one customer, one OEM customer, and we’ve made a lot of progress. They are now doing a lot of work on their side. We have also begun to make quite significant progress with a second customer.

We are right now working to get designed in the two customers, as I said. It takes time, as you know, in the medical business to all of the FDA approvals and everything else and the work that needs to go through on the OEM side as well. That’s the progress there on the medical CT side. Going on to the photon industrial application side, we already are doing now about $20 million of annual business on photon counting industrial application. There is quite significant user base and customer base now in industrial, particularly in food inspection, battery inspection, also oil and gas. There have been a number of products. Recently we launched four. We’ve already given out prototypes now for customers to evaluate, design.

As you know, the way this business works is we will release a product, we’ll have X number of units, and we’ll give them to different customers. They will look at it from their environment perspective, and they will then also customize it or design it into their environment or into their product. It’s not a product that you can buy for customer A and just implement it on customer B, as you know. That process is going. There has been a very good reception of THOR by our customers. We are going through that process of getting qualified, getting design in, qualified, validated, etc., on the customer side.

Jim, Analyst, Snowden & Company: On the medical side, I understand it takes longer to get onto the product, but I assume that once you’re there, it’s a pretty sticky business. Once you get onto the system, you’re there for the duration of that system.

Sam Maheshwari, CFO, Varex Imaging: Yeah, because their operating system, their data acquisition, their imaging chains, and their imaging processes, etc., this is all built. It’s kind of like hand-in-glove. I would not say that it is impossible to switch this out, but it is quite difficult.

Jim, Analyst, Snowden & Company: These customers you’re working with, I assume they’re customers that you’re already supplying X-ray tubes to and you have a relationship with?

Sam Maheshwari, CFO, Varex Imaging: Yeah, we have a relationship with them, and we are supplying different types of products to them. Yes, you mean medical side, right?

Jim, Analyst, Snowden & Company: Right, right. Yeah.

Sam Maheshwari, CFO, Varex Imaging: Yes.

Jim, Analyst, Snowden & Company: Can you talk a little bit about some of the other technologies you invested in, specifically the nanotubes? I know you have a relationship with Micro-X and you have another manufacturing relationship or agreement with NanoX. Can you tell us a little bit about that product and where you are on that development cycle?

Sam Maheshwari, CFO, Varex Imaging: Yeah, so we’ve also made significant progress in the last two years on cold cathode nanotube technology. We have been shipping what we call evaluation test kits. This is a very different technology. We have been now shipping those kits to our customers. I think Q1 of 2025 was the last milestone for the technology transfer from Micro-X. All of those milestones were met. We transferred the technology, we productized it. We did a little bit of investment in ramping up for pre-production or call it early production type of units for our customers. All of that we have done and now we are shipping evaluation kits. I would say more than two, three, but less than 10 type of customer interactions that we are having quite actively on that side with whom we are working with all these types of kits.

There are different customers that have different requirements for voltage, current, etc. All of that we are working with right now. With NanoX, we’ve been working quite actively. We have made a lot of progress there as well. That is where we are. Hopefully more to come here, but it’s pretty exciting there as well. It’s a very, very novel technology. We are just going through our process.

Jim, Analyst, Snowden & Company: All right. I assume like you described for the photon counting, these are not products that you put out in the market in 12 months. These are products that take a while to develop and then go through an FDA cycle.

Sam Maheshwari, CFO, Varex Imaging: Yeah, R&D cycle can be three to five years on our side, then two to three years on the customer side, then FDA might be another year. It can take some time, yes. It is a very exciting technology. It can enable, we believe, and again, that is not our business. It is our customer’s business. We do believe that a number of really exciting new applications can be enabled by the cold cathode nanotube technology.

Jim, Analyst, Snowden & Company: All right. We’re getting close to the end. I just want to touch briefly on the balance sheet. I know when you arrived, Sam, that the company was violating some of the debt covenants and things were a little bit scary at the time. It sounds like things have improved quite a bit since you’ve been there. You’ve paid down a lot of that debt. Can you talk about your current plans regarding debt paydown and the overall debt structure?

Sam Maheshwari, CFO, Varex Imaging: Yeah, we just, in the month of June, paid down our $200 million convertible loan. We just paid that down. We deployed $75 million from our own balance sheet to pay that down. That’s good. We’ve been generating cash flow annually, as you know. Right now, we have about $370 million of one tranche of debt that is coming due in September 2027. Between now and then, most likely in 2026, we should be refinancing that. My view is, our view is that we would continue to focus on deleveraging. Right now, I am focused on continuing to build the cash balance. We’ve talked about it, Jim, in the past, that we only need $100 million of operating cash to run the company. We are clearly carrying some excess cash. If it was up to me, I would have paid down that, the $370 million of high-year debt.

I’d pay down a little bit of that now itself. However, there are certain penalties associated with it. We are just building cash. When we do the refinancing, we will bring that amount of debt down. Ideally, I’m thinking somewhere around $325 million of long-term debt on the books. To go from $370 to $325, plus minus, you know, that is what we are thinking. We’ll continue to focus on generating cash flows and keep deleveraging.

Jim, Analyst, Snowden & Company: All right. We’re just about out of time, but I just want to, you know, one comment. I know you’ve always been conservative with guidance. We only guide one quarter out. I’m not going to bother to ask you anything specific. I mean, with these two major headwinds that seem to have kind of faded away, the China issue and the inventory destocking issue, are you feeling good about fiscal 2026 in terms of growth rates? Do you think you’ll be able to start to see better growth over the next 12 to 18 months or faster growth?

Sam Maheshwari, CFO, Varex Imaging: Yeah, I just want to remind you, although we went through a lot of up and down and tariffs this and that, however, FY2025 itself, at the midpoint of Q4 guidance, we are expecting growth in 2025 over 2024. Currently where we are sitting, I am expecting 2026 to be a growth year over 2025. In general, business, as I said, has stabilized to improving. These new opportunities, cargo systems, we’ve already taken in order. That should provide impetus for growth. India, one factory should be live. That should help us. There should be some prototype and some very early revenue from photon counting. Not production revenue, but early revenue from CT photon counting and some other technologies like THOR should also give us some impetus for growth there. I feel good about FY2026 and its growth.

The only thing I would always say, it would be unwise for me to say that geopolitically uncertainty remains, and we just have to kind of balance it out. If things remain where they are right now, I think it should be a good year.

Jim, Analyst, Snowden & Company: Good. Thank you for the time today for the presentation, also for the time today to do the investor meetings. We really appreciate it. As always, we’re right around the corner from another quarter ending. I guess we’ll be talking again. For you, it’ll be a fiscal year ending, so maybe it’ll be a little bit longer, but we’ll be talking.

Sam Maheshwari, CFO, Varex Imaging: It’ll be a little bit longer. Thank you.

Jim, Analyst, Snowden & Company: All right, thank you.

Sam Maheshwari, CFO, Varex Imaging: Yeah, thank you, Jim. Thanks, everybody.

Jim, Analyst, Snowden & Company: Yep.

Sam Maheshwari, CFO, Varex Imaging: Bye.

Jim, Analyst, Snowden & Company: Bye.

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