Varex Imaging Corporation (VREX) Q1 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call summary reveals strong financial performance with increased operating income and adjusted EBITDA. The Q&A section highlights optimism in the market outlook and potential double-digit growth in the Industrial segment. The India expansion and photon counting technology are promising, despite some inventory challenges. The cautious EPS guidance is offset by strong CT adoption and customer engagement. Overall, the sentiment is positive, likely resulting in a 2% to 8% stock price increase.
Key Financial Performance
Revenue $210 million, up 5% year-over-year. Growth driven by strength in the cargo systems business, contributing to a 17% year-over-year increase in Industrial segment revenue. Medical segment revenue was stable year-over-year.
Non-GAAP Gross Margin 34%, at the high end of guidance. Benefited from a favorable product sales mix. Down 90 basis points year-over-year due to a 130 basis points favorable impact from refunds of German customs duties and taxes in Q1 of 2025.
Non-GAAP EBITDA $29 million, up 12% year-over-year. Growth attributed to strong performance in the Industrial segment and favorable product sales mix.
Non-GAAP EPS $0.19, up $0.09 compared to $0.10 last year. Increase driven by improved operating income and favorable tax rate.
Medical Segment Revenue $145 million, stable year-over-year. Driven by solid demand for X-ray sources, particularly in high-end CT and digital detectors.
Industrial Segment Revenue $65 million, up 17% year-over-year. Growth driven by strong demand for cargo security inspection systems and components, as well as nondestructive testing and inspection products.
Americas Revenue Growth 17%, driven by strength in the Industrial segment related to the cargo systems business.
EMEA Revenue Growth 7%, attributed to overall business performance.
APAC Revenue Decline 7%, reasons not explicitly mentioned.
GAAP Gross Margin 33%, down 100 basis points year-over-year. Decline due to prior year's favorable impact from refunds of German customs duties and taxes.
Operating Expenses $54 million, down $3 million year-over-year. Reduction attributed to lower R&D and SG&A expenses.
Operating Income $15 million, up $5 million year-over-year. Increase driven by higher revenue and lower operating expenses.
Net Income $2 million, reasons for change not explicitly mentioned.
GAAP EPS $0.05 per diluted share, reasons for change not explicitly mentioned.
Inventory $328 million, increased by $29 million. Increase to support anticipated demand across the Industrial segment, including new product ramps and cargo system deliveries.
Net Cash Outflow from Operations $16 million, primarily driven by the increase in inventory.
Cash, Cash Equivalents, and Marketable Securities $126 million, down $30 million compared to the fourth quarter of 2025. Decline due to net cash outflow from operations.
Gross Debt Outstanding $370 million, reasons for change not explicitly mentioned.
Adjusted EBITDA $29 million, representing 14% of sales. Growth attributed to strong performance in the Industrial segment and favorable product sales mix.
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Operating Highlights
Lumen family of radiographic detectors and Nexus software: Significant topic of discussions at RSNA, with customers showing interest in regional manufacturing strategy, particularly in India. Customers are returning to new product planning and commercialization mode.
Photon counting technologies: Numerous conversations about cutting-edge photon counting technologies and progress made in this area.
Industrial segment growth: Global demand for security screening remains strong, driving growth in cargo security inspection systems and components. Positive momentum in nondestructive testing and inspection business, supported by high-energy linear accelerators and X-ray tube products.
Regional performance: Americas grew 17%, EMEA rose 7%, and APAC decreased 7% year-over-year. Sales volume to China remained steady, contributing 17% of total revenues.
Revenue and profitability: First quarter revenue was $210 million, up 5% year-over-year. Non-GAAP gross margin of 34% and non-GAAP EPS of $0.19, up $0.09 compared to last year.
Medical segment performance: Stable year-over-year with continued strength in CT and growing engagement around next-generation system designs. Mammography modality exceeded sales trend, while CT, fluoroscopy, and radiography were in line with trends.
Industrial segment performance: Delivered solid growth with broad-based strength across multiple platforms and verticals. Cargo security systems business remains a bright spot with multiple installations and repeat orders.
Modality-based approach: Introduced a more integrated modality-based approach to value proposition, showcasing offerings as fully integrated imaging chain assemblies and subsystems. This approach aims to deliver best-in-class performance and faster time to market for customers.
Customer engagement at RSNA: Held over 150 customer meetings focused on advancing design win opportunities and upgrading systems to latest technologies. Increased customer engagement signals future demand and long-term revenue streams.
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Risk or Challenges
Inventory Increase: Inventory increased by $29 million to $328 million, with days of inventory rising by 34 days to 214 days. This increase is intended to support anticipated demand but could lead to higher carrying costs and risks of obsolescence if demand does not materialize as expected.
Cash Flow Challenges: Net cash outflow from operations was $16 million in the quarter, primarily driven by the increase in inventory. This could strain liquidity if cash outflows continue.
Regional Performance Decline: APAC region sales decreased by 7% year-over-year, which could indicate challenges in maintaining market share or demand in this region.
Debt Levels: Gross debt outstanding at the end of the quarter was $370 million, with net debt of $244 million. High debt levels could limit financial flexibility and increase interest expenses.
Tax Rate Increase: The tax rate for the quarter was 27%, higher than expected due to income distribution across entities. This could impact net earnings if the trend continues.
Supply Chain Risks: The company highlighted past challenges with chip shortages and supply chain crises, which could re-emerge and disrupt operations or product delivery timelines.
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Guidance & Outlook
Revenue Expectations: Guidance for the second quarter of fiscal 2026 includes expected revenues between $210 million and $225 million.
Non-GAAP Earnings Per Share (EPS): Non-GAAP EPS for the second quarter is expected to range between $0.15 and $0.25.
Gross Margin: Non-GAAP gross margin for the second quarter is expected to be between 33% and 34%.
Operating Expenses: Non-GAAP operating expenses for the second quarter are projected to be approximately $52 million.
Tax Rate: The tax rate for the second quarter is expected to be around 23%.
Diluted Share Count: Non-GAAP diluted share count for the second quarter is expected to be about 42 million shares.
Medical Segment Outlook: Continued strong customer engagement around innovation and integration of technologies into next-generation imaging systems is expected to drive growth.
Industrial Segment Outlook: Close collaboration with customers is expected to drive new applications for products across verticals such as oil and gas, food inspection, and security screening.
Long-Term Revenue Opportunities: Several design-in opportunities from RSNA are tied to platforms under development, with revenue opportunities expected as early as fiscal 2027.
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Shareholder Return Plan
The selected topic was not discussed during the call.
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Key Q&A
Q:Can you provide more color on the current environment and qualitative outlook for the rest of the year?
A:Sunny Sanyal expressed optimism, stating that headwinds in the Medical segment are behind them, with stable performance in China and strong CT adoption globally. Industrial orders, particularly in photon counting for food inspection and nondestructive testing, remain strong. Security orders are also growing. Customer engagement at RSNA has shifted positively, with design-in opportunities for both current and future products.
Q:Can you elaborate on the India opportunity and its progress?
A:Sunny Sanyal and Shubham Maheshwari highlighted that the India factory for detectors is operational and shipping globally, while the tubes factory is under construction and expected to be operational in 12 months. Customers are showing strong interest in 'Made in India' products, which align with India's preference for local content. However, the ramp-up is currently a burden on the P&L due to inventory and cost increases.
Q:Why is the low end of the EPS guidance $0.15 instead of $0.20, given the current quarter's performance?
A:Shubham Maheshwari explained that the guidance assumes a gross margin of 33% at the low end, compared to 33.6% achieved in the last quarter, which accounts for the lower EPS guidance.
Q:Are there any incremental disclosures on cargo orders in the Industrial segment, and can it grow double digits this year?
A:Shubham Maheshwari stated that while they will not announce every cargo order, traction remains strong with multiple customers and countries. The Industrial segment has the potential for double-digit growth, contingent on significant cargo system orders and customer demand before fiscal year-end.
Q:Can you update us on the revenue contribution from China and its outlook for fiscal '26?
A:Shubham Maheshwari noted that China contributed 17% of revenue ($35.6 million) in the quarter, with expectations for flattish to slight growth in fiscal '26. He cautioned against annualizing Q1 revenue due to seasonal patterns like the Chinese New Year.
Q:What are customers gravitating towards in general radiography, and what does this indicate about macro conditions?
A:Sunny Sanyal explained that customers are interested in low-cost, functionally rich radiographic detectors made in India, targeting emerging markets. The radiography market is recovering post-COVID, with interest in both detectors and tubes, particularly for analog-to-digital conversions.
Q:What is the status of photon counting technology and its market perspective?
A:Sunny Sanyal stated that two OEMs are progressing in their product commercialization process, while other OEMs are evaluating the technology. The goal is to democratize photon counting technology for broader CT market adoption, beyond the high-end segment.
Q:What is driving the increase in inventory, and what are the plans for normalization?
A:Shubham Maheshwari attributed the inventory increase to ramping up cargo systems, qualification cycles for detectors in India, and capitalized tariffs. He aims to reduce inventory by $10-15 million over the next few quarters.
Q:What are the plans for refinancing the high-yield debt, and what is the current interest rate?
A:Shubham Maheshwari stated that the high-yield debt (7.875% interest rate) maturing in October 2027 will be refinanced before October 2026. The goal is to secure a lower interest rate.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on the exact order values for cargo systems, citing a shift in approach to not announce every purchase order unless material. Additionally, they did not disclose the exact stage of photon counting commercialization by OEMs, citing confidentiality.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
CT radiography
Industrial
Instructions
RSNA product
accelerator
activity
care
cargo security
cargo system
change
class
customer base
decrease revenue
design win
development commercialization
discussion RSNA
end expectation
engagement
equity method
increase inventory
margin end
meeting
method investment
modality approach
mode
momentum
platform
policy
problem
radiography modality
repeat order
segment cargo
segment strength
software
success
testing
world
VREX Transcript
Varex Imaging Corporation (VREX) Q1 2026 Earnings Call Transcript
Positive2-11
The earnings call summary reveals strong financial performance with increased operating income and adjusted EBITDA. The Q&A section highlights optimism in the market outlook and potential double-digit growth in the Industrial segment. The India expansion and photon counting technology are promising, despite some inventory challenges. The cautious EPS guidance is offset by strong CT adoption and customer engagement. Overall, the sentiment is positive, likely resulting in a 2% to 8% stock price increase.
Varex Imaging Corporation (VREX) Q4 2025 Earnings Call Transcript
Unknown11-18
The earnings call presents a mixed picture: strong financial performance with record high revenue and improved profitability, but concerns about cash reduction and uncertain guidance. The Q&A indicates solid demand and growth prospects, but management's lack of specific guidance and avoidance of details raises uncertainty. Without clear guidance, the market may react cautiously, resulting in a neutral stock price movement.
Varex Imaging Corporation (VREX) Q3 2025 Earnings Call Transcript
Unknown8-8
The earnings call summary presents a mixed picture. Financial performance is stable with strong cash management and expected revenue growth, but gross margins are impacted by tariffs. Product development in photon counting is promising but lacks immediate commercialization. Market strategy shows steady demand in China and a strong cargo systems pipeline, but lacks clarity in future guidance. Shareholder returns and debt repayment plans are positive, yet overall, the lack of clear guidance and tariff impacts balance the sentiment to neutral.
Varex Imaging Corporation (VREX) Q2 2025 Earnings Call Transcript
Unknown5-10
The earnings call summary presents mixed signals: strong financial results with revenue and EPS growth, but concerns over China tariffs and paused orders. The Q&A reveals management's uncertainty about the tariff impact and delayed orders, but they express confidence in temporary revenue reductions. The strategic plan highlights a significant cargo inspection order and growth opportunities, yet geopolitical risks loom. Overall, the positive financial performance is offset by uncertainties in China, leading to a neutral stock price prediction.
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