Varex Imaging's Q3 Earnings Call: Revenue Exceeds Guidance, Mixed Performance Across Segments

Varex Imaging Corporation reported Q3 revenue of $203m, exceeding guidance, but faced challenges with a decline in Medical segment revenue, increased operating expenses, and decreased cash position. The Industrial segment showed growth, while the company made progress in photon counting technology and reduced debt.

Varex Imaging Corporation (NASDAQ: VREX) released its third-quarter fiscal year 2025 results on August 7, showing a mixed performance with slight revenue decline but improved profitability metrics. The imaging technology provider’s stock responded positively to the results, with premarket trading showing a 10.37% increase to $8.62 following the earnings release [2].

Revenue and Segment Performance

Varex reported Q3 FY25 revenue of $203 million, representing a 3% year-over-year decrease from $209 million in the same quarter last year [2]. Despite this slight revenue decline, the company achieved notable improvements in profitability metrics. Non-GAAP gross margin improved to 34% in Q3 FY25, up 100 basis points from 32% in Q3 FY24, demonstrating the company’s ability to enhance operational efficiency despite tariff headwinds [2]. Adjusted EBITDA showed even stronger growth, increasing 27% year-over-year to $29 million from $23 million in the prior-year period [2].

The company’s bottom line also strengthened considerably, with non-GAAP diluted earnings per share rising 29% to $0.18 from $0.14 in Q3 FY24 [2]. This earnings performance continues the positive momentum seen in Q2 FY25, when the company reported non-GAAP EPS of $0.26, significantly above analyst expectations [2].

Segment Performance Analysis

Varex’s business performance showed significant variation across segments. The industrial segment continued to demonstrate strength, while the medical segment presented a more mixed picture. Within the medical segment, Oncology, Dental, and Mammography all showed positive momentum with increased sales compared to the five-quarter average. However, CT, Fluoroscopy, and Radiography & Others experienced declining sales, indicating challenges in these areas [2].

Debt Reduction and Financial Health

A significant development in Q3 was Varex’s substantial balance sheet transformation. The company paid off $200 million in convertible notes on June 2, 2025, resulting in a significant reduction in total debt from $567 million in Q2 FY25 to $368 million in Q3 FY25 [2]. This debt reduction strategy is reflected in the company’s balance sheet data: cash, cash equivalents, and marketable securities decreased to $153 million from $226 million in the previous quarter, primarily due to the debt repayment [2]. Despite this reduction in cash reserves, the company’s net debt leverage ratio improved to 2.0x from 2.1x in Q2 FY25 and 2.4x in Q3 FY24, indicating a strengthening financial position [2].

Forward Guidance and Outlook

Looking ahead, Varex provided guidance for its fourth quarter of fiscal year 2025. The company expects Q4 FY25 revenue to range between $210 million and $230 million, suggesting a potential sequential improvement from Q3 [2]. Non-GAAP diluted EPS is projected to be between $0.10 and $0.30, with gross margin expected to be in the 32-33% range, slightly below the 34% achieved in Q3 [2]. The guidance assumes operating expenses of approximately $51 million, interest and other expenses of $9-10 million, a tax rate of around 25%, and a diluted share count of approximately 42 million shares [2].

Conclusion

The market’s positive reaction to the results, with the stock up over 10% in premarket trading, indicates that investors are focusing on the improved profitability metrics and debt reduction rather than the slight revenue decline [2]. As Varex moves into the final quarter of its fiscal year, the company appears to be balancing operational improvements with strategic positioning to navigate ongoing market challenges.

References

[1] https://ca.finance.yahoo.com/news/varex-imaging-corp-vrex-q3-074119601.html
[2] https://za.investing.com/news/company-news/varex-imaging-q3-fy25-slides-revenue-dips-profitability-improves-amid-debt-reduction-93CH-3828472