Varex Imaging Conference Summary Company Overview - Varex Imaging is a leading provider of X-ray components, with over 50 years in the industry and a focus on innovation and scale. The company operates two business segments: medical (approximately 70% of revenue) and industrial (approximately 30% of revenue) [2][3]. Key Business Segments - **Medical Segment**: Dominated by X-ray tubes and detectors, with a significant focus on digital detectors since the late 1990s. The company plans to enter the CT detector market using photon counting technology acquired from Direct Conversion in 2018 [2][3]. - **Industrial Segment**: Includes components for cargo inspection systems, which have shown steady growth despite some destocking issues. The company has received over $50 million in orders for new cargo systems [16][17]. Tariff Impact and Mitigation Strategies - Tariffs have significantly impacted Varex's business, with an estimated 100 basis points gross margin impact even after mitigation efforts [4][6]. - The company has successfully passed some tariff-related costs to customers and is implementing operational strategies, including establishing bonded warehouses and shifting supply chains to lower tariff regions [5][4]. - Two factories in India are being developed to produce X-ray components, with the first factory expected to begin shipping detectors soon [8][9]. China Market Update - The business in China has stabilized after previous impacts from an anti-corruption campaign and price dumping investigations. The company anticipates growth in the upcoming fiscal year due to government initiatives to upgrade healthcare infrastructure [10][11][12][13]. - The Chinese government's multi-year initiative to improve rural hospital infrastructure is expected to drive demand for mid-end CT systems [11][13]. Inventory Levels and Purchasing Patterns - The destocking trend among customers, particularly in the medical segment, is largely behind Varex, with a return to regular purchasing patterns [15]. Industrial Segment Growth - The industrial segment has continued to grow, driven by demand for security and cargo inspection systems. The company is seeing a push for more imaging due to safety concerns and regulatory pressures [16][17]. Photon Counting Technology - Varex is developing photon counting technology, which allows for significant dosage reduction and faster X-ray imaging. The company is working with two customers to customize products for the CT market [28][29][30]. - The industrial application of photon counting has already generated about $20 million in annual business, with ongoing customer evaluations [30]. Financial Health and Debt Management - Varex has improved its financial health by paying down a $200 million convertible loan and focusing on deleveraging. The company aims to reduce long-term debt from $370 million to around $325 million [41][43]. - The company expects growth in fiscal 2026, driven by new opportunities in cargo systems, the operationalization of the Indian factory, and early revenue from photon counting technology [45][46]. Conclusion - Varex Imaging is positioned for growth in the coming years, with stabilization in key markets, successful mitigation of tariff impacts, and promising developments in new technologies. The company remains cautious about geopolitical uncertainties but is optimistic about its growth trajectory [46].

Financial Data and Key Metrics Changes - Total revenue for the second quarter was $213 million, a 3% increase year over year, driven by a 3% increase in both Medical and Industrial segments [23][24] - Non-GAAP gross margin was 36%, up from 33% in the same quarter last year, reflecting improved volume and productivity gains [9][27] - Adjusted EBITDA for the quarter was $34 million, compared to $25 million in the previous year [9][23] - Cash from operations was strong at $17 million, with total cash, cash equivalents, and marketable securities at $226 million, up $36 million year over year [9][31] Business Line Data and Key Metrics Changes - Medical segment revenues were $154 million, constituting 72% of total revenue, while Industrial segment revenues were $59 million, making up 28% [24] - Sales in the Medical segment were led by strong global sales of CT tubes, with fluoroscopy, oncology, mammography, and dental modalities all performing above their respective sales trends [10] - The Industrial segment saw strong demand, particularly in global security screening, which drove sales of cargo inspection components and systems [11] Market Data and Key Metrics Changes - Americas revenue increased by 2%, EMEA revenues were flat, and APAC revenues increased by 8%, primarily due to increased sales in China [24] - Sales in China increased by 25% year over year but declined by 11% compared to the prior quarter, with China sales constituting 15% of total sales [24][25] Company Strategy and Development Direction - The company plans to mitigate the impact of tariffs through various strategies, including localizing manufacturing and pursuing operational strategies to reduce costs for customers [12][14][22] - The focus remains on long-term growth strategies based on innovation and cost leadership, with continued investment in regional manufacturing operations [22] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about demand trends across the business, despite headwinds from tariffs, and noted that no orders have been canceled from the $316 million backlog [21][22] - The company anticipates a sales impact of approximately $20 million in China due to tariffs, with a potential EPS reduction of $0.15 to $0.20 in the third quarter [32] Other Important Information - The company plans to use restricted cash from a senior secured debt offering to repay outstanding convertible notes upon maturity in June [9][31] - The gross debt outstanding at the end of the quarter was $570 million, with a net debt leverage ratio of approximately 2.1 times adjusted EBITDA [31] Q&A Session Summary Question: Update on orders in China and customer purchasing behavior - Management noted that while some customers are pausing purchases, they continue to place orders for essential products, particularly for high-end tubes [35][36][40] - Customers are trying to manage inventory while awaiting potential tariff resolutions [41][42] Question: Impact of the $25 million cargo inspection order on capacity - Management confirmed that lead times for delivery are typically 120 to 180 days, with civil works affecting timelines [47][48][50] Question: Clarification on tariff impacts and revenue drivers in China - The majority of revenue in China comes from CT tubes, and customers are currently delaying orders while exploring alternatives [57][58][62] Question: Trends outside of China and overall demand - Management indicated that demand trends outside of China remain strong, with broad-based strength in both medical and industrial segments [78][80] Question: Updates on the India plant and tariff mitigation strategies - The company is accelerating activities in India to help mitigate tariff impacts and is qualifying suppliers from India [85][86] Question: Anticipated impact of tariffs on industrial business - Tariffs are expected to impact the industrial business as well, but the sales of industrial products into China are minimal [94] Question: Potential for near-term tariff relief and its impact - Management indicated that any near-term relief could lead to immediate recovery in sales, depending on timing [102][103]

Financial Data and Key Metrics Changes - Total revenue for the second quarter was $213 million, a 3% increase year over year, driven by both Medical and Industrial segments [22][23] - Non-GAAP gross margin was 36%, up from 33% in the same quarter last year, reflecting improved volume and productivity gains [7][25] - Adjusted EBITDA for the quarter was $34 million, compared to $25 million in the previous year [7][22] - Cash from operations was strong at $17 million, with total cash, cash equivalents, and marketable securities reaching $226 million, an increase of $36 million year over year [8][29] Business Line Data and Key Metrics Changes - Medical segment revenues were $154 million, accounting for 72% of total revenue, while Industrial segment revenues were $59 million, making up 28% [23][24] - Sales in the Medical segment increased, particularly in CT tubes, fluoroscopy, oncology, mammography, and dental modalities, while radiography sales were below trend [9][10] - The Industrial segment saw strong demand, particularly in cargo inspection systems and non-destructive inspection applications [10][19] Market Data and Key Metrics Changes - Americas revenue increased by 2%, EMEA revenues were flat, and APAC revenues rose by 8%, primarily due to increased sales in China [23] - Sales in China increased by 25% year over year but declined by 11% compared to the previous quarter, representing 15% of total sales [24] Company Strategy and Development Direction - The company plans to mitigate tariff impacts by localizing manufacturing and pursuing operational strategies [12][21] - Continued investment in regional manufacturing operations and supply chain capabilities is a priority [21] - The company remains committed to innovation and cost leadership as part of its long-term growth strategy [21] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about demand trends across the business, despite headwinds from tariffs [20] - The company does not anticipate restructuring in its China business and has not seen order cancellations in its backlog [20] - Future sales impacts from tariffs are expected to be temporary, with recovery anticipated in Q4 [67][68] Other Important Information - The company plans to use restricted cash to repay outstanding convertible notes upon maturity in June [8][29] - Gross debt outstanding at the end of the quarter was $570 million, with a net debt leverage ratio of approximately 2.1 times adjusted EBITDA [29] Q&A Session Summary Question: Update on orders in China and customer purchasing behavior - Management noted that while some customers are pausing purchases, orders for essential tubes continue, and customers are lobbying for tariff exemptions [35][36][41] Question: Impact of the $25 million cargo inspection order on delivery capacity - Management confirmed that lead times for delivery are typically 120 to 180 days, with civil works affecting timelines [46][48] Question: Clarification on tariff impacts and revenue drivers in China - Management indicated that the majority of revenue in China comes from CT tubes, and customers are currently holding off on orders due to tariffs [55][61] Question: Trends outside of China and overall demand - Management reported broad-based strength in both medical and industrial segments, with positive order intake rates [78] Question: Updates on the India plant and tariff mitigation strategies - Management confirmed that activities in India are proceeding as planned, with efforts to accelerate operations to mitigate tariff impacts [86] Question: Passing on tariff costs to customers - Management stated that they plan to pass tariff costs directly to customers without markups, and discussions are ongoing [88][89] Question: Anticipated impact of potential near-term tariff relief - Management suggested that any near-term relief could lead to immediate recovery in sales, depending on timing [103] Question: Timeline for reaching margin accretiveness in the inspection business - Management indicated that it may take at least two years for the inspection business to become margin accretive [111]