An independent maker of X-ray imaging components, Varex Imaging supplies X-ray tubes, detectors, and software to equipment manufacturers for CT, mammography, and other diagnostic scans. Its industrial arm builds X-ray products for security screening and non-destructive testing, including its Linatron accelerators and full cargo-inspection systems, serving makers of medical scanners and inspectors of cargo and industrial parts.
IEEPA tariff refunds added $10.1M to Q3 profit, masking a roughly 300 bps underlying gross margin decline.
A one-time tariff refund masked a sharp underlying margin decline. rose 3.7% to $210.5 million and reported widened 3.2 points to 36.4%, but excluding a $10.1 million benefit from tariff refunds, gross margin would have been roughly 30.6%, down about 300 . The pending acquisition by Teledyne now dominates the outlook.
Key takeaways
Reported of 36.4% included a $10.1 million net benefit from tariff refunds; without this, gross margin would have been roughly 30.6%, down about 300 from 33.3% a year ago.
Industrial rose 25.6% to $76.5 million, while Medical segment revenue fell 5.7% to $134.0 million, continuing the divergence between the two businesses.
Operating expenses fell 63.6% to $53.9 million, entirely because the prior-year quarter included a $93.9 million non-cash charge in the Medical reporting unit.
Section summaries
Management's Discussion and Analysis
Q3 FY2026 revenue rose 3.7% to $210.5M, with IEEPA tariff refunds lifting gross margin to 36.4%.
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Total Q3 rose 3.7% to $210.5M, driven by a 25.6% increase in Industrial revenue to $76.5M, while Medical revenue fell 5.7% to $134.0M.
Reported Q3 was 36.4%, up from 33.3% a year ago, but excluding IEEPA tariff refunds and the customer reimbursement liability, gross margin would have been about 30.6%, down roughly 300 .
for the first nine months was $3.4 million; excluding $17.7 million of tariff refunds received, it would have been a use of roughly $14 million.
The company expects its pending acquisition by Teledyne Technologies to close in early calendar 2027, subject to regulatory approvals and stockholder adoption.
What changed
The Q2 FY2026 watch item on Medical stabilization was answered: reported margin rose to 36.4%, but the improvement was entirely from a one-time tariff refund; underlying margin fell roughly 300 as higher material costs persisted.
The Q2 FY2026 watch item on the Industrial 's growth rate was answered: growth reaccelerated to 25.6% from 1.2% in Q2, indicating security inspection demand has not fully normalized.
The Q2 FY2026 watch item on the $30.8 million build converting to sales remains open: for the nine months was only $3.4 million, and excluding tariff refunds it was a use of cash, suggesting inventory conversion has not yet relieved the cash drag.
The Q2 FY2026 watch item on China's MOFCOM investigations remains open: the risk factor disclosure notes the investigations are suspended but could be recommenced, with no resolution reported.
What to watch
Whether the underlying Medical —roughly 30.6% excluding one-time items—stabilizes or declines further as higher material costs and tariffs continue to pressure profitability.
The closing of the Teledyne acquisition, expected in early calendar 2027, and whether any regulatory or stockholder obstacles emerge given the $25.3 million termination fee.
Whether the Industrial 's 25.6% growth rate is sustained or represents a single-quarter spike, indicating the true run rate of security inspection demand.
Any update on China's paused MOFCOM investigations into medical X-ray tube imports, which could materially harm the roughly 10% of tied to those products if resumed.
IEEPA tariff refunds of about $17.0M reduced cost of revenues by $16.7M, and a $6.6M customer reimbursement liability reduced net revenues; together these items increased Q3 and by about $10.1M.
Q3 operating expenses fell 63.6% to $53.9M, mainly because the prior-year quarter included a $93.9M charge for the Medical reporting unit.
Cash provided by operating activities was $3.4M for the nine months; excluding $17.7M of IEEPA tariff refunds received, would have been a use of about $14M.
The company expects the pending acquisition by Teledyne Technologies to close in early calendar year 2027, subject to regulatory approvals and stockholder adoption.
Quantitative and Qualitative Disclosures About Market Risk
Company faces FX, credit, interest-rate, and commodity risks, with limited hedging and modest modeled earnings impacts.
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A strong U.S. Dollar can pressure non-U.S. customers to seek discounts, delay purchases, or shift to lower-cost alternatives.
The company may use FX forwards, options, and Euro-U.S. Dollar cross-currency swaps, typically hedging forecasted FX exposure for one to three months.
As of July 3, 2026, $350 million of borrowings were subject to floating interest rates, partially managed with interest rate swaps referencing .
No commodity derivative instruments were in place during the three months ended July 3, 2026.
Sensitivity analysis estimates a $15.7 million annual earnings impact from a 10% decrease in foreign exchange rates and a $3.5 million impact from a 10% increase in commodity prices.
A 100 decrease in interest rates on interest-bearing assets is estimated to reduce annual earnings by only $0.1 million.
We are subject to various claims, complaints, and legal actions in the normal course of business from time to time. The resolution of such claims, complaints, and legal actions is subject to significant uncertainty and may be expensive, time consuming and disruptive to our opera…
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We are subject to various claims, complaints, and legal actions in the normal course of business from time to time. The resolution of such claims, complaints, and legal actions is subject to significant uncertainty and may be expensive, time consuming and disruptive to our operations. At the present time, we do not believe we have any current or pending litigation for which the outcome could have a material adverse effect on our operations or financial position.
Q3 FY2026 risk factors center on the pending Teledyne acquisition and escalating tariff/trade exposure, especially China.
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The proposed acquisition by Teledyne, announced August 10, 2026 and expected to close in early calendar 2027, creates disruption risk to customers, employees, and management, with a $25.3 million if the deal fails in certain circumstances.
Merger completion depends on stockholder approval, U.S. and foreign regulatory clearances including China, and no , with a termination deadline of May 10, 2027 extendable to August 27, 2027.
Tariffs and trade policies, particularly U.S.-China measures, have already lowered gross margins and profitability in fiscal 2025 and the first half of fiscal 2026, and the suspended MOFCOM Investigations into U.S. and India CT tube imports could be recommenced.
Customer concentration is high: one customer was 15% of in the quarter, and the ten largest customers were about 53% of revenue, while 71% of revenue came from outside the U.S.
The company recorded a $93.9 million in the Medical reporting unit in the prior-year quarter and carries $197.6 million of as of July 3, 2026, with further impairments possible.
The imposes a minimum of 1.20:1.00 and a maximum stepping down from 4.25:1.00 to 3.75:1.00, with $350.7 million of principal debt outstanding.