Varex Imaging (Nasdaq: VREX) reported fiscal Q3 2026 revenue of $210.5 million, up 3.7% from $203.0 million a year earlier, while GAAP diluted EPS was $0.37 versus a loss of $2.15. Industrial growth offset lower Medical revenue, and the recovery of previously paid tariffs materially improved quarterly profitability. Operating cash flow was $21 million.
Core earnings data
Revenue increased modestly, but gross profit and adjusted operating income grew faster. The prior-year GAAP comparison was heavily affected by a $93.9 million goodwill impairment, making non-GAAP results more useful for evaluating the underlying year-over-year improvement.
Non-GAAP operating income rose 47.6% and non-GAAP diluted EPS increased to $0.31 from $0.13. However, approximately $10 million of the quarter’s gross profit came from the net effect of tariff refunds and expected customer reimbursements.
| Metric | Q3 FY2026 | Q3 FY2025 | YoY change |
|---|---|---|---|
| Revenue | $210.5 million | $203.0 million | +3.7% |
| GAAP gross profit / margin | $76.7 million / 36.4% | $67.5 million / 33.3% | +13.6% / +3.1 pp |
| Non-GAAP gross profit / margin | $77.2 million / 36.7% | $68.0 million / 33.5% | +13.5% / +3.2 pp |
| GAAP operating income (loss) / margin | $22.8 million / 10.8% | $(80.7) million / (39.8)% | Turned profitable |
| Non-GAAP operating income / margin | $24.5 million / 11.6% | $16.6 million / 8.2% | +47.6% / +3.4 pp |
| Net income (loss) attributable to Varex | $15.7 million | $(89.1) million | Turned profitable |
| GAAP diluted EPS | $0.37 | $(2.15) | Turned profitable |
| Non-GAAP diluted EPS | $0.31 | $0.13 | About +138% |
| Adjusted EBITDA | $33.1 million | $27.5 million | +20.4% |
| Operating cash flow | $21 million | Not provided | N/A |
Business and segment performance
Industrial produced all of the company’s reported revenue growth. Its $15.6 million increase more than offset an $8.1 million decline in Medical, resulting in a $7.5 million increase in consolidated revenue. Management cited continued expansion in cargo and vehicle inspection systems as an important part of the Industrial performance.
Both segments reported higher gross profit and wider calculated gross margins, although Varex did not disclose how the tariff benefit was allocated between them.
| Segment | Q3 FY2026 revenue | Q3 FY2025 revenue | YoY change | Q3 FY2026 gross profit / margin |
|---|---|---|---|---|
| Medical | $134.0 million | $142.1 million | -5.7% | $48.3 million / about 36.0% |
| Industrial | $76.5 million | $60.9 million | +25.6% | $28.4 million / about 37.1% |
Medical gross profit increased from $46.7 million despite lower revenue, with its calculated margin rising from about 32.9%. Industrial gross profit increased from $20.8 million, while its calculated margin expanded from about 34.2%.
Tariff recovery lifted profit while reimbursements reduced revenue
Varex received $17 million in refunds from U.S. Customs for IEEPA tariffs paid in prior periods. At the same time, it recorded a $7 million reduction to revenue for expected reimbursements of tariffs previously billed to customers. The combined effect increased third-quarter gross profit by approximately $10 million.
Before the customer-reimbursement adjustment, management said product sales were approximately $217 million, compared with reported revenue of $210.5 million. The tariff accounting therefore reduced reported revenue while increasing gross profit.
This benefit was material to the margin expansion. GAAP gross profit rose by $9.2 million year over year, slightly less than the approximately $10 million net tariff contribution. On a simple basis, excluding that contribution would have left gross profit at about $66.7 million, compared with $67.5 million in the prior-year quarter.
Profitability, cash flow, and the balance sheet
Non-GAAP operating expenses were $52.7 million, up from $51.4 million. As a result, the increase in non-GAAP operating income came primarily from higher gross profit rather than lower adjusted operating costs. Reported interest expense also declined to $5.8 million from $9.4 million.
Varex generated $21 million in operating cash flow, but its liquidity position declined from the end of fiscal 2025. Cash and marketable securities totaled $99.2 million at quarter-end, compared with $155.1 million at October 3, 2025. Management attributed the reduction mainly to the March debt redemption and refinancing and to additional working capital tied to inventory.
Inventory increased by $47.7 million to $347.1 million from $299.4 million. Current and long-term debt totaled $347.1 million, down from $367.5 million at the end of fiscal 2025.
Recent insider transactions
The supplied insider data show 8,483 shares purchased and 4,510 shares sold over the preceding six months, resulting in net purchases of 3,973 shares. The latest identified sale was completed by director Jay K. Kunkel; the data do not support drawing conclusions about insiders’ views of the company’s prospects.
| Date | Insider | Role | Transaction | Price | Value |
|---|---|---|---|---|---|
| March 20, 2026 | Jay K. Kunkel | Director | Sale | $11.14 per share | $50,241 |
Risks investors should monitor
- The tariff-related profit contribution may not recur. Approximately $10 million of gross profit came from refunds for costs incurred in prior periods, while future tariff changes and customer reimbursements could continue to affect both revenue and margins.
- Medical revenue declined. Medical remains the larger segment, and its 5.7% revenue contraction offset part of the Industrial segment’s growth.
- Inventory is absorbing liquidity. Inventory increased by $47.7 million from fiscal year-end while cash and marketable securities fell by $55.9 million, making inventory conversion and working-capital management important cash-flow considerations.
- The pending Teledyne transaction limits forward visibility. Varex canceled its earnings call and did not provide financial guidance because of the announced transaction. Completion remains subject to stockholder and regulatory approvals and other closing conditions.
- The results remain preliminary. Varex had not yet filed its Form 10-Q, and the unaudited figures could change before filing.
Summary
Varex’s fiscal third quarter featured clear strength in Industrial and cargo and vehicle inspection systems, while Medical revenue remained under pressure. Profitability improved, but the approximately $10 million net tariff benefit accounted for a substantial part of the gross-profit increase. The main issues to follow are whether Industrial can sustain its growth, whether Medical stabilizes, how margins perform without the tariff recovery, and whether higher inventory converts into cash as the Teledyne transaction proceeds.
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