Varex Imaging Stock

Varex Imaging Corporation (Varex) operates as a innovator, designer and manufacturer of X-ray imaging components, including X-ray tubes, flat panel and photon counting detectors and accessories, linear accelerators, image software processing solutions and stand-alone X-ray based systems in select application areas.

The company's components are used in medical diagnostic imaging, security inspection systems, and industrial quality inspection systems, as well as for analysis and measurement applications in industrial manufacturing applications. Global OEMs incorporate the company's X-ray imaging components into their systems to detect, diagnose, protect, irradiate and inspect. The company has approximately 2,400 full-time equivalent employees, located at engineering, manufacturing and service center sites in North America, Europe, and Asia.

The company's products are sold in three geographic regions: the Americas, EMEA, and APAC. The Americas includes North America (primarily the United States) and Latin America. EMEA includes Europe, the Middle East, India and Africa. APAC includes Asia (other than India) and Australia. Revenues by region are based on the known final destination of products sold. The company's focus on innovation and product performance along with strong and long-term customer relationships allows it to collaborate with its customers to bring industry-leading products to the X-ray imaging market.

Operating Segments and Products

The company operates through two segments: Medical and Industrial. The segments align the company's products and service offerings with customer use in medical and industrial markets.

Medical

This segment designs, manufactures, sells and services X-ray imaging components, including X-ray tubes, flat panel and photon counting detectors and accessories, high voltage connectors, image-processing software and workstations, 3D reconstruction software, computer-aided diagnostic software, collimators, automatic exposure control devices, generators, and coolers. These components are used in a range of medical imaging applications, including CT, mammography, oncology, cardiac, surgery, dental, fluoroscopy, and other diagnostic radiography uses.

The company's X-ray imaging components are primarily sold to original equipment manufacturer (OEM) customers. These OEM customers then design-in the company's products to their X-ray imaging systems for a variety of medical modalities. A substantial majority of medical X-ray imaging OEMs globally are the company's customers, and many of these have been its customers for over 35 years. The company works very closely with its customers to create custom built components for their systems based on technology platforms that it has developed. Some of the company's products are also included in product registrations for its customers' equipment that require regulatory approval to change. In addition to sales to OEM customers, the company sells its products to independent service companies and distributors, as well as directly to end-users for replacement purposes.

The company is one of the largest independent global manufacturers of X-ray imaging components, and each year, it produces over 27,000 X-ray tubes and 20,000 X-ray detectors. The company estimates that its world-wide installed base of products includes more than 160,000 X-ray tubes, 170,000 X-ray detectors, 600,000 connect and control components and 16,500 software instances. Replacement and service of the company's existing installed base makes up a significant portion of its revenue. Many of the company's components need to be replaced regularly depending upon usage and other factors. For example, CT X-ray tubes generally need to be replaced every 2 to 6 years, in comparison to a general radiography tube which can last up to 10 years, depending on utilization. In China, the replacement cycle for CT X-ray tubes can be as frequent as every 10 to 20 months due to high utilization of imaging equipment. Other products, such as X-ray detectors have a useful life of as much as 7 years or more, but can require more frequent service and repairs during their useful life. In addition, the company's detector customers often elect to upgrade products to newer technology before the end of a product's useful life. X-ray imaging software is a relatively small part of the company's business and includes maintenance revenue for software licenses.

In China, the government is broadening the availability of healthcare services. As a result, the number of diagnostic X-ray imaging systems, including CT, has grown significantly. The company is developing CT X-ray tubes and related subsystems for Chinese OEMs as they introduce new systems in China.

Industrial

This segment designs, develops, manufactures, sells and services X-ray imaging products for use in a number of markets, including security applications for cargo screening at ports and borders, baggage screening at airports, and nondestructive testing, irradiation, and inspection applications used in a number of other vertical markets. The company's industrial products include Linatron X-ray linear accelerators, X-ray tubes, flat panel and photon counting detectors, computed radiography scanners, high voltage connectors, and coolers. In addition, the company licenses proprietary image-processing and detection software designed to work with other Varex products to provide packaged sub-assembly solutions to its industrial customers. The company's Industrial business benefits from the research and development investment and manufacturing economies of scale on the Medical side of its business, as it continues to find new applications for its technology.

The security market primarily consists of cargo security for the screening of trucks, trains, and cargo containers at ports and borders, as well as airport security for checked baggage and palletized cargo. The end customers for border protection systems are typically government agencies, many of which are in oil-based economies and war zones where there can be significant variation in buying patterns.

Non-destructive testing and inspection verticals utilize X-ray imaging to scan items for inspection of manufacturing defects and product integrity in a wide range of industries, including aerospace, automotive, electronics, oil and gas, food packaging, metal castings and additive manufacturing. In addition, new applications for X-ray sources are being developed, such as sterilization of food and its packaging. The company provides X-ray sources, digital detectors, high voltage connectors and image processing software to OEM customers, system integrators, and manufacturers in a variety of these verticals. The company is actively pursuing new potential applications for its products.

Customers

The company's customers are primarily large OEMs. Its top five customers, measured by revenue, are Canon Medical Systems Corporation (Canon), United Imaging Healthcare, General Electric Company, Siemens Healthineers AG, and Elekta AB, which collectively accounted for approximately 39% of total revenue for the year ended September 29, 2023. The company's largest customer, Canon, accounted for approximately 17% of its total revenue for the year ended September 29, 2023.

Competition

Medical

The company competes with some OEM customers, such as Canon, Philips Healthcare and other companies who sell X-ray tubes to smaller OEMs and other manufacturers, such as Industria Applicazioni Elettroniche S.p.A, as well as emerging X-ray tube manufacturers in China.

Industrial

The company competes against technologies from Nuctech Company Limited, Siemens AG, ETM Electromatic Inc., and PMB Alcen, whose X-ray sources are used in applications that include cargo and container scanning, border security, aerospace applications, castings, and pressure vessel inspections.

Customer Services and Support

The company provides technical advice and consultation to major OEM customers from its U.S. offices in Utah, California, Nevada, New York, Texas, and Illinois; and internationally in the Philippines, China, the Netherlands, Germany, France, Sweden, Switzerland, Finland, the United Kingdom, Italy, and Japan.

Government Regulation

In the United States, as a manufacturer and seller of medical devices and devices emitting radiation or utilizing radioactive by-product material, the company and some of its suppliers and distributors are subject to extensive regulation by federal governmental authorities, such as the U.S. Food and Drug Administration (the FDA), the Nuclear Regulatory Commission (NRC), and state and local regulatory agencies, to ensure the devices are safe and effective and comply with laws governing products that emit, produce, or control radiation. Similar international regulations apply overseas. These regulations, which include the U.S. Food, Drug and Cosmetic Act (the FDC Act) and regulations promulgated by the FDA, govern, among other things, the design, development, testing, manufacturing, packaging, labeling, distribution, import/export, sale and marketing and disposal of medical devices, post market surveillance, and reporting of serious injuries and death, repairs, replacements, recalls, and other matters relating to medical devices, radiation emitting devices, and devices utilizing radioactive by-product material.

The company's manufacturing operations for medical devices, and those of its third-party manufacturers, are required to comply with the FDA's Quality System Regulation (QSR), which addresses a company's responsibility for product design, testing, and manufacturing quality assurance, and the maintenance of records and documentation.

The FDA and the Federal Trade Commission (the FTC) regulate advertising and promotion of the company's products to ensure that the claims it makes are consistent with its regulatory clearances, that the company has adequate and reasonable scientific data to substantiate its claims and that its promotional labeling and advertising is neither false nor misleading.

The company is required to affix the CE mark to its products to sell them in member countries of the European Union (EU). The CE mark is an international symbol of adherence to certain essential principles of safety and effectiveness, which once affixed enables a product to be sold in member countries of the European Economic Area (EEA). The CE mark is also recognized in many countries outside the EU and can assist in the clearance process. To receive permission to affix the CE mark to its medical device products, the company must obtain approvals and Quality System certification, e.g., ISO 13485, through an accredited Notified Body and must otherwise have a quality management system that complies with the EU Medical Device Directive, which was superseded by the EU MDR-Medical Device Regulations in May 2021.

It is also important that the company's products comply with electrical safety and environmental standards, such as those of Underwriters Laboratories (UL), the Canadian Standards Association (CSA), and the International Electrotechnical Commission (IEC).

The company is subject to the U.S. Foreign Corrupt Practices Act and anti-corruption laws, and similar laws in foreign countries, such as the U.K. Bribery Act of 2010 and the law 'On the Fundamentals of Health Protection in the Russian Federation'.

Intellectual Property

As of September 29, 2023, the company owned approximately 250 patents issued in the United States, approximately 380 patents issued throughout the rest of the world and have approximately 150 patent applications pending with various patent agencies worldwide. The patents issued expire between 2023 and 2042.

In conjunction with the January 2017 separation from Varian Medical Systems, Inc. (Varian), the company entered into an Intellectual Property Matters Agreement with Varian, pursuant to which, among other things, the company each granted the other licenses to use certain intellectual property. Varian was subsequently acquired by Siemens in April of 2021.

History

Varex Imaging Corporation was founded in 2016. The company was incorporated in 2016.