On October 23, 2019 Varian Reported the Results for Fourth Quarter and Full Fiscal Year 2019 (Press release, Varian Medical Systems, OCT 23, 2019, View Source [SID1234542442]).
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Fourth Quarter 2019 Summary
Oncology Systems gross orders grew 7% in dollars and 7% in constant currency; North America gross orders grew 10%; 17 Ethos orders received in Europe and Australia
Total company revenues grew 10% in dollars, or 11% in constant currency, to $879 million
GAAP operating earnings declined 3% representing 14.7% of revenues; Non-GAAP operating earnings grew 13% representing 18.1% of revenues
GAAP net earnings per diluted share of $0.97; Non-GAAP net earnings per diluted share of $1.21
Tariff exclusions had a $21 million benefit to revenues, a $4 million benefit to cost of revenues and a $2 million expense triggered by receiving the exclusion, with a net benefit to Non-GAAP operating earnings of $23 million
Fiscal Year 2019 Summary
Oncology Systems gross orders grew 9% in dollars, or 11% in constant currency
Total company revenues grew 10% in dollars, or 12% in constant currency, to $3.2 billion
Organic revenues, which excludes the year over year impact of FX and growth from the acquisitions of CTSI, Endocare, Alicon and the Boston Scientific bead portfolio, grew 11%
GAAP operating earnings declined 7% representing 12.6% of revenues; Non-GAAP operating earnings grew 6% representing 16.8% of revenues
GAAP net earnings per diluted share of $3.38; Non-GAAP net earnings per diluted share of $4.63
New President of Interventional Oncology and New Chief Financial Officer
Effective December 1, 2019, Gary E. Bischoping, Jr., currently senior vice president, Finance & chief finance officer, will take on a new role as president, Interventional Oncology Solutions; J. Michael Bruff, currently senior vice president, Finance and Investor Relations, will succeed Bischoping as senior vice president, Finance & chief finance officer
Varian (NYSE: VAR) reported its fourth quarter and full fiscal year 2019 results and new appointments to key leadership roles.
"This is the second consecutive fiscal year we have reported double-digit revenue growth and 9 percent Oncology orders growth; our core business is strong and being powered by our continuous innovation cycle, and our acquisitions are delivering on growth expectations," said Dow Wilson, Chief Executive Officer of Varian. "While we have more work to do in sharpening our execution, our order and revenue growth has us looking forward to the next fiscal year. We have strong momentum exiting our fourth quarter and our long-term growth and value creation strategy is delivering for patients, clinicians and our shareholders."
Non-GAAP net earnings and Non-GAAP net earnings per diluted share are defined as GAAP net earnings and GAAP net earnings per diluted share adjusted to exclude the amortization of intangible assets and inventory step-up, acquisition-related expenses and in-process research and development, impairment charges, significant litigation charges or benefits and legal costs, gains and losses on equity investments, and significant non-recurring tax expense or benefit.
The company ended the quarter with $531 million in cash and cash equivalents and $412 million in debt. Net cash provided by operating activities was $118 million, up 9%. Cash Flows from operations were $372 million for the fiscal year, down 18% due to higher working capital to support product transition and growth. During the quarter, the company invested $32 million to repurchase 279,000 shares of common stock.
Oncology Systems Segment
Continued leadership in innovation and market execution drove strong worldwide growth in 2019. Oncology revenues totaled $820 million for the fourth quarter, up 8%, and $3.1 billion for the full year, up 11%. Operating earnings for the segment increased 3% for the quarter and were flat for the full year.
Gross orders for the fourth quarter were $1.1 billion, up 7%, and $3.4 billion for the full year, up 9%. Gross orders in the Americas were up 11% for the fourth quarter. In EMEA, gross orders in the quarter rose 10%, driven in part by orders for 13 TrueBeam systems as a part of the Tata Trusts framework agreement. In APAC, gross orders decreased 9% with a challenging quarter in Japan that was partially offset by growth in China and South East Asia and Korea.
Proton Solutions Segment
Proton Solutions revenues totaled $42 million for the fourth quarter, down 9%, and $144 million for the full year, down 3%. We took one new order at Ohio State University in the fourth quarter for a total of four proton orders in the full year.
Other Segment
Revenues for our Other segment were $17 million in the fourth quarter. The Other segment is comprised of our interventional oncology business, including cryoablation, embolic microspheres, and microwave ablation, as well as our cardiac radioablation assets.
Tariff Exclusion
The company received two tariff exclusions in the fourth quarter. The exclusions had a $21 million benefit to revenues, a $4 million benefit to cost of revenues and triggered a $2 million expense due to receiving the exclusion in China. The net benefit to operating earnings was $23 million, or $0.19 on a Non-GAAP earnings per share basis. The net benefit was mostly offset by an increase in tax rate driven by updates to the estimated impact of the Global Intangible Low Tax Income (GILTI) and Base Erosion and Anti-Abuse Tax (BEAT) provisions of the Tax Cuts and Jobs Act, and expenses related to annual discretionary contributions to US-based foundations that independently fund research and training. Additionally, operational spend in our core businesses came in above expectations although this higher spend was partially offset by early momentum in our recent acquisitions.
Incrementally, the company did not record approximately $11 million of potential tariff refund in the fourth quarter due to timing of recognition. We expect to recognize this benefit in fiscal year 2020.
Guidance for Full Fiscal Year 2020
Our guidance continues to consider the projected market growth and momentum of our products and solutions in the market.
Our fiscal year 2020 guidance considers the recently announced tariff exclusions from both China and the United States Trade Representative. Expecting to continue our strong operational performance, the company plans to invest in our growth initiatives including: driving core business growth in China, fueling growth of our recent acquisitions by building out global sales and distribution capacity, and touching more patients by ramping research and development investments in technology-enabled services, FLASH technology, our Noona patient reported outcome offering, and cloud-based software. Continuing to invest in meaningful innovation, go-to-market capabilities, and scalable infrastructure is aligned with our commitment to drive long-term growth for shareholders.
Organic growth excludes the year over year impact of FX and growth from the acquisitions of CTSI, Endocare, Alicon and the Boston Scientific bead portfolio.
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These values are presented on a non-GAAP basis. We have not provided a reconciliation of non-GAAP guidance measures to the corresponding GAAP measures on a forward-looking basis due to potential significant variability and limited visibility of the excluded items.
The guidance assumes a Non-GAAP effective tax rate of 22.5% to 23.5% and a weighted average diluted share count of 92 million. The guidance also assumes currency rates as of the beginning of fiscal year 2020, includes acquisitions announced to date, and includes the expected impact of all currently enacted tariffs.
Varian Appoints New President of Interventional Oncology; New Chief Financial Officer
Effective Dec. 1, 2019, Gary E. Bischoping, Jr., currently senior vice president, Finance & chief finance officer, will take on a new role as president, Interventional Oncology Solutions. J. Michael Bruff, currently senior vice president, Finance and Investor Relations, will succeed Bischoping as senior vice president, Finance & chief finance officer. Both executives will report directly to Dow Wilson, Varian CEO.
Earlier this year, we combined the recently acquired businesses of Endocare, Alicon and the microsphere and bland embolic bead assets from Boston Scientific to create our Interventional Oncology Solutions business under the Chief Growth Office, reporting to Kolleen Kennedy, president, Proton Solutions and chief growth officer. Based on the success of the integration and the robust early performance by our Interventional Oncology Solutions business, it is the right time to move this new business from the incubation stage under the Chief Growth Office, and it will now report directly to Bischoping in his new role as president of Interventional Oncology Solutions. Kennedy will continue in her role as president, Proton Solutions and chief growth officer, in which capacity she will focus on incubating emerging technologies, including FLASH therapy and cardiac radioablation, as well as leading our acquisition integration office.
"These moves will optimally position Varian for continued growth and are the result of our strong succession planning process," said Wilson. "During his tenure as CFO, Gary reset resource and capital allocation to invest in organic and inorganic opportunities focused on driving long-term growth and value creation. In addition, he led a successful initiative to build and strengthen the broader CFO organization’s capabilities. Gary will leverage his keen business expertise to further build Varian’s Interventional Oncology Solutions’ go-to-market organization, product portfolio and business management system to take advantage of the exciting opportunities we see in the interventional oncology space."
Mike Bruff joined Varian two years ago with extensive finance, accounting and operational experience. Since then, he has built a robust investor relations strategy and enhanced the company’s financial planning and business partnership functions. Prior to joining Varian, Bruff held a series of senior international and domestic roles, including business segment CFO, and roles in financial planning, accounting and internal audit at Dell Technologies. He also held leadership positions in corporate reporting at MCI Telecommunications and served as vice president, Services Accounting and Finance at CA, Inc. Bruff began his career in accounting and auditing at Deloitte and Touche in Washington, D.C.
"Mike understands the Varian processes and strategy, and he has the right background and experience to help navigate Varian through the next growth stages," said Wilson. "As Varian continues to evolve and grow, our deep bench of leadership capabilities across the organization will help propel our business to success in the near- and long-term."
Unless otherwise stated in this release, all growth rates are year-over-year, any references to orders are gross orders, and all periods referred to are fiscal periods. Please refer to "Discussion of Non-GAAP Financial Measures" below for a description of items excluded from expected non-GAAP earnings.
Investor Conference Call
Varian Medical Systems is scheduled to conduct its fourth quarter fiscal year 2019 conference call at 1:30 p.m. Pacific Time today. To access the live webcast or replay of the call, visit the Investor Relations page on our website at www.varian.com/investors. To access the call via telephone, dial 1-877-869-3847 from inside the U.S. or 1-201-689-8261 from outside the U.S. The replay can be accessed by dialing 1-877-660-6853 from inside the U.S. or 1-201-612-7415 from outside the U.S. and entering conference ID 13694509. The teleconference replay will be available through 5:00 p.m. Pacific Time, Friday, October 25, 2019.