Varian Medical Systems Inc
Q4 2019 Earnings Call Transcript

Published: 24 Oct 2019

[Operator:]

Greetings and welcome to the Varian Fourth Quarter Full Year 2019 Earnings Results Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator instructions]. As a reminder, this conference is being recorded.It is now my pleasure to introduce your host J. Michael Bruff, Senior Vice President of Investor Relations for Varian. Thank you Mr. Bruff, you may begin.

[Michael Bruff:]

Thank you, operator. Good afternoon, everyone and welcome to Varian’s fiscal fourth quarter and full year 2019 earnings call. Joining me today on the call are Varian's President and Chief Executive Officer, Dow Wilson; and Chief Financial Officer, Gary Bischoping. Dow will share his thoughts on our results and our long-term strategy, and Gary will cover our operating and financial results in more detail. After our prepared remarks, we will be happy to take your questions.On the Varian Investor Relations website, you can find our fiscal fourth quarter and full year 2019 press release and earnings presentation, which are intended to provide additional perspective and details. A webcast of this call and any accompanying non-GAAP reconciliations are available on our website at www.varian.com/investorrs. Unless otherwise stated, all financial results discussed are non-GAAP. All references to EPS are to net earnings per diluted share. All growth rates are year-over-year, and any references to our orders are gross orders. All periods referred to are fiscal periods unless otherwise stated.During this call, we will be making forward-looking statements, which are predictions, projections or other statements about future events. These statements are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could differ materially because of factors discussed in today's earnings release, this conference call and our SEC filings. We do not undertake any obligation to update any forward-looking statement.And with that, I'm pleased to turn it over to Dow for his comments.

[Dow Wilson:]

Thanks, Mike and thank you everyone for joining us. Today, I'll share the key milestones we achieved this past quarter and year, and how they have contributed to our long-term growth and value creation strategy, as well as provide our outlook for the upcoming fiscal year.Looking back, this is the second consecutive fiscal year Varian has reported double-digit revenue growth and 9% oncology orders growth. Our core business is strong than ever and being powered by our continuous innovation. As one proof point, our North American market delivered a strong growth quarter with 10% orders growth and trailing 12-months growth of 8% in the face of uncertainty around the alternative payment model. We were able to successfully manage through a tariff environment, executing and mitigating actions throughout the year and improving operating earnings as a percentage of revenues from 16.2% in the first quarter to 18.1% in the fourth quarter. We have strong momentum, executing our fourth quarter in our core businesses and our acquisitions are delivering on growth expectations. Our strategy is delivering value to patients, clinicians and our shareholders.Now let me touch on our fourth quarter and full year performance. Total revenues of $879 million increased 10%. This was driven by robust oncology revenue growth of 8%. On a full year basis, total revenues of $3.2 billion grew 10%. Operating earnings of $159 million or 18.1% of revenues grew 13%. For the full year, operating earnings of $542 million or 16.8% of revenues grew 6%.GAAP earnings per share of $0.97 declined 23%, while non-GAAP EPS of $1.21 grew 4%. For the full year, GAAP EPS of $3.38 grew 109% and non-GAAP EPS of $4.63 grew 5%.Cash flows from operations were $118 million, up 9%. For the full year, cash flows from operations were $372 million, down 18%. In the fourth quarter, we are pleased to receive tariff exclusions from both the United States Trade Representative or USTR for component sourced from China and from China for tariffs imposed on medical linear accelerators. Gary will discuss the net impact of these exclusions in more detail.Our progress towards becoming the global leader in multidisciplinary cancer care solutions is powered by our focus on executing on our four strategic enablers for customers and their patient

[Gary Bischoping:]

Thanks, Dow, and hello, everyone. Our fourth strategic enabler of improving financial operational and capital efficiency requires maintaining a balance between growth, profitability and liquidity over time.Let me start with growth. Companywide revenues were $879 million in the fourth quarter, up 10% or 11% in constant currency. Full year revenues of $3.2 billion were up 10% or 12% in constant currency. Organic revenues which excludes the year-over-year impact of FX and growth from the acquisitions of CTSI, Endocare, Alicon and Boston Scientific B portfolio grew 11%.In oncology, revenues were $820 million up 8% or 9% in constant currency driven by robust growth across hardware, software and services. CTSI contributed $17 million revenues in the quarter. For the full year oncology revenues grew 11% or 13% in constant currency. Orders were $1.1 billion, up 7% year-on-year and in constant currency. For the full year orders grew 9% or 11% in constant currency to $3.4 billion. We ended the quarter with $3.1 billion in backlog, up 7%.Our orders mix for the full year was approximately 48% in the Americas, 33% in EMEIA, and 19% in APAC and less than 1% from CTSI based on timing of acquisitions close in June 2019.Taking a closer look at our oncology business results. In the Americas, revenues grew 2% in the quarter and 7% for the full year. Revenues in North America grew 3% in the quarter and 7% for the full year. Orders of $559 million grew 11% in the quarter, driven by strength across our portfolio, which is ideally positioned for a value-based care environment. The full year orders in the Americas grew 7% with 8% growth in North America.In the quarter, we received a multiyear commitment for 10 TrueBeam systems, in-associate software from the University of Rochester. Approximately $11 million was booked in the fourth quarter. Also we received $25 million order from 21st Century Oncology for replacement of accelerators across their network.In our Europe, Middle East, India and Africa geography, revenues grew 6% in the quarter and 13% for the year. Orders were $396 million in the quarter, increasing 10%. For the full year, orders grew 12%. Robust growth in EMEIA was driven in part by orders for 13 TrueBeam systems as part of the Tata Trusts Framework Agreement as well as regional performance in Southeast Europe and CTSI services.Asia Pacific revenues grew 30% in the quarter and 14% for the full year. Orders were $182 million in the quarter, decreasing 9% for the full year, orders grew 9%. The challenging quarter in Japan was partially offset by growth in China, Southeast Asia and Korea. In China we remain the market leaders and continue to see strong demand for our entire portfolio of solutions, including 10 Halcyon orders in the fourth quarter. Our Southeast Asia and Korea geography continue to be a growth driver. We've received orders for four VitalBeam systems in Korea and sold the first HyperArc system in Singapore and Hong Kong during the fourth quarter.Our Proton Solutions business posted revenues of $42 million in the quarter, a decline of 9% compared with last year. For the full year, revenues were $144 million, down 3%.Turning to profitability, total company gross margin of 45.2% of revenues increased 270 basis points, driven by our oncology business, where we continue to see solid revenue growth across the portfolio. For the full year, gross margin rate decreased 70 basis points to 43.1%. Oncology fourth quarter gross margin of 45.5% of revenues increased 160 basis points driven by advantage from tariff exclusion, increased Halcyon and software volume and increased services revenues from installed base growth and the CTSI acquisition.Full year oncology gross margin decreased by 110 basis points to 44.4%, driven by tariffs impact, regional shift to emerging markets and higher software contract costs due to increased upgrade activity in fiscal 2019.Looking at Proton Solutions, fourth quarter gross margin dollars were $11 million, up $2 million. Full year gross margin dollars were down 13%, primarily driven by timing of orders. Investments will continue to be a key driver of our long-term growth and value creation strategy. In the quarter, R&D investment of $65 million was up 9% at 7.4% of revenues. R&D expenses for the full year were $248 million, up 6% and representing 7% of revenues. R&D spend this year was driven by investments in software, adaptive radiotherapy/and other strategic innovation programs.In the quarter SG&A expenses were $173 million or 19.6% of revenues, up 220 basis points as a percent of revenues, primarily driven by recent acquisitions, expenses triggered by the tariff benefit and the September 2019 ASTRO event, which did not occur in the fourth quarter of fiscal year 2018.For the full year SG&A expenses were $601 million or 18.6% of revenues, up 40 basis points as a percent of revenues. The increase was primarily driven by recent acquisitions and having to ASTRO events in one fiscal year. Company operating earnings were $159 million or 18.1% of revenues, increasing 13%. For the full year, operating earnings were $542 million or 16.8% of revenues, increased 6%.Turning to taxes. For the full year, our GAAP effective tax rate was 29.3% and our non-GAAP effective tax rate was 22.9%. The non-GAAP tax rate was higher than anticipated in our original guidance and primarily driven by updates to the estimated impact of the Global Intangible Low Tax Income or GILTI and Base Erosion and Anti-Abuse Tax or BEAT provisions of the Tax Cuts and Jobs Act. The negative impact to earnings per share related to the update in tax rate was approximately $0.08.GAAP EPS was $0.97 and non-GAAP EPS was $1.21 with related diluted share count of 91.7 million shares in the quarter. We are pleased to note that our acquisitions performed above our business case expectations in the fourth quarter. For the full year, GAAP EPS was $3.38, and non-GAAP EPS was $4.63, up 5%.As Dow mentioned, we are very pleased to receive 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 the increase in tax rate previously mentioned and expenses related to annual discretionary contributions to U.S. 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 2020.Turning to the balance sheet and liquidity, we ended the year with cash and cash equivalents of $531 million and $412 million in debt. Cash flows from operations were $372 million for the fiscal year, down 18% due to higher working capital to support product transitions and growth. Oncology DSO was 109 days in the year, 7 days higher than last year due to strong revenue momentum.In addition to R&D other investments in the quarter included $14 million in CapEx and $32 million to repurchase shares of our stock. As of the end of the year, we had 2.2 million shares remaining under our existing share repurchase authorization.I will now turn it back over to Dow, who will discuss our fiscal year 2020 annual guidance.

[Dow Wilson:]

Thanks, Gary. Before turning to guidance, I'd like to share with you the changes announced regarding our leadership team. 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 Officer putting to Kolleen Kennedy, President Proton Solutions and Chief Growth Officer. Based on the success of the integration and the robust performance by our Interventional Oncology Solutions business, it’s a right time to move this new business from the incubation stage under the Chief Growth Office. Effective December 31, 2019, Gary Bischoping, currently Senior Vice President Finance and Chief Finance Officer, will take down a new role as President Interventional Oncology Solutions. Mike Bruff, currently, Senior Vice President of Finance and Investor Relations will succeed Gary as Senior Vice President Finance and Chief Financial Officer. Both executives will report directly to me. Kolleen will continue in the 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. As Varian continues to evolve and grow, our deep bench of leadership capabilities across the organization will help propel our business to success in both the near and long-term.And now, looking forward to 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 U.S. trade representative. Expecting to continue our strong operational performance, the company plans to invest in our growth initiatives, including

[Operator:]

[Operator Instructions]. Our first question is from Matt Taylor, UBS. Please proceed with your question.

[Matt Taylor:]

So, I think the question is probably most top of mind for folks is, you had very strong order here in the quarter where I think a lot of investors expected that there to could be some uncertainty in the U.S. Can you talk a little bit about the dynamics that drove that order growth to be so strong especially in North America?

[Dow Wilson:]

Yes, I think there's a number of factors here, Matt. First of all, we're very pleased, as you heard on the call our 12 months North America oncology orders grew from 6% to 8% on very strong growth in the quarter. A number of factors. One, I think everybody kind of overestimates the impact of these things a little bit in the short-term. As we said last quarter, we thought we had a very good funnel coming into the quarter. Second, I'd say overall, our portfolio is very well positioned for a value based market. So I think we've got the best portfolio, room for expensive niche products is not exactly the best position. We saw some Ethos volume and that's global, that's not U.S. impact, I want to make that point. We saw the good U.S. volume despite not having Ethos yet to sell, we don't have 510(k) approval should see it towards the late end of this year, maybe early in January and that's good. So funnel remains strong, product portfolio is great and I think the portfolio is very well lined up for the market and maybe the last thing I would add is you heard that really outstanding results of our software business both in the quarter and the year. That is very much at this point developed market growth. We are starting to see, you heard me mention the nice order in China, it’s the biggest software order we've ever received in China. So we've localized that product. Yes, I mean speaking Chinese is one thing but getting the right workflow and the right interfaces and responding to the customer needs in China is a big deal as well and I really like what the team has done there. So think that product is positioned for continued growth both in developed and developing markets.

[Matt Taylor:]

Maybe, if I can just ask one follow up on the orders. It was nice to see Ethos pretty strong out of the gate there. Can you talk about the funnel for that, any reception or feedback that you got when you launched it at ASTRO and how we should expect that to resonate and take off in this kind of environment?

[Dow Wilson:]

The ASTRO launch was terrific. We just launched it as I said in the call middle of September. So we kind of had really only five or six weeks to fill it in the quarter. We're not selling it yet in China or the U.S. I’d just say excitement across both academic and community segments is very high, so we're hitting both markets. We had at ASTRO 450 customers went through the Ethos station, our team is still in recovery as we had really great participation especially by the -- by our first couple of sites, Herlev Hospital treated the first sites. They're now doing 20, 25 patients a day and a mix of both adaptive patients and non-adaptive patients. But it's an ideal device for adaptation in this APM environment. So I think that's the momentum that we're looking to out of the product in the U.S. once we get 510(k) approval.

[Operator:]

Our next question is from Jason Bednar, Baird. Please proceed with your question.

[Jason Bednar:]

I just wanted to offer first congrats to Gary and Mike on their new upcoming roles here. Then, I guess starting here first maybe to follow up to Matt’s question there on Ethos, just fully acknowledging, understanding where maybe a little over a month into the launch. But as you kind of contemplate the potential I mean do you see this as may be following the Halcyon or the TrueBeam adoption curve more closely or somewhere in between, just as you think out not just over the next couple quarters but as you look out over the next few years, I mean where does that slot in from an adoption curve standpoint?

[Dow Wilson:]

I wish I could tell you, Jason, because they keep surprising me. When you heard we say in the call, it started with TrueBeam. And we had a record quarter on TrueBeam and then on top of TrueBeam, we had a record quarter on Halcyon, and now on top of Halcyon, we're launching Ethos. So, we're pretty bullish about it. We got these 11 orders plus 6 upgrades. So, it’s going to disrupt the adaptive niche, but I think it's focused on a segment of the market where it's really meaningful, and I think we will start to see penetration into that community hospital market. So, for us, we're really selling the portfolio and I think Ethos is going to democratize, a really important technology and make available in a standard treatment slot.And then of course, when you add it all up, at the end of the day, what we really like and I think you're starting to see that, I mean we had 5% growth on the total installed base number of sockets. So, well over 8,500 sockets, 429 incremental new sockets on the year. So, we're just not replacing stuff, we're getting new range of sockets, growing the pie, and that's for us what matters most, which is why we're disclosing that number to investors, so they can watch what happens to our overall installed base growth.

[Jason Bednar:]

Yes. That's helpful. And then just to brief follow-up, I mean as we look at APAC order number in the quarter and look out over the next couple of quarters here, in the first half of fiscal '20, is that something that we should be mindful of, maybe do we still have some tough Japanese order comps that we will have go through in the next couple quarters or do you see this is more of a temporary down tick in the order growth for that region?

[Dow Wilson:]

I’ll just keep you focused on a trailing 12. Our trailing 12 overall Asia has been 11% constant currency growth. Yes, we didn't have that greater quarter in Japan, offset largely by pretty strong performance in our Southeast Asia, Korea market and then China was very solid for us on the quarter. As I said in the remarks, we are starting to see some pull down of the China quota. So, that’s going to be upside on the market. But especially market like Japan, it’s lumpy. We had better quarters there recently, so that's good news as opposed to kind of last year where we had several -- not so great quarters in a row, but trailing 12, 6 in Japan, very strong double-digit growth in China, and starting to see some of that China market, some of that go-to-market pull down.From a share standpoint in Japan and China, we remain in very solid position. So, at least from a competitiveness point of view, that's hanging in there just fine, even growing.

[Operator:]

Our next question is from Anthony Petrone, Jefferies. Please proceed with your question.

[Anthony Petrone:]

I'm actually Dow going to start one just with guidance. Guidance was ahead of our expectation both in reported revenue and constant currency growth and there’s a number of moving parts in there. So as you look at fiscal 2020, how much of the guidance reflects; one, the tariff reversal both on the top and bottom-line; and then how much is from the interventional oncology rollout? And then I have a couple of follow ups.

[Dow Wilson:]

It's a good question. Anthony we will walk you through it in detail. Let me kind of start with and I'll turn over to Gary for the details. We're actually very pleased with the orders growth so the P&L starts there and the orders have been terrific as you know and I'd say they're broad based. So we're especially seeing them in accretive parts of portfolio Halcyon, software, services et cetera. The organic part of the business is booming. So when you look at the year-over-year from an operating earning points of view, if we start fiscal year '19 at $542 million, we think there's almost $100 million of year-over-year organic investment. And kind of with that as a introduction, let me turn it over to Gary to give you a complete walk on the earnings guidance.

[Gary Bischoping:]

Yes, what I would say just to clarify that point, from a year-over-year basis there is over $100 million of organic operating margin accretion, right?

[Dow Wilson:]

Tariffs, 100 million reported.

[Gary Bischoping:]

Tariffs ex-acquisitions, right. And so to Dow's point that's revenue growth and inside of that revenue growth what you're seeing on the margin line is, you’re seeing that software growth now growing faster than the hardware right and that's pulling through more margin dollars. You're seeing the installed base growth now pulling through the services part of the P&L whish is also at a higher margin. As we referenced on the call we've got Halcyon now banging through the P&L, 116 of them installed out there in the field. You're now starting to see the accretion from that in the margin. So that strong growth coupled with margin expansion out of the core business in addition to the fact that on the VPS side, on the proton side, we are now seeing the services business grow as we get more rooms installed in clinic and get to that one year period. So you’re seeing the portfolio unveil itself in the core and really now you can see you with the tariffs kind of out of the noise you can see the operating performance of the company. And with that we also have the tariffs impact as you mentioned. So all of that stacks up to what we think is the right place to guide and deliver in the P&L. All -- we're doing all that Anthony delivering that guidance while making significant investments in ongoing innovation to maintain the growth in the company over the medium to long-term. Building out the acquisitions, further investments in China to grow, right, our ability to drive more out of the R&D portfolio that Chris is running and operating. So to summarize we think this is pragmatic guidance, the growth is being driven by the core as well as the acquisitions that are off to a good start, and we have a significant investment on the acquisition side as well.

[Anthony Petrone:]

And just two quick follow ups from me. One on just the CMS oncology bundle. We're I guess about a week or so a little bit more away from the final rule. I mean do you guys have any sort of opinions or expectations into the final rule? And then just Dow, you mentioned China order flow for next year that I guess I can think your comment was even the back -- the last quarter you could see some contribution but as we look in the fiscal '20 what is the expectation for order flow in China specifically off of the Class A and B licenses. Thanks again.

[Dow Wilson:]

Yes, on the reimbursements side, I'd say, we don't really have anything to update you on. I think we're pretty thorough. There is some posted comments on our investor website on kind of where we see things. So, I don't know if there is much of an update. Obviously, we were very pleased with the performance of the business and the portfolio and especially in the U.S. this quarter, it shows you the strength of the hardware and software businesses together. New acquisitions are also hitting in both U.S. and non-U.S. markets as well. I'd say China, we don't guide to China orders number. We do have tougher comps in that market because we have had very strong double-digit growth over 2019. I think we'll remain very strong there. So, funnel looks good. We are excited about Halcyon 2.0. So, we have got some good Halcyon 1.0 momentum in China and we should get that regulatory approval coming soon. And then of course we will have Ethos launch mid-year, next year, may be late in the year, but the -- depending on how fast we can get that through. But we -- it remains our second largest market, very important market to us. We continue to invest in the team, have an outstanding team in China that's really executing and we like what we see.

[Operator:]

Our next question is from Tycho Peterson, JPMorgan Chase and Company. Please proceed with your question.

[Tycho Peterson:]

I want to start with the kind of interventional move here. And do you have kind of critical mass in the portfolio now or how do you think about opportunities to kind of further build that out through M&A? And can you actually quantify what the revenue contribution is in guidance? I didn't hear that in the answer to Anthony’s question.

[Dow Wilson:]

Yes, sure. Gary, go forward.

[Gary Bischoping:]

Yes. I think we have got a good start to the portfolio as well. I would say Tycho with what we've acquired we're working our way to delivering on the go-to-market investment in interventional oncology to be able to represent that portfolio and specifically the embolic bead business that we just got from our Boston Scientific asset acquisition.One of the biggest things that we see going forward from opportunity perspective is software, that really enable us to differentiate the portfolio going forward, coupled with what we've acquired and we'll continue. That’s part of the investments that I outlined in my earlier comments.So, looking forward to getting in there and driving that portfolio over time and it’s something where IOs probably were, RT was kind of two decades ago and we're positioned well to go drive that marketplace.

[Dow Wilson:]

Yes, in terms of some of the investments we're making there, I think Gary alluded to it, but the Alicon product is largely a Chinese product. It's looking for global distribution. The Endocare product is largely a U.S. product that's looking for global distribution, and Boston Scientific product has some global distribution that we've got it now, since it was an asset purchase we got to build that capability. So, we really like the growth dynamic in the business, the margin rates are very, very good and we've got some investments to make in 2020 from kind of a selling and administrative point of view, building infrastructure and get a lot of feet on the street to sell the product and that will be our big focus. We think that's a really good grower for us looking forward.

[Gary Bischoping:]

Yes, Tycho on your guidance question, we did outline that organic -- in our guidance that we gave organic year-on-year. So that's excluding currency and excluding the acquisitions, organic year-on-year revenue growth to 7% to 9%. So you can see in there kind of 200 to 300 basis points of a combined net impact from currency and the acquisitions.

[Tycho Peterson:]

Okay, and then on the tariff dynamic, why is it only 11 million in the refund instead of the 48 million?

[Gary Bischoping:]

Yes, let me walk you through that and clarify kind of the whole walk from where we were because -- and again, I'm going to talk about gross tariff impact, right. The gross tariff impact that we talked about at the outset was $55 million. Through our operational actions, as well as some of the tariff remaining, there is about $29 million that would be available for a refund, right. Now just remember the things we did on the supply chain side, things we did around the legal entity structure, we avoided about $13 million of tariffs and then there's about $12 million of remaining tariffs. So again $55 million down to $29 million, that's the gross amount of tariff available for refund.Now, I'd also remind everybody that we had some tariffs impact in Q4 of fiscal year '18. So you take that $29 million you add another $4 million from the available refund from fiscal year '18, now you get a total available refund pool, if you will, of $33 million. Of that $33 million what we did with our import-export agencies that we work through to import our products into China, we received some documentation from them that gave us comfort around booking that from an accounting perspective. However, there were some -- it's just a matter of timing of when we got the approval. There were some we didn't get that documentation from. So we did not recognize about $11 million of that $33 million in fiscal year '19. So that gets you down to $22 million. Just to be fully transparent, the last piece that we -- is running through in the P&L in Q4 from this, is that we received the exclusion on the 17th of September, that gives us a couple of weeks to shift stuff in, to be transparent about versus our guidance, we had $4 million, right, of avoidance relative to our guidance because we actually didn't incur the tariff post the exclusion date. So that gives you up to a benefit in the P&L as outlined of $25 million and then as we worked through the process we used advisors to help us work through the China tariff exclusion process and that costs us $2 million. So $25 million and that's down to $23 million inside of fiscal year '19 specifically in the fourth quarter and then that $11 million I alluded to that we did not have the actual documentation for to post that in FY '19, we'll get that in fiscal year '20. Does that clarify Tycho?

[Tycho Peterson:]

Yes. That's helpful. And then last one for Dow on the bundle, is your base case expectation for proton to be included or excluded from the APM in the event that there is no exemption, what do you expect the impact on orders revenue and profitability for proton to be?

[Dow Wilson:]

All I can really tell you is the proposed rule was pretty dramatic for proton therapy. There has been a chorus from the community. We're hopeful that it's changed. And at this point, your guess is as good as mine.

[Operator:]

[Operator Instructions]. There are no further questions at this time and I will now turn the call back over to Dow Wilson for closing remarks.

[Dow Wilson:]

Thank you, operator. In closing, we're excited to finish the year with very solid performance and have tremendous momentum, as we enter the next Fiscal Year. We're pleased that our core business is very strong. Our recent acquisitions are delivering above growth expectations and we received important tariff exclusion. Our long-term growth and value creation strategy is working and delivering growth for our shareholders. I hope you will join us at Varian's Investor Day on November 15th to New York City to learn more. As always, in everything we do, we remain committed to innovating and investing in new technologies and driving toward the ultimate victory, a world without fear of cancer. Thanks for joining us today.

[Operator:]

This concludes today's conference. You may disconnect your lines this time. Thank you from your participation.