Business Context and Reporting Period
This Form 8-K, filed on December 23, 2019, by Varex Imaging Corporation (VREX) updates previously reported preliminary unaudited financial results for the fourth quarter and full fiscal year 2019. The updates reflect adjustments made during the closing process, including out-of-period adjustments. The filing also addresses a temporary delinquency regarding the company's compliance with Nasdaq listing rules due to a delay in filing its Form 10-K, which was resolved on December 20, 2019.
Key Financial Metrics (Fiscal Year 2019)
| Metric | Updated Value | Preliminary Value |
|---|---|---|
| Revenues | $780.6 million | $780.6 million |
| Gross Margin | $256.7 million (32.9%) | $256.2 million (32.8%) |
| Adjusted Gross Margin | $274.4 million (35.2%) | $272.6 million (34.9%) |
| Operating Earnings | $45.7 million (5.9%) | $46.5 million (6.0%) |
| Adjusted Operating Earnings | $88.2 million (11.3%) | $87.7 million (11.2%) |
| Net Earnings Attributable to Varex | $15.5 million | $16.6 million |
| Diluted EPS (GAAP) | $0.40 | $0.43 |
| Adjusted Diluted EPS | $1.31 | $1.30 |
Key Financial Metrics (Fourth Quarter 2019)
| Metric | Updated Value | Preliminary Value |
|---|---|---|
| Revenues | $202.4 million | $202.4 million |
| Gross Margin | $71.6 million (35.4%) | $71.1 million (35.1%) |
| Adjusted Gross Margin | $75.2 million (37.2%) | $73.4 million (36.3%) |
| Operating Earnings | $16.2 million (8.4%) | $17.0 million (8.0%) |
| Adjusted Operating Earnings | $27.1 million (13.4%) | $26.6 million (13.1%) |
| Net Earnings | $8.1 million | $9.2 million |
| Diluted EPS (GAAP) | $0.21 | $0.24 |
| Adjusted Diluted EPS | $0.47 | $0.46 |
The filing does not provide specific data on cash flow, debt levels, or liquidity ratios beyond the earnings statements.
Material Changes and Adjustments
The primary material change in this filing is the revision of GAAP and non-GAAP financial measures due to closing process adjustments. Key variances include:
- GAAP Net Earnings: Decreased from $16.6 million to $15.5 million for the full year, and from $9.2 million to $8.1 million for the quarter.
- GAAP EPS: Decreased from $0.43 to $0.40 for the full year, and from $0.24 to $0.21 for the quarter.
- Adjusted Metrics: Adjusted Net Earnings and Adjusted Operating Earnings increased slightly in the updated figures compared to preliminary reports.
Segment revenue for the quarter ended September 27, 2019, was $152.4 million for Medical and $50.0 million for Industrial. For the full year, Medical revenue was $596.8 million and Industrial was $183.8 million.
Outlook, Risks, and Contingencies
Nasdaq Compliance: The company received a notice from Nasdaq on December 18, 2019, stating it was not in compliance with listing rules due to the late filing of its Form 10-K. The delay was attributed to the need for additional time to complete reviews of internal controls over financial reporting and remediate material weaknesses. The company filed its Form 10-K on December 20, 2019, and subsequently received notice of compliance from Nasdaq.
Non-GAAP Adjustments: Management utilizes adjusted financial measures to exclude items such as amortization of intangible assets, restructuring charges, separation costs, acquisition-related costs, and impairment charges. These adjustments are intended to provide a clearer view of ongoing operational performance.
Risks: The filing highlights the risk of material weaknesses in internal controls, which necessitated the delay in the annual report. No specific forward-looking guidance for future periods is provided in this document.
Investor Verification Checklist
- Verify the specific nature of the "out of period adjustments" that reduced GAAP net earnings by $1.1 million for the full year.
- Review the filed Form 10-K (filed Dec 20, 2019) for details on the remediation of material weaknesses in internal controls over financial reporting.
- Confirm the reconciliation of non-GAAP measures to ensure the exclusion of amortization and restructuring costs aligns with peer company practices.
- Monitor future filings for any recurring issues regarding internal controls or regulatory compliance.