Varian Medical Systems Reports Results for First Quarter of Fiscal Year 2016

Wednesday, January 27, 2016

PALO ALTO, Calif., Jan. 27, 2016 /PRNewswire/ -- Varian Medical Systems (NYSE: VAR) today is reporting non-GAAP net earnings of $0.99 per diluted share and GAAP net earnings of $0.91 per diluted share for the first quarter of fiscal year 2016.  Varian's revenues totaled $757 million for the first quarter, up 3 percent from the year-ago quarter and up 7 percent in constant currency. The company ended the quarter with a $3.3 billion backlog, up 7 percent from the end of the first quarter of fiscal year 2015.

"Company revenues and earnings came in ahead of expectations for the first quarter," said Dow Wilson, CEO of Varian Medical Systems.  "Revenue growth was driven by our Oncology Systems and Particle Therapy businesses while the Imaging Components business continued to experience expected pressures on revenues.  Our earnings performance was helped by our revenue growth as well as strong SG&A cost controls and an R&D tax credit."

The company finished the first quarter of fiscal year 2016 with $953 million in cash and cash equivalents and $728 million of debt.  Cash flow from operations was $77 million for the first quarter. During the quarter, the company spent $192 million to repurchase about 2.4 million shares of common stock.

Oncology Systems

Oncology Systems' first quarter revenues totaled $589 million, up 5 percent from the same quarter of fiscal year 2015 and up 9 percent in constant currency. First-quarter Oncology gross orders were $533 million, down 5 percent from the year-ago quarter and down 1 percent in constant currency.  In the Americas, Oncology gross orders increased by 3 percent in dollars and in constant currency. In EMEA, gross orders were down 14 percent in dollars and down 5 percent in constant currency. In APAC, gross orders declined by 12 percent in dollars and fell 7 percent in constant currency.

"On a constant currency basis, Oncology had strong revenue growth driven by EMEA and APAC while gross orders declined in these regions, reflecting slow market activity during the quarter," Wilson said.

Imaging Components

Imaging Components revenues were $141 million for the first quarter, down 15 percent from the year-ago period. Gross orders were $127 million for the first quarter, down 22 percent from the year-ago period.

"As expected, volumes in all product lines declined in the Imaging Components business," said Wilson.  "Beginning in the second half of last fiscal year, this business has been confronted with currency-related pricing pressures, weak market conditions for security and inspection products and the loss of a customer who has insourced panels.  Inventory reduction at a major customer contributed to slower tube sales during the quarter.  Growth from newly acquired components businesses partially offset the overall decline in Imaging Components."

Other

The company's Other category, including the Varian Particle Therapy business and the Ginzton Technology Center, recorded revenues of $27 million for the first quarter from ongoing proton therapy installations.  "The sales funnel for the Particle Therapy business continues to look promising," Wilson said.

Outlook

"Including the effects of the R&D tax credit re-enactment and the suspension of the medical device excise tax in the U.S., we now believe that for fiscal year 2016 total company non-GAAP earnings will be in the range of $4.55 to $4.65 per diluted share," said Wilson.  "We continue to expect that revenues for fiscal year 2016 will increase by about 4 to 5 percent over fiscal year 2015.  For the second quarter of fiscal year 2016, we expect revenues to be up one to two percent from the year-ago quarter in dollars.  We expect non-GAAP earnings for the second quarter of fiscal year 2016 to be in the range of $1.06 to $1.10 per diluted share."

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 first quarter fiscal year 2016 conference call at 2 p.m. PT today.  To hear a live webcast or replay of the call, visit the investor relations page on the company's web site at www.varian.com/investor where it will be archived for a year.  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 confirmation code 13627253.  The telephone replay will be available through 5 p.m. PT, Friday, January 29, 2016.

Varian Medical Systems, Inc., of Palo Alto, California, focuses energy on saving lives by equipping the world with advanced technology for fighting cancer and for X-ray imaging.  The company is the world's leading manufacturer of medical devices and software for treating cancer and other medical conditions with radiation. The company provides comprehensive solutions for radiotherapy, radiosurgery, proton therapy and brachytherapy. The company supplies informatics software for managing comprehensive cancer clinics, radiotherapy centers and medical oncology practices. Varian is also a premier supplier of X-ray imaging components, including tubes, digital detectors, cables and connectors as well as image processing software and workstations for use in medical and industrial settings, as well as for security and non-destructive testing.  Varian Medical Systems employs approximately 7,400 people who are located at manufacturing sites in North America, Europe, and China and sales and support offices around the world.  For more information, visit http://www.varian.com or follow us on Twitter.

Forward-Looking Statements

Except for historical information, this news release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Statements concerning industry or market outlook, including growth drivers; the company's future orders, revenues, or earnings growth or other financial results; and any statements using the terms "believe," "expect," "promising," "outlook," "should," "will" or similar statements are forward-looking statements that involve risks and uncertainties that could cause the company's actual results to differ materially from those anticipated. Such risks and uncertainties include global economic conditions; currency exchange rates and tax rates; the impact of  the Affordable Health Care for America Act (including excise taxes on medical devices) and any further healthcare reforms (including changes to Medicare and Medicaid), and/or changes in third-party reimbursement levels; demand for and delays in delivery of the company's products; the company's ability to develop, commercialize and deploy new products; the company's ability to meet Food and Drug Administration (FDA) and other regulatory requirements, regulations or procedures; changes in regulatory environments; the impact of reduced or limited demand by purchasers of certain X-ray products; challenges associated with commercializing the company's particle therapy business; challenges to public tender awards and the loss of such awards or other orders; the effect of adverse publicity; the company's reliance on sole or limited-source suppliers; the company's ability to maintain or increase margins; the impact of competitive products and pricing; the company's assessment of the goodwill associated with its particle therapy business; the potential loss of key distributors or key personnel; and the other risks listed from time to time in the company's filings with the Securities and Exchange Commission, which by this reference are incorporated herein. The company assumes no obligation to update or revise the forward-looking statements in this release because of new information, future events, or otherwise.

 

A summary of earnings and other financial information follows.

FOR INFORMATION CONTACT:  

Elisha Finney (650) 424-6803

elisha.finney@varian.com

Spencer Sias (650) 424-5782

spencer.sias@varian.com

Varian Medical Systems, Inc. and Subsidiaries

 Condensed Consolidated Statements of Earnings

 (Unaudited)





(Dollars and shares in millions, except per share amounts)



Q1 QTR

2016



Q1 QTR

2015





Gross orders

$

672.0



725.8





  Oncology Systems



532.6



561.7





  Imaging Components



127.1



162.7





  Other



12.3



1.4





Order Backlog



3,335.7



3,124.3





Revenues



757.1



737.9





  Oncology Systems



589.3



563.3





  Imaging Components



141.4



166.0





  Other



26.4



8.6





Cost of revenues



447.4



410.9





Gross margin



309.7



327.0





  As a percent of revenues



40.9%



44.3%





Operating expenses













  Research and development 



60.0



57.1





  Selling, general and administrative 



133.0



140.4





Operating earnings



116.7



129.5





  As a percent of revenues



15.4%



17.5%





Interest income, net



1.7



0.9





Earnings before taxes



118.4



130.4





Taxes on earnings



29.4



37.1





Net earnings



89.0



93.3





  As a percent of revenues



11.8%



12.6%



















 Net earnings per share– basic

$

0.92



0.93





 Net earnings per share– diluted

$

0.91



0.92





Shares used in the calculation of net earnings per share:    













Average shares outstanding - basic



97.2



100.5





Average shares outstanding - diluted



97.8



101.6

















 

Varian Medical Systems, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets











(In thousands)



January 1,  



October 2,  





2016



2015  (1)





(Unaudited)





Assets









Current assets:









Cash and cash equivalents

$

953,377

$

845,468

Accounts receivable, net



768,548



770,920

Inventories                                       



613,069



612,607

Prepaid expenses and other current assets



174,693



163,984

Deferred tax assets                                



130,529



132,066

   Total current assets                                       



2,640,216



2,525,045











Property, plant and equipment, net                         



372,858



379,215

Goodwill



281,773



283,452

Other assets                                                   



431,815



413,036

Total assets                                              

$

3,726,662

$

3,600,748











Liabilities, Redeemable Noncontrolling Interests and Equity









Current liabilities:                                                      









Accounts payable                                             

$

173,996

$

202,918

Accrued liabilities                                          



352,711



353,500

Deferred revenues                                             



502,871



489,775

Advance payments from customers                              



176,228



178,265

Short-term borrowings                              



333,249



108,446

Current maturities of long-term debt                              



50,000



50,000

   Total current liabilities                                  



1,589,055



1,382,904

Long-term debt and other borrowings                                                            



345,000



337,500

Other long-term liabilities



150,543



154,000

   Total liabilities                                          



2,084,598



1,874,404











Redeemable noncontrolling interests



10,382



-











Equity:









Varian stockholders' equity:









Common stock



95,999



98,070

Capital in excess of par value



659,865



682,167

Retained earnings



962,324



1,017,826

Accumulated other comprehensive loss 



(90,384)



(86,463)

   Total Varian stockholders' equity                                 



1,627,804



1,711,600

Noncontrolling interests



3,878



14,744

   Total equity



1,631,682



1,726,344

Total liabilities, redeemable noncontrolling interests and equity              

$

3,726,662

$

3,600,748

______________________________________________________________________________________

(1) The condensed consolidated balance sheet as of October 2, 2015 was derived from audited financial statements as of that date. 

 

Discussion of Non-GAAP Financial Measures

This press release includes the following non-GAAP financial measures derived from our Condensed Consolidated Statements of Operations: non-GAAP operating earnings, non-GAAP net earnings and non-GAAP diluted net earnings per share. These measures are not presented in accordance with, nor are they a substitute for U.S. generally accepted accounting principles, or GAAP. In addition, these measures may be different from non-GAAP measures used by other companies, limiting their usefulness for comparison purposes. The non-GAAP financial measures should not be considered in isolation from measures of financial performance prepared in accordance with GAAP. Investors are cautioned that there are material limitations associated with the use of non-GAAP financial measures as an analytical tool. We have provided a reconciliation of each non-GAAP financial measure used in this earnings release to the most directly comparable GAAP financial measure.

We utilize a number of different financial measures, both GAAP and non-GAAP, in analyzing and assessing the overall performance of our business, in making operating decisions, forecasting and planning for future periods, and determining payments under compensation programs. We consider the use of the non-GAAP measures to be helpful in assessing the performance of the ongoing operation of our business. We believe that disclosing non-GAAP financial measures provides useful supplemental data that, while not a substitute for financial measures prepared in accordance with GAAP, allows for greater transparency in the review of our financial and operational performance. We also believe that disclosing non-GAAP financial measures provides useful information to investors and others in understanding and evaluating our operating results and future prospects in the same manner as management and in comparing financial results across accounting periods and to those of peer companies. Non-GAAP operating earnings and non-GAAP net earnings exclude the following items:

Amortization of intangible assets: We do not acquire businesses and assets on a predictable cycle. The amount of purchase price allocated to intangible assets and the term of amortization can vary significantly and are unique to each acquisition or purchase. We believe that excluding amortization of intangible assets allows the users of our financial statements to better review and understand the historic and current results of our operations, and also facilitates comparisons to peer companies.

Acquisition-related expenses and benefits: We incur expenses or benefits with respect to certain items associated with our acquisitions, such as transaction costs, changes in the fair value of contingent consideration liabilities, gain or expense on settlement of pre-existing relationships, etc. We exclude such expenses or benefits as they are related to acquisitions and have no direct correlation to the operation of our on-going business.

Restructuring and Impairment charges: We incur restructuring and impairment charges that result from events, which arise from unforeseen circumstances and/or often occur outside of the ordinary course of our on-going business. Although these events are reflected in our GAAP financials, these unique transactions may limit the comparability of our on-going operations with prior and future periods. 

Significant litigation charges or benefits and legal costs:  We may incur charges or benefits as well as legal costs from time to time related to litigation and other contingencies. We exclude these charges or benefits, when significant, as well as legal costs associated with significant legal matters, because we do not believe they are reflective of on-going business and operating results.

We apply our GAAP consolidated effective tax rate to our non-GAAP financial measures, other than when the underlying item has a materially different tax treatment.

From time to time in the future, there may be other items that we may exclude if we believe that doing so is consistent with the goal of providing useful information to investors and management.

The following tables reconcile GAAP and non-GAAP financial measures:

Varian Medical Systems, Inc. and Subsidiaries

Reconciliation between GAAP and Non-GAAP Financial Measures

 (Unaudited)



(Dollars and shares in millions, except per share amounts)



Q1 QTR

2016



Q1 QTR

2015



Non-GAAP  adjustments











Amortization of intangible assets

$

3.0



1.6



Restructuring charges



4.8



10.5



Other*



3.1



0.6



Total Non-GAAP adjustments



10.9



12.7



Tax effects of Non-GAAP adjustments



(2.7)



(3.6)



Total net earnings impact from non-GAAP adjustments

$

8.2



9.1



Operating earnings reconciliation











GAAP operating earnings

$

116.7



129.5



Total operating earnings impact from non-GAAP adjustments



10.9



12.7



Non-GAAP operating earnings

$

127.6



142.2



Net earnings and diluted net earnings per share reconciliation











GAAP net earnings

$

89.0



93.3



Total net earnings impact from non-GAAP adjustments



8.2



9.1



Non-GAAP net earnings

$

97.2



102.4



GAAP diluted net earnings per share

$

0.91



0.92



Non-GAAP diluted net earnings per share

$

0.99



1.01



Shares used in GAAP and non-GAAP diluted net earnings per share calculation



97.8



101.6



*Other includes acquisition related expenses and benefits, and legal costs associated with significant litigation matters.

 

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SOURCE Varian Medical Systems

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