Varian Medical Systems Reports Results for Fourth Quarter of Fiscal Year 2015

PALO ALTO, Calif., Oct. 28, 2015 /PRNewswire/ -- Varian Medical Systems (NYSE:VAR) today is reporting non-GAAP net earnings of $1.04 per diluted share and GAAP earnings of $0.99 per diluted share for the fourth quarter of fiscal year 2015.  For the full fiscal year 2015, non-GAAP earnings were $4.29 per diluted share, and GAAP earnings were $4.09 per diluted share. Varian's revenues totaled $818 million for the fourth quarter of fiscal year 2015, up 1 percent from the year-ago quarter and up 6 percent in constant currency. Varian's revenues for the full fiscal year were $3.1 billion, up 2 percent versus fiscal year 2014 and up 6 percent in constant currency. The company ended the fourth quarter with a $3.5 billion backlog, up 10 percent from the end of fiscal year 2014.

"During the quarter, our Oncology Systems business generated healthy constant currency order growth, the Particle Therapy business gathered momentum, and the Imaging Components business continued to experience declines in orders, revenues and margins," said Dow R. Wilson, CEO of Varian Medical Systems.  "As we previously reported, we experienced a shortfall of high-margin revenues in our Oncology business when several TrueBeam systems and related software slipped out of the quarter."

The company finished the fiscal year with $845 million in cash and cash equivalents and $496 million of debt.  Cash flow from operations was $153 million for the fourth quarter and $470 million for the fiscal year.  During the quarter, the company spent $128 million to repurchase about 1.5 million shares of common stock.

Oncology Systems

Oncology Systems' fourth quarter revenues totaled $633 million, up 2 percent from the same quarter of fiscal year 2014 and up 9 percent in constant currency.  Annual revenues were $2.3 billion, even with the prior fiscal year, and up 6 percent in constant currency.

Fourth-quarter gross orders were $919 million, equal to the year-ago quarter and up 5 percent in constant currency.  In the Americas, fourth quarter Oncology gross orders declined by 5 percent in dollars and constant currency. In EMEA, gross orders were up 13 percent in dollars and up 25 percent in constant currency. In APAC, gross orders declined by 3 percent in dollars but rose 6 percent in constant currency. Annual Oncology gross orders were $2.7 billion, even with fiscal year 2014 and up 6 percent in constant currency. In the Americas, annual gross orders were up 1 percent in dollars and constant currency. In EMEA gross orders were flat in dollars but up 12 percent in constant currency. In APAC, order growth was also flat in dollars but up 9 percent in constant currency.    

"Oncology gross orders were strong in EMEA during the quarter when we booked orders for over 100 systems," said Wilson.  "North American orders grew by 4 percent in the quarter driven by customers continuing to upgrade to newer technologies, replacements of competitors' products, and increased software sales. We believe we gained share in constant currency in all regions."

Imaging Components

Imaging Components revenues were $155 million for the fourth quarter, down 8 percent from the year-ago period, and $611 million for the fiscal year, down 7 percent from fiscal year 2014. Gross orders were $165 million for the fourth quarter, down 30 percent from the year-ago period, and totaled $605 million for the fiscal year, down 16 percent from fiscal year 2014.   

"Price erosion in response to aggressive euro- and yen-based competitors was the principal cause of the decline in orders and revenues for panels and tubes in our Imaging Components business," said Wilson. "Gross orders for security products were down $63 million or 57 percent for the fiscal year, and annual revenues fell by $34 million or 37 percent, due largely to instability in key international markets. The company has initiated a restructuring program to right-size the Imaging Components business and to get it back on a growth track."

During the fourth quarter of fiscal year 2015, the company paid approximately €52 million in cash to acquire Claymount Investments B.V., a privately-held, Netherlands-based supplier of components and subsystems for X-ray imaging equipment manufacturers.

Other

The company's Other category, including the Varian Particle Therapy business and the Ginzton Technology Center, recorded revenues of $30 million for the fourth quarter and $144 million for fiscal year 2015. It generated gross orders of $141 million in the quarter and $317 million for the fiscal year. During the quarter, the Particle Therapy business booked orders for three proton therapy centers, comprising two in the UK and one in New York. "It is gratifying to see growing global market demand for Varian's proton therapy systems," said Wilson. "We are gaining momentum in this important clinical space."    

Outlook

"We believe that for fiscal year 2016 total company non-GAAP earnings will be in the range of $4.45 to $4.55 per diluted share and revenues will increase by about 4 to 5 percent on a reported basis," said Wilson.  "For the first quarter of fiscal year 2016, we expect revenues to be roughly even with the year-ago quarter in dollars.  With ongoing challenges experienced by Imaging Components in the second half of fiscal year 2015 as well as the effect of year-over-year changes in currency exchange rates, we expect non-GAAP earnings for the first quarter of fiscal year 2016 to be in the range of $0.88 to $0.92 per diluted share."

Non-GAAP Items

Beginning this quarter, the company is reporting non-GAAP operating earnings, non-GAAP  net earnings and non-GAAP diluted earnings per share to provide comparisons against prior periods excluding certain items that may not be indicative of its core operating results and business outlook, allow better comparability among company peers, and provide additional transparency. Non-GAAP operating earnings and non-GAAP net earnings exclude the following items that are included under GAAP: amortization of intangible assets, acquisition-related expenses and or benefits, restructuring charges, impairment charges, significant litigation charges or benefits and associated legal costs. From time to time, the company may exclude other items if it is consistent with the goal of providing useful information to investors. Tax effects on non-GAAP items are calculated based on the company's effective tax rate other than when the underlying item has a materially different tax treatment. Additional details and a table reconciling the GAAP to non-GAAP financial measures are included in this release.

Investor Conference Call

Varian Medical Systems is scheduled to conduct its fourth quarter fiscal year 2015 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 13619357.  The telephone replay will be available through 5 p.m. PT, Friday, October 30, 2015.

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, and image processing software and workstations for use in medical, scientific, and industrial settings, as well as for security and non-destructive testing.  Varian Medical Systems employs approximately 7,000 people who are located at manufacturing sites in North America, Europe, and China and approximately 70 sales and support offices around the world.  For more information, visit http://www.varian.com or follow us on Twitter. 

A summary of earnings and other financial information follows. 
 

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 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, which 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:

FOR INFORMATION CONTACT:

Elisha Finney (650) 424-6803
[email protected]

Spencer Sias (650) 424-5782
[email protected]

SOURCE Varian Medical Systems

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