PALO ALTO, Calif., Jan. 25, 2017 /PRNewswire/ -- Varian Medical Systems (NYSE:VAR) today is reporting GAAP net earnings of $0.22 per diluted share and non-GAAP net earnings of $0.75 per diluted share for the first quarter of fiscal year 2017, including $76 million in charges almost exclusively relating to a proton facility owned by California Proton Treatment Center, LLC (CPTC) in San Diego. These charges and the associated limited tax deductibility reduced Varian earnings in the first quarter of fiscal 2017 by $0.64 per diluted share on a GAAP basis or $0.34 per diluted share on a non-GAAP basis.
Varian’s first quarter revenues totaled $763 million, up 1 percent from the year-ago quarter in dollars and constant currency. The company ended the quarter with a $3.4 billion backlog, up 2 percent from the end of the first quarter of fiscal year 2016.
“Varian generated strong global order growth and margin gains in our oncology business as well as sales momentum in the imaging components business while recording an impairment of CPTC’s indebtedness to Varian,” said Dow Wilson, CEO of Varian Medical Systems. “We remain on track with our previously announced plans to separate and establish the imaging components business as a new public company, Varex Imaging, at the end of this month.”
Varian took a $76 million charge in the first quarter in response to certain actions in January by CPTC and its loan agent, ORIX Capital Markets, to address liquidity issues caused by lower than expected patient volumes that are insufficient to support CPTC’s capital structure. This led Varian to reserve $38 million in accounts receivable and to impair $38 million of its $98 million loan to CPTC, of which $29 million was accrued interest. The company is reporting additional information on this matter today in a Form 8-K filing with the Securities and Exchange Commission.
“We believe this center can get on a more solid financial footing by serving a broader patient population with additional healthcare providers locally and regionally,” Wilson said. “We remain confident and committed to supporting all of our customers and to building a profitable proton business based on leading technology that is treating patients and performing at a high level. We are continuing to make good progress on 13 other installations and the sales funnel continues to look promising.” The company’s Particle Therapy business, recorded first quarter revenues of $30 million.
Varian finished its first quarter of fiscal year 2017 with $815 million in cash and cash equivalents and $607 million of debt. Cash flow from operations was $82 million for the first quarter. During the quarter, the company spent $49 million to repurchase 500,000 shares of common stock.
Oncology Systems
Oncology Systems’ first quarter revenues totaled $581 million, down from the year-ago quarter by 1 percent in dollars and by 2 percent in constant currency. First-quarter Oncology gross orders were $586 million, up from the year-ago quarter by 10 percent in dollars and constant currency. In the Americas, Oncology gross orders increased by 5 percent in dollars and in constant currency, including 7 percent growth in North America. In EMEA, gross orders were up 8 percent in dollars and up 10 percent in constant currency. In APAC, gross orders rose 29 percent in dollars and by 24 percent in constant currency.
“Broad-based demand for new equipment as well as software and services drove the strong gross order growth in our Oncology business during the quarter,” Wilson said. “Revenues declined versus a strong year-ago quarter due primarily to the timing of deliveries, but this business did a spectacular job of improving margins with the help of product mix, stable pricing and product cost reductions.”
Imaging Components
First quarter revenues from Varian’s Imaging Components business were $152 million, up 7 percent from the year-ago period, and first quarter gross orders for this business were $132 million, up 4 percent from the year-ago period.
“Revenues from Imaging Components rose with gains in both the medical and industrial segments,” said Varian Imaging Components President Sunny Sanyal, who will become CEO of Varex Imaging. “With our first quarter performance as well as our previously announced plan to acquire the Medical Imaging business of PerkinElmer this fiscal year, our business is on track to separate from Varian with solid momentum in orders and sales.”
Varian Outlook
“Beginning with our fiscal second quarter, Imaging Components will be reflected as a discontinued operation for the first four months of fiscal year 2017,” said Wilson. “The company is guiding for continuing operations for the second through the fourth quarters of the fiscal year 2017. For the balance of fiscal year 2017, we believe Varian revenues from continuing operations will grow in the range of 4 to 5 percent, bringing revenue growth for the year to 3 to 4 percent. Non-GAAP earnings per diluted share from continuing operations for the second through fourth quarters of the fiscal year will be in the range of $2.94 to $3.06.”
“For the second quarter, we believe Varian revenues from continuing operations will grow in the range of 4 to 5 percent and non-GAAP earnings per diluted share will be in the range of $0.84 to $0.90,” Wilson added. The company intends to repurchase 2 million shares of stock in its second quarter of fiscal year 2017. Varian will publish a historical annual breakdown of continuing and discontinued operations for fiscal years 2014-2016 on our website filing shortly following the separation. Separately, the company will make available quarterly pre-tax results for fiscal year 2016.
Please refer to “Discussion of Non-GAAP Financial Measures” below for a description of items excluded from expected non-GAAP earnings.
Varex Outlook
“For Varex Imaging, we expect revenues for fiscal year 2017 to grow by 3-4 percent over the $620 million total recorded for fiscal year 2016 in our Form 10 filing with the SEC,” said Sanyal. “Assuming approximately 38 million shares outstanding and a 35 percent tax rate, we anticipate that GAAP net earnings per diluted share for the second through the fourth quarters of the fiscal year 2017 will be in the range of $1.20 to $1.30. Going forward Varex Imaging will provide annual guidance.
Investor Conference Call
Varian Medical Systems is scheduled to conduct its first quarter fiscal year 2017 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 13651576. The telephone replay will be available through 5 p.m. PT, Friday, January 27, 2017.
About Varian Medical Systems
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 radiotherapy, radiosurgery, proton therapy and brachytherapy. The company also supplies informatics software for cancer treatment centers. Varian is a premier supplier of X-ray imaging components, including tubes, digital detectors, accessories 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 7,900 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.
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.
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