Varian Reports Results for Second Quarter of Fiscal Year 2018
Varian Reports Results for Second Quarter of Fiscal Year 2018
PALO ALTO, Calif., April 25, 2018 /PRNewswire/ --
Second Quarter 2018 Summary
-- Revenues of $730 million grew 10 percent, or 6 percent in constant
currency
-- Oncology gross orders grew 5 percent, or 1 percent in constant currency
-- GAAP operating earnings of 12.9 percent of revenues; Non-GAAP of 17.6
percent
-- GAAP net earnings per diluted share from continuing operations of $0.79;
Non-GAAP net earnings per diluted share from continuing operations of
$1.15
Varian (NYSE: VAR) today announced its second quarter fiscal year 2018 results. All comparisons in this announcement are year-over-year unless noted otherwise.
Summary
(Dollars and
shares in
millions,
except per
share amounts) Q2 2018 Q2 2017 FY 2018 FY 2017
------- ------- ------- -------
Revenues (from
Continuing
Operations) $729.9 $663.2 $1,408.4 $1,264.7
Gross Margin 43.6% 41.6% 44.1% 42.9%
GAAP Net
Earnings (Loss)
(1) $73.2 $69.5 $(39.0) $77.5
GAAP Net
Earnings (Loss)
per Diluted
Share (1) $0.79 $0.74 $(0.43) $0.82
Net Cash
Provided by
Operating
Activities $65.5 $32.2 $244.5 $114.4
Non-GAAP Net
Earnings (1)
(2) $106.7 $84.5 $205.1 $132.0
Non-GAAP Net
Earnings per
Diluted Share
(1) (2) $1.15 $0.90 $2.21 $1.40
Shares used in
computing GAAP
Net Earnings
(Loss) per
Diluted Share 92.6 93.7 91.6 93.9
Shares used in
computing non-
GAAP Net
Earnings per
Diluted Share 92.6 93.7 92.7 93.9
--------------- ---- ---- ---- ----
(1) GAAP Net Earnings (Loss), GAAP
Net Earnings (Loss) per Diluted
Share, Non-GAAP Net Earnings
and Non-GAAP Net Earnings per
Diluted Share refer only to
continuing operations.
(2) Non-GAAP Net Earnings and Non-
GAAP Net Earnings per Diluted
Share are defined as GAAP Net
Earnings (Loss) and GAAP Net
Earnings (Loss) per Diluted
Share adjusted to exclude the
amortization of intangible
assets, acquisition-related
expenses and benefits,
restructuring and impairment
charges, significant litigation
charges or benefits, legal
costs and significant effects
of tax legislation.
"We are proud of the team's progress in the second quarter toward executing on our long-term value creation strategy," said Dow Wilson, Chief Executive Officer of Varian. "We continued to strengthen our leadership in radiation therapy and extend our global footprint with the Mobius and Evinance acquisitions. In addition, we are expanding our addressable markets into interventional oncology with the acquisition of Sirtex, expected to close by the end of May."
The company ended the quarter with $740 million in cash and cash equivalents and $255 million of debt. Net cash provided by operating activities was $66 million. During the quarter, the company invested $36 million to repurchase 325,000 shares of common stock.
Oncology Systems Segment
In the fiscal second quarter, Oncology revenues totaled $698 million, up 10 percent in dollars and 6 percent in constant currency. Gross orders were $664 million, up 5 percent in dollars and 1 percent in constant currency. Gross orders in the Americas increased 2 percent in dollars and in constant currency. In EMEA, gross orders rose 11 percent in dollars and were flat in constant currency; in APAC, gross orders increased 3 percent in dollars and 1 percent in constant currency. Operating earnings for the segment increased 16 percent.
Particle Therapy Segment
In the fiscal second quarter, Particle Therapy revenues totaled $32 million, up 2 percent. The company did not book any new ProBeam(TM) orders in the quarter.
Acquisition-Related Expenses and Impairment Charges in Q2
Varian's GAAP net earnings include acquisition-related expenses totaling $20 million for the quarter, primarily driven by $16 million related to hedging the Australian dollar purchase price of the Sirtex acquisition, as well as an impairment charge of $11 million related to the expected refinancing of the Maryland Proton Treatment Center in Baltimore. These costs and the associated tax effects reduced Varian earnings in the second quarter of fiscal 2018 by $0.26 per diluted share on a GAAP basis, and were excluded from non-GAAP results.
FY18 Annual Guidance Updated
Considering the financial and operational performance in the first half and the impact of currency, fiscal year 2018 guidance is updated to the following:
-- Revenue growth range of 6 percent to 9 percent, which now includes the
impact from currency for the remainder of the year
-- Non-GAAP Operating earnings as a percentage of revenues range of 18
percent to 19 percent
-- Non-GAAP effective tax rate of 20 percent
-- Weighted average diluted shares of 93 million
-- Non-GAAP Earnings per diluted share range of $4.43 to $4.53
-- Cash flow from operations range of $475 million to $550 million
This updated guidance does not reflect the impact of the Sirtex acquisition, which is expected to close at the end of May.
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 second quarter fiscal year 2018 conference call at 2 p.m. PT today. To hear a live webcast or replay of the call, visit the investor relations page on our web site at www.varian.com/investors 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 13677574. The telephone replay will be available through 5 p.m. PT, Friday, April 27, 2018.
About Varian
Varian is a leader in developing and delivering cancer care solutions, and is focused on creating a world without fear of cancer. Headquartered in Palo Alto, California, Varian employs approximately 6,500 people around the world. For more information, visit http://www.varian.com and follow @VarianMedSys 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 "could," "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 our ability to close and integrate the Sirtex business; our ability to achieve expected synergies from acquisitions; global economic conditions and changes to trends for cancer treatment regionally; currency exchange rates and tax rates; the impact of the Tax Cuts and Jobs Act; 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 company's assessment of the goodwill associated with its particle therapy business, risks associated with the company providing financing for the construction and start-up operations of particle therapy centers, 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.
Varian has not filed its Form 10-Q for the quarter ended March 30, 2018. As a result, all financial results described here should be considered preliminary, and are subject to change to reflect any necessary adjustments, or changes in accounting estimates, that are identified prior to the time the company files the Form 10-Q.
Varian Medical Systems, Inc. and Subsidiaries
Preliminary Condensed Consolidated Statements of Earnings
(Unaudited)
(Dollars and shares in millions,
except per share amounts) Q2 2018 Q2 2017 FY 2018 FY 2017
-------------------------------- ------- ------- ------- -------
Gross orders $666.0 $663.0 $1,332.1 $1,244.0
Oncology Systems 664.1 635.0 1,284.0 1,211.7
Particle Therapy 1.9 28.0 48.1 32.3
Order Backlog 2,927.1 2,686.5 2,927.1 2,686.5
Revenues 729.9 663.2 1,408.4 1,264.7
Oncology Systems 698.0 631.9 1,347.4 1,203.1
Particle Therapy 31.9 31.3 61.0 61.6
Cost of revenues 411.4 387.6 787.1 722.1
Gross margin 318.5 275.6 621.3 542.6
As a percent of revenues 43.6% 41.6% 44.1% 42.9%
Operating expenses
Research and development 58.9 53.3 114.8 103.2
Selling, general and
administrative 134.5 131.6 258.5 292.7
Impairment charges 11.1 - 11.1 38.3
Acquisition-related expenses 19.7 0.6 21.2 0.9
Operating earnings 94.3 90.1 215.7 107.5
As a percent of revenues 12.9% 13.6% 15.3% 8.5%
Interest income, net 1.3 0.3 2.4 2.2
Earnings from continuing
operations before taxes 95.6 90.4 218.1 109.7
Taxes on earnings 22.4 20.9 257.1 32.2
Net earnings (loss) from
continuing operations 73.2 69.5 (39.0) 77.5
Net loss from discontinued
operations - (13.3) - (6.8)
Net earnings (loss) 73.2 56.2 (39.0) 70.7
Less: Net (loss) earnings
attributable to noncontrolling
interests - (0.1) 0.1 0.5
Net earnings (loss) attributable
to Varian $73.2 $56.3 $(39.1) $70.2
Net earnings (loss) per share -
basic
Continuing operations $0.80 $0.75 $(0.43) $0.83
Discontinued operations - (0.15) - (0.08)
Net earnings (loss) per share -
basic $0.80 $0.60 $(0.43) $0.75
----- ----- ------ -----
Net earnings (loss) per share -
diluted
Continuing operations $0.79 $0.74 $(0.43) $0.82
Discontinued operations - (0.14) - (0.08)
Net earnings (loss) per share -
diluted $0.79 $0.60 $(0.43) $0.74
----- ----- ------ -----
Shares used in the calculation
of net earnings per share:
Weighted average shares
outstanding - basic 91.5 93.0 91.6 93.2
Weighted average shares
outstanding - diluted 92.6 93.7 91.6 93.9
Varian Medical Systems, Inc. and Subsidiaries
Preliminary Condensed Consolidated Balance Sheets
(Unaudited)
(In millions) March 30, September 29,
------------
2018 2017
Assets
Current assets:
Cash and cash equivalents $739.9 $716.2
Trade and unbilled receivables, net 936.7 961.5
Inventories 433.8 417.7
Prepaid expenses and other current
assets 226.4 190.3
Current assets of discontinued
operations 8.6 11.1
--- ----
Total current assets 2,345.4 2,296.8
Property, plant and equipment, net 247.0 255.3
Goodwill 232.0 222.6
Intangible assets 85.3 71.6
Deferred tax assets 114.9 147.3
Other assets 282.0 300.8
Total assets $3,306.6 $3,294.4
======== ========
Liabilities and Equity
Current liabilities:
Accounts payable $164.9 $162.3
Accrued liabilities 364.2 374.9
Deferred revenues 766.5 755.4
Short-term borrowings 230.0 350.0
Current liabilities of discontinued
operations 3.7 2.5
--- ---
Total current liabilities 1,529.3 1,645.1
Other long-term liabilities 320.7 127.4
Total liabilities 1,850.0 1,772.5
------- -------
Equity:
Varian stockholders' equity:
Common stock 91.7 91.7
Capital in excess of par value 754.7 716.1
Retained earnings 664.2 778.6
Accumulated other comprehensive loss (58.4) (68.8)
-----
Total Varian stockholders' equity 1,452.2 1,517.6
Noncontrolling interests 4.4 4.3
---
Total equity 1,456.6 1,521.9
-------
Total liabilities and equity $3,306.6 $3,294.4
======== ========
Discussion of Non-GAAP Financial Measures
This press release includes the following non-GAAP financial measures derived from our Condensed Consolidated Statements of Earnings: non-GAAP operating earnings, non-GAAP net earnings and non-GAAP net earnings per diluted share. We define non-GAAP operating earnings from continuing operations as operating earnings from continuing operations excluding amortization of intangible assets, restructuring charges, legal costs, impairment charges and acquisition-related expenses and benefits. 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 have not provided a reconciliation of non-GAAP guidance measures to the corresponding GAAP measures on a forward-looking basis due to the potential significant variability and limited visibility of the excluded items discussed below.
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, except for significant effects of tax legislation, which are only excluded from non-GAAP net earnings:
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 and integration-related expenses and benefits: We incur expenses or benefits with respect to certain items associated with our acquisitions, such as transaction costs, hedging gains and losses, changes in the fair value of contingent consideration liabilities, gain or expense on settlement of pre-existing relationships, integration costs 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 effects of tax legislation: We may incur significant effects of tax legislation that are generally unrelated to the level of business activity in the period in which the effects of such legislation are reported. We exclude such expenses because we believe this does not accurately reflect the underlying performance of our continuing business operations. This exclusion is applicable to non-GAAP net earnings only.
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. Non-GAAP items are generally included in selling, general and administrative expenses, except for significant effects of tax legislation and unless otherwise specified.
The following table reconciles GAAP and non-GAAP financial measures for Varian's continuing operations:
Varian Medical Systems, Inc. and Subsidiaries
Reconciliation between Preliminary GAAP and Non-GAAP Financial Measures
(Unaudited)
(Dollars and shares in
millions, except per share
amounts) Q2 2018 Q2 2017 FY 2018 FY 2017
------- ------- ------- -------
Non-GAAP adjustments
Amortization of intangible
assets (1) $3.5 $2.8 $6.6 $5.6
Restructuring charges - 2.4 - 6.0
Legal costs - 10.0 - 16.2
Impairment charges 11.1 - 11.1 38.3
Acquisition-related expenses
(2) 19.7 0.6 21.2 0.9
Other 0.1 - 0.1 -
Total non-GAAP adjustments
to operating earnings 34.4 15.8 39.0 67.0
Tax effects of non-GAAP
adjustments (7.1) (0.8) (8.1) (12.1)
Significant effects of tax
legislation (3) 6.2 - 213.3 -
Total net earnings from
continuing operations impact
from non-GAAP adjustments $33.5 $15.0 $244.2 $54.9
----- ----- ------ -----
Operating earnings
reconciliation
GAAP operating earnings from
continuing operations $94.3 $90.1 $215.7 $107.5
Total operating earnings from
continuing operations impact
from non-GAAP adjustments 34.4 15.8 39.0 67.0
Non-GAAP operating earnings
from continuing operations $128.7 $105.9 $254.7 $174.5
------ ------ ------ ------
Net earnings (loss) and net
earnings (loss) per diluted
share reconciliation
GAAP net earnings (loss) from
continuing operations
attributable to Varian (4) $73.2 $69.5 $(39.1) $77.1
Total net earnings from
continuing operations impact
from non-GAAP adjustments 33.5 15.0 244.2 54.9
Non-GAAP net earnings from
continuing operations
attributable to Varian $106.7 $84.5 $205.1 $132.0
------ ----- ------ ------
GAAP net (loss) earnings per
diluted share from
continuing operations $0.79 $0.74 $(0.43) $0.82
Non-GAAP net earnings per
diluted share from
continuing operations $1.15 $0.90 $2.21 $1.40
Shares used in computing GAAP
net earnings per diluted
share 92.6 93.7 91.6 93.9
Shares used in computing non-
GAAP net earnings per
diluted share 92.6 93.7 92.7 93.9
----------------------------- ---- ---- ---- ----
(1) Includes $1.5 million, $1.2 million,
$2.7 million, and $2.5 million,
respectively, in cost of revenues for
the periods presented.
(2) Primarily includes $16.4 million for
the hedging loss related to the
Australian dollar purchase price for
Sirtex Medical Limited.
(3) Represents the tax effect of a change
in law related to the U.S. Tax Cuts
and Jobs Act. The corporate rate
reduction results in a remeasurement
of our Deferred Tax Assets of $2.5
million in the second quarter and
$40.2 million in the year-to-date
period. The mandatory deemed
repatriation of unremitted foreign
earnings results in an estimated
charge of $3.7 million in the second
quarter and $173.1 million in the
year-to-date period.
(4) Excludes immaterial net earnings
(loss) from continuing operations
attributable to noncontrolling
interests for the periods presented.
Investor Relations Contact
J. Michael Bruff
Senior Vice President, Investor Relations
+1 (650) 424-5163
investors@varian.com
Press Contact
Mark Plungy
Director, Public Relations
+1 (650) 424-5630
mark.plungy@varian.com
View original content:http://www.prnewswire.com/news-releases/varian-reports-results-for-second-quarter-of-fiscal-year-2018-300636640.html
SOURCE Varian
