Varian Reports Results for Second Quarter of Fiscal Year 2019
PALO ALTO, Calif., April 24, 2019 /PRNewswire/ --
Second Quarter 2019 Summary
- Oncology gross orders grew 15% in dollars, or 18% in constant currency
- Total company revenues grew 7% in dollars, or 10% in constant currency, to $779 million
- GAAP operating earnings grew 1% at 14.1% of revenues; Non-GAAP operating earnings declined 6% at 15.3% of revenues
- GAAP net earnings per diluted share of $0.96; Non-GAAP net earnings per diluted share of $1.05
- Recently enacted US/China tariffs negatively impacted revenue growth by $9 million or 120 basis points and GAAP operating earnings growth by $13 million or 160 basis points
- Raising revenue growth range for fiscal year 2019 guidance; reaffirming Non-GAAP net earnings per diluted share range of $4.60 to $4.75
Varian (NYSE: VAR) today announced its second quarter fiscal year 2019 results. All comparisons in this announcement are year-over-year, all quarter and year references are fiscal unless noted otherwise, and any references to orders are gross orders.
Summary
(Dollars and
shares in
millions,
except per
share amounts) Q2 2019 Q2 2018 Y/Y 1H 1H Y/Y
FY 2019 FY 2018
---
Revenues $
779.4 $
729.9 7 $
1,520.4 $
1,408.4 8
% %
Gross margin as
a percentage %
of revenues 40.8 43.6
% (280 bps) 41.7
% 44.1
% (240 bps)
GAAP net
earnings
(loss) %
attributable
to Varian $
88.6 $
73.2 21 $
191.8 $
(39.1) N/M
GAAP net
earnings
(loss) per %
share -
diluted $
0.96 $
0.79 22 $
2.09 $
(0.43) N/M
Net cash (used $
(13.4) $
65.5 (120) $
127.5 $
244.5 (48)
in) provided
by operating
activities % %
Non-GAAP net $
96.2 $
106.7 (10) $
193.5 $
205.1 (6)
earnings (1)
%
%
Non-GAAP net $
1.05 $
1.15 (9) $
2.10 $
2.21 (5)
earnings per
share - %
diluted (1) %
Shares used in
computing GAAP
net earnings
(loss) per
diluted share 91.9 92.6 92.0 91.6
Shares used in
computing non-
GAAP net
earnings per
diluted share 91.9 92.6 92.0 92.7
---
N/M - Not meaningful
(1) Non-GAAP net earnings and Non-
GAAP net earnings per diluted
share are defined as GAAP net
earnings and GAAP net earnings
per diluted share adjusted to
exclude the amortization of
intangible assets, acquisition-
related expenses and benefits,
impairment charges, significant
litigation charges or benefits
and legal costs, gains or
losses on equity investments,
and significant non-recurring
tax expense or benefit.
"In the second quarter, we maintained strong momentum," said Dow Wilson, chief executive officer of Varian. "Each of our geographies delivered exceptional orders growth, including strong double-digit performance in APAC and the seventh consecutive quarter of double-digit growth in EMEA. Based on the company's results year-to-date and our outlook for the rest of the year, we are raising our fiscal year revenue guidance to 6 to 9 percent while increasing investments in growth priorities such as groundbreaking preclinical research with our FlashForward Consortium."
The company ended the quarter with $546 million in cash and cash equivalents and no debt. Net cash used in operating activities was $13 million, down $79 million due to the tax payments and net working capital impacts from revenue growth. During the quarter, the company invested $51 million to repurchase 420,000 shares of common stock.
Oncology Systems Segment
In the second quarter, Oncology revenues totaled $747 million, up 7%. Operating earnings for the segment decreased 8%, primarily driven by the impact of tariffs, currency fluctuations and costs related to the ramp of our software deployment capabilities.
In the second quarter, Oncology orders were $766 million, up 15%. Orders in the Americas increased 7% driven by strong U.S. growth. In EMEA, orders rose 17%, the seventh consecutive quarter of double-digit growth for the region. In APAC, orders increased 35%, with accelerating growth in China.
Proton Solutions Segment
In the second quarter, Proton Solutions revenues totaled $33 million, up 2%. Operating earnings were negatively impacted by $7 million in increased project costs and site delays.
Guidance for Full Fiscal Year 2019
The company is raising revenue guidance and are otherwise reaffirming the following guidance for fiscal year 2019:
Prior Guidance Updated Guidance
Revenues
$3.06 to $3.15 billion
$3.09 to $3.18 billion
Y/Y 5% to 8% 6% to 9%
Non-
GAAP
operating
earnings
as
a
percentage
of
revenues 17.0% to 18.0%
Unchanged
Non-
GAAP
net
earnings
per
share
-
diluted
$4.60 to $4.75
Unchanged
Cash
flows
from
operations
$460 to $510 million
Unchanged
---
This updated guidance reflects increased project costs and site delays in our Proton Solutions business of $7 million, incremental investments in our preclinical research with the FlashForward(TM) Consortium of $5 million, and costs related to the ramp of our software deployment capabilities of $2 million, partially offset by an estimated reduction in gross tariff impact of $5 million.
The guidance assumes a Non-GAAP effective tax rate of 21% to 22% and a weighted average diluted share count of 92 million, unchanged from our original assumptions. The guidance also assumes currency rates as of the beginning of the fiscal third quarter of 2019, includes the expected net impact of all tariffs effective as of the beginning of the fiscal year, and excludes any future acquisitions.
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 2019 conference call at 1:30 p.m. Pacific Time today. To access the live webcast or replay of the call, visit the Investor Relations page on our website at www.varian.com/investors. 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 conference ID 13688640. The teleconference replay will be available through 5:00 p.m. Pacific Time, Friday, April 26, 2019.
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 7,000 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, operating expenses, tax rate, cash flows, earnings growth or other financial results; and any statements using the terms "could," "believe," "expect," "promising," "outlook," "should," "well-positioned," "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 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; recent and potential future tariffs or a global trade war; 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 proton solutions 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 proton solutions 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 proton solutions 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 29, 2019. 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 2019 Q2 2018 1H 1H
FY 2019 FY 2018
---
Gross orders $
770.9 $
666.0 $
1,492.6 $
1,332.1
Oncology Systems 766.2 664.1 1,482.7 1,284.0
Proton Solutions 4.7 1.9 9.9 48.1
Order backlog 3,117.9 2,927.1 3,117.9 2,927.1
Revenues 779.4 729.9 1,520.4 1,408.4
Oncology Systems 746.8 698.0 1,449.3 1,347.4
Proton Solutions 32.6 31.9 71.1 61.0
Cost of revenues 461.2 411.4 886.1 787.1
Gross margin 318.2 318.5 634.3 621.3
As a percentage of revenues 40.8 43.6
%
%
% % 41.7 44.1
Operating expenses
Research and development 59.4 58.9 120.3 114.8
Selling, general and
administrative 149.0 139.4 292.5 264.7
Impairment charges 11.1 11.1
Operating earnings 109.8 109.1 221.5 230.7
As a percentage of revenues 14.1 14.9
%
%
% % 14.6 16.4
Interest income, net 3.0 1.3 5.7 2.4
Other income (expense) 0.2 (14.8) 23.2 (15.0)
Earnings before taxes 113.0 95.6 250.4 218.1
Taxes on earnings 24.6 22.4 58.1 257.1
Net earnings (loss) 88.4 73.2 192.3 (39.0)
Less: Net earnings (loss)
attributable to non-controlling
interests (0.2) 0.5 0.1
Net earnings (loss) attributable
to Varian $
88.6 $
73.2 $
191.8 $
(39.1)
Net earnings (loss) per share -
basic $
0.97 $
0.80 $
2.11 $
(0.43)
Net earnings (loss) per share -
diluted $
0.96 $
0.79 $
2.09 $
(0.43)
Shares used in the calculation of
net earnings (loss) per share:
Weighted average shares
outstanding -basic 91.0 91.5 91.0 91.6
Weighted average shares
outstanding -diluted 91.9 92.6 92.0 91.6
Varian Medical Systems, Inc. and Subsidiaries
Preliminary Condensed Consolidated Balance Sheets
(Unaudited)
(In millions) March 29, September 28,
---
2019 2018
Assets
Current assets:
Cash and cash equivalents $
546.3 $
504.8
Trade and unbilled receivables, net 1,029.2 1,009.9
Inventories 478.0 438.1
Prepaid expenses and other current
assets 207.7 233.3
Current assets of discontinued
operations 2.3
Total current assets 2,261.2 2,188.4
Property, plant and equipment, net 268.4 274.6
Goodwill 309.3 293.6
Intangible assets 90.8 101.1
Deferred tax assets 94.9 102.2
Other assets 365.6 292.8
Total assets $
3,390.2 $
3,252.7
Liabilities and Equity
Current liabilities:
Accounts payable $
208.7 $
190.3
Accrued liabilities 352.2 419.7
Deferred revenues 757.9 729.7
Total current liabilities 1,318.8 1,339.7
Other long-term liabilities 331.3 324.3
Total liabilities 1,650.1 1,664.0
Equity:
Varian stockholders' equity:
Common stock 91.2 91.2
Capital in excess of par value 813.6 778.1
Retained earnings 902.3 780.4
Accumulated other comprehensive loss (71.8) (65.3)
Total Varian stockholders' equity 1,735.3 1,584.4
Non-controlling interests 4.8 4.3
Total equity 1,740.1 1,588.7
Total liabilities and equity $
3,390.2 $
3,252.7
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 as operating earnings excluding amortization of intangible assets, acquisition and integration-related expenses and benefits, impairment charges, and significant litigation charges or benefits and legal costs. 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 gain or losses on equity investments, loss on hedges related to acquisition-related activities, and significant non-recurring tax expense or benefit, 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, breakup fees, 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.
Impairment charges: We incur 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.
Gains or losses on equity investments: We may incur gains or losses from the sale of our equity investments in privately-held companies. We do not trade equity investments, and we do not plan on these investments for funding of ongoing operations. We exclude such gains or losses because we do not believe they are reflective of our core business.
Significant non-recurring tax expense or benefit: We may incur significant tax expense or benefit as a result of tax legislation and/or a change in judgment about the need for a valuation allowance that are generally unrelated to the level of business activity in the period in which these tax effects are reported. We exclude such expenses or benefits from our non-GAAP net earnings because we believe they do not accurately reflect the underlying performance of our continuing business operations.
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.
The following table reconciles GAAP and non-GAAP financial measures:
Varian Medical Systems, Inc. and Subsidiaries
Reconciliation of Preliminary GAAP and Non-GAAP Financial Measures
(Unaudited)
(Dollars and shares in
millions, except per share
amounts) Q2 2019 Q2 2018 1H 1H
FY 2019 FY 2018
Non-GAAP adjustments
Amortization of intangible
assets (1) $
6.1 $
3.5 $
10.3 $
6.6
Acquisition-related expenses 2.2 3.3 4.6 4.8
Impairment charge 11.1 11.1
Litigation charge and legal
costs 0.8 1.7
Other 0.1 0.1
Total non-GAAP adjustments to
operating earnings 9.1 18.0 16.6 22.6
(Gain) loss on equity
investments (2) 0.2 (21.8)
Loss on hedges related to
acquisition-related
activities (3) 16.4 16.4
Tax effects of non-GAAP
adjustments (1.7) (7.1) 2.1 (8.1)
Significant effects of tax
legislation (4) 6.2 2.3 213.3
Changes in deferred tax related
to an acquisition (5) 2.5
Total net earnings impact from
non-GAAP adjustments $
7.6 $
33.5 $
1.7 $
244.2
Operating earnings
reconciliation
GAAP operating earnings $
109.8 $
109.1 $
221.5 $
230.7
Total operating earnings impact
from non-GAAP adjustments 9.1 18.0 16.6 22.6
Non-GAAP operating earnings $
118.9 $
127.1 $
238.1 $
253.3
Net earnings (loss) and net
earnings (loss) per diluted
share reconciliation
GAAP net earnings (loss)
attributable to Varian $
88.6 $
73.2 $
191.8 $
(39.1)
Total net earnings (loss)
impact from non-GAAP
adjustments 7.6 33.5 1.7 244.2
Non-GAAP net earnings
attributable to Varian $
96.2 $
106.7 $
193.5 $
205.1
GAAP net earnings (loss) per
share - diluted $
0.96 $
0.79 $
2.09 $
(0.43)
Non-GAAP net earnings per
share - diluted $
1.05 $
1.15 $
2.10 $
2.21
Shares used in computing GAAP
net earnings per diluted share 91.9 92.6 92.0 91.6
Shares used in computing non-
GAAP net earnings per diluted
share 91.9 92.6 92.0 92.7
---
(1) Includes $2.9 million, $1.5 million,
$4.8 million, and $2.7 million,
respectively in cost of revenues for
the periods presented.
(2) Primarily includes a $22.0 million
gain on the sale of our investment in
Augmenix in the year-to-date period
2019.
(3) Represents the hedging loss related to
the Australian dollar purchase price
for the anticipated Sirtex Medical
Limited acquisition.
(4) Represents the tax effect of a change
in law related to the U.S. Tax Cuts
and Jobs Act. The mandatory deemed
repatriation of unremitted foreign
earnings resulted in an estimated
charge of $2.3 million in the year-
to-date period 2019 and $3.7 million
in the second quarter of 2018 and
$173.1 million in the year-to-date
period 2018. The corporate rate
reduction resulted in a remeasurement
of our deferred tax assets of $2.5
million in the second quarter of 2018
and $40.2 million in the year-to-
date period 2018.
(5) Represents the charge to income tax
expense due to the increase of a
valuation allowance as a result of an
acquisition.
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
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SOURCE Varian
