Varian Reports Results for Third Quarter of Fiscal Year 2019
PALO ALTO, Calif., July 24, 2019 /PRNewswire/ --
Third Quarter 2019 Summary
-- Oncology Systems gross orders grew 2% in dollars, or 4% in constant
currency; Trailing twelve months gross orders grew 11% in dollars, or
13% in constant currency
-- Total company revenues grew 16% in dollars, or 19% in constant currency,
to $826 million
-- GAAP operating earnings declined 48% at 6.5% of revenues; Non-GAAP
operating earnings grew 22% at 17.5% of revenues
-- GAAP net earnings per diluted share of $0.32; Non-GAAP net earnings per
diluted share of $1.32
-- GAAP net earnings include a $51 million impairment charge to Proton
Solutions goodwill and $31 million in acquisition related costs
-- US/China tariffs negatively impacted revenue growth by $10 million or
140 basis points and GAAP operating earnings growth by $15 million and
as a percentage of revenues by 170 basis points
-- Updating fiscal year 2019 guidance; raising revenue growth range to 9%
to 10% and narrowing Non-GAAP net earnings per diluted share range to
$4.58 to $4.63
-- Closed the acquisitions of CyberHeart, Cancer Treatment Services
International, Endocare, and Alicon
Varian (NYSE: VAR) today announced its third quarter fiscal year 2019 results.
"In the third quarter, our team delivered exceptional performance growing Non-GAAP operating earnings faster than revenue," said Dow Wilson, Chief Executive Officer of Varian. "We are also excited about the progress we made in the quarter toward our long-term strategy with additions to our portfolio in technology-enabled services, interventional oncology, and cardiac radioablation."
Summary
(Dollars and
shares in
millions,
except per
share amounts) Q3 2019 Q3 2018 Y/Y FY 2019 FY 2018 Y/Y
Revenues $
825.8 $
709.1 16 $
2,346.2 $
2,117.5 11
%
%
Gross margin as
a percentage %
of revenues 42.5
% 44.2 (170 bps) 42.0
% 44.2
% (220 bps)
GAAP net
earnings
%
attributable
to Varian $
29.4 $
72.6 (60) $
221.2 $
33.5 N/M
GAAP net
earnings per
%
share -
diluted $
0.32 $
0.79 (59) $
2.41 $
0.36 N/M
Net cash
provided by
%
operating %
activities $
130.1 $
102.2 27 $
257.6 $
346.7 (26)
Non-GAAP net $
120.8 $
96.6 25 $
314.3 $
301.7 4
earnings (1)
%
%
Non-GAAP net
earnings per
%
%
share -
diluted (1) $
1.32 $
1.04 26 $
3.42 $
3.26 5
Shares used in
computing GAAP
and non-GAAP
net earnings
per diluted
share 91.8 92.5 91.9 92.6
---
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 and
amortization of inventory step-
up, acquisition-related expenses
or benefits and in-process
research and development,
impairment charges, significant
litigation charges or benefits
and legal costs, gains and losses
on equity investments, and
significant non-recurring tax
expense or benefit.
The company ended the quarter with $523 million in cash and cash equivalents and $401 million in debt. Net cash provided by operating activities was $130 million, up $28 million, due to increased operating profit and strong collection momentum in the Oncology business. During the quarter, the company invested $49 million to repurchase three hundred and fifty thousand shares of common stock.
Oncology Systems Segment
In the third quarter, Oncology revenues totaled $793 million, up 19%. Operating earnings were $149 million, up 18%. Oncology orders were $778 million, up 2%. Orders in the Americas decreased 1%. In EMEA, orders rose 8%, the eighth consecutive quarter of double-digit growth on a constant currency basis for the region. In APAC, orders decreased 1% with softness across the region except in China, which saw strong double-digit growth.
Proton Solutions Segment
In the third quarter, Proton Solutions revenues totaled $31 million, down 26%. Operating earnings were negatively impacted by a goodwill impairment. Three new orders were taken in the quarter totaling $108 million.
Non-GAAP Adjustments
Varian's GAAP net earnings include an impairment of $51 million related to the Proton Solutions business, a $21 million charge associated with the write-off of in-process research and development acquired in the CyberHeart acquisition, and $10 million of costs related to the acquisitions of Cancer Treatment Services International, Endocare, Alicon, and the anticipated asset purchase of the Boston Scientific beads portfolio. Together, these costs, and their associated tax effects, reduced Varian's net earnings in the third quarter of fiscal 2019 by $0.88 per diluted share on a GAAP basis and were excluded from non-GAAP results.
Guidance for Full Fiscal Year 2019
Varian is pleased with the underlying operational performance, progress on tariff mitigation activities to date, and the recent approval by the U.S. Trade Representative to retroactively exclude tariffs on multi-leaf collimators sourced from China. The company is investing more in innovation to drive long-term growth, infrastructure to support the growth, and accelerating investments in recent acquisitions.
The company is raising revenue growth guidance and updating the following guidance for fiscal year 2019:
Prior Guidance
Updated Guidance
Revenues
$3.09 to $3.18 billion
$3.18 to $3.21 billion
Y/Y 6% to 9% 9% to 10%
Non-GAAP operating earnings as a percentage of revenues 16.5% to 17.5% 16.5%
Non-GAAP net earnings per share - diluted
$4.55 to $4.70
$4.58 to $4.63
Cash flows from operations
$440 to $490 million
$430 to $470 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 fourth quarter of 2019, includes the expected net impact of all tariffs currently in effect, and includes acquisitions announced to date.
Unless otherwise stated, in this release all growth rates are year-over-year, and any references to orders are gross orders. All periods referred to are fiscal periods, and all references to trailing twelve months refer to the trailing twelve months ending on the last day of our most recently completed fiscal quarter. 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 third 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 13691935. The teleconference replay will be available through 5:00 p.m. Pacific Time, Friday, July 26, 2019.
About Varian
At Varian, we envision a world without fear of cancer. For more than 70 years, we have developed, built and delivered innovative cancer care technologies and solutions for our clinical partners around the globe to help them treat millions of patients each year. With an Intelligent Cancer Care approach, we are harnessing advanced technologies like artificial intelligence, machine learning and data analytics to enhance cancer treatment and expand access to care. Our 9,200 employees across 70 countries keep the patient and our clinical partners at the center of our thinking as we power new victories in cancer care. Because, for cancer patients everywhere, their fight is our fight. 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; risks associated
with integrating recent 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; 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 potential loss of key
distributors or key personnel;
challenges related to entering into new
business lines; 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 June 28, 2019. As a
result, all financial results described
here should be considered preliminary,
and are subject to change to reflect
any necessary adjustments, completion
of purchase accounting, 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) Q3 2019 Q3 2018 FY 2019 FY 2018
---
Gross orders $
891.6 $
767.1 $
2,384.2 $
2,099.2
Oncology Systems 778.3 763.3 2,261.0 2,047.3
Proton Solutions 111.3 3.8 121.2 51.9
Other 2.0 2.0
Order backlog 3,118.4 2,948.9 3,118.4 2,948.9
Revenues 825.8 709.1 2,346.2 2,117.5
Oncology Systems 792.9 667.2 2,242.2 2,014.6
Proton Solutions 30.9 41.9 102.0 102.9
Other 2.0 2.0
Cost of revenues 474.4 395.5 1,360.5 1,182.6
Gross margin 351.4 313.6 985.7 934.9
As a percentage of revenues 42.5 44.2
%
%
% % 42.0 44.2
Operating expenses
Research and development 62.1 59.5 182.4 174.3
Selling, general and
administrative 153.6 140.4 441.5 400.3
Impairment charges 50.6 11.0 50.6 22.1
Acquisition-related expenses
(benefits) and in-process R&D 31.2 (0.6) 35.8 4.2
Operating earnings 53.9 103.3 275.4 334.0
As a percentage of revenues 6.5 14.6
%
%
%
% 11.7 15.8
Interest income, net 1.9 0.5 7.6 2.9
Other income (expense), net 4.2 (11.8) 27.4 (26.8)
Earnings before taxes 60.0 92.0 310.4 310.1
Taxes on earnings 30.5 19.5 88.6 276.6
Net earnings 29.5 72.5 221.8 33.5
Less: Net earnings (loss)
attributable to non-controlling
interests 0.1 (0.1) 0.6
Net earnings attributable to
Varian $
29.4 $
72.6 $
221.2 $
33.5
Net earnings per share - basic $
0.32 $
0.79 $
2.43 $
0.37
Net earnings per share - diluted $
0.32 $
0.79 $
2.41 $
0.36
Shares used in the calculation of
net earnings per share:
Weighted average shares
outstanding -basic 91.0 91.5 91.0 91.6
Weighted average shares
outstanding -diluted 91.8 92.5 91.9 92.6
---
Varian Medical Systems, Inc. and Subsidiaries
Preliminary Condensed Consolidated Balance Sheets
(Unaudited)
June 28, September 28,
(In millions) 2019 2018
---
Assets
Current assets:
Cash and cash equivalents $
523.4 $
504.8
Trade and unbilled receivables, net 1,058.0 1,009.9
Inventories 529.3 438.1
Prepaid expenses and other current assets 231.2 233.3
Current assets of discontinued operations 2.3
Total current assets 2,341.9 2,188.4
Property, plant and equipment, net 307.3 274.6
Goodwill 559.1 293.6
Intangible assets 283.1 101.1
Deferred tax assets 93.9 102.2
Other assets 384.7 292.8
Total assets $
3,970.0 $
3,252.7
Liabilities and Equity
Current liabilities:
Accounts payable $
228.0 $
190.3
Accrued liabilities 432.8 419.7
Deferred revenues 751.2 729.7
Short-term borrowings 400.0
Current maturities of long-term debt 0.8
Total current liabilities 1,812.8 1,339.7
Other long-term liabilities 401.3 324.3
Total liabilities 2,214.1 1,664.0
Equity:
Varian stockholders' equity:
Common stock 91.0 91.2
Capital in excess of par value 831.4 778.1
Retained earnings 890.6 780.4
Accumulated other comprehensive loss (69.7) (65.3)
Total Varian stockholders' equity 1,743.3 1,584.4
Non-controlling interests 12.6 4.3
Total equity 1,755.9 1,588.7
Total liabilities and equity $
3,970.0 $
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-related expenses or benefits and in-process research and development, 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 and amortization of inventory step-up: We do not acquire businesses and assets on a predictable cycle. The amount of purchase price allocated to intangible assets, the step-up of inventory values, and the term of amortization can vary significantly and are unique to each acquisition or purchase. We believe that excluding amortization of intangible assets and amortization of inventory step-up 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 and in-process research and development: 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, write-off of in-process research and development, 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) Q3 2019 Q3 2018 FY 2019 FY 2018
Non-GAAP adjustments
Amortization of intangible
assets and inventory step-up
(1) $
6.8 $
4.1 $
17.1 $
10.7
Acquisition-related expenses
(benefits) and in-process
R&D (2) 31.2 (0.6) 35.8 4.2
Impairment charges (3) 50.6 11.0 50.6 22.1
Litigation charge and legal
costs 1.0 2.7
Other 0.8 0.2 0.8 0.3
Total non-GAAP adjustments to
operating earnings 90.4 14.7 107.0 37.3
(Gain) on equity investments
(4) (2.0) (23.8)
Loss on hedges related to
acquisition-related
activities (5) 13.3 29.7
Tax effects of non-GAAP
adjustments (2.5) (5.6) (0.4) (13.7)
Significant effects of tax
legislation (6) 5.5 1.6 7.8 214.9
Changes in deferred tax
related to an acquisition (7) 2.5
Total net earnings impact from
non-GAAP adjustments $
91.4 $
24.0 $
93.1 $
268.2
Operating earnings
reconciliation
GAAP operating earnings $
53.9 $
103.3 $
275.4 $
334.0
Total operating earnings
impact from non-GAAP
adjustments 90.4 14.7 107.0 37.3
Non-GAAP operating earnings $
144.3 $
118.0 $
382.4 $
371.3
Net earnings and net earnings
per diluted share
reconciliation
GAAP net earnings attributable
to Varian $
29.4 $
72.6 $
221.2 $
33.5
Total net earnings impact from
non-GAAP adjustments 91.4 24.0 93.1 268.2
Non-GAAP net earnings
attributable to Varian $
120.8 $
96.6 $
314.3 $
301.7
GAAP net earnings per share -
diluted $
0.32 $
0.79 $
2.41 $
0.36
Non-GAAP net earnings per
share - diluted $
1.32 $
1.04 $
3.42 $
3.26
Shares used in computing GAAP
and non-GAAP net earnings
per diluted share 91.8 92.5 91.9 92.6
---
(1) Includes $3.2 million, $1.9 million,
$8.0 million and $4.6 million,
respectively in cost of revenues for
the periods presented.
(2) Includes a $20.8 million charge
associated with the write-off of in-
process research and development
acquired in the CyberHeart
acquisition.
(3) Includes a $50.5 million goodwill
impairment charge related to our
Proton Solutions business in the
third quarter of 2019.
(4) Primarily includes $22.0 million gain
on the sale of our investment in
Augmenix in the year-to-date period
2019.
(5) Represents the hedging loss related to
the Australian dollar purchase price
for the anticipated Sirtex Medical
Limited acquisition.
(6) 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 results in an estimated
charge of $6.4 million in the third
quarter and $8.7 million in the year-
to-date period 2019 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 $0.9 million
for third quarter and year-to-date
period of 2019 and $1.6 million in
the third quarter and $41.8 million
in the year-to-date period 2018.
(7) 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
View original content:http://www.prnewswire.com/news-releases/varian-reports-results-for-third-quarter-of-fiscal-year-2019-300890549.html
SOURCE Varian
