Varian Medical Systems Reports Results for First Quarter of Fiscal Year 2014 First quarter net earnings per diluted share rise 6 percent to $0.91; revenues increase 5 percent to $712 million

PALO ALTO, Calif., Jan. 22, 2014 /PRNewswire/ -- Varian Medical Systems (NYSE: VAR) today is reporting net earnings of $0.91 per diluted share in the first quarter of fiscal year 2014, up 6 percent from $0.86 in the year-ago quarter.  Varian's company-wide revenues totaled $712 million for the first quarter of fiscal year 2014, up 5 percent from the year-ago quarter.  Varian ended the first quarter with a $2.8 billion backlog, down 1 percent from the end of the first quarter of fiscal year 2013.

"We are pleased with our first quarter earnings performance," said Dow R. Wilson, CEO of Varian Medical Systems.  "Continued demand for Oncology services and X-ray imaging components drove growth in revenues during the quarter.  Product mix and improved quality costs contributed to strong gross margin performance for the quarter.  Operating earnings rose slightly, even with a significant increase in R&D investment."

The company finished the first quarter of fiscal year 2014 with $971 million in cash and cash equivalents and $481 million of debt.  Cash flow from operations for the first quarter was $43 million.  During the first quarter of fiscal year 2014, the company spent $156 million to repurchase approximately 2 million shares of common stock.

Oncology Systems
Oncology Systems' first quarter revenues totaled $541 million, up 3 percent from the same quarter of fiscal year 2013.  First-quarter gross orders were $533 million, up 5 percent versus the year-ago quarter, with a 13 percent gain in North America and a 2 percent decline outside North America. Markets outside North America represented 52 percent of Oncology gross orders for the first quarter of fiscal year 2014.  (The attached consolidated statement of earnings provides gross and net orders for the company and the business segments. Also for comparison purposes, a quarterly breakout of reclassified product and service revenues and cost of revenues for fiscal years 2013 and 2012 is attached.)

"Strong demand for new equipment drove double digit Oncology order growth in North America where we won long-term multi-million dollar supply agreements with two large hospital systems," said Wilson.  "Demand for radiosurgery products and conversion of competitors' software and hardware, including several aging Siemens machines, also drove order growth in North America.  Gross orders were relatively flat in EMEA while slowdowns in equipment purchases in Japan and China led to an order decline in Asia."

"We believe the international markets remain healthy," said Wilson.  Early in the second quarter, Varian entered into an agreement with the Algerian Ministry of Health to supply $51 million in equipment, software and services for six treatment centers over the next five years.

X-Ray Products
First quarter revenues for the X-Ray Products business were $145 million, up 9 percent from the year-ago quarter.  X-Ray Products' first quarter gross orders were $108 million, down 19 percent from the year-ago quarter, principally due to the timing of order placements.  "Shortly after the close of the quarter, we booked over $20 million in panel and tube orders," Wilson said. 

"X-Ray Products' panel revenues grew in double digits during the quarter with the help of market traction for our new mammography and cone beam imaging products," Wilson said.  "Both gross and operating margins for X-Ray Products improved versus the year-ago quarter."

Separately, the company is announcing the execution of an expanded three-year agreement to supply an estimated $515 million of imaging components to Toshiba.  As was previously announced, the company plans to add 120,000 square feet to its production facility in Salt Lake City.

Other
The company's Other category, including the Security and Inspection Products business, the Varian Particle Therapy business, and the Ginzton Technology Center, recorded first quarter revenues of $25 million versus $21 million in the year-ago quarter.  Gross orders for the Other category were $14 million for the first quarter, up $5 million from the year-ago quarter. 

The company has now received FDA 510(k) clearance for its ProBeam™ proton therapy system.  The company has contracts to install the ProBeam system at several centers around the world, including four in the United States, one in Saudi Arabia and one in Russia.

Outlook
"The company is executing its marketing and operational strategies effectively and we believe we are on track for hitting our fiscal year 2014 growth targets," said Wilson.  "For the fiscal year, we continue to believe that total company revenues could increase by about 6 to 8 percent over the prior fiscal year.  Net earnings per diluted share for the fiscal year could be in the range of $4.22 to $4.34. We expect total company revenues for the second quarter of fiscal year 2014 to be about equal to the year-ago quarter when proton revenues were high. Net earnings per diluted share for the second quarter could be in the range of $1.00 to $1.04."

Investor Conference Call
Varian Medical Systems is scheduled to conduct its first quarter fiscal year 2014 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 424753.  The telephone replay will be available through 5 p.m. PT, Friday, January 24, 2014.

Varian Medical Systems, Inc., of Palo Alto, California, is the world's leading manufacturer of medical devices and software for treating cancer and other medical conditions with radiotherapy, radiosurgery, and brachytherapy. The company supplies informatics software for managing comprehensive cancer clinics, radiotherapy centers and medical oncology practices. Varian is a premier supplier of tubes and digital detectors for X-ray imaging in medical, scientific, and industrial applications and also supplies X-ray imaging products for cargo screening and industrial inspection. Varian Medical Systems employs approximately 6,473 people who are located at manufacturing sites in North America, Europe, and China and 72 sales and support offices around the world. For more information, visit http://www.varian.com.

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 outlook, including growth drivers; the company's future orders, revenues, backlog, or earnings growth; future financial results; market acceptance of or transition to new products or technology such as our Edge™ radiosurgery system, TrueBeam™ and radiographic flat panel detectors, image-guided radiation therapy, stereotactic radiosurgery, filmless X-rays, proton therapy, and security and inspection, and any statements using the terms  "could," "should," "believe," "expect,"  "outlook," "targets," 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; 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; currency exchange rates and tax rates; demand for the company's products; the company's ability to develop, commercialize, and deploy new products such as the TrueBeam platform; the company's ability to meet Food and Drug Administration (FDA) and other regulatory requirements for product clearances or to comply with FDA and other regulatory regulations or procedures; changes in the regulatory environment, including with respect to FDA requirements; challenges associated with the successful commercialization of the company's particle therapy business; the effect of adverse publicity; the company's reliance on sole or limited-source suppliers; the impact of reduced or limited demand by purchasers of certain X-ray products, including those located in Japan; 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 to public tender awards and the loss of such awards or other orders; 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.

FOR INFORMATION CONTACT:

Elisha Finney (650) 424-6803
elisha.finney@varian.com

Spencer Sias (650) 424-5782
spencer.sias@varian.com

 

 


A summary of earnings and other financial information follows.


Varian Medical Systems, Inc. and Subsidiaries

Consolidated Statements of Earnings
(Unaudited)

 


(Dollars and shares in millions, except per share amounts)


Q1 QTR

2014



Q1 QTR

2013











Gross orders

$

655.4


$

651.7



  Oncology Systems


533.3



508.8



  X-Ray Products


108.2



133.8



  Other


13.9



9.1











Net orders


609.0



619.2



  Oncology Systems


489.6



476.9



  X-Ray Products


107.5



133.2



  Other


11.9



9.1











Order backlog


2,766.5



2,785.2











Revenues     


711.5



678.4



  Oncology Systems


541.4



524.3



  X-Ray Products


145.0



132.9



  Other


25.1



21.2











Cost  of  revenues  


401.9



387.3











Gross margin  


309.6



291.1



  As a percent of revenues


43.5%



42.9%



 

Operating expenses  








  Research and development


58.0



47.1



  Selling, general and administrative 


109.6



106.5











Operating earnings


142.0



137.5



  As a percent of revenues


20.0%



20.3%











Interest income, net


0.4



0.7











Earnings before taxes


142.4



138.2











Taxes on earnings 


44.4



42.9











Net earnings   

$

98.0


$

95.3



  As a percent of revenues


13.8%



14.0%



























Net earnings per share – basic

$

0.92


$

0.87



Net earnings  per share – diluted


0.91



0.86











Shares used in the calculation of net earnings per share:








Average shares outstanding - basic


106.0



109.3



Average shares outstanding - diluted


107.4



111.1


















 

 

Varian Medical Systems, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets


(In thousands)


December 27,  


September 27,

2013

     2013  (1)

(Unaudited)


Assets





Current assets





    Cash and cash equivalents

$

971,193

$

1,117,861

    Short-term investment


73,981


62,700

    Accounts receivable, net


708,226


698,254

    Inventories                                       


561,802


535,223

    Deferred tax assets and other                                


291,147


290,745

Total current assets                                       


2,606,349


2,704,783






Property, plant and equipment                                            


732,667


715,991

    Accumulated depreciation and amortization                    


(411,662)


(400,660)

Property, plant and equipment, net                         


321,005


315,331






Goodwill


226,955


225,335

Other assets                                                   


236,925


223,025

Total assets                                              

$

3,391,234

$

3,468,474






Liabilities and Stockholders' Equity





Current liabilities                                                       





    Accounts payable                                             

$

176,860

$

194,272

    Accrued expenses                                             


309,106


320,884

    Deferred revenues                                             


389,029


389,479

    Advance payments from customers                              


153,233


160,644

    Product warranty                                                        


48,666


39,050

   Current maturities of long-term debt                              


56,250


56,250

Total current liabilities                                  


1,133,144


1,160,579

Other long-term liabilities


133,501


144,048

Long-term debt                                                            


425,000


450,000

Total liabilities                                          


1,691,645


1,754,627






Stockholders' Equity





Common stock


105,316


106,491

Capital in excess of par value


638,079


637,084

Retained earnings and accumulated other comprehensive loss 


956,194


970,272

Total stockholders' equity                                 


1,699,589


1,713,847

Total liabilities and stockholders' equity              

$

3,391,234

$

3,468,474






(1)

The condensed consolidated balance sheet as of September 27, 2013 was derived from audited financial statements as of that date. 



Varian Medical Systems, Inc. and Subsidiaries

Reclassified Product and Service Revenues and Cost of Revenues

(Unaudited)










FY 2013


FY 2012

(In Millions)


Q113

Q213

Q313

Q413

FY 2013



Q112

Q212

Q312

Q412

FY 2012

Revenues














   Product 

$

468.0

546.5

503.6

537.6

2,055.7


$

433.9

523.0

503.4

543.7

2,004.0

   Service & Other


210.4

221.9

222.6

232.3

887.2



191.4

197.3

201.9

212.4

803.0

 Total Revenues

$

678.4

768.4

726.2

769.9

2,942.9


$

625.3

720.3

705.3

756.1

2,807.0







Cost of Revenues














   Product 

$

294.9

347.5

316.6

336.5

1,295.5


$

269.9

333.2

305.4

338.8

1,247.3

   Service & Other


92.4

101.3

99.1

104.9

397.7



86.6

90.4

92.3

94.1

363.4

Total Cost of Revenues

$

387.3

448.8

415.7

441.4

1,693.2


$

356.5

423.6

397.7

432.9

1,610.7















Gross Margin














   Product 

$

173.1

199.0

187.0

201.1

760.2


$

164.0

189.8

198.0

204.9

756.7

   Service & Other


118.0

120.6

123.5

127.4

489.5



104.8

106.9

109.6

118.3

439.6

Total Gross Margin

$

291.1

319.6

310.5

328.5

1,249.7


$

268.8

296.7

307.6

323.2

1,196.3


 

SOURCE Varian Medical Systems



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