Varian Medical Systems Reports Results for Second Quarter of Fiscal Year 2014

Second quarter net earnings per diluted share are $0.88 including patent litigation settlement; revenues increase 1 percent to $779 million

Apr 23, 2014, 16:05 ET from Varian Medical Systems

PALO ALTO, Calif., April 23, 2014 /PRNewswire/ -- Varian Medical Systems (NYSE: VAR) today is reporting net earnings of $0.88 per diluted share in the second quarter of fiscal year 2014, including a $0.16 charge per diluted share related to a previously announced settlement of patent litigation.  Varian's company-wide revenues totaled $779 million for the second quarter of fiscal year 2014, up 1 percent from the year-ago quarter.  Varian ended the second quarter with a $2.8 billion backlog, up 2 percent from the end of the second quarter of fiscal year 2013.

"Gross orders rose strongly in our imaging components and proton businesses on top of mid-single-digit gains in Oncology Systems," said Dow R. Wilson, CEO of Varian Medical Systems.  "Revenues came in slightly ahead of expectations versus a strong year-ago comparison, and our overall growth strategy remained on track."

The company finished the second quarter of fiscal year 2014 with $939 million in cash and cash equivalents and $469 million of debt.  Cash flow from operations for the fiscal second quarter was $126 million.  During the quarter, the company spent $159 million to repurchase approximately 2 million shares of its common stock.

Oncology Systems Oncology Systems' second quarter revenues totaled $603 million, up 4 percent from the same quarter of fiscal year 2013.  Second-quarter gross orders were $613 million, up 6 percent versus the year-ago quarter, with a 3 percent gain in North America and a 9 percent gain outside North America. Markets outside North America represented 58 percent of Oncology gross orders for the second quarter of fiscal year 2014. 

"Gross orders rose versus the year-ago quarter in North America with the help of good service growth.  New multi-year agreements with large hospital systems also contributed to gains in Oncology products and services," Wilson said.  "International orders increased with particular strength in Latin America and Australia that offset softness in Asia.  Initiatives to expand our radiosurgery business and stimulate replacement of aging Siemens units gained traction during the quarter."

Imaging Components During the second quarter, the company consolidated its X-Ray Products and Security and Inspection Products businesses into a single Imaging Components segment to conform to an organizational change. Second quarter revenues for Imaging Components were $169 million, up 2 percent from the year-ago quarter.  Imaging Components second quarter gross orders were $205 million, up 14 percent from the year-ago quarter. "Strong panel business drove order and revenue growth for Imaging Components, offsetting weakness in the security and tube businesses," Wilson said. (For comparison purposes, a quarterly breakout of the Imaging Components segment financials for fiscal years 2014, 2013 and 2012 is attached.)

Other The company's Other category, including the Varian Particle Therapy business and the Ginzton Technology Center, recorded second quarter revenues of $6 million versus $20 million in the year-ago quarter.  Gross orders for the Other category were $60 million for the second quarter, up from less than $1 million in the year-ago quarter.  The company recorded orders for proton installations at the Cincinnati Children's Hospital Medical Center in Ohio and at the Paul Scherrer Institute in Switzerland.  "This business gained good momentum during the quarter," Wilson said.

Outlook "The company is continuing to execute well, and our businesses remain on track to reach our fiscal year 2014 growth targets," said Wilson.  "For the fiscal year, we continue to believe that total company revenues could increase by about six to eight percent over the prior fiscal year.  We expect net earnings per diluted share for the fiscal year, including the $0.16 effect of the patent litigation settlement, to be in the range of $4.06 to $4.18. We expect total company revenues for the third quarter of fiscal year 2014 to increase in the range of five to six percent.  We expect net earnings per diluted share for the third quarter to be in the range of $1.06 to $1.10."

Investor Conference Call Varian Medical Systems is scheduled to conduct its second 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 13578961.  The telephone replay will be available through 5 p.m. PT, Friday, April 25, 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, digital detectors, and image processing software and workstations for X-ray imaging in medical, scientific, and industrial applications and also supplies high-energy X-ray devices for cargo screening and non-destructive testing applications.  Varian Medical Systems employs approximately 6,500 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 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," "continue," "maintain," "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.

A summary of earnings and other financial information follows.

 

Varian Medical Systems, Inc. and Subsidiaries  Condensed Consolidated Statements of Earnings  (Unaudited)

 

 

 

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

Q2 QTR

2014

Q2 QTR

2013 (1)

Q2 YTD

2014

Q2 YTD

2013 (1)

Gross orders

$

877.7

757.7

1,533.1

1,409.4

  Oncology Systems

613.0

576.9

1,146.3

1,085.7

  Imaging Components

205.0

180.1

326.4

322.3

  Other

59.7

0.7

60.4

1.4

Net orders

818.6

735.8

1,427.6

1,355.0

  Oncology Systems

559.1

555.1

1,048.7

1,032.0

  Imaging Components

200.6

180.0

319.3

321.6

  Other

58.9

0.7

59.6

1.4

Order Backlog

2,806.6

2,752.6

2,806.6

2,752.6

Revenues

778.5

768.4

1,490.0

1,446.8

  Oncology Systems

603.1

581.8

1,144.5

1,106.1

  Imaging Components

169.0

166.4

330.2

316.4

  Other

6.4

20.2

15.3

24.3

Cost of revenues

450.2

448.8

852.1

836.1

Gross margin

328.3

319.6

637.9

610.7

  As a percent of revenues

42.2%

41.6%

42.8%

42.2%

Operating expenses

  Research and development 

60.7

50.9

118.7

98.0

  Selling, general and administrative 

115.0

113.0

224.6

219.5

  Litigation Settlement 

25.1

-

25.1

-

Operating earnings

127.5

155.7

269.5

293.2

  As a percent of revenues

16.4%

20.3%

18.1%

20.3%

Interest income, net

0.6

0.6

1.0

1.3

Earnings before taxes

128.1

156.3

270.5

294.5

Taxes on earnings

35.4

43.5

79.8

86.4

Net earnings

$

92.7

112.8

190.7

208.1

  As a percent of revenues

11.9%

14.7%

12.8%

14.4%

Net earnings per share – basic

$

0.89

1.04

1.82

1.91

 Net earnings per share – diluted

0.88

1.02

1.79

1.88

Shares used in the calculation of net earnings per share:    

Average shares outstanding - basic

104.2

108.8

105.0

109.0

Average shares outstanding - diluted

105.4

110.7

106.4

110.9

(1)

Prior period numbers have been recast to conform to the segment reporting change.

 

 

 

Varian Medical Systems, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(In thousands)

March 28,  

September 27,

2014

     2013  (1)

(Unaudited)

Assets

Current assets

    Cash and cash equivalents

$

938,997

$

1,117,861

    Short-term investment

79,444

62,700

    Accounts receivable, net

786,029

698,254

    Inventories                                       

561,194

535,223

    Deferred tax assets and other                                

312,640

290,745

Total current assets                                       

2,678,304

2,704,783

Property, plant and equipment                                             

750,109

715,991

    Accumulated depreciation and amortization                    

(424,267)

(400,660)

Property, plant and equipment, net                         

325,842

315,331

Goodwill

226,829

225,335

Other assets                                                    

244,863

223,025

Total assets                                              

$

3,475,838

$

3,468,474

Liabilities and Stockholders' Equity

Current liabilities                                                        

    Accounts payable                                             

$

170,364

$

194,272

    Accrued expenses                                             

370,525

320,884

    Deferred revenues                                              

418,247

389,479

    Advance payments from customers                              

169,905

160,644

    Product warranty                                                        

49,445

39,050

   Current maturities of long-term debt                              

56,250

56,250

Total current liabilities                                  

1,234,736

1,160,579

Other long-term liabilities

149,586

144,048

Long-term debt                                                             

412,500

450,000

Total liabilities                                          

1,796,822

1,754,627

Stockholders' Equity

Common stock

104,019

106,491

Capital in excess of par value

650,684

637,084

Retained earnings and accumulated other comprehensive loss 

924,313

970,272

Total stockholders' equity                                 

1,679,016

1,713,847

Total liabilities and stockholders' equity              

$

3,475,838

$

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

Imaging Components

(Unaudited)

FY 2014

(In Millions)

Q114

Q214

FY 2014

Gross Orders

$

121.4

205.0

326.4

Net Orders

118.7

200.6

319.3

Revenues

161.2

169.0

330.2

Gross Margin                              

$

66.6

70.2

136.8

%

41.3

41.5

41.4

Operating Earnings                              

$

40.7

42.2

82.9

FY 2013

(In Millions)

  Q113

Q213

Q313

Q413

FY 2013

Gross Orders

$

142.2

180.1

144.6

201.3

668.2

Net Orders

141.6

180.0

143.1

201.2

665.9

Revenues

150.0

166.4

158.2

167.3

641.9

Gross Margin                              

$

61.2

70.4

64.8

71.7

268.1

%

40.8

42.3

41.0

42.8

41.8

Operating Earnings                              

$

35.2

43.5

40.2

46.7

165.6

FY 2012

(In Millions)

Q112

Q212

Q312

Q412

FY 2012

Gross Orders

$

120.9

174.6

126.5

174.4

596.4

Net Orders

120.5

174.5

126.2

174.3

595.5

Revenues

128.1

139.8

152.4

160.1

580.4

Gross Margin                              

$

50.4

58.9

66.2

66.9

242.4

%

39.3

42.1

43.4

41.8

41.8

Operating Earnings                              

$

28.4

34.0

39.0

41.1

142.5

 

FOR INFORMATION CONTACT:

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

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

SOURCE Varian Medical Systems



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