On January 25, 2017 Varian Medical Systems (NYSE:VAR) reported GAAP net earnings of $0.22 per diluted share and non-GAAP net earnings of $0.75 per diluted share for the first quarter of fiscal year 2017, including $76 million in charges almost exclusively relating to a proton facility owned by California Proton Treatment Center, LLC (CPTC) in San Diego (Press release, Varian Medical Systems, JAN 25, 2017, View Source [SID1234517559]). These charges and the associated limited tax deductibility reduced Varian earnings in the first quarter of fiscal 2017 by $0.64 per diluted share on a GAAP basis or $0.34 per diluted share on a non-GAAP basis.
Varian’s first quarter revenues totaled $763 million, up 1 percent from the year-ago quarter in dollars and constant currency. The company ended the quarter with a $3.4 billion backlog, up 2 percent from the end of the first quarter of fiscal year 2016.
"Varian generated strong global order growth and margin gains in our oncology business as well as sales momentum in the imaging components business while recording an impairment of CPTC’s indebtedness to Varian," said Dow Wilson, CEO of Varian Medical Systems. "We remain on track with our previously announced plans to separate and establish the imaging components business as a new public company, Varex Imaging, at the end of this month."
Varian took a $76 million charge in the first quarter in response to certain actions in January by CPTC and its loan agent, ORIX Capital Markets, to address liquidity issues caused by lower than expected patient volumes that are insufficient to support CPTC’s capital structure. This led Varian to reserve $38 million in accounts receivable and to impair $38 million of its $98 million loan to CPTC, of which $29 million was accrued interest. The company is reporting additional information on this matter today in a Form 8-K filing with the Securities and Exchange Commission.
"We believe this center can get on a more solid financial footing by serving a broader patient population with additional healthcare providers locally and regionally," Wilson said. "We remain confident and committed to supporting all of our customers and to building a profitable proton business based on leading technology that is treating patients and performing at a high level. We are continuing to make good progress on 13 other installations and the sales funnel continues to look promising." The company’s Particle Therapy business, recorded first quarter revenues of $30 million.
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Varian finished its first quarter of fiscal year 2017 with $815 million in cash and cash equivalents and $607 million of debt. Cash flow from operations was $82 million for the first quarter. During the quarter, the company spent $49 million to repurchase 500,000 shares of common stock.
Oncology Systems
Oncology Systems’ first quarter revenues totaled $581 million, down from the year-ago quarter by 1 percent in dollars and by 2 percent in constant currency. First-quarter Oncology gross orders were $586 million, up from the year-ago quarter by 10 percent in dollars and constant currency. In the Americas, Oncology gross orders increased by 5 percent in dollars and in constant currency, including 7 percent growth in North America. In EMEA, gross orders were up 8 percent in dollars and up 10 percent in constant currency. In APAC, gross orders rose 29 percent in dollars and by 24 percent in constant currency.
"Broad-based demand for new equipment as well as software and services drove the strong gross order growth in our Oncology business during the quarter," Wilson said. "Revenues declined versus a strong year-ago quarter due primarily to the timing of deliveries, but this business did a spectacular job of improving margins with the help of product mix, stable pricing and product cost reductions."
Imaging Components
First quarter revenues from Varian’s Imaging Components business were $152 million, up 7 percent from the year-ago period, and first quarter gross orders for this business were $132 million, up 4 percent from the year-ago period.
"Revenues from Imaging Components rose with gains in both the medical and industrial segments," said Varian Imaging Components President Sunny Sanyal, who will become CEO of Varex Imaging. "With our first quarter performance as well as our previously announced plan to acquire the Medical Imaging business of PerkinElmer this fiscal year, our business is on track to separate from Varian with solid momentum in orders and sales."
Varian Outlook
"Beginning with our fiscal second quarter, Imaging Components will be reflected as a discontinued operation for the first four months of fiscal year 2017," said Wilson. "The company is guiding for continuing operations for the second through the fourth quarters of the fiscal year 2017. For the balance of fiscal year 2017, we believe Varian revenues from continuing operations will grow in the range of 4 to 5 percent, bringing revenue growth for the year to 3 to 4 percent. Non-GAAP earnings per diluted share from continuing operations for the second through fourth quarters of the fiscal year will be in the range of $2.94 to $3.06."
"For the second quarter, we believe Varian revenues from continuing operations will grow in the range of 4 to 5 percent and non-GAAP earnings per diluted share will be in the range of $0.84 to $0.90," Wilson added. The company intends to repurchase 2 million shares of stock in its second quarter of fiscal year 2017. Varian will publish a historical annual breakdown of continuing and discontinued operations for fiscal years 2014-2016 on our website filing shortly following the separation. Separately, the company will make available quarterly pre-tax results for fiscal year 2016.
Please refer to "Discussion of Non-GAAP Financial Measures" below for a description of items excluded from expected non-GAAP earnings.
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Varian Medical Systems Reports Results for First Quarter of Fiscal Year 2017