On October 28, 2015 Varian Medical Systems (NYSE:VAR) reported non-GAAP net earnings of $1.04 per diluted share and GAAP earnings of $0.99 per diluted share for the fourth quarter of fiscal year 2015 (Press release, Varian Medical Systems, OCT 28, 2015, View Source [SID:1234507824]). For the full fiscal year 2015, non-GAAP earnings were $4.29 per diluted share, and GAAP earnings were $4.09 per diluted share. Varian’s revenues totaled $818 million for the fourth quarter of fiscal year 2015, up 1 percent from the year-ago quarter and up 6 percent in constant currency. Varian’s revenues for the full fiscal year were $3.1 billion, up 2 percent versus fiscal year 2014 and up 6 percent in constant currency. The company ended the fourth quarter with a $3.5 billion backlog, up 10 percent from the end of fiscal year 2014.

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"During the quarter, our Oncology Systems business generated healthy constant currency order growth, the Particle Therapy business gathered momentum, and the Imaging Components business continued to experience declines in orders, revenues and margins," said Dow R. Wilson, CEO of Varian Medical Systems. "As we previously reported, we experienced a shortfall of high-margin revenues in our Oncology business when several TrueBeam systems and related software slipped out of the quarter."

The company finished the fiscal year with $845 million in cash and cash equivalents and $496 million of debt. Cash flow from operations was $153 million for the fourth quarter and $470 million for the fiscal year. During the quarter, the company spent $128 million to repurchase about 1.5 million shares of common stock.

Oncology Systems

Oncology Systems’ fourth quarter revenues totaled $633 million, up 2 percent from the same quarter of fiscal year 2014 and up 9 percent in constant currency. Annual revenues were $2.3 billion, even with the prior fiscal year, and up 6 percent in constant currency.

Fourth-quarter gross orders were $919 million, equal to the year-ago quarter and up 5 percent in constant currency. In the Americas, fourth quarter Oncology gross orders declined by 5 percent in dollars and constant currency. In EMEA, gross orders were up 13 percent in dollars and up 25 percent in constant currency. In APAC, gross orders declined by 3 percent in dollars but rose 6 percent in constant currency. Annual Oncology gross orders were $2.7 billion, even with fiscal year 2014 and up 6 percent in constant currency. In the Americas, annual gross orders were up 1 percent in dollars and constant currency. In EMEA gross orders were flat in dollars but up 12 percent in constant currency. In APAC, order growth was also flat in dollars but up 9 percent in constant currency.

"Oncology gross orders were strong in EMEA during the quarter when we booked orders for over 100 systems," said Wilson. "North American orders grew by 4 percent in the quarter driven by customers continuing to upgrade to newer technologies, replacements of competitors’ products, and increased software sales. We believe we gained share in constant currency in all regions."

Imaging Components

Imaging Components revenues were $155 million for the fourth quarter, down 8 percent from the year-ago period, and $611 million for the fiscal year, down 7 percent from fiscal year 2014. Gross orders were $165 million for the fourth quarter, down 30 percent from the year-ago period, and totaled $605 million for the fiscal year, down 16 percent from fiscal year 2014.

"Price erosion in response to aggressive euro- and yen-based competitors was the principal cause of the decline in orders and revenues for panels and tubes in our Imaging Components business," said Wilson. "Gross orders for security products were down $63 million or 57 percent for the fiscal year, and annual revenues fell by $34 million or 37 percent, due largely to instability in key international markets. The company has initiated a restructuring program to right-size the Imaging Components business and to get it back on a growth track."

During the fourth quarter of fiscal year 2015, the company paid approximately €52 million in cash to acquire Claymount Investments B.V., a privately-held, Netherlands-based supplier of components and subsystems for X-ray imaging equipment manufacturers.

Other

The company’s Other category, including the Varian Particle Therapy business and the Ginzton Technology Center, recorded revenues of $30 million for the fourth quarter and $144 million for fiscal year 2015. It generated gross orders of $141 million in the quarter and $317 million for the fiscal year. During the quarter, the Particle Therapy business booked orders for three proton therapy centers, comprising two in the UK and one in New York. "It is gratifying to see growing global market demand for Varian’s proton therapy systems," said Wilson. "We are gaining momentum in this important clinical space."

Outlook

"We believe that for fiscal year 2016 total company non-GAAP earnings will be in the range of $4.45 to $4.55 per diluted share and revenues will increase by about 4 to 5 percent on a reported basis," said Wilson. "For the first quarter of fiscal year 2016, we expect revenues to be roughly even with the year-ago quarter in dollars. With ongoing challenges experienced by Imaging Components in the second half of fiscal year 2015 as well as the effect of year-over-year changes in currency exchange rates, we expect non-GAAP earnings for the first quarter of fiscal year 2016 to be in the range of $0.88 to $0.92 per diluted share."

Non-GAAP Items

Beginning this quarter, the company is reporting non-GAAP operating earnings, non-GAAP net earnings and non-GAAP diluted earnings per share to provide comparisons against prior periods excluding certain items that may not be indicative of its core operating results and business outlook, allow better comparability among company peers, and provide additional transparency. Non-GAAP operating earnings and non-GAAP net earnings exclude the following items that are included under GAAP: amortization of intangible assets, acquisition-related expenses and or benefits, restructuring charges, impairment charges, significant litigation charges or benefits and associated legal costs. From time to time, the company may exclude other items if it is consistent with the goal of providing useful information to investors. Tax effects on non-GAAP items are calculated based on the company’s effective tax rate other than when the underlying item has a materially different tax treatment. Additional details and a table reconciling the GAAP to non-GAAP financial measures are included in this release.