On July 27, 2016 Varian Medical Systems (NYSE: VAR) reported GAAP net earnings of $1.04 per diluted share and non-GAAP net earnings of $1.22 per diluted share for the third quarter of fiscal year 2016 (Press release, Varian Medical Systems, JUL 27, 2016, View Source [SID:1234514075]). Varian’s revenues totaled $789 million for the third quarter, up 1 percent from the year-ago quarter in dollars and even with the year-ago quarter in constant currency. The company ended the quarter with a $3.3 billion backlog, up 5 percent from the end of the third quarter of fiscal year 2015.

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"We generated strong gross order and revenue growth for the third quarter with substantial improvements in gross and operating margins in both our Oncology and Imaging Components businesses," said Dow Wilson, CEO of Varian Medical Systems. "The quarter also included the booking of an order to equip a new proton therapy center in China."

The company finished the third quarter of fiscal year 2016 with $836 million in cash and cash equivalents and $701 million of debt. Cash flow from operations was $95 million for the third quarter, bringing the year-to-date total to $204 million. The company’s GAAP results for the quarter included about $24 million of unusual expenses principally for ongoing patent litigation and the recently announced initiative to separate the Imaging Components business into a new publicly traded company. During the quarter, the company spent $126 million to repurchase about 1.5 million shares of common stock.

Oncology Systems

Oncology Systems’ third quarter revenues totaled $605 million, up 8 percent from the year-ago quarter in dollars and in constant currency. Third-quarter Oncology gross orders were $676 million, up 6 percent from the year-ago quarter in dollars and in constant currency. In the Americas, Oncology gross orders increased by 8 percent in dollars and in constant currency, with 15 percent growth in North America offsetting a sharp decline in Latin America. In EMEA, gross orders were down 3 percent in dollars and 4 percent in constant currency. In APAC, gross orders rose 19 percent in dollars and 17 percent in constant currency, driven by strong growth in China and Australia.

"Oncology generated strong gross order growth in North America, Asia, Australia and Africa that offset weakness in developed European markets and Latin America," Wilson said. "A positive mix of hardware products and higher software revenues drove a healthy improvement in margins. We were particularly pleased to see strong demand for our TrueBeam platform as well as our new software products including RapidPlan and InSightive Analytics for improving both the quality and speed of treatments."

Imaging Components

Imaging Components revenues were $147 million for the third quarter, up 9 percent from the year-ago period. Gross orders were $138 million for the third quarter, up 13 percent from the year-ago period.

"As expected, we’re seeing a recovery in the Imaging Components business," said Wilson. "We generated strong gross order growth in tubes as well as software and accessories from our recently-acquired businesses. Favorable product mix and productivity gains contributed to significant improvements in margins for this business in the quarter. We feel good about the progress we’re making towards separation." The new company will be named Varex Imaging Corporation.

Other

The company’s Other category, including the Varian Particle Therapy business and the Ginzton Technology Center, recorded third quarter revenues of $37 million, down $53 million from the year-ago quarter when Varian booked significant revenues from its proton installation in Maryland. During the quarter, the company booked an order for a multi-room ProBeam installation at the new Hefei Ion Medical Center in China, with installation expected to begin in 2017.

Outlook

"We believe that total company non-GAAP net earnings will be in the range of $4.62 to $4.66 per diluted share for fiscal year 2016," said Wilson. "We believe revenues for fiscal year 2016 will increase by about 3 percent over fiscal year 2015."

Please refer to "Discussion of Non-GAAP Financial Measures" below for a description of items excluded from expected non-GAAP earnings.