VAR
#Yes, the good guy was Emory.
The actual ---+ we do have a difference on currency.
We actually think that's a point to the bad for us.
It doesn't ---+ it's not a good guy for us.
It's about 1 point the other way.
And then the other 2, maybe 3 that we got that I mentioned briefly on the call, is this growth in our emerging market backlog.
And as I said, that's about a 3 to 6-month longer cycle to revenue than our, say, our U.S. backlog.
Second, we did see in the quarter a little bit of U.S. backlog pushout, just call it 4, 5 units at the end of the quarter.
And then this one is anecdotal and it's tough to quantify, but I do think we have a little bit of folks doing some look-see on Halcyon, and what should I think.
How do I play this.
And the good news is the order rate's chugging along right where we'd like it to be and we feel good about that.
And we feel great about the Halcyon introduction and where it's going.
And we might have a little bit of that kind of globally.
So having said that, that didn't pause anything in China for 2 seconds.
They just had a banner quarter, and we feel really good about our China team and what they're doing.
We're seeing success in both the public market and the private market, and just really establishing our leadership position in China.
Yes.
And just to put a finer point in the currency side, currency in the quarter's probably 10, 12 to 15 million dollars of a revenue headwind, given our exposure in the euro, sterling and yen, broadly speaking.
It's pure mix.
Yes, and we're not seeing that.
As I said, we're seeing about 300 basis point increase year-over-year in our emerging market portion of the backlog.
And as that flows through, it's flowing through a little ---+ it's just a bigger mix.
We're not seeing any lengthening of the emerging market transition to revenue.
What we like about Halcyon is it\
I think the ---+ you've seen a month ago, CMS ---+ 4 weeks ago, CMS published their guidelines for this next year.
I'd say that very little changed.
So at least as it's executing, as we see it executing for kind of fiscal year '18, we don't see much change in the reimbursement scenario.
Longer term, I think we've been pretty consistent about this.
We think that there'll be some bundling options that are put forth.
It will be interesting to see how those go.
We have not had any negative feedback from customers in the U.S. as to their reimbursement model they're seeing from CMS here recently.
So at least as it's impacted our comp, outlook here over the next year, we don't see much change.
After the long term, how does value-based pricing impact radiation therapy.
I'd just point out that, that's how we compete in every other market in the world.
And we compete on a very good basis that radiation therapy remains one of the most cost-effective approaches to cancer care.
The economics of radiation therapy are very favorable at that level.
It is how we compete outside of the U.S. Change is always the hard part, and when that change comes, I have no doubt there will be some hesitation in the marketplace as people kind of figure out what the new models mean.
But I think in the long term, it actually is a positive for radiation therapy.
And oh by the way, the other factor in there is that we'll also ---+ the trends to shorter fractionation, SBRT, SRS, will continue.
And that's a share opportunity for us because we're the best in that game.
None whatsoever.
I haven't seen or heard a whisper on that.
Other than a lot of noise coming out of Washington.
We can talk about that for a long time.
But our customers are head down, plowing ahead.
I\
You know what, I don't think it's a one-off.
I think there's more of it out there.
I saw a number, I don't remember it, but there's like 600,000 pets in San Francisco and 60,000 children.
And so one population is growing more than the other.
We ---+ we're excited about this.
It's the first 6.
I don't ---+ this isn't going to be what drives our business.
But I do think there's some incremental opportunity there.
And we're very excited to be partners with PetCure.
And it is interesting.
The statistics, there's 180 million pets in the U.S. and 12 million diagnosed with cancer, so ---+ which happens to be almost exactly the same number of patients that are diagnosed with cancer in the U.S.
I did say it's aspirational.
That's where we want to go.
When we look at our 12 months trailing, we're ---+ what is it, <UNK>, 3.5%, 4%.
3%.
3%.
3%, 12-month trailing.
You look at the last 3 quarters, a little north of that.
We've got a new product.
So that's kind of what we're to driving to.
I think that we've got the usual clouds on the horizon in terms of the reimbursement in U.S. We talked about FXs.
We've had other times when we've done really well, but had to give a lot of it back in FX.
So there's some risk.
But aspirationally, we've got ---+ as we were in New York, we talked about our software opportunity.
Can we grow that over 5 years to a $900 million business.
We've got good ---+ our portfolio has never been broader, never been deeper, Halcyon opening up some new market that we think is incremental.
It's going to take us a while to execute on that, but that's where we're driving to.
I think we're in really good shape.
I mean, we have, over the last 3, 4 years, we've made significant investments in China, in India, in Brazil.
We've also invested very heavily in a market development resource and government affairs.
A lot of these opportunities are government opportunities.
So as we look at these markets, one of the things we're encouraged by is, at least at this point, I don't think I have to go out and make a big sales investment.
I think we've got pretty good coverage.
And for where these markets are, we're in pretty good shape.
Great.
And maybe one for <UNK>.
You've had a few months under the hood.
And if we think about nonoperational items, tax rate, hedging, is there any low-hanging fruit you could identify that you think are ripe for improvement.
And then maybe how we should be thinking about the pacing of those (inaudible).
Yes, I would tell you that it's working capital is the opportunity.
And our ability to think about capitalizing on Halcyon and the working capital benefit of time to value for our customers and our patients as well as in our balance sheet.
Along with some just good old execution.
And that, coupled with, I think, working our way through the right amount of detail and rigor as we think about interacting with our customers day in and day out to make it easier for them to take a bill from us and turn that into an actual payment.
So it's good, old-fashioned execution on the working capital line, I think, is our biggest opportunity after I've been under the hood here for 90 days.
I haven't seen any data, so this will be a little bit from the hip.
I'd say we haven't seen ---+ maybe a little bit of change in Japan.
That market's been tough.
And otherwise, I'd say kind of Brazil ---+ I don't know think if that's a change.
It's kind of been that way for the last 3 or 4 quarters.
So I don't know that Brazil's a change.
That market remains tough.
But otherwise, I'd say pretty stable.
The market remains very good.
I'd like to think of it as at a very high level.
And when you look at the percent of patients in China that are treated with radiation, it's less than 20%.
In U.S. and Western Europe, it's between 50% and 60%.
So that's just ---+ that's where I'd like to start.
There's a huge need.
And then when you start thinking about it in terms of kind of urban China versus rural China, that's the description of urban China.
Rural China hasn't even been touched yet.
So we are optimistic of our position in all segments.
We've worked very hard to kind of get a leading market share in both the ---+ we've historically been a leader in the private market.
We're working very hard to be a leader in the public market.
We've now established leadership in both markets and we feel very good about that position.
So I ---+ in terms of the market, I'd say the market, in long-term trends, are very positive.
It is a market that every now and then ---+ you know what, it was 2 years ago, we had this ---+ 2, 2.5 years ago, we had this reform hiccup where they went quiet for a quarter or 2 while they retooled their purchasing processes due to some anti-kickback issues that they had, had in other sectors in healthcare, not in radiation therapy.
That impacted everybody, of course.
Every now and then when political change happens and chairs rotate, we see a little bit of delay.
But I'd say when you kind of look at trailing 12 months, it's been strong double-digit growth.
And we feel pretty good about that as being the market.
Might we have a quarter or 2 where things slow down, that could always happen.
But our funnel remains very robust in China.
We've got a very good team over there and feel very good about where the team is, getting deeper and broader and I believe worked hard to establish share leadership in that market, and now have it and are looking to leverage it as that market builds out its cancer capability.
And I think ---+ oh by the way, it's worth a reminder, Halcyon is built in China.
And we've got to get through the regulatory process, but we think that also sets us up very nicely for kind of the next inning of this game in that market.
Yes.
Market is clearly moving downmarket.
It's interesting, there are some sovereign governments.
China, Western Europe, I think they have much more rationalized governmental health systems, and so they'll do some of these big, large, multiroom centers.
But I think that the U.S. market is ---+ with maybe this Georgia exception and a few others, it's going to be 1- and 2-room treatment centers.
Protons remain very interesting clinically.
The benefit of the physics behind the proton remain very exciting for our customers and matters.
There's some debate about what percent of cancers does it matter in.
But I think it's safe to say that it's somewhere between 15% and 20% of all cancers can really benefit from proton physics, and we're going to see that kind of come into the marketplace.
When you look at the financial modeling on these 1- and 2-room centers, it's so much easier.
It is really difficult to financially pencil out these really, really large centers.
And certainly, we've seen that in some of ours and in the broader market as well.
So I think the U.S. market is clearly moving to 1- and 2-room centers, and we'll see a lot less of that in the future.
And so we're excited about these, University of Pennsylvania, the order we booked just last quarter.
They're one of the leaders in the world in proton therapy.
To have them kind of give us a vote of confidence is a real boost to our position and talks about the credibility of our single-room product.
And then to have this other one in Thailand talks about the scope and scale of Varian, the ability of us to deliver in those markets.
Sure.
This is <UNK>.
We are a percent of completion basis accounting for our proton business.
And based on the percentage of completion of that project in the third quarter, we booked $46 million in revenue and the associated costs with that.
No.
We recognized the cost and revenue on a percent of completion ---+ percentage completion basis.
And so there was an appropriate amount of cost booked relative to the revenue for the percentage completion of that project at that point in time.
So $46 million of revenue did not drop to the bottom line.
There was associated costs with that.
Sure.
In Oncology, I would say there's kind of a couple of things.
So we've seen certainly benefits around our supply chain efficiencies.
That's certainly a very favorable driver.
And we've seen that kind of increase.
As you look throughout the year, that's been a steady increase in the Oncology business.
I think good, solid pricing discipline has been good.
We did in the quarter get a excise tax refund that accounted for about 0.6 percentage points of that increase we saw in Oncology up to 48.1%.
And then we also saw a favorability in our services mix as a percent of revenue, and that's about 100 to 150 basis points of that favorability we saw.
So we're happy with progress in our ability to manage cost and good pricing discipline in the market as we move through the whole year in the Oncology business.
Yes.
Thank you, operator.
I think there's 4 key takeaways that everybody should think about today.
First and foremost, we're the market leader.
We now have the strongest portfolio of product offerings in our history, evidenced by our successful launch of Halcyon.
This positions us very well as we execute against our long-term aspirational goal to touch 6 million cancer patients each year, more than double where we are today.
Second, Varian's focused.
With our successful spinoff of Varex this year, we're now focused exclusively on extending our position as leader in systems and software for the treatment of cancer and other indications.
Third, we're optimally positioned to grow in both developed and emerging markets, supported by our new product offerings and rapidly growing service and software businesses.
And fourth, we have a discipline to drive profitable growth and improve liquidity, both of which strengthen our financial flexibility so that we can continue to invest in growth opportunities.
Thanks for joining us today.
