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Varian Medical Systems' CEO Discusses Q2 2012 Results - Earnings Call Transcript

Our company gross margin dropped by more than 3 points with a record margin in our X-ray Product business that was more than offset by reduced margin in our Oncology business and higher-than-expected proton revenues that were booked on a 0 profit percentage of completion basis.

Turning to our Oncology Systems business, second quarter revenues were $565 million, up 11% from the year-ago quarter. However, margins in this business declined to an unusually low level in the quarter due to a significant geographic mix to lower-margin countries, weaker pricing in those markets and slower-than-anticipated progress in product cost reduction programs. These programs should begin to show results during the second half of the year when we expect margins to recover somewhat to more historical levels.

Net orders totaled $565 million, up 9% with a 14% increase in North America and a 4% increase in our overall international market, which accounted for 55% of the total orders for this business during the period. Second quarter orders in the North American market, which experienced some push outs in the first quarter of this year, included a major win at Montreal General Hospital which replaced an -- which, excuse me, which placed an order for several TrueBeam systems. Several other sites placed orders for multiple TrueBeam units during the period including the Thomas Jefferson University Hospital system and New York-Presbyterian Hospital.

Software orders in North America were also strong, including competitive replacements or treatment planning and information systems at several sites. We are particularly pleased to have achieved double-digit growth in North America on top of double-digit growth in the comparable prior year quarter.

In the international market, compared to the second quarter of last year, net orders rose 30% in Asia on an easy comp and increased 1% in Europe on a tough comp. In the rest of the world, net orders declined versus very strong growth in the year-ago quarter. Second quarter orders in China rose by more than 50%, reflecting a successful effort to revitalize and restructure our sales force there. Thailand and Taiwan also drove the strong orders performance in Asia. We booked our first TrueBeam orders in Japan and Taiwan and installed our first TrueBeam systems in Korea. We are hopeful that this platform will become a growth driver in this important region.

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