Varian Medical Systems (VAR)

Q2 2011 Earnings Call

April 27, 2011 5:00 pm ET


Elisha Finney - Chief Financial Officer and Corporate Senior Vice President of Finance

Timothy Guertin - Chief Executive Officer, President and Executive Director

Spencer Sias - Vice President of Corporate Communications & Investor Relations


Joshua Jennings - Jefferies & Company, Inc.

Jeffrey Johnson - Robert W. Baird & Co. Incorporated

David Roman - Goldman Sachs Group Inc.

Tycho Peterson - JP Morgan Chase & Co

James Terwilliger - Duncan-Williams, Inc.

Dalton Chandler - Needham & Company, LLC

Amit Hazan - Gleacher & Company, Inc.

Amit Bhalla - Citigroup Inc



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Good day, ladies and gentlemen, and welcome to the Second Quarter 2011 Varian Medical Systems Earnings Conference Call. My name is Stacy and I'll be your conference moderator for today. [Operator Instructions] As a reminder, this conference call is being recorded for replay purposes. I would now like to turn the call over to Mr. Spencer Sias, Vice President of Investor Relations. Please proceed.

Spencer Sias

Thank you. Good afternoon, and welcome to Varian Medical Systems Conference Call for the Second Quarter of Fiscal Year 2011. With me are Tim Guertin, President and CEO; Elisha Finney, CFO; and Tai Chen, our Corporate Controller. Tim and Elisha will summarize our results, and we'll take your questions following the presentation.

To simplify our discussion, unless otherwise stated, all references of the quarter or year are fiscal quarters or fiscal years, quarterly comparisons are for the second quarter of fiscal 2011 versus the second quarter of fiscal 2010. Annual comparisons are for fiscal 2011 versus fiscal 2010. All results are for continuing operations, which exclude the sale of the research instruments portion of ACCEL.

Please be advised that this presentation and discussion contains forward-looking statements. Our use of words and phrases such as outlook, could, should, believe, opportunity, can, continue, estimate and similar expressions are intended to identify those statements which represent our current judgment on future performance or other future matters, but we believe them to be reasonable based on information currently available to us, these said statements are subject to risks and uncertainties that could cause actual results to differ materially.

Some of the important risks relating to our business are described in our second quarter earnings release and in our filings with the SEC. We assume no obligation to update or revise the forward-looking statements in this presentation and discussion because of new information, future events or otherwise.

Let me quickly remind you that Varian management will be holding a mid-year review for investors a week from today in New York, lunch time meeting will take place from 11:30 to 2:00 p.m. Eastern Time at Sentry Centers at 730 Third Avenue in New York. Details are available on our Investor Relations website at, you'll find the details under Events and Webcasts.

Before turning it over to Tim, let me say that because we have more participants in this call, I'm going to be asking questionnaires to limit their questions to one question. We will circle around again if we have the time to do it, but I want to give everybody an opportunity to ask at least one question in this call. So thank you very much. And now, here's Tim.

Timothy Guertin

Good afternoon and welcome. Today, for the second quarter of fiscal 2011, we're reporting financial results that demonstrate that our companies long-term growth strategy is on track. Demand for our new TrueBeam system, oncology services and X-ray tubes and panels, as well as strong performance in our Security business led to healthy orders and revenue growth and improved margins during the quarter.

In summary, revenues grows by 11%, our operating earnings increased by 12%, topping 23% of revenues. Net earnings for the company increased by 13%, and EPS rose by 18%. Our quarter ending backlog expanded by 11% to $2.2 billion.

We ended the quarter with $584 million in cash and cash equivalents, even after spending $238 million on a program for the accelerated repurchase of 3.5 million shares of our stock.

As you all know that a quarter was marked by an unusual number of disruptions around the world including unrest in the Middle East, an earthquake in New Zealand and the most recent earthquake and tsunami in Japan. Many of you have been concerned about the possible impact of these events on our businesses, and I can now report that although many customers and employees were deeply affected, the overall effect on our financial performance has been very limited so far. I'll provide more details on this in a few moments. I'll focus now on orders and operations in each of our businesses.

Oncology Systems second quarter net orders totaled $520 million, up 9% with 12% growth in North America and a 7% increase in the overall international markets. Oncology achieved double-digit order growth in North America with the help of some major wins involving our TrueBeam platform for radiotherapy and radiosurgery.

For example, we booked an order for six TrueBeam units with USMD, a leading cancer care provider, and Bayhealth in Maryland placed an order for three TrueBeam units.

We also had a significant software win for our ARIA information management system at the University of South Alabama. We have replaced rival systems. We continue to do very well against the competition in this important software market during the quarter. Year-to-date, orders are up 16% for our Oncology business in North America.

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