Varian Medical Systems (VAR)
Q2 2012 Earnings Call
April 25, 2012 5:00 pm ET
Spencer R. Sias - Former Vice President of Corporate Communications & Investor Relations
Timothy E. Guertin - Chief Executive Officer, President and Executive Director
Elisha W. Finney - Chief Financial Officer and Corporate Executive Vice President of Finance
Dow R. Wilson - Chief Operating Officer and Corporate Executive Vice President
Jeremy Feffer - Cantor Fitzgerald & Co., Research Division
Steve Beuchaw - Morgan Stanley, Research Division
Amit Bhalla - Citigroup Inc, Research Division
Anthony Petrone - Jefferies & Company, Inc., Research Division
Sean D. Lavin - Lazard Capital Markets LLC, Research Division
Tycho W. Peterson - JP Morgan Chase & Co, Research Division
Dalton L. Chandler - Needham & Company, LLC, Research Division
Jason Wittes - Caris & Company, Inc., Research Division
Jeffrey D. Johnson - Robert W. Baird & Co. Incorporated, Research Division
Previous Statements by VAR
» Varian Medical Systems Inc. - Shareholder/Analyst Call
» Varian Medical Systems' CEO Discusses Q1 2012 Results - Earnings Call Transcript
» Varian Medical Systems Inc. - Shareholder/Analyst Call
Good day, ladies and gentlemen, and welcome to the Second Quarter 2012 Varian Medical Systems Earnings Conference Call. My name is Anissia, and I will be your operator for today. [Operator Instructions] I would now like to turn the call over to Mr. Spencer Sias. Please proceed.
Spencer R. Sias
Thank you. Good afternoon, and welcome to Varian Medical Systems Conference Call for the Second Quarter of Fiscal Year 2012. Participating in this call are Tim Guertin, President and CEO; Elisha Finney, CFO; Dow Wilson, Executive Vice President and Chief Operating Officer; 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 to the quarter or year are fiscal quarters and fiscal years, quarterly comparisons over to second quarter of fiscal 2012 versus the second quarter fiscal 2011.
Please be advised that this presentation and discussion contains forward-looking statements. Our use of words and phrases such as outlook, could, should, believe, think, appear, opportunity, can, expect, potential and similar expressions are intended to identify those statements, which represent our current judgment on future performance or other future matters. While we believe them to be reasonable based on information currently available to us, these 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.
Before we start this call, please mark your calendars for our mid-year review meeting with investors in New York at 11:30 a.m. on Monday, May 7 at the Intercontinental Hotel Times Square. We'll issue more details on this meeting and webcast tomorrow.
And now, here's Tim.
Timothy E. Guertin
Good afternoon, and welcome. Today, we're reporting results for the second quarter of 2012 with healthy growth in revenue, net orders and backlog but with mixed margin results.
Earnings were $0.94 including a $0.02 restructuring charge associated with the realignment of resources to support our ongoing growth in emerging markets. I will comment on the operational highlights for the quarter as well as our exciting newly announced global collaboration with Siemens, and Elisha will walk you through the numbers.
To summarize our second quarter 2012 results compared to the year-ago quarter, company revenues for the quarter rose by 11% to $720 million. Net orders were up nicely in all of our businesses and our backlog increased by 18% to $2.7 billion. Excluding proton, order backlog was up 12%.
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.
In Europe, we had mixed results, many countries growing and others, quiet. At this time, it's difficult to draw any conclusions regarding the impact of financial and banking worries on the European market. It appears the market has continued to invest in better clinical capability, albeit, in a sporadic and somewhat lumpy fashion.