Varian Medical Systems (VAR)

Q4 2011 Earnings Call

October 27, 2011 5:00 pm ET


Spencer R. Sias - Vice President of Corporate Communications & Investor Relations

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

Timothy E. Guertin - Chief Executive Officer, President and Executive Director


Junaid Husain - Ticonderoga Securities LLC, Research Division

Amit Bhalla - Citigroup Inc, Research Division

Vivian Cervantes - Kaufman Bros., L.P., Research Division

David H. Roman - Goldman Sachs Group Inc., Research Division

Jeffrey D. Johnson - Robert W. Baird & Co. Incorporated, Research Division

Anthony Petrone - Jefferies & Company, Inc., Research Division

Tycho W Peterson - JP Morgan Chase & Co, Research Division

David R. Lewis - Morgan Stanley, Research Division

Dalton L. Chandler - Needham & Company, LLC, Research Division


Spencer R. Sias

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

To simplify our discussions, unless otherwise stated, all references to the quarter or year are fiscal quarters and fiscal years. Quarterly comparisons are for the fourth quarter of fiscal 2011 versus the fourth quarter fiscal 2010. And annual comparisons are for fiscal 2011 versus fiscal 2010. Except as otherwise stated, all results are for continuing operations, which exclude the sales of the research instruments portion of ACCEL.

Please be advised that this presentation and discussion contains forward-looking statements. Our words and phrases such as outlook, could, should, believe, opportunity, can, estimate 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

fourth 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.

As a quick reminder, we'll be holding our fiscal year-end meeting for investors in New York from 11:30 to 1:30, next Thursday, November 3 in New York. Management presentations also will be webcast and details will be available on our IR site. We look forward to your participation. And now, here's Tim.

Timothy E. Guertin

Thanks, Spencer. Good afternoon, and welcome. I'm pleased to report that Varian has finished fiscal year 2011 with another good quarter. Our businesses in Oncology Systems and X-ray Products ended the fourth quarter on a solid footing with growth in revenues, net orders and backlogs. On top of that we had promising developments in our emerging businesses including the booking of an order and revenue for the new Scripps Proton Therapy Center. We are pleased with this overall performance, which we believe has positioned Varian for a continued growth in fiscal 2012.

To quickly summarize our results, revenues rose 10% for the quarter to $719 million and 10% for the year to $2.6 billion. Earnings per diluted share increased 9% for the quarter to $0.95 and 16% for the year to $3.44. Cash flow from operations for the fourth quarter was $146 million. We closed the quarter with $564 million in cash and cash equivalents and $198 million of debt after spending $267 million to repurchase and retire 4.8 million shares of stock and our quarter-ending backlog grew 15% to a record $2.5 billion. All of our businesses contributed to the order of growth during the quarter, and I'll focus now on the operational highlights for each of our businesses.

Oncology Systems' fourth quarter net orders totaled $717 million up 9%, with a 2% decline versus strong year-ago comparisons in North America and growth of 22% in international markets. Oncology's net orders for the fiscal year increased 8% to $2.2 billion with 5% growth in North America and 11% growth in international markets, which generated about 55% of total annual net orders for this business.

The fourth quarter order growth in our Oncology Systems segment demonstrates the value of having a geographically diversed business together with a strong portfolio of desirable new products and services that advance clinical capabilities and efficiencies. Healthy demand for our versatile TrueBeam platform for radiotherapy and radiosurgery as well as our service business drilled the oncology order growth. We booked nearly 90 orders for TrueBeam during the quarter, bringing total orders for this platform since its introduction to some 380 units. Worldwide unit orders for our accelerators were up for the quarter and for the year. We believe our oncology business gained market share during the year in North America and Europe and succeeded in holding share in Asia with the help of a strong finish in the second half. TrueBeam was key to this performance, particularly in North America. We had a major win in this side in the Midwest where we are displacing several competitive units. We also had big wins at Barnes-Jewish Hospital in St. Louis, Mayo Clinic, UPMC in Pittsburgh, and the Vantage Oncology clinical network.

TrueBeam has now been purchased by 28 of the top 50 cancer centers in the U.S. and it constituted roughly 70% of our total high-energy unit machine orders in North America for the fourth quarter and for the year. There was also a strong interest for TrueBeam during the quarter in Europe where have achieved 2 significant wins, which again demonstrate our growing ability to win business in clinics that have traditionally been competitors' strongholds. Lung Hospital in Sweden has been an elected primary site -- research site for years, but it ordered 4 TrueBeam to be installed in 2012. It is also replacing it's software with Varian's ARIA and Eclipse products. We had another big success in the Netherlands at the Masteral Clinic, which has been a primary Siemens research site.

Subsequent to the close of the quarter, we received 2 orders for TrueBeam unit, 2 TrueBeam units. The center has also ordered a full suite of Varians software for TrueBeam planning and oncology information management.

There've been many questions from investors regarding the condition of the European economy and its impact on our business. While we've seen softness in some parts of Europe, overall demand within the region including India in the Middle East contributed to the reported net order growth in the region for the quarter and for the year. Japan led strong net order growth in the Far East during the quarter, Japan was down for the year because of a tough comparable spending from an almost $60 million government stimulus program in the first half of fiscal year 2010. For the year, Far East net orders were flat with double-digit gains in China and several other countries that offset the decline in Japan.

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