Varian Medical Systems Inc. F2Q10 (Qtr End 04/02/10) Earnings Call Transcript

Varian Medical Systems Inc. F2Q10 (Qtr End 04/02/10) Earnings Call Transcript
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Varian Medical Systems Inc. (VAR)

F2Q10 Earnings Call

April 28, 2010; 05:00pm ET

Executives

Timothy Guertin - President & Chief Executive Officer

Elisha Finney - Chief Financial Officer

Tai Chen - Corporate Controller

Spencer Sias - Vice President of Investor Relations & Corporate Communications

Analysts

Amit Bhalla - Citigroup

Vincent Ricci - Wells Fargo Securities

Josh Jennings - Jefferies & Company

Junaid Husain - Soleil Securities

Jeffrey Johnson - Robert W. Baird & Co.

Abigail Darby - JP Morgan

Dalton Chandler - Needham & Company

Presentation

Operator

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Good evening ladies and gentlemen, and welcome to the quarter two, 2010 Varian Medical System’s earning conference call. My name is Madeska and I would be your operator for today. At this time all participants are in listen-only mode. Later we will conduct a question-and-answer session. (Operator Instructions)

I would now like to turn the conference over to your host for today, Mr. Spencer Sias, Vice President of Investor Relations and Corporate Communications; please proceed.

Spencer Sias

Good afternoon and welcome to Varian Medical Systems conference call for the second quarter of fiscal year 2010. With me are Tim Guertin, President and Chief Executive Officer; 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 to the quarter or year are fiscal quarters and fiscal years. Quarterly comparisons are for the second quarter of fiscal 2010 versus the second quarter of fiscal 2009. All results are for continuing operations, which exclude the sale of the research instruments portion at XL.

Please be advised that this presentation and discussion contains forward-looking statements. Our use of words and phrases such as outlook, could, will, believe, opportunity, can, continue, possible, optimistic, hope, expect, and recover, 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.

And now, here is Tim.

Timothy Guertin

Good afternoon and welcome. A lot was happened since we talked about first quarter results, and I am pleased to say that we had a very good second quarter. To quickly summarize results, we reported 6% growth in revenues and 11% gain in operating earnings, and a 14% increase in earnings per share from continuing operations. I am especially pleased to report that net orders for the company grew 13% on the strength of the international business. Our quarter ending backlog grew 6%.

I’ll now focus on operational highlights. Oncology system of the second quarter net orders grew by 10% to $476 million, with a 34% increase in international markets, and the 12% decline in North America. International markets accounted for 58% of oncology orders during the quarter, and these markets have now comprised the majority of oncology orders for four consecutive quarters.

Net orders arose by about 70% in Asia, driven primarily by Japan, where we benefited from a government stimulus package. Net orders arose by 15% in Europe and order activity in Australia drove very strong growth than the rest of the world.

North American orders declined as a result of smaller hospital capital equipment budgets that were established in response to uncertainty related to healthcare reform and recession. For the domestic market to recover, we will need to see more hospitals move into new more normal budget cycles. Our outlook for the North American Market remains cautious. We hope to have a more optimistic view about this market in coming quarters.

Oncology solid net orders growth was also driven by our service business, as well as demand for our new accelerators. We saw increased demand for unique or new accelerator for fast affordable image guided treatments in international clinics and encouraging early interest in our new True Beam platform for advanced image guided radiotherapy and radiosurgery.

Many of you participated in our official unveiling of the True Beam in New York two weeks ago. It was a highly successful event, and I am pleased to report that customer interest in this new platform is tremendous. During the quarter we booked revenue on two True Beam systems and recorded more than 15 orders for these systems, including some backlog conversions.

We believe True Beam will be a real game changer in the fight against cancer, and we expect it to stimulate stronger demand for our surgical products, as well as fast replacement of older systems in our installed base, which now stands at more than 5,900 Varian machines.

We believe that this is quite simply the most advanced radiotherapy, radiosurgery system in the world. Designed from the ground up, it offers an un-precedent combination of speed, precision, imaging capability, versatility and ease of use. It is a clinical tool that leading centers can use to develop new protocols, which expand the application and effectiveness of non-invasive radiotherapy and radiosurgery in the fight against cancer and other medical conditions.

To sight just a few of the more significant features, True Beam offers up to a 2,400 monitor unit per minute dose rate, that can more than double treatment speed, and up to five fold reduction in the number of steps needed for imaging positioning and treating patients. Higher quality 3-D cone beam CT images that can be generated in under a minute, with 25% less X-ray dose to the patients. The ability to induce the patient in real time with every breath during the treatment.

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