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Varian Medical Systems Inc VAR
Q2 2013 Earnings Call Transcript

Transcript Call Date 04/24/2013

Operator: Greetings and welcome to the Varian Medical Systems Second Quarter Fiscal Year 2013 Earnings Results Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host Spencer Sias for Varian Medical Systems. Thank you, Mr. Sias, you may begin.

Spencer R. Sias - VP, Corporate Communications and IR: Thank you. Good afternoon, and welcome to Varian Medical Systems conference call for the second quarter of fiscal year 2013. With me are Dow Wilson, President and CEO; Elisha Finney, CFO; and Clarence Verhoef, our Corporate Controller. Dow and Elisha will summarize our results, and we'll 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 second quarter of fiscal 2013 versus the second quarter of fiscal 2012.

Please be advised that this presentation and discussion contains forward-looking statements. Our use of words and phrases such as outlook, could, should, believe, can, estimate, will, looks, plan 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 discussions because of new information, future events, or otherwise.

Now, here is Dow.

Dow R. Wilson - President and CEO: Good afternoon and welcome everyone. Varian's revenues and net earnings continued to grow during the second quarter in line with our expectations for the Company.

Net orders on the other hand were mixed, with strong growth in our X-Ray Product business and a decline in our Oncology business. To quickly summarize our results, revenue rose 7% to $768 million. Our gross and operating margin improved. Earnings per diluted share increased 9% to $1.02 and our backlog grew 4% over the year ago quarter to $2.8 billion.

Net orders fell by 2% in Oncology Systems, grew by 10% in X-Ray Products and declined $131 million in the other category versus the year ago period when we booked orders for two Proton Therapy Systems in Saudi Arabia and Russia.

I will cover the operational highlights for the quarter and let Elisha walk you through the details of the P&L and balance sheet.

A 9% decline in North American Oncology Systems net orders offsets a 4% increase across the markets outside North America, leading to an overall 2% decline in net orders, which totaled $555 million for the quarter.

North American Oncology market is experiencing slower capital spending related to ongoing uncertainty regarding Healthcare Reform and potential reimbursement changes. For example, many of our customers appear to be focused on developing new partnerships across clinical specialty to prepare for operating in an Accountable Care Organization or ACO environment and the possibility of bundled payment for cancer therapy services as well. We are also seeing some continuing consolidation activity among hospitals and clinics, which may be contributing to purchasing delays.

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