Intuitive Surgical, Inc. (ISRG)

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Intuitive Surgical, Inc. (ISRG)

Q1 2010 Earnings Call Transcript

April 15, 2010 4:30 pm ET


Ben Gong – VP, Finance

Gary Guthart – President & CEO

Marshall Mohr – SVP & CFO

Aleks Cukic – VP, Strategic


Tao Levy – Deutsche Bank

Ben Andrew – William Blair

James [ph] – Morgan Stanley

Tycho Peterson – JP Morgan

Vincent Ricci – Wells Fargo

Miroslava Minkova – Leerink Swann

Sameer Harish – Needham & Co.



Welcome, everyone. Thank you for standing by. All lines are in listen-only mode until the question and answer session of today’s call. (Operator instructions) Today’s call is being recorded. If you have any objections, you may disconnect at this time.

I would now like to turn the call over to Ben Gong, Vice President of Finance.

Ben Gong

Good afternoon and welcome to Intuitive Surgical’s first quarter conference call. With me today we have Gary Guthart, our President and CEO; Marshall Mohr, our Chief Financial Officer; and Aleks Cukic, our Vice President of Strategic Planning.

Before we begin, I would like to inform you that comments mentioned on today’s call may be deemed to contain forward-looking statements. Actual results may differ materially from those expressed or implied as a result of certain risks and uncertainties.

These risks and uncertainties are described in detail in the company’s Securities and Exchange Commission filings. Prospective investors are cautioned not to place undue reliance on such forward-looking statements.

Please note that this conference call will be available for audio replay on our Web site, at, on the Audio Archives section under our Investor Relations page. In addition, today’s press release has been posted to our Web site.

Today’s format will consist of providing you with highlights of our first quarter results as described in our press release announced earlier today, followed by a question-and-answer session. Gary will present the quarter’s business and operational highlights. Marshall will provide a review of our first quarter financial results. Aleks will discuss marketing and clinical highlights, and I will provide an update to our financial forecast for 2010, and finally, we will host a question-and-answer session.

With that, I will turn it over to Gary.

Gary Guthart

Thank you for joining us today. In this first quarter, our team has executed well. We continue to see broad interest in da Vinci surgery by our customers across a variety of procedures, which is reflected in our strong financial results for the quarter.

With regard to procedures, we experienced continued growth in numerous specialties. Urologic and gynecologic procedures continue to lead the way and we see early signs of growth in both general and colorectal surgery and thoracic procedures.

We are also pleased that European procedure growth was strong in the quarter. While the diversity of procedures is encouraging, it presents both opportunities and sales management challenges. The breadth of procedures is commanding increased investments in our sales force and is reflected in our recent hiring.

Turning to systems, U.S. sales were robust. We did, however, see an increasing pressure on hospital capital budgets in Europe where capital sales conversations mirrored those in the U.S. during the first half of last year. Lastly, we sold our first systems in Japan this quarter post our Shonin approval. We’ll discuss Japan in greater detail later in the call.

As we move to highlights for the first quarter, recall that Q1 2009 financials included a revenue deferral associated with the introduction of the da Vinci Si System. In my year-over-year comparisons, I will compare financial performance excluding the deferral to give a more accurate picture of relative performance.

With that as a background, operating highlights for the first quarter are as follows. Procedures grew 37% over the first quarter of 2009. We sold 104 da Vinci Surgical Systems, up 38 from 66 during the first quarter of last year. Total revenue was $329 million, up 58% over the last year.

Instrument and accessory revenue increased to $123 million, up 50% over the year. Total recurring revenue grew to $173 million, up 43% from prior year and comprising 53% of total revenue.

Net income was $85 million, up 112% over last year. We generated an operating profit of $157 million before non-cash stock option expenses, up 78% from the first quarter of last year and representing 48% of Q1 revenue. With operating profit percentage at this level, we do not expect to pursue further margin expansion.

We will continue to share productivity gains with our customers and we will continue to invest in R&D and long-term growth opportunities for the business. We ended the quarter with $1.396 billion in cash and investments, up $224 million from last quarter and up $574 million from last year.

Significant cash outlays during the quarter included $16 million invested in intellectual property and fixed assets. Excluding the impact of these outlays as well as $93 million from stock proceeds and $6 million used for working capital, we generated $153 million in gross cash flow from operations, which is 180% of our reported GAAP net income in the first quarter. I share this number with you because we believe that it is the best measure of the economic horsepower of our company.

As you know, we continue to make significant investments in research, development and manufacturing. Our largest investments focus on four areas. First, we are extending our instrument offering through major additions, like multifunction energy devices and robotic stapling. Second, we are improving and expanding our imaging capabilities. Third, we’re developing new patient side mechanisms. And finally, we are creating surgical networking and training technologies.

Overall, we’re pleased with the progress of our product development teams and our technology partners both in the depth of their achievements and in the speed with which they are accomplishing them.

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