10-QPeriod: Q1 FY2009

INTUITIVE SURGICAL INC Quarterly Report for Q1 Ended Mar 31, 2009

Filed April 17, 2009For Securities:ISRG

Summary

Intuitive Surgical, Inc. (ISRG) reported its financial results for the first quarter ended March 31, 2009. Total revenue remained flat year-over-year at $188.4 million, but this was impacted by significant revenue deferrals related to the launch of their new da Vinci Si Surgical System. Recurring revenue, comprising instruments, accessories, and service, showed strong growth, increasing to $118.9 million (63% of total revenue), up from $89.1 million (47% of total revenue) in the prior year's first quarter. This shift indicates a growing reliance on recurring revenue streams, which is generally a positive sign for business stability and predictability. Despite the flat top-line revenue, the company's profitability saw a decline, with net income falling to $28.1 million from $44.8 million in the same period last year. This decrease was largely driven by increased operating expenses, particularly in Selling, General & Administrative (SG&A) and Research & Development (R&D), coupled with a substantial $150 million accelerated share repurchase program initiated in March 2009. The company also highlighted strong procedure growth, up 60% year-over-year, signaling continued adoption of its robotic surgical systems, even amidst a challenging economic environment impacting capital equipment sales.

Financial Highlights

25 data points
Beta

Revenue

$188.40M

68.3% Gross Margin

Net Income

$28.10M

14.9% Net Margin

EPS (Diluted)

$0.08

Cash & Equivalents

$96.60M

Free Cash Flow

$90.10M

Financial Statements
Beta
Revenue$188.40M
Cost of Revenue$59.70M
Gross Profit$128.70M
R&D Expenses$21.30M
SG&A Expenses$62.40M
Operating Expenses$83.70M
Operating Income$45.00M
Net Income$28.10M
EPS (Basic)$0.08
EPS (Diluted)$0.08
Shares Outstanding (Basic)350.10M
Shares Outstanding (Diluted)353.70M

Key Highlights

  • 1Total revenue was largely flat at $188.4 million, impacted by $20.1 million in deferred revenue from the da Vinci Si launch.
  • 2Recurring revenue demonstrated significant growth, increasing by 33.4% to $118.9 million, representing 63% of total revenue compared to 47% in Q1 2008.
  • 3Net income decreased by 37.2% to $28.1 million, or $0.72 per diluted share, compared to $44.8 million, or $1.12 per diluted share, in Q1 2008.
  • 4The number of da Vinci Surgical Systems sold decreased to 66 units from 74 units in the prior year's quarter, while procedures performed increased by 60% to approximately 45,500.
  • 5Operating expenses increased significantly, with SG&A up 28% and R&D up 31%, driven by organizational growth, increased stock-based compensation, and product development.
  • 6The company initiated a $150 million Accelerated Share Repurchase (ASR) program, repurchasing 1.4 million shares.
  • 7The installed base of da Vinci Surgical Systems grew to 1,171 units as of March 31, 2009.

Frequently Asked Questions

The launch of the da Vinci Si Surgical System led to approximately $20.1 million in deferred revenue in the first quarter of 2009. This is due to an upgrade program offered to customers who purchased the previous da Vinci S system, providing them with a discount to upgrade. The deferred revenue will be recognized by June 30, 2009, for customers not taking the upgrade, and upon upgrade installation for those who do. Additionally, $2.1 million in revenue for certain camera accessories was reserved due to a return option, which will be recognized later.

The company noted that system sales were impacted by reduced hospital capital spending due to the current economic recession. This is reflected in the decrease in system unit sales to 66 units in Q1 2009 from 74 units in Q1 2008, and a corresponding decrease in system revenue.

The significant increase in recurring revenue to 63% of total revenue is a positive development. It indicates a growing reliance on revenue from instruments, accessories, and services, which are typically more predictable and have higher margins than capital equipment sales. This shift is driven by the increasing adoption of da Vinci procedures and a larger installed base of systems.

The decrease in net income and operating income was primarily driven by a substantial increase in operating expenses. Selling, General & Administrative (SG&A) expenses rose by 28% and Research & Development (R&D) expenses increased by 31%. These increases were due to factors such as organizational growth, higher commissions, increased stock-based compensation, and investments in product development. Additionally, the initiation of a $150 million accelerated share repurchase program also impacted cash flow.