10-QPeriod: Q2 FY2010

INTUITIVE SURGICAL INC Quarterly Report for Q2 Ended Jun 30, 2010

Filed July 23, 2010For Securities:ISRG

Summary

Intuitive Surgical, Inc. (ISRG) reported strong financial performance for the second quarter and first half of 2010, demonstrating significant growth in both revenue and profitability. Total revenue for the second quarter increased by 34.6% year-over-year to $350.7 million, driven by robust sales of both da Vinci Surgical Systems and recurring revenue from instruments, accessories, and services. The company's expanding installed base of da Vinci systems continues to fuel recurring revenue, which now represents a significant portion of total revenue, with growth outpacing system sales. Profitability also saw a marked improvement, with net income for the second quarter rising to $88.7 million, a 42.1% increase from the prior year. This growth was supported by strong gross margins and effective management of operating expenses, despite increased investments in R&D and SG&A to support business expansion. The company's solid cash generation and healthy balance sheet position it well for continued investment in innovation and market expansion.

Financial Highlights

46 data points
Beta

Revenue

$350.70M

73.2% Gross Margin

Net Income

$88.70M

25.3% Net Margin

EPS (Diluted)

$0.24

Total Assets

$2.24B

Cash & Equivalents

$420.00M

Free Cash Flow

$175.50M

Financial Statements
Beta
Revenue$350.70M
Cost of Revenue$93.90M
Gross Profit$256.80M
R&D Expenses$28.50M
SG&A Expenses$88.60M
Operating Expenses$117.10M
Operating Income$139.70M
Net Income$88.70M
EPS (Basic)$0.25
EPS (Diluted)$0.24
Shares Outstanding (Basic)353.70M
Shares Outstanding (Diluted)364.50M

Key Highlights

  • 1Total revenue for Q2 2010 grew 34.6% to $350.7 million, and for the first half of 2010, it grew 51.3% to $679.3 million, indicating strong demand for da Vinci Surgical Systems and related services.
  • 2Recurring revenue (instruments, accessories, and service) increased by 33.4% to $182.9 million in Q2 2010 and by 38.7% to $356.2 million in the first half of 2010, highlighting the company's successful 'razor and blades' business model.
  • 3The installed base of da Vinci Surgical Systems grew to 1,571 units as of June 30, 2010, up from 1,242 units in the prior year, demonstrating continued market penetration.
  • 4Net income for Q2 2010 surged by 42.1% to $88.7 million, translating to diluted earnings per share of $2.19, up from $1.62 in Q2 2009.
  • 5The da Vinci Si Surgical System, launched in Q2 2009, represented 82% of system sales in Q2 2010, showing strong market acceptance of the new platform.
  • 6Operating cash flow for the first half of 2010 was robust at $291.1 million, significantly exceeding the prior year's $173.1 million, reflecting strong operational performance and efficient working capital management.
  • 7The company maintained a strong liquidity position with $1,588.2 million in cash and investments as of June 30, 2010, providing flexibility for future growth and investments.

Frequently Asked Questions

Intuitive Surgical's revenue growth is driven by two main sources: sales of its da Vinci Surgical Systems and recurring revenue from instruments, accessories, and service contracts. The increasing adoption of da Vinci surgery in various procedures, coupled with a growing installed base of systems, leads to higher sales of consumables and service, which is becoming an increasingly significant portion of total revenue.

The company is demonstrating strong profitability trends. Net income for the second quarter of 2010 increased significantly year-over-year. This improvement is supported by higher gross profit margins, partly due to cost reductions and higher average selling prices for newer systems, as well as effective control of operating expenses relative to revenue growth.

The da Vinci Si Surgical System is the company's latest-generation product, featuring enhanced imaging, an improved user interface, and the option for a dual console. Its strong market acceptance, as evidenced by it representing 82% of system sales in the second quarter of 2010, is a key factor in driving system revenue growth and upgrading the installed base.

Intuitive Surgical generated substantial cash flow from operations, which increased significantly in the first half of 2010. The company maintained a healthy balance of cash and investments, totaling over $1.5 billion as of June 30, 2010. This strong liquidity provides the company with financial flexibility to fund operations, invest in research and development, and pursue strategic growth opportunities.