10-QPeriod: Q3 FY2010

INTUITIVE SURGICAL INC Quarterly Report for Q3 Ended Sep 30, 2010

Filed October 20, 2010For Securities:ISRG

Summary

Intuitive Surgical, Inc. (ISRG) demonstrated robust financial performance in the third quarter and first nine months of 2010, reflecting strong demand for its da Vinci Surgical Systems. Total revenue grew significantly year-over-year, driven by increased sales of both systems and recurring revenue from instruments, accessories, and service contracts. The company's strategic focus on enhancing the da Vinci platform with new models like the da Vinci Si and Si-e, coupled with positive procedural adoption, particularly in gynecology and urology, contributed to this growth. Despite increased operating expenses related to expansion and stock-based compensation, the company maintained healthy operating margins and reported substantial net income growth. Financially, ISRG boasts a strong balance sheet with a significant increase in cash and investments, bolstered by positive operating cash flows. The company also continued its share repurchase program. Looking ahead, management anticipates continued investment in research and development and expects ongoing growth, though it also acknowledges potential impacts from healthcare policy changes, including the Affordable Care Act and associated excise taxes on medical devices.

Financial Highlights

46 data points
Beta

Revenue

$344.40M

72.8% Gross Margin

Net Income

$86.60M

25.1% Net Margin

EPS (Diluted)

$0.24

Total Assets

$2.35B

Cash & Equivalents

$382.00M

Free Cash Flow

$113.00M

Financial Statements
Beta
Revenue$344.40M
Cost of Revenue$93.80M
Gross Profit$250.60M
R&D Expenses$26.90M
SG&A Expenses$91.60M
Operating Expenses$118.50M
Operating Income$132.10M
Net Income$86.60M
EPS (Basic)$0.24
EPS (Diluted)$0.24
Shares Outstanding (Basic)354.60M
Shares Outstanding (Diluted)364.50M

Key Highlights

  • 1Total revenue increased by 23% to $344.4 million for Q3 2010 compared to $280.1 million in Q3 2009.
  • 2Net income grew by 34% to $86.6 million for Q3 2010, up from $64.5 million in Q3 2009.
  • 3The installed base of da Vinci Surgical Systems grew to 1,661 by September 30, 2010, up from 1,308 a year prior.
  • 4Recurring revenue (instruments, accessories, and service) increased by 28% to $184.8 million in Q3 2010.
  • 5The da Vinci Si Surgical System accounted for 86% of system sales in Q3 2010, demonstrating strong market acceptance of the newer model.
  • 6Operating cash flow for the first nine months of 2010 was $404.1 million, a significant increase from $269.4 million in the same period of 2009.
  • 7The company's cash and investments position strengthened considerably, ending Q3 2010 at $1,620.6 million, up from $1,172 million at year-end 2009.

Frequently Asked Questions

The primary driver of Intuitive Surgical's revenue growth is the increasing adoption of the da Vinci Surgical System and related procedures. This includes both the sale of new systems and the recurring revenue generated from instruments, accessories, and service contracts for the installed base of systems.

While Selling, General, and Administrative (SG&A) expenses and Research and Development (R&D) expenses have increased to support business expansion and new product development, the company is also focusing on cost reductions in manufacturing (e.g., material cost reductions) and is benefiting from higher gross profit margins on product revenue, which helps to offset some of the expense increases. The growth in recurring revenue also contributes to overall profitability.

Intuitive Surgical maintains a strong financial position with a significant and growing cash and investments balance, reaching $1.62 billion by September 30, 2010. The company generates substantial cash flow from operations, providing ample liquidity to fund its growth initiatives, investments, and share repurchase programs.

Yes, the company is facing two main types of risks. Firstly, it is subject to ongoing securities class action and derivative lawsuits related to past statements and omissions, though it believes it has meritorious defenses. Secondly, the recently enacted Patient Protection and Affordable Care Act (PPACA) introduces potential risks, including a new 2.3% excise tax on medical device manufacturers starting in 2013, and uncertainty regarding its impact on healthcare policy, reimbursement, and procedure volumes.