10-QPeriod: Q2 FY2011

INTUITIVE SURGICAL INC Quarterly Report for Q2 Ended Jun 30, 2011

Filed July 20, 2011For Securities:ISRG

Summary

Intuitive Surgical, Inc. (ISRG) reported strong growth in its second quarter and first half of 2011, with total revenue increasing by 21% and 19.8% year-over-year, respectively. This growth was primarily driven by robust performance in both system sales and recurring revenue from instruments, accessories, and services. The company saw a significant increase in the number of da Vinci Surgical Systems sold and procedures performed, indicating continued market adoption of their advanced surgical technology. Profitability also improved, with net income rising significantly, reflecting effective cost management and a growing contribution from higher-margin recurring revenue streams. The company's financial position remains strong, with substantial cash, cash equivalents, and investments providing ample liquidity for future operations and growth initiatives. Key strategic initiatives such as the introduction of new da Vinci models (Si-e), the da Vinci Skills Simulator, and innovative instruments like da Vinci Single-Site and Fluorescence Imaging are contributing to market expansion and deeper penetration into various surgical specialties. While the company faces ongoing litigation and potential market risks, its solid financial performance, strong installed base, and commitment to innovation position it well for continued success in the expanding field of robotic-assisted surgery. Investors should note the increasing percentage of recurring revenue, which offers a more predictable and potentially higher-margin income stream.

Financial Highlights

48 data points
Beta

Revenue

$425.70M

72.0% Gross Margin

Net Income

$117.40M

27.6% Net Margin

EPS (Diluted)

$0.32

Total Assets

$2.65B

Cash & Equivalents

$382.00M

Free Cash Flow

$167.80M

Financial Statements
Beta
Revenue$425.70M
Cost of Revenue$119.10M
Gross Profit$306.60M
R&D Expenses$32.00M
SG&A Expenses$106.50M
Operating Expenses$138.50M
Operating Income$168.10M
Net Income$117.40M
EPS (Basic)$0.33
EPS (Diluted)$0.32
Shares Outstanding (Basic)352.80M
Shares Outstanding (Diluted)362.70M

Key Highlights

  • 1Total revenue for the three months ended June 30, 2011, increased 21% to $425.7 million from $350.7 million in the prior year period.
  • 2Da Vinci procedures performed increased approximately 30% year-over-year for the quarter, signaling strong adoption.
  • 3Instruments and accessories revenue grew 35% to $171.5 million, and service revenue increased 22% to $67.6 million, highlighting the growing importance of recurring revenue streams.
  • 4The company sold 129 da Vinci Surgical Systems in the quarter, up from 108 in the same period last year, with 94% being the newer da Vinci Si models.
  • 5Net income for the quarter rose to $117.4 million, or $2.91 per diluted share, compared to $88.7 million, or $2.19 per diluted share, in the prior year.
  • 6The installed base of da Vinci Surgical Systems grew to 1,933 as of June 30, 2011.
  • 7The company's cash, cash equivalents, and investments increased to $1.82 billion, demonstrating a strong liquidity position.

Frequently Asked Questions

Revenue growth was driven by a combination of increased da Vinci Surgical System sales and a significant rise in recurring revenue from instruments, accessories, and service. The company sold more systems, performed more procedures, and saw higher demand for consumables and service contracts, reflecting continued market adoption of their technology.

Profitability has improved significantly. Net income for the second quarter of 2011 increased to $117.4 million from $88.7 million in the prior year period. Diluted earnings per share rose to $2.91 from $2.19. This improvement is attributed to higher revenues, effective cost management, and a favorable shift towards higher-margin recurring revenue.

Recurring revenue, which includes instruments, accessories, and service contracts, represented 56% of total revenue in the second quarter of 2011, up from 52% in the prior year. This growing contribution is important for investors as it provides a more stable and predictable revenue stream, typically with higher gross margins than system sales, contributing to overall profitability and financial flexibility.

The company is involved in a purported class action lawsuit and derivative lawsuits related to past disclosures, which are ongoing. While the company believes it has meritorious defenses and does not expect a material adverse effect, the outcomes are uncertain. Additionally, the company notes that natural disasters or business disruptions could harm its operations. The impact of the earthquake and tsunami in Japan on its sales there, though currently considered not material to overall revenue, is being monitored.