10-QPeriod: Q3 FY2013

INTUITIVE SURGICAL INC Quarterly Report for Q3 Ended Sep 30, 2013

Filed October 18, 2013For Securities:ISRG

Summary

Intuitive Surgical, Inc. (ISRG) reported its financial results for the quarter and nine months ended September 30, 2013. While total revenue saw a year-over-year decrease in the third quarter, driven by a significant decline in system sales, the company experienced growth in its recurring revenue segments, including instruments, accessories, and service. This indicates a continued reliance on and use of its installed base of da Vinci Surgical Systems. Despite the dip in total revenue for the quarter, the nine-month period showed overall revenue growth, highlighting resilience in recurring revenue streams. The company continues to invest in research and development and expand its global presence. However, investors should note the challenges related to the decrease in prostatectomy procedures (dVP) in the U.S., slower growth in benign gynecologic procedures, and ongoing litigation and regulatory scrutiny. The company's significant cash position and ongoing share repurchase program are also key financial highlights.

Financial Highlights

46 data points
Beta

Revenue

$499.00M

71.5% Gross Margin

Net Income

$156.80M

31.4% Net Margin

EPS (Diluted)

$0.44

Total Assets

$3.70B

Cash & Equivalents

$586.80M

Free Cash Flow

$203.80M

Financial Statements
Beta
Revenue$499.00M
Cost of Revenue$142.30M
Gross Profit$356.70M
R&D Expenses$43.20M
SG&A Expenses$139.30M
Operating Expenses$182.50M
Operating Income$174.20M
Net Income$156.80M
EPS (Basic)$0.45
EPS (Diluted)$0.44
Shares Outstanding (Basic)347.40M
Shares Outstanding (Diluted)353.70M

Key Highlights

  • 1Total revenue for Q3 2013 decreased by 7% year-over-year to $499.0 million, primarily due to a 32% decrease in da Vinci Surgical System sales.
  • 2Recurring revenue, comprising instruments, accessories, and service, increased by 11% year-over-year in Q3 2013 to $340.5 million, now representing 68% of total revenue.
  • 3For the first nine months of 2013, total revenue increased by 7.6% year-over-year to $1,688.9 million, with recurring revenue growing 17% to $1,058.6 million.
  • 4The installed base of da Vinci Surgical Systems grew to 2,871 as of September 30, 2013, up from 2,462 in the prior year.
  • 5The company repurchased approximately $1.1 billion of its common stock during the nine months ended September 30, 2013, indicating a strong commitment to returning capital to shareholders.
  • 6Net income for Q3 2013 was $156.8 million, down from $183.3 million in Q3 2012, with diluted EPS of $3.99 versus $4.46.
  • 7The company faces ongoing product liability lawsuits and regulatory scrutiny, including a Warning Letter from the FDA related to reporting of field corrections and design input documentation.

Frequently Asked Questions

Total revenue decreased primarily due to a significant 32% drop in da Vinci Surgical System sales. This was partially offset by an 11% increase in recurring revenue from instruments, accessories, and services, driven by a higher number of procedures performed on the installed base of systems.

Recurring revenue growth is primarily driven by an increase in the number of da Vinci surgical procedures performed globally, which leads to higher consumption of instruments and accessories. Additionally, service revenue benefits from a growing installed base of da Vinci Surgical Systems, leading to increased service contract revenue.

Key challenges include declining prostatectomy (dVP) procedures in the U.S. due to changes in screening recommendations, slower growth in benign gynecologic procedures, increased competition, and ongoing product liability litigation and regulatory reviews, including a recent FDA Warning Letter. Negative media publicity also poses a risk to procedure adoption and system sales.

Intuitive Surgical maintains a strong liquidity position with $2.5 billion in cash, cash equivalents, and investments as of September 30, 2013. The company actively engaged in share repurchases, spending approximately $1.1 billion in the first nine months of 2013, demonstrating a commitment to capital return. The company expects to fund future growth through operating cash flows.