10-QPeriod: Q1 FY2014

INTUITIVE SURGICAL INC Quarterly Report for Q1 Ended Mar 31, 2014

Filed April 25, 2014For Securities:ISRG

Summary

Intuitive Surgical Inc. (ISRG) reported a significant year-over-year decrease in revenue for the first quarter of 2014, driven primarily by a sharp decline in system sales. This was partially offset by a modest increase in recurring revenue from services, instruments, and accessories. The company's net income also saw a substantial decrease, largely impacted by a significant pre-tax charge of $67.4 million related to product liability claims. Despite the revenue dip, the company continues to invest in research and development and has launched its new da Vinci Xi Surgical System, which received FDA clearance in April 2014. Financially, ISRG maintained a strong cash position with $3.0 billion in cash, cash equivalents, and investments as of March 31, 2014. However, the significant litigation charge and the decline in system sales warrant investor attention. The company is also navigating evolving trends in surgical procedures, including pressure on benign gynecologic procedures and a decline in U.S. prostatectomy procedures, alongside a strategic pivot towards less complex procedures in its U.S. market.

Financial Highlights

47 data points
Beta

Revenue

$464.70M

67.9% Gross Margin

Net Income

$44.30M

9.5% Net Margin

EPS (Diluted)

$0.13

Total Assets

$4.19B

Cash & Equivalents

$814.00M

Free Cash Flow

$166.30M

Financial Statements
Beta
Revenue$464.70M
Cost of Revenue$149.30M
Gross Profit$315.40M
R&D Expenses$43.00M
SG&A Expenses$215.80M
Operating Expenses$258.80M
Operating Income$56.60M
Net Income$44.30M
EPS (Basic)$0.13
EPS (Diluted)$0.13
Shares Outstanding (Basic)344.70M
Shares Outstanding (Diluted)351.90M

Key Highlights

  • 1Total revenue decreased by 24% to $464.7 million in Q1 2014 compared to Q1 2013, primarily due to a 59% decrease in system revenue.
  • 2Recurring revenue (services, instruments, and accessories) increased slightly by 1% to $358.7 million, now representing 77% of total revenue, up from 58% in the prior year's quarter.
  • 3Net income plummeted to $44.3 million from $188.9 million year-over-year, significantly impacted by a $67.4 million pre-tax charge for product liability claims.
  • 4The company shipped 87 da Vinci Surgical Systems in Q1 2014, a substantial decrease from 164 units shipped in Q1 2013.
  • 5Installed base of da Vinci Surgical Systems grew to 3,039 as of March 31, 2014.
  • 6The company launched its new da Vinci Xi Surgical System in April 2014, receiving FDA clearance.
  • 7Cash, cash equivalents, and investments stood strong at $3.0 billion as of March 31, 2014.

Frequently Asked Questions

The primary driver for the 24% year-over-year revenue decrease in Q1 2014 was a substantial 59% drop in da Vinci Surgical System revenue, largely due to a lower number of systems shipped and revenue deferrals related to the new da Vinci Xi trade-in program.

The company recorded a significant pre-tax charge of $67.4 million in the first quarter of 2014 to cover estimated costs for resolving product liability claims. This charge substantially impacted operating income and net income for the quarter.

There is a notable shift towards recurring revenue. In Q1 2014, recurring revenue (services, instruments, and accessories) constituted 77% of total revenue, a significant increase from 58% in Q1 2013, indicating growing reliance on post-system sale revenue streams.

While overall procedure volume grew slightly, there is continued pressure on U.S. benign gynecologic procedures and a decline in U.S. prostatectomy (dVP) procedures, attributed partly to healthcare policy changes and payer trends. Conversely, U.S. general surgery and international urologic procedures showed growth.