10-QPeriod: Q1 FY2017

INTUITIVE SURGICAL INC Quarterly Report for Q1 Ended Mar 31, 2017

Filed April 19, 2017For Securities:ISRG

Summary

Intuitive Surgical Inc. (ISRG) reported strong top-line growth in the first quarter of 2017, with total revenue increasing 13% year-over-year to $674.2 million. This growth was primarily driven by a robust increase in procedure volume, up 18%, and a corresponding 17% rise in recurring revenue, which now constitutes 77% of total revenue. While systems revenue saw a modest 4% increase, the company shipped 133 da Vinci Surgical Systems, up from 110 in the prior year quarter. The company also significantly executed a $2.0 billion accelerated share repurchase program during the quarter. Despite a reduction in reported revenue due to a customer trade-out program and litigation settlement charges, the company demonstrated solid operational performance and continued investment in research and development. The company's financial position remains strong with $3.1 billion in cash, cash equivalents, and investments as of March 31, 2017. Operating cash flow was healthy at $241.5 million, supporting the significant share repurchase activity. Management continues to emphasize investment in product development, including future generations of robotics and new catheter-based medical devices through a joint venture in China. Investors should note the ongoing litigation, particularly product liability claims, although the company currently believes these will not have a material adverse effect on its financial position.

Financial Highlights

45 data points
Beta

Revenue

$679.60M

69.1% Gross Margin

Net Income

$180.80M

26.6% Net Margin

EPS (Diluted)

$0.52

Total Assets

$4.81B

Cash & Equivalents

$708.60M

Free Cash Flow

$241.50M

Financial Statements
Beta
Revenue$679.60M
Cost of Revenue$209.80M
Gross Profit$469.80M
R&D Expenses$73.50M
SG&A Expenses$202.90M
Operating Expenses$276.40M
Operating Income$193.40M
Net Income$180.80M
EPS (Basic)$0.54
EPS (Diluted)$0.52
Shares Outstanding (Basic)335.70M
Shares Outstanding (Diluted)346.50M

Key Highlights

  • 1Total revenue increased by 13% to $674.2 million in Q1 2017, driven by an 18% increase in da Vinci procedures.
  • 2Recurring revenue, comprising instruments, accessories, and service, grew 17% to $521.0 million, representing 77% of total revenue.
  • 3Total da Vinci Surgical System shipments increased to 133 units, up from 110 in the prior year quarter.
  • 4The company executed a substantial $2.0 billion accelerated share repurchase program in Q1 2017.
  • 5Operating income increased 7% to $191.5 million, despite $23.4 million in deferred revenue from a customer trade-out program and $7.8 million in litigation charges.
  • 6Research and development expenses increased significantly by 38% to $73.5 million, reflecting ongoing investment in new product development.
  • 7The company maintains a strong liquidity position with $3.1 billion in cash, cash equivalents, and investments as of March 31, 2017.

Frequently Asked Questions

The primary driver of Intuitive Surgical's revenue growth is the increasing volume of da Vinci procedures performed globally. This increase in procedures directly boosts recurring revenue from instruments and accessories, and supports the installed base of da Vinci Surgical Systems.

The company initiated a customer trade-out program in Q1 2017 where certain customers who purchased a surgical system could return it for a credit towards a future system. This resulted in a deferral of $23.4 million in revenue and $8.1 million in associated costs for the quarter, as the revenue will be recognized when new systems are shipped and accepted or when the trade-out rights expire.

Intuitive Surgical maintains a strong cash position, with $3.1 billion in cash, cash equivalents, and investments as of March 31, 2017. A significant portion of this was utilized for a $2.0 billion accelerated share repurchase program in Q1 2017. Operating activities continue to generate substantial cash flow, providing flexibility for future operations and investments.

The company is involved in several legal proceedings, including purported shareholder class action lawsuits, derivative actions, and product liability litigation. While the company denies liability in many cases and believes the resolution of most matters will not have a material adverse effect, significant charges have been recorded for product liability claims, and ongoing legal costs could impact future financial results.