10-QPeriod: Q1 FY2018

INTUITIVE SURGICAL INC Quarterly Report for Q1 Ended Mar 31, 2018

Filed April 18, 2018For Securities:ISRG

Summary

Intuitive Surgical, Inc. (ISRG) reported strong financial performance for the first quarter of 2018, with total revenue increasing by 25% year-over-year to $847.5 million. This growth was driven by a 28% increase in product revenue, fueled by a 46% surge in systems revenue and a solid 21% rise in instrument and accessory revenue. The company shipped 185 da Vinci Surgical Systems, a significant increase from the prior year, contributing to an expanded installed base of approximately 4,528 systems. Net income attributable to Intuitive Surgical, Inc. rose substantially by 59% to $287.6 million. The company also highlighted continued investment in research and development, with R&D expenses increasing by 30% to support new product initiatives and future generations of robotics. This strategic investment, coupled with robust revenue growth and improved profitability, positions ISRG for continued expansion in the minimally invasive surgical market.

Financial Highlights

47 data points
Beta

Revenue

$847.50M

70.1% Gross Margin

Net Income

$287.60M

33.9% Net Margin

EPS (Diluted)

$0.81

Total Assets

$6.43B

Cash & Equivalents

$974.70M

Free Cash Flow

$280.20M

Financial Statements
Beta
Revenue$847.50M
Cost of Revenue$253.70M
Gross Profit$593.80M
R&D Expenses$95.50M
SG&A Expenses$221.60M
Operating Expenses$317.10M
Operating Income$276.70M
Net Income$287.60M
EPS (Basic)$0.85
EPS (Diluted)$0.81
Shares Outstanding (Basic)338.40M
Shares Outstanding (Diluted)354.00M

Key Highlights

  • 1Total revenue grew 25% to $847.5 million, driven by a significant increase in systems revenue (up 46%) and strong performance in instruments and accessories (up 21%).
  • 2Net income attributable to Intuitive Surgical, Inc. surged by 59% to $287.6 million, demonstrating strong operational efficiency and profitability.
  • 3The company shipped 185 da Vinci Surgical Systems, a 39% increase year-over-year, expanding its installed base to approximately 4,528 systems.
  • 4Gross profit margin improved to 70.1% from 69.1% in the prior year period, reflecting higher product revenue and a reduction in litigation charges.
  • 5Research and Development expenses increased by 30% to $95.5 million, indicating a continued commitment to innovation and new product development.
  • 6The company maintained a strong liquidity position with $4.1 billion in cash, cash equivalents, and investments as of March 31, 2018.
  • 7Adoption of ASC 606, Revenue from Contracts with Customers, was completed, with prior periods restated, impacting revenue recognition for multi-year service contracts.

Frequently Asked Questions

Systems revenue increased by 46% primarily due to higher system shipments (up 39% to 185 units), a prior year revenue deferral related to a da Vinci X trade-out program, and a slightly higher average selling price (ASP). The expanded installed base also contributes to future recurring revenue streams.

Intuitive Surgical adopted ASC 606, Revenue from Contracts with Customers, effective January 1, 2018, using the full retrospective method. This led to restatements of prior periods, impacting how revenue from multi-year service contracts is recognized, generally leading to earlier revenue recognition for products and less for services compared to the previous standard. It also resulted in the capitalization of certain sales commissions.

While OUS revenue growth was strong at 18% in Q1 2018, it was lower than the previous year's 28%. This moderation is attributed to slower growth in Europe, Japan, and China, with factors like holiday timing, increased penetration rates for mature procedures in Japan, and system capacity constraints in China influencing the rates. The company expects OUS revenue to represent a greater portion of the business in the long term.

The company is involved in ongoing legal proceedings, including purported shareholder class action lawsuits and product liability litigation related to the da Vinci Surgical System. While the company intends to defend itself vigorously, the outcomes are difficult to predict and could have a material adverse effect. The company also faces patent litigation with Ethicon. Accruals have been made for product liability claims, but the ultimate cost is uncertain.