Skip to main content

Intuitive Surgical CEO Discusses Q3 2010 Results - Earnings Call Transcript

Intuitive Surgical CEO Discusses Q3 2010 Results - Earnings Call Transcript

Intuitive Surgical Inc. (

ISRG

)

Q3 2010 Earnings Call Transcript

October 19, 2010 4:30 pm ET

Executives

Calvin Darling – Director, Financial Planning and Analysis

Gary Guthart – President & CEO

Marshall Mohr – SVP & CFO

Aleks Cukic – VP, Strategy

Analysts

Ben Andrew – William Blair

Tycho Peterson – JP Morgan

James

[ph]

TheStreet Recommends

Morgan Stanley

Sameer Harish – Needham & Co.

David Roman – Goldman Sachs

Frederick Wise – Leerink Swann

Presentation

Operator

Compare to:
Previous Statements by ISRG
» Intuitive Surgical, Inc. Q2 2010 Earnings Call Transcript
» Intuitive Surgical, Inc. Q1 2010 Earnings Call Transcript
» Intuitive Surgical, Inc. Q4 2009 Earnings Call Transcript
» Intuitive Surgical, Inc. Q3 2009 Earnings Call Transcript

Ladies and gentlemen, thank you for standing by and welcome to the Intuitive Surgical Q3 earnings conference call. At this time, all participants are in a listen-only mode. You will have an opportunity to ask questions after the presentation. As a reminder this conference is being recorded.

I would now like to turn the conference over to your host, Mr. Calvin Darling, Director of Financial Planning and Analysis for Intuitive Surgical. Please go ahead.

Calvin Darling

Good afternoon and welcome to Intuitive Surgical’s third quarter conference call. With me today we have Gary Guthart, our President and CEO; Marshall Mohr, our Chief Financial Officer; and Aleks Cukic, our Vice President of Strategic Planning.

Before we begin, I would like to inform you that comments mentioned on today’s call may be deemed to contain forward-looking statements. Actual results may differ materially from those expressed or implied as a result of certain risks and uncertainties. These risks and uncertainties are described in detail in the company’s Securities and Exchange Commission filings. Prospective investors are cautioned not to place undue reliance on such forward-looking statements.

Please note that this conference call will be available for audio replay on our Web site at intuitivesurgical.com on the Audio Archive section under our Investor Relations page. In addition, today’s press release has been posted to our Web site.

Today’s format will consist of providing you with highlights of our third quarter results as described in our press release, followed by a question-and-answer session. Gary will present the quarter’s business and operational highlights; Marshall will provide a review of our second quarter financial results; Aleks will discuss marketing and clinical highlights; then I will provide an update to our forecast for 2010; and finally, we will host a question-and-answer session.

With that, I’ll turn it over to Gary.

Gary Guthart

Good afternoon and thank you for joining us on the call today. In what is historically a seasonally challenging quarter Q3, 2010 provided some added macroeconomic head wins. In the face of these challenges, our procedures showed slight growth sequentially from Q2 and 33% growth over Q3, 2009. In systems, we sold 105 da Vinci Systems in the quarter, up from 86 systems in Q3, 2009 and acceptance of our Si Systems and Dual Console’s were strong.

In absolute numbers, gynecology continued to show strength, adding the most procedures in the quarter, with contributions from both benign and malignant conditions. While Q3 is seasonally slow in Europe, prior year comparisons show relative strength in European procedures. Pull through procedures in gynecology and neurology also reflected positive trends.

Emerging procedures continue to expand exhibiting strong sequential growth. da Vinci Lobectomy, da Vinci Low Anterior Resection and da Vinci transoral surgery are delivering strong patient value and are being adopted well. On a relative basis the procedure counts are still fairly small, however there early growth rates remain encouraging.

Before summarizing Q3 highlights, I’d like to remind you that third quarter 2009 included a revenue deferral associated with an upgrade offer related to the introduction of our Si System, in comparisons that follow exclude the deferral. Operating highlights for the third quarter were as follows.

Procedures grew 33% over the third quarter of 2009. We sold 105 da Vinci Surgical Systems, up from 86 during the third quarter of last year.

Total revenue was $344 million, up 26% over Q3 2009. Instrument and accessory revenue was $128 million, up 27% over last year. Total recurring revenue grew to $185 million, up 28% from prior year and comprising 54% of total revenue.

Net income was $87 million, up 43% over last year. We generated an operating profit of $163 million before non-cash stock compensation expense, up 32% from the third quarter of last year.

We ended the quarter with $1.621 billion in cash and investments, up by $33 million from last quarter and up $597 million from third quarter 2009.

Significant cash outlays for the quarter included $50 million invested in intellectual property, related technologies and fixed assets and $59 million in stock repurchases.

Excluding the impact of these outlays, as well as $17 million from stock proceeds and $2 return from working capital, we generated $126 million in gross cash flow from operations, which is 145% of our reported GAAP net income in the third quarter. We have been making substantive investments in our clinical sales force and in new product development throughout the year.

We believe that close clinical sales support of emerging and high-growth procedures is an important catalyst for achieving procedure adoption. However, reaching territory productivity for new sales hire does not happen immediately.

It is a multi-month process so that hires made earlier in the year are just coming online in the field now. We will continue to measure the productivity of these investments and we’ll adjust our spending as needed. This quarter we added an additional 92 people to our team, predominantly in sales, manufacturing, and R&D, bringing our total team to 1,568 employees.

In product development and research, our teams are driving advancements in our focus areas. Our instrument development teams are progressing and developing robotic stapling and energy instruments as well as various specialty specific instruments.

Read the rest of this transcript for free on seekingalpha.com