Intuitive Surgical's CEO Discusses Q1 2012 Results - Earnings Call Transcript

Intuitive Surgical (ISRG)

Q1 2012 Earnings Call

April 17, 2012 4:30 pm ET


Calvin Darling -

Gary S. Guthart - Chief Executive Officer, President and Director

Marshall L. Mohr - Chief Financial Officer, Principal Accounting Officer and Senior Vice President

Aleks Cukic - Vice President of Strategy


Spencer Nam - ThinkEquity LLC, Research Division

Tycho W. Peterson - JP Morgan Chase & Co, Research Division

Ben Andrew - William Blair & Company L.L.C., Research Division

David R. Lewis - Morgan Stanley, Research Division

Lennox Ketner - BofA Merrill Lynch, Research Division

Frederick A. Wise - Leerink Swann LLC, Research Division

Michael Matson - Mizuho Securities USA Inc., Research Division



Ladies and gentlemen, thank you for standing by. Welcome to the Intuitive Surgical First Quarter Earnings Release Call. [Operator Instructions] I would now like to turn the conference over to our host, Mr. Calvin Darling, Senior Director of Finance for Intuitive Surgical. Please go ahead.

Calvin Darling

Thank you. Good afternoon, and welcome to Intuitive Surgical's First 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 website at on the Audio Archives section under our investor relations page. In addition, today's press release has been posted to our website.

Today's format will consist of providing you with highlights of our first quarter's results as described in our press release announced earlier today, followed by a question-and-answer session. Gary will present the quarter's business and operational highlights. Marshall will provide a review of our first quarter financial results. Aleks will discuss marketing and clinical highlights. Then, I will provide an update to our financial forecast for 2012. And finally, we will host a question-and-answer session. With that, I will turn it over to Gary.

Gary S. Guthart

Thank you for joining us today. In this first quarter, our team has executed well and we have experienced strong performance in procedures, encouraging acceptance of our new products and the financial results that follow.

For 2012, Intuitive is focused on the following: first, continuing our growth in gynecology and urology worldwide through outstanding execution in the field; second, disciplined execution of our Single-Site and vessel sealing launches focused on outstanding early customer experiences; third, building robust clinical programs with leading customers in emerging procedures and general surgery, thoracic surgery and transoral surgery; and finally, strengthening our capabilities in the international markets, particularly Europe, Japan and Korea.

With regard to procedures, we experienced strong growth in general surgery and gynecology, leading to a year-over-year procedure growth of approximately 29%. With uptake in colorectal procedures and the introduction of Single-Site in the United States, the category of general surgery grew at the highest rate this quarter.

Worldwide urology procedures grew year-over-year as well, led by growth in European dVP, while U.S. urology was flat. Aleks will provide additional procedure commentary later in the call.

As we have mentioned on previous calls, we have been investing in improving our structural capabilities in Japan. Our team has worked with Japan's MHLW on reimbursement for da Vinci Prostatectomy, receiving reimbursement approval on April 1. Intuitive Surgical Japan has also successfully transitioned the import license for da Vinci S from Johnson & Johnson Japan to Intuitive Surgical Japan this month. We are encouraged by our progress in Japan and we will continue to invest to clear the path for increased da Vinci use.

Overall, international system sales were encouraging. However, our first quarter system sales in Europe were somewhat disappointing. This is likely a combination of both economic pressures in Europe as well as organizational capability.

Turning to operating highlights for the first quarter.

Procedures grew 29% over the first quarter of 2011. We sold 140 da Vinci Surgical Systems, up from 120 during the first quarter of last year. Total revenue was $495 million, up 28% over last year. Instrument and accessory revenue increased to $208 million, up 32% over Q1 of 2011. Total recurring revenue grew to $289 million, up 31% from prior year and comprising 58% of total revenue. Net income was $144 million, up 38% over last year. We generated an operating profit of $228 million before noncash stock option expense, up 26% from the first quarter of last year and representing 46% of Q1 revenue.

We ended the quarter with $2,371,000,000 in cash and investments, up $199 million from last quarter. Significant cash outlays during the quarter included $50 million invested in the acquisition of our Korean distributor, fixed assets and intellectual property. Excluding the impact of these outlays as well as $83 million from stock proceeds and $30 million used for working capital, we generated $211 million in gross cash flow from operations, which is 147% of our reported GAAP net income in the first quarter.

The first quarter has been an active one for our product development, marketing and operations teams. In the quarter, we completed our first phase of rollout for our Single-Site instruments and accessories for da Vinci Si in the United States. Recall, Single-Site is a platform for increasing patient value by reducing the number of incisions required by traditional multiport minimally invasive surgery. Instead of the multiple incisions of traditional laparoscopy, the body is entered through a single incision at the umbilicus.

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