INTUITIVE SURGICAL INC Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Product Launches and Growth: DaVinci procedure growth 18% in Q3, Ion procedures up 73%, SP procedures up 70%. Launched 5th gen DaVinci in March, placed 110 systems. Ion and SP seeing growth in various regions.
• Clinical and Regulatory Updates: Submitted CE technical file for DaVinci 5 in Europe, received clearance in Korea, ongoing regulatory process in Japan. Launched DaVinci 5 broad launch hardware, software update addressing customer feedback.
• Financials: Revenue grew 17% in Q3. Pro forma gross margin 69.1%, operating margin 36% of revenue. Placed 379 systems, including 110 DaVinci 5 and 58 Ion systems.

Segment Performance

• Multi-port System: Installed base globally at ~9,300. Five-year procedure CAGR 17% with 16 million total patients treated (10M in past 5 years). Launched 5th gen DaVinci in March 2024, installed 188, with over 12,000 procedures completed in 6 months.
• Endoluminal System (Ion): Installed base 736 (722 in US). Procedures grew 73% to ~25,000 in Q3 2024. Placed 58 Ion systems in Q3, install base up 50% to 736.
• DaVinci SP: Installed base 243. Procedures growing at 5-year CAGR 55% with 67,000 total procedures. Placed 21 SP systems in Q3, installed base up 54% to 243.
• Digital Efforts: Nearly 3,000 DaVinci VR simulators, over 14,000 active surgeon users for My Intuitive app, Intuitive Hub in ~2,000 ORs, over 4,000 custom hospital analytics performed.

Guidance

• Procedures: Full-year 2024 procedure growth revised to 16%-17% range.
• Gross Margin: Pro forma gross profit margin expected 68.5%-69% of net revenue.
• Operating Expenses: Full-year 2024 pro forma operating expense growth revised to 10%-12% range.
• Other: Other income expected $325M-$345M, capital expenditures $1B-$1.2B, income tax rate 22%-23% of pre-tax income.

Risks

• Regulatory Uncertainties: Delays or issues in obtaining regulatory clearances for new products like DaVinci 5 in various regions.
• Market Competition: Domestic robotic competition in China and other markets could impact market share and growth.
• Capital Spending Impact: Higher capital expenditures for facility construction could affect margins in the short term.

Question and Answer

• Q: More on DV5 ramp and customer reactions to contribution margins A: Dave Rosa mentioned software updates will continue, supply of DV5 to increase modestly. Jamie Samath noted early feedback on efficiency gains from surgeons, but evidence collection ongoing.
• Q: International updates, Korea approval, Japan timing, Europe review A: Dave Rosa said supply available for Korea, Japan review ongoing, Europe CE mark expected near end of 2025.
• Q: Margin progression and new products mix A: Jamie Samath said margins aim for top tier, op margins not targeted above 40%, depreciation impact to wane in 2025.
• Q: Ion launch and adoption curve, usage agreements A: Gary Guthart said Ion progressing well in US, early stages in OUS. Jamie Samath discussed usage agreements as accretive but growth likely to moderate in US.
• Q: DaVinci 5 installed base, software innovation cycle A: Jamie Samath said DV5 used across broad procedures, too early to compare utilization to Xi. Software innovation cycles faster for non-medical device software, longer for regulated software.
• Q: US procedure growth drivers, new segments A: Gary Guthart said balanced approach, focusing on depth in existing procedures and new opportunities in new indications for Ion, SP, etc.