Intuitive Surgical Expects Lower Q1 Revs, Shares Dip - Analyst Blog

Intuitive Surgical, Inc. ISRG revealed that it expects a 24% fall in 2014-first quarter revenues to $465 million from $611 million in the first quarter of 2013 owing to the $26 million deferral related to a customer trade-out program for their recently purchased da Vinci Si Surgical Systems with the company's recently announced da Vinci Xi Surgical System. The market reacted negatively as the stock slid 1.4% to close at $489.84 yesterday.

Per Intuitive Surgical, the deferrals will reduce Systems revenues by roughly $24 million and Instruments and Accessories revenues by $2 million. Excluding the impact of the trade-out program, revenues would be $491 million, still reflecting a 20% decline from the prior year.

Segment Revenues

Preliminary estimates by Intuitive Surgical suggest that Instruments and Accessories revenues will decline by 2% to $255 million in the quarter from $261 million in the prior-year quarter. The decrease is attributed to the fall in stocking orders on the back of a decrease in system sales and the revenue deferral.

The negative impact on Instruments and Accessories revenues will be partially offset by instrument and accessory sales associated with a 7% increase in procedure volumes, indicating growth in U.S. general surgery procedures and urologic procedures outside the U.S., despite a low, single-digit decline in U.S. gynecologic procedures.

According to preliminary estimates, da Vinci Surgical Systems revenues are anticipated to plunge 59% to $106 million compared with $256 million in the first quarter of 2013. The drastic fall is attributable to lower system sales in the U.S. and the revenue deferral.

Intuitive Surgical shipped 87 da Vinci Surgical Systems in the 2014-first quarter, including 45 in the U.S. and 42 outside the U.S., nearly half compared with 164 shipped in the first quarter of 2013, including 115 in the U.S. and 49 outside the U.S.

Lower procedure volumes, changing hospital capital-spending priorities associated with the implementation of the Affordable Care Act and the anticipation of a new system affecting the healthcare capital-spending decisions caused lower U.S. shipments of da Vinci Surgical Systems.

Preliminary figures also suggest that Service revenues will increase 11% to $104 million compared with $94 million in the first quarter of 2013.

Pre-Tax Charge

Intuitive Surgical also revealed that it would record a pre-tax charge of $67 million in the 2014-first quarter based on estimated costs of resolving a few product liability legal claims against the company.

The legal claims are related to alleged complications from surgeries performed with certain versions of Monopolar Curved Scissors MCS instruments that were associated with a recall in 2013 as well as with a first-generation MCS tip cover that was the subject of a market withdrawal in 2012.

da Vinci Xi

Intuitive Surgical generates revenues from da Vinci systems as well as disposable instruments that are replaced after each procedure. da Vinci system uses robots, cameras and a remote-control console to perform gall bladder removals, hysterectomies, cardiovascular operations and prostatic surgeries.

Last week, Intuitive Surgical announced the approval of its new and improved da Vinci Xi robotic surgical system by U.S. Food and Drug Administration (FDA). The company has revealed that the new robotic system has longer instrument shafts enabling greater reach for surgery. The robotic arms of the system are also smaller and thinner and have a new joint design that improves their range of motion.

The system also features an overhead instrument arm design providing surgeons anatomical access from any position, a digital endoscope architecture that provides improved vision and clarity, and an ability to attach the endoscope to any arm, providing flexibility for visualizing the surgical site.

Shaky Reviews

Intuitive Surgical's robotic surgical systems came under fire in the past due to several incidents that raised doubts about the robotic surgical technology. Several reports have revealed that patients suffered complications or injuries owing to the robotic-assisted surgeries.

Recently, Twitter enthusiast and urologist Dr. Benjamin Davies massively criticized Intuitive Surgical's new da Vinci Xi Surgical System. Davies, who has defended Intuitive Surgical in the past, has claimed that the new da Vinci Xi is not compatible with existing da Vinci systems.

Zacks Rank

Over the last 60 days, Intuitive Surgical witnessed three downward estimate revisions against only one upward estimate revision for 2014. The Zacks Consensus Estimate remained flat at $14.87 for 2014 in the same time frame.

Currently, Intuitive Surgical retains a Zacks Rank #3 (Hold). Some better-ranked stocks in the medical instruments industry include Cynosure, Inc. CYNO, Delcath Systems, Inc. DCTH, and Syneron Medical Ltd. ELOS. All of them sport a Zacks Rank #1 (Strong Buy).