Intuitive Surgical Conference Call Highlights

Intuitive Surgical

reported its second-quarter earnings Tuesday, July 22nd, 2014. Shares of the company are up 14.13 percent. Below are some key takeaways from its conference call: General Highlights: • First, global procedures grew 8% on a sequential basis and 9% year-over-year. • Also during the quarter we strengthened our direct presence in both Japan and Europe. • Our newest platform, the da Vinci Xi Surgical System, was launched in the quarter and our customers' reception for it has been very positive. • Also during the quarter we strengthened our direct presence in both Japan and Europe. • Turning to United States, procedure growth improved over the first quarter led by growth in colorectal procedures, single site and early growth in hernia repair. Global: • Capital placements in the United States grew sequentially from 45 systems in the first quarter to 61 systems in the second. • With regard to our Xi system specifically, we anticipate increasing interest as additional clearances are obtained and experience with the product grows. • Capital sales cycles are typically longer in Europe, and the introduction of a new system creates some delay as customers evaluate our new offering. • We continue to invest in our sales organization as well as scientific affairs to deepen our European capabilities. • Turning to Asia, procedure trends have been healthy with growth centered on cancer surgeries in urology and general surgery. • Direct interactions with customers' surgical societies and government agencies in Japan are essential to the long-term growth of robotic surgery. • We look forward to serving the Japanese market meaningfully in coming years. • Capital sales in Asia were lower than prior quarters impacted by the introduction of da Vinci Xi in the U.S. Financials: • Worldwide procedures grew 9% over prior-year. • We sold 96 systems in the quarter down from 143 systems in Q2 of 2013 and up from 87 systems in Q1. • Total non-GAAP revenue in the quarter was $507 million down from $579 million in Q2 of 2013 and up from $490 million in Q1 of 2014. • Non-GAAP operating profit in the quarter was $196 million comprising 39% of non-GAAP revenue. • Non-GAAP earnings per share were $3.70 compared with $4.60 in Q2 of 2013 and $3.50 in Q1. • Speaking of product contribution margins, we expect capital pressures on hospitals in most regions to continue. • Given our new product introduction cycle for systems and broader market conditions, we expect capital margins to remain below prior-year levels. • However, over time we expect recurring revenue margins to improve as new product volumes increase, and we benefit from efficiencies in our supply chain services and product architectures. Pro Forma Basis Results: • Pro forma second quarter revenue was $507 million, down 12% compared to $579 million to the second quarter of 2013, and up 3% from last quarter. • Procedures for the second quarter grew approximately 9% compared with the second quarter of 2013 and were up approximately 8% compared with last quarter. • Pro forma revenue excludes the impact of offers made to customers to trade-in their recently purchased Si products to the newly introduced Xi products. • Pro forma instrument and accessory revenue of $262 million was down 1% compared with the second quarter of 2013.