Intuitive Surgical (NASDAQ:ISRG) is scheduled to release its Q4 2013 earnings on Thursday, January 23. It released certain preliminary fourth quarter and full year 2013 financial results last week. The preliminary results revealed that the company expects revenues of $576 million for the fourth quarter of 2013, down 5% y-o-y. However, these revenues are about 5% higher than consensus estimates compiled by Thomson Reuters for the company. While sales of its da Vinci systems are estimated to have declined in the fourth quarter by over 20% y-o-y to $205 million, the company expects quarterly revenues from Instruments and Accessories to increase 6% from the prior-year quarter to $268 million. The soft performance in the U.S. was partially offset by strong sales in Japan and Europe.
For the full year 2013, the company expects revenues of about $2.27 billion, up 4% from 2012. The preliminary financial results showed better-than-expected sales figures for the last quarter and full year 2013, considering that Intuitive Surgical had suffered a 7% decline in revenues in the previous quarter over the same quarter in 2012, and it had revised its revenue growth projections for the full year 2013 from 0%-7% in the previous quarter to just 0%-3.5% . The company’s stock is up about 10% in the past week after this announcement. Our price estimate for Intuitive Surgical’s stock is currently $417, which is in line with the current market price.
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Concerns Over da Vinci Systems Weigh On Sales Growth
Intuitive Surgical has been marketing its da Vinci system mainly on the premise of lower costs. However, a comprehensive study conducted by Columbia University in 2013 suggested that surgeries performed using this system may actually cost significantly more than standard minimally invasive procedures, and without any major benefits. The American Congress of Obstetricians and Gynecologists also echoed these research findings, and questioned the lack of clinical data to demonstrate the efficacy of robotic hysterectomies over cheaper laparoscopic procedures. 
The year was also marked by a significant rise in the number of “adverse event” reports handled by the FDA, relating to Intuitive Surgical’s da Vinci robots. An FDA warning letter to the company for not sufficiently reporting patient “adverse events” added to the negativity surrounding the surgical robot maker in 2013. The California-based company even issued a global recall of more than 1300 robot arms in 2013 because some systems were producing too much friction, causing the robotic system to briefly stop functioning. 
The preliminary full year 2013 financial results released by the company suggest a similar negative sentiment with respect to the da Vinci system as its sales are estimated to have declined 11% y-o-y, from $939 million in 2012 to $835 million in 2013. The report also suggests that overall sales in the U.S. declined about 28%. This can be attributed to a decline in Urology procedures and moderating growth in benign gynecology procedures. The Affordable Care Act in the U.S. also changed institutional capital-spending priorities, resulting in hospitals putting off their purchase of the da Vinci systems, which cost over $1.5 million each. However, the decline in the U.S. was partially offset by impressive growth in Japan and Europe, which registered 98% and 28% increases in sales respectively, on account of higher da Vinci prostatectomy (dVP) procedure volumes.
Rise In da Vinci Procedures Driving Growth
The Instruments and Accessories business is expected to see a 14% growth in revenues from $900 million in 2012 to over $1 billion in 2013. This is attributable to a rise in da Vinci procedures, partially offset by lower overall system sales. According to the preliminary results announced, about 523,000 procedures were performed worldwide in 2013 with the help of the da Vinci surgical system, up 16% y-o-y. Procedures in the U.S. registered 15% growth y-o-y on account of rise in general surgical procedures and gynecology procedures.
- Q3 Earnings Call Transcript, SeekingAlpha, October 17, 2013 [↩]
- Robot Surgery Isn’t First Choice for Uterus Removals, Bloomberg, March 16 2013 [↩]
- Intuitive Robots May Stall in Surgery, Company Warns, Bloomberg, Dec 05 2013 [↩]