Intuitive Surgical Expects Q4 Growth On Rising da Vinci Xi Sales

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ISRG: Intuitive Surgical logo
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Intuitive Surgical

Intuitive Surgical (NASDAQ:ISRG) released preliminary fourth quarter and full year 2014 data on Tuesday, a day before it is scheduled to participate in the 33rd Annual JPMorgan Healthcare Conference in San Francisco. The da Vinci surgical robot manufacturer expects total revenue, excluding da Vinci Xi trade-out offers, to increase by 5% year-over-year (y-o-y) in the fourth quarter on growth across divisions – Instruments and Accessories, Systems and Services.

The spike in quarterly revenue is likely due to higher unit sales of its new da Vinci Xi model and a rise in total procedures. For the full year 2014, the company expects procedure volumes to have grown by 9% y-o-y, driven by a 6% rise in U.S. procedures and a 20% rise in international procedures. However, the higher procedure volumes towards the end of 2014 could not offset the company’s lackluster performance in the first half of the year. The company announced in its preliminary 2014 earnings release that its full year sales are likely to decline by 6% over the previous year to $2.13 billion. The company is scheduled to announce its full Q4 and overall 2014 results on Thursday, January 22. ((Press Release, Intuitive Surgical, Jan 12 2015))

We currently have a price estimate of $458 for Intuitive Surgical, which is about 10% below the market price.

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See our full analysis for Intuitive Surgical

da Vinci Xi Dominates System Sales

The company’s performance has been negatively impacted in the last few quarters by a number of factors, such as concerns over the efficacy and cost effectiveness of its da Vinci systems, as well as changed institutional capital-spending priorities by healthcare institutions because of the Affordable Care Act. In the first nine months of 2014, Intuitive Surgical sold just 294 da Vinci units compared to 408 in the same period in 2013 and 445 in the same period in 2012. However, the preliminary Q4 financial data suggests that its new da Vinci Xi robotic surgical system might just be the answer to the company’s declining system sales.

In the fourth quarter, the da Vinci Xi model dominated system sales figures (97 out of 137, or 71%) and helped the company report a growth of 23% over the previous quarter and almost flat system sales y-o-y. This is also likely the reason that the average selling price of a da Vinci system increased by 6% y-o-y to $1.55 million in the fourth quarter. In terms of the geographical distribution of its da Vinci unit sales, Europe led the way with system sales increasing 39% y-o-y to 39 units, likely because of higher sales of the Xi model, which received CE approval towards the end of June.

Procedure Volumes Improve

Intuitive Surgical estimates procedure volumes to have grown by 9% in 2014 to 570,000, driven by consistent growth in general surgery and urology procedures, partially offset by declining gynecology procedures in the U.S. A greater number of procedures generally means a greater number of instruments and accessories, as well as a shorter replacement cycle. Therefore, the number of procedures directly impacts the company’s revenue.

We expect procedures to increase going forward, as the company focuses on promoting the use of da Vinci systems in gynecology and urology procedures worldwide. A focus on rolling out the low cost Single-Site kit of instruments and accessories and expansion of the da Vinci Stapler in the U.S. could also positively impact procedure volumes for the company in the coming quarters.

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