Intuitive Surgical Earnings Preview: Unit Sales and Procedural Volumes to Continue to Grow

-9.54%
Downside
393
Market
355
Trefis
ISRG: Intuitive Surgical logo
ISRG
Intuitive Surgical

Intuitive Surgical (NASDAQ:ISRG) is expected to announce its Q1 2015 results on Tuesday, April 21. In the previous quarter, the company reported positive results with overall sales increasing by 5% year over year  as it reported growth across three business divisions:  Instruments and Accessories, Systems, and Services. The spike in quarterly revenue was due to higher unit sales of its new da Vinci Xi model and a 10% rise in total procedures. The growth in total procedural volume for the full year 2014 was driven by a 6% rise in U.S. procedures and a 20% rise in international procedures. ((Press Release, Intuitive Surgical, Jan 22 2015))

For the first quarter report, we expect Intuitive  maintained its growth streak with the continued adoption of its new da Vinci Xi model. Last quarter the company also won a 5-year contract with the U.S. Department of Defense worth $430 million, which is likely to further push the growing user base of da Vinci Xi system. ((DOD Awards $430M Surgical Robotics Contract, Law360.com))

We currently have a price estimate of $479 for Intuitive Surgical, which is about 10% below the market price.

Relevant Articles
  1. Should You Pick Intuitive Surgical Stock At $375 After An Upbeat Q4?
  2. Is Intuitive Surgical Stock A Pick After A 9% Fall In A Month Amid Mixed Q3?
  3. Procedure Volume Growth To Drive Intuitive Surgical’s Q3
  4. With 2x Potential Returns Is DexCom A Better Pick Over Intuitive Surgical?
  5. Here’s What To Expect From Intuitive Surgical’s Q2
  6. Should You Buy Intuitive Surgical Stock Over MDT?

See our full analysis for Intuitive Surgical

da Vinci Xi To Drives System Sales

In 2014, the company’s da Vinci Xi and da Vinci Sp successfully received FDA clearance. The da Vinci Xi system is equipped for multi-port procedures and boasts of a better imaging system with 3D and high-definition visuals. It also has better mobility than the previous model.

In the fourth quarter of 2014, the da Vinci Xi model accounted for around 71% of the total system sales (97 out of a total of 137 units), which drove the growth of da units by 23% over the previous quarter, although year-over-year sales were almost flat. This driver could be one of the reasons why the average selling price of a da Vinci system increased by 6% year over year to $1.55 million in the fourth quarter of 2014.

The da Vinci Xi, which obtained its CE mark (for EU approval) in June 2014, also drove system sales in the international market as well. In 2014, total system sales increased 39% year over year  in Europe. The new system also received approval in Korea in 2014, whereas in Japan the approval status is still pending. This was reflected in a decline in sales in Japan from 21 units in Q4 2013 to 6 in Q4 2014. Going forward, we expect the company to maintain the growth momentum of its da Vinci units in both U.S. and Europe.

Additionally, the company’s $430 million contract with the U.S. DoD will help its surgical robots and related instruments and accessories gain acceptance in the Urology, Gynecology and General Surgery, the primary markets to which it caters. The contract also turns around the image of a product and company that faced headwinds over a number of factors, including concerns over the efficacy and cost effectiveness of the systems, reduced sales due to budget constraints following the Affordable Care Act, and lawsuits stemming from complexities arising from the use of its equipment.

Procedure Volumes Likely To Improve

Intuitive Surgical procedure volumes grew by 10% year over year  in 2014 to 570,000, driven by consistent growth in general surgery and urology procedures, though gynecology procedures witnessed a moderate decline in the quarter.

As procedure volumes grow, the demand for da Vinci units is likely to increase, as many new hospitals and healthcare institutions buy the systems or trade-in old machines and add more capacity. Rising procedure volumes mean a shorter replacement cycle which would bolster the sale of related instruments and accessories. Therefore, the number of procedures directly impacts the company’s revenue.

In the upcoming earnings, we expect procedural volume to maintain its momentum, as the company focuses on promoting the use of da Vinci Xi system in gynecology and urology procedures worldwide and da Vinci sp system for simpler procedures.

View Interactive Institutional Research (Powered by Trefis):
Global Large CapU.S. Mid & Small CapEuropean Large & Mid Cap
More Trefis Research