Intuitive’s Preliminary Q4’16 Results Indicate A Healthy Growth In da Vinci Procedural Volumes

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ISRG: Intuitive Surgical logo
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Intuitive Surgical

Last week, Intuitive Surgical (NYSE:ISRG) announced its preliminary Q4 2016 and partial results. At $757 million, the company’s overall revenue increased 12% in Q4, as it expects to report. In terms of the business segments, instruments and accessories revenue in Q4 is likely to come at $386 million, up by 19% year over year. Intuitive’s instruments and accessories revenue growth in Q4 was driven by 15% growth in the da Vinci procedures. Further, Intuitive’s da Vinci surgical systems revenue likely increased by 2% year over year to approximately $236 million. It is worth noting that in first three quarters of 2016, Intuitive’s stock price rallied by almost 30% reaching an all time high of $721, post which the stock price has declined by roughly 5%. The strong rally in the company’s stock price can be attributed to the healthy growth of procedures performed with the da Vinci systems and rise in the da-Vinci system shipments.

Global Procedure Volumes Growth Contributing To Higher Instruments &Accessories Revenue

It should be noted that a greater number of procedures generally means a greater number of instruments required, as well as a shorter replacement cycle. Therefore, the number of procedures directly impacts the company’s revenue. In 2016, approximately 753,000 surgical procedures were performed with the da Vinci Surgical System, an increase of approximately 15% as compared to 2015 procedure volume. The company claims that the growth in overall 2016 procedure volume was primarily driven by the growth in U.S. general surgery procedures and worldwide urologic procedures. Furthermore, the company managed to ship approximately 537 da Vinci Surgical Systems in 2016, as compared to 492 systems in 2015.

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Intuitive’s Economic Moats Leading To Easy Market Penetration

Intuitive Surgical designs, manufactures, and markets the da Vinci System of surgical robots and instruments & accessories. It generates gross margin close to 70%, with an EBITDA margin that exceeds 40%. Intuitive operates as a virtual monopoly. Its da Vinci Systems, on an average, cost about $1.54 million each. The revenue from accessories and services are recurring in nature and make up for about 70% of the total revenue. Intuitive has two primary advantages, which provides the company strong competitive advantages. First, the surgical robots are capital intensive and have long life. There is also familiarity and training associated with the usage of robots for surgery. This makes switching cost for hospitals and clinics very high. Secondly, the higher number of systems reinforces the users’ confidence leading to further product adoption. Additionally, as an increasing number of systems get installed, the company will get the benefit of learning curve effect. It will be able to improve and innovate its products and services further.

Please refer to our complete analysis for Intutitive Surgical for detailed analysis.

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