A Look At Intuitive Surgical’s Revenue Sources And Outlook

Intuitive Surgical (NASDAQ:ISRG) generates its revenues primarily from two sources, product sales, and services. The company’s da Vinci surgical systems have seen strong demand in the recent past, led by an expansion of procedures, and we expect this trend to continue in the near term. We have created an interactive dashboard ~ What Are Intuitive Surgical’s Key Sources of Revenue. You can adjust the revenue and margin drivers to see the impact on the company’s overall revenues, earnings, and price estimate. Below we discuss both the products, and the services business and outlook.

Expect Product Revenues To Grow In Low Teens In The Near Term

Intuitive Surgical’s Products segment includes da Vinci surgical systems and related accessories and instruments. These surgical systems are computer assisted systems that help surgeons perform minimally invasive surgeries by controlling the device from a console. This technology not only provides surgeons with a similar range of motion as the human wrist in the surgical field, it also removes the instability of the human hand. Additionally, these minimally invasive surgeries have the benefits of reduced surgical complications, faster recovery processes, and lower hospitalization costs. These factors have led to the growth in demand for the da Vinci systems over the past few years. In fact, the number of systems sold increased from 335 units in 2008 to 684 units in 2017. As such, the company’s installed base of devices grew to 4,400 in 2017. Instruments & accessories sales is dependent on the company’s installed base of devices. Given the growth in installed base, the instruments & accessories revenues grew sharply from less than $300 million in 2008 to over $1.6 billion in 2017.

Looking forward, we forecast Intuitive Surgical’s da Vinci surgical system sales to grow in low double digits in the near term. This can be attributed to the company’s focus on new products and expansion of procedures. For instance, the company’s new SP surgical system was approved by the U.S. FDA for urological surgical procedures earlier this year. The company will seek the regulatory approvals for additional applications, including transoral, transanal, and extraperitoneal. As the company continues to widen the scope of its systems, it will likely see an increased rate of adoption. 

Intuitive Surgical’s services include full-time support to its customers, from installing its surgical systems to repairing and maintaining them. It also includes training surgeons to use the complex da Vinci Surgical Systems. Intuitive Surgical enters into service contracts with their customers at the time of sale. This revenue stream is also dependent on the company’s installed base. We forecast the installed base to continue to grow in high single digits in the coming years to around 9,000 units by the end of our review period, due to the factors stated above. This will aid the services revenue growth. Note that we don’t expect any significant growth in average services revenue per unit. In fact, historically the figure has hovered around $0.13 million, and we forecast it to remain around the same mark, throughout our review period. As such, the growth in services revenue will largely be driven by the growth in the company’s installed base. We forecast the services revenues to grow from around $580 million in 2017 to $725 million in 2019, and north of $1 billion by 2023.

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