What To Expect From Intuitive Surgical’s Q1?

Intuitive Surgical (NASDAQ:ISRG) is expected to publish its Q1 2019 results on April 18. This note details Trefis’ forecasts for Intuitive Surgical, as well as some of the key trends we will be watching when the company reports earnings. You can view our interactive dashboard analysis ~ How Is Intuitive Surgical Likely To Have Fared In Q1? In addition, you can see more of our data for Healthcare companies here.

How have Intuitive Surgical’s revenues changed over recent quarters, and what’s the forecast for Q1 2019?

• Total Revenues for Intuitive Surgical have largely trended higher over recent quarters.
• Revenues grew from $892 million in Q4 2017 to $1.05 billion in Q4 2018.
• This can primarily be attributed to growth in the installed base.
• We estimate Intuitive Surgical’s revenues to be $951 million for Q1; a figure 12% higher than what it reported a year ago.

What are Intuitive Surgical’s key revenue sources?

• Intuitive Surgical generates its revenues primarily from three sources: system sales, instruments & accessories sales, and services.
• System sales refers to da Vinci surgical systems, which are computer assisted systems that help surgeons perform minimally invasive surgeries by controlling the device from a console.
• Instruments & accessories sales includes EndoWrist devices, which have tools such as forceps and scissors attached to them, in order to provide better control to surgeons. Accessories include sterile drapes, camera heads, vision products, light guides, and other devices.
• Services includes full-time support to its customers, from installing the surgical systems to repairing and maintaining them.

What to expect from the instruments & accessories business?

• The segment revenues have grown from $457 million in Q4 2017 to $539 million in Q4 2018.
• We forecast the revenues to be $516 million in Q1 2019, reflecting low double-digit growth (y-o-y).
• Instruments & accessories segment has seen steady growth in the recent past, led by higher installed base.
• This trend will likely continue in Q1 as well.
• The company’s installed base grew 13% in 2018, and it will likely grow in low double-digits in 2019.
• This can be attributed to the advantages of minimally invasive surgeries through da Vinci Surgical Systems.
• They entail fewer and smaller incisions, less blood loss, shorter hospital stays, faster recoveries, and fewer scars than traditional open surgery.

How much can systems sales grow?

• da Vinci systems sales grew from $285 million in Q4 2017 to $341 million in Q4 2018.
• We expect the sales to be $277 million in Q1, reflecting high teens growth over the prior year period.
• Sequentially the revenues will likely be down in high teens.
• Q1 is a seasonally weak quarter for Intuitive Surgical with patient deductibles being reset.

Services segment should see mid-single-digit growth 

• Services segment revenues can also be linked to the company’s installed base.
• However, we forecast slower growth for services, as compared to other segments.
• This can be attributed to the trends in average service revenue per installed unit.
• The figure has declined at an average annual rate of 1% over the last five years.

What will be the impact of the above on Intuitive Surgical’s EPS?

• We expect the earnings to be $2.65 per share on an adjusted basis in Q1.
• This reflects 9% growth to the prior year quarter.
• The growth in earnings will likely be led by higher revenues.
• However, we expect a slight decline in margins, in line with the company’s guidance.
•  The margins are expected to be lower due to costs associated with the expansion in the emerging markets, primarily China, India, and Taiwan.

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