Analyst Conference Summary

Biotechnology Investor Aids

Intuitive Surgical

conference date: April 15, 2010 @ 1:30 PM Pacific Time
for quarter ending: March 31, 2010 (first quarter)

[at the time this summary is written]
Forward-looking statements

Overview: Better than normal seasonal revenue growth results in strong profit growth.

Basic data (GAAP) :

Revenues were $328.6 million, up 2% sequentially from $323.0 million and up 74% from $188.4 million in the year-earlier quarter.

Net income was $85.3 million, up 10% sequentially from $77.6 million and up over 200% from $28.1 million year-earlier.

EPS (earnings per share) were $2.20, up 13% sequentially from $1.95 and up over 200% from $0.72 year-earlier.


In 2010 expect 35% procedure growth rate year/year. Revenues up 27% to 30% for 2010. Gross margin of 73% in Q1 will return to lower historical level of 72% for year. Investing in many areas, so 27% to 29% GAAP operating expense growth. Stock compensation $122 million in 2010. Other income $16 to $18 million. Tax rate 36.2% for year. Cash flows expected to remain higher than net income.

Conference Highlights:

Management is pleased with Q1 performance. Continued growth in many specialty surgeries.

Instrument and accessory revenue was $122.7 million up 53% y/y. Growth was driven by increased surgical procedures plus stocking orders associated with new system sales.

Systems revenue was $155.3 million, with 104 da Vinci systems sold, up from 66 in Q1 2009. 17 standard systems were traded in for new systems in the quarter. Average price was $1.45 million per system. 9 customers purchased upgrades to SI systems.

Services revenue was $50.6 million, up reflecting the growth in the installed base.

Europe was relatively weak due to increased concerns about hospital capital budgets. Sold first systems in Japan.

Will not seek to expand margins, but will share benefits of model with customers. Also expanding sales force. 94 employees added in quarter, 49 in sales. Revenue 21% non-U.S. 24 systems sold outside U.S.

Quarter comparisons should take into account the deferred revenue program of 2009, which delayed revenues to later in the year (see ISRG Q1 2009).

$1.396 billion in cash and investments. Generated $153 million in gross cash flow in quarter. Capital expenditures $60 million. Accounts receivable decrease was due to timing of shipments. Increasing inventory levels.

Gross margin 73%.

Cost of revenue was $88.1 million, leaving gross profit of $240.5 million. Operating expenses of $110.8 million included $82.8 million for selling, general and administrative and $28.0 million for research and development. Leaving income from operations at $129.7 million. Other income was $4.1 million. Income tax provision $48.5 million.

Many medical procedures that can be done with da Vinci systems are just beginning to be explored.

New products are being displayed, but are still in FDA approval process.


Sharing productivity gains with customers rational? As we move into more price-sensitive procedure markets, prices may need adjustment.

Sales force adds? We are continuing to add a sales people.

Europe headwinds, had you seen before Q1? In Europe procedures grew well in quarter. We don't know how long the economic pressure on hospitals will last there.

Benign hysterectomy support? We have added some GYN specialists, but it is not a major change.

Japan? Almost all indications we have in the U.S. are approved, but broad adoption will be constrained until we have reimbursement approval because they have no system for private pay.

Prostatectomy is a bigger driver outside the U.S., but it is still a driver in the U.S.

Laproscopic colorectal surgery has been around for decades, but requires high surgeon skill and so has seen limited adoption. Intuitive systems can provide high value for otherwise difficult procedures.

Single port market opportunity? It's too early to go into detail since we are not approved yet by the FDA. Simpler procedures where surgeons have not wanted multi-port systems are where we would hope the new systems would be attractive.

We will look at returning cash to shareholders as an anti-dilution measure.

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Copyright 2010 William P. Meyers