Analyst Conference Summary

Biotechnology Investor Aids

Intuitive Surgical

conference date: October 20, 2009 @ 1:30 PM Pacific Time
for quarter ending: September 30, 2009 (3rd quarter)

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

Overview: Another strong quarter, with accelerating revenues and profits.

Basic data (GAAP) :

Revenues were $280.1 million, up 8% sequentially from $260 million, and up 19% from $236 million in the year-earlier quarter.

Net income was $64.5 million, up 3% sequentially from $62.4 million, and up 12% from $57.6 million year-earlier.

EPS (earnings per share) were $1.64, up 1% sequentially from $1.62, and up 14% from $1.44 year-earlier.


For 2009, procedures should grow 47% from 2008, driving instrument and accessory revenue growth. 19% growth in GAAP operating expenses. Gross margins remaining near 71%. Share count 39.5 to 39.8 million for diluted EPS for Q4. Cash flow above net income due to non-cash stock compensation expense expected around $25 million in Q4.

Conference Highlights:

da Vinci Surgical Systems revenues were $135.5 million, from 86 systems sold in the quarter, down from 91 sold in the year-earlier quarter, and 76 systems in Q2 2009. 70 of the systems were the new Si model, and 23 older systems were upgraded to the Si model. 14 of the systems were sold outside the U.S. 20 system sales involved trade-ins.

Instruments and accessories revenue increased to $100.8 million, up 33% y/y. Procedures grew about 49%, with revenues per procedure lower. Services revenue was $43.9 million.

Revenue included $6.3 million associated with discount upgrade offers made in the first quarter.

The installed base ended at 1,308 systems, 968 in U.S.

Non-cash stock based compensation expense was $24.6 million.

Non-GAAP EPS was $2.71.

Gross margin (non-GAAP) was 70.4%, down slightly due to lower system ASPs and inventory reserves on standard systems.

Cash and equivalents ended at $1.02 billion, up $122 million in the quarter. Generated $106 million gross cash from operations. Deferred revenue ended at $91.6 million.

Cost of revenue was $81.1 million, leaving gross profit of $199.0 million. Operating expenses of $94.5 million included $69.9 million for selling, general and administrative and $24.7 million for research and development. Income from operations was $104.5 million. Interest and other income was $4.4 million. Income tax provision was $44.3 million.

System margins are improving due to increased manufacturing efficiency.

Investment in new technology for the systems continues. Seeking regulatory approvals for more types of procedures.


Weakness outside U.S.? It is a seasonally slow quarter in Europe. There is some consequence from the recession too.

Hysterectomy market? The highest surgeon value equation comes from the most complex cases. But they can gravitate to non-complex cases once they have systems. But it is too early to say how large the market is for simpler operations.

S models get more heavily used than standard models, and Si models should get more use than S models. Hospitals like multiple machines to be identical, so when they buy a second machine, they sometimes upgrade the first. For recurring revenue, they are very similar per procedure, but we see heavier use.

Japan approval? Import licenses are needed, regulatory approval, and payment authorization. We don't have exact times for the steps. The S is going through approval process, not the Si. We might expect to see more GI surgeries and less prostate surgeries there. We will be selling though a distributor. We are hopeful to get some systems in during 2010.

Does a weak dollar help you make international sales? We sell in the local currency, so the customer may not see much difference. We do sell to distributors in dollars.

SG&A expense? We put 30 new people in the field in the quarter, and intend to keep growing to keep up with proceedure growth.

Inventory write-down? A little less than $2 million.

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Copyright 2009 William P. Meyers