Intuitive held an earnings conference call to discuss their second quarter results. Head of Investor Relations, Brian King, opened the call and provided information about forward-looking statements. Gary Guthart and Jamie Samath, Intuitive's CEO and CFO respectively, were also present. The call's format included business and operational highlights, a review of financial results, procedure and clinical highlights, and an updated financial outlook. The call was also made available for audio replay on Intuitive's website.

In the second quarter, Gary Guthart reported strong procedure and utilization growth, with increased capital placements, positive development milestones for their Intuitive ecosystem, and strong global procedure growth led by a recovery in China. 331 systems were placed in Q2 compared with 279 systems in Q2 of the previous year, and the clinical installed base stands at 7,900 multi-port da Vinci systems, 435 Ion systems, and 142 single-port da Vinci systems. System utilization grew 9% globally year-over-year.

This paragraph discusses the success of the Quadruple Aim in terms of patient outcomes, surgeon satisfaction, and lower total cost to treat per patient episode, as well as the financial growth of the company. It highlights the investments made in R&D, manufacturing, and commercial operations, and explains how digital tools are used to generate actionable intelligence from surgical data. Finally, it mentions the progress made in extending offerings to new clinical domains and regions.

da Vinci multiport has recently obtained NMPA registration for Xi local production in China, allowing it to compete for the updated national quota. The da Vinci SP team has completed patient enrollment for their colorectal and thoracic IDE trials, launched the SP in Japan, and submitted the CE Mark dossier for SP in Europe. Ion has installed their first system in the UK and initiated first cases. Case Insights, the computational observer, has begun its Phase 1 launch and works with da Vinci and hospital data to build AI models that correlate surgical technique, patient populations, and surgical outcomes. The team is working to validate features for long-term success, but does not expect material revenue from Case Insights in the near future.

In Q2, global procedure growth was 22%, with 19% in the US and 28% outside of the US. This growth was driven by higher patient admissions, contributions from new surgeons, and market share gains in the bariatric surgical market. Growth outside of the US was driven by increases in colorectal, hysterectomy, and thoracic procedures.

In Q2, the installed base of da Vinci systems grew 13%, and average system utilization grew 9% year-over-year. 331 systems were placed, which was higher than expected, but customers were cautious in their capital spending. Revenue was up 15%, and recurring revenue represented 85% of total revenue, a 20% increase over last year. In the US, 157 systems were placed in the second quarter, and outside the US, 174 systems were placed, including 76 into Europe, 33 into Japan, and 16 into China.

In the second quarter of 2021, China's National Health Commission released a five-year quota of 559 robotic systems, of which a majority is expected to be placed between 2024 and 2027. Local competitors and policy changes have caused pricing pressure and increased variability in system placements and revenue. In the US, trading transactions accounted for 60 of the 331 systems placed, and leasing represented 50% of placements. Operating leases accounted for 78% of placements in the US, which is driven by customer preference due to capital budget constraints and the desire to upgrade technology. System average selling prices were $1.39 million, which was lower than last quarter due to a higher mix of ex-placements and geographical mix.

In the second quarter, Intuitive Surgical recognized $12 million in lease buyout revenue and da Vinci instrument and accessory revenue per procedure was approximately $1,840. 59 Ion systems were placed and 12,700 Ion procedures were completed, a 145% increase from last year. Pro forma gross margin was 68.5%, lower than last year due to higher mix of Ion revenue and lower system ASP. Pro forma operating expenses increased 12% year-over-year due to increased headcount, higher variable compensation, prototype expenses and customer training expenses.

In the second quarter of 2023, pro forma operating expenses represented 33% of revenue and capital expenditures were $178 million. Pro forma net income was $507 million and GAAP net income was $421 million. Cash and investments increased to $7.1 billion from $6.6 billion the previous quarter. Procedure growth in the US was 19% year-over-year, driven by strong growth in general surgery.

Bariatrics saw healthy growth in the quarter, with procedure volume increasing 28% outside of the US. Growth was driven by colorectal and hysterectomy procedures in Europe, urology procedures in China, and general surgery procedures in Japan. The clinical side of the business was highlighted with a recently published study from Dr. Zheng comparing outcomes of robotic right colectomy with laparoscopic right colectomy.

This meta-analysis compared the safety and efficacy of robotic right colectomy with laparoscopic right colectomy. It showed that the robotic approach was associated with a shorter hospital stay, lower risk of conversion to laparotomy, and lower risk of complications, particularly when an intra-corporeal anastomosis was performed. Dr. Mirza Zain Baig from Danbury Hospital in Connecticut then reported outcomes from a clinical study comparing lobectomies performed with either robotic or video assisted thoracoscopic surgery. This study focused on complex etiology cases and showed that the robotic approach was associated with better outcomes.

In the National Cancer Database, robotic lobectomy for complex lung resections achieved similar perioperative outcomes and R0 resections as VATS lobectomy, with a lower rate of conversion to thoracotomy. For 2023, Intuitive Surgical is forecasting procedure growth of 20-22%, a gross profit margin of 68-69%, and pro forma operating expense growth of 12-15%.

Intuitive has been working on AI for over a decade, building a suite of digital tools that use machine learning techniques such as Computer Vision. They have also been building a baseline of cybersecure privacy compliant pipes to get access to the data. They are now collaborating with customers to aggregate data that is meaningful. The company estimates that non-cash stock compensation expense will range between $600 million to $620 million in 2023, while other income is estimated to total between $160 million and $180 million. Capital expenditures are estimated to range from $800 million to $1 billion, and the 2023 pro forma tax rate is estimated to be between 22% and 24% of pre-tax income.

Gary Guthart discusses AI and how it can be used to help customers become more efficient and improve outcomes. He also mentions that validations take time and they will continue to work on that. He then talks about the backlog of deferred procedures, discussing the patient population that moved to the sidelines during the pandemic. He then turns the assessment over to Jamie.

In the second quarter, the growth rate of bariatrics slowed and it is unclear how long this evaluation by patients will last. Customers have expressed confidence that there will be a role for surgery in weight loss over the long-term, but it is unclear what the impact will be for the rest of the year. Additionally, it is hard to estimate how many people would have been in diagnostic pipelines that did not get their tests due to the pandemic response. It is expected to take many quarters for utilization to fully recover.

Jamie Samath discussed the market size of bariatric surgery in the US being around 200,000 procedures annually and that da Vinci is in the beginning of the second quartile of penetration. He also discussed the China quota, which has increased to 559 systems, and the five local players that have emerged. He noted that the government will be interested in the success of local players, but da Vinci will have an advantage due to its differentiated capabilities and features. He predicted that the bulk of JV wins will be seen between 2024 and 2027, but cautioned that there may be pricing pressure and increased competition. Gary was then asked a question.

Gary Guthart discussed the improvement of the supply chain health, noting that there are still pockets of challenge. He also discussed the decision-making process between upgrading current generations versus moving to a new platform, which is based on customer value and convenience/economics. He stressed that the priority is to improve patient outcomes and open new populations to minimally invasive surgery, as well as improving the surgeon and care team experience.

Jamie Samath is not able to provide specifics on prototype expenses, which tend to be lumpy in Q2. He also explains that 2,000 systems are currently under lease and that customers have the option to upgrade to a new next-generation technology when it becomes available. This upgrade is not at a specified price and will need to be negotiated.

Intuitive's European commercial presence and reputation is strong, as evidenced by a visit to several European hospitals. The high-volume robotic surgeon there was focused on enabling technologies that would make robotic surgery faster, clearer, and better. Intuitive has also been investing in capital expenditures and operating expenses, as well as acquiring technology externally and returning cash to shareholders.

Gary Guthart discussed the importance of technologies such as Fluorescence Imaging, Image Fusion, and AI Machine Learning in order to improve clinical outcomes in the OR. He also mentioned the 5% across-the-board price hike on instrumentation that he had taken. Rick Wise asked a follow-up question about this.

Jamie Samath discusses the implementation of a price increase that was largely implemented in Q2 and estimates that it will have a roughly $100 million impact to revenue and profit for the year. He also mentions that the company has been conservative with pricing in the past and that the price increase was motivated by the increase in raw material and labor costs. Finally, he notes that the company is expecting bariatric surgery growth trends to erode a little bit from Q2 levels, but does not specify the exact amount.

Jamie Samath discusses the healthy growth of urology procedures in the largest seven markets, which include China, Japan, South Korea, Germany, France, UK and Italy. He notes that the growth is market-by-market, with some unique dynamics in each. He also mentions that bariatrics is not experiencing a dramatic fall-off, but rather a moderate steady progression. Gary Guthart then steps in to make a point about bariatrics.

Jamie Samath of the company talks about the adjustments that the market will have to make in terms of the drugs used to treat obesity. He states that the drugs are not a cure and the discontinued rate is high. He believes that the market will adjust to the role of drugs in the near term, but the surgery and other interventions will remain important. Samath also mentions that the company has specific objectives with respect to expense management and intends to fulfill them.

Gary Guthart explains that the operating expense guidance for the year is largely based on the top-line performance. For the rest of the year, they are largely holding to the plan. He then explains that there is an operating expense headwind coming from the significant CapEx investments, but they will continue to leverage their enabling functions into the next year. Finally, Guthart explains that there is no one-size-fits-all approach to leasing agreements, as some customers still prefer capital purchases, while others prefer usage-based or fixed operating leases.

The speaker discusses the different models of financing that are available to customers, such as leasing and usage-based arrangements. They mention that these models have grown in popularity, and that they have been successful so far in terms of reducing barriers for customers and producing economic results. The speaker then invites the next question.

Gary Guthart and Drew Ranieri discussed the potential for new drugs to open up potential procedure categories for patients that may not have been suited for surgery before. Guthart believes that while a "magic pill" that does not require lifestyle modifications does not yet exist, there will be a role for surgical and mechanical intervention and Intuitive Surgical is well-positioned to take advantage of this. He also noted that it is too soon to give a definitive answer on which procedure categories could benefit the most.

Intuitive is committed to improving surgery and acute interventions in order to meet the Quadruple Aim goals of better patient outcomes, better patient experiences, better care team experiences, and lower total cost of treatment. They envision a future of care that is less invasive and more effective, so that patients can return to their normal lives. They appreciate the support they have received and look forward to talking with everyone in three months.

This summary was generated with AI and may contain some inaccuracies.