The operator introduces the Intuitive Second Quarter 2024 Earnings Release conference call and turns it over to Brian King, Head of Investor Relations. He reminds listeners that the call is being recorded and that comments may contain forward-looking statements. The call will consist of updates from CEO Gary Guthart, President Dave Rosa, CFO Jamie Samath, and Brian King, followed by a question-and-answer session. Gary Guthart thanks listeners for joining the call.

In the second quarter, the company saw strong financial performance with solid procedure growth and successful progress with all three system platforms. Multi-port procedure headwinds continued from last quarter. The previous CFO, Marshall Mohr, will be leaving in September and Jamie will take on additional responsibilities. The company experienced a 17% growth in procedures, with general surgery leading in the US and non-urology procedures leading outside the US. Europe and Asia had mixed market conditions.

In the second quarter, the company placed 341 da Vinci systems, including 320 multiport systems and 21 SP systems. System utilization for multiport platforms grew 2%, while SP and Ion systems continued to see double digit growth. Revenue grew by 14% due to strong procedure performance and capital placements. The rollout of da Vinci 5 is progressing as planned, with positive customer feedback on precision, imaging, ergonomics, and integration. The company is working to improve production and supply for new capabilities, such as Force Feedback and Case Insights. New products have been launched with a focus on providing outstanding customer experiences.

Intuitive Surgical is closely monitoring key metrics as they continue to roll out their da Vinci 5 product and ramp up supply. Adoption of digital products and services has grown, with over 14,000 surgeons using My Intuitive App and a doubling of surgeons using Intuitive Hub. The company's digital ecosystem, including Case Insights, allows for collaboration with customers on a global scale to identify insights and optimize robotic programs. Progress has been made in resolving supply constraints for Ion, and the company is planning a measured launch for their thoracic indication.

In conclusion, the company is focused on achieving their 2024 priorities, which include launching a new platform, supporting surgeon adoption, improving product quality and margins, and increasing productivity. The CFO, Jamie Samath, then provided a summary of the company's financial performance, including a 17% increase in da Vinci procedures and a 14% increase in the installed base of systems. The company placed 341 systems in the second quarter, with 149 in the U.S. and 192 outside the U.S. However, da Vinci 5 placements are expected to be limited due to planned updates and capacity constraints.

In the current quarter, there were 71 placements into Europe, 41 into Japan, and 14 into China. Strong placements were also seen in India and other markets served by distributors. Revenue for the quarter was $2.2 billion, with leasing representing 51% of placements. Average selling prices for systems were higher due to a mix of da Vinci 5 and lower trade-ins, but offset by a weaker Yen exchange rate and lower pricing in China. Trade-ins represented 18% of total placements. There was $28 million in lease buyout revenue. da Vinci instrument and accessory revenue per procedure increased by $20. The Ion platform saw 82% growth in procedures, with 74 systems placed in the quarter.

In the second quarter, the company caught up on their backlog of system placements and saw a 56% increase in their in-store base of Ion systems. They also experienced a 74% increase in SP procedure growth, with strong growth in Korea and the U.S. and early stage growth in Japan and Europe. Pro forma gross margin for the quarter was 70%, higher than expected due to certain one-time benefits. Operating expenses increased 11% compared to last year, with investments in R&D and manufacturing operations to support customer demand.

The paragraph discusses the pro forma other income and effective tax rate for the second quarter of 2024, as well as the pro forma net income and GAAP net income for the same period. It also mentions the adjustments between pro forma and GAAP net income and the company's cash and investments at the end of the quarter. The growth of procedures in the U.S. and outside of the U.S. is also highlighted, with general surgery procedures leading the growth and bariatric procedures declining.

In the second quarter, Europe saw growth in procedures beyond urology, with Germany, the U.K., and Italy leading the region. In Asia, Japan and India showed strong growth, while China and Korea were impacted by strikes. Japan had solid growth in colon and rectal resection, gynecology, and lung resection procedures, while India saw growth in gynecology and general surgery procedures. China's growth was lower due to delayed tenders and emerging robotic systems. On the clinical side, a study from Guangzhou University of Chinese Medicine compared different surgical approaches for rectal cancer management.

A meta-analysis of 56 studies and over 25,000 patients showed that robotic assisted surgery for rectal cancer resulted in a 2-day shorter length of stay compared to laparoscopic and open procedures. It also had a lower risk of conversion to open surgery, less blood loss, lower odds of urinary retention, and higher number of harvested lymph nodes. The authors concluded that the robotic approach is the most favorable option for managing rectal cancer. In terms of financial outlook, the company is now forecasting a 15.5% to 17% growth in procedures for full-year 2024.

The speaker is congratulating the company on a successful quarter and is impressed by the strong launch of da Vinci 5, which accounted for almost half of the company's U.S. placements. The speaker also notes that the company is expected to face constraints with da Vinci 5 through the second half of 2025.

In the second half of 2024, there will be a modest increase in da Vinci 5 placements in the U.S. due to a hardware and software update. The company is focusing on incremental capacity for customers rather than the trade-in cycle. The trade-in cycle is expected to be progressive over multiple years, as customers evaluate the capabilities and value of da Vinci 5. In regards to China, the company is still feeling the impact of the anti-corruption initiative and is considering the effects of the new stimulus that was recently announced.

The speaker, Dave Rosa, responds to a question about whether the recent stimulus will impact the placements of systems or quotas. He states that the stimulus will not have a significant impact and that the operating environment in China remains challenging, but they are still seeing double digit growth in procedures. The next question is about the demand for dV 5 systems, and Dave explains that there are three primary factors that need to be addressed before the full launch can happen, including software and hardware upgrades.

The company is focused on maturing their supply chain and manufacturing capacity to ensure quality, cost, and yields for their upcoming product launch. They are also working on software and hardware updates and listening to customer feedback. The demand for the new product will likely come from early adopters and larger institutions, and it will take time for customer belief to build. The company expects to invest in the new platform over time. Gross margins were strong this quarter due to lower inventory reserves.

The company's teams have performed well in terms of cost reduction and supply chain management, which has resulted in improved financial performance. The focus on cost reduction has been a recent shift due to the COVID-19 pandemic. The second half of the year is expected to see increased depreciation and a higher proportion of revenue from new products. The company has received positive feedback from physicians and institutions regarding the da Vinci 5 system, with strong demand and minimal pushback from centers.

The paragraph discusses the positive feedback from customers about the da Vinci 5 surgical system, including improvements in ergonomics, precision, and efficiency. The company is also working on developing data to support the system's value and justifying its higher price compared to previous versions. The company is confident that the system will meet the quadruple or quintuple aim and is working to demonstrate its benefits to executives and their teams. The question is also raised about whether there are any procedures that physicians prefer using da Vinci 5 Xi over da Vinci 5.

The team has discussed the preference of surgeons for the da Vinci 5 system, as well as the potential value of the new capabilities such as force reflection and case insights. The company plans to work with leading customers to evaluate where these capabilities make the most sense and generate value. Some benefits, such as precision, imaging, and ergonomics, are available immediately, while others will come later through research and development. These capabilities also have the potential to make it easier for physicians who are used to lab or open procedures to adjust to robotics.

The speaker is discussing the potential impact of force feedback on surgical outcomes and learning curves. They believe that it can help newer surgeons adopt the platform faster and improve long-term clinical outcomes. They also mention the potential for gentler surgery to have a positive impact on outcomes, but this will take time to develop. The next question is about Ion and the speaker explains that while supply chain dynamics have contributed to growth, they are also seeing higher diagnostic yields and earlier intervention for patients. This is independent from da Vinci and is achieved through screening or incidental findings.

Ion is a highly effective tool for biopsying small lesions, which is important for diagnosing cancer at an early stage. It offers improved safety over other methods and can be followed by a da Vinci procedure or other treatment options. The company's operating expenses are expected to grow by low double digits for the rest of the year, with an initial 7% growth in Q1 and acceleration in Q2.

The speaker is asking for clarification on the expected increase in operating expenses for the second half of the year, specifically in terms of depreciation. The company's CFO responds by stating that there may be some variability in expenses between quarters, but overall they are expected to grow by 11-15%. This is due to the company's focus on maintaining R&D in line with revenue growth and leveraging enabling functions. They have also pushed back some planned headcount into 2025, but expect second half expenses to be higher due to depreciation. The speaker then asks for more information on the procedure growth outlook.

The company's range for procedure guidance is 15.5% to 17%, with the low end assuming continued softening of bariatric procedures and the high end assuming stabilization at current rates. The impact of GLP-1s on the bariatric surgery market has not bottomed out yet due to changes in the market and competition between laparoscopy and robotics. It is uncertain when this will settle.

The speaker discusses the effectiveness of drugs and new drugs in the pipeline, stating that it is difficult to predict their impact. They are not worried, however, as they believe there is a role for bariatric surgery and their systems are highly valued in China. The speaker also mentions headwinds such as a constrained capital environment and government rebasing, but believes these will eventually reach an equilibrium. They also mention the integration of domestic systems in China.

The speaker is asked how long it will take for minimally invasive surgery to become popular in China. They respond by saying that it is highly valued in China and that the company is enthusiastic about completing it. The speaker also discusses how the new DV5 product may unlock new procedures and increase the use of robotic surgery in general. They believe that there are still opportunities for growth and additional indications for DV5 in the future.

The operator asks Drew Ranieri from Morgan Stanley about the demand for the da Vinci Xi in the US. Jamie Samath from Intuitive Surgical responds that there are two segments of demand: customers who need incremental capacity and are entering arrangements with Intuitive to get the Xi now and upgrade to da Vinci 5 later, and customers who are waiting to see the value of da Vinci 5. The decision to upgrade depends on the customer's profile, strategy, procedure mix, and budget. As da Vinci capacity expands, more customers may be able to take on the system.

Intuitive Surgical plans to bring da Vinci 5 to global markets, with discussions ongoing for launches in Korea and Japan. The company expects to launch in Europe by the end of next year, with further plans to be announced later. In the meantime, the company is making minor hardware and software changes to improve the surgeon's experience, including the integration of Intuitive Hub, access to 3D models and intraoperative video, and simulation capabilities.

The company is planning software upgrades based on customer feedback and developing new technology for future features. They have received approval for a thoracic indication for their SP system and are working on a stapler for the procedure. The company already has high penetration for thoracic procedures in the US and will focus on the relative value of SP compared to their other system, Xi. They are also working on obtaining an indication for colorectal procedures and currently have an ongoing study for this.

The company has made progress on the IDE for SP procedures in the U.S., which could lead to more indications and growth for the SP platform. The company is also working on initiatives to improve gross margin, with the goal of reaching 70% in the medium term. However, this is not expected to happen in the shorter term, and there is still work to be done on reducing costs for da Vinci, Ion, and SP. There will also be incremental depreciation in the second half of this year and next year.

The speaker discusses the need to increase manufacturing capacity and leverage incremental depreciation over time. They also mention cost reductions and their goal of achieving a 70% gross margin in the medium term. They believe there is a significant opportunity to improve surgery and acute interventions and are working closely with hospitals and physicians to achieve better patient outcomes. They envision a future where care is less invasive and diseases are identified and treated earlier. They thank listeners for their support and look forward to speaking again in three months.

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