Intuitive Surgical Inc. (NASDAQ: ISRG) surprised analysts Thursday, Jan. 20, by blowing through earnings expectations. The company reported fourth-quarter profits that soared 56 percent over last year due to robust sales of its robotic surgical systems and an increase in surgeries performed with their procedures.
Despite a global economic downturn that has slowed hospital procedures and purchasing, use of the company’s systems for robotic surgical procedures grew 35 percent worldwide during the fourth quarter.
The Sunnyvale, Calif. company makes minimally invasive robotic surgical systems typically used for cancer-treating surgeries, such as hysterectomies and prostate removal. Because the robot-guided surgeries use smaller incisions they cause less physical trauma, resulting in shorter hospital stays than those required for traditional surgical procedures.
The company’s fourth-quarter profit climbed to $121 million, or $3.02 a share, up from a year-ago profit of $78 million or $1.95 a share. Sequentially, profits rose 40 percent from the third-quarter’s $86.6 million, or $2.14 a share. Intuitive’s fourth-quarter earnings beat analysts’ consensus of $2.25 a share, according to the website Whispernumber.com.
Revenue for the quarter rose 21 percent to $389 million from $323 million during the fourth quarter a year ago. Sequentially, revenue rose 13 percent to $389 million from $344 million in the third quarter.
The company’s revenue comes from selling robotic machines as well as the instruments used during procedures, making procedure growth an important aspect of long-term profitability. While system sales were up 10 percent, instrument and accessory sales have increased 33 percent—driven by this procedure growth.
The company made significant inroads internationally. Of its 124 name-brand da Vinci systems sold in the fourth quarter, 86 were sold in the U.S., with 28 sold in Europe, and 10 elsewhere across the globe, leading to a 42 percent uptick in international procedures. The 16-year-old company has now sold a total of 1,752 units, which typically cost $1.41 million each.
In the fourth quarter, hysterectomies and other gynecological procedures grew 59 percent year-over-year, eclipsing the company’s other procedures. Fast-growing applications also include procedures for colon, thoracic and lung cancer as well as head and neck surgery.
Chief Executive Officer Gary Guthart said in a statement, “We are pleased with our fourth quarter revenue and earnings growth. These results reflect strong procedure growth and the expansion of da Vinci surgery across a broadening group of surgical procedures.”
In a conference call with analysts, he added that the company was keeping its eye on new applications for its system: “We’ll have to see where the emerging procedures go as they come up. We call them emerging because they’re promising. And they’re growing quickly but on small bases. Really the challenge and the question for us is how quickly can they move up.”
Intuitive’s 2010 year-end profit of $381.8 million or $9.47 a share, reflected more than 60 percent growth over 2009’s year-end profit of $232.6 million, or $5.94 a share.
Analysts are bullish on company prospects for procedure growth. William Blair Analyst Ben Andrews wrote in a research note that “we expect system sales will remain brisk despite a tough macroeconomic environment, as hospitals continue to face an ‘arms race’ for a technology that is clearly driving patient volume.”
“We see procedures likely accelerating in 2012 as single incision and Japan kick in,” Andrews wrote.
Leerink Swann Analyst Rick Wise also anticipated progress. In a note to investors he wrote: “In the context of a difficult environment, ISRG continues to drive strong adoption within key procedures. And several promising new procedure opportunities are emerging (colorectal, lung, head & neck).”
Looking ahead, Calvin Darling, director of financial planning and analysis, said during the Jan. 20 conference call with analysts that he anticipated robust annual revenue growth of between 16 and 20 percent, compared to 34 percent in 2010.
Intuitive Surgical’s market cap of $13.2 billion is approximately half of its two biggest competitors—Hitachi Ltd., with a market cap of $25.3 billion, and Toshiba Corp., with a market cap of $24.8 billion. Although Toshiba and Hitachi annual profits came in at two- and five- times greater than Intuitive’s 2010 net income of $381.8 million, Intuitive’s year-to-year quarterly revenue growth of 20.50 percent surpassed Toshiba’s of 5.3 percent and Hitachi’s of 3.10 percent.
Intuitive shares rose 13 percent, or $36.75, after the company released its earnings, to close at $326.58 at the 4 p.m. close of trading on the Nasdaq Stock Market. Share price, however, continue to hover at less than $62 below the 52-week high of $393.92.
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I’d be careful about the claim that Hitachi and Toshiba are close competitors. Although they both market medical imaging technologies, and Hitachi has Proton Beam Therapy products, it’s a stretch to classify them as direct competitors since they do not compete directly in surgical products. As relative conglomerates, they have numerous non-healthcare assets.
ISRG views their competition as alternative therapies to da Vinci surgery, such as open or laproscopic surgical techniques or radiation oncology (from PBT and other capital devices). This makes it difficult to evaluate their performance against other public companies because most do not have a dominant product strategy in surgery such as ISRG. With this in mind, a Covidien or J&J’s Ethicon division would provide a better suited comp, given both firm’s significant market share of laproscopic surgical tools.
Great, I think that even robots like this one will one day help to change this world to better place where robots will do all the bad work, these are the forst steps.