Intuitive Surgical Inc. (ISRG) reported third quarter 2010 earnings per share of $2.14, beating the Zacks Consensus Estimate of $2.09 and surpassing the year-ago quarter’s figure of $1.64. Excluding $6.3 million of deferred revenues (recognized in the third quarter of 2009), earnings per share for the year-ago quarter would have been $1.55.

Revenues

Total revenue increased 22.9% year over year to $344 million but fell short of the Zacks Consensus Estimate of $349 million. The year-over-year growth in revenues was driven by higher da Vinci system sales as well as an increase in the number of robotic procedures.

Instrument and accessory revenues were $128 million, up 26.7% year over year. The increase in revenues reflects a 33% growth in total procedures, with growth in hysterectomy procedures volume leading the pack.

Systems revenues amounted to $160 million, up 17.6% year over year. Intuitive Surgical sold 105 systems in the third quarter, up from 86 systems in the year-ago quarter.

Service revenues were $57 million, up 29.5% year over year. The growth in service revenues in the third quarter was driven by a larger installed base of da Vinci Surgical Systems at the end of the quarter.

Margins

Intuitive Surgical reported a higher gross margin of 72.8% in the quarter compared with 71.0% in the year-ago quarter.

The company reported operating expenses of $118.5 million in the quarter, up 25.4% year over year. The increase was primarily due to growth in Selling, General and Administrative expenses.

Operating income was $132.1 million, or 38.4% of sales, in the reported quarter compared with $104.5 million, or 37.3% of sales, in the prior-year quarter. Operating income in the third quarter of 2009 included the impact of $6.3 million of revenues deferred from the first quarter.

Balance Sheet and Cash Flow

Intuitive Surgical exited the quarter with cash, cash equivalents and investments of $1.62 billion, up $30 million on a sequential basis. It remains a zero debt company.

Intuitive Surgical is a pioneer in robotic surgery. It continues to experience rapid growth in volume of procedures, which is a critical driver of system placements. In addition, the recent investments in its sales structure should drive revenues.

Intuitive Surgical will also benefit from the upgrade of older systems to more sophisticated da Vinci Si system. The risk comes from austerity drives in Europe and the U.S., which target hospital capital expenditure as an area of cost savings.

 
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