Intuitive Surgical (ISRG) reported first-quarter fiscal 2011 earnings per share of $2.59, outpacing the Zacks Consensus Estimate of $2.49, while surpassing the corresponding year-ago result of $2.12.
Intuitive reported revenues of $388 million, up 18% year over year, exceeding the Zacks Consensus Estimate of $379 million.
On a segmental basis, the company reported revenues from instruments and accessories of $157 million, up 28% year over year. The growth was driven by a 30% year-over-year increase in da Vinci surgical procedures. Revenues from sales of systems were $167 million, up 8% year over year. Service revenue was $64 million, up 26% year over year, primarily due to growth in the installed base of da Vinci Surgical systems.
Intuitive Surgical experienced a drop in gross margin to 71.8% in the reported quarter compared with 72.5% in the year-ago quarter. The company reported operating expenses of $130.5 million in the quarter, up only 1.6% year over year. The increase was due to growth in selling, general and administrative expense (up 3.4%). Research and development expenditure dropped 3.7%.
Operating income was $148.3 million, or 38.2% of sales, in the reported quarter, compared with $153.8 million, or 39.5% of sales, in the prior-year quarter.
Balance Sheet
Intuitive Surgical exited the quarter with cash, cash equivalents and investments of $1,757 million, up 25.9% year over year. It remains a zero debt company.
Outlook and Recommendation
We expect a number of procedures that are currently completed either in an open surgical manner or with laparoscopy to be eventually replaced by da Vinci surgery, as robotic surgery becomes the standard of care in many instances. The company enjoys a virtual monopoly in robotic surgery with little competition.
Intuitive’s recurring revenue stream continues to grow and provides a shield against cyclicality of revenues, arising from the sale of discretionary capital equipment to hospitals. However, we believe that until the global economy recovers, the stock may come under pressure as investors ponder whether lingering macro economic uncertainty weakens hospitals’ commitment to buy high-cost robotic systems. The pace of adoption of robotic surgery may therefore be lumpy and growth in usage requires acceptance from patients and training to medical practitioners.
Intuitive signed a licensing pact, on August 17, 2010, with Cardica Inc. (CRDC) under which it has obtained the exclusive global license to Cardica’s intellectual property, related to tissue cutting, stapling and clip appliers for application in the robotics field. Intuitive competes with Accuray Incorporated (ARAY) in certain niches.
We prefer to remain on the sidelines until the global markets fully recover, despite the da Vinci system’s leading status as an enabler of robotic minimally invasive surgery. Our Neutral recommendation on the stock is supported by a short-term Zacks #3 Rank (Hold).
ACCURAY INC (ARAY): Free Stock Analysis Report
CARDICA INC (CRDC): Free Stock Analysis Report
INTUITIVE SURG (ISRG): Free Stock Analysis Report
Zacks Investment Research
