Although the company has been under fire from critics in the medical and financial worlds, da Vinci maker Intuitive Surgical (click ticker for report: ) announced strong first-quarter results. Revenue increased 23% year-over-year to $611 million, easily exceeding consensus expectations. Earnings were significantly above consensus estimates, surging 31% year-over-year to $4.56 per share.
Revenue growth was solid across all segments, with instruments and accessories revenue climbing 26% year-over-year to $261 million even though da Vinci procedure growth slowed to 18%. General surgery and gynecology was strong, but this was offset by a decline in US prostatectomy. Many have questioned if gynecological procedure growth can remain strong, especially after American Congress of OB/GYN President James Breeden, MD stated:
“A study of over 264,000 hysterectomy patients in 441 hospitals also found that robotics added an average of $2,000 per procedure without any demonstrable benefit.”
Naturally, Intuitive Surgical battles these claims, noting that a study at Cork University in Ireland concluded bed day rates declined by approximately 33% after introducing da Vinci procedures, resulting in substantial savings. Given the high initial and maintenance costs of the da Vinci, a cost-benefit analysis becomes a bit more complex in reality. Still, evidence supporting both sides continues to rise to the forefront of the debate.
Although dissention on the consensus opinion of da Vinci remains elevated, Systems revenue managed to grow 24% year-over-year to $256 million as the firm sold 164 da Vinci systems during the quarter. We have yet to see skepticism weigh on results or sales momentum thus far, though we admit doubt could spread.
On its fourth-quarter (previous) conference call, the firm gave guidance for procedure growth of 20-23%, but updated its guidance range to the “low-end” of the prior forecast. Though we’d like to see this range increased, we believe surgeons are skeptical about expanding da Vinci uses until they receive more clarity on the issue. In spite of weaker procedure growth, the firm now anticipates revenue growth will be on the high end of its prior guidance of 16%-19%. Intuitive Surgical believes operating margins will be between 38%-39%, slightly below its first quarter run-rate of 41%. This is also down from the fourth quarter of 2012, but we’re satisfied with operating margins in the high-30% range.
Overall, we’ve yet to see negative sentiment weigh on Intuitive Surgical’s fundamental performance. Therefore, we continue to hold shares of the da Vinci maker in the portfolio of our Best Ideas Newsletter. We acknowledge the risks inherent in such a highly-controversial situation, but we’re comfortable as long as the fundamentals endure.