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Image shown: Intuitive Surgical benefits from a razor-razor blade business model and a large installed base. The more systems it places, the more instruments and accessories are sold. We expect clinical applications for robotic-assisted surgeries to continue to increase. Image source: Intuitive Surgical's second-quarter earnings press release.

By Brian Nelson, CFA

On Tuesday, July 20, Intuitive Surgical (ISRG) reported excellent second-quarter results for the three months ended June 30, 2021, with revenue up 71.3% and non-GAAP earnings per share exceeding the consensus estimate by $0.86, to $3.92. The company is the pioneer in the robotic-assisted surgery field, and it continues to set the bar with respect to technologies for minimally invasive care.

The company’s da Vinci Surgical System is its flagship product. The system consists of a surgeon console, interactive arms, a high-definition vision system, and instruments and accessories. The da Vinci allows for a full range of motion just like the human wrist, but it helps to filter out the tremors that are inherent to a surgeon’s hands, allowing for better surgical outcomes.

During the second quarter, worldwide da Vinci procedures grew 68%, as sales recovered nicely from disruptions caused by the COVID-19 pandemic. It shipped 328 da Vinci Surgical Systems in the period, up 84% on a year-over-year basis, and the company now boasts an installed base of 6,335 systems as of the end of June 2021. Demand for high-quality minimally invasive applications remains strong, though the COVID-19 pandemic may continue to strain hospital resources.

Here’s what management had to say on the second-quarter conference call:

Examining procedure trends more deeply, in the United States, procedure growth was strong in the quarter, driven by growth in bariatric surgery, hernia repair and cholecystectomy. Both gynecology and urology procedure annualized growth strengthened in the quarter, as pandemic pressures eased in the U.S. Annualized U.S. procedure growth rates are returning to historical levels for procedures with longer diagnostic pipelines as patients have started returning to screening and diagnostic testing. Growth in our second-largest market China, continue to be strong with multiple specialties contributing. European procedure growth was generally healthy though varied by country. Recovery in the UK was healthy in the quarter as NHS increased access to surgeries broadly. 

We’re huge fans of Intuitive Surgical’s razor-razor blade business model (systems/instruments and accessories), and the company remains one of the most innovative in our coverage. We expect clinical applications for robotic-assisted surgeries to increase over time, and Intuitive Surgical is at the sweet spot of this care. Free cash flow generation is consistently robust at the firm, and the company’s balance sheet is very net cash rich. Intuitive is worth a look at the right price, in our view.

Intuitive Surgical’s 16-page Stock Report >>

Tickerized for ISRG, MDT, MTAC, DEH, EW, ILMN

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Brian Nelson owns shares in SPY, SCHG, QQQ, DIA, VOT, and IWM. Brian Nelson's household owns shares in HON, DIS, HAS. Valuentum owns shares in VOO, SCHG, DIA, and QQQ. Some of the other securities written about in this article may be included in Valuentum's simulated newsletter portfolios. Contact Valuentum for more information about its editorial policies.