Analyst Conference Summary

conference date: April 9, 2020 @ 1:30 PM Pacific Time
for quarter ending: March 31, 2020 (first quarter, Q1 2020)

Forward-looking statements

Overview:

Basic data (GAAP):

Revenue was $1.100 billion, down 14% sequentially from $1.278 billion and up 13% from $0.974 billion in the year-earlier quarter.

Net income was $314 million, down 12% sequentially from $358 million, and up 2% from $307 million year-earlier.

EPS (earnings per share, diluted) were $2.62, down 12% sequentially from $2.99 and up 2% from $2.56 year-earlier.

Guidance:

Withdrew prior guidance. "The Company experienced a significant decline in procedure volume and postponements of system placements in the latter half of March in the U.S. and Western Europe, as healthcare systems in those areas diverted resources to meet the increasing demands of managing COVID-19. The Company has experienced and believes that the impact of the COVID-19 pandemic on the Company's business differs by geography. Due to the uncertain scope and duration of the pandemic, and uncertain timing of global recovery and economic normalization, we cannot, at this time, reliably estimate the future impact on our operations and financial results."

Conference Highlights:

CEO Gary Guthart said, "While we cannot predict the depth or duration of the disruption caused by the pandemic, we remain committed to our mission and the long-term need to improve patient outcomes." Procedures delayed in the short term will usually result in treatment longer term. Earliest impact was in China, but procedure rate has been recovering. Financial pressures on hospitals may impact capital spending on surgical systems.

Cutting back on spending, but making some PPE for hospitals, and employees are volunteering. Pausing hiring.

Procedures grew 10% y/y, driven primarily by growth in U.S. general surgery procedures and worldwide urologic procedures. Procedure growth was strong in January and February, began declining in February in China, dropped globally in second half of March, dropping to about 50% of the prior run rate. System placement decline is likely to follow procedure decline. Utilization of installed base declined in Q1.

Installed 3 da Vinci SP systems in Q1. 8 Ion systems shipped in the quarter. XI is still the top seller.

Revenue from Da Vinci system sales was $283 million, down 32% sequentially from $416 million and up 14% y/y from $248 million. 237 systems shipped, up 1% from 235 in Q1 2019, including 77 leased systems. Average system price of $na million. na% of placed systems were XI's. Installed base is now 5,669 systems. NA systems involved trade-ins. 9 systems shipped to China.

Revenue from instruments and accessories was $612 million up 12% y/y from $552 million. $2,000 per procedure up reflecting increased usage of advanced systems.

Revenue from services was $199 million up 14% from $174 million year-earier.

Non-GAAP numbers: Net income was $323 million, down 23% sequentially from $417 million and up 4% from $312 million year-earlier. Non-GAAP EPS was $2.69, down 23% sequentially from $3.48, and up 3% from $2.61 year-earlier. Non-GAAP numbers exclude trade out revenues and stock-based compensation.

The cash and equivalents balance ended at $5.90 billion, sequentially from $5.85 billion. There is no debt. Repurchased $100 million of shares, but has $1.7 billion remaining authorized.

Ion is the Company's new flexible, catheter-based platform, designed to navigate through very small lung airways to reach peripheral nodules for biopsies. Ion flexible platform received clearance from FDA in Q1, 2019. In July 2019, the company received FDA clearance for the SureForm 45 Curved-Tip stapler. Intuitive sold its first three Ion endoluminal systems in Q3 2019.

Iris visualization systems entered clinics in Q4, 2019 with a good initial response.

Cost of revenue was $361 million, leaving gross profit of $738 million. Operating expenses of $455 million included: $308 million for selling, general, and administrative; $147 million for research and development. Leaving income from operations of $283 million. Interest income was $25 million. Income tax benefit $8 million. Income attributed to non-controlling interest $3 million.

Q&A:

Capital cycle? Apples and oranges compared to 2008, so hard to predict. Our customers say there is a growing backlog for surgery. Likely to see more financing and leases going forward.

Delayed or cancelled orders? Lower leaseing in Q1 had specific causes, not likely to be indicative going forward. Customers are vague about timing of postponements. Expects them to return, timing is uncertain.

The SP colorectal indication trial will be delayed. Ion Precise study is also delayed, probably results not before 2021.

Believes demand will drive surgeries, so as constraints loosen will be able to ship systems.

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