Analyst Conference Summary

conference date: July 20, 2021 @ 1:30 PM Pacific Time
for quarter ending: March 31, 2021 (first quarter, Q1 2021)

Forward-looking statements

Overview: Revenue up y/y, compared to a weak quarter.

Basic data (GAAP):

Revenue was $1.29 billion, down 3% sequentially from $1.33 billion and up 18% from $1.10 billion in the year-earlier quarter.

Net income was $426 million, up 17% sequentially from $365 million, and up 36% from $314 million year-earlier.

EPS (earnings per share, diluted) were $3.51, up 16% sequentially from $3.02 and up 34% from $2.62 year-earlier.

Guidance:

Note there are emerging supply restraints, which are not reflected in the guidance. Full year 2021 procedure growth 22% to 26%. 70 to 71% gross profit margin. Op ex 18% to 22% growth for return to in person sales and marketing. Non-cash stock compensation expense $450 to $470 million. Other income $45 to $55 million. Income tax 20% to 21%.

Conference Highlights:

CEO Gary Guthart said, "Our first quarter of 2021 was a step in the right direction. We saw a healthy recovery of surgery and use of our products." Product margins were strong in the quarter. We expect some increase in expenses as the pandemic wanes.

Global procedures grew 16% y/y. In US procedure rates improved during the quarter. China growth was high. Delays in diagnosis have continued to impact procedure pace. Vaccine rollout pace could effect procedure growth.

Revenue from Da Vinci system sales was $369 million, up slightly sequentially from $367 million and up 30% y/y from $283 million. 298 systems shipped, down 8% sequentially from 326, and up 26% from 237 year-earlier; includes 43% leased systems. About 44% of sales involved trade-ins. 6% of systems sold were SP. Average system price of $1.65 million, up y/y. Installed base is now 6,142 systems, up 8% y/y. 23 systems shipped to China. 108 systems outside U.S. total.

Revenue from instruments and accessories was $706 million, down 5% sequentially from $747 million, and up 14% y/y from $618 million. $1950 per procedure decreased y/y. Procedures per system increased 8% y/y. An extended use instrument program was introduced in October 2020, which should help customers cut costs. That will negatively impact revenue short term, but help grow the market longer-term.

Revenue from services was $218 million, down 41% sequentially from $367 million and up 10% from $199 million year-earier.

Ion shipped 14 systems in the quarter, is mainly past supply issues. Adoption of newly launched products like staplers and sealers has been strong. SP access port was used in surgeries for the first time in Q1 2021. MyIntuitive mobile app was launched.

Non-GAAP numbers: Net income was $427 million, down 1% sequentially from $434 million and up 32% from $323 million year-earlier. Non-GAAP EPS was $3.52, down 2% sequentially from $3.58, and up 31% from $2.69 year-earlier. Non-GAAP numbers exclude trade out revenues and stock-based compensation.

The cash and equivalents balance ended at $7.23 billion, up sequentially from $6.87 billion. There is no debt. Repurchased no shares.

Cost of revenue was $390 million, leaving gross profit of $903 million. Operating expenses of $486 million included: $326 million for selling, general, and administrative; $160 million for research and development. Leaving income from operations of $417 million. Interest and other income was $32 million. Income tax $14 million. Income attributed to non-controlling interest $9 million.

Q&A:

Guidance, color on how you got the procedure numbers? Three factors for low end: covid impact outside the US; slower diagnostic pipeline; possible regional covid resurgence. The backlog accumulated from defered diagnostics and surgeries. We think that will recover over time. It is hard to measure the total accumulated backlog or the time and pace of recovery.

Ambulatory surgery centers? We are in some, we see healthy programs. Over time, reimbursement matters. Payers could create incentives to move patients to ASCs.

Telepresence feature? Created with InTouch. Allows observors to log in, to see experts. The pandemic accelerated interest in it.

Extended use program? Introduced in Q4 2020. Did see increased usage, but most have stocks of regular use instruments they are burning off. That resulted in lower instrument revenue, and the trend could continue.

Q1 procedure volumes? Types driving it: US general surgery, a lot benign.

Utilization in 2020? Believe will return to 2019 patterns.

In market data for diagnostic testing, that was still supressed as late as February, in the US.

SP IDE trial start time? First cases are scheduled, should happen in next few weeks.

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