Analyst Conference Summary

conference date: October 19, 2021 @ 1:30 PM Pacific Time
for quarter ending: September 30, 2021 (third quarter, Q3 2021)

Forward-looking statements

Overview: Strong y/y growth.

Basic data (GAAP):

Revenue was $1.40 billion, down 4% sequentially from $1.46 billion and up 30% from $1.08 billion in the year-earlier quarter.

Net income was $381 million, down 26% sequentially from $517 million, and up 21% from $314 million year-earlier.

EPS (earnings per share, diluted) were $1.04, down 28% sequentially from $1.45 and up 20% from $0.87 year-earlier.

Note stock split 3 for 1 on October 5, 2021.

Guidance:

2021 procedure growth 27% to 29%. Gross profit margin 71% to 71.5% of revenue. Op ex up 17% to 19%. Q4 tax rate 21.4%.

Conference Highlights:

CEO Gary Guthart said, "We are pleased with our team's performance in a complex environment, and we are building upon the robust clinical and technological foundation created over the past 26 years through investment in innovation to drive continued growth. Capital demand remained robust." Q3 expenses were below expectations.

Global procedures grew 20% y/y. U.S. procedure growth grew 16% y/y. China growth was strong. Seeing increased use in benign procedures. But Q3 2020 had signicant disruption from the pandemic, which also resurged in Q3 2021. Compound growth rate, 2019 to 2021 was 13.5%.

Revenue from Da Vinci system sales was $415 million, down 6% sequentially from $440 million and up 55% y/y from $268 million. 336 systems shipped, up 2% sequentially from 328, and up 72% from 195 year-earlier; includes 139 leased systems or 41%. About 40% of sales involved trade-ins. 10 systems sold were SP, for a total of 89. Average system price of $1.57 million, flat y/y due to volume discounts. Installed base is now 6,525 systems, up 11% y/y. 17 systems shipped to China. 109 systems outside U.S. total. 9% increase in utilization y/y. Trade in cycle has been a tail wind.

Revenue from instruments and accessories was $755 million, down 5% sequentially from $796 million, and up 20% y/y from $631 million. $1,900 per procedure increased y/y. Procedures per system increased % y/y. Seeing increased usage of extended use products.

Revenue from services was $233 million, up 2% sequentially from $228 million and up 30% from $179 million year-earier.

Ion flexible robotics shipped 28 systems in the quarter. Clinical trial results continue to generate momentum. Adoption of newly launched products like staplers and vessel sealers has been strong. SP access port was used in surgeries for the first time in Q1 2021 and the clinical database continues to grow. Working on more clearances for the SP program.

Non-GAAP numbers: Net income was $435 million, down 9% sequentially from $477 million and up 30% from $334 million year-earlier. Non-GAAP EPS was $1.19, down 9% sequentially from $1.31, and up 29% from $0.92 year-earlier. Non-GAAP numbers exclude trade out revenues and stock-based compensation.

The cash and equivalents balance ended at $8.22 billion, up sequentially from $7.73 billion. There is no debt. Repurchased no shares.

Cost of revenue was $432 million, leaving gross profit of $0.97 billion. Operating expenses of $529 million included: $363 million for selling, general, and administrative; $166 million for research and development. Leaving income from operations of $443 million. Interest and other income was $19 million. Income tax $74 million. Income attributed to non-controlling interest $7 million.

Q&A summary:

Supply chain environment? It has deteriorated, but has not yet resulted in us delaying customer orders. We did incur some costs, which might become material in the future. It is difficult right now.

Ion data, but comparison to competitor? The architecture as a whole, including the soft catheter, the data is catalysing and helping us in the market.

Procedure growth, could it be higher? The high end of guidance already assumes some recovery from the covid pandemic in the U.S. The U.S. presumes a slower recovery. Hospital availability is the crucial variable.

70 clinical uses in multiport systems? Includes subspecialties, including in FDA approved labelling.

Staffing shortage risk at customers? We just have anecdotal feedback. So hard to predict, but guidance assumes no major disruptions from this source.

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