Intuitive Surgical (ISRG) Q3 2022 Earnings Name Transcript

October 19, 2022

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Intuitive Surgical (ISRG 1.90%)
Q3 2022 Earnings Name
Oct 18, 2022, 4:30 p.m. ET

Contents:

  • Ready Remarks
  • Questions and Solutions
  • Name Contributors

Ready Remarks:

Operator

Girls and gents, thanks for standing by. Welcome to the Intuitive third-quarter earnings launch name. At the moment, all individuals are in a listen-only mode. Later, we’ll conduct a question-and-answer session.

[Operator instructions] As a reminder, this convention is being recorded. I’d now like to show the convention over to our host, head of investor relations, Mr. Brian King. Please go forward.

Brian KingTreasurer and Head of Investor Relations

Good afternoon, and welcome to Intuitive’s third-quarter earnings convention name. With me at present we’ve got Gary Guthart, our CEO; and Jamie Samath, our CFO. Earlier than we start, I want to inform you that feedback talked about on at present’s name could also be deemed to comprise forward-looking statements. Precise outcomes could differ materially from these expressed or implied on account of sure dangers and uncertainties.

These dangers and uncertainties are described intimately in our Securities and Trade Fee filings, together with our most up-to-date Kind 10-Okay filed on February 3, 2022, and Kind 10-Q filed on July 22, 2022. Our SEC filings will be discovered by way of our web site or on the SEC’s web site. Traders are cautioned to not place undue reliance on such forward-looking statements. Please word that this convention name can be out there for audio replay on our web site at intuitive.com on the Occasions part beneath our Investor Relations web page.

In the present day’s press launch and supplementary monetary knowledge tables have been posted to our web site. In the present day’s format will encompass offering you with highlights of our third quarter outcomes as described in our press launch introduced earlier at present, adopted by a question-and-answer session. Gary will current the quarter’s enterprise and operational highlights, Jamie will present a evaluation of our monetary outcomes, then I’ll focus on process and medical highlights and supply our up to date monetary outlook for 2022. And at last, we’ll host a question-and-answer session.

With that, I’ll flip it over to Gary.

Gary GuthartChief Government Officer

Thanks for becoming a member of us at present. Our enterprise fundamentals strengthened in Q3 with 20% process development in da Vinci procedures in contrast with Q3 of final 12 months and strong efficiency in every of our international areas. Our capital placements mirrored 13% development in our put in base to satisfy process demand accompanied by continued will increase in utilization per system per 12 months, wholesome indicators for our prospects and for us. Ion additionally skilled will increase in installs, procedures carried out, and annualized system utilization.

Provide chain challenges, whereas nonetheless current, are abating from their pandemic peaks. Trying extra carefully at procedures, 20% development is up from 14% final quarter and above our three-year compound annual development charge of 16% throughout the pandemic. Common surgical procedure, our largest process class is rising on the quickest charge of any class fueled by bariatric surgical procedure, cholecystectomy, hernia restore, and different foregut procedures in the USA. In Europe, a number of nations are rising properly with diversified use past urology.

Germany, the U.Okay. and Eire, Italy, and Spain stood out within the quarter. In Asia, Japanese process development accelerated relative to Q2, and Korean development remained strong. Procedures in each nations are additionally diversifying past urology.

In China, process development was simply above our international common, hampered partly by regional rolling lockdowns that proceed to impression procedures and utilization. Turning to capital. We positioned 305 techniques within the quarter in contrast with 336 in Q3 a 12 months in the past and 279 final quarter. Robust process demand is supporting da Vinci put in base development of 13% within the quarter.

Per-system utilization grew 7% within the quarter, up from our three-year compound annual development of 5% over the pandemic. Utilization was aided by restoration from a softer U.S. process quarter final 12 months, in addition to buyer efficiency of extra varieties of procedures and better quantity classes and will increase in buyer effectivity. Si trade-ins continued to gradual given the decline in remaining trade-in alternative.

Ion placements grew to 50 this quarter, up from 28 final 12 months and 41 final quarter, reflecting continued development in an early market. Total, our prospects are buying techniques the place there’s alternative for process development. On the funding entrance, we proceed to give attention to our platforms in multiport endoluminal, single port, and digital by way of indication and regional regulatory expansions, innovation in services and products that meet buyer wants, and product high quality and price refinements. We anticipate our new platforms to method our historic ranges of contribution margin over time.

Progress 12 months up to now has met our expectations. With regard to our bills this quarter, we moderated headcount development to give attention to deeply integrating these staff who joined us previously a number of quarters. Going into 2023, we anticipate the speed of development in mounted bills to gradual as we pursue leverage in our enabling features and sequence a few of our ahead investments. We have had a strong quarter reaching product and companies milestones.

We proceed to increase entry to our multiport merchandise, coaching, and companies globally. Standouts within the quarter embrace report international quarterly new surgeon coaching completions to first case and accreditation of our expertise coaching pathway by the Royal School of Surgeons within the U.Okay. For Ion, we submitted our registration software in China, and we obtained German regulatory medical examine approval for ion ablation expertise, which begins our medical journey towards enabling interventions past biopsy. Ion procedures grew 211% within the quarter.

Turning to our single-port platform, da Vinci SP. Procedures grew 46% 12 months over 12 months, with explicit energy in Korea, the place our SP staff launched next-generation SP devices and our Firefly enabled endoscope. We additionally obtained PMDA clearance within the quarter, market SP in Japan throughout a broad set of medical indications just like the indications SP has in Korea. In our digital portfolio, our My Intuitive app and PORTaL are being adopted broadly in areas through which they’re launched because the go-to digital portal for da Vinci prospects.

Installs of our in-room computing platform, Intuitive Hub grew 21% over the third quarter final 12 months and software program updates to our hub put in base improved usability and enabled telepresence. In abstract, our core enterprise strengthened within the quarter as acute pandemic impression softened. We’re managing spend development whereas investing in core development alternatives for the long run. I will now move the time over to Jamie to take us by way of our funds and a few persistent macroeconomic points in larger element.

Jamie SamathChief Monetary Officer

Good afternoon. I’ll describe the highlights of our efficiency on a non-GAAP or professional forma foundation. I may also summarize our GAAP efficiency later in my ready remarks. A reconciliation between our professional forma and GAAP outcomes is posted on our web site.

In Q3, development in procedures, the put in base of da Vinci techniques, and common system utilization was wholesome. The energy of those key enterprise drivers resulted in a professional forma working margin of 36% and professional forma EPS of $1.19. Concurrently, we noticed headwinds from the robust U.S. greenback, lingering provide chain points, and inflation, which collectively negatively impacted professional forma working margin by roughly two share factors in comparison with the third quarter of final 12 months.

I’ll take you thru these particulars. Q3 process development of 20% mirrored a rise in U.S. procedures of 18% and OUS process development of 24%. U.S.

process development mirrored a good comparability to the year-ago quarter given the impression of the delta variant final 12 months. On a three-year compound annual development charge foundation, U.S. procedures grew roughly 13%. In China, our second largest market throughout the quarter, procedures continued to get well from the impression of COVID-related lockdowns that we described on final quarter’s earnings name.

Nevertheless, we proceed to see regional lockdowns happen as COVID instances rise. Turning to capital. We positioned 305 techniques within the third quarter, 9% decrease than the 336 techniques we positioned final 12 months. Third quarter system placements included roughly 15 techniques that have been delayed on the finish of final quarter as a result of element provide delays.

There have been 71 buying and selling transactions within the quarter as in comparison with 136 in Q3 of 2021, reflecting the decline within the variety of Si remaining within the put in base. As of the top of Q3, there have been roughly 739 Sis remaining within the put in base, of which 191 are within the U.S. Excluding buying and selling transactions, international system placements grew 17% from final 12 months. The put in base of da Vinci techniques grew roughly 13% 12 months over 12 months, in step with latest tendencies.

The utilization of medical techniques within the area, measured by procedures per system, elevated virtually 7% in comparison with final 12 months. Utilizing a three-year compound annual development charge, third-quarter utilization was in step with historic averages, rising virtually 5%. Common system utilization within the U.S. grew 6% 12 months over 12 months, an enchancment from the 1% decline in utilization in Q2.

On account of our process and capital efficiency, Q3 income was $1.56 billion, a rise of 11% from the third quarter of 2021. On a constant-currency foundation, third-quarter income grew roughly 15%. Within the third quarter, income denominated in non-USD currencies represented 22% of whole income. On a revenue-weighted foundation, utilizing present change charges, web of hedges in place for This autumn, the U.S.

greenback is roughly 3% stronger than the charges realized in Q3. Extra income statistics and tendencies are as follows: Within the U.S., we positioned 175 techniques within the third quarter, decrease than the 227 in Q3 of 2021, reflecting a decline of 66 techniques related to trade-in transactions and a difficult macroeconomic setting. Outdoors the U.S., we positioned 130 techniques within the third quarter in contrast with 109 final 12 months. Present-quarter system placements included 54 into Europe, 32 into Japan, and 14 into China in contrast with 47 into Europe, 20 into Japan, and 17 into China within the third quarter of 2021.

As of the top of Q3 2022, there have been 40 techniques remaining beneath the present quota in China, which can also be out there to the three home rivals which have accomplished native registration with NMPA. Markets which might be served by way of distributors have represented roughly 10% of system placements to date this 12 months. Our distribution companions bought product from us in U.S. {dollars} and promote of their native currencies.

Whereas we’ve got not skilled a big impression to date, the strengthening of the U.S. greenback reduces distributor margins and will trigger delays in capital purchases. Leasing represented 37% of Q3 placements in contrast with 42% final quarter and 41% within the third quarter of 2021. The decrease lease combine is a operate of buyer and regional combine.

And whereas leasing will fluctuate from quarter to quarter, we proceed to anticipate that the proportion of placements beneath working leases will improve over time. Third quarter system common promoting costs have been $1.5 million, in step with final quarter. System ASPs have been negatively impacted by the next trade-in combine and the impression of FX, offset by the next mixture of Xi twin console placements. We acknowledged $17 million of lease buyout income within the third quarter in contrast with $22 million final quarter and $25 million final 12 months.

Lease buyout income has diverse considerably quarter to quarter and can possible proceed to take action. Instrument and accent income per process was roughly $1,800 in contrast with roughly $1,900 for each final quarter and final 12 months. On a year-over-year foundation, FX negatively impacted I&A per process by roughly $50. The rest of the year-over-year discount was primarily a results of buyer ordering patterns.

In the course of the quarter, our distributors and prospects in sure OUS markets lowered their stock as provide chain predictability reasonably improved. We positioned 50 Ion techniques within the quarter as in comparison with 28 within the third quarter of final 12 months. The put in base of Ion techniques is now 254 techniques, of which 112 are beneath working lease preparations. Third quarter Ion procedures of roughly 6,400 elevated 211% on a year-over-year foundation.

Ion is within the new MDR regulatory evaluation course of in Europe, and throughout the quarter, we submitted Ion into the regulatory course of in China. As a reminder, regulatory evaluation timelines in China are prolonged. Transferring on to the remainder of the P&L. Professional forma gross margin for the third quarter of 2022 was 69.8% in contrast with 71.3% for the third quarter of 2021 and 69.2% final quarter.

Q3 professional forma gross margin included a one-time profit of roughly 50 foundation factors referring to the favorable conclusion of sure oblique tax issues. Professional forma gross margin was decrease than final 12 months primarily as a result of stronger U.S. greenback, manufacturing and logistics inefficiencies on account of the availability chain setting, increased element pricing, and elevated mounted prices relative to income. Indicators of provide and stock held modestly improved within the quarter however remained nicely under pre-pandemic ranges.

Professional forma working bills elevated 24% in contrast with third quarter of 2021, pushed by elevated headcount, increased R&D-related undertaking prices, and better journey prices. Progress in working bills has been primarily in assist of our Ion platform, next-generation robotics capabilities, our digital capabilities, and enlargement of our infrastructure to permit us to successfully scale. We’re additionally seeing increased regulatory prices on account of elevated regulatory necessities globally and enlargement of our new platforms into OUS markets. As Gary talked about earlier, throughout the quarter, we slowed our hiring tempo, including roughly 530 staff decrease than the 700-plus staff we’ve got added per quarter within the final three quarters.

As we look ahead to 2023, we anticipate our working expense development can be decrease than the expansion for this 12 months. The slowing development charge of working bills displays the completion of a few of our infrastructure and enterprise course of enchancment investments and deliberate leverage in our enabling features. As a part of our planning course of, we’re additionally conducting a evaluation of our capital expenditure priorities and we’ll present an replace as to the result of this evaluation on the subsequent name. Inside this framework, we’ll proceed to spend money on our new platforms, in NSP, next-generation capabilities, and our digital ecosystem given the return profiles we see for these investments.

Professional forma different earnings was $7.2 million for Q3, decrease than $10.4 million within the prior quarter primarily as a result of impression of international change losses from remeasurement of the steadiness sheet ensuing from the continued strengthening of the U.S. greenback. Our professional forma efficient tax charge for the third quarter was 23.4%, in step with our expectations. Third quarter 2022 professional forma web earnings was $429 million or $1.19 per share in contrast with $435 million and likewise $1.19 per share for the third quarter of final 12 months.

Capital expenditures in Q3 have been $153 million primarily comprised of infrastructure investments to increase our amenities footprint and improve manufacturing capability. I’ll now summarize our GAAP outcomes. GAAP web earnings was $324 million or $0.90 per share for the third quarter of 2022 in contrast with GAAP web earnings of $381 million or $1.04 per share for the third quarter of 2021. The changes between professional forma and GAAP web earnings are outlined and quantified on our web site and embrace extra tax advantages related to worker inventory awards, worker stock-based compensation, amortization of intangibles, litigation prices, and positive factors and losses on strategic investments.

We ended the quarter with money and investments of $7.4 billion in contrast with $8.2 billion on the finish of Q2. The sequential discount in money and investments mirrored share repurchases and capital expenditures, partially offset by money from working actions. In the course of the quarter, we accomplished a $1 billion ASR along with the $607 million of shares repurchased within the first half. For the reason that finish of 2021, our diluted share depend has decreased by roughly 7 million shares or 2%, and we’ve got a remaining authorization to repurchase our shares of $2.5 billion.

And with that, I want to flip it over to Brian, who will focus on medical highlights and supply our up to date outlook for 2022.

Brian KingTreasurer and Head of Investor Relations

Thanks, Jamie. Our general third-quarter 2022 process development was 20% in comparison with 20% for the third quarter of 2021 and 14% final quarter. The three-year compound annual development charge between the third quarter of 2019 and third quarter of 2022 was 16%. Within the U.S., third quarter 2022 procedures exceeded our expectations with development at 18% 12 months over 12 months in comparison with 16% for the third quarter of 2021 and 11% final quarter.

Process development displays a constructive impression relative to Q3 final 12 months, which was impacted by the delta variant. On a three-year compound annual development foundation, U.S. process development was 13%. Third-quarter process development continued to be pushed by normal surgical procedure with energy in bariatrics, cholecystectomy, and hernia restore.

Developments in malignant procedures, particularly colorectal and lobectomy procedures have been additionally robust. Progress in gynecology, our second largest process class within the U.S., additionally skilled double-digit development whereas extra mature urologic procedures grew within the excessive single digits. Outdoors of the U.S., third quarter process quantity grew roughly 24% 12 months over 12 months in comparison with 30% for the third quarter of 2021 and 22% final quarter. On a three-year compound annual development foundation, process development was 21%.

Turning to Europe. Process development was led by robust development in Germany, U.Okay., Italy, and Spain. In all the areas famous, process development outdoors of urology was robust typically surgical procedure and gynecology classes. Particularly in Germany, we skilled early stage development in benign hysterectomy and colorectal surgical procedure.

Within the U.Okay., development was led by benign hysterectomy, colorectal, and cholecystectomy procedures. Whereas nonetheless early stage, year-over-year process development in these nonurology procedures was virtually 4 instances increased than urology. Turning to Asia. In Japan, development typically surgical procedure and gynecology continued to be robust.

We skilled sturdy development in these classes led by gastrectomy, rectal resection, and benign hysterectomy. Additional contributing to robust process efficiency was continued early stage development in newly reimbursed procedures, particularly colon resection, and nephrectomy procedures. In China, we proceed to see a restoration within the first couple of months of the third quarter as COVID instances started to say no and lockdown restrictions have been lifted. Process development was pushed by urologic procedures, particularly prostatectomy and partial nephrectomy, together with robust development in colon resection inside normal surgical procedure.

Later within the quarter, we started to see procedures begin to reasonable as COVID started to reemerge in varied areas and rolling lockdowns have been applied. Korea process development was additionally strong within the third quarter. Progress in procedures continued to be broad-based with robust development in SP procedures. Now, turning to the medical aspect of our enterprise.

Every quarter on these calls, we spotlight sure just lately printed research that we deem to be notable. Nevertheless, to realize a extra full understanding of the physique of proof, we encourage all stakeholders to totally evaluation the in depth element of scientific research which were printed over time. Earlier at present on the Annual CHEST convention in Nashville, Tennessee, Dr. Eric People from Massachusetts Common Hospital offered preliminary efficiency updates from the PRECIsE examine.

Outcomes have been in step with knowledge launched final 12 months and demonstrated encouraging outcomes for diagnostic yield and sensitivity of malignancy for samples obtained by way of an Ion process with a powerful security profile. We anticipate the ultimate knowledge from PRECIsE to be printed within the first a part of subsequent 12 months. Persevering with with Ion, a gaggle from the Mayo Clinic in each Rochester, Minnesota and Jacksonville, Florida, led by medical doctors Alejandra Yu Lee-Mateus, Janani Reisenauer, and Sebastian Fernandez-Bussy printed a retrospective case sequence in respirology, evaluating the efficiency of the Ion endoluminal system with the CT guided transthoracic method for pulmonary lesion biopsy. A complete of 225 sufferers have been included on this examine.

113 who underwent an Ion process with a median nodule measurement of 18 millimeters and 112 who underwent a transthoracic biopsy with a median nodule measurement of 16 millimeters. Throughout the Ion group, the general diagnostic yield and sensitivity for malignancy reported was 87.6% and 82.1%, respectively, which have been corresponding to the identical outcomes from the transthoracic method. Importantly, the speed of problems was considerably decrease for the Ion method with a 13% distinction relative to the transthoracic method. Additional evaluation demonstrated an roughly 80% lowered probability of pneumothorax related to the Ion process.

The authors concluded partly that robotic-assisted method with Ion will be as correct because the transthoracic method for sampling pulmonary nodules with related or lowered problems and needs to be thought-about as a method for nodule biopsy. Turning to the surgical aspect. Dr. Leonardo Solaini from the College of Bologna and colleagues printed a scientific evaluation and meta-analysis evaluating the robotic-assisted and laparoscopic approaches for left colectomy procedures within the Worldwide Journal of Colorectal Illness.

Knowledge from 11 totally different articles, together with over 52,000 sufferers have been included on this evaluation, with over 13,500 within the robotic arm and over 39,000 within the laparoscopic arm and with no distinction in preoperative traits reported. With regard to perioperative outcomes, a 4% decrease conversion to open charge was reported for the robotic-assisted method in comparison with the laparoscopic method. Additional evaluation demonstrated the danger of conversion to open for the robotic-assisted method was roughly half the remainder of the laparoscopic method. As well as, the evaluation confirmed the next threat of postoperative problems after a laparoscopic left colectomy, in addition to a decrease charge of superficial wound infections for the robotic-assisted method.

The evaluation additionally confirmed anastomotic leak was 30% much less possible with the robotic-assisted method in comparison with the lap group. The authors concluded partly that robotic left colectomy requires much less conversion to open surgical procedure than the usual laparoscopic method and extra research are warranted to spotlight doable benefits in utilizing the robotic platform for left colectomy. I’ll now flip to our monetary outlook for 2022. Beginning with procedures.

On our final name, we forecast full-year 2022 process development inside a variety of 14% to 16.5%. We are actually rising our forecast and anticipate full-year 2022 process development of 17% to 18%. This vary continues to mirror the uncertainty related to the course of the pandemic. The low finish of the vary nonetheless assumes rising COVID hospitalizations, regional lockdowns, and staffing strain at hospitals for the rest of the 12 months.

On the excessive finish of the vary, we assume COVID-19-related hospitalizations all over the world proceed to say no all through the rest of 2022, and there are not any extra vital impacts from additional resurgences. The vary doesn’t mirror vital materials provide chain disruptions or hospital capability constraints just like what we’ve got skilled in the beginning of the pandemic. Turning to gross revenue. On our final name, we forecast our 2022 full-year professional forma gross revenue margin to be inside 69% and 70.5%, anticipated to be towards the decrease finish of that vary.

We are actually refining our estimate of professional forma gross revenue margin to be inside 69% and 69.5% of web income, given the continued impression of upper enter prices associated to provide chain and the impression from a stronger U.S. greenback. Our precise gross revenue margin will fluctuate quarter to quarter relying largely on merchandise, regional and trade-in combine, fluctuations in international foreign money charges, and the impression of latest product introductions. With respect to working bills, on our final name, we forecast professional forma working expense development to be between 23% and 25%.

We’re adjusting our estimate and now anticipate our full-year professional forma working expense development to be between 21% and 23%. We’re narrowing our estimate for noncash inventory compensation expense to vary between $520 million to $530 million in 2022. We’re additionally updating our estimate for different earnings which is comprised principally of curiosity earnings to whole between $40 million and $50 million in 2022, a lower from our earlier estimate of $60 million and $70 million. The lower primarily displays decrease curiosity earnings on money that was used to repurchase shares and likewise the online impression of sure international change positive factors and losses.

On final quarter’s name, we forecast 2022 capital expenditures inside a variety of $700 million to $800 million. We are actually decreasing our estimate for capital expenditures for 2022 to be within the vary of $600 million to $700 million. With regard to earnings tax, we proceed to estimate our 2022 professional forma tax charge to be between 22% and 24% of pre-tax earnings. That concludes our ready remarks.

We’ll now open the decision to your questions. Maggie, I believe we would prefer to go forward and lead the Q&A to the —

Questions & Solutions:

Operator

All proper. Sure. Thanks. [Operator instructions] And first, we’ve got a query from the road of Travis Steed with Financial institution of America.

Please go forward.

Travis SteedFinancial institution of America Merrill Lynch — Analyst

Hey, thanks for taking the questions, and congrats on the nice quarter. All proper. Possibly, Gary, on the capital promoting funnel, simply possibly you might remark how the funnel has modified because the starting of the 12 months whenever you initially highlighted a slower funnel. And simply making an attempt to sq. away the 13% put in base development with the slower funnel and if that is being offset by the 7% increased utilization and the way to consider capital within the double placements shifting ahead.

Gary GuthartChief Government Officer

What we’re seeing on that aspect, on the capital aspect, is that the place we see wholesome process development, the put in base development is retaining tempo. And also you’re completely proper in your query to type of hyperlink utilization development with put in base development. On the utilization aspect, the 7% is increased than the norm. It is acquired just a little artifact in it, we expect, which is a 12 months in the past, third quarter was just a little bit suppressed due to the delta variant.

So, I believe it is arduous to maintain doing 7% quarterly. If the shoppers may do this, we would be delighted. It is — utilization is sweet for them. It is good for us, and it is fantastic.

It is simply arduous to maneuver in a sturdy approach due to all of the workflow points within the hospital at massive, not simply robotics however simply throughout the system. So, we’re seeing each. I believe the capital aspect, what we have seen right here is that capital is accessible to be competed for in case you can turn into a excessive precedence inside the hospital to get it. So, it is not a lot that the capital setting is straightforward as it’s aggressive.

And in case you can rise on the celebration record, then we’ll discover that the loop, and we’re seeing that in put in base development in greenfields and in Ion.

Operator

Thanks. And subsequent query from the road of Amit Hazan with Goldman Sachs. Please go forward.

Amit HazanGoldman Sachs — Analyst

Thanks. A few questions if that is OK. First, I believe possibly simply to ask about the way you’re fascinated with the pipeline for extra mature procedures. If I heard you proper, you have been urology and gynecology up excessive single digits, double digits within the U.S., fairly good numbers.

Simply need to ensure that these are clear. After which simply type of the everyday query about your personal sources, exterior inner buyer discussions, simply the way you’re fascinated with the diagnostic pipeline for these slower rising most cancers procedures and type of the place we’re or the place we’re heading relative to the trough ranges that have been noticed final 12 months.

Gary GuthartChief Government Officer

OK. On the problem of type of the standard of development on urology and gynecology, Brian, I will kick that to you.

Brian KingTreasurer and Head of Investor Relations

Positive. And I believe Gary touched on it on the earlier reply, a component of that being only a comparability interval from final 12 months. However nonetheless seeing actually wholesome development in these explicit classes. As I referred to as out, development in gynecology, which is our second largest process class, did have, I might say, double-digit development in all probability within the decrease finish there after which these extra mature urologic procedures being these excessive single digits, but it surely’s actually favoring from the comparability from final 12 months however nonetheless doing very well.

Jamie SamathChief Monetary Officer

On the diagnostic pipelines, what we proceed to see for essentially the most half is comparatively regular when it comes to the exams which might be occurring principally just a little under the volumes that we noticed pre pandemic. The one exception that we have seen within the U.S. in type of latest tendencies is a tick-up in colonoscopies. I would not say that this proof that that is impacted da Vinci procedures but as that is a latest pattern.

Clearly, we’re inspired by the truth that extra sufferers are capable of get again to having these diagnostic exams, and we’ll see how that performs out when it comes to surgical procedure.

Gary GuthartChief Government Officer

On only a follow-up level to Brian, your reply, I believe the opposite factor is that whereas we’re mature in urology and gynecology in the USA, there’s nonetheless just a little development there, too. However outdoors the USA and Europe and Asia, we’re nonetheless comparatively early, and we expect that in these two classes, we’ll proceed to see development. Jamie, only a follow-up level in your reply on the diagnostics aspect. You have been saying it began to come back again, and we’re seeing just a little little bit of an uptick.

It’s completely clear that there is been a trough or a bolus of people that stayed out of diagnostic pipelines, and that hasn’t absolutely recovered. And their illness is progressing. That can also be completely clear within the literature. So, how large that’s and what that appears like as they arrive again into the well being system when it comes to surgical procedure and da Vinci surgical procedure, you are simply going to have to attend and see.

It is a arduous factor to measure. However I believe there is a bolus on the market, and it is unlucky given illness development.

Operator

Thanks. And subsequent, we’ve got a query from the road of Larry Biegelsen with Wells Fargo. Please go forward.

Larry BiegelsenWells Fargo Securities — Analyst

Good afternoon. Thanks for taking the query and congratulations. Simply two for me. I wished to begin, Gary, with the colour commentary you gave on opex spending subsequent 12 months.

If we take a look at the final 5 years, you grew EPS sooner than gross sales — or pre COVID, I am sorry, 4 to the 5 years, this 12 months, it seems like earnings will in all probability be down. How a lot of a precedence is EPS development? And what would want to occur so that you can get again to the algorithm the place you grew EPS sooner than gross sales? And I’ve one follow-up.

Gary GuthartChief Government Officer

You recognize, we watch it. We need to be sure that we’re environment friendly stewards of our bills and our capital. And the place we see an effectivity, we’ll pursue it. That is what I have been messaging and that is what I used to be speaking about right here within the script.

We predict there are alternatives for us to extend our productiveness and to do a greater job onboarding from the workers we have introduced in, serving to them turn into extra productive extra rapidly. We predict there are actually good alternatives in our new platforms, the issues we have been speaking to you about. Ion is rising properly. SP, as we pursue extra indications, I believe can be fairly robust and we’re happy with multiport at present what’s available in the market, the issues we’re engaged on, in addition to our digital instruments.

So, we expect these issues are vital. We do not need to starve them, however we’ll sequence them. So, it is a balanced method. A few of it’s ensuring that our development engines stay intact, and we proceed to innovate.

Different elements are simply ensuring that we’re being environment friendly with our use of capital and that we’re constructing a lean group as we develop. Jamie, you’ll be able to communicate just a little bit to the expense characterization as you see it.

Jamie SamathChief Monetary Officer

There’s simply a few framing feedback I might make, Larry. When you take a look at the midpoint of the process steerage we offered, on a three-year CAGR foundation, that is process development of about 15%. Simply over 15%. You do the identical for our opex steerage, that is slightly below 15%.

So, type of again to 2019 on a three-year CAGR foundation, process development and spending development comparatively in line. Only one different factor I might spotlight to make some extent. When you take a look at the reported income development for Q3 and 11% 12 months over 12 months, in case you take a look at our recurring income development, that is about 80% of our whole income, 16%. When you regulate that on a constant-currency foundation, it is 20% income development.

And so, comparable with the 20% process development. If you look again at ’18, ’19, typically, process development and income development are comparatively related. You are seeing a disconnect proper now for the explanations we have described the decrease trade-in volumes, trade-in volumes to date this 12 months are down 40% from the prior 12 months, and also you’re seeing the impression of FX, as we have described. And so, there are some macro and secular degree impacts on what’s taking place within the P&L this 12 months.

Particularly, on spending, we type of described it within the script. There are some infrastructure investments that we have been making that begin to full, and that creates the chance for us to spend at a decrease development charge. And given the work that we have carried out and the investments that we have made, we’re going to search for some leverage in our enabling features, notably as we get into subsequent 12 months. Closing factor that Gary talked about was as you take a look at type of our pipeline, there’s some pure sequencing that you’re going to do with respect to a few of our programmatic spending subsequent 12 months.

And people components play into the slowing working expense development charge that we have described.

Larry BiegelsenWells Fargo Securities — Analyst

That is tremendous useful. If I may sneak one in — another in. Gary, you’ve got talked about an enormous quantity of variation in surgical procedure all over the world. You’ve got talked about growing instruments to determine greatest practices to cut back the variation and enhance outcomes.

The place are you in that course of? And what are the capabilities you continue to have to develop to make {that a} actuality? Thanks.

Gary GuthartChief Government Officer

Yeah. I like that query. There’s a few issues. On the type of the baseline, it’s essential to collect sufficient of the correct knowledge to characterize variability of care groups and variability of sufferers.

So, there is a affected person inhabitants, it is acquired variability, and you have care staff or doctor variability as nicely. And getting the correct knowledge streams, getting them saved and determining learn how to do the correct of evaluation or evaluation on them, curating that knowledge, ensuring it is annotated correctly. Some fundamental stuff that you need to do to have the ability to search for significant sources of variation. We’re nicely down that pathway when it comes to getting the correct knowledge streams, having the correct conversations with our prospects, and beginning to do the evaluation.

So, I am excited by it. As we take a look at learn how to ship that, we’re nonetheless in a, I believe, surgical science discovery section. We’re partnered with most of the prime hospitals, tutorial hospitals all over the world surgical knowledge science, beginning to determine sources of variation, and drawing it again to causality, not simply correlation. So, I believe — the baseline is there, the power to gather and collect that knowledge.

I believe {our relationships} with top-tier researchers are in place, and we’re beginning to see early alerts that look actually good. Closing level I might make is there are some basic items we are able to do which might be logical and never terribly difficult that may assist personalised studying pathways and coaching pathways, and we’re beginning to work by way of that now. That is sorts of applied sciences that can come out into the sphere first. So, I believe it was a long-term journey.

Among the issues we talked to you about Intuitive Hub or among the baseline capabilities there when it comes to the correct knowledge collected, annotated the correct approach, and shared with the correct hospital prospects to get us good outcomes.

Operator

Thanks. Subsequent, we’ve got Robbie Marcus with JPMorgan. Please go forward.

Robbie MarcusJPMorgan Chase and Firm — Analyst

Nice. Thanks for taking the query and my congratulations on a pleasant quarter. Possibly simply to dial in just a little bit extra on the capital tools setting. You touched on this, and it is nice to see procedures driving placement volumes.

However are you seeing any modifications, whether or not it is within the U.S. or Europe as we’re in an unsure financial setting all over the world, it is clearly not displaying up within the numbers but, however simply seeing if there’s any charge of change or if the outlook is any totally different than the present setting? Thanks rather a lot.

Jamie SamathChief Monetary Officer

Simply a few issues I might spotlight. As we have spoken to prospects, and that is principally anecdotal, you do see some enter that staffing pressures are easing just a little bit, notably with respect to trip charges and labor prices. These two components are nonetheless approach above pre-pandemic ranges, however you see just a little little bit of enchancment within the quarter, a minimum of primarily based on each these anecdotes and the survey work that we have seen. In Q2 and Q3, you noticed prospects going by way of the method of reexamining their capital budgets, and that causes some delays in capital investments and clearly, they reprioritize what they spend money on.

I believe robotic surgical procedure continues to be an space of potential worth for purchasers. That does trigger some delays. On the OUS aspect, we’ve not seen a big impression but to date when it comes to capital spending by these prospects. Typically, we’re at earlier phases of adoption.

The payer buildings are totally different. And so, to date, a minimum of, what we have seen is type of good capital numbers within the OUS markets, as you’ll be able to see from the type of comparisons. When you take a look at European placements in Q3, they have been up 15%. Placements in Asia have been up 36% 12 months over 12 months.

So, we’ve not seen something to date. I’d say there are clearly financial dangers, notably in Europe with the vitality state of affairs there, the state of affairs with Ukraine and Russia. We’ve not seen these manifest but.

Operator

Thanks. And subsequent, we’ve got a query from the road of Richard Newitter with Truist. Please go forward.

Richard NewitterTruist Securities — Analyst

Hello. Thanks for that. Thanks for taking my query, and congratulations on the quarter. Simply with respect to the spending sequencing feedback that you just made, what ought to we be fascinated with that with respect to implications or type of a next-gen console system and among the different varieties of iterative expertise developments you’ve got talked about within the pipeline? Is there any implication for a brand new system, if you’ll, or lengthen console within the cadence of the spending you are speaking about [Inaudible]?

Gary GuthartChief Government Officer

You recognize, throughout the platforms, we work on enhancements to the robotic system aspect or full innovation there. We work on devices and equipment and software program updates and typically partnered product. On the whole, we preserve our precedence and our cadence on these issues that we expect are going to have the most important impression to our prospects that permit them to get higher outcomes or to handle new alternatives that they don’t seem to be addressing at present. We proceed to take a position and have a excessive precedence on high quality enhancements and issues that can make our prospects extra happy.

Another issues that are usually nice concepts, however maybe aren’t extremely pressing, then these issues will sequence out. And that is a dialog we routinely have. What do we’ve got to do at excessive precedence and do it at top quality rapidly? What are the issues that may sequence after that? So, arduous to reply your query intimately from a course of perspective. If it issues rather a lot to our prospects, if it is a excessive dissatisfier or excessive alternative, these issues get put in line first.

Operator

Thanks. And subsequent, we’ve got the road of Jayson Bedford with Raymond James. Please go forward.

Jayson BedfordRaymond James — Analyst

Hello. Good afternoon. Thanks for taking the query. One subject that I assumed was attention-grabbing.

You talked about ablation expertise with respect to Ion and beginning a trial in Germany. Are you able to speak a bit extra in regards to the expertise and the scale and scope of the trial and possibly any sort of timeline you’ll be able to provide within the U.S. when it comes to beginning a trial?

Gary GuthartChief Government Officer

Effectively, I will speak just a little bit in regards to the motivation. When it comes to the main points of the trial, I haven’t got them at our fingertips, however our staff can reply to that in a future name. Right here we all know that Ion can navigate in deep into the lung, we all know that surgeons and interventional pulmonologists need to deal with tissue there. They need to have the ability to have interaction with it a technique or one other.

So, ablative expertise can be utilized for a few totally different illness states, and we’ve got excessive curiosity in that, whether or not it is inoperable most cancers or whether or not it is one thing for emphysema or persistent bronchitis. So, having the ability to navigate there with an vitality supply will finally be vital. The primary one which we’re speaking about right here, I consider, is a microwave vitality supply. There are another vitality sources that individuals are eager about.

In some instances, we’re growing it ourselves. And in a number of different instances, we’re partnering with others. And we expect that can open the door to extra indications for Ion within the lung and elsewhere. We’re fairly enthusiastic about it.

Apologies for not having the main points of the trial at our fingertips, however I think about our staff will get that to you sooner or later.

Operator

Thanks. And subsequent, we’ve got the road of Matt Taylor with Jefferies. Please go forward.

Matt TaylorJefferies — Analyst

Hello. Thanks for taking the query, and congrats on a pleasant quarter. I wished to get some up to date ideas. You’ve got been requested just a little bit about this within the latest previous and on this name, however possibly you might give us some suggestions on the way you’re fascinated with capital spending from hospital prospects going into recession and fascinated with how this one may examine to what you’ve got seen previously with among the totally different cycles that the corporate has gone by way of over an extended time frame? Possibly do some examine and distinction and speak in regards to the demand setting that you just see on the market and the way you are going to compete for different priorities for capital.

Jamie SamathChief Monetary Officer

Simply with respect to prior cycles, and this one really, Matt, is just a little attention-grabbing in as far as we indicated in Q1, we noticed some softness within the capital pipeline in Q1 and Q2, and to some extent, that continued in Q3. If I look again at prior cycles in 2008, you noticed three quarters of a year-over-year decline in capital placements. 2013, I believe we noticed 5 quarters in a row of declining capital placements. After which when COVID hit in 2020, once more, three quarters in a row.

I solely give these as reference factors. I do not assume we are able to say that these are indicative as to what could occur if and when there is a recession within the U.S. or past. So, I believe, actually, in case you take a look at the development of the financial projections, it is fairly advanced and arduous to name at this level.

So, we simply give these historic reference factors.

Gary GuthartChief Government Officer

Two feedback for me. After all, the incidence, the depth, and the form of a recession, unimaginable for us sitting at this desk to foretell. What I can discuss is how the conversations with hospital executives have gone. I believe typically, their perspective is to serve their affected person inhabitants as greatest they’ll with applied sciences that can get the outcomes they need on the worth factors they need.

I believe we have been doing nicely with that. I believe each on the product aspect and our means to exhibit financial viability and contribution margin positive factors for hospitals has been highly effective. And I believe that offers us some energy going into the long run. That mentioned, relying on how arduous and deep it’s, then it turns into a query of what they need to provide their affected person inhabitants and what sort of selections they are going to need to make.

I additionally assume that relative to previous cycles, Intuitive has a few extra instruments within the toolbox when it comes to leasing portfolios and another issues. Laborious to foretell the place it would go. I believe our means to each exhibit worth and regulate to capital placement fashions, it is just a little stronger than it was in previous years.

Operator

Thanks. And subsequent, we’ve got Adam Maeder with Piper Sandler. Please go forward.

Adam MaederPiper Sandler — Analyst

Hello. Good afternoon. And thanks for taking the query, and congratulations on a pleasant quarter. I wished to ask about Ion, which if I am it appropriately, had a report placement for installs with additionally some very good quantity tendencies.

So, Gary or Jamie, are you able to simply discuss type of what’s driving that inflection in system placements? And then you definately referenced the PRECIsE knowledge that was offered at CHEST, I believe, earlier at present, in addition to the journal publication coming subsequent 12 months. Simply discuss any potential impression to adoption wanting ahead. Thanks.

Gary GuthartChief Government Officer

I will soar in and Jamie, you’ll be able to assist. I believe we’re nonetheless within the early market. We’re happy with the expansion and the shopper suggestions that we have been getting the — and after we speak to them and survey our prospects, their satisfaction ranges are very excessive with the Ion product. I believe it is pushed by a few issues.

The preliminary knowledge that is come out of the PRECIsE trial that is already been talked out and now the later knowledge, I believe, was enticing to the shopper base. I believe the opposite factor happening is that as we have put in extra websites and helped them convey their applications up, I believe they’re capable of replicate that knowledge. I believe that it is being generally adopted. And I believe that’s having a compounding impact.

The concept the early publications are being repeated within the palms of latest groups which might be approaching board offers them confidence. And this can be a little little bit of phrase of mouth among the many pulmonology group, offers them confidence that they’ll get what’s being printed. And I believe that is been robust for us. Jamie, any feedback?

Jamie SamathChief Monetary Officer

I’d simply say there’s some endorsement of the architectural decisions that we made with respect specifically to the diameter of the catheter, which makes an actual distinction to prognosis of smaller lesions, and also you see that within the medical knowledge. I believe that the engineering and the business groups have actually executed very well by way of the interval since we launched the product. And I do assume that there is a halo impact of type of phrase of mouth throughout IPs and customers of the product. And I believe together with medical knowledge, that is had a constructive impact on our progress to date.

I would not characterize how we have progressed as far as an inflection particularly. I believe we have made continued development.

Operator

Thanks. Subsequent, we’ve got the road of Matt Miksic with Barclays. Please go forward.

Matt MiksicBarclays — Analyst

Nice. Thanks a lot for taking the query. And, you already know, it’s a progressive quarter, so congrats on that as nicely. I simply wished to comply with up on a few stuff you talked about when it comes to the macro components type of affecting the market and your prospects and your small business just a little bit, one being type of the staffing challenges that a few of these facilities are dealing with.

Curious how that’s in any respect is affecting the way in which both procedures are coming again or demand for system is evolving right here. After which into ’23, simply curious among the prices that you have talked about, everybody’s talked about — I do know it is early to ask this type of query, however your ideas at this level as to how we must always take into consideration these prices evolving in ’23, it is both kind of rising and staying or rising after which having the ability to be managed down or simply when it comes to your price construction and the way it’s elevated? Any ideas you’ve can be tremendously appreciated.

Jamie SamathChief Monetary Officer

Possibly the second a part of the query, I will take, Matt. So, we’re not going to offer something particular with respect to ’23 numbers. We’ll wait till January to try this after we conventionally present steerage. I believe what we have mentioned with respect to working bills in 2023 for the explanations Gary described, the expansion charge for that spending can be decrease than the expansion charge that we skilled in 2022.

And a major factor of that’s the variety of individuals that we are going to rent subsequent 12 months. And once more, what Gary described was given the workers that we have employed, there is a interval right here the place we will make sure that we successfully onboard these new hires and get them to a state of productiveness, and this can be a interval for us to undergo that type of absorption section. I will let Gary reply to the primary half.

Gary GuthartChief Government Officer

Sure. Matt, may you — I am sorry, I simply missed just a little little bit of that first a part of the query. Are you able to simply restate that one?

Matt MiksicBarclays — Analyst

Positive. Simply within the context of things affecting the — you’ve some flows restoration, what have you ever of procedures and system — new system tendencies, how staffing — hospital staffing or challenges there are affecting these tendencies in your small business, if in any respect?

Gary GuthartChief Government Officer

Sure, truthful query. It is attention-grabbing. I believe there is a put and a take there. On the robust aspect, in fact, if hospital staffing is absolutely challenged, notably because it pertains to OR workers, that may restrict procedures that they’re going to carry out.

On the whole, I believe that people are paying extra to get OR staffed, recognizing they need to each deal with these sufferers and it is vital to the income line of the hospital. So, it is primarily inflationary strain because it pertains to what’s taking place within the OR in our house. The attention-grabbing half is that high-quality MIS, minimally invasive surgical procedure, of which we allow helps to offset among the staffing necessities post-surgery. It is fairly clear, really.

So, if they’ll do the process then the varieties of surgical procedures we do, it would save them some back-end prices in staffing. So, there’s just a little little bit of a seesaw there. So, far, I do not assume it is bettering when it comes to staffing constraints in a short time. It does sound prefer it’s stabilized and possibly on the slight upside of enchancment.

Operator, we’ve got time for another query.

Operator

All proper. We now have the road of Drew Ranieri with Morgan Stanley. Please go forward.

Drew RanieriMorgan Stanley — Analyst

Hello. Thanks for taking the questions. Gary, simply possibly on Ion. Are you able to — I do know it is early days as you are type of constructing the cells commercially, however a few questions.

One is, are you provide constrained in any respect from assembly demand? After which are you able to simply give us a way of possibly the place you might be in account penetration for Ion, whether or not it is to interventional pulmonologist or at a hospital degree? Thanks.

Gary GuthartChief Government Officer

On the availability aspect, we’re working extraordinarily arduous to satisfy demand on the capital aspect. I believe we’re about there. We’re fairly shut, fairly near balanced. I do not assume we’re approach forward or approach behind.

And likewise, on the consumable or per process aspect, we’re working extraordinarily arduous to satisfy demand. And I believe we’re barely behind, not approach forward and never approach behind. We’re in all probability operating shut however pushing arduous to continue to grow. So, on the penetration aspect, I believe we’re just a little bit early to enter share combine and issues like that, I believe we’re not fairly prepared to explain the place we’re both on the account aspect or on the pulmonology aspect.

So, we’ll save that for a future name. Anyway, thanks. That was our final query. In closing, we proceed to consider there’s a substantial and sturdy alternative to basically enhance surgical procedure and acute interventions.

Our groups proceed to work carefully with hospitals, physicians, and care groups in pursuit of what our prospects have termed the quadruple purpose: higher, extra predictable affected person outcomes, higher experiences for sufferers, higher experiences for his or her care groups, and, finally, a decrease whole price of care. We consider worth creation in surgical procedure and acute care is foundationally human. It flows from respect for and understanding of sufferers and care groups, their wants, and their setting. At Intuitive, we envision a way forward for care that’s much less invasive and profoundly higher, the place illnesses are recognized earlier and handled rapidly so sufferers can get again to what issues most.

Thanks in your assist on this extraordinary journey. We look ahead to speaking with you once more in three months.

Operator

[Operator signoff]

Period: 0 minutes

Name individuals:

Brian KingTreasurer and Head of Investor Relations

Gary GuthartChief Government Officer

Jamie SamathChief Monetary Officer

Travis SteedFinancial institution of America Merrill Lynch — Analyst

Amit HazanGoldman Sachs — Analyst

Larry BiegelsenWells Fargo Securities — Analyst

Robbie MarcusJPMorgan Chase and Firm — Analyst

Richard NewitterTruist Securities — Analyst

Jayson BedfordRaymond James — Analyst

Matt TaylorJefferies — Analyst

Adam MaederPiper Sandler — Analyst

Matt MiksicBarclays — Analyst

Drew RanieriMorgan Stanley — Analyst

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