Intuitive Surgical’s next-gen multiport system resulted in a heavy decrease in share price midway through the company’s Q422 earnings call recently when it was announced that the system is not expected to launch in 2023. Before the call, expectations for the next-generation system had been growing for years, and it seems that company investors aren’t happy that a launch date has been pushed back, evidenced by the 9% drop in shares to $259.98 apiece after-hours. Additionally, individual shares have seen an additional drop to $248.39 as of Jan. 27.
The decision to delay the surgical robotics multiport system has some analysts scratching their heads. In a report from BTIG released after the earnings call, Ryan Zimmerman and Sam Durno questioned the company, writing, “Shares tanked, and we’re scratching our heads a bit as we try to understand ISRG’s thinking. Some of the change in posture appears to be stemming from a dynamic regulatory environment (across multiple geographies), which may require clinical trials that push out clearances, but supply chain (and new component availability) also appears to be an issue.”
Despite the revelation, the analysts stick by their buy rating, but lower the price target from $316 to $279.
Accompanying the announcement of the delay in the multiport system, Intuitive also reported its Q422 quarterly earnings of $1.23 per share, missing the Zacks Consensus Estimate of $1.26 per share. In Q421, the company show earnings of $1.30 per share. Intuitive’s GAAP Q422 net income was $325 million — $0.91 per diluted share — which is a decrease from $381 million or $1.04 per diluted share in 2021.The GAAP net income from operations decreased to $373 million, compared with $450 million in Q421. Additionally, Q422 systems revenue decreased by 4% to $451 million, compared to $470 million the previous year.
“Pro forma gross margin was lower than last year, primarily due to increased fixed costs relative to revenue, the stronger US dollar and higher component pricing,” said Jamie Samath, CFO of Intuitive. “The supply chain environment was challenging in Q4 and indicators of supply and inventory health did not improve as compared to last quarter. Higher fixed costs relative to revenue reflect a combination of manufacturing related inefficiencies given the environment and investments for future growth.”
Fourth quarter revenue for the year amounted to $1.6 billion, a 7% increase over 2021’s amount of $1.55 billion. “On a constant currency basis, fourth quarter revenue grew approximately 10%,” Samath said. “For full year 2022, revenue denominated in non-USD currencies represented 24% of total revenue. The US dollar has weakened recently, and as a result, on a revenue-weighted basis, using current rates, the US dollar is approximately 100 basis points stronger than the average rates realized in 2022.”
The company placed 369 da Vinci and Ion systems in Q422, an increase from 385 in 2021, and 1,264 systems as a whole for 2022, a decrease from 1,347 the previous year. The installed base growth rate breakdown was reported as 12% for multiport, 149% for Ion, and 22% for SP in 2022. Ion procedures dominated for the company with a 218% growth in 2022 vs 2021. Additionally, SP procedures grew 38% over the same period, with the majority of growth coming from Korea.
“Overall, our capital placement trends showed sustained demand for additional capacity in multiport and strong interest in expanding capacity for Ion with several hospitals now operating multiple Ion systems in their programs and variable demand for SP as we continue to pursue our additional indications,” said Gary Guthart, CEO of Intuitive. “System utilization is an important predictor of future demand and utilization grew 5% for multiport in the year and 10% for Ion. Utilization was roughly flat for SP over the year, however, utilization increased by 9% in Q4 measured year-over-year as our organization incorporated learnings.”
Intuitive ended 2022 with cash and investments totaling $6.7 billion compared with the $7.4 billion reported in Q3. The reduction, according to the company, reflect share repurchases of $1 billion and capital expenditures that were partially offset by cash from operating activities.
Now in 2023, the company anticipates a full year procedure growth between 12% and 16%. As for a pro forma gross profit margin for the new year, it expects between 68% and 69% of net revenue. Operating expense growth is also expected to be from 9% to 13%.
“The lower estimate of pro forma gross profit margin in 2023 reflects the impact of higher infrastructure investment costs, higher supply chain costs, and a greater mix of new products, in particular, from our Ion platform,” said Brian King, head of investor relations for Intuitive.