Intuitive Surgical, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Financial statements are unaudited. Intuitive develops and sells da Vinci surgical systems and the Ion endoluminal system, along with instruments, accessories, leases, and services.
Financial and operating performance
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Total revenue | $1.488 billion | $1.292 billion | +15% |
| Gross profit / margin | $1.010 billion / 67.9% | $903 million / 69.9% | Margin down 2.0 percentage points |
| Operating income / margin | $408 million / 27.4% | $417 million / 32.3% | Income down 2% |
| Net income attributable to Intuitive | $366 million | $426 million | Down 14% |
| Diluted EPS | $1.00 | $1.17 | Down 15% |
| Cash from operations | $223 million | $478 million | Down 53% |
Instruments and accessories revenue rose 15% to $810 million; systems revenue rose 16% to $428 million; service revenue rose 15% to $249 million. Recurring revenue was $1.143 billion, or 77% of total revenue, versus 76% a year earlier. Da Vinci procedures increased approximately 19% to 428,000; Ion procedures increased 348% to approximately 3,940.
Operating expense growth outpaced revenue: SG&A increased 20% to $391 million and R&D increased 32% to $211 million. Product gross margin fell principally due to higher freight and material costs, lower system average selling prices, and higher fixed costs. Operating income also reflected increased investment and share-based compensation.
Balance sheet and liquidity
At March 31, 2022, cash, cash equivalents, and investments totaled approximately $8.40 billion, down $218 million from year-end. Total assets were $13.68 billion, total liabilities $1.52 billion, and stockholders’ equity $12.16 billion. Current assets were $5.80 billion versus current liabilities of $1.11 billion. The balance sheet does not present a debt balance as a separate line item.
Operating cash flow was affected by higher receivables and inventory and payments of prior-year incentive compensation. Investing cash use was $215 million, including $95 million for property, plant, equipment, and intellectual property. Financing cash use was $200 million, including $172 million of taxes on net share settlements and $107 million of share repurchases. Available-for-sale securities had $143 million of gross unrealized losses at quarter-end; the company considered the losses temporary and stated it did not expect to need to sell the securities before recovery.
Changes, outlook, and notable items
- Revenue growth reflected higher procedure volumes, system placements, and service revenue. Da Vinci system placements rose 4% to 311; the installed base grew 13% year over year to approximately 6,920.
- Management reported near-term softening in the U.S. capital placement pipeline, potentially reflecting demand pulled forward into 2021, fewer older systems available for trade-ins, and tighter hospital finances. Placements may also be affected by supply constraints, inflation, interest rates, hospital staffing, COVID-19, and competition.
- COVID-19 resurgences disrupted procedures in January and February in the U.S. and parts of Europe, followed by recovery as cases declined; outbreaks affected parts of Asia in March. Supply shortages, logistics disruption, and cost inflation were ongoing risks, though management said they had not materially affected results or deliveries to date.
- Management forecast 2022 capital expenditures of $700 million to $900 million, primarily for facilities, manufacturing capacity, and international expansion. It expected to fund these investments from operating cash flow. The filing provides no specific revenue or earnings guidance.
- Income tax expense increased to $33 million from $14 million; the effective tax rate was 8.2% versus 3.0%. The 2022 provision reflected a tax-law change requiring capitalization and amortization of certain R&E expenditures. Equity-compensation tax benefits reduced the effective tax rate in both periods.
- Interest and other expense was $6 million, compared with $32 million of income a year earlier, reflecting investment-related losses, including a $17 million unrealized loss on Broncus shares, and higher foreign-exchange losses.
- Contingencies include product-liability suits, with several trials anticipated within 12 months, and patent disputes with Ethicon. A potential U.S. import restriction on SureForm products remains conditional on further proceedings. The company also faces repair-service antitrust cases and class-action litigation; it could not estimate potential losses for several matters.
- Additional risks disclosed include the Russia-Ukraine conflict and related cyber threats. The company reported no material operational interruption from the conflict as of the filing, but said further impacts were unpredictable.
Important facts for investors to verify
- Whether procedure growth and utilization can continue despite pandemic-related disruption, staffing shortages, and deferred diagnoses or surgeries.
- Whether supply-chain constraints, freight and materials inflation, and lower system ASPs continue to pressure gross margins or constrain deliveries.
- Whether hospital financial conditions and a softer U.S. placement pipeline affect system demand, and whether the $700–$900 million capital expenditure plan is maintained.
- How operating cash flow develops as receivables and inventory rise, and whether investment-portfolio unrealized losses remain temporary.
- Developments in product-liability, patent, and antitrust proceedings, including any remedy affecting SureForm product imports.
- China system-quota availability, regulatory clearances and reimbursement developments, and adoption of da Vinci SP and Ion systems.