Intuitive Surgical, Inc. — Q2 2022 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2022. The company develops and markets da Vinci surgical and Ion endoluminal systems, along with related instruments, accessories, and services. Financial statements are unaudited. Amounts below are in millions except per-share data and where noted.
Financial results and liquidity
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $1,522.1 | $1,464.0 | $3,009.8 | $2,756.1 |
| Gross profit | $1,023.3 | $1,023.7 | $2,033.0 | $1,926.3 |
| Gross margin | 67.2% | 69.9% | 67.6% | 69.9% |
| Operating income | $397.6 | $511.2 | $805.7 | $928.0 |
| Net income attributable to Intuitive | $307.8 | $517.2 | $673.4 | $943.5 |
| Diluted EPS | $0.85 | $1.42 | $1.84 | $2.59 |
| Operating cash flow | Not separately provided | Not separately provided | $669.7 | $1,020.3 |
Q2 revenue grew 4%; six-month revenue grew 9%. Instruments and accessories revenue rose 12% in Q2 and 14% year to date, while service revenue rose 10% and 12%, respectively. Systems revenue fell 15% in Q2 and 1% year to date.
At June 30, cash and cash equivalents were $1,536.1, short-term investments $2,901.3, and long-term investments $3,738.0: $8,175.4 combined. Total current assets were $6,292.5 and current liabilities $1,175.0. Total liabilities were $1,622.8. The balance sheet presents no separate debt line; the filing text does not provide a clear figure for borrowings.
Six-month investing cash flow was $251.5, including net proceeds from investment maturities over purchases, partly offset by $225.6 of property, plant, equipment, and intellectual-property purchases. Financing cash flow was negative $682.0, primarily reflecting $606.6 of share repurchases and $179.0 of taxes paid on net share settlements. Cash, cash equivalents, and restricted cash ended the period at $1,551.2.
Material changes and operating trends
- da Vinci procedures increased approximately 14% in Q2 and 16% in the first half. Q2 placements declined 15% to 279 systems; the installed base reached approximately 7,135, up 13% year over year. Utilization per system increased 1%.
- Ion procedures rose 251% to approximately 5,200 in Q2; 41 Ion systems were placed, and the installed base reached approximately 204.
- Lower systems revenue reflected fewer placements, lower average selling prices, reduced sales-type lease and lease-buyout revenue, and a higher proportion of placements under operating leases. Management cited fewer older systems available for trade-in, supply and logistics constraints, and a softer U.S. capital pipeline.
- Gross margin contracted as freight and material costs, fixed investment costs, foreign-exchange effects, and lower system selling prices weighed on product margins; service margins also declined with higher labor, material, and infrastructure costs.
- Operating expenses increased: Q2 SG&A rose 19% to $418.4 and R&D rose 28% to $207.3. Management attributed increases to staffing, compensation, infrastructure, travel, training, marketing, and broader development programs.
Outlook, risks, contingencies, and unusual items
- No revenue or earnings guidance is provided. Management expects 2022 capital expenditures of $700–$800 million and anticipates R&D expenses will continue to increase.
- Management said challenging macroeconomic conditions are softening the U.S. capital pipeline and may continue to affect capital demand. Risks include inflation, higher interest rates, hospital budget and staffing pressures, semiconductor and other supply constraints, logistics disruptions, competition, and COVID-19-related procedure delays. The company said these supply challenges had not materially affected results or delivery capability to date, but could constrain future supply and demand fulfillment.
- Q2 income tax expense was $93.3, versus $3.2 a year earlier; the effective rate was 22.9% versus 0.6%. The prior-year comparison included a one-time $66.4 Swiss deferred-tax benefit. 2022 taxes also reflect new U.S. capitalization and amortization rules for R&E costs and lower excess tax benefits from employee equity awards.
- Six-month other comprehensive loss included $124.1 of unrealized losses on available-for-sale securities. Management deemed the losses temporary and said it did not intend, and was not likely to be required, to sell the affected securities before recovery. The company also recorded an $18.3 six-month unrealized loss on its Broncus investment.
- Contingencies include product-liability suits and several commercial antitrust disputes over instrument servicing and repair. The company cannot estimate possible losses for certain commercial matters or losses above its product-liability accrual. A Restore case has a February 2023 trial date. In the Ethicon patent dispute, the Federal Circuit affirmed invalidation of the asserted patent claims; an adverse appeal outcome could still affect imports of certain SureForm products.
- The board increased the authorized share-repurchase amount to $3.5 billion on July 20, 2022, after quarter-end. The company reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether procedure growth and recurring instruments, accessories, and service revenue can offset weaker system placements and lower margins.
- How hospital capital spending, trade-in availability, supply constraints, inflation, and foreign-exchange movements affect placements, pricing, and profitability.
- Whether operating cash flow recovers from the first-half decline and how planned capital spending and share repurchases affect liquidity.
- The effects of tax-law changes, equity-award tax benefits, and investment valuation changes on reported earnings and cash taxes.
- Developments in product-liability and servicing-related litigation, regulatory clearances, and adoption of the SP and Ion platforms.