Intuitive Surgical, Inc. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. Amounts are U.S. dollars; financial statement figures are in millions unless noted. Intuitive develops and sells da Vinci surgical systems and the Ion endoluminal system, plus instruments, accessories, and services. Share and per-share data reflect the three-for-one stock split distributed October 4, 2021.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Total revenue | $1,403.3 | $1,077.7 | $4,159.4 | $3,029.3 |
| Gross profit / margin | $971.4 / 69.2% | $724.3 / 67.2% | $2,897.7 / 69.7% | $1,965.4 / 64.9% |
| Operating income / margin | $442.6 / 31.5% | $270.4 / 25.1% | $1,370.6 / 32.9% | $634.0 / 20.9% |
| Net income attributable to Intuitive | $380.5 | $313.9 | $1,324.0 | $695.4 |
| Diluted EPS | $1.04 | $0.87 | $3.63 | $1.93 |
| Operating cash flow | Not presented by quarter | $1,521.7 | $857.3 |
- Q3 revenue grew 30%; operating income grew 64%; net income attributable to Intuitive rose 21%. For the nine months, revenue increased 37%, operating income 116%, and attributable net income 90%.
- Q3 revenue growth reflected systems revenue up 55%, instruments and accessories up 20%, and service revenue up 30%. Da Vinci procedures rose approximately 20%, while system shipments increased 72% to 336.
- Nine-month product revenue was $3,481.1 and service revenue $678.3. Recurring revenue was $1,060.6 in Q3, 76% of revenue, and $3,134.8 year to date, 75% of revenue.
- Cash, cash equivalents, and investments totaled $8.22 billion at September 30, up $1.35 billion from December 31, 2020. Cash and cash equivalents alone were $1.35 billion; short- and long-term investments were $2.74 billion and $4.13 billion.
- Current assets were $5.73 billion and current liabilities $1.03 billion. The balance sheet lists no interest-bearing debt line; total liabilities were $1.48 billion.
Changes, outlook, and notable items
- Results benefited from recovery in procedures and system demand compared with pandemic-disrupted 2020 periods. Q3 procedure growth was uneven: U.S. procedures grew about 16% and outside-U.S. procedures about 30%; COVID-19 resurgences dampened activity in several markets.
- Management said it could not reliably estimate the pandemic’s impact on Q4 2021 and beyond. No quantified revenue or earnings guidance was provided. Management expects 2021 capital investments to exceed $300 million and to increase further in 2022; it anticipates substantial and rising R&D spending and expects overall spending to increase as customer support and investment needs grow.
- Supply constraints in semiconductors and other components, logistics bottlenecks, and inflationary cost pressure were ongoing. Management said these had not materially affected delivery to date, but could constrain supply or raise costs if they persist. Labor shortages and hospital staffing constraints are additional risks.
- The Extended Use Program expands selected instruments from 10 to 12–18 uses and lowers prices on certain instruments. Management estimated that, using 2019 procedure mix and volume, the program and related price reductions would have reduced annual instruments-and-accessories revenue by approximately $150–$170 million. Full cutover in the U.S. and Europe was substantially complete by Q3 2021.
- Q3 gross margin improved year over year, helped by higher average selling prices and fewer excess-inventory and low-production costs, partly offset by higher freight costs. YTD results also include a $66.4 million one-time tax benefit from remeasurement of Swiss deferred tax assets; an $11.1 million tax charge related to IRS guidance partly offset this benefit.
- Interest and other income was lower than in 2020, which included investment gains. Q3 2021 included an approximately $8 million net gain on the Broncus investment; the shares were subject to a six-month sale restriction. YTD Broncus-related net gain was $21.9 million.
- Contingencies include individual da Vinci product-liability cases; the company says it cannot estimate possible losses in excess of accrued amounts. Several antitrust suits concerning service and repair practices also remain unresolved, with losses not reasonably estimable. In an Ethicon patent matter, the USITC found infringement of one patent by SureForm products but suspended any remedy pending appeal; a lifted suspension could restrict U.S. imports or require workarounds. The company said it did not believe losses from this matter would be material.
- The filing identifies cyber and information-system security, supplier concentration, regulatory approvals, competition, and pandemic-related procedure and hospital-spending variability as risks. Disclosure controls were assessed as effective; no material change in internal control was reported.
Key facts for investors to verify
- Whether procedure growth and system demand persist as pandemic comparisons normalize, and how regional COVID-19 resurgences affect volumes.
- How the Extended Use Program affects instruments revenue per procedure, customer inventory patterns, and adoption or utilization.
- Whether semiconductor, component, logistics, and labor constraints affect product deliveries, costs, or margins.
- The durability of reported margins and earnings after the Swiss deferred-tax benefit, investment gains, and other period-specific effects.
- Developments in the USITC patent proceeding, product-liability cases, and antitrust litigation, including any change to potential exposure or product availability.