Q2 2024 Earnings Summary
- 70 da Vinci 5 systems were placed in Q2, indicating a strong start for the new system. The company expects da Vinci 5 placements to increase modestly quarter-over-quarter in the second half of 2024, with a measured rollout continuing through the first half of 2025.
- Global procedure growth of 17% in Q2, with U.S. procedures growing 14% and outside the U.S. growing 22%, despite challenges in markets like China and Korea. This demonstrates robust demand for the company's surgical systems and procedures.
- Progress in expanding indications for their platforms, including FDA clearance for thoracic procedures on the da Vinci SP platform , and ongoing IDE studies for colorectal indications, which could unlock additional market opportunities.
- Delays in the global rollout of da Vinci 5 may slow international revenue growth. The company does not expect to launch da Vinci 5 in Europe before the end of next year, and the measured rollout will continue through the first half of 2025. This extended timeline could delay expansion into key markets.
- Challenges in China, including a difficult operating environment and competition from domestic robotic systems, may impact growth. The company stated that the operating environment remains challenging, with delayed tenders and emerging domestic robotic systems affecting capital placements and procedure growth. Additionally, recent stimulus measures are not expected to materially impact placements or quotas.
- Margins may be under pressure due to increased depreciation and costs associated with new products. While gross margins were strong this quarter, the company expects increased depreciation in the second half and a significant increase starting in Q1 2025 due to capital investments. The goal of achieving a 70% gross margin is a medium-term aspiration and not expected in the short term. ,
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da Vinci 5 Ramp-up
Q: How will da Vinci 5 placements ramp in H2?
A: Management expects da Vinci 5 placements in the U.S. to increase modestly quarter-to-quarter in the second half of 2024. This reflects ongoing hardware and software updates being integrated carefully into production. The company is focusing on maturing the supply chain, manufacturing capacity, and responding to customer feedback before a broad launch. -
Gross Margin Outlook
Q: Why were gross margins strong this quarter?
A: Gross margins improved due to lower inventory reserves and early realization of component and logistics cost reductions. Teams shifted focus from supply constraints to cost reductions, which came in earlier than expected. However, the company anticipates increased depreciation and a higher proportion of revenue from new products like da Vinci 5, Ion, and SP in the second half. The aspiration for a 70% gross margin remains a medium-term goal. -
China Sales and Outlook
Q: How is the China market performing amid challenges?
A: The new stimulus in China is not expected to materially impact system placements or quotas. The operating environment remains challenging due to anticorruption initiatives and economic re-basing in med tech. Despite these challenges, the company is seeing double-digit procedure growth in China. -
Procedure Growth Outlook
Q: What is the outlook considering GLP-1 impact and Asia pressures?
A: Procedure guidance for the year is 15.5% to 17% growth. At the low end, assumptions include continued softness in bariatric procedures due to GLP-1s and pressures in Asia. The impact of GLP-1s on bariatric surgery has not bottomed yet, and it's uncertain when it will stabilize. China and Korea pressures are expected not to worsen at the high end of the range. -
da Vinci Xi Demand
Q: What is the demand for da Vinci Xi amid dV5 rollout?
A: In the U.S., there is still demand for da Vinci Xi. Some customers need incremental capacity and are taking Xi now with an upgrade right to dV5 when available. Others are waiting to see the value of dV5, considering their strategy, procedure mix, and budget. There is a segment of customers that really like Xi. -
Operating Expenses and Depreciation
Q: What underpins OpEx growth for the rest of the year?
A: Operating expenses are expected to accelerate in the second half, growing 11% to 16% compared to 9% in the first half. This is primarily driven by increased depreciation. Some expenses have shifted into 2025 due to timing and focus. -
Ion Adoption and Impact
Q: How is Ion adoption affecting diagnostics and surgeries?
A: Ion is proving effective in diagnosing smaller lesions with high diagnostic yields, approaching TTNA or CT-guided biopsy levels. This allows for earlier cancer detection with improved safety profiles. Patients diagnosed via Ion may proceed to da Vinci surgeries, though it's decided case by case. -
SP System Indications
Q: How will new SP indications impact adoption?
A: The thoracic indication for SP expands opportunities but requires a stapler for optimal procedures, which is under development. The colorectal indication is progressing, and while details are limited, it will also require the SP stapler. These indications can supplement SP procedure growth in the U.S.. -
da Vinci 5 Updates
Q: What hardware/software changes are planned for dV5?
A: Near-term additions include integration of Intuitive Hub capabilities, allowing surgeons to access and manipulate 3D models and intraoperative video from the console. Software upgrades will address customer feedback during the measured launch. Future developments involve AI and machine learning for advanced features. -
Global Expansion of da Vinci 5
Q: Any updates on bringing dV5 to global markets?
A: Plans are consistent with prior communications. Discussions with Korea and Japan are ongoing, and a European launch is not expected before the end of next year. Further details will be shared as plans become more focused. -
da Vinci 5 Unlocking New TAM
Q: Will dV5 unlock new procedures or TAM?
A: Management believes da Vinci 5 can help grow long term by deepening penetration in existing procedures and helping care teams adopt robotics. Additional indications for dV5 may be pursued in the future. -
Force Feedback and Adoption
Q: Can Force Feedback aid surgeon adoption?
A: Force Feedback can impact learning curves, improving time to proficiency for new surgeons. It may also contribute to better surgical outcomes by reducing force on tissues. Development of data and research will take time.