Q4 2024 Earnings Summary
- The introduction of new digital features and upgrades in the da Vinci 5 system is expected to enhance capabilities, making it easier for care teams to achieve great outcomes, build confidence, and potentially open opportunities to reach more patients.
- The full launch of da Vinci 5 and anticipated upgrade cycle starting mid-year are expected to increase the proportion of da Vinci 5 placements, boosting capital sales and leading to higher recurring revenue from instruments and accessories.
- As the installed base grows, especially in regions, Intuitive Surgical gains efficiencies in selling and servicing, resulting in improved margins due to geographic density and increased utilization of higher-margin instruments and accessories.
- Competitive pressures in China are impacting sales, creating a challenging environment. Jamie Samath stated that "the environment in China continues to be dynamic and challenging as we've said, impacted by both domestic competition and a set of activities implemented by the government there". This could hinder future growth in a significant market.
- Gross margins are expected to decline in 2025 due to increased depreciation expenses, unfavorable product mix, and foreign exchange impacts. Jamie highlighted that "there's really three drivers... the largest of which is the impact of depreciation expense and associated fixed costs... The other two dynamics... are product mix with dV5, Ion and SP being a greater proportion of the revenue... they all carry currently margins below the corporate average... And then... the impact of FX".
- Slowing growth rates in the Ion platform as it reaches maturity in the U.S. may impact future revenue growth. Jamie noted that "you just naturally... start to see procedure growth rates come down. And you've seen that if you look at the last 3 or 4 quarters... customers will tend to more focus on improvements in utilization". This suggests that as adoption peaks, growth could decelerate.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | +25% [10 vs 1,2] | The increase builds on the prior 12% YoY growth in Q3 2023 and 17% YoY growth in Q3 2024 , driven by continued expansion in da Vinci and Ion procedure volumes, a larger installed base, and strong OUS (Outside the U.S.) performance, partially aided by favorable foreign currency. Looking ahead, the momentum in operating leases could shift short-term revenue recognition but support broader adoption. |
Instruments & Accessories | +23% [10 vs 1,2] | Building on the 23% growth in Q3 2023 and 18% growth in Q3 2024 , this was primarily due to higher da Vinci and Ion procedure volumes and geographic expansion (Japan, Germany, UK). Continued pricing strength and new procedure adoption also contributed. Ongoing procedure growth is expected to maintain robust demand. |
Systems | +36% [10 vs 1,2] | After an 11% decline in Q3 2023 and a 17% increase in Q3 2024 , the net YoY jump stems from increased da Vinci placements (including next-gen models), higher ASPs, and expanded leasing programs. Macro factors like anti-corruption measures in China and capital spending constraints shaped placements but were offset by strong U.S./Japan demand. |
Services | +14% [10 vs 1,2] | Following 13% growth in Q3 2023 and 12% growth in Q3 2024 , service revenue rose on the back of a larger installed base needing maintenance and support. However, early-stage usage-based leases and unfavorable repair mix slightly tempered margins. Going forward, maintaining cost efficiencies and addressing repair logistics will be key to sustaining service profitability. |
| Metric | Period | Previous Guidance | Current Guidance | Change |
|---|---|---|---|---|
Procedure Growth | FY 2025 | no prior guidance | 13% to 16% | no prior guidance |
Gross Profit Margin | FY 2025 | no prior guidance | 67% to 68% | no prior guidance |
Operating Expense Growth | FY 2025 | no prior guidance | 10% to 15% | no prior guidance |
Stock Compensation Expense | FY 2025 | no prior guidance | $760 million to $790 million | no prior guidance |
Other Income | FY 2025 | no prior guidance | $370 million to $400 million | no prior guidance |
Capital Expenditures | FY 2025 | no prior guidance | $650 million to $800 million | no prior guidance |
Income Tax Rate | FY 2025 | no prior guidance | 22% to 23% | no prior guidance |
System ASPs | FY 2025 | no prior guidance | Anticipated downward pressure | no prior guidance |
Operating Margins | FY 2025 | no prior guidance | Lower than Q4 2024 (38%) | no prior guidance |
| Topic | Previous Mentions | Current Period | Trend |
|---|---|---|---|
da Vinci 5 system | Mentioned consistently: Q3 had 110 placements , Q2 had 70 , Q1 had 8. | Strong performance in Q4 2024 with 362 total placements in 2024 and focus on upgrades in 2025. | Consistently growing, increasingly highlighted for its potential impact on future adoption. |
Ion platform | Mentioned across all periods: Q3 had ~25,000 procedures , Q2 had 23,200 , Q1 had 19,500. | 28,000 Ion procedures in Q4 2024 (+70% YoY), 271 systems placed in 2024, with margin improvements still underway. | Consistent focus, strong growth trajectory and ongoing international expansion. |
Competition in China | Mentioned repeatedly as a headwind: Q3 noted domestic players with provincial preferences , Q2 cited economic re-basing , Q1 discussed pricing pressure. | Q4 2024 environment remains “dynamic and challenging” with domestic competitors gaining ground; placed 20 systems. | Ongoing challenge, continues to affect placements and pricing. |
Procedure growth | Repeated in every call: Q3 was 18% , Q2 was 17% , Q1 was 16%. | Q4 2024 da Vinci procedures grew 17% overall for the year; Q4 itself up 18% YoY; OUS growth at 25%. | Stable growth, remains a key positive indicator. |
Gross margins | Consistently reported: Q3 was 69.1% , Q2 was 70% , Q1 was 67.6%. | Q4 2024 69.5%, full-year 2024 69.1%; anticipating 67-68% in 2025 but aiming for >70% midterm. | Slight improvement, tempered outlook due to depreciation and new products. |
Bariatric procedures | Mentioned continuously: Q3 mid-single-digit decline , Q2 mid-single-digit decline , Q1 flat. | Modest decline in 2024, partly due to GLP-1 medications; Q4 specifically declined low to mid-single digits. | Softening trend, consistently noted as a headwind from weight-loss drugs. |
Capital environment | Highlighted regularly: Q3 stable U.S., pressured Europe and China , Q2 and Q1 also noted regional constraints. | Q4 2024: Strong in U.S., more challenges in Europe and China; 493 systems placed worldwide. | Mixed sentiment, reflecting regional differences in budgets and competition. |
Refurbished systems | Newly brought up in Q3, with plans to refurbish Xi systems for price-sensitive markets ; not mentioned in Q2 or Q1. | Mention of opportunity for a refurbished Xi system; not deeply detailed, but recognized for future cost-sensitive markets. | Emerging topic, could open new segments. |
Trade-in cycle (Xi) | Ongoing: Q3 expects multi-year trade-in progression , Q2 notes a cautious approach , Q1 describes limited Xi trade-ins due to smaller remaining Si base. | Q4 2024 notes broader Xi trade-ins expected post-mid-2025 with da Vinci 5’s rollout; could impact ASPs. | Steadily evolving, key factor for future system mix. |
Digital features and upgrades | Recurring emphasis on digital ecosystem: Q3 (Intuitive Hub integrations) , Q2 (AI-based features) , Q1 (post-2024 enhancements). | Q4 2024 highlights 2025 hardware/software updates with a 10,000-fold boost in computing for real-time tools. | Consistent priority, expanding capabilities that improve outcomes and efficiency. |
International expansion | Discussed every quarter: Q3 OUS up 24% , Q2 up 22% , Q1 up 20%. Europe, Korea, Japan also feature in Ion and SP expansions. | Q4 2024: 25% OUS procedure growth with strong uptake in India, the U.K., Italy, and Japan; challenges in China and budget constraints in Europe. | Ongoing momentum, critical for future global market share. |
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Gross Margin Outlook
Q: Why is gross margin guidance of 67%-68% lower, and what's the path back to 70%?
A: Gross margin is expected to decline from 69.1% in 2024 to 67%-68% in 2025 due to three main factors: increased depreciation expense and associated fixed costs (about one percentage point impact with roughly $25 million more in expenses); a dilutive effect from the product mix shift towards da Vinci 5, Ion, and SP, which currently have margins below the corporate average; and impacts from foreign exchange rates. Over the midterm, management believes they can get back beyond 70% gross margin by leveraging growth past incremental depreciation and improving product margins in Ion and SP. -
Competition Impact, Especially China
Q: How is increased competition affecting sales, particularly in China?
A: In China, increased competition from domestic competitors and government actions have made the environment dynamic and challenging, resulting in consistent but difficult conditions. They placed 20 systems in China in Q4, which they don't characterize as strong. Internationally, while competition hasn't significantly impacted selling cycles yet, there is potential for selling cycles to lengthen as more competitors gain clearances in various markets, including the U.S. -
da Vinci 5 Upgrade Cycle
Q: How will the mix between da Vinci 5 and Xi systems evolve, and when will upgrades occur?
A: Over time, the proportion of da Vinci 5 (dV5) placements should increase as they move to broad launch and receive additional geographical clearances. Trade-ins from Xi to dV5 are expected to pick up starting midyear during broad launch. The upgrade cycle depends on how compelling the new features are, such as software updates and integrated technologies. While difficult to predict the speed, the trading cycle is expected to be progressive, with dV5 gradually replacing Xi in placements. -
Ion and SP Margin Drag
Q: When will Ion and SP stop being a margin drag, and what drives their growth?
A: Ion performed 28,000 procedures in Q4, indicating a run rate of over 100,000 procedures, primarily in the U.S. As adoption matures, procedure growth rates may naturally slow. The next growth phase involves international launches in Europe, Korea, and China, and exploring new indications in the lung and potentially other areas. Reducing product costs is a midterm goal aligned with gross margin objectives. For SP, international launches and new indications like thoracic and colorectal are driving growth. Margin improvement for SP will occur over the midterm but requires less effort compared to Ion. -
Tariff Risks
Q: How might tariffs impact the company, and what are the mitigation plans?
A: Potential tariffs, especially on products manufactured in Mexico, could have a material impact. A significant portion of their instruments are produced there. Management is closely monitoring developments and evaluating responses, including potential pricing adjustments, but no decisions have been made yet. They aim to balance customer needs with business requirements. -
R&D Investments and Growth Areas
Q: How will the R&D investment opportunity evolve, and what new areas are being targeted?
A: The company is investing over $1 billion annually in R&D, focusing on innovations that extend existing platforms, develop new platforms in the future, and expand indications geographically and through new instruments and imaging capabilities. They also invest to meet the needs of latecomers to robotics, addressing different learning or economic needs. Opportunities span multiple horizons and specialties, aiming for a balanced approach without overexposure to any single area. -
Instruments and Accessories Opportunities
Q: What future opportunities exist in instruments and accessories, and how will this affect margins?
A: Management seeks to add value by integrating or developing products that enhance clinical or economic outcomes. Examples include force feedback instruments and insufflation systems on da Vinci 5. Force feedback instruments, with a higher ASP, won't be in broad supply until the end of 2025, limiting their immediate impact on instruments and accessories per procedure. Over the next few years, I&A per procedure is expected to drift down slowly due to a higher proportion of growth coming from benign procedures, which typically use fewer or less expensive instruments. -
Efficiencies from Installed Base Density
Q: Does increased installed base density lead to margin improvements?
A: Higher geographic density of the installed base provides cost advantages in supporting accounts, including efficiencies in service, depots, sales support, and training. This scale can lead to margin improvements due to reduced costs in servicing densely populated markets. -
Capital Equipment Environment
Q: What is the outlook for capital equipment sales globally?
A: In the U.S., the capital environment has been strong, driven partly by interest in da Vinci 5 as a new product, with less sensitivity to capital budgets. Challenges exist in the U.K. and Germany, and in Japan, there were delays due to profitability issues at certain customers in Q4. The outlook for 2025 remains uncertain, with mixed dynamics expected in international markets. -
New Digital Features for da Vinci 5
Q: How will new digital features enhance da Vinci 5?
A: New hardware and software digital features aim to make it easier to achieve great outcomes by providing real-time tools in the operating room, building confidence among care teams, and accelerating learning. These features may include imaging and augmented reality enhancements that inspire surgeons and open new opportunities, potentially increasing access to more patients rather than entirely new procedure categories.