Image source: Intuitive Surgical.

As far as shareholders are concerned, Intuitive Surgical (ISRG -0.55%) is putting together one of the strongest "winning" streaks in its history as a publicly traded company. It reported earnings last night that were just about as positive as anyone could have reasonably hoped for. Here's why the market's so excited, pushing the stock up by over 4% today.

Remarkable growth

Intuitive Surgical recorded revenue growth of 14% during the quarter, coming in at $670 million. But earnings growth was even more impressive, with non-GAAP earnings increasing 23% to $5.62 per share. That jump was made possible because operating expenses rose just 6% and gross margins expanded significantly, from 65.9% last year to 70.3% during the second quarter.

The takeaway from this is that Intuitive Surgical is in a sweet spot right now. The investments that the company has made over the past few years -- especially in its sales force abroad and in its newer daVinci Xi system -- are truly paying off. The company didn't need to spend significantly more this year than last, but thanks to continuing growth in operations, revenue spiked markedly.

Where's all that growth coming from?

Back in 2013, procedure growth had slowed to the mid-single digits. With professionals calling the efficacy of robotic surgery in hysterectomies into question, investors were worried that they were seeing the end of daVinci's relevance in the operating room.

But then, those listening to conference calls noticed something coming up again and again and again: the potential good that daVinci could do in improving outcomes from hernia operations. Since then, colorectal operations have joined hernia procedures as the key drivers of growth.

That trend continued last quarter. As Intuitive's Finance Director Patrick Clingan noted:

Second quarter U.S. general surgery procedure adoption remained strong, led by robust growth in hernia repair and continued adoption of colorectal procedures. Hernia repair continues to contribute the largest volume of new procedures in general surgery, and surgeon retention and expansion remains encouraging.

Going into earnings, I said that I would have been happy with 12% procedure growth, but Intuitive Surgical exceeded that, clocking in with 16% growth. As you can see, it continues an impressive trend.

Though the company said it expected procedure growth to "moderate" in the second half of the year, it once again upped its guidance, from 12% to 14% to 14% to 15%. For those keeping track, the year actually started with an outlook for 9% to 12% growth. You can forgive investors for continuing to think that management might be low-balling its estimates -- as that's been the case for almost two years now.

A new and interesting problem to have

Back at the start of 2014, Intuitive Surgical had $1.4 billion in cash and short-term investments on hand. Today, that hoard is substantially higher, coming in at $4.2 billion -- and, it should be noted, the company has zero long-term debt. One analyst asked about what it planned to do with that money.

Here's a summarized version of the options CEO Gary Guthart said he was considering.

  1. Use the cash to reinvest in organic growth: Guthart said, "We have some new platforms we want to bring to the market that... are outstanding."
  2. Consider acquiring smaller rivals with new technology: "Some of those technologies are interesting and may be interesting to us."
  3. Returning the cash to shareholders: "That might be in buybacks or dividends or other things."

Given that the stock seemed like it was on the ropes just two years ago, this is a fantastic problem to have, and one that investors should keep an eye on moving forward.

All things considered, this was a great quarter for Intuitive Surgical and its shareholders.