Intuitive Surgical Inc. (NASDAQ: ISRG ) may have unveiled its da Vinci Xi robot in early April, but until now the promising robotic surgery system has only seen the world through a narrow lens.
To be sure, for the past three months, Intuitive Surgical has "only" been allowed to market the da Vinci Xi to prospective customers in the United States. On Wednesday, however, Intuitive Surgical announced it has received a CE Mark for the new system, which effectively means the product complies with all essential requirements of European health, safety, and environmental legislation.
Long story short: Intuitive Surgical is now free to market the da Vinci Xi both in Europe and any other countries that require CE Marking.
Why aren't shares rallying?
Curiously, though, shares of Intuitive Surgical were little changed on the news. So what gives?
For perspective, investors initially celebrated the da Vinci Xi's arrival by pushing Intuitive Surgical stock up more than 19% in just a few days. And noting the da Vinci Xi offered some big technical improvements over its predecessor, I wholeheartedly agreed with the optimism. All in all, it's apparent the da Vinci Xi holds promise to even further extend Intuitive Surgical's commanding lead in robotically-assisted soft-tissue surgery.
However, the market's elation quickly faded the following week, when shares plunged after Intuitive Surgical issued disappointing preliminary first-quarter results.
To explain its weakness, Intuitive cited both disappointing U.S. system sales -- which still comprised 45 of Intuitive Surgical's total 87 total systems shipped during the quarter, by the way -- and a $26 million revenue deferral related to a customer trade-out program for the da Vinci Xi. Specifically, Intuitive Surgical gave certain customers who recently purchased an older da Vinci Si system the option of swapping both that system and its related instruments for the newer da Vinci Xi.
Even if Intuitive still gets to eventually recognize that revenue, the deferral made its already weak results look all that much worse. What's more, now that Intuitive Surgical has a CE Mark in place for the da Vinci Xi in Europe, it's reasonable to assume the company will be offering a similar trade-out program to customers in that region. Combine that with continued weak U.S. capital spending, and it's no surprise Intuitive Surgical shares remain under pressure.
At the same time, though, you'll be hard pressed to find Intuitive Surgical shareholders complaining about this necessary milestone for expanding the da Vinci Xi's reach into other countries. And to its credit, early last month Intuitive attempted to appease investors by increasing their slice of the pie through a $1 billion accelerated share repurchase agreement. Intuitive Surgical CEO Dr. Gary Guthart elaborated the decision "reflects our long-term view of the value our company can bring to patients, surgeons, and hospitals."
In the end, no matter how much short-term pain the company endures, I think investors should be happy to see Intuitive Surgical isn't simply resting on its laurels. Over the long-term, I'm still convinced patient investors will be glad they stuck with this industry leader.
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