Image source: Intuitive Surgical.

This is becoming old hat for Intuitive Surgical (NASDAQ:ISRG): underpromise and overdeliver. The maker of the daVinci robotic surgical system reported third-quarter earnings on Tuesday night, and it was an all-around solid release.

The headline numbers showed growth in both revenue and EPS that exceeded analyst expectations.


Q3 Results


vs. Expectations


$683 million


Beat by $32 million

Non-GAAP earnings per share



Beat by $1.03

Data sources: Intuitive Surgical, E*Trade.

But such numbers aren't really what long-term investors should be focused on. Instead, I identified three key areas that were worth watching. Let's see how the company stacked up there.

Procedure growth

Once again, Intuitive's machines were used in an impressive number of procedures. Coming into the year, management had forecasted 9% to 12% procedure growth. During the third quarter, the number of operations performed using daVinci jumped 14% year over year. While that's a slight slowdown from the first and second quarter year-over-year growth of 17% and 16%, respectively, it is nonetheless impressive.

Speaking on the company's conference call, CEO Dr. Gary Guthart said, "In the United States, year-over-year growth in ventral and inguinal hernia repair continues to be strong. U.S. colon resection and lung resection also contributed to solid growth."

Director of Finance Patrick Clingan followed that up by saying: "Hernia repair continues to contribute the largest volume of new procedures in general surgery, and existing surgeon retention and utilization remains encouraging."

These comments represent good news on two fronts. First, hernia repairs -- which have been the key driver behind operational growth -- appear to remain solid. But what's more, other procedures might start adding more value to patient outcomes in the near future. This is one of the first times that lung resections have been called out in prepared remarks.

The company reiterated its full-year procedure growth target of 14% to 15%, which signals that there will likely be a slowdown in growth again next quarter, as procedures have already grown 16% year to date.

Cash keeps on growing

The second area worth watching was Intuitive's growing pile of cash. By the end of the third quarter, it had reached $4.56 billion, up $336 million from the previous quarter. If we back up and look at the growth of this cash hoard, we can see how truly impressive the company has been performing lately.

Data sources: Yahoo! Finance, Intuitive Surgical.

The only comment management gave with regards to this newfound cash was that, "As our cash builds, we will continue to evaluate our approach to capital allocation."

I'll be looking to the company's annual report for more information on how that cash could be used for reinvestment, buybacks, acquisitions, or -- perhaps -- a dividend.

International performance

Though it is a global company, Intuitive still derives over 70% of its revenue stateside. That's why I believe international performance is important, as there are still thousands of doctors and patients out there that could benefit from use of the daVinci.

Results on this front were particularly strong. Revenue from the placement of daVinci systems outside of the U.S. were up 24%, while procedure growth was up an impressive 25%. A total of 49 systems were sold internationally during the quarter, up 32% from 37 last year.

Guthart offered some broad perspective on the quarter: "In Europe, procedure growth tempered in the quarter, with some countries posting solid performance while growth softened in others. We're pleased with the growth in procedures in Asia with Korea and China in particular demonstrating continued strength." 

Clingan followed this up with more details: "Strong growth continued in China, South Korea, Japan, and Germany. While adoption of daVinci and urology is the primary driver for procedure growth outside of the United States, we are seeing multi-specialty adoption in certain countries. In China, roughly half of the year-to-date procedure growth has come from categories outside of urology. In South Korea, approximately 60% of the year-to-date procedures have come from categories outside of urology." 

These are very promising signs. While results from Europe might have been weak, it's encouraging to see so many procedures occurring outside of urology. Typically, international adoption of procedures not fully proven out in the United States takes time. It appears that the trend toward adoption may be speeding up.

Put all of that together and you have a very solid report. Given the most recent results, Intuitive now trades for 32 times trailing non-GAAP earnings.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.