Intuitive Surgical, Inc. (NASDAQ:ISRG), the leader in robotic-assisted surgery, announced the results of its just-completed third quarter after the market closed on Thursday. The company reported sales and profits that topped analysts' expectation and proceeded to raise guidance for the full year. This came on the heels of the company's planned 3-for-1 stock split earlier this month.

Let's take a look at the raw numbers to see what happened.

Several surgeons and a robotic surgical system in an operating room.

Intuitive Surgical continues its solid growth. Image source: Intuitive Surgical.

Strong revenue growth across the board

Revenue Source

Q3 '17

Q3 '16

Change (YOY)

Instruments and Accessory Sales (millions)




System Sales (millions)




Service Revenue (millions)




Total Revenue (millions)




Recurring Revenue (millions)




Percent of Recurring Revenue




Data source: Intuitive Surgical, Inc. Chart by author. YOY = year over year.

For the just-completed third quarter, Intuitive Surgical produced revenue of $806.1 million, an increase of 18% year over year, blasting past analysts' consensus estimates of $752 million. The higher revenue was driven by procedure growth and higher systems placements. 

Part of the revenue beat resulted from $21 million in revenue that had previously been deferred in connection with a customer trade-out program that the company had offered certain customers in the first quarter of 2017. Even excluding the one-time gain, revenue grew by a respectable 15%.

It is notable that the company beat revenue expectations in each reporting segment.

Non-GAAP net income for the quarter was $324 million, an increase of 32% year over year. This produced adjusted earnings per share of $2.77 per diluted share, compared to $2.06 per diluted share in the prior-year quarter. It also handily beat analysts consensus estimates of $1.97 per share.

Intuitive shipped 169 da Vinci Surgical Systems, compared to 134 in the prior-year quarter. That obviously had a significant effect on revenue from system sales, which was up 26%. This segment can be unpredictable due to hospital budget cycles, but it's good to see the occasional blowout.

Impressive recurring revenue

Intuitive Surgical's recurring revenue grew by 15% over the prior year quarter and continues to be an under-appreciated aspect of the company's performance. Sales of consumables in the form of instruments and accessories and service on the installed base of systems reduce the lumpiness and uncertainty that normally accompanies the sales high-priced system sales. The slight decline as a percentage of total revenue in the current quarter was the result of the significant jump in the sales of robotic systems. So far this year, recurring revenue accounted for 72% of the company's total sales.

Procedure growth drives everything else

Intuitive reported worldwide da Vinci procedures that grew 15%, driven by growth in U.S. general surgery procedures and worldwide urologic procedures. Procedures is one of the most important metrics for the company as consumables must be replaced each quarter. Additionally, only a limited number of procedures can be performed each day due to a limited number of hours. As procedure volumes increase to that limit, hospitals will likely purchase additional systems to meet the additional need.

Reflecting on the company's results, Dr. Gary Guthart, President and CEO of Intuitive Surgical, said:

Third-quarter results were encouraging, with increases in procedures and system placements reflecting continued interest by our customers in building their robotic-assisted minimally invasive surgery programs as they focus on outcomes and economic value.

Going forward

In light of the positive results, Intuitive Surgical is increasing its full-year forecast for several key metrics for 2017. Previously, the company expected procedure growth for the year to increase in a range of 14% to 15% over 2016, but is now forecasting procedures to increase between 15% and 16% over last year. 

It also expected operating expenses to increase from a previously anticipated range of 17% to 18%, to a higher range of 18% to 19%. Intuitive Surgical has been growing its research and development spending for its next-generation system, as well as to fund a joint venture with Fosun Pharma in China.

As the company expands into more cost-sensitive markets, it anticipates the average selling price per system to trend downward.

All in all, this was another solid quarter for the robotic surgery pioneer, and I remain impressed by the company's ability to continue to execute on its long-term plans for growth.

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