More and more doctors are using the daVinci for general surgical procedures. Image source: Intuitive Surgical

Intuitive Surgical (NASDAQ:ISRG), maker of the daVinci robotic surgical system, had something for investors of all stripes on Tuesday. Earlier in the week, I identified what short-, medium-, and long-term investors should focus on in the company's quarterly release. Intuitive met or exceeded expectations over all three timelines.

Let's review.

Short and medium term
This is pretty simple -- Intuitive beat expectations for revenue and earnings. I'll use non-GAAP numbers below, as that's what the expectations included. It's also worth noting that GAAP revenue was also dragged down because the company offered trade-ins for its newest Xi model for hospitals that bought its predecessor.





$580 M



$590 M


Data source: E*Trade, SEC filings.

The beat on revenue was nice, but it was the 24% surprise to the upside on earnings that likely had investors excited about Intuitive's earnings.

That beat was made possible, in part, because of what I identified as the medium-term number to watch: expanding gross margins. When the Xi was released, it was bringing in tighter margins than its predecessor. This was largely expected, as hospitals approach the new and expensive machines tepidly at first -- making it hard for Intuitive to benefit from economies of scale in its manufacturing of the Xi.

The gross margins, however, started expanding last quarter, and that pattern continued into the third quarter. The figure stood at 67.11%, which means gross margins expanded by 117 basis points sequentially and 156 basis points year over year.

The big long-term win
But the overwhelming reason, I believe, for shareholders to be excited is that Intuitive once again far outpaced expectations for procedure growth. Nothing is more important for Foolish investors to watch than this metric. For Intuitive to remain relevant 10 years from now -- and for it to be a financially worthwhile investment -- it needs to continue helping to improve surgical outcomes in various procedures.

This year started with management calling for tepid 8.5% growth in procedures. But during the first quarter, they grew 13%. That was followed in the second quarter by 14% growth. And today's release revealed that the company boosted the number of procedures by 15% in the fourth quarter.

The release noted that the 15% uptick was "driven primarily by growth in U.S. general surgery procedures and broad-based procedure growth in Asia and other international markets." As this is being written before the company's conference call, I wouldn't be the least bit surprised to hear that hernia repair surgeries were a huge reason that U.S. general surgery procedures increased so much.

Other numbers to digest
Intuitive breaks down revenue into three distinct categories. For the third quarter, here is how they performed:

  • Instruments & Accessories -- This division, which supplies recurring revenue based on the number of procedures performed, grew by 9% to $298 million. It accounted for 51% of all revenue, and underscores how important procedure growth really is to the company.
  • Systems -- This is the actual sale of new daVinci robots, primarily the Xi. For the quarter, the company shipped 117 new systems, up from 111 during the same quarter last year. Non-GAAP revenue was up 13% to $174 million, and the division accounted for 29% of all revenues.
  • Service -- This accounts for any work that needs to be done on existing systems in the field. For the quarter, revenue was up 8% to $117 million. Service accounted for 20% of all revenues for the quarter.

Investors in Intuitive Surgical can take heart in the fact that the company appears to have a winning machine -- the Xi -- on its hands, as well as a new procedure -- hernia repair -- that could have a long runway for growth and growing interest internationally in its systems.