"Thank you very much, Mr. Roboto." -- Styx, "Mr. Roboto"
For sci-fi fans, certain things are generally taken for granted -- the hero can always manage to dodge the laser fire, sound can somehow magically be heard in the vacuum of space, and robots can do almost anything. While we're not yet to the point of building a C-3PO, Intuitive Surgical (NASDAQ:ISRG) continues to show that robots in the operating room are a real live science fact.
Sales for the fourth quarter were up 64% as the company's system sales grew 55% and recurring revenue was up 79%. For December, gross margin was 65.9% (up from 34.6% last year), and the company posted net income of $11.7 million -- handily beating analyst guesstimates.
Intuitive Surgical's robotic system, the da Vinci Surgical System, aids surgeons in various endoscopic procedures by combining the surgeon's own technical skills with computer assistance. To date, the da Vinci system has proven especially popular for radical prostatectomies, and the company believes that roughly 10% of all such procedures in the U.S. are done with the assistance of its robotic system.
Why use a robot? An interesting aspect of the da Vinci is that it seems to "level the playing field" between surgeons. While expert surgeons do not generally see a dramatic improvement by using the robot, less-skilled surgeons do.
One of the open secrets of surgery is that patient outcomes are often inextricably tied to the skill of the surgeon involved. In the case of prostatectomies, for instance, the surgeon's skill has a great deal to do with whether the patient winds up with post-operative impotence or incontinence. The implication then is that by installing the da Vinci system, a hospital might be able to offer top-tier surgical treatment even if it doesn't have world-renowned specialists on staff.
This does, of course, come at a price. At nearly $1 million, the da Vinci is clearly not a piece of equipment that will be purchased by every community hospital.
As time moves on, the recurring revenue from service contracts and disposable instruments will be the driver for the business. Intuitive Surgical has taken an elegantly sneaky approach to its instruments -- implanting each one with a computer chip. This chip records the tool's usage history and won't allow the tool to be used more than a specified number of times, thus guaranteeing that customers must continue to buy instruments if they want to use the system.
While these shares could have been purchased for less than $16 as recently as April 2004, the stock (and its valuation) has come a long way since then. No matter what metric you use, Intuitive Surgical shares are pricey. Though investors must sometimes break the rules and invest in high-growth enterprises that seem expensive, Fools looking at this company might want to hope for a slight disappointment or bump in the road before buying shares.
Fool contributor Stephen Simpson, a chartered financial analyst, has no ownership interest in any stocks mentioned. Furthermore, he realizes that referencing Styx lyrics could be seen as cruel and unusual punishment to some readers.
