Q1 2020 Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the into that intuitive surgical Q1 2020 earnings release at this time all participants are in listen only mode. Later, we'll have an opportunity for your questions instructions will be given at that time.
If we should require assistance. They please press star zero in operating losses do offline.
As a reminder, today's conference is being recorded I like to turn the conference over to Calvin Darling Senior director of Finance Investor Relations for intuitive surgical. Please go ahead.
Thank you good afternoon, and welcome to intuitive first quarter earnings Conference call with me today, we have Gary good hurt our CEO and Marshall Mohr, our Chief Financial Officer.
Before we begin I would like to inform you that comments mentioned on today's call may be deemed to contain forward looking statements actual results may differ materially from those expressed or implied as a result of certain risks and uncertainties.
These risks and uncertainties are described in detail in our Securities and Exchange Commission filings, including our most recent form 10-K filed on February 7th 2020.
Our SEC filings can be found through our website or at the Fccs website investors are cautioned not to place undue reliance on such forward looking statements.
Please note that this conference call will be available for audio replay on our website at intuitive dot com on the latest events section under our Investor Relations page.
Today's press release, and supplementary financial data tables have been posted to our web site.
In addition, this quarter. We have also posted chart illustrating the Vinci procedure trends in Q1, which are intended to provide additional perspective and detail regarding the impact of cobot 19, our business.
Today's format will consist of providing you with highlights of our first quarter results as described in our press released announced earlier today, followed by a question and answer session.
Gary will present, the quarters business and operational highlights.
Marcia will provide a review of our financial results then I will discuss procedure details and finally, we will host a question and answer session with that I will turn it over to Gary.
Thank you for joining us today, our first quarter 2020 performance reflects the rise of Cobot 19, and the goal response to it.
On this call will describe our experience in the quarter, our framework for engaging those who rely on us and our priorities and actions in these challenging times.
Our focus now and in the past is the safety and well being of patients care teams or communities and our employees.
For the first two and a half months with a quarter procedure performance was at the high end of our expectations with procedure trends consistent with the prior quarters.
General surgery in the United States was strong as was urology outside the United States.
As we disclosed previously recommendations by surgical societies, and health care organizations to delay certain surgeries to conserve resources for cobot care or having a material impact on surgery Broadway, including robotic assisted surgery.
We support government in hospital policies to direct resources to covert care and recognize these policies vary greatly by region and by hospital system.
We are analyzing customer procedure deferrals in response to cobot.
Patients undergoing davinci procedures do so in response to an underlying disease.
While these procedures may be delayed in the short term without treatment of some sort the disease and its impairment persist and often worsen.
Said simply the vast majority of these patients will ultimately seek treatment.
We are analyzing both the clinical drivers have returned a treatment and customer plans and processes to recover.
The categories and benign disease in cancer are not entirely predictive of the urgency of surgical intervention.
Clearly aggressive cancer is required treatment and are delayed at significant risk to patients. Likewise, some benign conditions require timely intervention as well.
We're working internally and with customers to understand there needs to restart surgery for those patients whose condition requires action.
The effective coven on the surgical market has impacted different regions differently.
Starting with China procedure performance was impacted by cobot earliest with strict with sharp declines in surgery as resources were diverted to respond to covert care.
Procedures in China have been recovering steadily since that time.
However, steep declines and procedures that can be deferred or occurring in other regions, particularly Europe and the United States.
For the quarter procedures grew 10% over Q1 of 2019, given early shrank followed by sharp declines in the last two weeks with a quarter I refer you to the materials, we posted to our website prior to this call to get a better picture of the dynamics in Q1.
With regard to systems, our total number of placements for the quarter was below our expectations in spite of having strong capital performance in the first two months with the quarter.
In March rapid changes by hospitals delayed some system placements and are likely to significantly impact system contracts and placements in future quarters.
Interim pressures exerted on hospitals in response to treating coven patients and deferring other care are likely to be significant and are unlikely to resolve quickly.
Marshall in Calvin will take you through procedure in capital dynamics in the quarter in greater detail later in the call.
To help articulate our priorities and actions during this period of change we have adopted the phased framework disk described in the American Enterprise Institutes National Cronto virus response.
In phase, one which is the slow the spread phase of CRADA buyers response intuitive priorities are as follows.
First we are focused on the health and safety of all those we serve our customers our communities our employees and our suppliers implementing early and continuous updates to our health and safety policies and processes.
Second we are supporting our customers according to their priorities clinical operational and economic.
Third we are focused on continuity of supply by working with our suppliers and distributors to date, our delivery capability and inventory positions are on from floating.
Fourth we are securing our workforce economically we have built an outstanding team over the years and we believe their strength will be essential in the recovery that follows.
Fifth in partnership with our intuitive Foundation, we are contributing material product and volunteers to the front lines of cobot support.
We have design produced and delivered P. P to local hospitals and our staff have volunteered and several communities.
Six we're limiting eliminating avoidable spend during the stop this spread phase of the virus.
The current situation in hospitals responding to viral care is fluid and the depth and duration of this was.
This disruption is difficult to predict.
New issues are rising with respect to surgery that will require mitigation in time, some hospital customers and some of our suppliers will experience significant financial stress in this period.
Regulatory agency priorities and resources are shifting globally as they devote resources to infectious disease detection and treatment needs.
Lastly, surgeons are being dedicated to frontline covered work or being idled by a lack of resources in this period.
We are adjusting quickly to the issues described and we're confident in both the need for surgery and in our products as the response to cobot evolves.
We're planning for phase two the return to surgery for those patients who cannot wait.
Those countries that have been managing the disease. The longest have returned to de Vinci surgeries steadily over time or have been able to maintain davinci surgery concurrently with Covance care.
We are analyzing the order in which different procedures are likely to return and the strategy is likely to be employed by hospital systems to manage surgical practices, while still providing covert care.
For example, some health systems are dedicating specific sites to covert care, while operating rooms for outpatient surgeries are dedicated in other locations will support customers closely as they bring capabilities back online.
We're also adapting our training and intuitive telepresence capabilities to support team training and skills retention in a phase two world.
We're optimizing our and our R&D facilities and methods to allow us to progress on important innovation programs, while employing up to date workplace safety guidelines.
Lastly, we look forward to accelerating clinical trial activities and the associated regulatory work as trial sites increase their surgical volume.
In constructing our financial plans in the current environment, we're balancing five objectives that reflect our priorities mentioned above.
Our first customer focused economic policies that meet their needs during this disruption.
Second employee policies that secure our valuable workforce needed for hospital recovery and to drive our innovation.
Third securing and stabilizing critical supply chain resources.
Eliminating spending that is not effective during this period for example, plastering pausing hiring and volume related roles and spend on projects that cannot progress in the current phase and finally shareholder policies that don't interfere with the priorities mentioned above.
We remain in close contact with our customers our community Representatives, our employees and our suppliers during this period.
While the depth and duration of the current challenges are difficult to predict the need for both cove, It and Noncovered care care is clear.
Given time and resources health systems have continued to choose to Vinci.
Collaborations and solutions orientation, among our stakeholders is clear and inspiring.
I believe our long term opportunity is substantial and our business as well position financially and organizationally to whether this cobot outbreak.
I'll now turn the call over to Marshall will take you through financial matters in greater detail.
Good afternoon.
I would describe the highlights of our performance on a non-GAAP of pro forma basis I will also summarize our GAAP performance later in my prepared remarks.
A reconciliation between our pro forma and GAAP results is posted on our website.
Procedures in shipments are consistent with our preliminary press release of April 8th.
Key business metrics for the first quarter were as follows.
First quarter 2020 procedures increased approximately 10% compared with the first quarter 2019.
Decreased approximately 9% compared with last quarter.
Procedure growth continues to be driven by general surgery in the U.S. and urology worldwide.
Kevin will review details of procedure growth later in this call.
First quarter system placements of 237 systems increased 1% compared with 235 systems last year and decreased 29% compared with 336 systems last quarter.
We expanded our install base of da Vinci systems by 11% to approximately 5669 systems.
This growth rate compares with 12% in the last quarter at 13% last year.
Utilization of clinical systems in the field measured by procedures per system declined approximately 2% compared with 6% growth last quarter and 5%.
Growth last year.
Let me walk through the impact of covered 19 pandemic on procedures in system placements and how it vary by market.
Prior to the spread of Cobot 19, we experienced procedure growth trends consistent with those experienced in the fourth quarter, including strength in general surgery growth in mature procedures in us and growth in U.S.U.S. urology.
We also saw early strengthened capital placements, particularly in the us with over half the systems placed into quarter being arrangements, where the sales cycle was mostly completed in the fourth quarter.
Beginning in January we saw substantial reduction individually procedures in China and by early February procedures per per week in China had declined by 90% compared with the weekly rates experienced in early January.
As it covered 19 subsided in China in March Devinci procedures began to recover and by the ended the quarter, China procedures per week, where approximately 70% of the early January rate.
We saw varied impacts on devinci procedures and some other early countries affected by covert 19.
Coven 19 had little impact in Korea, and Japan in the quarter in severe impact in Italy.
In summary, the cobot 19 disruption to de Vinci procedures varied by country in the disruption to worldwide Davinci procedures was not significant through the middle of March.
As the pandemic spread to western Europe and to the US we experienced a significant decline in defense you procedures in the last half of March.
Procedures per week in the U.S., which represented approximately 70% of our procedures in 2019 declined approximately 65% relative to earlier in the quarter.
Procedures in France, Germany, and the UK also declined but to a lesser extent than the us.
We have provided you with supplemental information on our website to enable you to understand the magnitude of the impacts on procedures in the variation between countries.
As I indicated most of the sales cycle for approximately half of the system placements in the quarter were completed in the fourth quarter.
As we progress through the quarter and the impact to the pandemic progressed.
Customers defer decisions to purchase or at least systems into future quarters and in some cases indefinitely.
The depth and extend to which cobot 90 will impact individual markets would vary based on the availability of testing capabilities.
I see use and ours medical staff in government intervention.
It's covered 19 continues to spread it is likely the de Vinci procedures will decline from those experienced in the first quarter. In addition, we would expect that system placements will follow the decline in procedures.
While some markets like China appear to be recovering it is possible that a recurrence of covered 90.
We will negatively impact the vinci procedures.
And not all markets will recover at the same pace.
Additional revenue statistics and trends are as follows utilization of the installed base declined by 2% compared with the fourth quarter of 2019, reflecting the impact of the pandemic on procedures, coupled with the fourth quarter system placements strength.
When procedures increase customers will first look to utilize existing davinci capacity, which is likely to depress capital placements.
First quarter placements included a higher concentration of multiple system arrangements with hospitals in IDN seeking to standardize on for generation system.
Many of these replacements were completed as capital leases as a result first quarter trade ins were higher and operating leases were lower as a percentage of total placements than in the fourth quarter of 2018.
We would anticipate in an environment of coven 19, as economic pressures increase more customers will seek leasing or alternative financing arrangements and purchases.
Trading activity can fluctuate and be difficult to predict however, given the impacts of cobot 19, we expect the number of trade ins to decrease.
We recognize 12 million of lease buyout revenue in the first quarter compared with 34 million last quarter and 12 million last year.
There were no returns of da Vinci systems for leases that ended in the quarter.
Lease buyout revenue has varied significantly from quarter to quarter and will likely continue to do so.
Instrument and accessory revenue per procedure grew to just over $2000 per procedure compared with $1980 into fourth quarter of 2019, reflecting instrument and accessory purchases prior to the decline in part in procedures.
We expect that us hospitals adjusted inventory levels for lower surgery volumes instrument and accessory revenue will decrease.
Three of the systems placed in the first quarter were SP systems, reflecting both.
Our measured rollout of SP and the impact of covert 19.
Our rollout of SP surgical system will continue to be measured putting systems in the hands has experienced davinci users, while we pursue additional indications and optimize training pathways in our supply chain.
Given the impact of Cobot 19, our ability to perform a clinical trial associated with an SP colorectal procedure is likely delayed.
Replace eight islands systems in the quarter.
And system placements were also impacted by covered 90.
I asked system placements are excluded from our overall systems count it will be reported separately.
Cdrs and other information associated with ion are excluded from our prepared remarks, it will be reported separately when they become material.
Our rollout of I and we'll continue to be measured while we optimize training pathways in our supply chain.
The completion of the precise study will be delayed due to covert 19.
We cannot predict when the precise clinical study will be completed.
Outside the U.S., we placed 55 systems in the first quarter compared with 81 in the first quarter of 2019 in 140 systems last quarter.
Current quarter system placements included 25 in Europe, 10 into Japan, and nine into China, compared with 49 into Europe 13 into Japan three into China in the first quarter of 2019.
Moving on to gross margin in operating expenses pro forma gross margin for the first quarter was 69.7% compared with 71.2% for the first quarter 2019 in 72.2% last quarter.
The decrease compared with the first quarter of 2019 and last quarter, primarily reflects product mix.
Higher fixed costs on lower production.
And costs associated with ESI product transitions, partially offset by cost reduction.
As revenues are pressured by Coven 19, we will reduce production levels, which will result in higher labor costs in under absorbed overhead in a significant reduction of product margin.
Pro forma operating expenses increased 15% compared with the first quarter 2019, and decreased 8% compared with last quarter.
Spending in the first quarter reflected normal business activities into March and then a curtailment of costs associated with the impact of Cobot 19.
While certain spending will decrease in the second quarter as a result of the reduction in revenue and activities limited by the pandemic.
Much of our spending will continue.
Major categories of spending unlikely trends for the second quarter as follows.
We will continue to support our customers.
We will continue to invest in innovation focused on the quadruple aim.
We will invest in manufacturing and our supply chain to ensure supply for our customers.
We will ensure we are prepared for periods when the spread of cobot 19 is contained.
Certain costs will decline as underlying activities are restricted by cobot 19, including travel related expenses clinical trials surgeon training and customer data collection.
We will eliminate spending that is an effective due to covert 19 like surgeon and hospital events.
We are pausing the hiring volume related roles like sales reps and manufacturing employees.
We continue to believe that we have a unique opportunities to expand the benefits of computer aided surgery in acute interventions around the world. It will continue to invest in the business for the long term.
Our pro forma effective tax rate for the first quarter was 20% compared with our expectations of 20% to 21%.
Reflecting geographic mix.
Our actual tax rate will fluctuate with changes in geographic mix of income changes in taxation made by local authorities and with the impact of onetime items.
Our first quarter 2020 pro forma net income was 323 million or $2 to 69 cents per share compared with 312 million or $2. A 61 cents per share for the first quarter, 2019, and 417 million or $3.48 per share for last quarter.
I will now summarize our GAAP results GAAP net income was 314 million or $2 to 62 cents per share for the fourth first quarter, two 2020, compared with GAAP net income of 307 million or $2 at 56 cents per share for the first quarter of 2019, and GAAP net income of 358 million or.
Dollars 99 cents per share for last quarter.
The adjustments between pro forma and GAAP net income are outlined in qualified quantified in our website include excess tax benefits associated with employee stock awards employee stock based compensation in IP charges amortization of intangibles and acquisition related items and legal settlements.
We ended the quarter with cash and investments of 5.9 billion compared with 5.8 billion at December 31 2019.
Cash generated from operations was partially offset by stock repurchases and investments in working capital and our infrastructure.
We repurchased approximately 192000 shares for 100 million than an average price of $522 per share.
Our current thoughts on capital deployment our into following order.
We recognize the hardship that cobot 19 places on our customers and we'll work with customers to ease the burden of lower devinci utilization, including providing customers with more flexible financing.
We will work to secure supply chain.
And build appropriate levels of inventory to ensure customer supply, particularly as procedures reserve.
We will invest in securing our employees.
We will continue to our open market repurchase program consistent with our prior pack practice.
With that I'd like to turn it over to Calvin who will go over procedure performance.
Thank you Marshall our overall first quarter procedure growth was approximately 10% compared to 18% during the first quarter of 2019 and 19% last quarter.
Our Q1 procedure growth was driven by 9% growth and use procedures and 11% growth in all us markets.
Our lower first quarter 2020 procedure growth rates or a direct result of hospitals reallocating resources to meet the increasing demands of managing covert 19.
Hospitals postal postpone deferrable surgical procedures to make more resources available to treat cobot 19 patients.
Impacts to the Vinci procedure volumes were first fell in China in January and moved to other oil us markets as the quarter progressed as of mid March our overall procedures were trending towards the higher end of our expectations, including the benefit of an extra working day in Q1 2020.
At this stage of the quarter the impacts of Cobot 19 in the earlier impacted countries were offset by strengthen us general surgery and mature procedures.
Beginning in mid March we saw significant declines in procedure volume in the U.S. and Western Europe.
On a worldwide basis weekly procedures performed exiting Q1 or approximately 50% lower than the run rate through mid March.
In the U.S. weekly procedures exiting the quarter were approximately 65% below the run rate through mid March.
Procedure categories, realizing significant declines or hernia repair benign gynecology and very Patrick procedures.
Lesser impacted procedures, where thoracic and colorectal surgeries.
Outside of the United States weekly procedures exiting the quarter were approximately 25% below the run rate through mid March.
The lower oil U.S. decline, primarily reflects procedure volume recoveries in China offset by broad declines in Western Europe.
In Q1 procedures in Japan and were less affected by Cobot 19 growth in Japan procedures continued at a growth rate over 40%.
We provide these data points to inform investors of the procedure dynamics experienced during the first quarter, which were unprecedented.
Due to the uncertain scope and duration of the cobot 19, pandemic and uncertain timing of global recovery and economic normalization, we withdrew our financial and procedure guidance on April eight.
And these Q1 procedure results aren't necessarily indicative of any forward looking trend.
That concludes our prepared comments, we will now open the call to your questions.
Ladies and gentlemen, you may do Sol by pressing one and zero.
Our first question.
Welcome.
From David Lewis with Morgan Stanley. Please go ahead.
Good afternoon inherent.
We can't hand I David.
Hello.
Operator.
David Your line is open.
Can you hear me now, yes, okay, sorry about that and turn it happen. So Gary just want to talk about capital cycle, a little bit I mean, I know, we're not going to get specifics on 2020, but if you think about the 2008 financial crisis, the strain and hospitals.
Certainly different today than it was back in 2008 in your business model frankly is very different today than it was back in 2008, how would you compare and contrast to impact on your business.
Do Kobe 19 relative to what we saw in the last major financial crisis impacting hospitals and that up quick follow up.
Yes. Thank you.
I'd start with I think theyre apples and oranges from the underlying costs.
So clearly this is.
Hello, healthcare related and policy driven in terms of deferrals.
As as a result, a little bit hard to predict.
How the capital cycle will recover you had mentioned in its true.
We have a lot more.
Flexible approaches that are available to us with regard to making systems available Marshall mentioned in his script.
We'll consume existing capacity first as they go.
We've been in contact with our customers are routinely theres a backlog growing for surgery.
These folks are going to need surgery, and really our opportunity. Our job is a company is to make sure. We can support them. However, we can in terms of access to systems are motion of systems.
To allow them to use what they have out there and as those systems have become full again, we can think about how to increase capacity going forward and we have a few tools in the tool kit Marshall anything you'd like to add.
No I think you did I think you'll see more more financing more leases and alternative financing arrangements.
Okay that they've Turner said to me just a quick follow up on capital Marshall for you you talked about in your and your script.
A couple things, but you talked about certain orders that are being delayed or canceled versus sort of pushed indefinitely can you give us any sense from a percentage perspective, what percent of the order book was in your mind delayed versus sort of what was either cancelled or indefinitely delayed and then you just mentioned lease rate you've been hovering around that 40% level.
The reason I assume we should see a more material step up in the lease rate you said it would fluctuate as it has normally but in my view would be that lease rate hike up more materially now because you are incentivized to provide flexible financing for hospitals to get these systems in so any color there will be very helpful and I'll jump back in queue. Thank you sure for four.
Leasing yes, the in the quarter what happened we had a number of customers that had started the sales cycle back in Q4, and we're interested in in standardizing on for generation systems.
And it so happens that a number of those customers wanted to do one infrastructure. The arrangement such as they were purchases that were accounted for as purchases and as a result, we had fewer leases. This quarter. So I don't think this quarters is indicative of our normal sort of run rate for leases as a result.
Leasing going forward, probably is more akin to what we were experiencing more in the 38% range, that's under normal circumstances, and I actually believe given the covert virus its impacts that it will increase from there.
So and its but it's hard to predict.
Cutting and the customer in the circumstances.
As far as how many customers may have postponed indefinitely or may have postponed a quarter.
The conversations with them are always a little bit.
Hey, we're going to postpone and then they sort of throw in words about maybe another quarter, maybe another couple of quarters and and in some say well, we'll get back to it but we don't have a specific timetable and for those that say that they don't have a specific time table. That's what I'm, referring to is indefinitely I don't think that their customer running from from robotic surgery I think they add.
They want to do robotic surgery, and I think that they'll come back some time when cobot viruses handled in the end that procedures come back.
Okay. Thanks, so much yes.
Yes.
Yes.
Next question please.
Yes. The next question will come from Bob Hopkins Bank of America. Please go ahead.
Sure. Thank you and good afternoon.
I want to thank you for the incremental data that you provided this quarter on the trends throughout the quarter by geography that was very helpful to see.
And so my first question is really on the.
Hard on China.
Showing a pretty nice recovery.
From from softer where you are right now I was wondering if you could just walk through your views on how good a proxy China might be for us recovery like why or why not.
How could that be different just your general thoughts on that would be great. Thank you.
Thanks, Bob.
Yes, I know you see in that chart, China, you see other other countries as well, Japan, and so on and which you can really see is that.
The country policy changes the shape I think we're encouraged by a couple of things one is.
People's interest, our customers' interest and using da Vinci is durable.
Thats been great you had asked US specific question of how predictive is China and I think the answer there is too soon to tell for the rest of the region's.
Im encouraged by that I think it it indicates the durability of demand.
Having said that I think policy matters and I think how people.
Keith or healthcare resources are going to change too.
You can see in Japan already that.
The the progress of of their approach to diseases evolving and what that looks like on procedures will evolve so stay tuned as the the short answer Calvin anything you'd like to.
No I think thats that described a pretty well.
Okay and then just.
A follow up I, just maybe a comment on.
Japan has been so resilient and then you did mentioned the prepared remarks something about.
I think I missed it on one of the clinical trials has been delayed I was wondering if you could just highlighting reiterate exactly what you're communicating there. Thank you.
Okay on the Japan side I think that.
There in general there system for managing their client of ours is a little bit different than we've seen in other countries and its evolving in time so to date.
Hospital operations were.
Relatively likely impacted as it relates to surgery rollout relative to other countries what that will look like in the future I don't know, we'll we'll see how that evolves.
It's been interesting in instructive for us to look at data from Japan look at data from Korea from China from Europe, Germany, Italy, UK, France, and that informs us going forward and in terms of getting prepared for.
Reopening of of.
Some of this hospital wings and surgical wings as they happen so too soon to make the final call, but we have I think pretty good real time information.
I'm going to refer to Marshall the question about clinical trial.
Clinical trial, what I was referring to as SP, We plan on doing in Asia.
We believe we have to do clinical trial to get the next indication which is colorectal.
Doing a clinical trial when.
At this point in time is probably not not.
Going to happen right away, having said that I don't think we had plans to do it right away. We had several steps we had to go through before we got there so I say delayed.
Could be delayed and don't know exactly when it will get done.
Our Calvin you had more to that yes, and on the eye on site as well data capture for the eye on precise study that we've talked about on these calls is currently delayed we believe that positive clinical data will be important catalyst for broader usage of the platform, but given the lack of visibility or not not in a position to provide a definitive.
Revise timeline, but it's unlikely that the precise study will read out this year, but do you look at at the new platforms. Both ion NSP are both in the measured rollout phases of market introduction and early stage utilization rates for both platforms has been encouraging I on commercial procedure rates were up 100 over 110.
Percent from Q4 of 19 to to Q1 of 20, 2020 SP procedure rates grew 14% from the fourth quarter and they're up about 190% year over year. So really encouraging in these early phases in Korea, specifically, where we have a broad clearance for SP.
Utilization per system is at this point in time higher than it is for IXI.
Thank you.
Thanks, Bob.
Our next question comes from Michael Peterson with JP Morgan. Please go ahead.
Hey, Thanks, I'm wondering if you could just talk a little bit about procedure mix.
Thats procedures that may come back a little bit faster versus others, presumably those core prostate cases may lag in non Virgin Hernias may lag, but I'm just curious yes, even based on your experience in China in terms and procedures that came back a little bit faster.
Could comment on that at all.
Sure.
As a broad brush.
Clearly.
Hi, risk cancers are things delayed it at real risk to to patients and.
Emerged into our in plain vanilla benign disease Likewise.
One caution each country has a little bit different mix of procedures.
Going into 2020 prior to covert becoming a bigger issue so the mixes or a little bit different.
Calvin why don't you speak a little bit to what we've seen today.
And then again procedures. It's early the following a continuum of urgency that are applied situational and like you say that clearly the aggressive cancers require treatment and.
And our delayed a significant risk risk to patients and likewise, some benign conditions require timely intervention as well.
We're working toward with customers to divest understand the segments in our future plans and elaborate thing will elaborate further as as the things progressed, we mentioned in the prepared comments.
The at least in the ending parts of the first quarter, the more impacted procedures, where things like hernia repair benign gynecology and bariatrics with lesser impacts on.
Things like thoracic procedures and colorectal procedures.
You know on on my.
Personal channel checks.
Yes.
Hospitals are now, creating large backlog, so patients who are going to need surgery and and.
Theres.
Encouraged about their their commitment to de Vinci as they go through that.
So I I think at some point the logistics availability of PE and other resources will start to free up a little bit and and as they have time, then they'll have to attend to that that group of patients and we'll be there to support.
And then maybe a follow up on the capital comments I appreciate the nature and the target discussions may shift or for alternative financing, but can you just talk maybe to the degree to which hospitals are actually engaging in capital of discussions at this point as opposed to still dealing with coded work and also curious and your thoughts on Europe, just given capital outlook. There. Thank you.
Like I said in his prepared remarks cap capital demand.
We saw.
For all of purchase decisions at the end of the quarter I would expect that to continue I would expect that also that.
Hospitals as as coated.
As they are able to dedicate resources to the procedures that may be in backlog that they'll use up existing capacity and therefore.
It won't immediately result in capital demand.
Yes, we still have conversations with some of the hospitals on capital I, It's just not possible to predict exactly where it's going to come up for the quarter.
With regard to Europe any color you want to give a marshall.
Europe, we didn't see quite the same level of of.
Reduction in terms of procedures at the end of the quarter, that's not that doesn't mean to say that that will sustain itself.
Possible that as as the virus Ics spreads that there could be additional pressures on procedures and.
Having said that.
Capital as you know, we did 25 systems this quarter.
What I reported in my prepared remarks, that's that's far lower than we had anticipated for the quarter and so we're still we're seeing the same kind of interactions with customers in Europe, because we are in U.S.
No Tiger you've heard US say this before and it's really true in the data that this quarter as well.
Europe doesn't act as one so what's happening in Italy feels and looks different than in Germany from our perspective.
From France and from the UK, So each will will progress a little bit on a little bit different pathway.
Okay. Thank you.
Thanks, Michael.
Thank you. Our next question will come from Larry Biegelsen.
With Wells Fargo. Please go ahead.
Good afternoon, thanks for taking the questions one on procedures that one on just on systems on procedures I appreciate the.
The numbers the percentages you provided us I think those were exit rate.
From March and.
Slides look like.
Those percentages continue to go down so I apologize if I missed this but.
Would you be willing to provide any color on what you've seen in the first couple of weeks here in April just to give us a better sense to how to think about.
Q2, and I did have one follow up.
We're not not not ready to publish what happened thus far in April I don't think it's it's.
Shockingly different from what the beginnings of your seat of what you're seeing in the and the charts. We've given you there, but I'd also say that I don't think the next two weeks or are particularly predictive of anything.
I think this will flow.
Globally here over the next weeks and months and we're really focused on how to make sure that we're supporting our customers while in flow out of it.
And Gary thinking ahead hospitals are going to be faced with two challenges I think one is capacity constraints to handle postpone procedures and second moving procedures.
Alternative sites I think you mentioned in your prepared remarks, like kfcs potentially to isolate non.
Okay patients or vice versa, what can you do to help hospitals with these two challenges thanks for taking the questions.
Yep.
We should it.
A couple of things, we we are well represented in outpatient departments in hospitals already we are absolutely able and willing to move systems two locations of care wherever they might be.
We do have experience with systems in a SCS to the extent that people want to move into assay environments. We worked fine in those environments.
We will be working on.
Getting.
Training and other resources geographically.
Positioned.
Where we think that folks can need additional support as they start to ramp up recognizing that we don't think a lot of people will be jumping on planes and in phase two.
So we can sort of forward deploy our resources to help people as they get ready.
And lastly is it's staying in touch with.
Our customers in surgery departments, and and making sure that we have inventory forward forward deployed for them for the kind of procedures they want to do.
Thanks for taking the questions.
Thank you.
Thank you. Our next question will come from Rick Weiss cycle. Please go ahead.
All right good afternoon, Hi, Gary Hi, Marshall.
A couple of things.
Maybe let's start with.
About fee.
The slowdown in capital you, you've talked about and obviously related procedure.
Client.
No I am looking ahead far ahead.
You are not comfortable really.
We have predicting the next quarter, but.
I think about recovery.
Gary.
How do we think about let's say.
The slowdown in capital persist throughout 2020.
Or well into 2020.
Does that suggest.
2020 recovery.
Well be back to let's say 2019 levels and it's going to take probably possibly until 2022 for us to see you get back at sort of historical growth because of that slowed down in.
In capital, which might be slower to recover and therefore procedures slower to.
Accelerate overall, if you follow what I'm trying to get out.
No I think the way I'd have you think about it is.
From the point of view of demand for surgery.
Demand for a robotic assisted surgery and in that setting I think the world as queuing up.
A set of patients who will need care makes sense I understand it I think conserving of ERP and and I see use another valuable resources at this time makes sense.
As as some of those constraints start to loosen I think everybody will have to adjust and adapt to caring for patients who have other conditions.
That is the demand that will will drive everything behind it from on a and and other inventory to access to capital and systems.
We are well positioned from an inventory point of view, we're well positioned operationally and financially to move systems, where they need to go to put systems out on lease or usage based models or other things to support customers. They way they want to be supported and will be quite agile. So on the capital side you may see shifts.
In the wake capital is deployed in the way that were compensated for that capital relative to prior quarters sort of historical norms, but.
But we'll be leaning forward to help people when they need that help how fast that happens I think that has a lot to do with.
Government policy in health system policy is to when the pivot to go.
Treat other other patients.
That will determine everything else.
Gotcha, and just sort of a separate but related question Gary.
Several of our ongoing physician compensation for this suggest that.
Things recover actually robotic capacity will be sufficient.
To meet demand, which is an interesting thought.
Maybe just that actually that on a recovery robotic surgery will lose market share so to speak of some of those different patients.
Two laparoscopic surgery to open surgery.
I have no idea I'd be curious if you have any high level thoughts about that those physician comment. Thank you so much.
Thanks, Rick.
It's possible I think that of folks rotating into open surgery patients who are great candidates for EMI us as doing that set of patients that the service.
So we will see that may happen.
How hard for us to control with regard to capacity for robotics remember there are a lot of robots out there and they are right now under utilized as.
As that flows back.
So we can help will some folks want to use lab maybe.
From the point of view of surgeon preference surgeon comfort with their choices are just remember surgeons are intentional about the.
The.
Method of surgery they choose.
They don't accidentally fall into robotic surgery training, they make those commitments and time investments for reason and and they have a preference. So if we can fulfill their preference great that'll be great. If we're unable to do so in the choose laugh because they couldn't get access where they wanted well that may happen, but that's really I think.
In intuitive is job to to make those.
Systems available to them, if they would like to use them.
Thanks, so much.
Thanks, Greg.
Thank you and our next question from Larry Goose Raymond James. Please go ahead.
Thanks, Good afternoon, everyone.
I guess Gary to start with.
Just curious thinking about R&D.
What what changes are you making too.
Allowed the innovation engine to to not stall out here I'm just curious how.
You are accomplishing that.
And what's what's sort of processes procedures, you're putting in place.
Thank you.
First thing has been to employ those two to ensure.
To protect the safety of our staff.
And those who supply us while we do our R&D. So in step one is been.
To stay up to date on the latest.
We work work safety methods. We started our incident response team relatively early we were up and running at full speed in terms of our incident response team in early January and so they start looking at best practice relaying out.
Our onsite facilities as it needs to be really relate out.
Enabling work from home, where we can we were.
Pretty capable it at remote work capabilities, just given the distributed nature of our campuses.
So it's really flexing in that regard and then we've put in place a robust process for.
Allowing onsite work, where we think it can't be done otherwise for training, our staff and staying with it and so we've done that of course, there's a loss of efficiency.
You go through this and so there's there's no doubt that into the first weeks of this you start to slow down and then we're fighting hard to to recover.
Team attitudes have been fantastic the agility and creativity of teams to get their worked on their willingness and desire to do so has been really encouraging.
So so far so good some some things will go slower to the extent that we have clinical trials out there and those are being conducted in hospitals that are being impacted by cobot of those things will slow down.
The principal investigators in those places are highly committed first the patient care and then as a second priority to doing the research they'd like to do and so that will come back is as time permits for them to do so.
Okay terrific and then I guess the other question as.
You guys are obviously, having a lot of conversations with.
Surgeons with hospitals.
I'm just sort of curious if you can comment on what you are hearing relative to maybe some of the bigger geographies in Europe or or in the U.S. when.
Days, they may be able to start to get some of the surgeries going.
As you guys have indicated multiple times on this call. There is a continuum and there are procedures that can be deferred, but but not for potential long periods of time. So I'm. Just curious I know that sat fluid situation, but just anything you might be hearing is too too when this might start to start up again.
Clearly varies by country and is the reason that we put a couple of those charts on our website for you to look at is just to see the difference in.
How different countries are doing it the places that.
Are able to engage.
Earliest have taken strategies, where they have.
Put covis care in one location and and allowed surgery to occur in a different location or hot and cold zones within their own institutions that have allowed them to manage both concurrently so long as they have staff and pp to do it.
Giving you a general answer is really.
Not possible at this time because of the puts and takes by region, what I will say is.
Surgeons are there for a reason they are.
It's impressive they are both community oriented and clearly understanding the need to support their communities as they flex into this crisis at the same time, they're surgeons and they're looking forward to going back to surgery. The backlogs that you hear about are significant and they are.
Concerned about those patients who are surgical patients to new care.
The last comment I'd make is that.
[music].
Very few of the procedures that are done.
Using robotic assisted surgery are.
Easily resolved by non surgical means.
We are.
Part of surgery that we're surgery is by and large the first choice and as a result, I don't think a lot of these procedures are going to dissolve in time, just by waiting I think they're going to have to be down surgically. So really we will be a question of where do they get on when do they get done and what kind of technology is used to do it.
Okay, great appreciate the thoughts thank you.
Thank you our next question will come from.
Goldman Sachs. Please go ahead.
Thanks, Good afternoon, just a quick follow up on.
The European system side.
Just thinking about operating leases out there and how that situation might evolve.
Can you just kind of maybe remind us out.
The tendency of certain countries to adopt the leases out there and whether you're sensing any kind of that change or improvement in that outlook as we think about them being more constrained to spend and capital potentially over the next year. So.
Marshall.
Yes, there were there are limitations as to which you can do within each European country all of them have different rules as two.
Registration and.
And with with different.
Regulators around financing.
Having said that we really had launched leasing in Germany in the UK.
Full year, two years ago, or so and France, a little bit after that and we did see nice uptick in leasing in particularly in Germany I.
I think going forward.
We'll be doing you'll see leasing and all those markets were prepared to be able to offer we now understand structures, we can do and.
With the requirements are from a reporting perspective, and I think were set so I would anticipate given the impact of the covered 19 that we would see additional leasing there.
And then just one quick kind of bigger question bigger picture longer term one fair for Gary.
It's early days, but how are you thinking if at all about secular changes for hospital system is in healthcare more broadly after this crisis. The Delaware is it kind of relates to your your markets.
I think it's it's a little too soon to tell we certainly are thinking about.
How customers might adapt and you can think about.
A few things I guess I'd focus you on really kind of phase two in phase three of this corona virus response.
The economy starts opening back up and we have a fair amount of testing.
But you're still dealing with coded as it.
As a uncured disease, how to hospitals manage that I think thats a lot of where our thoughts are now that may have to do with site of care and other kind of flexible ways. We think minimally invasive surgery broadly in robotic assisted surgery is important in that setting.
Keeping people out of the hospital, allowing them to recover quickly at home.
These are things that I think are generally good for the health care system, and and there may be some adaptation by health systems to be flexible about how to deliver that in and we're working through that internally and with them and it gets exciting what happens after that.
As this.
Goes on a couple of years I think we'll all have to have to wait and see.
I thought last last questioner please.
Yes that will come from Matt Taylor.
Please go ahead.
Hi, Thanks for taking the question. So I just wanted to ask a follow up question on some of the things you're talking about qualitatively earlier in regards to helping systems when they get back to so working normally and helping them be efficient and flex up on the upside I know you've done some work there with your internal consulting groups to make.
Systems more efficient seems to be working and I was just wondering if you could offer some thoughts on how much more they can flex up in the short run and what are some of the best practices and what are the best systems doing with regards to utilization today.
Yes, if you think forward.
This is a major things here have been really making sure that teams are consistent teams that know how to work together worked together frequently.
They know how to paralyzed tasks.
And they use kind of best practices. It is.
Not limited to robotic surgery, but works really well they are in with regard to how we can help.
Making sure that trainings resources are available.
We have been investing as you know in.
And intuitive telemedicine network I'm really pleased that we made that set of investments and in the future that allows us to project expertise in at a distance that means people don't have to be on planes.
In a post Kobin world.
That's probably helpful for us in something that we want to rotate towards as we go.
As I said earlier in the call I think we can forward deployed some of our training resources.
Hello.
Get teams up and running in and trained.
That that would help people worked through backlogs as as best as they can.
Okay. Thank you very much.
All right well. Thank you well that was our last question in closing we continue to believe there is a substantial and durable opportunity to fundamentally improve surgery and acute interventions. During this period or continue our teams continue to work closely with hospitals physicians and care teams to support them in their mission.
Wherever that may lead.
We believe value creation and surgery and acute care as foundationally human it flows from respect for an understanding of patients and care teams their needs and their environment.
Thank you for for your support we look forward to talking with you again in three months. Thank you.
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