Q1 2021 Intuitive Surgical Inc Earnings Call
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Ladies and gentlemen, thank you for standing by and welcome to the intuitive Q1, 2021 earnings release at this time all participants are in a listen only mode. Later, there will be time for questions instructions will be given at that time. If you should require assistance during the call. Please press star and.
Zero as a reminder, this conference is being recorded and whatnot.
I'd like to turn the conference over to a host of Philip Kim head of Investor Relations. Please go ahead.
Good afternoon, and welcome to intuitive the first quarter earnings Conference call with me today, we have Gary Good heart of our CEO Marshall Mohr, our Chief Financial Officer, and Jamey soundness of our senior Vice President Finance 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 and our Securities and Exchange Commission filings, including our most recent form 10-K filed on February 10th 2021.
Our FCC volume can be found throughout our website or at the SEC's 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 and the latest events section under our Investor Relations page today's press release and supplementary financial data tables have been posted to our website.
Today's format will consist of providing you with highlights of our first quarter results.
As described in our press release announced earlier today, followed by a question and answer session.
Gary will present, the quarter's business and operational highlights Marshall will provide a review of our financial results I will discuss procedure and clinical highlights and Jeremy will review our financial outlook. Finally, we will host the.
A question and answer session with that I will turn it over to Gary.
Thank you for joining us today, our first quarter of 2020, one was the step and the right direction.
And the quarter, we saw a healthy recovery of surgery and use of our products.
Strong capital placements continued in Q1, 2020, one and utilization of installed systems increased through the quarter, indicating.
Indicating the need of our customers to return to surgery.
We're in the early innings of commercialization of two new platform for intuitive.
And while advancing digital enablement of our ecosystem.
Our teams are making good progress and all three areas.
Overall, we're seeing some pandemic recovery.
That improvement has been uneven with significant regional variation.
Our experience shows that our business rebounds, as Covid drops.
Starting with procedures general surgery, and the United States was the source of strength of in the quarter driven by bariatric surgery cholecystectomy and other procedures.
Bariatric surgery has been on the multi quarter growth trajectory. The result of the line development and commercial activities, starting with the capable system using advanced instruments and combined with a focused commercial team.
First of all of hernia surgery is recovering with inguinal hernia tracking behind aligned to hospital and patient prioritization.
And the U S gynecology and urology returned to growth after a pandemic related declines.
Growth and our second largest market China continued to be strong with multiple specialties contributing.
Lastly, procedures that have long diagnostic journeys, such as prostatectomy and thoracic surgery remained below historical levels.
Philip will take you through the procedure dynamics and more detail later in the call.
On the capital side, new system placements continue to exceed our expectations with the United States, China, France, and the UK standing out in the quarter.
We know that new system placements are closely tied to anticipated procedure volumes and system utilization and mature markets.
System utilization grew in the quarter on average with significant regional variance do depend on the differences.
Overall capital strength indicates the anticipation of future procedure opportunity of our customers of <unk>.
The number of systems were part of multi system deals by hospitals and integrated delivery networks supporting of theme and which customers who know robotic assisted surgery, well continue to invest with us.
Lastly, the use of leasing and other alternative capital placement models ticked up again this quarter.
Marshall will take you through capital placements and more detail later in the call.
Surveying our business around the world our business and China is growing quickly from a small base and we are pleased with the performance of our joint venture with post from pharma.
We believe there are significant long term opportunity in China and remind you that it is currently a quota of controlled market.
We expect China to be dynamic and competitive in coming years, and we're investing and the market to bolster our place as a leading provider to the Chinese health care system.
And Japan growth remains healthy, though below pre pandemic levels and Europe, our business in France, and Germany have performed well considering the pandemic and the U K tightly controlled surgery resulted and procedure declines.
But we've also seen and increased commitments robotic assisted surgery and the form of increased capital placements.
Anticipating of return of da Vinci surgery post pandemic.
Italy, and Spain of rapidly returning to growth after a substantial pandemic impacts.
And speaking to our finances and the quarter procedures recovered nicely in Q1.
System placements came in above plan and I and.
And a revenue per procedure was above our expectations together driving 18% revenue growth over Q1 2020.
Product gross margins were strong and the quarter largely due to above average system asps.
Lower than expected excess and obsolescence charges and higher volumes through our factories.
Other spending was constrained in the quarter driven by three factors first travel and associated costs did not recur at pre pandemic levels.
This spend will increase as COVID-19 wanes, and our customers and our staff reach immunity.
Second Covid delay and some work and R&D, leading to some underspending and prototypes. We expect these programs to ramp up as Covid wanes, and our labs and development programs recover of efficiency.
Third we deferred some investments and infrastructure that were unnecessary during the pandemic.
We think most of these factors will normalize over time, and we consider them one time events related to the pandemic.
We are still and the early stages of developing robotics assisted surgery globally, and we will continue investing in R&D and our regional capabilities to realize these opportunities.
As I mentioned at the start of the call we are and the early phases of our commercialization efforts for new platforms, which we expect to play out over future quarters.
Our single Port surgery platform da Vinci SP, we performed our first cases, and the U S and Korea of and important accessory for S. P access points.
Which enable surgery close to the volume wall and eases assistant surgeon access through the single incision.
The access port as an important is important and the SP ecosystem, facilitating access and workflow and many procedures and which S. P is used.
We've had very strong customer feedback on the port today.
We are also increasing our investments to accelerate new indications and key countries and the U S. We have two cleared indications for SP.
And expect to initiate cases as part of our colorectal I E. This quarter.
We've seen strong interest and SP use and various specialties, and where and the process of designing trials for additional indications and.
Including thoracic surgery and other surgical disciplines.
Overall, we've received robust customer feedback for S. P use under existing clearances.
Turning to our flexible robotics platform oil and we installed 14 systems and the quarter were recovering from our supply of backlog and are meeting demand for ion procedures at all of our installed accounts, while working to fill of customer inventory stocking request and our internal inventory goals, which we expect to complete around mid year.
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Our precise trial evaluating the ability to reach and diagnosed suspicious pulmonary lesions is on track to finish enrollment by Q2 this year.
Our iron clinical performance is meeting our expectations and customer acceptance remains highly encouraging.
And our digital ecosystem enablement, we broadened access to our mobile search and portal. The my intuitive apps. This April as part of our phased launch.
My intuitive as of mobile App that allows surgeons to manage their da Vinci experience log into da Vinci systems manage their training and view the operative data from the form of debt and.
Our intuitive Telepresence program supported 45% of all case observations and Q1, 2020 one.
Up from less than 5% of year ago, a significant achievement accelerated by the pandemic improving convenience for our customers and reducing cost for our team.
Year over year of surgical simulation simulation usage and the quarter grew roughly 46% over Q1 and 2020.
Validating the power of digital tools.
Finally, our team made significant progress and automating customer facing and analytics as part of our robotics program consulting services, which allow our customers to analyze the relative performance of the adventure programs now of a routine part of customer engagement and the United States.
In conclusion, we're seeing adjustments and the health care system that favor our offerings.
<unk> depreciation of the high quality of Mis and the current and post pandemic environment incur.
The increased openness to digital technologies increased use of analytics to assess care and increasing sensitivity by health systems to total cost of trade.
We have and will continue to position ourselves to perform well in this environment.
I'll now turn the time over to Marshall to take you through our financial performance and greater detail.
Good afternoon, I will describe the highlights of our performance on a non-GAAP of pro forma basis and also summarize our GAAP performance later in my prepared remarks, a reconciliation between our pro forma and GAAP results is posted to our web site.
Key business metrics for the first quarter were as follows the <unk>.
First quarter 2021 procedures increased approximately 16% compared with the first quarter of 2020 was approximately the same as last quarter.
On a day adjusted basis procedures grew 18% year over year.
First quarter system placements of 298 systems increased 26% compared with 237 systems for the first quarter of 2020 and decreased 9% compared with 326 systems last quarter.
We expanded our installed base of da Vinci systems over the last year by 8% to approximately 6142 systems.
This growth rate compares with 11% last year and 7% last quarter.
Utilization of clinical systems, and the field measured by procedures per system increased approximately 8% compared with last year and decreased 2% compared with last quarter.
The impact of Covid on da Vinci procedures varied by region.
And the U S cope COVID-19 resurgence.
<unk> procedures later in the fourth quarter continued well into January.
And as Covid subsided.
Procedures experienced the steady improvement through February and March.
And Europe, the spread of Covid varied regionally and procedure growth rates for mixed with strength in France and of year over year decline and the U K.
While there have been COVID-19 hotspots within some of our Asia Pacific markets, they tended to be isolated and and general procedures performed well.
China growth was far higher than other regions, reflecting the severity of the COVID-19 impact on China, and the first quarter of last year and the additional system and installations over the past year.
Philip will provide additional procedure commentary later in this call.
Despite the fact that hospitals are better equipped to handle COVID-19 patients today compared with the outset of the pandemic resurgence of COVID-19, and its variants like those currently being experienced and parts of Europe and U S have challenged hospital care capabilities and have negatively impacted da Vinci procedures.
In addition, delays and diagnosis and treatment of underlying conditions have continued to negatively impact da Vinci procedures. While there is a backlog of patients. It is unpredictable when those patients will ultimately seek diagnosis and treatment and whether they will be treated the surgery.
Jamie will be providing.
The procedure guidance later in this call debt guidance is based on our experience and the first quarter and the pace at which vaccines have been and are forecasted to be rolled out.
Changes and the spread of Covid and experience and the pace of vaccine rollouts could significantly impact our guidance.
Moving onto capital placements placements in the quarter, reflecting procedure growth hospitals purchasing systems and preparation for a post pandemic environment and hospitals upgrading and order to access for standardized unfortunate Asian capabilities.
First quarter capital placements exceeded our expectations. We believe the generally COVID-19 has had less of an impact on hospital capital spending capacity and.
And the customers recognized the da Vinci surgery meets the quadruple aim of objectives better than other surgical approaches.
Looking forward, we see the following capital revenue dynamics.
Procedure growth drives capital purchases and many of our markets to the extent the COVID-19 impacts procedures. It will also impact capital purchases.
Leasing and alternative financing arrangements have enabled customers access to capital. We believe leasing will increase as a percentage of sales over time, which will result, and the deferral of otherwise current revenue into future periods.
The trade and cycle has been a tailwind of system placements.
However, as the installed base of older generation product declines the number of trade ins will decline.
Macroeconomic conditions created by Covid could regionally impact hospital capital spending.
And as we face competition and various markets, we may experience longer selling cycles and price pressures.
Yes.
Additional revenue revenue statistics and trends are as follows.
Total first quarter revenue was $1.292 billion, representing an 18% increase from last year and of 3% decrease from last quarter.
First quarter revenue growth reflected procedure growth and higher than expected system placements.
Leasing represented 43% of current quarter placements compared with 32% last year and 37% last quarter. Please.
The leasing as a percentage of total sales has and will continue to fluctuate with court with customer and geographic mix.
However, given hospital of economic pressures, we anticipate more customers will seek leasing or alternative financing arrangements and reflected and historical run rates.
44% of systems placed and the first quarter involved trade ins, which is lower than the 57% last year and of 49% last quarter.
Trade in activity can fluctuate and be difficult to predict.
First quarter system average selling prices increased to $1 $65 million from one point for $4 million last year, and one point for 3 million in the fourth quarter.
The increase relative to last year reflects a higher mix of systems placed in China, and our direct markets relative to our indirect markets a higher mix of dual console systems, and a lower proportion of trade and transactions.
The increase relative to last quarter reflects a higher mix of dual consoles and the lower proportion of trade and transactions.
We recognized $19 million of lease buyout revenue and the first quarter compared with $12 billion last year and $14 million last quarter at.
Lease buyout revenue has varied significantly quarter to quarter and will likely continue to do so.
Instrument and accessory revenue per procedure for the first quarter of $1950 decrease compared with $1990 per procedure for the first quarter of last year and.
And $2060 per procedure and the fourth quarter of 2020.
Extended use of instruments were introduced in the U S and Europe and the fourth quarter.
While we saw increased usage of extended use instruments and these markets full adoption will occur over the next few quarters as customers burn off lower use product and.
In addition, we saw customers begin to adjust their instrument buying patterns to reduce their inventory levels to reflect the additional usage per instrument.
Increased usage of <unk>.
Extended use instruments and customer buying patterns of the primary reasons for the decrease and instrument and accessory revenue per procedure and the first quarter relative to prior quarters.
We expect this trend to continue over the next few quarters.
While we expect price elasticity associated with extended use of instruments to enable greater penetration into available markets that benefit is delayed by COVID-19 and otherwise will take time.
6% of the systems placed and the first quarter were SP systems, reflecting a continued measured rollout of SP.
For our installed base of SP systems is now 75, eight and Korea, and 67 and the U S.
Our rollout of the SP surgical system continues to be measured putting systems in the hands of experienced da Vinci users, while we pursue additional indications and optimize training pathways and our supply chain.
We expect to initiate the first cases associated with the U S colorectal trial and the next few months.
We placed 14, I and systems in the quarter, bringing the installed base to 50 systems.
I N system placements and procedures are excluded from our overall system and procedure counts the spa.
The issues, we called out last quarter had less of an impact on eye and placements and procedures this quarter.
We expect to have resolved those supply issues. This quarter, our rollout of ion will continue to be measured while we optimize training pathways and our supply chain.
Procedures under the precise study are expected to complete this quarter.
Outside of the U S. We placed 108 systems and the first quarter compared with 55, and the first quarter of 2020, and 130 systems last quarter.
Current quarter system placements included 59 into Europe eat into Japan, and 23 into China, compared with 25 into Europe turn into Japan, and nine into China, and the first quarter of 2020.
20 to 22 of the 59 systems placed in Europe. This quarter were in the U K play.
Placements and many markets like the U K can vary significantly quarter to quarter.
While we are pleased with the performance of the U K team, we do not anticipate this level of placements and the U K and future quarters.
Moving on the gross margin and operating expenses pro forma gross margin for the first quarter of 2020. One was 71, 8% compared with 69, 7% for both the first and fourth quarters of 2020.
The first and fourth quarters of 2020 included higher period costs associated with lower production and higher excess and obsolete inventory charges and edition the first quarter of 2021 reflected leveraging fixed costs over higher production levels.
Product and customer mix fluctuate quarter to quarter, which can cause fluctuations in gross margins. In addition, if revenues were pressured by COVID-19 production levels may operate at below normal levels, which may result, in higher labor costs and under absorbed overhead and reduced product margins.
The Covid has impacted global supplies of semiconductors and other materials used in our products, while we carry safety stocks of critical components and or otherwise working to secure supply necessary to ensure and fulfillment of customer demand global shortages could result in higher production costs or production delays.
And.
Pro forma operating expenses increased 5% compared with the first quarter of 2020 and increased 2% compared with the fourth quarter of 2020.
The fourth quarter of 2020 included the 25 million contribution to the intuitive foundation, while there were no contributions and the first quarters of 2021 and 2020.
The increase compared to the prior year reflects costs associated with higher headcount and increased variable compensation, partially offset by lower spending and areas impacted by COVID-19.
First quarter spending was below our expectations for the reasons outlined by Gary and his opening remarks.
Looking to the remainder of the year, we expect spending impacted by COVID-19, including clinical development in person training marketing events and.
And travel costs to increase as COVID-19 impacts decrease and spending deferred due to COVID-19 and other timing matters to increase.
Jamie will provide spend guidance later in this call.
Our pro forma effective tax rate for the first quarter was approximately 20% meeting our expectations are.
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 one time items.
Our pro forma 2020.
Our first quarter 2020 pro forma net income was 427 million of $3 52 per share compared with $323 million or $2 of 69 per share for the first quarter of 2020, and 434 million of $3 58 per share for last quarter.
I will now summarize our GAAP results GAAP net income was $426 million for $3 51 per share for the first quarter of 2021, compared with GAAP net income of $314 million or $2 of 62 per share for the first quarter of 2020 and GAAP net income of 365.
For $3 and <unk> <unk> per share for last quarter.
The adjustments between pro forma and GAAP net income are outlined and quantified on our website and include excess tax benefits associated with employee stock Awards and.
Employee stock based compensation and IP charges.
Amortization of intangibles and acquisition related items and legal settlements.
GAAP net income for the fourth quarter of 2020, and the first quarter of 2021 also included pretax gains of $4 7 million and $14 3 million on our investments and private company companies, resulting from our purchases of certain technologies.
The EPS impact of these gains net of tax was <unk> <unk> per share and the fourth quarter and <unk> <unk> per share and the first quarter.
These gains are excluded from our pro forma results.
We ended the quarter with cash and investments of $7 2 billion.
Compared with $6 9 billion at December 31, 2020, the increase in cash and the first quarter, primarily reflected cash from operations and stock exercises.
We did not repurchase any shares and the quarters and.
With that I'd like to turn it over to Filip, who will go over procedure performance.
Thank you Marshall our overall first quarter procedure growth was 16% year over year compared to 10% growth during the first quarter of 2020, and 6% growth last quarter. Our Q1 procedure growth was driven by 14% year over year growth and the U S and 23% growth of our U S procedures and the U S recovered steadily after January as Covid cases declined and the associated.
Impact on hospital resources improved.
And the U S within general surgery, very Africa, Cholecystectomy, and hernia were the largest contributors the procedure growth within the quarter.
Bariatrics growth remained strong with positive customer feedback on our advanced instrument portfolio.
The <unk> growth was driven by the continued expansion of robotic procedures by general surgeons throughout the total practice.
And what all of hernia growth trailed dental growth and the quarter with respect to our more mature procedure categories in the U S Q1, gynecology procedures grew double digits against the prior year gross comparison that was negative due to COVID-19.
And while the EVP and the U S stabilized in Q1 from previous declines it remains unclear when patients who have been impacted from delays in diagnosis and treatment will ultimately come back.
And aggregate on a worldwide basis prostatectomy in the in the first quarter largely stabilized.
More broadly O U S procedure growth was driven by urology earlier stage growth and general surgery, gynecology and thoracic procedures.
With respect to O U S markets, China procedure growth was strong and benefited from the severe first quarter of 2020 impact of Covid and an increase and the installed base over the past year, China had broad based growth and all of procedure categories, and Japan procedure growth moderated somewhat due to restrictions associated with Covid procedure growth and South Korea was encouraging with FTE utilization continuing to be at.
<unk> Si and Europe, France had a solid quarter with broad based strength and a wide range of procedure categories. The U K remain challenged due to COVID-19.
Now turning to the clinical side of our business each quarter on these calls we highlight certain recently published studies that we deem to be notable however at the gain of more complete understanding of the body of evidence. We encourage all stakeholders of thoroughly review the extensive detail of scientific studies that have been published over the years.
A recent article by doctors and Mohammed E. L. F. These baby and grass and David Larsen with colleagues from the Mayo Clinic published and surgical Endoscopy provided results from a real world study aimed to analyze national trends of conversion during elective Colectomy and addition to mif's utilization trends using the Acs national surgical.
The quality improvement program database for elective laparoscopic and robotic assisted colectomy between January 2013, and December 2018 of Tau.
Total of 66000, and 652 patients were identified overall conversion rates from M. I asked the open where approximately 42% lower for robotic assisted procedures when compared to laparoscopic procedures for the 9% versus eight 5%. The rate was also lower for obese patients with the BMI greater than or equal to 36% versus $10 three per se.
And the authors concluded and part of quote this large scale study identified of decreasing trend and conversion rates over the six year inclusion period, both overall and in patients with obesity paralleling increased utilization of the robotic platform given the potential negative impact of conversion on patient outcomes individual institutions should consider review of their own <unk>.
<unk> data as this may represent an opportunity for quality improvement and quote.
In February of this year Doctor EMEA or about the width of those Swedish cancer Institute, and Seattle, Washington, and Dr. Robert Cleary of St. Joseph Mercy Hospital in Ann Arbor, Michigan, and publish of real World observational study, which compared the rates of long term opioid prescriptions for patients who underwent minimally invasive and open colectomy. This study utilized the IBM market scan research.
Database and Analysed 14887 eligible patients who underwent the colon resection via the open and laparoscopic and robotic assisted approach between 2013 and 2017.
And the one to one propensity score matched analysis, comparing the mis and open approaches with over 5000 patients and each arm. The mis approach had significantly lower incidence rates of long term prescriptions of any opioids by approximately 36% 13, 3% versus 29% schedule of two and three opioids by approximately 39%.
One, 7% versus 19, 2% and high dose opioids by approximately 44% for 3% versus seven 7% from 90 to 180 days post operatively looking at the matched analysis between robotic assisted surgery and laparoscopy with overall 1100 subjects in each group the robotic assisted approach demonstrated approximately 45 per cent.
Long term prescription rates of high dose opioids, two 1% versus three 8% when compared to the laparoscopic approach. Furthermore, and subgroup analyses. The robotic assisted approach of showed significantly lower rates of long term prescriptions and any opioids scheduled two and three opioids and high dose opioids compared to the laparoscopic approach for subjects undergoing of colectomy for non malignant.
Convictions.
And the authors concluded and part quote choosing and MAA adoption and robotic assisted surgery for some colorectal operations is of modifiable factor that may contribute to less long term opioid use unquote and with that I'd like to turn it over to Jamie who will review our financial outlook good.
Good afternoon, and while there continues to be uncertainty regarding the ongoing impact of COVID-19, given the moderating COVID-19 hospitalization trends and vaccination progress, particularly in the U S, which accounts for approximately 70% of about 2020 procedures, we are reestablishing our financial guidance.
And providing this guidance we note that there are emerging supply constraints and our supply chain for example, and the semiconductor industry the.
The outlook, we are providing does not reflect any potential for significant disruption or additional costs related to the supply constraints.
Our financial outlook for 2021 is as follows.
Starting with procedures totaled 2020 da Vinci procedures grew approximately 1% to roughly $1 million 243000 procedures performed worldwide.
For 2021, we anticipate full year procedure growth within a range of 22% to 26%.
We expect 2021 procedure growth to continue to be driven by U S general surgery and procedures outside of the United States, where we were earlier stages of adoption.
The high end of the range assumes that Covid cases, and the impact on da Vinci procedures to continue to decline throughout the year.
And the vaccine Rollouts continue the level currently expected by governments around the world and the recovery of patient backlogs will progress.
Modeling quarterly results is difficult given the impact of Covid had on 2020 procedures and therefore with respect to procedures.
Seasonality, we expect similar quarterly patterns for 2019.
With respect to capital system placements of generally driven by procedure demand, prompting hospitals to establish or expand robotic system capacity.
System placement demand is also the result of customers standardizing, our fourth generation technology to trade ins.
Capital sales can vary substantially from period to period based upon many factors, including government health care policies hospital capital spending cycles.
The investment and government quotas product cycles, economic cycles and competitive factors.
Within this framework, we'd expect 2021 capital placements to generally be driven by procedures and the adequacy of existing capacity and the installed base.
During the first quarter of 2021, 43% of system shipped per under operating leases.
We expected the proportion of systems placed under operating leases will vary from quarter to quarter and could continue to trend up in the future.
Turning to gross profit our full year 2020 pro forma gross profit margin was 68, 4%, reflecting the impact of fixed high fixed overhead costs relative to revenue.
Higher excess and obsolete inventory charges and the customer relief program that was implemented and the second quarter of 2020.
Our full year 2019 pro forma gross profit margin was 71, 7% and.
In 2021, we expect our pro forma gross profit margin to be within a range of between 70 and 71% of revenue.
Our actual gross profit margin will vary quarter to quarter, depending largely on product regional and trade and mix the impact of product cost reductions and manufacturing efficiencies and competitive pricing pressure.
With respect to operating expenses and 2019, our pro forma operating expenses grew 27% and in 2020, given the impact of the pandemic they grew 3%.
And 2021, we expect pro form of full year operating and expense growth to be between 18% and 22%, reflecting increases and investments in our digital ecosystem ion and SP.
<unk> expansion and higher regulatory related costs and infrastructure investments to allow us to scale.
2021 spending is also expected to be impacted by a return over the course of the year to higher rates of travel increased customer training and a greater proportion of marketing events being held in person and.
And higher variable compensation.
Sure.
We expect our noncash stock compensation expense to range between 450, and $417 million and 2021 compared to 396.002 million 20.
We expect pro forma other income, which is comprised mostly of interest income to total between 45 and $55 million and 2021.
Reflecting lower interest rates relative to 2020.
With regard to income tax and 2020 Hell of pro forma income tax rate was 22, 5%. So as we look forward, we estimate our 2021 pro forma tax rate to be between 20, and 21% of pretax income and.
And with 2021 outlook for the pro forma tax rate does not reflect any potential change in the U S tax rates.
That concludes our prepared comments and we'll now open the call to your questions.
Ladies and gentlemen, if you wish to ask a question. Please press one day zero on your telephone keypad and you may withdraw your question at any time by repeating the ones. The World Command. If are you Gonna Speakerphone. Please pick up the handset before placement of the numbers once again it'll be one day zero at this time.
Of course.
We're going to the line of Amy.
Hassan Please go ahead.
Oh, Thanks, very much can you hear me okay. We can.
Great.
And maybe during the first question on and just the guide obviously I appreciate that just given all of the uncertainty on the procedure side and so given that you gave that number the C. G. Go a step further and just give us a little bit more color at the how you got there where we're obviously all kind of trying to figure out you know the.
<unk> back to normal, but also these potential buckets of of capturing backlog of the procedure categories for you, particularly and in the prostate I suspect and can you just talk to how you thought about that.
Yeah, the backlog of patients and that returned to normal as you develop the guide for the rest of the year and the procedure side.
Yes, and maybe I'll start with this is Jamie I'll start with the low end of the procedure guidance. So we consider the three factors in the low end.
We see the possibility of extended impact of Covid and certain O U S geographies.
With slow of vaccine Rollouts and resurgence is and some of those geographies, we see that and parts of Europe. Currently secondly, we embedded in the lower end of the procedure guidance of slow recovery of diagnostic pipelines the had been impacted during the pandemic and.
And then the third item in the low end of the guidance is the possibility of regionalized resurgence of Covid in the U S. As we race towards the rollout of vaccines and ultimately at some point achieved herd immunity and the U S with respect to the backlog the backlog the accumulated really for three factors low.
The other diagnostic pipelines deferred elective surgery is hospital systems, getting inundated with Covid cases, and patient reluctance to undergo surgery during COVID-19 resurgence is.
The sub components, we think get recovered over different periods of time, the backlog is actually constantly.
Netting between increases and recovery.
And so the total accumulated backlog is difficult to predict the rate of recovery is also difficult to predict the we expect it to go through into 2022.
And so the 21 procedure guidance that we provided the flex our best estimate of the range of the impact of backlog in the year.
Yes.
Okay, and I appreciate that and I want to come back with the second question just the topic, that's been discussed before but figured in light of Covid to bring it up again, which is this just a question of ambulatory surgery centers and lower acuity procedures, generally and especially given COVID-19.
Like there's never been more of an optimal time for intuitive to discuss and go after and that's part of the market and we still don't hear you talking about it that much of it and it just it begs the question of what's the what's holding you back and and we know that debt and we like and serious team. It looks likes kind of answer it seem to be on the reimbursement side and that it may or may not.
The Optima and I think about your advantages that you pitched to the hospitals on the marketing side of the surgeon benefit the.
Frankly, the outcomes that seems to be a lot more important and for potentially beneficial and then where reimbursement line. So help us out here why and why our ambulatory surgery centers not a bigger opportunity for you right now.
As of Gary we are already in ambulatory surgery environments with our customers of different types and we see healthy programs there.
And.
I don't think we are struggling from the point of view of having a product that can help them or services that can help them or the way to have a conversation I think all of those things are in place.
I do believe that overtime reimbursement matters, particularly and customers that operate and both environments.
Hospitals and <unk>.
For them reimbursement matters, if theyre going to move a patient, but they get a big difference and the revenue then theyre going to make those decisions are made.
It may change overtime and.
The debt.
What payers ultimately decides to do and whether they want to create some incentives to help things move into asc's or will be ready long term I'm bullish on that I think the environment makes sense.
But economics and incentives really matter.
Doesn't clear up your question and reinforces our position.
Okay. Thank you for that step back and Keith.
Okay.
Thank you.
And next we.
And we're going to the line of Larry Nicholson. Please go ahead.
Good afternoon, and thanks for taking the question.
Gary can you please.
I'll provide more color on the intuitive telepresence.
And the feature that you mentioned on this call you know it's the first time I've heard you talk about it and and at 45 per cent of procedures was a pretty.
Pretty impressive number is that through your agreement with it and touch.
Is it being used by customers and what are the benefits and and how do you see that playing out post COVID-19 and and I had one follow up.
So you're right. It is the result of the technology and a collaborative agreement we signed with Intouch. Many years ago, we brought a team over as well as some of the technology and have.
Put it in our hands.
The use case I was talking about there is the ability for.
People, who are interested and observing of case by and expert to log in online through a secure network high speed streaming and view that case on da Vinci accounts and that's an important part of of.
Both knowledge transfer from those high volume accounts as well as an introductory exposure for surgeons, who are thinking about it.
So that has been great. There are other use cases for streaming of connect.
Connections video stream and connections into other products that I won't detail now.
It's pretty neat and so prior we had started that I was believer are we as the company, we're believers that that those kinds of access and.
Think of it as is the kind of from surgical face time of surgical Skype over a distance that kind of access would be important to folks and the pandemic really accelerated it and so we had the technology infrastructure in place and.
And as people started to be more open to the use of digital tools to do their learning and exposure and wanted to stay off of planes and out of cars. We saw it really accelerated and that's what we've been touching on there.
That's very helpful. And then lastly, what response, you're getting from the extended use program.
You you introduced in Q4, 2020.
Any changes to kind of of the impact.
And that we could see from that and any color yet on the demand.
Elasticity.
For taking the questions, yes share. So we introduced the extended use instruments into Europe and into the U S and Q4.
We did see increased usage of extended use of instruments.
And still have some level of inventory of of shorter life.
Use of instruments and and they are burning the that off. We also had commented last quarter that we saw stocking orders of extended use of instruments and were seeing some adjustment of their buying patterns to recognize the.
The increased number of uses per instrument.
The quarter as I called out.
Instrument and accessory revenue per procedure was lower than last quarter and primarily reflects those factors the use of extended instruments and adjustments of inventory buying patterns.
I don't think its exhausted the whole impact I think if you go back to our previous script, you see that we said debt.
Had you implemented this in 2019, you would've affected total revenue by about $150 million to $170 million or about 7% of avaya and a per procedure and the and we've only seen a part of that so far when the rest of it will hit is questionable and it will roll out over time.
And as they continue to to use those instruments and as we roll it out to other countries.
Thanks Marshall.
Thank you.
And next we're going to the line of Bob Hopkins. Please go ahead.
Yeah.
Oh, great and thank you and good afternoon.
I'm going to ask a question or a few questions on the just the the first quarter procedure volume numbers that you provided it because it was obviously a lot stronger than consensus.
The consensus estimates and and so Gary I was just wondering a couple of quick things is it.
Safe to assume that the end of the quarter was materially stronger than than the beginning and middle of the quarter in terms of procedure growth and then I was just wondering what stood out to you Gary either geographically or by procedure type and the quarter that you think is worth calling out.
To your thanks for the question to the to the first one and we definitely saw growth through the quarter of which was encouraging and.
In terms of procedure types of.
I think.
Theres this interesting mix the prioritization the.
And folks are making as they come back and the hospitals I think is a mixture of of patient desire depending on what they think their condition might be for example, bariatrics.
And hospital and surgeons prioritization around urgency for example, diagnose cancers and.
And the changes that are of challenges to the diagnostic pipeline of.
And I was pleased by U S General surgery, I think that that has shown some resilience.
A lot of that is benign procedures and.
You know I think of that has been kind of all of the upside of our models. So so far so good.
And then one follow up just on that also to get a little bit of of better flavor for procedure volumes and the quarter by geography I'm just curious on on Europe, you know what what's your what's your take on you know.
And how about of the things there from for for and and your view and just you know curious maybe of how far below 16% was a was Europe and the quarter.
Yeah I won't.
The quantified for you, but just to give you a little bit of qualitative color and Marshall Please jump in and <unk>.
And help and <unk>.
And the U K, we've seen NHS.
Make priority decisions firmly in that and that reflects what we see and the procedure of performance itself, which has been suppressed that said, we're also seeing commitment of standby S and.
Form of capital acquisition, and other things that indicate to us that the rotating toward it and so there it's kind of of mixed.
<unk>.
France, and Germany have been surprisingly good despite complexity with regard to the way Covid is rolling out of.
And then as we look at Spain, and Italy, we see it really just follow.
As Covid eases surgery comes back and and we come back with it overall, we feel like we have really good leadership teams in place and in country and we feel like we're in good connection with the health care systems, I think we're being agile and adaptable that can meet their needs, which is really controlling what we can control and and.
Thanks of the company is doing the right path.
And anything you'd add and I think it was great color I think the only other thing I would add is the.
And we've talked about and in the past that the lot of the procedures were performed of Urologic and wear and the process and certain countries of pivoting and we're starting to see some some adoption and <unk>.
And in general surgeries, and some countries, but we still have work to do.
Great. Thank you.
Thank you and next.
We go on to the line of Tycho Peterson. Please go ahead.
Hey, thanks.
Couple of follow up I'm curious, what's baked into guidance on utilization given the extended use of instruments and the commentary before what are your kind of modeling for utilization.
Yeah, I think I would with the type of back to 2019 patents in terms of utilization, obviously and the and capital is gonna be drip.
Driven by procedure performance.
So I think I would just refer to seasonal patterns in 2019 of the starting point.
Yes.
Okay, and then you've commented a couple of times on this call and other calls on the diagnostic pipelines.
And being under pressure can you just talk a little bit about how they are looking as the leading indicator for some of the more mature procedure and Steve and team.
Yeah.
Yes, Jamie wants to jump in.
So we have some market day of actually for the U S.
What we see is and that's through February 21, what we see is most of the diagnostic tests PSA testing for example of <unk> scans on cancer, we see the those those have been suppressed during this period. So we haven't seen them start to recover at least and the day and the we've seen so far and we see that reasonably correlated to the associated press.
<unk> to PSA the Pvp has been relatively weak during that period, so as the back to me.
So so far we haven't seen any.
Evidence of recovery and diagnostic testing and leased in the U S.
There are some anecdotes that it's starting to get better and March we'll see as it plays out.
Even after the diagnostic gets done there's of work up.
The pipeline that has to be done.
That said I don't feel like.
We have any evidence that it's moving away from surgery. So it.
It appears and those kind of cases that it's it's building a backlog that ultimately will flow through and.
If the PSA testing back in 2012 is the guy that will take several quarters for that to work its way out.
Okay, and then last one on SP.
The Q2 quick ones actually you know can you confirm you started the IV trial for <unk>.
On the quarter and then.
Gary you mentioned thoracic surgery, and other disciplines and I'm just curious if you could talk a little bit about the roadmap of other areas. You might go ahead of couple of SB.
Sure on the SP side on the Ids. The first cases of our schedule and we have we've got all of the paperwork done and our research institutions.
And we're working through at least for the first starting ones and we expect that to happen. The first cases have not yet gone through they should happen here and the next few weeks.
Thoracic that's the first time, we've been telling you that we think that's interesting.
There are single port opportunities for thoracic surgery, and we are excited by them and we're working through what those trials look like and having conversations with regulatory bodies to get it going and.
And given the current environment and will have concurrent trials for.
Sure.
The colorectal and then thoracic and there are a couple of more indications beyond that of for.
Competitive and other reasons, we're not yet ready to describe what those are going to be for us.
But as piece of platform and we're excited by it so as we get closer and those and those things get closer to being filed.
<unk> and trials both of them.
Described and more fully.
Okay. Thank you.
Thank you.
And next we go into the line of Rick Wise. Please go ahead.
Good afternoon and everybody.
I was hoping we could talk a little bit more Gary about eye on and we did a bunch of of the physician calls.
Month, or so ago and.
And it really fantastic feedback.
The doctor for flying into the early signs of the higher diagnostic yield.
Beth and complex cases, though the small functional benefits and features.
All of that left me.
So optimistic about the per site trial, so couple of things.
And I are are you.
The optimistic and hopeful of hub for site.
Thank you said it would be wrapped up I shouldn't make sure I understand.
But when.
And when might we see the data all of the docs or ex.
Data.
And the.
With some of the logistical issues.
Issues resolved could we should we expect the acceleration.
Some of the think about anticipate the.
Acceleration I and uptake.
And second half and into 'twenty two.
And.
Sure on the issue of the precise trial Phil.
Turning to you in terms of timing sure. So we confirm that we would expect enrolment and this quarter and Q2 and then you would have final of data readout and the back half of next year.
Yes.
On the on the issue of.
And you had said how are we feeling about it I think we are reading and hearing what you are reading and hearing also in terms of talking to our customer about.
The ability of <unk> to deliver on its promises.
So to reach into the long term to get to the diagnostic yields that folks have not seen with other technologies into and to work and complex cases, so I'm feeling enthusiastic and bullish on it with regard to ramp.
We are expecting.
And two to continue to ramp through the year and into next year.
I don't see the step function change I think it's a it's a sequential ramp as we go and and that's because of.
It's an interesting and sophisticated technology and so a lot of what we're working on is making sure that we can get the manufacturer ability of where we need it.
<unk> supply chain stability and quality and predictability of where we need it.
And Iterating, our design for manufacturing and and working on additional indications because it's the platform.
And we are doing all four of those things, but I don't think of investors because of the way these things work.
You should expect that you flip a switch and and it just goes to the next level I think that it will decline each quarter and and that's what we're working on that.
And each of our expectation and our experience and these kind of platforms.
Thanks, very much true.
Right.
Thank you and next we go onto the line of.
Richard The leader. Please go ahead.
Hi, Thanks for taking the price.
Hi, Thanks for taking the question just one on the operating expense guidance, excluding the at the full year outlook.
Just could you give us any sense of the quarterly pacing or would it be safe to assume the 2019 eight and.
Commentary for <unk>.
And here is why.
And why Opex too.
Yes, I think you should see sequentially operating expenses generally increase across the rest of the year.
And it's really kind of a function of and the extent to which COVID-19 continues to impact our ability to travel ex.
Saturday customer training and marketing.
The marketing events in person the <unk>.
Generally I would expect it to.
Ratably increase across the balance of the year.
Got it and and just okay.
At the same kind of topic of geographic investment and expansion that you started to get more aggressive on the pre pandemic, especially India just in light of.
And what's been going on and that region, specifically with the Pope.
And.
And so we'd be thinking of that some of those initiatives postponed even further out.
The odd or are those the things that resuming and really this year of specs.
Yeah, I'm, sorry, I had a little bit of a hard time hearing you with regard to the referenced trial.
So I'll go ahead and re ask the question of if you would.
Sorry, my connection is off but the India.
Can we think of.
And that region, starting now or in light of Covid and and the situation, there and it's something and 2020, two and beyond that part of the spending and you.
Grab of expansion you've heard today.
Yes.
With regard to India clearly current.
Current situation there such that current procedures are are impacted.
And I said.
The long term.
With the long term commitment we have to market is intact our.
Our teams are making.
The nice progress building.
Footprint and relationships to hospital systems, and so I expect us as a COVID-19 starts to become manage there a little bit.
The more forcefully debt and it starts to recover we will see a recovery on our side it has not.
And does not had us of retreat.
Other other places around the world, whether it's Japan, or China, or Europe, we continue to be.
<unk> and committed so not just India, but others as well.
And if you just ask your last question and then we'll go from there.
Rich any follow ups for operator, one more question. Please.
Okay next we go into the line of Matt Taylor. Please go ahead.
Alright.
Yes. Thank you very much for for taking the question.
And I guess it was good to see the strong return of capital spending and Youre talking about customers and looking forward to prepare for for volumes and the commitment of robotic surgery.
And when you think that there was a little bit of a bolus of kind of pent up.
Pending that came through in Q1 or do you think this is the start of.
A new pattern of purchasing based on your backlog and what Youre seeing with your orders.
Matt and the subject of a fearsome debate amongst us.
And that's the company.
Marshall of why don't you show your opinion.
[laughter] well I gave you I gave you a few different dynamics to consider as we go forward.
It's always hard to project out based on.
The linked quarter results I guess, we've had a couple of quarters of been decent.
Is there.
Was there I think part of your question was is there pent up spending.
And just say I don't know, if there's pent up spending, but I would say that.
Clearly the hospitals had more capital to spend and we had anticipated.
And as they as they are and.
And what's really driving there and theyre spending spending on da Vinci and da Vinci capital is the procedure growth procedure growth. So number one thing that drives capital, but also the trade and cycle and the desire to access.
The fourth generation product, including the extended use of instruments. We mentioned earlier and then finally I think that you also have the I'm getting ready for.
The.
The.
The post pandemic environment.
And and just a general recognition that the da Vinci surgery meets their quadruple aim of objectives better than other approaches and so.
Right, Okay got it thanks I'll leave it there appreciate it alright, well thank you.
Well that was our last question and closing we continue to believe there's a substantial and durable opportunity of fundamentally improve surgery and acute interventions or.
And our teams continue to work closely with hospitals physicians and care teams and pursuit of what our customers have termed the quadruple aim.
Other more predictable patient outcomes better experiences for patients better experiences for their care teams and ultimately the lower total cost of care.
We believe value creation and surgery and acute care is foundational and human.
It follows from respect for and the understanding of patients and care teams and their needs and their environment.
Thank you for your support on this extraordinary journey and we look forward to talking with you again in three months.
And that does conclude our conference for today. Thank you for your participation of for use and AT&T conference and sort of as you may now disconnect.
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