Q3 2021 Intuitive Surgical Inc Earnings Call
Yeah.
Yes.
Ladies and gentlemen, thank you for standing by welcome to the intuitive Q3, 2021 earnings release conference call.
At this time all participants are in listen only mode. Later, we will have a question and answer session and instructions for queuing up will be provided for you at that time.
If you require operator assistance please press.
Star Zero on your phone to keep that and as a reminder, this conference call is being recorded I would now.
I'd like to turn the call over to your host senior Vice President for Finance Jamie Smith. Please go ahead Sir.
Good afternoon, and welcome to Intuit's third quarter earnings Conference call with me today, we have Gary <unk> our CEO.
Sure more our CFO.
Ryan King our treasurer.
Before we begin I would like to let you know that Philip Kim our head of Investor Relations for the last couple of years has moved on to pursue his next opportunity. We appreciate his contributions and wish him well in his next endeavor.
Joining us on the call today.
Mark King who has been our treasurer for the last seven years.
Brian will be expanding his responsibilities to include the role of head of Investor Relations.
Moving on 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 there.
As Brian breast 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 10th 2021, and Form 10-Q filed on July 21.
Those X from 'twenty one.
Our SEC filings can be found through 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 intuitive dot com.
20 of 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 third quarter results as described in our press release announced earlier today, followed by a question and answer session.
Gary will present, the quarters business and operational highlights.
Marshall will provide a review of our financial results.
Will discuss procedure and clinical highlights and provide an update of our financial outlook.
And finally, we will host a question and answer session.
With that I will turn it over to Gary.
<unk>. Thank you for joining us today, our team performed well in the third quarter in the face of pandemic related headwinds.
The rise of the Delta variant and stresses in some hospitals pressured the demand for surgery.
Global supply chain disruption has yet to abate.
Recitative redirection of internal resources to continue to meet our customers demand.
Despite these challenges growth in the use of our products continued in the quarter and capital demand remains robust.
Our new platforms advanced in their commercialization and their innovation and in their clinical programs.
Turning first to procedures the increased COVID-19 burden tempered the recovery we saw in the second quarter, particularly in the month of August.
The impact of the Delta variant drove procedures in the United States below our expectations at the start of the quarter with run rates stabilizing in the last couple of weeks of September.
Adoption continues in the United States, driven, particularly by benign general surgery procedures, including bariatric surgery, cholecystectomy and hernia repair.
Trends in malignant.
<unk> remains solid, including prostatectomy, hysterectomy, lobectomy and colon resection.
Two trends that have emerged over the past few years are the increased use of da Vinci in benign procedures and rise and rising use of our advanced instrumentation and targeted procedures.
Both are the result of focusing on our customers' needs.
Proceed in delivering product and economic solutions to match.
Outside the United States procedure performance varied as a function of regional pandemic impact.
In China growth in the quarter was strong and span multiple specialties, reflecting continued adoption.
In Japan, and Korea, our procedure business remains healthy with slight sequential.
<unk> procedure growth Q2 to Q3, despite COVID-19 related surgery disruption.
Germany, the UK and France had reasonable year over year procedure growth and our customers are having success in diversifying procedure categories beyond urology.
Regarding the capital environment, New system placements continued to be robust.
The United States.
It's had an outstanding capital a quarter with a balanced mix of hospitals, new to da Vinci as well as healthy incremental placements for existing customers and trade ins of older technology.
This performance has been driven by collaboration with U S integrated delivery networks as they thoughtfully manage and expand the capacity of their da Vinci fleets.
Elsewhere China.
And in Japan, and Europe had solid placements in the quarter and our placements in Brazil showed strength.
Turning to our newer platforms are single Port system da Vinci SP had a solid quarter as we pursue additional indications.
Placements of our flexible Bronchoscopy platform, Ireland grew nicely sequentially Q2 to Q3 powered by continued.
Customer experiences in the field.
Our finances were strong again this quarter, though they followed an unusual path.
Systems strength and favorable systems sales mix drove strong system revenue.
Procedures grew at the low end of our expectations as a result of the Delta variant.
Instrument and accessory revenue per procedure move down modestly.
<unk> nine procedures continued to make up more of the procedure mix and our extended use instrument program reaches equilibrium in the field.
Our spending grew sequentially and year over year as we continue to invest in expanding our new platforms and digital programs as well as build our go to market capabilities globally.
<unk> growth was again modestly lower than plan driven by some increase in time to fill open positions in a tight labor market lower travel related spending given the pandemic and some underspending in prototypes.
We will continue to invest in programs that fulfill the mission and built the company.
Turning to our innovation efforts we developed.
And deploy technology enabled solutions to support our customers' pursuit of the quadruple aim.
Better outcomes better patient experiences better care team experiences and lower total cost to treat per patient episode.
I'd like to take a moment to overview the clinical status of our programs.
For our da Vinci systems, there are now over $9 7 million lifetime.
Our expect performed with over 28000 peer reviewed clinical publications da Vinci X and XI now have over 70 Representatives clinical uses.
Allowing broad use across multiple clinical specialties from urology gynecology thoracic surgery general surgery, and trans oral surgery.
<unk>.
Procedures of surgeons routinely use our multi port systems, we continue to invest in our multi port products instruments and services to further expand their capabilities and indications.
Leading surgeons continue to work with us to pursue new learning with several prospective studies ongoing.
Our flexible bronchoscopy system ion continues.
A thousand minimum clinically and commercially.
With several presentations and manuscripts updating on clinical progress at the 2021 chest conference. This weekend.
As described in yesterday's press release early clinical trial results point to outstanding capability, allowing for definitive diagnosis of hardware each month leases.
Our teams are hard at work building our manufacture.
To build them and supply capabilities to meet rising demand.
Our single Port system SP has a clinical database of 28 peer reviewed clinical publications. There are currently several ongoing prospective studies for SP in Korea, and the United States, including our IDE trial for colorectal indications.
This quarter, we received FDA approval of our.
In fact order thoracic ITE.
Broad SP adoption will be paced by additional regional and clinical clearances, which remain our focus for the SP program.
Our digital solutions provide data driven insights to surgeons operative services in hospital administration.
For virtual reality training to efficiency insights to customer comparative outcomes.
And all of these tools are now routinely employed by our customers and our teams to improve programs.
Our analytics program supported thousands of customers in the quarter.
Turning to machine learning our teams are at the leading edge of ml based clinical science for surgery through our collaborations with leading academic centers informing algorithmic and scientific discovery.
Unit taken together these programs allow our customers to quantify our collective impact on the quadruple aim.
<unk> mission.
Before turning the time over to Marshall today, we announced some changes and responsibilities of our senior executive team.
These changes are the result of a structured process over the past few years and they are driven by our need to support.
<unk> growth in our product lines commercial reach operations capabilities and business infrastructure as we scale to meet the global opportunity to advancement of invasive care.
Starting January one 2022, our executive Vice President and Chief Business Officer, Dave Rosa will take on an important new role of executive Vice President and Chief strategy and.
Growth officer.
Leading our efforts to identify and realize long term business opportunities continuing to build the value of our integrated product offerings and ensuring our customers clearly understand the value of our ecosystem and creating successful minimally invasive programs.
Henry Charles currently general manager of the U S and Europe will succeed David.
<unk> commercial officer.
Overseeing global commercial sales regional marketing and commercial enablement.
Also Marshall Mohr will take on an important new position as executive Vice President Global business services bidding.
Bidding intuitive continued growth in information technology, and our enterprise process.
Data and systems.
<unk> is <unk> facilities.
Amy Samoth will succeed Marshall as Chief Financial Officer.
They are each outstanding proven leaders and will report to me, we expect them to spearhead our efforts to achieve our mission and continue to position intuitive as first choice of our customers in a growing marketplace.
I'll now turn the call over to Marshall.
And Glenn Thank you through our financial highlights in greater detail.
Good afternoon, I'll describe the highlights of our performance on a non-GAAP pro forma basis I will also summarize our GAAP performance later in my prepared remarks.
Reconciliation between our pro forma and GAAP results is posted on our web site.
The information in our earnings release.
Within our prepared remarks reflects the three for one stock split completed earlier in October.
Overall third quarter procedures grew 20% year over year and reflected the impact of Delta variance resurgence.
It also impacted third quarter, 2020 procedures, making year over year comparisons complicated.
In.
In the U S procedures grew 16%, reflecting the impact of the Covid resurgence had on hospital resources regionally the impact of the resurgence was most pronounced in August and early September and regionally in the south and southeast.
Later in the quarter as Covid cases began to slow procedures began to recover.
However, it is difficult to estimate the extent to which this resurgence or future resurgence will impact da Vinci procedures.
Year over year O U S procedures grew 30% with the impact of Covid varying regionally.
And Europe, Covid had a greater impact in Italy, and France, and less in UK and.
Jeremy while they were.
While there continued to be Covid hotspots within some of our Asia Pacific markets overall procedures into region performed well.
China growth in the third quarter continued to be far higher than other regions, primarily reflecting system installation growth over the past year.
Relative to the beginning of the pandemic many hospitals.
Are you able to better manage coke increased covered patient hospitalization.
However, staffing shortages in hospital supply chain issues are challenging in some challenging some hospital capacities and could impact deferrable procedures, including da Vinci procedures going forward.
Jamie will provide additional pro.
The commentary later in this call.
Key business metrics for the third quarter were as follows third quarter 2021 procedures increased approximately 20% compared with third quarter 2020, and decreased approximately 3% compared with last quarter compounded annual growth between.
Cedric and quarters of 2019, and 2021 was 13, 5%.
Third quarter system placements of 336 systems increased 72% compared with 195 systems for the third quarter of 2020.
It increased 2% compared with 328 systems last quarter we.
Second at our installed base of da Vinci systems over the last year by 11% to approximately 6525 systems disk.
This growth rate compares with 8% last year and 10% last quarter.
Utilization of clinical systems in the field measured by procedures per system increased approximately 9% compared with.
We expect year and decreased 6% compared with last quarter compounded annual utilization growth rate between the third quarters of 2019, and 2021 was 3%.
Moving on to capital placement system placements for the quarter reflected a continued trend of <unk> and multi system purchases and were driven.
Procedure growth in hospitals upgrading in order to access or standardize on fourth generation capabilities.
Looking forward, we see the following capital revenue dynamic.
Cedar growth drives capital purchases in many of our markets to the extent that COVID-19 impacts procedures. It will also impact capital purchases.
The.
Trading cycle has been a tailwind to system placements. However, as the installed base of older generation product declines the number of trade ins will decline over time.
Leasing and alternative financing arrangements enabled customer access to our systems, while the percentage of systems placed under operating leases fluctuate quarter to quarter, we believe leasing.
<unk> will increase as a percentage of sales over time, which will result in the deferral of otherwise current revenue into future periods.
Macroeconomic conditions created by Covid could regionally impact hospital capital spending and as competition progresses in various markets, we will likely experience longer selling cycles and price pressures.
Additional revenue statistics and trends are as follows third quarter revenue was $1 4 billion, representing a 30% increase from last year and a 4% decrease from last quarter. The compound annual revenue growth rate between the third quarters of 2019, and 2021 was 12%.
The year over year.
Revenue increase reflected growth in both procedures and system placements.
The decrease relative to the second quarter of 2021 reflects lower instrument and accessory revenue associated with lower procedures.
And increased leasing as a percentage of placements.
Leasing represented 41% of current quarter.
Compared with 35% last year and 33% last quarter.
<unk> as a percentage of total sales has and will continue to fluctuate with customer and geographic mix.
However, we anticipate more customers will seek leasing or alternative financing arrangements than reflected in historical run rates.
40%.
Play systems placed in the third quarter involved trade ins, which is consistent with the 40% last year and higher than the 38% last quarter.
As customers continue to upgrade to fourth generation capabilities. The population of installed <unk> is decreasing particularly in U S, where 97 trade ins were completed in the third quarter, leaving.
A solid base of size of approximately 425 systems.
As a result, we expect lower trade out transactions over time.
In activity can fluctuate and be difficult to predict.
Third quarter average selling prices increased to $1 $5 7 million from $155 million for both the third quarter of two <unk>.
And it's funny and the second quarter of 2021.
Average selling prices will fluctuate with geographic and product mix.
Consistent with historical patterns, we expect a higher mixing systems sold to distributors in the fourth quarter, which carry lower prices.
We recognized $25 million of lease buyout revenue in the third quarter compared.
$17 million last year and $26 million last quarter.
Lease buyout revenue has varied significantly quarter to quarter and will likely continue to do so.
Instrument and accessory revenue per procedure of $1900 decreased slightly compared with $1910 per procedure for the third quarter of last year.
Compared with decreased compared with $1940 per procedure in the second quarter.
The year over year change reflects increased usage of extended use instruments, mostly offset by increased usage of our advanced instruments.
The decrease from the previous quarter reflects customers continuing to adjust.
<unk> instrument buying patterns to reflect the additional usage per instrument included an extended use instruments.
10 of the systems placed in the third quarter were SP systems, our installed base of SP systems is now 89 tenant Korea and 79 in the U S.
We continue our measured rollout of SP as we work on gathering clinical data.
They are into gain additional procedure clearances in the U S.
We placed 28 ion systems in the quarter, bringing the installed base to <unk> 98 systems. There were approximately 2000 ion procedures completed in the third quarter.
I and system placements and procedures are excluded from our overall da Vinci system and procedure.
Data counts.
Our rollout of ion is progressing well.
Outside the U S replaced 109 systems in the third quarter compared with 79 in the third quarter of 2020, and 115 systems last quarter.
Current quarter system placements included 47 into Europe.
<unk> into Japan, and 17 indeed.
Procedure compared with 39 into Europe, 15 into Japan, and 12 into China in the third quarter of 2020.
We also placed <unk> systems in Brazil in the third quarter and now have placed 23 systems in Brazil over the past four quarters.
Moving on to gross margin and operating expenses.
Pro.
Into China gross margin for the third quarter of 2021 was 71, 3% compared with 72% for the third quarter of 2020, and 71, 7% last quarter.
The third quarter of 2020 included $23 million of service credits issued in conjunction with our customer relief program higher Pearce.
Pro forma associated with lower production levels, and higher excess and obsolete inventory charges.
The decline in gross margin relative to the second quarter, primarily reflects product mix.
Product and customer mix fluctuate quarter to quarter, which can cause fluctuations in gross margins.
Covid has impacted global.
<unk> causes of semiconductors and other materials used in our products.
While to date, we've been able to secure supply necessary to ensure fulfillment of customer demand. Our teams are spending significant time and effort to bridge future supply with demand.
To date, we have experienced immaterial component increased cost increases and.
Freight expedition fees, However, global shortages could result in future supply disruptions as well as delayed development and regulatory activities.
We also expect supply issues to result in higher production costs.
Pro forma operating expenses increased 21% compared with the third quarter of two.
<unk>.
And increased 2% compared with last quarter.
The increase compared to the prior year reflects costs associated with higher headcount increased variable compensation.
And increased spending in areas impacted by Covid.
Third quarter spending was below our expectations due to delays in head count hiring.
Lower spending on activities restricted by Covid, including clinical development marketing events and travel costs.
In addition, COVID-19 delayed some R&D work, resulting an under spend on prototypes.
We expect spending on activities restricted by Covid to increase as the impacts of the pandemic decline. We also expect.
<unk> spending to increase as a percentage of revenue as the investments in headcount infrastructure and other support areas catch up to the growth of the business.
Finally, we expect to continue to invest in expanding and accelerating our ecosystem of products and capabilities.
Jamie will provide spend guidance later in this call.
Our pro forma effective tax rate for the third quarter was approximately 24%.
We recorded expense of $11 million associated with periods. Prior to 2020 related to guidance recently provided by the IRS associated with stock based compensation.
We expect our pro forma tax rate for the fourth quarter to be approximately 21.
Percent.
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 third quarter pro forma net income was $435 million or $1 19 per share compared with $334 million or <unk> 90.
Five per share for the third quarter of 2020.
$477 million or $1 31 per share for last quarter.
Third quarter 2021, and 2020 included pretax gains of approximately $8 million and $62 million associated with investments in companies that resulted from.
To supplement agreements entered into in prior years.
I will now summarize our GAAP results GAAP net income was $381 million or $1 <unk> per share for the third quarter of 2021, compared with GAAP net income of $314 million or <unk> 87 per share for the third quarter of 2020 and GAAP.
Net income of $517 million or $1 42 per share for last quarter.
We ended the quarter with cash and investments of $8 2 billion compared with $7 7 billion last quarter. The increase in cash in the third quarter, primarily reflected cash from operations and stock exercises.
We did not repurchase.
Developed shares in the quarter.
That I would like to turn it over to Jamie.
Thank you Marshall our overall third quarter procedure growth was approximately 20% compared to growth of 7% during the third quarter of 2020 Q.
Q3 procedure growth reflected 16% growth in U S procedures.
<unk>, 8% growth and no U S markets.
In the U S procedures in Q3 were adversely impacted by an increase in COVID-19 related hospitalizations due to the ovarian.
Procedures were particularly impacted in those states with relatively lower vaccination rates.
As the number of Covid related hospital.
And sedation has peaked and began to improve in September we saw U S procedures start to recover.
Q2, Q3 growth reflected relative strength in bariatrics procedures, cholecystectomy and hernia repair.
And the more mature procedure categories year over year growth in prostatectomy.
Really strong relative to historical averages.
And benign hysterectomy grew in the low single digits range.
Third quarter <unk> procedure volume grew approximately 30% compared with 9% growth for the third quarter of 2020.
Third quarter 2021 O U S procedures were driven by growth in prostatectomy.
With strength earliest stage growth in general surgery, gynecology kidney cancer procedures and thoracic surgery.
China procedure growth remained strong and broad based as a result of continued expansion of the installed base under the current quota.
And the addition, and training of surgeons, new to the da Vinci platform.
Growth in Japan was solid but was impacted by localized lockdowns stemming from ongoing efforts to prevent resurgence of COVID-19.
Growth in Korea was also solid primarily driven by gynecology, urology and head and neck procedures.
And a little more than half of the procedures and these.
Jimmy Key Asian markets are outside of urology.
In Europe for <unk>.
Future growth varied by country based on the relative impact of the Dell ovarian and the impact of Covid related mitigation measures.
Growth in the UK, and Germany was solid with procedure growth in France and Italy.
<unk> III acted by reduced capacity for surgery as hospitals reserves resources for potential increases in COVID-19 patients.
During Q3 customers in the U S and Europe effectively consume the remaining inventory of 10 life instruments. Following the launch of extended use instruments in those regions.
<unk> in Q4 of last year.
With this full adoption in the U S customers are benefiting from IAA per procedure costs that reduced by approximately 10% and lower acuity procedures, such as cholecystectomy and hernia repair.
In Europe customers are benefiting from an even larger.
Reduction in <unk> costs, but targeted procedures.
While recent procedure trends that confounded by the various waves of the pandemic. We believe based on customer feedback to the adoption of extended juice instruments is having a positive impact on targeted procedures.
And on new platforms.
I own procedures increased almost four fold as compared to Q3 of 2020, driven by a significant expansion of the number of systems that customers and an increase in usage in the existing installed base.
Our Singapore platform, which has gained by additional regional and clinical clearances showed solid performance with.
Almost 50% year over year procedure growth.
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.
To gain a more complete understanding of the body of evidence we encourage all stakeholders to thoroughly.
Thoroughly review the extensive detail of scientific studies published.
Published over the years.
During the call are Dr. Michael Ken from Beth Israel Deaconess Center, Harvard Medical School in Boston, Massachusetts.
Results from our landmark multicenter pulmonary open robotic.
Iraq, a scopic lobectomy or port will study in the annals of surgery.
This retrospective study sponsored by intuitive compared lobectomy outcomes associated with open vats robotic assisted da Vinci surgery with over 6000 cases included in this analysis.
After.
After one to one propensity score matching.
Parison of open in da Vinci Lobectomy is with approximately 800 patients in each group showed.
Showed a two day shorter length of stay in a nine 5% lower rate of prolonged hospital stay associated with da Vinci Lobectomy is.
The da Vinci cohort also.
<unk> also had an approximately eight minutes shortening our time for cases without a concomitant procedure.
Post operative complications were approximately 9% lower with the da Vinci robotic approach.
With regards to the propensity score matched comparison of minimally invasive approaches with over 17.
700 patients in each group.
The da Vinci approach evidenced a $1 one day shorter length of stay and a six 1% low rate of conversion to thoracotomy when compared to vats with differences in conversion rates report for each tumor stage in the analysis.
The authors concluded in PA quote.
And this retrospective multi institutional data analysis, both robotic assisted in VAT slip back to me were associated with improved Periapt operative outcomes compared to open lobectomy.
Robotic assisted lobectomy was associated with additional differences compared to vats, such as a reduced length of stay and conversion.
<unk> right.
In August of this year Professor Umberto <unk> from the University of Naples, Federico the second and Naples, Italy published a systematic review with meta analysis of trans versus Abdominous release.
Ah eventual hernia repair assessing short.
Short term outcomes as the open and robotic assisted approaches.
The macro analysis combined six studies containing over 800 patients.
Of which just on just over 200 patients underwent robotic assisted da Vinci surgery.
In just under 600 patients who underwent the open approach.
Results of this metro analysis found that the robotic assisted approach was associated with a full four day shorter length of stay.
64% lower risk of post operative complications and.
79% lower risk of developing systemic complications.
Readmission and re operations were comparable.
Well, but both groups.
The office concluded in par quote based on the data from the meta analysis, the robotic approach for TR seems safe.
From feasible, even in more difficult cases.
Robotic assisted <unk> shows that common advantages of minimally invasive procedures that improvement.
Improved short term outcomes with significant benefits in the early post operative period.
Lastly, as noted in yesterday's press press release preliminary results from the precise study evaluating outcomes associated with the ion and aluminum system were presented at the annual chest conference.
This preliminary analysis of 69 subjects showed a diagnostic yield of eight 3% with a sensitivity of malignancy of 84% to 88% from the biopsy of peripheral pulmonary nodules with a mean size of 17 millimeters.
These initial outcomes regarding the performance of the <unk> system.
<unk> are encouraging and we look forward to the full study being published in the second half of 2022.
I will now turn to our financial outlook for 2021.
During Q3, we experienced a more challenging supply chain environment with a deterioration in on time delivery performance from our suppliers.
We also saw increased supply chain costs.
While this did not have a material impact to our operating results in Q3. The outlook. We are providing does not reflect any potential significant disruption or additional costs related to supply constraints.
Starting with procedures.
Last quarter, we forecast.
<unk> 2021 procedure growth of 27% to 30%.
Given Q3 results and the impact of the Delta Varian, we are now narrowing our forecast and expect full year 2021 procedure growth of 2007% to 29%.
This procedure outlook does not reflect a significant impact from.
Staffing shortages or or a resurgence of COVID-19.
The high end of the range assumes that COVID-19 related hospitalizations in the U S continue the recovery that began in September.
And the Covid related mitigation measures and O U S markets continue to ease.
Oahu to gross profit on our last call we forecast our 2021 full year pro forma gross profit margin to be within 75, and 71, 5% of revenue.
We now expect 2021.
<unk> profit margin to be within 71, and 71, 5% of revenue.
This range does not reflect any significant disruption associated with the current supply chain challenges.
Our actual gross profit margin will vary quarter to quarter.
Depending largely on product regional and trade in mix the impact of product cost reductions and manufacturing efficiencies.
And competitive pricing pressure.
With respect to operating expenses on our last call we forecast to grow full year pro forma 2021 operating expenses between 17, and 21% above 2020 levels.
We are refining our estimate and now expect a full year pro forma operating expense growth to be between 17%.
10%.
We expect our noncash stock compensation expense to range between 450 $460 million in 2021.
With regard to pro forma other income, which is comprised mostly of interest income we expect a range of between 50 and 50.
And $95 million in 2021.
Finally, with respect to income tax we expect our Q4 2021 pro forma tax rate to be approximately 21, 5% of pre tax income.
That concludes our prepared marks remarks, we will now open the call to your questions.
<unk> ladies.
Ladies and gentlemen, if you would like to ask a question. Please press one zero on your phone's keypad, you'll hear me acknowledgment that you've been placed in Q and you can remove yourself from Q by repeating the onesie <unk> quip youre using a speakerphone with UFC. Please pickup your handset before pressing the numbers once again for questions press one zero at this.
It's time for.
One moment for our first question.
We will go first to Amit Hasan with Goldman Sachs. Your line is open. Please go ahead.
Hello, Thanks, and good afternoon I wanted to come.
To the supply chain comment first.
Just to ask you how visibility looks for component tree now versus maybe a little bit earlier. This year, what lead times look like now it sounds tighter just a little more color around that and to what extent have you kind of already.
Already been able to either.
The double order for lack of a better term I guess their stockpile this year and how viable are an option does that remain for ya.
Yeah, I think it's.
Marshall.
The environment as it relates to supply chain.
Has deteriorated gotten more difficult over time.
And as we said we've dedicated substantial resources to.
Dealing with those shortages.
It has not to date created an issue with us supplying customer demand.
But there is a risk.
It's a real risk and so we call it out to make sure that everybody is aware of that.
From the perspective of of course.
We took some costs increased material costs.
Last quarter, they were not significant and we also incurred some expediting fees associated with freight again not material, but going forward, we do expect cost.
Increased costs.
Probably hit hit the margin.
Q3, Q4 Q1.
It's hard to predict exactly how much.
And so.
I think that kind of summarizes it for you.
It's a difficult environment right now.
I'd, just say I think our supply chain and manufacturing teams are doing.
I think they're working in a tough macro environment in that microenvironment will clear up when it clears up.
Thanks, Brian ask what's.
Next question, we go to Larry <unk> with wells.
Great Oh go ahead please.
Good afternoon. Thanks for taking the questions just two for me one on ion Gary and then one on procedures. So the precise data look good yesterday I guess the question is do you think the early data suggests your shape sensing technology can lead to better yields and lower pneumonia.
Thoracic rates versus your main competitor, which is used as a different technology and how much of a catalyst do you think the data from yesterday will be for ion and I just had one follow up.
Yes, I think that the architecture as a whole.
Shaped sensor the way it works the design choices.
They are making a soft catheter, that's quite and can go deep into the lung.
There's been really strong for us and I think the data speaks for itself.
Comparable for yourself.
Data that folks using ion are producing and that for monarch and we feel great about where we are.
I think it is capitalizing.
As we speak I think that those results are helping us in the market.
Customers are giving us really good feedback and we continue to invest in the operations part of that program as well as the innovation side.
Feel really good about it.
Thanks for that Gary and then on procedures.
There is about I guess, it sounds like most or if not all major markets are moving in the right direction I'd love to hear a little bit more color, particularly on the U S and it sounds like Jamie and by the way congratulations on the new role.
It sounds like you know, we should expect normal seasonality in Q4, when we look at 2018 in two.
I can <unk> the sequential procedure growth was very similar worldwide U S and O U S is it possible that it could be a little stronger given that we're seeing a recovery. Thanks for taking the question.
Yes, Thank you Larry and by the way I.
I would say this was reflected in the high end of our procedure guidance.
<unk> thousand nine really two things that are COVID-19 related hospitalizations in the U S continue their recovery that began in September and that was kind of in the middle part of September that recover recovery commenced.
So there is a progression there that continues through Q4.
It also assumes that the.
Mitigation measures.
U S markets, which are typically a little more conservative than we see in the U S continued to ease those also start to ease in September.
Low and what we see is a slow recovery in the U S from what we saw in Q3 and.
The Choppiness O U S. In terms of kind of the on off of mitigation measures in various markets and so that range of 27% to 29% that we provided really is just a function of the rate at which we recover from what occurred in Q3 with the delta in bearings.
So my color.
Yes, Debbie just jumping in I think.
There's two things that are going on one is little pace us as hospital availability for surgery right. It's not infection rate, it's going to be resource consumption at the hospital and their ability to.
Pivot their resources, both human capital and facilities.
We're on that back towards surgery as.
As you double click on that some of it is regional variance, but some of it is actually just hospital systems or is there is differences in how each hospital's management.
So it's it's.
It's hard to generalize I think beware of averages.
Got it thanks for taking my questions.
<unk>.
Next question comes from Bob Hopkins with Bank of America go ahead. Please.
Hello, Thank you and good afternoon, I just just to.
Follow up on that last question so for Jamie.
Jamie or Marshall I guess.
Therefore.
Sure.
Procedure volumes.
You're forecasting for Q4.
Is that is that assuming improving year over year growth in Q4 versus the year over year growth in Q3 or about the same.
Yes.
I think what's implied by the guidance that we provided at the low end Q4 year over year growth will be 15%.
<unk> at the high end it will be 22%. So you compare that to what we showed in Q3 of 2000 and you see kind of the range is above and below what we recorded in Q3 and I think again it just it just reflects both the year over year comparison in terms of the base for Q4, and 2020 as well as the range of scenarios in.
That actually occurs with procedures in Q4.
Okay. Thank you for that and then just one quick one for Gary I was struck by your comments in your opening remarks about your.
How your multiple multi port systems now have 70 clinical uses.
I was curious if you could just elaborate on that a little bit is that 70 different surgical procedure.
Tons of orders or how.
How are you characterizing clinical usage, that's an interesting number yes.
It's the number of kind of different procedures Thats described in our labeling as to.
Where this might be used.
And the body Orient sub specialties so.
Got it.
Andrology, there's a handful of different procedures that it can be used for and likewise gynecology general surgery and as you just walked through that's a set of.
Procedures for which we've engaged the agency and put in our labeling.
So they are quite broadly applied.
Okay. My model only has 10.
Seizures have some work to do thank you.
Sure.
And we're not done I think surgeons, and we end and regulatory agencies around the world continue to explore where else technologies like ours can go.
Thank you.
Next question comes from Tycho Peterson with J J.
So I guess Morgan. Please go ahead.
Hey, good afternoon.
Wanted to see if you can elaborate a little bit more on the staffing shortage comments.
And that may be fully baked into guidance, but how much risk do you think this presents how widespread is it obviously, it's a very tight labor market, but I was just hoping you are seeing across most of your customers or how would you characterize it.
On the.
J P referring to the customer side correct.
Correct, Yes, Jamie I wanted to talk a little bit about it we've had anecdotal inputs from some customers that then facing start in staffing shortages. Other customers are set to us that they are able to overcome.
Those risks and so given kind of the mix dynamics in.
Yes.
Clear evidence on in terms of its impact on procedures and what we've said is the remainder of the year guidance does not reflect any significant disruption from our staffing shortages, meaning that there is no deterioration in that phenomenon for hospitals.
Okay and.
Another dynamic you flagged was just kind of a selling cycle. Obviously early days on the competitive front, but on the back of the CE Mark for Medtronic I'm, just curious you know out of Europe.
Hearing from your sales reps just in terms of early interest potential demos things like that.
Several of the other Sis.
And then in the market and as you say the most recent one we see early engagement those first engagements tend to be a placement of clinical trial sites and training centers and so on so they are not.
Not surprising there kind of the early access programs to get into the market.
So far there for a number of claims about.
Some that are on these new systems will do it.
I think the reality is time will tell us their gen. One systems.
Evidence has to be generated to backup those claims and.
So far we don't see anything yet, but it looks like even it's just just the set of claims so.
Keep serving our customer doing what we can to make sure that they can achieve the quadruple.
What we will see how other companies do.
Maybe last one we have a sell side always get the question about the new system from you guys. It feels like Thats picked up a little bit lately you are putting up good numbers I'm curious in your view is that something the market needs right. Now what are you wanted to say anything at all about the appetite.
The tight curve another system from you guys or anything you may be working on.
First thing is that we think there is room for innovation on all the platforms. We have so whether it's multi port in Gen. Four we continue to innovate we've done a lot of.
Sequential innovation on Gen. Four so our <unk> are different.
Lehmann.
We continue to invest both in incremental opportunities and then deeper bigger opportunities on multi port and as we're ready to roll those out youll hear about it.
We brought to market SP, we continue to innovate on SP and get sequential products and clearances globally for SP.
And likewise I on which.
Is having great success early in its first indication, but we think has opportunities deeper in the body in different locations in the body, which will.
Proceed and describe overtime. So I think you should expect continued innovation from us.
As to.
Whether we think that we're an immediate need of something.
We are innovating at a pace, where we think we can bring things that matter to the quadruple aim not so much an idea of what's our retail strategy, but more can we can we do something that that changes quadruple aim or otherwise improves the customer.
Her experience what we're focused on.
Okay. Thank you.
Next question comes from Rick Wise with Stifel Go ahead. Please.
Good afternoon everybody.
One focused question and then a larger picture one.
Gary when you.
In your opening comments you you mentioned that extended like instruments. If I understood. You have reached I think your board was equilibrium.
I just want to make sure I understood. What you were implying is that suggests that.
The initial phase of adoption has happened and we're going to see better growth ex sort.
<unk>.
Initial stocking ASP impact.
Is there a second round.
Instruments.
It has been so successful.
How should we think about all of that.
With regard to what I meant by equilibrium. It was really that that initial stocking orders in the transition from older instruments to new orders.
Taking place, but I'll, let Jamie.
So with that more carefully than I just did.
I think thats right, Gary there was a period of time when.
We launched an extended use instruments customers in the U S and Europe in particular, we're ordering those instruments.
Higher than their usage as they consume that 10 life an.
As Laurence that took some time to gain to parity and so you saw in the end a positive benefit to INR per procedure in Q1 and Q2 Q.
Q3 for those regions that largely came to <unk>, we did launch extended use instruments.
In Asia.
The rest.
Instrument and trees and so they are still kind of working their way to parity. So there'll be small downward pressure on <unk> per procedure, holding everything else equal as they get to Apache looking forward.
The.
Half of your question just to finish it talked about are we done is that is that it.
For these kinds of ideas.
Extended use instruments in da Vinci X These were <unk>.
Design and process.
Investments that we've made to pursue what we think of as the virtuous cycle. The idea that if we can.
Quality and lower cost for our customers that they can use our products.
And more and different procedures.
We're not.
Welcome that it may not look exactly like what we've done in the past there are other things that we think we can do that.
Allow them.
High value systems at different price points or high value instruments of different price points. So that that line of reasoning is not exhausted.
Alright, great.
One last big picture.
Andres.
Obviously.
You've created two new senior leadership roles here for Marshall on for Dave Ross.
Maybe just if you could just flesh out your thinking.
Is it simply and it will be enough.
My name is gotten so large and complex in the future.
So Brian you just need more senior leadership focused leadership or.
What are you charging what are you expecting what should we expect from Marshall and Dave in coming years. Thank you. Thank you for that question.
Over the last few years.
We've had.
An expansion of.
Picture, Chris and expansion of opportunity both are happening.
On the business side, we want to make sure that we serve our customers.
Very high quality quickly.
In local regions, where we can and that we take advantage of.
A lot of the systems and enterprise data that we have to help drive the business.
Business and help our customer and Thats.
Something that Marshall has been doing and I've asked him to.
Double down on that to make sure that we can really take advantage of our global scale and serve our customers and our business really well at that scale.
As an opportunity.
We will work.
The flip side.
And as I I have never been more.
Positive about the long term opportunity for companies like ours that can master the kinds of things that we have to do to help.
Minimal invasive care and and and.
Interventions and so there's real opportunity there.
And I'd like us.
Syed there quickly to have the agility and focus to be able to open new ideas and new architectures and new markets.
I can think of nobody more qualified to lead that effort then Dave Rosa who has visited just about all parts of the of the company started off as an engineer and scientist and has done many things for us so.
Together with trying to get the advantages of scale to help our global customers and also of the agile on capitalizing on growth opportunities as we see.
Thank you so much Greg.
Yeah.
Next question comes from Matt Taylor with UBS go ahead. Please.
Hi, Thanks for taking the question.
I was hoping maybe Marshall you could talk a little bit more about the supply chain issues from the standpoint of just helping us get visibility or understand how how close you are to the edge there, meaning you keep calling out the script.
But it sounds like you've been doing a really good job.
So we're really like things so.
So far is there any benchmark numbers you can give us to help us understand what the lead times are and some of the key things that could get disrupted or the likelihood that it will.
Will happen is it getting better or is there a real risk of not being able to ship some kind of product as they get the core of the question.
I don't.
But man say its getting better I actually think that it's.
It's a difficult situation and we will continue for some time, if you think about that.
The one that's been talked about the most of the semiconductors, you've seen it in the auto industry as an issue and computers and if you had to order any.
Home goods are contained chips, you would know that there is a.
Problem there.
That will take a long time to remedy it takes a long time to build fabs. It takes a long time to produce product and so.
I think that will go well into next year are the predictions that were hearing.
I think Gary told you our team has done a marvelous job. So far so I think there are issues on a.
A regular basis.
And the issues so far our team has been able to resolve those I don't have any statistics to provide you on how often are.
What it means.
I would just say that some anecdotally some.
Lead times have extended beyond six months.
That's kind of our product.
On average you should apply to everything but.
In some cases, it's pretty long.
So I. Thank you.
It's a problem. We highlight is just to make sure that you're aware of the risk.
Okay. Thank you very much.
We have a follow up question from Hassan with Goldman Sachs Go ahead. Please.
Okay.
Oh.
Thank you for that.
So I thought maybe just to follow up on.
There's a bunch of question with just a little bit more on just inflationary headwinds generally.
And Marshall just how youre seeing labor cost growth today versus kind of early in the year are more normal times in raw material cost growth versus versus normal more normal times and it just had to for us to start thinking about these things along with what you commented on the supply chain for next.
Just qualitatively as we start to think about where operating margins might go.
We've seen some cost increases again, they haven't been that significant and frankly are our teams are kind of <unk>.
Marvelous job of sort of with efficiency and effectiveness to offset those increased costs.
What we're hearing from.
Year from suppliers.
Going to raise their prices.
We're saying that hey, we expect that costs will go up more.
Sure I'm going to say that the inflation, where it has hit us and it's here to stay but we.
We are seeing some suppliers raised cost.
Thank you.
Our next question comes from Vijay Kumar with Evercore ISI Evercore ISI go ahead Bruce.
Oh, Hey, guys. Thanks for taking my question.
Gary maybe up to two.
Quick one for you.
The priest.
So the 80% diagnostic resolution.
Could you.
Is that good enough Gary I mean, certainly one when you know the headline numbers. When you look at other studies. It is a good number but I'm. Just curious is this the point where the market.
Americans.
To these numbers and should we see an inflection.
Istent adoption of ion and just one quick one on <unk> I know you've called out the guy that was there any labor shortage impact in that <unk> itself, because historically, we haven't seen.
The pandemic impact.
Intuitive has outperformed peers.
Sure.
Absolutely excessive and CTO was there something else going on thank you.
Okay on the on the first one on in terms of diagnostic yield you had said, 82% and I guess, what I advise everybody is.
Theres a couple of numbers that are important and they stayed linked together and that is what is the size of the lesion.
Brian what's the positive diagnostic rate ability to definitively definitively diagnose that's what the interventional pulmonologists, we're looking at so the bigger the lesion that fits.
Three centimeter lesion.
Our diagnostic yield rate is going to go up definitive data because it's easier to hit.
So you got to look at both.
And that's it's not a single.
Metric, so 82 four smaller lesions.
Leading as far as I can tell for.
Andrew Endobronchial approaches for that approach.
Some folks can get a higher yield rates, but theyre hitting bigger targets. So you need to look at both.
Number I encourage you to do the second thing that I advise you is that there are other ways too.
Examine or get a biopsy theyre going to be outside the body.
<unk> guided needle biopsies and those outside the body <unk> needle.
Got it needle biopsies have high.
Success rates.
And thats gathering the tissue, but they have a lower safety profile than the endobronchial approach. So there's kind of a third dimension, which is did you get the tissue you needed to get a definitive diagnosis. How big was the lesion you were trying to target and what was the complication rate and we think that <unk> is really good at it.
Managing all three of those relative.
It takes additive approaches we're seeing.
Nice uptick as a result and as that.
A tipping point, we'll see.
So far so good.
We had expected this kind of performance that that's what we were targeting but we're pleased to see it being borne out over multiple sites and multiple customers and we.
That's helpful.
With regard to your second question you were talking a little bit about where we are.
Seeing an unusual or more aggressive slowdown because of delta than perhaps others.
I'd encourage you to think about there is where in the world everybody is exposed and where they're seeing their growth.
So.
Yeah.
To convert in our case, we have a certain regional profile and where our procedures are being done other companies may have much bigger exposure to say markets are where countries that have a lower impact having to do with delta.
Frankly, I think it's as simple as that but time will tell on that as well.
So.
And I'll go ahead and conclude 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.
Our teams continue to work closely with hospitals physicians and care teams in pursuit of what our customers have termed the quadruple aim.
Better more predictable patient outcomes better experiences.
So all those patients better experiences for their care teams and ultimately a lower total cost of care.
We believe value creation in surgery, and acute cares foundation with humans.
It falls from respect for and understanding of patients and care teams their needs and their environment.
Thank you for your support on this extraordinary journey, we look forward to speaking.
For you again in three months.
Okay.
Ladies and gentlemen that does conclude your conference call for today. Thank you for your participation and for using AT&T then conferencing.
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