Q4 2023 Intuitive Surgical Inc Earnings Call
Okay.
Thank you.
Okay.
Yes.
Yeah.
Okay.
Yeah.
Thank you everyone for standing by. Welcome to the Intuitive 4th Quarter 2023 Earnings Call. At this time, all participants are on a listen-only mode. Later, we will conduct a question and answer session. If you wish to place yourself in queue for questions today, please press 1 and 0 on your telephone keypad. If you want to remove yourself from the Q&A, you may repeat the 1 and 0 command.
Thank you everyone for standing by working to the intuitive fourth quarter 2023 earnings call. At this time all participants are in a listen only mode. Later, we will conduct a question answer session. If you wish to place yourself in queue for questions. Today. Please press one to zero on your telephone keypad, if you want to remove yourself from the Q&A.
<unk> you may repeat the London Zero command.
I will now turn the call over to your host, Head of Investor Relations, Brian King. Please go ahead.
I would now turn the call over to your host head of Investor Relations, Brian King. Please go ahead.
Brian King: Good afternoon and welcome to Intuitive's fourth quarter earnings conference call. With me today, we have Gary Guthart, our CEO, and Jamie Samath, our CFO.
Brian King: Good afternoon, and welcome to intuitive <unk> fourth quarter earnings Conference call with me today, we have Gary <unk>, our CEO and Jamie <unk> our CFO.
Brian King: Before we begin, I would like to inform you that comments mentioned on today's call may be deemed to contain forward-looking statements.
Brian King: Before we begin I would like to inform you that comments mentioned on today's call may be deemed to contain forward looking statements.
Brian King: Actual results may differ materially from those expressed or implied as a result of certain risks and uncertainties.
Brian King: Results may differ materially from those expressed or implied as a result of certain risks and uncertainties. These.
Brian King: These risks and uncertainties are described in detail in our Securities and Exchange Commission filing.
Brian King: 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 10, 2023, and Form 10-Q filed on October 22023.
Brian King: including our most recent Form 10-K, filed on February 10, 2023, and Form 10-Q, filed on October 20, 2023. Our SEC filings can be found through our website or at the SEC's website.
Brian King: Our SEC filings can be found through our website or at the Sec's website.
Brian King: Investors are cautioned not to place undue reliance on such forward-looking statements.
Brian King: Investors are cautioned not to place undue reliance on such forward looking statements.
Brian King: Please note that this conference call will be available for audio replay on our website at intuitive.com on the event section under our investor relations page.
Brian King: Please note that this conference call will be available for audio replay on our website at intuitive dot com on the events section under our Investor Relations page.
Brian King: Today's press release and supplementary financial data tables have been posted to our website.
Brian King: Today's press release, and supplementary financial data tables have been posted to our website.
Brian King: Today's format will consist of providing you with highlights of our full year and four quarter results.
Brian King: Today's format will consist of providing you with highlights of our full year and four quarter results.
Brian King: As described in our press release announced earlier today, followed by a question and answer session.
Brian King: As described in our press release announced earlier today, followed by a question and answer session.
Brian King: Gary will present business and operational highlights, Jamie will provide a review of our financial results,
Brian King: Gary will present, the business and operational highlights Jamie will provide a review of our financial results.
Brian King: Then I will discuss procedure and clinical highlights and provide our financial outlook for 2024, and finally, we will host a question and answer session.
Brian King: I will discuss procedure and clinical highlights and provide our financial outlook for 'twenty 'twenty four and finally, we will host a question and answer session.
Brian King: And with that, I will turn it over to Gary.
Brian King: And with that I will turn it over to Gary.
Gary S. Guthart: Thank you for joining us today.
Gary: Thank you for joining us today.
Gary S. Guthart: I'll touch on our performance last quarter and for the full year 2023 and share our perspective on 2025.
Gary: I'll touch on our performance last quarter and for the full year 2023 and share our perspective on 2024.
Gary S. Guthart: The past year was a good one for Intuitive. With use of our platforms growing nicely, hospitals building additional system capacity to support that growth, and increased average utilization per system per year for each of our platforms.
Gary: The past year was a good one for intuitive with use of our platform is growing nicely hospitals building additional system capacity to support that growth.
Gary: An increased average utilization per system per year for each of our platforms.
Gary S. Guthart: Our teams have been delivering to meet customer demand, driving quality and availability improvements, running clinical trials, and readying new products and services for the market.
Gary: Our teams have been delivering to meet customer demand driving quality and availability improvements running clinical trials and readying new products and services for the market.
Gary S. Guthart: We'll touch on a few of those efforts on this call.
Gary: I will touch on a few of those efforts on this call.
Gary S. Guthart: Starting first with procedures, growth for the full year was 22%.
Gary: Starting first with procedures growth for the full year was 22%.
Gary S. Guthart: Areas of strength included general surgery in the United States and regional performance in countries including Germany, France, the UK, and Ireland, to name a few.
Gary: Areas of strength include a general surgery in the United States and regional performance in countries, including Germany, France, The U K and Ireland to name a few.
Gary S. Guthart: In the U.S., general surgery procedure growth was led by cholecystectomy.
Gary: In U S General surgery procedure growth was led by cholecystectomy.
Gary S. Guthart: With foregrip procedures rising as well.
Gary: With 400 procedures rising as well.
Gary S. Guthart: Colon and hernia procedure growth was also healthy for the year.
Gary: Colin and Rick Colon and hernia procedure growth was also healthy for the year.
Gary S. Guthart: Bariatric procedures grew year over year. However, we saw continued deceleration of growth throughout 2023, likely the result of the uptake of GLP-1 drugs for obesity.
Gary: The Reattribution Agers grew year over year. However, we saw a continued deceleration of growth throughout 2023 likely the result of the uptake of G. O P. One drugs for obesity.
Gary S. Guthart: Procedural growth outside the United States, diversified beyond urology, with nice growth in categories including gynecology and general surgery.
Gary: Procedure growth outside the United States diversified beyond urology with nice growth in categories, including gynecology and general surgery.
Gary S. Guthart: In flexible robotics, ion procedures showed continued strength, with 129% growth for the four years.
Gary: And flexible robotics high end procedures showed continued strength.
Gary: With 129% growth for the full year.
Gary S. Guthart: SP procedure growth was accretive in the year, with 48% growth over a full year, driven by acceleration in the United States.
Speaker Change: Yes, P procedure growth was accretive in the year with 48% growth over four year driven by acceleration in the United States.
Gary S. Guthart: On the capital front, we placed 1,313 multiport systems in the full year 23, compared with 1,241 multiport systems in 2022.
Speaker Change: On the capital front, we placed 1313 multiport systems and the full year 'twenty three.
Speaker Change: Compared with 1241 multi port systems in 2022.
Gary S. Guthart: Ion placements for the year were 213 versus 192 prior year, and SP placements were 57 for the full year versus 23 systems in the prior year.
I am placements for the year were 213 versus 192 prior year.
Speaker Change: And S. P placements were 57 for the full year versus 23 systems in the prior year.
Gary S. Guthart: Globally, placements were strong in the United States and Japan in the year.
Speaker Change: Globally placements were strong in the United States and Japan in the year.
Speaker Change: Thank you for joining us.
The use of flexible financing arrangements that was substantial in the quarter, particularly in the United States as customers seek to build capacity balance their da Vinci system portfolios to improve access and lastly to allow flexibility to upgrade to future systems.
Speaker Change: Jamie will take you through placement dynamics in more detail later in the call.
Jamie will take you through placement dynamics in more detail later in the call.
Speaker Change: System utilization, defined as procedures per installed clinical system per quarter, grew 9% globally year-over-year for our multiport platform, reaching a new high as customers adopt a broad mix of procedures on our system.
Speaker Change: System utilization defined as procedures per installed clinical system per quarter grew 9% globally year over year for our multi port platform, reaching a new high as customers adopt a broad mix of procedures on our systems.
Speaker Change: Utilization grew 15% for SP in the year, while it grew 6% for ION over 2022.
Speaker Change: Utilization grew 15% for S. P N a year, while it grew 6% for island over 2022.
Speaker Change: Utilization is an important indicator of customer health because it is correlated to patient demand, care team satisfaction, and hospital financial health.
Speaker Change: Utilization is an important indicator of customer health because it is correlated to patient demand care team satisfaction and hospital financial health.
Speaker Change: The above performance reported revenue of $7.1 billion for the year, 14% growth over 22.
Speaker Change: The above performance reported revenue of $7 1 billion for the year, 14% growth over 22.
Speaker Change: Our capital and operating expenses were on the upper end of our spend guidance, reflecting continued investments in R&D to support growth of our platforms and digital tools.
Our capital and operating expenses were on the upper end of our spend guidance, reflecting continued investments in R&D to support growth of our platforms and digital tools we.
Speaker Change: Expansion of our manufacturing and commercial footprints in capital amortization.
Speaker Change: Expansion of our manufacturing and commercial footprints in capital amortization.
Speaker Change: Product margins were challenged in the full year as a result of higher than expected costs, primarily for our newer platforms.
Speaker Change: Product margins were challenged in the full year as a result of higher than expected costs, primarily for our newer platforms Jamie.
Speaker Change: Jamie will take you through our financial performance in greater detail later in the call.
Speaker Change: Jamie will take you through our financial performance in greater detail later in the call.
Speaker Change: Strength in procedures, growth in the clinical install base, and increased utilization signal continued belief by our customers that our platforms make a difference in their efforts to pursue the quadruple aim.
Speaker Change: Strength in procedures growth in their clinical install base and increased utilization signaled continued belief by our customers that our platforms make a difference in their efforts to pursue the quadruple aim.
Speaker Change: Better outcomes, better patient experiences, better care team experiences, and lower total cost to treat for patient episodes.
Speaker Change: Better outcomes better patient experiences better care team experiences and lower total cost to treat for patient episode.
Speaker Change: As we look to 2024, I'd like to share with you that we have submitted to FDA our 510K application for our next generation multiport platform.
Speaker Change: As we look to 2024 I'd like to share with you that we have submitted to F. D. A R. Five 10-K application for our next generation multi port platform da Vinci five.
Speaker Change: DaVinci Five
Speaker Change: Our design priorities for our new platforms are as follows.
Speaker Change: Our design priorities for our new platforms are as follows.
Speaker Change: First, we look for opportunities to bring better minimally invasive care to more patients.
Speaker Change: First we look for opportunities to bring better minimally invasive care to more patients.
Speaker Change: Second, we work to improve the performance of our platforms and existing procedures.
Speaker Change: Second we work to improve the performance of our platforms and existing procedures.
Speaker Change: Third, we seek to improve care team satisfaction through product utility, dependability, and usability improvements.
Third we seek to improve care team satisfaction through product utility dependability and usability improvements.
Speaker Change: And finally, we strive to help lower the total cost to treat per patient episode.
Speaker Change: And finally, we strive to help lower the total cost to treat per patient episode.
Speaker Change: Once cleared, we believe DaVinci 5 will make a positive impact on each of these objectives through hundreds of design changes that respond to surgeon and care team inputs and fulfill our design priorities.
Speaker Change: Once cleared we believe da Vinci five will make a positive impact on each of these objectives through hundreds of design changes that respond to surgeon and care team inputs and fulfill our design priorities.
Speaker Change: As just one example, DaVinci 5 possesses four orders of magnitude greater processing power than our Generation 4 product.
Speaker Change: As just one example da Vinci five possesses for orders of magnitude greater processing power than our generation four products that means 10000 times the processing power to gather data improved sensing and deliver better digital and analytic performance.
Speaker Change: That means 10,000 times the processing power to gather data, improve sensing, and deliver better digital and analytic performance.
Speaker Change: Given the sophistication of the technologies involved, we plan a phased launch in the first several quarters after clearance.
Speaker Change: Given the sophistication of the technologies involved we planned a phased launch in the first several quarters after clearance, giving us time to mature our supply and manufacturing processes for the new system.
Speaker Change: Giving us time to mature our supply and manufacturing processes for the new system.
Speaker Change: DaVinci 5 will join our existing robotic surgical system portfolio alongside multi-port systems X and Xi and single-port system SP, offering surgeons and hospitals their choice of highly capable, proven solutions from Intuitive.
Speaker Change: Da Vinci five will join our existing robotic surgical system portfolio, alongside Multiport systems X and X XI and single Port system S. P offering surgeons and hospitals their choice of highly capable proven solutions from intuitive.
Speaker Change: We have been in communication with FDA on DaVinci 5 for the past several quarters and have completed a comprehensive multicenter IDE trial.
We have been in communication with FDA on da Vinci five for the past several quarters and have completed a comprehensive multicenter ITE trial.
Speaker Change: This trial finished accruing patients in May of 2023, and we submitted for our 510k to FDA for Dementia 5 in August last year.
Speaker Change: This trial finished accruing patients in May of 2023, and we submitted for a five 10-K to FDA for da Vinci five in August last year.
Speaker Change: We are currently responding to FDA's question. We are currently responding to FDA's question.
Speaker Change: We are currently responding to fda's questions.
Speaker Change: The timing of the U.S. launch will depend on the time required to resolve these questions. So far, we believe the questions asked fall within normal expectations for a submission of this type.
Speaker Change: The timing of a U S launch will depend on the time required to resolve these questions. So far we believe the questions asked fall within normal expectations for a submission of this type.
Speaker Change: In addition to FDA, we have initiated conversations on DaVinci 5 with regulators in Japan and in Korea.
Speaker Change: In addition to FDA, we have initiated conversations on da Vinci, five with regulators in Japan and in Korea.
Speaker Change: And we'll report our progress toward commercialization in countries outside the United States as we know more.
Speaker Change: We will report our progress toward commercialization in countries outside the United United States as we know more.
Speaker Change: Once FDA cleared, we will communicate features and benefits in greater depth.
Speaker Change: Once FDA cleared we will communicate features and benefits in greater depth.
Speaker Change: We started 2023 focused on increased adoption of our priority procedures in countries through outstanding training, commercial, and market access execution.
We started 2023 focused on increased adoption of our priority procedures in countries through outstanding training commercial and market access execution.
Speaker Change: We pursued expanded indications and launches for IOND and SP.
Speaker Change: We pursued expanded indications in launches for ion and SP.
Speaker Change: We focus on excellence and continuity of supply, product quality, and services provision as we emerge from pandemic stress.
Speaker Change: We focus on excellence and continuity of supply of product quality and services provision as we emerge from pandemic stresses and finally, we pursued increased productivity in our functions that benefit from scale.
Speaker Change: And finally, we pursued increased productivity in our functions that benefit from scale.
Speaker Change: Taken together, our team made good progress against these objectives.
Taken together our team made good progress against these objectives.
Speaker Change: As we enter 2024, our company priorities are as follows. First, we'll focus on innovation through expanded indication and launches of our new platforms by region.
Speaker Change: As we enter 2024, our company priorities are as follows.
Speaker Change: First we will focus on innovation through expanded indications and launches of our new platforms by region.
Speaker Change: including our first phase of DaVinci 5 launch once cleared.
Speaker Change: Including our first phase of da Vinci five launch once cleared.
Speaker Change: Second, we'll pursue increased adoption for focus procedures by country through training, commercial activities, and market access efforts.
Speaker Change: Second we'll pursue increased adoption for focused procedures by countries through training commercial activities and market access efforts.
Speaker Change: Third, we will drive quality and gross margin improvements.
Speaker Change: Third we will drive quality and gross margin improvements.
Speaker Change: And finally, we continue to focus on increasing our productivity, particularly in functions that benefit from industrial scale.
Speaker Change: And finally, we continue to focus on increasing our productivity, particularly in functions that benefit from industrial scale.
Speaker Change: I'll now turn the time over to Jamie.
Speaker Change: I'll now turn I'll now turn the time over to Jamie.
Jamie Samath: Good afternoon. I will describe the highlights of our performance on a non-GAAP or performer-based basis.
Jamie: Good afternoon, I will describe the highlights of outperformance on a non-GAAP or pro forma basis I will also summarize our GAAP performance later in my prepared remarks, a reconciliation between our pro forma and GAAP results is posted on our website.
Jamie Samath: And we'll also summarize our gap performance later in my prepared remarks.
Jamie Samath: A reconciliation between our pro forma and gap results is posted on our website.
Jamie Samath: Q4 and 2023 revenue, procedures, and system placement.
Q4 in 2023 revenue procedures and system placements were in line with our preliminary press release of January nine.
Jamie Samath: are in line with our preliminary press release of January 9.
Jamie Samath: I will briefly review four-year 2023 performance before describing our Q4 results in greater detail.
Jamie: I will briefly review full year 2023 performance before describing our Q4 results in greater detail.
Jamie Samath: 2023 procedures grew by 22% as compared to last year or 17% on a four-year compound annual growth rate-based basis.
2023 procedures grew by 22% as compared to last year or 17% on a four year compounded annual growth rate basis.
Jamie Samath: As we've discussed on previous calls, 2023 procedure growth was above our longer-term trend primarily because of the need to address patient backlog.
Jamie: As we've discussed on previous calls 2023 procedure growth was above our longer term trend, primarily because of the need to address patient backlogs.
Jamie Samath: During the year, we placed 1,370 systems with customers, an increase of 8% year over year.
Jamie: During the year, we placed 1370 systems with customers an increase of 8% year over year.
Jamie Samath: Excluding trading transactions, net new system placements for 2023 grew by 23% over the prior year.
Jamie: Excluding trading transactions net new system placements to 2023 grew by 23% over the prior year with the U S up 26% driven primarily by customer need for additional capacity.
Jamie Samath: The U.S. up 26% driven primarily by customer need for additional capacity. The U.S. up 26% driven primarily by customer need for additional capacity.
Jamie Samath: Trading volumes declined by 105 systems to a total of 240 trading transactions for the year.
Jamie: Trading volumes declined by 105 systems to a total of 240 <unk> trade in transactions for the year.
Jamie Samath: The recurring revenue, which is correlated to ongoing use of our products, represented 83% of total revenue and grew 21% over the prior year.
Jamie: Recurring revenue, which is correlated to ongoing use of our products represented 83% of total revenues and grew 21% over the prior year.
Jamie Samath: Total revenue of $7.1 billion increased 14%, and for the first time, our advanced instrument portfolio of stapler and energy devices
Total revenue of $7 $1 billion increased 14% and for the first time, our advanced instrument portfolio, a stapler and energy devices exceeded $1 billion in revenue growing 21% in 2023.
Jamie Samath: A billion dollars in revenue. A billion dollars in revenue.
Jamie Samath: Growing 21% in 2023.
Jamie Samath: During the year, we repurchased $416 million of our stock for approximately 1.7 million shares at an average price of $241 per share. We have a remaining authorization to repurchase our shares of $1.1 billion.
Jamie: During the year, we repurchased 416 million tonnes of our stock or approximately one 7 million shares.
Jamie: Average price price of $241 per share.
We have a remaining authorization to repurchase shares of $1 $1 billion.
Jamie Samath: Given these results, pro forma earnings per share for 2023 grew 22% as compared to last year.
Jamie: Given these results pro forma earnings per share for 2023 grew 22% as compared to last year.
Jamie Samath: Turning to Q4, our core metrics were strong. Da Vinci procedures grew 21%. The installed base of systems grew 14% to 8,606 systems.
Jamie: Turning to Q4.
Jamie: Our core metrics was strong da Vinci procedures grew 21% the installed base of systems grew 14% to 8606 systems.
Jamie Samath: An average system utilization continued to be above long-term trends, increasing by 9% for the full year of 2023.
And average system utilization continues to be above long term trends, increasing by 9% for the full year of 2023.
Jamie Samath: Higher system utilization reflects both a higher mix of shorter duration benign procedures and the need to address patient backlog. Thank you for watching.
Jamie: Higher system utilization.
Jamie: Utilization reflects both a higher mix of short duration benign procedures and the need to address patient backlogs.
Jamie Samath: In Q4, US procedures grew 17% driven by growth in general surgery. In Q4, US procedures grew 17% driven by growth in general surgery.
Jamie: In Q4 U S procedures grew 17% driven by growth in general surgery.
Jamie Samath: OUS procedures grew 29% driven by strong performance in China, the UK, Germany, and Japan.
Jamie: O U S procedures grew 29% driven by strong performance in China, The U K, Germany, and Japan with notable strength across multiple O U S markets and general surgery.
Jamie Samath: There's notable strength across multiple OUS markets in general surgery, which grew 44% in Q4.
Jamie: 44% in Q4.
Jamie Samath: As a reminder, procedures in China in the fourth quarter of last year were adversely impacted by increasing COVID cases.
Jamie: As a reminder, procedures in China in the fourth quarter of last year were adversely impacted by increasing COVID-19 cases, resulting in negative growth in Q4 of 2022.
Jamie Samath: resulting in negative growth in Q4 of 2022.
Jamie Samath: Turning to capital, we placed 415 systems in the fourth quarter, 12% higher than the 369 systems we placed in the fourth quarter of last year.
Turning to capital.
Jamie: 415 systems in the fourth quarter, 12% higher than the 369 systems, we placed in the fourth quarter of last year.
Jamie Samath: We placed 209 systems in Q4, 28 more than last year, driven by capacity expansion for procedure growth and higher greenfield placements at existing IDN customers.
Jamie: In the U S. We placed 209 systems in Q4 28 more than last year, driven by capacity expansion for procedure growth and higher greenfield placements as existing IBM customers.
Jamie Samath: We've placed 70 systems in Japan with strengths driven by greenfield placements and customer use of remaining capital budget.
Jamie: We placed 70 systems in Japan, the strength strengths, driven by Greenfield placements and customer use of remaining capital budgets.
Jamie Samath: Consistent with last quarter, we have seen delayed tenders and low assistant placements in China due to ongoing anti-corruption efforts by the government. For more information, visit www.fema.gov.
Jamie: Consistent with last quarter, we have seen delayed tenders and lower system placements in China due to ongoing anti corruption efforts by the government.
Jamie Samath: We expect system placements in China to be at lower levels at least through the first half of 2024.
Jamie: We expect system placements in China to be at lower levels at least through the first half of 2024.
Jamie Samath: Globally, there were 51 trading transactions in the quarter as compared to 110 last year.
Jamie: Globally, there were 51 trade in transactions in the quarter as compared to 110 last year.
Jamie Samath: As of the end of Q4, there are approximately 375 SIs remaining in the installed base.
Jamie: As of the end of Q4, there were approximately 375 Psi is remaining in the installed base 60 of which were in the U S.
Jamie Samath: 60 of which are in the US
Jamie Samath: Fourth quarter revenue is $1.93 billion, an increase of 17% from last year on a constant currency basis.
Jamie: Fourth quarter revenue was $1 $93 billion, an increase of 17% from last year on a constant currency basis revenue growth was also 17%.
Jamie Samath: Revenue growth was also 17%
Jamie Samath: Additional revenue statistics and trends are as follows.
Jamie: Additional revenue statistics and trends are as follows.
Jamie Samath: Leasing represented 48% of Q4 places.
Jamie: Leasing representing 48% of Q4 placements.
Jamie Samath: compared with 42% last year.
Jamie: With 42% last year.
Jamie Samath: The increasing lease mix we have seen over time is primarily driven by customers in the U.S., particularly those who have acquired systems under usage-based systems under usage-based
Jamie: The increasing lease mix, we have seen over time is primarily driven by customers in the U S, particularly those who have a quiet systems under usage based arrangements.
Jamie Samath: These arrangements provide customers greater financial flexibility to expand their robotics programs independent of capital budgets.
Jamie: These arrangements provide customers greater financial flexibility to expand that with Polish programs independent of capital budgets.
Jamie Samath: These arrangements also incorporate technology obsolescence protection for next generation technologies. For more information visit www.fema.gov
These arrangements also incorporate technology obsolescence protection for next generation technology.
Jamie Samath: Q4 system average selling prices were $1.42 million as compared to $1.43 million last year.
Jamie: Q4 system average selling prices were $142 million as compared to $1 four $3 million last year.
Speaker Change: Thank you very much.
Jamie: System Asps were negatively impacted by regional mix, partially offset by lower trade ins.
Speaker Change: Partially offset by lower trading.
Speaker Change: We recognize $21 million of lease buyout revenue in the fourth quarter compared with $17 million last quarter and last year.
Jamie: We recognized $21 million of lease buyout revenue in the fourth quarter compared with $17 million last quarter and last year.
Speaker Change: Da Vinci Instrument and Accessory Revenue Per Procedure was approximately $1,800 compared with approximately $1,820 last year.
Jamie: Da Vinci instrument and accessory revenue per procedure was approximately $1800 compared with approximately $1820 last year.
Speaker Change: The year-over-year decline in INA per procedure is primarily a result of a procedure mix in the U.S. given strong growth in cholecystectomy and lower growth in bariatric cancer.
Jamie: The year over year decline in <unk> per procedure is primarily a result of procedure mix in the U S. Given strong growth in cholecystectomy and lower growth in bariatrics and customer ordering patterns, partially offset by the iron ore price increase implemented in mid 2023.
Speaker Change: and customer ordering patterns partially offset by the INA price increase implemented mid-2023. Thank you for watching.
Speaker Change: Turning to ion, there were approximately 16,500 ion procedures in the fourth quarter, an increase of 108% as compared to last year.
Jamie: Turning to eye on that.
Jamie: We're approximately 16500 eye on procedures in the fourth quarter, an increase of 108% as compared to last year.
Speaker Change: In Q4, we placed 44 ion systems compared to 67 in Q4 of 2022.
Jamie: In Q4, we placed 40 full ion systems compared to 67 in Q4 of 2022 and 55 last quarter.
Speaker Change: 55 last quarter
Speaker Change: We experienced supply challenges for our ion catheter and vision probe and limited ion system placements during the quarter to ensure customers could effectively launch their program.
We experienced supply challenges for our ion catheter and mission probe and limited ion system placements during the quarter to ensure customers could effectively launched their programs.
Speaker Change: There is strong customer demand for ION.
Jamie: There was strong customer demand for Ireland, which contributed to backlog growth in the quarter.
Speaker Change: are all being attributed to backlog growth in the quarter. For more information, visit www.fema.gov.
Speaker Change: We are working hard and making progress to resolve the supply challenge challenge.
Jamie: We are working hard and making progress to resolve the supply challenges.
Speaker Change: The installed base of ion systems is now 534 systems. The installed base of ion systems is now 534 systems.
Jamie: The installed base of <unk> systems is now 534 systems.
Speaker Change: of which 214 are under operating lease arrangements
Jamie: Which 214 or under operating lease arrangements.
Speaker Change: Our SP platform continued to make progress in 2023.
Jamie: Our SP platform continued to make progress in 2023.
Speaker Change: Fourth quarter SP procedure growth accelerated to 58%
Jamie: Fourth caller SP procedure growth accelerated to 58% who.
Speaker Change: We've placed 19 systems in Q4 and 57 for the year, up from 23 placements in 2022.
Jamie: We placed 19 systems in Q4 and 57 for the year up from 23 placements in 2022.
Speaker Change: Fourth quarter placements included five in Korea and two in Japan.
Jamie: Fourth quarter placements included five in Korea, and two in Japan.
Speaker Change: Average system utilization for our SP platform grew 15% in 2023, reflecting increased usage by U.S. customers.
Jamie: Average system utilization for our ISP platform grew 15% in 2023, reflecting increased usage by U S customers.
Speaker Change: We continue to make progress in expanding the opportunity for SP Thank you
Jamie: We continue to make progress in expanding the opportunity for SP, including continued work on regulatory submissions in the U S for colorectal and thoracic indications and assistance submission in China.
Speaker Change: including continued work on regulatory submissions in the US for colorectal and thoracic individuals.
Speaker Change: and a system submission in China.
Speaker Change: In January, we received clearance for SP in Europe across a broad procedure set and are planning for a measured rollout as we build local KOLs and establish local proctoring and training capabilities.
Jamie: In January we received clearance for SP in Europe across a broad procedure set and are planning for a measured rollout as we build local kols and established local procuring and training capabilities.
Speaker Change: Moving on to the rest of the P&L.
Jamie: Moving on to the rest of the P&L.
Speaker Change: Proforma gross margin for the fourth quarter of 2023 was 68% of the total.
Jamie: Pro forma gross margin for the fourth quarter of 2023 was 68% compared with 68, 2% for the fourth quarter of 2022.
Speaker Change: 68.2% for the fourth quarter of 2022.
Speaker Change: The year-over-year decline in pro forma gross margin reflects increased inventory reserves and a higher mix of new platform revenue that currently carry dilutive gross margin.
Jamie: The year over year decline in pro forma gross margin reflects increased inventory reserves and a higher mix of new platform revenue that currently carry dilutive gross margins, partially offset by the iron ore price increase implemented mid last year.
Speaker Change: Partially offset by the INA price increase implemented mid-last year.
Speaker Change: With respect to our manufacturing capabilities and capital investment plan, we would like to thank you for joining us.
Jamie: With respect to our manufacturing capability isn't capstone investment plans.
Speaker Change: During the quarter, we initiated local excise system production in China, allowing us to participate in tenders that require a domestically produced product.
Jamie: During the quarter, we initiated local excise system production in China, allowing us to participate in tenders that require a domestically produced system.
Speaker Change: We also completed the transfer of X system production to our East Coast hub near Atlanta, Georgia.
Jamie: We also completed the transfer of X system production to our East Coast hub near Atlanta, Georgia, and during 2020 full we are planning to transfer excise system production from California to our east coast hubs.
Speaker Change: During 2024, we are planning to transfer XI system production from California to our East Coast hub.
Speaker Change: over the next 18 months.
Jamie: Over the next 18 months, we expect to open new manufacturing facilities for da Vinci, five and ion system manufacturing in California and to complete line transfers for ion and SP ion E to our Mexicali facility.
Speaker Change: We expect to open new manufacturing facilities for DaVinci 5 and Ion System Manufacturing in California.
Speaker Change: and to complete line transfers for ION and SP INA to our Mexicali facility.
Speaker Change: We believe these activities will position Intuitive to serve our customers with best-in-class supply availability, product quality, and product cost.
Jamie: We believe these activities will position intuitive to serve our customers with best in class supply availability product quality and product cost.
Speaker Change: Fourth quarter pro forma operating expenses increased 15% compared with last year.
Fourth quarter pro forma operating expenses increased 15% compared with last year, driven by increased head count and higher variable compensation.
Speaker Change: Driven by increased headcount and higher variable compensation.
Speaker Change: In addition, fourth quarter 2023 operating expenses are estimated to be $1.5 billion.
Jamie: In addition, fourth quarter 2023 operating expenses included a $40 million contribution to the intuitive Foundation we.
Speaker Change: included a $40 million contribution to the Intuitive Foundation.
Speaker Change: We did not make a contribution in 2022.
Jamie: We did not make a contribution in 2022.
Speaker Change: Performer Other Income was $67.1 million for Q4, higher than $57.9 million in the prior quarter, primarily due to higher interest rates.
Jamie: Pro forma other income was $67 $1 million for Q4 higher than $57 $9 million in the prior quarter, primarily due to higher interest income.
Speaker Change: Our pro forma effective tax rate for the fourth quarter was 15.9% Our pro forma effective tax rate for the fourth quarter was 15.9%
Jamie: Our pro forma effective tax rate for the fourth quarter was $15, 9% lower than prior quarters, primarily because of the release of certain tax reserves associated with the exploration of related statues and favorable earnings mix.
Speaker Change: Lower than prior quarters primarily because of the release of certain tax reserves associated with the expiration of related statutes.
Speaker Change: and the favorable earnings system.
Speaker Change: Fourth quarter 2023 performing net income was $574 million or $1.60 per share compared with $439 million or $1.23 per share for the fourth quarter of last year.
Jamie: Fourth quarter 2023 pro forma net income was $574 million or $1 60 per share compared with $439 million or $1 23 per share for the fourth quarter of last year.
Speaker Change: I will now summarize our gap results.
Speaker Change: I will now summarize our GAAP results.
Speaker Change: Gap Net Income was $606 million or $1.69 per share for the fourth quarter of 2023.
Speaker Change: GAAP net income was $606 million or $1 69 per share for the fourth quarter of 2023.
Speaker Change: Gapner income of $325 million or 91 cents per share for the fourth quarter of 2022.
Speaker Change: Compared with GAAP net income of $325 million or <unk> 91 per share for the fourth quarter of 2022.
Speaker Change: Fourth Quarter Gap Tax Expense
Speaker Change: Fourth quarter GAAP tax expense reflected onetime benefits of $159 million associated with an increase in deferred tax assets associated with the statue rate increase in Switzerland, and receipt of certain tax benefits associated with our Swiss operations.
Speaker Change: Thank you for joining us.
Speaker Change: and receipt of certain tax benefits associated with our Swiss operation. Thank you.
Speaker Change: The adjustments between pro forma and gap net income are outlined and quantified on our website.
Speaker Change: The adjustments the adjustments between pro forma and GAAP net income are outlined and quantified on our website.
Operator: Thank you. Thank you everyone for standing by. Welcome to the Intuitive 4th Quarter 2023 Earnings Call. At this time, all participants are in a listen-only mode.
Speaker Change: We ended the year with cash and investments of $7.3 billion compared with $7.5 billion at the end of Q3.
Speaker Change: We ended the year with cash and investments of $7 $3 billion compared with $7 $5 billion at the end of Q3.
Speaker Change: Thank you very much. Thank you very much.
Speaker Change: The sequential reduction in cash and investments.
Speaker Change: Capital expenditures of $435 million
Speaker Change: Capital expenditures of $435 million, partially offset by cash generated from operating activities.
Speaker Change: Partially offset by cash generated from operating
Speaker Change: Let me take a moment to address the new multiport system that Gary highlighted and certain assumptions that may impact 2024 model model.
Speaker Change: Let me take a moment to address the new multiple system that Gary highlighted and certain assumptions that may impact 2020 for modeling.
Operator: Later, we will conduct a question and answer session. If you wish to place yourself in the queue for questions today, please press 1 and 0 on your telephone keypad. If you want to remove yourself from the Q&A, you may repeat the 1 and 0 command.
Speaker Change: First.
Speaker Change: First since we have not received FDA clearance for da Vinci five we cannot provide specificity on launch timing and pricing.
Speaker Change: Since we have not received FDA clearance for DaVinci 5, we cannot provide specificity on launch timing and price information.
Speaker Change: Second, once cleared, we are planning a phased launch period over several quarters.
Brian King: I will now turn the call over to your host, Head of Investor Relations, Brian King. Please go ahead. Good afternoon, and welcome to Intuitive's fourth-quarter earnings conference call. With me today are Gary Guthart, our CEO, and Jamie Samath, our CFO. Before we begin, I would like to inform you that comments mentioned on today's call may be deemed to contain forward-looking statements, and actual results may differ materially from those expressed or implied as a result of certain risks and uncertainties. These risks and uncertainties are described in detail in our Securities and Exchange Commission filings, including our most recent Form 10-K, filed on February 10, 2023, and Form 10-Q, filed on October 20, 2023. Our SEC filings can be found through our website or at the SEC's website.
Speaker Change: Second once cleared we are planning a phased launch period over several quarters.
Speaker Change: Noting that we are at the end of the SI trading cycle and that DaVinci 5 will be in a phased rollout, we expect total trading volumes to be lower in 2024 than the prior year.
Speaker Change: Noting that we are at the end of the XI trade in cycle and that da Vinci five will be in a phased rollout we expect total trading volumes to be lower in 2024 than the prior year.
Speaker Change: Given that, and our procedure guidance of 13% to 16% growth, we also expect total system placements for 2024 to be lower than 2023.
Speaker Change: Given that and now procedure guidance of 13% to 16% growth. We also expect total system placements of 2024 to be lower than 2023.
Speaker Change: As a result of the phased rollout of DaVinci 5, we expect that a higher proportion of Gen 4 systems will be leased as customers seek flexibility to upgrade to DaVinci 5 when supply allows.
Speaker Change: As a result of the phased rollout of da Vinci five we expect a higher proportion of Gen. Four systems will be leased as customers seek flexibility to upgrade to da Vinci five when supply allows.
Speaker Change: For those customers that prefer to purchase a Gen4 system, please contact us at gen4systems.com.
Speaker Change: For those customers that prefer to purchase a gen. Four system, we will offer our future trading right that can be exercised when there is sufficient da Vinci five supply.
Speaker Change: We will offer a future trade-in right that can be exercised when there is sufficient DaVinci 5 supply.
Brian King: 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.com in the event 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 full year and four quarter results. As described in our press release announced earlier today, followed by a question and answer session, Gary will present business and operational highlights, Jamie will provide a review of our financial results, then I will discuss procedure and clinical highlights and provide our financial outlook for 2024, and finally, we will host a question and answer session. And with that, I will turn it over to Gary.
Speaker Change: Purchase contracts containing a trade-in right result in a deferral of a portion of the purchase price, negatively impacting systems revenue market.
Speaker Change: Purchase contracts containing a trading right result in a deferral of a portion of the purchase price negatively impacting system revenue.
Speaker Change: Finally, and consistent with our experience bringing four generations of platforms to market, new systems typically start at lower gross margins and rise over a multi-year period as we build volume and optimize design, manufacturing, and supply chain.
Speaker Change: Finally.
Speaker Change: Consistent with our experience, bringing four generations of platforms to market new systems typically start at lower gross margins and rise over a multiyear period as we build volume and optimize design manufacturing and supply chains.
Speaker Change: Brian will describe our gross margin guidance in more detail later in the call.
Speaker Change: Brian will describe our gross margin guidance in more detail later in the call.
Speaker Change: Before I turn it over to Brian to discuss clinical highlights and our outlook for 2024, let me address operating margins.
Speaker Change: Before I turn it over to Brian to discuss clinical highlights and our outlook for 2024, let me address operating margins two.
Brian King: 2023 pro forma operating margin was 34% of revenue compared to 35% in the prior year.
Brian King: 2023 pro forma operating margin was 34% of revenue compared to 35% in the prior year.
Brian King: We expect operating margins to be under pressure in 2024 given the anticipated launch of DaVinci 5, increased depreciation expense, and an adverse mixed impact to gross margin from the growth in new platforms.
We expect operating margins to be under pressure in 2024, given the anticipated launch of da Vinci five increased depreciation expense and an adverse mix impact to gross margin from the growth in new platforms.
Thank you for joining us today. I'll touch on our performance in the last quarter and for the full year 2023 and share our perspective on 2025. The past year was a good one for Intuitive, with use of our platforms growing nicely, hospitals building additional system capacity to support that growth, and increased average utilization per system per year for each of our platforms. Our teams have been delivering to meet customer demand, driving quality and availability improvements, running clinical trials, and readying new products and services for the market. We'll touch on a few of those efforts during this call.
Brian King: However, as we look to the medium term, we see opportunity for operating margin expansion based on the following dynamics.
Brian King: As we look to the medium term, we see opportunity for operating margin expansion based on the following dynamics.
Brian King: One, moving to broad launch in DaVinci 5, allowing customers the opportunity to upgrade their existing fleet to the latest technology.
Brian King: One moving to broad launching da Vinci, five, allowing customers the opportunity to upgrade their existing fleet to the latest technology.
Brian King: 2. Improving gross margin. We aspire to be above the 70% level over time.
Brian King: Two improving gross margin, we aspire to be above the 70% level over time and three leveraging those functions that can take advantage of scale as we grow.
Starting first with procedures, growth for the full year was 22%. Areas of strength included general surgery in the United States and regional performance in countries including Germany, France, the UK, and Ireland, to name a few. In the U.S., general surgery procedure growth was led by cholecystectomy.
Brian King: Three, leveraging those functions that can take advantage of scale as we grow.
Brian King: improvements to gross margin will be driven by the following action
Brian King: Improvements to gross margin will be driven by the following actions.
Brian King: First, improving the product cost of new platforms.
Brian King: First improving the product cost of new platforms, including da Vinci five.
Brian King: including DaVinci Five,
Brian King: are all second growing into and eventually leveraging the incremental fixed costs from new manufacturing facilities.
With foregrip procedures rising as well, colon and hernia procedure growth was also healthy for the year. Bariatric procedures grew year over year. However, we saw continued deceleration of growth throughout 2023, likely the result of the uptake of GLP-1 drugs for obesity. Procedural growth outside the United States diversified beyond urology, with nice growth in categories including gynecology and general surgery. In flexible robotics, ion procedures showed continued strength, with 129% growth for the four years.
Brian King: Second growing into and eventually leveraging the incremental fixed costs from new manufacturing facilities.
Brian King: The return of resources that have been deployed to supply continuity given the impact of the pandemic. The return of resources that have been deployed to supply continuity.
Brian King: Third the return of resources that had been deployed to supply continuity eat given the impacts of the pandemic to returning to routine manufacturing and product cost reduction activities.
Brian King: to returning to routine manufacturing and product cost reduction activities.
Brian King: We have the teams and capabilities to deliver on these efforts over the next several years. For more information visit www.fema.gov
Brian King: We have the teams and capability to deliver on these efforts over the next several years.
Brian King: And with that, I would like to turn it over to Brian.
Brian King: And with that I would like to turn it over to Brian.
Brian King: Thank you, Jamie.
Brian King: Thank you Jamie.
Brian King: Overall procedure growth for full year 2023 was 22% year-over-year compared to 18% for the full year of 2022.
Brian King: Overall procedure growth for full year, 2023 was 22% year over year compared to 18% for the full year of 2022.
SP procedure growth was accretive in the year, with 48% growth over a full year, driven by acceleration in the United States. On the capital front, we placed 1,313 multiport systems in the full year 23, compared with 1,241 multiport systems in 2022. Ion placements for the year were 213 versus 192 the prior year, and SP placements were 57 for the full year versus 23 systems in the prior year. Globally, Ion placements were strong in the United States and Japan during the year. Thank you for joining us.
Brian King: Overall procedure growth was comprised of 19% growth in the U.S.
Brian King: Overall procedure growth was comprised of 19% growth in the U S.
Brian King: and 27% growth outside of
27% growth outside of the U S.
Brian King: In the US, fourth quarter 2023 procedure growth was 17% year-over-year. In the US, fourth quarter 2023 procedure growth was 17% year-over-year.
Brian King: In the U S fourth quarter 2023 procedure growth was 17% year over year compared to 18% for the fourth quarter of 2022, and 17% last quarter.
Brian King: Compared to 18% for the fourth quarter of 2022 and 17% last quarter.
Brian King: Fourth quarter growth was led by procedures within general surgery.
Brian King: Fourth quarter growth was led by procedures within general surgery with strength in cholecystectomy, colon resection and forgot procedures.
Brian King: The strength and cholecystectomy, colon resection, and foregut procedures.
Brian King: As Gary noted, bariatric procedures continued to grow year over year, but growth moderated into the mid-single digits.
Brian King: As Gary noted bariatric procedures continued to grow year over year, but growth moderated into the mid single digits.
Brian King: Looking outside of the U.S., over the years we have made investments in countries and international markets to support customers and their adoption of Da Vinci procedures.
Brian King: Looking outside of the U S. Over the years, we have made investments in countries in international markets to support customers and their adoption of da Vinci procedures looking back over the past decade O U S procedures have grown 20% on a compound annual growth basis and have consistently been accretive to total procedure growth.
Jamie will take you through placement dynamics in more detail later in the call. System utilization, defined as procedures per installed clinical system per quarter, grew 9% globally year-over-year for our multiport platform, reaching a new high as customers adopted a broad mix of procedures on our system. Utilization grew 15% for SP in the year, while it grew 6% for ION over 2022. Utilization is an important indicator of customer health because it is correlated to patient demand, care team satisfaction, and hospital financial health.
Brian King: Looking back over the past decade, OUS procedures have grown 20% on a compound annual growth basis and have consistently been accretive to total procedure growth.
Brian King: OUS procedures have grown from about 20% of total global procedures to now about a third.
Brian King: O U S procedures have grown from about 20% of total global procedures to now about a third.
Brian King: While market maturity and levels of adoption differ by region and country, market maturity and levels of adoption differ by region and country,
Brian King: While market maturity and levels of adoption differ by region and country broadly, we now see more than half of all U S growth being led by procedures beyond neurology, reflecting customers' growing adoption of general surgery, gynecology and thoracic procedures, the results of which I will highlight below.
Brian King: Broadly, we now see more than half of OUS growth being led by procedures beyond urology.
Brian King: reflecting customers' growing adoption of general surgery, gynecology, and thoracic procedures, the results of which I will highlight below.
The above performance reported revenue of $7.1 billion for the year, 14% growth over 22. Our capital and operating expenses were on the upper end of our spend guidance, reflecting continued investments in R&D to support growth of our platforms and digital tools, as well as expansion of our manufacturing and commercial footprints in capital amortization. Product margins were challenged in the full year as a result of higher than expected costs, primarily for our newer platforms.
Brian King: Focusing on the fourth quarter, OUS procedure volume grew 29% compared with 18% for the fourth quarter of 2022 and 24% last quarter.
Brian King: Focusing on the fourth quarter <unk> procedure volume grew 29% compared with 18% for the fourth quarter of 2022, and 24% last quarter.
Brian King: Growth was led by strength and colon resection, followed by growth and hysterectomy and lung resection procedures.
Brian King: Growth was led by strength in colon resection.
Brian King: Followed by growth in hysterectomy and lung resection procedures.
Brian King: Growth in urology continued to be healthy, led by kidney procedures along with continued double-digit growth in prostatectomy.
Brian King: Growth in urology continue to be healthy led by kidney procedures, along with continued double digit growth in prostatectomy.
Jamie will take you through our financial performance in greater detail later in the call. Strength in procedures, growth in the clinical installation base, and increased utilization signal continued belief by our customers that our platforms make a difference in their efforts to pursue the quadruple aim: better outcomes, better patient experiences, better care team experiences, and lower total cost to treat for patient episodes.
Brian King: in Europe.
Brian King: Fourth quarter growth was led by general surgery and gynecology procedure categories.
Brian King: In Europe.
Brian King: Fourth quarter growth was led by general surgery, and gynecology procedure categories.
Brian King: Germany, the UK, and France Procedure Performance led the region to win the gold medal.
Brian King: Germany, the U K and France procedure performance led the region.
Brian King: In Germany, we saw strong growth in colon resection and kidney procedures. In the UK, from growth in hysterectomy and rectal resection.
Brian King: In Germany, we saw strong growth in colon resection in kidney procedures in the U K from growth in hysterectomy in rectal resection and in France from growth in colorectal and lung resection procedures.
Brian King: and in France from growth in colorectal and lung resection
As we look to 2024, I'd like to share with you that we have submitted to FDA our 510K application for our next generation multiport platform, DaVinci Five. Our design priorities for our new platforms are as follows. First, we look for opportunities to bring better minimally invasive care to more patients. Second, we work to improve the performance of our platforms and existing procedures. Third, we seek to improve care team satisfaction through product utility, dependability, and usability improvements. And finally, we strive to help lower the total cost to treat per patient episode. Once cleared, we believe DaVinci 5 will make a positive impact on each of these objectives through hundreds of design changes that respond to surgeon and care team inputs and fulfill our design priorities. As just one example, DaVinci 5 possesses four orders of magnitude greater processing power than our Generation 4 product. That means 10,000 times the processing power to gather data, improve sensing, and deliver better digital and analytic performance.
Brian King: In Asia, growth in the fourth quarter was led by China, reflecting a benefit from lower procedure volumes in the fourth quarter of 2022 due to COVID.
Brian King: In Asia growth in the fourth quarter was led by China, reflecting a benefit from lower procedure volumes in the fourth quarter of 2022 due to COVID-19.
Brian King: In Japan, our third largest market by procedure bonds.
Brian King: In Japan, our third largest market by procedure by procedure growth was healthy and led by prostatectomy and colorectal procedures.
Brian King: The procedure growth was healthy and led by prostatectomy and colorectal procedures.
Brian King: We placed 70 systems in Japan.
We placed 70 systems in Japan.
Brian King: reflecting the continued adoption of robotic surgery for a growing number of procedures and the availability of remaining capital budgets.
Brian King: <unk> the continued adoption of robotic surgery for a growing number of procedures and the availability of remaining capital budgets.
Brian King: India, while still in the early stage of adoption.
Brian King: India, while still in the early stage of adoption saw continued strength in general surgery and gynecology procedures.
Brian King: saw continued strength in general surgery in gynecology procedures.
Brian King: Now, turning to the clinical side of our problem.
Brian King: 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 to gain a more complete understanding of the body of evidence we encourage all stakeholders to thoroughly review the extensive detail of scientific studies that have been published over the years.
Brian King: Each quarter on these calls, we highlight certain recently published studies that we deem to be notable.
Brian King: However, to gain a more complete understanding of the body of evidence,
Brian King: We encourage all stakeholders to thoroughly review the extensive detail of scientific studies that have been published over the course of this webinar.
Brian King: In the fourth quarter, Dr. Nicola DeAngelis from Buzan University Hospital.
Brian King: In the fourth quarter Doctor Nicola to Angeles from <unk> University Hospital, along with multiple colleagues from the French Society of bridal surgery club hernia, and French society of digestive and visceral surgery.
Given the sophistication of the technologies involved, we plan a phased launch in the first several quarters after clearance, giving us time to mature our supply and manufacturing processes for the new system. DaVinci 5 will join our existing robotic surgical system portfolio alongside multi-port systems X and Xi and single-port system SP, offering surgeons and hospitals their choice of highly capable, proven solutions from Intuitive.
Brian King: along with multiple colleagues from the French Society of Parietal Surgery, Club Hernia and French Society of Digestive and Visceral Surgery
Brian King: published a systematic review and meta-analysis describing robotic surgery for inguinal and ventral hernias in surgical endoscopy.
Brian King: Published a systematic review and meta analysis, describing robotic surgery for inguinal and ventral hernias in surgical endoscopy.
Brian King: In this analysis, authors reviewed publications between September 2014
Brian King: In this analysis authors reviewed publications between September 2014.
Brian King: and July 2022 and published pooled outcomes comparing the robotic-assisted approach for both inguinal and ventral hernia repairs to both laparoscopy and the open approach.
We have been in communication with FDA on DaVinci 5 for the past several quarters and have completed a comprehensive multicenter IDE trial. This trial finished accruing patients in May of 2023, and we submitted our 510k to FDA for Dementia 5 in August last year. We are currently responding to FDA's question. The timing of the U.S. launch will depend on the time required to resolve these questions. However, so far, we believe the questions asked fall within normal expectations for a submission of this type.
Brian King: In July 2022, and published poorer outcomes comparing the robotic assisted approach for both inguinal and ventral hernia repairs to both laparoscopy and the open approach.
Brian King: With regards to inguinal hernia, when compared to laparoscopy, the robotic-assisted approach was associated with a 46% lower risk of hernia recurrence.
Brian King: With regards to inguinal hernia when compared to laparoscopy. The robotic assisted approach was associated with a 46% lower risk of hernia recurrence.
Brian King: Furthermore,
Brian King: Furthermore, subjects undergoing a robotic assisted approach were associated with a 54% lower rate of opioid use.
Brian King: Subjects undergoing a robotic-assisted approach were associated with a 54% lower rate of opioid use
Brian King: Relative to the open approach.
Brian King: Relative to the open approach.
In addition to FDA, we have initiated conversations on DaVinci 5 with regulators in Japan and in Korea, and we'll report our progress toward commercialization in countries outside the United States as we know more. Once FDA cleared, we will communicate features and benefits in greater depth. We started 2023 focused on increased adoption of our priority procedures in countries through outstanding training, commercial, and market access execution. We pursued expanded indications and launches for IOND and SP.
Brian King: for ventral hernia repairs.
Brian King: For ventral hernia repairs, the robotic assisted approach had a 49% lower risk of conversion to open and 41% lower risk of intra operative bowel injuries relative to laparoscopy.
Brian King: The robotic-assisted approach had a 49% lower risk of conversion to opioid
Brian King: and 41% lower risk of intraoperative bowel injury.
Brian King: Relative to Laparoscopy
Brian King: When comparing to an open repair for ventral hernias, the robotic-assisted approach was associated with a 3.4-day shorter length of stay.
Brian King: When comparing to an open repair for ventral hernia is the robotic assisted approach was associated with a three four day shorter length of stay.
Brian King: 34% lower risk of 30-day readmission 24% lower risk of 30-day readmission
Brian King: 34% lower risk of 30 day Readmissions 30.
Brian King: 39% lower risk of overall complications.
Brian King: 39% lower risk of overall complications and more specifically.
Brian King: and more specifically, a 53% lower risk of surgical site infection than a 53% lower risk of surgical site infection
We focus on excellence and continuity of supply, product quality, and service provision as we emerge from pandemic stress. And finally, we pursue increased productivity in our functions that benefit from scale. Taken together, our team made good progress against these objectives.
Brian King: A 53% lower risk of surgical site infections.
Brian King: The authors concluded, quote,
Brian King: The authors concluded quote.
Brian King: The present systematic review and meta-analysis supports the use of robotic surgery for abdominal wall hernia repair.
The present systematic review and meta analysis supports the use of robotic surgery for abdominal wall hernia repair.
As we enter 2024, our company priorities are as follows. First, we'll focus on innovation through expanded indications and launches of our new platforms by region, including our first phase of DaVinci 5 launch once cleared. Second, we'll pursue increased adoption for focus procedures by country through training, commercial activities, and market access efforts.
Brian King: Pulled data analyses show improved outcomes over laparoscopy and open surgery.
Brian King: Full data analyses show improved outcomes over laparoscopy and open surgery, particularly for ventral hernia repair.
Brian King: particularly for ventral hernia risk.
Brian King: Overall, these results, based on 64 studies, support robotic surgery as a safe, effective, and viable alternative.
Brian King: Overall these results based on 64 studies support robotic surgery is a safe effective and viable alternative to traditional open.
Brian King: Traditional open and laparoscopic surgery for inguinal and ventral hernia repair.
Brian King: Laparoscopic surgery for inguinal and ventral hernia repair in.
Third, we will drive quality and gross margin improvements. And finally, we will continue to focus on increasing our productivity, particularly in functions that benefit from industrial scale. I'll now turn the time over to Jamie. Good afternoon.
Brian King: and may contribute to dismiss the residual skepticism and increase the interest towards this minimally invasive surgical technique.
Brian King: It may contribute to dismiss the residual skepticism and increase the interest towards its minimally invasive surgical technique.
Brian King: End quote.
Brian King: And quote.
Brian King: I will now turn to our financial outlook for 2024.
Brian King: I will now turn to our financial outlook for 2024.
I will describe the highlights of our performance on a non-GAAP or performer-based basis, and we'll also summarize our gap performance later in my prepared remarks. A reconciliation between our pro forma and gap results is posted on our website.
Brian King: Starting with procedure.
Brian King: Starting with procedures.
Brian King: As described in our announcement earlier this month, total 2023 da Vinci procedures grew approximately 22% year-over-year,
Brian King: As described in our announcement earlier. This month total 2023 da Vinci procedures grew approximately 22% year over year to over $2 million 280000 procedures performed worldwide.
Brian King: to over 2,280,000 procedures performed worldwide.
Q4 and 2023 revenue, procedures, and system placement are in line with our preliminary press release of January 9. I will briefly review our four-year 2023 performance before describing our Q4 results in greater detail. 2023 procedures grew by 22% as compared to last year or 17% on a four-year compound annual growth rate-based basis. As we've discussed on previous calls, 2023 procedure growth was above our longer-term trend primarily because of the need to address patient backlog. During the year, we placed 1,370 systems with customers, an increase of 8% year over year.
Brian King: For 2024, we anticipate full-year procedure growth within a range of 13% and 16%.
Brian King: For 2024, we anticipate full year procedure growth within a range of 13% and 16%.
Brian King: Our overall procedure guidance range assumes that growth moderates from last year, given the elevated backlog benefit we experienced in 2023.
Brian King: Our overall procedure guidance range assumes that growth moderates from last year, given the elevated backlog benefit we experienced in 2023.
Brian King: The low end of the range assumes a modest decline in bariatric procedures The low end of the range assumes a modest decline in bariatric procedures
Brian King: The low end of the range assumes a modest decline in very high trick procedures, along with challenges in China from increasing competition and anti corruption activities impacting capital placements and therefore procedure growth.
Brian King: along with challenges in China from increasing competition and anti-corruption activities impacting capital placements and therefore procedure
Brian King: We also assume there is no impact from patient backlog in the year.
Brian King: We also assume there is no impact from patient backlog in the year.
Brian King: At the high end of the range, we assume bariatrics continues our current growth growth.
At the high end of the range, we assume bariatrics continues at current growth rates and factories in China did not have a significant impact on our business. In addition, we assume any backlog of patients would decline throughout the year.
Excluding trading transactions, net new system placements for 2023 grew by 23% over the prior year, with the U.S. up 26% driven primarily by customer need for additional capacity. However, trading volumes declined by 105 systems to a total of 240 trading transactions for the year.
Brian King: and factors in China do not have a significant impact on our business. For more information visit www.fema.gov
Brian King: In addition, we assume any backlog of patients would decline throughout the year.
Brian King: Finally, we would expect that procedure seasonality will follow normalized historical patterns.
Brian King: Finally.
Brian King: We would expect that procedure seasonality will follow normalize historical patterns.
Brian King: resulting in a tough comparison for the first half of 2024 given the strong procedure growth in the first half of last year.
Brian King: <unk> and a tough comparison for the first half of 2024, given the strong procedure growth in the first half of last year.
The recurring revenue, which is correlated to ongoing use of our products, represented 83% of total revenue and grew 21% over the prior year. Total revenue of $7.1 billion increased 14%, and for the first time, our advanced instrument portfolio of staplers and energy devices generated a billion dollars in revenue. A billion dollars in revenue, growing 21% in 2023. During the year, we repurchased $416 million of our stock for approximately 1.7 million shares at an average price of $241 per share.
Brian King: Turning to gross profit.
Brian King: Turning to gross profit.
Brian King: Our full year, 2023 pro forma gross profit margin was 68%.
Brian King: Our full year 2023 pro forma gross profit margin was 68%.
Brian King: In 2024, we expect our pro forma gross profit margin to be within 67% and 68% of net revenue. For more information visit www.fema.gov
Brian King: In 2024, we expect our pro forma gross profit margin to be within 67% and 68% of net revenue.
Brian King: The lower estimate of pro forma gross profit margin in 2024 reflects the impact of growth in our newer products and the impact of capital investments that will come on to support the growth of our business.
Brian King: The lower estimate of pro forma gross profit margin in 2024 reflects the impact of growth in our newer products and the impact of capital investments that will come on to support the growth of our business.
Brian King: Our actual gross profit margin will vary quarter to quarter depending largely on product, regional, and trade-in mix, impact of new product introduction,
Brian King: Our actual gross profit margin will vary quarter to quarter, depending largely on product regional and trade in mix impact of new product introductions and pricing.
We have a remaining authorization to repurchase our shares of $1.1 billion. Given these results, pro forma earnings per share for 2023 grew 22% as compared to last year. Turning to Q4, our core metrics were strong. Da Vinci procedures grew 21%, and the installed base of systems grew 14% to 8,606 systems.
Brian King: and Price.
Brian King: Turning to operating expenses.
Brian King: Turning to operating expenses in 2023, our pro forma operating expenses grew 14%.
Brian King: In 2023, our pro forma operating expenses grew 14%.
Brian King: In 2024, we expect pro forma operating expense growth to be between 11% and 15%.
Brian King: In 2024, we expect pro forma operating expense growth to be between 11% and 15%.
Brian King: The operating expense growth reflects increased depreciation expense as we bring on new facilities and investments to drive our growth.
Brian King: The operating expense growth reflects increased depreciation expense as we bring on new facilities and investments to drive our growth objectives.
Average system utilization continued to be above long-term trends, increasing by 9% for the full year of 2023. Higher system utilization reflects both a higher mix of shorter-duration benign procedures and the need to address patient backlog. Thank you for watching.
Brian King: We expect our non-cash stock compensation expense to range between $680 million to $710 million in 2024.
Brian King: We expect our noncash stock compensation expense to range between $680 million to $710 million in 2024.
Brian King: We expect other incomes.
Brian King: We expect other income.
Brian King: which is comprised mostly of interest income to total between $290 million and $320 million in 2024.
Which is comprised mostly of interest income to total between $290 million and $320 million in 2024.
In Q4, US procedures grew 17%, driven by growth in general surgery. OUS procedures grew 29% driven by strong performance in China, the UK, Germany, and Japan. There's notable strength across multiple OUS markets in general surgery, which grew 44% in Q4. As a reminder, procedures in China in the fourth quarter of last year were adversely impacted by increasing COVID cases, resulting in negative growth in Q4 of 2022. Turning to capital, we placed 415 systems in the fourth quarter, 12% higher than the 369 systems we placed in the fourth quarter of last year. We placed 209 systems in Q4, 28 more than last year, driven by capacity expansion for procedure growth and higher greenfield placements at existing IDN customers. We've placed 70 systems in Japan, with strengths driven by greenfield placements and customer use of remaining capital budget. Consistent with last quarter, we have seen delayed tenders and low assistant placements in China due to ongoing anti-corruption efforts by the government. For more information, visit www.fema.gov.
Brian King: With regard to capital expenditures, we expect the range to total between $1 billion to $1.2 billion.
Brian King: With regard to capital expenditures, we expect the range to total between 1 billion to $1 $2 billion, primarily for planned facility construction activities.
Brian King: primarily for planned facility construction activities.
Brian King: With regard to income tax in 2023, our pro forma income tax rate was 20.6%.
Brian King: With regard to income tax in 2023, our pro forma income tax rate was 26% as.
Brian King: as we look forward.
Brian King: As we look forward we.
Brian King: We estimate our 2024 pro forma tax rate to be between 22% and 24% of pre-tax.
Brian King: We estimate our 2024 pro forma tax rate to be between 22% and 24% of pre tax income.
Speaker Change: That concludes our prepared comments. We will now open the call to your questions.
Brian King: That concludes our prepared comments, we will now open the call up for your questions.
Speaker Change: Thank you. Now, if you have not already done so and you wish to ask a question, please press 1 and 0 on your telephone keypad at this time.
Speaker Change: Thank you.
Speaker Change: You have not already done so and you wish to ask a question. Please press one then zero on your telephone keypad at this time.
Speaker Change: If you want to remove yourself from the queue, please repeat the 1-0 command.
Wanted to remove yourself from the queue. Please repeat the one day zero command.
Speaker Change: Now, first question will come from the line of Larry Biegelsen of Wells Fargo. Please go ahead.
Speaker Change: Now first question will come from the line of Lloyd Larry <unk> of Wells Fargo. Please go ahead.
Larry Biegelsen: Okay, sir, your line is open now.
Larry Biegelsen: Okay. Sir your line is open now.
Larry Biegelsen: Can you hear me? Yes. Oh, you can hear me. Great. Thanks for taking the question. Congrats on a nice end to the year here. Thanks for all the color on DaVinci Five. So obviously a few questions on that. I'd love to start with just, Jamie, maybe a framework for how to think about the financial implications of a new system beyond 2024. Is the XI launch a good analog from a pacing standpoint? And what are the ramifications of leasing? You know, if a customer on a lease upgrades, you know, will the lease get the ASP lift? You know, we assume you'll have. And what will you do with returned XIs? And I had just one follow-up.
Larry Biegelsen: Can you hear me, yes, Larry.
Larry Biegelsen: So you can hear me great. Thanks for taking the question congrats on a nice end to the year here. Thanks.
Speaker Change: Thanks for all the color on da Vinci five.
Speaker Change: So obviously a few questions on that.
Speaker Change: Love to start with just Jamie maybe a framework for how to think about the financial implications of the new system not beyond 'twenty 'twenty four is the Exxon launch a good analog from a pacing standpoint, and what are the ramifications of leased if a customer on.
We expect system placements in China to be at lower levels at least through the first half of 2024. Globally, there were 51 trading transactions in the quarter as compared to 110 last year. As of the end of Q4, there are approximately 375 SIs remaining in the installed base, 60 of which are in the US. Fourth quarter revenue was $1.93 billion, an increase of 17% from last year on a constant currency basis. Revenue growth was also 17% Additional revenue statistics and trends are as follows. Leasing represented 48% of Q4 revenue, compared with 42% last year.
Speaker Change: The least upgrades will at least get it the ASP lift we assume you'll have and what will you do with returned exercise and I had just one follow up.
Jamie Samath: Yeah, I would say the dynamics are quite different between when we launched XI in 2014 versus where we are today, and I think the feature sets of DaVinci 5, which we haven't described, I think are an important context for you all, which we'll do once we have clearance.
Yeah, I would say the dynamics are quite different between when we launched <unk> in 2014 versus where we are today and I think the the feature sets of da Vinci, five which we haven't described.
Speaker Change: An important context fuel, which will do once we have clearance.
Jamie Samath: You look at relative penetration of DaVinci over that period, the extent to which leasing has changed significantly, our OUS penetration. I think there are a number of factors, Larry, where I would not use the kind of XI ramp and progression as a reference point for how DaVinci 5 might
Speaker Change: You look at relative penetration of da Vinci over that period.
Speaker Change: The extent to which leasing has changed significantly.
The increasing lease mix we have seen over time is primarily driven by customers in the U.S., particularly those who have acquired systems under usage-based arrangements. These arrangements provide customers greater financial flexibility to expand their robotics programs independent of capital budgets. These arrangements also incorporate technology obsolescence protection for next-generation technologies. For more information, visit www.fema.gov. Q4 system average selling prices were $1.42 million as compared to $1.43 million last year. Thank you very much.
Speaker Change: Oh U S penetration I think there were a number of factors library, where I would not use the kind of X I ramp up progression as a as a reference point for how da Vinci five my might progress.
Speaker Change: Thank you for joining us today.
Speaker Change: But I think that I would make any further comments on that once we get through clearance and are able to talk to you about the feature set.
Speaker Change: and J.B. Eddy Tuller. Yes, please.
Speaker Change: So there shouldn't be any color with respect to at least please.
Eddy Tuller: So I think there are a number of dynamics that, in the end, will motivate a customer to look at a trade, even if they have an existing system under lease.
Speaker Change: So I think there are a number of dynamics and the annual motivate our customers to look at trade, even if they have an existing system under lease.
Eddy Tuller: If I hold everything else equal and just look at the fact that the asset is leased, I do think there is some benefit to the customer insofar as they can avoid a capital budget barrier to executing an upgrade. But I think you have to look at all of the other dynamics that we're yet to describe.
Speaker Change: If I hold everything else equal and just look at the fact that the assay is leased.
Partially offset by lower trading. We recognized $21 million of lease buyout revenue in the fourth quarter compared with $17 million last quarter and last year. Da Vinci Instrument and Accessory Revenue Per Procedure was approximately $1,800 compared with approximately $1,820 last year. The year-over-year decline in INA per procedure is primarily a result of a procedure mix in the U.S. given strong growth in cholecystectomy and lower growth in bariatric cancer, and customer ordering patterns partially offset by the INA price increase implemented in mid-2023. Thank you for watching.
Speaker Change: Do think there is some.
Benefit to the customer insofar as they kind of avoid a capital budget barrier to execute in a an upgrade but I think you have to look at all of the other dynamics that we yet to describe.
Speaker Change: Okay. And then I guess on the new system, you know, I'll try my luck here. You know, just lastly, do you expect the same indications as XI upon launch? And Gary, is this more about improving outcomes in existing procedures or expanding addressable procedures? Thank you.
Speaker Change: Okay and then.
Speaker Change: I guess on the new system I'll try my luck here you know just lastly, do you expect the same indications on Si upon launch and Gary is this more about improving outcomes and existing procedures or expanding addressable procedures. Thank you.
Gary S. Guthart: Yeah, we submitted for broad indications and in the IDE trial it was a broad indication trial. What that looks like in the end will come down to how we answer some of the questions that come back and forth. So I'm not telling you what the end point is, but I can tell you what our starting point is.
Speaker Change: We submitted for abroad.
Indications and in the IV trial. It was a broad indication trial, what that looks like in the end will will come down to how we answered some of the questions that come back and forth. So I'm not telling you what the endpoint is but I can tell you what our starting point.
Turning to ion therapy, there were approximately 16,500 ion procedures in the fourth quarter, an increase of 108% as compared to last year. In Q4, we placed 44 ion systems compared to 67 in Q4 of 2022. 55 Last quarter, We experienced supply challenges for our ion catheter and vision probe and limited ion system placements during the quarter to ensure customers could effectively launch their program. There is strong customer demand for ION, which is all being attributed to backlog growth in the quarter. For more information, visit www.fema.gov.
Gary S. Guthart: In terms of kind of breadth and depth, we think that it will allow for additional penetration into some of the categories we're in already, and maybe an analogy is we're going to have to go back and look at some of the categories we're in already, and maybe an analogy is
Speaker Change: Is.
In terms of.
Speaker Change: Kind of breadth and depth.
Speaker Change: We think that it will allow for additional penetration into some of the categories. We're in already.
Speaker Change: Maybe an analogy is you could do some general surgery with ESI. The earlier system, we have clearances, there, but <unk> had some product improvements and some really nice.
Gary S. Guthart: You could do some general surgery with SI, the earlier system. We had clearances there, but XI had some product improvements and some really nice.
Gary S. Guthart: forward progress that allowed us for greater penetration depth so there's opportunity for depth we think over time there's opportunity for additional indications those are unlikely to occur right out of the gate and we think that there's some really nice indications to talk about or features to talk about in future calls.
Forward progress that allowed us for greater penetration depth, so theres opportunity for depth, we think over time, there's opportunity for additional indications.
Speaker Change: Those are unlikely to occur right out of the gate and.
Speaker Change: And we think that there's some really nice indications.
We are working hard and making progress to resolve the supply challenge. The installed base of ion systems is now 534 systems. The installed base of ion systems is now 534 systems, of which 214 are under operating lease arrangements. Our SP platform continued to make progress in 2023. Fourth quarter SP procedure growth accelerated to 58% We've placed 19 systems in Q4 and 57 for the year, up from 23 placements in 2022. Fourth quarter placements included five in Korea and two in Japan.
Speaker Change: About.
Speaker Change: Or features to talk about in future calls.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: We're going to go to the next line.
Speaker Change: Okay, We will go to the Knicks fine.
Speaker Change: We go to Travis Steed, Bank of America. Please go ahead.
Speaker Change: If I go to Travis Steed Bank of America. Please go ahead.
Travis Steed: Gary and everybody.
Speaker Change: Hey, everybody.
Travis Steed: Can you hear me okay? Yeah. Hi, Travis. Great. Maybe just high level, just like you were talking about DaVinci 5 having hundreds of design changes. When you just think about DaVinci 5 and kind of driving the quad aim, maybe just kind of talk about high level, more what you're trying to solve for with some of those design changes. What's different about DaVinci 5 versus DaVinci 4? And is it possible we could see a system in 2024, or is it more likely in 2025? Yeah.
Speaker Change: Can you hear me, Okay, Yeah, Hi, Travis Okay great.
Speaker Change: Maybe just high level, just like you were talking about da Vinci five having hundreds of design changes.
Speaker Change: Think about da Vinci five in kind of driving the Quad aim maybe you just kind of talk about high level more of what you're trying to solve for what some of those design changes whats different about da Vinci five versus de Vinci for and is it possible we could see a system in 'twenty.
Average system utilization for our SP platform grew 15% in 2023, reflecting increased usage by U.S. customers. We continue to make progress in expanding the opportunity for SP Thank you, including continued work on regulatory submissions in the US for colorectal and thoracic individuals, and a system submission in China. In January, we received clearance for SP in Europe across a broad procedure set and are planning for a measured rollout as we build local KOLs and establish local proctoring and training capabilities. Moving on to the rest of the P&L. Proforma gross margin for the fourth quarter of 2023 was 68% of total.
Speaker Change: 24 or is it more likely in 2025.
Travis Steed: You know, I laid out in the script kind of what our design methodology was. I am dying to tell you more about DaVinci 5, but I'll wait for clearance and for the final back and forth with FDA so we can do that with a little more care. So that's kind of where we are on that set. We're excited about it. I think it is substantive, and I think some of the improvements that we can bring are going to be interesting and exciting. We are submitted, and we're in the back and forth with FDA. It is our hope that it is a 24 launch. They ultimately are the arbiters of when we get clearance. But what I'd say, based on past experience with them, is that we're in a constructive conversation that we understand. And if that goes the way we want, then certainly it's something we'd be excited about in 24.
Speaker Change: You know I laid out in the script kind of what our design methodology was I am dying to tell you more about da Vinci, five, but all but I'll wait for for clearance and for the final back and forth with the FDA. So we can do that with a little more care.
Speaker Change: So that's kind of where we are and thats it.
Speaker Change: We're excited about it I think it is substantive and I think some of the improvements that we can bring are going to be interesting and exciting.
Speaker Change: We are submitted and we're in the back and forth with FDA. It is our hope that as a 24 launch of they they ultimately are the arbiters of when we get the clearance.
Speaker Change: But what I would say based on past experience with them is that we're in a constructive conversation that we understand and if that goes away. We want then certainly that's something we'd be excited about in 'twenty, four but I can't guarantee it because I don't have the clearance in hand.
68.2% for the fourth quarter of 2022. The year-over-year decline in pro forma gross margin reflects increased inventory reserves and a higher mix of new platform revenue that currently carries a dilutive gross margin. Partially offset by the INA price increase implemented mid-last year. With respect to our manufacturing capabilities and capital investment plan, we would like to thank you for joining us. During the quarter, we initiated local excise system production in China, allowing us to participate in tenders that require a domestically produced product.
Travis Steed: But I can't guarantee it because I don't have the clearance.
Speaker Change: That's helpful. Would you expect some sort of ASP uplift versus DaVinci 4? And maybe also talk about the manufacturing capacity. How long will it take to get to scale on the manufacturing? And how would that look versus the XI launch? Can you do hundreds a year or thousands a year? I'm kind of curious if that's a limiting factor in the availability of these systems going forward. Thanks a lot.
Speaker Change: That's helpful.
Speaker Change: You expect some sort of AFP uplift versus da Vinci for and and maybe also talk about the manufacturing capacity.
Speaker Change: How long will it take to get to scale on the manufacturing.
Speaker Change: How would that what kind of versus the prior lines can you do hundreds a year of thousands a year just kind of curious where if that's the limiting factor in kind of the availability of the system going forward. Thanks a lot.
We also completed the transfer of X system production to our East Coast hub near Atlanta, Georgia. In 2024, we are planning to transfer XI system production from California to our East Coast hub over the next 18 months. We expect to open new manufacturing facilities for DaVinci 5 and Ion System Manufacturing in California and to complete line transfers for ION and SP INA to our Mexicali facility. We believe these activities will position Intuitive to serve our customers with best-in-class supply availability, product quality, and product cost. The fourth quarter pro forma operating expenses increased 15% compared with last year.
Speaker Change: Yeah, I'll start with just a little bit of color on ASP and then I'll turn it over to Jamie. We won't call any ASP right now. We want to both get through the final clearance.
Speaker Change: Yeah, I'll start with the just a little bit of color on ASP, and then and then I'll turn it over to Jamie We will we won't call any ASP right now we want to both get through the final clearances. What I will say is there are some differences relative to X X XI that make that discussion a little detailed but I understand it's important for it to be detailed and clear for the customer.
Speaker Change: What I will say is there are some differences relative to XXI that make that discussion a little detailed. And it's important for it to be detailed and clear for the customer to understand what they're going to be buying. So we're going to pause that for now. With regard to manufacturing ramp, clearly we're going to be in a phased launch. I think we'll be supply constrained in the early side of that, kind of intentionally as we work through manufacturing process. But in terms of pacing and what that might feel like, Jamie, let me turn it over to you.
Jamie: To understand what theyre going to be buying so we're going to pause that for now with regard to manufacturing ramp clearly we're going to be in a phased launch I think will be supply constrained in the early <unk>.
<unk> of that kind of intentionally as we worked through manufacturing process, but in terms of pacing of what that might feel like Jamie Let me turn it over to you.
Speaker Change: Um, um,
Jamie:
Jamie Samath: To some extent, it will obviously depend how that progresses both within our four walls and with our suppliers. Certainly, it's several quarters. I would take several quarters as to be something that I would take several quarters as to be something that
Jamie: To some extent.
Jamie: It will obviously depend how that progresses, both within our four walls and with our suppliers.
This was driven by increased headcount and higher variable compensation. In addition, fourth quarter 2023 operating expenses are estimated to be $1.5 billion, which included a $40 million contribution to the Intuitive Foundation. We did not make a contribution in 2022.
Jamie: Suddenly as several cool is I would take several quarters has to be something that's beyond the year, but I think you have to watch us make progress here and we'll keep you updated.
Jamie Samath: Beyond the Year, but I think you have to watch us make progress here and we'll keep you updated.
Speaker Change: All right, great. Thanks a lot and congrats.
Speaker Change: Alright, great. Thanks, a lot and congrats.
Speaker Change: Thank you.
Speaker Change: And we'll go next to the line of Robbie Marcus, JP Morgan. Please go ahead.
Speaker Change: And we'll go next to the line of Robbie Marcus Jpmorgan. Please go ahead.
Robert Hopkins: Great. Thanks for taking the question. Congrats on a really good quarter.
Robert Hopkins: Great. Thanks for taking the question and congrats on a really good quarter.
Performer Other Income was $67.1 million for Q4, higher than $57.9 million in the prior quarter, primarily due to higher interest rates. Our pro forma effective tax rate for the fourth quarter was 15.9%, lower than prior quarters primarily because of the release of certain tax reserves associated with the expiration of related statutes and the favorable earnings system. Fourth quarter 2023 performing net income was $574 million, or $1.60 per share, compared with $439 million, or $1.23 per share, for the fourth quarter of last year. I will now summarize our gap results. Gap net income was $606 million, or $1.69 per share, for the fourth quarter of 2023.
Robert Hopkins:
Speaker Change: I'm going to push my luck again. Gary, you know, one of the things we talked about two weeks ago on stage was big data and, you know, the potential to integrate it into your systems. You know, maybe if we think about just, you know, philosophically DaVinci 5, you know, is this something we'll see a lot more software improvements rather than hardware improvements? I realize you're not given specific details, but is software and the ability to add future software updates something we can be looking forward to?
Speaker Change: I'm going to I'm going to push my luck again, Gary you know.
Speaker Change: One of the things we talked about two weeks ago on stage was big.
Robert Hopkins: Big data.
Robert Hopkins: And the.
The potential to integrate it into your systems you know, maybe if we think about.
Robert Hopkins: Just philosophically da Vinci XI. If it you know is this something we'll see a lot more software improvements rather than hardware and for improvements I realize you're not giving specific details, but is software and the ability to add future software updates something we can be looking forward to.
Gary S. Guthart: Yeah, you know, one of the things we talk about in the script is the increase in computational capability of the system, the re-baselining of that system, and one of the reasons for that is
Speaker Change: Yeah, you know one of the things we've talked about in the script is the is the increase in competition capability of the system. The rebase lining of that system in one of the reasons for that is.
Gary S. Guthart: Future programmability, some of the things that we'll be able to bring out of the gate are pretty exciting, but it also gives us the opportunity to build on that base in sequential software reporting.
Speaker Change: Future program ability of some of the things that we'll be able to bring out of the gate are pretty exciting, but it also gives us the opportunity to build on that base and sequential software releases.
Speaker Change: So it's a good pull through, Robbie. The point you make is a good one. We do want to pull through software capability. It will not just be software that we bring to market, but it's a starting point.
Gapner income of $325 million or 91 cents per share for the fourth quarter of 2022. Fourth Quarter Gap Tax Expense, Thank you for joining us and receipt of certain tax benefits associated with our Swiss operation. Thank you. The adjustments between pro forma and gap net income are outlined and quantified on our website. We ended the year with cash and investments of $7.3 billion, compared with $7.5 billion at the end of Q3. Thank you very much. Thank you very much. Capital expenditures of $435 million, partially offset by cash generated from operating, Let me take a moment to address the new multiport system that Gary highlighted and certain assumptions that may impact the 2024 model. First,
Speaker Change: So it's a good pull through Robbie the point you make is a good one that we do we do want to pull through software capability. It will not just be software that we bring to market, but it's.
Speaker Change: As a starting point.
Speaker Change: Just to remind everybody back in the XI launch period, XI didn't have everything that we could possibly do with it at first year of launch either. It's something that as we build capability and build skill, we can add to over time, and we've done that for years. We will do the same in DV5. It is a platform upon which we can build for many years.
Speaker Change: Just to remind everybody back in the <unk> side launch period.
Speaker Change: Didn't have everything that we could possibly do with it.
Speaker Change: That first year of launch either it's something that as we as we build capability and build scale, we can add to over time and we've done that for years. We will do the same in D. V. Five it is a platform upon which we can build for many years to come.
Speaker Change: Great. And maybe one for Jamie, you know.
Great and maybe one for Jamie you know.
Speaker Change: OPEX stepping up with the new product launch. You talked about, you know, in the midterm seeing operating margin expansion. We're also seeing elevated CapEx this year, as you talked about, all the manufacturing plants. Maybe addressing them both, you know, how should we think about where all of these expenses are going, particularly in OPEX this year, R&D versus SG&A, and what types of activities in each? And then, you know, is three years a good timeframe to think about for the midterm when we might see these spending trends moderate? Thanks a lot.
Speaker Change: Opex stepping up with the new product launch you talked about.
And in the mid term seeing operating margin expansion. We're also seeing elevated capex. This year as he talked about all the manufacturing plants, maybe addressing them. Both you know how should we think about where all of these expenses are going particularly on opex this year R&D versus SG&A and what.
Since we have not received FDA clearance for DaVinci 5, we cannot provide specificity on launch timing and price information. Second, once cleared, we are planning a phased launch period over several quarters. Noting that we are at the end of the SI trading cycle and that DaVinci 5 will be in a phased rollout, we expect total trading volumes to be lower in 2024 than in the prior year. Given that, and our procedure guidance of 13% to 16% growth, we also expect total system placements for 2024 to be lower than in 2023. As a result of the phased rollout of DaVinci 5, we expect that a higher proportion of Gen 4 systems will be leased as customers seek the flexibility to upgrade to DaVinci 5 when supply allows. For those customers that prefer to purchase a Gen4 system, please contact us at gen4systems.com. We will offer a future trade-in right that can be exercised when there is sufficient DaVinci 5 supply. However, purchase contracts containing a trade-in right result in a deferral of a portion of the purchase price, negatively impacting the systems revenue market.
Speaker Change: Types of activities in each and then you know is three year is a good timeframe to think about for the midterm when we might see these spending trends moderate thanks a lot.
Speaker Change: Yeah, let me take CapEx first.
Speaker Change: Let me take Capex first.
Speaker Change: In 23 and 24, the majority of those capital investments are for manufacturing facilities and to add manufacturing capacity in particular to our Mexicali factory. So a significant portion of the depreciation that comes with that will show up in cost of sales, and that's reflected in part in the 24 gross margin guidance. Some of it will show up in OPEX, and that will therefore be reflected in SG&A. If I look at the relative growth in R&D and SG&A in 24, I think it's relatively similar. Obviously, innovation in R&D is important to us, but you will have a little bit of an impact in 24 at least for incremental depreciation. We still see opportunity to leverage some of our enabling functions. There are some other functions that also can leverage as we scale and grow and sort of look to do that over the next couple of years.
Speaker Change: In 'twenty, three and 'twenty for the majority of those capital investments for manufacturing facility is and to add manufacturing capacity in particular to Mexicali factory.
Speaker Change: So.
Significant portion of the depreciation that comes with that will show up in cost of sales and Thats reflected in part in the 24 gross margin guidance. Some of it will show up in Opex and that will that will be reflected in an SG&A. If I look at the relative growth in R&D and SG&A.
Speaker Change: In 24, I think it's relatively similar obviously innovation in R&D is important to us, but you will have a little bit of an impact in 'twenty for at least four incremental depreciation we still see opportunity to.
Finally, and consistent with our experience bringing four generations of platforms to market, new systems typically start at lower gross margins and rise over a multi-year period as we build volume and optimize design, manufacturing, and supply chain. Brian will describe our gross margin guidance in more detail later in the call. Before I turn it over to Brian to discuss clinical highlights and our outlook for 2024, let me address operating margins. In 2023, our pro forma operating margin was 34% of revenue compared to 35% in the prior year.
Speaker Change: Leverage.
Speaker Change: Some of our enabling functions. There was some other functions that also can leverage as we scale and grow and so we'll look to do that over the next couple of years.
Speaker Change: With respect to the kind of operating margin expansion opportunity that I described in my prepared remarks, I'd like to say thank you very much.
Speaker Change: With respect to the kind of operating margin expansion opportunity that I described in my prepared remarks, and we've said over the medium term I kind of broadly say that to a three to five year horizon.
Speaker Change: We said over the medium term, I'd kind of broadly say that's a three to five year horizon.
Speaker Change: We have a specific set of actions and plans that we need to execute that we need to execute.
We expect operating margins to be under pressure in 2024 given the anticipated launch of DaVinci 5, increased depreciation expense, and an adverse mixed impact on gross margin from the growth in new platforms. However, as we look to the medium term, we see opportunity for operating margin expansion based on the following dynamics. One, moving to broad launch in DaVinci 5, allowing customers the opportunity to upgrade their existing fleet to the latest technology.
Speaker Change: We have a specific set of actions and plans that we need to execute those.
Speaker Change: Those teams have those as goals. There's some variability, obviously, in terms of how that gets executed, and there's some interrelationship between the set of actions that need to be complete.
Speaker Change: Those teams have those goals.
Speaker Change: Some variability obviously in terms of how they can execute isn't there some interrelationship between.
Speaker Change: The set of actions that need to be completed.
Speaker Change: So there are dynamics there that can impact the speed at which that gets executed. Thank you.
Speaker Change: So there are dynamics that can impact the speed at which that gets executed and of course, we have to run our business in the meantime.
Speaker Change: of course we have to run our business in the end.
Speaker Change: Great, thanks for the talk.
Speaker Change: Great. Thanks for the thoughts.
Speaker Change: And we'll go over to the line of Rick Wise, Stiefel. Please go ahead.
Speaker Change: And we'll go over to the lineup.
Speaker Change: <unk> Stifel. Please go ahead.
Improving gross margin. We aspire to be above the 70% level over time. Three, leveraging those functions that can take advantage of scale as we grow, improvements to gross margin will be driven by the following action: First, improving the product cost of new platforms, including DaVinci Five, and second, growing into and eventually leveraging the incremental fixed costs from new manufacturing facilities. The return of resources that have been deployed to supply continuity given the impact of the pandemic. The return of resources that have been deployed to ensure supply continuity and return to routine manufacturing and product cost reduction activities. We have the teams and capabilities to deliver on these efforts over the next several years. For more information, visit www.fema.gov. And with that, I would like to turn it over to Brian.
Rick Wise: Good afternoon, everybody, and great to see the Gen 5 announcement. Maybe I'm going to go in a slightly different direction. Maybe we can get some updates and more details, more color on ION and SP. SP, Gary, the strongest quarter ever. I'm just curious your thoughts about 24 and the next couple of years. What's next? You know, how are you, what are the team priorities for 24? And on the ION side, maybe more for Jamie, you gave us some good color about demand strong and supply constraints continue. How are you thinking and what are you dialing into your thinking for 24 about resolution of the catheter and the vision probe limitations? When are you hoping that that gets largely better resolved?
Stifel: Darren everybody and great to see the Gen five announcement.
Stifel: Hi.
Maybe I'm going to go into a slightly different direction, maybe we can get some updates in more details.
Stifel: More color on ion and SP Sp.
Speaker Change: Gary the strongest quarter ever.
Speaker Change: I'm just curious your thoughts about 24 in the next couple of years, what's next.
How are you what are the team priorities for 'twenty four and on the ion side, maybe more for Jamie.
Speaker Change: You gave us some good color about demand is strong and supply constraints continue.
Speaker Change: How are you thinking and what are you dialing into your thinking for 'twenty four about resolution of the catheter and the vision probe.
Speaker Change: Limitations when are you, hoping that that gets largely.
Speaker Change: Better resolved.
Speaker Change: Thanks, Rick. On the SP front, we're pleased with the step forward they took in 23. It was good. We're seeing more focused efforts in our commercial team in the U.S., which has been good. We're excited about its entry into Japan, and we're starting to see a build of activity in Japan, too, so that's been good. We expect to see it in Europe in 24, and that's another nice step, and I think that's a broader set of clinical indications as it was in Korea and Japan, so it gives a little more freedom to operate, which is great. In the U.S., we have trials that have finished accrual and have been submitted or will be submitted soon in thoracic and colorectal that will give our U.S. customers more opportunity to use SP in a multi-platform. Thank you. Thank you.
Speaker Change: Yeah. Thanks, Thanks, Rick on the SP front.
We're pleased with the step forward they took in 23 it was good.
Speaker Change: We're seeing.
Brian King: Thank you, Jamie. Overall procedure growth for full year 2023 was 22% year-over-year compared to 18% for the full year of 2022. Overall procedure growth was comprised of 19% growth in the U.S. and 27% growth outside of. In the US, fourth quarter 2023 procedure growth was 17% year-over-year.
Speaker Change: More focused efforts and our commercial team.
Speaker Change: The U S, which has been good we're excited about its entry into Japan, and we're starting to see a build of AR.
Speaker Change: Activity in Japan, too so that's been good.
Speaker Change: We expect to see it in Europe.
Speaker Change: And 24% that's another nice step and I think that's a broader set of clinical indications.
Speaker Change: As as it was in Korea, and Japan. So it gives a little more freedom to operate which is great.
Speaker Change: U S. We have trials that have finished accrual and have been submitted or will be submitted soon in thoracic and colorectal that will give our U S customers more opportunity to use SPD in a multi platform multi specialty environment. So I think SP continues to be.
Brian King: Compared to 18% for the fourth quarter of 2022 and 17% last quarter, fourth quarter growth was led by procedures within general surgery, such as the strength and cholecystectomy, colon resection, and foregut procedures.
Speaker Change: But a nice build so that that looks good and team as their marching orders and is working down that set of processes.
Brian King: As Gary noted, bariatric procedures continued to grow year over year, but growth moderated into the mid-single digits. Looking outside of the U.S., over the years, we have made investments in countries and international markets to support customers and their adoption of Da Vinci procedures. Looking back over the past decade, OUS procedures have grown 20% on a compound annual growth basis and have consistently been accretive to total procedure growth. OUS procedures have grown from about 20% of total global procedures to now about a third. While market maturity and levels of adoption differ by region and country, Broadly, we now see more than half of OUS growth being led by procedures beyond urology, reflecting customers' growing adoption of general surgery, gynecology, and thoracic procedures, the results of which I will highlight below. Focusing on the fourth quarter, OUS procedure volume grew 29% compared with 18% for the fourth quarter of 2022 and 24% last quarter Growth was led by strength and colon resection, followed by growth and hysterectomy, and lung resection procedures.
Speaker Change: We have a breast oncology trial that's ongoing that we're excited about also that will not make a big impact in 24, but starts to open additional opportunity for a narrow access surgery thereafter. So that's kind of where we are in SP. So far, so good. I'll turn it over to Jamie and talk about eye.
Speaker Change: We have a breast oncology trial that's ongoing.
Speaker Change: We're excited about also that will not make a big impact in 'twenty four but starts to open additional opportunity for neuro access surgery. Thereafter, so that's kind of where we are at SP. So far so good.
Speaker Change: I'll turn it over to Jamie talked about right.
Jamie Samath: Not ready to be particularly specific yet on when the supply chain challenges are behind us. For catheter, you have three dynamics. So we had a specific supplier constraint that impacted us.
Jamie: No ready to be particularly specific yet on.
Jamie: When the supply chain challenges are behind us for catheter you got three dynamics. So we had a specific supplier constraint that impacted us.
Jamie Samath: We are at the same time transferring a number of catheter lines to Mexicali.
We are at the same time transferring a number of catheter lines to Mexicali.
Jamie Samath: and we're doing that as the business is effectively doubling so you're bringing on new staff you're having to train them so that's a real effort that takes some time and I think there's a little bit of variability in terms of when we get to the point where that's behind us so I'm going to let us have another quarter before we talk about when that's resolved. The teams are making clear progress but there's work still to be done. On the vision probe I think it's a relatively simpler problem for us to address. There isn't a supplier dependency within that particular area. It's really just us being able to execute again a line transfer as the business is doubling and the team are making great progress but stay tuned.
Jamie: And we're doing that as the business is effectively doubling so youll, bringing on new stuff youre, having to train them. So that's a real effort that takes some time and I think thats a little bit of variability in terms of when we get to the point, where that's behind us.
<unk> have another quarter before we talk about when Thats resolved.
Jamie: The teams are making clear progress, but there's work still be done on the vision probe I think it's a relatively simple problem for us to address there isn't a supply of dependency within within that particular area is really just us being able to execute again our line transfer as.
Brian King: Growth in urology continued to be healthy, led by kidney procedures along with continued double-digit growth in prostatectomy in Europe. Fourth quarter growth was led by general surgery and gynecology procedure categories. Germany, the UK, and France Procedure Performance led the region to win the gold medal.
Jamie: The business is doubling and the team is making great progress but stay.
Jamie: Stay tuned.
Speaker Change: Gotcha. And just one follow-up on Gen 5 and what's next. You said, Jamie, and it makes sense, that probably in the next couple of quarters or until you launch, customers probably will lean more toward the leases with an upgrade clause, if I understood you. But I was just reflecting on it. Should we imagine that that could accelerate this sort of leasing approach in the near term for XI and as people, I guess, preferentially, potentially, possibly, maybe line up to get Gen 5 and that puts them in a more favorable position? How are all those dynamics aligned? How does that work? Is this good? Better for sales that this transition occurs or is it going to be more complicated?
Speaker Change: Got it and just one follow up on Gen five and what's next.
Speaker Change: You said, Jamie and it makes sense that probably.
Speaker Change: And the next couple of quarters or until you launch.
Speaker Change: Customers, probably lean more toward the leases with an upgrade clause if I understood you.
Brian King: In Germany, we saw strong growth in colon resection and kidney procedures. In the UK, from growth in hysterectomy and rectal resection, and in France from growth in colorectal and lung resection. In Asia, growth in the fourth quarter was led by China, reflecting a benefit from lower procedure volumes in the fourth quarter of 2022 due to COVID. In Japan, our third largest market by procedure bonds, the procedure growth was healthy and led by prostatectomy and colorectal procedures.
Speaker Change: But I was just reflecting on it should we imagine that that could accelerate.
Speaker Change: Yes.
Speaker Change: This sort of leasing approach in the near term.
Si and.
Speaker Change: As people.
Speaker Change: I guess preferentially potentially possibly maybe lined up to get gen five and that puts them in a more favorable position how does that all her all of those dynamics.
Speaker Change: Work is good.
Brian King: We placed 70 systems in Japan, reflecting the continued adoption of robotic surgery for a growing number of procedures and the availability of remaining capital budgets. India, while still in the early stage of adoption, saw continued strength in general surgery for gynecological procedures. Now, turning to the clinical side of our problem. Each quarter on these calls, we highlight certain recently published studies that we deem to be notable. However, to gain a more complete understanding of the body of evidence, we encourage all stakeholders to thoroughly review the extensive detail of scientific studies that have been published over the course of this webinar. In the fourth quarter, Dr. Nicola DeAngelis from Buzan University Hospital, along with multiple colleagues from the French Society of Parietal Surgery, Club Hernia, and French Society of Digestive and Visceral Surgery, published a systematic review and meta-analysis describing robotic surgery for inguinal and ventral hernias using surgical endoscopy.
Speaker Change: Better for sales that this transition occurs or is it going to be more complicated.
Speaker Change: Well, I think the first effect is we'll see the operating lease proportion of placements increase from where it's been. And again, that's because customers are motivated to have the protection that's in those clauses so that they can upgrade to DaVinci 5 when it becomes more broadly available.
Speaker Change: Well I think the first effect is we'll see the operating lease proportion of placements increase from where it's been.
Speaker Change: And again, that's because touching the customers are motivated to have the protection. That's in those clauses. So that they can upgrade to da Vinci five when it becomes more broadly available. So that was the first kind of message. We wanted to provide in terms of 2024.
Speaker Change: So that was the first kind of message we wanted to provide in terms of 2024 modeling.
Speaker Change: Lang.
Speaker Change: In terms of then how that gets upgraded, it's really a function of when does DaVinci 5 launch, which obviously we can't be specific about right now and there's some things to work through with FDA, and then what's the period of time over which we then go from a constrained or phased launch to a full launch.
Speaker Change: In terms of then how that gets upgraded its really a function of when does da Vinci five launch, which obviously, we can't be specific about right now and there's some things to work through with FDA and then once the period of time over which we then go from a constrained a phased launch to a full launch.
Speaker Change: And so I don't see that particularly as somehow a revenue benefit in 24. I think what we're saying is you'll have more of the placements that are leased and therefore that revenue is spread over time.
So I don't I don't see that particularly as somehow a revenue benefit in 'twenty four I think what we're saying is you'll have more of the placements that are leased and therefore that revenue spread over time.
Speaker Change: More likely to be a slight negative than a slight positive, and I think the things we've put in place for customer transparency and the ability to see it work to mitigate the feeling of having to wait, and they'll get a chance to put their hands on it and see it, but I don't see it as an accelerator.
Speaker Change: It's more likely to be a slight negative then a slight positive.
Speaker Change: I think the things we've put in place for customer transparency the ability to see it.
Brian King: In this analysis, authors reviewed publications between September 2014 and July 2022 and published pooled outcomes comparing the robotic-assisted approach for both inguinal and ventral hernia repairs to both laparoscopy and the open approach. With regard to inguinal hernia, when compared to laparoscopy, the robotic-assisted approach was associated with a 46% lower risk of hernia recurr Furthermore, subjects undergoing a robotic-assisted approach were associated with a 54% lower rate of opioid use, Relative to the open approach, for ventral hernia repairs. The robotic-assisted approach also had a 49% lower risk of conversion to opioids, and a 41% lower risk of intraoperative bowel injury. Relative to Laparoscopy, when compared to an open repair for ventral hernias, the robotic-assisted approach was associated with a 3.4-day shorter length of stay.
Speaker Change: <unk>.
Speaker Change: Work to mitigate the feeling of having to wait and they'll get a chance to put their hands on it and see it but I don't see it as an accelerant.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Okay, and we'll go to the line of Adam Mader, Piper Sandler. Please go ahead.
Speaker Change: Okay, and we'll go to the line of Adam mater.
Piper Sandler. Please go ahead.
Adam Mader: Hi, good afternoon. Thank you for taking the questions and congrats on a great year. I wanted to start on China and ask about the quota that went effective last summer as well as the anti-corruption campaign. If I heard the commentary correctly, it sounds like you expect systems to be impacted, system placements to be impacted through the first half of 2024. Does that mean there's some optimism that placements could get better in the back half of the year? And just any additional color on what you're seeing in that geography regarding anti-corruption campaign would be very appreciated. Thank you.
Adam Mater: Hi, good afternoon, and thank you for taking the questions and congrats on a great year.
Adam Mater: I wanted to start on China.
Adam Mater: And asked about the quota that went effective last summer as well as the.
Adam Mater: Anti corruption campaign, if I heard the commentary correct. It correctly it sounds like you expect systems to be impacted.
Adam Mater: System placements to be impacted through the first half of 2024 does that mean, there is some optimism that placements could get better in the back half of the year.
Adam Mater: And just any additional color on what Youre seeing.
Adam Mater: In that geography regarding anti corruption campaign would be would be very appreciate it. Thank you.
Adam Mader: Indications so far have been that that anti-corruption effort is a year-long effort which would take us to the middle of 24, and so that's why we indicated that we would expect delayed tenders through the period in which that effort is ongoing.
Adam Mater: Indications so far has been that that anti corruption.
Adam Mater: As a year long effort, which would take us to the middle of 'twenty four and so that's why we indicated that we would expect delayed tenders to the period in which that effort is ongoing.
Adam Mader: We don't have great visibility, frankly, beyond the first half of 24, and that's why in the prepared remarks we said at least through the first half of 24. So, yes, if that effort was to be resolved and if things started to normalize in terms of the pace at which tenders occurred, then you could see some opportunity for that to recover, but we're not at a position where we can predict that at this point.
Brian King: 34% lower risk of 30-day readmission 24% lower risk of 30-day readmission, 39% lower risk of overall complications, and more specifically, a 53% lower risk of surgical site infection than a 53% lower risk of surgical site infection. The authors concluded, quote, The present systematic review and meta-analysis supports the use of robotic surgery for abdominal wall hernia repair. Pulled data analyses show improved outcomes over laparoscopy and open surgery, particularly Overall, these results, based on 64 studies, support robotic surgery as a safe, effective, and viable alternative to traditional open and laparoscopic surgery for inguinal and ventral hernia repair, and may contribute to dismissing residual skepticism and increase the interest in this minimally invasive surgical technique.
We don't have great visibility frankly beyond the first half of 'twenty four and that's why in the prepared remarks, we said at least through the first half of 'twenty. Four so yes, if that effort was to be resolved and if things start to normalize in terms of the pace at which tenders. It could then you could see some opportunity for.
Adam Mater: That to recover we're not a position where we can predict that at this point.
Speaker Change: That's helpful color, Jamie. Thanks for that. And for the follow-up, I wanted to ask about the procedure growth guidance, the 13% to 16% for this year. Maybe you could flesh that out for a little bit by geography, U.S. versus international, how you're thinking about that, as well as, I guess, Europe versus Asia specifically, and just any color on quarterly cadence would be appreciated as well. Thanks again.
That's helpful color, Jamie thanks for that and for.
Adam Mater: The follow up wanted to ask about the procedure growth guidance of 13% to 60% for this year.
Speaker Change: Maybe you could flesh that out a little bit.
Speaker Change: A little bit by geography U S versus international how youre thinking about that.
Speaker Change: As well as I guess Europe versus Asia, specifically, and just any color around quarterly cadence would be appreciated as well. Thanks again.
Speaker Change: Let me start with seasonality, and I'm not going to be specific on quarterly cadence, but I do think I tried to emphasize in our prepared remarks
Speaker Change: Let me start with.
Speaker Change: Seasonality and I'm not going to be specific on quarterly cadence, but I do think I tried to emphasize in our prepared remarks.
Speaker Change: And we believe that the first half will be a tougher comp.
Speaker Change: And we believe that the first half will be a tougher comp.
Speaker Change: versus
Speaker Change: versus last year. And so...
Speaker Change: Versus you know versus last year and so yeah.
Brian King: End quote. I will now turn to our financial outlook for 2024, starting with procedure.
Speaker Change: Using that, the comparison from last year, and then also thinking about our historical sort of cadence throughout the year, I think you can look at that history and
Speaker Change: Using that the comparison from last year, and then also thinking about our historical sort of cadence throughout the year. I think you can look at that history in.
Brian King: As described in our announcement earlier this month, total 2023 da Vinci procedures grew approximately 22% year-over-year to over 2,280,000 procedures performed worldwide. For 2024, we anticipate full-year procedure growth within a range of 13% and 16%. Our overall procedure guidance range assumes that growth moderates from last year, given the elevated backlog benefit we experienced in 2023. The low end of the range assumes a modest decline in bariatric procedures. The low end of the range assumes a modest decline in bariatric procedures, along with challenges in China from increasing competition and anti-corruption activities impacting capital placements and, therefore, surgical revenue. We also assume there is no impact from patient At the high end of the range, we assume bariatrics continues its current growth, and factors in China do not have a significant impact on our business. For more information, visit www.fema.gov. In addition, we assume any backlog of patients would decline throughout the year.
Speaker Change: Make an assumption on what those growth rates could be by quarter.
Speaker Change: Make an assumption on what that growth rates, what those growth rates could be by quarter.
Speaker Change: Let's talk about
Speaker Change: Talk about.
Speaker Change: and many other factors in the procedure guidance.
Speaker Change: Factors in the procedure guidance, so, though there's really three primary factors right you have we've called out very accurate growth rates.
Speaker Change: So there's really three primary factors, right? You have, we've called out bariatric growth rates,
Speaker Change: and that's primarily a US factor.
Speaker Change: And that's primarily a U S factor we.
Speaker Change: We talked a bit about, from an OUS perspective, China.
Speaker Change: Talked a bit about from an O U S perspective, China.
Speaker Change: and then also backlog in
Speaker Change: And then also backlog in and in the system.
Speaker Change: and the system.
Speaker Change: And so Backlog also being primarily a U.S.
Backlog also being primarily a U S.
Speaker Change: but could still be broader but but
Speaker Change: Doctor, but could still be in broader but.
Speaker Change: So I'm not going to go into specifics as far as U.S. versus O.U.S., but I think I'd go back and just really center you on our comments around bariatric growth rates, right? Low end of the range assumes that there's some continued moderation in bariatric procedures, and at the high end of the range that it assumes current growth rates.
Speaker Change: So I'm not going to go into specifics as far as U S versus O U S. But I think I'd go back in and just really center you on our comments around very accurate growth rates right low end of the range assumes that there is some continued moderation in bariatric procedures and at the high end of the range that it assumes current growth rates that there was some impact in China at the low.
Speaker Change: There's some impact in China at the low end of the range.
Speaker Change: Just from the discussion you had right now on anti-corruption and how long that actually persists.
Speaker Change: The range.
Speaker Change: Just from the discussion you had right now an anti corruption and how long that actually persists.
Speaker Change: The benefit of backlog and how that will persist throughout the year.
Speaker Change: In soft tissue surgery, I would just say if you looked at if you look at 'twenty three the two primary growth drivers that we've called out as general surgery in the U S that grew 25% in 2023.
Speaker Change: And for <unk>.
Speaker Change: U S beyond urology that grew 35% in 'twenty three and that's a call. We think those continues to be growth drivers for the business.
Speaker Change: Thanks very much.
Speaker Change: And we'll go to the next line.
Speaker Change: And we'll go to the next line.
Brian King: Finally, we would expect that procedure seasonality will follow normalized historical patterns, resulting in a tough comparison for the first half of 2024 given the strong procedure growth in the first half of last year. Turning to gross profit, our full-year 2023 pro forma gross profit margin was 68%.
Speaker Change: to the line-up, Drew Ranieri, Morgan Stanley, go ahead.
Go to the line of drew Ranieri Morgan Stanley. Please go ahead.
Andrew Christopher Ranieri: Gary, just maybe just broadly on DaVinci 5 and just the TAM that you kind of updated at a conference earlier this month. How are you, could you maybe just update us maybe on how you're thinking about penetration today in general surgery, where you are with coli, hernia, colorectal, bariatrics, just to help us level set, because it sounds like this could be another progression in general surgery for the company. And then I'd follow up.
Andrew Christopher Ranieri: Gary just a maybe just.
Andrew Christopher Ranieri: The on the G five and just the Tam that you kind of updated.
Andrew Christopher Ranieri: At a conference earlier this month, how would you could you maybe just update us maybe on how you're thinking about penetration today in general surgery, where you are with colli hernia colorectal bariatrics just to help us level set.
Brian King: In 2024, we expect our pro forma gross profit margin to be within 67% and 68% of net revenue. For more information, visit www.fema.gov. The lower estimate of pro forma gross profit margin in 2024 reflects the impact of growth in our newer products and the impact of capital investments that will come on to support the growth of our business. Our actual gross profit margin will vary quarter to quarter depending largely on product, regional, and trade-in mix, impact of new product introductions, and price.
Andrew Christopher Ranieri: Because it sounds like this could be a another progression.
Andrew Christopher Ranieri: In general surgery for for the company and I had a follow up.
Gary S. Guthart: Sure, Jamie, I'll let you take the kind of characterization of where we are in the adoption curves of general surgery hernia benign.
Speaker Change: Sure Jamie I'll, let you take the kind of characterization of where we are in the adoption curves of.
Speaker Change: General surgery hernia benign.
Colleen: Colleen, and so on.
Speaker Change: Coli and so on.
Brian King: Turning to operating expenses, in 2023, our pro forma operating expenses grew by 14%. In 2024, we expect pro forma operating expense growth to be between 11% and 15%. The operating expense growth reflects increased depreciation expense as we bring on new facilities and investments to drive our growth. We expect our non-cash stock compensation expense to range between $680 million and $710 million in 2024. We expect other income, which is comprised mostly of interest income, to total between $290 million and $320 million in 2024. With regard to capital expenditures, we expect the range to total between $1 billion and $1.2 billion, primarily for planned facility construction activities. With regard to income tax, our pro forma income tax rate was 20.6%, as we look forward.
Colleen: If you take a look at the U.S., and I'm going to put this in quartiles for a second in terms of where we are in the adoption curve, colorectal, we're in the second quartile, bariatrics, also the second quartile, actually, colostectomy and hernia, all in the second quartile in terms of where they are along the adoption curve. So that obviously gives us some continuing runway to grow, and that's a driver behind the U.S. general surgery growth rates that we've seen.
If you take a look at the U S and I'm going to put this in quartile for a second in terms of where we are in the adoption curve colorectal where in the second quartile.
Speaker Change: Bariatrics also the second quartile actually called.
Speaker Change: Cholecystectomy and hernia order in the second quartile in terms of where they are along the adoption curve and so that obviously gives us some.
Speaker Change: Continuing runway to grow and Thats a driver behind the U S general surgery growth rates that we've seen.
Colleen: In the international markets, by the way, just in terms of general surgeries.
Speaker Change: In the international markets by the way just in terms of general surgery for the most part in most of the larger markets where in the first quarter of adoption. It's early what we're seeing is growth start to stick and those start to be an early growth rates, particularly in the cancer procedures Colo.
Colleen: For the most part, in most of the larger markets, we're in the first quarter of adoption. It's early. What we're seeing is growth start to stick and those start to be on early growth rates, particularly in the cancer procedures, colorectal, and beyond general surgery in hysterectomy and thoracic surgery.
Speaker Change: That tool and beyond general surgery in hysterectomy and thoracic.
Colleen: With regard to DV5, I won't call out what the specific targeting has been. We'll talk more about DV5 when we get a chance to talk about clearance. We do think that it's something that can help improve outcomes in multiple places.
Speaker Change: With regard to D V five I won't call out what those specific targeting has been and we will talk about more about <unk> five when we get a chance to talk about clearance. We do think that it's something that can help improve outcomes in multiple places and we'll look forward to talking to you about that when we have the opportunity if you.
Brian King: We estimate our 2024 pro forma tax rate to be between 22% and 24% of pre-tax. That concludes our prepared comments. We will now open the call to your questions. Thank you. Now, if you have not already done so and you wish to ask a question, please press 1 and 0 on your telephone keypad at this time. If you want to remove yourself from the queue, please repeat the 1-0 command.
Speaker Change: We'll look forward to talking to you about that when we have the opportunity. If you have one follow-up, Drew, I'll take the follow-up. Otherwise, we'll close the call. So, Drew, do you have one more? Sure, yeah. Just on DaVinci 5, can you maybe just talk about how it might be able to improve access to hospitals? I know that you have many IDNs that have added more and more systems, but do you see that more as an opportunity, or do you see just maybe better access for even smaller hospitals with having multi-port systems in the portfolio? Thanks.
Speaker Change: I have one follow up drew I'll take the follow up otherwise, we'll close the call. So Judy I have one more short yeah. Just on da Vinci five can you maybe just talk about how it might be able to improve access to hospitals I know that you have any idea on that.
Judy: Out of the more and more systems, but do you see that more as an opportunity or do you see just maybe better access for even smaller hospitals with having multi multi plant multi multi port systems in the portfolio. Thanks.
Operator: Now, the first question will come from the line of Larry Biegelsen of Wells Fargo. Please go ahead. Okay, sir, your line is open now. Can you hear me?
Andrew Christopher Ranieri: Yeah, thank you for the question. We think that having a portfolio of choices makes a ton of sense for hospitals.
Speaker Change: Thank you for the question.
Larry Biegelsen: Yes. Oh, you can hear me. Great. Thanks for taking the question. Congratulations on a nice end to the year here. Thanks for all the color on DaVinci Five.
Speaker Change: We think that having a portfolio of choices makes a ton of sense for hospitals and.
Andrew Christopher Ranieri: This will be a part of that portfolio. We talked about it in the prepared script. It's about to give people choice. Some of that choice will have to do with how they view their practice. Some of it may have to do with what their side of care looks like and feels like. So that gives us some optionality and gives our customers optionality. I think that's really helpful.
Speaker Change: This will be a part of that portfolio, we've talked about it in the prepared script, but it will give people choice.
Larry Biegelsen: So obviously, a few questions on that. I'd love to start with just, Jamie, maybe a framework for how to think about the financial implications of a new system beyond 2024. Is the XI launch a good analog from a pacing standpoint? And what are the ramifications of leasing?
Speaker Change: That choice will have to do with how they view their practice some of it may have to do with what their site of care looks like and feels like so that gives us some optionality and gives our customers Optionality I think that's really healthy.
Speaker Change: Thank you, Drew. Appreciate the question. That was our last question. In closing, we continue to believe there's a substantial and durable opportunity.
Speaker Change: Thank you drew I appreciate the question.
Speaker Change: 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.
Larry Biegelsen: You know, if a customer on a lease upgrades, will the lease get the ASP lift? You know, we assume you'll have it. And what will you do with returned XIs? I had just one follow-up.
Speaker Change: to fundamentally improve surgery and acute intervention.
Speaker Change: Our teams continue to work closely with hospitals, physicians, and caretakers in pursuit of what our customers have termed the quadruple A.
Our teams continue to work closely with hospitals physicians and care suite.
Yeah, I would say the dynamics are quite different between when we launched XI in 2014 versus where we are today, and I think the feature sets of DaVinci 5, which we haven't described, are an important context for you all, which we'll do once we have clearance. You look at the relative penetration of DaVinci over that period, the extent to which leasing has changed significantly, and our OUS penetration. I think there are a number of factors, Larry, where I would not use the kind of XI ramp and progression as a reference point for how DaVinci 5 might. Thank you for joining us today, and J.B. Eddy Tuller. Yes, please. So I think there are a number of dynamics that, in the end, will motivate a customer to look at a trade, even if they have an existing system under lease. If I hold everything else equal and just look at the fact that the asset is leased, I do think there is some benefit to the customer insofar as they can avoid a capital budget barrier to executing an upgrade.
Speaker Change: What our customers have termed the quadruple aim.
Speaker Change: Better, more predictable patient outcomes, better experiences for patients, better experiences for their care team.
Speaker Change: Better more predictable patient outcomes better experiences for patients better experiences for their care teams and ultimately a lower total cost to treat.
Speaker Change: and ultimately a lower total cost to treat.
Speaker Change: We believe value creation in surgery and acute care is foundationally human. It flows from respect for and understanding of patients and care teams, their needs, and in their environment.
Speaker Change: We believe value creation in surgery, and acute care as foundational <unk> human it flows from respect for and understanding of patients and care teams their needs and their environment.
Speaker Change: At Intuitive, we envision a future of care that is less invasive and profoundly better, where diseases are identified earlier and treated quickly so patients can get back to what matters most.
Speaker Change: At intuitive, we envision a future of care that is less invasive and profoundly better.
Speaker Change: We're diseases or identified earlier and treated quickly so patients can get back to what matters most.
Speaker Change: Thank you for your support on this extraordinary journey, and we look forward to talking with you again in the future.
Thank you for your support on this extraordinary journey and we look forward to talking with you again in three months.
Speaker Change: Thank you everyone for joining today's conference call. We do thank you for joining. You may now disconnect. Have a good day.
Speaker Change: Thank you everyone for joining today's conference call. We do thank you for joining you may now disconnect have a good day.
Speaker Change: Yeah.
Speaker Change: Yeah.
Speaker Change: Yeah.
But I think you have to look at all of the other dynamics that we're yet to describe. OK. And then I guess on the new system. You know, I'll try my luck here. And, just lastly, do you expect the same indications as XI upon launch? And Gary, is this more about improving outcomes in existing procedures or expanding addressable procedures? Thank you. Yeah, we submitted for broad indications, and in the IDE trial, it was a broad indication trial.
What that looks like in the end will come down to how we answer some of the questions that come back and forth. So I'm not telling you what the end point is, but I can tell you what our starting point is. In terms of kind of breadth and depth, we think that it will allow for additional penetration into some of the categories we're in already, and maybe an analogy is, we could do some general surgery with SI, the earlier system. We had clearances there, but XI had some product improvements and some really nice, forward progress that allowed us for greater penetration depth, so there's opportunity for depth. We think over time there's opportunity for additional indications, Thank you. We're going to go to the next line. We go to Travis Steed, at the Bank of America. Please go ahead. Gary and everybody, can you hear me okay?
Speaker Change: We're sorry, your conference is ending now. Please hang up.
Speaker Change: We're sorry, you can.
Speaker Change: <unk> ending now please hang on.
Travis Steed: Yeah. Hi Travis. Great. Maybe just high level, just like you were talking about DaVinci 5 having hundreds of design changes. When you just think about DaVinci 5 and kind of driving the quad aim, maybe just kind of talk about the high level, more what you're trying to solve for with some of those design changes. What's different about DaVinci 5 versus DaVinci 4?
And is it possible we could see a system in 2024, or is it more likely in 2025? Yeah. I laid out in the script kind of what our design methodology was. I am dying to tell you more about DaVinci 5, but I'll wait for clearance and for the final back and forth with FDA so we can do that with a little more care.
So that's kind of where we are on that set. We're excited about it. I think it is substantive, and I think some of the improvements that we can bring are going to be interesting and exciting. We have submitted it, and we're in the back and forth with FDA. It is our hope that it is a 24 hour launch. They, ultimately, are the arbiters of when we get clearance. But what I'd say, based on past experience with them, is that we're in a constructive conversation that we understand. And if that goes the way we want, then certainly it's something we'd be excited about in 24. But I can't guarantee it because I don't have the clearance.
That's helpful. Would you expect some sort of ASP uplift versus DaVinci 4? And maybe also talk about the manufacturing capacity. How long will it take to get to scale on the manufacturing? And how would that look versus the XI launch? Can you do hundreds a year or thousands a year?
Unnamed Speaker: We ended the year with cash investments of $7.3 billion compared with $7.5 billion at the end of Q3. The sequential Reduction in Cash and Investments reflected capital expenditures of $435 million, partially offset by cash generated from the offering. Let me take a moment to address the new multiport system that Gary highlighted and certain assumptions that may impact 2024. Buzz.
I'm kind of curious if that's a limiting factor in the availability of these systems going forward. Thanks a lot. Yeah, I'll start with just a little bit of color on ASP, and then I'll turn it over to Jamie. We won't call any ASP right now.
We want to both get through the final clearance. What I will say is there are some differences relative to XXI that make that discussion a little more detailed. And it's important for it to be detailed and clear for the customer to understand what they're going to be buying. So we're going to pause that for now. With regard to manufacturing ramp-up, clearly we're going to be in a phased launch. I think we'll be supply constrained in the early side of that, kind of intentionally as we work through the manufacturing process. But in terms of pacing and what that might feel like, Jamie, let me turn it over to you. Um, um, to some extent, it will obviously depend on how that progresses both within our four walls and with our suppliers. Certainly, it's several quarters.
Unnamed Speaker: Since we have not received FDA clearance for DaVinci 5, we cannot provide specificity on launch timing and price. Second, once cleared, we are planning a phased launch period over several quarters. Noting that we are at the end of the SI trading cycle and that DaVinci 5 will be in a phased rollout, we expect total trading volumes to be lower in 2024 than in the prior year. Given that, and our procedure guidance of 13-16% growth, we also expect total system placements for 2024 to be lower than in 2023. As a result of the phased rollout of DaVinci 5, we expect a higher proportion of Gen 4 systems will be leased as customers seek flexibility to upgrade to DaVinci 5 when supply allows. For those customers that prefer to purchase a Gen 4 system, we will offer a future trade-in that can be exercised when there is sufficient DaVinci 5 supply. Purchase contracts containing a trade-in right result in a deferral of a portion of the purchase price, negatively impacting system revenue.
I would take several quarters as to be something that Beyond the Year, but I think you have to watch us make progress here and we'll keep you updated. All right, great. Thanks a lot and congratulations. And we'll go next to the line of Robbie Marcus, JP Morgan.
Travis Steed: Please go ahead. Great. Thanks for taking the question. Congratulations on a really good quarter. I'm going to push my luck again.
Robert Hopkins: Gary, one of the things we talked about two weeks ago on stage was big data and, you know, the potential to integrate it into your systems. Maybe if we think about just, you know, philosophically DaVinci 5, is this something we'll see a lot more software improvements rather than hardware improvements? I realize you're not given specific details, but is software and the ability to add future software updates something we can be looking forward to? Yeah, you know, one of the things we talk about in the script is the increase in computational capability of the system, the re-baselining of that system, and one of the reasons for that is future programmability. Some of the things that we'll be able to bring out of the gate are pretty exciting, but it So it's a good pull through, Robbie. The point you make is a good one.
Unnamed Speaker: Finally, consistent with our experience bringing four generations of platforms to market, new systems typically start at lower gross margins and rise over a multi-year period as we build volume and optimize design, manufacturing, and supply chain. Brian will describe our gross margin gains in more detail later in the call. Before I turn it over to Brian to discuss clinical highlights and our outlook for 2024, let me address operating margin. In 2023, our pro forma operating margin was 34% of revenue compared to 35% in the prior year.
We do want to pull through the software capability. It will not just be software that we bring to market, but it's a starting point. Just to remind everybody back in the XI launch period, XI didn't have everything that we could possibly do with it at the first year of launch either. It's something that, as we build capability and build skill, we can add to over time, and we've done that for years. We will do the same in DV5.
Unnamed Speaker: We expect operating margins to be under pressure in 2024, given the anticipated launch of DaVinci 5, increased depreciation expense, and an adverse mixed impact to gross margin from the growth in new platforms. However, as we look to the medium term, we see opportunity for operating margin expansion based on the following dynamics. One, moving to broad launch of DaVinci 5, allowing customers the opportunity to upgrade their existing fleet to the latest technology.
It is a platform upon which we can build for many years. Great. And maybe one for Jamie, you know.
OPEX is stepping up with the new product launch. You talked about, you know, in the midterm seeing operating margin expansion. We're also seeing elevated CapEx this year, as you talked about, all the manufacturing plants. Maybe addressing them both, you know, how should we think about where all of these expenses are going, particularly in OPEX this year, R&D versus SG&A, and what types of activities in each? And then, you know, is three years a good timeframe to think about for the midterm when we might see these spending trends moderate? Thanks a lot.
Unnamed Speaker: 2, Improving Gross Margin; we aspire to be Above the 70% Level Over Time. 3, Leveraging those functions that can take advantage of scale as we grow. Improvements in Gross Margin will be driven by the following action: First, improving the product cost of new platforms, including DaVinci Five.
Brian: 2nd, Growing into and eventually Leveraging the Incremental Fixed Costs from New Manufacturing Facilities. Third, the return of resources that have been deployed to supply continuity given the impact of the pandemic. Returning to Routine Manufacturing and Product Cost Reduction Activities. We have the teams and capability to deliver on these efforts over the next several years. And with that, I would like to turn it over to Brian. Thank you, Jamie.
Yeah, let me take CapEx first. In 23 and 24, the majority of those capital investments were for manufacturing facilities and to add manufacturing capacity, in particular to our Mexicali factory. So a significant portion of the depreciation that comes with that will show up in cost of sales, and that's reflected in part in the 24 gross margin guidance. Additionally, some of it will show up in OPEX, and that will, therefore, be reflected in SG&A.
Gary: Overall, procedure growth for the full year 2023 was 22% year over year compared to 18% for the full year 2022. Overall, procedure growth was comprised of 19% growth in the U.S. and 27% growth outside of. In the U.S., fourth quarter 2023 procedure growth was 17% year-over-year, compared to 18% for the fourth quarter of 2022 and 17% last quarter. Fourth quarter growth was led by procedures within general surgery, strength and cholecystectomy, colon resection, and FORGA procedures. As Gary noted, bariatric procedures continued to grow year over year, but growth slowed down into the mid-singleton.
If I look at the relative growth in R&D and SG&A in 24, I think it's relatively similar. Obviously, innovation in R&D is important to us, but you will have a little bit of an impact in 24, at least for incremental depreciation. We still see opportunity to leverage some of our enabling functions. There are some other functions that we can also leverage as we scale and grow and sort of look to do that over the next couple of years. With respect to the kind of operating margin expansion opportunity that I described in my prepared remarks, I'd like to say thank you very much. We said over the medium term, I'd kind of broadly say that's a three to five year horizon. We have a specific set of actions and plans that we need to execute. Those teams have those as goals.
Unnamed Speaker: Looking outside of the U.S., over the years, we have made investments in countries and international markets to support customers and their adoption of da Vinci procedures. Looking back over the past decade, OUS procedures have grown 20% on a compound annual growth basis and have consistently been accretive to total procedure growth; OUS procedures have grown from about 20% of total global procedures to now about a third. While market maturity and levels of adoption differ by region and country,
There's some variability, obviously, in terms of how that gets executed, and there's some interrelationship between the set of actions that need to be complete. So there are dynamics there that can impact the speed at which that gets executed. Thank you, of course, we have to run our business in the end. Great, thanks for the talk. And we'll go over to the line of Rick Wise, Stiefel.
Unnamed Speaker: Broadly, we now see more than half of OUS growth being led by procedures beyond neurology, reflecting customers' growing adoption of general surgery, gynecology, and thoracic procedures, the results of which I will highlight below. Focusing on the fourth quarter, OUS procedure volume grew 29% compared with 18% for the fourth quarter of 2022 and 24% last quarter. Growth was led by strength and colon resection, followed by growth and hysterectomy, and lung resection procedures.
Rick Wise: Please go ahead. Good afternoon, everybody, and great to see the Gen 5 announcement. Maybe I'm going to go in a slightly different direction. Maybe we can get some updates and more details, more color on ION and SP. SP, Gary, the strongest quarter ever.
I'm just curious about your thoughts about 24 and the next couple of years. What's next? You know, how are you, what are the team priorities for 24? And on the ION side, maybe more for Jamie, you gave us some good color about demand being strong and supply constraints continuing. How are you thinking and what are you dialing into your thinking for 24 about resolution of the catheter and the vision probe limitations? When are you hoping that that gets largely better resolved? Thanks, Rick. On the SP front, we're pleased with the step forward they took in 23. It was good,
Unnamed Speaker: Growth in urology continued to be healthy, led by kidney procedures, along with continued double-digit growth in prostatectomy, in Europe. Fourth quarter growth was led by the general surgery and gynecology procedure categories. Germany, the U.K., and France, Procedure Performance, led the region.
Unnamed Speaker: In Germany, we saw strong growth in colon resection and kidney procedures; in the UK, from growth in hysterectomy and rectal resection, and in France from growth in colorectal and lung resection. In Asia, growth in the fourth quarter was led by China, reflecting a benefit from lower procedure volumes in the fourth quarter of 2022 due to COVID. In Japan, our third largest market by procedure, growth was robust and led by prostatectomy and colorectal procedures. We placed 70 systems in Japan.
We're seeing more focused efforts in our commercial team in the U.S., which has been good. We're excited about its entry into Japan, and we're starting to see a build of activity in Japan, too, so that's been good. We expect to see it in Europe in 24, and that's another nice step, and I think that's a broader set of clinical indications as it was in Korea and Japan, so it gives a little more freedom to operate, which is great. In the U.S., we have trials that have finished accrual and have been submitted or will be submitted soon in thoracic and colorectal that will give our U.S. customers more opportunity Thank you. Thank you.
Unnamed Speaker: Reflecting the continued adoption of robotic surgery for a growing number of procedures and the availability of remaining capital budget, India, while still in the early stages of adoption, saw continued strength in general surgery in gynecology. Now, turning to the clinical side of our... Each quarter on these calls, we highlight certain recently published studies that we deem to be notable. However, to gain a more complete understanding of the body of evidence, We encourage all stakeholders to thoroughly review the extensive detail of scientific studies that have been published over the years. In the fourth quarter, Dr. Nicola DeAngelis from Bujon University Hospital, along with multiple colleagues from the French Society of Parietal Surgery Club Hernia and French Society of Digestive and Visceral Surgery, published a systematic review and meta-analysis describing robotic surgery for inguinal and ventral hernias in surgical
We have a breast oncology trial that's ongoing that we're excited about also that will not make a big impact in 24, but starts to open additional opportunities for narrow access surgery thereafter. So that's kind of where we are in SP. So far, so good.
I'll turn it over to Jamie and talk about the eye. Not ready to be particularly specific yet on when the supply chain challenges are behind us. For the catheter, you have three dynamics.
So we had a specific supplier constraint that impacted us. We are, at the same time, transferring a number of catheter lines to Mexicali, and we're doing that as the business is effectively doubling, so you're bringing on new staff, and you're having to train them, so that's a real effort that takes some time, and I think there's a little bit of variability in terms of when we get to the point where that's behind us, so I'm The teams are making clear progress, but there's work still to be done. On the vision probe, I think it's a relatively simpler problem for us to address. There isn't a supplier dependency within that particular area.
Unnamed Speaker: In this analysis, authors reviewed publications between September 2014 and September 2018, in July 2022, and published pooled outcomes comparing the robotic-assisted approach for both inguinal and ventral hernia repairs to both laparoscopy and the open approach. With regard to inguinal hernia, when compared to laparoscopy, the robotic-assisted approach was associated with a 46% lower risk of hernia Furthermore, subjects undergoing a robotic-assisted approach were associated with a 54% lower rate of opioid use, relative to the open approach, for Ventral Hernia Repair. The robotic-assisted approach also had a 49% lower risk of conversion to OCD, and a 41% lower risk of intraoperative bowel relative to laparoscopy. When compared to an open repair for ventral hernias, the robotic-assisted approach was associated with a 3.4 days shorter length of stay.
It's really just us being able to execute another line transfer as the business is doubling and the team is making great progress, but stay tuned. Gotcha. And just one follow-up on Gen 5 and what's next. You said, Jamie, and it makes sense that probably in the next couple of quarters or until you launch, customers will probably lean more toward the leases with an upgrade clause, if I understand you correctly. But I was just reflecting on it. Should we imagine that this could accelerate this sort of leasing approach in the near term for XI, and as people, I guess, preferentially, potentially, possibly, maybe line up to get Gen 5, and that puts them in a more favorable position? How are all those dynamics aligned?
Unnamed Speaker: 34% lower risk of 30-day readmission, 39% lower risk of overall complication, and more specifically, a 53% lower risk of surgical site infection. The authors concluded, quote, The present systematic review and meta-analysis supports the use of robotic surgery for abdominal wall hernia repair. Pulled data analyses show improved outcomes over laparoscopy and open surgery, particularly for ventral hernia. Overall, these results, based on 64 studies, support robotic surgery as a safe, effective, and viable alternative to traditional open and laparoscopic surgery for inguinal and ventral hernia repair and may contribute to dismiss residual skepticism and increase the interest in this minimally invasive surgery.
Rick Wise: How does that work? Is this good? Better for sales that this transition occurs, or is it going to be more complicated? Well, I think the first effect is we'll see the operating lease proportion of placements increase from where it's been. And again, that's because customers are motivated to have the protection that's in those clauses so that they can upgrade to DaVinci 5 when it becomes more broadly available.
Unnamed Speaker: End quote. I will now turn to our financial outlook for 2024, starting with procedure.
So that was the first kind of message we wanted to provide in terms of 2024. In terms of then how that gets upgraded, it's really a function of when DaVinci 5 launches, which obviously we can't be specific about right now and there are some things to work through with FDA, and then what's the period of time over which we then go from a constrained or phased launch to a full launch. And so I don't see that particularly as somehow a revenue benefit in 24.
Unnamed Speaker: As described in our announcement earlier this month, total 2023 da Vinci procedures grew approximately 22% year over year to over 2,280,000 procedures performed worldwide. For 2024, we anticipate full year procedure growth within a range of 13% and 16%. Our overall procedure guidance range assumes that growth moderates from last year, given the elevated backlog benefit we experienced in 2023. The low end of the range assumes a modest decline in bariatric procedures, along with challenges in China from increasing competition and anti-corruption activities impacting capital placements and, therefore, procedures. We also assume there is no impact from patient backlog in the year. At the high end of the range, we assume bariatrics continues its current growth. And factors in China do not have a significant impact on our business.
I think what we're saying is you'll have more of the placements that are leased, and therefore, that revenue is spread over time. It's more likely to be a slight negative than a slight positive, and I think the things we've put in place for customer transparency and the ability to see it work to mitigate the feeling of having to wait, and they'll get a chance to put their hands on it and see it, but I don't see it as an accelerator. Thank you. Okay, and we'll go to the line of Adam Mader, Piper Sandler.
Please go ahead. Hi, good afternoon. Thank you for taking the questions and congratulations on a great year. I wanted to start with China and ask about the quota that went into effect last summer as well as the anti-corruption campaign.
If I heard the commentary correctly, it sounds like you expect systems to be impacted, and system placements to be impacted through the first half of 2024. Does that mean there's some optimism that placements could get better in the back half of the year? And just any additional color on what you're seeing in that geography regarding the anti-corruption campaign would be very appreciated.
Unnamed Speaker: In addition, we assume any backlog of patients would decline throughout the year. Finally, we would expect that procedure seasonality will follow a normalized historical pattern, resulting in a tough comparison for the first half of 2024, given the strong procedure growth in the first half of last year. Turning to Gross Property.
Thank you. Indications so far have been that this anti-corruption effort is a year-long effort that will take us to the middle of 24, and so that's why we indicated that we would expect delayed tenders through the period in which that effort is ongoing. We don't have great visibility, frankly, beyond the first half of 24, and that's why in the prepared remarks we said at least through the first half of 24. So, yes, if that effort was to be resolved and if things started to normalize in terms of the pace at which tenders occurred, then you could see some opportunity for that to recover, but we're not at a position where we can predict that at this point. That's a helpful color, Jamie.
Unnamed Speaker: Our full year 2023 pro forma gross profit margin was 68%. In 2024, we expect our pro forma gross profit margin to be between 67% and 68% of net revenue. The lower estimate of pro forma gross profit margin in 2024 reflects the impact of growth in our newer products and the impact of capital investments that will come on to support the growth of our. Our actual gross profit margin will vary quarter-to-quarter depending largely on product, regional, and trade-in mix, the impact of new product introductions, and Price. Turning to operating expenses, In 2023, our pro forma operating expenses grew 14%. In 2024, we expect pro forma operating expense growth to be between 11% and 15%. The operating expense growth reflects increased depreciation expense as we bring on new facilities and investments to drive our growth.
Thanks for that. And for the follow-up, I wanted to ask about the procedure growth guidance, the 13% to 16% for this year. Maybe you could flesh that out for a little bit by geography, U.S. versus international, how you're thinking about that, as well as, I guess, Europe versus Asia specifically, and just any color on quarterly cadence would be appreciated as well. Thanks again.
Let me start with seasonality, and I'm not going to be specific on quarterly cadence, but I do think I tried to emphasize in our prepared remarks that we believe that the first half will be a tougher comp versus last year. And so... Using that, the comparison from last year, and then also thinking about our historical sort of cadence throughout the year, I think you can look at that history and make an assumption on what those growth rates could be by quarter. Let's talk about that and many other factors in the procedure guidance. So there are really three primary factors, right?
Unnamed Speaker: We expect our non-cash stock compensation expense to range between $680 million and $710 million in 2024. We expect other income, which is comprised mostly of interest income, to total between $290 million and $320 million in 2024. With regard to capital expenditures, we expect the range to total between $1 billion and $1.2 billion, primarily for planned facility construction activities. With regard to income tax, in 2023, our pro forma income tax rate was $20.65.
You know, we've called out bariatric growth rates, and that's primarily a US factor. We talked a bit about, from an OUS perspective, China, and then also backlog in and the system. And so Backlog also being primarily a U.S. problem but could still be broader, but I'm not going to go into specifics as far as U.S. versus O.U.S., but I think I'd go back and just really center you on our comments around bariatric growth rates, right? The low end of the range assumes that there's some continued moderation in bariatric procedures, and at There is some impact in China at the low end of the range.
Unnamed Speaker: As we look forward, we estimate our 2024 pro forma tax rate to be between 22% and 24% of pre-tax. That concludes our prepared comments. We will now open the call to your questions. Thank you. Now, if you have not already done so and you wish to ask a question, please press 1 then 0 on your telephone keypad at this time. If you want to remove yourself from the queue, please repeat the 1-0 command.
Unnamed Speaker: Now our first question will come from the line of lawyer Larry Biegelsen of Wells Fargo. Please go ahead. Okay, sir. Your line is open now. Can you hear me?
Just from the discussion you had right now on anti-corruption and how long that actually persists. And we'll go to the next line, to the line-up, Drew Ranieri, Morgan Stanley, go ahead. Gary, just maybe just broadly on DaVinci 5 and just the TAM that you kind of updated at a conference earlier this month. How are you, could you maybe just update us maybe on how you're thinking about penetration today in general surgery, where you are with coli, hernia, colorectal, bariatrics, just to help us level set because it sounds like this could be another progression in general surgery for the company. And then I'd follow up. Sure, Jamie, I'll let you take the kind of characterization of where we are on the adoption curves of general surgery hernia benign. Colleen, and so on.
Larry Biegelsen: Yes, Larry. Oh, you can hear me. Great. Thanks for taking the question. Congratulations on a nice end to the year here. Thanks for all the color on DaVinci 5.
Jamie: So obviously, a few questions on that. Love to start with just, Jamie, maybe a framework for how to think about the financial implications of a new system beyond 2024. Is the XI launch a good analog from a pacing standpoint? And what are the ramifications of leasing?
Jamie: If a customer on a lease upgrades, will the lease get the ASP lift we assume you'll have? And what will you do with returned XIs? I had just one follow-up.
Jamie: Yeah, I would say the dynamics are quite different between when we launched XI in 2014 versus where we are today. And I think the feature sets of DaVinci Five, which we haven't described, are an important context for you all, which we'll do once we have clearance. You look at the relative penetration of da Vinci over that period, the extent to which leasing has changed significantly, and our OUS penetration. I think there are a number of factors, Larry, where I would not use the kind of XI ramp and progression as a reference point for how da Vinci 5 might progress, but I think that I would make any further comments on that once we get through clearance and are able to talk to you about the feature set, with respect to... JB, any color? Yeah,
If you take a look at the U.S., and I'm going to put this in quartiles for a second in terms of where we are on the adoption curve, colorectal, we're in the second quartile, bariatrics, also in the second quartile, actually, colostectomy, and hernia, all in the second quartile in terms of where they are along the adoption curve. So that obviously gives us some continuing runway to grow, and that's a driver behind the U.S. general surgery growth rates that we've seen. In the international markets, by the way, just in terms of general surgeries. For the most part, in most of the larger markets, we're in the first quarter of adoption. It's early in the morning. What we're seeing is growth start to stick, and those start to be at early growth rates, particularly in the cancer procedures, colorectal, and beyond general surgery in hysterectomy and thoracic surgery. With regard to DV5, I won't call out what the specific targeting has been.
Jamie: With respect to... So I think there are a number of dynamics that, in the end, will motivate a customer to look at a trade, even if they have an existing system under lease. If I hold everything else equal and just look at the fact that the asset is leased, I do think there is some benefit to the customer insofar as they can avoid a capital budget barrier to executing an upgrade, but I think you have to look at all of the other dynamics that we're yet to describe.
We'll talk more about DV5 when we get a chance to talk about clearance. We do think that it's something that can help improve outcomes in multiple places. We'll look forward to talking to you about that when we have the opportunity. If you have one follow-up, Drew, I'll take the follow-up. Otherwise, we'll close the call. So, Drew, do you have one more?
Gary: Okay. And then I guess on the new system, you know, I'll try my luck here. You know, just lastly, do you expect the same indications as XI upon launch? And Gary, is this more about improving outcomes in existing procedures or expanding addressable procedures? Thank you.
Sure, yeah. Just on DaVinci 5, can you maybe just talk about how it might be able to improve access to hospitals? I know that you have many IDNs that have added more and more systems, but do you see that more as an opportunity, or do you see just maybe better access for even smaller hospitals with having multi-port systems in the portfolio? Thanks.
Gary: Yeah, we submitted for broad indications, and in the IDE trial, it was a broad indication trial. What that looks like in the end will come down to how we answer some of the questions that come back and forth. So I'm not telling you what the end point is, but I can tell you what our starting point is. In terms of kind of breadth and depth, we think that it will allow for additional penetration into some of the categories we're in already. And maybe an analogy is that you could do some general surgery with SI, the earlier system. We had clearances there. But XI had some product improvements, and some were really nice.
Yeah, thank you for the question. We think that having a portfolio of choices makes a ton of sense for hospitals, and this will be a part of that portfolio.
We talked about it in the prepared script. It's about giving people choice. Some of that choice will have to do with how they view their practice. Some of it may have to do with what their side of care looks like and feels like.
So that gives us some optionality and gives our customers some flexibility. I think that's really helpful. Thank you, Drew. I appreciate the question. That was our last question.
In closing, we continue to believe there is a substantial and durable opportunity to fundamentally improve surgery and acute intervention. Our teams continue to work closely with hospitals, physicians, and caretakers in pursuit of what our customers have termed the quadruple A. Better, more predictable patient outcomes, better experiences for patients, better experiences for their care team, and ultimately a lower total cost to treat. We believe value creation in surgery and acute care is fundamentally about people. It flows from respect for and understanding of patients and care teams, their needs, and their environment. At Intuitive, we envision a future of care that is less invasive and profoundly better, where diseases are identified earlier and treated quickly so patients can get back to what matters most.
Travis Steed: So, there is opportunity for depth. We think over time there is opportunity for additional indications, but those are unlikely to occur right out of the gate. And we think that there are some nice indications that we can talk about and features to talk about in future calls. Thank you. Go to the next line. If we go to Travis Steed, Bank of America, please go ahead. Hiryam, everybody. Can you hear me OK?
Travis Steed: Yeah, hi Travis. All right, great. Maybe just high level, just like you were talking about DaVinci 5 having hundreds of design changes. When you just think about DaVinci 5 and, you know, kind of driving the quad aim, maybe just kind of talk about high level, more what you're trying to solve for with some of those design changes. You know, what's different about DaVinci 5 versus DaVinci 4.
Operator: Thank you for your support on this extraordinary journey, and we look forward to talking with you again in the future. Thank you everyone for joining today's conference call. We do thank you for joining. You may now disconnect. Have a good day. We're sorry, your conference is ending now. Please hang up.
Gary: And is it possible we could see a system in 2024? Or is it more likely in 2025? You know, I laid out in the script kind of what our design methodology was. I am dying to tell you more about DaVinci 5, but I'll wait for clearance and for the final back and forth with FDA so we can do that with a little more care. So that's kind of where we are on that set. We're excited about it. I think it is substantive, and I think some of the improvements that we can bring are going to be interesting and exciting. We have submitted it, and we're in the back and forth with FDA. It is our hope that as a 24 launch, they ultimately will be the arbiters of when we get the clearance. But what I'd say, based on past experience with them, is that we're in a constructive conversation that we understand, and if that goes the way we want, then certainly it's something we'd be excited about in 24. But I can't guarantee it because I don't have the clearance.
Gary: That's helpful. Would you expect some sort of ASP uplift versus DaVinci 4? And maybe also talk about the manufacturing capacity, you know, how long will it take to get to scale on the manufacturing? And, you know, how would that look kind of versus the XI launch? Can you do 100 a year or 1000 a year?
Jamie: Kind of curious where that's a limiting factor and the availability of these systems going forward. Thanks a lot. Yeah, I'll start with just a little bit of color on ASP, and then I'll turn it over to Jamie. We won't call any ASP right now. We want to both get through the final clearance. What I will say is there are some differences relative to XXI that make that discussion a little more detailed. And it's important for it to be detailed and clear for the customer to understand what they're going to be buying.
Gary: So we're going to pause that for now. With regard to the manufacturing ramp, clearly we're going to be in a phased launch. I think we'll be supply constrained in the early side of that, kind of intentionally as we work through the manufacturing process. But in terms of pacing and what that might feel like, Jamie, let me turn it over to you. To some extent, it will obviously depend how that progresses both within our four walls and with our suppliers. Certainly, it's several quarters. I would take several quarters as to be something beyond the year, but I think you have to watch us make progress here, and we'll keep you updated. All right, great. Thanks a lot and congratulations. And we'll go next to the line for Robbie Marcus, JP Morgan.
Robert Hopkins: Please go ahead. Great. Thanks for taking the question. Congratulations on a really good quarter. I'm going to push my luck again.
Gary: Gary, one of the things we talked about two weeks ago on stage was big data and the potential integrated into your systems. Maybe if we think about just philosophically DaVinci 5, is this something we'll see a lot more software improvements rather than hardware improvements? I realize you're not given specific details, but is software and the ability to add future software updates something we can be looking forward to? Yeah, you know, one of the things we talked about in the script is the increase in computational capability of the system, the rebasing of that system. And one of the reasons for that is future programmability; some of the things that we'll be able to bring out of the gate are pretty exciting, but it also gives us the opportunity to build on that base in sequential software. So it's a good pull-through, Robbie.
Gary: The point you make is a good one, and we do want to push through the software capability. It will not just be software that we bring to market, but it's a starting point. Just to remind everybody back in the XI launch period, XI didn't have everything that we could possibly do with it at the first year of launch either. It's something that, as we build capability and build skill, we can add to over time. And we've done that for years. We will do the same in DV5.
Jamie: It is a platform upon which we can build for many years. Great And maybe one for Jamie, you know, OPEX stepping up with the new product launch. You talked about in the midterm seeing operating margin expansion. We're also seeing elevated CapEx this year, as you talked about all the manufacturing plants. Perhaps addressing them both, how should we think about where all of these expenses are going, particularly in OPEX this year, R&D versus SG&A, and what types of activities in each? Is three years a good time frame to think about for the midterm when we might see these spending trends moderate? Thanks a lot.
Jamie: Yeah, let me take CapEx first. In 23 and 24, the majority of those capital investments are for manufacturing facilities and to add manufacturing capacity, in particular, to the Mexicali factory. So, a significant portion of the depreciation that comes with that will show up in cost of sales, and that's reflected in part in the 24 gross margin guidance. Some of it will show up in OPEX, and that will, therefore, be reflected in
Jamie: If I look at the relative growth in R&D and SG&A in 24, I think it's relatively similar. Obviously, innovation in R&D is important to us, but you will have a little bit of an impact in 24, at least for incremental depreciation. We still see opportunity to leverage some of our enabling functions. There are some other functions that we can also leverage as we scale and grow. And so we'll look to do that over the next couple of years. With respect to the kind of operating margin expansion opportunity that I described in my prepared remarks. We said over the medium term, I'd kind of broadly say that it's a three to five year horizon. We have a specific set of actions and plans that we need to execute. Those teams have those as goals.
Jamie: There's some variability, obviously, in terms of how that gets executed. And there's some interrelationship between the set of actions that need to be completed. So, there are dynamics there that can impact the speed at which that gets executed. Of course, we have to run our business in. Great, thanks for the thoughts. And we'll go over to the line of Rick Wise, Stiefel, please go ahead.
Rick Wise: Good afternoon, everybody, and great to see the Gen 5 announcement. Maybe I'm going to go in a slightly different direction. Maybe we can get some updates and more details, more color on ION and SP. SP, Gary, the strongest quarter ever.
Gary: I'm just curious about your thoughts about 24 and the next couple of years. What's next? How are you?
Gary: What are the team priorities for 24? On the ION side, maybe more for Jamie, you gave us some good color about demand being strong and supply constraints continuing. How are you thinking and what are you dialing into your thinking for 24 about resolution of the catheter and the vision probe limitations? What are you hoping that gets largely better resolved? Thanks Rick. On the SP front, we're pleased with the step forward they took in 23. It was good,
Gary: We're seeing more focused efforts in our commercial team in the US, which has been good. We're excited about its entry into Japan, and we're starting to see a build of activity in Japan too, so that's been good. We expect to see it in Europe in 24, and that's another nice step, and I think that's a broader set of clinical indications, as it was in Korea and Japan, so it gives a little more freedom to operate, which is great. In the U.S., we have trials that have finished accrual and have been submitted or will be submitted soon in thoracic and colorectal that will give our U.S. customers more So I think SP continues to be a nice build.
Gary: So that looks good, and the team has their marching orders and is working down that set of processes. We have a breast oncology trial that's ongoing that we're excited about also that will not make a big impact in 24 but starts to open additional opportunities for narrow access surgery thereafter. So that's kind of where we are in SP. So far, so good.
Jamie: I'll turn it over to Jamie and talk about IIMS. I'm not ready to be particularly specific yet on when the supply chain challenges are behind us. For Catheter, you have three dynamics.
Jamie: So we had a specific supplier constraint that impacted us. And we are, at the same time, transferring a number of catheter lines to Mexicali. And we're doing that as the business is effectively doubling, and so you're bringing in new staff, and you're having to train them. So that's a real effort that takes some time, and I think there's a little bit of variability in terms of when we get to the point where that's behind us.
Jamie: So I'm going to let us have another quarter before we talk about when that's resolved. The teams are making clear progress, but there's work still to be done. On the Vision Probe, I think it's a relatively simpler problem for us to address. There isn't a supplier dependency within that particular area.
Jamie: It's really just us being able to execute, again, a line transfer as the business is doubling, and the team is making great progress, but stay tuned. Gotcha. And just one follow-up on Gen 5 and what's next. You said, Jamie, and it makes sense that probably in the next couple of quarters or until you launch, customers will probably lean more toward the leases with an upgrade clause, if I understand you correctly. But I was just reflecting on it. Should we imagine that this could accelerate this sort of leasing approach in the near term for Xi as people, I guess, preferentially, potentially, possibly, maybe, line up to get Gen 5, and that puts them in a more favorable position? How do all those dynamics work?
Jamie: Is this good, better for sales that this transition occurs, or is it going to be more complicated? Well, I think the first effect is we'll see the operating lease proportion of placements increase from where it's been, and again, that's because customers are motivated to have the protection that's in those clauses so that they can upgrade to DaVinci 5 when it becomes more broadly available. So that was the first kind of message we wanted to provide in terms of 2024 modeling. In terms of then how that gets upgraded, it's really a function of when does DaVinci 5 launch, which obviously we can't be specific about right now and there's some things to work through with FDA, and then what's the period of time over which we then go from a constrained or phased launch to a full launch, um... so i don't i don't see that particularly as somehow revenue benefit in in twenty four think what we're saying is you'll have more of the placements at least in that for that revenue spread over time, More likely to be a slight negative than a slight positive, and I think the things we've put in place for customer transparency, the ability to see it, work to mitigate the feeling of having to wait, and they'll get a chance to put their hands on it and see it, but I don't see it as an acceleration. Thank you. Okay, and we'll go to the line of Adam Mader, uh, Piper Sandler.
Adam Mader: Please go ahead. Hi, good afternoon. Thank you for taking the questions and congratulations on a great year. I wanted to start with China and ask about the quota that went into effect last summer, as well as the anti-corruption campaign.
Jamie: If I understood the commentary correctly, it sounds like you expect systems to be impacted, system placements to be impacted through the first half of 2024. Does that mean there's some optimism that placements could get better in the back half of the year? And just any additional color on what you're seeing, you know, in that geography regarding the anti-corruption campaign would be very appreciated.
Jamie: Indications so far have been that this anti-corruption effort is a year-long effort, which would take us to the middle of 2024, and so that's why we indicated that we would expect delayed tenders through the period in which that effort is ongoing. We don't have great visibility, frankly, beyond the first half of 24, and that's why in the prepared remarks we said at least through the first half of 24. So yes, if that effort was to be resolved, and if things started to normalize in terms of the pace at which tenders occurred, then you could see some opportunity for that to recover, but we're not in a position where we can predict that at this point. That's a helpful color, Jamie.
Jamie: Thanks for that. And for the follow-up, I wanted to ask about the procedure growth guidance, the 13 to 16% for this year. Maybe you could flesh that out for a little bit, a little bit by geography, US versus international, how you're thinking about that, as well as, I guess, Europe versus Asia specifically, and just any color on quarterly cadence would be appreciated as well. Thanks again.
Jamie: Let me start with seasonality. And I'm not going to be specific on quarterly cadence, but I do think I tried to emphasize in our prepared remarks, and we believe that the first half will be a tougher competition versus last year.
Jamie: Using that, the comparison from last year, and then also thinking about our historical sort of cadence throughout the year, I think you can look at that history, make an assumption on what those growth rates could be by quarter. Let's talk about factors in the procedure guide. So there are really three primary factors, right? We've called out bariatric growth rate. And that's primarily a U.S. fact.
Jamie: We talked a bit about, from an OUS perspective, China, and then also Backlog in New York, and this just in. And so Backlog is also primarily a U.S. factor, but could still be broader, but
Jamie: So I'm not going to go into specifics as far as U.S. versus O.U.S., but I think I'd go back and just really center you on our comments around bariatric growth rates, right? The low end of the range assumes that there's some continued moderation in bariatric procedures, and at the high end of the range, it assumes current growth rates, that there's some impact in China Just from the discussion you had right now on anti-corruption and how long that actually persists, and then the benefit of backlog and how that'll persist throughout. In soft tissue surgery, I would just say, if you look at 23, the two primary growth drivers that we've called out are general surgery in the U.S., which grew 25 percent, and Nick Thomas. Thanks very much. And we'll go to the next slide, on the line with Drew Ranieri, Morgan Stanley. Please go ahead.
Gary: Gary, just broadly on Da Vinci 5 and just the TAM that you kind of updated at a conference earlier this month, could you maybe just update us on how you're thinking about penetration today in general surgery, where you are with coli, hernia, colorectal, bariatrics, just to help us level set because it sounds like this could be another progression in general surgery for the company. And then I'd follow up. Sure, Jamie, I'll let you take the kind of characterization of where we are on the adoption curves of general surgery hernia. Coley, and so on.
Jamie: If you take a look at the U.S., and I'm going to put this in quartiles for a second in terms of where we are on the adoption curve, colorectal, we're in the second quartile, bariatrics, also in the second quartile, actually, cholecystectomy, and hernia, all in the second quartile in terms of where they are So that obviously gives us some continuing runway to grow, and that's a driver behind the U.S. general surgery growth rates that we've seen. In the international markets, by the way, only in terms of general surgery. For the most part, in most of the larger markets, we're in the first quarter of adoption. It's early in the morning.
Jamie: What we're seeing is growth start to stick, and those start to be at early growth rates, particularly in the cancer procedures, colorectal, and beyond general surgery in hysterectomy and thoracic. With regard to DV-5, I won't call out what the specific targeting has been. We'll talk more about DV-5 when we get a chance to talk about clearance, but we do think that it's something that can help improve outcomes in multiple places. We'll look forward to talking to you about that when we have the opportunity. If you have one follow-up question, Drew, I'll take the follow-up, otherwise we'll close the call. So Drew, do you have one more?
Andrew Christopher Ranieri: Sure, yeah. Just on Da Vinci 5, can you maybe just talk about how it might be able to improve access to hospitals? I know that you have many IDNs that have added more and more systems, but do you see that more as an opportunity, or do you see just maybe better access for even smaller hospitals with having multi-port systems in the portfolio? Thanks.
Gary: Yeah, thank you for the question. We think that having a portfolio of choices makes a ton of sense for hospitals. This will be a part of that portfolio. We talked about it in the prepared script. I thought I'd give people a choice. Some of that choice will have to do with how they view their practice. Some of it may have to do with what their side of care looks like and feels like.
Gary: So that gives us some optionality and gives our customers some flexibility. I think that's really helpful. So thank you, Drew. I appreciate the question. That was our last question.
Unnamed Speaker: And in closing, we continue to believe there is a substantial and durable opportunity to Fundamentally Improve Surgery and Acute Intervention. Our teams continue to work closely with hospitals, physicians, and charities in pursuit of what our customers have termed the quadruple aim. Better, more predictable patient outcomes, better experiences for patients, better experiences for their care team, and ultimately a lower total cost to treat. We believe value creation in surgery and acute care is fundamentally about people. It flows from respect for and understanding of patients and care teams, their needs, and their environment. At Intuitive, we envision a future of care that is less invasive and profoundly better, where diseases are identified earlier and treated quickly so patients can get back to what matters most.
Unnamed Speaker: Thank you for your support on this extraordinary journey, and we look forward to talking with you again in the future. Thank you everyone for joining today's conference call. We do thank you for joining. You may now disconnect. Have a good day. We're sorry, your conference is ending now. Please hang up.