Ladies and gentlemen, thank you for standing by, and welcome to the Intuitive Surgical Q3 2019 Earnings Release Call. At this time As a reminder, this conference is being recorded. I would now like to turn the conference over to our host, Mr. Calvin Darling, Senior Director of Finance, Investor Relations. Please go ahead, sir.
Thank you. Good afternoon, and welcome to Intuitive's 3rd quarter earnings conference call. With me today, we have Gary Goodhart, our CEO and Marshall Moore, our Chief Financial Officer. Before we begin, I would like to inform you that comments mentioned on today's call may be deemed to contain forward looking statements Actual results may differ materially from those expressed or implied as a result of certain risks and uncertainties. These risks and uncertainties are described in detail in the company's Securities And Exchange Commission filings, including our most recent Form 10K, filed on February 4, 2019 10 Q filed on July 22, 2019.
Our SEC filings can be found through our website or at the SEC's website. Investors are cautioned not to place undue reliance on such forward looking statements. Please note that this conference call will be available for audio replay on our website at intuitive.com on the latest events section under our Investor Relations page. In addition, today's press release and supplementary financial data tables have been posted to our website. Today's format consist of providing you with highlights of our third quarter results, as described in our press release announced earlier today, followed by a question and answer session.
Gary will present the quarter's business and operational highlights. Marshall will provide a review of our third quarter financial results, Then I will discuss procedures and clinical highlights and provide our updated financial outlook for 2019. And finally, we will host a question and answer session. With that, I'll turn it over to Gary.
Thank you for joining us today. Intuitive has been enabling customers their delivery of high quality minimally invasive surgery for 20 years, and we believe the adoption of robotics and computer aided interventions is early relative to its long term potential. We measure our efforts by their ability to positively impact the quadruple aim, better outcomes, better patient experience, better care team experience, and lower total cost to treat per patient episode. This third quarter of 2019 was another solid one for Intuitive in pursuit of these aims. Our performance in the quarter is a reflection of our progress with procedures and system placements showing continued strength.
For the quarter, global procedure growth was nearly 20%, aided by an increase of approximately a surgery day relative to Q3 of 2018. Growth again centered on General Surgery in the United States with positive contributions to the global growth rate from Germany, Korea and Japan. China procedure growth continues to be limited by installed base growth. Total procedure growth in China is responding positively considering the release of system quota subsequent placements. In the United States, year over year procedure growth for the quarter was 18%.
General Surgery again accounted for the largest increase year over year, accompanied by solid growth in urology and stable growth in gynecology. We also saw strength in bariatrics and cholestectomy. Hernier repair and coal and resection growth rates were solid in the quarter, improvements in system utilization by customers and alternative capital placement models, are having a positive impact on our Calvin will take you through procedure global procedure dynamics in more detail later in the call. With regard to our installed base, placement of new systems in the quarter solid with growth in total placements rising 19% from Q3 of twenty eighteen. Net of trade ins and retirements, our da Vinci installed base grew 12% over Q3 twenty eighteen to approximately 5406.
The mix of system placements this quarter moved towards our flagship XI system, and trade ins were healthy. The proportion of systems placed under operating leases was 33% this quarter compared with 32% last quarter, As a reminder, total placements and the percentage of systems placed under lease or usage based arrangements can vary substantially quarter to quarter. Turning to expenses, we are investing in building our capability in international regions, launching new platforms, strengthening our computational capabilities and executing projects that support future sale and provide leverage opportunities as we grow. Our spending is on track with our expectations. It is supported by solid procedure growth, capital placements, and product cost reductions.
Financial highlights for our 3rd quarter results are as follows: Procedures grew nearly 20% over the third quarter of last year. We placed 275 Dovinci surgical systems, up from 2 31 in the third quarter of 20 18. Our installed base grew 12% from a year ago. Revenue for the quarter was approximately $1,100,000,000, up 23%. Pro form a gross profit margin was 72% compared to 71.5% in the third quarter last year.
Instrument and accessory revenue increased to $6,000,000, up 25%. Total recurring revenue in the quarter was $817,000,000, growing 24% over Q3 of twenty eighteen and representing 72 percent of total revenue. We generated a pro form a operating profit of $462,000,000 in the quarter, up 18% from the third quarter of last year. Pro form a net income was $409,000,000, up 21%, and we repurchased $70,000,000 in shares at an average price of $4.93 per share. To our investments in products, I'll start first with systems.
We are in our phase 1 launch of da Vinci SP as we work to expand clinical clearances and build SP products at scale. In the quarter, we proactively held shipments on SP endoscopes and limited new system in installations for a limited time as we investigated a robustness concern on the SP endoscope. We resumed shipping endoscopes and systems in the quarter. Given the slowdown on endoscopes, we installed 4 systems to bring our installed base of SP to 38. Customer response and early clinical results using remain encouraging.
In addition, utilization rates for SP in Korea, where clinical indications are the broadest, are at XI levels already, a testament to surgeon's engagement and our team's skill in design for usability. With regard to additional indications for SP, We have been in discussion with FDA regarding data requirements for a colorectal indication. We expect this to require an IDE trial that includes follow-up analysis. This implies we do not expect the 3rd indication SP and product availability and new indication timelines, our teams are focused on building at scale and satisfying regulatory requirements for additional indications. Interest in SP is healthy and clinical outcomes are encouraging, forming the basis of our belief and the long term potential of the platform to improve care.
The combination of additional indications for SP and our readiness for deployment at larger scale, pace the speed of our SP commercial expansion. In flexible diagnostics, our ION platform is focused on the need for accurate and timely biopsies to support definitive early diagnosis of suspicious lesions. Since our 510 clearance in Q1 of this year, we initiated our 1st phase of launch focused clinical use, customer feedback and production optimization. First cases on the cleared system were performed at the end of Q1, There are now 9 systems in the field performing cases with the total case experience in the hundreds. To date, the rollout is meeting our expectations with a mix of clinical trial sites and commercial sites, user feedback during this initial launch period has been strong.
For instruments and accessories, our team moved to fully United States launch of our 45 Millimeter SureForm Stapler and obtained clearance for it in Japan and Korea in the quarter. We also obtained 510 clearance for a new curved tip sure form 45 millimeter stapler and a new gray reel design to staple thin structures. Recall that surgical stapling is a family of products that help surgeons in a range of procedures covering parts of the body from the rectum to the thoracic cavity. Robotically held staplers are sophisticated technology, and our team is doing an excellent job filling out the product portfolio. Our experience has shown that procedure adoption occurs when the holistic needs of the care team are met when the right system and imaging products come together with the right instruments and accessories.
Stapeling is another example of this synergy, but surgeon adoption of generation 4 da Vinci systems with Sure form staplers gaining momentum. Turning to imaging and analytics, we are working on computing and real time cloud technologies to allow for tasks from telemetering to augmented reality. We now have over 20 active tele mentoring sites that together have supported 100 of cloud enabled real time surgery sessions as we progress in building our real time cloud capabilities. Feedback on the utility of these sites for case observations and mentoring has of our first Iris accounts to gather customer and clinical feedback. We expect 1st clinical cases on the Iris system in the next few months.
Lastly, our surgical simulation products have become widely adopted in the installed base, with more than 3200 da Vinci simulators in the field. Before turning the time over to Marshall, let's step back and consider Intuitive's evolution over the past few years. Over this period, general surgeons have increase their adoption of our offerings underpinned by improvements in the quadruple lane and procedures they perform from colon and rectal procedures to hernia repair, cholecystectomy, and bariatric surgery. General surgery procedures span a broad range of complexity and economics, At the same time, we've extended our reach into key countries to support the adoption of robotic assisted surgery into their healthcare environments. We have sales and support models and pricing structures.
Given the large global opportunity to pursue the quadruple aim, we believe the next few years for the company will be dynamic. We will guide the company to meet our customers' clinical and economic needs across this wide range of procedures and geographies. Doing so will involve continued investment in innovation and for both technology and economic models, and we see a path to both. For the balance of the year, our focus remains in completing 2nd, launching our da Vinci S I'm sorry, our SP and ion platforms 3rd, driving intelligent surgery innovation and finally, supporting additional clinical and economic validation in our focused procedures and countries. I'll now turn the call over to Marshall, who will review financial highlights.
Good afternoon. I will describe the highlights of our performance on a non GAAP or pro form a basis. I will also summarize our GAAP performance later in my prepared remarks. A reconciliation between our pro form a and GAAP results is posted on our website. Key business metrics for the third quarter are as follows: 3rd quarter 2019 procedures increased nearly 20% compared with the third quarter of 2018 and increased approximately 2% compared with last quarter.
There was 1 more operating day in the third quarter of 2019 compared with the third quarter of 2018. Excluding the impact of the extra operating general surgery in the U. S. And urology worldwide. Calvin will review details of procedure growth later in this call.
3rd quarter system placements of 275 systems increased 19% compared with 2.31 systems last year, increased 1% compared with 273 systems last quarter. We expanded our installed base of da Vinci systems by 12% to approximately 5400 and 6 systems. The growth rate compares with 13% in both the last quarter and last year. Utilization of clinical systems in the field measured by procedures per system grew approximately 6%, which is higher than the 4% growth last quarter, and below the 7% growth last year. Our revenue overview is as follows: third quarter 2019 revenue was 1,100,000,000 an increase of 23% compared with $921,000,000 for the third quarter of 2018 and an increase of 3% compared with $1,100,000,000 last quarter.
Instrument and accessory revenue of $606,000,000 increased 25% compared with last year, which is higher than procedure growth, primarily reflecting customer buying patterns and increased usage of our advanced instruments. Incerin accessory revenue realized per procedure was approximately $19.80, an increase of 4% compared with the third quarter of 2018 and an increase of 3% compared with last quarter. Systems revenue for the third quarter of 2019 was $339,000,000, an increase of 23% compared with the third quarter of 2018 and a decrease of 2% compared with last quarter. Relative to the third quarter of 2018, systems revenue reflected higher system placements, higher ASPs, and higher lease related revenue. We completed 92 operating lease transactions, representing 33% of total placements compared with 58 or 25% of total placements in the third quarter of 2018 88 or 32% of total placements last quarter.
As of September 30, we have 560 operating leases outstanding and realized approximately $27,000,000 of revenue related to these arrangements in operating leases create a future source of recurring revenue and reduce the volatility of system revenue while the increased number of operating systems placed in a quarter dampens short term revenue growth for the quarter in which they are placed. Operating leases include usage based financing that we provide to certain hospitals with advanced robotics experience. We believe that our lease financing alternatives align with customer objectives and have enabled faster market adoption. Relative to systems purchased and in the case of usage based arrangements, the risk that those systems may not achieve anticipated usage levels. The proportion of operating lease and usage based arrangements will likely increase long term and will vary quarter to quarter.
We recognized $20,000,000 of lease buyout revenue in the 3rd quarter compared with $27,000,000 last quarter $8,000,000 last year. Lease buyout revenue has varied significantly quarter to quarter and will likely continue to do so. 116 or 42 percent of current quarter system placements involve trade ins. Reflecting customer desire to access or standardize on our 4th generation technology and contributing to an XI installed base growth of 41% year over year. This is an increase compared with 65 or 28 percent of system placements in the third quarter 2018, and 103 or 38 percent last quarter.
Trading activity could fluctuate and be difficult to predict. However, prior product trade insight however, given prior product trade in cycles, we expect the proportion of installed base traded in future quarters to decrease over time. 79% of the systems placed in the quarter were da Vinci XI, and 17% were da Vinci X systems compared with 74% da Vinci XIs and 20% da Vinci X's last quarter. We sold 3 ion systems in the quarter. Ion system placements are excluded from our overall systems count and will be reported separately.
Procedures and other information associated with ion are excluded from our prepared remarks and will be reported separately when they become more substantive. 4 of the systems placed in the 3rd quarter were SP systems. 3rd quarter SP placements were impacted by our decision to hold shipments of endoscopes as Gary outlined. Our rollout of SP Surgical System will continue to be measured, putting systems in the hands of experienced da Vinci users, while we optimize of operating lease revenue and lease buyouts was approximately $1,570,000 compared with $1,450,000 last quarter and $1,540,000 last quarter. Similar to the 2nd quarter, our mix systems and customers in the third quarter was very favorable relative to prior periods.
We had a high mix of XI versus X and SI systems. We also had a low mix of distributor versus direct sales. Finally, in third quarter of 2019, we had fewer multi system arrangements where we provided volume discounts. The mix of systems, customers and the size of arrangements were very over time. We expect system ASPs to be in the range of the midpoint of the 1st 2 quarters of this year.
Outside of U. S, results were as follows: OUS procedures grew approximately 23% compared with the third quarter of 2018 and increased 1% compared with last quarter. 3rd quarter revenue outside of the U. S. Of $332,000,000 increased 36% compared with the third quarter of 2018 increased 6% compared with last quarter.
The increase compared with the prior year reflects increased system instruments and accessories revenue of $37,000,000 or 32% growth and increased systems revenue of $40,000,000 or 50% growth. The increase in instrument and accessory revenue was primarily driven by procedure growth in customer of increased ASPs, reflecting favorable geographic and product mix. Outside of the U. S. Replaced 90 systems in the third quarter compared with 75 in third quarter of 2018 and 80 systems last quarter.
Current quarter system placements included 36 in the Europe, 27 into Japan and 10 into China. 59% of the systems placed in the quarter were da Vinci XIs, and 33% were da Vinci X systems compared with 43% da Vinci XIs and 48% da Vinci X's last year. 21 of the system placements in the quarter were operating leases compared with 9 last year 12 last quarter. Placements outside of the U. S.
Continue to vary as some of the OUS markets are in early stages of adoption. Some markets are highly seasonal, reflecting budget cycles or vacation patterns, and some in sales into some markets are constrained by government limitations. Moving on to gross margin and operating expenses. Pro form a gross margin for the 3rd quarter was 72% compared with 71.5% for the third quarter of 2018, and 71.3% last quarter. The increase compared with the third quarter of 2018 and last quarter primarily reflects higher system ASPs, and product cost reductions.
Future margins will fluctuate based on the mix of our newer products, the mix of systems and instrument and accessory revenue, system ASPs and our ability to further reduce product costs and improve manufacturing efficiency. We expect the return of the medical device tax in 2020, which will reduce 31% compared with the third quarter to increase, costs associated with the expansion of our OUS markets, spending on our informatics capabilities, investment in our infrastructure in order to scale minimally invasive surgery around the world and have been and will continue to invest in the business accordingly. Our pro form a effective tax rate for the third quarter was 16.8 percent, reflecting $8,000,000 of reserves of reserve releases, primarily associated with expiration of statutes of limitation in certain jurisdictions. While we expect our tax rate to be between 19% 20% in the 4th quarter, our actual tax rate will fluctuate with changes in the mix of U. S.
And OUS income, changes in taxation made by local authorities and with the impact of one time items. Our third quarter 2019 pro form a net income was $409,000,000 or $3.43 per share, compared with $337,000,000 or $2.83 per share for the third quarter of 2018. And $388,000,000 or $3.25 per share for last quarter. I will now summarize our GAAP results. GAAP net income was $397,000,000 or $3.33 per share, for the third quarter of 2019 compared with GAAP net income of $293,000,000 or $2.45 per share for the third quarter of 2018, and GAAP net income of $318,000,000 or $2.67 per share for last quarter.
The adjustments between pro form a and GAAP net income are outlined and quantified on our website and include excess tax benefits associated with employee stock awards, employee equity and IP charges, amortization of intangibles and acquisition related items and legal settlements We ended the quarter with cash and investments of $5,400,000,000 compared with $5,100,000,000 at June 30, 2019. The cash generated from operations was offset by stock repurchases, acquisition of Schulley fiberoptics 3d robotic endoscope business. And investments in working capital and infrastructure during the quarter. We repurchased approximately 141,000 shares for $70,000,000 at an average price of $4.93 per share. In the quarter, we grew inventory by approximately $67,000,000 as well as mitigate risks of disruption In summary, our results for the quarter I want to highlight certain business dynamics that may impact your models.
As I noted earlier, we will continue to invest in the business, growing operating expenses as we see the substantial opportunity to expand the benefits of minimally invasive surgery. We also believe the percentage of leasing and alternative financing arrangements will increase over time. In addition, we believe the number of trading transactions will level off in the short term and then decline over time. It is also likely we will see increased priced negotiations and elongated negotiation timelines as competition get closer to launching their products. These dynamics could result in profit fluctuations.
However, we will continue to manage the business for the long term as we believe that the fundamentals of the business are strong. And with that, I'd like to turn it over to Calvin, who will go over procedure performance and our outlook for 2019.
Thank you, Marshall. Our overall third quarter procedure growth was nearly 20% compared to 20% during the third quarter of 2018, and 17% last quarter. Our Q3 procedure growth was driven by 18% growth in U S procedures, and 23% growth in OUS markets. 3rd quarter 2019 procedure growth benefited from 1 additional working day compared to last year. Through three quarters, working days are now roughly to date procedure growth was 18% equal to 18% growth through 3 quarters of last year.
In the U. S, Q3 procedure growth was largely driven by continued strength in general surgery with substantive contributions from gynecologic and urologic procedures. In U. S. General Surgery, 3rd quarter growth in leading procedures, hernia repair and colorectal remained solid, at days adjusted growth rates consistent with last quarter.
Cholecystectomy growth continued to accelerate in the 3rd quarter and now represents a significant driver of incremental procedures. While we remain cautious regarding the size of the addressable COLI market for robotics, Our recent data is encouraging. Growth in cholecystectomy represents a healthy mix of new and continuing surgeons shows very little churn seize increasing firefly utilization. Bariatric procedures, while still not an area of broad emphasis, again accelerated modestly in Q3. Q3 U.
S. Gynecology procedure growth was largely consistent with the first half of twenty nineteen, and last year in the mid single digit range, with hysterectomy for cancer volumes accelerating modestly in the quarter. We had surprisingly strong growth in U. S. Urology and DBP procedures in the third quarter.
DBP growth was just over 10% for the quarter after having moderated to low single digits in Q2 as a highly penetrated mature procedure category We believe that our 3rd quarter OUS procedure volume grew approximately 23% compared with 23% for the third quarter of 2018 20% last quarter. Third quarter 2019 OUS procedure growth was driven by continued growth in DBP procedures and earlier stage growth in kidney cancer procedures, general surgery and gynecology. In China, As in Q2, procedure growth accelerated modestly as new systems installed under the latest system quota began to provide additional capacity In Japan, procedure growth was again strong at roughly 40%, reflecting growth in procedures granted reimbursement status in April 2018 and continued later stage growth in urology procedures. Our emphasis in Japan remains on surgeon and team training and building proctoring networks. Overall, European procedure growth was largely consistent with prior periods with variation by country.
German results were particularly strong, while results in the UK were below our plans. 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 adoption of intuitive systems for surgery is fundamentally based upon the clinical utility they provide for surgeons, and positive procedure have been published involving the SP thus far. Last month, some of the first clinical research related to the da Vinci SP usage in trans oral surgery was published by JAMA otolaryngology, head and neck surgery section. The research titled, a next generation single port robotic surgical system for Transor Robotics Surgery, results from nonrandomized clinical trials was authored by Doctor.
F. Christopher Holzinger from Stanford etal. The objective of the study was to evaluate the da Vinci SP in head and neck surgery prospectively through concurrent non randomized clinical trials. The study included a total of 47 patients across 4 institutions, 3 in the U S and 1 in Hong Kong, All 47 patients had tumors of the oral pharynx and underwent surgery with the da Vinci SP. 40 patients had malignant tumors while 7 were benign.
All 47 patients, 8 women and 39 men, with a mean age of sixty one, safely underwent trans oral resection with the da Vinci SP without conversion to open surgery, laser surgery, or multiport robotic surge There were no intraoperative complications or device related serious adverse events. Mean estimated intraoperative blood loss purpose was 15.4 milliliters, with no patients, no patients received a transfusion. Within 30 days, 45 of the 47 patients were eating by mouth and without the need for percutaneous endoscopic gastrostomy tube. The Ostomers, the authors concluded: The use of the device appears to be feasible, safe, and effective for trans oral robotic surgery of oral pharyngeal tumors. I will now turn to our financial to our financial outlook for 2019, Starting with procedures.
Last quarter, we forecast 2019 procedure growth of 16% to 17%. We are now increasing Turning to gross profit. On our last call, we forecast our 2019 full year pro form a gross profit margin to be within 70 and 71% of net revenue. We are now slightly increasing our forecast and expect full year gross profit margin to be between 71 and 71.5 percent of net revenue. Our actual gross profit margin will vary quarter to quarter, depending largely on product, regional and trade and mix, and the impact of operating expenses between 24% 28% above 2018 levels.
We are now retiring the end of the range and expect our full year pro form a operating expense On our last call, we forecast our non cash stock compensation expense to range between $320,000,000 $340,000,000 in 20 19. We are now refining We expect other income, which has comprised mostly of interest income to total between $125,000,000 $130,000,000 in 20.19 compared to $130,000,000 to $135,000,000 forecast on our last call. With regard to income tax apart from certain non discrete items impacting Q3, we have a consistent view of our tax rate. We estimate our Q4 pro form a tax rate to be between 19% 20% of pretax income. That concludes our prepared comments.
We will now open the call to your questions.
Session. Our first question comes from the line of David Lewis with Morgan Stanley. Please go ahead. Your line is open.
A couple of questions from me. Gary, just starting off on procedure acceleration, even adjusting for selling, there's still a couple 100 basis points, maybe 200 to 300 basis points of momentum into the third quarter. How would you sort of talk about some of the drivers there? You talked about the gen surge capacity issues last quarter. Sounds that they've been resolved, but Was that the principal driver of the momentum improvement?
Or could you just kind of point out other factors that drove this relative momentum acceleration to the third quarter? And then I had a quick follow-up.
We in general, general surgery was positive for us. I would not say that we have resolved all the constrained issues that we have been, we had talked about last quarter, we moved in the right direction. So I think, productivity for the U. S. Sales force was something we talked about last quarter, I think we took a modest step in the right way.
We'll keep working on that. Likewise, convenient access to systems So general surgery was strong for us. But I think there's more opportunity there over the long term. We had, and Calvin had touched on it. We were positively surprised in the urology part of the business.
And digging in a little bit to figure out where that positive surprises come from. Calvin, I don't know if you want to add to that.
No, that's it. I mean, you saw us kind of settle in the low single digits last quarter and just over 10% this quarter. And then we are working with our field team and customers to better stand the dynamics behind that.
Okay. Very helpful. And maybe just a quick 2 part question on broader CapEx. And Gary, the gross system placements this quarter. I know trade ins and retirements looked heavier, but gross system placements in the looked a little lighter.
Is there anything you've seen from a change in the capital environment in the U. S. That you're willing to call out? And then related to that, Marshall, your commentary next year, competitive dynamics. Maybe you could just share with us what you've seen from some of these new systems that have now been displayed in the U.
S. And Europe. Any comments you're willing to provide there and how your commercial strategy may change next year as you learn more about these systems? Thanks so much.
On the first front, I don't know that we're a perfect read on the CapEx environment more broadly. We do think that, procedure growth is in the U. S, the dominant driver of additional systems over time. System capability, but also, clinical installed base access. So I think we saw in this quarter not our expectations.
I think the second question around, spending looking into next year, I'll let Marshall take.
Yes. So you were asking specifically about dynamics around potential competitors, and my comment about the impacts that might have in terms of elongated negotiations or, negotiations with customers. We know that when the competitors' products comes out, that will be an impact. When it comes out, when it will have an impact, is less certain. And, and so we're just trying to make sure that you understand that, that, as those dynamics occur.
And next we turn to the line of Larry Biegelsen with Wells Fargo. Please go ahead.
Good afternoon. Thanks for taking the question. Just maybe one follow to Marshall on the operating margin and the OpEx spending that you talked about for next year. I mean, in the past, you've talked about not expecting constant deleveraging over time. But, how should we think about margins, margin pressure in 2020?
Relative to 2019 as you invest for top line growth and you potentially have a new competition coming in ahead. One follow-up.
I think what you've heard from us and you've heard from others is that there's a substantial opportunity in front of us in terms of, minimally invasive, the minimally invasive market. And we think about those opportunities. We think about the technologies that are necessary to take advantage of those to improve patient outcomes. And we, and we think about the global expansion And so that's where we're spending our money. We'll give you more, precise guidance on what spending will do when we get to the January call.
I'm not going to really comment at this point about magnitude of leverage or net deleverage or whatever. But, but we will continue to spend on expansion.
That's helpful. And then to stay on the 2020 theme, Calvin, on the guidance, the implied Q4 is about somewhere about 15% at the midpoint for procedure growth. Should we be thinking about more of the high end here, Calvin? And maybe if you could talk about the puts and takes for next year, you have some good growth drivers. From general surgery and international, should we be thinking about kind of stability in procedure growth?
Thanks for taking the question.
Yes, I think as you look at Q4 and then further out into 2020, the growth drivers as you say, Larry, general surgery in the United States, as well as growth outside the United States. And I think that's likely to continue to be the drivers at the high end of the guidance range. I think we're seeing consistency with where we are on a year to date basis. But again, in the third quarter, we saw benefit from some of the mature categories. So I think at the lower end, you can contemplate some moderation there.
And next we turn to the line of Bob Hopkins with Bank of America.
Just wanted to ask a couple of quick questions on the comments you guys made on SP in prepared remarks. It sounds like the regulatory pathway is moving around a little bit. Gary, is that a function of something specific with your process or is it just a tougher regulatory environment generally with the FDA with these new robotic platforms?
Yes, I think the
it's probably the latter. As you look at both our products that are moving into new clinical domains, And also a little more broadly across the med device industry, it looks like the environment is becoming a more data centric or the data requirements are increasing.
And just also just wondering if you could characterize kind of the demand for SP generally and what your comments imply about kind of next year's growth opportunity in SP. Should we be thinking it's fairly limited until you get colorectal or do you see enough underlying demand that, that, 2020, you could see some nice sales of that product?
Yes, we won't forecast it for you yet on this call. I think, in general, there's an opportunity for the indications that we have and more indications are better. The clinical data that we're seeing and that's building in the database reinforces my support for the product line long term. And I think there's also a set of indications beyond the colorectal that'll be interesting to us. That said, we'll work with regulatory bodies to meet their requirements and that may take some time.
That'll pace us. So near term, as we get closer to 2020 and get into it, we'll talk a little more about it.
Thanks so much.
And we have a question from the line of Tycho Peterson with JP Morgan. Please go ahead.
Hey, thanks. I want to go back to some of the procedure commentary. The COLI cystectomy recovery, can you comment on what you think might be driving that? And then to your comments on the DBP step up. Any early view on what might be behind that?
Is that patients dropping out of watchful waiting or is there another dynamic there?
Yes. On the COLI side, Tycho, talked about the acceleration being driven by a healthy mix of the new, new surgeons and existing surgeons, not a lot of churn and and increasing firefly utilization. So that feels a lot different than, say, our earlier experience with, with single site set of tools where it was more of a cosmesis oriented value proposition. And what's interesting is while in the past, COLI may have been a popular training procedure, and it still can be that. Now it's not necessarily the first procedure.
It's a lot more often than it's, say, a hernia repair that's the first procedure. And as general surgeons are applying, robotics across their practices. Colley is obviously a big part of what they do. So there, you know, the reasons for optimism, given the what we see in the data, but we continue to monitor and analyze the growth trends closely and remain conservative about the overall opportunity. On prosthetics.
Yes, you know, prostatectomy, I think we've pretty much stated on that. We were surprised and we're kind of digging into what the root causes may be.
Okay. And then on SP, it sounds like you worked through the endoscope issues in relatively short order. Should we think about any sort of catch up effect in the fourth quarter in terms of installations? And then any comments you want to make on the IDE trial? How big do you think that might have to be?
Yes, on the SP endoscope, we, released supply and we, but we still have some work to do. And and we will work through it, really for SP endoscopy at scale. So we can support the scale we're at today, but as we get bigger and what our long term plans are, I want to see improvements in that product line. So we will see. We're not ready to describe what the of the trial yet are.
Indeed, if it finalizes an IDE that'll get published in a public database, and you'll be able to look it up and we'll point you to it.
All right. And then lastly, any comments you can make on ASPs? I think last quarter, there was a view that they would maybe step down, but obviously they didn't. So just curious how we should be thinking about system piece going forward?
Yes, I think, it's pretty specific in my, remarks actually. For, for ASPs, quarter, we just saw a really favorable mix just like last quarter in terms of, of X, XIs versus, X's and S. Size. We also saw, a really favorable mix in terms of distributor lower distributor and higher direct sales. As far as what you should expect going forward, I think what I said was for the remainder of this year, you should look at, ASPs more similar to the mix between Q1 and Q2.
And that's where we see it coming out. And that'll reflect a higher mix of, distribution sales in Q4, which is typical if you go back and look at our history.
Okay, thank you.
And next we turn to the line of J. P. McKim with Piper Jaffray. Please go ahead.
Hi, good afternoon. Thanks for taking the question. Just wanted to touch on just the uplift in instrument ASPs. Can you talk about maybe the sustainability there and just what's really driving? Is it more advanced procedures or just more advanced instruments with the staplers and vessel sailors?
Yes. Hi, JB. It's Calvin. Yes, we saw this in this quarter, revenue per procedure was approximately $1980. And that's the highest we've seen in quite some time.
Marshall mentioned in his comments that we did see a benefit relative to the last quarter just due to timing of orders, but obviously higher usage of the advanced stapling and vessel ceilings also contributed to the growth. Going forward, clearly the favorable timing of the order should offset, but there's a number of factors that are going to kind of impact the trend going in different directions, including the anticipated continued growth in advanced instrument usage offset by an increasing proportion of lower complexity cases, like choi cystectomy that we've talked about, So, I and A revenue per procedure is going to have variability quarter to quarter, and I don't have a long term direction to give you.
Okay, that's helpful. And then maybe just on you've got the Chefs' conference coming up this weekend. Maybe what can we or should we expect from you guys in terms of ION, any single site data? And then maybe what investors should be looking for in terms of the right way to sort of compare systems or what really is going to drive adoption in certain interests?
Yes. So the conference, I think what you're going to see is a lot of what we've talked about on this call. We're going to talk about just qualitatively. I think some of the early experiences in the field will be doing a lot of test drives and talking about the system and its capabilities. I don't think there's no new data that I think is going to be, groundbreaking at
the event. In general, I think you'll see from both sides relatively early data. I think the larger market in, ion and robotic assisted bronchoscopy will be data oriented in broader settings looking at safety and efficacy. And As that develops, I think we're feeling pretty good, there been systems in the market in the past, as you know, and I think a fair number of accounts will wait to see what the data says. So there's the feature benefit kind of conversations that happened in the early market, I think a lot of the market will wait to see what what that expresses like in clinical use.
Our next question comes from the line of Richard Newitter with SVB Leerink. Please go ahead.
Hi, thanks for taking the questions. Wanted to just follow-up on COLI So I know that I believe COLI is a faster procedure relative to some of the more complex areas where the robot gets used. So I'm just curious to the extent to which you think this acceleration trend is staying power, could that help alleviate some of the capacity and training issues that you've outlined in the past with respect to the mix of the types of procedures getting done.
I think it can change the, certainly, the utilization rate for systems in the field. It's, it's still, it can still create access challenges as different people buy for time. But as you just described, if they're faster through it, With regard to training, I think that high volume procedures allow surgeons to move through their early experiences more quickly. And that has a generally positive net effect.
Great. And, I was hoping, thanks for the color on the China procedure growth. Metrics relative to the overall U. S. I was just curious, as you have more systems getting placed each quarter, how many quarters you think it might take to get, approaching the international average.
And I think it would be helpful just to know where was the, where was the growth rate trending in the last two quarters? Thanks. Relative to this quarter.
Right. So the overall OUS growth rate is roughly 23%. And the last two quarters, we've seen some modest acceleration. You were probably approaching that rate now. So successful scenario in the next quarter or 2, we may cross over.
And next we turn to the line of Imran Zafar with Deutsche Bank. Please go ahead.
Hi, good afternoon. Thanks a lot for taking my question. Gara, you highlighted in your prepared remarks, the Stapelink franchise. Can you talk a little bit more about guess the 60 millimeter in particular and the impact you're seeing in terms of specific procedures, where you're seeing the uptake? Is it colorectal versus gastric sleeve?
And then also how much cannibalization are you seeing of the 45 millimeter in cases like bowel resection, etcetera?
60s mostly used in the lower abdomen. So you definitely have a stomach and in colorectal. There's modest exchange for the 45s where a 60 will do. It's fewer fires. But in general, I think, that mix and surgeon selection in that space is pretty well understood from, prior experience with laparoscopy, and we're not overly stressed about it.
Okay. And then, in Japan, I know last quarter you talked about some sequential slowdown, but you gave today, the 40% plus procedure growth and healthy placements, I think, 27 can you just talk about the contributors to procedure growth there? Is it still urology and non DBP or general surgery mostly. And then are we expecting more procedure reimbursement approvals in April 2020?
Yes. So as we mentioned on the call, the growth moved back to 40% where we had been prior to last quarter. Last quarter, I think we largely felt the effect of a number of holidays or fewer workdays in the quarter than this quarter where that recover that was the main thing. We're seeing, increasing numbers of the 12 procedures that were granted reimbursement status in April of 2018. As well as continuing to see adoption of the urology procedures.
Yes, we don't think that
of the 12th that they'll adopted equal rate. And we'll see some start to break out from the pack, whether it's in colorectal or thoracic relative to some of the others. With regard to, reimbursement opportunities going forward, something we track and we discuss with, surgical societies for their support as needed, we'll see nothing to communicate with you at this time.
You very much.
Next we turn to the line of Craig Bijou with Cantor Fitzgerald. Please go ahead.
Thanks for taking the questions. Just a couple of quick follow ups. Gary, on SP, I think you mentioned that you might be looking at other indications. So I guess I just wanted to get a sense for given the IDE that will be required for Colorex could we see another indication come in before seeing colorectal?
I can give you no reason to be optimistic for that.
Okay. Fair enough. And then, Marshall, just your comments on the med device tax, I just wanted to, you said that you expected to come in. And I just wanted to get, is that just you being conservative or assuming that it'll come in in 2020? Or is there anything else behind that comment?
At this point, that, that is what is supposed to happen. I know there's lobbying efforts to try to change that, but So we're just telling you the way it is.
And we have a question from the line of Jason Mills with Canaccord Genuity. Please go ahead.
Hi, thank you for taking the question. Wanted to follow-up, Colin, on the revenue per procedure, you've given us that data fairly consistently. So you bought it on a regression line. Things would have to change quite significantly across, several different procedures for that trend line to change over, let's say, the next 3 years. So it's been on a nice fairly decent upward slope.
What would you say, I guess over the longer term with respect to that trend line given you have so much data but it is a dynamic business. It would seem like it could continue to trend upward with some volatility quarter to quarter, but upward over a longer period of time. Maybe tell me what I'm missing, if that's incorrect?
No, it has been increasing in low single digits the last couple of years anyway. Yes, and I tried to mention that we do expect to see a contribute continued contribution from the Advanced Instruments as a tailwind to the metric, but that's being offset by a number of factors. I mentioned increasing proportion of lower complexity cases. And that is people are just becoming all the more efficient as time goes on as well, wasting less, doing less with more, and we help them to do that with some of the analytics we provide. So those are the offsets.
And so you have to give some the takes. So at this point, I'm not ready to say whether the trend is going to continue up or be flat or trend down.
Okay. Fair enough. And, obviously, the big reveal of one of the competitors recently, the number that they continue to harp on was 2% robotic surgery relative to, procedures done. Would there be general scopic. I was wondering if you could perhaps, Gary, comment on that number from your perspective, obviously being much more broad.
If you could comment on that number or just give any general commentary as it relates to robotic surgery penetration. I know you talked qualitatively it being early innings, but just specifically that quantitative figure, like your thoughts. And then specific to Japan, as it relates to the penetration of robotic surgery, it would seem to be lower than that, like your commentary with respect to that geography specifically, if you don't mind. Thank you.
Let's, let's zoom out for a second and then we can zoom back in. I think the opportunity for computer aided in robotically since it's surgery and acute intervention more broadly is clearly substantial and clearly durable. And that's going to draw a new entrance, which it's doing. I think those new entrants will, help accelerate, broader adoption more generally. And customers will appreciate that choice.
And I think they'll look at that. Our strategy over this period has really been understand our customers deeply and understand the quadruple aim. It's really hard to do the total accounting of what the total available market will be. And what I'd ask you to look at is, over time, What does it look like in the next couple of years? What does it look like in the next 4, what does it look like in the next 10?
I think some of our competitors as they speak about these opportunities are looking out pretty far. And, okay, that's forecast, hard to have an exact crystal ball. But clearly, even speaking with our most, candid critics, the idea that computer aids and robotics are going to make an impact more broadly in surgery pretty well accepted. So I think we're early innings. Japan, I think, likewise, we, a little bit different healthcare system the single payer system that runs through MHLW or the predominantly single payer system means that their requirements and negotiations using data with the government early are much more important and getting those right open the market over time.
And that's what we've been working on. So clearly, that's an early set of opportunities for us as well. Our methodology, when we think about a total available market, is to be conservative in the early days show that we can bring real value and then revise as we see greater depth, other companies take a different statistical approach to that.
Thank you so much.
And next we turn to the line of Vijay Kumar with Evercore ISI. Please go ahead.
Hey guys, thanks for taking my question. Maybe just tacking on that last question, Gary, if you just look at the medium term outlook, right, just given where we are in the CapEx cycle, given the amount of product cycles that you guys have, on a number of different platforms. Where I know historically you looked at utilization rates as being up on the system utilization rates. The growth in system utilization as being a leading indicator for systems. Is this now given the acceleration we're seeing in procedures, is that a leading indicator for systems like you just give us a sense for what drives that systems next year, right?
Because obviously you have competition. I'm just curious given why we're seeing base procedures rating, is that an indicator for how we should be modeling systems?
Well, I'll just draw a broader sure I'll let Calvin speak to a little bit of the modeling. In the broader sense, we know that in a mature market, that has experience with robotic surgery that, that procedure demand will drive the underlying system demand. And there's two ways that they go about it. 1 is capacity and they can get additional capacity by more efficient utilization of their systems. We have designed our systems with that in mind.
We work close with them and in various arrangements to help them get improved efficiency. They don't have to buy a next system. If they don't want to, The other thing is feature content. Does the product have the feature content that's required to do the procedures they want to do. And so we work with them on those things.
Clearly, competitors will enter the market and make claims. And I guess what I would say for both customers and for shareholders, due diligence is really important. It's really easy to make claims. On trade show floors, and it's pretty hard to back them up in real life. And our experience in the world has been that there's a lot of noise in the beginning.
As those claims are made. And then it takes a couple of 3 years in the actual clinical market and clinical use, to see what the broad market thinks about that. That will have an impact, for us in the next few years. I don't know if it's next year or the year after, and And I think that's what Marshall's commentary was signaling is that, customers will evaluate and we'll take their time and that may change capital acquisition cycle timelines or otherwise, and may change the nature of negotiations for us. But we're planning and thinking for the long term, and We're focused on enablement of the quadruple aim, and we'll be here for our customers as we go through that.
Calvin, anything you want to help with on modeling?
No, I mean, clearly, procedures are the catalysts for driving the demand for systems. When we look at our models, we would expect see a continuation of the trend of increasing utilization, over time. Vijay, if
you have a short follow-up, this is your chance. One last one.
Just one quick follow-up, Gary. I mean headcount is up 30% up from 5000. We've crossed 7000, and that's an impressive phenomenal number. I'm just curious on where that is going. Thank you.
Yes, we try to balance our growth and our investments, by both the opportunity, and we think the opportunity is enormous and durable. And then we balance it by what we think we can achieve and do well. And that really is what caps our growth and our spend. Absorbing, training, selecting, developing, staff during rapid growth is really a challenge and that's what we are focused on. As we get into 2020, 2021, and we'll share with you in future quarters what our plans are, but we try to balance those 2 things, being agile on pursuing the opportunity, at the same time making sure we're not overextended in losing our ability to execute and be efficient.
So thank you. That was our last question. In closing, we believe there is a substantial and durable opportunity to fundamentally improve surgery and acute intervention. Our teams continue to work closely with hospitals positions care teams 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 teams, and ultimately, a lower total cost of treatment. We believe value creation and surgery in acute care is foundationally human, It flows from respect for and understanding of patients and care teams, their needs and their environment.
Thank you for your support on this extraordinary journey to improve surgery. Look forward to talking with you again in 3 months.
Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation and for using AT And T Executive Teleconference Service. You may now disconnect.