Ladies and gentlemen, thank you for standing by. Welcome to the Intuitive Surgical Q4 2015 earnings release Conference Call. As a reminder, today's conference is being recorded. And I would now like to turn the conference over to the Senior Director of Finance for Investor Relations for Intuitive Surgical, Mr. Calvin Darling.
Please go ahead, sir.
Thank you. Good afternoon. And welcome to Intuitive Surgical's 4th quarter earnings conference call. With me today, we have Gary Goodhart, our President and CEO. Marshall Moore, our Chief Financial Officer and Patrick Clingan, Senior Director of Finance.
Before we begin, I would like to inform you that comments mentioned on today's call may be deemed to contain forward looking statements. Actual results may differ materially from those expressed or implied as a result of certain risk and uncertainties. These risks and uncertainties are described in detail in the company's Securities And Exchange Commission filings including our most filings can be found through our website or at the SEC's EDGAR database. Prospective 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 intuitivesurgical.com on the audio archive 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 will consist of providing you with our highlights from our fourth quarter results as described in our press release announced earlier today. Followed by a question and answer Patrick will discuss marketing clinical highlights, then I will provide our financial outlook for 2016 And finally, we will host a question and answer session. With that, I will turn it over to Gary.
Good afternoon and thank you for joining us on the call today. 2015 was a good year for Intuitive with increased use of our products around the globe and solid operational execution. Our focus in 2015 was to drive adoption of our platform in general surgery, expand our da Vinci exercise surgical system product line, increase our organizational capability and performance in international markets and improve contribution margins for our newly launched products. Teams that emerged at the close of 2014 continued into 2015 with strong performance in general surgery and procedure growth. Full year global procedure growth was approximately 14%, led by growth in general surgery, growth in the use of da Vinci surgical systems, outside the United States and strength in urology.
U. S. General surgery growth was approximately 31% for the year, made up of strong growth in inguinal hernia repair, eventual hernia repair, and colorectal surgery. Use of single site in colcystectomy and hysterectomy declined for the year. Outside of the United States, procedure growth was strong, rising approximately 26% over procedures in 2014.
Patrick will review procedure trends in greater detail later in the call. Looking at trends in capital sales for the year, capital play increased in 2015 to 492 from 4 31 placements in 2014. The more interest and acceptance of our latest platform da Vinci XI has been positive, with XI making up the majority of placements for the year. In 2015, we shipped 2 ninety eight systems in the United States, 90 in Europe, 77 in Asia and 27 in other global markets. Our operations teams remain focused on optimizing our manufacturing design and supply chains for our newer products.
Progress in the back half of 2015 has been solid, with steady improvements in reducing product costs 162017 as a result of these efforts. As we've said before, our offerings make up an ecosystem designed to encompass our customers' needs in building and running outstanding robotic surgery programs. 2015 was a year in which we focused on enabling our ecosystem with new product launches globally. We launched our da Vinci X I system with a core set of instruments, vessel sealer, and firefly fluorescence imaging in 2014. We brought an access to our excise system with international regulatory clearances through the year.
We also added our 45 millimeter excise stapler in Q1, as well as Humana carved shares and a second set of instruments in Q2 of 2015. We submitted our 510s for our 30 millimeter stapler for XI. Single site instrument kit for XI as well as other XI accessories in the second half of twenty fifteen. I'm pleased to report that we had the services provided by academic surgeons, as well as courses designed for assistance and other operating room staff. Our customers own over 1400 surgical simulators, and over 600 dual consoles to assist them in technology training.
In addition, our teams have provided detailed analytic and operational support for customers seeking to optimize and benchmark their programs Looking back at the full year of 2015, our operating performance is summarized as follows: Worldwide procedures grew by approximately 14%. We shipped 492 Dementia Surgical Systems in the year, up from 431 in 2014. Total revenue was $2,400,000,000, up 12% from 2014 and up 15% on a constant currency basis. Recurring revenue grew to $1,700,000,000, up 11% and comprising 70% of total revenue. We generated $946,000,000 in pro form a operating profit up 16% from last year.
Pro form a net income was $731,000,000, up 20% from 2014. And we repurchased 366,000 shares at an average price of $502 per share during 2015. Turning to our operating performance for the 4th quarter. Proceeds grew approximately 15% over the fourth quarter of last year. We shipped 158 Da Vinci Surgical Systems, up from 137 in fourth quarter of 2014.
Total pro form a revenue for $26,000,000, up 16%. We generated a pro form a operating profit of $293,000,000 in the quarter, up 28% from the 4th quarter year. And pro form a net income was $224,000,000, up 22% from Q4 of 2014. As we look to the future, we passionately believe that robotic assisted surgery is in its infancy in application and technology. As we have improved our cost and supply chains for new products, we anticipate increasing our investments in key areas that will enable and drive the future of robotic assisted surgery.
These include product investments in advanced imaging, advanced instrumentation and next generation robotics. We will also continue to invest in procedure, analytics, international market development, and economic and clinical validation. Looking to 2016, our priorities are as follows: First, we'll focus on the expanded use of da Vinci in general and thoracic surgery, particularly colorectal surgery and hernia repair 2nd, we'll work to advance our ecosystem, including expanding our XI line and taking our SP product line into initial clinical use. 3rd, we'll drive our organizational capabilities and markets in Europe and Asia. And finally, we'll continue to assist our customers and their efforts to maximize the comprehensive value of their programs.
I'll now turn
form a basis, which excludes the impact of our prior year X I trade in programs, legal settlements and legal claim accruals, stock based compensation, amortization of purchased IP and investment impairments. We provide pro form a information because we believe that business results are easier to understand on a pro form a basis. I will also summarize our GAAP results later in my script. We have posted reconciliations Pro form a 4th quarter revenue was $677,000,000, an increase of 13% compared with $601,000,000 for the fourth quarter of 20 14 and an increase of 15% compared with last quarter. Pro form a revenue for the fourth quarter of 20 14 excludes $4,000,000 of revenue associated with offers made in 2014 to trade out SI product for XI product.
All trade out offers were either fulfilled or lapsed in 2014. 4th quarter 2015 procedures approximately 177,000 compared with the third quarter of 2015. Procedure growth was primarily driven by general surgery procedures in the U. S. And urology worldwide.
Revenue highlights are as follows: pro form a instrument and accessory revenue increased 16% compared with last year, and increased 9 seizure growth and increased sales of advanced instruments, partially offset by the impact of foreign exchange. The increase over prior quarter reflects procedure growth instrument and accessory revenue realized per procedure, including initial stocking orders, was approximately $1840 per procedure. This metric has now been trending procedure over the past year with recent quarters, reflecting higher sales of advanced instruments, offset by the impact of foreign exchange. Pro form a system revenue of $231,000,000 increased 9% compared with last year and increased 32% compared with last of the third quarter reflects increased unit sales, partially offset by lower ASPs. 158 systems replaced the 4th quarter compared with 137 systems in the fourth quarter of systems last quarter.
Approximately 72% of the systems shipped in the quarter were XIs, which is comparable to prior quarters. Globally, our average system price of $1,550,000 was comparable to the fourth quarter of 2014, and slightly less than the 1,600,000 ASP last quarter. Relative to the prior year, increases related to the increases related to a lower trade in mix were mostly offset by foreign exchange. The decrease relative to the 3rd quarter reflects geographic mix and a lower proportion of X side dual consoles. ASPs fluctuate quarter to quarter based on geographic and product mix, trade in volume and changes in foreign exchange rates.
Hospitals financed approximately 17% of the systems placed in the 4th quarter, down from 25% last quarter. We directly financed 20 systems, including placing the most operating leases, 16, since we began our direct leasing program in the second quarter of 2014. As of the end of the fourth quarter, 49 of the 3597 systems out in the field were under operating leases. We exclude the impact of percent year over year and increased the increase in our installed base of da Vinci systems. Outside of U.
S. Results were as follows: 4th quarter Pro form a revenue outside of the U. S. Of $219,000,000 increased 11% compared with $198,000,000 for the fourth quarter of 2014, and increased 45% compared with $151,000,000 last quarter. The increase compared with the previous year reflects higher system unit sales, and higher recurring revenue, driven by procedure growth of 27%.
Outside the U. S, we placed 75 systems in the 4th quarter compared with 66 in fourth quarter of 2014 37 systems last quarter. Current quarter systems sales include 13 into China, 11 into Japan, 8 into Italy and 7 into Brazil. System placements outside the U. S.
Will continue to be lumpy as of these markets are in the early stages of adoption. Some markets are highly seasonal, reflecting budget cycles or vacation patterns, and sales into some markets are constrained by government regulations. The pro form a 7.1% for the fourth quarter of 2014 and 69.3% for the third quarter of 2015. Compared with the fourth quarter of 2014, the higher gross margin reflects lower inventory charges, improved efficiencies, partially by foreign exchange and a higher mix of our newer products, which carry lower gross margins than our mature products. Gross margin includes the impact the medical device tax, which has been suspended for the next 2 years.
The medical device tax reduced our 2015 gross margin, by approximately 70 and costs associated with manufacturing efficiencies and product charges. In 2014, we recorded pre tax charges of approximately 80 $1,000,000, representing the estimated cost of settling a number of product legal liability claims under a tolling agreement. During 2015, we refined our estimate of the overall costs of settling claims and recorded additional charges approximately $14,000,000 from our pro form a results and are included in our GAAP results. As of the end of the 4th quarter, $24,000,000 remained accrued on our balance sheet as a significant portion of the estimated costs have been paid. Pro form a operating expenses which exclude reserves for legal claims Stock compensation expense and amortization of purchased IP increased 7% compared with the fourth quarter of 2014, an increase 6% compared with additions and higher incentive compensation.
The increase relative to the 3rd quarter primarily reflects increased incentive compensation. Our pro form a effective tax rate for compared with an effective tax rate of 23.5 percent for the fourth quarter of 201418.4 percent last quarter. The effective tax rate for the 3rd quarter of 2015 included tax benefits of $29,000,000 or $0.77 per share related to a recent favorable tax court ruling involving an independent third party. In late December, Congress renewed the Federal Research And Development Credit resulting in a benefit of $1,000,000 or $0.17 per share. Congress also made the R and D tax credit permanent, so our 2016 rate guidance will reflect this benefit.
Our tax rate will fluctuate with changes Our fourth quarter 2015 pro form a net income was $224,000,000 or $5.89 per share, compared with $184,000,000 or $4.92 per share for the fourth quarter of 2014 $199,000,000 or $5.24 per share for the third quarter of 2015. As I indicated earlier, pro form a income provides an easier comparison of our financial results and business trends. I will now summarize our GAAP results. GAAP revenue was 670 $7,000,000 for the fourth quarter of 2015 compared with $605,000,000 for the fourth quarter of 2014 and $590,000,000 for the third quarter of 2015. GAAP net income was $190,000,000 or $4.99 per share, for the fourth quarter of 2015 compared with $147,000,000 or $3.94 per share, for the fourth quarter of 2014 $167,000,000 or $4.40 per share for the third quarter of 2015.
We ended the year with cash and investments of $3,300,000,000, up from $3,100,000,000 as of September 30 2015. The increase was primarily driven by cash generated from operations and proceeds from stock option exercises, partially offset by stock buybacks. During the quarter, we repurchased approximately 167,000 shares for $84,000,000 at an average price of $505 per share. This brings our total
turn it over to Patrick, who'll go over our procedure and clinical highlights. Thanks, Marshall. Total 4th quarter year over year procedure grew approximately 15% with U. S. Procedures growing approximately 12% and international procedures growing approximately 27%.
Full year 2015 procedure growth was and international procedures growing approximately 26%. In the U. S, 4th quarter procedure growth of approximately 12% was driven by continued strength in general surgery procedures with solid contribution coming from mature procedures despite already high levels of market penetration. We do not expect the strong 2015 growth in established U. S.
Urology and gynecology procedures to continue in 2016. In U. S. Urology, 4th quarter growth in da Vinci prostatectomy and kidney cancer procedures continued at similar rates as earlier in the year. We continue to believe that our approximately 12%, led by an approximate 11% growth in da Vinci prostatectomy.
We expect U. S. Da Vinci prostatectomy procedure volumes to return to a level more in line with prostate cancer incidence rates moving forward. In U. S.
Gynecology, 4th quarter procedures grew modestly year over year with growth in malignant and complex hysterectomy, partially offset by declines in benign procedures. During 2015, a larger proportion of da Vinci hysterectomy procedures were performed by Gynecologic oncologists compared to 2014. For the year, growth in U. S. Gynecology procedures was approximately 1%.
In 2016, sustaining growth in U. S. Gynecology may be a challenge as we believe the total surgery remains strong, with robust growth in hernia repair and continued adoption of colorectal procedures being partially offset by continued declines in chorrosesctomies. U. S.
General surgery procedure growth was approximately 31% for the year, with broad based growth across several procedures led by hernia repair, which generated the largest number of new general surgery procedures. Growth in colorectal resection was also strong during 2015. In 2016, there remains a large opportunity in hernia repair and colorectal resection. And driving adoption in these markets remains among our top priorities. During the quarter, a group of general surgeons led by Doctor.
Vorst from St. Joseph's Mercy Health System and Doctor. Carbonell from the University of South Carolina School of Medicine published their perspective on advances in ventral and incisional hernia repair in the World Journal of Gastrointestinal Surgery. Within the paper, data comparing the robotic to open Reeve stope technique for more complex hernias favored the robotic approach with the reduction in blood loss, shorter length of hospital stay, fewer surgical site infections, and no difference in operative times or direct costs. The paper states that Robonika approach, permits relatively easy access to the anterior abdominal wall, allowing the surgeon to perform the ideal repair of surgical technique in order to develop a reliable approach to hernia repair that can be offered to an increasing number of patients.
Regarding our U. S. Single site business, cholecystectomy volumes continued to decline during the fourth quarter, though mostly offset by a growth in Porticisectomies. In addition, our single site gynecology procedure volumes declined in the 4th quarter. Taken together, single site procedures represented less than 5% of our 4th quarter U.
S. Procedure volume. Looking abroad during the fourth quarter, the approximate 27 percent international procedure growth was led by the global adoption of da Vinci prostatectomy with solid contributions kidney procedures, malignant hysterectomies and colorectal resection. For the full year, procedure growth was approximately 26%. Procedure growth adoption in Japan.
During 2016, we expect several external factors to impact international procedure growth, In Japan, the Surgical Society has submitted for reimbursement of partial nephrectamies to the MHLW. Pending the MHLW's decision, this may serve as a tailwind to Japanese procedure procedure effectiveness for the use of DaVinci Surgery And Gynecologic Oncology continuing to build. A new study from Copenhagen University Hospital by Doctor. Hurling and colleagues modeled the clinical and economic impact of the adoption of da Vinci for malignant hysterectomies capturing the comprehensive cost of care associated with these the percent less expensive than open hysterectomies based on operating costs and 7% less expensive than open hysterectomies when the da Vinci system cost was included. The study found that cost savings associated with fewer complications and shorter hospitalization more than offset the incremental costs associated with the use of da Vinci technology in published during the year, bringing total clinical publications to over 10,000.
This concludes my remarks. I thank you for your time. I will now turn the call over to Calvin.
Thank you, Patrick. I will be providing you with our financial outlook for 2016. Starting with procedures, as described in our announcement last week, 2015 full da Vinci procedures grew approximately 14% to roughly 652,000 procedures performed worldwide. During 2016, we anticipate full year procedure We expect similar seasonal are reset. With respect to revenue, we expect 2016 capital sales to follow historical seasonal patterns, which we anticipate will become more pronounced system placements will likely continue to be lumpy, particularly in markets outside of the U.
S, as some of these markets are in early stages of adoption. Some markets are highly seasonal, reflecting budget cycles or vacation patterns and sales into some markets are constrained by government regulations. Turning to gross profit. We expect of between 68 profit margin will vary quarter to quarter depending largely on product and regional mix. Turning to operating expenses.
As Gary mentioned, we will be increasing our investments in key areas that will enable and drive the future of robotic assisted surgery We expect to grow 2016 operating expenses between above 2015 levels. We expect our non cash stock compensation expense to range between 170 $180,000,000 which is comprised mostly of interest income to total between $20,000,000 $25,000,000 in 2016 With regard to income tax, we expect our 2016 pro form a income tax rate to be between 26.5 and 20 points. This forecast does reflect
And our first question today comes from the line of David Roman with Goldman Sachs. Please go ahead.
Thank you and good evening everybody. I wanted to start with one strategic question and one follow-up on the financial guidance that Calvin just provided. Maybe on the strategic side, I was hoping, Gary, you could go into your thoughts as it relates to the competitive landscape in robotics we've heard over the past several months announcements from a couple emerging competitors and there's an expected announcement from another competitor later in 2016. Can you maybe talk about how you envision the competitive landscape unfolding and some of the activities you may be undertaking 2 to prepare intuitive for moving from a monopoly type market to one that has multiple players?
Sure. As we look out at value and competition, at the end
of the day, value is going to
be driven by the ability of these products and services to drive great outcomes and compare it or weight against the price of those things. We think about it as an ecosystem. We think the ecosystem is really important. So, it's easy to think just about the robotic system because that's the most visible part, but there is the systems, the instruments and accessories, advanced instrumentation like stapling, imaging systems, fluorescence imaging, training technologies like simulators and dual console, clinical validation, training courses offered by academic surgeons, that number in the dozens, that whole set of products and ecosystem we think is important. And so as competitors enter, they have to choose.
Can they show that value in terms of outcomes and price. And can they offer the set of ecosystem elements that they're going to be useful We've known for years and have anticipated for years. We didn't wake up yesterday and think, competitors are coming. We better do something. So we've been thoughtful about what we need to do to create value for our customers.
We have a range of products in the system side that hits different price points for different feature content. We have different options that are available in terms of instrumentation, instrumentation price points. And so we think we're really well positioned. There are some other companies out there that will be capable. We expect that customers will explore what they're offering.
We think we're well positioned when that exploration occurs.
Okay. That's helpful. And then maybe just to go into the financial side for a second. Judge account, I just want to understand what you're saying on the margins for 20 team that the gross margin range seems to imply that on an underlying basis when you take out the benefit of the medical device seeing a deterioration from where you sort of exited the second half of twenty fifteen. What are the factors influencing that math.
And then on the OpEx side, the 9% to 13% represents a pretty decent acceleration from what
we saw this year.
Can you maybe help put some of those into context where those dollars are going and whether 2016 represents a new normal year of investment spending or there something particular that you're after this year?
Sure, David. I'll take you through some of the gross profit commentary and let Gary take you through some of the investments on the OpEx side. Like Gary said on the call, we're focused on reducing our costs of the new products, and we've been managing our fixed costs very carefully. We're pleased with the progress we've been making throughout 2015. Our second half twenty fifteen gross profit benefited from favorable product mix, essentially 0 product charges and other favorable outcomes.
In 2016, we do back to deliver continued cost reductions on the newer products, including the DXI, Stapoor, vessel sealer and Xi endoscopes, At the same time, as compared portion of dual console system sales, probably a higher proportion of system sales involving trade ins. And probably some product charges. At some point, we'll be more aligned with historical norms from the past. And while FX not likely to be a strong headwind as it was in 2015. It does appear as though it will have some negative impact on revenue and margins.
And then lastly, I'd say from the competitive side, competitive side, any pressure there, the impacts of that are unknown at this stage.
On the investment side, as I had mentioned in the script, we think that there's significant opportunity to improve what surgeons can see during cases, improving imaging through a variety of means technologically. And been working on that for years and we'll continue to do so. I think there's great potential there. On the Instrumentation side, we're expanding our stapling line and our advanced energy lines, the reception has been quite good. Those are not single instruments.
They're really families of instruments and we're filling out those families as we go. We feel good about it and think it's important. We'll continue to invest there. And we think that there are opportunities in robotics in terms of both structure, things like SP and other things, that can change different segments the market that can allow us to enter other procedures that we're not currently in today or access other regions of the world that may have different needs. And so we'll continue to invest in those things.
And we do have a question from the line of David Lewis with Morgan Stanley. Please go ahead.
I want to come back to margins here for a second. The spread on margins in Marshall or Calvin is sort of $68,000,000 to $69.50, it's a wider spread. I don't think you gave spread sort of last year. So what defines for the upper end and lower end of those ranges? And I guess, secondarily, when I think about these product manufacturing, the improvements you're making, we seem to have a substantial impact on gross margins in the second half of the year.
I guess I would presume those advantages or those costs would be a bigger tailwind in 'sixteen over 'fifteen. Is that a kind of correct statement? Those two questions and I have a quick follow-up.
So to characterize the cost reductions, they had some impact in the second half of twenty sixteen. They or 15, sorry, they will have a more significant impact in 2016 2017. And we as the David said, we'll continue to focus on reducing the costs. I think the bigger improvement during 2015 had to do with the product charges that we mentioned in Q1. And as we move forward, the range is really or the breadth of the range is really reflect of the items that Calvin gave you, which is that we expect to see a higher proportion of newer products.
The extent of that, we'll see. We expect to see a lower proportion of dual consoles and a higher proportion trade ins. The mix of systems is always difficult to predict. And, you know, frankly, geographic mix also has an implication here. And as I said in my script, the there's a quite a bit of lumpiness to some of the those geographic markets.
Okay. And then, Gary, just a quick, strategic and margin question for you well. So the expenses we saw a couple of years ago, you made a selection decision to sort of reinvest. Is that, I mean, this is a 50% increase in OpEx spending relative to 15,400 to 500 basis points above. Is it do you see this sort of similarly as sort of the opportunity to reinvest in is the investment spend heavier on SG A or R and D?
And then the follow-up, it just does on SP, as you mentioned, in light of what's happening with single site procedures, does that change your thinking of the opportunity on SP. Sorry for the couple of questions there. Thank you.
Sure. Yeah. In terms of, the balance of investment, it really is targeted in a couple of areas. R and D is clearly one area that we'll get investment. And then a sport for international markets.
And some of those things are more structural, not necessarily just sales folks, but clinical trials and other things. So that's where the balance or the bulk of that increase is going to lay. And we think we have, technologies that are important and we think we have process that we can bring that's important and that will, that will serve us well in the long term and in the future. Regard to SP visa v single site, we think that SP really enters and adds value in a different place than single site single side tended to work on a little bit more limited workspace, a little bit more constrained set of procedures. SP is both broader and more capable.
Price points are a little bit different. So when we think about SP when we think transl, transannal colorectal places where they're specimen removal. So we look at those things. We think about it. SP is less oriented towards cosmetic benefits and more oriented towards being able to reach complex structures where you need to.
Thank you very much.
And we have a question from the line of Kyle Levy with Wedbush. Please go ahead.
Great. Thanks. Good afternoon. So maybe we could start with some U. S.
System utilization when you do the math, you're reaching peak levels here in the U. S. In terms of averages. And so what's the dynamic currently in the marketplace whereby hospitals are could potentially accelerate the addition of new systems, in order to, again, meet your procedure growth expectations that you've laid out?
Yes, I think as we look at, make sure I interpret the question right, I think as we look at utilization patterns, one thing that's important to remember in the United States around the world, but in the U. S. As well is there's not a single customer profile fits them all. So the average does not cover all the endpoints. And so we definitely see, some integrated delivery networks who are very interested in optimizing procedures per system per year and trying to drive that up to get better capital utilization.
And we will help them do that. We see other health systems that may be in the exact same market, who were really interested in driving convenience for patients and for their surgeons and are willing to invest in capital once they get to kind of a minimum hurdle rate for procedure use or utilization. And so we see both predicting which of those strategies is going to dominate into the year is always a little bit hard. And at the end of the day, we really focus the organization on great utilization and great support, whichever strategy our customer wants to take us down.
Okay, great. And just my follow-up, you've talked a couple of times about investing more and more into imaging. And aside from a Firefly, we haven't seen anything very significant, come out of the company. So maybe you could highlight a couple of the interesting projects within imaging that we should be paying attention to? Thanks.
Sure. I think first statement is, I beg to differ, but I look at the imaging platform that we brought out with XI and it's a fundamentally different technology basis, distal chip imaging. It gives us room to do some things from a usability reach and workflow point of view that will very hard to do otherwise. And so we continue down that pathway. So for example, in XI, you can move the scope arm to arm.
There's not a dedicated robot to hold one endoscope. So that gave you the idea of port hopping, the ability to look around the abdomen differently. The other thing that, distal chip imaging gets you is the ability to articulate your endoscope, which is a part of the SP product line is endoscopic articulation. We continue to invest in that set of technologies and extend our leadership position there, because I think that both you can get better image quality and more flexibility and better price points by doing that technology. So that's one set of investments.
The other said is as you mentioned with Fireflies, the ability to look and see things that you can't see easily with a white light. So the ability to look and see beneath tissue or to highlight tissue structure and there are a set of technologies there that aren't useful and we're investing in. But those are longer term. They take a while to develop. And as we get further down the pipeline, we'll share with you where we are.
And we have a question from the line of Ben Andrew with William Blair. Please go ahead.
Good afternoon. Thanks for taking the questions guys. On the initial SP use, Gary, that you talked about, and you listed a few applications there. We assume that that's where we'll see, kind of some initial clinical work? And when might we see results from those either published or discussed?
Is that later this year or next year? That maybe leads to next steps of commercializing the product?
Right. Yes, in terms of the first question of those are places we are intending to explore. So colorectal and Transoral. We will also explore other places in time, but those are our initial experience we expect to have our initial experiences. In terms of timelines, I'm not ready yet to tell you when in the year it will happen.
We're still in with regulatory bodies about pathway. And so as we get some clarity there describe it to you later in the year.
Okay. And in that same vein, if you look out 3 or 4 years, can the SP platform be material percentage of the company's volumes? Or is this something that probably remains a niche given the price point? And we shouldn't really think differently about kind of the distribution than maybe 5% or 10% if you will?
I think that it offers, surgeons a different way to think about getting into the body. In a different approach. It can deliver a lot of capability in a small package, parallel into the body and it can move about the body quite easily in terms of multi quadrant access. So I think it's hard to predict long term. I think for sure near term, there are initiatives that I think it matters.
Whether those niches grow into bigger opportunities, I think, remains to be seen, Having said that, the history of intuitive and the history of technology is that as you bring raw technology into the hands of experts and they start to use it and develop it, a way lead away. And, and I believe that. I think that we'll see things that develop, as surgeons get deep with it, how big that gets impossible to predict right now.
Okay. And then lastly for me, thank you for taking the questions, by the way. The range of procedure guidance is a little wide to start the year, obviously. And let's just try to isolate one effect if we can, China. So if we don't see another authorization for system sales, is that a material impact within the range?
Is that a percentage point or 2, in terms of a potential swing? Or how should we look at, you know, the example, China specifically?
Thanks for the question, Ben. When it comes to procedure guidance, our focus is going to continue to be on driving growth in general surgery in our international markets, including China. When you look at the breadth of the range to your question, there's far bigger impacts than just the system authorization in China when it comes the mature procedures in the U. S. And the rates of growth that we may see there that benefited us in 2015.
And certainly across a much wider range of markets.
And we do have a question from the line of Matt O'Brien with Piper Jaffray. Please go ahead.
Hi, everyone. This is actually JP in for Matt. Thanks for taking my questions. I just want to get back to the margin kind of profile for year and ask it in a more simpler way. So if you exclude the 70 basis points that you're getting for the med tax credit, given the guidance you gave for OpEx next year, would we be expecting the adjusted EBIT margins actually be down year over year?
Yes, I mean, I think there are
a lot of layered assumptions that go into the model, and we don't have specific guidance And it relates to that, revenue would be one of the factors, certainly underlying the overall assumptions there. I think what we try to do is lay out a lot of the factors that would be impacting the gross margin as well as the investments we're making
side. Got it. And then if I could ask one on the recent clearance for the integrated table motion, how is that sale going to be and how are you guys going to get revenue from that? Is that going to be sale from, trump's medical and you guys have got
a piece of the revenue or how will that work?
Yes. Actually, Trunk will sell the table, and an independent transaction to the
fashion?
Yes. I think for us, the key here is we're working to make the operation more efficient, right? This will make the ability for surgeons to reposition the patient without having to withdraw the robot arms, redock, doing a procedure, make it more efficient. And therefore, benefit certain groups of procedures and hopefully drive adoption in them. I think that's really the key benefit from our perspective.
We do have a question from the line of Bob Hopkins from Bank of America. Please go ahead.
Thanks, and good afternoon.
Hey, Bob.
So I wanted to ask a question about 2016 revenue growth, to start. Can you give us a sense as to where you see incremental opportunities for acceleration? So are the areas where you see your product categories where you see the potential for accelerating revenue growth or entirely new growth drivers in 2016 versus what you experienced in in 2015. And obviously we're well aware of what the major growth drivers are. I'm kind of curious about the things that potentially are available to you in 2016 that that, that weren't available in 2015?
Yes. As you know, we look at 16 to a couple of places. I think that, we have opportunity in OUS markets in various places that are important to us. Now there are some structural things that we have to overcome and invest in sometimes a reimbursement and sometimes there are other parts of market access. And we'll do that, but I think the opportunity there is quite good I think in terms of, other verticals, we are working on a 30 millimeter stapler, the 30 millimeter stapler is really targeted at thoracic procedures.
XII system design is, has a part of its design intent was to facilitate thoracic procedures. And we're in early days there. So, as time goes on, I don't think that's something that it's going to leap out of the gate in the beginning part of the year, things that we're investing in from a product and support point of view that should build momentum over the next multiple quarters.
And then, Marshall, to follow-up on two quick things. On the revenue per procedure number, you highlighted that that's been very stable within a range, but it feels like cadence of new products will pick up as we move forward there. Can we expect that line item to start moving back up towards the old highs as we go forward here. And then the other quick thing I wanted to ask of you is that I appreciate the comment that 70% of revenues now come disposables. Can you give us a rough sense as to what the relative profitability of that disposable stream is versus the capital side of the business?
Yes. So first, talking about the range of I and A revenue per procedure, we would hope that we be able to add to that number through, increases in the advanced instrument instrumentation, including stapling and vessel sealing. As I said, that's been somewhat muted or offset by the effects of foreign exchange over the last few quarters, but there's there are other factors that could that could change that. I don't know what the historical high you were speaking about was. But I do think that there's room for it to grow going forward.
It was about $2000, I think.
Yes. And remember, that number has in stocking orders and some timing of other things. So longer term, as you have a bigger and bigger installed base, the relative value of stocking orders is going to go down. And that has nothing to do with the sort of the pure economics of the exchange. The other question was around recurring revenue.
And remember, it's not just instruments. It's also service.
That's about 50% is kind of the instruments and accessories of revenue and 20% would be the service element to get to the 70 both recurring.
And the margins on instruments and accessories are better than systems. And so as we get a quarter where we have a higher mix of systems than the margins are going to be lower. And that trend
is likely to be durable that I and A and service will be higher margin assistance.
And we do have a question from the line of Brandon Henry with RBC Capital Markets. Please go ahead.
Yes, thanks for taking my question. So Intuitive has now shown kind of 2 years of strong U. S. Urology growth. Can you discuss the reasons for this outperformance in urology and how sustainable you think this strong performance is in 2016?
Yes, Brandon, thanks for the question. A year ago, you saw a turnaround in the volumes of da Vinci prostatectomy in the U. S, kind of the mid point of the year in the back half of the year started to see some growth and that sustained throughout 2015. And the rate of growth has been certainly above what we believe the incidence rates of prostate cancer to be in the country. And also within U.
S. Urology is growth in partial nephrectomy as well, which has been pretty sustained, given the profile of what da Vinci Technology brings to that procedure from both clinical outcomes and cost effectiveness perspective. As we look at 2016, our baseline assumption is that the high levels of growth that we've seen over the last six quarters are likely to begin returning more towards the incidence rates of the disease.
Okay. And then one quick question on SP. Can you talk about why you decided to develop SP as essentially add on to the XI platform? And not as its own standalone platform. And then maybe you can also talk about your expectations for SP Instrumentation at launch you anticipate having a vessel sealer and a stapler at launch that will work with SB?
Thanks.
Yes. On the reason to make it compatible with I think it's really a straightforward thing, which is a lot of the components are shared in terms of, certain's console and imaging systems. We want customer experience to be seamless for our customers. We think there are surgeons who will go back and forth between SPs and excise and what that means is that you want the user experience to be common. We also make it easier for hospital departments to acquire capital if they already have a dual console or an XI, and they want to just add the SP card capability that makes the capital hurdle for them lower.
And so it strengthens the XI ecosystem. And I think that is a good idea and it's well received. So that has made sense for us. We haven't yet announced what our instrument kit will be for SP. And when we get to that point, we'll let you know.
Okay. Thank you.
And we do have a question from the line of Richard Newitter with Leerink Partners. Please go ahead.
Hi, thanks for taking the questions. Maybe just one on SP and then I had one on the, on the rotating bed. On SP, Gary, did you say that you're moving into clinical kind of testing or essentially a limited launch by the end of this year. Does that mean that that's kind of your official launch in the end of 20 16?
We don't expect, material revenues in 2016. We are planning on, clinical experiences in 2016.
Okay. Got it. And then, on SP, on the approval process, I know you said that it's kind of in discussion with the FDA right now. There's a competitor of yours that has a device that they're saying that they think they can get approval for their device based on larger kind of buckets or broader conditions of categories like urological procedures or general abdominal procedures. Can you help us understand if this is something that you've heard the FDA say to you as well or is it more nuanced than that and you need to go much more specific by individual procedures?
Yes. So the issue of kind of broad claim language versus narrower claim language is actually was part of the discussion at the FDA workshop and I can refer you there to those minutes and you'll see pretty much what the exchange has been. The issue, I would not view that as something that's architecture dependent or only offered to a certain company. That has to do in other words, FDA is going to respond to these kind of products in like manner as far as I can tell. And so that comes down to, FDA asked for a certain amount of data based on kinds of things you want to talk to your customer about.
And if you just want to talk about broad things and not specific things, then they ask for one set of data. And the more specific you get, more data they ask for around that set of specifics. So in general, it's a matching of data requirements with claims. And they're describing to you a strategy around what they think they can do from a data requirement point of view. I think the playing field will be level here and to the extent that customers need a certain amount of information, then it's just going to be for all of us to go create that data and deliver it.
Got it. And just lastly on the bed, can you help us understand what procedures, if any, or certain types of surge I might have been on the sidelines for whom this product might kind of push them over the fence and really drive adoption and the procedures that otherwise might have been slower to Is there any specific procedures the bed could really open up? Thanks.
Yes, I the general surgeons routinely use a dead motion to do 2 things, to use gravity as a retractor. So it's an extra hand using gravity and for the anesthesiologist to manage the patient in terms of positioning with regard to other vital signs and things like that. So in procedures where you're trying to manage bowel example, is really helpful to have table motion. And that is clearly something that jumps out. However, once we've had it, we've now been CE Mark in Europe and and we've had a trial in different specialties.
I think it's a PLS fraud. So we thought about it upfront initially around general surgery. I think its appeal will be broader than that.
Thank you.
Wiese with Stifel. Please go ahead.
Rick, you'll be our last questioner.
Okay. Thank you. I appreciate it, Gary. The, maybe just to start with you, Gary, you said several times in the course of your prepared remarks and in the Q and A. That robotics is in its infancy, just a big picture, for a second, for you, are you emphasizing it because perhaps this next wave of pipeline products that you've talked about, then maybe some you haven't talked about are getting you more confident or I did about the potential for another growth, growth reacceleration or inflection point in the adoption of robotic surgery.
It's just I appreciate that the numbers of systems placed relative to hospitals is small, but Just wondered if there was anything more there.
Sure. I think a couple of things that excite me on leading me to believe there's a lot of opportunity. A couple. One of them is that I think in the architectures we're in today, are put in the markets for which we have clearances, there's still a lot of procedures that are being done open and have opportunity to be middle name invasively with our products. And I think that is, comes down to execution and delivery of some of the things we have in the pipeline.
Having said that, I think that as you just stand back and look out over the next decade and ask, do we think that a robot assisted surgery can impact more procedures and more types of procedures than they are being impacted today. I think the answer to that is absolutely yes. Some things are things like SP products that look different. SP won't be the last set of products that look different. We think there are opportunities for other products and technologies that can really make a difference in surgeons delivering great care.
And so we're excited about it. We're investing in it. And I think, ask just about any surgeon, do you think that the use of computation analytics and robotics is going to improve your practice over time? Or what will become less important, the answer is pretty uniform that those kinds of technologies should should help them if they're well delivered and well executed.
Got you. 2 last quick ones, I'll ask at the same time. Instrument and accessories growth, I think for the first time in at least five quarters, maybe longer, certainly since 12 annually, did faster than procedures. I mean, is there something that we should read into that, with implications in a couple of years, or is it just stocking given the flattish revenues per procedure. And the second one, I'll throw it at you at the same time.
The bed, approval you launched it in Europe in 2015. Just maybe did your early experience there? Did it drive utilization or procedures or XI or capital sales? Any color there would be welcome. Thanks.
Appreciate it.
Yes, on the revenue per procedure, I don't think there's much more than what we said. There's a lot of factors that impact that killer metric, it has been running in a pretty tight range, 1830 to 1840. It did kind of take over to a growth this last quarter as we saw utilization of advanced instruments kind of more than offset some of the headwinds mostly from exchange. But again, a lot of those factors could vary in the future in terms of procedure mix, customer efficiency, buying pattern, foreign exchange. So it's really a lot of factors there.
On XI, the surgeon feedback has been outstanding too soon to in terms of number of sites and duration as to what the changes in trends are, but we'll be watching. Thanks, Rick. That was our last question. We've said previously, while we focus on financial metrics such as revenues, profits and cash flow during the conference call, our organizational focus remains on increasing value by enabling surgeons to improve surgical outcomes and reduce surgical trauma. I hope the following comments from Doctor.
Solomon, a general surgeon from Orlando, Florida gives you some sense of the impact our products have in surgery. System have allowed me to perform complex minimally invasive operations with a statistically measurable improvement in outcomes. My patients are clearly and reproducibly benefiting from less pain, a shorter length of hospital stay, less time off work and lower short and long term complications. We've built our company to take surgery beyond the limits of the human hand, and I assure that we remain committed to driving the bottle a few things that truly make a difference.
And ladies and gentlemen, that does conclude your conference for today. Thank you for your participation and for using the AT and T Executive Teleconference Service. You may now disconnect.