Ladies and gentlemen, thank you for standing by. Welcome to the Intuitive Surgical Quarter 2 2015 earnings release call. At this time, all participants are in a listen only mode. Later we will conduct a question and answer session and instructions will be given at that time. I would now like to turn the conference over to our host, Kelvin Darling, Senior Director of Finance for Intuitive Surgical.
Please go ahead.
Thank you. Good afternoon, and welcome to Intuitive Surgical Second Quarter Earnings Conference Call. With me today is have Gary Guthardt, our President and CEO and Marshall Moore, our Chief Financial Officer. Note that Patrick Clingan, who has participated on these calls in recent quarters will not be with us on the call today due to minor illness. We expect them back in the office next week.
Before we begin, I would 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 10 K filed on February 5, 2015, 10 Q by on April 22 2015. These 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 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 highlights of our second order 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 high lights, Marshall will provide a review of our 2nd quarter financial results, then I will discuss procedure and clinical highlights and provide our updated financial outlook for 20 team. And finally, we will host a question and answer session. With that, I'll turn it over to Gary.
Thank you for joining us on the call today. In the quarter, growth in procedures was healthy maintaining the rate of growth we experienced in the first quarter and showing solid performance in several specialties and the quarter was just under 14% compared with Q2 of 2014. Utilization trends present last quarter continued. Strength in hernia repair, solid growth in colon and rectal resections, continued recovery in prostatectomy and stable trends in hysterectomy. Growth in the use of our products was broad based and included the U.
S, Europe and key markets in Asia. Procedures grew strongly in China and growth was solid in Japan and Korea. Calvin will review procedure trends in greater detail later in the call. Turning to capital sales, we placed 118 systems in the quarter compared to 96 in the second quarter of 2014. The United States and Japan accounted for most of the growth in system placements year over year.
We see interest across our product line, from our multi quadrant XI system to our SI system with customers choosing the system that best fits their program's needs. In Japan, clearance of the XI system unlocked some system demand and we sold 13 systems in the quarter compared with 5 a year earlier. Procedure growth in Japan remains healthy given the current state of reimbursement. As we've said on prior calls, the growth of the market in Japan will be paced by continued progress on reimbursement. Clinical investigators have submitted their partial nephrectomy data to MHLW for review.
And ISI continues to work with key stakeholders in the reimbursement of 4 additional to costs for our new products and we're managing our fixed expenses carefully. This quarter was a step in the right direction on gross margin, though an early one. We will continue to focus on improvements over the next several quarters. Marshall will take you through this and other financial performance in greater detail later in the call. In summary, our operating performance for the second quarter is as follows.
Proceeds grew just under 14% over the second quarter of last year. We placed 118 Da Vinci Surgical Systems up from 96 in the second quarter of 2014. Total pro form a revenue for the quarter was $586,000,000, up 16% from the prior year and up 20% year over year on a constant currency basis. Total pro form a instrument and accessory revenue increased to $297,000,000, up 13% over prior year. We generated pro form a operating quarter of 2014 and pro form a net income was $173,000,000 compared to $140,000,000 in Q2 of 2014.
In product development, we are rounding out our XI system offering by launching additional under risk instruments, integrating table motion with XI, developing single site for XI. In Europe in the second quarter, surgeons have performed the first clinical cases using integrated table motion with XI with enthusiastic feedback. We recently submitted our 510 for software that enables table motion with XI. We anticipate filing our 510 for XI single site in the second half of the year. We've also broadened the rollout of our white reload for our da Vinci XI Stapler.
Feedback on its utility has been positive. Additional Xi under risk instruments have been released in the quarter continuing to round out our instrument offering for XI. For da Vinci SP, our dedicated single point of entry architecture, Development is progressing with system integration and laboratory testing in progress. Stepping back and looking the business at the midway point of the year, we're focused on expanding the application of da Vinci in general surgery, particularly colorectal surgery, and hernia repair, filling out our product line for da Vinci Xai and launching in key markets globally, developing our organizational capabilities and markets in Europe and Asia, improving our gross margins and advancing our technologies to improve surgery. I'll now turn the call over to Marshall, who will review our financial performance.
Thank you, Gary. I will be describing our results on a non GAAP or pro form a basis, which excludes the impact of our prior year Xi trade in programs. Legal claim accruals, stock based compensation, amortization of purchased IP and investment impairments. We provide pro form information because we believe that business trends and operating results are easier to understand on a pro form a basis. I will also summarize our posted reconciliations of our pro form a results to our GAAP results on our website so that there's no confusion.
Pro form a 2nd quarter revenue was $586,000,000, an increase of 16% compared with $507,000,000 for the second quarter of 2014 and an increase of 10 new 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 2nd quarter procedures of approximately 162,000 2014 and approximately 8% compared with the first quarter of 2015. Revenue highlights are as follows: pro form a, instrument and accessory revenue grew 13% compared with the second quarter of 2014, an increase 7% compared with the first quarter of 2015. The increase relative to the prior year reflects procedure growth earns, partially offset by the impact of foreign exchange. The increase relative to the prior quarter primarily reflects procedure growth.
Instrument and accessory revenue realized per procedure, including initial stocking orders, was approximately $18.30 per procedure. Approximately the same as the second quarter of 2014 and similar to the approximately $1840 last quarter. Pro form a system revenue of $176,000,000 increased 27% compared with the second quarter of 2014, and increased 25% compared with the first quarter of 2015. The increase relative to the prior year reflects increased unit sales partially offset by the impact increased unit sales. 118 systems replaced in the 2nd quarter compared with 96 systems in the second quarter of 2014 99 systems last quarter.
64 quarter of 2014 76% in the first quarter of 2015. We sold more SIs in the quarter than the previous quarter, reflecting 7 SI system sales under a contract with the Department of Defense and 8 SI system sales in Japan We expect the mix of XI to SI product to fluctuate quarter to quarter. Service revenue 113,000,000 increased 6% year over year and decreased $1,000,000 compared with the first quarter of 2015. The year over year increase reflects increased the increase in our installed base. The decrease compared with the first quarter reflects the timing of service contract renewals and changes in foreign exchange rates, partially offset by an increase in our installed base.
Globally, Our system ASP of $1,500,000 was approximately the same as the second quarter of last year, an increase relative to the first quarter ASP $1,480,000. Relative to the second quarter of 2014, higher ASPs were primarily associated with mix and lower trade in activity. ASPs will fluctuate on a geographic and product mix, trade in volume and changes in foreign exchange rates. Hospitals financed approximately 21% of the systems placed in the 2nd quarter, up from 14% last quarter, We directly financed 12 systems, of which 5 were structured as operating leases. Several customers bought out previously leased systems in the quarter.
Although revenue associated with the buyouts are included in total revenue, have excluded this revenue from the computation of system ASPs. We have also excluded these buyouts from the system placement number. In the U. S, we placed 72 systems in in the first quarter of 2015. As previously noted, 2nd quarter system placements in the U.
S. Included 7 systems sold under our Department of Defense contract. In general, the increase in systems placements relative to the prior year reflect growth in procedures and market acceptance of the XI system. Outside of the U. S, results were as follows 2nd quarter pro form a revenue outside the U.
S. Of $168,000,000 grew 25% compared with 135,000,000 The increase compared with the previous year reflects higher Japan system revenue, higher instrument and accessory revenue reflecting procedure growth, partially offset by foreign exchange. The increase compared with last quarter reflects higher Japan systems placements, geographic mix of system placements and procedure growth. Outside the U. S, we placed 46 systems in the 2nd quarter compared with 35 in the second quarter of 2014 and 36 systems last quarter.
OUS system placements reflect 13 systems into Japan this quarter compared with 5 systems in the second quarter of 20 14 in 1 last quarter. We obtained our XI approval in Japan in late March and 5 of the systems sold this quarter were XI systems. European system placements grew to 22 systems this quarter compared with 19 last year and 18 last quarter. We placed no systems into China this quarter compared with 1 in the second quarter of 2014 and 8 last quarter. As we've indicated in the past and consistent with our history, system placements in our OUS markets will fluctuate quarter to quarter.
Moving on to the remainder of compared with 69.2% for the second quarter of 2014 65.6% for the first quarter of 2015 The decline in gross margins relative to the second quarter of 2014 is primarily attributable to foreign exchange and a higher mix of newer products, including excise and stapling. The sequential improvement in gross margin is primarily attributable to the completion of that resulted in one time charges in the first quarter and cost of sales efficiency gains. In 2014, we recorded pretax charges of approximately $82,000,000, representing the estimated cost of settling names and recorded additional charges of approximately $7,000,000 in each of the First And Second quarters. These charges are excluded from our pro form a results and are included in our process. Pro form a operating expenses, which exclude the reserves for legal claims, stock compensation expense and amortization of purchase IP increased 10% compared with the second quarter of 2014, and increased 4% compared with last quarter.
The year over year increase in pro form a operating expenses headcount additions and higher incentive compensation. Our pro form a effective tax rate for the second quarter was 25.6 percent. Compared with an effective tax The effective tax per share of discrete items including the release of reserves specific to tax years where we recently completed audits. Our tax rate will fluctuate with changes in the mix of federal research and development credit unless such credit is reinstated. Our pro form a net income was $173,000,000 or 4 $5.7 per share compared with $140,000,000 or $3.73 per share for the second quarter of 2014 and $135,000,000 or $3.57 per share for the first 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 gap results. GAAP revenue was 5 second quarter of 2014 $532,000,000 for the first quarter of 2015. GAAP net income was 130 $1,000,000 or $3.56 per share for the second quarter of 2015 compared with $104,000,000 or $2.77 per share for the second quarter of 2014 $97,000,000 or $2.57 per share for the first quarter of 2015. We ended the quarter with cash and investments of $2,900,000,000, up from $2,700,000,000 as of March 31 2015.
The increase was primarily driven by cash generated by operations and proceeds from stock option exercises, partially offset by stock buybacks. During the quarter, we repurchased approximately 100,000 shares for $49,000,000 at an average purchase price of $494 per share. And with that, I'd like to turn it over to Calvin, who will go over our procedure and clinical highlights and provide 2015 financial guidance.
Results. As I mentioned earlier, total second quarter year over year procedures grew just below 14% with U. S. Procedures growing approximately percent and international procedures growing approximately 27%. In the U.
S, trends observed during the first quarter largely continued the second quarter. In urology, growth in da Vinci prostatectomy and kidney cancer procedures continued at a similar rate as the first quarter. We continue to believe that our prostatectomy volumes have been tracking to the broader US prostate surgery market. In US Gynecology, procedures were flat year over year with growth in malignant and complex hysterectomy offset by declines in benign procedures. In recent oncologists.
During the second quarter, general surgery remained the primary contributor to U. S. Growth. With robust growth in hernia repair and solid contribution from colorectal procedures being partially offset by continued declines in choicestectomies. During the first half of twenty fifteen, ventral and inguinal hernia repair contributed the majority of the increase in U.
S. General surgery procedures. The contribution to first half U. S. Growth from mature procedures in highly penetrated markets such as da Vinci prostitution prostitectomy is likely to slow as we anniversary into higher prior year growth rates.
Looking abroad during the second quarter, International procedure growth was led by a modest acceleration in the global adoption of da Vinci prostatectomy with solid contributions from kidney procedures, malignant hysterectomies and colorectal resections. During the first half of twenty fifteen, Growth in international da Vinci prostatectomy was approximately 20%. Let me take a few moments to provide a bit more color around China. Over the past year we've sold 20 systems under tenders from among 38 civilian hospitals authorized by the government to acquire a da Vinci system. Procedure adoption has been broad based in urologic gynecologic general and thoracic procedures.
Tender under the current authorization, which is set to expire governmental authorizations and approvals may enable system placements in 2016 and beyond. Procedure growth rates are likely to be governed the timing of additional system placements. From Sartland University by Professor Stockel and team evaluated the cost effectiveness of da Vinci prostatectomy compared to open tectomy from a German payer perspective in a 1400 patient study partially supported by intuitive. From a clinical perspective, the robotic patient population showed fewer positive surgical margins and required fewer intraoperative transfusions. With a reduction in hospitalization of approximately 6 days.
In the economic analysis the study showed that to in post operative costs. In the quarter, there was considerable interest in colorectal clinical data with the initial outcomes reported from the study. In addition, several other notable two studies from large scale statewide general surgery registries published in surgical endoscopy. The first study was published by Doctor. Cleary and team from St.
Joseph Mercy Health System in Michigan. After reviewing over 2700 colorectal surgeries from the Michigan surgical quality collaborative registry. The authors found that conversion rates were lower with compared to laparoscopic procedures for rectal resections and hospital length of stay was shorter with robotic procedures compared conventional and hand assisted laparoscopic colon procedures. The second study was published by Doctor. Altieri and colleague from Stoneybrook University in a broad based study of nearly 170,000 minimally invasive general surgeries from the New York Statewide planning and research cooperative system, the authors found that robotic assisted procedures had lower rates of complications and hospital length of stay compared to laparoscopy across several general surgeries with a lower rate of complications for colectomies.
They concluded robotic approaches may facilitate safer adoption of minimally invasive approaches in areas where penetrance of conventional laparoscopy is low, such as in colorectal surgery. This concludes my procedures and clinical commentary. I will now providing you with our updated On our last call, we estimated full year 2015 procedure growth of 8% to 11% above the approximately 570,000 procedures performed in 2014. Full year 2015 procedure growth within a range of 11% Our outlook for gross profit margin has modestly improved compared 2015 pro form a gross profit margin to be within range is a bit lower than and Q3 and Q4 will likely face stronger foreign exchange headwinds. Our actual gross profit margin will vary quarter quarter depending largely on product and regional mix, systems production volume and foreign exchange rates.
Turning to operating expenses. Consistent with our last call, we continue to expect to grow pro form a 2015 operating expenses towards the 15 non cash stock compensation expense to come in towards the lower end of the $170,000,000 to $180,000,000 range forecast on our last call fairly flat compared to mostly of interest income to total between $16,000,000 $18,000,000 in 2015. With regards to income tax, For the remainder income, depending primarily on the mix of U. S. And international profits.
This forecast does not assume the reinstatement of the R and D tax credit in 25 name. That concludes our prepared comments.
Will first go to the line of Bob Hopkins with Bank of America.
Can. Great. Congratulations on a good quarter. I wanted to ask 2 quick questions. First, on the gross margin side, I appreciate the specific guidance for the near term in the back half.
But Gary and Marshall, I was wondering if I could just get your views on a little bit longer term because gross margin is definitely a major issue for investors as they consider your company and the stock. So is the back half level that you're talking about here is 67% to 68%. As you think about the long term, is that is that a level that you view as kind of sustainable when you think about all the different puts and takes? We just love a comment on long term gross margin. Thank you.
We don't, we don't, as we look at long term, we don't see huge changes from that range. There are a lot of puts and takes that may it hard to call. So as we get scale on some of the newer products, we get some benefits in terms of cost and cost reduction There are regional variances so that as mix changes in regions in terms of regional pricing, there are some things that will make it go up and down. Longer term will benefit from some cost advantages, but we also think that depending on the changes in the marketplace and the scale of some of our customers, there are other pressures. So, we we think where we are today, that's a pretty good number to to think about.
Okay. And then as a follow-up, 2 of the quick things, you've said it sounds like another good quarter on the hernia side. I was just wondering, and now that we're good solid couple of quarters in any kind of commentary from you on your views on the sustainability of hernia growth over time. Now that you're learning a little bit more. And I also just wanted to understand the specifics around your comments on SP and when we should be thinking about formal launch of that, as we look forward?
Sure. So on the, on the hernia side, as you mentioned, we're seeing good early growth. Recognize that that hernia is both more than 1 changer procedure, abdominal hernia or ventral hernia and in renal hernia. And even within those, there's variation in both technique and, patient population. So, clearly, right now, there's a mixture of sustained use by our customers and people who are learning and trialing the technology.
What that mix looks like in the near term is actually very hard to determine. We do see some early evidence of a strong clinical benefit in some of the categories and segments. And we think that's long term durable, calling right now how big those total available markets are going to be is still premature. So we have some basic estimates. We're working them down As the quarters go by here, we'll be able to increase our certainty of what those long terms look like.
With regard to SP, we're not, predicting the, the ship date at at this time. We're on track in our technical developments. We're in conversations with several surgeon groups as well as regulators about where both long term value can be and, what regulatory pathways are. And, and as those firm up, we'll share with them. We'll share them with you in the future.
Great. But that's still a 16 event, right?
We have not anchored on when we're launching.
Thank you. We'll move to the line of Tayo Levy with Wedbush.
Hi. So maybe the first question, you're thinking about Japan and next April reimbursement. I know you mentioned that you've submitted to some of the kidney data to the regulatory authorities recently. Are there any other clinical data that are either acquired or that you're going to be, submitting between now and, you know, I guess, you know, reimbursement decision kind
Yeah. So technically, by the way, the submissions are done by, the clinical investigators, not by intuitive. We, we don't see another clinical data submission between now and April. On the other hand, there's a pathway that, partial nephrectomy went through something called Centeneuro. That is not the only pathway to have a conversation with the government.
So, the one data that's that we see going in at that time is partial nephrectomy. But there are other conversations ongoing that don't necessarily have the same pathway. And, nothing has been assured. We can't anchor you on any particular pathway, but we're having multiple conversations.
Okay. Perfect. So just because like I said, just to reiterate that, just because there are other studies, doesn't mean that you couldn't potentially get reimbursement other, procedures.
Right. There are other methods besides this, just this one, right?
Yes, we're not anchored on that April 2016 timeframe either. I mean, these other methodologies could occur at any time.
Okay.
That having said that, they're they're uncertain and they take real work and
I understand that. And so my next question, if you think of the instruments that you've recently gotten approved, some of the more advanced disposables, if you whether it's stapling and you got now on the XI, the energy, or you can see that last year, but as you think about penetration of the applicable type of procedures where those types of instruments are commonly used laparoscopically? You know, what type of penetration, you know, should we be thinking about, you know, today? So the, the stapling products that
we have in the market today are primarily focused on colorectal surgery, and we're seeing really nice adoption in that, in that procedure. What they were designed for. Staplers are typically used in those procedures and the adoption of Intuitive's product in that case. Been good. So that's we've been pleased with that.
Things like vessel ceiling are used more broadly. And so we see, increasing penetration of our vessel sealer in a variety of procedures from general surgery to gynecology and others. So they've been good products for us. I think they're meeting customers' needs and we've seen growth.
But in terms of the percent of times that the surgeon would use an assistant for example, for a stapler or sealer while doing a da Vinci procedure, are there any metrics around that that you've looked at?
So we do track, how often they use ours. I don't think we've, gotten to the place of disclosing what the breakouts are for each of, of the subunits. Okay, great.
Thanks a lot.
Thank you. We'll go to the line of Tycho Peterson with JP Morgan.
Hey, thanks. Gary, I'm wondering if you can elaborate a little bit on some of the developments for the back half of the year and in particular around the interop volt table motion for X side. Just trying to understand, does this open up more complex procedures? How do you think about the opportunity set? And then similarly with single site frac side, how do we think about the initial rollout?
Sure. The with regard to table motion, the just the value of it, why do it? The value of an integrated Interoperative table is that it allows a surgeon to position the patient using gravity. It's something that they do, frequently. It also allows the anesthesiologist to lead easier interaction to help manage the patient.
And the power of the integration we've done with our partner, has been that it allows it to be done quickly and efficiently. So it's fast. So the real value here is to speed up procedures. It allows them to do it seamlessly. And, and so we don't think it's so much opening a different market as it is making it easier and lowering barriers.
The feedback to it, they've been now used in dozens of cases in Europe where it has CE Mark, feedback has been really good. And the, the implementations on by the team is very, very good. So that looks good and we're encouraged. We've submitted the 510, just recently. So we'll go answer FDA's questions as they come and work through that.
It really is rounding out. It's one of the features that rounds out the XI platform. Interoperative table motion is a strong beneficiary for general surgery procedures where folks are wanting to move around the abdomen helps a lot in that setting. And so the fact that they can do dynamically is powerful. Turning to a single site on XI.
Single site is already available, of course, as you know, on the there's nothing that's a technological limitation from putting it on XI. It's really been doing the work and getting the clearances. What that'll enable is the mid sized hospital that owns one platform. They may have an SI now. They're doing single site and they wanna upgrade to an XI, that's complete the set for them so that they don't have to step away from something, on their SI system when they move to XI.
And so that's really the opportunity for us there. And we're meeting our clinical milestones and our I'm sorry our technical milestones and working through the set of validations that will be required to get clearance. So we're excited about it.
Great. And then a question on Enroller. Now that we've the data. I'm just wondering how the discussions with surgeons has evolved. I mean, has this opened up some doors for you potentially showing equivalency with laparoscopic?
And just wondering how you're marketing that to your physician base?
The conversation has generally been positive. As you know, ROLAR is really studies a little subgroup, right? So the trial design is such that it's comparing, advanced laparoscopy, highly experienced laparoscopy to to new robotic surgeons, in rectal cancer. What's what's not said in that study is that the dominant treatment modality in rectal cancer is open surgery. So to show, good data upfront as they presented, showing equivalence and leading towards some potential benefits even in that early stage in the small subgroup that is minimally invasively treated today, I think that's generally been seen as a positive.
And so I don't think it's, been ground shaking in either direction, but I think it's generally been well received by our customer base.
And then just last one going back to the original question on margins. On SP in particular, I mean, I think part of the reason the original delay occurred was get the engineering right and the manufacturing right? I mean, are you able to just talk a little bit about how you think about the margin profile of SP when it comes out? I mean, shouldn't it be additive to the overall all base you're talking about?
Yeah. As we think about SPN margins in total, really we're looking for those procedures where we can really show a significant outcome value. And I think there are some really interesting potentials out there. SP is a fundamentally different way to deliver the instrumentation, relative to multi port. We have some in single port with single site, but SP allows us some different opportunities.
That said, it's a little more complicated. Now the engineering side has done a great job. The engineering team in term of getting both the cost structure and the performance where we want it has been very good. We want to do is match that up with potential clinical outcomes that really are strong beneficiaries of our approach. That's really what the side of work has been.
And, I'm feeling positive on it. I think that the design is really, enabling.
Thank you. We'll go to the line of Ben Andrew with William Blair.
Good afternoon guys. Thanks for taking the questions. If you think about kind of the improvement we've seen versus the kind of earlier guidance primarily coming from gross margin. And I know Gary, you guys have been investing aggressively in Europe and overseas for quite some time now. Can we see some of that taper and see more the upside flowing through the operating margin over the next year or 2?
On the time horizon, it depends a lot on which part of the world you're in. I think that as we've talked about in Japan, we now have a direct team. They're, starting to form, more effectively. I think as they're, as they're integrating, that looks really good. There are barriers and other things that have to be overcome structurally.
And how quickly those resolve, I think, will determine the pace of the commercial business. And we've talked about it already. Things like reimburse in Europe, I think we're seeing a nice performance in several countries. The barriers are a little bit different depending on which country it is, not every country is working, at the same pace. But we are seeing some of the return on the investments in Europe, and we expect both better performance out of Europe in future quarters and some continued investment.
But I think you're headed towards is there additional leverage. And, and I think that although those are providing return, we'll continuously be being investing in overseas markets. As we've characterized before, there's a really large opportunity out there, and we have other things we have to get done.
Okay. And then just a quick check the box question. The procedure guidance, is that consistent OUS, U. S. Versus what we've seen year to date?
Yeah. I mean, think in the commentary on the call, we talked about the 2nd quarter really being a continuation of the 1st quarter trends. And I think that when you talk about the second half of the year, we are talking about a continuation of what we saw in the first half, both domestically and internationally. And the variance in the range really has more to do with just the magnitude of those key drivers that we went through.
Okay. And then last for me today, please. Gary, if you think about pocket share or revenue per procedure kind of in usage, and I know it's potentially variable with SP, but how does that evolve over a 3 to 5 year window? Because you've got vessel sealing at stapler. Those are relatively under penetrated versus where they could go.
You've been running kind of flattish even with some erosion in kind of procedure potential, if you will, a number of instruments. You're running flattish on revenue per case. Where does that go? Is it are you just hoping to hold it steady or do you see a lot of rich targets out there to grab additional pocket share?
I think in the midterm, there'll be some traits here of some efficiency gains realized by hospitals and some increased penetration of advanced instrumentation. I think in the longer term, the efficiency gains will find a bottom and and the advanced instrumentation will continue to grow.
Yeah. And you look at kind of where Q2 came in in terms of revenue per procedure at the 1800 30 level. But we would have expected consistent with the last quarter and the last year, but there were some trade offs. Foreign exchange is harder and we did have some benefit from the newer products that we've talked about that largely offset it. So a lot of moving parts as we look into the half, we'd probably assume something similar we've seen in the first half on instrument accessory revenue per procedure, but offset the exchange, you're probably going to have some favorability in other areas.
Great. Thank you.
Thank you. We'll go to the line of Matt Taylor with Barclays.
Hi. Thanks for taking the question. I guess, I wanted to ask about some of the drivers here that could lead to system sales. And just I know you don't give guidance there, but can you talk about the importance of the movable table, the instruments, and those other factors that you talked about in driving the sales. And whether you may see some sequential uptick over the next couple of quarters?
Yes, just speaking to the main levers here of, system purchase decisions, there's there's really 3 levers that we've talked about and remain in place. One of them is upgrade, for a customer who has a system and thinking about upgrading from an S or an SI 1 of the prior systems, they're really looking out and saying does XI bring to them, either outcome benefit or new service line relative to prior products. That's where table motion and single site can make a difference, particularly for single system hospitals. And so we think as those product lines fill out, that will help that upgrade pipeline. There are people who just buy capacity of their system.
As procedures grow, they look to do additional procedures they'll buy a second system or so. And the last one is really capacity, again, but often is it in the right place. If you're a larger institution or an integrated delivery network, you may be interested in moving the capacity to a different region different part of your service network. Sometimes they do that by moving systems, sometimes they do that by buying systems. So capital decisions are really are really predicated on those 3 pillar
Great. Thanks. And one follow-up. Just you have a lot of kind of runway here in the general surgery arena, but we've heard other physicians talking about ENT and neuro and cardio. Can you talk about how you're looking beyond even the big, opportunities here in general to other areas on the horizon.
We, we're
always outstanding really from the bottom of your feet to the top of your head to think about, where is current surgery difficult or outcomes suboptimal? In a place where our kinds of technologies can make a difference. All we're already participating in ENT with our SI product. We think SP we'll have some real value to add in the ENT space over time. There are other things, of course, in our in our radars as we go.
I think that, a thoracic surgery is something that's going to matter in the the future and something that our kind of technology can make a difference in in terms of things like lung cancer, mediastinal cancers and so on. And so we're looking at those things. And we have, of course, as you might imagine, things further out that as we get closer to commercialization, we'll talk about.
Thank you. We'll go to the line of David Lewis with Morgan Stanley.
Gary, just two questions. The first is on procedures. The real improvement this quarter was international procedures. I think got better 7% or so. Can you give us any additional color on where specifically that procedure growth is happening?
And you have made this commentary last 2 years about these reinvestments overseas. It certainly seems that those investments are paying off. So maybe just more are on where these investments, are happening and worse, but what specific reasons and procedures are strong? And I had a quick follow-up.
Okay. Let me give Calvin, the Florida, just give a little color kind of on the distribution of procedure growth and then we'll get back to it.
Yes. I think it went a little beyond just international, I think, on the U. S. Side, as I mentioned in the prepared comments, we really had stronger than anticipated in the more mature procedures in the United States. I think, continued strong growth in prostatectomy procedures.
And then in gynecology, I think we we anticipated somewhat of a pullback relative to Q1 relative to the prior year with a tougher comp. And really we were able to maintain the same similar level in that mature category. So I think those exceeded our rotations and were part of the reason to raise the guidance. And then as you say international was driving it, I think Europe was in general tracking to trends and meeting our performance. The majority of our above expectation growth was in Asia.
As I mentioned, most notably, China, we also had a very strong quarter in Korea.
Ben and Gary, just a question on I know you get persistent questions on use of the balance sheet, but you've said historically that we one of the drivers for using the balance sheet obviously is valuation, but the other driver really was just business visibility. And certainly as evidenced by this quarter, business visibility is sort of markedly improved. So why why not use of cash for buyback? Why was the buyback not bigger last quarter? And how are you thinking about what's not a better use of your cash than buying back your own stock just given the improvement in ability?
Thank you.
Yes. David, this is Marshall. We philosophically really haven't changed how we approach. Decisions around cash and utilization of cash or buybacks. And we do have an intention to return excess cash to shareholders through stock buybacks.
And But as you know, we've executed those opportunistically based on market valuations. Stock market and our stock specifically has been volatile over time and creates opportunities for us to purchase stock at favorable prices. And in fact, if you go back over the last two and a half years, we've repurchased more than 2,000,000 shares an average price of under $4.20 a share. So we're philosophically aligned with what you just said. And that's how we've executed it.
David, you said that, visibility has improved. I, yes, performance certainly improved this quarter on the in terms of, how we manage our business internally and procedures, we have strong visibility procedures a little less. So, but capital remains, highly volatile. And, and, just because of the way capital purchase cycles in different economies work.
Thank you. We'll move on to the line of David Roman with Goldman Sachs.
Thank you and good evening everybody. I wanted just to start with, maybe Gary you're giving us just some about what has transpired over the past 4 quarters because as I look at your business, this quarter really seems to represent it coming together of a lot of the key drivers, whether it's system placements, procedure volumes, global expansion, etcetera, whereas the past few quarters, we've seen some of these things I think move in your favor, but not all of them. So is there anything that you saw change in the external environment over the course of the second quarter or in your own business that really led to a positive coalescence of the key underlying fundamentals here?
I didn't see anything that looked really, environmentally driven You know, as Calvin mentioned earlier, the, the, I think moving with market trends tend to be things like prostatectomy and and, malignant hysterectomy a little bit more mature where, those are probably more likely indicators of, total market behavior rather than something specific to intuitive. With regard to the major drivers that you've been talking about, really, I think we've been working on in terms of new product launches, investments in Europe, investments in Asia, developing our team and working on costs and margins. It's really been roll up your sleeves and do the hard work. And we've had, as you've said, some of those have come together a little earlier than others. I think 1 quarter is great.
It doesn't make a trend and our job is to keep doing it.
Okay. And as you think about the go forward from here. And understandably, I think it's clear why you're not giving total revenue guidance, but what are the factors that you think could lead you to a point to conclude that, that what you're seeing this quarter turns into a trend. I understand results would be one of those things. If you look at factors that you monitor, are we at a turning point where robotic surgery growth is back on track versus some of the challenges faced over the past couple of years or are there sort of nagging factors that you think still need to be addressed?
Oh, I think there are always things to be worked on and we've talked out several of them. I think with regard to visibility and predictability, of the financials of the business, that's really, as I said before, predominantly predicated on, on the capital. I think there are some interesting things going in the market. Do think that market acceptance of robotics surgery is increasing. I think some of the, debates of where it adds value are starting to be resolved We see a kind of a different tone in some of the, surgical conversations more broadly.
And I think that's a real positive. So I we feel good about that. Having said that, pathways and building really capable organizations takes time. And that's what we're focused on. And that will be the biggest predictor of our long term performance.
And maybe lastly, we started to hear some discussion in the marketplace about potential competition for robotic surge to talk about either A, what you're seeing and B, any actions that you're undertaking to position the business well? So should any new competitors potentially emerge in the next call, I don't know, 6 12 18 months, etcetera?
We've been unwavering in our commitment to bringing value to surgery and our beliefs that we can. And as such, we have really believed that increased competition is inevitable It's, it's validating in that it's, it has other people putting their investments where they think it'll bring value And I think that actually increases the presence of, robotic surgery in surgical societies and in the industry broadly. In terms of our competitive position, clearly, we've anticipated the increase in competitors over the years, and we've been not been idle. During that time. So, we've been thoughtful and, and have, I think, made some investments that are, that'll make our position long term sustainable.
Okay. Great. Appreciate all the perspective.
Thank you. I think we have time for one more question, please.
Thank you. We'll go to the line of Rich Newitter with Leerink Partners.
Hi, good afternoon. This is Robbie in for Rich. He's on the road today. Thank you for taking the question. Got a question on the Japan sales mix, the the, you know, more SIs than XIs.
I understand it's early for the XI launch, but curious as in terms of what you see it would take, what you envision, that it would take Japan for XI to infect, more quickly. And then another one saying OUS I think you made a comment a little bit earlier regarding China where you see procedure growth rates, sort of system placement driving growth seems to be a little bit of the opposite of, the US where procedures appear to be driving systems. At one point, sort of the former turn into the ladder and any sort of, any, is there a certain number of systems or penetration that you look at when, when that opportunity? Thank you.
Yes. I'll let Marshall take the first one on Japan. I'll take this. Sure. So in Japan, what we said was that we had a split of 8 SIs and 5 XIs.
Now remember, X I was just introduced or just approved, I should say, just approved it in late March. So you've really had the opportunity to sell it in a 3 month cycle. Selling cycles in Japan are much longer than that. And in fact, they take multiple quarters to get systems done That's why you see SIs getting done in the quarter because the process for which the budget was established by the hospital and the purchase process takes a long time. And so this is just completion of deals that were already in flight months before this.
And it will take time for Exxon And all of that should be caveated with the point that right now we have one reimbursement in terms of prostatectomy. We're hopeful to get other reimbursement but until such time that occurs, system purchases are going to be spotty at best. With regard to China, while pleased with procedure growth and it has been strong. You're absolutely right. In early markets where there aren't a lot of systems play than system placements drive procedure growth.
And in mature markets, or more mature markets like the United States, we have more capacity than procedure growth will turn around and drives the systems. You were asking kind of what's the pivot or the inflection point there. It really comes down to accessibility vis a vis the patient population you're trying to treat. So how many systems are in the neighborhood of the patients who can benefit from them? And so that's really how you have to back into it.
Start with the patient population that can benefit from them and work your way backwards into systems. It's a regional model. We try to do that, but it's not always trivial because of data accessible. Well, thank you. That was our last question.
As we've said previously, while we focus on financial metrics, such as revenues, profits, and cash flow during these conference calls, Our organizational focus remains on helping surgeons the human hand, and I assure you that we remain committed to driving the vital few things that truly make a difference. This concludes today's call. We thank you for your participation and support on this extraordinary journey to improve surgery.