Ladies and gentlemen, thank you for standing by and welcome to the Intuitive Surgical q44 2014 Earnings Release Call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session. Instructions will be given at that time. And if you should require any assistance during the call today, As a reminder, today's conference call over to our 1st speaker, Senior Director of Finance with 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 Guthart, our President and CEO, Marshall Moore, our Chief Line Officer and Patrick Clingan, 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 risks and uncertainties.
These risks and uncertainties are described in detail 2014, and our Form 10 Q filed October 23, 2014. 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 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 highlights of our fourth quarter results as described in our press release announced earlier today followed by a question Patrick will discuss marketing and clinical highlights that I will provide our financial outlook for 2015.
And finally, we will host a question and answer session. With that, I will turn it over to Gary.
Thank you for joining us on the call today. 2014 has been a year of transition for Intuitive with macroeconomic uncertainty at the start of the year giving way to improving performance as the year progressed. At the outset, markets, particularly Europe and Japan. The organization has responded well in the a strong launch of our newest generation da Vinci platform. General Surgery and international procedures have become the growth engine for the business.
Starting with the review of procedures, year over year growth was approximately 9%, led by growth in general surgery, growth in the use of da Vinci outside of the United States, and strength in urology, offset by flat annual performance in gynecology. Several surgery growth was approximately 33% for the year. Comprised of strong growth in da Vinci colorectal surgery, hernia repair and in other general surgery procedures. Offset by slowing da Vinci single site use in cholecystectomy. While single site cholecystectomy procedures were up in 2014, they were down in the 4th 4th quarter.
Outside of the United States, procedure growth remained robust, rising approximately 20% over team based on strength in Europe and Asia. Patrick will review procedure trends in greater detail later in the call. Looking at trends in capital sales for the year, capital placements increased in sequential quarters, helped by the launch of da Vinci XI in the second quarter of 2014. Outside of the United States, our capital business was solid with international system strength in Europe and Asia outside of Japan. System sales weakened in Japan over 2013 as customers wait for both XI clearance and additional reimbursement.
Sales elsewhere particularly China grew over 2013. Our product launches were significant in 2014. In the second quarter, we launched our 4th Generation Platform, the da Vinci XI Surgical System. We launched XI in the United States in April, followed by CE Mark in June, availability in France, Austria, and Switzerland in October and Korea in December. The exercise system enhances our prior generation systems by improving multi quadrant access to the body, introducing the ability to move the endoscope between robotic arms, increasing range of motion and reach with slimmer arms and enhancing ease of use and setup.
Customer reception of the XI has been strong with interest in use by multiple specialties, including colorectal surgeons, urologists, thoracic surgeons, and gynecologic oncologists. Our systems are optimized for different procedures by dozens of and accessories. In 2014, we added to the initial set of instruments and accessories available for the X I at launch by introducing the X I vessel sealer in Q2, XI Firefly in Q3 and XI Stapler in Q1 of 2015. In 2015, we plan to submit a 510 for software that allows for coordinated table motion with EXI and a 510 for an XI compatible version of our single site instruments. This filling out of the XI product suite will increase the applicability of the platform to institutions interested in owning a single da Vinci system.
Turning to instruments, we launched our Risted Detle driver instrument for use with single site surgery in Q4 of 2014. Surgeon's performing single incision hysterectomy with da Vinci single site are particularly interested in the risk of needle driver and initial uptake has been strong. Single site hysterectomy with risk and needle driver is still in its early days and projecting its long term impact on the hysterectomy market is premature. In the fourth quarter of 2014, we issued a field action for our da Vinci Sis taper after we observed 3 intraoperative instrument failures. In each case, these procedures were completed successfully, minimally invasively.
Our team identified the root causes of failure and has requalified the stapler. As of this first quarter of 2015, the SI ENDRA risk stapler is back in production and first cases have been completed. Our XI stapler has was also launched in the quarter with first cases completed this month. Looking back at the full year 2014, our operating performance was as follows. Worldwide procedures grew approximately 9%.
We shipped 431 surgical systems in the year, down from 546 in 2013, Total revenue was $2,100,000,000, down 6% from 2013. Recurring revenue grew to $1,570,000,000, up 5% in and comprising 70% of total option expense, down 21% from last year. Pro form a net income was $607,000,000, down 24% from 2013. And we reduced our shares outstanding by repurchasing 2,500,000 shares at an average price of $398 14. Turning to our operating performance in the 4th quarter, procedures grew approximately 10% over the fourth quarter of last year, we sold 137 Da Vinci Surgical Systems down from 138 in fourth quarter of 2013.
Total revenue for the quarter was 605,000,000 5% from prior year. Instrument and accessory revenue increased to $281,000,000 operating profit of $237,000,000 and pro form a net income was $184,000,000, down 5% from Q4 of 2013. In 2014, we made significant investments in our organization including growing our direct commercial organization in Japan. We anticipate growing our organization in specific areas through 2015, with particular emphasis on Asia, Europe, and in operations. Looking to 2015, our priorities are as follows: First, we will focus on the expanded use of da Vinci and general surgery, particularly colorectal surgery and hernia repair.
2nd, we'll work to complete our launch and new product introductions of da Vinci XI in key markets globally. 3rd, we'll develop our organizational capability in markets in Europe and Asia. And finally, we plan to build Xfi compatible da Vinci SP prototypes and initiate customer evaluations. I'll now turn the call
issued on January 13. 4th quarter revenues were $605,000,000, up 5% compared with $576,000,000 for the fourth quarter of 2013 and up 10% from last quarter. Procedures for the 4th quarter grew approximately 10% compared with the fourth quarter of 2013 and approximately 9% compared with last quarter. I will be describing our results on a non GAAP or pro form a basis, which excludes the impact of our excise trading programs, legal claim accruals, stock based compensation, amortization of purchased IP and investment impairments. We are providing pro form a 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 GAAP results later in my script. We have posted reconciliations of our pro form a results to our GAAP results on our website so that there is no confusion. Procedure highlights will be covered by Patrick. Revenue highlights are as follows: Pro form a instrument and accessory revenue grew 4% compared with the fourth quarter of 20 3% compared with the third quarter of 2014. The increases relative to prior quarters reflect procedure growth partially offset by customer buying impact of the field action for our da Vinci SI Stapler.
We have resolved the issue underlying Stapler and began shipping it again early in the first quarter of 2015. We also began shipment of our Stateler early this quarter. Instrument and accessory revenue realized per procedure, including initial stocking $18.30 per procedure compared with $19.30 for both the fourth quarter of 2013 last quarter The decrease from the prior year as well as the prior quarter reflects the timing of customer orders and the field action for our Davinci's SI Spaper. Pro form a system revenue of $211,000,000 increased 3% compared with the fourth quarter of 2013. And increased 37% compared with the third quarter of 2014.
The increase in systems revenue compared with the 3rd quarter primarily reflects higher system sales in Europe and the U. S. 137 systems replaced in the third quarter excluding 2 excise traded for SIs under our trade off program compared with 138 systems in the fourth quarter of 2013 111 systems last quarter. 97 of the systems placed in the fourth quarter were X Size, compared with 59 in third quarter and 50 in second quarter. Globally, our system ASP of $1,550,000 in increased relative to the ASP for the fourth quarter of last year of $1,460,000 and relative to the last quarter of $1,450,000.
The increase in ASPs relative to last year reflects product mix where the current quarter included a high mix of excise in the fourth quarter of 2013 included a high mix of SIEs. The increase in ASPs relative to the quarter reflect a higher proportion of XI systems, a higher proportion of dual console systems, and a positive geographic mix. Hospitals finance approximately 15% of the systems placed in the 4th quarter, down from 27% last quarter. We directly financed 12 systems of which 5 were structured as operating leases. Through the fourth quarter of 2014, we have entered into 14 operating leases.
In the U.
S, we placed 71 systems in the 4th quarter compared with 72 systems in the fourth quarter of 2013 in 61 systems in the third quarter of 2014. Outside the U. S, we sold 66 systems in the 4th quarter compared with 66 in the fourth quarter of 2013 48 systems last quarter. Year over year system placements reflect growth in Europe, 39 systems this quarter compared with 28 systems last year and a reduction in Japan systems, 6 systems this quarter compared with 21 systems last year. Quarter over quarter system play growth reflects higher system placements in Europe and other world markets 4th quarter system sales included 9 to into Italy, 7 into Turkey and 5 into the Nordic countries.
International revenue results were as follows: 4th quarter pro form a revenue outside the U. S. Was $197,000,000 or approximately the same as the fourth quarter of 2013 $195,000,000 and up 29% compared with $153,000,000 last quarter. Our higher sequential international revenue was driven by increased procedures seizure volume was approximately 21% higher than the fourth quarter of 2013 14% higher than the third quarter of this year. Procedure volume was led growth was led by DVP, but also reflected strong growth in GYN And General Surgery.
Moving on to the remainder of the P and L. Pro form a gross margin in the fourth quarter of 2014 was 67.1%, compared with 70.7% for the fourth quarter of 2013 67.2% for the third quarter of 2014. Our lower margin percentage relative to prior quarters primarily reflects the high mix of XI systems. In the first quarter, we recorded a pretax charge of $67,000,000 to reflect the estimated costs of settling a number of product liability legal claims against the company. During the second quarter 4th quarter, we recorded additional charges of $10,000,000 $5,000,000, reflecting additional claims.
These claims relate to the alleged complications from surgeries performed with certain versions of monopolarcautery scissor or MCS instruments that included an MCS tip cover accessory subject of a recall in 2013. Our estimate of the anticipated cost of settling these claims is based on negotiations with attorneys for patients to refine our estimates as we proceed through the negotiation process. Pro form a operating expenses, which exclude the reserves for legal claims, stock compensation expense and amortization of purchased IP were up 9% compared with the fourth quarter of 2013, and were up 2% compared with last quarter. Our 4th quarter 2014 pro form a operating expense compared to the fourth quarter of 2013 reflects headcount additions and costs. Our pro form a 25.8 percent for the fourth quarter of 2013 27.2 percent last quarter.
The pro form a effective tax rate for 2014 benefited from the release of reserves specific to tax years where we have completed our IRS audit or jurisdictions where the statute of limitations have now expired. In addition, the fourth quarter of 2014 rate benefited from the reinstatement of federal research and development credit. We anticipate our pro form a effective rate for 2015 will reflect a more normal range of 28% to 30%. Our tax rate will fluctuate with changes in mix of U. S.
And OUS income and will not reflect a federal research and development credit unless such credit is reinstated. Our pro form a net income was $184,000,000 $9.8 per share for the fourth quarter of 2013 $145,000,000 or $3.91 per share for the third quarter of 20 18. Excluding one time tax benefits, our 4th quarter 2014 pro form a net income would have been $159,000,000 or 4.20 dollars per share. As I indicated earlier, pro form a income provides an easier comparison of our financial results and business trends. Will now summarize our GAAP results.
GAAP revenue was $605,000,000 for the fourth quarter of 2014 compared with $576,000,000 for the 4th of $2013550,000,000 for the third quarter of 2014. GAAP net income was 147,000,000 or $3.94 $0.28 per share for the fourth quarter of 2013 $124,000,000 or $3.35 per share for the third quarter of 20 14. We ended the quarter with cash and investments of $2,500,000,000, up from $2,300,000,000 as of September 30, 2014. The increase was primarily driven 5,000,000 shares for 1,000,000,000 at an average purchase price of $398 per share. With that, I'd like to turn it over to Patrick, who'll go over our sales, marketing and clinical highlights.
Thanks, Marshall. As mentioned earlier, total Q4 year over year procedures grew approximately 10 percent with U. S. Procedures growing approximately 8% and international procedures growing approximately 21%. In U.
S. Urology, the uptick in DBP procedures experienced in Q3 continued me volumes. Coupled with continued growth in kidney procedures, our overall U. S. Urology procedures showed modest growth in 2014.
In U. S. Gynec Q4 results were similar to prior quarters in 2014 with low single digit procedure declines. DVH B volumes appear consistent with the expected total market benign hysterectomy procedure declines, partially offset by growth in cancer procedures. Single site hysterectomy continued to display rapid early growth off a small base.
Moving on to U. S. General Surgery, adoption continues to be solid across a broad number of procedures. Colorectal and hernia adoption remains a source strength, while cholecystectomies declined modestly in the quarter. Over the course of 2014, we have seen a shift in from cholecystectomy to hernia repair by our general surgeons and sales force.
Despite the decline in cholecystectomy this quarter, we continue to hear positive feedback from segments of the patient and surgeon populations that see value in the single incision approach the real time imaging of the biliary anatomy with our Fireflies technology among advantages associated with robotic surgery. Looking more deeply at hernia repair, we are encouraged by robust procedure growth coupled with positive feedback about the clinical outcomes being generated with da Vinci surgery during these early stages of adoption. However, hernia repair is a broad term and the benefits associated with robotic and minimally invasive surgery varies across patient subsets For ventral of closure of the primary defect that is similar to open surgery. Relative to laparoscopy, da Vinci surgeons have commented on increased intra abdominal surgical dexterity for dissection and suturing, less postoperative pain and similar or lower material operating costs. For inguinal hernia, discussions continue among surgeons about the role of minimally invasive surgery for some procedures.
However, Davinci surgeons have reported to us that for certain inguinal hernias, there are advantages in trans abdominal defect closure and a reduction in post operative pain. Defining the subsets of hernia repair where robotic surgery is expected to thrive is difficult, particularly in these early days, that we are encouraged by our physician commentaries. Looking abroad, international Q4 procedure growth of approximately 21% continued to be led by global adoption of DBP and other urologic procedures, which solid early contributions from gynecology and general surgery. In Japan, we've seen continued adoption of DBP clinical trials to support our reimbursement submissions for partial nephrectomy and gastrectomy have begun enrollment and we continue discussions with key opinion leading surgeons and surgical society leadership on other procedures of interest Recently, a population based study of the 1st year of DBP adoption in Japan was completed by researchers from the University of Tokyo in the Cleveland Clinic that included more than 10,000 patients, published in cancer science, the study found that DVP, despite being within the 1st year of broad adoption, was associated surgery and minimally invasive alternatives. There is a little detail around how costs were calculated in this study, so they appear correlated to anesthesia time.
We know from prior studies that with experience both cost and operating room time decline. The authors found that favorable clinical outcomes with robotics surgery noteworthy during these early phases of the introduction of our technology, offsetting the longer anesthesia time. In Europe, in addition to strong capital sales, we are encouraged by continued clinical developments, while DVP adoption is driving the majority of procedure growth, Initial developments in colorectal surgery may establish the foundation for future adoption. Under the leadership of key opinion leading surgeons, the European Academy of biotic colorectal surgeons was launched in December. Through a network of hospitals and surgeons, this group is providing standardized training and proctor to support the introduction of robotic colorectal surgery across imenable to laparoscopy.
Additional cost studies with appropriate comparators were published this quarter. I'll quickly review one from the University of Pittsburgh published in the journal of the Society of LAPRO Endoscopic Surgeons that compared robotic to laparoscopic and open benign hysterectomies among surgeons who most commonly perform open surgery. The study reviewed nearly 5000 benign hysterectomies performed by 237 surgeons across 10 hospitals from 2011 to 2013, including 119 surgeons that predominantly performed open hysterectomically using actual cost data during procedures, the costs were similar on an operating cost basis, including an add on cost for robotic maintenance and depreciation resulted in higher cost for robotic surgeries, but the authors noted a bias in this analysis due to the exclusion of similar costs associated with the laparoscopic procedures. In conclusions, the author stated, Although laparoscopic hysterectomy had the lowest costs overall, robotics may be no more costly than laparoscopic hysterectomy when performed by surgeons who predominantly perform open hysterectomy. This concludes my remarks and 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 2015. Starting with procedures, as described in our announcement last week, 2014, total da Vinci procedures grew approximately 9% to roughly 570,000 procedures performed worldwide. During 2015, we anticipate full year procedure growth within a range of 7% We expect detections. We do expect 2015 capital sales to follow historical seasonal patterns with Q1 being sequentially lower than the recently completed Q4.
We will face foreign exchange headwinds in 2015 based upon the impacts of the stronger U. S dollar. Turning to gross consistent with Q4 2014 based upon the anticipated proportion of XI, stapler and other new products with lower gross profit margins in our product mix and the foreign exchange headwinds I mentioned earlier, partially offset by cost reductions realized during year. Our actual gross profit margin will vary quarter to quarter depending largely upon product mix and systems production volume. Turning to operating expenses.
We expect to percent above 2014 levels. As we have stated previously, we believe it is fundamentally early days for computer assisted surgery and expense to range between $180,000,000 $185,000,000 in 2015 compared to $169,000,000 in 20 14. We expect other income, which is comprised mostly of interest income to total between 14 and $16,000,000 in 2015. With regard to income tax, as Marshall described, we expect our 2015 pro form a income tax rate to be between 28% 30% of pretax assistant with our 2014 pro form a tax rate excluding the impact of tax reserve releases in 2014 and does not assume 1,000,000 7.6000000 shares. That concludes our prepared comments.
We will now open the call to your questions.
Thank you,
There will be a tone indicating you have been placed in queue, and you may remove yourself from the queue at any time by pressing the pound key. And if you're using a speaker phone, Please pick up the handset before pressing the numbers. First question from the line of Ben Andrew with William Blair. Please go ahead, sir. Good afternoon, guys.
Thanks for taking the question. Gary, can you talk
a little bit about the investment plans in terms of dollars, breaking down international versus U. S? Are you adding people in the field in the U. S. In 'fifteen?
And if so, to what extent? And then maybe talk a little bit more about the specific investments overseas that you're making.
Sure. With regard to sales headcount in the U. S. We'll have, I'd anticipate modest growth, in U. S.
Headcount on a ton. OUS in terms of commercial organization will be a greater source of investment. Some of it is in field headcount. Some of it is in a clinical trial effort and dollars, some in economics and economists. So a bit of a mix.
Okay. And then Marshall, on
the gross margin side, you gave us some good thoughts there in terms of the guidance. How much is Forex impacting that And when should you get to a volume on XI and XI instruments where we'd start to see kind of maybe a normalization of gross margin?
So we'll FX,
about a little over 20% of our revenues are FX based. And if you trickle that all the way down to what that impact is on on the bottom line, because we do have costs that are also FX based, you get down to where the impact is less than 3%. The as far as the gross margin goes, we we'll be we're ramping XI, obviously, production, given the volume we did last quarter. And we'll continue to try to work down costs overall with XI. And that's typical with all new products but I'm not sure that you should count on it getting to the SIP on par with SI.
It's a more advanced piece of equipment with a higher complex
Okay. And then you talked about the revenue per case on instrumentation being down because of the product withdrawal. Should we see a bounce back in Q1 and could it overshoot a bit even as you've obviously got lower volumes, but then that flow through the year. So we could see a more traditional sort of stocking of instrumentation as you roll out stapler and roll these other products out?
Yes. I think that the bigger impact in the quarter frankly wasn't the field stapler action. It was customer buying patterns. We saw fewer stocking orders being filled associated with system shipments. And then, distributor buying patterns also are are on
if you remember, last year, first quarter,
we had a higher amount of sold through distributors than Q2. It was down, I believe. So anyway, the pattern the patterns really drove more of that change than did the field action. Having said that, we would think just like we commented in Q2 that we see a more normalization over time of the instruments and accessories per procedure. Yeah.
And Ben, yeah, kind of looking forward at the I and A revenue procedure, you look kind of full year 2014. It was $18.80 per procedure. And as we discussed earlier, the revenue the I and A revenue based in foreign currency is definitely going to be facing headwinds based on the stronger U. S. Dollar and we'll weigh on the overall metric.
And as you saw in 24 the INA revenue per procedural vary from quarter to quarter largely based on these timing kinds of factors. In regards to procedure mix, we don't necessarily see that moving the dial either up or down on that, although there are swing items, in relation to the metric. One would be our relative success with the stapler and vessel sealer utilization and where our revenue procedure is higher on where these advanced instruments are used and con conversely a higher proportion of single site cases would weigh on the metric.
Next, we'll go to the line of Bob Hopkins with Bank of America Merrill Lynch. Please go ahead.
Hi. Good afternoon, and thanks for taking the questions. Can you hear me okay? Great. Thanks.
So, Gary, just to start out, I'm sorry if I missed this, but could you walk through your assumptions for buyback in 2015. And if and if you're not assuming a buyback, I'm curious as to why and what the other priorities might be for your for your cash.
We're not declaring, anything at this time. We think about uses of cash. We really think about a couple of things. One of them is used to, invest in those things that we talked about, the ability to improve our presence in OUS markets, some investment in, both operational efficiency and new innovations and the ability to respond to opportunity as it comes up technologically or otherwise, where we see opportunity to return cash to shareholders, we've We've demonstrated that we will and, and we keep our eyes open on a routine basis for those opportunities.
Are there better M and A opportunities out there than you've seen in the past?
We have been, thoughtful and, persistent for for years now. And, so we, I, I wouldn't comment it, strongly one way or another, only that, we're, we're, thoughtful and engaged in those, investigations all the time. Nothing has really changed in our rhythm or pattern in the last eight quarters.
And then lastly, I wanted to ask for a real update on SP. I know the timelines have moved around there. Can you just highlight exactly what your expectations are for roll out and approval milestones as we think about the course of 2015 and into 2016?
So, where we are, what we're trying to to achieve on SP SP is our, our dedicated single port platform. As we talked about last year, Our intent is to bring some of the functionality and features that we had brought forward in XI and that have been well received by both our customers and by folks who review our products into the SP. We're doing that now. That that feels, pretty good to me. I think it's the right set of decisions to make.
We'll develop those products and assemble them in the front half of the year and start getting customer feedback on them into the back half of the year. We are working with regulatory bodies, about what, submissions might look like. We don't have timeline to share with you on what our submissions will be. And as those firm up, we'll communicate them with you. Okay.
And then maybe just sneak one more in on Japan just really quickly. I'm trying to gauge your confidence that on this topic of Japan and whether or not you're confident at this point suggesting that by the time we get to 2016, we will see increases that can drive better procedure volume growth at that time. It's really a question of gauging your confidence based on what you know today?
We are actively involved. I can't give you a number or primary decision on it. We have several conversations going on in real work in several different procedure categories. There are a lot of people who have high interest in Japan and our products. A lot of our existing customers and future customers.
And we're working on a diligent There are several milestones that have to be met, both on the path we're on and some alternative pathways, that are real decisions on the part of, government decision makers as to where they want to go and how they want to proceed. And it would be premature to try to forecast for you what those decisions will be. Fair enough. Thank you.
And next, we'll go to the line of Kyle Levy with Wedbush. Please go ahead.
Yeah, hi, good afternoon. I wanted to ask a little bit if you can maybe expand on what you said in the prepared remarks regarding the early uptake in hysterectomy of the Risted single site instruments. And, it's early, you know, what type of procedures, what type of patients, which surgeons are starting to adopt it? And, is it cannibalizing multi arm hysterectomies? Anything like that would
be helpful.
Sure. The primary procedure that the Risted Neil driver single Cypress to needle driver is being used for is, benign hysterectomy. And it's, being pursued for patients who have an interest in a single incision. We see a mixture of, existing robotic surgeons and those who have not approached, dementia systems before. So it's both folks who are currently engaged with us as customers and those who have not prior engaged, we see a mixture of both of those.
Product is performing well. Early demand has been really good. And what we really want to watch and track is what happens on reorders and how people really experience it as they go forward. We see a little bit of both, in the early stages, a little bit of switching multiple procedures into single side and a little bit of approaching patients that otherwise would not have been done necessarily multi port robotically. So we're seeing both of those things.
And it will take some quarters I think to shake out, where people ultimately find that optimization. I'm not too stressed about a little bit of cannibalization here. Think that goes with the territory. And, we'll support surgeons, taking the approach they think is most
Okay. That's helpful. And a question on sort of the price of the SIE. I noticed in your latest presentation, that's now has an ASP of around or at least last year of around $600,000 and prior year was closer to $1,000,000. In terms of the pricing of that system, kind of what's the I guess, objective.
In the past, you've talked about sort of outpatient surgery being a potential opportunity if the pricing structure was correct for kind of the hospitals. So is that part of that, or is it just pricing pressure? Are you trying to, you know, prevent competition from from coming in at a lower price?
Well, we we have, as you know, we have a a range of options. So at the low end, and I I don't I would not read that chart as saying that the ASP of SIEs is that number. It's just showing you kind of where the low end is and that is, looking at the featured S size, the lower feature content SIEs, and including things like firefly and so on. So you take those things out, that moves you to lower in the range. With regard to, do we think that there's a possibility in, other types of care, other of care.
I think the answer to that is yes. So, you think about both, there's kind of duration of care when you talk about things outpatient, but there's both duration and location. How long are they in the hospital and where is it being performed? And we see increases in both, increases in shorter duration stays and an increase in robotic surgery in different locations. And so SIE and SIE, some of those lower priced packages are designed to give an option to some of the customers who are in exploring that space.
And so we've seen some interest that it I don't think it's been, a wild interest, an unabashed interest But we have seen some interest in and we've seen some uptake. And you can see that reflected in the system sales numbers and placement numbers that we've we shared with you. All right.
And just lastly, just a quick clarification. The XI single site instruments that you're talking that's different than the SP?
That is different, right. So the exactly. The single side instruments are the ones that go through Curved cannulas. They work on the same patient side platform as an XI, the ones that we're developing now, and they're kind of an instrument and accessory kit rather than a new side system. SP is a dedicated single port patient side, a different mechanism, different robot system.
That delivers it. And those are hit different price points and they have different capabilities. And as SP progresses, we'll share more of what that product looks like and some of those distinctions with our customers and with you as we go. Great.
Thank you.
And next, we'll go to the line of Amit Hazan with SunTrust. Please go ahead.
Okay, good. And maybe let me just start with the COLI side. And obviously the slowdown is quite pronounced. If we think about it from 2013 to where we are in Q4 2014. So, I know there's not one driver there.
I just maybe want to get some color on the different buckets of impact and most important kind of the trend line now indicates really declines are going to be in the works for next year. And just help us try to assess where the bottom might be to that category.
Let me frame for you how we're thinking about it, and I'll let Patrick take you through, a little bit more of the analytics of it. We look out at single site wholly. We we think there are 3 things that are important for a procedure, long term. And that is that, it's repeatable and, and, and teachable, safe and efficacious. And we think it is.
We there's a patient population that cares about it. And in single cycle, we think that's true. And then the economics work and we think the economics work for that patient population. Then the question becomes one of how big is that population and what's access like. And that's really what we're seeing here as hernia really grows.
And Patrick, I'll let you take it from there.
Yeah, Amit. And what when we look at it where systems have I guess are pressured for access based upon their volumes and where we're seeing declines in the first procedure that tends to get squeezed is a cholecystectomy. In the surgeons for which we're seeing a combination of cholese and hernias where cholese are declining, we're seeing total growth in the volume of procedure these surgeons are performing, which is encouraging because they're finding where it fits best in their practice. But over time based on the underlying advantage of technologies, what we're hearing from surgeons, what we're hearing from patients who get a single incision outcome, and given some of the underlying patient demographics in population who gets a cholecystectomy. We're encouraged there's something here that we'll be a
part of over the long run.
All right. And then if I could shift over to revenue per procedure again. Just I think at this point, I want to try to better understand the patterns of stocking order just given kind of the volatility or variability we saw in 2014. And I think specifically what I'd like to understand better is the reason it's been more volatile in the last few quarters? Kind of maybe asking the impact beyond the simple math of how many systems you sell in a given quarter and the stocking associated with it, but why is that more volatile?
Why are you not able to control that a little bit on a better on a quarter to quarter basis?
Yes. We kind of saw a similar thing in Q2 where the revenue per procedure was a bit lower than norms and here in Q4 and you had a kind of a bounce back in Q3. And what we're calling out in each of the quarters really is this timing of or orders. In this last quarter, it was timing of various types of orders, including stocking orders associated with new system sales. Fewer of those coming through and in the quarter than may have been, according to historical norms, you have timing of orders with international distributors and just general timing of orders.
So, and as I mentioned earlier, not so much to do with things like procedure And so is there a pattern to this? I think your question is there a pattern. I don't think there is. I think these things just tend to fluctuate quarter to quarter. And balance out over longer periods of time.
And next, we'll go to the line of David Lewis with Morgan Stanley. Please go ahead.
Gary, just two quick questions. Going back to COLI for a second, earlier in the year, you reduced the price of the COLI instrumentation, which actually seemed to successful impact on driving incremental growth. Why do you think that strategy didn't have more staying power? And would you consider further cuts and Coley to drive adoption of that procedure? And then kind of related, Gary, how do you think hernia and the market development around hernia is related?
To use a similar pricing strategy for hernia to drive adoption? And I had a quick follow-up.
Sure. So on the on the COI side on pricing, we think that where we are right now on on COLI pricing with single site, is really appropriate. If you look at, system that's getting average utilization, the consumables costs of that procedure and compare it to multi port all as we think we're right in there in terms of being competitive and appropriate value for what single site can bring. I think we're in a good spot there. I think the biggest thing in Patrick alluded to it and the biggest thing we're hearing back from our customers is that, as they look at competition for, time on the robot, they're making decisions about which, which cases get scheduled and which ones don't.
And that's a near term problem. I think in the U. S, we saw a increase in procedures per system So that turned around in the year where we we were building capacity in the beginning part of 2014. The field has now been consuming capacity on the robots in the U. S.
I think hernia is driving that. And so, part of that is this issue of which one does a surgeon and an institution, find greater value. And at the moment, they have to make that decision. And I think that's been a primary driver is that competition And we'll see over time if, if as capacity grows out and we have a broader set of options for them to choose from, whether that modulates. We'll have to watch the next few quarters and see how these two play together.
The economics of hernia are interesting and a little bit different. The laparoscopic hernia payers use a different mix of instruments than Colley's do. It's a more expensive mix, using one of our systems instead of laparoscopy allows for trade out of some more expensive laparoscopic instruments. And so our economic value there is well supported where we are currently. I think that looks really good.
The other thing is that not all hernia's foreign exchange between laparoscopy and and Davinci, a lot of them are still an open surprising number is still an open and the economics also look good there. So earning economics the reports we're hearing back are pretty, pretty solid and we're feeling like we're in a pretty good position.
Great. Very helpful. Just one quick question on SP timing. So it was encouraging here conviction that the delayed and for the system is moving according to plan. At least that's what I heard.
So just trying to understand that the timing here you're kind of lease this product to physicians in the first half. You're going to collect feedback from those physicians in the second half. So I'm assuming that feedback is going to get incorporated into the device Is is a state to assume there can't be a design lock then of the system until the end of 15 or early 16, or can you submit additional module the FDA before you have a design lock? Or am I just thinking about this the wrong way?
It's interesting question. I think the answer is that you're always moving to, a point in which you lock the design to allow for submission. And then for their feedback and iterations, right, product design is fundamentally irritative. And when you make a decision to submit, it depends a lot on where you are what you see and what kind of performance you're seeing in the products. So you ought to think about these as kind of sequential locks, not a big one with the capital l.
We are I think from a technology development point of view, I'm quite pleased. I think we have a fantastic team. I think that they're bringing technologies forward that we expect and that are going to make a difference. Surgeon evaluation is part of the process. And so as those designs get to the point that it makes sense to get feedback, we will absolutely do it.
And, and, we'll do that through multiple forums, both in house and potentially out of house and forward through that.
And next, we'll go to the line of David Roman with Goldman Sachs. Please go ahead.
Thank you and good afternoon. Thank you for taking the questions. I wanted to start with international. And if I look at the past 2 quarters, I think the 3rd quarter you benefited from a pretty significant order in China. Then Q4 saw a nice step up in Europe.
Can you maybe just sort of talk about the sustainability of this uplift outside the United States and to what extent this is tied to some of the discretionary spending investments you've made over the course of the year versus either macroeconomic factors or other things we need to consider?
You know, when we, when we look out at just kind of stepping back, we look out at different opportunities outside of the United States. I think that there are interesting and durable long term opportunities OUS. Having said that, they can be really lumpy. And one of the reasons that we've seen the kind of capital lumpiness that you just described is because there are different market access requirements in different countries. For example, what approvals look like in China, it's totally different than what they look like in Japan and different again from what they might look like in different parts of Europe.
So, long term, we're very positive and that's the motivation for the investments we make. Short term expect lumpiness. It can require quotas or approvals or data submissions in each country is a little bit different.
Okay. And maybe just a follow-up on the U. S. And specifically the impact of the XI system. Can you maybe give us some feedback now that we're kind of three quarters into the launch on whether this type of this launch is playing out similarly to pass ones, meaning that people really want to do colorectal, for example, and need DXI to do it, or is that people are getting the XI and now they're building directal programs?
And how is the whole picture on some of those more advanced categories coming together now that we're kind of 9 months into the introduction of the system?
You know, I think first thing, the XI launch has, exceeded our expectations in terms of mix just because In prior launches, we had fewer different instruments and accessories that had to be brought to the market concurrently with the system launch. And now we have things like Fireflies and stapling, Investecilling, a little more complex instruments set. And so those have been launched in the market in a staggered way based on conversations with regulators and other pragmatic constraints. So it was unclear as to when different folks would step in require that system. And we've been pleased with, the rate at which XI has been adopted in, in U.
S. And in Europe for that matter. So that part has been really good. You think about colorectal, just to go back to your, to your assertion. Colorectal was growing pretty nicely on the SI base already.
So there had been interest in pursuit of colorectal. So there is a group of surgeons who are both interested and skilled. And moving forward. And XI allows them to keep going. So in a sense, it's that's a virtuous cycle.
You have some folks who have experienced XOI gives them a little greater capability. As they've stepped in and started to use that, they're starting to explore that greater capability and that drives further growth than And so we've seen that. We've been also pleasantly surprised by, feedback from, some more of our, longer term cut in urology and geoan oncology who have also found benefit in the next high that perhaps exceeded what we thought they might in the very beginning.
That's helpful. If I could speak one more in here. Gary, you began the call I think was sort of describing 2014 as a year of transition and macroeconomic headwinds, uncertainty about the Affordable Care Act How would you describe the environment as we exit 2014 and as you talk to customers in 20 15 either on the capital side or the procedure volume side, on sort of a 12 month basis?
Yeah. I think that at the kind of at the C suite level, we're seeing their ability to forecast their business start to improve. And And, that they still have to make priorities. It's not, it's not like, you know, it's a windfall on all fronts, but they, they are able to project a little bit better than they were for. They've got a year of the Affordable Care Act under their belt.
And that gives them some confidence to start making some decisions. That said, there are still capital priority discussions and other things within these institutions. And those kind of conversations continue. On on the clinical side, I think the conversation is much the way it's been for the last, couple of years. I think folks are looking at outcomes, and the cost or price they pay for those outcomes and where they find value, then they're willing to invest in pursuing.
And so in that sense, we've been pleased with the growth of general surgery in the year. It's strengthened nicely as we've gone. And so that's kind of how we've seen it.
Okay. Understood. I appreciate all the feedback.
And next, we'll go to the line of Rich Nwitter with Leer excuse me, Leerink Partners. Please go ahead.
Hi. Thank you for taking the questions. I was wondering just with respect to your comments on COLI, regarding the kind of the time availability factor that might be contributing to the pullback. And it sounds like it's a little bit of cannibalization from into hernia. But what are you seeing in accounts where maybe Xfi has been placed for a few months now?
What are you seeing with respect to the trend of coal utilization? Is that alleviating some of the time constraint issue.
With regard to XI systems?
Yeah. So maybe where you had COLI is being done and an XI was placed, which presumably assuming it's not a first robotic placement might alleviate some of the cognitive ability issues?
Yes. It's actually a good question. I don't have the answer at my fingertips.
Okay. Fair enough. And then if I could on the procedure volume guidance, maybe Kelvin, 7% to 10% that you're Is it fair to assume the various momentum factors behind your different procedure categories in the fourth quarter? Those are essentially
kind of
how we should be thinking about the composition of, of growth, you know, comprising that 7 10% or is it just a continuation of the trends we saw in 4Q and carry those over to 15 to that growth rate?
Yes. I mean, just kind of at a high level view, assumptions going into the 7% to 10% guidance range, we're a similar U. S. Gynecology and urology macrotens that we saw in 2014, continuing on into 'fifteen, and we absolutely expect that U. S.
General Surgery And International will continue to drive procedure growth in 15 as they did in 2014, particular swing items that could move you towards the lower end or the higher end of the range, would be changes in those macro trends in gynecology and urology. Those are large sets of procedures. And as we saw in in this last couple of years. Those things can definitely move the dial. Growth rates in early stage U.
S. General surgery procedures, how they trajectory they follow is going to be important in the international growth side of things. And, as was discussed a little earlier, just how but we are with the wrist and needle driver contributions and how that may impact benign hysterectomy.
And we'll next go to the line of Larry Keusch with Raymond James. Please go ahead.
Oh, hi. Good afternoon. Gary, could we circle back to SP and help us think about the procedures that again you're targeting on that system and how we should think about that relative to the current single site system that's out there?
Sure. You know, rather than thinking about, procedures, I'd I'd guide you to, what does it do differently? And and because I think it's early and it has a lot of long term possibility, but predicting exactly which ones when is going to be hard. What to do differently? It delivers for, computer assisted or robotically assisted instruments through a parallel access, that can go fairly deep into the body through an entry point.
And so when you think about that, do you think about, accessing the, the throat or the head and neck area? Transorally, you think about trans umbilical things that might be able to be reached that are otherwise hard to reach with an architecture like single site or trans anal procedures or transvaginal procedures. Now, you can think a lot about it. And we think about what does the disease stay that that surgeons can affect positively impact with a technology like that or an opportunity like that. And they're fairly diverse and pretty interesting.
And And then you have to go all the way through some of the testing and evaluation that we're talking about doing this year, which is what can actually be done and that what kind of efficiency and what kind of price points. And that's where the heavy lifting is. So long term, I think it will open some interesting doors. Near term, we're not ready to call procedure sizes for you yet.
Okay. And then, just lastly, if you could maybe dissect a little bit about the procedures as you look through the year and talk a little bit about the seasonality that you saw actually in the benign procedures through the year. I'm just curious if those if there were any observations that you can make relative to the benign It's
a good question. We'll have Patrick jump in.
Yeah. Hey, Larry. I think if you just look at the way in which the year played out. The first quarter tended to be a little bit weaker relative to the rest of the year. So from an extent, you could say that there was more seasonality in of those benign procedures over the course of the year.
That said, at the beginning of the year, there was also a lot of disruption with the implementation of the Affordable Care Act it's hard to necessarily pin it on seasonality. But to the extent that it was seasonality last year, just beware because we still have a significant component of our business in those benign procedures.
That was all. Last question. Thank you. 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 increasing patient value by improving surgical outcomes and reducing surgical trauma. I hope the following assessment of our latest system, the da Vinci XI, by Doctor.
Harkins, a Texas general surgeon, gives you some sense of the impact our products have in surgery. Quote, despite my obvious interest in minimally invasive surgery, I had resisted adopting previous da Vinci platforms because of what I felt for limitations. The da Vinci XI platform is a game changer for me. I now feel that this technology will not just equal my standard laparoscopic abilities, but actually allow me to reach new levels and providing care of my patients. We've built our company to take surgery beyond the limits of the human hand, and I assure you that we remain committed to driving the bottle a few things that truly make a difference.
This concludes today's call. I thank you for your participation and support on this extraordinary journey to improve surgery, and I look forward to talking with you again in 3 months.
And ladies and gentlemen, again, that does conclude our teleconference call for this afternoon. Again, thank you very much for your participation, and you may now disconnect.