Ladies and gentlemen, thank you for standing by, and welcome to the Interior Surgical Q1 2014 earnings release call. Instructions will be given at that time. As a reminder, this conference is being recorded. I would now like to turn the conference over to Calvin Darling, Senior Director of Intuitive Surgical. Please go ahead.
Thank you, and good afternoon. Welcome to Intuitive Surgical's 1st quarter earnings conference call. With me today, we Clingen, Director of Finance. Before we begin, I would like to inform you that comments mentioned on today's call may be team to contain forward looking statements. Actual results may differ materially from those expressed or implied as a result of certain risks and uncertainties.
These risks and uncertainties are described in detail in the company's Securities And Exchange Commission filings, including our most recent Form 10K filed on February 3, 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 first quarter results as described in our press release announced earlier today, followed by a question and answer session. Gary will present the quarter's business and operational highlights Marshall will provide a review of clinical highlights, then I will provide our outdated financial outlook for 2014. And finally, we will host a question answer session. With that,
States, certain elective preventive procedures in the U. S. Have been under significant pressure, driven in part by changing surgical admissions, hospital financial uncertainty and payer incentives favoring watchful waiting and conservative treatment. System sales in the quarter were down, largely as a result of slowing growth in our U. S.
Procedures. Despite near term challenges, we remain confident in the value our products bring to surgery and are pleased with the U. S. Launch and first sales of our newest system the da Vinci X I surgical system earlier this month. Turning to our procedure performance in the quarter.
Globally, we experienced continued growth in dermal surgery and urology and a small decline in gynecology. This resulted in 7% procedure growth in the first quarter over the first quarter of 2013. General Surgery growth was led by increases in colorectal surgery and single side cholcystectomy. Worldwide urology procedures experienced solid growth. Particularly in prostatectomy in Europe and Japan.
Gynecology procedures fell slightly year over year, driven by a contraction of procedures in the United States, As a result, procedure growth for the United States general surgery led U. S. Procedure growth with strong uptake in colorectal surgery, as well as encouraging early growth in several other general surgery procedures. Single site coal cystectomy growth was solid in the quarter. The growth rate slowed relative to prior quarters, in part due to exaggerated seasonality this quarter, as well as increasing economic pressures on hospitals.
As announced in our pre release, U. S. Gynecology declined in the low single digits year over year in the quarter. Press to me. Going forward, we expect U.
S. Gynecology to pressure overall procedure growth rates through 2014. Patrick will provide additional procedure commentary later in the call. Turning to markets outside of the United States, procedure growth in Asia was strong off of a small base with urology, general surgery and gynecology segments contributing. We continue to expect lumpiness in capital sales in Asia due to limited reimbursement In Europe, procedure CE Mark for our XI system and system sales for the next quarter or 2 may be lumpy as customers evaluate the new system.
Taken together, total system sales worldwide in the quarter were 87, down from 164 in Q1 2013. We launched our Dimitry XI system in April at the SAGES Conference. The XI system is optimized for multi quadrant, multi port procedures with smaller arms having greater reach, an overhead architecture that allows multiple set up locations without repositioning the base of the system, a smaller lighter endoscope, with improved imaging capability and a host of other features that streamline setup and use. Early customer feedback has been enthusiastic and we look forward to its continued adoption in surgery. The XI system is not a direct replacement for our SI system.
And we continue to sell, support, and develop instruments for the SI. We have submitted 510 clearance applications for our advanced instruments for XI, including the XI cellular and the XI stapler. We plan to submit our Fireflies 510 for XI this month. VINCI XI currently does not have available single site instruments and 5 millimeter instruments, and it is not currently indicated for transoral procedures. As a result, we expect come to market and customers the specific to urologic surgical procedures that are appropriate for a single port approach.
Da Vinci SP is built around a dedicated single port patient side part, that delivers an articulating 3d HD camera and 3 fully articulating instruments through a single 25 millimeter can The end of risk SP instruments have additional wrist joints inside the body compared to our current single side instruments. This is a sophisticated technology we believe has long term potential in several areas of surgery. Compatible with our newly released NINCI X5 currently projected for the second half of twenty fifteen. This will require product supplements, supply chain optimization and additional regulatory clearances. Over the long term, we believe a single port card will complement not replace Stapelore and da Vinci single site for hysterectomy.
Da Vinci Stapelore adoption has been solid with strong reorder rates from early customers and increased utilization colorectal surgery, our target market. We are working on enhancements to da Vinci stapling by developing a white Development of our Risted single site needle driver for SI is progressing, and we plan to submit our 510 for the Risted needle driver later this month. We have been in regular contact with FDA while we work through while we work to resolve issues identified in prior audits and our Q4 warning letter. The FDA conducted a follow-up inspection of the company findings as well as exploring other areas. While we have made significant progress in addressing their concerns, for improvement that will be published in our operations capabilities and compliance programs by further developing our team, engaging seasoned leadership and improving our processes.
While our U. S. Business is undergoing change, it is worth stepping back and considering the long term value of da Vinci in surgery. In urology, we see significant opportunity globally, prostatectomy and partial nephrectomy, procedures for which clinical and economic evidence supporting DaVinci use is well developed. Here, we are focused on building our capability in Europe and Asia to support urologic growth.
In gynecology, the economic value of da Vinci and hysterectomy for a broad ablation of patients is being demonstrated in papers like the ones Patrick will describe shortly. We are supporting further clinical and economic evidence for cisarectomy. We believe additional instrumentation, like our risk and single site needle driver, will make a significant difference for single site surgeons. General surgery opportunity exists in several procedures globally, including colon and record with sections, very of procedures and other procedures within the abdomen. In general surgery, we are investing in products that optimize procedures including stapewing vessel soon, firefly and our da Vinci XI, as well as supporting evidence development and research.
Thoracic surgery also holds long term potential for ISI, where we are developing products, including stapling and da Vinci XI, to address those thoracic procedures typically done through open incision. Lastly, we are still early in exploring the capabilities of single port technologies like single site, and our single port cart. We will continue to pursue additional instrumentation and clearances for these new architectures as we work with surgeons to advance minimally invasive surgery. As of today we estimate that these opportunities represent millions of procedures annually for the countries in which we already operate. In future years, we anticipate expanding our presence deeply into Asia, India and Latin America, further expanding the potential of DaVinci to positively impact surgery.
I'll now pass the time over to Marshall, our Chief Financial sir.
Thank you, Gary. Our first quarter 2014 revenue procedures were consistent with the press release issued on April 8. 1st quarter revenues $465,000,000, down 24% compared with $611,000,000 for the first quarter of 2013 and down 19% from last quarter. Procedures for the first quarter grew approximately 7% compared with the first quarter of 2013 and were down approximately 5% compared with last quarter. First quarter 2014 revenue was net of approximately $26,000,000 of deferred a revenue deferred in association with offers made to 1st quarter U.
S. Customers, to trade in their recently purchased da Vinci S I surgical systems for our recently announced da Vinci X I surgical system. The training program also provides our customers the opportunity to exchange certain recently purchased da Vinci SI instruments and accessories for da Vinci XI instruments and accessories. The deferrals reduced first quarter 2014 system revenue by approximately 24,000,000 and instrument and accessory revenue by approximately $2,000,000. The $26,000,000 deferral equates to $0.29 per share and is expected to be recognized within 2014.
Procedure highlights will be covered by Patrick. Revenue highlights are as follows. Instrument and accessory revenue down 2% compared with the first quarter of 2013 and was down 5% compared with the fourth quarter of 2013. The decrease relative to the prior periods reflects lower independent accessories stocking orders associated with fewer system sales, the $2,000,000 deferral associated with the train in program the impact of changes in procedures, offset by increased sales of newer products. Instrument and accessory revenue realized per procedure, including initial stocking orders, was approximately $19.20 per procedure, compared with $2110 for the first quarter of $2013930 last quarter.
The decrease from the prior year reflects fewer stocking orders associated with fewer system sales, partially offset by new product sales. The increase from the prior quarter primarily reflects new product $6,000,000 decreased 59% compared with the first quarter of 2013 and decreased 48% compared with the fourth quarter of 2013. The decline in systems revenue reflects fewer system sales. In the U. S, we sold 45 systems in the first quarter compared with 115 systems in the first quarter of 2013, and 72 systems in the fourth quarter of 2013.
The decline in U. S. System sales reflects the impact of lower procedure growth spending uncertainties associated with the Affordable Care Act, customer anticipation of a new system being released, and relative to the fourth quarter seasonality. We sold 13 SIEs compared with 21 last quarter 5 the first quarter of 2013, at prices just below $1,000,000, depending on their configuration, reflecting continued demand for lower cost systems for use of lower reimbursed procedures. Globally, our ASP of 1,476,000 increased relative to the 4th quarter system ASP product mix.
In the first quarter, we sold 23 dual console systems compared with 38 systems in the 4th quarter. Outside the U. S, we sold 42 systems in the first quarter, including 14 in the Europe and 19 into Japan compared with 49 into international markets in the first quarter of 2013, which included 16 in Europe and 25 into Japan. And 66 systems into international markets in the fourth quarter of 2013, which included 28 into Europe and 21 in Japan. 1st quarter system sales also included 3 into each of France and Spain.
Though, that first quarter is typically seasonally slower in most overseas markets except Japan. Moving on to the remainder of the P and L, Gross margin in the first quarter of 2014 was 67.9% compared with 71% for the first quarter of 20 13 69.1 percent for the fourth quarter of 2013. Our lower margin percentage reflects a higher mix of new product sales and costs spread over lower production levels. Margins on newly launched products will typically be lower than our mature products, reflecting vendor pricing on low volumes, temporary tooling costs, and other start up costs. However, over time, as volumes increase, and we manufacturing process and the product, we would expect to see improvement in the margins of these newer our products.
Our margins on the XI system will be lower than the margins for our SI products. As described in our pre earnings release dated April 8, the company recorded a pretax charge of $67,000,000, equal to $1.25 per share to reflect the estimated cost of settling a number of product liability legal claims against the company. These claims relate to alleged complication from surgeries performed with certain versions of monopolarcautery scissor or MCS instruments that included an MCS tip cover accessory that was the subject of a market withdrawal in 2012 and surgeries that were performed with MTS instruments that were subject of a recall in 2013. The company's estimate of the anticipated cost of settling these claims is based on negotiations with attorneys for patients who have participated in the mediation process that the company established in conjunction with Many of these claims give rise to MDRs reported in the FDA's mod database. First quarter 2014 operating expenses of $192,000,000, excluding the $67,000,000 charge were in line with our planned spending reflect investments in overseas markets and new products.
Our effective tax rate for the first quarter was 26.8 percent, compared with 26.1 percent for the first quarter of 2013 22.5 percent last quarter. The first quarter of 2013 tax rate benefited from the retroactive reinstatement of the credit for 2013. The Federal R and D credit has not been renewed for 2014 and therefore is reflected in the 1st quarter tax of $4.56 per share $8 per share for the fourth quarter of 2013. An important measure of our performance is cash flow from operations. We defined cash flow from operations as net income, excluding tax noncash after tax non cash net income.
For the first quarter of 2014, excluding the legal accrual $35,000,000 in non GAAP net income or $3.46 per share compared with 205 dollars or $4.99 per share for the fourth quarter of 2013. We ended the year with cash and investments of $3,000,000,000, up from $2,800,000,000 as of December 31, 2013. The increase was primarily driven by $166,000,000 in net cash provided by operating activities. Keep in mind that the $67,000,000 charge to income has not affected first, we still have $1,000,000,000 of share buybacks authorized. And with that, I'd like to turn it over to Patrick Hugo over procedure and clinical highlights.
Thanks, Marshall.
Q1 year over year procedure growth was approximately 7% with U. S. Procedures growing 3% and international procedures growing 24%. On a macro basis, payer headwinds, combined with higher patient payments, have impacted the number of benign hysterectomies in the U. S.
And in turn, the number of da Vinci is tirectomies performed with both declining during the first quarter. This minimally invasive surgery is currently a proportion of benign hysterectomies to continue to decline roughly in line with declines in the market through 2014. Other benign GYN procedures, including Sacal Copelpaxi, endometriosis for sections and myomectomies also experienced year over year declines in the first quarter. We are in our early launch phase of single site gift for hysterectomies. Growth rate in the quarter was high off of a very small base.
We plan to bring our single site listed needle driver to the market in order to further enable benign hysterectomy procedure adoption it is too early predict whether this will drive overall growth in DVH. Before moving on, let me take a moment to discuss the recent FDA announcement, discouraging the use of power morseulators and the surgical removal of assumed benign fibroids. Intuitive does not manufacture or sell power morsellation products. Power morseulators do not attach to da Vinci systems and minimally invasive da Vinci surgery are routinely performed without the use of for many patients, surgeons do not have to choose between minimally invasive surgery and morsellation. Other alternatives for issue extraction exist.
In the near term, this announcement may create uncertainty for surgeons and patients when choosing Mung minimally invasive surgical methods for removing fibroids. Moving forward, we look to surgical societies as they set guidance for removal of assumed benign fibroids. For da vinci cholecystectomy, Moderating growth appears to be attributable to both seasonality and physicians increasingly offering single site to those patients that are cosmetically sensitive and not morbidly obese. Looking more deeply, adoption is taking place primarily among commercially insured patients seeking treatment from physicians at private hospitals, the ability to offer single site benefits the patients to hospital and the surgeon. If adoption remains limited to this segment, we would likely addressed a more narrow patient population than we previously expected.
We continue to believe that patients desire an improved cosmetic outcome compared to multi board MIS. We have optimized the economics of our offering for our systems and instruments, and we believe material operating costs are currently at a small premium to multi port laparoscopic material operating expenses. Beyond cholecystectomy, broader growth in U. S. General surgery is encouraging as we continue to see across many subspecialties.
While many of these procedures are too early to include expand the breadth of our instrumentation for general surgeons. Investments in the colorectal market, including products for showing results. International procedure growth of 24% remains strong. Growth was led by urology with meaningful contributions on GYN and General Surgery. DBP uptake in Europe and Japan continues to be robust, sustaining the momentum we gained in the back half of twenty thirteen.
Highlighting the growing interest in da Vinci Surgery Education, 2013, the European Association of Urology's robotics section, highlighted a da Vinci fellowship training program with 10 leading academic institutions across 6 countries. The robotics section expanded the fellowship pilot in 20 14 to 17 institutions as more country level societies support the program. During the quarter, we continue to see growth in peer reviewed publications, highlighting DaVinci use in a number of journals. I'll take a moment to highlight just a few. Total cost to treat a population of patients is as providers are increasingly focused on population health management.
2 GYN studies published in this month's edition above and gynecology show an interesting juxtaposition of how and conclusions, with one using a population health perspective, while the other evaluates a subset of the population. The first study from Doctor. Mateo and team at Memorial Sloan Kettering took a population health perspective on the impact, robotic surgery could have to the overall cost malignant hysterectomies in the U. S. Looking at the adoption of robotic surgery within MSK for malignant hysterectomies from 2009 to 2010, The study showed that laparoscopic procedures were less expensive than robotic procedures and that robotic procedures were less expensive than open surgery.
By extrapolating the MSK experience to a national experience, including the reduction in the rate of higher cost of in surgery. Study concluded that the adoption of robotic surgery lowered the cost of malignant hysterectomies when evaluated for population health. In contrast, these findings, right at all of Columbia, wrote a follow-up to their 2013 publication. Using a similar methodology to the 2013 paper, This study also found that robotic surgery was more procedures. The study excluded the impact robotic surgery has brought to the broader population of patients who are historically treated through open surgery and the cost savings associated with the overall reduction in surgical that population selection has in drawing an economic conclusion.
As providers look to manage population health more directly under the Affordable Care Act, Doctor. Lateo's study is more broadly applicable to a total population. We continue to work with customers to improve the understanding of the economic value da Vinci brings. Next, the incidence rate and associated surgical procedures for early stage lung cancer are likely to increase following the USPS TF Recommendation to provide CT scanning smokers at a high risk of developing cancer. 2 recent studies have compared multicenter to VINCI Lubectomy to over 10,000 Lubectomies from the STS database gathered from 2010 to 2012.
The first study published in Innovations from Doctor. Ferrevar and colleagues of Swedish Medical Center in Seattle, compared open mabectomies to video assisted thoracic surgery or VAS and robotic complexities and found that the use of robotic technology reduced the operative time, chest tube duration, post operative blood transfusions and length of stay compared to both in 30 day mortality compared to both open and VAS. The second study from Doctor. Adams in team of Owensboro Medical Health System in Kentucky, published in the Annals of Thoracic Surgery compared to the initial 20 completely portal robotic lebectomy or CPRL. From 6 community surgeons to the STS database.
While reflecting the initial robotic case series from each of these surgeons, The authors concluded CPL was superior in several measures compared with open as well as outcomes were equivalent between CPRL and VAS trending in favor of robotics. I will conclude with 2 international publications on da Vinci use for rectal 2 papers focusing on robotics versus open or laparoscopic total mesorectal excision or TME. The first paper published in the European Journal of Surgical Oncology is from a group of Italian and Brazilian surgeons based at leading academic institutions. The study included 174 patients and results showed that at 5 years post operation, robotic TME has a lower rate of cancer recurrence compared to open TME. The study also highlighted an increase in lymph nodes harvested, reduced blood loss and lower length of stay at the cost a longer OR time.
The second paper from China published in the Journal of Surgical Research by Doctor. Xiong and colleagues from the Chongqing Medical University performed a meta analysis on robotic TME compared to laparoscopic TME. The study identified over 1200 patients and showed that biotic TME was associated with a lower conversion rate from minimally invasive surgery to open surgery, a lower positive margin rate and a lower rate erectile dysfunction compared to laparoscopic EME. This concludes my remarks, and I thank you for your time. I will now turn the call over to Calvin.
Thank you, Patrick. Will be providing you with our updated financial outlook for 2014. Starting with procedures. On our last call, we estimated full year 24 18 procedure growth of 9% to 12% above the approximately 523,000 procedures performed in 2013. Now based upon factors described earlier on the call impacting U.
S. Benign gynecology and other elective procedures, we are adjusting our 2014 procedure growth estimate to a range of between 2% 8%. This is a wider range than we have previously communicated, giving consideration to increased volatility in elective procedures and the recent FDA statement discouraging the use of power more solution techniques and the potential impact this may have on our procedure business. Moving to revenues. As has been discussed earlier, several factors are pressuring our business making it difficult in the near term for us to predict system sales volumes and as a consequence, total revenue, specifically the breadth and evolving nature of our procedure growth.
As reminder, procedures are our primary driver of capital sales and the relationship between procedure growth rates and capital sales is highly sensitive. Our recent introduction of the da Vinci X I system and upcoming period of transition in advance of its release in international market and ahead of the availability at hospitals associated with the implementation of the Affordable Care Act. Evolving utilization patterns and point of care dynamics and likely variability in the timing of Japan system sales given the timeline for obtaining additional procedure reimbursement beyond DBP. Anticipated no sooner than 2016. Due to these factors affecting the capital side of our business, we will not be providing this time.
As mentioned on last quarter's call, we expect to sell fewer systems in 2014 than the 546 systems sold in 2013. Our Q1 2014 gross profit percentage was roughly 68%. As we move forward in 2014, we expect profit percentage will shift margins at launch than the mature SI platform. While we will look to cost reduce the product and improve margins over time, the da Vinci negatively impact gross margins products throughout depending largely on product mix and systems production volume. We believe deeply in our ability to fundamentally improve surgery, are continuing to pursue plans to increase the use of da Vinci enabled MIS around the globe.
As stated previously, 2014 will be a year of increased We will be building our international capabilities, investing in new product developments and pursuing growth in multiple areas of our procedure business. Now excluding the impact of this quarter's $67,000,000 charge for estimated legal settlements, we continue to expect to grow our operating expenses stock compensation expense to be towards the lower end of the $180,000,000 to $190,000,000 range communicated on last quarter's call. Compared to $169,000,000 in 20 13. We continue to expect other income, which is comprised mostly of interest in come to total between $15,000,000 $20,000,000 in 20 14, also towards the lower end of the range. With regard to income tax, we continue to expect our 2014 income tax rate to be between 25% 28% pre tax 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 to 2014. Our share count for calculating calculating diluted EPS in Q1 2014 was approximately 39,100,000 shares. Our actual Q2 and fiscal year 2014 share count will depend on several factors including the magnitude and timing of any additional
Thank you will hear a tone indicating you've been placed in queue, and you re re remove yourself from the queue at any time by push by pressing the pound key. And we have our first question from Ben Andrew from William Blair. Please ask you a question.
Good afternoon guys.
Hi, Ben.
Gary, talk to us a little bit more about the 12% to 15% increase OpEx with the revenue projection you just gave. Obviously, you run the business on a multiyear basis and we all believe or at least we believe there's a long term opportunity. But what are seeing in 2015 and the needs of the company today that kind of justify that level of spending with this revenue forecast.
You know, I think as we've said in the past, the places we're investing, I think, really our points or future growth and they are, you know, internet markets, both in Europe, Japan and other places in Asia over time, as well as bringing to market products that we think help surgeons and therefore expand our opportunity, both deepening it in that were already existing and the potential to open new markets. I think that, scaling back quickly as a result of near term pressure is not in the long term best interest of the company.
Okay. No, that's fair. So should we think about a more kind of, if you will, permanent lower domestic growth rate given some of the pressures or maybe a multiyear lower domestic growth rate? Because it does sound like the continued emphasis shift towards international is where the bulk of the growth would be coming from?
I think it's, from what I want to do too soon to make that comment. I look out and say it's clear that there are some changing dynamics within the U. S. Marketplace, particularly around some of the procedures that are elective. Some of those things are broader than intuitive.
You look at the changes to surgical admissions that are changing in some of the payer behaviors around incentives or disincentives around surgery, we'll have to see how those things wash out in time. Some of them have to do with internal focus of the company as we look at opportunities and have adjusted our sales force focus, that will pay off in time, but those things take a little time to wash through. And so, I think that's a good question to ask again. And then again, in future quarters. And I would not call it right now.
Okay. Last question for me. Talking about, if you will, instrument pocket share in the evolving area of general surgery, If we go out 12 or maybe even 24 months, what percentage of the instruments that are not da Vinci today in a particular case for you all in the train center think we'll still not be da Vinci at that point? Can we get to 100% pocket share? Is it going to be 50% for some or whatever the number is for some protracted period of time?
Thank you.
Yes. So as you think about what kinds of things make sense for our customer on a DaVinci platform, where we can really bring value Probably not 100%, but certainly higher than we are today. And I don't think we've called out, here's the endpoint. A good example, Vesta Seuler has been really well received by our customer. The adoption has gone deeper in different places than we had anticipated when we when we started.
And as we look at stapling and its early adoption into colorectal, that's been pretty positive for us. Customer feedback on it has been strong. And as we and the stapling offering, to bring them articulation and stability and some of the things that we can bring, I think that's an opportunity for the company we go forward. So I don't think we can peg an exact number for you, but I think it will move up certainly in the, kind of the multi port multi quadrant procedures that we think we can make a big difference in in the near term. Go ahead, comma.
Yes. And just a few thoughts just the overall metric of instrument accessory revenue per procedure. As was mentioned, we saw the positive contribution of the for in the vessel sealer here in the first quarter, which really effectively offset the negative impact primarily from lower stocking orders with lower system sales in the quarter. So the overall metric was fairly in line first quarter of this year with the fourth quarter of last year. And so as you kind of look forward, this higher proportion, you're going to have a higher proportion of single site and less complex benign procedures in the overall mix and,
and you
have the positive impacts of vessel C1 firefly. So as you look out into 2014, you've got back is moving in either direction and it's really difficult to gauge the net direction of the
metric moving forward in this year.
The next question comes from Tycho Peterson from JP Morgan. Please ask your question.
Thanks. Just want to understand the guidance revision on procedures, specifically around the issue of more installation, which as you called out does not tell power more but in the revised guidance, you did call that out as a factor. So can you maybe just talk about how you see that impacting the market and need to kind of step up marketing efforts around that to clarify the situation?
In the near term, I think that the surgical societies are going to looking to evaluate MAR, what the implications are for minimally invasive surgery as a whole. As we mentioned, we, power of morseilization is not a part of many, many of the gynecologic procedures we do. I think there'll be some reassessment by the surgical societies and by surgeons themselves as they kind of look at tissue action techniques and where they want to take guidance from there. So for us, it's pretty hard to forecast. I think at this point, we're just going to have to wait and see.
Davinci offers dexterity and the opportunity for alternative techniques to tissue extraction. And so over time, we'll see where surgeons want to go with that. And Patrick, I don't know if you want to add.
I think, Tycho, the issue here really is about the unknown oncologic status of these fibroids. If you step back and you think DaVinci is commonly used in procedures where cancer has been diagnosed. So while it's hard for us a good precise on it. We think the confusion until some of the treatment approaches are more settled, there might be some uncertainty in the place here over the short run.
Okay. And then since this is the first call post the launch of the XI, can you maybe just talk about some of the early some understanding it's not necessarily an upgrade to the SI, but have you seen any interest in existing SI customers upgrading? And then can you help kind of quantify the opportunity around multi quadrant procedures and maybe areas like microsurgery, which seem like they could be applicable as well?
Marshall, I'll let you describe a little bit of early pipeline as, you know, just qualitatively as you see
Sure. So we're not going to talk about inter quarter activity, but truck quarter activity, but on the other hand, there was a as you know, there was
a hospital in Texas that put out
a press release on their first procedure and the excitement around it and the interaction that we've had customers is positive.
Not going to predict
how it's going to roll out. As Gary said, in his part, there are certain instruments advanced instruments that
are not yet available for it. So it will probably be a, a
rollout over time versus a bolus
upfront Now when we think about multi quadrant procedures and where people are excited about, a lot of the features that have gone to the XR-one that surgeons have been interested in and asked us about. And we've been in development with them for some time. So the idea of being able to, to the Netherlands change setups without having to move the base around longer instruments health and larger patient populations and in general surgery, the narrow instruments get you into tighter spaces. And so, as we look at general surgery, general surgery is indeed to add a lot of different seizures. And so we're excited about the flexibility that, the setup of the platform brings as well things like port hopping, the idea that the camera can move between different cannula to be able to get different views of the anatomy.
So I think that's been strong for us. Microsurgery is not something we've talked about. I'm not quite sure where that came from. It's not in on the XI. And so perhaps in another time we could talk about that in more detail.
Last one, just quickly on the new SP system announced today, I've had a few people ask about the 25 millimeter port size. Does that get you around risk of hernia and maybe just talk to the discussions with FDA. They've obviously gone after some of your competitors around the Fortside hernia.
The, 25 is about the same size as, the port that's going on. It's used a little bit different construction that's being used in single site. I am not personally expert in the radiation issues, although under and listening to surgeons. I understand that how you make the cut down, how you make the decision and how you close it, a closer technique has a large impact in, in what those things look like. Conversations with regard to FDA have really centered on the technical performance aspects of the device and its application to urology in terms of the SP itself.
So really no additional color to provide you on that
Okay. Thank you.
The next question comes from Bob Hopkins from Bank of America. Please ask your question.
Thanks very much. Can you hear me okay?
Yes.
Okay, great. So just wanted to clarify some things on procedure volume guidance. I just want to make sure I heard you right to start out. So your guidance is for 2014 now for procedure volume is 2% to 8%. That's a global number, correct?
That's correct.
So you started the year at 7%. And so obviously what you're contemplating here is things potentially getting worse from here. And so I'd really like to just understand to the degree you're willing to to talk about it. What are you contemplating getting worse from here? Is this, guide getting a little bit worse or is this guidance COLI getting a little bit worse?
And then just broadly speaking, what turns this around in your view?
Yes, I think it's, you look at it and the things we're calling out are the increasing pressure that we're in the U. S. Gynecology procedures, factors that we discussed on the call, including the payer disincentives for benign surgery effects of the affordable AirACT on an impact on procedure potentially involving the power morsellation, which is a rather recent event. We've seeing more volatility in these elective procedures and economic sensitivity as well. So that's on the gynecology side.
And then specifically cholecystectomy, and Patrick talked about what appears to be a tightening really of the types of patients that may be the target robotic candidates. And so these are early days on both categories, but I think the range of the guidance is broader and lower in recognition
of these factors. Yes. Just to add
a little light, I think the big issue here is that you see some, shifting wins in the U. S, a benign surgery marketplace, broader than intuitive and some that are specific to us. So I think that uncertainty is pretty high, especially around total hysterectomies, in total, the whole set, not just us, over time, I think as, as hospitals start adjusting to some of the implications of Affordable Care Act and some of the swings and seasonality we're seeing the exaggerated swings. We'll have to see how that plays out in the year. And that's what accounts for this broad range.
And so kind of really as a follow-up to that, Gary, this is a question for you. It's a question on buyback, but it's really a question about trying to understand your intended message, regarding confidence in your long term opportunities versus the near term uncertainties. So as you noted, there's no buyback this quarter and obviously there's of uncertainty, but you're sitting on $3,000,000,000 in cash and you have a $1,000,000,000 buyback authorized. And my question is, why wouldn't now be a time for you guys to be more aggressive about the buyback if you're encouraged about the long term. And so again, I'm really just trying to gauge here long term opportunities versus near term uncertainty?
Yes. I think that, directionally, we feel like by extra good idea when we feel like, there's a good opportunity for the market for the company to be in the market. And that's we speak about routinely with the board here. And so we'll see, I think with a fair amount of volatility that's been evidenced in the U. S.
Market and is likely to persist for some time given all the moving parts in the U. S. Market. When opportunities arise, important sit down and evaluate.
And then just lastly really quickly on the SP system. Could you just talk a little bit more about about that. What does that look like long term? Really, who is the customer for SP? Is that potentially less expensive system that could be targeted to outpatient.
I just want to understand who the real customer is for SP as you see it. Thinking long term when you have multiple approvals and just understand where this is going.
Right. So, first thing is that, we have not announced price likely the operating costs for the SP system will slot in above single site and at a slight premium to a da Vinci set. It's not finalized. So it is not an operating cost lower cost than single site, which is actually quite good already. Single site instrumentation from a material cost point of view are within about $100 of multiport laparoscopy costs.
So the material cost comparison are quite good on single side already. This additional capability and will come into from an operating point of view at a small premium to that price point. In terms of why we think it's interesting, the first indication to be entirely clear is urology. We think there are some interesting things that can be done particularly in things like kidney cancer where you have the removal of the specimen. I think these are the concrete procedures where, full articulation and, and four arms make sense in a single port context as we think about other places in the future that might have interesting indications.
We think about places where you're going to be in confined spaces. Head and neck is one of the transitional procedures are another place that people have real interest in. And one of the reasons that, we're talking about this a little bit early relative to launches to give us room to discuss it with surgeons to develop it in terms of preclinical laboratory work over time. So we get a real chance to interact with customers about where this kind of architecture can take us. I think early interest is is quite high in terms of enthusiasm.
I think there's real work to be done in terms of refining some of the elements that are present in terms of both the supply chain and the indications. And we'll look forward to doing that over time. Long term, I think are some unique capabilities here technologically, that may lead us to some interesting places.
Thank you.
The next question comes from David Roman from Goldman Sachs. Please ask your question.
I wanted just one strategic question and then one specific question about the numbers and maybe starting with the strategic side. Gary, I listened to your commentary in the prepared remarks where you brought up international. I think you you didn't specifically call it emerging markets where you brought up India, Latin America, it sounds like there's sort of a shift a little bit in the strategy here as the U. S. Markets mature and that just the focus of the company is moving to being more of a global medical device company with a little bit more of a broader a pure play technology company.
And as sort of you look at the market valuations for those different types of businesses, I'm just wondering how you sort of think about the evolution of the business as you start to look, it sounds like more sort of singles and doubles versus home run opportunities. Coming from expansion of therapy versus kind of new product launches
Yes, I understand the question. I don't think certainly in the, in the next few years, I don't see that it's an either or. I think that we've made real investments and we'll continue to invest in those technologies we think can make a real difference surgery and I expect that to continue. And the indications around thinking globally are not strongly year next year. I know you're following, you know, we've been investing in Europe and Japan.
Longer term, as you look multiple years out, I think there are real opportunities in other parts of Asia and America. And I think it'll be important for the company to be there. It's not intended to signal a hard right turn. Away from innovation. Innovation is in our DNA.
You see it routinely in the products that we develop and bring to market, and I expect that to continue.
And then maybe just a second question on the maybe it does relate a little bit to the slowing and COLI, but one of the things that you've been talking about in came in more in the fourth quarter call was on the R and D spending to collect more clinical data to support the adoption of therapies where you have stronger competition. I'm presuming that's sort of Ethicon and Covidien. But maybe you could sort of talk about the type of data you're going to be collecting on COILIES and some of those procedures where you need to be more competitive? And then ultimately, when that could drive a resumption in growth in those categories or sorry, a reacceleration of growth?
Yes. So as you look out, I think the types of data are pretty clear and we've seen the like that. I think the, first, you collect clinical outcome data, and that evolves in time from the same institution studies. So multi antithesis studies and so on. And then with that, I think, economics that follow.
So really a combination of how are your products used, followed by what kind of outcomes are being obtained, followed by what are the economic of those outcomes. And that's really what we invest in. And where you have all three, you see strong benefit. We have products that's differentiated where outcomes are in the economics follow, that has been a strong predictor of growth. And so that's a routine part of what we do both in the U.
S. And OUS. Each health system calculates some of these things a little bit differently. Disease states vary a little bit country to country. And so it's not just the U.
S. Centric activity.
Okay. And maybe just
a quick last one here. I know Bob the question about buybacks and I understand the comments around volatility in the market, but maybe you just broadly help us think about capital allocation if there are other priorities you might look at given some of the gyrations in the top line here and you have spoken about M and A sort of in the past as a potential how you're thinking about broader use of cash, in the context of everything that's going on here?
The basic elements as you've seen has been A, organic growth, funding organic growth and development where we need to. We have invested OUS And sometimes those investments are organic and sometimes they're, they're, acquisitions of things that are important. I expect that to continue. We routinely look for technologies that will enhance our product lines and acquire them on an ongoing basis. Typically, those not been huge acquisitions, but in the future, if there's an opportunity and a need, then those can grow.
And so those are really the basic elements in the mix. They change a little bit in terms of how they're mixed together over time, but the 3 elements are all there. All right. We appear to have lost our operator. If you're so long, I'll go ahead and close.
We discuss financial metrics on these surgery to provide basic patients. I hope the following quote from Doctor. Lotteo and team from Memorial Sloan Kettering and their recent paper on dementia use and hysterectomy gives you some of the value into it and brings to the surgical community. The key conclusion from our data in conjunction with other published data is that the cost of robotics must take into account, I would attach the rate of laparotomy and not just compare successfully completed robotic laparoscopic cases because these are both minimally invasive approaches using different instrumentation. Also, it's important to take into account post discharge cost months.
Our data further validate and support the data from Lyle and colleagues, the enhancement of laparoscopic programs with the introduction of the robotic platform and a concomitant decrease in laparotomy rates leads to cost neutralization of the robotic platform and potentially cost savings overall. The office continued despite nearly 40 years of availability. Laparoscopic hysterectomy still comprise only a small percentage all hysterectomies in the United States and the world. There are gynecologic surgeons who provide safe and efficient laparoscopic surgery and is important to continue to support their efforts. Unfortunately, they only represent a minority of all gynecologic surgeons.
The robotic platform is a device that overcomes some of the limitations of standard microscopic instrumentation and has increased innovative approaches. In closing, we are set asked and our conviction in the value da Vinci has and can bring to medicine. And we thank you for your support in helping intuitive expand the benefits of Inland Basin Surgery. That concludes today's call, and I look forward to speaking with you again in 3 months.