Ladies and gentlemen, thank you for standing by, and welcome to intuitive surgical Q3 2013 earnings release conference 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. Also as a reminder, today's teleconference is being recorded. And at this time, I will turn the conference call over to your host, Senior Director of Finance for Intuitive Surgical, Mr.
Calvin Darling. Please go ahead, sir.
Thank you. Good afternoon, and welcome to Intuitive Surgical's 3rd quarter earnings conference call. With me today, we have Gary Guthardt, our President and CEO. Marshall Moore, our Chief Financial Officer and Alex Zuckerch, our Vice President of strategic planning. Before we begin, I would like to inform you that comments mentioned on today's call may be deemed to contain forward looking statements.
Actual results may differ materially from those expressed or implied as a result of certain risks and uncertainties. These risks and uncertainties are described in detail in the company's Securities And Exchange Commission filings, included in our most recent Form 10 K filed on February 4, 2013, and our Form 10 Q filed on July 22, 2013. These filings can be found through our website or at the SEC's Edgar database. Perspective 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 has been posted to our website. Today's in our press release announced earlier today followed by a question and answer session. Gary will present the quarter's business and operational highlights. Marshall will provide a review of our third quarter financial results. Alex will discuss marketing and clinical highlights Then I will provide an update to our financial forecast for 2013.
And finally, we will host a question and answer session. With that, I'll turn it over to Gary.
Thank you for joining us in the which is pressuring surgical volume. There are also lingering ill founded concerns regarding the benefits of dementia surgery compared to the available surgical since we are a significant share of hysterectomy, our growth rate is sensitive to these issues. This load growth has resulted in capacity in our U. S. Installed base, combined with changes in hospital capital spending associated with the implementation of the Affordable Care Act, U.
S. Capital sales fell substantially compared to prior year. Overall procedure trends in mon, led by single site cholestisctomy and followed by growth in colon and rectal resections. Our gynecology business still grew year over year but at a slower pace than prior quarters and urologic procedures in the U. S.
Were stable compared to prior year. In Europe, we are continuing our investments in market access in clinical research. We are seeing early positive results in HTA and reimbursement analyses as a consequence of these efforts. Year over year procedure growth accelerated led by urology and early growth in malignant gynecology. Growth was strong in the U.
K, France, Italy and the Nordic Countries. Procedure growth in Asia was solid off a small base, led by growth in urology and general surgery. With regard to resolution of our FDA the Form 483 that preceded it. As part of our work in responding to the letter, we expect to file corrections and updates to our labeling and of file documentation for some past field actions. These activities will be documented on FDA's websites over the next several weeks.
Turning to our operating performance for Davinci Surgical Systems down from 155 during the third quarter of last year. Total revenue was 499,000,000 down 7% from last year. Instrument and accessory revenue was $239,000,000, up 10% over Q3 2012, Total recurring revenue grew to $341,000,000, up 11% from prior year and comprising 68% of total revenue. Net income was $157,000,000, down 14% over last year, and we generated an operating profit of $225,000,000 before non cash stock option expense, down 13% from the third quarter of last year and representing 45% of Q3 revenue. We ended the quarter with $2,532,000,000 in cash and investments, down $495,000,000 from last quarter.
In the quarter, we generated 204 $1,000,000 in gross cash flow from operations and we repurchased $694,000,000 of our stock. Our new products continued to gain acceptance with customers. We expanded our stapling rollout at a measured pace through the 1st 3 quarters of this year. Surgeon's clinical feedback on the stapler has been strong and our stapling operations depth has increased substantially. We will accelerate the stapling launch in Q4 and beyond.
This quarter, we received FDA clearance for an expanded indication of our Fireflies system to include biliary imaging in combination with normal Wi light imaging during cholecystectomy. This is another step in providing surgeons with imaging capability that enables them to see anatomical structure beyond what can be seen with the naked eye. Our single site product line continues to perform well. Single site colesstectomy is moving out of early adopting centers into the broader clinical practice. Single site for hysterectomy progressed during the quarter while on limited release.
As part of this limited release, customers have requested an additional instrument, a risk to needle driver to complement the product line. We have designed it or testing it and plan to submit an application in early Q1 to the US FDA for 510 clearance. We believe the addition of a instruments will optimize the procedure for surgeons who expect end of risk functionality. Our single side products are well positioned to deliver increased patient satisfaction with reasonable economics for single incision surgery. We have great confidence in the safety, efficacy and cost effectiveness of our products.
And we remain deeply positive on the value Da Vinci brings to surgery now and in the future. The benefit Da Vinci brings as an to surgery are offset by downstream savings resulting from fewer complications, readmissions and length of stay. We've recently updated intuitive surgical.com with links to high level of evidence clinical data and adverse event data. In the us. In summary, we continue to see substantial long term opportunity to fundamentally improve surgery using our technologies, and we are focused on the following.
We 1st, educating the surgical community on the facts about da Vinci surgery, including its safety, efficacy and cost effectiveness. Next, building da Vinci capability and supporting its use in general surgery, extending the benefits of minimally invasive surgery using da Vinci in gynecology and urology worldwide and execution in expanding
Officer. Thank you, Gary. Our third quarter 2013 revenue was $499,000,000, down 7% compared with $538,000,000 for the third quarter of 20 12 and down 14% from last quarter. 3rd quarter revenues by product category were as follows. 3rd quarter inch in accessory revenue was $239,000,000, up 10% compared with $218,000,000 for the third quarter of 2012 and down 10% compared with the 2nd quarter of 2013.
The year over year increase in instrument and accessory revenue was driven by procedure percent. Sales of new products, including single site, vessel sealer and firefly, partially offset by lower instrument and accessory stocking orders associated with fewer system sales and the timing of customer orders. The sequential decrease in instrument and accessory and accessories stocking orders and the timing of customer orders. The 16% increase in da Vinci procedures for the quarter reflected growth in general surgery and gynecology procedures in the U S and urology procedures outside of the U S. The lower third quarter growth rate reflects slower growth in U.
S. Benign gynecologic procedures and flat U. S. DVP volumes. Factors affecting U.
S. Benign gynecologic procedures include reduced hospital admissions, a trend by payers toward encouraging conservative disease management and treatment in outpatient settings. Negative media reports. Instrument and accessory revenue realized per procedure, including initial stocking orders, compared to $19.80 per procedure in the third quarter of $2,032.20 last quarter. Our third quarter 2013 revenue per procedure reflected fewer stocking orders associated with fewer system sales and the timing of customer orders.
3rd quarter 2013 systems revenue of $159,000,000 decreased 32% compared with $232,000,000 for the third quarter of 2012 and decreased 27% compared with $216,000,000 last quarter. Overall, we sold 101 systems in the 3rd quarter of 2013 compared with 155 systems last year and 143 systems last quarter. We sold 65 systems into the U. S. Market in the third quarter of 2013 compared with 114 systems last year, and 90 systems last quarter.
The lower third quarter 2013 U. S. System sales reflected, among other things, the impacts of moderating growth in S. Benign gynecologic procedures, increased economic pressure on hospitals, uncertainty related to and spent associated with the Affordable Care Act and negative media reports. During the third quarter of 2013, we sold 36 systems in international markets including 17 into Europe and 13 into Japan compared with 41 into international markets in the quarter of 2012, which included 13 into Europe and 16 into Japan and 53 systems in international markets in the second quarter of 2013, which included 21 into Europe and dollars compared with $1,480,000 realized in the third quarter of 2012 and the $1,500,000 realized last quarter.
ASPs include all da Vinci models, all simulators, and Fireflies when configured with the system and exclude upgrades. Our higher third quarter 2013 of our third quarter 2013 systems involved trade in compared with 34 trade in last year and 43 trade ins last quarter. Service revenue increased to $101,000,000, up 16% compared with $8,000,000 last year and up 3% compared with $98,000,000 last quarter. The growth in service revenue was driven by larger system installed base. International revenue results were as follows.
3rd quarter revenue outside the U. S. Was $133,000,000 8% compared with acquired with revenue of $158,000,000 last quarter. Our higher year over year international revenue was and service revenue, partially offset by lower system sales. Our lower sequential international revenue primarily reflects 2012 and 6% lower than the second quarter of this year.
The growth over the prior year reflects DBP growth in Europe and pan. The decrease compared to last quarter reflects summer seasonality patterns in Europe. Moving on to the remainder of the P and L. Gross margin in quarter of 2013 was 71 point second quarter of 2013. Our lower margin percentage compared to the third quarter of last year resulted primarily from the impact of the medical device excise tax.
Our higher gross margin percentage compared to the last quarter was driven primarily by higher system ASB fees. 3rd quarter 2013 operating expenses of $183,000,000 were up 2% compared with last year and down 2% compared with last quarter. Our higher year over year operating expense was driven by headcount additions, partially offset by lower incentive compensation and lower incentive compensation, partially offset by stock compensation expenses. 3rd quarter 2013 operating income was 174,000,000 or 35 percent of sales compared with $211,000,000 or 39 percent of sales last year and $219,000,000 or 38 percent of sales last quarter. Third quarter 2013 operating income included $50,000,000 of non cash stock expense compared with $47,000,000 last year $39,000,000 last quarter.
Timing of stock option grants in the related vesting periods. Our effective tax rate for the third quarter was 12% compared with 15 in the third quarter of 2012 tax rates benefited from the release of reserves specific to tax years where statute of limitations have now expired. Excluding one time benefits, our third quarter 2013 tax per would have been approximately $26,000,000 higher in our third quarter 2012 tax provision would have been approximately $35,000,000 higher. Net income was $157,000,000 or $3.99 per share compared with $183,000,000 share for the third quarter the one time tax benefits, our 3rd quarter 2013 net income would have been $131,000,000 or $3.30 $2 per share. And our third quarter 2012 net income would have been $148,000,000 or $3.61 per share.
Now in compared with June 30, 2013. The decrease was stock and $34,000,000 of capital and IP acquisitions, partially offset by $204,000,000 in cash flow generated from operations. During the third quarter, we bought back approximately 1,740,000 shares at an average price of $3.99 per share. We ended the who'll go over our sales, marketing, clinical highlights.
Thank you, Marshall. During the third quarter, we sold 101 da Vinci in the United States, Systems and 24 DaVinci F systems were traded in for credit against sales for new Da Vinci systems. We finished the quarter with a net 72 system additions to the installed base, bringing to 2870 the cumulative number da Vinci systems worldwide. 2042 in the US,455 in Europe and 3 74 the world market. 48 of the 101 systems installed during the quarter represented repeat system sales to a existing customers.
In total, 100 of the 101 systems systems, which included 32 dual consoles. The 36 system sales internationally included 13 into Japan and 6 into France. Clinically, Q3 year over year procedure growth was approximately 16%, which was led by the category of general surgery and pased by cholecystectomy followed by colon rectal resections and bariatric procedures. Our U. S.
Urology business was stable growth rate in the US for benign DvH was slightly down from Q2, which continued to pace to place pressure on US system sales. Demand for recently released new products continues to be strong. Through Q3 2013, we sold single site instrument accessory kits to approximately 825 U. S. Customers.
Our vessel sealer product utilization trend continues to strengthen with most of the interest coming the specialties of colorectal, Advanced General and GYN surgery. The customer adoption for both the simulator and Fireflies continues to expand with 63 customers purchasing a da Vinci simulator and 48 customers purchasing Fireflies systems as part of their initial system purchases this quarter. In addition, we've expanded our phased rollout of both the da Vinci surgical stapling system and single site hysterectomy products to several new sites. These rollouts will be extended in a measured fashion, so we do not expect them to contribute materially in the near term. During the quarter, several 100 robotic abstracts and papers representing a variety of surgical specialties were published within peer reviewed journals.
Many focused specifically on safety and or efficacy. Clinical Conferences also produced several live da Vinci procedure transmission postgraduate robotic courses podium presentations and clinical poster sessions, several with emphasis on safety and or efficacy. I'll take a moment to summarize a few. Davinci hysterectomy is the single largest procedure that our customers perform. It is widely accepted that when compared to open hysterectomy the benefits provided to a patient through an MIS approach are significant.
As the data supports the rapid conversion to open of open hysterectomy to a minimally invasive approach continues to be led by da Vinci Corporation into GYN practices. Surgery, a group under the Department of Obstetrics And Gynecology at Yale University published a study entitled, robotic versus abdominal hysterectomy, in women with very large uterine. The study compared the results of 60 S Directities, 30 abdominal and 30 DVHs in patients with uterine greater than 1000 grams in weight. It is generally understood that the larger the uterus, the more complex the surgery. Often necessitating and abdominal hysterectomy.
On a statistical scale, uterine excess of 1000 grams are considered very large. The uteri in both cohorts study ranged in size from between 1000 to just over 35 grams. The published results were as follows: median length of hospitalization for patients in the da Vinci cohort was one day with a range from 1 to 2 days as compared to 2.5 days with a range from 2 to 9 days for patients in the abdominal cohort. Estimated blood loss was 150 milliliter for the da Vinci patients versus 425 leaders through the abdominal approach. Transfusion rates for the da Vinci cohort was 3.3% versus 13.3% with the abdominal approach.
Conversion rates from da Vinci hysterectomy to an abdominal surgery was as was the hernia race. In their commentary, the authors pointed out the following findings: first, hysterectomies for very large Utrei are challenging procedures. Efficiencies. Surgery. Finally, morbid obesity and or previous procedures appear to be to not be an impediment for completing these procedures robotically.
Within general surgery, procedures related to the colon and rectal disease management have been among our most promising right and left colon resection, sigmoid resection, flow anterior resection and rectal exit continue to exhibit solid growth. With the exception of right hemichollectomy and rectal pepsi, laparoscopic penetration has been modest within colon rectal surgery. Rectopexy is a procedure designed to address pelvic floor disorders or PFDs. Among other things, PFDs obstructive patients' ability to efficate. A recent French study compared the results of patients undergoing a laparoscopic rectal pepsi versus a da Vinci rectal pepsi.
118 patients were evaluated in the study, 44 da Vinci as compared to 74 the study evaluated OR time, blood loss, complications, length of hospitalization and postoperative DS scores for obstructive Defication syndrome. Regarding total award or time, which included system doc. The da Vinci rec Pepsi took approximately 15% longer than the laparoscopic approach, but the authors noted that their time came down over to even detect during the da Vinci rectal pepsi and measured only 8 milliliters as compared to 42 milliliters in the lab cohort. Complications with the da Vinci approach were 2% as compared to 11% in the lab patients. Hospitalization was reduced by a full and dexterity.
Post op ODS scores improved for patients in both groups. However, the difference in improvement for patients in the da Vinci cohort was substantial and deemed statistically significant. In their conclusions, the author stated and I quote, Although not a randomized comparison, this study shows that ventral mesh rectal pepsi performed by a robot was followed by better function than lap rectal pepsi. End quote. Da Vinci thoracic procedures, specifically, lubectomy and segmental resections have been steadily expanded over the past few years.
Similar to colon and rectal surgery, the presence of minimally invasive resection has been minor as compared to open surgery. In the recent addition of the animals of Thoracic Surgery, physicians and health care economists from both Harvard Medical School and Cornell Medical Center collaborated on a study which compared open surgery, video assisted thoracoscopy or Bats and da Vinci resections. The study evaluated the result of over 33,000 patients who had received PUL area resection within the 8 state study cohort. While the mix of patients was dominated by patients undergoing an open reception, the rate of growth Davinci Surgery was significant over the 3 year study period. Da Vinci expanded from 0.2 of the pulmonary reception studied in the 1st year to 3.4 by 3rd year.
Numbering 430 in total. DaVinci procedures were performed in all states studied with 38 being performed in community bills. The results in a propensity matched analysis, da Vinci restrictions were associated with significant reductions in more 0.2% versus 2.0% for open surgery. Length of stay was 5.9 days for the da Vinci patients versus 8 point percent for da Vinci versus 54.1 statistically significant. In a propensity match analysis versus Bats, da Vinci, lobectomy demonstrated directional improvements in mortality length of stay.
In their summary, significantly during the study period robotic reception appears to be an appropriate alternative to VAS and is associated with improved outcomes compared with open close quote. This concludes my remarks and I'll now turn the time over to Calvin.
Thank you, Alex. I will be providing you with an update to financial forecast for 2013 on a GAAP basis. I will also provide estimates of significant non cash expenses. Starting with procedures on our last call, we projected our full year 2013 procedure to grow between 15% 18% above the base of approximately 450,000 procedures performed in 2012. Now with 2013, we are refining our estimate for full year 2013 procedure growth to a range of between 16 17%.
Moving to revenues. As has been discussed earlier, several factors are pressuring our business, making it percent growth. On our last call, we forecast steps to scale anticipate full year 2013 operating income to fall within a range of between 37% 38% of revenue. Now with regard to non cash stock compensation expenses, we are refining our forecast to between 1 $69,000,000 $172,000,000 for the year. We expect other income, which has comprised mostly of interest income to total between $16,000,000 $17,000,000 in 20 13.
With regard to income tax, as Marshall described, our Q3 tax rate benefited income slightly lower than previously forecast, primarily due to the geographic mix of our pretax income. Our share count for calculating EPS in Q3 2013 was approximately 39 point
3,000,000
backs. The actual Q4 share count will depend on several factors, including the magnitude and timing of additional share buybacks. The any. That concludes our prepared remarks. We will now open the call
you.
You. Our first question will come from Tycho Peterson with JP Morgan. Please go ahead.
Hey, thanks for taking the question. I guess first of all, just kind of given the change in proceeding and ACA uncertainty. Could you just talk about whether we should be assuming that there will be U. S. Placements only of system utilization continues to increase sequentially?
And how are you thinking about where system utilization should could ultimately go in the next couple of years?
So I think in the near term, the factors that place new systems will be a few, as you know. So one of them is procedure growth. One of them is access to new technologies, for folks who have older technology. And then the last one is point of care where in the hospital they want to use the devices. And by far, the biggest driver of those 3 is the procedure side.
So I think, utilization over time, I think people are going to look at it and look as capital owners to drive it up. It can be lumpy though. I don't know that it has to progress linearly in terms of increases. I said before, if you have an S platform and you wanna have access to, stapling, that requires an SI that can that can make changes as we go through.
And then on Japan, given that you're not likely to have reimbursement for additional procedures until 16. Could you maybe just talk about how you think about the trend there? Is there going to be kind of a pause in investments beyond this initial round of placements procedure?
I think, in terms of the process, for reimbursement, just so everybody knows that that'll be a set of, clinical that's going on out there. And that will involve some hospitals, getting, limited approval from the government to collect that data. So we'll see that I think that capital sales by the broad market will be really lumpy, in this period. I think it'll be very hard to predict accurately what the sales profile will look like as people go through that set of, focal data and trial data. I think the commentary from the Japanese market is as to their interest is strong.
Okay. And then one last one for Marshall just quickly on inventories, $200,000,000. Can you just comment on why they were that high?
So we run on, we have lead times that we provide to our suppliers and, for particularly the system itself. And we obviously didn't sell the number of systems we had anticipated. And so we are still taking that inventory in. We don't think there's exposure there. We're talking about SIs.
And SIs is a very capable unit and capable of doing all of the surgeries we see our near term future.
Okay. Thank you.
Thank you. Our next question in queue will come from Ben Andrew with William Blair. Go ahead.
Good afternoon. Maybe Gary's talk a little bit about any shift in the spending plans that Calvin referred to. And if you can give us a little bit of detail on that and then what timeframe we might see that pullback?
I think there are some things that make sense in the next order or 2 in terms of spending, some things that just scale with, production volume and things like that that make a lot of sense. The other side is, being careful and prioritizing the investments that we make, both in terms of prototype spending and in terms of expansion plans. We have a pretty clear set of priorities in terms of the kinds of products and the markets we want to invest in. We will not short those. But for things that are a little further out a little bit more on the edges and then we'll be careful about where we put our investments.
Okay. And then on the clinical side, What sort of role do you have in data collection for things like complications and other clinical data sets relative to procedures like COLI where there's an opportunity to maybe transform a space further with a strong registry set or clinical study. And is that a material kind of investment for you all at this point?
So we do have programs where we invest in clinical research. We also invest in, things like supporting registries also will go out and provide, materials and access to training and other types of resources to allow people to design trials. So we perform that way. We also fund fellowship training. We also fund residency training in different places.
So we have a set of things that we do. There are institutions that will look for our help and there are institutions who want to do things, at arms length and makes sense too. So there's a combination of all of those things. I think the areas of study are diverse from very large population studies that occur in more mature procedures to, smaller cohorts that are direct comparisons across 1 or centers for things that are emerging. So, as you think about, colosectomy and use of single side and things like, Firefly Imaging.
You'll see the smaller cohort studies start and those will get bigger as time goes on.
Okay. And then finally for me, in terms of the pipeline for system sales in the quarter, did you see a shift in terms of how people characterize them as a delay or cancellation or any other trends there? Thank you.
Well, it's pretty similar to last quarter. We had a number of systems that where we got the approvals that we were accustomed but then at the, at the end, we couldn't get the CEO or CFO, and there was a hesitation there on the basis of, you know, their own concerns or uncertainties, I should say, their own uncertainties around spending capital. And then of course, there's some capital spending that's required under the ACA for IT and so forth and so I think those are those are also capturing a greater part of the pie than we're used to. But I don't know that there was anything in particular I would point out.
Our next question in queue will come from the line of Tayal Levy with Wedbush. Please go ahead.
So one of the questions I had was, you know, just jumping on what, Ben had just step, is there anything that you're doing differently now on the activities, or investment that you weren't doing previously, just to address some of the challenges that have cropped up over the last few quarters?
No, I think the things that are perhaps front and center is, is, making sure that people have access to all the data that's out there. There's an enormous amount of published literature on da Vinci. People looking for proof points can absolutely find them. I think the total publication database now is greater than 5000 peer reviewed journal articles on da Vinci, the number of, level 2 evidence and above high level evidence is greater than 200. The issue is not a dearth of clinical data.
There are cost studies where we'll be posting them on, links to them on the web. I mean, there's a fair amount out there. What we can do better is make sure people know it and see it and and are able to digest it. So, we've been doing that kind of activity. We've talked about both in Japan and in Europe.
The economic analysis that needs to be done with regard to reimbursement from government payers is work that we can And so we've been scaling.
Okay. And if you can maybe comment on sort of the how we should think about prices on, you know, per procedure, you know, over the near term until, I guess, systems start to recover? Is it here sort of in the 1850, 1860?
I'll let Calvin go into the in the mix, but before he does, just a high level comment, I think there are a couple of things going on. On the things like single side in some of the benign procedures, that are more cost sensitive, we have offerings that reflect, that that greater cost sensitivity. And we're happy to provide them. I think that it makes sense and they fit the procedure profile. And at the other end, the more complex procedure the cancers, some of the more reconstructive procedures, we have a set of products that have carry higher ASPs, enabler and depth Sealer and the like.
And so I'll let Calvin go through the modeling dynamics for you. But those are the push and pull of this kind of conversation.
Right. And as Marshall described on the call, the Q3, the lower revenue per procedure in Q3 specifically was driven by lower stocking orders associated with the lower some sales in Q3 as well as timing of orders. We saw hospitals reducing inventory levels in the quarter as well. Longer term, as Gary mentioning, the initial sales of an increased utilization of vessel sealer product firefly and stapler will help us garner a larger portion of the overall procedure revenue and serve to bolster our of stocking of our overall business. It's likely in the much longer term that, this procedure mix could could serve to trend the overall revenue per procedure down.
So should I should we keep it? And so at this, at this eighteen sixty level or, you know, higher? I wasn't sure what you're saying. Yeah.
There are a lot of factors. I think there were some specific factors that impacted that will be pretty relevant as you look at Q4 and next year
and some of
these other things are longer term.
Okay. And if I can just ask the last question, procedure trends, in the quarter, it seems like September might have been, particularly strong for you guys on a worldwide basis. Is that, you know, is that the case or September year over year was was pretty much the same?
Generally speaking, you see, people coming back from vacations globally in September. And so seasonality there as such that September is usually stronger than the prior months. And we'd expect that. And then the other piece is that as our business has a greater share of benign surgeries in it over time. Those tend to be more subject to seasonality.
So the mix is becoming a more seasonal mix relative to prior years. And so you see that both of those effects kind of compound.
Thanks.
Thank you. Our next question in queue will come from David Roman with Goldman Sachs. Please go ahead.
Hi guys. This is Kristen for David. Can you hear me okay? Yes. Wonderful.
Thank you for taking the questions. First question, I feel like his historically, the mantra has always been that that procedure growth drives system utilization. But at this point, it feels like the rate of change in the in the Delta for procedures is a lot slower than what's happening at the system level. And that's kind of given rise to this overcapacity to debate a little bit. And I'm a little bit curious about how your visibility and given revised guidance, where the confidence is coming from in the revised outlook on systems growth.
What has changed in the conversations with administrators for some of the pipeline accounts that that makes you feel that that these guys are still in the pipeline that they won't push out, you know, their decision making another 6 months, 9 months or 12 months. And maybe you could share a couple of anecdotal specific conversations that are happening to get us, let's have a better feel for it.
I'll answer the last part first. On the system side, I think that we've given you a pretty broad range for the results for Q4, and that reflects and Calvin even said this in his script, that reflects uncertainty as to how capital will close So I don't think we exited any particular, confidence on what will happen in Q4 relative to Q3.
Our visibility into procedures is better. It is imperfect, but it is better than than into a capital purchasing decisions, particularly in the U. S, where you're seeing some market dynamic changes. And so, we've given you a broad range. And the reason for that broad range it's hard to predict, how, possible administration will make some of their decisions.
And right now, you some of the anecdotes are that the it. And that revenue uncertainty on their side just flows through into the capital decision making uncertainty down the line.
Great. That's very helpful. Thank you. And if I could have a follow-up here. I'm curious, and I know that there's a lot of work being done on the share repurchase side.
Given the significant amount of cash that you guys have in the financial flexibility, is there any reason that you wouldn't be able to up the R and D spending and really focus on addressing some of the concerns that have been out in the media and some of the major bodies of recently to help address some of the perception issues that seem to kind of keep coming up and potentially could be some of the near term system placement sales. And you could, I feel like with the financial flexibility that more repurchases could offset that level of spending. Is that something that is on the table or has been considered or not?
With regard to the
there's a couple of things wrapped together there, just kind of teasing them apart. With regard to the R and D spend side, we're thoughtful and serious about our R and D priorities and the spending that goes with it. We listen really carefully to surgeons and hospital customers about what we think they need and what they think they need to make for both great surgery, and surgery that whose economics make sense for all the players. And so that's baked into our product development pipeline and something that we to some of the concerns in the press. You know, I'd encourage you to go look at our website, look at the data.
The safety profile of da Vinci is outstanding. When it's compared with the surgical alternatives that people have. So I think on that side, that's not really an R and D investment sort of issue. And with regard to the use of cash and buybacks and how we think about that, I'll turn that to Marshall.
We, we look for opportunities we look for opportunities or discontinuities in the share price relative to the market And we did some buybacks this last quarter. It's really a board decision. We'll be having those discussions on an ongoing basis with board and you'll see what comes out of it.
All right, great. Very helpful. Thank you guys.
Thank you. Our next question will come from Amit Hazan with SunTrust. Please go ahead.
Thanks very much. Good afternoon, guys. I thought maybe I'd ask the first question about existing versus new customers. Just regarding the U. S.
System side, if you can distinguish mean existing customers adding capacity? And then new customers, I think if we think about last quarter, you seem to be saying that most of the weakness came from existing customers chose to defer and it seems like that's the case again here. What has been happening more on the new customer side? Customer additions and the trend line there?
Right. So just to kind of review the numbers, as was mentioned, there were 65 total system sales in in the third quarter. 22 of them went to brand new customers, Greenfields, as we call them, and 43 were 2 existing customers. So and then let's see. It was 9 teen of them and, 24 involve trade ins.
So that means 19 added systems for capacity in the describe whether it be capacity, from the decreasing growth and benign hysterectomy or the various macro issues including the ACA, I think they really impacted all of these categories.
Okay. Okay. And then moving on to the procedure side, I want to just sure I ask the question. So it's very clear. I think you might have touched on it, but if we go through the U.
S. Benign history me side and think about how to model it for the next several quarters and how you saw this quarter versus last quarter. Impact that you're seeing there, and I'm obviously referring to the concerns, the developments earlier in the year, more than anything, has it gotten did it get worse this quarter or was it something that you saw as stable versus last quarter?
As we mentioned in the script, I think it's used in Q2 and in Q3, the Q1, Q2, Q3. So it was, you know, pretty, pretty stable. And I would say seasonally stable going into a Q3.
Great. And then just last one for me. In terms of the impact from that same noise on other procedure categories, urology or general surgery in the U S. Do you feel at all that hospitals have, applied more scrutiny to those as well because of the noise factor coming out of the first half of this year?
It's an interesting question to if you you really have to tease it apart and you have to take a look at the underlying condition, the surgical specialty itself, the opportunity, the alternative treatment. In other words, when you're looking at urology and you're talking about kidney cancer, bladder cancer, prostate cancer, I think it's safe to say that you are, less, you're more immune to some of the sort of allegations that people are throwing out in the media than you are versus, let's say, a benign procedure that has some benign therapies, and they'll pile on cost and and and some incorrect, comparators. And and and so I would say that the majority of that noise, that we have heard and have felt probably been in the benign GYN side, more than anything else we've seen thus far. And I think that that continues.
Okay. Thanks guys.
Thank you. Our next question in queue will come from David Lewis with Morgan Stanley. Please go ahead.
Hello. This is actually John Demchick in for David. Thanks for taking the questions. Just had a quick question on, I guess, a few pipeline products of yours. Starting with single site, I had a question about, adding restricted capabilities.
You mentioned, I guess, the need driver that should be submitted for 510 approval next year. Are there plans to expand the listed capabilities across other aspects of the single site platform? Like what are the main obstacles in doing this? And what impact do you believe that the have on broader adoption?
I think, so the first question is, is it limited to Neil Driver? Can it be taken more broadly. I think that Anil Driver is clearly the first one to go with with regards to single site is applied to hysterectomy. I think that once you have that architecture, you can start to broaden it in terms of what's possible. And the decisions that would be made as to which ones come next why we'll have a lot to do with which indications are the next most interesting indications for single side.
And so that'll be your process. If you followed us for a while, you'll see that that same kind of behavior that has indications changed, then you bring instruments in to help you optimize that set of patients.
Okay. And then second also, I guess, moving on to the Stapler rollout. And as you continue with the rollout, I was just wondering if there was a potential timeline in expanding the stapler offering the different sizes. So maybe it could be a little more effective for bariatric surgery or other surgeries.
So our first expansion will really be in terms of, number of sites supported with the existing stapler. So the stapler we have today is really targeted and optimized for colorectal procedures in terms of, how big it is and what the stable reloads look like. And so we, we're going to do that. And that's what we're focused on in the near term. Longer term, we are working prototypes and developing the capability for other types of reloads focused on other types of procedures.
And we'll do that. That will be for out that's not a near term.
Okay. Very, very helpful. And just had a quick follow-up on the procedure guidance. I know you guys have given a little bit of detail here, but I just wanted to push a little further. I think it implies roughly 13% to 17% procedure growth in the 4th quarter.
And I was wondering maybe you could discuss some of the assumptions across the product categories that drove you to that guidance. And if you see any significant acceleration or acceleration across any of the large groups?
Yes, I think it's probably similar to the commentary we had last quarter and that at the higher end of the range, you're talking about a continuation of the trends that we're on from benign gynecology, general surgery and Prostetechme in the U. S. Enrolled international growth rates at the lower end of the guidance would just be contemplation of, if other factors come into play in terms of a first decline in benign demand for benign procedures, you're entering a quarter that's typically very strong seasonally and comes out less strong for some reason, that'd be considered as well as if you see any changing trends in in cholecystectomy or prostatectomy, that, that'd be reflected in the lower end.
Thank you. Very helpful.
Thank you. Our next question in queue will come from Bob Hopkins with Bank of America. Please go ahead.
Hi, thanks. Can you hear me okay?
Yes, we can. Yes.
Great. Good afternoon. So I just wanted to ask a big picture question on procedure volume growth. Because I look at the model going back to the first quarter of 2012, your procedure volume growth was close to 30% and it's kind of gone down a little bit each quarter and now we're at 16% this quarter and you're looking at 4th quarter maybe being at the same level or a little bit lower. And so I guess just from a big picture perspective, I wanted to get a sense of your confidence that the sort of mid teens procedure volume growth rate is close to a bottom or is the bottom?
Any thoughts there would be helpful.
I don't think we're ready to give really fourteen guidance. What I'd say here in terms of what are the dynamics? What's going on underneath these things? I think we have a large category that in the U. US, grew quickly and is is now growing more slowly and that was gynecology.
And we have large category in the U. S. In general surgery that's on the early part of this adoption. And I think the answer to your question is going to come down to the rates of that growth both both sides. And I think what you would expect of the company is to manage the activities that would would support growth.
And so in the US, our activities are are focused on supporting, thermal surgery growth. And and that comes down to making sure the product set may sense for that customer, making sure that our training, capability is aligned and ready to go. Our Salesforce is capable of doing with need to do. And we have opportunity for growth or accelerated growth in OUS markets in Japan, we're making investments in Europe. So those are the underlying drivers and how it shakes out in future quarters.
We'll report to you as we have greater.
I appreciate that. And I wasn't really asking about any particular quarter, just asking about all the different trends that are impacting growth and where we stand now? I'm just trying to kind of gauge your confidence on at this point. Are there more positives than negatives in just trying to gauge confidence as to sort of where we are in the cycle right now and your confidence that, that this, obviously critically important metric to your company that we have your best sense as to where that's going to fall out.
One of the challenges, Bob, is always been, you know, trying to freeze the assumptions that we've given you and and hold them for long periods of time. In other words, we are, we're almost the way the question is framed, it's almost asking us to sort of the assumption as the final assumptions and and not take into consideration things like, you know, potential expansion of of, let's say, single site hysterect the and or international market growth, where we're putting in a lot of resources and training centers and so on and so forth. So I would say from my a confidence standpoint, we believe there are a lot of future drivers and present drivers in the business. And it becomes, as it always does, an execution store both downstream and upstream execution of what we think are great opportunities. And that's what you should judge us on.
And that's where our focus
above time for one more follow-up question.
Thanks. Just one real quick one on utilization. That's also a challenging part of the model going forward. How do you think that, that we should be thinking about utilization sort per per system going forward. I assume that that needs to continue to climb up.
But just any general thoughts on kind of utilization per installed base as we look forward?
Yes, I mean, if you look at just the trends, right, coming prior to 2013, we've seen gradual increases in utilization per system as measured by the procedures done in the quarter as a numerator and an liter of the systems installed at the beginning of the quarter. We've seen that gradually increasing. Now you get to 2013 with the moderating growth in benign gynecology. Now you're seeing moderate de increases in each of the 1st 3 quarters of this year. Ultimately, I think we'd still say procedures are really what drive this business here.
There are other factors that impact the timing of system sales, which we've been through. But again, procedures and the rate of growth there is going to be the key. And I think the ultimate utilization is going to depend on a lot of factors, is gaining efficiency, Affordable Care Act, procedure mix. So the ultimate direction, it's hard to really say.
Thanks very much.
That was the last question. As we've said previously, while we focus on financial metrics such as revenues, profits and cash flow during conference calls, our organizational focus remains on increasing patient value by improving surgical outcomes and reducing surgical trauma The following is a part of an interview published by Metscape with Doctor. Joseph Kolella, director of robotic surgery at McGee Women's Hospital, part of UPMC. When he was asked about the future of robotic assisted surgery, answer his follow. As potential patients stop for a moment and put on the common sense hat.
Your surgeon tells you that he can see 100% better in three dimensions, that he can sew better, and in the future, he'll be able to do every procedure through one incision. You can imagine that the sky is the limit in employing robotic It is an enabling technology. I firmly believe that we are finding new and beneficial applications almost on a monthly basis. For instance, nobody ever thought you would be able to resect tumors of the larynx without taking half the face apart to get to them. With the robot in the right hands, you can do those operations in an hour and the patient goes home the next day.
This concludes our today's call. We thank you for your participation and support on this extraordinary journey to improve surgery, and we look forward to talking with you again in 3 months.
Thank you. And ladies and gentlemen, that does conclude your conference call for today. We do thank you for your participation and for using AT and T Executive Teleconference. You may