Ladies and gentlemen, thank you for standing by. Welcome to the Intuitive Surgical Q 42 1012 Earnings Release Call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session. Instructions will be given that time.
Conference over to Calvin Darling, Senior Director of Finance for Intuitive Surgical. Please go ahead.
Thank you. Good afternoon, and welcome to Intuitive Surgical's 4th quarter conference call. With me today, we have Gary Guthardt, our President and CEO Marshall Moore, our Chief Financial Officer and Alex Soukich, 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 the company's Securities And Exchange Commission filings. Prospective investors are cautioned not to place undue reliance on such forward looking statements. Please dotcom on the audio archive section under our Investor Relations page. In addition, today's press release has been posted to our website. Today's format will consist of providing you with highlights of our fourth quarter results as described in our press release announced earlier today.
Followed by a question and provide a review of our fourth quarter financial results. Alex will discuss marketing and clinical highlights then I will provide 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 on the call today. 2012 has been a productive year at Intuitive. In the past year, our focus was in the following four areas. 1st, continued growth in gynecology and urology worldwide 2nd, disciplined execution of our single site and vessel ceiling launches. 3rd, building robust clinical programs with leading customers in emerging procedures in general surgery, thoracic surgery, and Transoral and finally, strengthening our capabilities in international markets.
In reviewing the year, I will turn first to procedures. Year over year growth in procedures finished at 25%, led by continued uptake in gynecology and growing use of da Vinci in general surgery, Gynecology growth was broad based with increased use of da Vinci surgery for gynecologic oncology, hysterectomy, myomectomy, and sacrocopal pepsi. General Surgery growth was substantial in the year, led by increased use of da Vinci in colorectal procedures and cholecystectomy, the latter driven by interest in da Vinci single site. Globally urology as a category was up slightly for the year. Pressured by a attacking these as the result of a combination of factors, including recommendations moving away from the use of PSA testing for early detection, and an increase in non definitive treatment pathways such as watchful waiting.
However, we did see a quarterly sequential rise in the United States and prostatectomies from the 3rd quarter to the fourth quarter of 2012. Alex will take you through greater detail on our procedure performance later in the call, Turning to da Vinci surgery outside of the United States. In 2012, we focused on improving our performance in Asia and in Europe. In Japan, reimbursement approval for da Vinci prostatectomy contributed to significant early uptake of systems and procedures. In the fourth quarter, we received clearance for our da Vinci SI system in Japan and customer shipments for SI are planned to commence this first quarter of 2013.
We expect progress in Japan to proceed in steps and additional can increase in system sales as we invested in deepening our organization. However, for our commentary through the year, we have a challenging environment. Response to our da Vinci vessel sealer and single site instrument kit was positive in the year with over 450 SI customers purchasing single site starter kits. Surgeon acceptance of vessel sealer has been encouraging with vessel sealer use focused on colorectal surgeons as well as GYN oncologists. We received 510 clearance in the United States for our da Vinci Stapler, and we plan to start a controlled rollout over the next several weeks.
Our role our roll out this year for our stapler will be carefully phased and focused on excellent customer experiences. For our prior calls, in Q3 of 2012, we submitted a 510 for an additional set of instruments and an expanded indication for single site, for use in hysterectomy and neuterrectomy. Our dialogue with FDA on this kit has been constructive. In imaging, we submitted a 510 application to expand indications for our firefly fluorescence imaging system to use in biliary imaging. We believe this will have application for use Looking back at the full year 2012, our operating highlights are as follows.
Worldwide procedures grew by approximately 25%. We sold 6 20 da Vinci surgical systems in the year, up from 534. Total revenue grew to $2,178,000,000, up 24% over 2011. Recurring revenue grew to $1,246,000,000,000 27% and comprising 57 percent of total revenue. We generated $1,031,000,000 in operating profit for non cash stock compensation expense, up 24% from last year, and GAAP net income grew to 657,000,000 up 33% 5% over the fourth quarter of last year.
We sold 175 Da Vinci Surgical Systems, up from 152 in the fourth quarter of 2011. Total revenue for the quarter $4,000,000, up 29%. We generated an operating profit of $286,000,000 in the quarter before noncash stock expense, up 22% from the fourth quarter of last year and GAAP net income grew to 175,000,000 up 16%. We ended the year with $2,921,000,000 in cash and investments up $219,000,000 from last quarter and up $749,000,000 from last year. We received $263,000,000 in cash during the year from the exercise of stock options and invested $180,000,000 in intellectual property, working capital, property, plant and equipment, and $238,000,000 in stock repurchases for the year.
In the quarter, we added 170 people to our team, predominantly in our clinical sales force, our manufacturing team, and design functions in Q4, bringing our total team to 2362 employees. Looking to 2013, our priorities are as follows: 1st, continued focus on use of da Vinci and gynecology second, supporting emerging growth of da Vinci and general surgery third, disciplined execution of cabling and single site for hysterectomy launches focused on outstanding early customer experiences, and finally continuing to strengthen our capability in international markets, particularly Europe and Japan. I'll now pass the time over to Marshall Moore, our Chief Financial Officer, to take us through our financial performance in greater
Thank you, Gary. Our 4th quarter revenue was $609,000,000, up 23% compared to 4.97 $1,000,000 for the fourth quarter of 2011 and up 13% compared with $538,000,000 last quarter. 4th quarter revenues by product category were as follows: 4th quarter instrument and accessory revenue was $254,000,000, up 29% compared with 190 $6,000,000 for the fourth quarter of 20 11 and up 16% compared to $218,000,000 in the third quarter of 2012. The year over year increase in federal sealer and firefly and higher stocking orders associated with higher system unit sales. The year over year procedure growth was led by U.
S. Oncology and general surgery procedures, partially offset by lower growth in Europe and a year over year decrease in S. DBPs of approximately 17%. The sequential increase in I and A revenue compared with the last quarter was driven by higher procedure benefiting from favorable 4th quarter seasonality and benign procedures, higher new product sales, high our initial stocking stocking orders was approximately $20.50 per procedure, which is higher than the $19.80 realized in the fourth quarter of 2011. And the third quarter of 2012.
The sequential year over year increases were driven by higher new product sales, including vessel sealers, single site kits and firefly higher initial stocking orders associated with higher systems unit sales and the timing of Mr. Your orders. 4th quarter 2012 systems revenue of $265,000,000 increased 18% compared with $225,000,000 for 4th quarter of 20 12. We sold 175 systems in the fourth quarter of 2012 compared with 152 systems in the fourth quarter of 2011 and 155 systems in the third quarter of 2012. Our 4th quarter average sales price per system $1,490,000 in realized last quarter.
ASPs include all da Vinci models, all simulators, in Firefly when configured with the system and exclude upgrades. 4th quarter ASPs benefited from a favorable mix of dual console systems Firefly enabled systems and direct sales to Europe. ASPs will fluctuate quarter to quarter based product, customer and trade in mix as well as foreign exchange rates on direct sales to international customers. Sold 115 simulators during the quarter, mostly in conjunction with new system sales compared with 123 last year and 87 last quarter. We sold 32 dual console systems compared with 29 last year and 'twenty last quarter.
52 of our 4th quarter 2012 system sales involved traded comprised of 40 Davinci S's and 12 standard models, 50 of our fourth quarter 2011 sales in Health trade in and 34 of our third quarter 2012 sales from Hall trade in. Service revenue increased $91,000,000, up 20% compared with $75,000,000 last year and up 3% compared with $88,000,000 last quarter The growth in service revenue was primarily driven by 4th quarter recurring revenue comprised of instrument, accessory and service revenue increased to $344,000,000, up 27 compared with the fourth quarter of 2011 and up 13% compared with the third quarter of 2012. Recurring revenue represented 57% of total 4th quarter revenue compared with 55% in the 4th quarter last year and 57% last quarter. International revenue results were as follows. 4th quarter revenue outside the U.
S. Was $131,000,000, up 23% compared with revenue of $107,000,000 in the fourth quarter of 2011 and up 14% compared with revenue of $115,000,000 in the third quarter of 2012. Our year over procedures and higher system revenue. 4th quarter 2012 international procedure volume was approximately 21% higher than the 4th quarter 2011 and 15% higher than the seasonally slower third quarter of 2012. During the fourth quarter of 2012, we sold 42 systems outside the U.
S. Compared with 39 in fourth quarter of 2011. In 41, last quarter. We sold 24 systems in Europe this quarter compared with 23 in fourth quarter of 2011 and 13 last quarter. To direct customers in Europe also contributed to higher system revenue in the fourth quarter of 2012 compared with the third quarter and the 4th third quarter 4th quarter of 2011.
Alex will provide additional details of international system sales. Moving on to the remainder of percent during the fourth quarter primarily from lower margins earned on our newer single site and vessel sealer products. Our slight decline in margin percentage compared with 3rd quarter was mostly due to lower margins on a higher volume of our vessel sealer products. 4th quarter 20 12 operating expenses of $190,000,000 were up 16 2012. Our higher 4th quarter 2012 operating expenses were primarily driven by variable compensation of associated with our higher 4th quarter revenue and headcount 12 operating income was $248,000,000 or 41 percent of sales compared with $200,000,000 or 40 percent of sales for the fourth quarter of 2011 $211,000,000 or 39 percent of sales for the third quarter of 2012.
4th quarter 2012 operating income reflected $38,000,000 of non cash stock compensation expense compared with $35,000,000 for the 4th quarter of 2011 $47,000,000 last quarter. Our effective tax rate for the fourth quarter was 31 percent compared with 26% for the fourth quarter of 20 11 15% last quarter. I want to remind you that the third quarter of 2012 tax rate of 15 percent included discrete tax benefits of $38,000,000 associated with the expiration of the statute of limitation. The 4th quarter 2011 rate of 26% reflected the federal a federal R and D credit discrete benefits associated with it is in line with our expectation and excluded the impact of the federal R and D credit free and statement, which was enacted in 2013 and will be reflected a discrete item in the first quarter of 2013. 12 will be between $6,000,000 $8,000,000.
Our net income was $175,000,000 or $4.25 per share compared with $151,000,000 or $3.75 per share $6 per share for the third quarter of 2012. Excluding the 3rd quarter discrete tax benefits of 38,000,000, Our third quarter net income would have been $145,000,000 or $3.54 per share. Let me quickly summarize our results for full year of 2012. Procedures grew by 25 percent to approximately $450,000. Total revenue was 2.01 $79,000,000, up 24% compared with $1,757,000,000 last year.
The revenue increase included recurring revenue growth of 27% and an increase in systems revenue of 20%. Full year operating income was $78,000,000, up 26% compared with $695,000,000 last year. Operating income included $153,000,000 of based compensation charges compared with $136,000,000 in 20.11. Net income was 6 $57,000,000 or $15.94 per share compared with $495,000,000 or 12 point $3.2 per share last year. 2012 net income included approximately $46,000,000 associated with statute of limitations and a change in the rules for $199,000,000 tax credit.
Excluding these items, net income $1,000,000 or $14.85 per share. Year to date cash flow from operations was $14,000,000 compared with $678,000,000 last year. Now moving on to cash flows. We ended the 4th quarter with cash and new investments of $2,900,000,000, up $220,000,000 compared with September 30, 2012. The increase was driven by 2 17,000,000 cash flows from operations, plus $87,000,000 from
the exercise of stock option,
partially offset by $53,000,000 in stock buyback and $61,000,000 of capital and IP purchases. We bought back 102,000 shares at an average price of $5.24 per year, and we have 330,000,000 board authorized buybacks remaining. And with that, I'd like to turn it over to Alex, who'll go over our sales, marketing and clinical highlights.
Thank you, Marshall. During the fourth quarter, we sold 175 da Vinci systems, 133 in the United 24 into Europe and 18 into rest of the world markets. As part of the 175 system sales, 12 standard da Vinci systems and 40 da Vinci We had a net 123 system additions to the installed base during the quarter, which brings to 2585 the cumulative number of da Vinci systems worldwide, 1878 in the United States 400 and 16 in Europe and 2 91 in rest of world markets 114 of the 175 systems installed during the the 7 of the 175 systems sold represented da Vinci Si or SIE systems, which included 32 dual console systems. The 42 system sales internationally included 10 countries of Denmark, Switzerland and Canada. Overall, our da Vinci sales remained strong through the year, totaling 620 Clinically, we finished the year strong with Q4 year over year procedure growth of approximately 25%.
The specialties GYN And General Surgery were responsible for most of this growth. DBP, more specifically, U. S. DP, a topic we've extensively discussed over the past several quarters declined 17% on a Q4 over Q4 basis, but was up 2% on a sequential basis. While the rate of decline has tempered a bit, we are not in position to declare an endpoint to its decline Our 4th quarter percent.
U. S. Procedure growth for the year was approximately 26% as compared to 23% for 2012 procedure growth. Benign hysterectomy, cholecystectomy, colon and rectal resections, endometriosis resection, nephrectomy and sacrocolpopexy were the largest individual contributors to procedure growth, which more than offset the decline within our 2012 U. S.
DBP business. The U. S. Procedure breakdown for 2012 was as follows: Total procedures grew to approximate $373,000, up from $292,000 in 20.11. Total GYN grew to approximately 222,000 procedures, up from 170,000 in 2011.
DBH accounted for approximately 176,000 procedures, up $140,000 in 2011. Urology accounted for approximately 88,000 procedures which were down from declined from approximately 70 3000 to 62,000 procedures. General surgery procedures increased to approximately 42,000, up from 15,000 in 20 11, representing a 173% in recently released new products continue to do well, notably single site Early customer feedback has been to approximately coming from colorectal simulator and Firefly continues to expand with 115 customers purchasing a da Vinci simulator and 88 customers purchasing Firefly systems as part of their da Vinci purchase this quarter. Papers representing a variety of surgical specialties were published within various peer reviewed journals, while quarterly clinical conferences produced several live da Vinci procedure transmissions, postgraduate robotic courses, podium presentations, and clinical poster sessions. Some of our early general surgery success is rooted within complex procedures, which are often considered difficult to perform technique.
Laparoscopic mid and low rectal cancer resections have for years proved challenging for even the most advanced laparoscopic surgeons. And as a result, clinical adoption remains low. The added benefit of da Vinci's articulated instrumentation, intuitive movement and magnified 3 d HD vision has provided a new foundation for MIS advancement in the field. A recent 3 arm comparison out of the Department of Surgery at Yance University College of Medicine was published in the the study reported undergoing robotic laparoscopic and open mid and low rectal cancer procedures. The findings from this case This case match study revealed that robotic surgery for the treatment of mid to low rectal cancer resulted in significant decreases in the amount of analgesia used postoperative pain with robotic surgery, the incidence of circumferential margin involvement and immediate post op avoiding problems showed a significant decrease with robotic surgery as compared with open surgery.
Robotic surgery showed better recovery outcomes than lap surgery with regard to time to resume soft diet and length of hospital state. The visual analog scale was significantly lower in robotic surgery than in laparoscopic surgery and open surgery from post operative days 1 through 5. And no significant differences were found in 2 year disease free survival rates between the 3 groups, causing the authors to conclude and I quote robotic surgery may be an effective tool in the effort to max lies the advantages of minimally invasive surgery in the management of mid and low rectal cancers. The clinical pursuit toward nephron sparing kidney A 500 patient study out of the Cleveland Clinic entitled Comparative Outcomes And Assessment of Trifecta, in 500 robotic and laparoscopic partial nephrectomies was published in the journal Urology. Trifecta is defined as a operative complications.
The study reported that even with the more complex tumor profiles found in the da Vinci cohort, operating times were nearly 22 minutes less as compared to the laparoscopic cohort 169 minutes versus 160 excuse me, 191 minutes. Intraoperative complications associated with da Vinci patients were less than half when compared to laparoscopy. 2.6% as compared to 5.6%. Postoperative complications were 24.5 the da Vinci cohort as compared to 32% for patients within the laparoscopic arm. Positive surgical margins were 2.9% in the da Vinci cohort as compared to 5.9 for laparoscopy.
In the da Vinci cohort at 58.7 percent as compared 31.6% for the laparoscopic group, These findings led the author to the author's conclusion, and I quote, our large analysis shows that robotic of indications, partial nephrectomy. Overall, to me, thus likely to become the new standard technique for minimally invasive partial nephrectomy. Once again, the category of GYN contributed greater total procedure growth than any specialty we serve. Davinci Sacral Colpalpexy volume trains trails only da Vinci hysterectomy within this specialty and a continued reported the results of their 164 patient study comparing da Vinci Sacral Colopexy to open sacralcopex This retrospective study focused on cost, operative time and the length of stay for each group. Within this study, both system costs and maintenance costs were considered and included.
The authors reported that the median operative time for open sacrocopal pepsi and da Vinci sacrocopepsi was 166 minutes and 212 minutes respectively. Estimated blood loss averaged 150 milliliters in the open sacrocolpopexy as compared to just 50 milliliters within Davinci patient cohort. Length of stay for the da Vinci group averaged 2 days as compared to 3 days for the open sacrocopal pepsi group. However, 48% of the women treated within the da Vinci group experienced a length of stay of less than 24 hours as compared to just one percent for the $6.68 as compared to $7804 for the Open Group. The overall cost reported for the robotics group was 9725 as compared to 12,400 and $85,000,000 for the Open Sacral Copaxi Group with similar readmission rates at 30 days post op.
The author stated that while da Vinci sacal Colopexy took a slightly took slightly longer to perform than an open Sacal Colopexy, both the direct and indirect cost for the da Vinci sacrocolpopexy was less than for open sacrocolpopexy. This concludes my remarks and I'll now turn the time over to Calvin.
Thank you, Alex. I be providing you with our financial forecast for 2013, including procedures, revenues and other elements of the income statement on a GAAP basis. I will also provide estimates flows. Starting with procedures. In 2013, we expect procedure growth to be driven by U.
S. Gynecology U. S. General surgery and international DBP procedures. We expect our 2013 total procedures 20 12.
Based on an increasing proportion of benign short term elective procedures in our procedure mix, we anticipate a resulting in proportionally lower Q1 and Q3 procedure volumes and proportionally higher Q4 volumes. Moving on to revenues. In 2013, we expect to achieve annual revenue growth of between 16% 19%. We expect typical capital sales seasonality in 23rd with the proportion of full year system units sold in each quarter to follow a pattern fairly consistent with 2012. We would expect fewer systems to sold in the upcoming seasonally slower first quarter than in the recently completed seasonally stronger 4th quarter.
As a result, total first quarter 2013 revenue is likely to be lower than the fourth quarter of 2012. All 2013 revenues, particularly capital sales are subject to the impacts Our full year 2012 operating income was 40.3 percent of revenue. In 2013, As we reviewed to equate to roughly 1.1% of our consolidated revenue. We plan to record the expense as a component of cost of sales, thus impacting both gross and operating profit margins. We also expect margin percentage in field sales and training resources
to
of revenue to be lower in the first quarter of 2013, reflecting system sales and procedure seasonality. 2013 operating expenses should follow a quarterly pattern, quarterly growth pattern similar to 2012 with Q1 reflecting the full quarter impact of our Q4 new hires. We expect our non cash stock compensation charges to increase from $153,000,000 recorded in 2012 to approximately $184,000,000 to $192,000,000 in 2013. Amortization of purchased intellectual property, which is mostly recorded as R and D expense is expected to increase from $23,000,000 in 20 $12,000,000 to $28,000,000 in 20.13. Other income, which is mainly comprised of interest in income was approximately $16,000,000 in 20 12.
We expect other income to grow to between $18,000,000 $22,000,000 in 20 13. With regard to income income tax tax credit for 2013, we anticipate our base full year tax rate to fall within a range of between 28% 30% of pretax income. As Marshall mentioned, we expect to recognize a discrete benefit of between $6,000,000 $8,000,000 during the first quarter of 2013 related to the reinstatement of the 2012 R and D tax credit. This discrete item will result in downward adjustment of our Q1 twenty thirteen income tax expense from the 28 to 30 full year rate. We estimate our share count for calculating EPS in Q1 2013 will be approximately 41,200,000 shares.
That concludes our prepared remarks. We will now open
You'll hear a tone indicating you've been placed in queue. You may remove yourself from the queue by pressing the pound key. Once again, if anyone would like to ask Our first question is from Lenox Ketner with Bank of America. Oh, hi. Can you hear me okay?
Great. Congratulations on a good quarter. I guess first, I just wanted to to touch base on general surgery and the growth that you're seeing in cholecystectomies. I'm wondering, at this point in the Europe, it's possible to kind of either quantitatively or qualitatively to how much of that uptake you think is trialing versus sticky procedures. I don't know if you can give any sense as to what percentage of the 450 450 customers that have bought single site kits that bought second kits or if it's possible just to speak at all to, you know, how much you think is trialing versus sticky procedure.
Well, you know, I think it's really too early to say what is a trend, what is ultimately a long term expectation. It's our belief in what we can say at this point, and it's our belief with 450 U. S. Customers purchasing starter kits that there's a lot of interest in people moving toward single incision surgery, trying to define how many of those we will have going forward that are part of the initial is difficult to say. But I think we're most pleased with the fact that it is indeed a large number of U.
S. Customers that that are going through the purchasing activity and actually doing these procedures today. And then just as
a follow-up, there were
some concern around, the, the recent AGL statement regarding, robotic hysterectomies and the fact that the A GL doesn't believe it should be used to replace, lab laparoscopic hysterectomies. I know that most of your hysterectomy procedures that are being done right now are actually replacing open surgeries, but I'm wondering if you could maybe just frame for people you know, on a go forward basis, what percentage of the hysterectomy market you think is still being done as open procedures, just so people have a sense as to what the remaining opportunity is there, just, you know, in terms of assembly open procedures to robotics?
Well, you are right. I think many of the studies that were cited in the AAGL statement actually compared robotic surgery to laparoscopic surgery and really failed to recognize that the majority of the robotic cases would have probably previously been done via laparotomy. We had, as you recall, as we've gone through our sizing, if you will, of our target market, we've talked about this pretty specifically over the years. When we started really with the da Vinci hysterectomy, think it was estimated that somewhere along the lines of 66% of the hysterectomies performed in the United States were being performed through laparotomy. I believe the Solucent database, which is a division of Thomson Reuters, I think in their most recent publication, I think, goes through 2011, they estimated that only 39% of the procedures in the United States now the history are being performed through a laparotomy.
Vaginal I think was something like 14%. Laparoscopy was around 16 percent and the remainder, was through da Vinci. So our objective really is to move these complex procedures from open and invasive incisions to minimally invasive surgery. And I believe, that the record shows that that's taking place
Okay. Thanks very much. I'll let you know if I can. Next, we'll go to the line of Ben Andrew with William Blair. Please go ahead.
Good afternoon guys. Two questions for me. First, can you talk about the adoption curve that you've seen in gen surge so far? And if you adjust for the installed base change, how it compares to maybe DVH most appropriately?
Well, it's interesting in general surgery versus let's say DvH is we're talking about a category. Within the general surgery category, if I'm not mistaken, there are there have been somewhere around 40 plus procedures that have gone into, the category of general surgery that have been done, performed with da Vinci. So it's, It's difficult to really compare apples to apples between a category and let's say something like DvH, which is a single procedure. And it's even more difficult comparing it to, let's say, DBP, which is a single procedure that is that is always done for a single disease, which is cancer. In other words, there's just too many inconsistencies between the 3.
But what we will say is within the category of general surgery the two procedures that are driving a great deal of that growth are septomy and, colon surgery, not just low anterior resection, but right colon, left colon, versus coherence, etcetera.
And Alex, can you talk a little bit about the typical experience for a new general surgeon starting out in sort of wanting to do single coalier, whatever. Is there a typical kind of process they go through and how quickly people are coming up that curve?
Well, a lot of that depends on what they're experiences going into that case. In other words, are they, completely laparoscopically trained, are they laparoscopic, are they robotically trained robotically naive? And I think each one of those is a little bit but I would say that, by and large, you will have people that, will do, you know, multi incision cholecystectomies, with the traditional da Vinci system, or they'll do some other procedures prior to moving into the single incision surgeries. I don't know that I can say that there's a typical profile and or a typical experience
Okay. And then just maybe a quick question for Marshall. Can you talk a little bit about the expectations on guidance thinking about Europe, if you've guided a 20% to 23% procedure growth, does that give you, 25% U. S. And 15% Europe or international more broadly?
Just drives for us what you've built in there, please. Thanks.
We haven't broken it down. And we've given you a range because there's some uncertainty associated with certain elements of the of the guidance itself. And so I I'm not going to break it down into this detail. Alright. Thank you.
Next we'll go to the line of David Lewis with Morgan Stanley. Please go ahead.
Alex, I wonder if you could tell us maybe in the back half of 12 or for all of 2012, if you think about total general surgery procedures, either in terms of adoption curve steepness either in single site COLI versus LAR, where you're seeing a steeper relative adoption curve or where the contribution to growth is stronger?
Well, it's too early to say, as you know, with adoption curves, it's dangerous to try today and draw a lot of conclusions from it is probably dangerous. But in terms of overall growth, I mean, cholecystectomy is, as we've said, think in our previous call is our 3rd largest overall procedure. And that's all of cholecystectomy in including single site and for incision cholecystectomy. So that, that one would be, growing at a steeper
Okay, very helpful. And then Marshall, just a quick question on margins. It sounds like some of the dynamic is mix with some of your higher growth procedures coming in and maybe a slightly lower GM. How much of that is simply temporary? When you start getting real scale advantages back half 'thirteen into 'fourteen, does that sort of vanish when we get back to a corporate gross margin for consumables that's more appropriate?
Or is are we always going to see some sort of a drag here, just based on how you're pricing some of these individual minutes?
The variation in the in margin really has to do with the introduction of new products and the margins that are earned on those new products. Initially, you're dealing with, low volumes. You're dealing with, maybe not optimized manufacturing and and design. Those products are we work on reducing those costs over time, increasing the volumes and reducing those costs over time. But Some of those products are more complex than the products we've had get to the same level of margin of, let's say, a simple product,
a product that we have. Some, some improve quickly in margin and some take a greater investment and longer time to improve.
Okay. Thank you very much.
Next, we'll go to the line of Tycho Peterson with JPMorgan. Please go ahead.
Hey, good afternoon. Question, maybe first on DVP, your sequential performance here was a little bit better than we've been modeling. I know you're somewhat reluctant to kind of call the bottom here, but talk about whether there's any change in your own expectations from kind of a peak to trough drop off in DBP? And is it too early to start to think about some of those that have dropped out coming back coming back in for surgery?
Yes. I think as you started out in your question, I think you accurately stated the way we feel about it. It is too early for us to call. 90 days have passed since the last time we talked and we've watched it a little closer. We're we we've seen a favorable Q4 recognizing that Q3 is historically a C a slower quarter.
And so I think trying to draw too many conclusions at this stage is probably not in anyone's best interest. So I can say that we didn't see a great deal of difference other than the numbers in terms of the discussions with the physicians. I think people are pretty much in the same place today as they were in Q3. However, the numbers have shown an improvement. And we'll watch it and and we'll see when we feel safe when it feels safe to call a trough.
And then in terms of the quarter, in terms of placements, are you able to call out the impact the VA order at all? We've had a few people asking about that.
So the VA contract was for about $34,000,000 of product. That was a contract for both systems, initial stocking of instruments and accessories, as well as other things that go with it like years. And we did ship a majority of what was under that contract in the last quarter.
Okay. And then just last one as we think about, full ramp of the stapler here. I know you're kind of still in the trialing period and working with KOLs, but when should we think about that into kind of full commercial launch?
We, we'll be advancing it, carefully the first half of this year, and likely through the full year. So in the first half, we expect to be out in customers in this first quarter and we'll advance as slowly as as we get customer feedback and really make sure that we've optimized their experience. So this will be a a conservative launch, really focused on the fact that stapling is
business. Great. Thank you. Next,
we'll go to the line of Larry Keusch with Raymond James. Please go ahead.
Can, Alex, maybe you could talk a little bit about, prostate and the experience, in Europe, I guess there had been some earned that some of the changes in the US here would would have a pronounced effect over there. So so any thoughts on that would be great.
Well, I think as we've said in the past, the world is getting smaller information to share quickly. And there are, the same census, if you will, of participants at both national and international meetings. So I think there is some effect. And it is, in some markets, it's probably felt a little bit more than in others. In other words, in a place like Japan where you're starting relatively new, there's a lot of growth ahead of us.
And you're probably powering through that, any, any, the bit more pronounced. So I don't know that we can necessarily label Europe, homogeneously and believe international for that matter and believe that it's something that resembles each country resembles the next. But I think there's probably some markets where it's a low bit more pronounced than others.
Like in the U. S, it's a hard thing to model.
Got it. And then just two other quick ones. Just relative to the, the, 510 clearance that you guys are anticipating for Fireflies in, biliary Could you talk about how important that is to push the adoption of single site COLI It seems to me that obviously if you can reduce common bile duct injuries, that would be a positive with that technology. And then separately, I think last you provided, some feel for kind of, in the U. S, what procedures grew if you were to adjust for the declines in prostatectomy.
I was wondering if you could help us with that in the fourth quarter.
Just speaking to the first one, the 510 submission for firefly biliary imaging. That has, just been submitted this quarter. So in terms of, when we expect a clearance, no, no endpoint, to tell you about yet. We do think that biliary imaging in real time is is interesting and meaningful for colistusectomy for the reason that you indicate that, a common bile duct injury is a serious complication. And we think that, that Fireflies can augment the white light imaging and be a compliment to, with cholangiography.
So that that's the intent. We've just started that station with FDA. And as it proceeds and we have something more material to share, we will. With regard to the the breakouts on kind of the adjustments in the procedure mix. I'll turn it to Alex to let you.
Yes, I think it's pretty consistent with what I had mentioned earlier in terms of hysterectomy, if, cholecystectomy, colorectal surgery, endometriosis resection, safe partial nephrectomy, I mean, those procedures are the ones that I think primarily are the strength for the quarter and for the Yes.
And just looking at the numbers on a full year basis, DBP on a full year basis was down 15% Alex described in his notes. If you kind of back that out in the U. S, everything else was up about 39%.
Thanks so much.
We'll go to the line of David Roman with Goldman Sachs. Please go ahead.
Good evening, everyone. And I'd certainly echo in comments earlier on on on a very strong quarter here. So congrats. Nice way to start in in the year and start 2013. But one wanted just to sort of focus a little bit on on the general surgery application And more specifically, can you give some perspective on where the procedures you're doing are coming from?
And I guess really what I'm asking is, are procedures that were done in a laparoscopic setting? Were they done open? Are these people who wouldn't otherwise do the procedures? Are you adding growth market, maybe just any perspective you can give us on, on the competitive modalities would be helpful.
Yes, I think if you look at again, we believe we talked about 42,000 procedures, up from 15,000 in 2011. If you look at the biggest contributor there, it's cholecystectomy. And almost all of those procedures apichola cystectomy. So that one, I think, is fairly simple to say where it's coming from. If you look at that if you look at bowel surgery and specifically large bowel or colon, you have colons, you have while you start on the other side, you have right colons, transverse, lapse, sigmoid moving down into the rectum, and then you have total colectomy.
Depending on which procedure, each of those are counted as a different procedure, depending on which of those procedures you're talking about, If you did it inversely and you started at the most difficult or the lowest penetrated laparoscopically, it would be low rectal cancer There you're talking about data would suggest that it's a single digit penetration of of laparoscopy whereas if you're talking about right colon, it's double digit and I've seen numbers perhaps as high as 20% or 21% or 22% that is laparoscopic. So you have a range of where those patients would have gone either to a open surgery or laparoscopic surgery. And then you have a smattering of procedures that range from some open that would have been done open, whether it be distal pancreatrectomy or liver surgery, and then you have, other procedure such as nissans that may have been done laparoscopically. So there's a lot of movement that's going on, which is I think it was an earlier question that Bennett had asked about general surgery, you have what amounts to, I think, 40 some procedures that have been done. And and and trying to to build an individual profile for general surgery is, is a challenge.
And then maybe just a follow-up on on on the guidance is obviously 20% to 23% procedure guidance is a solid number. If I look at that, that contrasted with the total revenue guidance. It does imply a fairly sharp slowing on the system side of the business. Anything particular to call out there? Is it comps?
Is it lapping the Japan reimbursed or anything else is to understand why that business would start would slow to the degree that the guidance implies?
Not sure that the conclusion is absolutely right.
I mean, there are a
lot of factors in the guidance including the average selling prices of the systems and the procedures and so on. So, yeah, I don't necessarily agree with
the conclusion, So I think we've lived in a good world of good mix on systems. And so I'm not sure that we believe that that system mix in that ASP will hold for the whole year. I think on the I and A front, as we move out in time, as we've always said, as stocking orders will become a smaller part of the picture and have less impact. And so we would see some level of pressure on pricing on I And A. And then, I think, in general, I think we've shown over the year you know, procedure growth does outpace the procedure growth outpaces revenue growth because cause of systems have not generally are not at the same level.
Okay. And then lastly, just to clarify on the share you said 41,200,000 shares. Is that a comment regarding the first quarter or the full year of 2013?
That's the first quarter comment.
Okay. Got it. Thank you.
Next we'll go to the line of Rick Wise with Stifel Nicholas. Please go ahead.
Good afternoon, everybody. All right. If you could just give us a little color on some of the structural changes you're making in Europe. Gary, you indicated that you're making significant progress as you've deepened the organization. Just a couple of things.
How long do you envision this investment sort of maybe extraordinary investment process continuing. And maybe give us a little more details about some of the specific actions if you could that you're taking place and maybe how you're approaching the market or Pan, Europe or company specific, anything to a little to understand a little better some of the things that are happening there? Thank you.
Yeah. I think, with regard to the progress we've made, I think we've made some progress. I'm not ready to call it significant progress yet. I think that our investments have really been in in kind of three areas. 1 has been, getting the right sales reps in the right tier is pretty straightforward.
We've we've done that and we'll continue to do so. And that that runs on a set of coverage metrics and and, kind of market analyses that are pretty straightforward. We've been making some more targeted investments. This isn't caps of thousands, but in terms of, understand reimbursement and regulatory, and the resources that are required to, to perform in different markets. And so that's been a more targeted set of investments.
And we've and we've invested in some better kind of top line leadership. And I think, investments in all three of those are encouraging, but they're early. I think that, we'll continue to invest for the next several quarters. It isn't a huge dollar value investments. They're more targeted in that way, but they report And so far, I think that we've made the right first steps.
I think we need to continue on that pathway.
And thank you for that. And you'd think that the sort of the major thrust is completed this year or by midyear or just again any sense of timing
I think we'll be concentrating on it through the year. And about this time next year, we ought to ask that same set of questions. Okay. If you will.
Okay. Japan, just again, I think you said significant demand. And with the da Vinci SI approval on hand, is this going to be an incremental driver? Are we going to see more upgrades maybe in 20 13 can help frame that for us. Thank you.
Yes. I think there's really 2 things to say with regard to SI approval in Japan. The first one is We're we're excited about the approval, in large part because it allows us to bring to Japan with follow on clearances, a set of technology we think have really made a benefit in the rest of the world and things like single side and firefly and vessel ceiling and dual console and simulator a bunch of things that we've invested on on the, on the SI system side. So we're excited about that. I think structurally though in the longer term, the Japanese market penetration will be paced by additional procedure reimbursement.
And and so near term, it's a great thing to get, in the hands of Japanese customer We need to continue to work on reimbursements beyond prostatectomy and we'll continue to do so.
Thank you so much.
Thank you. That was our last question. As we've said previously, while we focus on financial metrics such as revenues, profits, cash flow during these conference and reducing surgical trauma. I hope the following experience from Warren in California gives you some sense of what this means in the lives of our Last year, I made a donation to the Southern Maternity And Surgery Center for the da Vinci plant. I had no idea this system to be a must have tool for our surgical centers.
A few months ago, after success of urine samples showed traces of blood, My nurse practitioner urged me to see a urology. Doctor. Joe Franks discovered a small cancer in my bladder, which he removed on May 8th, 2012. A follow-up CT scan on May 25th showed a tumor in my left kidney. Because I am 88, I was considered borderline for surgery.
And if a mass appeared to be stable,
I might be lucky enough
read, we should go ahead with surgery if my intern escape be okay. On Friday, August 3rd, the intern has pronounced me to be fit, and I was on the list for On Saturday, Doctor. Frank called me to say there was a surgery cancellation for that Monday morning, August 6, using the new da Vinci system. I eagerly accepted. Doctor.
Frank said that all my stars must have been in alignment as the procedure only took about 2 hours, not counting the admissions procedure. The next day, I walked out of the hospital without having to take any pain medication, much easier than a root canal. Without DaVinci, the hospital stay would have been several days. In quote. Patients like Warren are the strongest advocates for dementia surgery and form the very foundation of our operating performance.
We have built our company to take surgery beyond the limits of the human hand, and I assure you that we remain committed to driving the vital few things to truly make a This concludes 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.
Conclude your conference for today. Thank you for your participation and for using AT And T Executive Teleconference