Ladies and gentlemen, thank you for standing by, and welcome to Intuitive Surgical Q3 2012 earnings release conference call. At this time all participants are in a listen only mode. Also as a reminder, today's teleconference is being recorded. And at this time, we would like to turn the conference call over to your host, Senior Director of Finance, Mr. Calvin Darling.
Please go ahead, sir.
Thank you. Good afternoon, noon, and welcome to Intuitive Surgical's third quarter conference call. With me today, we have Gary Goodhart, 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 detail in the company's cautioned not to place undue reliance on such forward looking statements. Please note that this conference call will be available for audio replay our website at intuitivesurgical.com on the intuitive archives 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 third quarter's results, as described in our press release announced earlier today, followed by a question and answer session.
Gary will present the quarter's business and operational highlights, Marshall will provide a review of our third quarter financial results. Alex will discuss marketing and clinical highlights, then I'll provide an update to our financial forecast for 2012. And finally, we will host a question and answer session. With that, I'll turn it over to Gary.
Thanks, for joining us today. The third quarter highlighted both market strengths and headwinds. Our procedure performance came in below our expectations, driven by challenging conditions in Europe and changes in prostate cancer detection and treatment. On the positive side, acceptance of in the weakness in Europe and acceleration in the decline of our U. S.
Da Vinci prostatectomies. The prostatectomy decline appears to be driven by combination of for low risk prostate cancer away from definitive treatment. European procedure weakness appears to be driven by 3 underlying conditions. Product economic pressure in Europe, sentiment behind the PSA testing recommendation from the U. S.
Reflecting into Europe and the need for increased depth in our commercial optimization. We have been investing in strong growth, which was multifaceted, including growth in colon and rectal surgery for cancers, as well as cold cystectomy, the latter following the introduction of single site earlier in the year. Gynecology performance was solid and biology growth was broad based, including hysterectomy, cyclical perplexity and myomectomy. Alex will provide additional procedure commentary have opened this year, 1 in Fujita Health and 1 at Tokyo Medical University to increase in country capacity for training Japanese search Turning to our operating quarter of last year. Procedures grew approximately 22% over the third quarter of 2011.
Instrument and accessory revenue was $18,000,000, up 24% over Q3 twenty eleven. Total revenue was 538,000,000 up 20% over last year. Total recurring revenue grew to $306,000,000, up 24% from prior year and comprising 57 of total revenue. We generated an operating profit of $259,000,000 before non cash stock option expense, up 21% from the third quarter of last year, and representing 48% of Q3 revenue. Net income was $183,000,000, up 50% over the last year.
$1,000,000 in cash and investments, up $70,000,000 from last quarter. Turning to recently launched products, those in development, in the third quarter, we continued to focus on our launches of single site for cholecystectomy and vessel sealer. This quarter, we submitted a 510 for single side instruments and indications for use in benign hysterectomy and subhinal luporectomy. Have received FDA's questions and are encouraged by the conversation for this extension of single site. We will work over the next few months
to gather the data they have
requested We mentioned on our last call that we expect applications for the da Vinci vessel Ciller has been positive in both of these disciplines. Lastly, with regard to our da Vinci Stapler, we have submitted our responses to FDA and believe that we have answered for questions. We are awaiting their response. As we entered new surgical markets and drive into new product arenas, we to invest in building our team and expanding partnerships and acquiring technologies that can make a difference to robotic surgery. Given the uptake of da Vinci general surgery, we expect to increase our sales force for emerging general surgery procedures and to increase customer training capacity.
Furthermore, we plan to continue investment in our sales and marketing 1,000,000 sales manufacturing and R and D, bringing our total team to 2192 employees. I'll now pass the time over to Marshall, our Chief Financial Officer.
Thank you, Gary. Our 3rd quarter revenue was $538,000,000, up 20% compared with $447,000,000 for the third quarter of 20 and up slightly compared to the $536,000,000 last quarter. 3rd quarter revenues by product category were as follows: 3rd quarter instrument and accessory revenue was $218,000,000, up 24% compared with $176,000,000 for the quarter of 2011 and down 3% compared with $224,000,000 in the second quarter of 2012. The year over year increase in I and A was driven by procedure growth of approximately 22% in sales of our new instrument and accessory products, including single site, vessel sealer Fireflies. The year over year procedure growth was led by U.
S. Gynecologic procedures and U. S. General surgery growth, partially offset by lower growth in Europe and a decrease in U. S.
DVPs. Third quarter 2012 U. S. DVP procedures decreased 20% compared to the prior year. Primarily driven by the timing of stocking and distributor orders.
Instrument and accessory revenue realized per procedure including initial stocking orders was approximately $1980 per procedure, which is higher than the $19.50 realized in the third quarter of 20 $90 realized in the second quarter of 2012. The sequential decrease was driven by the timing of instrument and accessory stocking orders associated the $2,000,000 increased 17% compared with $199,000,000 for the third quarter of 2011 and increased 1% compared $229,000,000 for the second quarter of 2012. We sold 155 systems in the third quarter of 2012 compared with 133 systems $48,000,000, an increase from the $1,460,000 realized in the third quarter of 20 realized in the second quarter. ASPs include all da Vinci models, all simulators, and Firefly when configured with the system. And exclude upgrades.
The decrease in ASPs compared with the second quarter of 2012 was driven by a lower proportion of dual console simulator configurations and lower revenue recognized on euro denominated sales. We sold 87 simulators during the quarter, mostly in conjunction with system sales compared with 121 last quarter. We sold 20 dual console systems compared to 28 in the second quarter. 34 of our third quarter 2012 system sales and involve traders comprised of 26 Da Vinci S's and 8 standard models. 35 of our second quarter 2012 system sales involved trade in comprised of 23 Davinci S's and 12 standard models.
ASPs will fluctuate quarter to quarter based on product, customer and trade in mix as well as foreign exchange rates on direct sales to foreign customers. Service revenue increased to $88,000,000, up 22% compared with $72,000,000 last year and up 5% compared with 83,000,000 last quarter. The growth in service revenue was primarily driven by a larger system installed base. Total third quarter recurring revenue comprised of instrument, accessory and service revenue increased to $306,000,000, up 24% compared 57% of total 3rd quarter revenue compared with 55% in the third quarter last year and 57% last quarter. International results were as follows.
3rd quarter revenue outside the U. S. Was $115,000,000, up 22 compared with revenue of $94,000,000 in quarter of 2012. Our international revenue growth was primarily driven by higher system sales into Japan, 16 da Vinci S systems were sold into Japan in 7 during the second quarter of 2012. International Instrument Accessory Revenue Group a summer seasonality, a difficult European economic environment and distributor buying patterns.
We sold 41 systems outside the United States compared with 70s replacements. We sold 13 systems in Europe this quarter compared with 18 in third quarter of 2011 and 13 last quarter. The decline in details of international system sales. Moving on to the remainder of the P and L. Gross margin in the 3rd quarter was 72.5%, compared with 72.9% during the third quarter of 2011 and 72% last quarter.
Our slightly higher gross margin percentage compared to last quarter resulted primarily from cost improvements made to our new products. Third quarter 2012 operating expenses of 1 $79,000,000 were up 22% compared with the third quarter of 20 11 and up 11% compared with the second quarter of 2012. Our higher third quarter 2012 operating expenses resulted in a large part from the timing of non cash stock option expenses. Beginning in 2012, we changed our stock option granting pattern so that employees are now granted options at both February 15th and 15 compared with only at February 15 prior years. Although approximately the same number of options were granted in each year, we recognized a higher proportion of stock option expense in the third quarter of 2012 relative to the 1st 2 quarters of 2012 in the third quarter of 20 On a year to date basis, the stock option expense in 2012 is comparable to 2011.
Our higher third quarter 2012 operating expenses also reflect higher R and D project expenses and increased headcount. We added 92 employees in the quarter, including 44 employees in our commercial operations dollars or 39 percent of sales compared with $179,000,000 or 40 percent of sales for the third quarter of 2011 and $225,000,000 or 42 percent of sales for the second quarter of 2012. 3rd quarter 2012 operating income reflected 47 $47,000,000 of non cash stock compensation expense compared with $35,000,000 for the third quarter of 2011 30 $3,000,000 last quarter. Our effective tax rate for the third quarter was 15% compared with 32% for the third quarter of 20 percent last quarter. Our lower third due to limitations has now expired and adjustments to our 2011 provision as we have now finalized and filed the related returns.
Excluding one time benefits, our 3rd quarter tax provision would have been approximately $38,000,000 higher. Our net income was $3,000,000 or $4.46 per share compared with $122,000,000 or $3.05 per share for the third quarter of 20 $1,000,000 $155,000,000 or $3.75 per share for the third quarter of for the second quarter of 2012. Excluding the one time tax benefits, our
3rd quarter
the 1st 9 months of 2012. Procedures grew by 25%. Total revenue was $1,570,100,000, up 25%. Compared with $1,261,000,000 last year. The revenue increase included recurring revenue growth of 27% and an increase in systems revenue 21%.
Year to date operating income was $630,000,000, up 27% compared with $495,000,000 last year. Operating income include $115,000,000 of stock based compensation charges compared with $102,000,000 in 20.11. Net income was $482,000,000 or $11.72 per share compared with $344,000,000 or 8 $0.55 per share last year. Year to date cash flow from operations was $597,000,000 compared $464,000,000 last year. Now moving to the $7,000,000,000, up $70,000,000 compared with June 30, 2012.
The increase was driven by $246,000,000 of cash flows from operations plus $38,000,000 from the exercise of stock options, partially offset by $170,000,000 on in stock buybacks and $17,000,000 capital and IP purchases. We bought back 343,000 shares at an average price of $4.95 per share we have 383,000,000 Ford authorized buybacks remaining. And with that, I'd like to turn it over to Alex who'll go over our sales, marketing the highlights.
Thank you, Marshall. During the third quarter, we sold 155 da Vinci systems, 114 in the United States, 3rd into and 26 Davinci F systems were traded in for credit against sales for new da Vinci some additions to the installed base during the quarter, which brings to 2462, the cumulative number of da Vinci systems World wide 1789 in the U. S, 400 in Europe, and 273 in rest of world 79 of the 155 systems installed during the quarter represented repeat system sales to existing customers. In total, 139 of the 155 systems sold represented da Vinci Si or SIE systems, which included 20 dual console systems. To Belgium.
The 16 systems placed in Japan establishes it as our 2nd largest da Vinci market worldwide with 70 play for the quarter, achieving year over year procedure growth of approximately 22%. The shortfall can be attributed to 2 factors: a larger than expected decline be traced to both conservative PSA screening protocols and a change in treatment recommendations for low risk cancer patients away from definitive treatment. Our EU procedure business shortfall is a bit more complex to define as it appears to be both macroeconomic and structural in nature. As Gary stated. With the exception of these two areas, procedure performance was solid.
Growth during the quarter was led by the and GYN procedures, which included da Vinci hysterectomy, cholecystectomy, colon and rectal resections, lobectomy, endomet treatosis for sections, sacralcopal paxi's myomectomy mitral valve repair and nephrectomy, all displayed solid growth. Recently released new products continue to do well, most notably single site. Early customer feedback has been positive and our initial sales have been strong. Clinical awareness for da Vinci's single site cholecystectomy was very apparent at the recent American College of Surgery Conference held in Chicago. The clinical press solutions that were delivered through large audiences with both U.
S. And international surgeons participating. Through the third quarter, we sold single site instrument and accessory kits to over 350 U. S. Customers.
Our recently launched vessel sealer product was also favorably received at this conference. With most of the interest coming from colorectal and advanced general surgery clinicians. This product is performing well in the field and the feature set specifically the articulated risk design appears to be satisfying a strong market need. The customer adoption for both da Vinci simulator and Fireflies continues to spend with 87 customers purchasing a da Vinci simulator and 64 customers purchasing Fireflies systems as part of their initial system purchases this quarter. During the quarter, several 100 robotic abstracts and papers representing a variety of surgical specialties were published within various peer reviewed journals.
While quarterly conferences and near the top of that category is low rectal cancer surgery. In a recent addition of the annals of surgery, a prospective study entitled impact of robotic surgery on sexual and urinary functions after fully robotic nerve sparing total mesorectal excision for rectal cancer described the results of 74 da Vinci rectal resections completed at the European institute of oncology and Milan, Italy. Urinary and sexual functions are recognized as dysfunctions, excuse me, are recognized as serious complications within rectal surgery, but have yet to be reported on robotically, which was the aim of this study. 70 4 patients undergoing fully robotic reception for rectal cancer were prospectively included in the study urinary and sexual dysfunctions of and the results calculated using validated scoring satisfaction initially decreased 1 month post surgery general satisfaction, respectively, in women. Subsequent testing showed that both parameters increased progressively and at 12 month post surgery the values were comparable the presurgical measurements in both sexes.
The study conclusion was robotic total mesorectal Exision allows for preservation of urinary and sexual functions. The authors went on to say that this is most likely due to their ability to perform superior listed movements fine dissection coupled with a stable magnified 3d view when working around the inferior hypogastric plexus. Consistent with the theme of difficult to perform general search procedures is a paper out of the University of Pittsburgh Medical Center, which recently published in the Annals of Surgery. The paper entitled Robot assisted minimally invasive distal pancreatectomy is superior to laparoscopic technique described the technical limitations of the laparoscopic approach and how it may limit patient eligibility and require conversion to open or hand assist surgery to maintain patient safety. The study compared the perioperative outcomes 90 day morbidity and mortality of their first thirty robotic Dysco pancreatectomies to a historical control of 94 consecutive laparoscopic distal pancreatectomies.
They reported that the post operative length of hospital stay and rates of pancreatic fistula blood transfusions and readmissions were not statistically different between the However, for patients in the robotic group, the conversion rate to open surgery was 0 as compared to the lab group of 16% with significantly reduced the risk of excessive blood loss. Also of note was that more pancreatic ductal adenocarcinomas were approached robotically than laparoscopically 43% compared to 15%. Oncologic outcomes in these cases were superior for the robotic assisted group with higher rates of margin negative resection and improved lymph node pancreatctomies were equivalent to laparoscopic distal pancrotechnies in nearly all measurements of outcome and safety. But significantly reduced the risk of conversion to open resection despite a statistically greater probability of malignancy in the robotic cohort. We concluded that robotic assistance made broadened indications for minimally invasive pancreatactomy, M Corp.
From time time, we'll read critical reviews relating to the cost of robotic surgery where the underlying comparator is usually laparoscopic or laparoscopically surgery. Some comparisons have lumped several procedures into the same While it would own economic profile and can only be compared accordingly. In a recent addition of the Journal of Endo Urology, a study entitled cost analysis of robotic assisted versus hand assisted laparoscopic, partial nephrectomy, reviewed the economics for one of our largest and most successful procedures, partial nephrectomy. The aim of the study was to perform a cost comparison of 3 approaches to partial nephrectomy. Those being open, partial nephrectomy, hand assisted laparoscopic partial nephrectomy and robotic partial nephrectomy.
The retrospective analysis evaluated cost and clinical data from 89 patients who had undergone the 3 surgical approaches: baseline demographic data, patient comorbidities and the Framatrix Score and perioperative outcomes were assessed. Cost and sub costs from the operating room and hospital were evaluated using non parametric statistical analysis. Since the patient co morbidities and tumor characteristics were different in the open defrectomy cohort, it was excluded from the cost comparison. Thus, allowing for an apples to apples comparison between hand assist endoscopic partial nephrectomy and robotic partial nephrectomy. The study found no difference in overall costs between hand assist and robotic partial nephrectomy.
OR costs were higher for the robotic parcel nephrectomy because of the higher robotic capital and reusable equipment costs that outweighed the cost of disposable product for the hand assist laparoscopic parts and nephrectomy group. OR time related costs were similar between the groups. Robotic partial nephrectomy patients had a shorter length of stay, which decreased post operative hospital costs. They concluded by saying, and I quote, no difference in overall cost was found between robotic partial nephrectomy and hand assist laparoscopic partial nephrectomy. Robot allocation, or equipment use and length of stay are important determinants of total cost.
Further study regarding recovery and quality of life may reveal added benefits to minimally invasive approach and increase use
Thank you, Alex. Of the income statement on a GAAP basis. I will also provide estimates of significant non cash expenses to provide you with visibility into our expected future cash flows. Starting with procedures. On our last call, we forecast procedures to grow approximately 25% to 27% from the base of approximately 360,000 procedures performed in 2011.
3 quarters through 2012, our procedure growth stands at approximately 25 percent. During the third quarter, As a result, we now forecast full year 2012 da Vinci procedure volume to grow approximately 24% above cast 2012 revenues to grow between 20 percent 23 percent above our 2011 revenue of $1,760,000,000. As we enter the 4th quarter, we are now We continue to expect non cash stock compensation to fall within a range of between $152,000,000 $156,000,000 for the year. Through 3 quarters of this year, the expense should follow historical patterns. Now turning to other income.
On our last call, operating income On our last call, we forecast Now based upon the impact at about 40% for income to total between $16,000,171,000,000 for the year. With regard to income tax, our Q3 reported tax rate of 15% reflected a discrete benefit related to releasing reserves for tax years where the statutes of elimination limitations have expired. This discrete item favorably impacted Q3, but will not impact Q4. Approximately 31% of pretax income, which does not assume any reinstatement of the R and D tax credit. Going forward into 2013, we expect to see a gradual reduction in rate to a range of between 29% 31%.
Also looking into 2013, mix, we would estimate as a component of cost to Q3 at approximately 41,100,000 shares. That concludes our prepared remarks. We will now open the call to your questions.
Thank you very you. And we'll take our first question from the line of David Lewis with Morgan Stanley.
That manner. Just thinking about the 3rd quarter kind of from a macro perspective, it looks like the
3rd quarter is a lot of
the 2nd quarter. We saw significant Japan strength and U. S. De novo system strength offset by Europe. And we saw DBP U.
S. And OUS weakness offset obviously by DVH as well as some general surgery improvements. So do you any sense, the 4th quarter guidance sort of implies stable trends on procedures with the 3rd quarter, do you have any sense that the balance of these positive and negative forces how many quarters you think this could persist?
Hi, Nick, Gary. It's pretty hard to call. U. S. Cross protects me.
That's, as you know, more an issue of medical management and watchful waiting than it is. The change in in Medici surgery versus other kinds of surgery. So we don't have a crystal ball as to where that procedure is going to go over time. The data we look at is probably pretty similar to the data that you look at in terms of where where PSA testing is taking us. On the upside, I think the things that are growing, we can measure good interest from our customers.
We can measure Salesforce that tends to be a little bit more in our camp versus out in the world. So, on the downside, pretty tough to call on the upside we can look at the activities that we can influence and feel pretty confident about the things that we can do.
Gary, just following up one of those key catalysts, which obviously is single incision. I don't know if I caught it on the call, but could you sort of confirm whether sales has sort of moved into your 3rd just a procedure for the company?
We have talked about before is that colistisectomy as a, as a total procedure of all types multi port and single site together combined is the 3rd single
port on its
own is not. It's important to note that as a reminder, of course, it's a distant third. I mean, you have, you have hysterectomy, you have prostatectomy and you have cholecystectomy. So you have other procedures that are sort of in the general neighborhood procedures such as partial nephrectomy and sacrocolpopexy and So, it is indeed 3rd, but as a reminder, it is a distant 3rd.
There's one more difference. It's worth pointing out is that Unlike prostatectomy and hysterectomy, cholecystectomy can be an entry point into a clinical pathway for somebody who wants to end in somewhere else. And so those procedures can be a little more volatile.
And then Gary, just one quick one. I apologize for 2, 3 questions, but you talked about an increase in spending for both U. S. General surgery and potentially I would imagine if you're going to go after Europe and change structurally how you're selling that there could be increased expense. Could you help us sort of frame those relative expenses versus other very significant sales investments you've made perhaps the 2010 significant investment in the U.
S?
Yeah, this won't quite be the same scale. It's a little bit more targeted. So in Europe, it's really filling open headcount in the field and investing a little bit more in the back office in terms of clinical trials and other types of marketing investments, economic analysis and so on. So that's kind of what the European side looks like on the general surgery side. It'll be a general surgery focused expertise in-depth.
Thank you. Our next question in queue will come from the line of Ben Andrew with William Blair. Please go ahead.
Good afternoon guys. Gary, can you break down the procedure growth for us between the U. S, Europe and ROW?
Right. So the procedure growth,
ahead. Total procedure growth
quarter year over year was 22%. And then what we said was that the procedure growth out side of the U. S. Year over year was 9%.
Okay. So was the U S. Close to around 30? Wouldn't be that high.
Yes. I mean, you could probably back into it on your models there. But again, Worldwide, we're at about 22% for Q3, 25% on a year to date basis. And included in those numbers, would be a decline in the U. S.
DBP volume that Marshall mentioned of 20% on a quarter basis and 14% on on a year to date basis. And so I think kind of what it implies is that if the U. S. Stayed flat, from year to year, the worldwide growth would have been about 26% in Q3 and 28% on a year to date basis.
Right. What I guess what I'm getting at is, you know, DVP down 10 down 20% in the U S. If you were on a base of, say, 75,000 cases, for 11, if that's down 20% full year, you're talking something in the low 60,000 cases negative 15,000 at the most, 12 to 15. If DVH has grown 60, and Coley is adding 10 and all the other stuff, is adding another 30, 40, 50. You end up robust procedure growth, in the United States, and the the real evidence of a problem is obviously Europe, which is, macro.
And some concern about obviously DBP, but at some point, DBP has to bottom. And so the question becomes, is there sort of a structural level of detecting me that we can think about, where this will shake out over the course of call it six eight quarters, and we'll end up at maybe a rate of 50,000 dv, DBPs in the U. S. Does that make sense?
The flow of your argument makes sense. I think that, Calvin may argue with you about some of the numbers that just make sure that you tie them out right. But the flow generally speaking, the flow makes sense. Calling that number of kind of what the baseline number of the prostate techniques in the U. S.
Is hard to do. We've seen some analysis out there that's probably similar to the kinds of analysis that you've seen. And I think we're just going to have to see where that base establishes itself. I mean, I think there are a couple of things that argue for a base. One of them is that prostate cancer, the highest cure rate will come from surgery, not from medical management.
And the other thing that we know is that over time, a watchful waiting patients some fraction of them, usually a majority of them will convert to definitive treatment over time. So I think both of those things will argue for finding a floor and where what exactly that floor level is we're just going to have to wait and see.
Yes, but I think, Ben, the central theme of your thesis there is accurate. And that is if you look outside of those two areas, U. S. D. V.
P. And the the European weakness, the remainder of the procedure business was very strong year to date and for the quarter.
Okay. I'll sneak in one more as well. If you look at Japan, we've done some calls recently, and it sounds as though the Japanese government has authorized funding for about 150 systems. And, you know, our our sources were sort of indicating that that could come into play by the end of 13 and certainly 16 and third quarter is goes a long way towards that. Is that consistent with sustaining this sort of a 16% or pretty substantial rate?
And is that a reasonable target for installed base kind of going out of 13? Thanks.
Yes. I don't think we're ready to size the total market opportunity. And I think that Systems held by themselves are going to be lumpy quarter to quarter, and I would expect some lumpiness. Long term, we're really excited about the Japanese market opportunity to key opinion leaders, the people we talk to on the ground are excited about robotic surgery and we think it will build. And that's another area of investment.
But again, kind of calling this specifics is not something we're prepared to do.
Yes, I think there's just one caveat that's worth mentioning is, as a reminder, we have 1 national reimbursed which is prostatectomy. There are ways for it as evidenced by the activities prior to that national reimbursement that hospitals can go through. Let's call a one off basis or a checklist basis where they can apply for certain levels of reimbursement and other procedures. But from a national perspective, we are really in this environment where we are working within prostatectomy, primarily. And then there may be a few other that it worked in on a one off basis.
So that that's the environment we're in for a little while.
Yes, the next scheduled pass at procedures being added to the reimbursement list would be April of 2014 for a general system wide reimbursement.
Based on the way that MHLW runs every
Okay. Thank you.
Thank you. Our next question in queue will come from the line of Tycho Peterson with JP Morgan. Please go ahead.
Hey, thanks for taking the question. First question maybe on COLI. Wondering if you could just give us a little bit of a breakdown as to how much of the COLI uptake is single site versus multi arm? And are you starting to see COLI drive system placements?
I think we're not prepared to break out what that mix is I and I honestly, I think the important message here is that is to really look at structurally. You have general surgeons who don't have a lot of robotic experience going in. And so they are going to work through various procedures to some level to make sure that they have a good understanding of the Xs and Os of the system. And then what is today a general multi port cholecystectomy, the expectation is that those move into single site. So there will be a relationship and I think trying to call it at any given time is probably a I don't know how meaningful that is, but, collect as we said, it is the 3rd largest procedure.
Now we I think the way we would to categorize the importance of procedures as they relate to new system placements, it's hard to tease out what is cholecystectomy and what is general surgery because to Gary's earlier comments, sometimes cholecystectomy is not the endpoint which the general surgeons trying to get to and so it becomes one of many procedures that they see in their armamentarium over time. And so it's really hard to say what the what evidence we have at this point that it's wholly specific that is driving the system. But there is definite evidence that general surgeons are becoming more and more important to system placements.
And then in your commentary, you talked about additional indications for single site benign hysterectomy and nephrectomy. Can you just talk about how you think about those opportunities and then, you know, how much you want to push through single site versus, you know, at some point, is is logical to introduce a new new system?
Yes. On the first side, we think that hysterectomy is a patient population that sets up well for a single port robotic approach hear that and correct me. We'll see in terms of what happens next after single site, we'll continue to invest in Instrumentation. That makes sense in that platform and in indications. I don't think that'll be the last stopping point, for single site as we go forward.
And as always, we continue to invest in technologies that can make things more capable. And we invest in 2 interaction technologies. We invest in patient access, smaller, smaller ports and different ways to get into the body. And with regard to single site, continue to do that?
Yes, I think the, the way we think about, for example, the single site in GYN or benign hysterectomy is if you think about the way we've always described the market, there is a level of complex that was inherent in our target, for for hysterectomy, both benign, complex benign as well as as malignant. And so there's a sub segment of the market that is by definition, if you will, relatively less complex or simple. It seems like a very good area for us to, to apply some resources and see if, if this is indeed something we can access with, with, with, new technology, which is which is the approach.
And then just one last one because I'm sure we'll all get the question. In terms of the stapler, I mean, based on your actions with FDA, are you still thinking this could come by year end or should we think stages next year? I guess just how do we think about timing there?
It's always hard to predict exactly timing on these things and so I won't. We had a healthy conversation with FDA. We've understood their questions. I think that we've provided answers that make sense. And we'll let you know what happens
Thank you very much. Our next question in queue will come from the line of Lennox Ketner with Bank of America Merrill Lynch. Please go ahead.
Hi, guys. Thanks so much for taking the questions. First question, it sounds like there's a lot you're seeing a lot of good momentum I'm wondering if you could just comment on what Japan contributed to either overall procedure growth in the quarter or to the 9% international growth?
In a broad brush, it's growing nicely off a very small base. So, within country, we're delighted with the with
the growth rate in terms
of total contribution to the overall, it's probably not a material contribution.
Okay. And then just to go back to Europe, Gary, you talked about the fact that it's partly the macro environment and partly structural, which sounds you're working to address some of the structural issues, but I'm wondering if you could just give a little more detail on what those structural issues are. From my conversations with some European physicians, it sounds like 2 of the challenges over there are one that in some countries there are per diem reimbursement systems, which maybe makes the length of stay reduction, less valuable upfront, but then also, just the fact that there's less competition among hospitals, are those kind of the 2 main structural issues or is there something I'm missing there that you guys are working to address?
You know, I think there are a couple of things. One of the structural things is just open territories on our side in making sure we have the right number of sales people in in the various countries, and we can run that against internal metrics. So pretty simple one. And the solution there is to make sure that we're fully staffed. The second thing are more along the lines you've discussed, although I described them a little bit differently.
I think It is not really that a single payer system is not, capable or interested in adopting a dementia surgery. We've seen Japan single payer system has been, moving pretty quickly. Sweden isn't single payer system has moved quickly. So it isn't the act of being a single payer. It's more making sure that the conversations with government run hospitals around both economic value and clinical are, put into forms that they can accept, and we can match their timelines.
You're absolutely right with regard to, system that are using per diem, but that's a real challenge for, for hospitals to, adopt dementia surgery. We see of per diem systems being challenged in favor of DRGs in a lot of different places, not only for Vincey. I think the trend is away from per diem, not towards it. And, and so I don't see that as a systemic across all of your, but really in pockets.
That's very helpful. Thanks.
Thank you. Our next question in queue will come from the line of Lawrence Keusch with Raymond James. Please go ahead. Yeah. Hi.
Good afternoon. Just to pick up that question. Could you talk a little bit about perhaps where you are seeing some of the procedure pressures within Europe it is it more directed to Southern Europe and just really trying to get a sense of of whether anything's changing out there?
You see capital pressure in Southern Europe? Absolutely. Procedure pressure is a little bit less targeted directly with Southern versus Northern. And so it moves around a little bit.
So if you looked at and again, I think it's it almost takes even a little perhaps a derivative deeper So if you looked at place if you looked at environments like public hospitals in France, let's say, versus clinics in France and private clinics in other parts of Europe. It becomes probably more akin to those comparison than it does just individual countries. And we've had strength in Germany over not this particular quarter, but in the past, 2 years, we've called out Germany as having a lot of strength. This is the first time we've called out Belgium in probably a few probably a year and a half. So it seems like it's rotating through various countries, but it's probably more consistent with the public versus private.
That's that's helpful. And just two other quick ones. As you, noted the non hysterectomy nephrectomy 4 single site, have dependent on and getting into those procedures, how dependent is it on the need for new instrumentation? And if so, what might be the timing on that? And then lastly, you utilize cash this quarter to buy back stock.
You still have a lot So again, if you could just remind us of the general uses of cash.
On the issue of single side, as we've said, before, we've just submitted and received our first round of questions from FDA on the extension of our indications for single site to, hysterectomy and nephrectomy. I think there that we have good, as you know, good momentum in hysterectomy. I think I think it it goes into a set of surgeons who are interested in robotic surgery and towards a segment of the patient population that would be interested in in cosmesis and return to full function. So we're excited about that. I think it'll make some sense.
We're in the early stages of our interactions with FDA, how that will take. It's very tough to predict. And so we won't.
Yeah. As far as the instruments, Larry, I would say which is pretty consistent with the way we've approached new markets and new procedure targets, where we have a good base of instruments, but we're not exactly optimized for perfect performance if you will in terms of ease of use and having all of the right but think of it in terms of adding a few instruments rather than creating a whole new category of instruments. And I think consistent and will be consistent as we go into new procedure targets.
With regard to the uses of cash, I'll turn that to Marshall.
Yes. So we bought 343,000 shares this quarter. We'll we have 383,000,000 still authorized by the board. We'll continue program will buy back stock when it makes sense. It's not an absolutely certain amount every day.
Beyond that, the cash in there for an investment back into the business over time, particularly if there were to be a, extended or deepened, economic issue on a macro basis, as well as for investment into IP as the opportunities come up or other technologies again.
Okay, great. Thank you. Thank you very much. Our next question in queue will come from David Roman with Goldman Sachs. Please go ahead.
Good afternoon, everyone. Thank you for taking the questions.
I was hoping to focus a
little bit on the spending side of the equation. Obviously, you had guided to the $20,000,000 sequential uptick this quarter versus the 2nd quarter. But if I just look through the income statement, SG and A still being down as a percentage of sales year over year. So if you take out the options grant, this quarter. Can you maybe talk about your spending priorities?
It sounds like you have a lot on deck here in terms of investing in new procedure categories, trying to fend off the assault on DVT rebuilding your euro presence yet SG and A is still growing slower than revenue that's and I have a follow-up.
Yeah. We talked just on the number side and then I'll hand it over. We guided towards about $20,000,000 increase in operating expenses a quarter. It came in closer to 17.5%. So a little bit less than that.
And I think it had a little bit to do with the timing here. We called out R and D projects last quarter. Some of those you're going to see probably spilling into future quarters. And then I think the timing on SG and A that you allude to, David, we're starting some things that we thought we might be might have been a little further along here in Q3 in terms of building the organization and the training capacities and so on. So in terms of the numbers that I think the growth you're going to see some growth in the OpEx going forward into Q4 and that's and the 40% operating income guidance we gave.
I think we've laid out for you. The things that we think are deserving of different additional investment. We've typically been thoughtful about how we invest and we don't trend to a bad dash one direction or another. And so we'll be building it out, but we'll build it out against plan.
Okay. And then Japan, which has obviously been very successful particularly since you got the reimbursement in April. Can you maybe talk about the sustainability of that business you referenced? I think in your prepared remarks, that there is some spillover of the DBP concerns of the U. S.
Into Europe. Now obviously Japan is at a much more nascent stage in its ramp, so you probably wouldn't see it at this point. But any concerns on that transpiring Japan and how we should think about growth in that business over the next 12 months or so?
On the DBT side, actually the uptick has been significant in term of DVP in Japan relative to the number of prostatectomies that they do. We do denominated in prostatectomies based on what they've doing there. We haven't heard a reflection of this set of concerns into Japan. It's not to say that it might not happen in the future. It might.
General, I think that Japanese surgeons have expressed interest in da Vinci for a pretty broad variety of procedures. So, even more of that to be over time. I don't know that it would dampen enthusiasm for a long period, for other procedures as we go.
That's a
quarter to quarter performance can be lumpy there.
Sure. And then maybe just one really quick clarification question. From an EPS perspective this quarter, the $4.46 you reported includes that the tax benefit that you discussed, are you going to are you pointing people toward a non GAAP number or the GAAP 44 $6,000,000 in terms of, the idea of thinking about the ongoing earnings number for the quarter?
So we gave you the $446,000,000, which is the GAAP number, but we also that if you excluded debt, we would have been in $3.54. So we're trying to provide you with all the information so that you can do your own comparisons.
Thank you very much. Our next question in queue will come from the line of Jeremy Feffer with Cantor Fitzgerald. Please go ahead.
Good afternoon. Thanks for taking my question. I wanted to come back to your comments on this sales with simulators Fireflies dual consoles. Seem like sequentially those were down, even though total da Vinci sales were up sequentially. Is there anything to read into that or some customer looking at more defeatured units or is that just a complete coincidence?
Yes, definitely trended down. I think on the Fireflies though is pretty similar. We've been saying about the last three quarters that about half the U. S. Systems have gone out with firefly configuration and that held true in Q3.
As it relates to the dual console and the simulator, those kind of go together in some respects as they're in large part training tools and applications. And slow downward trend there is something that we would have predicted internally here as maybe a fair number of sites have invested in these technologies for training. And then as you know, a lot of the systems we sell now are to existing customers and some of those existing customers already have simulators and dual consoles. So it's maybe less obvious value in those situations. So a little downward trend there is probably something we would expect, but very gradual.
Okay. And quick follow-up on revenue per procedure. I heard the comments on timing of stocking distributor orders. Is this a run rate that we should be expecting now going forward? Obviously, it had been trending up with a lot of the new instruments, but with a lot of those now in there?
Is this more of a comfortable run rate?
Yes, I mean, we've been seeing the run up as you say in recent quarters due to the impact new products. And what we've been saying, there are a lot of factors that can serve to move that metric up or down. And in this particular quarter, as Marshall called out in his commentary, we saw some of the timing of those initial stocking orders with system sales and distributor orders kind of serve to drive it slightly down here. But I'd say going forward, it could go up or down depending. We also saw some of the product the procedure mix, right?
So that more single sites benign hysterectomies have a lower revenue per procedure for us kind of pushes it down. So again, I'd say going forward, it could probably go either way from where we are now.
Okay. That's helpful. Thank you.
That was our last question. As we have said previously, while we focus on financial metrics such as revenues, profits and cash flow during these conference calls, our organizational focus remains on increasing patient value by improving surgical outcomes and reducing surgical trauma. I hope the following experience from Susan of Ohio gives you some sense of what this means in the lives of our patients. I was diagnosed August of 2011 with adenocarcinoma. I'm a mom of 5, grandma of eleven and fifty two years old.
I quit smoking years ago. Wow. I had a lot robotic assisted surgery. I figured it sounded really great. We did the surgery in December of 2011.
At first, when I started reading about it on and talking to people and sounded really scary. But after reading testimonies like mine, I realized it was the only way to go. And so we removed the top in December of 2011. I was told in 2 days, the nurses at the hospital cannot believe the type of surgery I had. In no time I was back to a normal life.
My surgeon is one of the best around and I am living proof. He saved my life, saved me from a grueling recovery, and saved me our horrific car. I had a few little holes in the small incision where they removed the lawn. While they were in there, they took lymph nodes, which by the way rate, no cancer and a 20% chance that this cancer comes back. If you're considering this type of surgery, I urge you to really think positively about this.
Just absolutely amazing what modern medicine is all about. I would welcome the chance to have the surgery versus the old fashioned way. Recovery was 2 weeks and I was back to work in 3. It's that they operating performance. We've built our company to take surgery beyond the limits of the human us.
This concludes today's call. We thank you for your participation and support on this extraordinary journey to improve surgery we look forward to talking with you again in 3 months.
Thank you very much. And ladies and gentlemen, this conference call will be available. Be available for replay after 3:30 pm Pacific Time today running through October 16 2013, Experian at midnight. You may access the AT and T executive playback service at any time by dialing 800-475-6701 and entering the access code of 259631. International parties may dial 3203653844.
Once again, those phone numbers are 800 4756701and3203653844 using the access code of 2596 31. That does conclude your conference call for today. We do thank you for your participation and recent AT and T's executive tele You may now disconnect.