Ladies and gentlemen, thank you for standing by and welcome to the Intuitive Surgical Fourth Quarter earnings conference call. Answer session. As a reminder, this call is being recorded. I would now like to turn the conference over to your host, director of financial planning and analysis for intuitive surgical, Calvin Darling. Please go ahead.
Thank you. Good afternoon, and welcome to Intuitive Surgical's 4th quarter conference call. With me today, we have Gary Goodhart President and CEO, Marshall Moore, our chief financial officer Alex Soukich, our vice president, Plenty and Jerry McNamara, our Executive Vice President of Worldwide Sales And Marketing. Before we begin, I would like to inform you that comments mentioned on today's of certain risks investors are cautioned not to place undue reliance on such forward looking statements. For audio replay on our website at intuitivesurgical.com on the audio archive section under our Investor Relations page.
In addition, today's press release has been posted to our website. Released announced earlier today followed by a question and answer session. Gary will be will present the quarter's business and operational highlights will provide a review of our fourth quarter financial results. Alex will discuss marketing and clinical highlights then I will provide our financial forecast for 2011. And finally, we will host a question and answer session.
With that, I'll turn it over to Gary.
Thank you, joining us on the call in favor of expanding business. 2nd, enabling growth of new procedures within new specialties 3rd, the expansion of our business internationally and 4th, Bright the year 2010, our operating highlights are as follows. Worldwide procedures grew by 35% with international procedures growing by 40 2%. We sold 441 da Vinci surgical systems in the year, up from 338. Total revenue grew $1,413,000,000, up 34 percent and comprising 53 percent of total revenue.
We generated $673,000,000 in operating profit before non cash stock compensation expense, up 42% from last year, and GAAP net income grew to 382,000,000, up 60 percent 5%, we sold 124 Dementci surgical systems. We ended the 4th quarter with 1752 Dementci systems in all worldwide. Total revenue for the quarter was $389,000,000. Instrument and accessory revenue increased to 100 and $51,000,000, up 33%. Total recurring revenue including service grew to $212,000,000, comprising 54% of total revenue.
We generated an percent from the fourth quarter of last year and GAAP net income grew to $121,000,000, up 56%. We ended the year with $1,609,000,000 in cash and investments, down 12 dollars from last quarter and up $437,000,000 from last year. We received $141,000,000 in cash during the year from the exercise of stock options and invested $79,000,000 in intellectual property, working capital, property, plant, and equipment, and 1 99,000,000 in stock repurchases for the year. Going forward, we will continue to look for stock repurchase opportunities. Gross cash from operations for the year net income for in financial performance.
In our adopting procedures in the US, the Mitsci hysterectomy continued its strong growth, both malignant and benign conditions, growing 59% year over year. Sacral Cobaltaxi and myomectomy also continue to attract to track their adoption curves. Urology also grew for the full year of 2010 through the continued adoption of partial nephrectomy and growth in DVT the latter being focused in Europe. As benign conditions became a larger part of our procedure base in the U S, we experienced increased exposure to seasonality and other patient treatment doing part of our business. 2010 was a strong year for emerging procedures.
In fact, procedures falling outside the above mentioned adopting procedures grew by 47 percent over 2009. Among procedures in new specialties that may emerge as adoptions are a da Vinci colorectal procedures, da Vinci thoracic procedures, and da Vinci Transoral head and neck procedures. Patient value in these specialties appears to be high and surgeon interest in growth has been encouraging. I'll leave it to Alex to provide more detail on our progress later in the call. We are pleased with our procedure adoption in Europe in 2010 and by growing depth in our European sales team.
European procedures grew 48% year over year led by urology. We also saw the emergence of surgery for cancer indications and gynecologic surgery in Europe. 2010 has been an investment year for products with several SI simulator, which in combination with our dual console affords surgeons more opportunities to trend on DaVinci and track their progress. Our single product is in the late stages of regulatory review in both the U. S.
And Europe. Recall that this product is intended to Davinci single incision surgeries on existing SI systems. Our robotic stapling and vessel sealing products are development and our progress with these products, it's encouraging. In imaging, our fluorescence imaging product is also in the late stages of the regulatory review process and US and Europe. In 2010, we also connected the majority of our installed da Vinci systems to a da Vinci network that enables remotes system, performance monitoring as well as remote proctoring.
We continue to invest in technologies that improve and enhance surgical imaging. Likewise, USly invest in robotic technologies that simplify and enhance access to the body. Finally, as we've discussed on prior calls, we believe that the out of 2010 that investments were required members to our clinical team through the year and have largely caught back up to the procedure to sales rep run rate that we believe supports our customers' needs during this period. Across the company, we added nearly 400 employees in 2010, ending the year with 16 sixty people on our team. In closing, our priorities for 2011 are as follows: first, continuing our growth in gynecology and through outstanding execution of colorectal surgery, thoracic surgery and transoral surgery through procedure and product development with leading customers and 4th, strengthening our both in the U.
S. And in international markets to support the continued growth of the business. Performance in greater detail.
Compared with $323,000,000 for the fourth quarter of 2009 and up 13% compared with 344,000,000 the third quarter of revenue was $151,000,000, up 33% compared with $113,000,000 for the fourth quarter of 2009 and up 19% compared with 120 $1,000,000 in the third quarter of 2010. The increase relative to the fourth quarter of 2009 is primarily driven by procedure growth of 30 5% year over year. The increase relative to the third quarter is primarily driven by procedure growth as well as an increase in amount of stocking orders and customer purchases of our new 8 and a half millimeter scopes. Instrument and accessory revenue realized per procedure, including a special stacking orders was approximately $1940 per procedure, which is lower than the fourth quarter of 2009 by approximately $20 and high than the third quarter of 2010 by approximately $100. The changes in instrument and accessory revenue per procedure primarily reflect changes in and the impact of stocking orders.
Procedure to decline slowly over time given that initial stocking orders 2010 systems revenue of $178,000,000 increased 10% compared with $162,000,000 of systems revenue for the 4th 2009, and increased 11% compared with $160,000,000 of systems revenue for the 3rd quarter. Recently, we began delivering new SI systems for customers the contract terms and economics for these SI for S trade ins are now reflective of SI sales. Of course, We have 24 systems in the fourth quarter of 2010. This compares to 110 systems in the fourth quarter of 2009 105 systems in the third order 2010. I would note that the prior period system counts exclude 10 SSI upgrades.
For both the fourth quarter of 2009 3rd quarter of 2010. Our 4th quarter average sales price per system including all Vinci models and FSI trade ins, but excluding upgrades was $1,410,000, equal to the $1,410,000 realized in the 4th of 2 1009 and a decrease from the 1.43 system compared with the sold in the fourth quarter of 2010, partially offset by an increase due to a greater of systems sold to direct customers in Europe. Service revenue increased to 61,000,000, up 27% dollars compared with $48,000,000 last year and up 6% compared with $57,000,000 last quarter. The growth in the feet. Total 4th quarter recurring revenue comprised of instrument, accessory and service revenue increased to $212,000,000,
with
the revenue represented 54% of total 4th quarter revenue compared with 50% in the fourth quarter last year and 54% last quarter. Non US revenue represented 25% of our total revenue in the quarter. Compared 2010. Non US procedures grew 42% on a year to year basis in a seasonally stronger quarter. DV in Europe was the greatest driver in non U.
S. Procedure growth, although we experienced growth in all procedure category. Instrument and accessory revenue grew at a rate similar to the procedure growth. We sold 38 systems outside the U. S, including 2 S to SI trade in compared with 30 in fourth quarter of 2009 and 22 last quarter.
I would note that there was one S to SI upgrade outside the U. S. In both the fourth quarter of 2009 and the third quarter of 2010. Despite a certainty surrounding European economies, we sold 28 systems in Europe this quarter compared to 16 in third quarter 2021 last year. Alex will provide additional details of overseas system sales.
Moving on to the remainder of the P and L. Gross margin in the fourth quarter was 73% compared with the fourth quarter our year reflects lower manufacturing costs and absorption of fixed costs over our larger revenue base. 4th quarter 2010 operating expenses of $128,000,000 were up 23% compared with the fourth quarter of 2009 and up 8% compared with the third quarter. The quarter over quarter increase reflects costs associated with employee debt during the quarter and increased and D prototype spending. We added 92 employees in the our clinical sales force and 28 employees in operations.
4th quarter 2010 operating income was 154 $1,000,000 or 40 percent of sales compared with $128,000,000 or 40 percent of sales for the fourth quarter of 20 $32,000,000 or 38 percent of sales for the third quarter of 2010. 4th quarter 2010 operating income reflected $30,000,000 of non cash stock compensation expense compared with $25,000,000 for the fourth quarter of $20,930,000,000 last quarter.
The year over year growth
in non cash compensation reflects our annual grant made February 15th this year. Our the to our 2009 rate of 41%. The reduction in rates between years reflects the implementation of our international tax structure and a greater portion of our in being generated outside the the US from the retroactive restatement reinstatement of the federal R and and non deductible stock option expenses. Her net income was $121,000,000 or 3.2 dollars per share compared with $78,000,000 or $1.95 per share for the fourth quarter of $2,0987,000,000 or $2.14 per share the third quarter of 2010. Let me quickly summarize our to 2 to approximately 278,000.
Total revenue for 2010 was 1 $1,413,000,000, up 34% compared with $1,052,000,000 last year. This included recurring revenue $5,000,000, up 47% compared with $377,000,000 last year. Operating income included 118,000,000 of based compensation charges in 2010 compared with 97,000,000 in 2009. Net income for 2010 was 382,000,000 or $9.47 per share compared with $233,000,000 or $5.93 per share last year. Now moving balance sheet.
We ended 2010 with cash and investments of $1,609,000,000, down $12,000,000 compared with November 30, 2010. The decrease during the quarter reflects $125,000,000 of cash flows from operations, plus $8,000,000 from the extra size of stock options more than offset by $140,000,000 of stock buybacks and $9,000,000 of capital and IP purchase During the fourth quarter, we bought back 530,000 shares at an average price of $2.64 share bringing our total repurchases for the year to 742,000 shares at an average price of $2.68 per share. As of December 31st, there was 101,000,000 of the board authorized buybacks remaining. Receivable balance increased to $247,000,000 at December 31st from $208,000,000 at September 30, reflecting increased revenue. Our net inventory increased to $87,000,000 at December 31st from $85,000,000 at September 30.
The increase reflects inventory assertive support increased revenues. And with that, I'd like to turn it over to Alex who will go over our sales, marketing
and clinical highlights. Thank you, Mark. So, during the fourth quarter, we sold 124 da Vinci systems, 86 in the United States, 28 in and 10 interested world markets. As part of the 124 system sales, 24 standard da Vinci were traded systems were traded in for SI systems. We had a net 91 system additions to the installed base during the quarter, which brings to 1 1752, the cumulative number of da Vinci systems worldwide, 1285 in the U S, 3 16 in Europe and 100 and 51 in rest of world markets.
50 of the 124 systems installed represented repeat system sales to existing customers. The 38 system sales internationally was our strongest quarter to date, a included 6 Da Vinci systems into Italy, 5 into Germany, and 3 into the countries of France and clinically, we had a strong quarter with GYN and more specifically the 9 GBH contributing the greatest absolute growth. While DvH for malignant conditions showed very good sequential growth. The 9 DvH growth was stronger, both in Opexy, myomectomy and endometrial resections also exhibited strong sequential growth. We in the segment of urology, DBP, partial nephrectomy, and cystectomy were all up materially on a sequential basis.
And finally head and neck, colorectal, and thoracic resections all displayed strong sequential growth. Our strong 4th quarter procedure all 4th quarter procedures grew by approximately 35%, which is consistent with our overall 20 dollars procedure growth as well as our 20 at approximately 278,000 total procedures, led by DVH, representing approximately 110,000 DDP representing approximately 98,000. And catalyst for growth within opportunities, both U. S. And Internationally and the peer reviewed data supporting da Vinci's role within these procedures is beginning to expand.
Iran the as a procedure to remove a uterine fibroids while preserving a patient's uterus. Currently, the gold standard operation for myomectomy includes a lower abdominal incision. Over the past few years, traditional laparoscopic myomectomies have been performed more regularly. However, due to the extensive suturing required for adequate closure, it is considered technically difficult and therefore limited in its clinical adoption. At the American Society Reproductive Medicine Conference, a paper in titled robotic assisted laparoscopic and open myomectomy, a comparison of surgical out was presented.
The study was authored by a group of physicians representing the Cleveland Clinic Foundation And Case Western Reserve University. The study examined blood loss length of stay and operating time for 5 75 patients within these distinct cohorts. The 3 groups were case matched with comparable myomas regarding size, number, and location and adjusted for age and body mass index. When comparing da Vinci myomectomy to open omectomy, average surgical time did increase, but average blood loss was reduced percent and the average hospitalization in myomectomy to traditional laparoscopy, surgical time was reduced by an average of 22 minutes and blood loss was reduced by an average of 33%. Is associated with decreased estimated blood loss and length of hospital stay compared to traditional laparoscopy and open myomectomy.
This the technology is able to procedure volume with the overwhelming majority being comprised of procedures to treat benign conditions. Experience in enhanced clinical value within these large mainstream procedure categories. However, we do recognize that it makes procedure the postpone some treatments to a future date when it becomes more economically convenient for them. On the other, we are experienced strong growth trajectories within a category that I will term very complex procedures, procedures where volumes are less seasonally infected, namely head and neck surgery, colon and rectal surgery, renal cancer, cervical and endometrial cancer, and lung cancer procedures. While some of these procedure categories are potentially large with steep growth trajectories, they are also fairly young with respect to their adoption.
And therefore, individually, their contribution is currently less impactful to our overall number. The fastest growing segment in 2010 was headneck surgery. The category more than tripled in size to the year and showed exceptional sequential growth in Q4. We are seeing more and more peer reviewed literature describing da Vinci's role with this category. In a recent addition of the journal oncology, 3 surgeons from the Department of Head And Neck Surgery at the University of Texas's MD and and Cancer Center authored a comprehensive Perspective paper entitled, a shifting paradigm for patients with head and neck cancer, trans oral robotic surgery or Taurus.
The paper reviewed the functional outcomes from various studies published by leading head and neck answer centers, such as the Mayo Clinic Rochester, University of Pennsylvania, the University of Alabama, Birmingham, and MD Anderson. The authors highlighted the initial study tonsilarg squamous cell carcinoma attained negative margins and the 2 patients with positive margins were later Local control was achieved in all 27 at 6 months follow-up. Next, the University of Alabama, Birmingham evaluated 54 the or removal occurring at a mean of 8 days. Similar functional data was reported in a series by more at all at the Mayo Clinic. This group reported an average time to decannulation of 7 days.
This is a significant improvement for of oncologic and functional outcomes of tours illustrate a minimally invasive technique that permits reception of a tumor on block while reserving patient swallowing ability. The MD Anderson group concluded their paper by stating, is an exciting innovation that provides significant advantages. Patients have an on block removal of their tumors via a minimally invasive surgery without a cervical incision, agreement radiation and its long term, sequel. While long term oncologic data are needed to fully validate its use. Early results are promising.
That concludes my remarks and I'll now turn the time over help.
Thank you, Alex. I will be providing you with our financial forecast for 2011, including years, revenues, and other elements 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, we continue to see strong growth in Vinci hysterectomies procedures at earlier stages of market adoption. We expect our 2011 total procedures to grow between 25 28% from the base of approximately 278,000 procedures performed in 2010.
Based an increasing percentage of benign hysterectomies announced quarterly seasonality impact in 2011 as compared to 2010. Moving to revenues. We to placements may vary. We expect typical capital sales seasonality in 2011 with Q1 being a relatively lighter quarter and Q3 being the seasonally strongest. With regards to gross margin, we reported 4 quarter 2010 gross profit of 72.5 percent of sales.
Looking forward into 20 can fluctuate quarter to quarter our GAAP operating expense to grow by approximately 16 to 20% in 2011 which is in line with our expected top line growth. Our 2011 operating expense growth will be driven by clinical sales resource additions in the field to support newly installed systems and drive procedure us and non cash stock compensation expense growth of approximately 22%. We expect our non cash stock compensation to increase from a 118,000,000 recorded in 2010 to approximately 140 11. Amortization to increase from 16,000,000 in 20.10 to 17 to 20,000,000 in 2011. Other income, which is income to come in between $17,118,000,000 in 2011, which is down slightly from $19,000,000 earned in 2010.
With regard to income tax, in 2010, we recorded income taxes at a rate of 33.3 percent of pretax income as some of the items that benefited 2010 will not carry forward, we anticipate recording 2011 income taxes at about 34% of pretax income. We estimate the our share count for calculating EPS in q12011 will be approximately 40,300,000 shares. Cash. Our cash balance has remained in the $1,600,000,000 range throughout the second half 2010 as we have largely returned operating cash flows to shareholders in 40,000,000 used to repurchase shares in Q4. Our repurchase program remains active and entering Q1 2011, we have approximately 101,000,000 remaining authorized by the board to buy back additional shares.
Communicate any future repurchase authorizations as they become effective.
Questions.
Add. At this time. And we'll first go to the line of, Ben Andrew with William Blair. Please go ahead.
Great. Can you hear me?
Maybe start talking about the kind of change in your outlook for procedure growth and you did go through quite a few of the factors, but performance in the quarter for the full year and 10. And you're guiding to, I'm sorry, 25 to 28 for next year. Would characterize that as conservative? Is that something that as you've added so many sales reps, you're waiting to see if that productivity is coming through and there's a fair bit of upside to that or what led to that and Sutton.
Thanks, Ben. Before we jump in and answer the question, just one correction on the call.
Yeah. And, and I guess my script, I mentioned that we had bought back shares and I gave prices of $2.64 $2.68. Obviously, that wasn't the price. I've missed it by a couple of digits and didn't $264 $2.68.
Okay. Anyway to the to the question of of kind of what's what's underlying the growth, in the growth guidance. The major drivers of growth looking forward, will be a continued adoption of gynecology in the U. S. In the U.
S, the, the, malignant side of of hysterectomy, so hysterectomy for cancer conditions are, going to the to the upper part of of the curve and really the the growth will be coming out of benign hysterectomy. Benign hysterectomy is diffuse, so it's a little bit harder to consolidate. That's one. A second source of growth in the procedure domain will be urology in Europe, which is coming along nicely, but a little on the curve and then emerging procedures while they're, were growing really nicely there at a little bit smaller base. So it bit of it is just the timing of these different, adoptions as as they progress.
Is it reasonable, Gary, to think as you go through the year that, in fact, it could be accelerating as some of those curves are moving further out and higher to the top right. Because again, you're just kind of at the front of many of the newer emerging procedure codes you've been discussing?
Yes, I think we'll have to see where the emerging procedures go as they come up. I think we emerging because they're promising, and they're, and they're going quickly, but on a small basis, and really the challenge and the question for us is, is how quickly can they move up. And I we're just going to have to report on it as the year progresses.
Okay.
Last question for me is that hiring plans for the field organization, you've been increasing that quite steadily over the course of 10. How would you think about the quarters progressing over the course of 11, please?
Yeah. You know, what we we kind of felt like 2010 was a catch up year for for some slow hiring in in 2009. And and I think we've done a good job of of catching up and getting close. I will continue to hire, but I think the rate of hire, will start to temper a little bit as we move into the back of 11. I'll let Jerry add a little color to that.
Yeah. I think that, you know, as Gary mentioned, we caught up. We're just about where we want to be. We do, use pretty, careful metrics to add Salesforce accordingly as the procedures grow. And I think that will be in in the sweet spot in the next quarter or 2, and then we'll manage it as the procedure growth dictates.
Great. Thank you.
Thank you. And next we'll go to the line of Tycho Peterson with JP Morgan. Please go ahead.
Hey, good afternoon. Question on on the Q from last quarter, you talked about the new SIE model and this looks I guess more kind of a de feature can you just talk about the opportunity there and how we think about maybe that blending into ASPs? Is there some risk guess, you moved down the ASP curve as you push this out? Yes,
you know, I think, we think there's an kind of an economic opportunity there, for the SIE. It is a a defeatured version of the SIE. It has a lot of the the future forward compatibility that the SI line has and we think that as we move into more benign procedures and frankly head and neck is fundamentally a 3 arm seizure that there's an opportunity there both for, customers who are a little more price sensitive as well as some sales, that go into sites that are having more diverse, procedure lines. So that's kind of the frame up of the, of the SIE.
Can you, I guess, just comment on what the ST is and and, you know, did that impact this quarter at all yet? Talked about fewer dual consoles as is, you know, impacting ASPs. Was Yeah.
I'll let Marshall talk a little bit.
Okay. So the the list price for an a for a 3, for an SIE is is below that of an SIE obviously because of this deep feature. I believe it's, one 3,000,000. Okay.
You know, second question on colorectal. You called that out obviously is one of the emerging growth areas. How do we think about you talked about the Stapler the in process here. How do we think about maybe how much pent up demand there is post the stapler coming out? I mean, you, again, seen some nice traction, before it's been launched how do we think about how important getting the stapler out will be to really driving uptake of colorectal?
Yes. It's really hard to say at this stage, Tycho. I think we'll know when we get there, but what we've learned in the past is often, 1 or 2 instruments can make a great deal difference in optimizing procedure. We saw it in prostatectomy with bipolar energy and the appropriate grasp to manage the tumor or the prostate, I should say. And you start to see procedure times come down and you start to see case reports improving and so on and so on and so forth.
So we know the process of trying to optimize a procedure and I think stapling becomes, directionally a important product, not just in colorectal, but perhaps in lung surgery and some of the other large sort of very complex procedures. So, in terms of pent up demand, I don't know that we even know how to call that. I would just say that it's a it's a product launch or I should say a product development that should add value in a number of targets for us going forward.
Could you provide any more color on timing? I mean, should we think about that this year? Or
Well, I think the way you want to think about it, you know, we've talked about products are either in FDA or in development. This one is still in the development phase, which means it's not in front of the FDA. The pace of development and the quality procedure. There is no question about it. So, there is really not a lot more we probably will go into other than just think of in in development at this stage.
Okay. And then just one last one on on, prostate. You know, as we think about, you know, where where we are in option curve. Obviously, more of a focus here on hysterectomy in the U. S.
And some of these emerging procedures. But is your view that DVP can a kind of flat, you know, in 2011 in the US, or is there a risk I guess that could go negative as we think about?
There's always risk, but, but I would say that you looked at it in 2010, it was actually up in the United States, not materially so, but we've described it pretty much each quarter as flattish and it's actually up a little bit in the United States. The majority of the growth came from up almost you know, overwhelming amount of the growth came from outside the United States, which we believe will be the case. I think there will be a sort of a give and take between other therapies that go on with prostatectomy indefinitely. I think we are picking up some procedures that may have been sort of headed toward radiation or other therapies and they will probably pick up a case that was added for surgery. So we think of it as as flattish to in the the near term and that's probably as accurate as we can be.
Okay. Actually, just one last one on Japan. Can you comment on whether you any systems there and anything new to to highlight?
I think we placed one system in Japan. And as far as anything new to highlight. You know, we continue to work as we've talked about in the past with various stakeholders in Japan, looking at ways to get reimbursement approved on a global basis, if you will, as a to a manual basis. It isn't anything that we are expecting for 2011. I think through 2011, we'll continue to move the process on a manual basis and yes, we'd expect some systems to be sold we are not at a point where we would classify it as fully optimized and nor would we expect it in 2011.
Thank you very much.
And next, we'll go to the line of David Lewis with Morgan Stanley. Please go ahead.
This is actually James in for David. Thanks for taking the questions. First question on the international business. I mean, obviously, very strong results overseas this quarter, kind of been hovering between 2030 boxes for the past and maybe 2 or 3 years, and 38 this quarter, any insight into what's changing those markets? I know is that kind of a macro recovery theme or is that better execution on your end?
Well, I I we can't c control any of the, you know, macro conditions over in Europe, but we control, you know, our execution on development of our procedure business. And I think we had a pretty good year. As we move through the year, we also caught up on our headcount and expanded our sales force. And at the end of the year, our DBP numbers started to grow in all affected countries and our penetration the growth is getting to a critical point where it's impacting the, the demand for additional systems. So, you know, by focusing on the procedures of capital systems, continue to come.
So, we expect to just continue to drive the the procedures and and, you know, there'll be seasonality in Europe just as there has been over the years, but, you know, we did see a pretty good uptick at the end of the year.
You know, one of the things we've said in the past we knew there would be a stagger between DDP outside the United States compared to DDP in the U. S. And that is structure We believe there's a lag. There will be a lag in GYN. There will be a lag in other procedures.
So what you saw in 2010 was really a nice uptick in the DBP business, specifically in Europe. The overall Europe and numbers were up about 48% and you started to see, let's say, I don't want to oversell it and say some critical mass, but you saw some strength, early strength in gynecologic can or operations, CBH Malignant, which is what we would have expected because we've got sort of a history, if you will, of starting in the most complex areas showing value and then moving on beyond that. And I think it's starting to feel like we're getting some traction in various European countries. So that I would say on block is really the difference European 2010 business.
As you characterize this more as just a strong quarter, or do you think you're you're reaching more of point there?
You know, I think I think what we're hearing both both those answers is that we're starting to see some nice procedure momentum. And I think over time, the side may be lumpy and I'd expect it to continue to be lumpy, but as long as we can keep driving the procedure business up the curve the way we think we can. Ultimately, I think it'll pull it'll pull systems. Okay.
And then on on single site, last quarter you sounded a little cautious on launch timing, but it seems like you made a lot of progress in 4Q. Any more firm is to when we can expect to see the launch there?
You know, we're we're we're still in conversation with, regulatory bodies. I I think we're in the question and answer period, and we understand the questions and they have answers. And I I can't tell you exactly when, that process will conclude, but just that we're working through it.
K. And one last one on buybacks. Given the cash accumulation over the past year, and have you started to consider something that's a more financial buyback program as opposed to primarily opportunistic or just more broadly, you know, how you think about capital deployment going forward?
We we we, you know, the number I mean, we bought back 742,000 shares at $2.68 per share in the, for the year. We do think ways to return, capital to shareholders. And, we still have another 101,000,000 authorized and it's up to the to decide whether or not we proceed with a greater program? Directionally, we've been happy with the buybacks. We think it's been
a good mechanism for us and we'll look for opportunities when the time is right to continue that pathway.
Great. Thank you.
2 the line of David Roman
In your prepared remarks, you
talked a little bit about an increasing number of procedures being exposed to some of the cyclicality we've seen elsewhere in healthcare, but I do look at the significant acceleration in what part of that acceleration you think came from a rebalance of some of those procedures that might have been deferred versus an acceleration in some of the underlying is there a more legacy procedures like DVH associated with new Salesforce hires?
It's really difficult to tease it out exactly, but what I can the increase in DBP. So we also saw a nice increase in the GYN procedures both US and OUS. Looking at it and some of that was directionally driven by new hires and new commitments, if you will, to the field organization. So it's hard to say how much of that is pent up, how much of that is driven because of seasonality. What we do know and what we learned last year, really for the first time in, in, let's say, Q1, the issue of of fully paid deductibles versus unpaid deductibles has an impact on and so that is something we'll call out as that becomes
a bigger part of our business.
Okay. That's helpful. Maybe switching over the P and L. You've talked obviously about adding some sales reps and expanding your selling organization. If you look at SG over the course of 2010, it only it grew sort of slower than revenue in the first half of the year and then accelerated to slightly faster than revenue in in the back half of the year and you're guiding to sort of OpEx growth in line with top line growth for for next year, starting for 2011.
So this potentially, most of that build out complete with respect to the selling organization, or are there any, sort of significant investments that we forward over the course of 2011. And if you look at the last thing on the pacing of the year, should we start to see more leverage as we get to the 2nd half an SG and A line?
You know, I'll answer the first 2 sub parts, and I'll I'll have, Marshall answer the last one. You know, on the sales side, you ought to think of it in rates. We accelerated the rate of sales hiring in 10 continue to hire into the sales force, in 11, but the rate of the rate of hire will temper a little bit. And so a couple happened. One is we did some sales hiring throughout the year, but we do a little bit more in Q4 in anticipation of the beginning part of the year of 2011 to get them on board.
Effective sooner in the year rather than later. So you see a little bit of that surge. The other thing that happened is you had Marshall mentioned in the script, we had some timing of R and D prototype expenses that shifted around in the back half of the year and that's just lumpy. The nature of R and D expense can be lumpy. So on those sides, I think that we'll see a little tempering of headcount hiring in 2011 in terms of a rate, continued investments in R and D and terms of front and back half of 2011, I'll turn that to Marshall.
We typically have a little bit when you look at ratio to revenue because of seasonality in the quarters, you typically will see a higher rate of expenditure relative to revenue in Q1 in Q3 as well and then the other two quarters look better. But it really has to do with seasonality of revenue. Right.
And on a linear of linear growth as it relates to the, the operating expenses.
Okay. And then lastly, on the tax rate, the 34% number for 2011. I'm assuming that does not include an assumption on the reinstatement of the R and D tax credit, but is more a reflection of a structural move down your rate, which we should expect to continue over time?
It's, it's actually reflective of both the reinstatement of the tax credit. It was reinstated through 2011. So we will get a an R and D tax credit in 2011. Having said the the bigger impact in 2000 in 2010 and, overall, the the the bigger impact is is the change in the mix of revenue on a global basis. So as you earn more money overseas, you're being taxed to lower rate and that brings your your tax rate down.
So 34% is reflective of what we think the mix will be next year.
Got it. Okay. Thank you.
Go to the line of Rick Wise with Leerink Swan. Please go ahead.
And everybody. First, a bigger picture and maybe, Gary, I'll address this to you. I mean, clearly, you really strong 4th quarter. Maybe you could comment or reflect on to what extent do we attribute the 4th quarter strain specific to intuitive as opposed to possibly reflecting sort of more optimism on the hospital side or capital pending, that's sort of environmental stabilizing to improving versus your own excellent business sense?
It's a good question. It's a hard one to answer. I guess I just speak directionally. I think the we feel good about on is really on the procedure side. I think, procedure growth there is, I think, a mix of both, excellent execution by the sales force, strong patient value and the procedures that we offer and a little bit of seasonality terms of patient's willingness and access to care in Q4.
I think you saw some of all three of those things. Yeah, I think on the capital side, I think it feels in the middle to us. I don't think we feel like there's a strong environmental trend one way or the other, broadly speaking. And so when we think about the capital business, we think it's driven by a few things. We think it's driven first by and capacity by access to capital, of course, and by the availability of new products and the and the desirability of those products.
So just to come back to the original question, the biggest thing we feel good about I think is that, the demand for mitchell procedures, seemed pretty strong and we were able to go out and service that demand.
Yeah. If I could and maybe Alex, this is directed to you, but obviously another solid quarter of da Vinci Place but can you comment on why the trade ins were so unusually seemed unusually high. A couple of aspects to this question. It's just that, extraordinarily high number. Is there any particular reason?
Maybe talk, give us a little color if you can on how much more upgrades there are to go at this point But another question, just as I look at our model and I look at the if I'm looking at it correctly, the new adds, they've sort of been 87 to now 91 net new adds for the last five quarters now. So about 360 annualized run rate. Should we think about net placements going forward? That the right annual rate going forward or will we see net adds actually increase in 2011 or twelve. How do we think about that trend?
Yeah. So I'll, I think there are a couple of questions in there. So I'll I'll I'll give you the numerical to one of them. In the United States, depending to standard systems, is 162 or so, somewhere thereabouts. Let's call a 150, north of 150, slightly.
And outside the United States, it is not all that dissimilar to that number. Now, it doesn't mean that all of them are going to come back in time think we've got a fairly predictable trend over if you were just to plot it out over the last several quarters. You know, it'll up down, but I don't think there's anything material in the way we're behaving that would suggest or decrease at a rapid rate, quickly. So the answer really becomes what does the customer want to do and we will work with the customer. We're this as a customer accommodation.
We're giving them value back for a product that they paid for and used and now want a more advanced product and we'll continue to be focused on the customer's needs. In terms of a go forward projection, Rick, it's really hard to say. I think if you you're going to get into your modeling and I can't recall if you're actually modeling units. But if you do, you know, I think you've got some data points that suggest kind of directionally where the, the trade ins are going. So I don't know that there's a lot a lot more color I can give you on that.
And just to draw from the business about you're running about a 360 unit net add in the last four quarters, are we going to see absolute units grow net of trade ins from here. Is that the way to think of it as we look at it over the next 2, 3, 4 years or will net adds on an annual basis continue to grow, do you think?
Yes, I think again, Ray, I think if you look at it, you take the most recent data you have, 50 of the 124 systems went to existing owners, which means that 74 went to new owners. So that that is a that's a that's a pretty large number. So I think it's a of the fact that there's a lot of new owners that are out there that will be buying for the first time. In terms of how the ratios might fall out. I I'm not sure.
But I would say that, yeah, we're we're we're planning to sell systems.
Okay. Another way to look at it, Rick, really, is, you're talking about net adds to the installed base. Exactly. It's going to drive that up down as it all comes back to procedure adoption in the end and how big your installed base needs to be to serve the number of procedures that
you're going to The
procedure adoption and utilization. We have time for one more. One more.
Okay. My last one. You all understand if I never talked about the in about the product pipeline, should we expect should we think that there might be some major, new some introduced this year as opposed to some other year versus the constant steady flow of procedure specific increment hole instruments, could this be a year where we see something more dramatic? Thank you.
No, I would say this, Rick, I think the products that we've been coloring up now for a few quarters by our definition are big products. Those, they're not easy products, you know, when we talk about single site, when we talk about stapling, when we talk about, cut and seal or ligation systems. These are not insignificant, development. So by any definition, I I think they are, you know, considered big big deals. So, but but again, that's not to promise any timelines or anything else.
It's just to directionally, we're focusing on some pretty complex stuff. I think we have time for one more, caller.
Okay. Thank you. And that would come from, Ahmed. How Zan with Gleacher. Please go ahead.
Thanks.
Hey. Good afternoon, guys. I'll I'll make it quick for you. Just the first one, just to kind of circle back on your proceed your guidance. I think kind of as we thought of, think about your performance in past years, there's been a really good correlation between the growth in the installed base and then the procedures you end up the growth in procedures you end up putting up and your growth in the installed base has been about 6% in the last 12 months.
And your guidance for procedure growth is now 25% to 28% and obviously you get some improvement every year as well. So I'm trying to understand if I'm missing something or if we're thinking about it the right way, but you're being conservative, but just in thinking about that, that the relationship between, unit placements and the growth that we're going to see in procedures, what else we should be considering, maybe in terms of utilization or other to get to your guidance?
Utilization has continues to increase slowly year to year and the relationship between then procedure procedure growth and systems growth, it's really hard to correlate those in a small time frame just because, you know, the capital, purchasing cycle, is unpredictable. On a long term basis that they shouldn't be closer or match up better as, as procedures do dry at system sales. Yeah.
Yeah. Just to to color that up a little bit, I think that the over if you can integrate over many year period, the number of procedures you do we'll we'll we'll tell you how many systems you need to do that number of procedures. Couple of things that are interesting. Greenfields have a lag effect to to bring those programs up to full capability. The one that's really hard to model is as robotic programs become multi specialty, how many procedures they can get on the system while sharing it across multi specialty is highly variable.
And so as these emerging procedures come on, utilization trends start to move around a little bit. And so it very tough thing to model. I think that was our last question. Thank you. As we have discussed with you over the years, while we spend time on these calls reviewing our financial performance, our teams remain sharply focused on the creation of patient value, improving the efficacy of surgery while reducing its invasiveness.
I would like to share with you two brief examples of what this means in the lives of our patients. The first patient is Sandra, who had her da Vinci procedure in Miami. Sandra reports, quote, on November 29 2010, I to diagnosis of endocarcinoma of the lung. I have always been an extremely healthy person and a non smoker, so you can imagine how talking this diagnosis was for me. Being a nurse practitioner and a former OR nurse, I thought I knew what I was in for.
I have friend who underwent a traditional low back to me for the same diagnosis 10 years previously. She spent 2 weeks in the hospital, 5 days in the ICU and was subjected to a Rib and Scapula in order to provide access to the loan. It was 3 months before she was able to return to work and she still has pay to this day. Fortunately, I was wrong. I have a friend who works for Intuitive Surgical.
He was adamant that I meet with Doctor Mark Voluskey at South Miami Hospital. I did my research and learned that Doctor Dluwski is very experienced with the dementia robot, having done over 300 robotic assisted surgeries. I'm doctor doctor Dluwski on November 30th and knew immediately that he was my surgeon, his confidence was just the reassurance that I needed. On December 9th, I was admitted to South Amy Hospital for a robotic assisted right lower lavectomy. My surgery took an hour a half.
I had minimal post operative pain and was up and walking next day. I was discharged to home on on day 2 and stopped pain medication on day 6. A return to work 2 weeks after surgery and was back the gym for a light workout 3 weeks after surgery. I have to say I feel blessed. My tumor was found early.
My notes are negative and I have an prognosis. I am blessed to have caring friends. I am blessed to have found this brilliant surgeon. I am blessed that this amazing technology is available. I would encourage anyone who receives a diagnosis of lung cancer to find a surgeon in a hospital that offers the dementia robotic surgery, it saved me from agonizing post operative and a long debilitating recovery.
I traveled a 100 and 25 Miles South to Miami, and so and I am so glad that I did it. Patient is Linda who had a cyclical paxi completed in Reno, Nevada. She says, quote, I had it hysterectomy 30 years ago. So when I was told I needed a opexy, all I could think about was the pain and lung recovery. Needless to say, I was dreading this procedure.
Doctor McCaskill assured me that the da Vinci procedure would be less than day less painful and I would feel better in less time. Thanks to this very talented surgeon and the Da Vinci robot, the procedure and the recovery have exceeded all of my expectations. There was really no pain, only discomfort around 1 of the 5 incisions. I felt the need to use pain made for the 1st 3 days and after that, I leave work rate at night to help me sleep. I was up and about shortly after the surgery and was totally amazed by the fact that I could up straight and walk without any pain or feeling like my stitches were pulling apart.
I had to remind myself before overdoing things that just had major surgery. Wow. What a difference between the surgery I had 30 years ago when I was unable to stand up straight and barely able to helpful around for the 1st couple of weeks and the one I just experienced with the da Vinci robot. Anyone who has the option to have this da Vinci procedure should take advantage of 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 we remain committed and support on this extraordinary journey to improve surgery, and we look forward to talking with you again in 3 months' time.
Ladies and gentlemen, that does conclude your call for today. Thank you for your participation and for using AT and T, it