Welcome to the line and thank you for standing by. All lines are in listen only mode until the question and answer session today's call. At this time. I would now like to turn the call over to Ben Gong, Vice President of Finance.
Good afternoon, and welcome to Intuitive Surgical's first quarter conference call. With me today, we have Gary Guthardt, our president and CEO, Marshall Moore, our Financial Officer and Alex Soukich, our Vice President of Strategic Planning. Before I begin, I would like to inform you that comments mentioned on today's call may be deemed 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 investors are cautioned not to place undue reliance on such forward looking statements.
Please note that this conference call will be available for audio replay on our way website at intuitivesurgical.com on the audio archive section under our Investor Relations page. In addition, today's press has been posted to our website. Today's format will consist of providing you with highlights of our first day followed by a question and answer session. Gary will present the quarter's business and operational highlights. Marshall will provide a review of our first quarter financial results.
Alex will discuss marketing and clinical highlights, then I'll provide an update to our financial forecast for 2010. And finally, we will host a question and answer session. With that, I will turn it over to Gary.
Thank you for joining us today. In this first quarter, our team has executed well. We continue to see broad interest in da Vinci surgery by our customers across a variety of procedures, which is reflected in our strong financial results for the quarter. With regard to procedures, we experienced continued growth in numerous specialties. Urologic and gynecologic procedures continue to lead the way, and we see early signs of growth in both general and colorectal surgery and thoracic procedures.
Are also pleased that challenges. The breadth of procedures is commanding increased investments in our Salesforce and is reflected in our in our recent hiring. Turning to systems, U. S. Sales were robust.
We did, however, see an increase in pressure on hospital capital budgets in Europe. Where capital sales conversations mirrored those in the US during the first half of last year. Lastly, we sold our first system Japan this quarter post our shown an approval. We'll discuss Japan in greater detail later in the call. As we move highlights for the first quarter, recall that Q1, 2009 financials included a revenue deferral associated with the introduction of the da Vinci Si System.
In my year over year comparisons, the and 9. We sold 104 Diminci surgical systems, up 38 from 66 during the first quarter of last year. Total revenue was revenue increased to $123,000,000, up 50% over last year. Total recurring revenue grew to $173,000,000, up 43% from prior year and comprising 53 percent of total revenue. Net income was 85,000,000 up 112% over last year.
We generated an operating profit of $157,000,000 before non cash stock option expense. Up 78% from the first quarter of last year and representing 48% of Q1 revenue. With operating profit percentage to invest in R&D and long term growth opportunities for the business. We ended the quarter with $1,396,000,000 in cash and investments. Up $224,000,000 from last quarter and up cash outlays during the quarter included $16,000,000 invested in intellectual property and fixed assets.
Excluding the impact of these outlays as well as non $3,000,000 from stock proceeds and $6,000,000 used for working capital, we generated $153,000,000 in gross cash flow from operations, which is 180 percent of our reported GAAP net income in the first quarter. I share this number with you because we believe that it is the best measure of the economic horsepower of our company. As you know, we continue to make significant investments in research, development and manufacturing. Our largest investments focus on Four areas. 1st, we are extending our instrument offering through major additions like multi function devices and robotic stapling.
2nd, we are improving and expanding our imaging capabilities. 3rd, we are developing new patient side mechanisms. And finally, we are creating surgical networking and training technologies. Overall, we're pleased with the progress of our product development teams and our technology partners, both in the depth of their achievements and in the speed with which they are accomplishing them. Lastly, as we enter new surgical and expanding partnerships and in acquiring those technologies that can make a difference to robotic surgery.
This quarter, we added 94 people to our team, predominantly in sales, manufacturing and R and D, bringing our total team to 1357 employees. And with that, I'll pass the time over to Marshall, our Chief Financial Officer.
Thank you, Gary. Prior to providing you with the details of our first quarter results, I would like to take I would like to provide you with a quick review of the deferral accounting that took place during 2009, which sets into context the proper comparables. Last year, we offered certain first quarter 2009 customers the opportunity to upgrade their da Vinci S systems to da Vinci Si systems at a discount to the otherwise list price for such an upgrade. We also offered those customers the opportunity to return Davinci of $18,000,000 of system revenue associated with system upgrade offers and $2,000,000 of accessory revenue. We recognized $14,000,000 of the total $20,000,000 deferral in our second quarter of 2009 and the remaining $6,000,000 in the third quarter of 20 9.
I will now walk you through our revenue results with comparisons to the first quarter of 2009 as though the deferral had not occurred. Our first quarter revenue was $329,000,000, up 58% compared with $209,000,000 for the first quarter of 2009. Up 2% category were as follows. 1st quarter instrument and accessory revenue was $123,000,000, up 50% compared with 82,000,000 the first quarter of 2009 and up 8% compared with $113,000,000 in the fourth quarter of 2009. The increase compared with prior quarters reflects procedure growth in higher initial stocking orders.
The amount of instrument and accessory revenue we dollars $170 higher working orders in the current quarter and customer buying patterns as we believe that customers reduced inventory levels in the first quarter of 2009 in the face of a deteriorated rating economic environment. Working orders have a lower compared with $88,000,000 of systems revenue for the first quarter of 2019 and decreased 4% compared with $162,000,000 of systems revenue for the 4th quarter. We sold 104 systems in the first quarter of 2010 compared with 66 systems last year and 110 systems last Vinci Si systems. There were 17 da Vinci standard systems traded in this quarter compared to 6 in the first quarter of 2009 last quarter. 1st quarter system revenue also included $5,000,000 of upgrade revenue compared to in the first quarter of $2009,07,000,000 in the fourth quarter of 2009.
Our first quarter average sales price per system including all da Vinci models, but excluding upgrades in the revenue deferral was $1,450,000, an increase from $1,330,000 realized in the first quarter $9,000,000 and an increase from the production of the SI product, which has a higher price point than ES. The increase compared to the 4th quarter reflects favorable and product mix. We expect ASPs over the next several quarters to return to historical levels. Service revenue increased to 51,000,000, up 29% compared with 39 compared with $48,000,000 last quarter. The growth in service revenue was driven by a larger system installed base.
1st quarter recurring revenue comprised of instrument, accessory and service revenue increased to $173,000,000, up 43 compared with the first quarter revenue compared by geography was with 25% of total revenue in the first quarter of 2009 22% of total revenue in the fourth quarter of 2009. Overall procedures grew faster outside paired with 22 in first quarter of 2009 30 last quarter. 7 of the systems sold in the first quarter were to early thought leaders in Japan. We would remind you, however, that adoption in Japan is expected to proceed slowly and for, we expect system volume to decline in Japan quarter to quarter. Excluding Japan, non US system sales decreased attributable to reduced capital spending in a challenging European economic environment.
Moving on to the remainder of the P and L. Let me you that there were no costs deferred in conjunction with the first quarter 2019 revenue deferral and therefore, the $20,000,000 deferral had an equal impact on revenue, gross profit, and operating income. Gross margin in the first quarter was 73%, compared with first quarter 2009 gross margin, excluding the impact of the deferral of 71% and compared with 4th quarter 2009 gross of 72%. The increase in gross margin reflects increased system ASPs, material cost reductions, and absorption costs over a larger revenue base. 1st quarter 2010 operating expenses of 111,000,000 were up 32% compared with the the quarter over quarter increase reflects costs associated with employees added during the quarter and increased investment in research and development.
Added 94 employees during the and our clinical sales force and 39 employees in operations as we continue to grow manufacturing capacity and invest in research and development. 1st quarter 2010 operating income was $130,000,000 or 40 percent of sales compared with $65,000,000 or 31 percent of sales the first quarter of 2019, excluding the impact of the deferral, and $128,000,000 or 40 percent of sale for the fourth quarter of 2009. 1st quarter 2010 operating income reflected $27,000,000 of non cash stock compensation expense, compared with 23,000,000 reflects our annual grant made February 15th each year. Our effective tax rate for the first quarter of 36% was lower than our 2009 rate of 41 percent, reflecting the implementation of our international tax structure. Our net income was $85,000,000 or $2.12 per share compared with $40,000,000 or $1.02 per share tax of the deferral and $78,000,000 or a dollar 95 per share for the fourth quarter of 2009.
Moving to the balance sheet. 96,000,000, up $224,000,000 compared with December 31, 2009. The decrease 93,000,000 from the exercise of stock options, partially offset by 16,000,000 of capital expenditures. $3,000,000 of our capital expenditures related to the construction of our new manufacturing facility next to our corporate headquarters in Sunnyvale. We anticipate that building to be completed in early 2011.
Our accounts receivable balance decreased to $1,000,000 at March 31st from $205,000,000 at December 31st. The decrease in accounts receivable reflects the timing of system shipments. Our net inventory 31st. We increased inventory during the quarter since we believe that it that inventory at December 31st was below optimal level. We will likely continue to increase inventory levels in future quarters.
And with that, I would like to turn it over to Alex who will go over our sales, marketing and clinical highlights.
You, Marshall. During the first quarter, we sold 104 and rest of world markets. As part of the 104 system sales, 17 standard da Vinci systems were traded in for credit against sales for new da Vinci Si systems. We had a net 87 system additions to the installed base during the quarter, which brings to 14 the cumulative number of da Vinci systems worldwide, 1091 in the U S, 264 in Europe, and 1 27 in rest of world markets. 44 of the 104 systems installed represented repeat system sales to existing customers.
Also during the quarter, 9 customers purchased upgrades to convert their da Vinci this Japanese thought leaders who are anxiously awaiting shown in clearance and purchases to continue for the near future. Rectomy and prostatectomy showed solid growth, whereas partial nephrectomy, cyclical pepsi, ENT, and and rectal procedures showed large percentage sequential growth. Within our hysterectomy business, for the first time in several quarters, DVH for malignant conditions showed larger sequential growth than DVH for benign conditions. It's difficult to say for certain why that was but it's our belief that 3 factors probably played a role. 1, the Q1 reset of co payment minimum spending 2, high unemployment rates and 3, the difficult Act, we recently made some adjustments to our sales structure to better support the large benign hysterectomy market.
During the quarter, nearly 300 da Vinci related clinical publications and abstracts appeared within areas peer reviewed journals. With the current trend in healthcare policy moving directionally toward comparative effectiveness research, it's our belief that we'll be in that we'll be well positioned in the evidence based environment with volumes of pure Davinci publications already in print, as well as more due to be published. Clinicians, policymakers, and patients are in position to make informed healthcare decisions. As we have said before, comparative effectiveness research done well is something we very much support. As it pertains to
the
sister laparoscopic prostatectomy versus radical retro pubic prostatectomy for clinically localized prostate cancer. Comparison of short term biochemical recurrence free survival. 904 men represented the cohort study between June of 2003 January of 2008 were 491 received an open retro pubic prostatectomy and 1413 received the DVP. As you might suspect, the studies filled with detailed analysis from which I will spare you today. But I would encourage those of you interested to pick up a copy and read through it yourselves.
To summarize, The 3 year biochemical recurrence free survival rate was statistically similar between the da Vinci prostatectomy and the radical retropubic prostatect groups on the whole as well as when stratified by pathological stage, grade and margin status. On a multi area analysis, extra capsular extension, pathological grade 7 or greater, and positive surgical margin were independent predictors of biochemical recurrence, while surgical approach was not The authors concluded by saying, of comparative effectiveness for robotic assisted prostatectomy, of the desired endpoints associated fastest growing procedures that you haven't heard form for the condition of vaginal Volt ProLabs and has an estimated annual U. S. Market opportunity of between 60,701,000 patients. The gold surgical approach for this debilitating condition is an open sacralcopal pepsi.
But since this approach requires which is associated with longer hospitalization and increased blood loss, the post operative road to recovery is often slow and painful. As compared with less invasive this can be an alternative to the open approach. However, laparoscopic technically challenging due to its limitations, such as lack of depth perception and surgical access required for difficult suture placements. Devinci is rapidly proven capable in overcoming these clinical and technical challenges. A paper out of the department of Obstetrics And Gynecology at the University of Rochester Medical Center entitled Recovery After Robotic Assisted laparoscopic sacralcopel Apexi, the patient's perspective authored by McNally Bushbaum, Etal, looked closely at the patient's perioperative experience.
In assist patients were queried about resumption of activities, such as work, driving, bowel function, whether recovery went as expected, and whether they would perioperative data were collected and was 21 patients, which is admittedly small, but smaller than desired sample sizes is the when 100 percent of the respondents stated that they would recommend a da Vinci Sacralopepaxi to a friend. 72% indicated that the recovery went better than expected. 28% felt that the recovery went as expected and 0 felt that the recovery went worse than expected. Patient advocates have been a powerful component to success of several da Vinci procedures. So we are encouraged when we hear the early reports on an emerging procedure support this trend.
Over the past few quarters, you've heard us describe substantive product development projects aimed toward the general and colorectal surgery market. We have also highlighted that colorectal and specifically low rectal cancer resections are among our fastest growing procedures. In number of peer reviewed publications in these specialties has grown rapidly, and this past quarter was no exception. In the annals of Surgical Oncology, a study entitled multicentric study on robotic tumor specific mesorectal excision for the treatment of rectal cancer was published. It was a prospective 3 center study on 143 consecutive patients, which for the record was analyzed by an independent researcher.
The 3 centers included City of Hope National Cancer Center in California, the European Institute of an in Milan. In their commentary, the author stated that to the best of their knowledge, the in study, evaluating robotic assisted tumor specific rectal surgery represents the large the tumor 65% received neoadjuvant chemo radiation. Even though both conditions are known to run surgical dissection demanding successful excisions were successfully completed in over 95% of the patients. Successful restoration of bowel continuity was achieved in 78.3 percent of them. Margin clearance was obtained in all but one patient, with the number of harvested nodes that compares favorably with survival curve analysis revealed a 3 year overall survival rate local recurrence were not found during main follow-up of 17.4 months.
When discussing the technical differences between laparoscopy and robotic approaches, the author stated, and I quote, laparoscopy offers an optimal tumor specific mesorectal excision or TME, with intact pelvic fascia, even great and even greater accuracy than the open technique, but use of non articulated forceps, camera tremor, and surgeon fatigue make this procedure demanding and section accuracy leading to a better and more comfortable mesorectal dissection with a lower risk of circumferential resection margin. Later, the authors went on to say, and again, I quote, we feel that robotic surgery could dramatically change of the Society of American Gastrointestinal And Endoscopic Surgeons or SAGES Convenes in Landover, Maryland. This year, Intuitive will have a or present than in years past. Clinical prototypes of our single site product for single incision da Vinci surgery will be on display at our booth. As commercially available products at this stage.
However, da Vinci Multiportgeneral and colorectal surgery products and procedures, which are available will be discussed and featured within area of general and colorectal surgery and the reason is simple. It is our belief and the belief of many of our customers that the benefits of da Vinci surgery can positively effect a number of patients being treated within these specialties. Though we are in the early phases of procedure within these specialties, the early indicators appear positive. That concludes my remarks and I will now turn the time
you, Alex. I will be providing on a expected future cash flows. Starting with procedures, as Gary mentioned, our procedures this past quarter grew 37% over the year ago first quarter. We continue to expect our total procedures to grow approximately 35% for the year from the approximately 205,000 procedures performed in 2009. Moving on to revenues, based on the upside we recorded in the first quarter, we are increasing our forecast for annual revenue growth to 27% to 30%, which is up from our previous estimate of 25%.
As a reminder, our revenues can fluctuate quarter to quarter as system placements may vary. 7 systems in Q1, we do not expect to maintain this level of quarterly system sales in Japan for the balance of 20.10. With my to systems and manufacturing efficiencies. We expect ASPs to return to historical levels. As Gary mentioned, as Gary indicated, we will continue share productivity gains with our customers.
And as a result, we expect gross margins to be approximately 72% for the year. Moving to operating expense, we are making significant investments across multiple areas of our business, but particularly, our sales force, manufacturing, and we expect to record stock compensation charges of approximately $122,000,000 in 2010, which is a little lower our previous forecast of approximately $15,000,000 for the year. Other income, which is mainly comprised of interest income, is expected to come in between 16 $18,000,000 tax structure we created to report a lower tax rate this year. We recorded a 36.2 percent tax rate for Q1, and we record the same rate for the full year. This is a significant improvement over the 41% tax rate we reported for 2009.
Participating earnings per share, we ended the 1st quarter with 39,200,000 common shares outstanding and approximately 5,100,000 option shares outstanding. Depends on our average stock price this year, a portion of the 5,100,000 option shares will be added to the fully diluted shares calculation. Assuming our stock price remains where it is today, we estimate that our share count for calculating EPS in Q2 will be a approximately 40,600,000 shares. And for calculating EPS for the year, we estimate it will be approximately 40,800,000 shares. Finally, regarding our cash flows, since we are forecasting to report over 137,000,000 in non cash stock compensation and amortization expenses for the year, our cash flows will continue to be significantly higher than our reported net income.
We believe cash flows generated from operations is a better measure of our actual performance than net income. Once again, cash flows from operations in Q1 were 100 $53,000,000 compared with our net income of $85,000,000. And with that, we would like to open the call to your
Thank One moment as we wait for questions.
Operator, can you check to see that the callers can actually dial in for questions?
We'll double check.
Operator, and just for the message that, it's not working on their end.
Looks like it's just come up. Okay.
I have a question from Dial Levy. Hey.
Good afternoon, guys. This is Tayo from Deutsche Bank.
Hey.
So first question, you've mentioned on the call a comment about the sharing productivity gains with customers. And I was just wondering if you could go into that a little bit more. You're talking about sort of discounts providing free equipment. I just wasn't sure about that.
Yes, that's Gary. Just a combination of things. I think one thing is that as we move into more price sensitive, procedure markets, we expect that, margin levels may fluctuate. The other thing is, as we bring online technologies for training and networking, things like simulation, those are opportunities to help our customer and may have really a different margin profile.
And, nice. That's helpful. And, and also, you also talked about
a little bit about the sales force adds. I was wondering if you
could go into, you know, adding them by indication, are you adding them Internationally? And then also just lastly on the international front, in Europe, but was that the was sort of the headwinds that you were seeing? Was that new from the beginning of the year? Were they they start at the end of last year? Because Q4 was pretty robust Q1, obviously a little bit choppier.
And Is that kind of what you're seeing going forward kind of continued choppiness until their macro environment improves?
I'll let Ben take note.
Okay. I think the first part was Salesforce. Yeah. We're, as we mentioned, we added 49 people to our sales and marketing group and, about 40 of those were in the field this past quarter. So part of that comp is is we're still adding quite a few people to the Salesforce, and and we continue to hire a lot of folks.
With regard to the last part of the question, European demand. One thing I would say is that, I just want to point out seizures in Europe, grew very well in the in the quarter and, which they us so good about the overall health of that business. Now system sales were down in in in the quarter, and you're right. They did fluctuate a from Q4 to Q1. But generally speaking, we we think that there's a challenging economic environment in and that's making system sales in Europe, under some pressure.
And how long that's going to last? We don't know.
Know that it's anything different than you're seeing in the general descriptions of the broader economic markets
Thanks.
Our next question is from Ben Andrews
Good afternoon, guys. Just wanted to follow-up on something Alex that you mentioned, the notion of changing the sales structure to better support benign hysterectomy. Can you talk about that a little bit more?
Yes. And again, I think, I would ask you to to not overstate that. In other words, we have added some GYN specialists in the area. The focus, again, if you look at with respect to the GYN community and specifically the benign GYN segment, it's really spread out. That's a procedure that's done in a lot of different places and there are a lot of people that own large practices.
So area. So, they don't have to make the decision on should they go and support a prostatectomy case or a partial nephrectomy case pace, believing there is a lot of integration that is going to be natural in the sales organization, but we are really looking to bolster that side of it a little bit more. Okay.
And
then do you see a similar dynamic as you move into some of these other procedures? Because you're obviously talking about some good growth in a pretty wide variety of procedure codes. And is, you know, so you've obviously done this in cardio. You're doing it a bit now in Guinee. Do you see that as something do you end up with more frequently?
You know, I don't think we're in any position to say that this is any sort of a long term strategy. I think we're really looking at it from the perspective of where is the opportunity and what are the vital few things we can do to really attack that opportunity right now. Longer term based on once a product is put out, once there's clear understanding of the choreography of the salesperson's territory, those things will get it. But, but it's way too early to say that that it should be something you should expect in the future.
Okay. And then just briefly on Japan, the 7 systems that went out. Do you have a sense of what those thought leaders will be doing with the product before you get the shown in really are able to to to move forward and promote the product?
So we, we we do have the shown in so they go ahead and use it. We have, basically all indications that we have in the U. S. Except for pediatric, car cardiac, although we do have thoracic and ENT. So they can use it.
It's reimbursement that we don't have yet. And we'll see a mix of different procedures across that set of, customers.
Okay. So in terms of not having the reimbursement though, how does that constrain you in the near term with the product?
I think until we have reimbursement, the broad adoption will be constrained and because of the way they have to
Thanks.
This is actually James in for David. I had a question about the EU market. How is the obviously very strong procedure results over there, but how is the procedure mix and adoption curve OUS developing compared to the U S? And is prostatectomy still the driving force on the OUS growth or are you seeing a little bit of a different development there?
Yes, I think generally there has been a lag between outside markets, outside the U. S. Markets and U. S. So the answer to the second part of that question, yes, prostatectomy is a big driver outside the United States.
It's still a driver within the States, but it's a bigger driver outside the United States as it pertains to the percentage of their overall procedures. So, if you look at the GYN side, there is a lag there, which you would expect, the numbers in terms of a percentage sequentially or for the past few quarters has been strong, but it's out of a much lower base. So I think in general, it's our expectation that there will be a lag. The OUS markets will lag the broader US market. Now there may be exceptions on the by country basis, but generally speaking, that's the case.
Right. And as you as you try to make a bigger push into general and colorectal surgery, looking to the confidence there that you can be as successful in general surgery, both from a share and margin perspective, where there is much more focus and pressure
question correctly with the separation of general and colorectal. And I think you could continue to subsegmentize it even further. So think what we have always believed is where there's great patient value, we stand a very good chance to be, rapidly adopted. Now with in all of those procedures, I should say within some of those procedures in the broader category, you find that laparoscopy has been introduced or had introduced 15 or as many as 20 years ago in some of those areas, and so what we have found in the past is where those procedures have been technically demanding laparoscopically where we can prove capable, we tend to have rapid adoption. We are not saying anything about margins in those areas or really giving you any anything beyond that other than if we can find procedures with high patient value, which we believe there are several, then we believe will be successful.
Could you give
us some detail on what the 2 or 3 most attractive general or colorectal procedures might be for you?
I think if you looked at the if you looked at it by some of the peer reviewed literature that's out there or the anticipation from the surgeon categories, low rectal cancer really sticks out. If you look at low rectal cancers, There is laparoscopic colorectal surgery being done all over the United States and all over the world, but when you get to the low rectal key sensors, those tend to be restricted to a few centers, high volume centers. There seems to be a lot of consistency between that anatomy obviously and the male pelvic anatomy and working in prostatectomy. That existed in laparoscopic prostatectomy exist in laparoscopic low rectal cancers. So there are some indicator there that that that, I think, are favorable.
When you move into other areas, you know, such as, again, now moving up into general thoracic, sort of non cardiac thoracic operations. That could be a large area in a again, I think the same thing can be said there. And then within general surgery, we will see, it's too early. There's different platforms that we've, as mentioned that we are showing, and we will just see where some of those products land.
Our next question comes from Tycho Peterson. And maybe
just maybe just coming out of the, the conference in Orlando this week. Can you talk a little bit more, you know, about your thoughts on single port and, and, you know, maybe talk a little bit about the opportunity, how attractive is the market beyond gallbladder for that initial product? And any color you can give us around how you're thinking about pricing or consumable use would be helpful. I know it's early, but
Yes, and it is early. And therefore, there's really not a lot of depth that I'm going to or any of really will go through at this point. And as a reminder, we're not in, we're not through the FDA. And so we're certainly going to be very cautious and careful, with record that we're not even approved yet, so we're not going to make any claims. I think generally, from a sort of five thousand foot level, when we look at some of those procedures, if we look at where the multi puncture or the multi port da Vinci procedures have not been able to penetrate, they tend to be in some of the simpler, simpler procedures within general surgery.
The same port. So anything we're able to really pick up in that area we look at as accretive. And beyond that, it's really hard for me go into great detail, you know, whether it be colon, laffer's got the cole's or some of the other high volume, low procedures, low technical challenging procedures, it's hard to say. We will wait till it comes out till we start doing some procedures in and we can start looking at the data and and really determining what the value is going to be.
Okay. Can can you talk a little bit about how the Trans Oral is doing. You talked about, I think last quarter about some of the initial ENT procedures. How is that that ramping?
Yeah, I think if you look at it again, as reminder coming off of a small base. On a sequential basis, if you look at the when we look at the procedures, there was very strong growth on a sequential basis, but it's off a small base. If you look at the interest within the community and as you mentioned, I think you said you were at the World the World Congress on robotic surgery is the expectations I think were exceeded in terms of the number of ENT US for training and some of the other sort of early indicators, they all appear positive. So, we're pleased with the early progress. We know in our minds and minds of a lot of our customers that there is high patient value there and we get excited about where we can do that.
Could you maybe also comment just briefly on, you know, how you view the competitive dynamic with, you know, external being therapy. There was a new linac introduced yesterday from Varian and clearly they talked more about trying to go after prostate a little bit more aggressively. Can you just comment on, you know, whether you feel a need to fund clinical studies or, you know, how you view the competitive dynamic there?
Yes, there are several studies ongoing now that look at prostate cancer treatment first between open surgery, robotic surgery, and different forms of radiation therapy. I think the way we look at it is, is the patient population is segmented. So for the younger patients, surgery makes a lot of sense. There's a lot of data to indicate that, that surgical, resection results in better long term, can for outcomes than radiation. And where the discussion comes in is kind of as the patient's age.
And I think we'll have to see, I'm certainly not ready to make any claims about what they're products can or cannot do. And and, we have, several studies, I think, in the works that that we'll, publish over the next few years.
Then just one last one, maybe for Ben. Any updated thoughts on, capital deployment priorities this year? You obviously talked about the cash you built up.
Well
Yeah. Okay.
You know,
as at the cash, we really look at it in 4 buckets. The first bucket is really where in organic need do we have a requirement for cash infusion and we've been doing that quarter over quarter and we'll continue to do so. We also look out at technology partnerships we can initiate or accelerate and then acquisitions of technologies that fit well with us. Again, we've done that as as we've gone and gives us the flexibility to do that as we need it. We'll look at returning cash to shareholders as kind of an anti dilution measure when the is right and where it makes sense.
And of course, we like to keep some for flexibility. So it really is that same set of priorities and it really is looking at it quarter after quarter and doing what makes sense as we see it.
Our next question comes from Vincent Ritchie.
Yep. Mhmm.
First question for you is with regard to a product, you have, showcasing at stages of the you
know, we we really looked at if that is something that can supplement training. And the goal really simply is to get more comfortable surgeons faster. We don't look at that as a big opportunity as a direct product line. So we're not looking out and saying, Boy, this is a huge opportunity in and of itself. We really see it as a way to have good outcomes sooner with our existing products.
So you you should not be looking at that and modeling with the big revenue stream off of simulation is. I think there's a lot of interest in it, and, and a lot of interest that makes sense, but, but I would do it that way.
And where exactly would you record revenues from that in your P and L?
Well, it is it it's a physical product, but I think what Gary is mentioning is that the intent of that product is not to be a revenue generator, but to be, helpful in all the training that we do with surgeons.
As we get closer there, we can answer that. That question.
Okay, great. And since you called it out as part of the R and D, you've been talking a little bit more about colorectal. Can you update us the progress you've made with, getting a a surgical stapler on the
market? The, the the product, again, just as a reminder, we did a licensing deal, a while back and we told you at that time and then subsequent quarters that the project is moving forward. You know, we haven't put any timelines in place as to when it's going to be launched. I would just say that the teams are very well resourced. They are very energized and we are pleased the progress they're making.
Okay. Great. And then, lastly, you touched on this a little bit,
but can you talked to
us a little bit. You've talked about adoption curves for procedures in the past. You talked to us a little bit about the adoption curve internationally for, gynecology and specifically DVH?
You broke up a little there. Was it Gynecology and specifically DVH?
Yes. That's correct.
That's a question. Yeah. I would, again, I would say that as a reminder, if you looked at when we look back retrospectively at the EVP adoption curve between US and OUS. We found, we found that it was lagging by a couple of years. I mean, if you looked at the overall numbers and you looked at the adoption rate and so on, having said that, there were countries within Europe that looked very similar to the United States.
I would say with DVH, it is lagging. However, the number is small, but on a sequential basis, it's growing very, it grew very well this quarter. It's too early to say, which countries are going to lead let's, let's say more rapidly or more uniformly outside the United States, than than DVH for benign.
Two more questions.
I'm sorry, with Mr. Ritchie Dunn with this question.
Please. I just I just assumed that we were done. Thanks, guys, for taking the questions.
I'm sorry. I'm having a hard time understanding. Should I move on to the next question?
Yes, please, operator.
Rick Weiss. May I have the question?
Hi, guys. It's actually Miraflava for Rick Wise. Congratulations on another very, very strong quarter. Let me start with asking a capital spending question. I know you discussed Europe.
In quite a lot of details, but turning to the U. S, the placement here seem very strong. In fact, if I have this correctly, they didn't even decline sequentially what is supposed to be a seasonally weaker first quarter. Now the economy rebounds, do you think we can see an acceleration in U. S.
DaVincsi placements given that you do have a new product cycle as well, any thoughts that you might relate on the capital spending environment here would be appreciated.
Mary Slava, this is Ben. Yeah, you're right. We we had a pretty strong quarter in the US. Yeah, again, from a broad standpoint, we take a look at the procedure growth. And in the long term, system placements are going to be a a factor of the need for those proceed those systems based off of the procedure growth.
And, you know, procedures are growing pretty well. As we mentioned, that we're still forecasting 35 percent procedure growth in the United States I'm sorry, Worldwide, and, and that will lead to system sales. But, You know, without speculating too much because these things do tend to vary quarter to quarter. You know, they were really strong quarters in both Q4 and Q1. And and I don't know that it would be a fair thing for you to to start modeling off of that and then expecting acceleration off of those numbers.
We're not being really specific about it, but we are giving you some top line guidance on on revenues.
Okay. I do appreciate that. Secondly, not to speak on you again, but gross margins, you're giving a guidance that 72% again, in the last few quarters, it has been above that already. Why should gross margins go down so significantly in the next couple of quarters span?
Well, actually, I I this is the only quarter I can recall that it was 73%. In Q4, it was 72% and in the this quarter, it was lower than that. Pricing has been very consistent. So since we launched the in q 2 2009, all of our pricing for our products has been exactly the same. And you see a little fluctuation due to product mix and and customer mix, I think that's probably just gonna be the normal fluctuation you're be seeing.
If you if you, just take a look at our historical average on, you know, the mixes that we've seen, we expected to come in at 72%.
Okay. And maybe one more, can you update us where you stand with reimbursement in Japan? Is there any timelines here that can be forecast? Are we several months away from getting any reinforcement in Japan? Are we years away?
How do we think about that?
Right now, it's too soon to call. And so we're working through with our partners and with the government how to approach it. And as we get to know more, we'll let you know.
Okay. And let me throw one last one. We are at Sages as well. And I appreciate the comments on colorectal procedures, but there's quite a bit of talk about everything else here like bariatrics, cholecystectomy, including robotics. And I'm just wondering how traditionally this has not been in your sweet spot, so to say because these have been the easy laparoscopic procedures.
How close are you to this opportunity now? And is there any instruments that you need to develop? Is there any studies that you need to do? Are you making any sort of a push into these type of procedures and how big is colorectal in the U. S.
In terms of cases?
Yes, I think answer to most of those questions is yes. We will need instrumentation. We will need training pathways. We will need, you know, to push for, you know, peer reviewed data and so on and so forth. And the answer to that is always, is most often going to be, yes, anytime we move into new areas.
And so as far as predictions of where the adoption might be into which of those sub segments you said, it's difficult to say and we we won't speculate. But in terms of overall size of markets, if you look at the GI opportunity and you look at the colorectal opportunity, I believe estimates in the United States are that could approach 200,000 So I am pleased to hear that there is a lot of excitement around all of those areas. That's really motivating certainly for us and that's why we are why we are there. I think we have time for one more question, operator. Thank you.
Our final question comes from Sameer Harish
Hi, guys. Thanks for taking
the question. I thought
I would start off. You know, you talked on, on the call about focusing on, you know, sales in in the GYN market. Does this open the door for more interaction at the patient level possibly direct to consumer type marketing?
I would read that into the comments. I think again, what we really strive for is providing patient value and we understand the chain of events there. There is a hospital customer. There is a physician customer and they are the people that own the patient. What we certainly do is provide a lot of information that patients can access to help them sort of narrow their search as to the various opportunities that are out there.
We will always do our best to provide as much information as we can.
Okay. And in terms of, you know, the interaction that you're seeing from a customer level, at the website or through, you know, through the phone, has there been any change in the way that customers are approaching the company in terms of the procedures that they're asking about or does it mimic the mix of, you know, prostate versus hysterectomy kind of
can you talk about that?
I I I can't think of any per per se outliers in there. Mean, I can, I can say that, there's nothing, remarkable that stands out in that that is different from what our expectations would be?
Okay. And and lastly, I know you don't typically talk about pipeline products, but can you give us, you know, a a little bit more detail on the pathway to getting a sales, approved in the US?
The, again, the the the FDA clearance, we are in discussions with the FDA. Let's put it that way. There is, but in terms of the process or the timeline, there's really not a lot more we can comment on at that point.
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 experiences give you some sense of what this means in the lives of our patients. One patient is Rhonda of Florida. Rhonda describes her experience as follows, quote, although I have had a uterine fibroid for years, I have successfully been able to avoid surgery.
I had no symptoms, and the fibroid was causing no problems, so I couldn't bring myself to go through my preconceived notion of a hysterectomy when it wasn't absolutely necessary. In after my recent ultrasound and subsequent CT scan revealed that it was now impacting my ureter and kidney, I had I could no longer avoid action. Thankfully my new OBGYN, Doctor. Carol Mackenzie recommended that I contact Doctor. Sam about a da Vinci robotic procedure.
I was concerned that the fibroid was too big to even consider a robotic procedure, so I called to check before even making an appointment. I felt very confident that I wanted her to do the surgery, but had previous scheduled a second appointment with a prominent surgeon who had performed this surgery on my friend just a few weeks earlier. At my consultation with him, he was adamant that the firebird was simply too large to consider to consider anything other than an abdominal hysterectomy. I called Doctor. Sam's office to discuss it, and while she couldn't guarantee that it could be done robotically, she was 80 to 85% sure that she could do it that way.
For me, those were good enough odds, and I truly believe that if anyone could do it, she was the 1. I went home the day after my surgery and was able to get up and down the stairs without significant pain, though I moved slowly. 72 hours after my surgery, I felt well enough to go to my daughter's soccer game and accompanying my husband to his holiday party that later that evening, although I was still feeling a little bloated and swollen for the most part, it felt amazing. Me, this experience has underscored how important it is for people to find out the latest treatments available, yet how important it is for people also realize how critical it is to select the most competent and experienced technician. After years of avoiding this surgery, it's so nice to finally have it behind me.
A second patient is Doug, a marketing director at a hospital in West Virginia, who describes his experience as follows: quote, I had been diagnosed with mitral valve prolapse as a child, but it had never progressed to anything remarkable until September of 2009. When I began experiencing shortness of breath, chest and back tightness, and uncomfortable palpitations. It was determined that research, I was committed to finding a position that and a facility that could most importantly repair my mitral valve and secondarily repair it with robotic assistance from Devinchy Surgical System. My research led me to Doctor. Mark Dillonoff at the Cleveland Clinic Foundation, who a fantastic job repairing both the anterior and posterior leaflets of my mitral valve robotically.
My recovery has been remarkably asked and easy. I feel great, and there are no signs of regurgitation or a heart murmur anymore. I'm completely fixed. I can't say you what a relief it is to know that my health problems are now solved, that my sternum didn't have to be sought and spread apart, and that I can look forward to living a long health life with my wonderful family. I truly feel blessed.
Patients like these are the strongest advocates for da Vinci surgery and form the very foundation of our operating ordinary journey to improve surgery.
That concludes today's conference. Thank you for participating. You may disconnect at any time.