Intuitive Surgical Inc at Wells Fargo Healthcare Conference Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Larry Biegelsen - Wells Fargo Securities, LLC - Analyst : Great. So, Jamie, let's start with da Vinci 5. So in the first -- in the second quarter, I'm sorry, you placed 70 systems, which were well ahead of expectations and accounted for almost half of your total system placements in the US. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 05, 2024 / 1:30PM, ISRG.OQ - Intuitive Surgical Inc at Wells Fargo Healthcare Conference

Question: Larry Biegelsen - Wells Fargo Securities, LLC - Analyst : What about da Vinci 5 is resonating most with surgeons?

Question: Larry Biegelsen - Wells Fargo Securities, LLC - Analyst : That's helpful. So how should we think about the ramp in the US? On the call, Q2 call, you talked about modest increases quarter by quarter. What does that mean? And do you expect da Vinci 5 to be greater than 50% of your US placements in the second half?

Question: Larry Biegelsen - Wells Fargo Securities, LLC - Analyst : And Jamie, what are those planned software and hardware upgrades that you mentioned? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 05, 2024 / 1:30PM, ISRG.OQ - Intuitive Surgical Inc at Wells Fargo Healthcare Conference

Question: Larry Biegelsen - Wells Fargo Securities, LLC - Analyst : Jamie, the telepresence software?

Question: Larry Biegelsen - Wells Fargo Securities, LLC - Analyst : Yeah. Historically, that was used -- I think you had a third party supplying that. Is it that the same vendor? Or is this an in-house telepresence capability?

Question: Larry Biegelsen - Wells Fargo Securities, LLC - Analyst : Okay. Sorry about that. And how should we think about -- the limited launch you said is going to go into early 2025, I believe. How should we think about customers pausing new system purchases ahead of the full rollout in the US and outside the US?

Question: Larry Biegelsen - Wells Fargo Securities, LLC - Analyst : And Jamie, when are you going to start accepting trade-ins for da Vinci 5?

Question: Larry Biegelsen - Wells Fargo Securities, LLC - Analyst : And Jamie, I just want to make sure we don't miss the forest for the trees. Big picture with da Vinci 5, any surprises, good or bad?

Question: Larry Biegelsen - Wells Fargo Securities, LLC - Analyst : Positive. On the positive side?

Question: Larry Biegelsen - Wells Fargo Securities, LLC - Analyst : Okay. And Jamie, sticking with systems, you said on the Q4 call, the total system placements would likely be down year over year. So far, system shift has been up about 2% year over year. Do you still expect systems to be down year over year in 2024? And if not, what has changed?

Question: Larry Biegelsen - Wells Fargo Securities, LLC - Analyst : Got it. And is there any evidence that the haptic feedback is bringing new surgeons over to robotics?

Question: Larry Biegelsen - Wells Fargo Securities, LLC - Analyst : And Jamie, in Q2, ASPs were up about 4% year over year grounded. Should we expect mid-single-digit increases in the system ASP going forward from da Vinci 5? We know what the ASP increase is, but just on an aggregate basis, if you will.

Question: Larry Biegelsen - Wells Fargo Securities, LLC - Analyst : So historically, an Si trade-in, I think you've said maybe $500,000 credit.

Question: Larry Biegelsen - Wells Fargo Securities, LLC - Analyst : $200,000 to $300,000 credit. So the Xi credit, are you willing to say what that might look like?

Question: Larry Biegelsen - Wells Fargo Securities, LLC - Analyst : Quite a bit higher. Jamie, while we're on it, again, I don't want to miss the forest for the trees. Capital equipment environment, any color on that? Big picture?

Question: Larry Biegelsen - Wells Fargo Securities, LLC - Analyst : China bounced back to 14 systems in Q2 and 14 is where you were before anti-corruption.

Question: Larry Biegelsen - Wells Fargo Securities, LLC - Analyst : And the anti-corruption challenge -- initiatives, which are almost a year ago, still having an impact. I think a year ago, you thought it would probably be done by the end of the second quarter.

Question: Larry Biegelsen - Wells Fargo Securities, LLC - Analyst : For anti-corruption initiatives?

Question: Larry Biegelsen - Wells Fargo Securities, LLC - Analyst : Got it. And the Stimulus, I know I asked about that on the Q2 call. You don't think that's something that's going to benefit robotics?

Question: Larry Biegelsen - Wells Fargo Securities, LLC - Analyst : And on utilization, it was about 2% in the first half, I believe. That's a little bit lower than the mid-single digit that you point us to. Is there a reason -- do you expect it to bounce back?

Question: Larry Biegelsen - Wells Fargo Securities, LLC - Analyst : Understood. And you had 70% procedure growth in Q2, as you mentioned, after 22% growth a year ago. And you raised -- the question is what gave you the confidence to raise the bottom end of the guidance range for procedure growth?

Question: Larry Biegelsen - Wells Fargo Securities, LLC - Analyst : So US bariatric was down mid-single digits in Q2 after, I think, being flat in Q1. Jamie, when do you think it troughs?

Question: Larry Biegelsen - Wells Fargo Securities, LLC - Analyst : Bariatrics stabilizes?

Question: Larry Biegelsen - Wells Fargo Securities, LLC - Analyst : And you're still doing better than the market. So the market is worse than down mid-single digits.

Question: Larry Biegelsen - Wells Fargo Securities, LLC - Analyst : So too early to call?

Question: Larry Biegelsen - Wells Fargo Securities, LLC - Analyst : But obviously, the comps are going to start to get easier?

Question: Larry Biegelsen - Wells Fargo Securities, LLC - Analyst : Okay, okay. And then I guess the big surprise really on the Q2 call besides the da Vinci 5 placements was also the margins. And so maybe talk about what drove the strong margins, particularly the gross margin and why the gross margin takes a step down in the second half of '24, please?

Question: Larry Biegelsen - Wells Fargo Securities, LLC - Analyst : And Jamie, thinking about next year, what are some of the puts and takes we should consider maybe starting with the top line?

Question: Larry Biegelsen - Wells Fargo Securities, LLC - Analyst : The Korea strike, if it ends, could there be a bounce back?

Question: Larry Biegelsen - Wells Fargo Securities, LLC - Analyst : And Ion is approved in China now?

Question: Larry Biegelsen - Wells Fargo Securities, LLC - Analyst : And you've been providing a lot of disclosure on Ion procedures and systems. Is there a plan at some point to provide more disclosure on the contribution?

Question: Larry Biegelsen - Wells Fargo Securities, LLC - Analyst : And Jamie, on 2025, sticking with that, maybe on the P&L, what are some of the considerations you went through on the top line if you can?

Question: Larry Biegelsen - Wells Fargo Securities, LLC - Analyst : Is there any way to look at your CapEx spending and to try to estimate what this increased depreciation could be? Or is that impossible?

Question: Larry Biegelsen - Wells Fargo Securities, LLC - Analyst : And are there offsets to that?

Question: Larry Biegelsen - Wells Fargo Securities, LLC - Analyst : Right. But you're not saying one way or the other, up, stable or down. I mean, depreciation is obviously a headwind, but there could be offset. So it could be flat. It could be up. You're not saying one way or the other?

Question: Larry Biegelsen - Wells Fargo Securities, LLC - Analyst : Okay. Yeah, it could be all three of those scenarios. Is that possible? Or are you saying directionally, it's probably stable to down?

Question: Larry Biegelsen - Wells Fargo Securities, LLC - Analyst : Okay. Yeah, it could be all three of those. I just wanted to confirm. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 05, 2024 / 1:30PM, ISRG.OQ - Intuitive Surgical Inc at Wells Fargo Healthcare Conference

Question: Larry Biegelsen - Wells Fargo Securities, LLC - Analyst : Okay. And what about -- just in recent years, you've grown OpEx slower than procedures. Is there any reason why that might change next year? Sometimes, when you've had big launches, you've chosen to grow OpEx faster.

Question: Larry Biegelsen - Wells Fargo Securities, LLC - Analyst : And you've talked about having top-tier margins between 35% and 40% over time. By our math, you don't guide to the margins, but we get to about 35% for 2024. Do you feel like you're in the -- solidly in the 35% to 40% range? Or is there anything that could cause you to go backwards? And maybe it's some of the factors you've already articulated today.

Question: Larry Biegelsen - Wells Fargo Securities, LLC - Analyst : And the Xi trade-ins, Jamie, is that a good guy or headwind to the margins? You mentioned three things. One being -- the first thing you mentioned

Question: Larry Biegelsen - Wells Fargo Securities, LLC - Analyst : Got it. I lost my train of thought. All right. I'll come back to it. da Vinci 5, remind us of what you've said when the -- I assume right now it is dilutive to the gross margin. What if you said on timing, when that can be -- or I don't know if it's ever accretive to the gross margin because it's capital. But when does it become kind of consistent, call it, with the gross margin of Xi?

Question: Larry Biegelsen - Wells Fargo Securities, LLC - Analyst : But right now it's below. It's a drag.

Question: Larry Biegelsen - Wells Fargo Securities, LLC - Analyst : It's below Xi?

Question: Larry Biegelsen - Wells Fargo Securities, LLC - Analyst : Right. Got it. Understood. And we didn't talk about procedures. Just maybe remind us of what the key growth drivers are, where you are? Hernia has been probably the biggest in general surgery in the US. What inning are we in, in the big procedures? And what are some of the new ones that are coming on?

Question: Larry Biegelsen - Wells Fargo Securities, LLC - Analyst : So appendectomy, we've heard that talked about before, but not a lot from Intuitive. I mean, just more from physicians. That tends to be an emergent procedure. And so I'm curious, how big is that? Remind us. There's a lot. I mean, it's a big category. And what are you seeing there in the US given that it's an emergent procedure. And what are the economics? Is there an economic consideration there?

Question: Larry Biegelsen - Wells Fargo Securities, LLC - Analyst : That's helpful. And while we're on procedures, obviously, we're trying to figure out if there are new procedures that da Vinci 5 unlocks. Are we seeing any evidence that you can speak of right now that bring -- opening up new procedures?

Question: Larry Biegelsen - Wells Fargo Securities, LLC - Analyst : And Jamie, lastly, good competitive environment. Maybe walk us through what you're seeing in Europe and Asia, please? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. SEPTEMBER 05, 2024 / 1:30PM, ISRG.OQ - Intuitive Surgical Inc at Wells Fargo Healthcare Conference

Question: Larry Biegelsen - Wells Fargo Securities, LLC - Analyst : And you're going to be manufacturing locally in China. I know there was some development there recently.

Question: Larry Biegelsen - Wells Fargo Securities, LLC - Analyst : That's helpful. Jamie, we're almost out of time. We are out of time, but I wanted to give you the last word. Any closing remarks?

Question: Larry Biegelsen - Wells Fargo Securities, LLC - Analyst : Thanks for being here.