Intuitive Surgical’s 3Q23 Shows Some Cracks in Capital Equipment Outlook; Procedure Growth Outlook Shows Signs of Softening
Intuitive Surgical missed expectations in the third quarter with some signs the capital equipment market is becoming more challenging given the interest rate environment and capital access for hospitals, and signs that procedure trends could be softening following a pent-up demand of the post COVID-19 era. Additionally, the Chinese market, a source of growth, is currently facing some turmoil with many companies citing challenging 3Q23 trends. Total revenue in the quarter was $1.756 billion versus consensus forecasts of $1,770 billion and adjusted earnings per share came in at $1.46 vs. the street at $1.41.
Notable system revenue declined in the quarter as the company cited an increase in leasing agreements. This could be representative of a more challenging capital equipment environment for hospitals. Also, total system placements have been trending flattish for some time. The typically strong 4Q capital equipment cycle will be a good read of where things stand next quarter.
In the third quarter, global procedures grew 19% increase, accompanied by a 13% expansion in the installation of da Vinci systems, while the average system utilization also rose by 6%. System utilization declined sequentially to roughly $129,000 per installed instrument, but this is typical due to summer procedure seasonality and some of the pent-up demand trends following COVID-19 abating. The U.S. market showed procedure growth of 17%. However, this growth was somewhat moderated as compared to the first half of 2023 due to reduced patient backlogs. One area of growth in the U.S. was bariatric procedures and although there was a slowdown in its growth rate, double-digit expansion continued. Bariatric procedures now account for approximately 4% to 5% of total global procedures.
Internationally, procedures outside of the United States (OUS) increased by 24%. Key regions displaying strength in this expansion included India, Germany, the U.K., and Japan. However, growth in China was consistent with expectations but slightly lower than the previous quarter, primarily due to a strong performance in the same period the previous year following COVID-related lockdowns. Notably, non-urology procedures outside of the United States continued to contribute positively to growth, and were up 31%. Within the broader category of cancer-related procedures, the fastest-growing OUS procedure was colon resection.
In terms of innovation the company noted the company completed enrollment in its FDA-approved clinical study aimed at evaluating complex colorectal procedures. Additionally, FDA-approved clinical trials, focusing on pulmonary lobectomy and thymectomy, also finalized its enrollment in June of this year.
The company did increase its procedure growth expectations slightly on the call and is now calling for total procedure growth of 21% to 22% for the year versus previous guidance of 20% to 22%.