October 19, 2010 / 8:35 PM / 10 years ago

UPDATE 3-Intuitive 3rd qtr profit rises, shares fall

* Q3 net EPS $2.14 vs Street view $2.10

* Revenue $344 mln vs Street view $349.5 mln

* Shares fall 3.8 percent (Adds analyst comment, outlook, details from conference call, updates shares)

By Bill Berkrot

NEW YORK, Oct 19 (Reuters) - Intuitive Surgical Inc(ISRG.O) on Tuesday reported better-than-expected third-quarter profit on increased demand for its high-priced da Vinci surgical systems, but procedure growth was a bit below analysts’ estimates and its shares fell nearly 4 percent.

The results also failed to build on Intuitive’s surprisingly strong second quarter, causing some investor disappointment.

“Right now this is a procedure volume story,” said Spencer Nam, an analyst for Madison Williams.

“The Street actually thought that the third quarter was going to be even better in terms of the number of procedures than the second quarter, but it turned out the third quarter was not as good, so that weakness is really taking the shares down,” Nam said.

Da Vinci procedure growth for the quarter was 33 percent, while analysts were looking for growth at least equal the previous quarter’s 36 percent.

Intuitive said it continues to expect full-year revenue growth of 30 percent to 33 percent and procedure growth of about 35 percent.

“It seems they have strong expectations for the fourth quarter,” Nam said.

Systems sales rose to $160 million from $136 million in the year ago quarter, but that was $8 million less than in the second quarter, with three fewer da Vinci systems sold.

The company, on a conference call with analysts, called the third quarter historically difficult.

Net profit rose to $87 million, or $2.14 per share, from $65 million, or $1.64 per share, a year ago. That topped analysts’ average expectations by 4 cents, according to Thomson Reuters I/B/E/S.

Intuitive sold 105 da Vinci systems during the quarter, up from 86 a year ago. That included 45 systems sold to repeat customers. The newer da Vinci systems cost about $1.4 million each and carry higher annual service fees than the older models.

Revenue for the quarter rose nearly 23 percent to $344 million, just shy of Wall Street estimates of $349.5 million.

Instruments and accessories revenue rose 27 percent to $128 million.

The da Vinci robotic systems are most often used for delicate prostate and gynecological surgeries and have been associated with shortened hospital stays and fewer infections and complications.

Intuitive said the greatest procedure growth is being seen in gynecology, with especially robust growth in benign hysterectomies. The company said growth in such procedures was “absolutely” sustainable.

Prostate procedures, once the meat and potatoes of da Vinci use, have leveled off in the United States, the company said. It is looking to Europe and Asia for prostatectomy growth, but said the capital spending environment in Europe “continues to be challenging.”

The company said there are now 1,661 da Vinci systems placed worldwide.

Japan is seen as a significant future growth area for Intuitive, but business cannot take off there until reimbursement for the robotic procedures is approved.

The company said it is working on gaining reimbursements in Japan, but that they have to be negotiated procedure by procedure, beginning with prostatectomy.

It said it does not see broad reimbursement in Japan in the next six to 12 months.

Once that comes, Nam said, “I believe there’s going to be a pretty rapid adoption of (da Vinci) systems in Japan.”

Intuitive shares fell to $268.50 in extended trading from their Nasdaq close at $279.04. (Reporting by Bill Berkrot; Editing by Gary Hill, Bernard Orr and Gunna Dickson)

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