Intuitive Surgical, Inc. :ISRG-US: Earnings Analysis: Q3, 2016 By the Numbers : October 24, 2016

Intuitive Surgical, Inc. reports financial results for the quarter ended September 30, 2016.

We analyze the earnings along side the following peers of Intuitive Surgical, Inc. – Medtronic plc (MDT-US) that have also reported for this period.

Highlights

  • Summary numbers: Revenues of USD 684.30 million, Net Earnings of USD 211 million.
  • Gross margins widened from 66.58% to 71.01% compared to the same period last year, operating (EBITDA) margins now 40.93% from 36.14%.
  • Year-on-year change in operating cash flow of 44.46% is about the same as the change in earnings, likely no significant movement in accruals or reserves.
  • Earnings growth from operating margin improvements as well as one-time items.

The table below shows the preliminary results and recent trends for key metrics such as revenues and net income growth:

2015-09-30 2015-12-31 2016-03-31 2016-06-30 2016-09-30
Relevant Numbers (Quarterly)
Revenues (mil) 589.1 676.5 593.6 670.9 684.3
Revenue Growth (%YOY) 7.09 11.87 11.56 14.47 16.16
Earnings (mil) 167.3 190 136.4 184.5 211
Earnings Growth (%YOY) 35.25 29.43 40.62 37.17 26.12
Net Margin (%) 28.4 28.09 22.98 27.5 30.83
EPS 4.4 4.99 3.54 4.71 5.31
Return on Equity (%) 16.92 18.02 12.03 14.86 15.74
Return on Assets (%) 14.81 15.85 10.68 13.31 14.12

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Market Share Versus Profits

Revenues History
Earnings History

ISRG-US‘s change in revenue this period compared to the same period last year of 16.16% is almost the same as its change in earnings, and is about average among the announced results thus far in its peer group, suggesting that ISRG-US is holding onto its market share. Also, for comparison purposes, revenues changed by 2.00% and earnings by 14.36% compared to the immediate last period.

Revenues Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Leader, Earnings Focus, Laggard, Revenues Focus


Earnings Growth Analysis

The company’s earnings growth was influenced by year-on-year improvement in gross margins from 66.58% to 71.01% as well as better cost controls. As a result, operating margins (EBITDA margins) rose from 36.14% to 40.93% compared to the same period last year. For comparison, gross margins were 69.94% and EBITDA margins were 41.33% in the last reporting period.

Gross Margin Versus EBITDA Margin

Quadrant label definitions. Hover to know more

Differentiated; Low Cost, Commodity; Low Cost, Commodity; High Cost, Differentiated; High Cost


Gross Margin Trend

Companies sometimes sacrifice improvements in revenues and margins in order to extend friendlier terms to customers and vendors. Capital Cube probes for such activity by comparing the changes in gross margins with any changes in working capital. If the gross margins improved without a worsening of working capital, it is possible that the company’s performance is a result of truly delivering in the marketplace and not simply an accounting prop-up using the balance sheet.

Gross Margin History
Working Capital Days History

ISRG-US‘s gross margin improvement has not produced any big difference in its working capital. Working capital days are currently 313.92, compared to last year’s level of 278.75 days. This leads Capital Cube to conclude that the improvements in gross margins are likely from operating decisions and not trade-offs with the balance sheet.

Gross Margin Versus Working Capital Days

Quadrant label definitions. Hover to know more

Customer Financed, Cash Starved, Supplier Financed, Cash Rich


Cash Versus Earnings – Sustainable Performance?

ISRG-US‘s change in operating cash flow of 44.46% compared to the same period last year is about the same as its change in earnings this period. Additionally, this change in operating cash flow is about average among its peer group. This suggests that the company did not use accruals or reserves to manage earnings this period, and that, all else being equal, the earnings number is sustainable.

Operating Cash Flow Growth Versus Earnings Growth

Quadrant label definitions. Hover to know more

Cash Flow based Earnings, Likely Non-cash Earnings, Low Cash Flow Base, Likely Undeclared Earnings


Margins

The company’s earnings growth has also been influenced by the following factors: (1) Improvements in operating (EBIT) margins from 32.13% to 37.67% and (2) one-time items. The company’s pretax margins are now 38.99% compared to 32.86% for the same period last year.

EBIT Margin Versus PreTax Margin

Quadrant label definitions. Hover to know more

Operation driven Earnings, One-time Favorables, Low Earnings Base, One-time Unfavorables
EBIT Margin History
PreTax Margin History

Access our Ratings and Scores for Intuitive Surgical, Inc.


Company Profile

Intuitive Surgical, Inc. develops, manufactures and markets da Vinci Surgical Systems and related instruments & accessories for minimally invasive surgery. It also develops and manufactures robotic technologies designed to improve clinical outcomes, skills simulator, indications for use and endowrist instruments. The company was founded by Frederic H. Moll, John Gordon Freund and Robert G. Younge in November 1995 and is headquartered in Sunnyvale, CA.

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