ISRG profits name for the duration finishing December 31, 2024.
Symbol supply: The Motley Idiot.
Intuitive Surgical (ISRG -0.29%)This fall 2024 Profits CallJan 23, 2025, 4:30 p.m. ET
Contents:
Ready Remarks Questions and Solutions Name Contributors
Ready Remarks:
Operator
Just right day, and thanks for status via. Welcome to the This fall 2024 Intuitive profits convention name. At the moment, all contributors are in a listen-only mode. Please be recommended that these days’s convention is being recorded.
After the audio system’ presentation, there can be a question-and-answer consultation. [Operator instructions] I’d now like handy the convention over in your speaker these days, Brandon Lamm, investor members of the family for Intuitive Surgical.
Brandon Lamm — Senior Supervisor, Investor Members of the family
Just right afternoon, and welcome to Intuitive’s fourth quarter profits convention Name. With me these days, we’ve got Gary Guthart, our CEO; Jamie Samath, our CFO; Daniel Oh, our senior clinical officer. Dave Rosa, our president and common player in this name, is clear of the place of work this week on a previous industry dedication and may not be becoming a member of these days. Dr.
Daniel Oh, senior clinical officer and working towards surgeon, will sign up for us in this name to explain scientific highlights. We’d additionally love to announce that Dan Connolly can be becoming a member of Intuitive as our VP and head of investor members of the family. Dan has labored as an international funding supervisor for the final 18 years and has actively adopted surgical robotics since 2008. We sit up for Dan becoming a member of Intuitive in early February.
Sooner than we commence, I wish to let you know that feedback discussed on these days’s name could also be deemed to include forward-looking statements. Precise effects would possibly range materially from the ones expressed or implied because of positive dangers and uncertainties. Those dangers and uncertainties are described intimately in our Securities and Trade Fee filings, together with our most up-to-date Shape 10-Okay for the fiscal 12 months ended December thirty first, 2023, and next filings. Our SEC filings will also be discovered by way of our site or on the SEC’s site.
Traders are cautioned to not position undue reliance on such forward-looking statements. Please observe that this convention name can be to be had for audio replay on our site at intuitive.com within the occasions phase below our investor members of the family web page. These days’s press liberate and supplementary monetary information tables were posted on our site. These days’s structure will include supplying you with highlights of our complete 12 months and fourth quarter effects as described in our press liberate introduced previous these days, adopted via a question-and-answer consultation.
Gary will provide industry and operational highlights. Jamie will supply a assessment of our monetary effects and process highlights. Dan will provide scientific highlights. Then I can supply our monetary outlook for 2025.
And in spite of everything, we will be able to host a question-and-answer consultation. With that, I will flip it over to Gary.
Gary S. Guthart — Leader Government Officer and Director
Thanks for becoming a member of us these days. I will contact on our efficiency for the overall 12 months 2024 and proportion our point of view going into 2025. 2024 used to be a powerful 12 months for Intuitive with powerful early adoption of our fifth-generation multiport platform, da Vinci 5, and wholesome process expansion in a lot of our supported indications in nations, leading to sturdy monetary efficiency for the 12 months. Adoption of our Ion and da Vinci SP platforms endured with new international clearances and larger usage.
Our groups were laborious at paintings launching da Vinci 5 and studying from its early revel in. We’re making improvements to our merchandise throughout all 3 of our platforms and serving to our consumers succeed in their programmatic targets. We began 2024 fascinated about 4 major thrusts. First, we expanded indications and launches of our new platforms via area, with a specific focal point on our first segment of da Vinci 5 release.
2nd, we pursued larger adoption of targeted procedures via nation by way of coaching, business actions, and marketplace get admission to efforts. 3rd, we drove high quality and gross margin enhancements in our international operations. And in spite of everything, we fascinated about expanding our productiveness, in particular in purposes that get pleasure from commercial scale. Taken in combination, our workforce made very good development in opposition to those targets.
Transferring to procedures. Expansion for the overall 12 months used to be 17%. Spaces of energy incorporated basic surgical treatment in the US and regional efficiency in nations, together with the U.Okay. and Eire, Japan, and Germany.
Distribution markets, together with Brazil, Spain, and Italy had been additionally sturdy within the 12 months. This week, we introduced the purchase from ab medica of the da Vinci industry in Italy, Spain, Portugal, and similar territories. We are happy with their efficiency, and we sit up for welcoming those new personnel to our workforce. Within the U.S., basic surgical treatment process expansion used to be led via cholecystectomy with foregut and appendectomy procedures emerging as smartly.
Thoracic process expansion used to be additionally wholesome within the 12 months. Bariatric procedures fell modestly for the overall 12 months 2024, given the upward thrust in GLP-1 drugs. Process expansion outdoor the US endured to diversify past urology with great expansion in classes together with basic surgical treatment and thoracic surgical treatment. Globally, benign indications grew roughly 200 foundation issues sooner within the 12 months than most cancers indications.
In versatile robotics, Ion procedures confirmed endured energy with 78% expansion for the overall 12 months. SP process expansion sped up within the 12 months with 72% expansion over a complete 12 months, a results of wholesome expansion in Korea, Japan, and Europe and cast expansion within the U.S. At the capital entrance, we positioned 1,432 port techniques within the complete 12 months 2024, when compared with 1,313 multiport techniques in 2023. Ion placements for the overall 12 months had been 271, as opposed to 213 prior 12 months.
And SP placements had been 96 for the overall 12 months, as opposed to 57 techniques within the prior 12 months. Globally, placements had been sturdy in the US, helped via the release of da Vinci 5. Total, our techniques portfolio of da Vinci 5, da Vinci Xi, da Vinci X, da Vinci SP and Ion, blended with our versatile financing choices permits our workforce to satisfy our consumers’ various wishes. Jamie will take you by way of placement dynamics in additional element later within the name.
Gadget usage stays a very powerful indicator of purchaser well being as a result of it’s correlated to affected person call for, care workforce pleasure, and health center monetary well being. Multiport usage grew 3% within the 12 months. SP usage grew 12% within the 12 months, and Ion usage grew 13%. Given our other platforms, their process combine, and websites of care, teasing aside gadget usage via buyer phase turns into more and more essential going ahead.
As an example, in a midsized neighborhood health center lung program, techniques usage can range from a high-volume neighborhood health center basic surgical treatment program. As robot-assisted surgical treatment strikes to the again part of adoption curves and a few procedures, usage expansion charges would possibly range from prior-year traits. Our efficiency supported profit of $8.4 billion for the 12 months, of which 84% used to be habitual and representing 17% expansion over 2023. Our running bills had been on the decrease finish of our spend steering.
Our spending displays 3 projects. First, we proceed to spend money on R&D to toughen innovation and adoption of our platforms and virtual gear globally. 2nd, we are increasing our production and business footprints. And finally, we’ve got sought to leverage our enabling purposes given our larger scale.
Our benefit margins additionally began to beef up within the 12 months as larger cargo quantity allowed for higher manufacturing unit usage, in addition to leverage in our part cargo and different logistics prices. Taken in combination, our internet source of revenue grew via 29% in 2024 over 2023. Touching in short on da Vinci 5, our groups have carried out a pleasing process in executing a fancy release. We positioned 362 da Vinci 5s within the 12 months, and over 2,500 surgeons have carried out in overall, over 32,000 procedures on da Vinci 5 in 2024.
Da Vinci 5 has vast scientific indications and over 40 other process sorts were carried out the usage of da Vinci 5 to this point. We design our techniques to permit for regimen sequential upgrades to their capacity through the years. And da Vinci 5 consumers will obtain {hardware} and instrument upgrades going ahead beginning this 12 months. This 12 months’s upgrades will focal point on virtual options supported via our 10,000 will increase in computing energy.
We’re going to proportion extra main points on those options as we carry them to marketplace. As we input 2025, our corporate priorities are as follows. First, we will be able to focal point at the complete release of da Vinci 5, its regional clearances, and follow-on function releases. 2nd, we’re going to pursue larger adoption of our targeted procedures via nation by way of coaching business actions and marketplace get admission to efforts.
3rd, we’re going to power endured development in construction commercial scale, product high quality, and production optimization. And in spite of everything, we’re going to focal point on excellence and availability of our virtual gear. Jamie, over to you.
Jamie E. Samath — Leader Monetary Officer
Just right afternoon. I can describe the highlights of our efficiency on a non-GAAP or professional forma foundation, and also will summarize our GAAP efficiency later in my ready remarks. A reconciliation between our professional forma and GAAP effects is posted on our site. This fall and 2024 profit procedures and gadget placements are in step with our initial press liberate of January fifteenth.
I can in short assessment complete 12 months 2024 efficiency earlier than describing our This fall leads to larger element. 2024 monetary efficiency used to be sturdy. Da Vinci procedures and overall profit each and every grew 17% over the prior 12 months. Professional forma gross margin stepped forward 100 foundation issues to 69.1% and professional forma SG&A bills leveraged as in comparison to 2023.
In consequence, professional forma running margin for 2024 stepped forward 310 foundation issues to 37%, and professional forma EPS larger 28%, construction off of the 22% build up in 2023. We positioned 362 da Vinci 5 techniques in our first 12 months of the restricted release, of which 174 techniques had been positioned in This fall, together with our first replacements of da Vinci 5 in Korea. Turning to This fall. Our monetary efficiency used to be forward of our expectancies, pushed via profit expansion of 25% and energy throughout the remainder of the P&L, leading to professional forma running margin of 38%.
This fall profit mirrored a few favorable dynamics. First, a better acquire mixture of techniques as in comparison to fresh classes, pushed via multisystem offers with positive U.S. IDNs that choose to buy and a better mixture of placements by way of vendors. 2nd, we noticed a better combine of twin console placements for da Vinci 5 as we larger provide and had been ready to toughen extra educational consumers.
And in spite of everything, we noticed a better gadget ASP, due to a more potent mixture of da Vinci 5 placements. Underlying core metrics had been additionally sturdy with da Vinci process expansion of 18%, expansion within the put in base of da Vinci techniques of 15%, and reasonable gadget usage expansion of three%. In This fall, U.S. procedures grew 15%, pushed via expansion in benign basic surgical treatment, together with accretive expansion in procedures carried out after hours for emergent care.
Bariatric procedures within the U.S. declined within the low to mid-single-digit vary, very similar to final quarter. OUS procedures grew 25%, pushed via relative energy in India, the U.Okay., Italy and Japan. Process expansion in Korea stepped forward sequentially, partly pushed via sturdy SP expansion.
Alternatively, our industry there remains to be impacted via doctor moves. In keeping with the final couple of quarters, process expansion in China used to be relatively beneath the company reasonable, reflecting a continuation of the dynamics we’ve got described on earlier calls. Taking a look at OUS process efficiency in mixture, we see sturdy expansion in colorectal, benign basic surgical treatment, and thoracic classes. Reviewing capital efficiency.
We positioned 493 techniques within the fourth quarter, 19% upper than the 15 techniques we positioned within the fourth quarter of final 12 months. Within the U.S., we positioned 284 techniques in This fall, an build up of 75 techniques as in comparison to final 12 months, reflecting a number of massive multisystem placements with quite a lot of IDNs and an build up within the provide of da Vinci 5. Outdoor the U.S., we positioned 209 techniques within the fourth quarter when compared with 206 in the similar quarter final 12 months. This quarter, we positioned 89 techniques in Europe, 43 in Japan, and 20 in China when compared with 71 in Europe, 70 in Japan, and 11 in China in This fall of final 12 months.
Placements within the U.Okay. and Germany proceed to be impacted via ongoing govt price range pressures affecting healthcare capital spending. The 89 gadget placements in Europe incorporated 39 techniques into markets served via our vendors as in comparison to 24 techniques final 12 months. In Japan, monetary pressures led to some consumers to prolong capital funding choices.
Fourth quarter profit used to be $2.41 billion, a 25% build up over final 12 months. On a constant-currency foundation, profit expansion used to be 26%. Methods profit grew 36% 12 months over 12 months, pushed via a 19% build up in da Vinci gadget placements, a better gadget ASP, and the upper acquire combine in the past referenced. Further profit statistics and traits are as follows.
Leasing represented 45% of This fall placements, when compared with 58% final quarter, pushed via the aforementioned mixture of gadget placements from positive IDNs within the U.S. preferring to buy and a better mixture of placements with our vendors. Alternatively, as we glance ahead, we proceed to be expecting that leasing charges will build up through the years. This fall gadget reasonable promoting costs had been $1.59 million, as in comparison to $1.42 million final 12 months pushed via upper mixture of da Vinci 5 and a better dual-console combine, in part offset via decrease pricing in China.
We known $28 million of hire buyout profit within the fourth quarter, when compared with $21 million final 12 months. Da Vinci device and accent profit consistent with process used to be roughly $1,860, when compared with roughly $1,800 final 12 months. The year-over-year build up in I&A consistent with process displays buyer purchasing patterns and a better mixture of SP procedures, in part offset via process combine within the U.S. given a decrease mixture of bariatric procedures and a better mixture of cholecystectomy.
Turning to Ion. There have been roughly 28,000 Ion procedures carried out within the fourth quarter, an build up of 70% as in comparison to final 12 months. In This fall, we positioned 69 Ion techniques in comparison to 44 in This fall of 2023. As a reminder, provide constraints impacted Ion gadget placements within the fourth quarter of final 12 months.
Seven of the 69 techniques had been positioned in OUS markets. The put in base of Ion techniques larger 51% from final 12 months to 805 techniques and reasonable gadget usage larger 13% 12 months over 12 months. Fourth quarter SP process expansion endured to boost up, rising 81%, pushed via Korea and early degree expansion in Europe and Japan, the place we’ve got clearance for a vast set of indications. We positioned 30 SP techniques in This fall and 96 for the 12 months, up from 57 placements in 2023.
Fourth quarter placements incorporated 7 in Korea, 6 in Europe, and 4 in Japan. Reasonable gadget usage for our SP platform grew 18% in This fall, reflecting partly expansion of SP in markets the place we’ve got a vast set of indications. Now we have won fresh clearances within the U.S. for thoracic and colorectal indications.
Alternatively, we predict vast business efforts for SP in the ones process classes to start when we download FDA clearance for a SP stapler. Transferring directly to the remainder of the P&L. Professional forma gross margin for the fourth quarter of 2024 used to be 69.5%, when compared with 68% for the fourth quarter of 2023. The year-over-year growth in gross margin displays fastened overhead leverage given profit expansion, decrease stock reserves, and enhancements in freight and logistics prices.
In 2024, we carried out on our plans to seriously beef up product margins for our Ion and SP platforms. Whilst we’ve got made considerable development, Ion and SP product margins proceed to be dilutive and our groups have ongoing techniques to ship additional growth. With appreciate to our production growth and capital funding plans. In 2025, we look forward to opening new amenities the da Vinci 5 and Ion gadget production in California and new endoscope production amenities in Germany and Bulgaria.
In consequence, and as we’ve got in the past indicated, we predict an important build up in depreciation expense in 2025. We will be able to additionally proceed to switch mature merchandise to amenities in Peachtree Corners, Georgia, and Mexicali. Given those actions, we predict increased stock ranges right through 2025. As we whole this cycle of producing growth this is pushed via our way to perform at commercial scale, we look forward to decrease ranges of capital expenditures in 2025 and 2026 as in comparison to fresh classes.
Fourth quarter professional forma running bills larger 9% when compared with final 12 months, pushed via larger headcount, upper variable reimbursement, and larger criminal bills. Fourth quarter 2024 running bills incorporated a $45 million contribution to the Intuitive Basis, as in comparison to a $40 million contribution in This fall of final 12 months. Taking a look at running bills for the 12 months, we delivered on deliberate leverage in SG&A, which stepped forward via 180 foundation issues as a share of profit. Whilst we will be able to proceed to search for alternatives inside SG&A to leverage as we develop, we might spotlight that during 2025, we predict larger depreciation bills given fresh capital expenditures and better criminal bills given ongoing litigation.
Innovation remains to be crucial to serving to our consumers make development within the Quintuple Intention and subsequently, you will have to be expecting us to prioritize investments in R&D. Professional forma different source of revenue used to be $87.6 million for This fall, not up to $94.6 million within the prior quarter, essentially pushed via FX remeasurement of the steadiness sheet. Our professional forma efficient tax fee for the fourth quarter used to be 20.5%, a bit of not up to our expectancies, reflecting internet discrete advantages of $11 million associated with statute of limitation expirations and different changes to positive tax pieces. Fourth quarter 2024 professional forma internet source of revenue used to be $805 million, or $2.21 consistent with proportion, when compared with $574 million or $1.60 consistent with proportion for the fourth quarter of final 12 months.
I can now summarize our GAAP effects. GAAP internet source of revenue used to be $686 million, or $1.88 consistent with proportion for the fourth quarter of 2024, when compared with GAAP internet source of revenue of $606 million, or $1.69 consistent with proportion for the fourth quarter of 2023. As a reminder, fourth quarter 2023 GAAP tax expense mirrored one-time advantages of $159 million associated with an build up in deferred tax property related to the statutory fee build up in Switzerland and receipt of positive tax advantages associated with our Swiss operations. The changes between professional forma and GAAP internet source of revenue are defined and quantified on our site.
We ended the 12 months with money and investments of $8.8 billion, when compared with $8.3 billion on the finish of Q3. The sequential build up in money and investments mirrored money generated from running actions, in part offset via capital expenditures of $312 million. With appreciate to the plans, we introduced on Tuesday to move direct in Italy, Spain, Portugal, and related territories, the bottom acquire worth is EUR 290 million with an earn-out of as much as an extra EUR 31 million in accordance with 2025 process volumes. Whilst our number one motivation is to increase nearer relationships with consumers serving a blended inhabitants of roughly 118 million folks, we do be expecting this transaction, which we estimate to near within the first part of 2026, to be relatively accretive to professional forma EPS.
Sooner than I flip it over to Dan to speak about scientific highlights, let me deal with the outlook for professional forma running margins for 2025. This fall efficiency of 38% used to be above our expectancies. Taking a look forward to 2025, we look forward to professional forma running margins in 2025 to be not up to This fall because of a number of dynamics. First, as in the past said, leasing charges are anticipated to be upper than This fall, which ends up in profit and earnings for similar gadget placements to be recorded over a couple of years as opposed to within the quarter of placement.
2nd, we look forward to considerably upper depreciation bills given fresh capital expenditures. And in spite of everything, we predict a better mixture of da Vinci 5, Ion, and SP profit, which elevate product margins beneath the company reasonable. As well as, from a modeling point of view, I’d additionally spotlight a few further issues. First, profit denominated in non-USD currencies represents roughly 25% of our overall profit.
On a revenue-weighted foundation, the usage of present change charges, the U.S. buck is roughly 4% more potent than charges learned in This fall. 2nd, as we transfer into vast release of da Vinci 5 in the course of the 12 months and consumers have the option to improve their fleets, we might be expecting buying and selling credit for Xi to be considerably upper than fresh classes adversely impacting gadget ASPs. In spite of everything, given the expanding selection consumers have, as competition carry robot techniques to the marketplace and search geographical clearances, we would possibly see capital promoting cycles prolong as consumers evaluation choices.
Brandon will supply our outlook for 2025 later on this name. And with that, I wish to flip it over to Dan.
Daniel Oh — Vice President and Senior Clinical Officer
Thanks, Jamie. I might love to proportion with you some just lately revealed peer-reviewed literature that we discovered to be notable. Along with the particular information highlighted in this name, we inspire you to imagine the extensive frame of proof detailing those subjects in revealed clinical research over time. These days, we’re going to give an replace on two fresh publications.
Within the first find out about, Dr. Rocco Ricciardi and co-workers from the Massachusetts Common Health center in Boston collaborated with the analysis workforce at Intuitive for the COMPARE find out about revealed within the Annals of Surgical operation. This landmark find out about when compared perioperative results of da Vinci robotic-assisted surgical treatment, to laparoscopic or thoracoscopic surgical treatment, in addition to to open procedures. This used to be a meta-analysis, which analyzes effects from in the past revealed proof through the years to acquire an outline of cumulative information.
On this find out about, the investigators pooled information from randomized managed trials, potential comparative cohort research, and big real-world proof database research from the previous 12 years. With a view to evaluation whether or not da Vinci procedures had been related to an growth in temporary affected person results throughout seven recurrently carried out oncologic procedures from other specialties. Significantly, over 1 million sufferers had been incorporated in each and every of the da Vinci, laparoscopic thoracoscopic, and open affected person teams, and incorporated information from 22 nations. The authors discovered that in comparison to usual minimally invasive surgical treatment, sufferers present process da Vinci procedures had favorable perioperative results.
Particularly, da Vinci sufferers had a 56% decrease likelihood of conversion to open, 21% decrease likelihood of receiving a blood transfusion, and 10% much less chance to revel in a complication inside 30 days of the process. As well as, the period of keep used to be considerably shorter with decrease 30-day readmission and mortality charges. Equivalent favorable results had been discovered for da Vinci sufferers when in comparison to the open way with even larger magnitude variations between the 2 approaches. The authors concluded that this meta-analysis demonstrated a couple of advantages for da Vinci procedures when in comparison to choice minimally invasive or open approaches, noting that those effects can be useful to decision-makers making an allowance for using robotics in multi-specialty settings.
In the second one find out about, Dr. Michael Awad from Washington College College of Drugs and different colleagues revealed in Surgical Endoscopy the result of a preclinical find out about the usage of Intuitive’s novel drive comments generation integrated in da Vinci 5. Throughout 28 surgeons with various ranges of revel in, this find out about evaluated the forces implemented to tissue when having drive comments generation on or off right through core surgical exams, together with retraction, dissection and suturing in a tissue style. Effects from this find out about demonstrated an important aid in each the common and most forces exerted on tissue for all 3 surgical exams, regardless of surgeon revel in ranges.
Significantly, when the usage of the best possible sensitivity environment, as much as a 55% aid of the utmost drive exerted on tissue right through suturing used to be seen. The authors concluded that this find out about demonstrated that drive comments generation would possibly considerably lower the forces implemented on the tissue stage when appearing not unusual surgical exams throughout amateur, intermediates, and skilled surgeons. They endured to notice, “This cutting edge generation has the possible to permit more secure and gentler surgical procedures, leading to higher surgical results for sufferers present process robotic-assisted surgical treatment.” To me, the notable discovering on this find out about is that the advantage of drive comments used to be seen no longer simply in amateur surgeons, which one would possibly be expecting, but in addition in green surgeons who had finished no less than 200 da Vinci procedures. Now I will flip it over to Brandon.
Brandon Lamm — Senior Supervisor, Investor Members of the family
Thanks, Dan. I can now flip to our monetary outlook for 2025. Beginning with procedures. As described in our announcement previous this month, overall of 2024 da Vinci procedures grew roughly 17% 12 months over 12 months to over 2,680,000 procedures carried out international.
For 2025, we look forward to complete 12 months process expansion inside a spread of 13% and 16%. The low finish of the variety assumes expansion in China remains to be impacted via environmental and aggressive dynamics. Ecu governments proceed to constrain health center capex budgets restricting the growth of capability within the box and bariatric process declines proceed at charges very similar to 2024. On the excessive finish, we think China’s process expansion recovers relative to 2024, the capex setting improves in Europe and bariatric process declines fairly.
Q1 and whole 12 months 2025 may have roughly one fewer running day in 2024 because of the bissextile year. Turning to gross benefit. In 2024, our professional forma gross benefit margin used to be 69%. In 2025, we predict our professional forma gross benefit margin to be inside a spread of 67% and 68% of internet profit.
The decrease estimate of professional forma gross benefit margin in 2025 displays important incremental depreciation as we carry on new amenities, the have an effect on of expansion in more recent merchandise, and the have an effect on of the more potent U.S. buck. Our precise gross benefit margin will range quarter to quarter relying in large part on product, regional, and trade-in combine and pricing. The variety does no longer come with any attainable have an effect on of latest price lists on our industry, which might be subject matter.
Turning to running bills. In 2024, our professional forma running bills grew 10%. In 2025, we predict our professional forma running expense expansion to be inside a spread of 10% and 15%. The expansion in running bills displays larger depreciation from new amenities, investments in innovation to power our expansion targets, and an build up in criminal bills.
We think our noncash inventory reimbursement expense to vary between $760 million and $790 million in 2025. We think different source of revenue, which is comprised most commonly of passion source of revenue, to overall between $370 million and $400 million in 2025. With reference to capital expenditures, we predict the variety to overall between $650 million and $800 million, essentially for deliberate facility building actions. With reference to source of revenue tax, in 2024, our professional forma source of revenue tax fee used to be 21.4%.
As we glance ahead, we estimate our 2025 professional forma source of revenue tax fee to be inside a spread of twenty-two% and 23% of pre-tax source of revenue. That concludes our ready feedback. We will be able to now open the decision in your questions.
Questions & Solutions:
Operator
Thanks. [Operator instructions] Once more, yet another for our questions. Our first query comes from Larry Biegelsen with Wells Fargo. Chances are you’ll continue.
Larry Biegelsen — Analyst
Just right afternoon. Thank you for taking the query and congrats on a in reality sturdy end to the 12 months. One for Gary, one for Jamie. So, Gary, traditionally, you mentioned procedures power placements in the second one part of ’24.
U.S. gadget placements grew over 35%. Usage used to be about 2%. Is that this a number one indicator of extra procedures? Or will we’ve got a digestion duration to revive customary usage? And I’ve one follow-up.
Gary S. Guthart — Leader Government Officer and Director
Yeah. I feel a few issues are happening there. One in all them is as I mentioned within the ready remarks, as we get to the again part of a few curves, the expectancies of a few of the ones techniques could also be other in the case of usage as they take part. In different phrases, no longer each and every account goes to be a high-volume account.
And I feel that is OK. I feel the economics can paintings and I feel we will be able to provide them. So, a few of that is occurring. I feel the opposite factor is new capital alternatives.
New capital options can pull ahead or another way have folks prolong a bit of bit after which achieve techniques that may put a wave or a ripple by way of usage. And we are simply going to have to look if that ripple performs by way of. So, either one of the ones results are most probably happening. It’s if truth be told extraordinarily laborious analytically to tease them out.
I feel within the U.S., through the years, you’ll see usage expansion charges in multiport begin to settle a bit of bit. I do not believe they’re going to stay galloping. On the identical time, I feel SP usage has room to run and Ion usage has room to run.
Larry Biegelsen — Analyst
Thank you, Gary. And Jamie, at the Q3 name, you mentioned the gross margin can be a bit of decrease in 2025 as opposed to 2024. I feel the 67% to 68% steering used to be most likely a bit of bit not up to anticipated. Are you able to quantify the drivers from the 69.1% this 12 months in 2024 to 67% to 68%.
And the right way to consider the trail again in your purpose of 70%? Thanks.
Jamie E. Samath — Leader Monetary Officer
Yeah. There is in reality 3 drivers, Larry, the most important of which is the have an effect on of depreciation expense and related fastened prices. So, there is deleverage within the ’24 to ’25 comparability, more or less ish, relying on what you have got the profit style for ’25. That is about 1 level of the 160-point delta should you move from ’24 precise to a midpoint of ’25.
The opposite two dynamics more or less equal-ish in the case of have an effect on are product combine with dV5 Ion and SP being a better percentage of the profit. All of them elevate these days margins beneath the company reasonable, so have a dilutive impact from a combination point of view. After which I feel what is new from the final name is the have an effect on of FX. So, the ones 3 issues are the drivers.
There are some offsetting value discounts. The groups are turning in inside that roughly gross margin vary. I feel what now we have mentioned with appreciate to gross margin is over the midterm, we expect we will be able to get again past 70%. This is going to require us, when we get previous this type of incremental depreciation to leverage over a multiyear duration as we develop.
We even have, as now we have mentioned, the paintings on product margins in Ion and SP. There is nonetheless some paintings to be carried out there. After which on a extra regimen foundation, our groups must ship value downs.
Larry Biegelsen — Analyst
Thank you, Jamie.
Operator
Thanks. Our subsequent query comes from Robbie Marcus with J.P. Morgan. Chances are you’ll continue.
Robbie Marcus — Analyst
Nice. And I will echo congratulations on an incredible fourth quarter. Two for me. First, perhaps for Gary, you gave a large number of element at the name a few midyear complete release and trade-in cycle.
Would really like to simply get your qualitative feedback round how you are fascinated with the combo of da Vinci 5 as opposed to Xi going ahead. The need or the velocity at which an improve cycle can get started? And the way you are fascinated with Xi as opposed to da Vinci 5 placements in the case of the combo going ahead outdoor the U.S. on approval get started rolling in? All of it has implications for the style, so I might like to get your ideas on that. Thank you.
Gary S. Guthart — Leader Government Officer and Director
I used to be going to mention — I will let you know a bit of bit about, I feel, possibly the environmental sides of that roughly the wrapping round it, I will flip it over to Jamie for any modeling implications. What is going — two issues are using what we name vast release. One in all them is getting our provide chains as much as scale and quantity for what we predict. Call for might be after we get started going out and shopping at such things as trade-ins and in addition beginning to get clearances world wide.
So, that is thrilling. The following one is instrument updates, and the ones instrument updates mirror each comments from the sector after which the mixing of one of the crucial applied sciences in our virtual house from hub to one of the crucial imaging issues we will be able to do this begin to pop out within the first set of launches, which is in reality nice. I feel the ones are virtual gear that our consumers and surgeons will recognize and begins giving them a large number of get admission to to information that is helping them analyze the efficiency of themselves and in their techniques. How compelling this is, we’re going to decide how briskly consumers need to improve.
I feel the improve cycle comes right down to this type of query of differential price. X and Xi are exceptional machines. They’re workhorses. They paintings in reality smartly.
We are thrilled to toughen them and toughen our consumers who use them as they discovered the expanding price within the options and content material we carry to da Vinci 5, whether or not it is analytics or drive mirrored image or ergonomics or higher imaging, then that drives the buying and selling cycle. The query, and I perceive your modeling query smartly of the way speedy does all of it transfer and what does that appear to be? It may be tricky to are expecting. Jamie, I might flip it over to you and allow you to upload your observation.
Jamie E. Samath — Leader Monetary Officer
Yeah. Whilst we shouldn’t have a particular share, the have an effect on of transferring to vast release, the have an effect on of having further geographical clearances, clearly then says, directionally, through the years, the percentage of placements which are dV5 normally will have to build up. Even if I’d acknowledge that Xi is a succesful gadget. And someday, we’ve got the chance for a refurbished Xi.
With appreciate to trade-ins, you do not in reality see buying and selling get started to select up till you get to vast release, which is the center of the 12 months, and it is going to be a serve as of the dynamics that Gary indicated. After all, we will be able to glance again at what came about at the Xi release and the way the ones upgrades went, and we’ve got some indication from consumers in our pipelines. I feel the most productive that lets say at this level, given it is so early is that any buying and selling cycle could be innovative.
Gary S. Guthart — Leader Government Officer and Director
Ultimate level I will make, and I feel you had requested, Robbie, the query is a part of that is, is there a chance for depreciated property like X and Xi, which can be extremely succesful? We understand how to carrier, and we understand how to toughen or — to these open or create different alternatives in different markets that can be extra capital worth delicate and the solution to this is sure.
Robbie Marcus — Analyst
Nice. Perhaps only one fast follow-up. Gary, you at all times give us a basic state of the union at the well being of the capital apparatus setting world wide. U.S., OUS, and I am in particular pondering of China the place you had a in reality sturdy placement quarter and fourth quarter.
So, any ideas there could be nice as we head into 2025. Thank you.
Gary S. Guthart — Leader Government Officer and Director
Yeah. I feel Jamie most often does that. Jamie, why do not you care for that?
Jamie E. Samath — Leader Monetary Officer
I might first say I do not believe we characterised the 20 techniques we positioned in China in This fall as sturdy. Perhaps it’s on a year-over-year comparability foundation. However the setting in China remains to be dynamic and difficult as now we have mentioned, impacted via each home pageant and a suite of actions carried out via the federal government there. So, I signify the surroundings as somewhat constant and difficult.
In the case of capital general, I feel within the U.S. It is been sturdy. A part of this is passion in da Vinci 5 given it is a new product. And you spot, to a point, much less sensitivity to capital budgets given simply the percentage of placements within the U.S.
specifically, no less than. We have highlighted the demanding situations within the U.Okay. and Germany. And new for us in This fall for Japan used to be some delays as a result of the profitability in positive consumers there.
So, I might say now we have observed somewhat sturdy energy within the U.S., some blended dynamics within the OUS markets. We do not in reality have sufficient tea leaves to are expecting how that performs out in ’25.
Robbie Marcus — Analyst
Thanks very a lot.
Operator
Thanks. Our subsequent query comes from Travis Steed with Financial institution of The united states Securities. Chances are you’ll continue.
Travis Steed — Analyst
Whats up, congrats as smartly. Gary, I sought after to invite a bigger-picture query. You might be roughly crossing over $1 billion a 12 months in R&D now or even after launching dV5. So, perhaps lend a hand us perceive the R&D funding alternative over the medium time period and probably transferring into roughly new inexperienced house.
Is that going to be extra by way of than the Endoluminal platform? Or are there nonetheless chunky classes like aerobic which may be amenable to robotics? Or is it extra in regards to the geographic growth facet of care? Simply to large perceive roughly the real alternative left in the market to seize.
Gary S. Guthart — Leader Government Officer and Director
I feel it is a mixture of all 3 of the belongings you simply described. I feel there are inventions and applied sciences, a few of which can be extensions to platforms you recognize about, a few of which can be platforms which are years away and you do not know about that I feel open new alternatives for us through the years. And we are diligent about them. They take some time.
They take some funding and so they take follow-through. There are present platforms that might use further indications, and the ones will also be geographic, by which case, there is the regulatory and scientific paintings to protected the ones indications. And so, we put money into that and move do it. After which there is further indications that come from such things as further tools and equipment and imaging functions on present platforms that if we increase them, we will be able to carry to marketplace and open the marketplace for others.
We additionally spent some cash ensuring that latecomers to robotics get what they want. It isn’t simply that latecomers simply want time to simmer and someday, they arrive to find you. They once in a while have other wishes, whether or not the ones wishes or studying wishes or financial wishes. And it takes some paintings.
However we expect that paintings is worthwhile. And one of the crucial belongings you see in da Vinci 5 are the ones varieties of issues. So, brief tale is that we see alternative in all of the ones buckets. We run a procedure that tries to steadiness the ones alternatives in order that we aren’t completely overexposed to 1 or the opposite, and as a substitute, we’ve got a multiyear horizon and multi-specialty horizon and it is geographically blended.
Travis Steed — Analyst
Useful. After which, Jamie, perhaps only a shorter-term opex query at the 10% to fifteen% expansion, roughly the low and high finish, how a lot of that is R&D as opposed to SG&A? And any colour there on how that may form up and roughly what drives the low and high finish? And probably, because you did point out price lists. Simply roughly curious the right way to dimension that or a possible approach to mitigate that, if you’ll be able to. Simply sought after to roughly stick with up on Larry’s margin query.
Thanks.
Jamie E. Samath — Leader Monetary Officer
Yeah. With appreciate to how R&D and SG&A would possibly develop, I might signify it as identical wealthy in the case of — for that 10% to fifteen%. Clearly, R&D is a concern, as now we have said. In SG&A, what you’ll be able to see is we upload reps and business other folks to toughen the process expansion.
We even have mentioned that there will be upper criminal bills in SG&A given ongoing litigation and a portion of the capex effects and depreciation that is going into our SG&A bills. And so, they’re going to develop more or less ish about the similar fee. In the case of the variety of 10% to fifteen%, maximum of this is pushed via the process vary, which means, clearly, to a point, we’re going to arrange our bills according to how our industry performs out. There are some alternatives for us to take a position incrementally in R&D, however we’re going to do this as we make development and succeed in milestones.
In the case of price lists, Clearly, we see so much within the information the place we are tracking the ones occasions intently. We’re internally comparing what the have an effect on of any attainable tariff could be and subsequently, how we would possibly reply. We will be able to say that the numerous portion of our tools are these days manufactured in Mexico. And so, to the level, there are important price lists carried out there that can have a subject matter have an effect on for us.
And naturally, one reaction then that any corporate would possibly imagine is what would you do with pricing. Not anything that now we have made up our minds there. And clearly, we are balancing the desires of our consumers and their targets with the desires of our personal industry. So, keep tuned is what I might say.
Travis Steed — Analyst
Nice. Thanks.
Operator
Thanks. Our subsequent query comes from Rick Sensible with Stifel. Chances are you’ll continue.
Rick Sensible — Analyst
Thank you. Just right afternoon. Gary, on your very considerate feedback right through the JPMorgan convention, I feel you mentioned new virtual options, and also you no doubt, these days, once more mentioned {hardware} and instrument virtual options coming. I used to be hoping — and likely you are no longer in a position to offer us really specifics on a lot of these.
However perhaps lend a hand us perceive what spaces this — in what manner this would possibly beef up da Vinci 5? Will it open up new procedures? Will or not it’s about productiveness? Will or not it’s about — will it assist you to to make use of the da Vinci 5 in a distinct environment? How does this make bigger the imaginative and prescient or the chances of da Vinci 5 within the close to time period? After which I will have a follow-up if I may just.
Gary S. Guthart — Leader Government Officer and Director
Yeah. In early pondering right here, simply bring to mind it in 3 classes. If we will be able to show you how to get nice results for extra care groups via giving them gear within the OR, simply real-time gear, we expect that creates alternatives for them. I feel it builds self assurance.
I feel you get well care groups sooner that manner. And this type of — does that provide you with get admission to to new procedures? I feel easy methods to say this is it most likely will give you get admission to to extra sufferers. Are they new process classes? Now not at all times, however there are sufferers that grow to be more straightforward for the ones surgeons and care groups to achieve as a result of they are extra assured to achieve them. So, can it lend a hand us that manner? Yeah, I feel it will possibly.
I feel that is one set of classes. The following one is construction self assurance in care groups temporarily is in everyone’s perfect passion. It is nice for the health center. It provides them sooner returns and better self assurance.
It is nice for the care groups. They construct self assurance and so they get there sooner. And I feel a large number of our gear can lend a hand do this, can lend a hand boost up studying, no longer only for the surgeon however for others. After which in spite of everything, I feel a large number of those gear permit for price evaluation via the client the usage of their very own information in their very own palms.
And that, I feel, builds self assurance additionally and illuminates alternative for them, and that is helping them and it is helping us. So, for dV5 and roughly the gap we are in at the moment, that is how you desire to consider it. Some of the neat issues that Lonnie used to mention, and he is proper is that each and every time you construct an ability after which protected that, you have got it, you know it smartly. It opens a brand new door.
As a result of a surgeon, like Dr. Oh right here, we’re going to take that new capacity and begin to discover it. The place can it lead me? What can I do subsequent? And I feel one of the crucial issues that we are running on in dV5, one of the crucial imaging and augmented truth issues will begin to encourage the following set of surgeons. And with that inspiration comes alternative.
Rick Sensible — Analyst
Nice. And if I may just stick with up in short with Jamie. Jamie, clearly, Ion and SP each had terrific years final 12 months. What speeds up — what drives the following segment of expansion there? And in particular, when is — what stage of gross sales or what has to occur? And is it a 12 months or 5 away? When are those two very good merchandise now not a margin drag? Thanks.
Jamie E. Samath — Leader Monetary Officer
Yeah. In the case of the full industry, what is using procedures and profit? If I have a look at Ion with 28,000 procedures in This fall, you’ll be able to see that is a run fee of over 100,000 procedures virtually completely within the U.S. So, you are beginning to rise up the adoption curve within the U.S. for Ion and an important closing portion is in transthoracic needle aspiration in the case of the way as opposed to bronchoscopic approaches in the case of the place now we have followed within the early duration.
So, what you spot in accordance with the place you’re within the adoption curve within the U.S. for biopsy for Ion is consumers will generally tend to extra focal point on enhancements in usage. And as you get to that time within the adoption curve, once more, biopsy within the U.S., you simply naturally on an S-curve begin to see process expansion charges come down. And you’ve got observed that should you have a look at the final 3 or 4 quarters.
And so, for our Ion industry, roughly subsequent set of focal point. Clearly, now we have were given to complete the U.S. is the markets by which we are launching across the world with the clearance in Europe, Korea, and China. And on a longer-term foundation, there may be the chance for Ion as a platform to get into new indications that might be within the lung first, and there is attainable for different puts within the frame down the street.
From a product value point of view, this is a set of techniques that take somewhat a while. It is the on a regular basis fight within the production workforce and there may be some engineering paintings that should occur to roughly get to the product value. And I might say that is additionally within the midterm, in line with our general gross margin targets. With appreciate to SP adoption.
Once more, now we have additionally were given global launches there. Europe and Japan, each have vast indications. You spot Korea, which now we have had on the market for a while, in reality sturdy usage. And so, for SP, it is in reality as we glance to the U.S., is the extra indications.
We have were given thoracic and colorectal. You’ve gotten the chance to increase that over some duration. You spot the expansion fee accelerating properly in SP. Margin paintings in SP is, let’s consider, no longer the similar stage of effort as Ion as a result of we are extra leveraged.
The hunt and imaginative and prescient console of not unusual with Xi, however by no means much less paintings to do. That also is, I signify as one thing that occurs over the midterm.
Rick Sensible — Analyst
Thanks, Jamie.
Operator
Thanks. Our subsequent query comes from David Roman with Goldman Sachs. Chances are you’ll continue.
David Roman — Analyst
Thanks and just right afternoon, everyone. I sought after simply to begin with a remark you made within the ready remarks relating to pageant and promoting cycles. Is that this one thing that you are looking at these days as you communicate to consumers outdoor the U.S. and even within the U.S.? Or are you simply calling out a theoretical have an effect on of what would possibly occur as new entrants come to marketplace? After which I’ve one follow-up.
Jamie E. Samath — Leader Monetary Officer
Now we have observed it obviously in China with the expanding selection of home competition there. I might say that in the case of the have an effect on of pageant to promoting cycles in different global markets has been somewhat solid. However what you are seeing is increasingly competition get clearances in quite a lot of markets, together with within the U.S., there are a variety of competition within the U.S. and clearly, there is one greater corporate that is shopping to make a submission in So, we are simply acknowledging that as pageant will increase, there may be the chance outdoor of China, the promoting cycles may just prolong.
David Roman — Analyst
That is useful. And perhaps simply roughly a segue on that one. As you consider the chance in tools and equipment, both on a per-procedure foundation or a complete addressable marketplace foundation, are you able to lend a hand us assume by which portions of kind of the surgical ecosystem you’ve got captured these days? And perhaps give us some sense of the place that could be going through the years? We keep in mind that’s the fourth sensing piece of the release of — with dV5 and the way that would possibly have an effect on mainly an upgraded device and corresponding ASP inside that INA line. However as you have a look at roughly different portions of the surgical ecosystem that it is advisable to seize to additional entrench your self, are you able to lend a hand us perceive what the ones could be and perhaps dimension a few of them? And the way roughly you consider that once roughly your advertising and strategic making plans groups?
Gary S. Guthart — Leader Government Officer and Director
Yeah. Perhaps I will get started with roughly the rules we use to consider how we will be able to carry further price to procedures we already take part in. And beneath, I feel you have got a modeling query, and I will let Jamie take that. At the foremost facet, we glance round and say, if there is something happening within the running room that our consumers are these days spending on, they are purchasing from anyone else.
And we expect that both we’ve got design functions or integration functions that might make for that have to be higher for them and value-creating. It is both clinically value-creating or it is economically value-creating, then we’re going to search to do this. Every now and then in partnership, you spot we are doing that with Huron at the desk. And once in a while it is one thing that we’re going to attempt to do ourselves take in-house and the way in which now we have carried out some such things as the cannula seals and stapling.
So, we glance throughout it. If we see an actual position the place it is true price advent, no longer simply one thing the place it adjustments the profit line via doing precisely what anyone else does, we aren’t very focused on that. But when we expect the mixing or the design creates a greater end result for the client, both economically or clinically, optimistically, each, then we’re going to step ahead and we’re going to do this. We do not assume we are carried out.
For those who have a look at da Vinci 5, you noticed some issues come into da Vinci 5 that had been benefited via integration, and we expect it is running nice. So, we search for the ones issues. They take some time. They are no longer fast.
So, our technique and our product planners are on the lookout for value-creation alternatives there, nevertheless it does not get started with how briskly can the profit expansion be. It begins with what is the price advent and what may just that be. For sensing tools, force-reflecting tools are such an instance. They are extra complicated.
They’ve a better ASP. We expect they create price. We need to reveal that price and rancid we move. Jamie, I feel the modeling query is tremendous laborious, however I’ll provide you with a shot.
Jamie E. Samath — Leader Monetary Officer
So, I’d simply say that the 2 examples I might reference in the case of the place it is advisable to, let’s consider, get larger proportion of pockets, if you’ll be able to carry price, our drive comments tools and insufflation each on da Vinci 5. Drive comments, we do not be expecting to be roughly a vast provide till the top of ’25. So, the type of have an effect on that has on I&A consistent with process is gated via after we get to vast provide with appreciate to inflation. So, some distance, the percentage of instances that use that has been lovely excessive and that may have an have an effect on as da Vinci 5 process volumes develop.
I’d simply say if I zoom out in the case of I&A consistent with process in overall, the bigger motive force goes to be the process combine. A better percentage of roughly the place we see expansion coming from is in benign procedures. Gary roughly described that during newer effects. However whilst you consider cholecystectomy and different benign procedures, you’ll be able to have a process combine dynamic that signifies that we expect, no less than over the following couple of years.
I&A consistent with process drifts down slowly through the years.
Gary S. Guthart — Leader Government Officer and Director
Now we have time for only one final query.
Operator
Thanks. And our final query comes from Patrick Picket with Morgan Stanley. Chances are you’ll continue.
Patrick Picket — Morgan Stanley — Analyst
Gorgeous. Thanks such a lot. Somewhat of a unusual conceptual one. I am simply roughly serious about it.
However should you bring to mind the efficiencies out of your put in base density. So, through the years, as you are striking an increasing number of techniques and in person spaces and areas, the put in base density goes up. Is there in reality a margin implication for that from extra efficiencies in promoting into the client base, and servicing the techniques? Are you able to see that during some spaces or areas or markets the place you have got a large number of density as opposed to the ones the place you have got relatively much less scale? I am simply conceptually seeking to perceive the impact of that over the longer term. Thank you.
Jamie E. Samath — Leader Monetary Officer
Smartly, normally, the I&A profit are at upper margins than capital. And so, as you power usage expansion, then a better percentage of the profit over some duration comes from the upper benefit streams. Smartly, let me ask Patrick. Is that the essence of your query?
Patrick Picket — Morgan Stanley — Analyst
It used to be extra across the carrier and the potency of using into the ones present accounts moderately than the combo between the 2.
Gary S. Guthart — Leader Government Officer and Director
I will reply temporarily simply in mild of time. We do get some benefits of scale with geographic density in the case of value to toughen an account. So, carrier, carrier depots, gross sales toughen, coaching toughen, as that turns into extra dense, it does give us some value benefits to serve them. Is that the place you are headed?
Patrick Picket — Morgan Stanley — Analyst
That is the manner. Thanks such a lot.
Gary S. Guthart — Leader Government Officer and Director
OK. Thank you such a lot. That used to be our final query. In ultimate, we imagine there is a considerable and sturdy alternative to essentially beef up surgical treatment and acute intervention.
Our groups proceed to paintings intently with hospitals, physicians, and care groups in pursuit of what our consumers have termed the Quintuple Intention: higher, extra predictable affected person results, higher stories for sufferers which are stories for his or her care groups, which are get admission to to nice care and in the long run, a decrease overall value of care. We imagine price advent in surgical treatment and acute care is foundationally human. It flows from appreciate for and working out of sufferers and care groups, their wishes, and their setting. At Intuitive, we envision a long run of care this is much less invasive and profoundly higher the place illnesses are known previous and handled temporarily so sufferers can get again to what issues maximum.
Thanks to your toughen in this strange adventure. And we sit up for speaking with you once more in 3 months.
Operator
[Operator signoff]
Period: 0 mins
Name contributors:
Brandon Lamm — Senior Supervisor, Investor Members of the family
Gary S. Guthart — Leader Government Officer and Director
Jamie E. Samath — Leader Monetary Officer
Daniel Oh — Vice President and Senior Clinical Officer
Larry Biegelsen — Analyst
Gary Guthart — Leader Government Officer and Director
Jamie Samath — Leader Monetary Officer
Robbie Marcus — Analyst
Travis Steed — Analyst
Rick Sensible — Analyst
David Roman — Analyst
Patrick Picket — Morgan Stanley — Analyst
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