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A Strong Business Model Bodes Well for Intuitive Surgical

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Geographic performance

Intuitive Surgical (ISRG) generates a major part of its revenue from the US market. Its US revenue rose from $552.6 million in the second quarter of 2017 to $644.7 million in the second quarter of 2018 due to higher sales of its systems, instruments, and accessories. The company’s revenue outside the United States increased from $206.2 million in the second quarter of 2017 to $264.6 million in the second quarter of 2018.

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Intuitive’s revenue from the sales of its systems rose from $221.1 million in the second quarter of 2017 to $277.4 million in the second quarter of 2018. Its revenue from the sales of its instruments and accessories rose from $397.8 million in the second quarter of 2017 to $476.1 million in the second quarter of 2018.

Business model

Intuitive generates revenues from the initial sales of its da Vinci Surgical Systems, which also include sales-type lease arrangements. The subsequent sales of instruments, accessories, and services provide the company with a recurring revenue stream. The price of the da Vinci Systems can vary between $500,000 and $2.5 million depending on the specifications. The instruments and accessories have a limited life and need to be replaced post-expiration or after wearing out. Intuitive generally enters into service contracts at the time of the sales of the systems at an annual rate of $80,000–$170,000.

The company’s recurring revenue has ranged between 70% and 71% of its total revenue over the last three years, and it increased from $1.7 billion in 2015 to $2.2 billion in 2017. This trend indicates the continued adoption of the procedures and higher system utilization on an increasing base of installed systems. At the end of June, the total installed base of da Vinci Surgical Systems was 4,666.

We’ll take a look at Intuitive Surgical’s operational performance in the next article.

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