Dive Brief:

• Intuitive Surgical shipped 273 of its da Vinci systems in the second quarter, compared to the 235 shipped at the start of the year, helping the robotic surgery technologies manufacturer grow revenues 21% to about $1.1 billion.
• Executives said 32% of total placements during the quarter came from leasing deals with providers. The company had 486 operating leases outstanding, which provided about $25 million in revenue during the period ended June 30, up from $20 million last quarter. "Operating leases create a future source of recurring revenue and reduce the volatility of system revenue," CFO Marshall Mohr said on the earnings call Thursday.
• Launches of Intuitive's single port system and minimally invasive biopsy system remain among the company's top priorities for the year, CEO Gary Guthart told investors in prepared remarks.

Dive Insight:

Wall Street's concerns over Intuitive's first quarter balance sheet were prompted in part by rising spending paired with a leasing model that resulted in lower upfront revenues.

That strategy hasn't changed, but Intuitive's leasing model metrics were a bit rosier this quarter. While the proportion of systems placed under operating leases declined slightly, revenues increased. "The proportion of these types of arrangements could increase long-term," Mohr said.

RBC Capital Markets analyst Brandon Henry called Intuitive's approach a sound one. "These agreements allow [Intuitive Surgical] to place more systems ahead of upcoming robotics competition," he wrote in a July 19 note to investors, noting that better-than-expected system revenues during the quarter helped the company exceed expectations.

"While [Intuitive Surgical] continues to aggressively spend for market development and pipeline technologies, we believe this is the right longer-term strategy as competition nears," he said.

Intuitive has led robotic surgery for years but well-financed startups and giants like Johnson & Johnson and Medtronic are starting to jump in.

"If there is one area to pick at, comments on US hernia and colon resection growth moderation may cause some nervousness but outside of this, data points from the quarter were largely positive," wrote UBS analyst Matthew Taylor in a note to investors July 19. "Looking through the next 12 months, we are concerned that growth deceleration and competition could lead to multiple contractions."

In total, da Vinci system revenues of $344 million were up 39% compared to last quarter and 24% year over year, which the company said reflected higher system placements, average selling prices and lease-related revenue. Trade-ins for newer technologies were up during the quarter, accounting for 38% of system placements, up from 36% last quarter and 34% the year prior.

The instruments and accessories segment brought in about half of total revenues, at $579 million, and services generated approximately $177 million.

The company reported it's in the first phase of its single port system, da Vinci SP launch, installing 13 systems during the quarter for a total of 34 currently placed worldwide. The technology has been cleared by FDA for urology and transoral otolaryngology procedures. But, so far, the highest per system utilization is in Korea, where there are also clearances for gynecology, general surgery and head and neck surgery applications, the company said.

Of the 80 robotic-assisted surgery systems placed outside the U.S. during the quarter, 24 were in Japan and eight in China.  Growth in the number of procedures completed with da Vinci systems ticked up in China after several quarters of decline, the company said, largely via those newly installed systems. Japan's procedure growth, on the other hand, "moderated somewhat," which executives attributed in part to lower growth rates in mature urology procedures as market penetration increases.

Intuitive said it's having "an active discussion" with Chinese regulatory agencies about introducing Ion, its platform for minimally invasive biopsy in the peripheral lung. The device won FDA clearance in the first quarter and Intuitive is planning a measured rollout this year, with commercial placements expected to begin in the next few months.

The company does not expect material revenues this year from Ion or from Iris, Intuitive's augmented reality product, which was cleared in February to give surgeons 3D images of patient anatomy.

Executives lifted the forecast for full-year procedure growth to 16% to 17%. Shares in Intuitive were up slightly in early trading Friday.