Sometimes, change happens so slowly it's easy to miss. That's what's happening with Intuitive Surgical (ISRG 2.28%). The health-focused robotics company pre-released fourth-quarter results this month that continued to impress. This early release has become commonplace, as it allows executives to speak freely at the J.P. Morgan Health Conference taking place this week.
But if we look beyond the headline numbers, we see the nascent stages of a healthcare subscription company forming. That's a huge shift investors need to be aware of. Here are three charts that demonstrate this move.
Image source: Intuitive Surgical.
Lowering barriers to entry
Buying a daVinci robotic surgical system is a big investment for hospitals, as each machine costs over $1.5 million. That makes the machines prohibitively expensive for some.
But lately, Intuitive has offered up operating leases to lower these barriers. For much lower up-front costs, hospitals can effectively lease the daVinci machines for a recurring rate -- and upgrade when newer versions come out.
The number of systems using this alternative financing has boomed over the past two years.
Image source: Intuitive Surgical.
As you can see, one-third of all the systems placed over the past year have been operating via leases. This creates a long-term trade-off that's good news for everyone.
- Hospitals and doctors can afford to buy a daVinci and test it out.
- Patients benefit from improved outcomes and quicker recovery.
- Intuitive Surgical collects as much or more revenue from systems and, more importantly, has a recurring source of revenue instead of one-off purchases.
I wouldn't be surprised to see this trend continue, as it works in everyone's best interest to transition to this model.
Gathering and distributing data
Intuitive is also taking all of the data it's collected over 25 years and creating a platform for surgeons. In essence, it is offering up the type of data and science that's more reminiscent of a software company.
Image source: Intuitive Surgical.
Think about it: Over 90% of Intuitive's machines are connected to the cloud. All of the data provided by those connected machines form the basis for better training on the company's simulators.
Not only does this help train surgeons, it provides an advantage that Intuitive's coming competitors won't be able to match for years.
Tinkering leads to new procedures
Finally, we get to the most important long-term metric for investors to watch: procedure growth. Intuitive Surgical currently trades for about 50 times earnings. That's a high price tag -- which means high expectations are baked in.
Intuitive matches those expectations by helping out more patients via minimally invasive procedures.
Image source: Intuitive Surgical.
As you can see, general surgery is booming. But it isn't the only growth driver. While the core gynecology market is mature, international urology procedures are also adding a lot of operations to the slate.
For the upcoming year, management has said it expects to continue seeing robust growth in hernia, bariatric, and colorectal procedures, all which fall under the broader general surgery label.
There are powerful forces leading me to believe this trend will continue. More doctors are using daVinci thanks to operating leases. As they continue tinkering on the platform with new procedures, that data is collected and distributed to other doctors. Over time, that leads to using the machine for more and better operating outcomes.
Investor takeaway
None of this is to say you should run out and put all of your money behind Intuitive Surgical. Instead, it deserves a spot on your own list for due diligence. The growth of operations is nothing new. But the drivers of that growth -- essentially, a transition to a subscription-based model -- can't be ignored. It's the type of development that could keep the company relevant for decades to come.
