Key Points Company and Industry 1. **Company**: Intuitive Surgical, Inc. (NASDAQ: ISRG) 2. **Industry**: Medical technology (med-tech) 3. **Event**: 43rd Annual J.P. Morgan Healthcare Conference Call 4. **Date**: January 15, 2025 5. **Time**: 12:00 PM ET Core Views and Arguments 1. **Motivation**: Intuitive Surgical views itself as a solutions provider in healthcare. 2. **Statistics**: Lung cancer is the largest cancer killer in the United States, with a delay of about a year in definitive detection and assessment compared to early detection. 3. **Statistics**: Women typically suffer from endometriosis symptoms for more than five years before it is definitively defined and even longer before treatment. Additional Important Content 1. **Forward-looking statements**: Intuitive Surgical encourages participants to refer to their SEC filings on the Investor page of their website for forward-looking comments. 2. **Gary Guthart's role**: CEO of Intuitive Surgical 3. **Jamie Samath's role**: Executive Vice President & Chief Financial Officer of Intuitive Surgical

Core Insights - Intuitive Surgical's preliminary fourth-quarter earnings significantly exceeded analysts' expectations, leading to a 6% increase in share price [1] - The company reported a surprising 25% revenue growth for Q4, surpassing the expected 14% growth [2] - This 25% growth is the fastest since 2021 and well above the company's average annualized growth rate of 15% over the last decade [3] Revenue Growth - The launch of the da Vinci 5 system in 2024 contributed to a 36% increase in systems revenue, which includes surgical robots installed [3] - The growth in systems revenue is expected to lead to higher recurring revenue in the future due to the company's razor-and-blade business model [4] Recurring Revenue Model - Approximately 83% of Intuitive Surgical's total sales come from recurring revenue, supported by an installed base of around 10,000 da Vinci systems [5] - The company's dominant market share in the robot-assisted surgery industry provides a significant competitive advantage, justifying its high valuation [5]

Core Viewpoint - Intuitive announced preliminary financial results for Q4 and full year 2024, showing significant revenue growth driven by increased procedure volumes and customer adoption of its robotic-assisted surgical systems [1][3][11]. Financial Performance - Q4 2024 revenue is expected to be approximately $2.41 billion, a 25% increase from $1.93 billion in Q4 2023 [3][8]. - Full year 2024 revenue is projected at approximately $8.35 billion, reflecting a 17% increase compared to $7.12 billion in 2023 [3][8]. - Instruments and accessories revenue for Q4 2024 is expected to be around $1.41 billion, up 23% from $1.14 billion in Q4 2023 [4][8]. - Full year 2024 instruments and accessories revenue is anticipated to be approximately $5.08 billion, a 19% increase from $4.28 billion in 2023 [4][8]. - Systems revenue for Q4 2024 is expected to be approximately $655 million, a 36% increase from $480 million in Q4 2023 [6][8]. - Full year 2024 systems revenue is projected at approximately $1.97 billion, a 17% increase from $1.68 billion in 2023 [6][8]. Operational Highlights - Q4 2024 da Vinci procedures increased by approximately 18% compared to Q4 2023, with about 2,683,000 procedures performed in 2024, a 17% increase from 2,286,000 in 2023 [5][8]. - The growth in procedure volume was driven by a 19% increase in U.S. general surgery procedures and a 23% increase in procedures outside the U.S., primarily in cancer surgeries [5][8]. - The company placed 493 da Vinci surgical systems in Q4 2024, up 19% from 415 systems in Q4 2023 [7][8]. - For the full year 2024, the company placed 1,526 da Vinci surgical systems, an 11% increase from 1,370 systems in 2023 [9][8]. Future Outlook - The company expects worldwide da Vinci procedures to increase by approximately 13% to 16% in 2025 compared to 2024 [5][8]. - The company did not experience noticeable disruptions in procedure volumes due to COVID-19 in 2024, indicating a recovery from previous impacts [10][8].

Core Viewpoint - Intuitive Surgical (ISRG) is positioned as a strong investment opportunity due to its innovative surgical robotics, particularly the da Vinci system, which is expected to see significant demand growth regardless of political changes in 2025 [2][6]. Company Overview - Intuitive Surgical specializes in advanced surgical devices, with the da Vinci system being the most widely used surgical robot globally [2]. - The company anticipates a year-over-year demand growth of 12% to 16% for the da Vinci system, attributed to its less invasive and more precise technology, leading to faster patient recovery times [2]. Investment Performance - During the previous Trump administration, ISRG shareholders experienced a stock return of 179%, raising expectations for similar performance in the future [3]. - The stock does not pay dividends, which may deter some investors, but alternative strategies such as selling covered calls are suggested to generate income [3][4]. Fund Investment Strategy - A proposed investment strategy involves purchasing the BlackRock Health Sciences Trust (BMEZ), which has ISRG as its top holding at 4.6% of the portfolio, providing a way to gain exposure to ISRG while receiving a monthly dividend yield of 14.3% [5][9]. - BMEZ is currently trading at a 9% discount to its asset value, presenting a buying opportunity for investors [6]. Market Context - The healthcare sector has seen a selloff following political developments, particularly with the nomination of Robert F. Kennedy Jr. to the Department of Health and Human Services, which has negatively impacted healthcare stocks despite Intuitive's strong fundamentals [6][7]. - The broader healthcare sector is considered undervalued, with BMEZ being highlighted as a particularly attractive investment at just 91 cents on the dollar [9]. Historical Performance - BMEZ's top holdings have historically performed well under the previous Trump administration, with returns ranging from 126% to over 1,000% [8]. - The fund employs a strategy of selling covered calls on its holdings to generate additional income, which supports its high dividend payout [8].

AI Integration in Healthcare - Intuitive Surgical is a leader in robotic-assisted surgery (RAS) and has been incorporating AI into its devices and services [2][3] - The company's da Vinci V system, cleared by the FDA in March, features Force Feedback technology, which could eventually integrate AI-supported analytical insights to improve patient outcomes [4][5] - AI is already used in some instruments, such as staplers, to monitor tissue connections, and in the SimNow simulator to predict surgical outcomes and train physicians [6] Financial Performance and Market Position - Intuitive Surgical's revenue for Q3 was $2 04 billion, a 17% increase year over year, with adjusted EPS of $1 84, up 26% year over year [8][9] - The da Vinci 5 system has seen rapid adoption, with 110 of the 379 systems placed in Q3 being the latest model, and it has already been used in 12,000 procedures [8] - The RAS market is underpenetrated, with less than 5% of eligible procedures performed robotically as of 2023, indicating significant growth potential [10] Long-Term Growth Prospects - The demand for RAS procedures is expected to increase due to the aging global population, providing a long runway for growth [10] - Intuitive Surgical's integration of AI into its business could become more critical in the future, but the company's long-term prospects remain strong regardless [11]

Executive Leadership Promotions - Henry Charlton promoted to Executive Vice President and Chief Commercial and Marketing Officer, with extensive experience in global distribution, marketing, and customer services [2] - Gary Loeb promoted to Executive Vice President and Chief Legal and Compliance Officer, bringing leadership experience from public and private life sciences companies [3] - Jamie Samath promoted to Executive Vice President, Chief Financial Officer, and Enterprise Technology Leader, overseeing financial, IT, real estate, and purchasing functions [4] Company Mission and Vision - Intuitive aims to advance minimally invasive care globally, with a mission to optimize care delivery and improve patient outcomes [7] - The company envisions a future of less invasive and profoundly better care, focusing on early disease identification and quick treatment [7] Historical Impact and Achievements - Intuitive pioneered robotic-assisted minimally invasive surgery 30 years ago with the da Vinci surgical system [5] - Over 15 million procedures have been performed globally using da Vinci systems, and more than 76,000 surgeons have been trained on the technology [5] Leadership Reporting Structure - Henry Charlton reports to Intuitive President Dave Rosa, while Gary Loeb and Jamie Samath report to CEO Gary Guthart [6] Company Overview - Intuitive is a global leader in minimally invasive care and robotic surgery, headquartered in Sunnyvale, California [7] - Key technologies include the da Vinci surgical system and the Ion endoluminal system [7]

Stock Performance - Intuitive Surgical, Inc (ISRG) ended the recent trading session at $538 83, showing a +0 34% increase from the previous day's closing price [1] - The stock outperformed the S&P 500's daily loss of 0 04%, while the Dow gained 0 07% and the Nasdaq lost 0 05% [1] - Over the past month, ISRG shares depreciated by 0 28%, outperforming the Medical sector's loss of 4 31% but lagging behind the S&P 500's gain of 1 05% [6] Earnings and Revenue Forecast - The company is forecasted to report an EPS of $1 76, a 10% increase from the same quarter last year [2] - Revenue is projected to be $2 21 billion, reflecting a 14 53% rise from the equivalent quarter last year [2] - For the annual period, Zacks Consensus Estimates anticipate earnings of $6 88 per share and revenue of $8 15 billion, representing year-over-year increases of 20 49% and 14 36%, respectively [9] Valuation Metrics - ISRG's PEG ratio is currently 4 18, higher than the Medical - Instruments industry average of 2 46 [4] - The company's Forward P/E ratio is 78 06, significantly higher than the industry average of 28 57, indicating it is trading at a premium [8] Industry and Analyst Sentiment - The Medical - Instruments industry has a Zacks Industry Rank of 53, placing it in the top 22% of all 250+ industries [11] - ISRG currently holds a Zacks Rank of 3 (Hold), with the Zacks Consensus EPS estimate increasing by 0 09% over the past month [10] - Positive estimate revisions reflect analyst optimism about the company's business and profitability [7] Investment Tools and Performance - The Zacks Rank system, which incorporates estimate changes, has a track record of outperformance, with 1 ranked stocks producing an average annual return of +25% since 1988 [10] - The top 50% rated industries outperform the bottom half by a factor of 2 to 1, as per the Zacks Industry Rank [5]

Investment Rating - The report assigns a **Hold** rating to Intuitive Surgical (ISRG) with a target price of **$558.63**, representing a **3.7% upside** from the current price [3] Core Views - Intuitive Surgical reported strong Q3 2024 growth, with revenue reaching **$2.04 billion**, a **17% YoY increase**, driven by robust procedure growth and system installations [1] - The company installed **379 Da Vinci systems** in Q3 2024, a **67-unit increase** YoY, with the new DV5 system showing strong momentum, reaching **110 installations** in Q3 [1] - Non-GAAP net income grew **28% YoY** to **$669 million** in Q3 2024, reflecting strong operational performance [1] - The company expects **16-17% procedure growth** for full-year 2024, with gross margins maintained at **68.5-69%** [3] Procedure Growth and System Installations - Total procedure volume grew **18% YoY** in Q3 2024, driven by strong growth in general surgery in the US and increased volumes in Japan, Germany, France, and the UK [1] - Despite headwinds from declining bariatric surgery volumes and the impact of doctor strikes in South Korea, overall procedure growth remained robust [1] - The Da Vinci system installed base reached **9,539 units** as of September 30, 2024, a **15% increase** YoY [1] DV5 System and Market Expansion - The DV5 system, launched in March 2024, is expected to achieve broader rollout by mid-2025, with its advanced features such as force feedback technology and 3D imaging enhancing surgical precision and user experience [2] - The company is gradually increasing DV5 installations, with regulatory approvals secured in South Korea for multiple surgical applications, and CE mark approval expected by late 2025 [2] - The DV5 system is being deployed in the US through a trade-in model, with significant revenue growth potential expected post mid-2025 when deployment restrictions are lifted [2] Financial Projections - The company forecasts **10-12% growth** in operating expenses for 2024, with non-cash stock compensation expected to be **$670-690 million** [3] - Other income, primarily from interest income, is projected to increase to **$325-345 million**, while capital expenditures are expected to remain at **$1.0-1.2 billion** [3] - The DCF valuation assumes an **8% discount rate** and a **5% perpetual growth rate**, resulting in the target price of **$558.63** [3]

Core Viewpoint - Intuitive Surgical, Inc. (ISRG) has been upgraded to a Zacks Rank 2 (Buy) due to an upward trend in earnings estimates, which is a significant factor influencing stock prices [1][3]. Earnings Estimates and Stock Price Movement - The Zacks rating system emphasizes the correlation between changes in earnings estimates and near-term stock price movements, indicating that rising earnings estimates can lead to increased buying pressure and higher stock prices [4][5]. - For the fiscal year ending December 2024, Intuitive Surgical is expected to earn $6.88 per share, reflecting a 20.5% increase from the previous year [8]. Zacks Rank System - The Zacks Rank system classifies stocks based on earnings estimate revisions, with a proven track record of generating significant returns, particularly for Zacks Rank 1 stocks, which have averaged a +25% annual return since 1988 [7]. - The upgrade of Intuitive Surgical to a Zacks Rank 2 places it in the top 20% of Zacks-covered stocks, suggesting a strong potential for market-beating returns in the near term [10][11]. Analyst Behavior and Market Dynamics - Individual investors may struggle with rating upgrades from Wall Street analysts due to the subjective nature of these ratings, but the Zacks system provides a more objective measure based on earnings estimates [2][6]. - Institutional investors play a role in stock price movements by adjusting their valuations based on earnings estimates, which can lead to significant trading activity and price changes [4].

Company Overview - Intuitive Surgical is constructing a new headquarters in California, indicating significant growth and investment in its operations [2] - The company is expanding its da Vinci surgical system, which suggests a focus on enhancing its product offerings in the surgical systems market [2] Investment Strategy - The Value Portfolio employs a fact-based research strategy to identify investments, which includes thorough analysis of 10Ks, analyst commentary, market reports, and investor presentations [2] - The strategy aims to build retirement portfolios that maximize returns for investors [2]