Jamie Samath
Chief Financial Officer at Intuitive Surgical
Good afternoon. I will describe the highlights of our performance on a non-GAAP or pro forma basis. I will also summarize our GAAP performance later in my prepared remarks. A reconciliation between our pro forma and GAAP results is posted on our website. Before I dive into the details of our Q1 results, I will expand on the two areas of note in the quarter, as Gary highlighted: procedure growth and gross margin.
Global procedure growth in Q1 of 26% came in well above our expectations, with notable strength in the U.S., where procedures also grew by 26%. As a reminder, procedures in Q1 of last year reflected an adverse impact from COVID in the early part of the quarter in the U.S. and the latter part of the quarter in Korea and China. We believe that the return of patients to normalized healthcare routines, including diagnostics and improved staffing levels have positively impacted this quarter's procedures. However, it is difficult to precisely characterize or estimate the degree or duration of this impact.
Looking at the monthly trends in the U.S., January and February were particularly strong relative to historical seasonality. However, in March, we saw more normalized growth rates. Outside of the U.S., procedure growth of almost 28% was also ahead of our expectations with growth outperforming expectations across all our major international markets. In the first quarter, non-urology procedures represented roughly half of our total OUS procedures and grew 35% from quarter one of last year. Brian will provide additional commentary and our updated procedure outlook later in the call.
Pro forma gross margin in Q1 was below our expectations at 67.2%, lower than last quarter's 68.2% and last year's 69.8%. Q1 results reflected one-time adverse impacts of approximately 100 basis points relating to manufacturing related issues and an increase in inventory reserves as Gary detailed. While we largely resolved these one-time items in the quarter, we see opportunity to strengthen our manufacturing operations and improve product costs. This is a priority for our business unit and operations teams and aligns with our capital investment plans as we described on last quarter's call.
Turning to other key metrics. In Q1, the installed base of da Vinci systems grew 12% to almost 7,800 systems, driven primarily by demand for additional capacity given procedure growth. Average system utilization grew 13% year-over-year, significantly above long-term trends driven by notable strength in procedure volumes in January and February, and by an increasing mix of shorter duration benign procedures in the U.S. While we do not expect this level of utilization growth to continue, we actively support our customers as they increase utilization of their da Vinci systems, which in turn lowers their per procedure costs.
With respect to capital performance, we placed 312 systems in the first quarter, ahead of our expectations with noble strength in OUS markets. Current quarter placements were roughly even with the 311 systems we placed in the first quarter of last year. There were 67 trade-in transactions in the quarter as compared to 108 last year. Excluding trade-in transactions, net new system placements increased 21% over the first quarter of last year. As of the end of Q1, there are approximately 560 SIs remaining in the installed base of which approximately 110 are in the U.S.
Q1 revenue was $1.7 billion, an increase of 14%. On a constant currency basis, first quarter revenue grew approximately 17%. Recurring revenue represented 81% total revenue and grew 21% over last year, driven by procedure growth and an increase in the installed base of systems under operating lease arrangements. Within I&A revenue for our advance technology categories, stapler and energy, revenue grew a combined 26% over Q1 of last year.
Additional revenue statistics and trends are as follows: In the U.S. we placed 141 systems in the first quarter, lower than the 186 systems we placed last year, reflecting a decline of 51 systems associated with trade-in transactions. Outside the U.S., we placed 171 systems in Q1, compared with 125 systems last year. Current quarter system placements included 101 into Europe, 16 into Japan and 18 into China, compared with 78 into Europe, 19 into Japan and nine into China in Q1 of last year. First quarter system placement performance in Europe included 32 placements in the U.K., driven by timing of the NHS budget period, which closes each year at the end of March. We placed 12 systems in India, a quarterly high for us, which in part stems from our recent procedure growth there. In Q1, procedures in India grew 55%, albeit from a relatively small base.
Reviewing the capital performance in the quarter. We do not expect the strength in U.K. and India to repeat in the remainder of the year. Customers, particularly in the U.S. and Europe, continue to be challenged by staffing, inflation, debt servicing costs and other financial pressures. And as a result, we expect customers to continue to be cautious in their overall capital spending. Leasing represented 42% of Q1 placements, compared with 42% last quarter and 35% last year. We are increasingly seeing customers address system access and capital budget barriers by choosing our usage-based leasing models. The proportion of placements under this structure continue to increase, particularly in the U.S. As a result of this trend and the earlier stage of our leasing program with OUS customers, we continue to expect that the proportion of play months under operating leases will increase over time.
Q1 system average selling prices were $1.47 million as compared to $1.43 million last quarter. The sequential increase in system ASPs was primarily driven by a lower mix of trade-ins. We recognized $24 million of lease buyout revenue in the first quarter, compared with $17 million last quarter and $16 million in Q1 of 2022. da Vinci instrument and accessory revenue per procedure was approximately $1,780 compared with approximately $1,820 last quarter and $1,870 last year.
On a year-over-year basis, FX negatively impacted I&A per procedure by approximately $40, and ordering patterns in China had a negative impact of approximately $50 per procedure, as our channel partners continue to manage their inventory levels in a dynamic environment. On a sequential basis, the primary driver of the decline in I&A per procedure of $40 was customer ordering patterns in the U.S.
Turning to our Ion platform. In Q1, we placed 55 Ion systems as compared to 34 in Q1 of 2022. First quarter Ion procedures of approximately 10,200 increased 159% as compared to last year. During the quarter, we received CE Mark clearance for our Ion platform in Europe. While we will initially focus on the U.K. market and on the collection of clinical data in support of our European reimbursement strategy, regulatory processes for Ion continue to progress in Korea and China. 10 of the systems placed in the first quarter were SP systems, including our first placement in Japan following clearance last quarter. SP procedures grew by 37%, and average system utilization increased by 12% compared to Q1 of last year.
Moving on to the rest of the P&L. As previously referenced, pro forma gross margin for Q1 was 67.2%. And in addition to the one-time impacts described earlier, pro forma gross margin reflects the impact of higher component and labor costs; and relative to the year ago period, a stronger U.S. dollar. Gross margin for our Ion platform is currently considerably below our da Vinci business, resulting in an adverse mix impact to gross margin, given the higher growth rates of our Ion business. The key area of focus for our Ion and manufacturing teams over the next 18 months is to improve supply stresses, strengthen manufacturing capabilities, lower our product costs.
I&A prices have remained the same for the life of Xi. However, given the durability of component cost increases throughout the pandemic, we are executing an increase to the list price of da Vinci I&A from approximately 5% over the next couple of months. This increase reflects only a portion of the increased component and labor costs reflected in our gross margin. We expect the impact of this decision to be an increase in revenue and operating profit of approximately $100 million in 2023.
First quarter pro forma operating expenses increased 20% year-over-year, driven by -- primarily by increased headcount added throughout last year, higher variable compensation, higher travel costs, and increased expenses associated with customer training. Operating expenses were moderately above our expectations due to higher variable compensation and training costs related to our procedure performance in the quarter. On a sequential basis, operating expenses were up 1%, including the annual reset of certain payroll taxes. Headcount increased by approximately 330 in Q1, of which roughly half are in support of revenue growth.
Capital expenditures in Q1 were $197 million, primarily comprised of infrastructure investments to expand our facilities footprint and increased manufacturing capacity including automation of certain production lines. Our pro forma effective tax rate for the first quarter was 22.1%, consistent with our expectations. First quarter pro forma net income was $437 million or $1.23 per share compared with $413 million or $1.13 per share for the first quarter of last year.
I will now summarize our GAAP results. GAAP net income was $355 million or $1 per share for the first quarter of 2023, compared with GAAP net income of $366 million and also $1 per share for the first quarter of 2022. The adjustments between pro-forma and GAAP net income are outlined and quantified on our website and include excess tax benefits associated with employee stock awards, employee stock-based compensation, amortization of intangibles, and gains and losses on strategic investments.
We ended the quarter with cash and investments of $6.6 billion compared with $6.7 billion at the end of last year. The sequential reduction in cash and investments reflected share repurchases and capital expenditures, partially offset by cash from operating activities. During the quarter, we spent $350 million to repurchase 1.5 million of our shares at an average price of $230 per share. From the beginning of 2022 through the end of Q1 this year, we have repurchased 12.6 million shares at an average price of $234 per share and have $1.1 billion remaining under current Board authorization to repurchase our shares.
And with that, I would like to turn it over to Brian, who will discuss clinical highlights and provide our updated outlook for 2023.
