Jamie Samath
Chief Financial Officer at Intuitive Surgical
Good afternoon.
I will describe the highlights of our performance on a non-GAAP or pro form a 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. Global procedure growth in Q2 of 22% reflected US procedure growth of 19% and 28% procedure growth outside of the US. Procedures in Q2 benefitted from higher patient admissions as hospitals particularly in the US catch-up with patients whose diagnosis and/or treatment was delayed during the pandemic.
Consistent with our comments last quarter, contributions to procedure growth from surgeons new to the da Vinci platform were strong, reflecting both the strength of our training capabilities and an increasing number of graduates of residency and fellowship programs who are trained on da Vinci. Within one of our target procedure areas, bariatric surgery, our growth rate in the US slowed during the quarter. Some customers have indicated that they are seeing increased patient interest in weight loss drugs. It is too early to conclude if the slowing growth is a temporary pause as patients evaluate these new drug therapies or if it is a trend that continues.
We believe that during the quarter, da Vinci continued to gain market share in the bariatric surgical market. Our US procedure growth of 28% reflected strength in China, the UK, Germany and Japan. Strong procedure growth in China was driven by a continued recovery from more recent COVID related impacts and a favorable comparison to Q2 last year, which was also impacted by the pandemic. Consistent with our comments last quarter, growth in non-urology procedures outside of the United States was accretive, growing at approximately 35%, driven by increases in colorectal, hysterectomy and thoracic procedures.
Turning to other key metrics. In Q2, the installed base of da Vinci systems grew 13% to just over 8,000 systems, driven primarily by demand for additional capacity given procedure growth. Average system utilization grew almost 9% year-over-year reflecting an increasing mix of shorter duration benign procedures in the US and customers prioritizing use of their existing assets given the financial pressures they face. With respect to capital performance, we placed 331 systems in the second quarter, ahead of our expectations. Capital strength in the quarter included a higher number of placements to our distributors and a higher number of multi-system deals in the US relative to recent trends, reflecting in part certain placements accelerated into Q2 from future quarters. Despite Q2 system placements being ahead of our expectations, customers particularly in the US appear to be cautious in their capital spending given ongoing financial pressures.
We placed 279 systems in Q2 of last year, which as a reminder, reflected a delay in the shipment of approximately 15 systems from June into July as a result of supply chain challenges we encountered during the quarter. Q2 revenue was $1.8 billion, an increase of 15% year-over-year. On a constant currency basis, second quarter revenue grew approximately 17%. Recurring revenue represented 85% of total revenue as compared 72% for the full year 2019 and grew 20% over last year, driven by procedure growth and an increase in the installed base of systems under operating lease arrangements. Additional revenue statistics and trends are as follows. In the US, we placed 157 systems in the second quarter compared to 150 systems placed last year. Outside the US, we placed 174 systems in Q2 compared with 129 systems last year. Current quarter system placements included 76 into Europe, 33 into Japan and 16 into China, compared with 78 into Europe, 18 into Japan and 15 into China in Q2 of last year.
During the quarter, the China National Health Commission published the fourteenth five-year quota of 559 robotic systems. For those systems awarded to our JV under the new quota, we expect a significant majority to be placed in 2024 through 2027. We are seeing increasing participation of local competitors in tender processes under the national quota. In addition, during 2023, we have experienced pricing pressure in China as a result of provincial government policy changes and competition. The dynamics create greater variability in the outlook for our procedure, system placement and revenue performance in China. In Q2, 60 of the 331 systems placed were trading transactions compared to 56 trading transactions in the second quarter of last year. As of the end of Q2, there are approximately 500 SIs remaining in the installed base, of which 97 are in the US.
Leasing represented 50% of Q2 placements compared with 42% for both last quarter and last year. In the US, 78% of system placements in Q2 were under operating lease arrangements compared to 59% last quarter. The higher rate of operating leases in the US is primarily driven by an increasing customer preference for our usage-based leasing models in part due to capital budget constraints and continuing financial pressures faced by many of our customers. In addition, some customers are choosing leasing structures to preserve flexibility to upgrade to next generation technology. As a result of these dynamics and the earlier stage of our leasing program with OUS customers, we continue to expect that the proportion of placements under operating leases will increase over time.
Q2 system average selling prices were $1.39 million as compared to $1.47 million last quarter. The sequential decrease in system ASPs was primarily driven by a higher mix of ex-placements for purchase deals and geographical mix. We recognized $12 million of lease buyout revenue in the second quarter compared with $24 million last quarter and $23 million in Q2 of 2022. da Vinci instrument and accessory revenue per procedure was approximately $1,840 compared with approximately $1,780 last quarter and $1,900 last year. On a sequential basis, higher I&A per procedure was driven primarily by the I&A price increase we described last quarter and customer ordering patterns.
Turning to our Ion platform. In Q2, we placed 59 Ion systems as compared to 41 in Q2 of 2022. Second quarter Ion procedures of approximately 12,700, increased 145% as compared to last year. During the quarter, we placed our first Ion system in the UK market. And in this early phase of our European launch, we are focused on the collection of clinical data in support of our reimbursement strategy. 12 of the systems placed in the second quarter were SP systems compared to 10 systems last quarter. SP procedures grew by 40% and average system utilization growth accelerated from last quarter's 12%, increasing by 14% compared to Q2 of last year.
Moving on to the rest of the P&L. Pro forma gross margin for the second quarter was 68.5% compared with 67.2% last quarter and 69.2% last year. Pro forma gross margin was lower than last year primarily due to a higher mix of Ion revenue, which currently carries significantly lower margins as compared to the da Vinci business, and lower system ASP. As we described last quarter, improving product costs and manufacturing efficiency is a priority for our teams over the medium term. Second quarter pro forma operating expenses increased 12% year-over-year driven primarily by increased headcount added throughout last year, higher variable compensation, increased prototype expenses and increased expenses associated with customer training in support of procedure growth.
Pro forma operating expenses represented 33% of revenue in Q2 compared to 35% of revenue for the full year 2022, reflecting in part, planned leverage in our enabling functions. Capital expenditures in Q2 were $178 million, primarily comprised of infrastructure investments to expand our facilities footprint and increase manufacturing capacity. Our pro forma effective tax rate for the second quarter was 22.3%, consistent with our expectations. Second quarter pro forma net income was $507 million or $1.42 per share compared with $415 million or $1.14 per share for Q2 of last year.
I will now summarize our GAAP results. GAAP net income was $421 million or $1.18 per share for the second quarter of 2023 compared with GAAP net income of $308 million or $0.85 per share for the second 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 $7.1 billion compared with $6.6 billion last quarter. The sequential increase in cash and investments reflected cash from operating activities, proceeds from employee stock exercises, partially offset by capital expenditures.
And with that, I would like to turn it over to Brian who will discuss clinical highlights and provide our updated outlook for 2023.
