Intuitive Surgical, Inc. Just Wowed Wall Street in This Key Area

The daVinci Xi. Photo: Intuitive Surgical.

There was more than enough good news to go around for investors of Intuitive Surgical , maker of the daVinci robotic surgical system pictured above. Nowhere was that more clear than in the stock's 13% surge in after hours trading on Tuesday night.

But none of the data points was more important than this: the number of procedures performed using the daVinci rose 14% for the quarter, and the company raised its guidance for future procedure growth.

Let's put these numbers in perspectiveBack in January, Calvin Darling, Intuitive's Senior Director of Finance had this to say on the company's conference call: "During 2015, we anticipate... procedure growth within a range of 7% to 10%. We expect similar seasonal timing...with Q1 being the seasonally weakest quarter."

But in April, the company showed much stronger procedure growth than expected -- 13% overall in the first quarter. On top of that, it was supposed to be the weakest of all quarters. That led management to up its forecast for the year to 8-11% growth.

Last night, management made it look like they're becoming professional sand-baggers, which isn't necessarily a bad thing for long-term investors. Overall procedure growth wowed again, this time coming in at 14%. Once again, the full-year forecast was raised -- this time to a range of 11%-13% growth.

Given that the first two quarters of the year have been at or above this range, and that the end of the year tends to be stronger than the beginning, I wouldn't be surprised to see 2015 procedure growth come in above 13% when the final number is released in early 2016.

The main driver of growth: general surgeryBack in 2014, both the medical and investing communities were souring on the Intuitive Surgical growth story. Systems sales were plummeting as a result of unease in the wake of the Affordable Care Act, and leading medical professionals were openly questioning whether or not robot-assisted surgery was worth the added expense.

I argued that, over the decades-long view, Intuitive Surgical still had enormous potential. The key was having doctors tinker and experiment with the robot -- checking to see which operations could benefit the most from the ever-evolving technology. Any growth from this tinkering would be classified as "general surgery" by management.

Shortly thereafter, CEO Gary Guthart started to spend more and more time talking about the newest growth driver: hernia operations. The most recent conference call was no exception, with Darling stating: "During the second quarter general surgery remained the primary contributor to U.S. growth... with robust growth in hernia repair."

The other positive newsWhile I remain convinced that there's nothing more important for long-term Foolish investors than procedure growth, there were other tid-bits that helped push the stock higher as well.

Revenue and earnings both came in ahead of expectations. The company notched $586 million in sales, well ahead of Wall Street's expectation of $567 million. And non-GAAP earnings per share landed at $4.57, while the pros were expecting just $3.98.

Gross margins improved as well. Previously, the company was suffering from lower margins on their newer Xi model machine. That was largely expected, as it takes time for the company to recognize the benefits of scale when they start manufacturing a totally new machine. For the second quarter, some of those benefits began to be recognized -- margins expanded from 63.3% during the first quarter of 2015 to 65.9% during the second quarter.

And as expected, system sales also improved at a healthy 23% pace. In all, 118 new daVinci's were delivered worldwide. Of those, 64% were the new Xi systems, and thirteen came from Japan -- where the Xi just received clearance.

Put all of these pieces together and it's not tough to understand why shares are reacting the way that they are.

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Brian Stoffel owns shares of Intuitive Surgical. The Motley Fool recommends Intuitive Surgical. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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