4 Questions for MAKO Surgical


After pre-announcing selected results last month, MAKO Surgical is set to report its fourth-quarter and full-year earnings on Tuesday. Needless to say, after a shockingly volatile 2012 during which shares of MAKO fell by nearly 50%, weary long-term investors are hoping the report will contain good tidings for the coming year.

What we already know
Before we dig further, let's recap what MAKO told us last month.

First, the company placed 15 new RIO systems during the fourth quarter, bringing its total number sold in 2012 to 45. Of the 15 new systems, eight opted to include MAKO's $150,000 Total Hip Arthroplasty add-on with another three THA solutions sold to existing customers. All told, MAKO's worldwide installed base at the end of 2012 was comprised of 156 commercial RIO systems, with 62% of the installed base currently "MAKOPlasty THA enabled."

Second, 2,904 procedures were performed using MAKO's robots during the fourth quarter, of which 395 were THA surgeries. In all, that brought the total number of MAKOplasty procedures in 2012 to 10,204, a 47% increase over 2011.

Third, monthly per-system utilization in the fourth quarter rose to 6.6 procedures. While the number did increase from 6.2 in the third quarter, investor enthusiasm remained tempered as the number represented MAKO's first ever year-over-year decline from 7.2 in the fourth quarter of 2011.

While it was nice of MAKO to throw investors a bone to chew for a while, it's safe to say we're itching for something new. Now that we've had the chance to dissect every word in last month's release, then, here are four questions for MAKO going into next week's announcement.

How many robots?
At time of the release, MAKO will have wrapped up nearly two-thirds of its first quarter. Keeping in mind that the first three months of each year are historically MAKO's slowest, you can bet we'll expect fresh full-year guidance for the company's all-important RIO system sales. Unfortunately, because MAKO's recurring revenue stream remains relatively small, the high-priced RIO systems still tend to make overall revenue look chunky and unpredictable. And while the 15 robots sold last quarter helped reassure investors all isn't lost, if management's forward sales estimates for 2013 don't reflect significantly increased adoption for the system... well, we all know how that turned out last year.

Do they like to travel?
Investors should also watch for any signs of increased global adoption of MAKO's robots. Indeed, of its 156 "worldwide" installed system base, only five are currently placed outside the United States. Of those five systems, two were sold in the last quarter alone. When we note that Intuitive Surgical has placed nearly one third of its more than 2,500 da Vinci robots in other countries, it's evident that MAKO is only beginning to address its enormous market potential abroad.

Are they being used?
In addition, keep your eyes peeled for updated guidance for per system utilization numbers. To be sure, while last year's sluggish RIO system sales will likely result in a lower growth rate for overall procedure numbers, system utilization is a better measure to show existing sites aren't letting their robots collect dust. As fellow Fool Brenton Flynn explained last week, solid monthly utilization is also key for companies like MAKO and Intuitive Surgical to continue paying the bills with their razor-and-blades business models. While I'd like to see monthly per system utilization north of seven procedures (as CEO Maurice Ferre had hoped during last quarter's conference call), at a minimum anything above the fourth quarter's 6.6 would help put investors at ease.

What else can they do?
Finally, look for any updates on new procedure types to expand MAKO's scope of operation. As it stands, MAKO's RIO systems currently only count two procedures in their wheelhouse: partial knee replacements and total hip arthroplasty.

Why is this dangerous? As I noted last month, high-cost solutions like Hansen Medical's Sensei X robotic catheter systems (and, consequently, Hansen's shareholders) have suffered from limited adoption because it only performs a single procedure. As a result, Hansen's per-system utilization plummeted and served as a precursor to its falloff in system sales. By contrast, Intuitive Surgical's da Vinci robots continue to enjoy increased global acceptance because they can be used by surgeons to effectively perform dozens of different soft-tissue surgeries. As a result, Intuitive Surgical achieved impressive monthly utilization of around 13 procedures per system in 2012.

Back to MAKO, as luck would have it, during the company's November conference call, CEO Ferre made his first official mention of plans to develop a solution for total knee replacements. Needless to say, this would substantially increase both MAKO's value proposition and its per-system utilization. When pressed further during the Q&A portion of the call, however, Ferre was careful to say investors shouldn't expect a definite time frame for its total knee products in the near future, and instead emphasized that "the important thing is that its part of our platform."

Brace yourself
Though MAKO already told us how it did last quarter, that doesn't mean the company can't surprise us during next week's announcement. In any case, be prepared to weather any resulting wild swings in MAKO's share price, and remember that patience is key to holding a speculative long-term bet like MAKO. In the end, investors who can sift through the noise stand to enjoy massive gains if the company can eventually achieve sustained profitability.

More expert advice fromThe Motley Fool
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The article 4 Questions for MAKO Surgical originally appeared on Fool.com.

Fool contributor Steve Symington owns shares of MAKO Surgical. The Motley Fool recommends Intuitive Surgical and MAKO Surgical. The Motley Fool owns shares of 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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