Financial Trends -- 9/10
One of the cleaner financial-trend profiles in large-cap medtech. A razor-and-blade model: da Vinci
systems (capital) pull through high-margin recurring Instruments & Accessories (I&A) and
Services. Revenue re-accelerating (+23.0% YoY Q1'26) on da Vinci procedure volume compounding the
installed base. GAAP operating margin expanding ~450bps off the FY23 trough. FCF inflecting (FY23
$749.6M to FY25 $2,490.7M). Debt-free, net-cash balance sheet. Single blemish: gross margin slipped
~150bps on da Vinci 5 ramp costs and a disclosed tariff headwind. No penalty modifiers.
Weight: 25%
Op Margin
Expanding
GAAP 30.9% Q1'26, +520bps YoY | Positive
FY25 FCF
$2.49B
+91% YoY | Inflecting
Recurring Mix
~77%
I&A + Services | High visibility
Quarterly Revenue Trajectory ($M)
Revenue growth high-teens-to-low-20s, capped by a +23.0% YoY Q1'26.
Annual YoY climbed every year for four straight (+9.0% to +14.5% to +17.2% to +20.5%). The quarterly
YoY sequence is high-teens-to-low-20s and choppy rather than a clean line, the one dip (Q4'25 +18.8%)
a tough comp against Q4'24's record systems quarter. Driver is da Vinci procedure volume compounding
the installed base and pulling through recurring I&A, now ~61% of revenue.
Revenue by Segment ($M, Quarterly)
| Segment | Q2'24 | Q3'24 | Q4'24 | Q1'25 | Q2'25 | Q3'25 | Q4'25 | Q1'26 | Q1'26 YoY |
|---|---|---|---|---|---|---|---|---|---|
| Instruments & Accessories | $1,244.4 | $1,264.2 | $1,411.5 | $1,367.7 | $1,474.1 | $1,518.8 | $1,658.3 | $1,686.4 | +23.3% |
| Systems (da Vinci + Ion) | $448.2 | $445.0 | $654.6 | $522.7 | $574.7 | $590.4 | $785.9 | $650.7 | +24.5% |
| Services | $317.3 | $328.9 | $347.4 | $363.0 | $391.2 | $395.9 | $422.0 | $433.7 | +19.5% |
| Total | $2,009.9 | $2,038.1 | $2,413.5 | $2,253.4 | $2,440.0 | $2,505.1 | $2,866.2 | $2,770.8 | +23.0% |
Recurring revenue (I&A + Services) = 76.6% of Q1'26.
The durable, high-visibility core. Systems is the disclosed residual ($650.7M). Each new system
sold compounds future high-margin I&A pull-through -- the razor/blade flywheel.
Margins (Quarterly)
| Metric | Q2'24 | Q3'24 | Q4'24 | Q1'25 | Q2'25 | Q3'25 | Q4'25 | Q1'26 |
|---|---|---|---|---|---|---|---|---|
| GAAP Gross Margin | 68.3% | 67.4% | 68.0% | 64.7% | 66.3% | 66.4% | 66.4% | 66.1% |
| GAAP Operating Income | $567.3 | $577.3 | $734.9 | $578.1 | $743.4 | $759.7 | $864.3 | $855.3 |
| GAAP Operating Margin | 28.2% | 28.3% | 30.5% | 25.7% | 30.5% | 30.3% | 30.2% | 30.9% |
| Non-GAAP Operating Margin | 37.5% | 37.0% | 38.4% | 34.1% | 38.8% | 39.0% | 37.3% | 38.9% |
Operating-margin expansion is opex-leverage driven, not gross-margin driven.
GAAP operating margin rose from a 24.8% FY23 trough to 30.9% in Q1'26 (+520bps YoY vs 25.7% Q1'25).
But gross margin is the one soft spot: GAAP GM slipped from 67.5% FY24 to 66.0% FY25, pressured by
da Vinci 5 ramp costs, a higher-cost manufacturing footprint, and a disclosed tariff headwind.
Annual Financial Summary (FY ends December)
| Metric | FY2021 | FY2022 | FY2023 | FY2024 | FY2025 |
|---|---|---|---|---|---|
| Total Revenue ($M) | $5,710.1 | $6,222.2 | $7,124.1 | $8,352.1 | $10,064.7 |
| Rev YoY | — | +9.0% | +14.5% | +17.2% | +20.5% |
| GAAP Gross Margin | 69.3% | 67.4% | 66.4% | 67.5% | 66.0% |
| GAAP Operating Income ($M) | $1,821.0 | $1,577.1 | $1,766.8 | $2,348.9 | $2,945.5 |
| GAAP Operating Margin | 31.9% | 25.3% | 24.8% | 28.1% | 29.3% |
| Non-GAAP Operating Margin | 40.5% | 34.5% | 33.6% | 36.7% | 37.4% |
| Net Income ($M) | $1,728.1 | $1,344.4 | $1,817.3 | $2,337.5 | $2,876.6 |
| Diluted Shares (M) | 365.8 | 362.0 | 357.4 | 362.0 | 362.7 |
Key trends
- Revenue compounding, growth accelerating: From $5.71B (2021) to $10.06B (2025), with annual YoY climbing every year for four straight (+9.0% to +20.5%), now +23.0% in Q1'26 on da Vinci procedure volume and recurring I&A pull-through
- Operating margin expanding off the FY23 trough: GAAP operating margin +450bps from 24.8% (FY23) to 29.3% (FY25), and 30.9% in Q1'26
- Recurring mix dominates: I&A + Services = ~77% of revenue, the high-visibility, high-margin core of a razor/blade model
- Debt-free, net-cash balance sheet: No funded debt; only ~$171M operating-lease liabilities; ~$9B net cash
Free Cash Flow ($M, Annual)
| Metric | FY2021 | FY2022 | FY2023 | FY2024 | FY2025 |
|---|---|---|---|---|---|
| Operating CF | $2,089.4 | $1,490.8 | $1,813.8 | $2,415.0 | $3,030.5 |
| Capex | ($353.5) | ($532.4) | ($1,064.2) | ($1,111.2) | ($539.8) |
| Free Cash Flow | $1,735.9 | $958.4 | $749.6 | $1,303.8 | $2,490.7 |
| FCF YoY | — | -45% | -22% | +74% | +91% |
| FCF Margin | 30.4% | 15.4% | 10.5% | 15.6% | 24.7% |
FCF strongly positive and accelerating. FCF compounded
from $749.6M (FY23) to $1,303.8M (FY24, +74%) to $2,490.7M (FY25, +91%). Q1'26 FCF of $808.6M is
+74% YoY at a 29.2% FCF margin. The FY25 capex step-down (-$539.8M vs -$1,111.2M FY24) after the
multi-year facilities build-out amplified the inflection. Clean conversion, net-cash balance sheet.
Share Count
- Share count essentially flat / modestly diluting: 357.4M (FY23) to 362.7M (FY25), ~+1.5% over two years; sequentially declining in the most recent quarters (364.6M Q1'25 to 359.8M Q1'26) as buybacks offset stock-based comp
- No funded debt: Balance sheet is all net cash, only ~$171M operating-lease liabilities (FY25)
Blemishes -- Not Operational Deterioration
| Blemish | Detail | Penalty |
|---|---|---|
| Gross Margin Compression | GAAP GM slipped ~150bps (67.5% FY24 to 66.0% FY25) on da Vinci 5 ramp costs, higher-cost manufacturing footprint, and a disclosed tariff headwind. Opex leverage and the capex step-down more than offset it -- operating margin and FCF still expanded. | None |
| Flat Share Count | Diluted shares roughly flat rather than clearly declining (357.4M FY23 to 362.7M FY25, ~+1.5%), as buybacks only offset SBC. No meaningful dilution. | None |
The single blemish is gross margin, not the business.
Gross-margin softness ties to da Vinci 5 ramp and a tariff line, not to demand or competitive
deterioration. It has not stopped operating margins or FCF from expanding. This is a textbook
market-leader trajectory -- revenue, operating margin, and FCF all rising simultaneously.
Score Rationale
Score of 9/10 reflects one of the cleaner financial-trend profiles in large-cap medtech.
Supports 9/10 (rubric anchor 10 requires four conditions; ISRG hits 3 cleanly):
- Revenue YoY accelerating: YES -- four straight years, +9.0% to +20.5%, +23.0% Q1'26
- Operating margins expanding 100+bps: YES -- GAAP +450bps off the FY23 trough
- FCF YoY accelerating: YES, emphatically -- +74% then +91%, now ~25% FCF margin
- Share count declining: roughly flat, not clearly declining (the miss)
Penalty modifiers -- none apply:
- Negative FCF: N/A (strongly positive)
- Dilution >10%: N/A (~flat)
- Revenue up / operating income down: N/A (operating income up every period)
- Debt growing faster than revenue: N/A (no debt)
Held back from a perfect 10 only by the gross-margin compression (~150bps) and the flat-rather-than-declining share count. Initial score 9, no penalties. Final score: 9/10.
Composite quality gate -- positiveGrowingFcf: YES. FCF positive in every period and growing strongly (FY23 $749.6M to FY24 $1,303.8M to FY25 $2,490.7M; Q1'26 +74% YoY).
Data sourced from Daloopa (company_id: 439). Fiscal year ends December 31. All financials in USD.