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. Q2 procedure growth of 14% reflected an increase in U.S. procedures of 11% and OUS procedure growth of 22%. As a reminder, procedures in the U.S. in the second quarter of last year included a recovery of procedures that were delayed as a result of the significant impact of the Omicron variants. Brian will provide additional procedure commentary later in the call. We placed 279 systems in the second quarter as compared to 328 systems in the second quarter of 2021 and 311 systems last quarter. Q2 system placements were 15% lower than the second quarter of 2021, primarily due to a significant decline in trade-in transactions. There were 56 trade-in transactions in the quarter as compared to 125 in Q2 of 2021, reflecting the decline in the number of SIs remaining in the installed base. The supply chain environment continues to be challenging. And during the quarter, we experienced delays in the supply of certain semiconductor components that caused manufacturing output da Vinci systems to be later in the quarter than historical norms. As a result, a number of systems that we would have expected to place in the latter part of June experienced minor delays and were shipped and installed in July. We indicated on last quarter's call that we had experienced a softening in the U.S. capital pipeline. That softness persisted in Q2.
Financial pressures have increased on hospitals, given higher inflation, increasing interest rates, supply chain challenges and continued staffing shortages. Some of the larger IDNs have indicated that as a consequence of the financial pressures they face, they are lowering their capital investment plans and tightening operational budgets. We expect that demand for capital, particularly in the U.S., will be impacted while macro conditions remain challenging. Where a particular hospital requires additional da Vinci capacity, given growth in their programs, we will leverage our flexible acquisition models to meet the financial objectives of our customers. Given the system placements in Q2, the installed base of da Vinci systems grew approximately 13% year-over-year. Utilization of clinical systems in the field, measured by procedures per system, increased approximately 1% compared to last year. Using a three-year compound annual growth rate, second quarter utilization grew almost 5%, which is in line with historical averages. In more mature markets like the U.S., capital demand is sensitive to procedure growth, and therefore, we monitor changes in system utilization closely. As a result of our procedure and capital performance, Q2 revenue was $1.52 billion, an increase of 4% from the second quarter of 2021. On a constant currency basis, second quarter revenue grew approximately 6% over last year. It is worth highlighting that recurring revenue grew 14% year-over-year to $1.24 billion, representing 81% of total revenue.
Additional revenue statistics and trends are as follows: in the U.S., we placed 150 systems in the second quarter, lower than the 213 in Q2 of 2021, reflecting a decline of 59 systems associated with trade-in transactions, a softer demand environment and the delay of some system placements into July. The remaining installed base of Si Systems in the U.S. is approximately 230 systems. Outside the U.S., we placed 129 systems in the second quarter compared with 115 in the second quarter of 2021. Current quarter system placements included 78 into Europe, 18 into Japan and 15 into China, compared with 63 into Europe, 16 into Japan and 19 into China in the second quarter of 2021. As of the end of Q2 2022, there were 48 systems remaining under the current quota in China, which is also available to competitors that have received local regulatory clearance. Globally, trade-in transactions represented 20% of placements in the quarter compared to 38% for full year 2021 and 48% for full year 2020. As we have previously indicated, given the lower number of older generation systems in the field, we expect the volume of trade-ins to be significantly lower in 2022 as compared to last year. Leasing represented 42% of Q2 placements compared with 35% last quarter and 33% in the second quarter of 2021. The higher lease mix primarily reflected an increase in the proportion of OUS customers that lease the system in the quarter versus purchased, driven in particular by customers in Europe. While leasing will fluctuate from quarter-to-quarter, we continue to expect that the proportion of placements under operating leases will increase over time.
Second quarter system average selling prices were $1.50 million, slightly lower than the $1.54 million last quarter. Although system ASPs were roughly flat, lower trading volumes benefit Q2 ASP offset by an unfavorable impact from the stronger U.S. dollar and a higher mix of lower price X systems, primarily driven by customers in Europe. We recognized $22 million of lease buyout revenue in the second quarter compared with $16 million last quarter and $26 million last year. Lease buyout revenue has varied significantly quarter-to-quarter and will likely continue to do so. Instrument and accessory revenue per procedure was approximately $1,900 per procedure compared with $1,870 last quarter and $1,940 in the second quarter of 2021. The year-over-year decrease primarily reflects the benefit of stocking orders in Q2 of 2021 associated with the launch of our extended use instruments program and an unfavorable FX impact from the stronger U.S. dollar. The sequential increase reflects a higher proportion of stapling and advanced energy revenue. Revenue for these categories combined grew 22% as compared to the second quarter of last year. We placed 41 Ion systems in the quarter as compared to 20 Ion placements in the second quarter of last year. The installed base of Ion systems is now 204 systems, of which 90 are under operating lease arrangements. Second quarter Ion procedures of approximately 5,200 increased 251% compared to the second quarter of 2021.
Ion is in the new MDR regulatory review process in Europe and our efforts to pursue a submission in China continue to make progress. Five of the systems placed in the second quarter were SP systems, resulting in an installed base of 111. Second quarter SP procedures grew approximately 28% year-over-year. One of the areas of potential clinical differentiation for SP is in narrow access surgery, for example, in transoral robotic surgical or TORS procedures. For malignant TORS procedures, based on the last four quarters, we estimate SP market share in the U.S. to be just under 20%. Growth of the SP platform will continue to be gated by additional clinical indications and clearances in markets beyond the U.S. and Korea. Moving on to the rest of the P&L. Pro forma gross margin for the second quarter of 2022 was 69.2% compared with 71.7% for the second quarter of 2021 and 69.8% last quarter. Pro forma gross margin was lower primarily as a result of the stronger U.S. dollar, higher logistics costs, increased component pricing and increased fixed costs relative to revenue as we invest in our infrastructure and manufacturing capacity to serve our long-term needs. Pro forma operating expenses increased 23% compared with the second quarter of 2021. The increase in second quarter operating expenses from a year ago reflected an increase in headcount, higher R&D-related project costs and higher travel costs, including the impact of inflation.
Given the early stages of our newer platforms, Ion and SP and our digital ecosystem, we expect to continue to invest in R&D, given the return profile of these investments. Spending in SG&A will be more closely linked to our procedure and revenue performance, and we will continue to pursue plans to invest in infrastructure and business process automation to ensure we can efficiently and effectively scale. Pro forma operating margin for Q2 was 35% as compared to 40% for the full year 2021. As compared to the second quarter of last year, the net impact of FX, inflation and manufacturing inefficiencies associated with the supply chain environment is a reduction in operating margin of approximately 2%. Our pro forma tax rate -- effective tax rate for the second quarter was 22.3%, in line with our expectations. Second quarter 2022 pro forma net income was $415 million or $1.14 per share compared with $475 million or $1.30 per share for the second quarter of 2021. Capital expenditures in Q2 were $131 million, primarily comprised of infrastructure investments to expand our facilities footprint, increased manufacturing capacity and automation of certain production lines. I will now summarize our GAAP results. GAAP net income was $308 million or $0.85 per share for the second quarter of 2022 compared with GAAP net income of $517 million or $1.42 per share for the second quarter of 2021. 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 $8.2 billion compared with $8.4 billion at the end of Q1. The sequential reduction in cash and investments primarily reflected share repurchases and capital expenditures, partially offset by cash from operating activities. Our capital allocation priorities remain consistent and are as follows: first, to organically invest in the business, given the significant opportunities we see to develop differentiated technology and drive adoption of our products. Second, to acquire external technology that creates value for our customers and/or accelerate development time lines or acquisitions that accelerate our growth. Third, we return excess cash to shareholders and look to do so efficiently. In Q2, we repurchased 2.2 million of our shares at an average price of $224 per share for a total expenditure of $500 million. Concurrent with today's earnings release, our Board of Directors have improved an increase to the share repurchase authorization to $3.5 billion.
And with that, I would like to turn it over to Brian, who will discuss clinical highlights and provide our updated outlook for 2022.