Just saw the report on the New Employee Option Grants for April. The issuance of the options, themselves, is not particularly of concern....after all, they have to pay for them eventually. More importantly, however, is that they put on 50 New employees in the month of April...Going back to the previous month, they put on 46 New Employees in March. I wasn't able to pull up any previous reports prior to March, but if we assume 50 employees/month added to the payroll, that would be an additional 600 employees this year at this rate. Maybe not anything to worry about yet, but this company probably can't keep up this rate without adding some very serious expenses to the bottom line. It's just something we ought to be watching. It's easy for companies to put on employees when things are going well....perhaps more than they really need. Thirty years in business has convinced me that this can be a killer....to ANY business...
I understand your point but it does not apply in this case. Robotic surgery is in it infancy and they have been moving forcefully to solidify their first mover advantage in this lucrative market before competition arises.
This is why they were willing to continue to invest in building and training their sales force in the face of temporarily slowing demand. They could easily have cut back on hiring during the economic crisis to keep their EPS looking strong but this would have been a huge strategic blunder and very short sighted. Selling these systems and more importantly supporting the growing volume and variety of procedures requires a very educated sales force. The time and expense required to establish an equivalent sales force will be one of the most important barriers to entry by a competitor. Even if real competition arises from a well funded competitor, it will take them years to gain any significant market share, precisely because they will not be able to support such a high maintenance product. And I don't mean exclusively or even primarily technical maintenance.
ISRG made comments during the most recent CC that highlight the challenges they are facing i this area even with what appears to be a hiring spree. Even though it may look extravagant they are probably not hiring fast enough to support the growing volume and variety of procedures. Even if they hired faster it would still be a challenge to adequately train, absorb and supervise them. Managing the kind of growth they have sustained is no easy task.
Skeptics used to point to ISRG's reliance on prostatectomy as a sign that they were a niche player. It has never really been the case that daVinci was not valuable for a wider variety of procedures, it's just that they didn't feel they could adequately manage and support all of them at once, so they have stayed focused on growing a few at a time. When I get the time I will make a post about this including quotes from recent CCs to support what I am saying.
Look at the numbers, 30,000 options at $324 for 50 employees. That's 500 options per employee. They won't get exercised unless the price is over $324. Also, options vest in four years and last for 10. For a new employee to make $60,000 on their options, they have to stay with the company for four years and the price has to be $424 when they sell their shares. By then, I feel they will have earned it. Definitely not something for nothing.
I've always wondered how companies get fat to the point where they can lay off a bunch of employees to improve results, Usually, they can't. It's management they should be firing. For example, business starts turning down and the managers don't face the reality of the situation so they hold on to too many employees hoping the situation will turn around - think housing and automobiles where they keep building for months after people stop buying.
ISRG is still growing. To add 50 employees in April after adding 45 in March is pretty bullish. ISRG is very conservative. These employees are probably needed to support procedure growth in Europe, which has outstripped system growth and growth in Japan, where I suspect they have a chicken versus the egg situation. How can they buy machines if they don't have enough trained surgeons, how can they rain surgeons, if they don't have enough machines?