Tuning into the Bottom Line: Why QA/RA Professionals Should Listen to Earnings Calls

Learn to speak the language of business by listening to how senior executives speak.

If you want to learn how to speak the language of business, a good way to start is by listening to a public company’s earnings call with investors.

Chances are that you, as a QA/RA professional, find it challenging to effectively communicate the business impact of your work to senior executives.

One reason is that we just don’t speak the language of business when talking about our work. We talk about standards and regulations, specifications and non-conformances, audits findings and CAPAs. We talk about documentation - procedures and records - and obsess over dotting the i’s and crossing the t’s to avoid issues in audits and inspections. Sometimes, we talk about a business case for quality, or a quality culture, but only in vague terms and highly technical language.

While these aspects are important, they don't align with how senior executives discuss top-level business goals and performance, and identify priorities to allocate additional resources.

If you listen to how they present business results in an earnings call, you can get a good idea of the commitments they have made for the business, how they measure and report business results, and how they respond to questions. In just about an hour, you can get a good idea of top priorities and concerns to figure out how your work could contribute to them in a tangible, measurable way.

When you talk about your work in the language of business, you demonstrate good business acumen, which helps you gain recognition as a leader, not just a functional expert. By communicating with senior executives in a language they understand, you also gain more visibility and opportunities to effectively advocate for new initiatives to produce even more business results.

In this article, we share 5 lessons learned from a recent quarterly earnings call¹ of Intuitive Surgical, Inc., a leader in minimally invasive, robotically-assisted surgical systems.

Intuitive Surgical, Inc. - A brief introduction²

Intuitive Surgical, Inc. (NASDAQ: ISRG) is a global leader in minimally invasive robotic-assisted surgical systems and accessories. Better known for the da Vinci surgical system, first cleared by the FDA in 2000 for general laparoscopic surgery, and now in its 5th generation with da Vinci 5, the company also provides the Ion endoluminal system for lung biopsies, surgical instruments and accessories and professional services. In 2023, Intuitive Surgical reported an annual revenue of $7.12 billion, up 14% compared to the prior year. With a total installed base of more than 9100 systems, and 2.2 million procedures in 2023, Intuitive Surgical continues to be the dominant player in this market.

Figure 1: Intuitive da Vinci 5 system. Source: Intuitive Surgical Investor Presentation Q2 2024.

5 lessons from Intuitive Surgical Q2, 2024 earnings call:

Intuitive Surgical held its Q2 2024 earnings call with investors on July 18, 2024. The company reported 17% growth in procedures, generating a revenue of $2.01 billion, up 14% compared to Q2 of 2023, and pro-forma gross margin of 70%.

A total of 341 da Vinci systems, including 70 da Vinci 5 systems were placed in Q2, with a 2% increase in system utilization measure as the ratio of procedures to total installed systems.

Here are 5 lessons we can learn from the presentation by senior executives:

Lesson 1: Revenue growth is an important measure of performance, but only relative to expectations

Intuitive Surgical reported quarterly revenue growth of 14% compared to the same period last year, and a 17% growth in procedures.

At first glance, these results appear impressive. However, 2023 full year revenue was also up 14% compared to 2022, while procedure growth was at 22%. They placed 341 systems compared to an average quarterly number of 400+ based on 2023 results.

Does it mean business is slowing down compared to prior year? Investors are looking for improved performance, not just a positive growth rate.

The lesson for QA/RA professionals is that they should talk about results in the context of prior performance and expectations, and not in absolute terms. You should aim to communicate improved performance by comparing it to previous results and current expectations. No one gets promoted for only meeting expectations!

Lesson 2: New product innovation and commercial launch success is the main driver of revenue growth

Intuitive Surgical highlighted the launch of their da Vinci 5 system with 70 systems placed in Q2. They emphasized the positive feedback from customers in terms of improved precision, imaging capabilities, ergonomics and workflow integration. These benefits indicated gains in overall efficiency and reduction in “console time”.

The message to investors is that the new system will lead to better adoption and growth in procedures. Add to that a higher selling price, further adoption should continue to fuel revenue growth in future.

The lesson for QA/RA professionals is that they should focus on driving innovation and supporting commercial launch. This means finding creative solutions to the most pressing quality and regulatory issues during product launch and the initial post-market phase. When talking to senior executives, be prepared to quickly describe your contribution in clear and measurable terms that relate directly to launch targets.

Lesson 3: Gross margin reflects an organization’s ability to generate profit and invest in growth

Intuitive Surgical reported a gross margin of 70%, higher than prior period due to the following factors:

1. Lower inventory reserves;

2. Cost reduction in certain purchased components;

3. Lower freight rates; and

4. Leverage of fixed overhead.

Gross margin is the % of total revenue remaining after accounting for direct costs associated with the production of goods and services. As an example, a 70% gross margin indicates that for each dollar of revenue generated, 70 cents of profit is generated that can be used to pay for operational expenses and invest in future growth through R&D and capital investments.

Investors want to see a high rate of revenue growth, with a sustained high gross margin. Often, these are competing goals!

The lesson for QA/RA professionals is to help drive factors that increase or sustain the gross margin. Qualification of alternate suppliers without sacrificing quality and reliability, and improving productivity of key processes are examples of results that lead to better gross margins. When talking to senior executives, present your results in a way that helps them see how they contribute to operational efficiency.

Lesson 4: In a high-tech environment, a large body of clinical evidence is needed to build confidence and sustainable business results

In the 2023 annual report, Intuitive Surgical emphasized that over 3000 peer-reviewed articles were published in that year. During the Q2 earnings call, senior executives again highlighted a recent clinical study that demonstrated benefits of minimally invasive robotic-assisted surgery compared to open and laparoscopic procedures in treating rectal cancer.

Widespread adoption of robotic-assisted surgery across a broad range of surgical procedures is crucial for sustaining business growth. A large body of clinical evidence is needed to establish confidence in safety and effectiveness of these systems.

The lesson for QA/RA professionals is to find opportunities to collaborate with their clinical teams and help them generate this information. Using their technical and regulatory knowledge, QA/RA professionals can help inform the design and execution of clinical studies. When new and promising results are reported in the clinical literature, they can help develop new claims leading to new indications.

Lesson 5: Senior executives talk about top priorities differently

During the earnings call, senior executives outlined the following top priorities:

1. Supporting measured launch of da Vinci and other platforms by region;

2. Supporting surgeon adoption of focused procedures;

3. Continuing to improve product quality and margins; and

4. Improving productivity in functions that benefit from global scale.

Notice first, how clear and succinct these top priorities are. Second, they all relate to measurable business outcomes, either the top or bottom line, or to the organizational capabilities.

As QA/RA professionals, it is important to articulate a more direct link to these top level organizational priorities. If you are doing anything that does not relate to these priorities, you should stop and have a conversation with your functional management. A good practice is to align your personal goals with the organization’s business goals in measurable terms, and track progress throughout the year. Just like a quarterly earnings call, where senior executives present business results, you should review your own results even if there is no formal requirement. Make sure you stay focused and aligned on the current business priorities as they evolve during the year.

In Conclusion

An important part of business acumen is the ability to understand business goals and align our work directly with top priorities to help achieve these goals.

As QA/RA professionals, we play a key role in our organization’s success. However, we often struggle to clearly communicate the business impact of our work. We have to start speaking the language of business when communicating with senior executives. When they recognize our business impact, we also gain their support to drive new initiatives that will help build new capabilities and produce even better results.

An easy way to build this skill is by listening to how senior executives talk about business results in an earnings call with investors. In a very short period of time, they are able to clearly present results, discuss key factors that contribute to successes and failures, and outline top priorities to help achieve expected results in future.

Even if you work at a private company, which is not required to hold earnings calls with investors, you can gain valuable insights by listening to earnings calls of other public companies in your specific market.

Here are a few actions to consider

1. Identify 1-2 public companies in your medical specialty³ such as cardiovascular, orthopedic or radiology.

2. Go to the Investor Relations page on their website and look up Events and Presentations⁴.

3. You can then listen to a recording of their most recent earnings call, or plan to attend the next one on the calendar. You can also look up their annual reports or other SEC filings.

4. Take notes as you listen to the call, while also paying attention to the tone and communication style of senior executives. Listen to how they answer investor questions after the formal presentation.

5. Organize a lunch-and-learn with your colleagues to share your experience and insights. Discuss what your organization’s current priorities are and how your team’s objectives align with them. Do you have the right metrics to measure performance and compare them to expected business results? Are you on track? How would you communicate your results to senior executives during performance review meetings?

Remember, it takes time and practice to build your business acumen. You can start by actively listening to how senior executives talk about priorities and results.

1. Intuitive Surgical, Inc.: Q2 2024 Earnings Conference Call.

2. Note that we are using this example only for educational purposes. Let’s Talk Risk! has no affiliation with the company. All comments and recommendations are for educational purposes only, and should not be considered as regulatory or investment advice.

3. FDA has created 16 classification panels to classify medical devices, leading to 19 medical specialties. Find the medical specialty related to your device product code.

4. As an example, here is the Events and Presentation page for Intuitive Surgical.