2021年5月10日、Surgical Instrument Service Company, Inc.(以下「SIS」)が、EndoWristのサービス、メンテナンス、および修理プロセスに関連する独占禁止法違反の申し立てを行った北カリフォルニア地区裁判所に苦情を提出しました。裁判所は、一部を認める部分的な棄却決定を下し、証拠開示が開始されました。会社は反トラストの主張を否定する回答を提出し、SISに対する反訴も提起しました。反訴は、SISが連邦ランハム法、カリフォルニアの不当競争法、カリフォルニアの虚偽広告法に違反したと主張し、またSISが不当競争および契約妨害で会社に対しても責任を負うと主張しています。当事者は、判決差し支えおよびダウバート動議を提出し、裁判所はこれらの動議について2023年9月7日に審理を行いました。
三 Companyに対してカリフォルニア州北地区裁判所に提訴された集団訴訟の申立書では、同社が製造した特定の機器のサービスと修理に関連する独占禁止法違反の主張が行われました。Larkin Community Hospitalによる申立書は2021年5月20日に、Franciscan Alliance, Inc.とKing County Public Hospital District No. 1による申立書は2021年7月6日に、そしてKaleida Healthによる申立書は2021年7月8日に提出されました。裁判所は、Franciscan Alliance, Inc.とKing County Public Hospital District No. 1、およびKaleida Healthの事件をLarkin Community Hospitalの事件と統合し、現在のLarkinの記録では「In Re: da Vinci Surgical Robot Antitrust Litigation」としてキャプションされています。早い段階で提訴された各原告を代表して一本化修正集団訴訟申立書が提出されました。2022年1月14日に、Kaleida Healthは自己をこの事件の当事者として自発的に取り下げました。2022年1月18日に、Companyはこの問題について原告に対する回答を提出し、証拠開示が開始されました。
On September 18, 2024, Restore Robotics Repairs (“Restore”) filed a complaint in the United States District Court for the Northern District of Florida alleging antitrust claims against the Company relating to the service and replacement of X/Xi EndoWrist instruments for use with the da Vinci X and Xi surgical systems. The Company has agreed to accept service of the complaint, and the parties agreed that Intuitive would have until December 9, 2024, to file a response. Based on currently available information, the Company is unable to make a reasonable estimate of loss or range of losses, if any, arising from this matter.
16
NOTE 9. STOCKHOLDERS’ EQUITY
Stockholders’ Equity
The following tables present the changes in stockholders’ equity (in millions):
Three Months Ended September 30, 2024
Common Stock
Additional Paid-In Capital
Retained Earnings
Accumulated Other Comprehensive Income (Loss)
Total Intuitive Surgical, Inc. Stockholders’ Equity
Noncontrolling Interest in Joint Venture
Total Stockholders’ Equity
Shares
Amount
Beginning balance
355.3
$
0.4
$
9,149.7
$
5,581.7
$
(23.5)
$
14,708.3
$
88.2
$
14,796.5
Issuance of common stock through employee stock plans
1.0
—
115.6
—
—
115.6
—
115.6
Shares withheld related to net share settlement of equity awards
(0.1)
—
(0.4)
(17.0)
—
(17.4)
—
(17.4)
Share-based compensation expense related to employee stock plans
—
—
175.3
—
—
175.3
—
175.3
Net income attributable to Intuitive Surgical, Inc.
—
—
—
565.1
—
565.1
—
565.1
Other comprehensive income
—
—
—
—
36.4
36.4
0.5
36.9
Net income attributable to noncontrolling interest in joint venture
—
—
—
—
—
—
5.5
5.5
Ending balance
356.2
$
0.4
$
9,440.2
$
6,129.8
$
12.9
$
15,583.3
$
94.2
$
15,677.5
Three Months Ended September 30, 2023
Common Stock
Additional Paid-In Capital
Retained Earnings
Accumulated Other Comprehensive Income (Loss)
Total Intuitive Surgical, Inc. Stockholders’ Equity
Noncontrolling Interest in Joint Venture
Total Stockholders’ Equity
Shares
Amount
Beginning balance
351.3
$
0.4
$
8,150.8
$
3,807.7
$
(79.8)
$
11,879.1
$
80.6
$
11,959.7
Issuance of common stock through employee stock plans
0.7
—
77.4
—
—
77.4
—
77.4
Shares withheld related to net share settlement of equity awards
—
—
(0.6)
(14.2)
—
(14.8)
—
(14.8)
Share-based compensation expense related to employee stock plans
—
—
158.3
—
—
158.3
—
158.3
Net income attributable to Intuitive Surgical, Inc.
—
—
—
415.7
—
415.7
—
415.7
Other comprehensive income (loss)
—
—
—
—
23.3
23.3
(0.2)
23.1
Net income attributable to noncontrolling interest in joint venture
—
—
—
—
—
—
4.1
4.1
Ending balance
352.0
$
0.4
$
8,385.9
$
4,209.2
$
(56.5)
$
12,539.0
$
84.5
$
12,623.5
17
Nine Months Ended September 30, 2024
Common Stock
Additional Paid-In Capital
Retained Earnings
Accumulated Other Comprehensive Income (Loss)
Total Intuitive Surgical, Inc. Stockholders’ Equity
Noncontrolling Interest in Joint Venture
Total Stockholders’ Equity
Shares
Amount
Beginning balance
352.3
$
0.4
$
8,576.4
$
4,743.0
$
(12.2)
$
13,307.6
$
89.7
$
13,397.3
Issuance of common stock through employee stock plans
4.6
—
367.5
—
—
367.5
—
367.5
Shares withheld related to net share settlement of equity awards
(0.7)
—
(7.4)
(250.1)
—
(257.5)
—
(257.5)
Share-based compensation expense related to employee stock plans
—
—
503.7
—
—
503.7
—
503.7
Net income attributable to Intuitive Surgical, Inc.
—
—
—
1,636.9
—
1,636.9
—
1,636.9
Other comprehensive income (loss)
—
—
—
—
25.1
25.1
(0.1)
25.0
Cash dividends declared and paid by joint venture
—
—
—
—
—
—
(8.0)
(8.0)
Net income attributable to noncontrolling interest in joint venture
—
—
—
—
—
—
12.6
12.6
Ending balance
356.2
$
0.4
$
9,440.2
$
6,129.8
$
12.9
$
15,583.3
$
94.2
$
15,677.5
Nine Months Ended September 30, 2023
Common Stock
Additional Paid-In Capital
Retained Earnings
Accumulated Other Comprehensive Income (Loss)
Total Intuitive Surgical, Inc. Stockholders’ Equity
Noncontrolling Interest in Joint Venture
Total Stockholders’ Equity
Shares
Amount
Beginning balance
350.0
$
0.4
$
7,703.9
$
3,500.1
$
(162.5)
$
11,041.9
$
70.7
$
11,112.6
Issuance of common stock through employee stock plans
4.1
—
252.2
—
—
252.2
—
252.2
Shares withheld related to net share settlement of equity awards
(0.6)
—
(6.9)
(148.5)
—
(155.4)
—
(155.4)
Share-based compensation expense related to employee stock plans
—
—
452.5
—
—
452.5
—
452.5
Repurchase and retirement of common stock
(1.5)
—
(15.8)
(334.2)
—
(350.0)
—
(350.0)
Net income attributable to Intuitive Surgical, Inc.
—
—
—
1,191.8
—
1,191.8
—
1,191.8
Other comprehensive income (loss)
—
—
—
—
106.0
106.0
(1.0)
105.0
Net income attributable to noncontrolling interest in joint venture
—
—
—
—
—
—
14.8
14.8
Ending balance
352.0
$
0.4
$
8,385.9
$
4,209.2
$
(56.5)
$
12,539.0
$
84.5
$
12,623.5
Stock Repurchase Program
The Company’s Board of Directors (the “Board”) has authorized an aggregate of $10.0 billion of funding for the Company’s common stock repurchase program (the “Repurchase Program”) since its establishment in March 2009. The most recent authorization occurred in July 2022, when the Board increased the authorized amount available under the Repurchase Program to $3.5 billion, including amounts remaining under previous authorization. As of September 30, 2024, the remaining amount of share repurchases authorized by the Board under the Repurchase Program was approximately $1.1 billion.
18
The following table summarizes stock repurchase activities (in millions, except per share amounts):
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
Shares repurchased
—
—
—
1.5
Average price per share
$
—
$
—
$
—
$
238.1
Value of shares repurchased
$
—
$
—
$
—
$
350.0
Accumulated Other Comprehensive Income (Loss), Net of Tax, Attributable to Intuitive Surgical, Inc.
The components of accumulated other comprehensive income (loss), net of tax, attributable to Intuitive Surgical, Inc. are as follows (in millions):
Three Months Ended September 30, 2024
Gains (Losses) on Hedge Instruments
Unrealized Gains (Losses) on Available-for-Sale Securities
Foreign Currency Translation Losses
Employee Benefit Plans
Total
Beginning balance
$
7.9
$
(28.4)
$
(3.5)
$
0.5
$
(23.5)
Other comprehensive income (loss) before reclassifications
(15.7)
59.5
(7.4)
—
36.4
Amounts reclassified from accumulated other comprehensive income (loss)
0.2
—
—
(0.2)
—
Net current-period other comprehensive income (loss)
(15.5)
59.5
(7.4)
(0.2)
36.4
Ending balance
$
(7.6)
$
31.1
$
(10.9)
$
0.3
$
12.9
Three Months Ended September 30, 2023
Gains on Hedge Instruments
Unrealized Losses on Available-for-Sale Securities
Foreign Currency Translation Gains
Employee Benefit Plans
Total
Beginning balance
$
5.6
$
(103.5)
$
16.9
$
1.2
$
(79.8)
Other comprehensive income (loss) before reclassifications
2.0
25.6
(6.6)
—
21.0
Amounts reclassified from accumulated other comprehensive income
2.3
—
—
—
2.3
Net current-period other comprehensive income (loss)
4.3
25.6
(6.6)
—
23.3
Ending balance
$
9.9
$
(77.9)
$
10.3
$
1.2
$
(56.5)
Nine Months Ended September 30, 2024
Losses on Hedge Instruments
Unrealized Gains (Losses) on Available-for-Sale Securities
Foreign Currency Translation Gains (Losses)
Employee Benefit Plans
Total
Beginning balance
$
(2.5)
$
(29.7)
$
19.4
$
0.6
$
(12.2)
Other comprehensive income (loss) before reclassifications
(10.5)
60.6
(30.3)
—
19.8
Amounts reclassified from accumulated other comprehensive income (loss)
5.4
0.2
—
(0.3)
5.3
Net current-period other comprehensive income (loss)
(5.1)
60.8
(30.3)
(0.3)
25.1
Ending balance
$
(7.6)
$
31.1
$
(10.9)
$
0.3
$
12.9
19
Nine Months Ended September 30, 2023
Gains (Losses) on Hedge Instruments
Unrealized Losses on Available-for-Sale Securities
Foreign Currency Translation Gains (Losses)
Employee Benefit Plans
Total
Beginning balance
$
(2.9)
$
(154.2)
$
(6.6)
$
1.2
$
(162.5)
Other comprehensive income before reclassifications
12.6
76.5
16.9
—
106.0
Amounts reclassified from accumulated other comprehensive income (loss)
0.2
(0.2)
—
—
—
Net current-period other comprehensive income
12.8
76.3
16.9
—
106.0
Ending balance
$
9.9
$
(77.9)
$
10.3
$
1.2
$
(56.5)
The tax impacts for amounts recognized in other comprehensive income before reclassifications were as follows (in millions):
Three Months Ended September 30,
Nine Months Ended September 30,
Available-for-sale securities
2024
2023
2024
2023
Income tax benefit (expense) for net gains (losses) recorded in other comprehensive income
$
(17.5)
$
(7.4)
$
(17.8)
$
(22.0)
The tax impacts for amounts recognized in other comprehensive income before reclassifications for hedge instruments, foreign currency translation gains (losses), and employee benefit plans for the three and nine months ended September 30, 2024, and 2023, were not material to the Company’s Financial Statements. The tax impacts for amounts reclassified from accumulated other comprehensive income (loss) relating to hedge instruments, available-for-sale securities, foreign currency translation gains (losses), and employee benefit plans for the three and nine months ended September 30, 2024, and 2023, were not material to the Company’s Financial Statements.
NOTE 10. SHARE-BASED COMPENSATION
In April 2024, the Company’s shareholders approved an amended and restated 2010 Incentive Award Plan to provide for an increase in the number of shares of common stock reserved for issuance thereunder from 110,350,000 to 115,350,000. As of September 30, 2024, approximately 20.6 million shares were reserved for future issuance under the Company’s stock plans, and a maximum of approximately 8.9 million of these shares can be awarded as restricted stock units (“RSUs”).
Restricted Stock Units
A summary of RSU activity under all stock plans for the nine months ended September 30, 2024, is presented as follows (in millions, except per share amounts):
Shares
Weighted-Average Grant-Date Fair Value
Unvested balance as of December 31, 2023
5.0
$
245.75
RSUs granted
2.4
$
390.22
RSUs vested
(1.8)
$
236.63
RSUs forfeited
(0.3)
$
282.86
Unvested balance as of September 30, 2024
5.3
$
311.73
20
Stock Options
A summary of stock option activity under all stock plans for the nine months ended September 30, 2024, is presented as follows (in millions, except per share amounts):
Stock Options Outstanding
Number Outstanding
Weighted-Average Exercise Price Per Share
Balance as of December 31, 2023
9.8
$
174.90
Options granted
—
$
—
Options exercised
(2.2)
$
117.26
Options forfeited or expired
(0.1)
$
255.85
Balance as of September 30, 2024
7.5
$
190.36
As of September 30, 2024, options to purchase an aggregate of 6.3 million shares of common stock were exercisable at a weighted-average price of $176.05 per share.
Performance Stock Units
In 2022, the Company began granting performance stock units (“PSUs”) to officers and other key employees subject to three-year cliff vesting and pre-established, quantitative goals. Whether any PSUs vest, and the amount that do vest, is tied to completion of service over three years and the achievement of three equally-weighted, quantitative goals that directly align with or help drive the Company’s strategy and long-term total shareholder return.
The 2022 PSU grant metrics are focused on relative total shareholder return (“TSR”), year-over-year da Vinci procedure growth for 2023, and two-year compound annual da Vinci procedure growth for 2024. The 2023 PSU grant metrics are focused on relative TSR, da Vinci and Ion procedure growth in 2024 compared to 2022, and da Vinci and Ion procedure growth in 2025 compared to 2022. The 2024 PSU grant metrics are focused on relative TSR, da Vinci and Ion procedure growth in 2025 compared to 2023, and da Vinci and Ion procedure growth in 2026 compared to 2023. The TSR metric is considered a market condition, and the expense is determined at the grant date. The procedure growth metrics are considered performance conditions, and the expense is recorded based on the forecasted performance, which is reassessed each reporting period based on the probability of achieving the performance conditions. The number of shares earned at the end of the three-year period will vary, based on actual performance, from 0% to 125% of the target number of PSUs granted. PSUs are subject to forfeiture if employment terminates prior to the vesting date. PSUs are not considered issued or outstanding shares of the Company.
The Company calculates the fair value for each component of the PSUs individually. The fair value for the component with the TSR metric was determined using a Monte Carlo simulation. The fair value per share for the components with the procedure growth metrics is equal to the closing stock price on the grant date.
A summary of PSU activity for the nine months ended September 30, 2024, is presented as follows (in millions, except per share amounts):
Shares
Weighted-Average Grant Date Fair Value Per Share
Unvested balance as of December 31, 2023
0.2
$
259.60
Granted
0.1
$
395.92
Vested
—
$
276.20
Performance change
—
$
290.33
Forfeited
—
$
294.75
Unvested balance as of September 30, 2024
0.3
$
306.94
Employee Stock Purchase Plan
Under the Employee Stock Purchase Plan (“ESPP”), employees purchased approximately 0.6 million shares for $114.9 million and approximately 0.5 million shares for $104.5 million during the nine months ended September 30, 2024, and 2023, respectively.
21
Share-Based Compensation Expense
The following table summarizes share-based compensation expense for the three and nine months ended September 30, 2024, and 2023 (in millions):
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
Cost of revenue – product (before capitalization)
$
27.5
$
24.7
$
75.7
$
70.4
Amounts capitalized into inventory
(25.6)
(23.2)
(70.7)
(63.1)
Amounts recognized in income for amounts previously capitalized in inventory
23.0
21.1
66.2
53.0
Cost of revenue – product
$
24.9
$
22.6
$
71.2
$
60.3
Cost of revenue – service
7.9
7.3
22.5
21.3
Total cost of revenue
32.8
29.9
93.7
81.6
Selling, general, and administrative
77.6
71.9
225.4
206.6
Research and development
65.4
55.3
188.7
157.7
Share-based compensation expense before income taxes
175.8
157.1
507.8
445.9
Income tax benefit
36.9
28.7
105.4
85.2
Share-based compensation expense after income taxes
$
138.9
$
128.4
$
402.4
$
360.7
The Black-Scholes-Merton option pricing model is used to estimate the fair value of stock options granted under the Company’s share-based compensation plans and the rights to acquire stock granted under the ESPP. The weighted-average estimated fair values of stock options and the rights to acquire stock under the ESPP, as well as the weighted-average assumptions used in calculating the fair values of stock options and the rights to acquire stock under the ESPP that were granted during the three and nine months ended September 30, 2024, and 2023, were as follows:
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
Stock Options
Risk-free interest rate
—
4.5%
—
4.6%
Expected term (in years)
—
2.9
—
3.2
Expected volatility
—
32%
—
33%
Fair value at grant date
—
$82.63
—
$77.41
ESPP
Risk-free interest rate
4.6%
5.2%
4.6%
5.0%
Expected term (in years)
1.2
1.2
1.2
1.2
Expected volatility
29%
31%
29%
33%
Fair value at grant date
$131.01
$98.96
$130.00
$89.42
NOTE 11. INCOME TAXES
Income tax expense for the three months ended September 30, 2024, was $100.4 million, or 15.0% of income before taxes, compared to $102.2 million, or 19.6% of income before taxes, for the three months ended September 30, 2023. Income tax expense for the nine months ended September 30, 2024, was $214.5 million, or 11.5% of income before taxes, compared to $236.4 million, or 16.4% of income before taxes, for the nine months ended September 30, 2023.
The effective tax rates for the three and nine months ended September 30, 2024, and 2023, differed from the U.S. federal statutory rate of 21% primarily due to the excess tax benefits associated with employee equity plans, the federal research and development credit benefit, and the effect of income earned by certain overseas entities being taxed at rates lower than the federal statutory rate, partially offset by U.S. tax on foreign earnings and state income taxes (net of the federal benefit).
The provision for income taxes for the three months ended September 30, 2024, and 2023, included excess tax benefits associated with employee equity plans of $42.2 million and $22.0 million, respectively, which reduced the Company’s effective tax rate by 6.3 and 4.2 percentage points, respectively. The provision for income taxes for the nine months ended September 30, 2024, and 2023, included excess tax benefits associated with employee equity plans of $189.0 million and $86.2 million, respectively, which reduced the Company’s effective tax rate by 10.1 and 6.0 percentage points, respectively.
22
The Company files federal, state, and foreign income tax returns in many jurisdictions in the U.S. and OUS. Years before 2017 are considered closed for significant jurisdictions. Certain of the Company’s unrecognized tax benefits could change due to activities of various tax authorities, including evolving interpretations of existing tax laws in the jurisdictions in which the Company operates, potential assessment of additional tax, possible settlement of audits, or through normal expiration of various statutes of limitations, which could affect the Company’s effective tax rate in the period in which they change. Due to the uncertainty related to the timing and potential outcome of audits, the Company cannot estimate the range of reasonably possible changes in unrecognized tax benefits that may occur in the next 12 months.
The Company is subject to the examination of its income tax returns by the Internal Revenue Service and other tax authorities. The outcome of these audits cannot be predicted with certainty. The Company’s management regularly assesses the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of the Company’s provision for income taxes. If any issues addressed in the Company’s tax audits are resolved in a manner not consistent with management’s expectations, the Company could be required to adjust its provision for income taxes in the period such resolution occurs.
NOTE 12. NET INCOME PER SHARE
The following table presents the computation of basic and diluted net income per share attributable to Intuitive Surgical, Inc. (in millions, except per share amounts):
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
Numerator:
Net income attributable to Intuitive Surgical, Inc.
$
565.1
$
415.7
$
1,636.9
$
1,191.8
Denominator:
Weighted-average shares outstanding used in basic calculation
355.8
351.7
354.8
351.0
Add: dilutive effect of potential common shares
6.9
6.5
6.6
6.1
Weighted-average shares outstanding used in diluted calculation
362.7
358.2
361.4
357.1
Net income per share attributable to Intuitive Surgical, Inc.:
Basic
$
1.59
$
1.18
$
4.61
$
3.40
Diluted
$
1.56
$
1.16
$
4.53
$
3.34
Share-based compensation awards of approximately 0.0 million and 1.4 million shares for the three months ended September 30, 2024, and 2023, respectively, and approximately 0.3 million and 1.9 million shares for the nine months ended September 30, 2024, and 2023, respectively, were outstanding but were not included in the computation of diluted net income per share attributable to Intuitive Surgical, Inc. common stockholders, because the effect of including such shares would have been anti-dilutive in the periods presented.
23
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management’s discussion and analysis of financial condition as of September 30, 2024, and results of operations for the three and nine months ended September 30, 2024, and 2023, should be read in conjunction with management’s discussion and analysis of financial condition and results of operations included in our Annual Report on Form 10-K for the year ended December 31, 2023.
This report contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements relate to expectations concerning matters that are not historical facts. Statements using words such as “estimates,” “projects,” “believes,” “anticipates,” “plans,” “expects,” “intends,” “may,” “will,” “could,” “should,” “would,” “targeted,” and similar words and expressions are intended to identify forward-looking statements. These forward-looking statements include, but are not limited to, statements related to future results of operations, future financial condition, the expected impacts of COVID-19 on our business, financial condition, and results of operations, our financing plans and future capital requirements, our potential tax assets or liabilities, and statements based on current expectations, estimates, forecasts, and projections about the economies and geographic markets in which we operate and our beliefs and assumptions regarding these economies and markets. These forward-looking statements are necessarily estimates reflecting the judgment of our management and involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements. These forward-looking statements should be considered in light of various important factors, including, but not limited to, the following: the overall macroeconomic environment, which may impact customer spending and our costs, including the levels of inflation and interest rates; the conflict in Ukraine; conflicts in the Middle East, including Israel and Iran; disruption to our supply chain, including difficulties in obtaining a sufficient supply of materials; curtailed or delayed capital spending by hospitals; the impact of global and regional economic and credit market conditions on healthcare spending; delays in obtaining new product approvals, clearances, or certifications from the United States (“U.S.”) Food and Drug Administration (“FDA”), comparable regulatory authorities, or notified bodies; the risk of our inability to comply with complex FDA and other regulations, which may result in significant enforcement actions; regulatory approvals, clearances, certifications, and restrictions or any dispute that may occur with any regulatory body; healthcare reform legislation in the U.S. and its impact on hospital spending, reimbursement, and fees levied on certain medical device revenues; changes in hospital admissions and actions by payers to limit or manage surgical procedures; the timing and success of product development and customer acceptance of developed products; the results of any collaborations, in-licensing arrangements, joint ventures, strategic alliances, or partnerships, including the joint venture with Shanghai Fosun Pharmaceutical (Group) Co., Ltd.; our completion of and ability to successfully integrate acquisitions; intellectual property positions and litigation; risks associated with our operations and any expansion outside of the U.S.; unanticipated manufacturing disruptions or the inability to meet demand for products; our reliance on sole- and single-sourced suppliers; the results of legal proceedings to which we are or may become a party; adverse publicity regarding us and the safety of our products and adequacy of training; the impact of changes to tax legislation, guidance, and interpretations; changes in tariffs, trade barriers, and regulatory requirements; and other risks and uncertainties, including those listed under the caption “Risk Factors.” Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report and which are based on current expectations and are subject to risks, uncertainties, and assumptions that are difficult to predict, including those risk factors described throughout this filing and identified under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023, as updated by our other filings with the Securities and Exchange Commission (“SEC”). Our actual results may differ materially and adversely from those expressed in any forward-looking statement, and we undertake no obligation to publicly update or release any revisions to these forward-looking statements, except as required by law.
Intuitive®, Intuitive Surgical®, da Vinci®, da Vinci S®, da Vinci Si®, da Vinci X®, da Vinci Xi®, da Vinci 5™, da Vinci SP®, Advanced Insights Suite™, Case Insights™, EndoWrist®, Firefly®, Insights Engine™, Intuitive Hub™, Intuitive Learning™, Ion®, My Intuitive™, SimNow®, and SureForm® are trademarks or registered trademarks of the Company.
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Overview
As part of our mission, we believe that minimally invasive care is life-enhancing care. We are committed to advancing minimally invasive care through a comprehensive ecosystem of products and services. This ecosystem includes systems, instruments and accessories, learning, and services connected by a digital portfolio that enables precision and control, seamless interactions and experiences, and meaningful insights to drive better care.
We bring nearly three decades of experience and technical innovation to our robotic-assisted surgical solutions. While surgery and acute interventions have improved significantly in the past few decades, there remains a significant need for better outcomes and decreased variability of these outcomes across care teams. The current healthcare environment continues to stress critical resources, including the professionals who staff care teams: surgeons, anesthesiologists, nurses, and other staff. At the same time, governments continue to strain to cover the healthcare needs of their populations and demand lower total cost per patient to treat disease. In the face of these challenges, we believe scientific and technological advances in biology, computing, imaging, algorithms, and robotics may offer new methods to solve continued and difficult problems.
We address our customers’ needs by sharing their goals reflected in the quintuple aim. First, we aim to improve patient outcomes through an ecosystem of advanced robotic systems, instruments and accessories, progressive technology learning pathways, and comprehensive support and program assistance services. Second, we aim to improve the patient experience by minimizing disruption to lives and creating greater predictability during procedures. Third, we aim to improve care team satisfaction by creating products and services that are dependable, smart, and optimized for the care environment in which they are used. Fourth, we aim to expand access to high-quality minimally invasive care and effectively address implementation barriers that are the causes of heath inequities. Finally, we aim to lower the total cost to treat per patient episode using our technology when compared with existing treatment alternatives, providing a return on investment for hospitals and healthcare systems and value for payers.
Open surgery remains a prevalent form of surgery and is used in almost every area of the body. However, the large incisions required for open surgery create trauma to patients, typically resulting in longer hospitalization and recovery times, increased hospitalization costs, and additional pain and suffering relative to minimally invasive surgery (“MIS”), where MIS is available. For over four decades, MIS has reduced trauma to patients by allowing selected surgeries to be performed through small ports rather than large incisions. MIS has been widely adopted for certain surgical procedures.
Da Vinci surgical systems enable surgeons to extend the benefits of MIS to many patients who would otherwise undergo a more invasive surgery by using computational, robotic, and imaging technologies to overcome many of the limitations of traditional open surgery or conventional MIS. Surgeons using a da Vinci surgical system operate while seated comfortably at a console viewing a 3D, high-definition image of the surgical field. This immersive console connects surgeons to the surgical field and their instruments. While seated at the console, the surgeon manipulates instrument controls in a natural manner, similar to open surgical technique. Our technology is designed to provide surgeons with a range of articulation of the surgical instruments used in the surgical field analogous to the motions of a human wrist, while filtering out the tremor inherent in a surgeon’s hand. In designing our products, we focus on making our technology easy and safe to use.
Our da Vinci products fall into five broad categories: da Vinci surgical systems, da Vinci instruments and accessories, da Vinci stapling, da Vinci energy, and da Vinci vision, including Firefly fluorescence imaging systems and da Vinci endoscopes. We provide a comprehensive suite of systems, learning, and services offerings. Digitally enabled for nearly three decades, these three offerings aim to decrease variability by providing dependable, consistent functionality and an integrated user experience. Our systems category includes robotic platforms, software, vision, energy, and instruments and accessories. Our learning category includes learning and enabling technology, such as simulation and telepresence as well as technical training programs and personalized peer-to-peer learning opportunities. We have a global network of field service engineers and distributors through which we deliver a suite of services, including installation, repair, maintenance, around-the-clock technical support, and system monitoring. We also offer customized analytics and consultation to hospitals for program optimization.
We have commercialized the following da Vinci surgical systems: the da Vinci standard surgical system in 1999, the da Vinci S surgical system in 2006, the da Vinci Si surgical system in 2009, the fourth-generation da Vinci Xi surgical system in 2014, and the fifth-generation da Vinci 5 surgical system in 2024. We extended our fourth-generation platform by adding the da Vinci X surgical system, commercialized in 2017, and the da Vinci SP surgical system, commercialized in 2018. The da Vinci SP surgical system accesses the body through a single incision, while the other da Vinci surgical systems access the body through multiple incisions. All da Vinci systems include a surgeon’s console (or consoles), imaging electronics, a patient-side cart, and computational hardware and software.
We are in the early stages of launching our da Vinci SP surgical system, and we have an installed base of 243 da Vinci SP surgical systems as of September 30, 2024. We have received FDA clearance for the da Vinci SP surgical system for urologic, general thoracoscopic, and certain transoral procedures. Additionally, the da Vinci SP surgical system has received regulatory clearance in South Korea for a broad set of procedures. The da Vinci SP surgical system has also received regulatory clearance in Japan for the same set of procedures that are currently allowed with the da Vinci Xi surgical system in Japan. In January
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2024, the da Vinci SP surgical system received European certification in accordance with Regulation (EU) 2017/745 of the European Parliament and of the Council of 5 April 2017 on medical devices (the “EU MDR”) for our da Vinci SP surgical system for use in endoscopic abdominopelvic, thoracoscopic, transoral otolaryngology, transanal colorectal, and breast surgical procedures, and we are commercializing the da Vinci SP surgical system in select major European countries throughout 2024 as part of a measured rollout strategy. In August 2024, we obtained regulatory clearance in Taiwan for our da Vinci SP surgical system for use in endoscopic abdominopelvic, thoracoscopic, transoral otolaryngology, transanal colorectal, transanal total mesorectal excision, and breast surgical procedures. We plan to seek FDA clearances for additional indications for the da Vinci SP surgical system and expand the system’s regulatory approvals (including for additional indications) in outside of the U.S. (“OUS”) markets over time. The success of the da Vinci SP surgical system is dependent on positive experiences and improved clinical outcomes for the procedures for which it has been cleared as well as securing additional clinical clearances.
In March 2024, we obtained FDA clearance for our da Vinci 5 surgical system, our next-generation multi-port robotic system, for use in all surgical specialties and procedures indicated for da Vinci Xi, except for cardiac and pediatric indications. In October 2024, we obtained regulatory clearance in South Korea for the da Vinci 5 system for use in in urologic, general, gynecologic, thoracoscopic, thoracoscopically-assisted cardiotomy, and transoral otolaryngology surgical procedures. We are in the early stages of launching da Vinci 5, and we have an installed base of 188 da Vinci 5 surgical systems as of September 30, 2024. We are in the midst of a phased launch over several quarters, giving us time to mature our supply and manufacturing processes for the new system. Additionally, we are in the regulatory process in Japan and Europe for da Vinci 5.
We offer approximately 70 different multi-port da Vinci instruments to provide surgeons with flexibility in choosing the types of tools needed to perform a particular surgery. These multi-port instruments are generally robotically controlled and provide end effectors (tips) that are similar to those used in either open or laparoscopic surgery. We offer advanced instrumentation for the da Vinci X, da Vinci Xi, and da Vinci 5 surgical systems, including da Vinci energy and da Vinci stapler products, to provide surgeons with sophisticated, computer-aided tools to precisely and efficiently interact with tissue. The da Vinci X, da Vinci Xi, and da Vinci 5 surgical systems generally share the same instruments, whereas the da Vinci Si surgical system uses instruments that are not compatible with the da Vinci X, da Vinci Xi, or da Vinci 5 systems. Additionally, we have introduced a unique set of force feedback instruments that are only compatible with our da Vinci 5 surgical system. We also currently offer nine core instruments on our da Vinci SP surgical system. We plan to expand the da Vinci SP instrument offering over time.
Our learning and enabling technology offerings facilitate access to education and training on our products. Our enabling technologies include telepresence and Advanced Insights Suite (which includes Case Insights and Insights Engine), and our learning technology solutions include Intuitive Learning, SimNow, customized training models, remote case observations, and remote proctoring.
In 2019, we commercialized our Ion endoluminal system, which is a flexible, robotic-assisted, catheter-based platform that utilizes instruments and accessories for which the first cleared indication is minimally invasive biopsies in the lung. Our Ion system extends our commercial offering beyond surgery into diagnostic, endoluminal procedures. The system features an ultra-thin, ultra-maneuverable catheter that can articulate 180 degrees in all directions and allows navigation far into the peripheral lung and provides the stability necessary for precision in a biopsy. Many suspicious lesions found in the lung may be small and difficult to access, which can make diagnosis challenging, and Ion helps physicians obtain tissue samples from deep within the lung, which could help enable earlier diagnosis. Our Ion endoluminal system has received FDA clearance, and regulatory clearances OUS include European certification in accordance with the EU MDR, regulatory clearance in South Korea, and National Medical Products Administration (“NMPA”) regulatory clearance in China. We plan to seek additional clearances, approvals, and certifications for the Ion endoluminal system in OUS markets over time.
The success of new product introductions depends on a number of factors including, but not limited to, pricing, competition, geographic market and consumer acceptance, the effective forecasting and management of product demand, inventory levels, the management of manufacturing and supply costs, and the risk that new products may have quality or other defects in the early stages of introduction.
Macroeconomic Environment
Uncertainty surrounding macroeconomic and geopolitical factors in the U.S. and globally characterized by the supply chain environment, inflationary pressure, elevated interest rates, disruptions in the commodities’ markets as a result of the conflict between Russia and Ukraine and conflicts in the Middle East, including Israel and Iran, and the introduction of or changes in tariffs or trade barriers may result in a recession, which could have a material adverse effect on our business.
Supply chain constraints have generally improved to pre-COVID-19 pandemic levels, with some isolated residual stresses, particularly for engineered raw materials and at certain subcontract suppliers that are operationally challenged to meet our production requirements. These isolated instances of supply chain constraints have not had a material impact during the first nine months of 2024. Additionally, prices of materials for some components remain elevated from historical levels due to strong market demand or supply chain cost inflation. With elevated interest rates, access to credit is more difficult, and any
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insolvency of certain suppliers, including sole- and single-sourced suppliers, may have heightened continuity risks. Incidents of cybersecurity breaches, which have not significantly impacted our supply chain to date, also remain an active threat to sustained supply continuity. We are actively engaged in activities that seek to mitigate the impact of any supply chain risks and disruptions on our operations.
A number of hospitals continue to experience challenges with staffing and cost pressures that could affect their ability to provide patient care. Additionally, hospitals are facing significant financial pressure as supply chain constraints and inflation have driven up operating costs and elevated interest rates have made access to credit more expensive. Hospitals may also be adversely affected by the liquidity concerns as a result of the broader macroeconomic environment. Any or all of these factors could negatively impact the number of da Vinci procedures performed or surgical systems placed and have a material adverse effect on our business, financial condition, or results of operations.
COVID-19 Pandemic
COVID-19 has had a negative impact on our procedure volumes during periods with COVID-19 outbreaks due to patient delays in both the diagnosis and treatment of diseases. While such delays have negatively impacted our procedure volumes in periods with COVID-19 outbreaks, we believe that these delays have also resulted in increased procedure volumes during those periods following such outbreaks, due to the creation of patient treatment backlogs.
In January 2023, COVID-19 resurgences in China negatively impacted our procedure volumes in the region. However, as infections and hospitalization decreased in February 2023 and March 2023, our procedure volumes recovered. We did not experience significant procedure volume disruptions due to COVID-19 outbreaks in any of our geographic markets during the remainder of 2023. Instead, throughout 2023, we saw a positive impact on procedure volumes and believe that such positive impacts were partially attributable to patients who had deferred treatment returning for diagnosis and treatment.
During the first nine months of 2024, we did not experience noticeable procedure volume disruptions due to COVID-19. We also believe that a large portion of the patients in the backlog that required treatment during the COVID-19 pandemic have now been treated. Therefore, we expect that the impact of patient backlogs has been, and will continue to be, less significant on procedure volumes in 2024 than in the prior year.
Business Model
Overview
We generate up-front revenue from the placement of da Vinci systems through sales or sales-type lease arrangements and recurring revenue over time through fixed-payment or usage-based operating lease arrangements. We also earn recurring revenue from the sales of instruments, accessories, and services.
The da Vinci surgical system generally sells for between $0.7 million and $3.1 million, depending on the model, configuration, and geography, and represents a significant capital equipment investment for our customers when purchased. Our instruments and accessories have limited lives and will either expire or wear out as they are used in surgery, at which point they need to be replaced. We generally earn between $800 and $3,600 of instruments and accessories revenue per surgical procedure performed, depending on the type and complexity of the specific procedures performed and the number and type of instruments used. We typically enter into service contracts at the time systems are sold or leased at an annual fee between $80,000 and $225,000, depending on the configuration of the underlying system and the composition of the services offered under the contract. Our system sale arrangements generally include a five-year period of service, with the first year of service provided for free. These service contracts have generally been renewed at the end of the initial contractual service periods.
We generate revenue from our Ion endoluminal system in a business model consistent with the da Vinci surgical system model described above. We generate up-front revenue from the placement of Ion systems through sales or sales-type lease arrangements and recurring revenue over time through fixed-payment or usage-based operating lease arrangements. We also earn recurring revenue from the sales of instruments, accessories, and services. The Ion endoluminal system generally sells for between $500,000 and $815,000. Our instruments and accessories have limited lives and will either expire or wear out as they are used in procedures, at which point they need to be replaced. We typically enter into service contracts at the time systems are sold or leased at an annual fee between $55,000 and $80,000.
Additionally, as part of our ecosystem of products and services, we provide a portfolio of learning offerings and digital solutions. We do not currently generate material revenue from these offerings.
Recurring Revenue
Recurring revenue consists of instruments and accessories revenue, service revenue, and operating lease revenue. Recurring revenue increased to $5.94 billion, or 83% of total revenue in 2023, compared to $4.92 billion, or 79% of total revenue in 2022, and $4.3 billion, or 75% of total revenue in 2021.
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Instruments and accessories revenue has grown at a faster rate than systems revenue over time. Instruments and accessories revenue increased to $4.28 billion in 2023, compared to $3.52 billion in 2022 and $3.10 billion in 2021. The increase in instruments and accessories revenue largely reflects continued procedure adoption.
Service revenue was $1.17 billion in 2023, compared to $1.02 billion in 2022 and $0.92 billion in 2021. The increase in service revenue was primarily driven by the growth of the base of installed da Vinci surgical systems producing service revenue. The installed base of da Vinci surgical systems grew 14% to approximately 8,606 as of December 31, 2023; 12% to approximately 7,544 as of December 31, 2022; and 12% to approximately 6,730 as of December 31, 2021.
We use the installed base, number of placements, and utilization of systems as metrics for financial and operational decision-making and as a means to evaluate period-to-period comparisons. Management believes that the installed base, number of placements, and utilization of systems provide meaningful supplemental information regarding our performance, as management believes that the installed base, number of placements, and utilization of systems are indicators of the rate of adoption of our robotic-assisted medical procedures as well as an indicator of future recurring revenue. Management believes that both it and investors benefit from referring to the installed base, number of placements, and utilization of systems in assessing our performance and when planning, forecasting, and analyzing future periods. The installed base, number of placements, and utilization of systems also facilitate management’s internal comparisons of our historical performance. We believe that the installed base, number of placements, and utilization of systems are useful to investors as metrics, because (1) they allow for greater transparency with respect to key metrics used by management in its financial and operational decision-making, and (2) they are used by institutional investors and the analyst community to help them analyze the performance of our business. The vast majority of our installed systems are connected via the internet. System logs can also be accessed by field engineers for systems that are not connected to the internet. We utilize this information as well as other information from agreements and discussions with our customers that involve estimates and judgments, which are, by their nature, subject to substantial uncertainties and assumptions. Estimates and judgments for determining the installed base, number of placements, and utilization of systems may be impacted over time by various factors, including system internet connectivity, hospital and distributor reporting behavior, and inherent complexities in new agreements. Such estimates and judgments are also susceptible to technical errors. In addition, the relationship between the installed base, number of placements, and utilization of systems and our revenues may fluctuate from period to period, and growth in the installed base, number of placements, and utilization of systems may not correspond to an increase in revenue. The installed base, number of placements, and utilization of systems are not intended to be considered in isolation or as a substitute for, or superior to, revenue or other financial information prepared and presented in accordance with U.S. generally accepted accounting principles (“GAAP”).
Intuitive System Leasing
Since 2013, we have entered into sales-type and fixed-payment operating lease arrangements directly with certain qualified customers as a way to offer customers flexibility in how they acquire systems and expand their robotic-assisted programs while leveraging our balance sheet. These leases generally have commercially competitive terms as compared to other third-party entities that offer equipment leasing. More recently, we have also entered into usage-based operating lease arrangements with qualified customers that have committed da Vinci programs where we charge for the system and service as the systems are utilized. We believe that all of these alternative financing structures have been effective and well-received, and we are willing to expand the proportion of any of these structures based on customer demand. We include systems placed under fixed-payment and usage-based operating lease arrangements, as well as sales-type lease arrangements, in our system placement and installed base disclosures. We exclude operating lease-related revenue, including usage-based revenue, and Ion system revenue from our da Vinci surgical system average selling price (“ASP”) computations.
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The following table summarizes our system placements under leasing arrangements for the years ended December 31, 2023, 2022, and 2021:
Year Ended December 31,
2023
2022
2021
Da Vinci System Placements Under Leasing Arrangements
Fixed-payment operating lease arrangements
304
276
333
Usage-based operating lease arrangements
355
216
184
Total da Vinci system placements under operating lease arrangements
659
492
517
% of Total da Vinci system placements
48
%
39
%
38
%
Sales-type lease arrangements
45
99
151
Total da Vinci system placements under leasing arrangements
704
591
668
Ion System Placements Under Leasing Arrangements
Fixed-payment operating lease arrangements
63
61
43
Usage-based operating lease arrangements
54
40
7
Total Ion system placements under operating lease arrangements
117
101
50
% of Total Ion system placements
55
%
53
%
54
%
Sales-type lease arrangements
5
11
7
Total Ion system placements under leasing arrangements
122
112
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Revenue from fixed-payment operating lease arrangements is recognized on a straight-line basis over the lease term, and revenue from usage-based operating lease arrangements is recognized as the systems are used. We generally set fixed-payment and usage-based operating lease arrangements’ pricing at a modest premium relative to purchased systems reflecting the time value of money and, in the case of usage-based operating lease arrangements, the risk that system utilization may fall short of anticipated levels. Variable lease revenue recognized from usage-based operating lease arrangements has been included in our operating lease metrics herein. Operating lease revenue has grown at a faster rate than overall systems revenue and was $501 million, $377 million, and $277 million for the years ended December 31, 2023, 2022, and 2021, respectively, of which $217 million, $133 million, and $78 million, respectively, was variable lease revenue related to our usage-based operating lease arrangements. As revenue for fixed-payment and usage-based operating lease arrangements is recognized over time, total systems revenue growth is reduced in a period when the number of operating lease placements increases as a proportion of total system placements. Generally, lease transactions generate similar gross margins as our sale transactions.
The following table summarizes our systems installed at customers under operating leasing arrangements for the years ended December 31, 2023, 2022, and 2021:
Year Ended December 31,
2023
2022
2021
Da Vinci System Installed Base under Operating Leasing Arrangements
Fixed-payment operating lease arrangements
1,204
1,018
841
Usage-based operating lease arrangements
1,023
665
453
Total da Vinci system installed base under operating lease arrangements
2,227
1,683
1,294
Ion System Installed Base under Operating Leasing Arrangements
Fixed-payment operating lease arrangements
96
72
50
Usage-based operating lease arrangements
118
60
11
Total Ion system installed base under operating lease arrangements
214
132
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Our exposure to the credit risks relating to our lease financing arrangements may increase if our customers are adversely affected by economic pressures or uncertainty, changes in healthcare laws, coverage and reimbursement, or other customer-specific factors. As a result of these macroeconomic factors impacting our customers, we may be exposed to defaults under our lease financing arrangements. Moreover, usage-based operating lease arrangements generally contain no minimum payments; therefore, customers may exit such arrangements without paying a financial penalty to us.
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For some operating lease arrangements, our customers are provided with the right to purchase the leased system at certain points during and/or at the end of the lease term. Revenue generated from customer purchases of systems under operating lease arrangements (“Lease Buyouts”) was $74 million, $72 million, and $96 million for the years ended December 31, 2023, 2022, and 2021, respectively. We expect that revenue recognized from customer exercises of buyout options will fluctuate based on the timing of when, and if, customers choose to exercise their buyout options.
Systems Revenue
System placements are driven by procedure growth in most geographic markets. In some markets, system placements are constrained by regulation. In geographies where da Vinci procedure adoption is in an early stage or system placements are constrained by regulation, system sales will precede procedure growth. System placements also vary due to seasonality, largely aligned with hospital budgeting cycles. On an annual basis, we typically place a higher proportion of systems in the fourth quarter and a lower proportion in the first quarter as many customer budgets are reset. Systems revenue is also affected by the proportion of system placements under operating lease arrangements, recurring fixed-payment and usage-based operating lease revenue, Lease Buyouts, product mix, ASPs, trade-in activities, customer mix, and specified-price trade-in rights. We generally do not provide specified-price trade-in rights or upgrade rights at the time of a system purchase; however, we expect that the number of arrangements that may contain these specified-price trade-in rights will increase as we continue the phased launch of our next-generation multi-port platform, da Vinci 5. Systems revenue remained flat at $1.68 billion in 2023. Systems revenue declined 1% to $1.68 billion in 2022. Systems revenue grew 44% to $1.69 billion in 2021.
Procedure Mix / Products
Our da Vinci surgical systems are generally used for soft tissue surgery for areas of the body between the pelvis and the neck, primarily in general, gynecologic, urologic, cardiothoracic, and head and neck surgical procedures. Within these categories, procedures range in complexity from cancer and other highly complex procedures to less complex procedures for benign conditions. Cancer and other highly complex procedures tend to be reimbursed at higher rates than less complex procedures for benign conditions. Thus, hospitals are more sensitive to the costs associated with treating less complex, benign conditions. Our strategy is to provide hospitals with attractive clinical and economical solutions across the spectrum of procedure complexity. Our fully featured da Vinci Xi and da Vinci 5 surgical systems with advanced instruments (including da Vinci energy and da Vinci stapler products) and our Integrated Table Motion product target the more complex procedure segment. Our da Vinci X surgical system is targeted toward price-sensitive geographic markets and procedures. Our da Vinci SP surgical system complements the da Vinci X, da Vinci Xi, and da Vinci 5 surgical systems by enabling surgeons to access narrow workspaces.
Procedure Seasonality
More than half of the da Vinci procedures performed are for benign conditions, most notably hernia repairs, hysterectomies, and cholecystectomies. These benign procedures and other short-term elective procedures tend to be more seasonal than cancer operations and surgeries for other life-threatening conditions. Seasonality in the U.S. for procedures for benign conditions typically results in higher fourth quarter procedure volume when more patients have met annual deductibles and lower first quarter procedure volume when deductibles are reset. Seasonality outside of the U.S. varies and is more pronounced around local holidays and vacation periods, which have lower procedure volume.
Distribution Channels
We provide our products through direct sales organizations in the U.S., Europe (excluding Italy, Spain, Portugal, Greece, and Eastern European countries), China (through our majority-owned joint ventures, Intuitive Surgical-Fosun Medical Technology (Shanghai) Co., Ltd. and Intuitive Surgical-Fosun (HongKong) Co., Ltd. (collectively, the “Joint Venture”), with Shanghai Fosun Pharmaceutical (Group) Co., Ltd. (“Fosun Pharma”)), Japan, South Korea, India, Taiwan, and Canada. In the remainder of our OUS markets, we provide our products through distributors.
Regulatory Activities
Overview
Our products must meet the requirements of a large and growing body of international standards that govern the product safety, efficacy, advertising, labeling, safety reporting design, manufacture, materials content and sourcing, testing, certification, packaging, installation, use, and disposal of our products. Examples of such standards include electrical safety standards, such as those of the International Electrotechnical Commission, and composition standards, such as the Reduction of Hazardous Substances and the Waste Electrical and Electronic Equipment Directives in the European Union (“EU”). Failure to meet these standards could limit our ability to market our products in those regions that require compliance with such standards.
Our products and operations are also subject to increasingly stringent medical device, privacy, and other regulations by regional, federal, state, and local authorities. After a device is placed on the market, numerous FDA and comparable foreign
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regulatory requirements continue to apply. These requirements include establishment registration and device listing with the FDA or other foreign regulatory authorities and compliance with medical device reporting regulations, which require that manufacturers report to the FDA or other foreign regulatory authorities if their device caused or contributed, or may have caused or contributed, to a death or serious injury or malfunctioned in a way that would likely cause or contribute to a death or serious injury if it were to recur.
We anticipate that timelines for the introduction of new products and/or indications may be extended relative to past experience as a result of these regulations. For example, we have seen elongated regulatory approval timelines in the U.S. and Europe.
Clearances, Approvals, and Certifications
We have generally obtained the regulatory clearances, approvals, and certifications required to market our products associated with our da Vinci multi-port surgical systems (da Vinci S, da Vinci Si, da Vinci Xi, da Vinci X, and da Vinci 5 systems) for our targeted surgical specialties within the U.S., South Korea, Japan, and the European markets in which we operate. We have additionally obtained regulatory clearances, approvals, and certifications for the following products over the past several years:
•In October 2024, we obtained regulatory clearance in South Korea for our da Vinci 5 surgical system, our next-generation multi-port robotic system, for use in urologic, general, gynecologic, thoracoscopic, thoracoscopically-assisted cardiotomy, and transoral otolaryngology surgical procedures. In March 2024, we obtained FDA clearance for our da Vinci 5 surgical system for use in all surgical specialties and procedures indicated for da Vinci Xi, except for cardiac and pediatric indications as well as one contraindication related to the use of force feedback in hysterectomy and myomectomy surgical procedures. Da Vinci 5 was made available to customers in the U.S. who had collaborated with us during the development period and those with mature robotic surgery programs. We will continue working with surgeons to generate additional data on the system’s use and on expansion of our manufacturing and supply capacity before a wider commercial introduction.
•In September 2024, we obtained FDA clearance for our redesigned 8 mm SureForm 30 Stapler and 8 mm SureForm 30 Curved-Tip Stapler instruments and reloads for use in general, thoracic, gynecologic, urologic, and pediatric surgical procedures. In April 2024, we obtained European certification in accordance with the EU MDR for our redesigned 8 mm SureForm 30 Stapler and 8 mm SureForm 30 Curved-Tip Stapler instruments and reloads for use in general, thoracic, gynecologic, urologic, and pediatric surgical procedures.
•In August 2024, we obtained regulatory clearance in Taiwan for our da Vinci SP surgical system for use in endoscopic abdominopelvic, thoracoscopic, transoral otolaryngology, transanal colorectal, transanal total mesorectal excision, and breast surgical procedures. In January 2024, we obtained European certification in accordance with the EU MDR for our da Vinci SP surgical system for use in endoscopic abdominopelvic, thoracoscopic, transoral otolaryngology, transanal colorectal, and breast surgical procedures. We are commercializing the da Vinci SP surgical system in select major European countries throughout 2024 as part of a measured rollout strategy. During the third quarter of 2024, we placed 7 da Vinci SP systems in Europe. In September 2022, we obtained regulatory clearance for our da Vinci SP surgical system in Japan for use in general, thoracic (excluding cardiac procedures and intercostal approaches), urologic, gynecologic, and transoral head and neck surgical procedures.
•In July 2024, we obtained FDA clearance for the use of our da Vinci SP surgical system in general thoracoscopic surgical procedures. In April 2023, we obtained FDA clearance for the use of our da Vinci SP surgical system in simple prostatectomy procedures. We also obtained FDA clearance for the use of our da Vinci SP surgical system in transvesical approaches to simple and radical prostatectomy.
•In April 2024, we obtained FDA clearance to extend the number of uses of our catheter instrument used with our Ion endoluminal system from five to eight uses.
•In March 2024, we received NMPA regulatory clearance for our Ion endoluminal system in China. We placed our first Ion systems in China during the third quarter of 2024 and will continue our rollout of the Ion system in China in a measured fashion while we optimize training pathways and collect additional clinical data. In September 2023, we received regulatory clearance in South Korea for our Ion endoluminal system. We expect the introduction of the Ion system in South Korea to follow the refinement of our training pathways in the region and the gathering of local clinical and economic data. In March 2023, we obtained European certification in accordance with the EU MDR for our Ion endoluminal system. In Europe, we are seeing continued progress in our commercialization in the United Kingdom (“UK”) and are beginning to place Ion systems in continental Europe with a similar approach of initially focusing on the collection of clinical data in support of our European reimbursement strategy.
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•In August 2023, following approval by China’s NMPA for a local version of our da Vinci Xi surgical system in June 2023, our Intuitive-Fosun Pharma Joint Venture received a manufacturing license that permits the Joint Venture to manufacture our da Vinci Xi surgical system for sale to customers in China.
•In July 2023, we received regulatory clearance for our E-200 generator in Japan and South Korea. In November 2022, we obtained FDA clearance for our E-200 generator. The E-200 generator can be used in da Vinci robotic procedures, as well as non-robotic open and laparoscopic procedures, to deliver high-frequency energy for cutting, coagulation, and vessel sealing of tissues. The E-200 generator includes the same advanced energy capability as the E-100 generator and supports the same vessel sealing instruments.
•In March 2022, we received regulatory clearance in China to market our da Vinci Endoscope Plus. We have also received regulatory clearances in Japan and South Korea to market our da Vinci Endoscope Plus in May 2020 and December 2019, respectively. In July 2019, we obtained FDA clearance for our da Vinci Endoscope Plus, and in June 2019, we obtained European certification for our da Vinci Endoscope Plus for the da Vinci Xi and da Vinci X surgical systems.
•In February 2022, we received regulatory clearance in China to market both our 12 mm SureForm 45 Stapler and SureForm 60 Stapler and corresponding reloads.
•In January 2022, we received regulatory clearance in China to market our da Vinci Vessel Sealer Extend with up to 7 mm vascular indications.
Refer to the descriptions of our new products that received regulatory clearances, approvals, or certifications in 2024, 2023, and 2022 in the Recent Product Introductions section below.
In June 2023, the China National Health Commission published the 14th five-year plan quota for major medical equipment to be sold in China on its official website (the “2023 Quota”). Under the 2023 Quota, the government will allow for the sale of 559 new surgical robots into China, which could include da Vinci surgical systems as well as surgical systems introduced by others. As of September 30, 2024, including systems that were sold in prior quarters, we have placed 103 da Vinci surgical systems under the 2023 Quota. Future sales of da Vinci surgical systems under this and any previously published open quotas are uncertain, as they are open to other medical device companies that have introduced robotic-assisted surgical systems and are dependent on hospitals completing a tender process and receiving associated approvals. Our ability to track the number of systems that could be sold under these quotas in the future is limited by provincial and national agencies making such information publicly available.
Since 2022, several provinces in China have implemented significant limits on what hospitals can charge patients for surgeries using robotic surgical technology, including soft tissue surgery and orthopedics. These limits have significantly impacted the number of procedures performed and have impacted our instruments and accessories revenue in those provinces. However, as of the date of this report, these limits have not had a material impact on our business, financial condition, or results of operations, as only a small portion of our installed base in China is currently located in the impacted provinces. Companies providing robotic surgical technology, including our Joint Venture in China, have been meeting with Chinese government healthcare agencies to discuss these developments and to provide feedback. We cannot assure you that additional provincial or national healthcare agencies and administrations will not impose similar limits, and we expect to continue to face increased pricing pressure, both of which could further impact the number of procedures performed and our instruments and accessories revenue in China.
The Japanese Ministry of Health, Labor, and Welfare (“MHLW”) considers reimbursement for procedures in April of even-numbered years. The process for obtaining reimbursement requires Japanese university hospitals and surgical societies, with our support, to seek reimbursement. There are multiple pathways to obtain reimbursement for procedures, including those that require in-country clinical and economic data. An additional five da Vinci procedures were granted reimbursement in April 2024, including lobectomy for benign conditions. In addition, we received higher reimbursement for certain da Vinci rectal resection procedures, as compared to open procedure reimbursements. The additional reimbursed procedures have varying levels of conventional laparoscopic penetration and will generally be reimbursed at rates equal to the conventional laparoscopic procedures. Given the reimbursement level and laparoscopic penetration for these additional procedures, there can be no assurance that the adoption pace for these procedures will be similar to prostatectomy or partial nephrectomy, given their higher reimbursement, or any other da Vinci procedure.
Recalls and Corrections
Medical device companies have regulatory obligations to correct or remove medical devices in the field that could pose a risk to health. The definition of “recalls and corrections” is expansive and includes repair, replacement, inspections, relabeling, and issuance of new or additional instructions for use or reinforcement of existing instructions for use and training when such actions are taken for specific reasons of safety or compliance. These field actions require stringent documentation, reporting,
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and monitoring worldwide. There are other actions that a medical device manufacturer may take in the field without reporting including, but not limited to, routine servicing and stock rotations.
As we determine whether a field action is reportable in any regulatory jurisdiction, we prepare and submit notifications to the appropriate regulatory agency for the particular jurisdiction. Regulators can require the expansion, reclassification, or change in scope and language of the field action. In general, upon submitting required notifications to regulators regarding a field action that is a recall or correction, we will notify customers regarding the field action, provide any additional documentation required in their national language, and arrange, as required, the return or replacement of the affected product or a field service visit to perform the correction.
Field actions, as well as certain outcomes from regulatory activities, can result in adverse effects on our business, including damage to our reputation, delays by customers of purchase decisions, reduction or stoppage of the use of installed systems, and reduced revenue as well as increased expenses.
Procedures
We model patient value as equal to procedure efficacy / invasiveness. In this equation, procedure efficacy is defined as a measure of the success of the procedure in resolving the underlying disease, and invasiveness is defined as a measure of patient pain and disruption of regular activities. When the patient value of a robotic-assisted procedure is greater than that of alternative treatment options, patients may benefit from seeking out surgeons or physicians and hospitals that offer robotic-assisted medical procedures, which could potentially result in a local market share shift. Adoption of robotic-assisted procedures occurs by procedure and by market and is driven by the relative patient value and total treatment costs of robotic-assisted procedures as compared to alternative treatment options for the same disease state or condition.
We use the number and type of procedures as metrics for financial and operational decision-making and as a means to evaluate period-to-period comparisons. Management believes that the number and type of procedures provide meaningful supplemental information regarding our performance, as management believes procedure volume is an indicator of the rate of adoption of our robotic-assisted medical procedures as well as an indicator of future revenue (including revenue from usage-based operating lease arrangements). Management believes that both it and investors benefit from referring to the number and type of procedures in assessing our performance and when planning, forecasting, and analyzing future periods. The number and type of procedures also facilitate management’s internal comparisons of our historical performance. We believe that the number and type of procedures are useful to investors as metrics, because (1) they allow for greater transparency with respect to key metrics used by management in its financial and operational decision-making, and (2) they are used by institutional investors and the analyst community to help them analyze the performance of our business. The vast majority of our installed systems are connected via the internet. System logs can also be accessed by field engineers for systems that are not connected to the internet. We utilize certain methods that rely on information collected from the installed systems for determining the number and type of procedures performed that involve estimates and judgments, which are, by their nature, subject to substantial uncertainties and assumptions. Estimates and judgments for determining the number and type of procedures may be impacted over time by various factors, including changes in treatment modalities, hospital and distributor reporting behavior, and system internet connectivity. Such estimates and judgments are also susceptible to algorithmic or other technical errors. In addition, the relationship between the number and type of procedures and our revenues may fluctuate from period to period, and procedure volume growth may not correspond to an increase in revenue. The number and type of procedures are not intended to be considered in isolation or as a substitute for, or superior to, revenue or other financial information prepared and presented in accordance with GAAP.
Da Vinci Procedures
The adoption of robotic-assisted surgery using the da Vinci surgical system has the potential to grow for those procedures that offer greater patient value than to non-da Vinci alternatives and competitive total economics for healthcare providers. Our da Vinci surgical systems are used primarily in general, gynecologic, urologic, cardiothoracic, and head and neck surgical procedures. We focus our organization and investments on developing, marketing, and training products and services for procedures in which da Vinci can bring patient value relative to alternative treatment options and/or economic benefit to healthcare providers. Target procedures in general surgery include hernia repair (both ventral and inguinal), colorectal, cholecystectomy, and bariatric procedures. Target procedures in urology include prostatectomy and partial nephrectomy. Target procedures in gynecology include hysterectomy for both cancer and benign conditions and sacrocolpopexy. In cardiothoracic surgery, target procedures include lung resection. In head and neck surgery, target procedures include transoral surgery. Not all indications, procedures, or products described may be available in a given country or region or on all generations of da Vinci surgical systems. Surgeons and their patients need to consult the product labeling in their specific country and for each product in order to determine the cleared uses, as well as important limitations, restrictions, or contraindications.
In 2023, approximately 2,286,000 surgical procedures were performed with da Vinci surgical systems, compared to approximately 1,875,000 and 1,594,000 surgical procedures performed with da Vinci surgical systems in 2022 and 2021,
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respectively. The increase in our overall procedure volume in 2023 was largely attributable to growth in U.S. general surgery, OUS urologic surgery, OUS general surgery (particularly cancer), and U.S. gynecologic surgery procedures. The overall procedure volumes in the comparative 2022 and 2021 years reflect the disruption caused by the COVID-19 pandemic in 2022 and 2021.
U.S. da Vinci Procedures
Overall U.S. procedure volume with da Vinci surgical systems grew to approximately 1,532,000 in 2023, compared to approximately 1,282,000 in 2022 and approximately 1,109,000 in 2021. General surgery was our largest and fastest growing U.S. specialty in 2023 with procedure volume that grew to approximately 896,000 in 2023, compared to approximately 720,000 in 2022 and approximately 588,000 in 2021. Gynecology was our second largest U.S. surgical specialty in 2023 with procedure volume that grew to approximately 390,000 in 2023, compared to approximately 341,000 in 2022 and approximately 316,000 in 2021. Urology was our third largest U.S. surgical specialty in 2023 with procedure volume that grew to approximately 173,000 in 2023, compared to approximately 162,000 in 2022 and approximately 153,000 in 2021.
OUS da Vinci Procedures
Overall OUS procedure volume with da Vinci surgical systems grew to approximately 754,000 in 2023, compared to approximately 593,000 in 2022 and approximately 485,000 in 2021. Urology was our largest OUS specialty in 2023 with procedure volume that grew to approximately 381,000 in 2023, compared to approximately 316,000 in 2022 and approximately 264,000 in 2021. General surgery was our second largest and fastest growing OUS specialty in 2023 with procedure volume that grew to approximately 188,000 in 2023, compared to approximately 133,000 in 2022 and approximately 101,000 in 2021. Gynecology was our third largest OUS specialty in 2023 with procedure volume that grew to approximately 110,000 in 2023, compared to approximately 86,000 in 2022 and approximately 70,000 in 2021.
Ion Procedures
The adoption of robotic-assisted bronchoscopy using the Ion endoluminal system has the potential to grow if it can offer greater patient value than non-Ion alternatives and competitive total economics for healthcare providers.
In 2023, approximately 53,800 biopsy procedures were performed with Ion systems, compared to approximately 23,500 in 2022 and approximately 7,400 in 2021. The increase in our overall procedure volume in 2023 reflects a larger installed base of approximately 534 systems, an increase of 66% compared to the installed base of approximately 321 systems as of 2022. Currently, the vast majority of Ion biopsy procedures are performed in the U.S.
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Recent Business Events and Trends
Procedures
Overall. Total da Vinci procedures performed by our customers grew approximately 18% for the three months ended September 30, 2024, compared to approximately 19% for the three months ended September 30, 2023. Total da Vinci procedures performed by our customers grew approximately 17% for the nine months ended September 30, 2024, compared to approximately 22% for the nine months ended September 30, 2023. The third quarter 2024 procedure growth was largely attributable to growth in U.S. general surgery, OUS general surgery (particularly cancer), OUS urologic surgery, U.S. gynecologic surgery, and OUS gynecologic surgery.
U.S. Procedures. U.S. da Vinci procedures grew approximately 16% for the three months ended September 30, 2024, compared to approximately 17% for the three months ended September 30, 2023. U.S. da Vinci procedures grew approximately 15% for the nine months ended September 30, 2024, compared to approximately 20% for the nine months ended September 30, 2023. The third quarter 2024 U.S. procedure growth was largely attributable to strong growth in general surgery procedures, most notably cholecystectomy, hernia repair, and colorectal procedures. The number of U.S. da Vinci bariatric procedures performed declined modestly in the third quarter of 2024 compared to the third quarter of 2023. It is unclear whether the overall decline in the U.S. for surgical bariatric procedures will continue as patients evaluate new drug therapies and, if the decline continues, it is unclear what the rate of decline will be.
OUS Procedures. OUS da Vinci procedures grew approximately 24% for the three months ended September 30, 2024, compared to approximately 24% for the three months ended September 30, 2023. OUS da Vinci procedures grew approximately 22% for the nine months ended September 30, 2024, compared to approximately 27% for the nine months ended September 30, 2023. The third quarter 2024 OUS procedure growth was driven by growth in general surgery procedures, most notably colorectal and hernia repair procedures, urologic procedures, most notably prostatectomy and partial nephrectomy procedures, and gynecologic procedures. We saw strong procedure growth in Japan, Germany, the UK, India, France, and Italy during the third quarter of 2024. While geographic market maturity and levels of adoption differ by region and country, OUS da Vinci procedure growth is generally being driven by procedures beyond urology, reflecting surgeons’ growing adoption of general surgery, gynecologic, and thoracic procedures. In Korea, we believe that the number of procedures performed were significantly negatively impacted by doctor strikes in the country during the first nine months of 2024. The extent of the continued impact of these strikes on procedures in Korea remains uncertain.
System Demand
We placed 379 da Vinci surgical systems in the third quarter of 2024, compared to 312 systems in the third quarter of 2023. The increase in system placements reflects incremental demand for our next-generation da Vinci 5 system and continued demand for additional capacity by our customers as a result of procedure growth, partially offset by a smaller number of third-generation da Vinci systems available for trade-in. During the third quarter of 2024, we placed 110 da Vinci 5 systems.
We continue to see some customers challenged by staffing shortages, decreased government funding in healthcare (particularly in Europe), and other financial pressures. As a result, we expect our customers to continue to be cautious in their overall capital spending. In addition, system demand in China has been impacted by increasing robotic-assisted surgical system competition from domestic companies as well as a broader central government focus on systematic governance. Targeting the healthcare sector, this campaign was initially launched by the Chinese government in July 2023 and has resulted in heightened scrutiny by medical institutions with respect to initiating tenders, with some tenders being canceled or delayed without a timeline. In the third quarter of 2024, the effect of this campaign contributed to fewer systems being placed in China. Currently, the extent of the impact of this campaign on our business remains uncertain.
We expect that future placements of da Vinci surgical systems will be impacted by a number of factors: supply chain risks; economic and geopolitical factors; inflationary pressures; high interest rates; hospital staffing shortages; procedure growth rates; evolving system utilization and point-of-care dynamics; capital replacement trends, including a declining number of older generation systems available for trade-in transactions; additional reimbursements in various global markets, such as in Japan; the timing around governmental tenders and authorizations, as well as governmental actions impacting the tender process, such as the governance campaign in China; hospitals’ response to the evolving healthcare environment; the timing of when we receive regulatory clearance in our other OUS markets for our da Vinci Xi, da Vinci X, da Vinci SP, and da Vinci 5 surgical systems and related instruments; and the market response.
Demand may also be impacted by competition, including from companies that have introduced products in the field of robotic-assisted medical procedures or have made explicit statements about their efforts to enter the field including, but not limited to, the following companies: Beijing Surgerii Robotics Company Limited; CMR Surgical Ltd.; Harbin Sizhe Rui Intelligent Medical Equipment Co., Ltd.; Johnson & Johnson; Karl Storz SE & Co. KG; Medicaroid Corporation; Medtronic plc; meerecompany Inc.; Noah Medical; Shandong Weigao Group Medical Polymer Company Ltd.; Shanghai Microport Medbot (Group) Co., Ltd.; Shenzhen Edge Medical Co., Ltd.; and SS Innovations International, Inc.
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Many of the above factors will also impact future demand for our Ion endoluminal system, as we extend our commercial offering into diagnostics, along with additional factors associated with a new product introduction, including, but not limited to, our ability to optimize manufacturing and our supply chain, competition, clinical data to demonstrate value, and market acceptance.
Recent Product Introductions
Da Vinci 5. Da Vinci 5 builds on da Vinci Xi’s highly functional design, featuring force feedback technology and instruments that enable surgeons to sense and measure the force exerted on tissue during surgery. It also includes new surgeon controllers, powerful vibration and tremor controls, a next-generation 3D display and image system, and throughput and workflow enhancements, such as an integrated electrosurgical unit and insufflation capabilities technology. Da Vinci 5 has more than 10,000 times the computing power of da Vinci Xi, allowing for innovative new system capabilities and advanced digital experiences, including integration with our My Intuitive app, SimNow (virtual reality simulator), Case Insights (computational observer), and Intuitive Hub (edge computing system). Additionally, the redesigned console provides greater surgeon comfort with customizable positioning, allowing surgeons to find their best fit for surgical viewing and comfort, including the ability to sit completely upright.
E-200 Generator.The E-200 generator is an advanced electrosurgical generator designed to provide high-frequency energy for cutting, coagulation, and vessel sealing of tissues. The E-200 generator is integrated with the da Vinci 5 surgical system, is compatible with the da Vinci Xi and X surgical systems, and can also function as a standalone electrosurgical generator. When connected to a da Vinci system, the E-200 delivers high-frequency energy to da Vinci instruments, with control and status messages communicated through an Ethernet cable. The E-200 generator is also compatible with third-party handheld monopolar and bipolar instruments, as well as fingerswitch-equipped instruments and Intuitive-provided auxiliary footswitches. The E-200 generator includes the same advanced energy capability as the E-100 generator and supports the same vessel sealing instruments.
SureForm 30 Curved-Tip Stapler and Reloads. The 8 mm SureForm 30 Curved-Tip Stapler and reloads (gray, white, and blue) was designed to help surgeons better visualize and reach anatomy through a combination of the 8 mm diameter instrument shaft and jaws, 120-degree cone of wristed articulation, and the curved tip. As it fits through the 8 mm da Vinci surgical system instrument cannula, the stapler allows different angles for surgeons to approach patient anatomy. Consistent with our other SureForm staplers, the 8 mm SureForm 30 Curved-Tip Stapler integrates SmartFire technology, which makes automatic adjustments to the firing process as staples are formed and the transection is made. The technology makes more than 1,000 measurements per second, helping achieve a consistent staple line.
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Third Quarter 2024 Operational and Financial Highlights
•Total revenue increased by 17% to $2.04 billion for the three months ended September 30, 2024, compared to $1.74 billion for the three months ended September 30, 2023.
•Approximately 670,000da Vinci procedures were performed during the three months ended September 30, 2024, an increase of 18% compared to approximately 567,000 da Vinci procedures for the three months ended September 30, 2023.
•Approximately 25,000 Ion procedures were performed during the three months ended September 30, 2024, an increase of 73% compared to approximately 14,500 Ion procedures for the three months ended September 30, 2023.
•Instruments and accessories revenue increased by 18% to $1.26 billion for the three months ended September 30, 2024, compared to $1.07 billion for the three months ended September 30, 2023.
•Systems revenue increased by 17% to $445 million for the three months ended September 30, 2024, compared to $379 million during the three months ended September 30, 2023.
•During the three months ended September 30, 2024, we placed 379 da Vinci surgical systems compared to 312 systems during the three months ended September 30, 2023. The third quarter 2024 da Vinci surgical system placements included 110 da Vinci 5 systems.
•As of September 30, 2024, we had a da Vinci surgical system installed base of approximately 9,539 systems, an increase of 15% compared to an installed base of approximately 8,285 systems as of September 30, 2023.
•Utilization of da Vinci surgical systems, measured in terms of procedures per system per year, increased 3% relative to the third quarter of 2023.
•During the three months ended September 30, 2024, we placed 58 Ion systems compared to 55 systems during the three months ended September 30, 2023.
•As of September 30, 2024, we had an Ion system installed base of approximately 736 systems, an increase of 50% compared to an installed base of approximately 490 systems as of September 30, 2023.
•Gross profit as a percentage of revenue was 67.4% for the three months ended September 30, 2024, compared to 66.9% for the three months ended September 30, 2023.
•Operating income increased by 24% to $577 million for the three months ended September 30, 2024, compared to $466 million during the three months ended September 30, 2023. Operating income included $176 million and $157 million of share-based compensation expense related to employee stock plans and $3.5 million and $12.6 million of intangible asset-related charges for the three months ended September 30, 2024, and 2023, respectively.
•As of September 30, 2024, we had $8.31 billion in cash, cash equivalents, and investments. Cash, cash equivalents, and investments increased by $0.97 billion, compared to $7.34 billion as of December 31, 2023, primarily as a result of cash provided by operating activities and proceeds from stock option exercises and employee stock purchases, partially offset by cash used for capital expenditures and taxes paid related to net share settlements of equity awards.
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Results of Operations
The following discussion should be read in conjunction with our unaudited Condensed Consolidated Financial Statements (“Financial Statements”) and Notes thereto.
The following table sets forth, for the periods indicated, certain unaudited Condensed Consolidated Statements of Income information (in millions, except percentages):
Three Months Ended September 30,
Nine Months Ended September 30,
2024
% of Total Revenue
2023
% of Total Revenue
2024
% of Total Revenue
2023
% of Total Revenue
Revenue:
Product
$
1,709.2
84
%
$
1,450.8
83
%
$
4,978.9
84
%
$
4,332.4
83
%
Service
328.9
16
%
292.9
17
%
959.7
16
%
863.4
17
%
Total revenue
2,038.1
100
%
1,743.7
100
%
5,938.6
100
%
5,195.8
100
%
Cost of revenue:
Product
555.4
27
%
489.5
28
%
1,649.2
28
%
1,480.5
29
%
Service
108.8
6
%
87.0
5
%
297.4
5
%
263.2
5
%
Total cost of revenue
664.2
33
%
576.5
33
%
1,946.6
33
%
1,743.7
34
%
Product gross profit
1,153.8
57
%
961.3
55
%
3,329.7
56
%
2,851.9
54
%
Service gross profit
220.1
10
%
205.9
12
%
662.3
11
%
600.2
12
%
Gross profit
1,373.9
67
%
1,167.2
67
%
3,992.0
67
%
3,452.1
66
%
Operating expenses:
Selling, general and administrative
510.6
25
%
452.0
26
%
1,527.4
26
%
1,396.8
27
%
Research and development
286.0
14
%
249.4
14
%
850.6
14
%
738.7
14
%
Total operating expenses
796.6
39
%
701.4
40
%
2,378.0
40
%
2,135.5
41
%
Income from operations
577.3
28
%
465.8
27
%
1,614.0
27
%
1,316.6
25
%
Interest and other income, net
93.7
5
%
56.2
3
%
250.0
4
%
126.4
2
%
Income before taxes
671.0
33
%
522.0
30
%
1,864.0
31
%
1,443.0
27
%
Income tax expense
100.4
5
%
102.2
6
%
214.5
3
%
236.4
4
%
Net income
570.6
28
%
419.8
24
%
1,649.5
28
%
1,206.6
23
%
Less: net income attributable to noncontrolling interest in joint venture
5.5
—
%
4.1
—
%
12.6
—
%
14.8
—
%
Net income attributable to Intuitive Surgical, Inc.
$
565.1
28
%
$
415.7
24
%
$
1,636.9
28
%
$
1,191.8
23
%
Total Revenue
Total revenue increased by 17% to $2.04 billion for the three months ended September 30, 2024, compared to $1.74 billion for the three months ended September 30, 2023, resulting from 18% higher instruments and accessories revenue, 17% higher systems revenue, and 12% higher service revenue.
Total revenue increased by 14% to $5.94 billion for the nine months ended September 30, 2024, compared to $5.20 billion for the nine months ended September 30, 2023, resulting from 17% higher instruments and accessories revenue, 9% higher systems revenue, and 11% higher service revenue.
We generally sell our products and services in local currencies where we have direct distribution channels. Revenue denominated in foreign currencies as a percentage of total revenue was approximately 24% and 25% for the three and nine months ended September 30, 2024, and 24% and 25% for the three and nine months ended September 30, 2023, respectively. Fluctuations in foreign currency exchange rates had an unfavorable impact on OUS total revenue of $2 million and $29 million for the three and nine months ended September 30, 2024, respectively. Fluctuations in foreign currency exchange rates had a favorable impact on OUS total revenue of $8 million and an unfavorable impact on OUS total revenue of $38 million for the three and nine months ended September 30, 2023, respectively. The impact of fluctuations in foreign currency exchange rates was determined by comparing current period revenue converted to USD using exchange rates that were effective in the comparable prior year period, net of the impacts from foreign currency hedging.
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Revenue generated in the U.S. accounted for68% and 66% of total revenue for the three and nine months ended September 30, 2024, respectively, and 68% and 66% of total revenue for the three and nine months ended September 30, 2023, respectively. We believe that U.S. revenue has accounted for the large majority of total revenue due to U.S. patients’ ability to choose their provider and method of treatment, reimbursement structures supportive of innovation and MIS, and our initial investments focused on U.S. infrastructure. We have been investing in our business in OUS markets, and our OUS procedures have grown faster in proportion to U.S. procedures. We expect that our OUS procedures and revenue will make up a greater portion of our business in the long term.
The following table summarizes our revenue and system unit placements for the three and nine months ended September 30, 2024, and 2023 (in millions, except percentages and unit placements):
Three Months Ended September 30,
Nine Months Ended September 30,
2024
2023
2024
2023
Revenue
Instruments and accessories
$
1,264.2
$
1,071.4
$
3,667.5
$
3,132.9
Systems
445.0
379.4
1,311.4
1,199.5
Total product revenue
1,709.2
1,450.8
4,978.9
4,332.4
Service
328.9
292.9
959.7
863.4
Total revenue
$
2,038.1
$
1,743.7
$
5,938.6
$
5,195.8
U.S.
$
1,379.4
$
1,180.2
$
3,937.1
$
3,432.6
OUS
658.7
563.5
2,001.5
1,763.2
Total revenue
$
2,038.1
$
1,743.7
$
5,938.6
$
5,195.8
% of Revenue – U.S.
68%
68%
66%
66%
% of Revenue – OUS
32%
32%
34%
34%
Instruments and accessories
$
1,264.2
$
1,071.4
$
3,667.5
$
3,132.9
Service
328.9
292.9
959.7
863.4
Operating lease revenue
167.8
127.1
472.7
361.8
Total recurring revenue
$
1,760.9
$
1,491.4
$
5,099.9
$
4,358.1
% of Total revenue
86%
86%
86%
84%
Da Vinci Surgical System Placements by Region
U.S. unit placements
219
159
516
457
OUS unit placements
160
153
517
498
Total unit placements*
379
312
1,033
955
*Systems placed under fixed-payment operating lease arrangements (included in total unit placements)
79
70
227
212
*Systems placed under usage-based operating lease arrangements (included in total unit placements)
141
93
327
246
Da Vinci Surgical System Placements involving System Trade-ins
Unit placements involving trade-ins
38
62
88
189
Unit placements not involving trade-ins
341
250
945
766
Ion System Placements**
58
55
202
169
**Systems placed under fixed-payment operating lease arrangements (included in total unit placements)
19
17
61
49
**Systems placed under usage-based operating lease arrangements (included in total unit placements)
17
10
54
39
39
Product Revenue
Three Months Ended September 30, 2024
Product revenue increased by 18% to $1.71 billion for the three months ended September 30, 2024, compared to $1.45 billion for the three months ended September 30, 2023.
Instruments and accessories revenue increased by 18% to $1.26 billion for the three months ended September 30, 2024, compared to $1.07 billion for the three months ended September 30, 2023. The increase in instruments and accessories revenue was primarily driven by approximately 18% higher da Vinci procedure volume and approximately 73% higher Ion procedure volume. The third quarter 2024 U.S. da Vinci procedure growth was approximately 16%, driven primarily by strong growth in general surgery procedures, most notably cholecystectomy, hernia repair, and colorectal procedures. The number of U.S. da Vinci bariatric procedures performed declined modestly in the third quarter of 2024 compared to the third quarter of 2023. It is unclear whether the overall decline in the U.S. for surgical bariatric procedures will continue as patients evaluate new drug therapies and, if the decline continues, it is unclear what the rate of decline will be. The third quarter 2024 OUS da Vinci procedure growth was approximately 24%, driven by growth in general surgery procedures, most notably colorectal and hernia repair procedures, urologic procedures, most notably prostatectomy and partial nephrectomy procedures, and gynecologic procedures. Geographically, the third quarter 2024 OUS da Vinci procedure growth was driven by several markets with particular strength in Japan, Germany, the UK, India, France, and Italy.
Systems revenue increased by 17% to $445 million for the three months ended September 30, 2024, compared to $379 million for the three months ended September 30, 2023. The higher third quarter 2024 system revenue was primarily driven by an increase in da Vinci system placements, higher operating lease revenue, and higher third quarter 2024 ASPs, partially offset by a higher proportion of da Vinci system placements under operating leases.
During the third quarter of 2024, 379 da Vinci surgical systems were placed compared to 312 systems during the third quarter of 2023. By geography, 219 systems were placed in the U.S., 65 in Europe, 74 in Asia, and 21 in other markets during the third quarter of 2024, compared to 159 systems placed in the U.S., 60 in Europe, 72 in Asia, and 21 in other markets during the third quarter of 2023. The increase in system placements was primarily driven by 110 da Vinci 5 system placements and continued demand for additional capacity by our customers as a result of procedure growth, partially offset by a smaller number of third-generation da Vinci systems available for trade-in. As of September 30, 2024, we had a da Vinci surgical system installed base of approximately 9,539 systems, compared to an installed base of approximately 8,285 systems as of September 30, 2023. The incremental system installed base reflects continued procedure growth and further customer validation that robotic-assisted surgery addresses their quintuple aim objectives.
The following table summarizes our da Vinci system placements and systems installed at customers under leasing arrangements for three months ended September 30, 2024, and 2023:
Three Months Ended September 30,
2024
2023
Da Vinci System Placements Under Leasing Arrangements
Fixed-payment operating lease arrangements
79
70
Usage-based operating lease arrangements
141
93
Total da Vinci system placements under operating lease arrangements
220
163
% of Total da Vinci system placements
58%
52%
Sales-type lease arrangements
13
11
Total da Vinci system placements under leasing arrangements
233
174
Da Vinci System Installed Base under Operating Leasing Arrangements
Fixed-payment operating lease arrangements
1,289
1,151
Usage-based operating lease arrangements
1,352
913
Total da Vinci system installed base under operating leasing arrangements
2,641
2,064
Operating lease revenue, including the contribution from Ion systems, was $168 million for the three months ended September 30, 2024, of which $87 million was variable lease revenue related to usage-based arrangements, compared to $127 million for the three months ended September 30, 2023, of which $54 million was variable lease revenue related to usage-based arrangements. Revenue from Lease Buyouts was $24 million for the three months ended September 30, 2024, compared to $17 million for the three months ended September 30, 2023. We expect revenue from Lease Buyouts to fluctuate period to period depending on the timing of when, and if, customers choose to exercise buyout options embedded in their leases.
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The da Vinci surgical system ASP, excluding systems placed under fixed-payment or usage-based operating lease arrangements, Ion systems, and the impact of specified-price trade-in rights, was approximately $1.51 million for the three months ended September 30, 2024, compared to approximately $1.40 million for the three months ended September 30, 2023. The higher third quarter 2024 ASP was largely driven by favorable product mix and fewer trade-ins, partially offset by higher pricing discounts. ASP fluctuates from period to period based on geographic and product mix, product pricing, systems placed involving trade-ins, and changes in foreign exchange rates.
During the third quarter of 2024, 58 Ion systems were placed compared to 55 systems during the third quarter of 2023. By geography, 53 systems were placed in the U.S., three in Europe, and two in Asia during third quarter of 2024, compared to 55 systems placed in the U.S. during the third quarter of 2023. The increase in system placements was primarily driven by the demand for additional capacity by our customers due to procedure growth and OUS expansion. As of September 30, 2024, we had an Ion system installed base of approximately 736 systems, compared to an installed base of approximately 490 systems as of September 30, 2023.
The following table summarizes our Ion system placements and systems installed at customers under leasing arrangements for three months ended September 30, 2024, and 2023:
Three Months Ended September 30,
2024
2023
Ion System Placements Under Leasing Arrangements
Fixed-payment operating lease arrangements
19
17
Usage-based operating lease arrangements
17
10
Total Ion system placements under operating lease arrangements
36
27
% of Total Ion system placements
62%
49%
Sales-type lease arrangements
2
—
Total Ion system placements under leasing arrangements
38
27
Ion System Installed Base under Operating Leasing Arrangements
Fixed-payment operating lease arrangements
117
92
Usage-based operating lease arrangements
179
102
Total Ion system installed base under operating leasing arrangements
296
194
Nine Months Ended September 30, 2024
Product revenue increased by 15% to $4.98 billion for the nine months ended September 30, 2024, compared to $4.33 billion for the nine months ended September 30, 2023.
Instruments and accessories revenue increased by 17% to $3.67 billion for the nine months ended September 30, 2024, compared to $3.13 billion for the nine months ended September 30, 2023. The increase in instruments and accessories revenue was primarily driven by approximately 17% higher da Vinci procedure volume, approximately 81% higher Ion procedure volume, and higher pricing for da Vinci instruments and accessories, partially offset by customer buying patterns. The year-to-date 2024 U.S. da Vinci procedure growth was approximately 15%, driven by strong growth in general surgery procedures, most notably cholecystectomy, hernia repair, and colorectal procedures. The number of U.S. bariatric procedures performed declined modestly in the first nine months of 2024 compared with the first nine months of 2023. It is unclear whether the decline in U.S. bariatric procedures will continue to be a temporary pause as patients evaluate new drug therapies or if growth in U.S. bariatric procedures will return in future periods. The year-to-date 2024 OUS da Vinci procedure growth was approximately 22%, driven by growth in general surgery, most notably colorectal and hernia repair procedures, urologic procedures, most notably prostatectomy and partial nephrectomy procedures, and gynecologic procedures. Geographically, the year-to-date 2024 OUS da Vinci procedure growth was driven by several markets with particular strength in Germany, the UK, India, and Italy.
Systems revenue increased by 9% to $1.31 billion for the nine months ended September 30, 2024, compared to $1.20 billion for the nine months ended September 30, 2023. The higher year-to-date 2024 system revenue was primarily driven by higher operating lease revenue, an increase in da Vinci system placements, and higher lease buyout revenue, partially offset by a higher proportion of da Vinci system placements under operating leases.
During the nine months ended September 30, 2024, a total of 1,033 da Vinci surgical systems were placed compared to 955 systems during the nine months ended September 30, 2023. By geography, 516 systems were placed in the U.S., 220 in Europe, 225 in Asia, and 72 in other markets during the nine months ended September 30, 2024, compared to 457 systems placed in the
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U.S., 237 in Europe, 195 in Asia, and 66 in other markets during the nine months ended September 30, 2023. The increase in system placements was primarily driven by 188 da Vinci 5 system placements and continued demand for additional capacity by our customers as a result of procedure growth, partially offset by a smaller number of third-generation da Vinci systems available for trade-in.
The following table summarizes our da Vinci system placements at customers under leasing arrangements for nine months ended September 30, 2024, and 2023:
Nine Months Ended September 30,
2024
2023
Da Vinci System Placements Under Leasing Arrangements
Fixed-payment operating lease arrangements
227
212
Usage-based operating lease arrangements
327
246
Total da Vinci system placements under operating lease arrangements
554
458
% of Total da Vinci system placements
54%
48%
Sales-type lease arrangements
45
31
Total da Vinci system placements under leasing arrangements
599
489
Operating lease revenue, including the contribution from Ion systems, was $473 million for the nine months ended September 30, 2024, of which $237 million was variable lease revenue related to usage-based arrangements, compared to $362 million for the nine months ended September 30, 2023, of which $153 million was variable lease revenue related to usage-based arrangements. Revenue from Lease Buyouts was $81 million for the nine months ended September 30, 2024, compared to $54 million for the nine months ended September 30, 2023. We expect revenue from Lease Buyouts to fluctuate period to period depending on the timing of when, and if, customers choose to exercise buyout options embedded in their leases.
The da Vinci surgical system ASP, excluding systems placed under fixed-payment or usage-based operating lease arrangements, Ion systems, and the impact of specified-price trade-in rights, was approximately $1.44 million for the nine months ended September 30, 2024, compared to approximately $1.42 million for the nine months ended September 30, 2023. The higher year-to-date 2024 ASP was largely driven by favorable product mix and fewer trade-ins, partially offset by higher pricing discounts and an unfavorable geographic mix. ASP fluctuates from period to period based on geographic and product mix, product pricing, systems placed involving trade-ins, and changes in foreign exchange rates.
During the nine months ended September 30, 2024, 202 Ion systems were placed compared to 169 systems during the nine months ended September 30, 2023. By geography, 191 systems were placed in the U.S., nine in Europe, and two in Asia during nine months ended September 30, 2024, compared to 168 systems placed in the U.S. and one in Europe during the nine months ended September 30, 2023. The increase in system placements was primarily driven by the demand for additional capacity by our customers due to procedure growth and OUS expansion. As of September 30, 2024, we had an Ion system installed base of approximately 736 systems, compared to an installed base of approximately 490 systems as of September 30, 2023.
The following table summarizes our Ion system placements at customers under leasing arrangements for nine months ended September 30, 2024, and 2023:
Nine Months Ended September 30,
2024
2023
Ion System Placements Under Leasing Arrangements
Fixed-payment operating lease arrangements
61
49
Usage-based operating lease arrangements
54
39
Total Ion system placements under operating lease arrangements
115
88
% of Total Ion system placements
57%
52%
Sales-type lease arrangements
2
5
Total Ion system placements under leasing arrangements
117
93
Service Revenue
Service revenue increased by 12% to $329 million for the three months ended September 30, 2024, compared to $293 million for the three months ended September 30, 2023. The increase in service revenue was primarily driven by a larger installed base of systems producing service revenue, partially offset by a higher proportion of early-stage usage-based operating lease arrangements where procedures are ramping up.
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Service revenue increased by 11% to $960 million for the nine months ended September 30, 2024, compared to $863 million for the nine months ended September 30, 2023. The increase in service revenue was primarily driven by a larger installed base of systems producing service revenue, partially offset by a higher proportion of early-stage usage-based operating lease arrangements where procedures are ramping up.
Gross Profit
Product
Product gross profit for the three months ended September 30, 2024, increased by 20% to $1.15 billion, representing 67.5% of product revenue, compared to $0.96 billion, representing 66.3% of product revenue, for the three months ended September 30, 2023. The higher product gross profit margin for the three months ended September 30, 2024, was primarily driven by leverage on fixed overhead costs, partially offset by higher costs associated with our da Vinci 5 surgical system launch.
Product gross profit for the nine months ended September 30, 2024, increased by 17% to $3.33 billion, representing 66.9% of product revenue, compared to $2.85 billion, representing 65.8% of product revenue, for the nine months ended September 30, 2023. The higher product gross profit margin for the nine months ended September 30, 2024, was primarily driven by leverage on fixed overhead costs and lower logistics costs, partially offset by higher costs associated with our da Vinci 5 surgical system launch.
Product gross profit for the three and nine months ended September 30, 2024, included share-based compensation expense of $24.9 million and $71.2 million, respectively, compared with $22.6 million and $60.3 million for the three and nine months ended September 30, 2023, respectively. Product gross profit for the three and nine months ended September 30, 2024, included intangible assets amortization expense of $2.2 million and $9.3 million, respectively, compared with $3.6 million and $10.1 million for the three and nine months ended September 30, 2023, respectively.
Service
Service gross profit for the three months ended September 30, 2024, increased by 7% to $220 million, representing 66.9% of service revenue, compared to $206 million, representing 70.3% of service revenue, for the three months ended September 30, 2023. The higher service gross profit for the three months ended September 30, 2024, was primarily driven by higher service revenue, reflecting a larger installed base of da Vinci surgical systems, partially offset by a lower service gross profit margin. The lower service gross profit margin for the three months ended September 30, 2024, was primarily driven by higher inventory reserves and an unfavorable repair mix.
Service gross profit for the nine months ended September 30, 2024, increased by 10% to $662 million, representing 69.0% of service revenue, compared to $600 million, representing 69.5% of service revenue, for the nine months ended September 30, 2023. The higher service gross profit for the nine months ended September 30, 2024, was primarily driven by higher service revenue, reflecting a larger installed base of da Vinci surgical systems, and a lower service gross profit margin. The lower service gross profit margin for the nine months ended September 30, 2024, was primarily driven by higher inventory reserves and an unfavorable repair mix, partially offset by overhead leverage from higher repair volume.
Service gross profit for the three and nine months ended September 30, 2024, included share-based compensation expense of $7.9 million and $22.5 million, respectively, compared with $7.3 million and $21.3 million for the three and nine months ended September 30, 2023, respectively. Service gross profit for the three and nine months ended September 30, 2024, included intangible assets amortization expense of $0.2 million and $0.6 million, respectively, compared with $0.1 million and $0.5 million for the three and nine months ended September 30, 2023, respectively.
Selling, General and Administrative Expenses
Selling, general and administrative expenses include costs for sales, marketing, and administrative personnel, sales and marketing activities, trade show expenses, legal expenses, regulatory fees, and general corporate expenses.
Selling, general and administrative expenses for the three months ended September 30, 2024, increased by 13% to $511 million, compared to $452 million for the three months ended September 30, 2023. The increase in selling, general and administrative expenses for the three months ended September 30, 2024, was primarily driven by higher headcount and personnel-related expenses, including share-based compensation expense, higher legal expenses, higher litigation charges, and increased infrastructure costs to support our growth.
Selling, general, and administrative expenses for the nine months ended September 30, 2024, increased by 9% to $1.53 billion, compared to $1.40 billion for the nine months ended September 30, 2023. The increase in selling, general, and administrative expenses for the nine months ended September 30, 2024, was primarily driven by higher headcount and personnel-related expenses, including share-based compensation expense, increased infrastructure costs to support our growth, higher litigation charges, and higher legal expenses.
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Selling, general, and administrative expenses for the three and nine months ended September 30, 2024, included share-based compensation expense of $77.6 million and $225.4 million, respectively, compared with $71.9 million and $206.6 million for the three and nine months ended September 30, 2023, respectively. Selling, general, and administrative expenses for the three and nine months ended September 30, 2024, included intangible assets amortization expense of $0.6 million and $2.2 million, respectively, compared with $0.8 million and $2.5 million for the three and nine months ended September 30, 2023, respectively.
Research and Development Expenses
Research and development costs are expensed as incurred. Research and development expenses include costs associated with the design, development, testing, and significant enhancement of our products. Our main product development initiatives include multi-port, Ion, and SP platform investments and our digital products and services.
Research and development expenses for the three months ended September 30, 2024, increased by 15% to $286 million, compared to $249 million for the three months ended September 30, 2023. Research and development expenses for the nine months ended September 30, 2024, increased by 15% to $851 million, compared to $739 million for the nine months ended September 30, 2023. The increase in research and development expenses for the three and nine months ended September 30, 2024, was primarily driven by higher headcount and personnel-related expenses, including share-based compensation expense, and other project costs incurred to support a broader set of product development initiatives, partially offset by lower intangible asset charges.
Research and development expenses for the three and nine months ended September 30, 2024, included share-based compensation expense of $65.4 million and $188.7 million, respectively, compared with $55.3 million and $157.7 million for the three and nine months ended September 30, 2023, respectively. Research and development expenses for the three and nine months ended September 30, 2024, included intangible asset charges of $0.5 million and $1.7 million, respectively, compared with $8.1 million and $11.0 million for the three and nine months ended September 30, 2023, respectively.
Research and development expenses fluctuate with project timing. Based upon our broader set of product development initiatives and the stage of the underlying projects, we expect to continue to make substantial investments in our product development initiatives through research and development and anticipate that research and development expenses will continue to increase in the future.
Interest And Other Income, Net
Interest and other income, net, for the three months ended September 30, 2024, increased by 67% to $93.7 million, compared to $56.2 million for the three months ended September 30, 2023. The increase in interest and other income, net, for the three months ended September 30, 2024, was primarily driven by higher interest income earned due to an increase in average interest rates and higher average cash and investment balances, as well as foreign exchange rate gains (compared to foreign exchange rate losses for the three months ended September 30, 2023).
Interest and other income, net, for the nine months ended September 30, 2024, increased by 98% to $250.0 million, compared to $126.4 million for nine months ended September 30, 2023. The increase in interest and other income, net, for the nine months ended September 30, 2024, was primarily driven by higher interest income earned due to an increase in average interest rates and higher average cash and investment balances, as well as unrealized gains on investments resulting from strategic arrangements (compared to unrealized losses on investments resulting from strategic arrangements for the nine months ended September 30, 2023).
Income Tax Expense
Income tax expense for the three months ended September 30, 2024, was $100.4 million, or 15.0% of income before taxes, compared to $102.2 million, or 19.6% of income before taxes, for the three months ended September 30, 2023. Income tax expense for the nine months ended September 30, 2024, was $214.5 million, or 11.5% of income before taxes, compared to $236.4 million, or 16.4% of income before taxes, for the nine months ended September 30, 2023.
Our lower effective tax rate for the three months ended September 30, 2024, compared to the three months ended September 30, 2023, was primarily due to higher federal research and development credit benefits, the release of unrecognized tax benefits due to expiration of the statute of limitations in various jurisdictions, and higher excess tax benefits, as discussed below, partially offset by higher foreign taxes.
Our lower effective tax rate for the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023, was primarily due to higher excess tax benefits, as discussed below, and lower U.S. taxes on foreign earnings, partially offset by higher foreign taxes.
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Our provision for income taxes for the three months ended September 30, 2024, and 2023, included excess tax benefits associated with employee equity plans of $42.2 million and $22.0 million, respectively, which reduced our effective tax rate by 6.3 and 4.2 percentage points, respectively. Our provision for income taxes for the nine months ended September 30, 2024, and 2023, included excess tax benefits associated with employee equity plans of $189.0 million and $86.2 million, respectively, which reduced our effective tax rate by 10.1 and 6.0 percentage points, respectively. The amount of excess tax benefits or deficiencies will fluctuate from period to period based on the price of our stock, the volume of share-based awards settled or vested, and the value assigned to employee equity awards under GAAP, which results in increased income tax expense volatility.
In 2021, the Organization for Economic Co-operation and Development (“OECD”) established an inclusive framework on base erosion and profit shifting and agreed on a two-pillar solution (“Pillar Two”) to global taxation, focusing on global profit allocation and a 15% global minimum effective tax rate. On December 15, 2022, the EU member states agreed to implement the OECD’s global minimum tax rate of 15%. The OECD issued Pillar Two model rules and continues to release guidance on these rules. The inclusive framework calls for tax law changes by participating countries to take effect in 2024 and 2025. Various countries have enacted or have announced plans to enact new tax laws to implement the global minimum tax. We considered the applicable tax law changes on Pillar Two implementation in the relevant countries, and there is no material impact to our tax provision for the three and nine months ended September 30, 2024. We will continue to evaluate the impact of these tax law changes on future reporting periods.
We file federal, state, and foreign income tax returns in many jurisdictions in the U.S. and OUS. Years before 2017 are considered closed for significant jurisdictions. Certain of our unrecognized tax benefits could change due to activities of various tax authorities, including evolving interpretations of existing tax laws in the jurisdictions in which we operate, potential assessment of additional tax, possible settlement of audits, or through normal expiration of various statutes of limitations, which could affect our effective tax rate in the period in which they change. Due to the uncertainty related to the timing and potential outcome of audits, we cannot estimate the range of reasonably possible changes in unrecognized tax benefits that may occur in the next 12 months.
We are subject to the examination of our income tax returns by the Internal Revenue Service and other tax authorities. The outcome of these audits cannot be predicted with certainty. Management regularly assesses the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes. If any issues addressed in our tax audits are resolved in a manner not consistent with management’s expectations, we could be required to adjust our provision for income taxes in the period such resolution occurs.
Liquidity and Capital Resources
Sources and Uses of Cash and Cash Equivalents
Our principal source of liquidity is cash provided by our operations and by the issuance of common stock through the exercise of stock options and our employee stock purchase program. Cash and cash equivalents plus short- and long-term investments increased by $0.97 billion to $8.31 billion as of September 30, 2024, from $7.34 billion as of December 31, 2023, primarily as a result of cash provided by operating activities and proceeds from stock option exercises and employee stock purchases, partially offset by cash used for capital expenditures and taxes paid related to net share settlements of equity awards.
Our cash requirements depend on numerous factors, including market acceptance of our products, the resources we devote to developing and supporting our products, and other factors. We expect to continue to devote substantial resources to expand procedure adoption and acceptance of our products. We have made substantial investments in our commercial operations, product development activities, facilities, and intellectual property. Based on our business model, we anticipate that we will continue to be able to fund future growth through cash provided by our operations. We believe that our current cash, cash equivalents, and investment balances, together with income to be derived from our business, will be sufficient to meet our liquidity requirements for the foreseeable future. However, we may experience reduced cash flow from operations as a result of macroeconomic and geopolitical headwinds.
See “Item 7A. Quantitative and Qualitative Disclosures About Market Risk” in our Form 10-K for the fiscal year ended December 31, 2023, for discussion on the impact of interest rate risk and market risk on our investment portfolio.
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Condensed Consolidated Cash Flow Data
The following table summarizes our cash flows for the nine months ended September 30, 2024, and 2023 (in millions):
Nine Months Ended September 30,
2024
2023
Net cash provided by (used in):
Operating activities
$
1,592.4
$
1,585.5
Investing activities
(2,008.6)
684.1
Financing activities
101.5
(256.1)
Effect of exchange rates on cash, cash equivalents, and restricted cash
(9.1)
8.7
Net increase (decrease) in cash, cash equivalents, and restricted cash
$
(323.8)
$
2,022.2
Operating Activities
For the nine months ended September 30, 2024, net cash provided by operating activities of $1.59 billion was less than our net income of $1.65 billion, primarily due to the following factors:
1.Our net income included non-cash charges of $721 million, consisting primarily of share-based compensation of $500 million and depreciation expense and losses on the disposal of property, plant, and equipment of $324 million, partially offset by deferred income tax benefits of $105 million.
2.The non-cash charges outlined above were offset by changes in operating assets and liabilities that resulted in $779 million of cash used in operating activities during the nine months ended September 30, 2024. Inventory, including the transfer of equipment from inventory to property, plant, and equipment, increased by $651 million, primarily to address the growth in our business, including the expansion of our leasing business, and to mitigate risks of disruption that could arise from global supply chain shortages. Refer to Note 4 to the Financial Statements for further details in the supplemental cash flow information. Prepaid and other assets increased by $80 million, primarily driven by an increase in deferred commissions as a result of operating leasing arrangements; accrued compensation and employee benefits decreased by $59 million, primarily due to payments of 2023 incentive compensation and payments for stock purchases related to our ESPP; and accounts receivable increased by $22 million, primarily due to the timing of billings and collections. The unfavorable impact of these items on cash provided by operating activities was partially offset by an increase in accounts payable of $21 million, primarily due to the timing of invoicing and payments.
Investing Activities
Net cash used in investing activities for the nine months ended September 30, 2024, consisted primarily of purchases of investments, net of proceeds from maturities and sales of investments, of $1.21 billion and $799 million paid for the acquisition of property, plant, and equipment. We invest predominantly in high quality, fixed income securities. Our investment portfolio may, at any time, contain investments in money market funds, U.S. treasury and U.S. government agency securities, high-quality corporate notes and bonds, commercial paper, non-U.S. government agency securities, and taxable and tax-exempt municipal notes.
Financing Activities
Net cash provided by financing activities for the nine months ended September 30, 2024, consisted primarily of cash proceeds from stock option exercises and employee stock purchases of $368 million, partially offset by cash used for taxes paid on behalf of employees related to net share settlements of vested employee equity awards of $258 million.
Capital Expenditures
Our capital expenditures are increasing as we continue to build the Company to supply our customers with highly differentiated products manufactured in highly automated factories to facilitate outstanding performance in product quality, availability, and cost. A significant portion of this investment involves the construction of facilities to expand our manufacturing and commercial capabilities. We have also been vertically integrating key technologies to develop a more robust supply chain and bring important products to market at attractive price points. These investments include increased ownership of our imaging pipelines and investments in strategic instruments and accessories technologies that allow us to serve our customers better. We expect these capital investments to range between $1 billion and $1.2 billion in 2024, the majority of which will be facilities-related investments. We intend to fund these capital investments with cash generated from operations.
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Critical Accounting Estimates
The discussion and analysis of our financial condition and results of operations are based upon our Financial Statements, which have been prepared in accordance with GAAP. The preparation of these Financial Statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses. On an ongoing basis, we evaluate our critical accounting estimates. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. There have been no new or material changes to the critical accounting estimates discussed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, that are of significance, or potential significance, to the Company.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes in our market risk during the nine months ended September 30, 2024, compared to the disclosures in Part II, Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2023.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow for timely decisions regarding required disclosure.
As required by SEC Rule 13a-15(b), we carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on the foregoing, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the quarter ended September 30, 2024, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The information included in Note 8 to the Condensed Consolidated Financial Statements (Unaudited) included in Part I, Item 1 of this Quarterly Report is incorporated herein by reference.
ITEM 1A. RISK FACTORS
You should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, which could materially affect our business, financial position, or future results of operations. The risks described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial position, or future results of operations.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
There were no unregistered sales of equity securities during the period covered by this report.
(c) Issuer Purchases of Equity Securities
The table below summarizes our stock repurchase activity for the quarter ended September 30, 2024:
Fiscal Period
Total Number of Shares Repurchased
Average Price Paid Per Share
Total Number of Shares Purchased As Part of a Publicly Announced Program
Approximate Dollar
Amount of Shares That
May Yet be Purchased
Under the Program (1)
July 1 to July 31, 2024
—
$
—
—
$
1.1
billion
August 1 to August 31, 2024
—
$
—
—
$
1.1
billion
September 1 to September 30, 2024
—
$
—
—
$
1.1
billion
Total during quarter ended September 30, 2024
—
$
—
—
(1) Since March 2009, we have had an active stock Repurchase Program. As of September 30, 2024, our Board had authorized an aggregate amount of up to $10.0 billion for stock repurchases, of which the most recent authorization occurred in July 2022, when our Board increased the authorized amount available under our stock Repurchase Program to $3.5 billion. The remaining $1.1 billion represents the amount available to repurchase shares under the authorized stock Repurchase Program as of September 30, 2024. The authorized stock Repurchase Program does not have an expiration date.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
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ITEM 5. OTHER INFORMATION
Rule 10b5-1 Plans
On August 13, 2024, Myriam J. Curet, M.D., FACS, the Company’s Executive Vice President and Chief Medical Officer, adopted a Rule 10b5-1 trading plan. Dr. Curet’s trading plan provides for the potential sale of up to 33,581 shares of the Company’s common stock, including the potential exercise and sale of up to 21,966 shares of the Company’s common stock subject to stock options, until August 13, 2025. This trading plan was entered into during an open insider trading window and is intended to satisfy the affirmative defense of Rule 10b5-1(c) under the Exchange Act and the Company’s policies regarding transactions in the Company’s securities.
The following materials from Intuitive Surgical, Inc.’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2024, formatted in Inline XBRL (Extensible Business Reporting Language): (i) the unaudited Condensed Consolidated Balance Sheets, (ii) the unaudited Condensed Consolidated Statements of Comprehensive Income, (iii) the unaudited Condensed Consolidated Statements of Cash Flows, and (iv) Notes to Condensed Consolidated Financial Statements (unaudited), tagged at Level I through IV.
104
The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2024, formatted in Inline XBRL and contained in Exhibit 101.
1.Incorporated by reference to Exhibit 3.1 filed with the Company’s Quarterly Report on Form 10-Q filed on July 23, 2020 (File No. 000-30713).
2.Incorporated by reference to Exhibit 3.1 filed with the Company’s Quarterly Report on Form 10-Q filed on October 20, 2021 (File No. 000-30713).
3.Incorporated by reference to Exhibit 3.1 filed with the Company’s Current Report on Form 8-K filed on February 1, 2021 (File No. 000-30713).
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
INTUITIVE SURGICAL, INC.
By:
/s/ JAMIE E. SAMATH
Jamie E. Samath
Senior Vice President and Chief Financial Officer
(Principal Financial Officer and duly authorized signatory)