Intuitive Surgical (ISRG) Earnings Transcript

Image source: The Motley Fool.

DATE

Thursday, January 22, 2026 at 4:30 p.m. ET

CALL PARTICIPANTS

• President — David J. Rosa
• Chief Financial Officer — Jamie E. Samath
• Senior Vice President and General Manager, U.S. and Canada — Dan Connolly

TAKEAWAYS

• Total Procedures -- 3.1 million global procedures reported for the year, with total annual growth of 19% combining da Vinci and ION platforms.
• Da Vinci Procedure Growth -- Procedures grew approximately 18%, including 17% in multiport and 87% in single port.
• ION Procedure Growth -- Procedures rose 51% to just over 144,000, and the global ION installed base approached 1,000 systems.
• International Procedures -- Procedures outside the U.S. increased 23%, contributing 35% of total global procedures, with growth rates of 21% in Europe, 24% in Asia, and 27% in other international markets.
• System Placements -- 1,721 da Vinci systems placed globally for the year, including 870 da Vinci 5 systems, 107 SP systems, and 42 refurbished da Vinci XI (“XIR”) systems.
• Q4 Revenue -- Revenue rose 19% year over year to $2.87 billion; recurring revenue comprised 81% at $2.3 billion, up 20%.
• Full-Year Revenue -- Total revenue for the year reached $10.1 billion, a 21% increase, with pro forma operating margin at 37% (an improvement of 70 basis points).
• Pro Forma EPS -- Increased by 22% for the full year, marking a third consecutive year above 20% annual growth.
• Free Cash Flow -- Surge to $2.5 billion, compared to $1.3 billion in the prior year.
• Capital Returns -- $2.3 billion in stock repurchases during the year at an average price of $478 per share.
• Q4 System Placements -- 532 da Vinci systems placed (up 8%), including 303 da Vinci 5, with 43 of those outside the U.S.; 35 SP systems placed, mainly internationally; 42 ION systems placed, down versus prior year.
• Installed Base -- Da Vinci systems reached just over 11,100 (a 12% rise), ION systems just under 1,000 (a 24% increase).
• Leasing Activity -- Da Vinci leasing revenue up 34% in Q4, with 47% of da Vinci sales under lease.
• Service Revenue -- Q4 service revenue increased 21% to $422 million, driven by higher installed bases; da Vinci service revenue per system up 7%.
• Gross Margin -- Pro forma gross margin for the year was 67.6%; Q4 margin was 67.8%, down from last year largely due to tariffs and mix effects.
• 2026 Guidance: Procedure Volume -- Management expects da Vinci procedure volume to grow 13%-15% in 2026, noting potential impacts from U.S. health funding, Europe macro pressures, China competition, and capital constraints in Japan.
• 2026 Guidance: Gross Margin -- Targeting a 67%-68% pro forma gross margin, including a 1.2% tariff impact on net revenue.
• 2026 Guidance: Operating Expenses -- Forecasting 11%-15% pro forma operating expense growth, reflecting higher R&D and distributor integration costs.
• Cardiac Surgery Regulatory Update -- U.S. FDA clearance obtained for da Vinci 5 cardiac procedures with non-force feedback instruments; international approvals are in progress.
• ASC Strategy -- Management stated, "70% of the ASC procedure opportunity is in ASCs affiliated with our existing IDN customers," and emphasized a focused expansion using XIR systems.
• Digital Subscription Economics -- CFO Samath explained, "Come Q2-ish of 2026, then customers now have the opportunity to renew for that subscription package… there is then some invoicing that we'll do for customers that renew, and that starts to get reflected in revenue."
• China Competition -- CFO Samath reported, "the tender win ratio was lower in Q4," citing increased preference for local suppliers and pricing competition.

Need a quote from a Motley Fool analyst? Email pr@fool.com

RISKS

• CFO Samath cited, "government budget challenges in Japan and the UK, and robotic competition in China intensified in Q4, where we saw provincial tenders express preferences for local suppliers and lower pricing. Impacting our win ratio in the quarter."
• 2026 procedure growth guidance factors in possible headwinds from reduced ACA premium subsidies, Medicaid funding changes, capital constraints in parts of Europe, intensified China competition, ongoing capital challenges in Japan, and shifts driven by new obesity pharmaceuticals.
• Gross margin decline noted, with CFO Samath highlighting, "a 95 basis point impact from tariffs, higher facility costs, a greater mix of lower margin da Vinci five and ION revenue, and higher service costs related to da Vinci five."

SUMMARY

Management delivered substantial global procedure growth and double-digit revenue gains, underscoring continued adoption across platforms and geographies. New regulatory clearances, digital subscription transitions, and focused ASC market pursuit were emphasized as central to future expansion. Leadership specifically addressed mounting challenges in key international markets and evolving competitive pressures, while setting measured 2026 procedure and margin targets that account for a complex macro environment.

• Recent meta-analysis results shared by leadership indicate that, for over 200,000 da Vinci surgeries reviewed, robotic-assisted operations carried approximately “50% less” risk of open conversion compared to laparoscopic approaches.
• A separate Danish study presented by Connolly highlighted that robotic-assisted hernia repairs were associated with a 44% lower readmission rate and significantly shorter average hospital stays than laparoscopic procedures, while offering comparable or lower total procedural costs.
• President Rosa and CFO Samath described the launch of cardiac surgery on da Vinci 5 in the U.S, with plans for measured rollout and eventual expanded force feedback instrumentation and international regulatory submissions.
• Subscription-based digital offerings, including MyIntuitive Plus, are transitioning from bundled introductory access to renewed paid models in 2026, with potential to grow recurring revenue subject to “renewal rate and what is the ASP that we realize.”
• Leadership confirmed that the rapid growth in ASC placements leverages refurbished systems (XIR) and targets lower-acuity, high-volume procedures to match evolving healthcare economics and payer demands.
• CFO Samath disclosed a reversal in ION system placement trends, with Q4 placement volumes declining versus the prior year, as focus shifts to increased utilization of existing assets, particularly in the U.S.
• Ongoing product optimization, future regulatory approvals, and targeted geographic expansion—especially for SP and ION platforms—remain core priorities for management's multi-year growth strategy.

INDUSTRY GLOSSARY

• SP Platform: Intuitive Surgical (NASDAQ:ISRG)'s single port robotic surgery system, enabling minimally invasive procedures via a single access point.
• XIR System: Refurbished da Vinci Xi surgical platform targeted at cost-sensitive markets and ambulatory surgery centers.
• ASC: Ambulatory Surgery Center, a facility for same-day surgical procedures outside a hospital setting.
• MyIntuitive Plus: Intuitive Surgical's digital subscription suite providing simulation, telecollaboration, case insights, and personalized training for da Vinci 5 users.
• IDN: Integrated Delivery Network, a healthcare organization that manages multiple sites of patient care, often including affiliated ASCs.
• INA Revenue: Revenue from instruments and accessories used with the company's surgical systems.
• Trade-in: Transactions in which existing robotic systems are exchanged for newer models, often influencing mix and margin.

Full Conference Call Transcript

David will review business and operational highlights, Jamie will provide a review of our financial results and procedure highlights, I will review clinical highlights and discuss our updated financial outlook for 2026, and finally, we will host a question and answer session. With that, I will turn it over to David. Good afternoon, and thank you for joining us.

David J. Rosa: I'll begin with summarizing our performance in 2025 and sharing our perspective as we enter 2026. 2025 was a strong year for Intuitive Surgical, Inc. Driven by multispecialty da Vinci procedure growth across the globe, increasing adoption of da Vinci 5, and higher utilization across our three platforms. Physicians used our systems to treat more than 3.1 million patients in the year. Since the first procedure in 1997, more than 20 million patients have been treated using Intuitive Surgical, Inc. platforms. While meaningful progress has been made in advancing minimally invasive care, we continue to believe we are in the early stages of this journey. We started 2025 with four strategic priorities.

First, focusing on the full launch of da Vinci 5, its regional clearances, and follow-on feature releases. Second, pursuing increased adoption for our focused procedures by country through training, commercial activities, and market access efforts. Third, driving continued progress in building industrial scale, product quality, and manufacturing optimization. And finally, focusing on excellence and availability of our digital tools. I was pleased with our progress across these priorities. In 2025, da Vinci procedures increased approximately 18% with multiport procedures growing 17%, and single port procedures growing 87%. Combined with 51% ION procedure growth, total procedures grew 19% for the year. In the US, da Vinci procedures increased 15% to more than 2,000,000.

With notable contributions from general surgery procedures including after-hours use. Internationally, 23% to over 1,100,000. The growth rates were 21% in Europe, 24% in Asia, and 27% in rest of world markets. As a result, procedures outside the US accounted for roughly 35% of our global procedures. Reflecting clinical demand improved market access, broad training initiatives, and supportive economics. Going forward, we will continue to invest in market access activities and local evidence generation to meet our customers' clinical and economic objectives. In 2025, global system utilization increased 3% across our da Vinci platforms. Multiport grew 3%, single port 29%, and ION 9%. Turning to capital. We placed 1,721 da Vinci systems in 2025.

Including 870 da Vinci 5 systems and 107 SP systems. And 195 ION systems. Demand for da Vinci 5 strengthened throughout the year, with customers responding to broader availability as we scaled manufacturing and increasing capability through subsequent software and product releases. In the US, we saw robust demand for system upgrades and dual console systems. Reflecting customer interest in standardization, training, mentoring. In the second half of the year, we launched da Vinci 5 in Europe, the UK, and Japan. For the year, we placed 58 da Vinci 5 systems outside the US, mostly in Europe. And we are pleased with feedback from these early adopters.

In 2025, we began offering refurbished da Vinci XIs systems as an integral part of our system strategy. And placed 42 XIR systems in the year. Looking ahead, we believe there is a sizable long-term opportunity for our da Vinci XIR system and related economic programs. To expand access to da Vinci surgery internationally and in US ambulatory surgery centers. Financially, revenue grew 21% year over year to $10.1 billion. Operating margins of 37% reflected our deliberate investment in R&D and manufacturing scale, as well as the impacts of tariffs and newer platform mix. Cost efficiency initiatives helped to partially offset these pressures. Turning to our da Vinci platforms.

Customer feedback remains positive as da Vinci 5 continues to expand to new indications and geographies. Surgeons highlight the benefits of greater autonomy and enhanced efficiency. Reflected in the higher utilization trends we're seeing relative to Xi. Improved vision, force feedback capabilities, and ongoing UI enhancements have also supported broad interest in da Vinci 5. We are excited to fully launch our force feedback instruments and work with customers to establish the clinical impact of force feedback at scale. This month, we received FDA clearance for several cardiac procedures on da Vinci 5, using non-force feedback instruments. Given the complexity of minimally invasive cardiac surgery, we are planning a measured rollout to support training, education, and adoption.

We believe deeply that patients requiring cardiac surgery benefit from a minimally invasive approach with da Vinci and look forward to actively supporting our customers through these procedures. Over the past year, we released two software updates that improve surgeon awareness in the console supported better intraoperative decision making, and establish the foundation for future remote updates. In 2026, da Vinci 5 capabilities will continue to grow as we introduce additional products and features. MyIntuitive Plus, our digital package offered with da Vinci 5, includes simulation, telecollaboration, and case insights. And is designed to help customers understand their surgical performance, collaborate in real time, and receive personalized training recommendations. Adoption of our telepresence capabilities continues to increase.

Supported by recent software changes that enable surgeon-initiated scheduling. Surgeons are now able to more easily tap into the collective knowledge of the da Vinci community through real-time case observation, collaboration, and mentoring. Increasingly, we are hearing from IDN executives that they value the ability to connect flagship hospitals within their broader network. To provide consistent high-quality care to more patients. Our Singapore platform continued to build operating and clinical momentum in 2025. Procedures grew 87%, driven by high rates of growth in Korea and the US with accretive early growth in Europe, Japan, and Taiwan. Our installed base increased by 39% to 377 systems. Since clearance in 2018, we have methodically added indications and capabilities to the platform.

In Q4, we received 510(k) clearance for several additional indications. Including nipple-sparing mastectomy, inguinal hernia repair, cholecystectomy, and appendectomy. For NSM in particular, we plan a measured rollout to support education, training, and adoption in 2026 and beyond. Feedback on our single port stapler during its initial launch has been very positive. And moving into broad launch this quarter, will support deeper penetration in thoracic and colorectal procedures. We have additional regulatory submissions planned for 2026 and we'll update you on our progress throughout the year. Turning to ION. Worldwide procedures grew 51% to just over 144,000. Since FDA clearance in 2019, physicians have performed over 325,000 ION procedures with a global installed base approaching a thousand systems.

In 2026, we remain focused on growing utilization of existing domestic systems and ensuring excellent early results in international markets. We are committed to expanding capabilities of ION. Including our efforts in ROSE, our rapid on-site tissue evaluation technology and the integration of endobronchial ultrasound. We believe ION, with these capabilities, will help minimize the time from detection to treatment. As we work to improve the survival rate of lung cancer patients. As we enter 2026, our company priorities are as follows. First, the global expansion of our platforms, digital feature releases, and ecosystem enhancements. Second, increased adoption for our focused procedures by country. Through training, commercial activities, and market access efforts.

Third, building industrial scale, product quality, and manufacturing optimization. And finally, advancing innovation to reach more patients in current and new disease states. With that, I'll turn the time over to Jamie to take you through our business and finances in greater detail.

Jamie E. Samath: Good afternoon. I will describe our performance on a non-GAAP or pro forma basis. And I will also summarize our GAAP results later in my remarks. A reconciliation between our pro forma and GAAP results is available on our website. To facilitate a deepening of understanding of the trends within our ION business, we have added disclosures to the data tables posted on our website. All references to total procedures and their related growth rates include da Vinci and ION procedures taken together. Q4 and 2025 revenue, procedures, and system placements are in line with our preliminary press release on January 14. I will briefly review full-year 2025 performance before describing our Q4 results in greater detail.

2025 financial performance was strong. Total procedures grew 19% and total revenue grew 21%. Despite the impact of tariffs, pro forma operating margin improved approximately 70 basis points to 37% for the year. Given the strong financial performance, 2025 pro forma EPS increased 22%, marking the third consecutive year of pro forma EPS growth above 20%. Consistent with our financial objectives for 2024, we saw a significant increase in free cash flow to $2.5 billion, up from free cash flow of $1.3 billion in 2024, driven by increased profitability and lower capital expenditures. During the year, we repurchased $2.3 billion of Intuitive Surgical, Inc. stock at an average price of $478 per share. Turning to Q4.

Total procedure growth is 18%, driven by general surgery in the US and broad-based growth in OUS markets. In quarter four, revenue grew 19% to $2.87 billion, recurring revenue higher by 20% to $2.3 billion, accounting for 81% of total revenue. On a constant currency basis, revenue growth was 18%. Pro forma operating margin was 37%, which included an impact of approximately 95 basis points from tariffs and a $70 million contribution to the Intuitive Foundation. The strength of our financial results reflected continuing global expansion and procedure adoption of our da Vinci V, ION, and SP platforms. For our da Vinci business, procedures grew 17%.

The installed base of da Vinci systems increased by 12%, to just over 11,100 systems, and average system utilization increased by 4%. For our ION platform, we continue to see robust clinical growth with procedures increasing 44%, the installed base up by 24% to just under a thousand systems, and average system utilization increasing by 11%. In the US, total procedures increased 16%, reflecting 15% growth in da Vinci procedures and 41% growth in ION procedures. Da Vinci procedures performed after hours, a proxy for acute care, increased by 35% in Q4, primarily driven by cholecystectomy and appendectomy procedures and reflects our support for customers expanding access to da Vinci surgery.

Da Vinci utilization in the US increased 3% in Q4, driven by continued adoption of da Vinci V, where customers are leveraging the system's efficiency advantages to increase cases performed per day. Over the past few years, our customers have increased their efforts to distribute surgeries across different sites of care, from hospitals to hospital outpatient departments to ambulatory surgery centers or ASCs. Minimally invasive surgery has helped enable this shift. As this occurs, we have increased our efforts to expand our footprint in ASCs, which we expect to be a multiyear effort.

Our initiative currently leverages our XIR system and its associated ecosystem economic and capital acquisition offerings we believe are well suited to meet the clinical and financial needs of this environment. Not all ASCs run at the same volume, or with the same mix of procedures, and we have started our efforts focused on higher volume ASCs that can sustain a robotic program. Approximately 70% of the ASC procedure opportunity is in ASCs affiliated with our existing IDN customers, a number of surgeons are already da Vinci trained. In addition, we actively support customers that upgrade to da Vinci five in their efforts to slide their existing Xi to the HOPD or ASC setting.

Outside the US, in quarter four, total procedures grew 22% and on a day-adjusted basis, total OUS procedure growth was 23%. 21% in OUS markets. Reflecting strong results in Canada, India, Korea, and distributor markets, and solid growth in Germany, the UK, Italy, Spain, and Taiwan. Consistent with last quarter, procedure growth in Japan was a little lower than our expectations, reflecting lower capital placements over the last several quarters. The Japanese Ministry of Health, Labor and Welfare is currently in the final stages of evaluating granting reimbursement for additional robotic procedures starting in June 2026. We will provide an update on the outcome on our next earnings call.

Taking OUS markets combined, benign general surgery procedures increased 27%, driven by cholecystectomy and hernia repair. Globally, we continue to see strong procedure growth for our SP platform at 78% for Q4, with strength in Korea and continuing strong early-stage growth in Europe, Japan, and Taiwan. In the US, SP average system utilization accelerated, growing 21% as compared to quarter four of last year. We also see encouraging initial growth in thoracic procedures following clearance in 2024 and positive customer feedback on the limited launch of our SP stapler. As a result of our clinical performance, total INA revenue in quarter four grew 17% to $1.7 billion, relatively consistent with overall procedure growth.

Da Vinci INA revenue per procedure was approximately $1,850 compared to $1,860 last year, primarily driven by customer ordering patterns. We also continue to see downward pressure from lower bariatrics procedures and higher cholecystectomy procedures, offset by higher SP procedures and da Vinci five specific INA. For our ION platform, INA revenue per procedure was approximately $2,200, relatively consistent with prior periods. Turning to capital performance and starting with our da Vinci business. We placed 532 da Vinci systems in quarter four, an 8% increase from the 493 systems placed in the same quarter last year. 303 of the 532 placements were da Vinci five, including 43 in OUS markets, following recent clearances in Europe and Japan.

The installed base of da Vinci systems is now 1,232 systems, used by over 10,000 surgeons since the launch of da Vinci five. We saw 146 trading transactions in Q4, up from 62 a year ago, primarily driven by US customers upgrading to da Vinci five. In the US, we placed 304 systems, up from 284 last year, driven by adoption of da Vinci five. Outside the US, we placed 228 systems compared to 209 last year. OUS placements included 118 in Europe, 40 in Japan, and 17 in China, compared to 89, 43, and 20 respectively, last year.

We continue to see government budget challenges in Japan and the UK, and robotic competition in China intensified in Q4, where we saw provincial tenders express preferences for local suppliers and lower pricing. Impacting our win ratio in the quarter. Within the 532 da Vinci placements, we placed 35 SP systems in Q4, higher than the 30 systems last year, driven primarily by OUS markets. For our ION platform, we placed 42 systems in Q4, compared to 69 systems last year, including six systems placed in OUS markets. Lower ION placements in the US continue to reflect a joint focus with our customers on increasing utilization, given our capital performance, which in the US increased by 11% in Q4.

Quarter four systems revenue grew 20% to $786 million. For our da Vinci business, leasing represented 47% of da Vinci placements as compared to 54% last quarter and 45% last year, driven by the mix of customers who prefer to purchase. However, over time, we continue to expect the proportion of systems placed under operating lease arrangements to increase, primarily driven by OUS customers. Da Vinci leasing revenue increased 34%, reflecting a 15% expansion of the installed base under operating lease arrangements and a 13% increase in lease revenue per system driven by a higher mix of da Vinci five systems.

The average selling price for purchased da Vinci systems was $1.68 million in Q4 as compared to $1.6 million last year, driven by a higher mix of da Vinci V systems and a higher mix of dual console systems, partially offset by higher trade-ins. Lease buyout revenue was $39 million as compared to $22 million last quarter and $28 million last year. Quarter four service revenue increased 21% to $422 million, reflecting an increase of the da Vinci installed base of 12% and the ION installed base of 24%. Service revenue per system for our da Vinci installed base increased 7% year over year, primarily reflecting a higher mix of da Vinci five systems.

Turning now to the rest of the P&L. Pro forma gross margin for the quarter was 67.8%, down from 69.5% in Q4 of last year. The year-over-year decline reflects a 95 basis point impact from tariffs, higher facility costs, a greater mix of lower margin da Vinci five and ION revenue, and higher service costs related to da Vinci five, partially offset by product cost reductions and purchase component savings. Quarter four pro forma operating expenses increased 16% year over year, driven by a $17 million donation to the Intuitive Foundation, increased headcount, higher variable compensation costs, and increased facility costs, partially offset by lower legal expenses.

We added approximately 200 employees during the quarter, primarily in our core commercial and engineering functions. The increased donation to the Intuitive Foundation as compared to the $45 million donated in quarter four of last year reflects our decision to make a multiyear donation given the impact of new US tax rules effective in 2026. With respect to our plans to go direct in Italy, Spain, and Portugal, we currently expect to close by the end of Q1, resulting in the transfer of approximately 250 employees. Pro forma other income was $86 million for the quarter, as compared to $93 million last quarter, reflecting lower interest income.

Our pro forma effective tax rate for quarter four was 20.6%, slightly below our expectations, driven by $11 million in net discrete benefits, primarily related to releases of tax reserves due to statute of limitation expirations and other various adjustments to our tax reserves. Pro forma net income for the fourth quarter was $914 million compared with $805 million last year. Pro forma earnings per share was $2.53 per share, as compared to $2.21 per share in quarter four of last year. Now turning to our GAAP results. GAAP net income for the quarter was $795 million or $2.21 per share compared to $686 million or $1.88 per share in Q4 of last year.

The differences between our pro forma and GAAP results are outlined and quantified on our website. We ended the year with $9 billion in cash and investments, up from $8.4 billion last quarter, driven primarily by cash from operations, partially offset by stock repurchases of $2.1 billion and capital expenditures of $155 million. With that, I'll turn it over to Dan to discuss recent clinical publications and our outlook for 2026.

Dan Connolly: Thank you, Jamie. Turning to the clinical side of our business, I'd like to share with you data from recent studies that we found notable. In addition to the specific data highlighted on this call, we encourage you to consider the wide body of evidence detailing these topics and others in published scientific studies over the years. This past November, Dr. Antonio Ganjemi of Alma Mater Studiorum Universita di Bologna in Bologna, Italy, along with coauthors published the conversion study, open conversion risk in robotic versus laparoscopic surgery. A twenty-year meta-analysis in the Annals of Surgery.

Operator: Through a meta-analysis of literature from 30 different countries,

Dan Connolly: the study compared conversion rates to open surgery for da Vinci in laparoscopic procedures. Including abdominal wall, and inguinal hernia repairs, gastrectomy, cholecystectomy, and rectal resections. The study included over 200,000 patients treated with da Vinci, and over 1.3 million patients treated laparoscopically. The results demonstrated that patients undergoing robotic-assisted surgery were approximately 50% less likely to experience a conversion to open surgery than patients undergoing a laparoscopic procedure. With similar results across randomized controlled studies, prospective studies, and retrospective study types. The authors hypothesize that technical advantages of robotic-assisted systems specifically, wristed instruments with seven degrees of freedom, 3D high-definition visualization, and physiological tremor filtration. Were potential explanatory factors for the results.

The authors concluded, quote, this meta-analysis, which spans over twenty years of peer-reviewed literature, and includes 14 oncological and non-oncological surgeries, across general surgery and related specialties suggest that robotic-assisted surgery offers a reduced risk of open conversion compared to laparoscopy. These findings may inform decision-makers considering the adoption of robotic-assisted surgery in general surgery and associated specialties. Close quote. This past November, Dr. Nadia Henrichs from Bisphenviere Hospital in Copenhagen, Denmark published procedural costs of robot-assisted and laparoscopic ventral and incisional hernia repair. A propensity score matched nationwide database study in the Journal of Abdominal Wall Surgery.

Using data from the Danish Hernia database, which includes all hernia repairs performed in Denmark, the authors compared subjects undergoing elective primary ventral hernia repair or incisional hernia repair via the robotic-assisted approach or the laparoscopic approach, from January 2017 to December 2022. After one-to-one propensity score matching, with 554 patients in each of the robotic-assisted and laparoscopic arms, study results showed a significantly shorter length of stay for robotic-assisted procedures at 0.5 days versus 1.2 days for the laparoscopic group. As well as a 44% reduction in the readmission rate for robotic-assisted procedures compared to the laparoscopic group. Comparing costs, the mean total perioperative cost of robotic-assisted procedures was significantly lower than laparoscopic procedures.

With a €660 difference in total cost between approaches. For robotic primary ventral hernia repair, multivariate regression analysis further confirmed independent association with decreased overall costs. The authors concluded, quote, while the cost of the robotic surgical equipment surpassed that of conventional laparoscopy, it is offset by the need of more expensive meshes and tacker devices and higher readmission rates following a laparoscopic approach. This nationwide database study showed that for primary ventral hernias, the mean procedural cost of a robot-assisted and laparoscopic repair are comparable, but for incisional hernia repairs, the mean procedural cost is decreased with a robot-assisted approach. Close quote.

Jamie E. Samath: I will now turn to our financial outlook for 2026.

Dan Connolly: Starting with da Vinci procedures. As detailed in our announcement earlier this month, 2025 total da Vinci procedures grew approximately 18% year over year to more than 3.1 million procedures performed worldwide. For 2026, we anticipate full-year da Vinci procedure growth within a range of 13-15%. We anticipate primary growth drivers in 2026 to be generally consistent with those in 2025, including general surgery in the US, and procedures outside of urology internationally. This range considers the potential impact of changes to ACA premium subsidies and Medicaid funding on hospital and patient behavior in the US, capital pressure in parts of Europe related to macroeconomic impact, and shifting governmental priorities.

China tender volumes and competitive intensity in that market, recent capital challenges in Japan, how long those persist in 2026, and any related impact on procedures. And new pharmaceutical products for obesity management. Turning to gross profit. In 2025, our pro forma gross profit margin was 67.6%. In 2026, we expect our pro forma gross profit margin to be within a range of 67-68% of net revenue. This year, we forecast an impact from tariffs of 1.2% of net revenue, plus or minus 10 basis points.

Other factors impacting the projected pro forma gross profit margin guidance include faster growth of newer products in da Vinci five and ION, modest incremental depreciation from recent facility expansion, and the impact from higher da Vinci system upgrades. Partially offset by cost reductions. Our actual gross profit margin will vary quarter to quarter depending largely on product, regional, and trade-in mix. And pricing. Turning to operating expenses. In 2025, our pro forma operating expenses grew 12%. In 2026, we expect pro forma operating expense growth to be within a range of 11-15% due to higher spending in support of advancing early-stage R&D programs as well as incremental expenses associated with our distributor acquisition.

We estimate noncash stock compensation expense between $890 million and $920 million. We forecast other income, which is comprised mostly of interest income, to total between $355 million and $375 million. At this time, given our expectation that capital expenditures will return to more normalized levels, we are no longer providing specific capital expenditure guidance. With regard to income tax, in 2025, our pro forma income tax rate was approximately 21%. As we look forward, we estimate our 2026 pro forma income tax rate to be within a range of 22-23% of pretax income. That concludes our prepared remarks. We will now open the call to your questions.

Jamie E. Samath: Thank you so much. And to our teleaudience,

Operator: and as a reminder, if you have a question, press 11 to get in the queue. And wait for your name to be announced. To remove yourself, press 11 again. One moment for our first question, please. It comes from the line of Travis Steed with the Bank of America. Please proceed.

Travis Steed: Hey, thanks for taking the question. First, wanted to ask about the FDA approval for the cardiac non-force feedback instrument. Just trying to get a little more color on what that is and what it opens up. When I was looking at your 2026 priorities that you mentioned, you added new disease states. So if you could elaborate on that, if that's cardiac or there's more there.

David J. Rosa: Sure, Travis, thank you for the question. I'll start maybe with some framing around cardiac and the work we're doing, and then Jamie can follow-up a bit. And so, you know, we've been supporting cardiac surgery for decades and have a good understanding of what cardiac programs need to do to be successful and have great patient outcomes. And so there are some foundational aspects that we're working on today. Those include clearances on the platform on DV5 in certain geographies. We just received the US clearance. We're working through approval in Europe and several other countries. Part of those indications as well will include force feedback.

And so cardiac surgery has a wide variety of procedures with a wide variety of tasks. And we do think that force feedback can have some benefit in certain parts of certain procedures. And so the initial clearance here, I think, incorporates our entire portfolio of non-force feedback instruments. And has value today for cardiac procedures. And, again, we'll work to add force feedback in time through the regulatory pathway. We are also developing training pathways to support it's a unique pathway through to learn the cardiac robotic surgery business, if you will, for minimally invasive approaches with da Vinci. And so we're investing there.

We are developing cardiac-specific instrumentation, including force feedback, some accessories, and tuning some of the digital tools we have. Those will be multiyear efforts to bring all of those to the market. And then finally, worked with surgical societies. It's an important aspect of, I think, doing this well, for training and other parts, that they are helping to develop. And so that lays this kind of foundation, if you will, for the beginning of this cardiac journey that we're on. Particularly with DV5. And so maybe Jamie.

Jamie E. Samath: Yes. Travis, I just give some numbers maybe for grounding. So in '25 globally, there were about 17,000 cardiac procedures performed. That's on SI and XI. That business has been growing for multiples of years, but obviously from a small base. The growth in recent years, including '25, was accretive to the corporate average. While, obviously, the cardiac TAM is really quite large, when we do our clinical analysis, when we look at where cardiac is cleared for, da Vinci five, which currently is now the US and Korea, we think the opportunity from a da Vinci five perspective or a robotic perspective is about 160,000 procedures per year.

And, obviously, that has the opportunity to expand if and as we add additional geographies.

Travis Steed: Great. Thanks. That's really helpful. And you've talked a lot about advanced imaging. Just curious how you think about incorporating these additional advanced imaging features into the robotic ecosystem. Did you leverage the existing hardware? Is there a new hardware? How do you think about recognizing the value of the you're providing to customers? Is it just deeper penetration, or is there potential for new revenue streams? Wanna try to understand, like, how some of the imaging stuff could come into the business in a more detailed way?

David J. Rosa: Yeah, Travis. You know, some of the advanced imaging capabilities that we've talked about are additional molecules that we're working on, and those are long timelines that will add to the fluorescence imaging capability of the system. Those molecules will have revenue streams attached to them. We recently have talked about kind of a form of hyperspectral imaging that shows tissue oxygenation. That is gonna be a capability of the system that requires some new software and some tuning of some of our hardware.

All of those are pointed at trying to give more information to the surgeon and to the system where we're able to add perhaps some AI layers to it, but really with the intent of improving ultimately improving outcomes. Be it in prostate cancer or ureter injuries or perhaps in areas of surgery where perfusion, which is where the tissue oxygenation is pointed, can make a difference in outcomes.

Travis Steed: Great. Thanks a lot.

Operator: Thank you so much. One moment for our next question, please. And it comes from the line of Larry Biegelsen with Wells Fargo. Please proceed.

Larry Biegelsen: Good afternoon. Thanks for taking the question. Wanted to start with the ASC commentary, Dave. I'd love to hear you expand on your comment about expanding your footprint in ASCs. How large is the ASC opportunity for your focused procedures today? Know, what are those key procedures moving to the ASC, and what do you need to do to unlock the opportunity? And I did have one follow-up.

David J. Rosa: Yeah. Maybe Larry, I'll start just kind of I always try to start with the problem we're solving or what the customer needs are. And I'm gonna start there and then Jamie can jump in on some of the numbers here. When I meet with ASC leaders, and when they're wanting to say, I wanna establish a soft tissue program within one or more of our ASCs. Really what they're looking for are repeatable high-quality clinical outcomes. Technology systems that work every day, and operating infrastructure, you know, training, supply chain, reprocessing, those sorts of things that is routine and easily accessible.

And all of that has to fit into an economic structure that works for the reimbursement levels of that particular ASC. And so when I look at what we have in our current portfolio of systems, including now XIR, the broader ecosystem, of all the other products and training and services that is well positioned to serve the needs that we're hearing from our customers. The procedures that are generally within that environment are the ones that, you know, cholecystectomy, hernia repairs, benign GYN. It oftentimes is the lower acuity procedures where the volume and the repeatability can be managed in the ASC environment.

Jamie E. Samath: I just say, Larry, in terms of numbers, today, it's a relatively small proportion of US procedures done, but we do see it growing at an accretive rate. I think those trends have been talked about just broadly. Most of our commentary today reflects we've heard from customers. I think that in part reflects the desire of payers to take advantage of the lower reimbursement in the ASC setting. And for us now, the launch of da Vinci five, the trading cycle has commenced and we get the excise back and we can refurbish them. We think the XIR in combination with our instrument portfolio is well positioned for that setting. As procedures grow in ASCs.

Larry Biegelsen: That's super helpful. Jamie, how should we think about utilization in 2026 in system ASPs in 2026 after we saw strong growth in 2025 to the refurbished XIs, put some downward pressure on the ASPs, and the move into the ASPs maybe put some downward pressure on utilization. Thank you.

Jamie E. Samath: Yeah. I'd just say if you look at the last couple of quarters, in each case, we saw overall da Vinci utilization grow 4% with we think that's a healthy level, but we're not ready to predict what that will be in '26. For the presence that we already have in ASCs, because we've been focused primarily with our existing IDN customers and we've looked for programs that have strong, soft tissue surgery volumes that can support robotics program. The existing utilization that we have in ASCs is actually pretty good. And I think economically then, obviously, that works for them. On system ASPs, I'm not gonna predict what the overall 26 direction will be. Obviously, we don't guide capital.

I just say you should expect a higher da Vinci five mix in 26 versus 25. That reflects, of course, the fact that we have in part, new geographies cleared with da Vinci five. You should also expect a higher mix of XAR. That's gonna be ASC ASPs, quite a bit below where Xi is today, but we haven't said yet what the XIR price range is likely to be. And I would expect higher trade-ins. And so there's a set of offsetting mix dynamics there, that, frankly, will let you model. I just also say in terms of system ASPs, of course, that is only on systems purchased, which roughly is about half of the system placements today.

David J. Rosa: Thank you.

Operator: Thank you so much. One moment for our next question. And it comes from the line of Robbie Marcus with JPMorgan. Please proceed.

Robbie Marcus: Hi. Thanks for taking the questions and congratulations again on a great quarter.

David J. Rosa: Jamie, you touched on this a little bit, but I was hoping you could give a little more color into the gross margin and OpEx assumptions. There's obviously a lot of moving pieces under the hood. Wondering if you could tease out some of them, you know, as we think about how XIR ramps and impacts or positively or negatively margins and trade-ins. And then what's assumed at the high and the low end of the OpEx? Expense? And I have a follow-up.

Jamie E. Samath: With respect to gross margin, there's actually a number of dynamics. You have the higher trade-ins that we just described. You have a higher mix of DaVinci five that's not yet at target. Product costs. The procedure guidance is reflected in that gross margin range. We also have had for a couple of years now, kind of post-COVID recovery, a number of product cost reduction efforts that have had a growing impact within what you see in gross margin. In '25, you saw the impact of all the new facilities with incremental depreciation and facility costs, and that starts to get leveraged in '26.

And so there's a set of offsetting dynamics there in gross margin, the kind of net to the guidance that we provided which effectively is flattish. I would highlight again we have a 120 basis points of tariffs reflected in the '26 guidance. That was about 65 basis points in '25. So an incremental 50-ish basis points from tariffs. With respect to XIR, like I said, we expect the pricing to be lower than currently what you pay for a new Xi, but the margins are relatively healthy on XIR.

Robbie Marcus: Great. Appreciate that. And a quick follow-up. You mentioned increased pricing competition in China. I saw there were a new reimbursement program put out. Some helps favor local competition. Was wondering if you could just comment on how you think about your position in China and your ability to continue to win there. And also, if you have any update on the latest tender.

David J. Rosa: Yeah. I might start. So just to answer that question specifically, around the local robotic competitors that are in China, many as you know, many of the architectures are very similar to Xi. And over time, there are instances where they may be favored by home provinces. And, certainly, over the past several quarters, the number of robotic companies in China have been increasing. And as a result, what you see is that pricing has become even more intense as tenders are published and competed for. So given that sort of environment, you look at how are we competing. And that's with an Xi system where manufacturing it locally. We have a very strong team in China.

And so feel very good about how we're positioned with our system, our team, our the broader ecosystem. To compete in China with those local robotic companies. That are increasingly coming to market. And we believe we can do so at a price point that is healthy for them. And healthy for us and can do and can effectively compete on price where we want to and where it matters.

Jamie E. Samath: Robbie, I just add, there's about 273 systems left in the current quota. And I would just say, as we said in the prepared remarks, the tender win ratio was lower in Q4. If you look at 2025 as a whole, it was slightly higher than the prior year. And, obviously, they described our ability to compete. I think I missed, Robbie, your question on OpEx. So I would just say in that 11% to 15% range, it does reflect the impact of going direct in Italy, Spain, and Portugal, but the range mostly is in relation to the procedure range.

Robbie Marcus: Fantastic. Thanks a lot.

Operator: Thank you. Our next question comes from the line of Rick Wise with Stifel. Please proceed.

Rick Wise: Good afternoon. Hi, Dave. Hi, Jamie. Dave, I was reflecting on your comment, your words. You know, if I'm quoting you accurately, you said you still see Intuitive Surgical, Inc. as being in the early stages of your journey. I mean, that's similar language I've heard from Intuitive Surgical, Inc. for years. And I was reflecting on it in the context of a slide you posted during the JPMorgan comments a couple of weeks ago. About nine million seizures in direct line of sight. And went back and looked at 24, and all said seven million at the time. That's nearly a 30% increase in procedures and direct line of sight.

And I just wondered is I'm guessing maybe the cardiac opportunity, is that part of it? Is it the ambulatory surgery? Opportunity? Is it, you know, something instrument specific? Just I was hoping you'd reflect on that with me and us and maybe unpack that a little bit.

David J. Rosa: I thank you for the question. And maybe I'll comment on the early part of the journey, at least as I meant it with my words, and then Dan and Jamie can jump in. You know, when I think about the journey with the ultimate destination really improving outcomes substantially, you know, eliminating complications to the extent that we possibly can. And I you know, you choose a procedure today, and there's still variability. There are still poor outcomes for a given set of patients. Even in the very best of hands, with the very best of technology. And so that's when I think about the journey, it's the journey of impacting patients.

You know, meaningfully and more than we even have today. With respect to the line of sight procedures and the growth and how that has increased over the years. Maybe I'll look to Dan.

Dan Connolly: Yeah. Rick, $20,247,000,000. $258,000,000. 26, you know, 9,000,000. I'd say primarily strengthening clinical validation and supportive economics and benign procedures kind of the largest impact. Also saw modest impact from additional procedure clearances like nipple-sparing mastectomy, SP in the US, then lastly, contributing as well kind of demographic impact from an aging population. So generally consistent with prior increases and the factors underneath that, generally consistent as well.

Rick Wise: Okay. And just a quick follow-up. Dave, you also highlighted digital subscription. And I'm just not sure if I've personally maybe I've missed it. Heard that language. It sounds like a positive economic factor and ink something potentially incremental. Again, could you just expand on your comments and what it might mean to the growth outlook or adoption of DaVinci five, etcetera? Thank you both.

Jamie E. Samath: Yeah. I'll take that, Rick. So Dave was referring to MIA plus, which comes with da Vinci five. It incorporates telepresence, integrated skill simulation, and case insights. When we launched DaVinci five, that package came with one year free use for customers. Actually did a significant software update in Q2 of last year, and so we extended that free period for customers. Technically, what happened when we did that was a portion of the system purchase price got carved out of systems revenue and deferred and put into service revenue over time. Just the way the accounting rules work. Come Q2-ish of 2026, then customers now have the opportunity to renew for that subscription package.

Where they'll now have to pay and the end, then the value that surgeons and customers are experiencing with that pack would determine both. What is the renewal rate and what is the ASP that we realize. With respect to the case insights portion of that package, we've got good early customer feedback. I think we have some work to do to continue to refine and enhance the capability there, and I think we see long-term value in what that could ultimately do. It also has quite a bit of synergy with force feedback, which has not been in full supply.

And so as we get that into full supply later this year, you then get to kind of see the impact of force more clearly in the case insights reporting that gets done. And so there is then some invoicing that we'll do for customers that renew, and that starts to get reflected in revenue.

Rick Wise: Great answer. Thanks so much, Jamie.

Operator: Thank you. Our next question comes from the line of David Roman with Goldman Sachs. Please proceed.

David Roman: Thank you. Good afternoon, everybody. I wanted to maybe come back to SP. And it seems like the 2025 represents at least in the US, the potential of putting in place the dynamic you need to really see an inflection in growth in both SP placements as well as associated procedures. As you kind of look at the portfolio and indications you have entering 2026, is there anything left either from a technology standpoint, maybe a vessel sealer that you think would be necessary to really unlock the opportunity and how you're thinking about the SP strategy now that you have a more full portfolio of instruments as well as indications, and I have one follow-up.

Dan Connolly: Thanks, David. It's Dan. I think, broadly, very encouraged by the response. To the technology and the procedure growth rates that we've seen here recently. Looking to continue to build the platform internationally. We're still relatively early in Europe, Japan, and Taiwan. And then in the US, with recent clearances, colorectal, thoracic, and NSM indications as well. You mentioned on instrumentation, we do need to continue development of the vessel sealer device. Add that clearance, and then add stapler clearances globally. I think we're encouraged by the early feedback from the initial launch on SP stapler in thoracic and colorectal and excited to bring that forward more fully.

And I say over time, we've also got the opportunity to take SP to additional geographies as well.

David Roman: Okay. And then maybe on the guidance, I think you talked about reflecting some of the risk around macro pressures, whether those are hospital purchasing on Medicaid cuts or potential changes in utilization associated with exchange subsidies expiring. Just help us understand how you saw these dynamics play out through the back half of 2025? I know in Q3, you talked about the potential of some pull forward of procedure volumes. What you saw kind of exiting the year? And how you're kind of observing trend here early in January?

Dan Connolly: Yeah. No specific comment on kind of early trend in January, but I'd say over Q4, do not have any evidence either way. From an impact, but we haven't heard that from customers at all. I know we spoke about that potentially in Q3 related to some intra-quarter dynamics there, but have not heard that from customers more broadly recently. Operator, I think we've got time for one more question.

Operator: Thank you so much. One moment. Alright. And our last question comes from the line of Patrick Wood with Morgan Stanley. Please proceed.

Patrick Wood: Beautiful. Thank you so much for the question. I guess, conceptually thinking medium-term into the future, how do you guys think about new form factors and competition? We've talked about lower acuity cases. And going down. Is the solution here in your mind like a lower-end form factor, or do we stick with, you know, refurbished systems? Or is it the case that you think you can get to the point where speed and innovation is getting us faster than lap with a lower cost curve than lap and that's the solution to the lower acuity.

So is it a lower form factor or is it getting the tech to the point where automation speed is just better than lap anyway?

David J. Rosa: Yeah. It's an interesting question, and I will turn it back around to the problem to be solved. You know? And I think it varies depending on where you are. And so if you're in a complex cancer procedure where you're trying to move the needle on, let's say, a cancer margin, it's gonna require a different solution set than if you're looking for routine use in an ambulatory setting that is working on a very different set of procedures. And so I think we don't have enough time to look through each one of those areas of where customers are trying to work in particular. If we focus on

This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. Parts of this article were created using Large Language Models (LLMs) based on The Motley Fool's insights and investing approach. It has been reviewed by our AI quality control systems. Since LLMs cannot (currently) own stocks, it has no positions in any of the stocks mentioned. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.

The Motley Fool has positions in and recommends Intuitive Surgical. The Motley Fool has a disclosure policy.