Intuitive (ISRG) Q2 2025 Earnings Transcript

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DATE

Tuesday, July 22, 2025 at 4:30 p.m. ET

CALL PARTICIPANTS

Chief Executive Officer — Dave Rosa

Chief Financial Officer — Jamie Samath

Chief Medical Officer — Dan Connally

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RISKS

Jamie Samath stated, "pro forma gross margin was 67.9% in Q2 2025, down from 70% in Q2 2024." attributing the decline to "higher facilities costs," "a greater mix of lower-margin ION and da Vinci five revenue," and "higher service costs related to da Vinci five" (non-GAAP) in Q2 2025.

Management explicitly noted, "Our capital performance outside the US continues to be impacted by ongoing financial and budgetary pressures in Japan, China, and Europe." attributing these challenges to government budget deficits and uncertainties over the trade environment.

Jamie Samath highlighted, "the impact of tariffs for 2025 is expected to be approximately 100 basis points, plus or minus 20 basis points." with the caveat, "future tariff rates could have a significant incremental impact on our cost of sales."

The company acknowledged ongoing uncertainty regarding Medicaid coverage in the US, saying "uncertainty remains about whether some patients may lose coverage," which could create financial challenges for hospitals and potentially affect capital or operational budgets.

TAKEAWAYS

Total Revenue: Total revenue was $2.44 billion in Q2 2025, representing a 21% year-over-year increase (non-GAAP), with systems revenue increased 28% and Instrument and accessory revenue per procedure was approximately $1,800, consistent with the prior year.

Procedure Growth: Da Vinci procedures increased 17% (non-GAAP), ION procedures grew 52% to approximately 35,000, and SP procedures surged 88%, with notable acceleration in Korea.

System Placements: 395 da Vinci systems were placed, including 180 da Vinci five systems and 23 SP systems placed, marking a 16% increase in total placements compared to Q2 2024; US placements climbed to 216 units while International markets placed 179 units.

Installed Base: The da Vinci system installed base rose 14% to nearly 10,500; the installed base of ION reached 905.

Margins and Earnings: Pro forma gross margin was 67.9%. Pro forma operating margin reached 39%. Pro forma earnings per share rose 23% to $2.19.

Utilization Metrics: System utilization grew 2% for multiport platforms (non-GAAP); SP utilization rose 30%; Average system utilization for da Vinci five recently surpassed that of the Xi platform.

Leasing Mix: Leasing accounted for 49% of placements, down from 54% in Q2 2024, due to higher distributor sales.

Guidance Updates: The 2025 da Vinci procedure growth outlook was revised to 15.5%-17% for the full year. Pro forma gross margin projection was raised to 66%-67% for 2025 due to a lower-than-expected tariff impact. Pro forma operating expense growth guidance was maintained at 10%-14% for 2025.

New Product Clearances: Da Vinci five entered broad launch in the United States and secured regional clearances in Europe and Japan; the Vessel Sealer Curved received 510(k) clearance; the company obtained a new procedure clearance for tracheobronchoplasty.

R&D and Digital Initiatives: Force feedback and case insights features on da Vinci five generated early evidence of positive impact; digital collaboration and telepresence developments were highlighted, with telesurgery demonstration performed between Atlanta and Strasbourg.

Share Repurchases: The company repurchased 350,000 shares for $181 million at an average price of $518 per share.

Cash Position: Quarter-end cash and investments totaled $9.5 billion, up from $9.1 billion in the prior quarter.

SUMMARY

Management emphasized a measured international rollout of da Vinci five in Europe and Japan, noting early adopter interest but also regulatory and product feature timing constraints. Q2 2025 marked continued expansion outside core urology, with international procedure growth led by India, Korea, and distributor-driven new account creation in Brazil, Eastern Europe, and Southeast Asia. Capital spending plans include a newly opened facility in Bulgaria and planned expansion in Germany and Mexico to support industrial-scale revenue growth. Company executives directly addressed marketplace concerns about competition from third-party remanufactured instruments, highlighting safety, performance, and supply chain reliability as differentiators. Management indicated that force feedback supply for da Vinci five will remain constrained through Q1 2026. The company acknowledged ongoing and potentially increasing tariff impacts, as well as the uncertain effects of US Medicaid coverage changes on hospital capital spending decisions.

Dan Connally cited recently published clinical evidence from the REAL study, which found robotic-assisted surgery showed a "55% lower risk of local regional recurrence at three years compared to laparoscopy" for middle or low rectal cancer.

Jamie Samath stated, "recently, average system utilization on da Vinci five surpassed Xi." but cautioned further robust data is needed to confirm long-term efficiency improvements from platform upgrades.

Management indicated that European clearance for force feedback instruments is not expected before the end of 2025, which could delay some regional adoption.

New digital features and future software enhancements for the da Vinci five are planned, with most provided at no additional charge, potentially enhancing system value and driving upgrade decisions.

Capital allocation priorities remain: organic investment, targeted acquisitions, and opportunistic share repurchases, with continued review each quarter "the volatility that's in the environment in part because of the trade environment."

INDUSTRY GLOSSARY

SP (Single Port): An Intuitive Surgical, Inc. robotic system enabling minimally invasive surgery through a single patient entry site.

ION: Intuitive Surgical, Inc.'s robotic bronchoscopy platform for minimally invasive lung biopsy procedures.

Case Insights: The company's AI-enabled analytics tool that aggregates procedural data from da Vinci platforms to optimize clinical outcomes and training.

Instrument and Accessory (INA) Revenue: Per-procedure sales derived from consumable instruments and accessories used with installed surgical systems.

Quintuple Aim: A healthcare framework emphasizing improved patient outcomes, patient experience, care team experience, lower total cost, and expanded access.

Full Conference Call Transcript

Dave 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 2025. And finally, we will host a question and answer session. With that, I will turn it over to Dave. Good afternoon, and thank you for joining us today. Before we proceed, I'd like to take a moment

Dave Rosa: to recognize and thank Gary Guthart. As you know, after more than fifteen years as Intuitive Surgical, Inc.'s CEO, Gary transitioned to executive chair of the board earlier this month. It's been a privilege to work alongside Gary for nearly thirty years. We joined within a month of each other as engineers at what was a tiny California-based company in 1996, where a small group of us developed the first da Vinci prototype. Since then, we have worked together with many extraordinary colleagues to build a company that is today a global enterprise employing more than 16,000 people, supporting over 11,000 robotic systems across 74 countries, with over 17,000,000 procedures performed.

On behalf of the patients, surgeons, and care teams we support, our employees, and so many other stakeholders, we thank Gary for his leadership at Intuitive Surgical, Inc., and his contributions to advancing minimally invasive care. I am grateful for the strong foundation he's created, and honored to serve as Intuitive Surgical, Inc.'s next CEO. I'm excited to lead the company forward as we continue to advance the Quintuple Aim and deliver value for our stakeholders. Moving to the business, our financial metrics were strong in the second quarter, with solid procedure growth and capital placements despite ongoing macro challenges in certain international markets.

Our teams achieved significant milestones across our ecosystem of products and services, while navigating dynamic market conditions globally. Our product operations teams continue to build capacity and deliver for our customers, while optimizing production costs within our existing manufacturing and supply chain footprint. Our research and development efforts continue to build momentum in the quarter. Our newest platform, da Vinci five, is in broad launch in the United States, and received clearances in Europe and Japan where we will begin measured launches. We are pleased with customer feedback and adoption of our newer platforms, and remain committed to supporting high-quality, minimally invasive care with a comprehensive and impactful product portfolio.

Reviewing procedure performance, da Vinci procedure growth in the quarter was 17%. Benign general surgery led US procedure growth with a strong contribution from after-hours procedures, while international growth was led by non-urology procedures. Regional performance highlights included strength in India, Korea, and distribution markets. Jamie will provide further details on procedure dynamics later in the call. Turning to capital, we placed 395 da Vinci systems, including 180 da Vinci five systems and 23 SP systems. Capital placements were strong in the US, while macro challenges in Japan, China, and Europe continued. We also placed 54 ION systems in the quarter.

System utilization, defined as procedures per installed clinical system per quarter, grew 2% year over year for our multiport platforms and accelerated to 308% for SP and Ion, respectively. Moving to our finances, revenue growth of 21% reflects solid procedure performance and capital placements, and a benefit from higher purchase mix. Product margins and operating expenses were slightly favorable to our expectations. Turning to our multiport business, da Vinci V has been an important addition to our robotic surgical system portfolio. With more than 100,000 procedures performed to date, what had been a measured US launch. We are pleased to offer da Vinci five broadly in the United States.

Commercialization in Europe and Japan will be measured, as we work through additional clearances to fully enable the da Vinci five ecosystem. We also added to our advanced energy instrument portfolio with 510(k) clearance for vessel sealer curved, giving surgeons greater precision in narrow anatomical spaces. Additionally, we received a procedure clearance for tracheobronchoplasty, a surgical treatment for a collapsed trachea and main bronchi during normal breathing. With respect to our digital ecosystem, customers continue to collect and publish data about force feedback and other aspects of da Vinci five, through their use of case insights. Dan will highlight some of this data later in the call.

Since launching dual console capability with DaVinci SI in February 2009, we have developed a range of digital collaboration tools for our customers. We believe these telecollaboration capabilities can advance clinician training, enhance patient care, and optimize care delivery. Intuitive Telepresence with our latest hub software will enable customers to use on-demand scheduling connecting easily with a known group of peers, similar to the favorites screen on your phone.

Last week, at the Society of Robotic Surgery Conference, doctor Doug Stoddard, director of surgery and robotics at Christus Health, and doctor Andrea Pakula, medical director of robotic surgery at Adventist Health, performed a telesurgery demonstration between Atlanta and Strasbourg on an advanced tissue model using da Vinci five, including force feedback. While the long-term opportunity for telesurgery is potentially significant, we recognize that achieving safe, consistent adoption will require robust cybersecurity and privacy infrastructure, new workflows at hospitals, revised medical and legal policies, and appropriate business economics. As with our approach to innovation broadly, our work here is focused on applying our experience and expertise to deliver safe, meaningful, grounded solutions that address real-world healthcare challenges.

Turning to SP, procedure growth was strong at 88% year over year, with growth accelerating in Korea. We are still early in our European launch and are pleased with progress to date. Our SP team achieved several milestones, including receiving clearance, our 50-use endoscope, along with 510(k) clearance for transanal local excision and resection, adding to a suite of transabdominal colorectal procedures. Our priorities for SP in the near term include additional indications in the US, expansion in international markets, enhancing core capability, and improving product costs. Moving to ION, procedures grew 52% to approximately 35,000 in the quarter. We recently sold our first systems in Australia and Korea, and performed our first commercial procedures.

Our priorities for ION in the near term are supporting utilization growth in the US, expansion in international markets, enhancing overall procedure workflow, and improving product costs. Over recent years, we have highlighted our investments in and focus on delivering for our customers across all aspects of our ecosystem, at industrial scale. Customers around the globe rely on Intuitive Surgical, Inc. for high-quality products and services, and rock-solid supply continuity to ensure they can serve their patients safely, reliably, and effectively at volumes approaching 3,000,000 patients per year globally. As has been the case throughout our thirty-year history, we will continue to innovate across our instrument portfolio as illustrated by the introduction of our force feedback and extended use instrumentation.

Our work here is guided by a commitment to the quintuple aim, including patient safety, product quality and reliability, and informed by data from millions of procedures. We are aware that third parties have sought to offer products or services to healthcare providers that would modify some of our instruments to extend their use. As customers consider remanufactured instruments from third-party suppliers, we expect key areas such as safety, performance, quality, reliability, supply continuity, and pricing will be carefully evaluated and compared. Our strong belief is that high-quality instruments with consistent performance, broad operational support, and predictable supply chains provide the greatest value to our customers. In closing, we are committed to our 2025 priorities.

First, focusing on the full launch of da Vinci five, its regional clearances and follow-on feature releases. Second, we'll pursue increased adoption for our focused procedures by country through training, commercial activities, and market access efforts. Third, we'll drive continued progress in building industrial scale, product quality, and manufacturing optimization. And finally, we'll focus on excellence and availability of our digital tools. Our core businesses have momentum, and our teams are focused on the significant long-term opportunity to improve the Quintuple Aim through our connected ecosystem. We are well-positioned operationally and financially to execute against our priorities. I'll now turn the time over to Jamie who will take you through our finances in greater detail. Good afternoon.

I will begin by highlighting our second quarter performance on a non-GAAP or pro forma basis. I will summarize our GAAP results later in my remarks.

Jamie Samath: A reconciliation between our pro forma and GAAP results is available on our website. Our second quarter financial results were strong, revenue growth was 21%, pro forma operating margin was 39%, and pro forma earnings per share increased 23%. Our underlying core metrics were solid and as follows. Da Vinci procedures grew 17%, our installed base of DaVinci systems increased 14% to almost 10,500 systems globally, and average system utilization rose by 2%. Taking da Vinci and ION together, total procedure growth was 18%. Strength in Q2 financial results reflected a higher mix of systems purchased by customers as compared to last quarter and last year and leverage of fixed costs.

In the US, da Vinci procedures grew 14% driven by continued strength in benign general surgery with notable growth in cholecystectomy and appendectomy reflecting in part our partnership with customers to support growth in after-hours procedures. Considering the environment in the US, we recognize the potential impacts of fiscal policy to Medicaid recipients. There are approximately seventy to eighty million Americans covered through this program for which uncertainty remains about whether some patients may lose coverage, how that plays through health systems, and what the ultimate impact might be. At this point, I would highlight the following. First, currently, Intuitive Surgical, Inc.'s relative penetration is lower for patients covered by Medicaid as compared to all other types of coverage.

Second, Medicaid patients tend to be a younger demographic as compared to the overall population, and third, to the extent that Intuitive Surgical, Inc. can demonstrate an advantage clinically and economically, we believe we are in a position of relative strength. Outside the US, da Vinci procedures grew 23% with strong contributions from India, Korea, and distributor markets. Clinical performance in India has been driven by expansion of the installed base at greenfield accounts and adoption by surgeons across a broad set of surgical specialties. Strength in Korea procedure growth partly reflected a weaker comparison period given the impact of physician strikes last year.

We also continue to see strong adoption and use of SP in Korea across a broad set of procedures. In China, procedure growth slightly exceeded the global average and continues to reflect the impact of a constrained and competitive capital environment. Overall, outside the US, we observed robust growth across colorectal, benign general surgery, thoracic, kidney, and HPB procedures. The breadth of OUS procedure growth reflects our focus in supporting customer adoption beyond urology and is an ongoing opportunity for Intuitive Surgical, Inc. to reach more patients. Turning to capital performance, we placed 395 systems in quarter two, a 16% increase from the 341 systems placed in the same quarter last year.

Following our progression into US broad launch, we placed 180 da Vinci five systems of da Vinci V during Q2, bringing the installed base to 689 systems, up from 21 a year ago. We saw 83 trade-in transactions in Q2, primarily driven by US customers upgrading to DaVinci five. While there are a number of customers expressing interest in upgrading to da Vinci five, we expect trade-ins to occur over multiple years as customers assess its clinical and financial benefits. In the US, we placed 216 systems, up from 149 last year. Outside the US, we placed 179 systems compared to 192 last year.

OUS placements included 73 systems in Europe, 15 in Japan, and 13 in China, compared to seventy-one, forty-one, and 14, respectively, last year. Performance in markets served by distributors has been strong in recent periods. In Q2, we placed 79 systems compared to 70 systems last year. Recent strength has been driven by growth in Brazil, Eastern Europe, and Southeast Asia, reflecting expansion into customers establishing their first robotic programs. Our capital performance outside the US continues to be impacted by ongoing financial and budgetary pressures in Japan, China, and Europe. These pressures reflect government budget challenges and uncertainties over the trade environment. During the quarter, NHS England issued its ten-year plan to improve healthcare outcomes and associated priorities.

We are encouraged to see a commitment to expanding to robotic surgery as one of the key elements of the plan.

Dave Rosa: However,

Jamie Samath: we do not expect any positive impact this year from incremental NHS investments in robotics. Total revenue for the quarter was $2.44 billion, representing 21% growth over the prior year. On a constant currency basis, revenue growth was also 21%. Systems revenue increased 28% reflecting lower lease rates, increased placements, and a higher mix of 21% and accounted for 85% of total revenue. Leasing represented 49% of Q2 placements, lower than 54% last year, primarily driven by a higher mix of placements with distributors, most of whom do not qualify to lease systems.

While leasing rates may vary from quarter to quarter, we continue to expect a trend toward leasing to increase over time driven primarily by a higher mix of leasing by OUS customers. The average selling price for systems was $1.5 million compared to $1.44 million last year, reflecting the increasing mix of da Vinci V systems partially offset by a higher mix of trade-in transactions. Instrument and accessory revenue per procedure was approximately $1,800, relatively consistent with the prior year. On a year-over-year basis, we saw downward pressure from lower bariatric procedures and higher cholecystectomy procedures, offset by customer ordering patterns, higher SP procedures, and da Vinci five specific INA.

Second quarter SP procedures grew 88% driven by 112% growth in Korea and strong growth in Europe and Japan. We placed 23 SP systems in Q2, compared to 21 systems last year. These included six in the US, six in Korea, and five in Taiwan. SP utilization rose 30% with Korea and Japan continuing with highly efficient, high usage SP programs. Utilization is also steadily increasing in Europe and the US. We are progressing through the early phase of a measured rollout of our SP stapler, which we believe is a key enabler for SP adoption in colorectal and thoracic procedures.

Now turning to 35,000 ION procedures in Q2, a 52% increase over the prior year, we placed 54 ION systems compared to 74 in Q2 of 2024. Seven of these systems were placed in markets outside the US. The installed base of ION systems expanded to 905 systems and average system utilization increased 8% from the year-ago period. Turning now to the rest of the P&L, pro forma gross margin for the quarter was 67.9%, down from 70% in Q2 of last year. The year-over-year decline reflects higher facilities costs, including depreciation related to new manufacturing capacity, a greater mix of lower margin ION and da Vinci five revenue, and higher service costs related to da Vinci five.

In addition, Q2 results also reflected an impact of approximately 60 basis points from tariffs. Clearly, the trade environment continues to be dynamic. We are currently estimating the impact of tariffs for the year to be approximately 100 basis points plus or minus 20 basis points, lower than the estimate we provided on last quarter's earnings call, primarily reflecting the reduction of bilateral tariff rates relating to US-China trade.

Our estimate for the year assumes the following: imports from China to the US bear a tariff rate of 30%, imports into China are subassemblies and finished goods from the US are subject to a 10% tariff, imports into the US from all other countries bear a 10% tariff rate, and the imports from Mexico and Canada that comply with USMCA continue to be exempt from tariffs. As a reminder, we expect the impact of tariffs to increase each quarter this year as tariff expense rolls through inventory into cost of sales. Given the uncertainty surrounding what tariff rates will ultimately be enacted, it is possible future tariff rates could have a significant incremental impact on our cost of sales.

During the quarter, we opened a new 187,000 square foot manufacturing facility in Bulgaria with the land to expand further as needed. This site will initially be focused on our portfolio of more mature endoscope products. Over time, we expect to further increase our manufacturing footprint in Germany and Mexico given our midterm needs for additional capacity to support revenue growth, and our strategy to operate at industrial scale. Second quarter pro forma operating expenses increased 9% year over year driven by higher headcount, and increased facility costs, including depreciation, partially offset by lower legal expenses. We added approximately 300 employees during the quarter, approximately half of whom were in manufacturing roles in support of customer demand.

Pro forma other income was $93 million for the quarter, up from $91 million in the prior quarter reflecting higher interest income. Our pro forma effective tax rate for 2025 is 22.7%, in line with our expectations. We are at the early stages of evaluating recent US tax reform and at this point, do not anticipate a material impact on our 2025 tax rate. We are still evaluating potential impacts for 2026. Pro forma net income for the second quarter was $798 million compared with $641 million last year. Pro forma earnings per share increased 23% year over year to $2.19 per share.

Now turning to our GAAP results, GAAP net income for the quarter was $658 million or $1.81 per share compared to $527 million or $1.46 per share in Q2 of last year. The differences between our pro forma and GAAP results are outlined and quantified on our website. We ended the quarter with $9.5 billion in cash and investments, up from $9.1 billion last quarter. The sequential increase was driven by operating cash flow, partially offset by stock repurchases of $181 million and $155 million in capital expenditures. During the quarter, we repurchased 350,000 shares at an average price of $518 per share.

With that, I'll turn it over to Dan to discuss recent clinical publications and our outlook for 2025.

Dan Connally: Thank you, Jamie. Turning to the clinical side for 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 publish scientific studies over the years. This past June, in the Journal of the American Medical Association, or JAMA, doctor Feng from Xianjiang Hospital, Fudan University on behalf of the investigator team, reported three-year results from a randomized trial comparing robotic and laparoscopic surgery for middle and low rectal cancer.

Known as the REAL study, this study examined local regional recurrence rates with more than 580 subjects in each of the robotic-assisted arm and laparoscopic arm. Recall, secondary short-term outcomes from this study were published in the Lancet Gastroenterology and Hematology in November 2022 and described on our earnings call in January 2023. That publication reported robotic-assisted surgery resulted in a better oncological quality of resection, less surgical trauma, and better postoperative recovery when compared to the laparoscopic approach. In the current JAMA publication, the primary outcome was the three-year local regional recurrence rate, which was defined as any case of cancer recurrence in the pelvic or perineal area at three years after surgery.

The authors reported that the robotic-assisted group demonstrated a 55% lower risk of local regional recurrence at three years compared to laparoscopy. The authors concluded, quote, compared with conventional laparoscopic surgery, robotic surgery significantly improved long-term oncological outcomes in patients with middle or low rectal cancer. With additional real-world clinical data and modern improved training programs for surgeons, robotic surgery could be the preferred choice for patients with middle or low rectal cancer. End quote. With the launch of the da Vinci five platform, we are starting to see evidence emerge that describes the value that new features such as force feedback technology and case insights may bring to minimally invasive surgery.

At this month's Society of Robotic Surgery annual meeting, doctor Leila Rashidi from MultiCare Health System in Tacoma, Washington presented data from her single surgeon experience. Doctor Rashidi analyzed relationships between clinical outcomes and objective performance indicators or OPIs, such as the force measured during surgery using force feedback instruments. To conduct the study, doctor Rashidi and colleagues used OPIs generated by Case Insights. An AI-enabled solution that combines 28 low anterior resection cases revealed certain patient factors and OPIs were associated with the outcomes in these colorectal procedures. Specifically, higher forces, especially during the dissection phase of surgery, and prior surgery, were associated with increased length of stay.

The strongest predictor of length of stay was the percent of forced time above 6.5 newtons. Doctor Rashidi and team concluded in part, quote, this early d v five experience demonstrates that patient factors and OPIs are associated with clinical outcomes in robotic-assisted low anterior resection. Advancements in the technologies integrated with robotic platforms can assist surgeons by identifying factors that predict complications. And aiding the optimization of techniques for specific patients ultimately supporting safer, gentler, and more precise surgery. End quote. While these results are early, we are encouraged to see results that are consistent with the core hypotheses of the value that force feedback technology and case insights may bring to minimally invasive surgery.

We continue to expect clinical evidence to build over the coming quarters and years. I will now turn to our updated financial guidance for 2025. Starting with da Vinci procedures. On our last call, we forecast full-year 2025 da Vinci procedure growth within a range of 15-17%. We are updating our 2025 da Vinci procedure growth guidance to be within a range of 15.5-17%. Consistent with last quarter, the low end of the range assumes growth in China is impacted by trade, environmental, and competitive dynamics. Governments in key OUS markets continue to constrain hospital CapEx budgets, which limits the expansion of capacity in the field, and bariatric procedures continue to decline at rates similar to recent trends.

The high end of the range assumes China procedure growth improves relative to 2024. The CapEx environment improves in key OUS markets, and bariatric procedure declines moderate. The high end of the range also assumes that da Vinci procedures are not impacted by the current trade environment. Turning to gross profit, on our last call, we forecast pro forma gross profit margin in 2025 to be within a range of 65-66.5% of revenue, which reflected significant incremental depreciation as we bring on new facilities, the combination from growth in newer contribution from growth and newer products, and the expected impact of tariffs.

As Jamie described earlier, we currently expect the recently implemented tariffs globally to increase our 2025 cost of sales by approximately 1% of revenue plus or minus 20 basis points. As a result, we are updating our estimate for pro forma gross margin to be within a range of 66-67% of revenue. In regards to operating expenses, we continue to expect pro forma operating expense growth to be between 10-14%, which includes increased appreciation from new facilities and investments to drive our growth objectives. We continue to expect our noncash stock compensation expense to range between $770 million and $790 million.

We now expect other income, which is comprised mostly of interest income, to total between $370 million and $390 million. In regards to capital expenditures, we now estimate a range of $650 million to $725 million primarily for planned facility construction activities. With regard to income tax, we continue to estimate our 2025 pro forma income tax rate to be between 22-23% of pretax income. That concludes our prepared comments. As we open the line for questions, we ask that you please limit yourself to one or two questions.

Operator: Thank you. And as a reminder, to get in the queue, simply press 11 on your telephone. And wait for your name to be announced. As a reminder, limit yourself to one question. And requeue if necessary. Please standby while we compile the Q and A roster. Our first question is from Travis Steed with Bank of America Securities. Please proceed.

Jamie Samath: Hey. Thanks for taking the question, and congrats.

Dave Rosa: I guess maybe I'll start with a margin question. It was kind of one of the highest margins you've had in a long time. Even with the tariff headwind.

Travis Steed: Don't know how much this is the new facility coming on in Q1 or what? Just trying to think about how what drove the margin upside this quarter and kind of what's sustainable on the margin side?

Jamie Samath: Hey, Travis. This is Jamie. Yeah. I'd just say we had a strong revenue growth quarter at 21%. Part of that was the increased purchase mix which obviously the purchase lease mix can vary from quarter to quarter. We did underspend on OpEx just a little bit. That grew 9% year over year. And so part of what fell through them was just the revenue beat leveraged through the entire P&L. Produce that operating margin result. I would not characterize that as the new normal obviously, you've got some benefit from again, the purchase mix and spending just growing 9%. Understood. I guess

Travis Steed: I'll go ahead and get the, the one reprocessing question out of the way too is I guess the question would be, one, is there any more you could add to what you said in the prepared remarks? Is this something you can kinda do yourself, or could you also potentially extend useful life on your own instrumentation as well? Just kinda thinking about like, longer term, how you kinda protect the business.

Dave Rosa: Yeah. No. Hey, Travis. It's Dave. You know, I think, as I said in my prepared remarks, customers care about the quintuple aim as they establish robotic programs. They wanna deliver high-quality care, great outcomes for their patients. And we know they wanna do it. With the right value too. And so as customers consider remanufactured instruments from third-party providers, it's been my experience that oftentimes hospitals will use value committees to assess these types of supply chains. Those value committees often consist of a variety of stakeholders from the hospital. It may be OR leadership, it could be medical personnel, risk management, supply chain, care team folks like surgeons and nurses, maybe others.

And so these value committees have established processes that they look through and assess a whole bunch of variables like we talked about. Safety, reliability, performance, continuity of supply, ongoing support, will all be weighed against the expected savings. And so that's where, you know, our strong belief is that high-quality instruments, the performance that we have demonstrated over time, the operational support, that we engage, through our teams, in a very predictable supply chain will provide the greatest value. As you look forward, think innovation plays a strong role here. And so you've seen us increase the breadth of our portfolio over time.

You've seen us extend instrument uses, introduce force feedback here recently with da Vinci five, and throughout that entire time, we've worked really hard on instrument reliability, in supporting the safety and performance of robotic surgery of our portfolio. Importantly, from the first use and through the last use, and so we're gonna continue to invest and innovate to differentiate across our portfolio. And that will bring, I think, best-in-class performance and innovation and pursuit of Quintuple Aim. We're also going to strive to lower cost and provide the best value for our customers.

And so this journey with remanufactured instruments will have many phases, and we will innovate in a variety of different ways and provide the best value for our customers.

Travis Steed: Really helpful. Thanks, Dave. I appreciate the question. Welcome. Thank you.

Operator: Our next question is from David Roman with Goldman Sachs. Please proceed. David, your line is open.

David Roman: Thank you and good afternoon. Appreciate you're taking the question. Maybe, Jamie, I could start as a follow-up to your comments regarding some of the policy changes that are evolving. I think on the last quarter call, you had talked you and Gary had talked about the dynamic with the potential for risk around US Hospital CapEx spending. But at the same time, where Intuitive Surgical, Inc. could be part of the solution. Tonight, you talked about the dynamic around the unfortunate potential loss of coverage for Medicaid patients and what that might do to the business. Can you maybe give us an update on your latest thinking on the capital side and how you're approaching those conversations?

As you think about aiding hospitals and their objectives to advance patient care? And then I had a follow-up on the Force Feedback study.

Jamie Samath: Yeah. On Medicaid specifically, I think we would generally say it's too early to make any comments with respect to how US hospitals are responding to that, at least based on our engagements with customers. We recognize that to the extent that hospitals experience lower admissions because patients lose coverage, or they have less reimbursement, then, of course, that just creates incremental financial challenges for hospitals that they may need to respond to in terms of how they manage capital budgets or even operational budgets.

So we're just acknowledging that providing that some context with respect to our relative penetration relative to Medicaid, I do think that we have a growing number of engagements we have with customers, particularly in the US relative to what we call customer hospital analytics, where we can look at their data from a clinical and economic perspective and oftentimes we see that da Vinci can be actually part of the solution whether there's an economic challenge in the form of things we've talked about, lowering length of stay, lower complication rates, saving precious resources, etcetera. And so we'll look to engage customers if and as that's needed over time.

In terms of the overall capital environment, I just say if we look at the system placement at $3.95, we'd characterize that as solid performance and in the range of our expectations. But you actually have to double click in terms of the kind of market breakdown of that performance. Placements in the US grew 45%. Reflecting the move into broad launch for da Vinci five in Q2, and strength and interest in da Vinci five. And then we talked about Japan, which was down 26 systems year over year. Europe and China are essentially flat, and that's mostly to do with government budget deficits and conserving government spending, including impacts on healthcare.

So I think we feel good about the US and recognize some challenges internationally in OUS customers. We do have some levers and opportunities. Many of those customers and markets experience lower levels of utilization, and we have tools, resources, and levers to help customers increase utilization to support procedure growth. We've refined some of our leasing models to more localize them in the past quarter. I think, can help with alleviating the pressures that they face. And, of course, we have the launch of da Vinci five now with the clearance in Europe and Japan and at least we think some early adopters will be responding to that technology.

Finally, I'd say as we are able to drive trade-ins in the US, that then gives us the opportunity to add XIR to the portfolio, which can be attractive to OUS customers where they're cost-sensitive.

David Roman: Very helpful. Appreciate all the detail. And maybe just a follow-up on the Force Feedback launch. Can you give us kind of an update on where you are with customer evaluations? As well as capacity expansion and the extent to which that may already be impacting the INA per procedure number and how we should think about the progression of the rollout there?

Dan Connally: Yeah. David, maybe I'll take the first part, and I think Jamie will jump in towards the end. Just on the supply of force feedback instruments, we do expect that to be constrained through the first quarter of next year. And I'd say more broadly, you know, pleased with adoption thus far. The early feedback's been encouraging, particularly with case insights. You heard us describe, you know, we and surgeons were building evidence and continue to, you know, we'll share that over time. Again, that evidence is mainly looking to demonstrate the forced feedback can improve outcomes. And then separately, maybe quicken the learning curve for surgeons adopting robotics for the first time.

Jamie Samath: I'm sorry. Remind me the second part of your question.

David Roman: To see the extent to which you know, may have impacted. It looks like INA outgrew procedure volumes this quarter, whether that's having a positive impact even in its early launch. And when we might start to see it? It sounds like the 2026 is the dynamic with but when we might start to see a more significant impact from forced feedback on that INA per procedure number.

Jamie Samath: Yeah. In the prepared remarks, it was one of the contributing factors to an upward momentum on INA per procedure, although it's the smallest component. And the way I characterized it was da Vinci five INA specific contributions. That's the combination of force feedback and the tube sets that go along with our integrated insufflator, one of the smaller factors, and obviously, that becomes an opportunity for us to the extent that we can demonstrate value and when we get to full supply.

David Roman: Great. Thank you very much.

Operator: Thank you. One moment for our next question, please. And it's from Robert Marcus with JPMorgan. Please proceed.

Jamie Samath: Great. Congratulations on a very nice quarter and

Dave Rosa: Dave, congratulations as I believe it's your first call as CEO. Two for me. Maybe first, just to kinda pick up a thread and one of David's questions on Da Vinci Five and productivity. And I was wondering, I know it's still early in the launch, but you now have a couple quarters on some of these robots in the US. And you know, are you seeing any improvements in productivity? It could obviously be really helpful as we think about the upgrade cycle. And the ability to do more procedures, generate more revenue, and treat more patients. So first, I'd love to hear what you're seeing in terms of improved productivity on DaVinci five versus Xi. Thanks.

Jamie Samath: What I would say is it's one area where we look to build evidence to support the value proposition, and we described to you in the past a number of the anecdotal inputs that we get from surgeons. Some of them have been presented on stage. We've seen some analysis in various publications, but we'd like to get to a state where that is robust evidence and is part of how we engage with the customers, and that will take us some time to build that. To build that collateral. I would say that recently, average system utilization on da Vinci five surpassed Xi.

Obviously, we'd like to see that sustained, and we'd like to know that actually is a function of increased efficiency. It could be that parts of that are just surgeons' interest to try and get on the platform versus the Xi. But that seems consistent from where those lines crossed. So I think that's an opportunity for us, but we have work to do to get to a level of evidence that's sufficiently robust that we can engage customers that way. And I just maybe let Dave make any additional comments that

Dave Rosa: No. You're right on, Jamie. You know, the d v five, da Vinci five, one of its areas of focus from our design teams was exactly around efficiency. And so you have heard some of the capabilities and features described around head in UI and placements of screens. And so all of those things are contributing and integrating to some of the efficiency gains that Jamie described. And we have seen, you know, we are tracking at individual institutions and individual surgeons. And you see, you know, on short cases to very to longer cases, savings that can exceed 20%. And so as more and more data comes to life there, we will start seeing how that impacts utilization.

And I think here, our one goal would be to enable teams, hospital teams, to add another case during the day. And so as we continue our journey here with d v five, look forward to collecting and analyzing and publishing more data.

Robert Marcus: Great. Maybe a quick follow-up, for you, Jamie. I saw you repurchased shares in the quarter. It's the first time in a while. Just wanted to hear the thought process and your latest thoughts on capital deployment, and just how you think about that. Thanks a lot.

Jamie Samath: Yep. No. Our capital allocations remain consistent. I'll probably sound like a broken record. It's first to organically invest in the business. And you've seen us do that with R&D and CapEx more recently. Second is we look for smaller tuck-in acquisitions where we can find technology that's differentiated or can accelerate the business, and then we return capital to shareholders when we have opportunistic times to do that. And so, what you saw us recognize in the quarter is just the volatility that's in the environment in part because of the trade environment. And so we exercised that opportunistically. We review what we do with capital allocation each quarter with our board.

And so we have a relatively formalized process by which we evaluate what we do.

Robert Marcus: Thanks a lot.

Operator: Thank you. Our next question is from Larry Biegelsen with Wells Fargo. Please proceed.

Larry Biegelsen: Good afternoon. Thanks for taking the question. Congrats to Dave on the new role. Hey, Jamie. I think for Jamie, two on systems. I'm gonna try to get them both in here. How should we think about system placements outside the US going forward? Given the recent CE Mark and Japan approval? Is there any reason we wouldn't see system placements start to grow again like we did when you launched d v five in the US? And secondly, now that the full d v five launch has started in the US, how should we think about the weight of increase in trade-ins going forward? Any color on kinda the financial implications of the trade-ins. For taking the questions.

Jamie Samath: Yeah. With respect to clearance of d v five in Europe and Japan, as our history has been planning for a measured rollout and there's work to do there. We have to obviously build training pathways, posturing capabilities, and actually engage customers in terms of the relative value of DaVinci five in particular, given its higher price. And, of course, you have to have clearance before you can directly engage customers in that way. I would say that force feedback instruments for Europe is not yet cleared. Actually, we don't expect that before the end of next year. So there may be some European customers that wanna wait for that capability.

I would expect, as we've seen in the US, there will be early adopters kinds of companies that customers that will be interested in getting access to DaVinci five because of the effects of their program and the desires of their surgeons, but I would consider it to be a measured rollout through the second half as we like to do that. Right way with building the infrastructure that drives long-term success. With respect to moving into broad launch in the US in Q2 and the implication for trade-ins, yes, we would expect then trade-ins to increase given that we have now appropriate levels of supply for those customers that wanna upgrade.

But as we've said, we think that occurs progressively over multiples of years because customers are in different places with respect to their programs. The populations they serve, their relative financial priorities in terms of capital budgets and the operational challenges that they face. And a number of them will want to evaluate DaVinci five, and they'll take their time to do it. From a clinical efficiency and financial perspective. Thanks so much.

Operator: Thank you. One moment for our next question, please. And it's from the line of Rick Wise with Stifel. Please proceed.

Rick Wise: Good afternoon, Dave. Hi, Jamie.

Dave Rosa: Dave, at the SRS meeting, we heard about the potential for robotics utilization in other spaces beyond current core focuses of the industry like endovascular broadly, AFCs, etcetera.

Rick Wise: I was just wondering as things evolve and as d v five rolls out, you know, it's early to say what's next. But how are you thinking about what's next broadly in terms of new locations, new opportunities.

Dave Rosa: Yeah. Hey, Rick. You had mentioned ASCs and ambulatory care, kinda outpatient environments. And so you know, that was a focus at SRS. And if I step back from that and say, what do customers need within an ASC to provide high-quality care? A piece of that puzzle is consistent and reliable technology. And so that surgeons who come from the main hospital and have some of their practice at an ASC are able to efficiently do procedures, you know, at a volume and with outcomes that are appropriate. And that's where, you know, I'm excited about the technology in our portfolio that we have today. And I like some of the opportunity as Jamie was talking about trade-ins.

Customers can put the newest technology like d v five into their main institutions and focused on some of the inpatient procedures. And then oftentimes take the capital that they already own be it x, I, or x, and move that into ASC environments. And so you know, one way to help meet customers' needs. But as again, as we're looking at how to solve customers' problems and their goals about Quintuple Aim, think increasingly, we're seeing some attention around the outpatient environments and ASCs. And feel good about the products that we have there.

Rick Wise: Great. And just as a second question, Dave. I'm very conscious that you all have said repeatedly that da Vinci V will continue to evolve. You've touched on a couple of the aspects. But I was lucky enough to hear, as you know, from your colleague, Iman Jedi, who's leading the d v five rollout. That with a full launch of the system, or broad launch, I think, were your words, that there would be additional features, additional software different additional capabilities. And I was hoping you could expand on that and maybe help us understand the implications for adoption, for utilization, and maybe does this help Jamie, the ASP or margins as the rollout continues? Thank you very much.

Dave Rosa: Yeah. Thanks, Rick. So you know, one of the things about robotic systems as a whole is they're a platform technology. And you start in one place with a product that is launched beginning of last year. And I think you can draw a good analogy to Xi when it was first launched. Launched and then look a decade later at the features and capabilities that were added along the way. And the exact same journey will happen with d v five. And so yes, Aman had talked about some of the things that were upcoming. And you know, there are many.

One in particular that we've talked about before is, you know, we have the ability to integrate now 3D models in a different way than we used to with Xi. And so that is part of the compute increase in terms of the compute power increase, we're now able to do things graphically and through integration and imaging that we were not able to do before. And so, you know, again, with the expectation that these kinds of will advance one or more aspects of the quintuple aim. Sometimes outcomes, sometimes the care and patient experiences, or sometimes perhaps cost.

And so you know, I think as we look over the coming quarters and coming years, we'll keep you informed about the features and capabilities and instruments will continue to be added to the platform. And excited about where it's gonna take us. Rick, we have a

Jamie Samath: road map of features to come over time. Some of them are committed, some of them are obviously ideas that we'll explore and make conclusions on. I'd say most of those features to come we won't directly charge for but, of course, they then enhance the surgeon experience and the overall capability of the system. So in that sense then, for customers that are looking at the price and maybe pausing on whether to make the incremental investment as you increase actually the capability and feature set of the system then it makes the likelihood of a sale for a customer that was waiting higher.

There are some digital capabilities that we're considering charging for, and that's gonna be a function of incremental value, and can we demonstrate that to the customer?

Rick Wise: Thank you, Dan. I think we've got time for one more question.

Operator: Thank you so much. One moment, please. And this question comes from Adam Maeder with Piper Sandler. Please proceed.

Adam Maeder: Hi. Good afternoon. Thank you for squeezing me in, and congrats on a nice quarter. I'll keep it to just one question. I did wanna ask about the curved vessel sealer, which recently got FDA approval.

Rick Wise: I've been seeing some buzz on LinkedIn and other, you know, sites. Just help us kinda better understand any potential impact from that device in the marketplace, what is the benefit of the technology? Which procedures will you utilize that device? And is there anything to call up from a pricing standpoint as it relates to I and A per procedure? Thank you.

Jamie Samath: Yeah. We're excited about that device. Its primary value prop is that it's quite a bit a slimmer profile than the existing vessel sealers that we have. Has a sealing indication for seven-millimeter vessels, which is important. The tip of the instrument actually allows for better tissue manipulation. So, of course, then it's best suited to those procedures that have narrow spaces in which the surgeon works. So that's thoracic, colorectal, hiatal hernia as examples. The way I would think about it is it sets us up for the possibility, the probability that we can penetrate those procedures with advanced energy more fully than we would with the existing portfolio.

And we'd also look as a value hypothesis that we'd also see higher stick rates from surgeons. And so it doesn't open up new procedures for us. It does have a minor impact relative INA per procedure given the value prop but it's really for us about having a greater degree of penetration and success. In those procedures that need a narrow space for energy.

Operator: Thanks, Jamie.

Dave Rosa: Okay. That was our last question. Thank you for the questions. In closing, we continue to believe there is a substantial and durable opportunity to fundamentally improve surgery and acute interventions. Our teams continue to work closely with hospitals, physicians, and care teams in pursuit of what our customers have termed the quintuple aim. Better and more predictable patient outcomes, better experiences for patients, better experiences for their care teams, lower total cost of care, and finally, increased access to care. We believe value creation in surgery and acute care is foundationally human. It flows from respect for, and understanding of patients and care teams and their needs in their environment.

At Intuitive Surgical, Inc., we envision a future of care that is less invasive, and profoundly better where diseases are identified earlier and treated quickly so patients can get back to what matters most. Thank you for your support on this extraordinary journey. Look forward to talking with you again in three months.

Operator: And thank you, everyone. This concludes our program. You may now disconnect. Have a great day, everyone.

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