Intuitive Surgical Stock

Okay. Welcome back. I'm Larry Biegelsen, the med tech analyst at Wells Fargo. And it's my pleasure to host this session with the management team from Intuitive Surgical. With us, we have Jamie Samath, Executive Vice President, CFO and Enterprise Technology Leader; and Dan Connally, Head of Investor Relations. The format is a fireside chat. Jamie -- and Dan is going to read the safe harbor statement.

Just real quick. Comments in today's session may contain forward-looking statements. Actual results may differ materially from those expressed or implied as a result of certain risks and uncertainties. These risks and uncertainties are described in our Securities and Exchange Commission filings, including our most recent Forms 10-K and 10-Q, which you can find through our website at intuitive.com or at the SEC's website. Investors are cautioned not to place undue reliance on such forward-looking statements.

Thanks, Dan, and thank you for being here.

Yes. Happy to be here.

So Jamie, I wanted to start with procedures with a focus on the U.S. And we've seen U.S. procedure growth slow recently. And your comment about law of large numbers, I think, concerned some investors to be candid. So my question is, what framework would you use to help people estimate U.S. procedure growth going forward?

Yes. I appreciate the question, and I know there's a lot of focus on the U.S. business right now. Let me zoom out for a second. So I'd say our focus first is on global procedure growth and on all procedure types, so including Ion. And that's how we think about how we do capital allocation, how we incent our sales force. And we have significant opportunities to drive the global. U.S. is about 60% of our business and it's decelerated as you've described. We said on the Q2 earnings call that there was a modest impact from lower ACA subsidies.

But the way we think about the U.S. business is procedure by procedure. And so -- and we draw adoption curves for each of them. And so if I think about that business, you have prostate in the fourth quartile of adoption. You have cholecystectomy, the largest procedure category in the U.S. in the second quartile, you have appendectomy in the first quartile. And so we model each procedure on an adoption curve, and it also then ties to how we focus and how we invest, where they are relative to the size of the market. And the total U.S. procedure growth then is a summation of each of those procedures and where they are.

We think that we have a significant opportunity in the U.S., particularly benign general surgery. We have a couple of procedures that are early and have just been put on the beginning points of adoption in cardiac and nipple-sparing mastectomy. And over time, we think we have the opportunity to add additional procedures to the beginning of the funnel. And so the way that we think about the market is a significant and attractive opportunity for us. And we think that we can continue to bring procedures to the beginning of that funnel. Of course, there are some dynamics in the marketplace right now, ACA, as I described.

That's helpful. So which are the procedures that are going to drive the most growth in the U.S., let's just say, over the next 2 to 3 years?

Yes. I think broadly, just thinking about 2026, expect the growth drivers to be consistent year-over-year. So like Jamie mentioned, general surgery and specifically continued growth in after-hours procedures, so chole, hernia repair. And then in addition to that, obviously, we have some procedures at earlier-stage opportunities like Jamie mentioned, cardiac and nipple-sparing mastectomy as well as significant opportunity remaining in general surgery.

I guess, could we see -- let me just ask a blunt question. Could we see U.S. procedure growth dip below 10% in the second half given the tougher comps and the ACA subsidies expiring?

I'd just say, obviously, we don't guide at the regional level. What we did in our last earnings call was provide the guidance range of 13.5% to 15.5%. Again, that's global. And we said it's likely to be towards the midpoint of that range. That range does reflect more difficult second half comps compared to the prior year. And obviously, we incorporate our best estimate of the kind of ACA dynamic that we described on the Q2 call. And so again, we're focused on the global total and the U.S. component is reflected in that range.

I was surprised when you talked about U.S. procedures, you didn't mention the ASC opportunity, sorry. I mean I know that's not a specific procedure, but it seems like a big opportunity for Intuitive.

Yes, I think we described that starting in January of this year on the fourth quarter call as an opportunity over the long run. It's not going to be linear, but I think that's a significant opportunity kind of enabled by growth in reconditioned Xi, right? And so we've had 2 quarters of that thus far. And I think in Q2, we placed 27 systems into ASCs, which is more than cumulatively over the prior couple of years. 20 of those were XiRs. So certainly supportive of growth in the mid- to long term in that side of care.

That's helpful. Okay. Let me -- we'll probably come back to procedures in the context of the extended use program. But I wanted to ask about capital equipment. There's obviously concerns about the capital equipment environment just given the profitability issues at hospitals today, given some of the policy changes. So what's kind of your view of the state of the capital equipment environment, maybe U.S. and globally? And how are you thinking about the outlook?

Yes. So through Q2, U.S. capital has been stable and relatively strong. I think OUS has been a little bit more mixed and kind of market by market. In Q2, in the U.S., we placed 267 systems. That was up 24% year-over-year. I'd say, enabled by continued adoption of da Vinci 5 and also system upgrades. We had 28 Xi reconditioned in the U.S., 20 of those into ASCs. I think some customers looking back have expressed concern or caution over ACA enrollment. That's not new. We've been describing that as potentially having some impact, but we have not seen that again through Q2 in the U.S. I'd say part of that is as a result of only a small portion of customers in the U.S. acquire their systems outright via purchase arrangements. So roughly 70% to 75% of the systems that are going out in the U.S. typically happen on a nonpurchase arrangement.

Outside the U.S. is more market by market. So in Q2, I think we placed 201 systems. That was up 12% year-over-year. Asia was up 9%; Europe, up 8%; Rest of World up 27%. So fairly broad-based. It's early outside the U.S. on da Vinci 5, but customers are responding. They're also responding, let's say, to increased availability and around XiR and X. And so getting the opportunity to have Gen 4 capabilities in their technology as they start programs.

What about this 340B program? It's not super familiar to med tech investors, but it's kind of been bubbling up as a concern. Is that something when you think about changes to that program that you feel it could have an impact on capital?

I think it's early. We've been obviously reading everything the same as you all I think there's kind of 2 schools of thought. The first is that related to pharma, there will be less funding that has an impact on hospital financials and therefore, perhaps indirectly on what they put in their capital budgets. On the flip side of that, it's likely that outpatient surgical reimbursements go up for CMS. And so obviously, that could have a beneficial effect for Intuitive and those in the surgery business. I think it's too early to really kind of say what the dynamics may be in terms of an impact. And then, of course, we're also watching what happens to Medicaid funding over time. But we're not making any specific comments about how that might impact our business because it's just too early.

That's understandable. Let me switch gears to competition. And just we've had some recent news, give you a chance to respond. OTTAVA, obviously, got cleared in the U.S. Just, I guess, 2 questions. One is just reaction to kind of their feature set. Do you think it will resonate with some customers? And in terms of pausing, you've always talked about competition could elongate the selling cycle. What are your expectations?

Yes. I'd just say first, the basis of competition from our perspective is not just the robot, it's the full ecosystem. It's your software capability and the ability to update the software over time. It's the AI feature set. So it's the full integrated product portfolio that's the basis of competition. In terms of that architecture, we've looked at many architectures, including table-mounted over the years, and we've made conscious choices with respect to the trade-offs between the various architectures.

I think we feel good about our product portfolio. We have a segmented system portfolio that I think gives us some advantages. In the U.S., da Vinci 5 has resonated strongly. And da Vinci 5 gets better over time. We do about a major software update once a year. And so I think we're competitively positioned, again, both with da Vinci 5 and its capability and the full ecosystem. And so I think we feel good about our ability to be successful in the U.S.

And so what is it about table-mounted that you said you've looked at it that you think might be a disadvantage versus what you offer, the boom-based?

Yes. The physics of it, at least from what we've looked at, is that the way in which the arms deploy and get configured can give you restrictions on patient size and on the breadth of procedures you can do. And the boom-mounted architecture that Xi and da Vinci 5 have, we think there's an advantage there.

That's helpful. And then reaction to the Medtronic Cornerstone agreement, which is more international?

Yes. I'd say we -- with our -- in conjunction with our JV in China, we've looked at basically all of the competitive systems in China. Many of them are X or Xi kind of lookalikes in terms of their form. I think we feel good about our product portfolio and our ability to compete economically and feature-wise. I'd just say for an arrangement like that, you have to think through how do profits get shared, how do the ecosystem converge, how do you do product development jointly. I think those can be challenging attributes of an arrangement like that.

Makes sense. Jamie, international, I know we've focused a lot so far on the U.S. International has been strong, as you mentioned. But there is like increasing competition outside the U.S. as well. And you can kind of add up the placements from some of these companies. It's pretty significant in the aggregate. So the question is, can you continue to drive strong growth outside the U.S. in light of this?

OUS is a significant focus for us. We think the opportunity is also significant. It has obviously lower relative penetration from a procedure perspective. I think we have a number of competitive advantages internationally. The segmented system portfolio with X and XiR is a good fit for many of those markets because they're cost-constrained. A number of them are government-funded health care systems where obviously, there are budget pressures, and we have da Vinci 5 for the premium accounts.

Extended use instruments 2.0 that we're going to talk about, I think, also gives us an opportunity along with XiR to compete effectively where there are cost constraints, where economics are a greater proportion of how they make the decisions. There are obviously a number of players internationally. Many of them are, let's call them, local players. There's some desire locally for those companies to succeed. So you have to compete with that. Competition is intensive in China, which we've talked about and is obviously, to some extent, manifested therefore, in our capital placements, along with just much slower tender activity. We have the full ecosystem. Many of those players do not. And so I think we're well positioned.

Back to the OTTAVA question, I asked about elongation of the selling cycle. Is it just too early? Obviously, '27 is going to be a kind of a limited launch for them.

In the U.S., obviously, we've seen Medtronic launch with the urology clearance -- we haven't yet seen any change in selling cycles. And obviously, we'll see what happens with OTTAVA.

Okay. It could. It could. Do you think '27 will be too early just given limited launch or...

I think they'll do -- it sounds like they'll do a measured launch. They don't have the full ecosystem. So it sounds like it will be a couple of years for them to get going.

Right. Okay. All right. So the extended use program, I guess it's really 2 questions. One is any framework, anything you could offer? I know you -- it was too early on the Q2 call. Anything you can offer to size it relative to the last one you did, which we know, number one. And number two, help us understand the return on investment and why it's going to be positive and it's going to stimulate, I assume, procedures and offset some of the costs.

Yes. I'd just maybe zoom out to the strategy for a second. And so we talk often about the Quintuple Aim, and that's, from our perspective, an expression of our customers' objectives, and we integrate that into our strategy and how we allocate capital. And one of the elements of the Quintuple Aim is that you lower total cost to treat over time. And obviously, that's a function of the financial pressures broadly in health care systems. And so we invest there, and we look to lower total cost to treat through many ways.

You can do it by lowering complication rates, by saving on finite resources through innovation in your products, and you can do it through price. And we'll do any combination of those. The extended use instruments have been investments from our engineering teams over a number of years. And we generally apply the experience curve theory to how we think about product costs. As volumes grow, and we've been growing every year, basically except COVID in 2020, as volumes grow, you should get benefits from economies of scale and through the accumulated experience of manufacturing your products to allow you to lower product cost.

And so then for us, that gives us an opportunity to pass it on to customers, particularly where there's elasticity. And so that's a core part of our strategy. And I think that's a tried-and-true strategy across many industry segments. And so we think it's, in many regards, an obvious thing to do because you pass on a competitive advantage to your customer in places where it really matters. The 2027 program is directionally similar to the 2020 program. It will lower I&A per use cost for our customers. That will be mostly targeted at those procedures and markets where they're more cost-sensitive and therefore, where we think we can get an elasticity response.

And so then in terms of the 2020 program, how do we judge success? We look at 3 things. What happened to procedure trends before and after; second is the actual economics of those procedures post the change; and third, customer feedback. And so we kind of put that together. You don't have obviously A/B testing, so you can't do a perfect ROI analysis. But the combination of those data points gives us pretty high confidence that it was the right decision. And I think from a strategic perspective, the virtuous cycle is an obvious strategic opportunity to follow.

Just to clarify, directionally similar to 2020, you're saying basically that...

In terms of construct of the program, I'm glad you asked that. Quantification, we haven't provided yet, and we'll do so on the Q3 call. When I say similar, it's in terms of construct, the impact we'll talk about in Q3.

Okay. So you did not mean -- directionally similar to 2020 did not mean the quantification?

Yes. Correct.

Maybe you can tell us what -- maybe then you can answer that one. So it's too early, you'll say.

It's too early. We're going to...

Q3 call.

Q3 call.

Okay.

And the reason for that is, as you know, we did a press release with an integrated set of capabilities that were coming to customers. And that press release was targeted at customers just given the size of the number of customers that we have. And we included extended use instruments in there knowing it was coming in '27 because that then gives us the opportunity to engage customers in how that program is going to work. We wanted to make sure we had the opportunity to engage and reflect their feedback in the [ ALMA ] exact kind of prescription of how it would operate, including the benefit to customers.

And back to the procedure growth question earlier, is this -- could the extended use program be -- stimulate procedure growth in the U.S.? Could this accelerate procedure growth?

That's the intention of it, and that's why we focus it on those areas where we think there's elasticity and not just in the U.S. but globally.

Right. So people who may be concerned, and you know a lot of investors are, about the deceleration of U.S. growth, this could be a tailwind.

This is one of the opportunities to have an elasticity response that has a benefit to procedure growth, yes.

Okay. I got it. And then sticking with I&A, remanufactured instruments. What are you seeing in the field? I think at SRS in the video we did, some -- Dave, your CEO's commentary suggested, look, there is some cost matters. There's some interest in this. What can you say about what you're seeing in the field?

Yes. For the data that we have, usage is growing. I'd say it's growing from a relatively small number to still a small number. From our perspective, we think that the reliability, product quality, the product safety embedded in our products matters and customers value that. And we have and will continue to innovate. And I think that, that gives us a good basis to compete effectively.

Does the extended use program change the attractiveness of third-party alternatives?

I think to the extent the economics are a dimension of the relative decision-making between the 2, then it must have some impact, yes.

And we've gotten asked this question. I'm curious to hear your view. Could Intuitive -- because we've seen it, I think, in other industries, could Intuitive come out with its own remanufactured instruments?

There's no plans that I'd highlight at this point. We think the product set that we have allows us to compete effectively.

Okay. All right. Switching gears to the endoluminal GI system. The FDA summary has been posted, so we know a little bit more. I guess my question is kind of what's next in terms of the process and the time line that what can you share?

Yes. Really, it's around remaining engineering work. What the associated regulatory pathway would be, once you start to get through that, you have to develop clinical evidence. In programs like that, you may also have to do work on reimbursement. And so we're not being specific about the time lines yet because it's too early. I think as we knock down our internal milestones and make progress, we'll provide updates accordingly.

So it doesn't have instruments yet or any kind of disposables that we're aware of. Is there going -- is it going to be like a razor-razor blade model like you have with other systems?

You should expect it to have some similarity in that, but I wouldn't go beyond that.

Okay. Some similarity.

Yes.

And you took this approach with SP. And I think where you had a system cleared, but the system you launched was 4 years later. You told me that, that wasn't a good analog because it's too long or too short.

I would go back to what I said, it's not a good analog. It's an N of 1. And really, it's a function of product-specific characteristics that define the time line and for the buckets that I described, how much engineering work is left to do and what regulatory pathways do you go through. And so -- and part of the work on SP was to bring it into the da Vinci family. So that SP that was cleared had its own surgeon and vision console, and we wanted to harmonize it with Xi. And so I see an example of a different -- product-specific difference that impacts the time line.

When do you think you'll be in a position to give us more clarity on the time line? Obviously, people care about that.

Yes. I'm not going to give a specific quarter or date at this point as we make the progress.

I would take a year.

Okay. I'll take your input.

But seriously, as you -- when can we get a little bit more clarity?

Yes. We don't have anything specific in terms of when you'll get the next update.

Okay. And I mean just last one, I think, on this. How would you frame the long-term opportunity for this new system? Is it small, medium, large?

Yes. It's too early for us to give any sizing. I'd just say we invest to be differentiated to make an impact in the targeted disease states. And obviously, we want to make an attractive return.

And one more on new systems. Is it not this one, but people have speculated that Intuitive is going to come out with other new systems. Is that reasonable that there's more -- would you expect more platforms over time in therapeutic areas?

We're always investing in next-generation systems, including for the existing systems we've got in multiport, SP and Ion. In terms of new platforms, obviously, Ion was our first departure from surgery back in 2019. Now there's this GI robot. We have investments in additional platforms, yes.

That's helpful. We didn't talk about China. Just I think on the last call, you said China was actually in line with or slightly above global procedure growth, but there's a lot of dynamics there, new pricing model for procedures, I think, like a DRG system or something. But what's the outlook for China?

Yes. I'd just say first, it continues to be a large and strategic market from our perspective. Obviously, it's faced headwinds over the last couple of years. That's both been intense competition given the number of local players that have emerged, and we've seen slower tenders. There's about 250 systems left in the existing quota. And really, as a consequence of that, our system placements have been muted relative to prior previous periods.

And given the high utilization in China, to the extent that you're placing lower systems, you're then constraining the capacity for procedure growth. There is a new centralized tender process coming that's largely intended to remove waste from the kind of the disparate tender processes that operate today. And we think that there are new charge codes coming. We think we get clarity on both of those in '27. So we still don't yet have great visibility as to when kind of the momentum in that business shifts, but we think we get a lot of insights in '27 from those 2 things.

So you have some sense of optimism for the market in China. Is that what I'm hearing?

I'd say...

It's been a tough market for most med tech companies.

I'd say we'll judge the degree of optimism when we get clarity on the charge codes and on how the centralized tender process works relative to tenders speeding up and being issued at a greater rate.

And just while we're on Asia, Japan, you've talked about the new reimbursement there benefiting 2027. Could we see an impact sooner than that given those go into effect, I think, in June?

You'll see -- you'll start to see uptakes in those procedures that got the incremental reimbursement. The largest procedure that got reimbursement was inguinal hernia, but the rate at which they grow from basically 0 means the impact actually on the total isn't that large. It isn't until you get into '27 when you've been able to do the work to train the surgeons and ramp the business that you don't really see it become large enough until '27.

And sorry to jump around, but on bariatric, are we starting to see a trough? It's surprising how long it's just been continuing at a similar rate -- declining at a similar rate in the U.S.

Yes, not based on the procedure trends we've seen through Q2. It's a stable decline, but the decline hasn't yet approached 0.

Because I mean you can do the math on that, that was a growth driver for you, and now it's a headwind. So it's had a meaningful impact on your U.S. procedure growth.

Yes. U.S. bariatrics is a little bit over 2% of total global da Vinci procedures. So the incremental impact has definitely moderated a little bit over time.

It started -- when the decline started, it was a higher percent, I believe.

Close to a little over 5%.

Right. So it's a big change. AI and digital. I guess, Jamie, talk about how you're monetizing AI, the Case Insights subscriptions. I guess, can you offer any insight to help investors to model this and give you more credit for it because the service line, that's where it's booked, and that's been accelerating.

Yes, I'll let Dan take the first part of that, and I'll add some comments.

Yes. So our first presentation, My Intuitive+ bundles 3 components: Intuitive Telepresence, Simulation and Case Insights. Case Insights, I think we've been pleased with the response thus far. I think there's an opportunity to bring more value, enhance the performance of that, especially as we get deeper with Force Feedback instrumentation. So that force data ultimately will flow back into Case Insights. I think we expect broader availability of the Force Feedback instrumentation here in the second half of 2026.

Mechanically, it's included complimentary in the acquisition of the da Vinci 5, right, for the first year. I think we're -- in Q2 of this year, we anniversaried the first year of those evaluations. No customers opted out to start. I think we'll get a little bit more data on the experience as we go into the second half of the year. The list price on that is about $40,000 per system per year, and we'll ultimately assess kind of the recognized pricing and the renewal rate as we have some more experience. And so that will show up in the service line, as you mentioned. I think more broadly, think of the capability on Case Insights is sitting in the second layer of our kind of 5-layer AI stack, right? So that's good data, meaningful insights, intraoperative guidance, augmented dexterity and then ultimately, surgeon-supervised autonomy. So...

I'd just say from a strategic perspective, over time, AI will be a core value driver in kind of robotic-assisted surgery and other robotic intervention platforms, at least that's Intuitive's belief. And we think we have some competitive advantages in AI. Obviously, the accumulated size of the data set that we have, but we also have unique data streams that on an interconnected basis then provide an advantage relative to what you can do with AI. I think we're excited with what our research teams are doing and what's in our engineering labs in terms of the work that's being done.

With respect to monetization, there's really 3 ways to get monetized. You can charge the customer for it as we do with MI+, as Dan just described. You can have it be integrated into your products and capabilities so that your win rates and stick rates are higher. And you can also use it to actually increase our own efficiency of how we engage with customers. And so that's the way we think about it in terms of value creation.

That's helpful. Jamie, turning now to everybody's favorite topic, 2027 puts and takes. Just maybe on the revenue side, I'll start with maybe some of the tailwinds and headwinds to consider, please?

Yes. In terms of our focus for growth -- revenue growth, maybe 4 buckets. So first, of course, core to us is procedure growth. That's U.S., benign general surgery, OUS procedures broadly and Ion. Second bucket is da Vinci 5 upgrades, which have increased quite a bit in recent periods. Third is the opportunity for adoption of force feedback, da Vinci 5 and SP instruments, each of which carry -- each of which are accretive to I&A per procedure. And then the fourth bucket, I'd call kind of the new. So new sites of care like ASCs, expansion to ASCs, new indications, ramping cardiac and nipple-sparing mastectomy. And then we've been adding countries, and we'll continue to do that in terms of countries we serve. And so for example, in the last couple of years, we added Croatia, Peru, Morocco, and we'll continue to bring da Vinci to countries that we've not been in.

In terms of revenue headwinds, I think the only thing I'd really highlight is, one, we expect OUS leasing rates for systems to progressively increase over time. It's relatively lower as compared to the U.S. And second, just if you look at where growth will come from on an increasing basis for procedures, will increasingly be benign procedures and OUS procedure growth. Benign procedures typically carry lower I&A revenue per procedure. OUS geographies, a subset of them are cost constrained. And so that just has a mix effect in terms of what I&A per procedure will be over time.

You didn't mention the extended use program. I don't think...

Yes. The extended use program will have some impact in '27 that we will detail in the Q3 call.

Okay. Is it possible that -- I guess, just to follow up on that, is it possible that the Force Feedback and SP accretive aspect offsets the EUP? Is that why you didn't mention it?

I think there's a mix dynamic there along with growth in benign procedures, which probably net to I&A revenue per procedure coming down slowly over time.

Okay. That's helpful. And P&L, puts and takes, please?

Yes. Obviously, we'll give our guidance in January. I think the only thing I would say is, and this isn't a '27 comment per se. But given where our operating margin is 41% for the first half, we have the room to invest in innovation and to drive growth. And so we retain that optionality as we complete our planning process. But we think that there are cases where it makes sense to incrementally invest if you can drive those, if you can accelerate your programs or if you can drive growth in a different trajectory.

I mean, historically, you've said 35% to 40% is the target. Is that still intact?

Yes. Yes.

And okay. And one procedure question, cardiac. In the past, you've defined at least please correct me if I'm wrong, about 160,000 globally. Is that still the case? Because we get a lot of questions on cardiac and the perception is it's really big. But 160,000 globally, I wouldn't say is one of your bigger procedures.

Yes. I'd analogize it to how we do the line-of-sight framing, right? In the line of sight framing, we say we've got the products and the rest of the ecosystem that allows us to pursue x number of procedures, and that's how we framed it today. But that -- we look to expand line of sight each year. And if you look at the 9 million that we talked about, we've expanded that each of the last 3 years. We have the opportunity to expand the line of sight opportunity to 160,000 in cardiac over time, but it takes work, including product development.

Okay. But today, 160,000.

Yes. And just to be clear, that's only on cleared indications in U.S., Korea and Japan. So there are opportunities over time, as Jamie described, as we invest to expand that.

Got it. Jamie, capital allocation. We've typically seen Intuitive do large accelerated buybacks when the stock is under pressure. We have not seen you do one, I don't think this year. Any reaction?

I'd just say last year, we spent $2.3 billion on buybacks. In first half, we spent $1.5 billion. We didn't use ASRs to do that. I think there are different tools that you can use to do the buyback. And so I think we feel good about the tools we're using.

All right. We covered a lot of ground. Even though it says we're almost out of time, we can take another minute or 2, but I really do want to give you an opportunity to kind of make closing remarks. I mean, obviously, we covered some of the areas of concern. And I mean, to be honest, I don't think I've -- you remember the -- when you had some of the issues for hysterectomy in like 2014, 2015, probably haven't seen as many concerns around Intuitive Surgical since then from an investor standpoint. So I just want to give you an opportunity to kind of highlight some of the positive things.

Well, I'd just say the Quintuple Aim has significance in terms of how we operate and innovation is core to our success. And I'm going to reflect on history for a little bit for a second. If you look at first half revenue growth, 21%; last year's revenue growth, 21%. Our long-term average has been 14% to 15%. That 21% last year in the first half is largely a function of innovation, innovation that leads to higher prices for all the revenue line items in -- for da Vinci 5, for example.

If you look at operating margin, last couple of years, 37% first half, 41%, and our long-term average for operating margin has been about 37%. Our earnings per share growth in the first half was something like is above 30%. Last year, we grew 22%. In 2024, we grew earnings per share 28%. And so on the financial measures, what you're seeing is performance that's actually above our long-term average. Even if you look at free cash flow margin, first half free cash flow margin was 31%. That's about as high as we've done in our history. Our long-term average is more like 22%.

And so on the financial metrics, I think what you're seeing is the impact of the strategy and the innovation that drives some power in the P&L. I understand the concern and the focus on U.S. procedure deceleration. But I think I'd just emphasize what you're seeing in the financial profile of the company, which I think reflects a differentiated portfolio and a differentiated position in the marketplace where we're creating value for our customers.

Perfect. Thank you for being here.

Good day, and thank you for standing by. Welcome to the Intuitive Q2 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to turn the conference over to your speaker for today, Dan Connally. Please go ahead.

Good afternoon, and welcome to Intuitive's Second Quarter 2026 Earnings Conference Call. Joining me today are Dave Rosa, our CEO; and Jamie Samath, our CFO.

Before we begin, I would like to remind you that comments made on today's call may contain forward-looking statements. Actual results may differ materially from those expressed or implied as a result of certain risks and uncertainties. These risks and uncertainties are described in our Securities and Exchange Commission filings, including our most recent Form 10-K filed on February 3, 2026 and Form 10-Q filed on April 22, 2026. Our SEC filings can be found through our website at intuitive.com or at the SEC's website. Investors are cautioned not to place undue reliance on such forward-looking statements. This conference call will be available for audio replay on our website in the Events section under our Investor Relations page. We have posted today's press release and supplementary financial data tables to our website.

Our format for this afternoon's earnings conference call is as follows. 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 2026. And finally, we will host a question-and-answer session.

With that, I'll turn it over to Dave.

Good afternoon, and thank you for joining us today. If Jamie's and my voices sound a bit different today, we're both recovering from head golds. So I appreciate you bearing with us. Our performance in Q2 was solid. We saw continued global adoption across our multi-port, Singapore and Ion platforms and steady execution by our teams. In Q2, total procedures increased 16% and driven by 15% growth in da Vinci procedures and 36% growth in ION procedures. The global installed base of da Vinci and Ion systems increased by 12% and 21%, respectively, and we exited the quarter with almost 13,000 systems installed worldwide.

In the U.S., da Vinci procedure growth was 12%, led by general surgery with after-hours procedures increasing 26%. Growth in the U.S. moderated from recent trends and our expectations at the start of the year, predominantly in procedures that can be deferred. In our customer conversations, some have said that changes in patient coverage and premium dynamics may be affecting when patients seek care and move forward with treatment. Importantly, the underlying disease burden is unchanged and deferred conditions typically progress and will ultimately require treatment. As patients return to care, we expect da Vinci will remain a clear choice for their surgeons and care teams. Outside the U.S., da Vinci procedure growth was 20%. Regionally, growth was consistent with Europe and Asia each up 20% and rest of world markets up 22%.

In China, the environment remains challenging. We continue to see lower tender activity increased domestic robotic competition and policy-driven pricing pressure, and we continue to operate through a dynamic policy environment, including charge code changes and the 15th 5-year plan quota process. We are engaging with provincial governments on their charge code policy and are progressing through the green channel process for both SP and da Vinci 5. When cleared, these platforms will bring additional differentiated capabilities to Chinese customers and their patients.

In Japan, new policies supporting robotic surgery went into effect on June 1, including reimbursement for additional procedures, and economic incentives for higher utilization programs. We are encouraged by the direction of the policy environment as well as early response to these initiatives.

India had another strong quarter with momentum across a broad set of procedures. This week, we received da Vinci 5 clearance in India, and we're excited to bring our latest generation platform to customers in that market.

Turning to systems. Q2 was a strong capital quarter, reflecting continued customer demand for our newer platforms and confidence in the value of our ecosystem. We placed 468 da Vinci systems and 55 Ion systems in the quarter. Within multiport, placements reflected strong adoption of da Vinci 5, including dual consoles and continued demand for our fourth generation systems where their proven capabilities and value meet customer needs. In the quarter, we rolled out the first phase of more than 100 planned updates to the da Vinci 5 platform. These updates are directed to improving telepresence, simulation-based training and Care Team workflow. We have also submitted multiple innovations for FDA 510(k) clearance that leverage these updates.

In line with our strategy, we are seeing increased adoption of da Vinci X IR, particularly in more cost-constrained countries outside the U.S. and in ambulatory surgery centers in the U.S. XIR expands access to da Vinci surgery where the customer's procedure mix and economic profile align well with the capabilities and cost profile of our fourth generation systems. With more than 13 million procedures completed on da Vinci Xi globally, customers continue to value the breadth, reliability, clinical capability and support of the intuitive ecosystem.

Turning to instrumentation. I want to expand further on the extended use program we announced in May. This initiative reflects many years of investment in instrument design and manufacturing consistent with our long-standing approach of strengthening the value of our ecosystem. In the first half of 2027, we expect to increase the number of uses on a subset of end-orist instruments with the benefit targeted to reduce costs in a set of benign procedures. By lowering customer cost per procedure, we expect to support broader adoption of da Vinci surgery particularly in those procedures and geographies where cost constraints may be greater. Ultimately, these efforts help reinforce a virtuous cycle, where lower costs support broader adoption, which drives utilization and scale, and in turn enables continued innovation across our platforms.

Moving to our da Vinci single port platform. We placed 38 da Vinci SP systems in the quarter, bringing our global installed base to 445 systems. SP procedures grew 61%, reflecting continued momentum in Korea and the U.S. were expanded indications, new instrumentation and recent enhancements, including extended range instruments, custom remote center software and reach assist software are supporting broader adoption. In the U.S., adoption of the SP stapler continues to grow in colorectal and thoracic procedures. We remain focused on expanding SP adoption through product innovation, training and geographic expansion.

Turning to Ion. -- lung cancer diagnosis and time to treatment remain major challenges globally. Customers and policymakers are recognizing the value of our iON platform, and we are encouraged by the adoption of the technology as well as the increase in 5-year survival rates for lung cancer. Ion procedures increased 36% to 48,000 and now exceed 400,000 cumulatively. We remain focused on supporting utilization growth in the U.S. and continuing to generate the evidence required internationally to drive adoption. Our commercial teams have now installed Ion systems in 12 countries outside the U.S., and our development teams are making strong progress on our Rose and e-bus programs.

Aligned with our priority of reaching more patients, we continue to advance multiple early-stage R&D programs, exploring the application of robotic-assisted technologies in new disease states. Recently, we submitted 4 FDA 510(k) clearance of foundational noncommercial, next-generation flexible robotic endoscope system for use in the gastrointestinal tract. We look forward to updating you on this program and others as they advance through development and regulatory milestones.

Stepping back, as robotic-assisted surgery has evolved from an emerging technology to a globally adopted surgical platform. We continue to see increasing segmentation across customer needs. These needs range from highly complex reconstructive procedures, such as coronary artery bypass grafting to high-volume repeatable procedures, including cholecystectomy and hernia repair. We have positioned Intuitive to serve customers across this continuum. Our portfolio includes innovative platforms such as SP and Ion, which expand the reach of robotics into new clinical applications, while continued enhancements across our core platforms improve reliability, usability, efficiency and throughput.

These innovations are designed to help providers advance key health care objectives, including clinical outcomes, patient experience, provider experience, access and affordability. We are also innovating across manufacturing and supply chain operations to better serve value-sensitive markets. Programs such as XIR and EUP are intended to expand access to robotic-assisted surgery while maintaining the quality, reliability and service levels our customers expect.

Supporting these efforts require sustained investment across multiple technology domains, including artificial intelligence and machine learning, robotics, instrumentation, imaging and advanced materials. Ultimately, we believe customers respond to compelling value regardless of procedure type, in novel and complex applications, value is driven by innovation and clinical capability in high-volume settings, value focuses on reliability, efficiency and economics. With our technology leadership, manufacturing scale and global infrastructure, we believe Intuitive is uniquely positioned to deliver value across this broad range of customer needs, and we'll continue investing accordingly including increasing R&D to accelerate those innovations, we believe will meaningfully differentiate our solutions, improve durability and reduce total cost of care.

And with that, I'll turn the time over to Jamie to take you through our finances in greater detail.

Good afternoon. I will describe our performance on a non-GAAP basis and summarize our GAAP results later in my remarks. A reconciliation between the 2 is available on our website. All references to total procedures and their related growth rates encompass both da Vinci and Ion. Q2 marked another strong financial quarter for Intuitive. Revenue rose 19%. Non-GAAP operating margin was 42%, and non-GAAP earnings per share increased 28% from the prior year. Strength in our financial results continue to reflect robust adoption of da Vinci 5 and SP and in addition, reflected a $36 million pretax benefit tied to the refund of previously paid IEEPA tariffs.

Total procedures for Q2 grew 16% and reflecting 15% growth in da Vinci procedures and 36% growth in Ion procedures. Quarter 2 revenue increased 19% to $2.89 billion with recurring revenue higher by 19% to $2.47 billion, accounting for 85% of total revenue. On a constant currency basis, revenue growth was 18%. Overall utilization growth remained healthy with da Vinci system utilization increasing 3% and Ion system utilization increasing by 11%.

Turning to the clinical side of our business. In the U.S., total procedures increased 13%, reflecting 12% growth in da Vinci procedures and 34% growth in Ion procedures. Based on customer feedback, we believe there was a modest adverse impact to Q2 U.S. da Vinci procedure growth from those patients impacted by the expiration of subsidies for ACA Enhanced premiums. Looking at benign procedures, a subset of which can be deferred, we saw a slight moderation in procedure growth rate that started in Q1. U.S. da Vinci bariatric cases continued to feel the impact of rising GLP-1 usage declining high single digits during the quarter.

Da Vinci utilization in the U.S. increased 3% in Q2, driven by a growing installed base of higher utilized da Vinci 5 systems. Outside the U.S., total procedures grew 21% and with da Vinci procedure growth of 20%, reflecting strong results in India, Italy, Taiwan and the U.K. as well as solid growth in distributor markets and Germany -- da Vinci procedure growth in China and Japan was slightly ahead of the global average, but continued to be impacted by the market-specific dynamics we have previously described. We were pleased to see increased system placements in Japan in Q2, partially reflecting recent positive reimbursement decisions by the Japanese Ministry of Health, Labor and Welfare.

While da Vinci adoption for benign procedures in OUS markets remains at an early stage, we estimate it represents just over 25% of our international business and volume growth in this category accelerated to 37% in Q2. This will remain an ongoing area of focus. SP procedures grew 61% in the quarter powered by strength in the U.S. and Korea and encouraging early-stage momentum in Europe, Japan and Taiwan. In the United States, SP average system utilization accelerated from Q1 expanding 25% compared with the second quarter of last year. Our SBU stapler launch continued to progress well in the U.S. where it is in broad release, it was used in nearly 60% of eligible cases, up from just under 40% last quarter. Internationally, the state is now in broad launch across Europe and Korea with positive early adoption, and we expect availability to extend to Japan in Q3.

Total I&A revenue in quarter 2 grew 18% to $1.73 billion. Da Vinci I&A revenue per procedure increased to approximately $1,830 compared to $1,800 last year, driven by a higher mix of SP and da Vinci 5 procedures, offset by customer ordering patterns, higher cholecystectomy procedures and lower bariatric procedures. The decline in revenue per procedure from last quarter can largely be attributed to customer ordering patterns, which were elevated in Q1, especially in OUS markets.

Beginning in the first half of 2027, we plan to introduce an updated subset of EndoWrist instruments for use with our fourth and fifth generation da Vinci platforms that feature increased useful lives and lower customer cost per use. The lower cost for customers is targeted towards high-volume benign procedures where we see opportunities for incremental growth. Force feedback instruments, and stapling and energy products will not be part of the extended use program. We are still finalizing pricing for this initiative, and we'll provide additional quantification on our next earnings call. Other dynamics shaping da Vinci I&A per procedure include increasing adoption of force feedback instruments, the ongoing mix shift towards da Vinci 5 in SP, each of which were accretive as well as procedure and geographic mix.

Amongst our most anticipated long-term opportunities, cardiac procedures accelerated to 39% growth in Q2 and nipple-sparing mastectomy procedures increased 43%. Although both remain early stage, we continue to advance the ecosystem investments needed to unlock broader adoption including development of cardiac specific instruments and the accumulation of clinical evidence supporting NSM.

Turning to capital performance and starting with our da Vinci business. We placed 468 da Vinci systems in quarter 2, an 18% increase from the 395 systems placed in the same quarter last year. 246 of the 468 placements were da Vinci 5 placements, including 114 dual consoles. The installed base of da Vinci 5 is just over 1,700 systems used by over 15,000 surgeons since launch. Customers acquired 64 refurbished Xi systems and 58 X systems in Q2 compared to 10 and 49 in the year ago period reflecting investments into robotic programs by more cost-constrained customers that want access to our broad Gen 4 ecosystem. There were 144 trading transactions in quarter 2 up from 83% a year ago, driven primarily by U.S. customers upgrading to da Vinci 5.

Capital performance was strong in the U.S., where we placed 267 systems up 24% from the 216 systems placed last year, driven by adoption of an upgrades to da Vinci 5. We also placed 27 systems -- as significantly higher than our history, reflecting our recent focus on this customer segment. 20 of the 27 placements at ASCs were XIR systems. Outside the U.S. we placed 201 systems, an increase of 12% compared to the 179 systems placed last year. Our U.S. placements included 75 systems in Asia, 79 in Europe, and 47 in rest of world markets compared to 69, 73 and 37, respectively, last year. Higher placements in Asia were driven by Japan, where we placed 25 systems as compared to 15 systems last year.

In China, we continue to face competitive dynamics, placing 2 systems, including our first da Vinci system in Hong Kong. Da Vinci 5 is not cleared in Mainland China at this time. We continue to see relative strength in distributor markets despite a number of these markets being targeted by competitors. The strength of our segmented system portfolio in combination with the competitive advantage of our broad Gen 4 ecosystem is core to our success. During the quarter, we placed 71 systems in these markets as compared to 46 systems last quarter and 65 systems last year. 42 of the 71 placements for X or XIR systems, we will continue to pursue accelerated growth in these markets. Within the 468 da Vinci placements, we placed 38 SP systems in Q2 and higher than the 23 systems last year, primarily driven by increased placements in the U.S. and Japan.

For our Ion platform, we placed 55 systems in Q2 compared to 54 systems last year. Given our capital performance, Quarter 2 systems revenue grew 19% to $685 million. For our da Vinci business, leasing represented 54% of da Vinci placements, as compared to 56% last quarter and 49% last year. Da Vinci leasing revenue increased 22%, reflecting a 15% expansion of the installed base under operating lease arrangements and a 7% increase in lease revenue per system driven by a higher mix of da Vinci systems. The average selling price for purchased da Vinci Systems was $1.6 million in Q2 as compared to $1.5 million last year, driven by a higher mix of da Vinci 5 and dual console systems, partially offset by higher trade-ins and a higher mix of lower ASP X and XIR systems.

Lease buyout revenue was $56 million as compared to $51 million last quarter and $30 million last year. Quarter 2 service revenue increased 21% to $472 million, reflecting an increase of the da Vinci installed base of 12% and the Ion installed base of 21%. Service revenue per system for our da Vinci installed base increased 8% year-over-year, also reflecting a higher mix of da Vinci 5 systems. During the quarter, we executed our first wave of my Intuitive Plus renewals our integrated da Vinci offering of telepresent simulation and AI-driven case insights. While the initial renewal cohort was small, no customer chose to opt out of their MIs arrangement.

Turning now to the rest of the P&L. Non-GAAP gross margin for the quarter was 70%, an increase from 67.9% in Q2 of last year. Excluding the $36 million benefit from a IEEPA tariff refunds, Q2 non-GAAP gross margin would have been 68.7%. The year-over-year improvement reflects product cost reductions, fixed overhead leverage and the tariff refund. Quarter 2 non-GAAP operating expenses increased 13% year-over-year, driven by higher headcount, increased variable compensation and higher facility costs. We added 215 employees during the quarter, of which about half were in manufacturing to support increased customer demand. We are intentionally growing R&D at a higher rate than SG&A as we prioritize innovation investments that allow us to reach more patients in new diseases, drive long-term growth and advance the quintuple.

Non-GAAP other income was $83 million for the quarter as compared to $85 million last quarter. Our non-GAAP effective tax rate for quarter 2 was 22.6% consistent with our expectations. Non-GAAP net income for the second quarter was $1 billion compared with $798 million last year. Non-GAAP earnings per share was $2.80 per share compared to $2.19 per share in quarter 2 of last year.

Now turning to our GAAP results. GAAP net income for the quarter was $818 million or $2.29 per share compared to $658 million or $1.81 per share in Q2 of last year. We ended the quarter with $8.6 billion in cash and investments, up from $8 billion last quarter driven by cash flow from operating activities, offset by stock repurchases of $379 million at an average price of $439 per share and capital expenditures of $112 million. Free cash flow in the first half of 2026 was $1.8 billion, an increase of 71% compared to the first 6 months of 2025.

With that, I'll turn it over to Dan to discuss recent clinical publications and our updated outlook for 2026.

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 to be 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 and published scientific studies over the years. In November, Emily Thomas and Dr. Andrew Schneider of the University of South Carolina School of Medicine Greenville and Prisma Health in Greenville, South Carolina. Along with co-authors published comparative analysis of laparoscopic and robotic appendectomy, a multi-hospital retrospective cohort study in the journal Surgical Endoscopy.

In this study across a regional multi-hospital health system that ran from August 2021 through February 2024, the authors compared outcomes for robotic-assisted and laparoscopic appendectomy and 1,431 patients, including 352 treated with da Vinci and 1,079 treated laparoscopically. The results demonstrated that robotic-assisted surgery was associated with significantly lower rates of conversion to open surgery at 0% for the robotic cohort versus 3.2% for laparoscopy. The results also demonstrated that robotic-assisted surgery was associated with significantly lower rates of unexpected extended bare section at 0% for the robotic cohort versus 1.7% for laparoscopy. After adjusting for differences between the 2 groups through multivariable progression, the robotic-assisted approach was associated with a 66% decreased risk of any complication relative to the laparoscopic approach.

The authors attribute this difference to improved 3-dimensional visualization and dexterity of wristed instruments in managing intraoperative complications such as a necrotic appendiceal base extensive adhesions or bleeding. The authors concluded that robotic-assisted appendectomy is safe and may be associated with significantly lower complication rates compared to the laparoscopic approach and that these findings support broader adoption of robotic assistance in general surgery. In May, at the American Urological Association Annual Meeting, Dr. Jacob Ohara and Dr. Michael Steelman, of Hackensack Meridian Health in New Jersey, along with co-authors, presented use of force feedback is associated with faster return of bowel function after partial and radical nephrectomy in a supplement of the Journal of Urology. In this prospective cohort study, the authors evaluated 73 patients who underwent multi-port transparent nealpartial or radical nephrectomy with da Vinci performed by 3 high-volume robotic surgeons.

There were compared 48 patients in whom force feedback was used against 25 in whom it was not. The results demonstrated that 63% of patients in the force feedback cohort achieved a return of bowel function within 1 day compared to 28% in the cohort without force feedback. The authors hypothesize that force feedback improved return of bowel function by decreasing trauma to the colon and duodenum during globalization. And they concluded that its use in robotic-assisted partial and radical nephrectomy is associated with significantly faster return of bowel function.

I will now turn to our updated financial outlook for 2026. Starting with da Vinci procedures. In April, we forecast full year 2026 da Vinci procedure growth to be within a range of 13.5% to 15.5%. We are maintaining our forecast to be within this range with an expectation to be closer to the midpoint. We continue to expect the primary growth drivers to be general surgery in the U.S., including after hours and procedures outside of urology internationally. Our range considers the impact of changes to ACA premium subsidies and patient behavior in the U.S., China tender volumes and competitive intensity in that market. Capital pressure in parts of Europe related to macroeconomic impact and shifting governmental priorities, prior capital challenges in Japan and how long those persist in 2026 in pharmaceutical products for obesity management.

Turning to gross profit. On our last call, we forecast non-GAAP gross profit margin to be within a range of 67.5% and 68.5% of revenue which reflected 100 basis points of impact from tariff. We are updating our estimate for non-GAAP gross profit margin to be within a range of 68% and 69% of revenue. We continue to expect higher input costs in certain areas, including freight and semiconductor memory. Other factors for the year include faster growth of newer products in da Vinci 5 and Ion, modest incremental depreciation from recent facility expansion and the impact from higher da Vinci system upgrades, partially offset by product cost reductions.

Our actual non-GAAP gross profit margin will vary quarter-to-quarter depending largely on product, regional and trade-in mix and pricing. In regard to operating expenses, we now expect non-GAAP operating expense growth to be between 11% and 13%. In recent periods, R&D has grown faster than SG&A. We expect that trend to continue over the remainder of 2026. Additionally, in Q4 2025 we made a $70 million multiyear contribution to the Intuitive Foundation. We do not expect to make a contribution to the foundation in 2026. We now estimate noncash stock compensation expense between $880 million and $900 million. We continue to forecast other income, which is comprised mostly of interest income, to total between $315 million and $335 million.

With regard to income tax, we continue to expect our non-GAAP income tax rate to be between 22% and 23% of pretax income. This concludes our prepared remarks. As we open the line to questions, we ask that you limit yourselves to 1 question so that we may reach as many analysts as possible.

[Operator Instructions] The first question today is coming from the line of Travis Steed of Bank of America.

I'll start with the U.S. procedure growth. First question is, how do you know how much of this is ACA versus just the market maturing or something else, other med tech companies aren't calling it out or seeing it. So especially in ACA, such a small percent of the total covered lives. I mean do you expect any of these delayed procedures to come back in the second half of the guide?

Travis, it's Jamie. Two things actually that we're looking at. First and most importantly is just feedback from our customers as we look at their procedure trends with us and engage with them in terms of what they're seeing. If you look at those procedure types where we know that a subset of them can be deferred. We see a difference in terms of what's happening in the procedure trends, particularly in Q2 relative to those procedures where they're less deferrable or not deferrable so it's just a combination of those 2 things. If you look at what we saw in Q2, U.S. procedure growth overall for da Vinci was 12% versus the 14% we saw in Q1 there's likely some combination there of the impact from ACA, but also we're just seeing a little bit of the law of large numbers as well.

And then on the I&A revenue impact and extended use, I realize not wanting to put a fine point on it yet, but we'd estimated it as kind of a 5-point total impact over a couple of years, a little less than the 7 points in 2020. I don't if you can kind of if that's in the ballpark or put some sort of framework around it for investors? And then also maybe talk about how this is going to open up maybe ASCs and international procedures.

Yes, not ready to quantify it yet, Travis, as we said in the prepared remarks, we'll do that on the next earnings call. I'd just say a couple of things. The improvements that allow us to extend the lives have been years in the work by our engineering teams, it is intended to lower cost where we see cost constraints in both certain procedures and geographies. Think of benign outpatient procedures and those markets that just generally have health care systems with lower reimbursements. In terms of how it starts to impact as we release those in the first half of next year, think of it as being a progressive impact over 2027 versus some step function just in terms of how it will adopt and how it will be rolled out by the various countries.

We looked back at what we did in the first extended use program back in 2020 and obviously, we've had the time to assess the impact of that both in our own data trends and in feedback from customers. And I think we have confidence that as you make innovations that allow you to lower cost for customers, when there's opportunity to grow, that's a good strategic thing to do.

And our next question will be coming from the line of Robert Marcus of JPMorgan.

Great. So 1 for me. The CapEx environment is 1 of the most important catalyst and background items for Intuitive there is obviously concern amongst investors as bad debt might build at hospitals as people fall off ACA and Medicaid. What are you seeing today in terms of the capital environment in the U.S. and outside the U.S. and the willingness to invest in capital and I think more importantly is the go forward. So what are you expecting? What's assumed in guidance, both U.S. and OUS for the future health of the CapEx cycle?

The U.S. capital environment, at least in our experience, has been stable for some time now. And you see that, I think, in the healthy system placements in Q2 in the U.S., up 24%. I do think that we have a relative advantage in the around 70-ish percent of the systems acquired in the U.S. are under leasing arrangements. And so that gives customers, I think, greater flexibility relative to when they have capital budget constraints. But I think we feel good about how capital has performed in the U.S. in recent periods and our pipeline at least up until this point has been healthy. Much of that has been driven by interest in da Vinci 5. So to some extent, there's some uniqueness relative to customers wanting to get access to the latest technology to differentiate themselves in the marketplace and take advantage of the features that embedded.

If you look at the U.S. placements in Q2, 267 systems, relative to the 216 in the year ago period. Almost the entirety of that increase is in trades and so it shows the extent to which customers are interested in upgrading embedded in that, given how we designed da Vinci 5 structurally, it does give customers incremental capacity and that's reflected in how we've described the higher utilization of da Vinci 5 versus XI. We also saw greenfields up in Q2, and that was mostly the 27 systems that we placed at ASCs. So we feel pretty good about the U.S. environment to this point. Of course, there are some customers that express caution over ACA enrollment trends, but we haven't seen that impact our pipeline, at least to this point.

In international markets, it's basically what we've described on the call, China is competitive and challenging from a pricing perspective. Japan has been impacted by government funding. We think the reimbursement decisions that went into effect in June are positive, and we have a kind of cautious tone of optimism for -- as we look forward in Japan. The distributor markets have responded well, particularly to our portfolio of systems.

Europe, it depends on the market. There are some that are stressed by government budgets and some that look pretty healthy.

And our next question will be coming from the line of Rick Wise of Stifel.

Could you talk, Dave, a little bit more about the May 21 press release. You highlighted and you highlighted it went quickly. I think you said over 100 such da Vinci 5 upgrades and enhancements ahead. If I heard that correctly, correct me, please, if I'm wrong, but at what rate are these going to unfold and happen and roll out, I know, subject to FDA approval. But how do we think about these incremental adds? Are there 1 or 2 or 5 that are likely to be more impactful and impactful on growth or procedure volumes or new procedures than others?

Rick, I appreciate the question. So the way to think about this cadence that we've committed to, as we take da Vinci 5 as a platform and its compute power, the 10,000 times we're able to add capabilities and features to that on a regular basis. And so the press release that you're referring to has 100 updates. And some of those updates will be not visible to the customer. They're kind of under the hood, so to speak, and many will be visible to the customer. And they're focused in the areas that we talked about, 3 of them in particular, that take advantage of these updates, we submitted for 510(k) clearance. And so those updates center -- 2 of them center on really I would say, kind of usability and efficiency features where the care team and the surgeon may be able to minimize some communication back and forth on the surgeon tool inject feature, for example, where they can indicate exactly which tool is going to be needing to be changed.

The other 1 on as we are able to adjust multiple arms either preoperatively or during the case will help efficiency of the case. And now we're finally adding this digital ruler too, and that's another 1 that requires clearance. And that one, you can imagine in a variety of cases, where it can be used by the surgeon to measure a particular part of the anatomy and what they're trying to ensure meets the needs of the patient. And so those are the 3 that are submitted for clearance. Others will be kind of circling around some of the efficiencies and effectiveness of the system. And then that's what you'll see going forward, too, as we look at next year and years beyond, is a set of updates many of which will be kind of standout features that improve the capability of the system.

And Dave, I hope you'd expand on your comments about this new GI robot? Why this area? Why now? And maybe you can give us a flavor for the potential incremental TAM and impact on Intuitive outlook?

Yes, sure. So the way I would frame GI is basically a natural extension of our mission to bring better minimally invasive care to more patients. I would say that Ion has demonstrated we can develop and commercialize platforms beyond core soft tissue surgery. And I'm excited. We're in a good place to bring the learnings from da Vinci and the learnings from Ion, bring those together inform our work in the GI tract. And so we have spent time with GI physicians and care teams to understand where a robotic approach could improve therapeutic outcomes, the care team experiences, really all aspects of the Quintle and we're excited about what's possible. And I just want to reinforce this remains early, right? The 510(k) submission is for noncommercial and aluminum system. And we'll build clinical evidence and work through the regulatory review processes, and we'll provide updates along the way.

Just not ready today to describe kind of timing or size of the opportunity but encouraged by what we're learning and the potential for GI to become another area where minimally invasive robotics can create real value over time.

Our next question is coming from the line of Lawrence Bigelsen of Wells Fargo.

I just wanted to ask about China. We recently saw that the government is creating a centralized VBP for imaging and other surgical equipment. Are surgical robotics part of that VBP program? And how might that impact Intuitive in China?

Larry. So to the best of our knowledge, I wouldn't compare this tender centralization necessarily with VBP. What we think the government is really trying to do here is manage some of the duplication and waste that they see in the tender process when it's individualized to hospitals and all the provinces. And so we think actually, in a way, what they're going to do is more structurally develop the tenders to take advantage or to basically reinforce the need for strong robotic programs and not just bespoke features that are system by system kind of tailored by depending on who's writing the tender. And so we do believe that robotics will be part of it. Again, I wouldn't compare it to VBP, and we'll see how it starts to kind of phase in now over the next quarters.

That's helpful. Dave, 1 follow-up. The recent press release that Rick asked about also talked about instrument security and how Intuitive is enhancing instrument encryption technology to improve the security and monitoring of its products. So my question is, what's the tangible benefit of that? And do you think this will incentivize hospitals to stick with your instruments as opposed to remanufactured instruments?

Yes. Here's what I'd say about that is it's clear that cybersecurity is front and center when you talk to our customers and across the globe. And so really, the introduction of this new encryption technology is just part of our continued investment to strengthen the security of our products, the quality of our products, the availability of our products. And really, that's what it is centered on in this case.

Our next question is coming from the line of Ryan Zimmerman of BTIG.

First question for me is going back to the capital demand and the environment. I mean, there's a bit of a dichotomy, I think, between capital demand and procedure growth. And I'm wondering, Dave, when you think about the capital cycle that you're seeing, particularly what you saw this quarter, -- does it reflect assumptions of increasing demand ahead? Because I think if I think about what Gary has said in the past in terms of system growth, typically, hospitals are buying systems ahead of increasing demand. And so just maybe speak to the differences between the system placements versus what you saw with procedures this quarter, please?

Brian, it's Jamie. Maybe I'll take that. If I could take the U.S. a couple of things just to consider, -- about half of the placements in the U.S. in Q2 were trades. So while you can get incremental capacity in the field, if you're upgrading to da Vinci 5. Obviously, then the half of those placements are not expanding the installed base. And you have seen the U.S. installed base expansion kind of moderate slightly over the last several quarters. If you look at system utilization, which I think is an important metric relative to your question in the U.S., that grew 3% in Q2, which is a healthy level and a metric that we'll watch carefully. Again, I would just say, we have heard from some customers, some caution on ACA enrollment trends. But again, that hasn't affected the capital pipeline so far. Obviously, we're going to watch the procedure trends across the U.S. in the coming quarters.

Okay. And then just second question for me is on DB5 upgrade cycle durability. We did a recent survey. The bulk of respondents in our survey, about 77% or so, we're already upgrading the DB5 and we're actively pursuing an upgrade. But when I step back and I think about kind of the DB5 installed base relative to the broader installed base, I mean how do you think about the ability to upgrade to DB5 in the existing installed base relative to greenfield? And where would you kind of characterize what inning you're in, if you will, with the DB5 upgrade cycle, given the broader installed base that is out in the field today?

I don't think we have a perfect prediction, I would just say, if you look at the when we introduced Xi, it took about 7 years before we got to the peak trading volumes going from SI to Xi. I just give that as a historical reference, nothing more. I think that as with Xi, the da Vinci 5 capability and its ecosystem increases over time with the software updates and the ability to improve other elements of the ecosystem. And each time we do those updates, that then makes the system more attractive. Of course, there will be some segmentation in the U.S. that's likely along the lines of what ASCs and HOPDs want to use given the procedure mix in those settings versus in the hospital. But we've said for some time now, we think the upgrade cycle is progressive and occurs over multiples of years.

And our next question will be coming from the line of Matt Taylor of Jefferies.

I guess I wanted to ask you a little bit more about XIR. You mentioned there's momentum in those programs especially in ASCs and kind of cost-sensitive areas. I was wondering if you could give us more color on how many of those you're placing? And maybe kind of an outlook about how you think that will evolve and what percentage of the mix those could represent in the future?

Yes, I might just start, and Jamie, please follow up. If you look across the globe. And you just -- you mentioned, we have segments, and we're seeing segmentation across our customer base through in the U.S. ASCs and smaller hospitals outside the U.S., certainly in those geographies where kind of the health care system is more cost constrained. And XIR is just a fantastic option for them is it -- it takes advantage of our entire fourth gen ecosystem and it has just great capability across a broad set of procedures. And so I'm -- I think I'm excited about where that's positioned and what it's offering customers because we've seen it be able to meet their economic need. That's why I think you've seen the placements come up this quarter. Our teams are focused on working with customers to understand their needs and we think XIR going to be just a strong option for them. And so I would expect it to be a significant part of our placements over the coming quarters.

What's exciting about XIR is it gives us the opportunity to access customers that have not yet invested in robotics allows them to have their first program start to get through the learnings, see the benefits of it. and becomes then a customer that we can bring to more advanced technology over time. We've had XIR for about a year now. I think the installed base is something like 130 XIRs in the field. About 50 of those are in the U.S. that's concentrated with the 27 ASCs placements, 20, 27 were XIR and some other customers in the U.S. But a large portion of them are in international markets. And again, it gives us the opportunity to go to customers that are new to robotics. And so there's 11 or 12 customers in that year period, 11 or 12 countries rather in that year period that have taken in XIR. And so I think there's diverse interest in those places where it's cost sensitive and it's advantaged by the breadth of the Gen 4 ecosystem.

And our next question is coming from the line of Vic capture of BMO. Please go ahead.

So given the paper reimbursement changes that took effect in Japan on June 1. I'm just curious how significant the contribution from Japan to come over the next few years if adoption trends develop as you expect.

Yes. I think we expect procedure adoption to take some time given the newer categories and in some cases, you need to work through surgeon training and so forth. And despite the new reimbursements, I think we're balanced about the continuing financial challenges along with some of the financial incentives that now exist. So I think that will be progressive over some time. What have we said about the size of the market opportunity down?

I think incrementally relative to prior increases, it's somewhat smaller, but -- and will take time to develop.

And the TAM of the new opportunity, we described that.

Not specifically described.

Inge Norena is the largest of the procedures with the new reimbursement. So we'll see how that progresses over time, and we'll keep you updated.

And our next question is coming from the line of Michael Polark of Wolfe Research.

I want to take another crack at extended use impact in 2027. So Travis alluded to the last cycle was a 7% impact, the adjustments that were made were described as 9% to 15%. You have some good things going through the I&A per case line right now, DB5 generally, force feedback, SP mix, all good guys. Is it fair to think that you're investing kind of away that upside with extended use in the per case line would be flat? Or is that not a great assumption and there is risk that I&A per case as we roll through 27 and 28 year-on-year could be down a little bit.

Mike, I totally understand the question from a modeling perspective for next year. I'm not going to provide the quantification until we've been through the analysis and made our decisions. I think that in the way that we think about managing the company, where we're balancing 2 objectives, growth and profitability and where we see opportunities to have incremental growth in these lower acuity procedures than we're willing to pursue those. I think that you're right, what you called out is there is the opportunity for mix on those products that have incremental innovation embedded in them that is manifested in higher pricing or higher I&A per procedure then you have some dynamics that can offset, and that's what we tried to describe in the script.

But I'm not going to go through the kind of quantification until we've been through our process internally.

Our next question is coming from the line of Vijay Kumar of Evercore.

Maybe just 1 from my side. I know there's nervousness around the utilization metric. Can you talk about your exposure to Medicaid or exchanges, if you will?

I'm sorry, Vijay, do you mind just repeating the question?

What is your procedure exposure to health care exchanges and Medicaid?

We don't have a precise estimate. A significant portion of the business is private pay insurance or commercial insurance, Medicare is a lower proportion of our business as -- and Medicaid is lower yet again. But we don't have a precise estimate of what portion of our procedure business is under ACA.

Understood. And Jamie, I know you gave the preceded guidance for the annual third quarter comps get tougher. Is that something we need to be cognizant enough.

Yes. Just thinking about the second half of the year, obviously, the first half of the year, closer to 15% on da Vinci procedure growth guiding more towards the midpoint for the rest of the year. There is a little bit of a tougher comp in the U.S. in Q3. I think we noted at the time last year, additionally, Q3 internationally had some seasonal holiday movements that moved from Q4 to Q3. So a little bit of an impact in Q3 and Q4 on the international side as well.

That was our last question. Thank you for the questions. In closing, we continue to believe there's 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 better, 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 and their environment. At Intuitive, 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. We look forward to talking with you again in 3 months.

This concludes today's program. Thank you so much. You may now disconnect.

Good day, and thank you for standing by. Welcome to the Intuitive First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your speaker today, Dan Connally, Vice President, Investor Relations. Sir, please go ahead.

Good afternoon, and welcome to Intuitive's First Quarter Earnings Conference Call. Joining me today are Dave Rosa, our CEO; and Jamie Samath, our CFO.

Before we begin, I would like to remind you that comments made on today's call may contain forward-looking statements. Actual results may differ materially from those expressed or implied as a result of certain risks and uncertainties. These risks and uncertainties are described in our Securities and Exchange Commission filings, including our most recent Form 10-K filed on February 3, 2026. Our SEC filings can be found through our website at intuitive.com or at the SEC's website. Investors are cautioned not to place undue reliance on such forward-looking statements.

Please note that this conference call will be available for audio replay on our website in the Events section under our Investor Relations page. We are experiencing technical difficulties with distribution of today's press release. Note, you can find today's 8-K, including our press release, on our website or at the SEC's website. The Q1 2026 financial data tables have been posted to our website as well.

Our format for this afternoon's earnings conference call is as follows: 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 2026. 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. Q1 was a solid start to the year for Intuitive, driven by 17% total procedure growth and broad-based adoption across da Vinci and Ion as customers continue to advance minimally invasive care. In Q1, da Vinci procedures grew 16% to $847,000, and Ion procedures increased 39% to $43,000. Performance was strong in the U.S. and Europe with mixed results in Asia.

In the United States, da Vinci procedures grew 14% year-over-year, led by strength in general surgery. Growth was supported by a 31% increase in after-hours procedures and higher overall utilization. Da Vinci 5 utilization continues to exceed that of da Vinci Xi driving U.S. utilization growth to 4%.

Outside the U.S., da Vinci procedures grew 19%, led by continued strength in general surgery and gynecology as adoption expands beyond urology. The lower growth rate relative to prior quarters reflects ongoing challenges in China and Japan.

In China, the environment remains largely consistent with recent quarters reflecting relatively low tender activity across the category, domestic competition and policy-driven pricing pressure. Given our belief in the long-term opportunity, we continue to make investments to improve procedure growth, establish favorable patient charge codes and support other market access activities.

In Japan, procedure growth improved sequentially, but remained below historical levels following fewer system placements in 2025. We are encouraged by recent policy developments, including incremental financial support for higher-volume robotic programs and new reimbursement for 7 additional procedures. Both policies to be effective starting in June of 2026. Jamie will describe these changes in more detail shortly.

I have confidence in our ability to execute our international strategy. Investments in our organizational capabilities, clinical trials and research, and market access efforts are yielding supportive robotic surgery policies and reimbursements in many of the countries we serve. The arc of progress is evident with OUS procedures now representing 38% of total da Vinci volume, up from 25% a decade ago. We are well positioned to expand access and drive deeper adoption in these countries with the addition of XiR to our system portfolio, and our overall ecosystem of technologies, training and services.

Turning to capital. We placed 431 da Vinci systems in Q1, including 232 da Vinci 5 systems, 34 SP systems and XiR systems. We also placed 52 Ion systems in the quarter. As da Vinci 5 moves into broader clinical use globally, customer adoption and feedback remain very encouraging. Customers are building experience with the da Vinci 5 ecosystem, resulting in increased clinical throughput and expanded access to da Vinci surgery.

At the recent annual SAGES conference, several clinical abstracts demonstrated objectively lower tissue forces using da Vinci force feedback instrumentation across multiple procedure types. We continue to believe that objective knowledge of applied forces and surgery will lead to improved surgical outcomes and are investing to demonstrate this at scale.

In March, we received FDA 510(k) clearance for additional uses of our force feedback instruments. 5 of 6 instruments are now cleared for 15 uses, while our mega suture cut natal driver is clear for 10 uses. Combined with multiyear investments in supply chain and manufacturing, this clearance supports broader availability in Q2 that will increase over the rest of the year. We expect adoption of force feedback invitation to progress steadily through 2026 and beyond.

Turning to our digital ecosystem. We continue to invest in the data and digital infrastructure that underpins our longer-term innovation road map. Da Vinci 5 captures real-world surgical data at greater scale and fidelity, enabling deeper insight into how procedures are performed and practiced. That insight paired with clinical context from connected electronic medical records, provides better understanding of variation, workflow and outcomes and informs current in planned digital and AI-enabled capabilities.

My Intuitive Plus continues to play an expanding role in training and program support with growing adoption of Intuitive telepresence capabilities that enable proctoring, mentoring and collaboration across surgeons insights. Collectively, these efforts are foundational to our long-term digital and AI road map where we expect to add telesurgery, deeper decision support and augmented dexterity, including aspects of future automation, all in pursuit of advancing the Quintuple Aim. I'm excited by the progress our development teams are making.

Turning to our single port platform. SP momentum continued in the quarter with procedures growing 68% year-over-year. Growth was driven by expansion in Korea and the U.S. and ongoing early adoption across select international markets. Recently, U.S. surgeons performed the first non-IDE nipple-sparing mastectomy cases as we advance our measured rollout focused on training and support of our customers.

We also moved our single port stapler into broad launch, which will support deeper penetration in thoracic and colorectal procedures as customers expand their programs. Our teams are focused on new product and procedure launches, expanding our customer base and securing new geographic clearances. Over the midterm, SP will incorporate much of the da Vinci 5 ecosystem, including current and future digital and AI capabilities. We're excited about the potential of SP to drive meaningful improvement in the Quintuple Aim.

Moving to Ion. We're pleased with the results and progress this quarter. Ion's North Star is to help physicians improve lung cancer patient survival. Clinical publications continue to reinforce progress here, including a recent Mayo Clinic publication of approximately 2,000 patients, which demonstrated that use of Ion supports earlier identification of malignancy with the potential to improve patient survival. Dan will walk through the study in more detail later in the call. Our teams are making progress on our rapid on-site tissue evaluation technology or ROSE and endobronchial ultrasound integration as we look to further streamline the time from detection to diagnosis.

Looking ahead, our company priorities for 2026 are unchanged. First, the global expansion of our platforms, digital feature releases and ecosystem enhancements. Second, increased adoption for focused procedures by country through training, commercial activities and market access efforts. Third, building industrial scale, enhancing product quality and achieving manufacturing optimization. And finally, advancing innovation to reach more patients in current and new disease states.

Before I turn the call over to Jamie, I want to recognize an important leadership transition at Intuitive. Dr. Myriam Curet is retiring this quarter after more than 20 years as Intuitive's Chief Medical Officer. I'd like to thank Myriam for all her efforts in advancing our mission as a physician, a patient advocate and a business leader. I'm also pleased to announce Dr. Jamie Wong's promotion to Chief Medical Officer and member of our executive leadership team. Jamie provides -- combines a deep clinical background as a practicing da Vinci urologist with his experience of more than a decade at Intuitive, leading a variety of functions. As CMO, he will lead our global medical office, overseeing customer training, clinical evidence generation and research and reimbursement and market access efforts.

And with that, I'll turn the time over to Jamie to take you through our finances in greater detail.

Good afternoon. I will describe our performance on a non-GAAP basis, and I'll summarize our GAAP results later in my remarks. A reconciliation between our non-GAAP and GAAP results is available on our website. All references to total procedures and their related growth rates include both da Vinci and Ion procedures.

Before detailing our quarterly results, I would like to briefly address the cyber incident that occurred during the first quarter, which resulted in unauthorized access to some customer business and contact information as well as certain Intuitive employee and corporate data contained in certain of our IT business applications. The incident did not disrupt our business or manufacturing operations and did not affect our products. It also did not have a significant impact on our first quarter financial results. We have contained the incident, notified customers and informed appropriate data privacy regulators. We are also taking additional steps to further strengthen our cybersecurity protocols.

In Q1, total procedures grew 17%, reflecting 16% growth in da Vinci procedures and 39% growth in Ion procedures. Quarter 1 revenue increased 23% to $2.77 billion, with recurring revenue also higher by 23% to $2.4 billion, accounting for 86% of total revenue. On a constant currency basis, revenue growth was 22%. Non-GAAP operating margin was strong at 39% and primarily reflecting leverage of fixed costs. The strength of our financial results reflected continuing global expansion and procedure adoption of our da Vinci 5, Ion and SP platforms.

Turning to the clinical side of our business. In the U.S., total procedures increased 15%, reflecting 14% growth in da Vinci procedures and 37% growth in Ion procedures. For our da Vinci platforms, we continue to see strong growth in cholecystectomy and appendectomy procedures, which combined grew by 31% and driven in part by continued expansion of use da Vinci during after hours and on weekends. We are starting to see emerging evidence that a broad set of clinical outcomes for appendectomy are improved with da Vinci surgery as compared to laparoscopy.

Over the last year, in the U.S. we've invested in incremental clinical support for surgeons performing benign gynecology procedures given the opportunity to improve patient outcomes. While total U.S. gynecology procedures grew 10% in Q1, investments in this area drove a 19% increase in nonhysterectomy benign procedures, including sacrocolpopexy, endometriosis, oophorectomy and myomectomy during the quarter. Da Vinci bariatrics procedures in the U.S. continue to be impacted by the growth in use of GLP-1s and declined approximately 10%. Da Vinci utilization in the U.S. increased 4% in Q1 and higher than recent quarters, driven by a growing installed base of da Vinci 5 systems, where utilization is approximately 11% higher than Xi.

With respect to the expiration of subsidies for enhanced premiums under ACA, while we did not see any significant impact on procedure volumes in Q1, at this time, we remain cautious as to what the potential impact, if any, might be.

Outside the U.S., total procedures grew 20% with da Vinci procedure growth of 19%, reflecting strong results in India, Canada, the U.K., Korea and Taiwan and solid growth in distributor markets, Italy and Germany. The market in China continues to be challenging. In Q1, procedure growth was below the corporate average, reflecting lower tenders and competitive and pricing pressures. There are ongoing discussions with provinces regarding potential new charge code and reimbursement policies in China for robotic procedures. We are actively engaged with policymakers but do not expect clarity on the outcome of these matters until 2027.

Procedure growth in Japan was also below the corporate average, reflecting lower capital placements over the last several quarters. In Q1, the Japanese Ministry of Health, Labor and Welfare, or MHLW, recently introduced incremental reimbursement for hospitals that exceed robotic procedure volumes of 200 qualifying cases per year. In addition, 7 new procedures have been granted robotic reimbursement starting in June of 2026. Furthermore, rectal resection has been granted premium reimbursement when performed robotically. While we are encouraged by these steps, we remain cautious in our outlook for the Japanese market in the short term given the financial position of public hospitals in recent periods.

Globally, we continue to see healthy procedure growth for our SP platform at 68% for Q1 with strength in Korea and continuing robust early-stage growth in Europe, Japan and Taiwan. In the U.S., SP average system utilization continued to accelerate following recent additional clearances growing 22% as compared to quarter 1 of last year. During the quarter, we moved our new SP stapler into broad launch in the U.S., where it was used in almost 40% of cases where we would expect a staple to be used. We are planning to move the SP stapler into measured launch in Korea and Europe in Q2 as we expand manufacturing capacity.

As a result of our clinical performance, total I&A revenue in quarter 1 grew 23% to $1.7 billion. Da Vinci I&A revenue per procedure was approximately $1,880 compared to $1,780 last year, driven by customer ordering patterns, a higher mix of SP and da Vinci 5 procedures and FX, partially offset by lower bariatric and high cholecystectomy procedures.

Turning to capital performance and starting with our da Vinci business. We placed 431 da Vinci systems in quarter 1, a 17% increase from the 367 systems placed in the same quarter last year. 232 of the 431 placements were da Vinci 5, including 40 in OUS markets. The installed base of da Vinci 5 is now almost 1,500 systems used by almost 13,000 surgeons since launch. Customers acquired 34 refurbished excise systems in Q1 compared to 2 in the year ago period, 26 of the 34 placements were in OUS markets in segments where we see greater cost sensitivity.

There were 119 trading transactions in quarter 1, up from 67 a year ago, primarily driven by U.S. customers upgrading to da Vinci 5. In the U.S., we placed 226 systems, up from 204 last year, driven by adoption of da Vinci 5. Outside the U.S., we placed 205 systems, an increase of 26% compared to the 163 systems placed last year. OUS placements included 117 systems in Europe, 62 in Asia and 26 in the rest of the world compared to 88, 52 and 23, respectively, last year. Relative strength in Europe was driven primarily by the U.K., where we placed 34 systems as the NHS closed out its budgetary year. We placed 13 systems in Japan and 4 systems in China, reflecting lower overall tender volumes.

Within the 431 da Vinci placements, we placed 34 SP systems in Q1 and higher than the 19 systems last year, driven primarily by increased placements in the U.S. and Taiwan. For our Ion platform, we placed 52 systems in Q1 compared to 49 systems last year. Q1 Ion placements included 13 systems in OUS markets. Given our capital performance, quarter 1 systems revenue grew 24% to $651 million.

For our da Vinci business, leasing represented 56% of da Vinci placements as compared to 47% last quarter and 54% last year, driven primarily by customer preference. Da Vinci leasing revenue increased 28%, reflecting a 14% expansion of the installed base under operating lease arrangements and a 12% increase in lease revenue per system, driven by a higher mix of da Vinci 5 systems and higher utilization for usage-based arrangements. The average selling price for purchased da Vinci 5 systems was $1.7 million in Q1 as compared to $1.6 million last year driven both by a higher mix of da Vinci 5 systems and dual-console systems, partially offset by higher trade-ins.

Lease buyout revenue was $51 million as compared to $39 million last quarter and last year. Quarter 1 service revenue increased 19% to $434 million, reflecting an increase of the da Vinci installed base of 12% and the Ion installed base of 22%. Service revenue per system for our da Vinci installed base increased 6% year-over-year, primarily reflecting a higher mix of da Vinci 5 systems.

Turning now to the rest of the P&L. Non-GAAP gross margin for the quarter was 67.8% and an increase from 66.4% in Q1 of last year. The year-over-year increase reflects product cost reductions and fixed overhead leverage, partly offset by the impact of tariffs. While Q1 results were not significantly impacted by higher oil and memory prices, we do expect those to have a greater unfavorable impact in the remainder of the year.

During the quarter, our da Vinci 5 system achieved contribution margins comparable with our Xi System, and our Ion platform achieve contribution margins that are close to the corporate average, reflecting significant efforts by our engineering and operations teams. Continuing initiatives to further improve gross margins, excluding the impact of tariffs are focused on leverage of fixed overhead, improving product and service margins for da Vinci 5 and additional reductions to product costs for our SP and Ion platforms. Future gross margins will reflect our execution on these initiatives competitive pricing dynamics, global tariff rates and product, regional and trade-in mix.

Quarter 1 non-GAAP operating expenses increased 10% year-over-year, a little lower than our expectations due to the timing of certain expenses. The year-over-year increase was driven by higher headcount, increased variable compensation and higher facility costs, partially offset by lower legal expenses. We added 425 employees during the quarter, of which 230 were related to the acquisition of our distribution business in Italy, Spain and Portugal.

Non-GAAP other income was $85 million for the quarter as compared to $86 million last quarter, reflecting lower interest income. Our non-GAAP effective tax rate for quarter 1 was 22%, consistent with our expectations. Non-GAAP net income for the first quarter was $901 million compared with $662 million last year. Non-GAAP earnings per share was $2.50 per share compared to $1.81 per share in quarter 1 of last year.

Now turning to our GAAP results. GAAP net income for the quarter was $822 million or $2.28 per share compared to $698 million or $1.92 per share in Q1 of last year. We ended the quarter with $8 billion in cash and investments, down from $9 billion last quarter, driven by stock repurchases of $1.1 billion, the acquisition of our distributor business in Italy, Spain and Portugal, and capital expenditures of $103 million, partially offset by cash generated from operating activities and proceeds from employee equity activity.

Taking a moment to recap our recent financial performance. A core element of our strategy focuses on excellence in product innovation to launch highly differentiated products that drive the Quintuple Aim for the benefit of customers and patients. Revenue growth ahead of total procedure growth reflects, in large part, the differentiated value of da Vinci 5 as that new platform becomes a greater proportion of our business, revenue growth benefits from accretive pricing, higher levels of integration and incremental trading volumes. We see opportunities to continue to drive innovation-led revenue performance with our SP stapler planned SP vessel sealer and growth in use of existing and planned AI and digital capabilities. We also have plans to increase the value of our Ion platform in the lung through our pursuit of a staging indication and the integration of AI-based ROSE technology.

With that, I'll turn it over to Dan to discuss recent clinical publications and our update outlook for 2026.

Thank you, Jamie. Earlier this month, [ Dr. Sebastian Fernandez Bosie] from Mayo Clinic in Jacksonville, along with co-authors across Mayo clinic sites in Jacksonville, Phoenix and Rochester, published a study in Mayo Clinic proceedings titled 2,000 peripheral pulmonary lesions sampled by shape sensing robotic-assisted bronchoscopy and mobile cone beam computed tomography, the Mayo Clinic experience. In the study, which ran from July 2019 through August 2024, 12 proceduralists used Ion to biopsy 2,115 peripheral pulmonary lesions from 1,904 patients. Lesions biopsies were an average size of just under 18 millimeters with more than half located in the upper lobes at a median distance of 17 millimeters from the chest wall.

Diagnostic yield according to the recently published strict ATS ACCP consensus statement definition was 79% with sensitivity of malignancy reported at 85%. Further, 74% of patients had concurrent endobronchial ultrasound lymph node staging with the authors noting, "the ability to perform diagnosis and staging within the same anesthetic event reduces the risk of repeated interventions, facilitating lung cancer diagnosis and advanced disease management."

Additionally, results demonstrated a strong safety profile with a pneumothorax requiring intervention rate of 1.4% and severe bleeding defined as Nashville Grade 3 or higher of 0.3%. Notably, the rate of early stage primary lung cancer diagnosis in the study increased by 23 percentage points from 46% in 2019 to 69% in 2024. The authors concluded, "In this high-volume multicenter 5-year study, shape sensing robotic-assisted bronchoscopy has shown a consistently optimal diagnostic yield with low complication rates. To our knowledge, this is the largest cohort assessing shape-sensing robotic-assisted bronchoscopy following the recent strict consensus on diagnostic yield. The ability to sample multiple peripheral pulmonary lesions and include hilar and mediastinal staging within the same anesthetic event, physicians shape-sensing robotic-assisted bronchoscopy as the preferred method of choice over CT-guided thoracic biopsy for assessing suspicious peripheral pulmonary lesions."

I will now turn to our updated financial outlook for 2026, starting with da Vinci procedures. In January, we forecast full year 2026 da Vinci procedure growth to be within a range of 13% to 15%. We are increasing our forecast and now expect full year da Vinci procedure growth within a range of 13.5% to 15.5%. We continue to expect primary growth drivers in 2026 to be generally consistent with those in 2025, including general surgery in the U.S. and procedures outside of urology internationally. Our updated range continues to consider the potential impact of changes to ACA premium subsidies and patient behavior in the U.S., 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 and how long those persist in 2026, and pharmaceutical products for obesity management.

Turning to gross profit. On our last call, we forecast non-GAAP gross profit margin to be within a range of 67% and 68% of revenue, which reflected 120 basis points of impact from tariffs. We are updating our estimate for non-GAAP gross profit margin to be within a range of 67.5% and 68.5% of revenue, which now reflects 100 basis points of impact from tariffs as well as higher input costs in other areas, including freight and semiconductor memory. Other factors for the year include faster growth of newer products daVinci 5 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 non-GAAP gross profit margin will vary quarter-to-quarter depending largely on product, regional and trade-in mix and pricing.

In regard to operating expenses, we now expect non-GAAP operating expense growth to be between 11% and 14%. We continue to estimate noncash stock compensation expense between $890 million and $920 million. We now forecast other income, which is comprised mostly of interest income to total between $315 million and $335 million due primarily to lower average cash balances following share repurchase activity in Q1.

With regard to income tax, we continue to expect our non-GAAP income tax rate to be between 22% and 23% of pretax income.

That concludes our prepared remarks. We will now open the call to your questions.

[Operator Instructions] Our first question will come from the line of Travis Steed with Bank of America.

Congrats on good quarter. Maybe to start with kind of want to talk a little bit about some of the future. You talked a lot about data and digital infrastructure, augmented dexterity. Just kind of curious how you see the digital and data road map for Intuitive and -- but also some hints on biopsy and the ROSE acquisition. So love to kind of your big picture view of how that kind of plays out and anything you can say on timing?

Yes. Happy to do it, Travis. Thank you for the question. So I'll start with AI. And I'm really -- and you asked the question, but I'm going to speak specifically about AI as it shows up in our products and with our customers and not so much AI on the corporate side. And so if -- when we look at AI, it's like any other product, and it's really through the lens of the Quintuple Aim and will it advance outcomes and reduce variation, improve certain patient experiences, lower total cost advanced access for patients around the globe. And we believe, yes, that AI will be a contributor to moving the Quintuple Aim forward. And our approach here is what we've described in the past.

And it's really to build kind of this layered capabilities. And it starts with high-quality data -- and that data will exist in video data from surgeries. It will exist in robotic data streams like kinematic data and force data. It will exist in connected electronic medical records, where we're working with customers to do so. And once we have that high-quality data set, then the job of our AI and our data scientists is to turn that into meaningful insights. And once we have those, I think the critical part here is how do we deliver those to the customer. and it has to be in a consumable fashion, it has to be at the right time in the moment that enters to the customer.

So there are, I think, ways in which this will show up to the customer. Some will be as operational guidance and assistance as they look at their hospital robotic program and want to increase efficiencies or understand costs. Some of it may show up in the learning surgeon and/or a care team. But a lot of it will show up in the operating room, and I think show up in the surgery itself. And an example of this kind of first phase might be AI-enabled anatomy identification where you can see AI showing critical structures in the surgical field showing tissue planes to help assist the surgeon.

Then, over time, what we expect is that many of those same foundations that are being established and built in kind of that first phase, if you will, will support more advanced assistance around augmented dexterity and it will include -- likely include aspects of automation. There, an example might be helping to control the camera as the surgeon is focused on the procedure. And so throughout this, every step, it's about clinical value, of course, and it's about safety and reliability and not just doing this in a one-off but doing this in a scaled fashion.

And so if I look at that as the layer that we're progressing through and I'd look to see where -- how do we sit, how do we exist within the AI ecosystem and how are we differentiated? I think part of that differentiation is around the installed base of systems that we have out there, including about the 1,500 da Vinci 5 systems, the 3 million and more procedures that are being done on an annual basis. And I believe that gives us the foundation to strengthen the differentiation over the next 3 to 5 years.

If you look at the industry and you say, what is broadly available, broadly available to everyone, it's things like edge and cloud compute, the math that underscores much of this, some of the training algorithms. Our advantage, we believe, why is in the unique data sets that are available to us today through something like force feedback and will be increasingly available to us as we add capability to da Vinci 5. And so all of that together creates the flywheel. It's a flywheel that starts with data, insights, actions, advancing the quintuple the flywheel spins it becomes that virtuous cycle. And we have the teams focused on it, and we are investing to advance this in the future and look forward to updating you along the journey.

That's exciting. Can't wait. Maybe my follow-up question, Jamie, on margin. You highlighted some macro stuff, but still raised gross margin 50 basis points and tariffs only came down 20 basis points. So I guess the contribution margin of DV5 comparable excise, a nice positive for margins. But kind of curious kind of what you saw in the macro and what you kind of baked in on that front? And any color on kind of what percent of COGS you'd call chips and exposure to oil and resin?

Yes. I'd just say for oil prices and the derivative impact that has on input prices and logistics costs and memory, based on what we know today, in the gross margin guidance, it has an impact, but it's relatively small. I think what you see in Q1, in particular, is relatively significant leverage from the 23% revenue growth and a really nice contribution from the product cost reductions that we've described. So the macro is having an impact. And obviously, we're watching it carefully and you also have to watch the potential supply constraints. But the macro is baked in and relatively small, just given the components of our product costs.

So Travis, real quick, you had asked about ROSE and Quintuple Aim and just some color there. So both our known technologies. And the time lines are more short term, but they won't be this year. We do believe that they are bringing a truly significant differentiated value to the lung cancer diagnosis, detection and diagnosis journey and expect to share that value with customers. And so as that gets closer, we'll let you know more about it.

[Operator Instructions] Our next question will come from the line of Larry Biegelsen with Wells Fargo.

Congrats on a good start to the year here. I had one on procedures, and then I had one follow-up for Jamie. So I'd love to hear you talk about the appendectomy opportunity. It looks like about $300,000 per year. It's one of the first steps I've heard you call that out on an earnings call, $300,000 per year in the U.S. And if you could size the incremental Japan opportunity from those new procedures. That would be great. And I had one follow-up.

Yes. We haven't sized appendectomy yet. I think there's a question of what makes sense in terms of the robotic portion of that overall TAM because we're so early in appendectomy, we're still kind of working through internally on what we think is the right opportunity. We called out the kind of emerging evidence on clinical outcomes just because over the quarter, actually, we've had a couple of engagements with surgeons that have kind of done work in their own institutions. And we saw several of those come together. And across the set of functional outcomes in the work that they did, da Vinci was better on all comparison points, which we thought was encouraging. We'd like to see that show up in clinical studies that have larger data sets in terms of number of patients, but we think that's super interesting for what is typically a relatively quick procedure with relatively low reimbursements.

And Japan?

On Japan, I think we noted MHLW added reimbursement coverage for 7 procedures across a couple of different categories. The largest of those is bilateral inguinal hernia repair. Reimbursement there is roughly $1,500 per procedure. I think in aggregate, it's too early for us to size the incremental procedure opportunity in Japan. But the impact is relatively modest and like in prior periods where we've had incremental reimbursement, it will take time to develop.

Jamie, I love if you flesh out more what you meant by innovation-led revenue growth. That's the first time I've heard you talk about that. Is there any way to frame how much faster revenues will grow versus procedures. In Q1, it was obviously 23% versus 17%. Do you expect that delta to increase going forward? Maybe just talk about the implications of this innovation revenue growth.

Yes. I really felt like it was worth describing because if we look back at last year, even revenue growth was 21%. And obviously, procedure growth was also lower than that last year. And then you see the numbers in Q1. The business framing we have is kind of what I described as a push and pull. We're very conscious about deploying our R&D to places where we can be differentiated and make a difference on the quintuple that's integrated in how we make R&D deployment decisions.

And so where you can be differentiated and make a resale difference for customers, then -- and create value for them, then you get to share in that value in the form of on the intuitive side, accretive pricing or incremental pricing. And we see that in da Vinci 5, you see that actually in SP I&A and there are other areas where we have that opportunity. On the other side of it, if you look at the totality of our business, there, of course, are procedures and geographies that are more cost sensitive. And so we also then look for -- as we work on bringing our costs down, particularly our manufacturing and product costs, we also look for opportunities to then share that cost savings with our customers because they have the economic or cost sensitivity. And we do that particularly in mind with what can be the elasticity response when it's cost sensitive. And so we work on both of those. And therefore, that creates a mix dynamic between the 2.

In terms of like how long does it sustain? I don't think I want to get into that just because we don't guide revenue, it's really our attempt to just describe what's happened in recent periods with respect to the difference between revenue growth and procedure growth. And I think we're just reemphasizing the fact that innovation is critical to our success.

[Operator Instructions] Our next question comes from the line of Robbie Marcus with JPMorgan.

I'll add my congratulations on a really nice quarter as well. Two for me. First, the utilization continues to just be really impressive, especially with the after hours metrics and the utilization improvement on da Vinci 5, which is now becoming a pretty substantial part of the installed base. I was hoping you could just add a little more color there in terms of how much more is there to go? Because I think everyone knows that utilization and procedure volume growth ultimately is what drives placements. So how much more is there to go? And how do you think about that translating into unit growth down the road? How much and when, if you're willing to quantify?

That's -- in some regards, that's the impossible question to answer in the following sense, Robbie. It really -- you have to be aware of the averages, and you have to look at it by market in terms of where is the distribution of utilization within any given market, what's the mix of systems they have in any given market. From a macro perspective, we are strategically aligned with customers that we want to increase robotic throughput because we think that serves them well economically and is good for Intuitive long term. So it's a difficult question to answer.

There are markets where there's obviously room to improve utilization such as Japan and some of the European markets. In the U.S., I think utilization growth will mostly be driven by the rate by which the entire installed base in the U.S. switches over to da Vinci 5, which we think structurally has the ability given its feature set to run higher levels of utilization in Xi. For us, we'd like to keep utilization growth going because we think it's super critical and differentiates us, I think, from competitors also. But I don't think we have the ability to call how long it goes and what the derivative impact is.

I know it's a hard question. That's why I'm asking you. I'm hoping you could do my job for me a little bit. Maybe just a follow-up. We have more and more competitors trying to enter the market here, some in the U.S. from big surgical competitors, some in China, others in Europe, you now have the opportunity to offer a tiered pricing strategy with refurbished Xis. It'd be great just to get a refresh on how you're thinking about global competition at different price points in different markets and how you're feeling about your positioning there?

Yes, Robbie. So I think we've -- competition is about, I think, meeting the needs of the customer at the right price point. And so it's really about the value that they're going to obtain for getting a robotic program established and treating patients and getting to great outcomes. And so what we know is that the basis of competition, we are wanting to make sure that people look at it not as the kind of the price you pay for the robot and the fact that now you have it in one of your ORs, but it's really the value of your program. How are patients being treated? Are you seeing the outcome improvements? Are you seeing a shift in the mix of open surgery to minimally invasive robotic procedures that you expected in any of the other strategic initiatives that a given customer might have?

And so that's where and how we want to ensure that we are entering the conversations with customers and helping educate them around the globe about the questions they should be asking what kind of data should they be looking for as they engage one or more robotic competitors from around the globe. And when it comes to those conversations and the data that are shared, I expect with our portfolio and now with XiR added, that will be a strong choice to lead in those value because of the demonstrated clinical output, the reliability of our systems, our ecosystem of services and training that can support them on their journey. And so that is, I think, the high-level picture of how we compete globally.

Jamie, anything else you may want to add to that.

I would just say we're still selling X, and actually, we sold 41 X systems in the quarter, 34 refurbished Xis. And then, of course, we have DV5, I think the segmentation there is really appealing. And in some sense, is a competitive advantage for us to be able to tier feature the capability and economics for various segments of our customers. The refurbished Xi like Dave said, if I'd just say it again, that is a very capable product. It has the full complete suite in the ecosystem and the economics for customers are really attractive. And so I think that's been a great kind of addition to the system portfolio.

[Operator Instructions] Our next question will come from the line of Rick Wise with Stifel.

Sorry for my scratchy voice here. One specific question for Jamie and then a bigger picture question for you, Dave. Jamie, just help us, if you could better understand what dynamics internationally drove I&A at double the rate of procedure growth. I mean it's -- obviously, it's a big delta of 40% OUS I&A versus 19% OUS procedure growth. Was there anything onetime there or country specific? And is this dynamic -- should we imagine this dynamic continues?

I have not looked at that deeply for OUS specifically, Rick. I do think the customer ordering pattern is likely a good chunk of that because all of our distributors obviously are international, and they can be pretty lumpy in terms of their kind of ordering patterns they can place orders in the quarter for several quarters. So I'd imagine that the greatest impact is that. And I think given the strong capital placements, we probably had a bunch of stocking orders that also benefited Q1. And finally, there is a benefit from FX.

Got you. All right, Jamie. Dave, for you, just as we get ready for some upcoming robotic meetings and I reflect on some of the topics that are going to be discussed and presented. I was hoping you maybe would sort of step back and looking longer term, talk about a couple of initiatives that others are focused on and to what degree is this important to Intuitive Surgical? Like telesurgery robotics, so we saw the first promote procedure done recently, the value of robotics to stroke or a minimally invasive cardiovascular disease. And just again, at the highest level, your interest or passion or focus on areas like that, that might be future drivers of growth for Intuitive.

I really appreciate the question, Rick. If I stand back and I think about adding incremental capabilities to our ecosystem. It is about where on, number one, we can drive the Quintuple Aim. Number two, whatever it is, we think will be better in our hands. And so to -- for example, some of the things that you called out on telesurgery, I actually -- I really believe deeply in the collaboration capabilities of these telestration, telecollaboration tools. And we are seeing some pretty rapid utilization of our current platform with my Intuitive Plus, and we're seeing thousands of use cases a month. And so that is, I think, demonstrating stickiness and value with our customers.

As we expand those capabilities and it will include telesurgery in the future, that is on our road map. We expect that to be a subset of those use cases. And I -- just yesterday, I was with a customer here and we were speaking to their expectation of how telesurgery will be deployed within their IDN, within their small set of hospitals. And I think there's real value there, though we do believe that a majority of the use cases when tele-collaboration is warranted will likely be served by existing tools with telestration and audio/video interactions. And it will, if you will, kind of escalate to telesurgery in certain use cases. So I do think that's an important part of our future in what customers we'll find value in.

Recently, semi recently, we've announced kind of our investment into cardiac in cardiac surgery. And there, again, I believe that there's going to be a set of patients who can benefit from minimally invasive cardiac surgery and a set of patients who will benefit from percutaneous transcatheter approaches. And the evidence shows that, in some cases, surgery is better, and in some cases, an interventional approach is better. And when surgery is warranted, then I think the investments we're making in capabilities of da Vinci 5 and our investments in training, in particular, will pay dividends and have an opportunity for surgeons to treat patients with a very minimally invasive cardiac approach to their disease.

And there are others, you mentioned stroke. That is an interesting area. But there are plenty of areas that I think about in terms of adding capability and procedures and value to Intuitive and to the patients that our customers serve. One of the trends over the year that I've been just kind of fascinated by is how surgeons take the core capabilities of a platform like da Vinci and apply them into areas that we didn't envision that it wasn't an area that we investigated and that's been repeated over and over. And that -- and I believe, with da Vinci 5 capabilities that exist today and as we add more in the future, we're going to see that cycle continue. And we're going to see surgeons and we're seeing it already, say, "Hey, we think there is value in these areas that aren't currently served." And so I'm excited by some of those opportunities. We'll do the work to see if indeed there's true value there, and it can be scaled and repeatable and teachable. But it's an area that I look forward to updating you along the way.

[Operator Instructions] Our next question will come from the line of David Roman with Goldman Sachs.

Maybe you could start on -- and it looks like a lot of pieces are coming together here to support further adoption of that technology, whether that's additional clearances from a procedure standpoint or additional instrumentation. Maybe just give us a sense of kind of where we are in bringing SP to a point where that adoption curve can accelerate, whereby that becomes a more just meaningful percentage of places? And I guess, if you could also contextualize that, is that additive to the overall addressable procedure market? Or does it become a choice of a typical DV5 procedure or SP?

Yes. I guess I would say if you look at the kind of procedure growth over the last year or so, it's been strong, 68% this last quarter. And that strength has been in part driven by additional geographical clearances and additional procedure clearances, particularly in the U.S. And so I think that, that then continues over some period. It's not that it suddenly inflects and accelerates from where it is. I think we continue that kind of progression on some reasonable pace.

If you look at the question of long term, what are the incremental opportunities that are different from multiple, the multiple is not going to serve and therefore an effect of TAM expanding. I think those opportunities exist. Nipple-sparing mastectomy is a good example of that. And obviously, that's in an early stage. You have some work being done to see if SP is better than alternatives, including multiple. And of course, that's been largely in exchange between one stream or one set of procedures that we have to another. There's work in our labs that's super interesting for additional disease states that aren't served today the TAM expanding is too early for us to discuss because our current focus is on the opportunity we have. We have still a long way to go in each of the markets where we are cleared and for the new indications that we've added. And so like the next year or 2 is -- that's where our focus is. But I think the long-term opportunity for SP is perhaps a little underestimated.

That's helpful. And I appreciate. It's hard to get into all the detail on a call like this regarding just your OUS strategy given the number of different geographies and moving pieces. But maybe just at a high level, you could help us think about the number of actions you've taken here. You acquired distributors in Europe. You have the IR opportunity. You have a joint venture in China to go after that market. But how are you prioritizing markets outside the U.S.? And what is, broadly speaking, the strategy here just to ensure competitiveness as new lower-cost entrants approach the market, but also contrasted with things like favorable reimbursement clearances in the U.K., which occurred last year. Maybe just help think about how OUS evolves here a little bit over the course of '26 and how that contributes to your forward outlook here.

David, for me, you sort of answered your own question, I think. It is all of the above, right? Our investments start with the people we have in the region and to ensure that they understand deeply are well trained, of course. The investments we have in our products, including an expanding system portfolio, ensuring that the procedures that are being served in that geography have the right rest of the ecosystem cleared in that geography. That's another piece of the puzzle as we continue to innovate and bring new products to the market, we want to ensure those are available as well. So there are regulatory pathways. And so we have the portfolio of products that are required in a given geography.

Then, what we want to do is ensure to the very best of our ability that they are priced appropriately for the value they bring. And so we have broad economic programs and pricing that we're able to tailor to the market. But what we want to do, and I mentioned this briefly before, is we want to ensure that the value that's being realized is able to be articulated and substantiated in a given geography. That is not just all about price. And so that's a piece of the market access effort that goes into ensuring our customers themselves understand the value, but also that the reimbursement in government agencies that drive the overall economics of a given country also understand the value. And that's a multiyear journey. So you get it from both sides, kind of the products and pricing, but also the value being realized by both customers and the government. And that is a geography by geography amount of work and that's years in the making around the globe.

Maybe I'd just add. In each of the markets, we take a localized approach to how we engage what our strategy is there and each of those markets has a strict strategic plan, and that results in us investing differentially in each of those markets. For OUS, as you've seen, we'll go direct in markets already where we think the opportunity makes sense for us. And there may be instances where we start to look in large markets some localized manufacturing, which is becoming increasingly important for some of those markets.

I think the final thing I'd say is we have ambitions internationally, just given we're earlier in penetration. And over time, there may be additional markets that we franchise with the distributors that we don't do business in today.

Okay. That was our last question. Thank you for all the questions. In closing, we continue to believe there's 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 at 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 and their environment. At Intuitive, 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. We look forward to talking with you again in 3 months.

This concludes today's conference call. Thank you for participating, and you may now disconnect. Everyone, have a great day.

Good day everyone, and welcome to Intuitive's Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note, this conference is being recorded. Now it's my pleasure to turn the call over to the Vice President of Investor Relations, Dan Connally.

Good afternoon, and welcome to Intuitive's fourth quarter earnings conference call. Joining me today are Dave Rosa, our CEO; and Jamie Samath, our CFO. .

Before we begin, I would like to remind you that comments on today's call may contain forward-looking statements. Actual results may differ materially from those expressed or implied as a result of certain risks and uncertainties. These risks and uncertainties are described in our Securities and Exchange Commission filings, including our most recent 10-K filed on January 31, 2025, and Form 10-Q filed on October 22, 2025.

Our SEC filings can be found through our website at intuitive.com or at the SEC's website. Investors are cautioned not to place undue reliance on such forward-looking statements. Please note that this conference call will be available for audio replay on our website in the Events section under our Investor Relations page. We have posted today's press release and supplementary financial data tables to our website.

Our format for this afternoon's earnings conference call is as follows: 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 2026. 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. I'll begin with summarizing our performance in 2025 and sharing our perspective as we enter 2026. 2025 was a strong year for Intuitive, driven by multi-specialty da Vinci procedure growth across the globe, increasing adoption of da Vinci 5 and higher utilization across our 3 platforms. Physicians use 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 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 4 strategic priorities: first, focusing on the full launch of da Vinci 5, its regional clearances and follow-on feeds 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 U.S., da Vinci procedures increased 15% to more than 2 million, with notable contributions from general surgery procedures, including after hours use. Internationally, da Vinci procedures increased by 23% to over 1.1 million. The growth rates were 21% in Europe, 24% in Asia and 27% in rest of world markets. As a result, procedures outside the U.S. 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%, Singapore 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 scale manufacturing and increasing capability through subsequent software and product releases. In the U.S., we saw robust demand for system upgrades and dual console systems, reflecting customer interest in standardization, training and mentoring. In the second half of the year, we launched da Vinci 5 in Europe, the U.K. and Japan. For the year, we placed 58 da Vinci 5 systems outside the U.S., mostly in Europe, and we are pleased with feedback from these early adopters. In 2025, we began offering refurbished da Vinci Xi 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 U.S. ambulatory surgery centers. Financially, revenue grew 21% year-over-year to $10.1 billion. Operating margins of 37% reflected our deliberate investments 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 training, education and adoption. We believe deeply that patients requiring cardiac surgery can 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 2 software updates that improve surgeon awareness in the console, support a 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. My Intuitive Plus, our digital subscription 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 U.S. 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 1,000 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.

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's stock at an average price of $478 per share.

Turning to Q4. Total procedure growth was 18%, driven by general surgery in the U.S. and broad-based growth in OUS markets. In quarter 4, revenue grew 19% to $2.87 billion with 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 5 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 1,000 systems, an average system utilization increasing by 11%.

In the U.S., 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 who are expanding access to da Vinci surgery. Da Vinci utilization in the U.S. increased 3% in Q4, driven by continued adoption of da Vinci 5, 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 which we expect to be a multiyear effort. Our initiative currently leverages our XIR system and its associated ecosystem with 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, but 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 where a number of surgeons are already divisitrained.

In addition, we actively support customers to upgrade to da Vinci 5 in their efforts to slide our existing Xi to the HOPD or ASC setting. Outside the U.S., in quarter 4, total procedures grew 22% and on a day adjusted basis, total OUS procedure growth was 23%. Da Vinci procedures grew 21% in OUS markets, reflecting strong results in Canada, India, Korea and distributor markets and solid growth in Germany, the U.K., Italy, Spain and Taiwan. Consistent with the 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 of 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 U.S., SP average system utilization accelerated, growing 21% as compared to quarter 4 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 I&A revenue in quarter 4 grew 17% to $1.7 billion, relatively consistent with overall procedure growth. Da Vinci I&A 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 bariatric procedures and higher cholecystectomy procedures, offset by higher SP procedures and da Vinci specific I&A. For our Ion platform, I&A 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 4, an 8% increase from the 493 systems placed in the same quarter last year. 303 of the 532 placements with da Vinci 5, including 43 in OUS markets following recent clearances in Europe and Japan. [indiscernible] base of da Vinci systems is now 1,232 systems, used by over 10,000 surgeons since the launch of da Vinci 5. We saw 146 trading transactions in Q4, up from 62% a year ago, primarily driven by U.S. customers upgrading to da Vinci 5. In the U.S., we placed 304 systems, up from 204 -- 284 last year driven by adoption of da Vinci 5. Outside the U.S., 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 U.K. and robotic competition in China intensified in Q4, where we saw provincial tenders express preference 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 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 6 systems placed in OUS markets. Lower Ion placements in the U.S. continue to reflect a joint focus with our customers on increasing utilization in the U.S. increased by 11% in Q4. Given our capital performance, Core of 4 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 5 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 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. Core of 4 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 install base increased 7% year-over-year, primarily reflecting a higher mix of da Vinci 5 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 5 and Ion revenue and higher service costs related to da Vinci 5, partially offset by product cost reductions and purchase component savings. Quarter 4 pro forma operating expenses increased 16% year-over-year driven by a $17 million donation to the Intuitive Foundation, increased head count 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 4 of last year reflects our decision to make a multiyear donation given the impact of new U.S. 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 and 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 4 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 4 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 $201 million 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.

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 to be 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 and published scientific studies over the years. This past November, Dr. Antonio Gangemi of Alma Mater Studiorum, Università di Bologna in Bologna Italy, along with co-authors published, the conversion study open conversion risk in robotic or laparoscopic surgery, a 20-year meta analysis in the analyst of surgery. Through a meta analysis of literature from 30 different countries, the study compared conversion rates to open surgery for da Vinci and 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 robot-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 7 degrees of freedom, 3D high-definition visualization and physiological tremor filtration or potential explanatory factors for the results. The authors concluded this meta analysis, which spans over 20 years of peer-reviewed literature includes 14 oncological and non-oncological surgeries across general surgery and related specialties suggests 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.

This past November, Dr. Nadia Henriksen from Bispebjerg Hospital in Copenhagen, Denmark published procedural cost robot-assisted and laparoscopic ventral and incisional hernia repair, a propensity score matched a 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 EUR 660 difference in total costs between approaches. For robotic primary ventral hernia repair, multivariate regression analysis further confirmed independent association with decreased overall costs. The authors concluded while the cost of the robotic surgical equipment surpassed out of conventional laparoscopy, it is offset by the need of more expensive meshes and tacker devices and higher readmission rates following the laparoscopic approach. This nationwide database study showed that for primary ventral hernias, the mean procedural costs of a robot-assisted and laparoscopic repair are comparable, but for incisional hernia repairs the mean procedural cost has decreased with a robot-assisted approach.

I will now turn to our financial outlook for 2026. 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% and 15%. We anticipate primary growth drivers in 2026 to be generally consistent with those in 2025, including general surgery in the U.S. 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 U.S., 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 the range of 67% and 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 5 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% and 15%, and 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% and 23% of pretax income. That concludes our prepared remarks.

We will now open the call to your questions.

[Operator Instructions] It comes from the line of Travis Steed with Bank of America.

First, I wanted to ask about the FDA approval for the cardiac non-Force Feedback instruments. Just trying to get a little more color on what that is and what it owns 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?

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 the clearances on the platform on dV5 in certain geographies, we just received the U.S. clearance for working through approval in Europe and several other countries. Part of those indications as well will include Force Feedback instruments. And so cardiac surgery is 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-Forced 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 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 -- for this cardiac journey that we're on, particularly with dV5. And so maybe, Jamie...

Yes. Travis, I'll just give some numbers maybe for grounding. So in 25 globally, there are 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 can't is really quite large. When we do our clinical analysis, when we look at where cardiac is cleared for da Vinci 5, which currently is now the U.S. and Korea, we think the opportunity from a da Vinci fit 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.

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

Yes, Travis, some of the advanced imaging capabilities that we've talked about are additional molecules that we're working on, and those are long time lines 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's just tissue oxygenation. That is going to be a capability of the system that requires some new software and instituting 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 rider injuries or perhaps in areas of surgery where perfusion, which is where the tissue oxygenation is pointed can make a difference in outcomes.

And it comes from the line of Larry Biegelsen with Wells Fargo.

I wanted to start with the ASC commentary, Dave, I'd love to hear you expand on your comments about expanding your footprint in ASCs. How large is the ASC opportunity for your focused procedures today? And 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-on. .

Yes. Maybe, Larry, I'll start just kind of -- I always try to start with a problem we're solving or what the customer needs are. And I'm going to start there and then Jamie can jump in on some of the numbers here. If I when I meet with ASC leaders and what they're wanting to say, I want to 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, 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 names 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.

I'd just say, Larry, in terms of numbers today, it's a relatively small proportion of U.S. 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 what we've heard from customers. I think that in part reflects desire of payers to take advantage of the lower reimbursement in the ASC setting. And for us now, with the launch of da Vinci 5, the trade 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 saying as procedures grow in ASCs.

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? Do the refurbished excise, put some downward pressure on the ASPs and the move into the ASCs maybe put some downward pressure on utilization?

Yes. I'd just say, if you look at the last couple of quarters, in each case, we saw overall debenture utilization grow 4%. 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 a revised 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 going to predict what the overall '26 direction will be. Obviously, we don't guide capital. I'd just say you should expect a higher da Vinci mix in '26 versus '25. That reflects, of course, the fact that we have, in part, new geographies clear with da Vinci 5. You should also expect a higher mix of XIR. That's going to be ASPs that are 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'd 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.

And it comes from the line of Robbie Marcus with JPMorgan.

Congratulations again on a great quarter. 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 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.

Yes. 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 da Vinci 5 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 -- start 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 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 margin is relatively healthy on XIR.

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. I 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.

Yes. 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. 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 were 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, 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.

Robbie, I would 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, Dave described our ability to compete. I think I missed, Robbie, your question on OpEx. So I would just say in the 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.

Our next question comes from the line of Rick Wise with Stifel.

Dave, I was reflecting on your comment, your words, if I'm quoting you accurately, you said you still see Intuitive as being in the early stages of your journey. I mean that's similar language I've heard from Intuitive 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 9 million procedures in direct line of sight and went back and looked at '24 and you all said 7 million at the time. That's nearly a 30% increase in procedures and direct line of sight. And I just wondered -- I'm guessing maybe the cardiac opportunity, is that part of it? Is it the ambulatory surgery opportunity? Is it something instrument specific. Just I was hoping you just reflect on that with me and us and maybe unpack that a little bit.

Thank you for the question. And maybe I'll comment on the early part of the journey at least as I meant with my words, and then Dan and Jamie can jump in. When I think about the journey with the ultimate destination, really improving outcomes substantially, eliminating complications to the extent that we possibly can. And 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 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.

Yes, Rick, 2024, $7 million; '25, $8 million; '26, $9 million. I'd say primarily strengthening clinical validation and supportive economics and benign procedures kind of the largest impact also saw a modest impact from additional procedure clearances like nipple sparing mastectomy, SP in the U.S. And 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.

Okay. And just a quick follow-up. Dave, you also highlighted digital subscription. And I'm just not sure if I personally, maybe I've missed it, heard that language it sounds like a positive economic factor and something potentially incremental. Again, could you just expand on your comments and what it might mean to the growth outlook or adoption of da Vinci 5, et cetera.

Yes, I'll take that, Rick. So David is referring to MIA plus, which comes with da Vinci 5, incorporates telepresence integrated skill simulation and case insights. When we launched da Vinci 5, that package came with 1 year free use for customers. We 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 is just the way the accounting rules work. Come Q2-ish of '26, then customers now have the opportunity to renew for that subscription package where they'll now have to pay. And in the end, then the value that surgeons and the customers are experiencing with that package 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.

Our next question comes from the line of David Roman with Goldman Sachs.

I wanted to maybe come back to SP and it seems like the second half of 2025 represented at least in the U.S., the potential of putting in place the dynamics 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 indications you have entering 2026, is there anything left either from a technology standpoint, maybe a vessel dealer that you think would be necessary to really unlock the opportunity and how you're thinking about the SP strategy now that you have more full portfolio of instruments as well as indications. I have one follow-up.

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 Europe, Japan and Taiwan. And then in the U.S. with recent clearances, colorectal, thoracic and NSM indications as well. You mentioned on instrumentation, we do need to continue development of vessel sealer device, add that clearance and then add stapler clearances globally. I think we're encouraged by the early feedback from initial launch on SP stapler and thoracic and colorectal and excited to bring that forward more fully. And I'd say, over time, we've also got the opportunity to take SP to additional geographies as well.

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 the exchange subsidies expiring. Maybe could you 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 trends here early in January?

Yes. 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.

And our last question comes from the line of Patrick Wood with Morgan Stanley.

Beautiful. I guess, conceptually, thinking medium term into the future, how do you guys think about new form factors and cost 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 refurbished systems or is it the case that you think you can get to the point where speed 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 and speed is just bet in lap anyway?

Yes. It's an interesting question. And I will turn it back around to the problem to be solved. And -- and I think it varies depending on where you look. And so if you're in a complex cancer procedure where you're trying to move the needle on, let's say, cancer margins, it's going to require a different solution set then if you're looking for routine use and 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 where customers are trying to work in particular. If we focus on let's say, the ASC setting. I'd go back to what we described before and say, what is required there is great clinical outcomes, routine use, repeatable use, reliability, those parts the needs there that exist, I think, are really well served by the existing ecosystem that we have today. Can it be optimized through new platform development or some other tweaks within the ecosystem. Maybe we'd have to go see and see what that looks like. But today, I think what we have can serve the complex portion of the procedures customers are trying to do as well as these lower acuity, higher volume ones.

Patrick, I'd just add that I think segmentation can be important depending on the IDN and you can segment by using dV5 across a broad set of procedures that can do cancer and whatever other procedures are done in the hospital. But you can also segment by HOPD or by an ASC. And where we are today, we have the portfolio to do that. I think we have confidence in there. Of course, things change over time, and I think that's part of our strat planning, and we wouldn't comment on how we might further develop that just yet.

Okay. That was our last question. Thank you for the questions. In closing, we continue to believe there's 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 quintupling, 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 and their environment.

At Intuitive, 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. We look forward to talking with you again in 3 months.

And this concludes today's conference. Thank you all for participating, and you may now disconnect.

Good morning, everyone. I'm Robbie Marcus, the med tech analyst at JPMorgan. Very happy to host our next session with Intuitive Surgical. CEO, Dave Rosa, will give a presentation, and we'll be joined on stage by some Q&A. Dave?

All right. Thanks, Robbie, and good morning. I'm delighted to be here and represent the hard work of our teams, both in '25 and talk a little bit about the future here in '26 and beyond. I want to acknowledge that I'll be making some forward-looking statements. So I'd encourage you to review our SEC filings that are on the Investor portion of our intuitive.com website.

I believe that we occupy a very privileged position in med tech and in health care, and it's well captured by our mission and vision. We have an opportunity to work with and develop and deliver some of the most advanced technology in the world around robotics and AI and advanced imaging system and other aspects and intersect that with a very human purpose of health care. And I think when you look at that and how it's captured here, that is what drives so much of the passion at Intuitive. It enables us to recruit and attract some of the very best talent from around the world. It's been durable for 30 years, and I believe our mission and vision will be durable for the next 30. It's never enough, right, to have the passion of the team.

You have to deeply understand what do your customers care about? What is it that they're challenged by and how can you help? And I think that is well understood and captured by the Quintuple Aim, what we know that it is today from improving outcomes to lowering the total cost of care to expanding access to care. It's this framework that helps guide our work. It helps inform our strategy. It helps us measure ourselves. And importantly, I believe it's how customers measure Intuitive and how we show up. And so I was an early employee at the company and had my hands in the platforms that you see represented here on the screen, 5 generations of our multiport system, SP and Ion, along with the rest of the ecosystem. And I can say a foundational part of that has been the understanding of what customers care about.

They have been part of the journey. I've worked side-by-side with them. Our teams work side by side with them and to ensure that what we're doing matters and is solving their problems. And I believe there's no better representation of that than when a physician chooses one of our products, chooses Intuitive to treat a patient. And in Q4 of 2025, we hit a significant milestone of 20 million patients, 20 million times when physicians have made that choice. And so as we've built into that 20 million procedures over the last 30 or so years, you see the mix changing a little bit about how we've obtained that with about 17% of procedures in 2005, having been done outside the U.S. And today, it's 35% of procedures are happening outside the U.S.

And I think that's indicative of da Vinci and Ion bringing value beyond the U.S. borders. It's indicative of our teams delivering against what our customers expect and is supported by the investments we've made over so many years. And so 2025 was a strong year for Intuitive. 3.2 million procedures performed with about 3 million on our multiport platform, 55,000 on our single port platform and about 140,000 on Ion as part of that 20 million procedures. About 1,900 systems placed across all of our platforms, 1,600 or so on multiport, 100 on Singapore and about 190 on Ion, leading to a 12,000 system installed base. And so it's not only the systems, but it's also the care teams, the surgeons, the executives, the researchers that surround those systems that are looking at the impact of robotics, the data that are generated by robotics and how it's impacting the community as a whole.

And you see 4,000 peer-reviewed publications published in 2025 and cumulatively, about 48,000 articles talking about da Vinci, multiport and Singapore and Ion and the impact in the world. So we look at economics and clinical outcomes. We also want to understand how is Intuitive showing up with customers. Every year, we engage a third party to survey our customers to see how we're doing as measured by our Net Promoter Score. Within the customer community, we survey physicians, we survey the care teams, and we survey executives.

And our Net Promoter Score went up by 1 point this year to 76. As a reminder, anything above 70 is world-class. And so when you double-click into that and try to understand what is behind that, it really goes back to the Quintuple Aim, the fact that our products and our services and the things that we deliver to our customers are helping solve their problems and importantly, that our teams and how they show up understand the issues that our customers are facing and are part of the solution. So 2025, we've been consistent in our commentary throughout the year. We had a set of objectives. We started the year with around launching da Vinci 5 and getting it out into the world, expanding procedures and the adoption of our procedures around the globe, ensuring that our manufacturing quality is at the level to meet the needs of our customers and launching our digital ecosystem and making the future releases happen throughout the year.

And like any year, every year has its challenges and 2025 was no different. certainly around the trade environment that we were faced with. China continues to have its challenges with pricing and robotic -- other robotic competitors coming to the market. We saw pressures in Japan and the U.K., and we see the ongoing impact of GLP-1s on our bariatric procedures. So in spite of those environmental conditions and the things that were headwinds for us, our teams performed and delivered in a number of areas. We had strength in U.S. general surgery.

We had the da Vinci 5 broad launch, and I'll touch a bit more on that. The overall capital performance of our U.S. team was quite strong, and we saw increased utilization in both in SP and Ion. And those factors and more led to very strong operational and financial performance with 19% total year-over-year procedure growth, 13% installed base growth and 21% revenue growth to $10 billion. So now I want to click into each of our platforms a bit and talk a little bit more in detail about '25 and where we're going. So it was a strong da Vinci 5 launch globally. We now have clearances in the U.S., Korea, Japan and Europe. You see here about 270,000 procedures performed, 1,200 systems installed and over 10,000 surgeons who have used da Vinci 5.

And I think the metric that stands out for me on this page is the 11% higher utilization than Xi as we measure it in the U.S. where we have the best data. And so that's really supporting the design intent of a portion of what we tried to do with da Vinci 5 was build in more surgeon autonomy, more efficiency so that it would lead to higher utilization. We see that happening.

So we are in broad launch in the regions where we have clearance. We continue to invest to expand the regions where da Vinci 5 is available to continue to expand the procedures that are cleared on da Vinci 5. We have continued to fulfill the commitment we made when we launch any of our platforms, which is that when we launch it and then with follow-on feature releases, it will only get better from there. And so we've made those investments in da Vinci 5, and I'll share some of those with you. And so as customers evaluate their existing robotic programs, they want to -- they're looking at trade-ins, perhaps for da Vinci 5. They're looking at incremental systems. It may be a greenfield customer. And they look across the capabilities of the system, of course. They also look at what else is required to run a robust robotic program, including efficiencies and simplicity and teaching and the ecosystem that surrounds it and more.

And as they evaluate their programs, we see them continue to choose da Vinci 5 and Intuitive as a whole. And so we're excited about the launch of da Vinci 5. I would say it has exceeded our expectations, and we look forward to continuing it into '26 and beyond. One of the things about da Vinci 5 is we established a set of features. We launched with a set of features that we thought would be differentiated and have already continued to add in the past 7 quarters or so since launch. You see force feedback is one of the early feature releases. We've since added force gauge to be a definitive measure of how much force is being applied. We have UI improvements and other aspects of the system that have led to efficiency and have refined those. We've added one of a very core instrument in the curve vessel sealer and the early launch has shown very positive feedback.

And we've added 3D models, the ability for surgeons to import that model into the console and manipulate it real time. And so that's where we are today. And I want to show you a little bit about where we're going tomorrow just with some tidbits around da Vinci 5. And so we've talked about molecular imaging in the past and the investments we're making to show different types of anatomy with different kinds of fluorescing molecules. We have investments in a ureter molecule. We have investments in a prostate cancer molecule, both of which we expect to improve outcomes by reducing the number of injuries to ureters and by reducing the rate of positive margins in prostate cancer. We're working hard on an articulated wristed multiplier clip applier. So this has been an instrument that has long been asked for by our customers, and our teams have worked hard to develop a way in which we can deliver clips around the vend of a wrist.

And so we're excited to continue this development, bring it to market where we expect to add to the autonomy and efficiency of surgeons in procedures like cholecystectomy. And the advances we continue to make in vision, we're using a form of hyperspectral imaging that we will deliver on to da Vinci 5 to show the oxygenation of tissue correlated to the underlying perfusion of that tissue. And we look forward to seeing how this will impact certain aspects of procedures as surgeons get this capability. And it doesn't stop here, of course. The digital journey is an important one. It is something that we have talked about over multiple quarters and multiple years. As you know, it starts with a great foundation of data. We are getting data from da Vinci 5. We get data when we have a contract in place with customers around electronic medical records.

Today, we're receiving over 1,000 cases a day of data that we're able to add to this foundation and enable our data scientists to mine that data and look for meaningful insights. What matters in surgery, what matters in interventions and how does that express itself back to the surgeon through case insights, and I'll talk a little bit more about that. From there, as we understand what good is and what we are trying to impact during surgery, we want to add intraoperative guidance and bring that so that during the operation, surgeons can adjust of what they might be doing. That can happen through telecollaboration tools that we have today with intuitive telepresence where surgeons are talking and communicating and mentoring each other. It can happen through something like force gauge, where we show how much force is on a screen. We will add telesurgery to the da Vinci 5 platform in a subsequent release and add to the telecollaboration suite.

And ultimately, leading to augmenting dexterity, where we can introduce no-fly zones to protect critical anatomy, where we should be able to control instruments and further helping the surgeon autonomy and the efficiency of procedures. So this is a long multiyear journey. We're at the very beginning, but excited about the impact this can have in the future. And so it's, again, not enough. You have this data, you have these understandings of what good might look like in surgery, but it doesn't matter if you can't deliver that to the surgeon and to the care team in a way that matters to them and that they can act upon.

And so my Intuitive Plus is our way of kind of bringing that together. And SimNow, it's our way of saying, we understand where you need to improve surgeon and let us point you to simulation exercises. For telepresence, so we can give these objective performance indicators to certain surgeons and they can communicate them to the folks they are mentoring. And again, we'll add telesurgery as a component of that. And Case Insights is kind of the foundational software, if you will, that sort of collects data, allows us to analyze it and deliver it back to the surgeon and care team overall.

And so you see the blue bar charts there. Each one of these are adopting more or less in line with the DV5 adoption. And though we're excited and we're excited to see where customers are, again, there is a lot of work to do here for us to continue to build the foundation to add some of the capabilities that we need to add and to show that these indicators make a difference ultimately. And so now turning our attention to da Vinci SP. You see we've made progress in adding indications in the U.S., including nipple-sparing mastectomy. We've added several geographies outside the U.S.

We continue our innovation pathway there with SureForm stapler having been introduced on SP, and we're working hard on a vessel sealer for a future instrument release that we're quite excited about. SP had a strong year, 87% procedure growth, 39% installed base growth and 29% utilization growth. And so if you look at now our da Vinci business, the multiport business and the single port business, the opportunity for it, we're quite excited about. And so we just finished about 3 million procedures in 2025. And if we stand back and look at the opportunity that exists out there, first, we look at the number of soft tissue procedures that we see in the areas that we support. We believe that's about 23 million procedures, and that includes open surgery and minimally invasive approaches. That's all procedures. Of that, about 20 million, we believe are -- should and can be done with a minimally invasive approach.

And so if you look inside that 20 million, what we've included are clearances, reimbursements and economics that we are investing in today that we expect to come to fruition over the long term. So we're making investments in order to expand that 9 million line of sight into that 20 million. As part of that 20 million, a significant portion is the benign surgery outside of the U.S. And then we look at the 9 million line of sight procedures. Those are the ones where we have the product clearances and economics that are supportive of a robotic program right in front of us. And that's what our commercial teams are working hard for every day.

And as we look forward and if we continue to make progress and the evidence that are being generated shows that it's beneficial, we expect the 9 to continue to grow into the 20 as we look forward. Now shifting to Ion, our bronchoscopic platform. Really, the foundation of Ion is to navigate the lung and provide value. Today, we're in the lung cancer by biopsying suspect nodules. We expect it in the future to have an impact for benign lung disease as a whole. Ion also had a strong year, 51% procedure growth, 24% installed base growth and 9% utilization. What I want to do is stand back just for a minute and remind you of the NorthStar that we have started with Ion, and that is to improve survivability of lung cancer. If you might know today, 5-year survival rate of lung cancer is around 25%. 1 in 4 people will be alive in 5 years once diagnosed with lung cancer.

If you diagnose it early at Stage 1a, that can be above 90%. And so it is clear that the importance of getting it early is critical. And if you look at what is the general pathway today, once a nodule is detected to treatment can be over 6 months. And you can imagine within that 6 months, cancer can progress. The anxiety on the patient is not measurable, but you can imagine what that is. And we've already made investments to try to streamline this with Ion and what we're doing in biopsy and certainly for treatment with da Vinci and surgery. What we believe, though, is this, we can shrink this down. We can bring this to under a month through continued innovation on Ion by bringing ROS, so real-time assessment of the tissue sample that the physician obtains and ultimately determining whether or not the cells that are obtained are cancerous.

And so we're making investments in ROS technology to help streamline this pathway. We are making investments in endobronchial ultrasound EBUS to integrate that into the Ion system and again, make it easier and more efficient for physicians to biopsy lymph nodes and stage them to understand what is happening with the patient. We continue on the treatment side to make investments in focal therapy as do many companies outside the 4 walls of Intuitive. And so we're excited when we look at what is possible for lung cancer, how we can change a 200-day pathway, compress that to less than a month and make it easier for caregivers to provide care for patients facing lung cancer.

And this is already happening. And I wanted to share with you a bit of data out of the University of Zurich, where they have adopted Ion plus cone beam CT here, and you can see that kind of starting in 2024. For years, their program is a steady state, diagnosing about 35, 40 patients with Stage 1a cancer. And then upon the adoption of Ion and cone beam CT, you see a market increase by about 30 percentage points to 55% of their patients at Stage 1a, which we know what that means to survivability. This is multifactorial as many things are. Some of it is their program is growing and they're recruiting more patients. But importantly, an aspect of this is that they can now biopsy patients that previously would have been sent to watchful waiting.

And so this is what the Ion journey and some of the investments we're making is about. So if we look at the opportunity for Ion, we just finished about 140,000 procedures in 2025. The line of sight for Ion, again, where we have the products, clearances and supportive economics, we believe is about 700,000 procedures. If you look at the total biopsy market, we believe that to be about 1.5 million procedures. And in there, as ROS and staging as our development efforts progress and when that comes to commercialization, we believe that Intuitive can add even further value to the evaluation, diagnosis and treatment pathway for lung cancer patients. When you look out to treatment, and if focal therapy for lung cancer becomes a standard of care for certain patients and as we make investments and advance the work we're doing with COPD with benign lung disease, we have an opportunity to impact even more patients.

And so our 2026 priorities, platform growth, global expansion of da Vinci SP and Ion and continuing to build that digital ecosystem underneath. Procedure adoption as we drive the value through physician choice by country through our training and commercial activities and market access efforts, continuing to build the infrastructure of Intuitive, our ability to manufacture at high quality at the scale required to meet customer needs and then finally, innovating to reach more patients so that we're advancing our early-stage R&D programs for new disease states and continuing, as we talked about, to expand the line of sight procedures.

And so I'll close with this. I think innovation can take many forms. It can take the forms of products that I showed some of the slides were shown to you here today. It can take the form of business models and how we support our customers commercially. It can take the form of how you analyze data and communicate that back to care team surgeons and executives. And again, for me, we, at Intuitive have core capabilities in all of those areas. And those are the areas we're focused on. And when those match one of those unmet needs out in the world, that's when we can advance the Quintuple Aim and improve minimally invasive care for patients and their surgeons around the globe. So thank you. I know that the management team at Intuitive, myself, everybody, we are excited about the potential of 2026 and what's ahead of us. And so thank you for being here. And I think, Robbie, we can turn to Q&A. So thank you.

Great. Dave, first, a warm welcome to your first JPMorgan up on the big stage here.

Thank you.

Had a great fourth quarter that you preannounced this morning with 17% da Vinci procedure volume growth, 18% overall. Maybe talk to some of the trends you saw. You had a really strong third quarter. Utilization in fourth quarter continued and improved on that. Just talk to what you're seeing U.S. versus OUS in those results.

I can take it. So if you look at the geographical breakdown in Q4, U.S. procedure growth was 15%. That reflected general surgery and in particular, underneath that after-hours procedures, which we think are a proxy for acute care. After-hours procedures grew 35% in Q4. That's procedures like cholecystectomy and appendectomy. The 15% performance for the U.S. in Q4 was strong. In our OUS markets combined, we grew 21%. There's about percentage-ish point impact from seasonality. So normalized, that would have been 22% on a day-adjusted basis.

In OUS markets, what you see is some impact as we've described in China, which was just above the corporate average in terms of procedure growth and Japan, where we saw actually procedure growth below the corporate average. China, we see some competitive impacts, as Dave described. Japan is impacted by recent capital placements. But in terms of strength in OUS markets, we saw India, Korea, distributor markets, Canada, all perform well within that 21% outcome.

Maybe we could touch on procedure volume guidance for 2026, 13% to 15%. We've seen you in the past few years guide 13% to 16%. Part one, is this a signal that we should pick up on? And part 2, how do you think about what's assumed in the low end and the high end of the range?

Yes. I think, Robbie, the da Vinci procedure growth guidance considers potential range of outcomes for the factors in our guidance, which I describe as follows. In the U.S., we expect the growth drivers in 2026 to be similar to those in 2025, led by general surgery and acute care, recognizing the impact of the law of large numbers. There's also consideration for the potential impact of changes to ACA premium subsidies and changes in Medicaid funding on hospital and patient behavior. Bariatrics in the U.S., it's a little bit less than 3% of total procedures.

There are new pharmaceutical products coming in 2026. Outside the U.S., capital pressure in parts of Europe related to macroeconomic impact and shifting governmental priorities in some cases. As Jamie mentioned, China tender volumes and competitive intensity in that market. And then lastly, in Japan, new capital challenges in 2025 and how long those persist as well.

I would just add, Robbie, when we think about growth, let's say, on a midterm basis, there's really kind of 3 drivers of growth, and Dave, I think, described them well. There is growth within the line of sight, the $3 million we did this year versus the 9 million line of sight opportunity. That's one. Second is how we expand the 9 million into the 20 million, and we routinely make investments to have that grow. And you can see that from the last couple of years as we come to JPM and update you on what that opportunity is. And then the third is outside of soft tissue surgery, where we see opportunities for new platforms, Ion was our first example of a new platform and you get to add indications that expand the opportunity. Those are generally on longer time horizons in terms of the R&D and the clinical work that you have to do to get those to market. But we kind of think about how we drive growth in the midterm in those 3 buckets.

Maybe we could touch on Ion. It's the first quarter you've broken out specifics in terms of some of the reported procedures. And it's adding about 1 percentage point to total company growth. So now with scale and materiality, this is one you've been talking about for a long time. And when we do our doc checks, it has a ton of potential to expand both in new indications and help more patients. So maybe talk about why break it out now and some of the opportunities you see with Ion and maybe some other platforms.

Yes. Ion has been in the marketplace now since 2019. It's progressed really nicely for use of Ion for biopsy in the U.S. We've passed the halfway point just about. And so we have kind of relatively strong insights as to how that business is performing, and therefore, I wanted to make sure that was available to investors. Obviously, we're much earlier in international markets. We have clearance for Ion in Europe, China, a couple of other markets, which are in earlier stages, they will take more work, particularly on the market access and reimbursement side. But given the relative size of Ion now, how long it's been in the marketplace, we wanted to provide investors additional color as to the components of its performance.

And as you think about whether it's Ion, whether it's single port, whether it's multiport, to expand that 9 million line of sight procedures, that's what you have today, how should we think about what Intuitive Surgical is focused on to move that 9 million up? You spend a lot on R&D. I imagine a lot of that is hardware, some of that software. I imagine a lot of that is also on clinical trials and data generation to expand that. So how should we think about the next indications of note?

Yes. What I would say, Robbie, is from the 9 into the 20. A lot of that has to do with economics. And when you look outside the U.S. at benign surgery, which is a significant portion, I think people understand the value that -- clinical value that robotics can bring, and they want to incorporate that into their practice, and they're just trying to say, how do the economics work for my given country reimbursement and payer system. And so the work now is both how do we generate that local evidence, like you said, to support the value and work through some of the market access efforts and reimbursement efforts that are kind of bespoke for a given country and have those to meet in a way that we can generate the supportive economics and continue to grow that 9.

There are opportunities for additional products and clearances between that 9 and that 20, but the significant portion of it is benign OUS. And we think as the DV5 launch broadens, the trade-in cycle progresses and we get back Xis, you see with refurbished Xis, we placed 23 of them in Q4. There's an opportunity now for us to have great segmentation in the portfolio, particularly where there is cost sensitivity. And so XiR, I think, has opportunity in ASCs in the U.S. and in those markets that are much more sensitive to the capital acquisition cost. And so I think we're excited about the role XiR can play in particular because it leverages the existing ecosystem that we have.

I think that's a great point, right? You can either get better reimbursement outside the U.S. in these countries, which is difficult or you can lower the cost to operate there. And part of that is the XiR, the refurbish. So how much do you think the XiR, bringing the cost to purchase the initial system down can help knock down some of those barriers where cost is a problem?

When you talk to customers, all of them have a slightly different feel of how do they value, what are the economic considerations. And -- but I think the way we want to sort of structure our communications with customers is around the utilization of da Vinci. So we talk a lot about the cost of a platform, but what's important is, does it -- is the utilization supporting per procedure economics that matter for them. And so yes, cost of a platform like XiR is an important consideration, but we want to ensure too, that the utilization of that platform is meeting their needs, both clinically and economically. And so that's where the ecosystem that Jamie referred to, the support structure, our training infrastructure, all of that to drive the health of the program.

I think artificial intelligence is touching everybody's lives. It's making it difficult for health care investors the past few years as it gets so much attention, but that's actually a positive for Intuitive Surgical. As many companies talk about it, you actually integrate it, monetize it, and it's a key part of your platform here. So maybe talk about how Intuitive Surgical thinks about AI and where you are today and where it can bring you in the future with surgical robotics.

Yes, sure. I mean I think everybody knows AI can have both kind of corporate impact and product impact. And so on the corporate -- or on the product side, I tried to just show a little bit in the slides around that digital journey. Today, we have AI already making a difference in Ion, for example, where we use AI and machine learning for segmentation of the CT scan of the lung, and so that can be incorporated into the procedure.

We use it to help to reduce CT to body divergence. And so there -- even today, we have aspects of AI that are sprinkled throughout our ecosystem. And again, that you're seeing is already making a difference. And if you look tomorrow, really, AI is foundational to a lot of that digital journey that we described that the data that is so important that we continue to build and really the importance of that cannot be overstated. And so from there, taking it into aspects of how do we deliver information to customers, how do we deliver intraoperative guidance, ultimately getting to areas where we can augment the dexterity, if you will, of the system through things like [indiscernible] instrument control and other aspects. And so again, it's one of these things that's a very long journey, but we'll have, I think, a very important measurable impact as we look forward.

Maybe we could touch on competition for a second. Intuitive Surgical has a decade-plus head start in surgical robotics around the world in soft tissue. We now have one larger competitor approved for urology in the U.S. Another one is filing for their robot this year. How do you think about Intuitive Surgical's ability to compete and maintain its leadership position? You have an extremely large installed base. I love the slide. I didn't see it this year about how many IDN networks have 20 or more da Vinci, how many hospitals have 7 or more, and it's gone vertical in the past several years. So how do you think your ability to continue to innovate and stay ahead of competition?

I like our chances, Robbie. So today, again, competition to me, if you step back and you say, what is competition about in the health care space, it is about the best way to treat a given disease state. And we see competition, for instance, in bariatric disease around GLP-1s, right? And so you start there to say what's the best option. Then it goes to if surgery is the best option, then it's our job to say, okay, how do we provide the best products, the best support structure, the best ecosystem so that it all comes together and helps -- enables customers to deliver the very best care possible.

And so assuming that surgery is the choice, then our job today, I think it's more than comparing features. It's how does your program customer meet your needs, Quintuple Aim, how does it serve to treat patients? How do you do so reliably every day with the different teams who are available to service and support the system. And so competition, if you will, as new robotic competitors come to the market is more than just they have a system and we have a couple of instruments. It's the entirety of the ecosystem that has to be considered. And then as I look forward, we have thousands of engineers and heavy R&D investment to try to, again, move the ball forward and make it such that customers see the value in what we're offering and we get the choice.

I would just add, Robbie, in addition to the ecosystem effect, which I think at least as things stand today is significant with the things that Dave described, we also have the advantage of the segmented system portfolio, and that allows us to obviously sell based on what the program of the customer is, what the relative financial objectives are and there are the feature value cost trade-offs that afford us. And again, XiR will play a key role in that segmentation.

Jamie, maybe with the last minute or 2 here, I want to touch on 2026. We'll get the full guidance on the fourth quarter earnings call. You generally guide to gross margin and operating expense growth. There's a lot of moving pieces in 2026 as you launched the XiR, trade-in cycle is booming and back up there. Any considerations you can give us on how to think about margins down the P&L in 2026?

Yes. I think I would just say back to procedures for a second, the growth drivers will largely be consistent, which is general surgery in the U.S. and then the procedure specialties outside of urology in the international markets and we'll look for DV5 SP and Ion to continue to progress. And what we've seen in our financials is kind of the pricing premium for DV5 start to manifest in system ASPs in service pricing per system, et cetera.

If I look down the rest of the P&L for what I would say before the earnings call, we'll have a full year of tariffs in gross margin, wherever those tariff rates land. As the trade-in cycle progresses, the proportion of those that are purchased, you will have obviously a higher trading credit for an Xi to a DV5 and that, therefore, impacts the system ASP and margin. But beyond that, I think I'd leave our P&L comments to the 23rd.

Great. Well, I'm excited. Congratulations on a good fourth quarter. I appreciate a great discussion, and thanks, everybody, for joining today.

Thank you.

Thank you for standing by, and welcome to the Intuitive Third Quarter 2025 Earnings Release. [Operator Instructions] As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Dan Connally, Head of Investor Relations at Intuitive. Please go ahead, sir.

Good afternoon, and welcome to Intuitive's third quarter earnings conference call. Joining me today are Dave Rosa, our CEO; and Jamie Samath, our CFO. Before we begin, I would like to remind you that comments on today's call may contain forward-looking statements. Actual results may differ materially from those expressed or implied as a result of certain risks and uncertainties. These risks and uncertainties are described in our Securities and Exchange Commission filings, including our most recent 10-K filed on January 31, 2025, and Form 10-Q filed on July 23, 2025.

Our SEC filings can be found through our website at intuitive.com or at the SEC's website. Investors are cautioned not to place undue reliance on such forward-looking statements. Please note that this conference call will be available for audio replay on our website in the Events section under our Investor Relations page. We have posted today's press release and supplementary financial data tables to our website.

Our format for this afternoon's earnings conference call is as follows: 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'll turn it over to Dave.

Good afternoon, and thank you for joining us today. 2025 was an excellent quarter for Intuitive, with strength in worldwide procedure growth and capital placements as well as increasing utilization across all platforms. Globally customer interest in and adoption of da Vinci 5 expanded. Domestically, customers responded to our first full quarter of broad da Vinci 5 availability with increased demand for system upgrades and dual consoles.

Internationally, we placed our first systems in Japan and Europe with surgeons performing initial cases in those geographies. Turning to procedures. Da Vinci procedures increased by 19% and Ion procedures were higher by 52%, leading to total worldwide procedure growth of 20%. Da Vinci procedure growth reflected strength in benign general surgery in the U.S. and accretive growth in general surgery and gynecology internationally.

System utilization defined as procedures for installed clinical system per quarter grew 4% for our da Vinci multi-port platforms, 35% for SP and 14% for Ion. In the first 18 months since launch, da Vinci utilization is validating our design intent already outpacing Xi. Procedure demand has been healthy. And as da Vinci [ catalyzed ] upgrades, we saw the multiport installed base utilization ticking up to absorb that demand. This is healthy for our customers and for our company.

Turning to capital. We placed 427 da Vinci systems, including 240 da Vinci 5 systems and 30 SP systems as well as 50 Ion systems. Demand for da Vinci 5 upgrades drove strong domestic placements. We believe upgrades are an effective way for customers to expand throughput and capabilities. These capabilities include [ force ] sensing, surgeon autonomy, telepresence and various other digital tools that may lead to enhanced understanding of what great surgery looks like and further adoption of robotic-assisted surgery over time.

Additionally, it is our intent to offer refurbished Xi Systems as part of our broader portfolio, which will help expand access in certain geographies and sites of care. Internationally, da Vinci placements reflected ongoing external dynamics in Japan, China and the U.K., offset by broad-based strength in other international markets. Customer adoption of our products resulted in strong financial performance reflected in 23% revenue growth and combined with strong operating discipline, 30% earnings growth.

Jamie will provide further details on procedures, systems and finances later in the call. Last month, we hosted our tenth Annual Intuitive 360 User Conference in San Diego, where more than 1,100 health care professionals representing over 450 institutions from around the world gathered to exchange ideas and shape the future of patient care. Customers remained acutely focused on improving patient outcomes, reducing clinical and operational variation, driving efficiency and increasing access to minimally invasive care. More than 30 institutions presented their own clinical and financial outcomes data, which further validated the value of our 3 existing platforms.

I have the opportunity to sit down with multiple customers and dive deep into their robotic programs, including the impact of da Vinci 5 and potential fleet standardization, site of care dynamics and their overall lung cancer programs. I was encouraged to see the depth of their data and analyses and how these customers were able to quantify the impact of their Intuitive programs on aspects of the Quintuple Aim.

Domestically, while we remain in limited launch with force feedback instrumentation, we are working closely with customers to support their analysis of the impact of force feedback on clinical outcomes and learning progression. I am encouraged by early feedback and excited to see where some of these studies are leading. Dan will highlight some of this data later in the call. Across all of our platforms, we consistently upgrade capability and reliability through software and hardware releases. In Q3, we received FDA 510(k) clearance for the first in a series of software updates for da Vinci 5. With the addition of network central configuration management, we are now able to deploy updates remotely, which significantly streamlines workflow for both our customers and Intuitive. This release also includes the visual representation of force through force gauge and focus mode, which enables in-console video replay and viewing registration and manipulation of 3D models.

These features enhance surgeon awareness and intraoperative decision-making. You will see us continue to make improvements to the platform that advance our vision of delivering real-time insights at the point of care to support clinical efficiency with the aim of improving outcomes. Internationally, we placed our first 9 systems in Japan and Europe and have received positive early feedback. We look forward to engaging customers as they continue to evaluate da Vinci 5.

Our da Vinci single port platform made further progress in Q3. Procedures increased 91%, led by ongoing growth in Korea, continued early progress in other international markets and initial domestic use of the SP stapler in colorectal and thoracic procedures. At 360, I had a conversation with a long-time da Vinci thoracic surgeon about his initial experience using SP on about 40 patients. He's enthusiastic both about the reduction and length of stay and also his first few cases of using the SP stapler. I share his enthusiasm about these early results and look forward to seeing more data from colorectal and thoracic procedures as our launch progresses.

Recent 510(k) clearances support several advanced features, including sensitive Firefly and various control algorithms aimed at further improving SP stapler usability. Since we last spoke with you on our Q2 call, we have completed U.S. regulatory submissions for nipple-sparing mastectomy and other general surgery procedures. We look forward to updating you on these efforts on future calls. Turning to Ion. Worldwide procedures grew 52% to just under 38,000. We are now delivering Ion's differentiated value at scale, providing precise and individualized patient-specific navigation plans using AI to segment each CT scan and planned a biopsy trajectory.

This quarter, we received FDA clearance for a significant software release that improves workflow and imaging options, including upgraded system software that uses real-time AI to enable even more precise airway navigation and tomosynthesis integration, broadening the suite of imaging offerings when cone-beam CT is not available.

In closing, we are committed to our 2025 priorities. First, focusing on the full launch of da Vinci 5, its regional clearances and follow-on feature releases. Second, we'll pursue increased adoption of 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.

Looking ahead, by virtue of our focus on patients, our alignment with customers in pursuit of the Quintuple Aim, our investments in both industrial scale and innovation and our commercial excellence, we are well positioned operationally and financially to further increase value to patients, physicians, hospitals and payers globally. With that, I'll turn the time over to Jamie to take you through our business and finances in greater detail.

Good afternoon. I will begin by highlighting our third quarter 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. The third quarter was a strong quarter for Intuitive.

Taken Da Vinci and Ion together, total procedure growth was 20% compared to 18% growth for the first half of 2025. In quarter 3, revenue grew 23% to $2.5 billion, pro forma operating margin was 39% and pro forma earnings per share increased 30%. The strength of our financial results reflected the broad launch of da Vinci 5 and expanded adoption of our Ion and SP platforms. For our da Vinci business, procedures grew 19%, the installed base of da Vinci systems increased by 13% to almost 10,800 systems and average system utilization increased by 4%.

We continue to see robust growth for our Ion platform with procedures increasing 52%, the installed base up by 30% to approximately 950 systems and average system utilization increasing by 14%. In the U.S. total procedures, da Vinci and Ion increased 18%, reflecting 16% growth in da Vinci procedures and 48% growth in Ion procedures. Da Vinci utilization in the U.S. increased 2% in Q3 compared to flat utilization in the first half of this year and 2% growth last year.

Increased growth in U.S. da Vinci utilization reflected strong Q3 procedure growth and the higher mix of da Vinci 5 in the installed base, where utilization is higher than Xi. This reflects surgeon interest in using our latest technology and efficiency gains from Da Vinci 5's higher levels of surge in autonomy and integration. As one example, in quarter 3, almost 90% of da Vinci procedures used our integrated insufflation technology. Outside the U.S., total procedures da Vinci and Ion grew 25% driven by 24% growth in da Vinci procedures and a quadrupling of Ion procedures from a small base.

OUS procedure growth reflected an approximate 1 percentage point benefit as a result of the timing of certain local holidays. Da Vinci procedure growth in OUS markets included strong results in India, Canada, Korea, Taiwan and Brazil, and solid growth in China, the U.K., Italy and France. Procedure growth in Japan was a little lower than our expectations, reflecting lower capital placements over the last several quarters.

Globally, we continue to see strong procedure growth for SP at 91% for Q3, with strength in Korea and earlier stage growth in Europe and Japan. In total, for our OUS markets, we saw accretive da Vinci procedure growth across benign general surgery, up 39%; colorectal, up 28%; hysterectomy, which grew 27%; and thoracic procedures, which increased 26%. Combined, those categories are approximately 40% of OUS da Vinci procedures.

Average system utilization in OUS markets combined grew 8% in Q3 as compared to 6% in the first half of this year and 4% growth in 2024. Accelerating utilization in Q3 is driven by strong multi-specialty procedure growth in India, Korea, Taiwan and distributor markets and customers in countries with capital constraints, driving increasing use of the existing installed base. As of Q3, aggregate average system utilization in OUS markets is approximately 20% below that systems in the U.S.

As a result of our clinical performance, total I&A revenue in quarter 3 grew 20% to $1.5 billion, consistent with overall procedure growth. Da Vinci I&A revenue per procedure was approximately $1,800, flat with last quarter and last year. On a year-over-year basis, we saw downward pressure from lower bariatric procedures and higher cholecystectomy procedures, offset by higher SP procedures and Da Vinci 5 specific I&A. For our ion platform, I&A 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 427 da Vinci systems in quarter 3, a 13% increase from the 379 systems placed in the same quarter last year. 240 of the 427 placements were da Vinci 5, including 12 in OUS markets following recent clearances in Japan and Europe. The installed base of Da Vinci 5 is now 929 systems. In the U.S., we have at least 1 da Vinci 5 system in 18 of the largest 20 [ IDNs ]. And of hospitals that have 3 or more multiport systems, 21 of those hospitals have fully standardized to da Vinci 5.

We saw 141 [ trading ] transactions in Q3, up from 38 a year ago, primarily driven by U.S. customers upgrading to da Vinci 5. Some customers are shifting budgets to upgrades, partly with the intention of taking advantage or the efficiency potential of da Vinci 5. We are also actively working with some customers to acquire da Vinci 5 and move their Xis to alternative sites within their network.

In the U.S., we placed 263 systems, up from 219 last year, driven by demand for da Vinci 5. Outside the U.S., we placed 164 systems compared to 160 last year. Our U.S. placements included 63 systems in Europe, 16 in Japan and 13 in China compared to 65, 39 and 14, respectively, last year. We continue to see government budget challenges in Japan and the U.K. and the constrained and competitive marketplace in China.

Performance in markets served by distributors continue to be relatively strong. In Q3, we placed 64 systems compared to 52 systems last year. Q3 performance was driven by strength in Brazil and the Middle East. Within the 427 da Vinci placements, we placed 30 SP systems in the third quarter, higher than the 21 systems last year driven primarily by OUS markets. For our Ion platform, we based 50 systems in the quarter compared to 58 systems last year.

Q3 Ion placements included 9 systems in OUS markets. Lower Ion placements in the U.S. primarily reflects a joint focus with our customers on increasing utilization. As a function of our capital performance, quarter 3 systems revenue grew 33% to $590 million. For our da Vinci business, leasing represented 54% of da Vinci placements as compared to 49% last quarter and 58% last year, driven primarily by customer mix.

We continue to expect that rates of leasing will increase over time, primarily driven by OUS markets. Da Vinci leasing revenue increased 33%, reflecting an 18% expansion of the installed base under operating lease arrangements and a 10% increase in lease revenue per system driven by a higher mix of da Vinci 5. The average selling price for purchased da Vinci Systems was $1.6 million in Q3 as compared to $1.5 million last year, driven by a higher mix of da Vinci 5 and the higher mix of dual console systems, partially offset by higher trade-ins.

Lease buyout revenue was $22 million as compared to $30 million last quarter and $24 million last year. Quarter 3 service revenue increased 20% to $396 million, reflecting an increase of the da Vinci installed base of 13% and the Ion installed base of 30%. Service revenue per system for our da Vinci installed base increased 5% year-over-year, primarily reflecting a higher mix of da Vinci 5 systems.

Total revenue for the quarter was $2.51 billion representing 23% growth over the prior year. On a constant currency basis, revenue growth was also 23%. Recurring revenue grew 21% continuing to account for 85% of total revenue. Turning now to the rest of the P&L. Pro forma gross margin for the quarter was 68%, down from 69.1% in Q3 of last year.

The year-over-year decline reflects a 90 basis point impact from tariffs, higher facility costs, a greater mix of lower margin da Vinci 5 and Ion revenue and higher service costs related to da Vinci, partially offset by cost reductions. Quarter 3 pro forma operating expenses increased 11% year-over-year, driven by higher headcount, increased facility costs and higher R&D prototype expenses, partially offset by lower legal spending.

We added approximately 340 employees during the quarter, primarily in our core commercial, engineering and manufacturing functions. As a reminder, we are planning to go direct in Italy, Spain and Portugal in the first half of next year. This will involve the transfer of approximately 250 employees. We expect to describe the impact of this in greater detail at our next earnings call.

Pro forma other income was $93 million for the quarter, flat to the prior quarter, reflecting lower interest income, offset by a lower FX impact from remeasurement of the balance sheet. Our pro forma effective tax rate for quarter 3 was 18.3% lower than our expectations, reflecting the impact of the new U.S. tax provisions for the treatment of R&D expenses and a $16 million discrete benefit from the release of tax reserves associated with statute of limitation expiration.

We are still evaluating potential impacts of U.S. tax reform for our 2026 tax rate. Pro forma net income for the third quarter was $867 million compared with $669 million last year. Pro forma earnings per share was $2.40 per share. Excluding the benefit of tax expense in Q3 from the U.S. tax reform and the release of tax reserve, pro forma EPS would have been $2.28 per share.

Now turning to our GAAP results. GAAP net income for the quarter was $704 million or $1.95 per share compared to $565 million or $1.56 per share in Q3 of last year. The differences between our pro forma and GAAP results are outlined and quantified on our website. We ended the quarter with $8.4 billion in cash and investments, down from $9.5 billion last quarter.

In line with our capital allocation priorities, during the quarter, we used $1.9 billion of cash to repurchase approximately 4 million of Intuitive shares. The sequential reduction in cash and investments reflects the stock repurchases, partially offset by strong free cash flow of $736 million. With that, I'll turn it over to Dan to discuss recent clinical publications and our updated outlook for 2025.

Thank you, Jamie. Turning to the clinical side of our business. I'd like to share with you data from several notable recent studies. 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 and published scientific studies over the years. Last month, at the European Respiratory Society's Annual Conference, we saw continued growth in evidence describing the Ion and [indiscernible] systems impact in geographies outside the United States.

At the conference, Dr. Carolin Steinack from University Hospital Zurich in Switzerland presented an abstract that detailed results from an open-label randomized controlled trial that compared Ion plus integrated mobile cone beam CT to conventional bronchoscopy. Conducted at University Hospitals Zurich, this study compared outcomes from pulmonary nodule biopsies performed in 78 patients with 39 patients in each group. Median nodule size was just 11 millimeters in each group.

Results demonstrated an increase in diagnostic yield between the 2 groups in excess of 60 percentage points with the Ion Group at 84.6% and the conventional bronchoscopy group at 23.1%. Procedure times and complication rates in both groups were comparable. Additionally, in the same presentation, the group showed a center-wide increase in early-stage cancer diagnosis after implementation of the integrated Ion and mobile cone beam CT system with an increase of Stage 1a non-small cell lung cancer diagnosis of approximately 30 percentage points.

Dr. Steinack concluded, even with minimal training, Ion robotic-assisted bronchoscopy with integrated cone-beam CT is a pivotal tool for effective early lung cancer diagnosis and a potential driver of a shift towards early-stage diagnosis. On previous calls, we have shared published studies that describe the impact of Force Feedback technology across multiple specialties.

In September, Dr. Peter Kneuertz from the Ohio State University in collaboration with other thoracic surgeons and Intuitive published Force in robotic thoracic surgery, a 1-year analysis of da Vinci 5 Force Feedback in the Journal of Robotic Surgery. To date, the inability for surgeons to [ feel force ] exerted in the operative field has been a meaningful limitation of robotic-assisted thoracic surgery. This study incorporated data from over 400 common thoracic procedures performed by 70 surgeons with da Vinci 5 and Force Feedback technology. The analysis showed that median instrument [ tip forces ] decreased stepwise based on Force Feedback sensitivity setting across all procedures.

Moreover, there was a significant difference in the amount of time at peak force greater than 6.5 newtons across Force Feedback settings with a reduction of approximately 20% in peak force application when Force Feedback instruments were set to medium or high. The authors noted that this study provides clinical evidence that Force Feedback technology may help reduce force during robotic-assisted thoracic surgery and result in objectively gentler surgery. The first step in evaluating the impact of Force Feedback is to see an intraoperative difference in applied force.

Here, we are encouraged by early results across specialties on the value that we believe Force Feedback technology brings to patients and surgeons. The next step in evaluating the impact of force Feedback is to assess whether changes in forces applied during surgery translate to the patient experience on measures like pain or other functional patient outcomes. These studies are underway, and we look forward to their publication and discussion in the coming quarters and years.

I will now turn to our updated financial guidance for 2025. Starting with da Vinci procedure growth. On our last call, we forecast full year 2025 da Vinci procedure growth within a range of 15.5% and 17%. We are updating our 2025 da Vinci procedure growth guidance to be within a range of 17% and 17.5%.

Turning to gross profit. On our last call, we forecast pro forma gross profit margin in 2025 to be within a range of 66% and 67% of revenue. Given Q3 results, which reflected greater leverage of fixed costs and benefits from cost reductions as well as a lower expected tariff impact for the year, we are updating our estimate of pro forma gross margin to be within a range of 67% and 67.5% of revenue. Within that range, we now expect the impact of tariffs for the year to be 70 basis points, plus or minus 10 basis points.

We expect pro forma operating expense growth to be between 11% and 13%, which includes increased depreciation from new facilities and investments to drive our growth objectives. We estimate noncash stock compensation expense to be between $785 million and $795 million. We forecast other income, which is comprised mostly of interest income to total between $350 million and $360 million. We expect capital expenditures to range between $625 million and $675 million, which reflects planned facility construction activities. With regard to income tax, due primarily to the lower Q3 non-GAAP effective tax rate that Jamie described earlier, we now estimate our 2025 pro forma income tax rate to be between 21% and 22%. This concludes our prepared comments. As we open the line for questions, we ask that you please limit yourself to 1 or 2 questions.

[Operator Instructions] Our first question comes from the line of Robert Marcus from JPMorgan.

Congratulations on a great quarter here. Two for me. One, I'll start with the procedures, and then I have 1 on margins. 20% procedure volume growth was just a really impressive uptick year-over-year as well as quarter-over-quarter. I was hoping if you could talk to the trends you're seeing both U.S. and outside U.S. that are driving that? How sustainable is it? And how much do you think is attributed to the introduction of da Vinci 5?

Yes, I'll take that first, Rob. So if you look at U.S. da Vinci procedure growth, maybe just to frame it, in Q1, it was 13%; Q2, 14%; and then in Q3, 16%. So obviously, that Q3 U.S. da Vinci procedure growth number was strong relative to recent trends. We saw strong growth in after our surgery in acute care and in a subset of the benign general surgery procedures that I think we've referenced in the past in cholecystectomy appendectomy.

And then there were a couple of categories that were a little above our expectation also in benign general surgery. So hernia repair, a couple of the benign gyn procedures. We have had just anecdotally indications that there may have been, let's say, acceleration of procedures in July and August for elective procedures, given all of the noise around Medicare funding and even ACA premium changes. We have looked at third-party data, which obviously lags. It's not clear that they're supported by the third-party data.

So we don't have evidence to that effect. We've heard it from some customers, and we've heard other commentary to that effect. And so that may be an effect in terms of what's reflected in the Q3 U.S. strength. I'd just say in terms of OUS da Vinci procedure growth as I said in the prepared remarks, there is about a 1 percentage point benefit to the growth there relative to just the timing of holidays. There's a set of autumn festivals in Asia markets that last year occurred in September, in this year that will occur in October.

And Rob, you had mentioned DV5. As we talked about it, it was our intent to design DV5 to be easier to learn, easier to use and support higher efficiencies. And the data that we're seeing from the customers who are adopting da Vinci 5, it is supporting that design intent. And so there -- to the extent that customers are adopting DV5 5 then that to support some of this utilization within the existing accounts.

Yes. Maybe as a reference point, Robbie, there was about 67,000 da Vinci 5 procedures done in Q3. That compares to 50,000 da Vinci 5 procedures done in Q2.

Great. And I mentioned margins from my second question, but I've actually changed my mind. I want to ask about [ refurbished Xi ]. And you mentioned how some of your customers were interested in upgrading and moving their Xi to new sites of care. And this is 1 area I don't think many Street models have Xi refurbished units in them as of now. Maybe you could just speak to how you're thinking about the progress in '26 and beyond in terms of new channels, new countries? Just how much greenfield can refurbish Xis add and where do you think there'll be clients will be most interested?

Yes, Robbie. Maybe I can just speak from a portfolio perspective, and then Jamie, please fill in with any other color. And so we -- the trade-in cycle or the upgrade cycle that da Vinci 5 is catalyzing obviously gets us a number of Xi systems coming back to Intuitive. We're able to refurbish those and then offer those at -- within our portfolio. And so what I always think about in terms of satisfying or meeting our customers' needs is having a portfolio that spans a range of capability from X now to the refurbished Xi up through da Vinci 5 in a range of financial instruments to help customers acquire those portfolios.

And so the refurbished Xi is going to be an important part of that certainly for certain sites of care within the U.S., but also outside the U.S. And for those customers who are cost sensitive and trying to really look carefully at the economics of their programs and how they initiate a robust robotic-assisted surgery program, we really think that the refurbished Xi is an important component in that.

We've sold 20 refurbished Xis so far. Our regional leaders are excited to have both that and da Vinci 5 in the portfolio. And I think it provides some really nice segmentation for those customers that want to be early adopters of the latest technology and for those sites that are cost sensitive. And that includes all the way to the U.S. and maybe surgery centers. I think the where we have, I think, really nice flexibility in terms of what the pricing might be for a refurbished Xi. We're not ready to kind of describe what the range of that might be because we're early but I think it's giving our commercial team some really nice options.

And our next question comes from the line of Travis Steed from BofA.

Maybe just a follow-up on that. You talked also about some of the Xis are being redeployed within the same hospitals to be used in alternative sites and curious like when you see the hospital by the DV5 5 and keep the older Xi and redeploy it, what are you seeing in terms of utilization on that system, new categories getting opened up? Is it tending to go into the ASC? Or just help us understand how that's working and how many hospitals are taking up on that opportunity.

One, I appreciate the question. One of the dynamics that we do see when hospitals engaged with DV5 and move Xi to other sites of care. The nice thing is the systems are able -- or were designed to have very consistent user interfaces. So those surgeons could work back and forth across those platforms. So if it happens to be where the DV5 5 is in the flagship hospital and the Xi was moved to an alternative site of care like an ASC, then it allows those surgeons to move back and forth and they care teams easily. There's not retraining or relearning to do. .

The other nice thing as I think you know, is the inventory of instruments across both Xi and DV5 can largely be used interchangeably. And so that's another advantage that allows our customers to deploy these fleets as they need to suit what they're trying to get on, be it decanting their main OR into ambulatory environments or perhaps adjusting where they're trying to treat patients within their larger IDN. And so we're -- we think that's a powerful component of the DV5 upgrade cycle that will allow some -- our customers some flexibility in how they build out their fleets.

Great. And then a follow-up, Jamie, do you have anything else jump in. .

No, good from my side.

Okay. But I had a follow-up on -- you mentioned new platforms recently and maybe opening up new disease states. Curious if you could elaborate on that. And the cardio is an area that you guys are clearly investing in. And curious what you see is like the problems with the current standard of care and places you could kind of apply the Quintuple Aim to cardio.

Sure, sure. 2 separate components in there. So maybe starting with the cardiac side of things, and so we've talked about for a long time, cardiac surgeons have been using off of a very small base, our current systems, X and Xi to perform cardiac surgery. And with the capabilities of DV5 5 around precision, motion control, integration of imaging, we think that those capabilities, coupled with some new instrumentation that we need to develop it really brings some differentiated capability to cardiac surgery.

And so if you look within the cardiac surgery patient community, many, many are served well with percutaneous approaches, but there's a subsegment of patients where surgery is the best option for them and minimally invasive surgery, I think with da Vinci is a better option for them. So we think that it's a meaningful segment of the market and that da Vinci 5 and plus ongoing development with instruments and software and other areas can make a difference for cardiac surgeons and their patients.

When you look at new platforms, here's the way that I think about it. If you say what is Intuitive good at, I think we're really good at advanced robotic platforms that include precision motion control integration of advanced imaging and other types of sensors, the precise control of complex, rigid and flexible instrumentation, the integration of digital tools in the emerging field of AI. And so you say, those are our core capabilities.

Then I look out in the world and say where are there problems -- health care problems to be solved where existing solutions aren't meeting the needs of physicians and their patients. And there are many. And where those 2 intersect, our capabilities plus an unmet need, I think that's where some magic can happen. And so that's where we're looking. And we believe there are -- we have some opportunities where those do intersect. We have ongoing R&D in those areas and just look forward to updating you more in the future. .

And our next question comes from the line of Larry Biegelsen from Wells Fargo.

Congrats on a great quarter. Just 2 for me, one on the U.S., one on margins. How are you -- Dave -- or Jamie, how are you thinking about utilization in the U.S. going forward? As da Vinci 5 becomes a higher percent of the installed base, could we continue to see it trend higher? And net placements have been down recently year-over-year. I think that's primarily because of a tough comp last year. But how do you think about that metric? Investors have been -- or some investors are focused on it? And I have one follow-up.

Yes. I'm going to maybe zoom out for a second, Larry, and recognize the discussion on net placements that's been occurring. In terms of our approach, we're first focused on aligning with customers in ways where they need extra capacity for da Vinci because it brings a patient benefit, patient value.

And so we actually look, first and foremost, the procedure growth is our primary metric of success because, obviously, that reflects adoption and use of our technology for patients. And so therefore, we take a customer-by-customer approach in terms of how we engage with them on the capital side. And we're as happy to help them expand their installed base as a way to increase capacity as we are to do an upgrade, give them da Vinci 5, particularly in the context of what we see our opportunities to have efficiency benefits in da Vinci 5 that in effect also create a capacity expansion opportunity.

And so you see that reflected in Q3 results now that we're in broad launch and that you have 900-plus systems in the field. And we think that whichever the way we go as long as it's in alignment with the customer, it's healthy for them and for us. And I think that's well illustrated in Q3 results. Now in terms of the question, what will long-term U.S. utilization growth be, I think we're focused more on the segments of customers than the U.S. average because I do think, as we've talked about in the past, there are likely some mixed dynamics, particularly as we look to capture benign procedures.

They're in community and rural hospitals that are going to have smaller programs. But think of large institutions with the larger number of procedures utilizing DV5, we'd expect them to be able to drive improvements to utilization. Where that nets out to, I think, we'll see because it's so early with respect to the DV5 launch.

That's super helpful. Jamie, on margins, excuse me, it looks like the implied gross margin in Q4 at the midpoint of the guidance range is slightly below [ 67% ]. So my question is on next year, just what are some of the puts and takes to consider? Is that kind of Q4 number starting point for next year for the gross margin? Or are there additional headwinds or tailwinds to consider? And any directional color [indiscernible] of going direct in those 3 markets you called out net positive, negative? Or just anything directional.

Yes. I understand the question on gross margins for '26. Larry, we're going to wait until January to provide color on what the outlook is there. With respect to going direct in Italy, Spain, Portugal, we continue to expect that to be slightly accretive to pro forma EPS upon going direct, and that's really a function of you eliminate the margin of the distributor, and that gets partially offset by the team that we take on the transfers from them to us.

And our next question comes from the line of Rick Wise from Stifel.

Thanks for another stellar quarter. I guess I'll start with -- let me start with the 2 softer areas that you talked about, Dave, the downward pressure on the bariatric side and China, you just described the environment as constrained and competitive. Maybe you could talk about both of these. And when do we get past the -- when is bariatrics less of a drag? It seems like it's been going on for a while. We should be almost largely over that impact at some point. I don't know, maybe you can share some thoughts there. And China, how do we think about the outlook from here? And then I have 1 follow-up. .

Rick, it's Dan. On bariatrics domestically, we haven't seen a change in trajectory. I think in Q3, domestic bariatric procedures continue to decline at high single digits. So it's roughly 6 quarters of down mid-single digits to down high single digits. I think in total domestic bariatrics is a little less than 3% of overall da Vinci procedures. Maybe I'll pass it Jamie on the China question.

Maybe just on bariatrics for a second. Dave and I actually met with about 25 bariatric surgeons earlier this week. We met with another group of [ that size ] about 6 weeks ago and obviously have an exchange here about the impact of GLP-1s and what they're seeing in their practices.

They are not yet at a position where they feel like they can predict when the declines are going to end. They're not seeing the dynamics in the practice that gives them the confidence to make that prediction. So honestly, it feels like we're still in this realm where you have some patients that have been on GLP-1s and are starting to come off because of cost and side effects, but that's offset by new patients starting on kind of the regimen of the drugs.

But none of the surgeons we engage with are yet at a point where they're predicting a change in trajectory. On China, and Dave and I were recently in China several weeks ago. I'd say the environment is quite consistent from what we've seen over the last year or so in terms of tenders are slow. Competition is pretty healthy. I think there's generally a preference technology-wise for da Vinci.

And I think that there are many local provinces that want the local player to win. And so we're just navigating and executing within that environment, price pressure on the capital side and on the I&A side continue. .

Got you. And just as a follow-up question. I was curious to what extent is Hub, what's its role in driving some of this da Vinci uptake. When I talk to doctors, I'm just continually stuck by their interest in and what sounds like the potential utilization of hub features. Just this quarter, I saw that you got approval for system software modifications to include something called surgeon cloud accounts. Just my question is sort of, can you talk about what inning are we here in the hub story, the hub evolution, the potential to enhance da Vinci 5 performance users? Just any color and direction you could give us would be great.

Sure. Sure. Let me take that question. And so I might just reframe it a bit from Hub. But just to kind of the digital foundation of da Vinci 5 that we've talked about. When we launched the system, we were talking about its 10,000x increased compute power. And the hub is a part of that story. So we had -- we now have the integrated hub hardware that is foundational to collecting some of the video data and getting it processed by Intuitive and then return back to customers through case insights kind of said simply.

And so this digital promise, if you will, of how it's going to impact surgery through da Vinci 5 and more you have to remember, it has layers. It's going to be a progressive kind of growth over time. And it starts with really good data. And we talked about that before. So different sources of data, one of which is video data, and that's where hub is integral in collecting that video data and getting it to Intuitive, so it can be segmented and have other measures in analyses performed.

And there are all sorts of other kinds of data, including kinematic data and force data, electronic medical record data for certain customers when we have an agreement signed. So you take those data and then you can start analyzing the data using these powerful tools that we have increasingly available to us with AI and machine learning and you start drawing meaningful insights from those data. And so that's that progression, ultimately leading, we think, to augmented dexterity or intraoperative guidance to really bring to life how do we help surgeons and care teams make better decisions, different decisions to optimize outcomes, economics or other measures of surgery.

And so that is that progression. And Hub, your question specifically is really an important part of that because of its integration around video. But overall, we're excited about this area and what it can mean progress in the Quintuple Aim. And so da Vinci is at foundational platform that will bring aspects of our AI, ML digital world to life and impact surgery.

And our next question comes from the line of Patrick Wood from Morgan Stanley.

Beautiful. I'll keep it to one in the interest of time. I want to see more on the alternative side of care side of things. And I know you guys have talked in the past about XI going into the ASC. I guess my question is, how much do you think the original capital cost is the constraint versus Medicare coverage and commercial rates relative to I&A instrumentation costs. And then there's also like that sterilization challenge in that. So I guess the crux of the question is, how much do you guys think you need to continue to bend the cost curve down for I&A to make it welcome the ASC? And do you feel like the sterilization challenge is small enough that it kind of doesn't really matter and you don't need to develop like disposable instrumentation or some of that. .

Yes. I would just say maybe our experience so far in the U.S. is by some way, the greater constraint is on the capital side, a number of the systems we have in ASCs have been leased. The majority of systems in U.S. ASCs are Xi, but we do have a number of [indiscernible] obviously because of the lower price point. While it's a relatively small installed base procedure growth in ASCs in the U.S., it's quite a bit accretive to what we see in terms of overall U.S. procedure growth.

pI think that with XI, ASCs are going to be an area of increased interest and focus for us. And obviously, we're going to look carefully at the economics. It's fair to say that as we stand today, the reimbursement in an ASC is a fraction of the reimbursement in a HOPD. And so that creates a barrier, particularly for ASCs and by IDNs. I have not had a lot of pushback on INA prices at this point in ASCs. But I think from a strategic perspective, within the Quintuple Aim, we look to lower total cost to treat. And I think, therefore, it's a topic of strategic interest to us.

It is. And to your last kind of part of your question around sterilization and I my experience in the ASCs that I visited and talking with our teams is that sterilization hasn't been an impediment to the overall program and the consideration of placing a robotic system there. And so I don't believe that single-use I&A is a requirement to go into the ASC environment.

And our next question comes from the line of David Roman from Goldman Sachs.

I had 1 on haptics and a follow-up on Ion/SP. Maybe starting on the haptics and Force Feedback side, I think a little over a year ago when you launched Dv5 5, you got the question on an earnings call what are the specific procedure categories where you see DV5 5 was applicable. And I think your response was something to the effect of DV5 is about making robotic surgery ubiquitous.

Today, you're talking about [ expansion of ] procedures into benign general surgery, and I don't know if that's a reflection of that strategy of making robotic surgery ubiquitous. But maybe you just sort of talk to how you're seeing that unfold and where Force feedback Fits into that trajectory.

Sure. Let me start with the Force Feedback side. So you heard from Dan a little bit about the journey of Force feedback and what it's going to take. Starting with instruments that are robust enough to be used on a daily basis and getting sterilized and getting to scale for our customers, and we're well on our way there. And then what we've seen is data and Dan did talk about this, data that shows that through the use of Force Feedback, you can see lower forces in surgery.

And so now we have to connect that to outcomes and see whether or not that lower force is actually leading to either improved outcomes or speeding up of learning. And so that is where we are today. We've seen some early data that shows, it's very interesting and I think very very aligned to the hypothesis Force Feedback, which says if we can actually apply lower forces, we do expect that to have an improvement on outcomes.

And so that has to happen procedure by procedure. Because as you look inside of each procedure, it's likely that those forces will impact outcomes in a different way. For example, with prostatectomy, you might be looking at functional outcomes as a result of how much force is applied to nerves. If you're in nephrectomies or other colorectal procedures, you might be looking at recovery of bowel function as a result of how much force is applied to the bowel during those procedures.

And so each one of those will happen in varying ways. And I think as that evidence emerges, that's the catalyst. That's the catalyst to broader adoption and how you see now Force Feedback impact aspects of the Quintuple Aim at scale. And so that just goes to, I think, the overall thesis of robotic-assisted surgery improving aspects of the Quintuple Aim. We've seen that throughout our history, and now with the addition of Force Feedback, that's just 1 more piece of the puzzle here.

That's very helpful. And then maybe quickly, just a follow-up on Ion and SP, I think you talked about a little over 50% procedure growth in Ion, and I think I heard 91% in SP. You've had a number of SP clearances over the past 6 months or so, maybe just help us contextualize performance in those segments and how we should think about them on a go-forward basis.

Here's the way I think about SP. It is doing great. We're seeing growing body of evidence that there's patient value beyond cosmesis. You are right, growth in SP procedures at 92% of strong utilization in [ Korea ] outpaces that of Xi. And our team is focused on continuing to deliver software and instruments and other enhancements to the platform to continue to increase its capability. Another area we're working hard in the U.S., in particular, our clearances. And so we know that a broad set of clearances is important for the use of single port. You see that in Korea, we see that elsewhere. And so in the U.S., we are on the pathway to continue to add more clearances to SP, and that will be a part of how that grows and continues to grow in the future.

And our next question comes from the line of Adam Maeder from Piper Sandler.

I will keep it to one. I wanted to ask about the DV5 5 OUS launch in Europe and Japan. And was wondering if you could share just a little bit more kind of early feedback that you've gathered to date. Help us better understand the rollout strategy there? And any broad color around the pace of the DV5 placements outside the U.S. in subsequent quarters into 2026 would be much appreciated.

Yes. I'd just say it's relatively early we take a local approach to each of those launches. Obviously, we have a pipeline in Europe and in Japan. You see the larger institutions and those institutions want to be early adopters and want to get hold of the latest technology to be those that are most interested. There is a little bit more of a segmentation discussion in terms of some incremental cost sensitivity to the da Vinci 5 pricing relative to, say, the U.S. market.

I think we have a healthy pipeline in both markets, but there's work to be done to have customers work through the evaluation process.

Okay. That was our last question. Thank you for all the interesting questions. In closing, we continue to believe there's 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, 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 again for your support on this extraordinary journey. We look forward to talking with you again in 3 months. .

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.

All right. Good morning, everyone. I'm Larry Biegelsen, the medical device analyst at Wells Fargo. And it's my pleasure to host this session with the management team from Intuitive Surgical. With us, we have Dave Rosa, the new CEO; Jamie Samath, Executive Vice President and CFO; and Dan Connelly, Head of Investor Relations. The format is going to be fireside chat. If anyone has a question they want to ask, just raise your hand. We'll call on you. So with that, let's jump in. Dave, Jamie and Dan. Thanks so much for being here. We really appreciate it. You guys have been long time supporters of the conference. So thank you.

Thank you. Thanks for having us, Larry.

So let's start with a couple of big picture questions. Dave, you've been in the CEO seat now for a couple of months now -- 2 months now.

A couple of months, yes.

So talk about your vision for Intuitive Surgical over the next 5 to 10 years, please?

Sure. So if I -- I've been with the company almost 30 years. And if I think back about how the company started and what our -- what we call our vision and our mission is, it's really about advanced technology innovation, moving and improving patient care, right? That's the core of this. And over the last 30 years, I think we've done a good job in fulfilling that mission and vision in creating what we talk about is the ecosystem that we have today. And if you look at how that ecosystem has been created, the foundation, the da Vinci system, but now instruments, accessories, services, everything else around it. It has been really intentional.

Almost exclusively through not completely, but through organic development and R&D and with that foundation of innovation. And so what we've added to it has been super intentional. Meaning we want the pieces and the ecosystem to have kind of an ethos, so a design coherency to it that makes sense that customers can access easily and use to advance their needs. It hasn't been just bolting things on, right, that don't -- that aren't part of that ecosystem that just happened to be in a salesperson's bag. And so that's been a super intentional aspect of how we've developed the company and I think it's an important piece of how we look to the future, too.

And so if you look at today where we are, we have launched da Vinci 5. It has -- really, it's a foundational part of that ecosystem. It will be a way in which we can deliver advanced capabilities and instruments and accessories and vision and our digital ecosystem that I'm sure we'll have a chance to talk about. So if I look forward at kind of the next 5, 10-plus years, I sort of see 2 major aspects. One is the continuation and the deepening and the impact of our existing way in which we do business. The products and services we have today, advancing capabilities through da Vinci 5 in the areas of surgery that we know. Then we're also in our future forward teams, planting seeds and looking to address disease states that don't have good solutions today.

And so that's -- those are seeds being planted today. And so if you look forward, you're going to see, I think, a deeper penetration of the things that we're working on today. You're going to see improvements in the quintupling within those procedures. And you're going to see platforms come into commercialization that have -- that are trying to impact with the intent to impact other areas of health care that don't have good solutions today.

And then importantly, that's a lot of the what. The products and services that we want to provide, it's also the how that as I think about a customer and what they have -- what they're faced with, the number of companies out there, solutions, AI and the complexity of how they're going to navigate health care. I think it's incumbent upon us as Intuitive to simplify that job for our customers as much as possible. And so I think we're driven to have Intuitive be a company in which customers can not only rely on for great innovation, but they can rely on for reliability, consistency and simplicity of accessing those solutions.

That's helpful. Just 1 follow-up. You talked about new platforms. So without expecting you to tell us what those are, but these are -- you're specifically talking about new platforms that are not in the market today that you'll bring to market in the future.

That's right. So if you look at what is Intuitive good at? And I would say we're good at precision guidance and control robotics. We're really good at imaging and bringing in all different types of imaging, both kind of white light what we can see in other types of imaging and this digital foundation. And so bring those things together. And today, it's in the forms of platforms and robotic systems. I think that -- those kinds of attributes and capabilities can address different disease states that today don't have good solutions. And so those would look to be different platforms that you don't see really today.

That's helpful. And you've been at the company, as you said, for 30 years. But you were not in the CEO role. How -- what are you going to -- how are you going to put your stamp on Intuitive? What are you going to emphasize more or less than your predecessor Gary did?

Yes. Some will be the same and some will be different. And so one of the things, I think, that we did well, and Gary did well in his tenure was rely on a really strong executive team. And so as we look at our multiyear plans, our multiyear strategy, that was developed with -- collectively with our management team, right? It wasn't Gary saying, "Just go do this." And so that needed to change as now I in the CEO role. And so a lot of that in those pillars are going to remain the same. Of course, some things are going to change. We had talked previously about the acceleration of our business externally outside the U.S. as being a piece of the puzzle that I want to add a little more focus to in terms of how do our teams operate outside the U.S.?

Do they have the resources they need, are the processes that we have in place and Intuitive, enabling them to do their what they need to do with the least amount of complexity. And so maybe just a hair more focus there. And then another one I mentioned already, but is really ensuring that as customers interact with Intuitive beyond just our products, how do we make that the very best experience possible simplify their experience and their job as much as we can.

That's helpful. Maybe a little bit more near term, Dave, what are your strategic priorities for Intuitive over the next 12 months?

Yes. So we've unpacked these a couple of times in our calls, but really, it has -- if you look at our priorities over the next 12 months or so, it has to do with da Vinci 5, our flagship system getting the full launch in a variety of markets, building out the ecosystem force feedback instruments at scale, that sort of thing around da Vinci 5. That's a core one. Our business runs on procedures, right? That's where the value is provided ultimately to a patient. So growing the procedures and driving our focused procedures as we look around the globe, an important aspect and that's really executed through our commercial teams and market access activities and other areas.

Given the scale that we're at today and the dependency that customers have on Intuitive products, we've been investing heavily into what we've talked about as industrial scale to make sure that our manufacturing facilities, our supply chain, that all the pieces of the puzzle field service and everyone else that are core to making sure that customers get what they need to serve their patients at scale is a third area. And then fourth is bringing to life this promise of digital. And so we have several products that are -- have been developed and are starting to commercialize. And so that value is realized on those specifically.

And so those are kind of the 4 core priorities that we have over the next 12 months or so. And then the fifth, again, to repeat myself, because it's important to me and to the company is how customers experience all of that with Intuitive to make sure that we're supporting them, understand their priorities, their strategies, their goals and align and support them the very best we can.

One more big picture question before you transition to kind of the business state today from the financial profile. Intuitive historically, it's targeted at 35% to 40% of top-tier margins in the industry that you just said, and I think you've defined that as 35% to 40%. I know Jamie will jump in if I'm wrong. May jump in any way. But Dave, new CEO, just confirming that kind of the financial goals you historically had are still intact.

Yes. The financial goals are -- is generally intact. I think we've talked about not -- it's not a management objective to get above 40% in terms of margins. But we believe there's this balance, right, of growth and profitability that is, I think, kind of the secret sauce of the company. And so growth will be predicated upon innovation and the things we're doing there and having a balanced portfolio as we look at short-term investments, midterm and long term, that we look across that and are supporting the near-term growth that we talk about a lot, all the way out to a multiyear multi-decade time frame.

And so that then on the profitability side, trying to tune those investments in a way that allows the teams to get the resources required but also lean enough that we're having to make choices and say no to things that the teams have the focus that they need to execute that we can hire and onboard importantly, the very best talent in the world. And so those 2 things in balance lead to that 35 plus percent that you're talking about.

So you're still committed to top-tier margins in med tech.

As a segment, yes, we are.

Okay. Let's transition. First, kind of near-term question really is on the capital equipment environment in the U.S. and internationally. Just update us on kind of how you're thinking about it, what you're seeing, please?

Yes. I think in the U.S., what we've seen is a relatively stable and resilient CapEx environment. I think for Intuitive, about 70-ish percent of system placement capital is leased. That shields us to some extent from capital budget sensitivities at our customers. I think if you look at the last year or so, obviously, there has been an Intuitive specific dynamic with the launch of da Vinci 5 early last year, customers interested in acquiring that system. And so I think that's created some benefits for us. If you look at Q2, when we went into broad launch in da Vinci 5, we saw in the U.S. trade-ins of 75 systems just by way of comparison, that was 3 in the year ago period.

So you start to see the opportunity now with dV5 in broad launch to start a trading cycle. We do think that's progressive and over multiples of years. But with broad supply for those customers that they want to do some trades that supply is now available. If we look at international markets, I think we've seen greater challenges. If you look at Q2, OUS placements in total were down 7%, which is a contra trend a little bit. Significant reduction in placements in Japan from the year ago period. The year ago period was bolstered by actually some holdover COVID funds that the Japanese customers had access to, to invest in da Vinci.

And we're in a period now where multiple markets are affected by COVID funds no longer being available and budget deficits are such that countries, governments with large public health care systems are constraining then how much is being allocated to the health care systems. We see this in particular in the U.K., Japan. There are other markets where we see constraints. In China, it's kind of a continuation of what we've seen over the last year or 2, there is significant pressure on pricing with BPP and other mechanisms to control, price anticorruption efforts continue, albeit less intense than it was, that does slow the rate of tenders.

And of course, there's a significant increase in domestic competition that we face. And so in international markets, you see there are places where there is greater constraint, greater challenges. For us, in those periods, then our focuses are given where utilization is generally OUS, we look for opportunities to support customers to increase utilization so they can support procedure growth. And we will look to expand leasing OUS. Today, it's about 30% to 40% of system placements are leased OUS, which obviously is a lot lower than in the U.S. And so we see a couple of opportunities to operate in that environment, but it has been more challenging.

So Jamie, we heard a lot of those concerns or headwinds on the Q2 call, give us -- you just got -- outside the U.S. You just got a CE Mark approval for da Vinci 5 and Japan approval. Can you give us -- are there reasons to be optimistic that the placements, total shipments -- total systems shipped and net placement could start to grow again?

Yes. I won't be that specific. I'd say that we're happy, obviously, to get the clearances. I think the Europe clearance is earlier than we expected. We will do a measured rollout that is kind of our operating way of launching new capital into a market so that we can do the work to engage customers, ensure we have the infrastructure locally to properly support customers, you'll likely see early adopters, innovators, and our larger customers be the first that are interested in looking at da Vinci 5 and they have to do, obviously, the economic analysis in terms of acquisition of those systems.

And so I think those are the customers you'll see interested in that measured rollout period that will -- that's go on for -- that will occur for several quarters. I think that Da Vinci 5 is an opportunity for us. Generally, what we've seen in the past is the U.S. adopts the latest tech quicker pace than OUS, again, because of cost sensitivities and relatively lower reimbursement, but obviously, we're excited to have it launch in those marketplaces, and we think there's an opportunity for us over time.

May we transition back to the U.S., the full launch of dV5 is just starting anything -- you talked about Jamie trade-ins going up over time. Any other implications of the full launch of dV5 that we should be thinking about? Net placements, procedures, what else could the full launch of dV5 mean for your business besides just trade-ins going up?

Yes. I think net placements largely in a mature market like the U.S. is still driven by procedure growth, meaning the expansion of the installed base will follow procedure growth. As we said, we have the opportunity to expand trade-ins progressively. I'd say there's 3 buckets of customers broadly in terms of evaluating trade-ins. There's a small subset that want to do a sleep swap. They want to actually their entire installed base for their IDN to be da Vinci 5. There's middle ground where customers will look to do selective trade-ins from Xi to dV5 mostly for inpatient program specific.

And then there are those customers that are still evaluating and waiting, and they will take their time to see what others do. See what happens in the competitive landscape and evaluate directly the economics for them given their programming characteristics. Over time, beyond trade-ins, you have the opportunity to build evidence and force feedback, particularly if that gets to broad supply and case insights, both individually and as they work together. And I think that gives us some opportunities to create value for our customers.

That's helpful. So you talked about procedures driving placements. So the U.S. -- international procedure has been very strong. U.S. has been a little bit lower, primarily because of the headwind from bariatric procedures went from a tailwind a few years ago to a headwind now. So people can kind of do the math on the net impact. I guess the question is, what are you seeing with regard to bariatric procedures and what are you doing to accelerate adoption of existing procedures and unlock new ones in the U.S.

Yes. Maybe I can take just a quick look back on procedure growth in the first half of '25. I think we were up 17% reported really largely a continuation of the same trends that we've been seeing in the business, both domestically and internationally as well. So in the U.S., benign general surgery. [indiscernible] we mentioned appendectomy kind of growing nicely off a small base, but seeing some benefit from. We've talked about acute care and after-hours procedures, and that's having a little bit of an impact growing over 30% in the U.S. Outside the U.S., geographically, we've called out a handful of markets, India and Korea that have been particularly strong.

Also seeing nice uptick beyond urology. So you think about the progression in the U.S. going back 5 to 10 years and starting to see some early signs of that internationally. As you think about the rest of the year, a couple of things to highlight. So in 2024, we were up 17% as well on da Vinci procedures overall, the first half of the year. I think the comps were 16% to 17%, second half of the year more like 18%. So the comps intensify a little bit for procedures in the second half of the year.

To your question specifically on bariatrics, I think for the 4 periods ending first quarter of '25, we have been describing that kind of down mid-single digits. That was a progression. I think the first time we spoke about it was at one of your events in the summer of '23 going from a place of growing and well above the corporate average. And now we're all the way down kind of down mid-single digits and down high single digits in the second quarter of '25. So we haven't seen really a meaningful change in trajectory there. And I think that wide range of outcomes, again, we're seeing market data that it's lagged, but we see market data that suggests the market is down more like 20% to 30%. So still expecting a wide range of outcomes in bariatrics. And so it's why we continue to include that as a contributor in our procedure growth guidance for the year, even though it's only about a little over 4% of domestic da Vinci procedures overall.

So what about the new procedures, Dave? We see the JPMorgan slide you put up every year, addressable. I'm going by memory, 7 or so or 7 million procedures a year, addressable 2021. What are you doing to kind of address -- unlock the potential procedures?

Yes, there -- so there's kind of 2 ways, I think, to think about it. Some are accessing procedures that we understand and have capability of today. And so that's through kind of market access and commercial efforts and maybe some work to get clearances if we don't have that type of clearance in a given market, it may be work with agencies and generally, their publicly funded health care systems and so to make sure they understand the value of da Vinci just getting the right products into the market, that sort of thing. So it's those activities that help us grow into that '22. The other piece of the puzzle I that you kind of mentioned are newer procedures. And so things that we haven't really talked about at any scale cardiac is one of those. We're kind of reinvesting into that business, if you will, because we think it's important.

We have nipple-sparing mastectomy work that's ongoing in several countries around the world, and we're working through the regulatory pathway and clearance here in the U.S. And so although generally smaller TAMs, right? They're of high-value procedures for the patient, for the institution. And I think you generally have higher reimbursement. And so those will be, we think, important procedures to add to the armamentarium or the potential for customers to execute against.

That's helpful. Let me ask about -- I mean, obviously remanufactured instruments are still a topic among investors. You know that. Any additional color you can provide incremental to what you said in the Q2 call, about how you can address that. And we know that in 2020, you extended the use of some of your instruments, you talked about the financial impact that would have had a 7%, Jamie, INA impact. You said at the time if all the instruments had, had at the year before. Are you thinking -- is that one way you can mitigate the impact ore are your thinking about doing that again?

Yes. So I do want to ground the beginning part of the conversation. You're exactly right, Larry. So customers have choices, right? And one of the choices here will be how they acquire instruments to service their robotic program. That can be from Intuitive or perhaps a third-party manufacturer whoever provides the most value is likely to win the business, if you will. And so I think value, that is the key part here. Of course, price is a piece of that puzzle. But so is safety, efficiency, supply continuity, general support, all of those items. And so as those 2 solutions are presented to a customer, I feel really good about where we are today.

In terms of earning the business because of the value we provide. That being said, to your point about EUP, there is an opportunity for us to also bring additional value through innovation. To get to the extended use program, took quite a bit of innovation, the kind of compilation of multiple engineering changes. And the same is going to hold true in the future.

We're currently investing in programs that will add more capability, more innovation to our base instrument set that we think, again, will extend and improve the value that can be realized by customers. And so and extended uses are potentially one area that can be improved upon and delivered to the market. There are other areas too that we will show you and talk more about as they get closer.

The extended use program, I apologize. That's our acronym.

I just -- I mean, I don't know if you can answer it, but how close are we to seeing kind of another one of those like we saw in 2020.

Yes, I don't think I would comment on specific time lines at this point.

Okay. But certainly something you're pursuing?

We have multiple avenues absolutely that we, again, think can bring more value.

I mean big picture, my guess is you think that this is kind of an overblown concern that investors have. Correct me if I'm wrong. But do you agree with that? Is this something you're not -- how concerned are you about remanufactured instruments, I guess?

Yes. What I would say is they have remanufactured instruments are harder than they look. And so it is not taking an instrument back kind of cleaning up a little bit and maybe tightening a few cables and delivering it back. There is more to it than in terms of providing a safe and effective instrument. And so it -- to do that really, really well is hard. That's what I want us to focus on and to make sure that at the end of the day, a patient who is undergoing a procedure, the very first time an instrument is used on that patient to the very last time at the end of its life that is used on a patient they have the same opportunity to enjoy a safe and effective procedure. And so that is harder than it sounds to do.

Okay. All right. That's helpful. I guess I've got to ask 1 follow-up. So it's monopolar scissor, for example, if you -- why is that hard to repurpose remanufacture?

Yes. It actually can be extended to other instruments, too. But broadly, there are things that you can see, right? So if you were to look at one of our instruments, it's got a bunch of mechanical components and cables and you can look at it under a microscope and try to make it, looks pretty good. It looks like new. And then there are things that are harder to understand and see and test the integrity of plastics, the actual integrity of cables, the electrical safety of an instrument whether or not an instrument can be properly cleaned and sterilized and have the right residual protein burden afterwards. That is not easy to assess by a hospital by a biomedical department even by engineering teams because it is just very complex. And that's what I mean about it being hard.

Okay. Thank you for that. So 2026. Puts and takes, headwinds, tailwinds, just considerations. I know, Jamie, you've talked about the tariff impact. So what are some of the things we should consider for next year, please?

Yes. So we'd expect to be in broad launch for dV5 in multiple markets by that point. That obviously comes with it, again, the opportunity for an expansion in the number of trades. Important to know that for those trades that are in conjunction with a purchase transaction, we expect to trade -- associated trading credits relative to recent years to be quite a bit higher just given where we are in terms of the da Vinci 5 launch cycle. We will be in broad -- we expect to be in broad supply for force feedback instruments that allows us to then really serve those customers that want to expand usage of those.

Furthering the capability and evidence generation of force feedback and case insights individually and how they operate together and then I think we have opportunities for SP and ION to continue to be growth drivers for us.

I would just add, obviously, the tariff situation is dynamic. What we said on the Q2 call was that we expected the impact for this year to be 100 basis points, which progressively increases across the year was 0 in Q1, 60 basis points in Q2. So the 100 basis point guidance for the year just as it continues to climb over the rest of the year as a function of how tariffs roll through inventory into COGS. So at the Q2 conditions, then you'd expect the tariff impact next year to be higher. In terms of mitigation of tariffs, I think the first thing for us is to wait for that environment to stabilize to have some uncertainty as to where they sit that gives you the opportunity then to plan.

And we have kind of 3 areas we'd look leveraging our own manufacturing footprint that has been expanding internationally and regionally over time. We leverage our suppliers and where they are located. And then we'd look for maybe as a potential item to the extent that tariffs are durable and of significance. Of course, we have the opportunity for a price increase. That wouldn't be our first move, and we'd look to do that in ways that are aligned with the value our customers receive, but of course, you can mitigate the impact of tariffs through a price increase too.

So Jamie, the trade-in credits? What are the -- what's the impact of that on margins or revenue that you talked about?

Well, I maybe reference it this way. If you look back to the last couple of years where it was more Xi's being traded in for Xi's, those trade-in credits are, let's say, roughly $200,000 to $250,000 and Xi to da Vinci 5 in the earlier periods have roughly double-ish that. And so that has a consequential impact therefore on system ASP for those transactions and the gross margin.

So it's a headwind. I think you're saying.

Well, you got to net out increasing trade-ins and what impact that may be to revenue growth, however you model that and to the extent that you model that, you should model it with higher trading credits, that's a lower gross margin percentage. So that obviously has an offsetting net to model through.

So can you keep gross margins flat year-over-year in '26?

Yes, we're not going to describe that at this point, just given the uncertainty on tariffs. I think there's a couple of things to consider. We'll have a higher da Vinci 5 and ION mix likely next year. Those tend to be -- those are dilutive right now, although we are working on cost reductions for those you have the potential impact of higher tariffs as described and what the impact might be on higher trades in terms of the trade credit. If I look at gross margin in the midterm, what we've said previously is we have an aspiration over that period, 3 to 5 years to be at 70%.

That's ex tariffs. So because that can move around. Getting to that number requires 3 things: we have to leverage the fixed costs that we've put in place, particularly through the recent CapEx. We have to execute on planned product cost reductions for da Vinci 5 and ION and deliver on routine cost downs.

So you're going to be at about 66% this year, what's the guidance? For this year, '25.

I think that's right.

Yes. So 70 minus 1, 69, it's still a pretty meaningful improvement over the next 3 to 5 years. Do you see what I'm saying? To get the 70 -- minus the 100 bps tariffs maybe a little bit higher. But it still suggests an improvement from where you are over the next 3 to 5 years.

I wouldn't do 70 minus 1 per se because, obviously, again, it ramps into next year subject to mitigations. But certainly, we are aspiring to have gross margin increase over time. Yes. And you see that reflected in, for example, spending over $1 billion in CapEx in '23 and '24. CapEx guidance for this year has come down. So we're bringing our CapEx down, which obviously impacts depreciation and gross margin and we'll look to leverage that -- those fixed costs.

Dave, I want to try to sneak 1 more big picture question because you talked about new platforms earlier upfront, you have the Intuitive Venture fund, you've invested in some other areas outside of your current core platforms. Could -- how are you thinking about entering new areas outside of the da Vinci SP and ION?

Yes. I don't necessarily say that the venture arm is the only way in which we do that. And so the new platforms we referenced earlier, it really has to do fundamentally with the problem to be solved. And so we run a process internally where we can this the kind of the broad spectrum of health care looking where we think our capabilities where there may be novel ways in which to treat patients that lead to differentiated outcomes. And so that can be done through investments in a venture arm. It can be done through some investments in our BD arm or it can be done through investments internally, where we kind of help or motivate our future forward team and where they are planning their seats.

And so we have an opportunity, I think, to look across a variety of areas but it really is about what are we trying to do? What is it about a given health care state and disease that we think we uniquely can address and do something better than the status quo. And so that will -- that may be that a platform that can be delivered through like an energy platform for lung cancer that can be delivered through ION provides a differentiated result for a patient which you may or may not consider a platform, but in a way it is or it may be almost a new robotic system that comes out in order to address a different need in health care. And so I think there's a spectrum there that we're pretty excited about.

That's helpful. So even though it says we're out of time, I wanted to give you the -- make an opportunity to make closing remarks. Don't worry we can go a few minutes over. Really appreciate you guys being here. Especially Dave in the new CEO role. So please, any closing remarks?

It's really just, I think, summarizing what we talked about that really deeply believe that the opportunity for this robotic technology enabled ecosystem is large in that the opportunity to improve outcomes, to reduce variation, to bring this type of technology more deeply in the U.S. and outside the U.S. is significant. And so I'm excited about our leadership team. I love where we are with our engineering groups and our ability to attract and retain the very best talent in the world. And I wish sometimes that we could show you what's under the hood, but excited about what's going to happen in the future, both with our ecosystem today and our ecosystem of tomorrow.

All right. Thank you so much.