Q3 2023 Intuitive Surgical Inc Earnings Call

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Speaker 1: Thank you everyone for standing by. Welcome to the Intuitive Surgical Q3.

Okay.

Thank you everyone for standing by and welcome to the intuitive surgical Q3.

Speaker 1: 2023 earnings release. Now at this time, all participants are on a listen-only mode. Later, we will conduct a question and answer session. If you wish to place yourself in queue for questions at any time, please press one then zero on your telephone keypad. To remove yourself from that queue, you may repeat the one then zero command.

2023 earnings release and at this time all participants are in a listen only mode. Later, we will conduct a question and answer session. If you wish to place yourself in queue for questions at any time. Please press. One then zero on your telephone keypad to remove yourself from that Q, you may repeat the London Zero command.

Speaker 1: I will now turn the conference over to your host, head of investor relations, intuitive surgical, Brian King. Please go ahead.

I will now turn the conference over to your host head of Investor Relations intuitive surgical Bryan King. Please go ahead.

Speaker 1: Good afternoon and welcome to Intuitive's third quarter earnings conference.

Good afternoon, and welcome to intuitive third quarter earnings Conference call with me today, we have Gary <unk> our CEO.

Speaker 1: With me today we have Gary Gutzert, our CEO .

Speaker 1: Jamie Samath, our CFO , and Dr. Miriam Kuret, our Chief Medical Officer.

Jamie Smith, our CFO and Dr. Mary I'm, correct, our Chief Medical Officer.

Speaker 1: Before we begin, I would like to inform you that comments mentioned on today's call may be deemed to contain forward-looking states.

Before we begin I would like to inform you that comments mentioned on todays call maybe deemed to contain forward looking statements.

Speaker 1: Actual results may differ materially from those expressed or implied as a result of certain risks and in certain situations.

Actual results may differ materially from those expressed or implied as a result of certain risks and uncertainties.

Speaker 1: These risks and uncertainties are described in detail in our securities and exchange commission filings, including our most recent Form 10-K filed on February 10, 2023, and Form 10-Q filed in February on theise of Christopher

These risks and uncertainties are described in detail in our Securities and Exchange Commission filings, including our most recent Form 10-K filed on February 10 2023.

And Form 10-Q filed on July 24, 2023.

Speaker 1: Our SEC filings can be found through our website or at the SEC's website.

Our SEC filings can be found through our website or at the Sec's website.

Speaker 1: investors are cautioned not to place undue reliance on such forward-looking statements.

Investors are cautioned not to place undue reliance on such forward looking statements.

Speaker 1: Please note that this conference call will be available for audio replay on our website at intuitive.com on the event section under our investor relations page.

Please note that this conference call will be available for audio replay on our website at intuitive dot com on the events section under our Investor Relations page.

Speaker 1: Today's press release and supplementary financial data tables have been posted to our website.

Today's press release, and supplementary financial data tables have been posted to our website.

Speaker 1: Today's format will consist of providing you with highlights of our third quarter results.

Today's format will consist of providing you with highlights of our third quarter results as described in our press release announced earlier today.

Speaker 1: described in our press release announced earlier today, followed by a question and answer session. Gary will present the quarter's business and operational highlights. Jamie will provide review….

Load by a question and answer session.

Gary will present, the quarter's business and operational highlights.

Jamie will provide a review of our financial results.

Maryann will present clinical highlights.

Speaker 1: And I will discuss procedure details and provide our updated financial outlook for 2023. And finally, we will host a question and answer session.

I will discuss procedure details and provide our updated financial outlook for 2023.

And finally, we will host a question and answer session.

With that I will turn it over to Gary.

Speaker 2: Thank you for joining us today. In this third quarter, we saw strong growth in procedures performed by our customers, solid new system placements, and healthy growth in utilization amid market conditions that remain largely consistent with Q2.

Thank you for joining us today.

Third quarter, we saw strong growth in procedures performed by our customers solid new system placements and healthy growth in utilization amid market conditions that remain largely consistent with Q2.

Speaker 2: Our new platforms continue to gain ground with ion installs and procedure growth continuing, SP installs and procedure growth modestly accelerating, and healthy growth and customer use of our digital tool.

Our new platforms continue to gain ground with ion installs and procedure growth continuing S. P installs and procedure growth modestly accelerating and healthy growth in customer use of our digital tools.

Speaker 2: Turning first to procedures, da Vinci procedure growth in the quarter was 19%.

Turning first to procedures da Vinci procedure growth in the quarter was 19%.

Speaker 2: Areas of strength included general surgery for benign conditions, particularly in the United States, and broad regional growth, with Germany, Japan, the UK, and India as standouts.

Areas of strength include a general surgery for benign conditions, particularly in the United States and broad regional growth with Germany, Japan, and the U K and India standouts.

Speaker 2: China procedure growth was in line with our global average in the quarter.

China procedure growth was in line with our global average in the quarter.

Speaker 2: US general surgery procedure growth was led by cholecystectomy and colon resection.

U S General surgery procedure growth was led by cholecystectomy and colon resection.

Speaker 2: Ion procedures showed continued strength with 125% growth in the quarter.

Procedures showed continued strength with 125% growth in the quarter.

Speaker 2: as P procedure growth accelerated with 54% global growth in the quarter driven by strength in the United States

As P procedure growth accelerated with 54% global growth in the quarter driven by strength in the United States.

Speaker 2: On the capital front, we placed 312 systems in Q3, compared with 305 systems in Q3 of last year.

On the capital front, we placed 312 systems in Q3, compared with 305 systems in Q3 of last year.

Speaker 2: Our clinical install base now stands at 8,127 multi-port DaVinci systems, 490 ion systems, and a hundred and fifty-five ion systems.

Our clinical installed base now stands at 8127 Multiport da Vinci systems 490 ion systems right now.

Hundred and 58 single Port da Vinci systems overall, our capital placement trends reflect demand for additional capacity in multiport.

Speaker 2: Overall, our capital placement trends reflect demand for additional capacity in multiport, continued greenfield interest in our ion system, and a modest...

Continued greenfield interest and our ion system.

Modest acceleration for placements of S. P.

Speaker 2: The proportion of leases for new capital placements accelerated in the quarter, with the US using the highest leasing rate.

The proportion of leases for new capital placements accelerated in the quarter with the U S using the highest leasing rates.

Speaker 2: We think the acceleration in leasing reflects the convenience of our leasing program and the maturity of our generation four multiport system.

We think the acceleration in leasing reflects the convenience of our leasing program and the maturity of our generation four multiport systems.

Speaker 2: While leasing reduces in-quarter revenue relative to capital purchase, total economics are healthy for our customer and for us.

Well leasing reduces in quarter revenue relative to capital purchase total economics are healthy for our customer and for us.

Speaker 2: Leasing allows our customers to build clinical capacity when and where they need it, and provides predefined pathways for new technology as it enters the market.

Leasing allows our customers to build clinical capacity, when and where they need it and provides predefined pathways for our new technology as it enters the market.

Speaker 2: The growth rate in system utilization, defined as procedures per installed system per quarter, was 6%, down from 9% last quarter, while still above historical growth rate.

The growth rate in system utilization defined as procedures per installed system per quarter.

Was 6% down from 9% last quarter, while still above historical growth rates.

Speaker 2: Strong procedure growth and an increased proportion of use in benign indications shortens average procedure times and eats the schedule

Strong procedure growth and an increased proportion of Houston benign indications shortens average procedure times and nieces scheduling.

Speaker 2: Higher utilization increases our customers' return on invested capital and is economically healthy for us.

Higher utilization increases our customers' return on invested capital and is economically healthy for us.

Speaker 2: Turning to our finances, our revenue grew 12% in the quarter, and our operating expenses were within our spend guide.

Turning to our finances are revenue grew 12% in the quarter and our operating expenses were within our spend guidance.

Speaker 2: Our spending reflects continued investments in research and development to support the growth of our platforms and digital tools, expansion of our manufacturing and commercial footprints and capital amortization.

Our spending reflects continued investments in research and development to support the growth of our platforms and digital tools.

Expansion of our manufacturing and commercial footprints in capital amortization.

Speaker 2: Looking at the broader picture, our fourth generation DaVinci platform is operating at global scale and embedded in a robust ecosystem of instruments, accessories, training and services. Remember acceptance of our eyes.

Looking at the broader picture, our fourth generation da Vinci platform is operating at global scale and embedded in a robust ecosystem of instruments accessories training and services custom.

Customer acceptance of our ion platform is strong.

Speaker 2: acceptance of our DaVinci SP is accelerating with new indications in the pipeline, and our digital tools are building momentum through their early stages.

<unk> of our da Vinci SP is accelerating with new indications in the pipeline.

Our digital tools are building momentum through their early stages.

Speaker 2: We welcome Dr. Miriam Currett, Intuitive's Chief Medical Officer, to this call and she will take us through our clinical perspective and some of the work we're doing to expand education.

We welcome Dr. Miriam correct intuitive Chief Medical Officer to this call and she will take us through our clinical perspective, and some of the work we're doing to expand indications.

Speaker 2: Our operations teams did a fantastic job supporting our customers through the supply chain shocks of the past several years.

Our operations teams did a fantastic job supporting our customers through the supply chain shocks of the past several years.

Speaker 2: This unavoidable effort diverted resources away from product cost reduction and as supply chain stresses ease, we're now pivoting our attention to once again lowering our product cost.

There's unavoidable effort devoted resources away from product cost reduction and a supply chain stresses ease we're now pivoting our attention to once again lowering our product costs.

Areas of opportunity include our IR program or S. P accessories portfolio, and our multiport accessories and advanced instrument lines.

Speaker 2: our SP accessories portfolio, and our multi-port accessories and advanced also 1975 innovation are

Speaker 2: Given the timing of facilities completion, manufacturing efficiency improvements for new products and other complex projects, we expect variability in gross margin over the coming quarters as we work through these programs.

Given the timing of facilities completion manufacturing efficiency improvements for new products and other complex projects, we expect variability in gross margin over the coming quarters as we work through these programs.

Speaker 2: Turning to our digital offerings, computer use of our digital tools and channels is growing nicely.

Turning to our digital offerings.

Digital tools and channels is growing nicely.

Speaker 2: Our SimNow surgical simulators are installed at the majority of our customer sites, and subscription renewal rates are outstanding.

Our Sim now surgical simulators are installed at the majority of our customer sites and subscription renewal rates are outstanding.

Speaker 2: Routine use of my Intuitive app by over 10,000 DaVinci surgeons grew by 140% year over year.

Teen use of my intuitive app by over 10000 da Vinci Surgeons grew by 140% year over year.

Speaker 2: and is receiving strong net promoter scores that continue improving over time.

And is receiving strong net promoter scores that continue improving over time.

Speaker 2: Our intuitive hub media management and telepresence system installations grew 58% in the quarter, and hub-captured surgical cases grew 60% in the quarter, and the hub-captured surgical

Our intuitive hub media management, and telepresence system installations grew 58% in the quarter.

And hub captured surgical cases grew 61%.

Speaker 2: In closing, core demand is healthy. We're focused on extending our ecosystem internationally and driving our product costs down, particularly

In closing core demand is healthy we're focused on extending our ecosystem internationally and driving our product costs down, particularly for our newer platforms. We are dogged pursuit of significant long term opportunity to improve the quadruple aim using our integrated ecosystem powered by analytics and we're pacing our investments to catalyze that.

Speaker 2: We are dogged in pursuit of significant long-term opportunity to improve the quadruple aim using our integrated ecosystem powered by analytics and we are pacing our investments to catalyze that opportunity.

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Speaker 2: I'll now turn the time over to Jamie who will take you through our finances in greater detail.

I'll now turn the time over to Jamie who will take you through our finances in greater detail.

Speaker 3: Good afternoon. I will describe the highlights of our performance on a non-GAAP or pro forma-based-

Good afternoon, I'll describe the highlights of our performance on a non-GAAP or pro forma basis.

Speaker 3: I will also summarize our GAP performance later in my prepared remarks.

Also summarize our GAAP performance later in my prepared remarks a.

Speaker 3: A reconciliation between our pro forma and GAAP results is posted on our website.

A reconciliation between our pro forma and GAAP results is posted on our website.

Speaker 3: Core metrics continue to be healthy in Q3, with global procedure growth of 19%, and an increase in the installed base of DaVinci systems of 13%.

Core metrics continued to be healthy in Q3 with global procedure growth of 19% and increasing the installed base of da Vinci systems of 13% and.

Speaker 3: and an increase in average system utilization of 6%.

And an increase in average system utilization of 6%.

Speaker 3: Our key financial indicators were also healthy. Third quarter recurring revenue grew 21%.

Our key financial indicators were also healthy.

So I'd call our recurring revenue grew 21%.

Speaker 3: Proforma operating margin was 36% and Proforma earnings per share increased 23% over last year.

Pro forma operating margin was 36% and pro forma earnings per share increased 23% over last year.

Speaker 3: procedures in the US grew 17%, reflecting a lower benefit from patient backlogs as compared to the first half of 2023.

Procedures in the U S grew 17%, reflecting a lower benefit from patient backlogs as compared to the first half of 2023.

Speaker 3: Last quarter, we highlighted that our growth rate in bariatric procedures in the US had slowed given patient interest in weight loss drugs.

Last quarter, we highlighted our growth rate in bariatrics procedures in the U S had slowed given patient interest in weight loss drugs.

Speaker 3: Q3, we continue to see double digit growth, albeit a modestly lower growth rate as compared to Q2.

In Q3, we continued to see double digit growth, albeit at a modestly lower growth rate as compared to Q2.

Speaker 3: Bariatrics procedures represent between 4 and 5% of total global procedures

Bariatrics procedures represent between four 5% of total global procedures.

Speaker 3: Based on third party data, we believe we continue to gain market share in the bariatric surgical practicoe

Based on third party.

We believe we continue to gain market share in the bariatric surgical segment.

Speaker 3: OUS procedures grew 24% with relative strength in India, Germany, the UK, and Japan. Procedure growth in China was...

O U S procedures grew 24% with relative strength in India, Germany, the UK and Japan.

Procedure growth in China was consistent with our expectations lower than last quarter due to a strong base period, given the recovery from Covid related lockdowns in the year ago quarter.

Speaker 3: lower than last quarter due to a strong base period given a recovery from COVID-related lockdowns in the year ago quarter.

Speaker 3: Consistent with recent trends, growth in non-neurology procedures outside of the United States was accretive, growing at approximately 31%.

Consistent with recent trends growth in non urology procedures outside of the United States was accretive growing approximately 31%.

Speaker 3: Within the larger cancer categories, our fastest growing OUS procedure is colon resection, a high value procedure led by adoption in Japan, Germany and the UK.

Within the larger cancer categories, our fastest growing O U S procedure is colon resection of high value procedure led by adoption in Japan, Germany, and the U K.

Speaker 3: with respect to capital performance, we placed 312 systems in the third quarter as compared to 305 systems last year.

With respect to capital performance, we placed 312 systems in the third quarter as compared to 305 systems last year.

Speaker 3: As a reminder, system placements in Q3 of last year benefited from a delay in the shipment of approximately 15 systems from June into July as a result of supply chain challenges we encountered in June of last year.

As a reminder system placements in Q3 of last year benefited from a delay in the shipment of approximately 15 systems from June into July as a result of supply chain challenges, we encountered in June of last year.

Speaker 3: Late in Q3, we started to see delays in tender processes in China, primarily as a result of anti-corruption efforts by the central government.

Late in Q3, we started to see delays in tender processes in China, primarily as a result of anti corruption efforts by the central government, resulting in lower system placements in China in Q3.

Speaker 3: resulting in lower system placements in China in Q3.

Speaker 3: We expect tender delays to continue to impact system placements in China in Q4.

We expect tender delays to continue to impact system placements in China in Q4.

Speaker 3: Q3 revenue is $1.7 billion, an increase of 12% year over year.

Q3 revenue was one $7 billion, an increase of 12% year over year.

Speaker 3: revenue growth was driven by procedure growth partially offset by an 11 percent decline in systems revenue due to the significant increase in the mix of operating lease arrangements.

Q3 revenue growth was driven by procedure growth, partially offset by an 11% decline in systems revenue due to the significant increase in the mix of operating lease arrangements.

Speaker 3: On a constant currency basis, third quarter revenue growth was also 12%.

On a constant currency basis third quarter revenue growth was also 12%.

Speaker 3: Given recent movements in exchange rates, at current rates, the US dollar is approximately 3% stronger on a revenue weighted basis as compared to the average rates realized in Q3.

Given recent movements in exchange rates at current rates. The U S. Dollar is approximately 3% stronger on a revenue weighted basis as compared to the average rates realized in Q3.

Speaker 3: Revenue denominated in non-USD currencies represent approximately 24% of total revenue. fictional revenues

Revenue denominated in non USD currencies represent approximately 24% of total revenue.

Additional revenue statistics and trends are as follows.

Speaker 3: US we placed 159 systems in the third quarter compared to 175 systems placed last year.

In the U S. We placed 159 systems in the third quarter compared to 175 systems placed last year.

Speaker 3: Outside the US, we placed 153 systems in Q3, compared with 130 systems last year.

Outside the U S. We placed 153 systems in Q3, compared with 130 systems last year.

Current quarter system placements included 60 into Europe.

Speaker 3: included 60 into Europe , 32 into Japan, and 10 into China.

Turning to Japan, and 10 into China, compared with 54 into Europe, So two into Japan, and 15 into China in Q3 of last year.

Speaker 3: paired with 54 into Europe , 32 into Japan, and 15 into China in Q3 of last year.

Speaker 3: 62 of the 312 systems placed in Q3 were trade in transaction.

62 of the 312 systems placed in Q3 with trade in transactions compared to 71 trading transactions in the third quarter of last year.

Speaker 3: compared to 71 trading transactions in the third quarter of last year.

Speaker 3: As of the end of Q3, there are approximately 440 SIs remaining in the installed base, of which 85 are in the US.

As of the end of Q3, there are approximately 440 <unk> remaining in the installed base of which 85 are in the U S.

Speaker 3: operating leases represented 52 percent of third quarter placements compared with 37.

Operating leases represented 52% of third quarter placements compared with 37% last year.

Speaker 3: US, 70% of system placements in Q3 were under operating lease arrangements compared to 48% of system placements in Q3.

In the U S 70% of system placements in Q3 were under operating lease arrangements compared to 48% last year.

Speaker 3: Of the 163 operating lease placements in the quarter, 93 were usage based arrangements.

Of the 163 operating lease placements in the quarter ninety-three or usage based arrangements and increased compared to 54 last year, reflecting customer preferences, particularly in the U S.

Speaker 3: an increase compared to 54 last year, reflecting customer preferences, particularly in the US.

Speaker 3: While leasing may fluctuate from quarter to quarter, we continue to expect that the proportion of placements under operating leases will increase over time.

While leasing may fluctuate from quarter to quarter, we continue to expect that the proportion of placements under operating leases will increase over time.

Speaker 3: The HU3 system average selling prices were $1.4 million.

Q3 system average selling prices were $1 $4 million as compared to 1.3 hundred $9 million last quarter and $1 $5 million last year.

Speaker 3: compared to $1.39 million last quarter and $1.5 million last year.

Speaker 3: year-over-year decrease in system ASPs was primarily driven by lower pricing and geographical...

The year over year decrease in system ASP was.

It was primarily driven by lower pricing and geographical mix.

Speaker 3: We recognize $17 million of lease buyout revenue in the third quarter, compared with $12 million last quarter and $17 million in Q3 of 2022.

We recognized $17 million of lease buyout revenue in the third quarter compared with $12 million last quarter and $17 million in Q3 of 2022.

Speaker 3: DaVinci instrument and accessory revenue per procedure approximately $1,830.

Da Vinci instrument and accessory revenue per procedure.

<unk> $1830.

Speaker 3: paired with approximately $1,840 last quarter and $1,800 last year.

Compared with approximately $1840 last quarter and <unk> hundred dollars last year.

Speaker 3: On a sequential basis, lower INA per procedure reflected the impact of customer ordering patterns.

On a sequential basis lower iron eight per procedure reflected the impact of customer ordering patterns.

Speaker 3: partially offset by a full quarter impact from the INA price increase that went into effect halfway through last quarter. Turning to our ion platform, in Q3 we placed 55 ion systems.

Surely offset by a full quarter impact from the eye and a price increase that went into effect halfway through last quarter.

Turning to our ion platform in Q3, we placed 55 ion systems as compared to 50 in Q3 of 2022.

Speaker 3: third-quarter ion procedures of approximately 14,500 increased 125% as compared to last year.

Third quarter I am procedures of approximately 14500 increased 125% as compared to last year.

Speaker 3: 16 of the systems placed in the third quarter were SP systems.

16 of the systems placed in the third quarter were SP systems 12 into the U S and four into Korea.

Speaker 3: 12 into the US and four into Korea. SP procedures group

S. P procedures grew by 54% and average system utilization growth continued to accelerate growing 21% compared to Q3 of last year.

Speaker 3: average system utilization growth continued to accelerate, growing 21 percent compared to Q3 of last year.

Moving on to the rest of the P&L.

Speaker 3: Pro forma gross margin for the third quarter was 68.8%.

Pro forma gross margin for the third quarter was 68, 8% compared with 68, 5% last quarter and 69, 8% last year.

Speaker 3: pair with 68.5% last quarter and 69.8% last year.

Speaker 3: As a reminder, pro forma gross margin in Q3 of last year included a one-time benefit of approximately 50 basis points relating to the favorable conclusion of certain indirect tax matters.

As a reminder, pro forma gross margin in Q3 of last year included a one time benefit of approximately 50 basis points relating to the favorable conclusion of certain indirect tax matters.

Speaker 3: The remaining year-over-year difference in pro forma gross margin.

The remaining year over year difference in pro forma gross margin is primarily due to a higher mix of eye on revenue, which currently carries significantly lower margins as compared to the da Vinci business and lower system Asps.

Speaker 3: primarily due to a higher mix of ion revenue, which currently carries significantly lower margins as compared to the DaVinci business, and lower system ASP partially offset by the INA price.

Partially offset by the eye and a price increase.

Speaker 3: Inventory increased to approximately 180 days in Q3, higher than historical averages driven by two factors.

Inventory increased to approximately 180 days in Q3 higher than historical averages driven by two factors.

Speaker 3: First, we have modestly increased our inventory targets given supply chain stresses over the last couple of years.

First we have modestly increased our inventory targets given supply chain stresses over the last couple of years and secondly, given significant capital investments, we are making in manufacturing facilities and capacity. We are building bridge inventory to facilitate an elevated number of line transfer.

Speaker 3: And secondly, given significant capital investments we are making in manufacturing facilities in capacity.

Speaker 3: we are building bridge inventory to facilitate an elevated number of line transfers to new locations.

As to new locations.

Speaker 3: As a result, we expect higher levels of inventory relative to historical norms into 2025.

As a result, we expect higher levels of inventory relative to historical norms into 2025.

Speaker 3: Third quarter pro forma operating expenses increased 8% year over year, driven primarily by higher headcount related costs.

Third quarter pro forma operating expenses increased 8% year over year, driven primarily by higher head count related costs.

Speaker 3: During the quarter, our headcount increased by 489 employees.

During the quarter, our head count increased by 489 employees of which approximately 275 with for our manufacturing operations in support of revenue growth.

Speaker 3: of which approximately 275 were for our manufacturing operations in support of revenue.

Speaker 3: SG&A expenses as a percentage of revenue were lowered by 100 basis points as compared to Q3 of last year and largely reflected planned leverage in our enabling function.

SG&A expenses as a percentage of revenue were lower by 100 basis points as compared to Q3 of last year and largely reflected planned leverage in our enabling functions.

Speaker 3: pro forma other income in Q3 was $58 million compared to $42 million last quarter.

Pro forma other income in Q3 was $58 million compared to $42 million last quarter and $7 million last year.

Speaker 3: Other income primarily consists of interest income.

Other income primarily consists of interest income and the increase as compared to last quarter was driven by higher interest rates and higher average cash and investment balances.

Speaker 3: increase as compared to last quarter was driven by higher interest rates and higher average cash and investment balances.

Speaker 3: pro forma other incoming Q3 of last year also reflected higher than typical foreign exchange losses resulting from re-measurement of the balance sheet as a result of the strengthening US dollar.

Pro forma other income in Q3 of last year also reflected higher than typical foreign exchange losses, resulting from re measurement of the balance sheet as a result of the strengthening U S. Dollar.

Speaker 3: Capital expenditures in Q3 were $256 million, primarily comprised of infrastructure investments.

Capital expenditures in Q3 with $256 million, primarily comprised of infrastructure and investments to expand our facilities footprint and increase manufacturing capacity.

Speaker 3: expand our facilities footprint and increase manufacturing capacity.

Speaker 3: our pro forma effective tax rate for the third quarter was 22.5% consistent with our expectations.

Our pro forma effective tax rate for the third quarter was 22, 5% consistent with our expectations.

Speaker 3: third quarter pro forma net income is $524 million or $1.46 per share compared with $429 million or $1.19 per share for Q3 of last year.

Third quarter pro forma net income was $524 million or $1 46 per share compared with $429 million or $1 19 per share for Q3 of last year.

I will now summarize our GAAP results.

Speaker 3: gap net income was $416 million or $1.16 per share for the third quarter of 2023.

GAAP net income was $416 million or $1 16 per share for the third quarter of 2023.

Speaker 3: paired with GAAP net income of $324 million, for 90 cents per share, to the third quarter of 2022.

Compared with GAAP net income of $324 million or <unk> 19 per share for the third quarter of 2022.

Speaker 3: The adjustments between pro forma and GAAP net income are outlined and quantified on our website and include excess tax benefits associated with employee stock awards, employee stock based compensation, amortization of intangible...

The adjustments between pro forma and GAAP net income are outlined and quantified on our website and include excess tax benefits associated with employee stock Awards.

Employee stock based compensation.

Amortization of intangibles and gains and losses on our strategic investments.

Speaker 3: We ended the quarter with cash and investments of $7.5 billion compared with $7.1 billion last quarter.

We ended the quarter with cash and investments of $7 $5 billion compared with $7 $1 billion last quarter the.

The sequential increase in cash and investments reflected cash from operating activities and proceeds from employee stock exercises, partially offset by capital expenditures.

Speaker 3: cash from operating activities and proceeds from employee stock exercises partially upset by

Speaker 3: And with that, I would like to turn it over to Miriam, who will discuss clinical highlights.

And with that I would like to turn it over to Miriam who will discuss clinical highlights.

Speaker 4: Thank you. Now, turning to the clinical side for our business.

Thank you now.

Now turning to the clinical side for our business.

Speaker 4: Each quarter on these calls, we highlight certain studies that we deem to be notable. However, to gain a more complete understanding of the body of evidence, we encourage all stakeholders to thoroughly review the extensive detail of scientific studies that have been published over the years.

Each quarter on these calls we highlight certain studies that we deem to be notable however.

However, in a more complete understanding of the body of evidence we encourage all stakeholders to thoroughly review the extensive detail of scientific studies that had been published over the years.

Speaker 4: In addition to relaying the results of one of these studies, I'd like to start by describing the status of some important intuitive research projects underway that support our company's beliefs in the potential value of da Vinci systems, specifically our single port system for procedures requiring refined access to tight or difficult to reach anatomical areas.

In addition to a Lady that was also one of the study I'd like to start by describing the status of some important intuitive research projects underway.

What our company's belief in the potential value of da Vinci system.

Typically I think what system.

Please just requiring refined asset type.

So call it two weeks anatomical area.

Speaker 4: In Zoom 2021, Intuitive launched an FDA-approved clinical study focused on complex colorectal procedures, such as low anterior resection or right colectomy, performed using the SP platform.

In June 2021, intuitive launch and FDA approved clinical study focused on complex colorectal procedures.

Oh anterior resection or right colectomy.

One is in the SP platform.

Speaker 4: Currently, enrollment is complete with 60 patients across nine sites in the U.S. and Korea.

Currently enrollment is complete with 60 patients of course nine sites in the U S and Korea.

Speaker 4: Another FDA approved clinical trial of thoracic procedures, including pulmonary lobectomy and thymectomy, performed using SP, completed enrollment in June of this year with 32 subjects enrolled across six centers in the US.

Another FDA approved clinical trial of thoracic procedures, including pulmonary lobectomy and find that to me performed using F. P completed enrollment in June of this year with 32.

Those are costs six centers in the U S.

Speaker 4: We believe that intuitive Singapore technology will enable thoracic surgeons to perform uniportal lobectomy, something that may be difficult using a VATS approach.

We believe that intuitive Singapore technology will enable thoracic surgeons to perform unit point of lobectomy.

Something that may be difficult using a balanced approach.

Speaker 4: Intuitive intent to submit data from these two studies to the FDA after the patient follow-up outlines in the study plan and the data analysis has been completed.

Intuitive intends to submit data from these two studies to the FDA. After the patient follow up outlined in the study plan and the data analysis has been completed.

Speaker 4: Now, I'll turn to a notable study published in the Annals of Surgery this past August . This study was not sponsored by Intuitive.

Now I'll turn to a notable study published in the Annals of surgery. This past August we.

This study was not sponsored by intuitive.

Speaker 4: Dr. Yogita Patel of McMaster University in Canada published early results from the Reval trial in a manuscript titled, "'Robotic Lobectomy is Cost-Effective "'and Provides Comparable Health Utility Scores "'to Video-Assisted Lobectomy.'"

Yes, it will eat up that tell us about maps of University in Canada published early results from the resolve trial in a manuscript titled robotic Lobectomy is cost effective and provide comparable help utility scores to video.

Speaker 4: This study describes results from a multi-center, multinational, blinded, randomized controlled study comparing the DaVinci and VAP approach to pulmonary lobectomy.

Okay.

Well studied describes the results from a multicenter multinational blinded randomized controlled study comparing the da Vinci and basket approach to pulmonary lobectomy.

Speaker 4: It analyzed 164 subjects, 81 in the robotic assisted group and 82 in the batched group. And all robotic assisted lobectomies were performed with a da Vinci multi-port platform.

It analyzed 164 subjects.

81 in the robotic assisted group and 82 in the back Scoop and all robotic assisted lobectomy square performed what they did Vinci multiplex platform.

Speaker 4: Notably, the health utility score was significantly higher in the da Vinci arm at 7 weeks and 12 weeks post procedure, which suggests the quality of life for patients who underwent a da Vinci lobectomy was better than for patients undergoing the BAT procedure.

Notably the help utility score was significantly higher in the da Vinci arm at seven week and 12 week Post Christmas.

With just the quality of life for patients who underwent a da Vinci lobectomy was better than for patients undergoing the bats procedure.

Speaker 4: Interestingly, and related to quality of life outcomes, the authors analyzed the incremental cost-effective ratio, or ICER, for the robotic group relative to that, and reported the robotic group was associated with a gain of approximately $11,000 per quality adjusted life year.

Interestingly and related to quality of life outcome.

Authors analyzed the incremental cost effective ratio or I Sir.

Probiotic group relative to bat and reported the robotic group was associated with a gain of approximately $11000 per quality adjusted life year.

Speaker 4: In addition, the median number of lymph nodes examined and sampled were significantly higher in the da Vinci group.

In addition, the median number of lymph nodes examined and sample were significantly higher in the da Vinci code.

Speaker 4: To summarize, the authors conclude that, quote, early results from the Raval trial suggest that robotic pulmonary lobectomy is a cost-effective intervention which is associated with comparable patient-reported health utility scores when compared to that lobectomy. Then quote.

To summarize the Opex conclude that quote early results from the rebel trials suggest that robotic pulmonary lobectomy is a cost effective intervention, which is associated with comparable patient reported healthy utility scores when compared to that went back to me and well.

Speaker 4: And with that, I would like to turn it over to Brian , who will discuss additional procedure highlights and provide our updated outlook for 2020.

And with that I would like to turn it over to Brian who will.

Scott's additional procedure highlights and provide our updated outlook for 2020.

Thank you Marianne.

Speaker 1: Our overall third quarter procedure growth was 19% year over year, compared to 20% for the third quarter of 2022 and 22% last quarter.

Our overall third quarter procedure growth was 19% year over year compared to 20% for the third quarter of 2022.

And 22% last quarter.

Speaker 1: In the US, third quarter 2023 procedure growth was 17% Euro.

In the U S third quarter 2023 procedure growth was 17% year over year compared to 18% for the third quarter of 2022, and 19% last quarter.

Speaker 1: compared to 18% for the third quarter of 2022 and 19% last quarter.

Speaker 1: Q3 growth was led by procedure strength within general surgery with particular strength in colosus.

Q3 growth was led by procedure strength within general surgery, with particular strength in cholecystectomy and colon resection.

Speaker 1: Outside of the US, third quarter procedure volume grew 24%, compared with 24% for the third quarter of 2022, and 28% last quarter.

Outside of the U S third quarter procedure volume grew 24% compared with 24% for the third quarter of 2022, and 28% last quarter.

Thank you, everyone for standing by.

Speaker 1: OUS growth was led by procedures beyond urology.

Unknown Executive: Welcome to the Intuitive Surgical Q3 2023 earnings release. And at this time, our participants are on a listen only mode. Later, we will conduct the question and answer session. If you wish to place yourself in queue for questions at any time, please press 1-0 when you telephone keypad. To remove yourself from that queue, you may repeat the 1-0 command. I will now turn the conference room to your host.

O U S growth was led by procedures beyond urology.

Speaker 1: now make up approximately 50% of total OUS.

Now make up approximately 50% of total O U S procedures.

Speaker 1: General surgery growth was strong, primarily in colorectal procedures, followed by growth in gynecology procedures.

General surgery growth was strong primarily in colorectal procedures, followed by growth in gynecology procedures.

Growth in urology continues to be healthy led by kidney procedures, along with continued double digit growth in prostatectomy.

Speaker 1: led by kidney procedures, along with continued double digit growth in prostatectomy.

Speaker 1: In Europe , we experience strong growth in Germany, the UK, and Spain.

In Europe, we experienced strong growth in Germany, the U K and Spain.

Speaker 1: In each of the regions noted, procedure growth was led by general surgery primarily

Unknown Executive: Head of investor relations.

In each of the regions noted procedure growth was led by general surgery.

Brian King: Introduce Intuitive Surgical Brian King, please go ahead. Good afternoon and welcome to Intuitive's third quarter earnings conference call. With me today, we have Gary Guthart, our CEO, Jamie Samath, our CFO, and Dr. Miriam Curet, our chief medical officer.

Primarily from colorectal procedures and.

Speaker 1: specifically in Germany and the UK, hysterectomy procedures also contributed to strong growth. In Asia.

And specifically in Germany, and the U K hysterectomy procedures also contributed to strong growth.

Unknown Executive: Before we begin, I would like to inform you that comments mentioned on today's call may be deemed to contain forward booking 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 detail in our Securities and Exchange Commission filings, including our most recent form 10K filed on February 10, 2023, and form 10Q filed on July 24, 2023. Our SEC filings can be found through our website or at the SEC's website. Investors are cautioned not to place undue reliance on such forward looking statements.

In Asia growth was led by Japan.

Speaker 1: More than half of the incremental procedure growth in the country was led by strong growth in general surgery procedures consisting largely of colorectal and

More than half of the incremental procedure growth in the country was led by strong growth in general surgery procedures.

Insisting largely of colorectal and constructing the procedures.

Speaker 1: In China, procedure growth was consistent with our expectations for the quarter.

In China procedure growth was consistent with our expectations for the quarter.

Speaker 1: Growth was driven primarily in neurology, notably by prostatectomy and kidney...

Growth was driven primarily in neurology, notably by prostatectomy and kidney procedures.

Speaker 1: in India, while in the early stage of adoption, saw strong growth in general surgery procedures, namely, colosus effect me and hernia repair and growth in gynecology.

In India, while in the early stage of adoption saw strong growth in general surgery procedures, namely in cholecystectomy, and hernia repair and growth in gynecology procedures.

Speaker 1: I will now turn to our financial outlook for 2023.

I will now turn to our financial outlook for 2023.

Unknown Executive: Please note that this conference call will be available for audio replay on our website at intuitive.com on the event section under our investor relations page. Today's press release and supplementary financial data tables have been posted to our website.

Starting with procedures.

Speaker 1: On our last call, we forecasted full year 2023 procedure growth within a range of 20% to 22%

On our last call, we forecasted full year 2023 procedure growth within a range of 20% to 22%.

Speaker 1: We are now raising the low end from 20% to 21%.

We are now raising the low end from 20% to 21% and.

Unknown Executive: Today's format will consist of providing you with highlights of our third quarter results, as described in our press release announced earlier today, followed by a question and answer session.

Speaker 1: and expect full year 2023 procedure growth of 21% to 20...

And expect full year 2023 procedure growth of 21% to 22%.

Speaker 1: The low end of the range reflects uncertainty around the duration of elevated procedure volumes with patients returning to health care.

The low end of the range reflects uncertainty around the duration of elevated procedure volumes with patients returning to health care.

Gary Guthart: Gary will present the quarters business and operational highlights.

Jamie Samath: Jamie will provide a review of our financial results.

Speaker 1: a continued slowing of bariatric growth rates in the US.

A continued slowing of bariatric growth rates in the U S and macroeconomic challenges that could impact hospitals and patients spending.

Myriam Curet: Miriam will present clinical highlights and I will discuss procedure details and provide our updated financial outlook for 2023.

Speaker 1: and macroeconomic challenges that could impact hospitals and patients spending.

Speaker 1: At the high end of the range, we assume macroeconomic challenges do not have a significant impact on hospital procedure volumes.

At the high end of the range, we assume macroeconomic challenges do not have a significant impact on hospital procedure volumes.

Unknown Executive: And finally, we will host a question and answer session. With that, I will turn it over to Gary.

Gary Guthart: Thank you for joining us today. In this third quarter, we saw strong growth in procedures performed by our customers, solid new system placements and healthy growth and utilization amid market conditions that remain largely consistent with Q2. Our new platforms continue to gain ground with ion installs and procedure growth continuing, SP installs and procedure growth modestly accelerating and healthy growth and customer use of our digital tools. Turning first to procedures, DaVinci procedure growth in the quarter was 19%.

Speaker 1: and bariatric growth rates in the US continue at the rate we experienced in Q3.

And very accurate growth rates in the U S continue at the rate we experienced in Q3.

Speaker 1: The range does not reflect significant material supply chain disruptions or hospital capacity constraints.

The range does not reflect significant material supply chain disruptions or a hospital capacity constraints.

Turning to gross profit.

Speaker 1: On our last call, we forecast our 2023 full year pro forma gross profit margin to be within 68% and 69%

On our last call we forecast our 2023 full year pro forma gross profit margin to be within 68% and 69%.

Speaker 1: We are now refining our estimate of pro forma gross profit margin to be within 68% and 68.5%

We are now refining our estimate of pro forma gross profit margin to be within 68% and 68, 5%.

Gary Guthart: Areas of strength included general surgery for benign conditions, particularly in the United States and broad regional growth with Germany, Japan, the UK and India standouts. China procedure growth was in line with our global average in the quarter. U.S. General Surgery procedure growth was led by Colossus Tectomy and colon resection. I and procedures showed continued strength with 125% growth in the quarter. SP procedure growth accelerated with 54% global growth in the quarter driven by strength in the United States.

Speaker 1: Our actual gross profit margin will vary quarter to quarter depending largely on product, regional and trade-in mix and the impact of new product introduction.

Our actual gross profit margin will vary quarter to quarter, depending largely on product regional and trade in mix and the impact of new product introductions.

Speaker 1: With respect to operating expenses, on our last call, we forecast pro forma operating expense growth to be between 12% and 15% of the total operating expense.

With respect to operating expenses on our last call, we forecast pro forma operating expense growth to be between 12% and 15%.

Speaker 1: We are adjusting our estimate and now expect our full year pro forma operating expense growth to be between 12% and 14%

We are adjusting our estimate and now expect our full year pro forma operating expense growth to be between 12% and 14%.

Gary Guthart: On the capital front, we placed 312 systems in Q3, compared with 305 systems in Q3 of last year. Our clinical install base now stands at 8,127 multi-port-to-inch systems, 490 ion systems, and 158 single-port-to-minch systems. Overall, our capital placement transfer reflect demand for additional capacity and multi-port, continued greenfield interest in our ion system, and a modest acceleration for placements of SP. The proportion of leases from new capital placements accelerated in the quarter, with the US using the highest leasing rates.

Speaker 1: We are also refining our estimate for non-cash stock compensation expense to range between $600 million to $610 million in 2023.

We're also refining our estimate for noncash stock compensation expense to range between 600 million to $610 million in 2023.

Speaker 1: lowering the range from our previous estimate of $600 million to $620 million. We are increasing our estimate for other increases.

During the range from our previous estimate of 600 million to $620 million.

We are increasing our estimate for other income which is comprised mostly of interest income.

Speaker 1: total between $190 million and $200 million in 2023.

To total between $190 million and $200 million in 2023.

Speaker 1: an increase from our previous estimate of 160 million and 180 million. These graphs show half a billion days of

An increase from our previous estimate of $160 million and $180 million.

The increase primarily reflects the rise in interest rates.

Gary Guthart: We think the acceleration in leasing reflects the convenience of our leasing program and the maturity of our generation for multi-port systems. While leasing reduces in-quarter revenue relative to capital purchase, total economics are healthy for our customer and for us. Leasing allows our customers to build clinical capacity when and where they need it, and provides predefined pathways for our new technology as it enters the market. The growth rate and system utilization defined as procedures per install system per quarter was 6%, down from 9% last quarter, while still above historical growth rates.

Speaker 1: With regard to capital expenditures, we are narrowing our estimate to range between $900 million to $1 billion, primarily for planned facilities.

With regard to capital expenditures, we are narrowing our estimate to range between 900 million to $1 billion.

Primarily for planned facility construction activities.

Speaker 1: With regard to income tax, we are also refining our estimate for the 2023 pro forma tax rate to be between 22% and 23% of pre-tax income.

With regard to income tax we are also refining our estimate for the 2023 pro forma tax rate to be between 22% and 23% of pretax income reduced.

Speaker 1: reducing the previous estimate of the upper end of the range from 24% to 23%.

Reducing the previous estimate of the upper end of the range from 24% to 23%.

Speaker 1: That concludes our prepared comments. We will now open the call to your questions.

That concludes our prepared comments.

Now open the call to your questions.

Speaker 5: Thank you. If you have not already done so, you may depress 1 then 0 on your telephone keypad for Q&A.

Gary Guthart: Strong procedure growth and an increased proportion of use in benign indications, shortens average procedure times, and needs is scheduling. Higher utilization increases our customers' return on industrial capital, and is economically healthy for us. Turning to our finances, our revenue grew 12% in the quarter, and our operating expenses were within our spend guidance. Our spending reflects continued investments in research and development to support the growth of our platforms and digital tools, expansion of our manufacturing and commercial footprints, and capital amortization.

If you have not already done so you may depress one then zero on your telephone keypad for Q&A.

Yeah.

Please standby.

Speaker 5: We go to the first question from the line of Robbie Marcus, J.P. Morgan. Please go ahead.

We go to the first question is from the line of Robbie Marcus Jpmorgan. Please go ahead.

Speaker 6: Oh, great. Congrats on the quarter. Thanks for taking the question. Maybe to start, you know, it's hard to escape it. GLP-1 is becoming a very big topic in medtech.

Oh, great Congrats on a good quarter. Thanks for taking the question.

Maybe to start you know it's hard to escape. It G. L. P. One is becoming a very big topic in med Tech and.

Speaker 6: It's impacting bariatric surgery here. It doesn't seem to be impacting anything else, particularly in the pipeline. But just wondering your thoughts overall. Could GLP-1s ultimately be a positive as more people try weight loss surgery and come in the funnel? And any other impacts, good or bad, that you foresee on the business?

You're it's impacting bariatric surgery here it doesn't seem to be impacting anything else, particularly in the pipeline, but just wondering your thoughts overall could G. L. P. One is ultimately be a positive has more people try weight loss surgery and come into the funnel and any other impact good or bad that you foresee on the business.

Gary Guthart: Looking at the broader picture, our fourth generation DaVinci platform is operating at global scale and embedded in a robust ecosystem of instruments, accessories, training, and services. Customer acceptance of our eye and platform is strong. Acceptance of our DaVinci SP is accelerating with new indications in the pipeline, and our digital tools are building momentum through their early stages.

Speaker 2: Thanks, Robbie. I'm going to ask Dr. Caret as a bariatric surgeon to go ahead and weigh in on that first part of your question, and we'll talk about the broader implications after that.

Thanks, Robbie I'm going to ask Dr. Carruthers, a bariatric surgeon to go ahead and weigh in on that first part of your question that we'll talk about the broader implications are after that.

Gary Guthart: We welcome Dr. Miriam Currett, intuitive chief medical officer to this call, and she will take us through our clinical perspective and some of the work we're doing to expand indications. Our operations teams did a fantastic job supporting our customers through the supply chain shocks of the past several years. This unavoidable effort diverted resources away from product cost reduction, and as supply chain stresses ease, we're now pivoting our attention to once again lowering our product costs.

Speaker 4: Yeah, I think you are correct. I think in the short term, we will see patients who are considering or are in the pipeline for bariatric surgery going to try the drug.

Yeah. I think you are correct I think in the short term, we will see patients who are considering or are in the pipeline for bariatric surgery going to try the drug.

Speaker 7: However, given compliance issues, costs, side effects, we expect that many of them will not stay on the drugs for longer than a year or two, and at that time we'll consider bariatric surgery. So I think overall, we'll see an increased interest in bariatric surgery, but that will get delayed in the short term. And Robby.

However, given compliance issues cost side effects.

We expect that many of them will not stay on the drugs for longer than a year or two and at that time, we will consider a bariatric surgery. So I think overall.

Gary Guthart: Areas of opportunity include our eye on program, our SP accessories portfolio, and our multi-port accessories in advanced instrument lines. Given the timing of facilities completion, manufacturing efficiency improvements for new products, and other complex projects, we expect variability and gross margin of the coming quarters as we work through these programs. Turning to our digital offerings, digital tools and channels is growing nicely. Our SIM now surgical simulators are installed at the majority of our customer sites and subscription renewal rates are outstanding.

We will see an increased interest in bariatric surgery, but that will get delayed in this.

Short term.

Yeah, Robbie any any follow up you wanted on J O P ones.

Speaker 6: No, I had a financial question for Jamie, if that's okay after.

No I had a financial question for Jamie if that's okay. After.

Please.

Speaker 6: Jamie, it looks like fourth quarter gross margin is ticking down a bit and you're talking about the increased depreciation cost and some of these new investments here. I was wondering if you could size the amount, and I'm really looking for how to think about into next year with depreciation so we could get our gross margin set based on whatever expansion or contraction we're all forecasting. Thanks a lot. Thanks a lot.

Jamie It looks like the fourth quarter gross margin is ticking down a bit and you're talking about the increased depreciation cost.

And some of these new investments here I was wondering if you could size the amount and I'm really looking for how to think about into next year with depreciation. So we could get our gross margin set based on whatever expansion or contraction. We're all forecasting thanks a lot.

Gary Guthart: Routine use of my intuitive app by over 10,000 DaVinci surgeons grew by 140% year over year, and is receiving strong net promoter scores that continue improving over time. Our Intuitive Hub Media Management and Telepresence System Installations grew 58% in the quarter, and Hub captured surgical cases grew 61%.

Speaker 8: Yes, for Q4.

Yes for Q4.

Speaker 3: you're not really seeing significant depreciation expense reflected in the range that we provided. That's really more next year. Some of the manufacturing capacity and facilities come online. What you're seeing Q4 really is a little bit of FX given how the rates have moved.

Youre not really seeing significant depreciation expense reflected in the range that we provided that's really more next year.

Gary Guthart: In closing, core demand is healthy, we're focused on extending our ecosystem internationally and driving our product costs down, particularly for our newer platforms. We are dogged in pursuit of significant long-term opportunity to improve the quadruple claim using our integrated ecosystem powered by analytics, and we are pacing our investments to catalyze that opportunity.

Some of the manufacturing capacity and facilities come online.

What youre seeing in Q4 really is.

A little bit of FX, given how the rates have moved.

Speaker 3: a little bit of slower progress in some of the line transfers and product cost reduction plans that we have. That's not a large delay, it's just slightly slower than we have planned. And then there's some mixed dynamics reflected in Q4.

A little bit of slower progress in.

Jamie Samath: I'll now turn the time over to Jamie who'll take you through our finances in greater detail. Good afternoon. I will describe the highlights of our performance on a non-gap or performer basis. I will also summarize our gap performance later in my prepared remarks. The reconciliation between our pro-former and gap results is posted on our website. Core metrics continue to be healthy in Q3 with global procedure growth of 19% and increase in the installed base of DaVinci systems of 13% and an increase in average system utilization of 6%.

Some of the line transfers and product cost reduction plans that we have that's not.

A large delays just slightly slower than than we have planned and then there's some mixed dynamics reflected in Q4.

Speaker 3: they now to be relatively small, but those are the dynamics as to why that gross margin range for the year is, at the midpoint, slightly lower than what we had previously. With respect to how 24 is shaping up, what I would just say is, as Gary said in his prepared remarks, we'll see some variability in gross margin over the next several cores. It is the depreciation expense.

They net out to be.

Relatively small, but those are the dynamics.

Dynamics as to why that gross margin range for the year is at the midpoint slightly lower than what we had previously.

With respect to.

<unk> 24 is shaping up.

I'd just say is as Gary said in his prepared remarks, we will see some variability in gross margin over the next several quarters is the depreciation expense and the ongoing efforts to improve our product cost, particularly on the ion side and frankly, they're awesome.

Jamie Samath: Our key financial indicators are also healthy. Third core are recurring revenue through 21%, pro-former operating margin was 36%, and pro-former earnings per share increased 23% over last year. Procedures in the US grew 17% reflecting a lower benefit from patient backlogs as compared to the first half of 2023. Last quarter, we highlighted that our growth rate in bariatric procedures in the US had slowed given patient interest in weight loss drugs. In Q3, we continued to see double-digit growth albeit a modestly lower growth rate as compared to Q2.

Speaker 3: and the ongoing efforts to improve our product costs, particularly on the iron side. And frankly, there are some accumulated inefficiencies just in our global manufacturing operation.

Accumulated inefficiencies just in our global manufacturing operations, they fill up over COVID-19 and because of the supply chain issues that we encountered that we're addressing.

Speaker 3: they built up over COVID and because of the supply chain issues that we encountered that we're addressing and a number of those will take time for us to to resolve so I'd say let us give you 24 guidance for gross margin when we get to January because I think we still have to work through those plans.

And a number of those will take time for us to resolve so.

I'd say.

Let's give a give you 24 guidance for gross margin when we get to January because I think we still have to work through those plans.

Great. Thanks, a lot.

Speaker 5: We'll go to the next line. Travis Steed, Bank of America. Please go ahead.

We'll go to the next line Travis Steed Bank of America. Please go ahead.

Speaker 9: Thanks for taking the question. I guess to follow up on that, on those prepared remarks, it sounded like Gary said manufacturing improvements for new products and other complex projects. So I'm just curious if you could elaborate on some of those new products and complex projects and what those are that's impacting the gross margin.

Jamie Samath: Bariatric procedures represent between 4% and 5% of total global procedures. Based on third party data, we believe we continue to gain market share in the bariatric surgical segment. OUS procedures grew 24% with relative strength in India, Germany, the UK and Japan. Procedure growth in China was consistent with our expectations lower than last quarter due to a strong base period given a recovery from COVID-related lockdowns in the year ago quarter. Consistent with recent trends, growth in non-eurology procedures outside of the United States was accretive growing approximately 31%.

Thanks for taking my question I guess to follow up on I'm not I know on those prepared remarks, it sounded like Gary said manufacturing improvements for new products and another complex projects. So I'm just curious if you could elaborate on on some of those new products and complex projects and what those are that's impacting the gross margin.

Speaker 2: Yeah, on the product side, we have real work to do on ION. ION is well accepted by the customer base, growing quickly. We need to iterate and drive manufacturability and manufacturing costs on ION. So that was mainly what I was referring to. Some of the accessories in the SP line are real opportunities. We want to be assertive there. So on the product side, that's most of what the reference is.

Yeah on the product side, we have real work to do on the island and is well accepted by the customer base growing quickly, but we need to iterate and drive a manufacture ability and and our manufacturing costs and so that was the mainly what I was referring to some of the accessories and the S. P line.

A real opportunities, we want to be a sort of there.

So on the product side, that's that's most of what the references.

Speaker 8: There's just one other element. We are insourcing a high volume accessory on the multi-port side. As part of insourcing that, there's some differential automation in the line there. And so ramping that, there's some work to get that to be at our target.

Jamie Samath: Within the larger cancer categories, our fastest growing OUS procedure is colon resection, a high-value procedure led by adoption in Japan, Germany and the UK. With respect to capital performance, we placed 312 systems in the third quarter as compared to 305 systems last year. As a reminder, system placements in Q3 of last year benefited from a delay in the shipment of approximately 15 systems from June into July as a result of supply chain challenges we encountered in June of last year.

Alright, just one of the element we are insourcing of high volume accessory on the multiple side I'm going to pause and sourcing that.

There's some different differential automation in the line there and so ramping that.

We work together to be at our targets.

Speaker 9: Great, helpful. And coming into this year on the procedures, some of the swing factors were China staffing pressures and COVID. And I imagine like going into 24, you know, there's bariatrics in China or some of the swing factors. Maybe just talk about some of the swing factors on 2024 procedures, you know, pluses and minuses. And do you think China and bariatrics are still going to be growing and, you know, adding to the growth and procedures in 2024?

Great helpful.

Coming into this year on the procedures and some of the swing factors, where China staffing pressures on Covid, and then imagine like going into 'twenty four theres bariatrics in China or some of the swing factors. Maybe you can just talk about some of the swing factors on 2024 procedures pluses and minuses and do you think China and bariatrics are still going to be growing.

Jamie Samath: Media. Late in Q3, we started to see delays in tender processes in China, primarily as a result of anti-corruption efforts by the central government, resulting in lower system placements in China in Q3. We expect tender delays to continue to impact system placements in China in Q4. Q3 revenue was $1.7 billion, an increase of 12% year over year. Q3 revenue growth was driven by proceed to growth partially offset by an 11% decline in systems revenue due to the significant increase in the mix of operating lease arrangements.

Adding to the growth in procedures in 'twenty four.

Speaker 1: Travis, this is Brian . I guess, thinking of 2024, nothing really to share at this point.

Travis This is Bryan I guess I'm thinking of 2024, and nothing really to share at this point.

Speaker 1: Clearly, I think when we get into January , we'll be able to give you a bit more insight. But I guess I'll just leave it at that for now.

Clearly I think when we get into January we'll be able to give you a bit more insight.

But I guess I'll just leave it at that for now.

Speaker 2: Let me just pick up two topics you hit. You know, on the China side, I think the procedure demand side remains robust. I think there's some government policy activity that's putting a little bit of a chill in the market. Some of that is economic, so price caps and value-based pricing, and some of it is an anti-corruption probe that is giving hospitals some pause at moving forward with.

Let me just pick up to two topics you you hit it on the China side I think the procedure demand side remains robust.

I think theres some government policy activity, that's putting a little bit of a chill on the market. Some of that is economic so price caps and value based pricing and some of it is and anti corruption probe that is giving us giving hospitals some pause it moving forward with other new programs.

Jamie Samath: On a constant currency basis, the third quarter revenue growth was also 12%. Given recent movements in exchange rates, at current rates, the US dollar is approximately 3% stronger on a revenue weighted basis as compared to the average rates realized in Q3. Revenue denominated in non-USD currencies represent approximately 24% of total revenue. Additional revenue statistics and trends are as follows. In the US, we placed 159 systems in the third quarter compared to 175 systems placed last year.

Speaker 2: other new programs. We'll see. I think the China side is likely to pursue some pressure on the China side is likely to persist for several quarters.

We'll see I think the China side is likely to some pressure on the China side is likely to persist for several quarters on.

Speaker 9: On the bariatric side, I think we'll find a new normal in the next few quarters. It's hard to predict exactly when that will happen. We'll see that play out in the marketplace. Great, thanks a lot.

On the bariatric side.

I think we will find a.

A new normal in the next few quarters, it's hard to predict exactly when that will happen.

We'll see that play out in the marketplace.

Okay, great. Thanks, a lot.

It will go to the next line.

Larry <unk> Wells Fargo. Please go ahead.

Speaker 10: Good afternoon, thanks for taking the question. Gary, your usage-based leasing program's gotten some scale. Can you talk about the utilization rates on those systems relative to the average and any other themes you could share?

Good afternoon, and thanks for taking the question.

Jamie Samath: Outside the US, we placed 153 systems in Q3, compared with 130 systems last year. Current quarter system placements included 60 into Europe, 32 into Japan and 10 into China, compared with 54 into Europe, 32 into Japan, and 15 into China in Q3 of last year. 62 of the 312 systems placed in Q3 were trade-in transactions compared to 71 trade-in transactions in the third quarter of last year. As of the end of Q3, there are approximately 440 size remaining in the install base of which 85 were in the US.

Gary Your usage base. The leasing program has gotten some scale can you talk about the utilization rates on those systems relative to the average and any other themes you could share.

Speaker 2: Sure, I will turn to Jamie here on kind of utilization rates. There is also one.

Sure.

I will turn to Jamie here on kind of utilization rates once you kicked it off.

Speaker 3: Yeah, there's two ways to look at it, Larry. What is the absolute utilization rate compared to a regular lease and compared to a purchase arrangement? They are very similar, actually. The tightness on the mean between those three structures is very tight.

Yeah, there's two ways to look at it.

Sorry, what is the absolute utilization rate.

Pet to a regular leasing compared to a purchase arrangement. They are very similar actually the tightness on the mean between those three structures is very tight.

Speaker 8: Within those arrangements, you generally have a target procedure level that reflects success of the program for the customer and the economic objectives that we have. And if you accumulate again the portfolio, they run at slightly above the target procedure levels that we have embedded in the contract.

Within those arrangements you generally have a target procedure level that reflects success of the program for the customer and the economic objectives that we have and if you accumulate again the portfolio.

Jamie Samath: Operating leases represented 52% of third quarter placements compared with 37% last year. In the US, 70% of system placements in Q3 were under operating lease arrangements compared to 48% last year. Of the 163 operating lease placements in the quarter, 93 were usage-based arrangements. An increase compared to 54 last year, reflecting customer preferences, particularly in the US. While leasing may fluctuate from quarter to quarter, we continue to expect that the proportion of placements under operating leases will increase over time.

They run at slightly above the target of procedure levels that we have embedded in the contracts. So they have they have run very well so far and it's one of the reasons why we and the customer have expanded those.

Speaker 3: So they have run very well so far, and it's one of the reasons why we and the customer have expanded those so quickly in recent times.

So quickly in in recent times.

Speaker 10: that's helpful. And leasing in the US, you know, where do you see that going? I mean, it was almost it was, you know, over 70 this quarter and last quarter. Have we plateaued or does that continue to go higher? Thanks for taking the question.

That's helpful and leasing in the U S. You know, where where do you see that going I mean, it was almost it was over 70 this quarter and last quarter.

We plateaued or does that continue to go higher thanks for taking the questions.

Speaker 3: On a global basis we expect the proportion of placements that are leased to continue to climb. US is pretty high as you pointed out Larry, 70% this quarter, 78% last quarter. There will be some larger ADNs that just routinely prefer to purchase just because of how that affects the metrics that are important to them.

On a on a global basis, we expect the proportion of placements that are leased to continued decline U S is pretty high as you pointed out Larry 70% in this quarter was 78% last quarter.

Jamie Samath: Q3 system average selling prices were 1.4 million dollars as compared to 1.39 million dollars last quarter from 1.5 million dollars last year. The year-of-a-year decrease in system ASPs was primarily driven by lower pricing and geographical mix. We recognize $17 million of lease buy-out revenue in the third quarter compared with $12 million last quarter and $17 million in Q3 of 2022. DeVinci instrument and accessory revenue per procedure for approximately $1,830 compared with approximately $1,840 last quarter and $1,800 last year.

We'll be some.

Larger idms that just routinely prefer to purchase just because of how that affects the metrics that are important to them.

Speaker 3: But even in the US, I think there's some room for that to continue to creep up a little bit obviously running out of room

Even in the U S. I think there's some room for that to continue to creep up a little bit obviously running out of room.

Speaker 3: We've found a number of US customers have really appreciate that as a way to

We found a number of U S customers really appreciate that as a way to.

Speaker 3: managed through what are totally managed capital budgets.

<unk> managed through our tightly managed capital budgets.

Thank you.

Speaker 5: and next we have brandon that squares uh... wim player

And next we have Brandon the Vexed question William Blair. Please go ahead.

Speaker 11: Hi, everyone. Thanks for taking the question. Maybe my first one, I wanted to talk a little bit about general surgery that's obviously been a nice growth path for you here in the U.S. My understanding is it's a little less penetrated international. What do you think needs to happen in the international markets to kind of get on that steep part of the adoption curve for general surgery as well? Are they kind of seeing timelines and catalysts of the U.S.?

Hi, everyone. Thanks for taking my question.

First one I wanted to talk a little bit about general surgery, that's obviously been.

Jamie Samath: On a sequential basis, lower INA per procedure reflected the impact of customer ordering patterns partially offset by a full quarter impact from the INA price increase that went into effect halfway through last quarter. Turning to our ion platform, in Q3 we placed 55 ion systems as compared to 50 in Q3 of 2022. Third quarter ion procedures of approximately $14,500 increased 125% as compared to last year. 16 of the systems placed in the third quarter were SP systems, 12 into the US, and 4 into Korea.

A nice growth path for you here in the U S.

My understanding is it's a little a little less penetrated international what do you think needs to happen in the international markets to kind of get them. That's the part of the adoption curve for general surgery as well.

Same timelines and catalyst as the U S.

Speaker 2: Sure, thank you for the question. One way to think about it is that general surgery comprises both general surgery versus human surgery,

Sure. Thank you for the question on the one way to think about it is the general surgery comprises both.

Speaker 2: procedures that are done where cancer is the underlying cause and others that are benign indication. On the cancer is an underlying cause we're seeing nice early growth in several OUS markets. So there I think that's healthy and we're enthused. I think reimbursements are generally in place in many of the places that we are operating.

Procedures that are done where cancer is the underlying cause and others that are benign indication.

The cancer as an underlying cause we're seeing nice early growth in several of our U S markets.

So there I think that is healthy and we're enthused.

I think reimbursements are generally in place in many of the places that we are operating.

Jamie Samath: SP procedures grew by 54% and average system utilization growth continued to accelerate growing 21% compared to Q3 of last year. Moving on to the rest of the P&L, Proforma gross margin for the third quarter was 68.8% compared with 68.5% last quarter and 69.8% last year. As a reminder, Proforma gross margin in Q3 of last year included a one-time benefit of approximately 50 basis points relating to the favorable conclusion of certain indirect tax mass.

Speaker 2: I think that's looked good and clinical data coming out has been supportive. I think that as you think about benign indications, we're seeing some of the beginnings of benign indications in some markets. There may be reimbursement work or education of insurers. That has to be done for those to progress further. So in that setting, we'll have additional work to do as it plays out.

That's look good and the clinical data coming out has been supportive.

I think that as you think about but I'm indications, we're seeing some of the beginnings of benign indications in some markets are there may be reimbursement work or education of insurers that has to be done for those to.

Progress further so in that setting, we'll we'll have additional work to do as it plays out.

Okay.

Speaker 11: Great. And then maybe last one for me as a follow up. I think last quarter you guys were talking a little bit about launching, I believe it was called Case Insights, kind of the software AI platform. Any kind of updates on that end? How are things going so far? And maybe what's in the future for that program. Thanks.

Great and then maybe last one for me as a follow up I think last quarter, you guys were talking a little bit about launching I believe it was called case insight kind of the software AI platform.

Jamie Samath: The remaining year-over-year difference in Proforma gross margin is primarily due to a higher mix of ion revenue which currently carries significantly lower margins as compared to the DaVinci business and lower system ASP partially offset by the INA price increase. Inventory increased to approximately 180 days in Q3, higher than historical averages driven by two factors. First, we have modestly increased our inventory targets given supply chain stresses over the last couple of years and secondly given significant capital investments we are making in manufacturing facilities in capacity, we are building bridge inventory to facilitate and elevate a number of line transfers to new locations.

Any kind of updates on that and how are things going so far and maybe whats in the future of that program. Thanks.

Speaker 2: Yeah, thank you for the reference. So Case Insights is our machine learning AI program that looks at surgical science. We have our first installs and first cases going. Now we had talked about it with you last quarter. So far, early feedback and it's super early. We're really in the early innings here. It's very good. Case Insights builds on some prior research that we had done with academic centers.

Thank you for the reference so case insights as our machine learning AI program that looks at surgical science.

We have our first installs and first cases going that we talked about it with you last quarter.

So far early feedback and it's Super early were really in the early innings here is very good case.

Case insides builds on some prior research that we had done with academic centers.

Speaker 2: on something that we had described as a computational observer. So we have some pretty good scientific underpinnings for it.

On something that.

We have described as a computational observers so we have some pretty good scientific underpinnings for it.

Speaker 2: We expect over time that that program will feed insights into different parts of the hospitals.

We expect over time that that program will feed insights into different parts of the eye.

Speaker 2: analytics system from giving specific guidance to learning surgeons and care teams about where they might improve their technique and skills to giving suggestions to programmatic about efficiency.

Hospitals.

Analytics system from giving a specific.

Jamie Samath: As a result, we expect higher levels of inventory relative to historical norms into 2025. Third quarter Proforma operating expenses increased 8% year-over-year driven primarily by higher headcount related costs. During the quarter, our headcount increased by 489 employees of which approximately 275 were for our manufacturing operations in support of revenue growth. SG&A expenses as a percentage of revenue were lower by 100 basis points as compared to Q3 of last year and largely reflected planned leverage in our enabling Actions, Performer Other Incoming Q3 was $58 million compared to $42 million last quarter and $7 million last year.

Specific guidance to learning surgeons and care teams about where they might improve their technique and skills to giving suggestions to programmatic about efficiency and total cost management.

Speaker 2: to giving other insights for the company about how to improve procedures in the OR. So we think it's a long-term set of investments around really the science of surgery. We remain extremely excited about it. While we do have some revenue for it, we don't expect it to be a serious revenue driver. We think it is an ecosystem complementer, and we look forward to describing it more to you as time goes on.

So, giving other insights for the company about how to improve procedures and the ore. So we think it's it's a long term.

Set of investments around really the science of surgery, we remain extremely excited about it.

While we do have some revenue for it we don't expect it to be a serious revenue driver. We think it is ecosystem complementary and we look forward to describing it more to you as time goes on.

Yes.

Great. Thanks, a lot.

Speaker 5: We'll go next to Matt Mixick. Bar plays. Please go ahead.

We'll go next to Matt mixing <unk> Barclays. Please go ahead.

Speaker 12: Hi, thanks so much for taking the question. So I had one question on a follow up on kind of the bariatric trends.

Hi, Thanks, so much for taking the question.

So I had one.

Question on <unk>.

Jamie Samath: Other income primarily consists of interest income and the increase as compared to last quarter was driven by higher interest rates and higher average cash and investment balances. Performer Other Incoming Q3 of last year also reflected higher than typical foreign exchange losses resulting from re-measurement of the balance sheet as a result of the strengthened in US dollar. Capital expenditures in Q3 were $256 million, primarily comprised of infrastructure investments to expand our facilities footprint and increase manufacturing capacity.

My follow up on kind of the very object trends.

Speaker 12: and one on sort of the system leasing effect on pricing. So, bariatric, if you could maybe talk about, you mentioned the global percentage of procedures that bariatric represents maybe.

And and whatnot.

Sort of the system.

Leasing effect on pricing so.

Bariatric if you can.

Maybe talk about you mentioned the global percentage.

Our procedures that that's very accurate represents maybe.

Speaker 12: just the growth trajectory of that business in the second quarter and the third quarter and whether that's something you expect to grow at a similar trajectory or bottom out given your comments on folks getting on the drug for getting off, say, in a year or two would kind of suggest maybe a longer path to stabilization in that business line within.

Just the growth trajectory.

That business in the second quarter in the third quarter and.

Whether that's something you expect to.

Grow at a similar trajectory or bottom out given your.

Your comments on you know folks getting on the drug for.

Jamie Samath: Our Performer Effective Tax Rate for the third quarter was 22.5% consistent with our expectations. Third quarter Performer Net Income was $524 million or $1.46 per share compared with $429 million or $1.19 per share for Q3 of last year.

We're getting off take a year or two you would kind of suggest so.

Longer path to stabilization in that business line with them and then.

Speaker 2: And then I'll just follow up briefly with a question on ASPs if I could. Thank you. Yeah, Jamie you might speak to kind of what the size or percentage of that business is for us.

And then I'll just follow up briefly with a question on ISP is if I could thank you yeah, Hi, Jamie you might speak to kind of what the.

The size of our percentage of that.

Jamie Samath: I will now summarize our gap results. Gapnet income was $416 million or $1.16 per share for the third quarter of 2023 compared with Gapnet income of $324 million or $0.90 per share for the third quarter of 2022. The adjustments between Performer and Gapnet income are outlined and quantified on our website and include excess tax benefits associated with employee stock awards, employee stock based compensation, amortization of intangibles and gains and losses on strategic investments.

That business is for us.

Little bit of the acceleration or deceleration trend.

Speaker 3: Yeah, and I want to make sure I got it right, Matt. So come back to me if I have the wrong questions. But our total bariatric business represents about 4% to 5% of global procedures.

Yeah, I don't want to make sure I got it right mass to come back to me if I, if I have the wrong questions but.

Total bariatric business represents about 4% to 5% of global procedures.

Speaker 3: what you saw in Q2 was in the US, which is where the majority of our bariatric procedure volumes are, in the US the growth rate declined to about the US average. And then what we saw in Q3 was it modestly declined a little further in Q3.

What you saw in Q2 was in the U S, which is where the majority of our bariatric procedure volumes are in the U S.

The growth rate declined to about the U S average and then what we saw in Q3 was a modestly decline a little further in Q3.

Well those your questions.

Speaker 12: Yeah, that's very helpful. And then I guess just your expectation, you framed out in terms of your guidance, but I mean, is this.

Yeah No that's that's.

Jamie Samath: We ended the quarter with cash investments of $7.5 billion compared with $7.1 billion last quarter. The sequential increase in cash and investments reflected cash from operating activities and proceeds from employee stock exercises partially offset by capital expenditures.

Very helpful and then I guess just to your expectation.

You framed out in terms of your guidance, but I mean is this.

Speaker 12: I mentioned it just because one of the other competitors actually saw a decline, I guess in laparoscopic bariatric or some combination will happen open.

I mentioned that just because one of the other competitors actually saw a decline I guess laparoscopic bariatric or some combination of 11 opening.

Speaker 12: in the third quarter, single digit decline, but it doesn't seem like you're in that zone, right? You're still at or slightly below your average growth rate in the US. Is that, am I hearing your answer correctly?

The third quarter and single digit decline, but it doesn't seem like you're in that zone right youre still at or slightly below your average growth rate in the U S is that am I hearing your answer correctly.

Myriam Curet: And with that, I would like to turn it over to Miriam who will discuss clinical highlights. Thank you. Now turning to the clinical side for our business.

Speaker 3: Well, if you take our procedure growth in bariatrics relative to market, we're taking share and have been for some time. So the fact that we had double digit growth in Q3 relative to another company that had a decline, that's just a reflection in part of the fact that we are taking share in bariatrics and continue to do so, even though there's an impact to overall bariatric surgery because of GLP-1.

Myriam Curet: Each quarter on these calls, we highlight certain studies that we deemed to be notable. However, in a more complete understanding of the body of evidence, we encourage all stakeholders to thoroughly review the extensive detail of scientific studies that have been published over the years. In addition to relaying the results of one of these studies, I'd like to start by describing the status of some important intuitive research projects underway that support our company's beliefs in the potential value of the venture systems specifically our single port system for procedures requiring refined access to tight or difficult to reach anatomical area.

If you take out procedure growth in bariatrics relative to market, we're taking share and have been for some time. So the fact that we had double digit growth in Q3 relative to another company that had a decline that's just a reflection in part of the fact that we are taking share in <unk>.

Bricks and continue to do so even though there's an impact to overall bariatric surgery because of G O P ones.

Speaker 12: Got it. That's very helpful. And then the other, just ASP, I understand the system ASP you give is not

Got it that's very helpful. And then the other just ASC I understand.

The system is the U U U give is nuts.

Speaker 12: you know, does not, you know, as your US leasing goes up, as I understand it, you know, those, those leased systems in the US are not included in that ASB calculation. So you could maybe just speak to, I don't know, the way in which the increased leases have affected ASB or whether

It does not as your U S leasing goes up as I understand it.

Myriam Curet: In June 2021, intuitive launch and FDA-approved clinical study focused on complex color retro procedures such as low anterior resection or right collect me performance using the SP platform. Currently enrollment is complete with six patients across nine sites in the U.S, and Korea. Another FDA-approved clinical trial of thoracic procedures, including pulmonary, low-bectomy and five-metre lead, performed using SP, completed enrollment in June of this year with 32 subjects enrolled across six centers in the U.S. We believe that intuitive Singapore technology will enable thoracic surgeons to perform uniportable back-to-me, something that may be difficult using a bat's approach. Incuitive intensive submit data from these two studies to the FDA after the patient follows up outlines in the study plan and the data analysis has been completed.

Those those leased systems in the U S are not included in that calculation. So you could maybe just speak to.

I don't know.

Way in which the increase leases has affected ASB or whether this is <unk>.

Speaker 12: know, straight up year over year, the client that's suggested and sort of the overall numbers that you provide, if that's a clear question. You know, and make sure that they're happy to help our customers be on to

Straight up year over year.

Client that suggested in the and sort of the overall numbers that you provide.

If that's your question.

So everything you described is correct.

Speaker 8: Generally, although there can be exceptions for mixed effect, generally, US system ASPs, when purchased, are accretive to the global average. So in effect, as leasing has grown significantly in the US, that in and of itself has an adverse effect for calculated system ASPs.

Generally although that can be exceptions, some mix effect generally U S system Asps.

When purchased.

<unk> to the global average.

So in effect as leasing has grown significantly in the U S that in and of itself has a.

Adverse effect for calculated system ASP.

Speaker 3: The other thing that you see then with now a greater portion of systems used to calculate that system ASP being international FX can have an effect if you look on a two year horizon. So for example.

The other thing that you see then with now a greater proportion of system is used to calculate the system ASP.

Myriam Curet: Now, I'll turn to a notable study published in the Analyst of Surgery this past August. This study was not sponsored by intuitive. Dr. Yogi Daphtel of McMaster University in Canada published early results from the Revile Trial in a manuscript titled Robotical Back-to-Me is cost effective and provides comparable health utility scores to video assisted low-bectomy. The study describes results from a multi-center, multinational, blinded, randomized, controlled study comparing the DaVinci and VATS approach to pulmonary low-bectomy.

Being international FX can have an effect if you look on a two year horizon. So for example.

Myriam Curet: It analyzed 164 subjects, 81 in the robotic assisted group, and 82 in the VATS group. And all robotic assisted low-bectomies were performed with a DaVinci multi-port platform. Notably, the health utility score was significantly higher in the DaVinci arm at seven weeks and 12 weeks post-procedure with possess the quality of life for patients who underwent a DaVinci low-bectomy was better than for patients undergoing the VATS procedure. Interestingly, and related to quality of life outcomes, the authors analyzed the incremental cost-eceptive ratio or ICER for the robotic group relative to VATS and reported the robotic group was associated with a gain of approximately $11,000 per quality adjusted life here. In addition, the median number of lymph nodes examined and sampled were significantly higher in the DaVinci group.

Speaker 8: The exchange rate in Japan based on how how the US dollar has strengthened There's a 30 to 40 percent impact over a two-year basis on on system ASP in Japan as translated

The exchange rate in Japan based on how the U S dollar strengthened as a 30 to 40 per cent impact over a two year.

This is on one system Asps in Japan as translated.

Speaker 8: So there is a geographical effect, and if you look at a long enough horizon, there's an FX effect in there. What we described in Q3 was, in terms of the year-over-year decline in ASP, also a dynamic relative to pricing.

So there is a geographical effect and if you look long enough horizon, that's an FX effect in that.

What we described in Q3 was in terms of the year over year decline in ASP.

Also a dynamic relative to.

Pricing.

Speaker 3: And that's really just as we expand our existing customers who are looking for third, fourth, fifth system, those tend to be slightly lower ASP than you've seen previously when they were Greenfield accounts.

That's really just as we expand our existing customers who are looking for third fourth fifth system those tend to be slightly lower asps.

You have seen previously when they were Greenfield accounts I would say that in China, We do see some competitive dynamics with respect to pricing just given the number of lower local players and so there's been some competitive effects on system Asps in China, specifically, we don't really see that in other markets to this point.

Speaker 13: I would say that in China we do see some competitive dynamics with respect to pricing just given the number of lower Local players and so there's been some competitive effect on system ASPs in China specifically We don't really see that in other markets to this point Thanks so much for the color

Thanks, so much for the color.

And we'll go to the next slide.

Jason Bedford Raymond.

Raymond James Please go ahead.

Speaker 10: Hi, good afternoon. Gary, I think you've expressed your views on the role of bariatric surgery in a GLP world. I'm just wondering if these views...

Hi, good afternoon.

Gary I think you've expressed your views on the role of very ethic surgery in a in a G. L. P World I'm just wondering if these views have changed in any way over the last quarter or two I know, it's not a lot of time, but the adoption of this class of drugs is obviously ramping quickly and then just as kind of a related follow up.

Speaker 10: have changed in any way over the last quarter or two. I know it's not a lot of time, but the adoption of this class of drugs is obviously ramping quickly. And then just as kind of a related follow-up, getting back to Robbie's question on the potential impact of COVID-19,

Myriam Curet: To summarize, the authors conclude that quote, early results from the revile trial suggest that robotic pulmonary low-bectomy is a cost-eceptive intervention, which is associated with comparable patient reported health utility scores when compared to VATS low-bectomy. End quote.

Getting back to Robbie's question on the potential impact of G. O P. Beyond Bariatrics do you expect an impact from some of your other procedure categories is G. O P is get adopted.

Speaker 10: GLPs beyond bariatrics. Do you expect an impact on some of your other procedure categories as GLPs get adopted?

Speaker 2: Okay, on the first one, I think Miriam described it well, our position on GLP-1s as it relates to bariatric surgery. I think she hit it well at the start of the call, no reason to reiterate it here. On the issue of potential impact beyond bariatrics, there may be some, although I think as you think through the analysis, I think it will be modest.

Okay.

Brian King: And with that, I would like to turn it over to Brian, who will discuss additional procedure highlights and provide our updated outlook for 2020. Thank you, Maryam. Our overall third quarter procedure growth was 19 percent year-over-year compared to 20 percent for the third quarter of 2022 and 22 percent last quarter. In the US, third quarter 2023 procedure growth was 17 percent year-over. Career, compared to 18% for the third quarter of 2022, and 19% last quarter.

On the first one I think Mary described it well our position on G O P ones.

But as it relates to parametric surgery ethylene I think she hit it well at the start of the call No no reason to radio reiterated here.

On the issue of potential impact beyond bariatrics.

There may be some although.

As you think through the analysis I think it will be modest and here's here's how we think about it if you look at obesity and diabetes is risk factors and other domo.

Speaker 2: Here's how we think about it. If you look at obesity and diabetes as risk factors in other domains, in other diseases for which surgery is performed.

Domains, and other and other diseases for which surgeries performed.

Speaker 2: They are sometimes positive correlated risk factors for that disease. In some weird cases, they're negative in cases that it's actually protective against disease. So it's not entirely obvious. In most of the diseases that we treat as we look at it, it is not the dominant risk factor.

They are sometimes.

Brian King: Q3 growth was led by procedure strength within general surgery, with particular strength and quality suspectomy and colon resection. Outside of the US, third quarter procedure volume grew 24%, compared with 24% for the third quarter of 2022, and 28% last quarter. OUS growth was led by procedures beyond urology, which now make up approximately 50% of total OUS procedures. General surgery growth was strong, primarily in colorectal procedures followed by growth in gynecology procedures.

Positive correlated risk factors for that disease, and some weird cases theyre negative.

Cases that is.

Actually protective against disease, so it's not entirely obvious.

In most of the diseases that we treat as we look at it it is not the dominant risk factor so.

Speaker 2: So as we look out and think about what could it be like in our TAM, we can kind of do a back of the envelope analysis, it is really early, I don't think anybody knows the exact number. What I can say is that it's not the dominant risk factor in most things that we look at. And we have a very large, unpenetrated TAM, I think.

So as we look out and think about what could it be like in our Tam. We can kind of do a back of the envelope analysis. It is really early I don't think anybody knows the exact number what I can say is that it's not the dominant risk factor in most things that we look at and we have a very large underpenetrated Tam I think.

Speaker 2: We're still in the early innings of what we're trying to work on. So if these drugs are highly effective at avoiding other types of diseases, we will cheer. I still think we have a lot of upside opportunity to pursue.

We're still in the early innings of what we're trying to work on so if if these drugs are highly effective at avoiding other types of diseases, we will chair.

Brian King: Growth in urology continued to be healthy, led by kidney procedures along with continued double digit growth in prostatectomy. In Europe, we experienced strong growth in Germany, the UK, and Spain. In each of the regions noted procedure growth was led by general surgery, primarily from colorectal procedures, and specifically in Germany and the UK, hysterectomy procedures also contributed to strong growth. In Asia, growth was led by Japan, more than half of the incremental procedure growth in the country was led by strong growth in general surgery procedures, consisting largely of colorectal and gastrectomy procedures.

I still think we have a lot of upside opportunity to pursue.

Fair enough. Thank you.

And we'll go to the next line.

Speaker 5: Ryan Zimmerman, BTIG, please go ahead.

Ryan Zimmerman.

B T I G. Please go ahead.

Speaker 14: Thanks for taking the questions. I think you spoke about some of the new indications in SP and if I'm not mistaken I think there's a 30-day follow-up on the thoracic trial, but I'm curious if you could expand maybe when You know complex col rectal and and thoracic cases potentially could become growth drivers for SP adoption And when you expect those not just those trials to wrap up but but potentially clearances in the u.s. With that sure

Thanks for taking the questions.

I think you spoke about some of the new indications in SP and if I'm not mistaken I think there's a 30 day follow up on the thoracic trial, but I'm curious if you could expand maybe when.

No complex colorectal and thoracic cases potentially could become growth drivers for SP adoption and when you expect those not just those trials wrap up but but potentially clearances in the U S with that.

Brian King: In China, procedure growth was consistent with our expectations for the quarter. Growth was driven primarily in urology, notably by prostatectomy and kidney procedures. In India, while in the early stage of adoption, strong growth in general surgery procedures, namely colorectomy and hernia repair and growth in gynecology procedures.

Sure Maryann I think you're best to answer it.

Speaker 4: Yes, so we are hoping to submit everything in the foreseeable future. After that, as you know, there's at least a 90-day turnaround for the IDEs and then, excuse me, for the clearances. And then after that, you know, we will have to put training together and...

Yes.

So we are hoping to submit everything.

In the foreseeable future after that.

At least the 90 day turn around for the IV and then excuse me for the clearances and then after that.

Brian King: I will now turn to our financial outlook for 2023. Starting with procedures. On our last call, we forecasted full year 2023 procedure growth within a range of 20% to 22%. We are now raising the low end from 20% to 21%, and expect full year 2023 procedure growth of 21% to 22%. The low end of the range reflects uncertainty around the duration of elevated procedure volumes with patients returning to healthcare. A continued slowing of bariatric growth rates in the U.S, and macroeconomic challenges that could impact hospitals and patient spending.

We will have to put trading together and.

Speaker 4: So, the launches together. So, I can't really give you a timeline for when that would be, but we know what the work is that needs to be done and we are starting and moving forward on that.

C launches together.

So I can't really give you a timeline for when that would be but we know what the work is that needs to be done and we are starting and moving forward on that.

Speaker 2: Our biggest, our biggest step is to get it into FDA and work with them to get clearances. And then as Miriam says, we'll go through a staged commercialization. So you can expect...

Our biggest okay, our biggest steps.

Yeah today, they'll range get it into F. D. A work with them to get clearances and then as <unk> says, we'll go through a staged commercialization. So you can expect.

Speaker 2: submissions in the first half of 24 and then response thereafter.

Submissions in the first half of 'twenty four and then response thereafter.

Thank you Gary.

Brian King: At the high end of the range, we assume macroeconomic challenges do not have a significant impact on hospital procedure volumes, and bariatric growth rates in the U.S, continue at the rate we experienced in Q3. The range does not reflect significant material supply chain disruptions or hospital capacity constraints.

Speaker 14: One of the other things and I don't know if it's directed at you Gary or Jamie, but you did talk about an opportunity to lower product costs as supply chain stresses ease.

What are the other things and I don't know if its threat to you Gary or Jamie, but you did talk about an opportunity to lower product cost as supply chain stresses ease.

Speaker 14: And I know there's, you know, there was some comments earlier about 24 gross margins, but but stepping aside from that, can you quantify the opportunity potentially for what that looks like? Have you gotten your arms around? I know Marshall's been kind of shepherding these processes, but at what point can you give the street more color on what that opportunity looks like to drive gross margin gains?

And I know there is there was some comments earlier about the 24 gross margins, but but stepping aside from that.

Can you quantify the opportunity potentially for what that looks like have you gotten your arms around I know Marshall has been kind of shepherding. These processes, but at what point can you give the street more color on what that opportunity looks like to drive gross margin gains.

Brian King: Turning to growth profit. On our last call, we forecast our 2023 full year pro forma gross profit margin to be within 68% and 69%. We are now refining our estimate of pro forma gross profit margin to be within 68% and 68.5%. 1% Our actual growth profit margin will vary quarter to quarter depending largely on product, regional and trade in mix and the impact of new product introductions With respect to operating expenses on our last call, we forecast pro forma operating expense growth to be between 12% and 15% We are adjusting our estimate and now expect our full year pro forma operating expense growth to be between 12% and 14% We are also refining our estimate for non-cash.compensation expense to range between 600 million to 610 million in 2023, lowering the range from our previous estimates of 600 million to 620 million We are increasing our estimate for other income, which is comprised mostly of interest income to total between 190 million and 200 million in 2023, an increase from our previous estimate of 160 million and 180 million, the increase primarily reflects the rise and interest rates.

We have.

Speaker 3: very well detailed plans for each of the areas that we're focused on. The teams have the capability.

Very well detailed plans for each of the areas that we're focused on.

The teams have the capability and skill.

Speaker 3: gonna take some time. I think the best way I would answer the question is we see a path over time probably in the midterm to get back above 70% gross margin.

It takes some time I think the best way I would answer the question is.

We see a path over time, probably in the mid term to get back above 70% gross margin.

Thank you Jamie.

Speaker 5: We'll go to the next line. Anthony Petroni, Mizzou Group.

We'll go to the next line Anthony Petrone.

Mazuch group. Please go ahead.

Speaker 15: maybe one on China and one on pricing on instrument.

Maybe one on China, and one on pricing on instruments, and we think about the quota size that National Health Commission in China put out its.

Speaker 15: When we think about the quota size that National Health Commission in China put out, it's the new quota is 559.

The new quotas 559 systems, just wondering on anti corruption.

Speaker 15: wondering on anti-corruption, you know, could that shift that number over time?

That shift that number over time.

Speaker 15: whether it be that just there's fewer capital dollars going to projects or

Whether it would be that just fewer capital dollars go into projects or.

Speaker 15: you know, just from a timing element because things are getting elongated. And then the pricing question would be on instruments and accessories. The company put a 5%

Just from a timing element because things are getting elongated.

And then the pricing question would be on instruments and accessories the company put a 5%.

Speaker 15: price increase in their first one in 14 years.

Price increase in there first one in 14 years.

Brian King: With regard to capital expenditures, we are narrowing our estimate to range between 900 million to $1 billion, primarily for plan facility construction activities. With regard to income tax, we are also refining our estimate for the 2023 pro forma tax rate to be between 22% and 23% of pre-tax income, reducing the previous estimate of the upper end of the range from 24% to 23%.

Speaker 15: Chairman Powell came out, said, you know, look, inflation is going to be persistent.

Chairman Powell came out and said look inflation is going to be persistent.

Speaker 15: and elevated for quite some time. If inflation stays high, you know, could another 5% price increase be on the table for 2024? Thanks!

And the elevated for quite some time, if inflation stays high.

Cause another 5% price increase beyond the table for 2024.

Speaker 2: With regard to the capital side in China, I'll jump into that. I think demand for our systems and for the procedures they support in China, raw demand is really high. So it's really being limited or titrated by policy.

With regard to the capital side in China, I'll jump into that I think demand for our systems and for the procedures. They support in China raw demand is really high.

Unknown Executive: That concludes our prepared comments. We will now open the call to your questions. Thank you. If you have not already done so, you may depress one then zero on your telephone keypad for Q&A. Please stand by.

It's really being limited or titrated by policy.

Robbie Marcus: We go to the first questions in the line of Robbie Marcus, JP Morgan. Please go ahead. Oh, great.

Speaker 2: I don't see, I haven't heard anything that says people want to go back and revisit or lower the quota. I think that would be resisted by.

I don't see I haven't heard anything that says people want to go back and revisit or lower the.

The quota I think to that.

That would be.

They've resisted by customers who are looking for.

Speaker 2: for purchases. So I think it's more around delay and paced to avoid if that make sense.

For purchases.

I think it's more around delay in and.

Speaker 2: kind of a timing thing, how long that is hard to predict, but months, not weeks.

Robbie Marcus: Congrats on a good quarter. Thanks for taking the question. Maybe to start, you know, it's hard to escape it. GLP1 is becoming a very big topic in Medtech and it's impacting bariatric surgery here. It doesn't seem to be impacting anything else particularly in the pipeline. But just wondering your thoughts overall, you know, could GLP1s ultimately be a positive as more people try weight loss surgery and come in the funnel and any other impacts good or bad that you foresee on the business? Thanks, Robbie.

Kind of a timing thing and how long that is hard to predict but but months not not weeks.

Speaker 2: On the pricing side, I'll speak to a general principle rather than projecting 24. You know, what we try to do is a couple of things. One is be an outstanding manufacturer, really get high quality at low cost, and make sure that we can invest in manufacturing prowess to do that. I think that's really powerful for us, gives us enormous flex.

On the on the pricing side I'll speak to a general principle, rather than projecting 24, what we've tried to do is a couple of things one is being outstanding manufacturer really get high quality at low cost and make sure that we can invest in manufacturing prowess to do that I think that's really powerful for us it gives us enormous flexibility.

Myriam Curet: I'm going to ask Dr. Caret as a bariatric surgeon to go ahead and weigh in on that first part of your question and we'll talk about the broader implications after that. I think you are correct. I think in the short term we will see patients who are considering or are in the pipeline for bariatric surgery going to try the drugs. However, given compliance issues, cost, side effects, we expect that many of them will not stay on the drugs for longer than a year or two and at that time we'll consider bariatric surgery. So I think overall we'll see an increased interest in bariatric surgery, but that will get delayed in the short term. Robbie, any follow-up you wanted on JLP ones?

Robbie Marcus: No, I had a financial question for Jamie, if that's okay after. Please.

Speaker 2: to meet the customer's needs, kind of where they are. With regard to pricing, we look at a couple things. Certainly price to us, cost to us, but also price elasticity, what the customer can do and achieve, and that varies by market, and I think we become increasingly sensitive to and sophisticated at understanding price.

To meet the customers' needs kind of where they are.

With regard to pricing, we look at a couple of things certainly price to us cost to us, but also price elasticity, what the customer can do and achieve and that varies by market and I think we've become increasingly sensitive to and sophisticated at understanding pricing.

Speaker 2: So raw material pricing and core inflation to us is an input to our pricing. That's why we took price up this last year. But it's not the only thing and you shouldn't expect us to be purely algorithmic tracking inflation on its.

So raw material pricing and core inflation to us as an input to our pricing. That's why we took price up.

This last year, but it's not the only thing and you shouldn't expect us to be purely algorithmic of.

Tracking.

On its own.

Yes.

Thanks.

Speaker 9: and we'll go to line up for michael pollard uh... wolf research please go ahead thank you that they could take a question uh... at the

And we'll go to the line of Michael Polack from Wolfe Research. Please go ahead.

Yeah.

Hey, good afternoon. Thank you for taking the questions I have.

Picture, one modeling long term.

Speaker 9: There was an investor presentation out earlier this year, and it intuitively identified six million procedures globally for multi and single port, for which you currently have line of sight. And on that same slide, identified that there's 20 million soft tissue surgery procedures overall.

There is an investor presentation out earlier this year.

In it.

Intuitive identified $6 million.

Procedures globally for multi and single Port for which you currently have line of sight and on that same slide.

Jamie Samath: Jamie, it looks like a fourth quarter gross margin is ticking down a bit and you're talking about the increased appreciation cost and some of these new investments here, I was wondering if you could size the amount and I'm really looking for how to think about into next year with depreciation so we could get our gross margins set based on whatever expansion or contraction we're all forecasting. Thanks a lot. Yeah, four, Q4, you're not really seeing significant depreciation expense reflected in the range that we provided, that's really more next year.

Identified that there's 20 million soft tissue surgery procedures overall.

Speaker 9: And if I look at where you are today, you're approaching 40 percent of that six million. And so my question is, the delta between the 20 and the 6, the 14, kind of...

And if a if I look at where you are today, you're you're approaching 40% of that $6 million.

So my question is the delta between the 20 and.

In the six to 14 kind of how do you how do you expand the six towards the 20 and and you know what are the major unlocks that you expect over the next.

Speaker 9: How do you expand the six towards the 20 and what are the major unlocks that you expect over the next...

Speaker 9: three to five years that'll move the six towards the 20 and kind of your feel for the pace of addressing more of

Three to five years that'll move the six towards the 'twenty and kind of your feel for the pace.

Addressing.

Jamie Samath: Some of the manufacturing capacity and facilities come online, what you're seeing Q4 really is a little bit of FX given how the rates have moved, a little bit of slower progress in some of the line transfers and product cost reduction plans that we have, that's not a large delay, it's just slightly slower than we have planned and then there's some mixed dynamics reflected in Q4. They now out to be relatively small but those are the dynamics as to why that gross margin range for the year is at the midpoint slightly lower than what we had previously.

More of the global procedure pipe.

Speaker 2: Yeah, it's a good question. The I think the general tools that we use to get from six to 20 are kind of three buckets. Some of them are clearances in new markets. So making sure that that market we can address has access to the technologies that we already have. So you think about something like ion, for example, ion is not yet available in all the markets in which we operate as it operates, that it starts to open.

Yeah, It's a good question.

I think the general tools that we used to get from six to 20 or a kind of three buckets.

Some of them are clearances in new markets, so making sure that that market. We can address has access to the technologies that we already have.

Think about something like Ion for example, all around us.

Not yet available in all the markets in which we operate as it operates and it starts to open what we can do.

Speaker 2: That's kind of one bucket. New indications are another one that some of the work that Miriam described earlier, that starts to open new opportunities for us. We broaden the applicability of our platforms to new types of surgery and intervention.

That's kind of one bucket new indications or another one that some of the work that Mary described earlier.

That starts to open new opportunities for us as we broaden the applicability of our platforms to new types of surgery and intervention.

Jamie Samath: With respect to how 24 is shaping up, what I would just say is, as Gary said in his prepared remarks, we'll see some variability in gross margin over the next several cores, is the depreciation expense and the ongoing efforts to improve our product cost, particularly on the eye on side and frankly there are some accumulated inefficiencies just in our global manufacturing operations. They built up over COVID and because of the supply chain issues that we encountered that we're addressing and a number of those will take time for us to resolve.

Speaker 2: The third bucket or another bucket is reimbursement. There are places where we think additional data is required to get insurers to engage a little bit differently and open the market.

The third bucket or another bucket as reimbursement there are places where we think.

Additional data is required to get insurers to engage a little bit differently and open the market and then lastly, there are new products and technologies that we're working on that we are not yet described that we think allow us to provide new solutions that are competitive in the marketplace.

Speaker 2: Lastly, there are new products and technologies that we're working on that we have not yet described that we think allow us to...

Speaker 2: to provide new solutions that are competitive in the marketplace.

Speaker 2: Each of those operates on a little bit different timeline. So it's not, I can't give you a simple synopsis of how fast each one runs. Some of them take a lot of years, some reimbursement things are a long lead, product development can be a long lead. Other types of access can happen more quickly.

Each of those operates a little bit different timelines. So it's not I can't give you a simple synopsis of how fast each one runs some of them take.

A lot of years, some reimbursement things are a long long lead our product development can be long lead.

Jamie Samath: So I'd say, let us give you 24 guidance for gross margin when we get to January because I think we still have to work through those plans. Great, thanks a lot.

Other types of axis can happen more quickly, but that's a set of plans that we lay out we're pretty disciplined about laying out what we wanted to do over time over a multi year time horizon.

Speaker 2: But that's a set of plans that we lay out. We're pretty disciplined about laying out what we want to do over time over a multi-year time horizon. And that's how we start to open that market.

Unknown Executive: We'll go to the next line.

How do we start to open that market.

Travis Steed: Travis Steed, Bank of America, please go ahead. Thanks for taking the question. I guess the fallup on that. I know on those prepared remarks it sounds like Gary said, manufacturing improvements for new products and another complex project. So it just cares to get elaborate on some of those new products and complex projects and what those are that can impact in the gross margin. Yeah, on the product side, we have real work to do on eye on.

That was our last question.

Speaker 2: In closing, we continue to believe there's a substantial and durable opportunity to fundamentally improve surgery and acute intervention.

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 quadruple aim.

Speaker 2: Our teams continue to work closely with hospitals, physicians and care teams in pursuit of what our customers have termed the quadruple A.

Speaker 2: better, more predictable patient outcomes, better experiences for patients, better experiences for their care teams, and ultimately a lower time.

Better more predictable patient outcomes better experiences for patients better experiences for their care teams and ultimately a lower total cost of care.

Travis Steed: Eye on is well accepted by the customer base growing quickly. We need to iterate and drive manufacturing ability and manufacturing costs on eye. So that was mainly what I was referring to. Some of the accessories in the SP line are real opportunities. We want to be assertive there. So on the product side, that's most of what the reference is. Just one of the elements, we are insourcing a high volume accessory on the multiple side. It's part of insourcing that there's differential automation in the line there. And so ramping that, you know, there's some work together to be at halotog, is.

Speaker 2: We believe value creation in surgery and acute care is foundationally human. It flows from respect for and understanding of patients and care teams, 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.

We believed we believe value creation in surgery and acute care is foundational in human.

Those from respect for and understanding of patients and care teams their needs and their environment.

At intuitive, we envision a future of care that is less invasive and profoundly better where diseases or identified earlier and treated quickly so patients can get back toward matters most.

Yeah.

Speaker 5: Thank you everyone and that does conclude your conference. We do thank you for joining. You may now disconnect. Have a good day.

Thank you everyone and that does conclude your conference. We do thank you for joining you may now disconnect have a good day.

Brian King: Great, helpful. And coming into this year on the procedures, in some of the swing factors were China staffing pressures in COVID. And I imagine like going into 24, you know, this bariatric from China or some of the swing factors, maybe just talk about some of the swing factors on on 2024 procedures, you know, pluses and minuses. And do you think China and bariatrics are still going to be growing and, you know, adding to the growth in procedures in 24?

Speaker 16: We're sorry, your conference is ending now. Please hang up.

We're sorry your conferences ending now please hang up.

Brian King: Travis is Brian, I guess thinking of 2024, or nothing really to share at this point, you know, clearly, I think when we get into January, we'll be able to give you a bit more insight. But I guess I'll just leave it at that for now. We just pick up two topics you hit. You know, on the China side, I think the procedure demand side remains robust. I think there's some government policy activity that's putting a little bit of a chill in the market.

Brian King: Some of that is economic, so price caps and value based pricing. And some of it is an anti-corruption probe that is giving hospitals some pause at moving forward with other new programs. We'll see. I think the China side is likely to persist some pressure on the China side is likely to persist for several quarters. On the bariatric side, I think we'll find a new normal in the next few quarters. It's hard to predict exactly when that will happen. You know, we'll see that play out in the marketplace.

Unknown Executive: Great. Thanks a lot.

Larry Biegelsen: We'll go to the next line. Larry Beegelson, Wells Fargo. Please go ahead. Good afternoon. Thanks for taking the question. Gary, you're usage based leasing programs gotten some scale. Can you talk about the utilization rates on those symptoms relative to the average and any other themes you could share? Sure. I will turn to Jamie here on kind of utilization rates, so once you kick that off. Yeah, there's two ways to look at it.

Larry Biegelsen: Larry, what is the absolute utilization rate compared to a regular leasing compared to a purchase arrangement? They are very similar, actually. The tightness on the mean between those three structures is very tight. Within those arrangements, you generally have a target procedure level that reflects success of the program for the customer and the economic objectives that we have. And if you accumulate again the portfolio, they run it slightly above the target procedure levels that we have embedded in the contracts. So they have run very well so far, and it's one of the reasons why we and the customer have expanded those so quickly in recent times.

Jamie Samath: That's helpful. And leasing in the US, you know, where do you see that going? I mean, it was almost, it was over 70, this quarter and last quarter, have we plateaued or does that continue to go higher? Thanks for taking the questions. On a global basis, we expect the proportion of placements that are leased to continue to find. US is pretty high, as you pointed out, Larry, 70% of this quarter, 78% last quarter.

Jamie Samath: There will be some larger IDNs that just routinely prefer to purchase just because of how that affects the metrics that are important to them. But even in the US, I think there's some room for that to continue to creep up a little bit, obviously running out of room. We found a number of US customers have really appreciated that as a way to manage through what are tightly managed capital budgets.

Unknown Executive: Thank you.

Brandon Vazquez: And next we have Brandon Vazquez, William Blair. Please go ahead. Hi everyone, thanks for taking the question. Maybe my first one, one to talk a little bit about general surgery that's obviously been a nice growth path for you here in the US. My understanding is it's a little less penetrated in international. What do you think needs to happen in the international markets to kind of get them? Can that be part of your adoption curve for general surgery as well? Are they kind of same timelines and catalysts of the US?

Unknown Executive: Sure, thank you for the question. On one way to think about it is that general surgery comprises both procedures that are done where cancer is the underlying cause and others that are benign indication on the cancer is an underlying cause. We're seeing nice early growth in several US markets. So there I think that's healthy and we're enthused. I think reimbursements are generally in place and many of the places that we are operating.

Unknown Executive: I think that's look good and critical data coming out has been supportive. I think that is you think about benign indications. We're seeing some of the beginnings of benign indications in some markets. There may be reimbursement work or education of insurers that has to be done for those to progress further so that in that setting we'll have additional work to do as it plays out. Great. And then maybe last one for me is a follow up.

Unknown Executive: I think last quarter you guys were talking a little bit about launching. I believe it was called case insights kind of the software AI platform. Any kind of updates on that and how are things going so far and maybe what's in the future for that program. Thanks. Yeah, thank you for the reference. So case insights is our machine learning AI program that looks at surgical science. We have our first installs and first cases going.

Unknown Executive: Now we had talked about it with you last quarter so far early feedback and it's super early. We're really in the early innings here is very good. Case insights builds on some prior research that we had done with academic centers on something that we had described as a computational observer. So we have some pretty good scientific underpinnings for it. We expect over time that that program will feed insights into different parts of the hospital's analytics system from a giving specific guidance to learning surgeons and care teams about where they might improve their technique and skills to giving suggestions to programatics about efficiency and total cost management.

Unknown Executive: To giving other insights for the company about how to improve procedures in the OR. So we think it's it's a long term set of investments around really the science of surgery. We remain extremely excited about it. While we do have some revenue for it, we don't expect it to be a serious revenue driver. We think it is ecosystem complimentary and we look forward to describing it more to you as time goes on. Great. Thanks a lot.

Matt Miksic: We'll go next to Matt Miksic, Barclays, please go ahead. Hi, thanks so much for taking a question. So I had one question on, I follow up on kind of the, the bariatric trends, and one on sort of the system leasing effect on pricing.

Matt Miksic: So, bariatric, if you could maybe talk about, you mentioned the global percentage of procedures that bariatric represents, maybe just the growth trajectory of that business in the second quarter and the third quarter, and whether that's something you expect to grow at a similar trajectory or bottom out given your comments on, you know, folks getting on the truck or getting off saying you're to kind of suggest a longer path to stabilization in that business line within. I mean, I mean, I'll just follow up briefly with the question on ASBs if I could thank you.

Matt Miksic: Yeah, Jamie, you might speak to kind of what the size or percentage of that business is for us, a little bit of the acceleration or deceleration trend. Yeah, and I want to make sure I got it right, Master, come back to me if I have the wrong questions, but our total bariatric business represents about four to five percent of global procedures. What you saw in Q2 was in the US, which is whether majority of our bariatric procedures volumes are in the US, the growth rate declined to about the US average, and then what we saw in Q3 was it modestly declined a little further in Q3.

Matt Miksic: Was that with those your questions? Yeah, no, that's very helpful. And then I guess just your expectation you framed out in terms of your guidance, but I mean, as this, I mentioned it just because one of the other competitors actually saw a decline, I guess in Laveroscopic bariatric or some combination of open in the third quarter, single digit decline, but you didn't seem like you're in that zone, right? You're still at or slightly below your average growth rate in the US, is that I'm not hearing your answer correctly.

Matt Miksic: What if if you take out procedure growth in bariatrics relative to market, what taking share and have been for some time? So the fact that we had double digit growth in Q3 relative to another company that had a decline, that's just a reflection in part of the fact that we are taking share in bariatrics and continues to do so, even though there's an impact to overall bariatric surgery because of GLP1s. That's very helpful.

Jamie Samath: And then the other, I'm just ASP, I understand the system ASD you give is not, you know, as your US leasing goes up, as I understand it, you know, those leased systems in the US are not included in that ASP calculation, so you could maybe just speak to, I don't know, the way in which the increased leases have affected ASP or whether it's... This is, you know, straight up, you're over your, the client that suggested and meet in sort of the overall numbers that you provide.

Jamie Samath: If I'm, if that's clear question. Yeah, so everything you described is, is correct. Generally, although that can be exceptions for mix effect, generally US, everything is grown significantly in the US, that in and of itself has a adverse effect for calculated system ASP. The other thing that you see then with now a great proportion of systems used to calculate the system ASP being international. You know, effects can have an effect if you look on a two year horizon.

Jamie Samath: So, for example, the strange rate in Japan, based on how, how the US dollar strength and there's a 30 to 40% impact over a two year basis on on system ASP in Japan has translated. So, there is a geographical effect. And if you look at a long enough horizon, there's an effects effect in there. What we described in Q3 was in terms of the year of year decline in ASP, also a dynamic relative to pricing.

Jamie Samath: And that's really just as we expand our existing customers who are looking for third, fourth, fifth system, those tend to be slightly lower ASP than you've seen previously when they were greenfield accounts. I would say that in China, we do see some competitive dynamics with respect to pricing, just given the number of lower local players. And so, there's been some competitive effect on system ASPs in China specifically. We don't really see that in other markets to this point.

Matt Miksic: Thanks so much for the color.

Unknown Executive: And we'll go to the next slide.

Jason Bedford: Jason Bedford, Raymond James, please go ahead. Hi, good afternoon. Gary, I think you've expressed your views on the role of very atric surgery in a GLP world. I'm just wondering if these views have changed in any way over the last quarter or two. I know it's not a lot of time, but the adoption of this class of drugs is obviously ramping quickly, and then just as kind of a related follow-up. Getting back to Robbie's question on the potential impact of GLPs beyond very atric, do you expect an impact on some of your other procedure categories as GLPs get adopted?

Jason Bedford: Okay. On the first one, I think, Miriam described it well. Our position on GLP ones, as it relates to very atric surgery, I think she hit it well at the start of the call, no reason to reiterate it here. On the issue of potential impact beyond very atric, there may be some, although I think through the analysis, I think it will be modest. And here's how we think about it. If you look at obesity and diabetes as risk factors in other domains and other diseases for which surgery is performed, they are sometimes a positive correlated risk factors for that disease in some weird cases.

Jason Bedford: Is there negative cases that it's actually protective against disease? So it's not entirely obvious. In most of the diseases that we treat as we look at it, it is not the dominant risk factor. So as we look at and think about what could it be like in our TAM, we can kind of do a back of the envelope analysis. It is really early. I don't think anybody knows the exact number. What I can say is that it's not the dominant risk factor in most things that we look at.

Jason Bedford: And we have a very large unpenetrated TAM. I think we're still in the early innings of what we're trying to work on. So if these drugs are highly effective at avoiding other types of diseases, we will cheer. I still think we have a lot of upside opportunities to pursue.

Jason Bedford: Thanks for taking the questions.

Myriam Curet: I think you spoke about some of the new indications in SP and if I'm not mistaken, I think there's a 30 day follow up on the thoracic trial, but I'm curious if you could expand maybe when you know complex colorectal and thoracic cases potentially could become growth drivers for SP adoption and when you expect those not just those trials to wrap up, but but potentially clearances in the US with that. Sure, Myriam, I think you're best answer.

Myriam Curet: Yes, so we are hoping to submit everything in the foreseeable future after that, as you know, there's at least a 90 day turnaround for the IDEs and then excuse me for the clearances and then after that, you know, we will have to put training together and so the launches together, so I can't really give you a timeline for when that would be, but we know what the work is that needs to be done and we are starting and moving forward on that. Our biggest step is to get the data arranged, get it into FDA and work with them to get the clearances and then as Myriam says, we'll go through a staged commercialization so you can expect submissions in the first half of 24 and then response thereafter.

Gary Guthart: Thank you, Gary. One of the other things and I don't know if it's direct to you, Gary or Jamie, but you did talk about an opportunity to lower product cost as supply chain stresses ease and I know there was some comments earlier about 24 gross margins, but but stepping aside from that, can you quantify the opportunity potentially for what that looks like? Have you gotten your arms around? I know Marshall's been kind of shepherd in these processes, but at what point can you give the street more color on what that opportunity looks like to drive gross margin gains?

Gary Guthart: We have very well detailed plans for each of the areas that we're focused on. The teams have the capability and skill. It's going to take some time. I think the best way I would answer the question is, we see a path over time, probably in the midterm to get back above 70% gross margin.

Jamie Samath: Thank you, Jamie.

Anthony Pachone: We'll go to the next line. Anthony Pachone, a little group. Please go ahead.

Anthony Pachone: Maybe one on China and one on pricing on instruments, and we think about the quota size that National Health Commission China put out. It's the new quotas 559 systems, just wondering on anti corruption. Could that shift that number over time, whether it be that just there's fewer capital dollars going to projects or just from a timing element because things are getting elongated. And then the pricing question would be on instruments and accessories.

Anthony Pachone: The company put a 5% price increase in there first one in 14 years. Chairman Powell came out and said look inflation is going to be persistent and elevated for quite some time. If inflation stays high, could another 5% price increase beyond the table for 2024?

Gary Guthart: Thanks. With regard to the capital side in China, I'll jump into that. I think demand for our systems and for the procedures they support in China, raw demand is really high. So it's really being limited or titrated by policy. I don't see, I haven't heard anything that says people want to go back and revisit or lower the quota. I think that would be resisted by customers who are looking for purchases. So I think it's more around delay and kind of a timing thing and how long that is hard to predict but months, not weeks.

Gary Guthart: On the pricing side, I'll speak to a general principle rather than projecting 24. You know what we try to do is a couple of things. One is be an outstanding manufacturer, really get high quality at low cost and make sure that we can invest in manufacturing prowess to do that. I think that's really powerful for us. It gives us enormous flexibility to meet the customers needs kind of where they are. With regard to pricing, we look at a couple of things, certainly price to us, cost to us, but also price elasticity.

Gary Guthart: What the customer can do and achieve in that varies by market and I think we become increasingly sensitive to and sophisticated at understanding pricing. So raw material pricing and core inflation to us is an input to our pricing. That's why we took price up this last year. But it's not the only thing and you shouldn't expect us to be purely algorithmic tracking inflation on its own.

Michael Polark: And we'll go to the line of Michael Polark of Wolf Research. Please go ahead. Good afternoon. Thank you for taking the questions. I have a big picture one modeling long term. There's an investor presentation out earlier this year in it. Intuitive identified six million procedures globally for multi and single port for which you currently have line of sight. And on that same slide, identified that there's 20 million soft tissue surgery procedures overall. And if I look at where you are today, you're approaching 40% of that six million. And so my question is the adult of between the 20 and the six, the 14 kind of.

Gary Guthart: How do you expand the six towards the 20 and what are the major unlocks that you expect over the next three to five years that will move the six towards the 20 and you know, kind of your feel for the pace of addressing more. Yeah, it's a good question. The I think the general tools that we use to get from six to 20 or kind of three buckets. Some of them are clearances in new markets, so making sure that that market we can address has access to the technologies that we already have.

Gary Guthart: So you think about something like ion, for example, ion is not yet available on all the markets in which we operate as it operates as it starts to open, and what we can do. That's kind of one bucket. New indications are another one that's some of the work that Myriam described earlier. That starts to open new opportunity for us is we broaden the applicability of our platforms to new types of surgery and intervention.

Gary Guthart: The third bucket or another bucket is reimbursement. There are places where we think additional data is required to get insurers to engage a little bit differently and open the market. And then lastly, there are new products and technologies that we're working on that we are not yet described that we think allow us to provide new solutions that are competitive in the marketplace. Each of those operates on a little bit different timeline.

Gary Guthart: So it's not I can't give you a simple synopsis of how fast each one runs. Some of them take a lot of years. Some reimbursement things are a long, long lead product development can be long lead. Other types of access can happen more quickly. But that's a set of plans that we lay out. We're pretty disciplined about laying out what we want to do over time over multi year time horizon. And that's how we start to open that market.

Gary Guthart: That was our last question. 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 quadruple lane. Better, more predictable patient outcomes, better experiences for patients, better experiences for their care teams, and ultimately a lower total cost of care. We believe value creation and surgery and acute care is foundationally human.

Gary Guthart: It flows from respect for and understanding of patients and care teams their need and their environment. At Intuitive, we envision a future of care that is less invasive and profoundly better, where diseases are identified earlier and treat it quickly so patients can get back to what matters most.

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