Intuitive Surgical, Inc.

Ladies and gentlemen, thank you for standing by, and welcome to Intuitive Surgical's fourth quarter 2019 earnings release. At this time, all lines are in a listen-only mode. Later, we will have a question and answer session. If you wish to ask a question on the call, please press 1, then 0. Once again, that's 1-0. As a reminder, today's conference is being recorded. I'd now like to turn the conference over to Senior Director of Finance, Investor Relations, Kelvin Darling. Please go ahead.

Thank you. Good afternoon, and welcome to Intuitive's fourth quarter earnings call. With me today, we have Gary Guthart, our CEO, and Marshall Moore, our chief financial officer. Before we begin, I would like to inform you that comments mentioned on today's call may be deemed to contain forward-looking statements. Actual results may differ materially from those expressed or implied as a result of certain risks and uncertainties. These risks and uncertainties are described in detail in the company's Securities and Exchange Commission filings, including our most recent form, 10-K, filed on February 4, 2019, and 10-Q, filed on October 18, 2019. 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. Please note that this conference call will be available for audio replay on our website at intuitive.com on the latest events section under our investor relations page. In addition, today's press release and supplementary financial data tables have been posted to our website. Today's format will consist of providing you with highlights of our fourth quarter results as 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. Marsha will provide a review of our fourth quarter financial results. Then I will discuss procedures and clinical highlights and provide our financial outlook for 2020. And finally, we will host a question and answer session. With that, I'll turn it over to Gary.

Thank you for joining us today. At Intuitive, we measure our efforts by their ability to positively impact the quadruple aim, better outcomes, better patient experience, better care team experience, and lower total cost to treat per patient episode. This fourth quarter of 2019 was another strong one for Intuitive in pursuit of these aims, capping a good year for the company Our performance is reflected in healthy total growth in customer use of our systems, new capital installations, sustained quality service of our customers, clinical publications, and the launch of new products and services. For the quarter, global procedure growth was approximately 19%. Growth was led by general surgery in the United States, with positive contributions to the global growth rate from Japan, China, Germany, and Korea. Globally, customer utilization of systems increased again in the quarter, indicating greater productivity per installed system. Leasing and alternative placement models have also helped our customers gain access to additional procedure capacity with lower capital outlays. In the United States, year-over-year procedure growth for the quarter was 18%. General surgery accounted for the largest increase accompanied by stable growth in urology and gynecology. Within general surgery, hernia repair, cholecystectomy, bariatric and colorectal surgery showed strength. Outside the United States, several markets are early in their transition from growth in urology to other surgical categories, including gynecology, thoracic surgery, and general surgery, with growth varying by country. Calvin will take you through global procedure dynamics in more detail later in the call. With regard to our installed base, placement of new systems in the quarter was solid. We placed 336 systems in the quarter, with growth in total placements rising 16% from Q4 of 2018. Net of trade-ins and retirements, our DaVinci install base grew to approximately 5,582. The mix of system placements this quarter continues to favor our flagship XI system, and trade-ins were healthy. The proportion of systems placed under operating leases was 38% this quarter compared with 33% last quarter. As a reminder, total placements and that percentage of systems placed under lease or usage-based arrangements can vary substantially quarter to quarter. Over the past several years, we've been working to enable greater access to our products and services. For example, we believe leasing and uses-based models benefit our customers by lowering barriers for them to provide high-quality computer-aided interventions. We anticipate continuing to expand access and lower costs for our customers as our business progresses into different procedures and geographies. Turning to expenses, we believe we are still in the early days of computer-aided surgery and acute interventions. As a result, we are investing in building our capability in several important ways, including deepening internationally, launching our new platforms, strengthening our computational capabilities, and executing projects that support future scale and provide leverage opportunities as we grow. Our spending for the quarter and for the year was within the upper end of the spend guidance we shared with you in 2019. It is supported by solid procedure growth, capital placements, and product cost reductions. Financial highlights of our fourth quarter results are as follows. Procedures grew approximately 19% over the fourth quarter last year. We placed 336 da Vinci surgical systems up from 290 in the fourth quarter of 2018. Our install base grew 12% from a year ago. Revenue for the quarter was approximately $1.3 billion, up 22%. Proforma gross profit margin was 72.2% compared to 71.8% in the fourth quarter last year. Instrument and accessory revenue increased to $671 million, up 24%. Total recurring revenue in the quarter was $896 million, growing 24% over Q4 of 2018 and representing 70% of total revenue. We generated a pro forma operating profit of $506 million in the quarter of 23% from the fourth quarter of last year, and pro forma net income was $417 million, up 18%. Highlights for the full year of 2019 are as follows. Procedures grew approximately 18% over 2018. We placed 1,119 systems in the year, growing the install base 12% over 2018. Revenue for the year was approximately $4.5 billion, growing 20% over 2018. And pro forma net income was approximately $1.5 billion, up 17% over 2018. Turning to progress in our innovation pipeline, I'll start first with systems. We are in our Phase I launch of DaVinci SP, and we are working to expand its clinical clearances and build SP products at scale. In the quarter, we installed six systems to bring our installed base of SP to 44. Customer response and early clinical results using SP remain encouraging, with over 50 peer-reviewed clinical articles on SP to date. With regard to additional indications for SP, we've been in discussion with FDA regarding data requirements for colorectal indications. We expect this to require an IDE trial that includes follow-up analysis. This implies we do not expect the third indication for SP in the U.S. in 2020. While I would like a faster launch of SP, the combination of additional indications for SP and our readiness for deployment at larger scale will pace the speed of our SP commercial expansion. In flexible diagnostics, our ION platform is focused on the need for accurate and timely biopsies to support definitive early diagnosis of suspicious lesions. As of the end of the quarter, there are approximately 16 systems in the field, some commercial and some clinical trial sites, with several hundred procedures performed. To date, the rollout is meeting our expectations and user feedback during this initial launch period has been strong. We expect several publications reviewing the performance of ION to be presented during 2020. Turning to instruments and accessories, our team has been making great progress in building out our instrument portfolio with high-quality products. Our experience has shown that procedure adoption occurs when the holistic needs of the care team are met, when the right system and imaging products come together with the right instruments and accessories. Our team initiated our first phase launch in the quarter for our SynchroSeal sealing and transsection device, along with our first integrated energy controller called the E100. SynchroSeal provides surgeons with wristed, precise, and fast sealing and transsection ability, often used in general surgery. Early feedback on its performance has been outstanding. SyncroSeal joins our portfolio of advanced instruments, stapling instruments, and advanced energy instruments that customers are now adopting in their DaVinci cases. Turning to imaging and analytics, we're working on imaging, computing, and real-time cloud technologies that allow for capabilities from big data analytics to telementoring to augmented reality. Here alone, intuitive surgical simulators have been used for over 17,000 hours by more than 5,800 surgeons. Our IRIS augmented reality system entered clinical use in the fourth quarter of 2019, and we're pleased with our first customer responses. Over the past several years, our analytical capability has increased, and we now routinely engage our customers to help assess the performance of their robotic-assisted surgery programs relative to other surgical modalities. Armed with local comparative analysis of robotic-assisted surgery within their institutions, hospitals with active programs have been building access to DaVinci Systems and growing their programs. We expect continued investment and progress in these areas in 2020. As we move into 2020, let's step back and review the da Vinci surgery universe. In the past several years, general surgeons have increased their adoption of our offerings, underpinned by improvements in the quadruple name in procedures they perform, from hernia repair, cholecystectomy, and colorectal surgery to bariatric surgery. These surgical procedures span a broad range of complexity and economics. At the same time, Intuitive continues to deepen our capability in key countries to support the adoption of robotic-assisted surgery in their healthcare environments. We are flexing our company to better serve these customers with the launch of new systems, new instruments, and updates to our software, along with changes to our sales and support models and pricing structures. Given the large global opportunity to pursue the quadruple aim, I believe the next few years for the company will be dynamic. We will guide the company to meet our customers' clinical and economic needs across this wide range of procedures and geographies. Doing so will involve continued investment in innovation in both technology and business models, and we see a path to do both. Moving into 2020, we are focused on the following. First, supporting adoption of da Vinci in general surgery, including hernia repair, colorectal procedures, and bariatrics. Second, launching our SP ion imaging instruments and analytics platforms. Third, extending our depth in OUS markets, particularly Asia and EU, with growth beyond urology. And finally, supporting additional clinical and economic validation in our focus procedures in countries. Lastly, we are pleased to publish today our inaugural COVID Sustainability Report, which you can find on our website, outlining our multi-year efforts in these areas. I'll now turn the call over to Marshall, who will review financial highlights.