Intuitive Surgical, Inc.

Ladies and gentlemen, thank you for standing by and welcome to the Intuitive Q1 2021 earnings release. At this time, all participants are in a listen-only mode. Later, there will be time for questions. Instructions will be given at that time. If you should require assistance during the call, please press star then zero. As a reminder, this conference is being recorded. I would now like to turn the conference over to our host, Philip Kim, Head of Investor Relations. Please go ahead.

Good afternoon and welcome to Intuitive's first quarter earnings conference call. With me today we have Gary Goodhart, our CEO, Marshall Moore, our Chief Financial Officer, and Jamie Sameth, our Senior Vice President, Finance. 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 our Securities and Exchange Commission filings including our most recent Form 10-K filed on February 10, 2021. Our SEC filings can be found throughout 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. 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 first 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. Marshall will provide a review of our financial results. I will discuss procedure and clinical highlights. And Jamie will review our financial outlook. Finally, we will host a question and answer session. With that, I will turn it over to Gary.

Thank you for joining us today. Our first quarter of 2021 was a step in the right direction. In the quarter, we saw a healthy recovery of surgery and use of our products. Strong capital placements continued in Q1 2021 and utilization of installed systems increased through the quarter, indicating a need by our customers to return to surgery. We're in the early innings of commercialization of two new platforms for Intuitive, while advancing digital enablement of our ecosystem. Our teams are making good progress in all three areas. Overall, we're seeing some pandemic recovery, but improvement has been uneven with significant regional variation. Our experience shows that our business rebounds as COVID drops. Starting with procedures, general surgery in the United States was a source of strength in the quarter, driven by bariatric surgery, cholecystectomy, and other procedures. Bariatric surgery has been on a multi-quarter growth trajectory, the result of aligned development and commercial activity, starting with a capable system, using advanced instruments and combined with a focused commercial team. Ventral hernia surgery is recovering, with inguinal hernia tracking behind, aligned to hospital and patient prioritization. In the U.S., gynecology and urology returned to growth after pandemic-related declines. Growth in our second-largest market, China, continued to be strong, with multiple specialties contributing. Lastly, procedures that have long diagnostic journeys, such as prostatectomy and thoracic surgery, remain below historical levels. Philip will take you through procedure dynamics in more detail later in the call. On the capital side, new system placements continue to exceed our expectations, with the United States, China, France, and the UK standing out in the quarter. We know that new system placements are closely tied to anticipated procedure volumes and system utilization in mature markets. System utilization grew in the quarter on average, with significant regional variance due to pandemic differences. Overall, capital strength indicates anticipation of future procedure opportunity by our customers. A significant number of systems were part of multi-system deals by hospitals and integrated delivery networks, supporting a theme in which customers who know robotic-assisted surgery well continue to invest with us. Lastly, the use of leasing and other alternative capital placement models ticked up again this quarter. Marshall will take you through capital placements in more detail later in the call. Surveying our business around the world, our business in China is growing quickly from a small base, and we are pleased with the performance of our joint venture with Fosun Pharma. We believe there is significant long-term opportunity in China and remind you that it is currently a quota-controlled market. We expect China to be dynamic and competitive in coming years, and we're investing in the market to bolster our place as a leading provider to the Chinese healthcare system. In Japan, growth remains healthy, though below pre-pandemic levels. In Europe, our business in France and Germany have performed well considering the pandemic. In the UK, tightly controlled surgery resulted in procedure declines, but we've also seen an increased commitment to robotic-assisted surgery in the form of increased capital placements, anticipating a return of da Vinci surgery post-pandemic. Italy and Spain are gradually returning to growth after substantial pandemic impacts. Speaking to our finances in the quarter, Procedures recovered nicely in Q1. System placements came in above plan, and I&A revenue per procedure was above our expectations, together driving 18% revenue growth over Q1 2020. Product gross margins were strong in the quarter, largely due to above average system ASPs, lower than expected excess and obsolescence charges, and higher volumes through our factories. Other spending was constrained in the quarter, driven by three factors. First, travel and associated costs did not recur at pre-pandemic levels. This spend will increase as COVID wanes and our customers and our staff reach immunity. Second, COVID delayed some work in R&D, leading to some underspend in prototypes. We expect these programs to ramp up as COVID wanes and our labs and development programs recover efficiency. Third, we deferred some investments in infrastructure that were unnecessary during the pandemic. We think most of these factors will normalize over time, and we consider them one-time events related to the pandemic. We are still in the early stages of developing robotic-assisted surgery globally, and we will continue investing in R&D and our regional capabilities to realize these opportunities. As I mentioned at the start of the call, we are in the early phases of our commercialization efforts for new platforms, which we expect to play out over future quarters. Our single port surgery platform, DaVinci SP, we performed our first cases in the US and Korea of an important accessory, our SP access port, which enables surgery close to the body wall and eases assistant surgeon access through the single incision. The access port is important in the SP ecosystem, facilitating access and workflow in many procedures in which SP is used. We've had very strong customer feedback on the port to date. We are also increasing our investments to accelerate new indications in key countries. In the U.S., we have two cleared indications for SP and expect to initiate cases as part of our colorectal IDE this quarter. We've seen strong interest in SP use in various specialties, and we're in the process of designing trials for additional patients, including thoracic surgery and other surgical disciplines. Overall, we've received robust customer feedback for SP use under existing clearances. Turning to our flexible robotics platform, ION, we installed 14 systems in the quarter. We're recovering from our supply backlog and our meeting demand for ION procedures at all our installed accounts, while working to fill customer inventory stocking requests and our internal inventory goals, which we expect to complete around mid-year. Our precise trial evaluating the ability to reach and diagnose suspicious pulmonary lesions is on track to finish enrollment by Q2 this year. Our eye on clinical performance is meeting our expectations, and customer acceptance remains highly encouraging. In our digital ecosystem enablement, we broadened access to our mobile surgeon portal, the MyIntuitive app, this April as part of our phased launch. MyIntuitive is a mobile app that allows surgeons to manage their da Vinci experience, log in to da Vinci systems, manage their training, and view their operative data from the palm of their hand. Our intuitive telepresence program supported 45% of all case observations in Q1 2021, up from less than 5% a year ago, a significant achievement accelerated by the pandemic, improving convenience for our customers and reducing costs for our team. Year-over-year surgical simulation usage in the quarter grew roughly 46% over Q1 2020, validating the power of digital tools. Finally, our team made significant progress in automating customer-facing analytics as part of our robotics program consulting services, which allow our customers to analyze the relative performance of their adventure programs. Now a routine part of customer engagement in the United States. In conclusion, we're seeing adjustments in the health care system that favor our offerings. Increased appreciation of high-quality MIS in the current and post-pandemic environment, increased openness to digital technologies, increased use of analytics to assess care, and increasing sensitivity by health systems to total cost to treat. We have and will continue to position ourselves to perform well in this environment. I'll now turn the time over to Marshall to take you through our financial performance in greater detail.