Intuitive Surgical, Inc.

Ladies and gentlemen, thank you for standing by. Welcome to the Intuitive Q2 2021 Earnings Conference Call. At this time, all participants are in listen-only mode. Later, we will have a question and answer session. Feel free to queue up at any time during the presentation by pressing 1-0 on your phone's keypad, and we'll just call you by name when it's your turn for your question during the question and answer portion of the call. Again, that's 1-0 to queue up to go into the question and answer queue. As a reminder, this conference is being recorded, and at this time, I would like to turn the conference over to our host, Senior Director of Finance, Investor Relations for Intuitive, Mr. Calvin Darling. Please go ahead, sir.

Thank you. Good afternoon, and welcome to Intuitive's second quarter earnings conference call. With me today, we have Gary Guthart, our CEO, Marshall Moore, our CFO, and Jamie Samask, our Senior Vice President of Finance. Philip Kim, our Head of Investor Relations, will not be joining on today's call as he's currently on paternity leave following the birth of his daughter. 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, and Form 10-Q, filed on April 21, 2021. 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. 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 second 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. Jamie will discuss procedure and clinical highlights and provide an update of our financial outlook. 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. Our second quarter 2021 performance was encouraging with use of our systems for procedures growing beyond pre-pandemic levels and healthy capital placements. Looking at the past eight quarters in context, our compound annual growth rate for procedures for the period Q2 2019 through Q2 2021 of 16.5% is approximately the growth we would have expected absent the pandemic. The pandemic has reordered the quarter in which procedures were performed, and we believe it has delayed some procedures that are likely to return in the future and may cause a small number of patients to permanently forego surgery. To understand our system placement and capital performance over this period, we look to annual system utilization trends, which have recovered the utilization rates at the high end of our historical averages. Taken together, this combination of a recovery in procedures and healthy utilization supports our solid capital placement trends and rounds out a healthy commercial recovery year to date. Examining procedure trends more deeply, in the United States, procedure growth was strong in the quarter, driven by growth in bariatric surgery, hernia repair, and cholecystectomy. Both gynecology and urology procedure annualized growth strengthened in the quarter as pandemic pressures eased in the U.S. Annualized U.S. procedure growth rates are returning to historical levels for procedures with longer diagnostic pipelines as patients have started returning to screening and diagnostic testing. Growth in our second largest market, China, continued to be strong, with multiple specialties contributing. European procedure growth was generally healthy, though varied by country. Recovery in the UK was healthy in the quarter, as NHS increased access to surgeries broadly. The pandemic is not behind us and additional infection growth may again strain hospital resources and impact our results in the future. Jamie will take you through procedure dynamics in more detail later in the call. On the capital side, new system placements continue to be healthy, with the United States, China, Germany, France, and Japan notable in the quarter. We know that new system placements are closely tied to anticipated procedure volumes and system utilization in mature markets. We continue to see significant utilization variance by region due to pandemic differences. In the quarter, strong trade-ins of older generation systems for our fourth generation products and strength in multi-system deals continue to support our thesis that customers that know us best continue to invest with us going forward. We also saw an increase in our IDN customers opening new da Vinci and ION programs in hospitals within their network that did not previously have an intuitive robotics program, indicating their interest in diversifying access to intuitive programs across their networks. Looking to our finances in the quarter, procedures recovered nicely in Q2, system placements came in above plan, and system ASP and INA revenue per procedure tracked slightly above our expectations, together driving revenue of $1.46 billion in Q2. Our pro forma spending grew over 24% from a year ago, representing increased investment in our business. However, our expense growth rate was modestly lower than our plan, driven by pandemic-related factors. COVID has delayed some work in R&D and clinical trials, leading to some underspend in programs, prototypes, and some delay in hiring. We expect these programs to continue their ramp as our labs and development programs recover efficiency. Travel and associated costs in support of our field have also not recovered to pre-pandemic levels. Field and marketing costs will tick up if the pandemic wanes. In short, our commercial business has recovered more quickly than our spending due to the different ways the pandemic impacts our customers, our supply chains, and our hiring. Marshall will take you through our financial picture later in the call. Turning to our innovation and commercialization efforts, we are developing and deploying technology-enabled ecosystems to support our customers' pursuit of the Quadruple Aim. Better outcomes, better patient experiences, better care team experiences, and lower total cost to treat per patient episode. We are in the execution and launch phase of four efforts. First, we are broadening access to our advanced instruments for our DaVinci fourth-generation multiport systems through pursuit of additional clearances and launches outside the U.S. Second, we are expanding our DaVinci SP offering by broadening its regional and clinical indications and by adding it to its suite of instruments and accessories. Third, we are launching and refining our flexible diagnostic platform, ION, by working with early customers to help establish high-performing sites and by improving our technology and supply chain capabilities. Finally, we are strengthening our digital capabilities across our ecosystem. Our fully integrated advanced instruments portfolio has been a strong addition to our multiport ecosystem, allowing for high-quality tissue interaction controlled from the surgeon's console while optimizing workflow. These system-controlled staplers, vessel sealers, and energy instruments support a range of procedures, from bariatrics to colorectal procedures to thoracic and gynecologic applications. Customer appreciation and recurring use of our products has been growing nicely. In Q2, we launched our SureForm stapling line in India. We launched our forced bipolar energy instrument along with our extended use instruments program in Japan. And we launched our SynchroSeal energy instrument and E100 energy generator in Korea. Turning to our single port system, we placed four SP systems in the quarter. bringing the total install base to 79. SP procedures grew 133% year-over-year, with much of that growth coming from the United States. First cases in our SP colorectal IDE trial were completed in the quarter as we seek to bring SP capability to additional procedures. We are also working on our regulatory filings to bring SP to Europe under the European Union's new medical device regulation framework. Our flexible robotics program, first targeted towards diagnostic bronchoscopy, has had a strong quarter. We placed an additional 20 ion systems in a quarter, bringing the install base to 70. Ion procedures grew six-fold over Q2 2020 to nearly 1,500 procedures in a quarter, reflecting recovery from the pandemic, the growth in new sites, and growth in utilization at existing sites. Our total ion clinical experience is approximately 4,000 cases to date. Clinical trial sites completed enrollment for our precise clinical trial. Finally, our team is making good progress in scaling our operations. Lastly, we continued to digitally enhance our ecosystem. In the quarter, we continued to engage customers in data analytics and opportunity analysis for surgical programs, cornerstone of our Your Data, Your Truth analytics efforts. We have continued the launch of our MyIntuitive app, including launching to first users in Europe. My Intuitive allows surgeons and care team members to access their data, to manage their profile, their learning, and otherwise interact with Intuitive through an easy-to-use mobile app in the palm of their hand. Our digital learning programs continue to be an important part of our overall learning initiatives. These programs together trained over 2,200 care team members in the quarter, showing organizational strength in localizing programs and responding with agility to pandemic-influenced demand. As the phases of the pandemic evolve, we're supporting our team in addressing the opportunities and challenges posed by the pandemic in the ways we work. Intuitive has managed multiple ways of working for many years. Roughly a third of our team works in the manufacture, test, and distribution of our products. Another third works closely with customers in the field, and the remaining third have traditionally worked in lab and office environments. We're taking a first principles approach to return to office environments with our team. bringing back face-to-face interactions for those tasks best completed in person, while enabling hybrid work environments for tasks that are well accomplished by distributed teams. Most of our offices globally are reopening with this hybrid approach. We anticipate iterating our approach as we learn and the year progresses. As I conclude, for the balance of the year, we're focused on the following. First, agile and flexible support for our customers globally as they need it, often addressing the return of surgical patients to treatment. Second, disciplined execution of our launches, including our advanced instruments, SP, ION, and digital efforts. Third, driving depth and excellence in regional performance, particularly in Europe and Asia. And finally, expanding our clinical, economic, and analytical evidence base for key procedures in countries. I'll now turn the time over to Marshall to take you through our financial performance in greater detail.