Intuitive Surgical, Inc.

Ladies and gentlemen, thank you for standing by. Welcome to the intuitive Q3 2021 earnings release conference call. At this time all participants are in listen only mode. Later we will have a question and answer session and instructions for queuing up will be provided for you at that time. Should you require operator assistance, please press star zero on your phone's keypad. And as a reminder, this conference call is being recorded. I would now like to turn the call over to your host, Senior Vice President of Finance, Jamie Smith. Please go ahead, sir.

Good afternoon, and welcome to Intuitive's third quarter earnings conference call. With me today, we have Gary Goodhart, our CEO, Marshall Moore, our CFO, and Brian King, our treasurer. Before we begin, I would like to let you know that Philip Kim, our head of investor relations for the last couple of years, has moved on to pursue his next opportunity in We appreciate his contributions and wish him well in his next endeavor. Joining us on the call today is Brian King, who has been our treasurer for the last seven years. Brian will be expanding his responsibilities to include the role of Head of Investor Relations. Moving on, 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 July 21, 2021. Our SEC filings can be found through our website or at the SEC's website. Investors have 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 third quarter results as described in our press release announced earlier today, followed by a question and answer session. Gary will present the Court's business and operational highlights. Marshall will provide a review of our financial results. I 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 will turn it over to Gary.

Thank you for joining us today. Our team performed well in the third quarter in the face of pandemic-related headwinds. The rise of the Delta variant and stresses in some hospitals pressured the demand for surgery. Global supply chain disruption has yet to abate, necessitating redirection of internal resources to continue to meet our customers' demand. Despite these challenges, growth in the use of our products continued in the quarter, and capital demand remained robust. Our new platforms advanced in their commercialization, in their innovation, and in their clinical programs. Turning first to procedures, the increased COVID burden tempered the recovery we saw in the second quarter, particularly in the month of August. The impact of the Delta variant drove procedures in the United States below our expectations at the start of the quarter, with run rates stabilizing the last couple weeks of September. Adoption continues in the United States, driven particularly by benign general surgery procedures, including bariatric surgery, cholecystectomy, and hernia repair. Trends in malignant procedures remain solid, including prostatectomy, hysterectomy, lobectomy, and colon resection. Two trends that have emerged over the past few years are the increased use of da Vinci and benign procedures and rising use of our advanced instrumentation and targeted procedures. Both are the result of focusing on our customers' needs and delivering product and economic solutions to match. Outside the United States, procedure performance varied as a function of regional pandemic impact. In China, growth in the quarter was strong and spanned multiple specialties, reflecting continued adoption. In Japan and Korea, our procedure business remains healthy, with slight sequential procedure growth Q2 to Q3, despite COVID-related surgery disruption. Germany, the UK, and France had reasonable year-over-year procedure growth, and our customers are having success in diversifying procedure categories beyond urology. Regarding the capital environment, new system placements continue to be robust. The United States had an outstanding capital quarter with a balanced mix of hospitals new to DaVinci, as well as healthy incremental placements for existing customers and trade-ins of older technology. This performance has been driven by collaboration with U.S. integrated delivery networks as they thoughtfully manage and expand the capacity of their DaVinci fleets. Elsewhere, China, Japan, and Europe had solid placements in the quarter, and our placements in Brazil showed strength. Turning to our newer platforms, our single port system, DaVinci SP, had a solid quarter as we pursue additional indications. Placements of our flexible bronchoscopy platform, ION, grew nicely sequentially Q2 to Q3, powered by continued strong customer experiences in the field. Our finances were strong again this quarter, though they followed an unusual path. System strength and favorable system sales mix drove strong system revenue. Procedures grew at the low end of our expectations as a result of the Delta variant, Instrument and accessory revenue per procedure moved down modestly as benign procedures continued to make up more of the procedure mix, and our extended use instrument program reaches equilibrium in the field. Our spending grew sequentially and year over year as we continued to invest in expanding our new platforms and digital programs, as well as build our go-to-market capabilities globally. Our expense growth was again modestly lower than planned, driven by some increase in time to fill open positions in a tight labor market, lower travel-related spending given the pandemic, and some underspending in prototypes. We will continue to invest in programs that fulfill the mission and build the company. Turning to our innovation efforts, we develop and deploy technology-enabled solutions 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. I'd like to take a moment to overview the clinical status of our programs. For our DaVinci system, there are now over 9.7 million lifetime procedures performed, with over 28,000 peer-reviewed clinical publications. DaVinci X and XI now have over 70 representative clinical uses, allowing broad use across multiple clinical specialties, from urology to gynecology, thoracic surgery, general surgery, and transoral surgery. Tens of thousands of surgeons routinely use our multiport systems. We continue to invest in our multiport products, instruments, and services to further expand their capabilities and indications. Leading surgeons continue to work with us to pursue new learning with several prospective studies ongoing. Our flexible bronchoscopy system, ION, continues to build momentum clinically and commercially with several presentations and manuscripts updating ION clinical progress at the 2021 CHESS Conference this weekend. As described in yesterday's press release, Early clinical trial results point to outstanding capability in allowing for definitive diagnosis of hard-to-reach lung lesions. Our teams are hard at work building our manufacturing and supply capabilities to meet rising demand. Our single-port system, SP, has a clinical database of 28 peer-reviewed clinical publications. There are currently several ongoing prospective studies for SP in Korea and the United States, including our IDE trial for colorectal indications. This quarter, we received FDA approval of our uniportal thoracic IDE. Broad SP adoption will be paced by additional regional and clinical clearances, which remain our focus for the SP program. Our digital solutions provide data-driven insights to surgeons, operative services, and hospital administration. From virtual reality training to efficiency insights to custom comparative outcomes analysis, these tools are now routinely employed by our customers and our teams to improve programs. Our analytics program supported thousands of customers in the quarter. Turning to machine learning, our teams are at the leading edge of ML-based clinical science for surgery through our collaborations with leading academic centers in forming algorithmic and scientific discovery. Taken together, these programs allow our customers to quantify our collective impact on the quadruple aim. Core to our mission. Before turning the time over to Marshall, today we announced some changes in responsibilities of our senior executive team. These changes are the result of a structured process over the past few years, and they are driven by our need to support growth in our product lines, commercial reach, operations capabilities, and business infrastructure as we scale to meet the global opportunity to advance minimally invasive care. Starting January 1, 2022, our Executive Vice President and Chief Business Officer, Dave Rosa, will take on an important new role of Executive Vice President and Chief Strategy and Growth Officer. leading our efforts to identify and realize long-term business opportunities, continuing to build the value of our integrated product offerings, and ensuring our customers clearly understand the value of our ecosystem in creating successful minimally invasive programs. Henry Charlton, currently General Manager of the U.S. and Europe, will succeed Dave as Chief Commercial Officer, overseeing global commercial sales, regional marketing, and commercial enablement. Also, Marshall Moore will take on an important new position that's Executive Vice President, Global Business Services. Leading Intuitive's continued growth in information technology, enterprise process, data and systems, and global facilities. Jamie Sameth will succeed Marshall as Chief Financial Officer. They are each outstanding, proven leaders and will report to me. We expect them to spearhead our efforts to achieve our mission and continue to position Intuitive as first choice of our customers in a growing marketplace. I'll now turn the call over to Marshall, who will take you through our financial highlights in greater detail.