Intuitive Surgical, Inc.

Ladies and gentlemen, thank you for standing by, and welcome to the Intuitive Q4 2021 Earnings Release Call. At this time, all participants are in a listen-only mode. If you wish to ask a question during today's call, please press 1, then 0 on your touchtone phone. As a reminder, today's call is being recorded. Now, I turn the conference over to our host, Brian King, Head of Investor Relations for Intuitive Surgical. Please go ahead.

Thank you. So, good afternoon, and welcome to Intuitive's fourth quarter earnings conference call. With me today, we have Gary Guthardt. our CEO, and Jamie Smath, our CFO. 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 Security and Exchange Commission filings, including our most recent Form 10-K, filed on February 10, 2021, and Form 10-Q filed on October 20, 2021. Our SEC filings can be found through our website or at the SEC's website. Investors are cautioned not to place any 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 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. Jamie will provide a review of our financial results. Then I will discuss procedure and clinical highlights and provide our financial outlook for 2022. And finally, we will host a question and answer session. And with that, I'll turn it over to Gary.

Thank you for joining us today. 2021 required agility as we drove through significant headwinds to support customers and manage our supply chain. Our teams performed well, helping customers return to surgery when COVID allowed them, and maintaining the integrity of our supply chain and workforce. Given our recent press release updating procedures, capital placements, and revenues, I'll be brief in describing our full year 2021 results and spend a little more time outlining our plans for 2022 and beyond. Putting 2021 in context, Demand for our robotically-assisted interventions has been resilient during COVID. While these interventions get delayed during COVID peaks, they return as COVID wanes, and that is encouraging. Pandemic stresses on healthcare systems emphasize the need for the kind of high-quality, minimally invasive interventions our products enable. MIS procedures allow greater use of ambulatory surgery, free up resources in ORs relative to other approaches, and often enable faster patient return to home and overall recovery. In 2021, da Vinci procedures grew 28% compared to full year 2020, reflecting a partial recovery in surgery after the first wave of the pandemic. Over the two-year period 2020 and 2021, the compound annual growth rate in procedures was 14%. Capital installs were healthy in 2021, with our team placing 1,347 da Vinci and 93 ion systems in the year, driving da Vinci placement growth of 44% over 2020 and at a CAGR of 10% over the past two years. With a two-year CAGR in procedures of 14% and install-based growth of 10% over the same period, utilization of installed systems continued to climb through the pandemic. We think this is good for our customers and good for us. Jamie will give regional capital trends, and Brian will give detailed procedure dynamics later in the call. The past two years have stressed more than health systems. Our ability to attract, develop, and retain outstanding staff remains a key focus for us. Our team has performed well, supporting our customers and each other. In the year, we added approximately 1,700 employees to our team, with net headcount growth of approximately 180 in R&D, 920 in operations, and 340 in our commercial force. Of the 1,700 net additions, 700 were outside of the United States. Looking out over the next decade, we believe that the method we have developed to identify clinical need, then design a technology-enabled ecosystem for improving the quadruple aim, then deliver and train customers on this ecosystem, can positively impact a broad set of minimally invasive interventions. The opportunity and challenge for Intuitive is to evolve our ecosystem to support our customers and ourselves at scale. and to choose procedural opportunities and platform architectures that made sense. Turning to investments in the midterm, our priority for use of our capital is to reinvest in the business, to develop new opportunities that improve the quadruple lane, and to strengthen our operating capabilities at global scale. We are focused on driving a vital set of initiatives, and I'd like to describe the dynamics for you in a little more detail. In Multiport, we believe our Gen 4 architecture is outstanding. and we've been adding capability to this product line since launch, including significant expansion and upgrades to energy and stapling product lines, improved endoscopic imaging, the introduction of DaVinci X, the introduction of extended use instruments, training technologies, and finally, the introduction of new and upgraded connectivity and data management tools. Given the precision, robustness, and overall performance of our Generation 4 robotics architecture, we will continue to innovate on this platform bringing additional value to those customers who have standardized on Generation IV fleets. We are also investing in new core capabilities for our multiport systems, both Generation IV and beyond, that we'll describe as they get closer to market. You should expect continued innovation from us here. Turning to ION, our first indication addresses a large unmet need in lung cancer biopsy, and our focus is fully enabling our production capability and customer ecosystem for this indication. There is strong demand for lung biopsy, and we are working to expand manufacturing capacity, evolve processes for greater quality and lower costs at scale, and run trials and address regulatory requirements that enable global expansion. Over time, we plan for total ion program profitability to approach that of our corporate average as we execute against our volume, design, and process improvement goals. We are pursuing additional applications for ion, and we'll describe them as we get closer to market. For our single port system, da Vinci SP has the opportunity to change the standard of care in two different types of soft tissue surgery. Those that require the extraction of tissue that can be done through a small single port and those procedures that benefit from narrow entry into the body as a whole. Where ION at its current stage of launch has a single indication that represents large patient population, SP's opportunity is the aggregation of several midsize indications. For example, SP use in transoral robotic surgery is growing steadily in the U.S. To broaden SP's applicability in the U.S. and other markets, we're undertaking clinical trials to support regulatory review. We believe that SP will serve several additional surgical specialties, which will allow our customers and us to leverage capital investments in the program. Like ION, we plan for SP platform profitability to approach that of historical platforms over time, and we're encouraged by recent progress. Our customer digital efforts now represent roughly 5% of our total operating expenses and drive the business in four ways. First, the use of data and digital tools by customers to analyze their operations helps improve outcomes, reduce costs, and increase customer satisfaction and retention. Second, digital and internal investments can decrease our cost to serve our customer. Third, Some of our digital tools generate revenue themselves, and finally, use of data and analytics internally can help our teams make better decisions. Because digital and data tools span our platforms and are used externally and internally, we do not account for them using the same financial models as our platforms, nor do we break them out as standalone financial engines. That said, we do evaluate digital and data projects against internal strategic and return analyses. Over the past five years, the annual number of instruments we produce has grown roughly 200%, and the annual number of systems we produce has more than doubled. The number of customer professionals trained annually has nearly doubled, and our engineering staff has nearly tripled. Our product volume growth has also allowed us to insource some of our high-volume accessories while investing in automation. This has a threefold benefit, improving supply chain robustness, improving manufacturing quality, and lowering unit costs. As our training, R&D, and manufacturing efforts move to scale, we're investing in infrastructure, factory builds, training center expansion, and automation. These infrastructure investments are lumpy, and our current growth cycle requires building capacity. These projects have been planned over the past couple of years and will start amortizing, first moderately in 2022 and more substantially in 2023 and 2024, then normalizing over the next few years. For example, over the next four years, we'll be growing and consolidating facilities for operations, R&D, and customer training space in Atlanta, doubling our Mexicali manufacturing footprint, doubling our R&D design space and operations space as our California headquarters, and finally, consolidating and growing our commercial training operations and R&D space in Freiburg, Germany. In summary, we'll build on our Generation 4 capabilities in multiport while innovating in clinical utility for multiport surgery broadly. We'll continue to bring our flexible endoscopy platform ION to scale and drive capacity, quality, and cost improvements while seeking to broaden access to new markets. In SP, we expect to expand indications in regional markets while driving manufacturing quality and scale. We will invest in regional training, R&D, and manufacturing centers globally to support the growth of the business and pursue opportunities for operating leverage given volume, some of which we'll share with customers to catalyze elastic markets. Finally, we will continue to advance our digital efforts to enable fast, accurate, and actionable decisions with our customers and for our company. Lastly, for 2022 particularly, we're focused on the following. First, outstanding customer support in the face of continued pandemic disruption. Second, execution of a robotic and digital platform expansion in pursuit of new indications and new markets. Third, general surgery growth in the United States. And finally, diversified growth outside the U.S. beyond urology. As we turn to our financial report, I'd like to formally thank Marshall Moore, our outgoing CFO and new head of Global Business Services, for his outstanding stewardship over the past 15 years. And turn the time over to our incoming CFO, Jamie Sameth, who will take you through financial matters in greater detail.