Intuitive Surgical, Inc.

Ladies and gentlemen, good afternoon, thank you for standing by. Today's conference is assembled. Welcome to the Intuitive Surgical Quarter 2 2022 Earnings Release. At this time, all lines are in listen-only mode. There will be an opportunity for your questions. Now, if you do wish to ask a question or need operator assistance today, please, if you need, if you'd like to ask a question, please press 1 followed by 0 to place yourself in the queue. You can take yourself out of that queue by simply pressing the 10 command again. If you'd like operator assistance, please press star followed by the zero, and an AT&T operator will assist you. And as a reminder, today's conference is being recorded. This time, it's my pleasure to turn the conference over to our host, Head of Investor Relations with Intuitive Surgical, Mr. Brian King. Please go ahead.

Thank you. So good afternoon, and welcome to Intuitive's second quarter earnings conference call. With me today, we have Gary Gutards, 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 Securities and Exchange Commission filings, including our most recent Form 10-K, filed on February 3, 2022, and Form 10-Q, filed on April 22, 2022. 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 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. Jamie will provide a review of our financial results. And I will discuss procedure and clinical highlights and provide our updated financial outlook for 2022. 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 Q2 results reflect both environmental and intuitive specific headwinds accompanied by underlying business strengths. Procedures in the quarter grew 14% over last year, despite pressure from COVID-driven lockdowns in China, our second largest market. Capital placement slowed from a year ago due to a combination of factors we described last quarter, and which I will review shortly. Overall pressure from COVID lockdowns impacted procedures in the quarter modestly, while reduced trade-ins and supply chain timing impacted our capital placements more significantly. The leading indicator of the health of our business, procedure demand, remains healthy. Starting first with procedures, I am encouraged by 14% growth in the quarter, reflecting strength in US general surgery and solid growth extending beyond urology outside the United States. US procedure growth was led by bariatric surgery, cholecystectomy, and colorectal procedures with continued growth in hernia repair. In OUS markets, procedures grew 22% in the quarter, in spite of the COVID lockdown in China. Outside the U.S., we are seeing strength in urology now accompanied by diversified growth in other procedures. For example, in Japan, growth was strong in general surgery, including rectal resection. In the U.K. and Ireland, growth was strong in gynecology and general surgery. And in France, gynecology and general surgery experienced solid growth. System utilization in several OUS countries has been increasing in recent quarters as procedure adoption diversifies. increasing value for our customers and for Intuitive. This is a result of the investments we made in key country markets starting several years ago. Turning to DaVinci Capital placements, we placed 279 systems in the quarter, down from 328 in Q2 2021. In the DaVinci business, we see three causes for the decline in placements relative to a year ago. As our customers have standardized on Generation 4 DaVinci systems, The installed base of third-generation systems has declined, lowering the trade-in population, particularly in the United States. Next, supply chain disruption continued in the quarter, with semiconductor component delays impacting the timing of system builds, leaving us challenged to match some customer orders at quarter end. Lastly, we've seen hospital capital spending pressure grow in our part of the capital equipment space over the past two quarters. incenting customers to seek efficiency gains on existing capital before acquiring new capacity. Component supply constraints remain a risk, and our operating teams are working hard to shelter our customers from most of these pressures. Capital placements in more mature markets are a mix of core demand for procedures and trade-in opportunities. The need for high-quality robotic-assisted surgery remains healthy. Incremental capital demand at the customer is a function of system utilization and procedure growth, On the system utilization side, our compound annual growth rate remains at historic levels of 5% over the past three-year period. System utilization in the US over the past year was slightly down as procedure growth rate over the past year roughly matched the system install base growth. In contrast, system utilization in many OUS markets has been rising as procedures diversify. Overall, we prioritize system utilization growth for customers as it increases the value to them of their investments and is aligned with long-term health for Intuitive. Turning to our innovation engines and new products and services, we placed 41 ION systems, up from 20 in Q2 of last year. Given its stage of maturity, ION capital demand precedes procedure growth as hospitals seek to build initial capability. With the ION clinical installed base now at 204 systems, ION utilization has been growing nicely along with encouraging early capital placements. We received 510K clearance for our integration of ION with Siemens Seos Spin Cone Beam CT. This combination improves registration and targeting precision for ION in the lung and is being well received by our customers. We remain focused on strengthening clinical outcomes in lung care, a fantastic customer experience, and operational excellence in the ION program. In our multiport ecosystem, we initiated our first phase U.S. launch of our 8-millimeter stapler, designed to work in small anatomical spaces, for example, in thoracic surgery. Early customer feedback has been encouraging. In China, we're preparing to launch our SureForm 45 and 60-millimeter staplers and our latest Endoscope, Endoscope Plus. All three will continue to support growth in general surgery and thoracic procedures. For DaVinci SP, we have expanded the number of colorectal IDE sites to help accelerate accrual, and we submitted another regulatory package for SP imaging and accessories in Japan as we work on the necessary clearances to support an SP launch in the country. For our digital tools, intuitive hub installs grew nicely again in the quarter, and we're focused on ensuring outstanding customer experiences with data capture and media management, along with increasing utilization over time. On spending, we are committed to our innovation programs because we believe the forward opportunity for our products and services are important to our customers and to the company. We have some natural shock absorbers that decrease some of our variable spending as a result of the slowdown in DaVinci Capital placements. We are also planning for decelerating spend growth after we complete some infrastructure projects we need to support the company's expansion. Given our confidence in the future of our business, We have also returned cash to shareholders in the form of buybacks in the quarter. I'll now turn the time over to Jamie, who will take you through our finances in greater detail.