Intuitive Surgical, Inc.

Ladies and gentlemen, good afternoon. Thank you for standing by and welcome to the Intuiti Quarter 4 2022 earnings release. At this time, all lines are in a listen-only mode. Later, there will be an opportunity for your questions. Now, if you do wish to ask a question today, please press 1 followed by the 0. That's 1 followed by the 0 for questions and comments. If you should require any operator assistance, please press star followed by the 0 and an AT&T operator will assist you. And as a reminder, today's conference is being recorded. This time, I'd like to turn the conference over to our host, Head of Investor Relations. Mr. Brian King, please go ahead.

Good afternoon, and welcome to Intuitive's fourth quarter earnings conference call. With me today, we have Gary Guttart, 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 October 21, 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 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 updated financial outlook for 2023. And finally, we will host a question and answer session. And with that, I will turn it over to Gary.

Thank you for joining us today. The fundamentals of our business were healthy in Q4 and for the full year 2022. Procedural growth for the full year approach pre-pandemic levels. Install-based growth was solid and customers concurrently increased utilization of existing systems. Our investments in product development extended our multi-port, single-port, and flexible robotics ecosystems through new instruments, accessories, digital products, and indication expansions. Finally, the fine work of our operations teams and supply partners largely mitigated the supply chain challenges that persisted through the year. Turning first to procedures, we saw 18% procedure growth for the quarter and the full year. Areas of strength included general surgery in the United States, particularly benign procedures such as bariatric surgery, cholecystectomy, and hernia repair. Colon and rectal procedure growth also continued. Strong growth beyond urology outside the US was accretive to our global performance. We attribute this diversification to the value of our ecosystems and our strategic investments in organization, clinical trials, data products, and market access. Regionally, the United States, Japan, Europe, and India stood out in the quarter and year. Procedure growth in China was hampered by the COVID wave in Q4, with procedures progressively declining starting in November through the end of 22. ION procedures showed continued strength, with 218% growth in 22 compared with 21, and SP procedures grew 38% over the same period, with the majority of its growth coming from Korea. Global core procedure areas of urology and gynecology moved toward recovery in the year, both exceeding their three-year compound annual growth rates in 22. On the capital front, we placed 369 systems in Q4 compared with 385 in Q4 2021. For the full year, we placed 1,264 systems compared with 1,347 in 21. Our install base growth rate was 12% for Multiport, 149% for Ion, and 22% for SP in 2022. Overall, our capital placement trends showed sustained demand for additional capacity in Multiport, and strong interest in expanding capacity for ion, with several hospitals now operating multiple ion systems in their programs and variable demand for SP as we continue to pursue our additional indications. System utilization is an important predictor of future demand, and utilization grew 5% for multiport in the year and 10% for ion. Utilization was roughly flat for SP over the year. However, utilization increased by 9% in Q4, measured year-over-year, as our organization incorporated learnings. Touching on our finances, revenue grew 9% in 2022. Revenue was impacted by the strength of the dollar in the year and the decline of the trade-in population of third-generation multiport systems. Our expenses landed at the higher end of our spend guidance, reflecting continued R&D investments that supported growth of our platforms and digital products, expansion of our manufacturing and commercial capabilities, and capital amortization driven by expansion of our global footprint. Structurally, we have been increasing our own capital expenditures as we continue to build the company to supply the globe at industrial scale. This is an important investment as several procedures using our systems have become the standard of care in several countries. We have been vertically integrating key technologies to develop a more robust supply chain and bring important products to market at attractive price points. These investments include increased ownership of our imaging pipelines, strategic instrument and accessory technologies, and software and digital products that allow us to serve our customers. The investments make our business more capital intensive than years past in support of industrial dependability, a more robust supply chain, and lower product costs. I'd also like to take a moment to walk through our platform investments. Intuitive starts with the end in mind, coordinating our efforts to enable our customers' pursuit of the quadruple aim in specific procedures, for example, those in general surgery. We design all our systems to allow for the addition of new functionality over time. For our multi-port platform, this design philosophy has enabled us to continuously strengthen our fourth generation DaVinci XI by adding new regulatory clearances, a new model with the DaVinci X, new instruments and accessories, new imaging capabilities, and new software products. These products include our stapling line of instruments as well as our advanced energy instruments, which contributed approximately $890 million in revenue in 22, with revenue growth of 18% in the year, and are a key enabler of the general surgery growth discussed a minute ago. We added 65 representative clinical procedure indications in the United States to our fourth-generation multiport platform since its launch. Our multiport indications now span six surgical categories and total over 70 procedure indications for multiport platforms in the United States today. We routinely improve our platform operating systems, with roughly 10 significant fourth-generation OS releases since launch and dozens of smaller software upgrades. We launched our next-generation XI visualization, NSCO+, and have been integrating digital products, including virtual reality training, Intuitive Hub, and the MyIntuitive app. We expect to launch additional Gen 4 compatible products and operating system software this year. Concurrently, we invest in new generations of our multiport platform that bring new and significantly enhanced capabilities. For our multiport system development programs, we prioritize as follows. Our highest priority is the improvement of core surgical capability targeting improved patient outcomes, often through innovation in robot and instrument precision, imaging, and sensing, while focusing on dependability and product quality. Next, we design to improve usability, care team skill acquisition, and analytic power. including digital products for the operating room, personalized learning for care teams, and efficiency analysis and services for surgical programs. Next, we design platforms and their ecosystems that can lower the total cost to treat per patient episode. And finally, we design with the flexibility to add future capability to systems post-launch. Given the time required to design and validate new architectures at any given moment, we're typically developing more than one system architecture beyond that in the market. In the current global regulatory environment, core technology changes often require human clinical trials and substantial review. These are multi-year investment cycles, and we're making good progress. As we start this year, we do not currently expect a new multiport system launch in 2023. Turning to ion, adoption has been healthy based on its ability to meet an unmet clinical need in lung biopsy. We're focused on improving the manufacturability, cost, and robustness of ion products, to support its rapid growth in the U.S. We have also submitted our regulatory dossier for review in Europe, Korea, and in China's Green Channel. We expect clearance in Europe in 2023. We don't have a firm forecast on the time for ion clearance in China at this time, given pandemic-related adjustments ongoing in the Chinese healthcare system. Ion is also a platform with strong opportunities for future clinical applications. We're conducting advanced development and clinical research to extend ion to other indications in the lung. While our ion-flexible robotics offers an opportunity to provide value in the body outside the lung, our focus is on completing what we started for pulmonologists and thoracic surgeons. Our single-port platform, DaVinci SP, has supported strong adoption in Korea and has recently obtained PMDA clearance with broad indications in Japan. We expect first installs of SP in Japan in the coming months. Next, we plan to submit our dossier on da Vinci SP to our notified body in Europe mid-year 2023. So far, customer feedback on the clinical utility for SP has been healthy, with strong multi-specialty use of SP in Korea. In the United States, some indications have required prospective clinical trials, and we're currently conducting IDE trials in colorectal surgery and thoracic surgery. We're pursuing additional indications for SP beyond these two, and we'll share more information on these indications in 2023 as the requirements for our regulatory pathway for them are established. We're continuing to invest significant resources in R&D, where the portfolio we have under development is positioned to support leadership in existing categories and expansion into new ones. Our capital investments will increase to support supply chain robustness, product cost reduction, and global industrial scale. On the SG&A front, we are making some foundational investments and will turn to pursue leverage in enabling functions. Recognizing economic conditions for 2023 are hard to forecast, we're targeting a deceleration of fixed cost growth rate in 23 relative to 22. We expect pro forma operating margins to fluctuate in the next several quarters and then improve over the midterm. In closing, our priorities for 2023 are as follows. First, increased adoption and focus procedures defined by country through outstanding training, commercial, and market access execution. Second, pursuit of expanded indications and launches for our new platforms. Third, excellent performance in the continuity of supply, product quality, and services provision as we emerge from pandemic stresses. And finally, pursuit of increased productivity in our functions that benefit from scale. I'll now turn the time over to Jamie. We'll take you through our finances in greater detail.