UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



x☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September~~June 30, ~~2017~~2021



¨☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 000-30713

Intuitive Surgical, Inc.

(Exact name of Registrant as specified in its Charter)



~~Delaware~~

	~~77-0416458~~
Delaware		77-0416458
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

1020 Kifer Road

Sunnyvale, California 94086

(Address of principal executive offices) (Zip Code)

(408) 523-2100

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.001 per share	ISRG	The Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ~~YES~~ �� Yes x NO No ¨

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). ~~YES~~ Yes x NO No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. ~~(Check one):~~

Large accelerated filer

Accelerated filer

Non-accelerated filer

~~(Do not check if a smaller reporting company)~~

Smaller reporting company

¨☐

Emerging growth company

¨☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ~~YES~~ ¨ NO Yes ☐ No x

The Registrant had ~~112,047,836~~118,747,607 shares of Common Stock, $0.001 par value per share, outstanding as of ~~October 17, 2017~~.

July 15, 2021.

Table of Contents

INTUITIVE SURGICAL, INC.

TABLE OF CONTENTS


				Page No.
PART I. FINANCIAL INFORMATION

			~~Page No.~~
~~PART I. FINANCIAL INFORMATION~~

Item 1.	Financial Statements (unaudited):

		Condensed consolidated balance sheets as of ~~September 30, 2017~~June 3 0 , 2021, and ~~December 31, 2016~~June 3 0 , 2020		3

		Condensed consolidated statements of comprehensive income for the three and ~~nine~~ six months ended ~~September 30, 2017~~June 3 0 , 2021, and ~~2016~~2020		4

		Condensed consolidated statements of cash flows for the ~~nine~~six months ended ~~September 30, 2017~~June 3 0 , 2021, and ~~2016~~2020		5

		Notes to condensed consolidated financial statements		6

Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations		2123

Item 3.		Quantitative and Qualitative Disclosures About Market Risk		3643

Item 4.		Controls and Procedures		3643

PART II. OTHER INFORMATION

Item 1.		Legal Proceedings		3644

Item 1A.		Risk Factors		3644

Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds		3745

Item 3.		Defaults Upon Senior Securities		3746

Item 4.		Mine Safety Disclosures		3746

Item 5.		Other Information		3746

Item 6.		Exhibits		3847

		Signature		3948

Table of Contents

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

INTUITIVE SURGICAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)


in millions (except par values)	June 30, 2021		December 31, 2020
ASSETS
Current assets:
Cash and cash equivalents	$	1,615.5	1,622.6
Short-term investments	2,823.7		3,488.8
Accounts receivable, net	699.9		645.5
Inventory	569.7		601.5
Prepaids and other current assets	307.8		267.5
Total current assets	6,016.6		6,625.9
Property, plant, and equipment, net	1,651.2		1,577.3
Long-term investments	3,295.6		1,757.7
Deferred tax assets	394.4		367.7
Intangible and other assets, net	594.9		503.6
Goodwill	344.3		336.7
Total assets	$	12,297.0	$	11,168.9
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	117.9	$	81.6
Accrued compensation and employee benefits	254.0		235.0
Deferred revenue	360.0		350.3
Other accrued liabilities	272.7		298.3
Total current liabilities	1,004.6		965.2
Other long-term liabilities	412.9		444.6
Total liabilities	1,417.5		1,409.8
Contingencies (Note 8)	0		0
Stockholders’ equity:
Preferred stock, 2.5 shares authorized, $0.001 par value, issuable in series; 0 shares issued and outstanding as of June 30, 2021, and December 31, 2020	0		0
Common stock, 300.0 shares authorized, $0.001 par value, 118.7 shares and 117.7 shares issued and outstanding as of June 30, 2021, and December 31, 2020, respectively	0.1		0.1
Additional paid-in capital	6,804.4		6,445.2
Retained earnings	4,022.7		3,261.3
Accumulated other comprehensive income	10.3		24.9
Total Intuitive Surgical, Inc. stockholders’ equity	10,837.5		9,731.5
Noncontrolling interest in joint venture	42.0		27.6
Total stockholders’ equity	10,879.5		9,759.1
Total liabilities and stockholders’ equity	$	12,297.0	$	11,168.9

in millions (except par values) September 30,
2017
December 31,
2016
ASSETS
Current assets:
Cash and cash equivalents $ 875.0
$ 1,036.6
Short-term investments 1,271.8
1,518.0
Accounts receivable, net 468.0
430.2
Inventory 225.2
182.3
Prepaids and other current assets 88.9
83.3
Total current assets 2,928.9
3,250.4
Property, plant and equipment, net 584.8
458.4
Long-term investments 1,655.2
2,283.3
Deferred tax assets 119.8
150.9
Intangible and other assets, net 154.8
142.8
Goodwill 201.1
201.1
Total assets $ 5,644.6
$ 6,486.9
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 80.4
$ 68.5
Accrued compensation and employee benefits 124.7
136.4
Deferred revenue 282.5
240.6
Other accrued liabilities 128.1
151.0
Total current liabilities 615.7
596.5
Other long-term liabilities 69.0
112.6
Total liabilities 684.7
709.1
Contingencies (Note 6)

Stockholders’ equity:
Preferred stock, 2.5 shares authorized, $0.001 par value, issuable in series; no shares issued and outstanding as of September 30, 2017, and December 31, 2016 —
—
Common stock, 300.0 shares authorized, $0.001 par value, 112.0 shares and 116.4 shares issued and outstanding as of September 30, 2017, and December 31, 2016, respectively 0.1
—
Additional paid-in capital 4,190.4
4,211.8
Retained earnings 776.6
1,574.9
Accumulated other comprehensive loss (9.2 ) (8.9 )
Total Intuitive Surgical, Inc. stockholders’ equity 4,957.9
5,777.8
Noncontrolling interest in joint venture 2.0
—
Total stockholders’ equity 4,959.9
5,777.8
Total liabilities and stockholders’ equity $ 5,644.6
$ 6,486.9

~~See~~The accompanying ~~Notes to~~notes are an integral part of these Condensed Consolidated Financial Statements (Unaudited).

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INTUITIVE SURGICAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)


	Three Months Ended June 30,				Six Months Ended June 30,
in millions (except per share amounts)	2021		2020		2021		2020
Revenue:
Product	$	1,236.0	$	721.8	$	2,310.6	$	1,622.6
Service	228.0		130.3		445.5		329.0
Total revenue	1,464.0		852.1		2,756.1		1,951.6
Cost of revenue:
Product	374.0		283.8		693.3		580.5
Service	66.3		65.4		136.5		130.0
Total cost of revenue	440.3		349.2		829.8		710.5
Gross profit	1,023.7		502.9		1,926.3		1,241.1
Operating expenses:
Selling, general and administrative	350.2		279.1		676.2		587.2
Research and development	162.3		143.2		322.1		290.3
Total operating expenses	512.5		422.3		998.3		877.5
Income from operations	511.2		80.6		928.0		363.6
Interest and other income, net	15.0		26.6		47.0		51.7
Income before taxes	526.2		107.2		975.0		415.3
Income tax expense	3.2		37.0		16.8		28.9
Net income	523.0		70.2		958.2		386.4
Less: net income attributable to noncontrolling interest in joint venture	5.8		2.2		14.7		4.9
Net income attributable to Intuitive Surgical, Inc.	$	517.2	$	68.0	$	943.5	$	381.5
Net income per share attributable to Intuitive Surgical, Inc.:
Basic	$	4.36	$	0.58	$	7.98	$	3.27
Diluted	$	4.25	$	0.57	$	7.77	$	3.19
Shares used in computing net income per share attributable to Intuitive Surgical, Inc.:
Basic	118.6		116.8		118.3		116.6
Diluted	121.6		119.7		121.5		119.7

Total comprehensive income	$	521.4	$	83.5	$	943.3	$	396.4
Less: comprehensive income attributable to noncontrolling interest	5.3		2.1		14.4		5.0
Total comprehensive income attributable to Intuitive Surgical, Inc.	$	516.1	$	81.4	$	928.9	$	391.4

Three Months Ended
September 30,
Nine Months Ended
September 30,
in millions (except per share amounts) 2017
2016
2017
2016
Revenue:
Product $ 659.3
$ 553.2
$ 1,807.5
$ 1,565.2
Service 146.8
129.7
429.0
382.3
Total revenue 806.1
682.9
2,236.5
1,947.5
Cost of revenue:
Product 195.0
158.4
543.1
475.8
Service 44.3
37.5
132.6
108.8
Total cost of revenue 239.3
195.9
675.7
584.6
Gross profit 566.8
487.0
1,560.8
1,362.9
Operating expenses:
Selling, general and administrative 204.8
168.0
591.7
511.6
Research and development 83.4
62.6
241.5
170.5
Total operating expenses 288.2
230.6
833.2
682.1
Income from operations 278.6
256.4
727.6
680.8
Interest and other income, net 10.8
10.4
29.6
23.9
Income before taxes 289.4
266.8
757.2
704.7
Income tax (benefit) expense (8.1 ) 55.8
58.4
172.8
Net income $ 297.5
$ 211.0
$ 698.8
$ 531.9
Net income per share:
Basic $ 2.66
$ 1.82
$ 6.26
$ 4.64
Diluted $ 2.55
$ 1.77
$ 6.03
$ 4.52
Shares used in computing net income per share:
Basic 111.8
116.1
111.6
114.6
Diluted 116.8
119.1
115.9
117.6
Total comprehensive income $ 298.1
$ 205.7
$ 698.5
$ 545.4

~~See~~The accompanying ~~Notes to~~notes are an integral part of these Condensed Consolidated Financial Statements (Unaudited).

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INTUITIVE SURGICAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)


	Six Months Ended June 30,
in millions	2021		2020
Operating activities:
Net income	$	958.2	$	386.4
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and loss on disposal of property, plant, and equipment	132.8		102.5
Amortization of intangible assets	14.5		24.7
Loss (gain) on investments, accretion, and amortization, net	(4.3)		(2.4)
Deferred income taxes	(24.0)		52.5

Share-based compensation expense	211.3		186.5
Amortization of contract acquisition assets	10.0		8.2
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable	(59.6)		136.9
Inventory	(92.4)		(120.1)
Prepaids and other assets	(177.0)		(95.5)

Accounts payable	38.2		(3.6)
Accrued compensation and employee benefits	19.0		(83.0)
Deferred revenue	10.6		4.1
Other liabilities	(17.0)		(14.5)
Net cash provided by operating activities	1,020.3		582.7
Investing activities:
Purchase of investments	(3,507.7)		(1,426.8)
Proceeds from sales of investments	72.1		800.7
Proceeds from maturities of investments	2,596.9		1,298.6
Purchase of property, plant, and equipment and intellectual property	(134.3)		(215.2)
Acquisition of businesses, net of cash	(8.7)		(37.7)

Net cash provided by (used in) investing activities	(981.7)		419.6
Financing activities:
Proceeds from issuance of common stock relating to employee stock plans	153.7		154.0
Taxes paid related to net share settlement of equity awards	(187.9)		(155.1)
Repurchase of common stock	0		(100.0)

Payment of deferred purchase consideration	(9.7)		(30.0)
Net cash used in financing activities	(43.9)		(131.1)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	(2.6)		(1.6)
Net increase (decrease) in cash, cash equivalents, and restricted cash	(7.9)		869.6
Cash, cash equivalents, and restricted cash, beginning of period	1,638.5		1,182.6
Cash, cash equivalents, and restricted cash, end of period	$	1,630.6	$	2,052.2

Nine Months Ended
September 30,
in millions 2017 2016
Operating activities:
Net income $ 698.8
$ 531.9
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and loss on disposal of property, plant, and equipment 61.4
54.0
Amortization of intangible assets 10.1
14.0
Loss on investments, accretion of discounts, and amortization of premiums on investments, net 16.8
26.3
Deferred income taxes 28.8
31.7
Income tax benefits from employee stock plans —
25.6
Share-based compensation expense 153.5
132.1
Changes in operating assets and liabilities
Accounts receivable (37.8 ) (37.7 )
Inventory (82.7 ) (40.8 )
Prepaids and other assets (13.6 ) (19.0 )
Accounts payable 11.9
6.4
Accrued compensation and employee benefits (11.3 ) (12.9 )
Deferred revenue 45.1
5.9
Other liabilities (69.1 ) 39.8
Net cash provided by operating activities (1) 811.9
757.3
Investing activities:
Purchase of investments (1,122.1 ) (1,896.6 )
Proceeds from sales of investments 1,525.6
278.4
Proceeds from maturities of investments 450.7
683.9
Purchase of property, plant and equipment, and intellectual property (159.7 ) (36.1 )
Net cash provided by (used in) investing activities 694.5
(970.4 )
Financing activities:
Proceeds from issuance of common stock relating to employee stock plans 381.6
550.4
Taxes paid related to net share settlement of equity awards (53.6 ) (23.2 )
Repurchase of common stock (2,000.0 ) (8.1 )
Other financing activities 2.0
—
Net cash provided by (used in) financing activities (1) (1,670.0 ) 519.1
Effect of exchange rate changes on cash and cash equivalents 2.0
1.0
Net increase (decrease) in cash and cash equivalents (161.6 ) 307.0
Cash and cash equivalents, beginning of period 1,036.6
714.6
Cash and cash equivalents, end of period $ 875.0
$ 1,021.6

~~(1)~~ The ~~Company adopted ASU No. 2016-09,~~ ~~Improvements to Employee Share-based Payment Accounting,~~ ~~during the first quarter~~accompanying notes are an integral part of ~~2017.~~This ASU eliminates the requirement to reclassify cash flows related to excess tax benefits from operating activities to financing activities on the consolidated statements of cash flows. The Company adopted this provision retrospectively by reclassifying $39.5 million of excess tax benefits from financing activities to operating activities for the nine months ended September 30, 2016.

~~See accompanying Notes to~~these Condensed Consolidated Financial Statements (Unaudited).

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INTUITIVE SURGICAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

In this report, “Intuitive ~~Surgical”, “Intuitive”,~~Surgical,” “Intuitive,” the “Company,” “we,” “us,” and ~~the “Company”~~“our” refer to Intuitive Surgical, Inc. and its ~~wholly-~~wholly and majority-owned subsidiaries.

NOTE 1. DESCRIPTION OF THE BUSINESS

Intuitive Surgical, Inc. ~~designs,~~(“Intuitive” or the “Company”) develops, manufactures, and markets the da Vinci^® Surgical ~~Systems~~System and the IonTM endoluminal system. The Company’s products and related ~~instruments~~services enable physicians and ~~accessories, which taken together, are advanced surgical systems that~~healthcare providers to improve the ~~Company believes enable a new generation~~quality of ~~surgery. This advanced generation of surgery, which the Company calls~~ ~~da Vinci~~ ~~Surgery, combines the benefits of~~and access to minimally invasive ~~surgery (“MIS”) for patients with the ease of use, precision, and dexterity of open surgery. A~~ care. The da Vinci Surgical System consists of a ~~surgeon’s~~surgeon console or consoles, a patient-side cart, a high-performance vision system, and proprietary instruments and accessories. The Ion endoluminal system is a ~~high performance vision system. The~~ ~~da Vinci~~ ~~Surgical System translates a surgeon’s natural hand movements, which are performed on instrument controls at a console, into corresponding micro-movements of~~flexible, robotic-assisted, catheter-based platform that utilizes instruments ~~positioned inside the patient through small incisions, or ports. The~~ ~~da Vinci~~ ~~Surgical System is designed to provide its operating surgeons with intuitive control, range of motion, fine tissue manipulation capability,~~ and ~~Three Dimensional (“3-D”) High-Definition (“HD”) vision while simultaneously allowing surgeons to work through the small ports enabled by MIS procedures.~~accessories for lung biopsies.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

In the opinion of management, the accompanying unaudited Condensed Consolidated Financial Statements (“Financial Statements”) of Intuitive Surgical, Inc. and its ~~wholly-~~wholly and majority-owned subsidiaries have been prepared on a consistent basis with the audited Consolidated Financial Statements for the fiscal year ended December 31, ~~2016~~,2020, and include all adjustments, consisting of only normal, recurring adjustments, necessary to fairly state the information set forth herein. The Financial Statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) and, therefore, omit certain information and footnote disclosure necessary to present the Financial Statements in accordance with ~~accounting principles generally accepted in the~~ United States (“U.S.”) generally accepted accounting principles (“U.S. GAAP”). These Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, ~~2016~~,2020, which was filed with the SEC on February ~~6, 2017.~~10, 2021. The results of operations for the first ~~nine~~six months of fiscal year ~~2017~~2021 are not necessarily indicative of the results to be expected for the entire fiscal year or any future periods.

The Financial Statements include the results and the balances of the ~~Company's majority owned~~Company’s majority-owned joint venture (referred to herein as the “Joint Venture”) with Shanghai Fosun Pharmaceutical (Group) Co., Ltd. (“Fosun Pharma”). The Company holds a controlling financial interest in the ~~joint venture~~Joint Venture, and the noncontrolling interest is reflected as a separate component of consolidated stockholders’ equity. ~~Noncontrolling interest~~The noncontrolling interest’s share of the earnings in ~~net income was inconsequential to~~ the ~~consolidated results for all periods~~Joint Venture is presented ~~and, therefore, has not been~~ separately ~~presented~~ in the condensed consolidated statements of comprehensive income.

~~Common Stock Split~~Risks and Uncertainties

~~Shares issued pursuant~~The Company is subject to additional risks and uncertainties due to the ~~three-for-one stock split (the “Stock Split”)~~COVID-19 pandemic. The extent of the impact on the Company’s ~~issued~~business is highly uncertain and difficult to predict. In certain regions, the Company’s customers continue to divert resources to treat COVID-19 patients and defer some elective surgical procedures, both of which may impact the Company’s customers’ ability to meet their obligations, including to the Company. Furthermore, economies worldwide have been negatively impacted by the COVID-19 pandemic, and it is possible that the impact could cause an extended local and/or global economic recession. Such economic disruption could have a material adverse effect on our business as hospitals curtail and reduce capital and overall spending. Policymakers around the globe have responded with fiscal policy actions to support the healthcare industry and economy as a whole. However, the magnitude and overall effectiveness of these actions remains uncertain.

The severity of the impact of the COVID-19 pandemic on the Company’s business will depend on a number of factors, including, but not limited to, the duration and severity of the pandemic and the extent and severity of the impact on the Company’s customers, all of which are uncertain and cannot be predicted. The Company’s future results of operations and liquidity could be materially adversely affected by delays in payments of outstanding ~~common stock, par value $0.001 per share, were distributed on October 5, 2017,~~receivables, supply chain disruptions, including shortages and inflationary pressure, uncertain or reduced demand, and the impact of any initiatives or programs that the Company may undertake to ~~stockholders~~address financial and operational challenges faced by its customers. For example, we have experienced, and could continue to experience, increased difficulties in obtaining a sufficient amount of ~~record as of September 29, 2017. All share and per share information presented~~materials in the semiconductor and other markets. We are engaged in activities to seek to mitigate such supply disruptions by, for example, increasing our communications with our suppliers and modifying our purchase order coverage and inventory levels. As of the date of issuance of these Financial Statements, ~~have been retroactively adjusted~~the extent to ~~reflect~~which the ~~Stock Split.~~COVID-19 pandemic may materially adversely affect the Company’s financial condition, liquidity, or results of operations is uncertain.

Recent Accounting Pronouncements ~~Not Yet Adopted~~

~~In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09,~~ ~~Revenue from Contracts with Customers~~. This new standard will replace most of the existing revenue recognition guidance in U.S. GAAP when it becomes effective and permits the use of either the retrospective or cumulative effect transition method. The new standard, as amended, becomes effective for the Company in the first quarter of fiscal year 2018.

The Company ~~currently plans~~continues to ~~adopt this~~monitor new accounting ~~standard in~~pronouncements issued by the ~~first quarter of fiscal year 2018 using~~FASB and does not believe any accounting pronouncements issued through the ~~full retrospective method to restate each prior reporting period presented in its Financial Statements. While the Company is continuing to assess the effect~~date of this ~~new standard, the Company currently believes that contractual future billings related to services included in its multi-year contracts~~report will be considered performance obligations that should be part of the contract consideration allocated to all deliverables. Under the current standard, future service billings are considered to be contingent revenue. Accordingly, the amount of contract consideration allocated to the performance obligations identified inhave a material impact on the Company’s system arrangements would be different under the new standard than the amount allocated under the current standard, which will result in an acceleration of revenue recognition. The Company currently expects that under the new standard a greater amount of the contract consideration would be allocated to the product-related performance obligations, which are generally delivered upfront. In addition, the Companyconsolidated financial statements.

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also expects that incremental contract acquisition costs of obtaining revenue generating contracts, such as sales commissions paid in connection with system sales with multi-year service commitments, would be capitalized and amortized over the economic life of the contract. Under the current guidance, the Company expenses such costs when incurred.

The new revenue standard is principle based and interpretation of those principles may vary from company to company based on their unique circumstances. It is possible that interpretation, industry practice, and guidance may evolve as companies and the accounting profession work to implement this new standard. The Company is still in the process of evaluating the effect of the new standard on the Company’s historical financial statements and disclosures. While the Company has not completed its evaluation, the Company currently believes that the impact to revenue and expense recognized will not be material to any of the years presented. As the Company completes its evaluation of this new standard, new information may arise that could change the Company’s current understanding of the impact to revenue and expense recognized. Additionally, the Company will continue to monitor industry activities and any additional guidance provided by regulators, standards setters, or the accounting profession and adjust the Company’s assessment and implementation plans accordingly.

~~In February 2016, the FASB issued ASU No. 2016-02,~~ ~~Leases~~ (Topic 842), which amends the existing accounting standards for leases. The new standard requires lessees to record a right-of-use asset and a corresponding lease liability on the balance sheet (with the exception of short-term leases). The new standard also requires expanded disclosures regarding leasing arrangements. The new standard becomes effective for the Company in the first quarter of fiscal year 2019 and early adoption is permitted. The new standard is required to be adopted using the modified retrospective approach and requires application of the new standard at the beginning of the earliest comparative period presented. The Company generally does not finance purchases of equipment or other capital, but does lease some of its facilities. The Company’s customers finance purchases of ~~da Vinci~~ systems and ancillary products, including directly with the Company. It is currently unknown whether the new standard will change customer buying patterns or behaviors. The Company is evaluating the effect that this new standard will have on its Financial Statements and related disclosures.

~~In October 2016, the FASB issued ASU 2016-16,~~ ~~Income Taxes (Topic 740): Intra-Entity Transfer of Assets Other than Inventory~~, which requires the recognition of the income tax consequences of an intra-entity transfer of an asset, other than inventory, when the transfer occurs. This ASU will be effective for the Company in the first quarter of 2018. This ASU is required to be adopted using the modified retrospective approach, with a cumulative catch-up adjustment to retained earnings in the period of adoption. The Company is currently evaluating the impact of adopting this ASU on its Financial Statements.

~~In January 2017, the FASB issued ASU 2017-01,~~ ~~Business Combinations (Topic 805): Clarifying the Definition of a Business~~, which clarifies the definition of a business to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The standard will be effective for the Company in the first quarter of 2018. Early adoption is permitted. The Company is currently evaluating the impact of adopting this ASU on its consolidated financial statements.

~~Adopted Accounting Pronouncement~~

~~Beginning fiscal 2017, the Company adopted ASU No. 2016-09,~~ ~~Improvements to Employee Share-based Payment Accounting~~, which changes among other things, how the tax effects of share-based awards are recognized. ASU No. 2016-09 requires excess tax benefits and tax deficiencies to be recognized in the provision for income taxes as discrete items in the period when the awards vest or are settled, whereas previously such income tax effects were generally recorded as part of additional paid-in capital. The provision for income taxes for the three and nine months ended September 30, 2017, included excess tax benefits of $19.7 million and $82.9 million, respectively, that reduced the Company’s effective tax rate by 6.8 and 10.9 percentage points, respectively. The recognized excess tax benefits resulted from share-based compensation awards primarily associated with employee equity plans that were vested or settled in the three and nine months ended September 30, 2017. This ASU also eliminates the requirement to reclassify cash flows related to excess tax benefits from operating activities to financing activities on the consolidated statements of cash flows. The Company adopted this provision retrospectively by reclassifying $39.5 million of excess tax benefits from financing activities to operating activities for the nine months ended September 30, 2016. The Company also excluded the related tax benefits when applying the treasury stock method for computing diluted shares outstanding on a prospective basis as required by this ASU. In addition, the Company elected to continue its current practice of estimating expected forfeitures. The amount of excess tax benefits and deficiencies recognized in the provision for income taxes will fluctuate from period to period based on the price of the Company’s stock, the volume of share-based instruments settled or vested, and the value assigned to share-based instruments under U.S. GAAP.

Significant Accounting Policies

There have been no new or material changes to the significant accounting policies discussed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, ~~2016,~~2020, that are of significance, or potential significance, to the Company. The information provided below related to the Company’s allowance for sales returns and doubtful accounts policies provide additional clarification on the Company’s policy of accounting for arrangements with rights of return that occurred during the first quarter of 2017.

~~Table of Contents~~

~~Allowance for Sales Returns and Doubtful Accounts~~

The allowance for sales returns is based on the Company’s estimate of potential future product returns and other allowances related to current period product revenue. The Company analyzes historical returns, current economic trends, and changes in customer demand and acceptance of the Company’s products. The allowance for doubtful accounts is based on the Company’s assessment of the collectability of customer accounts. The Company regularly reviews the allowance by considering factors such as historical experience, credit quality, the age of the accounts receivable balances, and current economic conditions that may affect a customer’s ability to pay.

~~The Company offered certain customers who purchased surgical systems in the first quarter of fiscal 2017 the opportunity to return such systems and receive a credit toward the purchase of the~~ ~~da Vinci X~~ surgical system launched in the second quarter of 2017. In accordance with the guidance relating to the accounting for arrangements in which return rights exist, revenue and associated costs equal to the Company’s estimate of the amount of product that will be returned in a future period was deferred. A total of $23.4 million and $8.1 million of revenue and product costs, respectively, related to shipments made in the first quarter of 2017, were deferred from recognition in the Company’s first quarter Financial Statements. Subject to meeting all other criteria of the Company’s revenue recognition policy, the revenue and product cost deferred will be recognized at the date the trade-out rights are exercised by the customers or at the expiration of unexercised rights, which the Company anticipates to be substantially completed prior to the end of 2017. During the three months ended September 30, 2017, the Company recognized $21.3 million and $7.3 million of previously deferred revenue and product costs, respectively, as a result of those offers having expired unexercised. As of September 30, 2017, a total of $2.1 million and $0.8 million of revenue and product costs, respectively, remained deferred related to this program.

NOTE 3. FINANCIAL INSTRUMENTS

Cash, Cash Equivalents, and Investments

The following tables summarize the Company’s cash and available-for-sale marketable securities’ amortized cost, gross unrealized gains, gross unrealized losses, and fair value by significant investment category reported as cash and cash equivalents, short-term investments, or long-term investments as of ~~September~~June 30, ~~2017~~,2021, and December 31, ~~2016~~2020 (in millions):


											Reported as:
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Loss		Fair Value		Cash and Cash Equivalents		Short- term Investments		Long- term Investments
June 30, 2021
Cash	$	717.6	$	—	$	—	$	—	$	717.6	$	717.6	$	—	$	—
Level 1:
Money market funds	867.7		—		—		—		867.7		867.7		0		0
U.S. treasuries	2,521.7		13.5		(2.4)		0		2,532.8		3.0		962.4		1,567.4
Subtotal	3,389.4		13.5		(2.4)		0		3,400.5		870.7		962.4		1,567.4
Level 2:
Commercial paper	749.1		0		0		0		749.1		27.2		721.9		0
Corporate debt securities	2,086.3		6.9		(2.0)		0		2,091.2		0		888.6		1,202.6
U.S. government agencies	580.4		0.9		(0.3)		0		581.0		0		178.0		403.0

Municipal securities	194.1		1.5		(0.2)		0		195.4		—		72.8		122.6
Subtotal	3,609.9		9.3		(2.5)		0		3,616.7		27.2		1,861.3		1,728.2



Total assets measured at fair value	$	7,716.9	$	22.8	$	(4.9)	$	0	$	7,734.8	$	1,615.5	$	2,823.7	$	3,295.6


											Reported as:
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Loss		Fair Value		Cash and Cash Equivalents		Short- term Investments		Long- term Investments
December 31, 2020
Cash	$	644.3	$	—	$	—	$	—	$	644.3	$	644.3	$	—	$	—
Level 1:
Money market funds	625.8		—		—		—		625.8		625.8		0		0
U.S. treasuries	2,626.8		23.0		0		0		2,649.8		212.5		1,567.9		869.4
Subtotal	3,252.6		23.0		0		0		3,275.6		838.3		1,567.9		869.4
Level 2:
Commercial paper	671.3		0		0		0		671.3		64.1		607.2		0
Corporate debt securities	1,425.4		11.9		(0.2)		0		1,437.1		3.4		1,036.5		397.2
U.S. government agencies	716.5		2.5		0		0		719.0		72.5		233.6		412.9

Municipal securities	119.8		2.0		0		0		121.8		0		43.6		78.2
Subtotal	2,933.0		16.4		(0.2)		0		2,949.2		140.0		1,920.9		888.3



Total assets measured at fair value	$	6,829.9	$	39.4	$	(0.2)	$	0	$	6,869.1	$	1,622.6	$	3,488.8	$	1,757.7

Reported as:

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair
Value

Cash and
Cash
Equivalents

Short-
term
Investments

Long-
term
Investments
September 30, 2017
Cash $ 252.4
$ —
$ —
$ 252.4
$ 252.4
$ —
$ —
Level 1:
Money market funds 590.5
—
—
590.5
590.5
—
—
U.S. treasuries 448.7
—
(1.9 ) 446.8
8.7
182.8
255.3
Subtotal 1,039.2
—
(1.9 ) 1,037.3
599.2
182.8
255.3
Level 2:
Commercial paper 80.5
—
—
80.5
6.0
74.5
—
Corporate debt securities 1,262.9
0.6
(2.2 ) 1,261.3
2.4
533.0
725.9
U.S. government agencies 774.2
0.1
(2.5 ) 771.8
8.0
270.7
493.1
Non-U.S. government securities 8.5
—
—
8.5
6.0
2.5
—
Municipal securities 390.4
0.2
(0.4 ) 390.2
1.0
208.3
180.9
Subtotal 2,516.5
0.9
(5.1 ) 2,512.3
23.4
1,089.0
1,399.9
Total assets measured at fair value $ 3,808.1
$ 0.9
$ (7.0 ) $ 3,802.0
$ 875.0
$ 1,271.8
$ 1,655.2

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Reported as:

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair
Value

Cash and
Cash
Equivalents

Short-
term
Investments

Long-
term
Investments
December 31, 2016
Cash $ 227.7
$ —
$ —
$ 227.7
$ 227.7
$ —
$ —
Level 1:
Money market funds 612.4
—
—
612.4
612.4
—
—
U.S. treasuries 625.9
0.1
(2.0 ) 624.0
157.9
168.4
297.7
Subtotal 1,238.3
0.1
(2.0 ) 1,236.4
770.3
168.4
297.7
Level 2:
Commercial paper 139.6
—
—
139.6
31.1
108.5
—
Corporate debt securities 1,471.8
0.7
(5.0 ) 1,467.5
2.9
555.4
909.2
U.S. government agencies 938.7
0.5
(2.9 ) 936.3
—
342.7
593.6
Non-U.S. government securities 18.5
—
—
18.5
—
16.0
2.5
Municipal securities 815.4
—
(3.5 ) 811.9
4.6
327.0
480.3
Subtotal 3,384.0
1.2
(11.4 ) 3,373.8
38.6
1,349.6
1,985.6
Total assets measured at fair value $ 4,850.0
$ 1.3
$ (13.4 ) $ 4,837.9
$ 1,036.6
$ 1,518.0
$ 2,283.3

The following table summarizes the contractual maturities of the Company’s cash equivalents and available-for-sale investments (excluding cash and money market funds), as of ~~September~~June 30, ~~2017~~2021 (in millions):


	Amortized Cost		Fair Value
Mature in less than one year	$	2,846.5	$	2,853.9
Mature in one to five years	3,285.1		3,295.6

Total	$	6,131.6	$	6,149.5

Amortized
Cost

Fair
Value
Mature in less than one year $ 1,304.9
$ 1,303.9
Mature in one to five years 1,660.3
1,655.2
Total $ 2,965.2
$ 2,959.1

Actual maturities may differ from contractual maturities, because certain borrowers have the right to call or prepay certain obligations. ~~Realized~~Gross realized gains recognized on the sale of investments were not material for the three and six months ended June 30, 2021, and $6.9 million and $8.3 million for the three and six months ended June 30, 2020, respectively. Gross realized losses recognized on the sale of investments were not material for any of the periods presented.

The Company’s investment portfolio at any point in time contains available-for-sale debt securities including investments in U.S. treasury and U.S. government agency securities, taxable and tax-exempt municipal notes, corporate notes and bonds, commercial paper, non-U.S. government agency securities, cash deposits, and money market funds. The Company segments its portfolio based on the underlying risk profiles of the securities and have a zero loss expectation for U.S. treasury and U.S. government agency securities. The Company regularly reviews the securities in an unrealized loss position and evaluates the current expected credit loss by considering factors such as historical experience, market data, issuer-specific factors, and current economic conditions. For the six months ended June 30, 2021, the credit losses related to available-for-sales debt securities were not significant.

Equity Investments

The Company holds equity investments with readily determinable fair values and equity investments without readily determinable fair values. The Company generally recognizes equity investments that do not have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer.

The following table is a summary of the activity related to equity investments (in millions):


									Reported as:
	December 31, 2020 Carrying Value		Changes in Fair Value (1)		Sales/Purchases		June 30, 2021 Carrying Value		Prepaids and other current assets		Intangible and other assets, net
Equity investments with readily determinable value (Level 1)	$	60.1	$	11.4	$	(71.5)	$	0	$	0	$	0
Equity investments without readily determinable value (Level 2)	$	30.2	$	14.5	$	3.4	$	48.1	$	0	$	48.1

(1) Recorded in Interest and other income, net.

The Company recognized a $14.5 million increase in fair value, which was reflected in Interest and other income, net, due to changes in observable prices for certain equity investments that had been held at cost, because they lacked readily determinable market values. Additionally, in January 2021, the Company sold all of its shares of Teladoc Health, Inc. ("Teladoc"), a publicly traded company, for $71.5 million and recognized a gain of $11.4 million, which was reflected in Interest and other income, net. This gain was offset by a $7.5 million loss recognized upon the settlement of a corresponding derivative collar contract. There were no ~~transfers between Level 1 and Level 2 measurements during the~~ ~~nine~~ ~~months ended~~ ~~September 30, 2017, and there were no changes~~decreases in ~~the valuation techniques used by the Company.~~fair value reflected in net income due to impairments.

Foreign Currency Derivatives

The objective of the Company’s hedging program is to mitigate the impact of changes in currency exchange rates on net cash flow from foreign ~~currency denominated~~currency-denominated sales, expenses, intercompany balances, and other monetary assets or liabilities denominated in currencies other than the U.S. dollar (“USD”). The terms of the Company’s derivative contracts are generally twelve months or shorter. The derivative assets and liabilities are measured using Level 2 fair value inputs.

Cash Flow Hedges

The Company enters into currency forward contracts as cash flow hedges to hedge certain forecasted revenue transactions denominated in currencies other than the USD, primarily the ~~European~~ Euro (“EUR”), the British Pound (“GBP”), the Japanese Yen (“JPY”), and the Korean Won (“KRW”). The Company also enters into currency forward contracts as cash flow hedges to hedge certain forecasted expense transactions denominated in EUR and the Swiss Franc (“CHF”).

Table of Contents

For these derivatives, the Company reports the unrealized after-tax gain or loss from the hedge as a component of accumulated other comprehensive ~~gain~~ income/(loss) in stockholders’ equity and reclassifies itthe amount into earnings in the same period in which the hedged transaction affects earnings. The amounts reclassified to revenue and expenses related to the hedged transactions and the ineffective portions of cash flow hedges were not material for the periods presented.

Other Derivatives Not Designated as Hedging Instruments

Other derivatives not designated as hedging instruments consist primarily of forward contracts that the Company uses to hedge intercompany balances and other monetary assets or liabilities denominated in currencies other than the USD, primarily the EUR, GBP, JPY, KRW, CHF, Indian Rupee ("INR"), Mexican Peso ("MXN"), Chinese Yuan ("CNY"), and ~~CHF.~~New Taiwan Dollar ("TWD").

These derivative instruments are used to hedge against balance sheet foreign currency exposures. The ~~net~~related gains ~~(losses)~~and losses were as follows (in millions):


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Recognized gains/(losses) in Interest and other income, net	$	(4.0)	$	(1.7)	$	7.4	$	1.9
Foreign exchange gains/(losses) related to balance sheet re-measurement	$	5.0	$	1.7	$	(6.0)	$	(6.9)

Additionally, in January 2021, the Company settled a collar contract previously entered into to hedge its equity investment in Teladoc Health, Inc. For the six months ended June 30, 2021, a loss of $7.5 million was recognized in ~~interest~~Interest and other income, ~~net in the condensed consolidated statements of comprehensive income for the three and nine months ended September 30, 2017, and 2016, were not material.~~net.

~~Table of Contents~~

The notional amounts for derivative instruments provide one measure of the transaction volume. Total gross notional amounts (in USD) for outstanding derivatives and the aggregate gross fair value at the end of each period were as follows (in millions):


	Derivatives Designated as Hedging Instruments				Derivatives Not Designated as Hedging Instruments
	June 30, 2021		December 31, 2020		June 30, 2021		December 31, 2020
Notional amounts:
Forward contracts	$	194.2	$	154.3	$	301.4	$	309.8
Gross fair value recorded in:
Prepaids and other current assets	$	4.2	$	0.9	$	2.6	$	0.7
Other accrued liabilities	$	0.5	$	4.3	$	0.8	$	5.4

Derivatives Designated as Hedging Instruments Derivatives Not Designated as Hedging Instruments
September 30,
2017 December 31,
2016 September 30,
2017 December 31,
2016
Notional amounts:
     Forward contracts $ 130.0
$ 109.7
$ 122.5
$ 143.7
Gross fair value recorded in:
     Prepaids and other current assets $ 1.6
$ 6.2
$ 1.7
$ 5.6
     Other accrued liabilities $ 4.1
$ 1.0
$ 2.5
$ 0.6

NOTE 4. BALANCE SHEET DETAILS AND OTHER FINANCIAL INFORMATION

~~Inventory~~Balance Sheet Details

The following ~~table provides further~~tables provide details of ~~inventory~~selected balance sheet line items (in millions):


	As of
Inventory	June 30, 2021		December 31, 2020
Raw materials	$	175.0	$	184.1
Work-in-process	65.5		75.6
Finished goods	329.2		341.8
Total inventory	$	569.7	$	601.5

Table of Contents

As of
September 30,
2017 December 31,
2016
Raw materials $ 67.7
$ 54.8
Work-in-process 18.5
13.4
Finished goods 139.0
114.1
Total inventory $ 225.2
$ 182.3


	As of
Prepaids and other current assets	June 30, 2021		December 31, 2020
Prepaid taxes	$	78.7	$	28.9
Equity investments	0		60.1
Net investment in sales-type leases – short-term	94.4		81.1
Other prepaids and other current assets	134.7		97.4
Total prepaids and other current assets	$	307.8	$	267.5


	As of
Other accrued liabilities–short-term	June 30, 2021		December 31, 2020
Taxes payable	$	58.8	$	47.2

Current portion of deferred purchase consideration payments	20.6		10.4
Current portion of contingent consideration	1.8		15.1
Other accrued liabilities	191.5		225.6
Total other accrued liabilities–short-term	$	272.7	$	298.3


	As of
Other long-term liabilities	June 30, 2021		December 31, 2020
Income taxes–long-term	$	288.3	$	305.6
Deferred revenue–long-term	32.0		32.1
Other long-term liabilities	92.6		106.9
Total other long-term liabilities	$	412.9	$	444.6

Supplemental Cash Flow Information

The following table provides supplemental non-cash investing and financing activities (in millions):


	Six Months Ended June 30,
		2021		2020
Equipment transfers, including operating lease assets, from inventory to property, plant, and equipment		$	139.4	$	79.0
Acquisition of property, plant, and equipment in accounts payable and accrued liabilities		$	14.3	$	34.0
Deferred payments and contingent consideration related to business combinations and asset acquisitions		$	7.8	$	4.1

Nine Months Ended September 30,
2017 2016
Equipment transfers, including operating lease assets, from inventory to property, plant and equipment $ 45.1
$ 31.1

Table of Contents

NOTE 5. ~~LEASE RECEIVABLES~~REVENUE AND CONTRACT ACQUISITION COSTS

The following table presents revenue disaggregated by types and geography (in millions):


	Three Months Ended June 30,				Six Months Ended June 30,
U.S.	2021		2020		2021		2020
Instruments and accessories	$	577.5	$	315.6	$	1,078.3	$	760.0
Systems	277.6		139.3		480.3		338.1
Services	150.7		80.6		294.7		219.0
Total U.S. revenue	$	1,005.8	$	535.5	$	1,853.3	$	1,317.1

Outside of U.S. (“OUS”)
Instruments and accessories	$	218.9	$	145.2	$	424.0	$	318.3
Systems	162.0		121.7		328.0		206.2
Services	77.3		49.7		150.8		110.0
Total OUS revenue	$	458.2	$	316.6	$	902.8	$	634.5

Total
Instruments and accessories	$	796.4	$	460.8	$	1,502.3	$	1,078.3
Systems	439.6		261.0		808.3		544.3
Services	228.0		130.3		445.5		329.0
Total revenue	$	1,464.0	$	852.1	$	2,756.1	$	1,951.6

Remaining Performance Obligations

The transaction price allocated to remaining performance obligations relates to amounts allocated to products and services for which revenue has not yet been recognized. A significant portion of this amount relates to performance obligations in the Company’s service contracts that will be satisfied and recognized as revenue in future periods. In addition, non-lease elements associated with the Company’s lease arrangements are primarily comprised of service contracts that will be satisfied and recognized as revenue in future periods. The transaction price allocated to the remaining performance obligations and the non-lease elements associated with lease arrangements was $1,700 million as of June 30, 2021. The remaining performance obligations are expected to be satisfied over the term of the individual sales arrangements, which generally are 5 years. Service revenue associated with the lease arrangements will generally be recognized over the service period, which generally coincides with the lease term.

Contract Assets and Liabilities

The following information summarizes the Company’s contract assets and liabilities (in millions):



	As of
	June 30, 2021		December 31, 2020
Contract assets	$	43.4	$	34.6
Deferred revenue	$	392.0	$	382.3

The Company invoices its customers based on the billing schedules in its sales arrangements. Payments are generally due 30 days from date of invoice. Contract assets for the periods presented primarily represent the difference between the revenue that was recognized based on the relative standalone selling price of the related performance obligations satisfied and the contractual billing terms in the arrangements. Deferred revenue for the periods presented primarily relates to service contracts where the service fees are billed up-front, generally quarterly or annually, prior to those services having been performed. The associated deferred revenue is generally recognized over the term of the service period. The Company did not have any significant impairment losses on its contract assets for the periods presented.

During the three and six months ended June 30, 2021, the Company recognized $99.3 million and $250.2 million of revenue, respectively, that was included in the deferred revenue balance as of December 31, 2020. During the three and six months ended June 30, 2020, the Company recognized $54.6 million and $191.6 million of revenue, respectively, net of the impact of the Customer Relief Program, that was included in the deferred revenue balance as of December 31, 2019.

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Intuitive System Leasing

The following table presents revenue from Intuitive System Leasing arrangements (in millions):


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Sales-type lease revenue	$	84.0	$	16.8	$	101.3	$	71.8
Operating lease revenue	$	67.3	$	42.2	$	126.3	$	81.3

For the three and six months ended June 30, 2021, and 2020, variable lease revenue relating to usage-based arrangements was not material.

Trade Accounts Receivable

The allowance for doubtful accounts is based on the Company’s assessment of the collectibility of customer accounts. The Company regularly reviews the allowance by considering factors such as historical experience, credit quality, the age of the accounts receivable balances, and current economic conditions that may affect a customer’s ability to pay. For the three and six months ended June 30, 2021, and 2020, bad debt expense was not significant.

The Company’s exposure to credit losses may increase if its customers are adversely affected by changes in healthcare laws, coverage, and reimbursement, economic pressures or uncertainty associated with local or global economic recessions, disruption associated with the current COVID-19 pandemic, or other customer-specific factors. Although the Company has historically not experienced significant credit losses, it is possible that there could be a material adverse impact from potential adjustments of the carrying amount of lease and trade receivables as hospital cash flows are impacted by their response to the COVID-19 pandemic and deferral of elective surgical procedures.

NOTE 6. LEASES

Lessor Information

Sales-type Leases. Lease receivables relating to sales-type lease arrangements are presented on the Condensed Consolidated Balance Sheets as follows (in millions):


	As of
	June 30, 2021		December 31, 2020
Gross lease receivables	$	344.7	286.1
Unearned income	(11.1)		(11.1)
Subtotal	333.6		275.0
Allowance for credit loss	(4.1)		(4.4)
Net investment in sales-type leases	$	329.5	$	270.6
Reported as:
Prepaids and other current assets	$	94.4	81.1
Intangible and other assets, net	235.1		189.5
Total, net	$	329.5	270.6

As of
September 30,
2017 December 31,
2016
Gross lease receivable $ 113.0
$ 104.3
Unearned income (4.7 ) (4.8 )
Allowance for credit loss (0.8 ) (0.6 )
Net investment in sales-type leases 107.5
98.9
Reported as:
   Prepaids and other current assets 35.0
29.8
   Intangible and other assets, net 72.5
69.1
   Total, net $ 107.5
$ 98.9

Contractual maturities of gross lease receivables at ~~September~~June 30, ~~2017,~~2021, are as follows (in millions):


Fiscal Year	Amount
Remainder of 2021	$	52.4
2022	93.4
2023	77.1
2024	66.5
2025	42.1
2026 and thereafter	13.2
Total	$	344.7

Table of Contents

The Company enters into sales-type leases with certain qualified customers to purchase its systems. Sales-type leases have terms that generally range from 24 to 84 months and are usually collateralized by a security interest in the underlying assets. The allowance for loan loss is based on the Company’s assessment of current expected lifetime loss on lease receivables. The Company regularly reviews the allowance by considering factors such as historical experience, credit quality, the age of the lease receivable balances, and current economic conditions that may affect a customer’s ability to pay. Lease receivables are considered past due 90 days after invoice.

The Company manages the credit risk in net investment in sales-type leases using a number of factors, including, but not limited to the following: size of operations; profitability, liquidity, and debt ratios; payment history; and past due amounts. The Company also uses credit scores obtained from external providers as a key credit quality indicator for the purposes of determining credit quality. The following table presents credit quality by class of net investment in sales-type lease as of June 30, 2021. The following table summarizes the amortized cost basis by year of origination and credit quality indicator as of June 30, 2021 (in millions):

Amount
2017 $ 9.3
2018 38.0
2019 29.8
2020 19.5
2021 11.2
2022 and thereafter 5.2
Total $ 113.0


	2021		2020		2019		2018		2017		Prior		Net Investment
Credit Rating:
High	$	45.5	$	51.9	$	30.2	$	6.0	$	3.5	$	1.3	$	138.4
Moderate	62.4		84.6		21.8		15.6		4.1		1.1		189.6
Low	0.8		3.1		0		0.9		0.5		0.3		5.6
Total	$	108.7	$	139.6	$	52.0	$	22.5	$	8.1	$	2.7	$	333.6

For the three and six months ended June 30, 2021, and 2020, credit losses related to net investment in sales-type leases were not significant.

NOTE 6.7. GOODWILL AND INTANGIBLE ASSETS

Acquisitions in 2021

There were no material acquisitions for the three and six months ended June 30, 2021.

Acquisitions in 2020

Orpheus Medical

In February 2020, the Company acquired Orpheus Medical Ltd. and its wholly-owned subsidiaries (“Orpheus Medical”) to deepen and expand our integrated informatics platform (the “Orpheus Medical Acquisition”). Orpheus Medical provides hospitals with information technology connectivity, as well as expertise in capturing, processing, and archiving clinical videos across the hospital. The Orpheus Medical Acquisition did not have a material impact on the financial statements.

Goodwill

The following table summarizes the changes in the carrying amount of goodwill (in millions):


	Amount
Balance at December 31, 2020	$	336.7
Acquisition activity	8.0
Translation and other	(0.4)
Balance at June 30, 2021	$	344.3

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Intangible Assets

The following table summarizes the components of gross intangible assets, accumulated amortization, and net intangible asset balances as of June 30, 2021, and December 31, 2020 (in millions):


	June 30, 2021						December 31, 2020
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Patents and developed technology	$	219.3	$	(165.5)	$	53.8	$	198.4	$	(158.7)	$	39.7
Distribution rights and others	26.3		(15.9)		10.4		91.9		(77.4)		14.5
Customer relationships	31.7		(11.9)		19.8		59.0		(35.8)		23.2
Total intangible assets	$	277.3	$	(193.3)	$	84.0	$	349.3	$	(271.9)	$	77.4

Amortization expense related to intangible assets was $7.5 million and $12.4 million for the three months ended June 30, 2021, and 2020, respectively. Amortization expense related to intangible assets was $14.5 million and $24.7 million for the six months ended June 30, 2021, and 2020, respectively.

The estimated future amortization expense related to intangible assets as of June 30, 2021, is as follows (in millions):


Fiscal Year	Amount
Remainder of 2021	$	12.2
2022	23.6
2023	19.0
2024	14.7
2025	9.9
2026 and thereafter	4.6
Total	$	84.0

The preceding expected amortization expense is an estimate. Actual amounts of amortization expense may differ from estimated amounts due to additional intangible asset acquisitions, measurement-period adjustments to intangible assets, changes in foreign currency exchange rates, impairments of intangible assets, accelerated amortization of intangible assets, and other events.

NOTE 8. CONTINGENCIES

~~The~~From time to time, the Company is involved in a variety of claims, lawsuits, investigations, and proceedings relating to securities laws, product liability, intellectual property, insurance, contract disputes, employment, and other matters. Certain of these lawsuits and claims are described in further detail below. It is not possible to predict what the outcome of these matters will be, and the Company cannot guarantee that any resolution will be reached on commercially reasonable terms, if at all.

A liability and related charge to earnings are recorded in the ~~Company’s~~ Financial Statements for legal contingencies when the loss is considered probable and the amount can be reasonably estimated. The assessment is ~~reevaluated~~re-evaluated each accounting period and is based on all available information, including the impact of negotiations, settlements, rulings, advice of legal counsel, and other information and events pertaining to each case. Nevertheless, it is possible that additional future legal costs (including settlements, judgments, legal fees, and other related defense costs) could have a material adverse effect on the Company’s business, financial position, ~~or future results of operations.~~

~~Purported Shareholder Class Action Lawsuits filed April 26, 2013,~~ and ~~May 24, 2013~~

~~On April 26, 2013, a purported class action lawsuit entitled~~ ~~Abrams v. Intuitive Surgical, et al.~~, No. 5-13-cv-1920, was filed against a number of the Company’s current and former officers and directors in the United States District Court for the Northern District of California. A substantially identical complaint, entitled ~~Adel v. Intuitive Surgical, et al., No. 5:13-cv-02365, was filed in the same court against the same defendants on May 24, 2013. The Adel case was voluntarily dismissed without prejudice on August 20, 2013.~~

~~On October 15, 2013, plaintiffs in the Abrams matter filed an amended complaint. The case has since been retitled~~ ~~In re Intuitive Surgical Securities Litigation,~~ No. 5:13-cv-1920. The plaintiffs seek unspecified damages on behalf of a putative class of persons who purchased or otherwise acquired the Company’s common stock between February 6, 2012, and July 18, 2013. The amended complaint alleges that the defendants violated federal securities laws by allegedly making false and misleading statements and omitting certain material facts in certain public statements and in the Company’s filings with the SEC. On November 18, 2013, the court appointed the Employees’ Retirement System of the State of Hawaii as lead plaintiff and appointed lead counsel. The Company filed a motion to dismiss the amended complaint on December 16, 2013, which was granted in part and denied in part on August 21, 2014. The plaintiffs elected not to further amend their complaint at that time. On October 22, 2014, the court granted the Company’s motion for leave to file a motion for reconsideration of the court’s August 21, 2014, order. The Company filed its motion for reconsideration on November 5, 2014. Following opposition and reply briefing, the court denied the motion on December 15, 2014, allowing the case to move forward on the claims that remained. The plaintiffs moved for class certification on September 1, 2015, and following opposition and reply briefing, the court held a hearing on the motion on January 21, 2016. While that motion remained pending, on October 11, 2016, the Company sent plaintiffs’ lead counsel, Labaton Sucharow LLP, a letter enclosing a draft motion for sanctions pursuant to Federal Rule of Civil Procedure 11, primarily based on statements to the court that lacked a proper factual basis. In response, on November 1, 2016, plaintiffs’ local counsel withdrew from the case entirely and withdrew their signatures from the disputed pleadings. On November 2, 2016, Labaton Sucharow LLP filed a motion for leave to file an amended complaint that did not include the disputed statements. On November 16, 2016, the Company filed an opposition to plaintiffs’ motion, along with an independent motion to strike the amended complaint and the pleadings from which plaintiffs’ local counsel withdrew their signatures. Following additional briefing, the motion for leave to amend and motion to strike were fully submitted to the court on November 23, 2016, and December 7, 2016, respectively. On December 22, 2016, the court entered an order granting plaintiffs’ motion for class certification. On January 5, 2017, the Company filed a Petition for Permission to Appeal from the order granting class certification in the U.S. Court of Appeals for the Ninth Circuit. The court of appeals has not yet ruled on the Company’s petition. On January 12, 2017, plaintiffs sought leave to file a motion for partial reconsideration of the court’s class certification order, which the court granted on March 17, 2017. Plaintiffs filed the motion for reconsideration itself on April 3, 2017, and the Company filed its opposition on April 17, 2017. The court denied the motion on September 29, 2017. On January 25, 2017, the court entered an order granting plaintiffs’ motion for leave to amend the complaint and denying the Company’s motion to strike. On February 9, 2017, the Company moved to dismiss the amended complaint. Following opposition and reply briefing, the matter was fully submitted to the court on March 2, 2017. The court denied the motion on September 29,

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2017. On July 13, 2017, the parties filed a stipulation vacating the case schedule, which the court entered on July 14, 2017. On October 11, 2017, the court scheduled a trial setting conference for November 16, 2017. Based on currently available information, the Company does not believe the resolution of this matter will have a material adverse effect on the Company’s business, financial position, or future results of operations.

~~Purported Derivative Actions filed on February 3, 2014, February 21, 2014, March 21, 2014, June 3, 2014, and March 5, 2015~~

~~On February 3, 2014, an alleged stockholder, Robert Berg, caused a purported stockholder’s derivative lawsuit entitled~~ ~~Berg v. Guthart et al., No. 4:14-CV-00515,~~to be filed in the United States District Court for the Northern District of California. The lawsuit names the Company as a nominal defendant and names a number of the Company’s current and former officers and directors as defendants. The plaintiff seeks to recover, on the Company’s behalf, unspecified damages purportedly sustained by the Company in connection with allegedly misleading statements and/or omissions made in connection with the Company’s financial reporting for the period between 2012 and early 2014. The plaintiff also seeks a series of changes to the Company’s corporate governance policies and an award of attorneys’ fees. On April 3, 2014, the case was related to ~~In re Intuitive Surgical Securities Litigation.~~ On July 30, 2014, the court granted Berg’s motion to be appointed lead plaintiff, denied the City of Birmingham’s motion seeking such appointment (see below for additional description), and retitled the matter ~~In re Intuitive Surgical, Inc. Shareholder Derivative Litigation~~, No. 4:14-CV-00515. On August 13, 2014, the plaintiffs filed a consolidated complaint, making allegations substantially similar to the allegations in the original complaint. On September 12, 2014, the Company filed a motion to dismiss the consolidated complaint. The plaintiffs filed an opposition on October 9, 2014, and the Company filed its reply on October 30, 2014. The court denied the Company’s motion to dismiss on November 16, 2015. On January 26, 2016, the Company moved to stay this lawsuit in favor of ~~Public School Teachers’ Pension and Retirement Fund of Chicago v. Guthart et al.~~ (see below for additional description). Plaintiff opposed the motion to stay on February 16, 2016, the Company filed its reply on March 1, 2016, and a hearing was set for June 16, 2016. While the motion was pending, however, the Company and the plaintiff agreed in principle that the plaintiff would file a motion to intervene in the ~~Public School Teachers’ Pension and Retirement Fund of Chicago~~ action and withdraw his opposition to the motion to stay. On March 17, 2016, the parties jointly requested that the court not rule on the motion to stay while the agreement was being implemented. Following additional negotiations, the plaintiff filed an unopposed motion to intervene on April 29, 2016. After additional briefing, on May 23, 2016, the court in the ~~Public School Teachers’Pension and Retirement Fund of Chicago~~ ~~action granted the motion. Accordingly, on May 31, 2016, the parties filed a stipulation requesting that the court stay~~ ~~In re Intuitive Surgical, Inc. Shareholder Derivative Litigation~~. The court granted the stay on June 2, 2016. Additional discussions between the parties ensued, and on September 15, 2016, they executed a confidential Memorandum of Understanding that contained the essential terms of a settlement to which the parties agreed in principle. That settlement, as later finalized, provides for a dismissal with prejudice and release of all claims brought in both the ~~In re Intuitive Surgical, Inc. Shareholder Derivative Litigation~~ ~~action and the~~ ~~Public School Teachers’ Pension and Retirement Fund of Chicago~~ ~~action, as well as~~ ~~City of Plantation Police Officers’ Employees’ Retirement System v. Guthart et al.~~ (see below for additional description). The settlement, which also includes terms that require the Company to reimburse the plaintiffs’ lawyers’ legal fees, is subject to court approval as described below. In the interim, the ~~In re Intuitive Surgical, Inc. Shareholder Derivative Litigation~~ action remains stayed. Based on currently available information, the Company does not believe the resolution of this matter will have a material adverse effect on the Company’s business, financial position, or future results of operations.

~~On February 21, 2014, a second alleged stockholder caused a substantially similar purported stockholder’s derivative lawsuit entitled~~ ~~Public School Teachers’ Pension and Retirement Fund of Chicago v. Guthart et al.~~, No. CIV 526930, to be filed in the Superior Court of the State of California, County of San Mateo, against the same parties and seeking the same relief. On March 26, 2014, the case was removed to the United States District Court for the Northern District of California, where it was related to ~~In re Intuitive Surgical Securities Litigation~~ ~~and~~ ~~Berg v. Guthart~~ on April 30, 2014. The district court remanded the case back to San Mateo County Superior Court on June 30, 2014. On August 28, 2014, the Company filed a motion seeking to stay the case in favor of the federal action and asking that the plaintiff be required to post a bond on the grounds that the action was duplicative and was not in the Company’s best interests. On November 13, 2014, the superior court entered an order denying in part the Company’s motion to stay and denying the Company’s request for plaintiff’s bond. On November 18, 2014, the Company petitioned the First Appellate District of the California, Court of Appeal for a writ of mandate directing the superior court to stay the case in its entirety. At the same time, the Company requested an immediate stay of proceedings pending resolution of the petition. On November 19, 2014, the court of appeal granted the Company’s request for an immediate stay of the proceedings and set a briefing schedule for the petition. The plaintiff filed its opposition to the petition on December 8, 2014, and the Company filed its reply on December 22, 2014. The petition was denied on January 8, 2015. On January 20, 2015, the Company filed a demurrer (moved to dismiss the complaint). The plaintiff filed its opposition to the demurrer on February 10, 2015, and the Company filed its reply on February 20, 2015. A hearing was held on February 27, 2015, and the court overruled the demurrer on March 27, 2015. The court’s order was entered on April 2, 2015. On June 19, 2015, the Company moved for summary judgment, and a hearing on the Company’s motion was set for September 4, 2015. On July 6, 2015, the court amended the case schedule, and the Company withdrew its motion for summary judgment. The court later further amended the case schedule, and trial was eventually reset for

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~~September 16, 2016. On May 23, 2016, the court granted an unopposed motion to intervene filed by the plaintiffs in~~ ~~In re Intuitive Surgical, Inc. Shareholder Derivative Litigation~~ ~~and~~ ~~City of Birmingham Relief and Retirement System v. Guthart et al.~~ (see above and below for additional description). The Company filed a new motion for summary judgment on June 1, 2016, and the plaintiff filed a motion for summary adjudication regarding certain affirmative defenses on June 2, 2016. Following opposition and reply briefing, the court heard argument on the motions for summary judgment and summary adjudication on August 24, 2016. While the motions were pending, on September 15, 2016, the parties executed the confidential Memorandum of Understanding described above, which contained the essential terms of a settlement to which the parties agreed in principle. The parties notified the court of the Memorandum of Understanding on September 15, 2016, and on September 16, 2016, the court entered an order vacating the trial date and ruling that the motions for summary judgment and summary adjudication (along with other pre-trial motions) were moot. The parties finalized the settlement over the ensuing months, appearing before the court periodically to keep it apprised of their progress. The final settlement provides for a dismissal with prejudice and release of all claims brought in the ~~Public School Teachers’ Pension and Retirement Fund of Chicago~~ ~~action, as well as the~~ ~~In re Intuitive Surgical, Inc. Shareholder Derivative Litigation~~ ~~action and the~~ ~~City of Plantation Police Officers’ Employees’ Retirement System~~ action and the other similar derivative cases (see above and below, respectively, for additional description). The settlement also includes terms that require the Company to reimburse the plaintiffs’ lawyers’ legal fees. On July 7, 2017, the plaintiff filed a motion for preliminary approval of the settlement, and on July 18, 2017, the Company filed a statement of non-opposition. On August 9, 2017, the court entered an order preliminarily approving settlement, providing for notice to the Company’s shareholders, and setting a final settlement hearing. On October 20, 2017, the final settlement was approved by the court. During the three and nine months ended September 30, 2017, the Company recorded $8.7 million and $11.7 million, respectively, of pre-tax charges to reflect the estimated cost of settling this matter. As of September 30, 2017, a total of $16.7 million was included in other accrued liabilities in the accompanying Consolidated Balance Sheets related to this settlement.

~~On March 21, 2014, a third alleged stockholder caused a substantially similar purported stockholder’s derivative lawsuit entitled~~ ~~City of Birmingham Relief and Retirement System v. Guthart et al.~~, No. 5-14-CV-01307, to be filed in the United States District Court for the Northern District of California against the same parties and seeking the same relief. On April 8, 2014, the lawsuit was related to ~~In re Intuitive Surgical Securities Litigation~~ ~~and~~ ~~Berg v. Guthart.~~ ~~On July 30, 2014, the court consolidated the case with~~ ~~Berg v. Guthart~~ ~~and, as noted above, granted Berg’s motion to be appointed lead plaintiff and denied the City of Birmingham’s motion seeking such appointment. Accordingly, the~~ ~~City of Birmingham Relief and Retirement System~~ ~~action will be resolved by the pending settlement of the~~ ~~In re Intuitive Surgical, Inc. Shareholder Derivative Litigation~~ action (see above for additional description). Based on currently available information, the Company does not believe the resolution of this matter will have a material adverse effect on the Company’s business, financial position, or future results of operations.

~~On June 3, 2014, a fourth alleged stockholder caused a substantially similar purported stockholder’s derivative lawsuit entitled~~ ~~City of Plantation Police Officers’ Employees’ Retirement System v. Guthart et al.~~, C.A. No. 9726-CB, to be filed in the Court of Chancery of the State of Delaware. The Company filed a motion to stay proceedings in favor of the earlier-filed stockholder derivative lawsuits pending in federal and state courts in California. In light of the Company’s motion, the plaintiff agreed to a stay of all proceedings in the case in favor of the earlier-filed actions. While the case was stayed, the parties agreed that the plaintiff would file a motion to intervene in the ~~Public School Teachers’ Pension and Retirement Fund of Chicago~~ ~~action (see above for additional description). The plaintiff filed an unopposed motion to intervene on April 29, 2016. After additional briefing, on May 23, 2016, the court in the~~ ~~Public School Teachers’ Pension and Retirement Fund of Chicago~~ action granted the plaintiff’s motion. However, on June 21, 2016, in response to discovery requests, the plaintiff admitted that it did not continuously hold the Company’s stock during all relevant times. Accordingly, on July 21, 2016, the plaintiff filed a request for dismissal as an additional plaintiff in the ~~Public School Teachers’ Pension and Retirement Fund of Chicago~~ action, which the court in that action granted with prejudice on July 22, 2016. On September 15, 2016, the parties executed the confidential Memorandum of Understanding described above, which contained the essential terms of a settlement to which the parties agreed in principle. That settlement, as later finalized, provides for a dismissal with prejudice and release of all claims brought in the ~~City of Plantation Police Officers’ Employees’ Retirement System~~ ~~action, as well as both the~~ ~~In re Intuitive Surgical, Inc. Shareholder Derivative Litigation~~ ~~action and the~~ ~~Public School Teachers’ Pension and Retirement Fund of Chicago~~ action (see above for additional description). The settlement, which also includes terms that require the Company to reimburse the plaintiffs’ lawyers’ legal fees, is subject to court approval as described above. In the interim, the ~~City of Plantation Police Officers’ Employees’ Retirement System~~ action remains stayed. Based on currently available information, the Company does not believe the resolution of this matter will have a material adverse effect on the Company’s business, financial position, or future results of operations.

~~On March 5, 2015, a fifth alleged stockholder caused a substantially similar purported stockholder’s derivative lawsuit entitled~~ ~~Back v. Guthart et al., No. 3:15-CV-01037, to be filed in the United States District Court for the Northern District of California. On April 7, 2015, the lawsuit was related to~~ ~~In re Intuitive Surgical Securities Litigation~~ ~~and~~ ~~Berg v. Guthart~~. The Company filed a motion to dismiss the complaint on July 10, 2015. On August 13, 2015, the parties stipulated to a complete stay of the matter and the court entered an order reflecting the stay on August 17, 2015. On September 11, 2017, the plaintiff filed a motion to lift the stay and reopen the case and for leave to file amended complaint. On September 25, 2017, the individual defendants filed an opposition to plaintiffs’ motion, which the Company joined on September 26, 2017. Plaintiff filed his reply October 2, 2017, and

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the Court has set a hearing for January 25, 2018. The Company believes the settlement of the cases described above will make this motion and the action itself moot and will move for dismissal on that basis. Based on currently available information, the Company does not believe the resolution of this matter will have a material adverse effect on the Company’s business, financial position, or future results of operations.

Product Liability Litigation

The Company is currently named as a defendant in ~~approximately 45~~a number of individual product liability lawsuits filed in various state and federal ~~courts by~~courts. The plaintiffs ~~who~~generally allege that they or a family member underwent surgical procedures that utilized the da Vinci Surgical System and sustained a variety of personal injuries and, in some cases, death as a result of such surgery. The Company has also received a large number of product liability claims from plaintiffs’ attorneys, many of which are subject to certain tolling agreements further discussed below. The Company has also been named as a defendant in a multi-plaintiff lawsuit filed in Missouri state court. In total, plaintiffs in that case seek damages on behalf of 55 patients from 22 different states who had surgeries in which their surgeons used the ~~da Vinci~~ ~~Surgical System.~~ Several of the filed cases have trial dates in the next 12 months.

The cases raise a variety of allegations including, to varying degrees, that plaintiffs’ injuries resulted from purported defects in the da Vinci Surgical System and/or failure on the Company’s part to provide adequate training resources to the healthcare professionals who performed plaintiffs’ surgeries. The cases further allege that the Company failed to adequately disclose and/or misrepresented the potential risks and/or benefits of the da Vinci Surgical System. Plaintiffs also assert a variety of causes of action, including, for example, strict liability based on purported design defects, negligence, fraud, breach of

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express and implied warranties, unjust enrichment, and loss of consortium. Plaintiffs seek recovery for alleged personal injuries and, in many cases, punitive damages.

~~Plaintiffs’ attorneys have also engaged in well-funded national advertising efforts seeking patients dissatisfied with surgery utilizing the~~ ~~da Vinci~~ ~~Surgical System.~~ The Company ~~has received a significant number of such claims from plaintiffs’ attorneys that it believes are a result of~~disputes these advertising efforts. A substantial number of claims relate to alleged complications from surgeries performed with certain versions of Monopolar Curved Scissor (“MCS”) instruments which included an MCS tip cover accessory that was the subject of a market withdrawal in 2012allegations and ~~MCS instruments that were the subject of a recall in 2013. In an effort to avoid the expense and distraction of~~is defending ~~multiple lawsuits, the Company entered into tolling agreements to pause the applicable statutes of limitations for many of~~against these ~~claims and engaged in confidential mediation efforts.~~

After an extended confidential mediation process with legal counsel for many of the claimants covered by the tolling agreements, the Company determined during 2014 that, while it denies any and all liability, in light of the costs and risks of litigation, settlement of certain claims was appropriate. During the three months ended September 30, 2017, and 2016, no significant charges were recorded related to these claims. During the nine months ended September 30, 2017, and 2016, the Company recorded $15.6 million and $6.3 million, respectively, of pre-tax charges to reflect the estimated cost of settling a number of the product liability claims covered by the tolling agreements. The Company has reached confidential settlements in many of the cases that were in the confidential mediation process and earlier filed cases.

The Company’s estimate of the anticipated cost of resolving ~~these claims~~the pending cases is based on negotiations with attorneys for ~~claimants who have participated in~~ the mediation process. Nonetheless, it is possible that more claims will be made by additional individuals and that the claimants whose claims were not resolved through the mediation program, as well as those claimants who have not participated in mediations, will choose to pursue greater amounts in a court of law. Consequently, theclaimants. The final outcome of ~~these~~the pending lawsuits and claims, and others that might arise, is dependent on many variables that are difficult to predict, and the ultimate cost associated with these product liability lawsuits and claims may be materially different than the amount of the current estimate and accruals and could have a material adverse effect on the Company’s business, financial position, and future results of operations. Although there is a reasonable possibility that a loss in excess of the amount recognized exists, the Company is unable to estimate the possible loss or range of loss in excess of the amount recognized at this time. As of September 30, 2017, and December 31, 2016, a total of $18.4 million and $20.5 million, respectively, were included in other accrued liabilities in the accompanying Consolidated Balance Sheets related to the tolled product liability claims.

In February 2011, the Company was named as a defendant in a product liability action that had originally been filed in Washington State Superior Court for Kitsap County against the healthcare providers and hospital involved in a decedent’s surgery on such decedent’s behalf (~~Josette Taylor, as Personal Representative of the Estate of Fred E. Taylor, deceased; and on behalf of the Estate of Fred E. Taylor v. Intuitive Surgical, Inc.,~~ ~~No. 09-2-03136-5). In~~ ~~Taylor~~, plaintiff asserted wrongful death and product liability claims against the Company, generally alleging that the decedent died four years after surgery as a result of injuries purportedly suffered during the surgery, which was conducted with the use of the ~~da Vinci~~ Surgical System. The plaintiff in Taylor asserted that such injuries were caused, in whole or in part, by the Company’s purported failure to properly train, warn, and instruct the surgeon. The lawsuit sought unspecified damages for past medical expenses, pain and suffering, loss of consortium as well as punitive damages. A trial commenced on April 15, 2013. On May 23, 2013, the jury returned a defense verdict, finding that the Company was not negligent. Judgment was entered in the Company’s favor on June 7, 2013. Subsequent to the verdict, the plaintiff filed a notice of appeal. That appeal was denied on July 7, 2015. On July 27, 2015, plaintiff filed a motion for reconsideration

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with the court of appeal; the court of appeal denied the motion for reconsideration on August 10, 2015. On September 9, 2015, plaintiff filed a Petition for Review with the Washington State Supreme Court (“Washington Supreme Court”). On February 10, 2016, the Washington Supreme Court issued an order granting the plaintiff’s Petition for Review. Oral argument on the appeal before the Washington Supreme Court was heard on June 7, 2016. On February 9, 2017, the Washington Supreme Court vacated the defense verdict and remanded the case for retrial, which is currently scheduled to begin on February 12, 2018. Based on currently available information, the Company does not believe the resolution of this matter will have a material adverse effect on the Company’s business, financial position, or future results of operations.

Patent Litigation

On June 30, 2017, Ethicon ~~LLC.,~~LLC, Ethicon Endo-Surgery, Inc., and Ethicon US LLC (collectively, “Ethicon”) filed a complaint for patent infringement against the Company in the ~~United States~~U.S. District Court for the District of Delaware. The complaint, which was served on the Company on July 12, 2017, alleges that the Company’s EndoWristStapler instruments infringe several of Ethicon’s patents. Ethicon asserts infringement of U.S. Patent Nos. 9,585,658, 8,479,969, 9,113,874, 8,998,058, 8,991,677, 9,084,601, and 8,616,431. A claim construction hearing occurred on October 1, 2018, and the court issued a scheduling order on December 28, 2018. On March 20, 2019, the court granted the Company’s Motion to Stay pending an Inter Partes Review to be held at the Patent Trademark and Appeals Board to review patentability of six of the seven patents noted above and vacated the trial date. On August 1, 2019, the court granted the parties’ joint stipulation to modify the stay in light of Ethicon’s U.S. International Trade Commission (“USITC”) complaint against Intuitive involving U.S. Patent Nos. 8,479,969 and 9,113,874, discussed below.

On August 27, 2018, Ethicon filed a second complaint for patent infringement against the Company in the U.S. District Court for the District of Delaware. The complaint alleges that the Company’s SureForm 60 Staplers infringe five of Ethicon’s patents. Ethicon asserts infringement of U.S. Patent Nos. 9,884,369, 7,490,749, 8,602,288, 8,602,287, and 9,326,770. The Company filed an answer denying all claims. On March 19, 2019, Ethicon filed a Motion for Leave to File a First Amended Complaint, removing allegations related to U.S. Patent No. 9,326,770 and adding allegations related to U.S. Patent Nos. 9,844,379 and 8,479,969. On July 17, 2019, the court entered an order denying the amendment, without prejudice, and granting the parties’ joint stipulation to stay the case in its entirety in light of the USITC investigation involving U.S. Patent Nos. 9,844,369 and 7,490,749, discussed below.

Based on currently available information, the Company is unable to make a reasonable estimate of loss or range of losses, if any, arising from these matters.

On May 30, 2019, Ethicon filed a complaint with the USITC, asserting infringement of U.S. Patent Nos. 9,884,369 (“’369”), 7,490,749 (“’749”), 9,844,379 (“’379”), 9,113,874 (“’874”), and 8,479,969 (“’969”). On June 28, 2019, the USITC voted to institute an investigation (No. 337-TA-1167) with respect to the claims in this complaint. The accused products include the Company’s EndoWrist 30, EndoWrist 45, SureForm 45, and SureForm 60 Staplers, as well as the stapler reload cartridges. In March 2020, Ethicon dismissed its claims concerning the ’749 patent. The evidentiary hearing took place in February 2021. On June 8, 2021, the Chief Administrative Law Judge issued an Initial Determination concluding that (1) the accused products do not infringe the asserted claims in the ’874 or ’969 patents; (2) the asserted claims in the ’874 and ’969 patents are invalid; (3) the accused SureForm staplers and associated reload cartridges infringe two claims of the ’369 patent; (4) the accused SureForm staplers and associated reload cartridges infringe two claims of the ’379 patent; and (5) the Company was estopped from contending that the asserted claims in the ’379 patent are invalid. A Final Determination Date has been set for October 8, 2021. The Company has filed a Petition for Review of Initial Determination with the USITC challenging the Initial Determination with regard to the ’369 and ’379 patents. Ethicon has filed a Petition for Review of Initial Determination challenging the Initial Determination with regard to the validity of the ’969 patent and the Initial Determination’s finding that the accused SureForm and associated reload cartridges do not infringe the ’969 patent. Ethicon has not challenged the Initial Determination with regard to the findings relating specifically to the accused EndoWrist staplers and associated reload cartridges. An unfavorable ruling by the USITC could result in a prohibition on importing the accused SureForm products into the U.S. or necessitating workarounds. Based on currently available information, the Company does not believe that any losses arising from this matter would be material.

Commercial Litigation

On February 27, 2019, Restore Robotics LLC and Restore Repair LLC (“Restore”) filed a complaint alleging anti-trust claims against the Company. On May 13, 2019, Restore filed an amended complaint alleging anti-trust claims relating to the da Vinci Surgical System and EndoWrist service, maintenance, and repair processes. On September 16, 2019, the Court partially granted and partially denied the Company’s Motion to Dismiss the amended complaint.

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On September 30, 2019, the Company filed an answer denying the anti-trust allegations and filed a counterclaim against Restore. The Company filed amended counterclaims after the Court partially granted and partially denied Restore’s Motion to Dismiss the counterclaim. The amended counterclaims allege that Restore violated the Federal Lanham Act, the Federal Computer Fraud and Abuse Act, and Florida’s Deceptive and Unfair Trade Practices Act and that Restore is also liable to the Company for Unfair Competition and Tortious Interference with Contract. On January 7, 2020, the Court denied Restore’s Motion to Dismiss the amended counterclaims.

In its initial scheduling order, the Court stated that it anticipated trial in this case to occur in or before February 2022. Based on currently available information, the Company is unable to make a reasonable estimate of loss or range of losses, if any, arising from these matters.

On September 28, 2020, Rebotix Repair Inc. (“Rebotix”) filed a complaint alleging anti-trust claims against the Company relating to EndoWrist service, maintenance, and repair processes. The complaint was formally served on the Company on October 6, 2020. On March 8, 2021, the Court partially granted and partially denied the Company’s Motion to Dismiss the complaint. The Company filed an answer denying the anti-trust allegations and filed counterclaims against Rebotix. The counterclaims allege that Rebotix violated the Federal Lanham Act and Florida’s Deceptive and Unfair Trade Practices Act and that Rebotix is also liable to the Company for Tortious Interference with Contract.

In its initial scheduling order, the Court stated that it anticipated trial in this case to occur in or around March 2022. Based on currently available information, the Company is unable to make a reasonable estimate of loss or range of losses, if any, arising from this matter.

Similar to the claims asserted in the Restore case, on May 10, 2021, Surgical Instrument Service Company, Inc. (“SIS”) filed a complaint in the Northern District of California Court alleging anti-trust claims against the Company relating to EndoWrist service, maintenance, and repair processes. The Company has agreed to accept service of the complaint and expects to file a Motion to Dismiss in July 2021. Based on currently available information, the Company is unable to make a reasonable estimate of loss or range of losses, if any, arising from this matter.

Three class action complaints have been filed against the Company in the Northern District of California Court alleging anti-trust allegations relating to the service and repair of certain instruments manufactured by the Company. A complaint by Larkin Community Hospital was filed on May 20, 2021, a complaint by Franciscan Alliance, Inc. and King County Public Hospital District No. 1 was filed on July 6, 2021, and a complaint by Kaleida Health was filed on July 8, 2021. Based on currently available information, the Company is unable to make a reasonable estimate of loss or range of losses, if any, arising from these matters.

NOTE 7.9. STOCKHOLDERS’ EQUITY

Stockholders’ Equity

The following tables present the changes in stockholders’ equity (in millions):


	Three Months Ended June 30, 2021
	Common Stock			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income		Total Intuitive Surgical, Inc. Stockholders’ Equity		Noncontrolling Interest in Joint Venture		Total Stockholders’ Equity
	Shares	Amount
Beginning balance	118.4	$	0.1	$	6,627.3	$	3,514.7	$	11.4	$	10,153.5	$	36.7	$	10,190.2

Issuance of common stock through employee stock plans	0.3	—		69.7						69.7				69.7
Shares withheld related to net share settlement of equity awards	0	—		(0.7)		(9.2)				(9.9)				(9.9)
Share-based compensation expense related to employee stock plans				108.1						108.1				108.1

Net income attributable to Intuitive Surgical, Inc.						517.2				517.2				517.2
Other comprehensive income (loss)								(1.1)		(1.1)		(0.5)		(1.6)

Net income attributable to noncontrolling interest in joint venture										—		5.8		5.8
Ending balance	118.7	$	0.1	$	6,804.4	$	4,022.7	$	10.3	$	10,837.5	$	42.0	$	10,879.5

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	Three Months Ended June 30, 2020
	Common Stock			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income		Total Intuitive Surgical, Inc. Stockholders’ Equity		Noncontrolling Interest in Joint Venture		Total Stockholders’ Equity
	Shares	Amount
Beginning balance	116.6	$	0.1	$	5,926.8	$	2,570.9	$	8.9	$	8,506.7	$	23.8	$	8,530.5

Issuance of common stock through employee stock plans	0.4	—		62.7						62.7				62.7
Shares withheld related to net share settlement of equity awards	0	—		(0.3)		(5.9)				(6.2)				(6.2)
Share-based compensation expense related to employee stock plans				95.9						95.9				95.9

Net income attributable to Intuitive Surgical, Inc.						68.0				68.0				68.0
Other comprehensive income (loss)								13.4		13.4		(0.1)		13.3
Net income attributable to noncontrolling interest in joint venture										—		2.2		2.2
Ending balance	117.0	$	0.1	$	6,085.1	$	2,633.0	$	22.3	$	8,740.5	$	25.9	$	8,766.4


	Six Months Ended June 30, 2021
	Common Stock			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income		Total Intuitive Surgical, Inc. Stockholders’ Equity		Noncontrolling Interest in Joint Venture		Total Stockholders’ Equity
	Shares	Amount
Beginning balance	117.7	$	0.1	$	6,445.2	$	3,261.3	$	24.9	$	9,731.5	$	27.6	$	9,759.1

Issuance of common stock through employee stock plans	1.2			153.7						153.7				153.7
Shares withheld related to net share settlement of equity awards	(0.2)			(5.8)		(182.1)				(187.9)				(187.9)
Share-based compensation expense related to employee stock plans				211.3						211.3				211.3

Net income attributable to Intuitive Surgical, Inc.						943.5				943.5				943.5
Other comprehensive income (loss)								(14.6)		(14.6)		(0.3)		(14.9)

Net income attributable to noncontrolling interest in joint venture										—		14.7		14.7
Ending balance	118.7	$	0.1	$	6,804.4	$	4,022.7	$	10.3	$	10,837.5	$	42.0	$	10,879.5

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	Six Months Ended June 30, 2020
	Common Stock			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income		Total Intuitive Surgical, Inc. Stockholders’ Equity		Noncontrolling Interest in Joint Venture		Total Stockholders’ Equity
	Shares	Amount
Beginning balance	116.0	$	0.1	$	5,756.8	$	2,494.5	$	12.4	$	8,263.8	$	20.9	$	8,284.7
Adoption of new accounting standard						(0.1)				(0.1)				(0.1)
Issuance of common stock through employee stock plans	1.5	—		154.0						154.0				154.0
Shares withheld related to net share settlement of equity awards	(0.3)	—		(7.0)		(148.1)				(155.1)				(155.1)
Share-based compensation expense related to employee stock plans				186.5						186.5				186.5
Repurchase and retirement of common stock	(0.2)	0		(5.2)		(94.8)				(100.0)				(100.0)
Net income attributable to Intuitive Surgical, Inc.						381.5				381.5				381.5
Other comprehensive income (loss)								9.9		9.9		0.1		10.0
Net income attributable to noncontrolling interest in joint venture										—		4.9		4.9
Ending balance	117.0	$	0.1	$	6,085.1	$	2,633.0	$	22.3	$	8,740.5	$	25.9	$	8,766.4

Stock Repurchase Program

The Company’s Board of Directors (the “Board”) has authorized an aggregate of ~~$6.2~~$7.5 billion of funding for the Company’s common stock repurchase program (the “Repurchase Program”) since its establishment in March 2009. The most recent authorization occurred in ~~December 2016~~January 2019 when the Board increased the authorized amount available under the Repurchase Program to ~~$3.0~~$2.0 billion. As of ~~September~~June 30, ~~2017,~~2021, the remaining amount of share repurchases authorized by the Board was ~~approximately $991.6 million.~~$1.6 billion.

On January 24, 2017, the Company entered into an accelerated share repurchase program (the “ASR Program”) with Goldman, Sachs & Co. (“Goldman”) to repurchase $2.0 billion of the Company’s common stock. On January 27, 2017, the Company made a payment of $2.0 billion to Goldman and Goldman delivered to the Company an initial delivery of approximately 7.3 million shares of the Company’s common stock with an aggregate market value of approximately $1.6 billion on the date of the transaction, which was accounted as a reduction to common stock and additional paid-in capital by an aggregate of $152.0 million and $1,448.0 million to retained earnings. The remaining $400.0 million was recorded as a forward contract as a reduction to additional paid-in capital. The Company reflects the ASR Program as a repurchase of common stock in the period delivered for purposes of calculating earnings per share and as a forward contract indexed to its own common stock.

The total number of shares that the Company will repurchase under the ASR Program will be based generally on the daily volume-weighted average price per share of the Company’s common stock during the repurchase period, less a discount. Depending on the circumstances at settlement, Goldman may be required to deliver additional shares of common stock to the Company or the Company may be required either to deliver shares of common stock or make a cash payment to Goldman. Final settlement of the ASR Program is scheduled to be completed by the fourth quarter of 2017, although the completion date may be accelerated at Goldman’s option.

The Company repurchased approximately 47,000 shares of the Company’s common stock in the open market during the nine months ended September 30, 2016. There were no shares repurchased during the three month periods ended September 30, 2017, and 2016. The following table provides ~~the~~ share repurchase activities ~~during the nine months ended September 30, 2017, and 2016~~ (in millions, except per share amounts):

Nine Months Ended September 30,
2017 2016
Shares repurchased 7.3
—
Average price per share (a)
$ 172.18
Value of shares repurchased (a)
$ 8.1

(a) The number of shares repurchased represents shares delivered during the nine months ended September 30, 2017, and does not represent the final number of shares to be delivered under the ASR Program. Therefore, the average price paid per share will be determined at the end of the applicable purchase period.

~~Table of Contents~~


	Three Months Ended June 30,		Six Months Ended June 30,
	2021	2020	2021		2020
Shares repurchased	0	0	0		0.2
Average price per share	0	0	$	0	$	521.83
Value of shares repurchased	0	0	$	0	$	100.0

Accumulated Other Comprehensive Income (Loss), Net of Tax, Attributable to Intuitive

The components of accumulated other comprehensive income (loss), net of tax, ~~for the three and nine months ended~~ ~~September 30, 2017, and~~ ~~2016~~,attributable to Intuitive are as follows (in millions):


	Three Months Ended June 30, 2021
	Gains (Losses) on Hedge Instruments		Unrealized Gains (Losses) on Available-for-Sale Securities		Foreign Currency Translation Gains (Losses)		Employee Benefit Plans		Total
Beginning balance	$	3.2	$	19.5	$	(5.0)	$	(6.3)	$	11.4
Other comprehensive income (loss) before reclassifications	0.5		(6.0)		4.9		0		(0.6)
Amounts reclassified from accumulated other comprehensive income (loss)	(0.6)		0		0		0.1		(0.5)
Net current-period other comprehensive income (loss)	(0.1)		(6.0)		4.9		0.1		(1.1)
Ending balance	$	3.1	$	13.5	$	(0.1)	$	(6.2)	$	10.3


	Three Months Ended June 30, 2020
	Gains (Losses) on Hedge Instruments		Unrealized Gains (Losses) on Available-for-Sale Securities		Foreign Currency Translation Gains (Losses)		Employee Benefit Plans		Total
Beginning balance	$	1.8	$	36.2	$	(20.6)	$	(8.5)	$	8.9
Other comprehensive income (loss) before reclassifications	0		11.6		6.8		0		18.4
Amounts reclassified from accumulated other comprehensive income (loss)	(1.4)		(3.7)		0		0.1		(5.0)
Net current-period other comprehensive income (loss)	(1.4)		7.9		6.8		0.1		13.4
Ending balance	$	0.4	$	44.1	$	(13.8)	$	(8.4)	$	22.3


	Six Months Ended June 30, 2021
	Gains (Losses) on Hedge Instruments		Unrealized Gains (Losses) on Available-for-Sale Securities		Foreign Currency Translation Gains (Losses)		Employee Benefit Plans		Total
Beginning balance	$	(2.9)	$	29.5	$	4.7	$	(6.4)	$	24.9
Other comprehensive income (loss) before reclassifications	5.1		(16.0)		(4.8)		0		(15.7)
Amounts reclassified from accumulated other comprehensive income (loss)	0.9		0		0		0.2		1.1
Net current-period other comprehensive income (loss)	6.0		(16.0)		(4.8)		0.2		(14.6)
Ending balance	$	3.1	$	13.5	$	(0.1)	$	(6.2)	$	10.3


	Six Months Ended June 30, 2020
	Gains (Losses) on Hedge Instruments		Unrealized Gains (Losses) on Available-for-Sale Securities		Foreign Currency Translation Gains (Losses)		Employee Benefit Plans		Total
Beginning balance	$	0.7	$	20.4	$	0	$	(8.7)	$	12.4
Other comprehensive income (loss) before reclassifications	2.8		28.4		(13.8)		0		17.4
Amounts reclassified from accumulated other comprehensive income (loss)	(3.1)		(4.7)		0		0.3		(7.5)
Net current-period other comprehensive income (loss)	(0.3)		23.7		(13.8)		0.3		9.9
Ending balance	$	0.4	$	44.1	$	(13.8)	$	(8.4)	$	22.3

Three Months Ended September 30, 2017

Gains (Losses)
on Hedge
Instruments
Unrealized Gains
(Losses) on Available-for-Sale Securities
Foreign
Currency
Translation
Gains (Losses)
Employee Benefit Plans Total
Beginning balance $ (1.9 ) $ (5.3 ) $ 1.0
$ (3.6 ) $ (9.8 )
Other comprehensive income before reclassifications (2.0 ) 0.7
0.8
—
(0.5 )
Amounts reclassified from accumulated other comprehensive income 1.1
—
—
—
1.1
Net current-period other comprehensive income (loss) (0.9 ) 0.7
0.8
—
0.6
Ending balance $ (2.8 ) $ (4.6 ) $ 1.8
$ (3.6 ) $ (9.2 )

Three Months Ended September 30, 2016

Gains (Losses)
on Hedge
Instruments

Unrealized Gains
(Losses) on Available-for-Sale Securities

Foreign
Currency
Translation
Gains (Losses)
Employee Benefit Plans Total
Beginning balance $ (1.0 ) $ 10.5
$ 3.1
$ (3.3 ) $ 9.3
Other comprehensive income before reclassifications (1.9 ) (5.6 ) 0.7
—
(6.8 )
Amounts reclassified from accumulated other comprehensive income 1.3
—
—
0.2
1.5
Net current-period other comprehensive income (loss) (0.6 ) (5.6 ) 0.7
0.2
(5.3 )
Ending balance $ (1.6 ) $ 4.9
$ 3.8
$ (3.1 ) $ 4.0

~~Table of Contents~~

Nine Months Ended September 30, 2017

Gains (Losses)
on Hedge
Instruments

Unrealized Gains
(Losses) on Available-for-Sale Securities

Foreign
Currency
Translation
Gains (Losses)
Employee Benefit Plans Total
Beginning balance $ 5.0
$ (8.6 ) $ (1.3 ) $ (4.0 ) $ (8.9 )
Other comprehensive income before reclassifications (7.1 ) 4.0
3.1
0.1
0.1
Amounts reclassified from accumulated other comprehensive income (0.7 ) —
—
0.3
(0.4 )
Net current-period other comprehensive income (loss) (7.8 ) 4.0
3.1
0.4
(0.3 )
Ending balance $ (2.8 ) $ (4.6 ) $ 1.8
$ (3.6 ) $ (9.2 )

Nine Months Ended September 30, 2016

Gains (Losses)
on Hedge
Instruments

Unrealized Gains
(Losses) on Available-for-Sale Securities

Foreign
Currency
Translation
Gains (Losses)
Employee Benefit Plans Total
Beginning balance $ 1.5
$ (4.2 ) $ (3.3 ) $ (3.5 ) $ (9.5 )
Other comprehensive income before reclassifications (4.4 ) 8.8
7.1
—
11.5
Amounts reclassified from accumulated other comprehensive income 1.3
0.3
—
0.4
2.0
Net current-period other comprehensive income (loss) (3.1 ) 9.1
7.1
0.4
13.5
Ending balance $ (1.6 ) $ 4.9
$ 3.8
$ (3.1 ) $ 4.0

NOTE 8.10. SHARE-BASED COMPENSATION

In April ~~2017,~~2021, the Company’s shareholders approved an amended and restated ~~2000 Employee Stock Purchase~~2010 Incentive Award Plan ~~(the “ESPP”)~~ to provide for an increase in the number of shares of common stock reserved for issuance thereunder from ~~2,030,105~~32,450,000 to 2,530,105 (or, after giving effect to the Stock Split, 6,090,315 to 7,590,315). The Company’s shareholders also approved an amended and restated 2010 Incentive Award Plan (“2010 Plan”) to provide for an increase in the number of shares of common stock reserved for issuance from 7,050,000 to 8,150,000 (or, after giving effect to the Stock Split, 21,150,000 to 24,450,000).34,450,000. As of ~~September~~June 30, ~~2017,~~2021, approximately ~~6.3~~8.7 million shares ~~of common stock~~ were reserved for future issuance under the Company’s stock plans. A maximum of approximately ~~2.7~~3.8 million of these shares can be awarded as restricted stock units (“RSUs”).

Table of Contents

Stock Option Information

A summary of stock option activity under all stock plans for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~,2021, is presented as follows (in millions, except per share amounts):


	Stock Options Outstanding
	Number Outstanding	Weighted Average Exercise Price Per Share
Balance at December 31, 2020	4.5	$	305.06

Options granted	0.2	$	744.83
Options exercised	(0.5)	$	213.18
Options forfeited/expired	(0.1)	$	564.48
Balance at June 30, 2021	4.1	$	335.91

Stock Options Outstanding

Number
Outstanding

Weighted Average
Exercise Price Per
Share
Balance at December 31, 2016 9.3
$ 148.36
Options granted 0.7
$ 282.99
Options exercised (2.5 ) $ 140.31
Options forfeited/expired (0.1 ) $ 193.50
Balance at September 30, 2017 7.4
$ 162.90

As of ~~September~~June 30, ~~2017~~,2021, options to purchase an aggregate of ~~5.6~~3.3 million shares of common stock were exercisable at a ~~weighted-average~~weighted average price of ~~$145.37~~$264.33 per share.

~~Table of Contents~~

Restricted Stock Units Information

A summary of ~~RSU~~RSUs activity under all stock plans for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~,2021, is presented as follows (in millions, except per share amounts):

Shares
Weighted Average
Grant Date Fair Value
Unvested balance at December 31, 2016 1.8
$ 174.72
Granted 1.0
$ 245.40
Vested (0.5 ) $ 170.58
Forfeited (0.1 ) $ 200.82
Unvested balance at September 30, 2017 2.2
$ 207.09


	Shares	Weighted Average Grant Date Fair Value
Unvested balance at December 31, 2020	1.8	$	489.91
RSUs granted	0.6	$	742.47
RSUs vested	(0.7)	$	428.83
RSUs forfeited	(0.1)	$	563.37
Unvested balance at June 30, 2021	1.6	$	601.49

Employee Stock Purchase Plan

Under the ~~ESPP,~~Employee Stock Purchase Plan (“ESPP”), employees purchased approximately ~~0.2~~0.1 million shares for ~~$38.3~~$41.4 million and ~~0.2~~approximately 0.1 million shares for ~~$32.5~~$36.6 million during the ~~nine~~six months ended ~~September~~June 30, ~~2017~~,2021, and ~~2016~~,2020, respectively.

Share-based Compensation Expense

The following table summarizes share-based compensation expense for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~,2021, and ~~2016~~2020 (in millions):


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Cost of sales – products	$	16.6	$	14.2	$	31.9	$	27.0
Cost of sales – services	5.2		5.2		10.9		10.7
Total cost of sales	21.8		19.4		42.8		37.7
Selling, general, and administrative	55.7		49.6		108.8		95.3
Research and development	32.6		27.4		62.7		54.6
Share-based compensation expense before income taxes	110.1		96.4		214.3		187.6
Income tax benefit	22.5		20.0		43.1		38.9
Share-based compensation expense after income taxes	$	87.6	$	76.4	$	171.2	$	148.7

Three Months Ended
September 30, Nine Months Ended
September 30,
2017 2016 2017 2016
Cost of sales - products $ 7.0
$ 6.9
$ 20.5
$ 18.6
Cost of sales - services 3.7
3.3
10.4
9.4
Total cost of sales 10.7
10.2
30.9
28.0
Selling, general and administrative 30.0
25.3
82.3
72.9
Research and development 15.2
11.4
40.9
31.5
Share-based compensation expense before income taxes 55.9
46.9
154.1
132.4
Income tax benefit 18.4
14.8
50.3
41.5
Share-based compensation expense after income taxes $ 37.5
$ 32.1
$ 103.8
$ 90.9

Table of Contents

The Black-Scholes option pricing model is used to estimate the fair value of stock options granted under the Company’s share-based compensation plans and rights to acquire stock granted under the ~~Company’s~~ ESPP. The weighted average estimated fair values of stock options and the rights to acquire stock ~~granted, and~~under the ESPP, as well as the weighted average assumptions used in calculating ~~those~~the fair values of stock options and the rights to acquire stock under the ESPP that were granted during the three and six months ended June 30, 2021, and 2020, were as follows:


	Three Months Ended June 30,		Six Months Ended June 30,
	2021	2020	2021	2020
Stock Options
Risk-free interest rate	0.8%	0.4%	0.7%	0.8%
Expected term (in years)	4.0	4.2	4.3	4.3
Expected volatility	27%	38%	33%	30%
Fair value at grant date	$190.94	$165.18	$209.89	$138.24
ESPP
Risk-free interest rate	0	0	0.1%	1.5%
Expected term (in years)	—	—	1.2	1.1
Expected volatility	0	0	35%	27%
Fair value at grant date	0	0	$223.17	$149.85

Three Months Ended
September 30, Nine Months Ended
September 30,
2017 2016 2017 2016
Stock Option Plans
Risk free interest rate 1.7 % 1.0 % 1.8 % 1.1 %
Expected term (in years) 3.9
3.9
4.1
4.2
Expected volatility 26 % 24 % 25 % 27 %
Weighted average fair value at grant date $ 74.37
$ 47.32
$ 65.12
$ 46.90
Employee Stock Purchase Plan
Risk free interest rate 1.2 % 0.5 % 1.2 % 0.6 %
Expected term (in years) 1.2
1.2
1.2
1.2
Expected volatility 29 % 27 % 28 % 30 %
Weighted average fair value at grant date $ 85.23
$ 61.14
$ 79.77
$ 57.57

NOTE 9.11. INCOME TAXES

Income tax ~~(benefit)~~ expense for the three months ended ~~September~~June 30, ~~2017,~~2021, was ~~$(8.1)~~$3.2 million, or ~~(2.8)%~~0.6% of income before taxes, compared ~~with $55.8~~to $37.0 million, or ~~20.9%~~34.5% of income before taxes, for the three months ended ~~September~~June 30, ~~2016.~~2020. Income tax expense for the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2021, was ~~$58.4~~$16.8 million, or ~~7.7%~~1.7% of income before taxes, compared ~~with $172.8~~to $28.9 million, or ~~24.5%~~7.0% of income before taxes, for the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~ 2020.

The ~~Company’s income~~effective tax ~~provision~~

~~Table of Contents~~

rate for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017, compared with the same periods of 2016, primarily benefited from the expiration of statutes of limitations~~2021, and ~~excess tax benefits recognized under ASU No. 2016-09,~~ ~~Improvements to Employee Share-based Payment Accounting. Also, the Company’s effective tax rates for these periods differ~~2020, differs from the U.S. federal statutory rate of ~~35%~~21% mainly due to excess tax benefits associated with employee equity plans, the effect of income earned by certain ~~of the Company’s~~ overseas entities being taxed at rates lower than the federal statutory rate, and the federal research and development (“R&D”) credit benefit, partially offset by U.S. tax on foreign earnings and state income ~~taxes. The Company intends to indefinitely reinvest outside the U.S. all~~taxes (net of ~~its undistributed foreign earnings that were not previously subject to U.S. tax.~~federal benefit).

The effective tax ~~rates~~rate for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017, reflected~~2021, included a ~~$14.9~~one-time benefit of $66.4 million from re-measurement of the Company’s Swiss deferred tax ~~benefit mainly related to~~assets resulting from the ~~release~~extension of ~~unrecognized tax benefits due to~~ the ~~expiration~~economic useful life of ~~statutes of limitations in various jurisdictions.~~certain intangible assets. The effective tax ~~rates~~rate for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017, also~~2020, reflected ~~tax benefit~~a one-time increase of ~~$53.5~~$36.8 million ~~and $45.7 million, respectively, from reevaluation of certain~~in unrecognized tax benefits aswith a ~~result~~corresponding increase to income tax expense. This increase was related to intercompany charges for share-based compensation for relevant periods prior to 2020, triggered by the finalization of a Ninth Circuit Court of Appeals opinion (the “Ninth Circuit Opinion”) involving an independent third party. The Company has been treating share-based compensation expense in accordance with the ~~expiration of such statutes of limitations.~~Ninth Circuit Opinion since 2020.

The ~~Company adopted ASU No. 2016-09 in~~provision for income taxes for the ~~first quarter of 2017, which resulted in~~three and six months ended June 30, 2021, included excess tax benefits associated with employee equity plans of ~~$19.7~~$43.6 million and ~~$82.9~~$117.0 million, ~~being recognized in the~~which reduced our effective tax rate by 8.3 and 12.0 percentage points, respectively. The provision for income ~~tax provision during~~taxes for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017, respectively. Excess~~2020, included excess tax benefits associated with employee equity plans ~~was previously recorded in additional paid-in capital~~of $31.6 million and ~~the adoption of this ASU resulted in reducing the Company’s~~$97.0 million, which reduced our effective tax rate by ~~6.8~~29.4 and 23.3 percentage points, ~~and 10.9 percentage points for the three and nine months ended September 30, 2017,~~ respectively. The amount of excess tax benefits or deficiencies will fluctuate from period to period based on the price of the Company’s stock, the volume of share-based instruments settled or vested, and the value assigned to employee equity awards under U.S. GAAP.

As of September 30, 2017, the Company had total gross unrecognized tax benefits of $62.3 million compared with $106.0 million as of December 31, 2016, representing a net decrease of approximately $43.7 million for the nine months ended September 30, 2017. The net decrease is primarily related to the above mentioned reversal of previously unrecognized tax benefits as a result of the expiration of certain statutes of limitations, partially offset by increases during the first nine months of 2017 related to other uncertain tax positions. If recognized, these gross unrecognized tax benefits would reduce the effective tax rate in the period of recognition.

The Company files federal, state, and foreign income tax returns in many U.S. and ~~outside of the U.S. (“OUS”)~~OUS jurisdictions. Years before ~~2014~~2016 are closed for the significant jurisdictions. Certain of the Company’s unrecognized tax benefits could change due to activities of various tax authorities, including potential assessment of additional tax, possible settlement of audits, or through normal expiration of various statutes of limitations, which could affect the Company’s effective tax rate in the period in which they change. Due to the uncertainty related to the timing and potential outcome of audits, the Company cannot estimate the range of reasonably possible change in unrecognized tax benefits that may occur in the next 12 months.

The Company is subject to the examination of its income tax returns by the Internal Revenue Service and other tax authorities. The outcome of these audits cannot be predicted with certainty. The Company’s management regularly assesses the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of the Company’s provision for income taxes. If any issues addressed in the Company’s tax audits are resolved in a manner not consistent with management’s expectations, the Company could be required to adjust its provision for income taxes in the period such resolution occurs.

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NOTE ~~10.~~12. NET INCOME PER SHARE

The following table presents the computation of basic and diluted net income per share ~~for the three and nine months ended September 30, 2017, and 2016~~attributable to Intuitive Surgical, Inc. (in millions, except per share amounts):

Three Months Ended
September 30, Nine Months Ended
September 30,
2017 2016 2017 2016
Numerator:
Net income $ 297.5
$ 211.0
$ 698.8
$ 531.9
Denominator:
Weighted-average shares outstanding used in basic calculation 111.8
116.1
111.6
114.6
Add: dilutive effect of potential common shares 5.0
3.0
4.3
3.0
Weighted-average shares used in computing diluted net income per share 116.8
119.1
115.9
117.6
Net income per share:
Basic $ 2.66
$ 1.82
$ 6.26
$ 4.64
Diluted $ 2.55
$ 1.77
$ 6.03
$ 4.52

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As the forward contract associated with the ASR Program is presumed to be settled in shares, any dilutive effect of the contingently issuable shares is included in the computation of diluted net income per share. See Note 7 to the Condensed Consolidated Financial Statements (Unaudited) for further details on the ASR Program.


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Numerator:
Net income attributable to Intuitive Surgical, Inc.	$	517.2	$	68.0	$	943.5	$	381.5
Denominator:
Weighted average shares outstanding used in basic calculation	118.6		116.8		118.3		116.6
Add: dilutive effect of potential common shares	3.0		2.9		3.2		3.1
Weighted average shares outstanding used in diluted calculation	121.6		119.7		121.5		119.7
Net income per share attributable to Intuitive Surgical, Inc.:
Basic	$	4.36	$	0.58	$	7.98	$	3.27
Diluted	$	4.25	$	0.57	$	7.77	$	3.19

Share-based compensation awards of approximately ~~0.2~~0.4 million and ~~0.3~~1.1 million ~~weighted-average~~ shares for the three months ended ~~September~~June 30, ~~2017,~~2021, and ~~2016,~~2020, respectively, and approximately 0.4 million and ~~0.5~~1.1 million ~~weighted-average~~ shares for the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2021, and ~~2016,~~2020, respectively, were outstanding but were not included in the computation of diluted net income per share attributable to Intuitive Surgical, Inc. common stockholders because the effect of including such shares would have been ~~anti-dilutive.~~

anti-dilutive in the periods presented.

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~~ITEM 2.~~	~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

In this report, “Intuitive Surgical,” “Intuitive,” the “Company,” “we,” “us,” and “our” refer to Intuitive Surgical, Inc. and its ~~wholly-~~wholly and majority-owned subsidiaries.

This management’s discussion and analysis of financial condition as of ~~September~~June 30, ~~2017~~,2021, and results of operations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~,2021, and ~~2016,~~2020, should be read in conjunction with management’s discussion and analysis of financial condition and results of operations included in our Annual Report on Form 10-K for the year ended December 31, ~~2016~~.2020.

This report contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements relate to expectations concerning matters that are not historical facts. Words such as “estimates,” “projects,” “believes,” “anticipates,” “plans,” “expects,” “intends,” “may,” “will,” “could,” “should,” “would,” ~~“targeted”~~“targeted,” and similar words and expressions are intended to identify forward-looking statements. These forward-looking statements include, but are not limited to, statements related to the expected impacts of the COVID-19 pandemic on our business, financial condition, and results of operations, the potential impact on our procedure volume, our acquisitions, our expected business, our expected new product introductions, the impacts of Extended Use Instruments, procedures and procedure adoption, future results of operations, future financial position, our ability to increase our revenues, the anticipated mix of our revenues between product and service revenues, our financing plans and future capital requirements, anticipated costs of revenue, anticipated expenses, our potential tax assets or liabilities, the effect of recent accounting pronouncements, our investments, anticipated cash flows, our ability to finance operations from cash flows and similar matters, and statements based on current expectations, estimates, forecasts, and projections about the economies and markets in which we operate and our beliefs and assumptions regarding these economies and markets. These forward-looking statements should be considered in light of various important factors, including, but not limited to, the following: our ability to obtain accurate procedure volume and mix in the midst of the COVID-19 pandemic; the risk that the COVID-19 pandemic could lead to further material delays and cancellations of, or reduced demand for, procedures; curtailed or delayed capital spending by hospitals; disruption to our supply chain, including increased difficulties in obtaining a sufficient amount of materials in the semiconductor and other markets; closures of our facilities; delays in surgeon training; delays in gathering clinical evidence; delays in obtaining new product approvals or clearances from the U.S. Food and Drug Administration due to the effects of the COVID-19 pandemic; the evaluation of the risks of robotic-assisted surgery in the presence of infectious diseases; diversion of management and other resources to respond to COVID-19 outbreaks; the impact of global and regional economic and credit market conditions on ~~health care~~healthcare spending; ~~health care~~the risk that the COVID-19 virus disrupts local economies and causes economies in our key markets to enter prolonged recessions; healthcare reform legislation in the ~~United States~~U.S. and its impact on hospital spending, reimbursement, ~~insurance deductibles,~~ and fees levied on certain medical device revenues; changes in hospital admissions and actions by payers to limit or manage surgical procedures; the timing and success of product development and market acceptance of developed products; the results of any collaborations, in-licensing arrangements, joint ventures, strategic alliances, or ~~partnerships;~~partnerships, including the joint venture with Shanghai Fosun Pharmaceutical (Group) Co., Ltd.; our completion of and ability to successfully integrate acquisitions, including Schölly Fiberoptic’s robotic endoscope business and Orpheus Medical; procedure counts; regulatory approvals, clearances, and restrictions or any dispute that may occur with any regulatory body; guidelines and recommendations in the ~~health care~~healthcare and patient communities; intellectual property positions and litigation; competition in the medical device industry and in the specific markets of surgery in which we operate; risks associated with our operations outside of the United States; unanticipated manufacturing ~~disruptions; our ability~~disruptions or the inability to meet demand for products; our reliance on sole and single source suppliers; the results of legal proceedings to which we are or may become a party; product liability and other litigation claims; ~~potential~~ adverse publicity regarding ~~our Company,~~us and the safety of our products and ~~the~~ adequacy of training; our ability to expand ininto foreign markets; the impact of changes to tax legislation, guidance, and interpretations; changes in tariffs, trade barriers, and regulatory requirements; and other risk factors. Readers are cautioned not to place undue reliance on these forward-looking statements, which are based on current expectations and are subject to risks, uncertainties, and assumptions that are difficult to predict, including those risk factors described throughout this filing and in the Annual Report on Form 10-K for the fiscal year ended December 31, ~~2016~~,2020, and other periodic filings with the Securities and Exchange Commission. Our actual results may differ materially and adversely from those expressed in any forward-looking statement. We undertake no obligation to publicly update or release any revisions to these forward-looking statements, except as required by law.

Intuitive^®, Intuitive Surgical^®, da Vinci^®, da Vinci S^®, da Vinci SHD Surgical System^®, ~~da Vinci~~Si^®, da Vinci Si®, da Vinci Si HD Surgical System^®, da VinciXi^®, da Vinci SP^®, EndoWrist^®, Firefly^®, InSite^®, da Vinci Connect^®, Intuitive SurgicalEcoSystem^®, da Vinci X®, SureFormTM,IonTM,IrisTM, and ~~da Vinci~~ X™SynchroSealTM are trademarks or registered trademarks of ~~Intuitive Surgical, Inc.~~the Company.

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Overview

Intuitive is committed to advancing patient care in surgery and other acute medical interventions. We are focused on innovating to enable physicians and healthcare providers to improve the quality of and access to minimally invasive care. Our mission reflects that we believe that minimally invasive care is life-enhancing care. Intuitive brings more than two decades of leadership in robotic-assisted surgical technology and solutions to its offerings. While surgery and acute interventions have improved significantly in the past decades, there remains a significant need for better outcomes and decreased variability of these outcomes across care teams. The current healthcare environment continues to stress critical resources, including the professionals who staff care teams: surgeons, anesthesiologists, nurses, and other staff. At the same time, governments strain to cover the healthcare needs of their populations and demand lower total cost per patient to treat disease. In the face of these challenges, we believe scientific, process, and technological advances in biology, computing, imaging, algorithms, and robotics offer new methods to solve continued and difficult problems.

We address these needs by focusing on the quadruple aim. First, we focus on products and services that can improve outcomes and decrease variability in the hands of care teams. Second, we seek to improve the patient experience by minimizing disruption to lives and creating greater predictability for the treatment experience. Third, we seek to improve care team satisfaction by creating products and services that are dependable, smart, and optimized for the care environment in which they are used. Finally, we seek to lower the total cost to treat per patient episode when compared with existing treatment alternatives, providing a return on investment for hospitals and healthcare systems and value for payers.

Open surgery remains the predominant form of surgery and is used in almost every area of the body. However, the large incisions required for open surgery create trauma to patients, typically resulting in longer hospitalization and recovery times, increased hospitalization costs, and additional pain and suffering relative to ~~MIS,~~minimally invasive surgery (“MIS”), where MIS is available. For over three decades, MIS has reduced trauma to patients by allowing selected surgeries to be performed through small ports rather than large incisions. MIS has been widely adopted for certain surgical procedures.

daDa Vinci Surgical Systems enable surgeons to extend the benefits of MIS to many patients who would otherwise undergo a more invasive surgery by using computational, robotic, and imaging technologies to overcome many of the limitations of traditional open surgery or conventional MIS. Surgeons using a da Vinci Surgical System operate while seated comfortably at a console viewing a ~~3-D representation of an HD~~3D, high-definition image of the surgical field. This immersive ~~visualization~~console connects surgeons to the surgical field and their instruments. While seated at the console, the surgeon manipulates instrument controls in a natural manner, similar to ~~the~~ open ~~surgery~~surgical technique. Our technology is designed to provide surgeons with a range of ~~motion~~articulation of ~~MIS~~the surgical instruments used in the surgical field analogous to the motions of a human wrist, while filtering out the tremor inherent in a surgeon’s hand. In designing our products, we focus on making our technology easy and safe to use.

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Our da Vinci products fall into ~~four~~five broad ~~categories - the~~ categories: da Vinci Surgical Systems, ~~InSite~~da Vinci instruments and accessories, da Vinci Stapling, da Vinci Energy, and da Vinci Vision, including Firefly Fluorescence imaging systems (“~~Firefly~~”Firefly”)~~, instruments~~ and ~~accessories (e.g.,~~ ~~EndoWrist~~, ~~EndoWrist~~ ~~Vessel Sealer,~~ da Vinci~~Single-Site~~ Endoscopes. We also provide a comprehensive suite of services, training, and ~~EndoWrist~~ ~~Stapler),~~education programs. Within our integrated ecosystem, our hardware, software, and ~~training technologies.~~ digital solutions are designed to decrease variability in surgery by offering dependable, consistent functionality and user experiences for surgeons seeking better outcomes. We take a holistic approach, offering intelligent technology and systems designed to work together to make MIS intervention more available and applicable.

We have commercialized the following da Vinci Surgical Systems: the da Vinci standard Surgical System ~~commercialized~~ in 1999, the da Vinci S Surgical System ~~commercialized~~ in 2006, the da Vinci Si Surgical System ~~commercialized~~ in 2009, and the fourth generation da Vinci Xi Surgical System in 2014. We have extended our fourth generation platform by adding the da Vinci X Surgical System, commercialized in the second quarter of ~~2014,~~2017, and the da Vinci XSP Surgical System, commercialized in the ~~second~~third quarter of ~~2017. These~~2018. The da Vinci SP Surgical System accesses the body through a single incision while the other da Vinci Surgical Systems access the body through multiple incisions. We are still in a measured launch of our da Vinci SP Surgical System, and we have an installed base of 79 da Vinci SP Surgical Systems as of June 30, 2021. Our plans for the rollout of the da Vinci SP Surgical System include putting systems in the hands of experienced da Vinci users first while we optimize training pathways and our supply chain. We received U.S. Food and Drug Administration (“FDA”) clearances for the da Vinci SP Surgical System for urological and certain transoral procedures. We also received clearance in South Korea where the da Vinci SP Surgical System may be used for a broad set of procedures. We plan to seek FDA clearances for additional indications for da Vinci SP over time. The success of the da Vinci SP Surgical System is dependent on positive experiences and improved clinical outcomes for the procedures for which it has been cleared as well as securing additional clinical clearances. All da Vinci systems include a surgeon’s console (or consoles), imaging electronics, a patient-side cart, and computational hardware and software.

We offer ~~over 65~~approximately 70 different ~~multiport~~ multi-port da Vinci instruments ~~enabling surgeons’~~to provide surgeons with flexibility in choosing the types of tools needed into perform a particular surgery. These ~~multiport~~multi-port instruments are generally robotically controlled ~~versions of surgical tools~~and provide end effectors (tips) that ~~surgeons would use~~are similar to those used in either open or laparoscopic surgery. We offer advanced instrumentation for the ~~da Vinci Si,~~ da Vinci Xi and da Vinci X platforms, including ~~the~~ ~~EndoWrist~~ ~~Vessel Sealer~~da Vinci Energy and ~~EndoWrist~~da Vinci Stapler products, to provide surgeons with sophisticated, computer-aided tools to precisely and efficiently interact with tissue. ~~Instruments for the~~ daDa Vinci X and da

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Vinci Xi Surgical ~~System are~~Systems share the same as ~~da Vinci Xi~~ ~~Surgical System.~~

~~We offer~~ ~~Single-Site~~instruments ~~for use with~~whereas the da Vinci Si Surgical System uses instruments that are not compatible with da Vinci X or da Vinci Xi ~~and~~ systems. We currently offer nine core instruments on our da Vinci X SP Surgical ~~Systems.~~ ~~Single-Site~~ ~~instruments are most commonly used in cholecystectomy and hysterectomy procedures.~~ ~~Single-Site~~ ~~instruments enable surgeons~~System. We plan to ~~also perform surgery through a single port via~~expand the ~~patient’s belly button, resulting in the potential for virtually scarless results.~~SP instrument offering over time.

Training technologies include our ~~da Vinci~~ ~~Skills Simulator,~~ ~~da Vinci~~ ~~Connect~~Intuitive Simulation products, our Intuitive Telepresence remote case observation and ~~mentoring tool,~~telementoring tools, and our dual console for use in surgeon proctoring and collaborative surgery.

During the first quarter of 2019, the FDA cleared our Ion endoluminal system to enable minimally invasive biopsies in the lung. Our Ion system extends our commercial offering beyond surgery into diagnostic procedures with this first application. We are introducing the Ion system in the U.S. in a measured fashion while we optimize training pathways and our supply chain and collect additional clinical data. We are early in the launch and have placed 70 Ion systems for commercial use as of June 30, 2021. Ion systems are not included in our da Vinci Surgical System installed base. We currently have 1 Ion system placed with a hospital for gathering clinical data in addition to the systems placed for commercial use.

The success of new product introductions depends on a number of factors including, but not limited to, pricing, competition, market and consumer acceptance, the effective forecasting and management of product demand, inventory levels, the management of manufacturing and supply costs, and the risk that new products may have quality or other defects in the early stages of introduction.

COVID-19 Pandemic

Procedures

In the first quarter of 2020, prior to the spread of COVID-19, we experienced procedure growth trends consistent with those experienced in the fourth quarter of 2019, including strength in general surgery, growth in mature procedures in the U.S., and growth in OUS urology. Beginning in January 2020, we saw a substantial reduction in da Vinci procedures in China and, by early February 2020, procedures per week in China had declined by approximately 90% compared to the weekly procedure rates experienced in early January 2020. As the COVID-19 pandemic subsided in China in March 2020, da Vinci procedure volume began to recover and, by the end of the first quarter of 2020, China procedures per week were approximately 70% of the early January 2020 weekly procedure rate. As the COVID-19 pandemic spread to Western Europe and the U.S., we experienced a significant decline in da Vinci procedures in the last half of March 2020 to approximately 65% of the weekly procedure rate experienced earlier in the first quarter of 2020.

In the second quarter of 2020, procedures per week in the U.S. continued to decline in April, reaching approximately 30% of pre-COVID-19 levels, followed by steady recovery in May and June, as COVID-19 cases dropped and elective procedures were permitted. However, with the resurgence of COVID-19 cases in the last two weeks of June, we experienced a corresponding decline in da Vinci procedures. The impact of COVID-19 in Europe during the second quarter of 2020 varied by country with procedures in Italy, France, and the UK declining more steeply, while Germany experienced a year-over-year increase in procedures. In China, procedures per week continued to increase to a level consistent with the early January 2020 weekly procedure rate. We experienced little impact on the procedure volume in Korea and Japan in the second quarter of 2020.

In the first quarter of 2021, in the U.S., the COVID-19 resurgence that affected procedures later in the fourth quarter of 2020 continued well into January 2021. Then, as COVID-19 cases subsided beginning in February 2021, da Vinci procedures experienced a steady improvement throughout February and March. In Europe, the spread of COVID-19 varied regionally, and procedure growth rates were mixed with strength in France and a year-over-year decline in the U.K. While there have been COVID-19 hot spots within some of our Asia Pacific markets, they tended to be isolated and, in general, procedures performed well. China growth was significantly higher than other regions, reflecting the severity of the COVID-19 impact on China during the first quarter of the prior year and the additional system installations during 2020.

In the second quarter of 2021, as the U.S continued its broad rollout of vaccinations, COVID-19 cases and hospitalizations decreased, and procedure volumes recovered, partially attributed to the performance of a number of procedures that were deferred during the pandemic. In Europe, the rollout of vaccinations and spread of COVID-19 varied regionally, and procedure growth rates were mixed with notable recovery in the U.K. We continue to see the impacts of regional resurgences of COVID-19 cases within the Asia Pacific markets with growth in India, Taiwan, and Japan lagging behind that of other markets. China growth continued to be strong year over year, primarily reflecting the growth in the system installed base.

The depth and extent to which the COVID-19 pandemic will impact individual markets will vary based on the availability of vaccinations, personal protective equipment, intensive care units and operating rooms, and medical staff, as well as government interventions. The impact of COVID-19 on our procedure volumes varies widely by country, region, and type. When COVID-19 infection rates spike in a particular region, procedure volumes have been negatively impacted and the diagnoses of new conditions and their related treatments have been deferred. While there is a backlog of patients, it is unpredictable when those patients will ultimately seek diagnosis and treatment and whether they will be treated through surgery. Based on our experience during 2020, we do not expect all markets, regions, and procedure types to recover at the same time or at the same pace.

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System Demand

In the first and second quarters of 2020, customers in regions impacted by COVID-19 deferred decisions to purchase or lease systems into future quarters and, in some cases, indefinitely. However, in the first and second quarters of 2021, we experienced strong system demand. In general, we believe that the COVID-19 pandemic had less of an impact on hospital spending capacity and that customers recognize that da Vinci surgery meets their quadruple aim objectives better than other surgical approaches. More specifically, during the first and second quarters of 2021, system demand reflected procedure growth, hospitals purchasing systems in preparation for a post-COVID-19 pandemic environment, and hospitals upgrading their system portfolio to access and/or standardize on fourth generation capabilities.

General Increase in Risks

Worldwide economies have been significantly impacted by the COVID-19 pandemic, and it is possible that factors related to the COVID-19 pandemic could cause a prolonged recession in local and/or global economies. Such an economic recession could have a material adverse effect on our long-term business as hospitals curtail and reduce capital and overall spending. The COVID-19 pandemic and local actions, such as “shelter-in-place” orders and restrictions on our ability to travel and access our customers or temporary closures of our facilities, including our training and manufacturing operations, or the facilities of our suppliers and their contract manufacturers, could further significantly impact our sales and our ability to produce and ship our products and supply our customers. Any of these events could negatively impact the number of da Vinci procedures performed or the number of system placements and have a material adverse effect on our business, financial condition, results of operations, or cash flows.

Our Response

Our priorities and actions during the COVID-19 pandemic have been and remain as follows. First, we are focused on the health and safety of all those we serve – patients, customers, our communities, and our employees – implementing continuous updates to our health and safety policies and processes. Second, we are supporting our customers according to their priorities – clinical, operational, and economic – and ensuring continuity of supply by working with our suppliers and our distributors. Third, we are securing our workforce economically. We have built a valuable team over the years, and we believe they will be important in a recovery that follows the pandemic. Finally, we will continue to invest in our priority development programs while eliminating avoidable spend.

As COVID-19 vaccination rates increase and cases decline, we have enhanced our focus on evaluating and implementing our return-to-office strategy. We intend to remain flexible, allowing many of our employees to work remotely on at least a partial basis, while maintaining productivity and our culture. Our top priority in this process continues to be the health and safety of our employees.

Business Model

Overview

We generate revenue from ~~both~~ the ~~initial capital sales~~placements of da Vinci Surgical Systems, in sales or sales-type lease arrangements where revenue is recognized up-front or in operating lease transactions and usage-based models where revenue is recognized over time. We earn recurring revenue from ~~subsequent~~the sales of instruments, accessories, and ~~service,~~services, as ~~recurring revenue.~~well as the revenue from operating leases. The da Vinci Surgical System generally sells for ~~approximately~~ between $0.5 million and $2.5 million, depending upon the model, configuration, and geography, and represents a significant capital equipment investment for our ~~customers. We generate recurring revenue as our~~ customers ~~purchase our~~ ~~EndoWrist~~ ~~and~~ ~~Single-Site~~ ~~instrument and accessory products used in performing procedures with the~~ ~~da Vinci~~ ~~Surgical System.~~when purchased. Our instruments and accessories have a limited ~~life~~lives and will either expire or wear out as they are used in surgery, at which point they need to be replaced. We generally earn between $600 and $3,500 of instruments and accessories revenue per surgical procedure performed, depending on the type and complexity of the specific procedures performed and the number and type of instruments used. Further, in late 2020, we launched our Extended Use Program (refer to further discussion immediately below) in the U.S. and Europe, with the intention to reduce the cost for customers to treat patients, which in turn will reduce the overall instruments and accessories revenue per procedure. We typically enter into service contracts at the time systems are sold or leased at an annual ~~rate of approximately~~fee between $80,000 ~~to $170,000,~~and $190,000, depending upon the configuration of the underlying system and composition of the services offered under the contract. These service contracts have generally been renewed at the end of the initial contractual service periods.

Consistent with the da Vinci Surgical System model described above, we generate revenue from the placements of the Ion endoluminal system at the time of sale in or sales-type lease arrangements or over time in operating lease transactions and usage-based models. We generate revenue from the placements of the Ion system, and we earn recurring revenue from the sales of instruments and accessories used in biopsies and ongoing system service. Ion systems are presented separately from our da Vinci Surgical Systems installed base. We are introducing the Ion system in the U.S. in a measured fashion. For the three and six months ended June 30, 2021, Ion’s contribution to revenue and gross margin was not significant.

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Extended Use Program

In July 2020, we announced our "Extended Use Program," which consists of select da Vinci Xi and da Vinci X instruments possessing 12 to 18 uses ("Extended Use Instruments") compared to the current 10 use instruments. These Extended Use Instruments represent some of our higher volume instruments but exclude stapling, monopolar, and advanced energy instruments. Instruments included in the program are used across a number of da Vinci surgeries. Their increased uses are the result of continuous, significant investments in the design and production capabilities of our instruments, resulting in improved quality and durability. Extended Use Instruments have been introduced in the U.S. and Europe in the fourth quarter of 2020 and have launched in most other countries around the world in the first half of 2021, except China due to regulatory timelines. They will continue to be introduced at various times throughout the remainder of 2021 and 2022 in other geographies, depending on regulatory processes. In addition, simultaneous with the regional launches of Extended Use Instruments, we will lower the price of certain instruments that are most commonly used in lower acuity procedures and/or lower reimbursed procedures within the region. These actions will reduce the cost for customers to treat patients, which in turn will reduce our revenue per procedure. Based on 2019 volume and mix of procedures, our Extended Use Program and the reduced pricing on certain other instruments would have reduced 2019 annual instruments and accessories revenue by approximately $150 to $170 million. In the U.S. and Europe, during the first half of 2021, we saw customers begin to adjust their instrument buying patterns to reduce their inventory levels to reflect the additional uses per instrument. In addition, we saw increased usage of Extended Use Instruments; however, we anticipate that full cutover will occur over the next few quarters as customers utilize their remaining 10 use instruments. We expect increased usage of Extended Use Instruments and customer buying patterns to continue to reduce instruments and accessories revenue per procedure over the next few quarters. The precise impact of these actions on future revenue will be dependent on the future volume and mix of procedures and whether cost elasticity will enable greater penetration into available markets.

Recurring Revenue

Recurring revenue ~~has generally grown at a faster rate than system~~consists of instruments and accessories revenue, ~~in the last few fiscal years.~~service revenue, and operating lease revenue. Recurring revenue increased to ~~$1.9~~$3.4 billion, or 77% of total revenue in 2020, compared to $3.2 billion, or 72% of total revenue in 2019, and $2.6 billion, or 71% of total revenue in ~~2016,~~2018.

Instruments and accessories revenue has grown at a faster rate than systems revenue over time. Instruments and accessories revenue increased to $2.46 billion in 2020, compared ~~with $1.7~~to $2.41 billion ~~or 70% of total revenue~~ in ~~2015,~~2019 and ~~$1.5~~$1.96 billion ~~or 70% of total revenue~~ in 2014. Recurring revenue for the nine months ended September 30, 2017, was $1.6 billion, or 72% of total revenue, compared with $1.4 billion, or 71% of total revenue for the nine months ended September 30, 2016.2018. The growth of ~~recurring revenue~~instruments and ~~its increasing proportion of total~~accessories revenue largely ~~reflect~~reflects continued procedure ~~adoption~~adoption.

Service revenue was $724 million in 2020, compared to $724 million in 2019 and ~~increased system utilization on a growing~~$635 million in 2018. Service revenue remained unchanged, driven by the growth of the installed base of ~~installed~~ da Vinci Surgical ~~Systems.~~Systems, offset by the effects of the Customer Relief Program that was implemented as a result of the COVID-19 pandemic in the second quarter of 2020. The installed base of da Vinci Surgical Systems grew 7% to approximately 5,989 at December 31, 2020; 12% to approximately 5,582 at December 31, 2019; and 13% to approximately 4,986 at December 31, 2018.

We use the installed base, number of shipments, and utilization of da Vinci Surgical Systems as metrics for financial and operational decision-making and as a means to evaluate period-to-period comparisons. Management believes that the installed base, number of shipments, and utilization of da Vinci Surgical Systems provide meaningful supplemental information regarding our performance, as management believes that the installed base, number of shipments, and utilization of da Vinci Surgical Systems are an indicator of the rate of adoption of robotic-assisted surgery as well as an indicator of future recurring revenue (particularly service revenue). Management believes that both it and investors benefit from referring to the installed base, number of shipments, and utilization of da Vinci Surgical Systems in assessing our performance and when planning, forecasting, and analyzing future periods. The installed base, number of shipments, and utilization of da Vinci Surgical Systems also facilitate management’s internal comparisons of our historical performance. We believe that the installed base, number of shipments, and utilization of da Vinci Surgical Systems are useful to investors as metrics, because (1) they allow for greater transparency with respect to key metrics used by management in its financial and operational decision-making, and (2) they are used by institutional investors and the analyst community to help them analyze the performance of our business. The vast majority of da Vinci Surgical Systems installed are connected via the internet. System logs can also be accessed by field engineers for systems that are not connected to the internet. We utilize this information as well as other information from agreements and discussions with our customers that involve estimates and judgments, which are, by their nature, subject to substantial uncertainties and assumptions. Estimates and judgments for determining the installed base, number of shipments, and utilization of da Vinci Surgical Systems may be impacted over time by various factors, including system internet connectivity, hospital and distributor reporting behavior, and inherent complexities in new agreements. Such estimates and judgments are also susceptible to technical errors. In addition, the relationship between the installed base, number of shipments, and utilization of da Vinci Surgical Systems and our revenues may fluctuate from period to period, and growth in the installed base, number of shipments, and utilization of da Vinci Surgical Systems may not correspond to an increase in revenue. The installed base, number of shipments, and utilization of da Vinci Surgical Systems are not intended to be considered in isolation or as a substitute for, or superior to, revenue or other financial information prepared and presented in accordance with GAAP.

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Intuitive System Leasing

Since 2013, we have entered into sales-type and operating lease arrangements directly with certain qualified customers as a way to offer customers flexibility in how they acquire systems and expand their robotic-assisted surgery programs while leveraging our balance sheet. These leases generally have commercially competitive terms as compared to other third-party entities that offer equipment leasing. We have also entered into usage-based arrangements with qualified customers that have committed da Vinci programs where we charge for the system and service as the systems are utilized. We believe that these alternative financing structures have been effective and well-received, and we are willing to expand the proportion of these structures based on customer demand. We include operating and sales-type leases, and systems placed under usage-based arrangements, in our system shipment and installed base disclosures. We exclude operating lease-related revenue, usage-based revenue, and Ion system revenue from our da Vinci Surgical System average selling price (“ASP”) computations.

In the years ended December 31, 2020, 2019, and 2018, we shipped 432, 425, and 272 da Vinci Surgical Systems, respectively, under lease and usage-based arrangements, of which 317, 384, and 229 systems, respectively, were operating lease and usage-based arrangements. Revenue from operating lease arrangements is generally recognized on a straight-line basis over the lease term or, in the case of usage-based arrangements, as the systems are used. We generally set operating lease and usage-based pricing at a modest premium relative to purchased systems reflecting the time value of money and, in the case of usage-based arrangements, the risk that system utilization may fall short of anticipated levels. The proportion of revenue recognized from usage-based arrangements has not been significant and has been included in our operating lease metrics herein. Operating lease revenue has grown at a faster rate than overall systems revenue and was $177 million, $107 million, and $51 million for the years ended December 31, 2020, 2019, and 2018, respectively. As revenue from operating lease and usage-based arrangements is recognized over time, total systems revenue growth is reduced in a period when the number of operating lease and usage-based placements increases as a proportion of total system placements. Generally, lease transactions generate similar gross margins as our sale transactions. As of December 31, 2020, a total of 901 da Vinci Surgical Systems were installed at customers under operating lease or usage-based arrangements.

Our exposure to ~~approximately 4,271~~the credit risks relating to our lease financing arrangements may increase if our customers are adversely affected by changes in healthcare laws, coverage, and reimbursement, economic pressures or uncertainty or other customer-specific factors. In addition, as customers continue to divert resources to the treatment of or the preparation to treat patients with COVID-19, we may be exposed to defaults under our lease financing arrangements. Moreover, usage-based arrangements generally contain no minimum payments; therefore, customers may exit such arrangements without paying a financial penalty to us. As a result of the COVID-19 pandemic, we anticipate that some customers will exit such arrangements or seek to amend the terms of our operating lease and usage-based arrangements with them.

For some operating lease arrangements, our customers are provided with the right to purchase the leased system at ~~September 30, 2017.~~certain points during and/or at the end of the lease term. Revenue generated from customer purchases of systems under operating lease arrangements (“Lease Buyouts”) was $52.2 million, $92.8 million, and $48.8 million for the years ended December 31, 2020, 2019, and 2018, respectively. We expect that revenue recognized from customer exercises of the buyout options will fluctuate based on the timing of when, and if, customers choose to exercise their buyout options.

Systems Revenue

System placements are driven by procedure growth in most markets. In some markets, systems placements are constrained by regulation. In geographies where da Vinci procedure adoption is in an early stage, system sales will precede procedure growth. System placements also vary due to seasonality largely aligned with hospital budgeting cycles. We typically place a higher proportion of annual system placements in the fourth quarter and a lower proportion in the first quarter as customer budgets are reset. Systems revenue is also affected by the proportion of system placements under operating lease and usage-based arrangements, recurring operating lease and usage-based revenue, operating lease buyouts, product mix, ASPs, trade-in activities, and customer mix. Systems revenue declined 12% to $1.18 billion in 2020. Systems revenue grew 19% to $1.35 billion in 2019 and 21% to $1.13 billion in 2018. Based on the factors outlined in the COVID-19 Pandemic section above, we believe that historical system shipment trends may not be a good indicator of future system shipments.

Procedure Mix / Products

Our ~~procedure business is~~da Vinci Surgical Systems are generally used for soft tissue surgery for areas of the body between the pelvis and the neck, primarily ~~comprised of: (1)~~in general surgery, gynecologic surgery, urologic surgery, cardiothoracic surgery, and head and neck surgery. Within these categories, procedures range in complexity from cancer and other highly complex procedures ~~and (2)~~to less complex procedures for benign conditions. Cancer and other highly complex procedures tend to be reimbursed at higher rates than less complex procedures for benign conditions. Thus, hospitals are more sensitive to the costs associated with treating less complex, benign conditions. Our strategy is to provide hospitals with attractive clinical and economic solutions ~~in each~~across the spectrum of ~~these~~ procedure ~~categories.~~complexity. Our fully featured da Vinci Xi ~~system~~ Surgical System with advanced instruments ~~including the~~ (including da Vinci Energy and EndoWrist ~~Vessel Sealer,~~ ~~EndoWrist~~ and SureForm Stapler ~~products,~~products) and our Integrated Table Motion product ~~target~~targets the more complex procedure

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segment. ~~Lower priced products, including the three-arm~~ ~~da Vinci Si-e~~ ~~System, refurbished~~ ~~da Vinci Si~~ ~~System, and~~ ~~Single-Site~~ ~~instruments, are targeted towards less complex procedures.~~ Our da Vinci X Surgical System is ~~priced between the~~ targeted towards price sensitive markets and procedures. Our da Vinci Si ~~and~~ Xi ~~Systems and offers customers access to many of~~SP Surgical System complements the da Vinci Xi ~~features, including~~ ~~da Vinci Xi~~ ~~advanced instrumentation~~ and ~~imaging systems, at a more accessible price point.~~X Surgical Systems by enabling surgeons to access narrow workspaces.

Procedure Seasonality

More than half of da Vinci procedures performed are for benign conditions, most notably ~~benign hysterectomies,~~ hernia repairs, hysterectomies, and cholecystectomies. ~~The proportion of these~~These benign procedures ~~for benign conditions has grown over time in relation to the total number of procedures performed. Hysterectomies for benign conditions, hernia repairs, cholecystectomies,~~ and other short-term elective procedures tend to be more seasonal than cancer operations and surgeries for other life threatening conditions. Seasonality

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in the U.S. for ~~these~~ procedures for benign conditions typically results in higher fourth quarter procedure volume when more patients have met annual deductibles and lower first quarter procedure volume when deductibles are reset. Seasonality outside the U.S. varies and is more pronounced around local holidays and vacation periods. As a result of the factors outlined in the COVID-19 Pandemic section above, including past and potentially future recommendations of authorities to defer elective procedures, historical procedure patterns may be disrupted.

Distribution Channels

We provide our products through direct sales organizations in the U.S., ~~Japan, South Korea, and~~ Europe ~~excluding~~(excluding Spain, Portugal, Italy, Greece, and most Eastern European ~~countries.~~countries), China, Japan, South Korea, India, and Taiwan. In 2018, we began direct operations in India and Taiwan. In January 2019, our Intuitive-Fosun joint venture began direct sales for da Vinci products and services in China. In the remainder of our OUS markets, we provide our products through distributors.

~~Intuitive Surgical da Vinci System Leasing~~

~~Since 2013,~~Regulatory Activities

Overview

Our products must meet the requirements of a large and growing body of international standards that govern the product safety, efficacy, advertising, labeling, safety reporting design, manufacture, materials content and sourcing, testing, certification, packaging, installation, use, and disposal of our products. Examples of such standards include electrical safety standards, such as those of the International Electrotechnical Commission, and composition standards, such as the Reduction of Hazardous Substances and the Waste Electrical and Electronic Equipment Directives. Failure to meet these standards could limit our ability to market our products in those regions that require compliance to such standards.

Our products and operations are also subject to increasingly stringent medical device, privacy, and other regulations by regional, federal, state, and local authorities. We anticipate that timelines for the introduction of new products and/or indications may be extended relative to past experience as a result of these regulations. For example, we have ~~entered into sales-type and operating lease arrangements directly with certain qualified customers as a way to offer customers flexibility in how they acquire~~ ~~da Vinci~~ ~~systems and expand~~ ~~da Vinci~~ surgery availability while leveraging our balance sheet. The leases generally have commercially competitive terms as compared with other third party entities that offer equipment leasing. We include both operating and sales-type leases in our system shipment and installed base disclosures. We exclude operating leases from our system average selling prices computations.

~~We shipped 26 and 86 systems under lease arrangements, of which 20 and 68 were classified as operating leases,~~seen elongated regulatory approval timelines in the ~~three~~U.S. and ~~nine months ended September 30, 2017, respectively, compared with 19 and 71 systems under lease arrangements, of which 15 and 49 were classified as operating leases, in~~ the three and nine months ended September 30, 2016, respectively. Generally, the operating lease arrangements provide our customers with the right to purchase the leased system sometime during and/or at the end of the lease term. Revenue generated from customer purchases of systems under operating lease arrangements (“Lease Buyouts”) was $10.8 million and $26.0 million for the three and nine months ended September 30, 2017, respectively, compared with $13.1 million and $31.1 million for the three and nine months ended September 30, 2016, respectively. We expect that revenue recognized from customer exercises of the buyout options will fluctuate based on the timing of when, and if, customers choose to exercise their buyout options. Operating lease revenue was $6.7 million and $18.1 million for the three and nine months ended September 30, 2017, respectively, compared with $4.2 million and $12.0 million for the three and nine months ended September 30, 2016, respectively. As of September 30, 2017, 134 ~~da Vinci~~ ~~systems were installed at customers under operating lease arrangements. We believe our leasing program has been effective and well-received, and we are willing to expand it based on customer demand.~~

~~Regulatory Activities~~EU.

Clearances and Approvals

We have generally obtained the clearances required to market our ~~multiport~~ products associated with ~~all of~~ our da Vinci Surgical Multiport Systems (Standard, S,Si, Xi, and X systems) for our targeted surgical specialties within the U.S., South Korea, Japan, and the European markets in which we operate. Since 2019, we obtained regulatory clearances for the following products:

•In ~~April 2017,~~late 2020 and early 2021, we obtained FDA clearance, CE mark clearance, and regulatory clearances in most of our significant markets to market our Extended Use Instruments.

•In November 2019, we obtained FDA clearance for our SynchroSeal instrument and E-100 generator. Following the FDA clearance, in February 2020, we received CE mark clearance for both products. In March 2020, we received regulatory clearance in Japan to market both our SynchroSeal instrument and E-100 generator. In August 2020, we received regulatory clearance in South Korea to market our E-100 generator.

•In July 2019, we obtained FDA clearance for our SureForm 45 Curved-Tip stapler and SureForm 45 Gray reload, which round out our SureForm 45 portfolio. We have also received CE mark clearance for our SureForm 45 Curved-Tip stapler and SureForm 45 Gray reload.

•In June 2019, we received CE mark clearance for our da Vinci Endoscope Plus for the da Vinci Xi and da Vinci X Surgical ~~System~~Systems in Europe. Following the CE mark, in ~~May 2017,~~July 2019, we obtained FDA clearance for our da Vinci Endoscope Plus. We have also received ~~U.S. Food~~regulatory clearances in South Korea and ~~Drug Administration (“FDA”) clearance~~Japan to market our da Vinci XEndoscope Plus in December 2019 and May 2020, respectively.

•In June 2019, we obtained FDA clearance for our da Vinci Handheld Camera and, in February 2020, we received CE mark clearance.

•In February 2019, we obtained FDA clearance for our Ion endoluminal system, our new flexible, robotic-assisted, catheter-based platform, designed to navigate through very small lung airways to reach peripheral nodules for biopsies. We are introducing the Ion endoluminal system in a measured fashion while we optimize training pathways and our supply chain and collect additional clinical data. We have placed 70 Ion systems for commercial use as of June 30, 2021.

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•In February 2019, we obtained FDA clearance for our Iris augmented reality product. Iris is a service that delivers a 3D image of the patient anatomy (initially targeting kidneys) to aid surgeons in both pre- and intra-operative settings. We are currently conducting a pilot study of our Iris product and service in the field at a small group of U.S. hospitals to gain initial product experience and insights.

•In December 2018, we received product registration for our da Vinci Xi Surgical System in China. The registration approval does not include advanced energy or stapling products that attach to the ~~U.S. We~~da Vinci Xi system. Separate product registrations are required for each of these products with the China National Medical Products Administration (“NMPA”).

•In October 2018, the China National Health Commission published on its official website the quota for major medical equipment to be imported and sold in China through 2020. After an adjustment notice was published in the third quarter of 2020, the government will now allow for the total sale of 225 new surgical robots into China, which could include da Vinci Surgical Systems as well as surgical systems introduced by others. As of June 30, 2021, we have sold 142 da Vinci Surgical Systems under this quota. Future sales of da Vinci Surgical Systems under the quota are uncertain, as they are dependent on hospitals completing a tender process and receiving associated approvals.

Refer to the descriptions of our products that received regulatory ~~clearance for the~~ ~~da Vinci~~X ~~Surgical System~~clearances in ~~South Korea in September 2017 (see the description of the~~ ~~da Vinci X~~ ~~Surgical System~~2021, 2020, and 2019 in the New Product Introductions section ~~below). Regulatory clearances for~~ ~~da Vinci X~~ ~~Surgical System may be received in other markets over time.~~below.

~~In March 2014, we received FDA clearance to market our~~ ~~da Vinci~~Xi ~~Surgical System in the U.S. In June 2014, we received CE mark clearance for our~~ ~~da Vinci~~Xi ~~Surgical System in Europe. We received regulatory clearances for the~~ ~~da Vinci~~Xi ~~Surgical System in South Korea in October 2014 and in Japan in March 2015.~~ The ~~regulatory status of the~~ ~~da Vinci~~Xi ~~Surgical System in other OUS markets varies by country.~~

~~In January 2016, we received FDA clearance for our Integrated Table Motion product. In March 2016, we received FDA 510(k) clearances in the U.S. and CE mark clearances in Europe for~~ ~~Single-Site~~ ~~instruments and the 30mm~~ ~~EndoWrist~~ ~~stapler products for the~~ ~~da Vinci Xi~~ ~~Surgical System (see the description of the~~ ~~EndoWrist~~ ~~Stapler 30in the New Product Introductions section below).~~

~~In April 2014, we received FDA clearance to market our~~ ~~da Vinci Single Port~~ ~~Surgical System in the U.S. for single-port urologic surgeries. At the time, we decided not to market that version of the~~ ~~da Vinci Single Port~~ ~~Surgical System. We instead elected to pursue the necessary modifications to integrate it into the~~ ~~da Vinci Xi/X~~ ~~product family as a dedicated single port patient console compatible with the existing~~ ~~da Vinci Xi/X~~ ~~surgeon console, vision cart, and other equipment. We have since completed these modifications and have begun clinical evaluations of the product. We plan to seek FDA clearance(s) for this~~ ~~da Vinci Xi/X~~ ~~version of the~~ ~~da Vinci Single Port~~ Surgical System for procedure(s) in which a single small entry point to the body and parallel delivery of instruments is important. Such surgeries could include those performed through a natural orifice like the mouth for head and neck procedures or those performed through a single skin incision. It is unlikely that the ~~da Vinci Single Port~~ ~~Surgical System will contribute any revenue in 2017.~~

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~~We obtained approval from the~~ Japanese Ministry of Health, Labor, and Welfare (“MHLW”) ~~for our~~ ~~da Vinci Xi~~ ~~Surgical System in March 2015. National~~considers reimbursement ~~status was received~~ for~~da Vinci~~ ~~Prostatectomy (“dVP”) procedures in Japan effective April 2012 and for~~ ~~da Vinci~~ ~~partial nephrectomy~~ procedures in April ~~2016. With our support,~~of even-numbered years. The process for obtaining reimbursement requires Japanese university hospitals and surgical societies, ~~are seeking reimbursement for additional procedures through the MHLW’s Senshin Iryo (Advanced Medical Care) processes as well as alternative reimbursement processes.~~with our support, to seek reimbursement. There are multiple pathways to obtain reimbursement for procedures, including those that require in-country clinical data/economic data. ~~Reimbursements~~In April 2012 and April 2016, the MHLW granted reimbursement status for robotic-assisted prostatectomy and partial nephrectomy, respectively. Most prostatectomies and partial nephrectomies were open procedures prior to da Vinci reimbursement. Da Vinci procedure reimbursement for robotic-assisted prostatectomy and partial nephrectomy procedures are ~~considered in~~higher than open and conventional laparoscopic procedure reimbursements. An additional 12 da Vinci procedures were granted reimbursement effective April 1, 2018, including gastrectomy, low anterior resection, lobectomy, and hysterectomy, for both malignant and benign conditions. An additional 7 da Vinci procedures were granted reimbursement effective April 1, 2020. These additional 19 reimbursed procedures have varying levels of ~~even numbered years. There~~conventional laparoscopic penetration and will be reimbursed at rates equal to the conventional laparoscopic procedures. Given the reimbursement level and laparoscopic penetration for these 19 procedures, there can be no assurance that wethe adoption pace for these procedures will ~~gain additional reimbursements for the procedures~~be similar to robotic-assisted prostatectomy or at the times we have targeted. If we are not successful in obtaining additional regulatory clearances, and adequate procedure reimbursements for future products and procedures, then the demand for our products in Japan could be limited.partial nephrectomy, given their higher reimbursement, or any other da Vinci procedure.

Recalls and Corrections

Medical device companies have regulatory obligations to correct or remove medical devices in the field that could pose a risk to health. The definition of “recalls and corrections” is expansive and includes repair, replacement, inspections, relabeling, and issuance of new or additional instructions for use or reinforcement of existing instructions for use and training when such actions are taken for specific reasons of safety or compliance. These field actions require stringent documentation, reporting, and monitoring worldwide. There are other actions ~~which~~that a medical device manufacturer may take in the field without reporting including, but not limited to, routine servicing and stock rotations.

As we determine whether a field action is reportable in any regulatory jurisdiction, we prepare and submit notifications to the appropriate regulatory agency for the particular jurisdiction. Regulators can require the expansion, reclassification, or change in scope and language of the field action. In general, upon submitting required notifications to regulators regarding a field action ~~which~~that is a recall or correction, we will notify customers regarding the field action, provide any additional documentation required in their national language, and arrange, as required, return or replacement of the affected product or a field service visit to perform the correction.

Field actions as well as certain outcomes from regulatory activities can result in adverse effects on our business, including damage to our reputation, delays by customers of purchase decisions, reduction or stoppage of the use of installed systems, and reduced revenue as well as increased expenses.

Procedures

We model patient value as equal to procedure efficacy / invasiveness. In this equation, procedure efficacy is defined as a measure of the success of the surgery in resolving the underlying disease, and invasiveness is defined as a measure of patient pain and disruption of regular activities. When the patient value of a da Vinci procedure is greater than that of alternative treatment options, patients may benefit from seeking out surgeons and hospitals that offer da Vinci Surgery, which could potentially result in a local market share shift. Adoption of da Vinci ~~procedure adoption~~ procedures occurs procedure by procedure and market by market and is driven by the relative patient value and total treatment costs of da Vinci procedures as compared to alternative treatment options for the same disease state or condition.

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We use the number and type of da Vinci procedures as metrics for financial and operational decision-making and as a means to evaluate period-to-period comparisons. Management believes that the number and type of da Vinci procedures provide meaningful supplemental information regarding our performance, as management believes procedure volume is an indicator of the rate of adoption of robotic-assisted surgery as well as an indicator of future revenue (including revenue from usage-based arrangements). Management believes that both it and investors benefit from referring to the number and type of da Vinci procedures in assessing our performance and when planning, forecasting, and analyzing future periods. The number and type of da Vinci procedures also facilitate management’s internal comparisons of our historical performance. We believe that the number and type of da Vinci procedures are useful to investors as metrics, because (1) they allow for greater transparency with respect to key metrics used by management in its financial and operational decision-making, and (2) they are used by institutional investors and the analyst community to help them analyze the performance of our business. The vast majority of da Vinci Surgical Systems installed are connected via the internet. System logs can also be accessed by field engineers for systems that are not connected to the internet. We utilize certain methods that rely on information collected from the systems installed for determining the number and type of da Vinci procedures performed that involve estimates and judgments, which are, by their nature, subject to substantial uncertainties and assumptions. Estimates and judgments for determining the number and type of da Vinci procedures may be impacted over time by various factors, including changes in treatment modalities, hospital and distributor reporting behavior, and system internet connectivity. Such estimates and judgments are also susceptible to algorithmic or other technical errors. In addition, the relationship between the number and type of da Vinci procedures and our revenues may fluctuate from period to period, and da Vinci procedure volume growth may not correspond to an increase in revenue. The number and type of da Vinci procedures are not intended to be considered in isolation or as a substitute for, or superior to, revenue or other financial information prepared and presented in accordance with GAAP.

Worldwide Procedures

Our da Vinci systems and instruments are regulated independently in various countries and regions of the world. The discussion of indications for use and representative or target procedures is intended solely to provide an understanding of the market for da Vinci products and is not intended to promote for sale or use of any Intuitive ~~Surgical~~ product outside of its licensed or cleared labeling and indications for use.

The adoption of robotic-assisted surgery using the da Vinci ~~Surgery~~ Surgical System has the potential to grow for those procedures that offer greater patient value than ~~non-~~dato non-da Vinci alternatives ~~within the prevailing~~and competitive total economics offor healthcare providers. Our da Vinci Surgical Systems are used primarily in ~~gynecologic~~general surgery, ~~general~~gynecologic surgery, urologic surgery, cardiothoracic surgery, and head and neck surgery. We focus our organization and investments on developing, marketing, and training ~~for those~~ products and ~~targeted~~services for procedures ~~where~~ in which da Vinci can bring patient value relative to alternative treatment options and/or economic benefit to healthcare providers. Target procedures in ~~gynecology include~~ ~~da Vinci~~ ~~Hysterectomy (“dVH”), for both cancer and benign conditions, and sacrocolpopexy. Target procedures in~~ general surgery include hernia repair (both ventral and inguinal), colorectal procedures, bariatrics, and ~~cholecystectomy.~~cholecystostomies. Target procedures in gynecology include hysterectomy for both cancer and benign conditions. Target procedures in urology include ~~dVP~~prostatectomy and partial nephrectomy. In cardiothoracic surgery, target procedures include ~~da Vinci~~ ~~Lobectomy and~~ ~~da Vinci~~ ~~Mitral Valve Repair.~~lobectomy. In head and neck surgery, target procedures include certain procedures resecting benign and malignant tumors classified as T1 and T2. Not all of the indications, procedures, or products described may be available in a given country or region or on all generations of da Vinci ~~Surgical Systems. Patients~~ surgical systems. Surgeons and their patients need to consult the product labeling in their specific country and for each product in order to determine the ~~actual authorized~~cleared uses, as well as important limitations, restrictions, or contraindications.

In ~~2016,~~2020, approximately ~~753,000~~1,243,000 surgical procedures were performed with ~~the~~ da Vinci Surgical Systems, compared ~~with~~to approximately ~~652,000~~1,229,000 and ~~570,000~~1,038,000 surgical procedures performed with da Vinci Surgical Systems in ~~2015~~2019 and ~~2014,~~2018, respectively. The reduced growth in our overall procedure volume in ~~2016~~2020 reflects significant disruption caused by the COVID-19 pandemic, as noted in the COVID-19 Pandemic section above, and was driven by growth in U.S. general surgery procedures and worldwide ~~urologic~~urology procedures.

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U.S. Procedures

Overall U.S. procedure volume ~~grew~~with da Vinci Surgical Systems declined to approximately ~~563,000~~876,000 in ~~2016,~~2020, compared ~~with~~to approximately ~~499,000~~883,000 in ~~2015~~2019 and approximately ~~449,000~~753,000 in ~~2014. Gynecology is our largest U.S. surgical specialty and the procedure volume was approximately 246,000 in 2016, compared with 238,000 in 2015 and 235,000 in 2014.~~2018. General surgery iswas our ~~second~~ largest and fastest growing U.S. specialty in ~~the U.S.~~2020 with procedure volume that grew to approximately ~~186,000~~434,000 in ~~2016,~~2020, compared ~~with~~to approximately ~~140,000~~421,000 in ~~2015~~2019 and ~~107,000~~approximately 325,000 in ~~2014.~~2018. Gynecology was our second largest U.S. ~~urology~~surgical specialty in 2020 with procedure volume that declined to approximately 267,000 in 2020, compared to approximately 282,000 in 2019 and approximately 265,000 in 2018. Urology was our third largest U.S. surgical specialty in 2020 with procedure volume that declined to approximately ~~109,000~~134,000 in ~~2016,~~2020, compared ~~with~~to approximately ~~102,000~~138,000 in ~~2015~~2019 and ~~91,000~~approximately 128,000 in ~~2014.~~2018.

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Procedures Outside of the U.S.

Overall OUS ~~procedures~~procedure volume with da Vinci Surgical Systems grew to approximately ~~190,000~~367,000 in ~~2016,~~2020, compared ~~with~~to approximately ~~153,000~~346,000 in ~~2015~~2019 and approximately ~~121,000~~285,000 in ~~2014.~~2018. Procedure growth in most OUS markets was driven largely by urology procedure ~~volume. OUS dVP procedure~~ volume, which grew to approximately ~~92,000~~214,000 in ~~2016,~~2020, compared ~~with~~to approximately ~~79,000~~206,000 in ~~2015~~2019 and approximately ~~65,000~~175,000 in ~~2014. Partial nephrectomy, general~~2018. General surgery and ~~gynecologic oncology~~thoracic procedures also contributed to OUS procedure ~~growth.~~growth with higher growth rates than urology procedures.

Recent Business Events and Trends

Procedures

Overall. Total da Vinci procedures performed by our customers grew approximately 68% for the three months ended June 30, 2021, as compared with the same period in the prior year. Total da Vinci procedures declined approximately 19% for the three months ended June 30, 2020, as compared to the same period in 2019. Total da Vinci procedures performed by our customers grew approximately 39% for the six months ended June 30, 2021, as compared with the same period in the prior year. Total da Vinci procedures declined approximately 5% for the six months ended June 30, 2020. The second quarter and year-to-date procedure results for both periods reflect impacts from the COVID-19 pandemic, as noted in the COVID-19 Pandemic section above. We saw continued recovery and growth in most of the major procedure categories in the second quarter of 2021, most notably in general surgery procedures (particularly bariatrics, hernia repair, and cholecystectomies) and, to a lesser extent, gynecology and urology procedures. The rates of recovery in urology procedures continue to be impacted by the COVID-19 pandemic due to delays in both the diagnosis of and procedures in patient populations that are considered to be at higher risk from COVID-19 infections as well as for conditions that may progress more slowly.

U.S. Procedures. U.S. da Vinci procedures grew approximately ~~16%~~77% for ~~both~~ the ~~nine~~three months ended ~~September~~June 30, ~~2017, and~~ ~~September~~2021, as compared with the same period in the prior year. U.S. da Vinci procedures declined approximately 24% for the three months ended June 30, ~~2016~~.2020. U.S. da Vinci procedures grew approximately 41% for the six months ended June 30, 2021, as compared with the same period in the prior year. U.S. da Vinci procedures declined approximately 8% for the six months ended June 30, 2020. As noted in the COVID-19 Pandemic section above, the U.S. procedure ~~growth was approximately 13%~~results for ~~both~~ the ~~nine~~three and six months ended ~~September~~June 30, ~~2017,~~2020, reflected significant disruption caused by the COVID-19 pandemic. During the three and ~~September~~six months ended June 30, ~~2016. Year-to-date 2017~~2021, as COVID-19 infection and hospitalization rates declined, da Vinci procedure volumes recovered, as a number of procedures deferred during the pandemic were performed, particularly in the second quarter. By procedure category, U.S. procedure growth was largely attributable to ~~growth in~~ general surgery procedures, most notably bariatric, hernia repair, and ~~colorectal~~cholecystectomy procedures. Additionally, we saw growth in the more mature gynecologic and urologic procedure categories, albeit at lower rates than the growth in general surgery procedures.

OUS Procedures. OUS da Vinci procedures grew approximately 51% for the three months ended June 30, 2021, as compared with the same period in the prior year. OUS da Vinci procedures declined approximately 7% for the three months ended June 30, 2020. OUS da Vinci procedures grew approximately 36% for the six months ended June 30, 2021, compared to approximately 2% for the six months ended June 30, 2020. As noted in the COVID-19 Pandemic section above, the OUS procedure results for the three and six months ended June 30, 2020, reflected significant disruption caused by the COVID-19 pandemic. Similar to U.S. procedures above, during the three and six months ended June 30, 2021, OUS da Vinci procedure volumes experienced recovery, as a number of procedures deferred during the pandemic were performed, particularly in the second quarter. By procedure category, OUS procedure growth was driven by earlier stage growth in general surgery (particularly colorectal), gynecology, and thoracic procedures as well as continued ~~moderate~~ growth in ~~more mature gynecologic and urologic procedure categories.~~

Procedure volume OUS grew approximately 24% for both the nine months ended September 30, 2017, and September 30, 2016. Year-to-date 2017 OUS procedure growth was driven by continued growth in dVP procedures and earlier stage growth in kidney cancer procedures, general surgery, and gynecology. We believe growth in these global markets is being driven by increased acceptance among surgeons and health systems, supported by expanded global evidence validating the clinical and economic value of ~~da Vinci~~ ~~procedures.~~

~~U.S. Gynecology~~. Growth in gynecology procedures during the nine months ended September 30, 2017, continued at a rate consistent with 2016. We believe that overall U.S. gynecologic surgery volume for benign conditions (robotic and other modalities) has been pressured in recent years by factors including, but not limited to, a trend by payers toward encouraging conservative disease management, trends towards higher patient deductibles and co-pays, and FDA actions regarding the use of power morcellation in uterine surgeries. Combining robotic, laparoscopic, and vaginal approaches, MIS represents about 80% of the U.S. hysterectomy market for benign conditions, and thus the rate of migration from open surgeries to MIS has slowed. We believe that our growth in gynecologic procedures over the past several years is primarily being driven by consolidation of surgical volumes into surgeons that focus on cancer and complex surgeries, as well as higher sacrocolpopexy procedure volume.

~~U.S. General Surgery.~~ Growth in general surgery procedures during the nine months ended September 30, 2017, continued at a rate consistent with 2016. The year-to-date 2017 growth in U.S. general surgery procedures was primarily driven by ventral and inguinal hernia procedures, as it did in 2015 and 2016. We believe that growth in ~~da Vinci~~ hernia repair reflects improved clinical outcomes within certain patient populations, as well as potential cost benefits relative to certain alternative treatments. We believe hernia repair procedures represent a significant opportunity with the potential to drive growth in future periods. However, given the differences in complexity among hernia patient populations and varying surgeon opinion regarding optimal surgical technique, it is difficult to estimate the timing of and to what extent ~~da Vinci~~ ~~hernia repair procedure volume will grow in the future. We expect a large portion of hernia repairs will continue to be performed via different modalities of surgery.~~

~~Adoption of~~ ~~da Vinci~~ for colorectal procedures, which includes several underlying procedures including low anterior resections for rectal cancers and certain colon procedures for benign and cancerous conditions, has been ongoing for several years, and is supported by our recently launched technologies such as the ~~da Vinci~~Xi ~~Surgical System,~~ ~~EndoWrist~~ ~~Stapler,~~ ~~EndoWrist~~ ~~Vessel Sealer, and Integrated Table Motion.~~

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~~Global Urology.~~ ~~Along with U.S. general surgery, global~~ urology procedures, contributed to the majority of our recent procedure growth. Year-to-date 2017 growth in U.S. dVP procedures continued at a rate consistent with 2016. We believe the return to growth in U.S. dVP in 2014 and 2015 reflected surgical procedures being performed for men who previously may have deferred screening or definitive treatment based on the U.S. Preventive Services Task Force recommendation against PSA screening and changes in treatment patterns for low risk prostate cancer. dVP growth slowed in 2016, reflecting surgical volumes coming into closer alignment with new diagnoses of prostate cancer. As the U.S. standard of care for the surgical treatment of prostate cancer, we expect that the number of dVP procedures performed in the U.S. will largely fluctuate with the overall prostatectomy market. dVP is the largest overall OUS procedure. Year-to-date 2017 growth in OUS dVP was strong and OUS dVP is at various stages of adoption in different areas of the world.

~~Kidney cancer procedures have also been a strong contributor to our recent global urology procedure growth. Clinical publications have demonstrated that the presence of a~~ ~~da Vinci~~ ~~system in a hospital or market increases the likelihood that a patient will receive nephron sparing surgery through a~~most notably partial nephrectomy ~~which is typically surgical society guideline-recommended therapy.~~

~~OUS Procedures.~~ and prostatectomy procedures. The ~~year-to-date 2017~~ OUS procedure growth rate also reflects continued da Vinci adoption in European and Asian markets. ~~Growth was strong~~In China, the COVID-19 outbreak during the first quarter of 2020, coupled with low COVID-19 rates in ~~Asia and varied by country~~2021, resulted in ~~Europe.~~China’s procedure volume significantly increasing in the first six months of 2021 compared to the first six months of 2020. We ~~experienced~~also saw strong procedure growth in ~~China~~the UK and France, while India, Taiwan, Japan, and other regions saw disruption from the COVID-19 pandemic.

System Demand

We placed 328 da Vinci Surgical Systems in the second quarter of 2021, compared to 178 systems in the second quarter of 2020. The increase in systems placed reflects the significant disruption experienced as ~~systems sold under~~ a ~~previous public hospital quota system have been installed and as utilization~~result of ~~those systems have increased. However, procedure growth is moderating~~the COVID-19 pandemic in ~~China. Future system placements and our ability to sustain procedure growth in China are dependent on obtaining additional importation authorizations or public hospital quotas,~~the second quarter of 2020, as well as on hospitals completing a central purchasing tender process under such authorizations. The most recent authorization expired at the end of 2015. The timing and magnitude of future authorizations that may enable future system placements is not certain. We have experienced strong procedure growth, more customers trading in ~~Japan since receiving the national reimbursements, outlined above,~~da Vinci Si Surgical Systems for ~~dVP~~fourth generation da Vinci systems in order to access fourth generation instruments and ~~partial nephrectomy. However,~~capabilities as adoption for these procedures has progressed, procedure growth in Japan is slowing. Future procedure growth in Japan will likely be paced by the timing of procedure reimbursement approvals for procedures in additionwell as to ~~dVP~~standardize their system portfolio, and ~~partial nephrectomy.~~further customer validation that da Vinci surgery addresses their quadruple aim objectives.

~~System Demand~~

~~Future~~While second quarter 2021 placements grew 84% compared with 2020, future demand for da Vinci Surgical Systems will be impacted by ~~factors including~~a number of factors: economic and geopolitical factors; the impact of the current COVID-19 pandemic, as noted in the COVID-19 Pandemic section above; hospital response to the evolving ~~health care environment under the current U.S. administration,~~healthcare environment; procedure growth ~~rates,~~ rates;

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hospital consolidation ~~trends,~~trends; evolving system utilization and point of care ~~dynamics,~~dynamics; capital replacement ~~trends,~~trends; additional reimbursements in various global markets, including ~~Japan,~~Japan: the timing around governmental tenders and authorizations, including ~~China, and~~China; the timing of when we receive regulatory clearance in our other OUS markets for our da Vinci Xi Surgical System, da Vinci X Surgical System, and da Vinci SP Surgical System, and related ~~instruments.~~instruments; and market response. Market acceptance of our recently launched Xda Vinci SP Surgical System and the nature and timing of additional da Vinci SP regulatory indications may also impact future ~~systems placement.~~ system placements.

Demand may also be impacted by ~~robotic~~robotic-assisted surgery competition, including from companies that have introduced products in the field of ~~robotic~~robotic-assisted surgery or have made explicit statements about their efforts to enter the ~~field, including~~field. A few of these companies include, but are not limited ~~to: Auris~~to, Asensus Surgical, ~~Robotics,~~ Inc.; ~~Avatera Medical~~avateramedical GmbH; ~~Cambridge Medical Robotics~~CMR Surgical Ltd.; Johnson & Johnson ~~and Google~~(including their wholly owned subsidiaries Auris Health, Inc. and ~~their joint venture,~~ Verb Surgical Inc.); Medicaroid ~~Inc.; MedRobotics Corp.;~~Corporation; Medrobotics Corporation; Medtronic plc; meerecompany Inc.; ~~Medtronic PLC.;~~MicroPort Scientific Corporation; Olympus ~~Corp.;~~Corporation; Samsung ~~Corporation;~~Group; Shandong Weigao Group Medical Polymer Company Ltd.; Smart Robot Technology Group Co. Ltd.; and Titan Medical Inc.;

Many of the above factors will also impact future demand for our Ion system, as we extend our commercial offering into diagnostics, along with additional factors associated with a new product introduction, including, but not limited to, our ability to optimize manufacturing and ~~TransEnterix, Inc., as well as other economic~~our supply chain, competition, clinical data to demonstrate value, and ~~geopolitical factors.~~market acceptance.

New Product Introductions

SynchroSeal and E-100 Generator.In November 2019, we obtained FDA clearance for our SynchroSeal instrument and E-100 generator. Following the FDA clearance, in February 2020, we received CE mark clearance for both products. In March 2020, we received regulatory clearance in Japan to market both our SynchroSeal instrument and E-100 generator. In August 2020, we received regulatory clearance in South Korea to market our E-100 generator. SynchroSeal is a single-use, bipolar, electrosurgical instrument intended for grasping, dissection, sealing, and transection of tissue. With its wristed articulation, rapid sealing cycle, and refined curved jaw, SynchroSeal offers enhanced versatility to the da Vinci Energy portfolio. The E-100 generator is an electrosurgical generator developed to power two key instruments – Vessel Sealer Extend and SynchroSeal – on the da Vinci X ~~Surgical System~~.~~In May 2017, we launched a new~~ ~~da Vinci~~ ~~model, the~~ ~~da Vinci X, in the U.S. The~~ ~~da Vinci X~~ ~~system provides surgeons~~ and ~~hospitals with access to some of the most advanced robotic-assisted surgery technology at a lower cost. The~~ ~~da Vinci X~~ ~~uses the same vision cart and surgeon console that are found on our flagship product, the~~ ~~da Vinci Xi~~ ~~system, giving our customers the option of adding advanced capabilities, and providing a pathway for upgrading should they choose to do so as their practice and needs grow.~~

~~The~~ ~~da Vinci X~~ enables optimized, focused-quadrant surgery including procedures like prostatectomy, partial nephrectomy, benign hysterectomy, and sacrocolpopexy, among others. The system features flexible port placement and 3-D digital optics, while incorporating the same advanced instruments and accessories as the ~~da Vinci Xi~~. The new system drives operational efficiencies through set-up technology that uses voice and laser guidance, drape design that simplifies surgery preparations, and a lightweight, fully integrated endoscope.

da Vinci Xi ~~Integrated Table Motion.~~Surgical Systems. The generator delivers high frequency energy for cutting, coagulation, and vessel sealing of tissues.

SureForm 45 Curved-Tip and Gray Reload. In ~~January 2016,~~July 2019, we ~~launched Integrated Table Motion in the U.S. Integrated Table Motion coordinates the movements of the~~ ~~da Vinci~~ ~~robot arms with an advanced operating room table, the TruSystem~~^® ~~7000dV sold by Trumpf Medical~~^TM~~, to enable shifting a patient’s position in real-time while the~~ ~~da Vinci~~ ~~surgical robotic arms remain docked. This gives operating room teams the capabilities to optimally position the operating table so that gravity exposes anatomy during multi-quadrant~~ ~~da Vinci~~ System procedures, maximize reach and access to target anatomy enabling surgeons to interact with tissue at an ideal working angle, and reposition the table during the procedure to enhance anesthesiologists’ care of the patient.

~~EndoWrist Stapler 30. In March 2016, we received~~obtained FDA clearance ~~in the U.S.~~ for the ~~EndoWrist~~ ~~Stapler 30 instrument with Blue, Green, White,~~SureForm 45 Curved-Tip stapler and SureForm 45 Gray ~~30mm reloads~~reload. We have also received CE mark clearance for ~~use with the~~ ~~da Vinci Xi~~ ~~Surgical System. It is intended to deliver particular utility~~

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~~with fine tissue interaction in lobectomy~~our SureForm 45 Curved-Tip stapler and ~~other thoracic procedures. The~~ ~~EndoWrist~~ ~~Stapler 30~~SureForm 45 Gray reload. SureForm 45 Curved-Tip is a single-use, fully wristed stapling instrument with a curved tip intended for resection, transection, and/or creation of anastomoses.

~~EndoWrist~~ ~~Stapler 30 broadens~~ SureForm 45 Gray reload is a new, single-use cartridge that contains multiple staggered rows of implantable staples and a stainless steel knife. The SureForm 45 Curved-Tip stapler and Gray reload have particular utility in thoracic procedures and round out our ~~existing stapler product line which includes~~ ~~EndoWrist~~ ~~Stapler~~SureForm 45 ~~Blue, Green, and White reloads.~~portfolio. Not all reloads or staplers are available for use on all systems or in all countries.

Da Vinci Endoscope Plus.In June 2019, we received CE mark clearance for our da Vinci Endoscope Plus, an enhanced 3D endoscope for use with our da Vinci X and Xi Surgical Systems. Following the CE mark, in July 2019, we obtained FDA clearance for our da Vinci Endoscope Plus. We have also received regulatory clearances in South Korea and Japan to market our da Vinci Endoscope Plus in December 2019 and May 2020, respectively. The da Vinci Endoscope Plus leverages new sensor technology to allow for increased sharpness and color accuracy.

~~Intuitive Surgical-Fosun Medical Technology (Shanghai) Co., Ltd.~~Da Vinci Handheld Camera. In June 2019, we obtained FDA clearance for our da Vinci Handheld Camera, a lightweight, 2D camera head, which can be connected to third-party laparoscopes. This allows the laparoscopic image to be displayed on the da Vinci X/Xi vision cart to address aspects of da Vinci procedures that may require use of a laparoscope, thus eliminating the need for redundant equipment in the operating room and increasing procedure efficiency. In February 2020, we received CE mark clearance for our da Vinci Handheld Camera. We broadly launched the da Vinci Handheld Camera in our European direct markets as well as in the U.S. in May 2020 and June 2020, respectively.

Ion endoluminal system. In ~~September 2016,~~February 2019, we ~~agreed to establish a joint venture with Shanghai Fosun Pharmaceutical (Group) Co., Ltd. (“Fosun Pharma”), a subsidiary of Fosun International Limited, to research, develop, manufacture, and sell~~obtained FDA clearance for the Ion endoluminal system, our new flexible, robotic-assisted, catheter-based ~~medical devices.~~platform designed to navigate through very small lung airways to reach peripheral nodules for biopsies. The ~~joint venture will initially produce products targeting early diagnosis and cost-effective treatment of lung cancer, one~~Ion system uses an ultra-thin articulating robotic catheter that can articulate 180 degrees in all directions. The outer diameter of the catheter is 3.5mm, which allows physicians to navigate through small and tortuous airways to reach nodules in most ~~commonly diagnosed forms of cancer~~airway segments within the lung. The Ion system’s flexible biopsy needle can also pass through very tight bends via Ion’s catheter to collect tissue in the ~~world.~~peripheral lung. The ~~technology will be used~~catheter’s 2mm working channel can also accommodate other biopsy tools, such as biopsy forceps or cytology brushes, if necessary. We are introducing Ion in ~~robotic-assisted medical devices based on catheters~~a measured fashion while we optimize training pathways and ~~incorporates proprietary intellectual property developed or owned~~our supply chain and collect additional clinical data. We have placed 70 Ion systems for commercial use as of June 30, 2021.

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Iris. In February 2019, we obtained FDA clearance for our Iris augmented reality product. Iris is a service that delivers a 3D image of the patient anatomy (initially targeting kidneys) to aid surgeons in both the pre- and intra-operative settings. We are now in the early stages of an Iris pilot study in the field at a small group of U.S. hospitals to gain initial product experience and insights.

Second Quarter 2021 Operational and Financial Highlights

•Total revenue increased by ~~us.~~72% to $1.46 billion for the three months ended June 30, 2021, compared to $0.85 billion for the three months ended June 30, 2020. The joint venture is located in Shanghai, China, where it will perform research and development activities and manufacture catheter-based products for global distribution. Distribution in China will be conducted by the joint venture. Distribution outside of China will be conducted by us. The joint venture is owned 60% by us and 40% by Fosun Pharma. The companies will contribute up to $100 million as required by the joint venture, an arrangement representing a significant expansion of our relationship with Fosun Pharma. Since 2011, Chindex Medical Limited, a subsidiary of Fosun Pharma, has been our distribution partner for ~~da Vinci~~ ~~Surgical Systems in China.~~

Incompound annual growth rate between the second quarter of ~~2017,~~2019 and the ~~joint venture company was legally formed after receiving required approvals from the relevant PRC government authorities and administrative agencies. During the third~~second quarter of 2017, the joint venture received contributions from us and Fosun Pharma. The joint venture also commenced hiring employees and began planning for the establishment of manufacturing infrastructure. We expect that the joint venture will incur net losses before product commercialization and that it will not generate revenue in 2018. However, there can be no assurance that we and the joint venture can successfully complete the development of the robotic-assisted catheter-based medical devices; that we and the joint venture will successfully commercialize such products; that the joint venture will not require additional contributions to fund its business; or that the joint venture will become profitable.2021 was 15%.

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~~Third Quarter 2017 Financial Highlights~~

~~Total revenue increased by 18% to $806.1 million during the three months ended~~ ~~September 30, 2017, compared with $682.9 million during the three months ended~~ ~~September 30, 2016. Third quarter 2017 total revenue included $21.3 million revenue recognized related to the customer trade-out program as described below.~~

•Approximately ~~214,000~~408,000da Vinci procedures were performed during the three months ended ~~September~~June 30, ~~2017,~~2021, an increase of 68% compared to approximately ~~15% compared with approximately 186,000~~242,000 for the three months ended ~~September~~June 30, ~~2016.~~

2020. The compound annual growth rate between the second quarter of 2019 and the second quarter of 2021 was 16.5%.

~~Instrument~~•Instruments and ~~accessory~~accessories revenue increased by ~~15%~~73% to ~~$401.2~~$796 million for the three months ended June 30, 2021, compared to $461 million for the three months ended June 30, 2020.

•Systems revenue increased by 68% to $440 million for the three months ended June 30, 2021, compared to $261 million during the three months ended ~~September~~June 30, ~~2017, compared with $348.1 million during the three months ended~~ ~~September 30, 2016~~.

2020.

~~Recurring revenue increased by 15% to $548.0 million during the three months ended~~ ~~September 30, 2017, representing 68% of total revenue, compared with $477.8 million during the three months ended~~ ~~September 30, 2016, representing 70% of total revenue.~~

~~Systems revenue increased by 26% to $258.1 million during the three months ended~~ ~~September 30, 2017, compared with $205.1 million during the three months ended~~ ~~September 30, 2016. Third quarter 2017 systems revenue included revenue recognized related to the customer trade-out program as described below.~~

•A total of ~~169~~ 328 da Vinci Surgical Systems were shipped during the three months ended ~~September~~June 30, ~~2017~~,2021, an increase of 84% compared ~~with 134~~to 178 systems during the three months ended ~~September~~June 30, ~~2016~~. 2020.

•As of ~~September~~June 30, ~~2017,~~2021, we had a da Vinci Surgical System installed base of approximately ~~4,271~~6,335 systems, an increase of approximately ~~12%~~10% compared ~~with~~to the installed base of approximately 5,764 systems as of ~~September~~June 30, ~~2016.~~

2020.

•Utilization of da Vinci systems, measured in terms of procedures per system per year, increased 55% relative to the second quarter of 2020. The compound annual growth rate between the second quarter of 2019 and the second quarter of 2021 was 6%.

•During the three months ended June 30, 2021, we placed 20 Ion systems for commercial use, compared to 3 systems during the three months ended June 30, 2020.

•Gross profit as a percentage of revenue was ~~70.3%~~69.9% for the three months ended ~~September~~June 30, ~~2017,~~2021, compared ~~with 71.3%~~to 59.0% for the three months ended ~~September~~June 30, ~~2016. Gross profit~~2020.

•Operating income increased by 534% to $511 million for the three months ended ~~September~~June 30, ~~2016, benefited from a $7.1 million Medical Device Excise Tax (“MDET”) refund.~~

~~Operating income increased by 9%~~2021, compared to ~~$278.6~~$81 million during the three months ended ~~September~~June 30, ~~2017, compared with $256.4 million during the three months ended~~ ~~September 30, 2016~~.2020. Operating income included ~~$55.9~~charges for share-based compensation of $110 million and ~~$46.9~~$96 million ~~of share-based compensation expense~~ related to employee stock plans ~~during the three months ended September 30, 2017,~~ and ~~2016, respectively. Operating income~~$10.9 million and $14.6 million of intangible asset-related charges for the three months ended ~~September~~June 30, ~~2017, included $9.7 million of net pre-tax litigation related charges.~~

2021, and 2020, respectively.

•As of ~~September~~June 30, ~~2017,~~2021, we had ~~$3.8~~$7.73 billion in cash, cash equivalents, and investments. Cash, cash equivalents, and investments increased by ~~$378.7~~$866 million, compared ~~with June 30, 2017,~~to December 31, 2020, primarily as a result of cash ~~generated~~provided by our operations and proceeds from ~~operating activities.~~

~~Trade-Out Program:~~ ~~During the first quarter 2017, we deferred $23.4 million~~stock option exercises and ~~$8.1 million~~employee stock purchases, partially offset by capital expenditures and taxes paid related to net share settlements of revenue and product costs, respectively, relating to a customer trade-out program that was offered to certain customers. Under this trade-out program, those customers were given the option to return systems purchased in the first quarter of 2017 and receive a credit towards the purchase of ~~da Vinci X~~ surgical system that was launched in the second quarter of 2017. Subject to meeting all other criteria of our revenue recognition policy, the amounts deferred are recognized at the date the new products are accepted by the customers participating in the trade-out program, or at the expiration of unexercised rights. During the three months ended September 30, 2017, we recognized $21.3 million and $7.3 million of previously deferred revenue and product costs, respectively, as a result of those offers having expired unexercised. As of September 30, 2017, a total of $2.1 million and $0.8 million of revenue and product costs, respectively, remained deferred. We anticipate this program to be substantially complete prior to the end of 2017.

equity awards.

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Results of Operations

The following table sets forth, for the periods indicated, certain unaudited Condensed Consolidated Statements of Income information (in millions, except percentages):


	Three Months Ended June 30,								Six Months Ended June 30,
	2021		% of total revenue		2020		% of total revenue		2021		% of total revenue		2020		% of total revenue
Revenue:
Product	$	1,236.0	84	%	$	721.8	85	%	$	2,310.6	84	%	$	1,622.6	83	%
Service	228.0		16	%	130.3		15	%	445.5		16	%	329.0		17	%
Total revenue	1,464.0		100	%	852.1		100	%	2,756.1		100	%	1,951.6		100	%
Cost of revenue:
Product	374.0		25	%	283.8		33	%	693.3		25	%	580.5		30	%
Service	66.3		5	%	65.4		8	%	136.5		5	%	130.0		7	%
Total cost of revenue	440.3		30	%	349.2		41	%	829.8		30	%	710.5		37	%
Product gross profit	862.0		59	%	438.0		52	%	1,617.3		59	%	1,042.1		53	%
Service gross profit	161.7		11	%	64.9		7	%	309.0		11	%	199.0		10	%
Gross profit	1,023.7		70	%	502.9		59	%	1,926.3		70	%	1,241.1		63	%
Operating expenses:
Selling, general and administrative	350.2		24	%	279.1		33	%	676.2		24	%	587.2		30	%
Research and development	162.3		11	%	143.2		17	%	322.1		12	%	290.3		15	%
Total operating expenses	512.5		35	%	422.3		50	%	998.3		36	%	877.5		45	%
Income from operations	511.2		35	%	80.6		9	%	928.0		34	%	363.6		18	%
Interest and other income, net	15.0		1	%	26.6		3	%	47.0		1	%	51.7		3	%
Income before taxes	526.2		36	%	107.2		12	%	975.0		35	%	415.3		21	%
Income tax expense (benefit)	3.2		—	%	37.0		4	%	16.8		—	%	28.9		1	%
Net income	523.0		36	%	70.2		8	%	958.2		35	%	386.4		20	%
Less: net income attributable to noncontrolling interest in joint venture	5.8		1	%	2.2		—	%	14.7		1	%	4.9		—	%
Net income attributable to Intuitive Surgical, Inc.	$	517.2	35	%	$	68.0	8	%	$	943.5	34	%	$	381.5	20	%

Three Months Ended September 30, Nine Months Ended September 30,
2017
% of total
revenue
2016
% of total
revenue
2017
% of total
revenue
2016
% of total
revenue
Revenue:
Product $ 659.3
82 % $ 553.2
81 % $ 1,807.5
81 % $ 1,565.2
80 %
Service 146.8
18 % 129.7
19 % 429.0
19 % 382.3
20 %
Total revenue 806.1
100 % 682.9
100 % 2,236.5
100 % 1,947.5
100 %
Cost of revenue:
Product 195.0
24 % 158.4
23 % 543.1
24 % 475.8
24 %
Service 44.3
6 % 37.5
6 % 132.6
6 % 108.8
6 %
Total cost of revenue 239.3
30 % 195.9
29 % 675.7
30 % 584.6
30 %
Product gross profit 464.3
58 % 394.8
58 % 1,264.4
57 % 1,089.4
56 %
Service gross profit 102.5
12 % 92.2
13 % 296.4
13 % 273.5
14 %
Gross profit 566.8
70 % 487.0
71 % 1,560.8
70 % 1,362.9
70 %
Operating expenses:
Selling, general and administrative 204.8
25 % 168.0
25 % 591.7
26 % 511.6
26 %
Research and development 83.4
10 % 62.6
9 % 241.5
11 % 170.5
9 %
Total operating expenses 288.2
35 % 230.6
34 % 833.2
37 % 682.1
35 %
Income from operations 278.6
35 % 256.4
37 % 727.6
33 % 680.8
35 %
Interest and other income, net 10.8
1 % 10.4
2 % 29.6
1 % 23.9
1 %
Income before taxes 289.4
36 % 266.8
39 % 757.2
34 % 704.7
36 %
Income tax (benefit) expense (8.1 ) (1 )% 55.8
8 % 58.4
3 % 172.8
9 %
Net income $ 297.5
37 % $ 211.0
31 % $ 698.8
31 % $ 531.9
27 %

Total Revenue

Total revenue ~~was $806.1 million~~increased by 72% to $1.5 billion for the three months ended ~~September~~June 30, ~~2017,~~2021, compared ~~with $682.9 million~~to $0.9 billion for the three months ended ~~September~~June 30, ~~2016,~~2020, resulting from ~~15%~~68% higher ~~recurring~~systems revenue, driven by 84% higher system placements, 73% higher instruments and accessories revenue, driven by approximately ~~15%~~68% higher procedure volume, and ~~26%~~75% higher service revenue. Total revenue increased by 41% to $2.8 billion for the six months ended June 30, 2021, compared to $2.0 billion for the six months ended June 30, 2020, resulting from 49% higher systems revenue, driven by 51% higher system placements, 39% higher instruments and accessories revenue, driven by approximately 39% higher procedure volume, and 35% higher service revenue. In conjunction with our 2020 COVID-19 Customer Relief Program implemented in the second quarter of 2020, service revenue was reduced by $59 million for the three and six months ended June 30, 2020 for service fee credits provided to customers.

Revenue denominated in foreign currencies as a percentage of total revenue was approximately ~~18%~~21% and ~~17%~~22% for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2021, respectively, ~~compared with 19%~~and 26% and 23% for ~~both~~ the three and ~~nine~~six months ended ~~September 30, 2016.~~2020, respectively. We generally sell our products and services in ~~Euros and British Pounds in those European markets~~local currencies where we have direct distribution ~~channels, and in Japanese Yen and Korean Won in Japan and South Korea, respectively.~~channels. Foreign currency ~~exchange rates~~rate fluctuations did not have a material impact on total revenue ~~or operating income.~~for the three and six months ended June 30, 2021, nor for the three and six months ended and June 30, 2020.

Revenue generated in the U.S. accounted for ~~74%~~69% and ~~73%~~67% of total revenue for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017, respectively, compared with 72% of total revenue~~2021, and 63% and 67% for ~~both~~ the three and ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2020, respectively. We believe that U.S. revenue has

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accounted for the large majority of total revenue due to U.S. patients’ ability to choose their provider and method of treatment, ~~in the U.S.,~~ reimbursement structures supportive of innovation and ~~minimally invasive surgery,~~MIS, and our initial investments focused on U.S. infrastructure. We have been investing in our business in the OUS ~~market~~markets, and our OUS procedures have grown faster in proportion to U.S. procedures. We expect that our OUS procedures and revenue will make up a greater portion of our business in the long term.

As the COVID-19 pandemic is expected to continue to cause a strain on hospital resources, as outlined in the COVID-19 Pandemic section above, we cannot reliably estimate the extent total revenue will be impacted in the third quarter of 2021 and beyond.

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The following table summarizes our revenue and ~~da Vinci~~ ~~Surgical System~~system unit shipments for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2021, and ~~2016~~2020, respectively (in millions, except percentages and unit shipments):


	Three Months Ended June 30,						Six Months Ended June 30,
	2021			2020			2021			2020
Revenue
Instruments and accessories	$	796.4		$	460.8		$	1,502.3		$	1,078.3
Systems	439.6			261.0			808.3			544.3
Total product revenue	1,236.0			721.8			2,310.6			1,622.6
Services	228.0			130.3			445.5			329.0
Total revenue	$	1,464.0		$	852.1		$	2,756.1		$	1,951.6
United States	$	1,005.8		$	535.4		$	1,853.3		$	1,317.0
OUS	458.2			316.7			902.8			634.6
Total revenue	$	1,464.0		$	852.1		$	2,756.1		$	1,951.6
% of Revenue – U.S.	69		%	63		%	67		%	67		%
% of Revenue – OUS	31		%	37		%	33		%	33		%

Instruments and accessories	$	796.4		$	460.8		$	1,502.3		$	1,078.3
Services	228.0			130.3			445.5			329.0
Operating lease revenue	67.3			42.3			126.3			81.5
Total recurring revenue	$	1,091.7		$	633.4		$	2,074.1		$	1,488.8
% of Total revenue	75		%	74		%	75		%	76		%

Da Vinci Surgical Systems Shipments by Region:
U.S. unit shipments	213			106			403			288
OUS unit shipments	115			72			223			127
Total unit shipments*	328			178			626			415
*Systems shipped under operating leases (included in total unit shipments)	108			52			235			129

Da Vinci Surgical Systems Shipments involving System Trade-ins:
Unit shipments involving trade-ins	125			72			257			208
Unit shipments not involving trade-ins	203			106			369			207

Ion Systems Shipments	20			3			34			11

Three Months Ended September 30,
Nine Months Ended September 30,
2017
2016
2017
2016
Revenue
Instrument and accessory $ 401.2
$ 348.1
$ 1,179.8
$ 1,009.5
Systems 258.1
205.1
627.7
555.7
Total product revenue 659.3
553.2
1,807.5
1,565.2
Service 146.8
129.7
429.0
382.3
Total revenue $ 806.1
$ 682.9
$ 2,236.5
$ 1,947.5
Recurring revenue $ 548.0
$ 477.8
$ 1,608.8
$ 1,391.8
% of total revenue 68 % 70 % 72 % 71 %
United States $ 593.5
$ 494.1
$ 1,635.7
$ 1,409.6
OUS 212.6
188.8
600.8
537.9
Total revenue $ 806.1
$ 682.9
$ 2,236.5
$ 1,947.5
% of Revenue - U.S. 74 % 72 % 73 % 72 %
% of Revenue - OUS 26 % 28 % 27 % 28 %

Unit Shipments by Region:
U.S. unit shipments 107
85
287
238
OUS unit shipments 62
49
181
136
Total unit shipments* 169
134
468
374
*Systems shipped under operating leases (included in total unit shipments) 20
15
68
49

Unit Shipments involving System Trade-ins:
Unit shipments involving trade-ins 44
33
106
113
Unit shipments not involving trade-ins 125
101
362
261

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Product Revenue

Three ~~months ended September~~Months Ended June 30, ~~2017:~~2021

Product revenue increased by ~~19%~~71% to ~~$659.3~~$1.24 billion for the three months ended June 30, 2021, compared to $0.72 billion for the three months ended June 30, 2020.

Instruments and accessories revenue increased by 73% to $796 million for the three months ended ~~September~~June 30, ~~2017~~,2021, compared ~~with $553.2~~to $461 million for the three months ended ~~September~~June 30, ~~2016~~.

~~Instrument and accessory revenue increased by 15% to $401.2 million for the three months ended~~ ~~September 30, 2017, compared with $348.1 million for the three months ended~~ ~~September 30, 2016~~.2020. The increase in ~~instrument~~instruments and ~~accessory~~accessories revenue was driven primarily by procedure growth of approximately ~~15%. Third~~68% as well as higher sales of our advanced technology instruments, including our stapling and energy instruments. The second quarter ~~2017~~2021 U.S. procedure growth ofwas approximately ~~12% was~~77%, driven by growth in general surgery procedures, most notably bariatric, hernia repair, and ~~colorectal procedures, and thoracic~~cholecystectomy procedures, as well as moderate growth in the more mature gynecologic and urologic ~~procedures.~~procedures categories. The second quarter 2021 OUS procedure growth was approximately ~~23% for the third quarter of 2017,~~51%, driven by ~~continued growth in dVP procedures and~~ earlier stage growth in ~~kidney cancer procedures,~~ general surgery (particularly colorectal), gynecology, and ~~gynecology.~~thoracic procedures and continued growth in urology procedures, most notably partial nephrectomy and prostatectomy procedures. Both growth rates were positively impacted by the disruption caused by the COVID-19 pandemic in 2020, as noted in the COVID-19 Pandemic section above. Geographically, ~~third~~the second quarter 2021 OUS procedure growth was driven by procedure expansion in ~~Japan, South Korea,~~China, the UK, and ~~China. Procedure growth varied by country~~France, while procedures declined in ~~our European market.~~Taiwan.

Systems revenue increased by ~~26%~~68% to ~~$258.1~~$440 million for the three months ended ~~September~~June 30, ~~2017,~~2021, compared ~~with $205.1~~to $261 million for the three months ended ~~September~~June 30, ~~2016. Higher third~~2020. The higher second quarter ~~2017~~2021 systems revenue was primarily driven by higher system shipments, higher operating lease revenue, and ~~revenue recognized related to the~~ ~~da Vinci X~~ ~~trade-out program, largely~~higher lease buyouts, partially offset by lower ~~systems average selling price (“ASP”),~~second quarter 2021 ASPs and a higher ~~number~~proportion of system ~~placements~~shipments under operating leases.

During the second quarter of 2021, a total of 328 da Vinci Surgical Systems were shipped compared to 178 systems during the second quarter of 2020. By geography, 213 systems were shipped into the U.S., 63 into Europe, 41 into Asia, and 11 into other markets during the second quarter of 2021, compared to 106 systems shipped into the U.S., 18 into Europe, 48 into Asia, and 6 into other markets during the second quarter of 2020. The increase in systems shipments was primarily driven by decisions in the second quarter of 2020 by customers to defer purchases or leases of systems into future quarters as a result of the COVID-19 pandemic, as well as procedure growth, more customers trading in da Vinci Si Surgical Systems for fourth generation da Vinci Xi and da Vinci X systems in order to access fourth generation instruments and capabilities as well as to standardize their system portfolio, and further customer validation that da Vinci surgery addresses their quadruple aim objectives.

We shipped 168 and 61 da Vinci Surgical Systems under lease arrangements, of which 108 and ~~lower Lease Buyout revenue. Revenue from Lease Buyouts was $10.8 million~~52 systems were classified as operating leases for the three months ended ~~September~~June 30, ~~2017, compared with $13.1~~2021, and 2020, respectively. Operating lease revenue was $67.3 million for the three months ended ~~September~~June 30, ~~2016.~~2021, compared to $42.3 million for the three months ended June 30, 2020. Systems placed as operating leases represented 33% of total shipments during the second quarter of 2021, compared to 29% during the second quarter of 2020. A total of 1,073 da VinciSurgical Systems were installed at customers under operating lease or usage-based arrangements as of June 30, 2021, compared to 758 as of June 30, 2020. Revenue from Lease Buyouts was $26.1 million for the three months ended June 30, 2021, compared to $9.4 million for the three months ended June 30, 2020. We expect revenue from Lease Buyouts to fluctuate period to period ~~based~~depending on the timing of when, and if, customers choose to exercise the buyout options embedded in their leases.

~~During the third quarter of 2017, a total o~~f 169 systems were shipped compared with 134 during the third quarter of 2016. By geography, 107 systems were shipped into the U.S., 25 into Europe, 26 into Asia, and 11 into other markets during the third quarter of ~~2017, compared with 85 systems shipped into the U.S., 18 into Europe, 25 into Asia, and 6 into other markets during the third quarter of 2016. During the third quarter of~~ ~~2017~~, 20 of the 169 systems were shipped under operating lease arrangements compared with 15 of 134 systems shipped during the third quarter of 2016. Operating lease revenue was $6.7 million for the three months ended September 30, 2017, compared with $4.2 million for the three months ended September 30, 2016. The increase in systems shipments was primarily driven by procedure growth and the need for hospitals to expand or establish capacity. System placements are expected to continue to vary as some of our OUS markets are in early stages of adoption, some markets are highly seasonal reflecting budget cycles or vacation patterns, and sales into some markets are constrained by government regulations.

~~The~~ da Vinci Surgical System ASP, excluding the impact of systems shipped under operating ~~leases,~~lease or usage-based arrangements and Ion systems, was approximately ~~$1.47~~$1.55 million for ~~both~~ the three ~~and nine~~ months ended ~~September~~June 30, ~~2017,~~2021, compared ~~with $1.53~~to approximately $1.65 million for ~~both~~ the three ~~and nine~~ months ended ~~September~~June 30, ~~2016. The lower third quarter 2017~~2020. ASP ~~primarily reflect product and geographic mix as well as lower pricing offered to customers purchasing multiple systems. ASPs fluctuate~~fluctuates from period to period based on geographic and product mix, product pricing, systems shipped involving trade-ins, and changes in foreign exchange rates.

~~Nine months ended September~~Six Months Ended June 30, ~~2017:~~2021

Product revenue increased by ~~15%~~42% to ~~$1.8~~$2.3 billion for the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2021, compared ~~with~~to $1.6 billion for the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2020.

~~Instrument~~Instruments and ~~accessory~~accessories revenue increased by ~~17%~~39% to ~~$1.2~~$1.50 billion for the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2021, compared ~~with $1.0~~to $1.08 billion for the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2020. The increase in ~~instrument~~instruments and ~~accessory~~accessories revenue was driven primarily by procedure growth of approximately ~~16% and higher sales of our advanced instruments.~~39%. The year-to-date 2021 U.S. procedure growth ofwas approximately ~~13% for the nine months ended September 30, 2017, was~~41%, driven by growth in general surgery procedures, most notably bariatric, hernia repair, and ~~colorectal procedures, and thoracic~~cholecystectomy, procedures, as well as moderate growth in the more mature gynecologic and urologic ~~procedure~~procedures categories. The year-to-date 2021 OUS procedure growth was approximately ~~24% for the nine months ended September 30, 2017,~~36%, driven by ~~continued growth in dVP procedures and~~ earlier stage growth in ~~kidney cancer procedures,~~ general surgery (particularly colorectal), gynecology, and ~~gynecology.~~thoracic procedures and continued growth in urology procedures, most notably partial nephrectomy and prostatectomy procedures. Both growth rates were positively impacted by the disruption caused by the COVID-19 pandemic in 2020, as noted in the COVID-19 Pandemic section above. Geographically, ~~higher~~the year-to-date 2021 OUS procedure growth ~~for the nine months ended September 30, 2017,~~ was driven by ~~strong~~ procedure expansion in ~~Japan,~~China, the UK, France, and South ~~Korea, and China. Procedure growth varied by country in our European market.~~Korea.

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Systems revenue increased by ~~13%~~49% to ~~$627.7~~$808 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2021, compared ~~with $555.7~~to $544 million for the ~~nine~~six months ended ~~September~~June 30, ~~2016. Higher~~2020. The higher year-to-date 2021 systems revenue ~~for the nine months ended September 30, 2017,~~ was primarily driven ~~primarily~~ by higher system shipments, higher operating lease revenue, higher year-to-date 2021 ASPs, and ~~largely~~higher lease buyouts, partially offset by a higher ~~number~~proportion of system ~~placements~~shipments under operating ~~lease arrangements and lower systems ASP.~~leases.

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During the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2021, a total of ~~468 systems~~626 da Vinci Surgical Systems were shipped compared ~~with 374~~to 415 systems during the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2020. By geography, ~~287~~403 systems were shipped into the U.S., 75122 into Europe, 7485 into Asia, and 3216 into other markets during the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2021, compared ~~with 238~~to 288 systems shipped into the U.S., 5343 into Europe, 6675 into Asia, and 179 into other markets during the ~~nine~~six months ended ~~September~~June 30, 2016. During the nine months ended September 30, 2017, 68 of the 468 systems were shipped under operating lease arrangements compared with 49 of 374 systems shipped during the nine months ended September 30, 2016. Operating lease revenue was $18.1 million for the nine months ended September 30, 2017, compared with $12.0 million for the nine months ended September 30, 2016.2020. The increase in systems shipments was primarily driven by decisions in the second quarter of 2020 by customers to defer purchases or leases of systems into future quarters as a result of the COVID-19 pandemic, as well as procedure growth, more customers trading in da Vinci Si Surgical Systems for fourth generation da Vinci Xi and da Vinci X systems in order to access fourth generation instruments and capabilities as well as to standardize their system portfolio, and further customer validation that da Vinci surgery addresses their quadruple aim objectives.

We shipped 305 and 182 da Vinci Surgical Systems under lease arrangements, of which 235 and 129 systems were classified as operating leases for the ~~need~~six months ended June 30, 2021, and 2020, respectively. Operating lease revenue was $126.3 million for ~~hospitals~~the six months ended June 30, 2021, compared to ~~expand~~$81.5 million for the six months ended June 30, 2020. Systems placed as operating leases represented 38% of total shipments during thesix months ended June 30, 2021, compared to 31% during the six months ended June 30, 2020. Revenue from Lease Buyouts was $45.2 million for the six months ended June 30, 2021, compared to $21.6 million for the six months ended June 30, 2020. We expect revenue from Lease Buyouts to fluctuate period to period depending on the timing of when, and if, customers choose to exercise the buyout options embedded in their leases.

The da Vinci Surgical System ASP, excluding the impact of systems shipped under operating lease or ~~establish capacity.~~usage-based arrangements and Ion systems, was approximately $1.59 million for the six months ended June 30, 2021, compared to approximately $1.53 million for the six months ended June 30, 2020. ASP fluctuates from period to period based on geographic and product mix, product pricing, systems shipped involving trade-ins, and changes in foreign exchange rates.

Service Revenue

Service revenue increased by ~~13%~~75% to ~~$146.8~~$228 million for the three months ended ~~September~~June 30, ~~2017~~,2021, compared ~~with $129.7~~to $130 million for the three months ended ~~September~~June 30, ~~2016. Service revenue increased by 12% to $429.0 million for the nine months ended September 30, 2017, compared with $382.3 million for the~~ ~~nine months ended September 30, 2016. Higher~~2020. The increase in service revenue ~~for the three and nine months ended September 30, 2017,~~ was primarily driven by the effects of the Customer Relief Program in the prior year, which resulted in a $59 million decrease in service revenue in the three months ended June 30, 2020, as well as a larger installed base of da Vinci Surgical Systems producing service revenue.

Service revenue increased by 35% to $446 million for the six months ended June 30, 2021, compared to $329 million for the six months ended June 30, 2020. The increase in service revenue was primarily driven by the effects of the Customer Relief Program in the prior year as well as a larger installed base of da Vinci Surgical Systems producing service revenue.

Gross Profit

Product gross profit for the three months ended ~~September~~June 30, ~~2017~~,2021, increased ~~18%~~97% to ~~$464.3~~$862 million, representing ~~70.4%~~69.7% of product revenue, compared ~~with $394.8~~to $438 million, representing ~~71.4%~~60.7% of product revenue, for the three months ended ~~September~~June 30, ~~2016~~. Product gross profit for the nine months ended September 30, 2017, increased 16% to $1.3 billion, representing 70.0% of product revenue, compared with $1.1 billion, representing 69.6% of product revenue, for the nine months ended September 30, 2016.2020. The higher product gross profit for the three ~~and nine~~ months ended ~~September~~June 30, ~~2017,~~2021, was primarily driven by higher product ~~revenue.~~

revenue and higher product gross profit margin. The ~~lower~~higher product gross profit margin for the three months ended ~~September~~June 30, ~~2017, as compared with the same period in 2016,~~2021, was primarily driven by ~~a $7.1 million MDET refund recorded~~lower year-over-year excess and obsolete inventory costs and lower freight costs, partially offset by lower second quarter 2021 ASPs. Additionally, we incurred period costs associated with abnormally low production in the second quarter of 2020, which did not recur in the second quarter of 2021 as a ~~reduction to cost~~result of ~~revenue during~~increased production volumes.

Product gross profit for the ~~three~~six months ended ~~September~~June 30, ~~2016.~~2021, increased 55% to $1.6 billion, representing 70.0% of product revenue, compared to $1.0 billion, representing 64.2% of product revenue, for the six months ended June 30, 2020. The higher product gross profit for the six months ended June 30, 2021, was primarily driven by higher product revenue and higher product gross profit margin. The higher product gross profit margin for the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2021, was ~~due to manufacturing efficiencies~~primarily driven by higher year-to-date 2021 ASPs, lower year-over-year excess and obsolete inventory costs, lower year-over-year costs associated with da Vinci Si product ~~cost reductions on some of our newer products, partially offset by a $7.8 million litigation settlement charge related to a license~~transitions, and ~~supply agreement recognized~~lower freight costs. In addition, we incurred period costs in ~~cost of revenue during~~ the ~~first~~second quarter of ~~2017 and the MDET refund described above. The trade-out program described above did not have a material impact on product gross profit margin.~~

MDET became effective on January 1, 2013. In December 2015, the Consolidated Appropriations Act, 2016 (the “Appropriations Act”) was signed into law. The Appropriations Act includes a two-year moratorium on MDET such that medical device sales in 2016 and 2017 are exempt from the excise tax. MDET is scheduled to be reinstated on January 1, 2018. Product gross profit included $17.0 million of MDET expense, representing approximately 0.9% of total product revenue, for the year ended December 31, 2015.2020 associated with abnormally low production.

Product gross profit for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017, reflected~~2021, included share-based compensation expense of ~~$7.0~~$16.6 million and ~~$20.5~~$31.9 million, respectively, compared with ~~$6.9~~$14.2 million and ~~$18.6~~$27.0 million, for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2020, respectively. Product gross profit for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2021, included intangible assets amortization expense of ~~intangible assets of $1.2~~$4.7 million and ~~$4.4~~$8.9 million, respectively, compared with ~~$1.8~~$8.9 million and ~~$6.1~~$17.7 million, for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2020, respectively.

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Service gross profit for the three months ended ~~September~~June 30, ~~2017, was $102.5~~2021, increased 149% to $162 million, ~~or 69.8%~~representing 70.9% of service revenue, compared ~~with $92.2~~to $65 million, ~~or 71.1%~~representing 49.8% of service revenue, for the three months ended ~~September~~June 30, ~~2016~~. Service gross profit for the nine months ended September 30, 2017, was $296.4 million, or 69.1% of service revenue, compared with $273.5 million, or 71.5% of service revenue for the nine months ended September 30, 2016.2020. The higher service gross profit for the three ~~and nine~~ months ended ~~September~~June 30, ~~2017,~~2021, was primarily driven by higher service revenue, reflecting a larger installed base of da Vinci Surgical Systems, ~~partially offset by lower~~and higher service gross profit margin. The lower service gross profit margin for the three ~~and nine~~ months ended ~~September~~June 30, ~~2017,~~2020, was primarily driven by the decrease in service revenue as a result of the Customer Relief Program.

Service gross profit for the six months ended June 30, 2021, increased 55% to $309 million, representing 69.4% of service revenue, compared ~~with~~to $199 million, representing 60.5% of service revenue, for the ~~same periods in 2016,~~six months ended June 30, 2020. The higher service gross profit for the six months ended June 30, 2021, was primarily driven by higher ~~costs to repair and replace~~ service revenue, reflecting a larger installed base of da Vinci Xi ~~endoscope products.~~Surgical Systems, and higher service gross profit margin. The lower service gross profit margin for the six months ended June 30, 2020, was primarily driven by the decrease in service revenue as a result of the Customer Relief Program.

Service gross profit for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017, reflected~~2021, included share-based compensation expense of ~~$3.7~~$5.2 million and ~~$10.4~~$10.9 million, respectively, compared with ~~$3.3~~$5.2 million and ~~$9.4~~$10.7 million, for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2020, respectively. Service gross profit for the three and six months ended June 30, 2021, included intangible asset charges of $0.3 million and $1.7 million, respectively, compared with $0.9 million and $1.8 million, for the three and six months ended June 30, 2020, respectively.

Selling, General and Administrative Expenses

Selling, general and administrative expenses include costs for sales, marketing, and administrative personnel, sales and marketing activities, tradeshow expenses, legal expenses, regulatory fees, and general corporate expenses.

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Selling, general and administrative expenses for the three months ended ~~September~~June 30, ~~2017,~~2021, increased by ~~22%~~25% to ~~$204.8~~$350 million, compared ~~with $168.0~~to $279 million for the three months ended ~~September~~June 30, ~~2016.~~2020. Selling, general and administrative expenses for the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2021, increased by ~~16%~~15% to ~~$591.7~~$676 million, compared ~~with $511.6~~to $587 million for the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2020. The increase in selling, general and administrative expenses for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2021, was primarily ~~due to~~driven by higher ~~OUS expenses associated with our expanded Asian~~headcount, resulting in increased fixed and ~~European teams,~~share-based compensation expense, higher variable compensation, and increased infrastructure to support our ~~growth,~~growth. In addition, there were higher ~~headcount,~~marketing, travel, and ~~higher litigation charges.~~training expenses for the three months ended June 30, 2021, as compared with the prior year.

Selling, general and administrative expenses for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2021, included ~~net pre-tax litigation charges~~share-based compensation expense of ~~$9.7~~$55.7 million and ~~$18.7~~$108.8 million, ~~respectively. No litigation charges were recorded during~~respectively, compared with $49.6 million and $95.3 million, for the three and six months ended ~~September~~June 30, ~~2016.~~2020, respectively. Selling, general and administrative expenses for the ~~nine~~three and six months ended ~~September~~June 30, ~~2016,~~2021, included ~~litigation charges~~intangible assets amortization expense of ~~$6.6 million.~~$1.9 million and $3.6 million, respectively, compared with $1.7 million and $3.4 million, for the three and six months ended June 30, 2020, respectively.

Selling, general and administrative expenses for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017, reflected share-based compensation expense~~2021, as a percentage of ~~$30.0 million~~revenue, were 24% and ~~$82.3 million, respectively,~~25%, compared ~~with $25.3 million~~to 33% and ~~$72.9 million~~30% for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016, respectively.~~2020, and 25% and 27% for the three and six months ended June 30, 2019. Our spending in the second quarter of 2021 reflected a continued but less pronounced curtailment of certain costs as a result of the COVID-19 pandemic, including travel, marketing events, clinical trials, and other related expenses. We expect that these costs will continue to increase to the extent that the impact of COVID-19 decreases and decline to the extent that the impact of COVID-19 increases. In addition, we expect spending to increase overall and as a percentage of sales as we continue to support our customers, invest in innovation focused on the quadruple aim, and invest in manufacturing and our supply chain to ensure supply for our customers.

Research and Development Expenses

Research and development costs are expensed as incurred. Research and development expenses include costs associated with the design, development, testing, and significant enhancement of our products.

Research and development expenses for the three months ended ~~September~~June 30, ~~2017,~~2021, increased by ~~33%~~13% to ~~$83.4~~$162 million, compared ~~with $62.6~~to $143 million for the three months ended ~~September~~June 30, ~~2016.~~2020. Research and development expenses for the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2021, increased by ~~42%~~11% to ~~$241.5~~$322 million, compared ~~with $170.5~~to $290 million for the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2020. The ~~increase was~~increases in research and development expenses for the three and six months ended June 30, 2021, were primarily ~~due to~~driven by higher ~~personnel~~personnel-related expenses and other project costs incurred to support a broader set of product development initiatives, including ~~our~~ ~~da Vinci Single Port~~ ~~Surgical System, robotic-assisted catheter-based medical devices,~~Ion and SP platform investments, informatics, advanced ~~imaging and analytics,~~instrumentation, advanced ~~instrumentation,~~imaging, and future generations of robotics. ~~The increase~~

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Research and development expenses for the ~~nine~~three and six months ended ~~September~~June 30, ~~2017, was also driven by expense related to licensed intellectual property.~~

~~Share-based~~2021, included share-based compensation expense ~~charged to research and development expense was $15.2~~of $32.6 million and ~~$40.9~~$62.7 million, respectively, compared with $27.4 million and $54.6 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2020, respectively. Research and development expenses for the three and six months ended June 30, 2021, included intangible asset charges of $4.0 million and $4.7 million, respectively, compared with ~~$11.4~~$3.1 million and ~~$31.5~~$5.0 million for the three and ~~nine~~six months ended ~~September~~June 30, 2016, respectively. Amortization expense related to intangible assets was $1.9 million and $5.7 million for the three and nine months ended September 30, 2017, respectively, compared with $2.5 million and $7.9 million for the three and nine months ended September 30, 2016,2020, respectively.

Research and development expenses fluctuate with project timing. Based upon our broader set of product development ~~initiative~~initiatives and the stage of the underlying projects, we expect to continue to make substantial investments in research and development and anticipate that research and development expenses will continue to increase in the future.

Interest and Other Income, Net

Interest and other income, net, for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~,2021, was ~~$10.8~~$15.0 million, and ~~$29.6~~$47.0 million, respectively, compared with ~~$10.4~~$26.6 million, and ~~$23.9~~$51.7 million, for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2020, respectively. The decrease in interest and other income, net, for the three and six months ended June 30, 2021, was primarily driven by lower interest income earned, despite higher cash and investment balances, due to the decline in average interest rates, and gains on the sale of certain securities in the second quarter of 2020, partially offset by unrealized gains on investments resulting from strategic arrangements recognized in the first quarter of 2021. In addition, we realized higher foreign exchange losses in the second quarter of 2020. During the first quarter of 2021, the Company recorded unrealized gains on investments resulting from strategic arrangements of approximately $14 million.

Income Tax ~~(Benefit)~~ Expense

Our effective tax ~~provision~~rate for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017, compared with the same periods of 2016, primarily benefited from the expiration of statutes of limitations~~2021, and ~~excess tax benefits recognized in income tax expenses under ASU No. 2016-09,~~ ~~Improvements to Employee Share-based Payment Accounting. Effective tax rates for these periods also differ~~2020, differs from the U.S. federal statutory rate of ~~35%~~21% primarily due to excess tax benefits associated with employee equity plans, the effect of income earned by certain ~~of our~~ overseas entities being taxed at rates lower than the federal statutory rate, and federal R&D credit benefit, partially offset by U.S. tax on foreign earnings and state income ~~taxes. We intend to indefinitely reinvest outside the U.S. all~~taxes (net of ~~our undistributed foreign earnings that were not previously subject to U.S. tax.~~federal benefit).

~~The~~Our effective tax ~~rates~~rate for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017, reflected~~2021, included a ~~$14.9~~one-time benefit of $66.4 million from re-measurement of our Swiss deferred tax ~~benefit mainly related to~~assets resulting from the ~~release~~extension of ~~unrecognized tax benefits due to~~ the ~~expiration~~economic useful life of ~~statutes of limitations in various jurisdictions. The~~certain intangible assets. Our effective tax ~~rates~~rate for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017, also~~2020, reflected ~~tax benefit~~a one-time increase of ~~$53.5~~$36.8 million ~~and $45.7 million, respectively, from reevaluation of certain~~in unrecognized tax benefits aswith a ~~result~~corresponding increase to income tax expense. This increase was related to intercompany charges for share-based compensation for relevant periods prior to 2020, triggered by the finalization of ~~the expiration~~a Ninth Circuit Court of ~~such statutes of limitations.~~Appeals opinion involving an independent third party.

In the first quarter of 2017, we adopted ASU No. 2016-09, which changes how the tax effects of share-based awards are recognized. ASU No. 2016-09 requires excess tax benefits and tax deficiencies associated with employee equity to be recognized

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~~in the~~Our provision for income taxes ~~as discrete items in~~for the ~~period when the awards vest or are settled, whereas previously such income tax effects were recorded as part of additional paid-in capital. Our provision for income taxes~~three and six months ended June 30, 2021, included excess tax benefits associated with employee equity plans of ~~$19.7~~$43.6 million and ~~$82.9~~$117.0 million, which reduced our effective tax rate by ~~6.8~~8.3 and 12.0 percentage points, ~~and 10.9 percentage points~~respectively. Our provision for income taxes for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2020, included excess tax benefits associated with employee equity plans of $31.6 million and $97.0 million, which reduced our effective tax rate by 29.4 and 23.3 percentage points, respectively. The amount of excess tax benefits or deficiencies will fluctuate from period to period based on the price of our stock, the volume of share-based instruments settled or vested, and the value assigned to employee equity awards under U.S. ~~GAAP. We expect that the adoption of this ASU will result~~GAAP, which results in increased income tax expense volatility.

~~The~~We file federal, state, and foreign income tax ~~holiday~~returns in many U.S. and OUS jurisdictions. Years before 2016 are closed for ~~our operations in Switzerland is scheduled to end on December 31, 2017. For years after 2017, our Swiss taxable income may be taxed at a higher rate depending on~~ the ~~then applicable federal and cantonal rules. However, we currently do not expect that the end~~significant jurisdictions. Certain of our ~~Swiss~~unrecognized tax ~~holiday will materially impact~~benefits could change due to activities of various tax authorities, including evolving interpretations of existing tax laws in the jurisdictions we operate, potential assessment of additional tax, possible settlement of audits, or through normal expiration of various statutes of limitations, which could affect our ~~future annual Swiss~~effective tax ~~obligation.~~rate in the period in which they change. Due to the uncertainty related to the timing and potential outcome of audits, we cannot estimate the range of reasonably possible change in unrecognized tax benefits that may occur in the next 12 months.

We are subject to the examination of our income tax returns by the ~~Internal Revenue Service~~IRS and other tax authorities. The outcome of these audits cannot be predicted with certainty. Management regularly assesses the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes. If any issues addressed in our tax audits are resolved in a manner not consistent with management’s expectations, we could be required to adjust our provision for income taxes in the period such resolution occurs.

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Net Income Attributable to Noncontrolling Interest in Joint Venture

Net income attributable to noncontrolling interest in Joint Venture for the three and six months ended June 30, 2021, was $5.8 million and $14.7 million, respectively. Net income attributable to noncontrolling interest in Joint Venture for the three and six months ended June 30, 2020, was $2.2 million and $4.9 million, respectively. The increase in net income attributable to noncontrolling interest in Joint Venture was primarily due to increased sales in China during the three and six months ended June 30, 2021, as well as re-measurement losses related to contingent consideration during the three and six months ended June 30, 2020.

Liquidity and Capital Resources

Sources and Uses of Cash

Our principal source of liquidity is cash provided by operations and by the issuance of common stock through the exercise of stock options and our employee stock purchase program. Cash and cash equivalents plus short- and long-term investments ~~decreased~~increased by $0.86 billion to $7.73 billion as of June 30, 2021, from ~~$4.8~~$6.87 billion at as of December 31, ~~2016, to $3.8 billion at~~ ~~September 30, 2017~~,2020, primarily ~~as a result of a $2.0 billion accelerated share buyback program executed during the first quarter of 2017, partly offset by~~from cash provided by our operations and ~~employee stock option exercises. Cash generation is one of our fundamental strengths and provides us with substantial financial flexibility in meeting our operating, investing, and financing needs.~~

~~As of~~ ~~September 30, 2017~~, $1,477.0 million of our cash, cash equivalents, and investments were held by foreign subsidiaries. Amounts held by foreign subsidiaries are generally subject to U.S. income taxation on repatriation to the U.S. We currently have no plans to repatriate any foreign earnings back to the U.S. Our intent is to reinvest these funds outside of the U.S. indefinitely, and we believe our cash flows provided by our U.S. operations will meet our U.S. liquidity needs for the foreseeable future.

~~Condensed Consolidated Cash Flow Data~~

~~The following table summarizes our cash flows for the~~ ~~nine~~ ~~months ended September 30, 2017, and 2016 (in millions):~~

Nine Months Ended
September 30,
2017 2016
Net cash provided by (used in)
Operating activities $ 811.9
$ 757.3
Investing activities 694.5
(970.4 )
Financing activities (1,670.0 ) 519.1
Effect of exchange rates on cash and cash equivalents 2.0
1.0
Net increase (decrease) in cash and cash equivalents $ (161.6 ) $ 307.0

~~Operating Activities~~

~~For the~~ ~~nine~~ ~~months ended~~ ~~September 30, 2017, cash flow provided by operating activities of~~ ~~$811.9 million~~ ~~exceeded our net income of~~ ~~$698.8 million~~ ~~primarily for the following reasons:~~


1.	Our net income included non-cash items, including: share-based compensation of $153.5 million; depreciation expense of $61.4 million; deferred income taxes of $28.8 million; investment related non-cash charges of $16.8 million; and amortization of intangible assets of $10.1 million.

The non-cash charges outlined above were partly offset by changes in operating assets and liabilities that resulted in $157.5 million of cash used by operating activities. Operating assets and liabilities are primarily comprised of accounts receivable, inventory, prepaid expenses and other assets, deferred revenue, and other accrued liabilities. Inventory, including the transfer of equipment from inventory to property, plant and equipment, increased by $82.7 million. Other accrued liabilities decreased by $69.1 million primarily due to a decrease in income tax payable. Accounts receivable increased by $37.8 million primarily due to higher revenue and timing of customer billings and collections. Prepaid expenses and other assets increased by $13.6 million primarily due to an increase in lease receivables. Accrued compensation and employee benefits decreased by $11.3 million primarily due to the payments of 2016 incentive compensation. The unfavorable impact of these items on cash used by operating activities was partly offset by a $45.1 million increase in deferred revenue and $11.9 million increase in accounts payable.

~~Investing Activities~~

~~Net cash provided by investing activities during the nine months ended~~ ~~September 30, 2017, consisted of proceeds from sales and maturities of investments (net of purchases of investments) of $854.2 million partly offset by acquisition of property and equipment of~~ ~~$159.7 million~~. We invest predominantly in high quality, fixed income securities. Our investment portfolio may at any time contain investments in U.S. Treasury and U.S. government agency securities, non-U.S. government agency securities, taxable and/or tax exempt municipal notes, corporate notes and bonds, commercial paper, cash deposits, and money market funds.

~~Financing Activities~~

~~Net cash used in financing activities during the~~ ~~nine~~ ~~months ended~~ ~~September 30, 2017~~, consisted of $2.0 billion related to an accelerated share buyback program executed during the first quarter of 2017 that is further described in “Note 7. Stockholders’ Equity” and $53.6 million in taxes paid on behalf of employees related to net share settlements of vested employee equity awards. These uses were partly offset by proceeds from stock option exercises and employee stock purchases, ~~of $381.6 million.~~

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~~Capital Expenditures~~

~~Our business is not capital intensive and we had no material commitments for~~partially offset by capital expenditures asand taxes paid related to net share settlements of ~~the end of the third quarter of 2017.~~equity awards.

Our cash requirements depend on numerous factors, including ~~the~~ market acceptance of our products, the resources we devote to developing and supporting our products, and other factors. ~~In the past, we~~We expect to continue to devote substantial resources to expand procedure adoption and acceptance of our products. We have made substantial investments in our commercial operations, product development activities, facilities, and intellectual property. We expect to continue to devote substantial resources to expand our commercial operations, product development and manufacturing activities, our facilities, as well as procedure adoption and acceptance of our products. Based upon our business model, we anticipate that we will continue to be able to fund future growth through cash provided by our operations. We believe that our current cash, cash equivalents, and investment balances, together with income to be derived from the sale of our products, will be sufficient to meet our liquidity requirements for the foreseeable future.

See “Item 7A. Quantitative and Qualitative Disclosures About Market Risk” in our Form 10-K for the fiscal year ended December 31, 2020, for discussion on the impact of interest rate risk and market risk on our investment portfolio.

Condensed Consolidated Cash Flow Data

The following table summarizes our cash flows for the six months ended June 30, 2021, and 2020 (in millions):


	Six Months Ended June 30,
	2021		2020
Net cash provided by (used in)
Operating activities	$	1,020.3	$	582.7
Investing activities	(981.7)		419.6
Financing activities	(43.9)		(131.1)
Effect of exchange rates on cash, cash equivalents, and restricted cash	(2.6)		(1.6)
Net increase (decrease) in cash, cash equivalents, and restricted cash	$	(7.9)	$	869.6

Operating Activities

For the six months ended June 30, 2021, net cash provided by operating activities of $1,020 million exceeded our net income of $958 million, primarily due to the following reasons:

1.Our net income included non-cash charges of $340 million, consisting primarily of the following significant items: share-based compensation of $211 million; depreciation expense and losses on the disposal of property, plant, and equipment of $133 million; changes in deferred income taxes of $(24) million; amortization of intangible assets of $15 million; and gains on investments, accretion, and amortization, net, of $4 million.

2.The non-cash charges outlined above were partially offset by changes in operating assets and liabilities that resulted in $278 million of cash used by operating activities during the six months ended June 30, 2021. Prepaid expenses and other assets increased by $177 million, primarily due to an increase in prepaid taxes, driven by the timing of tax payments, and an increase in leasing. Inventory, including the effect of systems inventory built and transferred to property, plant, and equipment as a result of systems placed under operating lease and usage-based arrangements, increased by $92 million, primarily due to build-up to address the growth in the business as well as to mitigate risks of disruption that could arise from trade, supply, or other matters. Refer to further details in the supplemental cash flow information in Note 4 to the Condensed Consolidated Financial Statements (Unaudited) included in Item 1, Part I.

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Accounts receivable increased by $60 million, primarily due to the timing of collections. Other liabilities decreased by $17 million, primarily due to the timing of payments. The unfavorable impact of these items on cash provided by operating activities was partially offset by a $38 million increase in accounts payable, primarily due to the timing of billings, a $19 million increase in accrued compensation and employee benefits, primarily due to higher headcount and variable compensation, and an $11 million increase in deferred revenue, primarily due to the increased volume of sales contracts.

Investing Activities

Net cash used in investing activities for the six months ended June 30, 2021, consisted primarily of purchases of investments (net of proceeds from sales and maturities of investments) of $839 million, the acquisition of property and equipment of $134 million, and the acquisition of a business, net of cash acquired, of $9 million. We invest predominantly in high quality, fixed income securities. Our investment portfolio may, at any time, contain investments in U.S. treasury and U.S. government agency securities, taxable and tax-exempt municipal notes, corporate notes and bonds, commercial paper, non-U.S. government agency securities, cash deposits, and money market funds.

Financing Activities

Net cash used in financing activities during the six months ended June 30, 2021, consisted primarily of taxes paid on behalf of employees related to net share settlements of vested employee stock purchases of $188 million and the payment of deferred purchase consideration from prior acquisitions of $10 million, partially offset by proceeds from stock option exercises and employee stock purchases of $154 million.

Capital Expenditures

Our business is not capital equipment intensive. However, with the growth of our business and our investments in property and facilities and in manufacturing automation, capital investments in these areas have increased. We expect these capital investments to exceed $300 million in both 2021 and 2022. We intend to fund these needs with cash generated from operations.

Critical Accounting ~~Policies and~~ Estimates

The discussion and analysis of our financial condition and results of operations are based upon our Financial Statements, which have been prepared in accordance with U.S. GAAP. The preparation of these Financial Statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses. On an ongoing basis, we evaluate our critical accounting ~~policies and~~ estimates. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. There have been no new or material changes to the critical accounting ~~policies and~~ estimates discussed in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2016,~~2020, that are of significance, or potential significance, to the Company.

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~~ITEM 3.~~	~~QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK~~

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes in our market risk during the ~~nine~~six months ended ~~September~~June 30, ~~2017~~,2021, compared to the disclosures in Part II, Item 7A of our Annual Report on Form 10-K for the year ended December 31, ~~2016~~.2020.


~~ITEM 4.~~	~~CONTROLS AND PROCEDURES~~

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the ~~Securities and Exchange Commission’s~~SEC’s rules and forms and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow for timely decisions regarding required disclosure.

As required by SEC Rule 13a-15(b), we carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on the foregoing, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

There has been no change in our internal control over financial reporting that occurred during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II -– OTHER INFORMATION


~~ITEM 1.~~	~~LEGAL PROCEEDINGS~~

ITEM 1. LEGAL PROCEEDINGS

The information included in Note 68 to the Condensed Consolidated Financial Statements (Unaudited) included in Part I, Item 1 of this quarterly report is incorporated herein by reference.


~~ITEM 1A.~~	~~RISK FACTORS~~

ITEM 1A. RISK FACTORS

You should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2016,~~2020, which could materially affect our business, financial position, or future results of operations. The risks described in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2016,~~2020, are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial position, or future results of operations. The risk factors set forth below update, and should be read together with, the risk factors described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

RISKS RELATING TO OUR BUSINESS

OUR RELIANCE ON SOLE AND SINGLE SOURCE SUPPLIERS AND OUR ABILITY TO PURCHASE AT ACCEPTABLE PRICES A SUFFICIENT AMOUNT OF MATERIALS, PARTS, AND COMPONENTS COULD HARM OUR ABILITY TO MEET DEMAND FOR OUR PRODUCTS IN A TIMELY MANNER OR WITHIN BUDGET.

Some of the components necessary for the assembly of our products are currently provided to us by sole-sourced suppliers or single-sourced suppliers. We generally purchase components through purchase orders rather than long-term supply agreements and generally do not maintain large volumes of inventory. While alternative suppliers exist and could be identified for sole-sourced components, the disruption or termination of the supply of components, or inflationary pressure in our supply chain, could cause a significant increase in the costs of these components, which could affect our operating results. A disruption or termination in the supply of components could also result in our inability to meet demand for our products, which could harm our ability to generate revenues, lead to customer dissatisfaction, and damage our reputation and our brand. Furthermore, if we are required to change the manufacturer of a key component of our products, we may be required to verify that the new manufacturer maintains facilities and procedures that comply with quality standards and with all applicable regulations and guidelines. The time and processes associated with the verification of a new manufacturer could delay our ability to manufacture our products on schedule or within budget, which may have a material adverse impact on our business, financial condition, results of operations, or cash flows.

In addition, our ability to meet customers’ demands depends, in part, on our ability to timely obtain an adequate delivery of quality materials, parts, and components from our suppliers. An information technology systems interruption, including cybersecurity attacks, could adversely affect the ordering, distribution, and manufacturing processes of our suppliers. Furthermore, we have experienced, and could continue to experience, increased difficulties in obtaining a sufficient amount of materials in the semiconductor market, as prices of such materials increased and global supply has become significantly constrained due to the increased demand for chips to support expansion of server and cloud networks as a greater proportion of the global population worked remotely, the introduction of 5G, and the continued electrification of vehicles. We engage in activities to seek to mitigate such supply disruptions by, for example, increasing our communications with our suppliers and modifying our purchase order coverage and inventory levels. However, notwithstanding these activities, the global semiconductor supply shortage is likely to remain a challenge for the foreseeable future. Such global shortages in important components have resulted in, and will continue to cause, inflationary pressure in our supply chain. If shortages and price increases in important supply-chain materials in the semiconductor or other markets continue, we could fail to meet product demand, which will adversely impact our results of operations.

DISRUPTION OF CRITICAL INFORMATION SYSTEMS OR MATERIAL BREACHES IN THE SECURITY OF OUR SYSTEMS COULD HARM OUR BUSINESS, CUSTOMER RELATIONS, AND FINANCIAL CONDITION.

Information technology helps us serve and interface with customers, maintain our supply chain and manufacturing operations, operate effectively and efficiently, maintain financial accuracy and efficiency, and accurately produce our financial statements. If we do not allocate and effectively manage the resources necessary to build and sustain the proper technology infrastructure, we could be subject to transaction errors, processing inefficiencies, the loss of customers, business disruptions or the unauthorized access to, loss of, or damage to intellectual property, confidential information, or personally identifiable information (“PII”). If our data management systems do not effectively collect, store, process, and report relevant data for the operation of our business, whether due to equipment malfunction or constraints, software deficiencies, security incidents, or human error, our ability to effectively plan, forecast, and execute our business plan and comply with applicable laws and

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regulations will be impaired, perhaps materially. Any such impairment could materially and adversely affect our financial condition, results of operations, cash flows, and the timeliness with which we report our internal and external operating results.

Our business requires us to use and store customer, employee, and business partner PII. This may include names, addresses, phone numbers, email addresses, contact preferences, tax identification numbers, and payment account information. We require user names and passwords in order to access our information technology systems. We also use encryption and authentication technologies to secure the transmission and storage of data. These security measures may be compromised as a result of security breaches by unauthorized persons, employee error, malfeasance, faulty password management, or other irregularity and result in persons obtaining unauthorized access to our data or accounts. Third parties may attempt to fraudulently induce employees or customers into disclosing user names, passwords, or other sensitive information, which may in turn be used to access our information technology systems. For example, our employees have received “phishing” emails and phone calls attempting to induce them to divulge passwords and other sensitive information.

In addition, unauthorized persons may attempt to hack into our products or systems to obtain personal data relating to patients or employees, our confidential or proprietary information, or confidential information we hold on behalf of third parties. If the unauthorized persons successfully hack into or interfere with our connected products or services, they may create issues with product functionality that could pose a risk of loss of data, a risk to patient safety, and a risk of product recall or field activity, which could adversely impact our business and reputation. We have programs in place to detect, contain, and respond to data security incidents, and we make ongoing improvements to our information-sharing products in order to minimize vulnerabilities, in accordance with industry and regulatory standards. However, because the techniques used to obtain unauthorized access to or steal PII or intellectual property, or sabotage systems containing PII or intellectual property, change frequently and may be difficult to detect, we may not be able to anticipate and prevent these intrusions or mitigate them when and if they occur.

We also rely on external vendors to supply and/or support certain aspects of our information technology systems. The systems of these external vendors may contain defects in design or manufacture or other problems that could unexpectedly compromise information security of our own systems, and we are dependent on these third parties to deploy appropriate security programs to protect their systems. In addition to potential exposure to data breaches, security incidents, or other actions that may compromise the security of or interfere with the function of our systems, defects or vulnerabilities in the software or systems of our external vendors may expose failures in our internal controls and risk management processes, which may adversely impact our business, financial condition, results of operations, or cash flows and may also harm our reputation, brand and customer relationships.

While we devote significant resources to network security, data encryption, and other security measures to protect our systems and data, these security measures cannot provide absolute security. We may experience a breach of our systems and may be unable to protect PII, confidential, or sensitive data. It is possible for such vulnerabilities to remain undetected for an extended period, including several years or longer. The costs to us to eliminate or alleviate network security problems, bugs, viruses, worms, ransomware and other malicious software programs, and security vulnerabilities could be significant. Our efforts to address these problems may not be successful and could result in unexpected interruptions, delays, cessation of service, and harm to our business operations. Moreover, if a computer security breach affects our systems or results in the unauthorized release of PII, our reputation and brand could be materially damaged, and use of our products and services could decrease. We would also be exposed to a risk of loss, litigation and potential liability, and regulatory scrutiny, which could have a material adverse impact on our business, financial condition, results of operations, or cash flows.

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~~ITEM 2.~~	~~UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS~~

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

There were no unregistered sales of equity securities during the period covered by this report.

The table below summarizes our stock repurchase activity for the quarter ended June 30, 2021.


Fiscal Period	Total Number of Shares Repurchased	Average Price Paid Per Share		Total Number of Shares Purchased As Part of a Publicly Announced Program	Approximate Dollar Amount of Shares That May Yet be Purchased Under the Program (1)
April 1 to April 30, 2021	—	$	—	—	$	1.6	billion
May 1 to May 31, 2021	—	$	—	—	$	1.6	billion
June 1 to June 30, 2021	—	$	—	—	$	1.6	billion
Total during quarter ended June 30, 2021	—	$	—	—

(1) Since March 2009, we have had an active stock repurchase program. As of ~~September~~June 30, ~~2017, the~~2021, our Board of Directors ~~has~~(the “Board”) had authorized an aggregate amount of up to ~~$6.2~~$7.5 billion for stock repurchases, of which the most recent authorization occurred in ~~December 2016~~January 2019, when the Board increased the authorized amount available under ~~the Company’s~~our share repurchase program to ~~$3.0~~$2.0 billion. ~~No shares were purchased during~~The remaining $1.6 billion represents the ~~three months ended September 30, 2017. $991.6 million remained~~amount available to repurchase shares under the authorized repurchase program as of ~~September~~June 30, ~~2017.~~2021. The authorized stock repurchase program does not have an expiration date.


~~ITEM 3.~~	~~DEFAULTS UPON SENIOR SECURITIES~~

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.


~~ITEM 4.~~	~~MINE SAFETY DISCLOSURES~~

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.


~~ITEM 5.~~	ITEM 5. OTHER INFORMATION

Mark Meltzer, Senior Vice President, General Counsel and Chief Compliance Officer, announced on October 16, 2017, that he will retire on July 1, 2018. Mr. Meltzer, who will turn 68 in October 2017, has agreed to continue on a part-time basis after July 1, 2018, as an advisor to the Company. The terms of that arrangement have yet to be finalized. Kara Andersen Reiter, who has served as Vice President, Assistant General Counsel, since January 2015, will succeed Mr. Meltzer as General Counsel and Chief Compliance Officer.

None.

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ITEM 6. EXHIBITS


~~ITEM 6.~~Exhibit Number			~~EXHIBITS~~

Exhibit Description

~~Exhibit~~ ~~Number~~ 3.1	~~Exhibit~~ ~~Description~~
~~3.1~~	Amended and Restated Certificate of Incorporation of Intuitive Surgical, Inc., as ~~amended.~~amended (incorporated by reference to Exhibit 3.1 of the Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on July 23, 2020).
3.2		Amended and Restated Bylaws of Intuitive Surgical, Inc. (incorporated by reference to Exhibit 3.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on ~~December 13, 2016)~~February 1, 2021).
~~31.1~~10.1		Amended and Restated Intuitive Surgical, Inc. 2010 Incentive Award Plan (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on April 2 6 , 202 1 ).
31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101		The following materials from Intuitive Surgical, Inc.’s Quarterly Report on Form 10-Q for the quarter ended ~~September~~June 30, ~~2017,~~2021, formatted in Inline XBRL (Extensible Business Reporting Language): (i) the unaudited Condensed Consolidated Balance Sheets, (ii) the unaudited Condensed Consolidated Statements of Comprehensive Income, (iii) the unaudited Condensed Consolidated Statements of Cash Flows, and (iv) Notes to Condensed Consolidated Financial Statements (unaudited), tagged at Level I through IV.
104		The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2021, formatted in Inline XBRL and contained in Exhibit 101.

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



INTUITIVE SURGICAL, INC.

By:						/s/ MARSHALL L. MOHR
						Marshall L. Mohr
						~~Senior~~Executive Vice President and Chief Financial Officer
						(Principal Financial Officer and duly authorized signatory)

Date: ~~October 20, 2017~~

July 21, 2021



in millions (except par values)	September 30, 2017			December 31, 2016
ASSETS
Current assets:
Cash and cash equivalents	$	875.0		$	1,036.6
Short-term investments	1,271.8			1,518.0
Accounts receivable, net	468.0			430.2
Inventory	225.2			182.3
Prepaids and other current assets	88.9			83.3
Total current assets	2,928.9			3,250.4
Property, plant and equipment, net	584.8			458.4
Long-term investments	1,655.2			2,283.3
Deferred tax assets	119.8			150.9
Intangible and other assets, net	154.8			142.8
Goodwill	201.1			201.1
Total assets	$	5,644.6		$	6,486.9
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	80.4		$	68.5
Accrued compensation and employee benefits	124.7			136.4
Deferred revenue	282.5			240.6
Other accrued liabilities	128.1			151.0
Total current liabilities	615.7			596.5
Other long-term liabilities	69.0			112.6
Total liabilities	684.7			709.1
Contingencies (Note 6)
Stockholders’ equity:
Preferred stock, 2.5 shares authorized, $0.001 par value, issuable in series; no shares issued and outstanding as of September 30, 2017, and December 31, 2016	—			—
Common stock, 300.0 shares authorized, $0.001 par value, 112.0 shares and 116.4 shares issued and outstanding as of September 30, 2017, and December 31, 2016, respectively	0.1			—
Additional paid-in capital	4,190.4			4,211.8
Retained earnings	776.6			1,574.9
Accumulated other comprehensive loss	(9.2		)	(8.9		)
Total Intuitive Surgical, Inc. stockholders’ equity	4,957.9			5,777.8
Noncontrolling interest in joint venture	2.0			—
Total stockholders’ equity	4,959.9			5,777.8
Total liabilities and stockholders’ equity	$	5,644.6		$	6,486.9



	Three Months Ended September 30,					Nine Months Ended September 30,
in millions (except per share amounts)	2017			2016		2017		2016
Revenue:
Product	$	659.3		$	553.2	$	1,807.5	$	1,565.2
Service	146.8			129.7		429.0		382.3
Total revenue	806.1			682.9		2,236.5		1,947.5
Cost of revenue:
Product	195.0			158.4		543.1		475.8
Service	44.3			37.5		132.6		108.8
Total cost of revenue	239.3			195.9		675.7		584.6
Gross profit	566.8			487.0		1,560.8		1,362.9
Operating expenses:
Selling, general and administrative	204.8			168.0		591.7		511.6
Research and development	83.4			62.6		241.5		170.5
Total operating expenses	288.2			230.6		833.2		682.1
Income from operations	278.6			256.4		727.6		680.8
Interest and other income, net	10.8			10.4		29.6		23.9
Income before taxes	289.4			266.8		757.2		704.7
Income tax (benefit) expense	(8.1		)	55.8		58.4		172.8
Net income	$	297.5		$	211.0	$	698.8	$	531.9
Net income per share:
Basic	$	2.66		$	1.82	$	6.26	$	4.64
Diluted	$	2.55		$	1.77	$	6.03	$	4.52
Shares used in computing net income per share:
Basic	111.8			116.1		111.6		114.6
Diluted	116.8			119.1		115.9		117.6
Total comprehensive income	$	298.1		$	205.7	$	698.5	$	545.4



	Nine Months Ended September 30,
	2017		2016
Equipment transfers, including operating lease assets, from inventory to property, plant and equipment	$	45.1	$	31.1



	Three Months Ended September 30, 2017
	Gains (Losses) on Hedge Instruments			Unrealized Gains (Losses) on Available-for-Sale Securities			Foreign Currency Translation Gains (Losses)		Employee Benefit Plans			Total
Beginning balance	$	(1.9	)	$	(5.3	)	$	1.0	$	(3.6	)	$	(9.8	)
Other comprehensive income before reclassifications	(2.0		)	0.7			0.8		—			(0.5		)
Amounts reclassified from accumulated other comprehensive income	1.1			—			—		—			1.1
Net current-period other comprehensive income (loss)	(0.9		)	0.7			0.8		—			0.6
Ending balance	$	(2.8	)	$	(4.6	)	$	1.8	$	(3.6	)	$	(9.2	)

	Three Months Ended September 30, 2016
	Gains (Losses) on Hedge Instruments			Unrealized Gains (Losses) on Available-for-Sale Securities			Foreign Currency Translation Gains (Losses)		Employee Benefit Plans			Total
Beginning balance	$	(1.0	)	$	10.5		$	3.1	$	(3.3	)	$	9.3
Other comprehensive income before reclassifications	(1.9		)	(5.6		)	0.7		—			(6.8		)
Amounts reclassified from accumulated other comprehensive income	1.3			—			—		0.2			1.5
Net current-period other comprehensive income (loss)	(0.6		)	(5.6		)	0.7		0.2			(5.3		)
Ending balance	$	(1.6	)	$	4.9		$	3.8	$	(3.1	)	$	4.0



	Nine Months Ended September 30, 2017
	Gains (Losses) on Hedge Instruments			Unrealized Gains (Losses) on Available-for-Sale Securities			Foreign Currency Translation Gains (Losses)			Employee Benefit Plans			Total
Beginning balance	$	5.0		$	(8.6	)	$	(1.3	)	$	(4.0	)	$	(8.9	)
Other comprehensive income before reclassifications	(7.1		)	4.0			3.1			0.1			0.1
Amounts reclassified from accumulated other comprehensive income	(0.7		)	—			—			0.3			(0.4		)
Net current-period other comprehensive income (loss)	(7.8		)	4.0			3.1			0.4			(0.3		)
Ending balance	$	(2.8	)	$	(4.6	)	$	1.8		$	(3.6	)	$	(9.2	)

	Nine Months Ended September 30, 2016
	Gains (Losses) on Hedge Instruments			Unrealized Gains (Losses) on Available-for-Sale Securities			Foreign Currency Translation Gains (Losses)			Employee Benefit Plans			Total
Beginning balance	$	1.5		$	(4.2	)	$	(3.3	)	$	(3.5	)	$	(9.5	)
Other comprehensive income before reclassifications	(4.4		)	8.8			7.1			—			11.5
Amounts reclassified from accumulated other comprehensive income	1.3			0.3			—			0.4			2.0
Net current-period other comprehensive income (loss)	(3.1		)	9.1			7.1			0.4			13.5
Ending balance	$	(1.6	)	$	4.9		$	3.8		$	(3.1	)	$	4.0



	Shares		Weighted Average Grant Date Fair Value
Unvested balance at December 31, 2016	1.8		$	174.72
Granted	1.0		$	245.40
Vested	(0.5	)	$	170.58
Forfeited	(0.1	)	$	200.82
Unvested balance at September 30, 2017	2.2		$	207.09



	Three Months Ended September 30,									Nine Months Ended September 30,
	2017			% of total revenue		2016		% of total revenue		2017		% of total revenue		2016		% of total revenue
Revenue:
Product	$	659.3		82	%	$	553.2	81	%	$	1,807.5	81	%	$	1,565.2	80	%
Service	146.8			18	%	129.7		19	%	429.0		19	%	382.3		20	%
Total revenue	806.1			100	%	682.9		100	%	2,236.5		100	%	1,947.5		100	%
Cost of revenue:
Product	195.0			24	%	158.4		23	%	543.1		24	%	475.8		24	%
Service	44.3			6	%	37.5		6	%	132.6		6	%	108.8		6	%
Total cost of revenue	239.3			30	%	195.9		29	%	675.7		30	%	584.6		30	%
Product gross profit	464.3			58	%	394.8		58	%	1,264.4		57	%	1,089.4		56	%
Service gross profit	102.5			12	%	92.2		13	%	296.4		13	%	273.5		14	%
Gross profit	566.8			70	%	487.0		71	%	1,560.8		70	%	1,362.9		70	%
Operating expenses:
Selling, general and administrative	204.8			25	%	168.0		25	%	591.7		26	%	511.6		26	%
Research and development	83.4			10	%	62.6		9	%	241.5		11	%	170.5		9	%
Total operating expenses	288.2			35	%	230.6		34	%	833.2		37	%	682.1		35	%
Income from operations	278.6			35	%	256.4		37	%	727.6		33	%	680.8		35	%
Interest and other income, net	10.8			1	%	10.4		2	%	29.6		1	%	23.9		1	%
Income before taxes	289.4			36	%	266.8		39	%	757.2		34	%	704.7		36	%
Income tax (benefit) expense	(8.1		)	(1	)%	55.8		8	%	58.4		3	%	172.8		9	%
Net income	$	297.5		37	%	$	211.0	31	%	$	698.8	31	%	$	531.9	27	%