Table of ~~12 months or less, the related expense for the three and six months ended June 30, 2019, was not material.~~

~~Supplemental cash flow information for the six months ended June 30, 2019, related to operating leases was as follows (in millions):~~

Cash paid for leases that were included within operating cash outflows $ 8.3
Right-of-use assets recognized related to new lease obligations $ 12.2

~~Supplemental balance sheet information, as of June 30, 2019, related to operating leases was as follows (in millions, except lease term and discount rate):~~

Reported as:
Intangible and other assets, net (Right-of-use assets) $ 72.8
Other accrued liabilities $ 5.5
Other long-term liabilities 69.6
Total lease liabilities $ 75.1
Weighted average remaining lease term 7 years
Weighted average discount rate 3.6%

~~As of June 30, 2019, the future payments related to the Company’s operating lease liabilities are scheduled as follows (in millions):~~

Fiscal Year Amount
2019 $ 4.5
2020 11.9
2021 16.9
2022 12.4
2023 11.1
2024 and thereafter 29.8
Total lease payments $ 86.6
Less imputed interest (11.5 )
Total operating lease liabilities $ 75.1

~~ASC 840 Disclosures~~

~~The Company elected the alternative modified transition method and is required to present previously disclosed information under the prior accounting standards for leases.~~

~~Lessor Information~~

~~Sales-type Leases.~~ ~~Contractual maturities of gross lease receivables as of December 31, 2018, are as follows (in millions):~~

Fiscal Year Amount
2019 $ 50.8
2020 46.5
2021 29.7
2022 14.9
2023 7.5
2024 and thereafter 1.0
Total $ 150.4

~~Operating Leases.~~ ~~Future minimum lease payments related to non-cancellable portion of operating leases as of December 31, 2018, are as follows (in millions):~~

Fiscal Year Amount
2019 $ 88.0
2020 85.8
2021 68.8
2022 51.3
2023 25.4
2024 and thereafter 1.9
Total $ 321.2

~~Lessee Information~~

~~Operating Leases.~~ ~~Future minimum lease commitments under the Company’s operating leases as of December 31, 2018, are as follows (in millions):~~

Fiscal Year Amount
2019 $ 15.1
2020 14.5
2021 12.7
2022 11.2
2023 11.0
2024 and thereafter 30.9
Total $ 95.4

NOTE 7.8. 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 Financial Statements for legal contingencies when the loss is considered probable and the amount can be reasonably estimated. The assessment is 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, and future results of operations.

During the three and six months ended June 30, 2019, the Company recorded no litigation charges related to the tolled product liability claims described below, compared with zero and $4.5 million during the three and six months ended June 30, 2018, respectively. A total of $4.2 million and $10.5 million associated with these matters were included in other accrued liabilities in the accompanying Condensed Consolidated Balance Sheets as of June 30, 2019, and December 31, 2018, respectively.

Product Liability Litigation

The Company is currently named as a defendant in a number of individual product liability lawsuits filed in various state and federal courts. The plaintiffs 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. Several of ~~these~~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 express and implied warranties, unjust enrichment, and loss of consortium. Plaintiffs seek recovery for alleged personal injuries and, in many cases, punitive damages.

~~In addition to the filed cases, the~~ The Company previously reported on a substantial number of claims relating 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 2012disputes these allegations 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. It is the Company’s position that as of June 30, 2019, all such “tolling agreements” have expired and the majority of the “tolled claims” have either been resolved or the claims have been filed.claims.

The Company’s estimate of the anticipated cost of resolving the pending cases is based on negotiations with attorneys for the claimants. The final outcome of 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.

Patent Litigation

On June 30, 2017, Ethicon LLC, Ethicon Endo-Surgery, Inc., and Ethicon US LLC (collectively, “Ethicon”) filed a complaint for patent infringement against the Company in the 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 EndoWrist Stapler instruments infringe several of Ethicon’s patents. Ethicon asserts infringement of ~~the~~ 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 ~~the~~ 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.~~entirety in light of the USITC investigation involving U.S. Patent Nos. 9,844,369 and 7,490,749, discussed below.

Table of Contents

On May 30, 2019, Ethicon filed a complaint with the ~~U.S. International Trade Commission (“USITC”),~~USITC, asserting infringement of U.S. Patent Nos. 9,884,369, 7,490,749, 9,844,379, 9,113,874, and 8,479,969. 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 U.S. Patent No. 7,490,749. The evidentiary hearing, which was set for April 20-24, 2020, has been postponed, and no new hearing date has been set. An unfavorable ruling by the USITC could have an adverse effect on our results of operations, including a prohibition on importing the accused products into the U.S. or necessitating workarounds that may limit certain features of our products.

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.

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.

On September 30, 2019, the Company filed an answer denying the anti-trust allegations and 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.

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NOTE 8.9. STOCKHOLDERS’ EQUITY

Stockholders’ Equity

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

Three Months Ended June 30, 2019
Common Stock
Additional
Paid-In
Capital

Retained
Earnings

Accumulated
Other
Comprehensive
Income (Loss)
Total Intuitive Surgical, Inc. Stockholders’ Equity Noncontrolling Interest in Joint Venture Total Stockholders’ Equity
Shares Amount
Beginning balance 115.4
$ 0.1
$ 5,328.8
$ 1,696.0
$ (0.7 ) $ 7,024.2
$ 16.2
$ 7,040.4
Issuance of common stock through employee stock plans 0.2
30.8
30.8
30.8
Shares withheld related to net share settlement of equity awards —
(0.3 ) (6.1 ) (6.4 ) (6.4 )
Share-based compensation expense related to employee stock plans 81.6
81.6
81.6
Repurchase and retirement of common stock (0.4 ) (10.8 ) (189.2 ) (200.0 ) (200.0 )
Net income attributable to Intuitive Surgical, Inc. 318.3
318.3
318.3
Other comprehensive income 16.8
16.8
16.8
Net loss attributable to noncontrolling interest in joint venture —
(1.9 ) (1.9 )
Ending balance 115.2
$ 0.1
$ 5,430.1
$ 1,819.0
$ 16.1
$ 7,265.3
$ 14.3
$ 7,279.6

Three Months Ended June 30, 2018
Common Stock
Additional
Paid-In
Capital

Retained
Earnings

Accumulated
Other
Comprehensive
Loss
Total Intuitive Surgical, Inc. Stockholders’ Equity Noncontrolling Interest in Joint Venture Total Stockholders’ Equity
Shares Amount
Beginning balance 113.3
$ 0.1
$ 4,817.1
$ 698.0
$ (18.1 ) $ 5,497.1
$ 9.3
$ 5,506.4
Issuance of common stock through employee stock plans 0.5
48.7
48.7
48.7
Shares withheld related to net share settlement of equity awards (0.1 ) (0.3 ) (5.2 ) (5.5 ) (5.5 )
Share-based compensation expense related to employee stock plans 63.3
63.3
63.3
Net income attributable to Intuitive Surgical, Inc. 255.3
255.3
255.3
Other comprehensive income 1.7
1.7
1.7
Net loss attributable to noncontrolling interest in joint venture —
(0.7 ) (0.7 )
Ending balance 113.7
$ 0.1
$ 4,928.8
$ 948.1
$ (16.4 ) $ 5,860.6
$ 8.6
$ 5,869.2


	Three Months Ended March 31, 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	1.1			91.3						91.3				91.3
Shares withheld related to net share settlement of equity awards	(0.3)			(6.7)		(142.2)				(148.9)				(148.9)
Share-based compensation expense related to employee stock plans				90.6						90.6				90.6
Repurchase and retirement of common stock	(0.2)			(5.2)		(94.8)				(100.0)				(100.0)
Net income attributable to Intuitive Surgical, Inc.						313.5				313.5				313.5
Other comprehensive income (loss)								(3.5)		(3.5)		0.2		(3.3)

Net income attributable to noncontrolling interest in joint venture										—		2.7		2.7
Ending balance	116.6	$	0.1	$	5,926.8	$	2,570.9	$	8.9	$	8,506.7	$	23.8	$	8,530.5

	Three Months Ended March 31, 2019
	Common Stock					Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Total Intuitive Surgical, Inc. Stockholders’ Equity		Noncontrolling Interest in Joint Venture		Total Stockholders’ Equity
	Shares	Amount
Beginning balance	114.5	$	0.1	$	5,170.3	$	1,521.7	$	(13.3)	$	6,678.8	$	8.7	$	6,687.5

Issuance of common stock through employee stock plans	1.2			88.8						88.8				88.8
Shares withheld related to net share settlement of equity awards	(0.3)			(6.4)		(132.2)				(138.6)				(138.6)
Share-based compensation expense related to employee stock plans				76.1						76.1				76.1
Net income attributable to Intuitive Surgical, Inc.						306.5				306.5				306.5
Other comprehensive income								12.6		12.6				12.6
Capital contribution from noncontrolling interest										—		10.0		10.0
Net loss attributable to noncontrolling interest in joint venture										—		(2.5)		(2.5)
Ending balance	115.4	$	0.1	$	5,328.8	$	1,696.0	$	(0.7)	$	7,024.2	$	16.2	$	7,040.4

Six Months Ended June 30, 2019
Common Stock
Additional
Paid-In
Capital

Retained
Earnings

Accumulated
Other
Comprehensive
Income (Loss)
Total Intuitive Surgical, Inc. Stockholders’ Equity Noncontrolling Interest in Joint Venture Total Stockholders’ Equity
Shares Amount
Beginning balance 114.5
$ 0.1
$ 5,170.3
$ 1,521.7
$ (13.3 ) $ 6,678.8
$ 8.7
$ 6,687.5
Issuance of common stock through employee stock plans 1.4
119.6
119.6
119.6
Shares withheld related to net share settlement of equity awards (0.3 ) (6.7 ) (138.3 ) (145.0 ) (145.0 )
Share-based compensation expense related to employee stock plans 157.7
157.7
157.7
Repurchase and retirement of common stock (0.4 ) (10.8 ) (189.2 ) (200.0 ) (200.0 )
Net income attributable to Intuitive Surgical, Inc. 624.8
624.8
624.8
Other comprehensive income 29.4
29.4
29.4
Capital contribution from noncontrolling interest —
10.0
10.0
Net loss attributable to noncontrolling interest in joint venture —
(4.4 ) (4.4 )
Ending balance 115.2
$ 0.1
$ 5,430.1
$ 1,819.0
$ 16.1
$ 7,265.3
$ 14.3
$ 7,279.6

Six Months Ended June 30, 2018
Common Stock
Additional
Paid-In
Capital

Retained
Earnings

Accumulated
Other
Comprehensive
Loss
Total Intuitive Surgical, Inc. Stockholders’ Equity Noncontrolling Interest in Joint Venture Total Stockholders’ Equity
Shares Amount
Beginning balance 112.3
$ 0.1
$ 4,679.2
$ 115.0
$ (15.5 ) $ 4,778.8
$ 1.6
$ 4,780.4
Adoption of new accounting standards 392.1
(1.3 ) 390.8
390.8
Issuance of common stock through employee stock plans 1.7
134.9
134.9
134.9
Shares withheld related to net share settlement of equity awards (0.3 ) (6.1 ) (101.9 ) (108.0 ) (108.0 )
Share-based compensation expense related to employee stock plans 120.8
120.8
120.8
Net income attributable to Intuitive Surgical, Inc. 542.9
542.9
542.9
Other comprehensive income 0.4
0.4
0.4
Capital contribution from noncontrolling interest —
8.0
8.0
Net loss attributable to noncontrolling interest in joint venture —
(1.0 ) (1.0 )
Ending balance 113.7
$ 0.1
$ 4,928.8
$ 948.1
$ (16.4 ) $ 5,860.6
$ 8.6
$ 5,869.2

Stock Repurchase Program

The Company’s Board of Directors (the “Board”) has authorized an aggregate of $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 January 2019 when the Board increased the authorized amount available under the Repurchase Program to $2.0 billion. As of ~~June 30, 2019,~~March 31, 2020, the remaining amount of share repurchases authorized by the Board was ~~approximately $1.8~~$1.6 billion.

Table of Contents

The following table provides share repurchase activities (in millions, except per share amounts):

Three Months Ended June 30, Six Months Ended June 30,
2019 2018 2019 2018
Shares repurchased 0.4
—
0.4
—
Average price per share $ 477.44
$ —
$ 477.44
$ —
Value of shares repurchased $ 200.0
$ —
$ 200.0
$ —


	Three Months Ended March 31,
	2020		2019
Shares repurchased	0.2		—
Average price per share	$	521.83	$	—
Value of shares repurchased	$	100.0	$	—

Accumulated Other Comprehensive Income (Loss) Attributable to Intuitive

The components of accumulated other comprehensive income (loss), net of tax, attributable to Intuitive are as follows (in millions):


	Three Months Ended March 31, 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	$	—	$	(8.7)	$	12.4
Other comprehensive income (loss) before reclassifications	2.8		16.8		(20.6)		—		(1.0)
Amounts reclassified from accumulated other comprehensive income (loss)	(1.7)		(1.0)		—		0.2		(2.5)
Net current-period other comprehensive income (loss)	1.1		15.8		(20.6)		0.2		(3.5)
Ending balance	$	1.8	$	36.2	$	(20.6)	$	(8.5)	$	8.9

	Three Months Ended March 31, 2019
	Gains (Losses) on Hedge Instruments		Unrealized Gains (Losses) on Available-for-Sale Securities		Foreign Currency Translation Gains (Losses)		Employee Benefit Plans		Total
Beginning balance	$	0.2	$	(9.8)	$	(0.3)	$	(3.4)	$	(13.3)
Other comprehensive income (loss) before reclassifications	3.5		11.6		(0.4)		(0.1)		14.6
Amounts reclassified from accumulated other comprehensive income (loss)	(2.1)		—		—		0.1		(2.0)
Net current-period other comprehensive income (loss)	1.4		11.6		(0.4)		—		12.6
Ending balance	$	1.6	$	1.8	$	(0.7)	$	(3.4)	$	(0.7)

Three Months Ended June 30, 2019

Gains (Losses)
on Hedge
Instruments
Unrealized Gains
(Losses) on Available-for-Sale Securities
Foreign
Currency
Translation
Gains (Losses)
Employee Benefit Plans Total
Beginning balance $ 1.6
$ 1.8
$ (0.7 ) $ (3.4 ) $ (0.7 )
Other comprehensive income (loss) before reclassifications (0.2 ) 18.0
(0.1 ) —
17.7
Amounts reclassified from accumulated other comprehensive income (loss) (0.9 ) (0.1 ) —
0.1
(0.9 )
Net current-period other comprehensive income (loss) (1.1 ) 17.9
(0.1 ) 0.1
16.8
Ending balance $ 0.5
$ 19.7
$ (0.8 ) $ (3.3 ) $ 16.1

Three Months Ended June 30, 2018

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 ) $ (17.5 ) $ 6.8
$ (4.2 ) $ (18.1 )
Other comprehensive income (loss) before reclassifications 6.2
0.8
(5.9 ) (0.3 ) 0.8
Amounts reclassified from accumulated other comprehensive income (loss) 0.4
—
—
0.5
0.9
Net current-period other comprehensive income (loss) 6.6
0.8
(5.9 ) 0.2
1.7
Ending balance $ 3.4
$ (16.7 ) $ 0.9
$ (4.0 ) $ (16.4 )

Table of ~~da Vinci procedures.~~Contents

U.S. General Surgery. Growth in U.S. general surgery procedures continued to drive the majority of incremental procedures during the ~~six~~three months ended ~~June 30, 2019. Ventral~~March 31, 2020. Inguinal and ~~inguinal~~ventral hernia repairs contributed the most incremental ~~cases~~procedures during the ~~six~~three months ended ~~June 30, 2019,~~March 31, 2020, as they did in ~~2018~~2019 and ~~2017.~~2018. 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 surgical complexity associated with treatment of various 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 XiSurgical System,~~ EndoWrist ~~Stapler, EndoWrist Vessel Sealer,~~Staplers, energy devices, and Integrated Table Motion.

In recent quarters, we have seen increasing contributions to growth from other U.S. general surgery procedures, including cholecystectomy and bariatric procedures. Our ~~third quarter 2018~~ introduction of the SureForm 60mm stapler product ~~provides~~in the third quarter of 2018 has provided surgeons a better optimized robotic tool ~~set~~ for bariatric procedures.

U.S. Gynecology. ~~Growth in~~U.S. gynecology procedures declined modestly during the ~~six~~three months ended ~~June 30, 2019, increased modestly~~March 31, 2020, compared to ~~2018 driven~~2019. The decline reflects significant procedure disruption caused by ~~higher growth~~the COVID-19 pandemic, as noted in ~~benign hysterectomy procedures, partially offset by moderating growth in hysterectomy for cancer.~~the COVID-19 Pandemic section above. Combining robotic, laparoscopic, and vaginal approaches, MIS represents about 80% of the U.S. hysterectomy market for benign conditions. We believe that our growth in gynecologic procedures over the past several years has primarily been driven by consolidation of gynecologic procedures into higher volume surgeons that focus on cancer and complex surgeries.

Global Urology. Global urology procedures have also been a strong contributor to our overall procedure growth. In the U.S., dVP is the standard of care for the surgical treatment of prostate cancer, and we believe growth is largely aligned with surgical volumes of prostate cancer. For OUS, dVP is at various stages of adoption in different areas of the world but is the largest overall da Vinci procedure. ~~Year-to-date 2019~~The first quarter 2020 growth in OUS dVP was ~~consistent with~~approximately two thirds of the growth in ~~2018.~~2019, which is primarily due to the significant procedure disruption caused by the COVID-19 pandemic, as noted in the COVID-19 Pandemic section above.

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

OUS Procedures. ~~Year-to-date 2019~~The first quarter 2020 OUS procedure growth rate reflects continued da Vinci adoption in European and Asian markets. In 2018 and ~~year-to-date~~through the first quarter of 2019, procedure growth in China moderated, as the previous systems quota expired at the end of 2015 and systems installed in China ~~are~~were highly utilized. In October 2018, the China National Health Commission announced a new quota to allow the sale of 154 new surgical robots into China through 2020, which could include da Vinci Surgical Systems. This quota applies to the da Vinci Si and recently approved Xi Surgical Systems (refer to the previous discussion in the “Clearances and Approvals” section), as well as competitors’ products when and if cleared by NMPA. Sales of da Vinci Surgical Systems under the quota are uncertain, as they are dependent on provincial allocation processes and hospitals completing a tender process and receiving associated approvals. In the last three quarters of 2019, procedure growth in China accelerated, as initial systems placed during these quarters provided additional capacity in the field. However, due to the COVID-19 outbreak in China during the first quarter of 2020, as noted in the COVID-19 Pandemic section above, the procedure volume decreased by 23% as compared to the first quarter of 2019. In Japan, we ~~have~~ experienced strong procedure growth ~~since~~after receiving the national reimbursements for dVP and partial ~~nephrectomy.~~nephrectomy in 2012 and 2016, respectively. However, as adoption for these procedures has progressed towards higher levels of penetration, growth in these two urologic procedures has moderated. A total of 12 additional da Vinci procedures were granted national reimbursement status effective April 1, 2018, including gastrectomy, anterior resection, lobectomy, and hysterectomy, for both malignant and benign conditions. Procedure growth in Japan has accelerated since the new procedures were granted reimbursement status. However, these additional 12 reimbursed procedures have varying levels of conventional laparoscopic penetration and are reimbursed at rates equal to the conventional laparoscopic procedures. Given the reimbursement level and laparoscopic penetration for these procedures, there can be no assurance that adoption will occur or that the adoption pace for these procedures will be similar to any other da Vinci procedure. If these procedures are not adopted and we are not successful in obtaining adequate procedure reimbursement for additional procedures, then the demand for our products in Japan could be limited. During the first quarter of 2020, the impact of the COVID-19 pandemic on procedure volume in Japan was limited. In Italy, France, Germany, and Western Europe, while procedure volume continued to grow during the first quarter of 2020 as compared to the first quarter of 2019, the growth was negatively impacted by the COVID-19 pandemic, as noted in the COVID-19 Pandemic section above.

Table of Contents

System Demand

Future demand for da Vinci Surgical Systems will be impacted by a number of factors, including economic and geopolitical factors, including the impact of the current COVID-19 pandemic, as noted in the COVID-19 Pandemic section above, hospital response to the evolving ~~health care~~healthcare environment under the current U.S. administration, procedure growth rates, hospital consolidation trends, evolving system utilization and point of care dynamics, capital replacement trends, additional reimbursements in various global markets, including Japan, the timing around governmental tenders and authorizations, including 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, and market ~~response as well as other economic and geopolitical factors.~~ response.

Market acceptance of our recently launched da Vinci SP Surgical System and the nature and timing of additional da Vinci SP regulatory indications may also impact future 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, but not limited ~~to:~~to, Avatera Medical GmbH; CMR Surgical Limited; Johnson & Johnson (including their ~~recent acquisition of~~wholly owned subsidiaries Auris Health, Inc. and Verb Surgical Inc.); Medicaroid Inc.; MedRobotics Corp.; Medtronic ~~PLC.;~~plc; meerecompany Inc.; Olympus Corp.; Samsung Corporation; Smart Robot Technology Group Co. Ltd.; Titan Medical, Inc.; TransEnterix, Inc.~~; Verb Surgical Inc. (a joint venture between Johnson & Johnson and Google Inc.)~~; and Wego Holding Co., Ltd.

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

New Product Introductions

SynchroSeal and E100 Generator. In November 2019, we obtained FDA clearance for our SynchroSeal instrument and 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 and Xi Surgical Systems. The generator delivers high frequency energy for cutting, coagulation, and vessel sealing of tissues.

SureForm 45 Curved-Tip and Gray Reload. In July 2019, we obtained FDA clearance for the SureForm 45 Curved-Tip stapler and 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. 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 SureForm 45 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 in Europe 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. The da Vinci Endoscope Plus leverages new sensor technology to allow for increased sharpness and color accuracy.

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. We are introducing the da Vinci Handheld Camera in a measured fashion with a broad launch expected in mid-2020.

Ion endoluminal system. In February 2019, we obtained ~~U.S.~~ FDA clearance for the 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. The Ion system uses an ultra-thin articulating robotic catheter that can ~~move~~articulate 180 degrees in all directions. The outer diameter of the catheter is 3.5mm, which allows physicians ~~can~~to navigate through small and tortuous airways to reach nodules in ~~any~~most airway ~~segment~~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 peripheral lung. The 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 a measured fashion while we optimize training pathways and our supply chain and collect additional clinical data. We ~~anticipate~~have placed 18 Ion systems for commercial ~~shipments~~use as of March 31, 2020.

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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 ~~begin by~~aid surgeons in both the ~~end~~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.

SureForm 60 and SureForm 45 Staplers. In July 2018, we obtained FDA clearance for the SureForm 60 instrument with White, Blue, Green, and Black 60mm reloads. In January 2019, we obtained FDA clearance for the SureForm 45 instrument with White, Blue, Green, and Black 45mm reloads. Additionally, we received regulatory clearance in South Korea for the SureForm 60 instrument and 60mm reloads in June 2018 and July 2018, respectively, and for the SureForm 45 instrument and 45mm reloads in June 2019 and September 2019, respectively. Also, we received regulatory clearance in Japan for the SureForm 60 instrument and 60mm reloads in June 2018 and November 2018, respectively, and for the SureForm 45 instrument and 45mm reloads in September 2019. The SureForm 60 and SureForm 45 Staplers are single-use, fully wristed stapling instruments intended for resection, transection, and/or creation of anastomoses. The SureForm 60 instrument has particular utility in bariatric procedures, while the SureForm 45 instrument has particular utility in colorectal procedures. The SureForm 60 and SureForm 45 Staplers broaden our existing stapler product line, which also includes EndoWrist Stapler 45 with White, Blue, and Green, 45mm reloads and EndoWrist Stapler 30 with White, Blue, Green, and Gray 30mm reloads. Not all reloads or staplers are available for use on all systems or in all countries.

Da Vinci SP Surgical System. In May 2018, we obtained ~~U.S.~~ FDA clearance for the da Vinci SP Surgical System for urologic surgical procedures that are appropriate for a single port ~~approach.~~approach. In March 2019, we ~~received U.S.~~obtained FDA clearance for the da Vinci SP Surgical System for certain transoral procedures. The da Vinci SP ~~system~~Surgical System includes three, multi-jointed, wristed instruments and the first da Vinci fully wristed, 3DHD camera. The instruments and the camera all emerge through a single cannula and are triangulated around the target anatomy to avoid external instrument collisions that can occur in narrow surgical workspaces. The system enables flexible port placement and broad internal and external range of motion (e.g. ~~360-degrees~~, 360 degrees of anatomical access) through the single SP arm. Surgeons control the fully articulating instruments and the camera on the da Vinci SP system, which uses the same fourth generation surgeon console as the da Vinci X and Xi systems. The da Vinci SP ~~system~~Surgical System provides surgeons with robotic-assisted technology designed for deep and narrow access to tissue in the body. We anticipate pursuing further regulatory clearances for the da Vinci SP Surgical System, including colorectal applications, broadening the applicability of the SP platform over time. We ~~are introducing~~continue to introduce the da Vinci SP Surgical System in a measured fashion while we optimize training pathways and our supply chain. We have ~~placed 34~~an installed base of 47 da Vinci SP Surgical Systems ~~with customers through June 30, 2019.~~

~~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~~as of the most advanced fourth generation da Vinci 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. For new customers, the da Vinci X System provides a cost effective capital entry point while providing a pathway for upgrading to other fourth generation systems. Existing customers may negotiate to trade in their older da Vinci systems in order to standardize their robotics programs onto the fourth generation platform, and choosing which system model by considering clinical and economic factors.

The da Vinci X enables optimized, focused-quadrant surgery including procedures like prostatectomy, hernia repair, and benign hysterectomy, among others. The system features flexible port placement and 3D digital optics, while incorporating the same advanced instruments and accessories as the da Vinci Xi. The da Vinci X 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.

~~SureForm 60 and SureForm 45 Staplers.~~ In July 2018, we received U.S. FDA clearance in the U.S. for SureForm 60 instrument with White, Blue, Green, and Black 60mm reloads. In January 2019, we received U.S. FDA clearance for SureForm 45 instrument with White, Blue, Green, and Black 45mm reloads. The SureForm 60 and SureForm 45 are single-use, fully wristed, stapling instruments intended for resection, transection, and/or creation of anastomoses. The SureForm 60 has particular utility in bariatric procedures, while the SureForm 45 has particular utility in colorectal procedures. SureForm 60 and SureForm 45 broaden our existing stapler product line, which also includes EndoWrist Stapler 45 with White, Blue, and Green, 45mm reloads and EndoWrist 30 with White, Blue, Green, and Gray 30mm reloads. Not all reloads or staplers are available for use on all systems or in all countries.March 31, 2020.

Da Vinci Vessel Sealer Extend. In April 2018, we ~~received U.S.~~obtained FDA clearance for da Vinci Vessel Sealer Extend, our newest instrument in the Vessel Sealing family of products. Da Vinci Vessel Sealer Extend is a single-use, fully wristed bipolar electrosurgical instrument compatible with our fourth generation multiport systems. It is intended for grasping and blunt dissection of tissue and for bipolar coagulation and mechanical transection of vessels up to 7mm in diameter and tissue bundles that fit in the jaws of the instrument.

~~IRIS.~~Acquisition of Orpheus Medical

In February ~~2019,~~2020, we ~~obtained U.S. FDA clearance~~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 processing and archiving surgical videos. Orpheus Medical will be a wholly owned subsidiary of Intuitive.

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First Quarter 2020 Operational and Financial Highlights

•Total revenue increased by 13% to $1,100 million 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~~three months ended March 31, 2020, compared with $974 million for 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.~~three months ended March 31, 2019.

~~Da Vinci Handheld Camera.~~•Approximately 309,000 In June 2019, we obtained U.S. FDA clearance for our da Vinci Handheld Camera. The da Vinci Handheld Camera is 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~~were performed during the three months ended March 31, 2020, an increase of ~~a laparoscope. We plan to launch and begin commercial activities~~10% compared with approximately 282,000 for the three months ended March 31, 2019.

•In early February 2020, procedures per week in China declined by approximately 90% compared with the weekly procedure rates experienced in early January 2020. As the COVID-19 pandemic subsided in China in March 2020, da Vinci ~~Handheld Camera~~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.

•We experienced a significant decline in da Vinci procedures in the last half of March 2020. Procedures per week in the U.S. declined approximately 65% compared with the weekly procedure rate experienced earlier in the first quarter of 2020. Procedures in France, Germany, and the UK also declined compared with the weekly procedure rate experienced earlier in the first quarter of 2020 but to a lesser extent than in the U.S.

•Instruments and accessories revenue increased by 12% to $618 million for the three months ended March 31, 2020, compared with $552 million for the three months ended March 31, 2019.

~~Acquisition~~•Systems revenue increased by 14% to $283 million for the three months ended March 31, 2020, compared with $248 million during the three months ended March 31, 2019.

•A total of ~~Certain Assets from Schölly Fiberoptic~~237 da Vinci Surgical Systems were shipped during the three months ended March 31, 2020, an increase of 1% compared with 235 systems during the three months ended March 31, 2019.

~~In July 2019,~~•As of March 31, 2020, we ~~entered into an agreement to acquire certain assets and operations from Schölly Fiberoptic GmbH (“Schölly”),~~had a ~~supplier of endoscopes and other visualization equipment, for cash consideration~~da Vinci Surgical System installed base of approximately ~~$100 million (the “Schölly Acquisition”). The exact amount~~5,669 systems, an increase of approximately 11% compared with the ~~purchase consideration and timing~~installed base of approximately 5,114 systems as of March 31, 2019.

•During the ~~closing of the Schölly Acquisition is subject to certain substantive closing conditions.~~three months ended March 31, 2020, we placed 8 Ion systems for commercial use.

The process to manufacture endoscopes is complex, and it cannot be assured that we can successfully integrate the endoscope manufacturing operations subsequent to the closing of the Schölly Acquisition. For example, we may be unable to retain the employees of Schölly or its current suppliers. The integration process will be complex and involves the integration of manufacturing operations across multiple sites globally. The integration may require expenses and time in excess of expectations. Integrating the Schölly Acquisition will also involve getting certain regulatory approvals and re-certification of manufacturing sites. If we cannot successfully integrate or manufacture endoscopes subsequent to the Schölly Acquisition, it may have an adverse impact on our business, financial condition, results of operations, or cash flows.

~~Second Quarter 2019 Financial Highlights~~


•	~~Total revenue increased by 21% to $1,098.9 million during the three months ended~~ ~~June 30, 2019, compared with $909.3 million during the three months ended~~ ~~June 30, 2018~~.


•	~~Approximately 301,000da Vinci procedures were performed during the three months ended June 30, 2019, an increase of approximately 17% compared with approximately 257,000 for the three months ended June 30, 2018.~~


•	~~Instrument and accessory revenue increased by 22% to $578.5 million during the three months ended~~ ~~June 30, 2019, compared with $476.1 million during the three months ended~~ ~~June 30, 2018~~.


•	~~Systems revenue increased by 24% to $343.8 million during the three months ended~~ ~~June 30, 2019, compared with $277.4 million during the three months ended~~ ~~June 30, 2018~~.


•	~~A total of 273 da Vinci Surgical Systems were shipped during the three months ended~~ ~~June 30, 2019, an increase of 24% compared with 220 during the three months ended~~ ~~June 30, 2018. As of June 30, 2019, we had a da Vinci Surgical System installed base of approximately 5,270 systems, an increase of approximately 13% compared with the installed base as of June 30, 2018.~~

Gross profit as a percentage of revenue was ~~69.1%~~67.1% for the three months ended ~~June 30, 2019,~~March 31, 2020, compared with ~~69.5%~~68.8% for the three months ended ~~June 30, 2018.~~March 31, 2019.

•

~~Operating income increased by 29% to $359.0~~

•Operating income increased by 12% to $283 million for the three months ended March 31, 2020, compared with $252 million during the three months ended March 31, 2019. Operating income included $91.2 million and $76.9 million of share-based compensation expense related to employee stock plans and $13.3 million and $30.2 million of intangible asset-related charges for the three months ended March 31, 2020, and 2019, respectively.

•~~June 30, 2019, compared with $277.4 million during the three months ended~~ ~~June 30, 2018~~. Operating income for the three months ended June 30, 2018, included pre-tax litigation related charges of $42.5 million. Operating income included $82.0 million and $63.6 million of share-based compensation expense related to employee stock plans during the three months ended June 30, 2019, and 2018, respectively. Operating income included intangible asset charges of $10.6 million and $5.6 million for the three months ended June 30, 2019 and 2018, respectively.

As of ~~June 30, 2019,~~March 31, 2020, we had ~~$5.1~~$5.9 billion in cash, cash equivalents, and investments. Cash, cash equivalents, and investments increased by ~~$313.8 million,~~$0.1 billion, compared with December 31, ~~2018,~~2019, primarily as a result of cash generated from operating activities, partially offset by share repurchases and capital expenditures.

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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 March 31,
	2020		% of total revenue		2019		% of total revenue
Revenue:
Product	$	900.8	82	%	$	799.8	82	%
Service	198.7		18	%	173.9		18	%
Total revenue	1,099.5		100	%	973.7		100	%
Cost of revenue:
Product	296.7		27	%	246.4		25	%
Service	64.6		6	%	57.7		6	%
Total cost of revenue	361.3		33	%	304.1		31	%
Product gross profit	604.1		55	%	553.4		57	%
Service gross profit	134.1		12	%	116.2		12	%
Gross profit	738.2		67	%	669.6		69	%
Operating expenses:
Selling, general and administrative	308.1		28	%	273.4		28	%
Research and development	147.1		13	%	144.0		15	%
Total operating expenses	455.2		41	%	417.4		43	%
Income from operations	283.0		26	%	252.2		26	%
Interest and other income, net	25.1		2	%	27.5		3	%
Income before taxes	308.1		28	%	279.7		29	%
Income tax expense	(8.1)		(1)	%	(24.3)		(2)	%
Net income	316.2		29	%	304.0		31	%
Less: net income (loss) attributable to noncontrolling interest in joint venture	2.7		—	%	(2.5)		—	%
Net income attributable to Intuitive Surgical, Inc.	$	313.5	29	%	$	306.5	31	%

Three Months Ended June 30, Six Months Ended June 30,
2019
% of total
revenue
2018
% of total
revenue
2019
% of total
revenue
2018
% of total
revenue
Revenue:
Product $ 922.3
84 % $ 753.5
83 % $ 1,722.1
83 % $ 1,448.3
82 %
Service 176.6
16 % 155.8
17 % 350.5
17 % 308.5
18 %
Total revenue 1,098.9
100 % 909.3
100 % 2,072.6
100 % 1,756.8
100 %
Cost of revenue:
Product 283.4
26 % 228.1
25 % 529.8
25 % 429.6
24 %
Service 56.5
5 % 48.9
5 % 114.2
6 % 101.1
6 %
Total cost of revenue 339.9
31 % 277.0
30 % 644.0
31 % 530.7
30 %
Product gross profit 638.9
58 % 525.4
58 % 1,192.3
58 % 1,018.7
58 %
Service gross profit 120.1
11 % 106.9
12 % 236.3
11 % 207.4
12 %
Gross profit 759.0
69 % 632.3
70 % 1,428.6
69 % 1,226.1
70 %
Operating expenses:
Selling, general and administrative 279.2
25 % 259.8
29 % 552.6
27 % 481.4
27 %
Research and development 120.8
11 % 95.1
10 % 264.8
13 % 190.6
11 %
Total operating expenses 400.0
36 % 354.9
39 % 817.4
40 % 672.0
38 %
Income from operations 359.0
33 % 277.4
31 % 611.2
29 % 554.1
32 %
Interest and other income, net 32.8
3 % 18.2
2 % 60.3
3 % 31.4
1 %
Income before taxes 391.8
36 % 295.6
33 % 671.5
32 % 585.5
33 %
Income tax expense 75.4
7 % 41.0
5 % 51.1
2 % 43.6
2 %
Net income 316.4
29 % 254.6
28 % 620.4
30 % 541.9
31 %
Less: net loss attributable to noncontrolling interest in joint venture (1.9 ) — % (0.7 ) — % (4.4) — % (1.0 ) — %
Net income attributable to Intuitive Surgical, Inc. $ 318.3
29 % $ 255.3
28 % $ 624.8
30 % $ 542.9
31 %

Total Revenue

Total revenue ~~was $1,098.9~~increased by 13% to $1,100 million for the three months ended ~~June 30, 2019,~~March 31, 2020, compared with ~~$909.3~~$974 million for the three months ended ~~June 30, 2018,~~March 31, 2019, resulting from ~~22%~~12% higher ~~instrument~~instruments and ~~accessory~~accessories revenue, driven by ~~approximately 17%~~10% higher procedure volume, ~~24%~~14% higher systems revenue, and ~~13%~~14% higher service revenue.

Revenue denominated in foreign currencies as a percentage of total revenue was approximately ~~17%~~21% and ~~18%~~19% for the three ~~and six~~ months ended ~~June 30,~~March 31, 2020, and 2019, ~~respectively, and 19% and 20% for the three and six months ended June 30, 2018,~~ respectively. We generally sell our products and services in local currencies where we have direct distribution channels. Foreign currency rate fluctuations did not have a material impact on total revenue for the three months ended ~~June 30, 2019,~~March 31, 2020, as compared with the three months ended ~~June 30, 2018.~~March 31, 2019.

Revenue generated in the U.S. accounted for 71% of total revenue for both three ~~and six~~ months ended ~~June 30, 2019, respectively,~~March 31, 2020, and ~~71% and 69% for the three and six months ended June 30, 2018, respectively.~~2019. We believe that U.S. revenue has accounted for the large majority of total revenue due to U.S. patients’ ability to choose their provider and method of treatment, 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 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 and causes strain on hospital resources, coupled with recommended deferrals of elective procedures, we expect procedures and system placements to decline significantly in the second quarter of 2020. We cannot reliably estimate the extent to which the COVID-19 pandemic will impact procedures and system placements in the second quarter and beyond.

Table of Contents

The following table summarizes our revenue and ~~da Vinci Surgical System~~system unit shipments for the three ~~and six~~ months ended ~~June 30,~~March 31, 2020, and 2019, ~~and 2018,~~ respectively (in millions, except percentages and unit shipments):


	Three Months Ended March 31,
	2020			2019
Revenue
Instruments and accessories	$	617.5		$	552.3
Systems	283.3			247.5
Total product revenue	900.8			799.8
Services	198.7			173.9
Total revenue	$	1,099.5		$	973.7
United States	$	781.6		$	691.6
OUS	317.9			282.1
Total revenue	$	1,099.5		$	973.7
% of Revenue – U.S.	71		%	71		%
% of Revenue – OUS	29		%	29		%

Instruments and accessories	$	617.5		$	552.3
Services	198.7			173.9
Operating lease revenue	39.1			20.4
Total recurring revenue	$	855.3		$	746.6
% of Total revenue	78		%	77		%

Da Vinci Surgical Systems Shipments by Region:
U.S. unit shipments	182			154
OUS unit shipments	55			81
Total unit shipments*	237			235
*Systems shipped under operating leases (included in total unit shipments)	77			78

Ion Systems Shipments	8			—

Da Vinci Surgical Systems Shipments involving System Trade-ins:
Unit shipments involving trade-ins	136			85
Unit shipments not involving trade-ins	101			150

Three Months Ended June 30,
Six Months Ended June 30,
2019
2018
2019
2018
Revenue
Instruments and accessories $ 578.5
$ 476.1
$ 1,130.8
$ 936.4
Systems 343.8
277.4
591.3
511.9
Total product revenue 922.3
753.5
1,722.1
1,448.3
Services 176.6
155.8
350.5
308.5
Total revenue $ 1,098.9
$ 909.3
$ 2,072.6
$ 1,756.8
United States $ 785.3
$ 644.7
$ 1,476.9
$ 1,217.1
OUS 313.6
264.6
595.7
539.7
Total revenue $ 1,098.9
$ 909.3
$ 2,072.6
$ 1,756.8
% of Revenue - U.S. 71 % 71 % 71 % 69 %
% of Revenue - OUS 29 % 29 % 29 % 31 %

Instruments and accessories $ 578.5
$ 476.1
$ 1,130.8
$ 936.4
Services 176.6
155.8
350.5
308.5
Operating lease revenue 25.1
11.5
45.5
21.0
Total recurring revenue $ 780.2
$ 643.4
$ 1,526.8
$ 1,265.9
% of Total revenue 71 % 71 % 74 % 72 %

Unit Shipments by Region:
U.S. unit shipments 193
138
347
250
OUS unit shipments 80
82
161
155
Total unit shipments* 273
220
508
405
*Systems shipped under operating leases (included in total unit shipments) 88
44
166
87

Unit Shipments involving System Trade-ins:
Unit shipments involving trade-ins 103
74
188
131
Unit shipments not involving trade-ins 170
146
320
274

Product Revenue

~~Three months ended June 30, 2019~~

Product revenue increased by ~~22%~~13% to ~~$922.3~~$901 million for the three months ended ~~June 30, 2019~~,March 31, 2020, compared with ~~$753.5~~$800 million for the three months ended ~~June 30, 2018~~.March 31, 2019.

~~Instrument~~Instruments and ~~accessory~~accessories revenue increased by ~~22%~~12% to ~~$578.5~~$618 million for the three months ended ~~June 30, 2019~~,March 31, 2020, compared with ~~$476.1~~$552 million for the three months ended ~~June 30, 2018~~.March 31, 2019. The increase in ~~instrument~~instruments and ~~accessory~~accessories revenue was driven primarily by procedure growth of ~~approximately 17% and higher~~10%, incremental sales of our advanced ~~instruments. Second~~instruments, and customer buying patterns. First quarter ~~2019~~2020 U.S. procedure growth of ~~approximately 16%~~9% was driven by strong growth in general surgery procedures, most notably hernia repair, cholecystectomy, colorectal, ~~cholecystectomy,~~ and bariatric procedures, and thoracic procedures ~~and a moderate~~as well as slower growth in the more mature ~~gynecologic and~~ urologic ~~procedures categories.~~procedure category. OUS procedure growth ~~was approximately 20% for~~in the ~~second~~first quarter of ~~2019,~~2020 was 11% and was driven by continued growth in ~~dVP~~urologic procedures and earlier stage growth in general surgery ~~gynecology,~~ and ~~kidney cancer~~gynecology procedures. Geographically, ~~second~~first quarter ~~2019~~2020 OUS procedure growth was driven by procedure expansion in Japan, Korea, and Germany ~~France, and Japan.~~with varying results in other countries, including a 23% decline in procedures in China as a result of the COVID-19 pandemic.

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Systems revenue increased by ~~24%~~14% to ~~$343.8~~$283 million for the three months ended ~~June 30, 2019,~~March 31, 2020, compared with ~~$277.4~~$248 million for the three months ended ~~June 30, 2018.~~March 31, 2019. Higher ~~second~~first quarter ~~2019~~2020 systems revenue was primarily driven by higher system shipments, higher ~~lease buyouts, higher second~~first quarter ~~2019~~2020 ASPs, and higher ~~leasing related~~operating lease revenue, ~~partly~~partially offset by ~~a higher proportion of system shipments under operating leases.~~lower lease buyouts.

During the ~~second~~first quarter of ~~2019,~~2020, a total of ~~273 systems~~237 da Vinci Surgical Systems were shipped compared with ~~220~~235 systems during the ~~second~~first quarter of ~~2018.~~2019. By geography, ~~193~~182 systems were shipped into the U.S., 3025 into Europe, 4027 into Asia, and 103 into other markets during the ~~second~~first quarter of ~~2019~~2020, compared with ~~138~~154 systems shipped into the U.S., 3949 into Europe, 2321 into Asia, and 2011 into other markets during the ~~second~~first quarter of ~~2018.~~2019. The increase in systems shipments was primarily driven by procedure growth, the need for hospitals to expand or establish capacity, and more customers trading in older da Vinci models for fourth generation da Vinci Xi and da Vinci X systems.

We shipped 99121 and ~~52 systems~~81 da Vinci Surgical Systems under lease arrangements, of which 8877 and 4478 systems were classified as operating leases infor the three months ended ~~June 30,~~March 31, 2020, and 2019, ~~and 2018,~~ respectively. Operating lease revenue was ~~$25.1~~$39.1 million for the three months ended ~~June 30, 2019,~~March 31, 2020, compared with ~~$11.5~~$20.4 million for the three months ended ~~June 30, 2018.~~March 31, 2019. Systems placed as operating leases represented 32% of total shipments during the ~~second~~first quarterof~~2019,~~ 2020, compared with ~~20%~~33% during the ~~second~~first quarter of ~~2018.~~2019. A total ~~486~~721 of da Vinci Surgical Systems were installed at customers under operating lease or usage-based arrangements as of ~~June 30,~~March 31, 2020, compared with 423 as of March 31, 2019. Revenue from Lease Buyouts was ~~$26.5~~$12.2 million for the three months ended ~~June 30, 2019,~~March 31, 2020, compared with ~~$12.5~~$12.0 million for the three months ended ~~June 30, 2018.~~March 31, 2019. 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.

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 ~~$1.54~~$1.44 million for the three months ended ~~June 30, 2019,~~March 31, 2020, compared with ~~$1.42~~approximately $1.31 million for the three months ended ~~June 30, 2018.~~March 31, 2019. The higher ~~second~~first quarter ~~2019~~2020 ASP was largely driven by favorable product and geographic ~~mix.~~mix, partially offset by higher trade-in volume. 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.

~~Six months ended June 30, 2019~~

~~Product revenue increased by 19% to $1.7 billion for the six months ended June 30, 2019, compared with $1.4 billion for the six months ended June 30, 2018.~~

Instrument and accessory revenue increased by 21% to $1,130.8 million for the six months ended June 30, 2019, compared with $936.4 million for the six months ended June 30, 2018. The increase in instrument and accessory revenue was driven by procedure growth of approximately 17% and higher sales of our advanced instruments. Year-to-date 2019 U.S. procedure growth of approximately 16% was driven by growth in general surgery procedures, most notably hernia repair, colorectal procedures, cholecystectomy, bariatric, and thoracic procedures, as well as moderate growth in more mature gynecologic and urologic procedure categories. OUS procedure growth was approximately 21% for the six months ended June 30, 2019, driven by continued growth in dVP procedures and earlier stage growth in general surgery, gynecology, and kidney cancer procedures.

Systems revenue increased by 16% to $591.3 million for the six months ended June 30, 2019, compared with $511.9 million for the six months ended June 30, 2018. Higher year-to-date 2019 systems revenue was primarily driven by higher system shipments and higher lease related revenue, partly offset by a higher number of system placements under operating lease arrangements and lower ASPs.

During the six months ended June 30, 2019, a total of 508 systems were shipped compared with 405 during the six months ended June 30, 2018. By geography, 347 systems were shipped into the U.S., 79 into Europe, 61 into Asia, and 21 into other markets during the six months ended June 30, 2019, compared with 250 systems shipped into the U.S., 84 into Europe, 39 into Asia, and 32 into other markets during the six months ended June 30, 2018.

During the six months ended June 30, 2019, 166 of the 508 systems were shipped under operating lease arrangements compared with 87 of 405 systems shipped during the six months ended June 30, 2018.

Operating lease revenue was $45.5 million for the six months ended June 30, 2019, compared with $21.0 million for the six months ended June 30, 2018. The increase in systems shipments was primarily driven by procedure growth, the need for hospitals to expand or establish capacity and more customers trading in older da Vinci models for fourth generation da Vinci Xi and da Vinci X systems.

The da Vinci Surgical System ASP, excluding the impact of systems shipped under operating leases, was approximately $1.43 million for the six months ended June 30, 2019, compared with $1.45 million for six months ended June 30, 2018. ASP fluctuates 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%~~14% to ~~$176.6~~$199 million for the three months ended ~~June 30, 2019~~,March 31, 2020, compared with ~~$155.8~~$174 million for the three months ended ~~June 30, 2018. Service revenue increased by 14% to $350.5 million for the six months ended June 30, 2019, compared with $308.5 million for the six months ended June 30, 2018.~~March 31, 2019. Higher service revenue for the three ~~and six~~ months ended ~~June 30, 2019,~~March 31, 2020, was primarily driven by a larger installed base of da Vinci Surgical Systems producing service revenue.

Gross Profit

Product gross profit for the three months ended ~~June 30, 2019,~~March 31, 2020, increased ~~22%~~9% to ~~$638.9~~$604 million, representing ~~69.3%~~67.1% of product revenue, compared with ~~$525.4~~$553 million, representing ~~69.7%~~69.2% of product revenue, for the three months ended June 30, 2018. Product gross profit for the six months ended June 30, 2019, increased 17% to $1.2 billion, representing 69.2% of product revenue, compared with $1.0 billion, representing 70.3% of product revenue, for the six months ended June 30, 2018.March 31, 2019. The higher product gross profit for the three ~~and six~~ months ended ~~June 30, 2019,~~March 31, 2020, was primarily driven by higher product ~~revenue.~~

~~Lower~~revenue, partially offset by lower product gross profit margin. The lower product gross profit margin for the three months ended ~~June 30, 2019~~March 31, 2020, was primarily driven by increased costs associated with da Vinci Si product transitions and higher freight costs as well as higher intangible assets amortization expense ~~partially offset by higher da Vinci system ASPs~~ and improved manufacturing efficiencies. Lower product gross profit margin for the six months ended June 30, 2019 was primarily driven by higher intangible assets amortization expense, lower system ASPs, partially offset by improved manufacturing efficiencies. share-based compensation expense.

Product gross profit for the three ~~and six~~ months ended ~~June 30,~~March 31, 2020, and 2019, ~~reflected~~included share-based compensation expense of ~~$11.4~~$12.8 million and ~~$22.4~~$11.0 million, respectively, ~~compared with $8.9 million~~ and ~~$17.1 million for the three and six months ended June 30, 2018, respectively. Product gross profit for the three and six months ended June 30, 2019 included~~ intangible assets amortization expense of ~~$7.7~~$8.8 million and ~~$15.0~~$7.3 million, ~~respectively, compared with $1.1 million and $2.0 million for the three and six months ended June 30, 2018,~~ respectively.

In prior periods, we were subject to the Medical Device Excise Tax (“MDET”) in the United States. MDET initially became effective on January 1, 2013 and we treated MDET as a reduction in gross profit. In December 2015, the Consolidated Appropriations Act, 2016 (the “Appropriations Act”) was signed into law. The Appropriations Act included a two-year moratorium on MDET such that medical device sales in 2016 and 2017 were exempt from the excise tax. This moratorium was extended through December 31, 2019 by the Extension of Continuing Appropriations Act of 2018, signed into law on January 22, 2018. MDET is scheduled to be reinstated on January 1, 2020.

Service gross profit for the three months ended ~~June 30, 2019,~~March 31, 2020, was ~~$120.1~~$134 million, ~~or 68.0%~~representing 67.5% of service revenue, compared with ~~$106.9~~$116 million, ~~or 68.6%~~representing 66.8% of service revenue, for the three months ended June 30, 2018. Service gross profit for the six months ended June 30, 2019, was $236.3 million, or 67.4% of service revenue, compared with $207.4 million, or 67.2% of service revenue, for the six months ended June 30, 2018.

March 31, 2019. The higher service gross profit for the three ~~and six~~ months ended ~~June 30, 2019,~~March 31, 2020, was primarily driven by higher service revenue, reflecting a larger installed base of da Vinci Surgical ~~Systems.~~Systems and higher service gross profit margin. The higher service gross profit margin for the three months ended March 31, 2020, was primarily driven by lower repair costs.

Service gross profit for the three ~~and six~~ months ended ~~June 30,~~March 31, 2020, and 2019, ~~reflected~~included share-based compensation expense of ~~$4.8~~$5.5 million and ~~$9.3~~$4.5 million, respectively, ~~compared with $4.1 million~~ and ~~$8.0 million for the three and six months ended June 30, 2018, respectively. Service gross profit for the three and six months ended June 30, 2019 included~~ intangible assets amortization expense of ~~$1.0~~$0.9 million and ~~$1.9~~$0.9 million, ~~respectively, compared with $0.2 million~~respectively.

As a result of an expected decrease in overall demand in the second quarter of 2020, we expect that our production facilities will run at less than normal capacity. Accordingly, certain labor and ~~$0.3 million for~~fixed production overhead costs will be expensed as incurred, significantly reducing our gross profit margin. We cannot reliably estimate the ~~three~~extent to which the COVID-19 pandemic will impact our overall demand in the second quarter and ~~six months ended June 30, 2018, respectively.~~beyond.

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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.

Selling, general and administrative expenses for the three months ended ~~June 30, 2019,~~March 31, 2020, increased by 7%13% to ~~$279.2~~$308 million, compared with ~~$259.8~~$273 million for the three months ended ~~June 30, 2018. Selling, general and administrative expenses for the six months ended June 30, 2019, increased~~March 31, 2019. The increase was primarily driven by ~~15% to $552.6 million, compared with $481.4 million for the six months~~

~~ended June 30, 2018. The~~ higher ~~selling, general and administrative expenses for the three and six months ended June 30, 2019, were primarily associated with~~headcount, including expansion of our ~~expanded~~ Asian and European teams, ~~including establishing our direct organizations in China, India,~~ and ~~Taiwan, and~~increased infrastructure to support our growth.

Selling, general and administrative expenses for the three ~~and six~~ months ended ~~June 30,~~March 31, 2020, and 2019, included ~~net pre-tax litigation charges of zero, compared with $42.5 million and $47.7 million for the three and six months ended June 30, 2018, respectively.~~

~~Selling, general and administrative expenses for the three and six months ended June 30, 2019 reflected~~ share-based compensation expense of ~~$40.7~~$45.7 million and ~~$79.3~~$38.6 million, respectively, ~~as compared with $32.7~~and intangible assets amortization expense of $1.7 million and ~~$62.2~~$1.2 million, respectively.

Our spending in the first quarter of 2020 reflected normal business activities into March and then a curtailment of certain costs associated with the impact of the COVID-19 pandemic. While certain spending will decrease in the second quarter of 2020 as a result of a reduction in revenue and activities limited by the COVID-19 pandemic, much of our spending will continue. We will 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. Certain costs will decline as the ~~three~~underlying activities are restricted by the COVID-19 pandemic, including travel and ~~six months ended June 30, 2018, respectively.~~ related expenses, clinical trials, surgeon training, and customer data collection. We will eliminate spending that is ineffective due to the COVID-19 pandemic, such as surgeon and hospital events, and we are pausing the hiring of volume-related roles, such as sales representatives and manufacturing employees.

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 ~~June 30, 2019,~~March 31, 2020, increased by ~~27%~~2% to ~~$120.8~~$147 million, compared with ~~$95.1~~$144 million for the three months ended June 30, 2018. Research and development expenses for the six months ended June 30, 2019, increased by 39% to $264.8 million, compared with $190.6 million for the six months ended June 30, 2018.March 31, 2019. The increase was primarily ~~due to~~driven by higher ~~personnel related~~personnel-related expenses ~~intangible asset charges,~~ and other project costs incurred to support a broader set of product development initiatives, including Ion and SP platform ~~investments; informatics;~~investments, informatics, advanced ~~instrumentation;~~instrumentation, advanced ~~imaging;~~imaging, and future generations of ~~robotics.~~robotics, partially offset by lower intangible asset-related charges.

~~Share-based compensation expense charged to research~~Research and development ~~expense was $25.1 million and $47.9 million~~expenses for the three ~~and six~~ months ended ~~June 30,~~March 31, 2020, and 2019, ~~respectively, compared with $17.9~~included share-based compensation expense of $27.2 million and ~~$34.2~~$22.8 million, ~~for the three~~respectively, and ~~six months ended June 30, 2018. For the three and six months ended June 30, 2019,~~ intangible ~~asset~~asset-related charges ~~were $0.5~~of $1.9 million and ~~$21.3~~$20.8 million, ~~respectively, as compared with $4.1 million and $10.7 million for the three and six months ended June 30, 2018,~~ respectively.

Research and development expenses fluctuate with project timing. Based upon our broader set of product development 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 six~~ months ended ~~June 30, 2019~~March 31, 2020, was ~~$32.8~~$25.1 million, ~~and $60.3 million, respectively,~~ compared with ~~$18.2~~$27.5 million and $31.4 million for the three and six months ended June 30, 2018, respectively. The increase was primarily driven by higher interest earned during the three and six months ended June 30, 2019 due to higher interest rates and higher cash and investment balances.

~~Income Tax Expense~~

~~Income tax expense~~ for the three months ended ~~June 30, 2019,~~March 31, 2019. The decrease was ~~$75.4~~primarily driven by realized foreign exchange losses, partially offset by higher interest income earned due to higher cash and investment balances. However, average interest rates declined from the beginning of the first quarter to the end of the first quarter.

Income Tax Benefit

Income tax benefit for the three months ended March 31, 2020, was $8.1 million, or ~~19.2%~~2.6% of income before taxes, compared with ~~$41.0~~$24.3 million, or ~~13.9%~~8.7% of income before taxes, for the three months ended June 30, 2018. Income tax expense for the six months ended June 30, 2019, was $51.1 million, or 7.6% of income before taxes, compared with $43.6 million, or 7.4% of income before taxes, for the six months ended June 30, 2018.

Our effective tax rate for the three and six months ended June 30, 2019, and 2018, differs from the U.S. federal statutory rate of 21% primarily due to excess tax benefits associated with employee equity plans, the effect of income earned by certain overseas entities being taxed at rates lower than the federal statutory rate, and federal R&D credit benefit, partially offset by state income taxes (net of federal benefit) and U.S. tax on foreign earnings.March 31, 2019. The higher effective tax rate for the three months ended ~~June 30, 2019, compared with the same period of 2018,~~March 31, 2020, was ~~primarily~~mainly due to lower excess tax benefits ~~from~~recognized for employee ~~equity plans realized in the current quarter.~~share-based compensation.

Our provision for income taxes for the three months ended March 31, 2020, and 2019, included excess tax benefits associated with employee equity plans of ~~$11.3~~$65.4 million and ~~$84.0~~$72.7 million, which reduced our effective tax rate by ~~2.9~~21.2 and 26.0 percentage points, ~~and 12.5 percentage points, for the three and six months ended June 30, 2019,~~ respectively. ~~Our income tax provision is subject to volatility as the~~The amount of excess tax benefits or deficiencies ~~fluctuates~~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.~~GAAP, which results in increased income tax expense volatility.

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We file federal, state, and foreign income tax returns in many U.S. and OUS jurisdictions. Years before 2016 are closed for the significant jurisdictions. Certain of our unrecognized tax 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 effective tax 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 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.

In May 2019, a Swiss tax reform package was approved by Swiss voters in a referendum. The enactment of the tax reform is pending the completion of certain legislative procedures. If enacted, our Swiss entity will have a higher effective tax rate for years after 2019. Under U.S. GAAP, changes in tax rates and tax law are accounted for in the period of enactment, and deferred tax assets and liabilities are measured at the enacted tax rate. The impact of the re-measurement of our Swiss deferred tax asset is expected to be a benefit of approximately $51 million, which will be reflected in the period of the enactment of the Swiss tax reform.

~~In the third quarter of~~July 2015, ~~we recorded a $29.3 million tax benefit due to~~ a U.S. Tax Court opinion (the “2015 Opinion”) was issued ~~in July 2015~~ involving an independent third party related to intercompany charges for share-based compensation. Based on the findings of the U.S. Tax Court, we were required to, and did, refund to our foreign subsidiaries the share-based compensation element of certain intercompany charges made in prior periods. Starting ~~from~~in 2015, direct share-based compensation has been excluded from intercompany charges. In June 2019, the Ninth Circuit Court of Appeals (the “Ninth Circuit”) reversed the 2015 Opinion (the “Ninth Circuit Opinion”). Subsequently, a re-hearing of the case was requested but was denied in November 2019. In February 2020, a petition was filed to appeal the Ninth Circuit Opinion to the Supreme Court of the United States. Since the Ninth Circuit Opinion potentially is subject to further judicial review, we continue to treat our share-based compensation expense in accordance with the 2015 Opinion and continue to recognize the related tax benefits in our financial statements based upon our evaluation of the position in light of the present facts. In the event of a final opinion which reverses the 2015 Opinion, there may be an adverse impact to our income tax expense and effective tax rate.

Net ~~Loss~~Income (Loss) Attributable to Noncontrolling Interest in Joint Venture

The Company’s majority-owned joint venture (the “Joint Venture”) with Shanghai Fosun Pharmaceutical (Group) Co., Ltd. (“Fosun Pharma”), a subsidiary of Fosun International Limited, was established to research, develop, manufacture, and sell robotic-assisted, catheter-based medical devices. The Joint Venture is owned 60% by us and 40% by Fosun ~~Pharma.~~Pharma and is located in China. The catheter-based technology will initially target early diagnosis and cost-effective treatment of lung cancer, one of the most commonly diagnosed forms of cancer in the world. Distribution of catheter-based medical devices in China will be conducted by the joint venture, while distribution outside of China will be conducted by us. ~~The Joint Venture is located in China.~~

In January 2019, the Joint Venture acquired certain assets, including distribution rights, customer relationships, and certain personnel, from Chindex and its affiliates, a subsidiary of Fosun Pharma, and began direct operations for da Vinci products and services in China. As of ~~June 30, 2019,~~March 31, 2020, the companies have contributed $55 million of up to $100 million required by the joint venture agreement.

We do not expect the Joint Venture to generate revenue in ~~2019~~2020 related to the sale of robotic-assisted, catheter-based medical devices. There can be no assurance that we and the Joint Venture can successfully ~~complete the development of the robotic-assisted catheter-based medical devices; or that we and the Joint Venture will successfully~~ commercialize such products. There can also be no assurance that the joint venture will not require additional contributions to fund its ~~business;~~business, that the Joint Venture will ~~become profitable;~~continue to be profitable, or that the acquired Chindex assets will be successfully integrated and the expected benefits will be realized.

Net ~~loss~~income (loss) attributable to noncontrolling interest in Joint Venture for the three ~~and six~~ months ended ~~June 30, 2019~~March 31, 2020, was ~~$1.9~~$2.7 million, ~~and $4.4 million, respectively,~~ compared with ~~$0.7 million and $1.0~~$(2.5) million for the three ~~and six~~ months ended ~~June 30, 2018, respectively.~~March 31, 2019. The increase in net income attributable to noncontrolling interest in Joint Venture was primarily due to increased revenue and a re-measurement gain related to the ~~intangible assets amortization expense and higher costs to ramp up operations in China~~contingent consideration during the ~~six~~three months ended ~~June 30, 2019.~~March 31, 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 increased ~~from $4.8~~by $0.1 billion to $5.9 billion as of ~~December~~March 31, ~~2018, to $5.1~~2020, from $5.8 billion as of ~~June 30,~~December 31, 2019,, primarily from cash provided by our ~~operations. Cash generation is one of our fundamental strengths~~operations and ~~provides us with substantial financial flexibility in meeting our operating, investing, and financing needs.~~

See “Item 7A. Quantitative and Qualitative Disclosures About Market Risk” on our Form 10-K for the fiscal year ended December 31, 2018 for discussion on the impact of interest rate risk and market risk on our investment portfolio.

~~Condensed Consolidated Cash Flow Data (Unaudited)~~

~~The following table summarizes our cash flows for the~~ ~~six~~ ~~months ended June 30, 2019, and 2018 (in millions):~~

Six Months Ended
June 30,
2019 2018
Net cash provided by (used in)
Operating activities $ 649.2
$ 511.7
Investing activities (531.6 ) 9.3
Financing activities (220.4 ) 34.9
Effect of exchange rates on cash, cash equivalents, and restricted cash (1.3 ) (0.6 )
Net increase (decrease) in cash, cash equivalents, and restricted cash $ (104.1 ) $ 555.3

~~Operating Activities~~

~~For the~~ ~~six~~ ~~months ended~~ ~~June 30, 2019, net cash provided by operating activities of~~ ~~$649.2 million~~ ~~exceeded our net income of~~ ~~$620.4 million~~ ~~primarily for the following reasons:~~


1.	Our net income included non-cash charges: share-based compensation of $157.7 million; depreciation expense of $67.8 million; deferred income taxes of $52.7 million; amortization of intangible assets of $20.5 million; and amortization of contract acquisition asset of $5.9 million.

The non-cash charges outlined above were partially offset by changes in operating assets and liabilities that resulted in $274.2 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 $178.0 million primarily due to more systems under operating lease arrangements and safety stock build up to meet increased sales volume. Prepaid expenses and other assets increased by $89.2 million primarily due to an increase in prepaid taxes driven by the timing of tax payments. Other accrued liabilities decreased by $53.0 million primarily due to the settlement of a legal matter. Accrued compensation and employee benefits decreased by $33.3 million primarily due to the payments of 2018 incentive compensation. The unfavorable impact of these items on cash used by operating activities was partly offset by a $48.9 million decrease in accounts receivable primarily due to timing of billings and collections and a $21.7 million increase in accounts payable.

~~Investing Activities~~

~~Net cash used in investing activities during the six months ended~~ ~~June 30, 2019, consisted primarily of purchases of investments (net of proceeds from sales and maturities of investments) of $335.9 million and the acquisition of property and equipment of~~ ~~$196.9 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, 2019~~, consisted primarily of cash used in the repurchase of approximately 0.4 million shares of our common stock in the open market for $200.0 million and $145.0 million in taxes paid on behalf of employees related to net share settlements of vested employee equity awards partly offset by $119.6 million of proceeds from stock option exercises and employee stock ~~purchases.~~purchases, partially offset by taxes paid related to net share settlements of equity awards, common stock repurchases, and capital expenditures.

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~~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 $250 million in both 2019 and 2020. We intend to fund these needs with cash generated from operations.

Our cash requirements depend on numerous factors, including market acceptance of our products, the resources we devote to developing and supporting our products, and other factors. 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. Based upon our business model, we anticipate that we will continue to be able to fund future growth through cash provided ~~from~~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.

However, as a result of the COVID-19 pandemic, we expect to experience reduced cash flow from operations as a result of decreased revenues and extending payment terms on sales and operating lease and usage-based arrangements. Moreover, we are focused on ensuring that we have adequate supplies on hand given the potential disruption of the COVID-19 pandemic to our suppliers and their supply chain and, accordingly, we expect to continue to increase inventory during the second quarter of 2020 and beyond.

See “Item 7A. Quantitative and Qualitative Disclosures About Market Risk” in our Form 10-K for the fiscal year ended December 31, 2019, 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 three months ended March 31, 2020, and 2019 (in millions):


	Three Months Ended March 31,
	2020		2019
Net cash provided by (used in)
Operating activities	$	352.8	$	333.2
Investing activities	(117.1)		(308.9)
Financing activities	(178.7)		(41.8)
Effect of exchange rates on cash, cash equivalents, and restricted cash	(0.8)		(1.2)
Net increase (decrease) in cash, cash equivalents, and restricted cash	$	56.2	$	(18.7)

Operating Activities

For the three months ended March 31, 2020, net cash provided by operating activities of $353 million exceeded our net income of $316 million, primarily due to the following reasons:

1.Our net income included non-cash charges of $223 million, consisting primarily of the following significant items: share-based compensation of $91 million; deferred income taxes of $65 million; depreciation expense and losses on the disposal of property, plant, and equipment of $51 million; and amortization of intangible assets of $12 million.

2.The non-cash charges outlined above were partially offset by changes in operating assets and liabilities that resulted in $186 million of cash used by operating activities during the three months ended March 31, 2020. Prepaid expenses and other assets increased by $132 million, primarily due to an increase in leasing and an increase in prepaid taxes, driven by the timing of tax payments. Accrued compensation and employee benefits decreased by $95 million, primarily due to the payments of 2019 incentive compensation. Inventory, including the transfer of equipment from inventory to property, plant, and equipment, increased by $65 million, primarily due to the increased number of systems under operating lease and usage-based arrangements and 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, such as the COVID-19 pandemic. The unfavorable impact of these items on cash provided by operating activities was partially offset by a $118 million decrease in accounts receivable, primarily due to the timing of collections.

Investing Activities

Net cash used in investing activities for the three months ended March 31, 2020, consisted primarily of the acquisition of property and equipment of $105 million, the Orpheus Medical Acquisition, net of cash acquired, of $38 million, and purchases of investments (net of proceeds from sales and maturities of investments) of $26 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.

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Financing Activities

Net cash used in financing activities during the three months ended March 31, 2020, consisted primarily of taxes paid on behalf of employees related to net share settlements of vested employee stock purchases of $149 million and cash used in the repurchase of approximately 0.2 million shares of our common stock in the open market for $100 million, partially offset by proceeds from stock option exercises and employee stock purchases of $91 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 $400 million in both 2020 and 2021. We intend to fund these needs with cash generated from operations.

Critical Accounting 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 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 estimates discussed in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2018,~~2019, 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 ~~six~~three months ended ~~June 30, 2019~~,March 31, 2020, compared to the disclosures in Part II, Item 7A of our Annual Report on Form 10-K for the year ended December 31, ~~2018~~.2019.


~~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 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 78 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, ~~2018,~~2019, 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, ~~2018,~~2019, 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, including but not limited to~~operations. The risk factors set forth below update, and should be read together with, the ~~subsequent event discussed~~risk factors described in ~~the Notes to Condensed Consolidated Financial Statements in Part I, “Item 1. Financial Statements” in this Quarterly~~our Annual Report on Form ~~10-Q.~~10-K for the fiscal year ended December 31, 2019.

RISKS RELATING TO OUR BUSINESS

PUBLIC HEALTH CRISES, OR THE PERCEPTION OF THEIR EFFECTS, HAVE HAD AND COULD CONTINUE TO HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS AND RESULTS OF OPERATIONS.

Our global operations expose us to risks associated with public health crises and outbreaks of epidemic, pandemic, or contagious diseases, such as the current outbreak of a novel strain of coronavirus (COVID-19). To date, COVID-19 has had, and may continue to have, an adverse impact on our operations, our supply chains and distribution systems, and our expenses, including as a result of preventive and precautionary measures that we, other businesses, and governments are taking. Due to these impacts and measures, we have experienced and may continue to experience significant and unpredictable reductions in the demand for our products as healthcare customers divert medical resources and priorities towards the treatment of that disease. In addition, our customers may delay, cancel, or redirect planned capital expenditures in order to focus resources on COVID-19 or in response to economic disruption related to COVID-19. For example, as COVID-19 reached a global pandemic level in the last two weeks of the quarter ended March 31, 2020, we experienced significant decline in procedure volume in the U.S. and Western Europe, as healthcare systems diverted resources to meet the increasing demands of managing COVID-19. In addition, the American College of Surgeons, U.S. surgeon general, and other public health bodies have recommended delaying elective surgeries during the COVID-19 pandemic, and surgeons and medical societies are evaluating the risks of minimally invasive surgeries in the presence of infectious diseases, which we expect will continue to negatively impact the usage of our products and the number of da Vinci procedures performed.

As a result of the COVID-19 outbreak, we have experienced significant business disruptions, including restrictions on our ability to travel, distribute and service our products, temporary closures of our facilities and the facilities of our suppliers and their contract manufacturers, as well as reduction in access to our customers due to diverted resources and priorities and the business hours of hospitals as governments institute prolonged shelter-in-place and/or self-quarantine mandates. For example, our corporate headquarters and many of our operations, including certain of our manufacturing facilities, are located in California, which has instituted shelter-in-place orders applicable to our employees in that region, significantly impacting the ability of our employees to get to their places of work to produce products and hampering our products from moving through the supply chain. These unprecedented measures to slow the spread of the virus taken by local governments and health care authorities globally, including the deferral of elective medical procedures and social distancing measures, have had, and will continue to have, a significant negative impact on our operations and financial results.

In addition, the COVID-19 pandemic has adversely affected, and may continue to adversely affect, the economies and financial markets of many countries, which may result in a period of regional, national, and global economic slowdown or regional, national, or global recessions that could curtail or delay spending by hospitals and affect demand for our products as well as increased risk of customer defaults or delays in payments. Our customers may terminate or amend their agreements for the purchase, lease, or service of our products due to bankruptcy, lack of liquidity, lack of funding, operational failures, or other reasons. COVID-19 and the current financial, economic, and capital markets environment, and future developments in these and other areas present material uncertainty and risk with respect to our performance, financial condition, volume of business, results of operations, and cash flows. Due to the uncertain scope and duration of the pandemic and uncertain timing of global recovery and economic normalization, we are unable to estimate the impacts on our operations and financial results. As a result, we have withdrawn our full year 2020 financial and procedure guidance.

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OUR BUSINESS IS SUBJECT TO COMPLEX AND EVOLVING LAWS AND REGULATIONS REGARDING PRIVACY, DATA PROTECTION, AND OTHER MATTERS RELATING TO INFORMATION COLLECTION.

There are numerous state, federal, and foreign laws, regulations, decisions, and directives regarding privacy and the collection, storage, transmission, use, processing, disclosure, and protection of different types of personal data and personal information (“Personal Information”) and other customer or other data, the scope of which is continually evolving and subject to differing interpretations. We may be subject to significant consequences, including penalties and fines, for any failure to comply with such laws, regulations, and directives.

For example, the General Data Protection Regulation (the “GDPR”), which is in effect across the European Economic Area (the “EEA”), imposes several stringent requirements for controllers and processors of personal data and increased our obligations, for example, by imposing higher standards when obtaining consent from individuals to process their personal data, requiring more robust disclosures to individuals, strengthening individual data rights, shortening timelines for data breach notifications, limiting retention periods and secondary use of information, increasing requirements pertaining to health data as well as pseudonymised (i.e., key-coded) data, and imposing additional obligations when we contract third-party processors in connection with the processing of personal data. The GDPR provides that EU member states may make their own further laws and regulations limiting the processing of genetic, biometric, or health data, which could limit our ability to use and share personal data or could cause our costs to increase and harm our business and financial condition. Failure to comply with the requirements of the GDPR and the applicable national data protection laws of the EU member states may result in fines of up to 4% of the total worldwide annual turnover of the preceding financial year and other administrative penalties. Compliance with the new data protection rules imposed by GDPR may be onerous and adversely affect our business, financial condition, and results of operations.

California recently passed the California Consumer Privacy Act (the “CCPA”), which is considered by many to be the most far-reaching data privacy law introduced in the US to date and which introduces new compliance burdens on many organizations doing business in California who collect Personal Information about California residents. The CCPA’s definition of Personal Information is very broad and specifically includes biometric information. The CCPA took effect in 2020 and will allow for significant fines by the state attorney general, as well as a private right of action from individuals in relation to certain security breaches. The enactment of the CCPA is prompting a wave of similar legislative developments in other US states and creating the potential for a patchwork of overlapping but different state laws. These developments are increasing our compliance burden and our risk, including risks of regulatory fines, litigation and associated reputational harm.

In addition, recent legal developments in Switzerland and Europe have created complexity and compliance uncertainty regarding certain transfers of information from Switzerland and the EU to the United States. For example, the EU-US Privacy Shield Framework is regularly reviewed, and there is current litigation challenging the adequacy of EU-specified standard contractual clauses (another data transfer mechanism). It is uncertain whether the Privacy Shield Framework and/or the standard contractual clauses will be invalidated by the European courts or legislature. We rely on a mixture of mechanisms to transfer personal data from our EU business to the U.S. and could be impacted by changes in law as a result of a future review of these transfer mechanisms by European regulators under the GDPR as well as current challenges to these mechanisms in the European courts. If one or more of the legal bases for transferring Personal Information from Europe to the U.S. is invalidated, or if we are unable to transfer Personal Information between and among countries and regions in which we operate, it could affect the manner in which we provide our services or could adversely affect our financial results.

In Israel, The Protection of Privacy Law, 5741-1981 (the “Israeli Privacy Law”) regulates the protection of privacy and personal data, along with several other specific regulations enacted thereunder and, in particular, the Privacy Protection Regulations (Data Security), 5777-2017 (together, the “Israeli Privacy Law and Regulations”). Under the Israeli Privacy Law and Regulations, organizations are subject to various privacy and data protection requirements, including mandatory registration of databases with the Israeli Registrar of Databases (if certain conditions are met), executing data processing agreements with data recipients, safeguarding the collection and processing of personal data, safeguarding the transfer of personal data (which is specifically subject to the requirements of the Privacy Protection Regulations), personal data breach notification obligations, and other requirements. The Privacy Protection Authority (the “PPA”) is responsible for enforcement of the Israeli Privacy Law and Regulations and periodically publishes opinions and guidelines on privacy matters. In terms of enforcement, failure to comply with the Israeli Privacy Law and Regulations can result in PPA investigations, administrative fines or sanctions, and civil or criminal actions (civil proceedings may include statutory damages without the need to prove actual damages).

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Furthermore, any failure, or perceived failure, by us to comply with or make effective modifications to our policies or to comply with any federal, state, or international privacy, data-retention, or data-protection-related laws, regulations, orders, or industry self-regulatory principles could result in proceedings or actions against us by governmental entities or others, a loss of customer confidence, damage to our brand and reputation, and a loss of customers, any of which could have an adverse effect on our business. In addition, various federal, state, and foreign legislative or regulatory bodies may enact new or additional laws and regulations concerning privacy, data-retention, and data-protection issues, including laws or regulations mandating disclosure to domestic or international law enforcement bodies, which could adversely impact our business or our reputation with customers. For example, some countries have adopted laws mandating that some Personal Information regarding customers in their country be maintained solely in their country. Having to maintain local data centers and redesign product, service, and business operations to limit Personal Information processing to within individual countries could increase our operating costs significantly.


~~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, 2019.~~March 31, 2020.

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, 2019 —
$ —
—
$ 2.0 billion
May 1 to May 31, 2019 247,848
$ 485.26
247,848
$ 1.9 billion
June 1 to June 30, 2019 171,070
$ 466.11
171,070
$ 1.8 billion
Total during quarter ended June 30, 2019 418,918
$ 477.44
418,918


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)
January 1 to January 31, 2020	—	$	—	—	$	1.7	billion
February 1 to February 29, 2020	—	$	—	—	$	1.7	billion
March 1 to March 31, 2020	191,639	$	521.83	191,639	$	1.6	billion
Total during quarter ended March 31, 2020	191,639	$	521.83	191,639

(1) Since March 2009, we have had an active stock repurchase program. As of ~~June 30, 2019,~~March 31, 2020, our Board of Directors (the “Board”) had authorized an aggregate amount of up to $7.5 billion for stock repurchases, of which the most recent authorization occurred in January 2019, when the Board increased the authorized amount available under our share repurchase program to $2.0 billion. The remaining ~~$1.8~~$1.6 billion represents the amount available to repurchase shares under the authorized repurchase program as of ~~June 30, 2019.~~March 31, 2020. 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.~~	~~OTHER INFORMATION~~

ITEM 5. OTHER INFORMATION

None.

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ITEM 6. EXHIBITS


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

Exhibit Description
3.1
~~Exhibit~~ ~~Number~~	~~Exhibit~~ ~~Description~~
~~3.1~~	Amended and Restated Certificate of Incorporation of Intuitive Surgical, Inc., as amended (incorporated by reference to Exhibit 3.1 on Form 10-Q filed with the Securities and Exchange Commission on October 20, 2017).
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).
10.1		Form of Intuitive Surgical, Inc. 2010 Incentive Award Plan ~~as amended and restated (incorporated by reference to Exhibit 10.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on April 26, 2019).~~Stock Option Grant Notice.
~~31.1~~10.2		Form of Intuitive Surgical, Inc. 2010 Incentive Award Plan Restricted Stock Unit Grant Notice.
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 ~~June 30, 2019,~~March 31, 2020, formatted in 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 March 31, 2020, 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.

~~INTUITIVE SURGICAL, INC.~~

By:

~~By:~~

/s/ MARSHALL L. MOHR

Marshall L. Mohr

Executive Vice President and Chief Financial Officer

(Principal Financial Officer and duly authorized signatory)

Date: ~~July 19, 2019~~

April 17, 2020

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



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


in millions (except par values)	March 31, 2020			December 31, 2019
ASSETS
Current assets:
Cash and cash equivalents	$	1,223.8		$	1,167.6
Short-term investments	2,029.6			2,054.1
Accounts receivable, net	527.6			645.2
Inventory	620.3			595.5
Prepaids and other current assets	290.2			200.2
Total current assets	4,691.5			4,662.6
Property, plant, and equipment, net	1,369.2			1,272.9
Long-term investments	2,642.7			2,623.5
Deferred tax assets	364.7			425.6
Intangible and other assets, net	488.0			441.4
Goodwill	335.0			307.2
Total assets	$	9,891.1		$	9,733.2
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	133.4		$	123.5
Accrued compensation and employee benefits	156.5			251.6
Deferred revenue	337.4			337.8
Other accrued liabilities	318.6			317.3
Total current liabilities	945.9			1,030.2
Other long-term liabilities	414.7			418.3
Total liabilities	1,360.6			1,448.5
Contingencies (Note 8)
Stockholders’ equity:
Preferred stock, 2.5 shares authorized, $0.001 par value, issuable in series; 0 shares issued and outstanding as of March 31, 2020, and December 31, 2019	—			—
Common stock, 300.0 shares authorized, $0.001 par value, 116.6 shares and 116.0 shares issued and outstanding as of March 31, 2020, and December 31, 2019, respectively	0.1		��	0.1
Additional paid-in capital	5,926.8			5,756.8
Retained earnings	2,570.9			2,494.5
Accumulated other comprehensive income	8.9			12.4
Total Intuitive Surgical, Inc. stockholders’ equity	8,506.7			8,263.8
Noncontrolling interest in joint venture	23.8			20.9
Total stockholders’ equity	8,530.5			8,284.7
Total liabilities and stockholders’ equity	$	9,891.1		$	9,733.2



in millions (except par values)	June 30, 2019		December 31, 2018
ASSETS
Current assets:
Cash and cash equivalents	$	790.3	$	857.9
Short-term investments	1,928.1		2,205.2
Accounts receivable, net	633.4		682.3
Inventory	512.8		409.0
Prepaids and other current assets	207.0		178.8
Total current assets	4,071.6		4,333.2
Property, plant, and equipment, net	1,032.4		812.0
Long-term investments	2,429.8		1,771.3
Deferred tax assets	369.1		428.6
Intangible and other assets, net	383.8		261.0
Goodwill	244.9		240.6
Total assets	$	8,531.6	$	7,846.7
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	129.6	$	100.7
Accrued compensation and employee benefits	160.5		193.8
Deferred revenue	306.8		294.3
Other accrued liabilities	210.6		231.8
Total current liabilities	807.5		820.6
Other long-term liabilities	444.5		338.6
Total liabilities	1,252.0		1,159.2
Contingencies (Note 7)
Stockholders’ equity:
Preferred stock, 2.5 shares authorized, $0.001 par value, issuable in series; no shares issued and outstanding as of June 30, 2019, and December 31, 2018	—		—
Common stock, 300.0 shares authorized, $0.001 par value, 115.2 shares and 114.5 shares issued and outstanding as of June 30, 2019, and December 31, 2018, respectively	0.1		0.1
Additional paid-in capital	5,430.1		5,170.3
Retained earnings	1,819.0		1,521.7
Accumulated other comprehensive income (loss)	16.1		(13.3		)
Total Intuitive Surgical, Inc. stockholders’ equity	7,265.3		6,678.8
Noncontrolling interest in joint venture	14.3		8.7
Total stockholders’ equity	7,279.6		6,687.5
Total liabilities and stockholders’ equity	$	8,531.6	$	7,846.7


	Three Months Ended March 31,
in millions	2020		2019
Operating activities:
Net income	$	316.2	$	304.0
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and loss on disposal of property, plant, and equipment	51.1		31.6
Amortization of intangible assets	12.3		10.0
Loss (gain) on investments, accretion, and amortization, net	0.2		(1.2)
Deferred income taxes	64.5		32.9


Share-based compensation expense	90.6		76.1
Amortization of contract acquisition assets	4.1		2.8
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable	118.2		134.6
Inventory	(65.2)		(94.0)
Prepaids and other assets	(131.9)		(62.7)

Accounts payable	21.9		23.0
Accrued compensation and employee benefits	(95.2)		(68.7)
Deferred revenue	0.8		(0.5)
Other liabilities	(34.8)		(54.7)
Net cash provided by operating activities	352.8		333.2
Investing activities:
Purchase of investments	(690.0)		(992.3)
Proceeds from sales of investments	98.2		44.4
Proceeds from maturities of investments	617.6		755.1
Purchase of property, plant, and equipment and intellectual property	(105.2)		(114.8)
Acquisition of businesses, net of cash	(37.7)		(1.3)

Net cash used in investing activities	(117.1)		(308.9)
Financing activities:
Proceeds from issuance of common stock relating to employee stock plans	91.3		88.8
Taxes paid related to net share settlement of equity awards	(148.9)		(138.6)
Repurchase of common stock	(100.0)		—
Capital contribution from noncontrolling interest	—		10.0
Payment of deferred purchase consideration	(21.1)		(2.0)
Net cash used in financing activities	(178.7)		(41.8)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	(0.8)		(1.2)
Net increase (decrease) in cash, cash equivalents, and restricted cash	56.2		(18.7)
Cash, cash equivalents, and restricted cash, beginning of period	1,182.6		909.4
Cash, cash equivalents, and restricted cash, end of period	$	1,238.8	$	890.7



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



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


	Three Months Ended March 31,
in millions (except per share amounts)	2020		2019
Revenue:
Product	$	900.8	$	799.8
Service	198.7		173.9
Total revenue	1,099.5		973.7
Cost of revenue:
Product	296.7		246.4
Service	64.6		57.7
Total cost of revenue	361.3		304.1
Gross profit	738.2		669.6
Operating expenses:
Selling, general and administrative	308.1		273.4
Research and development	147.1		144.0
Total operating expenses	455.2		417.4
Income from operations	283.0		252.2
Interest and other income, net	25.1		27.5
Income before taxes	308.1		279.7
Income tax benefit	(8.1)		(24.3)
Net income	316.2		304.0
Less: net income (loss) attributable to noncontrolling interest in joint venture	2.7		(2.5)
Net income attributable to Intuitive Surgical, Inc.	$	313.5	$	306.5
Net income per share attributable to Intuitive Surgical, Inc.:
Basic	$	2.69	$	2.67
Diluted	$	2.62	$	2.56
Shares used in computing net income per share attributable to Intuitive Surgical, Inc.:
Basic	116.4		115.0
Diluted	119.8		119.6


Total comprehensive income attributable to Intuitive Surgical, Inc.	$	310.0	$	319.1



	Three Months Ended June 30,						Six Months Ended June 30,
in millions (except per share amounts)	2019			2018			2019			2018
Revenue:
Product	$	922.3		$	753.5		$	1,722.1		$	1,448.3
Service	176.6			155.8			350.5			308.5
Total revenue	1,098.9			909.3			2,072.6			1,756.8
Cost of revenue:
Product	283.4			228.1			529.8			429.6
Service	56.5			48.9			114.2			101.1
Total cost of revenue	339.9			277.0			644.0			530.7
Gross profit	759.0			632.3			1,428.6			1,226.1
Operating expenses:
Selling, general and administrative	279.2			259.8			552.6			481.4
Research and development	120.8			95.1			264.8			190.6
Total operating expenses	400.0			354.9			817.4			672.0
Income from operations	359.0			277.4			611.2			554.1
Interest and other income, net	32.8			18.2			60.3			31.4
Income before taxes	391.8			295.6			671.5			585.5
Income tax expense	75.4			41.0			51.1			43.6
Net income	316.4			254.6			620.4			541.9
Less: net loss attributable to noncontrolling interest in joint venture	(1.9		)	(0.7		)	(4.4		)	(1.0		)
Net income attributable to Intuitive Surgical, Inc.	$	318.3		$	255.3		$	624.8		$	542.9
Net income per share attributable to Intuitive Surgical, Inc.:
Basic	$	2.76		$	2.25		$	5.42		$	4.80
Diluted	$	2.67		$	2.15		$	5.23		$	4.59
Shares used in computing net income per share attributable to Intuitive Surgical, Inc.:
Basic	115.4			113.5			115.2			113.2
Diluted	119.3			118.5			119.4			118.3
Total comprehensive income attributable to Intuitive Surgical, Inc.	$	335.1		$	257.0		$	654.2		$	542.0


											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
March 31, 2020
Cash	$	450.3	$	—	$	—	$	—	$	450.3	$	450.3	$	—	$	—
Level 1:
Money market funds	773.5		—		—		—		773.5		773.5		—		—
U.S. treasuries	1,891.0		39.9		—		—		1,930.9		—		832.7		1,098.2
Subtotal	2,664.5		39.9		—		—		2,704.4		773.5		832.7		1,098.2
Level 2:
Commercial paper	148.7		—		—		—		148.7		—		148.7		—
Corporate debt securities	2,086.0		11.1		(7.5)		(1.3)		2,088.3		—		839.4		1,248.9
U.S. government agencies	414.5		4.0		—		—		418.5		—		185.9		232.6
Non-U.S. government securities	4.5		—		—		—		4.5		—		4.5		—
Municipal securities	80.9		0.6		(0.1)		—		81.4		—		18.4		63.0
Subtotal	2,734.6		15.7		(7.6)		(1.3)		2,741.4		—		1,196.9		1,544.5



Total assets measured at fair value	$	5,849.4	$	55.6	$	(7.6)	$	(1.3)	$	5,896.1	$	1,223.8	$	2,029.6	$	2,642.7



	Amortized Cost		Fair Value
Mature in less than one year	$	1,949.8	$	1,952.1
Mature in one to five years	2,389.9		2,413.8
Mature in more than five years	3.0		3.0
Total	$	4,342.7	$	4,368.9


	Derivatives Designated as Hedging Instruments						Derivatives Not Designated as Hedging Instruments
	March 31, 2020		December 31, 2019		March 31, 2020		December 31, 2019
Notional amounts:
Forward contracts	$	160.2	$	154.5	$	225.7	$	227.2
Gross fair value recorded in:
Prepaids and other current assets	$	2.5	$	1.3	$	3.0	$	2.2
Other accrued liabilities	$	0.4	$	0.5	$	1.1	$	0.7


	As of
Inventory	March 31, 2020		December 31, 2019
Raw materials	$	223.2	$	211.0
Work-in-process	67.7		75.9
Finished goods	329.4		308.6
Total inventory	$	620.3	$	595.5


	As of
Other accrued liabilities–short-term	March 31, 2020		December 31, 2019
Taxes payable	$	34.6	$	37.9
Litigation-related accruals	4.5		5.8
Current portion of deferred purchase consideration payments	41.3		35.7
Current portion of contingent consideration	37.2		44.5
Other accrued liabilities	201.0		193.4
Total other accrued liabilities–short-term	$	318.6	$	317.3



	As of
Other accrued liabilities—short-term	June 30, 2019		December 31, 2018
Taxes payable	$	24.3	$	39.1
Litigation related accruals	5.7		55.0
Other accrued liabilities	144.9		137.7
Current portion of contingent consideration	35.7		—
Total other accrued liabilities—short-term	$	210.6	$	231.8



~~Delaware~~


	2020		2019		2018		2017		2016		Prior		Net Investment
Credit Rating:
High	$	27.0	$	52.2	$	20.4	$	10.9	$	3.3	$	3.0	$	116.8
Moderate	27.3		37.7		25.3		10.6		5.2		0.3		106.4
Low	4.1		1.2		2.0		1.1		1.9		0.1		10.4
Total	$	58.4	$	91.1	$	47.7	$	22.6	$	10.4	$	3.4	$	233.6



	Six Months Ended June 30,
	2019		2018
Equipment transfers, including operating lease assets, from inventory to property, plant, and equipment	$	89.0	$	49.0
Deferred payments and contingent consideration related to business combinations	$	64.7	$	—



	Three Months Ended June 30,				Six Months Ended June 30,
U.S.	2019		2018		2019		2018
Instruments and accessories	$	428.6	$	360.3	$	836.0	$	697.9
Systems	232.6		172.4		393.3		296.4
Services	124.1		112.0		247.6		222.8
Total U.S. revenue	$	785.3	$	644.7	$	1,476.9	$	1,217.1

Outside of U.S. (“OUS”)
Instruments and accessories	$	149.9	$	115.8	$	294.8	$	238.5
Systems	111.2		105.0		198.0		215.5
Services	52.5		43.8		102.9		85.7
Total OUS revenue	$	313.6	$	264.6	$	595.7	$	539.7

Total
Instruments and accessories	$	578.5	$	476.1	$	1,130.8	$	936.4
Systems	343.8		277.4		591.3		511.9
Services	176.6		155.8		350.5		308.5
Total revenue	$	1,098.9	$	909.3	$	2,072.6	$	1,756.8


Fiscal Year	Amount
2020	$	54.9
2021	65.5
2022	48.6
2023	33.5
2024	26.3
2025 and thereafter	4.8
Total	$	233.6


	Amount
Balance at December 31, 2019	$	307.2
Acquisition activity	29.3
Translation and other	(1.5)
Balance at March 31, 2020	$	335.0


	March 31, 2020										December 31, 2019
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Patents and developed technology	$	202.1	$	(151.4)	$	50.7	$	186.7	$	(149.0)	$	37.7
Distribution rights and others	92.0		(53.1)		38.9		91.3		(44.9)		46.4
Customer relationships	59.2		(31.4)		27.8		57.7		(29.7)		28.0
Total intangible assets	$	353.3	$	(235.9)	$	117.4	$	335.7	$	(223.6)	$	112.1


Fiscal Year	Amount
Remainder of 2020	$	36.8
2021	21.4
2022	18.5
2023	13.9
2024	11.8
2025 and thereafter	15.0
Total	$	117.4



Cash paid for leases that were included within operating cash outflows	$	8.3
Right-of-use assets recognized related to new lease obligations	$	12.2



Reported as:
Intangible and other assets, net (Right-of-use assets)	$	72.8
Other accrued liabilities	$	5.5
Other long-term liabilities	69.6
Total lease liabilities	$	75.1
Weighted average remaining lease term	7 years
Weighted average discount rate	3.6%



	Three Months Ended June 30, 2019
	Common Stock				Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Intuitive Surgical, Inc. Stockholders’ Equity			Noncontrolling Interest in Joint Venture			Total Stockholders’ Equity
	Shares		Amount		Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Intuitive Surgical, Inc. Stockholders’ Equity			Noncontrolling Interest in Joint Venture			Total Stockholders’ Equity
Beginning balance	115.4		$	0.1	$	5,328.8		$	1,696.0		$	(0.7	)	$	7,024.2		$	16.2		$	7,040.4
Issuance of common stock through employee stock plans	0.2				30.8									30.8						30.8
Shares withheld related to net share settlement of equity awards	—				(0.3		)	(6.1		)				(6.4		)				(6.4		)
Share-based compensation expense related to employee stock plans					81.6									81.6						81.6
Repurchase and retirement of common stock	(0.4	)			(10.8		)	(189.2		)				(200.0		)				(200.0		)
Net income attributable to Intuitive Surgical, Inc.								318.3						318.3						318.3
Other comprehensive income											16.8			16.8						16.8
Net loss attributable to noncontrolling interest in joint venture														—			(1.9		)	(1.9		)
Ending balance	115.2		$	0.1	$	5,430.1		$	1,819.0		$	16.1		$	7,265.3		$	14.3		$	7,279.6

	Three Months Ended June 30, 2018
	Common Stock				Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Total Intuitive Surgical, Inc. Stockholders’ Equity			Noncontrolling Interest in Joint Venture			Total Stockholders’ Equity
	Shares		Amount		Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Total Intuitive Surgical, Inc. Stockholders’ Equity			Noncontrolling Interest in Joint Venture			Total Stockholders’ Equity
Beginning balance	113.3		$	0.1	$	4,817.1		$	698.0		$	(18.1	)	$	5,497.1		$	9.3		$	5,506.4
Issuance of common stock through employee stock plans	0.5				48.7									48.7						48.7
Shares withheld related to net share settlement of equity awards	(0.1	)			(0.3		)	(5.2		)				(5.5		)				(5.5		)
Share-based compensation expense related to employee stock plans					63.3									63.3						63.3
Net income attributable to Intuitive Surgical, Inc.								255.3						255.3						255.3
Other comprehensive income											1.7			1.7						1.7
Net loss attributable to noncontrolling interest in joint venture														—			(0.7		)	(0.7		)
Ending balance	113.7		$	0.1	$	4,928.8		$	948.1		$	(16.4	)	$	5,860.6		$	8.6		$	5,869.2



	Six Months Ended June 30, 2019
	Common Stock				Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Intuitive Surgical, Inc. Stockholders’ Equity			Noncontrolling Interest in Joint Venture			Total Stockholders’ Equity
	Shares		Amount		Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Intuitive Surgical, Inc. Stockholders’ Equity			Noncontrolling Interest in Joint Venture			Total Stockholders’ Equity
Beginning balance	114.5		$	0.1	$	5,170.3		$	1,521.7		$	(13.3	)	$	6,678.8		$	8.7		$	6,687.5
Issuance of common stock through employee stock plans	1.4				119.6									119.6						119.6
Shares withheld related to net share settlement of equity awards	(0.3	)			(6.7		)	(138.3		)				(145.0		)				(145.0		)
Share-based compensation expense related to employee stock plans					157.7									157.7						157.7
Repurchase and retirement of common stock	(0.4	)			(10.8		)	(189.2		)				(200.0		)				(200.0		)
Net income attributable to Intuitive Surgical, Inc.								624.8						624.8						624.8
Other comprehensive income											29.4			29.4						29.4
Capital contribution from noncontrolling interest														—			10.0			10.0
Net loss attributable to noncontrolling interest in joint venture														—			(4.4		)	(4.4		)
Ending balance	115.2		$	0.1	$	5,430.1		$	1,819.0		$	16.1		$	7,265.3		$	14.3		$	7,279.6

	Six Months Ended June 30, 2018
	Common Stock				Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Total Intuitive Surgical, Inc. Stockholders’ Equity			Noncontrolling Interest in Joint Venture			Total Stockholders’ Equity
	Shares		Amount		Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Total Intuitive Surgical, Inc. Stockholders’ Equity			Noncontrolling Interest in Joint Venture			Total Stockholders’ Equity
Beginning balance	112.3		$	0.1	$	4,679.2		$	115.0		$	(15.5	)	$	4,778.8		$	1.6		$	4,780.4
Adoption of new accounting standards								392.1			(1.3		)	390.8						390.8
Issuance of common stock through employee stock plans	1.7				134.9									134.9						134.9
Shares withheld related to net share settlement of equity awards	(0.3	)			(6.1		)	(101.9		)				(108.0		)				(108.0		)
Share-based compensation expense related to employee stock plans					120.8									120.8						120.8
Net income attributable to Intuitive Surgical, Inc.								542.9						542.9						542.9
Other comprehensive income											0.4			0.4						0.4
Capital contribution from noncontrolling interest														—			8.0			8.0
Net loss attributable to noncontrolling interest in joint venture														—			(1.0		)	(1.0		)
Ending balance	113.7		$	0.1	$	4,928.8		$	948.1		$	(16.4	)	$	5,860.6		$	8.6		$	5,869.2



	Stock Options Outstanding
	Number Outstanding		Weighted Average Exercise Price Per Share
Balance at December 31, 2018	6.2		$	200.79
Granted	0.3		$	538.14
Exercised	(0.6	)	$	148.54
Forfeited/expired	(0.1	)	$	327.95
Balance at June 30, 2019	5.8		$	223.43


	Shares	Weighted Average Grant Date Fair Value
Unvested balance at December 31, 2019	1.9	$	410.09
RSUs granted	0.6	$	535.79
RSUs vested	(0.6)	$	334.98
RSUs forfeited	—	$	441.33
Unvested balance at March 31, 2020	1.9	$	478.86



	Shares		Weighted Average Grant Date Fair Value
Unvested balance at December 31, 2018	2.0		$	295.70
Granted	0.7		$	543.83
Vested	(0.7	)	$	251.74
Forfeited	(0.1	)	$	365.99
Unvested balance at June 30, 2019	1.9		$	399.74


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