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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended ~~September 30, 2021~~March 31, 2022


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

For the transition period from to

Commission file number 000-30713

Intuitive Surgical, Inc.

(Exact name of Registrant as specified in its Charter)


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

1020 Kifer Road

Sunnyvale, California 94086

(Address of principal executive offices) (Zip Code)

(408) 523-2100

(Registrant’s telephone number, including area code)

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


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

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨

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

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

☐

Emerging growth company

☐

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

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

The Registrant had ~~357,236,861~~358,956,511 shares of Common Stock, $0.001 par value per share, outstanding as of ~~October 14, 2021.~~

April 19, 2022.

~~Table of Contents~~

INTUITIVE SURGICAL, INC.

TABLE OF CONTENTS


		Page No.
PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements (unaudited):

	Condensed consolidated balance sheets as of ~~September 30,~~March 31, 2022, and December 31, 2021 ~~and September 30, 20~~20	3

	Condensed consolidated statements of comprehensive income for the three ~~and nine~~ months ended ~~September 30, 2021,~~March 31, 2022, and 20202021	4

	Condensed consolidated statements of cash flows for the ~~nine~~three months ended ~~September 30, 2021,~~March 31, 2022, and 20202021	5

	Notes to condensed consolidated financial statements	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4443

Item 4.	Controls and Procedures	4443

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	4544

Item 1A.	Risk Factors	4544

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4645

Item 3.	Defaults Upon Senior Securities	4745

Item 4.	Mine Safety Disclosures	4745

Item 5.	Other Information	4745

Item 6.	Exhibits	4846

	Signature	4947

~~Table of Contents~~

PART I -– FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

INTUITIVE SURGICAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)


in millions (except par values)	in millions (except par values)	September 30, 2021		December 31, 2020		in millions (except par values)	March 31, 2022		December 31, 2021
ASSETS	ASSETS					ASSETS
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	1,346.7	1,622.6		Cash and cash equivalents	$	1,103.1	$	1,290.9
Short-term investments	Short-term investments	2,741.5		3,488.8		Short-term investments	2,882.5		2,913.1
Accounts receivable, net	Accounts receivable, net	695.0		645.5		Accounts receivable, net	906.1		782.7
Inventory	Inventory	584.9		601.5		Inventory	653.0		587.1
Prepaids and other current assets	Prepaids and other current assets	359.9		267.5		Prepaids and other current assets	258.5		271.1
Total current assets	Total current assets	5,728.0		6,625.9		Total current assets	5,803.2		5,844.9
Property, plant, and equipment, net	Property, plant, and equipment, net	1,737.9		1,577.3		Property, plant, and equipment, net	1,968.2		1,876.4
Long-term investments	Long-term investments	4,131.5		1,757.7		Long-term investments	4,416.2		4,415.5
Deferred tax assets	Deferred tax assets	411.5		367.7		Deferred tax assets	485.4		441.4
Intangible and other assets, net	Intangible and other assets, net	581.4		503.6		Intangible and other assets, net	662.2		633.2
Goodwill	Goodwill	344.3		336.7		Goodwill	343.2		343.6
Total assets	Total assets	$	12,934.6	$	11,168.9	Total assets	$	13,678.4	$	13,555.0
LIABILITIES AND STOCKHOLDERS’ EQUITY	LIABILITIES AND STOCKHOLDERS’ EQUITY					LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	$	120.0	$	81.6	Accounts payable	$	128.1	$	121.2
Accrued compensation and employee benefits	Accrued compensation and employee benefits	265.3		235.0		Accrued compensation and employee benefits	219.8		350.1
Deferred revenue	Deferred revenue	348.5		350.3		Deferred revenue	386.0		377.2
Other accrued liabilities	Other accrued liabilities	293.5		298.3		Other accrued liabilities	378.3		301.3
Total current liabilities	Total current liabilities	1,027.3		965.2		Total current liabilities	1,112.2		1,149.8
Other long-term liabilities	Other long-term liabilities	447.8		444.6		Other long-term liabilities	409.3		453.7
Total liabilities	Total liabilities	1,475.1		1,409.8		Total liabilities	1,521.5		1,603.5
Contingencies (Note 8)	Contingencies (Note 8)	0		0		Contingencies (Note 8)	0		0
Stockholders’ equity:	Stockholders’ equity:					Stockholders’ equity:
Preferred stock, 2.5 shares authorized, $0.001 par value, issuable in series; no shares issued and outstanding as of September 30, 2021, and December 31, 2020		—		—
Common stock, 600.0 shares authorized, $0.001 par value, 357.2 shares and 353.1 shares issued and outstanding as of September 30, 2021, and December 31, 2020, respectively		0.4		0.4
Preferred stock, 2.5 shares authorized, $0.001 par value, issuable in series; no shares issued and outstanding as of March 31, 2022, and December 31, 2021						Preferred stock, 2.5 shares authorized, $0.001 par value, issuable in series; no shares issued and outstanding as of March 31, 2022, and December 31, 2021	—		—
Common stock, 600.0 shares authorized, $0.001 par value, 358.9 shares and 357.7 shares issued and outstanding as of March 31, 2022, and December 31, 2021, respectively						Common stock, 600.0 shares authorized, $0.001 par value, 358.9 shares and 357.7 shares issued and outstanding as of March 31, 2022, and December 31, 2021, respectively	0.4		0.4
Additional paid-in capital	Additional paid-in capital	7,015.1		6,444.9		Additional paid-in capital	7,354.6		7,164.0
Retained earnings	Retained earnings	4,390.1		3,261.3		Retained earnings	4,858.0		4,760.9
Accumulated other comprehensive income		5.3		24.9
Accumulated other comprehensive income (loss)						Accumulated other comprehensive income (loss)	(110.7)		(24.2)
Total Intuitive Surgical, Inc. stockholders’ equity	Total Intuitive Surgical, Inc. stockholders’ equity	11,410.9		9,731.5		Total Intuitive Surgical, Inc. stockholders’ equity	12,102.3		11,901.1
Noncontrolling interest in joint venture	Noncontrolling interest in joint venture	48.6		27.6		Noncontrolling interest in joint venture	54.6		50.4
Total stockholders’ equity	Total stockholders’ equity	11,459.5		9,759.1		Total stockholders’ equity	12,156.9		11,951.5
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	12,934.6	$	11,168.9	Total liabilities and stockholders’ equity	$	13,678.4	$	13,555.0

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

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INTUITIVE SURGICAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
in millions (except per share amounts)	in millions (except per share amounts)	2021		2020		2021		2020		in millions (except per share amounts)	2022		2021
Revenue:	Revenue:									Revenue:
Product	Product	$	1,170.6	$	898.4	$	3,481.1	$	2,521.0	Product	$	1,238.4	$	1,074.6
Service	Service	232.7		179.3		678.3		508.3		Service	249.3		217.5
Total revenue	Total revenue	1,403.3		1,077.7		4,159.4		3,029.3		Total revenue	1,487.7		1,292.1
Cost of revenue:	Cost of revenue:									Cost of revenue:
Product	Product	355.8		287.7		1,049.1		868.2		Product	397.3		319.3
Service	Service	76.1		65.7		212.6		195.7		Service	80.7		70.2
Total cost of revenue	Total cost of revenue	431.9		353.4		1,261.7		1,063.9		Total cost of revenue	478.0		389.5
Gross profit	Gross profit	971.4		724.3		2,897.7		1,965.4		Gross profit	1,009.7		902.6
Operating expenses:	Operating expenses:									Operating expenses:
Selling, general and administrative	Selling, general and administrative	363.3		298.9		1,039.5		886.1		Selling, general and administrative	391.1		326.0
Research and development	Research and development	165.5		155.0		487.6		445.3		Research and development	210.5		159.8
Total operating expenses	Total operating expenses	528.8		453.9		1,527.1		1,331.4		Total operating expenses	601.6		485.8
Income from operations	Income from operations	442.6		270.4		1,370.6		634.0		Income from operations	408.1		416.8
Interest and other income, net		18.5		84.8		65.5		136.5
Interest and other income (expense), net										Interest and other income (expense), net	(5.7)		32.0
Income before taxes	Income before taxes	461.1		355.2		1,436.1		770.5		Income before taxes	402.4		448.8
Income tax expense	Income tax expense	73.9		38.4		90.7		67.3		Income tax expense	33.0		13.6
Net income	Net income	387.2		316.8		1,345.4		703.2		Net income	369.4		435.2
Less: net income attributable to noncontrolling interest in joint venture	Less: net income attributable to noncontrolling interest in joint venture	6.7		2.9		21.4		7.8		Less: net income attributable to noncontrolling interest in joint venture	3.8		8.9
Net income attributable to Intuitive Surgical, Inc.	Net income attributable to Intuitive Surgical, Inc.	$	380.5	$	313.9	$	1,324.0	$	695.4	Net income attributable to Intuitive Surgical, Inc.	$	365.6	$	426.3
Net income per share attributable to Intuitive Surgical, Inc.:	Net income per share attributable to Intuitive Surgical, Inc.:									Net income per share attributable to Intuitive Surgical, Inc.:
Basic	Basic	$	1.07	$	0.89	$	3.72	$	1.98	Basic	$	1.02	$	1.20
Diluted	Diluted	$	1.04	$	0.87	$	3.63	$	1.93	Diluted	$	1.00	$	1.17
Shares used in computing net income per share attributable to Intuitive Surgical, Inc.:	Shares used in computing net income per share attributable to Intuitive Surgical, Inc.:									Shares used in computing net income per share attributable to Intuitive Surgical, Inc.:
Basic	Basic	356.8		352.0		355.6		350.5		Basic	358.4		354.2
Diluted	Diluted	366.8		361.9		365.1		360.1		Diluted	366.7		364.0

Other comprehensive loss, net of tax:										Other comprehensive loss, net of tax:
Change in unrealized gains on hedge instruments										Change in unrealized gains on hedge instruments	$	1.0	$	6.1
Change in unrealized losses on available-for-sale securities										Change in unrealized losses on available-for-sale securities	(90.7)		(10.0)
Change in foreign currency translation gains (losses)										Change in foreign currency translation gains (losses)	3.5		(9.5)
Change in prior service cost for employee benefit plans										Change in prior service cost for employee benefit plans	0.1		0.1
Other comprehensive loss										Other comprehensive loss	(86.1)		(13.3)
Total comprehensive income	Total comprehensive income	$	382.1	$	310.8	$	1,325.4	$	707.2	Total comprehensive income	283.3		421.9
Less: comprehensive income attributable to noncontrolling interest	Less: comprehensive income attributable to noncontrolling interest	6.6		3.0		21.0		8.0		Less: comprehensive income attributable to noncontrolling interest	4.2		9.1
Total comprehensive income attributable to Intuitive Surgical, Inc.	Total comprehensive income attributable to Intuitive Surgical, Inc.	$	375.5	$	307.8	$	1,304.4	$	699.2	Total comprehensive income attributable to Intuitive Surgical, Inc.	$	279.1	$	412.8

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

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INTUITIVE SURGICAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)


		Nine Months Ended September 30,					Three Months Ended March 31,
in millions	in millions	2021		2020		in millions	2022		2021
Operating activities:	Operating activities:					Operating activities:
Net income	Net income	$	1,345.4	$	703.2	Net income	$	369.4	$	435.2
Adjustments to reconcile net income to net cash provided by operating activities:	Adjustments to reconcile net income to net cash provided by operating activities:					Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and loss on disposal of property, plant, and equipment	Depreciation and loss on disposal of property, plant, and equipment	208.5		159.1		Depreciation and loss on disposal of property, plant, and equipment	77.7		64.8
Amortization of intangible assets	Amortization of intangible assets	20.8		37.3		Amortization of intangible assets	6.1		6.9
Gain on sale of business						Gain on sale of business	(3.8)		—
Loss (gain) on investments, accretion, and amortization, net	Loss (gain) on investments, accretion, and amortization, net	(2.1)		(64.2)		Loss (gain) on investments, accretion, and amortization, net	26.0		(12.6)
Deferred income taxes	Deferred income taxes	(40.6)		71.9		Deferred income taxes	(14.4)		44.7

Share-based compensation expense	Share-based compensation expense	331.4		292.3		Share-based compensation expense	120.8		103.2
Amortization of contract acquisition assets	Amortization of contract acquisition assets	15.5		12.4		Amortization of contract acquisition assets	6.6		4.9
Changes in operating assets and liabilities, net of effects of acquisitions:	Changes in operating assets and liabilities, net of effects of acquisitions:					Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable	Accounts receivable	(54.7)		57.2		Accounts receivable	(123.4)		(14.3)
Inventory	Inventory	(189.2)		(177.0)		Inventory	(120.1)		(41.2)
Prepaids and other assets	Prepaids and other assets	(216.7)		(118.8)		Prepaids and other assets	(21.7)		(73.2)

Accounts payable	Accounts payable	35.8		(3.9)		Accounts payable	(1.9)		23.7
Accrued compensation and employee benefits	Accrued compensation and employee benefits	30.3		(76.4)		Accrued compensation and employee benefits	(130.3)		(40.2)
Deferred revenue	Deferred revenue	2.3		(9.2)		Deferred revenue	11.4		6.8
Other liabilities	Other liabilities	35.0		(26.6)		Other liabilities	20.6		(31.1)
Net cash provided by operating activities	Net cash provided by operating activities	1,521.7		857.3		Net cash provided by operating activities	223.0		477.6
Investing activities:	Investing activities:					Investing activities:
Purchase of investments	Purchase of investments	(5,213.7)		(3,023.2)		Purchase of investments	(1,187.3)		(1,833.1)
Proceeds from sales of investments	Proceeds from sales of investments	72.4		800.7		Proceeds from sales of investments	—		72.0
Proceeds from maturities of investments	Proceeds from maturities of investments	3,532.1		1,933.5		Proceeds from maturities of investments	1,067.7		1,231.4
Purchase of property, plant, and equipment and intellectual property	Purchase of property, plant, and equipment and intellectual property	(202.6)		(279.6)		Purchase of property, plant, and equipment and intellectual property	(95.1)		(58.6)
Acquisition of businesses, net of cash	Acquisition of businesses, net of cash	(8.7)		(37.7)		Acquisition of businesses, net of cash	—		(8.7)

Net cash used in investing activities	Net cash used in investing activities	(1,820.5)		(606.3)		Net cash used in investing activities	(214.7)		(597.0)
Financing activities:	Financing activities:					Financing activities:
Proceeds from issuance of common stock relating to employee stock plans	Proceeds from issuance of common stock relating to employee stock plans	244.8		267.9		Proceeds from issuance of common stock relating to employee stock plans	80.0		84.0
Taxes paid related to net share settlement of equity awards	Taxes paid related to net share settlement of equity awards	(201.2)		(165.3)		Taxes paid related to net share settlement of equity awards	(172.2)		(178.3)
Repurchase of common stock	Repurchase of common stock	—		(100.0)		Repurchase of common stock	(106.5)		—

Payment of deferred purchase consideration	Payment of deferred purchase consideration	(19.2)		(48.5)		Payment of deferred purchase consideration	(1.2)		(7.9)
Net cash provided by (used in) financing activities		24.4		(45.9)
Net cash used in financing activities						Net cash used in financing activities	(199.9)		(102.2)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	Effect of exchange rate changes on cash, cash equivalents, and restricted cash	(2.3)		(2.0)		Effect of exchange rate changes on cash, cash equivalents, and restricted cash	3.8		0.8
Net increase (decrease) in cash, cash equivalents, and restricted cash	Net increase (decrease) in cash, cash equivalents, and restricted cash	(276.7)		203.1		Net increase (decrease) in cash, cash equivalents, and restricted cash	(187.8)		(220.8)
Cash, cash equivalents, and restricted cash, beginning of period	Cash, cash equivalents, and restricted cash, beginning of period	1,638.5		1,182.6		Cash, cash equivalents, and restricted cash, beginning of period	1,306.0		1,638.5
Cash, cash equivalents, and restricted cash, end of period	Cash, cash equivalents, and restricted cash, end of period	$	1,361.8	$	1,385.7	Cash, cash equivalents, and restricted cash, end of period	$	1,118.2	$	1,417.7

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

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~~INTUITIVE SURGICAL, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(UNAUDITED)~~

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

NOTE 1. DESCRIPTION OF THE BUSINESS

Intuitive Surgical, Inc. (“Intuitive” or the “Company”) develops, manufactures, and markets the da Vinci® Surgical System and the IonTM® endoluminal system. The Company’s products and related services enable physicians and healthcare providers to improve the quality of and access to minimally invasive care. The ~~da Vinci Surgical System consists~~systems consist of a surgeon console or consoles, a patient-side cart, a high-performance vision system, and proprietary instruments and accessories. ~~The Ion endoluminal system is a flexible, robotic-assisted, catheter-based platform that utilizes instruments and accessories for lung biopsies.~~

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

In the opinion of management, the accompanying unaudited Condensed Consolidated Financial Statements (“Financial Statements”) of Intuitive Surgical, Inc. and its wholly and majority-owned subsidiaries have been prepared on a consistent basis with the audited Consolidated Financial Statements for the fiscal year ended December 31, ~~2020,~~2021, and include all adjustments, consisting of only normal, recurring adjustments, necessary to fairly state the information set forth herein. The Financial Statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) and, therefore, omit certain information and footnote disclosure necessary to present the Financial Statements in accordance with United States (“U.S.”) generally accepted accounting principles (“U.S. GAAP”). These Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, ~~2020,~~2021, which was filed with the SEC on February ~~10, 2021.~~3, 2022. The results of operations for the first ~~nine~~three months of ~~fiscal year 2021~~2022 are not necessarily indicative of the results to be expected for the entire fiscal year or any future periods.

The Financial Statements include the results and ~~the~~ balances of the Company’s majority-owned joint venture ~~(referred to herein as the “Joint~~(“Joint Venture”) with Shanghai Fosun Pharmaceutical (Group) Co., Ltd. (“Fosun Pharma”). Chindex Medical Limited (“Chindex”), a subsidiary of Fosun Pharma, has been its distribution partner for da Vinci Surgical Systems in China. The Company holds a controlling financial interest in the Joint Venture, and the noncontrolling interest is reflected as a separate component of the consolidated stockholders’ equity. The noncontrolling interest’s share of the earnings in the Joint Venture is presented separately in the ~~condensed consolidated statements~~Condensed Consolidated Statements of ~~comprehensive income.~~Comprehensive Income.

Common Stock Split

Shares issued pursuant to the three-for-one stock split (the ~~"Stock Split"~~“Stock Split”) of the Company's issued and outstanding common stock, par value $0.001 per share, were distributed on October 4, 2021, to stockholders of record as of September 27, 2021. All share and per-share information presented in the Financial Statements have been retroactively adjusted to reflect the Stock Split.

Risks and Uncertainties

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

The severity of the impact of the COVID-19 pandemic on the Company’s business will depend on a number of factors, including, but not limited to, the duration and severity of the pandemic and the extent and severity of the impact on the Company’s customers, all of which are uncertain and cannot be predicted. The Company’s future results of operations and liquidity could be materially adversely affected by delays in payments of outstanding receivables, supply chain disruptions, including shortages and inflationary pressure, uncertain or reduced demand, and the impact of any initiatives or programs that the Company may undertake to address financial and operational challenges faced by its customers.

In particular, ~~we have~~the Company has experienced increased difficulties in obtaining a sufficient ~~amount~~supply of a number of component materials used in ~~our~~its products, such as semiconductor components as well as a range of other materials including, ~~those in the semiconductor market,~~but not limited to, metals and polymers, as global supply has become significantly constrained due to increased demand ~~in semiconductors and other~~for certain materials. Additionally, prices of such materials have increased due to the increased demand and supply shortage. The Company is engaged in activities to seek to mitigate supply disruptions by, for example, increasing ~~our~~its communications with ~~our suppliers and modifying our purchase order coverage and inventory levels.~~its

~~Table of Contents~~

~~However,~~suppliers and modifying its purchase order coverage and inventory levels, but the Company has experienced a reduction in its safety stock levels. Moreover, the global ~~semiconductor~~ supply ~~shortage is~~chain shortages are likely to remain a challenge for the foreseeable future. ~~We have~~

The Company has also experienced challenges in logistics, as certain shipping routes have been impacted by port closures. Such global shortages in important components and logistics challenges have resulted in, and will continue to cause, inflationary cost pressure in ~~our~~the Company’s supply chain. To date, the inflationary cost pressure has been more pronounced in the Company’s logistics costs, but these supply chain challenges have not materially impacted ~~our~~the Company’s results of operations or ability to deliver ~~product~~products and services to ~~our~~its customers. However, if shortages in important supply chain materials in the semiconductor or other markets or logistics challenges continue, wethe Company could fail to meet product demand, which could result in deferred or cancelled procedures. Additionally, if inflationary pressures in logistics or component costs persist, we may not be able to quickly or easily adjust pricing, reduce costs, or implement countermeasures, all of which would adversely impact ~~our~~its business, financial condition, results of operations, or cash flows.

Increased labor shortages globally, including staff burnout and attrition, could also impact ~~our~~the Company’s ability to hire and retain personnel critical to ~~our~~its manufacturing, logistics, and commercial operations. ~~We are~~The Company is also highly dependent on the principal members of ~~our~~its management and scientific staff. Attracting and retaining qualified personnel is critical to ~~our~~its success, and competition for them has become more intense. The loss of critical members of ~~our~~the Company’s team, or ~~our~~its inability to attract and retain qualified personnel, could significantly harm ~~our~~its operations, business, and ability to compete.

In addition, hospitals are ~~also~~ experiencing financial and operational pressures as a result of staffing shortages, ~~and~~the supply chain ~~issues~~environment, and resulting inflation that could impact their ability to provide patient ~~care.~~care, defer elective surgeries, and impact their profitability. In addition, the rising interest rate environment has made access to credit more expensive. To the extent that hospitals continue to face financial pressures, reductions in government spending, or higher interest rates, it is likely that hospitals’ spend on capital equipment will be adversely impacted. As of the date of issuance of these Financial Statements, the extent to which the COVID-19 pandemic, supply chain environment, inflationary pressures, and labor shortages may materially adversely affect the Company’s financial condition, liquidity, or results of operations is uncertain.

Recently Adopted Accounting Pronouncements

~~Certain Leases with Variable Lease Payments~~Business Combinations

In ~~July~~October 2021, the ~~Financial~~FASB issued ASU No. 2021-08, Business Combinations (Topic 805): Accounting ~~Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2021-05,~~ for Contract Assets and Contract Liabilities from Contracts with Customers~~Lessors - Certain Leases with Variable Lease Payments~~ (“ASU 2021-08”), which ~~amends~~creates an exception to the ~~lessor lease classification guidance~~general recognition and measurement principle in ASC ~~842 for leases~~805 by requiring companies to apply ASC 606 to recognize and measure contract assets and contract liabilities from contracts with customers acquired in a business combination. The guidance additionally clarifies that ~~include any amount~~companies should apply the definition of ~~variable lease payments that are not based on an index or rate.~~a performance obligation in ASC 606 when recognizing contract liabilities assumed in a business combination. The Company has early adopted ~~this~~ ASU 2021-08 as of ~~July~~January 1, ~~2021,~~2022, on a prospective basis. The ~~standard had no~~ impact of the adoption of ASU 2021-08 cannot currently be determined, as it is dependent on future business combinations that the ~~Company's consolidated financial statements and related disclosures.~~Company may enter into.

Significant Accounting Policies

There have been no new or material changes to the significant accounting policies discussed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, ~~2020.~~2021, that are of significance, or potential significance, to the Company.

NOTE 3. FINANCIAL INSTRUMENTS

Cash, Cash Equivalents, and Investments

The following tables summarize the Company’s cash and available-for-sale marketable securities’ amortized cost, gross unrealized gains, gross unrealized losses, allowance for credit loss, and fair value by significant investment category reported as cash and cash equivalents, short-term investments, or long-term investments as of ~~September 30, 2021,~~March 31, 2022 and December 31, ~~2020~~2021 (in millions):


												Reported as:																	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			Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Loss		Fair Value		Cash and Cash Equivalents		Short- term Investments		Long- term Investments
September 30, 2021
March 31, 2022																		March 31, 2022
Cash	Cash	$	534.5	$	—	$	—	$	—	$	534.5	$	534.5	$	—	$	—	Cash	$	579.4	$	—	$	—	$	—	$	579.4	$	579.4	$	—	$	—
Level 1:	Level 1:																	Level 1:
Money market funds	Money market funds	812.2		—		—		—		812.2		812.2		—		—		Money market funds	491.6		—		—		—		491.6		491.6		—		—
U.S. treasuries	U.S. treasuries	3,250.7		10.6		(2.8)		—		3,258.5		—		1,104.6		2,153.9		U.S. treasuries	3,599.5		0.9		(71.8)		—		3,528.6		12.0		1,329.3		2,187.3
Subtotal	Subtotal	4,062.9		10.6		(2.8)		—		4,070.7		812.2		1,104.6		2,153.9		Subtotal	4,091.1		0.9		(71.8)		—		4,020.2		503.6		1,329.3		2,187.3
Level 2:	Level 2:																	Level 2:
Commercial paper	Commercial paper	632.7		—		—		—		632.7		—		632.7		—		Commercial paper	581.3		—		—		—		581.3		16.2		565.1		—
Corporate debt securities	Corporate debt securities	2,262.4		5.3		(2.0)		—		2,265.7		—		794.4		1,471.3		Corporate debt securities	2,554.6		0.3		(53.3)		(1.1)		2,500.5		3.9		770.0		1,726.6
U.S. government agencies	U.S. government agencies	538.3		0.5		(0.5)		—		538.3		—		150.8		387.5		U.S. government agencies	541.3		—		(13.5)		—		527.8		—		140.0		387.8

Municipal securities	Municipal securities	176.8		1.2		(0.2)		—		177.8		—		59.0		118.8		Municipal securities	196.9		0.1		(4.4)		—		192.6		—		78.1		114.5
Subtotal	Subtotal	3,610.2		7.0		(2.7)		—		3,614.5		—		1,636.9		1,977.6		Subtotal	3,874.1		0.4		(71.2)		(1.1)		3,802.2		20.1		1,553.2		2,228.9

Total assets measured at fair value	Total assets measured at fair value	$	8,207.6	$	17.6	$	(5.5)	$	—	$	8,219.7	$	1,346.7	$	2,741.5	$	4,131.5	Total assets measured at fair value	$	8,544.6	$	1.3	$	(143.0)	$	(1.1)	$	8,401.8	$	1,103.1	$	2,882.5	$	4,416.2


											Reported as:
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Loss		Fair Value		Cash and Cash Equivalents		Short- term Investments		Long- term Investments
December 31, 2021
Cash	$	572.3	$	—	$	—	$	—	$	572.3	$	572.3	$	—	$	—
Level 1:
Money market funds	696.6		—		—		—		696.6		696.6		—		—
U.S. treasuries	3,429.1		6.3		(15.4)		—		3,420.0		17.0		1,100.3		2,302.7
Subtotal	4,125.7		6.3		(15.4)		—		4,116.6		713.6		1,100.3		2,302.7
Level 2:
Commercial paper	717.7		—		—		—		717.7		—		717.7		—
Corporate debt securities	2,485.6		2.7		(11.9)		—		2,476.4		5.0		886.7		1,584.7
U.S. government agencies	526.1		0.2		(2.9)		—		523.4		—		137.8		385.6

Municipal securities	213.4		0.7		(1.0)		—		213.1		—		70.6		142.5
Subtotal	3,942.8		3.6		(15.8)		—		3,930.6		5.0		1,812.8		2,112.8



Total assets measured at fair value	$	8,640.8	$	9.9	$	(31.2)	$	—	$	8,619.5	$	1,290.9	$	2,913.1	$	4,415.5

~~Table of Contents~~

Reported as:
Amortized
Cost Gross
Unrealized
Gains Gross
Unrealized
Losses Allowance for Credit Loss Fair
Value Cash and
Cash
Equivalents Short-
term
Investments Long-
term
Investments
December 31, 2020
Cash $ 644.3 $ — $ — $ — $ 644.3 $ 644.3 $ — $ —
Level 1:
Money market funds 625.8 — — — 625.8 625.8 — —
U.S. treasuries 2,626.8 23.0 — — 2,649.8 212.5 1,567.9 869.4
Subtotal 3,252.6 23.0 — — 3,275.6 838.3 1,567.9 869.4
Level 2:
Commercial paper 671.3 — — — 671.3 64.1 607.2 —
Corporate debt securities 1,425.4 11.9 (0.2) — 1,437.1 3.4 1,036.5 397.2
U.S. government agencies 716.5 2.5 — — 719.0 72.5 233.6 412.9
Municipal securities 119.8 2.0 — — 121.8 — 43.6 78.2
Subtotal 2,933.0 16.4 (0.2) — 2,949.2 140.0 1,920.9 888.3
Total assets measured at fair value $ 6,829.9 $ 39.4 $ (0.2) $ — $ 6,869.1 $ 1,622.6 $ 3,488.8 $ 1,757.7

The following table summarizes the contractual maturities of the Company’s cash equivalents and available-for-sale investments (excluding cash and money market funds), as of ~~September 30, 2021~~March 31, 2022 (in millions):


		Amortized Cost		Fair Value			Amortized Cost		Fair Value
Mature in less than one year	Mature in less than one year	$	2,735.3	$	2,741.5	Mature in less than one year	$	2,924.3	$	2,914.6
Mature in one to five years	Mature in one to five years	4,125.6		4,131.5		Mature in one to five years	4,549.3		4,416.2

Total	Total	$	6,860.9	$	6,873.0	Total	$	7,473.6	$	7,330.8

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

The following tables present the breakdown of the available-for-sale debt securities that have been in a continuous unrealized loss position deemed to be temporary, aggregated by investment category, as of March 31, 2022, and December 31, 2021 (in millions):


	March 31, 2022
	Less than 12 months				More than 12 months				Total
	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
U.S. treasuries	$	2,807.4	$	(59.6)	$	303.5	$	(12.2)	$	3,110.9	$	(71.8)
Commercial paper	6.9		—		—		—		6.9		—
Corporate debt securities	1,935.7		(49.2)		78.5		(4.1)		2,014.2		(53.3)
U.S. government agencies	506.9		(12.9)		10.9		(0.6)		517.8		(13.5)
Municipal securities	165.2		(4.4)		—		—		165.2		(4.4)
Total	$	5,422.1	$	(126.1)	$	392.9	$	(16.9)	$	5,815.0	$	(143.0)


	December 31, 2021
	Less than 12 months				More than 12 months				Total
	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
U.S. treasuries	$	2,596.3	$	(15.4)	$	—	$	—	$	2,596.3	$	(15.4)
Commercial paper	4.0		—		—		—		4.0		—
Corporate debt securities	1,687.9		(11.9)		—		—		1,687.9		(11.9)
U.S. government agencies	412.5		(2.9)		—		—		412.5		(2.9)
Municipal securities	156.0		(1.0)		—		—		156.0		(1.0)
Total	$	4,856.7	$	(31.2)	$	—	$	—	$	4,856.7	$	(31.2)

The Company’s investment portfolio at any point in time contains available-for-sale debt securities including investments in U.S. treasury and U.S. government agency securities, taxable and tax-exempt municipal notes, corporate notes and bonds, commercial paper, non-U.S. government agency securities, cash deposits, and money market funds. The Company segments its portfolio based on the underlying risk profiles of the securities and ~~have~~has a ~~zero-loss~~zero loss expectation for U.S. treasury and U.S. government agency securities. The basis for this assumption is that these securities have consistently high credit ratings by rating agencies, have a long history with no credit losses, are explicitly guaranteed by a sovereign entity, which can print its own currency, and is a currency that is routinely held by central banks, used in international commerce, and commonly viewed as a reserve currency. The Company regularly reviews the securities in an unrealized loss position and evaluates the current expected credit loss by considering factors such as historical experience, market data, issuer-specific factors, and current economic conditions. For the ~~nine~~three months ended ~~September 30, 2021,~~March 31, 2022, the credit losses related to available-for-sales debt securities were not ~~significant.~~material.

The Company determined these unrealized losses to be temporary. Factors considered in determining whether a loss is temporary included the length of time and extent to which the investment’s fair value has been less than the cost basis, the financial condition and near-term prospects of the investee, the extent of the loss related to credit of the issuer, the expected cash flows from the security, the Company’s intent to sell the security, and whether or not the Company will be required to sell the security before the recovery of its amortized cost. As of March 31, 2022, the Company did not intend to sell any of the debt

securities included in the table above, and it is not more likely than not that the Company will be required to sell any of these securities before recovery of the unrealized losses, which may be at maturity.

Equity Investments

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

~~Table of Contents~~

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


									Reported as:
	December 31, 2021 Carrying Value		Changes in Fair Value (1)		Sales/Purchases		March 31, 2022 Carrying Value		Prepaids and other current assets		Intangible and other assets, net
Equity investments with readily determinable value (Level 1)	$	26.9	$	(17.2)	$	—	$	9.7	$	9.7	$	—
Equity investments without readily determinable value (Level 2)	$	15.6	$	(0.1)	$	20.0	$	35.5	$	—	$	35.5

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

Reported as:
December 31, 2020
Carrying Value
Changes in Fair Value (1)
Sales/Purchases/Other (2)
September 30, 2021
Carrying Value
Prepaids and other current assets Intangible and other assets, net
Equity investments with readily determinable value (Level 1) $ 60.1 $ (0.9) $ (15.4) $ 43.8 $ 43.8 $ —
Equity investments without readily determinable value (Level 2) $ 30.2 $ 34.5 $ (52.2) $ 12.5 $ — $ 12.5
(1) Recorded in Interest and other income, net.
(2) Other includes conversion of certain equity investments without readily determinable value to equity investments with readily determinable value.

In September 2021, Broncus Holding Corporation (“Broncus”) completed an initial public offering (“IPO”) of common shares on the Stock Exchange of Hong Kong. Upon completion of its IPO, the Company’s preferred shares of Broncus were converted into common shares, which have a readily determinable value (Level 1). The Company was restricted from selling these shares for a period of six months. For the three months ended March 31, 2022, we recognized ~~a $34.5~~an unrealized loss on this investment of $17.2 million ~~increase~~reflected in changes in fair value for Level 1 equity investments, which was reflected in Interest and other income net, due to changes in observable prices for certain equity investments that had been held at cost, because they lacked readily determinable market values (Level 2). A total of $34.2 million of this increase in fair value was related to an equity investment in preferred shares of Broncus Medical, Inc. (“Broncus”). (expense), net.

There were no decreases in fair value reflected in net income due to impairments.

In September 2021, Broncus completed its initial public offering (“IPO”). Upon completion of its IPO, the Company’s preferred shares were converted to common shares, which have a readily determinable value (Level 1). The Company is restricted from selling these shares for a period of six months. Subsequent to the IPO, the Company recognized a $12.3 million decrease in fair value from this investment. As such, for the nine months ended September 30, 2021, the Company has recognized a net gain of $21.9 million related to Broncus, comprised of the $34.2 million gain reflected in changes in fair value for Level 2 equity investments, offset by the $12.3 million loss reflected in changes in fair value for Level 1 equity investments, both of which were reflected in Interest and other income, net.

In January 2021, the Company sold all of its shares of Teladoc Health, Inc. (“Teladoc”), a publicly traded company, for $71.5 million and recognized a gain of $11.4 million, which was reflected in Interest and other income, net. This gain was offset by a $7.5 million loss recognized upon the settlement of a corresponding derivative collar contract.

Foreign Currency Derivatives

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

Cash Flow Hedges

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

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

Other Derivatives Not Designated as Hedging Instruments

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

~~Table of Contents~~

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


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2021		2020		2021		2020			2022		2021
Recognized gains/(losses) in Interest and other income, net		$	4.4	$	(5.0)	$	11.8	$	(3.2)
Recognized gains/(losses) in Interest and other income (expense), net										Recognized gains/(losses) in Interest and other income (expense), net	$	6.8	$	7.4
Foreign exchange gains/(losses) related to balance sheet re-measurement	Foreign exchange gains/(losses) related to balance sheet re-measurement	$	(6.4)	$	5.9	$	(12.4)	$	(1.1)	Foreign exchange gains/(losses) related to balance sheet re-measurement	$	(10.1)	$	(7.1)

Additionally, in January 2021, the Company settled a collar contract previously entered into to hedge its equity investment in Teladoc Health, Inc. For the ~~nine~~three months ended ~~September 30,~~March 31, 2021, a loss of $7.5 million was recognized in Interest and other income (expense), net.

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

Derivatives Designated as Hedging Instruments Derivatives Not Designated as Hedging Instruments
September 30,
2021 December 31, 2020 September 30,
2021 December 31, 2020
Notional amounts:
Forward contracts $ 203.7 $ 154.3 $ 285.8 $ 309.8
Gross fair value recorded in:
Prepaids and other current assets $ 6.8 $ 0.9 $ 5.8 $ 0.7
Other accrued liabilities $ 0.9 $ 4.3 $ 0.7 $ 5.4


	Derivatives Designated as Hedging Instruments				Derivatives Not Designated as Hedging Instruments
	March 31, 2022		December 31, 2021		March 31, 2022		December 31, 2021
Notional amounts:
Forward contracts	$	186.0	$	181.2	$	330.0	$	318.8
Gross fair value recorded in:
Prepaids and other current assets	$	6.9	$	5.7	$	6.8	$	6.9
Other accrued liabilities	$	0.4	$	0.5	$	1.9	$	0.8

NOTE 4. BALANCE SHEET DETAILS AND OTHER FINANCIAL INFORMATION

Balance Sheet Details

The following tables provide details of selected balance sheet line items (in millions):


	As of
Inventory	March 31, 2022		December 31, 2021
Raw materials	$	261.3	$	214.6
Work-in-process	113.8		96.4
Finished goods	277.9		276.1
Total inventory	$	653.0	$	587.1

As of
Inventory September 30,
2021 December 31,
2020
Raw materials $ 181.4 $ 184.1
Work-in-process 85.7 75.6
Finished goods 317.8 341.8
Total inventory $ 584.9 $ 601.5


	As of
Prepaids and other current assets	March 31, 2022		December 31, 2021
Prepaid taxes	$	12.8	$	4.3
Equity investments	9.7		26.9
Net investment in sales-type leases–short-term	110.2		110.3
Other prepaids and other current assets	125.8		129.6
Total prepaids and other current assets	$	258.5	$	271.1

As of
Prepaids and other current assets September 30,
2021 December 31,
2020
Prepaid taxes $ 78.2 $ 28.9
Equity investments 43.8 60.1
Net investment in sales-type leases – short-term 98.6 81.1
Other prepaids and other current assets 139.3 97.4
Total prepaids and other current assets $ 359.9 $ 267.5


	As of
Other accrued liabilities–short-term	March 31, 2022		December 31, 2021
Taxes payable	$	113.3	$	54.1


Current portion of deferred and contingent purchase consideration	7.6		12.0
Other accrued liabilities	257.4		235.2
Total other accrued liabilities–short-term	$	378.3	$	301.3


	As of
Other long-term liabilities	March 31, 2022		December 31, 2021
Income taxes–long-term	$	281.7	$	316.6
Deferred revenue–long-term	38.4		36.8
Other long-term liabilities	89.2		100.3
Total other long-term liabilities	$	409.3	$	453.7

1011

~~Table of Contents~~

As of
Other accrued liabilities–short-term September 30,
2021 December 31,
2020
Taxes payable $ 65.9 $ 47.2
Current portion of deferred purchase consideration payments 12.2 10.4
Current portion of contingent consideration 0.6 15.1
Other accrued liabilities 214.8 225.6
Total other accrued liabilities–short-term $ 293.5 $ 298.3

As of
Other long-term liabilities September 30,
2021 December 31,
2020
Income taxes–long-term $ 309.2 $ 305.6
Deferred revenue–long-term 35.0 32.1
Other long-term liabilities 103.6 106.9
Total other long-term liabilities $ 447.8 $ 444.6

Supplemental Cash Flow Information

The following table provides supplemental non-cash investing and financing activities (in millions):
Nine Months Ended September 30,
2021 2020
Equipment transfers, including operating lease assets, from inventory to property, plant, and equipment $ 229.2 $ 123.6
Acquisition of property, plant, and equipment in accounts payable and accrued liabilities $ 29.9 $ 44.1
Deferred payments and contingent consideration related to business combinations and asset acquisitions $ 7.5 $ 4.1


	Three Months Ended March 31,
	2022		2021
Equipment transfers, including operating lease assets, from inventory to property, plant, and equipment	$	60.9	$	73.5
Acquisition of property, plant, and equipment in accounts payable and accrued liabilities	$	53.5	$	27.6

NOTE 5. REVENUE AND CONTRACT ACQUISITION COSTS

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

Three Months Ended September 30, Nine Months Ended September 30,
U.S. 2021 2020 2021 2020
Instruments and accessories $ 535.7 $ 467.3 $ 1,614.0 $ 1,227.2
Systems 263.4 157.7 743.7 495.8
Services 153.1 118.8 447.8 337.8
Total U.S. revenue $ 952.2 $ 743.8 $ 2,805.5 $ 2,060.8
Outside of U.S. (“OUS”)
Instruments and accessories $ 219.7 $ 163.2 $ 643.7 $ 481.6
Systems 151.8 110.1 479.7 316.3
Services 79.6 60.6 230.5 170.6
Total OUS revenue $ 451.1 $ 333.9 $ 1,353.9 $ 968.5
Total
Instruments and accessories $ 755.4 $ 630.5 $ 2,257.7 $ 1,708.8
Systems 415.2 267.8 1,223.4 812.1
Services 232.7 179.4 678.3 508.4
Total revenue $ 1,403.3 $ 1,077.7 $ 4,159.4 $ 3,029.3

~~Table of Contents~~


	Three Months Ended March 31,
U.S.	2022		2021
Instruments and accessories	$	550.6	$	500.8
Systems	248.3		202.7
Services	165.9		144.0
Total U.S. revenue	$	964.8	$	847.5

Outside of U.S. (“OUS”)
Instruments and accessories	$	259.7	$	205.1
Systems	179.8		166.0
Services	83.4		73.5
Total OUS revenue	$	522.9	$	444.6

Total
Instruments and accessories	$	810.3	$	705.9
Systems	428.1		368.7
Services	249.3		217.5
Total revenue	$	1,487.7	$	1,292.1

Remaining Performance Obligations

The transaction price allocated to remaining performance obligations relates to amounts allocated to products and services for which revenue has not yet been recognized. A significant portion of these performance obligations relate to service obligations in the ~~Company's~~Company’s system sale and lease arrangements that will be satisfied and recognized as revenue in future periods. The transaction price allocated to the remaining performance obligations was ~~$1,723 million~~$1.80 billion as of ~~September 30, 2021.~~March 31, 2022. The remaining performance obligations are expected to be satisfied over the term of the system sale, lease, and ~~lease~~service arrangements, which are generally ~~are~~ up to 5 years. ~~Service revenue associated with the lease arrangements will be recognized over the service period.~~

Contract Assets and Liabilities

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

As of
September 30, 2021 December 31, 2020
Contract assets $ 44.8 $ 34.6
Deferred revenue $ 383.5 $ 382.3


	As of
	March 31, 2022		December 31, 2021
Contract assets	$	50.9	$	46.9
Deferred revenue	$	424.4	$	414.0

The Company invoices its customers based on the billing schedules in its sales arrangements. Payments are generally due 30 to 60 days from date of invoice. Contract assets for the periods presented primarily represent the difference between the revenue that was recognized based on the relative standalone selling price of the related performance obligations satisfied and the contractual billing terms in the arrangements. Deferred revenue for the periods presented primarily relates to service contracts where the service fees are billed up-front, generally quarterly or annually, prior to those services having been performed. The associated deferred revenue is generally recognized over the term of the service period. The Company did not have any significant impairment losses on its contract assets for the periods presented.

During the three ~~and nine~~ months ended ~~September 30, 2021,~~March 31, 2022, the Company recognized ~~$66.1 million and $319.3~~$193 million of revenue ~~respectively,~~ that was included in the deferred revenue balance as of December 31, ~~2020.~~2021. During the three ~~and nine~~ months ended ~~September 30, 2020,~~March 31, 2021, the Company recognized ~~$58.1 million and $249.7~~$154 million, of revenue ~~respectively, net of the impact of the Customer Relief Program,~~ that was included in the deferred revenue balance as of December 31, ~~2019.~~2020.

Intuitive System Leasing

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

Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
Sales-type lease revenue $ 39.0 $ 24.7 $ 140.3 $ 96.5
Operating lease revenue $ 72.5 $ 45.7 $ 198.8 $ 127.0

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


	Three Months Ended March 31,
	2022		2021
Sales-type lease revenue	$	35.6	$	17.3
Operating lease revenue*	$	83.2	$	59.0

*Variable lease revenue relating to usage-based arrangements included within operating lease revenue	$	24.9	$	13.5

Trade Accounts Receivable

The allowance for doubtful accounts is based on the Company’s assessment of the collectibility of customer accounts. The Company regularly reviews the allowance by considering factors such as historical experience, credit quality, the age of the accounts receivable balances, and current economic conditions that may affect a customer’s ability to pay. For the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022, and 2021, ~~and 2020,~~ bad debt expense was not material.

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

~~Table of Contents~~

NOTE 6. LEASES

Lessor Information

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


		As of					As of
		September 30, 2021		December 31, 2020			March 31, 2022		December 31, 2021
Gross lease receivables	Gross lease receivables	$	356.1	286.1		Gross lease receivables	$	409.7	$	404.0
Unearned income	Unearned income	(11.7)		(11.1)		Unearned income	(12.4)		(11.4)
Subtotal	Subtotal	344.4		275.0		Subtotal	397.3		392.6
Allowance for credit loss	Allowance for credit loss	(3.7)		(4.4)		Allowance for credit loss	(3.5)		(3.6)
Net investment in sales-type leases	Net investment in sales-type leases	$	340.7	$	270.6	Net investment in sales-type leases	$	393.8	$	389.0
Reported as:	Reported as:					Reported as:
Prepaids and other current assets	Prepaids and other current assets	$	98.6	81.1		Prepaids and other current assets	$	110.2	$	110.3
Intangible and other assets, net	Intangible and other assets, net	242.1		189.5		Intangible and other assets, net	283.6		278.7
Total, net	Total, net	$	340.7	270.6		Total, net	$	393.8	$	389.0

Contractual maturities of gross lease receivables ~~at September 30, 2021,~~as of March 31, 2022, are as follows (in millions):
Fiscal Year Amount
Remainder of 2021 $ 25.6
2022 101.4
2023 86.5
2024 74.2
2025 49.4
2026 and thereafter 19.0
Total $ 356.1


Fiscal Year	Amount
Remainder of 2022	$	91.8
2023	110.4
2024	97.1
2025	67.5
2026	35.9
2027 and thereafter	7.0
Total	$	409.7

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

The Company manages the credit risk in net investment in sales-type leases using a number of factors, including, but not limited to the following: size of operations; profitability, liquidity, and debt ratios; payment history; and past due amounts. The Company also uses credit scores obtained from external providers as a key ~~credit quality~~ indicator for the purposes of determining credit quality. ~~The following table presents credit quality by class of net investment in sales-type leases as of September 30, 2021.~~ The following table summarizes the amortized cost basis by year of origination and by credit quality ~~indicator~~for the net investment in sales-type leases as of ~~September 30, 2021~~March 31, 2022 (in millions):


		2021		2020		2019		2018		2017		Prior		Net Investment			2022		2021		2020		2019		2018		Prior		Net Investment
Credit Rating:	Credit Rating:															Credit Rating:
High	High	$	76.0	$	56.0	$	25.8	$	5.5	$	3.6	$	0.9	$	167.8	High	$	13.9	$	126.7	$	57.9	$	21.1	$	4.7	$	2.2	$	226.5
Moderate	Moderate	70.5		67.4		18.6		11.5		2.5		0.5		171.0		Moderate	24.1		72.2		41.2		13.3		7.2		1.4		159.4
Low	Low	0.7		4.7		0.2		—		—		—		5.6		Low	—		2.5		8.5		—		0.4		—		11.4
Total	Total	$	147.2	$	128.1	$	44.6	$	17.0	$	6.1	$	1.4	$	344.4	Total	$	38.0	$	201.4	$	107.6	$	34.4	$	12.3	$	3.6	$	397.3

For the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022, and 2021, ~~and 2020,~~ credit losses related to net investment in sales-type leases were not ~~significant.~~

material.

~~Table of Contents~~

NOTE 7. GOODWILL AND INTANGIBLE ASSETS

Acquisitions ~~in 2021~~

There were no material acquisitions for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022, and 2021.

~~Acquisitions in 2020~~

~~Orpheus Medical~~

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

Goodwill

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


	Amount
Balance atas of December 31, ~~2020~~2021	$	~~336.7~~343.6
Acquisition activity	~~8.0~~—
Translation and other	(0.4)
Balance ~~at September 30, 2021~~as of March 31, 2022	$	~~344.3~~343.2

Intangible Assets

The following table summarizes the components of gross intangible assets, accumulated amortization, and net intangible asset balances as of ~~September 30, 2021,~~March 31, 2022, and December 31, ~~2020~~2021 (in millions):


		September 30, 2021						December 31, 2020							March 31, 2022						December 31, 2021
		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount			Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Patents and developed technology	Patents and developed technology	$	219.3	$	(169.3)	$	50.0	$	198.4	$	(158.7)	$	39.7	Patents and developed technology	$	219.3	$	(176.9)	$	42.4	$	219.3	$	(173.2)	$	46.1
Distribution rights and others	Distribution rights and others	26.3		(17.8)		8.5		91.9		(77.4)		14.5		Distribution rights and others	25.9		(20.3)		5.6		26.3		(19.4)		6.9
Customer relationships	Customer relationships	31.8		(13.1)		18.7		59.0		(35.8)		23.2		Customer relationships	31.4		(15.3)		16.1		31.8		(14.3)		17.5
Total intangible assets	Total intangible assets	$	277.4	$	(200.2)	$	77.2	$	349.3	$	(271.9)	$	77.4	Total intangible assets	$	276.6	$	(212.5)	$	64.1	$	277.4	$	(206.9)	$	70.5

Amortization expense related to intangible assets was ~~$6.3~~$6.1 million and ~~$12.6~~$6.9 million for the three months ended ~~September 30,~~March 31, 2022, and 2021, ~~and 2020, respectively. Amortization expense related to intangible assets was $20.8 million and $37.3 million for the nine months ended September 30, 2021, and 2020,~~ respectively.

The estimated future amortization expense related to intangible assets as of ~~September 30, 2021,~~March 31, 2022, is as follows (in millions):


Fiscal Year	Fiscal Year	Amount		Fiscal Year	Amount
Remainder of 2021		$	6.1
2022		23.6
Remainder of 2022				Remainder of 2022	$	17.4
2023	2023	19.0		2023	18.8
2024	2024	14.5		2024	14.8
2025	2025	9.7		2025	9.6
2026 and thereafter		4.3
2026				2026	2.8
2027 and thereafter				2027 and thereafter	0.7
Total	Total	$	77.2	Total	$	64.1

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

~~Table of Contents~~

NOTE 8. CONTINGENCIES

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.

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 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. The Company disputes these allegations and is defending against these 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 U.S. Patent Nos. ~~9,585,658, 8,479,969, 9,113,874, 8,998,058, 8,991,677, 9,084,601,~~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~~Court issued a scheduling order on December 28, 2018. On March 20, 2019, the ~~court~~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~~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. There is currently no trial date scheduled for this matter.

On August 27, 2018, Ethicon filed a second complaint for patent infringement against the Company in the U.S. District Court for the District of Delaware. The complaint alleges that the Company’s SureForm 60 Staplers infringe five of Ethicon’s patents. Ethicon asserts infringement of U.S. Patent Nos. ~~9,884,369, 7,490,749, 8,602,288, 8,602,287,~~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~~Court entered an order denying the amendment, without prejudice, and granting the parties’ joint stipulation to stay the case in its entirety in light of the USITC investigation involving U.S. Patent Nos. 9,844,369 and 7,490,749, discussed below. There is currently no trial date scheduled for this matter.

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.

~~Table of Contents~~

On May 30, 2019, Ethicon filed a complaint with the USITC, asserting infringement of U.S. Patent Nos. 9,884,369 (“’369”),; 7,490,749 (“’749”),; 9,844,379 (“’379”),; 9,113,874 (“’874”),; and 8,479,969 (“’969”). On June 28, 2019, the USITC voted to institute an investigation (No. 337-TA-1167) with respect to the claims in this complaint. The accused products include the Company’s EndoWrist 30, EndoWrist 45, SureForm 45, and SureForm 60 Staplers, as well as the stapler reload cartridges. In March 2020, Ethicon dismissed its claims concerning the ’749 patent. The evidentiary hearing took place in February 2021. On June 8, 2021, the Chief Administrative Law Judge issued an Initial Determination concluding that (1) the accused products do not infringe the asserted claims in the ’874 or ’969 patents; (2) the asserted claims in the ’874 and ’969 patents are invalid; (3) the accused SureForm staplers and associated reload cartridges infringe two claims of the ’369 patent; (4) the accused SureForm staplers and associated reload cartridges infringe two claims of the ’379 patent; and (5) the Company was estopped from contending that the asserted claims in the ’379 patent are invalid. Ethicon has not challenged the Initial Determination with regard to the findings that absolve Intuitive of any liability regarding the accused EndoWrist staplers and associated reload cartridges. On October 14, 2021, the USITC issued its Opinion in which it made the following rulings: (1) the USITC absolved Intuitive from any liability regarding the ’874, ’969, and ’369 patents; and (2) the USITC found that, while the SureForm staplers and their associated reload cartridges infringe the asserted claims in the ’379 patent, it has suspended the imposition of any remedial order pending an opinion from the Federal Circuit Court of Appeal of whether the Patent and Trademark Office correctly found the asserted claims in this patent to be invalid. The Company and Ethicon have filed Notices of Appeal regarding the USITC Opinion. A lifting of the suspension of any remedial order by the USITC could result in a prohibition on importing the accused SureForm products into the U.S. or necessitating workarounds. Based on currently available information, the Company does not believe that any losses arising from this matter would be material.

Commercial Litigation

On February 27, 2019, Restore Robotics LLC and Restore Repair LLC (“Restore”) filed a complaint in the Northern District of Florida 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 filed a counterclaim against Restore. The Company filed amended counterclaims after the Court partially granted and partially denied Restore’s Motion to

Dismiss the counterclaim. The amended counterclaims allege that Restore violated the Federal Lanham Act, the Federal Computer Fraud and Abuse Act, and Florida’s Deceptive and Unfair Trade Practices Act and that Restore is also liable to the Company for Unfair Competition and Tortious Interference with Contract. On January 7, 2020, the Court denied Restore’s Motion to Dismiss the amended counterclaims.

~~In its initial scheduling order,~~On April 11, 2022, the Court ~~stated~~granted in part and denied in part the parties’ Motions for Summary Judgment and ordered the parties to confer and advise the Court of available times for a case management conference and to schedule the case for trial. On April 13, 2022, the Company filed a Motion for Reconsideration to the Court's Summary Judgment Order based on 1) a recently-issued U.S. Food and Drug Administration (“FDA”) decision concluding that alterations made by Restore’s licensor on the EndoWrist instruments in question required review and clearance by the FDA before the instruments could be used, and 2) recently received documents from the government pursuant to a Freedom of Information Act request filed in 2020. While the Court has not yet acted on the Company’s Motion for Reconsideration, it ~~anticipated trial in this~~has set a case ~~to occur in or before February~~management conference for April 27, 2022. Based on currently available information, the Company is unable to make a reasonable estimate of loss or range of losses, if any, arising from these matters.

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

~~The~~Motions for Summary Judgment have been filed by the Company and Rebotix. On April 1, 2022, the Court ~~stated that it anticipated trial in~~stayed this case based on Rebotix’s representation that the FDA would soon be issuing a decision on whether Rebotix’s services require 510(k) clearance. On April 11, 2022, Rebotix filed a Notice of FDA Decision, which included correspondence from the FDA concluding that Rebotix’s activities constituted remanufacturing and would require FDA review and clearance. On April 13, 2022, the Court issued an Order directing the parties to ~~occur in or around April 2022.~~confer and file a joint status report by May 4, 2022, on how the FDA’s decision impacts this case and how the parties wish to proceed. Based on currently available information, the Company is unable to make a reasonable estimate of loss or range of losses, if any, arising from this matter.

Similar to the claims asserted in the Restore case, on May 10, 2021, Surgical Instrument Service Company, Inc. ~~(“SIS”)~~ filed a complaint in the Northern District of California Court alleging anti-trust claims against the Company relating to EndoWrist service, maintenance, and repair processes. The ~~Company filed a~~Court denied the Company’s Motion to Dismiss, ~~on which a hearing was held on October 7, 2021. The Court~~and discovery has ~~not yet issued an Order on this Motion to Dismiss.~~commenced. Based on currently available information, the Company is unable to make a reasonable estimate of loss or range of losses, if any, arising from this matter.

Three class action complaints were filed against the Company in the Northern District of California Court alleging anti-trust allegations relating to the service and repair of certain instruments manufactured by the Company. A complaint by Larkin Community Hospital was filed on May 20, 2021, a complaint by Franciscan Alliance, Inc. and King County Public Hospital District No. 1 was filed on July 6, 2021, and a complaint by Kaleida Health was filed on July 8, 2021. The Court has consolidated the Franciscan Alliance, Inc. and King County Public Hospital District No. 1 and Kaleida Health cases with the Larkin Community Hospital case, which is now captioned on the Larkin docket as “In Re: da Vinci Surgical Robot Antitrust Litigation.” A Consolidated Amended Class Action Complaint has been filed on behalf of each plaintiff named in the earlier-filed cases. ~~The~~On January 14, 2022, Kaleida Health voluntarily dismissed itself as a party to this case. On January 18, 2022, the Company filed ~~a Motion to Dismiss~~an answer against the plaintiffs in this ~~Consolidated Amended Class Action Complaint on October 11, 2021.~~matter, and discovery has commenced. 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.

1617

~~Table of Contents~~

NOTE 9. STOCKHOLDERS’ EQUITY

Stockholders’ Equity

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


		Three Months Ended September 30, 2021																								Three Months Ended March 31, 2022
		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			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												Shares						Amount
Beginning balance	Beginning balance	356.2	$	0.4			$	6,804.1					$	4,022.7				$	10.3			$	10,837.5			$	42.0	$	10,879.5	Beginning balance	357.7				$	0.4		$	7,164.0		$	4,760.9		$	(24.2)		$	11,901.1	$	50.4	$	11,951.5

Issuance of common stock through employee stock plans	Issuance of common stock through employee stock plans	1.1	—		91.1											91.1							91.1		Issuance of common stock through employee stock plans	2.2		—					80.0		—			—			80.0			—			80.0
Shares withheld related to net share settlement of equity awards	Shares withheld related to net share settlement of equity awards	(0.1)	—		(0.2)				(13.1)							(13.3)							(13.3)		Shares withheld related to net share settlement of equity awards	(0.6)		—				(6.1)		(166.1)			—			(172.2)			—			(172.2)
Share-based compensation expense related to employee stock plans	Share-based compensation expense related to employee stock plans				120.1											120.1							120.1		Share-based compensation expense related to employee stock plans	—		—				120.8		—			—			120.8			—			120.8

Repurchase and retirement of common stock																									Repurchase and retirement of common stock	(0.4)		—				(4.1)		(102.4)			—			(106.5)			—			(106.5)
Net income attributable to Intuitive Surgical, Inc.	Net income attributable to Intuitive Surgical, Inc.								380.5							380.5							380.5		Net income attributable to Intuitive Surgical, Inc.	—		—				—		365.6			—			365.6			—			365.6
Other comprehensive income (loss)	Other comprehensive income (loss)										(5.0)					(5.0)			(0.1)				(5.1)		Other comprehensive income (loss)	—		—				—		—			(86.5)			(86.5)			0.4			(86.1)

Net income attributable to noncontrolling interest in joint venture	Net income attributable to noncontrolling interest in joint venture															—			6.7				6.7		Net income attributable to noncontrolling interest in joint venture	—		—				—		—			—			—			3.8			3.8
Ending balance	Ending balance	357.2	$	0.4	$	7,015.1			$	4,390.1	$	5.3				$	11,410.9		$	48.6			$	11,459.5	Ending balance	358.9		$	0.4			$	7,354.6	$	4,858.0		$	(110.7)		$	12,102.3		$	54.6		$	12,156.9

Three Months Ended September 30, 2020
Common Stock Additional
Paid-In
Capital Retained
Earnings Accumulated
Other
Comprehensive
Income Total Intuitive Surgical, Inc. Stockholders’ Equity Noncontrolling Interest in Joint Venture Total Stockholders’ Equity
Shares Amount
Beginning balance 351.0 $ 0.4 $ 6,084.8 $ 2,633.0 $ 22.3 $ 8,740.5 $ 25.9 $ 8,766.4
Issuance of common stock through employee stock plans 1.6 — 113.9 113.9 113.9
Shares withheld related to net share settlement of equity awards — — (0.5) (9.7) (10.2) (10.2)
Share-based compensation expense related to employee stock plans 105.8 105.8 105.8
Net income attributable to Intuitive Surgical, Inc. 313.9 313.9 313.9
Other comprehensive income (loss) (6.1) (6.1) 0.1 (6.0)
Net income attributable to noncontrolling interest in joint venture — 2.9 2.9
Ending balance 352.6 $ 0.4 $ 6,304.0 $ 2,937.2 $ 16.2 $ 9,257.8 $ 28.9 $ 9,286.7

~~Table of Contents~~

Nine Months Ended September 30, 2021
Common Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Income Total Intuitive Surgical, Inc. Stockholders’ Equity Noncontrolling Interest in Joint Venture Total Stockholders’ Equity
Shares Amount
Beginning balance 353.1 $ 0.4 $ 6,444.9 $ 3,261.3 $ 24.9 $ 9,731.5 $ 27.6 $ 9,759.1
Issuance of common stock through employee stock plans 4.9 — 244.8 244.8 244.8
Shares withheld related to net share settlement of equity awards (0.8) — (6.0) (195.2) (201.2) (201.2)
Share-based compensation expense related to employee stock plans 331.4 331.4 331.4
Net income attributable to Intuitive Surgical, Inc. 1,324.0 1,324.0 1,324.0
Other comprehensive income (loss) (19.6) (19.6) (0.4) (20.0)
Net income attributable to noncontrolling interest in joint venture — 21.4 21.4
Ending balance 357.2 $ 0.4 $ 7,015.1 $ 4,390.1 $ 5.3 $ 11,410.9 $ 48.6 $ 11,459.5


		Nine Months Ended September 30, 2020																								Three Months Ended March 31, 2021
		Common Stock			Additional Paid-In Capital				Retained Earnings		Accumulated Other Comprehensive Income					Total Intuitive Surgical, Inc. Stockholders’ Equity			Noncontrolling Interest in Joint Venture				Total Stockholders’ Equity			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												Shares						Amount
Beginning balance	Beginning balance	347.9	$	0.4			$	5,756.5					$	2,494.5				$	12.4			$	8,263.8			$	20.9	$	8,284.7	Beginning balance	353.1				$	0.4		$	6,444.9		$	3,261.3		$	24.9		$	9,731.5	$	27.6	$	9,759.1
Adoption of new accounting standard									(0.1)							(0.1)							(0.1)

Issuance of common stock through employee stock plans	Issuance of common stock through employee stock plans	6.1	—		267.9											267.9							267.9		Issuance of common stock through employee stock plans	2.8		—					84.0		—			—			84.0			—			84.0
Shares withheld related to net share settlement of equity awards	Shares withheld related to net share settlement of equity awards	(0.8)	—		(7.5)				(157.8)							(165.3)							(165.3)		Shares withheld related to net share settlement of equity awards	(0.7)		—				(5.1)		(172.9)			—			(178.0)			—			(178.0)
Share-based compensation expense related to employee stock plans	Share-based compensation expense related to employee stock plans				292.3											292.3							292.3		Share-based compensation expense related to employee stock plans	—		—				103.2		—			—			103.2			—			103.2
Repurchase and retirement of common stock		(0.6)	—		(5.2)				(94.8)							(100.0)							(100.0)

Net income attributable to Intuitive Surgical, Inc.	Net income attributable to Intuitive Surgical, Inc.								695.4							695.4							695.4		Net income attributable to Intuitive Surgical, Inc.	—		—				—		426.3			—			426.3			—			426.3
Other comprehensive income (loss)											3.8					3.8			0.2				4.0
Other comprehensive income																									Other comprehensive income	—		—				—		—			(13.5)			(13.5)			0.2			(13.3)
Net income attributable to noncontrolling interest in joint venture	Net income attributable to noncontrolling interest in joint venture															—			7.8				7.8		Net income attributable to noncontrolling interest in joint venture	—		—				—		—			—			—			8.9			8.9
Ending balance	Ending balance	352.6	$	0.4	$	6,304.0			$	2,937.2	$	16.2				$	9,257.8		$	28.9			$	9,286.7	Ending balance	355.2		$	0.4			$	6,627.0	$	3,514.7		$	11.4		$	10,153.5		$	36.7		$	10,190.2

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 ~~September 30, 2021,~~March 31, 2022, the remaining amount of share repurchases authorized by the Board was ~~$1.6~~$1.5 billion.

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

Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
Shares repurchased — — — 0.6
Average price per share — — $ — $ 173.94
Value of shares repurchased — — $ — $ 100.0

~~Table of Contents~~


	Three Months Ended March 31,
	2022		2021
Shares repurchased	0.4		—
Average price per share	$	268.0	$	—
Value of shares repurchased	$	106.5	$	—

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

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

Three Months Ended September 30, 2021
Gains (Losses)
on Hedge
Instruments Unrealized Gains
(Losses) on Available-for-Sale Securities Foreign
Currency
Translation
Gains (Losses) Employee Benefit Plans Total
Beginning balance $ 3.1 $ 13.5 $ (0.1) $ (6.2) $ 10.3
Other comprehensive income (loss) before reclassifications 4.2 (3.4) (2.7) — (1.9)
Amounts reclassified from accumulated other comprehensive income (loss) (2.2) (1.1) — 0.2 (3.1)
Net current-period other comprehensive income (loss) 2.0 (4.5) (2.7) 0.2 (5.0)
Ending balance $ 5.1 $ 9.0 $ (2.8) $ (6.0) $ 5.3

Three Months Ended September 30, 2020
Gains (Losses)
on Hedge
Instruments Unrealized Gains
(Losses) on Available-for-Sale Securities Foreign
Currency
Translation
Gains (Losses) Employee Benefit Plans Total
Beginning balance $ 0.4 $ 44.1 $ (13.8) $ (8.4) $ 22.3
Other comprehensive income (loss) before reclassifications (0.8) (7.1) 2.2 — (5.7)
Amounts reclassified from accumulated other comprehensive income (loss) (0.6) — — 0.2 (0.4)
Net current-period other comprehensive income (loss) (1.4) (7.1) 2.2 0.2 (6.1)
Ending balance $ (1.0) $ 37.0 $ (11.6) $ (8.2) $ 16.2

Nine Months Ended September 30, 2021
Gains (Losses)
on Hedge
Instruments Unrealized Gains
(Losses) on Available-for-Sale Securities Foreign
Currency
Translation
Gains (Losses) Employee Benefit Plans Total
Beginning balance $ (2.9) $ 29.5 $ 4.7 $ (6.4) $ 24.9
Other comprehensive income (loss) before reclassifications 9.3 (19.4) (7.5) — (17.6)
Amounts reclassified from accumulated other comprehensive income (loss) (1.3) (1.1) — 0.4 (2.0)
Net current-period other comprehensive income (loss) 8.0 (20.5) (7.5) 0.4 (19.6)
Ending balance $ 5.1 $ 9.0 $ (2.8) $ (6.0) $ 5.3

~~Table of Contents~~

Nine Months Ended September 30, 2020
Gains (Losses)
on Hedge
Instruments Unrealized Gains
(Losses) on Available-for-Sale Securities Foreign
Currency
Translation
Gains (Losses) Employee Benefit Plans Total
Beginning balance $ 0.7 $ 20.4 $ — $ (8.7) $ 12.4
Other comprehensive income (loss) before reclassifications 2.0 21.3 (11.6) — 11.7
Amounts reclassified from accumulated other comprehensive income (loss) (3.7) (4.7) — 0.5 (7.9)
Net current-period other comprehensive income (loss) (1.7) 16.6 (11.6) 0.5 3.8
Ending balance $ (1.0) $ 37.0 $ (11.6) $ (8.2) $ 16.2


	Three Months Ended March 31, 2022
	Gains (Losses) on Hedge Instruments		Unrealized Gains (Losses) on Available-for-Sale Securities		Foreign Currency Translation Gains (Losses)		Employee Benefit Plans		Total
Beginning balance	$	4.5	$	(16.0)	$	(7.9)	$	(4.8)	$	(24.2)
Other comprehensive income (loss) before reclassifications	3.7		(90.8)		3.1		—		(84.0)
Amounts reclassified from accumulated other comprehensive income (loss)	(2.7)		0.1		—		0.1		(2.5)
Net current-period other comprehensive income (loss)	1.0		(90.7)		3.1		0.1		(86.5)
Ending balance	$	5.5	$	(106.7)	$	(4.8)	$	(4.7)	$	(110.7)

	Three Months Ended March 31, 2021
	Gains (Losses) on Hedge Instruments		Unrealized Gains (Losses) on Available-for-Sale Securities		Foreign Currency Translation Gains (Losses)		Employee Benefit Plans		Total
Beginning balance	$	(2.9)	$	29.5	$	4.7	$	(6.4)	$	24.9
Other comprehensive income (loss) before reclassifications	4.6		(10.0)		(9.7)		—		(15.1)
Amounts reclassified from accumulated other comprehensive income (loss)	1.5		—		—		0.1		1.6
Net current-period other comprehensive income (loss)	6.1		(10.0)		(9.7)		0.1		(13.5)
Ending balance	$	3.2	$	19.5	$	(5.0)	$	(6.3)	$	11.4

NOTE 10. SHARE-BASED COMPENSATION

In April 2021, the Company’s shareholders approved an amended and restated 2010 Incentive Award Plan to provide for an increase in the number of shares of common stock reserved for issuance thereunder from ~~32,450,000 to 34,450,000 (or, after giving effect to the Stock Split,~~ 97,350,000 to ~~103,350,000).~~103,350,000. As of ~~September 30, 2021,~~March 31, 2022, approximately ~~25.5~~21.4 million shares were reserved for future issuance under the Company’s stock plans. A maximum of approximately ~~11.1~~9.3 million of these shares can be awarded as restricted stock units (“RSUs”).

Stock ~~Option~~Options Information

A summary of stock option activity under all stock plans for the ~~nine~~three months ended ~~September 30, 2021,~~March 31, 2022, is presented as follows (in millions, except per share amounts):


		Stock Options Outstanding				Stock Options Outstanding
		Number Outstanding	Weighted Average Exercise Price Per Share			Number Outstanding	Weighted-Average Exercise Price Per Share
Balance at December 31, 2020		13.4	$	101.69
Balance as of December 31, 2021					Balance as of December 31, 2021	11.7	$	125.07

Options granted	Options granted	1.1	$	294.53	Options granted	0.5	$	290.51
Options exercised	Options exercised	(2.3)	$	74.06	Options exercised	(0.4)	$	79.29
Options forfeited/expired	Options forfeited/expired	(0.1)	$	194.12	Options forfeited/expired	—	$	226.29
Balance at September 30, 2021		12.1	$	123.58
Balance as of March 31, 2022					Balance as of March 31, 2022	11.8	$	134.03

As of ~~September 30, 2021,~~March 31, 2022, options to purchase an aggregate of ~~9.5~~9.4 million shares of common stock were exercisable at a weighted average price of ~~$94.76~~$104.08 per share.

Restricted Stock Units Information

A summary of RSUs activity under all stock plans for the ~~nine~~three months ended ~~September 30, 2021,~~March 31, 2022, is presented as follows (in millions, except per share amounts):


		Shares	Weighted Average Grant Date Fair Value			Shares	Weighted-Average Grant-Date Fair Value
Unvested balance at December 31, 2020		5.3	$	163.30
Unvested balance as of December 31, 2021					Unvested balance as of December 31, 2021	4.8	$	207.37
RSUs granted	RSUs granted	1.9	$	252.42	RSUs granted	1.5	$	290.84
RSUs vested	RSUs vested	(2.1)	$	144.04	RSUs vested	(1.6)	$	186.75
RSUs forfeited	RSUs forfeited	(0.3)	$	191.29	RSUs forfeited	(0.1)	$	223.75
Unvested balance at September 30, 2021		4.8	$	204.31
Unvested balance as of March 31, 2022					Unvested balance as of March 31, 2022	4.6	$	241.94

Performance Share Units

Beginning in 2022, in addition to RSUs and stock options, the Company granted performance share units (“PSUs”) to officers and other key employees subject to three-year cliff vesting and pre-established, quantitative goals. Whether any PSUs vest, and the amount that does vest, is tied to completion of service over three years and the achievement of three equally-weighted, quantitative goals that directly align with or help drive the Company’s strategy and long-term total shareholder return. The metrics are focused on relative total shareholder return (“TSR”), year-over-year procedure growth for 2023, and two-year compound annual procedure growth for 2024. TSR is considered a market condition, and the expense is determined at the grant date. This expense will not be adjusted even if the market condition is not met. The two procedure growth goals are considered performance conditions, and the expense is recorded over the vesting period based on the forecasted performance, which will be reassessed each reporting period based on the probability of achieving the two performance conditions. The number of shares earned at the end of the three-year period will vary, based on actual performance, from 0% to 125% of the target number of PSUs granted. PSUs are subject to forfeiture if employment terminates prior to the vesting date. PSUs are not considered issued or outstanding shares of the Company.

The Company calculates the fair value for each component of the PSUs individually. The fair value for the component with the TSR metric was determined using Monte Carlo simulation. The fair value per share for the components with the procedure growth metrics is equal to the closing stock price on the grant date. As part of the Company’s annual grant in 2022, 0.1 million PSUs were granted at a weighted-average grant-date fair value of $299.32.

Employee Stock Purchase Plan

Under the Employee Stock Purchase Plan (“ESPP”), employees purchased approximately ~~0.5~~0.2 million shares for ~~$75.9~~$47.8 million and approximately ~~0.5~~0.3 million shares for ~~$71.2~~$41.4 million during the ~~nine~~three months ended ~~September 30,~~March 31, 2022, and 2021, ~~and 2020,~~ respectively.

~~Table of Contents~~

Share-based Compensation Expense

The following table summarizes share-based compensation expense for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022, and 2021 ~~and 2020~~ (in millions):


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2021		2020		2021		2020			2022		2021
Cost of sales – products		$	19.0	$	16.2	$	50.9	$	43.0
Cost of sales – services		6.0		7.1		16.9		17.8
Cost of sales–products										Cost of sales–products	$	18.7	$	15.3
Cost of sales–services										Cost of sales–services	5.6		5.7
Total cost of sales	Total cost of sales	25.0		23.3		67.8		60.8		Total cost of sales	24.3		21.0
Selling, general, and administrative	Selling, general, and administrative	62.5		54.2		171.3		149.5		Selling, general, and administrative	60.3		53.1
Research and development	Research and development	35.4		29.5		98.1		84.1		Research and development	36.8		30.1
Share-based compensation expense before income taxes	Share-based compensation expense before income taxes	122.9		107.0		337.2		294.4		Share-based compensation expense before income taxes	121.4		104.2
Income tax benefit	Income tax benefit	24.8		22.3		67.9		61.2		Income tax benefit	27.2		20.6
Share-based compensation expense after income taxes	Share-based compensation expense after income taxes	$	98.1	$	84.7	$	269.3	$	233.2	Share-based compensation expense after income taxes	$	94.2	$	83.6

The Black-Scholes option pricing model is used to estimate the fair value of stock options granted under the Company’s share-based compensation plans and rights to acquire stock granted under the ESPP. The ~~weighted average~~weighted-average estimated fair values of stock options and the rights to acquire stock under the ESPP, as well as the ~~weighted average~~weighted-average assumptions used in calculating the fair values of stock options and the rights to acquire stock under the ESPP that were granted during the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022, and 2021, ~~and 2020,~~ were as follows:

Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
Stock Options
Risk-free interest rate 0.8% 0.2% 0.8% 0.6%
Expected term (in years) 3.8 3.9 4.1 4.1
Expected volatility 31% 34% 32% 32%
Fair value at grant date $87.35 $62.65 $78.17 $53.57
ESPP
Risk-free interest rate 0.1% 0.1% 0.1% 0.9%
Expected term (in years) 1.2 1.3 1.2 1.2
Expected volatility 29% 34% 29% 30%
Fair value at grant date $91.07 $67.85 $89.98 $57.29


	Three Months Ended March 31,
	2022	2021
Stock Options
Risk-free interest rate	1.6%	0.7%
Expected term (in years)	3.5	4.3
Expected volatility	35%	34%
Fair value at grant date	$80.80	$70.33
ESPP
Risk-free interest rate	0.8%	0.1%
Expected term (in years)	1.2	1.2
Expected volatility	37%	35%
Fair value at grant date	$88.85	$74.39

NOTE 11. INCOME TAXES

Income tax expense (benefit) for the three months ended ~~September 30, 2021,~~March 31, 2022, was ~~$73.9~~$33.0 million, or ~~16.0%~~8.2% of income before taxes, compared to ~~$38.4~~$13.6 million, or ~~10.8%~~3.0% of income before taxes, for the three months ended September 30, 2020. Income tax expense for the nine months ended September 30, 2021, was $90.7 million, or 6.3% of income before taxes, compared to $67.3 million, or 8.7% of income before taxes, for the nine months ended September 30, 2020.March 31, 2021.

The effective tax ~~rate~~rates for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022, and 2021, ~~and 2020, differs~~differed from the U.S. federal statutory rate of 21% mainly 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 the federal research and development (“R&D”) credit benefit, partially offset by U.S. tax on foreign earnings and state income taxes (net of federal benefit).

The ~~effective tax rate~~provision for the nine months ended September 30, 2021, included a one-time benefit of $66.4 million from re-measurement of the Company’s Swiss deferred tax assets resulting from the extension of the economic useful life of certain intangible assets. The effective tax rate for the nine months ended September 30, 2020, reflected a one-time increase of $36.8 million in unrecognized tax benefits with a corresponding increase to income tax expense. This increase was related to intercompany charges for share-based compensation for relevant periods prior to 2020, triggered by the finalization of a Ninth Circuit Court of Appeals opinion (the “Ninth Circuit Opinion”) involving an independent third party. An additional charge of $11.1 million related to this matter was recorded to income tax expensetaxes for the three ~~and nine~~ months ended ~~September 30, 2021, as~~March 31, 2022, reflected the impact of a ~~result~~change in U.S. tax law effective January 1, 2022, which requires the capitalization and amortization of ~~additional IRS guidance issued in July~~research and experimental (“R&E”) expenditures incurred after December 31, 2021.

~~Table of Contents~~

The provision for income taxes for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022, and 2021, included excess tax benefits associated with employee equity plans of ~~$41.9~~$53.0 million and ~~$158.9~~$73.4 million, which reduced ~~our~~the Company’s effective tax rate by ~~9.1~~13.2 and 11.1 percentage points, respectively. The provision for income taxes for the three and nine months ended September 30, 2020, included excess tax benefits associated with employee equity plans of $47.9 million and $144.8 million, which reduced our effective tax rate by 13.5 and 18.816.4 percentage points, respectively.

The Company files 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 the Company’s unrecognized tax benefits could change due to activities of various tax authorities, including potential assessment of additional tax, possible settlement of audits, or through normal expiration of various statutes of limitations, which could affect the Company’s effective tax rate in the period in which they change. Due to the uncertainty related to the timing and potential outcome of audits, the Company cannot estimate the range of reasonably possible change in unrecognized tax benefits that may occur in the next 12 months.

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

NOTE 12. NET INCOME PER SHARE

The following table presents the computation of basic and diluted net income per share attributable to Intuitive Surgical, Inc. (in millions, except per share amounts):


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
		2021		2020		2021		2020			2022		2021
Numerator:	Numerator:									Numerator:
Net income attributable to Intuitive Surgical, Inc.	Net income attributable to Intuitive Surgical, Inc.	$	380.5	$	313.9	$	1,324.0	$	695.4	Net income attributable to Intuitive Surgical, Inc.	$	365.6	$	426.3
Denominator:	Denominator:									Denominator:
Weighted average shares outstanding used in basic calculation	Weighted average shares outstanding used in basic calculation	356.8		352.0		355.6		350.5		Weighted average shares outstanding used in basic calculation	358.4		354.2
Add: dilutive effect of potential common shares	Add: dilutive effect of potential common shares	10.0		9.9		9.5		9.6		Add: dilutive effect of potential common shares	8.3		9.8
Weighted average shares outstanding used in diluted calculation	Weighted average shares outstanding used in diluted calculation	366.8		361.9		365.1		360.1		Weighted average shares outstanding used in diluted calculation	366.7		364.0
Net income per share attributable to Intuitive Surgical, Inc.:	Net income per share attributable to Intuitive Surgical, Inc.:									Net income per share attributable to Intuitive Surgical, Inc.:
Basic	Basic	$	1.07	$	0.89	$	3.72	$	1.98	Basic	$	1.02	$	1.20
Diluted	Diluted	$	1.04	$	0.87	$	3.63	$	1.93	Diluted	$	1.00	$	1.17

Share-based compensation awards of approximately ~~0.2~~1.5 million and ~~0.6~~0.9 million shares for the three months ended ~~September 30,~~March 31, 2022, and 2021, ~~and 2020, respectively, and approximately 0.7 million and 2.6 million shares for the nine months ended September 30, 2021, and 2020,~~ respectively, were outstanding but were not included in the computation of diluted net income per share attributable to Intuitive Surgical, Inc. common stockholders because the effect of including such shares would have been anti-dilutive in the periods presented.

~~Table of Contents~~

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

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

This management’s discussion and analysis of financial condition as of ~~September 30, 2021,~~March 31, 2022, and results of operations for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022, and 2021, ~~and 2020,~~ should be read in conjunction with management’s discussion and analysis of financial condition and results of operations included in our Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021.

This report contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements relate to expectations concerning matters that are not historical facts. ~~Words~~Statements using words such as “estimates,” “projects,” “believes,” “anticipates,” “plans,” “expects,” “intends,” “may,” “will,” “could,” “should,” “would,” “targeted,” and similar words and expressions are intended to identify forward-looking statements. These forward-looking statements are necessarily estimates reflecting the judgment of our management and involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements. These forward-looking statements include, but are not limited to, statements related to the expected impacts of the COVID-19 pandemic on our business, financial condition, and results of operations, the potential impact on our procedure volume, our acquisitions, our expected business, our expected new product introductions, the impacts of Extended Use Instruments, procedures and procedure adoption, future results of operations, future financial position, our ~~ability to increase our revenues, the anticipated mix of our revenues between product and service revenues, our~~ financing plans and future capital requirements, ~~anticipated costs of revenue, anticipated expenses,~~ our potential tax assets or liabilities, ~~the effect of recent accounting pronouncements, our investments, anticipated cash flows, our ability to finance operations from cash flows and similar matters,~~ and statements based on current expectations, estimates, forecasts, and projections about the economies and markets in which we operate and our beliefs and assumptions regarding these economies and markets. These forward-looking statements should be considered in light of various important factors, including, but not limited to, the following: disruption to our ~~ability to obtain accurate procedure volume and mix~~supply chain, including increased difficulties in obtaining a sufficient supply of materials in the ~~midst of the COVID-19 pandemic;~~semiconductor and other markets; the risk that the COVID-19 pandemic could lead to ~~further~~ material delays and cancellations of, or reduced demand for, procedures; curtailed or delayed capital spending by hospitals; ~~disruption to our supply chain, including increased difficulties in obtaining a sufficient amount of materials in the semiconductor and other markets;~~ closures of our facilities; delays in surgeon training; delays in gathering clinical evidence; delays in obtaining new product approvals, clearances, or ~~clearances~~certifications from the U.S. Food and Drug Administration ~~due to the effects of the COVID-19 pandemic;~~(“FDA”); the evaluation of the risks of robotic-assisted surgery in the presence of infectious diseases; diversion of ~~management and other~~ resources to respond to COVID-19 outbreaks; the risk that the COVID-19 virus causes economies in our key markets to enter prolonged recessions; the impact of global and regional economic and credit market conditions on healthcare spending; the risk of our inability to comply with complex FDA and other regulations, which may result in significant enforcement actions; regulatory approvals, clearances, certifications, and restrictions or any dispute that may occur with any regulatory body; guidelines and recommendations in the ~~COVID-19 virus disrupts local economies~~healthcare and ~~causes economies in our key markets to enter prolonged recessions;~~patient communities; healthcare reform legislation in the U.S. and its impact on hospital spending, reimbursement, and fees levied on certain medical device revenues; changes in hospital admissions and actions by payers to limit or manage surgical procedures; the timing and success of product development and market acceptance of developed products; the results of any collaborations, in-licensing arrangements, joint ventures, strategic alliances, or partnerships, including the joint venture with Shanghai Fosun Pharmaceutical (Group) Co., Ltd.; our completion of and ability to successfully integrate acquisitions, including Schölly Fiberoptic’s robotic endoscope business and Orpheus Medical; procedure counts; regulatory approvals, clearances, and restrictions or any dispute that may occur with any regulatory body; guidelines and recommendations in the healthcare and patient communities;acquisitions; intellectual property positions and litigation; competition in the medical device industry and in the specific markets of surgery in which we operate; risks associated with our operations and any expansion outside of the United States; unanticipated manufacturing disruptions or the inability to meet demand for products; our reliance on sole and single source suppliers; the results of legal proceedings to which we are or may become a ~~party;~~party, including, but not limited to, product liability ~~and other litigation~~ claims; adverse publicity regarding us and the safety of our products and adequacy of training; ~~our ability to expand into foreign markets;~~ the impact of changes to tax legislation, guidance, and interpretations; changes in tariffs, trade barriers, and regulatory requirements; and other risk factors. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report and which are based on current expectations and are subject to risks, uncertainties, and assumptions that are difficult to predict, including those risk factors described throughout this filing and identified under the heading “Risk Factors” in ~~the~~our Annual Report on Form 10-K for the ~~fiscal~~ year ended December 31, ~~2020, and~~2021, as updated by our other ~~periodic~~ filings with the Securities and Exchange Commission. ~~Our actual results may differ materially and adversely from those expressed in any forward-looking statement.~~ We undertake no obligation to publicly update or release any revisions to these forward-looking statements, except as required by law.

Intuitive®, Intuitive Surgical®, da Vinci®, da Vinci S®, da Vinci S HD Surgical System®, da Vinci Si®, da Vinci ~~Si HD Surgical System~~X®, da Vinci Xi®, da Vinci SP®, EndoWrist®, Firefly®, InSite®, ~~da Vinci Connect~~SureForm®~~, Intuitive Surgical EcoSystem~~®~~, da Vinci X~~®~~, SureForm~~TM, IonTM®, IrisTM®, and SynchroSealTM® are ~~our~~ trademarks or registered ~~trademarks.~~trademarks of the Company.

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Overview

~~Intuitive is committed to advancing patient care in surgery and other acute medical interventions. We are focused on innovating to enable physicians and healthcare providers to improve the quality~~As part of ~~and access to minimally invasive care. Our~~Intuitive’s mission, ~~reflects that~~ we believe that minimally invasive care is life-enhancing care. Intuitive is committed to advancing minimally invasive care through a comprehensive ecosystem of products and services. This ecosystem includes systems, instruments and accessories, learning, and services connected by a digital portfolio that enables precision and control, seamless interactions and experiences, and meaningful insights to drive better care.

Intuitive brings ~~more than two~~nearly three decades of ~~leadership in~~experience and technical innovation to our robotic-assisted surgical ~~technology and solutions to its offerings.~~solutions. While surgery and acute interventions have improved significantly in the past decades, there remains a significant need for better outcomes and decreased variability of these outcomes across care teams. The current healthcare environment continues to stress critical resources, including the professionals who staff care teams: surgeons, anesthesiologists, nurses, and other staff. At the same time, governments strain to cover the healthcare needs of their populations and demand lower total cost per patient to treat disease. In the face of these challenges, we believe scientific ~~process,~~ and technological advances in biology, computing, imaging, algorithms, and robotics may offer new methods to solve continued and difficult problems.

We address ~~these~~our customer needs by ~~focusing on~~sharing their goals reflected in the quadruple aim. First, we focus on ~~products~~improving patient outcomes through an ecosystem of advanced robotic systems, instruments and ~~services that can improve outcomes~~accessories, progressive technology learning pathways, and ~~decrease variability in the hands of care teams.~~comprehensive support and program assistance services. Second, we seek to improve the patient experience by minimizing disruption to lives and creating greater predictability for the treatment experience. Third, we seek to improve care team satisfaction by creating products and services that are dependable, smart, and optimized for the care environment in which they are used. Finally, we seek to lower the total cost to treat per patient episode when compared with existing treatment alternatives, providing a return on investment for hospitals and healthcare systems and value for payers.

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

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

Our da Vinci products fall into five broad categories: da Vinci Surgical Systems, da Vinci instruments and accessories, da Vinci Stapling, da Vinci Energy, and da Vinci Vision, including Firefly Fluorescence imaging systems ~~(“Firefly”)~~ and da Vinci ~~endoscopes.~~Endoscopes. We also provide a comprehensive suite of systems, learning, and services offerings. Digitally-enabled for more than two decades, these three offerings aim to decrease variability by providing dependable, consistent functionality and an integrated user experience. Our systems category includes robotic platforms, software, vision, energy, and instruments and accessories. Our learning category includes educational technology, such as simulation and telepresence, as well as technical training programs and ~~education programs.~~personalized peer-to-peer learning opportunities. Our services category assists and optimizes minimally invasive programs through readiness, on-demand support, consultation for minimally invasive program optimization, and hospitals customized analytics. Within our integrated ecosystem, our ~~hardware, software, and digital solutions are designed~~focus is to decrease variability in surgery by offering ~~dependable, consistent functionality~~actionable insights, with digital solutions, to take action with the potential to improve outcomes, personalize learning, and ~~user experiences for surgeons seeking better outcomes.~~optimize efficiency. We take a holistic approach, offering intelligent technology and systems designed to work together to make MIS intervention more available and applicable.

We have commercialized the following da Vinci Surgical Systems: the da Vinci standard Surgical System in 1999, the da Vinci S Surgical System in 2006, the da Vinci Si Surgical System in 2009, and the fourth generation da Vinci Xi Surgical System in 2014. We have extended our fourth generation platform by adding the da Vinci X Surgical System, commercialized in ~~the second quarter of~~ 2017, and the da Vinci SP Surgical System, commercialized in ~~the third quarter of~~ 2018. The da Vinci SP Surgical System accesses the body through a single incision while the other da Vinci Surgical Systems access the body through multiple incisions. All da Vinci systems include a surgeon’s console (or consoles), imaging electronics, a patient-side cart, and computational hardware and software. We are still in a measured launch of our da Vinci SP Surgical System, and we have an installed base of 89106 da Vinci SP Surgical Systems as of ~~September 30, 2021.~~March 31, 2022. Our plans for the rollout of the da Vinci SP Surgical System include putting systems in the hands of experienced da Vinci users first while we optimize training pathways and our supply chain. We received U.S. ~~Food and Drug Administration (“FDA”)~~FDA clearances for the da Vinci SP Surgical System for urological and certain transoral procedures. We also received clearance in South Korea where the da Vinci SP Surgical System may be used for a broad set of procedures. We plan to seek FDA clearances for additional indications for da Vinci SP over time. We also plan to seek clearances in other OUS markets over time. The success of the da Vinci SP Surgical System is dependent on positive experiences and improved clinical outcomes for the procedures for which it has been cleared as well as securing additional clinical clearances. ~~All da Vinci systems include a surgeon’s console (or consoles), imaging electronics, a patient-side cart, and computational hardware and software.~~

We offer approximately 70 different multi-port da Vinci instruments to provide surgeons with flexibility in choosing the types of tools needed to perform a particular surgery. These multi-port instruments are generally robotically controlled and provide end effectors (tips) that are similar to those used in either open or laparoscopic surgery. We offer advanced

instrumentation for the da Vinci Xi and da Vinci X platforms, including da Vinci Energy and da Vinci Stapler products, to

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provide surgeons with sophisticated, computer-aided tools to precisely and efficiently interact with tissue. Da Vinci X and da Vinci Xi Surgical Systems share the same instruments whereas the da Vinci Si Surgical System uses instruments that are not compatible with da Vinci X or da Vinci Xi systems. We currently offer nine core instruments on our da Vinci SP Surgical System. We plan to expand the SP instrument offering over time.

Training technologies include our Intuitive Simulation products, our Intuitive Telepresence remote case observation and telementoring tools, and our dual console for use in surgeon proctoring and collaborative surgery.

During the first quarter of 2019, the FDA cleared our Ion endoluminal system to enable minimally invasive biopsies in the lung. Our Ion system extends our commercial offering beyond surgery into diagnostic procedures with this first application. Our rollout of the Ion system ~~in the U.S.~~ is progressing well, and we are continuing to gather additional clinical evidence. We ~~have placed 98 Ion systems as of September 30, 2021. Ion systems are not included in our da Vinci Surgical System installed base. We~~ plan to seek additional clearances for the Ion system in OUS markets over time.

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

COVID-19 Pandemic

Procedures

In 2021, COVID-19 resurgences continued to affect da Vinci procedure volumes at various times throughout the ~~first quarter~~year in most of ~~2020, prior to~~ the ~~spread of~~markets that we operate in. After each resurgence, as COVID-19 cases and hospitalizations subsided, we ~~experienced~~saw procedure ~~growth trends consistent with those experienced in the fourth quarter of 2019, including strength in general surgery, growth in mature procedures in~~volumes recover. In the U.S., ~~and growth in OUS urology. Beginning in January 2020, we saw a substantial reduction in da Vinci procedures in China and,~~the impact of high COVID-related hospitalization rates on procedure volumes also have been exacerbated by ~~early February 2020, procedures per week in China had declined by approximately 90%~~staffing shortages. Although hospitals are now better equipped to handle COVID patients as compared to the ~~weekly procedure rates experienced in early January 2020. As~~outset of the pandemic, COVID-19 ~~pandemic subsided in China in March 2020,~~resurgences have challenged, and will continue to challenge, hospital resources and negatively impact da Vinci procedure ~~volume began~~volumes. In addition, delays in diagnosis and treatment of underlying conditions have, and will continue to recover and, by the end of the first quarter of 2020, China procedures per week were approximately 70% of the early January 2020 weekly procedure rate. As the COVID-19 pandemic spread to Western Europe and the U.S., we experiencedhave, a ~~significant decline in~~negative impact on da Vinci procedure volumes. Volumes associated with benign procedures ~~in the last half of March 2020~~have generally been impacted to ~~approximately 65% of the weekly procedure rate experienced earlier in the first quarter of 2020.~~

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

In the third quarter of 2020, in the U.S., procedures recovered slowly, leveling off to near pre-COVID-19 levels towards the end of the quarter. Outside of the U.S., da Vinci procedures varied depending on the spread and/or resurgence of COVID-19. For example, COVID-19 had a less significant impact in Germany where da Vinci procedures grew at mid-single digits relative to the third quarter of 2019, while it had a more significant impact in the U.K. where da Vinci procedures declined year over year. Procedures in China grew significantly year over year, while COVID-19 outbreaks resulted in year-over-year procedure growth rates in Japan slowing somewhat relative to the second quarter. The COVID-19 pandemic has also affected the volumesdeferability of certain procedure types differently. For example, patient concerns over exposure to COVID-19 and the fact that prostate cancer can be slow growing, combined with lower prostate diagnoses and treatments, have caused the number of da Vinci prostatectomy procedures to decline in the third quarter of 2020 relative to the third quarter of 2019. Notwithstanding the impacts of COVID-19, da Vinci bariatric procedures grew significantly year over year due to our optimized instrument set and focus by our sales organization and may also have benefited from certain patients prioritizing weight loss as obesity is a significant COVID-19 risk factor. However, the diagnoses and treatment pathways for bariatric patients are long, and many of the patients in the third quarter may have begun their treatment pathway prior to the spread of COVID-19.elective surgeries.

In the first quarter of ~~2021,~~2022, the most recent COVID-19 resurgence resulted in a significant increase in infections and hospitalization rates in the U.S.~~, the COVID-19 resurgence that affected procedures later~~ and certain countries in Europe, which, in turn, negatively impacted procedure volumes in January and February. As infections and hospitalizations started to decrease in February in the ~~fourth quarter~~U.S. and Europe, we saw a recovery of ~~2020 continued well into January 2021. Then, as COVID-19 cases subsided beginning~~procedure volumes. In March, we also saw a resurgence in February 2021, da Vinci procedures experienced a steady improvement throughout February and March. In Europe, the spread of COVID-19 varied regionally, and procedure growth rates were mixed with strength in France and a year-over-year decline in the U.K. While there have been COVID-19 hot spots within some of our Asia Pacific markets, they tended to be isolated and, in general, procedures performed well. China growth was significantly higher than other regions, reflecting the severity of the COVID-19 impact on China during the first quarter of the prior year and the additional system installations during 2020.

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

In the third quarter of 2021, COVID-19 infections resurged as the quarter progressed, and we saw a corresponding impact to our da Vinci procedures. In the U.S., we saw decreasing procedure volumes in August and September compared to June as COVID-19 cases and hospitalizations increased. Late in the quarter, as COVID-19 cases began to slow, procedures began to recover. We continue to see certain regions of the U.S. particularly impacted. Outside of the U.S., in Europe, the impact of COVID-19 in the third quarter of 2021 varied regionally with slower growth in Italy and France. We continue to see the impacts of regional resurgences of COVID-19 cases within the Asia Pacific markets, particularly in Japan and Taiwan. China growth in the third quarter continued to be stronger than other Asia Pacific markets, primarily reflecting nearly 40% growth in the system installed base year over year.volumes.

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

System Demand

In the first three quarters of 2020, customers in regions impacted by COVID-19 deferred decisions to purchase or lease systems into future quarters and, in some cases, indefinitely. However, in the first three quarters of 2021, we experienced strong system demand. In general, we believe that the COVID-19 pandemic had less of an impact on hospital spending capacity and that customers recognize that da Vinci surgery meets their quadruple aim objectives better than other surgical approaches. More specifically, during the first ~~three quarters~~quarter of ~~2021,~~2022, system demand reflected procedure growth, hospitals purchasing systems in preparation for a post-COVID-19 pandemic environment, and hospitals upgrading their system portfolio to access and/or standardize on fourth generation capabilities. However, hospitals are currently experiencing financial and operational pressures as a result of staffing shortages, the supply chain environment, and resulting inflation that could impact their ability to provide patient care, defer elective surgeries, and impact their profitability. Since the start of the pandemic, the impact of COVID-19 has placed a significant burden on hospitals; however, the financial pressures that our customers have faced has been partially mitigated by government funding. In addition, the rising interest rate environment has made access to credit more expensive. To the extent that hospitals continue to face financial pressures, reductions in government spending, or higher interest rates, it is likely that hospitals’ spend on capital equipment will be adversely impacted. In addition, as competition progresses in various markets, we will likely experience longer selling cycles and pricing pressures.

General Increase in Risks

Worldwide economies have been significantly impacted by the COVID-19 pandemic, and it is possible that factors related to the COVID-19 pandemic could cause a prolonged recession in local and/or global economies. Such an economic recession could have a material adverse effect on our long-term business as hospitals curtail and reduce capital and overall spending. The

COVID-19 pandemic and local actions, such as “shelter-in-place” orders and restrictions on our ability to travel and access our customers or temporary closures of our facilities, including our training and manufacturing operations, or the facilities of our suppliers and their contract manufacturers, could further significantly impact our sales and our ability to produce and ship our products and supply our customers.

In particular, we have experienced increased difficulties in obtaining a sufficient ~~amount~~supply of a number of component materials used in our products, such as semiconductor components as well as a range of other materials, including, ~~those in the semiconductor market,~~but not limited to, metals and polymers, as global supply has become significantly constrained due to increased demand ~~in semiconductors and other~~for certain materials. Additionally, prices of such materials have increased due to the increased demand and supply shortage. ~~The~~We are engaged in activities to seek to mitigate supply disruptions, but we have experienced a reduction in our safety stock levels. Moreover, the global ~~semiconductor and other materials~~ supply ~~shortage is~~chain shortages are likely to remain a challenge for the foreseeable future.

We have also experienced challenges in logistics, as certain shipping routes have been impacted by port closures. Such global shortages in important components and logistics challenges have resulted in, and will continue to cause, inflationary cost pressure in our supply chain. To date, the inflationary cost pressure has been more pronounced in our logistics costs, but these supply chain challenges have not materially impacted our results of operations or ability to deliver ~~product~~products and services to our customers. However, if shortages in important supply chain materials in the semiconductor or other markets or logistics challenges continue, we could fail to meet product demand, which could result in deferred or cancelled procedures. Additionally, if inflationary pressures in logistics or component costs persist, we may not be able to quickly or easily adjust pricing, reduce costs, or implement countermeasures, all of which would adversely impact our business, financial condition, results of operations, or cash flows.

Increased labor shortages globally, including staff burnout and attrition, could also impact our ability to hire and retain personnel critical to our manufacturing, logistics, and commercial operations. We are also highly dependent on the principal members of our management and scientific staff. Attracting and retaining qualified personnel is critical to our success, and competition for them has become more intense. The loss of critical members of our team, or our inability to attract and retain qualified personnel, could significantly harm our operations, business, and ability to compete. In addition, hospitals are also experiencing staffing shortages and supply chain issues that could impact their ability to provide patient care. Any of these

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events could negatively impact the number of da Vinci procedures performed or the number of system placements and have a material adverse effect on our business, financial condition, results of operations, or cash flows.

Our Response

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

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

Business Model

Overview

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

composition of the services offered under the contract. These service contracts have generally been renewed at the end of the initial contractual service periods.

~~Consistent~~We generate revenue from our Ion endoluminal system in a business model consistent with the da Vinci Surgical System model described ~~above, we~~above. We generate revenue from the ~~placements~~placement of ~~the~~ Ion ~~endoluminal system at the time of sale~~systems, in sales or sales-type lease arrangements where revenue is recognized up-front at a point in time or ~~over time~~ in operating lease transactions and usage-based ~~models.~~models where revenue is recognized over time. We ~~generate revenue from the placements of the Ion system, and we~~ earn recurring revenue from the sales of instruments and accessories used in biopsies and ongoing system ~~service.~~service, as well as revenue from operating leases. The average selling price of an Ion ~~systems are presented separately from our~~system is generally significantly lower than the average selling price of a da Vinci Surgical ~~Systems installed base.~~System. For the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022, and 2021, Ion’s contribution to revenue and gross margin was not significant.

Additionally, as part of our ecosystem of products and services, we provide a portfolio of learning offerings and digital solutions. We do not currently generate material revenue from these offerings.

Extended Use Program

In ~~July~~ 2020, we ~~announced~~introduced our ~~"Extended~~“Extended Use Program,"” which consists of select da Vinci Xi and da Vinci X instruments possessing 12 to 18 uses ("(“Extended Use ~~Instruments"~~Instruments”) compared to ~~the current~~previously 10 ~~use instruments.~~uses. These Extended Use Instruments represent some of our higher volume instruments but exclude stapling, monopolar, and advanced energy instruments. Instruments included in the program are used across a number of da Vinci surgeries. Their increased uses are the result of continuous, significant investments in the design and production capabilities of our instruments, resulting in improved quality and durability. Extended Use Instruments ~~have been~~were introduced in the U.S. and Europe in the fourth quarter of 2020 and ~~have~~ launched in most other countries around the world in the first half of 2021, except China due to regulatory timelines. ~~They will continue to be introduced at various times throughout the remainder of 2021 and 2022 in other geographies, depending on regulatory processes.~~ In addition, simultaneous with the regional launches of Extended Use Instruments, we ~~will lower~~have lowered the price of certain instruments that are most commonly used in lower acuity procedures and/or lower reimbursed procedures within the region. These actions ~~will reduce~~have reduced the cost for customers to treat patients, which in turn ~~will reduce~~has reduced our revenue per procedure. Based on 2019 volume and mix of procedures, our Extended Use Program and the reduced pricing on certain other instruments would have reduced 2019 annual instruments and accessories revenue by approximately $150 to $170 million. In the U.S. and Europe, during ~~the first three quarters of~~ 2021, we saw customers adjust their instrument buying patterns to reduce their inventory levels to reflect the additional uses per instrument. ~~Additionally, we~~We believe that, as of the end of Q3 2021, in the U.S. and Europe, full cutover to Extended Use Instruments has occurred, as customers have substantially utilized ~~substantially~~ all of their

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remaining 10 use instruments. The precise impact of these actions on future revenue will be dependent on the future volume and mix of procedures and whether cost elasticity will enable greater penetration into available markets.

Recurring Revenue

Recurring revenue consists of instruments and accessories revenue, service revenue, and operating lease revenue. Recurring revenue increased to $4.3 billion, or 75% of total revenue in 2021, compared to $3.4 billion, or 77% of total revenue in 2020, ~~compared to~~and $3.2 billion, or 72% of total revenue in ~~2019, and $2.6 billion, or 71% of total revenue in 2018.~~2019.

Instruments and accessories revenue has grown at a faster rate than systems revenue over time. Instruments and accessories revenue increased to $3.10 billion in 2021, compared to $2.46 billion in 2020 ~~compared to~~and $2.41 billion in ~~2019 and $1.96 billion~~2019. The increase in ~~2018. The growth of~~ instruments and accessories revenue largely reflects continued procedure adoption.

Service revenue was ~~$724~~$916 million in ~~2020,~~2021, compared to $724 million in ~~2019~~2020 and ~~$635 million~~2019. The increase in ~~2018. Service~~service revenue ~~remained unchanged,~~was primarily driven by the growth of the installed base of ~~da Vinci Surgical Systems, offset by an $80 million decrease due to~~systems producing service ~~fee credits provided to customers~~revenue, as ~~part~~well as the effects of the Customer Relief Program ~~that was implemented as a result of the COVID-19 pandemic~~ in the ~~second quarter of~~prior year, which resulted in an $80 million decrease in service revenue in 2020. The installed base of da Vinci Surgical Systems grew 12% to approximately 6,730 as of December 31, 2021; 7% to approximately 5,989 atas of December 31, 2020; and 12% to approximately 5,582 atas of December 31, ~~2019; and 13% to~~2019. The installed base of Ion endoluminal systems was approximately ~~4,986 at~~129 as of December 31, ~~2018.~~2021; approximately 36 as of December 31, 2020; and approximately 10 as of December 31, 2019.

We use the installed base, number of ~~shipments,~~placements, and utilization of ~~da Vinci Surgical Systems~~systems as metrics for financial and operational decision-making and as a means to evaluate period-to-period comparisons. Management believes that the installed base, number of ~~shipments,~~placements, and utilization of ~~da Vinci Surgical Systems~~systems provide meaningful supplemental information regarding our performance, as management believes that the installed base, number of ~~shipments,~~placements, and utilization of ~~da Vinci Surgical Systems~~systems are an indicator of the rate of adoption of robotic-assisted surgery or medical procedures as well as an indicator of future recurring revenue (particularly service revenue). Management believes that both it and investors benefit from referring to the installed base, number of ~~shipments,~~placements, and utilization of ~~da Vinci Surgical Systems~~systems in assessing our performance and when planning, forecasting, and analyzing future periods. The installed base, number of ~~shipments,~~placements, and utilization of ~~da Vinci Surgical Systems~~systems also facilitate management’s internal comparisons of our historical performance. We believe that the installed base, number of ~~shipments,~~placements, and utilization of ~~da Vinci Surgical Systems~~systems are useful to investors as metrics, because (1) they allow for greater transparency with respect to key metrics used by management in its financial and operational decision-making, and (2) they are used by institutional investors and the analyst community to help them analyze the performance of our business. The vast majority of ~~da Vinci Surgical Systems~~systems installed are connected via the internet. System logs can also be accessed by field engineers for systems that are not connected to the internet. We utilize this information as

well as other information from agreements and discussions with our customers that involve estimates and judgments, which are, by their nature, subject to substantial uncertainties and assumptions. Estimates and judgments for determining the installed base, number of ~~shipments,~~placements, and utilization of ~~da Vinci Surgical Systems~~systems may be impacted over time by various factors, including system internet connectivity, hospital and distributor reporting behavior, and inherent complexities in new agreements. Such estimates and judgments are also susceptible to technical errors. In addition, the relationship between the installed base, number of ~~shipments,~~placements, and utilization of ~~da Vinci Surgical Systems~~systems and our revenues may fluctuate from period to period, and growth in the installed base, number of ~~shipments,~~placements, and utilization of ~~da Vinci Surgical Systems~~systems may not correspond to an increase in revenue. The installed base, number of ~~shipments,~~placements, and utilization of ~~da Vinci Surgical Systems~~systems are not intended to be considered in isolation or as a substitute for, or superior to, revenue or other financial information prepared and presented in accordance with GAAP.

Intuitive System Leasing

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

In the years ended December 31, 2021, 2020, and 2019, we placed 668, 432, and ~~2018, we shipped 432,~~ 425 ~~and 272~~ da Vinci Surgical Systems, respectively, under lease and usage-based arrangements, of which 517, 317, ~~384,~~ and ~~229~~384 systems, respectively, were operating lease and usage-based arrangements. Revenue from operating lease arrangements is generally recognized on a straight-line basis over the lease term or, in the case of usage-based arrangements, as the systems are used. We generally set operating lease and usage-based pricing at a modest premium relative to purchased systems reflecting the time value of money and, in the case of usage-based arrangements, the risk that system utilization may fall short of anticipated levels. ~~The proportion of~~Variable lease revenue recognized from usage-based arrangements ~~has not been significant and~~ has been included in our operating lease metrics herein. Operating

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lease revenue has grown at a faster rate than overall systems revenue and was $277 million, $177 million, ~~$107 million,~~ and ~~$51~~$107 million for the years ended December 31, 2021, 2020, ~~2019,~~ and ~~2018,~~2019, respectively. As revenue ~~from~~for operating ~~lease~~leases and usage-based ~~arrangements~~systems is recognized over time, total systems revenue growth is reduced in a period when the number of operating lease and usage-based placements increases as a proportion of total system placements. Generally, lease transactions generate similar gross margins as our sale transactions. As of December 31, ~~2020,~~2021, a total of ~~901~~1,294 da Vinci Surgical Systems were installed at customers under operating lease or usage-based arrangements.

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

For some operating lease arrangements, our customers are provided with the right to purchase the leased system at certain points during and/or at the end of the lease term. Revenue generated from customer purchases of systems under operating lease arrangements (“Lease Buyouts”) was $96.0 million, $52.2 million, ~~$92.8 million,~~ and ~~$48.8~~$92.8 million for the years ended December 31, 2021, 2020, ~~2019,~~ and ~~2018,~~2019, respectively. We expect that revenue recognized from customer exercises of the buyout options will fluctuate based on the timing of when, and if, customers choose to exercise their buyout options.

Systems Revenue

System placements are driven by procedure growth in most markets. In some markets, ~~systems~~system placements are constrained by regulation. In geographies where da Vinci procedure adoption is in an early stage or system placements are constrained by regulation, system sales will precede procedure growth. System placements also vary due to seasonality, largely aligned with hospital budgeting cycles. We typically place a higher proportion of annual system placements in the fourth quarter and a lower proportion in the first quarter as customer budgets are reset. Systems revenue is also affected by the proportion of system placements under operating lease and usage-based arrangements, recurring operating lease and usage-based revenue, operating lease buyouts, product mix, ASPs, trade-in activities, and customer mix. Systems revenue grew 44% to $1.69 billion in 2021. Systems revenue declined 12% to $1.18 billion in 2020. Systems revenue grew 19% to $1.35 billion in ~~2019 and 21% to $1.13 billion in 2018.~~2019. Based on the factors outlined in the COVID-19 Pandemic section above, we believe that historical system ~~shipment~~placement trends may not be a good indicator of future system ~~shipments.~~placements.

Procedure Mix / Products

Our da Vinci Surgical Systems are generally used for soft tissue surgery for areas of the body between the pelvis and the neck, primarily in general surgery, gynecologic surgery, urologic surgery, cardiothoracic surgery, and head and neck surgery. Within these categories, procedures range in complexity from cancer and other highly complex procedures to less complex procedures for benign conditions. Cancer and other highly complex procedures tend to be reimbursed at higher rates than less complex procedures for benign conditions. Thus, hospitals are more sensitive to the costs associated with treating less complex, benign conditions. Our strategy is to provide hospitals with attractive clinical and economic solutions across the spectrum of procedure complexity. Our fully featured da Vinci Xi Surgical System with advanced instruments (including da Vinci Energy and EndoWrist and SureForm Stapler products) and our Integrated Table Motion product targets the more complex procedure segment. Our da Vinci X Surgical System is targeted towards price sensitive markets and procedures. Our da Vinci SP Surgical System complements the da Vinci Xi and X Surgical Systems by enabling surgeons to access narrow workspaces.

Procedure Seasonality

More than half of da Vinci procedures performed are for benign conditions, most notably hernia repairs, hysterectomies, and cholecystectomies. These benign procedures and other short-term elective procedures tend to be more seasonal than cancer operations and surgeries for other life-threatening conditions. Seasonality in the U.S. for procedures for benign conditions typically results in higher fourth quarter procedure volume when more patients have met annual deductibles and lower first quarter procedure volume when deductibles are reset. Seasonality outside the U.S. varies and is more pronounced around local holidays and vacation periods. As a result of the factors outlined in the COVID-19 Pandemic section above, including past and potentially future recommendations of authorities to defer elective procedures, historical procedure patterns may be disrupted.

Distribution Channels

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

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Regulatory Activities

Overview

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

Our products and operations are also subject to increasingly stringent medical device, privacy, and other regulations by regional, federal, state, and local authorities. After a device is placed on the market, numerous FDA and other regulatory requirements continue to apply. These requirements include establishment registration and device listing with the FDA and compliance with medical device reporting regulations, which require that manufacturers report to the FDA if their device caused or contributed, or may have caused or contributed, to a death or serious injury or malfunctioned in a way that would likely cause or contribute to a death or serious injury if it were to recur.

We anticipate an increase in medical device reporting filings due to changes in our reportability criteria (not reflective of any changes in product quality). We recently revised our medical device reporting policies, which had been developed based on previous feedback from the FDA. These revisions have been made in consultation with the FDA to better align with existing regulations.

We also anticipate that timelines for the introduction of new products and/or indications may be extended relative to past experience as a result of these regulations. For example, we have seen elongated regulatory approval timelines in the U.S. and the EU.

Clearances and Approvals

We have generally obtained the clearances required to market our products associated with our da Vinci Surgical Multiport Systems (Standard, S, Si, Xi, and X systems) for our targeted surgical specialties within the U.S., South Korea, Japan, and the European markets in which we operate. Since ~~2019,~~2020, we obtained regulatory clearances for the following products:

•In February 2022, we received regulatory clearance in China to market both our 12 mm SureForm 45 Stapler and SureForm 60 Stapler and corresponding reloads.

•In January 2022, we received regulatory clearance in China to market our da Vinci Vessel Sealer Extend with up to 7 mm vascular indications.

•In December 2021, we obtained FDA clearance for our 8 mm SureForm 30 Curved-Tip Stapler and reloads for use in general, thoracic, gynecologic, urologic, and pediatric surgery. The 8 mm SureForm 30 stapler is expected to launch in the U.S. in 2022, with other countries to follow.

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

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

•In July 2019, we obtained FDA clearance for our SureForm 45 Curved-Tip stapler and SureForm 45 Gray reload, which round out our SureForm 45 portfolio. We have also received CE mark clearance for our SureForm 45 Curved-Tip stapler and SureForm 45 Gray reload. In September 2019, we received regulatory clearance in Japan to market both our SureForm 45 Curved-Tip stapler and SureForm 45 Gray reload. We received regulatory clearance in South Korea to market our SureForm 45 Curved-Tip stapler and SureForm 45 Gray reload in June 2021 and July 2021, respectively.

•In June 2019, we received CE mark clearance for our da Vinci Endoscope Plus for the da Vinci Xi and da Vinci X Surgical Systems in Europe. Following the CE mark, in July 2019, we obtained FDA clearance for our da Vinci Endoscope Plus. We have also received regulatory clearances in South Korea and Japan to market our da Vinci Endoscope Plus in December 2019 and May 2020, respectively. In March 2022, we received regulatory clearance in China to market our da Vinci Endoscope Plus.

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

•~~In February 2019, we obtained FDA clearance for our Ion endoluminal system,~~Refer to the descriptions of our new ~~flexible, robotic-assisted, catheter-based platform, designed to navigate through very small lung airways to reach peripheral nodules for biopsies. Our rollout of the Ion system~~products that received regulatory clearances in 2022, 2021, and 2020 in the ~~U.S. is progressing well, and we are continuing to gather additional clinical evidence. We have placed 98 Ion systems as of September 30, 2021.~~New Product Introductions section below.

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

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

•In October 2018, the China National Health Commission published on its official website the quota for major medical equipment to be imported and sold in China through 2020. After an adjustment notice was published in the third quarter of 2020, the government will now allow for the total sale of 225 new surgical robots into China, which could include da Vinci Surgical Systems as well as surgical systems introduced by others. As of ~~September 30, 2021,~~March 31, 2022, we have sold ~~153~~168 da Vinci Surgical Systems under this quota, and two system quotas have expired; therefore, 55 surgical robots can still be imported and sold under this quota. Future sales of da Vinci Surgical Systems under the quota are uncertain, as they are dependent on hospitals completing a tender process and receiving associated approvals.

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~~Refer to the descriptions of our products that received regulatory clearances in 2021, 2020, and 2019 in the New Product Introductions section below.~~

The Japanese Ministry of Health, Labor, and Welfare (“MHLW”) considers reimbursement for procedures in April of even-numbered years. The process for obtaining reimbursement requires Japanese university hospitals and surgical societies, with our support, to seek reimbursement. There are multiple pathways to obtain reimbursement for procedures, including those that require in-country clinical data/economic data. In April 2012 and April 2016, the MHLW granted reimbursement status for ~~robotic-assisted~~ prostatectomy and partial nephrectomy, respectively. Most prostatectomies and partial nephrectomies were open procedures prior to da Vinci reimbursement. Da Vinci procedure reimbursement for ~~robotic-assisted~~ prostatectomy and partial nephrectomy procedures are higher than open and conventional laparoscopic procedure reimbursements. An additional 12 da Vinci procedures were granted reimbursement effective April 1, 2018, including gastrectomy, low anterior resection, lobectomy, and hysterectomy, for both malignant and benign ~~conditions. An~~conditions, and an additional 7seven da Vinci procedures were granted reimbursement effective April 1, 2020. ~~These~~An additional 19eight da Vinci procedures were granted reimbursement effective April 1, 2022, including colon resection. In addition, we received higher reimbursement for da Vinci gastrectomy procedures, as compared to open and conventional laparoscopic procedure reimbursements. The additional reimbursed procedures have varying levels of conventional laparoscopic penetration and will generally be reimbursed at rates equal to the conventional laparoscopic procedures. Given the reimbursement level and laparoscopic penetration for these 19additional procedures, there can be no assurance that the adoption pace for these procedures will be similar to ~~robotic-assisted~~ prostatectomy or partial nephrectomy, given their higher reimbursement, or any other da Vinci procedure.

Recalls and Corrections

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

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

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

Procedures

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

We use the number and type of ~~da Vinci~~ procedures as metrics for financial and operational decision-making and as a means to evaluate period-to-period comparisons. Management believes that the number and type of ~~da Vinci~~ procedures provide meaningful supplemental information regarding our performance, as management believes procedure volume is an indicator of the rate of adoption of robotic-assisted surgery as well as an indicator of future revenue (including revenue from usage-based arrangements). Management believes that both it and investors benefit from referring to the number and type of ~~da Vinci~~ procedures in assessing our performance and when planning, forecasting, and analyzing future periods. The number and type of ~~da Vinci~~ procedures also facilitate management’s internal comparisons of our historical performance. We believe that the number and type of ~~da Vinci~~ procedures are useful to investors as metrics, because (1) they allow for greater transparency with respect to key metrics used by management in its financial and operational decision-making, and (2) they are used by institutional investors and the analyst community to help them analyze the performance of our business. The vast majority of ~~da Vinci Surgical Systems~~systems installed are connected via the internet. System logs can also be accessed by field engineers for systems that are not connected to the internet. We utilize certain methods that rely on information collected from the systems installed for determining the number and type of ~~da Vinci~~ procedures performed that involve estimates and judgments, which are, by their nature, subject to substantial uncertainties and assumptions. Estimates and judgments for determining the number and type

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~~of da Vinci~~ procedures may be impacted over time by various factors, including changes in treatment modalities, hospital and distributor reporting behavior, and system internet connectivity. Such estimates and judgments are also susceptible to algorithmic or other technical errors. In addition, the relationship between the number and type of ~~da Vinci~~ procedures and our revenues may fluctuate from period to period, and ~~da Vinci~~ procedure volume growth may not correspond to an increase in revenue. The number and type of ~~da Vinci~~ procedures are not intended to be considered in isolation or as a substitute for, or superior to, revenue or other financial information prepared and presented in accordance with GAAP.

Worldwide Procedures

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

The adoption of robotic-assisted surgery using the da Vinci Surgical System has the potential to grow for those procedures that offer greater patient value than to non-da Vinci alternatives and competitive total economics for healthcare providers. Our da Vinci Surgical Systems are used primarily in general surgery, ~~gynecologic~~urologic surgery, ~~urologic~~gynecologic surgery, cardiothoracic surgery, and head and neck surgery. We focus our organization and investments on developing, marketing, and training products and services for procedures in which da Vinci can bring patient value relative to alternative treatment options and/or economic

benefit to healthcare providers. Target procedures in general surgery include hernia repair (both ventral and inguinal), colorectal procedures, ~~bariatrics,~~cholecystostomies, and ~~cholecystostomies.~~bariatrics. Target procedures in urology include prostatectomy and partial nephrectomy. Target procedures in gynecology include hysterectomy for both cancer and benign ~~conditions. Target procedures in urology include prostatectomy~~conditions and ~~partial nephrectomy.~~sacrocolpopexy. In cardiothoracic surgery, target procedures include lobectomy. In head and neck surgery, target procedures include ~~certain procedures resecting benign and malignant tumors classified as T1 and T2.~~transoral surgery. Not all ~~of the~~ indications, procedures, or products described may be available in a given country or region or on all generations of da Vinci surgical systems. Surgeons and their patients need to consult the product labeling in their specific country and for each product in order to determine the cleared uses, as well as important limitations, restrictions, or contraindications.

In ~~2020,~~2021, approximately ~~1,243,000~~1,594,000 surgical procedures were performed with da Vinci Surgical Systems, compared to approximately ~~1,229,000~~1,243,000 and ~~1,038,000~~1,229,000 surgical procedures performed with da Vinci Surgical Systems in ~~2019~~2020 and ~~2018,~~2019, respectively. The ~~reduced growth~~increase in our overall procedure volume in ~~2020~~2021 reflects the significant disruption caused by the COVID-19 pandemic in 2020, as noted in the COVID-19 Pandemic section above, and was driven by growth in U.S. general surgery and gynecology procedures and worldwide urology procedures.

U.S. Procedures

Overall U.S. procedure volume with da Vinci Surgical Systems ~~declined~~grew to approximately 1,109,000 in 2021, compared to approximately 876,000 in 2020 ~~compared to~~and approximately 883,000 in ~~2019 and approximately 753,000 in 2018.~~2019. General surgery was our largest and fastest growing U.S. specialty in 2020 with procedure volume that grew to approximately 589,000 in 2021, compared to approximately 434,000 in 2020 ~~compared to~~and approximately 421,000 in ~~2019 and approximately 325,000 in 2018.~~2019. Gynecology was our second largest U.S. surgical specialty in ~~2020~~2021 with procedure volume that ~~declined~~grew to approximately 316,000 in 2021, compared to approximately 267,000 in 2020 ~~compared to~~and approximately 282,000 in ~~2019 and approximately 265,000 in 2018.~~2019. Urology was our third largest U.S. surgical specialty in ~~2020~~2021 with procedure volume that ~~declined~~grew to approximately 153,000 in 2021, compared to approximately 134,000 in 2020 ~~compared to~~and approximately 138,000 in ~~2019 and approximately 128,000 in 2018.~~2019.

Procedures Outside of the U.S.

Overall OUS procedure volume with da Vinci Surgical Systems grew to approximately 485,000 in 2021, compared to approximately 367,000 in 2020 ~~compared to~~and approximately 346,000 in ~~2019 and approximately 285,000~~2019. Urology was our largest OUS specialty in ~~2018. Procedure growth in most OUS markets was driven largely by urology~~2021 with procedure volume ~~which~~that grew to approximately 264,000 in 2021, compared to approximately 214,000 in 2020 and approximately 206,000 in 2019. General surgery was our second largest OUS specialty in 2021 with procedure volume that grew to approximately 101,000 in 2021, compared to approximately ~~206,000~~68,000 in ~~2019~~2020 and approximately ~~175,000~~62,000 in ~~2018. General surgery and thoracic~~2019. Thoracic procedures also contributed to OUS procedure growth with higher growth rates than urology and general surgery procedures.

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Recent Business Events and Trends

Procedures

Overall. Total da Vinci procedures performed by our customers grew approximately ~~20%~~19% for the three months ended ~~September 30, 2021,~~March 31, 2022, compared to approximately 7%16% for the three months ended September 30, 2020. Total da Vinci procedures performed by our customers grew approximately 32% for the nine months ended September 30, 2021, as compared with the same period in the prior year. Total da Vinci procedures declined approximately 1% for the nine months ended September 30, 2020.March 31, 2021. The ~~third~~first quarter ~~and year-to-date~~ procedure results for both periods reflect ~~impacts from~~disruption caused by the COVID-19 pandemic, as noted in the COVID-19 Pandemic section above. ~~Growth in the third~~The first quarter ~~of 2021~~2022 procedure growth was ~~impacted by a resurgence of COVID-19. We saw~~largely attributable to growth in ~~most of the major procedure categories in the third quarter of 2021, most notably in~~U.S. general surgery ~~procedures (particularly bariatrics, cholecystectomies,~~ and ~~hernia repair) and, to a lesser extent, urology and gynecology procedures. The rates of recovery~~growth in ~~urology procedures continue to be impacted by the COVID-19 pandemic due to delays~~OUS markets. Delays in both the diagnosis of and ~~procedures in~~treatments of disease reflecting patient ~~populations that are considered to be at higher risk from~~concerns over contracting COVID-19 ~~infections as well as for conditions that may progress more slowly.~~has also impacted the number of procedures.

U.S. Procedures. U.S. da Vinci procedures grew approximately 16% for the three months ended ~~September 30, 2021,~~March 31, 2022, compared to approximately 7%14% for the three months ended ~~September 30, 2020. U.S. da Vinci procedures grew approximately 31%~~March 31, 2021. The first quarter procedure results for both periods reflect disruption caused by the ~~nine months ended September 30, 2021,~~COVID-19 pandemic, as ~~compared with the same period in the prior year. U.S. da Vinci procedures declined approximately 3% for the nine months ended September 30, 2020. As~~ noted in the COVID-19 Pandemic section ~~above, the U.S. procedure results for the three and nine months ended September 30, 2020, reflected significant disruption caused by the COVID-19 pandemic. Growth in the third~~above. The first quarter ~~of 2021 was impacted by a resurgence of COVID-19 as cases and hospitalizations once again increased. During the third quarter of 2021,~~2022 U.S. procedure growth was largely attributable to growth in general surgery procedures, most notably ~~bariatric,~~hernia repair, cholecystectomy, and ~~hernia repair~~bariatric procedures. Growth in the more mature gynecologic and urologic procedure categories was more moderate. During the COVID-19 pandemic, we believe patients have delayed non-urgent procedures ~~and,~~ to a ~~lesser~~greater extent ~~urology and gynecology procedures.~~than urgent procedures, particularly when patients are at higher risk of COVID-19.

OUS Procedures. OUS da Vinci procedures grew approximately ~~30%~~25% for the three months ended ~~September 30, 2021,~~March 31, 2022, compared to approximately 9%23% for the three months ended ~~September 30, 2020. OUS da Vinci procedures grew approximately 34%~~March 31, 2021. The first quarter procedure results for both periods reflect disruption caused by the ~~nine months ended September 30, 2021, compared to approximately 5% for the nine months ended September 30, 2020. As~~COVID-19 pandemic, as noted in the COVID-19 Pandemic section above, the OUS procedure results for the three and nine months ended September 30, 2020, reflected significant disruption caused by the COVID-19 pandemic. Similar to U.S. procedures above, during the thirdabove. The first quarter ~~of 2021, OUS da Vinci procedure volumes were impacted as COVID-19 cases and hospitalizations increased in a number of countries. By procedure category,~~2022 OUS procedure growth was driven by continued growth in ~~urology~~urologic procedures, ~~most notably prostatectomy~~including prostatectomies and partial ~~nephrectomy procedures, as well as~~nephrectomies, and earlier stage growth in general surgery (particularly colorectal), gynecology, and thoracic procedures. The first quarter 2022 OUS procedure growth rate ~~also~~ reflects continued da Vinci adoption in European and Asian markets. We saw strong procedure growth in ~~China,~~ the UK, ~~South Korea,~~Italy, China, Germany, and Japan during the ~~third~~first quarter of ~~2021.~~2022. However, particularly in March 2022, our procedure volume in China and South Korea was impacted by an increase in COVID-19 cases. We believe growth in our global markets is being driven by increased acceptance among surgeons and health systems, supported by expanded global evidence validating the clinical and economic value of da Vinci procedures.

System Demand

We placed ~~336~~311 da Vinci Surgical Systems in the ~~third~~first quarter of ~~2021,~~2022, compared to ~~195~~298 systems in the ~~third~~first quarter of ~~2020.~~2021. The increase in systems placed reflects ~~the significant disruption experienced as a result of the COVID-19 pandemic in the third quarter of 2020, as well as~~ procedure growth, ~~more~~ customers trading in da Vinci Si Surgical Systems for fourth generation da Vinci systems in order to access fourth generation instruments and capabilities as well as to standardize their system portfolio, and further customer validation that da Vinci surgery addresses their quadruple aim objectives. However, we are experiencing some near-term softening of our capital placement pipeline in the U.S., and we believe the contributing factors may include a pull forward of demand into 2021 due to customer budget utilization at year-end, a reduction in the number of third generation da Vinci systems available for trade-in, and an overall tightening of hospital finances in 2022.

While ~~third~~first quarter ~~2021~~2022 placements grew ~~72%~~4% compared with ~~2020,~~2021, future placements of da Vinci Surgical Systems will be impacted by a number of factors: supply chain risks; economic and geopolitical factors; inflationary pressures; the impact of the current COVID-19 pandemic, as noted in the COVID-19 Pandemic section above; rising interest rates; hospital response to the evolving healthcare environment; hospital staffing shortages; procedure growth rates; hospital consolidation trends; evolving system utilization and point of care dynamics; capital replacement ~~trends;~~trends, including a declining number of older generation systems available for trade-in transactions; 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. 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-assisted surgery competition, including from companies that have introduced products in the field of robotic-assisted surgery or have made explicit statements about their efforts to enter the ~~field. A few of these companies include,~~field including, but ~~are~~ not limited to, the following companies: Asensus Surgical, Inc.; avateramedical GmbH; CMR Surgical Ltd.; Johnson & ~~Johnson (including their wholly owned subsidiaries Auris Health,~~Johnson; Medicaroid, Inc. ~~and Verb Surgical Inc.)~~; ~~Medicaroid Corporation;~~ Medrobotics Corporation; Medtronic plc; meerecompany Inc.; MicroPort Scientific Corporation; Olympus Corporation; Samsung Group; Shandong Weigao Group Medical Polymer Company Ltd.; and Titan Medical Inc.

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

New Product Introductions

SureForm 30 Curved-Tip Stapler and Reloads. In December 2021, we obtained FDA clearance for our 8 mm SureForm 30 Curved-Tip Stapler and reloads (gray, white, and blue) for use in general, thoracic, gynecologic, urologic, and pediatric surgery. It has been designed to help surgeons better visualize and reach anatomy through a combination of the 8 mm diameter instrument shaft and jaws, 120-degree cone of wristed articulation, and the curved tip. As it fits through the 8 mm da Vinci surgical system instrument cannula, the stapler allows different angles for surgeons to approach patient anatomy. Consistent with the other SureForm staplers, the 8 mm SureForm 30 Curved-Tip Stapler integrates SmartFire technology, which makes automatic adjustments to the firing process as staples are formed and the transection is made. The technology makes more than 1,000 measurements per second, helping achieve a consistent staple line. The 8 mm SureForm 30 stapler is expected to launch in the U.S. in 2022, with other countries to follow.

SynchroSeal and E-100 Generator. In November 2019, we obtained FDA clearance for our SynchroSeal instrument and E-100 generator. Following the FDA clearance, in February 2020, we received CE mark clearance for both products. In March 2020, we received regulatory clearance in Japan to market both our SynchroSeal instrument and E-100 generator. WeIn August 2020, we received regulatory clearance in South Korea to market our ~~SynchroSeal instrument and~~ E-100 ~~generator in January 2020 and August 2020, respectively.~~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 –~~ instruments–Vessel Sealer Extend and ~~SynchroSeal –~~ SynchroSeal–on the da Vinci X and da Vinci 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. We have also received CE mark clearance for our 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. In September 2019, we received regulatory clearance in Japan to market both our SureForm 45 Curved-Tip stapler and SureForm 45 Gray reload. We received regulatory clearance in South Korea to market our SureForm 45 Curved-Tip stapler and SureForm 45 Gray reload in June 2021 and July 2021, respectively. Not all reloads or staplers are available for use on all systems or in all countries.

Da Vinci Endoscope Plus. In June 2019, we received CE mark clearance for our da Vinci Endoscope Plus, an enhanced 3D endoscope for use with our da Vinci X and Xi Surgical Systems. Following the CE mark, in July 2019, we obtained FDA clearance for our da Vinci Endoscope Plus. We have also received regulatory clearances in South Korea and Japan to market our da Vinci Endoscope Plus in December 2019 and May 2020, respectively. In March 2022, we received regulatory clearance in China to market 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. In February 2020, we received CE mark clearance for our da Vinci Handheld Camera. We broadly launched the da Vinci Handheld Camera in our European direct markets as well as in the U.S. in May 2020 and June 2020, respectively.

~~Ion endoluminal system.~~ In February 2019, we obtained 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 articulate 180 degrees in all directions. The outer diameter of the catheter is 3.5mm, which allows physicians to navigate through small and tortuous airways to reach nodules in most airway segments within the lung. The Ion system’s flexible biopsy needle can also pass through very tight bends via Ion’s catheter to collect tissue in the peripheral lung. The catheter’s 2mm working channel can also accommodate other biopsy tools, such as biopsy forceps or cytology brushes, if necessary. Our rollout of the Ion system in the U.S. is progressing well, and we are continuing to gather additional clinical evidence. We have placed 98 Ion systems as of September 30, 2021.

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

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~~Third~~First Quarter ~~2021~~2022 Operational and Financial Highlights

•Total revenue increased by ~~30%~~15% to ~~$1.40~~$1.49 billion for the three months ended ~~September 30, 2021,~~March 31, 2022, compared to ~~$1.08~~$1.29 billion for the three months ended ~~September 30, 2020. The compound annual growth rate between the third quarter of 2019 and the third quarter of 2021 was 12%.~~March 31, 2021.

•Approximately ~~395,000~~428,000 da Vinci procedures were performed during the three months ended ~~September 30, 2021,~~March 31, 2022, an increase of ~~20%~~19% compared to approximately ~~329,000~~360,000 for the three months ended ~~September 30, 2020. The compound annual growth rate between~~March 31, 2021.

•Approximately 3,940 Ion procedures were performed during the ~~third quarter~~three months ended March 31, 2022, an increase of ~~2019 and~~348% compared to approximately 880 for the ~~third quarter of 2021 was 13%.~~three months ended March 31, 2021.

•Instruments and accessories revenue increased by ~~20%~~15% to ~~$755~~$810 million for the three months ended ~~September 30, 2021,~~March 31, 2022, compared to ~~$631~~$706 million for the three months ended ~~September 30, 2020.~~March 31, 2021.

•Systems revenue increased by ~~55%~~16% to ~~$415~~$428 million for the three months ended ~~September 30, 2021,~~March 31, 2022, compared to ~~$268~~$369 million during the three months ended ~~September 30, 2020.~~March 31, 2021.

•~~A total of 336~~During the three months ended March 31, 2022, we placed 311 da Vinci Surgical Systems, ~~were shipped during the three months ended September 30, 2021,~~ an increase of ~~72%~~4% compared to ~~195~~298 systems during the three months ended ~~September 30, 2020.~~March 31, 2021.

•As of ~~September 30, 2021,~~March 31, 2022, we had a da Vinci Surgical System installed base of approximately ~~6,525~~6,920 systems, an increase of ~~approximately 11%~~13% compared to the installed base of approximately ~~5,865~~6,142 systems as of ~~September 30, 2020.~~March 31, 2021.

•Utilization of da Vinci ~~systems,~~Surgical Systems, measured in terms of procedures per system per year, increased 9%6% relative to the ~~third~~first quarter of ~~2020. The compound annual growth rate between the third quarter of 2019 and the third quarter of 2021 was 3%.~~2021.

•During the three months ended ~~September 30, 2021,~~March 31, 2022, we placed 2834 Ion systems, an increase of 143% compared to 1114 systems during the three months ended ~~September 30, 2020.~~March 31, 2021.

•As of March 31, 2022, we had an Ion system installed base of approximately 163 systems, an increase of 226% compared to the installed base of approximately 50 systems as of March 31, 2021.

•Gross profit as a percentage of revenue was ~~69.2%~~67.9% for the three months ended ~~September 30, 2021,~~March 31, 2022, compared to ~~67.2%~~69.9% for the three months ended ~~September 30, 2020.~~March 31, 2021.

•Operating income ~~increased~~decreased by ~~64%~~2% to ~~$443~~$408 million for the three months ended ~~September 30, 2021,~~March 31, 2022, compared to ~~$270~~$417 million during the three months ended ~~September 30, 2020.~~March 31, 2021. Operating income included ~~charges for~~$121 million and $104 million of share-based compensation ~~of $123 million and $107 million~~expense related to employee stock plans and ~~$6.4~~$13.9 million and ~~$21.7~~$8.1 million of intangible asset-related charges for the three months ended ~~September 30,~~March 31, 2022, and 2021, ~~and 2020,~~ respectively.

•As of ~~September 30, 2021,~~March 31, 2022, we had ~~$8.22~~$8.40 billion in cash, cash equivalents, and investments. Cash, cash equivalents, and investments ~~increased~~decreased by ~~$1.35 billion,~~$218 million, compared to $8.62 billion as of December 31, ~~2020,~~2021, primarily as a result of cash used for taxes paid related to net share settlements of equity awards, share repurchases, and capital expenditures, as well as unrealized losses on interest-bearing debt securities classified as available for sale, partially offset by cash provided by ~~our operations~~operating activities and proceeds from stock option exercises and employee stock ~~purchases, partially offset by capital expenditures and taxes paid related to net share settlements of equity awards.~~purchases.

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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 September 30, Nine Months Ended September 30,
2021 % of total
revenue 2020 % of total
revenue 2021 % of total
revenue 2020 % of total
revenue
Revenue:
Product $ 1,170.6 83 % $ 898.4 83 % $ 3,481.1 84 % $ 2,521.0 83 %
Service 232.7 17 % 179.3 17 % 678.3 16 % 508.3 17 %
Total revenue 1,403.3 100 % 1,077.7 100 % 4,159.4 100 % 3,029.3 100 %
Cost of revenue:
Product 355.8 25 % 287.7 27 % 1,049.1 25 % 868.2 29 %
Service 76.1 6 % 65.7 6 % 212.6 5 % 195.7 6 %
Total cost of revenue 431.9 31 % 353.4 33 % 1,261.7 30 % 1,063.9 35 %
Product gross profit 814.8 58 % 610.7 56 % 2,432.0 59 % 1,652.8 54 %
Service gross profit 156.6 11 % 113.6 11 % 465.7 11 % 312.6 11 %
Gross profit 971.4 69 % 724.3 67 % 2,897.7 70 % 1,965.4 65 %
Operating expenses:
Selling, general and administrative 363.3 26 % 298.9 28 % 1,039.5 25 % 886.1 29 %
Research and development 165.5 11 % 155.0 14 % 487.6 12 % 445.3 15 %
Total operating expenses 528.8 37 % 453.9 42 % 1,527.1 37 % 1,331.4 44 %
Income from operations 442.6 32 % 270.4 25 % 1,370.6 33 % 634.0 21 %
Interest and other income, net 18.5 1 % 84.8 8 % 65.5 2 % 136.5 5 %
Income before taxes 461.1 33 % 355.2 33 % 1,436.1 35 % 770.5 26 %
Income tax expense (benefit) 73.9 5 % 38.4 4 % 90.7 3 % 67.3 2 %
Net income 387.2 28 % 316.8 29 % 1,345.4 32 % 703.2 24 %
Less: net income attributable to noncontrolling interest in joint venture 6.7 1 % 2.9 — % 21.4 — % 7.8 — %
Net income attributable to Intuitive Surgical, Inc. $ 380.5 27 % $ 313.9 29 % $ 1,324.0 32 % $ 695.4 24 %


	Three Months Ended March 31,
	2022		% of Total Revenue		2021		% of Total Revenue
Revenue:
Product	$	1,238.4	83	%	$	1,074.6	83	%
Service	249.3		17	%	217.5		17	%
Total revenue	1,487.7		100	%	1,292.1		100	%
Cost of revenue:
Product	397.3		27	%	319.3		25	%
Service	80.7		5	%	70.2		5	%
Total cost of revenue	478.0		32	%	389.5		30	%
Product gross profit	841.1		56	%	755.3		58	%
Service gross profit	168.6		12	%	147.3		12	%
Gross profit	1,009.7		68	%	902.6		70	%
Operating expenses:
Selling, general and administrative	391.1		26	%	326.0		25	%
Research and development	210.5		15	%	159.8		12	%
Total operating expenses	601.6		41	%	485.8		37	%
Income from operations	408.1		27	%	416.8		33	%
Interest and other income (expense), net	(5.7)		—	%	32.0		2	%
Income before taxes	402.4		27	%	448.8		35	%
Income tax expense	33.0		2	%	13.6		1	%
Net income	369.4		25	%	435.2		34	%
Less: net income attributable to noncontrolling interest in joint venture	3.8		—	%	8.9		1	%
Net income attributable to Intuitive Surgical, Inc.	$	365.6	25	%	$	426.3	33	%

Total Revenue

Total revenue increased by ~~30%~~15% to ~~$1.4~~$1.5 billion for the three months ended ~~September 30, 2021,~~March 31, 2022, compared to ~~$1.1~~$1.3 billion for the three months ended ~~September 30, 2020,~~March 31, 2021, resulting from ~~55%~~16% higher systems revenue, driven by ~~72%~~4% higher system placements, ~~20%~~a lower proportion of system placements under operating leases, and higher leasing revenue, 15% higher instruments and accessories revenue, driven by approximately ~~20%~~19% higher procedure volume, partially offset by the effects of the Extended Use Program, and ~~30%~~15% higher service revenue. Total revenue increased by 37% to $4.2 billion for the nine months ended September 30, 2021, compared to $3.0 billion for the nine months ended September 30, 2020, resulting from 51% higher systems revenue, driven by 58% higher system placements, 32% higher instruments and accessories revenue, driven by approximately 32% higher procedure volume, and 33% higher service revenue. In conjunction with our 2020 COVID-19 Customer Relief Program implemented in the second quarter of 2020, service revenue was reduced by $23 million and $82 million for the three and nine months ended September 30, 2020, respectively, for service fee credits provided to customers.

Revenue denominated in foreign currencies as a percentage of total revenue was approximately26% and 23% ~~and 22%~~ for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022, and 2021, ~~respectively, and 22% and 23% for the three and nine months ended September 30, 2020,~~ 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 ~~and nine~~ months ended ~~September 30, 2021,~~March 31, 2022, nor for the three ~~and nine~~ months ended and ~~September 30, 2020.~~March 31, 2021.

Revenue generated in the U.S. accounted for ~~68%~~65% and ~~67%~~66% of total revenue for the three ~~and nine~~ months ended ~~September 30, 2021,~~March 31, 2022, and ~~69%~~ ~~and 68% for~~ the three ~~and nine~~ months ended ~~September 30, 2020,~~March 31, 2021, respectively. We believe that

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

The following table summarizes our revenue and system unit ~~shipments~~placements for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022, and 2021, ~~and 2020,~~ respectively (in millions, except percentages and unit ~~shipments)~~placements):


		Three Months Ended September 30,						Nine Months Ended September 30,							Three Months Ended March 31,
		2021			2020			2021			2020				2022			2021
Revenue	Revenue													Revenue
Instruments and accessories	Instruments and accessories	$	755.4		$	630.5		$	2,257.7		$	1,708.9		Instruments and accessories	$	810.3		$	705.9
Systems	Systems	415.2			267.8			1,223.4			812.1			Systems	428.1			368.7
Total product revenue	Total product revenue	1,170.6			898.3			3,481.1			2,521.0			Total product revenue	1,238.4			1,074.6
Services	Services	232.7			179.4			678.3			508.3			Services	249.3			217.5
Total revenue	Total revenue	$	1,403.3		$	1,077.7		$	4,159.4		$	3,029.3		Total revenue	$	1,487.7		$	1,292.1
United States	United States	$	952.2		$	743.8		$	2,805.5		$	2,060.8		United States	$	964.8		$	847.5
OUS	OUS	451.1			333.9			1,353.9			968.5			OUS	$	522.9		$	444.6
Total revenue	Total revenue	$	1,403.3		$	1,077.7		$	4,159.4		$	3,029.3		Total revenue	$	1,487.7		$	1,292.1
% of Revenue – U.S.		68		%	69		%	67		%	68		%
% of Revenue – OUS		32		%	31		%	33		%	32		%
% of Revenue–U.S.														% of Revenue–U.S.	65		%	66		%
% of Revenue–OUS														% of Revenue–OUS	35		%	34		%

Instruments and accessories	Instruments and accessories	$	755.4		$	630.5		$	2,257.7		$	1,708.9		Instruments and accessories	$	810.3		$	705.9
Services	Services	232.7			179.4			678.3			508.3			Services	249.3			217.5
Operating lease revenue	Operating lease revenue	72.5			45.7			198.8			127.0			Operating lease revenue	83.2			59.0
Total recurring revenue	Total recurring revenue	$	1,060.6		$	855.6		$	3,134.8		$	2,344.2		Total recurring revenue	$	1,142.8		$	982.4
% of Total revenue	% of Total revenue	76		%	79		%	75		%	77		%	% of Total revenue	77		%	76		%

Da Vinci Surgical Systems Shipments by Region:
U.S. unit shipments		227			116			630			404
OUS unit shipments		109			79			332			206
Total unit shipments*		336			195			962			610
*Systems shipped under operating leases (included in total unit shipments)		139			68			374			197
Da Vinci Surgical Systems Placements by Region:														Da Vinci Surgical Systems Placements by Region:
U.S. unit placements														U.S. unit placements	186			190
OUS unit placements														OUS unit placements	125			108
Total unit placements*														Total unit placements*	311			298
*Systems placed under operating leases (included in total unit placements)														*Systems placed under operating leases (included in total unit placements)	108			127

Da Vinci Surgical Systems Shipments involving System Trade-ins:
Unit shipments involving trade-ins		136			78			393			286
Unit shipments not involving trade-ins		200			117			569			324
Da Vinci Surgical Systems Placements involving System Trade-ins:														Da Vinci Surgical Systems Placements involving System Trade-ins:
Unit placements involving trade-ins														Unit placements involving trade-ins	108			132
Unit placements not involving trade-ins														Unit placements not involving trade-ins	203			166

Ion Systems Shipments		28			11			62			22
Ion Systems Placements**														Ion Systems Placements**	34			14
**Systems placed under operating leases (included in total unit placements)														**Systems placed under operating leases (included in total unit placements)	15			10

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Product Revenue

~~Three Months Ended September 30, 2021~~

Product revenue increased by ~~30%~~15% to ~~$1.17~~$1.24 billion for the three months ended ~~September 30, 2021,~~March 31, 2022, compared to ~~$0.90~~$1.07 billion for the three months ended ~~September 30, 2020.~~March 31, 2021.

Instruments and accessories revenue increased by ~~20%~~15% to ~~$755~~$810 million for the three months ended ~~September 30, 2021,~~March 31, 2022, compared to ~~$631~~$706 million for the three months ended ~~September 30, 2020.~~March 31, 2021. The increase in instruments and accessories revenue was driven primarily by procedure growth of approximately ~~20%.~~19% and incremental sales of our advanced instruments. The ~~third~~increase was partially offset by the benefit of stocking orders in the three months ended March 31, 2021, associated with the launch our Extended Use Program in the U.S. and Europe and foreign currency impacts. The first quarter ~~2021~~2022 U.S. procedure growth was approximately 16%, driven by strong growth in general surgery procedures, most notably ~~bariatric,~~hernia repair, cholecystectomy, and ~~hernia repair~~bariatric procedures, as well as moderate growth in the more mature gynecologic and ~~to a lesser extent, urology and gynecology procedures.~~urologic procedures categories. The ~~third~~first quarter ~~2021~~2022 OUS procedure growth was approximately ~~30%~~25%, driven by continued growth in urology procedures, most notably prostatectomy and partial nephrectomy procedures, ~~as well as~~and earlier stage growth in general surgery (particularly colorectal), gynecology, and thoracic procedures. Both growth rates were impacted by the disruption caused by the COVID-19 pandemic,

as noted in the COVID-19 Pandemic section above. Geographically, the ~~third~~first quarter ~~2021~~2022 OUS procedure growth was driven by procedure expansion in ~~China,~~ the UK, ~~South Korea,~~Italy, China, Germany, and Japan.

Systems revenue increased by ~~55%~~16% to ~~$415~~$428 million for the three months ended ~~September 30, 2021,~~March 31, 2022, compared to ~~$268~~$369 million for the three months ended ~~September 30, 2020.~~March 31, 2021. The higher ~~third~~first quarter ~~2021~~2022 systems revenue was primarily driven by higher system ~~shipments,~~placements, higher operating lease revenue, ~~higher lease buyouts,~~ and ~~higher third quarter 2021 ASPs,~~a lower proportion of system placements under operating leases, partially offset by ~~a higher proportion of system shipments under operating leases.~~lower first quarter 2022 ASPs and lower lease buyouts.

During the ~~third~~first quarter of ~~2021, a total of 336~~2022, 311 da Vinci Surgical Systems were ~~shipped~~placed compared to ~~195~~298 systems during the ~~third~~first quarter of ~~2020.~~2021. By geography, ~~227~~186 systems were ~~shipped into~~placed in the U.S., ~~47 into~~78 in Europe, ~~47 into~~42 in Asia, and ~~15 into~~5 in other markets during the ~~third~~first quarter of ~~2021,~~2022, compared to ~~116~~190 systems ~~shipped into~~placed in the U.S., ~~39 into~~59 in Europe, ~~34 into~~44 in Asia, and ~~6 into~~5 in other markets during the ~~third~~first quarter of ~~2020.~~2021. The increase in systems ~~shipments~~placements was primarily driven by ~~decisions in the third quarter of 2020 by customers to defer purchases or leases of systems into future quarters as a result of the COVID-19 pandemic, as well as~~ procedure growth, ~~more~~ customers trading in da Vinci Si Surgical Systems for fourth generation da Vinci Xi and da Vinci X systems in order to access fourth generation instruments and capabilities as well as to standardize their system portfolio, and further customer validation that da Vinci surgery addresses their quadruple aim objectives. As of March 31, 2022, we had a da Vinci Surgical System installed base of approximately 6,920 systems, compared to the installed base of approximately 6,142 systems as of March 31, 2021.

We ~~shipped 166~~placed 128 and 83137 da Vinci Surgical Systems under lease or usage-based arrangements, of which ~~139~~108 and 68127 systems were classified as operating leases for the three months ended ~~September 30,~~March 31, 2022, and 2021, ~~and 2020,~~ respectively. Operating lease revenue, including the impact of Ion systems, was ~~$72.5~~$83.2 million for the three months ended ~~September 30, 2021,~~March 31, 2022, compared to ~~$45.7~~$59.0 million for the three months ended ~~September 30, 2020.~~March 31, 2021. Da Vinci Surgical Systems placed as operating leases represented ~~41%~~35% of total ~~shipments~~placements during the first quarter~~third quarter~~ of ~~2021,~~2022, compared to ~~35%~~43% during the ~~third~~first quarter of ~~2020.~~2021. A total of ~~1,179~~1,377 da Vinci Surgical Systems were installed at customers under operating lease or usage-based arrangements as of ~~September 30, 2021,~~March 31, 2022, compared to ~~806~~1,006 as of ~~September 30, 2020.~~March 31, 2021. Revenue from Lease Buyouts was ~~$24.7~~$15.5 million for the three months ended ~~September 30, 2021,~~March 31, 2022, compared to ~~$16.9~~$19.1 million for the three months ended ~~September 30, 2020.~~March 31, 2021. We expect revenue from Lease Buyouts to fluctuate period to period depending on the timing of when, and if, customers choose to exercise the buyout options embedded in their leases.

The da Vinci Surgical System ASP, excluding the impact of systems ~~shipped~~placed under operating lease or usage-based arrangements and Ion systems, was approximately ~~$1.57~~$1.54 million for the three months ended ~~September 30, 2021,~~March 31, 2022, compared to approximately ~~$1.55~~$1.65 million for the three months ended ~~September 30, 2020.~~March 31, 2021. The lower first quarter 2022 ASP was largely driven by unfavorable geographic mix and higher pricing discounts, partially offset by favorable product mix. ASP fluctuates from period to period based on geographic and product mix, product pricing, systems ~~shipped~~placed involving trade-ins, and changes in foreign exchange rates.

~~Nine Months Ended September 30, 2021~~

~~Product revenue increased by 38% to $3.5 billion for~~During the ~~nine months ended September 30, 2021,~~first quarter of 2022, 34 Ion systems were placed compared to ~~$2.5 billion for~~14 systems during the ~~nine months ended September 30, 2020.~~

~~Instruments and accessories revenue increased by 32% to $2.26 billion for the nine months ended September 30, 2021,~~first quarter of 2021. As of March 31, 2022, we had an Ion system installed base of approximately 163 systems, compared to ~~$1.71 billion for~~ the ~~nine months ended September 30, 2020. The increase in instruments and accessories revenue was driven primarily by procedure growth~~installed base of approximately ~~32%. The year-to-date 2021 U.S. procedure growth was approximately 31%, driven by growth in general surgery procedures, most notably bariatric, cholecystectomy,~~50 systems as of March 31, 2021. We placed 19 and hernia repair procedures, as well as moderate growth in the more mature gynecologic and urologic procedures categories. The year-to-date 2021 OUS procedure growth was approximately 34%, driven by continued growth in urology procedures, most notably prostatectomy and partial nephrectomy procedures, as well as earlier stage growth in general surgery (particularly colorectal), gynecology, and thoracic procedures. Both growth rates were positively impacted by the disruption caused by the COVID-19 pandemic in 2020, as noted in the ~~COVID-19 Pandemic~~ ~~section above. Geographically, the year-to-date 2021 OUS procedure growth was driven by procedure expansion in China, Germany, Japan, the UK, and South Korea.~~

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~~Systems revenue increased by 51% to $1,223 million for the nine months ended September 30, 2021, compared to $812 million for the nine months ended September 30, 2020. The higher year-to-date 2021~~12 Ion systems ~~revenue was primarily driven by higher system shipments, higher operating~~under lease ~~revenue, higher year-to-date 2021 ASPs, and higher lease buyouts, partially offset by a higher proportion of system shipments under operating leases.~~

~~During the~~ ~~nine~~ ~~months ended~~ ~~September 30, 2021, a total of 962 da Vinci Surgical Systems were shipped compared to 610 systems during thenine~~ ~~months ended~~ ~~September 30, 2020. By geography, 630 systems were shipped into the U.S., 169 into Europe, 132 into Asia, and 31 into other markets during the nine~~ ~~months ended~~ ~~September 30, 2021, compared to 404 systems shipped into the U.S., 82 into Europe, 109 into Asia, and 15 into other markets during the nine~~ ~~months ended~~ ~~September 30, 2020. The increase in systems shipments was primarily driven by decisions in the second and third quarters of 2020 by customers to defer purchases~~ or leases of systems into future quarters as a result of the COVID-19 pandemic, as well as procedure growth, more customers trading in da Vinci Si Surgical Systems for fourth generation da Vinci Xi and da Vinci X systems in order to access fourth generation instruments and capabilities as well as to standardize their system portfolio, and further customer validation that da Vinci surgery addresses their quadruple aim objectives.

~~We shipped 471 and 265 da Vinci Surgical Systems under lease~~usage-based arrangements, of which ~~374~~15 and ~~197~~10 systems were classified as operating leases for the ~~nine~~three months ended ~~September 30,~~March 31, 2022, and 2021, ~~and 2020,~~ respectively. ~~Operating lease revenue was $198.8 million for the nine months ended September 30, 2021, compared to $127.0 million for the nine months ended September 30, 2020. Systems~~Ion systems placed as operating leases represented ~~39%~~44% of total ~~shipments~~placements during the~~nine~~ ~~months ended~~ ~~September 30, 2021~~, first quarter of 2022, compared to ~~32%~~71% during the ~~nine~~ ~~months ended~~ September 30, 2020. Revenue from Lease Buyouts was $69.9 million for the nine months ended September 30, 2021, compared to $38.5 million for the nine months ended September 30, 2020. We expect revenue from Lease Buyouts to fluctuate period to period depending on the timing first quarter of ~~when, and if,~~2021. A total of 70 Ion systems were installed at customers ~~choose to exercise the buyout options embedded in their leases.~~

~~The da Vinci Surgical System ASP, excluding the impact of systems shipped~~ under operating ~~lease~~ or usage-based arrangements ~~and Ion systems, was approximately $1.59 million for the nine months ended September 30, 2021,~~as of March 31, 2022, compared to approximately $1.54 million for the nine months ended September 30, 2020. ASP fluctuates from period to period based on geographic and product mix, product pricing, systems shipped involving trade-ins, and changes in foreign exchange rates.21 as of March 31, 2021.

Service Revenue

Service revenue increased by ~~30%~~15% to ~~$233~~$249 million for the three months ended ~~September 30, 2021,~~March 31, 2022, compared to ~~$179~~$218 million for the three months ended ~~September 30, 2020.~~March 31, 2021. The increase in service revenue was primarily driven by a larger installed base of ~~da Vinci Surgical Systems~~systems producing service ~~revenue, as well as the effects of the Customer Relief Program in the prior year, which resulted in a $23 million decrease in service revenue in the three months ended September 30, 2020.~~

Service revenue increased by 33% to $678 million for the nine months ended September 30, 2021, compared to $508 million for the nine months ended September 30, 2020. The increase in service revenue was primarily driven by a larger installed base of da Vinci Surgical Systems producing service revenue, as well as the effects of the Customer Relief Program in the prior year, which resulted in an $82 million decrease in service revenue in the nine months ended September 30, 2020.revenue.

Gross Profit

Product gross profit for the three months ended ~~September 30, 2021,~~March 31, 2022, increased ~~33%~~by 11% to ~~$815~~$841 million, representing ~~69.6%~~67.9% of product revenue, compared to ~~$611~~$755 million, representing ~~68.0%~~70.3% of product revenue, for the three months ended ~~September 30, 2020.~~March 31, 2021. The higher product gross profit for the three months ended ~~September 30, 2021,~~March 31, 2022, was primarily driven by higher product revenue, ~~and higher~~partially offset by lower product gross profit margin. The ~~higher~~lower product gross profit margin for the three months ended ~~September 30, 2021,~~March 31, 2022, was primarily driven by higher ~~third~~freight and material costs, lower first quarter ~~2021~~2022 system ASPs, and ~~lower year-over-year excess~~higher fixed costs from investments to drive growth of the business and obsolete inventory costs, partially offset by higher freight costs. In addition, we incurred period costs associated with abnormally low production in the third quarter of 2020, which did not recur in the third quarter of 2021 as a result of increased production volumes.

Product gross profit for the nine months ended September 30, 2021, increased 47% to $2.4 billion, representing 69.9% of product revenue, compared to $1.7 billion, representing 65.6% of product revenue, for the nine months ended September 30, 2020. The higher product gross profit for the nine months ended September 30, 2021, was primarily driven by higher product revenue and higher product gross profit margin. The higher product gross profit margin for the nine months ended September 30, 2021, was primarily driven by higher year-to-date 2021 ASPs, lower year-over-year excess and obsolete inventory costs, lower year-over-year intangible assets amortization expense, and lower year-over-year costs associated with da Vinci Si product transitions, partially offset by higher share-based compensation expense. In addition, we incurred period costs in the second and third quarters of 2020 associated with abnormally low production, which did not recur in the second and third quarters of 2021 as a result of increased production volumes.

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strengthen our operating capabilities.

Product gross profit for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022, and 2021, included share-based compensation expense of ~~$19.0~~$18.7 million and ~~$50.9~~$15.3 million, respectively, ~~compared with $16.2 million~~ and ~~$43.0 million, for the three and nine months ended September 30, 2020, respectively. Product gross profit for the three and nine months ended September 30, 2021, included~~ intangible assets amortization expense of ~~$3.8~~$3.6 million and ~~$12.7~~$4.2 million, ~~respectively, compared with $9.0 million and $26.7 million, for the three and nine months ended September 30, 2020,~~ respectively.

Service gross profit for the three months ended ~~September 30, 2021,~~March 31, 2022, increased ~~38%~~by 14% to ~~$157~~$169 million, representing ~~67.3%~~67.6% of service revenue, compared to ~~$114~~$147 million, representing ~~63.4%~~67.7% of service revenue, for the three months ended ~~September 30, 2020.~~March 31, 2021. The higher service gross profit for the three months ended ~~September 30, 2021,~~March 31, 2022, was primarily driven by higher service revenue, reflecting a larger installed base of ~~da Vinci Surgical Systems, and higher service gross profit margin.~~systems. The ~~lower~~ service gross profit margin for the three months ended ~~September 30, 2020,~~March 31, 2022, was ~~primarily driven by~~consistent with the ~~decrease in service revenue as a result of the Customer Relief Program.~~

~~Service gross profit for the nine~~three months ended September 30, 2021, increased 49% to $466 million, representing 68.7% of service revenue, compared to $313 million, representing 61.5% of service revenue, for the nine months ended September 30, 2020. The higher service gross profit for the nine months ended September 30, 2021, was primarily driven by higher service revenue, reflecting a larger installed base of da Vinci Surgical Systems, and higher service gross profit margin. The lower service gross profit margin for the nine months ended September 30, 2020, was primarily driven by the decrease in service revenue as a result of the Customer Relief Program.March 31, 2021.

Service gross profit for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022, and 2021, included share-based compensation expense of ~~$6.0~~$5.6 million and ~~$16.9~~$5.7 million, respectively, ~~compared with $7.1 million~~ and ~~$17.8 million, for the three and nine months ended September 30, 2020, respectively. Service gross profit for the three and nine months ended September 30, 2021, included~~ intangible ~~asset charges~~assets amortization expense of $0.2 million and ~~$1.9~~$0.3 million, ~~respectively, compared with $0.9 million and $2.7 million, for the three and nine months ended September 30, 2020,~~ respectively.

Selling, General and Administrative Expenses

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

Selling, general and administrative expenses for the three months ended ~~September 30, 2021,~~March 31, 2022, increased by ~~22%~~20% to ~~$363~~$391 million, compared to ~~$299~~$326 million for the three months ended September 30, 2020. Selling, general and administrative expenses for the nine months ended September 30, 2021, increased by 17% to $1,040 million, compared to $886 million for the nine months ended September 30, 2020.March 31, 2021. The increase in selling, general and administrative expenses for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2021, was primarily driven by higher headcount, resulting in increased fixed and share-based compensation expense, higher variable compensation, and increased infrastructure costs to support our growth. In addition, there were higher marketing, travel, and training expenses ~~for the three and nine months ended September 30, 2021,~~in 2022, as compared with the prior year.

Selling, general and administrative expenses for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022, and 2021, included share-based compensation expense of ~~$62.5~~$60.3 million and ~~$171.3~~$53.1 million, respectively, ~~compared with $54.2 million~~ and ~~$149.5 million, for the three and nine months ended September 30, 2020, respectively. Selling, general and administrative expenses for the three and nine months ended September 30, 2021, included~~ intangible assets amortization expense of ~~$1.8~~$1.6 million and ~~$5.4~~$1.7 million, ~~respectively, compared with $1.8 million and $5.2 million, for the three and nine months ended September 30, 2020,~~ respectively.

Selling, general and administrative expenses were 26% ~~and 25%~~ for the three ~~and nine~~ months ended ~~September 30, 2021,~~March 31, 2022, as a percentage of revenue, compared to ~~28% and 29%~~25% for the three ~~and nine~~ months ended ~~September 30, 2020,~~March 31, 2021, and ~~25% and 26%~~28% for the three ~~and nine~~ months ended ~~September 30, 2019.~~March 31, 2020. Our spending in the ~~third~~first quarter of ~~2021~~2022 reflected a continued but less pronounced curtailment of certain costs as a result of the COVID-19 pandemic, including travel, marketing events, clinical trials, and other related expenses. We expect that these costs will ~~continue to~~ increase to the extent that the impact of COVID-19 decreases and decline to the extent that the impact of COVID-19 increases.

In addition, we expect spending to increase ~~overall and~~ as a percentage of ~~sales~~revenue as we continue to expand support for our customers, invest in innovation focused on the quadruple aim, and invest in manufacturing and our supply chain to ensure supply for our customers.

Research and Development Expenses

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

Research and development expenses for the three months ended ~~September 30, 2021,~~March 31, 2022, increased by 7%32% to ~~$166~~$211 million, compared to ~~$155~~$160 million for the three months ended ~~September 30, 2020. Research and development expenses for the nine months ended September 30, 2021, increased by 9% to $488 million, compared to $445 million for the nine months ended~~

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~~September 30, 2020.~~March 31, 2021. The ~~increases~~increase in research and development expenses for the three ~~and nine~~ months ended ~~September 30, 2021, were~~March 31, 2022, was primarily driven by higher personnel-related expenses, including share-based compensation expense, intangible asset charges, and other project costs incurred to support a broader set of product development initiatives, including Ion and SP platform investments, ~~informatics,~~digital investments, advanced instrumentation, advanced imaging, and future generations of robotics.

Research and development expenses for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022, and 2021, included share-based compensation expense of ~~$35.4~~$36.8 million and ~~$98.1~~$30.1 million, respectively, ~~compared with $29.5~~and intangible asset charges of $8.5 million and ~~$84.1~~$0.7 million, for the three and nine months ended September 30, 2020, respectively. Research and development expenses for the three and nine months ended September 30, 2021, included intangible asset-related charges of $0.6 million and $5.3 million, respectively, compared with $10.0 million and $15.0 million for the three and nine months ended September 30, 2020, 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 (Expense), Net

Interest and other income (expense), net, for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022, and 2021, was ~~$18.5~~$(5.7) million, and ~~$65.5~~$32.0 million, ~~respectively, compared with $84.8 million, and $136.5 million, for the three and nine months ended September 30, 2020,~~ respectively. The decrease in interest and other income (expense), net, for the three ~~and nine~~ months ended ~~September 30, 2021,~~March 31, 2022, was primarily driven by ~~lower~~unrealized losses on investments resulting from strategic arrangements (compared to unrealized gains on investments resulting from strategic arrangements ~~lower interest income earned, despite higher cash and investment balances, due to the decline in average interest rates, and gains on the sale of certain securities~~ in the ~~second quarter of 2020, partially offset by~~three months ended March 31, 2021) as well as higher foreign exchange ~~losses realized in the second quarter of 2020.~~losses.

We held an equity investment in preferred shares of Broncus Holding Corporation (“Broncus”), which was reflected in our financial statements on a cost basis. In September 2021, Broncus completed an IPO. Upon completion of the IPO, the preferred shares were converted to common shares in Broncus, and we recognized a net gain on this investment in the third quarter of 2021 of approximately $8 million. We are restricted from selling these shares for a period of six months. Additionally, during the first quarter of 2021, we recorded an unrealized gain on our investment in Broncus of approximately $14 million.

~~We held~~ In September 2021, Broncus completed an ~~equity investment in preferred shares~~initial public offering (“IPO”) of ~~InTouch, which was reflected in our financial statements on a cost basis. On July 1, 2020, Teladoc completed its acquisition of InTouch. Based on the terms of the agreement, we received Teladoc~~common shares on the ~~date~~Stock Exchange of ~~closing and recognized~~Hong Kong. Upon completion of the IPO, the preferred shares were converted to common shares in Broncus. We were restricted from selling these shares for a ~~gain on its investment in~~period of six months. In the ~~third~~first quarter of ~~2020~~2022, we recognized an unrealized loss on this investment of approximately ~~$45~~$17 million.

Income Tax Expense

Income tax expense for the three months ended ~~September 30, 2021,~~March 31, 2022, was ~~$73.9~~$33.0 million, or ~~16.0%~~8.2% of income before taxes, compared to ~~$38.4~~$13.6 million, or ~~10.8%~~3.0% of income before taxes, for the three months ended September 30, 2020. Income tax expense for the nine months ended September 30, 2021, was $90.7 million, or 6.3% of income before taxes, compared to $67.3 million, or 8.7% of income before taxes, for the nine months ended September 30, 2020.March 31, 2021.

Our effective tax rate for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022, and 2021, ~~and 2020,~~ 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 U.S. tax on foreign earnings and state income taxes (net of federal benefit).

Our effective tax rate for the nine months ended September 30, 2021, included a one-time benefit of $66.4 million from re-measurement of our Swiss deferred tax assets resulting from the extension of the economic useful life of certain intangible assets. Our effective tax rate for the nine months ended September 30, 2020, reflected a one-time The increase ~~of $36.8 million~~ in unrecognized tax benefits with a corresponding increase to income tax expense. This increase was related to intercompany charges for share-based compensation for relevant periods prior to 2020, triggered by the finalization of a Ninth Circuit Court of Appeals opinion involving an independent third party. An additional charge of $11.1 million related to this matter was recorded to income tax expense for the three ~~and nine~~ months ended ~~September 30, 2021,~~March 31, 2022, was primarily due to the impact of capitalization of research and experimental (“R&E”) expenditures and lower excess tax benefits, as discussed below, partially offset by lower pre-tax income.

Our provision for income taxes for the three months ended March 31, 2022, reflected the impact of a ~~result~~change in U.S. tax law effective January 1, 2022, which requires the capitalization and amortization of ~~additional IRS guidance issued in July~~R&E expenditures incurred after December 31, 2021.

Our provision for income taxes for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022, and 2021, included excess tax benefits associated with employee equity plans of ~~$41.9~~$53.0 million and ~~$158.9~~$73.4 million, respectively, which reduced our effective tax rate by ~~9.1~~13.2 and 11.1 percentage points, respectively. Our provision for income taxes for the three and nine months ended September 30, 2020, included excess tax benefits associated with employee equity plans of $47.9 million and $144.8 million, which reduced our effective tax rate by 13.5 and 18.816.4 percentage points, respectively. The amount of excess tax benefits or deficiencies will fluctuate from period to period based on the price of our stock, the volume of share-based ~~instruments~~awards settled or vested, and the value assigned to employee equity awards under U.S. GAAP, which results in increased income tax expense volatility.

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We file federal, state, and foreign income tax returns in many jurisdictions in the U.S. and ~~OUS jurisdictions.~~abroad. Years ~~before~~prior to 2016 are considered closed for ~~the~~most 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 IRS and other tax authorities. The outcome of these audits cannot be predicted with certainty. Management regularly assesses the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes. If any issues addressed in our tax audits are resolved in a manner not consistent with management’s expectations, we could be required to adjust our provision for income taxes in the period such resolution occurs.

Net Income Attributable to Noncontrolling Interest in Joint Venture

Net income attributable to noncontrolling interest in Joint Venture for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2022, and 2021, was ~~$6.7~~$3.8 million and ~~$21.4 million, respectively. Net income attributable to noncontrolling interest in Joint Venture for the three and nine months ended September 30, 2020, was $2.9 million and $7.8~~$8.9 million, respectively. The ~~increase~~decrease in net income attributable to noncontrolling interest in Joint Venture was primarily due to ~~increased~~a decrease in sales and an increase in selling, general and administrative expenses in China during the three ~~and nine~~ months ended September 30, 2021, as well as re-measurement losses related to contingent consideration during the three and nine months ended September 30, 2020, which did not recur in the same periods of 2021 as the contingent consideration has been finalized and paid.March 31, 2022.

Liquidity and Capital Resources

Sources and Uses of Cash and Cash Equivalents

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~~decreased by ~~$1.35~~$0.22 billion to ~~$8.22~~$8.40 billion as of ~~September 30, 2021,~~March 31, 2022, from ~~$6.87~~$8.62 billion as of December 31, ~~2020,~~2021, primarily from cash used in taxes paid related to net share settlements of equity awards, share repurchases, and capital expenditures, as well as unrealized losses on interest-bearing debt securities classified as available for sale,partially offset by cash provided by our operations and proceeds from stock option exercises and employee stock ~~purchases, partially offset by capital expenditures and taxes paid related to net share settlements of equity awards.~~purchases.

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~~on our business model, we anticipate that we will continue to be able to fund future growth through cash provided by our operations. We believe that our current cash, cash equivalents, and investment balances, together with income to be derived from the sale of our products, will be sufficient to meet our liquidity requirements for the foreseeable future. However, as a result of the COVID-19 pandemic, we may experience reduced cash flow from operations if we experience decreased revenues or if we extend payment terms on sales and operating lease and usage-based arrangements.

See “Item 7A. Quantitative and Qualitative Disclosures About Market Risk” in our Form 10-K for the fiscal year ended December 31, ~~2020,~~2021, 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 ~~nine~~three months ended ~~September 30,~~March 31, 2022, and 2021 ~~and 2020~~ (in millions):


		Nine Months Ended September 30,					Three Months Ended March 31,
		2021		2020			2022		2021
Net cash provided by (used in)
Net cash provided by (used in):						Net cash provided by (used in):
Operating activities	Operating activities	$	1,521.7	$	857.3	Operating activities	$	223.0	$	477.6
Investing activities	Investing activities	(1,820.5)		(606.3)		Investing activities	(214.7)		(597.0)
Financing activities	Financing activities	24.4		(45.9)		Financing activities	(199.9)		(102.2)
Effect of exchange rates on cash, cash equivalents, and restricted cash	Effect of exchange rates on cash, cash equivalents, and restricted cash	(2.3)		(2.0)		Effect of exchange rates on cash, cash equivalents, and restricted cash	3.8		0.8
Net increase (decrease) in cash, cash equivalents, and restricted cash	Net increase (decrease) in cash, cash equivalents, and restricted cash	$	(276.7)	$	203.1	Net increase (decrease) in cash, cash equivalents, and restricted cash	$	(187.8)	$	(220.8)

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Operating Activities

For the ~~nine~~three months ended ~~September 30, 2021,~~March 31, 2022, net income of $369 million exceeded our net cash provided by operating activities of ~~$1,522 million exceeded our net income of $1,345~~$223 million, primarily due to the following ~~reasons:~~factors:

1.Our net income included non-cash charges of $534 million, consisting primarily of the following significant items: share-based compensation of $331 million; depreciation expense and losses on the disposal of property, plant, and equipment of $209 million; changes in deferred income taxes of $(41) million; and amortization of intangible assets of $21 million.

2.~~The non-cash charges outlined above were partially offset by changes~~Changes in operating assets and liabilities ~~that~~ resulted in ~~$357~~$365 million of cash used byin operating activities during the ~~nine~~three months ended ~~September 30, 2021. Prepaid expenses~~March 31, 2022. Accrued compensation and ~~other assets increased~~employee benefits decreased by ~~$217~~$130 million, primarily due to ~~an increase in prepaid taxes, driven~~payments of 2021 incentive compensation, and accounts receivable increased by $123 million, primarily due to the timing of ~~tax payments,~~billings and ~~an increase in leasing.~~collections. Inventory, including the ~~effect~~transfer of ~~systems~~equipment from inventory ~~built and transferred~~ to property, plant, and equipment, ~~as a result of systems placed under operating lease and usage-based arrangements,~~ increased by ~~$189~~$120 million, primarily to address the growth in the business as well as to mitigate risks of disruption that could arise from trade, supply, or other matters. Refer to further details in the supplemental cash flow information in Note 4 to the Condensed Consolidated Financial Statements (Unaudited) ~~included in Item 1, Part I. Accounts receivable~~. Prepaid expenses and other assets increased by ~~$55~~$22 million, primarily due to ~~the timing of collections.~~an increase in net investments in sales-type leases. The unfavorable impact of these items on cash provided by operating activities was partially offset by a ~~$36 million increase in accounts payable, primarily due to the timing of payments and vendor billings, a $35~~$21 million increase in other liabilities, primarily due to ~~the timing of payments,~~additional accruals related to capital expenditures, and ~~a $30 million~~an increase in ~~accrued compensation and employee benefits,~~deferred revenue by $11 million, primarily due to ~~higher headcount~~the increased volume of sales contracts.

2.The changes in operating assets and ~~variable compensation.~~liabilities outlined above were partially offset by non-cash charges of $219 million included in our net income, consisting primarily of the following significant items: share-based compensation of $121 million; depreciation expense and losses on the disposal of property, plant, and equipment of $78 million; net losses on investments, accretion, and amortization of $26 million; and changes in deferred income taxes of $(14) million.

Investing Activities

Net cash used in investing activities for the ~~nine~~three months ended ~~September 30, 2021,~~March 31, 2022, consisted primarily of purchases of investments (net of proceeds from sales and maturities of investments) of ~~$1,609~~$120 million and the acquisition of property and equipment of ~~$203 million, and the acquisition of a business, net of cash acquired, of $9~~$95 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 ~~provided by~~used in financing activities during the ~~nine~~three months ended ~~September 30, 2021,~~March 31, 2022, consisted primarily of ~~proceeds from stock options and exercises and employee stock purchases of $245 million, partially offset by~~ taxes paid on behalf of employees related to net share settlements of ~~vested~~equity awards of $172 million and cash used in the repurchase of approximately 397,500 shares of our common stock in the open market for $107 million, partially offset by proceeds from stock option exercises and employee stock purchases of ~~$201 million and the payment of deferred purchase consideration from prior acquisitions of $19~~$80 million.

Capital Expenditures

Our business is not capital equipment intensive. However, with the growth of our business and our investments in property and facilities and in manufacturing automation, capital investments in these areas have increased. We expect these capital investments to ~~exceed $300~~increase significantly in 2022 to a range between $700 million and $900 million. A significant portion of this investment involves the construction of facilities to provide incremental space for growth, consolidate operations to enhance efficiency, and replace leased spaces with owned spaces. These capital investments will also expand our OUS footprint in ~~2021 and increase further~~support of opportunities for growth in ~~2022.~~key international markets. We intend to fund these ~~needs~~capital investments 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, ~~2020,~~2021, that are of significance, or potential significance, to ~~us.~~the Company.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes in our market risk during the ~~nine~~three months ended ~~September 30, 2021,~~March 31, 2022, compared to the disclosures in Part II, Item 7A of our Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021.

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

The information included in Note 8 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

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, ~~2020,~~2021, 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, ~~2020,~~2021, are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial position, or future results of operations. The risk factors set forth below ~~update,~~updates, and should be read together with, the risk factors described in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2020.~~2021.

RISKS RELATING TO OUR BUSINESS

THE INFLATIONARY ENVIRONMENT COULD MATERIALLY ADVERSELY IMPACT OUR ~~RELIANCE ON SOLE~~BUSINESS AND ~~SINGLE SOURCE SUPPLIERS AND OUR ABILITY TO PURCHASE AT ACCEPTABLE PRICES A SUFFICIENT AMOUNT~~RESULTS OF ~~MATERIALS, PARTS, AND COMPONENTS COULD HARM OUR ABILITY TO MEET DEMAND FOR OUR PRODUCTS IN A TIMELY MANNER OR WITHIN BUDGET.~~OPERATIONS.

~~Some of~~Our operating results could be materially impacted by changes in the ~~components necessary for~~overall macroeconomic environment and other economic factors that impact customer confidence and spending, including capital spending. Changes in economic conditions, supply chain constraints, logistics challenges, labor shortages, the ~~assembly~~conflict in Ukraine, and steps taken by governments and central banks, particularly in response to the COVID-19 pandemic as well as other stimulus and spending programs, have led to higher inflation than previously experienced or expected, which is likely, in turn, to lead to an increase in costs. In a higher inflationary environment, we may be unable to raise the prices of our products and services sufficiently to keep up with the rate of inflation. Impacts from inflationary pressures could be more pronounced and materially adversely impact aspects of our business where revenue streams and cost commitments are linked to contractual agreements that extend further into the future, as we may not be able to quickly or easily adjust pricing, reduce costs, or implement counter measures.

Additionally, hospitals are currently ~~provided to us by sole-sourced suppliers or single-sourced suppliers. We generally purchase components through purchase orders rather than long-term supply agreements~~experiencing financial and ~~generally do not maintain large volumes~~operational pressures as a result of ~~inventory. While alternative suppliers exist and could be identified for single-sourced components, the disruption or termination of~~staffing shortages, the supply ~~of components, or inflationary pressure in our supply~~ chain ~~could cause a significant increase in the costs of these components,~~environment, and increased inflation, which could ~~affect our operating results. A disruption~~impact their ability to access capital markets and other funding sources, increase cost of funding, or ~~termination in the supply~~impede their ability to comply with debt covenants, all of ~~components could also result in our inability to meet demand for our products,~~ which could ~~harm our~~impede their ability to ~~generate revenues, lead~~provide patient care, defer elective surgeries, and impact their profitability. To the extent that hospitals continue to ~~customer dissatisfaction, and damage our reputation and our brand. Furthermore, if we are required~~face financial pressures, reductions in government spending, or higher interest rates, it is likely that hospitals’ ability or willingness to ~~change the manufacturer~~spend on capital equipment will be adversely impacted, all of a key component of our products, we may be required to verify that the new manufacturer maintains facilities and procedures that comply with quality standards and with all applicable regulations and guidelines. The time and processes associated with the verification of a new manufacturerwhich could ~~delay our ability to manufacture our products on schedule or within budget, which may~~ have a material adverse ~~impact~~effect on our business, financial condition, results of operations, or cash flows.

THE ONGOING ARMED CONFLICT BETWEEN RUSSIA AND UKRAINE COULD ADVERSELY AFFECT OUR BUSINESS, FINANCIAL CONDITION, AND RESULTS OF OPERATIONS.

On February 24, 2022, Russian military forces launched a military action in Ukraine, and sustained conflict and disruption in the region is likely. The length, impact, and outcome of this ongoing military conflict is highly unpredictable and could lead to significant market and other disruptions, including significant volatility in commodity prices and supply of energy resources, instability in financial markets, supply chain interruptions, political and social instability, trade disputes or trade barriers, changes in consumer or purchaser preferences, as well as an increase in cyberattacks and espionage.

Russia’s recognition of two separatist republics in the Donetsk and Luhansk regions of Ukraine and subsequent military action against Ukraine have led to substantial expansion of sanction programs imposed by the United States, the European Union, the United Kingdom, Canada, Switzerland, Japan, and other countries against Russia, Belarus, the Crimea Region of Ukraine, the so-called Donetsk People’s Republic, and the so-called Luhansk People’s Republic, including, among others:

•blocking sanctions against some of the largest state-owned and private Russian financial institutions (and their subsequent removal from the Society for Worldwide Interbank Financial Telecommunication payment system) and certain Russian businesses, some of which have significant financial and trade ties to the European Union;

•blocking sanctions against Russian and Belarusian individuals, including the Russian President, other politicians, and those with government connections or involved in Russian military activities; and

•blocking of Russia’s foreign currency reserves as well as expansion of sectoral sanctions and export and trade restrictions, limitations on investments and access to capital markets, and bans on various Russian imports.

In ~~addition, our ability~~retaliation against new international sanctions and as part of measures to ~~meet customers’ demands depends, in part,~~stabilize and support the volatile Russian financial and currency markets, the Russian authorities also imposed significant currency control measures aimed at restricting

the outflow of foreign currency and capital from Russia, imposed various restrictions on ~~our ability to timely obtain an adequate delivery~~transacting with non-Russian parties, banned exports of ~~quality materials, parts,~~various products, and ~~components from our suppliers. An information technology systems interruption, including cybersecurity attacks,~~imposed other economic and financial restrictions. The situation is rapidly evolving, and additional sanctions by Russia on the one hand, and by the other countries on the other hand, could adversely affect the ~~ordering, distribution,~~global economy, financial markets, energy supply and ~~manufacturing processes of our suppliers. Difficulties in obtaining a sufficient amount of semiconductor~~prices, certain critical materials and ~~other component materials continue to increase, and we expect such difficulties to persist in the foreseeable future. Prices of such materials have also increased,~~metals, supply chains, and global ~~supply has become significantly constrained due to the increased demand for materials, including semiconductors, to support expansion of server~~logistics and cloud networks as a greater proportion of the global population worked remotely, the introduction of 5G, and the continued electrification of vehicles. We engage in activities to seek to mitigate such supply disruptions by, for example, increasing our communications with our suppliers and modifying our purchase order coverage and inventory levels. However, notwithstanding these activities, the global semiconductor and materials supply shortage is likely to remain a challenge for the foreseeable future. Such global shortages in important components have resulted in, and will continue to cause, inflationary pressure in our supply chain, which would impact our profits and profit margin. If shortages and price increases in important supply-chain materials in the semiconductor or other markets continue, we could ~~also fail to meet product demand, which would~~ adversely ~~impact~~affect our business, financial condition, and results of ~~operations, or cash flows.~~

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

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

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

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

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

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

While we devote significant resources to network security, data encryption, and other security measures to protect our systems and data, these security measures cannot provide absolute security. We may experience a breach of our systems and may be unable to protect PII, confidential, or sensitive data. It is possible for such vulnerabilities to remain undetected for an extended period, including several years or longer. The costs to us to eliminate or alleviate network security problems, bugs, viruses, worms, ransomware and other malicious software programs, and security vulnerabilities could be significant. Our efforts to address these problems may not be successful and could result in unexpected interruptions, delays, cessation of service, and harm to our business operations. Moreover, if a computer security breach affects our systems or results in the unauthorized release of PII, our reputation and brand could be materially damaged, and use of our products and services could decrease. We would also be exposed to a risk of loss, litigation and potential liability, and regulatory scrutiny, which could have a material adverseassessing its impact on our business, ~~financial condition, results~~including our business partners and customers. To date, we have not experienced any material interruptions in our infrastructure, supplies, technology systems, or networks needed to support our operations. We have no way to predict the progress or outcome of ~~operations,~~the military conflict in Ukraine or ~~cash flows.~~its impacts in Ukraine, Russia, Belarus, Europe, or the U.S. The extent and duration of the military action, sanctions, and resulting market disruptions could be significant and could potentially have substantial impact on the global economy and our business for an unknown period of time. Any such disruption may also magnify the impact of other risks described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

CYBERATTACKS OR CYBERSECURITY INCIDENTS IN CONNECTION WITH THE POLITICAL UNCERTAINTY IN RUSSIA AND UKRAINE COULD EITHER DIRECTLY OR INDIRECTLY IMPACT OUR OPERATIONS.

Due to the political uncertainty involving Russia and Ukraine, there is also an increased likelihood that the tensions could result in cyberattacks or cybersecurity incidents that could either directly or indirectly impact our operations. Any attempts by cyber attackers to disrupt our services or information systems or the services or information systems of our vendors, if successful, could harm our business, result in the misappropriation of funds, be expensive to remedy, and damage our reputation or brand. Insurance may not be sufficient to cover significant expenses and losses related to such cyberattacks and cybersecurity incidents.

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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 ~~September 30, 2021.~~March 31, 2022.

~~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)

~~July 1 to July 31, 2021~~

—

~~1.6~~

~~billion~~

~~August 1 to August 31, 2021~~

—

~~1.6~~

~~billion~~

~~September 1 to September 30, 2021~~

—

~~1.6~~

~~billion~~

~~Total during quarter ended September 30, 2021~~

—


Fiscal Period	Total Number of Shares Repurchased	Average Price Paid Per Share		Total Number of Shares Purchased As Part of a Publicly Announced Program	Approximate Dollar Amount of Shares That May Yet be Purchased Under the Program (1)
January 1 to January 31, 2022	211	$	274.52	211	$	1.6	billion
February 1 to February 28, 2022	12,612	$	270.56	12,612	$	1.6	billion
March 1 to March 31, 2022	384,690	$	267.87	384,690	$	1.5	billion
Total during quarter ended March 31, 2022	397,513	$	267.96	397,513

(1) Since March 2009, we have had aan active stock repurchase ~~program in place.~~program. As of ~~September 30, 2021,~~March 31, 2022, 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 ~~$1.6~~$1.5 billion represents the amount available to repurchase shares under the authorized repurchase program as of ~~September 30, 2021.~~March 31, 2022. The authorized stock repurchase program does not have an expiration date.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

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ITEM 6. EXHIBITS


Exhibit Number			Exhibit Description
~~3.1~~3.1(a)			Amended and Restated Certificate of Incorporation of Intuitive Surgical, Inc., as amended (incorporated by reference to Exhibit 3.1 of the Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on July 23, 2020).
3.1(b)			Amended and Restated Certificate of Incorporation of Intuitive Surgical, Inc., as amended (incorporated by reference to Exhibit 3.1 of the Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on October 20, 2021).
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 February 1, 2021).
31.1			Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2			Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1			Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2			Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101			The following materials from Intuitive Surgical, Inc.’s Quarterly Report on Form 10-Q for the quarter ended ~~September 30, 2021,~~March 31, 2022, formatted in Inline XBRL (Extensible Business Reporting Language): (i) the unaudited Condensed Consolidated Balance Sheets, (ii) the unaudited Condensed Consolidated Statements of Comprehensive Income, (iii) the unaudited Condensed Consolidated Statements of Cash Flows, and (iv) Notes to Condensed Consolidated Financial Statements (unaudited), tagged at Level I through IV.
104			The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended ~~September 30, 2021,~~March 31, 2022, formatted in Inline XBRL and contained in Exhibit 101.

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SIGNATURE

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


INTUITIVE SURGICAL, INC.

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

Date: ~~October 20, 2021~~April 22, 2022

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									Reported as:
	December 31, 2020 Carrying Value		Changes in Fair Value (1)		Sales/Purchases/Other (2)		September 30, 2021 Carrying Value		Prepaids and other current assets		Intangible and other assets, net
Equity investments with readily determinable value (Level 1)	$	60.1	$	(0.9)	$	(15.4)	$	43.8	$	43.8	$	—
Equity investments without readily determinable value (Level 2)	$	30.2	$	34.5	$	(52.2)	$	12.5	$	—	$	12.5

(1) Recorded in Interest and other income, net.
(2) Other includes conversion of certain equity investments without readily determinable value to equity investments with readily determinable value.

















	Three Months Ended September 30, 2020
	Common Stock			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income		Total Intuitive Surgical, Inc. Stockholders’ Equity		Noncontrolling Interest in Joint Venture		Total Stockholders’ Equity
	Shares	Amount
Beginning balance	351.0	$	0.4	$	6,084.8	$	2,633.0	$	22.3	$	8,740.5	$	25.9	$	8,766.4

Issuance of common stock through employee stock plans	1.6	—		113.9						113.9				113.9
Shares withheld related to net share settlement of equity awards	—	—		(0.5)		(9.7)				(10.2)				(10.2)
Share-based compensation expense related to employee stock plans				105.8						105.8				105.8

Net income attributable to Intuitive Surgical, Inc.						313.9				313.9				313.9
Other comprehensive income (loss)								(6.1)		(6.1)		0.1		(6.0)
Net income attributable to noncontrolling interest in joint venture										—		2.9		2.9
Ending balance	352.6	$	0.4	$	6,304.0	$	2,937.2	$	16.2	$	9,257.8	$	28.9	$	9,286.7


	Nine Months Ended September 30, 2021
	Common Stock			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income		Total Intuitive Surgical, Inc. Stockholders’ Equity		Noncontrolling Interest in Joint Venture		Total Stockholders’ Equity
	Shares	Amount
Beginning balance	353.1	$	0.4	$	6,444.9	$	3,261.3	$	24.9	$	9,731.5	$	27.6	$	9,759.1
Issuance of common stock through employee stock plans	4.9	—		244.8						244.8				244.8
Shares withheld related to net share settlement of equity awards	(0.8)	—		(6.0)		(195.2)				(201.2)				(201.2)
Share-based compensation expense related to employee stock plans				331.4						331.4				331.4

Net income attributable to Intuitive Surgical, Inc.						1,324.0				1,324.0				1,324.0
Other comprehensive income (loss)								(19.6)		(19.6)		(0.4)		(20.0)

Net income attributable to noncontrolling interest in joint venture										—		21.4		21.4
Ending balance	357.2	$	0.4	$	7,015.1	$	4,390.1	$	5.3	$	11,410.9	$	48.6	$	11,459.5