Table of ~~Intuitive Surgical, Inc.~~Contents

Overview

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

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

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

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

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

We have commercialized the following da Vinci Surgical Systems: the da Vinci standard Surgical System ~~commercialized~~ in 1999, the da Vinci S Surgical System ~~commercialized~~ in 2006, the da Vinci Si Surgical System ~~commercialized~~ in 2009, and the fourth generation da Vinci Xi Surgical System in 2014. We have extended our fourth generation platform by adding the da Vinci X Surgical System, commercialized in the second quarter of ~~2014,~~2017, and the da Vinci XSP Surgical System, commercialized in the ~~second~~third quarter of ~~2017. These~~2018. The da Vinci SP Surgical System accesses the body through a single incision while the other da Vinci Surgical Systems access the body through multiple incisions. We are still in a measured launch of our da Vinci SP Surgical System, and we have an installed base of 89 da Vinci SP Surgical Systems as of September 30, 2021. Our plans for the rollout of the da Vinci SP Surgical System include putting systems in the hands of experienced da Vinci users first while we optimize training pathways and our supply chain. We received U.S. Food and Drug Administration (“FDA”) clearances for the da Vinci SP Surgical System for urological and certain transoral procedures. We also received clearance in South Korea where the da Vinci SP Surgical System may be used for a broad set of procedures. We plan to seek FDA clearances for additional indications for da Vinci SP over time. 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 ~~over 65~~approximately 70 different ~~multiport~~ multi-port da Vinci instruments ~~enabling surgeons’~~to provide surgeons with flexibility in choosing the types of tools needed into perform a particular surgery. These ~~multiport~~multi-port instruments are generally robotically controlled ~~versions of surgical tools~~and provide end effectors (tips) that ~~surgeons would use~~are similar to those used in either open or laparoscopic surgery. We offer advanced instrumentation for the ~~da Vinci Si,~~ da Vinci Xi and da Vinci X platforms, including ~~the~~ ~~EndoWrist~~ ~~Vessel Sealer~~da Vinci Energy and ~~EndoWrist~~da Vinci Stapler products, to

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provide surgeons with sophisticated, computer-aided tools to precisely and efficiently interact with tissue. ~~Instruments for the~~ daDa Vinci X ~~Surgical System are the same as~~ and da Vinci Xi Surgical ~~System.~~

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

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

During the first quarter of 2019, the FDA cleared our Ion endoluminal system to enable minimally invasive biopsies in the lung. Our Ion system extends our commercial offering beyond surgery into diagnostic procedures with this first application. 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 clearances for Ion 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 the first quarter of 2020, prior to the spread of COVID-19, we experienced procedure growth trends consistent with those experienced in the fourth quarter of 2019, including strength in general surgery, growth in mature procedures in the U.S., and growth in OUS urology. Beginning in January 2020, we saw a substantial reduction in da Vinci procedures in China and, by early February 2020, procedures per week in China had declined by approximately 90% compared to the weekly procedure rates experienced in early January 2020. As the COVID-19 pandemic subsided in China in March 2020, da Vinci procedure volume began to recover and, by the end of the first quarter of 2020, China procedures per week were approximately 70% of the early January 2020 weekly procedure rate. As the COVID-19 pandemic spread to Western Europe and the U.S., we experienced a significant decline in da Vinci procedures in the last half of March 2020 to approximately 65% of the weekly procedure rate experienced earlier in the first quarter of 2020.

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

In the 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 volumes 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.

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

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In the second quarter of 2021, as the U.S. continued its broad rollout of vaccinations, COVID-19 cases and hospitalizations decreased, and procedure volumes recovered, partially attributed to the performance of a number of procedures that were deferred during the pandemic. In Europe, the rollout of vaccinations and spread of COVID-19 varied regionally, and procedure growth rates were mixed with notable recovery in the U.K. We 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.

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 of 2021, system demand reflected procedure growth, hospitals purchasing systems in preparation for a post-COVID-19 pandemic environment, and hospitals upgrading their system portfolio to access and/or standardize on fourth generation capabilities.

General Increase in Risks

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

In particular, we have experienced increased difficulties in obtaining a sufficient amount of component materials used in our products, including those in the semiconductor market, as global supply has become significantly constrained due to increased demand in semiconductors and other materials. Additionally, prices of such materials have increased due to the increased demand and supply shortage. The global semiconductor and other materials supply shortage is 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, these challenges have not materially impacted our ability to deliver product and services to our customers. However, if shortages in important supply chain materials in the semiconductor or other markets continue, we could fail to meet product demand, 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 – patients, customers, our communities, and our employees – implementing continuous updates to our health and safety policies and processes. Second, we are supporting our customers according to their priorities – clinical, operational, and economic – and ensuring continuity of supply by working with our suppliers and our distributors. Third, we are securing our workforce economically. We have built a valuable team over the years, and we believe they will be important in a recovery that follows the pandemic. Finally, we will continue to invest in our priority development programs while eliminating avoidable spend.

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

Business Model

Overview

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

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

Extended Use Program

In July 2020, we announced our "Extended Use Program," which consists of select da Vinci Xi and da Vinci X instruments possessing 12 to 18 uses ("Extended Use Instruments") compared to the current 10 use instruments. These Extended Use Instruments represent some of our higher volume instruments but exclude stapling, monopolar, and advanced energy instruments. Instruments included in the program are used across a number of da Vinci surgeries. Their increased uses are the result of continuous, significant investments in the design and production capabilities of our instruments, resulting in improved quality and durability. Extended Use Instruments have been introduced in the U.S. and Europe in the fourth quarter of 2020 and have launched in most other countries around the world in the first half of 2021, except China due to regulatory timelines. They will continue to be introduced at various times throughout the remainder of 2021 and 2022 in other geographies, depending on regulatory processes. In addition, simultaneous with the regional launches of Extended Use Instruments, we will lower the price of certain instruments that are most commonly used in lower acuity procedures and/or lower reimbursed procedures within the region. These actions will reduce the cost for customers to treat patients, which in turn will reduce our revenue per procedure. Based on 2019 volume and mix of procedures, our Extended Use Program and the reduced pricing on certain other instruments would have reduced 2019 annual instruments and accessories revenue by approximately $150 to $170 million. In the U.S. and Europe, during the first 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 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 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 ~~has generally grown at a faster rate than system~~consists of instruments and accessories revenue, ~~in the last few fiscal years.~~service revenue, and operating lease revenue. Recurring revenue increased to ~~$1.9~~$3.4 billion, or 77% of total revenue in 2020, compared to $3.2 billion, or 72% of total revenue in 2019, and $2.6 billion, or 71% of total revenue in ~~2016,~~2018.

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

Service revenue was $724 million in 2020, compared to $724 million in 2019 and ~~increased system utilization on a growing~~$635 million in 2018. Service revenue remained unchanged, driven by growth of the installed base of ~~installed~~ da Vinci Surgical ~~Systems.~~Systems, offset by an $80 million decrease due to service fee credits provided to customers as part of the Customer Relief Program that was implemented as a result of the COVID-19 pandemic in the second quarter of 2020. The installed base of da Vinci Surgical Systems grew 7% to approximately 5,989 at December 31, 2020; 12% to approximately 5,582 at December 31, 2019; and 13% to approximately 4,986 at December 31, 2018.

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

Intuitive System Leasing

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

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

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

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

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

Systems Revenue

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

Procedure Mix / Products

Our ~~procedure business is~~da Vinci Surgical Systems are generally used for soft tissue surgery for areas of the body between the pelvis and the neck, primarily ~~comprised of: (1)~~in general surgery, gynecologic surgery, urologic surgery, cardiothoracic surgery, and head and neck surgery. Within these categories, procedures range in complexity from cancer and other highly complex procedures ~~and (2)~~to less complex procedures for benign conditions. Cancer and other highly complex procedures tend to be reimbursed at higher rates than less complex procedures for benign conditions. Thus, hospitals are more sensitive to the costs associated with treating less complex, benign conditions. Our strategy is to provide hospitals with attractive clinical and economic solutions ~~in each~~across the spectrum of ~~these~~ procedure ~~categories.~~complexity. Our fully featured da Vinci Xi ~~system~~ Surgical System with advanced instruments ~~including the~~ (including da Vinci Energy and EndoWrist ~~Vessel Sealer,~~ ~~EndoWrist~~ and SureForm Stapler ~~products,~~products) and our Integrated Table Motion product ~~target~~targets the more complex procedure segment. ~~Lower priced products, including the three-arm~~ ~~da Vinci Si-e~~ ~~System, refurbished~~ ~~da Vinci Si~~ ~~System, and~~ ~~Single-Site~~ ~~instruments, are targeted towards less complex procedures.~~ Our da Vinci X Surgical System is ~~priced between the~~ targeted towards price sensitive markets and procedures. Our da Vinci Si ~~and~~ Xi ~~Systems and offers customers access to many of~~SP Surgical System complements the da Vinci Xi ~~features, including~~ ~~da Vinci Xi~~ ~~advanced instrumentation~~ and ~~imaging systems, at a more accessible price point.~~X Surgical Systems by enabling surgeons to access narrow workspaces.

Procedure Seasonality

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

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

Distribution Channels

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

~~Intuitive Surgical da Vinci System Leasing~~

~~Since 2013,~~

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

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

~~Regulatory Activities~~EU.

Clearances and Approvals

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

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

•In November 2019, we obtained FDA clearance for our SynchroSeal instrument and E-100 generator. Following the FDA clearance, in February 2020, we received CE mark clearance for both products. In March 2020, we received regulatory clearance in Japan to market both our SynchroSeal instrument and E-100 generator. 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 ~~System~~Systems in Europe. Following the CE mark, in ~~May 2017,~~July 2019, we obtained FDA clearance for our da Vinci Endoscope Plus. We have also received ~~U.S. Food~~regulatory clearances in South Korea and ~~Drug Administration (“FDA”) clearance~~Japan to market our da Vinci XEndoscope Plus in December 2019 and May 2020, respectively.

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

•In February 2019, we obtained FDA clearance for our Ion endoluminal system, our new flexible, robotic-assisted, catheter-based platform, designed to navigate through very small lung airways to reach peripheral nodules for biopsies. 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.

•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 ~~U.S. We~~da Vinci Xi system. Separate product registrations are required for each of these products with the China National Medical Products Administration (“NMPA”).

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

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

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

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

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

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

Recalls and Corrections

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

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

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

Procedures

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

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

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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 ~~Surgical~~ product outside of its licensed or cleared labeling and indications for use.

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

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

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U.S. Procedures

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

Procedures Outside of the U.S.

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

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Recent Business Events and Trends

Procedures

Overall. Total da Vinci procedures performed by our customers grew approximately ~~16%~~20% for ~~both~~ the ~~nine~~three months ended September 30, ~~2017, and~~ 2021, compared to approximately 7% for the three months ended September 30, ~~2016. U.S. procedure growth was~~2020. Total da Vinci procedures performed by our customers grew approximately ~~13%~~32% for ~~both~~ the nine months ended September 30, ~~2017, and~~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, ~~2016. Year-to-date 2017~~2020. The third quarter and year-to-date procedure results for both periods reflect impacts from the COVID-19 pandemic, as noted in the COVID-19 Pandemic section above. Growth in the third quarter of 2021 was impacted by a resurgence of COVID-19. We saw growth in most of the major procedure categories in the third quarter of 2021, most notably in general surgery procedures (particularly bariatrics, cholecystectomies, and hernia repair) and, to a lesser extent, urology and gynecology procedures. The rates of recovery in urology procedures continue to be impacted by the COVID-19 pandemic due to delays in both the diagnosis of and procedures in patient populations that are considered to be at higher risk from COVID-19 infections as well as for conditions that may progress more slowly.

U.S. Procedures. U.S. da Vinci procedures grew approximately 16% for the three months ended September 30, 2021, compared to approximately 7% for the three months ended September 30, 2020. U.S. da Vinci procedures grew approximately 31% for the nine months ended September 30, 2021, 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 quarter of 2021 was impacted by a resurgence of COVID-19 as cases and hospitalizations once again increased. During the third quarter of 2021, U.S. procedure growth was largely attributable to ~~growth in~~ general surgery procedures, most notably bariatric, cholecystectomy, and hernia repair ~~and colorectal~~ procedures and, ~~thoracic~~to a lesser extent, urology and gynecology procedures.

OUS Procedures. OUS da Vinci procedures ~~as well as continued moderate growth in more mature gynecologic and urologic procedure categories.~~

~~Procedure volume OUS~~ grew approximately ~~24%~~30% for ~~both~~the three months ended September 30, 2021, compared to approximately 9% for the three months ended September 30, 2020. OUS da Vinci procedures grew approximately 34% for the nine months ended September 30, ~~2017, and~~2021, compared to approximately 5% for the nine months ended September 30, ~~2016. Year-to-date 2017~~2020. 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 third 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, OUS procedure growth was driven by continued growth in ~~dVP~~urology procedures, most notably prostatectomy and partial nephrectomy procedures, as well as earlier stage growth in ~~kidney cancer procedures,~~ general surgery (particularly colorectal), gynecology, and gynecology. We believe growth in these global markets is being driven by increased acceptance among surgeons and health systems, supported by expanded global evidence validating the clinical and economic value of ~~da Vinci~~thoracic procedures.

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

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

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

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

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

~~OUS Procedures.~~ ~~The year-to-date 2017~~ OUS procedure growth rate also reflects continued da Vinci adoption in European and Asian markets. ~~Growth was strong in Asia and varied by country in Europe.~~ We ~~experienced~~saw strong procedure growth in China, the UK, South Korea, Germany, and Japan during the third quarter of 2021.

System Demand

We placed 336 da Vinci Surgical Systems in the third quarter of 2021, compared to 195 systems in the third quarter of 2020. The increase in systems placed reflects the significant disruption experienced as ~~systems sold under~~ a ~~previous public hospital quota system have been installed and as utilization~~result of ~~those systems have increased. However, procedure growth is moderating~~the COVID-19 pandemic in ~~China. Future system placements and our ability to sustain procedure growth in China are dependent on obtaining additional importation authorizations or public hospital quotas,~~the third quarter of 2020, as well as on hospitals completing a central purchasing tender process under such authorizations. The most recent authorization expired at the end of 2015. The timing and magnitude of future authorizations that may enable future system placements is not certain. We have experienced strong procedure growth, more customers trading in Japan since receiving the national reimbursements, outlined above, for dVP and partial nephrectomy. However, as adoption for these procedures has progressed, procedure growth in Japan is slowing. Future procedure growth in Japan will likely be paced by the timing of procedure reimbursement approvals for procedures in addition to dVP and partial nephrectomy.

~~System Demand~~

~~Future demand for~~ 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.

While third quarter 2021 placements grew 72% compared with 2020, future placements of da Vinci Surgical Systems will be impacted by ~~factors including~~a number of factors: supply chain risks; economic and geopolitical factors; the impact of the current COVID-19 pandemic, as noted in the COVID-19 Pandemic section above; hospital response to the evolving ~~health care environment under the current U.S. administration,~~healthcare environment; procedure growth ~~rates,~~rates; hospital consolidation ~~trends,~~trends; evolving system utilization and point of care ~~dynamics,~~dynamics; capital replacement ~~trends,~~trends; additional reimbursements in various global markets, including ~~Japan,~~Japan: the timing around governmental tenders and authorizations, including ~~China, and~~China; the timing of when we receive regulatory clearance in our other OUS markets for our da Vinci Xi Surgical System, da Vinci X Surgical System, and da Vinci SP Surgical System, and related ~~instruments.~~instruments; and market response. Market acceptance of our recently launched Xda Vinci SP Surgical System and the nature and timing of additional da Vinci SP regulatory indications may also impact future ~~systems placement.~~ system placements.

Demand may also be impacted by ~~robotic~~robotic-assisted surgery competition, including from companies that have introduced products in the field of ~~robotic~~robotic-assisted surgery or have made explicit statements about their efforts to enter the ~~field,~~field. A few of these companies include, but are not limited to, Asensus Surgical, Inc.; avateramedical GmbH; CMR Surgical Ltd.; Johnson & Johnson (including their wholly owned subsidiaries Auris Health, 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: Auris Surgical Robotics, Inc.; Avatera Medical GmbH; Cambridge Medical Robotics Ltd.; Johnson & Johnson~~to, our ability to optimize manufacturing and ~~Google Inc.~~our supply chain, competition, clinical data to demonstrate value, and their joint venture, Verb Surgical Inc.; Medicaroid Inc.; MedRobotics Corp.; meerecompany Inc.; Medtronic PLC.; Olympus Corp.; Samsung Corporation; Smart Robot Technology Group Co. Ltd.; Titan Medical, Inc.; and TransEnterix, Inc., as well as other economic and geopolitical factors.market acceptance.

New Product Introductions

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

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

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

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

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

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

~~EndoWrist~~ ~~Stapler 30 broadens~~ SureForm 45 Gray reload is a new, single-use cartridge that contains multiple staggered rows of implantable staples and a stainless steel knife. The SureForm 45 Curved-Tip stapler and Gray reload have particular utility in thoracic procedures and round out our ~~existing~~SureForm 45 portfolio. In September 2019, we received regulatory clearance in Japan to market both our SureForm 45 Curved-Tip stapler ~~product line which includes~~ ~~EndoWrist~~ ~~Stapler~~and SureForm 45 ~~Blue, Green,~~Gray reload. We received regulatory clearance in South Korea to market our SureForm 45 Curved-Tip stapler and ~~White reloads.~~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. The da Vinci Endoscope Plus leverages new sensor technology to allow for increased sharpness and color accuracy.

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

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

•Total revenue increased by ~~us.~~30% to $1.40 billion for the three months ended September 30, 2021, compared to $1.08 billion for the three months ended September 30, 2020. The joint venture is located in Shanghai, China, where it will perform research and development activities and manufacture catheter-based products for global distribution. Distribution in China will be conducted by the joint venture. Distribution outside of China will be conducted by us. The joint venture is owned 60% by us and 40% by Fosun Pharma. The companies will contribute up to $100 million as required by the joint venture, an arrangement representing a significant expansion of our relationship with Fosun Pharma. Since 2011, Chindex Medical Limited, a subsidiary of Fosun Pharma, has been our distribution partner for ~~da Vinci~~ ~~Surgical Systems in China.~~

~~In the second quarter of 2017, the joint venture company was legally formed after receiving required approvals from the relevant PRC government authorities and administrative agencies. During~~compound annual growth rate between the third quarter of 2017, the joint venture received contributions from us and Fosun Pharma. The joint venture also commenced hiring employees and began planning for the establishment of manufacturing infrastructure. We expect that the joint venture will incur net losses before product commercialization and that it will not generate revenue in 2018. However, there can be no assurance that we2019 and the ~~joint venture can successfully complete the development~~third quarter of the robotic-assisted catheter-based medical devices; that we and the joint venture will successfully commercialize such products; that the joint venture will not require additional contributions to fund its business; or that the joint venture will become profitable.2021 was 12%.

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~~Third Quarter 2017 Financial Highlights~~

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

•Approximately ~~214,000~~395,000da Vinci procedures were performed during the three months ended September 30, ~~2017,~~2021, an increase of 20% compared to approximately ~~15% compared with approximately 186,000~~329,000 for the three months ended September 30, ~~2016.~~

2020. The compound annual growth rate between the third quarter of 2019 and the third quarter of 2021 was 13%.

~~Instrument~~•Instruments and ~~accessory~~accessories revenue increased by ~~15%~~20% to ~~$401.2~~$755 million for the three months ended September 30, 2021, compared to $631 million for the three months ended September 30, 2020.

•Systems revenue increased by 55% to $415 million for the three months ended September 30, 2021, compared to $268 million during the three months ended September 30, ~~2017, compared with $348.1 million during the three months ended~~ ~~September 30, 2016~~.

2020.

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

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

•A total of ~~169~~ 336 da Vinci Surgical Systems were shipped during the three months ended September 30, ~~2017~~,2021, an increase of 72% compared ~~with 134~~to 195 systems during the three months ended September 30, ~~2016~~. 2020.

•As of September 30, ~~2017,~~2021, we had a da Vinci Surgical System installed base of approximately ~~4,271~~6,525 systems, an increase of approximately ~~12%~~11% compared ~~with~~to the installed base of approximately 5,865 systems as of September 30, ~~2016.~~

2020.

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

•During the three months ended September 30, 2021, we placed 28 Ion systems, compared to 11 systems during the three months ended September 30, 2020.

•Gross profit as a percentage of revenue was ~~70.3%~~69.2% for the three months ended September 30, ~~2017,~~2021, compared ~~with 71.3%~~to 67.2% for the three months ended September 30, ~~2016. Gross profit~~2020.

•Operating income increased by 64% to $443 million for the three months ended September 30, ~~2016, benefited from a $7.1~~2021, compared to $270 million ~~Medical Device Excise Tax (“MDET”) refund.~~

~~Operating income increased by 9% to $278.6 million during the three months ended~~ ~~September 30, 2017, compared with $256.4 million during the three months ended~~ ~~September 30, 2016. Operating income included $55.9 million and $46.9 million of share-based compensation expense related to employee stock plans~~ during the three months ended September 30, ~~2017,~~2020. Operating income included charges for share-based compensation of $123 million and ~~2016, respectively. Operating income~~$107 million related to employee stock plans and $6.4 million and $21.7 million of intangible asset-related charges for the three months ended September 30, ~~2017, included $9.7 million of net pre-tax litigation related charges.~~

2021, and 2020, respectively.

•As of September 30, ~~2017,~~2021, we had ~~$3.8~~$8.22 billion in cash, cash equivalents, and investments. Cash, cash equivalents, and investments increased by ~~$378.7 million,~~$1.35 billion, compared ~~with June 30, 2017,~~to December 31, 2020, primarily as a result of cash ~~generated~~provided by our operations and proceeds from ~~operating activities.~~

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

equity awards.

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Results of Operations

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


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

Total Revenue

Total revenue ~~was $806.1 million~~increased by 30% to $1.4 billion for the three months ended September 30, ~~2017,~~2021, compared ~~with $682.9 million~~to $1.1 billion for the three months ended September 30, ~~2016,~~2020, resulting from ~~15%~~55% higher ~~recurring~~systems revenue, driven by 72% higher system placements, 20% higher instruments and accessories revenue, driven by approximately ~~15%~~20% higher procedure volume, and ~~26%~~30% 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 approximately ~~18%~~23% and ~~17%~~22% for the three and nine months ended September 30, ~~2017,~~2021, respectively, ~~compared with 19%~~and 22% and 23% for ~~both~~ the three and nine months ended September 30, ~~2016.~~2020, respectively. We generally sell our products and services in ~~Euros and British Pounds in those European markets~~local currencies where we have direct distribution ~~channels, and in Japanese Yen and Korean Won in Japan and South Korea, respectively.~~channels. Foreign currency ~~exchange rates~~rate fluctuations did not have a material impact on ~~revenue or operating income.~~

~~Revenue generated in the U.S. accounted for 74% and 73% of~~ total revenue for the three and nine months ended September 30, ~~2017, respectively, compared with 72%~~2021, nor for the three and nine months ended and September 30, 2020.

Revenue generated in the U.S. accounted for 68% and 67% of total revenue for ~~both~~ the three and nine months ended September 30, ~~2016.~~2021, and 69% and 68% for the three and nine months ended September 30, 2020, 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, ~~in the U.S.,~~ reimbursement structures supportive of innovation and ~~minimally invasive surgery,~~MIS, and our initial investments focused on U.S. infrastructure. We have been investing in our business in the OUS ~~market~~markets, and our OUS procedures have grown faster in proportion to U.S. procedures. We expect that our OUS procedures and revenue will make up a greater portion of our business in the long term.

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

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


	Three Months Ended September 30,						Nine Months Ended September 30,
	2021			2020			2021			2020
Revenue
Instruments and accessories	$	755.4		$	630.5		$	2,257.7		$	1,708.9
Systems	415.2			267.8			1,223.4			812.1
Total product revenue	1,170.6			898.3			3,481.1			2,521.0
Services	232.7			179.4			678.3			508.3
Total revenue	$	1,403.3		$	1,077.7		$	4,159.4		$	3,029.3
United States	$	952.2		$	743.8		$	2,805.5		$	2,060.8
OUS	451.1			333.9			1,353.9			968.5
Total revenue	$	1,403.3		$	1,077.7		$	4,159.4		$	3,029.3
% of Revenue – U.S.	68		%	69		%	67		%	68		%
% of Revenue – OUS	32		%	31		%	33		%	32		%

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

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 Shipments involving System Trade-ins:
Unit shipments involving trade-ins	136			78			393			286
Unit shipments not involving trade-ins	200			117			569			324

Ion Systems Shipments	28			11			62			22

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

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

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

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Product Revenue

Three Months Ended September 30, 2021

Product revenue increased by 30% to $1.17 billion for the three months ended September 30, ~~2017:~~2021, compared to $0.90 billion for the three months ended September 30, 2020.

~~Product~~Instruments and accessories revenue increased by ~~19%~~20% to ~~$659.3~~$755 million for the three months ended September 30, ~~2017~~,2021, compared ~~with $553.2~~to $631 million for the three months ended September 30, ~~2016~~.

~~Instrument and accessory revenue increased by 15% to $401.2 million for the three months ended~~ ~~September 30, 2017, compared with $348.1 million for the three months ended~~ ~~September 30, 2016~~.2020. The increase in ~~instrument~~instruments and ~~accessory~~accessories revenue was driven primarily by procedure growth of approximately ~~15%~~20%. ~~Third~~The third quarter ~~2017~~2021 U.S. procedure growth ofwas approximately ~~12% was~~16%, driven by growth in general surgery procedures, most notably bariatric, cholecystectomy, and hernia repair ~~and colorectal~~ procedures and, ~~thoracic procedures, as well as moderate growth in more mature urologic~~to a lesser extent, urology and gynecology procedures. The third quarter 2021 OUS procedure growth was approximately ~~23% for the third quarter of 2017,~~30%, driven by continued growth in ~~dVP~~urology procedures, most notably prostatectomy and partial nephrectomy procedures, as well as earlier stage growth in ~~kidney cancer procedures,~~ general surgery (particularly colorectal), gynecology, and ~~gynecology.~~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 quarter 2021 OUS procedure growth was driven by procedure expansion in ~~Japan,~~China, the UK, South Korea, Germany, and ~~China. Procedure growth varied by country in our European market.~~Japan.

Systems revenue increased by ~~26%~~55% to ~~$258.1~~$415 million for the three months ended September 30, ~~2017,~~2021, compared ~~with $205.1~~to $268 million for the three months ended September 30, ~~2016. Higher~~2020. The higher third quarter ~~2017~~2021 systems revenue was primarily driven by higher system shipments, higher operating lease revenue, higher lease buyouts, and ~~revenue recognized related~~higher third quarter 2021 ASPs, partially offset by a higher proportion of system shipments under operating leases.

During the third quarter of 2021, a total of 336 da Vinci Surgical Systems were shipped compared to 195 systems during the third quarter of 2020. By geography, 227 systems were shipped into the U.S., 47 into Europe, 47 into Asia, and 15 into other markets during the third quarter of 2021, compared to 116 systems shipped into the U.S., 39 into Europe, 34 into Asia, and 6 into other markets during the third quarter of 2020. The increase in systems shipments 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 ~~trade-out program, largely offset by lower~~ systems ~~average selling price (“ASP”), a higher number of~~in order to access fourth generation instruments and capabilities as well as to standardize their system ~~placements~~portfolio, and further customer validation that da Vinci surgery addresses their quadruple aim objectives.

We shipped 166 and 83 da Vinci Surgical Systems under ~~operating~~ lease arrangements, of which 139 and ~~lower Lease Buyout revenue. Revenue from Lease Buyouts was $10.8 million~~68 systems were classified as operating leases, for the three months ended September 30, ~~2017, compared with $13.1~~2021, and 2020, respectively. Operating lease revenue was $72.5 million for the three months ended September 30, ~~2016.~~2021, compared to $45.7 million for the three months ended September 30, 2020. Systems placed as operating leases represented 41% of total shipments during the third quarter of 2021, compared to 35% during the third quarter of 2020. A total of 1,179 da VinciSurgical Systems were installed at customers under operating lease or usage-based arrangements as of September 30, 2021, compared to 806 as of September 30, 2020. Revenue from Lease Buyouts was $24.7 million for the three months ended September 30, 2021, compared to $16.9 million for the three months ended September 30, 2020. We expect revenue from Lease Buyouts to fluctuate period to period ~~based~~depending on the timing of when, and if, customers choose to exercise the buyout options embedded in their leases.

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

~~The~~ da Vinci Surgical System ASP, excluding the impact of systems shipped under operating ~~leases,~~lease or usage-based arrangements and Ion systems, was approximately ~~$1.47~~$1.57 million for ~~both~~ the three ~~and nine~~ months ended September 30, ~~2017,~~2021, compared ~~with $1.53~~to approximately $1.55 million for ~~both~~ the three ~~and nine~~ months ended September 30, ~~2016. The lower third quarter 2017~~2020. ASP ~~primarily reflect product and geographic mix as well as lower pricing offered to customers purchasing multiple systems. ASPs fluctuate~~fluctuates from period to period based on geographic and product mix, product pricing, systems shipped involving trade-ins, and changes in foreign exchange rates.

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

Product revenue increased by ~~15%~~38% to ~~$1.8~~$3.5 billion for the nine months ended September 30, ~~2017,~~2021, compared ~~with $1.6~~to $2.5 billion for the nine months ended September 30, ~~2016.~~2020.

~~Instrument~~Instruments and ~~accessory~~accessories revenue increased by ~~17%~~32% to ~~$1.2~~$2.26 billion for the nine months ended September 30, ~~2017,~~2021, compared ~~with $1.0~~to $1.71 billion for the nine months ended September 30, ~~2016.~~2020. The increase in ~~instrument~~instruments and ~~accessory~~accessories revenue was driven primarily by procedure growth of approximately ~~16% and higher sales of our advanced instruments.~~32%. The year-to-date 2021 U.S. procedure growth ofwas approximately ~~13% for the nine months ended September 30, 2017, was~~31%, driven by growth in general surgery procedures, most notably bariatric, cholecystectomy, and hernia repair ~~and colorectal procedures, and thoracic~~ procedures, as well as moderate growth in the more mature gynecologic and urologic ~~procedure~~procedures categories. The year-to-date 2021 OUS procedure growth was approximately ~~24% for the nine months ended September 30, 2017,~~34%, driven by continued growth in ~~dVP~~urology procedures, most notably prostatectomy and partial nephrectomy procedures, as well as earlier stage growth in ~~kidney cancer procedures,~~ general surgery (particularly colorectal), gynecology, and ~~gynecology.~~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, ~~higher~~the year-to-date 2021 OUS procedure growth ~~for the nine months ended September 30, 2017,~~ was driven by ~~strong~~ procedure expansion in China, Germany, Japan, the UK, and South ~~Korea, and China. Procedure growth varied by country in our European market.~~Korea.

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Systems revenue increased by ~~13%~~51% to ~~$627.7~~$1,223 million for the nine months ended September 30, ~~2017,~~2021, compared ~~with $555.7~~to $812 million for the nine months ended September 30, ~~2016. Higher~~2020. The higher year-to-date 2021 systems revenue ~~for the nine months ended September 30, 2017,~~ was primarily driven ~~primarily~~ by higher system shipments, higher operating lease revenue, higher year-to-date 2021 ASPs, and ~~largely~~higher lease buyouts, partially offset by a higher ~~number~~proportion of system ~~placements~~shipments under operating ~~lease arrangements and lower systems ASP.~~leases.

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During thenine months ended September 30, ~~2017~~2021, a total of ~~468 systems~~962 da Vinci Surgical Systems were shipped compared ~~with 374~~to 610 systems during thenine months ended September 30, ~~2016.~~2020. By geography, ~~287~~630 systems were shipped into the U.S., 75169 into Europe, 74132 into Asia, and 3231 into other markets during the nine months ended September 30, ~~2017,~~2021, compared ~~with 238~~to 404 systems shipped into the U.S., 5382 into Europe, 66109 into Asia, and 1715 into other markets during the nine months ended September 30, 2016. During the nine months ended September 30, 2017, 68 of the 468 systems were shipped under operating lease arrangements compared with 49 of 374 systems shipped during the nine months ended September 30, 2016. Operating lease revenue was $18.1 million for the nine months ended September 30, 2017, compared with $12.0 million for the nine months ended September 30, 2016.2020. The increase in systems shipments was primarily driven by decisions in the second 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 ~~the need for hospitals~~da Vinci X systems in order to ~~expand or establish capacity.~~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.

~~Service Revenue~~

~~Service revenue increased by 13% to $146.8 million~~We shipped 471 and 265 da Vinci Surgical Systems under lease arrangements, of which 374 and 197 systems were classified as operating leases, for the ~~three~~nine months ended September 30, ~~2017, compared with $129.7 million for the three months ended~~ ~~September 30, 2016. Service~~2021, and 2020, respectively. Operating lease revenue ~~increased by 12% to $429.0~~was $198.8 million for the nine months ended September 30, ~~2017,~~2021, compared ~~with $382.3~~to $127.0 million for the nine months ended September 30, ~~2016. Higher service revenue~~2020. Systems placed as operating leases represented 39% of total shipments during thenine months ended September 30, 2021, compared to 32% during the nine months ended September 30, 2020. Revenue from Lease Buyouts was $69.9 million for the ~~three and~~ nine months ended September 30, ~~2017,~~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 of when, and if, customers choose to exercise the buyout options embedded in their leases.

The da Vinci Surgical System ASP, excluding the impact of systems shipped under operating lease or usage-based arrangements and Ion systems, was approximately $1.59 million for the nine months ended September 30, 2021, 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.

Service Revenue

Service revenue increased by 30% to $233 million for the three months ended September 30, 2021, compared to $179 million for the three 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.~~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.

Gross Profit

Product gross profit for the three months ended September 30, ~~2017~~,2021, increased ~~18%~~33% to ~~$464.3~~$815 million, representing ~~70.4%~~69.6% of product revenue, compared ~~with $394.8~~to $611 million, representing ~~71.4%~~68.0% of product revenue, for the three months ended September 30, ~~2016~~. Product gross profit for the nine months ended September 30, 2017, increased 16% to $1.3 billion, representing 70.0% of product revenue, compared with $1.1 billion, representing 69.6% of product revenue, for the nine months ended September 30, 2016.2020. The higher product gross profit for the three ~~and nine~~ months ended September 30, ~~2017,~~2021, was primarily driven by higher product ~~revenue.~~

revenue and higher product gross profit margin. The ~~lower~~higher product gross profit margin for the three months ended September 30, ~~2017, as compared with the same period in 2016,~~2021, was primarily driven by ~~a $7.1 million MDET refund recorded~~higher third quarter 2021 ASPs and lower year-over-year excess 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 ~~reduction to cost~~result of ~~revenue during~~increased production volumes.

Product gross profit for the ~~three~~nine months ended September 30, ~~2016.~~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, ~~2017,~~2021, was ~~due to manufacturing efficiencies~~primarily driven by higher year-to-date 2021 ASPs, lower year-over-year excess and obsolete inventory costs, lower year-over-year intangible assets amortization expense, and lower year-over-year costs associated with da Vinci Si product ~~cost reductions on some of our newer products,~~transitions, partially offset by ~~a $7.8 million litigation settlement charge related to a license~~higher share-based compensation expense. In addition, we incurred period costs in the second and ~~supply agreement recognized in cost~~third quarters of ~~revenue during the first quarter of 2017 and the MDET refund described above. The trade-out program described above~~2020 associated with abnormally low production, which did not ~~have~~recur in the second and third quarters of 2021 as a ~~material impact on product gross profit margin.~~result of increased production volumes.

MDET became effective on January 1, 2013. In December 2015, the Consolidated Appropriations Act, 2016 (the “Appropriations Act”) was signed into law. The Appropriations Act includes a two-year moratorium on MDET such that medical device sales in 2016 and 2017 are exempt from the excise tax. MDET is scheduled to be reinstated on January 1, 2018. Product gross profit included $17.0 million

Table of ~~MDET expense, representing approximately 0.9% of total product revenue, for the year ended December 31, 2015.~~Contents

Product gross profit for the three and nine months ended September 30, ~~2017, reflected~~2021, included share-based compensation expense of ~~$7.0~~$19.0 million and ~~$20.5~~$50.9 million, respectively, compared with ~~$6.9~~$16.2 million and ~~$18.6~~$43.0 million, for the three and nine months ended September 30, ~~2016,~~2020, respectively. Product gross profit for the three and nine months ended September 30, ~~2017,~~2021, included intangible assets amortization expense of ~~intangible assets of $1.2~~$3.8 million and ~~$4.4~~$12.7 million, respectively, compared with ~~$1.8~~$9.0 million and ~~$6.1~~$26.7 million, for the three and nine months ended September 30, ~~2016,~~2020, respectively.

Service gross profit for the three months ended September 30, ~~2017, was $102.5~~2021, increased 38% to $157 million, ~~or 69.8%~~representing 67.3% of service revenue, compared ~~with $92.2~~to $114 million, ~~or 71.1%~~representing 63.4% of service revenue, for the three months ended September 30, ~~2016~~. Service gross profit for the nine months ended September 30, 2017, was $296.4 million, or 69.1% of service revenue, compared with $273.5 million, or 71.5% of service revenue for the nine months ended September 30, 2016.2020. The higher service gross profit for the three ~~and nine~~ months ended September 30, ~~2017,~~2021, was primarily driven by higher service revenue, reflecting a larger installed base of da Vinci Surgical Systems, ~~partially offset by lower~~and higher service gross profit margin. The lower service gross profit margin for the three ~~and~~months ended September 30, 2020, was primarily driven by the decrease in service revenue as a result of the Customer Relief Program.

Service gross profit for the nine months ended September 30, ~~2017, as~~2021, increased 49% to $466 million, representing 68.7% of service revenue, compared ~~with~~to $313 million, representing 61.5% of service revenue, for the ~~same periods in 2016,~~nine months ended September 30, 2020. The higher service gross profit for the nine months ended September 30, 2021, was primarily driven by higher ~~costs to repair and replace~~ service revenue, reflecting a larger installed base of da Vinci Xi ~~endoscope products.~~Surgical Systems, and higher service gross profit margin. The lower service gross profit margin for the nine months ended September 30, 2020, was primarily driven by the decrease in service revenue as a result of the Customer Relief Program.

Service gross profit for the three and nine months ended September 30, ~~2017, reflected~~2021, included share-based compensation expense of ~~$3.7~~$6.0 million and ~~$10.4~~$16.9 million, respectively, compared with ~~$3.3~~$7.1 million and ~~$9.4~~$17.8 million, for the three and nine months ended September 30, ~~2016,~~2020, respectively. Service gross profit for the three and nine months ended September 30, 2021, included intangible asset charges of $0.2 million and $1.9 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 expenses, legal expenses, regulatory fees, and general corporate expenses.

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Selling, general and administrative expenses for the three months ended September 30, ~~2017,~~2021, increased by 22% to ~~$204.8~~$363 million, compared ~~with $168.0~~to $299 million for the three months ended September 30, ~~2016.~~2020. Selling, general and administrative expenses for the nine months ended September 30, ~~2017,~~2021, increased by ~~16%~~17% to ~~$591.7~~$1,040 million, compared ~~with $511.6~~to $886 million for the nine months ended September 30, ~~2016.~~2020. The increase in selling, general and administrative expenses for the three and nine months ended September 30, ~~2017,~~2021, was primarily ~~due to~~driven by higher ~~OUS expenses associated with our expanded Asian~~headcount, resulting in increased fixed and ~~European teams,~~share-based compensation expense, higher variable compensation, and increased infrastructure to support our ~~growth,~~growth. In addition, there were higher ~~headcount,~~marketing, travel, and ~~higher litigation charges.~~training expenses for the three and nine months ended September 30, 2021, as compared with the prior year.

Selling, general and administrative expenses for the three and nine months ended September 30, ~~2017,~~2021, included ~~net pre-tax litigation charges~~share-based compensation expense of ~~$9.7~~$62.5 million and ~~$18.7~~$171.3 million, ~~respectively. No litigation charges were recorded during~~respectively, compared with $54.2 million and $149.5 million, for the three ~~months ended September 30, 2016. Selling, general~~ and ~~administrative expenses for the~~ nine months ended September 30, ~~2016, included litigation charges of $6.6 million.~~

2020, respectively. Selling, general and administrative expenses for the three and nine months ended September 30, ~~2017, reflected share-based compensation~~2021, included intangible assets amortization expense of ~~$30.0~~$1.8 million and ~~$82.3~~$5.4 million, respectively, compared with ~~$25.3~~$1.8 million and ~~$72.9~~$5.2 million, for the three and nine months ended September 30, ~~2016,~~2020, respectively.

Selling, general and administrative expenses were 26% and 25% for the three and nine months ended September 30, 2021, as a percentage of revenue, compared to 28% and 29% for the three and nine months ended September 30, 2020, and 25% and 26% for the three and nine months ended September 30, 2019. Our spending in the third quarter of 2021 reflected a continued but less pronounced curtailment of certain costs as a result of the COVID-19 pandemic, including travel, marketing events, clinical trials, and other related expenses. We expect that these costs will continue to increase to the extent that the impact of COVID-19 decreases and decline to the extent that the impact of COVID-19 increases. In addition, we expect spending to increase overall and as a percentage of sales as we continue to support our customers, invest in innovation focused on the quadruple aim, and invest in manufacturing and our supply chain to ensure supply for our customers.

Research and Development Expenses

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

Research and development expenses for the three months ended September 30, ~~2017,~~2021, increased by ~~33%~~7% to ~~$83.4~~$166 million, compared ~~with $62.6~~to $155 million for the three months ended September 30, ~~2016.~~2020. Research and development expenses for the nine months ended September 30, ~~2017,~~2021, increased by ~~42%~~9% to ~~$241.5~~$488 million, compared ~~with $170.5~~to $445 million for the nine months ended

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September 30, ~~2016.~~2020. The ~~increase was~~increases in research and development expenses for the three and nine months ended September 30, 2021, were primarily ~~due to~~driven by higher ~~personnel~~personnel-related expenses and other project costs incurred to support a broader set of product development initiatives, including ~~our~~ ~~da Vinci Single Port~~ ~~Surgical System, robotic-assisted catheter-based medical devices,~~Ion and SP platform investments, informatics, advanced ~~imaging and analytics,~~instrumentation, advanced ~~instrumentation,~~imaging, and future generations of robotics. ~~The increase~~

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

~~Share-based~~2021, included share-based compensation expense ~~charged to research and development expense was $15.2~~of $35.4 million and ~~$40.9~~$98.1 million, respectively, compared with $29.5 million and $84.1 million for the three and nine months ended September 30, ~~2017,~~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 ~~$11.4~~$10.0 million and ~~$31.5~~$15.0 million for the three and nine months ended September 30, 2016, respectively. Amortization expense related to intangible assets was $1.9 million and $5.7 million for the three and nine months ended September 30, 2017, respectively, compared with $2.5 million and $7.9 million for the three and nine months ended September 30, 2016,2020, respectively.

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

Interest and Other Income, Net

Interest and other income, net, for the three and nine months ended September 30, ~~2017~~,2021, was ~~$10.8~~$18.5 million, and ~~$29.6~~$65.5 million, respectively, compared with ~~$10.4~~$84.8 million, and ~~$23.9~~$136.5 million, for the three and nine months ended September 30, ~~2016,~~2020, respectively. The decrease in interest and other income, net, for the three and nine months ended September 30, 2021, was primarily driven by lower 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 higher foreign exchange losses realized in the second quarter of 2020.

We held an equity investment in preferred shares of 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 an equity investment in preferred shares 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 shares on the date of closing and recognized a gain on its investment in the third quarter of 2020 of approximately $45 million.

Income Tax ~~(Benefit)~~ Expense

Income tax ~~(benefit)~~ expense for the three months ended September 30, ~~2017,~~2021, was ~~$(8.1)~~$73.9 million, or ~~(2.8)%~~16.0% of income before taxes, compared ~~with $55.8~~to $38.4 million, or ~~20.9%~~10.8% of income before taxes, for the three months ended September 30, ~~2016.~~2020. Income tax expense for the nine months ended September 30, ~~2017,~~2021, was ~~$58.4~~$90.7 million, or ~~7.7%~~6.3% of income before taxes, compared ~~with $172.8~~to $67.3 million, or ~~24.5%~~8.7% of income before taxes, for the nine months ended September 30, ~~2016. Income~~2020.

Our effective tax ~~provision~~rate for the three and nine months ended September 30, ~~2017, compared with the same periods of 2016, primarily benefited from the expiration of statutes of limitations~~2021, and ~~excess tax benefits recognized in income tax expenses under ASU No. 2016-09,~~ ~~Improvements to Employee Share-based Payment Accounting. Effective tax rates for these periods also differ~~2020, differs from the U.S. federal statutory rate of ~~35%~~21% primarily due to excess tax benefits associated with employee equity plans, the effect of income earned by certain ~~of our~~ overseas entities being taxed at rates lower than the federal statutory rate, and federal R&D credit benefit, partially offset by U.S. tax on foreign earnings and state income ~~taxes. We intend to indefinitely reinvest outside~~taxes (net of federal benefit).

Our effective tax rate for the ~~U.S. all~~nine months ended September 30, 2021, included a one-time benefit of $66.4 million from re-measurement of our ~~undistributed foreign earnings that were not previously subject to U.S. tax.~~

~~The~~Swiss deferred tax assets resulting from the extension of the economic useful life of certain intangible assets. Our effective tax ~~rates~~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 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, ~~2017, reflected~~2021, as a ~~$14.9 million tax benefit mainly related to the release~~result of ~~unrecognized tax benefits due to the expiration of statutes of limitations~~additional IRS guidance issued in ~~various jurisdictions. The effective tax rates~~July 2021.

Our provision for income taxes for the three and nine months ended September 30, ~~2017, also reflected tax benefit of $53.5 million and $45.7 million, respectively, from reevaluation of certain unrecognized tax benefits as a result of the expiration of such statutes of limitations.~~

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

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in the provision for income taxes as discrete items in the period when the awards vest or are settled, whereas previously such income tax effects were recorded as part of additional paid-in capital. Our provision for income taxes2021, included excess tax benefits associated with employee equity plans of ~~$19.7~~$41.9 million and ~~$82.9~~$158.9 million, which reduced our effective tax rate by ~~6.8~~9.1 and 11.1 percentage points, ~~and 10.9 percentage points~~respectively. Our provision for income taxes for the three and nine months ended September 30, ~~2017,~~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 18.8 percentage points, respectively. The amount of excess tax benefits or deficiencies will fluctuate from period to period based on the price of our stock, the volume of share-based instruments settled or vested, and the value assigned to employee equity awards under U.S. ~~GAAP. We expect that the adoption of this ASU will result~~GAAP, which results in increased income tax expense volatility.

~~The~~

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

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

Net Income Attributable to Noncontrolling Interest in Joint Venture

~~Table~~Net income attributable to noncontrolling interest in Joint Venture for the three and nine months ended September 30, 2021, was $6.7 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 million, respectively. The increase in net income attributable to noncontrolling interest in Joint Venture was primarily due to increased sales in China during the three and 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 ~~Contents~~

2021 as the contingent consideration has been finalized and paid.

Liquidity and Capital Resources

Sources and Uses of Cash

Our principal source of liquidity is cash provided by operations and by the issuance of common stock through the exercise of stock options and our employee stock purchase program. Cash and cash equivalents plus short- and long-term investments ~~decreased~~increased by $1.35 billion to $8.22 billion as of September 30, 2021, from ~~$4.8~~$6.87 billion at as of December 31, ~~2016, to $3.8 billion at~~ ~~September 30, 2017~~,2020, primarily ~~as a result of a $2.0 billion accelerated share buyback program executed during the first quarter of 2017, partly offset by~~from cash provided by our operations and ~~employee stock option exercises. Cash generation is one of our fundamental strengths and provides us with substantial financial flexibility in meeting our operating, investing, and financing needs.~~

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

~~Condensed Consolidated Cash Flow Data~~

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

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

~~Operating Activities~~

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


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

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

~~Investing Activities~~

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

~~Financing Activities~~

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

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~~Capital Expenditures~~

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

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

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

Condensed Consolidated Cash Flow Data

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


	Nine Months Ended September 30,
	2021		2020
Net cash provided by (used in)
Operating activities	$	1,521.7	$	857.3
Investing activities	(1,820.5)		(606.3)
Financing activities	24.4		(45.9)
Effect of exchange rates on cash, cash equivalents, and restricted cash	(2.3)		(2.0)
Net increase (decrease) in cash, cash equivalents, and restricted cash	$	(276.7)	$	203.1

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Operating Activities

For the nine months ended September 30, 2021, net cash provided by operating activities of $1,522 million exceeded our net income of $1,345 million, primarily due to the following reasons:

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 in operating assets and liabilities that resulted in $357 million of cash used by operating activities during the nine months ended September 30, 2021. Prepaid expenses and other assets increased by $217 million, primarily due to an increase in prepaid taxes, driven by the timing of tax payments, and an increase in leasing. Inventory, including the effect of systems inventory built and transferred to property, plant, and equipment as a result of systems placed under operating lease and usage-based arrangements, increased by $189 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 increased by $55 million, primarily due to the timing of collections. 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 million increase in other liabilities, primarily due to the timing of payments, and a $30 million increase in accrued compensation and employee benefits, primarily due to higher headcount and variable compensation.

Investing Activities

Net cash used in investing activities for the nine months ended September 30, 2021, consisted primarily of purchases of investments (net of proceeds from sales and maturities of investments) of $1,609 million, the acquisition of property and equipment of $203 million, and the acquisition of a business, net of cash acquired, of $9 million. We invest predominantly in high quality, fixed income securities. Our investment portfolio may, at any time, contain investments in U.S. treasury and U.S. government agency securities, taxable and tax-exempt municipal notes, corporate notes and bonds, commercial paper, non-U.S. government agency securities, cash deposits, and money market funds.

Financing Activities

Net cash provided by financing activities during the nine months ended September 30, 2021, 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 employee stock purchases of $201 million and the payment of deferred purchase consideration from prior acquisitions of $19 million.

Capital Expenditures

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

Critical Accounting ~~Policies and~~ Estimates

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

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

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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


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

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

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

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

Changes in Internal Control over Financial Reporting

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

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PART II -– OTHER INFORMATION


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

ITEM 1. LEGAL PROCEEDINGS

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


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

ITEM 1A. RISK FACTORS

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

RISKS RELATING TO OUR BUSINESS

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

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

In addition, our ability to meet customers’ demands depends, in part, on our ability to timely obtain an adequate delivery of quality materials, parts, and components from our suppliers. An information technology systems interruption, including cybersecurity attacks, could adversely affect the ordering, distribution, and manufacturing processes of our suppliers. Difficulties in obtaining a sufficient amount of semiconductor 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, and global supply has become significantly constrained due to the increased demand for materials, including semiconductors, to support expansion of server and cloud networks as a greater proportion of the global population worked remotely, the introduction of 5G, and the continued electrification of vehicles. We engage in activities to seek to mitigate such supply disruptions by, for example, increasing our communications with our suppliers and modifying our purchase order coverage and inventory levels. However, notwithstanding these activities, the global semiconductor 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 our business, financial condition, 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.

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

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

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

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

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

The table below summarizes our stock repurchase activity for the quarter ended 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)
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	—	$	—	—

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


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

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.


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

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.


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

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

None.

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ITEM 6. EXHIBITS


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

Exhibit Description

~~Exhibit~~ ~~Number~~ 3.1	~~Exhibit~~ ~~Description~~
~~3.1~~	Amended and Restated Certificate of Incorporation of Intuitive Surgical, Inc., as ~~amended.~~amended.
3.2		Amended and Restated Bylaws of Intuitive Surgical, Inc. (incorporated by reference to Exhibit 3.1 of the Current Report on Form 8-K filed with the Securities and Exchange Commission on ~~December 13, 2016)~~February 1, 2021).
31.1		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, ~~2017,~~2021, formatted in Inline XBRL (Extensible Business Reporting Language): (i) the unaudited Condensed Consolidated Balance Sheets, (ii) the unaudited Condensed Consolidated Statements of Comprehensive Income, (iii) the unaudited Condensed Consolidated Statements of Cash Flows, and (iv) Notes to Condensed Consolidated Financial Statements (unaudited), tagged at Level I through IV.
104		The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2021, formatted in Inline XBRL and contained in Exhibit 101.

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SIGNATURE

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



INTUITIVE SURGICAL, INC.

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

Date: October 20, ~~2017~~

2021

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


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


				Page No.
PART I. FINANCIAL INFORMATION

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

Item 1.	Financial Statements (unaudited):

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

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

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

		Notes to condensed consolidated financial statements		6

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

Item 3.		Quantitative and Qualitative Disclosures About Market Risk		3644

Item 4.		Controls and Procedures		3644

PART II. OTHER INFORMATION

Item 1.		Legal Proceedings		3645

Item 1A.		Risk Factors		3645

Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds		3746

Item 3.		Defaults Upon Senior Securities		3747

Item 4.		Mine Safety Disclosures		3747

Item 5.		Other Information		3747

Item 6.		Exhibits		3848

		Signature		3949


in millions (except par values)	September 30, 2021		December 31, 2020
ASSETS
Current assets:
Cash and cash equivalents	$	1,346.7	1,622.6
Short-term investments	2,741.5		3,488.8
Accounts receivable, net	695.0		645.5
Inventory	584.9		601.5
Prepaids and other current assets	359.9		267.5
Total current assets	5,728.0		6,625.9
Property, plant, and equipment, net	1,737.9		1,577.3
Long-term investments	4,131.5		1,757.7
Deferred tax assets	411.5		367.7
Intangible and other assets, net	581.4		503.6
Goodwill	344.3		336.7
Total assets	$	12,934.6	$	11,168.9
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	120.0	$	81.6
Accrued compensation and employee benefits	265.3		235.0
Deferred revenue	348.5		350.3
Other accrued liabilities	293.5		298.3
Total current liabilities	1,027.3		965.2
Other long-term liabilities	447.8		444.6
Total liabilities	1,475.1		1,409.8
Contingencies (Note 8)	0		0
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
Additional paid-in capital	7,015.1		6,444.9
Retained earnings	4,390.1		3,261.3
Accumulated other comprehensive income	5.3		24.9
Total Intuitive Surgical, Inc. stockholders’ equity	11,410.9		9,731.5
Noncontrolling interest in joint venture	48.6		27.6
Total stockholders’ equity	11,459.5		9,759.1
Total liabilities and stockholders’ equity	$	12,934.6	$	11,168.9



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



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



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


	Three Months Ended September 30,				Nine Months Ended September 30,
in millions (except per share amounts)	2021		2020		2021		2020
Revenue:
Product	$	1,170.6	$	898.4	$	3,481.1	$	2,521.0
Service	232.7		179.3		678.3		508.3
Total revenue	1,403.3		1,077.7		4,159.4		3,029.3
Cost of revenue:
Product	355.8		287.7		1,049.1		868.2
Service	76.1		65.7		212.6		195.7
Total cost of revenue	431.9		353.4		1,261.7		1,063.9
Gross profit	971.4		724.3		2,897.7		1,965.4
Operating expenses:
Selling, general and administrative	363.3		298.9		1,039.5		886.1
Research and development	165.5		155.0		487.6		445.3
Total operating expenses	528.8		453.9		1,527.1		1,331.4
Income from operations	442.6		270.4		1,370.6		634.0
Interest and other income, net	18.5		84.8		65.5		136.5
Income before taxes	461.1		355.2		1,436.1		770.5
Income tax expense	73.9		38.4		90.7		67.3
Net income	387.2		316.8		1,345.4		703.2
Less: net income attributable to noncontrolling interest in joint venture	6.7		2.9		21.4		7.8
Net income attributable to Intuitive Surgical, Inc.	$	380.5	$	313.9	$	1,324.0	$	695.4
Net income per share attributable to Intuitive Surgical, Inc.:
Basic	$	1.07	$	0.89	$	3.72	$	1.98
Diluted	$	1.04	$	0.87	$	3.63	$	1.93
Shares used in computing net income per share attributable to Intuitive Surgical, Inc.:
Basic	356.8		352.0		355.6		350.5
Diluted	366.8		361.9		365.1		360.1

Total comprehensive income	$	382.1	$	310.8	$	1,325.4	$	707.2
Less: comprehensive income attributable to noncontrolling interest	6.6		3.0		21.0		8.0
Total comprehensive income attributable to Intuitive Surgical, Inc.	$	375.5	$	307.8	$	1,304.4	$	699.2



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


	Nine Months Ended September 30,
in millions	2021		2020
Operating activities:
Net income	$	1,345.4	$	703.2
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and loss on disposal of property, plant, and equipment	208.5		159.1
Amortization of intangible assets	20.8		37.3
Loss (gain) on investments, accretion, and amortization, net	(2.1)		(64.2)
Deferred income taxes	(40.6)		71.9

Share-based compensation expense	331.4		292.3
Amortization of contract acquisition assets	15.5		12.4
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable	(54.7)		57.2
Inventory	(189.2)		(177.0)
Prepaids and other assets	(216.7)		(118.8)

Accounts payable	35.8		(3.9)
Accrued compensation and employee benefits	30.3		(76.4)
Deferred revenue	2.3		(9.2)
Other liabilities	35.0		(26.6)
Net cash provided by operating activities	1,521.7		857.3
Investing activities:
Purchase of investments	(5,213.7)		(3,023.2)
Proceeds from sales of investments	72.4		800.7
Proceeds from maturities of investments	3,532.1		1,933.5
Purchase of property, plant, and equipment and intellectual property	(202.6)		(279.6)
Acquisition of businesses, net of cash	(8.7)		(37.7)

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

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


											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
September 30, 2021
Cash	$	534.5	$	—	$	—	$	—	$	534.5	$	534.5	$	—	$	—
Level 1:
Money market funds	812.2		—		—		—		812.2		812.2		—		—
U.S. treasuries	3,250.7		10.6		(2.8)		—		3,258.5		—		1,104.6		2,153.9
Subtotal	4,062.9		10.6		(2.8)		—		4,070.7		812.2		1,104.6		2,153.9
Level 2:
Commercial paper	632.7		—		—		—		632.7		—		632.7		—
Corporate debt securities	2,262.4		5.3		(2.0)		—		2,265.7		—		794.4		1,471.3
U.S. government agencies	538.3		0.5		(0.5)		—		538.3		—		150.8		387.5

Municipal securities	176.8		1.2		(0.2)		—		177.8		—		59.0		118.8
Subtotal	3,610.2		7.0		(2.7)		—		3,614.5		—		1,636.9		1,977.6



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


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

Total	$	6,860.9	$	6,873.0


									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.


	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


	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



~~Delaware~~


	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


	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


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


	2021		2020		2019		2018		2017		Prior		Net Investment
Credit Rating:
High	$	76.0	$	56.0	$	25.8	$	5.5	$	3.6	$	0.9	$	167.8
Moderate	70.5		67.4		18.6		11.5		2.5		0.5		171.0
Low	0.7		4.7		0.2		—		—		—		5.6
Total	$	147.2	$	128.1	$	44.6	$	17.0	$	6.1	$	1.4	$	344.4


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


	September 30, 2021						December 31, 2020
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Patents and developed technology	$	219.3	$	(169.3)	$	50.0	$	198.4	$	(158.7)	$	39.7
Distribution rights and others	26.3		(17.8)		8.5		91.9		(77.4)		14.5
Customer relationships	31.8		(13.1)		18.7		59.0		(35.8)		23.2
Total intangible assets	$	277.4	$	(200.2)	$	77.2	$	349.3	$	(271.9)	$	77.4


	Three 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	356.2	$	0.4	$	6,804.1	$	4,022.7	$	10.3	$	10,837.5	$	42.0	$	10,879.5
Issuance of common stock through employee stock plans	1.1	—		91.1						91.1				91.1
Shares withheld related to net share settlement of equity awards	(0.1)	—		(0.2)		(13.1)				(13.3)				(13.3)
Share-based compensation expense related to employee stock plans				120.1						120.1				120.1

Net income attributable to Intuitive Surgical, Inc.						380.5				380.5				380.5
Other comprehensive income (loss)								(5.0)		(5.0)		(0.1)		(5.1)

Net income attributable to noncontrolling interest in joint venture										—		6.7		6.7
Ending balance	357.2	$	0.4	$	7,015.1	$	4,390.1	$	5.3	$	11,410.9	$	48.6	$	11,459.5

















	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

















	Nine 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	347.9	$	0.4	$	5,756.5	$	2,494.5	$	12.4	$	8,263.8	$	20.9	$	8,284.7
Adoption of new accounting standard						(0.1)				(0.1)				(0.1)
Issuance of common stock through employee stock plans	6.1	—		267.9						267.9				267.9
Shares withheld related to net share settlement of equity awards	(0.8)	—		(7.5)		(157.8)				(165.3)				(165.3)
Share-based compensation expense related to employee stock plans				292.3						292.3				292.3
Repurchase and retirement of common stock	(0.6)	—		(5.2)		(94.8)				(100.0)				(100.0)
Net income attributable to Intuitive Surgical, Inc.						695.4				695.4				695.4
Other comprehensive income (loss)								3.8		3.8		0.2		4.0
Net income attributable to noncontrolling interest in joint venture										—		7.8		7.8
Ending balance	352.6	$	0.4	$	6,304.0	$	2,937.2	$	16.2	$	9,257.8	$	28.9	$	9,286.7


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

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



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

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


	Stock Options Outstanding
	Number Outstanding	Weighted Average Exercise Price Per Share
Balance at December 31, 2020	13.4	$	101.69

Options granted	1.1	$	294.53
Options exercised	(2.3)	$	74.06
Options forfeited/expired	(0.1)	$	194.12
Balance at September 30, 2021	12.1	$	123.58



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


	Shares	Weighted Average Grant Date Fair Value
Unvested balance at December 31, 2020	5.3	$	163.30
RSUs granted	1.9	$	252.42
RSUs vested	(2.1)	$	144.04
RSUs forfeited	(0.3)	$	191.29
Unvested balance at September 30, 2021	4.8	$	204.31


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