UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended ~~September~~June 30, ~~2022~~2023


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

For the transition period from to

Commission file number 000-30713

Intuitive Surgical, Inc.

(Exact name of Registrant as specified in its Charter)


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

1020 Kifer Road

Sunnyvale, California 94086

(Address of principal executive offices) (Zip Code)

(408) 523-2100

(Registrant’s telephone number, including area code)

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


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

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

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

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

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

☐

Emerging growth company

☐

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

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

The Registrant had ~~353,384,570~~351,354,675 shares of Common Stock, $0.001 par value per share, outstanding as of ~~October~~July 18, ~~2022.~~2023.

INTUITIVE SURGICAL, INC.

TABLE OF CONTENTS


		Page No.
PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements (unaudited):

	Condensed C ~~onsolidated~~ B ~~alance~~ S ~~heets~~Consolidated Balance Sheets as of ~~September~~June 30, ~~2022~~2023, and December 31, ~~2021~~2022	3

	Condensed C ~~onsolidated~~ S ~~tatements~~Consolidated Statements of C ~~omprehensive~~ I ~~ncome~~Comprehensive Income for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023, and ~~2021~~2022	4

	Condensed C ~~onsolidated~~ S ~~tatements~~Consolidated Statements of C ~~ash~~ F ~~lows~~Cash Flows for the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023, and ~~2021~~2022	5

	Notes to C ondensed C onsolidated F inancial S tatements	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4850

Item 4.	Controls and Procedures	4850

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	4951

Item 1A.	Risk Factors	4951

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	5155

Item 3.	Defaults Upon Senior Securities	5155

Item 4.	Mine Safety Disclosures	5155

Item 5.	Other Information	5155

Item 6.	Exhibits	5357

	Signature	5458

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

INTUITIVE SURGICAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)


in millions (except par values)	in millions (except par values)	September 30, 2022		December 31, 2021		in millions (except par values)	June 30, 2023		December 31, 2022
ASSETS	ASSETS					ASSETS
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	1,538.0	$	1,290.9	Cash and cash equivalents	$	3,435.4	$	1,581.2
Short-term investments	Short-term investments	2,775.9		2,913.1		Short-term investments	2,363.8		2,536.7
Accounts receivable, net	Accounts receivable, net	849.6		782.7		Accounts receivable, net	904.2		942.1
Inventory	Inventory	837.1		587.1		Inventory	1,005.2		893.2
Prepaids and other current assets	Prepaids and other current assets	292.5		271.1		Prepaids and other current assets	323.2		299.8
Total current assets	Total current assets	6,293.1		5,844.9		Total current assets	8,031.8		6,253.0
Property, plant, and equipment, net	Property, plant, and equipment, net	2,243.7		1,876.4		Property, plant, and equipment, net	2,830.8		2,374.2
Long-term investments	Long-term investments	3,078.1		4,415.5		Long-term investments	1,332.5		2,623.6
Deferred tax assets	Deferred tax assets	587.4		441.4		Deferred tax assets	666.5		664.6
Intangible and other assets, net	Intangible and other assets, net	710.3		633.2		Intangible and other assets, net	693.1		710.1
Goodwill	Goodwill	348.2		343.6		Goodwill	348.6		348.5
Total assets	Total assets	$	13,260.8	$	13,555.0	Total assets	$	13,903.3	$	12,974.0
LIABILITIES AND STOCKHOLDERS’ EQUITY	LIABILITIES AND STOCKHOLDERS’ EQUITY					LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	$	164.2	$	121.2	Accounts payable	$	199.7	$	147.0
Accrued compensation and employee benefits	Accrued compensation and employee benefits	308.2		350.1		Accrued compensation and employee benefits	346.6		401.6
Deferred revenue	Deferred revenue	358.9		377.2		Deferred revenue	405.2		397.3
Other accrued liabilities	Other accrued liabilities	402.1		301.3		Other accrued liabilities	586.9		476.2
Total current liabilities	Total current liabilities	1,233.4		1,149.8		Total current liabilities	1,538.4		1,422.1
Other long-term liabilities	Other long-term liabilities	453.4		453.7		Other long-term liabilities	405.2		439.3
Total liabilities	Total liabilities	1,686.8		1,603.5		Total liabilities	1,943.6		1,861.4
Contingencies (Note 8)	Contingencies (Note 8)					Contingencies (Note 8)
Stockholders’ equity:	Stockholders’ equity:					Stockholders’ equity:
Preferred stock, 2.5 shares authorized, $0.001 par value, issuable in series; zero shares issued and outstanding as of September 30, 2022, and December 31, 2021		—		—
Common stock, 600.0 shares authorized, $0.001 par value, 353.3 shares and 357.7 shares issued and outstanding as of September 30, 2022, and December 31, 2021, respectively		0.4		0.4
Preferred stock, 2.5 shares authorized, $0.001 par value, issuable in series; zero shares issued and outstanding as of June 30, 2023, and December 31, 2022						Preferred stock, 2.5 shares authorized, $0.001 par value, issuable in series; zero shares issued and outstanding as of June 30, 2023, and December 31, 2022	—		—
Common stock, 600.0 shares authorized, $0.001 par value, 351.3 shares and 350.0 shares issued and outstanding as of June 30, 2023, and December 31, 2022, respectively						Common stock, 600.0 shares authorized, $0.001 par value, 351.3 shares and 350.0 shares issued and outstanding as of June 30, 2023, and December 31, 2022, respectively	0.4		0.4
Additional paid-in capital	Additional paid-in capital	7,684.8		7,164.0		Additional paid-in capital	8,150.8		7,703.9
Retained earnings	Retained earnings	4,017.8		4,760.9		Retained earnings	3,807.7		3,500.1
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(187.6)		(24.2)		Accumulated other comprehensive loss	(79.8)		(162.5)
Total Intuitive Surgical, Inc. stockholders’ equity	Total Intuitive Surgical, Inc. stockholders’ equity	11,515.4		11,901.1		Total Intuitive Surgical, Inc. stockholders’ equity	11,879.1		11,041.9
Noncontrolling interest in joint venture	Noncontrolling interest in joint venture	58.6		50.4		Noncontrolling interest in joint venture	80.6		70.7
Total stockholders’ equity	Total stockholders’ equity	11,574.0		11,951.5		Total stockholders’ equity	11,959.7		11,112.6
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	13,260.8	$	13,555.0	Total liabilities and stockholders’ equity	$	13,903.3	$	12,974.0

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

INTUITIVE SURGICAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
in millions (except per share amounts)	in millions (except per share amounts)	2022		2021		2022		2021		in millions (except per share amounts)	2023		2022		2023		2022
Revenue:	Revenue:									Revenue:
Product	Product	$	1,297.5	$	1,170.6	$	3,806.3	$	3,481.2	Product	$	1,468.6	$	1,270.4	$	2,881.6	$	2,508.8
Service	Service	259.9		232.7		760.9		678.2		Service	287.3		251.7		570.5		501.0
Total revenue	Total revenue	1,557.4		1,403.3		4,567.2		4,159.4		Total revenue	1,755.9		1,522.1		3,452.1		3,009.8
Cost of revenue:	Cost of revenue:									Cost of revenue:
Product	Product	421.6		355.8		1,239.9		1,049.1		Product	498.0		421.0		991.0		818.3
Service	Service	83.7		76.1		242.2		212.6		Service	86.0		77.8		176.2		158.5
Total cost of revenue	Total cost of revenue	505.3		431.9		1,482.1		1,261.7		Total cost of revenue	584.0		498.8		1,167.2		976.8
Gross profit	Gross profit	1,052.1		971.4		3,085.1		2,897.7		Gross profit	1,171.9		1,023.3		2,284.9		2,033.0
Operating expenses:	Operating expenses:									Operating expenses:
Selling, general and administrative	Selling, general and administrative	436.1		363.3		1,245.6		1,039.5		Selling, general and administrative	464.3		418.4		944.8		809.5
Research and development	Research and development	217.1		165.5		634.9		487.6		Research and development	244.4		207.3		489.3		417.8
Total operating expenses	Total operating expenses	653.2		528.8		1,880.5		1,527.1		Total operating expenses	708.7		625.7		1,434.1		1,227.3
Income from operations	Income from operations	398.9		442.6		1,204.6		1,370.6		Income from operations	463.2		397.6		850.8		805.7
Interest and other income, net	Interest and other income, net	3.9		18.5		7.5		65.5		Interest and other income, net	36.0		9.3		70.2		3.6
Income before taxes	Income before taxes	402.8		461.1		1,212.1		1,436.1		Income before taxes	499.2		406.9		921.0		809.3
Income tax expense	Income tax expense	78.1		73.9		204.4		90.7		Income tax expense	73.2		93.3		134.2		126.3
Net income	Net income	324.7		387.2		1,007.7		1,345.4		Net income	426.0		313.6		786.8		683.0
Less: net income attributable to noncontrolling interest in joint venture	Less: net income attributable to noncontrolling interest in joint venture	0.7		6.7		10.3		21.4		Less: net income attributable to noncontrolling interest in joint venture	5.2		5.8		10.7		9.6
Net income attributable to Intuitive Surgical, Inc.	Net income attributable to Intuitive Surgical, Inc.	$	324.0	$	380.5	$	997.4	$	1,324.0	Net income attributable to Intuitive Surgical, Inc.	$	420.8	$	307.8	$	776.1	$	673.4
Net income per share attributable to Intuitive Surgical, Inc.:	Net income per share attributable to Intuitive Surgical, Inc.:									Net income per share attributable to Intuitive Surgical, Inc.:
Basic	Basic	$	0.91	$	1.07	$	2.79	$	3.72	Basic	$	1.20	$	0.86	$	2.21	$	1.88
Diluted	Diluted	$	0.90	$	1.04	$	2.74	$	3.63	Diluted	$	1.18	$	0.85	$	2.18	$	1.84
Shares used in computing net income per share attributable to Intuitive Surgical, Inc.:	Shares used in computing net income per share attributable to Intuitive Surgical, Inc.:									Shares used in computing net income per share attributable to Intuitive Surgical, Inc.:
Basic	Basic	355.3		356.8		357.2		355.6		Basic	350.9		358.1		350.6		358.2
Diluted	Diluted	360.5		366.8		363.7		365.1		Diluted	357.3		363.9		356.6		365.3

Other comprehensive loss, net of tax:
Change in unrealized gains on hedge instruments		$	2.3	$	2.0	$	7.7	$	8.0
Change in unrealized losses on available-for-sale securities		(37.3)		(4.5)		(161.4)		(20.5)
Change in foreign currency translation losses		(10.0)		(2.8)		(12.0)		(7.9)
Change in prior service cost for employee benefit plans		0.1		0.2		0.2		0.4
Other comprehensive loss		(44.9)		(5.1)		(165.5)		(20.0)
Other comprehensive income (loss), net of tax:										Other comprehensive income (loss), net of tax:
Unrealized gains on hedge instruments										Unrealized gains on hedge instruments	$	6.0	$	4.4	$	8.5	$	5.4
Unrealized gains (losses) on available-for-sale securities										Unrealized gains (losses) on available-for-sale securities	13.1		(33.4)		50.7		(124.1)
Foreign currency translation gains (losses)										Foreign currency translation gains (losses)	8.5		(5.5)		22.7		(2.0)
Prior service cost for employee benefit plans										Prior service cost for employee benefit plans	—		—		—		0.1
Other comprehensive income (loss)										Other comprehensive income (loss)	27.6		(34.5)		81.9		(120.6)
Total comprehensive income	Total comprehensive income	279.8		382.1		842.2		1,325.4		Total comprehensive income	453.6		279.1		868.7		562.4
Less: comprehensive income (loss) attributable to noncontrolling interest		(0.8)		6.6		8.2		21.0
Less: comprehensive income attributable to noncontrolling interest										Less: comprehensive income attributable to noncontrolling interest	4.1		4.8		9.9		9.0
Total comprehensive income attributable to Intuitive Surgical, Inc.	Total comprehensive income attributable to Intuitive Surgical, Inc.	$	280.6	$	375.5	$	834.0	$	1,304.4	Total comprehensive income attributable to Intuitive Surgical, Inc.	$	449.5	$	274.3	$	858.8	$	553.4

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

INTUITIVE SURGICAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)


		Nine Months Ended September 30,					Six Months Ended June 30,
in millions	in millions	2022		2021		in millions	2023		2022
Operating activities:	Operating activities:					Operating activities:
Net income	Net income	$	1,007.7	$	1,345.4	Net income	$	786.8	$	683.0
Adjustments to reconcile net income to net cash provided by operating activities:	Adjustments to reconcile net income to net cash provided by operating activities:					Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and loss on disposal of property, plant, and equipment	Depreciation and loss on disposal of property, plant, and equipment	239.4		208.5		Depreciation and loss on disposal of property, plant, and equipment	180.0		157.5
Amortization of intangible assets	Amortization of intangible assets	20.2		20.8		Amortization of intangible assets	10.0		12.3
Gain on sale of business	Gain on sale of business	(3.8)		—		Gain on sale of business	—		(3.8)
Loss (gain) on investments, accretion, and amortization, net		43.4		(2.1)
Loss on investments, accretion of discounts, and amortization of premiums on investments, net						Loss on investments, accretion of discounts, and amortization of premiums on investments, net	14.4		33.8
Deferred income taxes	Deferred income taxes	(102.0)		(40.6)		Deferred income taxes	(17.7)		(40.1)
Share-based compensation expense	Share-based compensation expense	385.6		331.4		Share-based compensation expense	286.3		247.5
Amortization of contract acquisition assets	Amortization of contract acquisition assets	20.7		15.5		Amortization of contract acquisition assets	14.9		13.6
Changes in operating assets and liabilities, net of effects of acquisitions:	Changes in operating assets and liabilities, net of effects of acquisitions:					Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable	Accounts receivable	(67.2)		(54.7)		Accounts receivable	39.3		(56.0)
Inventory	Inventory	(419.1)		(189.2)		Inventory	(288.6)		(245.5)
Prepaids and other assets	Prepaids and other assets	(96.8)		(216.7)		Prepaids and other assets	(13.8)		(90.1)
Accounts payable	Accounts payable	26.3		35.8		Accounts payable	36.5		12.4
Accrued compensation and employee benefits	Accrued compensation and employee benefits	(41.9)		30.3		Accrued compensation and employee benefits	(55.0)		(71.5)
Deferred revenue	Deferred revenue	(21.2)		2.3		Deferred revenue	12.2		(3.1)
Other liabilities	Other liabilities	61.6		35.0		Other liabilities	31.8		19.7
Net cash provided by operating activities	Net cash provided by operating activities	1,052.9		1,521.7		Net cash provided by operating activities	1,037.1		669.7
Investing activities:	Investing activities:					Investing activities:
Purchase of investments	Purchase of investments	(1,393.6)		(5,213.7)		Purchase of investments	(14.0)		(1,376.2)
Proceeds from sales of investments	Proceeds from sales of investments	59.6		72.4		Proceeds from sales of investments	37.5		—
Proceeds from maturities of investments	Proceeds from maturities of investments	2,536.3		3,532.1		Proceeds from maturities of investments	1,486.9		1,865.1
Purchase of property, plant, and equipment and intellectual property		(394.7)		(202.6)
Acquisition of businesses, net of cash, and other investing activities		(11.6)		(8.7)
Net cash provided by (used in) investing activities		796.0		(1,820.5)
Purchase of property, plant, and equipment						Purchase of property, plant, and equipment	(372.4)		(224.1)
Acquisition of businesses, net of cash, and intellectual property and other investing activities						Acquisition of businesses, net of cash, and intellectual property and other investing activities	(7.3)		(13.3)
Net cash provided by investing activities						Net cash provided by investing activities	1,130.7		251.5
Financing activities:	Financing activities:					Financing activities:
Proceeds from issuance of common stock relating to employee stock plans	Proceeds from issuance of common stock relating to employee stock plans	188.6		244.8		Proceeds from issuance of common stock relating to employee stock plans	174.8		106.6
Taxes paid related to net share settlement of equity awards	Taxes paid related to net share settlement of equity awards	(187.3)		(201.2)		Taxes paid related to net share settlement of equity awards	(140.6)		(179.0)
Repurchase of common stock	Repurchase of common stock	(1,606.6)		—		Repurchase of common stock	(350.0)		(606.6)

Payment of deferred purchase consideration	Payment of deferred purchase consideration	(3.5)		(19.2)		Payment of deferred purchase consideration	(2.1)		(3.0)
Net cash provided by (used in) financing activities		(1,608.8)		24.4
Net cash used in financing activities						Net cash used in financing activities	(317.9)		(682.0)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	Effect of exchange rate changes on cash, cash equivalents, and restricted cash	7.9		(2.3)		Effect of exchange rate changes on cash, cash equivalents, and restricted cash	7.0		6.0
Net increase (decrease) in cash, cash equivalents, and restricted cash		248.0		(276.7)
Net increase in cash, cash equivalents, and restricted cash						Net increase in cash, cash equivalents, and restricted cash	1,856.9		245.2
Cash, cash equivalents, and restricted cash, beginning of period	Cash, cash equivalents, and restricted cash, beginning of period	1,306.0		1,638.5		Cash, cash equivalents, and restricted cash, beginning of period	1,600.7		1,306.0
Cash, cash equivalents, and restricted cash, end of period	Cash, cash equivalents, and restricted cash, end of period	$	1,554.0	$	1,361.8	Cash, cash equivalents, and restricted cash, end of period	$	3,457.6	$	1,551.2

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

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

NOTE 1. DESCRIPTION OF THE BUSINESS

Intuitive Surgical, Inc. (“Intuitive” or the “Company”) develops, manufactures, and markets ~~the~~ da Vinci® ~~Surgical System~~surgical systems and the Ion® endoluminal system. The Company’s products and related services enable physicians and healthcare providers to improve the quality of and access to minimally invasive care. The systems consist of a surgeon console or consoles, a patient-side cart, and a high-performance vision system and use proprietary instruments and accessories.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

In the opinion of management, the accompanying unaudited Condensed Consolidated Financial Statements (“Financial Statements”) of Intuitive Surgical, Inc. and its wholly and majority-owned subsidiaries have been prepared on a consistent basis with the audited Consolidated Financial Statements for the fiscal year ended December 31, ~~2021,~~2022, and include all adjustments, consisting of only normal, recurring adjustments, necessary to fairly state the information set forth herein. The Financial Statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) and, therefore, omit certain information and footnote disclosure necessary to present the Financial Statements in accordance with United States (“U.S.”) generally accepted accounting principles (“~~U.S.~~ GAAP”). These Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, ~~2021,~~2022, which was filed with the SEC on February ~~3, 2022.~~10, 2023. The results of operations for the first ~~nine~~six months of ~~2022~~2023 are not necessarily indicative of the results to be expected for the entire fiscal year or any future periods.

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

Risks and Uncertainties

The Company’s future results of operations and liquidity could be materially adversely affected by macroeconomic and geopolitical factors ~~contributing to delays~~ in ~~payments of outstanding receivables,~~the U.S. and globally, including the supply chain ~~disruptions, including shortages and~~environment, inflationary pressure, higher interest rates, instability in the global financial markets, labor shortages, significant disruptions in the commodities’ markets as a result of the Russia and Ukraine conflict, the introduction of or changes in tariffs, trade barriers, or regulatory requirements, and uncertain or reduced demand, ~~and~~as well as the impact of any initiatives or programs that the Company may undertake to address financial and operational challenges faced by its customers.

~~In particular, the~~The Company ~~has experienced increased~~continues to experience difficulties in obtaining a sufficient supply of a number of component materials used in its products, such as semiconductor components as well as a range of other materials including, but not limited to, metals and polymers, as the global supply has become ~~significantly~~ constrained due to increased demand for certain materials. Additionally, prices of such materials ~~have increased~~remain elevated due to the increased demand and supply ~~shortage.~~shortages. With ~~rising~~higher interest rates, access to credit may become more difficult, and any insolvency of the Company’s key suppliers, including ~~sole-source~~sole-sourced and single-sourced suppliers, may exacerbate current supply chain challenges. Also, liquidity concerns in the broader financial services industry could result in delayed access or loss of access to the Company’s key suppliers’ uninsured deposits or loss of their ability to draw on existing credit facilities involving a troubled or failed financial institution. While supply chain disruptions have been, and may continue to be, challenging, the situation has shown signs of improvement during the first half of 2023, relative to 2022. The Company is actively engaged in activities to seek to mitigate ~~supply disruptions by, for example, increasing its communications with its suppliers and modifying its purchase order coverage and inventory levels. However,~~ the ~~global~~impact of any supply chain ~~shortages will remain a challenge for the foreseeable future.~~disruptions on our operations.

~~The Company has also experienced challenges in logistics, as certain shipping routes have been impacted by port closures.~~ Such global shortages in important components ~~and logistics challenges~~ have resulted in, and will continue to cause, inflationary cost pressure in the Company’s supply chain. To date, ~~the inflationary cost pressure has been more pronounced in the Company’s logistics costs, but~~ these supply chain challenges have not materially impacted the Company’s results of operations or ability to deliver products and services to its customers. However, if shortages in important supply chain materials in the semiconductor or other markets ~~or logistics challenges~~ continue, the Company could fail to meet product demand, which could result in deferred or ~~cancelled~~canceled procedures. Additionally, if inflationary pressures in ~~logistics or~~ component costs persist, the Company may not be able to quickly or easily adjust pricing, reduce costs, or implement countermeasures. Additionally, there is continued uncertainty surrounding the impact of any monetary policy changes taken by the U.S. Federal Reserve and other central banks to address the structural risks associated with inflation.

~~Increased~~

Fluctuations in labor availability globally, including labor shortages ~~globally, including~~and staff burnout and attrition, could also impact the Company’s ability to hire and retain personnel critical to its manufacturing, logistics, and commercial operations. The Company is also highly dependent

on the principal members of its management and scientific staff. ~~Attracting and retaining qualified personnel is critical to its success, and competition for them has become more intense.~~ The loss of critical members of the Company’s team, or its inability to attract and retain qualified personnel, could significantly harm its operations, business, and ability to compete.

Hospitals are also experiencing challenges with staffing ~~shortages~~ and ~~supply chain issues~~cost pressures that could affect their ability to provide patient care. Additionally, hospitals are facing significant financial pressure as supply chain constraints and inflation drive up operating costs, ~~rising~~higher interest rates make access to credit more expensive, unrealized losses decrease available cash reserves, and fiscal stimulus programs enacted during the COVID-19 pandemic wind down. Hospitals may also be adversely affected by the liquidity concerns in the broader financial services industry that could result in delayed access or loss of access to uninsured deposits or loss of their ability to draw on existing credit facilities involving a troubled or failed financial institution. To the extent macroeconomic conditions remain challenging, it is likely that hospitals’ spend on capital equipment will be adversely impacted. In addition, as competition progresses in various markets, longer selling cycles and pricing pressures are likely to result. As of the date of issuance of these Financial Statements, the extent to which these macroeconomic factors may materially adversely affect the Company’s financial condition, liquidity, or results of operations is uncertain.

The Company maintains the majority of its cash and cash equivalents in accounts with major U.S. and multi-national financial institutions, and our deposits exceed insured limits. Market conditions could impact the viability of these institutions. To date, these market conditions and liquidity concerns have not impacted our results of operations. However, in the event of failure of any of the financial institutions where we maintain our cash and cash equivalents, there can be no assurance that we would be able to access uninsured funds in a timely manner or at all. Any inability to access or delay in accessing these funds could adversely affect our business and financial position.

The Company is also subject to additional risks and uncertainties due to the ongoing COVID-19 pandemic. The extent of the impact on the Company’s business is highly uncertain and difficult to predict. The Company’s customers may divert resources to treat COVID-19 patients and defer some elective surgical procedures, both of which may impact the Company’s customers’ ability to meet their obligations, including to the Company. The severity of the impact of the COVID-19 pandemic on the Company’s business will depend on a number of factors, including, but not limited to, the duration and severity of the pandemic and the extent and severity of the impact on the Company’s customers, all of which are uncertain and cannot be predicted.

Recently Adopted Accounting Pronouncements

~~Business Combinations~~Troubled Debt Restructurings and Vintage Disclosures

In ~~October 2021,~~March 2022, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) ~~No. 2021-08,~~ ~~Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers~~ (“ASU 2021-08”), which creates an exception to the general recognition and measurement principle in ASC 805 by requiring companies to apply ASC 606 to recognize and measure contract assets and contract liabilities from contracts with customers acquired in a business combination. The guidance additionally clarifies that companies should apply the definition of a performance obligation in ASC 606 when recognizing contract liabilities assumed in a business combination. The Company has early adopted ASU 2021-08 as of January 1, 2022, on a prospective basis. The impact of the adoption of ASU 2021-08 had an immaterial impact on the Company’s Financial Statements in the nine months ended September 30, 2022.

~~Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions~~

~~In June 2022, the FASB issued ASU No. 2022-03,~~ ~~Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions~~ (“ASU 2022-03”), which applies to all equity securities measured at fair value that are subject to contractual sale restrictions. This change prohibits entities from taking into account contractual restrictions on the sale of equity securities when estimating fair value and introduces required disclosures for such transactions. The Company has early adopted ASU 2022-03 as of July 1, 2022, on a prospective basis. There was no impact of the adoption of ASU 2022-03 on the Company’s Financial Statements in the three months ended September 30, 2022.

~~Recently Issued Accounting Pronouncements~~

~~Troubled Debt Restructurings and Vintage Disclosures~~

~~In March 2022, the FASB issued ASU~~ No. 2022-02, Financial Instruments-Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures (“ASU 2022-02”), which eliminates the accounting guidance for troubled debt restructurings by creditors while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. Additionally, the standard requires disclosure of current-period gross write-offs by year of origination for financing receivables and net investments in leases within the scope of Subtopic ASC 326-20, Financial Instruments-Credit Losses-Measured at Amortized Cost. The ~~standard will become effective for the~~ Company ~~beginning~~adopted ASU 2022-02 on January 1, 2023, ~~and should be applied prospectively. The~~on a prospective basis. There was no impact of the adoption of ASU 2022-02 ison the Company’s Financial Statements in the three and six months ended June 30, 2023.

Recently Issued Accounting Pronouncements

The Company continues to monitor new accounting pronouncements issued by the FASB and does not ~~expected to~~believe any accounting pronouncements issued through the date of this report will have a material impact on the Company’s ~~future~~ Financial Statements.

Significant Accounting Policies

There have been no new or material changes to the significant accounting policies discussed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, ~~2021,~~2022, that are of significance, or potential significance, to the Company.

NOTE 3. FINANCIAL INSTRUMENTS

Cash, Cash Equivalents, and Investments

The following tables summarize the Company’s cash and available-for-sale ~~marketable~~debt securities’ amortized cost, gross unrealized gains, gross unrealized losses, allowance for credit loss, and fair value by significant investment category reported as

cash and cash equivalents, short-term investments, or long-term investments as of ~~September~~June 30, ~~2022~~2023, and December 31, ~~2021~~2022 (in millions):


												Reported as:																	Reported as:
		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Loss		Fair Value		Cash and Cash Equivalents		Short- term Investments		Long- term Investments			Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Loss		Fair Value		Cash and Cash Equivalents		Short- term Investments		Long- term Investments
September 30, 2022
June 30, 2023																		June 30, 2023
Cash	Cash	$	536.3	$	—	$	—	$	—	$	536.3	$	536.3	$	—	$	—	Cash	$	520.3	$	—	$	—	$	—	$	520.3	$	520.3	$	—	$	—
Level 1:	Level 1:																	Level 1:
Money market funds	Money market funds	1,001.7		—		—		—		1,001.7		1,001.7		—		—		Money market funds	2,915.1		—		—		—		2,915.1		2,915.1		—		—
U.S. treasuries	U.S. treasuries	3,048.8		—		(113.0)		—		2,935.8		—		1,545.4		1,390.4		U.S. treasuries	1,860.8		—		(61.0)		—		1,799.8		—		1,294.2		505.6
Subtotal	Subtotal	4,050.5		—		(113.0)		—		3,937.5		1,001.7		1,545.4		1,390.4		Subtotal	4,775.9		—		(61.0)		—		4,714.9		2,915.1		1,294.2		505.6
Level 2:	Level 2:																	Level 2:
Commercial paper		104.2		—		—		—		104.2		—		104.2		—

Corporate debt securities	Corporate debt securities	2,256.1		—		(87.2)		(1.1)		2,167.8		—		843.9		1,323.9		Corporate debt securities	1,490.5		—		(53.9)		(1.1)		1,435.5		—		829.5		606.0
U.S. government agencies	U.S. government agencies	499.3		—		(21.8)		—		477.5		—		209.5		268.0		U.S. government agencies	361.2		—		(14.3)		—		346.9		—		183.8		163.1

Municipal securities	Municipal securities	175.4		—		(6.7)		—		168.7		—		72.9		95.8		Municipal securities	118.2		—		(4.1)		—		114.1		—		56.3		57.8
Subtotal	Subtotal	3,035.0		—		(115.7)		(1.1)		2,918.2		—		1,230.5		1,687.7		Subtotal	1,969.9		—		(72.3)		(1.1)		1,896.5		—		1,069.6		826.9

Total assets measured at fair value	Total assets measured at fair value	$	7,621.8	$	—	$	(228.7)	$	(1.1)	$	7,392.0	$	1,538.0	$	2,775.9	$	3,078.1	Total assets measured at fair value	$	7,266.1	$	—	$	(133.3)	$	(1.1)	$	7,131.7	$	3,435.4	$	2,363.8	$	1,332.5

Reported as:
Amortized
Cost Gross
Unrealized
Gains Gross
Unrealized
Losses Allowance for Credit Loss Fair
Value Cash and
Cash
Equivalents Short-
term
Investments Long-
term
Investments
December 31, 2021
Cash $ 572.3 $ — $ — $ — $ 572.3 $ 572.3 $ — $ —
Level 1:
Money market funds 696.6 — — — 696.6 696.6 — —
U.S. treasuries 3,429.1 6.3 (15.4) — 3,420.0 17.0 1,100.3 2,302.7
Subtotal 4,125.7 6.3 (15.4) — 4,116.6 713.6 1,100.3 2,302.7
Level 2:
Commercial paper 717.7 — — — 717.7 — 717.7 —
Corporate debt securities 2,485.6 2.7 (11.9) — 2,476.4 5.0 886.7 1,584.7
U.S. government agencies 526.1 0.2 (2.9) — 523.4 — 137.8 385.6
Municipal securities 213.4 0.7 (1.0) — 213.1 — 70.6 142.5
Subtotal 3,942.8 3.6 (15.8) — 3,930.6 5.0 1,812.8 2,112.8
Total assets measured at fair value $ 8,640.8 $ 9.9 $ (31.2) $ — $ 8,619.5 $ 1,290.9 $ 2,913.1 $ 4,415.5


											Reported as:
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Allowance for Credit Loss		Fair Value		Cash and Cash Equivalents		Short- term Investments		Long- term Investments
December 31, 2022
Cash	$	497.2	$	—	$	—	$	—	$	497.2	$	497.2	$	—	$	—
Level 1:
Money market funds	1,084.0		—		—		—		1,084.0		1,084.0		—		—
U.S. treasuries	2,715.2		—		(96.6)		—		2,618.6		—		1,542.4		1,076.2
Subtotal	3,799.2		—		(96.6)		—		3,702.6		1,084.0		1,542.4		1,076.2
Level 2:
Commercial paper	20.0		—		—		—		20.0		—		20.0		—
Corporate debt securities	2,022.0		—		(76.0)		(1.1)		1,944.9		—		651.8		1,293.1
U.S. government agencies	447.2		—		(19.9)		—		427.3		—		247.8		179.5

Municipal securities	155.5		—		(6.0)		—		149.5		—		74.7		74.8
Subtotal	2,644.7		—		(101.9)		(1.1)		2,541.7		—		994.3		1,547.4



Total assets measured at fair value	$	6,941.1	$	—	$	(198.5)	$	(1.1)	$	6,741.5	$	1,581.2	$	2,536.7	$	2,623.6

The following table summarizes the contractual maturities of the Company’s cash equivalents and available-for-sale ~~investments~~debt securities (excluding ~~cash and~~ money market funds), as of ~~September~~June 30, ~~2022~~2023 (in millions):


		Amortized Cost		Fair Value			Amortized Cost		Fair Value
Mature in less than one year	Mature in less than one year	$	2,823.7	$	2,775.9	Mature in less than one year	$	2,416.8	$	2,363.8
Mature in one to five years	Mature in one to five years	3,260.1		3,078.1		Mature in one to five years	1,413.9		1,332.5

Total	Total	$	6,083.8	$	5,854.0	Total	$	3,830.7	$	3,696.3

Actual maturities may differ from contractual maturities, because certain borrowers have the right to call or prepay certain obligations. ~~Realized~~Gross realized gains and losses recognized on the sale of investments were ~~not material~~immaterial for ~~any of~~ the periods presented.

As of June 30, 2023, and December 31, 2022, net unrealized losses on available-for-sale debt securities, net of tax, of $103.5 million and $154.2 million, respectively, were included in accumulated other comprehensive loss in the accompanying Consolidated Balance Sheets.

The following tables present the breakdown of the available-for-sale debt securities ~~that have been in a continuous~~with unrealized ~~loss position deemed to be temporary, aggregated by investment category,~~losses as of ~~September~~June 30, ~~2022,~~2023, and December 31, ~~2021~~2022 (in millions):


		September 30, 2022													June 30, 2023
		Less than 12 months				More than 12 months				Total					Unrealized losses less than 12 months				Unrealized losses 12 months or greater				Total
		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses			Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
U.S. treasuries	U.S. treasuries	$	1,811.4	$	(60.4)	$	1,124.5	$	(52.6)	$	2,935.9	$	(113.0)	U.S. treasuries	$	—	$	—	$	1,799.8	$	(61.0)	$	1,799.8	$	(61.0)

Corporate debt securities	Corporate debt securities	1,401.9		(55.0)		599.4		(32.2)		2,001.3		(87.2)		Corporate debt securities	84.1		(0.9)		1,344.5		(53.0)		1,428.6		(53.9)
U.S. government agencies	U.S. government agencies	220.0		(8.4)		257.4		(13.4)		477.4		(21.8)		U.S. government agencies	—		—		346.9		(14.3)		346.9		(14.3)
Municipal securities	Municipal securities	109.3		(4.1)		51.0		(2.6)		160.3		(6.7)		Municipal securities	—		—		107.7		(4.1)		107.7		(4.1)
Total	Total	$	3,542.6	$	(127.9)	$	2,032.3	$	(100.8)	$	5,574.9	$	(228.7)	Total	$	84.1	$	(0.9)	$	3,598.9	$	(132.4)	$	3,683.0	$	(133.3)


		December 31, 2021													December 31, 2022
		Less than 12 months				More than 12 months				Total					Unrealized losses less than 12 months				Unrealized losses 12 months or greater				Total
		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses			Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
U.S. treasuries	U.S. treasuries	$	2,596.3	$	(15.4)	$	—	$	—	$	2,596.3	$	(15.4)	U.S. treasuries	$	731.7	$	(26.0)	$	1,886.9	$	(70.6)	$	2,618.6	$	(96.6)
Commercial paper		4.0		—		—		—		4.0		—

Corporate debt securities	Corporate debt securities	1,687.9		(11.9)		—		—		1,687.9		(11.9)		Corporate debt securities	631.4		(17.6)		1,221.9		(58.4)		1,853.3		(76.0)
U.S. government agencies	U.S. government agencies	412.5		(2.9)		—		—		412.5		(2.9)		U.S. government agencies	102.7		(4.4)		324.6		(15.5)		427.3		(19.9)
Municipal securities	Municipal securities	156.0		(1.0)		—		—		156.0		(1.0)		Municipal securities	44.6		(1.1)		104.9		(4.9)		149.5		(6.0)
Total	Total	$	4,856.7	$	(31.2)	$	—	$	—	$	4,856.7	$	(31.2)	Total	$	1,510.4	$	(49.1)	$	3,538.3	$	(149.4)	$	5,048.7	$	(198.5)

The Company’s ~~investment portfolio at any point in time contains available-for-sale debt securities including~~ investments inmay consist of U.S. government money market funds, U.S. treasury and U.S. government agency securities, ~~taxable and tax-exempt municipal notes,~~high-quality corporate notes and bonds, commercial paper, non-U.S. government agency securities, and taxable and tax-exempt municipal notes. The Company regularly reviews its investments and evaluates the current expected credit loss by considering factors such as historical experience, market data, financial condition and near-term prospects of the investee, the extent of any losses related to the credit of the issuer, and the expected cash ~~deposits, and money market funds.~~flows from the security. The Company segments its portfolio based on the underlying risk profiles of the securities and has a ~~zero loss~~zero-loss expectation for U.S. treasury and U.S. government agency securities. The basis for this assumption is that these securities have consistently high credit ratings by rating agencies, have a long history with no credit losses, are explicitly guaranteed by a sovereign entity, which can print its own currency, and isare denominated in a currency that is routinely held by central banks, used in international commerce, and commonly viewed as a reserve currency. The Company regularly reviews the securities in an unrealized loss position and evaluates the current expected credit loss by considering factors such as historical experience, market data, issuer-specific factors, and current economic conditions.

~~For~~The current unrealized losses on the ~~three and nine months ended September 30, 2022, the credit losses related to available-for-sales~~Company’s available-for-sale debt securities were caused by interest rate increases. The contractual terms of those investments do not ~~material.~~

~~Factors~~permit the issuer to settle the securities at a price less than the amortized cost basis of the investments. As of June 30, 2023, the Company does not intend to sell the investments in unrealized loss positions, and it is not more-likely-than-not that the Company will be required to sell any of the investments before recovery of their amortized cost basis, which may be at maturity. Therefore, the Company does not expect to realize any losses on these available-for-sale debt securities. Additional factors considered in determining the treatment of unrealized losses include the financial condition and near-term prospects of the investee, the extent of the loss related to the credit of the issuer, and the expected cash flows from the ~~security,~~security.

For the ~~Company’s intent to sell the security,~~three and ~~whether or not the Company will be required to sell the security before the recovery of its amortized cost. As of September~~six months ended June 30, 2023, and 2022, the ~~Company did not intend~~credit losses related to ~~sell any of the~~available-for-sales debt securities ~~included in the table above, and it is~~were not ~~more likely than not that the Company will be required to sell any of these securities before recovery of the unrealized losses, which may be at maturity.~~material.

Equity Investments

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

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

Reported as:
December 31, 2021
Carrying Value
Changes in Fair Value (1)
Purchases / Sales / Other (2)
September 30, 2022
Carrying Value
Prepaids and other current assets Intangible and other assets, net
Equity investments with readily determinable value (Level 1) $ 26.9 $ (21.6) $ (0.2) $ 5.1 $ 5.1 $ —
Equity investments without readily determinable value (Level 2) $ 15.6 $ 0.3 $ 37.8 $ 53.7 $ — $ 53.7
(1) Recorded in Interest and other income, net.
(2) Other includes foreign currency translation gains/(losses).

In September 2021, Broncus Holding Corporation (“Broncus”) completed an initial public offering (“IPO”) of common shares on the Stock Exchange of Hong Kong. Upon completion of its IPO, the Company’s preferred shares of Broncus were converted into common shares, which have a readily determinable value (Level 1). The Company was restricted from selling these shares for a period of six months.


									Reported as:
	December 31, 2022 Carrying Value		Changes in Fair Value (1)		Purchases / Sales / Other (2)		June 30, 2023 Carrying Value		Prepaids and other current assets		Intangible and other assets, net
Equity investments with readily determinable value (Level 1)	$	4.3	$	(0.4)	$	(3.9)	$	—	$	—	$	—
Equity investments without readily determinable value (Level 2)	$	59.1	$	(5.6)	$	14.3	$	67.8	$	—	$	67.8

(1) Recorded in interest and other income, net.
(2) Other includes foreign currency translation gains/(losses).

For the three and ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, the Company recognized ~~a loss on this investment of $3.3 million and $21.6 million, respectively, reflected in changes in fair value for Level 1 equity investments, which was reflected in Interest and other income, net.~~

~~There were no~~immaterial decreases in fair value on its equity investments with readily determinable market values (Level 1), which were reflected in ~~net~~interest and other income, net. For the three and six months ended June 30, 2023, the Company recognized decreases in fair value of $6.1 million and $5.6 million, respectively, due to ~~impairments.~~an impairment, partially offset by increases in observable prices for certain equity investments that lack readily determinable market values (Level 2), which were also reflected in interest and other income, net.

Foreign Currency Derivatives

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

Cash Flow Hedges

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

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

Other Derivatives Not Designated as Hedging Instruments

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

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


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2022		2021		2022		2021			2023		2022		2023		2022
Recognized gains in Interest and other income, net		$	17.9	$	4.4	$	46.6	$	11.8
Recognized gains in interest and other income, net										Recognized gains in interest and other income, net	$	14.7	$	21.9	$	11.4	$	28.7
Foreign exchange losses related to balance sheet re-measurement	Foreign exchange losses related to balance sheet re-measurement	$	(30.5)	$	(6.4)	$	(69.4)	$	(12.4)	Foreign exchange losses related to balance sheet re-measurement	$	(16.3)	$	(28.8)	$	(10.9)	$	(38.9)

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

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


		Derivatives Designated as Hedging Instruments				Derivatives Not Designated as Hedging Instruments					Derivatives Designated as Hedging Instruments				Derivatives Not Designated as Hedging Instruments
		September 30, 2022		December 31, 2021		September 30, 2022		December 31, 2021			June 30, 2023		December 31, 2022		June 30, 2023		December 31, 2022
Notional amounts:	Notional amounts:									Notional amounts:
Forward contracts	Forward contracts	$	201.8	$	181.2	$	387.1	$	318.8	Forward contracts	$	250.3	$	188.4	$	578.4	$	496.3
Gross fair value recorded in:	Gross fair value recorded in:									Gross fair value recorded in:
Prepaids and other current assets	Prepaids and other current assets	$	15.7	$	5.7	$	15.4	$	6.9	Prepaids and other current assets	$	7.6	$	1.8	$	5.6	$	4.3
Other accrued liabilities	Other accrued liabilities	$	1.5	$	0.5	$	3.1	$	0.8	Other accrued liabilities	$	1.4	$	5.3	$	1.8	$	4.2

NOTE 4. BALANCE SHEET DETAILS AND OTHER FINANCIAL INFORMATION

Balance Sheet Details

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

As of
Inventory September 30,
2022 December 31,
2021
Raw materials $ 351.7 $ 214.6
Work-in-process 138.3 96.4
Finished goods 347.1 276.1
Total inventory $ 837.1 $ 587.1


	As of
Accounts receivable, net	June 30, 2023		December 31, 2022
Trade accounts receivable, net	$	825.7	$	864.9


Unbilled accounts receivable and other	101.9		91.7
Sales returns and allowances	(23.4)		(14.5)
Total accounts receivable, net	$	904.2	$	942.1

As of
Prepaids and other current assets September 30,
2022 December 31,
2021
Prepaid taxes $ 3.5 $ 4.3
Equity investments 5.1 26.9
Net investment in sales-type leases–short-term 121.5 110.3
Other prepaids and other current assets 162.4 129.6
Total prepaids and other current assets $ 292.5 $ 271.1


	As of
Inventory	June 30, 2023		December 31, 2022
Raw materials	$	390.2	$	382.9
Work-in-process	145.0		159.9
Finished goods	470.0		350.4
Total inventory	$	1,005.2	$	893.2

As of
Other accrued liabilities–short-term September 30,
2022 December 31,
2021
Taxes payable $ 71.2 $ 54.1
Current portion of deferred and contingent purchase consideration 7.7 12.0
Accrued construction-related capital expenditures 65.9 23.1
Other accrued liabilities 257.3 212.1
Total other accrued liabilities–short-term $ 402.1 $ 301.3


	As of
Prepaids and other current assets	June 30, 2023		December 31, 2022
Net investment in sales-type leases – short-term	$	134.6	$	131.2




Other prepaids and other current assets	188.6		168.6
Total prepaids and other current assets	$	323.2	$	299.8


	As of
Other accrued liabilities – short-term	June 30, 2023		December 31, 2022
Income and other taxes payable	$	230.2	$	96.1
Accrued construction-related capital expenditures	113.7		50.3
Litigation-related accruals	3.7		23.0


Other accrued liabilities	239.3		306.8
Total other accrued liabilities – short-term	$	586.9	$	476.2


		As of					As of
Other long-term liabilities	Other long-term liabilities	September 30, 2022		December 31, 2021		Other long-term liabilities	June 30, 2023		December 31, 2022
Income taxes–long-term		$	295.4	$	316.6
Deferred revenue–long-term		36.7		36.8
Income taxes – long-term						Income taxes – long-term	$	250.3	$	288.0
Deferred revenue – long-term						Deferred revenue – long-term	45.4		41.0
Other long-term liabilities	Other long-term liabilities	121.3		100.3		Other long-term liabilities	109.5		110.3
Total other long-term liabilities	Total other long-term liabilities	$	453.4	$	453.7	Total other long-term liabilities	$	405.2	$	439.3

Supplemental Cash Flow Information

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


		Nine Months Ended September 30,					Six Months Ended June 30,
		2022		2021			2023		2022
Equipment transfers, including operating lease assets, from inventory to property, plant, and equipment	Equipment transfers, including operating lease assets, from inventory to property, plant, and equipment	$	189.0	$	229.2	Equipment transfers, including operating lease assets, from inventory to property, plant, and equipment	$	198.5	$	122.7

Acquisition of property, plant, and equipment in accounts payable and accrued liabilities	Acquisition of property, plant, and equipment in accounts payable and accrued liabilities	$	91.4	$	29.9	Acquisition of property, plant, and equipment in accounts payable and accrued liabilities	$	138.2	$	95.8

NOTE 5. REVENUE AND CONTRACT ACQUISITION COSTS

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


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
U.S.	U.S.	2022		2021		2022		2021		U.S.	2023		2022		2023		2022
Instruments and accessories	Instruments and accessories	$	643.3	$	535.7	$	1,819.0	$	1,614.0	Instruments and accessories	$	763.3	$	625.1	$	1,464.7	$	1,175.7
Systems	Systems	264.7		263.4		731.0		743.7		Systems	189.8		218.0		411.6		466.3
Services	Services	175.0		153.1		508.9		447.8		Services	189.4		168.0		376.1		333.9
Total U.S. revenue	Total U.S. revenue	$	1,083.0	$	952.2	$	3,058.9	$	2,805.5	Total U.S. revenue	$	1,142.5	$	1,011.1	$	2,252.4	$	1,975.9

Outside of U.S. (“OUS”)	Outside of U.S. (“OUS”)									Outside of U.S. (“OUS”)
Instruments and accessories	Instruments and accessories	$	228.3	$	219.7	$	758.2	$	643.7	Instruments and accessories	$	312.6	$	270.2	$	596.8	$	529.9
Systems	Systems	161.2		151.8		498.1		479.8		Systems	202.9		157.1		408.5		336.9
Services	Services	84.9		79.6		252.0		230.4		Services	97.9		83.7		194.4		167.1
Total OUS revenue	Total OUS revenue	$	474.4	$	451.1	$	1,508.3	$	1,353.9	Total OUS revenue	$	613.4	$	511.0	$	1,199.7	$	1,033.9

Total	Total									Total
Instruments and accessories	Instruments and accessories	$	871.6	$	755.4	$	2,577.2	$	2,257.7	Instruments and accessories	$	1,075.9	$	895.3	$	2,061.5	$	1,705.6
Systems	Systems	425.9		415.2		1,229.1		1,223.5		Systems	392.7		375.1		820.1		803.2
Services	Services	259.9		232.7		760.9		678.2		Services	287.3		251.7		570.5		501.0
Total revenue	Total revenue	$	1,557.4	$	1,403.3	$	4,567.2	$	4,159.4	Total revenue	$	1,755.9	$	1,522.1	$	3,452.1	$	3,009.8

Remaining Performance Obligations

The transaction price allocated to remaining performance obligations relates to amounts allocated to products and services for which revenue has not yet been recognized. A significant portion of these performance obligations relate to service obligations in the Company’s system sale and lease arrangements that will be satisfied and recognized as revenue in future periods. The transaction price allocated to the remaining performance obligations was ~~$1.84~~was $2.14 billion as of ~~September~~June 30, ~~2022.~~2023. The remaining performance obligations are expected to be satisfied over the term of the system sale, lease, and service arrangements. Approximately 43% of the remaining performance obligations are expected to be recognized in the next 12 months with the remainder recognized thereafter over the term of the system sale, lease, and service arrangements, which are generally up to 5 years.

Contract Assets and Liabilities

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


		As of					As of
		September 30, 2022		December 31, 2021			June 30, 2023		December 31, 2022
Contract assets	Contract assets	$	48.2	$	46.9	Contract assets	$	48.1	$	45.0
Deferred revenue	Deferred revenue	$	395.6	$	414.0	Deferred revenue	$	450.6	$	438.3

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

During the three and ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, the Company recognized ~~$73~~$112 million and ~~$352~~$297 million of revenue, respectively, that was included in the deferred revenue balance as of December 31, ~~2021.~~2022. During the three and ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, the Company recognized ~~$66~~$107 million and ~~$319~~$279 million of revenue, respectively, that was included in the deferred revenue balance as of December 31, ~~2020.~~2021.

Intuitive System Leasing

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


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2022		2021		2022		2021			2023		2022		2023		2022
Sales-type lease revenue	Sales-type lease revenue	$	29.6	$	39.0	$	115.3	$	140.3	Sales-type lease revenue	$	12.3	$	50.1	$	35.3	$	85.7
Operating lease revenue*	Operating lease revenue*	$	97.5	$	72.5	$	273.7	$	198.8	Operating lease revenue*	$	122.7	$	93.0	$	234.7	$	176.2

*Variable lease revenue relating to usage-based arrangements included within operating lease revenue	*Variable lease revenue relating to usage-based arrangements included within operating lease revenue	$	35.5	$	19.4	$	94.0	$	53.9	*Variable lease revenue relating to usage-based arrangements included within operating lease revenue	$	53.2	$	33.6	$	99.2	$	58.5

Trade Accounts Receivable

The allowance for doubtful accounts is based on the Company’s assessment of the collectibility of customer accounts. The Company regularly reviews the allowance by considering factors such as historical experience, credit quality, the age of the accounts receivable balances, and current economic conditions that may affect a customer’s ability to pay. For the three and ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, and ~~2021,~~2022, bad debt expense was not material.

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

NOTE 6. LEASES

Lessor Information related to Intuitive System Leasing

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


		As of					As of
		September 30, 2022		December 31, 2021			June 30, 2023		December 31, 2022
Gross lease receivables	Gross lease receivables	$	433.8	$	404.0	Gross lease receivables	$	414.1	$	449.4
Unearned income	Unearned income	(14.3)		(11.4)		Unearned income	(14.3)		(14.4)
Subtotal	Subtotal	419.5		392.6		Subtotal	399.8		435.0
Allowance for credit loss	Allowance for credit loss	(3.3)		(3.6)		Allowance for credit loss	(3.0)		(3.0)
Net investment in sales-type leases	Net investment in sales-type leases	$	416.2	$	389.0	Net investment in sales-type leases	$	396.8	$	432.0
Reported as:	Reported as:					Reported as:
Prepaids and other current assets	Prepaids and other current assets	$	121.5	$	110.3	Prepaids and other current assets	$	134.6	$	131.2
Intangible and other assets, net	Intangible and other assets, net	294.7		278.7		Intangible and other assets, net	262.2		300.8
Total, net		$	416.2	$	389.0
Net investment in sales-type leases						Net investment in sales-type leases	$	396.8	$	432.0

Contractual maturities of gross lease receivables as of ~~September~~June 30, ~~2022,~~2023, are as follows (in millions):


Fiscal Year	Fiscal Year	Amount		Fiscal Year	Amount
Remainder of 2022		$	34.4
2023		127.9
Remainder of 2023				Remainder of 2023	$	70.3
2024	2024	115.6		2024	134.0
2025	2025	83.9		2025	103.5
2026	2026	51.3		2026	66.6
2027 and thereafter		20.7
2027				2027	33.3
2028 and thereafter				2028 and thereafter	6.4
Total	Total	$	433.8	Total	$	414.1

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

The Company manages the credit risk in net investment in sales-type leases using a number of factors, including, but not limited to the following: size of operations; profitability, liquidity, and debt ratios; payment history; and past due amounts. The Company also uses credit scores obtained from external providers as a key indicator for the purposes of determining credit quality. The following table summarizes the amortized cost basis by year of origination and by credit quality for the net investment in sales-type leases as of ~~September~~June 30, ~~2022~~2023 (in millions):


		2022		2021		2020		2019		2018		Prior		Net Investment			2023		2022		2021		2020		2019		Prior		Net Investment
Credit Rating:	Credit Rating:															Credit Rating:
High	High	$	83.4	$	119.3	$	45.2	$	11.8	$	2.2	$	0.1	$	262.0	High	$	27.1	$	86.2	$	70.9	$	32.9	$	10.0	$	0.6	$	227.7
Moderate	Moderate	37.6		50.8		38.4		12.2		4.7		1.0		144.7		Moderate	9.8		57.2		58.7		28.4		6.8		3.0		163.9
Low	Low	1.9		3.7		3.7		2.5		1.0		—		12.8		Low	—		3.3		3.0		1.9		—		—		8.2
Total	Total	$	122.9	$	173.8	$	87.3	$	26.5	$	7.9	$	1.1	$	419.5	Total	$	36.9	$	146.7	$	132.6	$	63.2	$	16.8	$	3.6	$	399.8

For the three and ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, and ~~2021,~~2022, credit losses related to net investment in sales-type leases were not material.

NOTE 7. GOODWILL AND INTANGIBLE ASSETS

Acquisitions

There were no material acquisitions ~~for~~in the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, and ~~2021.~~2022.

Goodwill

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


	Amount
Balance as of December 31, ~~2021~~2022	$	~~343.6~~348.5
Acquisition activity	~~6.5~~—
Translation and other	~~(1.9)~~0.1
Balance as of ~~September~~June 30, ~~2022~~2023	$	~~348.2~~348.6

Intangible Assets

The following table summarizes the components of gross intangible assets, accumulated amortization, and net intangible ~~asset~~assets balances as of ~~September~~June 30, ~~2022,~~2023, and December 31, ~~2021~~2022 (in millions):


		September 30, 2022						December 31, 2021							June 30, 2023						December 31, 2022
		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount			Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Patents and developed technology	Patents and developed technology	$	220.5	$	(185.5)	$	35.0	$	219.3	$	(173.2)	$	46.1	Patents and developed technology	$	204.3	$	(171.6)	$	32.7	$	199.1	$	(167.4)	$	31.7
Distribution rights and others	Distribution rights and others	28.2		(21.5)		6.7		26.3		(19.4)		6.9		Distribution rights and others	10.8		(8.3)		2.5		11.0		(7.4)		3.6
Customer relationships	Customer relationships	31.9		(16.5)		15.4		31.8		(14.3)		17.5		Customer relationships	32.2		(20.2)		12.0		32.6		(18.1)		14.5
Total intangible assets	Total intangible assets	$	280.6	$	(223.5)	$	57.1	$	277.4	$	(206.9)	$	70.5	Total intangible assets	$	247.3	$	(200.1)	$	47.2	$	242.7	$	(192.9)	$	49.8

Amortization expense related to intangible assets was ~~$7.9~~$5.0 million and ~~$6.3~~$6.2 million for the three months ended ~~September~~June 30, ~~2022,~~2023, and ~~2021,~~2022, respectively. Amortization expense related to intangible assets was ~~$20.2~~$10.0 million and ~~$20.8~~$12.3 million for the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, and ~~2021,~~2022, respectively.

The estimated future amortization expense related to intangible assets as of ~~September~~June 30, ~~2022,~~2023, is as follows (in millions):


Fiscal Year	Fiscal Year	Amount		Fiscal Year	Amount
Remainder of 2022		$	7.6
2023		19.8
Remainder of 2023				Remainder of 2023	$	10.1
2024	2024	15.0		2024	16.7
2025	2025	10.0		2025	11.7
2026	2026	3.2		2026	5.0
2027 and thereafter		1.5
2027				2027	2.5
2028 and thereafter				2028 and thereafter	1.2
Total	Total	$	57.1	Total	$	47.2

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

NOTE 8. CONTINGENCIES

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

A liability and related charge to earnings are recorded in the Financial Statements for legal contingencies when the loss is considered probable and the amount can be reasonably estimated. The assessment is re-evaluated each accounting period and is based on all available information, including the impact of negotiations, settlements, rulings, advice of legal counsel, and other

information and events pertaining to each case. Nevertheless, it is possible that additional future legal costs (including

settlements, judgments, legal fees, and other related defense costs) could have a material adverse effect on the Company’s business, financial ~~position, and~~condition, or future results of operations.

Product Liability Litigation

The Company is currently named as a defendant in a number of individual product liability lawsuits filed in various state and federal courts. The plaintiffs generally allege that they or a family member underwent surgical procedures that utilized the da Vinci ~~Surgical System~~surgical system and sustained a variety of personal injuries and, in some cases, death as a result of such surgery. Several of the filed cases have trial dates in the next 12 months.

The cases raise a variety of allegations including, to varying degrees, that plaintiffs’ injuries resulted from purported defects in the da Vinci ~~Surgical System~~surgical system and/or failure on the Company’s part to provide adequate training resources to the healthcare professionals who performed plaintiffs’ surgeries. The cases further allege that the Company failed to adequately disclose and/or misrepresented the potential risks and/or benefits of the da Vinci ~~Surgical System.~~surgical system. Plaintiffs also assert a variety of causes of action, including, for example, strict liability based on purported design defects, negligence, fraud, breach of express and implied warranties, unjust enrichment, and loss of consortium. Plaintiffs seek recovery for alleged personal injuries and, in many cases, punitive damages. The Company disputes these allegations and is defending against these claims.

The Company’s estimate of the anticipated cost of resolving the pending cases is based on negotiations with attorneys for the claimants. The final outcome of the pending lawsuits and claims, and others that might arise, is dependent on many variables that are difficult to predict, and the ultimate cost associated with these product liability lawsuits and claims may be materially different than the amount of the current estimate and accruals and could have a material adverse effect on the Company’s business, financial ~~position, and~~condition, or future results of operations. Although there is a reasonable possibility that a loss in excess of the amount recognized exists, the Company is unable to estimate the possible loss or range of loss in excess of the amount recognized at this time.

Patent Litigation

On June 30, 2017, Ethicon LLC, Ethicon Endo-Surgery, Inc., and Ethicon US LLC (collectively, “Ethicon”) filed a complaint for patent infringement against the Company in the U.S. District Court for the District of Delaware. The complaint, which was served on the Company on July 12, 2017, alleges that the Company’s EndoWrist Stapler instruments infringe several of Ethicon’s patents. Ethicon asserts infringement of U.S. Patent Nos. 9,585,658; 8,479,969; 9,113,874; 8,998,058; 8,991,677; 9,084,601; and 8,616,431. A claim construction hearing occurred on October 1, 2018, and the Court issued a scheduling order on December 28, 2018. On March 20, 2019, the Court granted the Company’s Motion to Stay pending an Inter Partes Review to be held at the Patent Trademark and Appeals Board to review patentability of six of the seven patents noted above and vacated the trial date. On August 1, 2019, the Court granted the parties’ joint stipulation to modify the stay in light of Ethicon’s U.S. International Trade Commission (“USITC”) complaint against Intuitive involving U.S. Patent Nos. 8,479,969 and 9,113,874, discussed below. There is currently no trial date scheduled for this matter.

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

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

On May 30, 2019, Ethicon filed a complaint with the USITC, asserting infringement of U.S. Patent Nos. 9,884,369 (“’369”); 7,490,749 (“’749”); 9,844,379 (“’379”); 9,113,874 (“’874”); and 8,479,969 (“’969”). On June 28, 2019, the USITC voted to institute an investigation (No. 337-TA-1167) with respect to the claims in this complaint. The accused products include the Company’s EndoWrist 30, EndoWrist 45, SureForm 45, and SureForm 60 Staplers, as well as the stapler reload cartridges. In March 2020, Ethicon dismissed its claims concerning the ’749 patent. The evidentiary hearing took place in February 2021. On March 26, 2021, the U.S. Patent Trial and Appeal Board (“PTAB”) issued a Final Written Decision in which it found the claims in the ’379 patent asserted against the Company in this USITC proceeding to be invalid. On June 8, 2021, the Chief Administrative Law Judge issued an Initial Determination concluding that (1) the accused products do not infringe the asserted claims in the ’874 or ’969 patents; (2) the asserted claims in the ’874 and ’969 patents are invalid; (3) the accused SureForm staplers and associated reload cartridges infringe two claims of the ’369 patent; (4) the accused SureForm staplers and associated reload cartridges infringe two claims of the ’379 patent; and (5) the Company was estopped from contending that the asserted claims in the ’379 patent are invalid. Ethicon has not challenged the Initial Determination with regard to the findings

~~that absolve Intuitive of any liability regarding the accused EndoWrist staplers and associated reload cartridges. On~~ October 14, 2021, the USITC issued its Opinion in which it made the following rulings: (1) the USITC absolved Intuitive from any liability regarding the ’874, ’969, and ’369 patents; and (2) the USITC found that, while the SureForm staplers and their associated reload cartridges infringe the asserted claims in the ’379 patent, it has suspended the imposition of any remedial order pending an opinion from the U.S. Court of Appeal for the Federal Circuit of whether the Patent and Trademark Office correctly found the

asserted claims in this patent to be invalid. On May 23, 2022, the U.S. Court of Appeal for the Federal Circuit affirmed the earlier PTAB Final Written Decision invalidating the asserted claims in the ’379 patent. A hearing before the U.S. Court of Appeal for the Federal Circuit occurred on March 8, 2023, on Ethicon’s appeal of the USITC’s Opinion with regard to the ’369 and ’969 patents. On May 26, 2023, the Federal Circuit Court of Appeal affirmed the USITC’s decision regarding the ’369 and ’969 patents. Ethicon has indicated its intention to file a petition for the rehearing of its appeal. An adverse ruling on Ethicon’s appeal of the USITC’s Opinion could result in a prohibition on importing the accused SureForm products into the U.S. or necessitating workarounds. Based on currently available information, the Company does not believe that any losses arising from this matter would be material.

~~Commercial Litigation~~

On ~~February 27, 2019, Restore Robotics LLC and Restore Repair LLC (“Restore”) filed~~October 19, 2022, a ~~complaint in the Northern District of Florida alleging anti-trust claims~~jury rendered a verdict against the ~~Company. On May 13, 2019, Restore filed an amended complaint alleging anti-trust claims relating~~Company awarding $10 million in damages to the da Vinci Surgical System and EndoWrist service, maintenance, and repair processes. On September 16, 2019, the Court partially granted and partially denied the Company’s Motion to Dismiss the amended complaint.

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

On April 11, 2022, the Court granted in part and denied in part the parties’ Motions for Summary Judgment. Shortly thereafter, Restore’s licensor, Rebotix Repair LLC filed a notice in the related Rebotix action (described below) that it had received an email from the U.S. Food and Drug Administration (“FDA”) confirming that “extending the number of uses and modifying [EndoWrist] instrument[s] with a new chip” constitutes “remanufacturing,” and required 510(k) clearance, which neither Restore nor Rebotix has obtained. In light of this communication with the FDA, on April 13, 2022, the Company filed a Motion for Reconsideration to the Court’s Summary Judgment Order, which the Court denied on May 31, 2022. A trial date has been set for February 6, 2023.vigorously defend its position. Based on currently available information, the Company ~~is unable to make a reasonable estimate of loss or range of~~does not believe that any losses ~~if any,~~ arising from ~~these matters.~~this matter would be material.

Commercial Litigation

On September 28, 2020, Rebotix Repair Inc. (“Rebotix”) filed a complaint in the Middle District of Florida alleging anti-trust claims against the Company relating to EndoWrist service, maintenance, and repair processes. On April 1, 2022, the Court stayed this case based on Rebotix’s representation that the FDA would soon be issuing a decision on whether Rebotix’s services require 510(k) clearance. On April 11, 2022, Rebotix filed a Notice of FDA Decision, which included correspondence from the FDA concluding that Rebotix’s activities constituted remanufacturing and would require FDA review and clearance. On April 13, 2022, the Court issued an Order directing the parties to confer and file a joint status report by May 4, 2022, on how the FDA’s decision impacts this case and how the parties wish to proceed. On May 4, 2022, the parties filed a joint status report. The case was scheduled for trial in December 2022. On October 7, 2022, the parties resolved all of their claims against one another. The settlement had an immaterial impact on the Company’s Financial Statements for the three months ended September 30, 2022. The Company expects that dismissals with prejudice will be filed shortly.

~~Similar to the claims asserted in the Restore case, on~~ May 10, 2021, Surgical Instrument Service Company, Inc. (“SIS”) filed a complaint in the Northern District of California Court alleging anti-trust claims against the Company relating to EndoWrist service, maintenance, and repair processes. The Court granted in part and denied in part the Company’s Motion to Dismiss, and discovery has commenced. The Company filed an answer denying the anti-trust allegations and filed counterclaims against SIS. The counterclaims allege that SIS violated the Federal Lanham Act, California’s Unfair Competition Law, and California’s False Advertising Law and that SIS is also liable to the Company for Unfair Competition and Tortious Interference with Contract. The parties have filed summary judgment and Daubert motions, and a hearing on these motions is scheduled for September 7, 2023. Based on currently available information, the Company is unable to make a reasonable estimate of loss or range of losses, if any, arising from this matter.

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

~~filed~~earlier-filed cases. On January 14, 2022, Kaleida Health voluntarily dismissed itself as a party to this case. On January 18, 2022, the Company filed an answer against the plaintiffs in this matter, and discovery has commenced. The parties have filed summary judgment and Daubert motions, and a hearing on these motions is scheduled for September 7, 2023. Based on currently available information, the Company is unable to make a reasonable estimate of loss or range of losses, if any, arising from ~~these matters.~~this matter.

NOTE 9. STOCKHOLDERS’ EQUITY

Stockholders’ Equity

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


		Three Months Ended September 30, 2022																								Three Months Ended June 30, 2023
		Common Stock			Additional Paid-In Capital				Retained Earnings		Accumulated Other Comprehensive Income (Loss)					Total Intuitive Surgical, Inc. Stockholders’ Equity			Noncontrolling Interest in Joint Venture				Total Stockholders’ Equity			Common Stock						Additional Paid-In Capital		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Intuitive Surgical, Inc. Stockholders’ Equity			Noncontrolling Interest in Joint Venture			Total Stockholders’ Equity
		Shares	Amount												Shares						Amount
Beginning balance	Beginning balance	357.1	$	0.4			$	7,484.0					$	4,682.8				$	(144.2)			$	12,023.0			$	59.4	$	12,082.4	Beginning balance	350.4				$	0.4		$	7,928.4		$	3,397.4		$	(108.5)		$	11,217.7	$	76.5	$	11,294.2

Issuance of common stock through employee stock plans	Issuance of common stock through employee stock plans	0.9	—		82.0				—		—					82.0			—				82.0		Issuance of common stock through employee stock plans	1.0		—					74.6		—			—			74.6			—			74.6
Shares withheld related to net share settlement of equity awards	Shares withheld related to net share settlement of equity awards	(0.1)	—		(0.4)				(7.9)		—					(8.3)			—				(8.3)		Shares withheld related to net share settlement of equity awards	(0.1)		—				(0.4)		(10.5)			—			(10.9)			—			(10.9)
Share-based compensation expense related to employee stock plans	Share-based compensation expense related to employee stock plans	—	—		138.1				—		—					138.1			—				138.1		Share-based compensation expense related to employee stock plans	—		—				148.2		—			—			148.2			—			148.2
Repurchase and retirement of common stock		(4.6)	—		(18.9)				(981.1)		—					(1,000.0)			—				(1,000.0)

Net income attributable to Intuitive Surgical, Inc.	Net income attributable to Intuitive Surgical, Inc.	—	—		—				324.0		—					324.0			—				324.0		Net income attributable to Intuitive Surgical, Inc.	—		—				—		420.8			—			420.8			—			420.8
Other comprehensive income (loss)	Other comprehensive income (loss)	—	—		—				—		(43.4)					(43.4)			(1.5)				(44.9)		Other comprehensive income (loss)	—		—				—		—			28.7			28.7			(1.1)			27.6

Net income attributable to noncontrolling interest in joint venture	Net income attributable to noncontrolling interest in joint venture	—	—		—				—		—					—			0.7				0.7		Net income attributable to noncontrolling interest in joint venture	—		—				—		—			—			—			5.2			5.2
Ending balance	Ending balance	353.3	$	0.4	$	7,684.8			$	4,017.8	$	(187.6)				$	11,515.4		$	58.6			$	11,574.0	Ending balance	351.3		$	0.4			$	8,150.8	$	3,807.7		$	(79.8)		$	11,879.1		$	80.6		$	11,959.7

Three Months Ended September 30, 2021
Common Stock Additional
Paid-In
Capital Retained
Earnings Accumulated
Other
Comprehensive
Income (Loss) Total Intuitive Surgical, Inc. Stockholders’ Equity Noncontrolling Interest in Joint Venture Total Stockholders’ Equity
Shares Amount
Beginning balance 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 June 30, 2022
	Common Stock			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total Intuitive Surgical, Inc. Stockholders’ Equity		Noncontrolling Interest in Joint Venture		Total Stockholders’ Equity
	Shares	Amount
Beginning balance	358.9	$	0.4	$	7,354.6	$	4,858.0	$	(110.7)	$	12,102.3	$	54.6	$	12,156.9

Issuance of common stock through employee stock plans	0.4	—		26.6		—		—		26.6		—		26.6
Shares withheld related to net share settlement of equity awards	—	—		(0.6)		(6.2)		—		(6.8)		—		(6.8)
Share-based compensation expense related to employee stock plans	—	—		126.7		—		—		126.7		—		126.7
Repurchase and retirement of common stock	(2.2)	—		(23.3)		(476.8)		—		(500.1)		—		(500.1)
Net income attributable to Intuitive Surgical, Inc.	—	—		—		307.8		—		307.8		—		307.8
Other comprehensive income (loss)	—	—		—		—		(33.5)		(33.5)		(1.0)		(34.5)

Net income attributable to noncontrolling interest in joint venture	—	—		—		—		—		—		5.8		5.8
Ending balance	357.1	$	0.4	$	7,484.0	$	4,682.8	$	(144.2)	$	12,023.0	$	59.4	$	12,082.4


		Nine Months Ended September 30, 2022																								Six Months Ended June 30, 2023
		Common Stock			Additional Paid-In Capital				Retained Earnings		Accumulated Other Comprehensive Income (Loss)					Total Intuitive Surgical, Inc. Stockholders’ Equity			Noncontrolling Interest in Joint Venture				Total Stockholders’ Equity			Common Stock						Additional Paid-In Capital		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Intuitive Surgical, Inc. Stockholders’ Equity			Noncontrolling Interest in Joint Venture			Total Stockholders’ Equity
		Shares	Amount												Shares						Amount
Beginning balance	Beginning balance	357.7	$	0.4			$	7,164.0					$	4,760.9				$	(24.2)			$	11,901.1			$	50.4	$	11,951.5	Beginning balance	350.0				$	0.4		$	7,703.9		$	3,500.1		$	(162.5)		$	11,041.9	$	70.7	$	11,112.6

Issuance of common stock through employee stock plans	Issuance of common stock through employee stock plans	3.5	—		188.6				—		—					188.6			—				188.6		Issuance of common stock through employee stock plans	3.4		—					174.8		—			—			174.8			—			174.8
Shares withheld related to net share settlement of equity awards	Shares withheld related to net share settlement of equity awards	(0.7)	—		(7.1)				(180.2)		—					(187.3)			—				(187.3)		Shares withheld related to net share settlement of equity awards	(0.6)		—				(6.3)		(134.3)			—			(140.6)			—			(140.6)
Share-based compensation expense related to employee stock plans	Share-based compensation expense related to employee stock plans	—	—		385.6				—		—					385.6			—				385.6		Share-based compensation expense related to employee stock plans	—		—				294.2		—			—			294.2			—			294.2
Repurchase and retirement of common stock	Repurchase and retirement of common stock	(7.2)	—		(46.3)				(1,560.3)		—					(1,606.6)			—				(1,606.6)		Repurchase and retirement of common stock	(1.5)		—				(15.8)		(334.2)			—			(350.0)			—			(350.0)
Net income attributable to Intuitive Surgical, Inc.	Net income attributable to Intuitive Surgical, Inc.	—	—		—				997.4		—					997.4			—				997.4		Net income attributable to Intuitive Surgical, Inc.	—		—				—		776.1			—			776.1			—			776.1
Other comprehensive income (loss)	Other comprehensive income (loss)	—	—		—				—		(163.4)					(163.4)			(2.1)				(165.5)		Other comprehensive income (loss)	—		—				—		—			82.7			82.7			(0.8)			81.9

Net income attributable to noncontrolling interest in joint venture	Net income attributable to noncontrolling interest in joint venture	—	—		—				—		—					—			10.3				10.3		Net income attributable to noncontrolling interest in joint venture	—		—				—		—			—			—			10.7			10.7
Ending balance	Ending balance	353.3	$	0.4	$	7,684.8			$	4,017.8	$	(187.6)				$	11,515.4		$	58.6			$	11,574.0	Ending balance	351.3		$	0.4			$	8,150.8	$	3,807.7		$	(79.8)		$	11,879.1		$	80.6		$	11,959.7


		Nine Months Ended September 30, 2021																								Six Months Ended June 30, 2022
		Common Stock			Additional Paid-In Capital				Retained Earnings		Accumulated Other Comprehensive Income (Loss)					Total Intuitive Surgical, Inc. Stockholders’ Equity			Noncontrolling Interest in Joint Venture				Total Stockholders’ Equity			Common Stock						Additional Paid-In Capital		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Total Intuitive Surgical, Inc. Stockholders’ Equity			Noncontrolling Interest in Joint Venture			Total Stockholders’ Equity
		Shares	Amount												Shares						Amount
Beginning balance	Beginning balance	353.1	$	0.4			$	6,444.9					$	3,261.3				$	24.9			$	9,731.5			$	27.6	$	9,759.1	Beginning balance	357.7				$	0.4		$	7,164.0		$	4,760.9		$	(24.2)		$	11,901.1	$	50.4	$	11,951.5

Issuance of common stock through employee stock plans	Issuance of common stock through employee stock plans	4.9	—		244.8				—		—					244.8			—				244.8		Issuance of common stock through employee stock plans	2.6		—					106.6		—			—			106.6			—			106.6
Shares withheld related to net share settlement of equity awards	Shares withheld related to net share settlement of equity awards	(0.8)	—		(6.0)				(195.2)		—					(201.2)			—				(201.2)		Shares withheld related to net share settlement of equity awards	(0.6)		—				(6.7)		(172.3)			—			(179.0)			—			(179.0)
Share-based compensation expense related to employee stock plans	Share-based compensation expense related to employee stock plans	—	—		331.4				—		—					331.4			—				331.4		Share-based compensation expense related to employee stock plans	—		—				247.5		—			—			247.5			—			247.5

Repurchase and retirement of common stock																									Repurchase and retirement of common stock	(2.6)		—				(27.4)		(579.2)			—			(606.6)			—			(606.6)
Net income attributable to Intuitive Surgical, Inc.	Net income attributable to Intuitive Surgical, Inc.	—	—		—				1,324.0		—					1,324.0			—				1,324.0		Net income attributable to Intuitive Surgical, Inc.	—		—				—		673.4			—			673.4			—			673.4
Other comprehensive income (loss)	Other comprehensive income (loss)	—	—		—				—		(19.6)					(19.6)			(0.4)				(20.0)		Other comprehensive income (loss)	—		—				—		—			(120.0)			(120.0)			(0.6)			(120.6)

Net income attributable to noncontrolling interest in joint venture	Net income attributable to noncontrolling interest in joint venture	—	—		—				—		—					—			21.4				21.4		Net income attributable to noncontrolling interest in joint venture	—		—				—		—			—			—			9.6			9.6
Ending balance	Ending balance	357.2	$	0.4	$	7,015.1			$	4,390.1	$	5.3				$	11,410.9		$	48.6			$	11,459.5	Ending balance	357.1		$	0.4			$	7,484.0	$	4,682.8		$	(144.2)		$	12,023.0		$	59.4		$	12,082.4

Stock Repurchase Program

The Company’s Board of Directors (the “Board”) has authorized an aggregate of $10.0 billion of funding for the Company’s common stock repurchase program (the “Repurchase Program”) since its establishment in March 2009. The most recent authorization occurred in July 2022, when the Board increased the authorized amount available under the Repurchase Program to $3.5 billion, including amounts remaining under previous authorization. As of ~~September~~June 30, ~~2022,~~2023, the remaining amount of share repurchases authorized by the Board ~~was $2.5 billion.~~

~~In August 2022,~~under the Company entered into an accelerated share repurchase program (the “ASR Program”) with Goldman, Sachs & Co. (“Goldman”) to repurchase $1.0 billion of the Company’s common stock. The Company made a payment of $1.0 billion to Goldman and received an initial delivery of approximately 3.5 million shares of the Company’s common stock, which were subsequently retired. In September 2022, the ASRRepurchase Program was completed, and an additional 1.1 million shares of common stock were received and retired. In total, 4.6 million shares were repurchased at an average price per share of $217.52. The total cost of the ASR Program was reflected as a reduction to equity in the Condensed Consolidated Balance Sheets.

approximately $1.1 billion.

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


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2022		2021		2022		2021			2023		2022		2023		2022
Shares repurchased	Shares repurchased	4.6		—		7.2		—		Shares repurchased	—		2.2		1.5		2.6
Average price per share	Average price per share	$	217.5	$	—	$	222.4	$	—	Average price per share	$	—	$	224.4	$	238.1	$	231.0
Value of shares repurchased	Value of shares repurchased	$	1,000.0	$	—	$	1,606.6	$	—	Value of shares repurchased	$	—	$	500.1	$	350.0	$	606.6

As a provision of the Inflation Reduction Act enacted in the U.S. during 2022, the Company is subject to an excise tax on corporate stock repurchases, which is assessed as one percent of the fair market value of net stock repurchases after December 31, 2022. As of June 30, 2023, no excise tax was accrued, as the aggregate fair market value of the Company’s stock issuances exceeded the fair market value of stock repurchases.

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

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


		Three Months Ended September 30, 2022											Three Months Ended June 30, 2023
		Gains (Losses) on Hedge Instruments		Unrealized Gains (Losses) on Available-for-Sale Securities		Foreign Currency Translation Gains (Losses)		Employee Benefit Plans		Total			Gains (Losses) on Hedge Instruments		Unrealized Gains (Losses) on Available-for-Sale Securities		Foreign Currency Translation Gains (Losses)		Employee Benefit Plans		Total
Beginning balance	Beginning balance	$	9.9	$	(140.1)	$	(9.3)	$	(4.7)	$	(144.2)	Beginning balance	$	(0.4)	$	(116.6)	$	7.3	$	1.2	$	(108.5)
Other comprehensive income (loss) before reclassifications	Other comprehensive income (loss) before reclassifications	(5.7)		(37.3)		(8.5)		—		(51.5)		Other comprehensive income (loss) before reclassifications	6.9		13.1		9.6		—		29.6
Amounts reclassified from accumulated other comprehensive income (loss)	Amounts reclassified from accumulated other comprehensive income (loss)	8.0		—		—		0.1		8.1		Amounts reclassified from accumulated other comprehensive income (loss)	(0.9)		—		—		—		(0.9)
Net current-period other comprehensive income (loss)	Net current-period other comprehensive income (loss)	2.3		(37.3)		(8.5)		0.1		(43.4)		Net current-period other comprehensive income (loss)	6.0		13.1		9.6		—		28.7
Ending balance	Ending balance	$	12.2	$	(177.4)	$	(17.8)	$	(4.6)	$	(187.6)	Ending balance	$	5.6	$	(103.5)	$	16.9	$	1.2	$	(79.8)

		Three Months Ended September 30, 2021											Three Months Ended June 30, 2022
		Gains (Losses) on Hedge Instruments		Unrealized Gains (Losses) on Available-for-Sale Securities		Foreign Currency Translation Gains (Losses)		Employee Benefit Plans		Total			Gains (Losses) on Hedge Instruments		Unrealized Gains (Losses) on Available-for-Sale Securities		Foreign Currency Translation Gains (Losses)		Employee Benefit Plans		Total
Beginning balance	Beginning balance	$	3.1	$	13.5	$	(0.1)	$	(6.2)	$	10.3	Beginning balance	$	5.5	$	(106.7)	$	(4.8)	$	(4.7)	$	(110.7)
Other comprehensive income (loss) before reclassifications	Other comprehensive income (loss) before reclassifications	4.2		(3.4)		(2.7)		—		(1.9)		Other comprehensive income (loss) before reclassifications	(9.0)		(33.3)		(4.5)		—		(46.8)
Amounts reclassified from accumulated other comprehensive income (loss)	Amounts reclassified from accumulated other comprehensive income (loss)	(2.2)		(1.1)		—		0.2		(3.1)		Amounts reclassified from accumulated other comprehensive income (loss)	13.4		(0.1)		—		—		13.3
Net current-period other comprehensive income (loss)	Net current-period other comprehensive income (loss)	2.0		(4.5)		(2.7)		0.2		(5.0)		Net current-period other comprehensive income (loss)	4.4		(33.4)		(4.5)		—		(33.5)
Ending balance	Ending balance	$	5.1	$	9.0	$	(2.8)	$	(6.0)	$	5.3	Ending balance	$	9.9	$	(140.1)	$	(9.3)	$	(4.7)	$	(144.2)


		Nine Months Ended September 30, 2022											Six Months Ended June 30, 2023
		Gains (Losses) on Hedge Instruments		Unrealized Gains (Losses) on Available-for-Sale Securities		Foreign Currency Translation Gains (Losses)		Employee Benefit Plans		Total			Gains (Losses) on Hedge Instruments		Unrealized Gains (Losses) on Available-for-Sale Securities		Foreign Currency Translation Gains (Losses)		Employee Benefit Plans		Total
Beginning balance	Beginning balance	$	4.5	$	(16.0)	$	(7.9)	$	(4.8)	$	(24.2)	Beginning balance	$	(2.9)	$	(154.2)	$	(6.6)	$	1.2	$	(162.5)
Other comprehensive income (loss) before reclassifications	Other comprehensive income (loss) before reclassifications	(11.0)		(161.4)		(9.9)		—		(182.3)		Other comprehensive income (loss) before reclassifications	10.6		50.9		23.5		—		85.0
Amounts reclassified from accumulated other comprehensive income (loss)	Amounts reclassified from accumulated other comprehensive income (loss)	18.7		—		—		0.2		18.9		Amounts reclassified from accumulated other comprehensive income (loss)	(2.1)		(0.2)		—		—		(2.3)
Net current-period other comprehensive income (loss)	Net current-period other comprehensive income (loss)	7.7		(161.4)		(9.9)		0.2		(163.4)		Net current-period other comprehensive income (loss)	8.5		50.7		23.5		—		82.7
Ending balance	Ending balance	$	12.2	$	(177.4)	$	(17.8)	$	(4.6)	$	(187.6)	Ending balance	$	5.6	$	(103.5)	$	16.9	$	1.2	$	(79.8)


		Nine Months Ended September 30, 2021											Six Months Ended June 30, 2022
		Gains (Losses) on Hedge Instruments		Unrealized Gains (Losses) on Available-for-Sale Securities		Foreign Currency Translation Gains (Losses)		Employee Benefit Plans		Total			Gains (Losses) on Hedge Instruments		Unrealized Gains (Losses) on Available-for-Sale Securities		Foreign Currency Translation Gains (Losses)		Employee Benefit Plans		Total
Beginning balance	Beginning balance	$	(2.9)	$	29.5	$	4.7	$	(6.4)	$	24.9	Beginning balance	$	4.5	$	(16.0)	$	(7.9)	$	(4.8)	$	(24.2)
Other comprehensive income (loss) before reclassifications	Other comprehensive income (loss) before reclassifications	9.3		(19.4)		(7.5)		—		(17.6)		Other comprehensive income (loss) before reclassifications	(5.3)		(124.1)		(1.4)		—		(130.8)
Amounts reclassified from accumulated other comprehensive income (loss)	Amounts reclassified from accumulated other comprehensive income (loss)	(1.3)		(1.1)		—		0.4		(2.0)		Amounts reclassified from accumulated other comprehensive income (loss)	10.7		—		—		0.1		10.8
Net current-period other comprehensive income (loss)	Net current-period other comprehensive income (loss)	8.0		(20.5)		(7.5)		0.4		(19.6)		Net current-period other comprehensive income (loss)	5.4		(124.1)		(1.4)		0.1		(120.0)
Ending balance	Ending balance	$	5.1	$	9.0	$	(2.8)	$	(6.0)	$	5.3	Ending balance	$	9.9	$	(140.1)	$	(9.3)	$	(4.7)	$	(144.2)

The tax impacts for amounts recognized in other comprehensive income (loss) before reclassifications were as follows (in millions):


	Three Months Ended June 30,				Six Months Ended June 30,
Available-for-sale securities	2023		2022		2023		2022
Income tax benefit (expense) for net gains (losses) recorded in other comprehensive income (loss)	$	(3.7)	$	5.6	$	(14.6)	$	35.3

The tax impacts for amounts recognized in other comprehensive income (loss) before reclassifications for hedge instruments, foreign currency translation, and employee benefit plans for the three and six months ended June 30, 2023, and 2022, were not material to the Company’s Financial Statements. The tax impacts for amounts reclassified from accumulated other comprehensive loss relating to hedge instruments, available-for-sale securities, foreign currency translation, and employee benefit plans for the three and six months ended June 30, 2023, and 2022, were not material to the Company’s Financial Statements.

NOTE 10. SHARE-BASED COMPENSATION

~~In April 2022,~~As of June 30, 2023, the ~~Company’s shareholders approved an amended and restated 2010 Incentive Award Plan to provide for an increase in the~~total number of shares of common stock reserved for issuance ~~thereunder from 103,350,000 to~~under the 2010 Incentive Award Plan was 110,350,000. ~~As of September 30, 2022, approximately 27.4~~Approximately 21.2 million shares were reserved for future issuance under the Company’s stock ~~plans. A~~plans, and a maximum of approximately ~~11.9~~9.2 million of these shares can be awarded as restricted stock units (“RSUs”).

Restricted Stock Units

A summary of RSUs activity under all stock plans for the six months ended June 30, 2023, is presented as follows (in millions, except per share amounts):


	Shares	Weighted-Average Grant-Date Fair Value
Unvested balance as of December 31, 2022	4.6	$	241.47
RSUs granted	2.3	$	232.89
RSUs vested	(1.6)	$	222.52
RSUs forfeited	(0.1)	$	246.84
Unvested balance as of June 30, 2023	5.2	$	243.41

Stock Options ~~Information~~

A summary of stock option activity under all stock plans for the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, is presented as follows (in millions, except per share amounts):


		Stock Options Outstanding				Stock Options Outstanding
		Number Outstanding	Weighted-Average Exercise Price Per Share			Number Outstanding	Weighted-Average Exercise Price Per Share
Balance as of December 31, 2021		11.7	$	125.07
Balance as of December 31, 2022					Balance as of December 31, 2022	10.8	$	144.86

Options granted	Options granted	1.1	$	250.26	Options granted	0.7	$	233.50
Options exercised	Options exercised	(1.4)	$	76.22	Options exercised	(1.4)	$	80.73
Options forfeited/expired	Options forfeited/expired	(0.1)	$	236.30	Options forfeited/expired	(0.1)	$	254.12
Balance as of September 30, 2022		11.3	$	141.78
Balance as of June 30, 2023					Balance as of June 30, 2023	10.0	$	159.59

As of ~~September~~June 30, ~~2022,~~2023, options to purchase an aggregate of ~~9.1~~7.9 million shares of common stock were exercisable at a ~~weighted average~~weighted-average price of ~~$115.73~~$136.18 per share.

~~Restricted~~Performance Stock Units ~~Information~~

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

Shares Weighted-Average
Grant-Date Fair Value
Unvested balance as of December 31, 2021 4.8 $ 207.37
RSUs granted 1.9 $ 276.28
RSUs vested (1.8) $ 189.31
RSUs forfeited (0.2) $ 232.59
Unvested balance as of September 30, 2022 4.7 $ 241.87

~~Performance Share Units~~

~~Beginning in 2022, in addition to RSUs and stock options,~~ the Company ~~granted~~began granting performance ~~share~~stock units (“PSUs”) to officers and other key employees subject to three-year cliff vesting and pre-established, quantitative goals. Whether any PSUs vest, and the amount that does vest, is tied to completion of service over three years and the achievement of three equally-weighted, quantitative goals that directly align with or help drive the Company’s strategy and long-term total shareholder return.

The 2022 PSU grant metrics are focused on relative total shareholder return (“TSR”), year-over-year da Vinci procedure growth for 2023, and

two-year compound annual da Vinci procedure growth for 2024. The 2023 PSU grant metrics are focused on relative TSR, da Vinci and Ion procedure growth in 2024 compared to 2022, and da Vinci and Ion procedure growth in 2025 compared to 2022. The TSR metric is considered a market condition, and the expense is determined at the grant date. ~~This expense will not be adjusted even if the market condition is not met.~~ The ~~two~~ procedure growth ~~goals~~metrics are considered performance conditions, and the expense is recorded ~~over the vesting period~~ based on the forecasted performance, which ~~will be~~is reassessed each reporting period based on the probability of achieving the ~~two~~ performance conditions. The number of shares earned at the end of the three-year period will vary, based on actual performance, from 0% to 125% of the target number of PSUs granted. PSUs are subject to forfeiture if employment terminates prior to the vesting date. PSUs are not considered issued or outstanding shares of the Company.

The Company calculates the fair value for each component of the PSUs individually. The fair value for the component with the TSR metric was determined using Monte Carlo simulation. The fair value per share for the components with the procedure growth metrics is equal to the closing stock price on the grant date. ~~As part of~~

PSU activity for the ~~Company’s annual grant in 2022, 0.1 million PSUs were granted at a weighted-average grant-date fair value of $299.32.~~six months ended June 30, 2023, was as follows (in millions, except per share amounts):


	Shares	Weighted-Average Grant Date Fair Value Per Share
Unvested balance as of December 31, 2022	0.1	$	299.32
Granted	0.1	$	240.45
Vested	—	$	—
Performance change	—	$	—
Forfeited	—	$	235.84
Unvested balance as of June 30, 2023	0.2	$	259.60

Employee Stock Purchase Plan

Under the Employee Stock Purchase Plan (“ESPP”), employees purchased approximately ~~0.4~~0.3 million shares for ~~$87.9~~$59.9 million and approximately ~~0.5~~0.2 million shares for ~~$75.9~~$47.8 million during the ~~nine~~six months ended ~~September~~June 30, 2023, and 2022, ~~and 2021,~~ respectively.

Share-based Compensation Expense

The following table summarizes share-based compensation expense for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, and ~~2021~~2022 (in millions):


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2022		2021		2022		2021			2023		2022		2023		2022
Cost of sales–products		$	22.0	$	19.0	$	61.0	$	50.9
Cost of sales–services		6.3		6.0		17.7		16.9
Cost of sales – products (before capitalization)										Cost of sales – products (before capitalization)	$	22.7	$	20.3	$	45.7	$	39.0
Amounts capitalized into inventory (1)										Amounts capitalized into inventory (1)	(21.1)		—		(39.9)		—
Amounts recognized in income for amounts previously capitalized in inventory										Amounts recognized in income for amounts previously capitalized in inventory	19.3		—		31.9		—
Cost of sales – products										Cost of sales – products	$	20.9	$	20.3	$	37.7	$	39.0
Cost of sales – services										Cost of sales – services	7.0		5.8		14.0		11.4
Total cost of sales	Total cost of sales	28.3		25.0		78.7		67.8		Total cost of sales	27.9		26.1		51.7		50.4
Selling, general, and administrative	Selling, general, and administrative	68.0		62.5		191.0		171.3		Selling, general, and administrative	68.0		62.7		134.7		123.0
Research and development	Research and development	42.3		35.4		117.6		98.1		Research and development	52.3		38.5		102.4		75.3
Share-based compensation expense before income taxes	Share-based compensation expense before income taxes	138.6		122.9		387.3		337.2		Share-based compensation expense before income taxes	148.2		127.3		288.8		248.7
Income tax benefit	Income tax benefit	26.9		24.8		75.0		67.9		Income tax benefit	28.5		20.9		56.5		48.1
Share-based compensation expense after income taxes	Share-based compensation expense after income taxes	$	111.7	$	98.1	$	312.3	$	269.3	Share-based compensation expense after income taxes	$	119.7	$	106.4	$	232.3	$	200.6

(1) Share-based compensation expense subject to capitalization into inventory was not material during the three and six months ended June 30, 2022, and, therefore, not recorded. The Company commenced capitalization of share-based compensation expense into inventory during the quarter ended December 31, 2022, on a prospective basis.										(1) Share-based compensation expense subject to capitalization into inventory was not material during the three and six months ended June 30, 2022, and, therefore, not recorded. The Company commenced capitalization of share-based compensation expense into inventory during the quarter ended December 31, 2022, on a prospective basis.

The ~~Black-Scholes~~Black-Scholes-Merton option pricing model is used to estimate the fair value of stock options granted under the Company’s share-based compensation plans and the rights to acquire stock granted under the ESPP. The weighted-average estimated fair values of stock options and the rights to acquire stock under the ESPP, as well as the weighted-average assumptions used in calculating the fair values of stock options and the rights to acquire stock under the ESPP that were granted during the three and ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, and ~~2021,~~2022, were as follows:


		Three Months Ended September 30,		Nine Months Ended September 30,			Three Months Ended June 30,		Six Months Ended June 30,
		2022	2021	2022	2021		2023	2022	2023	2022
Stock Options	Stock Options					Stock Options
Risk-free interest rate	Risk-free interest rate	3.4%	0.8%	2.5%	0.8%	Risk-free interest rate	4.3%	2.9%	4.8%	1.7%
Expected term (in years)	Expected term (in years)	3.0	3.8	3.2	4.1	Expected term (in years)	3.2	3.3	3.4	3.4
Expected volatility	Expected volatility	42%	31%	38%	32%	Expected volatility	32%	38%	34%	36%
Fair value at grant date	Fair value at grant date	$66.00	$87.35	$73.51	$78.17	Fair value at grant date	$83.38	$72.35	$72.71	$80.27

ESPP	ESPP					ESPP
Risk-free interest rate	Risk-free interest rate	2.9%	0.1%	2.1%	0.1%	Risk-free interest rate	—%	—%	4.7%	0.8%
Expected term (in years)	Expected term (in years)	1.2	1.2	1.2	1.2	Expected term (in years)	0.0	0.0	1.2	1.2
Expected volatility	Expected volatility	40%	29%	39%	29%	Expected volatility	—%	—%	35%	37%
Fair value at grant date	Fair value at grant date	$75.01	$91.07	$80.61	$89.98	Fair value at grant date	$—	$—	$79.33	$88.85

NOTE 11. INCOME TAXES

Income tax expense for the three months ended ~~September~~June 30, ~~2022,~~2023, was ~~$78.1~~$73.2 million, or ~~19.4%~~14.7% of income before taxes, compared to ~~$73.9~~$93.3 million, or ~~16.0%~~22.9% of income before taxes, for the three months ended ~~September~~June 30, ~~2021.~~2022. Income tax expense for the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, was ~~$204.4~~$134.2 million, or ~~16.9%~~14.6% of income before taxes, compared to ~~$90.7~~$126.3 million, or ~~6.3%~~15.6% of income before taxes, for the ~~nine~~six months ended ~~September~~June 30, ~~2021.~~2022.

The effective tax ~~rates~~rate for the three ~~and nine~~ months ended ~~September~~June 30, ~~2022, and 2021,~~2023, differed from the U.S. federal statutory rate of 21% primarily due to ~~excess~~the tax benefits associated with employee equity plans, the effect of income earned by certain overseas entities being taxed at rates lower than the federal statutory rate, and the federal research and development ~~(“R&D”)~~ credit benefit, partially offset by U.S. tax on foreign earnings and state income taxes (net of federal benefit).

The provision for income taxes for the three and nine months ended September 30, 2022, reflected the impact of a change in U.S. tax law effective January 1, 2022, which requires the capitalization and amortization of research and experimental (“R&E”) expenditures incurred after December 31, 2021.

The effective tax rate for the three months ended ~~September~~June 30, 2021, included a one-time charge of $11.1 million related to intercompany charges for share-based compensation for relevant periods prior to 2020, triggered by additional Internal Revenue Service (“IRS”) guidance issued in July 2021 associated with a Ninth Circuit Court of Appeals opinion (the “Ninth Circuit Opinion”) involving an independent third party.

~~The effective tax rate for the nine months ended September 30, 2021, included a one-time benefit of $66.4 million from re-measurement of the Company’s Swiss deferred tax assets resulting~~2022, differed from the ~~extension~~U.S. federal statutory rate of ~~the economic useful life~~21% primarily due to U.S. tax on foreign earnings and state income taxes (net of ~~certain intangible assets. This benefit was~~federal benefit), partially offset by the ~~one-time charge of $11.1 million for the three months ended September 30, 2021, related to additional IRS guidance issued~~tax benefits associated with employee equity plans, the ~~Ninth Circuit Opinion noted above.~~effect of income earned by certain overseas entities being taxed at rates lower than the federal statutory rate, and the federal research and development credit benefit.

The provision for income taxes for the three ~~and nine~~ months ended ~~September~~June 30, 2023, and 2022, included excess tax benefits associated with employee equity plans of ~~$18.1~~$41.7 million and ~~$80.4~~$9.3 million, respectively, which reduced the Company’s effective tax rate by ~~4.5~~8.4 and ~~6.6~~2.3 percentage points, respectively.

The effective tax rates for both the six months ended June 30, 2023, and 2022, differed from the U.S. federal statutory rate of 21% primarily due to the tax benefits associated with employee equity plans, the effect of income earned by certain overseas entities being taxed at rates lower than the federal statutory rate, and the federal research and development credit benefit, partially offset by U.S. tax on foreign earnings and state income taxes (net of federal benefit).

The provision for income taxes for the ~~three and nine~~six months ended ~~September~~June 30, ~~2021,~~2023, and 2022, included excess tax benefits associated with employee equity plans of ~~$41.9~~$64.2 million and ~~$158.9~~$62.3 million, respectively, which reduced the Company’s effective tax rate by ~~9.1~~7.0 and ~~11.1~~7.7 percentage points, respectively.

On August 16, 2022, the Inflation Reduction Act ~~of 2022 (the “IRA”)~~ was enacted in the ~~United States. The IRA introduces~~U.S. and introduced a 15% alternative minimum tax based on the financial statement income of certain large corporations (“CAMT”), effective for tax years beginning after December 31, 2022. The IRA also includes a 1% excise tax on the net fair market value of stock repurchases made after December 31, 2022. The Company considered the applicable tax law changes, and thereJanuary 1, 2023. There is no impact toon the Company’s ~~tax~~ provision for income taxes from the CAMT for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022. The Company will continue to evaluate the impact of these tax law changes on future periods.~~2023.

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

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

NOTE 12. NET INCOME PER SHARE

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


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended June 30,				Six Months Ended June 30,
		2022		2021		2022		2021			2023		2022		2023		2022
Numerator:	Numerator:									Numerator:
Net income attributable to Intuitive Surgical, Inc.	Net income attributable to Intuitive Surgical, Inc.	$	324.0	$	380.5	$	997.4	$	1,324.0	Net income attributable to Intuitive Surgical, Inc.	$	420.8	$	307.8	$	776.1	$	673.4
Denominator:	Denominator:									Denominator:
Weighted average shares outstanding used in basic calculation		355.3		356.8		357.2		355.6
Weighted-average shares outstanding used in basic calculation										Weighted-average shares outstanding used in basic calculation	350.9		358.1		350.6		358.2
Add: dilutive effect of potential common shares	Add: dilutive effect of potential common shares	5.2		10.0		6.5		9.5		Add: dilutive effect of potential common shares	6.4		5.8		6.0		7.1
Weighted average shares outstanding used in diluted calculation		360.5		366.8		363.7		365.1
Weighted-average shares outstanding used in diluted calculation										Weighted-average shares outstanding used in diluted calculation	357.3		363.9		356.6		365.3
Net income per share attributable to Intuitive Surgical, Inc.:	Net income per share attributable to Intuitive Surgical, Inc.:									Net income per share attributable to Intuitive Surgical, Inc.:
Basic	Basic	$	0.91	$	1.07	$	2.79	$	3.72	Basic	$	1.20	$	0.86	$	2.21	$	1.88
Diluted	Diluted	$	0.90	$	1.04	$	2.74	$	3.63	Diluted	$	1.18	$	0.85	$	2.18	$	1.84

Share-based compensation awards of approximately ~~4.7~~1.1 million and ~~0.2~~4.3 million shares for the three months ended ~~September~~June 30, ~~2022,~~2023, and ~~2021,~~2022, respectively, and approximately ~~3.7~~2.1 million and ~~0.7~~3.4 million shares for the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, and ~~2021,~~2022, respectively, were outstanding but were not included in the computation of diluted net income per share attributable to Intuitive Surgical, Inc. common stockholders, because the effect of including such shares would have been anti-dilutive in the periods presented.

~~NOTE 13. SUBSEQUENT EVENT~~

On October 19, 2022, a jury rendered a verdict against the Company awarding $10 million in damages to Rex Medical, L.P. in a patent infringement lawsuit. The Company intends to appeal the decision and vigorously defend its position. Based on currently available information, the Company does not believe the resolution of this matter will have a material adverse effect on the Company’s business, financial position, or future results of operations.

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

~~This management’s~~Management’s discussion and analysis of financial condition as of ~~September~~June 30, ~~2022,~~2023, and results of operations for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, and ~~2021,~~2022, should be read in conjunction with management’s discussion and analysis of financial condition and results of operations included in our Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022.

This report contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements relate to expectations concerning matters that are not historical facts. Statements using words such as “estimates,” “projects,” “believes,” “anticipates,” “plans,” “expects,” “intends,” “may,” “will,” “could,” “should,” “would,” “targeted,” and similar words and expressions are intended to identify forward-looking statements. These forward-looking statements are necessarily estimates reflecting the judgment of our management and involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements. These forward-looking statements include, but are not limited to, statements related to the expected impacts of the COVID-19 pandemic on our business, financial condition, and results of operations, future results of operations, future financial ~~position,~~condition, our financing plans and future capital requirements, our potential tax assets or liabilities, and statements based on current expectations, estimates, forecasts, and projections about the economies and markets in which we operate and our beliefs and assumptions regarding these economies and markets. These forward-looking statements are necessarily estimates reflecting the judgment of our management and involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements. These forward-looking statements should be considered in light of various important factors, including, but not limited to, the following: the overall macroeconomic environment, ~~that~~which may impact customer spending and our costs, including ~~increased~~the levels of inflation and interest ~~rates,~~rates; the conflict in ~~Ukraine,~~Ukraine; disruption to our supply chain, including increased difficulties in obtaining a sufficient supply of materials in the semiconductor and other markets; the risk that the COVID-19 pandemic could lead to material delays and cancellations of, or reduced demand for, procedures; curtailed or delayed capital spending by hospitals; closures of our facilities; delays in surgeon training; delays in gathering clinical evidence; delays in obtaining new product approvals, clearances, or certifications from the U.S. ~~FDA;~~FDA, comparable regulatory authorities, or notified bodies; diversion of resources to respond to COVID-19 outbreaks; ~~the risk that the COVID-19 virus causes economies in our key markets to enter prolonged recessions;~~ the impact of global and regional economic and credit market conditions on healthcare spending; the risk of our inability to comply with complex FDA and other regulations, which may result in significant enforcement actions; regulatory approvals, clearances, certifications, and restrictions or any dispute that may occur with any regulatory body; guidelines and recommendations in the healthcare and patient communities; healthcare reform legislation in the U.S. and its impact on hospital spending, reimbursement, and fees levied on certain medical device revenues; changes in hospital admissions and actions by payers to limit or manage surgical procedures; the timing and success of product development and market acceptance of developed products; the results of any collaborations, in-licensing arrangements, joint ventures, strategic alliances, or partnerships, including the joint venture with Shanghai Fosun Pharmaceutical (Group) Co., Ltd.; our completion of and ability to successfully integrate acquisitions; procedure counts; intellectual property positions and litigation; competition in the medical device industry and in the specific markets of surgery in which we operate; risks associated with our operations and any expansion outside of the United States; unanticipated manufacturing disruptions or the inability to meet demand for products; our reliance on sole and single source suppliers; the results of legal proceedings to which we are or may become a party, including, but not limited to, product liability claims; adverse publicity regarding us and the safety of our products and adequacy of training; the impact of changes to tax legislation, guidance, and interpretations; changes in tariffs, trade barriers, and regulatory requirements; and other ~~risk~~risks and uncertainties, including those listed under the caption “Risk factors.” Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report and which are based on current expectations and are subject to risks, uncertainties, and assumptions that are difficult to predict, including those risk factors described throughout this filing and identified under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2021,~~2022, as updated by our other filings with the Securities and Exchange Commission. WeOur actual results may differ materially and adversely from those expressed in any forward-looking statement, and we undertake no obligation to publicly update or release any revisions to these forward-looking statements, except as required by law.

Intuitive®, Intuitive Surgical®, da Vinci®, da Vinci S®, da Vinci ~~S HD Surgical System~~®~~, da Vinci~~ Si®, da Vinci X®, da Vinci Xi®, da Vinci SP®, EndoWrist®, Firefly®, ~~InSite~~®~~, SureForm~~®,Ion®, Iris®, OnSite®, SimNow®, SureForm®,and SynchroSeal® are trademarks or registered trademarks of the Company.

Overview

As part of our mission, we believe that minimally invasive care is life-enhancing care. We are committed to advancing minimally invasive care through a comprehensive ecosystem of products and services. This ecosystem includes systems, instruments and accessories, learning, and services connected by a digital portfolio that enables precision and control, seamless interactions and experiences, and meaningful insights to drive better care.

We bring nearly three decades of experience and technical innovation to our robotic-assisted surgical solutions. While surgery and acute interventions have improved significantly in the past decades, there remains a significant need for better

outcomes and decreased variability of these outcomes across care teams. The current healthcare environment continues to stress critical resources, including the professionals who staff care teams: surgeons, anesthesiologists, nurses, and other staff. At the same time, governments strain to cover the healthcare needs of their populations and demand lower total cost per patient to treat disease. In the face of these challenges, we believe scientific and technological advances in biology, computing, imaging, algorithms, and robotics may offer new methods to solve continued and difficult problems.

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

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

Da Vinci ~~Surgical Systems~~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~~surgical system operate while seated comfortably at a console viewing a 3D, high-definition image of the surgical field. This immersive console connects surgeons to the surgical field and their instruments. While seated at the console, the surgeon manipulates instrument controls in a natural manner, similar to open surgical technique. Our technology is designed to provide surgeons with a range of articulation of the surgical instruments used in the surgical field analogous to the motions of a human wrist, while filtering out the tremor inherent in a surgeon’s hand. In designing our products, we focus on making our technology easy and safe to use.

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

We have commercialized the following da Vinci ~~Surgical Systems:~~surgical systems: the da Vinci standard ~~Surgical System~~surgical system in 1999, the da Vinci S ~~Surgical System~~surgical system in 2006, the da Vinci Si ~~Surgical System~~surgical system in 2009, and the fourth generation da Vinci Xi ~~Surgical System~~surgical system in 2014. We ~~have~~ extended our ~~fourth generation~~fourth-generation platform by adding the da Vinci X ~~Surgical System,~~surgical system, commercialized in 2017, and the da Vinci SP ~~Surgical System,~~surgical system, commercialized in 2018. The da Vinci SP ~~Surgical System~~surgical system accesses the body through a single incision, while the other da Vinci ~~Surgical Systems~~surgical systems access the body through multiple incisions. All da Vinci systems include a surgeon’s console (or consoles), imaging electronics, a patient-side cart, and computational hardware and software. We are in the early stages of launching our da Vinci SP ~~Surgical System,~~surgical system, and we have an installed base of ~~115~~142 da Vinci SP ~~Surgical Systems~~surgical systems as of ~~September~~June 30, ~~2022.~~2023. We have received ~~U.S.~~ FDA clearance for the da Vinci SP ~~Surgical System~~surgical system for urologic and certain transoral procedures, and we have received regulatory clearance in South Korea where the da Vinci SP ~~Surgical System~~surgical system may be used for a broad set of procedures. In September 2022, we also received regulatory clearance for the da Vinci SP ~~Surgical System~~surgical system in Japan for the same set of procedures as can be performed on the da Vinci Xi ~~Surgical System~~surgical system in Japan. We plan to seek FDA clearances for additional indications for da Vinci SP over time. We also plan to seek clearances (including for additional indications) in other OUS markets over time. The success of the da Vinci SP ~~Surgical System~~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.

We offer approximately 70 different multi-port da Vinci instruments to provide surgeons with flexibility in choosing the types of tools needed to perform a particular surgery. These multi-port instruments are generally robotically controlled and

provide end effectors (tips) that are similar to those used in either open or laparoscopic surgery. We offer advanced instrumentation for the da Vinci XiX and da Vinci XXi platforms, including da Vinci Energy and da Vinci Stapler products, to

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

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

~~During the first quarter of~~In 2019, the FDA cleared our Ion endoluminal system, ~~to enable~~which is a flexible, robotic-assisted, catheter-based platform that utilizes instruments and accessories for which the first cleared indication is 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~~endoluminal procedures. The system features an ultra-thin, ultra-maneuverable catheter that can articulate 180 degrees in all directions and allows navigation far into the peripheral lung and provides the stability necessary for precision in a biopsy. Many suspicious lesions found in the lung may be small and difficult to access, which can make diagnosis challenging, and Ion helps physicians obtain tissue samples from deep within the lung, which could help enable earlier diagnosis. In March 2023, we also obtained European certification for the Ion ~~system is progressing well, and we are continuing to gather additional clinical evidence.~~endoluminal system. We plan to seek additional clearances, approvals, and certifications for the Ion endoluminal system in OUS markets over time.

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

Macroeconomic Environment

Uncertainty surrounding macroeconomic and geopolitical factors in the U.S. and globally characterized by the supply chain environment, inflationary pressure, ~~rising~~higher interest rates, instability in the global financial markets, labor shortages, ~~and~~ significant ~~disruption~~disruptions in the commodities’ markets as a result of the Russia and Ukraine conflict, and the introduction of or changes in tariffs or trade barriers may result in a recession, which could have a material adverse effect on our long-term business.

We ~~have experienced increased~~continue to experience difficulties in obtaining a sufficient supply of a number of component materials used in our products, such as semiconductor components as well as a range of other materials, including, but not limited to, metals and polymers, as the global supply has become ~~significantly~~ constrained due to increased demand for certain materials. Additionally, prices of such materials ~~have increased~~remain elevated due to the increased demand and supply shortage. With ~~rising~~higher interest rates, access to credit may become more difficult and any insolvency of our key suppliers, including ~~single-source~~sole-sourced and single-sourced suppliers, may exacerbate current supply chain challenges. Also, liquidity concerns in the broader financial services industry could result in delayed access or loss of access to our key suppliers’ uninsured deposits or loss of their ability to draw on existing credit facilities involving a troubled or failed financial institution. While supply chain disruptions have been, and may continue to be, challenging, the situation has shown signs of improvement during the first half of 2023, relative to 2022. We are actively engaged in activities to seek to mitigate ~~supply disruptions, but~~ the ~~global~~impact of any supply chain ~~shortages will remain a challenge for the foreseeable future.~~disruptions on our operations.

~~We have also experienced challenges in logistics, as certain shipping routes have been impacted by port closures.~~ Such global shortages in important components ~~and logistics challenges~~ have resulted in, and will continue to cause, inflationary cost pressure in our supply chain. To date, ~~the inflationary cost pressure has been more pronounced in our logistics costs, but~~ these supply chain challenges have not materially impacted our results of operations or ability to deliver products and services to our customers. However, if shortages in important supply chain materials in the semiconductor or other markets ~~or logistics challenges~~ continue, we could fail to meet product demand, which could result in deferred or ~~cancelled~~canceled procedures. IfAdditionally, if inflationary pressures in ~~logistics or~~ component costs persist, we may not be able to quickly or easily adjust pricing, reduce costs, or implement countermeasures. Additionally, there is continued uncertainty surrounding the impact of any monetary policy changes taken by the U.S. Federal Reserve and other central banks to address the structural risks associated with inflation.

~~Increased~~Fluctuations in labor availability globally, including labor shortages ~~globally, including~~and 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.

The current macroeconomic environment is impacting our customers financially and operationally as well. Hospitals are experiencing challenges with staffing ~~shortages~~ and ~~supply chain issues~~cost pressures that could affect their ability to provide patient care. Additionally, hospitals are facing significant financial pressure as supply chain constraints and inflation drive up operating costs, ~~rising~~higher interest rates make access to credit more expensive, unrealized losses decrease available cash reserves, and fiscal stimulus programs enacted during the COVID-19 pandemic wind down. Hospitals may also be adversely affected by the liquidity concerns in the broader financial services industry that could result in delayed access or loss of access to uninsured deposits or loss of their ability to draw on existing credit facilities involving a troubled or failed financial institution. As a consequence of the financial pressures and decreased profitability, some hospitals have indicated that they are lowering their capital investment

plans and tightening their operational budgets. We believe that these factors have contributed to a softening in our U.S. capital pipeline, and we expect that demand for capital, particularly in the U.S., will continue to be impacted while macroeconomic conditions remain challenging. In addition, as competition progresses in various markets, we will likely experience longer selling cycles and pricing pressures. Any or all of these factors 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, or results of operations ~~or cash flows~~ resulting in failure to achieve our anticipated financial results.

We maintain the majority of our cash and cash equivalents in accounts with major U.S. and multi-national financial institutions, and our deposits exceed insured limits. Market conditions could impact the viability of these institutions. To date, these market conditions and liquidity concerns have not impacted our results of operations. However, in the event of failure of any of the financial institutions where we maintain our cash and cash equivalents, there can be no assurance that we would be able to access uninsured funds in a timely manner or at all. Any inability to access or delay in accessing these funds could adversely affect our business and financial position.

COVID-19 Pandemic

~~Procedures~~

In 2021, COVID-19 resurgences affected da Vinci procedure volumes at various times throughout the year in most of the markets that we operate in. After each resurgence, as COVID-19 cases and hospitalizations subsided, we saw procedure volumes recover. In the U.S., the impact of high COVID-related hospitalization rates on procedure volumes were exacerbated by staffing shortages. Although hospitals were better equipped to handle COVID patients as compared to the outset of the pandemic, COVID-19 resurgences challenged hospital resources and negatively impacted da Vinci procedure volumes. In addition, delays in diagnosis and treatment of underlying conditions had a negative impact on da Vinci procedure volumes. Volumes associated with benign procedures were generally impacted to a higher degree when COVID-19 cases and hospitalizations increased, reflecting the deferability of certain elective surgeries.

In early 2022, a resurgence of COVID-19 resulted in a significant increase in infections and hospitalization rates in the U.S. and certain countries in Europe, which, in turn, negatively impacted procedure volumes in January ~~and February.~~2022. As infections and hospitalizations started to decrease in February in the U.S. and Europe, we saw a recovery of procedure volumes. In March and during the second quarter of 2022, we also saw a resurgence in COVID-19 cases and increased hospitalizations and government interventions impacting parts of Asia, particularly China, which negatively impacted procedure volumes. ~~During~~In the ~~third~~fourth quarter of 2022, we saw a resurgence in COVID-19 cases in China, which had a significant negative impact on our procedure volumes in the region.

In the first quarter of 2023, the most recent COVID-19 resurgences in China continued to negatively impact our procedure volumes in January 2023. However, in February and March, as infections and hospitalization started to decrease, we saw a recovery of procedure volumes. During the second quarter of 2023, we did not experience significant disruptions from COVID-19.

~~The~~We expect the depth and extent to which the COVID-19 pandemic ~~will impact~~impacts individual markets ~~will~~to vary based on the availability of ~~resources and interventions, such as medical staff,~~vaccinations, personal protective equipment, intensive care units and operating rooms, and ~~vaccinations,~~medical staff, as well as other government interventions. ~~The impact~~Additionally, COVID-19 has, and may continue to, contribute to hospital staffing shortages, which impacts hospitals’ ability to provide patient care and, in some cases, results in the deferral of ~~COVID-19 on our procedure volumes varies widely by country, region, and type.~~elective surgeries. When COVID-19 infection rates ~~spike~~have spiked in a particular region in the past, procedure volumes have been negatively impacted and the diagnoses of new conditions and their related treatments have been deferred.

~~General Increase in Risks~~

~~The COVID-19 pandemic~~ While we believe that there is a backlog of patients that remains to be treated, and ~~local actions,~~that 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 addition, COVID-19~~a backlog has positively contributed to ~~the staffing shortages experienced by hospitals, which impacts hospitals’ ability~~2023 procedure volumes, it is difficult to ~~provide patient care~~determine if and ~~in some cases, results in the deferral~~when any remaining backlog of ~~elective surgeries.~~

~~Our Response~~

~~Our priorities~~patients will ultimately seek diagnosis and ~~actions during the COVID-19 pandemic have been~~treatment 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 believewhether they will be ~~important in a recovery that follows~~treated through surgery. Based on our experience during the ~~pandemic. Finally,~~last three years, we ~~will continue~~do not expect all markets, regions, and procedure types to ~~invest in our priority development programs while eliminating avoidable spend.~~

~~As COVID-19 vaccination rates increase and~~recover at the ~~severity of cases decline, we are implementing our return-to-office strategy. We intend to remain flexible, allowing many of our employees to work remotely on~~same time or 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.~~same pace.

Business Model

Overview

We generate revenue from the ~~placements~~placement of da Vinci ~~Surgical Systems,~~surgical systems, in sales or sales-type lease arrangements where revenue is recognized up-front or in operating lease ~~transactions~~ and usage-based ~~models~~arrangements where revenue is recognized over time. We earn recurring revenue from the sales of instruments, accessories, and services, as well as the revenue from operating leases. The da Vinci ~~Surgical System~~surgical system generally sells for between $0.5 million and $2.5 million, depending ~~upon~~on the model, configuration, and geography, and represents a significant capital equipment investment for our customers when purchased. Our instruments and accessories have limited lives and will either expire or wear out as they are used in surgery, at which point they need to be replaced. We generally earn between $600 and $3,500 of instruments and accessories revenue per surgical procedure performed, depending on the type and complexity of the specific procedures performed and the number and type of instruments used. ~~Further, in late~~In 2020, we launched our Extended Use Program ~~(refer to further discussion immediately below)~~ in the U.S. and Europe, which consists of select da Vinci Xi and da Vinci X instruments possessing 12 to 18 uses compared to the previous 10 uses, with the intention to reduce the cost for customers to treat patients, which in turn will reduce our overall instruments and accessories revenue per procedure. We typically enter into service contracts at the time systems are sold or

leased at an annual fee between $80,000 and $190,000, depending ~~upon~~on the configuration of the underlying system and the composition of the services offered under the contract. These service contracts have generally been renewed at the end of the initial contractual service periods.

We generate revenue from our Ion endoluminal system in a business model consistent with the da Vinci ~~Surgical System~~surgical system model described above. We generate revenue from the placement of Ion systems, in sales or sales-type lease arrangements where revenue is recognized up-front ~~at a point in time~~ or in operating lease ~~transactions~~ and usage-based ~~models~~arrangements where revenue is recognized over time. We earn recurring revenue from the sales of instruments, accessories, and ~~accessories used in biopsies and ongoing system service,~~services, as well as revenue from operating

leases. The ~~average selling price of~~Ion endoluminal system generally sells for between $0.5 million and $0.6 million. Our instruments and accessories have limited lives and will either expire or wear out as they are used in procedures, at which point they need to be replaced. We typically enter into service contracts at the time systems are sold or leased at an ~~Ion system is generally significantly lower than the average selling price of a da Vinci Surgical System.~~annual fee between $60,000 and $70,000. For the three and ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, and ~~2021,~~2022, Ion’s contribution to revenue and gross margin was not significant.

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

~~Extended Use Program~~

In the fourth quarter of 2020, we introduced our “Extended Use Program” in the U.S. and Europe, which consists of select da Vinci Xi and da Vinci X instruments possessing 12 to 18 uses (“Extended Use Instruments”) compared to previously 10 uses. These Extended Use Instruments represent some of our higher volume instruments but exclude stapling, monopolar, and advanced energy instruments. Instruments included in the program are used across a number of da Vinci surgeries. Their increased uses are the result of continuous, significant investments in the design and production capabilities of our instruments, resulting in improved quality and durability. Extended Use Instruments were then launched in most other countries around the world in the first half of 2021, except China due to regulatory timelines. In addition, simultaneous with the regional launches of Extended Use Instruments, we have lowered the price of certain instruments that are most commonly used in lower acuity procedures and/or lower reimbursed procedures within the region. These actions have reduced the cost for customers to treat patients, which in turn has reduced our revenue per procedure. In the U.S. and Europe, during 2021, we saw customers adjust their instrument buying patterns to reduce their inventory levels to reflect the additional uses per instrument. We believe that, as of the end of 2021, in the U.S. and Europe, full cutover to Extended Use Instruments has occurred, as customers have substantially utilized all of their remaining 10 use instruments. The precise impact of these actions on future revenue will be dependent on the future volume and mix of procedures and whether cost elasticity will enable greater penetration into available markets.

Recurring Revenue

Recurring revenue consists of instruments and accessories revenue, service revenue, and operating lease revenue. Recurring revenue increased to $4.9 billion, or 79% of total revenue in 2022, compared to $4.3 billion, or 75% of total revenue in 2021, ~~compared to~~and $3.4 billion, or 77% of total revenue in ~~2020, and $3.2 billion, or 72% of total revenue in 2019.~~2020.

Instruments and accessories revenue has grown at a faster rate than systems revenue over time. Instruments and accessories revenue increased to $3.52 billion in 2022, compared to $3.10 billion in 2021 ~~compared to~~and $2.46 billion in ~~2020 and $2.41 billion in 2019.~~2020. The increase in instruments and accessories revenue largely reflects continued procedure adoption.

Service revenue was ~~$916 million~~$1.02 billion in 2022, compared to $0.92 billion in 2021 ~~compared to $724 million~~and $0.72 billion in ~~2020 and 2019.~~2020. The increase in service revenue was primarily driven by the growth of the ~~installed~~ base of installed da Vinci surgical systems producing service revenue, as well as the effects of the Customer Relief Program in ~~the prior year,~~2020, which resulted in an $80 million decrease in service ~~revenue in 2020.~~revenue. The installed base of da Vinci ~~Surgical Systems~~surgical systems grew 12% to approximately 7,544 as of December 31, 2022; 12% to approximately 6,730 as of December 31, 2021; and 7% to approximately 5,989 as of December 31, 2020; and 12% to approximately 5,582 as of December 31, 2019. The installed base of Ion endoluminal systems was approximately 129 as of December 31, 2021; approximately 36 as of December 31, 2020; and approximately 10 as of December 31, 2019.2020.

We use the installed base, number of placements, and utilization of 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 placements, and utilization of systems provide meaningful supplemental information regarding our performance, as management believes that the installed base, number of placements, and utilization of systems are an indicator of the rate of adoption of robotic-assisted ~~surgery or~~ medical procedures as well as an indicator of future recurring ~~revenue (particularly service revenue).~~revenue. Management believes that both it and investors benefit from referring to the installed base, number of placements, and utilization of systems in assessing our performance and when planning, forecasting, and analyzing future periods. The installed base, number of placements, and utilization of systems also facilitate management’s internal comparisons of our historical performance. We believe that the installed base, number of placements, and utilization of 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 installed 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 placements, and utilization of 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 placements, and utilization of systems and our revenues may fluctuate from period to period, and growth in the installed base, number of placements, and utilization of systems may not correspond to an increase in revenue. The installed base, number of placements, and utilization of 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 ~~generally accepted accounting principles.~~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 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 placement and installed base disclosures. We exclude operating lease-related revenue, usage-based revenue, and Ion system revenue from our da Vinci ~~Surgical System~~surgical system average selling price (“ASP”) computations.

The following table summarizes our system placements under leasing arrangements for the years ended December 31, 2022, 2021, ~~2020,~~ and 2019, we placed 668, 432, and 425 da Vinci Surgical Systems, respectively, under lease and usage-based arrangements, of which 517, 317, and 384 systems, respectively, were operating lease and usage-based arrangements. 2020:


	Year Ended December 31,
	2022		2021		2020
Da Vinci System Placements Under Leasing Arrangements
Fixed-payment operating lease arrangements	276		333		218
Usage-based operating lease arrangements	216		184		99
Total da Vinci system placements under operating lease arrangements	492		517		317
% of Total da Vinci system placements	39	%	38	%	34	%
Sales-type lease arrangements	99		151		115
Total da Vinci system placements under leasing arrangements	591		668		432

Ion System Placements Under Leasing Arrangements
Fixed-payment operating lease arrangements	61		43		7
Usage-based operating lease arrangements	40		7		2
Total Ion system placements under operating lease arrangements	101		50		9
% of Total Ion system placements	53	%	54	%	35	%
Sales-type lease arrangements	11		7		—
Total Ion system placements under leasing arrangements	112		57		9

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. Variable lease revenue recognized from usage-based arrangements has been included in our operating lease metrics herein. Operating lease revenue has grown at a faster rate than overall systems revenue and was $377 million, $277 million, ~~$177 million,~~ and ~~$107~~$177 million for the years ended December 31, 2022, 2021, and 2020, respectively, of which $133 million, $78 million, and ~~2019, respectively.~~$28 million, respectively, was variable lease revenue. As revenue for operating leases and usage-based systems is recognized over time, total systems revenue growth is reduced in a period when the number of operating lease and usage-based placements increases as a proportion of total system placements. Generally, lease transactions generate similar gross margins as our sale transactions. ~~As of December 31, 2021, a total of 1,294 da Vinci Surgical Systems were~~

The following table summarizes our systems installed at customers under operating ~~lease or usage-based arrangements.~~leasing arrangements for the years ended December 31, 2022, 2021, and 2020:


	Year Ended December 31,
	2022	2021	2020
Da Vinci System Installed Base under Operating Leasing Arrangements
Fixed-payment operating lease arrangements	1,018	841	653
Usage-based operating lease arrangements	665	453	248
Total da Vinci system installed base under operating lease arrangements	1,683	1,294	901



Ion System Installed Base under Operating Leasing Arrangements


Total Ion system installed base under operating lease arrangements	132	61	11

Our exposure to the credit risks relating to our lease financing arrangements may increase if our customers are adversely affected by changes in healthcare laws, coverage and reimbursement, economic pressures or uncertainty, or other customer-specific factors. As a result of these macroeconomic factors impacting our customers, 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.

For some operating lease arrangements, our customers are provided with the right to purchase the leased system at certain points during and/or at the end of the lease term. Revenue generated from customer purchases of systems under operating lease arrangements (“Lease Buyouts”) was ~~$96.0~~$72 million, ~~$52.2~~$96 million, and ~~$92.8~~$52 million for the years ended December 31, 2022, 2021, ~~2020,~~

and ~~2019,~~2020, 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, system placements are constrained by regulation. In geographies where da Vinci procedure adoption is in an early stage or system placements are constrained by regulation, system sales will precede procedure growth. System placements also vary due to seasonality, largely aligned with hospital budgeting cycles. WeOn an annual basis, we typically place a higher proportion of ~~annual system placements~~systems 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,~~Lease Buyouts, product mix, ASPs, trade-in activities, and customer mix. Systems revenue declined 1% to $1.68 billion in 2022. Systems revenue grew 44% to $1.69 billion in 2021. Systems revenue declined 12% to $1.18 billion in 2020. ~~Systems revenue grew 19% to $1.35 billion in 2019. Based on the factors outlined in the~~ ~~COVID-19 Pandemic~~ ~~section above, we believe that historical system placement trends may not be a good indicator of future system placements.~~

Procedure Mix / Products

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

Procedure Seasonality

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

Distribution Channels

We provide our products through direct sales organizations in the U.S., Europe (excluding Italy, Spain, Portugal, ~~Italy,~~ Greece, and ~~most~~all Eastern European countries), China (through our Intuitive-Fosun Pharma joint venture), Japan, South Korea, India, Taiwan, and ~~as of June 2022,~~ Canada. In the remainder of our OUS markets, we provide our products through distributors.

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 towith such standards.

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

We recently revised our medical device reporting policies, which had been developed based on previous feedback from the FDA. These revisions have been made in consultation with the FDA to better align with existing regulations. There has been an

increase in medical device reporting filings due to changes in our reportability criteria. In addition, we have been investing in resources and utilizing external experts to strengthen our quality system. These efforts are ongoing.

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

Clearances, Approvals, and ~~Approvals~~Certifications

We have generally obtained the regulatory clearances, approvals, and certifications required to market our products associated with our da Vinci Surgical Multiport Systems ~~(Standard, S,~~(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 ~~2020,~~2021, we have obtained regulatory clearances, approvals, and certifications for the following products:

•In April 2023, we obtained FDA clearance for our da Vinci SP surgical system for use in simple prostatectomy procedures. We also obtained FDA clearance for use of the SP surgical system in transvesical approaches to simple and radical prostatectomy.

•In March 2023, we obtained European certification for our Ion endoluminal system. We plan to initially focus on the United Kingdom (“UK”) market and on the collection of clinical data in support of our European reimbursement strategy. The Ion system previously received FDA clearance in the U.S. in 2019.

•In September 2022, we obtained regulatory clearance for the da Vinci SP ~~Surgical System~~surgical system in Japan for use in general surgeries, thoracic surgeries (excluding cardiac procedures and intercostal approaches), urologic surgeries, gynecological surgeries, and trans-oral head and neck surgeries. ~~We obtained the initial FDA clearance for our da~~

Vinci SP Surgical System in April 2014 and have since invested in important platform refinements. We have also received regulatory clearance in South Korea for our da Vinci SP Surgical System in May 2018.

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

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

•In December 2021, we obtained FDA clearance for our 8 mm SureForm 30 Curved-Tip Stapler and reloads for use in general, thoracic, gynecologic, urologic, and pediatric surgery. ~~The~~We completed initial evaluations of the 8 mm SureForm 30 stapler ~~is expected to launch~~with certain customers in the U.S. in ~~2022,~~2022. The full U.S. product launch is expected to occur in 2024, with other countries to follow. In October 2022, we received regulatory clearance in Japan to market our 8 mm SureForm 30 Curved-Tip and Straight-Tip Stapler instruments and reloads for use in general, thoracic (except for cardiac), gynecologic, and urologic surgery.

•In late 2020 and early 2021, we obtained FDA clearance, ~~Conformitè Europëenne (“CE”) mark clearance,~~European certification, and other regulatory clearances in most of our significant markets to market our Extended Use Instruments.

•In ~~November~~July 2019, we obtained FDA clearance for our ~~SynchroSeal instrument~~SureForm 45 Curved-Tip Stapler and ~~E-100 generator. Following the FDA clearance, in February 2020, we received CE mark clearance~~SureForm 45 Gray reload, which round out our SureForm 45 portfolio. We have also obtained European certification for ~~both products.~~our SureForm 45 Curved-Tip Stapler and SureForm 45 Gray reload. In ~~March 2020,~~September 2019, we received regulatory clearance in Japan to market both our ~~SynchroSeal instrument~~SureForm 45 Curved-Tip Stapler and ~~E-100 generator.~~SureForm 45 Gray reload. We received regulatory clearance in South Korea to market our ~~SynchroSeal instrument~~SureForm 45 Curved-Tip Stapler and ~~E-100 generator~~SureForm 45 Gray reload in ~~January 2020~~June 2021 and ~~August 2020,~~July 2021, respectively.

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

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

Refer to the descriptions of our new products that received regulatory clearances, approvals, or certifications in 2023, 2022, ~~2021,~~ and ~~2020~~2021 in the ~~New~~Recent Product Introductions section below.

In ~~October 2018,~~June 2023, the China National Health Commission published ~~on its official website~~ the 14th five-year plan quota for major medical equipment to be sold in China ~~through 2020. After an adjustment notice was published in~~on its official website (the “2023 Quota”). Under the ~~third quarter of 2020,~~2023 Quota, the government will ~~now~~ allow for the ~~total~~ sale of ~~225~~559 new surgical robots into China, which could include da Vinci ~~Surgical Systems~~surgical systems as well as surgical systems introduced by others. As of ~~September~~June 30, ~~2022,~~2023, including systems that were sold in prior quarters, we have sold ~~180~~57 da Vinci ~~Surgical Systems~~surgical systems under ~~this quota,~~the 2023 Quota, and ~~five~~we believe that nine system quotas are no longer available; therefore, 40493 surgical robots ~~can~~should still be ~~sold~~available for sale under ~~this quota.~~the 2023 Quota. Future sales of da Vinci ~~Surgical Systems~~surgical systems under ~~the quota~~this and any previously published open quotas are uncertain, as they are open to other medical device companies that have introduced robotic-assisted surgical systems and are dependent on hospitals completing a tender process and receiving associated approvals. Also, our ability to track the number of systems that could be sold under these quotas in the future will be limited by provincial and national agencies making such information publically available.

~~During the third quarter of~~Since 2022, several provinces, including the Hunan Provincial Healthcare Security Administration, have implemented significant limits on what hospitals can charge patients for surgeries using robotic surgical technology, including soft tissue surgery and orthopedics. ~~This rule has~~These limits have significantly impacted the number of procedures performed and have impacted our instruments and accessories revenue in those provinces. As of the date of this report, these limits have not had a material ~~negative~~ impact on our ~~procedures performed in the Hunan province. However, currently,~~business, financial condition, or results of operations, as only 3%a small portion of our installed base in China is currently located in the ~~Hunan province.~~impacted provinces. Companies providing robotic surgical technology, including our joint venture in China, ~~are~~have been meeting with Chinese government healthcare agencies to discuss ~~this development~~these developments and to provide feedback. We cannot assure you that ~~other~~additional provincial or national healthcare agencies and administrations will not impose similar ~~limits.~~limits, and we expect to continue to face increased pricing pressure, both of which could further impact the number of procedures performed and our instruments and accessories revenue in China.

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

Recalls and Corrections

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

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

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

Procedures

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

We use the number and type of 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 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~~medical procedures 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 procedures in assessing our performance and when planning, forecasting, and analyzing future periods. The number and type of procedures also facilitate management’s internal comparisons of our historical performance. We believe that the number and type of 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 our installed 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 installed systems ~~installed~~ for determining the number and type of procedures performed that involve estimates and judgments, which are, by their nature, subject to substantial uncertainties and assumptions. Estimates and judgments for determining the number and type of 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 procedures and our revenues may fluctuate from period to period, and procedure volume growth may not correspond to an increase in revenue. The number and type of 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 ~~generally accepted accounting principles.~~

~~Worldwide Procedures~~GAAP.

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~~our products and is not intended to promote for sale or use of any Intuitive product outside of its licensed or cleared labeling and indications for use.

Da Vinci Procedures

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

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

In ~~2021,~~2022, approximately ~~1,594,000~~1,875,000 surgical procedures were performed with da Vinci ~~Surgical Systems,~~surgical systems, compared to approximately ~~1,243,000~~1,594,000 and ~~1,229,000~~1,243,000 surgical procedures performed with da Vinci ~~Surgical Systems~~surgical systems in ~~2020~~2021 and ~~2019,~~2020, respectively. The increase in our overall procedure volume in ~~2021~~2022 reflects the ~~significant~~ disruption caused by the COVID-19 pandemic in ~~2020,~~2022 and 2021, as noted in the COVID-19 Pandemic section above, and was driven by growth in U.S. general surgery, OUS urology, and ~~gynecologic procedures and worldwide urologic~~OUS general surgery (particularly cancer) procedures.

U.S. da Vinci Procedures

Overall U.S. procedure volume with da Vinci ~~Surgical Systems~~surgical systems grew to approximately 1,282,000 in 2022, compared to approximately 1,109,000 in 2021 ~~compared to~~and approximately 876,000 in ~~2020 and approximately 883,000 in 2019.~~2020. General surgery was our largest and fastest growing U.S. specialty in ~~2020~~2022 with procedure volume that grew to approximately ~~589,000~~720,000 in ~~2021,~~2022, compared to approximately 588,000 in 2021 and approximately 434,000 in ~~2020 and approximately 421,000 in 2019. Gynecology~~2020. Gynecologic surgery was our second largest U.S. surgical specialty in 2022 with procedure volume that grew to approximately 341,000 in 2022, compared to approximately 316,000 in 2021 and approximately 267,000 in 2020. Urologic surgery was our third largest U.S. surgical specialty in 2022 with procedure volume that grew to approximately 162,000 in 2022, compared to approximately 153,000 in 2021 and approximately 134,000 in 2020.

OUS da Vinci Procedures

Overall OUS procedure volume with da Vinci surgical systems grew to approximately 593,000 in 2022, compared to approximately 485,000 in 2021 and approximately 367,000 in 2020. Urologic surgery was our largest OUS specialty in 2022 with procedure volume that grew to approximately 316,000 in ~~2021,~~2022, compared to approximately 267,000 in 2020 and approximately 282,000 in 2019. Urology was our third largest U.S. surgical specialty in 2021 with procedure volume that grew to approximately 153,000 in 2021, compared to approximately 134,000 in 2020 and approximately 138,000 in 2019.

~~Procedures Outside of the U.S.~~

Overall OUS procedure volume with da Vinci Surgical Systems grew to approximately 485,000 in 2021, compared to approximately 367,000 in 2020 and approximately 346,000 in 2019. Urology was our largest OUS specialty in 2021 with procedure volume that grew to approximately 264,000 in 2021 ~~compared to approximately 214,000 in 2020~~ and approximately ~~206,000~~215,000 in ~~2019.~~2020. General surgery was our second largest OUS specialty in ~~2021~~2022 with procedure volume that grew to approximately 133,000 in 2022, compared to approximately 101,000 in 2021 ~~compared to~~and approximately 68,000 in ~~2020 and approximately 62,000 in 2019. Thoracic~~2020. Gynecology procedures also contributed to OUS procedure ~~growth~~growth.

Ion Procedures

The adoption of robotic-assisted bronchoscopy using the Ion system has the potential to grow if it can offer greater patient value than non-Ion alternatives and competitive total economics for healthcare providers.

In 2022, approximately 23,600 biopsy procedures were performed with ~~higher growth rates than urologic~~Ion systems, compared to approximately 7,400 and ~~general surgery procedures.~~1,700 biopsy procedures performed with Ion systems in 2021 and 2020, respectively. The increase in our overall procedure volume in 2022 reflects a larger installed base of approximately 321 systems, an increase of 149% compared to the installed base of approximately 129 systems as of 2021. Currently, the vast majority of Ion biopsy procedures are performed in the U.S.

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Recent Business Events and Trends

Procedures

Overall. Total da Vinci procedures performed by our customers grew approximately ~~20%~~22% for the three months ended ~~September~~June 30, ~~2022,~~2023, compared to approximately ~~20%~~14% for the three months ended ~~September~~June 30, ~~2021.~~2022. Total da Vinci procedures performed by our customers grew approximately ~~18%~~24% for the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, compared to approximately ~~32%~~16% for the ~~nine~~six months ended ~~September~~June 30, ~~2021.~~2022. The ~~third~~second quarter ~~2021~~2022 procedure results (and comparative ~~third~~second quarter ~~2020~~2021 procedure results) reflect disruption caused by the COVID-19 pandemic, as noted in the COVID-19 Pandemic section above. The ~~third~~second quarter ~~2022~~2023 procedure growth was largely attributable to growth in U.S. general surgery, OUS urologic surgery, OUS general surgery, and growth in OUS markets. Delays in both the diagnosis and treatments of disease reflecting disruptions caused by COVID-19 have previously and may continue to impact the number of procedures performed by our customers.U.S. gynecologic surgery.

U.S. Procedures. U.S. da Vinci procedures grew approximately ~~18%~~19% for the three months ended ~~September~~June 30, ~~2022,~~2023, compared to approximately ~~16%~~11% for the three months ended ~~September~~June 30, ~~2021.~~2022. U.S. da Vinci procedures grew approximately ~~15%~~22% for the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, compared to approximately ~~31%~~13% for the ~~nine~~six months ended ~~September~~June 30, ~~2021.~~2022. The ~~third~~second quarter ~~2021~~2022 procedure results (and comparative ~~third~~second quarter ~~2020~~2021 procedure results) reflect disruption caused by the COVID-19 pandemic, as noted in the COVID-19 Pandemic section above. The ~~third~~second quarter ~~2022~~2023 U.S. procedure growth was largely attributable to growth in general surgery procedures, most notably cholecystectomy ~~bariatric,~~ and hernia repair procedures. Growth in bariatric procedures slowed during the second quarter of 2023, as compared to the growth we have experienced in recent quarters. It is unclear whether the slowing growth is a temporary pause as patients evaluate new drug therapies or if growth in U.S. bariatric procedures will continue to slow in future periods. Growth in the more mature gynecologic ~~and urologic~~ procedure ~~categories~~category was more ~~moderate.~~moderate but continued to exceed our recent historical trends.

OUS Procedures. OUS da Vinci procedures grew approximately ~~24%~~28% for the three months ended ~~September~~June 30, ~~2022,~~2023, compared to approximately ~~30%~~22% for the three months ended ~~September~~June 30, ~~2021.~~2022. OUS da Vinci procedures grew approximately ~~24%~~28% for the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, compared to approximately ~~34%~~23% for the ~~nine~~six months ended ~~September~~June 30, ~~2021.~~2022. The ~~third~~second quarter ~~2021~~2022 procedure results (and comparative ~~third~~second quarter ~~2020~~2021 procedure results) reflect disruption caused by the COVID-19 pandemic, as noted in the COVID-19 Pandemic section above. The ~~third~~second quarter ~~2022~~2023 OUS procedure growth was driven by continued growth in urologic procedures, including prostatectomies and partial nephrectomies, and earlier stage growth in general surgery (particularly colorectal), gynecologic, and thoracic procedures. The ~~third~~second quarter ~~2022~~2023 OUS procedure growth rate reflects continued da Vinci adoption in ~~European~~Asian and ~~Asian~~European markets. We saw strong procedure growth in China, Japan, ~~China,~~Germany, and the UK ~~Germany, South Korea, and Italy~~ during the ~~third~~second quarter of 2023. Our procedure growth in China was partially attributable to a recovery of impacted procedure volumes from COVID-19 during the first quarter of 2023 as well as the disruption caused by COVID-19 in the second quarter of 2022. In China, increased procedure volumes were largely attributable to the easing of preventative measures and interventions taken by the government as a result of an increase in COVID-19 cases. The procedure growth rates in China recovered in the third quarter of 2022 as COVID-19 cases and the related preventative measures decreased, but recovery eased late in the quarter as COVID-19 cases increased in various regions. We believe that growth in ~~our~~these global markets is being driven by increased acceptance among surgeons and health systems, supported by expanded global evidence validating the clinical and economic value of da Vinci ~~procedures.~~procedures as well as increased surgeon training.

System Demand

We placed ~~305~~331 da Vinci ~~Surgical Systems in the third quarter of 2022, compared to 336~~surgical systems in the ~~third~~second quarter of ~~2021.~~2023, compared to 279 systems in the second quarter of 2022. The ~~decrease~~increase in ~~systems placed~~system placements reflects an increase in demand for additional capacity by our customers as a result of procedure growth, which offset the impacts of a smaller number of third generation da Vinci systems available for trade-in ~~along with~~and the macroeconomic challenges impacting our ~~U.S.~~ customers. ~~As a consequence of the macroeconomic challenges, some hospitals have indicated they are lowering their capital investment plans~~We continue to see our customers challenged by staffing shortages, inflation, debt servicing costs, and ~~tightening operational budgets. We expect that demand for capital,~~other financial pressures, particularly in the U.S.~~, will be impacted while macroeconomic conditions remain challenging. In addition, given the lower number of older generation systems in the field,~~ As a result, we ~~have seen and~~expect our customers to continue to ~~expect the volume of trade-ins to~~ be ~~significantly lower~~cautious in ~~2022 as compared to 2021.~~their overall capital spending.

~~Third quarter 2022 placements declined 9% compared with 2021, and~~We expect that future placements of da Vinci ~~Surgical Systems~~surgical systems will be impacted by a number of factors: supply chain risks; economic and geopolitical factors; inflationary pressures; rising interest rates; hospital staffing shortages; the impact of the current COVID-19 pandemic, as noted in the COVID-19 Pandemic section above; the hospital response to the evolving healthcare environment; procedure growth rates; hospital consolidation trends; evolving system utilization and point of care dynamics; capital replacement trends, including a declining number of older generation systems available for trade-in transactions; additional reimbursements in various global markets, ~~including~~such as in Japan; the timing around governmental tenders and authorizations, ~~including~~such as in 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,~~surgical systems and related instruments; and the market response. Market acceptance of our da Vinci SP ~~Surgical System~~surgical system and the nature and timing of additional da Vinci SP regulatory indications may also impact future system placements.

Demand may also be impacted by ~~robotic-assisted surgery~~ competition, including from companies that have introduced products in the field of robotic-assisted ~~surgery~~medical procedures or have made explicit statements about their efforts to enter the field including, but not limited to, the following companies: Asensus Surgical, Inc.; avateramedical GmbH; Beijing Surgerii Robotics Company Limited; CMR Surgical Ltd.; Johnson & Johnson; Medicaroid Corporation; ~~Medrobotics Corporation;~~ Medtronic plc; meerecompany Inc.; ~~Shanghai Microport Medbot~~Noah Medical;

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~~(Group) Co., Ltd.; Olympus Corporation; Samsung Electronics Co., Ltd;~~ Shandong Weigao Group Medical Polymer Company Ltd.; Shanghai Microport Medbot (Group) Co., Ltd.; and ~~Titan~~Shenzhen Edge Medical ~~Inc.~~Co., Ltd.

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

~~New~~Recent Product Introductions

SureForm 30 Curved-Tip Stapler and Reloads. In December 2021, we obtained FDA clearance for our 8 mm SureForm 30 Curved-Tip Stapler and reloads (gray, white, and blue) for use in general, thoracic, gynecologic, urologic, and pediatric surgery. ~~It has been~~We designed this instrument to help surgeons better visualize and reach anatomy through a combination of the 8 mm diameter instrument shaft and jaws, 120-degree cone of wristed articulation, and the curved tip. As it fits through the 8 mm da Vinci surgical system instrument cannula, the stapler allows different angles for surgeons to approach patient anatomy. Consistent with ~~the~~our other SureForm staplers, the 8 mm SureForm 30 Curved-Tip Stapler integrates SmartFire technology, which makes automatic adjustments to the firing process as staples are formed and the transection is made. The technology makes more than 1,000 measurements per second, helping achieve a consistent staple line. We ~~are introducing~~completed initial evaluations of the 8 mm SureForm 30 stapler ~~in a measured fashion~~with certain customers in the U.S. in ~~2022,~~2022. The full U.S. product launch is expected to occur in 2024, with other countries to follow.

~~SynchroSeal and E-100 Generator.~~In November 2019, we obtained FDA clearance for our SynchroSeal instrument and E-100 generator. Following the FDA clearance, in February 2020, we received CE mark clearance for both products. In March 2020,October 2022, we received regulatory clearance in Japan to market ~~both~~ our ~~SynchroSeal instrument~~8 mm SureForm 30 Curved-Tip and E-100 generator. In August 2020, we received regulatory clearance in South Korea to market our E-100 generator. SynchroSeal is a single-use, bipolar, electrosurgical instrument intended for grasping, dissection, sealing,Straight-Tip Stapler instruments and transection of tissue. With its wristed articulation, rapid sealing cycle, and refined curved jaw, SynchroSeal offers enhanced versatility to the da Vinci Energy portfolio. The E-100 generator is an electrosurgical generator developed to power two key instruments–Vessel Sealer Extend and SynchroSeal–on the da Vinci X and da Vinci Xi Surgical Systems. The generator delivers high frequency energy for cutting, coagulation, and vessel sealing of tissues.

~~Da Vinci Endoscope Plus.In June 2019, we received CE mark clearance for our da Vinci Endoscope Plus, an enhanced 3D endoscope~~reloads for use ~~with our da Vinci X~~in general, thoracic (except for cardiac), gynecologic, and Xi Surgical Systems. Following the CE mark, in July 2019, we obtained FDA clearance for our da Vinci Endoscope Plus. We have also received regulatory clearances in South Korea and Japan to market our da Vinci Endoscope Plus in December 2019 and May 2020, respectively. In March 2022, we received regulatory clearance in China to market our da Vinci Endoscope Plus. The da Vinci Endoscope Plus leverages new sensor technology to allow for increased sharpness and color accuracy.

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

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~~Third~~Second Quarter ~~2022~~2023 Operational and Financial Highlights

•Total revenue increased by ~~11%~~15% to ~~$1.56~~$1.76 billion for the three months ended ~~September~~June 30, ~~2022,~~2023, compared to ~~$1.40~~$1.52 billion for the three months ended ~~September~~June 30, ~~2021.~~2022.

•Approximately ~~475,000~~567,000 da Vinci procedures were performed during the three months ended ~~September~~June 30, ~~2022,~~2023, an increase of ~~20%~~22% compared to approximately ~~395,000~~465,000 da Vinci procedures for the three months ended ~~September~~June 30, ~~2021.~~2022.

•Approximately ~~6,450~~12,700 Ion procedures were performed during the three months ended ~~September~~June 30, ~~2022,~~2023, an increase of ~~212%~~145% compared to approximately ~~2,070~~5,200 Ion procedures for the three months ended ~~September~~June 30, ~~2021.~~2022.

•Instruments and accessories revenue increased by ~~15%~~20% to ~~$872 million~~$1.08 billion for the three months ended ~~September~~June 30, ~~2022,~~2023, compared to ~~$755 million~~$0.90 billion for the three months ended ~~September~~June 30, ~~2021.~~2022.

•Systems revenue increased by 3%5% to ~~$426~~$393 million for the three months ended ~~September~~June 30, ~~2022,~~2023, compared to ~~$415~~$375 million during the three months ended ~~September~~June 30, ~~2021.~~2022.

•During the three months ended ~~September~~June 30, ~~2022,~~2023, we placed ~~305~~331 da Vinci ~~Surgical Systems, a decrease of 9%~~surgical systems compared to ~~336~~279 systems during the three months ended ~~September~~June 30, ~~2021.~~2022.

•As of ~~September~~June 30, ~~2022,~~2023, we had a da Vinci ~~Surgical System~~surgical system installed base of approximately ~~7,364~~8,042 systems, an increase of 13% compared to the installed base of approximately ~~6,525~~7,135 systems as of ~~September~~June 30, ~~2021.~~2022.

•Utilization of da Vinci ~~Surgical Systems,~~surgical systems, measured in terms of procedures per system per year, increased 7%9% relative to the ~~third~~second quarter of ~~2021.~~2022.

•During the three months ended ~~September~~June 30, ~~2022,~~2023, we placed 5059 Ion systems, including our first placement in the UK, an increase of ~~79%~~44% compared to 2841 systems during the three months ended ~~September~~June 30, ~~2021.~~2022.

•As of ~~September~~June 30, ~~2022,~~2023, we had an Ion system installed base of approximately ~~254~~435 systems, an increase of ~~159%~~113% compared to the installed base of approximately 98204 systems as of ~~September~~June 30, ~~2021.~~2022.

•Gross profit as a percentage of revenue was ~~67.6%~~66.7% for the three months ended ~~September~~June 30, ~~2022,~~2023, compared to ~~69.2%~~67.2% for the three months ended ~~September~~June 30, ~~2021.~~2022.

•Operating income ~~decreased~~increased by ~~10%~~16% to ~~$399~~$463 million for the three months ended ~~September~~June 30, ~~2022,~~2023, compared to ~~$443~~$398 million during the three months ended ~~September~~June 30, ~~2021.~~2022. Operating income included ~~$139~~$148 million and ~~$123~~$127 million of share-based compensation expense related to employee stock plans and ~~$8.2~~$6.5 million and ~~$6.4~~$8.0 million of intangible asset-related charges for the three months ended ~~September~~June 30, ~~2022,~~2023, and ~~2021,~~2022, respectively.

•As of ~~September~~June 30, ~~2022,~~2023, we had ~~$7.39~~$7.13 billion in cash, cash equivalents, and investments. Cash, cash equivalents, and investments ~~decreased~~increased by ~~$1.23~~$0.39 billion, compared to ~~$8.62~~$6.74 billion as of December 31, ~~2021,~~2022, primarily as a result of cash provided by operating activities, proceeds from stock option exercises and employee stock purchases, and unrealized gains on interest bearing debt securities classified as available for sale, partially offset by cash used ~~for~~in capital expenditures, share repurchases of ~~$1.61~~$0.35 billion, ~~capital expenditures,~~ and taxes paid related to net share settlements of equity ~~awards, as well as unrealized losses on interest-bearing debt securities classified as available for sale~~, ~~partially offset by cash provided by operating activities and proceeds from stock option exercises and employee stock purchases.~~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,									Three Months Ended June 30,								Six Months Ended June 30,
		2022		% of total Revenue		2021		% of total Revenue		2022		% of total revenue		2021		% of total revenue			2023		% of Total Revenue		2022		% of Total Revenue		2023		% of Total Revenue		2022		% of Total Revenue
Revenue:	Revenue:																	Revenue:
Product	Product	$	1,297.5	83	%	$	1,170.6	83	%	$	3,806.3	83	%	$	3,481.2	84	%	Product	$	1,468.6	84	%	$	1,270.4	83	%	$	2,881.6	83	%	$	2,508.8	83	%
Service	Service	259.9		17	%	232.7		17	%	760.9		17	%	678.2		16	%	Service	287.3		16	%	251.7		17	%	570.5		17	%	501.0		17	%
Total revenue	Total revenue	1,557.4		100	%	1,403.3		100	%	4,567.2		100	%	4,159.4		100	%	Total revenue	1,755.9		100	%	1,522.1		100	%	3,452.1		100	%	3,009.8		100	%
Cost of revenue:	Cost of revenue:																	Cost of revenue:
Product	Product	421.6		27	%	355.8		25	%	1,239.9		27	%	1,049.1		25	%	Product	498.0		28	%	421.0		27	%	991.0		29	%	818.3		27	%
Service	Service	83.7		5	%	76.1		6	%	242.2		5	%	212.6		5	%	Service	86.0		5	%	77.8		6	%	176.2		5	%	158.5		5	%
Total cost of revenue	Total cost of revenue	505.3		32	%	431.9		31	%	1,482.1		32	%	1,261.7		30	%	Total cost of revenue	584.0		33	%	498.8		33	%	1,167.2		34	%	976.8		32	%
Product gross profit	Product gross profit	875.9		56	%	814.8		58	%	2,566.4		56	%	2,432.1		59	%	Product gross profit	970.6		56	%	849.4		56	%	1,890.6		54	%	1,690.5		56	%
Service gross profit	Service gross profit	176.2		12	%	156.6		11	%	518.7		12	%	465.6		11	%	Service gross profit	201.3		11	%	173.9		11	%	394.3		12	%	342.5		12	%
Gross profit	Gross profit	1,052.1		68	%	971.4		69	%	3,085.1		68	%	2,897.7		70	%	Gross profit	1,171.9		67	%	1,023.3		67	%	2,284.9		66	%	2,033.0		68	%
Operating expenses:	Operating expenses:																	Operating expenses:
Selling, general and administrative	Selling, general and administrative	436.1		28	%	363.3		26	%	1,245.6		27	%	1,039.5		25	%	Selling, general and administrative	464.3		26	%	418.4		27	%	944.8		27	%	809.5		27	%
Research and development	Research and development	217.1		14	%	165.5		11	%	634.9		15	%	487.6		12	%	Research and development	244.4		14	%	207.3		14	%	489.3		14	%	417.8		14	%
Total operating expenses	Total operating expenses	653.2		42	%	528.8		37	%	1,880.5		42	%	1,527.1		37	%	Total operating expenses	708.7		40	%	625.7		41	%	1,434.1		41	%	1,227.3		41	%
Income from operations	Income from operations	398.9		26	%	442.6		32	%	1,204.6		26	%	1,370.6		33	%	Income from operations	463.2		27	%	397.6		26	%	850.8		25	%	805.7		27	%
Interest and other income, net	Interest and other income, net	3.9		—	%	18.5		1	%	7.5		—	%	65.5		2	%	Interest and other income, net	36.0		1	%	9.3		1	%	70.2		2	%	3.6		—	%
Income before taxes	Income before taxes	402.8		26	%	461.1		33	%	1,212.1		26	%	1,436.1		35	%	Income before taxes	499.2		28	%	406.9		27	%	921.0		27	%	809.3		27	%
Income tax expense	Income tax expense	78.1		5	%	73.9		5	%	204.4		4	%	90.7		3	%	Income tax expense	73.2		4	%	93.3		6	%	134.2		4	%	126.3		4	%
Net income	Net income	324.7		21	%	387.2		28	%	1,007.7		22	%	1,345.4		32	%	Net income	426.0		24	%	313.6		21	%	786.8		23	%	683.0		23	%
Less: net income attributable to noncontrolling interest in joint venture	Less: net income attributable to noncontrolling interest in joint venture	0.7		—	%	6.7		1	%	10.3		—	%	21.4		—	%	Less: net income attributable to noncontrolling interest in joint venture	5.2		—	%	5.8		1	%	10.7		1	%	9.6		1	%
Net income attributable to Intuitive Surgical, Inc.	Net income attributable to Intuitive Surgical, Inc.	$	324.0	21	%	$	380.5	27	%	$	997.4	22	%	$	1,324.0	32	%	Net income attributable to Intuitive Surgical, Inc.	$	420.8	24	%	$	307.8	20	%	$	776.1	22	%	$	673.4	22	%

Total Revenue

Total revenue increased by ~~11%~~15% to ~~$1.56~~$1.76 billion for the three months ended ~~September~~June 30, ~~2022,~~2023, compared to ~~$1.40~~$1.52 billion for the three months ended ~~September~~June 30, ~~2021,~~2022, resulting from ~~15%~~20% higher instruments and accessories revenue, driven by approximately ~~20%~~22% higher da Vinci procedure volume, partially offset by ~~foreign currency impacts and~~ customer buying patterns, ~~12%~~14% higher service revenue, and 3%5% higher systems revenue, driven by ~~higher leasing revenue and~~more system placements (partially offset by a ~~lower~~higher proportion of da Vinci system placements under operating ~~leases,~~leases) and higher operating lease revenue, partially offset by 9% lower ~~da Vinci system placements.~~sales-type lease revenue and lower second quarter 2023 ASPs.

Total revenue increased by ~~10%~~15% to ~~$4.6~~$3.45 billion for the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, compared to ~~$4.2~~$3.01 billion for the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, resulting from ~~14%~~21% higher instruments and accessories revenue, driven by approximately ~~18%~~24% higher da Vinci procedure volume, partially offset by customer buying patterns and foreign currency impacts, ~~customer buying patterns, the effects of the Extended Use Program in 2021, and 12%~~14% higher service ~~revenue.~~revenue, and 2% higher systems revenue, driven by higher operating lease revenue and more system placements (partially offset by a higher proportion of da Vinci system placements under operating leases), partially offset by lower sales-type lease revenue and lower year-to-date 2023 ASPs.

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Revenue denominated in foreign currencies as a percentage of total revenue was approximately ~~22%~~25% in both the three and ~~23%~~six months ended June 30, 2023, and 22% and 24% for the three and ~~nine~~six months ended ~~September 30,~~ 2022, ~~respectively, and 23% and 22% for the three and nine months ended 2021,~~ respectively. We generally sell our products and services in local currencies where we have direct distribution channels. Foreign currency rate fluctuations, as determined by comparing current period revenue in USD to current period revenue in local currency using the same foreign exchange rates as the prior year same period, net of the impacts from foreign currency hedging, had an unfavorable impact on OUS total revenue of ~~$49~~$12 million and ~~$102~~$46 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, respectively. Foreign currency rate fluctuations, net of the impacts from foreign currency hedging, had ~~a favorable~~an unfavorable impact on OUS total revenue of $5$35 million and ~~$39~~$53 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, respectively.

Revenue generated in the U.S. accounted for ~~70% and 67%~~65% of total revenue ~~for~~in both the three and ~~nine~~six months ended ~~September~~June 30, ~~2022, respectively,~~2023, and ~~68% and 67% for~~66% of total revenue in both the three and ~~nine~~six months ended ~~2021, respectively.~~June 30, 2022. We believe that U.S. revenue has accounted for the large majority of total revenue due to U.S. patients’ ability to choose their provider and method of treatment, reimbursement structures supportive of innovation and MIS, and our initial investments focused on U.S. infrastructure. We have been investing in our business in the OUS markets, and our OUS procedures have grown faster in proportion to U.S. procedures. We expect that our OUS procedures and revenue will make up a greater portion of our business in the long term.

3940

The following table summarizes our revenue and system unit placements for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, and ~~2021,~~2022, respectively (in millions, except percentages and unit placements):


		Three Months Ended September 30,						Nine Months Ended September 30,							Three Months Ended June 30,				Six Months Ended June 30,
		2022			2021			2022			2021				2023		2022		2023		2022
Revenue	Revenue													Revenue
Instruments and accessories	Instruments and accessories	$	871.6		$	755.4		$	2,577.2		$	2,257.7		Instruments and accessories	$	1,075.9	$	895.3	$	2,061.5	$	1,705.6
Systems	Systems	425.9			415.2			1,229.1			1,223.5			Systems	392.7		375.1		820.1		803.2
Total product revenue	Total product revenue	1,297.5			1,170.6			3,806.3			3,481.2			Total product revenue	1,468.6		1,270.4		2,881.6		2,508.8
Services	Services	259.9			232.7			760.9			678.2			Services	287.3		251.7		570.5		501.0
Total revenue	Total revenue	$	1,557.4		$	1,403.3		$	4,567.2		$	4,159.4		Total revenue	$	1,755.9	$	1,522.1	$	3,452.1	$	3,009.8
United States		$	1,083.0		$	952.2		$	3,058.9		$	2,805.5

U.S.														U.S.	$	1,142.5	$	1,011.1	$	2,252.4	$	1,975.9
OUS	OUS	474.4			451.1			1,508.3			1,353.9			OUS	613.4		511.0		1,199.7		1,033.9
Total revenue	Total revenue	$	1,557.4		$	1,403.3		$	4,567.2		$	4,159.4		Total revenue	$	1,755.9	$	1,522.1	$	3,452.1	$	3,009.8
% of Revenue–U.S.		70		%	68		%	67		%	67		%
% of Revenue–OUS		30		%	32		%	33		%	33		%
% of Revenue – U.S.														% of Revenue – U.S.	65%		66%		65%		66%
% of Revenue – OUS														% of Revenue – OUS	35%		34%		35%		34%

Instruments and accessories	Instruments and accessories	$	871.6		$	755.4		$	2,577.2		$	2,257.7		Instruments and accessories	$	1,075.9	$	895.3	$	2,061.5	$	1,705.6
Services	Services	259.9			232.7			760.9			678.2			Services	287.3		251.7		570.5		501.0
Operating lease revenue	Operating lease revenue	97.5			72.5			273.7			198.8			Operating lease revenue	122.7		93.0		234.7		176.2
Total recurring revenue	Total recurring revenue	$	1,229.0		$	1,060.6		$	3,611.8		$	3,134.7		Total recurring revenue	$	1,485.9	$	1,240.0	$	2,866.7	$	2,382.8
% of Total revenue	% of Total revenue	79		%	76		%	79		%	75		%	% of Total revenue	85%		81%		83%		79%

Da Vinci Surgical Systems Placements by Region:
Da Vinci Surgical System Placements by Region														Da Vinci Surgical System Placements by Region
U.S. unit placements	U.S. unit placements	175			227			511			630			U.S. unit placements	157		150		298		336
OUS unit placements	OUS unit placements	130			109			384			332			OUS unit placements	174		129		345		254
Total unit placements*	Total unit placements*	305			336			895			962			Total unit placements*	331		279		643		590
*Systems placed under operating leases (included in total unit placements)		113			139			338			374
*Systems placed under fixed-payment operating lease arrangements (included in total unit placements)														*Systems placed under fixed-payment operating lease arrangements (included in total unit placements)	73		67		142		133
*Systems placed under usage-based operating lease arrangements (included in total unit placements)														*Systems placed under usage-based operating lease arrangements (included in total unit placements)	91		50		153		92

Da Vinci Surgical Systems Placements involving System Trade-ins:
Da Vinci Surgical System Placements involving System Trade-ins														Da Vinci Surgical System Placements involving System Trade-ins
Unit placements involving trade-ins	Unit placements involving trade-ins	71			136			235			393			Unit placements involving trade-ins	60		56		127		164
Unit placements not involving trade-ins	Unit placements not involving trade-ins	234			200			660			569			Unit placements not involving trade-ins	271		223		516		426

Ion Systems Placements**		50			28			125			62
**Systems placed under operating leases (included in total unit placements)		27			19			67			38
Ion System Placements**														Ion System Placements**	59		41		114		75
**Systems placed under fixed-payment operating lease arrangements (included in total unit placements)														**Systems placed under fixed-payment operating lease arrangements (included in total unit placements)	17		19		32		31
**Systems placed under usage-based operating lease arrangements (included in total unit placements)														**Systems placed under usage-based operating lease arrangements (included in total unit placements)	13		6		29		9

Product Revenue

Three Months Ended ~~September~~June 30, ~~2022~~2023

Product revenue increased by ~~11%~~16% to ~~$1.30~~$1.47 billion for the three months ended ~~September~~June 30, ~~2022,~~2023, compared to ~~$1.17~~$1.27 billion for the three months ended ~~September~~June 30, ~~2021.~~2022.

Instruments and accessories revenue increased by ~~15%~~20% to ~~$872 million~~$1.08 billion for the three months ended ~~September~~June 30, ~~2022,~~2023, compared to ~~$755 million~~$0.90 billion for the three months ended ~~September~~June 30, ~~2021.~~2022. The increase in instruments and accessories revenue was

driven primarily by da Vinci procedure growth of approximately ~~20% and incremental sales of our advanced instruments,~~22%, partially offset by ~~foreign currency impacts and~~ customer buying patterns. The ~~third~~second quarter ~~2022~~2023 U.S. da Vinci procedure growth was approximately ~~18%~~19%, driven by ~~strong~~ growth in general surgery procedures, most notably cholecystectomy ~~bariatric,~~ and hernia repair procedures, as well as moderate growth in the more mature gynecologic ~~and urologic procedures categories.~~procedure category. The ~~third~~second quarter ~~2022~~2023 OUS da Vinci procedure growth was approximately ~~24%~~28%, driven by continued growth in

urologic procedures, ~~most notably prostatectomy~~including prostatectomies and partial ~~nephrectomy procedures,~~nephrectomies, and earlier stage growth in general surgery (particularly colorectal), gynecologic, and thoracic procedures. ~~Both~~The OUS growth ~~rates were~~rate was impacted by the disruption caused by the COVID-19 pandemic in the three months ended ~~September~~June 30, ~~2021,~~2022, as noted in the COVID-19 Pandemic section above. Geographically, the ~~third~~second quarter ~~2022~~2023 OUS da Vinci procedure growth was driven by procedure expansion in a number of markets with particular strength in China, Japan, ~~China,~~Germany, and the ~~UK, Germany, South Korea, and Italy.~~UK.

Systems revenue ~~increased by 3% to $426~~was $393 million for the three months ended ~~September~~June 30, ~~2022,~~2023, compared to ~~$415~~$375 million for the three months ended ~~September~~June 30, ~~2021.~~2022. The higher ~~third~~second quarter ~~2022~~2023 systems revenue was primarily driven by ~~higher operating lease revenue and~~more system placements (partially offset by a ~~lower~~higher proportion of da Vinci system placements under operating ~~leases,~~leases) and higher operating lease revenue, partially offset by ~~fewer da Vinci system placements, lower third quarter 2022 ASPs,~~ lower sales-type lease revenue, lower second quarter 2023 ASPs, and lower lease buyout revenue.

During the ~~third~~second quarter of ~~2022~~2023, ~~305~~331 da Vinci ~~Surgical Systems~~surgical systems were placed compared to ~~336~~279 systems during the ~~third~~second quarter of ~~2021.~~2022. By geography, ~~175~~157 systems were placed in the U.S., 5476 in Europe, 6467 in Asia, and 1231 in other markets during the ~~third~~second quarter of ~~2022,~~2023, compared to ~~227~~150 systems placed in the U.S., 4778 in Europe, 4746 in Asia, and 155 in other markets during the ~~third~~second quarter of ~~2021.~~2022. The ~~decrease~~increase in ~~systems~~system placements was primarily driven by the demand for additional capacity by our customers due to the procedure growth, offset by a smaller number of third generation da Vinci systems available for trade-in along with the macroeconomic challenges impacting our U.S. customers. ~~Nevertheless, the~~The incremental ~~systems~~system placements reflect continued procedure growth customers trading in da Vinci Si Surgical Systems for fourth generation da Vinci Xi and da Vinci X systems in order to access fourth generation instruments and capabilities as well as to standardize their system portfolio, and further customer validation that ~~da Vinci~~robotic-assisted surgery addresses their quadruple aim objectives. As of ~~September~~June 30, ~~2022,~~2023, we had a da Vinci ~~Surgical System~~surgical system installed base of approximately ~~7,364~~8,042 systems, compared to ~~the~~an installed base of approximately ~~6,525~~7,135 systems as of ~~September~~June 30, ~~2021.~~2022.

~~We placed 130 and 166~~The following table summarizes our da Vinci ~~Surgical Systems~~system placements and systems installed at customers under ~~lease or usage-based~~leasing arrangements ~~of which 113 and 139 systems were classified as operating leases~~ for ~~the~~ three months ended ~~September~~June 30, ~~2022,~~2023, and ~~2021, respectively.~~ 2022:


	Three Months Ended June 30,
	2023	2022
Da Vinci System Placements Under Leasing Arrangements
Fixed-payment operating lease arrangements	73	67
Usage-based operating lease arrangements	91	50
Total da Vinci system placements under operating lease arrangements	164	117
% of Total da Vinci system placements	50%	42%
Sales-type lease arrangements	6	35
Total da Vinci system placements under leasing arrangements	170	152

Da Vinci System Installed Base under Operating Leasing Arrangements
Fixed-payment operating lease arrangements	1,108	930
Usage-based operating lease arrangements	817	539
Total da Vinci system installed base under operating leasing arrangements	1,925	1,469

Operating lease revenue, including the ~~impact of~~contribution from Ion systems, was ~~$97.5~~$123 million for the three months ended ~~September~~June 30, ~~2022,~~2023, compared to ~~$72.5~~$93 million for the three months ended ~~September~~June 30, ~~2021. Da Vinci Surgical Systems placed as operating leases represented 37% of total placements during the third quarter~~ of ~~2022, compared to 41% during the~~ ~~third quarter of 2021. A total of 1,562 da VinciSurgical Systems were installed at customers under operating lease or usage-based arrangements as of September 30, 2022, compared to 1,179 as of September 30, 2021.~~2022. Revenue from Lease Buyouts was ~~$17.4~~$12.4 million for the three months ended ~~September~~June 30, ~~2022,~~2023, compared to ~~$24.7~~$22.5 million for the three months ended ~~September~~June 30, ~~2021.~~2022. We expect revenue from Lease Buyouts to fluctuate from 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~~surgical system ASP, excluding ~~the impact of~~ systems placed under operating lease or usage-based arrangements and Ion systems, was approximately $1.39 million for the three months ended June 30, 2023, compared to approximately $1.50 million for the three months ended ~~September~~June 30, ~~2022, compared to approximately $1.57 million for the three months ended September 30, 2021.~~2022. The lower ~~third~~second quarter ~~2022~~2023 ASP was largely driven by ~~higher pricing discounts and~~an unfavorable product mix, foreign currency impacts, ~~partially offset by favorable product mix~~ and ~~fewer trade-ins.~~higher pricing discounts. ASP fluctuates from period to period based on geographic and product mix, product pricing, systems placed involving trade-ins, and changes in foreign exchange rates.

During the ~~third~~second quarter of ~~2022, 50~~2023, 59 Ion systems were placed, including our first placement in the UK, compared to 2841 systems during the ~~third~~second quarter of ~~2021.~~2022. As of ~~September~~June 30, ~~2022,~~2023, we had an Ion system installed base of approximately ~~254~~435 systems, compared to ~~the~~an installed base of approximately 98204 systems as of ~~September~~June 30, ~~2021. We placed 29~~2022.

The following table summarizes our Ion system placements and ~~20 Ion~~ systems under lease or usage-based arrangements, of which 27 and 19 systems were classified as operating leases for the three months ended September 30, 2022, and 2021, respectively. Ion systems placed as operating leases represented 54% of total placements during the third quarter of 2022, compared to 68% during the third quarter of 2021. A total of 112 Ion systems were installed at customers under ~~operating or usage-based~~leasing arrangements ~~as of September~~for three months ended June 30, ~~2022, compared to 49 as of September 30, 2021.~~2023, and 2022:


	Three Months Ended June 30,
	2023	2022
Ion System Placements Under Leasing Arrangements
Fixed-payment operating lease arrangements	17	19
Usage-based operating lease arrangements	13	6
Total Ion system placements under operating lease arrangements	30	25
% of Total Ion system placements	51%	61%
Sales-type leases	2	1
Total Ion system placements under leasing arrangements	32	26

Ion System Installed Base under Operating Leasing Arrangements


Total Ion system installed base under operating leasing arrangements	175	90

~~Nine~~Six Months Ended ~~September~~June 30, ~~2022~~2023

Product revenue increased by 9%15% to ~~$3.81~~$2.88 billion for the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, compared to ~~$3.48~~$2.51 billion for the ~~nine~~six months ended ~~September~~June 30, ~~2021.~~2022.

Instruments and accessories revenue increased by ~~14%~~21% to ~~$2.58~~$2.06 billion for the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, compared to ~~$2.26~~$1.71 billion for the ~~nine~~six months ended ~~September~~June 30, ~~2021.~~2022. The increase in instruments and accessories revenue was primarily driven by da Vinci procedure growth of approximately ~~18% and incremental sales of our advanced instruments. The increase was~~24%, partially offset by customer buying patterns and foreign currency impacts ~~and customer buying patterns~~ in the ~~nine~~six months ended ~~September~~June 30, ~~2022, and the benefit of stocking orders in the nine months ended September 30, 2021, associated with the launch of our Extended Use Program.~~2023. The year-to-date ~~2022~~2023 U.S. da Vinci procedure growth was approximately ~~15%~~22%, driven by strong growth in general surgery procedures, most notably ~~cholecystectomy,~~ hernia repair, cholecystectomy, and bariatric procedures, as well as moderate growth in the more mature gynecologic ~~and urologic procedures categories.~~procedure category. The year-to-date ~~2022~~2023 OUS da Vinci procedure growth was approximately ~~24%~~28%, driven by continued growth in urologic procedures, most notably prostatectomy and

partial nephrectomy procedures, and earlier stage growth in general surgery (particularly colorectal), gynecologic, and thoracic procedures. Both growth rates were impacted by the disruption caused by the COVID-19 pandemic, as noted in the COVID-19 Pandemic section above. Geographically, the year-to-date ~~2022~~2023 OUS da Vinci procedure growth was driven by procedure expansion in a number of markets with particular strength in Japan, Germany, China, and the ~~UK, Germany, and Italy.~~UK.

Systems revenue increased ~~nominally~~by 2% to ~~$1.23 billion~~$820 million for the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, compared to ~~$1.22 billion~~$803 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021.~~2022. The increase in systems revenue was primarily driven by higher operating lease revenue and more systems placements (partially offset by a ~~lower~~higher proportion of da Vinci system placements under operating ~~leases,~~leases), partially offset by ~~fewer da Vinci system placements, lower year-to-date 2022 ASPs,~~ lower sales-type lease revenue, lower year-to-date 2023 ASPs, and ~~lower lease buyout revenue.~~foreign currency impacts.

During the ~~nine~~six months ended ~~September~~June 30, ~~2022~~2023, a total of ~~895~~643 da Vinci ~~Surgical Systems~~surgical systems were placed compared to ~~962~~590 systems during the ~~nine~~six months ended ~~September~~June 30, ~~2021.~~2022. By geography, ~~511~~298 systems were placed in the U.S., ~~210~~177 in Europe, ~~152~~123 in Asia, and 2245 in other markets during the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, compared to ~~630~~336 systems placed in the U.S., ~~169~~156 in Europe, ~~132~~88 in Asia, and 3110 in other markets during the ~~nine~~six months ended ~~September~~June 30, ~~2021.~~2022. The ~~decrease~~increase in ~~systems~~system placements was primarily driven by the demand for additional capacity by our customers due to the procedure growth, offset by a smaller number of third generation da Vinci systems available for trade-in along with the macroeconomic challenges impacting our U.S. customers.

~~We placed 410 and 471~~

The following table summarizes our da Vinci ~~Surgical Systems~~system placements under ~~lease or usage-based~~leasing arrangements ~~of which 338 and 374 systems were classified as operating leases~~ for ~~the nine~~six months ended ~~September~~June 30, ~~2022,~~2023, and ~~2021, respectively.~~ 2022:


	Six Months Ended June 30,
	2023	2022
Da Vinci System Placements Under Leasing Arrangements
Fixed-payment operating lease arrangements	142	133
Usage-based operating lease arrangements	153	92
Total da Vinci system placements under operating lease arrangements	295	225
% of Total da Vinci system placements	46%	38%
Sales-type lease arrangements	20	55
Total da Vinci system placements under leasing arrangements	315	280

Operating lease revenue, including the impact of Ion systems, was ~~$273.7~~$235 million for the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, compared to ~~$198.8~~$176 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021. Da Vinci Surgical Systems placed as operating leases represented 38% of total placements during the nine months ended September 30, 2022, compared to 39% during the~~ ~~nine months ended September 30, 2021.~~2022. Revenue from Lease Buyouts was $~~55.4~~36.3 million for the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, compared to ~~$69.9~~$38.0 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021.~~2022. 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~~surgical system ASP, excluding the impact of systems placed under operating lease or usage-based arrangements and Ion systems, was approximately ~~$1.52~~$1.43 million for the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, compared to approximately ~~$1.59~~$1.53 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021.~~2022. The lower year-to-date ~~2022~~2023 ASP was largely driven by an unfavorable ~~geographic~~product mix, higher pricing discounts, and foreign currency impacts, ~~and higher pricing discounts,~~ partially offset by fewer ~~trade-ins and favorable product mix.~~trade-ins. ASP fluctuates from period to period based on geographic and product mix, product pricing, systems placed involving trade-ins, and changes in foreign exchange rates.

~~During the nine~~The following table summarizes our Ion system placements under leasing arrangements for six months ended ~~September~~June 30, ~~2022, 125 Ion systems were placed compared to 62 systems during the nine months ended September 30, 2021. We placed 74~~2023, and 43 Ion systems under lease or usage-based arrangements, of which 67 and 38 systems were classified as operating leases for the nine months ended September 30, 2022, and 2021, respectively. Ion systems placed as operating leases represented 54% of total placements during the nine months ended September 30, 2022, compared to 61% during the nine months ended September 30, 2021.2022:


	Six Months Ended June 30,
	2023	2022
Ion System Placements Under Leasing Arrangements
Fixed-payment operating lease arrangements	32	31
Usage-based operating lease arrangements	29	9
Total Ion system placements under operating lease arrangements	61	40
% of Total Ion system placements	54%	53%
Sales-type lease arrangements	5	5
Total Ion system placements under leasing arrangements	66	45

Service Revenue

Service revenue increased by ~~12%~~14% to ~~$260~~$287 million for the three months ended ~~September~~June 30, ~~2022,~~2023, compared to ~~$233~~$252 million for the three months ended ~~September~~June 30, ~~2021.~~2022. The increase in service revenue was primarily driven by a larger installed base of systems producing service ~~revenue, partially offset by foreign currency impacts.~~revenue.

Service revenue increased by ~~12%~~14% to ~~$761~~$571 million for the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, compared to ~~$678~~$501 million for the ~~nine~~six months ended ~~September~~June 30, ~~2021.~~2022. The increase in service revenue was primarily driven by a larger installed base of systems producing service revenue, partially offset by foreign currency impacts.

Gross Profit

Product gross profit for the three months ended ~~September~~June 30, ~~2022,~~2023, increased by 7%14% to ~~$876~~$971 million, representing ~~67.5%~~66.1% of product revenue, compared to ~~$815~~$849 million, representing ~~69.6%~~66.9% of product revenue, for the three months ended ~~September~~June 30, ~~2021.~~2022. The higher product gross profit for the three months ended ~~September~~June 30, ~~2022,~~2023, was primarily driven by higher product revenue, partially offset by lower product gross profit margin. The lower product gross profit margin for the three months ended ~~September~~June 30, ~~2022,~~2023, was primarily driven by lower second quarter 2023 system ASPs and unfavorable product mix, in addition to higher freight and material costs, higher fixed costs from investments to drive growth of the business and strengthen our operating capabilities, unfavorable foreign currency impacts, and lower third quarter 2022 system ASPs.component costs.

Product gross profit for the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, increased by 6%12% to ~~$2.57~~$1.89 billion, representing 65.6% of product revenue, compared to $1.69 billion, representing 67.4% of product revenue, ~~compared to $2.43 billion, representing 69.9% of product revenue,~~ for the ~~nine~~six months ended ~~September~~June 30, ~~2021.~~2022. The higher product gross profit for the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, was primarily driven by

higher product revenue, partially offset by lower product gross profit margin. The lower product gross profit margin for the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, was primarily driven by higher ~~fixed~~scrap costs ~~from investments to drive growth of the business~~ and ~~strengthen our operating capabilities, higher freight and material costs, unfavorable foreign currency impacts, and~~increased inventory reserves, as well as lower year-to-date ~~2022~~2023 system ~~ASPs.~~ASPs, unfavorable products mix, and higher component costs.

Product gross profit for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, included share-based compensation expense of ~~$22.0~~$20.9 million and ~~$61.0~~$37.7 million, respectively, compared with ~~$19.0~~$20.3 million and ~~$50.9~~$39.0 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, respectively. Product gross profit for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, included intangible assets amortization expense of ~~$5.1~~$3.3 million and ~~$12.4~~$6.5 million, respectively, compared with ~~$3.8~~$3.7 million and ~~$13.9~~$7.3 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, respectively.

Service gross profit for the three months ended ~~September~~June 30, ~~2022,~~2023, increased by ~~13%~~16% to ~~$176~~$201 million, representing ~~67.8%~~70.1% of service revenue, compared to ~~$157~~$174 million, representing ~~67.3%~~69.1% of service revenue, for the three months ended ~~September~~June 30, ~~2021.~~2022. The higher service gross profit for the three months ended ~~September~~June 30, ~~2022,~~2023, was primarily driven by higher service revenue, reflecting a larger installed base of systems, and higher service gross profit margin. The higher service gross profit margin for the three months ended June 30, 2023, was primarily driven by favorable impacts from leveraging volume of repairs, in addition to improved operational efficiency.

Service gross profit for the six months ended June 30, 2023, increased by 15% to $394 million, representing 69.1% of service revenue, compared to $343 million, representing 68.4% of service revenue, for the six months ended June 30, 2022. The higher service gross profit for the six months ended June 30, 2023, was primarily driven by higher service revenue, reflecting a larger installed base of systems. The higher service gross profit margin for the ~~three~~six months ended ~~September~~June 30, ~~2022,~~2023, was primarily driven by favorable impacts from ~~the~~leveraging volume ~~and mix~~ of repairs, ~~partially offset by higher infrastructure and freight costs as well as unfavorable foreign currency impacts.~~

~~Service gross profit for the nine months ended September 30, 2022, increased by 11%~~in addition to $519 million, representing 68.2% of service revenue, compared to $466 million, representing 68.7% of service revenue, for the nine months ended September 30, 2021. The higher service gross profit for the nine months ended September 30, 2022, was primarily driven by higher service revenue, reflecting a larger installed base of systems. The lower service gross profit margin for the nine months ended September 30, 2022, was primarily driven by higher infrastructure, freight, and material costs as well as unfavorable foreign currency impacts, partially offset by favorable impacts from the volume and mix of repairs.improved operational efficiency.

Service gross profit for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, included share-based compensation expense of ~~$6.3~~$7.0 million and ~~$17.7~~$14.0 million, respectively, compared with ~~$6.0~~$5.8 million and ~~$16.9~~$11.4 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, respectively. Service gross profit for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, included intangible assets amortization expense of ~~$0.8~~$0.2 million and ~~$1.2~~$0.4 million, respectively, compared with $0.2 million and ~~$0.8~~$0.4 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, respectively.

Selling, General and Administrative Expenses

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

Selling, general and administrative expenses for the three months ended ~~September~~June 30, ~~2022,~~2023, increased by ~~20%~~11% to ~~$436~~$464 million, compared to ~~$363~~$418 million for the three months ended ~~September~~June 30, 2021. Selling, general and administrative expenses for the nine months ended September 30, 2022, increased by 20% to $1.25 billion, compared to $1.04 billion for the nine months ended September 30, 2021.2022. The increase in selling, general and administrative expenses for the three ~~and nine~~ months ended ~~September~~June 30, ~~2022,~~2023, was primarily driven by higher headcount, resulting in increased fixed and share-based compensation expense as well as higher variable compensation, ~~and increased infrastructure costs to support our growth,~~ partially offset by ~~favorable foreign currency impacts.~~lower legal costs. In addition, there were higher marketing, training, and travel expenses for the three months ended June 30, 2023, as compared with the prior year.

Selling, general and administrative expenses for the six months ended June 30, 2023, increased by 17% to $945 million, compared to $810 million for the six months ended June 30, 2022. The increase in selling, general and administrative expenses for the six months ended June 30, 2023, was primarily driven by higher headcount, resulting in increased fixed and share-based compensation expense as well as higher variable compensation. In addition, there were higher travel, marketing, and training expenses for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, as compared with the prior year.

Selling, general and administrative expenses for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, included share-based compensation expense of $68.0 million and ~~$191.0~~$134.7 million, respectively, compared with ~~$62.5~~$62.7 million and ~~$171.3~~$123.0 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, respectively. Selling, general and administrative expenses for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, included intangible assets amortization expense of ~~$1.4~~$0.8 million and ~~$4.6~~$1.7 million, respectively, compared with ~~$1.8~~$1.6 million and ~~$5.4~~$3.2 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, respectively.

Research and Development Expenses

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

Research and development expenses for the three months ended ~~September~~June 30, ~~2022,~~2023, increased by ~~31%~~18% to ~~$217~~$244 million, compared to ~~$166~~$207 million for the three months ended ~~September~~June 30, ~~2021.~~2022. The increase in research and development expenses for the three months ended ~~September~~June 30, ~~2022,~~2023, was primarily driven by higher personnel-related expenses, including share-based

compensation expense, and other project costs incurred to support a broader set of product development initiatives, including future generations of robotics, Ion and SP platform investments, and digital investments.

Research and development expenses for the six months ended June 30, 2023, increased by 17% to $489 million, compared to $418 million for the six months ended June 30, 2022. The increase in research and development expenses for the six months ended June 30, 2023, was primarily driven by higher personnel-related expenses, including share-based compensation expense, and other project costs incurred to support a broader set of product development initiatives, including future generations of robotics, Ion and SP platform investments, and digital investments, ~~and advanced instrumentation. Research and development expenses for the nine months ended September 30, 2022, increased~~partially offset by ~~30% to $635 million,~~

compared to $488 million for the nine months ended September 30, 2021. The increase in research and development expenses for the nine months ended September 30, 2022, was primarily driven by higher personnel-related expenses, including share-based compensation expense,lower intangible asset charges, and other project costs incurred to support a broader set of product development initiatives, including Ion and SP platform investments, future generations of robotics, digital investments, and advanced instrumentation.asset-related charges.

Research and development expenses for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, included share-based compensation expense of ~~$42.3~~$52.3 million and ~~$117.6~~$102.4 million, respectively, compared with ~~$35.4~~$38.5 million and ~~$98.1~~$75.3 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, respectively. Research and development expenses for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, included intangible asset charges of ~~$0.9~~$2.2 million and ~~$11.9~~$2.9 million, respectively, compared with ~~$0.6~~$2.5 million and ~~$5.3~~$11.0 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, respectively.

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

Interest ~~and~~And Other Income, Net

Interest and other income, net, for the three months ended ~~September~~June 30, 2023, and 2022, ~~decreased~~increased by ~~79%~~287% to ~~$3.9~~$36.0 million, compared to ~~$18.5~~$9.3 million for the three months ended ~~September~~June 30, ~~2021.~~2022. The ~~decrease~~increase in interest and other income, net, for the three months ended ~~September~~June 30, ~~2022,~~2023, was primarily driven by an unrealized loss on our investment in Broncus (compared to an unrealized gain on our investment in Broncus in the three months ended September 30, 2021), as noted below, and higher foreign exchange losses, partially offset by higher interest income earned, despite lower cash and investment balances, due to an increase in average interest ~~rates.~~rates, and lower foreign exchange losses, partially offset by higher unrealized losses on investments resulting from strategic arrangements.

Interest and other income, net, for the ~~nine~~six months ended ~~September~~June 30, ~~2022, decreased~~2023, increased by ~~89%~~1,850% to ~~$7.5~~$70.2 million, compared to ~~$65.5~~$3.6 million for ~~nine~~six months ended ~~September~~June 30, ~~2021.~~2022. The ~~decrease~~increase in interest and other income, net, for the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, was primarily driven by unrealized losses on investments resulting from strategic arrangements (compared to unrealized gains on investments resulting from strategic arrangements in the nine months ended September 30, 2021) and higher foreign exchange losses, partially offset by higher interest income earned, despite lower cash and investment balances, due to an increase in average interest ~~rates.~~

~~We held an equity investment in preferred shares of Broncus, which was reflected in our Financial Statements~~rates, lower unrealized losses on a cost basis. In the first quarter of 2021, we recorded an unrealized gain on our investment in Broncus of approximately $14 million. In September 2021, Broncus completed an IPO of common shares on the Stock Exchange of Hong Kong. Upon completion of the IPO, the preferred shares were convertedinvestments resulting from strategic arrangements, and foreign exchange gains (compared to ~~common shares in Broncus, and we recognized a net gain on this investment~~foreign exchange losses in the three months ended ~~September~~June 30, 2021 of approximately $8 million. We were restricted from selling these shares for a period of six months. For the three and nine months ended September 30, 2022, we recognized an unrealized loss on this investment of approximately $3.3 million and $21.6 million, respectively.2022).

Income Tax Expense

Our effective tax ~~rates~~rate for the three ~~and nine~~ months ended ~~September~~June 30, ~~2022, and 2021,~~2023, differed from the U.S. federal statutory rate of 21% primarily due to ~~excess~~the tax benefits associated with employee equity plans, the effect of income earned by certain overseas entities being taxed at rates lower than the federal statutory rate, and the federal ~~R&D~~research and development credit benefit, partially offset by U.S. tax on foreign earnings and state income taxes (net of federal benefit).

~~The increase in income~~Our effective tax ~~expense~~rate for the three months ended ~~September~~June 30, 2022, differed from the U.S. federal statutory rate of 21% primarily due to U.S. tax on foreign earnings and state income taxes (net of federal benefit), partially offset by the tax benefits associated with employee equity plans, the effect of income earned by certain overseas entities being taxed at rates lower than the federal statutory rate, and the federal research and development credit benefit.

Our lower effective tax rate for the three months ended June 30, 2023 compared to the three months ended June 30, 2022, was primarily due to ~~the impact of capitalization of R&E and lower~~higher excess tax benefits, as discussed below, ~~partially offset by the fact that the tax expense for the three months ended September 30, 2021, included~~and a one-time charge of $11.1 million, which related to intercompany charges for share-based compensation for relevant periods prior to 2020, triggered by additional IRS guidance issued in July 2021 associated with the Ninth Circuit Opinion involving an independent third party.

The increase in income tax expense for the nine months ended September 30, 2022, was primarily due to the impact of capitalization of R&E and lower excess tax benefits, as discussed below, as well as the fact that the effective tax rate for the nine months ended September 30, 2021, included a one-time benefit of $66.4 million from re-measurement of our Swiss deferred tax assets resulting from the extension of the economic useful life of certain intangible assets, partially offset by the

~~one-time charge of $11.1 million related to additional IRS guidance issued associated with the Ninth Circuit Opinion noted above.~~

more favorable jurisdictional earnings mix.

Our provision for income taxes for the three ~~and nine~~ months ended ~~September~~June 30, 2023, and 2022, included excess tax benefits associated with employee equity plans of ~~$18.1~~$41.7 million and ~~$80.4~~$9.3 million, respectively, which reduced our effective tax rate by ~~4.5~~8.4 and 6.6 percentage points, respectively. Our provision for income taxes for the three and nine months ended September 30, 2021, included excess tax benefits associated with employee equity plans of $41.9 million and $158.9 million, respectively, which reduced our effective tax rate by 9.1 and 11.12.3 percentage points, respectively. The amount of excess tax benefits or deficiencies will fluctuate from period to period based on the price of our stock, the volume of share-based awards settled or vested, and the value assigned to employee equity awards under ~~U.S.~~ GAAP, which results in increased income tax expense volatility.

Our effective tax rates for both the six months ended June 30, 2023, and 2022, differed from the U.S. federal statutory rate of 21% primarily due to the tax benefits associated with employee equity plans, the effect of income earned by certain overseas entities being taxed at rates lower than the federal statutory rate, and the federal research and development credit benefit, partially offset by U.S. tax on foreign earnings and state income taxes (net of federal benefit).

Our lower effective tax rate for the six months ended June 30, 2023, compared to the six months ended June 30, 2022, was primarily due to a more favorable jurisdictional earnings mix.

Our provision for income taxes for the six months ended June 30, 2023, and 2022, included excess tax benefits associated with employee equity plans of $64.2 million and $62.3 million, respectively, which reduced our effective tax rate by 7.0 and 7.7 percentage points, respectively.

On August 16, 2022, the Inflation Reduction Act was enacted in the ~~United States. The IRA introduces~~U.S. and introduced a 15% alternative minimum tax based on the financial statement income of ~~certain large corporations,~~the CAMT, effective for tax years beginning after December 31, 2022. The IRA also includes a 1% excise tax on the net fair market value of stock repurchases made after December 31, 2022. We have considered the applicable tax law changes, and thereJanuary 1, 2023. There is no impact toon our ~~tax~~ provision for income taxes from the CAMT for the three and ~~nine~~six months ended ~~September~~June 30, ~~2022. We will continue to evaluate the impact of these tax law changes on future periods.~~2023.

We file federal, state, and foreign income tax returns in many jurisdictions in the U.S. and ~~abroad.~~OUS. Years ~~prior to~~before 2016 are considered closed for most significant jurisdictions. Certain of our unrecognized tax benefits could change due to activities of various tax authorities, including evolving interpretations of existing tax laws in the jurisdictions we operate, potential assessment of additional tax, possible settlement of audits, or through normal expiration of various statutes of limitations, which could affect our effective tax rate in the period in which they change. Due to the uncertainty related to the timing and potential outcome of audits, we cannot estimate the range of reasonably possible ~~change~~changes in unrecognized tax benefits that may occur in the next 12 months.

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

Net Income Attributable to Noncontrolling Interest in Joint Venture

Net income attributable to noncontrolling interest in Joint Venture for the three ~~and nine~~ months ended ~~September~~June 30, 2023, and 2022, was ~~$0.7~~$5.2 million and ~~$10.3~~$5.8 million, respectively.

Net income attributable to noncontrolling interest in Joint Venture for the ~~three and nine~~six months ended ~~September~~June 30, ~~2021,~~2023, and 2022, was ~~$6.7~~$10.7 million and ~~$21.4~~$9.6 million, respectively. The decrease in net income attributable to noncontrolling interest in Joint Venture for the three and nine months ended September 30, 2022, was primarily due to a decrease in sales and an increase in selling, general and administrative expenses in China.

Liquidity and Capital Resources

Sources and Uses of Cash and Cash Equivalents

Our principal source of liquidity is cash provided by operations and by the issuance of common stock through the exercise of stock options and our employee stock purchase program. Cash and cash equivalents plus short- and long-term investments ~~decreased~~increased by ~~$1.23~~$0.39 billion to ~~$7.39~~$7.13 billion as of ~~September~~June 30, ~~2022,~~2023, from ~~$8.62~~$6.74 billion as of December 31, ~~2021,~~2022, primarily as a result of cash provided by operating activities, proceeds from stock option exercises and employee stock purchases, and unrealized gains on interest bearing debt securities classified as available for sale, partially offset by cash used in capital expenditures, share repurchases ~~capital expenditures,~~of $0.35 billion, and taxes paid related to net share settlements of equity ~~awards, as well as unrealized losses on interest-bearing debt securities classified as available for sale,offset by cash provided by our operations and proceeds from stock option exercises and employee stock purchases.~~awards.

Our cash requirements depend on numerous factors, including market acceptance of our products, the resources we devote to developing and supporting our products, and other factors. We expect to continue to devote substantial resources to expand procedure adoption and acceptance of our products. We have made substantial investments in our commercial operations, product development activities, facilities, and intellectual property. Based on our business model, we anticipate that we will continue to be able to fund future growth through cash provided by our operations. We believe that our current cash, cash equivalents, and investment balances, together with income to be derived from ~~the sale of~~ our ~~products,~~business, will be sufficient to meet our liquidity requirements for the foreseeable future. However, we may experience reduced cash flow from operations as a result of the ~~COVID-19 pandemic and the increasing~~ risk of a recession along with other macroeconomic and geopolitical headwinds.

See “Item 7A. Quantitative and Qualitative Disclosures About Market Risk” in our Form 10-K for the fiscal year ended December 31, ~~2021,~~2022, 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~~six months ended ~~September~~June 30, ~~2022,~~2023, and ~~2021~~2022 (in millions):


		Nine Months Ended September 30,					Six Months Ended June 30,
		2022		2021			2023		2022
Net cash provided by (used in):	Net cash provided by (used in):					Net cash provided by (used in):
Operating activities	Operating activities	$	1,052.9	$	1,521.7	Operating activities	$	1,037.1	$	669.7
Investing activities	Investing activities	796.0		(1,820.5)		Investing activities	1,130.7		251.5
Financing activities	Financing activities	(1,608.8)		24.4		Financing activities	(317.9)		(682.0)
Effect of exchange rates on cash, cash equivalents, and restricted cash	Effect of exchange rates on cash, cash equivalents, and restricted cash	7.9		(2.3)		Effect of exchange rates on cash, cash equivalents, and restricted cash	7.0		6.0
Net increase (decrease) in cash, cash equivalents, and restricted cash		$	248.0	$	(276.7)
Net increase in cash, cash equivalents, and restricted cash						Net increase in cash, cash equivalents, and restricted cash	$	1,856.9	$	245.2

Operating Activities

For the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, net cash provided by operating activities of ~~$1,053 million~~$1.04 billion exceeded our net income of ~~$1,008 million,~~$0.79 billion, primarily due to the following factors:

1.Our net income included non-cash charges of ~~$604~~$488 million, consisting primarily of the following significant items: share-based compensation of ~~$386~~$286 million; and depreciation expense and losses on the disposal of property, plant, and equipment of ~~$239 million; and net losses on investments, accretion, and amortization of $43~~$180 million.

2.The non-cash charges outlined above were partially offset by changes in operating assets and liabilities that resulted in ~~$558~~$238 million of cash used in operating activities during the ~~nine~~six months ended ~~September~~June 30, ~~2022.~~2023. Inventory, including the transfer of equipment from inventory to property, plant, and equipment, increased by ~~$419~~$289 million, primarily to address the growth in the business as well as to mitigate risks of disruption that could arise from ~~trade,~~global supply ~~or other matters.~~chain shortages. Refer to Note 4 to the Financial Statements for further details in the supplemental cash flow information. Prepaid expenses and other assets increased by $97 million, primarily due to an increase in net investments in sales-type leases. Accounts receivable increased by $67 million, primarily due to the timing of billings and collections. Accrued compensation and employee benefits decreased by ~~$42~~$55 million, primarily due to payments of ~~2021~~2022 incentive compensation. The unfavorable impact of these items on cash provided by operating activities was partially offset by a ~~$62~~$39 million ~~increase~~decrease in ~~other liabilities,~~accounts receivable, primarily due to ~~additional accruals related to capital expenditures,~~timing of billing and collections, a ~~$26~~$37 million increase in accounts payable, primarily due to the timing of billing and ~~payments.~~payments, and a $32 million increase in other accrued liabilities, primarily due to an increase in income taxes payable from the timing of income tax payments as a result of tax relief availed to federally declared disaster areas, partially offset by payments of litigation-related fees.

Investing Activities

Net cash provided by investing activities for the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, consisted primarily of proceeds from maturities and ~~sale~~sales of investments, net of purchases, of ~~$1.20~~$1.51 billion, partially offset by ~~$395~~$372 million paid for the acquisition of property, plant, and ~~equipment and intellectual property.~~equipment. We invest predominantly in high quality, fixed income securities. Our investment portfolio may, at any time, contain investments in U.S. treasury and U.S. government agency securities, taxable and tax-exempt municipal notes, corporate notes and bonds, commercial paper, non-U.S. government agency securities, cash deposits, and money market funds.

Financing Activities

Net cash used in financing activities ~~during~~for the ~~nine~~six months ended ~~September~~June 30, ~~2022,~~2023, consisted primarily of cash used in the repurchase of approximately ~~7.2~~1.5 million shares of our common stock for ~~$1.61 billion, 4.6~~$350 million ~~shares of which related to an accelerated share buyback program executed and settled during the quarter and further described in Note 9 to the Financial Statements,~~ and taxes paid on behalf of employees related to net share settlements of equity awards of ~~$187~~$141 million, partially offset by proceeds from stock option exercises and employee stock purchases of ~~$189~~$175 million.

Capital Expenditures

Our ~~business is not~~ capital ~~equipment intensive. However,~~expenditures are increasing as we continue to build the Company to supply our customers with ~~the growth of our business~~highly differentiated products manufactured in highly automated factories to facilitate outstanding performance in product quality, availability, and ~~our investments in property and facilities and in manufacturing automation, capital investments in these areas have increased. We expect these capital investments to increase significantly in 2022 to a range between~~ ~~$600 million and $700 million.~~cost. A significant portion of this investment involves the construction of facilities to ~~provide incremental space for growth, consolidate operations~~expand our manufacturing and commercial capabilities. We have also been vertically integrating key technologies to ~~enhance efficiency,~~develop a more robust supply chain and ~~replace leased spaces with owned spaces.~~bring important products to market at attractive price points. These investments include increased ownership of our imaging pipelines and investments in strategic instruments and accessories technologies that allow us to serve our customers better. We expect these capital investments to increase significantly in 2023 to a range between $800 million and $1 billion, over half of which will ~~also expand our OUS footprint in support of opportunities for growth in key international markets.~~be facilities-related investments. We intend to fund these capital investments with cash generated from operations.

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Critical Accounting Estimates

The discussion and analysis of our financial condition and results of operations are based upon our Financial Statements, which have been prepared in accordance with ~~U.S.~~ GAAP. The preparation of these Financial Statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses. On an ongoing basis, we evaluate our critical accounting estimates. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. There have been no new or material changes to the critical accounting estimates discussed in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2021,~~2022, that are of significance, or potential significance, to the Company.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes in our market risk during the three months ended ~~September~~June 30, ~~2022,~~2023, compared to the disclosures in Part II, Item 7A of our Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

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

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

Changes in Internal Control over Financial Reporting

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

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PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The information included in Note 8 to the Condensed Consolidated Financial Statements (Unaudited) included in Part I, Item 1 of this quarterly report is incorporated herein by reference.

ITEM 1A. RISK FACTORS

You should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2021,~~2022, 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, ~~2021,~~2022, 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 ~~updates,~~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, ~~2021.~~2022.

RISKS RELATING TO OUR BUSINESS

~~THE INFLATIONARY ENVIRONMENT~~MACROECONOMIC CONDITIONS COULD HAVE A MATERIALLY ~~ADVERSELY~~ADVERSE IMPACT ON OUR BUSINESS, ~~AND~~FINANCIAL CONDITION, OR RESULTS OF OPERATIONS.

~~Our operating results could be materially impacted by~~Macroeconomic conditions, such as high inflation, changes to monetary policy, high interest rates, volatile currency exchange rates, credit and sovereign debt concerns in ~~the overall macroeconomic environment~~certain European countries, concerns about slowed growth in China and other ~~economic factors that impact customer~~OUS markets, decreasing consumer confidence and spending, including capital ~~spending. Changes~~spending, concerns about the stability and liquidity of certain financial institutions, and global or local recessions can adversely impact demand for our products, which could negatively impact our business, financial condition, or results of operations. Recent macroeconomic conditions have been adversely impacted by political instability and military hostilities in ~~economic conditions, supply chain constraints, logistics challenges, labor shortages,~~multiple geographies (including the conflict inbetween Ukraine and ~~steps~~Russia), monetary and financial uncertainties, and the ongoing COVID-19 pandemic. The results of these macroeconomic conditions, and the actions taken by governments, ~~and~~ central banks, ~~particularly~~companies, and consumers in response, have, and may continue to, ~~the COVID-19 pandemic as well as other stimulus and spending programs, have led to~~result in higher inflation in the U.S. and globally, which is likely, in turn, to lead to an increase in costs and may cause changes in fiscal and monetary policy, including additional increased interest rates. Other adverse impacts of recent macroeconomic conditions have been, and may continue to be, supply chain constraints, logistics challenges, liquidity concerns in the broader financial services industry, and fluctuations in labor availability.

Adverse developments that affect financial institutions, transactional counterparties, or other third parties, or concerns or rumors about these events, have in the past and may in the future lead to market-wide liquidity problems. For example, on March 10, 2023, Silicon Valley Bank (“SVB”) was closed by the California Department of Financial Protection and Innovation, which appointed the U.S. Federal Deposit Insurance Corporation (“FDIC”) as receiver. Similarly, other institutions have been and may continue to be swept into receivership. We have no borrowing or deposit exposure to directly impacted institutions and have not experienced an adverse impact to our liquidity or to our business operations, financial condition, or results of operations as a result of these recent events. However, uncertainty may remain over liquidity concerns in the broader financial services industry, and there may be unpredictable impacts to our business and our industry.

In a higher inflationary environment, we may be unable to raise the prices of our products and services sufficiently to keep up with the rate of inflation. Impacts from inflationary pressures could be more pronounced and materially adversely impact aspects of our business where revenue streams and cost commitments are linked to contractual agreements that extend further into the future, as we may not be able to quickly or easily adjust pricing, reduce costs, or implement ~~counter measures.~~countermeasures. A higher inflationary environment can also negatively impact raw material, component, and logistics costs that, in turn, may increase the costs of producing and distributing our products. Recently, the costs of raw materials, transportation, construction, services, and energy necessary for the production and distribution of our products have increased significantly.

~~Additionally,~~Furthermore, hospitals and distributors may choose to postpone or reduce spending due to financial difficulties or difficulties in obtaining credit to finance purchases of our products due to increased interest rates and restraints on credit. Hospitals and distributors may also be adversely affected by the liquidity concerns in the broader financial services industry, as described above, that could result in delayed access or loss of access to uninsured deposits or loss of their ability to draw on existing credit facilities involving a troubled or failed financial institution. Hospitals, in particular, are ~~currently~~ experiencing and may continue to experience financial and operational pressures as a result of staffing shortages, the supply chain environment, and ~~increased~~high inflation, which could impact their ability to access capital markets and other funding sources, increase the cost of funding, or impede their ability to comply with debt covenants, all of which could impede their ability to provide patient care, defer elective surgeries, and impact their profitability. To the extent that hospitals ~~continue to~~ face financial pressures, delayed access or loss of access to uninsured deposits, delayed access or loss of ability to draw on existing credit facilities, reductions in government

spending, or higher interest rates, ~~it is likely that~~ hospitals’ ability or willingness to spend on capital equipment ~~will~~may be adversely impacted, all of which could have a material adverse effect on our business, financial condition, or results of ~~operations,~~operations.

We are unable to predict the impact of efforts by central banks and federal, state, and local governments to combat elevated levels of inflation. If their efforts to create downward pressure on inflation are too aggressive, they may lead to a recession. Alternatively, if they are insufficient or ~~cash flows.~~are not sustained long enough to bring inflation to lower, more acceptable levels, hospitals’ ability or willingness to spend on capital equipment may be impacted for a prolonged period of time. If a recession occurs, economies weaken, or inflationary trends continue, our business and operating results could be materially adversely affected.

~~IF WE LOSE KEY PERSONNEL OR ARE UNABLE~~Also, we have, and may continue to, experience supply chain constraints due to the current supply chain environment, including difficulties obtaining a sufficient supply of component materials used in our products. If interest rates continue to rise, access to credit may become more difficult, which may result in the insolvency of key suppliers, including single-source suppliers, which would exacerbate supply chain challenges. Such supply chain constraints could cause us to fail to meet product demand, which could result in deferred or canceled procedures.

OUR RELIANCE ON SOLE-SOURCED AND SINGLE-SOURCED SUPPLIERS AND ABILITY TO ~~ATTRACT~~PURCHASE AT ACCEPTABLE PRICES A SUFFICIENT SUPPLY OF MATERIALS, PARTS, AND ~~RETAIN ADDITIONAL PERSONNEL,~~COMPONENTS COULD HARM OUR ABILITY TO ~~COMPETE WILL BE HARMED AND INCREASES~~MEET PRODUCT DEMAND IN ~~LABOR COSTS COULD MATERIALLY ADVERSELY IMPACT OUR BUSINESS AND RESULTS OF OPERATIONS.~~A TIMELY MANNER OR WITHIN BUDGET.

~~We are highly dependent on~~Some of the ~~principal members~~components necessary for the assembly of our ~~management~~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 ~~scientific staff. For example,~~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 ~~product development plans depend,~~supply chain, could cause a significant increase in the costs of these components, which could affect our operating results. Certain of our sole-sourced suppliers or single-sourced suppliers could be adversely affected by the macroeconomic conditions, such as liquidity concerns in the broader financial services industry, that could result in delayed access or loss of access to their uninsured deposits or loss of their ability to draw on existing credit facilities involving a troubled or failed financial institution. 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, or results of operations.

In addition, our ability to meet customers’ demands depends, in part, on our ability to ~~attract~~timely obtain an adequate delivery of quality materials, parts, and ~~retain engineers~~components from our suppliers. An information technology systems interruption, including cyberattacks, could adversely affect the ordering, distribution, and manufacturing processes of our suppliers. Difficulties remain in obtaining a sufficient supply of semiconductor and other component materials, and we expect such difficulties to persist in the foreseeable future. Prices of such materials have also increased, and global supply has become 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 ~~experience~~our suppliers and modifying our purchase order coverage and inventory levels. Such global shortages in ~~mechanics, electronics, software,~~important components have resulted in, and ~~optics. Attracting~~will continue to cause, inflationary pressure in our supply chain, which would impact our profits and ~~retaining qualified personnel will be~~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, or results of operations.

INFORMATION TECHNOLOGY SYSTEM FAILURES, CYBERATTACKS, OR DEFICIENCIES IN OUR CYBERSECURITY COULD HARM OUR BUSINESS, CUSTOMER RELATIONS, FINANCIAL CONDITION, OR RESULTS OF OPERATIONS.

Our information technology systems are critical to the success of our ~~success,~~products, help us operate effectively and ~~competition for qualified personnel is intense. We may~~efficiently, interface with customers, maintain our supply chain and manufacturing operations, maintain financial accuracy and efficiency, and help us produce our Consolidated Financial Statements. If we do not allocate and effectively manage the resources necessary to build and sustain the proper information technology infrastructure, we could be ~~able~~subject to ~~attract and retain personnel on acceptable terms given~~transaction errors, processing inefficiencies, the ~~constrained labor market and competition for such personnel among technology and healthcare companies. Additionally, as a result~~loss of recent declines in our stock price, certain long-term incentive benefits, such as recently issued stock options, may be viewed as having less value and, accordingly, could lead to higher attrition. Moreover, we may encounter higher recruiting expenses, wage rates, and retention benefits. The extent and durationexisting customers, difficulty attracting new customers, business operation disruptions, diversion of the ~~impact~~attention of ~~labor market challenges are subject~~management and key information technology resources, security breaches, or the unauthorized access to, ~~numerous factors, including the continuing impact~~loss of, ~~the COVID-19 pandemic, availability~~or damage to intellectual property, confidential information, or personal information. Our information technology systems and those of qualified and highly skilled persons in the markets where we operate and unemployment levels within these markets, behavioral changes, such as fully engaging employees and earning loyalty, prevailing wage rates, healthour third-party service providers, strategic partners, and other ~~insurance and benefit costs, inflation, adoption of new~~contractors or revised employment and labor laws and regulations or government programs, safety levels of our operations, and our reputation within the labor market. The loss of any of our qualified personnel or our inability to attract and retain qualified personnel could harm our business and our ability to compete and related expenses could materially adversely affect our results of operations and financial condition.consultants are

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~~THE ONGOING ARMED CONFLICT BETWEEN RUSSIA AND UKRAINE COULD ADVERSELY AFFECT OUR BUSINESS, FINANCIAL CONDITION, AND RESULTS OF OPERATIONS.~~vulnerable to attack, damage, or interruption from a variety of sources. These sources include computer viruses and malware (e.g., ransomware), malicious code, natural disasters, terrorism, war, telecommunication and electrical failures, hacking, cyberattacks, phishing attacks and other social engineering schemes, employee theft or misuse, human error, fraud, denial or degradation of service attacks, sophisticated nation-state and nation-state-supported actors, or unauthorized access or use by persons inside our organization, or persons with access to systems inside our organization. If our information technology systems do not effectively and securely collect, store, process, and report relevant data for the operation of our business, our ability to effectively plan, forecast, and execute our business plan and comply with applicable laws and regulations could be impaired. Any such impairment could materially and adversely affect our financial condition, results of operations, and the timeliness with which we report our internal and external operating results.

~~On February 24, 2022, Russian military forces launched~~Our business requires us to use and store customer, employee, and business partner personal information. This may include names, addresses, phone numbers, email addresses, contact preferences, tax identification numbers, and payment account information. We require usernames 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 ~~military~~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 usernames, passwords, or other sensitive information, which may, in turn, be used to access our information technology systems. In addition, our employees, third-party service providers, strategic partners, or other contractors or consultants may input inappropriate or confidential information into an artificial intelligence system (in particular, a system that is managed, owned, or controlled by a third party), thereby compromising our business operations, which may cause business operation disruptions, diversion of the attention of management and key information technology resources, and possibly lead to security breaches of, or the unauthorized access to, our confidential information or other business data. As a result of the COVID-19 pandemic, we may also face increased cybersecurity risks due to our reliance on internet technology and the number of our employees who are working remotely, which may create additional opportunities for cybercriminals to exploit vulnerabilities.

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 the loss of data, a risk to patient safety, and a risk of product recall or field action, which could adversely impact our business and reputation. We have programs in ~~Ukraine,~~place to detect, contain, and ~~sustained conflict~~respond to data security incidents, and ~~disruption~~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 personal information or intellectual property, or sabotage systems containing personal information or intellectual property, change frequently and may originate from less regulated and remote areas of the world and be difficult to detect, we may not be able to anticipate and prevent these intrusions or mitigate them when and if they occur. Even if identified, we may be unable to adequately investigate or remediate incidents or breaches due to attackers increasingly using tools and techniques that are designed to circumvent controls, avoid detection, and remove or obfuscate forensic evidence.

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 the security of our own information technology 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 and cybersecurity incidents, or other actions that may compromise the security of or interfere with the function of our systems, defects or vulnerabilities in the ~~region is likely. The length,~~software or systems of our external vendors may expose failures in our internal controls and risk management processes, which may adversely impact and outcome of this ongoing military conflict is highly unpredictable and could lead to significant market and other disruptions, including significant volatility in commodity prices and supply of energy resources, instability in financial markets, supply chain interruptions, political and social instability, trade disputes or trade barriers, changes in consumer or purchaser preferences, as well as an increase in cyberattacks and espionage.

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

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

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

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

In retaliation against new international sanctions and as part of measures to stabilize and support the volatile Russian financial and currency markets, the Russian authorities also imposed significant currency control measures aimed at restricting the outflow of foreign currency and capital from Russia, imposed various restrictions on transacting with non-Russian parties, banned exports of various products, and imposed other economic and financial restrictions. The situation is rapidly evolving, and additional sanctions by Russia on the one hand, and by the other countries on the other hand, could adversely affect the global economy, financial markets, energy supply and prices, certain critical materials and metals, supply chains, and global logistics and could adversely affect our business, financial condition, or results of operations 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 and certain of our service providers are, from time to time, subject to cyberattacks and security breaches and incidents. We consider such cyberattacks or security breaches and incidents to be in the ordinary course of business for a company of our size in our industry. While we do not believe that we have experienced any significant system failure, accident, or security breach to date, if such an event were to occur, it could impair our ability to attract and retain customers for our products, impact the price of our stock, materially damage commercial relationships, and expose us to litigation or government investigations, which could result in penalties, fines, or judgments against us. 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 security breach affects our systems or results in the unauthorized release of personal information, 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, or results of operations.

WeGlobally, attacks are ~~actively monitoring the situation~~expected to continue accelerating in ~~Ukraine~~both frequency and ~~Russia~~sophistication with increasing use of tools and ~~assessing its impact on~~techniques that are designed to circumvent controls, avoid detection, and remove or obfuscate forensic evidence, all of which hinders our business, including our business partners and customers. To date, we have not experienced any material interruptions in our infrastructure, supplies, technology systems, or networks needed to support our operations. We have no way to predict the progress or outcome of the military conflict in Ukraine or its impacts in Ukraine, Russia, Belarus, Europe, or the U.S. The extent and duration of the military action, sanctions, other consequences, such as Russia imposing restrictions on transactions or banning the export of energy products, including natural gas, and the resulting market disruptions could be significant and could potentially have substantial impact on the global economy and our business for an unknown period of time. Impacts to our business may include, but are not limited to, procedures performed, demand for our products, and ability to ~~spend on capital equipment~~identify, investigate, and ~~healthcare in general. Any such disruption may also magnify the impact of other risks described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.~~recover from incidents.

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

~~Due~~Furthermore, due to the political uncertainty involving Russia and Ukraine, there is also an increased likelihood that the tensions could result in cyberattacks or cybersecurity incidents that could either directly or indirectly impact our operations. Any attempts by ~~cyber attackers~~cyber-attackers to disrupt our services or information technology systems or the services or information technology systems of our ~~vendors,~~third-party service providers, strategic partners, and other contractors or consultants, if successful, could harm our business, result in the misappropriation of funds, be expensive to remedy, and damage our reputation or brand. ~~Insurance~~

While we maintain cyber insurance coverage that is intended to address data security risks, such insurance coverage may ~~not~~ be ~~sufficient~~insufficient to cover all losses or claims that may arise.

WE ARE EXPOSED TO CREDIT RISK AND FLUCTUATIONS IN THE MARKET VALUE OF OUR INVESTMENTS.

Our investment portfolio includes both domestic and international investments. The credit ratings and pricing of our investments can be negatively affected by liquidity concerns, credit deterioration, financial results, economic risk, political risk, or other factors. As a result, the value and liquidity of our cash equivalents and marketable securities could fluctuate substantially. Our other income and expense could also vary materially from expectations depending on gains or losses realized on the sale or exchange of investments, impairment charges resulting from revaluations of debt and equity securities and other investments, changes in interest rates, increases or decreases in cash balances, volatility in foreign exchange rates, and changes in the fair value of derivative instruments. Increased volatility in the financial markets and overall economic uncertainty could increase the risk that actual amounts realized on our investments may differ significantly from the fair values currently assigned to them.

The value of our investments may also decline due to instability in the global financial markets, which may reduce the liquidity of securities included in our portfolio. The closure of SVB and other institutions swept into receivership and the appointment of the FDIC as receiver created bank-specific and broader financial institution liquidity risk and concerns. Although the U.S. Department of the Treasury, the Federal Reserve, and the FDIC jointly released a statement that depositors at SVB and other banks that have been similarly swept into receivership would have access to their funds, even those in excess of the standard FDIC insurance limits, under a systemic risk exception, future adverse developments with respect to specific financial institutions or the broader financial services industry may impair our ability to access capital needed to support near-term working capital needs, whether from our existing investment and deposit accounts and credit facilities or otherwise, and may lead to market-wide liquidity shortages and create additional market and economic uncertainty. Any decline in available funding or access to our cash and liquidity resources could also result in breaches of our financial and/or contractual obligations.

Our Intuitive Ventures fund plans to invest in early-stage companies, which involve substantial risks and uncertainties. These risks and uncertainties include, among other things, uncertainties inherent in research and development; uncertainties regarding the ability of Intuitive Ventures to identify investment candidates; uncertainties regarding the success of Intuitive Ventures’ investments; uncertainties and variables inherent in the operating and financial performance in investments made, including, among other things, competitive developments and general economic, political, business, industry, regulatory and market conditions; future exchange and interest rates; and changes in tax and other laws, regulations, rates and policies.

While we have not realized any significant losses on our cash equivalents, marketable securities, or other investments, future fluctuations in their value could have a material adverse impact on our business, financial condition, or results of operations.

CHANGES IN OUR EFFECTIVE TAX RATE MAY ADVERSELY AFFECT OUR BUSINESS, FINANCIAL CONDITION, OR RESULTS OF OPERATIONS.

We are subject to taxes in the U.S. and other jurisdictions around the world. Tax rates in these jurisdictions may be subject to significant change due to economic and/or political conditions. A number of other factors may also impact our future effective tax rate, including:

•the jurisdictions in which profits are determined to be earned and taxed;

•the resolution of issues arising from tax audits with various tax authorities;

•changes in the valuation of our deferred tax assets and liabilities;

•increases in expenses not deductible for tax purposes, including write-offs of acquired intangibles and ~~losses related to such cyberattacks and cybersecurity incidents.~~impairment of goodwill in connection with acquisitions;

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•changes in the availability of tax credits, tax holidays, and tax deductions;

•changes in share-based compensation; and

•changes in tax laws or the interpretation of such tax laws and changes in generally accepted accounting principles.

We are unable to predict what changes to the tax laws of the U.S. and other jurisdictions may be proposed or enacted in the future or what effect such changes would have on our business. Changes in the tax laws of foreign jurisdictions could arise as a result of the base erosion and profit shifting (“BEPS”) project undertaken by the Organization for Economic Co-operation and Development (“OECD”). The OECD proposed changes to long-standing tax principles and continues to develop new proposals, including allocating greater taxing rights to countries where customers are located and establishing a global minimum tax rate of at least 15%. These changes, if adopted by countries, may increase tax uncertainty and adversely affect our provision for income taxes. Any significant increase in our future effective tax rate could have a material adverse impact on our business, financial condition, or results of operations.

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~~June 30, ~~2022.~~2023:

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, 2022 — $ — — $ 3.5 billion
August 1 to August 31, 2022 3,500,481 $ 217.52 3,500,481 $ 2.7 billion
September 1 to September 30, 2022 1,096,826 $ 217.52 1,096,826 $ 2.5 billion
Total during quarter ended September 30, 2022 4,597,307 $ 217.52 4,597,307


Fiscal Period	Total Number of Shares Repurchased	Average Price Paid Per Share		Total Number of Shares Purchased As Part of a Publicly Announced Program	Approximate Dollar Amount of Shares That May Yet be Purchased Under the Program (1)
April 1 to April 30, 2023	—	$	—	—	$	1.1	billion
May 1 to May 31, 2023	—	$	—	—	$	1.1	billion
June 1 to June 30, 2023	—	$	—	—	$	1.1	billion
Total during quarter ended June 30, 2023	—	$	—	—

(1) Since March 2009, we have had an active stock Repurchase Program. As of ~~September~~June 30, ~~2022,~~2023, our Board had authorized an aggregate amount of up to $10.0 billion for stock repurchases, of which the most recent authorization occurred in July 2022, when our Board increased the authorized amount available under our stock Repurchase Program to $3.5 billion. The remaining ~~$2.5~~$1.1 billion represents the amount available to repurchase shares under the authorized stock Repurchase Program as of ~~September~~June 30, ~~2022.~~2023. The authorized stock Repurchase Program does not have an expiration date.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

~~Sustainability Program Update~~

~~We have made significant progress on several fronts with respect~~Rule 10b5-1 Plans

On April 28, 2023, Gary S. Guthart, Ph.D., the Company’s Chief Executive Officer and a member of the Company’s Board of Directors, adopted a Rule 10b5-1 trading plan. Dr. Guthart’s trading plan provides for (i) the potential exercises of vested stock options to ~~our sustainability program, including~~purchase up to 135,000 shares of the ~~hiring~~Company’s common stock, (ii) the potential sales of shares of the Company’s common stock received upon such exercises to cover exercise costs, estimated tax withholding amounts, and customary brokerage fees as well as potential additional sales of such shares, (iii) the potential donation of 16,000 shares of the Company’s common stock from a ~~Senior Director, Environmental, Social~~trust in which Dr. Guthart is a trustee, and ~~Governance.~~

~~Environmental Stewardship~~

~~Our Company~~(iv) the potential sales of up to 14,880 shares of the Company’s common stock held by trusts in which the beneficiaries are children of Dr. Guthart, until April 29, 2024. This trading plan was entered into during an open insider trading window and is ~~committed~~intended to ~~formalizing its external reporting in alignment with a number~~satisfy the affirmative defense of ~~well-recognized disclosure standards. We are currently working to scope this commitment appropriately, so that~~Rule 10b5-1(c) under the disclosure methodology we develop is appropriate and can be reported alongside other well-recognized global disclosure standards. We intend to publish the Task Force on Climate-Related Financial Disclosures (“TCFD”) report by the first quarterSecurities Exchange Act of ~~2023.~~

~~Inclusion and Diversity~~

~~Our Company’s inclusion and diversity (“I&D”~~1934, as amended (the “Exchange Act”) ~~mission is to build an inclusive, equitable, and diverse environment where every individual can belong and flourish – in our company~~, and the ~~communities we serve. We believe that everyone should feel included and fairly treated, and we embrace~~Company’s policies regarding transactions in the ~~unique qualities that make people who they are. We have~~Company’s securities.

On May 1, 2023, Amal M. Johnson, a ~~four-part strategy, and we made progress in each~~member of ~~these areas in 2022 under~~ the ~~leadership~~Company’s Board of ~~our Vice President of Global I&D and our Company’s I&D Council.~~

~~Diverse workforce~~: ~~Increase leader and employee representation to fuel innovation and better mirror the patients we serve. To source more diverse candidates and increase our rigor in fair talent selection, we created~~Directors, adopted a dedicated Diversity Talent Attraction team within Talent Acquisition, implemented new sourcing partnerships, and participated in career fair events for women, people of color, veterans, and people with disabilities. We also implemented required training for our recruiters, hiring managers, and interview teams focused on fair and inclusive hiring practices.

~~Inclusive experience~~: ~~Make employees from all backgrounds feel welcome, supported, and valued. We continued to build momentum in our employee resource groups (“ERGs”), including the addition of a seventh ERG~~Rule 10b5-1 trading plan. Ms. Johnson’s trading plan provides for the ~~Hispanic/Latinx community~~potential exercise and sale of up to 16,263 shares of the ~~introduction of a new “cultural moments” approach~~Company’s common stock subject to ~~communication. We rolled out Inclusive Leadership training to all senior leaders at the VP level~~an option until May 1, 2024. This trading plan was entered into during an open insider trading window and ~~above. We participated in the Disability Equality Index and were named a “Best Place to Work for Disability Inclusion.”~~is

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~~Fair practices~~: ~~Openly share progress~~intended to satisfy the affirmative defense of Rule 10b5-1(c) under the Exchange Act and ~~continuously improve our people practices~~the Company’s policies regarding transactions in ~~areas such as representation, pay equity,~~the Company’s securities.

On May 3, 2023, Jamie E. Samath, the Company’s Chief Financial Officer, adopted a Rule 10b5-1 trading plan. Mr. Samath’s trading plan provides for the potential sale of up to 19,887 shares of the Company’s common stock, including the potential exercise and ~~promotion practices. We completed~~sale of up to 13,870 shares of the Company’s common stock subject to stock options, until May 3, 2024. This trading plan was entered into during an open insider trading window and is intended to satisfy the affirmative defense of Rule 10b5-1(c) under the Exchange Act and the Company’s policies regarding transactions in the Company’s securities.

On May 8, 2023, Alan J. Levy, Ph.D., a ~~self-ID campaign with our U.S. employees in February and, in September, we provided an expanded view~~member of ~~our employee diversity data, including our U.S. EEO-1 consolidated report, on our website at https://www.intuitive.com/en-us/about-us/company/inclusion-diversity/fair-practices.~~

~~Industry engagement~~: ~~Engage with~~ the healthcare community, suppliers, partners, and shareholders to drive positive change. We launched a new section of our website focused on I&D, and we continued to grow our customer Women in da Vinci Surgery community. We also engaged with third parties to bring specialized resources to better support our employees, including Disability:IN, Catalyst, and a gender identity consultant.

~~Cybersecurity~~

In 2022, our cybersecurity systems and processes achieved International Standards Organization (ISO) 27001 certification and continued to adhere to National Institute of Science and Technology guidelines. In addition, we work with third-party security rating organizations and government agencies to evaluate information security practices. All employees receive annual training on our information security policy in addition to ongoing information security training across a variety of topics and trends. Our senior leaders hold quarterly reviews of our information and product security. OurCompany’s Board of Directors, ~~reviews information~~adopted a Rule 10b5-1 trading plan. Mr. Levy’s trading plan provides for the potential exercise and ~~product security matters several times~~sale of up to 8,000 shares of the Company’s common stock subject to stock options until May 8, 2024. This trading plan was entered into during an open insider trading window and is intended to satisfy the affirmative defense of Rule 10b5-1(c) under the Exchange Act and the Company’s policies regarding transactions in the Company’s securities.

On June 15, 2023, Amy L. Ladd, M.D., a ~~year.~~member of the Company’s Board of Directors, adopted a Rule 10b5-1 trading plan. Ms. Ladd’s trading plan provides for the potential sale of up to 500 shares of the Company’s common stock until June 14, 2024. This trading plan was entered into during an open insider trading window and is intended to satisfy the affirmative defense of Rule 10b5-1(c) under the Exchange Act and the Company’s policies regarding transactions in the Company’s securities.

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ITEM 6. EXHIBITS


Exhibit Number			Exhibit Description
~~3.1(a)~~3.1(1)			Amended and Restated Certificate of Incorporation of ~~Intuitive Surgical, Inc.,~~the Company, as ~~amended (incorporated by reference to Exhibit 3.1 of the Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on July 23, 2020)~~Amended.
~~3.1(b)~~3.2(2)			Amendment to Amended and Restated Certificate of Incorporation of ~~Intuitive Surgical, Inc., as amended (incorporated by reference to Exhibit 3.1 of~~ the ~~Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on October 20, 2021).~~Company.
~~3.2~~3.3(3)			Amended and Restated Bylaws of ~~Intuitive Surgical, Inc. (incorporated by reference to Exhibit 3.1 of~~ the ~~Current Report on Form 8-K filed with the Securities and Exchange Commission on February 1, 2021).~~Company.

31.1			Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2			Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1			Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2			Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101			The following materials from Intuitive Surgical, Inc.’s Quarterly Report on Form 10-Q for the quarter ended ~~September~~June 30, ~~2022,~~2023, 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~~June 30, ~~2022,~~2023, formatted in Inline XBRL and contained in Exhibit 101.

1.Incorporated by reference to Exhibit 3.1 filed with the Company’s Quarterly Report on Form 10-Q filed on July 23, 2020 (File No. 000-30713).

2.Incorporated by reference to Exhibit 3.1 filed with the Company’s Quarterly Report on Form 10-Q filed on October 20, 2021 (File No. 000-30713).

3.Incorporated by reference to Exhibit 3.1 filed with the Company’s Current Report on Form 8-K filed on February 1, 2021 (File No. 000-30713).

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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/ JAMIE E. SAMATH
						Jamie E. Samath
						Senior Vice President and Chief Financial Officer
						(Principal Financial Officer and duly authorized signatory)

Date: ~~October~~July 21, ~~2022~~2023

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									Reported as:
	December 31, 2021 Carrying Value		Changes in Fair Value (1)		Purchases / Sales / Other (2)		September 30, 2022 Carrying Value		Prepaids and other current assets		Intangible and other assets, net
Equity investments with readily determinable value (Level 1)	$	26.9	$	(21.6)	$	(0.2)	$	5.1	$	5.1	$	—
Equity investments without readily determinable value (Level 2)	$	15.6	$	0.3	$	37.8	$	53.7	$	—	$	53.7

(1) Recorded in Interest and other income, net.
(2) Other includes foreign currency translation gains/(losses).


	As of
Other accrued liabilities–short-term	September 30, 2022		December 31, 2021
Taxes payable	$	71.2	$	54.1


Current portion of deferred and contingent purchase consideration	7.7		12.0
Accrued construction-related capital expenditures	65.9		23.1
Other accrued liabilities	257.3		212.1
Total other accrued liabilities–short-term	$	402.1	$	301.3


	Shares	Weighted-Average Grant-Date Fair Value
Unvested balance as of December 31, 2021	4.8	$	207.37
RSUs granted	1.9	$	276.28
RSUs vested	(1.8)	$	189.31
RSUs forfeited	(0.2)	$	232.59
Unvested balance as of September 30, 2022	4.7	$	241.87