Intuitive Surgical, Inc. Price & Performance (ISRG)

Our SEC filings can be found through our website or at the SEC's website. Investors are cautioned not to place undue reliance on such forward looking statements. Please note that this conference call will be available for audio replay on our website at intuitive.com, on the Events section under our Investor Relations page. Today's press release and supplementary financial data tables have been to our website. Today's format will consist of providing you with highlights of our first quarter results, as described in our press release announced earlier today followed by a question and answer session. Gary will introduce the call and provide a business overview. Dave will present the quarter's business, operational and clinical highlights. Jamie will provide a review of our financial results and procedure highlights. Then I will discuss our updated financial outlook for 2025, And finally, we will host a question and answer session. With that, I will turn the call over to Gary. Thank you for joining us on the call today. Our business performed well in the first quarter of the year, with physicians using our products, at the high end of our expectations driven by strong procedure growth and core general surgery in The United States, and strong procedures outside The United States.

New system placements in the quarter were solid, with particular strength in The U. S. We are pleased with the performance of each of our platforms. With continued adoption of DV5 in multiport solid results in Ion, and acceleration in procedures using our single single port platform. Given the dynamic changes in trade policy, I would like to describe our principles for navigating the current environment, rather than detailing any particular scenario. Our first priority is to assure supply of our products to our customers globally. We have spent years becoming a trusted provider of great products and services, and our first commitment is to maintaining this status for those who depend upon us. We believe that high quality minimally invasive care at industrial scale will remain a global need. Regardless of trade policy, and our long term opportunity remains robust. We will continue to manage the business for the long term, and invest towards improvement in the quintuple aim.

Given potential changes in our costs and our customers' costs across their enterprise, We do not plan reflexive changes to our pricing in that dynamic near term environment. Our second priority will be to optimize our production costs and rebalance product flows within our existing manufacturing and supply chain footprint as policies begin to stabilize. Finally, we will adjust our supply chain strategy and assess adjustments to our pricing, we see the signs of a durable planning environment for trade. I will now turn the call over to Dave to take you through our products, services and operating highlights.

Dave?

Thank you, Gary. Intuitive Surgical was founded in 1995, In this, our thirtieth year of operations, our global da Vinci installed base in Q1 twenty twenty five exceeded 10,000 systems, and over 50,000 surgeons across 70 countries performed procedures in the quarter. Thank you to our customers, our employees, and all our stakeholders for your ongoing collaboration and commitment as we continue to advance minimally invasive care. Starting with procedures, da Vinci procedure growth in the quarter was 17%. Areas of strength included general surgery in The US, and regional performance in India, Korea, distribution markets, and The UK. In The US, after hours procedure growth accelerated to 36% year over year. Jamie will describe procedure dynamics later in the call. Turning to capital, we placed three sixty seven da Vinci systems in the quarter, including 147 da Vinci V systems, and 19 SP systems. We also installed 49 Ion systems in the quarter. Capital placements were strong in The U. S, with mixed performance outside of The U. S. Reflecting stresses in Germany, The UK, and Japan. System utilization defined as procedures per installed clinical system per quarter. Grew 2% year over year for our multiport platforms, 26% for SP, 5% for ION.

Solid procedure growth and capital performance supported strong revenue growth of 19% in the quarter. Product margins were within our expectations reflecting increased depreciation from new facilities, and a higher mix of newer platforms. Operating expenses were within our expectations. Jamie will take you through our finances in greater detail later in the call. In Q1, our rollout of 147 systems placed and over 32,000 procedures performed across a broad set of specialties. We installed our first fully integrated system this month, which now features software to enable the integrated hub, and simulator, along with a host of other enhancements. Several additional features, including real time surgical video review, real time three d model review, and visual force feedback gauges will be enabled upon five ten clearance later this year. We continue to ramp our manufacturing operations and supply chain capabilities to support broad launch of da Vinci V midyear. Broad launch means that systems incorporate the latest fully integrated hardware and software and we are able to meet customer demand including trade ins and dual consoles. As we've discussed previously, we remain in the regulatory process in Japan and expect clearance in Europe near the end. Of 2025. Force feedback is one of the core features of da Vinci V. We are starting to see early single institution studies evaluating the impact of force feedback on clinical outcomes and proficiency.

In an abstract presented at the North American Robotic Urology Symposium, a team led by Doctor. Michael Stifleman, Chair of Urology at Hackensack University Medical Center, studied return to bowel function in a small cohort of patients. Return of bowel function in less than twenty four hours is an important metric for certain operations. Of the twenty eight patients included, sixteen patients underwent transparent needle partial nephrectomy or radical nephrectomy. Where force feedback technology was used. Compared with twelve patients undergoing the same procedure with standard da Vinci Xi instruments. The authors reported a significantly higher rate of recovery of bowel function within twenty four hours with eighty three percent of the force feedback cohort compared to twenty five percent in the non force feedback cohort. The authors concluded that force feedback instruments in robotic assisted kidney surgery are associated with faster bowel function recovery. Suggesting potential reductions in colonic trauma. They note as robotic assisted surgery advances, integrating force feedback into routine practice could enhance precision and improve recovery across disciplines. Regarding time to proficiency, a second study led by a team including Doctor. Andrew Hung, Associate Professor of Urology and Computational Biomedicine, at Cedars Sinai Medical Center in Los Angeles, evaluated the impact of force feedback technology on the suturing performance of 29 novice surgeons in a randomized preclinical study.

The study showed that force feedback technology has the potential to improve novice surgeon performance, by significantly reducing tissue trauma, and errors during suturing. And time to complete suturing. These results are consistent with the core value hypotheses of force feedback technology, We expect more of these types of studies to publish in 2025 and beyond. Force feedback instruments are in limited supply, and we expect broad availability near the end of twenty twenty five. Use of case insights with da Vinci V is growing nicely. With case insights delivered on over 22,000 procedures to date. These data sets include video, kinematic energy, and force data, and are delivered in the context of surgical procedure steps. Enabling surgeons to easily navigate the procedure video and identify meaningful operational and clinical insights. These insights will form the basis of key performance indicators and help both novice and expert surgeons identify objective measures that underpin surgical performance. As we said before, the long term opportunity for computational tools is both significant and difficult. Validations at scale will take time, and are a worthy pursuit. Moving to 58% to approximately 31,000 in the quarter, In April, we received clearance of our Ion platform in Australia, and in China, received our first provincial charge code.

In this early phase of launch in China, we are focused on the collection of clinical data to support our broader commercialization strategy. Our priorities for ION in the near term are supporting utilization growth in The US, expansion in international markets, and improving product cost. Turning to SP, procedure growth accelerated in the quarter to 94%, with solid growth in The US, and OUS procedures more than doubling, compared to the year ago period, driven by Korea, Japan, and early adoption in Europe. In the quarter, we received US five ten clearance for our da Vinci SP SureForm 45 stapler, which will support the use of SP in thoracic and colorectal indications. Our commercialization efforts in these indications will be measured as we look to establish first access sites and develop key opinion leaders in the coming quarters. In closing, we are committed to our twenty twenty five priorities, First, focusing on the full launch of da Vinci V, its regional clearances and follow on feature releases. Second, we'll pursue increased adoption for our focused procedures by country, through training, commercial activities, and market access efforts. Third, we'll drive continued progress in building industrial scale product quality and manufacturing optimization.

And finally, we'll focus on excellence and availability of our digital tools. While periods of rapid change can create inefficiencies, as we adapt to a dynamic environment, we are well positioned operationally and financially to execute against our priorities. I'll now turn the time over to Jamie who will take you through our finances, and procedure highlights in greater detail.

Good afternoon.

I will describe the highlights of our performance, on a non GAAP or pro form a basis and will also summarize our GAAP performance later in my prepared remarks. A reconciliation between our pro form a and GAAP results is posted on our website. Given that the current global trade environment is relatively dynamic, before we dive into Q1 results, let me address tariffs. To provide some context, the footprint of our manufacturing operations is as follows. In 2024, Intuitive manufactured 98% of our robotic systems in The United States. 70% of our endoscopes in Europe, and approximately 80% of our instruments and accessories in Mexico. We source raw materials and other components that go into these finished products, from suppliers around the world. The net result of our manufacturing footprint and global customer demand is that Intuitive is both a significant U. S. Manufacturer and has become a significant net US exporter. In terms of the impacts of tariffs too intuitive, broadly, in order of magnitude, I would characterize tariffs into the following three buckets.

First, those tariffs relating to US China trade, We import into China subassemblies for domestic Xi production and completely finished XIs, both of which are expected to incur Chinese tariffs of 125%. Also import components from Chinese based suppliers into The US to be incorporated into the manufacture of our products, which incur US tariffs of 145% In addition, our China JV manufactures certain products for our ION platform that are subject to US tariffs when imported for US procedure demand. Second, imports into The US of procured components from OUS based suppliers and imports of endoscopes from our factories in Europe are subject to the 10% baseline tariffs and then increased tariff rates after the current ninety day pause period has elapsed. Third, while most of our products manufactured in Mexico are certified under the requirements of USMCA, and therefore are not subject to current U. S. Import tariffs, a small portion do not currently meet the requirements, and therefore incur 25% tariffs upon import to The US. Based on the impacts just described, reflecting those tariffs that have been implemented and those that have been announced with both a stated percentage and implementation date and assuming such tariffs remain in place, we currently expect the impact to our income statement for 2025 to be additional cost of sales of approximately 1.7% of revenue plus or minus 30 basis points.

The impact of tariffs will vary with the volume of capital sales in China the mix of procured components from OUS suppliers, and the proportion of products manufactured in Mexico that are certified under USMCA. Given that tariff costs are capitalized into inventory, and then recognized in cost of sales as products are sold, we would expect the impact of tariffs to increase each quarter over the remainder of the year, As a result, we are updating our estimate for pro form a gross margin to be within a range of 6566.5% of revenue, This range does not reflect any additional tariffs, any potential inflationary impact on labor cost or the cost of procured components. To the extent that tariffs and their derivative impact has a durable impact on our cost of sales, and or demand for our products we will consider implementation over time of a range of mitigating operational actions, However, we do not expect any such measures to have a significant beneficial impact in 2025. Turning to Q1, core metrics were strong, DaVinci procedure growth Da Vinci procedures grew 17%, the installed base of da Vinci systems grew 15%, and average system utilization grew 2%. Procedure growth in Q1 was adversely impacted by a lower number of business days compared to the year ago period on a day adjusted basis Q1 procedure growth was 18.5%, US procedures grew 13% driven by growth in benign general surgery with relative strength in cholecystectomy foregut, and appendectomy procedures, Consistent with recent trends, bariatrics procedures in The US declined in the mid single digit range. 24%, driven by strength in India, Korea, distributor markets and The UK.

Procedure growth in Korea improved sequentially, some portion of that higher growth may be a catch up in procedures from prior periods, as a result of the ongoing physician strike. Procedure growth in China improved from the prior quarter and was a little above the global average driven primarily by urologic procedures.

Looking at OUS performance in aggregate, we see strong procedure growth in colorectal hysterectomy, benign general surgery, and thoracic categories, Reviewing capital performance, we placed three sixty seven systems in the first quarter, 17% higher than the three thirteen systems placed in the same period last year. First quarter placements included 107 da Vinci V systems, taking the total installed base to five zero nine systems. There were 67 trade in transactions in Q1, compared to 29 trade ins last year, driven by some U. S. Customers upgrading to da Vinci five. It is important to note that we expect trade ins to occur progressively over multiples of years as we build da Vinci V evidence and customers evaluate associated returns on such investments. In The US, placed two zero four systems in Q1, up from 148 systems last year, reflecting positive customer response to Da Vinci V. Outside The US, we placed 163 systems in the first quarter, down from 165 systems placed in quarter one of last year. In the first quarter of this year, we placed ATH systems in Europe 16 in China, and 10 in Japan compared with 84 in Europe, 10 in China, and 20 in Japan in Q1 of last year.

OUS placement performance reflects financial pressures and healthcare spending constraints in several key markets, including Japan, Germany, and The UK. Customers with existing da Vinci capacity have opportunities to increase utilization which we actively support. The environment in China continues to reflect the ongoing impact of competition, and policy driven pressure on pricing.

With respect to the previously mentioned tariffs of 125%, on imports of excise systems and excise subassemblies into China these tariffs have a material impact to the product cost of excise systems in China, and may adversely impact our ability to win future tenders. Given the trade environment, financial pressures faced by hospitals, and risks to the macro, we may see customers globally reprioritize capital budgets or extend timelines to invest in robotic programs. First quarter revenue was $2,250,000,000 a 19% increase over last year, on a constant currency basis revenue growth was 20%, Systems revenue grew 25% year over year driven by a 17% increase in da Vinci system placements, and a higher system ASP reflecting a higher mix of da Vinci V placements Recurring revenue grew 19% in Q1, representing 85% of total revenue. Additional revenue statistics and trends are as follows: Leasing represented 54% of Q1 placements, compared with 51% last year driven by higher mix of U. S. Placements where, given customer preference, a greater proportion of systems are placed under lease arrangements. While leasing may fluctuate quarter to quarter, we continue to expect the rates of leasing to increase over time Q1 system average selling prices $1,620,000 as compared to $1,390,000 last year primarily driven by a higher mix of da Vinci V. Looking forward to the second half of twenty twenty five, following broad launch of da Vinci V, to the extent that we see higher trade in volumes you should expect that such transactions reflect significantly higher trading credits relative to recent periods.

We recognized $39,000,000 of lease buyout revenue in the first quarter compared with $29,000,000 last year. Da Vinci instrument and accessory revenue per procedure was approximately $17.80 dollars flat to last year reflecting two offsetting dynamics: First, we see INA per procedure come down due to procedure mix, given a lower mix of bariatric procedures and a higher mix of cholecystectomy, Second, we see an offsetting positive mix effect, from a higher mix of procedures on our SP platform and insufflator accessory and force feedback instrument revenue coming from 31,000 ION procedures in the first quarter, an increase of 58% as compared to last year, In Q1, we placed 49 ION systems compared to 70 in Q1 of twenty twenty four, Four of the 49 systems were placed in OUS markets, We estimate that penetration of lung biopsy in The US is approaching the halfway point and that looking ahead an increasing proportion of our focus will be helping customers convert transthoracic knee aspiration biopsies to ION while driving increases in utilization of the existing capacity. Where we have a clearance for Ion in OUS markets, we are in the early phase of adoption where our current focus is on building local evidence and engaging societies and healthcare systems to support adoption of our products for the benefit of patients.

We expect this to be a multi year effort. First quarter SP procedures grew 94% driven by strong growth in Korea and early stage multi specialty growth in Europe and Japan. We placed 19 SP systems in Q1, compared to 24 systems last year. First quarter placements included seven in Europe, six in Korea, and five in The U. S. Average system utilization for our SP platform grew 26% in Q1 in absolute terms SP utilization is the highest of any of our platforms in Korea and Japan. Utilization in Europe is increasing steadily, and we expect utilization in The US to increase as we expand indications. Moving on to the rest of the P and L, Pro form a gross margin for the first quarter of twenty twenty five was 66.4% compared with 67.6% for the first quarter of twenty twenty four. The year over year decline in pro form a gross margin primarily reflects higher facilities costs including depreciation as we bring on additional manufacturing capacity and a higher mix of Ion and da Vinci V revenue that carry lower gross margins. Our Q1 results did not reflect any significant impact from tariffs, During the quarter, opened two new facilities at our Sunnyvale, California headquarters that expand our U. S. Manufacturing and R and D footprint significantly.

A 912,000 square foot facility that will contain da Vinci Systems manufacturing and R and D teams and a 315,000 square foot facility containing our ion manufacturing and R and D team. Along with our recently opened factory in Peachtree Corners, Georgia, that manufactures X and Xi systems, these facilities provide us space to grow over the mid term. Looking ahead to the rest of the year, we continue to expect to open new manufacturing facilities in Germany and Bulgaria and expand instrument manufacturing capacity in Mexico. In addition to supporting our growth plans, we believe over time these new manufacturing facilities give us supply availability quality, and cost advantages from scale and factory automation. First quarter pro form a operating expenses increased 12% compared with last year, driven by increased headcount higher facilities related costs and increased legal fees. During the quarter, we increased headcount sequentially by just over 500 employees of which approximately half were in manufacturing roles to support revenue growth. Given long term opportunities to drive the quintuple aim and grow revenue, our resolve to invest in R and D and innovation remain unchanged. Pro form a other income was $91,000,000 for Q1, up from $88,000,000 in the prior quarter primarily driven by higher interest income.

Our pro form a effective tax rate for the first quarter was 22.3%, in line with our expectations. First quarter twenty twenty five pro form a net income was $662,000,000 or $1.81 per share compared with $541,000,000 or $1.5 per share for the first quarter of last year. I will now summarize our GAAP results. GAAP net income was $698,000,000 or $1.92 per share for the first quarter of twenty twenty five compared with GAAP net income of $545,000,000 or $1.51 per share for the first quarter of twenty twenty four. The adjustments between pro form a and GAAP net income are outlined and quantified on our website. We ended the call with cash and investments of $9,100,000,000 compared with $8,800,000,000 at the end of last year, The sequential increase in cash and investments reflected cash generated from operating activities partially offset by taxes paid related to net share settlement of equity awards and capital expenditures of $117,000,000 With that, I would like to turn it over to Dan to discuss our updated outlook. Thank you, Jamie.

I will now turn to our financial outlook for 2025. Starting with procedures. On our last call, we forecast full year 2025 procedure growth within a range of 1316%. We are now increasing our forecast and expect full year 2025 procedure growth within a range of 15% to 17%. The low end of the range assumes growth in China is impacted by trade, environmental and competitive dynamics. Governments in key OUS markets continue to constrain hospital CapEx budgets. Which limits the expansion of capacity in the field, and bariatric procedures continue to decline at rates similar to recent trends. The high end of the range assumes China procedure growth in improves relative to 2024, the CapEx environment improves in key OUS markets, and procedure declines in bariatrics moderate. The high end of the range also assumes that procedures are not by the current trade environment. Environment. Turning to gross profit. On our last call, we forecast pro form a gross profit margin in 2025 to be within a range of 6768% of revenue, which reflected significant incremental depreciation at we bring on new facilities, the impact of growth in newer products, and the impact of the stronger U. S. Dollar.

As Jamie described earlier, we currently expect the impact of recently implemented and announced tariffs globally to impact our cost of sales by approximately 1.7% of revenue plus or minus 30 basis points. As a result, we are updating our estimate for pro form a gross margin to be within a range of 6566.5% of revenue. In regards to operating expenses, we now expect pro form a operating expense growth to be between 1014%. The projected operating expense growth reflects increased depreciation from new facilities and investments to drive our growth objectives. We now expect our non cash stock compensation expense to range between $770,000,000 and $790,000,000 in 2025. We continue to expect other income, which is comprised mostly of interest income, to total between $370,000,000 and $400,000,000 in 2025. With regard to capital expenditures, we now estimate a range of $50,000,000 to $750,000,000 primarily for planned facility construction activity. With regard to income tax, we continue to estimate our 2025 pro form a income tax rate to be between 2223% of pretax income. That concludes our prepared comments. We will now open the call to your questions.

Certainly. And our first question comes from the line of Travis Steed from Bank of America Securities. Your question please. Hey, thanks for taking the question. First, I'll ask a question on tariffs. Just 70 basis point impact in '25. Just curious how to think about that on an annualized basis. Any way to kind of break out how much of that's China versus Mexico and how to think about the cadence over 2025? How much of that impacts in kind of Q4 and Q3 of this year?

Yes, Travis, in terms of the breakout for this year, roughly half ish of the impact is US China trade both directions and about 40% of the impact is imports into The US, ex China, Mexico, Canada of raw materials in [indiscernible] components from OUS based suppliers and imports of endoscopes from our factories in Europe. So that kind of gives you a sense of what's driving the 1.7% of revenue As we said in prepared remarks, the impact of tariffs kind of increases each quarter through the year. So the exit rate in Q3 Q4 is going to be higher than the 1.7% There is some variability there with respect to for example, where Chinese capital sales fall. So not going to be precise on quarterly profile. Beyond '25, I think from our perspective at this point, we'd like to see where tariffs stable stabilize. We'd like to obviously assess what moves can we make over time that we'll assess And so we'll get into what the impact may be in '20 I think, when we get through that process.

Okay, fair. And then a follow-up on the capital environment. Just it sounds like you kind of called that as a risk, you're not seeing it yet. Does trying to think about how this compares to like 2022 and when you saw it in the funnel. Versus kind of what you're seeing in the capital environment at this point?

Yeah, I'd say, through Q1, if you look at The US, what we've seen is strong customer response to da Vinci five I think the capital environment has been relatively strong for us.

Customers there are using our leasing and user based arrangements So that allows them to some extent to avoid [indiscernible] formal capital budgets. Some some flexibility to expand their programs. In OUS markets, we described in prepared remarks. You see some markets where they're getting constrained by government budgets. That's either to do with kind of the elimination of post COVID funding, or it reflects governments reprioritizing funding to other areas. For example, in Europe, see some funding that moves towards military spending, So some pressures there, think, our focus in a situation like that is to first help customers increase utilization where they have the existing capacity and can have greater throughput through their assets than we have Genesis Resources and other teams that can help them do that. We also have a growing set of economic capabilities tools that we can help customers understand what the returns of those programs are. That's a growing part of our toolkit [indiscernible] and then we look to expand what we've seen in The US with respect to use of lease leasing and usage based arrangements, which are earlier stages of adoption with customers there. In terms of what customers have said to us, we've had questions about tariffs and the environment I don't think that's shown up yet in terms of core capital demand, but I think we're flagging that could have an impact and certainly to the extent our customers' hospitals see increased pricing as a derivative effect of tariffs, then that creates pressure for them.

Great. Thanks a lot.

Thank you. And our next question comes from the line of Larry Peterson from Wells Fargo. Your question please.

Good afternoon. Thanks for taking the question. Jamie, a follow-up on tariffs. Just on the did I hear you say that you're including the European reciprocal tariffs I think are 20% in ninety days assumed in that 1.7%. And Jamie, how should we think about your ability to mitigate the tariffs? Just maybe flesh that out a little bit more for us and how quickly you might be able to do that. I have one follow-up.

Yes, we are assuming in the 1.7% estimate for '25 that the, retaliatory tariffs go into effect when ninety day pause period has elapsed. Obviously, we'll see how that plays out, but we've reflected that in the 1.7% With respect to the manufacturing operations in our supply chain, to the extent that there are low hanging fruit that isn't disruptive to our partners and our employees, of course we'll pursue those.

But I think our first move is to let things stabilize and evaluate then possible. We'll do that concurrently across the year and we will consider things like do you have to invest to mitigate? What's the time to receive the benefit? What's the economic return of that? And there are complexities in some of the things that you might from an operational perspective. And so, we don't want to move too quickly given how dynamic the environment is.

That's helpful. And just for my follow-up, Jamie, on da Vinci five, it looks like da Vinci V placements as a percent of US placements actually was lower in Q1 from Q4. Hopefully, I'm not doing the math wrong. Why would DIVICI V Placements In The U. S. As a percent decline in Q4? And how should we think about the ramp going forward? Thank you.

I believe, Brandon, correct me, I believe DV5 Placements As A Percent Of Total In The US was higher in Q1 and Q4. But if I look at Q1 capital performance, supply for da Vinci V was where we expected it to be. And with respect to placement performance. For all of the models, including da Vinci five, I'd characterize it as normal seasonality. No concerns there for us.

Alright.

Thanks so much.

Thank you. And our next question comes from the line of Robbie Marcus from JPMorgan. Your question please.

Great. Thanks for taking the questions.

Maybe on the first one, [indiscernible] procedure volume was excellent in first quarter and it's rare to see such a big raise after just one quarter. You touched on it in the prepared remarks, but maybe you could spend a little more time walking through what gave you the confidence to raise this early in the year. Yeah, I'll just leave it there and I have a follow-up question. Thanks.

Yeah, we routinely have a process where we, obviously like many companies construct a forecast that reflects customer input. We look at obviously our plans and it's that guidance is a function of that routine process. Day adjusted Q1 procedure performance was 18.5%. I think that gives us a little bit of momentum into into the rest of the year. Obviously, we're watching the macro carefully. If you look at the low end of the range of 15%, that would say the rest of the year would have to be 14% procedure growth. And so I think we have a decent range for [indiscernible] kind of our bottoms up process.

Just some anecdotes, you know, back from the road, and Dave's been out in front of the customer too, I think we're perceived as part of the solution, not part of the problem.

I think that customers continue to adopt I think they see the economic benefits and patient and outcome benefits.

So far so good.

Great, and sorry to harp on it, but tariffs are a big focus unfortunately in everybody's world right now. Just to follow-up on Larry's question, feels like you're taking a worst case approach here where you're putting all the negatives and there aren't a lot of offsets or any built into the guide talked about maybe evaluating where you are at the end of the year. What are some of potential levers you have to offset this? And how meaningful can they be? And when do you think we might be able to see some offsets if you do choose to do that? Thanks.

I'd just say on the philosophy on the tariff guide, from our perspective, we're playing it straight down the middle. It's tariffs that are in effect or or that have been announced. And we felt like that was the most responsible way to go with respect to we guided. We didn't want to predict what may or may not change, so we guided under that kind of philosophy. In terms of potential mitigating operational activities, which we said we didn't expect a beneficial impact in 2025, Maybe I'll let Dave touch on what some of those might be.

Yeah, sure, happy to.

Hey Robbie, some of the mitigations that we're considering on our side, if you look at our supply chain, they are, Jamie mentioned a little bit of it, but it's really two frames of reference that you ought to use. One is thinking about the parts that are coming into our factories, the ones that we assemble and then the other frame of reference are the parts that are leaving our factories. And so as we look about how do we optimize, within those two frames of reference, on the parts coming into our factories, our teams have been working to get to industrial scale for years now. And so some of the processes that exist within this framework within inside of Intuitive really center around assessing risk in all of our supply chain. We procure thousands of parts for our systems and instruments. And so our teams look through there, assess the risk, and then ensure appropriate mitigations are in place. And mitigations there can include dual sourcing, they can include strategic reserves, And so that's for a robust process that runs on a daily basis. Here for parts coming in. If you look about our parts, our components and our products going to customers, Here, we've done a lot of work to qualify some of our products under USMCA.

We've optimized inventory around the globe as some of these tariffs ahead of some of these tariffs taking place.

And then if you look in the midterm, we can use our existing manufacturing footprint, that we have around the globe, and optimize what products are manufactured in what area around the globe.

To help optimize some of the supply for our customers. And then in the long term, we can build our overall manufacturing footprint against the trade environment that ultimately stabilizes. And so that's going to be a long term way in which we help mitigate some of the supply risk, if you will, within our supply chains.

Great. Appreciate it. Thank you very much.

Thank you. And our next question comes from the line of Rick Wise from Stifel. Your question please.

Good afternoon, everybody. I thought maybe just to change the focus briefly. OUS growth was particularly robust at 24%. Maybe you can talk about the drivers there, the sustainability of the drivers, the key markets and just what you've assumed in coming up with your your new forecast as well.

Yeah, we saw solid procedure growth in The U. S. At 13% and obviously day adjusted is a little higher than I do think that we are seeing a relatively significant benefit from the adoption of Da Vinci V In The U. S. I think customer response has been quite positive. You're generally seeing a higher [indiscernible] I'm sorry, I'm sorry. I'm sorry, Rick. You're going have to ask your question again. I'm sorry. I missed it. The Jamie, just no big deal. Just talking about the OUS growth, the international growth. 24%. Mean, it was particularly strong, I thought. And just drivers there and key drivers and sustainability of those drivers. Into the rest of the year. And beyond.

Yeah, sorry, Rick, you're talking about the 24% procedure growth for OUS?

Exactly. Yep.

So you see some maybe earlier stage markets for us doing quite well. India, smaller market, Taiwan, those are starting to grow at really nice rates. I think we see our teams making real progress with respect to engagements with KLAs [indiscernible] key opinion leaders with Surgical Societies And Adoption Across A Broader Set Of Procedures, I Think That's Going Well. Same In Taiwan, we've benefited from some incremental reimbursements, in Taiwan. Across Europe, you see relatively solid growth that progresses each quarter. UK kind of leads that growth. And in The U. K. They're seeing a real value with respect to resource consumption savings, addressing waiting lists in The UK.

And then we've been actually kind of placing capital in distributor markets at a little bit of a higher rate over the last several quarters. And we're seeing that create capacity for procedure growth. I think those elements all look good for us. I think the watch out for us is to the extent that in Germany, Japan, UK, ongoing capacity constraints for capital continues, then at some point that starts to, limit procedure growth. We have room to grow with respect to utilization there, and so that's what we'll pursue to the extent they're constrained. You look at our long term OUS procedure growth, it's been in the 20s for a long period of time. We're at early stages of adoption, I think we feel quite good about how our teams are performing there. There are particular markets where you have unique dynamics like China.

Gotcha. And just a follow-up. You You've highlighted recently that increased customer interest in two areas. And it went by too quickly. I missed what you said about after hours surgery growth. I just get the number. But after our surgery and you recently hired a new leader for the cardiac surgery area. Can you update us on these two areas and where are you in sort of pursuing them What's next? And again, maybe just talk about the growth outlook, if you would. Thank you.

Sure. Hey, Rick. So the two areas that you mentioned, after hours and cardiac, on the after hours side, this really is being driven by customers who wanna provide equal access to high quality minimally invasive surgery to those patients who are, so called after hours. [indiscernible] and having it be the same as the patients who are entering the hospital during the the day. And so that has been the primary sort of motivation behind it.

And the ability for our customers to access capital for our teams to train the after hours care teams are just parts, are components to the equation that enable, customers to access systems to have the right trained teams to support the surgeons who are delivering that care after hours. And so these would be patients who are generally coming in with some sort of emergent condition. And oftentimes, those teams who are treating those patients, they offer some kind generally some laparoscopy and minimally invasive surgery. Oftentimes a lot of open surgery. And so the ability to have, da Vinci as an option there is meaningful to the outcomes of those programs. On the cardiac side, the way that I kind of think about it is for for many years, the interventional side of cardiac intervention, so structural heart and other components from interventional cardiologists have been on the rise, and you've seen them offer great outcomes to patients. And we've gotten to the point now where I think there's also a set of patients where high quality, minimally invasive surgery is a great and the best option for them. And so we're at the point now where we think that technology with DV5 and other parts of our ecosystem our work with societies, our work with academic institutions and with surgeons, who have been doing this, around the world.

It's the right time for this investment. It's been growing year over year off of a small base, And so the need is there there is patient benefit that is there, and so we'll line up these investments and, continue our journey here for cardiac.

Thanks, Dave.

Thank you. And our next question comes from the line of Adam Meter from Piper Sandler. Your question please.

Hi, good afternoon. Thank you for taking the questions. I'll keep it to one multipart question on force feedback technology. So I guess the first question is, can you just maybe give us a little bit more color around the percentage of DV5 cases that are using force sensing instruments today? Remind us the portfolio how many instruments have this technology? How can that evolve going forward? And then lastly, I saw that there was a post market study. I think it was two hundred patients posted to clinicaltrials.gov. Evaluating force feedback instruments. So just maybe flesh out the clinical strategy going forward to validate this exciting technology? Thank you.

Sure. So, on the force feedback, on the number of instruments that currently have the capability [indiscernible] That we have six different instruments, that were chosen, for what they do inside the procedure. And so we're looking at components of the procedure that we think would best benefit from force feedback technology. So that's how those instruments were chosen. In terms of how many today, how many cases are using force feedback. I don't have the the number in front of me. There are many thousands of cases that are are being done with force feedback, but I don't know the exact number.

And when you look forward, I think what you're gonna see is like any technology that's being studied, you'll see these early single institution studies that we reference. And that's where a single surgeon or a group of surgeons can study their results and look at it look at it within their own institution and against their own data. And then as you look out, you'll start to see cross institution studies And Intuitive and perhaps other investigators will put together larger studies that will will include more patients that could be the one at ClinicalTrials.gov that you're referencing. It's a steady progression, of data starting from the small and getting to the larger, more statistically relevant studies. And that's when we'll be able to see what force feedback means at scale. Two comments I'd make here. One is so far we're seeing the hypothesis that drove the inclusion of force sensing instruments and force feedback technology start to bear out. [indiscernible] learning for younger surgeons and the right force at the right time during the procedure [indiscernible] being linked to outcome. You said, are hypotheses that will be tested over time. But we're going to start seeing those studies.

Progress. On the point of prevalence, how much is being used, just remember a couple of things. One is force sensing and non force sensing instruments can be used on DV5. So Gen four instruments can also be used on DB5. And we're supply constrained, on force sensing instruments, so we are not able to meet demand yet. Now we are working hard on that, both from a lives in the instrumentation and in in the manufacturing capacity. So that's coming. But right now, the answer to what fraction are being used, that's artificial limitation imposed by our manufacturing constraint.

Next question please.

Certainly. And our next question comes from the line of Ryan Zimmerman from BTIG. Your question please.

Thanks for taking the question. I'll stick to one in the interest of time.

There's been a lot of discussion on Medicaid cuts and, you know, the impact to patients.

Don't know, Dave, if you've quantified this or you're willing to put it out there, but I'm gonna ask anyway, which is, you know, if you were to characterize the payer mix, particularly within the Medicaid population, you know, what you could or could not be exposed to and what potentially that impact would be [indiscernible] as you know, the government kind of considers this as an option.

I'd appreciate your thoughts there.

I'd just say it's a, healthy mix between private and Medicare, depending on the marketplace. I think I'd say it's too early for us to give any specific comments. We, obviously have discussions with, customers I much of that is speculation as to how it may play out but I think it's too early for us to comment, frankly. Yeah, this one on Medicaid in particular, impact on Medicaid. Right? Versus Medicare?

Yeah, that's correct.

Gary. Yeah, I guess you know, if if it were to be amended, what kind of impact would utilization utilization potentially have, particularly for [indiscernible] Yeah. The team's done a little bit of a back of the envelope I think it's too soon to [indiscernible] speculate what that might be It's not a dominant part of the mix. It's in It's in our procedure mix, Medicaid, but it is not dominant. What that looks like, too soon to see.

Thank you.

Thank you. And our next question comes from the line of David Roman from Goldman Sachs. Your question please.

Thank you and good afternoon. I wanted just to continue along this thread of potential Medicaid cuts. To hospitals. Maybe, Gary, you could expand a little bit on the comment you made earlier about Intuitive being potentially part of the solution and not part of the problem in contrast to kind of the comments that Jamie made or in conjunction with the comments Jamie made about a potentially worsening hospital CapEx environment and some of the factors we need to consider given the external environment?

Yeah, thank you for that. I think it's a great question. Why do I think we're a part of the solution [indiscernible] just back from the road, [indiscernible] I think for a well run program, total cost of treatment per patient episode is is outstanding. As good as any any approach and often better. Certainly better than open and often better than than lab. So I think if hospitals look out at this and say, look, we're going to provide care, this issue of just thing they can do is stop giving care, well, that's a train wreck. So their mission is to provide care, If they have a well run program, they both get better outcomes, higher physician and surgeon satisfaction [indiscernible] total cost to treat in their hands.

So, course, there's a whole bunch of different procedures and a whole bunch of different hospitals, but in aggregate, that's a true statement. So they want to do it, and if they do it, they do better economically. But you have this issue of stress on capital, particularly in some of U. S. Markets. The reason that that's stressful for them is that the budgets, the operating budgets, are not always held by the same budget holder. As the capital budget. So the operating person is saying this is going great, I'm getting really nice returns, but the capital person is being incented by other by other means. So Jamie had said in the prepared remarks, and he was right, the first thing to do is help them with utilization. And we will. That's what our Genesis teams do. We're to help them with analytical tools so they really understand total cost to treat and what the profitability of those programs are. At the same time, if ultimately they need additional capital, that's part of the conversation with the other side of the insurance house, which is the one that controls the capital budget. Therein lies some of the stress.

So early on, going help them with utilization. Sometimes we can help them with workflow management. [indiscernible] machines around, move systems where they need to.

You've seen us do that in our history. Back in the day. But in general, I think, in many of these economies, in many of these countries, high quality middle invasive care as provided by da Vinci systems and the like, been fantastic for them. They want to do more or less. Okay, we are, at our last question. Thank you for the questions. In closing, we continue to believe there's a substantial and durable opportunity to fundamentally improve surgery and acute interventions. Our teams continue to work closely with hospitals, physicians, and care teams in pursuit of what our customers have termed the quintuple aim. Better, more predictable patient outcomes, better experiences for patients better experiences for their care teams, lower total cost of care, and finally increased access to care.

We believe value creation in surgery and acute care is foundationally human, It flows from respect for and understanding of patients and care teams, their needs, and their environment. At Intuitive, we envision a future of care that is less invasive, and profoundly better. Where diseases are identified earlier, and treated quickly so patients can get back to what matters most. Thank you for your support on this extraordinary journey. We look forward to talking with you again in three months.

Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.