10-Q 1 isrg-20210930.htm 10-Q isrg-20210930
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2021
OR
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 classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.001 per shareISRGThe 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 filerxAccelerated filer¨
Non-accelerated filer¨Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ¨  
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  x
The Registrant had 357,236,861 shares of Common Stock, $0.001 par value per share, outstanding as of October 14, 2021.



INTUITIVE SURGICAL, INC.
TABLE OF CONTENTS

  Page No.
PART I. FINANCIAL INFORMATION
PART II. OTHER INFORMATION

2

PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INTUITIVE SURGICAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
in millions (except par values)September 30,
2021
December 31,
2020
ASSETS
Current assets:
Cash and cash equivalents$1,346.7 1,622.6 
Short-term investments2,741.5 3,488.8 
Accounts receivable, net695.0 645.5 
Inventory584.9 601.5 
Prepaids and other current assets359.9 267.5 
Total current assets5,728.0 6,625.9 
Property, plant, and equipment, net1,737.9 1,577.3 
Long-term investments4,131.5 1,757.7 
Deferred tax assets411.5 367.7 
Intangible and other assets, net581.4 503.6 
Goodwill344.3 336.7 
Total assets$12,934.6 $11,168.9 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable$120.0 $81.6 
Accrued compensation and employee benefits265.3 235.0 
Deferred revenue348.5 350.3 
Other accrued liabilities293.5 298.3 
Total current liabilities1,027.3 965.2 
Other long-term liabilities447.8 444.6 
Total liabilities1,475.1 1,409.8 
Contingencies (Note 8)
Stockholders’ equity:
Preferred stock, 2.5 shares authorized, $0.001 par value, issuable in series; no shares issued and outstanding as of September 30, 2021, and December 31, 2020
  
Common stock, 600.0 shares authorized, $0.001 par value, 357.2 shares and 353.1 shares issued and outstanding as of September 30, 2021, and December 31, 2020, respectively
0.4 0.4 
Additional paid-in capital7,015.1 6,444.9 
Retained earnings4,390.1 3,261.3 
Accumulated other comprehensive income5.3 24.9 
Total Intuitive Surgical, Inc. stockholders’ equity11,410.9 9,731.5 
Noncontrolling interest in joint venture48.6 27.6 
Total stockholders’ equity11,459.5 9,759.1 
Total liabilities and stockholders’ equity$12,934.6 $11,168.9 
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements (Unaudited).
3

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

Three Months Ended September 30,Nine Months Ended September 30,
in millions (except per share amounts)2021202020212020
Revenue:
Product$1,170.6 $898.4 $3,481.1 $2,521.0 
Service232.7 179.3 678.3 508.3 
Total revenue1,403.3 1,077.7 4,159.4 3,029.3 
Cost of revenue:
Product355.8 287.7 1,049.1 868.2 
Service76.1 65.7 212.6 195.7 
Total cost of revenue431.9 353.4 1,261.7 1,063.9 
Gross profit971.4 724.3 2,897.7 1,965.4 
Operating expenses:
Selling, general and administrative363.3 298.9 1,039.5 886.1 
Research and development165.5 155.0 487.6 445.3 
Total operating expenses528.8 453.9 1,527.1 1,331.4 
Income from operations442.6 270.4 1,370.6 634.0 
Interest and other income, net18.5 84.8 65.5 136.5 
Income before taxes461.1 355.2 1,436.1 770.5 
Income tax expense73.9 38.4 90.7 67.3 
Net income387.2 316.8 1,345.4 703.2 
Less: net income attributable to noncontrolling interest in joint venture6.7 2.9 21.4 7.8 
Net income attributable to Intuitive Surgical, Inc.$380.5 $313.9 $1,324.0 $695.4 
Net income per share attributable to Intuitive Surgical, Inc.:
Basic$1.07 $0.89 $3.72 $1.98 
Diluted$1.04 $0.87 $3.63 $1.93 
Shares used in computing net income per share attributable to Intuitive Surgical, Inc.:
Basic356.8 352.0 355.6 350.5 
Diluted366.8 361.9 365.1 360.1 
Total comprehensive income$382.1 $310.8 $1,325.4 $707.2 
Less: comprehensive income attributable to noncontrolling interest6.6 3.0 21.0 8.0
Total comprehensive income attributable to Intuitive Surgical, Inc.$375.5 $307.8 $1,304.4 $699.2 
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements (Unaudited).
4

INTUITIVE SURGICAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

Nine Months Ended September 30,
in millions 20212020
Operating activities:
Net income$1,345.4 $703.2 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and loss on disposal of property, plant, and equipment208.5 159.1 
Amortization of intangible assets20.8 37.3 
Loss (gain) on investments, accretion, and amortization, net(2.1)(64.2)
Deferred income taxes(40.6)71.9 
Share-based compensation expense331.4 292.3 
Amortization of contract acquisition assets15.5 12.4 
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable(54.7)57.2 
Inventory(189.2)(177.0)
Prepaids and other assets(216.7)(118.8)
Accounts payable35.8 (3.9)
Accrued compensation and employee benefits30.3 (76.4)
Deferred revenue2.3 (9.2)
Other liabilities35.0 (26.6)
Net cash provided by operating activities1,521.7 857.3 
Investing activities:
Purchase of investments(5,213.7)(3,023.2)
Proceeds from sales of investments72.4 800.7 
Proceeds from maturities of investments3,532.1 1,933.5 
Purchase of property, plant, and equipment and intellectual property(202.6)(279.6)
Acquisition of businesses, net of cash(8.7)(37.7)
Net cash used in investing activities(1,820.5)(606.3)
Financing activities:
Proceeds from issuance of common stock relating to employee stock plans244.8 267.9 
Taxes paid related to net share settlement of equity awards(201.2)(165.3)
Repurchase of common stock (100.0)
Payment of deferred purchase consideration(19.2)(48.5)
Net cash provided by (used in) financing activities24.4 (45.9)
Effect of exchange rate changes on cash, cash equivalents, and restricted cash(2.3)(2.0)
Net increase (decrease) in cash, cash equivalents, and restricted cash(276.7)203.1 
Cash, cash equivalents, and restricted cash, beginning of period1,638.5 1,182.6 
Cash, cash equivalents, and restricted cash, end of period$1,361.8 $1,385.7 
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements (Unaudited).

5

INTUITIVE SURGICAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

In this report, “Intuitive Surgical,” “Intuitive,” the “Company,” “we,” “us,” and “our” refer to Intuitive Surgical, Inc. and its wholly and majority-owned subsidiaries.
NOTE 1.    DESCRIPTION OF THE BUSINESS
Intuitive Surgical, Inc. (“Intuitive” or the “Company”) develops, manufactures, and markets the da Vinci® Surgical System and the IonTM endoluminal system. The Company’s products and related services enable physicians and healthcare providers to improve the quality of and access to minimally invasive care. The da Vinci Surgical System consists of a surgeon console or consoles, a patient-side cart, a high-performance vision system, and proprietary instruments and accessories. The Ion endoluminal system is a flexible, robotic-assisted, catheter-based platform that utilizes instruments and accessories for lung biopsies.
NOTE 2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
In the opinion of management, the accompanying unaudited Condensed Consolidated Financial Statements (“Financial Statements”) of Intuitive Surgical, Inc. and its wholly and majority-owned subsidiaries have been prepared on a consistent basis with the audited Consolidated Financial Statements for the fiscal year ended December 31, 2020, and include all adjustments, consisting of only normal, recurring adjustments, necessary to fairly state the information set forth herein. The Financial Statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) and, therefore, omit certain information and footnote disclosure necessary to present the Financial Statements in accordance with United States (“U.S.”) generally accepted accounting principles (“U.S. GAAP”). These Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020, which was filed with the SEC on February 10, 2021. The results of operations for the first nine months of fiscal year 2021 are not necessarily indicative of the results to be expected for the entire fiscal year or any future periods.
The Financial Statements include the results and the balances of the Company’s majority-owned joint venture (referred to herein as the “Joint Venture”) with Shanghai Fosun Pharmaceutical (Group) Co., Ltd. (“Fosun Pharma”). The Company holds a controlling financial interest in the Joint Venture, and the noncontrolling interest is reflected as a separate component of 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.
Common Stock Split
Shares issued pursuant to the three-for-one stock split (the "Stock Split") of the Company's issued and outstanding common stock, par value $0.001 per share, were distributed on October 4, 2021, to stockholders of record as of September 27, 2021. All share and per-share information presented in the Financial Statements have been retroactively adjusted to reflect the Stock Split.
Risks and Uncertainties
The Company is subject to additional risks and uncertainties due to the COVID-19 pandemic. The extent of the impact on the Company’s business is highly uncertain and difficult to predict. In certain regions, the Company’s customers continue to divert resources to treat COVID-19 patients and defer some elective surgical procedures, both of which may impact the Company’s customers’ ability to meet their obligations, including to the Company. Furthermore, economies worldwide have been negatively impacted by the COVID-19 pandemic, and it is possible that the impact could cause an extended local and/or global economic recession. Such economic disruption could have a material adverse effect on our business as hospitals curtail and reduce capital and overall spending. Policymakers around the globe have responded with fiscal policy actions to support the healthcare industry and their economies. However, the magnitude and overall effectiveness of these actions remains uncertain.
The severity of the impact of the COVID-19 pandemic on the Company’s business will depend on a number of factors, including, but not limited to, the duration and severity of the pandemic and the extent and severity of the impact on the Company’s customers, all of which are uncertain and cannot be predicted. The Company’s future results of operations and liquidity could be materially adversely affected by delays in payments of outstanding receivables, supply chain disruptions, including shortages and inflationary pressure, uncertain or reduced demand, and the impact of any initiatives or programs that the Company may undertake to address financial and operational challenges faced by its customers.
In particular, we have experienced increased difficulties in obtaining a sufficient amount of component materials used in our products, including those in the semiconductor market, as global supply has become significantly constrained due to increased demand in semiconductors and other materials. Additionally, prices of such materials have increased due to the increased demand and supply shortage. The Company is engaged in activities to seek to mitigate supply disruptions by, for example, increasing our communications with our suppliers and modifying our purchase order coverage and inventory levels.
6

However, the global semiconductor supply shortage is likely to remain a challenge for the foreseeable future. We have also experienced challenges in logistics, as certain shipping routes have been impacted by port closures. Such global shortages in important components and logistics challenges have resulted in, and will continue to cause, inflationary cost pressure in our supply chain. To date, these challenges have not materially impacted our ability to deliver product and services to our customers. However, if shortages in important supply chain materials in the semiconductor or other markets continue, we could fail to meet product demand, which would adversely impact our business, financial condition, results of operations, or cash flows.
Increased labor shortages globally, including staff burnout and attrition, could also impact our ability to hire and retain personnel critical to our manufacturing, logistics, and commercial operations. We are also highly dependent on the principal members of our management and scientific staff. Attracting and retaining qualified personnel is critical to our success, and competition for them has become more intense. The loss of critical members of our team, or our inability to attract and retain qualified personnel, could significantly harm our operations, business, and ability to compete. In addition, hospitals are also experiencing staffing shortages and supply chain issues that could impact their ability to provide patient care. As of the date of issuance of these Financial Statements, the extent to which the COVID-19 pandemic may materially adversely affect the Company’s financial condition, liquidity, or results of operations is uncertain.
Recently Adopted Accounting Pronouncements
Certain Leases with Variable Lease Payments
In July 2021, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2021-05, Lessors - Certain Leases with Variable Lease Payments, which amends the lessor lease classification guidance in ASC 842 for leases that include any amount of variable lease payments that are not based on an index or rate. The Company has early adopted this ASU as of July 1, 2021, on a prospective basis. The standard had no impact on the Company's consolidated financial statements and related disclosures.
Significant Accounting Policies
There have been no new or material changes to the significant accounting policies discussed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020.
NOTE 3.    FINANCIAL INSTRUMENTS
Cash, Cash Equivalents, and Investments
The following tables summarize the Company’s cash and available-for-sale marketable securities’ amortized cost, gross unrealized gains, gross unrealized losses, and fair value by significant investment category reported as cash and cash equivalents, short-term investments, or long-term investments as of September 30, 2021, and December 31, 2020 (in millions):
Reported as:
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Allowance for Credit LossFair
Value
Cash and
Cash
Equivalents
Short-
term
Investments
Long-
term
Investments
September 30, 2021
Cash$534.5 $— $— $— $534.5 $534.5 $— $— 
Level 1:
Money market funds812.2 — — — 812.2 812.2   
U.S. treasuries3,250.7 10.6 (2.8) 3,258.5  1,104.6 2,153.9 
Subtotal4,062.9 10.6 (2.8) 4,070.7 812.2 1,104.6 2,153.9 
Level 2:
Commercial paper632.7    632.7  632.7  
Corporate debt securities2,262.4 5.3 (2.0) 2,265.7  794.4 1,471.3 
U.S. government agencies538.3 0.5 (0.5) 538.3  150.8 387.5 
Municipal securities176.8 1.2 (0.2) 177.8  59.0 118.8 
Subtotal3,610.2 7.0 (2.7) 3,614.5  1,636.9 1,977.6 
Total assets measured at fair value$8,207.6 $17.6 $(5.5)$ $8,219.7 $1,346.7 $2,741.5 $4,131.5 
7

Reported as:
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Allowance for Credit LossFair
Value
Cash and
Cash
Equivalents
Short-
term
Investments
Long-
term
Investments
December 31, 2020
Cash$644.3 $— $— $— $644.3 $644.3 $— $— 
Level 1:
Money market funds625.8 — — — 625.8 625.8   
U.S. treasuries2,626.8 23.0   2,649.8 212.5 1,567.9 869.4 
Subtotal3,252.6 23.0   3,275.6 838.3 1,567.9 869.4 
Level 2:
Commercial paper671.3    671.3 64.1 607.2  
Corporate debt securities1,425.4 11.9 (0.2) 1,437.1 3.4 1,036.5 397.2 
U.S. government agencies716.5 2.5   719.0 72.5 233.6 412.9 
Municipal securities119.8 2.0   121.8  43.6 78.2 
Subtotal2,933.0 16.4 (0.2) 2,949.2 140.0 1,920.9 888.3 
Total assets measured at fair value$6,829.9 $39.4 $(0.2)$ $6,869.1 $1,622.6 $3,488.8 $1,757.7 
The following table summarizes the contractual maturities of the Company’s cash equivalents and available-for-sale investments (excluding cash and money market funds), as of September 30, 2021 (in millions):
Amortized
Cost
Fair
Value
Mature in less than one year$2,735.3 $2,741.5 
Mature in one to five years4,125.6 4,131.5 
Total$6,860.9 $6,873.0 
Actual maturities may differ from contractual maturities, because certain borrowers have the right to call or prepay certain obligations. Gross realized gains recognized on the sale of investments were not material for the three and nine months ended September 30, 2021, and not significant and $8.3 million for the three and nine months ended September 30, 2020, respectively. Gross realized losses recognized on the sale of investments were not material for any of the periods presented.
The Company’s investment portfolio at any point in time contains available-for-sale debt securities including investments in U.S. treasury and U.S. government agency securities, taxable and tax-exempt municipal notes, corporate notes and bonds, commercial paper, non-U.S. government agency securities, cash deposits, and money market funds. The Company segments its portfolio based on the underlying risk profiles of the securities and have a zero-loss expectation for U.S. treasury and U.S. government agency securities. The Company regularly reviews the securities in an unrealized loss position and evaluates the current expected credit loss by considering factors such as historical experience, market data, issuer-specific factors, and current economic conditions. For the nine months ended September 30, 2021, the credit losses related to available-for-sales debt securities were not significant.
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.
8

The following table is a summary of the activity related to equity investments (in millions):
Reported as:
December 31, 2020
Carrying Value
Changes in Fair Value (1)
Sales/Purchases/Other (2)
September 30, 2021
Carrying Value
Prepaids and other current assetsIntangible and other assets, net
Equity investments with readily determinable value (Level 1)$60.1 $(0.9)$(15.4)$43.8 $43.8 $ 
Equity investments without readily determinable value (Level 2)$30.2 $34.5 $(52.2)$12.5 $ $12.5 
(1) Recorded in Interest and other income, net.
(2) Other includes conversion of certain equity investments without readily determinable value to equity investments with readily determinable value.
The Company recognized a $34.5 million increase in fair value, which was reflected in Interest and other income, net, due to changes in observable prices for certain equity investments that had been held at cost, because they lacked readily determinable market values (Level 2). A total of $34.2 million of this increase in fair value was related to an equity investment in preferred shares of Broncus Medical, Inc. (“Broncus”). There were no decreases in fair value reflected in net income due to impairments.
In September 2021, Broncus completed its initial public offering (“IPO”). Upon completion of its IPO, the Company’s preferred shares were converted to common shares, which have a readily determinable value (Level 1). The Company is restricted from selling these shares for a period of six months. Subsequent to the IPO, the Company recognized a $12.3 million decrease in fair value from this investment. As such, for the nine months ended September 30, 2021, the Company has recognized a net gain of $21.9 million related to Broncus, comprised of the $34.2 million gain reflected in changes in fair value for Level 2 equity investments, offset by the $12.3 million loss reflected in changes in fair value for Level 1 equity investments, both of which were reflected in Interest and other income, net.
In January 2021, the Company sold all of its shares of Teladoc Health, Inc. (“Teladoc”), a publicly traded company, for $71.5 million and recognized a gain of $11.4 million, which was reflected in Interest and other income, net. This gain was offset by a $7.5 million loss recognized upon the settlement of a corresponding derivative collar contract.
Foreign Currency Derivatives
The objective of the Company’s hedging program is to mitigate the impact of changes in currency exchange rates on net cash flow from foreign currency-denominated sales, expenses, intercompany balances, and other monetary assets or liabilities denominated in currencies other than the U.S. dollar (“USD”). The terms of the Company’s derivative contracts are generally twelve months or shorter. The derivative assets and liabilities are measured using Level 2 fair value inputs.
Cash Flow Hedges
The Company enters into currency forward contracts as cash flow hedges to hedge certain forecasted revenue transactions denominated in currencies other than the USD, primarily the Euro (“EUR”), the British Pound (“GBP”), the Japanese Yen (“JPY”), and the Korean Won (“KRW”). The Company also enters into currency forward contracts as cash flow hedges to hedge certain forecasted expense transactions denominated in EUR and the Swiss Franc (“CHF”).
For these derivatives, the Company reports the unrealized after-tax gain or loss from the hedge as a component of accumulated other comprehensive income/(loss) in stockholders’ equity and reclassifies the amount into earnings in the same period in which the hedged transaction affects earnings. The amounts reclassified to revenue and expenses related to the hedged transactions and the ineffective portions of cash flow hedges were not material for the periods presented.
Other Derivatives Not Designated as Hedging Instruments
Other derivatives not designated as hedging instruments consist primarily of forward contracts that the Company uses to hedge intercompany balances and other monetary assets or liabilities denominated in currencies other than the USD, primarily the EUR, GBP, JPY, KRW, CHF, Indian Rupee ("INR"), Mexican Peso ("MXN"), Chinese Yuan ("CNY"), and New Taiwan Dollar ("TWD").
9

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,
2021202020212020
Recognized gains/(losses) in Interest and other income, net$4.4 $(5.0)$11.8 $(3.2)
Foreign exchange gains/(losses) related to balance sheet re-measurement$(6.4)$5.9 $(12.4)$(1.1)
Additionally, in January 2021, the Company settled a collar contract previously entered into to hedge its equity investment in Teladoc Health, Inc. For the nine 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 InstrumentsDerivatives Not Designated as Hedging Instruments
September 30,
2021
December 31, 2020September 30,
2021
December 31, 2020
Notional amounts:
Forward contracts$203.7 $154.3 $285.8 $309.8 
Gross fair value recorded in:
Prepaids and other current assets$6.8 $0.9 $5.8 $0.7 
Other accrued liabilities$0.9 $4.3 $0.7 $5.4 

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
InventorySeptember 30,
2021
December 31,
2020
Raw materials$181.4 $184.1 
Work-in-process85.7 75.6 
Finished goods317.8 341.8 
Total inventory$584.9 $601.5 
As of
Prepaids and other current assetsSeptember 30,
2021
December 31,
2020
Prepaid taxes$78.2 $28.9 
Equity investments43.8 60.1 
Net investment in sales-type leases – short-term98.6 81.1 
Other prepaids and other current assets139.3 97.4 
Total prepaids and other current assets$359.9 $267.5 
10

As of
Other accrued liabilities–short-termSeptember 30,
2021
December 31,
2020
Taxes payable$65.9 $47.2 
Current portion of deferred purchase consideration payments12.2 10.4 
Current portion of contingent consideration0.6 15.1 
Other accrued liabilities214.8 225.6 
Total other accrued liabilities–short-term$293.5 $298.3 
As of
Other long-term liabilitiesSeptember 30,
2021
December 31,
2020
Income taxes–long-term$309.2 $305.6 
Deferred revenue–long-term35.0 32.1 
Other long-term liabilities103.6 106.9 
Total other long-term liabilities$447.8 $444.6 
Supplemental Cash Flow Information
The following table provides supplemental non-cash investing and financing activities (in millions):
Nine Months Ended September 30,
20212020
Equipment transfers, including operating lease assets, from inventory to property, plant, and equipment$229.2 $123.6 
Acquisition of property, plant, and equipment in accounts payable and accrued liabilities$29.9 $44.1 
Deferred payments and contingent consideration related to business combinations and asset acquisitions$7.5 $4.1 

NOTE 5.    REVENUE AND CONTRACT ACQUISITION COSTS
The following table presents revenue disaggregated by types and geography (in millions):
Three Months Ended September 30,Nine Months Ended September 30,
U.S.2021202020212020
Instruments and accessories$535.7 $467.3 $1,614.0 $1,227.2 
Systems263.4 157.7 743.7 495.8 
Services153.1 118.8 447.8 337.8 
Total U.S. revenue
$952.2 $743.8 $2,805.5 $2,060.8 
Outside of U.S. (“OUS”)
Instruments and accessories$219.7 $163.2 $643.7 $481.6 
Systems151.8 110.1 479.7 316.3 
Services79.6 60.6 230.5 170.6 
Total OUS revenue
$451.1 $333.9 $1,353.9 $968.5 
Total
Instruments and accessories$755.4 $630.5 $2,257.7 $1,708.8 
Systems415.2 267.8 1,223.4 812.1 
Services232.7 179.4 678.3 508.4 
Total revenue
$1,403.3 $1,077.7 $4,159.4 $3,029.3 
11

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 $1,723 million as of September 30, 2021. The remaining performance obligations are expected to be satisfied over the term of the system sale and lease arrangements, which generally are up to 5 years. Service revenue associated with the lease arrangements will be recognized over the service period.
Contract Assets and Liabilities
The following information summarizes the Company’s contract assets and liabilities (in millions):
As of
 September 30, 2021December 31, 2020
Contract assets$44.8 $34.6 
Deferred revenue$383.5 $382.3 
The Company invoices its customers based on the billing schedules in its sales arrangements. Payments are generally due 30 to 60 days from date of invoice. Contract assets for the periods presented primarily represent the difference between the revenue that was recognized based on the relative standalone selling price of the related performance obligations satisfied and the contractual billing terms in the arrangements. Deferred revenue for the periods presented primarily relates to service contracts where the service fees are billed up-front, generally quarterly or annually, prior to those services having been performed. The associated deferred revenue is generally recognized over the term of the service period. The Company did not have any significant impairment losses on its contract assets for the periods presented.
During the three and nine months ended September 30, 2021, the Company recognized $66.1 million and $319.3 million of revenue, respectively, that was included in the deferred revenue balance as of December 31, 2020. During the three and nine months ended September 30, 2020, the Company recognized $58.1 million and $249.7 million of revenue, respectively, net of the impact of the Customer Relief Program, that was included in the deferred revenue balance as of December 31, 2019.
Intuitive System Leasing
The following table presents revenue from Intuitive System Leasing arrangements (in millions):
Three Months Ended September 30,Nine Months Ended September 30,
2021202020212020
Sales-type lease revenue$39.0 $24.7 $140.3 $96.5 
Operating lease revenue $72.5 $45.7 $198.8 $127.0 
For the three and nine months ended September 30, 2021, and 2020, variable lease revenue relating to usage-based arrangements was not material.
Trade Accounts Receivable
The allowance for doubtful accounts is based on the Company’s assessment of the collectibility of customer accounts. The Company regularly reviews the allowance by considering factors such as historical experience, credit quality, the age of the accounts receivable balances, and current economic conditions that may affect a customer’s ability to pay. For the three and nine months ended September 30, 2021, and 2020, bad debt expense was not material.
The Company’s exposure to credit losses may increase if its customers are adversely affected by changes in healthcare laws, coverage, and reimbursement, economic pressures or uncertainty associated with local or global economic recessions, disruption associated with the current COVID-19 pandemic, or other customer-specific factors. Although the Company has historically not experienced significant credit losses, it is possible that there could be a material adverse impact from potential adjustments of the carrying amount of lease and trade receivables as hospital cash flows are impacted by their response to the COVID-19 pandemic and deferral of elective surgical procedures.
12

NOTE 6.    LEASES
Lessor Information
Sales-type Leases. Lease receivables relating to sales-type lease arrangements are presented on the Condensed Consolidated Balance Sheets as follows (in millions):
As of
September 30, 2021December 31, 2020
Gross lease receivables$356.1 286.1 
Unearned income(11.7)(11.1)
Subtotal344.4 275.0 
Allowance for credit loss(3.7)(4.4)
Net investment in sales-type leases$340.7 $270.6 
Reported as:
Prepaids and other current assets$98.6 81.1 
Intangible and other assets, net242.1 189.5 
Total, net$340.7 270.6 
Contractual maturities of gross lease receivables at September 30, 2021, are as follows (in millions):
Fiscal YearAmount
Remainder of 2021$25.6 
2022101.4
202386.5
202474.2
202549.4
2026 and thereafter19.0
Total$356.1 
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 loss on lease receivables. The Company regularly reviews the allowance by considering factors such as historical experience, credit quality, the age of the lease receivable balances, and current economic conditions that may affect a customer’s ability to pay. Lease receivables are considered past due 90 days after invoice.
The Company manages the credit risk in net investment in sales-type leases using a number of factors, including, but not limited to the following: size of operations; profitability, liquidity, and debt ratios; payment history; and past due amounts. The Company also uses credit scores obtained from external providers as a key credit quality indicator for the purposes of determining credit quality. The following table presents credit quality by class of net investment in sales-type leases as of September 30, 2021. The following table summarizes the amortized cost basis by year of origination and credit quality indicator as of September 30, 2021 (in millions):
20212020201920182017PriorNet Investment
Credit Rating:
High$76.0 $56.0 $25.8 $5.5 $3.6 $0.9 $167.8 
Moderate70.5 67.4 18.6 11.5 2.5 0.5 171.0 
Low0.7 4.7 0.2    5.6 
Total$147.2 $128.1 $44.6 $17.0 $6.1 $1.4 $344.4 
For the three and nine months ended September 30, 2021, and 2020, credit losses related to net investment in sales-type leases were not significant.
13

NOTE 7.    GOODWILL AND INTANGIBLE ASSETS
Acquisitions in 2021
There were no material acquisitions for the three and nine months ended September 30, 2021.
Acquisitions in 2020
Orpheus Medical
In February 2020, the Company acquired Orpheus Medical Ltd. and its wholly owned subsidiaries (“Orpheus Medical”) to deepen and expand our integrated informatics platform (the “Orpheus Medical Acquisition”). Orpheus Medical provides hospitals with information technology connectivity, as well as expertise in capturing, processing, and archiving clinical videos across the hospital. The Orpheus Medical Acquisition did not have a material impact on the financial statements.
Goodwill
The following table summarizes the changes in the carrying amount of goodwill (in millions):
Amount
Balance at December 31, 2020$336.7 
Acquisition activity8.0 
Translation and other(0.4)
Balance at September 30, 2021$344.3 

Intangible Assets
The following table summarizes the components of gross intangible assets, accumulated amortization, and net intangible asset balances as of September 30, 2021, and December 31, 2020 (in millions):
September 30, 2021December 31, 2020
Gross Carrying AmountAccumulated AmortizationNet Carrying AmountGross Carrying AmountAccumulated AmortizationNet Carrying Amount
Patents and developed technology$219.3 $(169.3)$50.0 $198.4 $(158.7)$39.7 
Distribution rights and others26.3 (17.8)8.5 91.9 (77.4)14.5 
Customer relationships31.8 (13.1)18.7 59.0 (35.8)23.2 
Total intangible assets$277.4 $(200.2)$77.2 $349.3 $(271.9)$77.4 
Amortization expense related to intangible assets was $6.3 million and $12.6 million for the three months ended September 30, 2021, and 2020, respectively. Amortization expense related to intangible assets was $20.8 million and $37.3 million for the nine months ended September 30, 2021, and 2020, respectively.
The estimated future amortization expense related to intangible assets as of September 30, 2021, is as follows (in millions):
Fiscal YearAmount
Remainder of 2021$6.1 
202223.6 
202319.0 
202414.5 
20259.7 
2026 and thereafter4.3 
Total$77.2 
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.
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NOTE 8.    CONTINGENCIES
From time to time, the Company is involved in a variety of claims, lawsuits, investigations, and proceedings relating to securities laws, product liability, intellectual property, insurance, contract disputes, employment, and other matters. Certain of these lawsuits and claims are described in further detail below. It is not possible to predict what the outcome of these matters will be, and the Company cannot guarantee that any resolution will be reached on commercially reasonable terms, if at all.
A liability and related charge to earnings are recorded in the Financial Statements for legal contingencies when the loss is considered probable and the amount can be reasonably estimated. The assessment is re-evaluated each accounting period and is based on all available information, including the impact of negotiations, settlements, rulings, advice of legal counsel, and other information and events pertaining to each case. Nevertheless, it is possible that additional future legal costs (including settlements, judgments, legal fees, and other related defense costs) could have a material adverse effect on the Company’s business, financial position, and future results of operations.
Product Liability Litigation
The Company is currently named as a defendant in a number of individual product liability lawsuits filed in various state and federal courts. The plaintiffs generally allege that they or a family member underwent surgical procedures that utilized the da Vinci Surgical System and sustained a variety of personal injuries and, in some cases, death as a result of such surgery. Several of the filed cases have trial dates in the next 12 months.
The cases raise a variety of allegations including, to varying degrees, that plaintiffs’ injuries resulted from purported defects in the da Vinci Surgical System and/or failure on the Company’s part to provide adequate training resources to the healthcare professionals who performed plaintiffs’ surgeries. The cases further allege that the Company failed to adequately disclose and/or misrepresented the potential risks and/or benefits of the da Vinci Surgical System. Plaintiffs also assert a variety of causes of action, including, for example, strict liability based on purported design defects, negligence, fraud, breach of express and implied warranties, unjust enrichment, and loss of consortium. Plaintiffs seek recovery for alleged personal injuries and, in many cases, punitive damages. The Company disputes these allegations and is defending against these claims.
The Company’s estimate of the anticipated cost of resolving the pending cases is based on negotiations with attorneys for the claimants. The final outcome of the pending lawsuits and claims, and others that might arise, is dependent on many variables that are difficult to predict, and the ultimate cost associated with these product liability lawsuits and claims may be materially different than the amount of the current estimate and accruals and could have a material adverse effect on the Company’s business, financial position, and future results of operations. Although there is a reasonable possibility that a loss in excess of the amount recognized exists, the Company is unable to estimate the possible loss or range of loss in excess of the amount recognized at this time.
Patent Litigation
On June 30, 2017, Ethicon LLC, Ethicon Endo-Surgery, Inc., and Ethicon US LLC (collectively, “Ethicon”) filed a complaint for patent infringement against the Company in the U.S. District Court for the District of Delaware. The complaint, which was served on the Company on July 12, 2017, alleges that the Company’s EndoWrist Stapler instruments infringe several of Ethicon’s patents. Ethicon asserts infringement of U.S. Patent Nos. 9,585,658, 8,479,969, 9,113,874, 8,998,058, 8,991,677, 9,084,601, and 8,616,431. A claim construction hearing occurred on October 1, 2018, and the court issued a scheduling order on December 28, 2018. On March 20, 2019, the court granted the Company’s Motion to Stay pending an Inter Partes Review to be held at the Patent Trademark and Appeals Board to review patentability of six of the seven patents noted above and vacated the trial date. On August 1, 2019, the court granted the parties’ joint stipulation to modify the stay in light of Ethicon’s U.S. International Trade Commission (“USITC”) complaint against Intuitive involving U.S. Patent Nos. 8,479,969 and 9,113,874, discussed below.
On August 27, 2018, Ethicon filed a second complaint for patent infringement against the Company in the U.S. District Court for the District of Delaware. The complaint alleges that the Company’s SureForm 60 Staplers infringe five of Ethicon’s patents. Ethicon asserts infringement of 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.
Based on currently available information, the Company is unable to make a reasonable estimate of loss or range of losses, if any, arising from these matters.
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On May 30, 2019, Ethicon filed a complaint with the USITC, asserting infringement of U.S. Patent Nos. 9,884,369 (“’369”), 7,490,749 (“’749”), 9,844,379 (“’379”), 9,113,874 (“’874”), and 8,479,969 (“’969”). On June 28, 2019, the USITC voted to institute an investigation (No. 337-TA-1167) with respect to the claims in this complaint. The accused products include the Company’s EndoWrist 30, EndoWrist 45, SureForm 45, and SureForm 60 Staplers, as well as the stapler reload cartridges. In March 2020, Ethicon dismissed its claims concerning the ’749 patent. The evidentiary hearing took place in February 2021. On June 8, 2021, the Chief Administrative Law Judge issued an Initial Determination concluding that (1) the accused products do not infringe the asserted claims in the ’874 or ’969 patents; (2) the asserted claims in the ’874 and ’969 patents are invalid; (3) the accused SureForm staplers and associated reload cartridges infringe two claims of the ’369 patent; (4) the accused SureForm staplers and associated reload cartridges infringe two claims of the ’379 patent; and (5) the Company was estopped from contending that the asserted claims in the ’379 patent are invalid. Ethicon has not challenged the Initial Determination with regard to the findings that absolve Intuitive of any liability regarding the accused EndoWrist staplers and associated reload cartridges. On October 14, 2021, the USITC issued its Opinion in which it made the following rulings: (1) the USITC absolved Intuitive from any liability regarding the ’874, ’969, and ’369 patents; and (2) the USITC found that, while the SureForm staplers and their associated reload cartridges infringe the asserted claims in the ’379 patent, it has suspended the imposition of any remedial order pending an opinion from the Federal Circuit Court of Appeal of whether the Patent and Trademark Office correctly found the asserted claims in this patent to be invalid. A lifting of the suspension of any remedial order by the USITC could result in a prohibition on importing the accused SureForm products into the U.S. or necessitating workarounds. Based on currently available information, the Company does not believe that any losses arising from this matter would be material.
Commercial Litigation
On February 27, 2019, Restore Robotics LLC and Restore Repair LLC (“Restore”) filed a complaint alleging anti-trust claims against the Company. On May 13, 2019, Restore filed an amended complaint alleging anti-trust claims relating to the da Vinci Surgical System and EndoWrist service, maintenance, and repair processes. On September 16, 2019, the Court partially granted and partially denied the Company’s Motion to Dismiss the amended complaint.
On September 30, 2019, the Company filed an answer denying the anti-trust allegations and filed a counterclaim against Restore. The Company filed amended counterclaims after the Court partially granted and partially denied Restore’s Motion to Dismiss the counterclaim. The amended counterclaims allege that Restore violated the Federal Lanham Act, the Federal Computer Fraud and Abuse Act, and Florida’s Deceptive and Unfair Trade Practices Act and that Restore is also liable to the Company for Unfair Competition and Tortious Interference with Contract. On January 7, 2020, the Court denied Restore’s Motion to Dismiss the amended counterclaims.
In its initial scheduling order, the Court stated that it anticipated trial in this case to occur in or before February 2022. Based on currently available information, the Company is unable to make a reasonable estimate of loss or range of losses, if any, arising from these matters.
On September 28, 2020, Rebotix Repair Inc. (“Rebotix”) filed a complaint alleging anti-trust claims against the Company relating to EndoWrist service, maintenance, and repair processes. The complaint was formally served on the Company on October 6, 2020. On March 8, 2021, the Court partially granted and partially denied the Company’s Motion to Dismiss the complaint. The Company filed an answer denying the anti-trust allegations and filed counterclaims against Rebotix. The counterclaims allege that Rebotix violated the Federal Lanham Act and Florida’s Deceptive and Unfair Trade Practices Act and that Rebotix is also liable to the Company for Tortious Interference with Contract.