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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, 2024
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 class | Trading Symbol(s) | Name of each exchange on which registered |
| Common Stock, par value $0.001 per share | ISRG | The Nasdaq Global Select Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | | | | |
| Large accelerated filer | x | | Accelerated filer | ¨ |
| Non-accelerated filer | ¨ | | Smaller reporting company | ☐ |
| | | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x
The Registrant had 356,179,445 shares of Common Stock, $0.001 par value per share, outstanding as of October 15, 2024.
INTUITIVE SURGICAL, INC.
TABLE OF CONTENTS
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| PART I. FINANCIAL INFORMATION |
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| PART II. OTHER INFORMATION | |
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PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INTUITIVE SURGICAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
| | | | | | | | | | | |
| in millions (except par values) | September 30,
2024 | | December 31,
2023 |
| ASSETS | | | |
| Current assets: | | | |
| Cash and cash equivalents | $ | 2,413.3 | | | $ | 2,750.1 | |
| Short-term investments | 1,818.4 | | | 2,473.1 | |
| Accounts receivable, net | 1,153.0 | | | 1,130.2 | |
| Inventory | 1,481.7 | | | 1,220.6 | |
| Prepaids and other current assets | 349.2 | | | 314.0 | |
| Total current assets | 7,215.6 | | | 7,888.0 | |
| Property, plant, and equipment, net | 4,433.0 | | | 3,537.6 | |
| Long-term investments | 4,079.8 | | | 2,120.0 | |
| Deferred tax assets | 997.0 | | | 910.5 | |
| Intangible and other assets, net | 669.7 | | | 636.7 | |
| Goodwill | 348.3 | | | 348.7 | |
| Total assets | $ | 17,743.4 | | | $ | 15,441.5 | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY | | | |
| Current liabilities: | | | |
| Accounts payable | $ | 218.7 | | | $ | 188.7 | |
| Accrued compensation and employee benefits | 377.5 | | | 436.4 | |
| Deferred revenue | 426.0 | | | 446.1 | |
| Other accrued liabilities | 654.6 | | | 587.5 | |
| Total current liabilities | 1,676.8 | | | 1,658.7 | |
| Other long-term liabilities | 389.1 | | | 385.5 | |
| Total liabilities | 2,065.9 | | | 2,044.2 | |
| Contingencies (Note 8) | | | |
| Stockholders’ equity: | | | |
Preferred stock, 2.5 shares authorized, $0.001 par value, issuable in series; zero shares issued and outstanding as of September 30, 2024, and December 31, 2023 | — | | | — | |
Common stock, 600.0 shares authorized, $0.001 par value, 356.2 shares and 352.3 shares issued and outstanding as of September 30, 2024, and December 31, 2023, respectively | 0.4 | | | 0.4 | |
| Additional paid-in capital | 9,440.2 | | | 8,576.4 | |
| Retained earnings | 6,129.8 | | | 4,743.0 | |
| Accumulated other comprehensive income (loss) | 12.9 | | | (12.2) | |
| Total Intuitive Surgical, Inc. stockholders’ equity | 15,583.3 | | | 13,307.6 | |
| Noncontrolling interest in joint venture | 94.2 | | | 89.7 | |
| Total stockholders’ equity | 15,677.5 | | | 13,397.3 | |
| Total liabilities and stockholders’ equity | $ | 17,743.4 | | | $ | 15,441.5 | |
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The accompanying notes are an integral part of these Condensed Consolidated Financial Statements (Unaudited).
INTUITIVE SURGICAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| in millions (except per share amounts) | 2024 | | 2023 | | 2024 | | 2023 |
| Revenue: | | | | | | | |
| Product | $ | 1,709.2 | | | $ | 1,450.8 | | | $ | 4,978.9 | | | $ | 4,332.4 | |
| Service | 328.9 | | | 292.9 | | | 959.7 | | | 863.4 | |
| Total revenue | 2,038.1 | | | 1,743.7 | | | 5,938.6 | | | 5,195.8 | |
| Cost of revenue: | | | | | | | |
| Product | 555.4 | | | 489.5 | | | 1,649.2 | | | 1,480.5 | |
| Service | 108.8 | | | 87.0 | | | 297.4 | | | 263.2 | |
| Total cost of revenue | 664.2 | | | 576.5 | | | 1,946.6 | | | 1,743.7 | |
| Gross profit | 1,373.9 | | | 1,167.2 | | | 3,992.0 | | | 3,452.1 | |
| Operating expenses: | | | | | | | |
| Selling, general and administrative | 510.6 | | | 452.0 | | | 1,527.4 | | | 1,396.8 | |
| Research and development | 286.0 | | | 249.4 | | | 850.6 | | | 738.7 | |
| Total operating expenses | 796.6 | | | 701.4 | | | 2,378.0 | | | 2,135.5 | |
| Income from operations | 577.3 | | | 465.8 | | | 1,614.0 | | | 1,316.6 | |
| Interest and other income, net | 93.7 | | | 56.2 | | | 250.0 | | | 126.4 | |
| Income before taxes | 671.0 | | | 522.0 | | | 1,864.0 | | | 1,443.0 | |
| Income tax expense | 100.4 | | | 102.2 | | | 214.5 | | | 236.4 | |
| Net income | 570.6 | | | 419.8 | | | 1,649.5 | | | 1,206.6 | |
| Less: net income attributable to noncontrolling interest in joint venture | 5.5 | | | 4.1 | | | 12.6 | | | 14.8 | |
| Net income attributable to Intuitive Surgical, Inc. | $ | 565.1 | | | $ | 415.7 | | | $ | 1,636.9 | | | $ | 1,191.8 | |
| Net income per share attributable to Intuitive Surgical, Inc.: | | | | | | | |
| Basic | $ | 1.59 | | | $ | 1.18 | | | $ | 4.61 | | | $ | 3.40 | |
| Diluted | $ | 1.56 | | | $ | 1.16 | | | $ | 4.53 | | | $ | 3.34 | |
| Shares used in computing net income per share attributable to Intuitive Surgical, Inc.: | | | | | | | |
| Basic | 355.8 | | | 351.7 | | | 354.8 | | | 351.0 | |
| Diluted | 362.7 | | | 358.2 | | | 361.4 | | | 357.1 | |
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| Other comprehensive income, net of tax: | | | | | | | |
| Unrealized gains (losses) on hedge instruments | $ | (15.5) | | | $ | 4.3 | | | $ | (5.1) | | | $ | 12.8 | |
| Unrealized gains on available-for-sale securities | 59.5 | | | 25.6 | | | 60.8 | | | 76.3 | |
| Foreign currency translation gains (losses) | (6.9) | | | (6.8) | | | (30.4) | | | 15.9 | |
| Prior service cost for employee benefit plans | (0.2) | | | — | | | (0.3) | | | — | |
| Other comprehensive income | 36.9 | | | 23.1 | | | 25.0 | | | 105.0 | |
| Total comprehensive income | 607.5 | | | 442.9 | | | 1,674.5 | | | 1,311.6 | |
| Less: comprehensive income attributable to noncontrolling interest | 6.0 | | | 3.9 | | | 12.5 | | | 13.8 | |
| Total comprehensive income attributable to Intuitive Surgical, Inc. | $ | 601.5 | | | $ | 439.0 | | | $ | 1,662.0 | | | $ | 1,297.8 | |
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The accompanying notes are an integral part of these Condensed Consolidated Financial Statements (Unaudited).
INTUITIVE SURGICAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| | | | | | | | | | | |
| Nine Months Ended September 30, |
| in millions | 2024 | | 2023 |
| Operating activities: | | | |
| Net income | $ | 1,649.5 | | | $ | 1,206.6 | |
| Adjustments to reconcile net income to net cash provided by operating activities: | | | |
| Depreciation and loss on disposal of property, plant, and equipment | 323.7 | | | 283.5 | |
| Amortization of intangible assets | 13.6 | | | 15.1 | |
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| Loss (gain) on investments, accretion of discounts, and amortization of premiums on investments, net | (38.2) | | | 14.7 | |
| Deferred income taxes | (104.5) | | | (61.0) | |
| Share-based compensation expense | 499.8 | | | 442.4 | |
| Amortization of contract acquisition assets | 27.0 | | | 22.6 | |
| Changes in operating assets and liabilities, net of effects of acquisitions: | | | |
| Accounts receivable | (21.8) | | | (19.7) | |
| Inventory | (650.9) | | | (528.2) | |
| Prepaids and other assets | (79.6) | | | 37.5 | |
| Accounts payable | 21.2 | | | 27.7 | |
| Accrued compensation and employee benefits | (58.9) | | | (26.8) | |
| Deferred revenue | (6.1) | | | (1.0) | |
| Other liabilities | 17.6 | | | 172.1 | |
| Net cash provided by operating activities | 1,592.4 | | | 1,585.5 | |
| Investing activities: | | | |
| Purchase of investments | (3,709.6) | | | (820.2) | |
| Proceeds from sales of investments | 100.2 | | | 47.7 | |
| Proceeds from maturities of investments | 2,400.0 | | | 2,092.4 | |
| Purchase of property, plant, and equipment | (799.2) | | | (628.7) | |
| Acquisition of businesses, net of cash, and intellectual property and other investing activities | — | | | (7.1) | |
| Net cash provided by (used in) investing activities | (2,008.6) | | | 684.1 | |
| Financing activities: | | | |
| Proceeds from issuance of common stock relating to employee stock plans | 367.5 | | | 252.2 | |
| Taxes paid related to net share settlement of equity awards | (257.5) | | | (155.4) | |
| Repurchase of common stock | — | | | (350.0) | |
Cash dividends paid by joint venture to noncontrolling interest | (8.0) | | | — | |
| Payment of deferred purchase consideration | (0.5) | | | (2.9) | |
| Net cash provided by (used in) financing activities | 101.5 | | | (256.1) | |
| Effect of exchange rate changes on cash, cash equivalents, and restricted cash | (9.1) | | | 8.7 | |
| Net increase (decrease) in cash, cash equivalents, and restricted cash | (323.8) | | | 2,022.2 | |
| Cash, cash equivalents, and restricted cash, beginning of period | 2,770.1 | | | 1,600.7 | |
| Cash, cash equivalents, and restricted cash, end of period | $ | 2,446.3 | | | $ | 3,622.9 | |
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The accompanying notes are an integral part of these Condensed Consolidated Financial Statements (Unaudited).
INTUITIVE SURGICAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
In this report, “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 develops, manufactures, and markets da Vinci® surgical systems and the Ion® endoluminal system. The Company’s products and related services enable physicians and healthcare providers to improve the quality of and access to minimally invasive care. The da Vinci surgical system consists of a surgeon console or consoles, a patient-side cart, and a high-performance vision system. The Ion endoluminal system consists of a system cart, a controller, a catheter, and a vision probe. Both systems use software, instruments, and accessories.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The unaudited Condensed Consolidated Financial Statements (“Financial Statements”) and accompanying notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial reporting. In the opinion of management, the accompanying 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, 2023, and include all adjustments, consisting of only normal, recurring adjustments, necessary to fairly state the information set forth herein.
Certain information and footnote disclosures typically included in the annual consolidated financial statements have been condensed or omitted. Accordingly, 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, 2023, which was filed with the SEC on January 31, 2024. The results of operations for the first nine months of 2024 are not necessarily indicative of the results to be expected for the entire fiscal year or any future periods.
The Financial Statements include the results and balances of the Company’s majority-owned joint ventures, Intuitive Surgical-Fosun Medical Technology (Shanghai) Co., Ltd. and Intuitive Surgical-Fosun (HongKong) Co., Ltd. (collectively, the “Joint Venture”), with Shanghai Fosun Pharmaceutical (Group) Co., Ltd. (“Fosun Pharma”). The Company holds a controlling financial interest in the Joint Venture, and the noncontrolling interest is reflected as a separate component of the consolidated stockholders’ equity. The noncontrolling interest’s share of the earnings in the Joint Venture is presented separately in the Condensed Consolidated Statements of Comprehensive Income.
Risks and Uncertainties
The Company’s future results of operations and liquidity could be materially adversely affected by uncertainty surrounding macroeconomic and geopolitical factors in the U.S. and globally characterized by the supply chain environment, inflationary pressure, elevated interest rates, instability in the global financial markets, disruptions in the commodities’ markets as a result of the conflict between Russia and Ukraine and conflicts in the Middle East, including Israel, and the introduction of or changes in tariffs or trade barriers may result in a recession, which could have a material adverse effect on the Company’s business.
Supply chain constraints have generally improved to pre-COVID-19 pandemic levels, with some isolated residual stresses, particularly for engineered raw materials and at certain subcontract suppliers that are operationally challenged to meet the Company’s production requirements. These isolated instances of supply chain constraints have not had a material impact during the first nine months of 2024. Additionally, prices of materials for some components remain elevated from historical levels due to strong market demand or supply chain cost inflation. With elevated interest rates, access to credit is more difficult, and any insolvency of certain suppliers, including sole- and single-sourced suppliers, may have heightened continuity risks. Incidents of cybersecurity breaches, which have not significantly impacted the Company’s supply chain to date, also remain an active threat to sustained supply continuity. The Company is actively engaged in activities that seek to mitigate the impact of any supply chain risks and disruptions on its operations.
A number of hospitals continue to experience challenges with staffing and cost pressures that could affect their ability to provide patient care. Additionally, hospitals are facing significant financial pressure as supply chain constraints and inflation have driven up operating costs and elevated interest rates have made access to credit more expensive. Hospitals may also be adversely affected by the liquidity concerns as a result of the broader macroeconomic environment. Any or all of these factors
could negatively impact the number of da Vinci procedures performed or surgical systems placed and have a material adverse effect on the Company’s business, financial condition, or results of operations.
Recently Issued Accounting Pronouncements
In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”), which requires all public entities, including public entities with a single reportable segment, to provide in interim and annual periods one or more measures of segment profit or loss used by the chief operating decision maker to allocate resources and assess performance. Additionally, the standard requires disclosures of significant segment expenses and other segment items as well as incremental qualitative disclosures. The guidance in this update is effective for fiscal years beginning after December 15, 2023, and interim periods after December 15, 2024. The Company is currently in the process of evaluating the effects of this pronouncement on its related disclosures.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 2023-09”), which requires enhanced income tax disclosures, including specific categories and disaggregation of information in the effective tax rate reconciliation, disaggregated information related to income taxes paid, income or loss from continuing operations before income tax expense or benefit, and income tax expense or benefit from continuing operations. The requirements of the ASU are effective for annual periods beginning after December 15, 2024, with early adoption permitted. The Company is currently in the process of evaluating the impact of this pronouncement on its related disclosures.
The Company continues to monitor new accounting pronouncements issued by the FASB and does not believe any accounting pronouncements issued through the date of this report will have a material impact on the Company’s Financial Statements.
Significant Accounting Policies
There have been no new or material changes to the significant accounting policies discussed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023, that are of significance, or potential significance, to the Company.
NOTE 3. FINANCIAL INSTRUMENTS
Cash, Cash Equivalents, and Investments
The following tables summarize the Company’s cash and available-for-sale debt securities’ amortized cost, gross unrealized gains, gross unrealized losses, allowance for credit loss, and fair value by significant investment category reported as cash and cash equivalents, short-term investments, or long-term investments as of September 30, 2024, and December 31, 2023 (in millions):
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| | | | | | | | | | | Reported as: |
| Amortized
Cost | | Gross
Unrealized
Gains | | Gross
Unrealized
Losses | | Allowance for Credit Loss | | Fair
Value | | Cash and
Cash
Equivalents | | Short-
term
Investments | | Long-
term
Investments |
| September 30, 2024 | | | | | | | | | | | | | | | |
| Cash | $ | 566.8 | | | $ | — | | | $ | — | | | $ | — | | | $ | 566.8 | | | $ | 566.8 | | | $ | — | | | $ | — | |
| Level 1: | | | | | | | | | | | | | | | |
| Money market funds | 1,709.4 | | | — | | | — | | | — | | | 1,709.4 | | | 1,709.4 | | | — | | | — | |
| U.S. treasuries | 5,045.9 | | | 50.2 | | | (7.0) | | | — | | | 5,089.1 | | | 137.1 | | | 1,347.0 | | | 3,605.0 | |
| Subtotal | 6,755.3 | | | 50.2 | | | (7.0) | | | — | | | 6,798.5 | | | 1,846.5 | | | 1,347.0 | | | 3,605.0 | |
| Level 2: | | | | | | | | | | | | | | | |
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| Corporate debt securities | 393.7 | | | — | | | (5.1) | | | (0.1) | | | 388.5 | | | — | | | 294.5 | | | 94.0 | |
| U.S. government agencies | 540.7 | | | 4.7 | | | (2.4) | | | — | | | 543.0 | | | — | | | 163.6 | | | 379.4 | |
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| Municipal securities | 14.8 | | | — | | | (0.1) | | | — | | | 14.7 | | | — | | | 13.3 | | | 1.4 | |
| Subtotal | 949.2 | | | 4.7 | | | (7.6) | | | (0.1) | | | 946.2 | | | — | | | 471.4 | | | 474.8 | |
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| Total assets measured at fair value | $ | 8,271.3 | | | $ | 54.9 | | | $ | (14.6) | | | $ | (0.1) | | | $ | 8,311.5 | | | $ | 2,413.3 | | | $ | 1,818.4 | | | $ | 4,079.8 | |
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| | | | | | | | | | | Reported as: |
| Amortized
Cost | | Gross
Unrealized
Gains | | Gross
Unrealized
Losses | | Allowance for Credit Loss | | Fair
Value | | Cash and
Cash
Equivalents | | Short-
term
Investments | | Long-
term
Investments |
| December 31, 2023 | | | | | | | | | | | | | | | |
| Cash | $ | 526.2 | | | $ | — | | | $ | — | | | $ | — | | | $ | 526.2 | | | $ | 526.2 | | | $ | — | | | $ | — | |
| Level 1: | | | | | | | | | | | | | | | |
| Money market funds | 2,223.9 | | | — | | | — | | | — | | | 2,223.9 | | | 2,223.9 | | | — | | | — | |
| U.S. treasuries | 2,850.2 | | | 20.1 | | | (25.4) | | | — | | | 2,844.9 | | | — | | | 1,276.0 | | | 1,568.9 | |
| Subtotal | 5,074.1 | | | 20.1 | | | (25.4) | | | — | | | 5,068.8 | | | 2,223.9 | | | 1,276.0 | | | 1,568.9 | |
| Level 2: | | | | | | | | | | | | | | | |
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| Corporate debt securities | 1,300.4 | | | — | | | (25.8) | | | (1.1) | | | 1,273.5 | | | — | | | 974.6 | | | 298.9 | |
| U.S. government agencies | 402.6 | | | 2.0 | | | (7.3) | | | — | | | 397.3 | | | — | | | 149.5 | | | 247.8 | |
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| Municipal securities | 79.4 | | | — | | | (2.0) | | | — | | | 77.4 | | | — | | | 73.0 | | | 4.4 | |
| Subtotal | 1,782.4 | | | 2.0 | | | (35.1) | | | (1.1) | | | 1,748.2 | | | — | | | 1,197.1 | | | 551.1 | |
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| Total assets measured at fair value | $ | 7,382.7 | | | $ | 22.1 | | | $ | (60.5) | | | $ | (1.1) | | | $ | 7,343.2 | | | $ | 2,750.1 | | | $ | 2,473.1 | | | $ | 2,120.0 | |
The following table summarizes the contractual maturities of the Company’s cash equivalents and available-for-sale debt securities (excluding money market funds), as of September 30, 2024 (in millions):
| | | | | | | | | | | |
| Amortized
Cost | | Fair
Value |
| Mature in less than one year | $ | 1,958.2 | | | $ | 1,955.5 | |
| Mature in one to five years | 4,036.9 | | | 4,079.8 | |
| | | |
| Total | $ | 5,995.1 | | | $ | 6,035.3 | |
Actual maturities may differ from contractual maturities, because certain borrowers have the right to call or prepay certain obligations. Gross realized gains and losses recognized on the sale of investments were immaterial for the periods presented.
The following tables present the breakdown of the available-for-sale debt securities with unrealized losses as of September 30, 2024, and December 31, 2023 (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2024 |
| Unrealized losses less than 12 months | | Unrealized losses 12 months or greater | | Total |
| Fair
Value | | Unrealized
Losses | | Fair
Value | | Unrealized
Losses | | Fair
Value | | Unrealized
Losses |
| U.S. treasuries | $ | 1,093.8 | | | $ | (1.3) | | | $ | 305.2 | | | $ | (5.7) | | | $ | 1,399.0 | | | $ | (7.0) | |
| | | | | | | | | | | |
| Corporate debt securities | 35.3 | | | — | | | 324.6 | | | (5.1) | | | 359.9 | | | (5.1) | |
| U.S. government agencies | 31.7 | | | (0.1) | | | 144.1 | | | (2.3) | | | 175.8 | | | (2.4) | |
| Municipal securities | — | | | — | | | 14.7 | | | (0.1) | | | 14.7 | | | (0.1) | |
| Total | $ | 1,160.8 | | | $ | (1.4) | | | $ | 788.6 | | | $ | (13.2) | | | $ | 1,949.4 | | | $ | (14.6) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2023 |
| Unrealized losses less than 12 months | | Unrealized losses 12 months or greater | | Total |
| Fair
Value | | Unrealized
Losses | | Fair
Value | | Unrealized
Losses | | Fair
Value | | Unrealized
Losses |
| U.S. treasuries | $ | 48.5 | | | $ | — | | | $ | 1,112.9 | | | $ | (25.4) | | | $ | 1,161.4 | | | $ | (25.4) | |
| | | | | | | | | | | |
| Corporate debt securities | 54.2 | | | (0.1) | | | 1,219.2 | | | (25.8) | | | 1,273.4 | | | (25.9) | |
| U.S. government agencies | 29.8 | | | — | | | 185.6 | | | (7.3) | | | 215.4 | | | (7.3) | |
| Municipal securities | — | | | — | | | 77.4 | | | (1.9) | | | 77.4 | | | (1.9) | |
| Total | $ | 132.5 | | | $ | (0.1) | | | $ | 2,595.1 | | | $ | (60.4) | | | $ | 2,727.6 | | | $ | (60.5) | |
The Company’s investments may, at any time, consist of money market funds, U.S. treasury and U.S. government agency securities, high-quality corporate notes and bonds, commercial paper, non-U.S. government agency securities, and taxable and tax-exempt municipal notes. The Company regularly reviews its securities in an unrealized loss position and evaluates the current expected credit loss by considering factors such as historical experience, market data, financial condition and near-term prospects of the investee, the extent of the loss related to the credit of the issuer, and the expected cash flows from the security. The Company segments its portfolio based on the underlying risk profiles of the securities and has a zero-loss expectation for U.S. treasury and U.S. government agency securities. The basis for this assumption is that these securities have consistently high credit ratings by rating agencies, have a long history with no credit losses, are explicitly guaranteed by a sovereign entity, which can print its own currency, and are denominated in a currency that is routinely held by central banks, used in international commerce, and commonly viewed as a reserve currency. Additionally, all of the Company’s investments in corporate debt securities and municipal securities are in securities with high-quality credit ratings, which have historically experienced low rates of default.
The current unrealized losses on the Company’s available-for-sale debt securities were caused by interest rate increases. The contractual terms of those investments do not permit the issuer to settle the securities at a price less than the amortized cost basis of the investments. As of September 30, 2024, the Company does not intend to sell the investments in unrealized loss positions, and it is not more-likely-than-not that the Company will be required to sell any of the investments before recovery of their amortized cost basis, which may be at maturity. Therefore, the Company does not expect to realize any losses on these available-for-sale debt securities. Additional factors considered in determining the treatment of unrealized losses include the financial condition and near-term prospects of the investee, the extent of the loss related to the credit of the issuer, and the expected cash flows from the security.
For the three and nine months ended September 30, 2024, and 2023, credit losses related to available-for-sales debt securities were not material.
Equity Investments
The Company’s equity investments may, at any time, consist of equity investments with and without readily determinable fair values. The Company generally recognizes equity investments that do not have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer.
The following table is a summary of the activity related to equity investments (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | Reported as: |
| December 31, 2023 Carrying Value | | Changes in Fair Value (1) | | Purchases / Sales / Other (2) | | September 30, 2024 Carrying Value | | Prepaids and other current assets | | Intangible and other assets, net |
| | | | | | | | | | | |
Equity investments without readily determinable fair value (Level 2) | $ | 74.5 | | | $ | 2.6 | | | $ | 18.0 | | | $ | 95.1 | | | $ | — | | | $ | 95.1 | |
| | | | | | | | | | | |
(1) Recorded in interest and other income, net. |
(2) Other includes foreign currency translation gains/(losses). |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
For the nine months ended September 30, 2024, the Company did not hold any equity investments with readily determinable fair values (Level 1).
For the nine months ended September 30, 2024, the Company recognized a net increase in fair value of $2.6 million for equity investments that lack readily determinable fair values (Level 2), primarily due to changes in observable prices for certain equity investments, partially offset by impairments of certain equity investments, which was reflected in interest and other income, net.
Foreign Currency Derivatives
The objective of the Company’s hedging program is to mitigate the impact of changes in currency exchange rates on net cash flow from foreign currency-denominated sales, expenses, intercompany balances, and other monetary assets or liabilities denominated in currencies other than the U.S. dollar (“USD”). The terms of the Company’s derivative contracts are generally thirteen months or shorter. The derivative assets and liabilities are measured using Level 2 fair value inputs.
Cash Flow Hedges
The Company enters into currency forward contracts as cash flow hedges to hedge certain forecasted revenue transactions denominated in currencies other than the USD, primarily the Euro (“EUR”), the British Pound (“GBP”), the Japanese Yen (“JPY”), the Korean Won (“KRW”), and the New Taiwan Dollar (“TWD”). The Company also enters into currency forward contracts as cash flow hedges to hedge certain forecasted expense transactions denominated in EUR and the Swiss Franc (“CHF”).
For these derivatives, the Company reports the unrealized after-tax gain or loss from the hedge as a component of accumulated other comprehensive 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, TWD, Indian Rupee (“INR”), Mexican Peso (“MXN”), Chinese Yuan (“CNY”), and Canadian Dollar (“CAD”).
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, |
| 2024 | | 2023 | | 2024 | | 2023 |
| Recognized gains (losses) in interest and other income, net | $ | (27.3) | | | $ | 10.4 | | | $ | 2.8 | | | $ | 21.8 | |
| Foreign exchange gains (losses) related to balance sheet re-measurement | $ | 31.5 | | | $ | (13.1) | | | $ | (1.1) | | | $ | (24.0) | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
The notional amounts for derivative instruments provide one measure of the transaction volume. Total gross notional amounts (in USD) for outstanding derivatives and the aggregate gross fair value at the end of each period were as follows (in millions):
| | | | | | | | | | | | | | | | | | | | | | | |
| Derivatives Designated as Hedging Instruments | | Derivatives Not Designated as Hedging Instruments |
| September 30,
2024 | | December 31,
2023 | | September 30,
2024 | | December 31,
2023 |
| Notional amounts: | | | | | | | |
| Forward contracts | $ | 365.2 | | | $ | 292.1 | | | $ | 688.9 | | | $ | 699.7 | |
| Gross fair value recorded in: | | | | | | | |
| Prepaids and other current assets | $ | 1.2 | | | $ | 3.1 | | | $ | 1.7 | | | $ | 5.0 | |
| Other accrued liabilities | $ | 10.1 | | | $ | 5.9 | | | $ | 8.4 | | | $ | 6.6 | |
NOTE 4. BALANCE SHEET DETAILS AND OTHER FINANCIAL INFORMATION
Balance Sheet Details
The following tables provide details of selected Condensed Consolidated Balance Sheet line items (in millions):
| | | | | | | | | | | |
| | As of |
| Accounts receivable, net | September 30,
2024 | | December 31,
2023 |
| Trade accounts receivable, net | $ | 984.7 | | | $ | 1,042.2 | |
| | | |
| | | |
| Unbilled accounts receivable and other | 191.9 | | | 105.0 | |
| Sales returns and allowances | (23.6) | | | (17.0) | |
| Total accounts receivable, net | $ | 1,153.0 | | | $ | 1,130.2 | |
| | | | | | | | | | | |
| As of |
| Inventory | September 30,
2024 | | December 31,
2023 |
| Raw materials | $ | 522.6 | | | $ | 454.7 | |
| Work-in-process | 214.9 | | | 159.9 | |
| Finished goods | 744.2 | | | 606.0 | |
| Total inventory | $ | 1,481.7 | | | $ | 1,220.6 | |
| | | | | | | | | | | |
| As of |
| Prepaids and other current assets | September 30,
2024 | | December 31,
2023 |
| Net investment in sales-type leases – short-term | $ | 137.0 | | | $ | 137.3 | |
| | | |
| | | |
| | | |
| | | |
| Other prepaids and other current assets | 212.2 | | | 176.7 | |
| Total prepaids and other current assets | $ | 349.2 | | | $ | 314.0 | |
| | | | | | | | | | | |
| | As of |
| Property, plant, and equipment, net | September 30,
2024 | | December 31,
2023 |
| Land | $ | 464.1 | | | $ | 457.3 | |
| Building and building/leasehold improvements | 1,428.5 | | | 1,002.1 | |
| Machinery and equipment | 859.2 | | | 724.2 | |
| Operating lease assets – Intuitive System Leasing | 1,455.1 | | | 1,149.7 | |
| Computer and office equipment | 173.4 | | | 153.8 | |
| Capitalized software | 280.7 | | | 257.8 | |
| Construction-in-process | 1,583.5 | | | 1,354.7 | |
| Gross property, plant, and equipment | 6,244.5 | | | 5,099.6 | |
| Less: Accumulated depreciation* | (1,811.5) | | | (1,562.0) | |
| Total property, plant, and equipment, net | $ | 4,433.0 | | | $ | 3,537.6 | |
| | | |
| *Accumulated depreciation associated with operating lease assets – Intuitive System Leasing | $ | (526.1) | | | $ | (434.3) | |
| | | | | | | | | | | |
| As of |
| Other accrued liabilities – short-term | September 30,
2024 | | December 31,
2023 |
| Income and other taxes payable | $ | 164.6 | | | $ | 111.4 | |
| Accrued construction-related capital expenditures | 178.5 | | | 143.3 | |
| | | |
| | | |
| | | |
| | | |
| Other accrued liabilities | 311.5 | | | 332.8 | |
| Total other accrued liabilities – short-term | $ | 654.6 | | | $ | 587.5 | |
| | | | | | | | | | | |
| As of |
| Other long-term liabilities | September 30,
2024 | | December 31,
2023 |
| Income taxes – long-term | $ | 202.8 | | | $ | 233.8 | |
| Deferred revenue – long-term | 59.6 | | | 45.6 | |
| Other long-term liabilities | 126.7 | | | 106.1 | |
| Total other long-term liabilities | $ | 389.1 | | | $ | 385.5 | |
Supplemental Cash Flow Information
The following table provides supplemental non-cash investing and financing activities (in millions):
| | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2024 | | 2023 |
| Equipment transfers, including operating lease assets, from inventory to property, plant, and equipment | $ | 423.8 | | | $ | 303.8 | |
| | | |
| Acquisition of property, plant, and equipment in accounts payable and accrued liabilities | $ | 194.9 | | | $ | 135.2 | |
| | | |
NOTE 5. REVENUE
The following table presents revenue disaggregated by type and geography (in millions):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| U.S. | 2024 | | 2023 | | 2024 | | 2023 |
| Instruments and accessories | $ | 904.8 | | | $ | 775.7 | | | $ | 2,618.6 | | | $ | 2,240.4 | |
| Systems | 265.4 | | | 216.0 | | | 702.2 | | | 627.6 | |
Service | 209.2 | | | 188.5 | | | 616.3 | | | 564.6 | |
Total U.S. revenue | $ | 1,379.4 | | | $ | 1,180.2 | | | $ | 3,937.1 | | | $ | 3,432.6 | |
| | | | | | | |
Outside of the U.S. (“OUS”) | | | | | | | |
| Instruments and accessories | $ | 359.4 | | | $ | 295.7 | | | $ | 1,048.9 | | | $ | 892.5 | |
| Systems | 179.6 | | | 163.4 | | | 609.2 | | | 571.9 | |
Service | 119.7 | | | 104.4 | | | 343.4 | | | 298.8 | |
Total OUS revenue | $ | 658.7 | | | $ | 563.5 | | | $ | 2,001.5 | | | $ | 1,763.2 | |
| | | | | | | |
| Total | | | | | | | |
| Instruments and accessories | $ | 1,264.2 | | | $ | 1,071.4 | | | $ | 3,667.5 | | | $ | 3,132.9 | |
| Systems | 445.0 | | | 379.4 | | | 1,311.4 | | | 1,199.5 | |
Service | 328.9 | | | 292.9 | | | 959.7 | | | 863.4 | |
Total revenue | $ | 2,038.1 | | | $ | 1,743.7 | | | $ | 5,938.6 | | | $ | 5,195.8 | |
Remaining Performance Obligations
The transaction price allocated to remaining performance obligations relates to amounts allocated to products and services for which revenue has not yet been recognized. A significant portion of these performance obligations relate to service obligations in the Company’s system sale and lease arrangements that will be satisfied and recognized as revenue in future periods. The transaction price allocated to the remaining performance obligations was $2.52 billion as of September 30, 2024. The remaining performance obligations are expected to be satisfied over the term of the system sale, lease, and service arrangements. Approximately 45% of the remaining performance obligations are expected to be recognized in the next 12 months with the remainder recognized thereafter over the term of the system sale, lease, and service arrangements, which are generally up to 5 years.
Contract Assets and Liabilities
The following information summarizes the Company’s contract assets and liabilities (in millions):
| | | | | | | | | | | |
| As of |
| | September 30, 2024 | | December 31, 2023 |
| Contract assets | $ | 17.7 | | | $ | 20.2 | |
| Deferred revenue | $ | 485.6 | | | $ | 491.7 | |
The Company invoices its customers based on the billing schedules in its sales arrangements. Payments are generally due 30 to 60 days from the date of invoice. Contract assets for the periods presented primarily represent the difference between the revenue that was recognized based on the relative standalone selling price of the related performance obligations satisfied and the contractual billing terms in the arrangements. Deferred revenue for the periods presented primarily relates to service contracts where the service fees are billed up-front, generally quarterly or annually, prior to those services having been performed. The associated deferred revenue is generally recognized over the term of the service period. The Company did not have any significant impairment losses on its contract assets for the periods presented.
During the three and nine months ended September 30, 2024, the Company recognized $81 million and $388 million of revenue, respectively, that was included in the deferred revenue balance as of December 31, 2023. During the three and nine months ended September 30, 2023, the Company recognized $75 million and $372 million of revenue, respectively, that was included in the deferred revenue balance as of December 31, 2022.
Intuitive System Leasing
The following table presents product revenue from Intuitive System Leasing arrangements (in millions):
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2024 | | 2023 | | 2024 | | 2023 |
| Sales-type lease revenue | $ | 30.2 | | | $ | 19.2 | | | $ | 88.6 | | | $ | 54.5 | |
| Operating lease revenue* | $ | 167.8 | | | $ | 127.1 | | | $ | 472.7 | | | $ | 361.8 | |
| | | | | | | |
*Variable lease revenue related to usage-based arrangements included within operating lease revenue | $ | 87.0 | | | $ | 54.2 | | | $ | 237.1 | | | $ | 153.4 | |
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, 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, 2024, and 2023, 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, procedure coverage and reimbursement, economic pressures or uncertainty associated with local or global economic recessions, 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 macroeconomic factors, including inflation, high interest rates, and staffing shortages.
NOTE 6. LEASES
Lessor Information related to Intuitive System Leasing
Sales-type Leases. Lease receivables relating to sales-type lease arrangements are presented on the Condensed Consolidated Balance Sheets as follows (in millions):
| | | | | | | | | | | |
| As of |
| September 30, 2024 | | December 31, 2023 |
| Gross lease receivables | $ | 362.8 | | | $ | 384.5 | |
| Unearned income | (12.7) | | | (12.9) | |
| Subtotal | 350.1 | | | 371.6 | |
| Allowance for credit loss | (2.6) | | | (2.7) | |
| Net investment in sales-type leases | $ | 347.5 | | | $ | 368.9 | |
| Reported as: | | | |
| Prepaids and other current assets | $ | 137.0 | | | $ | 137.3 | |
| Intangible and other assets, net | 210.5 | | | 231.6 | |
| Net investment in sales-type leases | $ | 347.5 | | | $ | 368.9 | |
Contractual maturities of gross lease receivables as of September 30, 2024, are as follows (in millions):
| | | | | |
| Fiscal Year | Amount |
Remainder of 2024 | $ | 39.0 | |
| 2025 | 133.5 | |
| 2026 | 94.0 | |
| 2027 | 57.1 | |
| 2028 | 26.0 | |
| 2029 and thereafter | 13.2 | |
| Total | $ | 362.8 | |
The Company enters into sales-type leases with certain qualified customers to purchase its systems. Sales-type leases have terms that generally range from 36 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 the current expected lifetime loss on lease receivables. The Company regularly reviews the allowance by considering factors such as historical experience, credit quality, age of the lease receivable balances, and current economic conditions that may affect a customer’s ability to pay. Lease receivables are considered past due 90 days after invoice.
The Company manages the credit risk of the net investment in sales-type leases using a number of factors relating to its customers, including, but not limited to, the following: size of operations; profitability, liquidity, and debt ratios; payment history; and past due amounts. The Company also uses credit scores obtained from external providers as a key indicator for the purposes of determining credit quality. The following table summarizes the amortized cost basis by year of origination and by credit quality for the net investment in sales-type leases as of September 30, 2024 (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2024 | | 2023 | | 2022 | | 2021 | | 2020 | | Prior | | Net Investment |
| Credit Rating: | | | | | | | | | | | | | |
| High | $ | 31.0 | | | $ | 31.8 | | | $ | 47.6 | | | $ | 38.1 | | | $ | 11.0 | | | $ | 1.8 | | | $ | 161.3 | |
| Moderate | 60.0 | | | 26.4 | | | 49.2 | | | 31.3 | | | 14.1 | | | 2.0 | | | 183.0 | |
| Low | 2.7 | | | 1.1 | | | — | | | 1.7 | | | 0.3 | | | — | | | 5.8 | |
| Total | $ | 93.7 | | | $ | 59.3 | | | $ | 96.8 | | | $ | 71.1 | | | $ | 25.4 | | | $ | 3.8 | | | $ | 350.1 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
For the three and nine months ended September 30, 2024, and 2023, credit losses related to the net investment in sales-type leases were not material.
NOTE 7. GOODWILL AND INTANGIBLE ASSETS
Acquisitions
There were no material acquisitions in the nine months ended September 30, 2024, and 2023.
Goodwill
The following table summarizes the changes in the carrying amount of goodwill (in millions):
| | | | | |
| Amount |
Balance as of December 31, 2023 | $ | 348.7 | |
| Acquisition activity | — | |
| Translation and other | (0.4) | |
Balance as of September 30, 2024 | $ | 348.3 | |
Intangible Assets
The following table summarizes the components of gross intangible assets, accumulated amortization, and net intangible assets balances as of September 30, 2024, and December 31, 2023 (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | September 30, 2024 | | December 31, 2023 |
| | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
| Patents and developed technology | | $ | 202.5 | | | $ | (183.7) | | | $ | 18.8 | | | $ | 206.3 | | | $ | (178.4) | | | $ | 27.9 | |
| Distribution rights and others | | 1.3 | | | (1.0) | | | 0.3 | | | 10.8 | | | (9.2) | | | 1.6 | |
| Customer relationships | | 28.1 | | | (21.9) | | | 6.2 | | | 32.5 | | | (22.9) | | | 9.6 | |
| Total intangible assets | | $ | 231.9 | | | $ | (206.6) | | | $ | 25.3 | | | $ | 249.6 | | | $ | (210.5) | | | $ | 39.1 | |
Amortization expense related to intangible assets was $3.5 million and $5.1 million for the three months ended September 30, 2024, and 2023, respectively. Amortization expense related to intangible assets was $13.6 million and $15.1 million for the nine months ended September 30, 2024, and 2023, respectively.
The estimated future amortization expense related to intangible assets as of September 30, 2024, is as follows (in millions):
| | | | | |
| Fiscal Year | Amount |
Remainder of 2024 | $ | 3.3 | |
| 2025 | 12.0 | |
| 2026 | 5.2 | |
| 2027 | 2.8 | |
| 2028 | 1.3 | |
| 2029 and thereafter | 0.7 | |
| Total | $ | 25.3 | |
The preceding expected amortization expense is an estimate. Actual amounts of amortization expense may differ from estimated amounts due to additional intangible asset acquisitions, measurement-period adjustments to intangible assets, changes in foreign currency exchange rates, impairments of intangible assets, accelerated amortization of intangible assets, and other events.
NOTE 8. CONTINGENCIES
From time to time, the Company is involved in a variety of claims, lawsuits, investigations, and proceedings relating to securities laws, product liability, intellectual property, commercial, insurance, contract disputes, employment, and other matters. Certain of these lawsuits and claims are described in further detail below. It is not possible to predict what the outcome of these matters will be, and the Company cannot guarantee that any resolution will be reached on commercially reasonable terms, if at all.
A liability and related charge to earnings are recorded in the Financial Statements for legal contingencies when the loss is considered probable and the amount can be reasonably estimated. The assessment is re-evaluated each accounting period and is based on all available information, including the impact of negotiations, settlements, rulings, advice of legal counsel, and other information and events pertaining to each case. Nevertheless, it is possible that additional future legal costs (including settlements, judgments, legal fees, and other related defense costs) could have a material adverse effect on the Company’s business, financial condition, or future results of operations.
Product Liability Litigation
The Company is currently named as a defendant in a number of individual product liability lawsuits filed in various state and federal courts. The plaintiffs generally allege that they or a family member underwent surgical procedures that utilized the da Vinci surgical system 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 condition, or future results of operations. Although there is a reasonable possibility that a loss in excess of the amount recognized exists, the Company is unable to estimate the possible loss or range of loss in excess of the amount recognized at this time.
Patent Litigation
On October 19, 2022, a jury rendered a verdict against the Company awarding $10 million in damages to Rex Medical, L.P. in a patent infringement lawsuit. On September 20, 2023, the court granted the Company’s post-trial motion and reduced the damages to Rex Medical L.P. to nominal damages of $1. On October 18, 2023, Rex Medical filed a notice of appeal to the United States Court of Appeals for the Federal Circuit and, on October 31, 2023, Intuitive filed its notice of cross appeal. The
parties have completed briefing before the Court of Appeals for the Federal Circuit. Based on currently available information, the Company does not believe that any losses arising from this matter would be material.
Commercial Litigation
On May 10, 2021, Surgical Instrument Service Company, Inc. (“SIS”) filed a complaint in the Northern District of California Court alleging antitrust claims against the Company relating to EndoWrist service, maintenance, and repair processes. The Court granted in part and denied in part the Company’s Motion to Dismiss, and discovery has commenced. The Company filed an answer denying the antitrust allegations and filed counterclaims against SIS. The counterclaims allege that SIS violated the Federal Lanham Act, California’s Unfair Competition Law, and California’s False Advertising Law and that SIS is also liable to the Company for Unfair Competition and Tortious Interference with Contract. The parties have filed summary judgment and Daubert motions, and the court held a hearing on these motions on September 7, 2023.
On March 31, 2024, the Court granted-in-part and denied-in-part both Intuitive’s and plaintiff’s motions for summary judgment, and issued additional rulings related to expert witnesses. The Court did not rule in favor of either party with respect to whether the U.S. Food and Drug Administration (“FDA”) requires 510(k) clearance for plaintiff’s services with respect to EndoWrists. In conjunction with this finding, the Court denied Intuitive’s motion for summary judgment on plaintiff’s antitrust claims and found that these claims could proceed to trial. In addition, the Court ruled with Intuitive in dismissing plaintiff’s false statement claims against Intuitive, and the Court ruled with plaintiff in dismissing certain of Intuitive’s counterclaims against plaintiff. The Court has set a trial in this matter to commence on January 6, 2025. Based on currently available information, the Company is unable to make a reasonable estimate of loss or range of losses, if any, arising from this matter.
Three class action complaints were filed against the Company in the Northern District of California Court alleging antitrust allegations relating to the service and repair of certain instruments manufactured by the Company. A complaint by Larkin Community Hospital was filed on May 20, 2021, a complaint by Franciscan Alliance, Inc. and King County Public Hospital District No. 1 was filed on July 6, 2021, and a complaint by Kaleida Health was filed on July 8, 2021. The Court has consolidated the Franciscan Alliance, Inc. and King County Public Hospital District No. 1 and Kaleida Health cases with the Larkin Community Hospital case, which is now captioned on the Larkin docket as “In Re: da Vinci Surgical Robot Antitrust Litigation.” A Consolidated Amended Class Action Complaint has been filed on behalf of each plaintiff named in the earlier-filed cases. On January 14, 2022, Kaleida Health voluntarily dismissed itself as a party to this case. On January 18, 2022, the Company filed an answer against the plaintiffs in this matter, and discovery has commenced.
With regard to this class action case, on September 7, 2023, the Court heard argument on the parties’ respective motions for summary judgment and motions related to expert testimony. On March 31, 2024, the Court granted-in-part and denied-in-part plaintiffs’ motion for summary judgment on certain market definition issues, and denied Intuitive’s motion on the antitrust claims. In denying Intuitive’s motion, the Court declined to decide whether third-party companies were required to obtain 510(k) clearance for their services with respect to EndoWrists, and in the absence of a formal ruling from the FDA on that question denied Intuitive’s motion for summary judgment challenging plaintiffs’ standing on that ground. There were additional rulings on the expert witness issues as well. In the summary judgment order, the Court ruled with plaintiffs that the da Vinci robot and EndoWrist instruments occupy separate product markets for antitrust purposes. The Court also ruled that there is an antitrust aftermarket for the repair and replacement of EndoWrist instruments, and that Intuitive holds monopoly power in that aftermarket. The Court denied summary judgment for plaintiffs on the issue of whether soft-tissue surgical robots constitute a relevant antitrust market or are part of a larger market that includes laparoscopic and open surgery for antitrust purposes. On July 30, 2024, the Court granted Intuitive’s motion for reconsideration, vacating those portions of the Court’s March 31, 2024 Order granting summary judgment as to the definition of a U.S. market for EndoWrist repair and replacement and Intuitive’s market power in such a market. The Court has set a class certification hearing for January 23, 2025. Based on currently available information, the Company is unable to make a reasonable estimate of loss or range of losses, if any, arising from this matter, and no trial date has been set for this matter at this time.
On September 18, 2024, Restore Robotics Repairs (“Restore”) filed a complaint in the United States District Court for the Northern District of Florida alleging antitrust claims against the Company relating to the service and replacement of X/Xi EndoWrist instruments for use with the da Vinci X and Xi surgical systems. The Company has agreed to accept service of the complaint, and the parties agreed that Intuitive would have until December 9, 2024, to file a response. Based on currently available information, the Company is unable to make a reasonable estimate of loss or range of losses, if any, arising from this matter.
NOTE 9. STOCKHOLDERS’ EQUITY
Stockholders’ Equity
The following tables present the changes in stockholders’ equity (in millions):
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| Three Months Ended September 30, 2024 |
| Common Stock | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Total Intuitive Surgical, Inc. Stockholders’ Equity | | Noncontrolling Interest in Joint Venture | | Total Stockholders’ Equity |
| Shares | | Amount | | | | | | |
| Beginning balance | 355.3 | | | $ | 0.4 | | | $ | 9,149.7 | | | $ | 5,581.7 | | | $ | (23.5) | | | $ | 14,708.3 | | | $ | 88.2 | | | $ | 14,796.5 | |
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| Issuance of common stock through employee stock plans | 1.0 | | | — | | | 115.6 | | | — | | | — | | | 115.6 | | | — | | | 115.6 | |
| Shares withheld related to net share settlement of equity awards | (0.1) | | | — | | | (0.4) | | | (17.0) | | | — | | | (17.4) | | | — | | | (17.4) | |
| Share-based compensation expense related to employee stock plans | — | | | — | | | 175.3 | | | — | | | — | | | 175.3 | | | — | | | 175.3 | |
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| Net income attributable to Intuitive Surgical, Inc. | — | | | — | | | — | | | 565.1 | | | — | | | 565.1 | | | — | | | 565.1 | |
| Other comprehensive income | — | | | — | | | — | | | — | | | 36.4 | | | 36.4 | | | 0.5 | | | 36.9 | |
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| Net income attributable to noncontrolling interest in joint venture | — | | | — | | | — | | | — | | | — | | | — | | | 5.5 | | | 5.5 | |
| Ending balance | 356.2 | | | $ | 0.4 | | | $ | 9,440.2 | | | $ | 6,129.8 | | | $ | 12.9 | | | $ | 15,583.3 | | | $ | 94.2 | | | $ | 15,677.5 | |
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| Three Months Ended September 30, 2023 |
| Common Stock | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Total Intuitive Surgical, Inc. Stockholders’ Equity | | Noncontrolling Interest in Joint Venture | | Total Stockholders’ Equity |
| Shares | | Amount | | | | | | |
Beginning balance | 351.3 | | | $ | 0.4 | | | $ | 8,150.8 | | | $ | 3,807.7 | | | $ | (79.8) | | | $ | 11,879.1 | | | $ | 80.6 | | | $ | 11,959.7 | |
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| Issuance of common stock through employee stock plans | 0.7 | | | — | | | 77.4 | | | — | | | — | | | 77.4 | | | — | | | 77.4 | |
| Shares withheld related to net share settlement of equity awards | — | | | — | | | (0.6) | | | (14.2) | | | — | | | (14.8) | | | — | | | (14.8) | |
| Share-based compensation expense related to employee stock plans | — | | | — | | | 158.3 | | | — | | | — | | | 158.3 | | | — | | | 158.3 | |
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| Net income attributable to Intuitive Surgical, Inc. | — | | | — | | | — | | | 415.7 | | | — | | | 415.7 | | | — | | | 415.7 | |
| Other comprehensive income (loss) | — | | | — | | | — | | | — | | | 23.3 | | | 23.3 | | | (0.2) | | | 23.1 | |
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| Net income attributable to noncontrolling interest in joint venture | — | | | — | | | — | | | — | | | — | | | — | | | 4.1 | | | 4.1 | |
Ending balance | 352.0 | | | $ | 0.4 | | | $ | 8,385.9 | | | $ | 4,209.2 | | | $ | (56.5) | | | $ | 12,539.0 | | | $ | 84.5 | | | $ | 12,623.5 | |
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| Nine Months Ended September 30, 2024 |
| Common Stock | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Total Intuitive Surgical, Inc. Stockholders’ Equity | | Noncontrolling Interest in Joint Venture | | Total Stockholders’ Equity |
| Shares | | Amount | | | | | | |
Beginning balance | 352.3 | | | $ | 0.4 | | | $ | 8,576.4 | | | $ | 4,743.0 | | | $ | (12.2) | | | $ | 13,307.6 | | | $ | 89.7 | | | $ | 13,397.3 | |
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| Issuance of common stock through employee stock plans | 4.6 | | | — | | | 367.5 | | | — | | | — | | | 367.5 | | | — | | | 367.5 |