Intuitive Surgical, Inc. Q2 FY2026 earnings call

### Global Procedure and Installed Base Growth - Total procedures grew 16% YoY, with 15% growth in da Vinci procedures and 36% growth in ION procedures. Global da Vinci installed base grew 12% YoY, and ION installed base grew 21% YoY, reaching almost 13,000 total systems installed worldwide. - US da Vinci procedure growth was 12% YoY, moderated from earlier trends driven by lower growth in deferrable procedures, partially attributed to changes in ACA premium subsidies; bariatric procedures declined high-single digits due to increased GLP-1 usage. Outside the US, da Vinci procedures grew 20% YoY, with Europe, Asia, and Rest of World growing 20%, 20%, and 22% respectively. - ION procedures grew 36% YoY to 48,000, exceeding 400,000 cumulative procedures globally, with ION systems installed in 12 countries outside the US. - da Vinci SP procedures grew 61% YoY, with a global installed base of 445 systems; SP stapler adoption reached 60% of eligible US cases, up from 40% last quarter.

### Geographic Updates - China: Market remains challenging with low tender activity, increased domestic competition, and policy-driven pricing pressure. The company is progressing through the green channel approval process for SP and da Vinci 5 for Mainland China. - Japan: New reimbursement policies for additional robotic procedures and utilization incentives took effect June 1, with system placements increasing to 25 in Q2 from 15 YoY. - India: Received da Vinci 5 regulatory clearance, maintaining strong growth momentum.

### Product and Innovation Highlights - Rolled out the first phase of over 100 planned software updates for the da Vinci 5 platform, focused on improving telepresence, simulation training, and workflow; three key customer-facing updates have been submitted for FDA 510(k) clearance. - Announced the extended use program for a subset of ENDORIST instruments, launching in H1 2027, which will increase the number of permitted uses to lower customer cost per procedure for high-volume benign procedures, supporting broader adoption in cost-constrained markets. - Submitted a foundational next-generation flexible robotic endoscope system for gastrointestinal procedures for FDA 510(k) clearance, advancing early-stage R&D into new clinical indications. - da Vinci XiR (a fourth-generation platform for cost-constrained markets) saw strong adoption, with 20 of 27 Q2 ASC placements in the US being XiR systems, with growing interest in international cost-sensitive markets.

### Financial Operational Highlights - The company received a $36 million pre-tax benefit from an IEPA tariff refund, boosting non-GAAP gross margin to 70% (68.7% excluding the benefit), up from 67.9% YoY. - Non-GAAP operating expenses grew 13% YoY, with R&D growing faster than SG&A as the company prioritizes innovation investment. The company added 215 employees in the quarter, half in manufacturing to support rising demand. - Ended the quarter with $8.6 billion in cash and investments; free cash flow for H1 2026 was $1.8 billion, up 71% YoY.

Total company revenue for Q2 2026 grew 19% year-over-year to $2.89 billion, with recurring revenue of $2.47 billion (85% of total revenue) growing 19% YoY. Non-GAAP operating margin was 42%, and non-GAAP EPS grew 28% YoY to $2.80. Procedures grew 16% overall, with da Vinci procedures up 15% and ION procedures up 36%.

1. **Instruments and Accessories (I&A)**: Revenue grew 18% YoY to $1.73 billion. da Vinci I&A revenue per procedure was ~$1,830, up from $1,800 YoY, driven by a higher mix of SP and da Vinci 5 procedures, offset by procedure mix and ordering pattern shifts. Early-stage high-growth segments include cardiac procedures (39% YoY growth) and nipple-sparing mastectomy procedures (43% YoY growth).

2. **Capital Systems**: Revenue grew 19% YoY to $685 million. The company placed 468 da Vinci systems (18% YoY growth), including 246 da Vinci 5 systems (114 with dual consoles), 38 da Vinci SP systems, and 55 ION systems. 54% of da Vinci placements were via leasing, up from 49% YoY. The average selling price for purchased da Vinci systems was $1.6 million, up from $1.5 million YoY due to a higher mix of da Vinci 5 and dual console systems.

3. **Service Revenue**: Grew 21% YoY to $472 billion, supported by a 12% YoY increase in the global da Vinci installed base and 21% YoY growth in the ION installed base. da Vinci service revenue per system grew 8% YoY, driven by a higher mix of da Vinci 5 systems.

- **da Vinci procedure growth**: Maintains the prior full-year 2026 forecast range of 13.5% to 15.5% YoY, with results expected to land near the midpoint of the range. The forecast accounts for ACA subsidy impacts, China market dynamics, macro capital pressure in parts of Europe, Japan capital challenges, and obesity pharmaceutical usage impacts. - **Non-GAAP gross margin**: Upwardly revised the 2026 forecast range to 68% to 69% from the prior 67.5% to 68.5% range, reflecting the benefit of the IEPA tariff refund partially offset by expected input cost increases for freight and semiconductors, new product growth, incremental depreciation, and upgrade impacts. - **Non-GAAP operating expense growth**: Updated 2026 guidance to 11% to 13% YoY growth; R&D is expected to continue growing faster than SG&A for the remainder of 2026. - **Noncash stock compensation expense**: Forecast between $880 million and $900 million for 2026. - **Other income (mostly interest income)**: Maintained forecast of $315 million to $335 million for 2026. - **Non-GAAP effective tax rate**: Maintained forecast of 22% to 23% for 2026.

- US procedure growth moderation: Deferrable benign procedure growth has slowed, partially attributed to the expiration of enhanced ACA premium subsidies, with the potential for continued softness if deferred procedures do not return in the second half of 2026. - Bariatric procedure headwinds: Rising GLP-1 usage has led to high-single-digit declines in US bariatric procedures, a trend that may continue. - China market challenges: Ongoing low tender activity, increased domestic competition, policy-driven pricing pressure, and evolving regulatory and tender processes create uncertainty for growth in the market. - Global macro and capital budget constraints: Some European markets face government budget stress that could impact capital investment, and potential bad debt buildup at US hospitals from ACA/Medicaid coverage shifts could impact future capital demand. - Product and regulatory risk: New product launches and platform updates require regulatory clearance, with uncertain timing and adoption trajectories for new indications such as GI robotics.

Q: How can you be sure recent US procedure growth moderation is driven by ACA subsidy changes rather than market maturity, and do you expect deferred procedures to return in H2 2026? What is the expected revenue impact of the extended use program, and how will it expand addressable markets? / A: Management says the moderation is confirmed by customer feedback, with deferrable procedures seeing slower growth than non-deferrable cases. The slowdown reflects a combination of ACA impacts and mild law of large number effects from the business's size. The extended use program, launching H1 2027, will lower per-procedure costs for high-volume benign procedures in cost-constrained geographies and ASCs, with progressive adoption over 2027 rather than an immediate step change impact; full quantification will be provided on the next earnings call.

Q: What is the current state of the global capital environment, and what assumptions are embedded in guidance about future capital investment trends? / A: The US capital environment has been stable, with Q2 US system placements up 24% YoY driven by da Vinci 5 upgrades. Leasing arrangements (half of US placements) give customers flexibility during budget constraints, and capital demand has not yet been impacted by ACA enrollment concerns. Internationally, China remains competitively challenging; Japan's outlook is cautiously optimistic following recent reimbursement changes; distributor markets respond well to the segmented portfolio, and Europe has mixed conditions depending on national budgets.

Q: What is the rollout cadence for da Vinci 5 updates, and why is Intuitive entering the GI robotics market? / A: Intuitive plans to roll out 100 da Vinci 5 updates on an ongoing cadence, leveraging the platform's excess compute power. Three key customer-facing efficiency and capability updates (surgeon tool eject, multi-arm adjustment, and digital ruler) are already submitted for FDA clearance, with more updates planned annually. GI robotics is a natural extension of Intuitive's mission, building on learnings from da Vinci and ION to improve minimally invasive care; the program remains early-stage, with no TAM or timing estimates available currently.

Q: How do you characterize the current stage of the da Vinci 5 upgrade cycle, and what is the growth outlook for XiR? / A: Historical reference from the Xi upgrade cycle shows the upgrade cycle progresses over multiple years, with da Vinci 5 attractiveness increasing over time as more software updates are added. As of Q2, there are approximately 130 XiR systems installed globally, 50 in the US, with 20 of 27 Q2 ASC placements being XiR systems. XiR addresses cost-constrained customers and new robotic programs in 11+ international markets, and is expected to represent a significant share of placements going forward.