|
|
|
x
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
¨
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
|
|
Delaware
|
|
77-0416458
|
(State or Other Jurisdiction of
Incorporation or Organization)
|
|
(I.R.S. Employer
Identification No.)
|
|
Large accelerated filer
|
x
|
|
Accelerated filer
|
¨
|
Non-accelerated filer
|
¨
|
(Do not check if a smaller reporting company)
|
Smaller reporting company
|
¨
|
|
|
|
Emerging growth company
|
¨
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||
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Page No.
|
PART I. FINANCIAL INFORMATION
|
||
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PART II. OTHER INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
in millions (except par values)
|
September 30,
2017 |
|
December 31,
2016 |
||||
ASSETS
|
|
|
|
||||
Current assets:
|
|
|
|
||||
Cash and cash equivalents
|
$
|
875.0
|
|
|
$
|
1,036.6
|
|
Short-term investments
|
1,271.8
|
|
|
1,518.0
|
|
||
Accounts receivable, net
|
468.0
|
|
|
430.2
|
|
||
Inventory
|
225.2
|
|
|
182.3
|
|
||
Prepaids and other current assets
|
88.9
|
|
|
83.3
|
|
||
Total current assets
|
2,928.9
|
|
|
3,250.4
|
|
||
Property, plant and equipment, net
|
584.8
|
|
|
458.4
|
|
||
Long-term investments
|
1,655.2
|
|
|
2,283.3
|
|
||
Deferred tax assets
|
119.8
|
|
|
150.9
|
|
||
Intangible and other assets, net
|
154.8
|
|
|
142.8
|
|
||
Goodwill
|
201.1
|
|
|
201.1
|
|
||
Total assets
|
$
|
5,644.6
|
|
|
$
|
6,486.9
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
||||
Current liabilities:
|
|
|
|
||||
Accounts payable
|
$
|
80.4
|
|
|
$
|
68.5
|
|
Accrued compensation and employee benefits
|
124.7
|
|
|
136.4
|
|
||
Deferred revenue
|
282.5
|
|
|
240.6
|
|
||
Other accrued liabilities
|
128.1
|
|
|
151.0
|
|
||
Total current liabilities
|
615.7
|
|
|
596.5
|
|
||
Other long-term liabilities
|
69.0
|
|
|
112.6
|
|
||
Total liabilities
|
684.7
|
|
|
709.1
|
|
||
Contingencies (Note 6)
|
|
|
|
|
|
||
Stockholders’ equity:
|
|
|
|
||||
Preferred stock, 2.5 shares authorized, $0.001 par value, issuable in series; no shares issued and outstanding as of September 30, 2017, and December 31, 2016
|
—
|
|
|
—
|
|
||
Common stock, 300.0 shares authorized, $0.001 par value, 112.0 shares and 116.4 shares issued and outstanding as of September 30, 2017, and December 31, 2016, respectively
|
0.1
|
|
|
—
|
|
||
Additional paid-in capital
|
4,190.4
|
|
|
4,211.8
|
|
||
Retained earnings
|
776.6
|
|
|
1,574.9
|
|
||
Accumulated other comprehensive loss
|
(9.2
|
)
|
|
(8.9
|
)
|
||
Total Intuitive Surgical, Inc. stockholders’ equity
|
4,957.9
|
|
|
5,777.8
|
|
||
Noncontrolling interest in joint venture
|
2.0
|
|
|
—
|
|
||
Total stockholders’ equity
|
4,959.9
|
|
|
5,777.8
|
|
||
Total liabilities and stockholders’ equity
|
$
|
5,644.6
|
|
|
$
|
6,486.9
|
|
|
Three Months Ended
September 30, |
|
Nine Months Ended
September 30, |
||||||||||||
in millions (except per share amounts)
|
2017
|
|
2016
|
|
2017
|
|
2016
|
||||||||
Revenue:
|
|
|
|
|
|
|
|
||||||||
Product
|
$
|
659.3
|
|
|
$
|
553.2
|
|
|
$
|
1,807.5
|
|
|
$
|
1,565.2
|
|
Service
|
146.8
|
|
|
129.7
|
|
|
429.0
|
|
|
382.3
|
|
||||
Total revenue
|
806.1
|
|
|
682.9
|
|
|
2,236.5
|
|
|
1,947.5
|
|
||||
Cost of revenue:
|
|
|
|
|
|
|
|
||||||||
Product
|
195.0
|
|
|
158.4
|
|
|
543.1
|
|
|
475.8
|
|
||||
Service
|
44.3
|
|
|
37.5
|
|
|
132.6
|
|
|
108.8
|
|
||||
Total cost of revenue
|
239.3
|
|
|
195.9
|
|
|
675.7
|
|
|
584.6
|
|
||||
Gross profit
|
566.8
|
|
|
487.0
|
|
|
1,560.8
|
|
|
1,362.9
|
|
||||
Operating expenses:
|
|
|
|
|
|
|
|
||||||||
Selling, general and administrative
|
204.8
|
|
|
168.0
|
|
|
591.7
|
|
|
511.6
|
|
||||
Research and development
|
83.4
|
|
|
62.6
|
|
|
241.5
|
|
|
170.5
|
|
||||
Total operating expenses
|
288.2
|
|
|
230.6
|
|
|
833.2
|
|
|
682.1
|
|
||||
Income from operations
|
278.6
|
|
|
256.4
|
|
|
727.6
|
|
|
680.8
|
|
||||
Interest and other income, net
|
10.8
|
|
|
10.4
|
|
|
29.6
|
|
|
23.9
|
|
||||
Income before taxes
|
289.4
|
|
|
266.8
|
|
|
757.2
|
|
|
704.7
|
|
||||
Income tax (benefit) expense
|
(8.1
|
)
|
|
55.8
|
|
|
58.4
|
|
|
172.8
|
|
||||
Net income
|
$
|
297.5
|
|
|
$
|
211.0
|
|
|
$
|
698.8
|
|
|
$
|
531.9
|
|
Net income per share:
|
|
|
|
|
|
|
|
||||||||
Basic
|
$
|
2.66
|
|
|
$
|
1.82
|
|
|
$
|
6.26
|
|
|
$
|
4.64
|
|
Diluted
|
$
|
2.55
|
|
|
$
|
1.77
|
|
|
$
|
6.03
|
|
|
$
|
4.52
|
|
Shares used in computing net income per share:
|
|
|
|
|
|
|
|
||||||||
Basic
|
111.8
|
|
|
116.1
|
|
|
111.6
|
|
|
114.6
|
|
||||
Diluted
|
116.8
|
|
|
119.1
|
|
|
115.9
|
|
|
117.6
|
|
||||
Total comprehensive income
|
$
|
298.1
|
|
|
$
|
205.7
|
|
|
$
|
698.5
|
|
|
$
|
545.4
|
|
|
Nine Months Ended
September 30, |
||||||
in millions
|
2017
|
|
2016
|
||||
Operating activities:
|
|
|
|
||||
Net income
|
$
|
698.8
|
|
|
$
|
531.9
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
||||
Depreciation and loss on disposal of property, plant, and equipment
|
61.4
|
|
|
54.0
|
|
||
Amortization of intangible assets
|
10.1
|
|
|
14.0
|
|
||
Loss on investments, accretion of discounts, and amortization of premiums on investments, net
|
16.8
|
|
|
26.3
|
|
||
Deferred income taxes
|
28.8
|
|
|
31.7
|
|
||
Income tax benefits from employee stock plans
|
—
|
|
|
25.6
|
|
||
Share-based compensation expense
|
153.5
|
|
|
132.1
|
|
||
Changes in operating assets and liabilities
|
|
|
|
||||
Accounts receivable
|
(37.8
|
)
|
|
(37.7
|
)
|
||
Inventory
|
(82.7
|
)
|
|
(40.8
|
)
|
||
Prepaids and other assets
|
(13.6
|
)
|
|
(19.0
|
)
|
||
Accounts payable
|
11.9
|
|
|
6.4
|
|
||
Accrued compensation and employee benefits
|
(11.3
|
)
|
|
(12.9
|
)
|
||
Deferred revenue
|
45.1
|
|
|
5.9
|
|
||
Other liabilities
|
(69.1
|
)
|
|
39.8
|
|
||
Net cash provided by operating activities (1)
|
811.9
|
|
|
757.3
|
|
||
Investing activities:
|
|
|
|
||||
Purchase of investments
|
(1,122.1
|
)
|
|
(1,896.6
|
)
|
||
Proceeds from sales of investments
|
1,525.6
|
|
|
278.4
|
|
||
Proceeds from maturities of investments
|
450.7
|
|
|
683.9
|
|
||
Purchase of property, plant and equipment, and intellectual property
|
(159.7
|
)
|
|
(36.1
|
)
|
||
Net cash provided by (used in) investing activities
|
694.5
|
|
|
(970.4
|
)
|
||
Financing activities:
|
|
|
|
||||
Proceeds from issuance of common stock relating to employee stock plans
|
381.6
|
|
|
550.4
|
|
||
Taxes paid related to net share settlement of equity awards
|
(53.6
|
)
|
|
(23.2
|
)
|
||
Repurchase of common stock
|
(2,000.0
|
)
|
|
(8.1
|
)
|
||
Other financing activities
|
2.0
|
|
|
—
|
|
||
Net cash provided by (used in) financing activities (1)
|
(1,670.0
|
)
|
|
519.1
|
|
||
Effect of exchange rate changes on cash and cash equivalents
|
2.0
|
|
|
1.0
|
|
||
Net increase (decrease) in cash and cash equivalents
|
(161.6
|
)
|
|
307.0
|
|
||
Cash and cash equivalents, beginning of period
|
1,036.6
|
|
|
714.6
|
|
||
Cash and cash equivalents, end of period
|
$
|
875.0
|
|
|
$
|
1,021.6
|
|
|
|
|
|
|
|
|
|
|
Reported as:
|
||||||||||||||||||
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Fair
Value
|
|
Cash and
Cash
Equivalents
|
|
Short-
term
Investments
|
|
Long-
term
Investments
|
||||||||||||||
September 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Cash
|
$
|
252.4
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
252.4
|
|
|
$
|
252.4
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Level 1:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Money market funds
|
590.5
|
|
|
—
|
|
|
—
|
|
|
590.5
|
|
|
590.5
|
|
|
—
|
|
|
—
|
|
|||||||
U.S. treasuries
|
448.7
|
|
|
—
|
|
|
(1.9
|
)
|
|
446.8
|
|
|
8.7
|
|
|
182.8
|
|
|
255.3
|
|
|||||||
Subtotal
|
1,039.2
|
|
|
—
|
|
|
(1.9
|
)
|
|
1,037.3
|
|
|
599.2
|
|
|
182.8
|
|
|
255.3
|
|
|||||||
Level 2:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Commercial paper
|
80.5
|
|
|
—
|
|
|
—
|
|
|
80.5
|
|
|
6.0
|
|
|
74.5
|
|
|
—
|
|
|||||||
Corporate debt securities
|
1,262.9
|
|
|
0.6
|
|
|
(2.2
|
)
|
|
1,261.3
|
|
|
2.4
|
|
|
533.0
|
|
|
725.9
|
|
|||||||
U.S. government agencies
|
774.2
|
|
|
0.1
|
|
|
(2.5
|
)
|
|
771.8
|
|
|
8.0
|
|
|
270.7
|
|
|
493.1
|
|
|||||||
Non-U.S. government securities
|
8.5
|
|
|
—
|
|
|
—
|
|
|
8.5
|
|
|
6.0
|
|
|
2.5
|
|
|
—
|
|
|||||||
Municipal securities
|
390.4
|
|
|
0.2
|
|
|
(0.4
|
)
|
|
390.2
|
|
|
1.0
|
|
|
208.3
|
|
|
180.9
|
|
|||||||
Subtotal
|
2,516.5
|
|
|
0.9
|
|
|
(5.1
|
)
|
|
2,512.3
|
|
|
23.4
|
|
|
1,089.0
|
|
|
1,399.9
|
|
|||||||
Total assets measured at fair value
|
$
|
3,808.1
|
|
|
$
|
0.9
|
|
|
$
|
(7.0
|
)
|
|
$
|
3,802.0
|
|
|
$
|
875.0
|
|
|
$
|
1,271.8
|
|
|
$
|
1,655.2
|
|
|
|
|
|
|
|
|
|
|
Reported as:
|
||||||||||||||||||
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Fair
Value
|
|
Cash and
Cash
Equivalents
|
|
Short-
term
Investments
|
|
Long-
term
Investments
|
||||||||||||||
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Cash
|
$
|
227.7
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
227.7
|
|
|
$
|
227.7
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Level 1:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Money market funds
|
612.4
|
|
|
—
|
|
|
—
|
|
|
612.4
|
|
|
612.4
|
|
|
—
|
|
|
—
|
|
|||||||
U.S. treasuries
|
625.9
|
|
|
0.1
|
|
|
(2.0
|
)
|
|
624.0
|
|
|
157.9
|
|
|
168.4
|
|
|
297.7
|
|
|||||||
Subtotal
|
1,238.3
|
|
|
0.1
|
|
|
(2.0
|
)
|
|
1,236.4
|
|
|
770.3
|
|
|
168.4
|
|
|
297.7
|
|
|||||||
Level 2:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Commercial paper
|
139.6
|
|
|
—
|
|
|
—
|
|
|
139.6
|
|
|
31.1
|
|
|
108.5
|
|
|
—
|
|
|||||||
Corporate debt securities
|
1,471.8
|
|
|
0.7
|
|
|
(5.0
|
)
|
|
1,467.5
|
|
|
2.9
|
|
|
555.4
|
|
|
909.2
|
|
|||||||
U.S. government agencies
|
938.7
|
|
|
0.5
|
|
|
(2.9
|
)
|
|
936.3
|
|
|
—
|
|
|
342.7
|
|
|
593.6
|
|
|||||||
Non-U.S. government securities
|
18.5
|
|
|
—
|
|
|
—
|
|
|
18.5
|
|
|
—
|
|
|
16.0
|
|
|
2.5
|
|
|||||||
Municipal securities
|
815.4
|
|
|
—
|
|
|
(3.5
|
)
|
|
811.9
|
|
|
4.6
|
|
|
327.0
|
|
|
480.3
|
|
|||||||
Subtotal
|
3,384.0
|
|
|
1.2
|
|
|
(11.4
|
)
|
|
3,373.8
|
|
|
38.6
|
|
|
1,349.6
|
|
|
1,985.6
|
|
|||||||
Total assets measured at fair value
|
$
|
4,850.0
|
|
|
$
|
1.3
|
|
|
$
|
(13.4
|
)
|
|
$
|
4,837.9
|
|
|
$
|
1,036.6
|
|
|
$
|
1,518.0
|
|
|
$
|
2,283.3
|
|
|
Amortized
Cost
|
|
Fair
Value
|
||||
Mature in less than one year
|
$
|
1,304.9
|
|
|
$
|
1,303.9
|
|
Mature in one to five years
|
1,660.3
|
|
|
1,655.2
|
|
||
Total
|
$
|
2,965.2
|
|
|
$
|
2,959.1
|
|
|
Derivatives Designated as Hedging Instruments
|
|
Derivatives Not Designated as Hedging Instruments
|
||||||||||||
|
September 30,
2017 |
|
December 31,
2016 |
|
September 30,
2017 |
|
December 31,
2016 |
||||||||
Notional amounts:
|
|
|
|
|
|
|
|
||||||||
Forward contracts
|
$
|
130.0
|
|
|
$
|
109.7
|
|
|
$
|
122.5
|
|
|
$
|
143.7
|
|
Gross fair value recorded in:
|
|
|
|
|
|
|
|
||||||||
Prepaids and other current assets
|
$
|
1.6
|
|
|
$
|
6.2
|
|
|
$
|
1.7
|
|
|
$
|
5.6
|
|
Other accrued liabilities
|
$
|
4.1
|
|
|
$
|
1.0
|
|
|
$
|
2.5
|
|
|
$
|
0.6
|
|
|
As of
|
||||||
|
September 30,
2017 |
|
December 31,
2016 |
||||
Raw materials
|
$
|
67.7
|
|
|
$
|
54.8
|
|
Work-in-process
|
18.5
|
|
|
13.4
|
|
||
Finished goods
|
139.0
|
|
|
114.1
|
|
||
Total inventory
|
$
|
225.2
|
|
|
$
|
182.3
|
|
|
Nine Months Ended September 30,
|
||||||
|
2017
|
|
2016
|
||||
Equipment transfers, including operating lease assets, from inventory to property, plant and equipment
|
$
|
45.1
|
|
|
$
|
31.1
|
|
|
As of
|
||||||
|
September 30,
2017 |
|
December 31,
2016 |
||||
Gross lease receivable
|
$
|
113.0
|
|
|
$
|
104.3
|
|
Unearned income
|
(4.7
|
)
|
|
(4.8
|
)
|
||
Allowance for credit loss
|
(0.8
|
)
|
|
(0.6
|
)
|
||
Net investment in sales-type leases
|
107.5
|
|
|
98.9
|
|
||
Reported as:
|
|
|
|
||||
Prepaids and other current assets
|
35.0
|
|
|
29.8
|
|
||
Intangible and other assets, net
|
72.5
|
|
|
69.1
|
|
||
Total, net
|
$
|
107.5
|
|
|
$
|
98.9
|
|
|
Amount
|
||
2017
|
$
|
9.3
|
|
2018
|
38.0
|
|
|
2019
|
29.8
|
|
|
2020
|
19.5
|
|
|
2021
|
11.2
|
|
|
2022 and thereafter
|
5.2
|
|
|
Total
|
$
|
113.0
|
|
|
Nine Months Ended September 30,
|
|||||
|
2017
|
|
2016
|
|||
Shares repurchased
|
7.3
|
|
|
—
|
|
|
Average price per share
|
(a)
|
|
|
$
|
172.18
|
|
Value of shares repurchased
|
(a)
|
|
|
$
|
8.1
|
|
|
Three Months Ended September 30, 2017
|
||||||||||||||||||
|
Gains (Losses)
on Hedge
Instruments
|
|
Unrealized Gains
(Losses) on Available-for-Sale Securities |
|
Foreign
Currency
Translation
Gains (Losses)
|
|
Employee Benefit Plans
|
|
Total
|
||||||||||
Beginning balance
|
$
|
(1.9
|
)
|
|
$
|
(5.3
|
)
|
|
$
|
1.0
|
|
|
$
|
(3.6
|
)
|
|
$
|
(9.8
|
)
|
Other comprehensive income before reclassifications
|
(2.0
|
)
|
|
0.7
|
|
|
0.8
|
|
|
—
|
|
|
(0.5
|
)
|
|||||
Amounts reclassified from accumulated other comprehensive income
|
1.1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1.1
|
|
|||||
Net current-period other comprehensive income (loss)
|
(0.9
|
)
|
|
0.7
|
|
|
0.8
|
|
|
—
|
|
|
0.6
|
|
|||||
Ending balance
|
$
|
(2.8
|
)
|
|
$
|
(4.6
|
)
|
|
$
|
1.8
|
|
|
$
|
(3.6
|
)
|
|
$
|
(9.2
|
)
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Three Months Ended September 30, 2016
|
||||||||||||||||||
|
Gains (Losses)
on Hedge
Instruments
|
|
Unrealized Gains
(Losses) on Available-for-Sale Securities
|
|
Foreign
Currency
Translation
Gains (Losses)
|
|
Employee Benefit Plans
|
|
Total
|
||||||||||
Beginning balance
|
$
|
(1.0
|
)
|
|
$
|
10.5
|
|
|
$
|
3.1
|
|
|
$
|
(3.3
|
)
|
|
$
|
9.3
|
|
Other comprehensive income before reclassifications
|
(1.9
|
)
|
|
(5.6
|
)
|
|
0.7
|
|
|
—
|
|
|
(6.8
|
)
|
|||||
Amounts reclassified from accumulated other comprehensive income
|
1.3
|
|
|
—
|
|
|
—
|
|
|
0.2
|
|
|
1.5
|
|
|||||
Net current-period other comprehensive income (loss)
|
(0.6
|
)
|
|
(5.6
|
)
|
|
0.7
|
|
|
0.2
|
|
|
(5.3
|
)
|
|||||
Ending balance
|
$
|
(1.6
|
)
|
|
$
|
4.9
|
|
|
$
|
3.8
|
|
|
$
|
(3.1
|
)
|
|
$
|
4.0
|
|
|
Nine Months Ended September 30, 2017
|
||||||||||||||||||
|
Gains (Losses)
on Hedge
Instruments
|
|
Unrealized Gains
(Losses) on Available-for-Sale Securities
|
|
Foreign
Currency
Translation
Gains (Losses)
|
|
Employee Benefit Plans
|
|
Total
|
||||||||||
Beginning balance
|
$
|
5.0
|
|
|
$
|
(8.6
|
)
|
|
$
|
(1.3
|
)
|
|
$
|
(4.0
|
)
|
|
$
|
(8.9
|
)
|
Other comprehensive income before reclassifications
|
(7.1
|
)
|
|
4.0
|
|
|
3.1
|
|
|
0.1
|
|
|
0.1
|
|
|||||
Amounts reclassified from accumulated other comprehensive income
|
(0.7
|
)
|
|
—
|
|
|
—
|
|
|
0.3
|
|
|
(0.4
|
)
|
|||||
Net current-period other comprehensive income (loss)
|
(7.8
|
)
|
|
4.0
|
|
|
3.1
|
|
|
0.4
|
|
|
(0.3
|
)
|
|||||
Ending balance
|
$
|
(2.8
|
)
|
|
$
|
(4.6
|
)
|
|
$
|
1.8
|
|
|
$
|
(3.6
|
)
|
|
$
|
(9.2
|
)
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
Nine Months Ended September 30, 2016
|
||||||||||||||||||
|
Gains (Losses)
on Hedge
Instruments
|
|
Unrealized Gains
(Losses) on Available-for-Sale Securities
|
|
Foreign
Currency
Translation
Gains (Losses)
|
|
Employee Benefit Plans
|
|
Total
|
||||||||||
Beginning balance
|
$
|
1.5
|
|
|
$
|
(4.2
|
)
|
|
$
|
(3.3
|
)
|
|
$
|
(3.5
|
)
|
|
$
|
(9.5
|
)
|
Other comprehensive income before reclassifications
|
(4.4
|
)
|
|
8.8
|
|
|
7.1
|
|
|
—
|
|
|
11.5
|
|
|||||
Amounts reclassified from accumulated other comprehensive income
|
1.3
|
|
|
0.3
|
|
|
—
|
|
|
0.4
|
|
|
2.0
|
|
|||||
Net current-period other comprehensive income (loss)
|
(3.1
|
)
|
|
9.1
|
|
|
7.1
|
|
|
0.4
|
|
|
13.5
|
|
|||||
Ending balance
|
$
|
(1.6
|
)
|
|
$
|
4.9
|
|
|
$
|
3.8
|
|
|
$
|
(3.1
|
)
|
|
$
|
4.0
|
|
|
|
Stock Options Outstanding
|
|||||
|
|
Number
Outstanding
|
|
Weighted Average
Exercise Price Per
Share
|
|||
Balance at December 31, 2016
|
|
9.3
|
|
|
$
|
148.36
|
|
Options granted
|
|
0.7
|
|
|
$
|
282.99
|
|
Options exercised
|
|
(2.5
|
)
|
|
$
|
140.31
|
|
Options forfeited/expired
|
|
(0.1
|
)
|
|
$
|
193.50
|
|
Balance at September 30, 2017
|
|
7.4
|
|
|
$
|
162.90
|
|
|
Shares
|
|
Weighted Average
Grant Date Fair Value
|
|||
Unvested balance at December 31, 2016
|
1.8
|
|
|
$
|
174.72
|
|
Granted
|
1.0
|
|
|
$
|
245.40
|
|
Vested
|
(0.5
|
)
|
|
$
|
170.58
|
|
Forfeited
|
(0.1
|
)
|
|
$
|
200.82
|
|
Unvested balance at September 30, 2017
|
2.2
|
|
|
$
|
207.09
|
|
|
Three Months Ended
September 30, |
|
Nine Months Ended
September 30, |
||||||||||||
|
2017
|
|
2016
|
|
2017
|
|
2016
|
||||||||
Cost of sales - products
|
$
|
7.0
|
|
|
$
|
6.9
|
|
|
$
|
20.5
|
|
|
$
|
18.6
|
|
Cost of sales - services
|
3.7
|
|
|
3.3
|
|
|
10.4
|
|
|
9.4
|
|
||||
Total cost of sales
|
10.7
|
|
|
10.2
|
|
|
30.9
|
|
|
28.0
|
|
||||
Selling, general and administrative
|
30.0
|
|
|
25.3
|
|
|
82.3
|
|
|
72.9
|
|
||||
Research and development
|
15.2
|
|
|
11.4
|
|
|
40.9
|
|
|
31.5
|
|
||||
Share-based compensation expense before income taxes
|
55.9
|
|
|
46.9
|
|
|
154.1
|
|
|
132.4
|
|
||||
Income tax benefit
|
18.4
|
|
|
14.8
|
|
|
50.3
|
|
|
41.5
|
|
||||
Share-based compensation expense after income taxes
|
$
|
37.5
|
|
|
$
|
32.1
|
|
|
$
|
103.8
|
|
|
$
|
90.9
|
|
|
Three Months Ended
September 30, |
|
Nine Months Ended
September 30, |
||||||||||||
|
2017
|
|
2016
|
|
2017
|
|
2016
|
||||||||
Stock Option Plans
|
|
|
|
|
|
|
|
||||||||
Risk free interest rate
|
1.7
|
%
|
|
1.0
|
%
|
|
1.8
|
%
|
|
1.1
|
%
|
||||
Expected term (in years)
|
3.9
|
|
|
3.9
|
|
|
4.1
|
|
|
4.2
|
|
||||
Expected volatility
|
26
|
%
|
|
24
|
%
|
|
25
|
%
|
|
27
|
%
|
||||
Weighted average fair value at grant date
|
$
|
74.37
|
|
|
$
|
47.32
|
|
|
$
|
65.12
|
|
|
$
|
46.90
|
|
Employee Stock Purchase Plan
|
|
|
|
|
|
|
|
||||||||
Risk free interest rate
|
1.2
|
%
|
|
0.5
|
%
|
|
1.2
|
%
|
|
0.6
|
%
|
||||
Expected term (in years)
|
1.2
|
|
|
1.2
|
|
|
1.2
|
|
|
1.2
|
|
||||
Expected volatility
|
29
|
%
|
|
27
|
%
|
|
28
|
%
|
|
30
|
%
|
||||
Weighted average fair value at grant date
|
$
|
85.23
|
|
|
$
|
61.14
|
|
|
$
|
79.77
|
|
|
$
|
57.57
|
|
|
Three Months Ended
September 30, |
|
Nine Months Ended
September 30, |
||||||||||||
|
2017
|
|
2016
|
|
2017
|
|
2016
|
||||||||
Numerator:
|
|
|
|
|
|
|
|
||||||||
Net income
|
$
|
297.5
|
|
|
$
|
211.0
|
|
|
$
|
698.8
|
|
|
$
|
531.9
|
|
Denominator:
|
|
|
|
|
|
|
|
||||||||
Weighted-average shares outstanding used in basic calculation
|
111.8
|
|
|
116.1
|
|
|
111.6
|
|
|
114.6
|
|
||||
Add: dilutive effect of potential common shares
|
5.0
|
|
|
3.0
|
|
|
4.3
|
|
|
3.0
|
|
||||
Weighted-average shares used in computing diluted net income per share
|
116.8
|
|
|
119.1
|
|
|
115.9
|
|
|
117.6
|
|
||||
Net income per share:
|
|
|
|
|
|
|
|
||||||||
Basic
|
$
|
2.66
|
|
|
$
|
1.82
|
|
|
$
|
6.26
|
|
|
$
|
4.64
|
|
Diluted
|
$
|
2.55
|
|
|
$
|
1.77
|
|
|
$
|
6.03
|
|
|
$
|
4.52
|
|
ITEM 2.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
•
|
Total revenue increased by
18%
to
$806.1 million
during the
three
months ended
September 30, 2017
, compared with
$682.9 million
during the
three
months ended
September 30, 2016
. Third quarter 2017 total revenue included
$21.3 million
revenue recognized related to the customer trade-out program as described below.
|
•
|
Approximately
214,000
da Vinci
procedures were performed during the three months ended
September 30, 2017
, an increase of approximately
15%
compared with approximately 186,000 for the three months ended
September 30, 2016
.
|
•
|
Instrument and accessory revenue increased by
15%
to
$401.2 million
during the
three
months ended
September 30, 2017
, compared with
$348.1 million
during the
three
months ended
September 30, 2016
.
|
•
|
Recurring revenue increased by
15%
to
$548.0 million
during the
three
months ended
September 30, 2017
, representing
68%
of total revenue, compared with
$477.8 million
during the
three
months ended
September 30, 2016
, representing 70% of total revenue.
|
•
|
Systems revenue increased by
26%
to
$258.1 million
during the
three
months ended
September 30, 2017
, compared with
$205.1 million
during the
three
months ended
September 30, 2016
. Third quarter 2017 systems revenue included revenue recognized related to the customer trade-out program as described below.
|
•
|
A total of
169
da Vinci
Surgical Systems were shipped during the three months ended
September 30, 2017
, compared with
134
during the three months ended
September 30, 2016
. As of
September 30, 2017
, we had a
da Vinci
Surgical System installed base of approximately
4,271
systems, an increase of approximately
12%
compared with the installed base as of
September 30, 2016
.
|
•
|
Gross profit as a percentage of revenue was
70.3%
for the three months ended
September 30, 2017
, compared with
71.3%
for the three months ended
September 30, 2016
. Gross profit for the three months ended September 30, 2016, benefited from a $7.1 million Medical Device Excise Tax (“MDET”) refund.
|
•
|
Operating income increased by
9%
to
$278.6 million
during the
three
months ended
September 30, 2017
, compared with
$256.4 million
during the
three
months ended
September 30, 2016
. Operating income included
$55.9 million
and
$46.9 million
of share-based compensation expense related to employee stock plans during the three months ended
September 30, 2017
, and
2016
, respectively. Operating income for the three months ended September 30, 2017, included $9.7 million of net pre-tax litigation related charges.
|
•
|
As of
September 30, 2017
, we had
$3.8 billion
in cash, cash equivalents, and investments. Cash, cash equivalents, and investments increased by
$378.7 million
, compared with June 30, 2017, primarily as a result of cash generated from operating activities.
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
||||||||||||||||||||||||
|
2017
|
|
% of total
revenue
|
|
2016
|
|
% of total
revenue
|
|
2017
|
|
% of total
revenue
|
|
2016
|
|
% of total
revenue
|
||||||||||||
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Product
|
$
|
659.3
|
|
|
82
|
%
|
|
$
|
553.2
|
|
|
81
|
%
|
|
$
|
1,807.5
|
|
|
81
|
%
|
|
$
|
1,565.2
|
|
|
80
|
%
|
Service
|
146.8
|
|
|
18
|
%
|
|
129.7
|
|
|
19
|
%
|
|
429.0
|
|
|
19
|
%
|
|
382.3
|
|
|
20
|
%
|
||||
Total revenue
|
806.1
|
|
|
100
|
%
|
|
682.9
|
|
|
100
|
%
|
|
2,236.5
|
|
|
100
|
%
|
|
1,947.5
|
|
|
100
|
%
|
||||
Cost of revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Product
|
195.0
|
|
|
24
|
%
|
|
158.4
|
|
|
23
|
%
|
|
543.1
|
|
|
24
|
%
|
|
475.8
|
|
|
24
|
%
|
||||
Service
|
44.3
|
|
|
6
|
%
|
|
37.5
|
|
|
6
|
%
|
|
132.6
|
|
|
6
|
%
|
|
108.8
|
|
|
6
|
%
|
||||
Total cost of revenue
|
239.3
|
|
|
30
|
%
|
|
195.9
|
|
|
29
|
%
|
|
675.7
|
|
|
30
|
%
|
|
584.6
|
|
|
30
|
%
|
||||
Product gross profit
|
464.3
|
|
|
58
|
%
|
|
394.8
|
|
|
58
|
%
|
|
1,264.4
|
|
|
57
|
%
|
|
1,089.4
|
|
|
56
|
%
|
||||
Service gross profit
|
102.5
|
|
|
12
|
%
|
|
92.2
|
|
|
13
|
%
|
|
296.4
|
|
|
13
|
%
|
|
273.5
|
|
|
14
|
%
|
||||
Gross profit
|
566.8
|
|
|
70
|
%
|
|
487.0
|
|
|
71
|
%
|
|
1,560.8
|
|
|
70
|
%
|
|
1,362.9
|
|
|
70
|
%
|
||||
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Selling, general and administrative
|
204.8
|
|
|
25
|
%
|
|
168.0
|
|
|
25
|
%
|
|
591.7
|
|
|
26
|
%
|
|
511.6
|
|
|
26
|
%
|
||||
Research and development
|
83.4
|
|
|
10
|
%
|
|
62.6
|
|
|
9
|
%
|
|
241.5
|
|
|
11
|
%
|
|
170.5
|
|
|
9
|
%
|
||||
Total operating expenses
|
288.2
|
|
|
35
|
%
|
|
230.6
|
|
|
34
|
%
|
|
833.2
|
|
|
37
|
%
|
|
682.1
|
|
|
35
|
%
|
||||
Income from operations
|
278.6
|
|
|
35
|
%
|
|
256.4
|
|
|
37
|
%
|
|
727.6
|
|
|
33
|
%
|
|
680.8
|
|
|
35
|
%
|
||||
Interest and other income, net
|
10.8
|
|
|
1
|
%
|
|
10.4
|
|
|
2
|
%
|
|
29.6
|
|
|
1
|
%
|
|
23.9
|
|
|
1
|
%
|
||||
Income before taxes
|
289.4
|
|
|
36
|
%
|
|
266.8
|
|
|
39
|
%
|
|
757.2
|
|
|
34
|
%
|
|
704.7
|
|
|
36
|
%
|
||||
Income tax (benefit) expense
|
(8.1
|
)
|
|
(1
|
)%
|
|
55.8
|
|
|
8
|
%
|
|
58.4
|
|
|
3
|
%
|
|
172.8
|
|
|
9
|
%
|
||||
Net income
|
$
|
297.5
|
|
|
37
|
%
|
|
$
|
211.0
|
|
|
31
|
%
|
|
$
|
698.8
|
|
|
31
|
%
|
|
$
|
531.9
|
|
|
27
|
%
|
|
Three Months Ended September 30,
|
|
Nine Months Ended September 30,
|
||||||||||||
|
2017
|
|
2016
|
|
2017
|
|
2016
|
||||||||
Revenue
|
|
|
|
|
|
|
|
||||||||
Instrument and accessory
|
$
|
401.2
|
|
|
$
|
348.1
|
|
|
$
|
1,179.8
|
|
|
$
|
1,009.5
|
|
Systems
|
258.1
|
|
|
205.1
|
|
|
627.7
|
|
|
555.7
|
|
||||
Total product revenue
|
659.3
|
|
|
553.2
|
|
|
1,807.5
|
|
|
1,565.2
|
|
||||
Service
|
146.8
|
|
|
129.7
|
|
|
429.0
|
|
|
382.3
|
|
||||
Total revenue
|
$
|
806.1
|
|
|
$
|
682.9
|
|
|
$
|
2,236.5
|
|
|
$
|
1,947.5
|
|
Recurring revenue
|
$
|
548.0
|
|
|
$
|
477.8
|
|
|
$
|
1,608.8
|
|
|
$
|
1,391.8
|
|
% of total revenue
|
68
|
%
|
|
70
|
%
|
|
72
|
%
|
|
71
|
%
|
||||
United States
|
$
|
593.5
|
|
|
$
|
494.1
|
|
|
$
|
1,635.7
|
|
|
$
|
1,409.6
|
|
OUS
|
212.6
|
|
|
188.8
|
|
|
600.8
|
|
|
537.9
|
|
||||
Total revenue
|
$
|
806.1
|
|
|
$
|
682.9
|
|
|
$
|
2,236.5
|
|
|
$
|
1,947.5
|
|
% of Revenue - U.S.
|
74
|
%
|
|
72
|
%
|
|
73
|
%
|
|
72
|
%
|
||||
% of Revenue - OUS
|
26
|
%
|
|
28
|
%
|
|
27
|
%
|
|
28
|
%
|
||||
|
|
|
|
|
|
|
|
||||||||
Unit Shipments by Region:
|
|
|
|
|
|
|
|
||||||||
U.S. unit shipments
|
107
|
|
|
85
|
|
|
287
|
|
|
238
|
|
||||
OUS unit shipments
|
62
|
|
|
49
|
|
|
181
|
|
|
136
|
|
||||
Total unit shipments*
|
169
|
|
|
134
|
|
|
468
|
|
|
374
|
|
||||
*Systems shipped under operating leases (included in total unit shipments)
|
20
|
|
|
15
|
|
|
68
|
|
|
49
|
|
||||
|
|
|
|
|
|
|
|
||||||||
Unit Shipments involving System Trade-ins:
|
|
|
|
|
|
|
|
||||||||
Unit shipments involving trade-ins
|
44
|
|
|
33
|
|
|
106
|
|
|
113
|
|
||||
Unit shipments not involving trade-ins
|
125
|
|
|
101
|
|
|
362
|
|
|
261
|
|
|
Nine Months Ended
September 30, |
||||||
|
2017
|
|
2016
|
||||
Net cash provided by (used in)
|
|
|
|
||||
Operating activities
|
$
|
811.9
|
|
|
$
|
757.3
|
|
Investing activities
|
694.5
|
|
|
(970.4
|
)
|
||
Financing activities
|
(1,670.0
|
)
|
|
519.1
|
|
||
Effect of exchange rates on cash and cash equivalents
|
2.0
|
|
|
1.0
|
|
||
Net increase (decrease) in cash and cash equivalents
|
$
|
(161.6
|
)
|
|
$
|
307.0
|
|
1.
|
Our net income included non-cash items, including: share-based compensation of
$153.5 million
; depreciation expense of
$61.4 million
; deferred income taxes of
$28.8 million
; investment related non-cash charges of
$16.8 million
; and amortization of intangible assets of
$10.1 million
.
|
2.
|
The non-cash charges outlined above were partly offset by changes in operating assets and liabilities that resulted in
$157.5 million
of cash used by operating activities. Operating assets and liabilities are primarily comprised of accounts receivable, inventory, prepaid expenses and other assets, deferred revenue, and other accrued liabilities. Inventory, including the transfer of equipment from inventory to property, plant and equipment, increased by
$82.7 million
. Other accrued liabilities decreased by
$69.1 million
primarily due to a decrease in income tax payable. Accounts receivable increased by
$37.8 million
primarily due to higher revenue and timing of customer billings and collections. Prepaid expenses and other assets increased by
$13.6 million
primarily due to an increase in lease receivables. Accrued compensation and employee benefits decreased by
$11.3 million
primarily due to the payments of 2016 incentive compensation. The unfavorable impact of these items on cash used by operating activities was partly offset by a
$45.1 million
increase in deferred revenue and
$11.9 million
increase in accounts payable.
|
ITEM 3.
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
ITEM 4.
|
CONTROLS AND PROCEDURES
|
ITEM 1.
|
LEGAL PROCEEDINGS
|
ITEM 1A.
|
RISK FACTORS
|
ITEM 2.
|
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|
ITEM 3.
|
DEFAULTS UPON SENIOR SECURITIES
|
ITEM 4.
|
MINE SAFETY DISCLOSURES
|
ITEM 5.
|
OTHER INFORMATION
|
ITEM 6.
|
EXHIBITS
|
INTUITIVE SURGICAL, INC.
|
||
|
|
|
By:
|
|
/s/ MARSHALL L. MOHR
|
|
|
Marshall L. Mohr
|
|
|
Senior Vice President and Chief Financial Officer
|
|
|
(Principal Financial Officer and duly authorized signatory)
|
INTUITIVE SURGICAL, INC
.
|
|
|
|
By:
|
/s/ Lonnie M. Smith
|
|
Lonnie M. Smith
|
|
President and Chief Executive Officer
|
INTUITIVE SURGICAL, INC
.
|
|
|
|
By:
|
/s/
Lonnie M. Smith
|
|
Lonnie M. Smith
|
|
President and Chief Executive Officer
|
|
|
INTUITIVE SURGICAL, INC
.
|
|
|
|
By:
|
/s/
Gary S. Guthart, Ph.D.
|
|
Gary S. Guthart, Ph.D.
|
|
President and Chief Executive Officer
|
|
|
By:
|
/s/ Gary S. Guthart
|
Name:
|
Gary S. Guthart
|
Title:
|
Chief Executive Officer
|
1.
|
I have reviewed this quarterly report on Form 10-Q of Intuitive Surgical, Inc.;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
c)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
d)
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
By:
|
/
S
/ G
ARY
S. G
UTHART
|
|
Gary S. Guthart, Ph.D.
President and Chief Executive Officer
|
1.
|
I have reviewed this quarterly report on Form 10-Q of Intuitive Surgical, Inc.;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
c)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
d)
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
|
a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
By:
|
/
S
/ M
ARSHALL
L. M
OHR
|
|
Marshall L. Mohr
Senior Vice President and Chief Financial Officer
|
(i)
|
the accompanying Quarterly Report on Form 10-Q of the Company for the quarterly period ended
September 30, 2017
(the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and
|
(ii)
|
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
By:
|
/
S
/ G
ARY
S. G
UTHART
|
|
Gary S. Guthart, Ph.D.
President and Chief Executive Officer
|
(i)
|
the accompanying Quarterly Report on Form 10-Q of the Company for the quarterly period ended
September 30, 2017
(the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and
|
(ii)
|
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
By:
|
/
S
/ M
ARSHALL
L. M
OHR
|
|
Marshall L. Mohr
Senior Vice President and Chief Financial Officer
|