Intuitive Surgical - Earnings Call - Q1 2025

Executive Summary

• Q1 2025 was strong: revenue rose 19% YoY to $2.2534B, GAAP diluted EPS was $1.92, and non‑GAAP EPS was $1.81; da Vinci procedures grew ~17%, system placements were 367 (147 DV5), and installed base reached 10,189 systems.
• Intuitive raised 2025 procedure growth guidance to 15–17% but lowered non‑GAAP gross margin guidance to 65–66.5% (from 67–68%) on tariff impacts estimated at ~1.7% of revenue; opex growth guided to 10–14%.
• Versus S&P Global consensus, Q1 revenue and EPS were both beats: revenue $2.2534B vs $2.1858B estimate and non‑GAAP EPS $1.81 vs $1.7335 estimate; 22 revenue and 24 EPS estimates contributed (Values retrieved from S&P Global)*.
• Management highlighted DV5 adoption and digital features (Case Insights, Hub integration) as catalysts; tariff visibility and OUS capital constraints are the key stock debate given the gross margin guide-down.

What Went Well and What Went Wrong

What Went Well

• Strong core metrics: procedures +17%, installed base +15%, DV5 adoption (147 DV5 systems, >32,000 DV5 procedures) drove healthy revenue growth (+19% YoY).
• U.S. capital demand solid with leasing/usage-based models enabling flexibility; ASP rose to ~$1.62M on higher DV5 mix; recurring revenue was 85% of total.
• Digital/clinical momentum: Case Insights delivered on >22,000 procedures; early studies suggest force feedback may improve outcomes and training; SP stapler clearance broadens indications.
  “Core measures of our business were healthy this quarter, and we are pleased by continued customer adoption of our platforms, including da Vinci 5.” — CEO Gary Guthart.

What Went Wrong

• Gross margin outlook cut to 65–66.5% for 2025 on tariffs (~1.7% of revenue); management expects tariff impact to step up through the year.
• OUS capital constraints (Japan, Germany, U.K.) and China competition/price pressure; placements OUS fell slightly YoY (163 vs 165) while tariffs on China imports may impair tender wins.
• Ion system placements down (49 vs 70) even as procedures rose 58%; SP still early in the U.S., commercialization of new indications measured.

Transcript

Operator (participant)

For standing by and welcome to the Intuitive Surgical first quarter 2025 earnings release. At this time, all participants are in listen only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you'll need to press star one one on your telephone. If your question has been answered and you'd like to remove yourself from the queue, simply press star one one again. As a reminder, today's program is being recorded. Now I'd like to introduce your host for today's program, Dan Connally, Head of Investor Relations at Intuitive Surgical. Please go ahead.

Sir.

Dan Connally (VP and Head of Investor Relations)

Good afternoon and welcome to Intuitive's first quarter earnings conference call. With me today we have Gary Guthart, our CEO, Dave Rosa, our President, and Jamie Samath, our CFO. Before we begin, I would like to inform you that comments mentioned on today's call may be deemed to contain forward looking statements. Actual results may differ materially from those expressed or implied as a result of certain risks and uncertainties. These risks and uncertainties are described in detail in our Securities and Exchange Commission filings, including our most recent Form 10-K filed on January 31, 2025 and Form 10-Q filed on October 18, 2024. Our SEC filings can be found through our website or at the SEC's website. Investors are cautioned not to place undue reliance on such forward looking statements.

Please note that this conference call will be available for audio replay on our website at intuitive.com on the events section under our Investor Relations page. Today's press release and supplementary financial data tables have been posted to our website. Today's format will consist of providing you with highlights of our first quarter results as described in our press release announced earlier today, followed by a question and answer session. Gary will introduce the call and provide a business overview. Dave will present the quarter's business operational and clinical highlights. Jamie will provide a review of our financial results and procedure highlights. I will discuss our updated financial outlook for 2025 and finally we will host a question and answer session. With that, I will turn the call over to.

Gary.

Gary Guthart (CEO)

Thank you for joining us on the call today. Our business performed well in the first quarter of the year with physicians using our products at the high end of our expectations, driven by strong procedure growth in core general surgery in the U.S. and strong procedures outside the U.S.. New system placements in the quarter were solid with particular strength in the U.S. We're pleased with performance of each of our platforms with continued adoption of DV5 and multiport, solid results in Ion, and acceleration in procedures using our single port platform. Given the dynamic changes in trade policy, I'd like to describe our principles for navigating the current environment rather than detailing any particular scenario. Our first priority is to assure supply of our products to our customers globally.

We have spent years becoming a trusted provider of great products and services and our first commitment is to maintaining this status for those who depend upon us. We believe that high quality, minimally invasive care at industrial scale will remain a global need regardless of trade policy and our long term opportunity remains robust. We will continue to manage the business for the long term and invest towards improvement in the Quintuple Aim given potential changes in our costs and our customers' costs across their enterprise. We do not plan reflexive changes to our pricing in that dynamic near term environment. Our second priority will be to optimize our production costs and rebalance product flows within our existing manufacturing and supply chain footprint as policies begin to stabilize.

Finally, we'll adjust our supply chain strategy and assess adjustments to our pricing when we see the signs of a durable planning environment for trade. I'll now turn the call over to Dave to take you through our product, services, and operating.

Highlights. Dave,

Dave Rosa (President)

thank you. Gary, Intuitive Surgical was founded in 1995. In this, our 30th year of operations, our global da Vinci installed base in Q1 2025 exceeded 10,000 systems and over 50,000 surgeons across 70 countries perform procedures in the quarter. Thank you to our customers, our employees, and all our stakeholders for your ongoing collaboration and commitment as we continue to advance minimally invasive care starting with procedures. da Vinci procedure growth in the quarter was 17%. Areas of strength included general surgery in the U.S. and regional performance in India, Korea, distribution markets, and the U.K.. In the U.S., after hours procedure growth accelerated to 36% year over year. Jamie will describe procedure dynamics later in the call. Turning to Capital, we placed 367 da Vinci systems in the quarter, including 147 da Vinci 5 systems and 19 SP systems. We also installed 49 Ion systems in the quarter.

Capital placements were strong in the U.S. with mixed performance outside of the U.S. reflecting stresses in Germany, the U.K. and Japan. System utilization defined as procedures per installed clinical system per quarter grew 2% year over year for our multiport platforms, 26% for SP and 5% for Ion. Solid procedure growth and capital performance supported strong revenue growth of 19% in the quarter. Product margins were within our expectations, reflecting increased depreciation from new facilities and a higher mix of newer platforms. Operating expenses were within our expectations. Jamie will take you through our finances in greater detail later in the call. In Q1, our rollout of da Vinci 5 progressed within our expectations with 147 systems placed and over 32,000 procedures performed across a broad set of specialties.

We installed our first fully integrated system this month, which now features software to enable the integrated hub and simulator, along with a host of other enhancements. Several additional features including real time surgical video review, real time 3D model review, and visual force feedback gauges will be enabled upon 510 clearance later this year. We continue to ramp our manufacturing operations and supply chain capabilities to support broad launch of da Vinci 5 mid year. Broad launch means that systems incorporate the latest fully integrated hardware and software and we are able to meet customer demand including trade ins and dual consoles. As we've discussed previously, we remain in the regulatory process in Japan and expect clearance in Europe near the end of 2025. Force feedback is one of the core features of da Vinci 5.

We are starting to see early single institution studies evaluating the impact of force feedback on clinical outcomes and proficiency. In an abstract presented at the North American Robotic Urology Symposium, a team led by Dr. Michael Stifelman, Chair of Urology at Hackensack University Medical Center, studied return of bowel function in a small cohort of patients. Return of bowel function in less than 24 hours is an important metric for certain operations. Of the 28 patients included, 16 patients underwent transperitoneal partial nephrectomy or radical nephrectomy where force feedback technology was used, compared with 12 patients undergoing the same procedure with standard da Vinci Xi instruments. The authors reported a significantly higher rate of recovery of bowel function within 24 hours with 83% of the force feedback cohort compared to 25% in the non force feedback cohort.

The authors concluded that force feedback instruments and robotic assisted kidney surgery are associated with faster bowel function recovery, suggesting potential reductions in colonic trauma, they note. As robotic assisted surgery advances, integrating force feedback into routine practice could enhance precision and improve recovery across disciplines. Regarding time to proficiency, a second study, led by a team including Dr. Andrew Hung, Associate Professor of Urology and Computational Biomedicine at Cedars-Sinai Medical Center in Los Angeles, evaluated the impact of force feedback technology on the suturing performance of 29 novice surgeons in a randomized preclinical study. The studies show that force feedback technology has the potential to improve novice surgeon performance by significantly reducing tissue trauma and errors during suturing and time to complete suturing.

These results are consistent with the core value hypothesis of force feedback technology, and we expect more of these types of studies to publish in 2025 and beyond. Force feedback instruments are in limited supply and we expect broad availability near the end of 2025. Use of case insights with da Vinci 5 is growing nicely with case insights delivered on over 22,000 procedures to date. These data sets include video, kinematic, energy and force data and are delivered in the context of surgical procedure steps, enabling surgeons to easily navigate the procedure video and identify meaningful operational and clinical insights. These insights will form the basis of key performance indicators and help both novice and expert surgeons identify objective measures that underpin surgical performance. As we said before, the long term opportunity for computational tools is both significant and difficult. Validations at scale will take time and are a worthy pursuit.

Moving to Ion, procedures grew 58% to approximately 31,000 in the quarter. In April, we received clearance of our Ion platform in Australia, and in China we received our first provincial charge code. In this early phase of launch in China, we are focused on the collection of clinical data to support our broader commercialization strategy. Our priorities for Ion in the near term are supporting utilization growth in the US, expansion in international markets, and improving product costs. Turning to SP, procedure growth accelerated in the quarter to 94%, with solid growth in the U.S. and OUS procedures more than doubling compared to the year-ago period, driven by Korea, Japan, and early adoption in Europe. In the quarter, we received US 510 clearance for our da Vinci SP SureForm 45 stapler, which will support the use of SP in thoracic and colorectal indications.

Our commercialization efforts in these indications will be measured as we look to establish first access sites and develop key opinion leaders in the coming quarters. In closing, we are committed to our 2025 priorities. First, focusing on the full launch of da Vinci 5, its regional clearances and follow on feature releases. Second, we'll pursue increased adoption for our focused procedures by country through training, commercial activities and market access efforts. Third, we'll drive continued progress in building industrial scale, product quality and manufacturing optimization. Finally, we'll focus on excellence and availability of our digital tools. While periods of rapid change can create inefficiencies as we adapt to a dynamic environment, we are well positioned operationally and financially to execute against our priorities. I'll now turn the time over to Jamie who will take you through our finances and procedure highlights in greater.

Detail.

Jamie Samath (CFO)

Good afternoon. I will describe the highlights of our performance on a non-GAAP or pro forma basis and will also summarize our GAAP performance later in my prepared remarks. A reconciliation between our pro forma and GAAP results is posted on our website. Given that the current global trade environment is relatively dynamic, before we dive into Q1 results, let me address tariffs to provide some context. The footprint of our manufacturing operations is as follows. In 2024, Intuitive manufactured 98% of our robotic systems in the United States, 70% of our endoscopes in Europe, and approximately 80% of our instruments and accessories in Mexico. We source raw materials and other components that go into these finished products from suppliers around the world.

The net result of our manufacturing footprint and global customer demand is that Intuitive is both a significant US manufacturer and has become a significant net U.S. exporter. In terms of the impacts of tariffs to Intuitive broadly, in order of magnitude, I would characterize tariffs into the following three buckets. First, those tariffs relating to U.S.-China trade. We import into China subassemblies for domestic Xi production and completely finished Xis, both of which are expected to incur Chinese tariffs of 12.5%. We also import components from Chinese-based suppliers into the US to be incorporated into the manufacture of our products, which incur U.S. tariffs of 14.5%. In addition, our China JV manufactures certain products for our Ion platform that are subject to U.S. tariffs when imported for U.S. procedure demand.

Second, imports into the U.S. have procured components from OUS-based suppliers and imports of endoscopes from our factories in Europe are subject to the 10% baseline tariffs and then increased tariff rates after the current 90-day pause period has elapsed. Third, while most of our products manufactured in Mexico are certified under the requirements of USMCA and therefore are not subject to current U.S. import tariffs, a small portion do not currently meet the requirements and therefore incur 25% tariffs upon import to the U.S.. Based on the impacts just described, reflecting those tariffs that have been implemented and those that have been announced with both a stated percentage and implementation date and assuming such tariffs remain in place, we currently expect the impact to our income statement for 2025 to be additional cost of sales of approximately 1.7% of revenue plus or minus 30 basis points.

The impact of tariffs will vary with the volume of capital sales in China, the mix of procured components from OUS suppliers, and the proportion of products manufactured in Mexico that are certified under USMCA. Given that tariff costs are capitalized into inventory and then recognized in cost of sales as products are sold, we would expect the impact of tariffs to increase each quarter over the remainder of the year. As a result, we are updating our estimate for pro forma gross margin to be within a range of 65%-66.5% of revenue. This range does not reflect any potential additional tariffs or any potential inflationary impact on labor cost or the cost of procured components.

To the extent that tariffs and their derivative impact has a durable impact on our cost of sales and or demand for our products, we will consider implementation over time of a range of mitigating operational actions. However, we do not expect any such measures to have a significant beneficial impact in 2025. Turning to Q1, core metrics were strong, da Vinci procedures grew 17%, the installed base of da Vinci systems grew 15%, and average system utilization grew 2%. Procedure growth in Q1 was adversely impacted by a lower number of business days compared to the year ago period. On a day adjusted basis, Q1 procedure growth was 18.5%. U.S. procedures grew 13% driven by growth in benign general surgery with relative strength in cholecystectomy, foregut, and appendectomy procedures. Consistent with recent trends, bariatrics procedures in the U.S. declined in the mid single digit range.

OUS procedures grew 24% driven by strength in India, Korea, distributor markets, and the U.K. Procedure growth in Korea improved sequentially. Some portion of that higher growth may be a catch up in procedures from prior periods as a result of the ongoing precision strike. Procedure growth in China improved from the prior quarter and was a little above the global average, driven primarily by urologic procedures. Looking at OUS performance in aggregate, we see strong procedure growth in colorectal, hysterectomy, benign general surgery, and thoracic categories. Reviewing capital performance, we placed 367 systems in the first quarter, 17% higher than the 313 systems we placed in the same period last year. First quarter placements included 147 da Vinci 5 systems, taking the total installed base to 509 systems.

There were 67 trade-in transactions in Q1 compared to 29 trade-ins last year driven by some U.S. customers upgrading to da Vinci 5. It is important to note that we expect trade-ins to occur progressively over multiples of years as we build da Vinci 5 evidence and customers evaluate associated returns on such investments. In the U.S. we placed 204 systems in Q1, up from 148 systems last year, reflecting positive customer response to da Vinci 5. Outside the U.S. we placed 163 systems in the first quarter, down from 165 systems placed in quarter one of last year. In the first quarter of this year we placed 88 systems in Europe, 16 in China and 10 in Japan compared with 84 in Europe, 10 in China and 20 in Japan in Q1 of last year.

OUS placement performance reflects financial pressures and healthcare spending constraints in several key markets including Japan, Germany and the U.K. Customers with existing da Vinci capacity have opportunities to increase utilization, which we actively support. The environment in China continues to reflect the ongoing impact of domestic competition and policy driven pressure on pricing with respect to the previously mentioned tariffs of 125% on imports of excise systems and excise subassemblies into China. These tariffs have a material impact to the product cost of excise systems in China and may adversely impact our ability to win future tenders. Given the trade environment, financial pressures faced by hospitals and risks to the macro, we may see customers globally reprioritize capital budgets or extend timelines to invest in robotic programs. First quarter revenue was $2.25 billion, a 19% increase over last year. On a constant currency basis, revenue growth was 20%.

Systems revenue grew 25% year over year, driven by a 17% increase in da Vinci system placements and a higher system ASP, reflecting a higher mix of da Vinci 5 placements. Recurring revenue grew 19% in Q1, representing 85% of total revenue. Additional revenue statistics and trends are as follows. Leasing represented 54% of Q1 placements compared with 51% last year, driven by a higher mix of U.S. placements. Where given customer preference, a greater proportion of systems are placed under lease arrangements. While leasing may fluctuate quarter to quarter, we continue to expect the rates of leasing to increase over time. Q1 system average selling prices were $1.62 million as compared to $1.39 million last year, primarily driven by a higher mix of da Vinci 5.

Looking forward to the second half of 2025 following broad launch of da Vinci 5, to the extent that we see higher trade in volumes, you should expect that such transactions reflect significantly higher trade-in credits relative to recent periods. We recognize $39 million of lease buyout revenue in the first quarter compared with $29 million last year. da Vinci instrument and accessory revenue per procedure was approximately $1,780, flat to last year, reflecting two offsetting dynamics. First, we see INA per procedure come down due to procedure mix given a lower mix of bariatric procedures and a higher mix of cholecystectomy.

Second, we see an offsetting positive mix effect from a higher mix of procedures on our SP platform and insufflator accessory and force feedback instrument revenue coming from da Vinci SP procedures. Turning to Ion, there were approximately 31,000 Ion procedures in the first quarter, an increase of 58% as compared to last year. In Q1 we placed 49 Ion systems compared to 70 in Q1 of 2023. Four of the 49 systems were placed in OUS markets. We estimate that penetration of lung biopsy in the U.S. is approaching the halfway point and that looking ahead, an increasing proportion of our focus will be helping customers convert transthoracic needle aspiration biopsies to Ion while driving increases in utilization of the existing capacity.

Where we have a clearance for Ion in OUS markets we are in the early phase of adoption where our current focus is on building local evidence and engaging societies and healthcare systems to support adoption of our products for the benefit of patients. We expect this to be a multi-year effort. First quarter SP procedures grew 94% driven by strong growth in Korea and early stage multi-specialty growth in Europe and Japan. We placed 19 SP systems in Q1 compared to 24 systems last year. First quarter placements included 7 in Europe, 6 in Korea and 5 in the U.S.. Average system utilization for our SP platform grew 26% in Q1. In absolute terms, SP utilization is the highest of any of our platforms in Korea and Japan.

Utilization in Europe is increasing steadily and we expect utilization in the U.S. to increase as we expand indications. Moving on to the rest of the P&L, pro forma gross margin for the first quarter of 2025 was 66.4% compared with 67.6% for the first quarter of 2024. The year-over-year decline in pro forma gross margin primarily reflects higher facilities costs including depreciation as we bring on additional manufacturing capacity and a higher mix of Ion and da Vinci 5 revenue that carry lower gross margins. Our Q1 results did not reflect any significant impact from tariffs during the quarter. We opened two new facilities at our Sunnyvale, California headquarters that expand our U.S. manufacturing and R&D footprint significantly.

A 912,000 sq ft facility that will contain da Vinci Systems manufacturing and R&D teams and a 315,000 sq. ft. facility containing our Ion manufacturing and R&D team along with our recently opened factory in Peachtree Corners, Georgia that manufactures Xi and X systems. These facilities provide us space to grow over the midterm. Looking ahead to the rest of the year, we continue to expect to open new manufacturing facilities in Germany and Bulgaria and expand instrument manufacturing capacity in Mexico. In addition to supporting our growth plans, we believe over time, these new manufacturing facilities give us supply availability, quality, and cost advantages from scale and factory automation. First quarter pro forma operating expenses increased 12% compared with last year, driven by increased headcount, higher facilities-related costs, and increased legal fees.

During the quarter, we increased headcount sequentially by just over 500 employees, of which approximately half were in manufacturing roles to support revenue growth. Given long term opportunities to drive the quintuple aim and grow revenue, our resolve to invest in R&D and innovation remain unchanged. Pro forma other income was $91 million for Q1, up from $88 million in the prior quarter, primarily driven by higher interest income. Our pro forma effective tax rate for the first quarter was 22.3% in line with our expectations. First quarter 2025 pro forma net income was $662 million, or $1.81 per share, compared with $541 million or $1.50 per share for the first quarter of last year. I will now summarize our GAAP results.

GAAP net income was $698 million, or $1.92 per share for the first quarter of 2025 compared with GAAP net income of $545 million or $1.51 per share for the first quarter of 2024. The adjustments between pro forma and GAAP net income are outlined and quantified on our website. We ended the quarter with cash and investments of $9.1 billion, compared with $8.8 billion at the end of last year. The sequential increase in cash and investments reflected cash generated from operating activities, partially offset by taxes paid related to net share, settlement of equity awards and capital expenditures of $117 million. I would like to turn it over to Dan to discuss our updated outlook.

Dan Connally (VP and Head of Investor Relations)

Thank you. Jamie. I will now turn to our financial outlook for 2025, starting with procedures. On our last call, we forecast full year 2025 procedure growth within a range of 13%-16%. We are now increasing our forecast and expect full year 2025 procedure growth within a range of 15%-17%. The low end of the range assumes growth in China is impacted by trade, environmental and competitive dynamics. Governments in key OUS markets continue to constrain hospital CapEx budgets which limits the expansion of capacity in the field, and bariatric procedures continue to decline at rates similar to recent trends. The high end of the range assumes China procedure growth improves relative to 2024. The CapEx environment improves in key OUS markets and procedure declines in bariatrics moderate. The high end of the range also assumes that procedures are not impacted by the current trade environment.

Turning to gross profit, on our last call, we forecast pro forma gross profit margin in 2025 to be within a range of 67%-68% of revenue, which reflected significant incremental depreciation as we bring on new facilities, the impact of growth in newer products, and the impact of the stronger U.S. dollar. As Jamie described earlier, we currently expect the impact of recently implemented and announced tariffs globally to impact our cost of sales by approximately 1.7% of revenue, plus or minus 30 basis points. As a result, we are updating our estimate for pro forma gross margin to be within a range of 65%-66.5% of revenue. In regards to operating expenses, we now expect pro forma operating expense growth to be between 10% and 14%. The projected operating expense growth reflects increased depreciation from new facilities and investments to drive our growth objectives.

We now expect our non-cash stock compensation expense to range between $770 million and $790 million in 2025. We continue to expect other income, which is comprised mostly of interest income, to total between $370 million and $400 million in 2025. With regard to capital expenditures, we now estimate a range of $650 million-$750 million, primarily for planned facility construction activities. With regard to income tax, we continue to estimate our 2025 pro forma income tax rate to be between 22%-23% of pretax income. That concludes our prepared comments. We will now open the call to your questions.

Questions.

Operator (participant)

Certainly. As a reminder ladies and gentlemen, if you do have a question at this time, please press star one one on your telephone. Our first question comes from the line of Travis Steed from Bank of America Securities. Your question.

Please.

Travis Steed (Managing Director of Equity Research)

Thanks for taking the question first. I'll ask a question on tariffs, just the 170 basis point impact in 2025. Just curious how to think about that on an annualized basis. Any way to kind of break out how much of that's China versus Mexico and how to think about the cadence over 2025 how much that impacts in kind of Q4 and Q3 this year?

Jamie Samath (CFO)

Yeah Travis, in terms of the breakout for this year roughly half ish of the impact is U.S.-China trade both directions and about 40% of the impact is imports into the U.S. ex, China, Mexico, Canada of raw materials and components from OUS based suppliers and imports of endoscopes from our factories Europe. That kind of gives you a sense of what's driving the 1.7% of revenue.

As we said in prepared remarks, the impact of tariffs kind of increases each quarter through the year. The exit rate in Q4 is going to be higher than the 1.7%. There is some variability there with respect to for example where Chinese capital sales fall. We are not going to be precise on the quarterly profile beyond 2025. I think from our perspective at this point, we would like to see where tariffs stabilize. We would like to obviously assess what moves can we make over time that we will assess so we will get into what the impact may be in 2026. I think when we get through that.

Process.

Travis Steed (Managing Director of Equity Research)

Okay. A follow up on the capital environment, it sounds like you kind of called that as a risk, but you're not seeing it yet. Just trying to think about how this compares to 2022 when you saw it in the funnel versus kind of what you're seeing in the capital environment at this point.

Jamie Samath (CFO)

Yes, I'd say through Q1. If you look at the U.S., what we've seen is strong customer response to da Vinci5. I think the capital environment has been relatively strong for U.S. customers. They are using our leasing and usage-based arrangements. That allows them to some extent to avoid their formal capital budgets and gives them some flexibility to expand their programs. In OUS markets, as we described in prepared remarks, you see some markets where they're getting constrained by government budgets.

That's either to do with kind of the elimination of post-Covid funding or it reflects governments reprioritizing funding to other areas. For example, in Europe you see some funding that moves towards military spending, so some pressures there. I think our focus in a situation like that is to first help customers increase utilization where they have the existing capacity and can have greater throughput through their assets. We have Genesis Resources and other teams that can help them do that. We also have a growing set of economic capabilities tools that we can help customers understand what the returns of those programs are. That's a growing part of our toolkit internationally. We look to expand what we've seen in the U.S. with respect to use of leasing and usage based arrangements which are earlier stages adoption with our customers there.

In terms of what customers have said to us, we've had questions about tariffs and the environment. I don't think that's shown up yet in terms of core capital demand. I think we're flagging that. That could have an impact. Certainly to the extent that our customers, hospitals see increased pricing as a derivative effect of tariffs, then that creates pressure for.

Them.

Travis Steed (Managing Director of Equity Research)

Great. Thanks, a lot.

Operator (participant)

Thank you. Our next question comes from the line of Larry Peterson from Wells Fargo. Your question.

Please.

Good.

Afternoon. Thanks for taking the question. Jamie, a follow up on.

Tariffs. Just on the. Did I hear you say that?

You're including the European reciprocal tariffs, which I think are 20% in 90 days, assumed in that 1.7%. Jamie, how should we think about your ability to mitigate the tariffs? Just maybe flesh that out a little bit more for us and how quickly you might be able to do that, have one follow-up?

Jamie Samath (CFO)

Yes, we are assuming in the 1.7% estimate for 2025 that the retaliatory tariffs go into effect once the 90-day pause period has elapsed. Obviously, we'll see how that plays out. We've reflected that in the 1.7%. With respect to the manufacturing operations in our supply chain, to the extent that there are low-hanging fruit that is not disruptive to our partners and our employees, then of course we'll pursue those. I think our first move is to let things stabilize and evaluate then what's possible.

We'll do that concurrently across the year and we will consider things like do you have to invest to mitigate? What's the time to receive the benefit, what's the economic return of that? There are complexities in some of the things that you might do from an operational perspective. We do not want to move too quickly given how dynamic the environment is.

That's.

Helpful. Just for my follow up, Jamie, on da Vinci 5, it looks like da Vinci 5.

Placements as a percent of U.S. placements.

Actually was lower in Q1 from Q4. Hopefully I'm not doing the math.

Wrong. Why would Da Vinci 5 placements in.

The U.S. as a % decline in Q4? How should we think about the ramp going forward? Thank you.

I believe, Brandon, correct me, I believe da Vinci 5 placements as a % of total in the US was higher in Q1 than Q4. If I look at Q1, capital performance, supply for da Vinci 5 was where we expected it to be. With respect to placement performance for all of the models including da Vinci 5, I characterize it as normal seasonality. No concerns there for.

Us.

All right, thanks.

Operator (participant)

Thank you. Our next question comes from the line of Robbie Marcus from J.P. Morgan. Your question.

Please.

Robbie Marcus (Medtech Senior Analyst)

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

Question.

Thanks.

Jamie Samath (CFO)

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

Process.

Gary Guthart (CEO)

Just some anecdotes back from the road and Dave's been out in front of the customer too. I think we're perceived as part of the solution, not part of the problem. I think that customers continue to adopt. I think they see the economic benefits and patient and outcome benefits. So far so good.

Robbie Marcus (Medtech Senior Analyst)

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

That.

Thanks.

Jamie Samath (CFO)

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

Be.

Dave Rosa (President)

Yeah, sure, happy to. Hey, Robbie. Some of the mitigations that we're considering on our side, if you look at our supply chain, they are. Jamie mentioned a little bit of it, but it's really two frames of reference that you ought to use. One is thinking about the parts that are coming into our factories, the ones that we assemble, and then the other frame of reference are the parts that are leaving our factories. As we look about how do we optimize within those two frames of reference on the parts coming into our factories, our teams have been working to get to industrial scale for years now. Some of the processes that exist within this framework, inside of Intuitive, really center around assessing risk. In all of our supply chain. We procure thousands of parts for our systems and instruments.

Our teams look through there, assess the risk and then ensure appropriate mitigations are in place. Mitigations there can include dual sourcing, they can include strategic reserves. That is a robust process that runs on a daily basis here for parts coming in. If you look at our parts, our components and our products going to customers here, we've done a lot of work to qualify some of our products under USMCA. We've optimized inventory around the globe ahead of some of these tariffs taking place. If you look in the midterm, we can use our existing manufacturing footprint that we have around the globe and optimize what products are manufactured in what area around the globe to help optimize some of the supply for our customers.

In the long term, we can build our overall manufacturing footprint against the trade environment that ultimately stabilizes. That is going to be a long term way in which we help mitigate some of the supply risk, if you will, within our supply.

Robbie Marcus (Medtech Senior Analyst)

Great, appreciate it. Thank you.

Operator (participant)

Thank you. Our next question comes from the line of Rick Wise from Stifel. Your question.

Please.

Rick Wise (Managing Director)

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

Jamie Samath (CFO)

Yeah, we saw solid procedure growth in the U.S. at 13% and obviously day adjusted is a little higher than that. I do think that we are seeing a relatively significant benefit from the adoption of da Vinci 5 in the U.S. I think customer response has been quite positive. You're generally seeing a.

Higher.

Dan Connally (VP and Head of Investor Relations)

He was asking. Oh, you're.

Jamie Samath (CFO)

Oh, I'm sorry, I'm sorry, I'm sorry, Rick, are you going to have to ask your question again? Sorry I missed.

It.

Rick Wise (Managing Director)

Just.

Jamie, just no big.

Deal. Just talking about the OUS growth, the international growth at 24% it was particularly strong, I thought, and just drivers there and key drivers and sustainability of those drivers, you know, into the rest of the year.

Beyond.

Jamie Samath (CFO)

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

OUS.

Rick Wise (Managing Director)

Exactly.

Jamie Samath (CFO)

Yeah. You see some maybe earlier stage markets for us doing quite well. India, smaller market, Taiwan. Those are starting to grow at really nice rates. I think we see our teams making real progress with respect to engagements with key opinion leaders, with surgical societies, and adoption across a broader set of procedures. I think that's going well. Same in Taiwan. We've benefited from some incremental reimbursements in Taiwan. Across Europe you see relatively solid growth that progresses each quarter. U.K. kind of leads that growth and in the U.K. they're seeing a real value with respect to resource consumption savings, addressing waiting lists in the U.K., and then we've been actually kind of placing capital in distributor markets at a little bit of a higher rate over the last several quarters and we're seeing that create capacity for procedure growth.

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

China.

Rick Wise (Managing Director)

Gotcha. Just to follow up, you've highlighted recently that increased customer interest in two areas and it went by too quickly. I missed what you said about after hours surgery growth. I just didn't get the number. After hours surgery and you recently hired a new leader for the cardiac surgery.

Area. Can you update us on these?

Two areas and where are you in sort of pursuing them? What's next? Maybe just talk about the growth outlook, if you would. Thank you.

Dave Rosa (President)

Sure. Hey Rick, the two areas that you mentioned, after hours and cardiac, on the after hours side, this really is being driven by customers who want to provide equal access to high quality, minimally invasive surgery to those patients who are so called after hours and having it be the same as the patients who are entering the hospital during the day. That has been the primary sort of motivation behind it and the ability for our customers to access capital for our teams to train. The after hours care teams are just parts or components to the equation that enable customers to access systems to have the right trained teams to support the surgeons who are delivering that care after hours. These would be patients who are generally coming in with some sort of emergent condition.

Oftentimes those teams who are treating those patients, they offer some kind of, generally some laparoscopy and minimally invasive surgery, oftentimes a lot of open surgery. The ability to have da Vinci as an option there is meaningful to the outcomes of those programs. On the cardiac side, the way that I kind of think about it is for many years the interventional side of cardiac intervention, so structural, heart and other components from interventional cardiologists have been on the rise and you've seen them offer great outcomes to patients. We've gotten to the point now where I think there's also a set of patients where high quality, minimally invasive surgery is a great and the best option for them.

We are at the point now where we think that technology, with dV5 and other parts of our ecosystem, our work with societies, our work with academic institutions and with surgeons who have been doing this around the world, it's the right time for this investment. It has been growing year over year off of a small base. The need is there, there is patient benefit that is there. We will line up these investments in and continue our journey here.

Cardiac.

Rick Wise (Managing Director)

Thanks.

Operator (participant)

Thank you. Our next question comes from the line of Adam Maeder from Piper Sandler. Your question.

Please.

Adam Maeder (Research Analyst)

Hi, good afternoon. Thank you for taking the questions. I'll keep it to one multi part question on force feedback technology. I guess the first question is can you just maybe give us a little bit more color around the percentage of dV5 cases that are using force sensing instruments today? Remind us the portfolio, how many instruments have this technology? How can that evolve going forward? Lastly, I saw there was a post market study, I think it was 200 patients posted to ClinicalTrials.gov evaluating force feedback instruments to just maybe flesh out the clinical strategy going forward to validate this exciting technology. Thank you.

Dave Rosa (President)

Sure. On the force feedback, on the number of instruments that currently have the capability enabled, we have six different instruments that were chosen for what they do inside the procedure. We are looking at components of the procedure that we think would best benefit from force feedback technology. That is how those instruments were chosen. In terms of how many today, how many cases are using force feedback, I do not have the number in front of me. There are many thousands of cases that are being done with force feedback, but I do not know the exact number.

When you look forward, I think what you're going to see is like any technology that's being studied, you'll see these early single institution studies that we referenced and that's where a single surgeon or a group of surgeons can study their results and look at it within their own institution and against their own data. As you look out, you'll start to see cross institution studies and Intuitive and perhaps other investigators will put together larger studies that will include more patients. That could be the one at ClinicalTrials.gov that you're referencing. It's a steady progression of data starting from the small and getting to the larger, more statistically relevant studies. That's when we'll be able to see what force feedback means at.

Scale.

Gary Guthart (CEO)

Two comments I'd make here. One is so far we're seeing the hypothesis that drove the inclusion of force sensing instruments and force feedback technology start to bear out better learning for younger surgeons and the right force at the right time during the procedure as being linked to outcome. As you said, those are hypotheses that will be tested over time, but we're going to start seeing those studies progress on the point of prevalence. How much is being used? Just remember a couple of things. One is force sensing and non-force sensing instruments can be used on DV5, so Gen4 instruments can also be used on dV5 and were supply constrained on force sensing instruments. We're not able to meet demand yet. Now we're working hard on that both from lives in the instrumentation and in the manufacturing capacity. That's coming.

Right now the answer to what fraction are being used, that's an artificial limitation imposed by our manufacturing constraint.

Dan Connally (VP and Head of Investor Relations)

Next question.

Please.

Operator (participant)

Certainly. Our next question comes from the line of Ryan Zimmerman from BTIG. Your question.

Please,

Ryan Zimmerman (Managing Director)

thanks for taking the.

Question. I'll stick to.

One. In the interest of.

Time, there's.

Been a lot of discussion on Medicaid cuts and you know, the impact to patients. I don't know Dave, if you've quantified this or you're willing to put it out there, but I'm going to ask anyway, which is, you know, if.

You were to characterize the payer mix.

Particularly within the Medicaid population, you know, what you could or could not be exposed to and what potentially that impact would be. You know, as you know, the.

Government kind of considers this as option. I'd appreciate your thoughts.

Jamie Samath (CFO)

I just say it's a healthy mix between private and Medicare, depending on the marketplace. I think I'd say it's too early for us to give any specific comments. We obviously have discussions with customers. I think much of that is speculation as to how it may play out. I think it's too early for us to comment.

Frankly.

Gary Guthart (CEO)

Yeah, this one on Medicaid in particular. Impact on Medicaid, right versus.

Medicare?

Jamie Samath (CFO)

Yeah, that's correct, Gary. Yeah, I guess if it were to be amended, what kind of impact would utilization potentially have, particularly for.

Robotics?

Gary Guthart (CEO)

Yeah, the team's done a little bit of a back of the envelope. I think it's too soon to speculate what that might be. It's not a dominant part of the mix. It's in our procedure mix Medicaid, but it is not dominant. What that looks like too soon to see. Thank.

Ryan Zimmerman (Managing Director)

Thank you.

Operator (participant)

Thank you. Our next question comes from the line of David Roman from Goldman Sachs. Your question.

Please.

David Roman (Managing Director)

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

Environment.

Gary Guthart (CEO)

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

There is a whole bunch of different procedures and a whole bunch of different hospitals. In aggregate, that's a true statement. They want to do it, and if they do it, they do better economically. You have this issue of stress on capital, particularly in some OUS markets. The reason that is stressful for them is that the budgets, the operating budgets, are not always held by the same budget holder as the capital budget. The operating person is saying, this is going great. I'm getting really nice returns, but the capital person is being incented by other means. Jamie had said in the prepared remarks, and he was right. The first thing to do is help them with utilization. We will. That's what our genesis teams do.

We're happy to help them with analytical tools so they really understand their total cost to treat and what the profitability of those programs are at the same time, if ultimately they need additional capital. That's part of the conversation with the other side of the insurance house, which is the one that controls the capital budget. Therein lies some of the stress. Early on, it's go help them with utilization. Sometimes we can help them with workflow management and also move machines around, move systems where they need to. You've seen us do that in our history back in the day. In general, I think in many of these economies, in many of these countries, high quality, minimally invasive care as provided by da Vinci Systems and the like, has been fantastic for them. They want to do more, less. Okay, we are at our last question.

Thank you for the questions. In closing, we continue to believe there's a substantial and durable opportunity to fundamentally improve surgery and acute interventions. Our teams continue to work closely with hospitals, physicians and care teams in pursuit of what our customers have termed the quintuple aim: better, more predictable patient outcomes, better experiences for patients, better experiences for their care teams, lower total cost of care, and finally, increased access to care. We believe value creation in surgery and acute care is foundationally human. It flows from respect for and understanding of patients and care teams, their needs, and their environment. At Intuitive, we envision a future of care that is less invasive and profoundly better, where diseases are identified earlier and treated quickly so patients can get back to what matters most. Thank you for your support on this extraordinary journey.

We look forward to talking with you again in three.

Operator (participant)

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