Margin Outlook
Q: How much more room is there for margin improvement?
A: Management aims for margins that are top-tier among med-tech peers but does not expect operating margins to exceed 40%. They reported 37% operating margin this quarter and 36% year-to-date. For 2025, they anticipate gross margins to be slightly lower due to significant incremental depreciation from new facilities. Their mid-term aspiration is to reach 70% gross margins, balancing investment with profitability.

Capital Environment and Global Pressures
Q: How is the capital environment affecting sales in Europe and China?
A: In Europe, particularly the UK and Germany, there is pressure on capital spending due to government budget constraints, similar to the last quarter. In China, the healthcare market faces stress from value-based pricing and price caps, along with competition from domestic companies receiving provincial preferences. These pressures are expected to persist for several quarters.

da Vinci 5 Ramp and Efficiency Gains
Q: What's the outlook for the da Vinci 5 ramp-up and efficiency gains?
A: The company will continue scheduled software updates for da Vinci 5, with additional hardware and software features expected at broad launch in mid-2025. Supply of da Vinci 5 is anticipated to increase modestly quarter-over-quarter into next year. Early feedback from surgeons indicates efficiency gains and improved console time, potentially leading to higher throughput and contribution margin benefits for hospitals.

Dual Console Availability Impact
Q: Is dual console availability affecting da Vinci 5 sales?
A: Dual console production is being prioritized alongside single system deals as supply ramps up. As capacity increases, they will produce additional consoles for dual system placements. Management does not anticipate significant changes in their forecast due to dual console availability and expects to serve all customers at broad launch without materially impacting procedure growth rates.

Ion Launch Progress
Q: Where is the Ion launch and adoption curve now?
A: In the U.S., Ion is progressing well in its first indication for biopsy of suspicious lung nodules, achieving double-digit prevalence in total biopsy use. The focus is on high utilization, customer satisfaction, and pursuing additional lung indications. Internationally, they are in early stages, with initial momentum in Europe starting in the UK and Germany, and early steps in China.

Usage Agreements Growth
Q: How do usage agreements impact the placement model and P&L?
A: Usage-based agreements, where customers pay per use, have grown from 12% to 15% of system placements. These arrangements are popular as they allow access to additional capacity without capital budgets and lower customer risk. Operating leases, including usage agreements, are slightly accretive compared to purchases due to embedded interest rates. Growth in the U.S. is expected to moderate due to high penetration, while international markets are at an earlier stage.

Refurbished Systems Opportunity
Q: What's the plan for refurbishing and reselling traded-in systems?
A: As the trade-in cycle for da Vinci 5 unfolds over multiple years, they will refurbish returned Xi systems. This enables market segmentation, offering cost-sensitive options in the U.S. and international markets. Specific plans are being developed but will follow this general approach.

New Procedures Adoption
Q: How are new procedures like appendectomy contributing to growth?
A: Procedures such as foregut and hepatobiliary are growing nicely, with rates accretive to the U.S. average, though they remain relatively small. Appendectomy is at an earlier stage but also shows accretive growth. As surgeons expand their use of Xi, these procedures extend into emergent care settings, increasing routine utilization. They have FDA indication for appendectomy in the U.S., but it remains a small, emergent-focused procedure.

Growth Drivers Ahead
Q: Will growth come from deeper penetration or new segments?
A: Management sees a balanced approach. While they are reaching maturity in some procedures, there is still significant opportunity for deeper penetration. Simultaneously, they are pursuing new opportunities and indications with platforms like Ion and SP, as well as multiport systems. These new areas may be niche markets rather than large segments, and more details will be shared as they mature.

Hub Experience and Implications
Q: What is the early experience with Hub, and its impact?
A: Hub, including Gen 4 compatibility and integration with da Vinci 5, serves as a robust data recorder and media management device. Over 2,000 operating rooms have installations, primarily on-premise. Customers value the ability to track data and assess post-op performance. Moving towards cloud implementations will enhance capabilities. Management views this as the beginning of Hub's journey in terms of penetration and content.

International Approvals and Supply
Q: Do you have supply to support Korean launch and updates on Japan and Europe?
A: They have sufficient supply to meet demand in Korea following the earlier-than-expected approval. Timing for Japan remains unspecified as discussions continue. For Europe, they expect to obtain CE Mark near the end of 2025, consistent with prior expectations.

da Vinci 5 Insights and Innovation Cycle
Q: Any insights on da Vinci 5 usage and software innovation?
A: da Vinci 5 is used across a broad range of procedures, but it's too early to compare utilization metrics with Xi due to limited data. For innovation, non-medical device software can have rapid update cycles, while software governed by regulatory processes follows a longer cadence, though still quicker than major hardware changes. Management emphasizes that hardware development will continue alongside software innovation, with da Vinci 5 offering opportunities in both areas.