filings.toolsItem 1. FINANCIAL STATEMENTS
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Item 1. FINANCIAL STATEMENTS
INTUITIVE SURGICAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
| in millions (except par values) | June 30, 2023 | December 31, 2022 | |||||||||
| ASSETS | |||||||||||
| Current assets: | |||||||||||
| Cash and cash equivalents | $ | 3,435.4 | $ | 1,581.2 | |||||||
| Short-term investments | 2,363.8 | 2,536.7 | |||||||||
| Accounts receivable, net | 904.2 | 942.1 | |||||||||
| Inventory | 1,005.2 | 893.2 | |||||||||
| Prepaids and other current assets | 323.2 | 299.8 | |||||||||
| Total current assets | 8,031.8 | 6,253.0 | |||||||||
| Property, plant, and equipment, net | 2,830.8 | 2,374.2 | |||||||||
| Long-term investments | 1,332.5 | 2,623.6 | |||||||||
| Deferred tax assets | 666.5 | 664.6 | |||||||||
| Intangible and other assets, net | 693.1 | 710.1 | |||||||||
| Goodwill | 348.6 | 348.5 | |||||||||
| Total assets | $ | 13,903.3 | $ | 12,974.0 | |||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||
| Current liabilities: | |||||||||||
| Accounts payable | $ | 199.7 | $ | 147.0 | |||||||
| Accrued compensation and employee benefits | 346.6 | 401.6 | |||||||||
| Deferred revenue | 405.2 | 397.3 | |||||||||
| Other accrued liabilities | 586.9 | 476.2 | |||||||||
| Total current liabilities | 1,538.4 | 1,422.1 | |||||||||
| Other long-term liabilities | 405.2 | 439.3 | |||||||||
| Total liabilities | 1,943.6 | 1,861.4 | |||||||||
| Contingencies (Note 8) | |||||||||||
| Stockholders’ equity: | |||||||||||
| Preferred stock, 2.5 shares authorized, $0.001 par value, issuable in series; zero shares issued and outstanding as of June 30, 2023, and December 31, 2022 | — | — | |||||||||
| Common stock, 600.0 shares authorized, $0.001 par value, 351.3 shares and 350.0 shares issued and outstanding as of June 30, 2023, and December 31, 2022, respectively | 0.4 | 0.4 | |||||||||
| Additional paid-in capital | 8,150.8 | 7,703.9 | |||||||||
| Retained earnings | 3,807.7 | 3,500.1 | |||||||||
| Accumulated other comprehensive loss | (79.8) | (162.5) | |||||||||
| Total Intuitive Surgical, Inc. stockholders’ equity | 11,879.1 | 11,041.9 | |||||||||
| Noncontrolling interest in joint venture | 80.6 | 70.7 | |||||||||
| Total stockholders’ equity | 11,959.7 | 11,112.6 | |||||||||
| Total liabilities and stockholders’ equity | $ | 13,903.3 | $ | 12,974.0 | |||||||
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements (Unaudited).
INTUITIVE SURGICAL, INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| in millions (except per share amounts) | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||
| Revenue: | |||||||||||||||||||||||
| Product | $ | 1,468.6 | $ | 1,270.4 | $ | 2,881.6 | $ | 2,508.8 | |||||||||||||||
| Service | 287.3 | 251.7 | 570.5 | 501.0 | |||||||||||||||||||
| Total revenue | 1,755.9 | 1,522.1 | 3,452.1 | 3,009.8 | |||||||||||||||||||
| Cost of revenue: | |||||||||||||||||||||||
| Product | 498.0 | 421.0 | 991.0 | 818.3 | |||||||||||||||||||
| Service | 86.0 | 77.8 | 176.2 | 158.5 | |||||||||||||||||||
| Total cost of revenue | 584.0 | 498.8 | 1,167.2 | 976.8 | |||||||||||||||||||
| Gross profit | 1,171.9 | 1,023.3 | 2,284.9 | 2,033.0 | |||||||||||||||||||
| Operating expenses: | |||||||||||||||||||||||
| Selling, general and administrative | 464.3 | 418.4 | 944.8 | 809.5 | |||||||||||||||||||
| Research and development | 244.4 | 207.3 | 489.3 | 417.8 | |||||||||||||||||||
| Total operating expenses | 708.7 | 625.7 | 1,434.1 | 1,227.3 | |||||||||||||||||||
| Income from operations | 463.2 | 397.6 | 850.8 | 805.7 | |||||||||||||||||||
| Interest and other income, net | 36.0 | 9.3 | 70.2 | 3.6 | |||||||||||||||||||
| Income before taxes | 499.2 | 406.9 | 921.0 | 809.3 | |||||||||||||||||||
| Income tax expense | 73.2 | 93.3 | 134.2 | 126.3 | |||||||||||||||||||
| Net income | 426.0 | 313.6 | 786.8 | 683.0 | |||||||||||||||||||
| Less: net income attributable to noncontrolling interest in joint venture | 5.2 | 5.8 | 10.7 | 9.6 | |||||||||||||||||||
| Net income attributable to Intuitive Surgical, Inc. | $ | 420.8 | $ | 307.8 | $ | 776.1 | $ | 673.4 | |||||||||||||||
| Net income per share attributable to Intuitive Surgical, Inc.: | |||||||||||||||||||||||
| Basic | $ | 1.20 | $ | 0.86 | $ | 2.21 | $ | 1.88 | |||||||||||||||
| Diluted | $ | 1.18 | $ | 0.85 | $ | 2.18 | $ | 1.84 | |||||||||||||||
| Shares used in computing net income per share attributable to Intuitive Surgical, Inc.: | |||||||||||||||||||||||
| Basic | 350.9 | 358.1 | 350.6 | 358.2 | |||||||||||||||||||
| Diluted | 357.3 | 363.9 | 356.6 | 365.3 | |||||||||||||||||||
| Other comprehensive income (loss), net of tax: | |||||||||||||||||||||||
| Unrealized gains on hedge instruments | $ | 6.0 | $ | 4.4 | $ | 8.5 | $ | 5.4 | |||||||||||||||
| Unrealized gains (losses) on available-for-sale securities | 13.1 | (33.4) | 50.7 | (124.1) | |||||||||||||||||||
| Foreign currency translation gains (losses) | 8.5 | (5.5) | 22.7 | (2.0) | |||||||||||||||||||
| Prior service cost for employee benefit plans | — | — | — | 0.1 | |||||||||||||||||||
| Other comprehensive income (loss) | 27.6 | (34.5) | 81.9 | (120.6) | |||||||||||||||||||
| Total comprehensive income | 453.6 | 279.1 | 868.7 | 562.4 | |||||||||||||||||||
| Less: comprehensive income attributable to noncontrolling interest | 4.1 | 4.8 | 9.9 | 9.0 | |||||||||||||||||||
| Total comprehensive income attributable to Intuitive Surgical, Inc. | $ | 449.5 | $ | 274.3 | $ | 858.8 | $ | 553.4 | |||||||||||||||
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements (Unaudited).
INTUITIVE SURGICAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| Six Months Ended June 30, | |||||||||||
| in millions | 2023 | 2022 | |||||||||
| Operating activities: | |||||||||||
| Net income | $ | 786.8 | $ | 683.0 | |||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | |||||||||||
| Depreciation and loss on disposal of property, plant, and equipment | 180.0 | 157.5 | |||||||||
| Amortization of intangible assets | 10.0 | 12.3 | |||||||||
| Gain on sale of business | — | (3.8) | |||||||||
| Loss on investments, accretion of discounts, and amortization of premiums on investments, net | 14.4 | 33.8 | |||||||||
| Deferred income taxes | (17.7) | (40.1) | |||||||||
| Share-based compensation expense | 286.3 | 247.5 | |||||||||
| Amortization of contract acquisition assets | 14.9 | 13.6 | |||||||||
| Changes in operating assets and liabilities, net of effects of acquisitions: | |||||||||||
| Accounts receivable | 39.3 | (56.0) | |||||||||
| Inventory | (288.6) | (245.5) | |||||||||
| Prepaids and other assets | (13.8) | (90.1) | |||||||||
| Accounts payable | 36.5 | 12.4 | |||||||||
| Accrued compensation and employee benefits | (55.0) | (71.5) | |||||||||
| Deferred revenue | 12.2 | (3.1) | |||||||||
| Other liabilities | 31.8 | 19.7 | |||||||||
| Net cash provided by operating activities | 1,037.1 | 669.7 | |||||||||
| Investing activities: | |||||||||||
| Purchase of investments | (14.0) | (1,376.2) | |||||||||
| Proceeds from sales of investments | 37.5 | — | |||||||||
| Proceeds from maturities of investments | 1,486.9 | 1,865.1 | |||||||||
| Purchase of property, plant, and equipment | (372.4) | (224.1) | |||||||||
| Acquisition of businesses, net of cash, and intellectual property and other investing activities | (7.3) | (13.3) | |||||||||
| Net cash provided by investing activities | 1,130.7 | 251.5 | |||||||||
| Financing activities: | |||||||||||
| Proceeds from issuance of common stock relating to employee stock plans | 174.8 | 106.6 | |||||||||
| Taxes paid related to net share settlement of equity awards | (140.6) | (179.0) | |||||||||
| Repurchase of common stock | (350.0) | (606.6) | |||||||||
| Payment of deferred purchase consideration | (2.1) | (3.0) | |||||||||
| Net cash used in financing activities | (317.9) | (682.0) | |||||||||
| Effect of exchange rate changes on cash, cash equivalents, and restricted cash | 7.0 | 6.0 | |||||||||
| Net increase in cash, cash equivalents, and restricted cash | 1,856.9 | 245.2 | |||||||||
| Cash, cash equivalents, and restricted cash, beginning of period | 1,600.7 | 1,306.0 | |||||||||
| Cash, cash equivalents, and restricted cash, end of period | $ | 3,457.6 | $ | 1,551.2 | |||||||
The accompanying notes are an integral part of these Condensed Consolidated Financial Statements (Unaudited).
In this report, “Intuitive Surgical,” “Intuitive,” the “Company,” “we,” “us,” and “our” refer to Intuitive Surgical, Inc. and its wholly and majority-owned subsidiaries.
NOTE 1. DESCRIPTION OF THE BUSINESS
Intuitive Surgical, Inc. (“Intuitive” or the “Company”) develops, manufactures, and markets da Vinci® surgical systems and the Ion® endoluminal system. The Company’s products and related services enable physicians and healthcare providers to improve the quality of and access to minimally invasive care. The systems consist of a surgeon console or consoles, a patient-side cart, and a high-performance vision system and use proprietary instruments and accessories.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
In the opinion of management, the accompanying unaudited Condensed Consolidated Financial Statements (“Financial Statements”) of Intuitive Surgical, Inc. and its wholly and majority-owned subsidiaries have been prepared on a consistent basis with the audited Consolidated Financial Statements for the fiscal year ended December 31, 2022, and include all adjustments, consisting of only normal, recurring adjustments, necessary to fairly state the information set forth herein. The Financial Statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) and, therefore, omit certain information and footnote disclosure necessary to present the Financial Statements in accordance with United States (“U.S.”) generally accepted accounting principles (“GAAP”). These Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, which was filed with the SEC on February 10, 2023. The results of operations for the first six months of 2023 are not necessarily indicative of the results to be expected for the entire fiscal year or any future periods.
The Financial Statements include the results and balances of the Company’s majority-owned joint ventures, Intuitive Surgical-Fosun Medical Technology (Shanghai) Co., Ltd. and Intuitive Surgical-Fosun (HongKong) Co., Ltd. (collectively, the “Joint Venture”) with Shanghai Fosun Pharmaceutical (Group) Co., Ltd. (“Fosun Pharma”). The Company holds a controlling financial interest in the Joint Venture, and the noncontrolling interest is reflected as a separate component of the consolidated stockholders’ equity. The noncontrolling interest’s share of the earnings in the Joint Venture is presented separately in the Condensed Consolidated Statements of Comprehensive Income.
Risks and Uncertainties
The Company’s future results of operations and liquidity could be materially adversely affected by macroeconomic and geopolitical factors in the U.S. and globally, including the supply chain environment, inflationary pressure, higher interest rates, instability in the global financial markets, labor shortages, significant disruptions in the commodities’ markets as a result of the Russia and Ukraine conflict, the introduction of or changes in tariffs, trade barriers, or regulatory requirements, and uncertain or reduced demand, as well as the impact of any initiatives or programs that the Company may undertake to address financial and operational challenges faced by its customers.
The Company continues to experience difficulties in obtaining a sufficient supply of a number of component materials used in its products, such as semiconductor components as well as a range of other materials including, but not limited to, metals and polymers, as the global supply has become constrained due to increased demand for certain materials. Additionally, prices of such materials remain elevated due to the increased demand and supply shortages. With higher interest rates, access to credit may become more difficult, and any insolvency of the Company’s key suppliers, including sole-sourced and single-sourced suppliers, may exacerbate current supply chain challenges. Also, liquidity concerns in the broader financial services industry could result in delayed access or loss of access to the Company’s key suppliers’ uninsured deposits or loss of their ability to draw on existing credit facilities involving a troubled or failed financial institution. While supply chain disruptions have been, and may continue to be, challenging, the situation has shown signs of improvement during the first half of 2023, relative to 2022. The Company is actively engaged in activities to seek to mitigate the impact of any supply chain disruptions on our operations.
Such global shortages in important components have resulted in, and will continue to cause, inflationary cost pressure in the Company’s supply chain. To date, these supply chain challenges have not materially impacted the Company’s results of operations or ability to deliver products and services to its customers. However, if shortages in important supply chain materials in the semiconductor or other markets continue, the Company could fail to meet product demand, which could result in deferred or canceled procedures. Additionally, if inflationary pressures in component costs persist, the Company may not be able to quickly or easily adjust pricing, reduce costs, or implement countermeasures. Additionally, there is continued uncertainty surrounding the impact of any monetary policy changes taken by the U.S. Federal Reserve and other central banks to address the structural risks associated with inflation.
Fluctuations in labor availability globally, including labor shortages and staff burnout and attrition, could also impact the Company’s ability to hire and retain personnel critical to its manufacturing, logistics, and commercial operations. The Company is also highly dependent on the principal members of its management and scientific staff. The loss of critical members of the Company’s team, or its inability to attract and retain qualified personnel, could significantly harm its operations, business, and ability to compete.
Hospitals are also experiencing challenges with staffing and cost pressures that could affect their ability to provide patient care. Additionally, hospitals are facing significant financial pressure as supply chain constraints and inflation drive up operating costs, higher interest rates make access to credit more expensive, unrealized losses decrease available cash reserves, and fiscal stimulus programs enacted during the COVID-19 pandemic wind down. Hospitals may also be adversely affected by the liquidity concerns in the broader financial services industry that could result in delayed access or loss of access to uninsured deposits or loss of their ability to draw on existing credit facilities involving a troubled or failed financial institution. To the extent macroeconomic conditions remain challenging, it is likely that hospitals’ spend on capital equipment will be adversely impacted. In addition, as competition progresses in various markets, longer selling cycles and pricing pressures are likely to result. As of the date of issuance of these Financial Statements, the extent to which these macroeconomic factors may materially adversely affect the Company’s financial condition, liquidity, or results of operations is uncertain.
The Company maintains the majority of its cash and cash equivalents in accounts with major U.S. and multi-national financial institutions, and our deposits exceed insured limits. Market conditions could impact the viability of these institutions. To date, these market conditions and liquidity concerns have not impacted our results of operations. However, in the event of failure of any of the financial institutions where we maintain our cash and cash equivalents, there can be no assurance that we would be able to access uninsured funds in a timely manner or at all. Any inability to access or delay in accessing these funds could adversely affect our business and financial position.
The Company is also subject to additional risks and uncertainties due to the ongoing COVID-19 pandemic. The extent of the impact on the Company’s business is highly uncertain and difficult to predict. The Company’s customers may divert resources to treat COVID-19 patients and defer some elective surgical procedures, both of which may impact the Company’s customers’ ability to meet their obligations, including to the Company. The severity of the impact of the COVID-19 pandemic on the Company’s business will depend on a number of factors, including, but not limited to, the duration and severity of the pandemic and the extent and severity of the impact on the Company’s customers, all of which are uncertain and cannot be predicted.
Recently Adopted Accounting Pronouncements
Troubled Debt Restructurings and Vintage Disclosures
In March 2022, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2022-02, Financial Instruments-Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures (“ASU 2022-02”), which eliminates the accounting guidance for troubled debt restructurings by creditors while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. Additionally, the standard requires disclosure of current-period gross write-offs by year of origination for financing receivables and net investments in leases within the scope of Subtopic ASC 326-20, Financial Instruments-Credit Losses-Measured at Amortized Cost. The Company adopted ASU 2022-02 on January 1, 2023, on a prospective basis. There was no impact of the adoption of ASU 2022-02 on the Company’s Financial Statements in the three and six months ended June 30, 2023.
Recently Issued Accounting Pronouncements
The Company continues to monitor new accounting pronouncements issued by the FASB and does not believe any accounting pronouncements issued through the date of this report will have a material impact on the Company’s Financial Statements.
Significant Accounting Policies
There have been no new or material changes to the significant accounting policies discussed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, that are of significance, or potential significance, to the Company.
NOTE 3. FINANCIAL INSTRUMENTS
Cash, Cash Equivalents, and Investments
The following tables summarize the Company’s cash and available-for-sale debt securities’ amortized cost, gross unrealized gains, gross unrealized losses, allowance for credit loss, and fair value by significant investment category reported as
cash and cash equivalents, short-term investments, or long-term investments as of June 30, 2023, and December 31, 2022 (in millions):
| Reported as: | |||||||||||||||||||||||||||||||||||||||||||||||
| Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Allowance for Credit Loss | Fair Value | Cash and Cash Equivalents | Short- term Investments | Long- term Investments | ||||||||||||||||||||||||||||||||||||||||
| June 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||
| Cash | $ | 520.3 | $ | — | $ | — | $ | — | $ | 520.3 | $ | 520.3 | $ | — | $ | — | |||||||||||||||||||||||||||||||
| Level 1: | |||||||||||||||||||||||||||||||||||||||||||||||
| Money market funds | 2,915.1 | — | — | — | 2,915.1 | 2,915.1 | — | — | |||||||||||||||||||||||||||||||||||||||
| U.S. treasuries | 1,860.8 | — | (61.0) | — | 1,799.8 | — | 1,294.2 | 505.6 | |||||||||||||||||||||||||||||||||||||||
| Subtotal | 4,775.9 | — | (61.0) | — | 4,714.9 | 2,915.1 | 1,294.2 | 505.6 | |||||||||||||||||||||||||||||||||||||||
| Level 2: | |||||||||||||||||||||||||||||||||||||||||||||||
| Corporate debt securities | 1,490.5 | — | (53.9) | (1.1) | 1,435.5 | — | 829.5 | 606.0 | |||||||||||||||||||||||||||||||||||||||
| U.S. government agencies | 361.2 | — | (14.3) | — | 346.9 | — | 183.8 | 163.1 | |||||||||||||||||||||||||||||||||||||||
| Municipal securities | 118.2 | — | (4.1) | — | 114.1 | — | 56.3 | 57.8 | |||||||||||||||||||||||||||||||||||||||
| Subtotal | 1,969.9 | — | (72.3) | (1.1) | 1,896.5 | — | 1,069.6 | 826.9 | |||||||||||||||||||||||||||||||||||||||
| Total assets measured at fair value | $ | 7,266.1 | $ | — | $ | (133.3) | $ | (1.1) | $ | 7,131.7 | $ | 3,435.4 | $ | 2,363.8 | $ | 1,332.5 |
| Reported as: | |||||||||||||||||||||||||||||||||||||||||||||||
| Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Allowance for Credit Loss | Fair Value | Cash and Cash Equivalents | Short- term Investments | Long- term Investments | ||||||||||||||||||||||||||||||||||||||||
| December 31, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||
| Cash | $ | 497.2 | $ | — | $ | — | $ | — | $ | 497.2 | $ | 497.2 | $ | — | $ | — | |||||||||||||||||||||||||||||||
| Level 1: | |||||||||||||||||||||||||||||||||||||||||||||||
| Money market funds | 1,084.0 | — | — | — | 1,084.0 | 1,084.0 | — | — | |||||||||||||||||||||||||||||||||||||||
| U.S. treasuries | 2,715.2 | — | (96.6) | — | 2,618.6 | — | 1,542.4 | 1,076.2 | |||||||||||||||||||||||||||||||||||||||
| Subtotal | 3,799.2 | — | (96.6) | — | 3,702.6 | 1,084.0 | 1,542.4 | 1,076.2 | |||||||||||||||||||||||||||||||||||||||
| Level 2: | |||||||||||||||||||||||||||||||||||||||||||||||
| Commercial paper | 20.0 | — | — | — | 20.0 | — | 20.0 | — | |||||||||||||||||||||||||||||||||||||||
| Corporate debt securities | 2,022.0 | — | (76.0) | (1.1) | 1,944.9 | — | 651.8 | 1,293.1 | |||||||||||||||||||||||||||||||||||||||
| U.S. government agencies | 447.2 | — | (19.9) | — | 427.3 | — | 247.8 | 179.5 | |||||||||||||||||||||||||||||||||||||||
| Municipal securities | 155.5 | — | (6.0) | — | 149.5 | — | 74.7 | 74.8 | |||||||||||||||||||||||||||||||||||||||
| Subtotal | 2,644.7 | — | (101.9) | (1.1) | 2,541.7 | — | 994.3 | 1,547.4 | |||||||||||||||||||||||||||||||||||||||
| Total assets measured at fair value | $ | 6,941.1 | $ | — | $ | (198.5) | $ | (1.1) | $ | 6,741.5 | $ | 1,581.2 | $ | 2,536.7 | $ | 2,623.6 |
The following table summarizes the contractual maturities of the Company’s cash equivalents and available-for-sale debt securities (excluding money market funds), as of June 30, 2023 (in millions):
| Amortized Cost | Fair Value | ||||||||||
| Mature in less than one year | $ | 2,416.8 | $ | 2,363.8 | |||||||
| Mature in one to five years | 1,413.9 | 1,332.5 | |||||||||
| Total | $ | 3,830.7 | $ | 3,696.3 |
Actual maturities may differ from contractual maturities, because certain borrowers have the right to call or prepay certain obligations. Gross realized gains and losses recognized on the sale of investments were immaterial for the periods presented.
As of June 30, 2023, and December 31, 2022, net unrealized losses on available-for-sale debt securities, net of tax, of $103.5 million and $154.2 million, respectively, were included in accumulated other comprehensive loss in the accompanying Consolidated Balance Sheets.
The following tables present the breakdown of the available-for-sale debt securities with unrealized losses as of June 30, 2023, and December 31, 2022 (in millions):
| June 30, 2023 | |||||||||||||||||||||||||||||||||||
| Unrealized losses less than 12 months | Unrealized losses 12 months or greater | Total | |||||||||||||||||||||||||||||||||
| Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | ||||||||||||||||||||||||||||||
| U.S. treasuries | $ | — | $ | — | $ | 1,799.8 | $ | (61.0) | $ | 1,799.8 | $ | (61.0) | |||||||||||||||||||||||
| Corporate debt securities | 84.1 | (0.9) | 1,344.5 | (53.0) | 1,428.6 | (53.9) | |||||||||||||||||||||||||||||
| U.S. government agencies | — | — | 346.9 | (14.3) | 346.9 | (14.3) | |||||||||||||||||||||||||||||
| Municipal securities | — | — | 107.7 | (4.1) | 107.7 | (4.1) | |||||||||||||||||||||||||||||
| Total | $ | 84.1 | $ | (0.9) | $ | 3,598.9 | $ | (132.4) | $ | 3,683.0 | $ | (133.3) |
| December 31, 2022 | |||||||||||||||||||||||||||||||||||
| Unrealized losses less than 12 months | Unrealized losses 12 months or greater | Total | |||||||||||||||||||||||||||||||||
| Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | ||||||||||||||||||||||||||||||
| U.S. treasuries | $ | 731.7 | $ | (26.0) | $ | 1,886.9 | $ | (70.6) | $ | 2,618.6 | $ | (96.6) | |||||||||||||||||||||||
| Corporate debt securities | 631.4 | (17.6) | 1,221.9 | (58.4) | 1,853.3 | (76.0) | |||||||||||||||||||||||||||||
| U.S. government agencies | 102.7 | (4.4) | 324.6 | (15.5) | 427.3 | (19.9) | |||||||||||||||||||||||||||||
| Municipal securities | 44.6 | (1.1) | 104.9 | (4.9) | 149.5 | (6.0) | |||||||||||||||||||||||||||||
| Total | $ | 1,510.4 | $ | (49.1) | $ | 3,538.3 | $ | (149.4) | $ | 5,048.7 | $ | (198.5) |
The Company’s investments may consist of U.S. government money market funds, U.S. treasury and U.S. government agency securities, high-quality corporate notes and bonds, commercial paper, non-U.S. government agency securities, and taxable and tax-exempt municipal notes. The Company regularly reviews its investments and evaluates the current expected credit loss by considering factors such as historical experience, market data, financial condition and near-term prospects of the investee, the extent of any losses related to the credit of the issuer, and the expected cash flows from the security. The Company segments its portfolio based on the underlying risk profiles of the securities and has a zero-loss expectation for U.S. treasury and U.S. government agency securities. The basis for this assumption is that these securities have consistently high credit ratings by rating agencies, have a long history with no credit losses, are explicitly guaranteed by a sovereign entity, which can print its own currency, and are denominated in a currency that is routinely held by central banks, used in international commerce, and commonly viewed as a reserve currency.
The current unrealized losses on the Company’s available-for-sale debt securities were caused by interest rate increases. The contractual terms of those investments do not permit the issuer to settle the securities at a price less than the amortized cost basis of the investments. As of June 30, 2023, the Company does not intend to sell the investments in unrealized loss positions, and it is not more-likely-than-not that the Company will be required to sell any of the investments before recovery of their amortized cost basis, which may be at maturity. Therefore, the Company does not expect to realize any losses on these available-for-sale debt securities. Additional factors considered in determining the treatment of unrealized losses include the financial condition and near-term prospects of the investee, the extent of the loss related to the credit of the issuer, and the expected cash flows from the security.
For the three and six months ended June 30, 2023, and 2022, the credit losses related to available-for-sales debt securities were not material.
Equity Investments
The Company holds equity investments with readily determinable fair values and equity investments without readily determinable fair values. The Company generally recognizes equity investments that do not have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer.
The following table is a summary of the activity related to equity investments (in millions):
| Reported as: | |||||||||||||||||||||||||||||||||||
| December 31, 2022 Carrying Value | Changes in Fair Value (1) | Purchases / Sales / Other (2) | June 30, 2023 Carrying Value | Prepaids and other current assets | Intangible and other assets, net | ||||||||||||||||||||||||||||||
| Equity investments with readily determinable value (Level 1) | $ | 4.3 | $ | (0.4) | $ | (3.9) | $ | — | $ | — | $ | — | |||||||||||||||||||||||
| Equity investments without readily determinable value (Level 2) | $ | 59.1 | $ | (5.6) | $ | 14.3 | $ | 67.8 | $ | — | $ | 67.8 | |||||||||||||||||||||||
| (1) Recorded in interest and other income, net. | |||||||||||||||||||||||||||||||||||
| (2) Other includes foreign currency translation gains/(losses). | |||||||||||||||||||||||||||||||||||
For the three and six months ended June 30, 2023, the Company recognized immaterial decreases in fair value on its equity investments with readily determinable market values (Level 1), which were reflected in interest and other income, net. For the three and six months ended June 30, 2023, the Company recognized decreases in fair value of $6.1 million and $5.6 million, respectively, due to an impairment, partially offset by increases in observable prices for certain equity investments that lack readily determinable market values (Level 2), which were also reflected in interest and other income, net.
Foreign Currency Derivatives
The objective of the Company’s hedging program is to mitigate the impact of changes in currency exchange rates on net cash flow from foreign currency-denominated sales, expenses, intercompany balances, and other monetary assets or liabilities denominated in currencies other than the U.S. dollar (“USD”). The terms of the Company’s derivative contracts are generally thirteen months or shorter. The derivative assets and liabilities are measured using Level 2 fair value inputs.
Cash Flow Hedges
The Company enters into currency forward contracts as cash flow hedges to hedge certain forecasted revenue transactions denominated in currencies other than the USD, primarily the Euro (“EUR”), the British Pound (“GBP”), the Japanese Yen (“JPY”), the Korean Won (“KRW”), and the New Taiwan Dollar (“TWD”). The Company also enters into currency forward contracts as cash flow hedges to hedge certain forecasted expense transactions denominated in EUR and the Swiss Franc (“CHF”).
For these derivatives, the Company reports the unrealized after-tax gain or loss from the hedge as a component of accumulated other comprehensive loss in stockholders’ equity and reclassifies the amount into earnings in the same period in which the hedged transaction affects earnings. The amounts reclassified to revenue and expenses related to the hedged transactions and the ineffective portions of cash flow hedges were not material for the periods presented.
Other Derivatives Not Designated as Hedging Instruments
Other derivatives not designated as hedging instruments consist primarily of forward contracts that the Company uses to hedge intercompany balances and other monetary assets or liabilities denominated in currencies other than the USD, primarily the EUR, GBP, JPY, KRW, CHF, TWD, Indian Rupee (“INR”), Mexican Peso (“MXN”), Chinese Yuan (“CNY”), Canadian Dollar (“CAD”), and Swedish Kronor (“SEK”).
These derivative instruments are used to hedge against balance sheet foreign currency exposures. The related gains and losses were as follows (in millions):
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Recognized gains in interest and other income, net | $ | 14.7 | $ | 21.9 | $ | 11.4 | $ | 28.7 | |||||||||||||||
| Foreign exchange losses related to balance sheet re-measurement | $ | (16.3) | $ | (28.8) | $ | (10.9) | $ | (38.9) | |||||||||||||||
The notional amounts for derivative instruments provide one measure of the transaction volume. Total gross notional amounts (in USD) for outstanding derivatives and the aggregate gross fair value at the end of each period were as follows (in millions):
| Derivatives Designated as Hedging Instruments | Derivatives Not Designated as Hedging Instruments | ||||||||||||||||||||||
| June 30, 2023 | December 31, 2022 | June 30, 2023 | December 31, 2022 | ||||||||||||||||||||
| Notional amounts: | |||||||||||||||||||||||
| Forward contracts | $ | 250.3 | $ | 188.4 | $ | 578.4 | $ | 496.3 | |||||||||||||||
| Gross fair value recorded in: | |||||||||||||||||||||||
| Prepaids and other current assets | $ | 7.6 | $ | 1.8 | $ | 5.6 | $ | 4.3 | |||||||||||||||
| Other accrued liabilities | $ | 1.4 | $ | 5.3 | $ | 1.8 | $ | 4.2 |
NOTE 4. BALANCE SHEET DETAILS AND OTHER FINANCIAL INFORMATION
Balance Sheet Details
The following tables provide details of selected balance sheet line items (in millions):
| As of | |||||||||||
| Accounts receivable, net | June 30, 2023 | December 31, 2022 | |||||||||
| Trade accounts receivable, net | $ | 825.7 | $ | 864.9 | |||||||
| Unbilled accounts receivable and other | 101.9 | 91.7 | |||||||||
| Sales returns and allowances | (23.4) | (14.5) | |||||||||
| Total accounts receivable, net | $ | 904.2 | $ | 942.1 |
| As of | |||||||||||
| Inventory | June 30, 2023 | December 31, 2022 | |||||||||
| Raw materials | $ | 390.2 | $ | 382.9 | |||||||
| Work-in-process | 145.0 | 159.9 | |||||||||
| Finished goods | 470.0 | 350.4 | |||||||||
| Total inventory | $ | 1,005.2 | $ | 893.2 |
| As of | |||||||||||
| Prepaids and other current assets | June 30, 2023 | December 31, 2022 | |||||||||
| Net investment in sales-type leases – short-term | $ | 134.6 | $ | 131.2 | |||||||
| Other prepaids and other current assets | 188.6 | 168.6 | |||||||||
| Total prepaids and other current assets | $ | 323.2 | $ | 299.8 |
| As of | |||||||||||
| Other accrued liabilities – short-term | June 30, 2023 | December 31, 2022 | |||||||||
| Income and other taxes payable | $ | 230.2 | $ | 96.1 | |||||||
| Accrued construction-related capital expenditures | 113.7 | 50.3 | |||||||||
| Litigation-related accruals | 3.7 | 23.0 | |||||||||
| Other accrued liabilities | 239.3 | 306.8 | |||||||||
| Total other accrued liabilities – short-term | $ | 586.9 | $ | 476.2 |
| As of | |||||||||||
| Other long-term liabilities | June 30, 2023 | December 31, 2022 | |||||||||
| Income taxes – long-term | $ | 250.3 | $ | 288.0 | |||||||
| Deferred revenue – long-term | 45.4 | 41.0 | |||||||||
| Other long-term liabilities | 109.5 | 110.3 | |||||||||
| Total other long-term liabilities | $ | 405.2 | $ | 439.3 |
Supplemental Cash Flow Information
The following table provides supplemental non-cash investing and financing activities (in millions):
| Six Months Ended June 30, | |||||||||||
| 2023 | 2022 | ||||||||||
| Equipment transfers, including operating lease assets, from inventory to property, plant, and equipment | $ | 198.5 | $ | 122.7 | |||||||
| Acquisition of property, plant, and equipment in accounts payable and accrued liabilities | $ | 138.2 | $ | 95.8 | |||||||
NOTE 5. REVENUE AND CONTRACT ACQUISITION COSTS
The following table presents revenue disaggregated by types and geography (in millions):
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| U.S. | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||
| Instruments and accessories | $ | 763.3 | $ | 625.1 | $ | 1,464.7 | $ | 1,175.7 | |||||||||||||||
| Systems | 189.8 | 218.0 | 411.6 | 466.3 | |||||||||||||||||||
| Services | 189.4 | 168.0 | 376.1 | 333.9 | |||||||||||||||||||
| Total U.S. revenue | $ | 1,142.5 | $ | 1,011.1 | $ | 2,252.4 | $ | 1,975.9 | |||||||||||||||
| Outside of U.S. (“OUS”) | |||||||||||||||||||||||
| Instruments and accessories | $ | 312.6 | $ | 270.2 | $ | 596.8 | $ | 529.9 | |||||||||||||||
| Systems | 202.9 | 157.1 | 408.5 | 336.9 | |||||||||||||||||||
| Services | 97.9 | 83.7 | 194.4 | 167.1 | |||||||||||||||||||
| Total OUS revenue | $ | 613.4 | $ | 511.0 | $ | 1,199.7 | $ | 1,033.9 | |||||||||||||||
| Total | |||||||||||||||||||||||
| Instruments and accessories | $ | 1,075.9 | $ | 895.3 | $ | 2,061.5 | $ | 1,705.6 | |||||||||||||||
| Systems | 392.7 | 375.1 | 820.1 | 803.2 | |||||||||||||||||||
| Services | 287.3 | 251.7 | 570.5 | 501.0 | |||||||||||||||||||
| Total revenue | $ | 1,755.9 | $ | 1,522.1 | $ | 3,452.1 | $ | 3,009.8 |
Remaining Performance Obligations
The transaction price allocated to remaining performance obligations relates to amounts allocated to products and services for which revenue has not yet been recognized. A significant portion of these performance obligations relate to service obligations in the Company’s system sale and lease arrangements that will be satisfied and recognized as revenue in future periods. The transaction price allocated to the remaining performance obligations was $2.14 billion as of June 30, 2023. The remaining performance obligations are expected to be satisfied over the term of the system sale, lease, and service arrangements. Approximately 43% of the remaining performance obligations are expected to be recognized in the next 12 months with the remainder recognized thereafter over the term of the system sale, lease, and service arrangements, which are generally up to 5 years.
Contract Assets and Liabilities
The following information summarizes the Company’s contract assets and liabilities (in millions):
| As of | |||||||||||
| June 30, 2023 | December 31, 2022 | ||||||||||
| Contract assets | $ | 48.1 | $ | 45.0 | |||||||
| Deferred revenue | $ | 450.6 | $ | 438.3 |
The Company invoices its customers based on the billing schedules in its sales arrangements. Payments are generally due 30 to 60 days from the date of invoice. Contract assets for the periods presented primarily represent the difference between the revenue that was recognized based on the relative standalone selling price of the related performance obligations satisfied and the contractual billing terms in the arrangements. Deferred revenue for the periods presented primarily relates to service contracts where the service fees are billed up-front, generally quarterly or annually, prior to those services having been performed. The associated deferred revenue is generally recognized over the term of the service period. The Company did not have any significant impairment losses on its contract assets for the periods presented.
During the three and six months ended June 30, 2023, the Company recognized $112 million and $297 million of revenue, respectively, that was included in the deferred revenue balance as of December 31, 2022. During the three and six months ended June 30, 2022, the Company recognized $107 million and $279 million of revenue, respectively, that was included in the deferred revenue balance as of December 31, 2021.
Intuitive System Leasing
The following table presents product revenue from Intuitive System Leasing arrangements (in millions):
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Sales-type lease revenue | $ | 12.3 | $ | 50.1 | $ | 35.3 | $ | 85.7 | |||||||||||||||
| Operating lease revenue* | $ | 122.7 | $ | 93.0 | $ | 234.7 | $ | 176.2 | |||||||||||||||
| *Variable lease revenue relating to usage-based arrangements included within operating lease revenue | $ | 53.2 | $ | 33.6 | $ | 99.2 | $ | 58.5 |
Trade Accounts Receivable
The allowance for doubtful accounts is based on the Company’s assessment of the collectibility of customer accounts. The Company regularly reviews the allowance by considering factors such as historical experience, credit quality, the age of the accounts receivable balances, and current economic conditions that may affect a customer’s ability to pay. For the three and six months ended June 30, 2023, and 2022, bad debt expense was not material.
The Company’s exposure to credit losses may increase if its customers are adversely affected by changes in healthcare laws, coverage, and reimbursement, economic pressures or uncertainty associated with local or global economic recessions, disruption associated with the ongoing COVID-19 pandemic, or other customer-specific factors. Although the Company has historically not experienced significant credit losses, it is possible that there could be a material adverse impact from potential adjustments to the carrying amount of lease and trade receivables, particularly as hospital cash flows are impacted by inflation and rising interest rates, which drive up their operating costs.
NOTE 6. LEASES
Lessor Information related to Intuitive System Leasing
Sales-type Leases. Lease receivables relating to sales-type lease arrangements are presented on the Condensed Consolidated Balance Sheets as follows (in millions):
| As of | |||||||||||
| June 30, 2023 | December 31, 2022 | ||||||||||
| Gross lease receivables | $ | 414.1 | $ | 449.4 | |||||||
| Unearned income | (14.3) | (14.4) | |||||||||
| Subtotal | 399.8 | 435.0 | |||||||||
| Allowance for credit loss | (3.0) | (3.0) | |||||||||
| Net investment in sales-type leases | $ | 396.8 | $ | 432.0 | |||||||
| Reported as: | |||||||||||
| Prepaids and other current assets | $ | 134.6 | $ | 131.2 | |||||||
| Intangible and other assets, net | 262.2 | 300.8 | |||||||||
| Net investment in sales-type leases | $ | 396.8 | $ | 432.0 |
Contractual maturities of gross lease receivables as of June 30, 2023, are as follows (in millions):
| Fiscal Year | Amount | ||||
| Remainder of 2023 | $ | 70.3 | |||
| 2024 | 134.0 | ||||
| 2025 | 103.5 | ||||
| 2026 | 66.6 | ||||
| 2027 | 33.3 | ||||
| 2028 and thereafter | 6.4 | ||||
| Total | $ | 414.1 |
The Company enters into sales-type leases with certain qualified customers to purchase its systems. Sales-type leases have terms that generally range from 24 to 84 months and are usually collateralized by a security interest in the underlying assets. The allowance for loan loss is based on the Company’s assessment of current expected lifetime losses on lease receivables. The Company regularly reviews the allowance by considering factors such as historical experience, credit quality, age of the lease receivable balances, and current economic conditions that may affect a customer’s ability to pay. Lease receivables are considered past due 90 days after invoice.
The Company manages the credit risk in net investment in sales-type leases using a number of factors, including, but not limited to the following: size of operations; profitability, liquidity, and debt ratios; payment history; and past due amounts. The Company also uses credit scores obtained from external providers as a key indicator for the purposes of determining credit quality. The following table summarizes the amortized cost basis by year of origination and by credit quality for the net investment in sales-type leases as of June 30, 2023 (in millions):
| 2023 | 2022 | 2021 | 2020 | 2019 | Prior | Net Investment | |||||||||||||||||||||||||||||||||||
| Credit Rating: | |||||||||||||||||||||||||||||||||||||||||
| High | $ | 27.1 | $ | 86.2 | $ | 70.9 | $ | 32.9 | $ | 10.0 | $ | 0.6 | $ | 227.7 | |||||||||||||||||||||||||||
| Moderate | 9.8 | 57.2 | 58.7 | 28.4 | 6.8 | 3.0 | 163.9 | ||||||||||||||||||||||||||||||||||
| Low | — | 3.3 | 3.0 | 1.9 | — | — | 8.2 | ||||||||||||||||||||||||||||||||||
| Total | $ | 36.9 | $ | 146.7 | $ | 132.6 | $ | 63.2 | $ | 16.8 | $ | 3.6 | $ | 399.8 | |||||||||||||||||||||||||||
For the three and six months ended June 30, 2023, and 2022, credit losses related to net investment in sales-type leases were not material.
NOTE 7. GOODWILL AND INTANGIBLE ASSETS
Acquisitions
There were no material acquisitions in the six months ended June 30, 2023, and 2022.
Goodwill
The following table summarizes the changes in the carrying amount of goodwill (in millions):
| Amount | |||||
| Balance as of December 31, 2022 | $ | 348.5 | |||
| Acquisition activity | — | ||||
| Translation and other | 0.1 | ||||
| Balance as of June 30, 2023 | $ | 348.6 |
Intangible Assets
The following table summarizes the components of gross intangible assets, accumulated amortization, and net intangible assets balances as of June 30, 2023, and December 31, 2022 (in millions):
| June 30, 2023 | December 31, 2022 | |||||||||||||||||||||||||||||||||||||
| Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | |||||||||||||||||||||||||||||||||
| Patents and developed technology | $ | 204.3 | $ | (171.6) | $ | 32.7 | $ | 199.1 | $ | (167.4) | $ | 31.7 | ||||||||||||||||||||||||||
| Distribution rights and others | 10.8 | (8.3) | 2.5 | 11.0 | (7.4) | 3.6 | ||||||||||||||||||||||||||||||||
| Customer relationships | 32.2 | (20.2) | 12.0 | 32.6 | (18.1) | 14.5 | ||||||||||||||||||||||||||||||||
| Total intangible assets | $ | 247.3 | $ | (200.1) | $ | 47.2 | $ | 242.7 | $ | (192.9) | $ | 49.8 |
Amortization expense related to intangible assets was $5.0 million and $6.2 million for the three months ended June 30, 2023, and 2022, respectively. Amortization expense related to intangible assets was $10.0 million and $12.3 million for the six months ended June 30, 2023, and 2022, respectively.
The estimated future amortization expense related to intangible assets as of June 30, 2023, is as follows (in millions):
| Fiscal Year | Amount | ||||
| Remainder of 2023 | $ | 10.1 | |||
| 2024 | 16.7 | ||||
| 2025 | 11.7 | ||||
| 2026 | 5.0 | ||||
| 2027 | 2.5 | ||||
| 2028 and thereafter | 1.2 | ||||
| Total | $ | 47.2 |
The preceding expected amortization expense is an estimate. Actual amounts of amortization expense may differ from estimated amounts due to additional intangible asset acquisitions, measurement-period adjustments to intangible assets, changes in foreign currency exchange rates, impairments of intangible assets, accelerated amortization of intangible assets, and other events.
NOTE 8. CONTINGENCIES
From time to time, the Company is involved in a variety of claims, lawsuits, investigations, and proceedings relating to securities laws, product liability, intellectual property, commercial, insurance, contract disputes, employment, and other matters. Certain of these lawsuits and claims are described in further detail below. It is not possible to predict what the outcome of these matters will be, and the Company cannot guarantee that any resolution will be reached on commercially reasonable terms, if at all.
A liability and related charge to earnings are recorded in the Financial Statements for legal contingencies when the loss is considered probable and the amount can be reasonably estimated. The assessment is re-evaluated each accounting period and is based on all available information, including the impact of negotiations, settlements, rulings, advice of legal counsel, and other
information and events pertaining to each case. Nevertheless, it is possible that additional future legal costs (including settlements, judgments, legal fees, and other related defense costs) could have a material adverse effect on the Company’s business, financial condition, or future results of operations.
Product Liability Litigation
The Company is currently named as a defendant in a number of individual product liability lawsuits filed in various state and federal courts. The plaintiffs generally allege that they or a family member underwent surgical procedures that utilized the da Vinci surgical system and sustained a variety of personal injuries and, in some cases, death as a result of such surgery. Several of the filed cases have trial dates in the next 12 months.
The cases raise a variety of allegations including, to varying degrees, that plaintiffs’ injuries resulted from purported defects in the da Vinci surgical system and/or failure on the Company’s part to provide adequate training resources to the healthcare professionals who performed plaintiffs’ surgeries. The cases further allege that the Company failed to adequately disclose and/or misrepresented the potential risks and/or benefits of the da Vinci surgical system. Plaintiffs also assert a variety of causes of action, including, for example, strict liability based on purported design defects, negligence, fraud, breach of express and implied warranties, unjust enrichment, and loss of consortium. Plaintiffs seek recovery for alleged personal injuries and, in many cases, punitive damages. The Company disputes these allegations and is defending against these claims.
The Company’s estimate of the anticipated cost of resolving the pending cases is based on negotiations with attorneys for the claimants. The final outcome of the pending lawsuits and claims, and others that might arise, is dependent on many variables that are difficult to predict, and the ultimate cost associated with these product liability lawsuits and claims may be materially different than the amount of the current estimate and accruals and could have a material adverse effect on the Company’s business, financial condition, or future results of operations. Although there is a reasonable possibility that a loss in excess of the amount recognized exists, the Company is unable to estimate the possible loss or range of loss in excess of the amount recognized at this time.
Patent Litigation
On June 30, 2017, Ethicon LLC, Ethicon Endo-Surgery, Inc., and Ethicon US LLC (collectively, “Ethicon”) filed a complaint for patent infringement against the Company in the U.S. District Court for the District of Delaware. The complaint, which was served on the Company on July 12, 2017, alleges that the Company’s EndoWrist Stapler instruments infringe several of Ethicon’s patents. Ethicon asserts infringement of U.S. Patent Nos. 9,585,658; 8,479,969; 9,113,874; 8,998,058; 8,991,677; 9,084,601; and 8,616,431. A claim construction hearing occurred on October 1, 2018, and the Court issued a scheduling order on December 28, 2018. On March 20, 2019, the Court granted the Company’s Motion to Stay pending an Inter Partes Review to be held at the Patent Trademark and Appeals Board to review patentability of six of the seven patents noted above and vacated the trial date. On August 1, 2019, the Court granted the parties’ joint stipulation to modify the stay in light of Ethicon’s U.S. International Trade Commission (“USITC”) complaint against Intuitive involving U.S. Patent Nos. 8,479,969 and 9,113,874, discussed below. There is currently no trial date scheduled for this matter.
On August 27, 2018, Ethicon filed a second complaint for patent infringement against the Company in the U.S. District Court for the District of Delaware. The complaint alleges that the Company’s SureForm 60 Staplers infringe five of Ethicon’s patents. Ethicon asserts infringement of U.S. Patent Nos. 9,884,369; 7,490,749; 8,602,288; 8,602,287; and 9,326,770. The Company filed an answer denying all claims. On March 19, 2019, Ethicon filed a Motion for Leave to File a First Amended Complaint, removing allegations related to U.S. Patent No. 9,326,770 and adding allegations related to U.S. Patent Nos. 9,844,379 and 8,479,969. On July 17, 2019, the Court entered an order denying the amendment, without prejudice, and granting the parties’ joint stipulation to stay the case in its entirety in light of the USITC investigation involving U.S. Patent Nos. 9,844,369 and 7,490,749, discussed below. There is currently no trial date scheduled for this matter.
Based on currently available information, the Company is unable to make a reasonable estimate of loss or range of losses, if any, arising from these matters.
On May 30, 2019, Ethicon filed a complaint with the USITC, asserting infringement of U.S. Patent Nos. 9,884,369 (“’369”); 7,490,749 (“’749”); 9,844,379 (“’379”); 9,113,874 (“’874”); and 8,479,969 (“’969”). On June 28, 2019, the USITC voted to institute an investigation (No. 337-TA-1167) with respect to the claims in this complaint. The accused products include the Company’s EndoWrist 30, EndoWrist 45, SureForm 45, and SureForm 60 Staplers, as well as the stapler reload cartridges. In March 2020, Ethicon dismissed its claims concerning the ’749 patent. The evidentiary hearing took place in February 2021. On March 26, 2021, the U.S. Patent Trial and Appeal Board (“PTAB”) issued a Final Written Decision in which it found the claims in the ’379 patent asserted against the Company in this USITC proceeding to be invalid. On October 14, 2021, the USITC issued its Opinion in which it made the following rulings: (1) the USITC absolved Intuitive from any liability regarding the ’874, ’969, and ’369 patents; and (2) the USITC found that, while the SureForm staplers and their associated reload cartridges infringe the asserted claims in the ’379 patent, it has suspended the imposition of any remedial order pending an opinion from the U.S. Court of Appeal for the Federal Circuit of whether the Patent and Trademark Office correctly found the
asserted claims in this patent to be invalid. On May 23, 2022, the U.S. Court of Appeal for the Federal Circuit affirmed the earlier PTAB Final Written Decision invalidating the asserted claims in the ’379 patent. A hearing before the U.S. Court of Appeal for the Federal Circuit occurred on March 8, 2023, on Ethicon’s appeal of the USITC’s Opinion with regard to the ’369 and ’969 patents. On May 26, 2023, the Federal Circuit Court of Appeal affirmed the USITC’s decision regarding the ’369 and ’969 patents. Ethicon has indicated its intention to file a petition for the rehearing of its appeal. An adverse ruling on Ethicon’s appeal of the USITC’s Opinion could result in a prohibition on importing the accused SureForm products into the U.S. or necessitating workarounds. Based on currently available information, the Company does not believe that any losses arising from this matter would be material.
On October 19, 2022, a jury rendered a verdict against the Company awarding $10 million in damages to Rex Medical, L.P. in a patent infringement lawsuit. The Company intends to appeal the decision and vigorously defend its position. Based on currently available information, the Company does not believe that any losses arising from this matter would be material.
Commercial Litigation
On May 10, 2021, Surgical Instrument Service Company, Inc. (“SIS”) filed a complaint in the Northern District of California Court alleging anti-trust claims against the Company relating to EndoWrist service, maintenance, and repair processes. The Court granted in part and denied in part the Company’s Motion to Dismiss, and discovery has commenced. The Company filed an answer denying the anti-trust allegations and filed counterclaims against SIS. The counterclaims allege that SIS violated the Federal Lanham Act, California’s Unfair Competition Law, and California’s False Advertising Law and that SIS is also liable to the Company for Unfair Competition and Tortious Interference with Contract. The parties have filed summary judgment and Daubert motions, and a hearing on these motions is scheduled for September 7, 2023. Based on currently available information, the Company is unable to make a reasonable estimate of loss or range of losses, if any, arising from this matter.
Three class action complaints were filed against the Company in the Northern District of California Court alleging anti-trust allegations relating to the service and repair of certain instruments manufactured by the Company. A complaint by Larkin Community Hospital was filed on May 20, 2021, a complaint by Franciscan Alliance, Inc. and King County Public Hospital District No. 1 was filed on July 6, 2021, and a complaint by Kaleida Health was filed on July 8, 2021. The Court has consolidated the Franciscan Alliance, Inc. and King County Public Hospital District No. 1 and Kaleida Health cases with the Larkin Community Hospital case, which is now captioned on the Larkin docket as “In Re: da Vinci Surgical Robot Antitrust Litigation.” A Consolidated Amended Class Action Complaint has been filed on behalf of each plaintiff named in the earlier-filed cases. On January 14, 2022, Kaleida Health voluntarily dismissed itself as a party to this case. On January 18, 2022, the Company filed an answer against the plaintiffs in this matter, and discovery has commenced. The parties have filed summary judgment and Daubert motions, and a hearing on these motions is scheduled for September 7, 2023. Based on currently available information, the Company is unable to make a reasonable estimate of loss or range of losses, if any, arising from this matter.
NOTE 9. STOCKHOLDERS’ EQUITY
Stockholders’ Equity
The following tables present the changes in stockholders’ equity (in millions):
| Three Months Ended June 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||
| Common Stock | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Total Intuitive Surgical, Inc. Stockholders’ Equity | Noncontrolling Interest in Joint Venture | Total Stockholders’ Equity | |||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||||
| Beginning balance | 350.4 | $ | 0.4 | $ | 7,928.4 | $ | 3,397.4 | $ | (108.5) | $ | 11,217.7 | $ | 76.5 | $ | 11,294.2 | ||||||||||||||||||||||||||||||||
| Issuance of common stock through employee stock plans | 1.0 | — | 74.6 | — | — | 74.6 | — | 74.6 | |||||||||||||||||||||||||||||||||||||||
| Shares withheld related to net share settlement of equity awards | (0.1) | — | (0.4) | (10.5) | — | (10.9) | — | (10.9) | |||||||||||||||||||||||||||||||||||||||
| Share-based compensation expense related to employee stock plans | — | — | 148.2 | — | — | 148.2 | — | 148.2 | |||||||||||||||||||||||||||||||||||||||
| Net income attributable to Intuitive Surgical, Inc. | — | — | — | 420.8 | — | 420.8 | — | 420.8 | |||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | — | — | — | — | 28.7 | 28.7 | (1.1) | 27.6 | |||||||||||||||||||||||||||||||||||||||
| Net income attributable to noncontrolling interest in joint venture | — | — | — | — | — | — | 5.2 | 5.2 | |||||||||||||||||||||||||||||||||||||||
| Ending balance | 351.3 | $ | 0.4 | $ | 8,150.8 | $ | 3,807.7 | $ | (79.8) | $ | 11,879.1 | $ | 80.6 | $ | 11,959.7 |
| Three Months Ended June 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||
| Common Stock | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Total Intuitive Surgical, Inc. Stockholders’ Equity | Noncontrolling Interest in Joint Venture | Total Stockholders’ Equity | |||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||||
| Beginning balance | 358.9 | $ | 0.4 | $ | 7,354.6 | $ | 4,858.0 | $ | (110.7) | $ | 12,102.3 | $ | 54.6 | $ | 12,156.9 | ||||||||||||||||||||||||||||||||
| Issuance of common stock through employee stock plans | 0.4 | — | 26.6 | — | — | 26.6 | — | 26.6 | |||||||||||||||||||||||||||||||||||||||
| Shares withheld related to net share settlement of equity awards | — | — | (0.6) | (6.2) | — | (6.8) | — | (6.8) | |||||||||||||||||||||||||||||||||||||||
| Share-based compensation expense related to employee stock plans | — | — | 126.7 | — | — | 126.7 | — | 126.7 | |||||||||||||||||||||||||||||||||||||||
| Repurchase and retirement of common stock | (2.2) | — | (23.3) | (476.8) | — | (500.1) | — | (500.1) | |||||||||||||||||||||||||||||||||||||||
| Net income attributable to Intuitive Surgical, Inc. | — | — | — | 307.8 | — | 307.8 | — | 307.8 | |||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | — | — | — | — | (33.5) | (33.5) | (1.0) | (34.5) | |||||||||||||||||||||||||||||||||||||||
| Net income attributable to noncontrolling interest in joint venture | — | — | — | — | — | — | 5.8 | 5.8 | |||||||||||||||||||||||||||||||||||||||
| Ending balance | 357.1 | $ | 0.4 | $ | 7,484.0 | $ | 4,682.8 | $ | (144.2) | $ | 12,023.0 | $ | 59.4 | $ | 12,082.4 | ||||||||||||||||||||||||||||||||
| Six Months Ended June 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||
| Common Stock | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Total Intuitive Surgical, Inc. Stockholders’ Equity | Noncontrolling Interest in Joint Venture | Total Stockholders’ Equity | |||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||||
| Beginning balance | 350.0 | $ | 0.4 | $ | 7,703.9 | $ | 3,500.1 | $ | (162.5) | $ | 11,041.9 | $ | 70.7 | $ | 11,112.6 | ||||||||||||||||||||||||||||||||
| Issuance of common stock through employee stock plans | 3.4 | — | 174.8 | — | — | 174.8 | — | 174.8 | |||||||||||||||||||||||||||||||||||||||
| Shares withheld related to net share settlement of equity awards | (0.6) | — | (6.3) | (134.3) | — | (140.6) | — | (140.6) | |||||||||||||||||||||||||||||||||||||||
| Share-based compensation expense related to employee stock plans | — | — | 294.2 | — | — | 294.2 | — | 294.2 | |||||||||||||||||||||||||||||||||||||||
| Repurchase and retirement of common stock | (1.5) | — | (15.8) | (334.2) | — | (350.0) | — | (350.0) | |||||||||||||||||||||||||||||||||||||||
| Net income attributable to Intuitive Surgical, Inc. | — | — | — | 776.1 | — | 776.1 | — | 776.1 | |||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | — | — | — | — | 82.7 | 82.7 | (0.8) | 81.9 | |||||||||||||||||||||||||||||||||||||||
| Net income attributable to noncontrolling interest in joint venture | — | — | — | — | — | — | 10.7 | 10.7 | |||||||||||||||||||||||||||||||||||||||
| Ending balance | 351.3 | $ | 0.4 | $ | 8,150.8 | $ | 3,807.7 | $ | (79.8) | $ | 11,879.1 | $ | 80.6 | $ | 11,959.7 |
| Six Months Ended June 30, 2022 | |||||||||||||||||||||||||||||||||||||||||||||||
| Common Stock | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Total Intuitive Surgical, Inc. Stockholders’ Equity | Noncontrolling Interest in Joint Venture | Total Stockholders’ Equity | |||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||||
| Beginning balance | 357.7 | $ | 0.4 | $ | 7,164.0 | $ | 4,760.9 | $ | (24.2) | $ | 11,901.1 | $ | 50.4 | $ | 11,951.5 | ||||||||||||||||||||||||||||||||
| Issuance of common stock through employee stock plans | 2.6 | — | 106.6 | — | — | 106.6 | — | 106.6 | |||||||||||||||||||||||||||||||||||||||
| Shares withheld related to net share settlement of equity awards | (0.6) | — | (6.7) | (172.3) | — | (179.0) | — | (179.0) | |||||||||||||||||||||||||||||||||||||||
| Share-based compensation expense related to employee stock plans | — | — | 247.5 | — | — | 247.5 | — | 247.5 | |||||||||||||||||||||||||||||||||||||||
| Repurchase and retirement of common stock | (2.6) | — | (27.4) | (579.2) | — | (606.6) | — | (606.6) | |||||||||||||||||||||||||||||||||||||||
| Net income attributable to Intuitive Surgical, Inc. | — | — | — | 673.4 | — | 673.4 | — | 673.4 | |||||||||||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | — | — | — | — | (120.0) | (120.0) | (0.6) | (120.6) | |||||||||||||||||||||||||||||||||||||||
| Net income attributable to noncontrolling interest in joint venture | — | — | — | — | — | — | 9.6 | 9.6 | |||||||||||||||||||||||||||||||||||||||
| Ending balance | 357.1 | $ | 0.4 | $ | 7,484.0 | $ | 4,682.8 | $ | (144.2) | $ | 12,023.0 | $ | 59.4 | $ | 12,082.4 |
Stock Repurchase Program
The Company’s Board of Directors (the “Board”) has authorized an aggregate of $10.0 billion of funding for the Company’s common stock repurchase program (the “Repurchase Program”) since its establishment in March 2009. The most recent authorization occurred in July 2022, when the Board increased the authorized amount available under the Repurchase Program to $3.5 billion, including amounts remaining under previous authorization. As of June 30, 2023, the remaining amount of share repurchases authorized by the Board under the Repurchase Program was approximately $1.1 billion.
The following table summarizes stock repurchase activities (in millions, except per share amounts):
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Shares repurchased | — | 2.2 | 1.5 | 2.6 | |||||||||||||||||||
| Average price per share | $ | — | $ | 224.4 | $ | 238.1 | $ | 231.0 | |||||||||||||||
| Value of shares repurchased | $ | — | $ | 500.1 | $ | 350.0 | $ | 606.6 |
As a provision of the Inflation Reduction Act enacted in the U.S. during 2022, the Company is subject to an excise tax on corporate stock repurchases, which is assessed as one percent of the fair market value of net stock repurchases after December 31, 2022. As of June 30, 2023, no excise tax was accrued, as the aggregate fair market value of the Company’s stock issuances exceeded the fair market value of stock repurchases.
Accumulated Other Comprehensive Loss, Net of Tax, Attributable to Intuitive Surgical, Inc.
The components of accumulated other comprehensive loss, net of tax, attributable to Intuitive Surgical, Inc. are as follows (in millions):
| Three Months Ended June 30, 2023 | |||||||||||||||||||||||||||||
| Gains (Losses) on Hedge Instruments | Unrealized Gains (Losses) on Available-for-Sale Securities | Foreign Currency Translation Gains (Losses) | Employee Benefit Plans | Total | |||||||||||||||||||||||||
| Beginning balance | $ | (0.4) | $ | (116.6) | $ | 7.3 | $ | 1.2 | $ | (108.5) | |||||||||||||||||||
| Other comprehensive income (loss) before reclassifications | 6.9 | 13.1 | 9.6 | — | 29.6 | ||||||||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive income (loss) | (0.9) | — | — | — | (0.9) | ||||||||||||||||||||||||
| Net current-period other comprehensive income (loss) | 6.0 | 13.1 | 9.6 | — | 28.7 | ||||||||||||||||||||||||
| Ending balance | $ | 5.6 | $ | (103.5) | $ | 16.9 | $ | 1.2 | $ | (79.8) | |||||||||||||||||||
| Three Months Ended June 30, 2022 | |||||||||||||||||||||||||||||
| Gains (Losses) on Hedge Instruments | Unrealized Gains (Losses) on Available-for-Sale Securities | Foreign Currency Translation Gains (Losses) | Employee Benefit Plans | Total | |||||||||||||||||||||||||
| Beginning balance | $ | 5.5 | $ | (106.7) | $ | (4.8) | $ | (4.7) | $ | (110.7) | |||||||||||||||||||
| Other comprehensive income (loss) before reclassifications | (9.0) | (33.3) | (4.5) | — | (46.8) | ||||||||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive income (loss) | 13.4 | (0.1) | — | — | 13.3 | ||||||||||||||||||||||||
| Net current-period other comprehensive income (loss) | 4.4 | (33.4) | (4.5) | — | (33.5) | ||||||||||||||||||||||||
| Ending balance | $ | 9.9 | $ | (140.1) | $ | (9.3) | $ | (4.7) | $ | (144.2) | |||||||||||||||||||
| Six Months Ended June 30, 2023 | |||||||||||||||||||||||||||||
| Gains (Losses) on Hedge Instruments | Unrealized Gains (Losses) on Available-for-Sale Securities | Foreign Currency Translation Gains (Losses) | Employee Benefit Plans | Total | |||||||||||||||||||||||||
| Beginning balance | $ | (2.9) | $ | (154.2) | $ | (6.6) | $ | 1.2 | $ | (162.5) | |||||||||||||||||||
| Other comprehensive income (loss) before reclassifications | 10.6 | 50.9 | 23.5 | — | 85.0 | ||||||||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive income (loss) | (2.1) | (0.2) | — | — | (2.3) | ||||||||||||||||||||||||
| Net current-period other comprehensive income (loss) | 8.5 | 50.7 | 23.5 | — | 82.7 | ||||||||||||||||||||||||
| Ending balance | $ | 5.6 | $ | (103.5) | $ | 16.9 | $ | 1.2 | $ | (79.8) |
| Six Months Ended June 30, 2022 | |||||||||||||||||||||||||||||
| Gains (Losses) on Hedge Instruments | Unrealized Gains (Losses) on Available-for-Sale Securities | Foreign Currency Translation Gains (Losses) | Employee Benefit Plans | Total | |||||||||||||||||||||||||
| Beginning balance | $ | 4.5 | $ | (16.0) | $ | (7.9) | $ | (4.8) | $ | (24.2) | |||||||||||||||||||
| Other comprehensive income (loss) before reclassifications | (5.3) | (124.1) | (1.4) | — | (130.8) | ||||||||||||||||||||||||
| Amounts reclassified from accumulated other comprehensive income (loss) | 10.7 | — | — | 0.1 | 10.8 | ||||||||||||||||||||||||
| Net current-period other comprehensive income (loss) | 5.4 | (124.1) | (1.4) | 0.1 | (120.0) | ||||||||||||||||||||||||
| Ending balance | $ | 9.9 | $ | (140.1) | $ | (9.3) | $ | (4.7) | $ | (144.2) |
The tax impacts for amounts recognized in other comprehensive income (loss) before reclassifications were as follows (in millions):
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| Available-for-sale securities | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||
| Income tax benefit (expense) for net gains (losses) recorded in other comprehensive income (loss) | $ | (3.7) | $ | 5.6 | $ | (14.6) | $ | 35.3 |
The tax impacts for amounts recognized in other comprehensive income (loss) before reclassifications for hedge instruments, foreign currency translation, and employee benefit plans for the three and six months ended June 30, 2023, and 2022, were not material to the Company’s Financial Statements. The tax impacts for amounts reclassified from accumulated other comprehensive loss relating to hedge instruments, available-for-sale securities, foreign currency translation, and employee benefit plans for the three and six months ended June 30, 2023, and 2022, were not material to the Company’s Financial Statements.
NOTE 10. SHARE-BASED COMPENSATION
As of June 30, 2023, the total number of shares of common stock reserved for issuance under the 2010 Incentive Award Plan was 110,350,000. Approximately 21.2 million shares were reserved for future issuance under the Company’s stock plans, and a maximum of approximately 9.2 million of these shares can be awarded as restricted stock units (“RSUs”).
Restricted Stock Units
A summary of RSUs activity under all stock plans for the six months ended June 30, 2023, is presented as follows (in millions, except per share amounts):
| Shares | Weighted-Average Grant-Date Fair Value | ||||||||||
| Unvested balance as of December 31, 2022 | 4.6 | $ | 241.47 | ||||||||
| RSUs granted | 2.3 | $ | 232.89 | ||||||||
| RSUs vested | (1.6) | $ | 222.52 | ||||||||
| RSUs forfeited | (0.1) | $ | 246.84 | ||||||||
| Unvested balance as of June 30, 2023 | 5.2 | $ | 243.41 |
Stock Options
A summary of stock option activity under all stock plans for the six months ended June 30, 2023, is presented as follows (in millions, except per share amounts):
| Stock Options Outstanding | ||||||||||||||
| Number Outstanding | Weighted-Average Exercise Price Per Share | |||||||||||||
| Balance as of December 31, 2022 | 10.8 | $ | 144.86 | |||||||||||
| Options granted | 0.7 | $ | 233.50 | |||||||||||
| Options exercised | (1.4) | $ | 80.73 | |||||||||||
| Options forfeited/expired | (0.1) | $ | 254.12 | |||||||||||
| Balance as of June 30, 2023 | 10.0 | $ | 159.59 |
As of June 30, 2023, options to purchase an aggregate of 7.9 million shares of common stock were exercisable at a weighted-average price of $136.18 per share.
Performance Stock Units
In 2022, the Company began granting performance stock units (“PSUs”) to officers and other key employees subject to three-year cliff vesting and pre-established, quantitative goals. Whether any PSUs vest, and the amount that does vest, is tied to completion of service over three years and the achievement of three equally-weighted, quantitative goals that directly align with or help drive the Company’s strategy and long-term total shareholder return.
The 2022 PSU grant metrics are focused on relative total shareholder return (“TSR”), year-over-year da Vinci procedure growth for 2023, and two-year compound annual da Vinci procedure growth for 2024. The 2023 PSU grant metrics are focused on relative TSR, da Vinci and Ion procedure growth in 2024 compared to 2022, and da Vinci and Ion procedure growth in 2025 compared to 2022. The TSR metric is considered a market condition, and the expense is determined at the grant date. The procedure growth metrics are considered performance conditions, and the expense is recorded based on the forecasted performance, which is reassessed each reporting period based on the probability of achieving the performance conditions. The number of shares earned at the end of the three-year period will vary, based on actual performance, from 0% to 125% of the target number of PSUs granted. PSUs are subject to forfeiture if employment terminates prior to the vesting date. PSUs are not considered issued or outstanding shares of the Company.
The Company calculates the fair value for each component of the PSUs individually. The fair value for the component with the TSR metric was determined using Monte Carlo simulation. The fair value per share for the components with the procedure growth metrics is equal to the closing stock price on the grant date.
PSU activity for the six months ended June 30, 2023, was as follows (in millions, except per share amounts):
| Shares | Weighted-Average Grant Date Fair Value Per Share | |||||||||||||
| Unvested balance as of December 31, 2022 | 0.1 | $ | 299.32 | |||||||||||
| Granted | 0.1 | $ | 240.45 | |||||||||||
| Vested | — | $ | — | |||||||||||
| Performance change | — | $ | — | |||||||||||
| Forfeited | — | $ | 235.84 | |||||||||||
| Unvested balance as of June 30, 2023 | 0.2 | $ | 259.60 |
Employee Stock Purchase Plan
Under the Employee Stock Purchase Plan (“ESPP”), employees purchased approximately 0.3 million shares for $59.9 million and approximately 0.2 million shares for $47.8 million during the six months ended June 30, 2023, and 2022, respectively.
Share-based Compensation Expense
The following table summarizes share-based compensation expense for the three and six months ended June 30, 2023, and 2022 (in millions):
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Cost of sales – products (before capitalization) | $ | 22.7 | $ | 20.3 | $ | 45.7 | $ | 39.0 | |||||||||||||||
| Amounts capitalized into inventory (1) | (21.1) | — | (39.9) | — | |||||||||||||||||||
| Amounts recognized in income for amounts previously capitalized in inventory | 19.3 | — | 31.9 | — | |||||||||||||||||||
| Cost of sales – products | $ | 20.9 | $ | 20.3 | $ | 37.7 | $ | 39.0 | |||||||||||||||
| Cost of sales – services | 7.0 | 5.8 | 14.0 | 11.4 | |||||||||||||||||||
| Total cost of sales | 27.9 | 26.1 | 51.7 | 50.4 | |||||||||||||||||||
| Selling, general, and administrative | 68.0 | 62.7 | 134.7 | 123.0 | |||||||||||||||||||
| Research and development | 52.3 | 38.5 | 102.4 | 75.3 | |||||||||||||||||||
| Share-based compensation expense before income taxes | 148.2 | 127.3 | 288.8 | 248.7 | |||||||||||||||||||
| Income tax benefit | 28.5 | 20.9 | 56.5 | 48.1 | |||||||||||||||||||
| Share-based compensation expense after income taxes | $ | 119.7 | $ | 106.4 | $ | 232.3 | $ | 200.6 | |||||||||||||||
| (1) Share-based compensation expense subject to capitalization into inventory was not material during the three and six months ended June 30, 2022, and, therefore, not recorded. The Company commenced capitalization of share-based compensation expense into inventory during the quarter ended December 31, 2022, on a prospective basis. |
The Black-Scholes-Merton option pricing model is used to estimate the fair value of stock options granted under the Company’s share-based compensation plans and the rights to acquire stock granted under the ESPP. The weighted-average estimated fair values of stock options and the rights to acquire stock under the ESPP, as well as the weighted-average assumptions used in calculating the fair values of stock options and the rights to acquire stock under the ESPP that were granted during the three and six months ended June 30, 2023, and 2022, were as follows:
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Stock Options | |||||||||||||||||||||||
| Risk-free interest rate | 4.3% | 2.9% | 4.8% | 1.7% | |||||||||||||||||||
| Expected term (in years) | 3.2 | 3.3 | 3.4 | 3.4 | |||||||||||||||||||
| Expected volatility | 32% | 38% | 34% | 36% | |||||||||||||||||||
| Fair value at grant date | $83.38 | $72.35 | $72.71 | $80.27 | |||||||||||||||||||
| ESPP | |||||||||||||||||||||||
| Risk-free interest rate | —% | —% | 4.7% | 0.8% | |||||||||||||||||||
| Expected term (in years) | 0.0 | 0.0 | 1.2 | 1.2 | |||||||||||||||||||
| Expected volatility | —% | —% | 35% | 37% | |||||||||||||||||||
| Fair value at grant date | $— | $— | $79.33 | $88.85 | |||||||||||||||||||
NOTE 11. INCOME TAXES
Income tax expense for the three months ended June 30, 2023, was $73.2 million, or 14.7% of income before taxes, compared to $93.3 million, or 22.9% of income before taxes, for the three months ended June 30, 2022. Income tax expense for the six months ended June 30, 2023, was $134.2 million, or 14.6% of income before taxes, compared to $126.3 million, or 15.6% of income before taxes, for the six months ended June 30, 2022.
The effective tax rate for the three months ended June 30, 2023, differed from the U.S. federal statutory rate of 21% primarily due to the tax benefits associated with employee equity plans, the effect of income earned by certain overseas entities being taxed at rates lower than the federal statutory rate, and the federal research and development credit benefit, partially offset by U.S. tax on foreign earnings and state income taxes (net of federal benefit).
The effective tax rate for the three months ended June 30, 2022, differed from the U.S. federal statutory rate of 21% primarily due to U.S. tax on foreign earnings and state income taxes (net of federal benefit), partially offset by the tax benefits associated with employee equity plans, the effect of income earned by certain overseas entities being taxed at rates lower than the federal statutory rate, and the federal research and development credit benefit.
The provision for income taxes for the three months ended June 30, 2023, and 2022, included excess tax benefits associated with employee equity plans of $41.7 million and $9.3 million, respectively, which reduced the Company’s effective tax rate by 8.4 and 2.3 percentage points, respectively.
The effective tax rates for both the six months ended June 30, 2023, and 2022, differed from the U.S. federal statutory rate of 21% primarily due to the tax benefits associated with employee equity plans, the effect of income earned by certain overseas entities being taxed at rates lower than the federal statutory rate, and the federal research and development credit benefit, partially offset by U.S. tax on foreign earnings and state income taxes (net of federal benefit).
The provision for income taxes for the six months ended June 30, 2023, and 2022, included excess tax benefits associated with employee equity plans of $64.2 million and $62.3 million, respectively, which reduced the Company’s effective tax rate by 7.0 and 7.7 percentage points, respectively.
On August 16, 2022, the Inflation Reduction Act was enacted in the U.S. and introduced a 15% alternative minimum tax based on the financial statement income of certain large corporations (“CAMT”), effective January 1, 2023. There is no impact on the Company’s provision for income taxes from the CAMT for the three and six months ended June 30, 2023.
The Company files federal, state, and foreign income tax returns in many U.S. and OUS jurisdictions. Years before 2016 are closed for the significant jurisdictions. Certain of the Company’s unrecognized tax benefits could change due to activities of various tax authorities, including evolving interpretations of existing tax laws in the jurisdictions the Company operates, potential assessment of additional tax, possible settlement of audits, or through normal expiration of various statutes of limitations, which could affect the Company’s effective tax rate in the period in which they change. Due to the uncertainty related to the timing and potential outcome of audits, the Company cannot estimate the range of reasonably possible changes in unrecognized tax benefits that may occur in the next 12 months.
The Company is subject to the examination of its income tax returns by the Internal Revenue Service and other tax authorities. The outcome of these audits cannot be predicted with certainty. The Company’s management regularly assesses the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of the Company’s provision for income taxes. If any issues addressed in the Company’s tax audits are resolved in a manner not consistent with management’s expectations, the Company could be required to adjust its provision for income taxes in the period such resolution occurs.
NOTE 12. NET INCOME PER SHARE
The following table presents the computation of basic and diluted net income per share attributable to Intuitive Surgical, Inc. (in millions, except per share amounts):
| Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||
| Numerator: | |||||||||||||||||||||||
| Net income attributable to Intuitive Surgical, Inc. | $ | 420.8 | $ | 307.8 | $ | 776.1 | $ | 673.4 | |||||||||||||||
| Denominator: | |||||||||||||||||||||||
| Weighted-average shares outstanding used in basic calculation | 350.9 | 358.1 | 350.6 | 358.2 | |||||||||||||||||||
| Add: dilutive effect of potential common shares | 6.4 | 5.8 | 6.0 | 7.1 | |||||||||||||||||||
| Weighted-average shares outstanding used in diluted calculation | 357.3 | 363.9 | 356.6 | 365.3 | |||||||||||||||||||
| Net income per share attributable to Intuitive Surgical, Inc.: | |||||||||||||||||||||||
| Basic | $ | 1.20 | $ | 0.86 | $ | 2.21 | $ | 1.88 | |||||||||||||||
| Diluted | $ | 1.18 | $ | 0.85 | $ | 2.18 | $ | 1.84 |
Share-based compensation awards of approximately 1.1 million and 4.3 million shares for the three months ended June 30, 2023, and 2022, respectively, and approximately 2.1 million and 3.4 million shares for the six months ended June 30, 2023, and 2022, respectively, were outstanding but were not included in the computation of diluted net income per share attributable to Intuitive Surgical, Inc. common stockholders, because the effect of including such shares would have been anti-dilutive in the periods presented.
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