Thank you everyone for standing by and welcome to the Intuitive Second Quarter 2024 Earnings Release. As a reminder, today's call is being recorded. I will now turn the call over to your host, Head of Investor Relations, Brian King. Please go ahead.

Good afternoon and welcome to Intuitive's second-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 due to 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 for the fiscal year ended December 31, 2023, and subsequent filings. 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 second-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 an organization update. Dave will present the quarter's business and operational highlights. Jamie will provide a review of our financial results. Then I will discuss procedure and clinical highlights and provide our updated financial outlook for 2024. Finally, we will host a question-and-answer session. With that, I will turn it over to Gary.

Thank you for joining us today. The fundamentals of our business were healthy in the quarter, with solid procedure growth and strong capital placements resulting in healthy financial performance. In the quarter, we made good progress with all three of our system platforms, including advancing our measured rollout of da Vinci 5, continuing to stabilize Ion supply in support of customer expansion, and expanding da Vinci SP installs in Europe while supporting SP procedure growth across regions. Some multi-port procedure headwinds continued from last quarter and we will describe these later on the call. Before turning the time over to Dave, I'd like to thank Marshall Mohr, our prior CFO and outgoing Head of Global Business Services. Marshall will be taking his skills to pursuits outside of Intuitive in September this year, as he approaches his next endeavor. I thank him on behalf of all of us for his outstanding stewardship at Intuitive over the past 18 years. We are pleased to announce that in addition to his role as CFO, Jamie will expand his responsibilities to leading our information technology and global facilities teams. I'll now turn the time over to Dave, who will take you through commercial and operational highlights in greater detail.

Thank you, Gary. Starting with procedures, we experienced solid growth in the quarter of nearly 17% compared with a strong Q2 2023, reflecting the return of patients post-pandemic. Cholecystectomy, colon resection, lung resection, and foregut procedures led global procedure growth. General surgery led U.S. procedure growth in the second quarter, and outside the U.S., procedure growth was led by non-urology procedures. Regional performance included strength in Europe, led by Germany, the U.K., and Italy. In Asia, we experienced mixed market conditions, largely consistent with Q1. Brian will describe these dynamics later in the call. Turning to capital, we placed 341 da Vinci systems in the quarter, of which 320 were multi-port systems, including 70 da Vinci 5 systems. Our teams installed 21 SP systems and 74 Ion systems in the quarter, with solid capital placements in the U.S., Japan, and India, and pressure in Europe and China. System utilization, defined as procedures per installed clinical system per quarter, grew 2% globally year-over-year for our multi-port platforms, lower than our historical trend, reflecting procedure strength a year ago due to patient backlogs. Utilization for SP and Ion continued to grow in the double-digit range in the quarter. Turning to our finances, revenue growth of 14% in the quarter reflects solid procedure performance and strong capital placements. Product margins were above our expectations, reflecting a combination of cost reductions, fixed overhead leverage, and some one-time nonrecurring benefits. Operating expenses reflected planned leverage in our enabling functions. Jamie will take you through our finances in greater detail later in the call. In Q2, we advanced to the next phase of our rollout of da Vinci 5. Within the quarter, we placed 70 da Vinci 5 systems. As the launch progresses in line with our plans, customer feedback points to improvements in precision, imaging, ergonomics, and integration, which customers indicate have led to overall efficiency improvements. Both Force Feedback and Case Insights bring new capabilities and analytics to surgery. We are encouraged by early insights these capabilities are presenting, and we are working hard to improve production and supply for Force Feedback instruments and smooth our computational pipelines and workflows for Case Insights. We expect these capabilities to be powerful, and the maturity and evidence of impact to build over coming quarters. We launched new products thoughtfully centered around outstanding customer experiences. As our customers pursue operational and clinical excellence, we continue to monitor several key metrics across our measured rollout of da Vinci 5, as we ramp our supply and respond to customer input. We expect our measured rollout to continue through the first half of 2025. Adoption of our digital products and services grew nicely in the quarter, with routine use of My Intuitive App expanding to nearly 14,000 surgeons and surgeons using Intuitive Hub more than doubling compared to a year ago. The long-term opportunity for computational tools is both significant and challenging. Recognizing these benefits at scale requires a foundational infrastructure, which includes robust, curated data, secure data warehousing, and global privacy compliance. Our digital ecosystem, including Case Insights, leverages this infrastructure and enables us to collaborate with customers globally to identify meaningful insights. These insights enable customers to optimize their robotic programs and ultimately reduce time to proficiency and improve clinical outcomes. As we said before, validations take time and are a worthy pursuit. Turning to Ion, our teams have made material progress resolving supply constraints on catheters and vision probes. Excellence in manufacturing at scale in this space is complex, and we continue to reinforce our capabilities. Our commercialization in Europe continues according to plan, and our teams are progressing towards commercialization in China. Turning to SP, last week we received FDA clearance for thoracic procedures. We will be measured in our thoracic indication launch, as we work to build a robust training and proctoring network, as well as bring stapling to our SP platform. In closing, we are committed to our 2024 priorities: supporting our measured launch of da Vinci 5 and our other new platforms by region, supporting surgeons' adoption of focus procedures, continuing to improve product quality and margins, and finally improving productivity in those functions that benefit from global scale. I'll now turn the time over to Jamie, who will take you through our finances in greater detail.

Good afternoon. I will describe the highlights of our performance on a non-GAAP or pro forma basis and we'll also summarize our GAAP performance later in my prepared remarks. A reconciliation between our pro forma and GAAP results is posted on our website. Q2 da Vinci procedures grew 17%. The installed base of systems grew 14% to just over 9,200 systems, and average system utilization increased by 2%, lower than long-term historical averages, reflecting procedure strength in Q2 last year, due to patient backlogs. U.S. procedures grew 14%, driven by growth in general surgery. Bariatric procedures in the U.S. declined in the mid-single-digit range. OUS procedures grew 22%, reflecting strong growth in general surgery, gynecology, and thoracic procedures. Regarding capital performance, we placed 341 systems in the second quarter, compared to 331 systems in Q2 of last year. In the U.S., we placed 149 systems in Q2, compared to 157 systems placed last year, reflecting, in part, lower trade-ins. U.S. system placements in Q2 included 70 da Vinci 5 placements. Given a planned hardware and software update to da Vinci 5 in the second half of this year and continued focus on maturing manufacturing and expanding capacity, we expect that da Vinci 5 placements will be constrained through the first half of 2025. Outside the U.S., we placed 192 systems in the second quarter compared with 174 systems last year. Current quarter system placements included 71 into Europe, 41 into Japan, and 14 into China, compared with 76 into Europe, 33 into Japan, and 16 into China in Q2 of last year. We also saw relatively strong placements in India, as well as markets served by our distributors, including Australia. Placements in Europe reflect health system budget constraints, as several European governments are resetting capital spending post-pandemic. Second-quarter revenue was $2.2 billion, an increase of 14% from last year. On a constant currency basis, revenue growth was 15%. Additional revenue statistics and trends are as follows: Leasing represented 51% of Q2 placements, relatively consistent with recent trends. However, given customer preference for our usage-based models in the U.S. and the launch of da Vinci 5, we continue to expect the proportion of systems placed under lease arrangements to grow over time. Q2 system average selling prices were $1.44 million as compared to $1.39 million last year. Higher year-over-year system ASPs reflected a higher mix of da Vinci 5 and lower trade-ins, partially offset by a higher mix of system placements in Japan with a weaker Yen exchange rate and lower pricing in China. In Q2 of 2023, trade-ins represented 18% of total system placements as compared to 6% in Q2 of 2024. We recognized $28 million of lease buyout revenue in the second quarter, compared with $29 million last quarter and $12 million last year. Da Vinci instrument and accessory revenue per procedure was approximately $1,800, an increase of approximately $20 compared to last quarter. The sequential increase in instruments and accessories per procedure is primarily a result of customer ordering patterns in the U.S. Turning to our Ion platform, procedures grew 82% to approximately 23,200 procedures in the second quarter. During the quarter, we placed 74 Ion systems compared to 59 last year and 70 last quarter. During Q2, we caught up with the remaining backlog of system placements as supply of catheters and vision probes continued to improve. The installed base of Ion systems increased 56% year-over-year to 678 systems, of which 275 are under operating lease arrangements. Second-quarter SP procedure growth accelerated to 74%, with strong growth in Korea and the U.S. and early-stage growth in Japan and Europe. 21 of the systems placed in the quarter were SP systems, including ten systems placed in Europe. The SP installed base grew 56% from the year-ago quarter to 222 systems. Moving on to the rest of the P&L. Pro forma gross margin for the second quarter of 2024 was ahead of our expectations at 70%, compared with 68.5% for the second quarter of 2023 and 67.6% last quarter. Second-quarter pro forma gross margin reflected certain one-time benefits that we do not expect to recur. Excluding these one-time benefits, pro forma gross margin would have been 69.5%. The sequential improvement in pro forma gross margin primarily reflects lower inventory reserves, cost reductions in certain purchase components, lower freight rates, and leverage of fixed overhead. In accordance with our plans, product margins for our Ion and SP platforms improved in the quarter and will remain a focus for our business unit and manufacturing teams over the medium term. As a reminder, given recent and ongoing capital investments, we expect increased depreciation expense in the second half and a significant increase in depreciation expense starting in Q1 of 2025. Second-quarter pro forma operating expenses increased 11% compared with last year, reflecting the ongoing benefit of planned leverage in enabling functions. We continue to prioritize investments in R&D to fund innovation and future growth. During the quarter, we added approximately 550 employees, of which roughly half were in our manufacturing operations to support growth in customer demand. Pro forma other income was $79.4 million for Q2, higher than $72.5 million in the prior quarter, primarily due to higher interest income. Our pro forma effective tax rate for the second quarter was 22.5%, consistent with our expectations. Second-quarter 2024 pro forma net income was $641 million, or $1.78 per share, compared with $507 million, or $1.42 per share for the second quarter of last year. I will now summarize our GAAP results. GAAP net income was $527 million, or $1.46 per share for the second quarter of 2024, compared with GAAP net income of $421 million, or $1.18 per share for the second quarter of 2023. The adjustments between pro forma and GAAP net income are outlined and quantified on our website and include excess tax benefits associated with employee equity plans, employee stock-based compensation, amortization of intangibles, litigation charges, and gains and losses on strategic investments. We ended the quarter with cash and investments of $7.7 billion, higher than the $7.3 billion we ended last quarter. The sequential increase in cash and investments reflected cash generated from operating activities, partially offset by capital expenditures of $309 million. And with that, I would like to turn it over to Brian.

Thank you, Jamie. Overall, second-quarter procedure growth was 17% compared to 22% for the second quarter of 2023 and 16% last quarter. In the U.S., second-quarter 2024 procedure growth was 14% compared to 19% for the second quarter of 2023 and 14% last quarter. Second-quarter growth was led by procedures within general surgery, with strength in cholecystectomy and foregut procedures, as well as thoracic procedures. Bariatric procedure growth declined in the mid-single-digit range. Outside of the U.S., second-quarter procedure volume grew 22%, compared with 28% for the second quarter of 2023 and 20% last quarter. Growth was led by non-urology procedures with strength in colon resection, hysterectomy, and lung resection procedures. In Europe, second-quarter growth continued to be led by procedures beyond urology, primarily from general surgery and gynecology procedure categories. Germany, the U.K., and Italy's procedure performance led the region with each experiencing strong growth in colon and rectal resection, hysterectomy, and other general surgery procedures. In Asia, growth in the second quarter was led by Japan and India, while growth in China was strained, and Korea's procedure growth continued to be impacted by physician strikes. In Japan, overall procedure growth was solid, with continued strength in colon and rectal resection, gynecology, and lung resection procedures. In India, while still in the early stage of adoption, we saw strength in gynecology and general surgery procedures, particularly with growth in hysterectomy, cholecystectomy, and hernia repair. China's procedure growth was lower than prior period averages when compared to the same quarter a year ago, which experienced a recovery in procedures impacted by COVID. System utilization remained strong, while capital placements continued to be affected by delayed tenders and emerging domestic robotic systems. Now turning to the clinical side of our business. Each quarter on these calls, we highlight certain recently published studies that we deem to be notable. However, to gain a more complete understanding of the body of evidence, we encourage all stakeholders to thoroughly review the extensive detail of scientific studies that have been published over the years. Earlier this year, Dr. Zhang and team from the Guangzhou University of Chinese Medicine published a systematic review and meta-analysis in the International Journal of Surgery that looked at open, laparoscopic, and robotic-assisted surgery approaches to rectal cancer management. This meta-analysis covered 56 studies and included over 25,000 patients, of which approximately 11,000 patients received robotic-assisted surgery, over 13,000 patients laparoscopic surgery, and over 390 patients received open surgery. When compared to the control group of both laparoscopic and open procedures, patients undergoing a robotic-assisted approach had an approximately two-day shorter length of stay. Specifically, when compared to laparoscopic surgery, the robotic-assisted group was associated with a 1.7-day shorter length of stay. Relative to open surgery, the length of stay was 5.5 days shorter. The robotic-assisted approach was also demonstrated to have a protective effect against converting to an open procedure, with 61% lower odds of conversion associated with robotics relative to the laparoscopic approach. Finally, when compared to the laparoscopic and open control group, the robotic-assisted approach showed less estimated blood loss, approximately 40% lower odds of urinary retention, and when compared to open surgery, a higher number of harvested lymph nodes. The authors concluded, "The robotic approach emerges as the most favorable option for managing rectal cancer when compared to open, laparoscopic, and transanal techniques, as it delivers the finest blend of oncological, functional, and patient recovery outcomes." I will now turn to our financial outlook for 2024. Starting with procedures, on our last call, we forecasted full year 2024 procedure growth within a range of 14% and 17%. We are now narrowing our forecast and expect full-year 2024 procedure growth of 15.5% to 17%. The low end of the range assumes further softening in bariatric procedures, along with increasing headwinds in Asia from prolonged physician strikes in Korea and in China from delayed tenders and emerging domestic robotic systems impacting capital placements and therefore procedure growth. At the high end of the range, we assume bariatric stabilizes at current quarter rates and headwinds in Korea and China do not worsen. Turning to gross profit, we are increasing our pro forma gross profit margin to be within 68.5% and 69% of net revenue. Our actual gross profit margin will vary quarter-to-quarter, depending largely on product, regional, and trade-in mix and the impact of new product introductions. Turning to operating expenses, we are lowering our guidance for pro forma operating expense growth to be between 10% and 13%. We are refining our non-cash stock compensation expense to range between $680 million to $700 million in 2024. We are narrowing our guidance for other income, which is comprised mostly of interest income, to total between $300 million and $320 million in 2024. With regard to capital expenditures, we continue to estimate a range of $1 billion to $1.2 billion, primarily for planned facility construction activities. With regard to income tax, there is no change to our guidance of a 2024 pro forma income tax rate to be between 22% and 24% of pretax income. That concludes our prepared comments. We will now open the call to your questions.

Thank you. First question is from the line of Larry Biegelsen, Wells Fargo. Please go ahead.

Good afternoon. Thanks for taking the question and congratulations on a really nice quarter here. Of course, I have to start with da Vinci 5, really strong start here, 70 placements. I heard the comments about being constrained through the second half of 2025, but da Vinci 5 was almost half of your U.S. placement. So it looks like a strong launch. How should we think about the ramp in da Vinci 5 placements in the second half? And how should we think about trade-ins going forward, which were probably a little lower than I expected this quarter in the U.S.? And I had one follow-up.

Hi, Larry, it's Jamie. I would say for the second half of 2024, you should expect da Vinci 5 placements in the U.S. to increase modestly quarter-to-quarter, which reflects the fact that we do have this hardware and software update that we described. So you have to organize how you do that build plan through the factory carefully for that update. And we said we'd be in a measured rollout through the first half of 2025. Regarding how we've organized the measured rollout of da Vinci 5, we've really focused the sales force on looking to place da Vinci 5 for incremental capacity for our customers versus the trading cycle. I think we'd rather get to a broad launch where we essentially have unconstrained supply relative to demand before we look at the trade-in cycle. Just a couple of comments on the trade-in cycle. I wouldn't expect a trade-in cycle to suddenly emerge and take off quickly. I think what we've seen in the past is that it's progressive and over multiple years, reflecting the fact that many customers will want to evaluate da Vinci 5, see evidence build over time in terms of its capability and feature set. Of course, their desire for da Vinci 5 will depend on their individual program and what they see, the value of that, in part, given the higher pricing or lease costs for da Vinci 5.

That's very helpful. I wanted to ask about China. You mentioned it a couple of times on the call today. We recently saw a new stimulus announced there and my question is regarding the anti-corruption initiative. Is that still having an impact, and how are you guys thinking about the new stimulus that was announced there? Will that help drive placements? Thanks for taking the question.

Hi, Larry, it's Dave. Answering the second part of your question, first around the stimulus. In talking to our teams, we don't see that it's going to have a material impact on the placements of systems or an impact on the quota. With respect to the operating environment in China and the anti-corruption that you referenced, there's no question that the operating environment remains challenging. The health system in China is rebasing around economics and medtech; I think that's clear across the industry. On the placement side, customers are continuing to value our offerings, and we're seeing the emergence of domestic systems. In spite of those challenges and everything that's going on in the environment in China, we're still seeing double-digit growth in procedures, so we remain confident and look forward to continuing our investments and focus in China.

Thanks for taking the questions, guys.

And we'll look to the next question from the line of Travis Steed, Bank of America. Please go ahead.

Hi, congrats on the good quarter. I wanted to see if there's any way you can help us understand the demand side of the da Vinci 5 equation? I know we're in a constrained rollout, but 47% of the placements in the U.S. were da Vinci 5 this quarter. Is there any way to rank order some of the factors you need to check off the list to get the full launch? I know you have the software-hardware upgrade, but I assume there are some other variables to consider as well.

Yes. Hi, Travis, it's Dave. It's a couple of factors we've discussed in the past. There are really three primary areas. One is making sure that we are maturing our supply chain and our manufacturing capacity, again able to achieve the quality, cost, and yields as we approach a broad launch. The second part is what Jamie described around the software and hardware update, where we're trying to get that integrated into our systems while balancing factory output. The third thing is listening to our customers. As these placements happen, we're responding to their feedback and we will be releasing some software updates along the way here in order to respond to that feedback. So we want to get that in place before we get to product launch.

Travis, I would just add that part of your question is on the demand side. In the early phase of a launch, you're likely to see early adopters looking for the latest technology, primarily the larger institutions and large IDNs. You'll need time to see the full set of demand from all customer segments. Demand for da Vinci 5 is likely to develop over time, much like it did for Xi. We will invest in it over time, building our capabilities as we go.

That's helpful. Jamie, maybe on the gross margin side, very strong this quarter; can you elaborate on the margin strength this quarter?

Yes, I would just say, from a sequential basis, what drove improvement quarter-on-quarter was lower inventory reserves. Our teams did an outstanding job with respect to component cost performance with our suppliers and in logistics, and that came in earlier than we expected. Those teams had been working on supply due to COVID and pandemic constraints. They refocused on cost reductions and we saw that come in early, so we are pleased with our strong performance this quarter. You will see increased depreciation in the second half as I described. You will see a higher proportion of revenue from new products, da Vinci 5 and Ion and SP. In Q2, all 70 da Vinci 5 placements were primarily operating leases, which muted the effect on gross margin this quarter.

Great, thanks a lot.

Okay, we'll go to the next line, Robbie Marcus, JPMorgan. Please go ahead.

Oh, great, thanks and I'll add congratulations on a very solid quarter here. I wanted to ask about the feedback in the field. I would love to hear from you about what the physicians are saying about da Vinci 5, and also what the institutions are saying. Clearly, demand is there; 70 units this fast is really strong. What's the pushback, if any, from centers? How do they feel about driving better economics and faster procedures with da Vinci 5, and the feedback so far from physicians?

Yes, Rob, maybe I'll start. Just looking at what customers appreciate, you're seeing some immediate gratifications such as improvements in ergonomics, increases in precision and vision, head-in UI, onscreen graphics, and other features. Together, these features are leading to efficiency gains, particularly in console time. Customers are noticing that this can potentially allow them to add a procedure a day and increase system utilization. We're still hearing positive feedback, but there will be a period of evaluation as customers consider the value of da Vinci 5. Early adopters are clearly excited about it, and as we progress through our measured launch, we want to continue to affirm the value it brings to the forefront to executives and their teams.

I'll just jump in and add a little. We expect to be evaluated against the quadruple or quintuple aim with regard to da Vinci 5. We believe we can achieve that. We are generating data to support this perspective. The price differences aren't significant once you consider the full suite of features and benefits. We must justify the costs effectively. When assessing preferences for procedures between da Vinci 5 and Xi, all feedback indicates that physicians prefer da Vinci 5 for the reasons we've discussed.

Thank you very much.

And we'll go to the next line. That is from the line of David Roman, Goldman Sachs. Please go ahead.

Thank you and good afternoon, everybody. I wanted to start on an Ion question, appreciating some of the supply chain dynamics that may have contributed positively to growth in the quarter. But maybe you could go into more detail about what you're seeing in the field from an adoption perspective. To what extent are you witnessing higher diagnostic yields on Ion resulting in earlier interventions for patients?

Yes, so with respect to getting a patient into the diagnostic pipeline, that's kind of an independent variable from Ion and da Vinci. This is through screening or incidental findings. But once patients enter, Ion is offering a very effective way to biopsy that lesion. We look at two main variables: the size of the lesion and diagnostic yield. We're emphasizing diagnosing smaller lesions as they correlate with early cancer stages, improving survival rates.

That's very helpful context. Thank you. And maybe I could ask a financial question on the follow-up here.

Yes. Quarter-to-quarter, it can be a little lumpy depending on when those expenses are paid across quarters. If you take the first half, operating expenses grew 9%. Looking at the updated guidance, the second half will grow 11% to 15-16%. So an acceleration in the second half. We are prioritizing investments in R&D to drive innovation and future growth. During the quarter, we added approximately 550 employees, with roughly half in manufacturing to support growth in customer demand. We expect operating expenses to rise in the second half primarily driven by additional depreciation, but we aren't ready to specify the exact increases yet.

Great. Thank you very much.

And we'll go to the next line. That will be from the line of Rick Wise, Stifel. Please go ahead.

Good afternoon, everybody. Hi, Gary. Hi, Dave. I was hoping that you could talk a little bit more about the procedure growth outlook broadly. You gave us - you bumped up the range, and we're clear about the low-end factors. I’m curious whether bariatric or GLP-1 pressures are leveling off here? Or have they leveled off? How reasonable is it to think you could get to the upper end? And the same question for the China and Asia pressures you talked about as well. Could you just elaborate a little bit on that? Thank you.

With regard to the range, I will ask Brian to step in and clarify that point. Then I'll come back on the GLP-1s and the overall procedure growth in China.

So Rick, to clarify, we have narrowed our forecast range for full-year 2024 procedure growth to 15.5% to 17%. At the lower end, we assume that bariatric procedures continue to soften. We discussed this in the previous quarters, specifically regarding pressures in Asia, including physician strikes in Korea and delayed tenders impacting growth in China. The higher end assumes that bariatric stabilizes at current rates, and we see no worsening of Korean and Chinese challenges.

Speaking of bariatrics, two effects are ongoing. The GLP-1s are changing the surgical market, and there's some share change between laparoscopy and robotics occurring. The impact of GLP-1s on the bariatric surgery market, from our perspective, has not bottomed yet. It's difficult to predict how and where that will settle, as it hinges on effectiveness, restricted access to these drugs, and new options under development. There will be no short-term answers. We remain optimistic about the potential future for bariatric surgery with our systems.

Regarding the longer-term outlook in China, our offerings are highly valued there. Systems are utilized effectively, and customers value high-quality, minimally invasive care. However, there are challenges with the capital environment, and other economic factors affect placements and procedures. We're optimistic about the demand for robotic-assisted surgery, and we will continue our investments and focus.

Thanks. Gary, just a follow-up on the DV5 feedback. What new procedure or incremental total addressable market opportunities will da Vinci 5 unlock? How are customers reacting to that vision?

I believe da Vinci 5 will enable broader access to robotic surgery. This allows us to delve deeper into existing surgical areas, reaching those who have been hesitant to adopt robotics. This aligns with the feedback we're receiving from our early adopters who are excited about its potential in everyday surgery.

I agree with Dave that we have to demonstrate our value and build trust with our customers. We don't think we're done identifying new indications for da Vinci 5, and as we approach those opportunities, we will describe them.

Thank you.

Okay, let's go to the next question. This will be from Drew Ranieri, Morgan Stanley. Please go ahead.

Hi, thanks for taking the questions. Can you talk about the underlying demand for Xi in the U.S.? I know demand is high for da Vinci 5, but what is the demand for Xi right now? Also, speaks to further global expansion plans regarding da Vinci 5, including timelines?

In the U.S., demand for Xi has two segments: customers needing incremental capacity and those who are taking a wait-and-see approach regarding the value of da Vinci 5. Those needing setups are looking at Xi while integrating upgrade rights for da Vinci 5 as it becomes available. Those inquiring about the value of da Vinci 5 may bide their time based on their procedure mix and individual strategies. As for our OUS plans, we are still in talks with Korea and Japan. We do not expect to launch in Europe before the end of next year. It’s premature to pinpoint other timelines but will keep you updated as we finalize details.

Okay, and we will go to the next line. That will be from the line of Adam Maeder, Piper Sandler. Please go ahead.

Hi. Good afternoon. Thank you for taking the questions and congrats on the nice quarter. Firstly, could you elaborate on the hardware and software changes planned for the back half of the year regarding da Vinci 5?

Certainly! Some of the near-term additions include integrating Intuitive Hub capabilities, allowing surgeons to access 3D models from their console, replay intraoperative video, and work with simulation features. These updates, along with responding to customer feedback, will improve our offerings. For future advancements, we'll introduce intraoperative technology building blocks utilizing AI and ML algorithms.

On SP, congrats on the thoracic indication. How much do you think that expands SP's opportunity, and what’s the timeline for colorectal?

The thoracic procedure is optimal when coupled with a stapler, which is currently under development. Early adopters are working within those constraints. Regarding colorectal, we are progressing with the IDE study but lack specific timelines. Nevertheless, the addition of colorectal indication will enhance SP utilization in the U.S.

We'll take one more question and then wrap up. Thank you.

That will be from the line of Richard Newitter, Truist Securities. Please go ahead.

Thanks for taking the question, Jamie. In the past, you've discussed working towards a gross margin of 70% sustainably, so I'm curious if recent initiatives and improvements might help drive us closer sooner than anticipated and if Ion disposables play a role in this improvement?

Yes, maintaining a gross margin of 70% continues to be our medium-term aspiration. We are chomping at the bit on cost reductions and operations, and the component and logistics cost reductions materialized earlier than expected, prompting an increase to our guidance for gross margin this year. However, we still face incremental depreciation in the second half and next year, which may affect our path to achieving that goal.

Thank you, everyone, for your participation. This concludes our earnings call for today.

Thank you, everyone, for joining today's conference call. You may now disconnect at this time. Have a good day.