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# Intuitive Surgical, Inc. (ISRG): Business, Risks, and Management's Discussion Sources: the Annual Report on Form 10-K for the fiscal year ended December 31, 2025 (accession 0001035267-26-000010, filed February 3, 2026); the Quarterly Report on Form 10-Q for the quarter ended September 30, 2026 (accession 0001035267-26-000071, filed October 21, 2026); and the company's Form 8-K current reports cited by accession below. Intuitive's fiscal year is the calendar year. All amounts are in US dollars. ## Business *From the FY2025 10-K, accession 0001035267-26-000010.* Intuitive Surgical sells robotic-assisted systems for minimally invasive surgery and lung biopsy to hospitals worldwide. It makes most of its money on what follows each sale: the instruments and accessories used up in every procedure, multi-year service contracts, and lease payments on systems placed under operating leases. In 2025, total revenue was $10.06 billion. Recurring revenue (instruments and accessories, service, and operating leases) was $8.47 billion, 84% of the total. Systems revenue was $2.47 billion. Domestic customers accounted for 68% of revenue and markets outside the U.S. for 32%. The company reports as a single segment. **Products.** - **da Vinci surgical systems.** Several generations are in clinical use: the fifth-generation da Vinci 5 (launched in 2024), the fourth-generation da Vinci Xi, X and the single-port da Vinci SP, and the third-generation Si. Da Vinci 5 adds force feedback (instruments that let surgeons sense and measure the force they apply to tissue), more than 10,000 times the computing power of Xi, and an integrated digital and data platform. Da Vinci X is aimed at price-sensitive customers and procedures. SP works through a single incision in narrow workspaces. At December 31, 2025, the da Vinci installed base was about 11,106 systems: 6,364 in the U.S., 2,168 in Europe, 1,993 in Asia and 581 in the rest of the world. Of these, 1,231 were da Vinci 5 and 377 were SP systems. - **Ion endoluminal system.** A flexible, robotic, catheter-based platform cleared by the FDA in 2019. Its first indication is minimally invasive biopsy in the lung, which extends the company from surgery into diagnostics. The installed base was about 995 systems at year-end 2025, and nearly all Ion procedures are performed in the U.S. - **Instruments and accessories.** About 70 multi-port instruments, plus stapling (SureForm), advanced energy (E-200 generator, Vessel Sealer Extend, SynchroSeal), vision products and drapes. Instruments carry a chip that limits them to a set number of uses. The company earns $900 to $3,700 of instruments and accessories revenue per procedure, depending on how complex the procedure is. - **Learning and digital.** Training pathways, the SimNow simulator, telepresence, Case Insights, the My Intuitive app and 3D models. None of these produces material revenue yet. **How it makes money.** A da Vinci system generally sells for $0.7 million to $3.1 million, depending on model, configuration and geography, usually with one year of service included. Service contracts run $95,000 to $225,000 a year and are generally renewed. An Ion system sells for $500,000 to $815,000, with service at $55,000 to $70,000 a year. Since 2013, Intuitive has also placed systems under sales-type leases, fixed-payment operating leases and usage-based operating leases. Under a usage-based lease, the customer pays per procedure. Operating lease revenue was $874 million in 2025, including $531 million of variable, usage-based revenue, and it has grown faster than systems revenue as a whole. Revenue from customers buying out leased systems was $130 million. More than half of da Vinci procedures treat benign conditions, which makes demand seasonal. Procedures are typically highest in the fourth quarter, when U.S. patients have met their insurance deductibles, and system placements also peak in the fourth quarter, in line with hospital budget cycles. **Clinical focus.** The company targets general surgery (cholecystectomy, hernia repair, colorectal, bariatric, upper GI, appendectomy), urology (prostatectomy, partial nephrectomy), gynecology (hysterectomy, sacrocolpopexy), cardiothoracic (lobectomy) and transoral head and neck surgery, as well as lung biopsy with Ion. Advanced instruments and the fully featured da Vinci 5 and Xi systems are aimed at complex, higher-reimbursed cancer procedures. **Distribution and operations.** At the time of the 10-K, Intuitive sold directly in the U.S., in Europe other than Italy, Spain, Portugal, Greece and Eastern Europe, and in Japan, South Korea, India, Taiwan and Canada. In China it sells through its majority-owned joint venture with Fosun Pharma: Intuitive owns 60%, and the venture has a license to manufacture a local da Vinci Xi. Distributors serve the remaining markets. Systems are built in Sunnyvale, California, Peachtree Corners, Georgia, and at the joint venture's facility in Shanghai. Instruments and accessories are made in Sunnyvale and in Mexicali, Mexico, which produces the significant majority of instruments. Endoscopes are mostly made in Germany, with further endoscope production in Bulgaria. Some components come from sole- or single-source suppliers. At year-end 2025, the company had about 17,021 full-time employees in 29 countries, and it owned more than 5,600 granted patents with more than 2,500 pending. **Competition.** The products compete with open surgery, laparoscopy, drug therapies and radiation. Named robotics rivals include Johnson & Johnson, Medtronic, CMR Surgical, Distalmotion, Karl Storz, Medicaroid, Noah Medical, SS Innovations and a growing group of Chinese makers: Beijing Surgerii, Harbin Sizhe Rui, Shandong Weigao, Shanghai MicroPort MedBot and Shenzhen Edge Medical. The company expects competition in China to keep increasing. ## Risk factors *From the FY2025 10-K, accession 0001035267-26-000010, as updated by the Q3 2026 10-Q, accession 0001035267-26-000071.* The risks below are the ones most specific to Intuitive's model. They are condensed from the company's own risk-factor discussion. - **Competition and alternative treatments.** Laparoscopy, open surgery and new robotic entrants compete for the same procedures. Competitors may win on price, technology or clinical data. GLP-1 weight-loss drugs have already reduced the number of bariatric procedures, including those done on da Vinci, and their long-term effect is hard to predict. - **China.** Tenders have been cancelled or delayed since the government's healthcare anti-corruption campaign began in July 2023. Domestic competition and industrial policy add pressure, and in 2025 these factors together meant fewer systems were placed in China than the company expected. Provincial caps on what hospitals can charge for robotic surgery have cut instrument pricing and procedure volumes. National system quotas also limit sales: under the 2023 quota, which allows 559 new surgical robots of any make, Intuitive had placed 162 da Vinci systems by year-end 2025. - **Tariffs and trade.** Intuitive makes most of its instruments in Mexico, imports endoscopes from Germany and trades Xi sub-assemblies and systems with China, so it is exposed to U.S. tariffs and retaliatory measures. Tariffs added about $63.0 million to cost of revenue in 2025. Chinese export controls on rare earths could also restrict components. Most instruments made in Mexico qualify as originating under USMCA and have not faced U.S. tariffs to date. The company names potential tariffs on Mexican imports as a risk. The FDA could also hold instrument imports at the border if it found quality-system problems at Mexicali. - **Regulation.** The company faces FDA 510(k), PMA and de novo review, the new FDA quality rule (QMSR, effective February 2, 2026), EU MDR certification through a constrained pool of notified bodies, and approval and reimbursement processes in Japan and elsewhere. Any of these can delay products or bring enforcement action, recalls or limits on how products are marketed, including claims of off-label promotion. - **Litigation.** Product-liability suits are self-insured. Antitrust claims over the EndoWrist instrument aftermarket have been brought by third-party repairers and by hospitals. In October 2026 Intuitive reached a written agreement to settle the hospital class action for $450 million, subject to preliminary and final court approval; see the Current quarter and Subsequent events sections. - **Usage-based leasing and credit risk.** Revenue from usage-based leases varies with procedure volume. Some leases can be cancelled or upgraded without penalty, and returned systems that are not fully depreciated can cause losses. Lease financing also delays cash collection and exposes the company to customer credit risk. - **Supply chain and manufacturing.** The company relies on sole- and single-source suppliers and buys mainly through purchase orders rather than long-term contracts. Supplier capacity and solvency are strained, and moving production lines to new facilities, some abroad, carries its own risk. The Q3 2026 10-Q adds longer lead times and volatile prices for semiconductors, including memory and circuit boards. - **Gross margin variability.** Margins move with product, geographic and lease mix, trade-in credits, lower-margin new products such as da Vinci 5, depreciation from capacity expansion, foreign exchange, tariffs and inventory charges. - **Reimbursement and healthcare policy.** Hospitals' capital budgets and procedure volumes depend on coverage and payment rates. Risks include U.S. Medicare cuts, lower Medicaid and ACA-marketplace enrollment under the One Big Beautiful Bill Act, government-managed reimbursement abroad (Japan sets new procedure coverage only in April of even-numbered years), and continuing consolidation of healthcare providers. - **Remanufactured and unauthorized instruments and service.** The FDA has cleared some third-party remanufacturing of Intuitive's limited-use instruments for Si, X and Xi systems. These products, and unauthorized servicing of systems, could reduce instrument revenue and raise safety and reputational issues. The Q3 2026 10-Q updated this risk to note that regulators more broadly, not only the FDA, have cleared or approved such remanufacturing. - **Cybersecurity, data privacy and AI.** The company runs connected products and holds patient-adjacent data, which exposes it to cyberattacks, GDPR, HIPAA, the CCPA and China's data laws. As it builds AI into its products, the EU AI Act (with most requirements applying from August 2, 2026) and the revised EU Product Liability Directive add further obligations. - **Other.** Further risks include negative publicity about patient safety or surgeon training, losing key engineers, uninsured losses (it self-insures product liability and carries no earthquake insurance), long and uneven contracting cycles, executing acquisitions and the Fosun joint venture, changes in the value of its investment portfolio, global tax changes (Pillar Two), facility construction projects, natural disasters and climate change, and stock-price volatility. ## Management's discussion: fiscal 2025 *From the FY2025 10-K, accession 0001035267-26-000010.* Growth in 2025 came from procedures. Worldwide da Vinci procedures rose about 18%, to roughly 3,153,000. U.S. procedures grew about 15%, led by cholecystectomy, hernia repair, appendectomy and colorectal surgery, and by benign hysterectomy, partly offset by a high-single-digit decline in bariatric procedures. Outside the U.S., procedures grew about 23%, with colorectal, hernia, prostatectomy, partial nephrectomy and hysterectomy leading and South Korea and India particularly strong. Ion procedures rose 51%, to about 144,100. Utilization, measured as procedures per system, rose 3%. **Revenue.** Total revenue rose 21%, to $10.06 billion. - Instruments and accessories grew 19%, to $6.02 billion, driven by higher procedure volumes and partly offset by an unfavorable procedure mix. - Systems revenue grew 26%, to $2.47 billion. The company placed 1,721 da Vinci systems, up 13%: 987 in the U.S., 342 in Europe, 269 in Asia and 123 elsewhere. These included 870 da Vinci 5 systems, up from 362 in 2024. - The average selling price of a da Vinci system rose to about $1.60 million from $1.50 million, on a favorable mix including da Vinci 5. - Service revenue rose 20%, to $1.57 billion. Ion placements fell 28%, to 195 systems. The company estimates that Ion now handles close to half of all U.S. lung biopsies, so customers are shifting from adding capacity to using their existing systems more. **Margins and expenses.** Gross margin fell to 66.0% from 67.5%. Product margin was 66.3% versus 67.2%, hurt by new tariffs, higher depreciation from expanded manufacturing capacity and higher da Vinci 5 costs. Service margin fell to 64.6% from 69.0%. Operating expenses grew more slowly than revenue: - SG&A rose 11%, to $2.39 billion, including a $70 million contribution to the Intuitive Foundation. - R&D rose 15%, to $1.31 billion. Operating income rose 25%, to $2.95 billion, after $803 million of share-based compensation. The effective tax rate was 13.1%, reduced by 7.4 percentage points of excess tax benefits from employee equity plans ($246 million). Net income attributable to Intuitive was $2.86 billion, or $7.87 per diluted share, compared with $2.32 billion, or $6.42, in 2024. **Cash and capital.** Operating cash flow was $3.03 billion. Inventory rose $1.06 billion and $809 million of systems were transferred into the lease fleet. Capital expenditures were $540 million. The company repurchased 4.8 million shares for $2.30 billion. Cash, cash equivalents and investments ended the year at $9.03 billion, of which $1.06 billion was held abroad. Purchase commitments were about $2.53 billion, roughly a third of them facilities-related. Intuitive has never paid a dividend. In November 2025, it bought a small developer of robotics and AI tools for point-of-care tissue assessment during biopsies; the price was not material, and part of it was paid in 29,572 shares. **Outlook at year-end.** Management expected tariff costs to keep rising in 2026 and expected depreciation to increase. It also expected customers to stay cautious on capital spending because of staffing shortages, lower public healthcare funding in Europe and Japan, and the conditions in China. ## Current quarter: third quarter 2026 *From the Q3 2026 10-Q, accession 0001035267-26-000071, and the Q3 2026 earnings release furnished on Form 8-K, accession 0001035267-26-000067.* **Results.** Revenue rose 22%, to $3.05 billion, from $2.51 billion. Combined da Vinci and Ion procedures grew about 15%. - **Procedures.** Da Vinci procedures grew about 14%, to roughly 906,000. Growth was about 10% in the U.S. (559,000) and about 20% outside it (347,000). Ion procedures grew 31%, to about 49,700. - **Instruments and accessories.** Revenue rose 18%, to $1.80 billion. Revenue per procedure was also higher, helped by the mix of da Vinci 5 and SP instruments. - **Systems.** Revenue rose 30%, to $769 million. The company placed 546 da Vinci systems, up from 427: 335 in the U.S., 115 in Europe, 78 in Asia and 18 elsewhere. These included 315 da Vinci 5 systems. Of the 546, 291 were placed under operating leases, 160 of them usage-based. Higher operating lease revenue ($275 million) and lease buyouts ($45 million, up from $22 million) also lifted systems revenue. The average selling price was about $1.61 million. The company placed 56 Ion systems, up from 50. - **Service.** Revenue rose 22%, to $482 million. Recurring revenue was $2.55 billion, 84% of the total. At September 30, 2026, the installed bases were about 12,094 da Vinci systems (up 12%) and 1,152 Ion systems (up 21%). The da Vinci base included 2,023 da Vinci 5 systems, 177 of them outside the U.S., and 487 SP systems. **What changed this quarter.** - **U.S. procedures slowed.** U.S. growth eased to about 10% from about 16% a year earlier. U.S. bariatric procedures, about 2% of worldwide da Vinci volume, fell at a low-double-digit rate. Management says the expiration of enhanced ACA premium subsidies also weighed modestly on U.S. procedures, and it cannot yet say how large that effect will be. - **Outside the U.S.**, Japan, Germany, India, the United Kingdom and Italy were strong. Growth was lower in South Korea, which had a recovery from physician strikes in the prior-year quarter to lap, and in China, reflecting fewer recent system placements. - **China.** China again placed fewer systems than the company expected. In the second quarter of 2026, China's National Healthcare Security Administration issued a national pricing framework for robotic surgery, which all provinces must implement in the coming quarters. At September 30, 2026, Intuitive had placed 176 systems under the 2023 quota plus 3 under special approval. - **Japan.** In April 2026, Japan approved reimbursement for seven more da Vinci procedures, including inguinal hernia repair, effective June 2026. It also introduced extra payments for hospitals that perform more than 200 qualifying robotic cases a year. **Margins and the antitrust charge.** - Gross margin rose to 68.4% from 66.4%. Product margin was 68.9% versus 66.8%, lifted by refunds of tariffs paid in earlier periods and by fixed-overhead leverage. In February 2026, the U.S. Supreme Court ruled that tariffs imposed under the International Emergency Economic Powers Act (IEEPA) were unlawful, which made those earlier payments refundable. The company recognized $27.8 million of these refunds in the quarter ($63.7 million year to date), against $23.4 million of tariff costs ($72.4 million year to date). Further refunds depend on review by U.S. Customs and Border Protection and on an appeal by the U.S. Department of Justice. - SG&A rose 10%, to $633.4 million, and R&D rose 24%, to $408.3 million. - Operating expenses also included a $450 million charge for the settlement of the "In re: da Vinci Surgical Robot Antitrust Litigation" class action. The 10-Q shows it as a separate operating-expense line; the earnings release includes it in SG&A. - Operating income fell 22%, to $592.6 million, from $759.7 million. - The effective tax rate rose to 21.5% from 17.1%, because the prior-year quarter included a release of unrecognized tax benefits and because excess tax benefits from employee equity were smaller. - Net income attributable to Intuitive was $522.8 million, or $1.49 per diluted share, compared with $704.4 million, or $1.95. The settlement cost $347 million after tax, or $0.99 per diluted share. On the company's non-GAAP basis, net income was $1.05 billion, or $3.00 per diluted share, compared with $867 million, or $2.40. **Nine months.** Revenue was $8.71 billion, up 21%. Net income attributable to Intuitive was $2.16 billion, or $6.07 per diluted share, compared with $5.67. Operating cash flow rose to $3.20 billion from $2.14 billion, helped by the accrual of the settlement liability. **Capital return and liquidity.** Intuitive bought back 7.8 million shares in the quarter for $2.94 billion, an average of $377.01 a share. Year to date it has repurchased 11.0 million shares for $4.45 billion. The board raised the repurchase authorization to $5.0 billion on April 30, 2026, and about $1.8 billion remained at September 30. Cash, cash equivalents and investments fell to $6.80 billion at September 30 from $9.03 billion at year-end, including a $1.83 billion decline during the third quarter. The company attributes the nine-month decline mainly to share repurchases, the Southern Europe acquisition ($518.6 million paid for acquisitions of a business and intellectual property) and $329.0 million of capital expenditures, partly offset by cash from operations. The condensed balance sheet lists no borrowings. Shares outstanding were 346,643,718 at October 15, 2026, down from 355.1 million at year-end. **2026 guidance, updated October 20, 2026.** The company now expects: - worldwide da Vinci procedure growth of about 14% to 15%, closer to the midpoint, narrowed from 13.5% to 15.5% in July; - non-GAAP gross margin of 68.7% to 69.3%, raised from 68.0% to 69.0% and from 67% to 68% in January, including a tariff impact of about 0.9% of revenue before refunds; - non-GAAP operating expense growth of 11% to 13%, unchanged from July and narrowed from 11% to 15% in January. **Instrument pricing actions.** In the fourth quarter of 2026, Intuitive expects to start cutting instrument prices in China in response to the national pricing framework. From the first half of 2027, it plans two further changes for fourth- and fifth-generation systems: extending the number of uses for a subset of core EndoWrist instruments, and introducing volume-based pricing. Both aim at cost-sensitive benign and lower-acuity procedures. Once fully implemented, the company expects these actions together to reduce da Vinci instruments and accessories revenue per procedure by about 3% to 5%, before effects of procedure, product and geographic mix. **Tariff regime.** After the February 2026 Supreme Court ruling, the U.S. imposed a temporary 10% import surcharge under Section 122 of the Trade Act from February 24 to July 24, 2026, with USMCA-qualifying goods exempt. From July 24, 2026, it replaced the surcharge with Section 301 duties of 10% or 12.5% on products from 60 trading partners. **Regulatory progress in 2026.** - January: FDA clearance for da Vinci 5 in selected cardiac procedures. - March: FDA clearance extending the lives of force-feedback instruments, five of six to up to 15 uses and one to up to 10, which made them broadly available. - April: approval of the E-200 generator in China. - July and August: approval of da Vinci 5 with force feedback in India and Brazil. - September: EU certification of da Vinci 5 for adult cardiac surgery and force feedback, and of SP for transvaginal gynecologic procedures. **Acquisition: direct operations in Southern Europe.** On March 1, 2026, Intuitive bought the da Vinci and Ion distribution businesses of its distributors ab medica, Abex, Excelencia Robótica and their affiliates. The price was about $533.1 million in cash, net of the settlement of $32.6 million of existing receivables owed to Intuitive. With the deal, the company took over direct distribution in Italy, Spain, Portugal, Malta, San Marino and associated territories, so its direct footprint in Europe now excludes only Greece and Eastern Europe. The acquired businesses had a combined installed base of more than 470 da Vinci systems in Italy, Spain and Portugal at year-end 2025, and about 250 employees joined Intuitive. The company recorded $196.3 million of goodwill and $219.4 million of intangible assets, mainly customer relationships. In the third quarter it finalized the purchase consideration and received $15.6 million back from the sellers. The 10-K had described the deal as pending, with completion expected in the first half of 2026. **Litigation.** - *SIS.* On August 13, 2026, the Ninth Circuit reversed the district court's judgment for Intuitive in Surgical Instrument Service Company's antitrust case and sent it back for further proceedings. Intuitive petitioned for rehearing en banc on September 29, 2026, and says it cannot estimate any loss. - *Restore Robotics Repairs.* Restore is appealing the dismissal of its antitrust suit, with oral argument tentatively set for the week of January 18, 2027. **Leadership and governance.** - Taylor Patton, who led the global Ion business, became Chief Commercial and Marketing Officer on July 1, 2026. Henry Charlton moved to Senior Vice President of Global Business Operations (8-K, accession 0001035267-26-000042). - Brian Miller moved from Chief Digital Officer to Head of Digital and AI Strategy on January 1, 2026 (8-K, accession 0001035267-25-000211). - At the April 30, 2026 annual meeting, shareholders elected all ten director nominees. They also approved an amended 2010 Incentive Award Plan, which raises the share reserve from 120,350,000 to 125,350,000 and extends the plan to January 29, 2036 (8-K, accession 0001035267-26-000035). - On July 23, 2026, the board amended the bylaws. Among other changes, the voting standard for corporate actions other than elections is now a majority of votes cast, and there are tighter disclosure and procedural rules for shareholder nominations and proposals (8-K, accession 0001035267-26-000063). ## Subsequent events *From the Q3 2026 10-Q, accession 0001035267-26-000071 (Note 8, Contingencies), and the earnings release on Form 8-K, accession 0001035267-26-000067.* The 10-Q has no separate subsequent-events note. Its disclosures of events after September 30, 2026 are these: - **Antitrust class action settlement (October 2026).** After a mediation in the "In re: da Vinci Surgical Robot Antitrust Litigation" class action, Intuitive and the plaintiff hospitals signed a written agreement. Under it, Intuitive makes a one-time payment of $450 million and the parties agree on injunctive relief, with no admission of liability or wrongdoing. The case had been scheduled for trial on September 14, 2027. The settlement still needs preliminary and final court approval, and individual class members may object. Intuitive recorded the full $450 million as a charge in third-quarter operating expenses and as a liability at September 30, 2026. - **Updated full-year outlook (October 20, 2026)**, as set out under Current quarter. The 10-Q discloses no acquisitions, divestitures, borrowings or other financings after the quarter end.