Intuitive Surgical

Phase A — Understand the business

Lens 1 · Company Overview

Intuitive Surgical builds, sells, and feeds robotic-assisted surgery systems. The business is a classic razor-and-blade, and the razor is now the smaller half: of $10,064.7M total 2025 revenue, 84% was recurring — instruments & accessories ($6,018.9M), service ($1,572.1M), and operating-lease revenue ($874.3M), totaling $8,465.3M recurring. Systems (the capital "razor") were only $2.47B. Every da Vinci placed is a 7-15 year annuity: each procedure consumes single-use EndoWrist instruments with programmed usage limits, and each system carries a service contract.

Products. Three platforms: (1) da Vinci multiport — flagship soft-tissue robot, now in its fifth generation (da Vinci 5, launched 2024) alongside fourth-gen Xi/X and the single-port da Vinci SP; (2) Ion — robotic endoluminal lung-biopsy system; (3) a digital layer (My Intuitive, SimNow, Case Insights) layered on the installed base. Installed base at 2025YE: 11,106 da Vinci systems (+12% YoY) and 995 Ion systems (+24%).

Customers are hospitals and surgical centers — no single-customer concentration (no customers.csv rows on disk; the 10-K names no >10% customer, consistent with a fragmented hospital base). Geography: US 68% of revenue / OUS 32% in 2025.

Contract structure is the moat in miniature: a mix of outright system sales, sales-type leases, and — increasingly — usage-based operating leases (variable lease revenue was $531M of the $874M operating-lease line in 2025 ), which converts capital risk into a per-procedure annuity and deepens recurring mix.

Lens 2 · Supply Chain

Upstream → Intuitive → end customer, named stakeholders:

• Upstream inputs: precision motors/actuators, optics/3D-HD vision, force-sensing components (new to da Vinci 5), semiconductors/compute (da Vinci 5 carries ">10,000x the computing power of da Vinci Xi" — implying meaningful advanced-silicon content), titanium/specialty metals for EndoWrist instruments. The 10-K flags single-source and limited-source suppliers as a named risk and discloses tariff exposure on components procured / finished goods manufactured outside the US.
• Manufacturing: primarily in-house (Sunnyvale CA HQ; plus Mexicali, Mexico and other sites) — vertical integration is itself a moat (controls quality + the consumable supply).
• The company itself assembles systems and manufactures the single-use instruments — the highest-margin choke point it deliberately owns.
• Downstream: direct sales organization (capital + clinical teams) sells to hospitals; in China, sales run through a joint venture (noncontrolling-interest line on the income statement; small contribution).

Chokepoints / single-source dependencies: (a) advanced-component single-sourcing (10-K risk factor); (b) the EndoWrist consumable itself is the strategic chokepoint Intuitive creates — usage limits force re-buys, which is exactly what the antitrust plaintiffs attack (Lens 10/13); (c) tariffs — guidance carries ~100-120 bps of gross-margin drag from tariffs in effect.

Lens 3 · Competitive Advantages (moats)

This is one of the widest moats in medtech, built from four reinforcing layers:

1. Installed-base lock-in / switching costs. 11,106 da Vinci systems are embedded in hospital ORs and surgeon training. A hospital that has trained its surgeons on da Vinci, built throughput around it, and signed service contracts does not rip-and-replace for a new entrant without overwhelming reason. Utilization (procedures/system/yr) rose 3% in 2025 — the base is getting more productive, not saturating.
2. The consumable annuity + razor-and-blade. 84% recurring revenue means competition has to dislodge an annuity, not win a one-time bake-off.
3. Clinical evidence + regulatory estate. Two decades of peer-reviewed outcomes data and a deep FDA/OUS clearance library across urology, gynecology, general, thoracic, colorectal. In US prostatectomy, da Vinci is effectively standard of care.
4. Data/AI moat (emerging). ~1,500 da Vinci 5 systems capturing video + kinematics + force-feedback + EMR context generate proprietary datasets "competitors cannot easily replicate". With >3M annual procedures, this is a compounding data flywheel — the bull's "next platform isn't a robot, it's the data."

Bargaining power: very high over customers (standard of care + switching costs), high over suppliers (scale buyer, vertically integrated). The one place power is contested is the aftermarket — third-party repairers/servicers are litigating exactly to break the consumable lock (Lens 10).

Lens 4 · Segments

Intuitive reports by revenue type, not product/geography operating segments (single reportable segment). Revenue-line breakout, all ``:

(Systems 2025 = total $10,064.7 − I&A $6,018.9 − service $1,572.1 − [operating-lease is allocated within lines]; the MD&A states systems revenue $2.47B +26% directly.)

Geography (% of revenue): US 68% / 67% / 66% and OUS 32% / 33% / 34% for 2025/24/23.

Trend & cause — the single most important slide in this dossier: growth is decelerating but still strong, and the mix is shifting toward the high-margin razor:

• US da Vinci procedures +15% in 2025 (=2024). Steady.
• OUS da Vinci procedures +23% in 2025 (=2024). The growth engine — South Korea + India standouts.
• Systems +26% on da Vinci 5 mix (870 dV5 placed in 2025 vs 362 in 2024 ) — dV5 carries accretive ASP (system ASP rose to ~$1.60M from ~$1.50M ).
• Gross margin slipped to 66.0% from 67.5% — dV5 ramp/early-cost + tariffs; bulls argue this reverses as dV5 scales.

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Phase B — Measure performance

Lens 5 · Earnings Result (latest print: Q1-2026, reported 2026-04-21)

The most recent print was strong and the stock jumped, but the year-to-date tape tells the real story.

• Revenue $2.77B, +23% YoY vs $2.25B Q1-2025, beating consensus (~$2.62B) by ~6%.
• GAAP diluted EPS $2.28 vs $1.92; non-GAAP $2.50, +38%. Net income attributable $821.5M.
• Operating income +48% to $855M; EBIT margin expanded to ~39% from ~34%. Strong operating leverage.
• Gross margin 66.1% vs 64.7% — improving sequentially.
• Procedures: da Vinci +16%, Ion +39%, blended worldwide +17%; 847,000 da Vinci cases.
• System placements 431, +17% (232 dV5 vs 147).
• Guidance raised on the print: full-year da Vinci procedure growth to 14-16% (from 13.5-15.5%); non-GAAP GM 67.5-68.5% with ~100-120 bps tariff drag.
• Balance sheet: $9.03B cash & investments, +$0.20B YoY; no debt. Operating cash flow 2025 $3.03B > net income $2.88B (high earnings quality).
• Market reaction: stock +7% the day after — yet ISRG is down ~27-32% YTD 2026 (from ~$566 in early Jan to ~$407 in mid-June). The print beat; the multiple is de-rating anyway. That divergence is the whole thesis.

Unusual vs own history: the China flag — only 4 system placements in China in Q1-2026, crushed by domestic robots + VBP, with no reimbursement clarity expected before 2027. And the GLP-1 read-through: US bariatric procedures down ~10% as weight-loss drugs substitute for surgery.

Lens 6 · Earnings Calls (sentiment trend)

No transcripts/ on disk — this lens is ``. Synthesizing recent calls (Q4-2025 → Q1-2026):

• What management keeps saying: "da Vinci 5 momentum," "Force Feedback" (up to 43% less force on tissue), "digital ecosystem / proprietary data moat," "Quintuple Aim," procedure-growth durability in OUS. Tone on the core franchise = confident.
• What's newly prominent: tariffs (now an explicit margin headwind in guidance) and competition acknowledged more directly as Medtronic/J&J arrive.
• What they've gone quieter on: China as a growth vector — the language has shifted to "measured" rollout and reimbursement uncertainty.
• Leadership-tone shift: new CEO Dave Rosa (since 2025-07-01) is leaning into the digital/AI/data narrative as the next-decade story — a deliberate reframing from "place more robots" to "monetize the installed base's data".

Net: tone on the franchise is steady-to-confident; the new notes are defensive (tariffs, competition, China). Sentiment is not deteriorating on fundamentals — it's the valuation that's under pressure.

Lens 7 · Comps

Peer set = large-cap medtech + surgical-robotics pure-plays. Multiples are (June 2026) or `n/a`; ISRG's own EPS/margins are.

Read: ISRG trades at ~2-3x the forward multiple of every large-cap medtech peer (37-46x vs MDT 14x, BSX 18x, SYK 22x). The premium is earned by superior growth (+21% rev vs MDT low-single-digit), best-in-class recurring mix, ~21% ROE, and a fortress balance sheet — but it is a premium that prices ISRG for continued mid-to-high-teens compounding with no margin for a competitive stumble. PRCT/STXS are not valuation comps (different segments, sub-scale, unprofitable) — they matter as adjacent robotics, not multiple anchors.

Lens 8 · Stock-Price Catalysts (what actually moves ISRG, last ~5y)

Pattern from `` history:

• Earnings prints / procedure-growth surprises are the dominant mover. Q1-2026 +7% on the beat+raise. Procedure growth is the number.
• Macro / rate shocks hit it hard given the multiple: −49.9% Nov-2021→Oct-2022 (inflation/rate de-rating, ~2x the S&P's drop), fully recovered by Jan-2024.
• Pandemic / elective-surgery shutdown: −40.5% in COVID-2020, recovered within ~4 months — proof the franchise snaps back but the stock is violent on volume scares.
• Competitive newsflow (new in this cycle): Medtronic Hugo US urology clearance (Dec-2025) and J&J Ottava FDA de novo submission (early-2026) are now stock-relevant events.
• 2026 YTD: −27-32% despite beating — a multiple de-rating driven by decelerating growth guidance + competition + China, not an earnings miss.

What the market reacts to: (1) procedure-growth trajectory above all, (2) the forward multiple's sensitivity to rates/sentiment, (3) increasingly, competitive-entry headlines. It does not trade on any single customer (no concentration).

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Phase C — Judge people & books

Lens 9 · Management

• CEO: Dave Rosa (since 2025-07-01). Internal promotion (former President). Inherits a fortress; his mandate is the digital/AI/data next chapter and defending share against Medtronic/J&J. Too early for a standalone track record as CEO — continuity hire, not a pivot.
• Executive Chair: Gary Guthart — CEO 2010-2025, a 15-year tenure that took ISRG from ~$1B to >$10B revenue and through two generational platform launches (Xi, dV5) and the COVID/inflation drawdowns. One of the strongest operator track records in medtech; remaining as Chair preserves institutional knowledge.
• CFO: Jamie Samath (since Jan-2025); 2025 comp ~$8.4M. Mark Meltzer is SVP General Counsel/CCO, not CFO (correcting a common error).
• Capital allocation: disciplined and shareholder-friendly without leverage — $9.03B net cash, no debt, funds R&D ($1.31B in 2025, 13.0% of revenue ) and an active buyback (a Q1-2026 repurchase was completed ). No dividend — reinvestment + buyback model. ROE ~21%. Governance: in 2024 the company eliminated stock options and moved exec equity to 50% PSU / 50% RSU, and re-weighted PSU metrics toward relative adjusted operating margin + procedure growth — a tightening toward profitability discipline; say-on-pay support >93%.
• Archetype: professional-manager stewardship of a founder-built franchise (founders Fred Moll/Rob Younge long departed). Implication: execution-and-defense phase, not visionary-pivot phase — appropriate for a category-defining incumbent now facing entrants.
• Red flags: none material. The China JV is the one related-party structure; comp is high but performance-linked and shareholder-endorsed.

Lens 10 · Forensic Red Flags

Accounting quality is high. Cross-checks, all `` unless noted:

• Earnings quality: operating cash flow $3.03B > net income $2.88B in 2025 — cash generation exceeds earnings, the opposite of a red flag. Non-cash add-backs $1.43B (SBC $788M + D&A).
• Revenue recognition: complex (system sales vs sales-type leases vs operating leases vs usage-based) — an area to watch, but disclosed in detail and consistent. Variable/usage-based lease revenue ($531M of $874M) is growing — legitimate but worth tracking for aggressive lease classification (no evidence of it).
• SBC: $788M (~7.8% of revenue) flatters non-GAAP — the GAAP vs non-GAAP EPS gap ($2.28 vs $2.50 in Q1) is real and SBC-driven. Use GAAP for the truth, non-GAAP for the comp.
• Receivables/inventory vs revenue: no disclosed divergence flag; inventory builds with dV5 ramp (expected). No goodwill-impairment or intangibles concern (Intuitive grows organically, minimal acquisition goodwill).
• No debt removes a whole class of balance-sheet risk.

Regulatory findings (required):

• SEC: Zero SEC Litigation Releases and zero AAERs naming Intuitive Surgical in 2021-06-20 → 2026-06-20.
• 10-K Item 3 / Note 8 (Legal Proceedings): the company discloses it is "from time to time… involved in a number of legal proceedings involving product liability, intellectual property, shareholder derivative actions, securities class actions, employment, and other matters," including "purported class actions, product liability litigation, and patent litigation," and notably antitrust claims "brought against us by third parties looking to compete in the instruments or servicing space and by certain customers".
• Antitrust (the material item): Surgical Instrument Service Co. (SIS) and its subcontractor Restore Robotics sued Intuitive over EndoWrist usage limits / third-party repair restrictions ("right to repair"). In January 2025 a N.D. Cal. judge entered judgment as a matter of law FOR Intuitive (SIS failed to prove an aftermarket, citing Epic v. Apple). SIS is appealing to the 9th Circuit; Restore refiled on a later EndoWrist generation. Status: Intuitive prevailing, but the aftermarket-monopoly question is live on appeal — a structural risk to the razor-and-blade model if ever lost (low probability near-term).
• FDA/other: routine medical-device recalls/MDRs occur in the ordinary course; nothing disclosed as material.
• Conclusion: No material regulatory or accounting findings — verified via SEC EDGAR EFTS (LR, AAER, 0 hits), 10-K Item 3/Note 8, and web search as of 2026-06-21. The only live legal risk is the right-to-repair antitrust appeal, which Intuitive has won at trial.

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Phase D — Project & stress-test

Lens 11 · Forward Projection (FY2026E / FY2027E / FY2028E)

Built bottom-up from FY2025 actuals + 2026 guidance. GAAP-diluted EPS basis. Output ``, inputs labeled.

Anchors: FY2025 revenue $10,064.7M, GAAP diluted EPS $7.87, ~362.7M diluted shares. 2026 guide: da Vinci procedure growth 14-16%, non-GAAP GM 67.5-68.5% (~100-120bps tariff drag),.

Revenue driver: total revenue ≈ procedure-driven recurring (84%, grows ~with procedures + ASP) + systems (grows with placements/mix). Procedure growth 14-16% + dV5 ASP accretion + service → total revenue growth slightly below procedure growth (geographic/price mix), call ~16-18% 2026, decelerating ~100-200bps/yr.

Implied valuation check: at ~$407, 2026E base EPS ~$9.30 → ~44x forward GAAP P/E (or ~37x on non-GAAP ~$11). Even on 2028E ~$12.40 GAAP, ~33x. The stock requires the base-to-bull path to hold for years to justify today's price — and crucially is already ~27-32% off its Jan-2026 high, so a meaningful de-rate has already happened.

Forecast tracker (forecast.ts create) intentionally NOT logged — per --watchlist breadth-mode rules (dossier only; no forecast/call creation). Suggested base call to log later: ISRG FY26 non-GAAP EPS >= $11.00, p≈0.60, resolves 2026-12-31.

Lens 12 · Bull vs Bear

BULL. ISRG is the rarest thing in medtech: a true category monopoly with an 84%-recurring annuity, ~21% ROE, no debt, and a widening data moat. The installed base (11,106 da Vinci + 995 Ion) compounds procedures mid-teens with utilization still rising — penetration of the global soft-tissue surgical TAM is single-digit, so the runway is a decade-plus, led by OUS (+23%). da Vinci 5 is an upgrade supercycle (870→ more placements, accretive ASP, 43%-less-force differentiation) that competitors can't match on feature or data. The data/AI layer (video + kinematics + force + EMR across >3M procedures/yr) is the next S-curve — Rosa's reframing — and is un-replicable by entrants who lack the installed base. Surprises to the upside: faster dV5 mix, GM recovery as dV5 scales, SP/Ion new-indication expansion, and any China reimbursement thaw (a free option currently priced at ~zero).

BEAR. Three things that could permanently dent the thesis: (1) Competition arrives for real — Medtronic Hugo (US urology cleared Dec-2025, in ~25 hospitals) and J&J Ottava (FDA de novo submitted early-2026) attack the new-placement market; even if they don't displace the base, they cap pricing power and OUS share over 2-3 years. (2) GLP-1 substitution — US bariatric procedures already −10%; if weight-loss drugs structurally shrink whole surgical categories, the procedure-growth algorithm erodes from the top. (3) The multiple itself is the risk — ~37-46x forward EPS, ~18x sales, prices perfection; on the company's own guided deceleration (19%→14-16%), any quarter that misses re-rates hard (bear models cite >40% downside ). Pre-mortem (18mo out, thesis broke): procedure growth printed sub-13% twice (GLP-1 + macro elective softness), Medtronic/J&J took 15-20% of new OUS placements at lower prices, China stayed zero, GM didn't recover off tariffs — and a 40x multiple compressed to 28x on a now-13%-grower. Stock −35%. Contrarian view the market is refusing to see: the bears are right that growth decelerates, but wrong that the franchise breaks — the recurring annuity and switching costs mean even a slower-growing ISRG is a fortress; the debate is purely price, and a sub-$400 print on a 12-month forward sub-30x non-GAAP would be where the risk/reward inverts.

Lens 13 · Devil's Advocate (short-seller)

Dismantling the bull case:

• Where revenue is concentrated: not in a customer, but in US + a handful of OUS procedure categories (urology, gynecology, general surgery). GLP-1 hitting bariatric is the proof-of-concept that a drug can vaporize a surgical category — what if obesity/metabolic drugs expand to substitute for other da Vinci procedures? The procedure-growth algorithm is more fragile than a single-customer risk because it's diffuse and exogenous.
• Why the moat may be weaker than bulls think: the moat protects the installed base, not new placements. Medtronic and J&J don't need to convert existing da Vinci hospitals — they need to win the next hospital and the OUS greenfield, where switching costs don't yet exist. If they take even 20% of new placements at 15-20% lower prices, Intuitive's pricing power and OUS growth — the bull's engine — both compress.
• Most dangerous competitor bulls underestimate: Medtronic, not J&J. MDT has global hospital relationships, scale, a consumables machine, and it's already cleared + placing (Hugo in 25 hospitals) while J&J is still at FDA submission. The China domestic robots (which cut ISRG China placements to 4 units) are the canary: where a credible cheaper robot exists with local reimbursement, Intuitive loses.
• Worst capital-allocation / accounting points: genuinely few. The SBC-flattered non-GAAP ($2.28 GAAP vs $2.50 non-GAAP) is the only "aggressive" optics. The right-to-repair antitrust appeal is the structural tail — if the 9th Circuit ever revives SIS's aftermarket theory, the programmed-usage-limit razor-and-blade model itself is challenged.
• Assumptions that must hold for today's price: mid-teens procedure growth for 5+ years; GM recovers off tariffs; competition stays sub-scale; China is a free option; no GLP-1 contagion. That's a lot of "ands."
• If growth disappoints 20-30%: a 13-15% grower becoming a 9-11% grower would compress the multiple from ~40x toward ~25-28x → 30-40% downside even on flat estimates.
• Single permanent-impairment scenario: a successful J&J/Medtronic duopoly assault on new placements plus a lost right-to-repair appeal plus GLP-1 category contagion — low individual probabilities, but they rhyme (all erode the procedure/consumable annuity). Plausibility: low near-term, non-trivial by 2028.

Lens 14 · Management Questions (ordered by information value)

1. As da Vinci 5 becomes the majority of placements, what is the steady-state gross margin once the ramp cost and current tariffs normalize — and what tariff scenario is embedded in the 67.5-68.5% guide?
2. Medtronic Hugo is in ~25 US hospitals and J&J Ottava is at FDA — over the next 3 years, what share of new placements (US vs OUS) do you assume you retain, and at what price concession?
3. How much of the US bariatric ~10% decline do you attribute to GLP-1s structurally vs cyclically, and which other da Vinci categories carry GLP-1/drug-substitution risk?
4. China placements fell to 4 in Q1-2026 — what is the realistic 2027 reimbursement path, and at what point do you treat China as structurally lost to domestic robots?
5. Quantify the data/AI moat: what revenue (not just differentiation) do you expect the digital ecosystem to generate by 2028, and via what model (subscription? per-procedure?)?
6. Utilization rose 3% in 2025 — how much further can procedures/system/year go before the installed base saturates in mature US categories?
7. With $9B net cash and no debt, why no dividend — and what would change the buyback-only capital-return policy?
8. What is the dV5 upgrade-cycle revenue tail from the existing Xi base, and how many quarters of accretive trade-in volume remain?
9. How do you defend the EndoWrist consumable model if the 9th Circuit revives the SIS aftermarket theory — is there a Plan B that preserves recurring margins?
10. OUS is +23% vs US +15% — which 2-3 countries are the next South Korea/India, and what's the regulatory/reimbursement gating?
11. SP and Ion are early — what's the realistic 2028 revenue contribution and the next indication unlocks?
12. How should we think about the GAAP-to-non-GAAP bridge over time as SBC ($788M) scales — does the gap narrow?
13. What's the right long-term operating-margin target given competition will pressure pricing and you're investing in digital?
14. Where could a credible cheaper robot (China-style) win in developed markets, and what's your price-defense playbook?
15. As Executive Chair, what is Gary Guthart's role in the competitive-defense and digital strategy under Dave Rosa?

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