UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2022

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from             to             

Commission file number 000-30713 

Intuitive Surgical, Inc.

(Exact name of Registrant as specified in its Charter)

Delaware	77-0416458
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

1020 Kifer Road

Sunnyvale, California 94086

(Address of principal executive offices) (Zip Code)

(408) 523-2100

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.001 per share	ISRG	The Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	x	Accelerated filer	¨
Non-accelerated filer	¨	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ¨  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  x

The Registrant had 353,384,570 shares of Common Stock, $0.001 par value per share, outstanding as of October 18, 2022.

INTUITIVE SURGICAL, INC.

TABLE OF CONTENTS

		Page No.
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited):
	Condensed Consolidated Balance Sheets as of September 30, 2022, and December 31, 2021	3
	Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2022, and 2021	4
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2022, and 2021	5
	Notes to Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	48
Item 4.	Controls and Procedures	48
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	49
Item 1A.	Risk Factors	49
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	51
Item 3.	Defaults Upon Senior Securities	51
Item 4.	Mine Safety Disclosures	51
Item 5.	Other Information	51
Item 6.	Exhibits	53
	Signature	54

2

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

INTUITIVE SURGICAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

in millions (except par values)	September 30, 2022		December 31, 2021
ASSETS
Current assets:
Cash and cash equivalents	$	1,538.0	$	1,290.9
Short-term investments	2,775.9		2,913.1
Accounts receivable, net	849.6		782.7
Inventory	837.1		587.1
Prepaids and other current assets	292.5		271.1
Total current assets	6,293.1		5,844.9
Property, plant, and equipment, net	2,243.7		1,876.4
Long-term investments	3,078.1		4,415.5
Deferred tax assets	587.4		441.4
Intangible and other assets, net	710.3		633.2
Goodwill	348.2		343.6
Total assets	$	13,260.8	$	13,555.0
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	164.2	$	121.2
Accrued compensation and employee benefits	308.2		350.1
Deferred revenue	358.9		377.2
Other accrued liabilities	402.1		301.3
Total current liabilities	1,233.4		1,149.8
Other long-term liabilities	453.4		453.7
Total liabilities	1,686.8		1,603.5
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 September 30, 2022, and December 31, 2021	—		—
Common stock, 600.0 shares authorized, $0.001 par value, 353.3 shares and 357.7 shares issued and outstanding as of September 30, 2022, and December 31, 2021, respectively	0.4		0.4
Additional paid-in capital	7,684.8		7,164.0
Retained earnings	4,017.8		4,760.9
Accumulated other comprehensive loss	(187.6)		(24.2)
Total Intuitive Surgical, Inc. stockholders’ equity	11,515.4		11,901.1
Noncontrolling interest in joint venture	58.6		50.4
Total stockholders’ equity	11,574.0		11,951.5
Total liabilities and stockholders’ equity	$	13,260.8	$	13,555.0

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements (Unaudited).

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INTUITIVE SURGICAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)

	Three Months Ended September 30,				Nine Months Ended September 30,
in millions (except per share amounts)	2022		2021		2022		2021
Revenue:
Product	$	1,297.5	$	1,170.6	$	3,806.3	$	3,481.2
Service	259.9		232.7		760.9		678.2
Total revenue	1,557.4		1,403.3		4,567.2		4,159.4
Cost of revenue:
Product	421.6		355.8		1,239.9		1,049.1
Service	83.7		76.1		242.2		212.6
Total cost of revenue	505.3		431.9		1,482.1		1,261.7
Gross profit	1,052.1		971.4		3,085.1		2,897.7
Operating expenses:
Selling, general and administrative	436.1		363.3		1,245.6		1,039.5
Research and development	217.1		165.5		634.9		487.6
Total operating expenses	653.2		528.8		1,880.5		1,527.1
Income from operations	398.9		442.6		1,204.6		1,370.6
Interest and other income, net	3.9		18.5		7.5		65.5
Income before taxes	402.8		461.1		1,212.1		1,436.1
Income tax expense	78.1		73.9		204.4		90.7
Net income	324.7		387.2		1,007.7		1,345.4
Less: net income attributable to noncontrolling interest in joint venture	0.7		6.7		10.3		21.4
Net income attributable to Intuitive Surgical, Inc.	$	324.0	$	380.5	$	997.4	$	1,324.0
Net income per share attributable to Intuitive Surgical, Inc.:
Basic	$	0.91	$	1.07	$	2.79	$	3.72
Diluted	$	0.90	$	1.04	$	2.74	$	3.63
Shares used in computing net income per share attributable to Intuitive Surgical, Inc.:
Basic	355.3		356.8		357.2		355.6
Diluted	360.5		366.8		363.7		365.1
Other comprehensive loss, net of tax:
Change in unrealized gains on hedge instruments	$	2.3	$	2.0	$	7.7	$	8.0
Change in unrealized losses on available-for-sale securities	(37.3)		(4.5)		(161.4)		(20.5)
Change in foreign currency translation losses	(10.0)		(2.8)		(12.0)		(7.9)
Change in prior service cost for employee benefit plans	0.1		0.2		0.2		0.4
Other comprehensive loss	(44.9)		(5.1)		(165.5)		(20.0)
Total comprehensive income	279.8		382.1		842.2		1,325.4
Less: comprehensive income (loss) attributable to noncontrolling interest	(0.8)		6.6		8.2		21.0
Total comprehensive income attributable to Intuitive Surgical, Inc.	$	280.6	$	375.5	$	834.0	$	1,304.4

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements (Unaudited).

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INTUITIVE SURGICAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Nine Months Ended September 30,
in millions	2022		2021
Operating activities:
Net income	$	1,007.7	$	1,345.4
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and loss on disposal of property, plant, and equipment	239.4		208.5
Amortization of intangible assets	20.2		20.8
Gain on sale of business	(3.8)		—
Loss (gain) on investments, accretion, and amortization, net	43.4		(2.1)
Deferred income taxes	(102.0)		(40.6)
Share-based compensation expense	385.6		331.4
Amortization of contract acquisition assets	20.7		15.5
Changes in operating assets and liabilities, net of effects of acquisitions:
Accounts receivable	(67.2)		(54.7)
Inventory	(419.1)		(189.2)
Prepaids and other assets	(96.8)		(216.7)
Accounts payable	26.3		35.8
Accrued compensation and employee benefits	(41.9)		30.3
Deferred revenue	(21.2)		2.3
Other liabilities	61.6		35.0
Net cash provided by operating activities	1,052.9		1,521.7
Investing activities:
Purchase of investments	(1,393.6)		(5,213.7)
Proceeds from sales of investments	59.6		72.4
Proceeds from maturities of investments	2,536.3		3,532.1
Purchase of property, plant, and equipment and intellectual property	(394.7)		(202.6)
Acquisition of businesses, net of cash, and other investing activities	(11.6)		(8.7)
Net cash provided by (used in) investing activities	796.0		(1,820.5)
Financing activities:
Proceeds from issuance of common stock relating to employee stock plans	188.6		244.8
Taxes paid related to net share settlement of equity awards	(187.3)		(201.2)
Repurchase of common stock	(1,606.6)		—
Payment of deferred purchase consideration	(3.5)		(19.2)
Net cash provided by (used in) financing activities	(1,608.8)		24.4
Effect of exchange rate changes on cash, cash equivalents, and restricted cash	7.9		(2.3)
Net increase (decrease) in cash, cash equivalents, and restricted cash	248.0		(276.7)
Cash, cash equivalents, and restricted cash, beginning of period	1,306.0		1,638.5
Cash, cash equivalents, and restricted cash, end of period	$	1,554.0	$	1,361.8

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements (Unaudited).

5

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 the da Vinci® Surgical System 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, a high-performance vision system, and 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, 2021, 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 (“U.S. 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, 2021, which was filed with the SEC on February 3, 2022. The results of operations for the first nine months of 2022 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 venture (“Joint Venture”) with Shanghai Fosun Pharmaceutical (Group) Co., Ltd. (“Fosun Pharma”). Chindex Medical Limited (“Chindex”), a subsidiary of Fosun Pharma, has been its distribution partner for da Vinci Surgical Systems in China. 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 factors contributing to delays in payments of outstanding receivables, supply chain disruptions, including shortages and inflationary pressure, uncertain or reduced demand, and the impact of any initiatives or programs that the Company may undertake to address financial and operational challenges faced by its customers.

In particular, the Company has experienced increased 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 global supply has become significantly constrained due to increased demand for certain materials. Additionally, prices of such materials have increased due to the increased demand and supply shortage. With rising interest rates, access to credit may become more difficult, and any insolvency of the Company’s key suppliers, including sole-source suppliers, may exacerbate current supply chain challenges. The Company is engaged in activities to seek to mitigate supply disruptions by, for example, increasing its communications with its suppliers and modifying its purchase order coverage and inventory levels. However, the global supply chain shortages will remain a challenge for the foreseeable future.

The Company has also experienced challenges in logistics, as certain shipping routes have been impacted by port closures. Such global shortages in important components and logistics challenges have resulted in, and will continue to cause, inflationary cost pressure in the Company’s supply chain. To date, the inflationary cost pressure has been more pronounced in the Company’s logistics costs, but 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 or logistics challenges continue, the Company could fail to meet product demand, which could result in deferred or cancelled procedures. Additionally, if inflationary pressures in logistics or component costs persist, the Company may not be able to quickly or easily adjust pricing, reduce costs, or implement countermeasures. Additionally, there is 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.

Increased labor shortages globally, including 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

6

on the principal members of its management and scientific staff. Attracting and retaining qualified personnel is critical to its success, and competition for them has become more intense. 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 staffing shortages and supply chain issues 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, rising 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. 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 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

Business Combinations

In October 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU 2021-08”), which creates an exception to the general recognition and measurement principle in ASC 805 by requiring companies to apply ASC 606 to recognize and measure contract assets and contract liabilities from contracts with customers acquired in a business combination. The guidance additionally clarifies that companies should apply the definition of a performance obligation in ASC 606 when recognizing contract liabilities assumed in a business combination. The Company has early adopted ASU 2021-08 as of January 1, 2022, on a prospective basis. The impact of the adoption of ASU 2021-08 had an immaterial impact on the Company’s Financial Statements in the nine months ended September 30, 2022.

Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions

In June 2022, the FASB issued ASU No. 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions (“ASU 2022-03”), which applies to all equity securities measured at fair value that are subject to contractual sale restrictions. This change prohibits entities from taking into account contractual restrictions on the sale of equity securities when estimating fair value and introduces required disclosures for such transactions. The Company has early adopted ASU 2022-03 as of July 1, 2022, on a prospective basis. There was no impact of the adoption of ASU 2022-03 on the Company’s Financial Statements in the three months ended September 30, 2022.

Recently Issued Accounting Pronouncements

Troubled Debt Restructurings and Vintage Disclosures

In March 2022, the FASB issued 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 standard will become effective for the Company beginning January 1, 2023, and should be applied prospectively. The adoption of ASU 2022-02 is not expected to have a material impact on the Company’s future 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, 2021, that are of significance, or potential significance, to the Company.

7

NOTE 3.    FINANCIAL INSTRUMENTS

Cash, Cash Equivalents, and Investments

The following tables summarize the Company’s cash and available-for-sale marketable 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 September 30, 2022 and December 31, 2021 (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
September 30, 2022
Cash	$	536.3	$	—	$	—	$	—	$	536.3	$	536.3	$	—	$	—
Level 1:
Money market funds	1,001.7		—		—		—		1,001.7		1,001.7		—		—
U.S. treasuries	3,048.8		—		(113.0)		—		2,935.8		—		1,545.4		1,390.4
Subtotal	4,050.5		—		(113.0)		—		3,937.5		1,001.7		1,545.4		1,390.4
Level 2:
Commercial paper	104.2		—		—		—		104.2		—		104.2		—
Corporate debt securities	2,256.1		—		(87.2)		(1.1)		2,167.8		—		843.9		1,323.9
U.S. government agencies	499.3		—		(21.8)		—		477.5		—		209.5		268.0
Municipal securities	175.4		—		(6.7)		—		168.7		—		72.9		95.8
Subtotal	3,035.0		—		(115.7)		(1.1)		2,918.2		—		1,230.5		1,687.7
Total assets measured at fair value	$	7,621.8	$	—	$	(228.7)	$	(1.1)	$	7,392.0	$	1,538.0	$	2,775.9	$	3,078.1

											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, 2021
Cash	$	572.3	$	—	$	—	$	—	$	572.3	$	572.3	$	—	$	—
Level 1:
Money market funds	696.6		—		—		—		696.6		696.6		—		—
U.S. treasuries	3,429.1		6.3		(15.4)		—		3,420.0		17.0		1,100.3		2,302.7
Subtotal	4,125.7		6.3		(15.4)		—		4,116.6		713.6		1,100.3		2,302.7
Level 2:
Commercial paper	717.7		—		—		—		717.7		—		717.7		—
Corporate debt securities	2,485.6		2.7		(11.9)		—		2,476.4		5.0		886.7		1,584.7
U.S. government agencies	526.1		0.2		(2.9)		—		523.4		—		137.8		385.6
Municipal securities	213.4		0.7		(1.0)		—		213.1		—		70.6		142.5
Subtotal	3,942.8		3.6		(15.8)		—		3,930.6		5.0		1,812.8		2,112.8
Total assets measured at fair value	$	8,640.8	$	9.9	$	(31.2)	$	—	$	8,619.5	$	1,290.9	$	2,913.1	$	4,415.5

8

The following table summarizes the contractual maturities of the Company’s cash equivalents and available-for-sale investments (excluding cash and money market funds), as of September 30, 2022 (in millions):

	Amortized Cost		Fair Value
Mature in less than one year	$	2,823.7	$	2,775.9
Mature in one to five years	3,260.1		3,078.1
Total	$	6,083.8	$	5,854.0

Actual maturities may differ from contractual maturities, because certain borrowers have the right to call or prepay certain obligations. Realized gains and losses recognized on the sale of investments were not material for any of the periods presented.

The following tables present the breakdown of the available-for-sale debt securities that have been in a continuous unrealized loss position deemed to be temporary, aggregated by investment category, as of September 30, 2022, and December 31, 2021 (in millions):

	September 30, 2022
	Less than 12 months				More than 12 months				Total
	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
U.S. treasuries	$	1,811.4	$	(60.4)	$	1,124.5	$	(52.6)	$	2,935.9	$	(113.0)
Corporate debt securities	1,401.9		(55.0)		599.4		(32.2)		2,001.3		(87.2)
U.S. government agencies	220.0		(8.4)		257.4		(13.4)		477.4		(21.8)
Municipal securities	109.3		(4.1)		51.0		(2.6)		160.3		(6.7)
Total	$	3,542.6	$	(127.9)	$	2,032.3	$	(100.8)	$	5,574.9	$	(228.7)

	December 31, 2021
	Less than 12 months				More than 12 months				Total
	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
U.S. treasuries	$	2,596.3	$	(15.4)	$	—	$	—	$	2,596.3	$	(15.4)
Commercial paper	4.0		—		—		—		4.0		—
Corporate debt securities	1,687.9		(11.9)		—		—		1,687.9		(11.9)
U.S. government agencies	412.5		(2.9)		—		—		412.5		(2.9)
Municipal securities	156.0		(1.0)		—		—		156.0		(1.0)
Total	$	4,856.7	$	(31.2)	$	—	$	—	$	4,856.7	$	(31.2)

The Company’s investment portfolio at any point in time contains available-for-sale debt securities including investments in U.S. treasury and U.S. government agency securities, taxable and tax-exempt municipal notes, corporate notes and bonds, commercial paper, non-U.S. government agency securities, cash deposits, and money market funds. 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 is a currency that is routinely held by central banks, used in international commerce, and commonly viewed as a reserve currency. The Company regularly reviews the securities in an unrealized loss position and evaluates the current expected credit loss by considering factors such as historical experience, market data, issuer-specific factors, and current economic conditions.

For the three and nine months ended September 30, 2022, the credit losses related to available-for-sales debt securities were not material.

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 credit of the issuer, the expected cash flows from the security, the Company’s intent to sell the security, and whether or not the Company will be required to sell the security before the recovery of its amortized cost. As of September 30, 2022, the Company did not intend to sell any of the debt securities included in the table above, and it is not more likely than not that the Company will be required to sell any of these securities before recovery of the unrealized losses, which may be at maturity.

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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, 2021 Carrying Value		Changes in Fair Value (1)		Purchases / Sales / Other (2)		September 30, 2022 Carrying Value		Prepaids and other current assets		Intangible and other assets, net
Equity investments with readily determinable value (Level 1)	$	26.9	$	(21.6)	$	(0.2)	$	5.1	$	5.1	$	—
Equity investments without readily determinable value (Level 2)	$	15.6	$	0.3	$	37.8	$	53.7	$	—	$	53.7
(1) Recorded in Interest and other income, net.
(2) Other includes foreign currency translation gains/(losses).

In September 2021, Broncus Holding Corporation (“Broncus”) completed an initial public offering (“IPO”) of common shares on the Stock Exchange of Hong Kong. Upon completion of its IPO, the Company’s preferred shares of Broncus were converted into common shares, which have a readily determinable value (Level 1). The Company was restricted from selling these shares for a period of six months.

For the three and nine months ended September 30, 2022, the Company recognized a loss on this investment of $3.3 million and $21.6 million, respectively, reflected in changes in fair value for Level 1 equity investments, which was reflected in Interest and other income, net.

There were no decreases in fair value reflected in net income due to impairments.

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 twelve 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”), and Chinese Yuan (“CNY”).

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 September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Recognized gains in Interest and other income, net	$	17.9	$	4.4	$	46.6	$	11.8
Foreign exchange losses related to balance sheet re-measurement	$	(30.5)	$	(6.4)	$	(69.4)	$	(12.4)

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Additionally, in January 2021, the Company settled a collar contract previously entered into to hedge its equity investment in Teladoc Health, Inc. For the nine months ended September 30, 2021, a loss of $7.5 million was recognized in Interest and other income, net.

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
	September 30, 2022		December 31, 2021		September 30, 2022		December 31, 2021
Notional amounts:
Forward contracts	$	201.8	$	181.2	$	387.1	$	318.8
Gross fair value recorded in:
Prepaids and other current assets	$	15.7	$	5.7	$	15.4	$	6.9
Other accrued liabilities	$	1.5	$	0.5	$	3.1	$	0.8

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
Inventory	September 30, 2022		December 31, 2021
Raw materials	$	351.7	$	214.6
Work-in-process	138.3		96.4
Finished goods	347.1		276.1
Total inventory	$	837.1	$	587.1

	As of
Prepaids and other current assets	September 30, 2022		December 31, 2021
Prepaid taxes	$	3.5	$	4.3
Equity investments	5.1		26.9
Net investment in sales-type leases–short-term	121.5		110.3
Other prepaids and other current assets	162.4		129.6
Total prepaids and other current assets	$	292.5	$	271.1

	As of
Other accrued liabilities–short-term	September 30, 2022		December 31, 2021
Taxes payable	$	71.2	$	54.1
Current portion of deferred and contingent purchase consideration	7.7		12.0
Accrued construction-related capital expenditures	65.9		23.1
Other accrued liabilities	257.3		212.1
Total other accrued liabilities–short-term	$	402.1	$	301.3

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	As of
Other long-term liabilities	September 30, 2022		December 31, 2021
Income taxes–long-term	$	295.4	$	316.6
Deferred revenue–long-term	36.7		36.8
Other long-term liabilities	121.3		100.3
Total other long-term liabilities	$	453.4	$	453.7

Supplemental Cash Flow Information

The following table provides supplemental non-cash investing and financing activities (in millions):

	Nine Months Ended September 30,
	2022		2021
Equipment transfers, including operating lease assets, from inventory to property, plant, and equipment	$	189.0	$	229.2
Acquisition of property, plant, and equipment in accounts payable and accrued liabilities	$	91.4	$	29.9

NOTE 5.    REVENUE AND CONTRACT ACQUISITION COSTS

The following table presents revenue disaggregated by types and geography (in millions):

	Three Months Ended September 30,				Nine Months Ended September 30,
U.S.	2022		2021		2022		2021
Instruments and accessories	$	643.3	$	535.7	$	1,819.0	$	1,614.0
Systems	264.7		263.4		731.0		743.7
Services	175.0		153.1		508.9		447.8
Total U.S. revenue	$	1,083.0	$	952.2	$	3,058.9	$	2,805.5
Outside of U.S. (“OUS”)
Instruments and accessories	$	228.3	$	219.7	$	758.2	$	643.7
Systems	161.2		151.8		498.1		479.8
Services	84.9		79.6		252.0		230.4
Total OUS revenue	$	474.4	$	451.1	$	1,508.3	$	1,353.9
Total
Instruments and accessories	$	871.6	$	755.4	$	2,577.2	$	2,257.7
Systems	425.9		415.2		1,229.1		1,223.5
Services	259.9		232.7		760.9		678.2
Total revenue	$	1,557.4	$	1,403.3	$	4,567.2	$	4,159.4

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 $1.84 billion as of September 30, 2022. The remaining performance obligations are expected to be satisfied over the term of the system sale, lease, and service arrangements, which are generally up to 5 years.

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Contract Assets and Liabilities

The following information summarizes the Company’s contract assets and liabilities (in millions):

	As of
	September 30, 2022		December 31, 2021
Contract assets	$	48.2	$	46.9
Deferred revenue	$	395.6	$	414.0

The Company invoices its customers based on the billing schedules in its sales arrangements. Payments are generally due 30 to 60 days from 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 nine months ended September 30, 2022, the Company recognized $73 million and $352 million of revenue, respectively, that was included in the deferred revenue balance as of December 31, 2021. During the three and nine months ended September 30, 2021, the Company recognized $66 million and $319 million of revenue, respectively, that was included in the deferred revenue balance as of December 31, 2020.

Intuitive System Leasing

The following table presents revenue from Intuitive System Leasing arrangements (in millions):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Sales-type lease revenue	$	29.6	$	39.0	$	115.3	$	140.3
Operating lease revenue*	$	97.5	$	72.5	$	273.7	$	198.8
*Variable lease revenue relating to usage-based arrangements included within operating lease revenue	$	35.5	$	19.4	$	94.0	$	53.9

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 nine months ended September 30, 2022, and 2021, 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 current 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.

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NOTE 6.    LEASES

Lessor Information

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
September 30, 2022	December 31, 2021