直覺手術 (ISRG) 2009 Q1 法說會逐字稿

Good afternoon, and welcome to the Intuitive Surgical's first quarter 2009 conference call.

All participants will be able to listen only until the question-and-answer session.

This conference is being recorded.

(Operator Instructions).

I would now like to turn the call over to Ben Gong, Vice President of Finance.

You may begin.

Good afternoon, and welcome to our first quarter conference call.

With me today, we have Lonnie Smith, our Chairman and CEO; Gary Guthart, our President and Chief Operating Officer; Marshall Mohr, our Chief Financial Officer; and Aleks Cukic, our Vice President of Strategic Planning.

Before we begin, many of you are aware that our Form 8-K, containing our press release, was filed earlier than normal.

That was unintentional.

Our vendor for filing 8-Ks mistakenly filed it early this morning instead of waiting until after the press release went out.

We apologize for any confusion this may have caused.

Moving on, 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 as a result of certain risks and uncertainties.

These risks and uncertainties are described in detail in the Company's Securities and Exchange Commission filings.

Prospective 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 intuitivesurgical.com on the Audio Archives section under our Investor Relations page.

In addition, today's press release has been posted to our website.

Today's format will consist of providing you with highlights of our first quarter results as described in our press release announced earlier today, followed by a question-and-answer session.

First, Lonnie will present the quarter's business highlights.

Gary will follow with operational highlights.

Marshall will provide a review of our first quarter financial results.

Aleks will discuss marketing and clinical highlights, and I will provide an update on our financial forecast for 2009 and finally, we will host a question-and-answer session.

With that, I would like to introduce Lonnie Smith, our Chairman and CEO.

Thank you for joining us today.

Despite the challenging economic environment, I feel that our team's operational execution was excellent.

Revenues were up 11% over prior year before a one-time $20 million revenue deferral associated with our offer to customers who purchased the da Vinci S this past quarter to upgrade to a new da Vinci Si.

Marshall will discuss the details of that accrual later.

Procedures grew by 60%, and operating costs were effectively controlled.

Two factors affected our year-over-prior year growth, as hospitals responded to the current economic environment.

We sold eight fewer systems in the first quarter of 2009 than we did in 2008.

And as a part of their effort to improve cash flow, hospitals reduced inventories by slowing their purchase of incoming supplies, and that reduced the growth of our instrument and accessory revenue.

With that as background, operating highlights for the first quarter, excluding the one-time $20 million revenue deferral, are as follows.

Procedures grew 60% over the first quarter of 2008.

We sold 68 da Vinci surgical systems, down eight from 74 during the first quarter of last year.

Our international team contributed 22 of the 66 systems sold.

Total revenue was $208 million, up 11% over last year.

Instrument accessory revenue increased to $82 million, up 32% before a $2 million accessory revenue deferral for potential future upgrades.

Total recurring revenue grew to $121 million, up 36% from prior year, comprising 58% of total revenue.

We generated an operating profit of $88 million before the revenue deferral and noncash 123R stock option expense, up 11% from the first quarter of last year.

GAAP net income, however, was $28 million, down 36% from last year.

We ended the quarter with $822 million in cash and investments, down $80 million from last quarter and up $122 million from last year.

Significant cash outlays during the quarter include $27 million invested in intellectual property and fixed assets, and $150 million invested in our stock buyback during the quarter.

Excluding impact of these outlays, as well as $6 million received from stock option proceeds and a $14 million change in working capital, we generated $17 million in gross cash flow from operations, $1.98 per fully diluted share, and $278 million -- 278% of our reported GAAP net income for the first quarter.

I share this number with you because I believe that it is the best measure of economic horsepower and performance of our Company.

With that, I'll pass the time over to Gary Guthart, our President and Chief Operating Officer.

Thank you, Lonnie.

For the past several quarters, we have made significant investments in research, development and manufacturing.

We are pleased with the progress of our product development teams, our operating teams and our technology partners, both from the depth of their achievements and in the speed with which they are accomplishing them.

We continue to invest in developing novel instruments for our da Vinci platform, in improving and expanding our imaging capabilities, in developing new patient-side mechanisms, and in creating surgical networking and training technologies.

On April 2, we announced the availability of our newest da Vinci model, the da Vinci Si.

The Si brings to market three significant innovations.

First, it introduces a dual surgeons console for use during surgery, which will allow new methods of training da Vinci surgeons and enable collaborative da Vinci surgery.

With the Si, a surgeon sitting at a second console can view the same surgery as the primary surgeon, and can be passed control of some or all of the da Vinci arms during a case.

We believe this will both shorten the learning curve for new surgeons, and will allow collaborative surgery in complex cases.

Secondly, our insight imaging system has been substantially redesigned for increased visual acuity and improved ease of use.

The HD imaging system's increased performance is analogous to the move from 720 P to 1080 I in commercial television.

We believe that the increased visual performance will continue to increase surgeon precision and confidence, and will contribute to improved patient outcomes and shorter procedure times.

The third significant improvement is the Si users interface, which has been redesigned to allow simplified and integrated control of da Vinci and other operating room devices, such as electrosurgical units.

The simplified interface and improved ergonomics will allow for easier surgeon training and decreased surgeon workload during surgery.

The Si system is FDA-approved and CE-marked.

It is currently available in the United States and most of Europe.

Si systems will be available with an option to purchase a second console.

Existing S instruments and most S accessories are compatible with the Si system, and upgrade to S systems to the Si system is available for our current customers.

In other developments, this quarter, we acquired the assets of a Silicon Valley Company, NeoGuide Systems, that has been developing robotics for medical applications.

Included in the purchase are patents and applications with early issue and filing dates covering basic concepts and the design and control of multilink snake robotic systems for use in medicine.

The addition of NeoGuide's intellectual property to our organically developed technology and in-license technology from groups like Hansen Medical, Luna Innovations, SurgiQuest and USGI Medical, has established a strong IP base for Intuitive in single-incision, and potentially notes robotics.

Overall, we continue to drive our teams in investments into both our da Vinci platform and into new technologies that will advance robotic surgery.

With that, I will turn the call over to Marshall for a review of financial highlights, and to take you through the financial implications of the Si launch.

Thank you, Gary.

As Lonnie mentioned, our first quarter 2009 revenue of $188 million was net of $20.1 million of revenue deferred in association with the da Vinci Si upgrade offers.

With the launch of the Si, we made offers to first quarter da Vinci S customers to upgrade their systems to the new Si model at a discount to the upgrade price.

We also extended offers to those customers to exchange da Vinci S camera equipment for Si camera equipment.

We made these offers to be fair to the recent purchasers of da Vinci S systems who want to own the most capable system available.

As a result of this program, we deferred $18 million of system revenue and $2.1 million of accessory revenue.

The $20.1 million of deferred revenue is anticipated to be realized before the end of this year, as the upgrades are completed, da Vinci SI camera equipment is shipped or the offers are declined.

Net of the deferral, our $188 million first quarter revenue was roughly equal to our first quarter of 2008 revenue and $43 million lower than the fourth quarter of 2008.

First quarter revenues by product category are as follows.

First quarter instrument and accessory revenue was $79.5 million, up 29%, compared with $61.9 million for the first quarter of 2008 and down 3% compared with $81.6 million in the fourth quarter of 2008.

The change compared with the first quarter of last year was driven by the 60% procedure growth, partially offset by the revenue deferral of $2.1 million and lower instrument and accessory revenue per procedure.

The change compared with the fourth quarter reflects the increased -- reflects increased procedure volume, more than offset by the revenue deferral of $2.1 million and lower revenue per procedure.

The amount of instrument and accessory revenue we realized per procedure, including initial stocking orders and adding back the deferred revenue of $2.1 million, was approximately $1,800 per procedure, down approximately $200 per procedure compared to the fourth quarter, and down approximately $400 per procedure compared to last year.

The decline in revenue per procedure reflects lower stocking orders and customer order timing as our customers reduced their inventory investment.

The year-to-year decline also reflects customer efficiency gains and procedure mix.

First quarter 2009 systems revenue of $70 million was $29 million lower than the first quarter 2008 systems revenue, and $44 million lower than fourth quarter systems revenue due primarily to the $18 million revenue deferral described earlier and lower system unit sales.

Sixty-six systems were sold during the first quarter of 2009 compared to 74 systems last year and 85 systems last quarter.

We continue to feel the impact of curtailed hospital spending for capital equipment in the ongoing economic recession, particularly in the US.

Forty-four systems were sold in the US during the quarter compared with 54 systems last year.

Twenty-two systems were sold outside the United States compared with 20 last year.

Our first quarter average revenue per system, including all da Vinci models but excluding upgrades and the revenue deferral, was $1.33 million, roughly equal to that for the fourth quarter of 2008.

There were six system sales involving trade-ins of da Vinci systems and five sales of refurbished units during the quarter.

Our installed base of da Vinci systems now is up to 1,171.

Service revenue increased to $39 million, up 44% compared with $27 million last year, and up 9% compared with $36 million last quarter.

The growth in service revenue is primarily driven by a larger system install base.

Total first quarter recurring revenue, comprised of instrument, accessory and service revenue, increased to $119 million, up 33% compared with the first quarter of 2008, and up 1% compared with the fourth quarter of 2008.

Recurring revenue grew to 63% of total first quarter revenue, or 58% excluding revenue deferrals, compared with 47% in the first quarter last year and 51% last quarter.

Our first quarter 2009 gross margin of 68.3% decreased compared with 71.4% realized in the fourth quarter of 2008.

There were no costs deferred in conjunction with the $20.1 million revenue deferral, and therefore all of the $20.1 million impacted gross profit, operating income and pretax income.

Excluding the impact of the deferral, gross margins were approximately equal to the fourth quarter of 2008.

First quarter 2009 operating expenses of $84 million were up 29% compared with the first quarter of 2008, and up $1 million compared with the fourth quarter.

The quarter-over-quarter increase reflects costs associated with 41 employees added during the quarter, higher noncash 123R stock compensation, partially offset by lower consulting, outside service, travel and other operating expenses.

First quarter 2009 patent amortization expense was $3.4 million compared to $1.4 million during the first quarter of 2008 and $3.2 million last quarter.

First quarter 2009 operating income was $45 million, or 23.9% of sales compared with $65 million, or 34.5% of sales for the first quarter of 2008, and $83 million, or 35.7% of sales for the fourth quarter 2008.

As I mentioned earlier, the revenue deferral directly impacted operating income by $20.1 million, representing a 7.3 percentage point decrease relative to sales.

First quarter 2009 operating income contained $22.7 million of noncash stock compensation expense, compared with $14.6 million for the first quarter of 2008 and $21.4 million last quarter.

The quarter-over-quarter increase in 123R expense primarily reflects the impact of our annual option grant made on February 17.

Our first quarter 2009 other non-operating income was $5 million, compared with $8.5 million during the first quarter of 2008 and $5.5 million last quarter.

The quarter-over-quarter decrease is primarily due to lower interest earned on lower investment balances, partially offset by higher foreign exchange losses.

The reduction in investments reflects the $150 million stock repurchase program.

Our effective tax rate for the first quarter was 43.8%, which is higher than our anticipated rate of 40%, due primarily to a reduction in our long-term deferred tax assets as a result of a change in California tax laws.

In February, California revised its income apportionment computation, which will reduce our California taxes beginning in 2011.

However, tax assets previously established the higher California tax rates, are required to be written down to the future rates in the current quarter.

Our net income was $28.1 million, or $0.72 per share, compared to $44.8 million, or $1.12 per share for the first quarter of 2008 and $50.8 million, or $1.27 per share last quarter.

Our first quarter revenue deferral impacted net income by approximately $12.1 million, or $0.30 per share.

In March, the Board of Directors authorized the repurchase of $300 million of the Company's common stock.

In connection with this authorization, we entered into a $150 million accelerated stock repurchase program with Goldman Sachs.

In March, the Company delivered the $150 million to Goldman, and received and retired 1.4 million shares, which is the minimum number of shares due under the program.

Depending on the average daily volume weighted average share price over a specified period that will extend no longer than June, we could receive additional shares for retirement.

The full impact of the retirement of 1.4 million shares will not be realized -- or will be realized in the second quarter.

We ended the first quarter of 2009 with cash and investments of $822 million, down $80 million from December 31, 2008.

The decrease reflects $150 million used to buy back and retire shares, and $27 million invested in fixed assets and intellectual property, partially offset by $79 million in gross cash flow from operations.

Our accounts receivable balance decreased to $139 million at March 31, from $170 million at December 31.

The decrease in receivables reflects lower first quarter revenue and continued excellent collections.

Our net inventory increased to $64 million at March 31 from $63 million at December 31.

Our inventory growth was primarily due to materials acquired to support the da Vinci Si product launch.

And with that, I would like to turn it over to Aleks, who will go over our sales, marketing and clinical highlights.

Thank you, Marshall.

During the first quarter, we sold 66 da Vinci systems, 44 in the United States, 17 in Europe, and five into rest-of-world markets.

A total of 6 system sales were part of trade-up transactions.

The net 60 new system installation brings to 1,171 the cumulative number of da Vinci systems worldwide -- 863 in the US, 211 in Europe and 97 in rest-of-world markets.

Seventeen of the 60 net systems installed during the quarter represented repeat system sales to existing customers.

That included a fifth system, which was an Si system, to Hartford Hospital in Connecticut, and third systems to UCLA Medical Center, Northside Hospital in Atlanta, and the Karlinsky Institute in Stockholm, Sweden.

This brings to 146, the total number of customers which own two or more da Vinci systems.

International sales were particularly strong, and included three more da Vinci placements into China, Germany, Italy and Spain.

Clinically, we had an excellent quarter, with strong double-digit sequential procedure growth, both domestic and internationally.

Demand for da Vinci hysterectomy, both for benign and malignant conditions, sacrocopopexy, myomectomy, partial nephrectomy, cystectomy and da Vinci prostatectomy were most notable.

We also experienced strong international demand for several general surgery procedures, specifically da Vinci colon and rectal procedures and da Vinci thyroidectomy.

In Q1, well over 200 da Vinci-related clinical publications and abstracts appeared within various peer review journals, and our participation at the medical conferences was robust.

Several case studies and series presentations were provided, but I'll limit and highlight just a few.

Last week, we had the clinical unveiling for the new da Vinci Si system at the World Robotic Symposium in Orlando, Florida.

The conference featured 12 live da Vinci procedure broadcasts, which included DVPs, partial nephrectomy, cystectomy and radical hysterectomy.

The Orlando attendance represented approximately 300 clinicians, but the program was also simulcast to 150 urologists in Milan, Italy and over 100 in Seoul, Korea.

The highlight of the program was the unveiling of the da Vinci Si, specifically the cases performed with the dual console.

The first case was a DVP performed by Dr.

Vip Patel, where Dr.

Vip Patel controlled the instruments from one console, and Dr.

Bob Myers, Chairman of the Department of Urology at the Mayo Clinic, observed and learned from the second console.

The second DVP incorporated a second surgeon into the operation.

Dr.

Jeff Colin, a urologist from Australia, assisted Dr.

Patel throughout the operation from the second console.

The US, European and Asian audiences observed what several described as a paradigm-shifting approach to robotic training, as well as an interesting new multi-surgeon approach in the management of very complex surgical procedures.

The commentary from the surgeons also included very positive reviews on Si's next generation vision system, enhanced motion scaling and expanded user interfaces.

All in all, it was a very positive launch for what we believe to be an exciting new product offering in Intuitive Surgical's product line.

In the January edition of the Journal of Robotic Surgery, a publication from a urology group out of Korea led by Dr.

Ee-Rah Sung entitled "the Halo Effect in Korea -- Change in Practice Patterns Since the Introduction of Robotic Assisted Radical Prostatectomy," highlighted an interesting phenomenon taking place in urology centers around the world.

We have often discussed the expansion of a hospital's prostatectomy business following the initiation of a da Vinci program, but I don't recall it being detailed this clearly with empirical evidence in a peer reviewed publication.

This analysis tracked the relationship between three variables -- open prostatectomy, da Vinci prostatectomy and overall prostatectomies performed over a 33-month period beginning in July of 2005.

The numbers were as follows -- 663 prostatectomies were performed, 274, or 41.3%, were performed with open surgery, and 389, or 58.7%, were performed with da Vinci.

The evolution of the distribution is what's noteworthy about the analysis.

During the first three months of their study, 92% of the prostatectomies were performed using open technique, compared to 8% with da Vinci.

At the end of their study, 23% were performed with open surgery compared to 77% with da Vinci.

What surprised the authors most was the overall growth of their prostate business during this period.

During the 33-month period, total prostatectomy volume had grown from an average of 25 cases per quarter to an average of 103 cases per quarter, and all of this growth came by way of da Vinci.

Da Vinci procedures had grown from two procedures per quarter to 79 procedures per quarter, while open prostatectomy remained flat.

Their prostatectomy business quadrupled, and all of the growth was DVP.

There are a couple of theories as to why this was.

First, a consolidation of prostate cancer patients within their particular geography, and second, a conversion of patients away from other potential prostate cancer therapies.

It is always challenging to capture how much growth came from which bucket, but I believe it's fair to assume that both are taking place, and not just in Korea.

The authors concluded their publication with the following quote -- "It seems that the next generation of surgical innovation has arrived in the form of the predominant telerobotic surgical system, the da Vinci surgical system, which may become the gold standard technique for the management of localized prostate cancer in the near future." -- close quote.

Once again, da Vinci partial nephrectomy was among our fastest growing procedures quarter over quarter.

The clinical advantages of da Vinci partial nephrectomy over conventional laparoscopy and open surgery are being discussed more frequently at various urologic conferences.

And the data pools are beginning to form.

At this year's Pan-American Robotic Oncologic Symposium, or PAROS, Dr.

Sam Bhayani, a leading renal cancer surgeon from Washington University in St.

Louis, presented multi-institutional data comparing warm ischemic time between da Vinci partial nephrectomy and conventional laparoscopy for both simple and complex disease.

The importance of re-establishing blood circulation through the kidney as rapidly and efficiently as possible is an important determinant to the kidney's long-term function.

Reducing warm ischemic time is of paramount importance to all involved.

In Dr.

Bhayani's presentation, he showed that in simple partial nephrectomy, where the tumor is not invading the collection system, warm ischemic time for da Vinci cases was 15.3 minutes, which compared to conventional laparoscopy's 25.2 minute warm ischemic time.

Within the cohort of complex invading tumors, the warm ischemic time within the da Vinci cases averaged 25.9 minutes, which compared to 36.7 minutes for conventional laparoscopy.

The average blood loss was similar, within the simple cohorts, but within the complex cohorts, da Vinci patients experienced approximately 30% less blood loss.

The dissemination and adaptation of improved clinical technique, training and new instrument enhancements should help improve these important metrics even further.

This year's annual Society of Gyn Oncology Conference included several clinical outcomes and surgical technique presentations on da Vinci hysterectomy.

Most of these presentations concerned both cervical and endometrial cancer.

One of the more interesting presentations was an actual cost comparison between da Vinci hysterectomy and conventional laparoscopy for endometrial cancer staging.

Some among the advanced laparoscopic community have expressed opinions relating to a potential cost disparity between conventional laparoscopy performed by a skilled laparoscopist to that of a da Vinci hysterectomy.

Dr.

[Ravi Hanna] and the team from the University of North Carolina set out to compare for themselves.

They presented the economic findings from 147 hysterectomies performed for endometrial cancer.

Their study compared the average cost from 81 da Vinci hysterectomies to 66 of their conventional laparoscopic hysterectomies, itemizing various costs, which included instruments, anesthesia, PACU, boarding, lab, pharmacy and operative costs.

The overall difference between each of these sub categories was pretty insignificant, and the overall cost difference was also insignificant.

In fact, the da Vinci hysterectomy cohort was actually on average $53 less per procedure than the conventional hysterectomies at their facility.

When you factor in the reduction in da Vinci hysterectomy complications, which this group has reported on in various publications in the past, the reasons to use da Vinci become even clearer.

This concludes my summary, and I'll now turn the time over to Ben.

Thank you, Aleks.

I will be providing an update on our forecast for 2009 based on our results in Q1.

First, as outlined by Marshall earlier, we expect the $20 million of revenue we deferred in Q1 to be recognized starting in the second quarter and completely recognized by the end of 2009.

As a result, this should have no impact on our revenue for the year.

Moving on to procedures, our procedure growth has been stronger than we previously expected.

Procedures grew approximately 60% in the first quarter, consistent with our procedure growth for all of 2008.

As a result, we expect procedures to grow more than 40% this year, compared with our previous forecast of 35% to 40%.

Procedure growth will continue to drive significant growth in our total instrument and accessory revenues this year.

However, stocking orders, which are tied to new system sales, are likely to fluctuate in the near term.

In addition, as we saw in Q1, our customers' ordering patterns could cause some fluctuations in our revenues per procedure.

While our revenues per procedure should normalize over time, we could see increases or decreases on a quarterly basis this year.

Previously, we forecasted 25% to 30% revenue growth in our instrument and accessory revenues.

Although we expect procedures to grow more than we previously forecast, we are less certain that we will achieve this revenue forecast.

At this time, we are suspending our previous guidance for instrument and accessory revenue growth.

When we gain better visibility, we plan to resume providing you with a revenue forecast for instruments and accessories.

We would like to emphasize that in the longer term, instrument and accessory revenue growth should more closely match our growth in procedures.

While procedures will drive our revenue -- while procedures drive our revenue growth, in the short-term, the environment for hospital capital spending remains highly uncertain and difficult to predict.

As an example, we sold approximately 10% fewer systems in the first quarter than we previously expected.

Last quarter, we forecasted flat system sales for the year.

Although demand for systems continues to be strong, we are suspending guidance for systems revenue.

Once again, when we gain better visibility, we plan to resume providing you with the revenue forecast for systems.

Our service revenue model has been very consistent, and we expect it to remain as it has in the past.

We are generating an average of about $140,000 in service revenue per system per year.

Since our service revenue is driven largely by the installed base, we continue to expect service revenue to grow approximately 35% this year.

With regard to gross margin, it should be noted that we did not defer any costs of sales along with the $20 million revenue deferral in Q1.

Therefore, when the deferred revenue is recognized in the ensuing quarters this year, it will result in increased gross margin.

For the year, the deferral should have no net impact.

We continue to expect our gross margin for the year to come in between 70% and 71%.

With regard to operating expense, last quarter we provided a forecast of growing our GAAP operating expense by approximately 20% in 2009.

Based on our current plans for the remainder of the year, we expect our GAAP operating expense to grow by approximately 17% from 2008 to 2009.

Included in this estimate are some significant increases in non-cash expenses.

First, with regard to FAS 123R, in 2008, we recorded $77 million stock compensation expense.

In 2009, we expect stock compensation expense to increase 24% to approximately $95 million.

And secondly, with regard to IP amortization charges, we are scheduled to record approximately $16 million in the R&D expense line for 2009, up 60% from the $10 million we recorded in 2008.

We will continue to manage our fixed costs closely, as we demonstrated in Q4 and Q1.

However, we will continue to add resources in the sales and R&D functions, as we view these as important investments to continue driving growth in the near-term and the long-term.

With regard to income tax, the tax adjustment related to changes in state tax laws that impacted our Q1 tax rate is not expected to recur in the balance of the year.

Going forward in 2009, we expect to report a GAAP tax rate of approximately 40%.

For calculating earnings per share, we ended the quarter with 37.9 million shares outstanding after buying back and retiring approximately 1.4 million shares through our accelerated buyback program.

We will complete the accelerated buyback by the end -- by the middle of June, though the number of additional shares we receive under the program will be small compared with the 1.4 million already received.

Approximately 500,000 shares were added to the diluted share count for calculating EPS in Q1.

Therefore, we expect our share count for calculating EPS in Q2 to be approximately 38.4 million shares.

Finally, when analyzing and forecasting our cash flows, it is important to note that while we reported net income of approximately $28 million in Q1, we generated approximately $90 million in cash from operations during the first quarter.

The $20 million revenue deferral caused a significant part of this difference.

An even larger contributor to the difference was our recording of approximately $23 million of FAS 123R stock compensation expense.

And we continued -- and we expect to continue to record approximately $24 million per quarter for the rest of the year.

As a result, our cash flow should continue to be significantly higher than our reported net income.

That concludes our prepared remarks.

We will now open the call to your questions.

(Operator Instructions).

David Lewis from Morgan Stanley, you may ask your question.

Good afternoon.

Hi, Stephen.

David.

So I'll try to limit this to a few questions.

I guess first of all, maybe just talk us through thematically the decision to suspend guidance.

Was this a -- things you learned incrementally into the first quarter, or the difficulty in filling boxes in the first quarter that led you to this?

Or simply the operating environment got less visible materially in the last six weeks, so there's too many factors to control for, so suspension of guidance seems most prudent?

Yes, I think you're on to it, David.

Given the current environment, our visibility in the system sales is not very good, and this was evidenced in the first quarter where we missed our system forecast by about 10%.

And so rather than give you guidance that has a high degree of uncertainty, we're just going to suspend guidance at this time.

And when visibility improves, we plan to resume giving you guidance.

Would you say this means that your visibility from three months ago is better, worse, or the same?

It's probably relatively the same.

I actually think it might be a little bit better, but because we've seen -- actually in terms of just the range of what could have happened, I think that we performed quite well.

But if we were to give guidance, it would be such a wide range, it might not be very meaningful.

So, we've decided let's see what happens, and as we get further down this path, we will get more confident in our ability to forecast, we will be willing to do so.

Just to add one point, David, is that we -- as you know, we manage a pipeline and we work on a lot of different deals.

What's become difficult is not knowing what deals you're working on, but trying to predict the demand in reconciling it to when is it going to close.

And predicting that within 90-day windows became very hard.

But again, working on a lot of systems is something that we continue to do; just predicting the closure on them is harder.

Okay.

Just a couple more questions.

Just on instruments specifically, would you say that more of the variability is tied to the pricing and mix issues than we talked about last year?

Or is this more of not understanding the inventory in the channel with customers today?

So, David, for changes that happen pretty rapidly, like from Q4 to Q1, the things that can move things the fastest are things like changes in stocking orders, which we definitely saw.

And also changes in, let's say, customers managing their inventory.

The things that we talk about -- that we talked about before, like efficiencies and procedure mix, those are things that gradually impact the revenue per procedure over longer periods of time.

Okay, and then just last question, I want to kind of get back to the deferral of revenue.

I don't know if Marshall can provide us some detail on how many customers were affected by the deferral in this quarter, so how many specific upgrades?

And then how many actually were affected by the specific accessory upgrade?

Yes.

So this was a program that we developed in order to make sure we were being fair to customers that were buying da Vinci S's in a quarter just before we introduce a new product.

And so when you say how many customers were affected, we effectively offered all customers of the S, the opportunity to upgrade.

Now, the accounting rules are kind of convoluted and they basically require us then to defer the amount of discount that we're offering them to buy the upgrade at, and the discount being that from list price.

But we made the offer so that effectively had they bought an S -- if they bought an S, the amount that they will have to pay to get to the Si equivalent is equal to what we would have sold them an Si for.

I'll help you a little bit there, David.

There were 44 customers who got an offer for a discounted upgrade.

And if I could just give you one example that helps you understand how this works, because it is a little bit complex.

Let's assume that you bought a system for $1.6 million this quarter.

And the normal price of an upgrade is $600,000, but we offered to that particular customer an upgrade for $150,000 to get them to a list price of $1.75 million for a da Vinci Si.

So what we deferred, let's say, for that customer is $450,000.

That's the difference between the $600,000 list price of the upgrade and the $150,000 that they would pay if they choose to do the upgrade, okay.

And then we withheld that $450,000 from the recognition of the $1.6 million sale in Q1.

If the customer chooses not to upgrade, and we did give them a limited timeframe to make this decision, if they choose not to upgrade, we're going to recognize the $450,000 when the offer expires.

If they choose to upgrade, we're going to recognize $600,000 at the time that they upgrade.

I hope that helps clear it up.

It's actually very, very helpful.

And then lastly, and I'll jump back in queue and let someone else take a crack here.

In terms of the timing of the system, you've launched new systems before, at various times during the quarter.

I'm just curious as to -- we have not seen a significant deferral program before.

So was there a specific -- was the economic sensitivity tied to the specific timing or nature of this program or were they unrelated?

David, really, again, what we're trying to do is to be fair to customers who are buying da Vinci S.

So it's really -- the timing is unrelated.

It had to do with upfront thinking about the rollout program and what made sense.

And the other thing is the last major, let's call it larger product launch was standard da Vinci to da Vinci S.

Those two were not compatible in terms of an upgrade that would have been missing.

In other words, the S can be upgraded to the Si.

The standard could not be upgraded to the S.

Okay.

Well, we also learned from that experience with the S that we had a few very unhappy customers and we -- and the accounting rules, because of the way we treated it, did not allow us to talk with them for six months to even communicate anything to them.

And that's just not the way we want to run our business.

It -- long term, these are our customers.

We want them to be happy.

We want to treat them as the way we would want to be treated, and so we structured this and taken the hit in this quarter to be able to -- because we believe long-term we'll have a better relationship with those customers than if we treat it as we did with the S.

Okay.

I'll jump back in queue.

Thank you.

Tao Levy from Deutsche Bank, you may ask your question.

Great, thanks.

Good afternoon, everyone.

Hi, Tao.

So how long does it take to upgrade an S system?

You guys had mentioned anywhere between 2Q and the rest of '09 you'll get a decision.

Is it relatively quick?

Is it mostly software?

So, first of all, make clear that the offer is valid till the end of June, so they have till the end of June to decide whether they want to be upgraded.

Okay.

But it is both -- Gary, why don't you answer this.

It's both software and hardware.

Yes, in terms of physically what it is, it's a fair amount of hardware as well as the software that goes in it.

And to physically do it is kind of a half a day, an afternoon.

Got you.

And basically all the S's out there could potentially be upgraded?

And do you have a number roughly?

Of how many there are out there?

Yes, of how many S's that could be upgraded.

Well, of the 1,171 systems that are out there, I think over 700 of them are the S variety.

Okay, great.

And then just to be clear, in terms of going on a go-forward basis, you aren't probably going to have any more of the deferrals -- deferred revenues?

So this offer is only for Q1 customers, not 2Q or anything like that?

Correct.

Yes.

Okay.

And then the last question, you kind of provide a little bit of insight into your thinking around single incision.

Gary, I was wondering if you could maybe flush that out.

Maybe if -- are there any milestones, timing of when something like that could become more visible out of Intuitive?

I guess what I would say is we'll share with you as we progress where we are.

Right now we're in the early phases.

We're looking closely at both the technology and the IP required to do it.

And as that work progresses and there's an appropriate milestone, we'll let you know.

Okay, thank you.

But Tao, by policy, we do not pre-announce products, and nor would we start.

Yes, I was just trying to get a sense of where it was and the progress.

And just a last question this time.

I know you're not providing full-year guidance because of the visibility.

But, Ben, any trends heading into the second quarter that might be helpful for us?

Yes, I think the best data point we have is that we just sold 66 systems in Q1 and, again, that was down by about 10% from Q1 of last year.

And I know there was a wide range out there of forecasts, and some people were thinking we'd do quite a few less than that and some people thought it would be more.

We were hoping for more.

But anyway, I think that's probably our best data point at this point.

Okay, great.

Thanks a lot, guys.

Mimi Pham from JMP Securities, you may ask your question.

Hi, good afternoon.

Can you just clarify then, the 66 systems for first quarter, none of these are double counted, right?

I mean if there was someone who bought an S in first quarter and then upgraded to an Si, do they count twice?

Or all of these were first customers?

So we sold 66 systems in Q1.

We announced the Si after Q1 was over.

So there's no overlap or double counting.

And just to kind of reiterate what Marshall said, we did the launch with the plan of going back to those Q1 customers who just purchased to give them an offer to upgrade so that they could feel like they were not given the opportunity to buy an Si if they could.

But Mimi, to answer your question.

No, there was no double counting, and nor will there be when we upgrade.

We will not count that as an additional system.

We'll count it as an upgrade.

Okay, and thank you so much for that clarification.

And then I know you're not giving guidance, but in terms of what we normally see for you guys is first quarter.

Whatever you do in first quarter for system sales, we generally see a better number second and third quarter, and then a better number than that in fourth quarter.

Is that -- kind of similar to the last question, is that what you expect to see?

Or is there a risk just given what we're seeing in the complex environment of even the second quarter being sequentially lower than the first quarter?

So I think what we can say is, you're right, the seasonality we have seen in the past is the second quarter is typically up from the first quarter.

And by the way, for service revenues and instrument accessory revenues, you're going to expect some sequential growth.

With system revenues, there's less certainty there.

All things being equal, you would expect sequential growth.

But we don't have enough visibility to make that call at this time.

Okay.

It gets right back down to, it's not the pipeline, it's the point that Aleks made earlier and we made it actually on the last call.

Is just you get right down to the last signature, and somebody decides that -- not to do it because of just concern for the current financial situation.

On the other hand, as the economy -- if it does get better, and as people gain some confidence, then perhaps that will be a positive.

It just depends on what happens in the environment we're in.

When we overlay it all, there's really -- demand comes from really three areas.

You've got procedure demand.

You've got physician demand to deliver those procedures, and you have hospital demand to build robotic initiatives.

The demand is strong in all of those universes.

The challenge is converting the last one to an actual sale in a predictable time period.

And -- but the sales people are very active.

And as you can tell by global procedure expansion during Q1, the -- probably the most important component is well intact, and that is the procedure demand.

And I guess you mentioned -- or you addressed this a little bit on the last questions, but in terms of the international markets, are you seeing less visibility in there in terms of delays hitting their CapEx purchase decisions more than what you had seen in first, fourth quarter?

Again, as we sometimes mention in these calls, is that it's really hard to give a single answer for the international market because Europe is made up of 26 markets and Asia's made up of a number and the Americas, et cetera.

But again, when I look across the board, across Europe into Belgium, Denmark and France, let's say in Germany, their procedure numbers were exceptionally strong.

If I look at Korea, Canada and Brazil in our [O-US] distribution market, very, very strong.

And even the distribution within Europe, be it Romania and Turkey, and whatnot.

So in general, each one is going to vary.

Each country is a little bit different, and each region is different.

Q1, we sold 22 systems, and our procedure growth was exceptional.

I think it was a very good performance.

Great, and then just last question, the -- we've heard feedback that the Si is really a great tool for your teaching hospitals.

Can you let us know how many of your customers in the US are teaching hospitals that might be the best candidates for the Si upgrade?

Well, I would say this, that it -- I can't give you the exact number of customers, but I can tell you that less than 2% of the US hospitals are academic medical centers, which is approximately 150 medical schools across the United States.

But when you then add in the caveat of teaching, we have teaching centers that are not university-based, that are very large community hospitals or large active community hospitals that can be teaching centers for us.

So it isn't as clean an answer to say -- I can't give you a much cleaner answer.

There are a number of centers and there are a number of academic hospitals that have residency programs, and I think your reconnaissance is accurate.

I think it makes -- it changes the potential paradigm for how robotic training can go forward.

Okay.

Thank you so much.

Ben Andrew from William Blair, you may ask your question.

Good afternoon.

Maybe just following up on the time to close question.

Can you sort of characterize the magnitude of the change?

I mean if you missed by 10%, could we sort of extrapolate that and we're still getting to closing, but 10% slower?

And like you said, the pipeline is still quite full, so over the course of several quarters you should see those same orders come back through?

Is that the way you're looking at it?

In Q1, we got some of the orders that were postponed in Q4.

And as you might expect, you have people that are maybe taking longer to make some of those decisions and that's what's causing some of the uncertainty of when these things are closing.

I'm not sure that you can do an extrapolation, a straight extrapolation that says 10% down is going to be what it's going to be for the rest of the year.

But that's what we see so far.

I guess it depends on your time horizon.

Will we get these?

Yes, we believe we will get them.

Right.

It's just we don't know when.

All right.

We think longer term, as the economy normalizes a little bit -- I don't think it will get back to where it was -- but as it normalizes, then the confidence will build and people will buy those that have capital freezes on at this point in time.

Okay.

If we can talk a little more about the upgrade, I mean, the Si, is it a -- there's only one variety of upgrade?

Or can somebody take the functional upgrade without the training console?

Actually I think I sense a little bit of a confusion.

So there's a new system version.

It's called the Si.

And you can upgrade from an S to an Si.

So we didn't launch just an upgrade.

We launched a new system, and you can actually convert an S to an Si.

Okay.

But the second console is available as an option.

So you convert the base system from S to Si, and then you can buy the second console as you describe.

The second console is not necessarily part of the upgrade.

I understand.

And so the upgrade cost would be the $600,000 that you mentioned, the list price?

Correct.

Okay.

But the list price of a new system with a single console is $1.75 million and the list price of a second console is $500,000.

Okay, so the Si will essentially replace the S as your top-of-the-line product.

Will you continue selling the S or does that get discontinued?

That's a good question.

We will continue to sell both S and Si, and we expect to sell the S version for quite some time.

Okay, and then as you think about the customers that purchased an S before the first quarter, there might be some grumpiness there too in terms of the relative near-term nature of the upgrade.

Have you thought through kind of offering some of those customers upgrades at some sort of a discount, and is there a systematic process to go back to them?

Or are you forbidden under the six-month rule of doing that?

Well, we'll try not to let the accounting rules dictate everything we do, but we will try to work with each of our customers, the people who bought maybe in Q4 or in 2007, and work with them as best we can.

Okay.

You mean in 2008, of course?

Yes.

Okay.

Fair enough.

And the ones in 2007.

We'll work with all of our customers in upgrading, obviously.

Yes.

Yes.

Of course.

All right, last question.

On the instrument pull-through, there's a question relative to, obviously, the revenues relative to the procedure volumes and you've characterized I think some of the different dynamics there, some that move more quickly than others.

How much movement has there been in hospitals relative to that gain of efficiency?

So trying to tease out that effect of somebody maybe using fewer instruments per case, if you will, or being more efficient with how they use these expensive instruments?

I think when you think of efficiencies even, there are some sub-components of efficiencies.

For example, if you look at a hospital's inventory system, they may have a few instruments in the operating room.

They may have central storage.

They may have a couple of different places to make sure they do not have to cancel a case because they are missing one key instrument.

That sort of par level setting and managing of inventory is a pretty natural progression through just about any medical device technology I've been associated with for a long time.

And so I think that's one component.

The other is surgeons becoming more efficacious with the instruments used in the operation.

I think that tends to mirror procedure efficacy more than it does how do I get $200 out of this case?

And so when we talk about stocking orders, we are often referring to the initial system purchase and the instruments that come with it.

When we talk about efficiencies, it can be in the management of inventory within the hospital.

And then there are certainly components which we totally expect as we become more readily used in simple procedures, and that's the instrument mix in the actual procedure.

Okay.

So that combined with the procedure mix, because obviously a prostatectomy might use a different number of instruments or cost of instruments than, say, a hysterectomy?

Yes, and I would point to the area, and I think we called this out in one of the previous calls, that some of the benign GYN procedures can perhaps consume fewer instruments.

And we're perfectly happy about that, because as we go into these simple cohort of procedures, the volumes are significantly larger, and I think moving into that is a very positive thing.

We'd much rather have three instruments or four instruments in a universe of significantly large procedures than we would to have five instrument procedures in relatively small universes.

Okay.

Thank you.

Vincent Ricci from Wachovia, you may ask your question.

Great.

Guys, just a couple of quick questions first.

So just to get this -- you guys were really good about explaining it, but I just want to make this abundantly clear.

Sixty-six systems were physically placed in the quarter.

Is that correct?

They are actually installed?

That's correct.

Okay, and did you recognize the cost of goods sold on those systems, and that's why it's basically $20.1 million in deferred operating income?

Correct.

That's correct.

We did not defer any costs along with the $20 million of revenue.

Okay, and then on your deferred revenue entry on the balance sheet, I mean that's predominantly your service contracts.

But could you just go into a little bit -- do you have orders that kind of -- someone signed, but the installation doesn't slip?

Or how does that work?

Can you just walk us through that a little bit?

What's in deferred revenue on the balance sheet right now is pretty much the prepaid service contracts and this $18 million of deferred revenue associated with this deferral we just did.

Okay, great.

Can you just give us quickly the international and domestic breakout?

For the quarter or for the installed base, or both?

For the quarter and specifically just overall revenues.

Oh, revenues -- the system placements, and we sold 17 in Europe and five in rest-of-world markets.

The revenue, I'll let Ben --

It was roughly 75% of our revenues in the US, 25% international.

Okay, great.

Just for a quick question on the stuff you guys are working on.

I realize you don't talk about anything in advance, but you have mentioned you picked up the IP from Power Medical.

Can you talk just a little bit about where you guys are with the surgical stapler?

We're in the process here of development.

So far, so good.

Okay, great.

And I guess lastly, with the standard system, is that something you guys are still selling, or is that something you guys are going to phase out over time?

We sold five refurbished standard systems during Q1.

And over time, it's probably, now that it's maybe a couple of generations older than the latest one, it will probably decrease in terms of the number of these that we'll sell going forward.

But we're not manufacturing standard systems any longer.

We do take them back as trade-ins.

We refurbish them and sell them to those people who are looking for a low-price system.

They still use instruments and they still do the job, they just don't do it quite as well as the newer systems.

Okay, great.

And then I realize it's not a large part of your international sales right now, but can you tell us what you're seeing with the emerging markets, particularly with the currency movements that have happened?

That's a good question.

I don't know if you would call this an emerging market, but in Korea, the Korean won has definitely gotten weaker versus the US dollar.

And in places like that, it's more difficult for those guys to purchase systems, and we actually did not sell any in Korea in Q1.

Okay, and I'll just make this my last question because I've clearly just taken up a lot of time.

But can you just talk to us a little bit about -- you've been talking about the de-stocking at hospitals.

But can you talk to us a little about any distributors you have, say in Europe and whatnot?

Do you have stocking distributors in Europe, and is that an issue potentially?

So there's normal fluctuations in the buying patterns of our European folks.

It was -- we did actually do one thing.

We took the UK direct -- it was through distribution up through the last year and then starting the beginning of this year, we took it direct.

And so there's a little bit of a transition there.

It didn't have a material impact on that quarter's results.

Okay, great.

Thanks, guys.

I appreciate it.

The next question comes from Tycho Peterson from JPMorgan.

Your line is open.

Hey, thanks for taking my call.

Maybe just starting out with one on the market opportunity for the Si, and I appreciate the color on the mix and some of the discussion on DVP and DVH.

But are you anticipating a similar kind of procedure mix?

And then can you just talk a little bit about how you're viewing the greenfield versus upgrade opportunity?

And maybe with that in mind, talk a little bit about some of these deferred orders, too, if that mirrors the kind of existing mix?

I know it's a lot of points, but if you could just elaborate, that would be helpful.

Okay.

I'll take a shot at some of those.

Greenfield versus sales to --

As we think about the installed base for maybe over the next 12 months for Si, how many of these systems do you anticipate going to new customers, versus upgrading your existing install base?

Oh.

Well, we'll certainly continue to sell to new customers.

In Q1, it was a fairly high mix of sales to existing customers.

And that can also be a factor of the environment, where it's -- in a tougher buying environment, the folks who know exactly what they are getting, existing customers are more likely to make a decision quicker than some of the ones who don't.

We may see that continue.

I think that that's a testament to the value of the system, actually.

Those that have it see the value, they see the revenue that it brings, and they are invested heavily in it and it's made a priority investment for them.

And so they continue to buy because it's an opportunity for them to take market share and build revenue.

Okay.

And of what you've talked about on the deferred revenues, I mean does that mirror kind of the mix you've been seeing with greenfield versus upgrades?

I'm not sure I understand.

Yes, the -- I believe they are disconnected, and that the deferred has to do with the 44 accounts that purchased in Q1.

Right.

And those are all --

So when you look at the overall mix of greenfield versus second systems in Q1, out of the 60 net new systems, 17 were to existing customers.

If you look at it including the trade-up transactions, that number grows to 23, and most of those were in the United States.

Okay.

That's what I was getting at.

But have you done a global upgrade?

I mean you talked about 44 customer offers for the upgrade, which kind of mirrors the US number.

Are there plans to --

Oh, no.

So there were -- of the 44 systems that were impacted, eight of them were international and the other ones were in the United States.

So we made the -- we made offers internationally as well.

Okay.

That's helpful.

On -- and then just on service, I guess I would assume in this environment it's going to go up a little bit, both as a function of longer utilization and the upgrade path.

And you talked about kind of not having a change in your outlook there.

Can you just comment, I guess, as to why that's not picking up a little bit in this environment?

Or a little bit more beyond what you had previously expected?

So remember, service is just the ongoing annual fee that we collect from the installed base.

So there's 1,171 systems out there, and the reason why the service revenue is not fluctuating too much is most of the service revenue comes from the installed base.

And it will go up as we install new systems, but in proportion to the installed base, it's -- the new systems will be a small percentage.

And that's why you don't see too much fluctuation on service revenues with, let's say fluctuations in new system placements this year.

Okay.

And then you had talked in the past about leasing picking up a little bit and I think you said last quarter that you weren't expecting to really expand that program.

But any views in light of the current environment as to how you're looking at that?

Yes, we'll ask this one last question, Tycho.

On leasing, it has been relatively the same, 15% to 20% of our sales in Q1 were leases.

And they were actually across six different leasing sources.

There continues to be no shortage of leasing available to our customers.

Got it.

All right.

I appreciate the color.

Thanks.

We'll take one last call -- or one last question.

Yes, sir, thank you.

Your last question comes from Ed Shenkan from Needham.

Your line is open.

Thanks, Lonnie.

Got in under the bell here.

We knew you were waiting.

Yes.

Wanted to ask you on calculating ASPs, maybe you can help me, because if I take $1.33 million per system times 60 new systems, I get $79.8 million, which is $10 more million than you reported for systems.

So how do you do the calculation?

What am I missing?

So just -- it's really straightforward.

Take the system revenue, add $18 million to it, and then divide that by 66 and you will get the ASP of about $1.33 million, and it's about the same, exactly the same as it was in Q4.

It's almost the same as it was in Q1 of last year.

And what's an ASP going forward for the S robot -- the Si you said is $1.75 million.

And maybe you could break it out US and O-US for the S going forward.

So average selling prices, given the launch of the Si at a higher price and the fact that you can buy it with the feature of a second console, could cause our ASPs to go up going forward.

As you know, the product mix and the geography mix will have impacts on that on a quarterly basis.

But just given the fact that we've got a new product out here with a higher price could cause our ASPs to increase.

What will the ASP for the S be going forward?

Will it stay at where it's been or go down?

Where should it be?

We'll see.

Well, the list price is staying where it's at.

Yes, the list price is staying exactly where it's at.

And did you have to discount it at all in the first quarter?

I think the ASP is indicative of where our pricing has been and continues to be.

Pricing was pretty consistent with where it was in Q4 of last year and Q1 of last year.

But less the service component.

Yes, but the average selling price is --

Because the warranty's in that, yes.

Yes.

And last question.

Is it fair to say then in the -- outside the US for selling systems, you haven't seen the weakness even close to what we've seen in the US impacting your businesses, is that right?

You know, again, I would sort of hedge back to the earlier comments of, it varies by country.

It really does.

I mean some countries that you have seen systems sold in, in the past, you did not see this quarter.

And then you've seen a lot of strength, for example, out of Korea for some period of time.

Germany is picking up strength and for the last few quarters has been very strong.

Italy has been strong for a long time, but you -- it's going to vary country by country.

At the end of the day, 22 systems from outside of the United States were sold in Q1, which was I believe two more than last year.

So the system placements were actually higher on a year-over-year basis internationally and roughly 10% lower in the United States.

Okay, thanks very much.

Thank you, Ed.

That was our last question.

As I've said previously, while we focus on the financial metrics, which is revenues, profits and cash flow during these conference calls, our organizational focus remains on increasing patient value by improving surgical outcomes and reducing surgical trauma.

I hope the following three patient experiences give you some sense of what that means in the lives of our patients.

The first patient is a 12-year-old girl born with an undiagnosed double uterus and missing kidney.

When she first began menstruating, she experienced excessive pain.

She went to the local hospital and was [opened from] sternum to pelvis.

Excess blood was drained from her non-functioning uterus and the incision closed.

She continued to experience extraordinary pain, was seen by Dr.

[Stapi] in Miami, Florida.

He recognized the anatomical abnormality and the second uterus without a vaginal outlet.

He drained 1.5 liters of trapped blood from the redundant isolated right uterus and performed a hysterectomy on that uterus, the right fallopian tube and the right ovary with the da Vinci system.

She was released less than 24 hours after the surgery with minimal pain and resumed her life as an active 12-year-old.

The second patient is the wife of a member of our marketing team, who had been diagnosed with uterine fibroids.

She had a myomectomy performed by Dr.

[Avincula] at the University of Maryland.

She was treated as an outpatient, returned to the hotel 10 hours after entering the hospital, had dinner with her husband and went shopping at the mall the next day.

The last patient is from Illinois, who was personally -- who personally had undergone two da Vinci surgical procedures.

In February of 2007, the patient underwent a da Vinci prostatectomy performed by Dr.

[Shelhave] at the University of Chicago.

He was discharged in 24 hours, and says he walked out of the Medical Center, went home and mowed his lawn the next day.

Less than a year later, however, he was diagnosed with a blocked artery - or a couple of blocked arteries and he needed a coronary artery bypass, which required a full sternotomy followed by an extended recovery period of one month or more.

He said that he decided right then and there that he didn't want anything to do with open chest surgery.

He drove home, got on the Internet and learned that he could have a da Vinci surgery for his heart as well.

Four days following the double bypass performed by Dr.

[Shavastiva] at the University of Chicago, I walked out of the Medical Center, went home, and played ball with my grandson.

Patients like these are the strong -- are our strongest advocates for surgery with a da Vinci system and are the very foundation of our operating performance.

In closing, I assure you that we remain committed to focus on the vital few things that truly make a difference as we strive to take surgery beyond the limit of the human hand.

This concludes our call today.

We thank you for your participation and support of this -- on this extraordinary journey.

We look forward to talking with you again in three months.

Thank you for participating in today's conference.

You may now disconnect.