Aleks Cukic - Vice President of Strategy Calvin Darling - Director of Financial Planning Gary Guthart - Chief Executive Officer, President and Director Marshall Mohr - Chief Financial Officer, Principal Accounting Officer and Senior Vice President

Tycho Peterson - JP Morgan Chase & Co Jonathan Demchick - Morgan Stanley Ben Andrew - William Blair & Company L.L.C. Lawrence Keusch - Morgan Keegan & Company, Inc. Tao Levy - Collins Stewart LLC Unknown Analyst - Mimi Pham - Weeden & Co., LP Lennox Ketner - BofA Merrill Lynch

Ladies and gentlemen, thank you for standing by, and welcome to the Intuitive Surgical second quarter earnings release conference call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to our host, the Director of Financial Planning, Mr. Calvin Darling. Please go ahead.

Good afternoon, and welcome to Intuitive Surgical's second quarter conference call. With me today, we have Gary Guthart, our President CEO; Marshall Mohr, our Chief Financial Officer; and Aleks Cukic, our Vice President of Strategic Planning. Before we begin, I would like to inform you that comments mentioned on today's call may be deemed to contain forward-looking statements. Actual results may differ materially from those expressed or implied 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 Archive 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 second quarter results as described in our press release announced earlier today, followed by a question-and-answer session. Gary will present the quarter's business and operational highlights. Marshall will provide a review of our second quarter financial results. Aleks will discuss marketing and clinical highlights. Then I'll provide you with an update to our financial forecast for 2011. And finally, we will host a question-and-answer session. With that, I will turn it over to Gary.

Thank you for joining us today. We are pleased with our growth in da Vinci procedures and with customer response to our recently released products in the second quarter. Our team has executed well in our 4 areas of focus for 2011, which are first, extending the benefits of minimally invasive surgery in gynecology and urology globally. Second, expanding robotic surgery and deepening our organizational capability in Europe and Asia. Third, crisp execution in our product development efforts. And finally, enabling emerging procedures in thoracic, transoral, colorectal and general surgery. Turning to procedures. Total procedures grew 30% over Q2 of 2010. And da Vinci Hysterectomy followed its seasonal pattern posting solid growth in hysterectomy for both malignant and benign conditions. In urology, da Vinci prostatectomy continued to grow, primarily through growth in Europe as expected. Pull-through procedures namely partial nephrectomy, endometrial resection and sacrocolpopexy grew nicely in the quarter. Emerging procedures in TransOral Robotic Surgery, thoracic surgery and colorectal surgery have also showed strength, with clinical publications emerging from early adopting centers. Aleks will provide additional procedure commentary later in the call. Turning to operating highlights for the second quarter. Procedures grew approximately 30% over the second quarter of 2010. We sold 129 da Vinci Surgical Systems, up from 108 during the second quarter of last year, and 99 of which were purchased by U.S. customers. Total revenue was $426 million, up 21% over last year. Instrument and Accessory revenue increased to $172 million, up 35% over Q2 of 2010. Total recurring revenue grew to $239 million, up 31% from prior year and comprising 56% of total revenue. Net income was $117 million, up 32% over last year. We generated an operating profit of $203 million before noncash stock option expense, up 19% from the second quarter of last year and representing 48% of Q2 revenue. We ended the quarter with $1,822,000,000 in cash and investments, up $65 million from last quarter. Significant cash outlays during the quarter included $39 million invested in intellectual property and fixed assets, and $139 million used in the repurchasing of stock. Excluding the impact of these outlays, as well as $32 million from stock proceeds and $41 million provided by working capital, we generated $170 million in gross cash flow from operations, which is 145% of our reported GAAP net income for the second quarter. Turning to products, we launched 3 new instruments in the U.S. this quarter. A Thoracic Grasper and Medium-Large Clip Appliers and a Bipolar Dissector. We also received the CE mark for our fourth product, our section irrigation [ph] instrument and we have begun its rollout in Europe. We have submitted our 510(k) for the section irrigation [ph] instrument and are working through the approval process with FDA. New instruments allow for faster and more precise da Vinci procedures and these new additions to our instrument line are targeted at facilitating our emerging procedures in thoracic and general surgery. As we mentioned last quarter, the FDA has requested additional clinical data for our Single-Site product. We have collected this clinical data from both the U.S. and European sites, and we'll resubmit our Single-Site 510(k) to FDA this month. Clinical results from Single-Site use in Europe are encouraging and our phase roll out in Europe is progressing. With Single-Site running at approximately 10 sites. We continue to make good progress on both our da Vinci vessels healing instrument and our da Vinci stapler. We are in the process of answering FDA questions on our vessels healing instrument, while progressing through its manufacturing bring up. Our stapler is developing on plan, and we are working through its validation. Moving to recently released products. Our da Vinci Simulator has been well received by our customers. After dual console, the simulator is the second step in a set of products aimed at improving the quality and efficiency of da Vinci training. The simulator has fit well with both dual console and single console Si customers and it is providing surgeons with improved, ease of access and support in learning da Vinci surgery. Several studies evaluating phase, content and construct validity of the simulator are in process and the initial response from surgeons, trainers in our field has been enthusiastic. Our phase rollout of Florescence Imaging is progressing to plan with its initial use building in partial nephrectomy procedures. Lastly, we're investing in building our team, in expanding partnerships and in acquiring those technologies that can make a difference to robotic surgery. This quarter, we added 40 people to our team, predominantly in sales, manufacturing and R&D. Bringing our total team to 1,769 employees. I'll now pass this time over to Marshall, our Chief Financial Officer.

Thank you, Gary. Our second quarter revenue was $426 million, up 21% compared with $351 million to the second quarter of 2010, and up 10% compared with $388 million reported for the first quarter of 2011. Second quarter revenues per product category were as follows. Second quarter Instrument and Accessory revenue was $172 million, up 35% compared with $128 million to the second quarter of 2010, and up 9% compared with $157 million in the first quarter of 2011. The increases in Instruments and Accessories are primarily driven by procedure growth. Instrument and Accessory revenue realized per procedure, including initial stocking orders, was approximately $1,940 per procedure, which is higher than the $1,870 realized in the second quarter of 2010, and approximately the same at the first quarter of 2011. Relative to the second quarter of 2010, the increase primarily reflects increased stocking orders associated with increased system sales. We expect Instruments and Accessories per procedure to decline slowly over time given that initial stocking orders have a lower impact on a larger installed base. Second quarter 2011 Systems revenue of $187 million increased 11%, compared with $168 million of Systems revenue for the second quarter of 2010, an increase of 12% compared with $167 million of Systems revenue for the first quarter of 2011. We sold 129 systems in the second quarter of 2011, compared with 108 systems in the second quarter of 2010 and 120 systems in the first quarter of 2011. The second quarter 2011 system count included 36 trade-ins, of which 21 were S for Si trade-off. In the first quarter of 2011 included 32 trade-ins, of which 19 were S for Si trade off. The second quarter 2010 system count included 19 trade-ins but excluded 10 S Si upgrades that were treated as upgrade revenue since the S units were upgraded in the field. Upgrade revenue for the second quarter of 2011 was approximately $800,000, compared with $7.6 million to the second quarter of 2010 and $1.5 million to the first quarter of 2011. Prior year upgrade revenue included the 10 S Si upgrade. Our second quarter average sales price per system, including all da Vinci models and S to Si trade-ins but excluding upgrades, was $1.44 million, a decrease from the $1.48 million realized in the second quarter of 2010, and an increase compared with the $1.38 million realized in the first quarter. The increase in average sales price compared with the first quarter of 2011 reflects the increased simulator set revenue and a favorable mix of systems to customers. We recognized revenue for 115 simulators in the quarter, including 33 that were sold in the first quarter in conjunction with system sales but were not delivered until the second quarter. In total, we have sold 162 simulators in the first 6 months. Included in the mix of systems sold in the second quarter were 21 dual console systems, compared with 15 in the first quarter. The decrease in average sales price per system compared with the prior year reflects a favorable product and geographic mix in the first -- in the second quarter of 2010. Credits associated with the S trade-ins in the current quarter partially offset by simulator revenues. ASPs will fluctuate quarter-to-quarter based on product, customer and trade-in mix. Service revenue increased to $68 million, up 22% compared with $55 million last year. And up 6 million -- up 6% compared with $64 million last quarter. The growth in service revenue is primarily driven by a larger system installed base. Total second quarter recurring revenue comprised of Instrument, Accessory and Service revenue increased to $239 million, up 31% compared with the second quarter of 2010 and up 8% compared with the first quarter of 2011. Recurring revenue represented 56% of total second quarter revenue, compared with 52% in the second quarter last year and 57% last quarter. International results were as follows, procedures outside of the U.S. grew 38% on a year-to-year basis with dVP in Europe being the greatest driver. Although we also experience growth in other target procedures, including dVH for malignant conditions in Europe, second quarter revenue outside the U.S. was $87 million, up 38% compared with revenue of $63 million in the second quarter of 2010, and down 5% compared with revenue of $91 million in the first quarter of 2011. Instrument and Accessory revenue grew 57% year-over-year and decreased 1% sequentially. The changes in Instrument and Accessory revenue reflect growth in procedures and seasonal buying patterns of our customers. We sold 30 systems outside the U.S, compared with 22 in the second quarter of 2010, and 31 last quarter. We sold 16 systems in Europe this quarter compared with 14 in the second quarter of 2010 and 15 last quarter. Aleks will provide additional details of our overseas system sales. Moving on to the remainder of the P&L. Gross margin in the second quarter was 72%, compared with the second quarter of 2010 gross margin of 73% and compared with the first quarter, 2011 gross margin of 72%. The decrease compared with the second quarter of 2010 primarily reflects decreased system ASPs. Second quarter 2011 operating expenses at $139 million were up 18%, compared with the second quarter of 2010 and up 6% compared with the first quarter of 2011. The quarter-over-quarter increase reflects costs associated with employees added during the quarter and costs associated with increased revenue. We added 40 employees during the quarter, including 23 employees in our commercial operations organization and 17 employees in product operation. Second quarter 2011 operating income was $168 million or 39% of sales, compared to -- with $140 million or 40% of sales for the second quarter of 2010, and $148 million or 38% of sales for the first quarter of 2011. Second quarter 2011 operating income reflected $35 million of noncash stock compensation expense, compared with $30 million to the second quarter of 2010 and $32 million last quarter. The increases in noncash compensation reflect our annual grant made February 15 of each year. Our effective tax rate for the second quarter of 32% is consistent with the rate for the first quarter and lower than the 33% recorded for the fiscal year ended 2010. Our net income was $117 million or $2.91 per share, compared with $89 million or $2.19 per share for the second quarter of 2010 and $104 million or $2.59 per share for the first quarter of 2011. Let me quickly summarize our results for the first 6 months of 2011. Procedures grew by 30%. Total revenue for the first 6 months of 2011 was $814 million, up 20% compared with $679 million last year. The revenue increase included recurring revenue growth of 29% and an increase in systems revenue of 9%. Operating income for the first 6 months of 2011 was $316 million, up 17% compared with $269 million last year. Operating income included $67 million of stock-based compensation charges in the first 6 months of 2011, compared with $57 million in 2010. Net income for the first 6 months of 2011 was $222 million or $5.51 per share, compared with $174 million or $4.31 per share last year. Cash flows from operations for the first 6 months of 2011 was $296 million compared with $291 million last year. Now moving to the balance sheet. We ended the second quarter with cash and investments of $1,822,000,000, up $65 million compared with March 31, 2011. The increase was driven by $196 million of cash flows from operations plus $32 million from the exercise of stock options, partially offset by $139 million of stock buyback and $39 million of capital and IP purchases. During the second quarter, we bought back 401,000 shares at an average price of $347 per share. As of June 30, there was 249 million of the board authorized buybacks remaining. We also executed on the opportunity to purchase approximately 18 acres of land and buildings for $33 million next to our current Sunnyvale campus for possible long-term growth. Our accounts receivable balance decreased to $250 million at June 30, from $260 million at March 31 reflecting the timing of revenues and collection. There was no change in the quality of our receivables during the quarter. Our net inventory increased to $100 million at June 30, from $93 million at March 31. The increase reflects steps taken to increase component inventory where supplies are tightened and have build the finished goods to reduce the risk of supply disruption as we move our manufacturing operations to our new building at Sunnyvale. And with that, I'd like to turn it over to Aleks who will go over our sales, marketing and clinical highlights.

Thank you, Marshall. During the second quarter, we sold 129 da Vinci systems, 99 in the United States, 16 in Europe and 14 in the rest of world markets. As part of the 129 system sales, 15 standard da Vinci systems and 21 da Vinci S systems were traded in for credit against sales for new da Vinci Si Systems. We had a net 93 system additions to the installed base during the quarter, which brings to 1,933 the cumulative number da Vinci systems worldwide. 1,411 in the United States, 342 in Europe and 180 in the rest of world markets. 62 of the 129 systems installed represented repeat system sales to existing customers. In total, 121 of the 129 systems sold during the quarter represented da Vinci Si Systems, which included 21 dual console systems. The 30 system sales internationally included 4 da Vinci systems into Japan, 4 into Italy and 3 into both Switzerland and India. Clinically, we had a strong quarter, achieving overall year-over-year growth of approximately 30%. Gynecology in the United States was particularly strong, while growth within general surgery, urology, thoracic and head-neck procedures was solid. As mentioned in the past, Q1 is a seasonally challenged quarter for surgeries that could be classified as discretionary, which causes some early lumpiness within benign gynecologic procedures. Consistent with Q2 2010 procedure trends, benign dVH growth during the second quarter of 2011 grew solidly faster than malignant dVH. In addition to strong dVH adoption, sacrocolpopexy, endometrial resection, myomectomy have been key factors to the U.S. GYN expansion. In Europe, dVH growth has begun to emerge within malignant procedures, primarily endometrial and cervical cancer resection. In addition, the category of general surgery has shown signs of early adoption. However, most of our EU growth is still being fueled by urology. In Asia, urology and general surgery were the strongest categories through the first half of the year. All in all, Q2 procedure growth showed global strength across several key categories. Q2 represents our busiest quarter for clinical trade shows and surgical conferences. The volume of clinical data presented, procedure technique reviews and live surgery presentations was impressive. AUA represented 200 or so abstracts and 16 postgraduate courses. WRS was packed with live surgery, robotic panels and podium discussions covering all segments of surgery. Not to mention SAGES, the American Society of Colorectal Surgery, AATS and ACOG, as well as the various international conferences we participated in. We are convinced that the dissemination of peer-reviewed clinical data has been a critical factor in the rapid adoption of da Vinci surgery. And the peer-review exposure we received at these important venues is immeasurable. During the quarter, over 200 clinical papers were published within various peer-review journals representing all of our targeted specialties, but I'll take a moment to highlight just a few, which I believe represent an important theme. The economic impact of reduced complications and hospitalization and their connection toward improving clinical outcomes. In years past, providers would report on the cost effectiveness of robotic surgery in a fairly simple and consistent manner, whereby they consider the purchase price of the capital equipment add to it their operating costs and divide it by the number procedures they've completed. Direct cost comparisons were usually made to open a laparoscopic surgery. However, the cost of hospitalization and the cost of complications were often omitted. Recent published studies have included broader analysis that includes both direct and indirect hospital costs. In a recent edition of the Journal of Obstetrics and Gynecology, a team from Brigham Women's Hospital and Harvard Medical School, comprised of both physician and business professionals, studied and reported on the evolution of the hospitals hysterectomy business in 2006 and compared it to 2009. Specifically, they study how the shift from open and vaginal hysterectomy to laparoscopic and robotic hysterectomy had affected their costs. The paper entitled Increasing Minimally Invasive Hysterectomy, the effects on cost and complications evaluated the overall costs associated with 2,133 hysterectomy patients that underwent the procedure in 2006 and 2009. This study reported and I quote, "A change from majority abdominal hysterectomy to minimally invasive hysterectomy was accompanied by a significant decrease in procedure related complications without an increase in total mean cost." Some of the relevant details. In 2006, approximately 65% of the 1,054 hysterectomies performed at Brigham and Women's were performed abdominally. In 2009, only 35% out of 1,079 were performed abdominally. Lap and robotic approaches comprised 17% of the hysterectomies in 2006, which grew to 46% in 2009. Vaginal hysterectomy remain fairly stable during this period and was typically confined to less complex cases. When evaluating outcomes and costs, the results were quite striking. The deviates cohort was associated with the lowest intraoperative and postoperative complication rates and the lowest estimated blood loss across all cohorts and along with laparoscopy, registered the lowest length of stay data in the group. The differences were considered very significant. When comparing abdominal hysterectomy to dVH, length of stay was reduced from 3.5 days to 1.4 days, estimated blood loss went from 363 millimeters to 75 milliliters. The most telling was the reported complication rate. The rate of major intraoperative and postoperative complications associated with abdominal hysterectomy was shown to be approximately 5x greater than with dVH. To quote the authors, "Our data suggest that dedication to the implementation of a minimally invasive technique goals, such as a decreased complications, decreased operative times, decreased conversion rate and decreased estimated blood loss can be realized. A creation of a minimally invasive gynecology service at Brigham and Women's Hospital has benefited not only the trainees and the hospital but first and foremost our patients." In the June edition of the American Journal of Obstetrics & Gynecology, a study out of Seattle authored by Doctors Paley, Veljovich and Shah entitled Surgical outcomes in gynecologic oncology in the era of surgical robotics: an analysis of the first 1,000 cases was published. This study was very comprehensive and it reported on multiple factors and clinical outcomes related to da Vinci cancer surgery. There were, however, 2 comparisons that were central in this paper. First, could the authors increase the complexity of their da Vinci patients without increasing the complication rates? And second, how did their dVH outcomes for endometrial cancer resection compare to open hysterectomy outcomes? The second objective would consist of a subset analysis of their most recent 377 da Vinci Hysterectomies and Endometrial Resection compared to the most recent endometrial resection, open endometrial resection surgeries. From 2006 to 2009, deviate share at the institution had grown from 9% to 36% of the GYN cancer resections. But further penetration was being governed by their unwillingness to accept higher BMI patients at the risk of increasing their complication rates, a concern, which was dispelled by their careful analysis. During the study period, the physicians raised their BMI constraints at 3 intervals, beginning at 26 until reaching at an average BMI of just over 30. Within their first interval, they operated on patient -- excuse me, within their final interval, they operated on patients with BMIs as high as 70. Interestingly, they discovered that neither their conversion rate nor complication rates increased within these more complex cohorts. In fact, they actually decreased. Their overall conversion rate for their entire 1,000 patient analysis was a mere 2.9% and their overall complication rate was 9.9%. 5.7% for majors and 4.2% for minor complications. In a subset analysis of women undergoing endometrial cancer resection, the difference between dVH and open hysterectomy was significant. Major complications associated with open surgery was 20.6%, as compared to 6.4% for dVH. In patients with BMI in excess of 40, major complications dropped from 43.5% for open to 11.3% for dVH. Length of hospitalization was reduced from 5.3 days for open to 1.4 days with dVH. Lymphnode yields were approximately 10% higher within the dVH group. Intensive care unit admissions went from 3.8% for open to 0.5% for dVH. Mortality rates dropped from 1.5% to 0.27%. Their conclusion, and I quote: "Robotic surgery is associated with favorable morbidity and conversion rates in an unselected cohort. Compared to laparotomy, robotic endometrial cancer surgery results in improved outcomes." In a recent edition of the British Journal of Urology, a physician group out of Cornell and Presbyterian Hospital, New York City published their study comparing the overall cost associated with open cystectomy, lymph node dissection and diversions to da Vinci Cystectomy with diversions. This prospective study consisted of 186 consecutive patients and included appropriate sensitivity analysis. The authors collected a myriad of cost data, both direct and indirect and these costs were carefully analyzed. Cost data included, but was not limited to, system and service amortization, disposables, length of stay, complications, surgeon fees and anesthesia cost. In other words, both direct and variable costs were collected and scrutinized. Their study contained 3 approaches to urinary diversion following cystectomy. With the ileal conduit approach being the most commonly performed and the largest subcategory study. Not surprisingly, the authors concluded that the greatest contribution to cost variation between the various cohorts were length of stay and complications. Across the board, the direct cost between the various cohorts was pretty similar plus/minus $1,000 or so. But the difference in variable cost was very significant, in da Vinci's favor. In an overall cost basis, comparing open cystectomy with ileal conduit to a da Vinci cystectomy with ileal conduit, it was reported that the da Vinci Cystectomy saved nearly $5,000 over the open surgical approach. The cost difference between the other 2 diversion techniques was less pronounced, slightly in da Vinci's favor for the continent, cutaneous diversion and slightly in the favor of the open technique for the orthotopic neobladder approach. The least common approach. The authors' conclusion, "Despite the higher cost of materials, robotic cystectomy can be more cost-efficient than open cystectomy for bladder cancers at high-volume tertiary referral center, particularly for ileal conduit." The reduction in hospitalization, blood loss, complications and overall hospital cost has been a consistent theme throughout Intuitive's short history. They are central components in our pursuit to improve patient value. That concludes my remarks. And I'll now turn the panel to Calvin.

Thank you, Aleks. I will be providing an update to our financial forecast for 2011, including procedures, revenue and other elements of the income statement on a GAAP basis. I will also provide estimates of significant noncash expenses to provide you with visibility of our expected future cash flows. Starting with procedures. Based upon our year-to-date procedure results, we are increasing our forecast for 2011. Our prior estimate for total 2011 procedures was to grow approximately 25% to 28% for the year. We now project procedures to grow approximately 27% to 29% from an estimated 278,000 procedures performed in 2010. During the second half of this year, we would expect a similar seasonal pattern as we experienced last year in 2010, with Q3 being seasonally weaker and Q4 seasonally stronger. Moving onto revenues. We are also raising our 2011 total revenue forecast. Previously, we had estimated 2011 revenue to grow 16% to 20% above 2010. We are now forecasting total 2011 revenue to increase 19% to 21% for the year. Again, the timing for the remaining quarters should follow last year's seasonal pattern favoring Q4. Remember that in Q3 of 2010, our sequential Instrument and Accessory revenue was roughly flat compared to Q2. And Q3 total revenue was lower than Q2. Our current forecast for gross margin percentage remains consistent with our last quarter's forecast. We continue to see 2011 gross margins coming in at around 72%. Moving to operating expense. We continue to invest across multiple areas of our business, particularly our sales force, manufacturing and R&D. Driven by our higher 2011 revenue forecast, we now anticipate operating expenses to grow at the higher end of the 16% to 20% range forecast on our last call. More precisely, we expect operating expenses to grow between 18% and 20%, above the 2010 level. In terms of noncash expenses, we now expect 2011 noncash stock compensation to total between $135 million and $140 million, $5 million less than forecast on our previous calls, up from $118 million reported in 2010. We continue to expect total 2011 amortization of purchases of intellectual property to total between $17 million and $20 million. Other income, which is mainly comprised of interest income is expected to come in at between $17 million and $18 million, consistent with our previous estimate. With regard to income tax, we now expect our 2011 income tax rate to fall within the range between 32% and 33% of pretax income, compared to our previous forecast of approximately 33%. We estimate that our diluted share count for calculating Q3 2011 earnings per share will be approximately 40.2 million shares. We aim to keep this share count reasonably close to this level as we expect to offset the impact of option dilution via stock repurchases. Finally, regarding cash flows. Since we're forecasting to report over $150 million in noncash stock compensation and amortization expenses for the year, our full year cash flows will continue to be significantly higher than our reported net income. We believe cash flows generated from operations is a better measure of our financial performance than net income. And with that, we would like to open the call to your questions.

[Operator Instructions] And the first question is from Tycho Peterson with J.P. Morgan. Tycho Peterson - JP Morgan Chase & Co: Maybe starting off with a question on some of the new products on Flash and Imaging, can you just talk about how you see that product rolling out. I think you've talked about initial use in partial nephrectomy, just talk about your kind of go-to-market strategy for other areas for the imaging?

Sure. You know what, I think it's going to be a kind of slow go for us. The initial indication is for imaging of vasculature and so partial nephrectomy is the first place that we're looking. There are some folks out looking in other areas for applicability. Things like imaging in the colorectal domain. And so we'll see as that develops. We also have some work looking in better [ph] imaging, which is not yet on label. That's something that we'll have to follow up. So I think it's kind of a base capability. I think over time, we'll find extended uses for it. The early results and the anecdotes and partial nephrectomy look really promising. Tycho Peterson - JP Morgan Chase & Co: And then I guess, just dialing on some of the core procedures, dVP in the U.S., could you just talk about any kind of change in physician behavior? Kind of post the pivot data and whether you're encountering any interesting or different dynamics around watchful waiting?

There doesn't appear to be anything at this stage that we can point to and say, it feels or looks different. As we've talk about the last few quarters, there may be some quarters where the U.S. dVP business is higher on a sequential business -- on a sequential basis, and there may be some quarters where its flat or somewhere that declines a bit. We're well within that range, and I can't say that there's anything significant that we've noticed at this point. Tycho Peterson - JP Morgan Chase & Co: Okay. And then on colorectal, can you just talk about maybe your market development efforts and some of the traction you've had out of SAGES and WRS. And in the absence of having the stapler on the market, how much do you think you can really capture within the market?

It's interesting. I think what we have learned over the years is that in procedure adoption, if it really follows a classic adoption curve in a sense that you'll have early adopters that will put up with some fill factors, we call it, and then you'll have people that will wait until the procedure gets optimized before they jump in, and there is a lot of evolution that goes on in that. I would say through that, it's pretty clear we're in the early adopters phase, and we're growing very nicely through the early adopters phase despite not having perfect optimization of Instruments and Accessories. How far we'll grow in that area? It's difficult to say, but we believe strongly that we're working on the right products. They are developing nicely. And the procedure is growing well through the early adoption phase, both in the low rectal, as we talked about in the low anterior resections and you're starting to see some gravitation up into sigmoid in some of the other areas. So we're pleased at this point. Tycho Peterson - JP Morgan Chase & Co: And then just last one, can you talk about sizing the market opportunity for the simulator? It's obviously relatively new from our perspective, how big do you think that opportunity could be?

I think if you look at simulation, and I think we talked about this as early as perhaps 3 or 4 quarters ago, that the simulation business is not a business that we look at with the traditional metrics. In other words, driving revenue and how much revenue you're going to be able to derive from it. It's rather, how do you improve the experience of da Vinci surgery, how can you get more people access to training, how do you augment the basic training protocols, and simulation seems to make a lot of sense. If you look at the overall numbers thus far, yes, I think there's -- the market is saying that they like it. The fact that we've sold, I believe, the number is 162 in the first 6 months is very, very promising. But in terms of traditional metrics that you're used to modeling, it really isn't the way we're looking at it.

And the next question is from Ben Anderson (sic) [Andrew] with William Blair. Ben Andrew - William Blair & Company L.L.C.: Just wanted to follow up on a couple of questions but maybe switch gears first. The Japanese reimbursement roadmap, is there anything resembling clarity out of them in terms of path forward or steps? I know you talked about it, knowing the roadmap a bit better, but any update there?

I guess what I'd say is that there is a small amount of progress and a small of clarity. I think we've mentioned incremental progress in terms of engaging with the key opinion leaders in the right surgical societies that will help us. So I think we're making progress. In terms of clarity and timing, we don't yet have a time that we can predict. Ben Andrew - William Blair & Company L.L.C.: Okay. And they're maybe turning a little bit to the de novo placements. You did I think 67 in the U.S. this quarter, if my math is right. That's a nice uptick over the last couple of quarters, brings you back to where you were previously. I know it's not a conscious decision on your part in terms of targeting those. But can you talk about sort of the incremental revenue opportunity for a de novo system versus say an additional system or a trade-in for the company and whether that might motivate you at some point to target de novo placements.

Really the way we think about it is where the procedure is being done and where can we go to fund the procedures. The other thing that we see traditionally, and we're seeing it in hysterectomy as well, is that in general, robotics is a consolidator. So if there is a diffuse patient population out in the small centers, typically you'll see the move towards early adopters of da Vinci technology. I don't think the economics -- the delta and economics between an existing customer sale and a greenfield sale are such that they would motivate us to move toward greenfield. So for the procedures we're in, we're feeling like the mix we have and the strategy we have is pretty sound. And as different procedures come on and their distribution out in the world differs, we may adjust. But for now, I think you're seeing a pretty stable mix. Ben Andrew - William Blair & Company L.L.C.: Okay. And on the operating margin side. You're all the way back up to 39.5%, a little below your target. I know there was some mix maybe in the quarter that helped on that. But are there some investments in market development that you haven't yet implemented, that you hoped to, to hold that margin down assuming that's still your goal? And what might we look for the next, say, 6 quarters in terms of incremental market development efforts from you all?

Yes, I think in terms of the overall operating profile, as we stated before, it's not our objective to expand margins here in the second quarter. We probably came out a little ahead on the revenue side and the hiring, there's always the pace of hiring can shift. You're entering into Q3. And we saw last year, revenue was lower in Q3. We're going to continue to add resources to our organization. So I think when you look over longer periods of time, our strategy is not to expand margins, it's to expand the surgery market, the robotic procedure market.

Just to put a little color on it where we've been making investments in terms of developing markets. In Europe, we've been bolstering our direct organization in support of growth. And in Japan, we've been bolstering our organization in Japan in anticipation of growth as approvals come. So we've been making those investments, We caught up a little bit in CSR's in the U.S. and now we're kind of keeping pace as we go. We are not trying to catch up anymore, and we're not trying to leverage it hard. We're really trying for kind of slow gains in productivity in the field in the U.S.

Yes, and it's kind of complete the thought there. We often times get asked to how many people did you add in the field. Well as Gary said, this quarter, we were pretty consistent with the last quarter. On the clinical side, we added about 24 people to our clinical sales team bringing us up to roughly 515 in that category and we added additional 2 to the clinical side, we're currently about 85. So those rates of hiring within the field sales force are pretty consistent with what we did in Q1.

And our next question is from Tao Levy with Collins Stewart. Tao Levy - Collins Stewart LLC: It's Tao. Just touching on the reps that you just mentioned. There was this big bolus of hiring that you did in sort of the back half of last year. How do you feel that productivity of those reps, is kind of lining up versus your more seasoned folks?

I think we've been pretty pleased about how they've come on in those general level of productivity. We watched procedures per rep and rep per territory pretty closely as you would imagine. And it takes a while for reps to settle in and hit their full productivity but we're seeing, I think, that return to some metric balance that we're hoping for last year. And now, I think, we're out to catch-up mode, as I said before, and a little bit more in sustained growth. Tao Levy - Collins Stewart LLC: So that's about half way, for some of the season, or is it delivering on procedures?

As you'll imagine, there's a distribution there. Some folks come up to speed very quickly, some people take a little bit longer. But for most of the hiring that was done last year, they're hitting their productivity pretty quick. Tao Levy - Collins Stewart LLC: And have you seen any or noticed any changes to sort of the general macro challenges that you've always faced in selling the value proposition of da Vinci surgery to your customers, either in the U.S. or in Europe, this quarter or even last quarter? Do you see any potential changes versus what you've been experiencing?

So far in the last few quarters, we haven't seen any significant trends. One thing we did see was -- the only thing we did see was really more of our customers finance systems this quarter than they had previously. But we think that has mostly to do with the low interest rates that they're now able to access, and there is plenty of financing for them to obtain. But other than that, there really aren't any trends that I would point out. Tao Levy - Collins Stewart LLC: Okay. And just the last question, on a single decision, you mentioned that you're going to file that this month. Do you expect that to be sort of a 6-month turnaround from the FDA or, I mean, is that kind of a standard turnaround?

I wish I could predict their response. I can tell you that the clinical data we have, we feel really good about. And we'll submit it and we'll support FDA as needed to answer any questions they have.

And our next question is from David Lewis with Morgan Stanley. Jonathan Demchick - Morgan Stanley: This is Jon Demchick in for David. First off, can you quantify the difference in revenue per procedure from, I guess, a Single-Site procedure versus a dVH or a dVP? And also what role, if any, did Fluorescence Imaging Equipment, as well as other new products contribute to revenue and margins in the quarter?

Right. On the Single-Site side of things, as you know, we're currently selling directly or selling it to Europe now. Their initial set of customers, as Gary mentioned, is roughly 10 or so sites but their working on that. Here on Single-Site, we are competing directly against some of the laparoscopic tool companies. So it's a little different than the traditional da Vinci side where it's against just open surgery. And so given that, I think there's an established market for Single-Site operations, and I think we're kind of looking at to compete there, perhaps at a slight premium to that. So it would be lower than our traditional set of da Vinci instrument per procedures side on that side. As far as fluorescence imaging goes, we're still pretty early on that, too. The kit is comprised of a couple of endoscopes and some of the dye used in the fluorescence cases. That as you've seen, we've maintained our overall instrument and accessory revenue procedure at about $1,940 over the last 3 quarters and part of that has to do with fluorescence imaging coming on and bolstering the IMA revenue together with the 8.5 millimeters scope. So that could help the small volume right now but in general, it would be a slight increase to the revenue per procedure but not a big impact at this stage. Jonathan Demchick - Morgan Stanley: Very helpful. And also I know that you touched on Single-Site with the FDA. But for stapling and sealing tools, do you, guys, have any expectations on the time from submission to market or is that still really tough to tell with the FDA? And also, have you needed to kind of go back for more information to appease FDA on any of these products?

No. Vessel sealing, we're answering FDA's questions as we speak. The questions are answerable. And stapler has not been submitted. Jonathan Demchick - Morgan Stanley: Okay. And one more quick one for the trade-ins from S to Si. I believe there are 21 of them. What was the breakdown between U.S. and non-U.S. and how many S Systems are still out there in the market?

I believe it was all but 2 were in the U.S.

Were in the U.S. and it's about 750 Ss out in the market worldwide.

And our next question is from Lennox Ketner. Lennox Ketner - BofA Merrill Lynch: I just want to start on dVP. I know you said that most of the growth came from Europe and that you're not seeing real impact from the activity there. But is it possible just to give a little clarity around what dVP procedures look like the U.S. Whether there was any growth or whether they were flat or what those look like with the U.S.?

Flattish. Lennox Ketner - BofA Merrill Lynch: Okay, I'm sorry, is it year-over-year, sequentially, or?

Sequentially. Lennox Ketner - BofA Merrill Lynch: Okay. And then on the Single-Site. I was wondering if you could just expand a little bit on what your plans are in Europe. I know you said you're in 10 sites right now, but kind of how we should expect that rollout to go and when would be in a broader number of sites?

Right now, we're still in the early phases of rolling it out. So we continue to add a few sites a month. It's primarily focused on cholecystectomy to start and that's really where we are, and we continue to take data and really our focus now is working with FDA to get it approved. Lennox Ketner - BofA Merrill Lynch: Okay. The data that you submitted to FDA, that was the European data? Is there any chance that we would see that data prior to the U.S. approval, given that it is from Europe or are we unlikely to see that until?

The combination of U.S. and European data. I believe there is some abstracts in preparation on the European experience.

Yes, I think, there've been some presentations actually at a few conferences where they've actually showed their data, we're pleased with the data. I think that both procedure times and the metrics that they were measuring, we're very pleased with.

And the next question is from Larry Keusch with Morgan Keegan. Lawrence Keusch - Morgan Keegan & Company, Inc.: I'm wondering if you could -- just going back to the stapler. You said that, I believe you said it's still on validation. But can you help us understand what exactly that means and what are the pathway, what is the pathway to getting it submitted?

That validation work is pretty much the typical stuff. So it's bench testing and claim validation and sterility validations and all the sets of things you have to do to get ready to submit. And so that's where we are. Some of those tests are -- take a little bit of time and can be extensive in terms of the number units you use in your fire and that's where we are. So we'll walk through that. It's where we expected to be against our plan. And as that gets done then that gets built into a file that will go to FDA. Lawrence Keusch - Morgan Keegan & Company, Inc.: Okay. Does that imply that the design is frozen and you guys are finished with that and now it's just really the testing of it?

Well, the usual process of design is a little bit air lift. So the design, we're feeling comfortable with it. It looks really solid. Now if there's anything in validation we don't like, we go back and touch the design. But generally speaking, we are where we expect to be. Lawrence Keusch - Morgan Keegan & Company, Inc.: Okay. And then for Aleks and then one quick one for Marshall. And just in terms of the oral surgeries. Again, as you sort of look back over the last 3 months. Where do you see the most interest in the specific procedures within that category, whether it be sleep apnea or medium-sized malignant tumors, et cetera and can you help us sort of think of the sizing of that procedure base?

Well, as far as sleep apnea, that is not a target for us at this stage. I think there have been surgeons that have talked about the procedure and there's certainly have been presentations on it but it's not a specific focus for us at this stage. Most of it is, most of the work is being done on both malignant and benign tumors very consistent with the claims that we have. You'll see tumors that are at the base of tongue, tonsil tumors, and what are really classified as very complex operations. And that's where the majority of the clinical data that's being reported is derived from. As far as that sizing, in our view, we look at that market as probably somewhere between 15,000 to 20,000 procedures and that's really where we are going to stay for a while. I think that's where we add tremendous value. That's where there's a reconsolidation in that space and it's a fairly small community, and we think we can go very deep into that community. So we will focus on that and we'll see where it takes us from there. Lawrence Keusch - Morgan Keegan & Company, Inc.: Okay. And that 15,000 to 20,000, is that a U.S. number?

Yes, that's a U.S. number. Lawrence Keusch - Morgan Keegan & Company, Inc.: Okay. For Marshall, I know you haven't lowered the tax rate expectations significantly, but it's a little bit lower than I think you started out the year. Is that just the mix of business towards OUS that's driving that or is there something else to be thinking about?

No. That's exactly right. It's just mix of business and as the mix of business changes to more U.S. then the tax rate will come down.

The next question is from Mimi Pham with Needham & Company. Mimi Pham - Weeden & Co., LP: Regarding the number of new surgeons trained on the da Vinci in the first half of this year, can you give us a ballpark of how many per month and how that compares to last year?

I apologize, I don't have that metric, and I don't think it's a metric, honestly, we really reported on probably for last 4 or 5 years. So I don't have that information readily. Mimi Pham - Weeden & Co., LP: Okay. Your comments about more customer financings for the systems and financing being available. Does that apply for Europe and rest of world also?

It does. Mimi Pham - Weeden & Co., LP: And can you give us a breakout of what percentage is financing U.S. and international generally?

I don't have the break out between the 2. I can just tell you that in the U.S., we've historically seen over the last year or so about 15%, 16%, to 20% financed. In this quarter, we saw a little over 30%. Mimi Pham - Weeden & Co., LP: And if that's in the international microenvironment, again you don't see that hurting hospitals international ability to get leasing and financing?

We have not seen any issues with hospitals trying to get that financing to purchase the product.

And last question regarding the pivot data. You expect -- are you hearing kind of noise in the payer community about them reevaluating reimbursement based on pivot data or any kind of noise there?

No. Nothing that we have heard that I can say.

We have time for one more question.

And that question will be from Michael Matson with Mizuho Securities. Unknown Analyst - : This is actually Ken [ph] in for Mike. Quick question on the Single port what sort of trials are you running or where is the data coming from or do you set head-to-head comparisons versus conventional laparoscopic?

The data we are running in these trials has been cholecystectomy using our Single-Site product and the comparator has been historically published manual Single-Site. Unknown Analyst - : Okay, could you give an update on obesity surgery if any updates are available?

I would say that there is. There has been a steady growth in obesity surgery, nothing that is, I would say, steep in its trajectory. But there is a nice study growth and it's grounded in the clinical in the clinical literature is being grounded by things, such as reduced leak rates from double sutured hand, hand sutured anastomosis as opposed to stapled anastomosis. There appears to be more interest in it based on the number of abstracts and the presentations that are provided at the various forums. But it isn't an area that we have really talked a lot about or set high expectations for. But we are pleased with the growth that we're seeing in it. But it's a little less pronounced than some of the other areas that we talk about. Unknown Analyst - : Okay. Thanks. Last question, when you're talking with the hospitals, are you getting a sense or are you hearing that they actually start to ramp up CapEx in anticipation of healthcare reforms?

As I've said earlier, we haven't seen any specific trends or changes in the marketplace for the last few quarters.

Thank you. That was our last question. As we have said previously, while be focus on financial metrics, such as 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 experience gives you some sense of what this means in the lives of our patients. Lyle [ph] of Colorado shares the following experience, "After learning about my 2-inch tumor on my left kidney, I was very scared and nervous. I have a doctor friend that plays golf in my club and he told me about the da Vinci Systems. I was amazed at what he told me. I looked it up on the web, and after learning the difference between the regular surgery and the da Vinci systems, I felt 100% better. Then I had appointment with Dr. Visha [ph] and he explained my condition and the options and I was completely comfortable with thought of surgery. It was my first major surgery and, at 83, I was out of the hospital at the third day and doing some household chores by the fifth day. I live alone and have help for 5 days and I was alone after that. I took pain pills for 3 days and had no pain after that. I could have done without any, but I was told to take them. It is now 2 weeks after surgery and I feel like doing anything I do regularly. I will wait for the 6 weeks before playing golf. However, I'll pitch and putt starting next week. I cannot believe the difference and would like to thank whoever invented this. What a great improvement to surgery. I hope that anyone reading this has a chance of selecting the da Vinci system over the regular surgery. I have talked to someone who had regular surgery in the kidney and our stories are so different like night and day." Patients like these are our strongest advocates for da Vinci surgery and form the very foundation of our operating performance. We've built our company to take surgery Beyond the Limits of the Human Hand, and I assure you that we remain committed to driving the vital few things that truly make a difference. This concludes today's call. We thank you for your participation and support on this extraordinary journey to improve surgery, and we look forward to speaking with you again in 3 months.

Ladies and gentlemen, this conference will be available for replay today after 4 p.m., Pacific Time through July 19, 2012, at midnight. You may access the AT&T teleconference replay system at anytime by dialing 1 (800) 475-6701 and entering the access code of 209724. International participants can dial (320) 365-3844. That concludes our conference for today. Thank you for your participation and for using the AT&T Executive Teleconference. You may now disconnect.