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

Ben Andrew - William Blair & Company L.L.C., Research Division Lennox Ketner - BofA Merrill Lynch, Research Division Tycho W. Peterson - JP Morgan Chase & Co, Research Division David R. Lewis - Morgan Stanley, Research Division Lawrence S. Keusch - Raymond James & Associates, Inc., Research Division Jose T. Haresco - JMP Securities LLC, Research Division

Ladies and gentlemen, thank you for standing by. And welcome to the Intuitive Surgical Q2 2012 Earnings Release Call. [Operator Instructions] As a reminder, this call is being recorded. I'd now like to turn the conference over to Calvin Darling, Senior Director, Investor Relations for Intuitive Surgical. Please go ahead.

Thank you, and good afternoon. Welcome to Intuitive Surgical's second quarter conference call. With me today, we have Gary Guthart, our President and 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 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 second quarter's 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, and I will provide an update to our financial forecast for 2012. And finally, we will host a question-and-answer session. With that, I will turn it over to Gary. Gary S. Guthart: Thank you for joining us today. In the second quarter, our team has delivered a solid performance driven by robust growth in both our U.S. gynecology business and our emerging general surgery business. As a reminder, for 2012, Intuitive is focused on the following: First, continuing our growth in gynecology and urology worldwide through outstanding execution in the field; second, disciplined execution of our Single-Site and vessel sealing launches focused on outstanding early customer experiences; third, building robust clinical programs with leading customers in emerging procedures in general surgery, thoracic surgery and transoral surgery; and finally, strengthening our capabilities in international markets, particularly Europe, Japan and Korea. In the second quarter, we continued to experience strong growth in gynecology and general surgery. Growth in gynecology came from a broad base of procedures, including benign and cancer hysterectomies, sacrocolpopexy, myomectomy and endometriosis resection. Growth in general surgery was also multifaceted, including growth in colon and rectal surgery, as well as cholecystectomy. The latter following the introduction of Single-Site earlier in the year. This strength was tempered somewhat by weakness in Europe and a decline in our U.S. da Vinci Prostatectomies. In total, procedures for the second quarter 2012 grew by approximately 26% over the second quarter of 2011. Aleks will provide additional procedure commentary later in the call. Globally, our business in Asia has continued to build as a result of fine execution by our team. Japan's system sales and procedure performance have responded well to MHLW's reimbursement of da Vinci Prostatectomy at the start of the second quarter, and we continue to invest in building our capabilities in Japan. Conditions in Europe are challenging, with both broad austerity issues, as well as specific structural issues impacting our business. In response to these conditions, we have brought in an experienced executive from our key accounts group in the United States to lead our European commercial organization. We also continue to invest in our international regulatory and reimbursement teams. Given the depth of environmental issues in Europe, we expect challenging conditions to persist into the second half of the year. Turning to operating highlights for the second quarter. Procedures grew approximately 26% over the second quarter of 2011. We sold 150 da Vinci Surgical Systems, up from 129 during the second quarter of last year. Total revenue was $537 million, up 26% over last year. Instrument and accessory revenue increased to $224 million, up 30% over Q2 2011. Total recurring revenue grew to $307 million, up 28% from prior year and comprising 57% of total revenue. Net income was $155 million, up 32% over last year. We generated an operating profit of $259 million before noncash stock option expense, up 27% from the second quarter of last year. We generated $223 million in gross cash flow from operations and ended the quarter with $2,631,000,000 in cash and investments. Turning to recently launched products and those in development. In the second quarter, we focused on launches of our Single-Site instruments and vessel sealer. We expanded the use of Single-Site cholecystectomy in the U.S. in response to growing early customer demand. Surgeon and patient response to Single-Site has been positive with over 200 of our U.S. hospital customers having purchased initial Single-Site kits 2 quarters after launch. As mentioned in prior calls, we are working on expanding our instrument offering in Single-Site to enable its use in additional indications. In our vessel sealing launch, we are optimizing procedure choreography through collaboration with leading surgeons, while firming up our manufacturing and supply chain. Clinical response to the vessel sealer has been encouraging, with positive commentary on precision, articulation, vessel sealing quality and thermal spread. We expect applications for the da Vinci vessel sealer to be centered on general surgery and Gynecologic Oncology procedures. Lastly, with regard to our da Vinci stapler, we are gathering data to respond to FDA questions and working on product optimization. As we enter new surgical markets and drive into new product arenas, we continue to invest in building our team. In expanding partnerships and in acquiring those technologies, they can make a difference to robotic surgery. This quarter we added 82 people to our team, predominantly in sales, manufacturing and R&D, bringing our total team to 2,100 employees. I'll now pass the time over to Marshall, our Chief Financial Officer. Marshall L. Mohr: Thank you, Gary. Our second quarter revenue was $537 million, up 26% compared with $426 million for the second quarter of 2011, and up 8% compared with $495 million reported for the first quarter of 2012. Second quarter revenues by product category were as follows. Second quarter instrument and accessory revenue was $224 million, up 30% compared with $172 million for the second quarter of 2011, and up 8% compared with $208 million in the first quarter of 2012. The increases in instruments and accessories were driven by procedure growth of approximately 26% and sales of our new instrument and accessory products, including Single-Site, vessel sealer and Firefly. Instrument and accessory revenue realized per procedure, including initial stocking orders, was approximately $2,015 per procedure, which is higher than the $1,940 realized in the second quarter of 2011 and the $1,985 realized in the first quarter of 2012. The increase in I&A per procedure was driven primarily by new product sales in advance of their use in cases. Second quarter 2012 systems revenue of $229 million increased 23% compared with $187 million for the second quarter of 2011, and increased 11% compared with $207 million for the first quarter of 2012. We sold 150 systems in the second quarter of 2012 compared with 129 systems in the second quarter of 2011 and 140 systems in the first quarter of 2012. Our second quarter average sales price per system was $1.53 million, an increase from the $1.44 million realized in the second quarter of 2011 and $1.47 million realized in the first quarter. ASPs include all da Vinci models, all simulators and Firefly when configured with the system and exclude upgrades. The increase in ASPs compared with the first quarter of 2012 was driven by favorable channel, product and trade-in mix. From a channel standpoint, we sold proportionally less systems to distributors, which are sold at lower prices than prices charged to direct customers. There were 14 systems sold to distributors in the second quarter compared with 26 in the first quarter. On the product side, we sold 121 simulators, mostly in conjunction with new system sales compared with 108 -- or 102 last quarter. We also sold 28 dual console systems compared to 25 in the first quarter. 35 of our second quarter 2012 systems involved trade-ins comprised of 23 da Vinci Ss and 12 standard models, while 46 of our first quarter 2012 system sales involved trade-ins, comprised of 27 da Vinci Ss and 19 standard models. ASPs will fluctuate quarter-to-quarter based on product, customer and trade-in mix, as well as foreign exchange rates on direct sales to foreign customers. We would expect systems ASPs to decline in future quarters driven by a return to a more historic mix and lower ASPs earned on direct sales to European customers due to lower euro exchange rate. Service revenue increased to $83 million, up 23% compared with $68 million last year and up 3% compared with $81 million last quarter. The growth in service revenue was primarily driven by a larger system installed base. Total second quarter recurring revenue comprised of instrument, accessory and service revenue, increased to $307 million, up 28% compared with the second quarter of 2011 and up 6% compared with the first quarter of 2012. Recurring revenue represented 57% of total second quarter revenue compared with 56% in the second quarter last year and 58% last quarter. International results were as follows. Second quarter revenue outside the U.S. was $101 million, up 16% compared with revenue of $87 million in the second quarter of 2011, and down 3% compared with revenue of $105 million in the first quarter of 2012. Instrument and accessory revenue grew approximately 21% year-over-year and decreased 3% sequentially, reflecting procedure growth rates. Procedures outside of the U.S. grew 21% on a year-to-year basis and decreased approximately 1% sequentially. The growth in procedures compared to the prior year primarily reflect dVP growth in Europe. The decline in procedures compared with the first quarter reflects the macroeconomic environment in Europe coupled with fewer operating days due to holidays. dVPs in Japan grew at a high rate, albeit off a small base, as national reimbursement was approved at the beginning of the quarter. We sold 26 systems outside the U.S. compared with 30 in the second quarter of 2011 and 35 last quarter. We sold 13 systems in Europe this quarter, with 16 in the second quarter of 2011 and 14 last quarter. And we sold 7 systems in Japan compared with 7 last quarter and 4 in the second quarter of last year. The decline in European system sales reflects difficult macroeconomic environment. Aleks will provide additional details of international system sales. Moving on to the remainder of the P&L. Gross margin in the second quarter was 72%, roughly equal to the second quarter of 2011 and the first quarter of 2012. Our gross margin has remained unchanged as the positive impacts of our higher second quarter system ASPs were offset by lower margins earned on new products and higher inventory reserves. Margins on newly launched products would typically be lower than those for our mature products, reflecting vendor pricing on low volumes, temporary tooling costs and other startup costs. Overtime, as volumes increase, we refine the manufacturing process of some products, we should see improvements in the margins of these newer products. Second quarter 2012 operating expenses of $161.1 million were up 16% compared with the second quarter of 2011 and down 1% compared with the first quarter of 2012. We changed our stock option granting pattern this year, so that employees are granted options at both February 15 and August 15 compared with only at February 15 in prior years. Although approximately the same number of options will be granted annually, the amount of expense taken in the first quarter and second quarter was approximately $3 million and $5 million lower and the amount of expense in the third quarter will be approximately $8 million higher than had we not changed our stock granting pattern. We added 82 employees in the quarter, including 38 employees in our commercial operations and 39 employees in product operations. Second quarter operating income was $225 million or 42% of sales compared with $168 million or 39% of sales for the second quarter of 2011 and $193 million or 39% of sales for the first quarter of 2012. Second quarter 2012 operating income reflected $33 million of noncash stock compensation expense compared with $35 million for the second quarter of 2011 and $34 million last quarter. Our effective tax rate for the second quarter was 32% compared with 32% for the second quarter of 2011 and 27% last quarter. Our 32% second quarter rate was higher than our previous guidance of 31%, primarily due to a higher proportion of pretax income coming from our U.S. business. Our net income was $155 million or $3.75 per share compared with $117 million or $2.91 per share for the second quarter of 2011 and $144 million or $3.50 per share for the first quarter of 2012. Let me quickly summarize our results for the first 6 months of 2012. Procedures grew by 27%. Total revenue for the first 6 months of 2012 was $1,032,000,000, up 27% compared with $814 million last year. The revenue increase included recurring revenue growth of 29% and an increase in systems revenue of 23%. Operating income for the first 6 months of 2012 was $419 million, up 32% compared with $316 million last year. Operating income included $68 million of stock-based compensation charges in the first 6 months of 2012 compared with $67 million in 2011. Net income for the first 6 months of 2012 was $298 million or $7.26 per share compared with $222 million or $5.51 per share last year. Cash flows from operations for the first 6 months of 2012 was $383 million compared with $306 million last year. Now moving to the balance sheet. We ended the second quarter with cash and investments of $2.6 billion, up $260 million compared with March 31, 2012. The increase was driven by $217 million of cash flow from operations plus $56 million from the exercise of stock options, partially offset by $15 million in stock buybacks and $14 million of capital and IP purchases. We have $553 million board-authorized buybacks remaining. Our accounts receivable balance increased to $323 million at June 30 from $300 million at March 31, primarily reflecting our higher second quarter revenue. Our net inventory of $119 million at June 30 is equal to the March 31 balance. 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 150 da Vinci systems: 124 in the United States, 13 into Europe and 13 into rest of world markets. As part of the 150 system sales, 12 standard da Vinci systems and 23 da Vinci S Systems were traded in for credit against sales for new da Vinci Si Systems. We had a net 115 system additions to the installed base during the quarter, which brings to 2,341 the cumulative number of da Vinci Systems worldwide: 1,707 in the U.S., 389 in Europe and 245 in rest of world markets. 79 of the 150 systems installed during the quarter represented repeat system sales to existing customers. In total, 142 of the 150 systems sold represented da Vinci Si Systems, which included 28 dual console systems. The 26 system sales internationally included 7 into Japan, 4 into France and 3 into the U.K. Clinically, we had a solid quarter, achieving year-over-year procedure growth of approximately 26%. Gynecology, general surgery, along with the emerging categories of thoracic and head and neck surgery, accounted for a large part of this growth. Da Vinci Hysterectomy, Cholecystectomy, Colon and Rectal Resections, Lobectomy, Endometriosis Resections, Myomectomy and Partial Nephrectomy exhibited strong quarter-over-quarter growth, which was partially offset by dVP softness in the United States. The recent pressure from nonsurgical disease management, namely active surveillance, as well as an apparent decline in PSA screening has caused some pull back in the U.S. dVP number. As the incumbent leader in the surgical treatment of prostate cancer, it's difficult, perhaps impossible to remain unaffected by this larger trend, at least in the short term. Recently released new products continue to do well, most notably Single-Site. Early customer feedback has been positive and our initial sales have been strong. Within the first 2 quarters, post-launch, we've sold Single-Site kits to over 200 U.S. customers, while demand for training remains strong. We initiated our phased rollout of the vessel sealer product in February and its use within the segments of general, colorectal and GYN surgery has begun. The product is performing well and the feature set, specifically the articulated risk design, appears to be satisfying a strong market need. Operationally, we continue to make progress toward optimizing the manufacturing process while reducing product costs. Regarding system attachments, namely da Vinci Simulator and da Vinci Firefly. Both attachment rates remained high in the second quarter. Strong market acceptance for these products has helped buoy our da Vinci system ASP to an all-time high. During the quarter, over 350 robotic abstracts and papers representing a variety of surgical specialties were published within various peer-reviewed journals, and the clinical conferences were abundant with live da Vinci procedure transmissions, postgraduate robotic courses and podium presentations and clinical poster sessions. The adoption of our international dVH business has lagged behind the United States for both malignant and benign conditions, not surprising. We believe that dVH for the treatment of malignant conditions will likely pace the international GYN business. In a recent edition of the International Journal of Gynecologic Cancer, doctors Mark and Yang [ph] from the National University in Singapore, published a study describing the conversion of their open hysterectomy practice to a da Vinci Hysterectomy practice in treating endometrial cancer. Open surgery is the standard of care for endometrial cancer staging in Singapore, as it is in many other countries. This study compared the results of open hysterectomy to dVH in 124 consecutive endometrial cancer patients. The patients in each cohort were of similar age, BMI and pre-existing health condition. The authors reported that their operating time was longer during their initial 20 dVH procedures but had dropped significantly thereafter and were subsequently on par with the comparator. Lymph node harvests were also slightly lower within the initial 20 cases, but were similar thereafter. However, dVH was associated with 56% less blood loss than open surgery; had a lower rate of postoperative complications, 8.8% versus 26.8%; and a lower wound complication rate, 0% versus 9.9%. In addition, the requirement for postoperative parenteral analgesia was only 5.9% for the dVH patients as compared with 51.1% for the open laparotomy patients. And hospitalization was reduced to 2 days for the dVH patients as compared to 5.9 days for the open laparotomy group. They concluded their paper by stating and I quote, "Our series shows that outcomes traditionally associated with laparoscopic endometrial cancer staging are achievable by laparoscopically naive gynecologic cancer surgeons moving from laparotomy to robotic-assisted endometrial cancer staging after a relatively small number of cases." Early data for da Vinci Single-Sites choles is being collected at various sites within the U.S. and abroad, while the initial EU publications begin to appear in the literature. In a recent edition of the Archives of Surgery, a consortium made up of 5 leading Italian robotic centers published initial results of their first 100 Single-Site cholecystectomy procedures. The paper entitled Overcoming the Challenges of Single Incision Cholecystectomy with Robotic Single-Site Technology, described the contribution of traditional single incision laparoscopy as an important development step in moving from multiple site laparoscopy to single incision interventions. However, single incision laparoscopic cholecystectomies has not gained wide spread use due in large part to the physical limitations of the technology, which compromises optimal triangulation, the overall ergonomics of the procedure and quality of view, this, according to the authors. They also reported that the combination of these factors provides challenges for optimal tissue exposure and that traditional instruments platforms have significant limitation when used for SILS. They went on to say and I quote, "Da Vinci Single-Site Cholecystectomy was regarded as a safe procedure by all surgeons involved in this study and as safe as standard four-port laparoscopic operation." They also reported that 4 out of the 5 surgeons participating in this trial claimed to be considering the extension of da Vinci Single-Site Technology toward treating other conditions. In their conclusion, they wrote and I quote, "The robotic technology is a compensatory technique that can overcome the constraints and the ergonomic limitations of SILS and is potentially capable of realizing the full potential of single-access approach. We showed that it allows for the quick overcoming of the learning curve that is typical to most new procedures, particularly of laparoscopic single incision approach. This is likely to increase the safety of single-incision surgery, and in turn, expand adoption to a wider number of general surgeons and surgical procedures." In a recent edition of the British Journal of Urology, an interesting paper out of Asia authored by Dr. Shin Dong Chung [ph] and others from National University Hospital in Taiwan studied the readmission rates for patients who have undergone open prostatectomy, lap prostatectomy and robotic prostatectomy. The nationwide Taiwanese study included 2,741 patients, studied over a 5-year period with the objective of determining the sub 90-day readmission rate associated with each of the 3 techniques. The reduction of readmission rates is a goal shared by all economies since the associated costs can be quite significant for payers and patients. In total, 257 or 9.4% of the 2,741 patients studied required a readmission to a hospital within 90 days post surgery. The diagnosis for readmission included intestinal infections, UTIs, hernias, pneumonia, prostatic hypertrophy, retention of urine and postoperative infection. The authors reported that the readmission rate for traditional laparoscopic prostatectomy patients was more than twice as common than for patients undergoing a dVP. 8.2% for lap versus 3.6% for dVP. When comparing the readmission rate for open prostatectomy to dVP, the frequency of readmission was nearly 3x as great, 10.7% versus 3.6%. In a written discussion, the author stated and I quote, "In the present study, we clearly showed that patients undergoing robotic-assisted laparoscopic prostatectomy had a lower risk of 90-day readmission than the patients undergoing open prostatectomy. We think that the present study is an important step in helping to define the relative efficacy of robotic prostatectomy, laparoscopic prostatectomy and open prostatectomy as a treatment option for localized prostate cancer. Moreover, the present findings may prove valuable to patients trying to make an objective decision about the various treatment options. Because the present study used nationwide population-based data sets, its robust findings can be generalized to a population as a whole." This concludes my remarks. And I'll now turn the time over to Calvin.

Thank you, Aleks. I will be providing you with an update to our financial forecast for 2012, including procedures, revenues 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 into our expected future cash flows. Starting with procedures. On our last call, we forecast procedures to grow approximately 25% to 27% from a base of approximately 360,000 procedures performed in 2011. Halfway through 2012, our procedure growth stands at 27%. During the second quarter, we saw a continued strength in U.S. gynecology and general surgery procedures, while we experienced a pull back in U.S. dVP volume and challenges in our European procedure business. Based upon the net of these factors, we continue to forecast full year 2012 da Vinci procedure volume to grow approximately 25% to 27% above our 2011 total. Moving on to revenues. We are increasing our 2012 revenue guidance. Based primarily upon capital sales trends and revenue contributions from new products, we now expect 2012 revenue to grow between 20% and 23% above total 2011 revenue of $1.76 billion. This is up from the 19% to 21% revenue growth forecast on our previous call. Specifically related to system ASP, as Marshall mentioned, our Q2 ASP came in at $1.53 million. This metric largely resulted from favorable channel, trade-in and product mix. Going forward, we would expect to see a system sales mix more in line with previous patterns. In addition, euro-based system ASPs will be lower in U.S. dollar terms due to the weaker euro. As a result, we would expect system ASP to return to more historic levels realized in previous quarters. Overall, we would expect our total Q3 2012 revenue to be near or possibly below our Q2 level. Now turning to expenses. Consistent with our last call, we continue to forecast full year noncash compensation to fall within a range of between $152 million and $156 million for the year. The timing of these expenses however will be considerably different in 2012 as compared to prior years. As Marshall mentioned, in 2012, we began issuing employee option grants in 2 installments, one in February and one in August, rather than a single February grant. As a result, in 2012, Q1 and Q2 received lower proportions of the full year expense and Q3 will receive a significantly higher proportion. Specifically, 2012 actual stock compensation was $34.4 million in Q1 and $33.3 million in Q2. We would expect Q3 stock compensation to be between $13 million and $14 million higher than Q2 and come in around $47 million then declining to around $40 million in Q4. R&D expenses. Based upon the timing of various R&D projects, we anticipate a significant uptick in Q3 R&D expense compared to Q2. Based upon the timing of stock compensation and R&D expenses and continuing business growth, we would expect Q3 operating expenses to come in over $20 million higher than Q2. Now turning to operating income. Consistent with our previous forecast, we continue to expect operating income to fall within a range of between 39% and 40% of net revenue. Again, while second quarter operating income came at 42% of sales and we stand at 40.6% on a year-to-date basis, based upon the timing of expenses I just described, we expect full year operating expense to come in within our 39% to 40% guidance range. We expect other income, which is mainly comprised of interest income, to total between $16 million and $17 million for the year. With regard to income tax, our Q2 reported tax rate of 32.4% was above the 31% projection on our last call. While our Q2 tax rate was higher than the forecasted rate, our estimates for Q3 and Q4 remains about the same, 31% of pretax income rate. We estimate that our share count for calculating EPS in Q3 2012 will be approximately 41.7 million shares. That concludes our prepared remarks. And we will now open the call for your questions.

[Operator Instructions] And our first question will come from Ben Andrew with William Blair. Ben Andrew - William Blair & Company L.L.C., Research Division: Gary, maybe give us some insights into dVP trends here and how far you think that may go down. If you can give us some sense of what happened in the quarter. Where does this stabilize in your view based on the trends? And it does something. It's a broader industry shift in terms of the way patients are being managed. And obviously it’s becoming less important with the growth of the other pieces, but just wanted to understand and isolate that bit if we can. Gary S. Guthart: Yes. The way we look at it is really being driven by 2 different effects. One of them has been the scrutiny and discussion around PSA testing and what that impact is. It's hard for us to exactly handicap what the impact on PSA test and discussion is. But clearly as one of the major treatment modalities for prostate cancer care, if there are changes to PSA testing in the number of people going into the pipeline, that will flow-through to us. And then the second part that you've described has been, if there is a look at nonsurgical treatment modalities and other alternatives like active surveillance, that also will have an impact. Hard for us to predict where that will play out over the long haul. We know for -- with high confidence that surgery is the best treatment for men with high risk prostate cancer, there's really no question. And now the question is going to be okay, while surgical societies and surgeons look at this over the long term: how do they vector patients in through their treatment pathways. What we've seen in the past, just one more comment, is that over time as men are moved into active surveillance and those kind have come in waves, having to do with the amount of publicity it gets. Over time, people will start coming back out of active surveillance either because cancer is progressing or because over time, the active surveillance is in itself a burden. So hard to predict with a quantitative sense exactly where that will head. But clearly those 2 factors are having an impact on us in the U.S. Ben Andrew - William Blair & Company L.L.C., Research Division: But maybe try another way, Gary, I mean, was it down single-digit percentage, double digit? And what's baked in the guidance for the balance of the year? Gary S. Guthart: On our side, it was a significant push. I don't -- we don't usually break out the numbers for you quarterly. And so we've gone through and done our best to project. It's an estimate. And if I had a perfect crystal ball, I'd share it with you, but we don't. Ben Andrew - William Blair & Company L.L.C., Research Division: Okay. And then you talked about some of the timing of research projects. Maybe give us some an insight as to what those are. And are we going to see a structural shift in R&D spending perhaps higher? And also on the operating expense side, can you talk a little bit about opportunities for investment in the sales force? Are you're looking to accelerate that to move things along quicker or maybe offset some of the prostatectomy weakness in other applications? Or are you happy with kind of where the trends are set there? Gary S. Guthart: Fair question and a lot of questions. The first side on the R&D and the projects side, as you know, we have a few things that we have been working on pretty hard. Stapler, you should think of stapler not as a single product. Stapler will really ultimately be a family of products, kind of a platform. And that will come out in sequential releases. So there is a set of releases and products that make sense for colorectal surgery, a different set that makes sense for thoracic surgery and a different set that might make sense for bariatric surgery in the future. And so those things will move in sequence. Likewise, vessel sealing is a strong instrument for us. Right now it's pointed at general surgery applications and complex gynecologic cancers. But we can see that as being a platform technology as well. So there are investments here that are sequential. As you know, we also work on Single-Site expansion, other sets of instruments, and then other things longer term in terms of platform improvements. It's -- I guess what I'd say is the signal from Q2 to Q3 has more to do with lumpiness and timing than it does kind of a seismic shift in the kind of work we're doing. There is some gradual sequential growth in R&D spend. But mostly what you're seeing is lumpiness. Turning to the question of sales force investments. We are making investments in the sales force. The way you might think about that is significant investments in Japan in terms of our capability. We're happy with our team there, and they're growing, and that will be to allow us to have a greater presence over time. We're also making investments in Europe. The investments there are around the sales and commercial team, mostly around bringing in experience in selling and support skills, as well as investments in our ability to respond to regulatory needs and reimbursement and economic analysis needs. So we're making those investments there. They're kind of investments that are ahead of what you would think of as the U.S. norms. In the U.S, we continue to invest in the U.S. sales force although about on pace to what you've seen in past quarters. We don't feel like we're ahead or behind there, but really moving in sync. Marshall L. Mohr: Specifically we added about 20 people to our clinical team in the quarter bringing us up to about 600 on the clinical side. We stayed roughly flat about 90 on the capital side. Ben Andrew - William Blair & Company L.L.C., Research Division: If I can sneak in one more quick one. It looks like you had a strong de novo placement effort in the quarter. Talk a little bit about how Si-e affected that. And I heard the number 200 customers. Are you starting to see a lot of productivity from that in terms of initial cases? And are people actually doing cases beyond chole already? Gary S. Guthart: So I'll just start and Aleks can add, jump in. On the Single-Site versus Si-e, something a little bit different. But with regard to Single-Site, initial purchases, we did say over 200 hospitals in the U.S. have taken their initial kits. We're seeing good utilization so far although its early. The response, the commentary in terms of safety and efficacy and repeatability, the ability to learn the procedure quickly is strong, so we're feeling good about that. But we do caution that we're still in the early quarters there. With regard to people having an interest to doing things beyond cholecystectomy, we're FDA approved in the U.S. for chole. There is surgeon interest o U.S. and discussed interest inside the U.S. to do some other things. And so we're seeing interest in certain gynecologic procedures perhaps, some upper GI procedures over time, and that's where our R&D teams are spending their time. I'll turn it to Aleks.

Yes, I would just reiterate under the comments pertaining to the 200 customers that have purchased initial sites. What we can tell thus far really from that is that there is a lot of general interest to try the system. We can't -- it's too early to make any large clinical claims, other than people are looking at reduced cosmetic -- improved cosmetics, I should say, and then whether or not there's pain differences between one technique versus the other. But at this stage, it's very difficult to say. But the interest is high to try it. The training queue is strong, and we'll look at it for a few more quarters I think before we can assess much more. Gary S. Guthart: Yes, in terms of the Si-e impact on the quarter, 6 of the 150 systems sold were Si-e systems. And to remind you, Si-e's are 3-arm versions of Si and also have some other feature reductions. And they're primarily targeted towards the more price-sensitive customers who are engaged in the Single-Site or engaged in maybe a lesser complex hysterectomy. I think we are seeing more interest in this particular segment of our product offering.

And our next question will come from Lennox Ketner with Bank of America. Lennox Ketner - BofA Merrill Lynch, Research Division: I guess if we can maybe just shift gears and focus on Europe for a minute. I guess I just wanted to understand in your view kind of what's driving the lower procedure growth. I know you talked about it being some structural issues. But in terms of the austerity measures impacting it -- I guess why I'm struggling a little bit is because it's -- obviously we've seen elective procedures impacted there. Because it's a cancer surgery, I would have thought we'd see less. Are you essentially seeing the government just lower their quotas for these surgeries even though they're cancer surgeries? Gary S. Guthart: We definitely see -- depends on which country you're in. And I guess I'd start by saying different countries are behaving a little bit differently. So one answer won't cover them all. But taking a couple as an example, we have seen pressure on quotas. For sure you see total budgets getting pressured and people are making decisions about how they want to spend that money. We think some of it has to do a little bit with how we've grown our organization and their training and skill. If I just stand back from the point of view of bringing clinical and economic value to procedure that would have been open and taking it to noninvasive da Vinci procedure. We think there's value there. And we think we can do well in the presence of even tight budgets. And that's really the internal part that we're working on. Lennox Ketner - BofA Merrill Lynch, Research Division: Okay. So I guess just as a follow-up. You had mentioned that you're investing in regulatory and reimbursement. If you -- is that -- are you focused on changing kind of reimbursement themes [ph] in Europe or was the reimbursement question or comment more directed towards Japan? Gary S. Guthart: Well, the answer is a little bit of both. In Japan, it tends to be a more direct conversation with surgical societies in the government. In Europe it tends to be a little bit more working with surgical societies and health technology assessment groups to really understand the clinical benefits and the long-term, the downstream economic benefits of da Vinci Surgery. And it really is a way for hospitals and customers to understand what the total economics are. Lennox Ketner - BofA Merrill Lynch, Research Division: Okay. And then just last question on the Single-Site, the attachment for that. Is it possible just to give us some sense as when a hospital does buy the Single-Site attachment, how much you're charging for that? And is that revenue recorded in -- as part of an upgrade revenue or is that in insurance and accessories? Marshall L. Mohr: Well, just to let everyone know, the Single-Site is a set of instruments and accessory really instruments that attach to the da Vinci Si System. And so there's no system upgrade required to do Single-Site procedures. Usually initial customers, you need to have the 8.5-millimeter endoscopes, as well as the specific instruments for the case and so on. So it's an investment I think on average out of the gate it might be something like a $40,000 investment to kind of get going. It's recorded on the instrument and accessory line.

We'll go to the line of Tycho Peterson with JPMorgan. Tycho W. Peterson - JP Morgan Chase & Co, Research Division: I wanted to go back to kind of the discussion on dVP from before, and understand obviously with the change in screening intervals, that's one aspect. But as we think about watchful waiting, do you have any color on what the conversion factor is in terms of patients going into watchful waiting and then coming back and heading into surgery? And obviously with PIVOT back in the news, is there anything you need to do differently in terms of data generation or marketing given that it's back in kind of the public press, if you will? Gary S. Guthart: I'll speak to the first one. I'll let Aleks speak to the second one. With regard to what kind of behavior has been historically with regard to people on active surveillance in very, very rough outlines. It's been about 1/3 -- start in active surveillance and stay in active surveillance throughout. About 1/3 will convert to aggressive disease and in essence be kicked out by progression, and about 1/3 will choose to leave because of the repeated going back in to being tested. At some point they decide to rather -- they'd rather have a definitive treatment. And that's been historical and it's rough. We'll see if it holds going forward.

With regards to the second part of your question, the PIVOT trial being back in the news. I don't know that there was anything that was new that was reported today. I think this is something that we've discussed, I think, over the past year since it had been presented at the AUA. I think the editorial that accompanied the actual report in The New England Journal of Medicine really says, I think -- has a pretty consistent tone to I think the way we think about it as well. Tycho W. Peterson - JP Morgan Chase & Co, Research Division: And then just to clarify your comments in Europe. I'm just not understanding why the volumes are really declining here when you've got nationalized health care in a lot of these markets? Is it really that variable in these geographies? Gary S. Guthart: Yes. Short answer is yes, it's variable. You have a few different things and, again, I think you have to think, well what's happening thing in Norway, what's happening in Spain, what's happening Germany, what's happening in France, what's happening in U.K., what's happening in the Scandinavian countries, and they vary. In many of the countries, you have a combination of private health systems and public ones. Their behaviors vis-a-vis da Vinci are quite different. And so depending on what the mix of private and public is and what the government-run hospitals are wanting to do, we'll see different kind of dynamics and behavior. Tycho W. Peterson - JP Morgan Chase & Co, Research Division: And then last one, as we think about some of the gives and takes around procedures, I understand obviously you didn't change guidance on procedures this year. But do you see a path north of 30% in that kind of medium to intermediate term the next couple of years given everything you've got in terms of the new procedures or -- I don't want to box you into giving longer-term guidance, but how do you think about where procedures could go? Gary S. Guthart: Our best thoughts are in the guidance we provide you. Tycho W. Peterson - JP Morgan Chase & Co, Research Division: I was talking beyond this year though. Gary S. Guthart: And we'll talk to you about that in January.

And we'll go to the line of David Lewis with Morgan Stanley. David R. Lewis - Morgan Stanley, Research Division: Gary, these comments about dVP in the U.S., most of the comments so far have really focused on utilization or sort of patient-demand creation. I wonder have you seen anything in the U.S. that would suggest that maybe it's push and pull where it's a hospital specific issue, so I'm really referring to ACOs, demonstration projects with the hospitals just sort of targeting prostatectomy for its declining profitability or something like that, or this is a very acutely the patients just aren't proceeding to surgery and aren't showing up? Gary S. Guthart: Without having talked to every hospital in the U.S., I have not heard the concern that you just voiced, that hospital is trying to direct patients one way or another due to their perceived profitability. Generally speaking, most hospitals will offer both or all 3 alternatives. They'll counsel all of them. And in that setting, where all the alternatives are discussed and a patient has been diagnosed, da Vinci does well, and we've seen a lot of stability there. So short answer is it tends to be more diagnosis and nonsurgical approaches than it is, I think, directed intervention. David R. Lewis - Morgan Stanley, Research Division: That's very helpful. And then the clear positive this quarter sort of on the capital side in the U.S. is, you know, multiple capital peers have reported sort of softness in the second quarter. You don't appear to have exhibited any of that softness. Is it safe to assume that you feel, at least as far as the second quarter is concerned, relatively insulated from some of the factors that may have been out there or some of the push-outs that some of your peers had seen in the second quarter? Gary S. Guthart: Well, again, I think that term insulated has got a few meanings. But I would say that if you look at and again, back away from just that number for a second and look at the overall procedure business. We've reported a 26% gain in procedures year-over-year, and for the first half of the year, it's up 27%. That's still a pretty large number. And so, that does necessitate the demand for systems. And so we do believe that. We do we believe that very strongly. I don't think there was a particular event or an episode in Q2 that separated us from our peer group or other capital companies anymore than just strong procedure demand. And now there are, as you said earlier, puts and takes on the procedures, while one has gone down, several have gone up, and some have gone up pretty significantly. And on balance, it's a very strong procedure business. And I think that's really what separates us from some of the other companies that are up there when you look at the actual numbers and the percentage of growth. So short of that, I don't think there's anything else we can really point to. David R. Lewis - Morgan Stanley, Research Division: And then just, Gary, maybe one quick one if I could. The comments about Europe, I wonder, have you seen anything in Europe over the last couple of quarters or several quarters that would suggest that perhaps the market development in Europe is going to be different than the U.S.? In one particular way, we would be, in the U.S. you never engaged in a directed significant study to prove a specific procedure, but you had a wealth of single center experience data and multicenter experience that was generated by users. Is there a sense sort of based on what you're seeing in Europe that a more directed or active approach to clinical data is going to be required in Europe or is that not the case? Gary S. Guthart: I think a more active conversation is required, and that's a little bit of what we've been talking about with regard to health technology assessments and other things. We have -- now we've been in the market long enough in some procedures over a decade. That's because actually large population-based studies that are well done, multicenter, tens of thousands of patients in them, show clear benefits for da Vinci over other surgical alternatives. There's data being generated around comparisons to other kinds of treatment modalities between Da Vinci Surgery and nonsurgical outcomes. And I think that data is going to be helpful worldwide and in Europe. There may be cases and certainly we're in conversation and have thoughts and plans around specific trials that may help us in different locales, and Europe is one of them.

We'll go to the line of Larry Keusch with Raymond James. Lawrence S. Keusch - Raymond James & Associates, Inc., Research Division: Just to pick up on Europe. Gary, I think I heard you correctly. It sounds like there's a change in the leadership there. And if I caught that accurately, if you could kind of just walk us through kind of what's changing and kind of what's the strategic direction? Gary S. Guthart: Yes. We have changed leadership in terms of leadership of commercial organization in the direct side of Europe, and as well as overall leadership over the indirect as well. This is somebody who's been with us for many years in the U.S. and that run the national accounts side of the business here in the United States. He knows our business very well, has had prior experiences in Europe, and so he'll be taking over there. Lawrence S. Keusch - Raymond James & Associates, Inc., Research Division: But I guess part of the question is, is that a result of the current environment or needing to change your strategic tactics within Europe coming back to needing more discussions around the marketing of the device and the procedures? Just trying to understand perhaps what there maybe the change in strategy in the European region? Gary S. Guthart: Yes, I think it's probably less of -- capital less strategy change and more a focus on execution and organizational growth and capability. There are some things that we can do a little bit differently and perhaps a little bit better in terms of some of the conversations on the economic side. So sort of small strategy. I don't think it's Earth shatteringly different, but I do think it's an emphasis change, and they're working on those things. Lawrence S. Keusch - Raymond James & Associates, Inc., Research Division: Okay, great. And then the -- obviously, it's terrific to hear that the Single-Site procedures are starting to gain some traction, and I fully understand that it's going to take a couple of quarters to fully feel that out. I guess the conversations that we've had with folks would suggest that where there is a da Vinci in place, the general surgeons are eager to jump in and get some time on the system to try out these procedures. And generally we've heard very good things once they get to do it. But I guess the question that I sort of wrestle with is, there are an awful lot of general surgical procedures, prostatectomies in particular, are probably done at institutions that today don't have a da Vinci system. So can you make a convincing ROI argument that this system can be used for general surgery sort of as a standalone device even with the Si-e option? Or at some point, does there have to be a segmentation strategy? Marshall L. Mohr: Well, Larry, if you look at the overall number of da Vinci placements in the United States, we have a 1,707 total systems and I believe the number of U.S. customers -- Calvin, will give us that. I believe it's somewhere -- 1,200 to 1,300, I believe. But if you...

1,275. Gary S. Guthart: 1,275. The way -- what we have seen in prostatectomy for example is that the system has, to this point, become somewhat of a consolidator for the procedure rather than having to put procedures in all, and I should say, put systems in all 4,800 or 5,000 hospitals that are out there. You've seen a strong consolidation of, let's say, the urologic oncology business happen around the same base of systems that prior to the minimally invasive introduction was being done at significantly more hospitals. Fewer were being done at more hospitals. So I don't think we look at it and say, can we necessarily build this self-standing platform with general surgery as a paramount question today? Now what we do believe is that with the increased interest both from the colorectal surgeons, from other complex and general surgery procedures, as well as the individual cholecystectomy procedures that there is enough capacity out there for people to actually try, use it and then build into the flow of the robotics coordinators in the hospital to make sure that there is enough access whether it becomes second systems or third systems, et cetera. But the cholecystectomies by themselves is probably not the way we think about it. I think general surgery, as a whole, and then leveraging the installed base that we have. Lawrence S. Keusch - Raymond James & Associates, Inc., Research Division: Okay. Understood. And then just last one, not to continue to come back to U.S. prostatectomy. But I guess any flavor for where U.S. prostatectomy procedures, I assume, they were down sequentially. And would you characterize it as sort of a sharp falloff relative to where we've been over the last couple of quarters or sort of been a gradual decline and now we've hit a point where we're down year-over-year? Gary S. Guthart: I think the way we think about it and really what the numbers will tell us that it's been a gradual decline over the past few quarters. We've called it out in the past, and now we're calling it out with a little more emphasis. And there appears to be more evidence in the sort of macroenvironment for prostate cancer that we can refer to with a little more clarity.

We'll go to Jose Haresco with JMP Securities. Jose T. Haresco - JMP Securities LLC, Research Division: A couple of questions. On Single-Sites chole. You guys haven't broken this out in the past. Are you at a point where you can kind of give us a sense of how many procedures you think you've done in Single-Site chole, or just in general, who many Single-Site procedures have been done since these 200 devices have been placed -- I'm sorry, sets have been placed out there? Gary S. Guthart: Yes, we're not ready yet to start breaking that out. Just because we're still on the early days of seeing new sites come up and really work through their initial orders. And what we would like to see is what happens on a sustained basis. How much of their future business they start to convert to Single-Site and so on, and that's just too early to tell. So we're happy to tell you -- to talk a little bit qualitatively about how the initial installs are going, but we'll wait a little bit on sequential use. Jose T. Haresco - JMP Securities LLC, Research Division: Just on Europe trend [ph] a little more. Can you give us a little more granularity between say regions of Europe, Southern Europe versus Western Europe as an example, and then, procedures versus hardware? You guys raised the system guidance, revenue guidance for the year. I want to get a better sense for where that confidence is coming from beyond just the slight increase in ASP that we saw in the quarter? Gary S. Guthart: On the kind of the break-outs country-by-country, it's a little bit mixed, probably not real surprising that some of the countries in the south that are always in the news have been most trained in terms of both system sales and procedures. Although I'd say that Italy has been a bright spot. We have seen some pressure in both capital and procedures in some of the core countries of Europe as well. And that's kind of where we are and what we are working through. Gary S. Guthart: That was our last question. As we've said previously, while we 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 from Rebecca in Maryland gives you some sense of what this means in the lives of our patients. "I went to Dr. Katherine Kratz upon discovering that I had a uterine fibroid and endometrial cysts, which had been causing painful menstrual cramps, as well as severe lower back pain. Dr. Kratz recommended da Vinci surgery for several reasons. The procedure is minimally invasive, so the recovery time would be much quicker. At the time I was trying to finish up my dissertation and apply for academic jobs, so it was important to me to have a quick recovery. My surgeon also explained that this procedure allows for greater visualization of the area, as well as providing for her a greater range of motion, allowing her to work with great precision in performing the surgery and in doing the stitches. Because of this, Dr. Kratz was able to save my left ovary, which would not have been possible otherwise. After my surgery, not only was I able to return to working on my dissertation within a few days but I was also able to attend my annual professional conference a few weeks later. Even with all that I have been told, I was shocked at how quickly I had recovered from surgery. Everyday I was able to move more easily and with far less pain, allowing me to stop taking pain medication after 1 day or 2. Now I'm free of back pain and have nearly no menstrual cramps. I'm extremely grateful for the da Vinci Surgery and the excellent care I received from Dr. Kratz and her entire surgical team, because the surgery has significantly improved my quality of life. When I look back at my time -- at that time of my life, I have only positive memories of my surgical experience. My surgeon provided me with comprehensive information about my options and about the surgery and allowed me to make the decision that was best for my situation." Patients like these are the strongest advocates for Da Vinci Surgery and form the very foundation of our operating performance. We have built our company to take surgery beyond the limits of the human hand. And I assure you that we remain committed to driving about [ph] a few things that really make a difference. This concludes today's call. We thank you for participating -- for your participation and support on this extraordinary journey to improve surgery, and we look forward to talking with you again in 3 months.

Ladies and gentlemen, that does conclude your conference for today. Thank you for your participation and for using AT&T Executive Teleconference Service. You may now disconnect.