Ladies and gentlemen, thank you for standing by, and welcome to the Intuitive Surgical Q2 2016 Earnings Release Call. At this time, all participants are in a listen-only. Later there will be an opportunity for questions. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Calvin Darling, Senior Director of Finance, Investor Relations of Intuitive Surgical. Please go ahead, sir.

Thank you. Good afternoon, and welcome to Intuitive Surgical's second quarter earnings conference call. With me today we have Gary Guthart, our President and CEO; Marshall Mohr, our Chief Financial Officer; and Patrick Clingan, Vice President of Finance and Sales Operations. 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, including our most recent Form 10-K filed on February 2, 2016, and 10-Q filed on April 19, 2016. These filings can be found through our website or at the SEC's EDGAR database. 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 and supplementary financial data tables have 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, Patrick will discuss marketing and clinical highlights, then I will provide our updated financial outlook for 2016. And finally, we will host a question-and-answer session. With that, I'll turn it over to Gary. Gary S. Guthart - President, Chief Executive Officer & Director: Good afternoon and thank you for joining us on the call today. In the second quarter our company performance was strong, highlighted by sustained…

Thanks, Marshall. Of our second quarter procedure growth of nearly 16%, U.S. procedures grew approximately 13% and OUS procedures grew approximately 25%. During the first half of 2016, global procedure growth increased to approximately 16%, compared to approximately 15% in the second half of 2015, and approximately 13% in the first half of 2015. We expect our procedure growth rate to moderate in the second half of 2016. In the United States, second quarter procedure growth continued to outpace our expectations. Second quarter growth in our mature procedures slowed modestly compared to the first quarter. General and thoracic procedure growth remained robust. In U.S. urology, second quarter growth in da Vinci prostatectomy and kidney procedures slowed modestly compared to the first quarter of 2016. We continue to believe that our U.S. prostatectomy volumes have been tracking to the broader prostate surgery market and we expect prostatectomy growth to return to levels similar to prostate cancer diagnoses over time. In U.S. gynecology, second quarter procedures grew modestly year-over-year, growth led by malignant and complex benign hysterectomy. Continuing the recent trend, we estimate a larger proportion of da Vinci hysterectomy procedures were performed by gynecologic oncologists during the second quarter. Similar to the first quarter, U.S. single-site gynecology procedures declined compared to the second quarter of 2015. In the U.S., procedures for benign gynecologic conditions slightly grew during the first half of 2016, exceeding our expectations. Second quarter U.S. general surgery procedure adoption remained strong, led by robust growth in hernia repair and continued adoption of colorectal procedures. Hernia repair continues to contribute the largest volume of new procedures in general surgery, and surgeon retention and expansion remains encouraging. Cholecystectomy procedures slightly declined in the quarter, with growth in multi-port procedures nearly offsetting declines in single-site procedures. Second quarter was another quarter…

Thank you, Patrick. I will be providing you with our updated financial outlook for 2016. Starting with procedures. On our last call, we estimated full-year 2016 procedure growth of 12% to 14% above the approximately 652,000 procedures performed in 2015. We are increasing our estimate for 2016. We now anticipate full year 2016 procedure growth within a range of 14% to 15%. In regards to certain forward-looking metrics, we have the following expectations. We anticipate fewer lease buyouts and lower upgrade and other system revenue in Q3 and Q4 than we saw in Q2. Second half 2016 system ASPs will likely be lower than Q2 driven by product and channel mix. We expect a directionally higher proportion of our system placements in Q3 and Q4 to come from operating leases than we saw in Q2. Turning to gross profit. On our last call, we forecast 2016 pro forma gross profit margin to be within a range of between 69% and 70% of net revenue. We are now increasing our estimate. We now expect full year 2016 pro forma gross profit to be within a range of between 70% and 71% of net revenue. Turning to operating expenses. Based upon investments we are making in key areas of the business, we expect expense growth will accelerate in the second half of 2016. We continue to forecast pro forma 2016 operating expenses to grow between 12% and 15% above 2015 levels. Consistent with our last call, we expect our noncash stock compensation expense to range between $170 million and $180 million in 2016, compared to $168 million in 2015. We expect other income to total approximately $30 million in 2016, higher than the $20 million to $25 million forecast on our last call, due primarily to higher interest income. With regard to income tax, we continue to expect our 2016 pro forma income tax rate to be between 26.5% and 28.5% of pre-tax income, depending primarily on the mix of U.S. and international profits. That concludes our prepared comments. We will now open the call to your questions.

Certainly. [Operation Instructions] One moment, please. Okay. And our first question comes from the line of Ben Andrew of William Blair. Please go ahead. Ben C. Andrew - William Blair & Co. LLC: Good afternoon. Thanks for taking the question. Gary, maybe just start out by talking about the increased investments in OpEx in the back half. Obviously, you guys have always been looking for opportunities there, but talk a bit more granularly about where those investments are coming and when we may see some payoffs. I recall it took about a year for the European investments to kick in. Gary S. Guthart - President, Chief Executive Officer & Director: Sure. As we've said before, I think the messaging here has been pretty consistent. Some of the investments are in technology, things like Sp starting to move into field-based investment and scale rather than just the upfront D. So you're seeing some growth in that. We have some other technology investments that are a little broader. We've talked about imaging, and that's kind of a multistep process. Some of it is on the acquisition side, new kinds of endoscopes, some of it's on the software side, and some of it is in the ability to enhance our florescence imaging portfolio. Some of those things will become commercial in future quarters. Some of them are a little longer, multiyear types of investments. With regard to investments outside of R&D, you know we've been growing our investments in regions around the world where we think there's real opportunity from Japan to Germany and France and others. That'll continue. I think that be some of those investments are doing well for us. We have opportunity to perform better than we have thus far. And so the right kinds of investments there are sometimes…

Okay. Thank you. And the next question is from Tycho Peterson of JPMorgan. Please go ahead

Hey, thanks. First question, Gary, can you maybe just provide a little bit more clarity on Sp timelines? I understand you're lining up the initial sites now. It sounds like from some of the discussions, you're really not expecting that to be much of a revenue contributor in 2017. So can you maybe just talk a little bit about how we should think about the rollout next year? Gary S. Guthart - President, Chief Executive Officer & Director: Sure. So, first step here is clearances and some clinical data to support that clearance. 2017 will be really focused on data generation. While I expect some revenue, I don't think it will be a material revenue contributor in 2017. A lot of that will be building the foundation, the evidence foundation, some of the clinical work, and then I think 2018, it starts to become more of a material contributor for us. And as we get our clearances and start to solidify that timeline, we'll color that (30:45) up more for you.

Okay. And then switching over to hernia, I think you talked in the past about doing some initial trial work. Can you maybe talk a little bit about where that stands in terms of any patient enrollment and how we should think about timelines around the trial for 30-day, one-year, and two-year follow-up? Gary S. Guthart - President, Chief Executive Officer & Director: I'll turn that to Patrick.

Yeah. So, we have a number of different initiatives ongoing as it relates to sponsoring evidence development in hernia repair. The two presentation and publication that I mentioned on the call from the AHSQC is among the investments we've made in helping support surgeons bring forward the outcomes that they're getting with da Vinci compared to the alternatives.

Okay. And then just last one. You had noted some delays in Europe around tenders from competitive bake off (31:38). Just anything changed from your perspective this quarter? Gary S. Guthart - President, Chief Executive Officer & Director: No, nothing new to note. I think that tender offers in competitive interaction is the new normal. I think our teams are doing great. I think their performance has been effective. I think we're communicating well. We have a broad portfolio that allows us to engage the customer at different levels depending on what their needs are. So nothing new to report.

Okay. Thanks.

Thank you. And the next question from the line of David Lewis of Morgan Stanley. Please go ahead. David Ryan Lewis - Morgan Stanley & Co. LLC: Good afternoon. Just a couple of quick questions from me. Gary, one for you and then kind of a clarifying financial question. So, Gary, I appreciate the incrementally more detail you gave us in the pipeline this quarter. So two pieces. First is analytics. Can you just give us a broader sense of what the word analytics means to you in Intuitive? And then on imaging, is the next disclosure we're likely to see in advanced imaging an approval or simply an announcement of an imaging clinical study? And then I had a quick financial follow-up. Gary S. Guthart - President, Chief Executive Officer & Director: I think analytics has multiple components in it. As you may know, the majority of our systems are real-time connected to the Internet today. I think over 90% of systems are online. They report back information to us mostly around the system performance itself, what it is itself is doing, rather than, say, patient information. That data can be turned into insights for the company and for our customers and we have been doing that for some time now. So there's that type of analytics. Going forward, I think that as our computational structures get more powerful, we can bring some of that intelligence more real-time. So rather than offline insights, you can start generating real-time insights. That's a multi-year pathway. I think it's interesting and challenging. I think there's long-term potential in it. But we're moving down that pathway, making sure that we have good access and fast access and low latency access to our devices in the field, and then bringing to bear information that…

And, David, if we're talking about margins, the one thing that was kind of different in the second quarter was on the service side. You saw a pretty marked increase in the service gross profit in the second quarter. And during the quarter we were able to utilize more refurbished scopes for our scope replacement program with customers. We're going to be expanding the program as the base builds out in the second half and it's going to require a much higher proportion of new scopes at higher cost and lower margin to replenish, so that's something that will be a headwind in the second half. David Ryan Lewis - Morgan Stanley & Co. LLC: Okay. Thank you very much.

Thank you. And the next question is from the line of Bob Hopkins of Bank of America. Please go ahead.

Thanks. Can you hear me okay? Gary S. Guthart - President, Chief Executive Officer & Director: We can.

Great. Good afternoon. So, Marshall, just to continue on this conversation around margins, you know, because last quarter you commented on mix on how you didn't think you'd be able to sustain 70% and now the guidance is going up on gross margin. And I understand there's a lot of moving pieces here. So just from a top-down perspective, from where you sit today, when you look forward at the business, should we be thinking about low 70%s gross margin as something that can be sustained over time? Just give us a sense of what you've just been learning here in the first half of this year as it relates to a more sustainable outlook for gross margins longer term. Marshall L. Mohr - Chief Financial Officer & Senior Vice President: Yeah, I think we've given you the guidance for the remainder of the year. We think that that's the best crystal ball that we have at this point. There are a lot of moving parts and it's hard to predict exactly where each one will come out. And so I'll leave it at that. I don't want to get into where we think it will go long term. Long term, those same moving parts will cause us to not have high confidence in exactly where they'll come out, although know that we'll manage things very diligently. As you know, last year we put in some programs to reduce the costs of Xi and Xi related product, and those have been successful, and that's part of what we're seeing here in the year to year improvement.

But I mean, in terms of thinking about the biggest moving pieces, what are the things that you have us focus on as we think a little bit longer term when we try to consider what a sustainable gross margin would look like for the rest of the company? Gary S. Guthart - President, Chief Executive Officer & Director: Yeah, I don't think we've put a stake in the ground and I don't think that I'm prepared to do that right now.

Okay. Well, no, anyway, we could take it offline. But thank you for that. And then, Gary, one other thing I wanted to ask about – two quick things. One, on just the eye-popping number of $4.2 billion now in cash on the balance sheet, and you get the question quite frequently, but I'm just curious now with this almost 20% of the market cap in cash, are there sizable M&A targets out there that you're considering and that's why there hasn't been anything incremental done with the cash? Just would love to get be an updated view there. And then you mentioned on the topic of advanced imaging and timelines for future products, you said some of these approvals could come in future quarters. I was just curious. When you made that comment, were you talking about advanced imaging specifically? Gary S. Guthart - President, Chief Executive Officer & Director: Well, let's speak to cash and then we'll go to the organic side. We look at the cash and think we're at an interesting point in the company's evolution here. On the one hand, I think that customer acceptance of our products has been really high. We're seeing, I think, great momentum on the clinical side in terms of clinical acceptance. We have a couple of things going on. We have some new platforms we want to bring to the market that, I think, are outstanding, are very well done and well-conceived. That will take some investment for us to do. The other thing is that we see proliferation of folks who want to enter the market with competitive offerings. And that's both an opportunity for us and a requirement for some diligence. And the opportunity is some of those technologies are interesting and may be interesting to us. Other ones are things where we may want to speed up or adjust our strategy as the market evolves. As we think about the cash broadly, our first thought is can we use the cash productively to drive future growth organically? Our second thought is are there M&A opportunities that for the long term are good for the company? The answer to both of those are there opportunities? The third are, are there other ways we can deploy capital with a long-term view for the benefit of shareholders? And that might be in buybacks or dividends or other things. So we're disciplined about thinking about capital allocation. I think this is a special time in the company's history and we're walking through how we think about cash with a fair amount of discipline and diligence. You had asked a question on product releases. Why don't you ask it again just to make sure I hit it.

Sure. You made a comment about the timing of new product releases and you said some will take many of these years and some of those approvals could come in future quarters. And I was just curious as to whether that was a broad comment or whether you were specifically speaking to advanced imaging. Gary S. Guthart - President, Chief Executive Officer & Director: A broad comment. There are some imaging things that are kind of nearer product things that look a lot like what we have today and there are some long-term imaging investments. And so the submission pipeline and our regulatory interactions are a pretty full pipeline.

Thank you very much.

Okay. Thank you. And the next question is from the line of Larry Keusch of Raymond James. Please go ahead. Lawrence S. Keusch - Raymond James & Associates, Inc.: Thank you. Gary, just wanted to pick up on your last answer on the imaging. If you were to sort of think about all the efforts in analytics and imaging that the company is working on and you were to take this out several years, what would be the benefits to the surgeon at that time with these technologies embedded versus what's available today in Xi? Gary S. Guthart - President, Chief Executive Officer & Director: Yep. It's a good question. There's a couple of things that I think drive some of the variability that you see in surgery. So it's really interesting. If you ask the question and there's some research out there – surgery, in general, not just Intuitive, how much better in terms of outcomes and lower complications is the top 10th percentile surgeon versus the average surgery surgeon? And the spread is quite big as you look at that. There's a lot of variability in surgical performance. And so you ask the question, what drives that variability? Why? And some of it, not all of it, but some of it is that what you're looking for in visual images is subtle. Where are nerves? Where are cancer boundaries? Where are ureters? What's the right tissue to section plane? Those things are subtle and take a long time for people to internalize, and the best do it better. And so what we're trying to do here is find technologies that make it easier for other surgeons to be as good as the best. And we think that matters. Imaging will play a large role in it. So going…

Okay. Thank you. Next question from the line of Brandon Henry of RBC Capital Markets. Please go ahead.

Yeah. Thanks for taking my question. Obviously, Intuitive has posted better than expected gross margins in the first half of the year. And I think we're all trying to figure out how sustainable that is. So could you help us try to quantify or maybe bucket into several categories, what were the drivers of the year-over-year increase in gross margins in the first half of the year for 2016 versus the first half of the year in 2015?

Yeah. I'm not sure we can list out item by item a specific contribution, but we have been focusing obviously on reducing costs for quite some time and managing our fixed costs, and we're really pleased with the progress. We look at where we sit, six months into the year we're at 71% on a year-to-date basis, and that coincides with the upper end of the 70% to 71% guidance range. But Q2 was an exceptionally strong quarter for gross margin. And I think we wanted to leave some specific comments there. Specifically on the product side, we would expect a higher proportion of sales of newer products, as was described in lower proportion of dual console sales, and probably more sales through distributors at lower pricing and lower margins. And I think I already mentioned previously, on the service side, we had some real benefits on the scope exchange in the second quarter, which are unlikely to continue in the second half.

Okay. And then separately – I think you guys mentioned some slight slowing in prostatectomy growth in 2Q. Can you give us some more details on this comment and kind of discuss what's implied for prostatectomy growth in the updated guidance range? Are we now through the bolus of patients that previously deferred treatment? Thanks.

Hey, Brandon. It's tough to know where exactly you are with the patient population that may have deferred treatment. What we saw in the quarter was just a slight slowing of growth from what we saw in the first quarter and the second half of 2015, or frankly all throughout 2015. How much of that is associated with having worked through any potential bolus that may be out there is difficult to predict, though, I think as you've heard us say a few times in the past, over time we do expect that prostatectomy volumes are likely to return towards the rate of diagnoses, and our recent history and the recent growth rates we've seen in 2015 or the first half of 2016, we believe, exceed that growth rate.

Okay. Thank you.

Okay. Thank you. And the next question from the line of Rick Wise of Stifel Nicolaus. Please go ahead. Rick Wise - Stifel, Nicolaus & Co., Inc.: Good afternoon, everybody. Let me start off with procedures again. I just wanted to make sure I understood the comment about the second half procedure growth slowing. Yes, I see that comps are modestly tougher. Is it something about OUS? Is it the urology sort of recovery, if you will, slowing? Can you just help us better understand your thinking there?

Hey, Rick. Yeah, you mentioned the growth rate comparisons get a little harder in the second half of the year. The mature procedure contributions that we saw in the first half of the year we don't think will be as strong in the second half of the year. We continue to expect and we'll continue to drive growth in U.S. general surgery and in our overseas markets in urology and early stage of urgent procedures. Rick Wise - Stifel, Nicolaus & Co., Inc.: Okay. Back on gross margin. Clearly, it sounds from your comments that Table Motion adoption, which has been, in your words, well received, has been one factor helping margins. Where are we in sort of the penetration of the installed base, I mean, 3% converted? 50%? And, is this a tailwind now – leaving aside all of the other moving factors, is this a positive tailwind now for a year or two or three?

Yeah, I don't think I want to get into specific units on this. We're really pleased with the progress we're making and the strong market response from the customers. I think Marshall mentioned in his script we had $6 million of revenue attributable to Table Motion. It was roughly split 50/50 between new installations and systems in the field. So, again, it was a strong quarter, but I think we'll see how it heads. Gary S. Guthart - President, Chief Executive Officer & Director: The history of selling back into the installed base rather than new installs is that you have a few quarters of strong performance and then it tends to tail off. Folks who are going to be interested in it tend to move forward quickly. And then mostly it will be a go forward, so you can look at the history to sort of give you a guide as to how much that is.

Yeah. And we do have roughly around 750 or so da Vinci Xis out in the world at this point in time, and we've made some progress on that. There's still some more out there. Rick Wise - Stifel, Nicolaus & Co., Inc.: Got you. And just one last one for you, Gary, if I could. At SAGES this year, it was very clear that Intuitive's messaging around looking at total procedure cost in the hospital for robotics and how much economic sense it made – robotics makes, when I listen to the looming competition from Medtronic at their Analyst Day and your friends at Verb, they're very focused on lowering per procedure robotic costs to, it seems like, in their words, laparoscopic levels. How do you react, how do you deal, how do you compete with that approach given their entrenched instrument capabilities and will your new platforms address that per procedure cost aspect of positioning you to better address some of these factors? Thanks so much. Gary S. Guthart - President, Chief Executive Officer & Director: Sure. I think the first thing of some of the messaging coming out around opportunities on price, on per procedure price, I think there's a big challenge for new entrants there, which is what benefit do you bring at which price point? So I think you're going to have to show benefit over laparoscopy, what can be done that lap can't do? And that's going to require some innovation and some technology, and that technology is going to have to be paid for. So I think over time, folks are going to have to come out and show what it is that they plan to do to make that happen. As we look at it, I do think there are opportunities for Intuitive to manage different price pints. We have already in terms of our capital line, and it's also true in our instrument line and we can continue to do that. So I think customers will have choice, and the choice will be at what price point do they want to enter and what benefit and value do they find at that price point. Intuitive will offer multiple price points. We will give them that opportunity. We have already and we will continue to. And what value they find at what price point will be their decision. And there's so far been really just one or two companies who have been out there having those conversations and driving it. I think we understand it reasonably well. Rick Wise - Stifel, Nicolaus & Co., Inc.: Appreciate the (54:51) perspective, Gary. Gary S. Guthart - President, Chief Executive Officer & Director: Next question, please.

One moment. And the next question is from the line of Tao Levy of Wedbush Securities. Please go ahead.

Great. Thanks. Good afternoon. Your utilization per system in the U.S. keeps on hitting new highs. And so I'm just wondering, where is the increase in capacity that the hospitals are finding? Where is that coming from? Are they utilizing the workweek schedules a little bit more effectively versus in prior years? Gary S. Guthart - President, Chief Executive Officer & Director: Hey, Tao.

Hey. Gary S. Guthart - President, Chief Executive Officer & Director: I think it's more than one thing for me. One is we're seeing health systems, integrated delivery networks, optimizing the placement of their products and optimizing the flow of patients and surgeons around that product. And so that's kind of an operational efficiency at the hospital level or health system level that has been driving it, and I think it's great. It's been great for our customers and we support it. I think that the second thing is that some of the new procedure categories we're coming into allow for higher volume of procedures and sign up single sites, so more repeatable, shorter durations give you higher utilization, just kind of the nature of the mix of product that's coming in. And lastly, I think in some of the markets we're seeing referral consolidations. So low-volume surgeons are referring to higher-volume surgeons, essentially passing patients to those who do more, and that also drives up utilization. So there are kind of multiple factors there that have supported the growth. I don't know that it goes on forever. I don't think there's infinite growth in utilization possible, but so far, so good.

Got you. And then just lastly, the percent of your applicable procedures that are currently using the robotic vessel sealer or stapler, do you have sort of a rough metric of where that stands today that you can share?

Yeah. Hey, Tao. Certainly, we have seen growth in our vessel sealer and stapler adoption each quarter over the past few years and particularly in procedures where there's a high value associated with using those, whether it be in colorectal resections, even in some gynecologic procedures with vessel sealers. There's still a lot of runway left. And in particular, as you think about the wide reloads that are only available on our Xi, and as the Xi installed base becomes larger, opening up more opportunities for those to be used in thoracic procedures, there's going to be plenty of runway ahead as the installed base continues to move towards our newest technology.

You don't have like a procedure – I'm sorry, a percent that you can share just to get a sense of how long that runway is? Gary S. Guthart - President, Chief Executive Officer & Director: Not at this time.

Okay. Gary S. Guthart - President, Chief Executive Officer & Director: Operator, we'll take one more question from one more questioner and...

Okay. Thank you. Okay. And the next question is from the line of Richard Newitter of Leerink Partners. Please go ahead.

Hi. Thanks for squeezing me in. I just had a quick one, a follow-up on your Table Motion. It sounds like that product is certainly graining traction, and I was just curious to know, is this feature being used in the way that you would have expected it to? And what I'd really like to know is do you think, or can you tell us what procedures or new incremental procedures does this potentially open for you or could you begin to see it open up where you aren't already being used today? Thank you. Gary S. Guthart - President, Chief Executive Officer & Director: Yeah. I think that early experience has been that it's well received, particularly by multi-quadrant general surgeons, which is really where Xi was positioned and one of the big motivations for Table Motion. As frequently happens in this space, something that's a fundamental capability that's good in one place tends to have application in others, and I suspect we'll see that. And as we get more data on it, we're happy to share it with you. Gary S. Guthart - President, Chief Executive Officer & Director: That was our last question. As we said previously, while we focus on financial metrics such as revenues, profits and cash flows during these conference calls, our organizational focus remains on increasing value by enabling surgeons to improve surgical outcomes and reduce surgical trauma. 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 the vital few things that truly make a difference. This concludes today's call. I thank you for your participation and support on this extraordinary journey to improve surgery. And we look forward to talking with you again in three months. Thank you.

Okay. Thank you. That concludes our conference for today. Thank you for your participation and for using AT&T Executive TeleConference Service. You may now disconnect.