Ladies and gentlemen, thank you for standing by and welcome to the Intuitive Surgical Q1 2014 Earnings Release Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Instructions will be given at that time. (Operator Instructions) As a reminder, this conference is being recorded. I’d now like to turn the conference over to Calvin Darling, Senior Director of Intuitive Surgical. Please go ahead.

Thank you and good afternoon. Welcome to Intuitive Surgical's first quarter earnings conference call. With me today, we have Gary Guthart, our President and CEO; Marshall Mohr, our Chief Financial Officer; and [Patrick Clingan] [ph], Director of Finance. Before we begin, I’d 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 3, 2014. 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 first 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 first quarter financial results. Patrick will discuss procedures and clinical highlights, then I’ll provide our updated financial outlook for 2014. 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. The first quarter was a difficult one in the United States. Certain elected da Vinci procedures in the U.S have been under significant pressure driven in part by changing surgical admissions, hospital financial uncertainty and payer incentives favoring watchful waiting and conservative treatment. System sales in the quarter were down largely as a result of slowing growth in our U.S procedures. Despite near-term challenges, we remain confident in the value our products bring to surgery and are pleased with the U.S launch and first sales of our newer system for da Vinci Xi Surgical System earlier this month. Turning to our procedure performance in the quarter, globally we experienced continued growth in general surgery and urology and a small declining gynecology. This resulted in 7% procedure growth in the first quarter over the first quarter of 2013. General surgery growth was led by increases in colorectal surgery and single-site cholecystectomy. Worldwide urology procedures experienced solid growth, particularly in prostatectomy, in Europe and Japan. Gynecology procedures fell slightly year-over-year, driven by a contraction of procedures in the United States. As a result, procedure growth for the United States in the quarter was below our expectations. Looking at procedures in the United States more deeply. General surgery led U.S procedure growth with strong uptake in colorectal surgery as well as encouraging early growth in several other general surgery procedures. Single-site cholecystectomy growth was solid in the quarter. The growth rate slowed relative to prior quarters in part due to exaggerated seasonality this quarter as well increasing economic pressures on hospitals. As announced in our pre-release, U.S gynecology declined in the low single-digits year-over-year in the quarter, pressured by several factors including increased Q1 seasonality, payer disincentives for benign surgery and growing penetration in minimally invasive surgery…

Thank you, Gary. Our first quarter 2014 revenue and procedures were consistent with our press release issued on April 8th. First quarter revenues were $465 million, down 24%, compared with $611 million for the first quarter 2013, down 19% from last quarter. Procedures for the first quarter grew approximately 7%, compared with the first quarter of 2013, and were down approximately 5% compared with last quarter. First quarter 2014 revenue is net of approximately $26 million of deferred -- of revenue deferred in association with offers made to first quarter U.S customers, to trade-in their recently purchased da Vinci Si Surgical Systems for our recently announced da Vinci Xi Surgical System. The trade-in program also provides our customers the opportunity to exchange certain recently purchased da Vinci Si instruments and accessories for da Vinci Xi instruments and accessories. The deferrals reduced first quarter 2014 system revenue by approximately $24 million in instrument and accessory revenue by approximately $2 million. The $26 million in deferral equates to $0.29 per share and is expected to be recognized within 2014. Procedure highlights will be covered by Patrick. Revenue highlights are as follows. Instrument and accessory revenue was down 2%, compared with the first quarter of 2013 and was down 5% compared with the fourth quarter of 2013. The decrease relative to the prior periods reflects lower instrument and accessory stocking orders associated with fewer system sales, the 2 million deferral associated with the trade-in program, the impact of changes in procedures, offset by increased sales of newer products. Instrument and accessory revenue realized per procedure including initial stocking orders was approximately $1,920 per procedure compared with $2,110 for the first quarter of 2013 and $1,930 last quarter. The decrease from the prior year reflects fewer stocking orders associated with fewer system sales, partially…

Thanks, Marshall. Q1 year-over-year procedure growth was approximately 7%, with U.S. procedures growing 3% and international procedures growing 24%.On a macro basis, payer headwinds combined with higher patient payments have impacted the number of benign hysterectomies in the U.S and in turn the number of da Vinci hysterectomies performed, with both declining during the first quarter. This minimally invasive surgery is currently a high proportion of benign hysterectomies and there is wide dispersion of the remaining open procedures among hospitals and surgeons. We expect da Vinci hysterectomy to continue to decline roughly in line with declines in the market through 2014. Other benign GYN procedures including sacrocolpopexies, endometriosis resections, and myomectomies also experienced year-over-year declines in the first quarter. We are in our early launch phase of single-site kit for hysterectomies. The growth rate in the quarter was high off of a very small base. We plan to bring our single-site Wristed Needle Driver to the market in order to further enable benign hysterectomy procedure adoption, but it is too early to predict whether this will drive overall growth in dVH. Before moving on, let me take a moment to discuss the recent FDA announcement discouraging the use of power morcellators and the surgical removal of assumed benign fibroids. Intuitive does not manufacture or sell power morcellation products. Power morcellators do not attach to da Vinci Systems and minimally invasive da Vinci surgeries are routinely performed without the use of power morcellators in both benign and malignant GYN surgeries. Said another way, for many patients surgeons do not have to choose between minimally invasive surgery and morcellation. Other alternatives for tissue extraction exist. In the near-term this announcement may create uncertainty for surgeons and patients when choosing among minimally invasive surgical methods for removing fibroids. Moving forward, we look to…

Thank you, Patrick. I will be providing you with our updated financial outlook for 2014. Starting with procedures, on our last call we estimated full-year 2014 procedure growth of 9% to 12% above the approximately 523,000 procedures performed in 2013. Now based upon factors described earlier on the call impacting U.S. for GYN, gynecology and other elective procedures, we’re adjusting our 2014 procedure growth estimate to a range of between 2% and 8%. This is a wider range than we have previously communicated giving consideration to increased volatility in elective procedures and the recent FDA statement discouraging the use of power morcellation techniques and the potential impact this may have on our procedure business. Moving to revenues, as it has been discussed earlier several factors are pressuring our business making it difficult in the near term for us to predict system sales volumes and as a consequence total revenue, specifically the breath and evolving nature of our procedure growth. As a reminder procedures are a primary driver of capital sales and the relationship between procedure growth rates and capital sales is highly sensitive. Our recent introduction of the da Vinci Xi System an upcoming period of transition in advance of it's release in international markets and ahead of the availability of Xi versions of certain advanced instruments, continued economic pressure and uncertainty at hospitals associated with the implementation of the Affordable Care Act, evolving utilization patterns and point of care dynamics and likely variability in the timing of Japan system sales given the timeline for obtaining additional procedure reimbursement and beyond dVP anticipated no sooner than 2016. Due to these factors affecting the capital side of our business, we will not be providing a revenue forecast at this time. As mentioned on last quarters call, we expect to sell fewer…

Thank you. (Operator Instructions) And we have our first question from Ben Andrew from William Blair. Please ask your question. Ben Andrew - William Blair & Company: Good afternoon guys.

Hi, Ben. Ben Andrew - William Blair & Company: Gary, talk to us a little bit more about the 12% to 15% increase in OpEx with the revenue projection you just gave. Obviously you run the business on a multi-year basis and we all believe or at least we believe there’s a long-term opportunity. But what are you seeing in ’15 and the needs of the company today that, that’s going to justify that level of spending with this revenue forecast?

I think as we have said in the past the places we’re investing I think really all points to our future growth and they are international markets both in Europe, Japan, other places in Asia over time as well as bringing to market products that we think helps surgeons and therefore expand our opportunity both deepening it in markets that were already existing and a good potential to open new markets. I think that scaling back quickly as a result of near term pressure is not a long-term best interest of the Company. Ben Andrew - William Blair & Company: Okay, no that’s fair. So, should we think about a more kind of, if you will, permanent lower domestic growth rate given some of the pressures or maybe a multi-year lower domestic growth rate because it does sound like the continued effort to shift towards international is where the bulk of the growth would be coming from?

I think it's from my point of view too soon to make that comment. I look out and say it's clear that there are some changing dynamics within the U.S. marketplace particularly around some of the procedures that are elective. Some of those things are broader than in Intuitive when you look at the changes to surgical admissions that are changing and some of the payer behaviors around incentives or just incentives around surgery, we’ll have to see how those things wash out in time. Some of them have to do with internal focus of the company as we look at opportunities and have adjusted ourselves towards focus that will pay off in time but those things take a little time to wash through. And so, I think that’s a good question to ask again and then again in future quarters and I would not call it right now. Ben Andrew - William Blair & Company: Okay, last question for me. Talking about if you will instrument pocket share in the evolving area of general surgery, if we go out to all or maybe even 24 months, what percentage of the instruments that are not da Vinci today in a particular case for you all in the training center, do you think we’ll still not be da Vinci at that point, can we get to a 100% pocket share or is it going to be 50% for some -- whatever the number is for some protracted period of time? Thank you.

Yes, so as you think about what kinds of things makes sense for a customer on the da Vinci platform where we can really bring value, probably not a 100% but certainly higher than we are today and I don’t think we have called out here’s the endpoint, but a good example Vessel Sealer has been really well received by our customer, the adoption has gone deeper in different places than we had anticipated when we started and as we look at stapling in it's early adoption into Colorectal that’s been pretty positive for us, customer feedback comment has been strong. And as we expand the stapling offering to bring them articulation and stability and some of the things that we can bring, I think that’s an opportunity for the company as we go forward. So, I don’t think we can peg an exact number for you, but I think it will move up certainly in the kind of the multi port -- multi-quadrant procedures that we think we can make a big difference in in the near term. Go ahead Calvin.

Yes, and just a few thoughts on just the overall metric of instrument accessory revenue per procedure. As it was mentioned, we saw the positive contribution of the Stapler and the Vessel Sealer here in the first quarter which really effectively offset the negative impact primarily from lower stocking orders with the lower system sales in the quarter. So the overall metric was fairly in line the first quarter of this year with fourth quarter of last year. And so, as you kind of look forward, this higher proportion -- you’re going to have a higher proportion of Single-Site and less complex benign procedures in the overall mix and you have the positive impacts of Vessel Sealer and Firefly. So as you look out into 2014 you’ve got factors moving in either direction and it's really difficult to gauge the net direction of the metric moving forward in this year. Ben Andrew - William Blair & Company: Thank you.

The next question comes from Tycho Peterson from JPMorgan. Please ask your question.

Thanks. I just want to understand the guidance revision on procedures specifically around the issue of morcellation which as you called out does not, you do not sell power morcellation products, but in the revised guidance you did call that out as a factor. So, can you maybe just talk about how you see that impacting the market and do you need to kind of step up marketing efforts around that to clarify the situation?

In the near term I think that the surgical societies are going to look and evaluate and they are what the implications are for minimally invasive surgery as a whole. As we mentioned we -- power morcellation is not a part of many, many of the gynecologic procedures we do. I think there will be some reassessment by the surgical societies and by surgeons themselves as they kind of look at tissue extraction techniques and where they want to take guidance from there. So, for us it's pretty hard to forecast. I think at this point we’re just going to have to wait and see. da Vinci offers dexterity and the opportunity for alternative techniques to tissue extraction and so over time we’ll see where surgeons want to go with that. And Patrick, I don’t know if you want to add.

I think Tycho that the issue here really is about the unknown oncologic status of these fibroids. If you step back and you think da Vinci is commonly used in procedures where cancer has been diagnosed. So while it's hard for us to get precise on it, we think -- until some of the treatment approaches are more settled there might be some uncertainty in the market place here over the short run.

Okay. And then since this is the first call post the launch of the Xi, can you maybe just talk about some of the early momentum understanding it's not necessarily an upgrade to the Si, but have you seen any interest in existing Si customers upgrading and then can you help us kind of quantify the opportunity around multi-quadrant procedures and maybe areas like microsurgery, which seem like they could be applicable as well?

Marshall, I'll let you describe a little bit of the early pipeline as qualitatively as you see it.

Sure. So, I am not going to talk about inter-quarter activity, but intra-quarter activity but on the other hand there was a -- as you know there was a hospital in Texas that put out a press release on their first procedure and the excitement around it and the interaction that we have had with customers is positive. I’m not going to predict how it's going to roll out. As Gary said in his part, there are certain instruments that da Vinci surgeons that are not yet available for it, so it will probably be a roll out over time versus [inaudible] upfront.

When we think about multi-quadrant procedures and work that people are excited about, a lot of the features that have gone into the Xi are ones that surgeons have been interested in and asked us about and we’ve been in development with them for some time. So the idea of being able to in essence change setups without having to move the base around the longer instruments help in larger patient populations in general surgery, the narrow instruments get you into tighter spaces, and so as we look at general surgery, general surgery is indeed that, a lot of different procedures and so we’re excited about the flexibility that the setup of the platform brings as well as things like forward hopping the idea that the camera can move between different cannula to be able to get different views of the anatomy. So, I think that’s been strong for us. Micro-surgery is not something we’ve talked about. I am not quite sure where that came from. It's not an indication on the Xi and so, perhaps another time we could talk about that in more detail.

Last one, just quickly on the new Sp system announced today, I have had a few people asking about the 25 millimeter port size. Does that get you around the wrist of hernia and maybe just talk to the discussions with FDA, you’ve obviously gone after some of your competitors around port-site hernia.

The 25 is about the same size as the port that’s going on, that used a little bit different type of construction that’s being used in Single-Site. I am not personally an expert in the herniation issues although understanding and listening to surgeons, I understand that how you make the cut down, how you make the incision and how you close it, closer technique has a large impact in what those things look like. Conversations with regard to FDA have really centered around the technical performance aspects of the device and its application to urology in terms of Sp itself, so really no additional color to provide you on that front.

Okay. Thank you.

Thank you. The next question comes from Bob Hopkins from Bank of America. Please ask your question.

Thanks very much. Can you hear me okay?

Yes.

Okay, great. So I just wanted to clarify some things on the procedure volume guidance. I just want to make sure I heard you right to start out, so your guidance is for 2014 now for procedure volume growth is 2% to 8% that’s a global number, correct?

That’s correct.

So you started the year at 7%, and so obviously what you’re contemplating here is things potentially getting worse from here. And so I’d really like to just understand to the degree you’re willing to talk about it. What are you contemplating getting worse from here, is this GYN getting a little bit worse or it's just GYN and chole getting a little bit worse. And then just broadly speaking, what turns this around in your view?

Yes, I think it's -- when you look at and the things we’re calling out are the increasing pressure that we’re seeing in the U.S. gynecology procedures, factors that we discussed on the call including the payer disincentives for benign surgery effects are of the Affordable Care Act and impacts on procedure potentially involving the power morcellation which is a rather recent event. We’ve seen more volatility in these elective procedures and economic sensitivity as well. So, that’s on the gynecology side, and then specific to Cholecystectomy as Patrick talked about what appears to be a tightening really of the types of patients that maybe that target robotic candidates. And so these are early days on both these categories, but I think the range of the guidance is broader and lower in recognition of these factors.

Yes, just to add a little light. I think the big issue here is that you see some shifting winds in the U.S. benign surgery market place broader than intuitive and some that are specific to us. So, I think that uncertainty is pretty high especially around total hysterectomies -- in total the whole set not just us over time. And I think as hospitals start adjusting to some of the implications of Affordable Care Act and some of the swings an seasonality that we’re seeing the exaggerated swings. We’ll have to see how that plays out in the year and that’s what accounts for this broad range.

And so, I really had a follow-up to that, and Gary this is a question for you. It's a question on buyback but it's really a question about trying to understand your intended message regarding confidence in your long-term opportunities versus the near term uncertainties. So as you noted there’s no buyback this quarter and obviously there’s a lot of uncertainty, but you’re sitting on $3 billion in cash, you have a $1 billion buyback authorized. And my question is; why wouldn’t now be a time for you guys to be more aggressive about the buyback if you’re encouraged about the long-term, and so again, I am really just trying to gauge here long-term opportunities versus near term uncertainty.

Right. I think that directionally we feel like buybacks are a good idea when we feel like there is a good opportunity for the company to be in the market and that’s something we speak about routinely with the board here and so we’ll see. I think with the fair amount of volatility that’s been evidenced in the U.S. market and it's likely to persist for some time given all the moving parts in the U.S. market when opportunities arise then I think the board will sit down and evaluate.

And then just lastly really quickly on the Sp system, could you just talk a little bit more about that. What does that look like long-term, really who is the customer for Sp, is that potentially a less expensive system that could be targeted to outpatient. I just want to understand who the real customer is for Sp as you see it, thinking long-term when you have multiple approvals and just trying to understand where this is going?

Right. So, the first thing is that, we have not announced pricing. Likely the operating cost for the Sp system will slide in above Single-Site and add a slight premium to a da Vinci set. It's not finalized, so it is not an operating cost lower cost than Single-Site which is actually quite good already. Single-Site instrumentation from a material cost point of view are within about $100 of multi-port laparoscopic cost. So the material cost comparisons are quite good on Single-Site. Already this has additional capability and we’ll come into from an operating point of view at a small premium to that price point. In terms of why we think it's interesting, the first indication to be entirely clear is urology. We think there is some interesting things that can be done particularly in things like kidney cancer where you have the removal of the specimen. I think these are the type of procedures where co-articulation and forearms make sense in a single-port context. As we think about other places in the future that might have interesting indications, we think about places where you’re going to be in confined spaces, head and neck is one of them, transanal procedures are another place that people have real interest in. And one of the reasons that we're talking about this a little bit early relative to launch is to give us room to discuss it with surgeons to develop it in terms of clinically clinical laboratory work over time, so we get a real chance to interact with customers about where this kind of architecture can take us. I think early interest is quite high in terms of enthusiasm. I think there is real work to be done in terms of refining some of the elements that are present in terms of both of the supply chain and the indications and we look forward to doing that over time. Long-term I think there are some unique capabilities here technologically that may lead us to some interesting questions.

Thank you.

The next question comes from David Roman from Goldman Sachs. Please ask your question.

Thank you and good evening. I wanted to ask one strategic question and then one just specific question about the numbers and maybe starting with the strategic side. Gary, I listened to your commentary in that prepared remarks where you brought up international, I think you didn’t specially call emerging markets where you brought up Asia, India, Latin America. It sounds like there’s sort of a shift a little bit in the strategy here as the U.S. markets mature and that thus the focus of the company is moving to being more of a global medical device company with a little bit more of a broader focus and lesser sort of a pure play technology company and if sort of you look at the market valuation showed us different types of businesses. I am just wondering how you sort of think about the evolution of the business as you start to look, it sounds like more sort of singles and doubles versus homerun opportunities coming from expansion of therapy versus kind of new product launches.

Yes, I understand the question. I don’t think certainly in the next few years I don’t see that it's either or I think that we’ve made real investments and we’ll continue to invest in those technologies we think can make a real difference in surgery and I expect that to continue. And the indications around thinking globally are not strongly this year or next year, I know you’re following, you know we’ve been investing in Europe and Japan. Longer term as you look multiple years out, I think there are real opportunities in other parts of Asia in Latin America and I think it will be important for the company to be there. It's not intended to signal a hard right-turn away from innovation. Innovation is in our DNA, you see it routinely in the products that we develop and bring to market and I expect that to continue.

And then maybe just a second question on, maybe this does relate a little bit to the slowing in choles, but one of the things that you’ve been talking about and this came up more in the fourth quarter call was on the R&D spending to collect more clinical data to support the adoption of therapies where you have stronger competition, I am presuming that’s sort of Ethicon and Covidien, but maybe you could sort of talk about the type of data you’re going to be collecting on choles in some of those procedures where you need to be more competitive and then ultimately when that could drive a resumption in growth in those categories -- a reacceleration of growth?

As you look out I think the types of data are pretty clear and we’ve seen them collected. I think first you collect simple outcome data and that evolves in time from single institution studies, so multi institution studies and so on. And then with that I think economics that follow. So really it's a combination of how are your products used, followed by what kind of outcomes are being attained followed by what are the economic consequences of those outcomes and that’s really what we invest in. And where you have all three you see strong benefit, where the out products are less differentiated, where the outcomes are differentiated and the economics follow, that has been a strong predictor of growth and so, that’s a routine part of what we do both in the U.S. and OUS each health system calculates some of these things a little bit differently, disease states vary a little bit country-to-country and so it's not just the U.S. centric activity.

Okay, and maybe just a quick last one, I know Bob asked the question about buybacks and I understand the comments around volatility in the market, but maybe you just broadly help us think about the capital allocation if there are other priorities you might look at given some of the gyrations in the top line here and you haven't spoken about M&A sort of that in the past as a potential maybe how you’re thinking about broader use of cash in the context of everything that’s going on here?

The basic elements as you’ve seen has been organic growth -- funding organic growth and development where we need to. We have invested OUS and sometimes those investments are organic and sometimes there are acquisitions of things that are important. I expect that to continue. We routinely look for technologies that will enhance our product lines and acquire them on an ongoing basis. Typically those have not been huge acquisitions, but in the future if there’s an opportunity and a need then those can grow. And so those are really the basic elements in the mix. They change a little bit in terms of how they’re mixed together over time, but the three elements are all there.

Okay. Thank you very much.