Intuitive Surgical, Inc. (ISRG) Earnings Call Transcript & Summary

Good morning. We're going to go ahead and get started. I'm Tycho Peterson from the life science team. It's my pleasure to introduce our next company this morning, Intuitive Surgical. Just a quick reminder, if people have questions, to submit those through the website. And with that, I'll turn it over to Gary.

Thanks so much, Tycho. And nice to see you again, and thank you for being a host. We're appreciative of the support from many of those on the call and look forward to the conversation today. As you know, we'll be making some forward-looking statements. As you look at the deck, Slide 2, we'd ask you to look at our website for a complete disclosure of the risks and uncertainties associated with our business. I'd like to get into just kind of grounding you in the data, where are we this year and where we've been. Just touching on Slide 3 here. 2020 was active for us. Surgeons used our products over 1.2 million times in the year. We placed 936 da Vinci systems in the year. And our clinical library of aggregated clinical evidence grew by another 3,000 peer-reviewed publications. To date on da Vinci, over our history, there have been more than 8.5 million procedures performed. Our clinical installed base stands at almost 6,000 systems. And the aggregated clinical library is now over 24,000 publications. We'll talk a little bit about evidence and data and what that looks like going forward a little later in the talk. I'd like to touch on what our plans were for 2020 and how we did. And clearly, 2020 was a year of pandemic disruption. Our objectives coming into the year, we expect it to grow in U.S. general surgery, particularly around hernia, bariatrics and colorectal procedures. We wanted to extend our depth in OUS markets, in Asia and Europe, grow beyond urology in those markets. We intended to progress in our launch of SP, Ion, our imaging capabilities and our analytics, we'll talk to that in this talk today, and continue to expand our clinical, economic and analytic prowess as we went forward. There were some areas of strength in the year. We saw, in spite or in light of the pandemic, fairly rapid recovery in the use of da Vinci systems when hospitals had COVID under control. As surges happen, you see that fluctuate. But as soon as they can get back to surgery, they tend to choose us and choose our systems. And I was encouraged by that. Our customers are standardizing on our latest systems, our Generation 4 systems. That's da Vinci X and Xi. And you see that in some of the results that we posted today. We've seen surgical practice strength in general surgery, in particular in bariatrics. As COVID has pressured hospitals, bariatric surgery has been robust, in part because we think patients see the risk profile is related to obesity and are taking action to do something about it. Our customers in China responded extremely well to our products this year. And as they have managed the pandemic, we've seen really nice business growth in China. And our customer view of Intuitive, which we care about and take seriously, has reflected well on the company this year in terms of our Net Promoter Score. And it's been an area of strength. Every year has its challenges. And certainly, this one did as well. COVID-19 not only disrupted elective surgery, it disrupted communities, it's also disrupted the diagnostic pipelines that precede surgery. And that's hard for patients. The world is going to have to come back and deal with that. And it may take some time beyond COVID starting to wane for that to come back. We've talked about this all year as really precedes some of the COVID challenges. The regulatory timelines for the computer-aided and robotic surgery space for the industry have been lengthening the last few years, particularly in the United States and in Europe. That's an issue broader than Intuitive, but it has some longer-term implications in terms of how long it takes to bring innovations to market and what it costs to do that relative to some of the timelines and things that we've come to expect, say, 5 years ago. We have our new product, our flexible endoscopy product, Ion. We've had great clinical response in the market. We've actually had demand go higher than our models. And in fact, we've had some supply struggles this last quarter. It's kind of a combination of 4 things. Demand is higher than we thought. We're learning how to get demand-side planning to be more accurate for us as we understand how our customers use that product. We've had some challenges as it relates to quarantines and COVID in our supply and our manufacturing. And we've had some opportunities to improve quality. And those 4 combined have had us behind the supply curve. We're working hard to resolve that. We expect to resolve that in the first half of the year here as we go. Our lines are running. We're shipping product. We're just -- we're not yet keeping up with demand. And we're going to work hard to get that closed. Moving to Slide 5. Our procedure trend worldwide, you can see where we've been. And this is broken down by year and by surgical discipline, so general surgery, gynecology, urology and other things like thoracic surgery and head and neck. You see that growth went flat in 2020, really driven by the pandemic. We were on a healthy growth clip. Prior to that, we expect that core demand will bring us back to growth as COVID starts to reside -- to resolve. We're not providing guidance at this time really because of the uncertainties related to COVID and its recovery, recovery in terms of economics and recovery in terms of diagnostic pipelines. And we just don't have the analytic tools to penetrate that at this time. We're working hard on it. And as we get greater clarity, then we'll seek to bring back a procedure-based guidance. Moving to Slide 6. This is what it looked like in system placements by region of the world and what installed base growth look like. We know, and as we've talked to you before, that systems are highly sensitive to utilization, that as folks use their systems more, they add capacity. And as -- if procedure growth slows, then they'll slow the growth of additional systems. So we expected 2020 to be a down year in system placements, given the procedure pressures on surgery and elective surgery, which has been interesting, it's probably stronger than we expected. And you saw -- or we saw installed base growth at 7% in 2020 in this year of pandemic. And that tells you something. We believe there's some budget flushing of capital budgets in the fourth quarter. The percentage of systems that were on lease went up in the year. I think that's fine. That's in supporting customers the way they want to be supported. But this is, in my view, a vote of confidence in the use of robotic-assisted surgery and da Vinci, in particular, in a tough year. Turning to Slide 7. This is what revenue looked like. We had a 3% drop in revenue over 2019, driven by changes in utilization. Strong recurring revenue in the year, you can see that recurring revenue has increased over time in an absolute sense relatively in this year because of pressures on capital. It increased in a relative sense also. We think that over time, that will continue to creep up the percentage of revenue that's recurring as customers take advantage of flexible financing options, they take advantage of leasing or pay-as-you-go models. Those are all healthy, healthy for the company, healthy for the customer. So turning to Slide 8. Looking forward, I'm firmly convinced our opportunity remains robust. Actually, I think, in many ways, the pandemic highlights the strengths in the kind of fast intervention in surgery that we do. However, the near term is hard to forecast and will remain so for some months. The duration of the pandemic and its economic impact thereafter remain unclear. Our diagnostic pipelines in health care are not yet full. So colonoscopies, routine prostate cancer screening, these things are below historical levels. That's not good. It's not good for the health care system. It's not good for patients. Those folks will start to come back once COVID comes under control. But it hasn't happened yet. And so that will take some quarters to resolve. I think ultimately, it will resolve. And I'm confident Intuitive will be well positioned when it does. Lastly, as I mentioned before, regulatory requirements and timelines for industry, particularly in the United States and Europe, have been increasing. And that just means we have to configure ourselves to do that well. It's not an Intuitive-specific thing. It's a broad industry-wide thing. And we'll take care of that as we move forward. That said, it will cost more and take longer than in the past. I'd like to talk for a minute, as we move to Slide 9, about how we think about future opportunity. Let's -- now we've talked a lot this year about the challenges in 2020. Let's talk about the longer term. Turning to Slide 10. If you just kind of ask the question, how many surgeries annually are there in the disciplines that we serve, urology, gynecology, thoracic surgery, general surgery and so on, in the markets in which we're active globally? It's about $20 million, give or take. If you then ask the question, okay, we'll boil it down, what products you have in the market that can serve those segments? And where are you highly competitive, meaning, we have a product in the market, we have the clearances we need, we think they're economically competitive. We have the commercial teams to deliver them? We think that, that number is about 6 million procedures annually where we sit today. So that's kind of the line of sight. To get there requires great product. It requires a full ecosystem. I'll talk to you about the ecosystem in a minute. And it takes commercial teams. Our design teams, our regulatory teams are working on growing that blue bubble on Slide 10, the 6 million, to be bigger over time. That's been our history is we look critically at where we think we are highly competitive. And then we try to grow that over time with our forward-looking investments. And as you listen to the next part of the talk about where our investments are going, that's kind of the goal. So this year, as we said earlier in the talk, 1.2 million procedures. Okay, that's a small amount of what the 6 million is. And our job over time is to grow that 6 million as we innovate. Turning to Slide 11. One of the things that we talked about, I think, capital strength in a tough year has been a surprise positive. And you might ask, what's going on and why? We know -- looking at Slide 11, we know that customers start by acquiring a system and evaluating it, seeing if it does what we say it does and seeing how it fits in their operating room. If they start to get the results they expect, they'll start to build it into their normal operations. They'll operationalize at Phase 2 there. And they'll start to use it routinely. And if they get the results they expect, then they'll start to standardize on it. They'll require additional systems and they'll spread those systems to sister and neighboring hospitals. And so in this last year, a remarkable year, 2020, during a pandemic, the number of hospitals globally within their 4 walls that owns 7 or more grew 20%. And looking at IDNs, at integrated delivery networks, that graph on the right, those folks just kept growing. In other words, people who were investing in robotics and spreading it across their system continue to grow through a pandemic. And I think it's instructive and interesting. I think they're doing that for a reason. And that reason has to do with evidence in their own environment. So turning to the next slide, Slide 12. There's a lot of talk in this talk -- in this conference, you'll see slide after slide, people like me talking about data and digital change and electronic health. And I think a good question is what does it mean in our setting? And kind of where is the meat? What does that actually look like? For us and our customers, those things are interesting insofar is that they change outcomes. And they generate evidence of improvements in the quality of better outcomes, better care team experience, better efficiencies, better patient experience, lower total cost to treat, those kinds of things. And if they can generate evidence that's compelling, then I think it's an accelerant. As we think about data, we think about it as an accelerant for an ecosystem. And if you think about investment, investment in analytics, investment in informatics, it does not supplant or replace the things on this list. It makes them better and accelerates them. So we think the ecosystem is extremely important. The customer is not buying a robot. They're interested in a great minimally invasive surgery or acute intervention program that generates great results and satisfies the quality. And what does it take to do that? It takes a deep and a broad ecosystem that supports it. And I think it distinguishes Intuitive from systems which are not commodity products; to instruments and accessories, also not commodity products; to regulatory approvals; to great training systems and workflow training, that's our Genesis program. Clinical evidence resources, clinical data and the analytics that supported are important. Wonderful sales and service competencies, marketing programs for the company and hospitals, academic and surgical society engagement and economic validation, health and economic outcomes research, these things are all important. They are facilitated, enabled and underpinned by fantastic analytics systems. And we'll share with you what we're doing about it, what that looks like. So turning to Slide 14, let's talk about evidence. On the left side of that chart, there's aggregated clinical evidence. And we've been talking to you about this for 3 years now, for a decade. The peer-reviewed clinical database now exceeds 24,000 articles on da Vinci and its kind of family of products. And this includes everything from level 1 evidence in randomized controlled trials to systematic literature reviews, level 2 evidence to case studies, its retrospective and real-world evidence. And I think that kind of data is important, points the way. It allows us to engage regulatory agencies to obtain approvals and provides opportunities for folks to evaluate us. But one article in that space rarely changes clinical practice, in surgery. And the reason is that there's a huge amount of variance in the surgery. The patient populations differ hospital-to-hospital, surgeon technique differs in different places. Care team behaviors and opportunities also differ. So as a result, we see that while that data is important, it doesn't always transform how people operate. And we have seen a change. And that change has been the ability to evaluate data at hospitals in their own settings in near real time. And we think of that as, from the hospital's perspective, my data, my truth. In other words, I'm seeing what's actually happening in my hands, in my setting. That goes from automating analytics, and we'll show you a little bit of how we're doing that automation, to custom analytics and integration with electronic clinical records, which are becoming ubiquitous and are starting to change practice. And we have engaged a lot of different hospitals in a lot of different engagements to go through that data and that analytical capability. Turning to Slide 15. We're starting to do something that's, I think, coming to be standard. And that's to start connecting the capabilities we have in the cloud, the supercomputers and the data analytics that underpin robotic surgery. Robotic surgery has been the Internet of Things in the OR for over a decade. We can bring that large database and machine learning into the OR. You have a supercomputer in the operating room in a da Vinci system or an Ion system or a da Vinci SP. And we can connect those things now with a cloud-enabled, cloud-connected smartphone, which is in the palm of the surgeon's hand or the robotic coordinator's hand or administrator's hand to allow them to look at their data in a simple and easily accessible way quickly. Relative to other industries, not a surprise. Relative to health care, it's starting to become powerful. And we're excited about that. And this is rolling out now into our field and will become a standard over time. Turning to Slide 16. If you zoom out and look at kind of more offline processing, big data opportunities, we've been doing this for some time, as we've been talking to you. And I think it's starting to really transform how surgeons evaluate and how administrators evaluate their surgical programs. In this chart, we're showing you a simple question. This is a real data. It's one example of a simple thing. How much open surgery is the surgical program doing? Well, that data clearly exists in the electronic medical record. People can go get it. But it turns out it's hard to get. That analysis often is not done. And you'd be surprised how often people don't know the simplest question of what kind of procedures are they doing and what's the mix? We can automate that and make it easy to access. You can go, turning to Slide 17, and ask another question. Okay. Well, given a particular procedure, what's the variation in approach? For example, drill down, what are different surgeons doing in cholecystectomy or ventral hernia or inguinal hernia repair? And which surgeons are doing it? Are they dedicated to one approach? Are they switching? If they are switching, why are they doing it? So now you can start getting a more detailed understanding of what your surgical program is doing. Look at Slide 18. You can go deeper still and start asking, okay, well, what's the variation of their approach in outcomes? That doesn't make sense. Does it make sense for the patient population? Are they getting a different resource consumption? And what's underlying that difference? Are they employing a different thing? You can go further, going to Slide 19. As the data use becomes routine, it starts giving you some analysis of patient-centered metrics. How much time is being spent in the ICU by surgical approach? Clearly, this year is illuminated how important that is, what a rare resource that is. And so you can see, actually, in this case, robotics was significantly lower as an ICU consumer than open surgery was, kind of no surprise. You can look at how much time is in the hospital, what the length of stay is, what other kinds of resource consumption have been. And hospitals are now employing this more routinely. Turning to Slide 20. You can start asking overall impacts, some of the key metrics of the financial health of the hospital and of the outcomes. So we see it as pointing the way. And it starts in this next slide, in Slide 21. It starts to give us opportunities. And this is something we're working on. It's not yet fully deployed, although it is in pilot mode, that starts giving teams and surgeons not only aggregate data but predictive data. So you start asking, okay, if I can create a computational observer that's watching a surgeon in action, that's looking at their training history and training profile, if we can look at the electronic medical records, then you can ask the question, can you predict a good outcome? And can you associate what variance in technique gets you that outcome? And so far, it looks like, yes, in common procedures, that appears to be possible. So we're working through that. And what that does is start having surgeons know where they need to get better, to be able to see and break down here's where variance in technique is creating variance in outcomes. And here's where I should go practice or take a step back and evaluate. Those tools are coming. They're not yet fully deployed. But I think these things are extremely powerful and will really start to drive a couple of things. They're exciting. Better outcomes or reduced variance across the surgeon population, fantastic, but also compressing learning curves, get to based learning faster. I think these tools are great. They are kind of ecosystem enablers, meaning they'll go across the entire ecosystem. And I think that once they get adopted, it'll be unlikely that folks go backwards. Turning a little bit to the core products and some of the other things we've been working on. I'm now on Slide 22. Robotic systems are not commodity products. We see this in the market already. Folks are evaluating competitive products. The tradeoffs are different and they're not the same. We've been really thoughtful about making the tradeoffs we've made. And I think customers are coming to appreciate that. Just to speak to that point, Slide 23. Here's our NPS for this year. We've been tracking it formally in a consistent and systematic way annually. Our Net Promoter Score puts us somewhere between excellent and world-class. It means if we have opportunity to keep working on it, we will. But it is outstanding, particularly in a hard year. And as you look at what our customers are telling us, they're saying, "Hey, we are appreciative of learning program innovation that you've done," customer relief program we implemented earlier in the year, of the analytic prowess that we're bringing to our hospital customers. We launched our extended use instruments. You're seeing that in our results. The case completion rate, the stability of our Xi systems, their dependability to be available to complete a case is very high, our flexibility at making it easy for them to get the right system in the right place for the right economic model. So this has been strong for us, and we continue to focus on and intend to. Turning to Slide 24. We've been bringing our imaging and the augmented reality programs into the market. 2020 was a pilot year, we'll go stronger in 2021. But this is just an example. This is an example of integrated imaging and machine learning as it relates to what can happen in the operating room. We call it our Iris program. And the first model that we used it for was preoperative imaging for kidney cancer. And what's happening here is, in many cancers, an image exists in the PACS system in the hospital that is rarely used during the time of surgery. So hospital system has paid for it, they have it, but they haven't deployed it. It's because it's hard to get to and it isn't segmented by anatomy. It's kind of slices through the body. So a simple idea. Why don't we look at the image, create a segmented model using the cloud and machine learning and then serve that back to the surgeon to be able to plan the case, in this case, looking at where tumors are in the kidney, and then access it during the surgery and post-surgery talk to the patient? And so we've deployed that Iris this year. And some early studies are coming out, and these are early. But they're saying, does it change the route of surgery? Does it change anything? Or is it just kind of a neat tool? And the answer from this group that evaluated is that they think it will change 20% of their kidney cancer surgeries, and so 1 in 5, using data that already existed but was hard to access, so wonderful, right? And they go through it and they say, okay, about 16.5% of the time, they think that the surgery they were planning was too aggressive, would take away too much kidney and then leave the patient with a risk for dialysis later, which is an unpleasant and costly thing. 3.5% of the time, they said, actually, the surgery they were planning was not aggressive enough that the cancer actually looked worse and was more serious than they had thought. And they would do a more aggressive procedure. Either way, that's better for patients because it's making the decision-making more appropriate for the disease that they had. And it gives them a chance to see it but before they get into the surgery. So we're really excited about how this kind of simple computational idea, hard to execute well, can change clinical outcomes. Moving to Slide 25. Our SP product, single port, has been in the market for some time. We're seeing some nice momentum growth in 2020. Our installed base has been growing. Despite a year of pandemic on a relatively new platform, procedures grew 64% year-over-year. And customer excitement is evidenced by some of the work they've been doing virtually this year and in ORs has been great. You know that we're working on additional indications. I think over time, SP will open additional clinical markets for us by bringing new approaches to clinical outcomes, which is going to be fantastic. So it looks encouraging. When we go to Slide 26 and look at where we've been in Korea, what we see is Korean regulatory authorities have given a broad clearance. And so you see here on Slide 26 the breakdown of different specialties. It is not limited to urology or head and neck surgery, it actually is broadly applicable. We don't have those indications in other markets. We're working on them in the United States and later in Europe. But it will take us some time. What's remarkable to me is that utilization -- annual utilization in Korea for single port, SP, Generation 1 product, exceeds that of multiport Xi. So they're using it more than 400 times a year in Korea versus the Xi system at 355. But that tells you is we think we have something. We think it's well accepted by our customers. And they are excited about the outcomes they're giving for the patients. And we'll work with regulatory authorities to broaden that globally. Turning to Slide 27, our flexible endoscopy program, Ion, first clearances for diagnostic bronchoscopy. Demand is robust. I'd encourage you to print this slide out to look at the abstract on the right. There's clinical data coming out. And the purpose, remember, of Ion in this first indication is to look for suspicious nodules in the lung and to evaluate them to get a biopsy to decide whether that's cancer or not. And so reaching it is a hard problem. And Ion is doing a class-leading job of reaching that. And getting a definitive biopsy getting enough of the right tissue to make a determination is also hard. And you'll see in the data that we do great there. In fact, we appear to be market-leading in that regard relative to manual technique and relative to other computer-rated options. So demand has been great. It's actually exceeded our expectations. We are working extremely hard to make sure that we can meet a demand where it needs to go, and over time will expand globally for Ion. And we have an opportunity to expand indications into Ion as well. Turning to Slide 28. We are investing in multiple ways to make our ecosystem stronger and to enhance learning. And one of the great successes of this year has been the flexibility and adaptability of our learning systems for customers, from online learning to remote learning with top presence to simulation. Here, I'm just showing you the use of our simulation program. We have a subscription service for simulation that has more than 12,000 surgeons using it routinely. The surgeon hours used in practice and simulation were 34,000 hours in the last year using 431,000 unique engagements on exercises. This works into their connected learning experience. It works into the data that I showed you on that smartphone app. So as we go forward, these interactions, the ability for surgeons to see where they really are and where they can improve is compounding. And we're quite excited by it. So as I move toward closing this session, we prioritize investments as we've laid out prior. We will invest organically in improving the quad aim with the kinds of things we did well. We have the opportunity to work with other companies. Either directly or through acquisition, we pursue that. We invest in the virtuous cycle, the ability to increase the scale of our operations, to decrease costs, to share those costs with our customers, like the extended use program, and by that, drive quality and drive additional scale. And we look for opportunities to return capital to shareholders with a focus on long-term value when we do that return. Going into 2021, as is our tradition, we are focused on the following. We'll support our customers' recovery from the pandemic in surgery and acute interventions as they need it. We'll stay close to them. We expect outstanding regional performance. We have large opportunities inside the United States and outside the United States. And we continue to pursue there and to improve our operating capability. We have several great launches and we will stay with it, from SP to Ion to our imaging and analytics and innovation in our multiport systems. And lastly, evidence matters and analytics matters in health care. And we'll continue to expand our clinical and economic capabilities therein. With that, I'll conclude this part of the presentation. I'd like to thank you and look forward to your questions.

Great. Thanks, Gary. Terrific overview. I'm going to ask a couple of questions on the pre-announcement just because we've had a few inbounds. But I'll start with the capital placement. It was a great quarter, 326 systems, a little bit of an uptick in operating leases. But maybe just talk about what that means in terms of the underlying CapEx environment. And ASPs did tick down a little bit. Was that a mix dynamic? Or is there some pricing sensitivity?

Yes. To the mix and pricing sensitivity, Marshall, why don't I kick that one to you and then I'll speak a little bit more broadly.

Sure. From a mix perspective, we saw more trade-ins on capital. And therefore, associated with trade-ins, we do provide credits back to customers for the trade-in system. And so you get a little bit of pricing pressure from that. We also saw greater system sales to distributors than we've seen in the last few quarters. And we saw some distributors at a discount to our price that we would otherwise sell to customers since they're incurring the cost of sale. And we saw, relative to last year, last year was a high quarter for China. And this year, we had a more normal quarter and so fewer systems and ASPs in China happened to be higher than rest of world. And so that also plays on the overall pricing. So we saw lower pricing from a system and ASP perspective.

Kind of zooming out for a minute on capital, Tycho, I think there's a couple of things. Pretty clear that there was some budget flushing at the end of the year. For us, that may mean that 2021 may be a tighter or tougher capital year than might be expected if they pulled some of those spending in. We'll see, a little bit hard to know exactly. Having said that, I think that even if there is budget flushing amongst the many competing priorities in the hospital, the fact that they are choosing systems and often doubling down, they have some already and they want to increase that, I think it's a good sign. Lastly, I think the physics of the link between utilization and capital installs remains a strong one. And as procedures come back, we'll expect capital to firm up. If procedures remain soft because surgery is hard to do and COVID is raging, then we'd expect capital to be soft for some time.

You called out some stocking orders, too, with the extended use instruments. Can you maybe touch on that dynamic?

Marshall, why don't you just take that?

Yes. Sure. We're tracking what the customers are buying in terms of extended use instruments and the 10-life instruments and their utilization of those instruments as well. And what we saw in this quarter was that hospitals were starting to stop the extended use instruments. Those became available in the U.S. at the beginning of the quarter and in Europe in the middle of the quarter. And as they have been stocking those, they've been stocking them sort of similar to what they were in 10-use instruments. In other words, they weren't adjusting their power arrangements or repurchases of product to coincide with the longer -- additional uses. So we did see stocking orders. It actually represents the whole -- the majority of the difference between the instruments per procedure pricing that we see this quarter versus the prior quarter. And over time, you should expect that, that will -- that they will burn that off. And in fact, we would expect them to burn that off. And then you will see a reduction in price per procedure because of the extended use instrument.

And are you able to provide any preliminary color on what the elasticity looks like? I know that was a key question kind of coming out of the third quarter with the extended use instruments and the pricing adjustments. How do you think about incremental demand?

I think we believe that there is elasticity. We believe that in the long term, we'll realize that. And we were careful, both in terms of we -- the extended use instrument pricing. But also if you recall, we reduced the price on some other instruments to make the procedures that were lower acuity more competitive with other MIS approaches. And so we believe that longer term, we will -- that will open up opportunities for us. In the short term, meaning we just introduced the extended use instrument and the lower-priced instruments at the beginning of the quarter, we haven't had adequate time to really measure what that is. And so while we do believe we have a greater population of procedures we will address, it's hard to say when that will occur.

And then for Gary, a question on kind of the software initiatives. You talked about the custom hospital analytics. Are payers driving this? Are the hospitals asking for this? How do we think about kind of how the business model evolves here? Is this moving more toward a SaaS-type model? Just talk a little bit about priorities and how you may monetize this over time.

Yes. The -- when we think about it, there's a couple of things. First, there are different categories of computational capabilities and analytics. Some of them are programmatic. I showed you the customer hospital analytics and some of the big data analysis capabilities there. I don't think those things are things that would be monetized directly. I don't expect them to be revenue-generating. They are strong supporters of the ecosystem and they're routinely used. There are other things. There are other categories that are, in the OR, changing outcomes physically that you can make a difference. The Iris program is such a thing. When you go through it and say, "Hey, can you apply this to a case," we think that we can get different outcomes. Those may be revenue-generating over time. I think they also strengthen the ecosystem. And then there are things that are workflow and cost enhancers for us and for the hospital that essentially if you do them well would track costs and we can share in the value of those things. And so the buckets are that way. I would encourage shareholders to not really think of them as when are you going to start charging for software? I think that, that's kind of an ill-formed question. I think that if they're value-creating, there are multiple ways in which we can share in the value that they create. In terms of a SaaS model, you're seeing already that this year, we have 77% recurring revenue. How hospitals want to engage us in payment and how they want to make sure that the value is shared, we're quite open-minded and we've experimented with different methods this year. And we'll continue to do so. I feel like the company has done well here and has been adaptive.

The data you highlighted on Iris, changing 20% of kidney cancer surgeries, is pretty compelling. Can you maybe just talk about the use case beyond kidney for other areas?

Yes. We will -- we started in kidney. We know the place well, very similar technologies are required for Ion in the lung. So understanding lung segmentation of what that looks like is well underway. But we're going to walk solid organ by solid organ over time. One of the great things about it is once you start to understanding what these tools look like and building the workflows through the hospital, you can start to expand opportunity. So we're starting with those couple, expected to roll out into multiple disciplines as we make it more ubiquitous.

Last one, I know we're about at the end of time here. But just on the procedure front, bariatrics has been a nice incremental driver. Can you talk about things you're doing to kind of develop that market? And then separately, chole had a nice resurgence, curious how you think about the sustainability of that.

Sure. Bariatrics, I think we've seen growth in bariatrics broadly, both at Intuitive and in the industry more broadly. What's been really interesting about bariatrics for Intuitive is this is a highly penetrated laparoscopic market. And yet Intuitive continues to do well in that space. So it actually a little bit challenges the value statement earlier that Intuitive was about taking open surgery and converting it into minimally invasive. Here, it's a minimally invasive surgery already, and we continue to gain share. And you can ask why, what's going on there? The growth in the bariatric market, I think, has been accelerated by COVID in patients taking into their own hands, risk reduction. That makes sense. The growth of Intuitive relative to other surgical modalities in that space, I think, has a lot to do with the ability of the product to repeatedly get great outcomes, the ability of the product to help surgeons in their ergonomics and create -- creating a really repeatable space. And the addition of our advanced stapling portfolio, our SureForm 60, has really made workflows better and build confidence in the surgeon base. As to sustainability of cholecystectomy, Philip, I'll turn to you, and why don't you speak to those dynamics?

Yes. So with respect to Q4, just COVID more broadly just impacted a lot of different procedures. And so we wouldn't necessarily call out variability of chole per se. But we do think we have value in a place with respect to chole procedures. We do have high utilization of Firefly as surgeons typically see the value of being able to do the procedure in a different light. And so it's a procedure that in the longer term, once procedures normalize, we do think should -- there's real certain value and should continue to grow and see benefit from extended use in the long term.

Great. Well, we hit the end of our time slot. I want to thank you all for taking the time. It was a great overview. Enjoy the rest of the conference, and we'll talk to you soon.

Thanks so much.

Thank you.

Bye.