U.S. Research Published by Raymond James & Associates

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1 Intuitive Surgical, Inc. (ISRG-NASDAQ) Lawrence Keusch, (617) , John Hsu, CFA, Sr. Res. Assoc., (617) , Published by Raymond James & Associates January 21, 2016 Company Comment Rating Outperform 2 Hospital Supplies & Equipment 4Q Results Support Our Positive Viewpoint, Raise PT to $625 Recommendation: We maintain our Outperform rating on ISRG shares and raise our price target to $625. Although Intuitive Surgical announced top-line results last week, the full release with EPS of $5.89 came in well ahead of the whisper number. We continue to see strong 25%+ growth in general surgery fueling system placement expansion, as excess procedure capacity appears to be declining. In fact, U.S. net system additions rose 45% y/y, which marks the third quarter in a row of installed base expansion, and debunks the bear argument that Xi is only fueling a replacement cycle. Although an outlook for flattish GM in 2016 (adjusting for medical device tax) and a decision to step-up investment may be disappointing to some investors, we believe fueling future growth is prudent. Should management s guidance be conservative, every 50 bp in OM equals $0.25 in EPS. Longer term, fundamentals should remain solid as general surgery drives growth, the da Vinci SP for complex single-incision surgery launches (hopefully, in 2017), and potential reimbursement in Japan grows in 2016 (based on growth in kidney cancer) along with other expanded indications in While the Street is focused on the SP launch, we believe the next several years will bring enhanced imaging capabilities (real-time surgical navigation); expanded intra-operative data access, including patient information and diagnostics; and new robotic constructs to address market needs. Call highlights: 1) Procedures rose 12% in the U.S. and 26% overseas. 2) System sales were 158 vs. 119 RJe driven by 83 (17% y/y) in the U.S. and 75 (14% y/y) overseas. 3) System ASP was stable y/y at $1.55 million and revenue per procedure was $1,840. 4) SP will undergo initial clinical evaluation in 2016, which we believe could drive a 2017 launch in transoral and transanal procedures. 5) FDA cleared table motion in January Guidance: Procedure guidance of 9-12% was reiterated. GM guidance is % vs. 68.2% in Adjusting for 70 bp device tax implies flattish GM at the midpoint. That said, we note that 2H15 GM at 69.4% benefitted from strong dual console sales, no product charges or excess inventory, and low trade-in mix; but is not likely to persist in Opex growth is estimated at 9-13%, which is greater than the 7% for 4Q and R&D investment will fuel clinical trials, building out advanced instruments, SP, and future robotic constructs. SG&A investment will increase OUS headcount for market presence. Estimates: We raise our 2016E non-gaap EPS to $21.02 from $19.70 and 2017E to $24.04 based on higher procedure growth and some margin expansion. Valuation: Our $625 price target reflects a P/E multiple of 25x on our 2017 estimate of $21.58, when excluding half ($2.46) the impact of stock-based compensation and subtracting $87 in cash ($3.3 billion) on the balance sheet. Non-GAAP Q1 Q2 Q3 Q4 Full GAAP EPS Revenues EPS Mar Jun Sep Dec Year Full Year (mil.) 2014A $3.54 $3.73 $3.92 $4.92 $16.10 $11.17 $2,132 Old 2015E 3.57A 4.57A 5.24A ,325 New 2015A ,384 Old 2016E ,578 New 2016E ,632 Old 2017E UR UR UR UR ,842 New 2017E ,900 Non-GAAP EPS excludes amortization, stock-based comp, and one-time items. Please read domestic and foreign disclosure/risk information beginning on page 9 and Analyst Certification on page 9. Current and Target Price Current Price (Jan close) $ Target Price: Old: $ New: $ Week Range $ $ Suitability High Risk/Growth Market Data Shares Out. (mil.) 37.3 Market Cap. (mil.) $20,724 Avg. Daily Vol. (10 day) 536,881 Dividend/Yield $0.00/0.0% BVPS (Dec-15) $ ROE % 15% Net Debt (mil.)/% Cap. $0/0% Earnings & Valuation Metrics 2014A 2015A 2016E 2017E P/E Ratios (Non-GAAP) 34.5x 28.8x 26.4x 23.1x 2014A 2015E 2016E 2017E EV/EBITDA (current adjusted) 22.2x 20.4x 18.3x 16.6x Company Description Intuitive Surgical, Inc., headquartered in Sunnyvale, California, designs, manufactures, and markets da Vinci Surgical Systems, which are advanced surgical systems. Intuitive Surgical believes that this new generation of surgery, which is called da Vinci surgery, is a revolutionary advancement similar in scope to previous generations of surgery - open surgery and minimally invasive surgery, or MIS. The company s da Vinci Surgical Systems consist of a surgeon s console, a patient-side cart, a high performance vision system, and proprietary wristed instruments and surgical accessories. The da Vinci Surgical System controls Intuitive Surgical endoscopic instruments, including rigid endoscopes, blunt and sharp endoscopic dissectors, scissors, scalpels, forceps/pickups, needle holders, endoscopic retractors, electrocautery, ultrasonic cutters, and accessories during a wide range of surgical procedures. International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

2 Fourth Quarter Variance Analysis Versus Street Consensus ($ mn) 4QA 4QE 4Q 4QA Dec-15 Dec-15 Variance % Change Sales $677 $655 $22 13% Earnings per share $5.89 $5.04 $ % Versus RJ Estimates ($ mn) 4QA 4QE 4Q 4QA Income statement Dec-15 Dec-15 Variance % Change Comments Revenues $677 $617 $59 13% Up 12%, driven by strong procedure volume (15%, with 12% US and 26% OUS), and system placements (15%) US procedures driven by hernia and colorectal, prostatectomy still above incidence rate, expected to moderate in 2016 Total cost of revenues (8) 4% Overseas procedures driven by urology, and to a lesser extent, general surgery Gross profit % SG&A % R&D (3) 15% Operating income % Interest income, other % Pretax income % Income tax (4) 31% Net income % Earnings per share $5.89 $4.48 $ % Diluted shares outstanding % 167K shares repurchased for $84 million; ~$800 mn remaining under current authorization As a percent of sales: Gross margin 69.6% 68.0% 1.6% 2.5% Lower inventory charges, improved efficiencies, partial offset from fx and negative mix shift SG&A 20.4% 23.6% 3.3% (1.5%) R&D 5.9% 6.1% 0.1% 0.1% Operating income 43.3% 38.3% 5.0% 3.8% Operating expenses up 7%, reflects head count adds and higher incentive compensation Effective tax rate 24.9% 29.0% 4.1% 1.3% $6 million benefit from R&D tax credit, $0.17 per share ($ mn) 4QA 4QE 4Q 4QA Sales Dec-15 Dec-15 Variance % Change Instruments and accessories $326 $287 $38 16% +16%, driven by procedure growth and advanced instruments, offset by fx Systems $231 $ % Placed: 83 in U.S., 31 in Europe, 28 in Asia, 16 in other international markets Services $120 $ % +9% y/y, reflects increased installed base Total Intuitive Surgical sales % Number of systems sold % Third consecutive quarter of net system adds in U.S. Source: Company data, FactSet Research, Raymond James research International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

3 2016 Financial Guidance Date of guidance 21-Jan-15 Fiscal Year 2016 Revenue growth guidance Low High Reported No Guidance Comments Procedure growth 9% 12% Expect seasonal timing similar to 2015, Q1 weakest Margin guidance Gross Profit 68.0% 69.5% Product and regional mix are factors, 70 bp benefit from medical device tax reprieve YoY operating expense growth 9% 13% Investment in key areas to drive future growth Operating margin Other Other income $20 mn $25 mn Mostly interest income Tax rate 26.5% 28.5% Reflects R&D tax credit; Dependent on US/OUS mix Additional guidance Non cash compensation expense $170mn $180 mn Versus $168 million in 2015 Source: Company data Price Target Methodology Price Target $625 Cash per share 87 Price excluding Cash EPS $24.04 SBC per share estimate $4.92 Excluding 1/2 SBC $21.58 P/E Multiple 25.0x International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

4 Income Statement, E ($ mn) Year 1Q 2Q 3Q 4Q Year 1QE 2QE 3QE 4QE YearE 1QE 2QE 3QE 4QE YearE YearE 2014 Mar-15 Jun-15 Sep-15 Dec Mar-16 Jun-16 Sep-16 Dec Mar-17 Jun-17 Sep-17 Dec Revenues $2,131.7 $532.1 $586.1 $589.7 $676.5 $2,384.4 $590.6 $647.8 $653.1 $740.4 $2,631.9 $648.0 $712.4 $717.7 $821.6 $2,899.7 $3,177.6 Total cost of revenues $674.5 $183.2 $187.8 $181.3 $205.8 $758.1 $194.7 $205.9 $203.1 $219.1 $822.8 $211.3 $221.5 $217.5 $247.8 $898.1 $981.4 Gross profit $1,457.2 $348.9 $398.3 $408.4 $470.7 $1,626.3 $395.9 $442.0 $450.0 $521.3 $1,809.1 $436.7 $491.0 $500.2 $573.8 $2,001.6 $2,196.2 Operating expenses SG&A $509.6 $131.7 $133.1 $129.9 $137.9 $532.6 $141.7 $149.0 $145.6 $153.2 $589.5 $150.3 $161.0 $157.9 $177.4 $646.6 $705.4 R&D $128.9 $32.2 $37.4 $38.2 $40.2 $148.0 $38.6 $40.8 $41.8 $41.9 $163.2 $40.2 $43.5 $43.8 $49.5 $176.9 $190.7 Total operating expenses $638.5 $163.9 $170.5 $168.1 $178.1 $680.6 $180.4 $189.8 $187.4 $195.1 $752.7 $190.5 $204.5 $201.7 $226.9 $823.5 $896.1 Operating income (adjusted) $818.7 $185.0 $227.8 $240.3 $292.6 $945.7 $215.5 $252.1 $262.6 $326.2 $1,056.4 $246.2 $286.5 $298.5 $346.9 $1,178.1 $1,300.1 Interest income, other $12.7 $4.3 $4.6 $3.7 $5.9 $18.5 $5.6 $5.6 $5.6 $5.6 $22.5 $6.8 $6.8 $6.8 $6.8 $27.0 $30.0 Pretax income (adjusted) $831.5 $189.3 $232.4 $244.0 $298.5 $964.2 $221.2 $257.8 $268.2 $331.8 $1,078.9 $252.9 $293.2 $305.3 $353.7 $1,205.1 $1,330.1 Income tax $224.5 $54.7 $59.6 $44.8 $74.2 $233.3 $59.7 $69.6 $72.4 $89.6 $291.3 $68.3 $79.2 $82.4 $95.5 $325.4 $359.1 Net income (adjusted) $606.9 $134.6 $172.8 $199.2 $224.3 $731 $161.4 $188.2 $195.8 $242.2 $787.6 $184.6 $214.1 $222.9 $258.2 $879.7 $971.0 Earnings per share (adjusted) $16.10 $3.57 $4.57 $5.24 $5.89 $19.28 $4.27 $5.00 $5.24 $6.53 $21.02 $5.00 $5.83 $6.11 $7.11 $24.04 $27.12 Diluted shares outstanding Growth rates YoY Revenues -5.9% 8.5% 15.7% 10.4% 12.6% 11.9% 11.0% 10.5% 10.7% 9.4% 10.4% 9.7% 10.0% 9.9% 11.0% 10.2% 9.6% SG&A 7.8% 6.0% 5.3% 1.7% 5.1% 4.5% 7.6% 11.9% 12.1% 11.1% 10.7% 6.1% 8.1% 8.4% 15.8% 9.7% 9.1% R&D 7.8% 4.2% 31.2% 10.7% 14.9% 14.8% 20.0% 9.1% 9.4% 4.3% 10.3% 4.0% 6.5% 4.7% 17.9% 8.4% 7.8% Total operating expenses 7.8% 5.6% 10.1% 3.6% 7.2% 6.6% 10.1% 11.3% 11.5% 9.5% 10.6% 5.6% 7.7% 7.6% 16.3% 9.4% 8.8% Operating income -21.5% -2.1% 16.3% 22.0% 23.5% 15.5% 16.5% 10.7% 9.3% 11.5% 11.7% 14.2% 13.6% 13.7% 6.4% 11.5% 10.4% Pretax income -21.6% -1.9% 16.4% 22.7% 24.4% 16.0% 16.8% 10.9% 9.9% 11.1% 11.9% 14.4% 13.8% 13.8% 6.6% 11.7% 10.4% Income tax -15.6% 0.6% 0.3% -17.3% 31.2% 3.9% 9.2% 16.8% 61.6% 20.7% 24.9% 14.4% 13.8% 13.8% 6.6% 11.7% 10.4% Net Income -23.7% -2.8% 23.2% 37.6% 22.2% 20.4% 19.9% 8.9% -1.7% 8.0% 7.8% 14.4% 13.8% 13.8% 6.6% 11.7% 10.4% Earnings per share -18.8% 0.8% 22.4% 33.8% 19.6% 19.8% 19.5% 9.5% 0.0% 10.9% 9.0% 17.3% 16.6% 16.5% 8.9% 14.4% 12.8% Diluted shares outstanding -6.0% -3.6% 0.7% 2.9% 2.3% 0.5% 0.4% -0.5% -1.7% -2.6% -1.1% -2.5% -2.4% -2.3% -2.2% -2.3% -2.2% Margin analysis Gross margin 68.4% 65.6% 68.0% 69.3% 69.6% 68.2% 67.0% 68.2% 68.9% 70.4% 68.7% 67.4% 68.9% 69.7% 69.8% 69.0% 69.1% Operating margin 38.4% 34.8% 38.9% 40.7% 43.3% 39.7% 36.5% 38.9% 40.2% 44.1% 40.1% 38.0% 40.2% 41.6% 42.2% 40.6% 40.9% Pretax margin 39.0% 35.6% 39.7% 41.4% 44.1% 40.4% 37.4% 39.8% 41.1% 44.8% 41.0% 39.0% 41.2% 42.5% 43.0% 41.6% 41.9% Net margin 28.5% 25.3% 29.5% 33.8% 33.2% 30.7% 27.3% 29.0% 30.0% 32.7% 29.9% 28.5% 30.0% 31.1% 31.4% 30.3% 30.6% As a % of sales Cost of products 33.5% 36.7% 33.9% 32.9% 32.1% 33.7% 34.5% 33.1% 32.5% 30.8% 32.6% 34.0% 32.2% 31.5% 31.4% 32.2% 32.0% Cost of services 34.5% 36.7% 34.9% 32.9% 32.8% 34.3% 34.7% 33.7% 32.6% 31.1% 33.0% 34.2% 33.2% 32.0% 30.7% 32.5% 32.3% Cost of goods sold 31.6% 34.4% 32.0% 30.7% 30.4% 31.8% 33.0% 31.8% 31.1% 29.6% 31.3% 32.6% 31.1% 30.3% 30.2% 31.0% 30.9% SG&A 23.9% 24.8% 22.7% 22.0% 20.4% 22.3% 24.0% 23.0% 22.3% 20.7% 22.4% 23.2% 22.6% 22.0% 21.6% 22.3% 22.2% R&D 6.0% 6.1% 6.4% 6.5% 5.9% 6.2% 6.5% 6.3% 6.4% 5.7% 6.2% 6.2% 6.1% 6.1% 6.0% 6.1% 6.0% Total operating expenses 30.0% 30.8% 29.1% 28.5% 26.3% 28.5% 30.5% 29.3% 28.7% 26.4% 28.6% 29.4% 28.7% 28.1% 27.6% 28.4% 28.2% Tax rate 27.0% 28.9% 25.6% 18.4% 24.9% 24.2% 27.0% 27.0% 27.0% 27.0% 27.0% 27.0% 27.0% 27.0% 27.0% 27.0% 27.0% Non-GAAP EPS reconciliation Non-GAAP adjusted EPS $16.10 $3.57 $4.57 $5.24 $5.89 $19.28 $4.27 $5.00 $5.24 $6.53 $21.02 $5.00 $5.83 $6.11 $7.11 $24.04 $27.12 SBC per share impact (after tax) $4.49 $1.09 $1.09 $1.16 $1.09 $4.44 $1.16 $1.17 $1.18 $1.19 $4.70 $1.22 $1.23 $1.23 $1.24 $4.92 $5.17 Adjusted EPS (includes SBC) $11.61 $2.48 $3.48 $4.08 $4.80 $14.85 $3.10 $3.83 $4.06 $5.34 $16.32 $3.78 $4.61 $4.87 $5.87 $19.12 $21.96 International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

5 Revenue Analysis, E ($ mn) Q 2Q 3Q 4Q Year 1Q 2Q 3Q 4Q Year 1QE 2QE 3QE 4QE YearE 1QE 2QE 3QE 4QE YearE YearE Mar-14 Jun-14 Sep-14 Dec Mar-15 Jun-15 Sep-15 Dec Mar-16 Jun-16 Sep-16 Dec Mar-17 Jun-17 Sep-17 Dec Instruments and accessories , , , ,481 1,641 Net Systems Sales Services Non-GAAP Total Intuitive Surgical sales $490 $507 $534 $601 $2,132 $532 $586 $590 $677 $2,384 $591 $648 $653 $740 $2,632 $648 $712 $718 $822 $2,900 $3,178 YoY growth rate Instruments and accessories -2.4% -1.0% 14.1% 4.7% 3.6% 8.8% 13.3% 9.3% 16.0% 11.9% 9.1% 10.9% 10.9% 14.1% 11.3% 9.9% 10.8% 11.6% 12.0% 11.1% 10.8% Systems -58.6% -33.4% 6.5% 4.6% -24.2% 33.0% 22.5% 3.2% 7.8% 14.1% 17.2% 9.8% 11.3% 2.7% 9.3% 9.3% 8.5% 7.0% 9.9% 8.7% 6.8% Services 10.1% 8.7% 7.0% 6.4% 8.0% 9.6% 6.3% 8.2% 9.3% 8.3% 8.0% 10.8% 9.6% 9.7% 9.5% 9.9% 10.0% 10.0% 10.0% 9.9% 10.7% Total Intuitive Surgical sales -24.0% -11.5% 10.2% 4.9% -5.9% 8.5% 15.7% 10.4% 12.6% 11.9% 11.0% 10.5% 10.7% 9.4% 10.4% 9.7% 10.0% 9.9% 11.0% 10.2% 9.6% Percent of revenues Instruments and accessories 54.8% 51.1% 49.6% 46.4% 50.2% 52.1% 50.6% 50.6% 48.1% 50.2% 51.2% 50.8% 50.6% 50.2% 50.7% 51.3% 51.2% 51.4% 50.6% 51.1% 51.6% Systems 22.8% 28.1% 30.7% 35.4% 29.7% 26.5% 30.0% 29.5% 34.1% 30.3% 28.0% 29.8% 29.7% 32.0% 30.0% 27.9% 29.4% 28.9% 31.7% 29.6% 28.8% Services 22.4% 20.8% 19.7% 18.2% 20.1% 21.4% 19.3% 19.9% 17.8% 19.5% 20.8% 19.4% 19.7% 17.8% 19.3% 20.9% 19.4% 19.7% 17.6% 19.3% 19.5% YoY growth comparison Procedures 6.5% 8.6% 9.9% 10.0% 9.0% 13.1% 14.3% 15.4% 14.6% 14.4% 10.0% 10.8% 10.6% 13.0% 11.2% 10.0% 10.5% 10.7% 11.4% 10.7% 10.6% Systems -47.0% -32.9% 9.9% -0.7% -21.1% 13.8% 22.9% 5.4% 15.3% 14.2% 14.1% 11.9% 12.8% 1.9% 9.3% 9.7% 8.3% 7.6% 10.6% 9.1% 5.6% Installed base Sequential change in installed base YoY % change -41.6% -29.2% 0.0% -3.2% -30.1% 28.6% 9.7% 30.4% 43.1% 13.6% 16.5% 0.8% 15.1% 12.0% 10.9% 14.0% QoQ % change -23.2% -13.7% 14.3% 27.8% -44.6% 58.8% -2.5% 51.9% -39.2% 26.0% 0.0% 31.5% -30.6% 22.6% -1.0% 35.3% Replacement systems Total units in use 3,039 3,102 3,174 3,266 3,317 3,398 3,477 3,597 3,670 3,762 3,854 3,975 4,059 4,162 4,264 4,402 Average unit price $1.48 $1.50 $1.45 $1.55 $1.49 $1.48 $1.50 $1.60 $1.55 $1.53 $1.52 $1.52 $1.52 $1.52 $1.52 $1.50 $1.50 $1.50 $1.50 $1.50 $1.50 % Change YoY -4.8% 0.0% -7.1% 6.2% -1.5% 0.3% 0.0% 10.3% 0.0% 2.6% 2.7% 1.3% -5.0% -1.9% -0.8% -1.3% -1.3% -1.3% -1.3% -1.3% 0.0% Services Systems under service contract 2,966 3,039 3,102 3,174 3,070 3,266 3,317 3,398 3,477 3,365 3,597 3,670 3,762 3,854 3,721 3,975 4,059 4,162 4,264 4,115 4,557 Sequential change Service revenue per unit (thousand) $35.0 $35.1 $35.0 $34.7 $34.9 $34.9 $34.2 $34.5 $34.6 $34.5 $34.2 $34.2 $34.2 $34.2 $34.2 $34.0 $34.0 $34.0 $34.0 $34.0 $34.0 Procedure estimates Urology 34,508 37,709 35,704 40, ,845 38,656 42,198 42,687 50, ,306 42,409 46,698 47,124 57, ,357 45,837 50,344 51,746 63, , ,663 Gynecology 63,080 61,359 61,077 61, ,500 65,423 62,357 63,071 63, ,125 65,781 62,349 63,701 62, ,103 65,877 61,564 62,712 64, , ,478 General Surgery 29,975 33,910 33,940 36, ,000 40,278 45,838 45,344 45, ,260 50,596 57,705 56,056 60, ,838 62,975 72,448 70,310 73, , ,487 Other 4,467 8,651 10,112 16,425 39,655 5,017 11,460 11,390 18,442 46,309 5,519 12,606 12,791 21,520 52,436 6,071 13,867 14,071 23,672 57,680 63,448 43% Total procedures 132, , , , , , , , , , , , , , , , , , , , ,077 YoY growth rate Urology 6% 7% 13% 15% 10% 12% 12% 20% 24% 17% 10% 11% 10% 13% 11% 8% 8% 10% 11% 9% 9% Gynecology -1% -1% 0% -3% -1% 4% 2% 3% 2% 3% 1% 0% 1% -2% 0% 0% -1% -2% 3% 0% 0% General Surgery 28% 32% 30% 40% 33% 34% 35% 34% 27% 32% 26% 26% 24% 32% 27% 24% 26% 25% 21% 24% 21% Other 5% 11% 7% 8% 8% 12% 32% 13% 12% 17% 10% 10% 12% 17% 13% 10% 10% 10% 10% 10% 10% Total procedures US 3% 7% 8% 8% 6% 11% 11% 12% 10% 11% 7% 8% 7% 9% 8% 7% 8% 8% 7% 8% 8% Total procedures OUS 24% 17% 19% 20% 20% 22% 27% 28% 27% 26% 22% 19% 21% 22% 21% 20% 18% 19% 21% 20% 18% Total procedures 6% 9% 10% 10% 9% 13% 14% 15% 15% 14% 10.0% 10.8% 10.6% 13.0% 11.2% 10.0% 10.5% 10.7% 11.4% 10.7% 10.6% International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

6 Geographic System Placements, Q 2Q 3Q 4Q Year 1Q 2Q 3Q 4Q Year 1Q 2Q 3Q 4Q Year 1Q 2Q 3Q 4Q Year 1Q 2Q 3Q 4Q Year Mar-11 Jun-11 Sep-11 Dec Mar-12 Jun-12 Sep-12 Dec Mar-13 Jun-13 Sep-13 Dec Mar-14 Jun-14 Sep-14 Dec Mar-15 Jun-15 Sep-15 Dec Installed System Base Rollforward Beginning Installed System Base U.S. 1,285 1,344 1,411 1,478 1,285 1,548 1,615 1,707 1,789 1,548 1,878 1,957 2,001 2,041 1,878 2,083 2,116 2,153 2,185 2,083 2,223 2,254 2,295 2,344 2,223 International ,043 1,063 1,103 1,133 1,043 System Sales System Sales S Systems U.S International Dual Console Si U.S International Single Console Si U.S International Si-e U.S International Dual Console Xi U.S International Single Console Xi U.S International Systems on Operating Leases U.S International Total System Units Sales U.S International Trade-Ins/Retirements U.S. (30) (32) (32) (43) (137) (38) (32) (32) (44) (146) (36) (46) (25) (31) (138) (12) (24) (29) (33) (98) (32) (31) (31) (28) (122) International (2) (4) (3) (8) (17) (8) (3) (2) (8) (21) (3) (8) (4) (12) (27) (2) (9) (10) (12) (33) (16) (6) (7) (10) (39) Ending Installed System Base U.S. 1,344 1,411 1,478 1,548 1,548 1,615 1,707 1,789 1,878 1,878 1,957 2,001 2,041 2,082 2,082 2,116 2,153 2,185 2,223 2,223 2,254 2,295 2,344 2,399 2,399 International ,043 1,043 1,063 1,103 1,133 1,198 1,198 Total Ending Installed Systems Base 1,840 1,933 2,031 2,132 2,132 2,226 2,341 2,462 2,585 2,585 2,710 2,799 2,871 2,966 2,966 3,039 3,102 3,174 3,266 3,266 3,317 3,398 3,477 3,597 3,597 YoY Growth Rate Installed System Base Rollforward Beginning Installed System Base U.S. 20.5% 20.2% 21.0% 21.0% 20.5% 21.3% 21.2% 17.2% 14.1% 21.3% 10.9% 8.1% 7.6% 7.1% 10.9% 6.7% 6.5% 6.6% 7.3% 6.7% International 25.1% 23.2% 21.5% 21.7% 25.1% 21.1% 23.2% 25.9% 23.3% 21.1% 24.9% 22.6% 18.9% 19.2% 24.9% 18.1% 15.2% 16.2% 14.6% 18.1% System Sales S Systems U.S. NM NM NM NM NM NM NM NM NM NM NM NM NM NM NM NM NM NM NM International 33.3% 0.0% 45.5% 33.3% 29.0% -75.0% -62.5% -93.8% NM -85.0% -50.0% -33.3% 600.0% NM 66.7% NM NM NM NM Dual Consoles Si's U.S. 90.9% 15.0% -38.5% -4.3% 2.5% 23.8% -47.8% 0.0% -54.5% -22.0% -69.2% -83.3% % -90.0% -82.8% % 250.0% NM % International -20.0% 400.0% 33.3% 66.7% 53.3% 450.0% 200.0% 300.0% 180.0% 252.2% -31.8% -60.0% -81.3% -71.4% -60.5% -80.0% -50.0% 33.3% -50.0% Single Console Si's U.S. 10.7% 26.3% 39.4% 15.1% 22.1% 3.6% -20.8% -48.9% -57.6% -32.2% -70.9% -86.8% -78.7% -78.6% -78.5% -64.0% 0.0% 20.0% 55.6% International 21.1% -40.0% 16.7% -4.2% -2.5% 0.0% 191.7% -9.5% 60.9% 44.3% 8.7% -40.0% 31.6% -51.4% -21.9% -60.0% -19.0% -60.0% 38.9% Si-e's U.S % 66.7% 200.0% 500.0% 166.7% 200.0% -60.0% -66.7% 66.7% 12.5% 300.0% 150.0% 200.0% -90.0% -7.4% -91.7% -80.0% % -50.0% International NM 0.0% NM -66.7% -71.4% NM NM NM 0.0% 50.0% -50.0% NM NM NM 33.3% 0.0% NM NM NM Total System Units Sales U.S. 18.0% 25.3% 15.2% 17.7% 19.0% 9.5% -27.4% -43.0% -45.9% -28.2% -60.9% -32.2% -6.2% -1.4% -30.4% 40.0% 18.0% 31.1% 16.9% 25.2% International 12.9% -13.3% 20.6% 7.7% 7.5% 40.0% 103.8% -12.2% 57.1% 41.7% -14.3% -34.0% 38.9% 0.0% -5.4% -14.3% 31.4% -26.0% 13.6% 0.5% Trade-Ins/Retirements U.S. 26.7% 0.0% 0.0% 2.3% 6.6% -5.3% 43.8% -21.9% -29.5% -5.5% -66.7% -47.8% 16.0% 6.5% -29.0% 166.7% 29.2% 6.9% -15.2% International 300.0% -25.0% -33.3% 0.0% 23.5% -62.5% 166.7% 100.0% 50.0% 28.6% -33.3% 12.5% 150.0% 0.0% 22.2% 700.0% -33.3% -30.0% -16.7% Ending Installed System Base U.S. 20.2% 21.0% 21.0% 21.3% 21.3% 21.2% 17.2% 14.1% 10.9% 10.9% 8.1% 7.6% 7.1% 6.8% 6.8% 6.5% 6.6% 7.3% 7.9% International 23.2% 21.5% 21.7% 21.1% 21.1% 23.2% 25.9% 23.3% 25.0% 25.0% 22.6% 18.9% 19.2% 18.0% 18.0% 15.2% 16.2% 14.6% 14.9% Total Ending Installed Systems Base 21.0% 21.1% 21.2% 21.2% 21.2% 21.7% 19.6% 16.6% 14.7% 14.7% 12.1% 10.8% 10.6% 10.1% 10.1% 9.1% 9.5% 9.5% 10.1% International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

7 Geographic Sales Breakdown ($ mn) Q 2Q 3Q 4Q Year 1Q 2Q 3Q 4Q Year 1Q 2Q 3Q 4Q Year 1Q 2Q 3Q 4Q Year 1Q 2Q 3Q 4Q Year Mar-11 Jun-11 Sep-11 Dec Mar-12 Jun-12 Sep-12 Dec Mar-13 Jun-13 Sep-13 Dec Mar-14 Jun-14 Sep-14 Dec Mar-15 Jun-15 Sep-15 Dec Instruments and Accessories U.S International Service Revenue U.S International Total Recurring Revenue U.S , , , ,283.9 International Systems Revenue U.S International Total Revenue U.S , , , , ,695.8 International Total Revenue , , , , ,384.4 YoY Growth Rate Instruments and Accessories U.S. 31.9% 32.6% 27.1% 29.9% 30.3% 26.8% 17.5% 4.8% 2.3% 12.1% -6.8% -5.6% 9.9% 0.4% -0.8% 7.0% 12.2% 10.8% 16.5% 11.7% International 24.3% 21.0% 8.6% 25.6% 20.1% 20.8% 21.8% 38.5% 23.1% 25.4% 21.4% 20.5% 30.1% 21.8% 23.3% 11.4% 17.7% 5.6% 15.4% 12.6% Service Revenue U.S. 24.7% 21.6% 21.1% 20.4% 21.8% 17.7% 18.1% 14.3% 10.5% 15.0% 6.1% 4.5% 3.3% 3.5% 4.3% 7.9% 4.6% 7.9% 9.9% 7.6% International 36.2% 30.2% 27.0% 19.4% 27.7% 13.6% 16.0% 19.7% 27.7% 19.4% 24.9% 23.8% 20.0% 15.6% 20.8% 15.1% 11.5% 9.3% 7.4% 10.7% Total Recurring Revenue U.S. 31.3% 29.5% 25.4% 27.4% 28.3% 24.3% 17.7% 7.4% 4.4% 12.9% -3.5% -2.9% 8.0% 1.2% 0.6% 7.2% 10.1% 10.0% 14.7% 10.6% International 27.7% 23.8% 14.8% 23.6% 22.5% 18.6% 19.9% 31.5% 24.6% 23.4% 22.5% 21.5% 26.7% 19.7% 22.5% 12.5% 15.8% 6.8% 12.9% 12.0% Systems Revenue U.S. 31.7% 27.0% 12.5% 16.1% 21.1% 7.0% -32.0% -45.0% -56.6% -33.1% -66.3% -32.0% (7.9%) 21.9% -30.1% 47.4% 20.3% 33.2% 9.3% 24.9% International 2.6% 8.7% 28.4% 22.5% 16.4% 80.6% 101.3% 2.8% 69.2% 59.1% -15.5% -41.6% 4.1% -10.1% -16.7% -22.0% 38.9% (11.3%) 9.6% 2.4% Total Revenue U.S. 31.5% 28.4% 20.0% 22.5% 25.3% 17.3% -3.4% -13.4% -20.3% -5.8% -26.9% -11.6% 4.0% 5.8% -8.3% 14.1% 12.4% 15.2% 13.3% 13.7% International 15.0% 16.6% 22.0% 23.0% 19.4% 46.7% 56.1% 15.4% 48.9% 41.4% 1.2% -14.7% 15.3% 1.3% 0.3% -3.5% 24.9% (1.4%) 11.1% 7.5% Total Revenue 27.6% 26.0% 20.4% 22.6% 24.0% 23.5% 7.8% -7.2% -5.4% 4.0% -19.8% -12.4% 7.0% 4.3% -5.9% 8.5% 15.7% 10.4% 12.6% 11.9% International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

8 Net System Adds, Q 2Q 3Q 4Q Year 1Q 2Q 3Q 4Q Year 1Q 2Q 3Q 4Q Year 1Q 2Q 3Q 4Q Year 1Q 2Q 3Q 4Q Year Mar-11 Jun-11 Sep-11 Dec Mar-12 Jun-12 Sep-12 Dec Mar-13 Jun-13 Sep-13 Dec Mar-14 Jun-14 Sep-14 Dec Mar-15 Jun-15 Sep-15 Dec Net Adds Table U.S. Beginning Installed System Base ,285 1,548 1,615 1,707 1,789 1,548 1,878 1,957 2,001 2,041 1,878 2,083 2,116 2,153 2,185 2,083 2,223 2,254 2,295 2,344 2,223 System Units Sales Trade-Ins/Retirements (30) (32) (32) (43) (137) (38) (32) (32) (44) (146) (36) (46) (25) (31) (138) (12) (24) (29) (33) (98) (32) (31) (31) (28) (122) Net Adds Ending Installed System Base 1,344 1,411 1,478 1,548 1,548 1,615 1,707 1,789 1,878 1,878 1,957 2,001 2,041 2,082 2,082 2,116 2,153 2,185 2,223 2,223 2,254 2,295 2,344 2,399 2,399 % Change Net Adds y/y 13.6% 37.3% 22.4% 27.1% 25.5% 17.9% (52.2%) (51.2%) (53.9%) (38.2%) (58.2%) (15.9%) (20.0%) (7.3%) (31.4%) (6.1%) 10.8% 53.1% 44.7% 25.7% International Beginning Installed System Base ,043 1,063 1, System Units Sales Trade-Ins/Retirements (2) (4) (3) (8) (17) (8) (3) (2) (8) (21) (3) (8) (4) (12) (27) (2) (9) (10) (12) (33) (16) (6) (7) (10) (39) Net Adds Ending Installed System Base 1,840 1,933 2,031 2,132 2,132 2,226 2,341 2,462 2,585 2, ,043 1,043 1,063 1,103 1,133 1,198 1,198 % Change Net Adds y/y (6.9%) (11.5%) 25.8% 9.7% 5.1% 70.4% 95.7% (17.9%) 58.8% 43.9% (13.0%) (42.2%) 25.0% 0.0% (9.6%) (50.0%) 53.8% (25.0%) 20.4% (3.1%) Worldwide Beginning Installed System Base 1,752 1,840 1,933 2,031 1,752 2,132 2,226 2,341 2,462 2,132 2,585 2,710 2,799 2,871 2,585 2,966 3,039 3,102 3,174 2,966 3,266 3,317 3,398 3,477 3,266 System Units Sales Trade-Ins/Retirements (32) (36) (35) (51) (154) (46) (35) (34) (52) (167) (39) (54) (29) (43) (165) (14) (33) (39) (45) (131) (48) (37) (38) (38) (161) Net Adds Ending Installed System Base 3,184 3,344 3,509 3,680 3,680 3,841 4,048 4,251 4,463 4,463 2,082 2,799 2,871 2,966 2,966 3,039 3,102 3,174 3,266 3,266 3,317 3,398 3,477 3,597 3,597 % Change Net Adds y/y 0.0% 0.0% 0.0% 0.0% 0.0% 6.7% 25.8% 48.2% 36.8% 30.6% 88.3% 43.5% (69.2%) 4.9% 5.7% (71.3%) (58.1%) 5.0% (7.3%) (41.0%) (56.1%) 64.7% 28.1% 65.1% 22.6% International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

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Ratings and Definitions Raymond James & Associates (U.S.) definitions Strong Buy (SB1) Expected to appreciate, produce a total return of at least 15%, and outperform the S&P 500 over the next six to 12 months. For higher yielding and more conservative equities, such as REITs and certain MLPs, a total return of at least 15% is expected to be realized over the next 12 months. Outperform (MO2) Expected to appreciate and outperform the S&P 500 over the next months. For higher yielding and more conservative equities, such as REITs and certain MLPs, an Outperform rating is used for securities where we are comfortable with the relative safety of the dividend and expect a total return modestly exceeding the dividend yield over the next months. International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

10 Market Perform (MP3) Expected to perform generally in line with the S&P 500 over the next 12 months. Underperform (MU4) Expected to underperform the S&P 500 or its sector over the next six to 12 months and should be sold. Suspended (S) The rating and price target have been suspended temporarily. This action may be due to market events that made coverage impracticable, or to comply with applicable regulations or firm policies in certain circumstances, including when Raymond James may be providing investment banking services to the company. The previous rating and price target are no longer in effect for this security and should not be relied upon. Raymond James Ltd. (Canada) definitions Strong Buy (SB1) The stock is expected to appreciate and produce a total return of at least 15% and outperform the S&P/TSX Composite Index over the next six months. Outperform (MO2) The stock is expected to appreciate and outperform the S&P/TSX Composite Index over the next twelve months. Market Perform (MP3) The stock is expected to perform generally in line with the S&P/TSX Composite Index over the next twelve months and is potentially a source of funds for more highly rated securities. Underperform (MU4) The stock is expected to underperform the S&P/TSX Composite Index or its sector over the next six to twelve months and should be sold. Raymond James Argentina S.A. rating definitions Strong Buy (SB1) Expected to appreciate and produce a total return of at least 25.0% over the next twelve months. Outperform (MO2) Expected to appreciate and produce a total return of between 15.0% and 25.0% over the next twelve months. Market Perform (MP3) Expected to perform in line with the underlying country index. Underperform (MU4) Expected to underperform the underlying country index. Suspended (S) The rating and price target have been suspended temporarily. This action may be due to market events that made coverage impracticable, or to comply with applicable regulations or firm policies in certain circumstances, including when Raymond James may be providing investment banking services to the company. The previous rating and price target are no longer in effect for this security and should not be relied upon. Raymond James Europe (Raymond James Euro Equities SAS & Raymond James Financial International Limited) rating definitions Strong Buy (1) Expected to appreciate, produce a total return of at least 15%, and outperform the Stoxx 600 over the next 6 to 12 months. Outperform (2) Expected to appreciate and outperform the Stoxx 600 over the next 12 months. Market Perform (3) Expected to perform generally in line with the Stoxx 600 over the next 12 months. Underperform (4) Expected to underperform the Stoxx 600 or its sector over the next 6 to 12 months. Suspended (S) The rating and target price have been suspended temporarily. This action may be due to market events that made coverage impracticable, or to comply with applicable regulations or firm policies in certain circumstances, including when Raymond James may be providing investment banking services to the company. The previous rating and target price are no longer in effect for this security and should not be relied upon. In transacting in any security, investors should be aware that other securities in the Raymond James research coverage universe might carry a higher or lower rating. Investors should feel free to contact their Financial Advisor to discuss the merits of other available investments. Rating Distributions Coverage Universe Rating Distribution* Investment Banking Distribution RJA RJL RJ Arg RJEE/RJFI RJA RJL RJ Arg RJEE/RJFI Strong Buy and Outperform (Buy) 55% 68% 59% 47% 22% 38% 0% 0% Market Perform (Hold) 40% 32% 41% 38% 7% 14% 0% 0% Underperform (Sell) 5% 1% 0% 15% 6% 0% 0% 0% * Columns may not add to 100% due to rounding. Suitability Ratings (SR) Medium Risk/Income (M/INC) Lower to average risk equities of companies with sound financials, consistent earnings, and dividend yields above that of the S&P 500. Many securities in this category are structured with a focus on providing a consistent dividend or return of capital. Medium Risk/Growth (M/GRW) Lower to average risk equities of companies with sound financials, consistent earnings growth, the potential for long-term price appreciation, a potential dividend yield, and/or share repurchase program. High Risk/Income (H/INC) Medium to higher risk equities of companies that are structured with a focus on providing a meaningful dividend but may face less predictable earnings (or losses), more leveraged balance sheets, rapidly changing market dynamics, financial and competitive issues, higher price volatility (beta), and potential risk of principal. Securities of companies in this category may have a less predictable income stream from dividends or distributions of capital. International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

11 High Risk/Growth (H/GRW) Medium to higher risk equities of companies in fast growing and competitive industries, with less predictable earnings (or losses), more leveraged balance sheets, rapidly changing market dynamics, financial or legal issues, higher price volatility (beta), and potential risk of principal. High Risk/Speculation (H/SPEC) High risk equities of companies with a short or unprofitable operating history, limited or less predictable revenues, very high risk associated with success, significant financial or legal issues, or a substantial risk/loss of principal. Raymond James Relationship Disclosures Raymond James expects to receive or intends to seek compensation for investment banking services from the subject companies in the next three months. Company Name Intuitive Surgical, Inc. Disclosure Raymond James & Associates makes a market in shares of ISRG. Stock Charts, Target Prices, and Valuation Methodologies Valuation Methodology: The Raymond James methodology for assigning ratings and target prices includes a number of qualitative and quantitative factors including an assessment of industry size, structure, business trends and overall attractiveness; management effectiveness; competition; visibility; financial condition, and expected total return, among other factors. These factors are subject to change depending on overall economic conditions or industry- or company-specific occurrences. Only stocks rated Strong Buy (SB1) or Outperform (MO2) have target prices and thus valuation methodologies. Target Prices: The information below indicates our target price and rating changes for ISRG stock over the past three years. Valuation Methodology: Our valuation methodology is predicated on a forward price-to-earnings target multiple basis. We employ a 2016E multiple as we believe that is the year when the impact of the stock s longer-term drivers will be felt. Risk Factors General Risk Factors: Following are some general risk factors that pertain to the businesses of the subject companies and the projected target prices and recommendations included on Raymond James research: (1) Industry fundamentals with respect to customer demand or product / service pricing could change and adversely impact expected revenues and earnings; (2) Issues relating to major competitors or market shares or new product expectations could change investor attitudes toward the sector or this stock; (3) Unforeseen developments with respect to the management, financial condition or accounting policies or practices could alter the prospective valuation; or (4) External factors that affect the U.S. economy, interest rates, the U.S. dollar or major segments of the economy could alter investor confidence and investment prospects. International investments involve additional risks such as currency fluctuations, differing financial accounting standards, and possible political and economic instability. International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

12 Specific Investment Risks Related to the Industry or Issuer Hospital Supplies & Equipment Risk Factors Clinical Trial Results/FDA Rulings New products are a significant source of growth for most hospital supplies and equipment companies and are factored into earnings expectations. Push-back of clinical trial timelines and/or negative rulings by the FDA for new products may delay or diminish growth prospects and could result in significant decline in a stock price. Device Recalls Safety concerns or product failures may be financially material in terms of lost sales and expensive litigation issues. Reimbursement When the Centers for Medicare and Medicaid Services (CMS) lower reimbursement rates, customers (hospitals, GPOs, and IDNs) will pressure companies to lower prices for products. As prices drop, so does profitability. Without lowering prices, volume may suffer. New Technology As less invasive or less expensive technologies come onto the market, competition increases and may result in lower operating results for incumbent products. Intellectual Property Issues Most medical device companies rely on technical innovation to develop products and maintain a competitive advantage. Loss of patent protection may increase competition for a medical device company. Infringing on a competitor's patent can result in litigation expenses, royalty payments, or being forced to stop selling a product. Healthcare Reform Act The impact of the Healthcare Reform Act could have a material adverse effect on company results. Cost-containment efforts of customers, purchasing groups and governmental organizations could have a material adverse effect on sales and profitability. In an effort to reduce costs, many existing and potential customers within the United States have joined GPOs and IDNs, in an effort to negotiate lower prices through economies of scale. Further, the increasing leverage of organized buying groups may reduce market prices for products, thereby reducing industry profitability. Company-Specific Risks for Intuitive Surgical, Inc. Changes to top-line growth assumptions; earnings volatility given that close to 50% of revenues are system sales; price reductions due to hospital purchasing pressure; changes in product usage due to the U.S. healthcare reform legislation; reductions to government reimbursement; FDA actions; product recalls; delays in new product clearance timelines; setbacks in the company's R&D initiatives; competition; limited operating margin expansion; dilutive acquisitions; and adverse legal outcomes. Additional Risk and Disclosure information, as well as more information on the Raymond James rating system and suitability categories, is available at rjcapitalmarkets.com/disclosures/index. Copies of research or Raymond James summary policies relating to research analyst independence can be obtained by contacting any Raymond James & Associates or Raymond James Financial Services office (please see raymondjames.com for office locations) or by calling , toll free or sending a written request to the Equity Research Library, Raymond James & Associates, Inc., Tower 3, 6 th Floor, 880 Carillon Parkway, St. Petersburg, FL For clients in the United Kingdom: For clients of Raymond James & Associates (London Branch) and Raymond James Financial International Limited (RJFI): This document and any investment to which this document relates is intended for the sole use of the persons to whom it is addressed, being persons who are Eligible Counterparties or Professional Clients as described in the FCA rules or persons described in Articles 19(5) (Investment professionals) or 49(2) (High net worth companies, unincorporated associations etc) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended) or any other person to whom this promotion may lawfully be directed. It is not intended to be distributed or passed on, directly or indirectly, to any other class of persons and may not be relied upon by such persons and is therefore not intended for private individuals or those who would be classified as Retail Clients. For clients of Raymond James Investment Services, Ltd.: This report is for the use of professional investment advisers and managers and is not intended for use by clients. For purposes of the Financial Conduct Authority requirements, this research report is classified as independent with respect to conflict of interest management. RJA, RJFI, and Raymond James Investment Services, Ltd. are authorised and regulated by the Financial Conduct Authority in the United Kingdom. For clients in France: This document and any investment to which this document relates is intended for the sole use of the persons to whom it is addressed, being persons who are Eligible Counterparties or Professional Clients as described in Code Monétaire et Financier and Règlement International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida

13 releasable resear ch Raymond James Général de l Autorité des Marchés Financiers. It is not intended to be distributed or passed on, directly or indirectly, to any other class of persons and may not be relied upon by such persons and is therefore not intended for private individuals or those who would be classified as Retail Clients. For clients of Raymond James Euro Equities: Raymond James Euro Equities is authorised and regulated by the Autorité de Contrôle Prudentiel et de Résolution and the Autorité des Marchés Financiers. For institutional clients in the European Economic Area (EEA) outside of the United Kingdom: This document (and any attachments or exhibits hereto) is intended only for EEA institutional clients or others to whom it may lawfully be submitted. For Canadian clients: This report is not prepared subject to Canadian disclosure requirements, unless a Canadian analyst has contributed to the content of the report. In the case where there is Canadian analyst contribution, the report meets all applicable IIROC disclosure requirements. Proprietary Rights Notice: By accepting a copy of this report, you acknowledge and agree as follows: This report is provided to clients of Raymond James only for your personal, noncommercial use. Except as expressly authorized by Raymond James, you may not copy, reproduce, transmit, sell, display, distribute, publish, broadcast, circulate, modify, disseminate or commercially exploit the information contained in this report, in printed, electronic or any other form, in any manner, without the prior express written consent of Raymond James. You also agree not to use the information provided in this report for any unlawful purpose. This is RJA client This report and its contents are the property of Raymond James and are protected by applicable copyright, trade secret or other intellectual property laws (of the United States and other countries). United States law, 17 U.S.C. Sec.501 et seq, provides for civil and criminal penalties for copyright infringement. No copyright claimed in incorporated U.S. government works. International Headquarters: The Raymond James Financial Center 880 Carillon Parkway St. Petersburg, Florida