REVENUE AND CONTRACT ACQUISITION COSTS

9 Months Ended

Sep. 30, 2019

Revenue from Contract with Customer [Abstract]

The following table presents revenue disaggregated by types and geography (in millions):


	Three Months Ended September 30,						Nine Months Ended September 30,
U.S.	2019		2018		2019		2018
Instruments and accessories	$	450.7	$	368.1	$	1,286.7	$	1,066.0
Systems	217.2		193.6		610.5		490.0
Services	128.5		114.8		376.1		337.6
Total U.S. revenue	$	796.4	$	676.5	$	2,273.3	$	1,893.6

Outside of U.S. (“OUS”)
Instruments and accessories	$	155.5	$	118.2	$	450.3	$	356.7
Systems	121.4		81.0		319.4		296.5
Services	54.9		45.2		157.8		130.9
Total OUS revenue	$	331.8	$	244.4	$	927.5	$	784.1

Total
Instruments and accessories	$	606.2	$	486.3	$	1,737.0	$	1,422.7
Systems	338.6		274.6		929.9		786.5
Services	183.4		160.0		533.9		468.5
Total revenue	$	1,128.2	$	920.9	$	3,200.8	$	2,677.7

Remaining Performance Obligations

The transaction price allocated to remaining performance obligations relates to amounts allocated to products and services for which revenue has not yet been recognized. A significant portion of this amount relates to performance obligations in the Company’s service contracts that will be satisfied and recognized as revenue in future periods. The transaction price allocated to the remaining performance obligations was $1,419.4 million as of September 30, 2019. The remaining performance obligations are expected to be satisfied over the term of the individual sales arrangements, which generally are 5 years.

Contract Assets and Liabilities

The following information summarizes the Company’s contract assets and liabilities (in millions):



	As of
	September 30, 2019		December 31, 2018
Contract assets	$	21.8	$	12.4
Deferred revenue	$	335.6	$	327.3

The Company invoices its customers based on the billing schedules in its sales arrangements. Payments are generally due 30 days from date of invoice. Contract assets for the periods presented primarily represent the difference between the revenue that was recognized based on the relative standalone selling price of the related performance obligations satisfied and the contractual billing terms in the arrangements. Deferred revenue for the periods presented primarily relates to service contracts where the service fees are billed up-front, generally quarterly or annually, prior to those services having been performed. The associated deferred revenue is generally recognized over the term of the service period. The Company did not have any significant impairment losses on its contract assets for the periods presented.

During the three and nine months ended September 30, 2019, the Company recognized revenue of $57.7 million and $281.4 million, respectively, which was included in the deferred revenue balance as of December 31, 2018. During the three and nine months ended September 30, 2018, the Company recognized revenue of $47.0 million and $244.8 million, respectively, which was included in the deferred revenue balance as of December 31, 2017.

Intuitive Surgical da Vinci System Leasing

The Company enters into sales-type and operating lease arrangements with certain qualified customers. Sales-type leases have terms that generally range from 24 to 84 months and are usually collateralized by a security interest in the underlying assets. Revenue related to multiple-element arrangements are allocated to lease and non-lease elements based on their relative

standalone selling prices as prescribed by the Company’s revenue recognition policy. Lease elements generally include a da Vinci Surgical System or system component, while non-lease elements generally include service, instruments, and accessories. For some lease arrangements, the customers are provided with the right to purchase the leased system at some point during and/or at the end of the lease term. Except for certain usage-based lease arrangements, lease arrangements generally do not provide rights for the customers to exit or terminate the lease without incurring a penalty. For some leases, lease payments are based on the usage of the systems.

In determining whether a transaction should be classified as a sales-type or operating lease, the Company considers the following terms at lease commencement: (1) whether title of the system transfers automatically or for a nominal fee by the end of the lease term, (2) whether the present value of the minimum lease payments equals or exceeds substantially all of the fair value of the leased system, (3) whether the lease term is for the major part of the remaining economic life of the leased system, (4) whether the lease grants the lessee an option to purchase the leased system that the lessee is reasonably certain to exercise, and (5) whether the underlying system is of such a specialized nature that it is expected to have no alternative use to the Company at the end of the lease term.

The Company generally recognizes revenue from sales-type lease arrangements at the time the system is accepted by the customer, assuming all other revenue recognition criteria have been met. Revenue from sales-type leases is presented as product revenue. Revenue from operating lease arrangements is generally recognized on a straight-line basis over the lease term or based upon system usage and is presented as product revenue.

The following table presents revenue from our lease arrangements (in millions):


	Three Months Ended September 30,						Nine Months Ended September 30,
	2019		2018		2019		2018
Sales-type lease revenue	$	14.8	$	23.0	$	34.7	$	48.3
Operating lease revenue	$	27.4	$	14.0	$	72.9	$	35.0

Assets Recognized from the Costs to Obtain a Contract with a Customer

The Company has determined that certain sales incentives provided to the Company’s sales team are required to be capitalized when the Company expects to generate future economic benefits from the related revenue-generating contracts subsequent to the initial capital sales transaction. When determining the economic life of the contract acquisition assets recognized, the Company considers historical service renewal rates, expectations of future customer renewals of service contracts, and other factors that could impact the economic benefits that the Company expects to generate from the relationship with its customers. The costs capitalized as contract acquisition costs included in intangible and other assets, net in the Company’s Condensed Consolidated Balance Sheets were $43.4 million and $34.2 million as of September 30, 2019, and December 31, 2018, respectively. The Company did not incur any impairment losses during the periods presented.