Stryker Aktie

Welcome back. I'm Larry Biegelsen, the medtech analyst at Wells Fargo, and it's my pleasure to host this fireside chat with the management team from Stryker. With us, we have Preston Wells, the CFO; and Nick Mead, Vice President of Investor Relations. The format is going to be Q&A. So we'll jump right in.

Preston, no surprise. We're going to start with a question on the second half ramp. Just talk about your confidence and the visibility into that and ability to meet the guidance, which I think is 8.8% at the midpoint for organic growth.

Yes. So first of all, thank you for having us. We appreciate the opportunity to be here. Apologies for being a little bit late. There's a logjam at the elevator. Maybe a couple of comments as we think about the second half of this year and kind of where things have progressed. So we gave our guide, 8.3% to 9.3%. So you're right, the midpoint of 8.8%. And the reason we give a guide, obviously, with a range is to anticipate a range of outcomes.

One of the things we talked about in the second quarter call was our peripheral vascular business and some of the challenges that we were seeing on the PV business. I think during the call, we talked about the manufacturing issue that's not allowing us to reach a full supply of inventory at all of our customers and quite frankly, not allowing us to go out and really win new business. We anticipated that, that would rectify itself in the third quarter. What we're seeing is that is continuing into the third quarter and certainly, it will continue.

We expect it to continue a little bit into the fourth quarter as well. So a little bit of a different nuance to what we originally anticipated is that peripheral vascular isn't quite seeing that same recovery that we would have expected from a supply standpoint. And so it's just a matter of us continuing to work on generating supply for the rest of the year to continue to support customers.

The other thing I would probably point to as we think about a couple of the soft spots that we saw in the second quarter was on the joint replacement business. Our hip number in the second quarter, we talked a little bit about. We did expect and we saw a very strong June, and we expected to see some better recovery actually of that business in that market in the summer months. But what we actually are seeing is a bit more of the seasonality that we would typically see.

And so we didn't see -- with that seasonality, we actually did not see the recovery that we expected so far in the quarter, although we are anticipating to have a better September, certainly a little bit slower than anticipated from a joint replacement standpoint in the second quarter. So that is some of the elements that continue to be pressures on our business. We do see really strong capital demand for our capital products. We highlighted that coming out of the second quarter.

That remains really strong. Our backorder remains really strong. The order book remains strong for those capital products. And also in our Trauma and Extremities business, that business remains really, really robust as well and growing much faster than market. So again, the range of outcomes that we provided is really because there's a lot of different things that are happening. The cyber event earlier in the year certainly exacerbated that, put a lot of pressure on our second half, as you all very well know. And so we're seeing some variation maybe to some of the things that we expected, while we continue to see really strong demand on our capital business.

That's helpful. Just a couple of follow-ups. So I don't have numbers in front of me, but on peripheral, remind us of what Q2 was and how we should think about that business going forward?

Yes. So maybe we reported at a vascular level. I think on the earnings call, I talked to it in terms of our U.S. business, and our U.S. business was negatively impacted on the peripheral side. I think on the call, somebody asked about what the impact on the growth rates were. I think they estimated 70 to 80 basis points on the quarter, and I said that's about right. I think that, that expectation is continuing into the third quarter that, that peripheral business won't be as healthy as what we would have expected.

I think Kevin said that we expected to get back to growth in the quarter. And as of right now, that's still challenged based on our supply challenges that we have. And the ability, quite frankly, to maintain enough inventory in the system that we can support kind of not only the existing customer base, but quite frankly, get out and grow a new customer base.

Maybe as I think about peripheral in general, as we talked about at the end of last year, we obviously had some sales force execution things that we were working through as we were kind of bringing the sales force up to a Stryker standard. We got that to a point in the first quarter that we felt really good about where that was headed only to have the cyber event and maybe to put a little bit more on that cyber event. So when the cyber event happens, we talk a lot about it. We took all our manufacturing down or our manufacturing was taken down for several weeks.

We brought that back up. And for all of our existing businesses, it's just a process of restarting, you restarted back on the processes that you have and you just -- you're off and running. On the peripheral side, and I think this happens a lot when you have a smaller organization quite frankly, is growing very rapidly. As you can imagine, there's a lot of process things that have to still get improved as that business is able to ramp and scale. And so as we think about integrations for us and we integrate manufacturing, you're always going to run into some things over time.

And quite frankly, you fix those things kind of one-off as you find them and you just continue to move on. They're not that disruptive to the overall business. In this case, when we brought manufacturing all the way down to a full stop and then you have to bring it back up, all of those process-related opportunities or challenges present themselves all at the same time. And so to work through some of those elements and get things back up to a process standard that we want it to be for Stryker, it's just taken us a lot longer to get that back to full capacity to the point where we're able to produce all the different SKUs that are required in enough fashion, like I said, to support the inventory requirements of the existing customers, which we are prioritizing our existing customers and supporting procedures, but it's really inhibited our ability to try to get out with new customers as well.

So a lot of work to do to make sure that we get inventory levels to where they need to be, and the team is heavily focused on doing so. Our expectation entering the quarter was that it would be a bit faster than maybe what it has been so far.

So the 70 to 80 bps that you mentioned, that was total Stryker.

That was total Stryker in the second quarter was -- I said it was a pretty good estimate.

And so similar in Q3 -- Q4? Are you saying that you think there's some improvement?

We're not saying anything yet on Q4. Certainly, as we get into our Q3 earnings call, we'll have a better sense of how that's doing. I mean it's a really dynamic time in terms of trying to understand how that's happening because there's a little bit of fits and starts as you go through it. I would just say for now, we do anticipate the third quarter to be very similar to second quarter in terms of the impact of PV on the growth rate.

And some procedures are still being -- it's not like...

Yes, we're not -- procedures are still being done. So we're working to prioritize, let's call it, our top 100 right now as we try to make sure that they have enough inventory to continue to do procedures moving forward. So -- but it's not 100% where it needs to be. So inventory levels aren't 100% where they need to be all the time to do that. So we're still working on trying to make sure that we're supplying enough inventory into the field to support existing. But certainly, we're not able to do all of our customer base and certainly not able to grow new customers at this point in time. So it's something that we're working to get rectified as soon as possible.

And I know it's really early, but can this business bounce back in '27?

Absolutely. So we feel really good about the market. So the market itself is a great market. There's still a significant opportunity to move patients from nonmechanical thrombectomy to that. And so there's a -- we have a PEERLESS II study, which we've talked about before, which is really focused on how do we show the benefits of this procedure on the marketplace. And we expect that to happen sometime in the second -- in next year, which will really hopefully help really drive more of this market from a total market standpoint.

We feel really good about where we got the sales force to kind of leading into the cyber event. And so that team is being maintained and trained and ready to go. And it's not a product issue. It's really a supply issue that we are working hard to rectify. And we feel like after we get that rectified from a supply standpoint with the commercial team that's ready to go, that they'll be off and running. So there's still a lot of great opportunity in this space. That combined with the recent AVS acquisition and getting into the IVL space, which we expect to have that product approved towards the back end of this year, I think, gives us a lot of momentum and a lot of reason to believe for 2027.

And share loss, I mean if this certainly...

Yes, certainly, share loss is happening. I mean this is an emergent procedure. And so if you're not there to do the procedure, you lose the procedure. So short term-wise, there's certainly some impact on share. But again, we expect that as we get things back from an overall supply perspective, combined with the sales force that we've revamped along with the AVS offering over into next year that we'll be able to bring share back. Also with the fact that the category itself continues to expand. So there's growth opportunity while we still regain share to do both of those things.

And then on hips, the issue in Q2 was the international hip business primarily. Is that what you're talking about right now?

Yes. So maybe let me talk about the whole joint replacement market as we think about. So hips in general was a little bit more depressed in the second quarter. I think in general, that was driven by the fact that Europe was more depressed, and we do over-index in Europe. I think what we're seeing is a couple of things as we headed into the third quarter. So number one, on the hip side, we still see Europe as being challenged.

So I think there's a lot of things that are happening in the European space. So not only as we think about how public health is being funded versus defense in some cases, we see strikes that are impacting our ability to do some things in that space. The war certainly has had some impact. So overall, there's been some impact on that market. That market for the year has been pretty soft across joint replacement in general, where we over-index on hips, we certainly see a bigger impact.

What we're also seeing as we think about the U.S. market is we expected there to be a stronger summer in the U.S. So we had a really strong July, and this would apply to both hips and knees -- I'm sorry, really strong June. And then we expected July and August to kind of continue with some of that market acceleration. I think what we've probably seen though is more of what I would call the normal seasonality on July and August thus far, which was kind of more patients from a vacation standpoint, more surgeons from a vacation standpoint.

We've also heard some different things in the marketplace as well around just a longer waiting list, longer lead times for people to get procedures done. Certainly, as patients become more aware of inflation and things like that, we're certainly hearing some acute stories about folks that aren't getting certain procedures done right now. So we do feel like there's some building of demand in the system, but we would have expected to see a bigger number coming through for us in July and August that we, quite frankly, did not see. We generally, as part of that seasonality, see a bigger September, and that's one of the things that we're looking at right now, but certainly a little bit slower than what we anticipated leaving the second quarter.

Okay. So it's ortho overall...

Ortho overall. Hips, we're feeling a bit more acute on because of some of the challenges we have in Europe. I think the other thing from a competitive standpoint, we're still looking at -- one of the things we don't have on the hip side is the hip impactor. And so I think that's one of the things certainly that we're feeling from a competitive standpoint. But overall, as we think about Mako, we think about the Mako offering and our ability to win behind Mako, that continues to be true, and we see that on the knee side for sure. We see it a little bit less on the hip side right now, but certainly that overall, that -- our ability to win behind Mako still remains a very positive thing.

What's the timing on the hip impactor because I know you have it.

It's something that we're looking at for -- hopefully, into next year, we'll be able to have something that they will be ready to go.

And in ortho, so obviously, there's been concerns about deferred procedures because of the ACA subsidies expiring. How much do you contribute to?

I don't think ACA itself is what we're seeing. When we talk to folks and we look at some of the market data that's happen, ACA itself, I don't think is having as big of an impact. I think there are some other elements that are at play. Certainly, the general consumer sentiment in terms of just higher inflation, higher prices that people are paying, I think has folks just generally kind of nervous about just taking time off of work or actually being -- having downtime or spending money on a procedure in the short term.

I think the other thing that we are seeing, we are seeing some elements that have to do with insurance and how insurance is playing out, a lot more pre-approvals that are happening. Certainly, the deductibles are growing on folks. I think just the amount of money that people are having to spend to get procedures done is changing. I think all of those things are leading to a little bit of a consumer challenge. Now it's not changing the rate of requirement for these procedures. And so certainly, there's demand that's building in the system that we feel like at some point is going to release. But certainly, one of the things that we're hearing coming through the summer was some of those more anecdotal comments for sure.

And if I go back to the cyber attack, we estimated you were impacted by, call it, $350 million. You know where those numbers come from, even though you guys haven't disclosed that ballpark. And you -- except you kept the guidance the same. My question is, outside of the peripheral, outside of the ortho market being a little softer, the catch-up, if you will, from the cyber attack, a lot of that was capital. So it's not ortho, it's not peripheral. How is that playing out relative to expectations?

Yes, I would say that is much more in line with expectations. So the capital businesses themselves remain really healthy. Certainly, demand remains robust. We're certainly seeing our order book is elevated. We've seen strong orders throughout the year. So when we gave our guide at the end of Q1 and certainly in Q2, a few things were at play. At the end of Q1, there was just a lot of messiness to really understand what kind of the future might hold. But what we did see is that really strong order book continue to come in.

So we saw really strong orders. We saw really strong orders in Q2, really strong capital business results in Q2, and that has continued to happen. So the demand piece remains really strong. On our side, it was really about how can we ramp production to meet that demand in the short term. And so on a business like medical, for example, where we're seeing really good orders for our bed business, it was about adding another shift. So that shift has been added. They're ramping production on a daily basis to meet this increased demand on that business.

So similarly, we're seeing that play out in many of our other capital business as well. So I would say on the capital side, that has played out about how we would have expected it to coming out of the cyber event. The other business I would probably highlight, Larry, on that one, too, is Trauma and Extremities. So the trauma business has continued to perform very, very well. So something that was, again, an emergent procedure even during the incident. We had inventory on the shelf in the consignment locations that consignment was able to be used.

Those procedures were able to be done, and behind Pangea and our Upper Extremities business, in particular, that business continues to perform at a really, really high level as well. So outside of those 2 soft areas that we talked about, the rest of the business is doing about what we would have expected it to do.

Back to the Recon business, is there any way -- you quantified on the peripheral side in vascular, the 70 to 80 bps or gave some helpful color. Is there any way to talk about the order of magnitude of softness that we're seeing in ortho?

No. I think -- again, I think everybody has the numbers in the second quarter of kind of what's happened. The ortho business this year has been really interesting and hard because I think there's a lot of dynamics that are happening. You look at just the competitive set of what's going on there. So obviously, we had our cyber event, which completely disrupted Q1 from a market perspective.

You have one of our competitors is separating from its parent. Another one is changing its sales force. Another one is launching new systems. It's just a really weird dynamic of a lot of different things that are happening. So I think everybody kind of saw what the market was in Q2 when you had finally everybody presenting their numbers in a more normal fashion, I guess, I would say. So I think you could probably come up with some estimates based on that. But I would say it's just been a very interesting dynamic with all the change happening across the competitive set.

And how do you feel about maybe in ortho, just looking ahead, your ability to still grow 200 to 300 basis points above market?

Yes. So I think there's going to be some short-term things that we're seeing, short-term things from an environment perspective, short-term things from a competitive perspective. But I think longer term, and what we've said is we expect that market to grow mid-single digits, which for us is 4% to 6%. It's likely on the lower end of that 4% to 6% -- but we believe very much in our technology. We believe very much in Mako and quite frankly, now Mako RPS. And what that enabling technology has done over the last 10 years, we believe that we have that ability to continue to accelerate moving forward.

Why do I say that? I think there's a couple of things. I think number one, when we continue to look at the opportunities for Mako in the U.S., they're still there. They're still there, not only in terms of systems and units, but also there in terms of as we think about the software. So just this year, on Mako 4, when we launched a new hip software that allows us to do revision and complex hip. And so that gives us more opportunities to bring in new hip users. When we think about outside the U.S., we're kind of at that point where we hit the inflection in the U.S., outside the U.S. now where we have enough Makos there.

There's enough of the software there that we're starting to see the ramp of joints that are going in with Mako, kind of like we saw in the U.S., probably what I would say, 5 to 6 years ago, where we're starting to see that really grow. And then now you add to that, particularly in the U.S. next year, Mako RPS. So we've hit full launch on Mako RPS. We're getting more of that out into the marketplace. And that's allowing us to really go after a segment of the market, quite frankly, that we hadn't been able to really touch before, where you have a manual user who wants to do a more robotic procedure, but in a fashion that's more similar to their manual procedure -- what Mako RPS does is it gives that user an opportunity to get some of the benefits of a robotic procedure, but not change their workflow so significantly.

So on the back of all of those things, Larry, we feel really, really good about our ability to continue to take share over the next several years. And certainly, as we add hip impactor, that just adds to our portfolio. Triathlon Gold, another one that adds to our portfolio that fills a need for a metal allergy knee that we didn't have before. So all of those are just elements that allow us to believe that we're going to continue to outpace the market overall. Certainly, with some short-term disruption, like I said before, from some of the economic type things that are going on as well as just some of the competitive changes that are happening. But longer term, we really believe on our ability to continue to do that.

So sorry for jumping around.

Yes. Go forward.

A few curveballs here this morning. But I wanted to go back to 2026. Is there any way to quantify the overall impact? I mean you have guidance of 8.3% to 9.3%. I got to ask, I mean, should we just assume kind of low end of the range? I mean, EPS implications? Is there any helpful color you can provide today?

Yes. So we'll certainly give you a more wholesome update at our quarterly call. What I would say is there's obviously assumptions out there right now around consensus. There's certainly what we've provided in terms of our guide. And we're not ready to change the guide. What I would say is though, there have been -- as I mentioned before, there's been 2 big kind of changes as we think about what our assumptions were and certainly our ability to recover on PV in the quarter as well as a little bit slower of joint replacement market are 2 elements that are very different than what we thought about as we headed into the quarter.

So we're not ready to change the guide in terms of what the numbers are quite yet. But certainly, there are some elements that are different -- that being said, it's been a dynamic year, obviously, with recovery. We talked about some of the other businesses that are doing very well. And so those are really doing a lot of work as well and performing very strongly, but certainly some things that we're working through with the variability over the next month or so, and then we'll certainly provide a more detailed update.

I guess one follow-up is you're not ready to update the guidance because you still could be in the range or it's too early because you just don't have September, you need more time.

I think there's some of both. I think there's elements that we certainly believe that range could still hold. There's a lot of things that are changing really rapidly. The peripheral vascular business being one of them. I mean, as soon as we're able to really kickstart that back online, there's a lot of pieces that are going to come back. I mean if you just even think about when we talked about the potential impact of 70 bps from last quarter being a similar thing to this quarter. If that's able to recover at a faster rate, that obviously changes things quite a bit. So there's a lot of things that are still dynamic and changing. And so what we don't want to do is jump all the way around. We do believe that, that guide still could be something that is absolutely where we could be.

And I know it's super early, but I want to ask on '27 to see if you have any color commentary. I mean, it should be a good year. Obviously, you're going to have an easy comp in Q1. But how do you want people to think beyond 2026 about Stryker and then maybe that tie in that 150 basis point margins from the LRP.

Yes. Unfortunately, we'll have some really weird comps, as you said, in Q1. But nothing changes from what we talked about at our Investor Day last year. It's quite frankly, our expectation is that we will still drive market-leading growth in the categories that we're competing in. We have work to do certainly on the PV side, which we feel like we're doing that work. We've done it on the commercial side. We're doing it on the manufacturing side. And like I said before, that, coupled with the AVS acquisition will give us a really good opportunity into '27.

All the capital businesses, there's no reason to believe right now that those won't remain robust. Obviously, there's a lot of dynamics happening in the hospital environment. We'll continue to be mindful and keep an eye on what's happening there. But again, with the lead times that we see -- the order lead times that we see, we still feel really good about those. We feel really good about the product launches that are coming in that space as we think into next year.

And then on the orthopedic side, again, we're keeping an eye on the market and understanding what that's doing. But behind Mako, behind Mako RPS, behind Triathlon Gold and some of the other new product launches, we feel like on the joint replacement side, we are going to be positioned to continue to win regardless of what the market is doing, we're going to be positioned to win in that market itself. And then Trauma and Extremities and Upper Extremities in particular, and trauma with Pangea, again, feel really, really strongly about our ability to continue to drive and win in those markets.

So overall, nothing has changed from that perspective and how we think about growth. We'll continue to think about how we supplement it with inorganic acquisitions over time. We've done a couple of smaller ones this year. We have some other things in the hopper. We'll see how that continues to progress and play out for the rest of the year and into next year as well. But certainly, we can expect that we'll add some things in that bucket as well.

And then you mentioned the 150 basis points. We -- we still feel really, really good about that as well. A lot of that comes down to how we think about our manufacturing organization and our supply chain, which we've continued to enhance. We've continued to get better. We talked about moving to some lower-cost locations, which we've done. We'll continue to shift products there. We'll continue to think about how we streamline the overall supply base. And ultimately, we're still very, very confident in our ability to deliver the 150 basis points over time.

Over those 3 years?

Yes.

Capital. You touched upon it a couple of times. Obviously, you know there are concerns about the capital environment. What are you seeing? And how are you thinking about it into '27? You know the ACA subsidies, the Medicaid cuts and now we've got the 340B concerns.

Yes. Yes, there's no question that a lot of the hospital budgets are certainly feeling it. I mean they're feeling it in a lot of different ways. But when we think about the products that we have, the procedures that we support -- the procedures that we support are very important to hospitals in terms of revenue-generating procedures. So in many cases, we'll get some prioritization around how we are able to support those, which then goes hand-in-hand with a lot of our small capital in many cases. And so we see that small capital element continuing to be prioritized as well.

On the larger capital side, which just as a reminder, is about 10% of our total business, we still see a very strong order book for those. So if I think about our Communications business, which is the booms and lights and the infrastructure elements of what a hospital is doing on a refurb or on a new build, those orders are going out, call it, 9 or 12-plus months in many cases. And so we still see that order book building as well, which gives us some leading indicator to how hospitals are feeling about continuing to build out that OR space. So yes, there's a lot of pressures that are happening. But right now, for what we have visibility to and what we're hearing anecdotally is that we are still seeing a pretty robust capital environment for the products and the procedures that we support.

I mean I've heard secondhand that Kevin, your CEO, has talked about the 340B program is something to keep an eye on. Let's put it that way. And so how are you -- it sounds like right now, the order book is strong. I think people want to know how might that look if there's changes to 340B.

Listen, we can't speculate on what actually is going to happen. We certainly know there's been some legislation that's been pushed out there, and we see kind of what that may or may not look like. A lot of it will depend on where some of that funding gets redistributed to in terms of other procedures or elements that may have some spending. But I think for some hospitals, that certainly will have a big impact. I mean there's a lot to unpack on that one. We're keeping a close eye on it.

If it does start to change some things, we'll certainly have to figure out what that impact might be. But as of right now, like I said, what we're hearing, what we're seeing is that the procedures that we support and the products that we have still are getting some prioritization based on the fact that they are revenue generating. And so they become another element that's really, really important as well for the hospital. So we'll continue to keep an eye on it. We can't speculate on what's actually going to get put into effect. But it's something worth monitoring for sure.

I mean if I just -- listen, here's what I paraphrase what I think you're saying is if there are significant changes, we're not saying we're immune.

That's right. I mean I don't think we're saying we're immune or not. I think what we'd have to say is once that legislation gets put, we'd have to understand, okay, what does that exactly mean. But again, I think as we think about what we support and the procedures we support, and I don't want to talk generically because obviously, it does have impacts on a more generic basis. But based on the products that we have and the areas that we focus on, we feel good about that. But to your point, I don't think anybody is going to be fully immune, but certainly, we feel good about the areas that we support.

It's kind of like what Stryker always gives guidance about being at the high end of med tech. And Kevin always says, well, we don't know what the market is exactly going to do, but we're going to do...

That's right. We can execute to what we control, and that's what we're going to continue to do.

Okay. Capital allocation. You talked about resuming share repurchases, I think, on the second quarter call. Is that a signal that you don't see as many M&A opportunities?

No, I actually think it's a signal of our ability over time to get better at generating cash flow. I think one of the things that over the last, call it, 6 to 10 years that we've had a pretty big focus on is how are we doing a better job of cash flow generation. And so as we've gotten just bigger as a company and been able to generate cash flow at a better rate, what it's done is it's given us the ability to continue to invest in M&A, which is our #1 priority for capital and it will continue to be our #1 priority for capital.

But we can do that and so it's not an or. We can do that and look at the opportunity for share buyback. And so I think with this year, with some of the valuations changing the way that they have, it just gave us an opportunity to be a little bit more opportunistic as we think about doing some things in the share buyback space in 2026. And will certainly be something that we look at as we go forward, just given the fact of where we've gotten to from a cash generation standpoint as well as just there are still a lot of targets that we still can execute on as well.

And you gave us a lot of new information, too. So I want to make sure I'm getting to every -- all the questions people have. So anything -- I mean, I've got more, but I just want to make sure if people in the room have burning questions, they can ask. I will keep going -- Tina? Go ahead. I'll repeat the question. Go ahead.

[indiscernible].

So I don't think it was just [indiscernible], by the way, I think you were talking about all of ortho.

Yes. I think what we would say is hips was more impacted certainly in the second quarter. What we're saying is right now, our joint replacement business is a little bit slower in terms of than what we anticipated heading into the third quarter. Again, September, we always see a big kind of bump back up. And so we're keeping an eye on what that looks like. What we're saying is that, yes, those 2 areas are softer. We still have a lot of strength in the other parts of our business. We had a pretty wide range of guidance that we gave.

And so that's why we're not making any changes right now because we do have some offsetting elements. The challenge that we have, as you all very well know, is after first quarter, we have to have a very, very, very strong, obviously, second half. And so as you have some things that aren't going as we expected in certain areas, it does put more pressure on that. And so that's why we're continuing to understand what that looks like for the next month or so, and we'll give much more detail and guidance as we get into the third quarter call.

But yes, we have strength in some areas with these 2 areas that aren't going quite to what we expected them to be. And so that's what we're really dealing with as we head into the last month of the quarter.

Sorry to preempt that, but it is -- you didn't mean that the joint replacement globally.

Yes. Well, I would say Europe and then some pockets in the U.S. We're still seeing strength in some of our major markets outside the U.S.

Okay. Thanks for the question. Preston, I mean, the experience with Inari, how does that inform future acquisitions? You've talked about coronary. Are there any lessons learned here? And does it make you a little more cautious near term?

What I would say is we've learned lessons always when we do acquisitions. And we've had some acquisitions that we've done in the past that you've gotten some pretty big lessons on and you take those lessons and you apply them to the next. Nothing is changing about our priority from an M&A perspective. We will continue to look at opportunities to grow inorganically. We will continue to look at it from a balance perspective as well. So tuck-ins are a critical part of what we do. We will continue to do those.

We've had much more success with tuck-ins because you're adding a product to an existing organization, an existing sales force, you're giving them essentially new innovation to go out and drive market growth with. Inari, just like with any other adjacency comes with new learnings. And so we've learned a lot in terms of as we think about a sales force in this space. I think the bigger one here is just as we think about any smaller organization that has some things that you have to fix as part of the integration, how can we get to those even more quickly sometimes. And so we'll continue to look at that.

But it hasn't dampened the appetite at all in terms of expanding into some of these faster-growing adjacent spaces. I think we will continue to do so, just like we do with any M&A, we'll look at things cautiously. We'll be very judicious in terms of how we think about spending our money and spending it on areas that we think we can go in and win. In this case, we still believe we can do that. It's obviously just going to take us a little bit longer. I don't think anybody could have anticipated the cyber incident and what that would then mean from a supply perspective.

We've learned some lessons on the commercial side, which we will certainly apply to future acquisitions as we go forward. But I think overall, we still feel really good about our ability to go out and compete and win in this space and then quite frankly, use it as a platform for additional adjacencies as we go forward.

Maybe a related question on M&A. The 150 basis points of margin expansion, how do you think about offsetting dilution?

Sure. So generally, for us, a tuck-in is something that's $1 billion or less. And so what our anticipation would be on that 150 basis points that we would be able to absorb the impact of tuck-ins. If you were to go do some transformational deal or quite frankly, something that had significant IPR&D, then that might change that slightly, but that would be more of a one-off, and we would identify specifically what that is as we go forward. But ultimately, anything that's kind of that tuck-in variety, we would expect to still drive the margin expansion despite those acquisitions.

And soft tissue robotics, I mean that's an expensive area. How do you think -- what does the potential target need to possess to justify the investment to create shareholder value?

Yes. It's interesting. I mean, obviously, it's an exciting space, a category that's growing so significantly kind of year over -- year-over-year. It certainly has shown that, that's kind of where things are going in terms of the future of surgery. There's -- as everybody knows, one giant incumbent that's there that's a very formidable competitor. And so any target would have to have something that is differentiated. You'd have to have something that gives you a reason to believe that you can go out and win differently than maybe what Intuitive is doing today.

And so it's something that we continue to be very excited about that space. As Kevin has said before, it's not super intuitive in terms of how you get no pun intended, but how you get into that space and how quickly you can move in because you're right, you have to be very careful and thoughtful about how you do it. So it would have to have something that's very differentiated that allows us to believe that we can win and that, quite frankly, we can do so at an investment that makes sense.

We don't want to make an investment into something that you're spending billions of dollars and then it stops you from being able to grow the rest of the business or make investments in the rest of the business. So it's something that if we were to ever get in that space, we have to be very, very thoughtful. And we would be, just like we would do any of our other deals, be very prudent about how we do so.

Before we end, I want to give you, Preston, a chance to make closing remarks, but I also want to ask Nick and both of you, is there anything you want to add because you kind of threw a lot at us this morning here. And if there's any messages that you wanted to communicate that you didn't have the opportunity.

Yes, nothing that I haven't had the opportunity to communicate just that this year has been a very interesting year. Obviously, you started off with a cyber incident, and we've been making our way kind of through that for the rest of the year thus far. But I think we have -- while we do have those couple of areas that we've talked about, we still underlying have a very strong business and a very strong proposition in terms of the variety and the differentiation of our different elements of our business.

And so we'll continue to lean on those. And quite frankly, like I said before, we still feel really good about the longer-term aspects of what peripheral vascular brings to us and where that can go. And then the same thing with joint replacement and our ability to win in that marketplace. So as Kevin -- you mentioned, Kevin said it before, we can't necessarily influence what the overall market is doing holistically, but we can certainly win in the markets that we compete in, and our expectation is that we'll continue to do that on both.

All right. Thanks so much for being here.

Thank you.

Welcome to the Second Quarter 2026 Stryker Earnings Call. My name is Megan, and I'll be your operator for today's call. [Operator Instructions]. This conference call is being recorded for replay purposes.

Before we begin, I would like to remind you that the discussions during this conference call will include forward-looking statements. Factors that could cause actual results to differ materially are discussed in the company's most recent filings with the SEC. Also, the discussions will include certain non-GAAP financial measures. Reconciliations to the most directly comparable GAAP financial measures can be found in today's press release that is an exhibit to Stryker's current report on Form 8-K filed with the SEC.

I will now turn the call over to Mr. Kevin Lobo, Chair and Chief Executive Officer. You may proceed, sir.

Welcome to Stryker's second quarter earnings call. Joining me today are Preston Wells, Stryker's CFO; and Nick Mead, Vice President of Investor Relations. For today's call, I will provide opening comments, followed by Nick with market trends and some product updates. Preston will then provide additional details regarding our results and guidance before opening the call to Q&A.

Our second quarter results demonstrated the strength of our broad product portfolio and resiliency of our teams. Our recovery from the cybersecurity incident continued as we ramped overall production to meet ongoing demand and support patient care. We delivered strong organic sales growth of 9% including high single-digit growth from both our MedSurg and Neurotechnology and Orthopedics businesses.

Geographically, our U.S. organic sales growth of 9% included double-digit organic growth from our medical, trauma extremities and Endoscopy businesses and high single-digit organic growth in ortho tech and instruments. This growth was offset by supply disruptions in our Peripheral Vascular business. While our sales force hiring and integration has made great progress, the supply disruption resulted in a meaningful back order situation with lost sales in the quarter.

We have addressed the issue and back orders should reach a manageable level by the end of Q3. We remain confident in the long-term outlook for peripheral vascular, including the ADS acquisition, which closed in the quarter. Internationally, our 8.9% organic sales growth was driven by strong performances in Australia, New Zealand, Germany, Canada, South Korea, Japan, India and Brazil. We continue to see long-term growth opportunities in our international markets through strong commercial execution and the introduction of products that have demonstrated success in the United States in recent years.

From an earnings perspective, we delivered adjusted EPS growth of 17.9%, reflecting improved gross margins as well as our ongoing commitment to rigorous operational execution. We exited Q2 with regained momentum and expect a strong second half of the year, driven by high demand for our capital products, continued production ramp and strong commercial execution. We are narrowing our full year guidance and our businesses are well positioned to deliver another strong year of financial performance.

Finally, our financial position and cash flow generation remains strong, providing firepower to deploy capital. Preston will elaborate on that in his section. I would like to acknowledge our teams for their efforts in putting us on track to deliver another strong year of organic sales and adjusted earnings growth. With that, I will now turn the call over to Nick.

Thank you, Kevin. My comments today will focus on the capital and procedural environment as well as several key product highlights. Capital delivery was a key driver of the growth in the quarter as we recovered from the cybersecurity incident and demand remains strong. We exited the quarter with an elevated backlog and expect continued strength in the hospital capital environment through the remainder of the year.

The U.S. procedural environment remains stable. While there has been some commentary on softness in surgical volumes, particularly in discretionary procedures, we have not observed meaningful changes in volume trends. Our portfolio is highly diversified. With the vast majority of our businesses supporting high acuity, medically necessary in emergent care where clinical demand remains strong.

Importantly, the fundamental drivers of health care demand remained firmly in place, including an aging population, the ongoing need for hospital workforce productivity and the increase in the occurrence of chronic disease. Together, these trends continue to support durable demand for our differentiated product portfolio.

Now I'd like to turn to some product highlights. We delivered our best ever Q2 for Mako installations, both in the U.S. and internationally, and utilization rates across our installed base continue to trend upward. This year, we celebrate 20 years of Mako and its evolution into a multispecialty robotics platform with applications spanning hip, knee, spine and shoulder procedures.

Furthermore, we recently announced the full commercial launch of Mako RPS in the U.S., expanding our robotics portfolio and offering surgeons additional options across a range of care settings. With more than 2.5 million procedures performed globally and systems installed across 47 countries, Mako remains well positioned to drive continued growth through innovation, clinical evidence and expanding adoption worldwide. We are rapidly moving to full commercial launches of Triathlon Gold and our Triathlon medial stabilized insert, both of which are generating strong interest and positive customer feedback.

During Q2, we also have approval on the PROPHECY patient-specific planning and guides for our new Encompass total ankle replacement system, and we've just moved to full commercial launch. Additionally, we recently received approval and have initiated a limited launch for our Pangea trauma plating system in Europe to be followed by a full commercial launch during the fourth quarter within instruments, we look forward to the upcoming launch of the Sonopet 3 ultrasonic aspirator. These products are part of the steady cadence of next-generation and innovative products across our broad base of businesses that fuel our growth.

Let me now turn the call over to Preston.

Thanks, Nick. Detailed financial information has been provided in today's press release. Today, I will focus my comments on our second quarter financial results and the related drivers. Organic sales growth was 9% for the quarter against a double-digit comparable in the second quarter of 2025.

Pricing was flat and foreign currency had a 0.4% favorable impact on sales. This quarter had the same number of selling days compared to the prior year. Adjusted earnings per share of $3.69 was up $0.56 or 17.9% from the same quarter last year. driven by our strong sales growth, a continued focus on operational excellence and a net benefit in the quarter from tariff-related costs. Foreign currency translation had a favorable impact of $0.01.

Now I will provide some highlights around our quarterly segment performance. For the quarter, MedSurg and Neurotechnology delivered organic sales growth of 9.2%, which included 8.9% of U.S. organic growth and 10.5% of international organic growth. Instruments U.S. organic sales rose 84% against the prior year comparable of 16.3%. Growth this quarter included a robust double-digit performance in our intervental spine paying portfolio as well as a strong performance from our Surgical Technologies business, which includes Neptune Waste Management, smoke evacuation and surg account products.

Endoscopy, U.S. organic sales grew 10.2%, reflecting strong demand across multiple areas of the business. Operating group infrastructure and renovations were a key growth driver, including a robust performance from the recently launched oculi Life. We also delivered strong growth in our urology and connected OR products within the core Endoscopy portfolio as well as in sports medicine, where double-digit growth was driven by its expanded range of shoulder and plant products. Medical U.S. organic sales increased 13.1% and included very strong double-digit performances from our Sage and emergency care businesses.

From a product perspective, growth was led by preoperative [indiscernible] products, powered cots and LIFEPAK 35, which continues to generate strong customer interest and capture additional market share. Capital demand also remains elevated as evidenced by an increased backlog and strong orders as we exited the quarter, including city events and our Smart Care business, which includes Vocera and Care AI. Vascular U.S. organic sales declined 6.7% from a year earlier due to the operational disruption in peripheral vascular that Kevin discussed in his remarks.

Partially offset by solid growth in our hemorrhagic portfolio, driven by the Surpass Elite flow diverting stents. Internationally, MedSurg and Neurotechnology organic sales growth of 10.5% and included broad strength across endoscopy, medical and instruments. Geographically, growth was led by a robust performance in Australia, New Zealand, Germany, Canada, Brazil and India. Orthopaedics delivered organic sales growth of 8.6% in the quarter, which included 9.1% of U.S. organic growth and 7.5% of international organic growth. U.S. knees organic sales grew 6.2%, reflecting the continued adoption of Mako for robotic-assisted knee procedures and momentum from our cementless new products.

U.S. Hips organic sales rose 4.9% and reflecting the ongoing success of our Insignia Hip Stem and the Mako Robotic Hip platform with our latest application having the expanded ability to address more difficult primary hip cases and hip revisions. U.S. Trauma and Extremities organic sales increased 12.5%, with strong double-digit sales growth in our trauma and upper extremities businesses.

Pangea continues to be a key driver of our growth in our trauma business and our multiyear growth momentum in shoulders was driven by the continued strong performance of our differentiated portfolio and the recent full commercial launch of Mako shoulder on Mako 4. U.S. OrthoTec organic sales grew 9.2%, driven by robust Mako installations. Internationally, Orthopaedics organic sales growth of 7.5% included strength in knees, OrthoTech and trauma and extremities and was led regionally by Canada, South Korea, Australia, New Zealand, Brazil and India. Similar to the first quarter, the conflict in Iran had a modest impact on overall company growth.

Now I will focus on certain operating and nonoperating items in the quarter. Our adjusted gross margin of 66% was 60 basis points favorable to the second quarter of 2025, reflecting the impact of the net tariff benefit I previously mentioned as well as improvements in business mix and cost discipline. Our adjusted operating margin was 27.4% of sales, which was 170 basis points favorable to the second quarter of 2025. The driven by the gross margin improvement as well as lower adjusted SG&A as a percentage of sales due to our ongoing focus on spend discipline and margin expansion.

Adjusted other income and expense of $101 million was $5 million lower than 2025. We continue to expect our full year 2026 adjusted other income and expense to be approximately $420 million. The second quarter had an adjusted effective tax rate of 16.5%, reflecting the impact of geographic mix and certain discrete tax items. For 2026, we continue to expect our full year effective tax rate to be in the range of 15% to 16%.

Turning to cash. We ended the second quarter with approximately $3.5 billion of cash and marketable securities and year-to-date cash from operations of $1.8 billion. Supported by a strong balance sheet and robust cash flows, we remain focused on M&A opportunities to drive top line growth as our primary capital allocation priority. Additionally, considering our elevated level of cash flow generation and recent valuation compression across the med tech sector, we plan to resume share repurchases this quarter.

And now I will discuss our full year 2026 guidance. Considering our year-to-date results, our presence in attractive end markets, largely supporting acute and emerging procedures and durable and for our capital products, we are narrowing our full year guidance and now expect organic net sales growth to be in the range of 8.3% to 9.3% and adjusted net earnings per share to be in the range of $14.95 to $15.10. Our full year sales guidance reflects a modestly positive pricing impact. Additionally, should rates hold near current levels, we anticipate a slightly favorable impact to both sales and earnings per share. With that, I will now open up the call for Q&A.

[Operator Instructions]. SP1 Our first question will come from Joanne Wuensch with Citibank.

I actually have a lot. I'm curious guidance -- the updated guidance, what your thought process was in narrowing it particularly lowering the top end of the range, which leads me to my second question of how you're thinking about revenue growth in the back half of the year? And then I'm just going to go really into this. EPS, you had a really nice beat in the quarter versus what we were looking for. but it doesn't look like it's flowing through for the full year guidance, and I'm curious why.

Joanne, I'll take the first part of your question and then the EPS question, and then I'll let Kevin jump in on how we're thinking about sales from a remainder of the year perspective. So from a top line guidance standpoint, really, we [indiscernible] you're done. Obviously, we're coming out of the cyber event that impacted Q1. We've seen the momentum in the recovery starting to come back in Q2. And we have a good ways to go in the second half in terms of continuing that momentum to deliver on the guidance range. And quite frankly, when we look at what's left to do with the rest of the year and where we are with our products and with the markets right now, we felt like it was a prudent range to be in the 83% to 9.3%, just looking at it in totality.

And so Kevin can talk a little bit about the revenue piece a little bit in just a second. Let me just address your EPS question. So from an EPS standpoint, when we look at the beat in the quarter, it is driven partially by the tariff refunds that are happening that happened in the quarter. But as a reminder, when we talked about the first quarter earnings, and those were obviously well below expectations driven by the cyber event. There are costs that are coming through from a cyber perspective, both lost absorption from manufacturing as well as our IT costs that we have that we're planning for as we come through the remediation that will offset that benefit. So when you look at it on a half year basis, it actually you can see those offsets already happening.

Yes. Related to your question about [indiscernible] and Joanne, to Preston's point, [indiscernible] is already done. As we look at the production that we have to -- just the building of all of the capital equipment that's required, we have the orders to really drive very high growth. It's just how fast can we actually make everything to deliver. I would say our ability to beat the top end would be hinging on two factors. One is the market would have to be strong in procedures. We expect it to be consistent. If it improves a little bit, that obviously gives us a tailwind. And then if we can ramp our products and including some of the new products that we're launching, ahead of what we're projecting right now, then that could cause us to actually raise on the top end.

But right now, this is the best visibility that we have with what we know now. Obviously, at the end of Q3, we will update our guidance and it can improve on a faster trajectory than we could look to maybe move it up. But at this point, this is the best visibility of that gap. And honestly, on a $25 billion business, growing at around the 9% range. It's still a pretty good year given that we were knocked out for almost an entire month.

Your next question will come from Robbie Marcus with JPMorgan.

Great. Two for me. One, Kevin, [indiscernible] whoever wants to take it. One of the things we're all trying to figure out is sort of what's underlying and what's catch-up from first quarter I know you had talked to some of the capital being more second half weighted. The quarter was in line with expectations with some puts and takes, vascular being one of them. Hips being another medical being on the plus side. How should we think about what's underlying and normal trend versus where you saw the recapture from first quarter? And if you're able to quantify anything, that would be helpful. And then I have a follow-up after.

Yes. So thanks, Robbie. As we talked about really in the first quarter call, ewe talked about the variability of the different businesses that we have. So it's hard to really pin down, okay, this is specifically the underlying versus catch-up. I mean there are some areas that, that was a little bit easier where there's just some catch-up revenue to book. I would say, for the most part, what we are seeing is we are seeing continued momentum across all of our businesses we see really strong demand for our capital products. Like that's the one where we'll see a more significant uptick.

In the second half of the year, based on what Kevin talked about earlier with production ramping and really getting ourselves back online to be able to produce at a faster rate to support the volumes that we have. So really, I'd say what you see really in the second quarter is primarily just the momentum of the underlying business primarily with a few other elements that are maybe coming into play here and there throughout that business.

Yes. The only thing I'd add, Robbie, is we always have variability in our quarters, just a range of businesses that we have. I would tell you, Peripheral Vascular was certainly not something we're expecting. Supply disruption was acute, and we took the pain. But overall, we hit the number that we were aiming for in the quarter because we had some outperformances in endoscopy and medical. And even within Medical, our bed business, we have tremendous number of orders that we have a big job to catch up to deliver.

So it actually wasn't a very strong performance in spite of Medical's overall terrific growth, and it's not because we don't have the demand. It's just because making that takes time, and we were out of production for a long period of time. So that's one particular product that we have a lot of catch-up to do. But so there's a lot of noise underneath these numbers, but overall, the business performed very well. The demand is still strong. And you're going to see a little bit of volatility across our businesses probably in Q3, Q4, but we feel good about the overall health of our businesses and they're going to recover at kind of different points of time. And even the procedures, right? Rescheduling procedures was very, very hard. No one's ever gone through at least this kind of an event that we went through. And so it has created a little bit of inconsistency across our businesses. But overall, for the full year, we're feeling really good about our business.

Great. And one quick follow-up. Kevin, one of the things everybody has been concerned about, you kind of touched on this, but I'd love a little more color. Just the backdrop of slowing or stable procedure volumes. We've had a lot of mixed data points and the current and future state of the CapEx environment. I'd love to get your thoughts on both of those.

Yes. Well, I think we've sort of talked about them in Nick's remarks. Look, we see the procedure environment is healthy. And in the businesses where we operate, we see us -- the demand for procedures is strong. It's healthy, it's stable. It's whatever word active you want to use. We don't see issues with the procedures that we are replay. And capital, I would say, is very. If I look at our back, we have an elevated backlog. We had a record month of Mako sales work. We're just not seeing any issues related to company equipment. We did see and we have commented on this even in the last quarter, a slight slowdown in Europe. Related to procedures, but certainly not in the United States and not in the other markets.

Our next question will come from Larry Biegelsen with Wells Fargo.

Kevin, just a follow-up on the revenue guidance. the organic growth needs to be about 11%, I think, in the second half to reach the midpoint of the guidance. So is there any more color you can provide on what's driving your confidence to be able to recapture the lost sales to achieve that and, of course, offset the vascular supply issue you had? And just remind us of why you expect more catch-up in the second half versus in the second quarter. I think that's just been a lingering question investors have had.

Listen, we lowered the bottom end of our range. That should give you some idea. We're not going to lower the bottom end of our -- sorry, base the bottom end of our sales guidance from 8% to 3%, right? So if you're raising that, that means you really don't see a risk of us being able to deliver at the lower end. And that raising is based on just tremendous orders for our capital. And that's just execution. All we have to do is make the products and ship the products. And we can see the production ramp now that our plants have been operating pretty consistently since April 1.

And so that visibility is very clear on the capital side. Even on the procedure side, so it's small capital, we do have orders for small capital. We have pretty good visibility into those orders and surgery schedules and our business is feeling really healthy. So that 11%, we feel very, very confident delivery. Otherwise, we wouldn't have raised the lower end of our sales cancer.

Any color just on how to think about the catch-up in Q3 versus Q4?

No. I think, again, like we said before, we're going to see that happening at different paces and different times. And part of it is, as Kevin said, the ramping up of production for those capital products that we can get those out the door. So I think you're going to see kind of a steady cadence across both.

Your next question will come from Ryan Zimmerman with BTIG.

Preston, you talked enough about the top line, I think, with the questions. But can you spend a little bit on margins and the EPS guide, particularly in the back half of the year. If I look at kind of how The Street is thinking about Q3 to Q4. What is it that's going to drive maybe lower EPS in fourth quarter, which is kind of what The Street is assuming to get to the guidance. Is there additional expenses that are needed? Is there a margin impact when you think about kind of the excess production that you're going to do that we need to consider? Just help us think through the cadence there. on the margin and P&L for the EPS guide?

Sure. So first of all, we are still committed to what we talked about last year, which is our 150 basis points over the course of 3 years. So that's still our commitment. I think we've demonstrated the ability over the last couple of years to drive op margin, and we're going to continue to do that. So the teams are fast working on continuing to find ways to get better from an efficiency and productivity standpoint. So that is the underlying kind of focus of the organization. We do have this year several larger moving parts. So obviously, with the cyber event, we have manufacturing shutdown for some period of time and say you lost absorption idle costs that are sitting there that we have to recover from.

We also have a lot of work ahead of us in terms of the remediation and stabilization from a cybersecurity perspective. So there's money that's going to be spent throughout the year to support those two activities that are really related to the cyber event itself. In addition, we know that there are some pressures on some different areas around oil and other raw materials that we're managing in this overall guide as well. That's offset by what I talked about before in the tariff refund piece of it. So we have a lot of moving parts. It's a lot of different items that are happening from a macro perspective that we're managing.

And so I think it's those elements that are still kind of what's left us with a little bit wider of a guide. On the EPS side. But at the same time, we feel really good about being able to fall in that range. And certainly, as Kevin mentioned before, as sales we're delivering, the more we can do and deliver on the top line, that will -- we expect that to fall through EPS as well as we go. So I think it's really just managing those big macro items throughout into the year is going to be what we're going to aggressively with.

Okay. Very helpful. And then, Kevin, one for you. We've seen physician reimbursement on large joint replacement come down over the last 10, 15 years, pretty steadily. But this year, Medicare like a pretty big swing as much as 20-plus percent on knees, hips, shoulders, et cetera. I'm just wondering if you have any thoughts on what the industry and the orthopedic industry is doing to maybe push back on this? Or whether you think this has any impact in future years on and hip replacement on the physician side?

Yes. Listen, we -- the proposed rules are always so there sticker shock, and this has been going on ever since I've been at Stryker for 15 years. We see the proposed rules come out they look, they create noise. And then the normal of course, of sort of everybody voicing their opinions and ends up getting to a reasonable place. And so I don't assume that it will be any different this time. What you are seeing, of course, is there are shifting a site of care with an orthopedic procedures, that is going to continue with that question. And frankly, Stryker, that's a good thing because we like the ASC as a place where we can win not just in hips and knees, but across our entire portfolio. And so that trend, I think, will continue related to reimbursement pressures.

But the demand for drug replacement procedures is unabated. Every day, 12,000 people at turning to 65. There's more and more people being active. So I don't see that changing that dynamic changing, and I think the physicians will do fine. They're needed and their voice will be earned.

Your next question will come from Travis Steed with Bank of America.

I wanted to push a little bit more on the U.S. ortho numbers, especially the U.S. type number. It's hard for us to see the underlying growth there. But it was a little lighter than I think some expected. I don't know if there's anything on share shifts for the market and U.S. [indiscernible] that kind of took some of the upside away this quarter?

Travis, in terms of U.S. hips, nothing that we would point to in terms of major share shifts or changes there. I think the one thing I would point out is, again, the delivery of the number this year was against a pretty large prior year comparable. So we had 8% growth last year in that space. So just -- it's really just a comparable. I think as we look at any of our numbers across Orthopedics, we always say one quarter doesn't make a trend. And so I think that's true here. So nothing major has changed in terms of anything that we've seen in underlying market conditions from a standpoint.

Okay. And maybe a little more color on the are supply disruption. What exactly happened? Is it just the Inari or other parts of vascular certain products? Does that -- is there a catch-up in Q3 assumed in the guide? Or is there some lingering impact you said manageable by the end of Q3. Just curious how it works out on the numbers for Q3.

Yes, the supply disruption. I'm not going to get into the details of what it was, but let's just say it did cause a significant back order specific to one plant in the Inari Business which frankly makes virtually most of the products other than the third-party product factor for us. So we had an issue with that plant. That's created the back order. The backorder is pretty elevated right now, and it will work down to a manageable level by the end of the quarter. We still -- we do expect the business to grow in Q3 and to grow in Q4, but it's going to take a little time for that to build.

So because of the backward situation. So we finally got the sales force stabilized. We're feeling really good about things, and then we had this hiccup. And that, unfortunately, when we do acquisitions, we felt this pain before. We've been with some of our other deals in the past and obviously moving in to our Stryker sales force and now [indiscernible] manufacturing systems that we have experienced this. We did this with Sage. It's happened to us with Mako, it's happened to us.

We don't obviously enjoy it, but we do love the market, and we do a lot of the products that they have, the pipeline that they have, and we'll be back and it will just take us a little bit of time to dig out from under this backward situation.

Your next question will come from Vik Chopra with BMO Capital Markets.

Kevin, you characterized the second half outlook as strong. I'm just curious what key assumptions are embedded in the back half regarding volume growth, capital conversion and backlog realization. And then I had a quick follow-up, please.

Vik, I'll take that one. In terms of the back half of the year, we're not going to give all the specifics in terms of what we're expecting across each one of those elements that you laid out. But what I can tell you is when we exited this quarter the momentum that we see really across the business. So even just from a procedural standpoint as well as the capital business. And when we look at the capital business, in particular, looking at the order book, looking at how strong that is.

I mentioned even some of the products that are driving it for medical, but we see that really across all of our capital businesses. And so it's really our ability to capitalize on that through the production ramp that Kevin is talking about is what gives us a lot of confidence in being able to deliver on the capital side. And the same thing on the procedural side, it's really just continuing to run the offense behind Mako on the joint replacement side, and obviously, the RPS hitting full launch as well. I think those are the things that we really believe in that are going to help drive both sides of those businesses.

Great. And then just for my follow-up, if you could just talk about the early feedback on RPS and how we should think about the ramp and impact in 2026?

Yes. Listen, we were in a limited launch for the second quarter, and the feedback has been really outstanding. It's really easy to use that surgeons really enjoy the experience, the haptics surprises them, frankly, how you can do that in a handheld robot. So we're getting really great feedback and now we're going to move on to full launch. There are -- there is a subset of surgeons that are not ready to move all the way to Mako who are only interested in doing total knees, especially in that this is going to be a beautiful fit for. We've already had some conversions, but it's been small for now, but we are planning to really ramp this up and excited about this.

Your next question will come from Matthew O'Brien with Piper Sandler.

Kevin or Preston, I hate to keep harping on this, this back half because I think everybody is really nervous now about your ability to hit the back half numbers. But you keep talking about this production ramp your facilities being able to meet this sizable ramp in the back half. I'm no manufacturing expert by any means. But are there any factors that potentially could impact your ability to make enough product? It seems like primarily in MedSurg to be able to deliver a significant ramp in Q3 and Q4. It seems like it's a little bit more even in Q3 that we're accustomed to being able to get to the full year guidance because I think that's what everybody is really worried about.

Yes. Listen, we're not worried. I mean the guidance that we're giving is based on what we know, we know how many ships to run. These are products that we -- they're not new products we're making. These are products that we know how to make and that we've made in the past. So based on adding shifts and being able to plan for this, we feel really comfortable with the guide that we're giving to you.

Obviously, we're going to try to make even more if we can. But we're setting the guidance in a place that we feel very comfortable being able to deliver. The orders are already there. So demand isn't the problem as it relates to capital equipment. It's really just being able to fulfill those demands. And could we have an issue here or there? It's always possible. We think we've accounted for that in the guidance that we provided. We have a habit of hitting the numbers that we provide to you and potentially beating the numbers that we provide to you. And this is no different when we give this guidance, it's -- we give this guy with great confidence in our team's ability to deliver that. These are businesses we know.

These are products that we know. Our plants are fully operational after the cyber event. And so we have added shifts here and there. Those ships are performing well. And based on that, we've laid out our for the

Got it. And then just a follow-up on Peripheral Vascular. I know you have the sales force in place and then have this hopefully short-term supply issue. That's base though, I mean those procedures that can be delayed. So I just want to hear a little bit more about your confidence in reenergizing and reaccelerating growth in that franchise getting through the supply issue? Do you think it's something where you could lose some share durably? Or is it something where you can recover based on your early experience with that business?

Yes, you're right. We did lose sales. I think I said that in my opening comments that we -- those are procedures you don't sell like capital equipment to. So we did lose business because those cases are emergent. We did prioritize our products. We had an allocation process as you can imagine. So we kept our highest volume, most loyal customers. We kept them happy. And then the customers that ordered sort of smaller amounts, and we let some of that business go because we had to. But we have a fully ramped up sales force, and that is something that we hadn't had in the past year. We've gone through a lot of turmoil with the signing of noncompetes and a lot of sales force turnover.

We now have a very stable and hungry sales force, and they're going back on offense. And as this backorder starts to come down, which is already starting to, I think we're going to be in geat position to recapture some of that business from those other accounts and actually fortify ourselves. So we're feeling pretty good about our ability to recover. We have great products in this business. We have a great brand in this business, and we'll be back.

Your next question will come from Vijay Kumar with Evercore ISI.

Kevin, I guess one on -- you get asked on capital deployment and M&A historically. We're curious given what the stock is, Kevin, and you guys just put up great numbers. Is there a bias towards share repo? I know you mentioned on the call, maybe talk about the opportunity that you see? And what's the size that we could think of from a share repo perspective?

Thanks, Vijay. As we look to think about our capital deployment strategy, I mean, really nothing major has changed. I mean the M&A continues to be our #1 priority and our plan is to continue to find those opportunities that are going to drive future growth. So that's first and foremost. What we have seen though, as we continue to grow and scale and continue to focus on delivering more efficient cash flows, it has given us the ability to try to return shareholder value in a few different ways.

And so as a result, that's why we're talking now about potentially going back and doing share buybacks. And so we are looking at doing some more. Some of that in the second half of this year, really focused on trying to just continue to use cash in a really efficient way. In terms of size and what that could look like, we do have already approved from a prior approval by the Board about $1 billion available for us. I'm not saying that's what we're going to do, but that's what we have available. And it's something that we are going to take a look at. It's going to really depend on deal flow and timing of that deal flow from an M&A standpoint as well as what the current valuation is of our share.

So those are going to be some of the elements to determine when we go out and do something and how much we do. But really, it doesn't -- that -- our focus and our #1 priority is not changing from M&A, but we will also supplement it with some share buybacks this year.

That's helpful. And Kevin, maybe one on backlog and orders. Any elongation of backlog or cancellations given some of these concerns from cautious comments from hospitals. If you could comment on backlog and order book, that would be helpful.

Yes. Look, as we mentioned earlier, we have an elevated backlog as we exited the quarter. We've seen 0 cancellations in our order books and our teams know how to deal with some slight delays when we now issues with manufacturing and our customers order a lot quite a bit in advance, we're able to meter that. But thus far, we haven't seen really any cancellations and feel really good about the capital business. And getting back to your first question on cash flow because you were one that looks to challenge us a lot, if I remember 10 years ago in cash flow. If you look at the amount of cash flow we generate now versus 6 years ago when we stopped doing share buybacks, we can now start to do some level of buybacks and still have a huge amount of firepower to do acquisitions.

So we still have a very, very robust pipeline of deals. We're very disciplined. So we will pass if the price isn't right on deals, but we are going to execute M&A. No question about it. But just given the sheer size of our cash flow we can also start to do opportunistically some share buybacks. And given where the price of our stock is, we're going to start to do that.

Your next question will come from Patrick Wood with UBS.

I'll just ask the two upfront, if I can. First one, it's an area that doesn't get a lot of questions, but curious about Smart Care and the smart hospital that you guys pushed out. Vocera is obviously growing very strongly in the background. How the feedback to that has been and vision for that. So that's -- that's one.

And then the second is, obviously, equipment business is very strong. I know that it's a slow tanker moving into the ASC that's been happening for a very long time and over years. But have you seen any pickup of that in late? It just looks from some of the data that we see that, that ASC volume shift seems to have picked up this year a little bit more. Curious if you're seeing that?

Yes. First, on SmartCare, I'm super excited about the creation of the business unit. It's a new business unit that started at the beginning of this year. The tech stack has been modernized, which took us a little bit of time. Everything is cloud-based. [indiscernible] was already modern [indiscernible] we had to kind of upgrade the tech stack. The orders were very strong in Smart Care. So we're expecting a really big second half of sales growth because the orders have really, really picked up since we've created the business unit integrated the tech stack.

We're getting great feedback from hospital customers, and I'm expecting a very strong second half of the year and future related to Smart Care. So bullish on Smart care. On the ASC trend, it's more of the same, honestly. It's just the limiting factor right now is construction of and that just takes time. But every single hospital system we talk to are looking at doing that. If you look at our F&E business, it's now in the high teens percent, pushing 20% of the procedures now being done in ASCs. And you remember before COVID, it was 5%. So that's a pretty significant ramp, but it's steady. It's not going to sort of inflect. I think it will just continue to be kind of on the current trajectory just based on construction of ASCs and or rebuilding and renovations, those things just take time.

And we get to be on the front end of those with our communications business with booms and lights and we actually help customers design ASCs with our architects and are part of our communications business in Dallas. So we have pretty good line of sight into the trend on ASCs. I think just steady growth. And now you're starting to hear even in Europe and other countries, they're starting to have an interest, and I think that PSC trend will actually start to pick up around the world as well. It's a very early day.

Your next question will come from Richard Newitter with Truist.

This is actually Ravi here for Rich. I want to pivot to IVL amplitude, maybe the TVN market. Could you talk about, I guess, timing of some of the clinical trials there and when you expect it to come to market? And then just overall, what's the market growth that you see kind of from a procedure perspective, I think you -- a couple of quarters ago, you said mid- to high teens. Is that still the case? And then just finally, one of the things that we've heard about IVL is that it brings pull through other kind of coronary products. So kind of given that hypothesis, how do we think about your desire to kind of build out that portfolio even more or even quicker than maybe FDA approval.

Yes. Okay. Well, thanks -- there's a lot in that question. So look, we're excited about the ABS acquisition. The first product, the IBL. The first indication is going to be above the knee and that will drop right into our peripheral vascular sales force. The feedback from our customers has been really positive. They love the method of action the way the product performs. At least from what they've heard and what they've seen, but one of those participating in the clinical trial. So we are -- we've submitted. We don't know when it will be approved, but there is a chance that we will start to be selling that product for the end of this year. We'll keep you posted as we hear from the FDA on that.

And we have commenced a trial on coronary indication that trial will take a little while. So we'll keep you posted on that, but it's certainly not something you can think about in the next 6 months to a year, it's going to take longer than that. And then as you know, we never just do one thing. When we buy something, as we've done with Inari follow-on with ABS. And we're going to -- we'll continue to look for other technologies to broaden the call point and the products that we serve those complex.

That's the Stryker offense. We've done that. You've seen us do that repeatedly with Neurovascular, we started with the Boston Scientific business, and then we quickly followed up with SURPASS Concentric. And so that's our office. So we will continue to do that. But these products kind of stand on their own. They're very -- it's a very compelling treatment area, huge demand. We'll start to size the demand and the opportunity as those products come to market rather than spend time today, but we're very excited about the technology. Feedback from surgeons has been incredible and looking forward to getting those on the market.

Your next question will come from Matt Taylor with Jefferies.

I guess I was hoping you could discuss the results in Q2 and the recovery going forward. In terms of the three buckets that you had talked about before was revenue recognition, some catch-up in procedures and then the capital that you've been talking about a lot on this call. So could you be specific at all in Q2 in terms of how much rev rec or procedural recovery helped? And then which of those buckets presumably the last two are going to contribute the most in the second half?

Yes. So as I mentioned before, really, the rev rec piece we would have seen, we didn't quantify that specifically. But certainly, that would have been a little -- a small piece of what happened in Q2. You're right. The last two buckets are the largest, particularly around the capital side of things. And so that you'll really see, as we talked about before, ramping in Q3 and Q4. So I would say we expect to see that.

We have not quantified any of those pieces, again, because across all our various businesses, it is a little bit different how they're all interacting. But the way probably to think about it is the rev rec piece is done and you really start to see the capital components of that and the rescheduling of procedures more so in Q3, Q4.

Your next question will come from Matthew Blackman with TD Cowen.

I've got two, both Inari related. I'll just throw them out upfront. Maybe just to start quickly, Preston, just hoping a little bit more color on the Inari supply shortfall. How much of an organic drag was it [indiscernible] that could have been 50 to 75 basis points. Is that sort of roughly the right ballpark as we think about the impact in the second quarter?

And then, Kevin, I was hoping you could give us a bigger picture state of the union on mechanical thrombectomy market. Maybe in 2 parts, what does the market look like today? It's harder for us to get a feel for the underlying market trajectory and there are a few cross currents. You have a supply headwind to work through your biggest competitors in the throws integration, they're emerging players coming. But there's also a bevy of supportive data out there and still coming.

And so the real question is, how do you think about a sustainable market growth rate over the next couple of years? And could that growth step higher over time? And then the quick follow-up there is, how do you position [indiscernible] and IVL when you have it later this year, perhaps at the peripheral vascular call point, is there an opportunity to cross-sell and are we under appreciating that aspect of these asset? Thank you and sorry for throwing that all out there at once.

Yes, that was a lot. I'll let Preston start, and then I'll finish.

I'll take the easy one. You're in the ballpark on the effect.

Financial fact stated is you're in the ballpark. Look, as it relates to the market, this is a market that has huge potential to grow. Kind of like if you think about neurovascular, the Mr. Clean study that happened kind of created a big step-up in the overall market demand. The equivalent of that is a peerless 2 study that we just finished enrolling patients just finished enrolling. It takes roughly a year to do the data readout on all the processing and everything. So that will come out kind of mid-next year. And I think that will lift the entire market because of the -- it's really a high-powered, very, very important clinical trial. That be most important. We have some other trials going on, but this is by far I would call it the seminal trial within Peripheral Vascular that will really hopefully blow the market open.

There are some new competitors. They tend to be more in just the aspiration kind of portion of the market, as you know, nor has a full suite of products, which includes a clot retriever as well as the floor retriever. And so it's by a full product portfolio. But I would say that that's going to be the biggest catalyst for the market to grow and we're looking forward to that data readout and that being published in the middle of next year. But meanwhile, the market is still a good market even today. Our problems are internal to us. We will get those problems resolved. We'll get back to that the double-digit growth as we rectify our supply chain challenges.

Your next question will come from Caitlin Roberts with Cannacord Genuity.

Maybe just two for me. On the innovation front, you called out some recent product launches earlier in the call. Just wondering if the manufacturing disruption has impacted the timing or pace of any of the recent up kind launches? And just some more color on RPS. What's the site mix been between ASCs versus hospitals? And has the converted been more existing Mako surgeons adding to their capabilities with RPS? Or have you been converting now to Stryker surgeons?

Yes. Listen, it's really early in the RPS days is what I would tell you. And we've done both hospitals as well as ASC, but it's been very early. We focused actually more on competitive users than we have existing Stryker users. That's been very intentional. And so that we're going to continue to push probably much more on the competitive front in the early days and then eventually obviously reach out to the Stryker servers. That's typically what we see.

As it relates to ramping new products, I would tell you that probably Triathlon Gold is the one that's just a little bit slower out of the gates than we would like, just because we lost production for a few weeks. But the demand for Triathlon Gold is very good, and we are ramping the production. But that's probably the one. Of course, if you should close your plans for a few months -- a few weeks, sorry, that's going to delay the ability to get sets out instruments and everything out as fast as you would like. But nothing in a material way. So we're really excited.

If I think about something like total ankle with PROPHECY, we didn't have the PROPHECY planning and guidance approved. So we were kind of on only in limited launch anyways. And so that production really wasn't hurt as much. So it kind of varies by product. But now that we have all our plants humming, we do have a lot of new products coming, scaling in the second half and in the case of Sonopet launching in the second half. And that's going to be an extra catalyst to help propel growth.

There are no further questions. I will turn the call over to Kevin Lobo for closing remarks.

Well, thank you all for joining our call. As you can see, we have definitely fought back from the cyber event delivered overall growth that was in line with what we planned. And we've narrowed our guidance where we feel like we can deliver a very strong year for Stryker, and we look forward to sharing our Q3 results with you in October. Thank you.

Everybody. Travis Steed, first presentation of the afternoon. Welcoming Stryker up. We have Spencer Stiles, President and COO; Jason Beach, VP and Group CFO. What's the division? Make sure I got the name right.

MedSurge & Neurotech.

MedSurge & NuroTech. Okay. And then Nick Mead, VP of IR, probably one of your first firesides.

[indiscernible].

All right. Good. Well, thanks, everybody, for joining us. Spencer, maybe first question for you. As you kind of moved into the COO role, and I'd say you probably have more influence on the Stryker strategy going forward. What do you think kind of changes? What are you doing differently in this kind of bigger picture strategy-wise for Stryker as you have more influence?

Super. First off, Travis, thanks for including us. It's been great, and I appreciate the question and the time today with everyone. So high level, nothing really will change. We still love our strategy about leading our markets with innovation, M&A, our specialized businesses that we run. That will still be foundational to our growth strategy in the future.

And our expectations will continue to lead at the high end of med tech and perform at the high end of med tech. So not a lot of day in and day out change. There's always things we're looking at, some more portfolio management, some of our prioritization of geographies on a regional basis, but a lot more of the same of how we win in the marketplace.

Okay. That's helpful. And going into the cyberattack, maybe first of all, what did you learn kind of as an organization, you got stronger on the other side?

Well, it's been an interesting first part of the year and stepping into this new job, I took over as January 1, and we've had all kinds of fun. We've had rotation out of med tech. We've had a cyber incident. It's -- it's off to a wild start. It's been really interesting to go through our cyber incident.

I don't wish it upon anybody. It was pretty significant, and it teaches you a lot about our organization and your response. But in good Stryker fashion, our resilience has been incredible, a testament both to our customers and our employees all over the world and sort of rallied behind this cause of getting our business back up and running. We were sort of out of manufacturing for a couple of weeks, on and off with some customers just for a handful of days and then fully operational, as we call it on April 1.

Thinking back maybe a couple of things we learned. One is the empathy from our customers and our customers trust in us and really the gratitude they showed and the support where they stood by us through this saying, how can we help? This is an attack on health care? How can we ensure that we're making sure we've got the right systems and protections in place. And so I think it's a good lesson for all of us just to think about ensuring we have the right investment and contingency plans if things happen like this.

Second, again, is just on the resiliency of our workforce and how we run our business in terms of goal setting, annualized targets, our high expectations we have for ourselves. If you're walking the hallways at Stryker today or you're at a hospital, some of the Stryker sales professionals and you ask them, how is it going? They're like, we're back to doing what we do best, winning in the marketplace, competing for our business, taking care of our customers.

And I credit the organization really being focused around the customer throughout this entire event. And that was probably the most important learning. And if this happens anyone else, keep that as your true north. And the rest of it, you can sort of figure out. So we're back up and running and really proud of where we're at today.

Okay. Helpful. And I guess if you think about the gap in Q1 from what you were expecting versus what you reported, I assume share was mostly kept share, so they probably didn't lose a lot of share, correct me if I'm wrong. Does all that revenue come back over the course of '26?

Yes. Generally, we think of this all of the '26 matter. It will phase over Q2, 3 and 4, depending on the business and the cycles that we have. As we kicked off January and February, our plans were in place, -- we just reaffirmed our full year guide on our earnings call, and we feel confident in that, mainly due to the incentive programs we have and the look that we have into our business in terms of the demand from the customer, both on the consumables, implants and on the capital. But generally, we remain very confident in that full year outlook and sort of the outlook that we have for the organization.

Did you put special incentives in place?

We didn't. Different than even in COVID. So when we were in COVID, it happened to all of us, we had sales professionals asking, "Hey, are you going to change something in the incentives? Are you going to change our expectations?" We haven't done any of that this time.

Another reason we have confidence in our full year and the outlook. We haven't needed to. There hasn't been a request. And our sales professionals and our service organizations, they're back to doing what they do each and every day with the expectation of delivering on their commitments.

Can you help us understand on the procedure side? There was a little bit of the revenue recognition timing and then just kind of how long it takes to get procedures rescheduled and how much should come in Q2 versus the second half?

Yes. We've described sort of 3 buckets of how we're sort of capturing the couple of weeks that the cyber incident impacted us. First was revenue recognition, the smallest portion, a lot of that is in Q2. Then we break it down to the other 2, the capital businesses, which is some made to order of production just building back up. And we've implemented third shifts, weekend shifts, some additional lines there. And then the other bucket is on the procedural side, both on the consumables and implantables.

Interestingly, on the timing, one might think that -- if your procedure is delayed, a total knee, for example, on March 22, you can reschedule for April 10, not so fast. Hospitals are fully optimized, at least they believe they are in their scheduling criteria. So you're getting the hospital schedule next as the doctor scheduled. They might only work Tuesdays and Thursdays in surgery. They're fully booked up for x amount of time. Then you have personal to patients schedule as well.

And you're bringing those 3 things together as you reput these surgeries on the schedule and on the books. And we've seen some of that in Q2, some of that in Q3 and some of that in Q4. So it sort of spreads throughout the full year. And interestingly, something like a total knee, although not ideal, you can live with that pain. It hurts, but you can push that out a couple of months as needed and still get that procedure done.

And then those kind of spreads kind of equally over Q2, 3 and 4?

Yes. It spreads variously depending on how we're seeing things. A little bit, it depends on the business. And if you capture all 3 of those, you'll see some different aspects. We're back-end loaded anyway we were in our original plans based on new product introductions. So we'll see that second half of the year accelerate growth. So we're comfortable with that. But again, I feel really good about the full year.

And on the capital side, just when you think about manufacturing and production, how much of that is the impact on the capital side versus kind of shipping?

It's a portion of it, but we're getting caught up. Maybe Nick, you can comment here. Nick comes from our beloved medical business, where we make beds. And Nick, maybe you can comment just what we've done at medical.

Sure. Yes. Spencer mentioned the additional shifts that we put in place. This is just one example of many across the company. But for our ProCuity bed, we have since activated our teams hired a third shift. We're in the process of training that third shift now. And by the end of the quarter, they'll be producing finished goods that will start flowing through in the back half of the year.

And Travis, throughout all that, we've seen the order book continue to grow and build. Our backlog continues to go up. So we continue to have that customer continuity through the entire time.

So you're going to have enough production to kind of meet all the demand for this year?

So yes, we feel really confident. A credit to our operations team, over the last handful of years, we really invested in our competency there as we think about our manufacturing strategy and manufacturing footprint, our best cost sites, our supply chain resiliency, our procurement, all of that is a much stronger organization today in Stryker and gives us confidence in our outlook for the full year.

And why can't capital kind of pick back up in Q2 more? And why is the capital kind of pushed more into the second half on the recovery there?

That's sort of how the plans were. Some of that is production that we're building up some of that capability right now. And when you think about even adding more capacity, you have to hire these people, you have to train them. They have to make sure they build the extra line. So some of that's built in. So that's why it drifts into Q3 and Q4 as well.

Okay. One question we've got a lot is, why did you guys just continue to reiterate the full year guide despite the cyberattack?

Yes. You're asking...

Yes. No. Why did you have the confidence or why did you decide to reiterate the full year guide versus to say, "Hey, the year?"

Yes, yes. A couple of reasons. One, we have line of sight to it. We understand this is the opportunity for it. The second, that confidence in those plans for the sales professionals, their incentives, their quotas, their goals, their targets for the year. They still have those all in place. We don't want to come off that at all. We believe that's our expectation. We have plenty of opportunity and the timing of this.

So this took place not in a great time in the quarter, the back end of the quarter, but it was still in the front side of the year. So there's a lot of the year left in front of us to ensure that we're putting all the right plans in place and we can capture back all that business.

And you gave off a range, obviously, for your guidance, as you always do, and full confidence in the high end of the range even...

Today, we give ourselves that entire range. We'll keep you posted as we learn more throughout the year, but that's part of the reason why we reiterated our guide in that range, knowing that we'll learn as we go throughout the year.

Okay, okay.

Travis, maybe just one other thing I'll add there just in terms of why do you reiterate coming off an event like the cyber event. I mean the reality is, as we've said, right, while material to the first quarter, we see it immaterial on the full year, right?

And so as Spencer said, as you stack up all the pluses and minuses, when it comes into thinking about the full year, feel really good about the full year guide, which is obviously why we reiterated.

And when you think about -- you typically build in some cushion on the full year guide. Are you -- is this using some of that cushion for the full year? Or are you kind of back fully in your whole plan?

I think right now, where we're at in the year, we're still working through that to understand what upside or any downside that might be in that guide for the full year.

Okay. That's helpful. I think the Street took out like 8.9% for Q2 on the revenue side. Is that kind of how you're seeing for the year?

We don't guide to the quarter. I would tell you that our plans as we think about Q2 coming even out of the incident, but even on the full year basis, we're right on track where we thought we'd be in Q2, and we're holding pretty strong and we call it sort of halfway through and feel really good about what our expectations were for Q2.

Yes. Just maybe just one thing to add there to Spencer's point, we don't guide to the quarter. I think some of the messaging that Spencer has already talked about, about the rev rec, the procedures, the capital, I think the Street has definitely listened in terms of how that phased approach is across the year. So feel good about where consensus is for Q2.

Okay. Anything else that's on the cybersecurity and cadence of the year on this topic that's come up today that you wanted to highlight?

Just a massive bit of gratitude to our organization and the customers for helping us get through this. Maybe as we studied best practices in benchmarking, Stryker did what it did. It performed extremely well. This recovery effort for the scale and scope of the white, as it's called, was sort of best-in-class. We're really proud of that, and we're chipping away and making sure we take care of our customers.

Okay. One kind of some macro stuff. ACA utilization, people are kind of worried about, is there an impact on procedures? Are you seeing anything? How -- what are you supposed to there?

We're really not. Starting in Jan and Feb before the cyber, we saw the volumes that we expected. We didn't see a lot of change. If you think of our portfolio and all the different products we sell, we have a great mix of products on a consumable implantable, all different type of coverage from commercial pay to Medicare and Medicaid.

And we really haven't seen a lot of shift at all in the volumes other than what we expected originally in terms of the outlook for the year, and that's still on track.

So kind of call the utilization environment fairly stable.

Fairly stable as far as we've seen across our business. Yes.

Yes. And then on the cost and the inflation side, there's been some inflation worries as well.

Yes. We've contemplated it throughout the year. Maybe a benefit, as I've described throughout some of our meetings this morning of the cyber event is we probably put a few controls in place a little earlier than the rest of the industry, since this happened to us in the early part of March. We slowed down some of our transactional costs, travel, hiring, things like this, just to be thoughtful, not knowing exactly where the cyber was going to go.

And as we hear more and more noise about the inflation, we're keeping track of it, fluid environment, we're watching it, but we haven't seen anything material to our business yet one way or the other. The other things we still have our controls on is on price. And so some of our businesses where we have price capabilities, we're making sure we're thinking about those and bringing those into the discussions with our customers. But we feel pretty good about our place right now, but we're monitoring the situation like everyone else.

On the inflation side, what -- where is your kind of exposure in all the resins, how much computer chips?

Yes. I think I'd describe it more on the supply chain of the chips, and that exposure is still sort of immaterial in our entire supply chain, less than 1% and even a smaller portion on the memory chips that you're hearing some of the demand. Even on the pricing side of those or the increase in the cost, it's not quite the same increase like it was back in '22 in the supply chain crisis.

So it's a little different. And we have some other things in our business that are favorable that are offsetting some of that in our discipline around the manufacturing excellence. I talked about and some other things. But...

When you think about 2022 versus now, if inflation does this gets worse or do you think you can respond faster or better than you did in '22 and why?

Mentioning back to this competency we've built in our supply chain, our procurement, our strategic thinking about this, ensuring we have line of sight, we think we can respond a lot faster. We're still going to prioritize customers and taking care of the customers much like we did in '22. But right now, we don't feel there's any exposure to our outlook that we provided to the Street.

And then pricing strategy, anything you call out on pricing?

Yes, the competency. So a modest improvement is how we described it at the beginning of the year, still on track for that. More of that comes from our MedSurg side of the businesses where we have a little more price control based off the product type and the portfolio we have there, a little less in the orthopedic side. But orthopedics has been stable. Mako really helps with that. Mako is a closed system, as you know. So that gives us some price protection and still provides a world-class clinical outcome.

So we feel pretty good about where we're at with price. The last thing I'd say on price is I think you've heard about our journey over the years of building this organization our customer solutions, which helps with our contracting across our entire portfolio, partnering with customers. We build pricing in discussions like this in those contracts. And so we have a lot more consistent approach with our customers and an opportunity there if things change to pass along some of that cost to our customers as well.

On the margin impact of the cybersecurity, how is that impacting margins? How much is excluded in non-GAAP versus included in the numbers we use?

Yes. There's certainly some element, as you know, that went non-GAAP. There's also elements like loss absorption that's running through the adjusted P&L, right? I think we'll probably get to tariffs here, but I'll just deal with it here really.

From a preview.

Yes, that's right. So if you rewind the clock on tariffs to January, right, we said it was roughly $400 million in the guide. As you know, since then, [indiscernible] as an example, has been invalidated.

So that's obviously created where you had, call it, a 15% baseline tariff now down to 10%. So that's created some good news to the guide, if you will, that is offsetting then some of these, I'll call them, pressures that came into the business as a result of the cyber event. Yes.

How do we think about the timing of all that over the course of Q2, 3 and 4?

Yes. So a big portion of it already happened behind us in Q1. And then there's -- in terms of the cost pressure side of the cyber event, then there's a little bit from an absorption side that will trickle through over the balance of the year. And then tariffs, I mean, obviously, it's extremely fluid. The 10% is in place today. We'll see what happens as we go through.

Do you get refunds on the tariffs?

So that's the other piece, public set up by the federal government, right? There is a refund process that we're obviously participating in as well.

And when did those set in a certain quarter?

Yes, we haven't obviously disclosed amount or timing, but I would expect it to be over the course of the year.

Okay. And then kind of when you look forward and assume there's not a major change in tariffs, just like we look into '27, is there any kind of -- is that a headwind, a tailwind? Any kind of puts and takes on '27?

Well, there's a lot to talk about for 2027. We'll talk about that in January of next year. So probably won't say a lot at this point about 1.7.

Fair. The margin 150 basis points over the LRP though, can you kind of walk through how that -- is there some years bigger or less or kind of how to think about that because I think that was over a CAGR and some of the drivers behind that?

You want to talk about the supply chain side?

Glad you asked. Yes, sure. So to your point, obviously, we said 150 basis points plus over the next 3 years. We've effectively held our guide this year as it relates to margin expansion. We've talked about a variety of things, I think, at our Investor Day in terms of operational excellence, I would call, that would play into that. There's certainly a level of OpEx leverage that we continue to get with our plans in a high-growth company, right? There's leverage that you get throughout the P&L and that, that plays into the margin expansion goals over the next 3 years.

Okay. That's helpful. And then on the capital backlog, I mean some of the hospitals talk about compressed budgets and worries about ACA and stuff like that. What -- it sounds like your capital backlog is really strong. Like just no signs of that slowing.

No signs of slowing at the moment. We've been really grateful for the customers' continuity with us and continue to show their demand. The orders continue to outpace the shipments that we had over the last couple of months, which is great to see. So we're building that backlog. We're adding this additional production capability. But right now, we've seen a relatively healthy CapEx environment.

How much is it like 6 months visibility that you have in the backlog?

You bet. It sort of depends by business. We have various cycles. Our communications business is an outlier. Sometimes it's even longer for new hospital builds, things like this, but some can be a couple of weeks up to a few months.

Okay. And then Mako, I don't think I recall we have you're putting up record Mako.

Record breaking.

Yes. What's going on in Mako and why?

We joke about it and say that at some point, we just have to say this is how we do it at Stryker, but we like saying it's record-breaking still. We did have another really strong quarter. I'd point us back in the pandemic when we were really aggressive in our strategy of getting more Mako into the market and in particular, our focus on teaching institutions.

This has led to more of the standard of care. So more and more people as they enter into their practices are asking to have this technology in their capability set, either the hospital or surgery center. So we're just seeing this ongoing demand and growth across Mako, which is very favorable for our implant business as well.

You also know, Travis, we added the Mako RPS, which is a smaller footprint, handheld with some robotic technology and a smart power tool. And still our premium product, Mako, but this fills a nice opportunity in the market, and that's all competitive focused right now as well. So that's been a really nice addition, and we launched an Academy, and it's hit the ground running right now.

How do you think about your robotic portfolio in ortho as some of the other competitors launch newer products in different kind of different directions and bigger portfolios?

Yes. The focus is still really on that clinical outcome. And can we provide this consistent, safe and effective intervention with the enabling technology with Mako? And the answer is yes, yes and yes. And so that's part of what makes Mako so attractive -- the surgeon that's operating at 8 in the morning is every bit as good and accurate and perfect in that case as they are at 8 at night, and they can do that over and over and extends longevity and how they provide their care as well.

So we really like our position in the marketplace with Mako. We continue to win competitive situations, when it comes up. And really, it's that focus still on that clinical outcome for those patients.

Think you've been in robotics, 12 years in orthopedics, if I remember correctly. How hard is it to run a robotics program in ortho, like we know in other areas, robotics is tough, but...

In ortho, it's tough. They're thirsty. It takes a lot of dedicated R&D investment. I would even argue looking back, it's a little easier to say. For some of those early years there as we focus in on the knee application, we actually moved some of the investment off the implants and put it solely on the robotics. So you probably starved a little bit the implants and we worked our way back.

Now you're seeing the benefit of that, things like Triathlon Gold, MSI and Cigna and the Hip. These are areas that we've caught back up on. And so we have a more balanced portfolio, but they're really difficult. They're demanding, you have to invest both in the hardware platform capability as well as in the applications. And once you build that competency, it's really hard to catch up with it because it's sort of embedded in how you operate and deliver your solution.

And then I guess, on the implant side, we've heard some competitors getting more aggressive on price and trying to take accounts. Are you seeing that in the market? How are you responding?

I would say no different than it normally is in a competitive environment. We haven't seen anything specifically. Orthopedics has been a very competitive space for a long, long time. And price is one factor that goes into the purchasing decision, but not the only one.

There's oftentimes we might win where we're actually charging more, but it's due to the service and the technology and other things that we provide in that scenario. So we haven't seen anything of note. We've had some of the same questions, but nothing that I would point to that we've seen any change in the pricing strategy.

And you established a new orthopedic tech business. What's the strategy behind that? And why?

We call it Ortho Tech. So this is the combination of our Mako organization, which we called MET and our orthopedic instruments. So think of traditional heavy-duty power tools and the personal protection. So Flyte helmet systems, our togas. We put those together all under our Orthopedics umbrella.

It was really important to bring the power of our power tools. We're developing the Mako RPS system with Mako at the same table. We wanted those leaders talking, thinking about how do we show up to the customer, understanding the customers' needs, meeting them where they're at. So we brought those together, and we actually think it's another great strategic differentiator for us. World category-leading power tools, world category-leading personal protection, world-leading category-leading enabling technology in Mako, Mako RPS.

Okay. That's helpful. When you think about the kind of the pipeline at Stryker, kind of the growth, a lot of that's in MedSurg probably, but what's -- you talked about cameras and stuff like that -- what's kind of the pipeline here at Stryker is going to tend to keep growing? Above your markets?

Yes. And we're really proud of the innovation cycles that we have in our business, the new product flow that's continuing to come as well as the M&A we've done over the last few years that creates organic growth for us year in and year out. And some of that's exposed us to new markets. And we have winners across all those different portions of our portfolio.

I'll highlight a couple. Think, for example, something like in our neurosurgical business, fast-growing brain surgery business, Sonopet 2. That's a next-generation ultrasonic aspirator, helping to remove of tumors from brain surgery. That second gen is coming out, best-in-class product, category leader. And we have an example like this across all of our different businesses.

IVS, one of our fastest growing, benefiting from the Vertos acquisition we did in 2025. That's the mild procedure, bringing phenomenal growth to the business. In orthopedics, Gold, the Hinge still is bringing a lot of new growth. Pangea recently cleared in Europe in trauma. Perform humeral and our upper extremities business. These are all new technologies that continue to drive and outperform the markets and their growth rates.

You've guys been pretty visible on saying M&A is a big strategy this year. Your balance sheet is in a really healthy place. But how should we think about M&A for Stryker in '26?

It remains our #1 use of cash, our top priority. We love our pipeline. Interesting environment, maybe a benefit of some of the rotation out as valuation shifts. So it just gives you another sort of portion of your thinking as you think of some of the companies and where they sit right now in the marketplace.

We've been active. We just closed on ABS, an extension in our peripheral vascular and [indiscernible] Stryker B.V. business and ABS giving us an IDL technology. And so we're really excited about that. But that's -- more of that will be on our horizon, a variety of tuck-ins, adjacencies. The same adjacencies we've been talking about from [ HIT ] to neuromodulation.

We do keep track of the STR space soft tissue robotics and sort of track that. It's not a must do, but obviously has significant growth, and we have some synergies that position appropriately. Women's health, urology, there's just a lot of really great markets still for us to grow our business in that we have some competency that we think we can bring the Stryker strategies too, that outperform and grow.

When you think about health care [ IT ], like there's a lot of opaque areas in that market. Can you help us understand like which direction you want to go in that market?

Yes. We call it Smart Care, the smart hospital. It's the bedrock. It's the combination of Vocera and CareAI. So you're bringing workflow technology and ambient visualization together. Really helping drive greater efficiencies, predictability, safety, take the burden off the care providers. But one of our great differentiators is taking a platform like that, that lives within the hospital and tying it to the operating room.

Our real estate in the operating room is second to none. When you think of you walk in an operating room, the lights, the table, all the products around it, it's all Stryker. And we want to connect that ecosystem and those platforms into the smart care and smart hospital, really defining and differentiating, sharing that data and providing that information for better care.

On the soft tissue robotics, you said it's not a must-have. How much is it a...

Nice to have.

Nice to have, yes.

Look, it's a fascinating market. There's a big incumbent there that's had a significant track record of success. You have to be really thoughtful about if you were to get in it, how you position a technology, what niche does it solve? -- what problem does it solve? Is there some connectivity or synergy that comes from being in Stryker.

So it's something we monitor. But again, it's not a must-have. It's something that we think that we know pieces of that market well, and we'll continue to stay close to it and watch for if there's an opportunity or not.

I mean I feel like Stryker has been saying 7, 8, 9, 10 years that you've been looking at 50-plus companies in that market. Is there a point where you have to make a decision, yes or no in this market?

I don't think there's ever a point in some of these. Innovation is a beautiful thing. There'll be new technologies, new differentiation. There are more winners than losers in that step that you just mentioned there, for sure. And so we're keeping track of that. But again, I don't want to say that if you don't do something now, there could be something else in 3 or 4 years that makes a lot of sense.

When you think about all the kind of categories that you've laid out, I think there are 5, 6 categories that you're thinking about from an M&A perspective, which of those are kind of must-haves?

Well, I don't think any of them are must-haves. They're all adding additional value to our portfolio we have today. This HIT space, we're in it, the cardiovascular space, which we just did this deal, we really like that. There's great pathology there, large population sets that have need, and there's amazing innovation.

So that's one we're going to continue to stay close to and build additional competency in that space. As I think about neuromodulation, a lot of different technologies out there, a lot of opportunities, but that would be another space that I think we prioritize that would be a great fit within our portfolio.

Is it more about kind of call point, the selling cycle of these assets? Or is it more about where the TAM and market growth and opportunity longer term? How do you kind of evaluate it?

A few things. We start with that call point. Is there a problem that we can help solve with a customer that we know well or a customer that we're connected to. Next priority is culture. Is it the right fit? Is it built the right way? Ethics is there an economic model? Third, does it drive value? Is there an opportunity to grow the business in the TAM? Does it increase your WAMGR over time, these type of things. But you don't want to do a deal just so beyond that. It has to fit these other buckets of fit and customer first.

You're seeing in your pipeline of deals that you look at kind of valuations and sellers being more realistic on valuations?

Some, some for sure. It's amazing I still talk to some that aren't. I have to remind them, look at the public markets right now in med tech. But yes, I think there are some for sure that the valuations have shifted, and it creates maybe an opportunity for a different discussion.

I don't know, Jason, Spencer anything else that you wanted to end with or we didn't touch on?

No. I just really appreciate you having us today. We're, again, grateful for all the support through the cyber incident, and we look forward to an impactful rest of the year.

Great. I promise to get you out on time. So...

Thanks so much.

Thank you.

Appreciate it. Thanks, everyone.

Welcome to the First Quarter 2026 Stryker Earnings Call. My name is Megan, and I'll be your operator for today's call. [Operator Instructions] This conference call is being recorded for replay purposes.

Before we begin, I would like to remind you that the discussions during this conference call will include forward-looking statements. Factors that could cause actual results to differ materially are discussed in the company's most recent filings with the SEC. Also, the discussions will include certain non-GAAP financial measures. Reconciliations to the most directly comparable GAAP financial measures can be found today in today's press conference release that is an exhibit to Stryker's current report on Form 8-K filed today with the SEC.

I will now turn the call over to Mr. Kevin Lobo, Chair and Executive Officer. You may proceed, sir.

Welcome to Stryker's First Quarter Earnings Call. Joining me today are Preston Wells, Stryker's CFO; and Jason Beach, Vice President of Investor Relations. Today's call will reflect a dynamic quarter. The cyber incident had a big impact on our results and affected each of our businesses differently given their varied go-to-market models and processes to record revenue. This resulted in distortions in our first quarter results that will normalize over the course of the year. Preston will provide additional color in his remarks, but this situation will not enable us to provide the normal level of detail or explanations that you are accustomed to hearing from us.

The incident occurred late in the quarter and resulted in a global disruption to our business operations. In partnership with third-party experts, our internal teams reacted quickly to remove the unauthorized party from our environment. We also began to work tirelessly to bring our systems back online to mitigate the disruption to our customers and the patients they serve. Patient care is our top priority. And we are incredibly thankful to our employees, customers, health care professionals and other partners for their continued trust. As of the week of April 1, we were fully operational across our global manufacturing network as we continue to meet demand and support patient care. We are proud of the resilience shown by our teams and partners during the recovery effort.

Now moving to financial results. For the first quarter, organic sales growth was 2.4% on a worldwide basis, 1.9% in the U.S. and 3.9% internationally. While our growth this quarter was meaningfully impacted by the cyber incident, we remain encouraged by the solid fundamentals in the markets we serve and remain well positioned within them. As a result, we are maintaining our full year guidance and look forward to another year of healthy performance in 2026.

On the M&A front, we recently announced the agreement to acquire Amplitude Vascular Systems that we expect to close in the second quarter. The acquisition of AVS will help expand treatment options for our peripheral vascular customers and is also a step toward expanding our presence in the broader cardiovascular space. Also, at the beginning of Q1, we established our new Ortho Tech business by combining the Mako and enabling technologies with the orthopedic instruments portfolio from our Instruments business to simplify the customer experience, accelerate innovation and increase our speed to market. This move aligns to units that serve orthopedic customers with products such as System 9 power tools, flight personal protection products, pulse lavage as well as Mako and enabling technologies.

Finally, I'd like to thank Jason for his last 4 years as Vice President of Finance and Investor Relations and wish him continued success as CFO of our MS&T Group. We look forward to Nick assuming the role of VP and Investor Relations on May 1.

With that, I will now turn the call over to Jason.

Thanks, Kevin. My comments today will focus on providing an update on the current procedural environment, select product highlights and reporting changes. As Kevin mentioned in his remarks, we are fully operational across our global manufacturing network and have provided information on our recovery efforts on our website and recent SEC filings. For today's call, inclusive of Q&A, our focus will remain on recovery and business performance.

Turning to the environment. Underlying demand across our businesses remained healthy in Q1, even as the cyber incident created operational disruption. Procedural volumes were solid, supported by favorable demographics and the continued adoption of robotic-assisted surgery. The hospital CapEx environment also remains steady and our capital order book remains elevated as we enter the remainder of the year. Additionally, we delivered our best ever Q1 for Mako installations both in the U.S. and internationally, with high and increasing utilization rates across the globe. We continue to expect sustained momentum from installations and utilization to drive growth in our joint replacement businesses. We also continue to receive ongoing positive feedback from surgeons on Mako Shoulder for which we anticipate fully launching on Mako 4 midyear.

Next, to reflect the launch of the OrthoTec business, we've updated our segment disclosures beginning with our first quarter earnings materials. Within the Orthopedic segment, OrthoTec results include our orthopedic instruments and Mako and enabling tech portfolios as well as other products such as bone cement. Additionally, the neuro cranial businesses are now reported together with the remaining Surgical Technologies portfolio under instruments. These changes align with our internal organizational structure, where we have presidents leading both our Orthotech and instruments businesses.

On our Investor Relations website, we've also provided additional information with our earnings release on segment quarterly revenues for 2023 through 2025 that reflects the changes I've discussed as if they had been effective for those years.

With that, I will now turn the call over to Preston.

Thanks, Jason. Detailed financial information has been provided in today's press release. Today, I will discuss key elements of our performance and provide color on several items that meaningfully impacted our results in the quarter, most notably the recent cyber incident. But before I go into our overall performance, let me start by saying we continue to see healthy demand across our businesses, and we are encouraged by the progress we are seeing as we head into the remainder of the year.

For the first quarter, organic sales growth was 2.4%. Pricing had a 0.3% favorable impact and foreign currency had a 1.6% favorable impact. This quarter had the same number of sales compared to the prior year. Adjusted earnings per share of $2.60 was down $0.24 or minus 8.5% from 2025. This decline was driven by limited sales growth and lost manufacturing absorption related to the cyber incident as well as tariffs and increased interest expense partially offset by our focus on operational excellence and a slightly favorable impact from foreign currency translation.

We have diverse businesses and the incident affected each of them differently. because their individual results this quarter are not indicative of the underlying market performance. I will not be going into detailed sales results by business. It is also important to note that the cyber incident occurred towards the end of the quarter creating an outsized impact on sales due to delays in revenue recognition in addition to the delayed shipments. As Kevin noted, patient care remains our top priority. From a sales standpoint, our U.S. and international markets maintained healthy demand trends throughout the quarter despite overall sales growth being constrained by the cyber incident. Differences in the impact of the incident across our businesses primarily reflect their varied operating models and go-to-market strategies. Certain businesses such as acute care and emergency care within Medical are more heavily weighted towards capital equipment such as beds, stretchers and defibrillators, which can be made to order and have longer fulfillment cycles.

Other businesses are more focused on recurring consumables such as disposable waste management products that are replenished regularly and tend to demonstrate greater demand resilience. The degree of the disruption also varied based on inventory levels and constructures including the extent to which products are held locally at customer sites versus centrally within our supply chain. In addition, differences in supply chain and manufacturing complexity sourcing flexibility and logistics requirements influence how quickly the business can adapt to the disruption. Finally, procedural dynamics also affected the degree of the incidents impact. Businesses supporting procedures that could be deferred or rescheduled such as hips and knees experience different timing effects compared to those supporting more urgent or nondeferrable procedures, such as trauma and vascular, resulting in variability in both near-term volume and revenue recognition across the portfolio.

Turning to the Middle East. The conflict has had a modest effect on our international growth for the quarter. However, the impact on our overall results was limited. Despite persistent geopolitical risks, we continue to see meaningful opportunities for long-term growth in countries like Saudi Arabia as well as other markets within the region.

Now I will focus on certain operating and nonoperating items in the quarter. Our adjusted gross margin of 63.6% was 190 basis points lower than the first quarter of 2025 reflecting the impact of lost manufacturing absorption from production shutdowns due to the cyber incident as well as the impact of tariffs. As a reminder, there were no incremental tariff impacts in the first quarter of 2025. Our adjusted operating margin was 21.1% of sales, which was 180 basis points lower than the first quarter of 2025, driven by the gross margin pressure I previously discussed. And the deleveraging impact of lower sales growth on operating expenses, partially offset by continued cost discipline and our focus on operational excellence.

Adjusted other income and expense of $97 million was $24 million higher than 2025 due to higher interest expense from debt issued in 2025 to help fund the acquisition of [indiscernible] as well as lower interest income from a combination of lower average cash balances and lower interest rates. We continue to expect our full year 2026 adjusted other income and expense to be approximately $420 million. The first quarter had an adjusted effective tax rate of 14.5%, reflecting the impact of geographic mix and certain discrete tax items. For 2026, we continue to expect our full year effective tax rate to be in the range of 15% to 16%.

Turning to cash flow. Our year-to-date cash from operations was $581 million reflecting the result of normal quarter seasonal cash outflows and the cyber incident impact on net earnings and working capital, including inventories and the timing of receivables.

And now I will discuss our full year 2026 guidance. Despite the disruption we experienced this quarter, we are maintaining our full year guidance. Given our presence in attractive end markets, healthy procedural volumes and strong demand for our capital products, we continue to expect organic net sales growth to be in the range of 8% to 9.5% and adjusted net earnings per share to be in the range of $14.90 to $15.10. We expect most of the first quarter's lost sales to be realized throughout the rest of the year with the timing and magnitude, reflecting the different product types and operating models we have across our portfolio.

In limited cases involving emergent or nonelective care, we expect to offset any permanently lost sales through the strength of our continued commercial execution. And while we don't provide quarterly guidance, the cadence of our sales momentum that occurs through the rest of the year, is expected to reflect the catch-up of revenue recognition in Q2 while the receding of certain delayed procedures and the fulfillment of customer orders impacted by production shutdowns will be delayed into the second half of the year.

Our full year sales guidance reflects a modestly positive pricing impact. Additionally, should rates hold near current levels, we anticipate a slightly favorable impact to both sales and earnings per share. Our full year adjusted earnings per share guidance reflects our expected sales recovery, our continued focus on operational excellence and some anticipated improvements in the tariff outlook.

Before I wrap up, I would like to reiterate that we are incredibly grateful for the continued trust and partnership from our employees, customers and health care professionals throughout the past several weeks. Patient care remains our highest priority with a continued focus on supporting health care providers and the patients they serve.

With that, I will now open up the call for Q&A.

[Operator Instructions] Our first question will come from Robbie Marcus with JPMorgan.

Great. I imagine this was probably a busier last quarter as IR, Jason, but we'll miss you. I wanted to ask just on sort of the cadence through the rest of the year and how you're thinking about the updated guidance. I think it's pretty fantastic despite the disruption you were able to reiterate the top and bottom line for the full year. I guess, any more specific color on how we should think about the recovery in sales just given how much of a wild card it is and the variability quarter-to-quarter versus Street numbers? And then also one of the discussions with investors is how much of the guide was -- how much of the upside was removed to be able to reiterate the guide or is this still the typical Stryker philosophy that you think you'll get almost all of it back and there's still the potential for upside?

Thanks for the question. As you can imagine, you're right, it was definitely a pretty big event, especially as we ended the quarter and certainly having that disruption so late in the quarter did cause the numbers that you're seeing. In terms of how we think about the rest of the year, as I mentioned in my prepared remarks, it depends if we have a lot of variability across our business with the different operating models that we have and how they essentially serve the customers that we support. And so when we think about areas like Orthopenix, for example, we know we had procedures that continued, but we do have revenue recognition items that will be caught up in the second half of the year. .

In the case where we had some instances where some of the cases got deferred or need to be rescheduled given where the scheduling is for those products today, we know that, that will happen, but it will probably happen not all in Q2, it will probably bleed into Q3 and Q4 for those. Similarly, when we have some of our products that I mentioned that are made to order where we had production down for a bit of time. And so getting those back into the schedule, getting those products made, that will happen probably in the back half of the year rather than in Q2. So we'll see some recovery in the second quarter, and then we'll really see some additional recovery as well as what we would normally see in our Q3 and Q4 kind of seasonality happening in the back half of the year. So that's how we're thinking about the cadence.

As you know, we don't provide exact guidance on our quarters, and so that's really how I would frame it for you. In terms of the overall guidance itself on an annual basis and the upside, et cetera, Look, I think at this point, just getting to the numbers of reconfirming our guidance from where we are, we feel really good about that. And so we're going to really move into those numbers as we get through second quarter and as we get through second quarter and have our results there. We'll take a look at where we are, again, on a full year basis and provide an update at that point in time.

Your next question will come from Larry Biegelson with Wells Fargo.

Congrats, Jason, on the new opportunity there. So I guess the same question as Robbie. Maybe on the margins -- this year, I'm sure that changes the cadence, the recovery here? And do you still expect operating margin to be up about 50 basis -- 50 basis points year-over-year this year? And I have one follow-up.

Yes. So Larry, I guess I would tell you from a full year perspective, nothing has changed. If we think about what our guidance is and what our expectations were for the year. There's not a change in even those margin expectations off of what we set from the year -- the 3-year window that we gave, the 150 plus. And so we're going to continue to expect a living in that. Now you're right, in terms of how we're going to see that play out, it might change slightly quarter-over-quarter for this year. As a reminder, we do have some headwinds on that margin in the first and second quarter, just given where some of the tariffs are coming in versus last year. And we've talked about that before. But really, from a full year standpoint, given that we've reconfirmed where our guidance is, we don't expect much of a change overall in terms of what our margin performance will be for the year.

That's helpful. And just for my follow-up, Preston, there's been a lot of noise around inflation, higher oil cost, et cetera, memory -- 50 basis point increase in operating margin is still the guidance. So how are you mitigating these higher input costs?

Yes. Thanks, Lawrence. So you find out a little bit, but I think you're asking particularly about some of just the higher input costs as a result of maybe the oil and other inflationary. So we are expecting that we will see some level of pressure just coming out of some of the geopolitical items that are happening and events that are happening across the world. And as a result, we do expect that there will be some level of pressure on some of our input costs. But we have -- our procurement team is actively working right now in terms of trying to mitigate those where necessary or what we can. And certainly, we have contracts that are in place to help us do that a little bit in terms of mitigating some of those input costs as we go forward. So that's something that's factored into our guidance as we have it right now. And so we anticipate, based on what we know today, to be able to absorb those input costs that are rising as we see them right now. .

Your next question will come from Joanne Wuensch with Citi.

Jason, best of luck. I'm curious of what you're seeing competitively in the market at this stage. I mean there's a lot happening not just given the cyber issue for Stryker in the first quarter, but also another orthopedic company looking to be spun another company reorganizing its sales force. Can you just sort of give us a lay of the land of what you're actually seeing out there as market absorbs the shifts?

Joanne, this is Kevin. So I'm assuming you're talking about the orthopedic marketplace. And what we would say there is we love our position as market leaders in robotics. And you can see with Mako 4 getting a huge uptake in that tremendous excitement about that in addition to shoulder being launched on Mako 4 midyear. The feedback is great on that. We have the Mako RPS, the handheld early stage. We haven't had much in the way of revenue, but getting great feedback from customers, and so that will pick up in the second half of the year. We also have, obviously, the launch of Triumph on gold, our medial stabilized inserts. So there's just a lot of momentum that we have.

And regardless of competitive actions are occurring. We're really not seeing that take away from customer interest in Stryker, our leading position. And if you look at our full year guidance that we reaffirmed that assumes we will continue to outgrow the orthopedic marketplace by 200 to 300 basis points, just as we have in the last few years. So really no change in the end markets. And if anything, probably a bit of an acceleration towards the end of the year with those 3 launches that are more back half loaded.

Your next question will come from Ryan Zimmerman with BTIG.

Jason, echo the congrats. On the health of your customer base, I'm wondering if you could talk a little bit about the dynamics in the hospital market right now. I appreciate that you guys were under very extending circumstances this past quarter. But some of that pause in orders, I'm wondering if you kind of parse out between what is your ability to serve the market versus what may or may not be changes in demand and just kind of how you think about those two dynamics interplane particularly as it relates to your capital business?

Yes. First thing I would say is we did not see a positive worse, we definitely had a pause in shipments because we obviously couldn't make product for almost 3 weeks. And so we were not able to ship the capital equipment that we normally would ship. But we have a very healthy order book. There's no new dynamic in Q1. There's no way we'd be reaffirming our full year guidance if we suddenly felt there was some kind of slowdown in orders. So possible still have healthy balance sheets. They have a strong interest in our products. Mako again had a record Q1, it would have been even higher had we been able to continue to ship through the end of the first quarter. So no, we're not seeing any slowdown in orders. And our hospital environment is still very stable.

Very helpful, Kevin. And if I could ask about M&A for a minute here. And if you look at the M&A contribution to top line growth, they've come down a bit, I guess, over the last few years, particularly as we think about fourth quarter '25 and in the first quarter in '26. Historically, M&A has contributed closer to 18% to 20% to your growth. And so given your comments at AOS and kind of where the net debt to EBITDA sits right now, your eagerness to deploy capital. I guess, what is holding you back or what isn't holding you back, I guess, to reaccelerate M&A as a contributor to Stryker's top line growth?

Great question. And I can tell you, we're very excited about the deal pipeline, and we're excited about our cash position, being at sort of ending the quarter at 2.1 gross debt to definitely means we have firepower to do more acquisitions. You obviously heard about AVS, which we're very excited about for Peripheral Vascular, but we have a good pipeline, and you should expect us to be active in M&A going through the end of this year and into next year. .

Your next question will come from Travis Steed with Bank of America Global Research.

Maybe one on amplitude and the bill you did there. And I think I'd ask it kind of higher level. So we rarely see you by kind of pre-commercial excellences to the Stryker strategy. But does this still kind of signal that maybe you're willing to take on more risk to grow revenue now that your base is over $20-plus billion? And should we kind of expect more earlier stage deals going forward?

Yes. It's not really related to the size of our company. It's the nature of the business. So if you look at these PMA type products in Peripheral Vascular, this space sometimes requires early-stage investment. That's been the case for us in neurovascular. And in this case, we're not long away from an approval in the PV space, right? So we might actually be able to sell this product before the end of this year based on the filing of their submission. And so this is not pre-revenue years away from launch. Now obviously, we'll pursue other indications in addition to above the knee indications. And so this is a pipeline that will live on for many years to come. But we're -- it's pretty close. We know the technology. We've assessed the technology. We think it's very differentiated. And obviously, IVL is a very exciting space, and we're excited to be embracing that.

So it's more related to the type of business than the size of our company. And as you've seen in the past, we're not afraid to take risks if we believe we're going to have value-creating deals, and this is one where we feel very confident.

Your next question will come from David Roman with Goldman Sachs.

Maybe we could start on Nari. I think we're just around a year into anniversarying the acquisition. It looks like a lot of the commercial and sales force challenges had already faded behind you exiting 2025. Maybe you could give us an update on how you're thinking about that business on a go-forward basis here, especially given a pending acquisition in the space and what opportunities that may provide for you to further hit the accelerator?

Yes. Look, we're very excited about the space. We're excited about the company. We've made the management changes that we normally do when we do an acquisition, putting in Stryker people in charge of some parts of the business, bringing our commercial offense to bear. We wouldn't be doing the AVS deal if we didn't feel very strongly about this business. And that's going to be a turbo booster because that will be, again, in the same call point with the same physicians doing those procedures. So we love the space. There's a huge market potential growth that a lot of people that are not being treated today that can be treated. .

And as I said when we did the deal the first time, we're not a one and done kind of company. We're going to continue to look for ways to increase the pace of innovation in the business with either internally developed products or products through acquisitions. So we -- obviously, it's been a challenging first year as you go through all the attrition and you strikerize the sales force, and that's mostly behind us now. So we're looking for clear ceiling in the years ahead.

That's great. And maybe just a follow-up on international. I know it's been an area you've continued to highlight over a long period of time and at the analyst meeting that you had in November and appreciating that results do bounce around quarter-to-quarter. But it does look like you've reaccelerated your relative performance versus peers, especially orthopedics and markets outside the U.S. Is there anything specific to call out there as you look at just the spread between your performance versus others, does look to be widening here as we start the year? And any color you could provide there? I don't know if it's a product launch or a specific geography related or just a culmination of some of those efforts that have been in play for a while.

It's really probably more of a culmination of these efforts that have been playing out. As you know, from 2016 to, let's say, 2023, Europe was the biggest contributor to our international strength. More recently, we've seen Japan come on and really perform it at a very, very high level, and that's our second largest country outside of the United States with which is experiencing tremendous growth, certainly last year. Again, we're going to see that again this year. And we're starting to now get some of the approvals of the great product pipeline that we've been launching in the United States over the past few years. Just recently, we received approval of Pangea in Europe. Obviously, not the best timing when you have production shut for a period of time, but we are going to start to ramp up production of Pangea, and that will start to have an impact in Europe towards the back half of this year and certainly into next year.

So it's really the innovation that we have and the commercial model that we've put in place, places like India are accelerating East Asia, Korea. So it's been a combination of a lot of efforts over a long period of time. We still have a lot of scope for improvement. Middle East is a good example. Obviously, a tough time over there now. But if you think about Saudi Arabia, that's going to be a very big market for us. And we still have work to do in Latin America. I'm pleased with the management we have in place. We have a path to improve that business. Products like Mako and our Fluorescence Imaging are really starting to take off these markets.

So I would say, the last 3, 4 years, you've seen we are double-digit growth in international or high single digits depending on the cadence. But international still is a huge growth engine for Stryker. There are a lot of market shares that are below where they should be, and we're getting after.

Your next question will come from Matthew O'Brien with Piper Sandler.

This is Samantha on for Matt. I guess I just want to go back and touch on the cyber attack real quick. I know you mentioned how it impacts the different businesses differently. And I was hoping you could speak to just how it could impact med-surg versus ortho differently and the cadence of that throughout the year?

Yes, certainly. So in our orthopedic businesses, where we have a lot of -- most of those businesses have consigned inventory. So in many cases, that inventory is located at the hospital. And so those cases we're able to proceed as almost normal in many instances. As a result of that, the procedure happened. But given the fact that our systems were down, we had some revenue recognition activities that still need to be performed. So some of those activities and revenues that are going to get pushed in the second quarter. As I mentioned before, where we had to defer some of those procedures and reschedule those surgeries, those will happen probably throughout the rest of the next 3 quarters, not necessarily all in second quarter.

On the MedSurge side, you had some different impacts just given the fact that some of that business is. A lot of that business is capital related. In some cases, it's make the order and the make-to-order items certainly are going to get deferred until later into the year. Given the fact that production was down, and so we had to bring production back up and then get those items back into the scheduling from a production standpoint. In other cases where we had items that just needed to be shipped and just getting those items shipped through our network is going to take some time.

So really, we expect to see, again, like I mentioned, some recovery in the second quarter primarily as it relates to revenue recognition in some of those areas. And then really in the back half of the year is where we would expect to see the rest of the recovery based on delays in rescheduling or even just laying some of the production as a result of the shutdown that was happening -- that happened in the first quarter.

And the way to think about that in terms of the MedSurge side of the business is endo and medical are more capital-intensive than, let's say, instruments. So you would expect more of their recovery to occur in Q3 and Q4 as opposed to Q2.

Perfect. And then I also just wanted to touch on [indiscernible]. And wondering about the room for continued rapid growth there. I know you touched on international, just any more thoughts on the runway for those products?

Yes. Listen, I'm really excited about both of those. We know there are winners. Pangea has been -- has driven explosive growth in our trauma business in the U.S. We have approval in Japan that's starting to take off there and just literally a week or 2 ago, received approval in Europe, a little bit ahead of schedule, to be honest. So we're really excited about that. It's a phenomenal platform that is going to drive above market growth without question. And our European team is super excited. We just have to make the product as fast as we can. They're very complex kits. And as you know with these big orthopedic launches, they take many quarters to be fully launched. So we're going to have this tailwind and the tail will last well into '27 and '28.

But really excited about Pagan Light Pack, we know is a fantastic product as well, and we now have that approved in Europe as well as the United States. I think most markets around the world, LifePak is approved. Again, production was slowed and so we have to reramp production on like 35, but it's a great product and still has many, many years. That will be we'll be talking about that as a new product 5 years from now because of the replacement cycle is so long on these different layers.

Your next question will come from Matt Miksic with Barclays.

And I would say everything that happens in the last 8 weeks or so, obviously, it must have been difficult to get through, but it's great just to be kind of the focus on customers focused on patients and all the communications and I'm sure a lot of hustle that sort of get things together, so congrats on getting through it, at least at this point.

So I wanted to ask one question around the consolidation of the of tech businesses in orthopedics, makes a lot of sense. I mean, Mako-pull-through implants, power pull-through blades and service support revenue and so on. Wondering if you could give us a sense of maybe as those things move into one line, round numbers, what kind of the recurring revenue aspect of that for that capital. I'm assuming that part of that is going to be blades in service. Just one sense of how much of that is recurring? And then I have 1 follow-up.

Matt, so in that line item, I think you have all the different parts, certainly. The 1 item that doesn't flow into that line, there's no pull-through of the knee number into that OrthoTec line that the knee number will stay separate on its own line item. The other items that you mentioned will all be a part of that. We're not breaking out the specific components of each of our different businesses. I think if you just go back and just think about the overall mix of our capital, large and small capital as part of our overall business, that has remained relatively the same as what we've said in the past. And so again, just to think about the entirety of our business along those lines. But those other elements that you called out Orthotec. That's right, you'll see both the capital elements the orthopedic instruments business flowing through there as well as some of the pull-through items and then also we'll be in that number as well.

Okay. And then on some of the new product launches like RPS, made a pretty big splash at AOS. Maybe just an update as to what that early traction looks like, how it's either complementing deals, contracts on the Mako side or what the independent growth looks like if that's being pulled more into an ASC channel? Or just anything that you've seen so far in the launch would be great.

Yes. Listen, it's still a bit early, but what I'd tell you is we're getting tremendous feedback from customers that felt that the move all the way to Mako was a bit too big of a leap. For now, it seems like ASC has been a bit of a sweet spot. Again, that's early. I'm not saying we're going to limit this at all to just the ASC. But the actual transition to RPS is much easier for surgeon and going all the way to make up in terms of how you do the procedure. It's just very, very easy to adopt. And there were some competitive surgeons that felt that they really like the idea of going to a robotic solution obviously, with haptic boundaries.

But just the move all the way to make was just a little bit too intimidating. And they're -- we're receiving great feedback. As they tried this, we're really in a very, very active phase of trialing and getting our customers to actually try the product, they really can't believe how well it performs. So we're getting great feedback on it. And it will be a really great product that will be, frankly, additional. It's not slowing down any of our Mako momentum, it's really going after a set of customers that we would have just left to the sideline prior who see this as something that can move them from manual power tools into robotics.

Your next question will come from Mike Matson with Needham & Company.

I just had a few more on the Amplitude Vascular acquisition. So when you closed the deals, the idea that, that would -- those products once they're proved thing largely be sold through the Inari sales team? And then is that kind of going to be the approach as you to acquire more peripheral and potentially coronary products. It will just continue to kind of feed them through that sales force? Or would you have a separate sales team for IVL ?

Well, I think initially, given that it's the same call point that will be -- it will be run through the Peripheral Vascular sales force. Is there a chance that we could add additional sales reps?

Sure. Of course. But as that technology gains further indications or as we do additional indications or new acquisitions, depending how broad the applications are and how broad the sales forces are specialization down the line is not something we would rule out. But certainly, we're a long way from that right now.

Okay. And then do you happen to know the expected timing on FDA approval for both peripheral and coronary indications for their product and where they're taking with the trials?

I guess yes. Sorry, it's Jason. Just given the fact that the transaction is not closed at this point, we won't comment much further at this point. But once we get to that point, obviously, we'll expand on that. .

Your next question will come from Vijay Kumar with Evercore.

Kevin, maybe 1 for you on big picture M&A. I think there's been some questions around softisboutic. I know you made some comments in the past -- but as you look at the landscape, sort of how are you looking at product versus channel play within software see robotics?

I'm sorry, I don't really understand quite product versus channel player. I'm not sure I understand .

A product company versus more perhaps an instrument consumable kind of play remanufacturing, et cetera?

Oh, I see, somewhat reprocessed. Yes. Listen, the reprocessing business, it sort of stands on its own and they'll look for any opportunity to provide products that create value for the customers. There was 1 company that had that approved we have not pursued that indication yet. We have a pretty good portfolio within our sustainability solutions business. When we talk about soft tissue robotics as an adjacency for Stryker, we're looking at actually getting into the business of soft tissue robotics. There are as you probably know, at least 50 start-up companies at all different stages that are pursuing indications that some of them have FDA approval already. We are evaluating all of those companies if we believe that we can find a company that could be successful, it could be value creating for Stryker and then we would pursue that.

It's one of the many adjacencies that I've pointed out. One was Peripheral Vascular, where we actually did an acquisition we're in just the evaluation stage and not predicting that we will do it, but it's one area that we like, it's an interesting space. But it's not for the faint of heart, right? These are not easy. As you've seen with other people who have tried to enter the market, it's not easy, something that we're -- but certainly, all of the different adjacencies, none of them we have to do, soft issue is a good example. We don't have to do it. We're not defending any business. But if we do it, we'll feel very confident that we'll create value from.

That's very helpful. Maybe, Preston, one for you. And I don't know if you've answered this, but how are you thinking about margin cadence? I know you've reiterated the guidance, but it would be helpful if you can give some guide points on the margin cadence.

Yes. So Vijay, I just want to tell you that from a margin standpoint, again, full year, no different than where we were when we started and gave our initial guide that we would expect to deliver on a full year basis. Certainly, we've had a little bit of a hiccup in the first quarter as a result of the cyber incident, but we expect fully to recover over the next 3 quarters in terms of achieving that number. I wouldn't expect any outsized kind of margin component in 1 quarter versus the other. But we will continue to work on delivery through those channels that we've talked about our operational excellence and manufacturing supply chain focus and pricing really be the drivers over the year. .

Your next question will come from Matt Taylor with Jefferies.

All right. This is Yang Lee from Matt. I guess one more on the cyber incident. Just on sort of getting manufacturing back to normal, I think by early April, you are back to that. How long does it take for you guys to sort of restock inventories and get enough products back in the field so that your reps can get back to often?

Yes. So you're right. We got things back on track at the beginning of the month here in April. And really, as soon as we're back on track, manufacturing is back up and going. It's not that we were completely depleted across our whole portfolio of business. As I mentioned before, we have areas like orthopedics, which we have a lot of inventory that's in the field, much of that is already at the customer location. That flows a little bit more seamlessly in terms of getting production back online and getting product replenished out into the field. And then ultimately to the customer.

Similarly, with many of our disposable businesses, those are held at distributors in many cases. So that was also able to flow pretty regularly. Really, it's going to be on some of the MedSurg products where we have make the orders. As I mentioned before, that will take some time. And a lot of it is just not in getting production ramp back up and going. It's really getting those products rescheduled back in so that we can put them back into the program and actually get them produced and made for those specific orders. Our expectation, as I mentioned before, is that we will do that throughout the rest of the year. And so you'll see that recovery particularly on the MedSurg products that are capital driven in really the third and fourth quarter.

Great. Very helpful. I guess maybe one more on Mako Shoulders. It seems like the early feedback so far is pretty positive. Can you maybe level set us on the ramp expectations as well as maybe some color on the health of the shoulder market. If you saw enough data points so far. .

Yes, this is Jason. A couple of comments here. I'd say first off, on the market continues to be a very strong market for us. It's a business that quarter after quarter, maybe Q1 aside with the cyber incident is continually growing double digits. So very happy with that business in that market. As I mentioned in my prepared remarks, as it relates to Mako Shoulder, it is available today, it will be available in Mako 4 kind of midyear, but very, very excited to see that on MAKO and the potential as we move forward here.

SP1 Your next question will come from Steve Lichtman with William Blair & Company.

I'm wondering how you're feeling about your customer relationships coming out of the cyber incident. It certainly doesn't sound like you're expecting any notable impact given your response to the incident and your guidance reiteration, but I'm wondering what kind of response you've gotten as you've talked to customers.

Great question. In fact, I've been really overwhelmed by a lot of positive commentary from our customers about how we handle this incident. They're very empathetic to having 40,000 laptops, white having computers wiped. It just has not been easy to go through this people's phones and the way we've responded, the clarity of our communication, how we were able to keep a lot of cases going in spite of this was really something that they gave us a lot of high marks on. You sort of don't know until you go through a crisis kind of how things are really going to go. And we've come out of this very strong. There isn't really any business I could think of that we've lost. .

We did lose some cases, obviously, if you couldn't reps couldn't get into hospitals, and so there are some urgent cases that we lost, but not really loss of any customers that I can think of. And if anything, they feel better about our resilience through this process. So I think the Stryker brand is stronger than ever, but it was certainly not something I'd wish upon any other company to have to go through. It was very, very challenging. There were cases certain incidents where we weren't allowed into hospitals for a period of time, it was challenging to say the least, but the customer response to me directly has been actually very positive and very supportive.

That's great. And just, Tristan, how are you thinking about free cash flow conversion for this year coming out of and obviously, unusual 1Q. Do you think it can be in that 70% to 80%? And are there some onetime outlays you needed to make in the cyber recovery?

Yes. So we're still thinking about it in that 70% to 80% range. We are contemplating different investments that we'll be making as a result. And all of that contemplated in our guidance that we have. So again, not changing the overall trajectory of where we're headed and what we've committed to in our long-term financials. .

Your next question will come from Jayson Bedford with Raymond James.

This is Elaine on for Jason. I had one on Smart Hospital, which officially launched in March. If I'm correct, can you please remind us on what are the key parts of the system? How does it differ from a hospital that's maybe already using both or Karyn what has been the early feedback from customers?

Yes. Thanks. So we created a new business unit called Smart Care at the beginning of this year, which combines the Vocera and the Care businesses. And the launch of Smart Hospital is really providing seamless integration. So the Vocera is seamlessly integrated with Kari and integrated with our beds and a whole host of other products. So it's a very seamless system that we're not providing to hospitals. The feedback has been very positive. In fact, they had a really good first quarter. Obviously, we weren't able to ship everything, but they're building really good momentum within SmartCare. I'm very bullish on this for the long term, and the creation of the business unit was really well timed to really be very focused and to be able to pour more investment into this area. .

Your next question will come from Shagun Singh with RBC Capital Markets.

I just wanted to go back to the cyber incident and how to think about it. So the guidance now I'm sized 10.5% growth for the balance of the year. It looks like the impact is about $375 million. I don't know if you can directionally tell us how much is deferred procedures versus production delays. And as I start to think about the Q2 guide -- the Q2 growth rate, should we be modeling closer to the full year guidance for Q2? Are you able to do that? And then even more so, more than 10.5%, I guess, in the back half because of the med-surg orders that you referred to. And then just as a follow-up, I'm just wondering what are the learnings from the cyber attack to prevent something like this in the future?

All right. So in terms of your question around the guidance and how to think about Q2 and Q3 we don't guide to the quarters and we haven't for quite some time. And so the way again that I've laid it out before is how we continue to think about it. There is going to be some level of recovery. And then we will see some additional recovery in the rest of the year, ultimately, getting to the full year guide number that we mentioned. So again, I can't give you any more breakout of what portion of that was deferred procedures versus capital delays, things of that nature. But just in terms of how you're thinking about it, just know that it will flow back in kind of throughout the rest of the year in terms of that guidance.

Yes. In terms of the cyber event, I'm not going to get on this call to all the lessons learned. Certainly, we had an incursion. And whenever that happens in any cyber event for any company, there are going to be lessons learned around that. But what I can say is the recovery of our backups, 100% of those worked and we were able to get the predator out very quickly. So the recovery portion looks pretty stunning. And frankly, you don't know until you go through something, will it actually be that successful. So the recovery was incredibly successful. But there are lessons learned. We are going to, at some point down the line share those lessons learned with other industry factors, but it's not time for that right now.

So right now, we're still very, very focused on recovery, getting our business back to health. And as Preston mentioned, we'll be making some investments. But all of that's contemplated within our guidance. And we feel very good about the position we're in, going in.

Your next question will come from Mike Kratky with Leerink.

Maybe just in terms of the April volumes and overall med tech procedure environment, what's giving you the confidence to reiterate the guidance and especially in the backdrop of any ongoing disruptive factors like GLP-1 impact, what have you seen so far this quarter?

We're not seeing any GLP-1 impact certainly for our business and may be impacting other people's business, but we're not seeing any impact whatsoever in our business. So we would not be reiterating guidance if we suddenly had seen any kind of impact. The underlying demand is strong. Surgery schedules are still full. Our business is in good shape. There really isn't -- I'm not sure where you're picking that up from -- it might be businesses really unrelated to Stryker's portfolio. .

Understood. And maybe just a follow-up. But another one on the AVS acquisition. But in terms of how you think about maybe broadening your presence in cardio, what might that look like moving forward? And could you look to do that through piecemeal M&A or would you potentially be open to considering more of a platform acquisition?

Well, listen, we're getting into new call points with NRE, we now have new call points, the vascular surgeons a new call point to the interventional cardiologist is a new call point. And as a company, you've seen when we do acquisitions, most of them tend to serve existing call points. So as we look to serve that interventional cardiologist, that will get us into different technologies and over time, that could lead to different assets being acquired or internally developed. So I'm not going to predict. We are excited to be in this space. It's a fast-growing space, and we'll continue to look at assets that serve those call points. And over time, could it lead to a platform deal? Sure. But I'm not going to predict that right now. .

Your next question will come from Matt Blackman with TD Cowen.

It's Deron for Matt. Kevin, maybe just for you to start. At AAOS, you talked about the neurocrineal business maybe being a pretty underappreciated business within MedSurg with you rolling it up into instruments now, kind of what should we expect? And maybe what are some of the key products or innovation or markets that you might be more willing to go into? And just as a follow-up, sorry to pile this all on. But with Mako 4, maybe how should we be thinking about the installed base growth versus maybe replacing the fleet? And maybe any early feedback you've gotten on utilization changes from Mako 4 versus Mako 3.

Okay. Great. So first, on neurocrenial. So these -- internally, we were running neurocrenial as part of instruments. So instruments had the orthopedic instruments business -- it had the surgical technologies and then it had the 4 business units that were part of manual. That was all run by one president. We just reported it separately. And so now the new President is running 5 of the 6 business units with orthopedic instruments moving over to join Mako as part of Orthotec. So this really goes back to aligning to the way we're running the company today.

So that's -- there's no change to our internal way that we run the company. I think you're going to gain a greater appreciation because when instruments had the power tools and Neptune waste management, that kind of took up all the airtime in terms of attention and questions. Now you're going to learn a lot more about the neurosurgical power tools, the Craniomaxillofacial products. Our IDS business has been 1 of our fastest businesses for the past 5, 6 years.

And as you know, we did the recent acquisition of the mild procedure, and that business is going to continue to grow. So you're just going to get a bit more granularity around that business because it won't be overshadowed as it has been in the past. But no change in terms of how it's run internally and lots of innovations going on in those businesses. We have an upcoming launch of Sonopet 4, which is really exciting. The ultrasonic aspirator for neurosurgeons that will be towards the latter part of this year. It will just give us a little chance to share a little bit more of those diverse businesses, but they're all very, very fast-growing businesses.

And as you even saw even in Q1 instruments that actually pretty good results, although everything was kind of thrown off by the cyberattack Well, on the second part, you said about Mako 4. So the way to think about Mako 4 in terms of utilization, all of our Makos get utilized pretty similar rates -- what's different about is you're getting into new procedures.

Advanced hip and revision hip is really getting tremendous feedback from our surgeries. Provisions are hard and Mako 4 makes the revision in procedure much, much easier. But of course, it's being also used for knees and other applications. So it's more multifunctional. And what we're seeing really is just tremendous uptake in the interest around having a robot that's so multifunctional. And it can even do eventually shoulder soon coming up. But it's going to put pressure on the number of robots required in addition to make of spine, and what that will drive is actually more demand for Mako over time.

But I would think for this year and maybe into the early part of next year, you should see kind of a similar cadence between the utilization of Mako 4, as you saw with our past Makos, but then it will probably pick up thereafter as the word gets out on -- certainly on the shoulder because a lot of surgeons are not going to want to wait for the robot to be available on a Friday to do their shoulder procedures. And so they'll start asking for additional makeup.

So demand is strong. We're super excited about this platform and the ability to add these extra indications. And we're not going to stop. We have some other things in the pipeline. I'm not ready to share today, but we're going to continue to build upon this multifunctional robot with additional procedures.

The next question will come from Caitlin Roberts with Canaccord Genuity.

You called out on the last earnings call that foot and ankle was softer last year. What did you see in Q1? And have you launched the Encompass total angle?

Listen, the foot medical market as a whole was pretty soft last year, not just Stryker's business. If you look at the market itself, it was pretty soft. Q1, of course, was obscured by the cyber incident -- but we have launched the Encompass Total Ankle. We're really excited about the product. Unfortunately, the PROPHECY guides have not yet been approved. So these are the cut guides that are used. So the surgeons who are using the ankle today, they're very proficient surgeons that can actually do it without the cut guides.

Most of the surgeons who want to cut guides before they're going to start to adopt the ankle. That should get approval very, very soon. that's been in. We've had a couple of falls with the FDA. I think we're at the final stages now. And once those cut guides are approved, that ankle will really take off. It is absolutely a market-leading product that we know is a winner. But just need to have the guide. So once the guides are approved, certainly, that will start to pick up in the second half of the year. And plus, with the additional extra reimbursement on toll length procedures, it could be better timing to launch a new total ankle.

There are no further questions. I will turn the call over to Kevin Lobo for closing remarks.

Thank you all for joining our call. As you heard, despite the cyber incident, our business remains poised for another strong year of performance, and we look forward to sharing our Q2 call with you in July. Thank you. .

This concludes the First Quarter 2026 Stryker Earnings Call. You may now disconnect.

Welcome to the Fourth Quarter and Full Year 2025 Stryker Earnings Call. My name is Leila, and I'll be your operator for today's call. [Operator Instructions] This conference call is being recorded for replay purposes.

Before we begin, I would like to remind you that the discussions during this conference call will include forward-looking statements. Factors that could cause actual results to differ materially are discussed in the company's most recent filings with the SEC.

Also, the discussions will include certain non-GAAP financial measures. Reconciliations to the most directly comparable GAAP financial measures can be found in today's press release that is an exhibit to Stryker's current report on Form 8-K filed today with the SEC.

I will now turn the call over to Mr. Kevin Lobo, Chair and Chief Executive Officer. You may proceed, sir.

Welcome to Stryker's fourth quarter earnings call. Joining me today are Preston Wells, Stryker's CFO; and Jason Beach, Vice President of Finance and Investor Relations. For today's call, I'll provide opening comments, followed by Jason with the trends we saw during the quarter and some product updates. Preston will then provide additional details regarding our results and guidance before opening the call to Q&A.

Our 2025 results were outstanding for both Q4 and the full year across all key financial metrics. Against double-digit comparatives from the prior year, organic sales growth was 11% for Q4 and 10.3% for the full year, surpassing $25 billion in sales. Globally, for the full year, our neurocranial, endoscopy, instruments and trauma and extremities businesses, all delivered double-digit organic sales growth, demonstrating continued robust demand across our product portfolio. Full-year U.S. organic sales growth was an impressive 11.2%, and international organic sales growth of 7.5%. International results were led by strong performances in our emerging markets, South Korea and Japan. These countries and our other international markets continue to represent significant growth opportunities for us, and we look forward to launching products internationally that have already demonstrated success in the United States.

We also had excellent earnings and cash flow performance in 2025. While managing tariff headwinds, our teams delivered a second consecutive year of at least 100 basis points of adjusted operating margin expansion. This performance demonstrates strong operational execution and earnings power that we have been building up over time. Preston will cover cash flow which was also a standout for us in 2025.

Overall, our financial results reflect the durability of our high-growth offense with the following structural components: exceptional talent and culture, active M&A, a steady cadence of product launches and systematic specialization by creating new business units and splitting sales forces.

The new [ SmartCare ] business unit within Medical combines Vocera and [ Care AI, ] and we have split multiple sales forces in the past 2 years. One example is the new breast care sales force within endoscopy that launched at the beginning of 2025 and has contributed to their terrific growth. We have momentum entering 2026 and expect to continue delivering growth at the high end of med tech, which is reflected in our full year 2026 guidance. Our financial position remains strong, providing firepower to execute on M&A in 2026.

I would like to thank our teams for another terrific year fueled by their commitment to our mission and unwavering dedication to our customers. With that, I will now turn the call over to Jason.

Thanks, Kevin. My comments today will focus on providing an update on the current environment as well as a few other highlights.

Procedural volumes remained healthy in the fourth quarter, and we continue to expect the markets will remain strong in 2026, underscored by the continued adoption of robotic-assisted surgery, favorable demographics and durable demand for our capital products. Our U.S. capital-related businesses delivered robust performance in the quarter, helping to drive double-digit organic sales growth for Q4 in our instruments, medical and endoscopy divisions. Hospital CapEx budgets remain healthy, and our capital order book continues to be elevated as we enter 2026.

Next, powered by Mako 4, we delivered a stunning quarter and year of Mako installations with yet another record quarter, both in the U.S. and worldwide. Our installed base now includes more than 3,000 Mako systems worldwide. Alongside our record number of installations, we also continue to see steady increases in utilization bolstering our #1 position in U.S. Knees and Hips. As we exited the year, over 2/3 of our knees and over 1/3 of our hips were performed on Mako in the U.S. Globally, utilization rates were approximately 50% for knees and over 20% for hips.

We have significant momentum heading into 2026 and continue to receive very positive feedback on the latest Mako applications, including advanced primary with revision hips, spine as well as shoulder, which will launch on Mako 4 midyear.

Finally, Inari, which is now known as our peripheral vascular business, had a strong finish to the year, highlighted by robust procedural growth in the high teens that was partially offset by destocking, which will be minimal in Q1. We are set up for success in 2026 as the business approaches its 1-year anniversary as a part of Stryker. As a reminder, peripheral vascular is reported as part of our Vascular division results.

With that, I will now turn the call over to Preston.

Thanks, Jason. Today, I will focus my comments on the fourth quarter financial results and the related drivers. Our detailed financial results have been provided in today's press release.

Organic sales growth was 11% for the quarter compared to 10.2% in the fourth quarter of 2024, with the same number of selling days in both periods. Pricing had a slightly favorable impact, and additionally, foreign currency had a 1% favorable impact on sales. For the full year, our organic sales growth was 10.3% against a strong comparable of 10.2% in 2024. The impact from price was favorable by 0.4%, while foreign currency had a 0.5% favorable impact. And 2025 had the same -- have had 1 fewer selling day than 2024.

Our fourth quarter adjusted earnings per share of $4.47 was up 11.5% from the same quarter last year, driven by sales growth and operating margin expansion, partially offset by tariffs, higher interest expense and a higher effective tax rate. Foreign currency translation had an unfavorable impact of $0.02. Our full-year adjusted earnings per share of $13.63 was up 11.8% from 2024, driven by our outstanding sales growth and the return to pre-COVID adjusted operating margins with a second consecutive year of at least 100 basis points of expansion. Our margin expansion included improvements in gross margin from business mix and cost improvements despite the impact of tariffs.

For the year, foreign currency translation had a favorable impact of $0.01. Now I will provide some highlights around our quarterly segment performance. In the quarter, MedSurg and Neurotechnology had an exceptional organic sales growth of 12.6%, including U.S. organic growth of 13% and international organic growth of 10.9%. Instruments had U.S. organic sales growth of 19.1% with high-teens growth from both our organic -- our Orthopaedic instruments and Surgical Technologies businesses. Performance was fueled by strong capital demand in power tools, [indiscernible] smoke evacuation and Neptune Waste Management.

Endoscopy had U.S. organic sales growth of 11.1%, led by robust double-digit performances from our sustainability and Sports Medicine businesses and high single-digit growth from our core Endoscopy portfolio. We continue to see strong demand for our Sports Medicine shoulder products and 1788 video platform.

Medical had U.S. organic sales growth of 13.6% and that included strong double-digit performances in acute care and Sage businesses. From a product perspective, Medical's fourth quarter growth was driven by LIFEPAK 35, ProCuity, Vocera and Sage products. We do not expect the supply constraints we experienced in 2025 to negatively impact growth rates in 2026.

Vascular had U.S. organic sales growth of 4.3%, reflecting a strong double-digit performance in our hemorrhagic business that was powered by the recent launch of our [ Surpass Elite ] flow diverting stent. This performance was offset by competitive pressures in our ischemic business. As a reminder, Vascular's organic sales growth figures do not include our virtual Vascular business.

And finally, neurocranial had U.S. organic sales growth of 9.9%, led by an outstanding double-digit performance in our IVS business and near double-digit performance for our [indiscernible] business. Internationally, MedSurg and Neurotechnology organic sales growth was 10.9%, led by double-digit growth in our Endoscopy and neurocranial businesses.

Geographically, a slower capital environment in Europe during the quarter was offset by robust demand in other international markets, including very strong performances in Australia and New Zealand, our emerging markets and South Korea.

Orthopaedics had organic sales growth of 8.4%, including U.S. organic growth of 9.6% and international organic growth of 5.4%. Our U.S. Knee business grew 7.6% organically, reflecting our market-leading position in robotic-assisted knee procedures and continued momentum from recent Mako installations. Our U.S. Hips business grew 5.6% organically highlighted by the enduring success of our Insignia hip stem and continuing adoption of our Mako robotic kit platform with expanded ability to address more difficult primary hip cases as well as hip revisions.

Our U.S. Trauma and Extremities business grew 8.5% organically in the quarter, led by double-digit growth in our upper extremities business as our multiyear strong shoulder growth trajectory continued throughout the year. Additionally, our core trauma business had solid high single-digit growth against a very high prior year compare. Core trauma's performance continues to be driven by Pangea, our differentiated plating portfolio as well as our market-leading position in ailing.

Our U.S. other ortho business grew 28.7% organically, driven by robust installations in the quarter, led by momentum from the successful launch of Mako 4 in the U.S. Internationally, Orthopaedics had an organic growth of 5.4% against the double-digit comparable in the prior year. Growth was led by strong performances in Canada and many of our emerging markets. As a reminder, our international results include a nominal amount of spinal implant revenue because of previously accepted tenders that we are fulfilling before exiting those markets.

Now I will focus on certain operating and nonoperating highlights in the fourth quarter. Our adjusted gross margin of 65.2% was 10 basis points lower than the fourth quarter 2024, reflecting the impact of tariffs that were mostly offset by business mix and cost improvements as we continue to optimize our supply chain and manufacturing processes. Our adjusted operating margin was 30.2% of sales which was 100 basis points favorable to the fourth quarter of 2024, driven by lower adjusted SG&A as a percentage of sales, primarily due to our ongoing focus on operational excellence and margin expansion.

Adjusted other income and expense of $107 million for the quarter was $56 million higher than 2024 due to increased interest expense from debt issuances early in the year and lower interest income. For 2026, we expect our full year other income and expense to be approximately $420 million.

The fourth quarter had an adjusted effective tax rate of 16.1%, reflecting the impact of geographic mix and certain discrete tax items. For 2026, we expect our full year effective tax rate to be in the range of 15% to 16%.

Turning to cash flow. Our year-to-date cash from operations was $5 billion, an increase of $802 million from 2024 that was primarily driven by higher earnings and year-over-year working capital improvements. As a result, we delivered free cash flow as a percentage of adjusted net earnings this year of 81% compared to 75% last year. Consistent with the long-range plan we presented at our Investor Day, we will continue to target a range of 70% to 80% for free cash flow as a percentage of adjusted net earnings.

And now I will provide full year 2026 guidance. Given our strong exit from 2025, our presence in healthy end markets, sustained procedural volumes and strong demand for our capital products, we expect 2026 organic net sales growth to be in the range of 8% to 9.5% and adjusted net earnings per share to be in the range of $14.90 to $15.10.

Our full year 2026 sales guidance includes a modestly positive impact from price. Additionally, if foreign exchange rates hold year-to-date levels, we anticipate a slightly favorable impact on both sales and adjusted earnings per share. Compared to 2025, we will have the same number of selling days in each quarter during 2026.

Finally, we expect the seasonality of our sales to be similar to 2025, in addition, we expect full year tariff impacts to be approximately $400 million, which includes an incremental $200 million compared to 2025 that will be realized in the first half of the year.

With that, I will now open up the call for Q&A.

[Operator Instructions] Our first question will come from Larry Biegelsen with Wells Fargo.

Congratulations on a really strong end to the year and a strong 2025. Kevin, you're guiding to 8% to 9.5% organic growth for 2026 versus 8% to 9% to start last year. What's giving you the confidence to start this year slightly higher? And at the Investor Day in November, you seem to believe it was possible to grow in 2026, 10%, given the market conditions at the time, is that still the case? And I had one follow-up.

Thanks, Larry. As you saw, this is our fourth consecutive year of double-digit organic sales growth. At some point, you start to think maybe the comparatives will catch up to us. But given the order book, given the strength of the Mako performance we had in fourth quarter, which, of course, then contributes to implant growth in the future, we really feel more positive, I'd say, modestly more positive this year than we did 1 year ago, which gives us the confidence to start the year with that range, a little wider range, but a little on the higher end.

And as I said at this call a year ago, 10% is certainly possible, but it does depend on a lot of things that are in the macro environment, procedure growth. But we do have a strong order book, we do feel good about procedures, and it's certainly possible that we could do a fifth year in a row.

That's helpful. And for my follow-up, Kevin, you elevated [ Spencer Styles ] to President and Chief Operating Officer in December. It's not the first time Stryker's had a President. I think [ Tim Scannell ] had that role until 2021. So can you please talk about why this was the right time for this change? What it means for Stryker, and perhaps what it means for you going forward?

Yes. Yes. Thanks, Larry. As you know, we did it before. And I think Spencer clearly is ready for a challenge. He's been at Group President for some time now. It provides him really a tremendous platform to lead our global commercial organization. It also enables a cascade of other promotions, including [indiscernible] orthopedics and then [indiscernible] throughout the organization.

So this is really a great chance for our fantastic leaders to assume more responsibility and I look forward to partnering with Spencer to lead the company as we continue to grow, $25 billion in sales. And clearly, with momentum behind us does enable us to have additional leaders running large businesses.

Your next question will come from Robbie Marcus with JPMorgan.

I'll add my congratulations on a nice quarter. Two for me. Maybe to build on Larry's question on just sort of the confidence going forward. Clearly, the capital equipment market ended on a really strong year in 2025. Kevin, how are you thinking about pricing, both for your capital business and your implant business in 2026, and your expectations for the capital environment in 2026, U.S. and outside the U.S.? And then I have a follow-up.

Robbie, just on the pricing piece of it, we've talked about pricing before. It's something that we certainly have been focused on the last few years, and I think you've seen that reflected in our price gains that we've been able to deliver over the last couple of years. And now as we see the numbers, we're building price gains on top of price gains from before. And so we expect that to be something that continues into next year, just given the muscle that we've developed and the focus that we have. So if we think about 2026, we expect 2026 to look pretty similar from a price standpoint to 2025.

Robbie, it's Jason. Just as it relates to kind of the overall capital environment. I mean you said it well, we had a strong finish to the year, if you think about our capital businesses. And then if you just consider similar to what I said in some of my prepared remarks, from an elevated backlog perspective, the environment is pretty good. And so we feel really good about the capital environment as we go into 2026.

Great. Maybe looking at the quarter, there were a couple businesses that did particularly well. You mentioned Mako, the other number was particularly strong as was endoscopy and instruments. And one that stood out on the opposite side -- or two, Trauma and Extremities and Vascular. I was hoping you could just give us a little more color what happened there? Is there stocking, destocking and just a little more. Appreciate it.

Well, that's a lot of questions, Robbie. So let me just say on the positive side, Endoscopy and Instruments and Mako, we're absolutely on fire at the end of the year. I mean instruments included power tools as well as the products Preston mentioned in his remarks. Endoscopy was a really amazing performance if you think sports and sustainability well, but the camera is a few years into its launch. And unlike prior years, if you look at our prior launches, our growth would start to wing a little bit. Our camera is just phenomenal with fluorescence imaging, we're continuing to solve that very, very well.

And Mako was this transition to Mako 4 has been incredible. It is the first time we've had a change of the actual robot to a new robot since we bought Mako. And to be honest, coming into the year, I wasn't sure how this new transition would go and the team has done a phenomenal job. But the extra application certainly helps the feedback has been terrific.

On the other side of the fence, I mean, I'm still extremely bullish on trauma extremities. We had a monster comp from the prior year because Pangea was really gaining steam, and we still don't have Pangea in Europe and some other markets. shoulder continues to be on fire. Our foot and ankle business was a bit soft this year, and we are now launching a new total ankle called [ Encompass ] with much better reimbursement from CMS, which is pretty exciting. We won't see much of that impacted first quarter. But starting in second quarter, that will start to really kick in.

So I don't feel in any way, shape or form as that business is slowing down. It's just a question of comps. And over the course of the year, you're going to see them have another really strong year in 2026.

On the vascular side, I think we commented that the [indiscernible] sector has been tough for us. It's not just new for the fourth quarter. That's been going on for the last couple of years. We did launch a new large 4 catheter called [ Broadway. ] It's a 0.084 lumen, that was a big gap in our portfolio. That feedback has been very positive, but it's the early days of that launch in the U.S., and then we'll be launching that around the world. So I think over time, that will start to improve somewhat but our hemorrhagic business continues to be very strong, and we are now the largest neurovascular player in the marketplace. We took over leadership roughly about a year ago and have continued to be the largest player.

Your next question will come from Joanne Wuensch with Citi.

There's a number of bits and pieces of the competitive landscape that's changing for you, and I'd love to get some commentary or thoughts, [indiscernible] being bought by Boston Scientific, J&J announcing the spinout of their ortho business. How do you think about either those moves specifically or just sort of generally on how the landscape may or may not be changing?

Joanne, it's Jason. I'll take a run at this. But I would say, first off, in terms of our strategy and how we go to market, absolutely no change. We have tremendous teams on both of those businesses and certainly like our chances here in 2026.

Okay. My second question, not quite a follow-up is there's a fair amount of concern about patient volumes sort of with changes in the Affordable Care Act coverage, is there anything that you can comment on that or what you're seeing or what you expect for patient volumes throughout the year?

Yes. Joanne, it's Jason again. What I would say is as we ended the year and certainly starting off 2026, volumes continue to be robust. Tough to speculate, obviously, as you go into later in the year. But we continue to believe, as you think about the ortho markets, these are going to be mid-single-digit growing markets, and we're going to outperform the markets in 2026 just like we did last year.

Your next question will come from Ryan Zimmerman with BTIG.

And let me echo the congratulations on the quarter and the year. So just maybe a little in the weeds, but there's actually a local coverage determination this morning around total joint [indiscernible] and robotics. I think specifically it wasn't very impactful, but it would appear to me that there's been some efforts to get incremental reimbursement for the use of robotics. I could be wrong in that assumption.

And in the response, some of the [indiscernible] argue that the evidence may not be sufficient to warrant this. I'm curious if you have any thoughts about what's going on here? Whether this does create any risk in your view from payers? Or alternatively, an opportunity to get incremental reimbursement for robotic usage, specifically for specific robotic systems in the market in orthopedics.

Well, I'm not familiar with that particular case that you're citing, but what I can say is in other parts of the world, there is extra reimbursement for robotic procedures, whether it's in Japan or in other markets around the world. We have examples where we do get extra reimbursement. And we love the opportunity for that. In fact, in Australia, there are studies that are showing that Mako outperforms other robotic systems as well as navigation as well as manual.

So it kind of stands on its own in Australian data that has been peer-reviewed and published. So we love our chances of being able to demonstrate that data. We've been in the market for long enough now that the data is starting to come out and would support potentially extra reimbursements. I can't imagine or don't foresee any reduction in reimbursement. And certainly, you can see with the uptake of robotics and over 2/3 of our knees being done robotically. Surgeons aren't going to be going backwards. It's only going to continue.

Okay. Fair enough, Kevin. And I'll maybe zoom out a little bit then on operating margins and turn this to Preston. But [ 150 ] basis points, I think, through 2028 was the Target, Preston, at the Analyst Day not too long ago. As you sit here today, just given the performance that we have seen, how would you characterize that trajectory? How would you characterize your confidence to achieve that? I think if I look at kind of where numbers are, that was kind of in the range of possibilities. But I think we are still kind of left wondering kind of the pace at which you may have achieved those targets.

Ryan, good question. So as we think about it, the confidence is the same. We gave you those -- that guide for the next 3 years because we believe very much in the ability to go out and achieve it based on the activities and actions that we have going on internally, focus on operational excellence, particularly with areas like Lean and other elements with regards to like shared services and things of that nature.

But when we think about what we gave you for '26 here, we gave you a lot of the different pieces in terms of our overall growth and what we expect from an EPS standpoint. I think if you plug that in, you'll see it's a healthy margin that we're planning for '26 that really lead you down that path for that expectation of delivering 150 and above potentially as we go through the next 3 years.

Your next question will come from Travis Steed with Bank of America.

Congrats on a good quarter. I wanted to focus on MedSurg, just kind of bigger picture, like if you put the numbers against all the markets in medtech, your MedSurg business actually is probably one of the fastest-growing med tech markets at the moment. Just curious like what's driving that growth? How do you have the confidence to keep doing that longer term? Is it like surprising how good the growth is in that MedSurg business.

Yes. I kind of alluded to some of that in my prepared remarks, and I think it's something that's not fully understood. First, it starts off with our tremendous market share. So we have incredibly high market shares across our MedSurg portfolio, a very strong position -- we are constantly upgrading these products, launching next generations of each of these products. And then we fill in little acquisitions that are very fast growing. If you remember, acquisitions like [ Nico, ] that just continues to fuel extra growth of our as business and on and on. And then we specialized sales forces and split sales forces continually.

A couple of examples. We split our CMS sales force a couple of years ago into an oral [indiscernible] sales force and a neuro sales force. We split our Sage sales force into an infection sales force and an injury sales force, and I can go on and on. We created a separate sales force for law enforcement within our emergency care business. So we don't talk about all these publicly for competitive reasons, but this is part of the offense as we bring those cost innovations, add in little tuck-in acquisitions, split sales forces, and that just fuels continual growth. And we already have a number of sales force splits that we're contemplating for the next couple of years.

We had the -- if you think about the Vertas deal, that enabled us to add specialized pain salespeople because today, the IBS business sells to interventional oncologists as well as pain docs. So that's really part of the formula, the secret sauce, if you will, high market shares, continue internal innovation constant tuck-ins, which enable us sometimes to even create separate business units. If you recall, we split Surgical a while ago back in 2019, '20 into orthopedic instruments and Surgical Technologies, and Surgical Technologies crossed $1 billion this year. So it's just would have never happened if we had not split the business units.

So those are the kind of things we do in MedSurg, and it's totally continually sustainable. And if you look over the last 5, 6, 7 years, this is our offense, and we expect that to continue going forward.

That's helpful. And Kevin, how do you think about tuck-ins in 2026 or maybe a chunk or tuck-in? And then Preston, how do you think about protecting margins with potential bills in 2026?

Yes. We have really a strong balance sheet right now. And so we're on offense right now, looking at deals. The deal pipeline is very healthy with tuck-ins and even looking at other adjacencies as we always do. So we're excited about the potential to do acquisitions in 2026, but I'm not going to say more than that right now.

Yes, Travis, from a tuck-in standpoint, we've generally said that for tuck-in type deals, those are elements that we try to build into our margin expectations. But as we do each of these deals, certainly, it's something that we would communicate back to you all in terms of what our expectations are.

Your next question will come from Vijay Kumar with Evercore ISI.

[indiscernible] here. Kevin, maybe one on innovation for you. I think in the past, you've spoken about product super cycles. What are you excited about when you look at '26? Feels like some of the super cycles are probably in the second and third year. So what is incremental? What are you excited about?

Yes. Thanks, Vijay. I'd say, look, there's a ton of innovation always going on in this company. And even if you think of something like ProCuity, that's in its, whatever, third or fourth year, but it's still -- that's our long-term cycle. That still behaves like a new product in our hands because it's just a long buying cycle.

But we have a number of other exciting launches. We have the Mako RPS, the handheld robot. Initial cases started this month. They're going extremely well. That's a brand-new segment for us between our manual power tools and Mako. We have the [indiscernible] badge that launched towards the latter part of last year, which is getting tremendous feedback. We have all kinds of [indiscernible] and IBS, the Encompass total ankle, which I talked about. We have Arctic, which is a new arterial product within Inari. I can go on and on. I could go on for another 10 minutes, but there aren't right now, this, let's say, the new camera tool to -- the new camera. Those are sort of flagship products in the past that we would always focus on.

But the reality is, as we become much more diversified, even those launches become a little bit less important to the overall company as the split of CMF is driving CMF to double-digit growth and all these other tuck-ins like [indiscernible] and all of these little products contribute to really high growth. And then when you have those other new bigger platforms launch, that gives you just an extra jolt. But the fact that endoscopy posted these kind of numbers with a camera that's 3 -- or almost 3 to 4 years into its cycle is really impressive. And of course, we do have 1888 in development, and you'll be hearing about that at the right time. But I would tell you, I feel great about the health of our R&D pipelines across the company.

That's helpful, Kevin. And maybe one follow-up on Inari. You did bring up some destocking. Can you just talk about visibility on what gives us the constant destocking? Or any sales force disruption that perhaps impacted numbers here in Q4?

Yes, Vijay, it's Jason. As it relates to the sales disruption, I would tell you, we're beyond that at this point. I even made the comment in my prepared remarks as it relates to destocking, minimal in Q1. I will tell you, Q4, we had a little bit more destocking than maybe we anticipated. But good visibility as we move into 2026, knowing it will be minimal in Q1. And then obviously, we start to get to organic growth rates as you get into late Q1 into Q2.

Your next question will come from Matthew O'Brien with Piper Sandler.

I'd love to double-click a little bit on the Mako commentary just given how strong it was. If you wouldn't mind talking a little bit about the U.S. OUS strength on the record placement side. And is it fair to think after a period of trialing with some competitive systems, it's kind of over in terms of some of that trialing or even its -- thoughts about using something outside of Mako and that you guys are winning a disproportionate number of these RFPs and I guess what I'm really trying to get at is the durability of your implant strength, which has been great for several years. And then I do have a follow-up.

Yes. Thanks. Listen, Mako 4 has been an absolute home run. We already felt like we had the best robot in the market, and we've just only added to that with these additional applications. The feedback on revision hip, one surgeon actually told me he thought it was a cheat code for revisions. Those were his words, it just makes a very hard procedure, very easy to do, providing tremendous value to the surgeon.

So these extra applications make it totally compelling, great investment for a hospital. I think we're in obviously a clear leading position, and there's still a lot of hospitals that only have one Mako and they're starting to add more and more and more. I think we're up to 30% to 40% now have more than 1 Mako. Every operating room for us is an opportunity for a Mako to be installed. And we have clearly the wind at our backs on that.

And we're seeing it start to take off in international markets, Japan being the most important 1 where it took a while, first of all, to get the regulatory approval. They're obviously very data-conscious there. but now Japan is really starting to take off. In fact, even other countries in Asia Pacific are starting to really drive the incremental growth.

So we're very bullish on this. I think the shoulder is going to be a really exciting when we bring that to the market. Our limited launch has been on the Mako 3 robot, but we -- so that's why we're staying in a limited mode because we really want to get that on the Mako 4 robot, which again will be sometime in the middle of the year. And obviously, the shoulder business continues to grow exceptionally well without Mako. But again, hard procedure to do. Every time the heart of the procedure is, the more Mako brings value. So we're in the pole position, and we're going to continue to press our lead.

And then you mentioned RPS. Kevin, why go with an x-ray for the imaging versus CT, which has been so successful with traditional Mako? And how do we frame up how big that could be for you guys between ASCs, international, et cetera?

Yes. Look, this is a really great solution for some surgeons that aren't ready to go through the change management of Mako, Mako requires a lot of change for the surgeon as well as for the staff. And if you think about this handheld, it really is very simple, very easy to use. It doesn't require a [indiscernible] to go through that type of transition. This launch is just for total need. So if you want a robot that can do multiple applications. Obviously, that's not possible with this.

But if you think about in the ASC, some surgeons not wanting the complexity of Mako, I think it's just going to open up new customers for us that weren't ready for Mako but want something better than using the manual instruments and have the visualization and we're using the intellectual property from Mako to provide some haptic boundaries and the feedback has been incredible from the surgeons using it, but this is easy to use. It provides tremendous value. So I do believe this will be an extra accelerator for our Knee business and something that will live between Mako as well as our manual instruments. And it will be sold by the same sales force that sells Mako.

So the positioning, it's really about meet the surgeons where they are and provide the value that they're looking for. And right now, we understand our customers very well, and we believe there is a home for this. And it's under the Mako name. So you can believe we feel very good about the performance. We would never want to tarnish the performance of the Mako brand. So we know this product can sing.

Your next question will come from David Roman with Goldman Sachs.

I wonder -- maybe at the Analyst Meeting, you introduced, I think, in video form the form factor for a handheld version of Mako that I think you plan to provide more details on over the course of this year. Maybe any latest thinking on your robotic strategy from a portfolio standpoint as you roll out Mako 4? And any updates you can provide on the handheld instrumentation?

Yes. I think I just mentioned that we started cases on the handheld, are going very well. It will be on display at Academy. So it will be in the booth, you'll be able to see it, you'll be able to talk to our people about it. That's the coming-out party for Mako RPS will be AOS. It's not very far from now. So I'd say just stay tuned. You'll get the chance to really see it in full color.

Okay. Then maybe just a follow-up. On Spencer moves into this role as President and CEO, I think you kind of talked about this in Larry's question. But as you take on perhaps more of some of the day-to-day operational responsibilities, Kevin, are there priorities where you can now allocate more time or that might require more of your focus or that's on the strategy, M&A or long-term growth side of the business?

Yes. Obviously, when you have somebody in this role that can handle the overall commercial part of the business, that allows me, frankly, to spend more time with our operations team, spend more time with our -- we have a brand-new leader for information technology and AI. I really want to make sure we are an AI forward company. We've done a terrific job on AI for customer solutions, but we really haven't made a lot of progress yet on productivity with AI. We've done a great job on lean and much better job on inventory, but there's a lot of work we can do to drive productivity in AI.

And that I can now spend a bit more of my time engaging in those other parts of the business that in the past with sort of the gravitational pull would be towards the commercial side of the business. So I'm excited about the division of labor that we're going to have in this job and the freedom that will afford me to spend on these other areas. And of course, looking at adjacencies, BD will always be a big part of my job. But having Spencer involved in that as well will be terrific for when he's running an ortho group [indiscernible] down running ortho and for him to be able to have a little bit more bandwidth there, together with me, will be -- I think will be excellent for Stryker.

Your next question will come from Caitlin Roberts with Canaccord Genuity.

Congrats on a great quarter. As you end the year, any update on the percentage of hips, knees, shoulders flowing through the AC channel for [indiscernible]

Yes, [indiscernible] it's Jason. As you know, we did not disclose that in our prepared remarks. I think we've said recently that hips and knees are kind of in the high teens. And we've ticked up quarter after quarter in that environment. So very happy with the ASC performance. .

Great. And then just some more color on transplant [indiscernible] and if that has launched already.

Yes. Trifon Gold is in limited launch right now. Feedback is extremely positive. You can do it both cemented and cementless, which is a huge draw for surgeons, as you know, so many of our knees are now cementless, and that percentage of cementless continues to grow and the ability to both is really tremendous. And that will also be on display at AAOS. You'll be able to see that and be able to interact with our people as they can explain that product to you. But we are extremely pleased with the design.

Again, it's a limited launch. We always like when these implant launches, we tend to want to have a limited launch for the number of surgeons, make sure everything is going smoothly with the instrumentation and the actual performance. But so far, so good, this should be a winner for us.

Your next question will come from Matt Miksic with Barclays.

Congrats on a really, really impressive performance, everybody. So 1 on kind of growth and 1 on margins for Preston, if I could. So on the growth side, I was hoping you could maybe talk a little bit about the differences in the way -- the growth drivers in the U.S. and the growth drivers OUS. Obviously, U.S. have got like bigger contribution of ASCs and maybe robots are making different kinds of contributions, different part of the life cycle in the U.S. versus the U.S.

And then maybe just as part of that, I get the question sometimes about the recurring nature of your business, some of the I don't know if you've ever carved it out and talked about it, but there's clearly parts of the business [indiscernible] being 1 of them where you -- it's a recurring model. Any color you can give us as to how big or important or where the strengths are there. And as I mentioned, one quick follow-up for Preston.

Sure. I'll start with that question. The dynamics internationally are not different than the United States. We have premium products that we sell through specialized sales forces. The reason that we're having -- experiencing higher growth in the U.S. right now versus these markets primarily is because of the timing of launches. So we get these approvals early in the U.S. Europe, in particular with EU MDR has been extremely frustrating and it's taking us Insignia, Pangea, these -- LIFEPAK just got approved. These products aren't yet on the market, and they're really important products.

And then Mako has taken longer for us to really get that going. And that's not unusual, where these international markets tend to want to wait to see more data before they'll start to grow. But aside of the last 2 years, we had about 5 years in a row where international was growing faster than the U.S. We've now stepped up our U.S. growth rate really significantly, but the opportunity in international is significant. And as these products do reach these markets, you should expect to see a pretty similar dynamic as to what you see in the United States.

So obviously, pricing and margins can vary by country, some being as good as the U.S., some being a little less. We don't see the growth opportunity being really much different outside the U.S. than it is in the United States.

Anything on the recurring...

Yes, Matt, I'll take that. No, no problem. This is Jason. I think the way I would characterize that, and you've heard us kind of say this in the past, is 25%-ish of our revenue is capital related. And of that split, 15% of the capital is more closely tied to procedures, so the smaller capital. And then the 10% revenue, the larger capital, so booms, live, beds, et cetera. And then kind of that 75%, I would say, procedurally driven, whether it's reoccurring and disposables, the implants, et cetera.

Got it. And then for Preston. Just -- there's a couple of questions on margins, but the 1 that we often wonder at this point in the year is you've got a range for the top line and a chance to beat the top end of the range. How should we think about the flex in the model, if any, possibly when you break through the higher end of the range where thinking about OpEx investment versus drops to the bottom line?

Yes. Absolutely. So we have a range on the top, as you said. And certainly, if we deliver that and if we're able to deliver towards the top end of that range, it does drop some additional margin or additional profits down. But also remember, there's some costs that come with that in terms of, obviously, tariffs are fluctuating with our business. And then also just the investment that it takes for us to put back in to have those growth rates. So it's something that we balance as we look at the entirety of our P&L. And obviously, with both the growth rates but then funding for future growth rates as well when we look at what we dropped down from a margin standpoint.

But I think you could look at this year as a good example, right? So we moved up our top line this year. We also moved up our bottom line. this year. So that could be a good proxy for you to see that. If we start moving the top line up, we're not going to just reinvest all of it. There will be an amount that we drop through. If we see some opportunities for -- we're always looking to sort of self-fund reinvestment. But this is a good -- you could look at 2025 is a good proxy for what hopefully will happen in 2026.

Next question will come from Chris Pasquale with Nephron Research.

And then one on pricing and then one on Inari. So the pricing benefit you reported for MedSurg this quarter, I think it was the smallest we've seen since 2022. Was there anything sort of quirky about this quarter that drove that? And since MedSurg has been the primary driver of the net positive pricing across the broader business, are you expecting to see that go back up here as we go into '26?

Yes. There was one deal in particular outside the U.S. that drove some negative pricing on the MedSurg side. But overall, the fundamentals still remain the same, and we would expect to continue to see a pretty steady cadence of price coming from that business in 2026.

Okay. That's helpful. And then on Inari and the clinical pipeline there, we saw one competitor's pulmonary embolism trial readout back at TCT. We're going to see another one at ACC in late March. ClinicalTrials.gov right now has Peerless 2 wrapping up this year. Is that still accurate? And when should we expect to see your data?

Chris, it's Jason. No, it's actually going to be closer to middle of next year in terms of results. .

Your next question will come from Danielle Antalffy with UBS.

Congrats on a really strong 2025. Just following up on Chris' question on pricing. Just at a higher level, curious, I know you guys had talked about -- broadly speaking, that you saw over the last 2 years starting -- you're expecting that to [indiscernible]. It sounds like that's reflected in guidance. But I'm just curious about how you're seeing potentially your hospital customers, ASC customers, are they changing the way they're contracting at or on price? I'm just curious because, obviously, one of the narrative is with ACA subsidies expiring, hospitals could be more constrained from a budget perspective. And as we move further away from the change in purchasing pattern during COVID.

Danielle, thanks for the question. In terms of price, I mean, price has always been something that's been a negotiation in terms of where we've been trying to gain price. And it's something that we quite frankly have gotten better as we've talked about over the last few years. And certainly, as we look at contracting, that's an element of where we've really improved over the last few years. And so I think our ability to go out and make sure that we are working those contracts appropriately across our entire book of business has really helped us in terms of that pricing element. And we expect that to continue into 2026. And as you said, it is built into what our expectations are. from a top line and guidance standpoint.

Yes. I think overall, for the full year, you should expect a pricing result that's not that different than we had in 2025. From quarter-to-quarter, it may move a little bit, but we expect something pretty similar and '26 as we experienced in '25. .

Your next question will come from Patrick Wood with Morgan Stanley.

ASCs, obviously, we've all talked about hips and knees a fair bit, but CMS moved the back end of last year to really delete all the rest of the inpatient-only list, and it seems kind of clear where the direction is going. From your perspective, like what are the implications for that, if any, within endoscopy and everything else. Is your share in some of these categories high enough that it's like, hey, it's just a change of site of care? Or is this like a marginal change that actually matters to the business?

Yes. I think you answered it well. Our high market share, it's just a new site for us. But I think what really can help us is, again, that they have new construction of ASCs, it just gives us -- if new procedures are added and start being done in ASCs, the procedures where we have implants, that only helps us to provide a more full offering to the ASC. We already have the broadest offering by far in the industry, which is why we win at a very high rate, new construction and big rebuilds of ASCs.

So the more procedures that go, the more that provides -- we provide that full service, and they need financing for their capital equipment in these ASCs, unlike hospitals that have the capital balance sheets to be able to provide to buy capital. So we look forward to this change as things move to the ASC, which I think will continue. Clearly, you can see CMS is pushing it. We've seen this trend happening our sports business tends to be a big beneficiary, and they had an absolutely phenomenal year.

Again, they continue to grow extremely well and benefit from this push to the ASC because if they're doing orthopedic, hips and knees, they always do sports as well, and they tend to be a big part of these contracts. So we look forward to the change of procedures moving to ASC. And I think it only helps Stryker just given the breadth of our portfolio.

Great. And then just very quickly on the M&A side of things. if I remember correctly, when you guys did Inari, you sort of referenced it as part of launch pad or so [indiscernible] it was clear that channel on vascular in general was something you wanted to continue to build out. Is that still the case? Would you look at things like calcium management and other things that are sort of ancillary to that? Is that still a key focus area or not so much?

Yes. Listen, whenever we buy a business that enters a space, we never are one and done. We're going to continue to build all around that business and fortify the PV business. And obviously, that links to a broader vascular set of customers that once we start to get now a customer, we want to help solve their problems. So yes, that's now part of our acquisition set that previously wasn't the case.

And then same thing with HIT. So we did [indiscernible], then we did [indiscernible] don't be surprised if we do more acquisitions in the health IT space. So we're constantly on the hunt every time we buy something, it opens up new windows for us, and we are definitely looking at the broad universe in that vascular world.

Your next question will come from Mike Matson with Needham & Company.

Just a couple more on Mako. So with Mako 4, are you getting pricing increase relative to the older version? And then a similar question with -- as you start to launch Mako shoulder and spine, are there -- I seem to remember you talking about some upgrade fees the customer would have to pay even if they have an existing Mako system that they want to add that capability to. And are these things that could become meaningful drivers for that part of the business?

Yes. Listen, we're not going to get into pricing for competitive reasons. We're not going to disclose our pricing at least for the base robot. But every time you have extra applications, you have to pay a software fee or license, if you will, to be able to use the new software. So if they buy the Mako 4 for knees and hips, but then they want to add shoulder, then there is a charge for that. A onetime charge that upon the installation of that software. That's been consistent throughout our Mako approach.

Okay. Got it. And then just on the tariff impact, the $200 million this year. Last year, you said you would fully absorb that. Is that the case again this year? And is there any ability to mitigate any of the impact, the $200 million, can that come down over time with mitigation efforts?

Yes. The way you see with that $200 million really is the net result of mitigation activities that we've been taking for the past year as this whole tariff item has really come to bear over the last year. So that is reflective of the annualization really of all the work and activity that's been done. And as you look at our guidance that we gave, you can see when you do the work around the margin pieces of it that we have, in fact, built that into our expectations.

Yes. A total of $400 million, and we're still driving margin expansion. We drove a significant amount this year, but $200 million, we've got another $200 million, and you'll do the math through your models, you'll see we're going to drive meaningful op margin expense in the face of this extra $200 million. So our margin muscle is really good. This is not something I could have said 7, 8 years ago. I think if we had this level of tariffs you would not be seeing us continue to drive expansion to the level that we are. So we have built some earnings power in our company. .

Your next question will come from Shagun Singh with RBC.

One on Mako. You guys shared some metrics, 2/3, 1/3 of knees and hips on Mako and then utilization rate, 50% and 20%, respectively. Where do you think these metrics go over time? And what are the key drivers there?

And then as we think about market penetration of [indiscernible] robotics, anything you can share with respect to where we stand from a procedure and then a capital placement standpoint?

Well, as it relates to robotics, I don't think there's any limit. I think robots can become standard of care at some point in time. I don't -- it's not like cementless where -- I don't think cementless knees will get to [ 100% ] because of bone quality. In the case of robotics, I don't see a limit to how much can be done. And we're over 2/3 in the U.S. and over 1/3. And what I like is I see the hip starting to inflect upwards. So with the launch of Mako 4 for that, the new software, it's called the 5.0 software for hop, which is really amazing for revisions. But once the surgeon starts to [indiscernible] revisions, they start to realize it could be very good for primaries also. So very bullish on that potential. Is there a second question?

Your next question will come from Richard Newitter with Truist. .

I just wanted to go back to the price comment. I hear you loud and clear, Kevin, your overall price assumption is not dramatically different from last year for '26, but just within the components, I just want to kind of reconcile some comments I think I heard you make in the past between MedSurg and ortho. And just tell me, if you can, if this is directionally correct.

But my understanding was that MedSurg is, over the long-range plan, I would presume in '26 as well, about positive 100 to 200 basis points? And then your ortho, I think, has tended to be in a negative 1% to negative 2% range. And maybe that's a little bit more towards the negative 2% part of that range, then you net those 2 out, and you're somewhere similar as to last year. Is that the right way to think about it? Sorry to get so specific, but I'm just -- I think it would be helpful to investors.

Yes. Look, I'm not going to be that specific. I think your outer ranges are probably a little bit high on both sides on both the implant side as well as the MedSurg side. But MedSurg will be positive. The orthopedics will be slightly negative, and the 2 will net to something similar to what we experienced this year going forward. I'm not excited or worried at all about our price. We have a really good offense. We understand what happens quarter-by-quarter. We feel like we're in a pretty stable pricing environment.

And keep in mind, these are just like-for-like products. right? So this does not include when we launch a new product, we obviously launched at a higher price, and those products don't show up in price for at least another year until it anniversaries. So I just want to make sure you remember that as well.

Got it. And then maybe just on Triathlon Gold. This sounds like a pretty interesting incremental opportunity for you to kind of gain back some share in an area where you just didn't have a product. Could you just quantify kind of what percentage of the market this potentially just gives you re access to and how we should think about that and if that's the right way to think about it.

Yes. Look, it's an important product that is actually premium priced versus a standard implant -- it's roughly 5% of the market, but we didn't have an offering. So we would have Stryker loyal surgeons that would actually switch to a competitor to be able to do this if they had a metal sensitive patient. And frankly, what my hope is, given that you can do this cementless. And if the product performs really well, that 5% might actually grow. It's not just for metal sensitivity. This is, let's call it, an advanced bearing implant.

So I'm not going to promise that, but there is the potential for this to continue to grow and grow the market beyond 5% of the total implants. It's really a wonderful product that feedback so far has been very positive. But but it's roughly 5%, we were not playing at all. Stryker surgeons were not using our products. So this was an important gap in our portfolio that we've now filled.

Your next question will come from Jeff Johnson with Baird.

Preston, just one follow-up question. You pointed in your prepared remarks a softer capital environment in Europe. Could you flesh that out a little bit, number one. And number two, Kevin, you pointed to some of the challenges of the MDR stuff in Europe. Obviously, that's not new for you guys. Did that have any impact on the MedSurg business in Europe? And with the new proposals to simplify some of that MDR stuff, I know they're not going to vote on it in Europe until later this year, but could that accelerate some of your product approval there?

Yes, I'll take the second part of the question on MDR, yes, we're really excited. Europe has woken up to the reality that they are stunting innovation and not giving patients access to products in a timely manner. They, in many ways, overreacted to some -- a couple of safety issues that have occurred in Europe. So we welcome the changes and that will help us accelerate the launch of our products. It's frankly a little bit even more important on the implant side than it is on MedSurg side. with products like in [indiscernible] and Pangea taking longer to get to the market, but it affects the entire portfolio, not just for us but for the entire industry.

Yes, Jeff, it's Jason. On the capital environment, Europe I'm not going to get really specific here. But what I would say like our capital businesses in the U.S., there are some quarter-to-quarter where you get ups and downs of the capital business just based on purchasing cycle. So as we move into 2026, look, the order book here is healthy, and I think we'll have a good 2026 there in Europe.

Your next question will come from Matt Blackman with TD Cowen.

It's [indiscernible] on for Matt. Just a couple of questions, 1 for Kevin and 1 for Preston. Kevin, you brought up the Breast Care opportunity now that you have a specialized sales force. Can you just talk about what that might mean for the Endo business -- are you going to be able to push more through your installed base? Or is this about utilization...

Yes. Thanks. First of all, the breast care sales force is within our endoscope business. So we were already calling on them, but we didn't have a focus and the acquisition of [indiscernible], the marker in addition to [indiscernible], in addition to the tissue from NOVADAQ, in addition to the Invuity retractors, we -- the Invuity was bought by our instruments business, but we moved it over to endoscopy because it's absolutely perfect for those procedures, breast reconstruction procedures. So a combination of acquired products and our -- obviously, our internal products within Endoscopy, created enough of a basket to have a dedicated sales force. It was really successful in year 1. And yes, we look to continue to expand within breast care. We could potentially do additional acquisitions to fill out the bag, continue to add more specialized salespeople.

But this is what we do at Stryker. We did this in GI. If you recall, when we launched Neptune, we created a GI sales force and we did the acquisition of the [indiscernible], the mass procedural-specific mask as well to add into that sales force. We do this all the time in our MedSurg businesses. It's part of the fuel for growth, and that's why we stay so high in our growth rates as we just don't sit still.

We either bring in these tuck-in acquisitions, couple them together and create a specialized sales force. And then at some point, if we do a big enough deal, we could create a separate business unit as we've done with SmartCare and as we've done with other business units in the past.

I appreciate that. And maybe, Preston, on the free cash flow, really great growth this year. I hear you on the conversion range. But can you just maybe talk about what you're expecting for CapEx, it was flat year-over-year? [indiscernible] yes, for 2026, what you're expecting more for free cash flow.

Yes. So from a free capital standpoint, I said before, I mean, we're still going to target in that same range of [ 70% to 80%. ] That's been the range that we've been targeting for the last few years. We feel like that's a good place for us. We can balance investment with also obviously being more productive from a cash perspective.

When it comes to capital, I mean, really, our capital focus is around how we support growth. So whether that's investments we're making in our plants or obviously, investments we're making in our IT systems for structure as well in terms of how we're running our businesses. So there's really no change in our overall approach that we're thinking about from a cash flow standpoint. We are looking at how do we improve areas like working capital, which gives us even more flexibility from a cash standpoint as we move forward.

Your next question will come from Jayson Bedford with Raymond James. Jayson, your line is open, please feel free to proceed. Well, we have no further questions after Jayson. So I'll now hand the call over to Kevin Lobo for closing remarks.

So thank you all for joining our call. As you can see, we have strong momentum entering 2026, and we look forward to sharing our first quarter results with you in April. Thank you.

This concludes the fourth quarter and full year 2025 Stryker earnings call. You may now disconnect.

Good afternoon. I got you excited, right? Good afternoon. Hey, we're excited to have you here. Welcome to Stryker's 2025 Investor Day. Welcome to those on the webcast as well. I think what you'll find here is we have an absolutely action-packed agenda. We've got a number of speakers from across the business to hit for a variety of topics that we'll share with you here today. Couple of logistics items in here will be roughly 2.5 hours of presentation. We'll take a quick 15-minute break. We'll get people across the parking lot for the in-person attendees to go through a product fair, which will be great and a chance to engage with several of the leaders that you see here today. So looking forward to that. You can see great lineup of speakers here from various businesses across Stryker as well as various functions that you'll get to hear from as well. I think you'll get a sense of we're certainly built for growth, and you'll hear that throughout the day today. And then the much anticipated refresh of our long-range plans. So looking forward to that.

Next slide here. I'm not going to read this, but certainly, we've got a number of forward-looking statements as well as references to non-GAAP measures that will go throughout the day.

A couple of housekeeping things here, too. I've got some folks that are very anxious to know when the materials are going to be uploaded to the website. It will be out there at 6:00 p.m. Eastern. So just now look for that. The presentation as well as if you were here 2 years ago, you probably remember we have a market outlook that kind of list the various businesses that we have, the TAM, et cetera, we've updated that. That will be on the website at 6:00 p.m. Eastern as well.

So with that, we'll get started. So I'd like to welcome to the stage, Mr. Kevin Lobo.

Thanks, Jason. I'm going to start my presentation the way I've done for the last 12 years with our mission and values. We haven't changed a single word on this document for 12 years. It's our unifying and rallying force which, frankly, is needed when you have as decentralized an operation as we do here to have one thing that's grounding and really centers all of our employees, this is our mission and values. And you can see we're very focused on delivering value and solving customer problems.

You heard about this on the video. The most important metric on this slide is the 150 million patients that we impact each and every year. That is very exciting. That fills our employees with a great sense of purpose.

Here's our company strategy. This is the most current version of our company strategy. You have seen this over the years. It's generally very consistent. But over every 3 years or so, we update elements of the strategy. I know I'm not going to -- it's a lot of words, so we're not going to read them all. But what I do want to show you are the latest changes that we've made to this document, and those are highlighted here in purple. So what we've added under the innovation bucket is digital solutions. And that's obvious with some of the acquisitions that Jessica is going to talk to you about a little bit later. But also all of our businesses are becoming smarter, launching tools with digital capabilities. So we wanted to make sure we included that under the innovation bucket.

And then on the far right, you see we've renamed the top sort of pillar, the title for the pillar, which used to be called financial performance, we've relabeled that operational excellence. And that's a new term. You've not heard us talk about being a company that has operational excellence. But I would tell you, in the last few years, we have built some serious muscle around operational excellence. You've seen it in our numbers when we promised to deliver 200 basis points of margin expansion. And that was before the arrival of tariffs in 2025.

In spite of those tariffs, we are on track to absolutely deliver that 200 basis points, and how we've been able to do that is really rebooting our lean program. We had lean activities in the past, but frankly, we've really magnified those. And this whole notion of margin expansion is now in the culture. It's in the DNA of our organization. It's taken time. We started talking about it, if you recall, in '16, '17, '18, before the pandemic happened. And then that sort of knocked us off our game, then we had the supply chain crisis of 2022. But now it's really fully embedded in our businesses, in our functions and in our regions. So you can see that. When we write things down on paper at Stryker, like we take this stuff very seriously, and we never want to have anybody rolling their eyes, so I was not ready to put operational excellence on this chart, frankly, until now because we really have this muscle. And you're going to hear a lot about that from Viju and other presenters over the course of the day.

So here is the lineup of our business units. You can see the 22 business units all listed there. We have a new addition to this chart, which is called Smart Care, under Medical, and that is Vocera care.ai. So we have actually pulled that out of the acute care business unit to create a very focused, specialized business unit. And when you see the data book that Jason described earlier, you're going to see HIT in its own category, and you'll be able to see the TAM of that segment. Every one of our business units will have a TAM associated with it and an outlook in terms of growth that we see for the future.

On the right-hand side, you can see elements of our operating model. At this notion of the business units being the center of gravity for our company, that's a big deal. And what does that mean? If you're in a center-led function or even the CEO of the company, I always joke that we're in the selling business, not the telling business. We don't tell the businesses what to do. We don't dictate policy and procedure, we have to convince them and sell them on why this is -- this change is important for them because ultimately, they run the railroad of our organization. They have high degrees of autonomy, but with that high degree of autonomy comes high degrees of accountability.

And I noticed that I wrote down the word's performance edge. It's not a term I've used before, but it really describes this culture that we have of chasing down quotas that if you're a salesperson, if you're a business unit leader of achieving your numbers, we talk about having a culture of execution, not a culture of excuses. That's kind of our mantra here. And we have obstacles that we face, and we just find a way to persevere through those obstacles. That's really part of our culture.

And speaking of culture, we actually decided to write down our culture at the beginning of last year. So this is subsequent to the last Investor Day. We had everybody talking about our culture and using different words, and we decided to align around a common set of words. If you look at the first column purpose and if you look at the last column growth, pretty self-explanatory, things that you know about our organization, you see those elements in our mission and values. Two, in the middle are really quite uniquely Stryker. The talent focus and the talent offense we have here is really amazing. You heard Katy Fink, who's sitting up here in the front. She was a presenter at the last Investor Day, and she gave you a taste of how sophisticated our talent approach is, whether it comes to how we screen our candidates, the engagement approach that we use globally, the use of strength finders at having people play to their strengths rather than trying to fix people's weaknesses, that's an element of our culture that's very unique, and we do it globally and we do it very consistently.

And then under the relationships, we've always been a high-touch culture, a very relationship-based culture. But what's changed in the last 10 years is we now collaborate amazingly well across our businesses, between our businesses and functions and our businesses and regions. That was not always the case before. We were much more of a divide and conquer kind of organization if you go back a decade. We had silos between divisions. And this collaboration is really showing up as one example is the ASC. The way we win in the ASC is bringing the breadth of our businesses together to be able to drive tremendous growth. So this is kind of a new element. We were always a relationship-based company, but this collaboration muscle is something newer in the last 5 to 10 years. So really, really exciting. So this is -- the reason we chose to write this down was, frankly, when we would buy a company, they would ask us about our culture, and we needed to have some kind of way of actually making it crystal clear to people what do we mean when we talk about Stryker's culture. So these are the elements of our culture.

Innovation, of course, you can't be a growth company if you're not innovative. You can see under MedSurg, Orthopedics and Neurotechnology, we have sort of a little bit of different focus areas around MedSurg, where it's really about empowering people with powerful outcomes. And this includes, as you can see the picture of the care.ai virtual nurse. You're going to see a demonstration of this. For those of you that are here in person across the street, super exciting, and we do this in the -- with smart hospital initiatives as well as in the emergency care settings, really changing the standard of care, and this requires services, this requires capital, this requires disposable. So we're really agnostic as to technology. We just want to help solve customer problems.

In the middle, you can see in Orthopaedics, we are the clear leader in robotics and 3D-printed implants, and we intend to maintain that lead and extend that lead in the years ahead. And under Neurotechnology, there's a very new initiative that you're going to, again, be able to see across the street which is really creating less clutter in the operating room, having devices talk to each other so that a surgeon doesn't have 6-foot pedals when they're trying to do a neurosurgery tumor removal. It's really amazing. And this required collaboration across multiple business units of Stryker to create a great experience for surgeons. It's just being launched, you'll be able to see that across the street as well.

So let's talk about the track record of performance. You can see very compelling numbers in each of these buckets here. 10% compound annual growth rate since 2020. That's a pretty impressive performance. Hitting the margin expansion, I already talked about that. And then you see the earnings per share growth, 12.8%. So very strong growth, and that includes, obviously, the supply chain crisis, which was a tough year in 2022, still 12.8%.

In the first column at the bottom is a really, really interesting fact. So this is historical fact that we've actually grown 400 basis points faster than our weighted average market growth rate. So if you recall, our stated goal 5 years ago was to grow 200 to 300 basis points faster than the market. But as we've taken stock on our actual performance and gathered our market data, we've actually performed 400 basis points faster. Now that's not every single business unit. This is obviously on average, but this is a clear outperformance. If anything, we're actually extending our lead versus our competition across most of our businesses.

So this chart shows the evolution of our organic growth. You can see here that even as we're getting larger, we're continuing to drive very, very high growth. Most companies across all industries, when they grow larger, their growth rate tends to slow down. And we've done the opposite. How, if you saw in the previous slide, we've gone from 14 business units to 22 business units. By continuing to break up and specialize into separate business units, you can continue to drive very, very high growth and making sure that corporate doesn't take over, that we maintain this autonomy and decentralized spirit and autonomy for these businesses to run their offense and then continue to buy companies. We bought over 60 companies in the last 10 years, continuing to fuel innovation through organic spending through R&D as well as through acquisitions. So truly an impressive track record, and we are really well positioned to continue to grow.

So here you go. This is the list of the different business units. The weighted average market growth rate moved from 4% to 6%, that's pretty remarkable. Now that change -- how does that happen? Well, we've acquired a lot of companies to be able to move our business into higher-growing spaces. And so our -- even though our market growth rate went up to 6, our outperformance of 10 is the 400 basis points that I referenced on the previous slide. You can see hips and knees, which by the way, we love our Hip and Knee business. It's growing really, really fast, as you saw last quarter. But it's actually a much smaller percentage of our business than it was a decade ago, right? It was 27% of sales. Now it's 18% of sales.

As we've added new businesses, whether it's Inari, whether it's Vocera, all these different businesses that we've added over time. The growth of the company from $10 billion to $25 billion, that's pretty significant. Yet it still feels like the same Stryker of 10 years ago in terms of our spirit and the way we operate and the business unit autonomy. It doesn't feel that different. There's just more business units than there was before.

And we try to keep this sense of being a small feeling company. Capital allocation, of course, changed pretty dramatically. We've got busy on acquisitions. And so what should you expect for 2030 into the future, you should expect more of the same, continuing to grow very fast, continuing to increase our weighted average market growth rate by prioritizing acquisitions in fast-growing spaces, and there are many that we can pursue. And then making sure that we use our capital primarily for acquisitions, which again, Preston will talk a little later about capital allocation but that's going to continue to be a big priority for us.

And just a couple of little examples. So now that we're in the health care IT, we're not going to stop with Vocera and care.ai. We're obviously going to continue to add to that, and that's fast-growing space. Inari is our first -- we dipped our toe in the water there. There's a lot of other technologies in that space that we're going to be able to add to in the future. So our weighted average market growth rate will automatically start to move up as we extend our presence in those two. So those are just a couple of examples. And Andy is going to talk more about that later on.

So to conclude, we are in a position of tremendous strength. We've extended our lead over a lot of our competition. We have an operating model very focused on the customer, differentiated talent and culture, huge number of power brands across our businesses with very strong market shares. Many times, north of 50% market shares in these categories. We're well positioned because of the collaborative spirit to win in the ASC. We are clear innovators in many categories, robotics, 3D printing, fluorescence imaging, battery technology for power tools and workflow automation, those are just 5 quick examples for you where we're the clear innovation leader.

The M&A track record, I think we've demonstrated over time, we know how to do this now. We actually are really good at integrating now. I wouldn't have said that 5 years ago, but we've really developed tremendous integration capabilities. And the more of these you do, the better you get at doing these kind of deals. And then operational excellence, kind of a new thing for us to talk about and to actually lean forward. In the past, I knew we needed to do it, but it wasn't so easy, and we always prioritize growth. But now we really -- it's taking hold in our organization. Margin expansion, the use of lean is really starting to become part of who we are as an organization. You're going to hear more about that over the course of the day.

So with that, I will turn it over to Spencer Stiles. Thank you.

All right. Good afternoon. Welcome to beautiful Mahwah, New Jersey. For those that are tuning in online, we wish you are here with us. You're at the site and home of our Orthopedics businesses. So we lead both our Joint Replacement business and our Trauma and Extremities businesses out of this particular site. And actually right around the corner here, we're doing manufacturing right now. So we love this site, and we're really grateful you decide to spend the afternoon with us.

So I have a unique opportunity to talk a little bit more about how we're built for growth and in particular, focus on customer-focused innovation. I'm joined today in my section by Dylan Crotty, our President of Stryker Instruments; and Kathy Truppi, our President of Joint Replacement. They're going to join me in a few minutes up here and share a few remarks about some of those specific innovations.

But I want to click in a little deeper, where Kevin touched on our operating model and really thinking about this decentralized business that we intentionally use the word specialization. And go just a little deeper on what that means. So Kevin talked about our various divisions and all these different business units. Well, in those business units, and this has taken decades to build. And quite frankly, it's sort of hard to replicate as others have tried. But the focus from a general manager, a head of sales, a head of marketing, a head of R&D and yes, a head of M&A or BD, all sit on the leadership team of that specialized business unit. And they wake up every single day thinking about the customer needs, what problems can they solve? What innovations can be brought to that space to create value to take care of patients. And they're unbelievably passionate. They have an intensity about them, and they have great intimacy with those customers. And that's a really special part of our organization. And it served us very, very well.

However, a few years ago, I want you to focus on this gold bar here. A few years ago, we came to the conclusion we need to bring the breadth of Stryker and the portfolio of our offering across the entire business to our customers. And that's where we kicked off customer solutions. And customer solutions is home for our contracting pricing, a program like our ASCs, which I'll touch a little more on, and I'll talk a lot today about customer solutions in one of our business units. But this gives you the example of thinking of specialization and bringing the breadth of Stryker. And how together, this creates tremendous value for our customers, preparing us for additional growth in the future and really a differentiated approach to the market. We also continue to invest in digital AI and data.

And we've recently hired a new CDIO in Debra King, and she'll join us on stage here in a little bit. We're extremely excited to have her. You'll hear from Viju on Global Quality and Operations. And then all of our amazing functional partners that line up behind those businesses each and every day to make sure that we're serving our customers. It's really a model for success and again, one that's really hard to replicate. And it's quite frankly, taken decades to refine, and we'll continue to make sure it's meeting the needs of our strategy.

In particular, though, I want you to think about upper extremities and then there's gold bar of customer solutions. So that upper extremities business once upon a time was a small little entity tucked inside joint replacement until we did the acquisition of Wright Medical. And part of our strategy is when we buy a business, does it allow us to further specialize and Wright Medical did that and did so in a meaningful way. We specialize in hips, we specialize in needs, we specialize in trauma, we specialize in foot and ankle. And we specialized and created a market-leading upper extremities business. And I thought I'd share a little bit of the use case, and I apologize for the one graphic image, but this is important stuff to us, we're going to show it, of really how this works in this specialization and sort of the intensity and the intimacy that's created with our technology, our sales professionals and ultimately, our customers. So I think many of you have heard about our upper extremities business, the great success, the growth. But behind that is a patient that shows up with shoulder pain, may not realize that they're a candidate for a total shoulder.

They meet with a specialized clinician. That clinician says, yes, you are, there's a technology for this. Most of the time, it's just Stryker technology, and they're going out and getting an imaging modality, a CT, that's that first step. And that CT then gets loaded into the Blueprint preplanning system. Now Blueprint today is an amazing technology. You can plan the entire case where the implant is going to be. It ultimately helps you prepare the glenoid with Mako, which I'll touch on in a second. But I want you to imagine in the future that this particular preplanning will have even more technology.

There'll be AI capabilities, collecting that data, bringing it back into the preplanning to make it even more accurate, give you more information about the patient and the outcome. You can imagine today that this continues to create significant value clinically for the patient as well as the surgeon and the facility. You can also imagine as the procedures themselves get more complex, such as revision. You can now plan for that revision procedure and do so with more accuracy and confidence. This allows this procedure to be brought to more surgeons and in a consistent and predictable and safe fashion, a better outcome for our patients.

So as you think of this, the Blueprint gets loaded up and the sales rep gets involved. The sales rep now are amazing world-class sales reps, who are very well trained. They're trained in Blueprint. They're trained in this procedure. They show up, and they work and say, physician, how do you exactly want this? What's the data of the case, let's make sure you have all the product, and now it's time to do the intervention. You walk in that operating room. Again, that same sales professional, extremely well trained, understands the enabling technology, the preplan and they're ready to do a Mako shoulder case. And that's kicked off. We're having incredible results, extremely happy customers like this picture here in the corner. But this is a little bit of the story of Blueprint today, and tomorrow in the power of technology with an amazing implant, our perform technology and how that specialized business lines up behind this set of technology each and every day to make sure we can repeat it and scale it and get it to more patients.

However, this surgeon right here, they used to do all their surgery in the hospital. Well, that's changed. In the last couple of years, they've become more interested to bring those procedures to the outpatient surgery center, the ASCs. And about 6 years ago, we kicked off this journey of looking at customer solutions. We are hearing this opportunity in the marketplace of a shift in hips and knees, now significantly in shoulders. And we're actually saying, how do we build to meet these customer needs over time of bringing that breadth of the portfolio with the specialization. And that's where we created our ASC business inside of customer solutions. And these are some pretty remarkable stats to show the progress that we've had over the years and really the very strong position of meeting those customer needs and partnering with that happy orthopedic surgeon, which at many times their owners that we want to make sure we're meeting their needs. And you can see now over 460 sites since we've kicked this off, and that means these are facilities that have bought multiple different parts of our specialized businesses, not just one, but more than 3, a lot of times 4, 5, 6, 7. And the lion's share of these are new builds. That's really where our portfolio and the breadth of our portfolio comes to life. Our leading technologies, as you might imagine, in this space is Mako. You can see big numbers there with over 200 systems now in the ASC marketplace.

But again, this is combining that specialized business in upper extremities, for example, I just showed you with the power of the breadth of our portfolio. And really, there's nothing else like it in the marketplace today to meet the customers' demands about this growing segment and something we're very excited about, and we'll continue to invest in for days to come.

So the final thing I want to share again is around our sales and service support. And really spotlight at this organization, all these people in the front row, Kevin mentioned this, we serve our organizations. We serve our selling organizations. We want to make sure we line up behind them, and they have the right products at the right time, the right training, and they can build the trust of that customer day in and day out. And that's part of the great differentiator of this company. If you mean a Stryker person, you sort of know it. If you need a Stryker sales rep, you get it. And you can feel their energy, their expertise and their knowledge. You couple that with the breadth of the portfolio and something like customer solutions, the last thing we need to add to that equation for success is the products. And you're going to hear about some amazing innovations in two of our businesses here in just a second. But we're really excited about the journey we're on we're built for growth. We're looking forward to our continued growth and success.

And with that, let's hear about one of these great products from our President of Instruments, Dylan Crotty. Dylan, if you can come on up.

All right. Well, thank you, Spence. Great job. My name is Dylan Crotty. I lead our Instruments division here at Stryker. And I'm thrilled to talk to you about innovation specifically as it relates to our power brands. So I want to kick it off with our founder, Dr. Homer Stryker, Innovation is in our DNA. As you know, Dr. Homer Stryker was a gifted surgeon, and he decided to create products because he wanted to serve his patients better. He wanted to simply take care of his patients better. And then his friends and colleagues around the country started asking for these products. And before you know it, he thought it was best to start a company so he could serve more patients around the world. He was also, as you guys know, a great inventor, an incredible engineer. And when I talk to our R&D teams at Stryker, I make sure to remind them, Dr. Homer Stryker was one of you. So that spirit of innovation and intensely serving our customers is a live and well at Stryker.

You've heard a lot about our decentralized model, and you'll continue to hear a lot about it. It is the foundation of our success. And I believe it's very hard to replicate. It's a culture. It's an ethos. And as it relates to innovation, every business unit has that specialized sales, marketing, R&D and BD. And if you're an engineer at Stryker, you don't spend your time behind a computer or tinkering in a lab. You are out every week with customers, asking them questions, learning from them, observing surgery, going to society meetings and listening to talks really developing that deep intimacy with the customers. And what that allows us to do is have great mastery over technical and clinical aspects of what they're doing. It also allows us to make quick decisions to make very quick and informed decisions and that's what our general managers do. We expect and we trust and empower those closest to the customer to make decisions in Stryker. I was a GM for 8 years in the business units. It's a great job. You have the company lined up behind you, as Kevin mentioned. It's a job with very high expectations and very high demands, but a company of people lined up behind you to support you in the customer.

This specialization also allows us to develop a continuous and constant feedback loop to make our power brands consistently and continuously better. Our power brands at Stryker are many brands that you think about today embedded in our business units. Spence just talked about Blueprint, Mako, the 1788 Camera at Endo, Life Packet Medical. We have dozens of power brands across the company. And our power brands build trust with our customers, they build loyalty. They are differentiated. They build long-term value with our customers and with our shareholders. And a lot of the markets where we compete with our power brands, we actually created these markets. So as you can imagine, we drive these power brands. We protect them, and we do that through relentlessly innovating in these power brands.

I want to focus on two of our power brands in our Instruments division that I'm very familiar with, our heavy-duty power tools, battery power tools and our Steri-Shield personal protection. So our heavy-duty power tools, Dr. Stryker invented the oscillating cast saw in 1946, and we have been in the heavy-duty and general power tools business ever since. In 1983, we introduced a product called OP90, which was the first cordless battery power tool. It was big -- the battery didn't last long, but the customers, it was almost game-changing for them to not have that cord and they stuck with us. They knew we would keep innovating on that, and we did. We innovated again and again over the years. And today, we're on System 9, our ninth generation of battery power tools.

And with this comes 40 years of experience, 40 years of learning and also some amazing technology we've integrated. We've got our first -- the first wireless battery charging in power tools, which allows and really solves for a major issue, charging batteries that are already sterile. We've got smart equipment management, which is predictive analytics around power tools. We've got a digital depth gauge with System 9. So in trauma surgery, you don't have to pull out a manual depth gauge, you can see how deeply you've drilled. And as you should expect, they're more on the way. We have something called the train stop model at Stryker that we've developed, which is this continuous innovation around our power tools. So every 4, 5 years, we're going to be launching a new version of these products. Now it varies by power brand, but every 4 to 5 years for these two, we'll be launching a new version. And in between these versions we get this consistent, continuous feedback on how we can improve. And we implement that and think about that in the next generation. We also think about how do we disrupt ourselves if we were competing with Stryker, what would we do? We go to other industries. So for power tools, they're everywhere, right? So we go to other industry trade shows and see what they're doing in power tools. And we implement these in the next version.

Now we call the train stop because if a technology that R&D team isn't working on, if it doesn't make it for that launch, and we will launch that on time, we shift that R&D team to start working on that next-generation right away, and they launched that technology on the next train stop. So what this builds is just great iterative innovation over time and some disruptive innovation that our customers have deep trust with.

Moving to the right here to our Steri-Shield product line. This is actually an acquisition that we did in 1993, and a lot of our power brands are former acquisitions. We take these products, we plug them into the innovation machine, and we take them to the next level. And our R&D teams don't mind if it wasn't invented here. They're ready to plug that in and make it better, and they've seen it happen and us get rewarded for it so many times. As you think about a helmet, it seems like a simple thing. It's a surgical helmet. Think about this, though, surgeons and his or her staff, the scrub techs and nurses wear these all day in surgery. So the weight, the balance, the field of view, the airflow, these things are incredibly important and small incremental improvements can make a very, very big difference.

And we've recently this year launched Steri-Shield 8. This is our newest and by far, our best version of the helmet. It is the most comfortable. It incorporates a very strong battery-powered headlight. And we're thrilled with Steri-Shield 8. So as you think about these two, and you think about this train stop, you can put some cadence to when these are coming out. That's just not you as analysts, that's our customers. They will budget for these products. They will understand that in 2 years, Stryker is going to have its new version of power tools, so they're setting money aside for that. And that's the beauty to these power brands. There's trust built. There's confidence and there's alignment on future purchasing. And we usually get better price because we're bringing so much value with those additional versions.

I talked briefly about the future of our heavy-duty power tools just to go back to that quickly. And to build on a comment that Kevin made, we are working very closely across divisions now. So our power tools team is working closely with our Mako team. If you think about that Mako robot, it's a power tool on the end of the robot. And Kathy Truppi, who's going to come up here shortly. 10 years ago, the person in my role didn't speak with the Orthopedics Division President very often. Kathy and I speak every week. And stay tuned. There's exciting things on the way as we bring these together and collaborate together.

All right. I highlighted two products. There are dozens of these power brands across Stryker, as I mentioned, and assume there are also dozens of these focused R&D teams who are out there with customers today working on that next generation. These are just some across the top. Across the bottom, we have future power brands. So we're always acquiring companies, we're always launching new generations, and we are always working to build that next power brand. And back to the previous slide, we catch a little heat about our less than creative naming conventions. So we've got System 9, Steri-Shield 8. But you know what, it works. It works. Our customers know that they can depend on us. They know that we're on our eighth and ninth version. We have competitors that are on their first, second or third. And they stick with us because of that deep trust that we build.

So with that, I would like to hand it off and have our President of Orthopedics talk a little bit more about our best power brand, and that's Mako. Kathy Truppi?

Thanks, Dylan. Whether he likes it or not, he is in my speed dial now. We do talk very frequently. So I'm going to dive a little bit deeper into some of the power brands on the joint replacement side as we look to our business and the collaboration that Dylan referred to. Here in joint replacement, we have an intense focus on our customers. We keep them in the center of everything that we do. And our innovation is driven through listening to our customers, creating and delivering solutions that solve their unmet needs as we go forward, and that fuels our growth. And that gets our technology in the hands of more surgeons and into more patients as we look to the goals that we have.

So if we look at Triathlon, which is our knee -- our biggest knee power brand, Triathlon has been around now for 20 years. And there's a lot of legacy that comes with this brand. But what you can see on the screen is a whole lot of innovation that has come over the years from listening to our customers. Right about the middle there in 2013, you see our Triathlon cement-less knee, which was launched, like I said, back in 2013. And what you see with that is this marrying of the Triathlon design and brand with our incredible 3D printing capabilities to deliver solutions for surgeons and patients. And what we are seeing now is the 10-year outcomes results are being shared is 99% survivorship of that construct in patients. So this is part of the trust that is built into Triathlon.

And when you think about what's coming next, as we listen to our customers, they started to ask about what our options were going to be for patients concerned that they might have a metal sensitivity. And as we went to answer that question and bring a solution forward starting just -- at the end of this year, we'll start to be available our first metal sensitive option within the Triathlon portfolio. So this is a 3D printed -- fully 3D-printed titanium offering with a titanium nitride coating on the outside. So we'll start those cases at the end of the year. And that really brings together all of those different capabilities we have as an organization with a whole lot of experience and trust from our customers so that they can trust beyond the surface of this as a solution for their metal sensitive patients with that concern.

Turning to Mako for a moment. We've been on another journey with an incredible power brand in Mako. If you think about over the 19 years that this technology has been around, we really started as an enablement platform for partial knees. We very quickly rotated, right, as we did the acquisition into total hips and total knees and have continued to invest in this technology, in this innovation as we go forward. So we're now at a point of over 2 million procedures over 45 countries that this technology exists, that we work with orthopedic surgeons all over the world. And it has become so much more than a robotic arm-assisted surgery. We have our preplanning that Spencer talked about before as part of the system. And we are committed when we're seeing the outcomes data that is coming off of this to continue to launch some really groundbreaking excuse me, clinical applications as we look to deliver across various sites of care around the world and to also deal with and have solutions for various economic situations with our customers.

So back in March of this year, we actually launched Mako 4. It's our newest Mako platform. It has new applications on it, new clinical applications, and we are expanding this platform technology outside of hips and knees with this particular case to include our spine program alongside of that. So it is more than just the applications, though. There is a new camera. There is a new guidance system, our Q guidance system that is built on 20 years of experience across Stryker, again, showing the collaboration across various divisions that we have. So we have launched the Mako Spine application this year. We've continued our Mako shoulder LMR and look forward to bringing that to market in a full release in the first half of next year.

One of the applications that we launched from Mako 4 was around our hip space, and this is a new generation of our Mako hip application. So we are getting not only advancing in the primary space, but we're coming into a revision. This is the first time that anyone's coming in with robotics into the revision space on the hip side of the platform. Take back to 2010, we launched our Mako -- our original Mako hip application. We were bringing a whole lot of preparedness, more information about the patient to the surgeon, making a more predictable operation and what we've seen is better outcomes for the patient from that. And we're now bringing that into the revision space, which is really, really exciting. And it's another example of how we are continuing to stay ahead of our competitors in this space, and again, continuing to listen to customers about how we solve the problems that they have.

Just a quick mention. When we were at AAHKS just a few weeks ago, the team did receive the Industry Innovation Award, which I think typically doesn't go to the larger companies, but it really speaks to what this technology brings to our customers and to their patients. So if you're asking about what's next for Mako, we will do a little bit of an early glimpse we wouldn't normally bring this to this group at this time, but there were so many questions coming out of the earnings call with the 510(k) clearance that I think everyone is aware of around this technology that we wanted to bring a little bit of it here today. So this is an introduction very, very briefly to Mako RPS. So this will be our entrance into the handheld robotics segment of the market. And it really is marrying and bringing together, as Dylan mentioned, our unbelievable talent and innovation in our orthopedic instruments business in that business unit and our Mako technology, bringing those two things together. So we are looking forward to a release, a limited market release early next year. Well, you'll hear more about this at AAOS, and we're very excited as we go forward to bring this into the Mako family.

With that, to talk a little bit about things outside of our organic development, I'll welcome up Andy, talk about our M&A offense.

All right. Thank you so much, Kathy, and thank you all so much for spending your afternoon with us. One of our greatest strengths, and we've talked about a number of those strengths already today. One of our greatest strengths really always has been our M&A offense and our value creation, both for our shareholders, but also the value that we create for our customers and the patients that they serve through M&A. In fact, you are sitting in a building today that the genesis of our orthopedics business was the acquisition of Osteonics in 1979. And of course, there's been acquisitions ever since you saw Kathy's presentation on Mako. We know that we acquired Osteo in the trauma business in 1996. And then in 1998, a big catalyst for growth for our Orthopaedics business, the acquisition of Howmedica, which brought an amazing portfolio in hips and knees and in trauma.

So M&A has always been part of our offense. And it will continue to be. You heard from Kevin, and you'll also hear from Preston later on that our #1 use of capital will continue to be M&A. And that makes, I know all of our commercial colleagues, our general managers and our presidents, very happy. It also makes our sales professionals happy, our customers, and of course, we know that we create a lot of value when we do M&A here at Stryker for our shareholders. Our focus has been, and I'll talk a little bit more about this, building out our core. So if you think about all the tuck-ins, these are -- the primary use of capital that we have in M&A are the tuck-ins that strengthen our existing businesses. As Kevin mentioned, we have 22 today. But we also, occasionally, and we think smartly move into adjacencies. And I'll talk a little bit about a couple of those, and I'll actually have following me one of our division presidents talk about an exciting opportunity that we have in peripheral vascular. So a little bit about our process, how we set up to execute our M&A offense. Importantly, we embed -- Spencer mentioned this, we embed dedicated resources. So M&A teams alongside our division presidents, our general managers, our marketing leads and our R&D leads. Each of our 22 businesses has one or more business development professionals that work side-by-side with them, embedded across the company. What does this do for us? It allows for our transactions to show up in a couple of ways. One, is we know that with that specialized set of resources that we have working in our commercial businesses, that our deals will be on strategy. That our deals will align to customer needs and that, that intimacy that we drive through specialization will be represented in choosing the best asset in the category that we're going for. And we also know that when we have these specialized resources, and we run the Stryker offense that we're going to have the opportunity to build deep and long-lasting relationships with targets. And we've done that.

In fact, we just closed a deal late last year with NICO, NICO Surgical. You might be familiar with that. Our relationship with NICO Surgical goes back a dozen years, doing business reviews, getting to know management, tracking milestones in their technology before we decided to transact. That's the type of offense that we run. It's very intimate with the majority of targets that we pursue. You can imagine because we have these specialized resources in 22 business units that we do maintain, and we currently have robust pipelines of opportunities. Kevin mentioned that as well that we're currently vetting today, and we're excited to have further transactions in the future. Because we're so prolific Kevin mentioned 60 acquisitions in the last 10 years in doing deals. We built muscle that allows us to move these transactions effectively into integration into the company. And in the last few years, we've built dedicated integration resources that move from deal to deal to deal and allow that integration to happen even faster and smoother.

So a little bit about our strategy. I think you'll be pleased to know that our M&A strategy will remain unchanged. And that means that we're focused in 2 areas. As I mentioned, strengthening our core and moving into attractive adjacencies for the company, strengthening our core and moving into adjacencies that allow us to expand that addressable market, like Kevin talked about, and that weighted average market growth rate that Kevin mentioned as well. That's an important input to the deals that we pursue both of those, expanding our TAM and expanding our end market growth rates.

When we think about our core, we look to technologies that can tuck into our existing 22 businesses that we have today, technologies that bolster that business's offense, their ability to be commercially successful, drives innovation that allows for better care for patients and, of course, allows greater growth for the corporation. When we move into adjacencies, we look for attractive adjacencies that allow us to leverage our strengths, our strength at Stryker, which include our global scale, our commercial infrastructure that we have and our clinical expertise that we have in the company. And on this slide, you see an example of those 60s, and I'll talk a little bit deeper about a few just in a moment. But I will say, one of the key elements of those relationships that we build is not just understanding, does this company have the right technology or set of technologies to make Stryker better to allow us to be more living into our mission to make health care better, but we also look for the best partners that are culturally aligned to our company.

And at the same time, because we build those deep relationships over such a long period of time and we invest in that, it allows those potential partners to get to no Stryker. And I'll tell you that, that relationship that we build oftentimes gives us an advantage when we're working with those customers that they get to know us and they want their technology to be taken care of by the right partner. And most of the time, they see that as Stryker.

I said I'd mention a few other deeper -- a little deeper dive into a few of the assets that we've acquired. And I'm doing this in the context of what both Spencer and Dylan and Kevin talked about, which is our offense around focus and specialization in the business. M&A has been and will continue to be a primary catalyst for allowing us continue that specialization journey that we've been on. An example of that, first, is Molli Surgical. This is in the breast care space. We had 2 acquisitions Novadaq, many of you might remember that. And Invuity, we had those businesses inside of our Endoscopy sales force. We acquired Molli Surgical in the breast space and it allowed us and gave us the scale to spin off a dedicated sales force in breast care. Care.ai, you've heard about that already from Kevin, and you're going to hear a lot more from Jessica Mathieson and here in just a moment. But care.ai along with Vocera has allowed us to catalyze a dedicated business unit, as Kevin mentioned, in SmartCare around our smart hospital platform.

Vertos, an acquisition that we made last year, strengthened our position in interventional solutions, particularly in Interventional Spine, but this also was a catalyst that allowed us to split our Interventional Spine sales force into fracture oncology and interventional pain. And Artelon, an acquisition that we did, which is unique at Stryker between two divisions: our sports medicine business, and our foot and ankle business, which allowed them to not only have an amazing portfolio that they acquired with Artelon, but to bring technologies together across our sports medicine platform and foot and ankle platform to create more value for our customers.

And as I mentioned, we're very, very excited about the acquisition that we did earlier this year of Inari, moving us into the peripheral vascular space. We have an incredible Division President, and experienced division president, both at Stryker, formerly leading our high-performance trauma and extremities business and experience in the peripheral vascular space before Stryker, and it is my great pleasure to welcome this gentleman up next, Mr. Tim Lanier to talk more about Inari. Tim?

Thank you very much, Andy. Well, good afternoon, and welcome. It's so exciting to see all of you here, and I'm excited to share a little information with you about Inari obviously. And I want all of you and all the employees we have that are listening in today from Inari to know that we are really excited to have them as a part of the Stryker family. So across the world, there are roughly 2 million patients. They're affected each and every year by venous thromboembolism, or VTE, and other vascular-related diseases. That includes pulmonary embolism, deep vein thrombosis, chronic venous disease as it relates specifically to challenging venous occlusions and venous stent thrombosis and as well as some of these emerging technologies that are really exciting as well, like dialysis access management, arterial thrombectomy and chronic limb ischemia. Everyone of these areas represent a person's life could be affected by earlier diagnosis, faster intervention and better treatment options. And for us here at Stryker Inari, that's exactly what our goal is to do is to affect all three of these areas, and we're doing that and we'll continue to do that with evidence and also innovation.

What's important for you to know is that we -- when it comes to innovation and products, we build purpose-built technology. In the past, in a lot of these areas and other vascular businesses, they're not purpose-built technology specific to treating the unmet need. And our goal is to change the standard of care. Here is the market that we get to play in. It's over $6 billion in the United States. This is our TAM. It's amazing. It's split between pulmonary embolism, and DVT, deep vein thrombosis. There's also $1 billion in chronic venous disease. As you can see here, mechanical thrombectomy only represents 14% to 19% in PE and DVT, that's unheard of.

We enjoy category leadership in both of these areas. And our opportunity, in fact, our competitor is actually conservative therapy. And that's where we're trying to attack with clinical evidence and innovation. What an enormous opportunity that we have. These areas are growing double digits, amazing market opportunity for us. And here is our market-leading vascular portfolio. So we'll start and talk a little bit about those two at the top. These are the products that launched Inari, FlowTriever and ClotTriever for pulmonary embolism and deep vein thrombosis. These are the flagship products, and we continue to evolve these products, enhance them. They are power brands at Inari.

As we think about the things that we're doing today to evolve and make those products better. There are 3 things that we're focused on. Number one is expanding to new markets globally. What an opportunity we have at Stryker to leverage the power, the strength and the reach of the footprint outside the United States. And these patients outside the United States, they deserve to have these technologies and have these same treatment options for these disease states, that we do in the United States. This is an amazing opportunity for us. Number two, advance the ease of use and consistency by making our products easier, faster and more predictable for our customers to treat these patients. Lots of opportunity for us to continue to enhance our products and make them faster and easier and safer.

Strengthening our competitive edge is #3. We need to make sure our products can more effectively and efficiently remove clot, making sure that we're reducing blood loss, also making sure that we can reduce hospital stay and then also save cost. All those we're working on today, if you ask our physicians today about Stryker products, they will tell you they love using Stryker Inari products because they're reliable. They're also -- they have strong data, so they're well supported with data. And we also have the absolute best sales force clinically focused sales force to support them than any other business inside of VTE, but probably even vascular.

So if you look at the products down below, talking about these emerging therapies, these are also equally important for us. What we're really excited about two that I want to share with you today, you'll notice our Artix system for arterial thrombectomy. So ClotTriever and FlowTriever, they're used to remove clot from the venous system. There is also a clot or thrombus in the arterial system. Just recently, about 4 months ago, we launched our Artix system for retrieving arterial thrombus, and it is going extremely well. These are also purpose-built technologies. The reason why that's important is in the past, it wasn't uncommon for them to pull supplies off of the shelf and kind of construct their own retrieval system. It wasn't always effective. It wasn't always as safe. We have attacked another unmet need with arterial thrombectomy by making sure that we have a purpose-built system that's safe and effective or removing arterial thrombus.

Number two, chronic limb-threatening ischemia, what are a really important area for us to work in. This is peripheral arterial disease, so it's also on the arterial side. For these patients that have critical limb-threatening ischemia, in the past, the continuum of care for these patients could be exhausted to the point that the only other option for them was amputation. Today, with our LimFlow system, we can now remap the vein and the artery to restore blood flow to the feet, thus saving that limb and ultimately saving the life of that patient, amazing technology, and another great example of the innovation machine at Inari.

So all these products are built on the foundation of evidence, education and rapid innovation. And the important thing is that they're all focused on making sure that we change the standard of care in all of these areas.

And then lastly, sticking with the theme of built for growth. This is the growth strategy for Inari. These are our three strategic pillars that will help us continue to grow and grow fast in the future. First and foremost is best-in-class clinical evidence. Look, we have to have clinical evidence in these new modalities of treatment, and we have to lead the charge. Today, we have over 10 clinical research studies that are currently being funded none that are more important in the four that you see on the screen here today. PEERLESS II will be our opportunity for PE to expand our entry into that conservative therapy, that some 85% that's getting conservative therapy, this will open up that area for us to change the standard of care. This will be a randomized trial of FlowTriever, stand-alone against anti-coagulation. There's not another study like that, and it will be over 1,200 patients, and that will be important as well. These data sets are large. So they will give us a chance to move the needle in changing the standard of care. I also want to call out defiance. DEFIANCE will be our DVT strategy, similar, be a large patient population and it will be a stand-alone ClotTriever to the current standard of care today.

Number two, we will leave with innovation. Inari has been built on innovation. We don't want to lose that, and that's who Stryker is. So we have an amazing robust pipeline; one, to take care of our current power brands to make them, as I mentioned earlier, faster, easier and more predictable, but also we have a number of projects in early discovery. These will be innovative technologies that will continue to expand the platform for us to continue to treat these patients with new technology and again, open up that market. And then lastly, advancing the quality of care, we're really excited about the opportunity we have right now to support and help the American Heart Association. They currently have a PE quality initiative. This initiative is an opportunity to drive education and awareness and also guideline changes potentially as we think about changing the standard of care for these patients. They have this terrible disease and are looking for other options besides conservative therapy.

So in closing, these are our pillars. These are the strategic opportunities we have to continue to lead and grow this business into the future, and we're excited about all these opportunities.

And with that, I'll turn the time over to Viju Menon.

Thanks, Tim. Good afternoon. We at Stryker love the momentum we have on operational excellence. And I'm super excited to take you through and share with you some of our highlights. You heard from Kevin earlier this afternoon that at Stryker, our strategy is to drive market-leading growth. So from an operations perspective, for my team and I, our strategy is to enable the market-leading growth through a world-class supply chain. So our job; one, is super clear, delight our health care customers with high-quality supply. Supply of amazingly innovative products that you heard this afternoon from all of our leaders that our commercial R&D teams design that the global operations team then takes it and brings to life at scale to impact the lives of more than 150 million patients globally every year. That's our job one. And I would say that evidenced by the fact that our sales teams, our commercial teams consistently drive market-leading growth for Stryker, we have a supply engine that's built for growth.

Our second job right after the first one is to deliver and drive operating margin accretion and cash flow positivity. So for us, in operations that accounts for two things, drive product costs down, optimize our inventory. I will say that until and through the supply chain crisis, these two vectors really remain within the operational organizations kind of scope. But crisis, you always never waste a crisis, you've always come out of it stronger. About a couple of years ago, we elevated both product cost reduction and inventory optimization, up-level them to be enterprise priorities. So what does that mean? So today, between Andy, Spence, Preston and I and our teams, we collectively steward our initiatives on cost reduction and inventory optimization.

What I'll say that says that with the combined and collaborative efforts across the entire enterprise, this year, we delivered a product cost reduction that's better than the historical 10-year average at Stryker. If I look at cost reduction. This is the best cost reduction momentum that we have. If I look at inventory, the richness of our inventory mix has never been better. Because of the collaborative way in which we are accomplishing this collectively end-to-end, I'm super confident that these results are super durable. So that's on the op margin and cash flow perspective. What gives me the most energy is on the talent and culture piece. Our emphasis on lean is amazing.

To Kevin's point earlier, until a few years ago, we kind of sort of dabbled in lean and lean will certainly present in some of our manufacturing sites with some limited benefit. What we learned through the pandemic is, lean is not something that you dabble in, either you are all in or not even started. So what we did was coming out of the pandemic, we took our time to kind of do a reboot. We have some amazing leaders that we were able to hire in with a tremendous amount of experience in lean with a deep conviction in lean. So we approach lean as we should, as any company should, as a mindset shift and a cultural shift. And I will tell you the benefits of lean that we are experiencing just in the couple of years we have been at it with all seriousness is across safety, quality, delivery, cost and people engagement. Lean really powered a good chunk of the product cost reductions that we delivered this year, and if I look at the pipeline for the next 2, 3, 4 years of very cross-functional collaborative initiatives have all the confidence in the world that we can accomplish the cost reduction goals that we have set out for years to come. Kathy talked about Triathlon gold. From an innovation perspective, we continue to strengthen our core competencies and added to manufacturing.

And now I'd like to take you through some of the specific areas in which we are driving supply chain excellence. I love this graphic. On the left, you see kind of a flywheel with lean at the center. Our focus continues on product cost reduction, delivering operating leverage. But what are the other mechanics behind it? The first is the product transfer piece. So in the Stryker context, a product transfer refers to our ability to transfer a product from one supplier to another or from one Stryker plant to another or from a supplier plant insource that to your Stryker plant.

In the highly regulated industry for all the right reasons that we operate in, these product transfers, which can be pretty complex used to take us about 3 years or so on average to the degree that it wasn't really very viable. Well, the pandemic and the supply chain crisis changed all that. This became a necessity, and we really built and honed the muscle. And through lean, we now have product transfer cycle times that are about half -- takes us half the time as what we used to take. So anywhere from 6 months for a simple product to about 18 months to a very complex product. What this has unlocked for us is amazing abilities on multiple fronts.

So take plant network strategy and the plant network optimization. And this is all public information about 5, 7 years ago, we used to have about 44 manufacturing plants. With all the amazing M&A deals, and we have a very healthy engine humming, as you saw from Andy and team, we brought in the last 5 years through the Wright Medical to Inari and many others in between, but 22 manufacturing plants. So you do the math, you'll think we have 60-plus manufacturing sites. Well, we have 42 manufacturing plants today and that's because through product transfer, to the muscle we built, we've been able to rationalize our manufacturing sites, consolidate into bigger global footprint manufacturing plants and still have amazing effectiveness in product supply. And I will say that through all of this, we have an amazing people and employee engagement scores with a high energy workforce. We have consistently ranked in the last 7 years, one of the best workplaces in manufacturing and production in the United States. And speaking on that front, 70% of the product we sell in the United States are made in the United States. So while our footprint is global, we are truly strategic about where we manufacture and the competencies we build. I could not be more proud of my team.

From a procurement perspective, and this fact is kind of sort of common in med tech, we tend to have a lot of small suppliers single sourced. And where we used to be is without the ability of product transfer, our negotiating leverage, our ability to quickly absorb an acquisition and scale rapidly is pretty limited. But today, we do this through product transfer at scale, dual sourcing, rapid amplification of sales capability through supply enablement. And very often these days, we do in-source from our suppliers into our manufacturing facilities, facilities where we have built the competencies at scale. So across these dimensions, again, you get super confident about the strength and the momentum of the flywheel that's generating product cost reductions. We do reinvest a good chunk of that savings back for automation of our facilities and also invest in packaging transformation and other innovative aspects of keeping our manufacturing facilities current and state-of-the-art in many cases.

The fifth dimension is technology. And I would say from an AI perspective, we are in our early days, but I could not be more excited about having Debra King as my partner. There's amazing opportunities we can unlock together. And I think you'd want to hear that directly from Debra. So Debra is our Chief Digital and Information Officer. Come on up, Debra.

Thank you, Viju. Okay. Good afternoon. So I am about 6 months into this job, and I'm loving it. And what we talked about earlier and heard about the talent and the culture of the company. I could tell you that it is truly special, and it is different. So I am so excited to be here today to talk to you about how we are going to leverage digital, AI, data and technology to really enable and support the type of operational excellence that Viju was just talking about, and in general, productivity and growth across Stryker.

So the IT organization had really done a tremendous job of building a strong foundation around operations, business platforms such as ERP and cybersecurity. And we're going to continue building on top that foundation, but our strategy is now focused on three pillars. The first is about unlocking enterprise productivity. So this is about using AI, driving a technology-first mindset with our employees to use AI every day to make it easier for them to get their work done and to create efficiency. It's also about driving AI at scale for automation, and for opportunities for productivity across the Stryker business. We're also building a foundation that's simpler where we're harmonizing processes to create more end-to-end efficiency. This is also where we're going to future-proof our technology and ensure that we have the agility that we need in the future to support our organic and our inorganic growth.

The second pillar is about building customer experiences that set us apart. We want to make it easy and delightful for our customers to do business with us. We need to help connect for them, the specialization that we have in our decentralized model and create that unified customer experience where they could transact with us easier and get services more easily from us. It's also about empowering our sales force with differentiated digital capabilities and customer insights to help them serve our customers better.

The third pillar is around fueling our digital innovation and our enterprise digital transformation, our digital product development by building foundational capabilities that help all of our software engineers and our digital product teams across Stryker innovate faster and more consistently to better serve our customers. It's about continuing to build upon our data backbone, connecting data across Stryker, where we could really unlock the power of Stryker to build new business models and services for our customers and help them achieve their outcomes.

So I'm very excited about all the opportunities ahead, and with that, I'm going to call up Jessica Mathieson, who is going to talk about how our digital products are going to be helping shape the future of health care.

Hi, there. So today, you heard about our approach to innovation, our approach to focus and specialization. I'm going to talk to you about a new emerging category and our approach to the smart hospital platform. Health care systems are facing significant challenges across the world. And the way in which health care has been traditionally delivered is no longer sustainable financially, operationally, from a quality of care standpoint, disparate systems and technologies create confusion, inefficient workflows, cognitive burden leading to medical errors and adverse events. The nursing shortage is at an all-time high. That will be our reality for years to come. All the while, people are living longer, and they require care.

Quality of care is declining, cost of care is rising. Health cares must transform the way they deliver care, and they need to do that through technology and platforms. We have been innovating around those solutions for years. We launched the first wireless bed, the industry's first wireless bed in 2012. We followed that up with ProCuity in 2020. And in the last 5 years, together with our customers, we have achieved sustained outcomes around bed-related falls and hospital-acquired pressure injuries. And a result of that is our bed share has significantly increased. But we knew we needed to think bigger. We needed to think about building a platform, which led us to the acquisition of Vocera in '22, care.ai in 2024. And we've continued to innovate.

This year, we launched our new hands-free sync badge because nurses hands are always full, and they need a communication device that's hands free. And since the acquisition of these solutions, we've seen significant pull-through of our capital equipment. We're very excited about the creation of Stryker's first digital business unit, Smart Care, and that will include our Vocera and care.ai teams and solutions. And those teams will continue to call on clinical end users and nursing leaders, but they will also focus on health care leaders making IT decisions, operational decisions and technology decisions. But we're thinking bigger. We're thinking about our 80-plus connected devices across our Stryker portfolio and how those devices integrate into Vocera and care.ai. And Vocera and care.ai is our foundation of the smart hospital platform. The smart hospital category, it's an emerging category, $2 billion annually, fast-growing with vast greenfield space to earn share. The way we define the category is an integrated intelligent platform, connecting clinical services, medical devices, extracting important data insights, alarms and alerts and delivering it to the right caregiver at the right time, helping health systems transform the way care is delivered. We also think it's important for you to hear from our customers and how they define the smart hospital platform.

So I recently met with Dr. Neal Patel. He is the CIO of Vanderbilt University Medical Center, and we're going to share his thoughts on the smart hospital platform.

When we talk about a SmartHospital beyond being a buzzword of how we leverage technology in a hospital, a truly SmartHospital should be an environment in which all aspects of the health care delivery system, the rooms, the devices within the rooms, the equipment coming in and out, the therapeutic aspects of care delivery, all interact seamlessly together to enhance the patient experience and the staff experience. When that happens, SmartHospital. The equipment works the way it's supposed to, not because you had to be trained on it, but because it just makes sense, the data from one place to other, just flows and almost sometimes surprises you, like, oh, it's where it needs to be. Just like sometimes how in our consumer world, all of a sudden, the data just shows up, it's kind of wild because it also helps you. How can we do that within a health care environment? And SmartHospital, I think, is an umbrella term to get to that next level of a care delivery environment in which people aren't fighting against the system. The system is actually enabling care delivery.

So the solutions you see on this slide will sit within our Smart Care business unit. And I'll quickly touch on each of these solutions. It's important to note, they're interoperable, they work together, and we sell all of these as a reoccurring software subscription. Our clinical communication platform connects caregivers across facilities and health systems, helping streamline communication. Our workflow engine extracts meaningful data, insights, alerts, alarms and get it to the right caregiver at the right time. Care.ai is our virtual care platform, enabling virtual care reducing the burden of floor nurses, prolonging nurses careers and creating an overall better experience for patients and families and nurses. And what's incredible about our virtual nursing platform is we're able to offload tasks from the floor nurses to the virtual nurse. And then the ambient intelligence, it fits on the care.ai sensor, and it recognizes key actions and movement in the room, in the OR, and it writes those into the EHR. And when those actions do not happen, it also recognizes it and sends a helpful reminder to the care team member to one of our Stryker communication endpoints.

So I'm going to give you some examples of how these work together. Let's start with the MedSurg floor. We've admitted a high fall-risk patient. Their fall scores entered into the EHR. We know the safe bed configuration. Physical therapy comes in to administer therapy. And when they leave, they forget to raise two of the siderails. Immediately, an alert is sent to our virtual nurse simultaneously sent to the floor nurse, the virtual nurse can enter the room, monitor the patient while the unit care team member comes in to put that bed in the safe bed configuration. Same patient, when they were admitted, the virtual nurse is doing the emitting, again, taking the workload off the floor nurse. And the virtual nurse reminds the patient, if you need to use the restroom, please let me know, and we will have a care team member come and help you. Patient takes the nap, they wake up, they forget the instructions, which they often do and go to get out of the bed. The bed alarm goes off, alert is sent to the virtual nurse simultaneously, sent to the right care team member, virtual nurse comes in the room, tells the patient please stay in bed, a care team member is on their way to support you to the restroom. When that patient is being discharged, their adult children cannot make it to hear the discharge instructions. So through our virtual nursing platform, we bring in the adult children, they see their parent and they hear the instructions.

Let's move into the OR, where throughput and efficiency is so incredibly important. A patient is wheeled in on a Stryker prime stretcher. Our care.ai sensor recognizes the patient is in, sends a message to the surgeon on one of our communication end points, letting them know the patient is prepped and ready for surgery. As that same surgeon closes the case, a message is sent to the PACU, post-anesthesia care unit, letting them know the patient will arrive in the PACU in 10 minutes. I could go on and on with the workflows, you get the point. Those are a few of 100 workflows that this portfolio enables.

So we want to talk about how our hospitals view the smart hospital category. And it's really made up of three platforms: The EHR and the revenue cycle management platforms have been used for many, many years. The new part of the platform is the command center, and it's all of the solutions I just spoke about in the previous slide. And there's something really important. These platforms must be complementary to one another, which means our platform needs to provide open architecture, which it does. Again, our hospitals are at the very early stages of their smart hospital journey. So right now, they're starting in the MedSurg and ICU typically with the virtual nursing platform, but they're thinking about how this scales and grows across every service line across the continuum of care and they understand they need a handful of strategic partners to go on this journey with them. And we believe Stryker is uniquely positioned to be that strategic partner.

All of the devices, the capital equipment, the software you see on this slide plays a big role in a SmartHospital platform. Starting at the bottom, with our connected solutions across the continuum of care, the middle layer is our software layer. That's our processing layer. That's where the alerts, the data, the insight are delivered, the software processes it and then it gets it to the correct Stryker communication endpoint at the top. Our hospitals understand that they've got to remove technical debt in single point solutions. So they must have a strategic partner that they can scale and grow with. They must think about this, their journey, enterprise-wide. Every unit can't have a different platform. That will just create additional confusion and inefficient workflows. They understand they need a core vendor strategy. And now we're going to play another clip from Dr. Patel when he talks about partnership with Stryker.

The labor shortages we face moving forward, are going to require that the environment be as seamless as possible.

So can you talk to us about current decisions and priorities that you and your team are making to further your journey in the SmartHospital space?

So one of the things that we started with Stryker was really investing heavily in virtual nursing, but really truly virtual care. We started with the platforms, and it has been a huge success. Our institution has seen the benefit from patient satisfaction, nursing satisfaction go through the roof. But more importantly, it's given our bedside nurse is a sense of confidence that there's a safety net under them. We have our virtual nurse being able to check on things that oftentimes go by the wayside because the frontline nurses are so busy running from room to room, and that's elevated the level of care. And the process whereby the entire care team can leverage the virtual nurse and the bedside nurse optimally.

Our staff have taken the platform and then develop workflows that we wouldn't have even thought about to improve care for the patient. So now not only do we have nurses supporting nurses, we have pharmacists talking directly to the patient to educate them on their meds. We had the access center talking directly to the family via the platform to coordinate discharge appointment and take the nurse out of the middle, playing concierge. And that allows a greater concept of all the team members interacting more directly with the patient instead of having a bottleneck through an individual who's already overwhelmed with their frontline responsibilities.

Tell me how you see Stryker playing a part in that?

As we went into the care.ai platform for virtual care, I've got to know the Stryker ethos and the company as a whole. And wow, you're in everything, all across the medical landscape, you've carried that ethos forward of being health care delivery first. I think that's important. And that makes us excited to partner because when we say this is important, it's not looked upon as, oh, that's just a clinician talking. You understand that a clinician saying something may have some work. And so I'm looking forward to Stryker beginning to create horizontal connectedness through your organization and create a relationship with our medical center in a way that we optimize each aspect of patient care delivery and wherever Stryker fits in, it makes sense, and it's not just a one-off.

How do you see Stryker as being uniquely positioned when it comes to the smart hospital category?

Well, I think Stryker obviously because of the depth of the products that you're already providing to major hospitals and I think the transition that you're trying to make to understand that now you're actually selling solutions. And that's a huge difference. Solutions imply that you're actually solving a problem and leaning into that with the concept of information flowing in and out of devices and interacting and/or adapting that to me is where we need to go. But also, it was important to make sure that aspects of that platform intersected with our electronic health record.

And eventually, as we move forward, I wanted to interact with our physiologic monitoring system because even though that may be three different vendors occupy in that space, what the clinician needs is the information aggregated in a way that makes sense independent of the vendor, all of those working in a way that helps move information and enable the workflow of every user that interacts with it. That can be the patient, that can be the patient's family. It can also be your environmental care provider who has to know what is the just in time to get in there and clean the room so that we can get the next procedure started. All aspects of those things working seamlessly and choreographed in a way that is elegant is what our purpose is.

Dr. Patel, thank you so much for spending some time with us and sharing your insights and feedback.

Well, thank you for having me. I look forward to continuing this conversation as we try to do good things.

At Stryker, we put our customers at the center of all we do. And our customers want and desire to put the patients at the center of everything they do. And our SmartHospital platform enables human-centered care. We are inspired to go on this journey with our customers, and we are confident in our ability to continue to gain share in this fast-growing category.

So with that, it is my privilege to introduce our Chief Financial Officer, Preston Wells.

Thank you, Jess. So now the time you guys have all been waiting for, but we have a few things to talk about before then. Listen, I would like to extend my warm welcome to everybody that's here in person and those that are attending virtually. It's my honor to be back with you this time as CFO. And a couple of years ago, if we think about where we were talking about, Glenn was on stage, and he was reiterating all of our discussions around our ability to go and drive M&A, to delivering on the top line growth that's above our markets. And they also talked about a pretty wide margin expansion during that time frame as well. And ultimately, all of that culminating into double-digit EPS growth.

And I think if you listen to some of the presentations that you heard today, I think we not only have shown the ability that we are well positioned then to go do it, but also well positioned to continue that as we go forward. And so I think with that, we'd like to think about our financial strategy on how we support the overall enterprise strategy. And the good news is that with our strategy and the goals that we've set for ourselves, we remain pretty agile. And our ability to meet the needs of both the customers and the needs of our business to drive the results and the expectations that they have.

So maybe quickly just to go back to those commitments that we had previously. And you can see on the slide here, in 2023, we committed to growing at the high end of med tech, which, as Kevin demonstrated and showed before, that was a expected to be a couple of hundred basis points above our competitors, and we've shown that we are actually able to exceed that. We look at some of the other areas around our margin expansion. I think when that number of 200 basis points of improvement over 2 years got shown, there was a lot of lapse. I see some lapse right now, remembering about that. But that was a big number for us. And I'm happy to say, if you look at 2024, and if you look at what we're expecting in 2025, we are well positioned to deliver that. And that comes from a lot of the information that you heard earlier of what Viju was talking about in our supply chain. And I think with Debra and what we've talked about in some of these other areas, there's more to unlock in this space.

Our adjusted EPS growth of double digits. You can see what we delivered in 2024 and with our latest guide are on pace to do that again despite some pretty big headwinds that we've had in 2025 around tariffs. And then, of course, with free cash flow, we still anticipate and we see here we're in the 70% to 80% range, and we've been able to deliver that in '24 and expect to also do that again in 2025. I think as you look at what we've done here and what we've laid out, I think it aligns with our mission and our values, we committed to these numbers, and we're doing what we said we were going to do.

And that's something that you can expect from us is what we're up here talking about we say we're going to do, we're actually going to go out and achieve and deliver that. So maybe just diving a little bit deeper into some of the numbers, and Kevin talked about these at a higher level, but driving a little deeper. If you look at our organic sales growth, and you can really see what's happened over the last few years. So if we look at that 10-year horizon, 2016 to 2019, obviously beating our markets and growing at a fast rate. But then seeing that acceleration happen over the last 5 years, really by a lot of what was talked about today, a focus around acceleration through innovation, acceleration through getting into strategic acquisitions that are expanding the categories that we're playing in.

And obviously, just lining up behind our differentiated model and those power brands that Dylan talked about. Those are extremely important parts of our offense that have allowed us to accelerate that growth that we've seen and obviously continuing to outpace the market by a pretty significant amount. I think for me, in particular, one of the things that I'm really pleased with is the middle column and looking at the expanded operating margin. As Kevin talked about before, that's not something that was in our DNA several years ago, but it's clearly something that's permeated now throughout the organization in a lot of what we do. And it goes beyond even what Viju was talking about in our manufacturing and supply chain areas, it's in all aspects of our business and that mindset of driving profitable growth is really, really important for everyone.

And then if you look, that ultimately led to the far right where we've been able to really continue to exceed and grow our earnings power and really driving earnings through all these different elements of a faster-growing markets, increasing sales and organic sales growth, obviously driving better profitability and dropping that down through our earnings per share. And so it's really with all of this consistent approach and the consistent and sustainable performance that gives me in particular confidence as I think about what we're going to do into the future. And certainly, you heard from a lot of our presenters this afternoon talking about some of the different areas of what gets us excited as we think about the next few years. And so this trajectory of growth and performance, we definitely expect will continue into the future. But before I get to the page, you guys are all waiting on.

I just want to talk a little bit more about our overall financial strategy. That's called the teaser. But again, as we've talked about earlier, we are certainly -- we're built for growth. And there's a few reasons when we think about how our financial strategy lines up behind that is why. We've talked about the capital allocation and our capital allocation is certainly skewed towards more M&A in finding those categories that are going to allow us to accelerate, as Andy talked about before. Just looking a little bit at what that M&A has done for us. In 2024, we had 7 deals, and those 7 deals are contributing about $300 million of sales for us in 2025. And of course, as Tim got up and talked about Inari, you can see the opportunity that gets. That acquisition has certainly allowed us to get into a very exciting double-digit growing category that we feel really, really good about where we're going to go into the future with that.

And in addition, all of those power brands and all of that innovation doesn't happen that Dylan talked about and Kathy talked about without a really powerful R&D engine and that R&D engine, we continue to invest in as part of the overall allocation of where we're spending our money. And then if you look at unlocking that earnings potential, certainly, we've talked about that with Viju talking about our optimization on supply chain. I think another muscle that we're really starting to unlock is what Debra talked about as we look at digital and how can digital help really allow us to become more efficient and more productive in the work that we do and doing things better and smarter as we go forward. We highlighted a little bit earlier in Spence's section around customer solutions, and that organization really allowing us to show up as one Stryker and really focus on driving and earning price for the innovations and the products that we deliver as we go forward. And that muscle has been really important in delivering our earnings power as well.

And so then lastly, we focus on cash flow. Obviously, cash flow is super important as we think about all the things that we want to try to do, all the things that we want to invest in. And that certainly has become another area of focus for us beyond just our earnings and our operating margin -- operating profits that we're driving, there's an intense focus on our working capital. Viju talked about it a little bit in terms of what we're doing around inventory. We're also looking at other areas of working capital and how do we get the most efficient elements out of those so that we can drive money back into the business in terms of reinvestment as we go forward.

And so speaking of that cash, and we talked about the capital allocation, but we thought we'd like to just show it to you, and you can see here, certainly M&A is by far the #1 area of our focus in terms of what our capital allocation is, and we'll continue to do so. It is certainly something that is proven. It's something that we believe in and something that we know we'll be able to utilize as we drive growth as we go forward. When we think about our capital allocation in total, it really is around two different elements. Number one, it's about fueling growth. And number two, it's about driving value. And so we'll continue to follow the same model, like I said before, to do that. You can see the M&A spend over the last 5 years -- or last 9 years has been about 69% of that skewed towards M&A. That doesn't even include the right -- the Inari acquisition. If we add that in, that obviously is going to continue to skew plus 70%.

In terms of the dividend, the dividend growth has maintained a pretty steady cadence over that same time frame. As we think about going forward, though, we expect that dividend growth to moderate a bit as we look at our overall capital allocation with really a focus again back to that M&A and driving growth through M&A and obviously, value through M&A.

And then the last thing I would just mention here is around share buybacks. It shows up as 3%, but the reality is we have not done share buybacks since 2019. And at this point in time, we do not have plans to do any additional share buybacks into the future.

Overall, we're really, really pleased with our balance sheet. We're really pleased with our credit rating. It allows us the opportunity to execute on strategic acquisitions and strategic deals when the timing is right. It's one of the things that gives us a lot of confidence in those teams that we talked about being located at all of our different businesses, and it gives us the opportunity to allow them all to go out and find opportunities and then execute on those opportunities when the timing makes sense. And so it's with that capital allocation strategy with the overall financial priorities, why we're really confident in our ability to continue to progress forward with the goals that we've set for ourselves.

So as we think about going forward and looking at '26 through '28, these are the commitments that we're making to you. They're not too differentiated from what we said before in terms of what the areas of focus are. We believe those are the right areas of focus, and the ones that will continue to drive value as we go forward. Number one, we are going to maintain that high end of med tech growth, really fueled by our differentiated models, fueled by moving into higher-growth areas as we go forward and really just outpacing the end markets.

From an operating margin standpoint, this is probably the one that has the biggest differentiation from 2023. We're expecting to grow 150 basis points over the next 3 years. And that different a little bit from what we said before. If you look back to 2023, after the 200 basis points, the expectation was that we were going to grow 30 basis points annually. So the $150 million is accelerating that, and it's certainly accelerating a lot of that based on what you've heard today. Ultimately, that will lead to double-digit EPS growth. And then we believe that 70% to 80% of a conversion rate is right for us because we will continue to invest in our business because after all, we are a growth company, and that's our expectation as we go forward.

So how are we going to do this? Certainly, what you heard earlier today should give you some degree of confidence. And in fact should give you a lot of confidence in our ability to go out and execute. The track record of success certainly around our growth speaks for itself. You heard about how we do that with our differentiated model. You certainly heard how we're going to continue to expand how we think about M&A and not only supporting our core businesses, but getting into adjacent spaces that are going to increase our WAMGR and allow us to grow faster and really just continue to unlock future growth as we go forward.

And when you look at our operating margin, and so that operating margin expansion of 150 basis points, there's obviously going to be some headwinds from tariffs in '26, but certainly, with the inherent nature of how we've built that mindset into the organization around operating margin improvement with a lean focus in our supply chain, focused on optimization, the digital solutions that we're going to be bringing to the organization to help unlock additional efficiencies, obviously, the pricing muscle that we've built and just delivering on the overall growth and scale of our organization gives us a lot of confidence in that number and being able to continue to deliver profitability as we go forward.

If you think about that high level of growth, the profitability expansion and all of that we expect to drop down to double-digit EPS growth and then ultimately continuing to focus on efficient working capital management as well as just delivery of those bigger, larger numbers gives us confidence in the 70% to 80% free cash flow conversion as we go forward. So ultimately, we feel extremely confident in what we're delivering as an organization. You certainly see what we've done in the past that should give you a lot of comfort that we're going to be able to drive forward into the future. We have innovative products and solutions that are built around a really excellent operating model that is differentiated from our competition so that we will ultimately remain committed to driving organic sales at the high end of med tech, the continued focus on our operating margins will allow us to continue to drive profitability as we go forward and ultimately leading to larger shareholder value.

And then our capital allocation model will continue to strategically prioritize acquisitions and drive growth and expand our markets that we're in as we go forward. And so clearly, you can see by all you've heard here today that we are truly built for growth. And so with that, I'd like to bring up Kevin, Spence, Viju, Debra and Andy, to join me on stage. We will have about a 30-minute Q&A. We'll allow you guys to ask us some questions. My only ask is that if you have a question, raise your hand, when you're called on, please wait for a microphone so that those folks that are on the phone or with us virtually can hear the question that you have, and we will get started here in just a second.

So maybe we'll start with Robbie. Yes, they're coming to you right now. Dan, in the front.

Robbie Marcus, JPMorgan. Thanks a lot for putting this on. Really helpful. Maybe we could start with the financial slide, and top end of med tech is a little bit vague because there are some really fast-growing companies right now. Maybe I'll ask it this way. Kevin, you've put up 10% organic sales growth for 4 years in a row now, assuming your guidance for this year. Is that an unreasonable level to assume that strike going to grow at over the long run, high single digits, it's double digits out of range, now that the company is larger?

Yes. The way I'd like to think about it is we're going to consistently outperform our markets. And if the market growth -- if procedures stay kind of where they are, if the market conditions stay kind of where they are, that's a reasonable expectation. The reason we don't like to give a number is we don't know what the procedure growth is going to be over the next 3 years. The capital environment. I mean everything is very healthy right now, everything is very positive right now. It's been that way for quite some time. And you've seen we've actually accelerated our separation from our competition to move into that double-digit growth range. But there's no reason why we shouldn't be able to continue that, assuming these conditions stay similar. If the market conditions change, we're not going to defy gravity. This is why we don't like to give a binary number. But I think that's a totally realistic assumption, Robbie.

Maybe just one quick follow-up. Stryker is very acquisitive. You go in, you get bigger, you try and do the best in the categories you're in. It's pretty notable that you're moving into cardiology through the Inari deal. How should we think about where you see yourself in 3 to 5 years in cardiology. Can we think of you as a major competitor, cardiology in the not-too-distant future?

Robbie, I'd like you to think about that the same way you think about all of our businesses. We're never a one-and-done kind of company, right? When we did the target acquisition for Neurovascular, we followed on with Surpass and Concentric to build out a full portfolio. This is our first toe in the water in the cardiovascular space. It's a great space. It's an exciting space. We're not going to be done just with Inari. We're going to continue to build upon that. But M&A is unpredictable inherently, right? I talked about peripheral vascular for a while before we pull the trigger on Inari. I can't predict exactly when these deals will happen. But safe to say that's now -- that's a killing field we're going to be wanting to play in and look to build upon the Inari foothold with additional technologies just as we are in the area of health care IT. That SmartHospital platform will require additional acquisitions as well. But yes, the cardiovascular world is now a world that we're going to be looking at much more intently.

Go, Matt.

Matt Miksic, Barclays and echo my thanks for a really great program. There's a lot of really exciting things to talk about in the next 12 months. I'm sure we get a bunch of questions on margins and growth. But I had one on sort of some of the organizational changes you laid out in terms of customer solutions, adding that across pricing, contracting, those kinds of things. And wanted to get your sense of how much -- maybe give us some perspective on how much the field organizations, regional area managers are price and portfolio kind of management from a pricing perspective is now part of their workflow. And I had just one quick follow-up.

Yes. Maybe I'll take that one. First of all, it's a partnership between our businesses and customer solutions. So they work together on pricing, including our field representatives for customer solutions, working closely with our sales professionals on the street to negotiate price. So it is a partnership. I think importantly, and we may have mentioned this before, the businesses today, our commission rates are set based on pricing or discount level. So our sales professionals are inspired based on their commission rate to be part of the solution and driving better pricing. So that's been part of our journey. That's why you've seen us improve pricing over time. It will continue to be that way. And maybe just the last thing I'll add is the muscle that we're building from a contracting and price negotiation perspective over just a few years in Customer Solutions is just doing that building. Over time, that will continue to get stronger. Our customers are tough to negotiate with, as you might imagine, but we're also getting tougher and tougher to negotiate with as well.

The only thing I'd add, once upon a time, maybe 5 years ago plus, we might show up at a customer talking implants on Tuesday and capital on Wednesday and not share stories, now we show unified every single time. And we talk about the entire portfolio, the Stryker book of business and really understand their needs and what's best for our organization. We work through that a collaborative sort of partnership way with the customer. That's made us obviously, a lot better to work with, and we have much higher success when we think about our contracting and pricing from that stent as well.

Great. And then just one follow-up for Debra, if I could. On -- you mentioned, I think, in the discussion of some of the AI-driven or Smart Care systems that are going to hospitals that one of the outcomes was more pull-through of capital sales and sort of like more engagement, I guess, with that account. If you could talk a little bit about how much do you see that, or when do you see that evolving to be kind of a real profit center and business model on its own, or how much of it is a kind of an attachment for other parts of the Stryker portfolio?

I think it was for you, but I'll take it if that's okay.

Yes, because I think it was about the SmartCare platform.

Right. So as you saw with Jessica's presentation, we have those capabilities today in our Medical division in the portfolios of care.ai and Vocera. Those are strong, generating -- revenue-generating businesses for us today. You also saw in Jessica's 2026 column on her slide, where she was talking about the progression that in 2026, we'll be doing substantial work to tie in the additional products. She mentioned 85. Of course, we won't get all 85 connected in 1 year. But our power brands or power brands like Mako, which we talked about, they will be connected starting next year. Will that revenue pull through in 1 year, 2 years' time, not exactly sure about that, but the reality is that connectivity will drive greater value for our customers, which will make our portfolio stickier and more attractive.

You might imagine too, the process commercially, you'll have the CIO of the hospital pushing the system down, and we come up through the clinical environment with something like Mako as this great differentiator. As those come together, it's a really powerful approach for the hospital market.

And I'd just add one last thing is so Debra is going to build the backbone infrastructure and the cloud infrastructure, but then all the programming and the connecting of devices and everything is going to be led by Jessica's team. So even the communications business, that's part of endoscopy with the booms and the lights and they're going to be connecting into Jessica's Smart Care platform, which is backed by Debra's infrastructure. So it's a team sport, what we're doing. But the lines -- we've drawn the lines very clear who's accountable for what and how are you going to get this work done. And the more this is connected, the more sticky it is with our customers and looking at just at Vocera. So we already sell Vocera today. We sell Care.ai today. The stickiness rate on Vocera is like 98%. So once you get it in, and they start using those badges and their life is made more simple. They ain't coming out. And so we just need to continue to have more and more technologies connected to the SmartHospital platform. It becomes an annuity over time. And it just makes that other capital even more attractive if it can be then fed into the same ecosystem.

And Larry.

Larry Biegelsen, Wells Fargo. A quick one for Preston. The 150 bps, it implies about 50 basis points per year on the margin. Can you do that in 2026 with the tariffs. And I'll just ask my second question. I think it's for Spencer, but maybe Kevin, on Mako RPS, very exciting. How are you going to position it versus the current Mako? How is it differentiated from other handhelds devices on the market. And any financials like ASP or ramp that you could share? It is a financial...

[indiscernible] you all my answers to that, but we'll let Preston got out margin first, and then I'll just jump in.

So just clear. So it's 150 basis points minimum over the next 3 years. And obviously, as we think about '26, we do have the headwind of tariffs that we have to overcome. So we are going to be focused on all the things that Viju talked about. We're certainly going to be continued focus on how do we leverage scale from the organization through digital and other elements. And so we'll give you full guidance in January, but certainly think about it as it's a full ramp of a minimum of 150 basis points, but we do have the annualization of tariffs that we're going to have to deal with as well in '26, but ultimately, our goal is to try to drive and deliver that operating margin over that time period.

The only thing I'd add, Larry, is we are committing to double-digit EPS annually. So in your model, you can crunch the numbers. And it's not going to be a lousy year of operating margin expansion even with tariffs, we're going to be offsetting a lot of that to be able to get to double-digit growth in 2026. But obviously, once tariffs are -- that extra level of tariffs that come next year on top of this year's level of tariffs will then level out and that will be obviously a lot easier than the 2 years after that.

And I'll jump in on Mako RPS, and this is likely the only thing I'll say about it here in this forum, and I really ask you to refrain from additional questions, but we are really excited to share more as we turn the corner to '26 and likely at Academy. We really show that as a sneak peak because we do have the 510(k) on that product now. And I'll first remind us that our premium products, Mako and the continued record-breaking success we have quarter after quarter has not slowed down. And with the introduction of Mako 4, it's really been fulfilling to see the impact it's having in care and in the environment. Really, I'd like to talk about it moving to standard of care. I mean, this is a discussion that's happening in all the teaching institutions, how do I get my hands out of Mako.

With that being said, we still think there's a segment of the market that might have different needs. And you might imagine the amazing know-how we have in hard tissue robotics out of Mako and the amazing know-how we have in power tools in bringing those technologies together and leveraging that capability, the mindset, and you can imagine some of the technology platforms behind it allow us to position a product that can meet a need of the market that's different than Mako today. And so we'll talk more about that commercialization strategy and the segmentation and how we've positioned that. But I'll leave you with -- you might imagine, we wouldn't have called a Mako RPS unless we had absolute confidence in the capability clinically of that technology and the impact it's going to have in arthroplasty in the applications over time. So no additional comments will be made on it. We really struggled if we're going to show anything. Kevin said we had to. I want to blur it out like the one slide that Tim showed, but I think appropriate to share, and we'll obviously share a lot more.

Yes. We have been showing surgeons. So surgeons have been seeing it. The feedback is tremendous from the surgeons. It just fits a middle ground between Mako, which is -- requires a lot of change management but also comes with loads of applications and a standard power tool to be able to do your procedure. And you saw -- you did see a saw blade in that picture, right? So there is a sawblade attached to this which differentiates it already from other handhelds. And believe me, it works very well.

Travis.

Travis Steed, Bank of America. I'll ask both of mine upfront as well. One, on margins. Is there -- with acquisitions and M&A if you do a bigger deal, is there like a minimum level of commitment you would do in a year, or is it just better to think about it as double-digit EPS growth even with acquisitions?

I think the way to think about it is if we do the tuck-in type deals, those -- that dilution from tuck-ins will certainly be included in that double digit. If we were going to go do a big Inari-type deal that obviously has a bit of an impact on what that double digit could look like. But again, it's really going to depend on what that deal profile looks like over time as we go.

Okay. And then a couple of your competitors have talked about softness in the revision market. And you guys are talking about taking share with Mako revisions. And so just wanted to see what you're seeing in revisions.

Yes, we've been really fortunate. We launched Triathlon Hinge, which is a revision technology for knee arthroplasty and builds on the Triathlon family of products and have seen really strong success with it. And I guess timing is great with the entry of our hip platform on Mako for revisions. We have people say, this is a game changer for the ability to think about and preplan that revision case and then actually do it robotically I think it's going to be a step change in our ability to provide care revisions. So we haven't seen a shift in the market at all, and we continue to see strong demand for our technology in this space.

Ryan Zimmerman, BTIG. A couple of questions for me. So first, I don't know if it's for Andy or for Tim, on Inari. It grew high single digits, I would say, in the last quarter. Your closest competitor, not [indiscernible], but your closest competitor in mechanical thrombectomy grew 30-plus percent last 3 quarters, 40-plus percent. Markets by your own admission are growing double digits. So talk to us about what gets you back to market growth and then what gets you above market growth in the years to come.

Sure. Yes. So actually, last quarter, we grew double digits and as you know, we talked about some destocking that's happening with our customers. And if you take out that destocking, I think Kevin may have mentioned this, we were in the mid-teens growth for Inari. So we feel great about where we are. We feel really good about this quarter as well and where we're going. We'll get the destocking out of our way after Q1 of next year, and we'll be on our way to -- certainly, we expect above-market growth over time.

And then the follow-up for Viju. You've spoken at the Analyst Day through the years about operational improvements you've done to the organization. You've done a strong job moving margins higher thus far. I guess if you could just talk about kind of the ability to execute and improve margins ahead, it almost feels as if some of the low-hanging fruit, the sprint back to 200 basis points that was maybe the easier initiatives. And so can -- is it harder now to get that 150 basis points over 2028 and maybe specify specifically some of the things or quantify, if you will, what you're going to be doing there?

Finally, the ops guy gets a question. Thank you. Thanks, Ryan. Love it. The 200 basis points is perhaps super hard to get. On one hand, you might think about that as a low-hanging fruit. But we had to tilt the momentum, really pivot from playing defense to the pandemic, the supply chain crisis and the high inflationary period, pivot to playing offense, right? And that takes a lot of effort. So I would say the best days are ahead for us because the last couple of years with a lot of that went into that mindset and culture shift. So if you think about the setup time and the run time, the difficult time is that set up change, if you will, to a very different mindset.

And now if you look at perhaps a leading indicator of the results is the quality of the Kaizen events that are happening. And these Kaizen events are problem-solving opportunities that -- it's not just manufacturing or operations. We have commercial R&D engineers along with our advanced operations teams or sourcing people together, unlocking value, and that's the best way to do it, right? So that momentum is just picking up. And so the best days are ahead. I'm super confident we can meet the objectives question laid out.

Yes, Ryan, if I can just build on that. I mean, so obviously, you have the supply chain component that's a big piece. And that's a piece that as we get that moving on a more consistent basis as Viju's team has done, it just creates an incredible glide path from a leverage standpoint. In addition to that, we also have a lot of focus that's going on in that what I'll call the G&A areas that are supporting the sales organization as well. And so that differentiated model with all those different folks that are focused on the customer, we're focused in the G&A spaces with Debra's help through enablement of those digital tools that you talked about as well as shared services and some of those other elements around going out and trying to drive scale and leverage across the portfolio and the business that way.

And then the last element I would just lay out for you again is this pricing component Spencer talked about the customer solutions team, and how we've been able to really go out and build that muscle and drive that muscle. So all three of those areas continue to be really big opportunities for us as we think about the future, developed really over the last few years and now really in execution over the next few.

Peter Chickering, Deutsche Bank. I guess, actually, the first one is actually on international. So in 2023, there's a lot of talk about international expansion, growth opportunities there. There's less focus on it sort of in this Analyst Day. Just sort of curious how you guys see the international opportunity? And are you guys as excited about it as you were 2 years ago?

Maybe I'll chime in here. I don't think it's a defocus at all, just the opposite, where we remain really excited about the growth potential internationally. A couple of products I'll share in particular, Mako. We're in the early journeys internationally compared to some of the establishment we have in the U.S. and that standard of care mindset. There are a lot of countries that appreciate amazing technology and the clinical impact it can have that are just growing today and building. And so I think the opportunity for continued growth in Mako is a significant internationally.

Another one is Pangea. So just a world-class power brand in the making here in the U.S. in just early days internationally. Maybe there's one market or set of countries in the EU due to some regulation. It's not that we're not fully supportive and growing there, but the innovation is a little harder to get cleared right now. But generally speaking, we remain very confident in our international strategies and the growth opportunities there.

Sure. Maybe one add that I'll have here in addition to Spence from a product perspective or a portfolio perspective. And if you think about Inari, when we acquired Inari, Inari's revenue was roughly 7% -- total revenue outside the U.S. So you can imagine, yes, Tim and his team have been very focused on the U.S. and the results are following, but they have also been very focused on how we expand, leverage that global commercial strength that we have at Stryker to drive accelerated growth in Inari. So yes, we are, like Spencer said, very excited about our international opportunities.

Yes, I think just to wrap it up, Spencer alluded to the Europe problems. This [ UMDR ] has been a real challenge. And Europe's growth, which was high single low double digit for many years has slipped into kind of the 6%-ish percent range because insignia, which is an amazing hip stem, it's not on the market yet. Pangea is not on the market yet. You've got LIFEPAK 35 just got approved, so we really haven't sold anything yet. And I can go down the list of all these amazing innovations that are driving outsized growth in the U.S. haven't yet arrived in Europe because, of course, a giant region internationally, in fact, we're launching products in Japan prior to Europe, which was unimaginable 5 years ago, that's currently happening. So there is a delayed reaction for Europe. But believe me, we have the commercial offense in place, and we had that high growth that once those products arrive on their stores, that's going to pick up pretty significantly.

Chris.

Chris Pasquale, Nephron. A couple of questions for Andy on Inari. So our checks indicate that what Inari used to call emerging therapies has actually done really well this year, better than the Street was thinking prior to you acquiring the company, powered by things like LimFlow. You talk about what you're seeing there versus the core ClotTriever and FlowTriever business? And then Tim highlighted PEERLESS II very exciting trial. We did just get some data from a competitor, a much smaller study, but looking at a similar randomized set up. Can you talk about how you think the pulmonary embolism market develops? And when can we see your data? Is that something we get next fall?

Timing for PEERLESS II data, okay. That was the last part of your question. So the first part on Tim highlighted Artix and LimFlow specifically, those are like -- they're called emerging therapies. They're also emerging in terms of scale and growth for us. Growth is strong. They are smaller businesses, but growing fast. And we would -- yes, they are, of course, accretive to our overall growth, but we would expect that, that will have an ever larger impact as we move forward. Very exciting spaces, and I'm glad that your checks are reflecting that as well. On PEERLESS II and our competitors' recent release of their RCT, we look at anything that has a benefit or a tailwind to mechanical thrombectomy as good. So we're excited about that data. We're very excited about what PEERLESS II will do for us. And we expect that, hopefully, in the next 18 to 24 months that we'll see the data from that study.

Yes, the pulmonologists need large-scale data. So while that study was a good study, it was not nearly powered to the same degree that PEERLESS II is powered. They're just -- they're a skeptical group of clinicians, so while the first study helps, PEERLESS II will really take it over the line.

Joanne.

Joanne Wuensch from Citibank. I have a question about the hospital care business. And essentially, I appreciate that everybody -- not everybody, but it feels like everybody is going to have a product in that circle of life. But I'm curious how you monetize it outside of selling more of x products. Is there an SAS component? Is there a high-tech piece to it. And if the answer to that is yes, where will I see it in your revenue components?

Joanne, you'll see all of the revenue as we move forward on a SmartHospital platform show up in medical. That's where we'll see it. And today, we have a substantial amount of revenue, that is recurring revenue, Jessica mentioned that. In a SaaS-like business or you could imagine in the future, everything as a service type business that will show up in medical. And of course, the more we're connected across the company and the more value we can drive, the more attractive we are to customers. But look for that, you can look for now and look for that in the future in our Medical division.

It maybe in an SEC document somewhere that I'm not aware of, but is -- can you share what that SAS revenue is today? And is there a goal of what that might grow to?

Yes. We don't share today beyond that segment of medical what's in that number.

Shagun Singh from RBC. Really excited to hear all the focus on operational excellence. Can you maybe talk about how we should think about peak margins for Stryker? Can you get to 30%. And then just on M&A. Maybe can you specifically talk to us about the adjacencies. I think previously, you had mentioned 5 specific areas. I think today, I'm hearing you talk a whole lot about HCIT and vascular. And there is a big focus on SmartHospital. So how does that factor into your previous focus on surgical robotics.

Yes. So I'll start with the margin question. So certainly, we haven't talked about where we could ultimately get to. I mean our focus certainly over the next 3 years is just continued expansion around those areas that we talked about with a minimum of 150 basis points. And so that's really going to be our focus. We're always going to balance where our margin is with the necessary reinvestment back into the business in terms of driving growth. So it's going to constantly be that value. We believe right now that, that 150 is a good target for us. It allows us to do both of those things. So maybe I'll ask Kevin to answer your other question.

Yes, sure. So as it relates to M&A, I did speak about HIT and cardiovascular because those are businesses we've already put our foot in the water. That doesn't mean we're not going to stop looking at new spaces as well. So the other adjacencies we've talked about before, urology, is a really exciting adjacency that we still are actively looking at neuromodulation. And I don't just mean spinal cord stim, I'm talking deep brain stimulation, hyperbola stim, peripheral nerve stim, still an area that we like. We haven't yet found the right company. We've looked at many, just haven't sort of found the one that we think will be a terrific addition to our portfolio, but that's an area. And then soft-tissue robotics is still an area.

I'm not so sure we're going to get in or when we're going to get in, but we like that space, and we believe that there is room for another company, probably with a different kind of form factor. There's -- I don't know how many start-ups, Andy? 50, 60 startups. And this is in Andy's world and his team is scouring the market and evaluating all of those. And if we find one that we think will be really exciting value creating and complementary to our Endoscopy division, then we'll pull the trigger. So those -- nothing's changed. Those are still areas that we continue to look at. I just mentioned the other two because we're already in them. And once you're in something you're definitely going to be continuing. When you -- the first step in is less certain. I just don't know. I'm not sure when valuations. There's lots of other considerations to put your first foot in.

Matt O'Brien, Piper Sandler. A question for Spencer. And then I do have a follow-up for Kevin. But 17% of your organic growth in '24 came from your Trauma and Extremities business, and it's a big business now, and about 20% this year is going to come from there. So as we start to lap Pangea's impact here, can you still generate that kind of growth out of the T&E business for '26, '27?

We won't give specifics for T&E. We remain confident in the orthopedics outlook. Strong demand from a patient standpoint, coupled with the innovations that we have on the horizon in our, what we call, our core trauma, so the trauma business -- but if you look at all those different businesses, lots of new product introductions across the UE that I mentioned, you can see behind you, the Incompass Total Ankle systems recently launched and the software system that powers that will come out called Prophecy here in Q1. So there's a variety of new innovations, let alone the strong progress we've seen in hips and knees and the continued pathway there. We remain confident in our Orthopedics segment.

Okay. Fair enough. And then, Kevin?

I was just going to add to what Spencer said is. So Yes, we're going to lap Pangea in the United States. Pangea still isn't launched in many other international markets. Mako shoulder has really contributed virtually nothing to our fantastic shoulder growth. We've just been in a few test pilot sites. That's going to have much more of an impact in the -- starting in the second half of next year and into '27, you'll see the Mako shoulder have a tremendous impact. And then in addition to having the newest best-in-class total ankle system, there's extra reimbursement in the United States, significant more than 50% reimbursement starting Jan 1, both in the ASC as well as in the hospital. So yes, there's going to be a lapping effect, but you have these other three forces that are going to be pushing in the other direction. So it will stay high growth. Again, we won't be specific on the number, but it's going to continue to be a high-growth business for us.

Okay. And then -- sorry, just as a follow-up, I think the takeaway or one of the takeaways today is really the M&A push that I think you're saying we're going to see for next year. First of all, is that fair? And then secondly, when I think back to '23, you mentioned, hey, after this elevator ride of some of these some small caps is over with, we're going to be ready to pounce when they come back in. I mean we're at 11-year lows on small cap valuations. Are you ready to pounce on some of these public companies because it shouldn't be as hard to go out and acquire those guys just given that there's a public market for...

Yes. We've done public deals. So we don't have any fear of doing any public transaction. And we now have a balance sheet that's very healthy. Wright Medical and Vocera and Inari sort of increased our leverage. Our leverage is coming down to a level that frankly, I don't enjoy. Even Preston doesn't fully enjoy it. So we want to put our money to work, but -- it takes two to tango, you have to find the right deal at the right price. We are absolutely ready to pull the trigger financially. It's just making sure we have deals that are value creating. And that was a great deal we looked at in the digital world, but the valuation expectation was just beyond what we felt was responsible financially.

And as we've seen with some of our competitors in the marketplace. When you weigh overpay for a deal, you pay the price for years. And so we're going to be very thoughtful about that. But small deals we like, tuck-ins we like, whether they're public or private, is irrelevant to me. So yes, we are ready, but we have to find the right assets that we feel we can really enhance our growth profile fit with our existing strengths. There's a lot of damaged assets, very cheap. They're damaged for a reason. And just because something is cheap doesn't mean we're going to buy it. We're not the kind of company that does fixer-uppers, yet, right? But building that operational excellence, maybe one day, we'll be a company that buys a fixer-upper because we know we can do it. Today, we're all about buying really good technologies that we can scale and grow. We are scalers using our great commercial offense. That is kind of a lens that we really focus on at this time versus buying damaged assets just because they're cheap.

Josh Jennings from TD Cowen. Two questions for the total joint business -- on the total joint business. First, we have been trying to track just ASC penetration for knees and hips. And maybe you could help us just think about assumptions for ASC penetration of '28, and if that pace is faster. Is that a bigger tailwind for Stryker? I mean basically, is Stryker gaining disproportionate share in ASC versus the hospital channel? Just one follow-up.

Did you give a year? Is that what you're asking...

Just this medium-range plan you guys have for 2028.

Yes, we won't share the specifics of what that outlook looks like. But we are in mid-teens right now of our joint business that goes through ASCs. We have continued to see that grow. Interestingly, there's a bit of capacity reality right now in total joints for space in the ASC. So we need additional builds to be taking place. We need that space to open so you can gain the more capacity out of the hospitals. We expect the trend to continue. This will be a trend that we'll build upon in the years to come. But I'd also not to think about it just as hips and knees. We'll continue to see more and more of our foot and ankle business. We talked about shoulders even accelerating more business in the outpatient surgery center. But this will continue to be an important part of the orthopedic story, and how we differentiate in the future and an important part of our business that we think will continue to have a strong position.

And the way to think about Stryker, we win disproportionately on new builds and big renovations, which is a sliver of the ASC...

The broader market.

Right? That's where our ASC offense is really singing. But if you have an existing ASC, let's say, with a competitive doctor, we can convert them, but it's -- that's like hand-to-hand warfare like it is in hospitals, right? If we don't -- we aren't able to use that breadth of portfolio leverage to the same degree. That's the sort of traditional battle.

And frankly, if you think about something like Mako RPS, that's going to be another tool in the gun to be able to really sing in existing ASCs because it's obviously a lot easier of a transition than going to a full-scale Mako robot. So I think that will also help us in the ASCs. But the ASCs are going to -- there's no going back. The trend is absolutely going to continue. Hard to predict, honestly, how fast it's going to go to Spencer's point, it's this capacity issue that's the gating factor. But everybody other than the hospital loves it. The patient loves it, the surgeon loves it, the nurse loves it. And that's why hospitals are participating.

Hospitals love it.

They're participating because actually, you can do more procedures in a day. The EBITDA of these ASCs is 20% plus, and it's better than -- better margins than you see in a hospital. So there's no going back. It's just going to keep going, and we like them. It plays well to our strengths, and that's -- we can't really give you a specific because we just don't know how fast it's going to go.

Understood. And I just noticed Triathlon Gold is 3D printed. I think femoral component, it looks like I think that's the first 3D printed femoral component on Stryker's portfolio. But really just wanted to ask I mean with your 3D printing price or additive manufacturing prowess, is that more cost effective in terms of printing joint components today? And what does that say about the future of your joint portfolio? And then lastly, I mean, are personalized implants in the future for Stryker combining them with the Mako robot.

Sure. I'll comment on the 3D printing and Viju wants to add on, but it has been a great platform technology for us and one we're really proud of in the investment and thinking and the continued innovation. And so you might imagine, we're looking at all different implants across the implant portfolio and obviously, heavily in orthopedics. And can they be -- should they be -- one of the questions we're wrestling with is how do we do this at scale, too. Printer right now comes out with just a handful of the implants done, are there technologies that we can do this at scale? When that happens, it further drives down the cost. And we think there's some avenues and some innovation that viju has been helping look at and lead, and I think we've got some interesting things on the horizon there. So that's a big one.

On the personal -- and Viju can comment, but on the personal to answer your question there, personalized implant, we do this now. We do this now with shoulder ID, and this is a patient-specific implant that we make. And we continue to look at this across our portfolio. We also do this in our craniomaxillofacial business for a customized personalized implant for the face as well. And so that remains a really interesting part of our portfolio and an area that we see a lot of growth. We just have to make sure we do it the right way. And probably a critical element is the logistics -- the time from when a scan has taken place to the manufacturing to ship it to get it cleared and then into the operating room, can it meet the needs of that patient or that surgeon's care pathway. And right now, that's one of the biggest challenges still that we're working to solve to accelerate. You might imagine someday if you can Amazon it, if you will, where you get the scan and 1.5 days later, it's there for surgery, that's really powerful. So those are the ambitions that are out in front of us and things we're working on today.

Spence, you really nailed it. Maybe a couple of ancillary points are -- one is on the scale platform, going from a couple of heads to other platforms that are much more throughput. So we're actively investigating that and the future looks pretty bright. We're also looking at converting more opportunities to convert more orthopedic implants to a 3D printing. So those are some of the things we have in the works, but the future is really bright.

Yes. Today, we only have one replacement product that's 3D printed, which is the Trident II acetabular cup. All the other 3D printed products so far have been innovations, just like you're seeing with the metal sensitive Triathlon Gold. It's an innovative new product. But Viju's team is -- does have active projects to work on these larger scale manufacturing. So we don't get a cost savings really much right now. But as we get these higher scale manufacturing of additive, which is in development right now. As that comes to the market, we'll look to replace more of the products.

And one of the prime ones, which we'd love to replace would be Pangea. That would be awesome if we could 3D print that. We do not do that today, just the scale of that. And so we're actively working on it, and we hope to be able to share more. We have some development projects that it's still too early. So right now, there's not much of a margin pickup, but we're bringing a solution to the market. And nothing more frustrating than having a great surgeon that loves Triathlon switch their implant to somebody else's because it's a metal sensitivity. I mean that's -- I mean I could sell that tomorrow, right? You're already developed Triathlon. I'm going to give you now a Triathlon to your metal [indiscernible]. That's going to be the easiest sell that we've ever had in the implant world to at least to our Stryker loyal surgeons.

We're going to encourage them to go to surgeons that may not use Triathlon and hope that they quickly adopt as well.

Exactly. Put as a competitive selling to the test. David Roman from Goldman Sachs. Maybe you could talk a little bit more about Mako shoulder. I think you mentioned having a bigger impact in the second half of next year. Maybe just help us qualify where you rank kind of the sort of clinical need for shoulder robotics versus some of the other areas where you've seen adoption hips, knees, et cetera, and whether you see Mako shoulder not only helping drive conversion to robotics, but expand the overall market there?

It's still very early. We have the limited market release going on right now with Mako Shoulder. And you might imagine phenomenal success. The handful of facilities are utilizing this, we can't get it away from the surgeons right now. They want to do every case. And it goes back to the concept of the thinking process ahead in the plan and then building it into Mako and providing this outcome to the patient that they just -- it takes the burden out of that procedure.

So as we turn it on next year to full launch, we do expect some pickup in our Mako units, and that will translate to some impact in volumes and implants as well. Our [ Upwork Series ] business is a unique one because we are a category leader in that space with a really strong share position that we expect to further expand. How quickly we do that, we have some expectations that we're not going to share in this type of audience, but we're very bullish about Mako shoulder. And again, this isn't a Stryker thing going, well, we want to add this application. This has been the clinicians asking us, can we please have that capability, the haptic cutting, the ability to prepare the glenoid and then put the implant in exactly as that cut sits face, we want that in our particular procedure. And so they've said, give it to us as quickly as you can. So that is building right now, and you'll see more of it out in the marketplace in '26.

David, I'd just like to give a little extra color. So today, the Mako shoulder -- it's on the Mako 3 robot. We have to then also make it compatible with Mako 4, which is now the new version of robots that are going out there. And that will happen towards the end of the first quarter. So that's why we're not sort of going full speed until we get that software compatible with Mako 4. And then we'll be able to go full speed on Mako shoulder.

To your point about growing the market, I'm a big believer. Now I have no data, so this is anecdotal, but there are a lot of hip and knee surgeons that used to do shoulders and that are going to want to do shoulders again, just anecdotally. And they already know how to use Mako, they already know how to use the screens. It's a bur on the end of the robot just like they use for a partial knee -- when they do a partial knee. There -- it's going to be very seductive for those surgeons who want to -- instead of referring out their shoulder replacement to a shoulder specialist to start doing shoulders. And we're hearing that. And so I believe if that happens, that can actually grow the market because a lot of times they say, well, I go to shoulders. And they might prefer, they may not prefer. And there are a lot of people that are candidates for shoulder replacements that aren't getting them today. So I'm hopeful, we're not going to necessarily bank on it, but I'm hopeful that Mako can cause the market to go up because you're going to have hip and knee surgeons coming back to doing shoulders again, even sports med surgeons doing shoulder again because basically, this is like belts and suspenders.

A very hard procedure is made much easier when you do Mako, which is what we saw with UNIS, which is what we're seeing with revision hip, even though it's in a limited launch. The surgeon I talked to at AAHKS said, this is a cheat code for revisions. And normally, I'm stressed out when I'm doing a revision, my stress is gone because Mako just takes away all of the stress. So let's see. It's going to take some time. These robotic things, as you've seen in the past, they take a little time and then they sort of really take off afterwards.

Kevin, maybe the one other comment to add, most of our sales interactions about Mako now, every administrator or buyer is talking about the multiple applications we offer. They want that flexibility. They want that capability. It's driving more conversations to Stryker and to Mako because we have the multiple applications to meet their needs over time. And that's been a really important part of our strategy.

Maybe just a quick follow-up. You talked a lot about performance culture earlier, which clearly Stryker has demonstrated consistently. As you kind of think forward here with this LRP, I think most of the companies probably measure on annual operating plans. You guys are measured on, obviously, lot of equity stake as part of LTI. So how do you keep the whole company motivated and accountable to hitting these targets versus the annual plan that a lot of them are measured on?

Well, the annual plan ties to these targets, right? So we've given you 3-year targets. The only way to get the 3-year targets is you have annual plans that connect to those 3-year targets. So look, this is a high ambition neighborhood. Our companies, when we give quotas out, let's just say nobody in the sales force thinks it's going to be easy, right? Every year, they get their number, they gas, then they get to work and they go achieve these high -- it starts with high ambitions. So we set high ambitions and we hire people that like high ambitions that aren't afraid of them and that get out there and go for it, and we provide the resources and support behind them. But this margin expansion, our division presidents, they didn't usually talk about that 7, 8 years ago. And that's partially because we didn't have the muscle and partially because that wasn't what was in their compensation plans. It's now in their compensation plans.

So there isn't any disconnect here. So everything -- I mean, our division presidents are all here. You can talk to them when we walk across the street. None of this is shocking to them. None of this is surprising to them. They're bought in. We have a unified leadership team, and we have an annual global meeting that we bring all our leaders together, and we share the outlook that's multiyear, and they know the goalposts that are going to be needed to get there. So none of them are gasping when they see this. They know this is our reality. We like being winners. And the only way you stay winners is if you keep staying ahead and you keep your foot on the gas.

Just to build on that. So these plans, these LRPs are connected, as Kevin said. And I think they're also very well known. I mean it's something that we talk about not only in that meeting, but even in functional meetings, in all sorts of meetings throughout, we show how that connectivity of the operating plan back to the LRP and how it's driving the overall business. So I think it's something that we communicate regularly and everybody then is on board with how we're delivering both for the 1 year and then ultimately the 3 years as we go forward.

Okay. I know not everybody got their question answered, but don't fret, we're all going to be walking across the street. We have an amazing product fair to demonstrate a lot of the different products that make up our incredible portfolio. You'll get a chance not only to interact with the leaders that are on stage, the leaders that are in the room, but there are members of our business that are across the street willing and ready to show you their products. So certainly a chance for you to interact with them as well.

So with that, we thank you for coming to the prepared remarks and the Q&A section, and we'll see you across the street in 15 minutes.

Welcome to the Third Quarter 2025 Stryker Earnings Call. My name is Robbie, and I'll be your operator for today's call. [Operator Instructions] This conference call is being recorded for replay purposes.

Before we begin, I would like to remind you that the discussions during this conference call will include forward-looking statements. Factors that could cause actual results to differ materially are discussed in the company's most recent filings with the SEC.

Also, the discussions will include certain non-GAAP financial measures. Reconciliations to the most directly comparable GAAP financial measures can be found in today's press release that is an exhibit to Stryker's current report on Form 8-K filed today with the SEC.

I will now turn the call over to Mr. Kevin Lobo, Chair and Chief Executive Officer. You may proceed, sir.

Welcome to Stryker's third quarter earnings call. Joining me today are Preston Wells, Stryker's CFO; and Jason Beach, Vice President of Finance and Investor Relations. For today's call, I will provide opening comments, followed by Jason with the trends we saw during the quarter and some product updates. Preston will then provide additional details regarding quarterly results and guidance before opening the call to Q&A.

Our third quarter results demonstrate our broad business strength and ongoing commitment to margin expansion. We delivered strong organic sales growth of 9.5% against last year's high 11.5% comparable. We also delivered double-digit adjusted EPS growth of 11.1% despite tariff headwinds, which picked up meaningfully versus Q2. Our organic sales growth was driven by widespread demand across our businesses and included high single-digit growth for MedSurg and Neurotechnology and double-digit growth from Orthopedics.

Geographically, our U.S. organic sales growth of 10.6% included double-digit organic growth from our Vascular, Trauma and Extremities, Neuro Cranial and Instruments businesses and high single-digit organic growth in Hips, Knees and Endoscopy. We delivered 6.3% organic international sales growth with notable contributions from South Korea, Japan and emerging markets. We continue to view international markets as a significant opportunity for long-term growth and look forward to launching many products that have already demonstrated success in the United States.

We completed 2 small acquisitions during the quarter. The first, Guard Medical's NPseal products brings simplified solution for negative pressure wound treatment that strengthens our orthopedic instrument offerings. The second, advanced medical balloons brings novel patient care products to our Sage business. These acquisitions demonstrate our commitment to deals that deepen our portfolio and enhance growth. Backed by a healthy deal pipeline and strong balance sheet, we plan to stay active on the M&A front.

We have good momentum exiting Q3 and expect a strong finish to the year. As a result, we are raising our full year 2025 outlook. We are firmly on track to deliver a second consecutive year of 100 basis points of adjusted operating margin expansion backed by strong execution and conviction in the sustained growth and earnings power of our businesses. I would like to thank our teams for their dedication and passion and living our mission each and every day.

With that, I will now turn the call over to Jason.

Thanks, Kevin. My comments today will focus on providing updates on the current environment, the integration of Inari and a preview of Investor Day.

Procedural volumes remained healthy in the third quarter, in line with our expectations. We anticipate continued strength in procedural volumes through the end of the year. Demand for our capital products was strong once again in the quarter, and we exited Q3 with an elevated backlog. With a steady hospital CapEx environment, we expect continued strength in our order book.

We delivered our best ever Q3 for Mako installations, both in the U.S. and worldwide. Mako continues to see high utilization rates, further bolstering our #1 position in U.S. hips and knees. In addition to Mako 4, our numerous recent product innovations continue to drive growth and interest in the marketplace. Notably, LIFEPAK 35 launched in Europe at the end of the quarter.

Next, the Inari integration continues to progress well. We continue to convert the business to our Stryker offense with the successful onboarding of our sales professionals. The Inari business delivered double-digit pro forma organic sales growth in the quarter, highlighting robust procedural growth in the teens, partially offset by destocking, which we continue to work through. Inari remains on track to deliver double-digit pro forma sales growth in 2025, and approximately $590 million in sales for the 10 months this year as a part of Stryker.

Lastly, we look forward to hosting our upcoming Investor Day on November 13, which will be webcast live on the Investor Relations page at stryker.com. During the event, various leaders from across our businesses will discuss our long-term strategy and illustrate how we are built for growth. For our in-person attendees, we will conclude with a product fair that will showcase exciting products and innovations across our MedSurg and Neurotechnology and Orthopedic businesses. Also, you will be able to interact with many of our leaders.

With that, I will now turn the call over to Preston.

Thanks, Jason. Today, I will focus my comments on our third quarter financial results and related drivers. Our detailed financial results have been provided in today's press release.

Organic sales growth was 9.5% for the quarter compared to the third quarter of 2024, with the same number of selling days in both periods. Pricing had a 0.4% favorable impact as we continue to see positive trends from our pricing initiatives across many of our businesses. Additionally, foreign currency had a 0.7% favorable impact on sales. Our adjusted earnings per share of $3.19 was up 11.1% from the same quarter last year, driven by our strong sales growth and margin expansion, partially offset by higher interest expense. Foreign currency translation had a favorable impact of $0.03 on adjusted earnings per share for the quarter.

Now I will provide some highlights around our quarterly segment performance. In the quarter, MedSurg and Neurotechnology had an organic sales growth of 8.4%, which included 9.4% of U.S. organic growth and 5.1% of international organic growth. Instruments had U.S. organic sales growth of 11.5%, led by a double-digit performance from the Surgical Technologies business, which includes our Neptune waste management, SurgiCount and smoke evacuation products.

Endoscopy had U.S. organic sales growth of 7.9%, led by a robust double-digit performance from our Sports Medicine business and near double-digit growth from our core endoscopy portfolio, somewhat offset by lower sales in the Communications operating room business due to the timing of infrastructure installations.

Medical had U.S. organic sales growth of 6.5% that included a double-digit performance in the Acute Care business, which was driven by ProCuity and Vocera. We continue to expect Medical to achieve 10% organic sales growth this year, while we manage the previously discussed supply chain disruptions affecting our emergency care business.

Vascular had U.S. organic sales growth of 13.4%, led by the recent launches of our Surpass Elite flow diverting stent and Broadway aspiration system. As a reminder, organic sales growth figures do not include Inari.

And finally, Neuro Cranial had U.S. organic sales growth of 12.9%, led by strong double-digit growth in our IBS, Craniomaxillofacial and Neurosurgical businesses. Internationally, MedSurg and Neurotechnology's organic sales growth was 5.1% despite the ongoing supply disruptions affecting our medical business and against a very strong prior year comparable growth rate of over 11%, which was driven by our Medical, Endoscopy and Neuro Cranial businesses. The growth this quarter was led by our Neuro Cranial and Instrument businesses. Geographically, this included healthy performances in South Korea and Japan.

Orthopedics had organic sales growth of 11.4%, which included organic growth of 12.9% in the U.S. and 7.8% internationally. Our U.S. Knee business grew 8.4% organically, reflecting our market-leading position in robotic-assisted knee procedures and continued momentum from new Mako installations. Our U.S. Hip business grew 8.7% organically, highlighted by the ongoing success of our Insignia Hip Stem and the continued adoption of our Mako robotic hip platform that now has the expanded ability to address more difficult primary hip cases as well as hip revisions.

Our U.S. Trauma and Extremities business grew 13.2% organically with robust double-digit sales growth in our Upper Extremities and Core Trauma businesses. Our multiyear strong Shoulder growth continues while our Core Trauma performance continues to be driven by Pangea, our differentiated plating portfolio.

Our U.S. Other Ortho business grew 38.5% organically, driven by robust installations in the quarter and amplified by Mako deal mix and a strong performance in navigational technology products. Internationally, Orthopedics organic growth of 7.8% included a strong performance from our emerging markets. Our international results also include a nominal amount of Spinal implant revenue because of previously accepted tenders that we are fulfilling before exiting those markets.

Now I will focus on certain operating and nonoperating highlights in the third quarter. Our adjusted gross margin of 65% was favorable by 50 basis points over the third quarter of 2024 despite tariff headwinds, which we now estimate will have a net impact of approximately $200 million for the full year 2025.

The adjusted gross margin improvement was primarily driven by business mix and cost improvements as we continue to optimize our supply chain and manufacturing processes.

Our adjusted operating margin was 25.6% of sales, which was 90 basis points favorable to the third quarter of 2024, driven by the gross margin favorability I just discussed as well as lower adjusted SG&A as a percentage of sales due to ongoing spend discipline as part of our long-term focus on continued margin expansion.

Adjusted other income and expense of $116 million for the quarter was $74 million higher than 2024 due to increased interest expense from the most recent debt issuances and lower interest income. We now expect our full year 2025 adjusted other income and expense to be approximately $415 million.

The third quarter had an adjusted effective tax rate of 14%, reflecting the impact of geographic mix and certain discrete tax items. For 2025, we now expect our full year effective tax rate to be at the lower end of our previously guided range of 15% to 16%.

Turning to cash flow. Our year-to-date cash from operations was $2.9 billion, driven by year-over-year working capital improvements.

And now I will update our full year 2025 guidance. Considering our year-to-date results, continued strong demand for our products and our operational momentum, we are raising our full year guidance and now expect organic net sales growth of 9.8% to 10.2%, and adjusted earnings per share to be in the range of $13.50 to $13.60. Our updated sales guidance includes a modestly favorable pricing impact. In addition, foreign exchange is expected to have a slightly positive impact on both sales and earnings per share should rates hold near current levels.

With that, I will now open the call for Q&A.

[Operator Instructions] Our first question will come from Robbie Marcus with JPMorgan.

Congrats on a nice quarter. Two for me. First, Kevin, you always have great insight into procedure volumes and the equipment market. You clearly had a great quarter on the ortho side, some bright spots on the CapEx side, also a little bit of softness, particularly in medical. I was hoping you could just walk us through what you're seeing globally in terms of procedure volume market and the health of it as well as some of the puts and takes on the capital equipment side globally?

Yes, sure. Thanks for the question. I would tell you that nothing has really changed if you think about what we've said in the past couple of quarters. Procedure volumes are very healthy, which affects, obviously, our implants as well as our small capital. And the capital markets are really strong. The balance sheets are strong with hospitals. You saw this quarter, in fact, a lot of Mako purchases, which helped -- obviously, we had strong installations, but a lot of those were cash purchases. And a year ago, those were being more leased. So balance sheets are strong. Procedure growth is strong.

As it relates to our business mix, sometimes you see in the Communications area, there was a bit of timing. A lot of these installations of ORs are going to be delayed a little bit, but we have a very healthy order book in Communications. Medical, as you described, sometimes goes up and down. We had a big quarter last year in the third quarter. We're going to have a very strong fourth quarter, off to a fast start in October, and it will be a very strong fourth quarter. And as you've seen in the past, Medical does kind of move from quarter-to-quarter. There can be variability. But over the full year, very strong and healthy business. Obviously, we've had some supply chain disruptions in emergency care. That's continued all year. But in spite of that, still going to be a double-digit growth year. It would have been even higher if not for the supply chain challenges. But I would say across the board, the markets that we play in are very healthy.

Great. Maybe one for Preston. Your business every year has a big step-up third quarter to fourth quarter, both on sales and margins. Obviously, we can back into what's implied in guidance. But just help us walk through some of the things to consider, particularly on the margin side and the levers that you pull to get to the step up there? Appreciate it.

Absolutely, Robbie. I appreciate it. So I think the thing to keep in mind as you think about the guidance range, particularly as we talk about margins, obviously, we do have a larger sales number that we'll be building on. We're going to continue with our focus around margin improvement that's driving upside on our gross margins as well as in the SG&A lines.

The big offset this year is tariffs. So we look at the tariff impact, it's more second half weighted. And so that is going to certainly be the offsetting piece of what we would normally see as much bigger margin expansion in the fourth quarter. So we're still expecting operationally to drive better margins, but then that will be partially offset by tariffs in the fourth quarter to get to where we've guided to.

Our next question is from Larry Biegelsen with Wells Fargo.

Congrats on another nice quarter here. So Kevin, you're guiding to 10% organic growth at the midpoint in 2025. How are you thinking about maintaining this momentum next year? What are some of the puts and takes we should consider? And can you expand margins next year with the tariff impact increasing on a year-over-year basis? And I had one follow-up.

Yes. Sure, Larry. We have an Investor Day coming up pretty soon, and we'll share kind of our longer-term outlook at that time. What I would tell you is this is our fourth consecutive year of growing roughly 10% organically. Of course, last year was a little bit higher than that, over 11%. But this is a sustainable, durable high-growth business. So you're going to see more of the same for years to come.

That's helpful. And Kevin, I'm sure everybody listening picked up on your M&A comments. So maybe just refresh us on areas of interest, if anything has changed, deal size, et cetera. Anything new?

No change, Larry. All of our businesses are lining up their targets that would help enhance their businesses. And as you know, there are adjacencies that we're going to continue to explore. I've been pretty clear about what those are. As you know, peripheral was one of those adjacencies that we pulled the trigger on in the first quarter of this year. And so there's no new ones. The same ones I've been talking about. We do have a strong balance sheet. We can do larger deals if they are going to be value creating for the company. It's always hard to predict the exact timing on deals. And so we do plan to be active. It is the #1 use of capital. That is our first priority is to use it for acquisitions. And so we remain on the hunt.

Our next question is from Ryan Zimmerman with BTIG.

Let me echo the congratulations on the quarter. Kevin and Jason, your Knee number in the U.S. stands out pretty in stark contrast to your other competitor that has announced the spin out of its Orthopedic business. And I'm just wondering kind of Kevin, how do you think about the health of the orthopedics market, how you're preparing to maybe capitalize on any disruption that may come of that and just kind of your outlook on orthopedic. One thing I did notice was price pressure. We did see a little bit of price pressure in this quarter. We haven't seen that for a few quarters. So maybe you could comment on maybe what was driving that as well.

Yes. Sure. I'll take the first part, and I'll let Preston comment on the price pressure. Listen, we're in a great position with our Knee business. It's not new. This has been building over a number of years with our lead in cementless, the tremendous adoption of Mako for knees. We also have a new hinge, which is the revision system for knees. So this momentum has just been building. And with every Mako that gets installed, we know there's going to be a high adoption of our products. And so we've been growing above the market for quite some time. It was a terrific quarter, especially if you consider last year, we had a very big Q3 and so the Knee business is performing extremely well. We're very excited about additional changes that are coming, more software changes for Mako to make it even better to use, actually some new product innovations that we'll talk about on the investor call in a couple of weeks. And so the Knee business is really poised to continue this high growth.

And then on price, Preston?

Yes, as far as pricing is concerned. When we think about where we are, we're pleased with the fact that we've been able to drive positive price for the overall organization over the last several quarters. That's really come out of the work that happened a few years ago. And so we're still driving that.

The other thing to consider is now we're anniversarying some of that price improvement year-over-year-over-year. So now we're driving compounded price that we're seeing. And so when you think about the split between the multiple business on the MedSurg side, we're certainly seeing continued price improvement on that business. And with Orthopedics, we're not back to where we were historically. So we're still performing above historic levels on a pricing standpoint, and we expect that we're going to continue to try to work through the pricing muscle that we've learned to develop and that we have developed to continue to drive positive prices in the future.

Okay. And then second one for me. Thank you for both those answers, appreciate that. On Inari, Kevin, as you like to say, the U.S. business is humming. But maybe if I could ask about the OUS side and when you think you can kind of really take Inari to a bigger international presence maybe than prior -- when it was a stand-alone company.

Yes. Thanks. Look, our focus really has been on the U.S. I mean we've really been all hands on deck. We went through some real challenges in the second quarter, enforcing people's noncompetes, going through a lot of churn in the sales force, bringing on new Stryker leaders. That's been -- we've been laser-focused and I love the recovery and the bounce back in Q3. It was really terrific. And the outlook for Q4 is very good. We launched the first arterial product that's getting really favorable feedback. We have started to expand internationally, but I don't really -- hasn't really taken off yet. That will start to, I really think, have a big impact in the second half of next year. It's going to take a bit of time, but we do have infrastructure in Stryker that Inari did not have. And that clearly is one of the thesis for us in doing the deal is that international will be very exciting. But I really think it will start to take hold in the second half of next year.

The next question comes from Travis Steed with Bank of America.

I will start with a follow-up on Inari. Just curious if maybe you can elaborate on some of the integration process in the sales force. And like is this quarter, you think kind of a low point in the growth and so we should kind of be sustaining this kind of double-digit growth going forward? And any comment on some of the P/E data that came out. Curious if you had any comments on that.

Yes. Look, we put our own Stryker sales leader in charge of the sales force, and we've been hiring pretty rapidly given the churn that we went through in the second quarter. It takes time for those sales reps to be fully productive. They had a really good Q3. I'm pleased with that. I'm not sure that I call this a low point. We do expect double-digit growth in Q4 and then again in Q1. However, we are still burning through some of that stocking that had occurred. The stocking will be completed, the burn-through will be completed by the end of the first quarter. So we still have some more of that in Q4 as well as Q1, and then that will be something we don't talk about any more after that. But we are excited about getting sort of the teens level of growth in procedures. That translated to double-digit growth. We do expect a strong Q4 as well as Q1 next year, and then it will really start to take off after that without having that drag of the stocking.

That's helpful. And maybe a question on the Siemens partnership that happened over the quarter in Neurovascular and if there's any more you can kind of say on kind of the goals and timing and kind of what you're trying to do with Siemens and Neurovascular robotics.

Travis, this is Jason. I would say, when appropriate, we'll certainly disclose more. But at this point, really nothing else to add in as far as that.

The next question comes from Matthew O'Brien with Piper Sandler.

This is Samantha on for Matt today. We'd like to start off with asking about the Ortho other category that was -- had really nice performance this quarter. Can you just talk a little bit about what all is driving the strength there? And how durable do you see that growth?

Yes, this is Jason. I'll take this one. I would say a couple of different things, and it goes back to some of the prepared remarks. I mean if you just look at again another quarter of record installation of Mako, that certainly fuels that category and then there is a bit of, I'll call it, business mix. And I think Kevin touched on this, where outright purchases will drive revenue in that. So really, really strong strength. Is it going to grow at that level every quarter, I would say no, but certainly pleased with the performance in the quarter.

Great. And then also, just could you provide a little bit more commentary on the supply chain disruption in the Medical business? It was a little bit weaker than we were expecting. And does imply a steep rebound in Q4. So just any more commentary you could provide there would be great.

Sure. It's Jason again. So I would say, look, even if you go back to last quarter, we said some of these supply issues would kind of linger throughout the year. Certainly not going to quantify. But as you think about Medical performance in the fourth quarter, in order to get to this 10% growth on the year that we're talking about, you can imagine there's going to be an acceleration in the fourth quarter. October was off to a good start. And so we certainly expect that we'll have positive performance as we go throughout the quarter.

Our next question comes from Vijay Kumar with Evercore ISI.

This is Nick on for Vijay. Would you break down the drivers of that 10% sales growth for Medical for the year? What's driving that?

Yes. I mean when you think about Medical, this is Jason, I mean we don't really get into product level drivers or even business unit level drivers. But when you think about products like LP 35 just launching in Europe, I mean, you'll see an -- start to see an acceleration there. Well, we would say across the lines of business in Medical, very good performance. If you look at Vocera as an example, that accelerated in the third quarter. That will continue to accelerate in the fourth quarter. So it's a big diverse business, frankly, that we expect to perform well in the fourth quarter.

And frankly, it's been a business that's performed double-digit for years. Year after year, it tends to report double-digit growth. They have a very strong order book as well. And in spite of the supply chain challenges, still on track to deliver double digits.

Our next question comes from Matt Miksic with Barclays.

I wanted to just get a sense of the competitive dynamics in the ASC. It's been a place where you've been leading and it's been a place where you've had great success in knees, opportunities for bringing other businesses in there and leveraging your position across some of the other business lines. Any kind of color would be great.

Yes. Thanks, Matt. Listen, we love the ASC and the trend in procedures moving to the ASC because we can leverage our full portfolio, and our growth continues to be very high in the ASC. The additional products are really -- that are starting to emerge at a higher level, our torn shoulder, where we're the market leader and you're seeing more shoulders being done in the ASC, even some total ankles potentially moving to the ASC. So some of the higher acuity cases, I wouldn't say revisions, but certainly, many other procedures are starting to move to ASC, where we have a very strong position. So the more that procedures move to the ASC in the orthopedic world, the better it is for Stryker because we can then leverage an even broader portfolio than we're already leveraging, including our capital, our disposables and our inputs.

Our next question comes from David Roman with Goldman Sachs.

This is Jenny Rabinowitz on for David. Just a quick one for me. You mentioned briefly at the beginning of the call that you did 2 smaller product acquisitions in the quarter. I was just curious, can you go into any detail about what those products actually are or the markets they participate in? And are these smaller product acquisitions something we should expect going forward?

Yes. Small tuck-in acquisitions are clearly a part of our offense. The NPseal product is a negative pressure wound treatment that does not require capital equipment. So today, the other options on the market have a pump that's required. This is a really elegant solution, easy to use for the customer and then lower cost solution that drops right into the sales bag of our orthopedic instrument sales reps. They're already there in the procedure. So it's a beautiful tuck-in.

The other product, the balloon is for fecal incontinence and that's part of the Sage business, which works in the intensive care units of hospitals and a very good product solution for a really troubling condition that patients have to go through, provides them with dignity and provides really good care. So we're really excited about that solution, and that's new for us. We have not been in the fecal incontinence space thus far.

Next question comes from Philip Chickering with Deutsche Bank.

One more question on Ortho. There's been an investor debate around the pull forward of demand of some neglected procedures due to the uncertainties around health care exchanges. Just curious if you view 3Q as just the core growth you're seeing due to market share or pull forward of demand?

We see it as core growth market. As we enter fourth quarter, we're seeing a continued strong demand. So we don't really foresee any pull forward. And obviously, osteoarthritis, when you have the pain, you want to get your procedures done. And so I think that's a much bigger driver. And I think it's more about the fact that we're growing at a robust rate. If you look at our growth rate, obviously, other people -- not everyone's reported yet, but we believe that we're growing considerably faster than the market. But we're seeing order -- like if you look at the surgery schedules and talk to surgeons, they don't really have any anxiety whatsoever about a falloff in procedures. At least we're not hearing that.

All right. Perfect. And then I think you talked about the elevated backlog and CapEx is pretty good. Can you share that the feedback that you're hearing with hospitals as they're talking about the uncertainties around health care changes next year and the views of CapEx depending upon what will happen?

Yes. Peter, it's Jason. I'll take this. I mean, when you think about feedback from a hospital perspective and you think about the categories that we play, we play in categories that are moneymakers for the hospitals and they need our capital equipment, right? And so I would say, I think even Kevin said this earlier, environment for us really hasn't changed. If you think about the mix of our capital where the majority of our capital is the smaller capital that is closely tied to procedures. We continue to believe in the feedback that we continue to get is that as long as procedures remain strong, we're positioned well in the fourth quarter and well into 2026 as well.

And if you look at this quarter in particular, even the large capital, Mako was very strong with a lot of outright purchases and then you look at ProCuity, it was extremely strong, which beds are obviously large capital and expensive and the orders are very strong. So those orders are very rarely canceled. And so our hospitals have the budgets. They have the plans. They are planning to go ahead and purchase our capital in spite of what's happening around them.

Next question comes from Joanne Wuensch with Citibank.

Can you hear me okay?

Yes, I can.

Excellent. I remember to maybe 2 years ago that we were talking about sprinting back to pre-pandemic levels and margins and 200 basis points of expansion. And you've hit it. The 25.6% you just did in the third quarter went to 2020, 2021. Where do you go from here? And how do we think about continued margin expansion? And I'm sorry if I'm sort of stealing some of the thunder from the Analyst Day.

Well, we're going to just defer this question to the Analyst Day, Joanne. So I apologize. We're going to duck the question because that, for sure, is going to be one of the topics that we discuss in a couple of weeks.

Okay. Can I get a second question then?

Sure, you can. Yes, because we didn't answer your first one.

I guess I'm going to go to Trauma and get a feel from you of what you're seeing in that particular industry or that particular segment of your business?

Yes. You've seen for quite some time, our Trauma and Extremities business is absolutely on fire. We have great leadership in that business. We have -- the Shoulder business had a phenomenal quarter again in Q3, really tremendous market-leading growth. And this is really without much an impact at all from Mako. So we are still in limited launch with Mako Shoulder. It's being very well received. We're not going to move until full launch until sometime in the first half of next year. So that's still a ways out, but we're very excited about that. It's just the core underlying portfolio of products with Blueprint software, really good, strong leadership. And then core Trauma has been amazing with Pangea. We've also launched volar plates for distal radius. Just a series of great product innovations and a tremendous commercial offense has core Trauma really growing at very robust rates.

If you look at Foot and Ankle, it's actually a bit soft for us. So we see upside in Foot and Ankle going into next year. Our Total Ankle performs well. Our Augment performs well. But if you think about the core plates and nails, not quite as good as we would like that performance. We're getting after it, and we think that will be better going forward. But tremendous momentum overall and great business for us, and we're very excited about it.

Our next question is Michael Matson with Needham & Company, Inc.

So guess I just a couple more on Inari. So the PEERLESS II trial, just can you give us an update on where things stand with that and when we could potentially see the results? And then the Artix product, I think that's been launched. Can you maybe comment on how that's doing?

Yes. I'll take the second question on Artix. It's our first arterial thrombus product that Inari has launched, everything else was venous. It's been extremely well received. It's doing well in the marketplace, performing really as good or if not better than we expected in the market. So off to a very good start.

It's Jason. In terms of the trial, it will be sometime next year before we start to see results. So you'll hear us talk about that as we get into next year, for sure.

Okay. And then just with the Guard Medical acquisition, looking at the website, it looks like it's more for surgical incisions, but is this a sign that Stryker has interest in kind of the broader advanced wound care market?

Yes. Listen, I wouldn't read too much into this. If you think about Zipline, that was a product for skin closure that we dropped right into the bag of the orthopedic instruments reps. This, of course, is -- its wound treatment with negative pressure, but it drops right into the back of that existing sales rep. Think about it more as a call point sale that drops right into the bag versus the creation of some new business. That's not how we're thinking about it today. That may change in the future. But for today, we're not thinking about a broader wound strategy. It's really more about optimizing the call point, dropping it into the bag and really providing an elegant solution for the customers.

Next question is from Danielle Antalffy with UBS.

Just [indiscernible] question. And I guess this goes to margins going towards guidance here. But we're seeing positive price in MedSurg. You mentioned you anniversaried some price upticks in Q3 in Orthopedics. So how do we think about go forward from here? You still have a pretty positive product cycle, but specifically in Ortho, do you think it's more like flat going forward from here? Or do you still have pricing power there, too?

Dan, thanks for the question. So from a pricing standpoint, yes, I mean, we do believe that based on our overall execution of our business from a contracting perspective with new products and innovation across our portfolio, we will have opportunities from a pricing standpoint as we go forward. And that will be in all businesses. It won't be exactly the same across the different business lines. But across all of our businesses, we do believe we have certain levels of pricing power that we will be able to continue as we go forward.

Our next question is Shagun Singh with RBC.

This is Kendall on for Shagun. I just had one question on the upcoming Investor Day. I know last time you gave some targets on organic growth, operating margin, EPS growth and free cash flow conversion. I was wondering if those kind of targets will be laid out again? And if you could add any other color on that? And also, if you had any update on the current tariff environment and any impact on 2026?

Yes, this is Jason. I don't want to spoil any surprises that you'll hear in a couple of weeks. But yes, you're absolutely right. We will update our long-term financial goals, including, I think Kevin mentioned earlier, kind of our current view on margins as well. So expect to see that for sure.

As it relates to the tariff environment, Preston, feel free to add on here, but I think Preston said in his script, we're now forecasting roughly a $200 million impact for the year. As you know, this is a fluid environment that we continue to monitor, but that's our latest outlook right now.

There are no further questions. I will now turn the call over to Kevin Lobo for any closing remarks.

Thank you for joining today's call. We look forward to sharing updates on our business and strategy with you at our Investor Day on November 13 and our fourth quarter results with you in January. Thank you.

This concludes the third quarter 2025 Stryker earnings call. You may now disconnect.

I'm Larry Biegelsen, the Medical Device analyst at Wells Fargo, and it's my pleasure to host this fireside chat with the management team from Stryker.

With us, we have Andy Pierce, Group President, MedSurg and Neurotechnology and Jason Beach, Vice President, Investor Relations, the format is going to be fireside chat, as I mentioned. By way of background, MedSurg and Neurotech account for about 63% of total Stryker sales or about $15 billion in revenue.

Andy, Jason, thank you for being here. Jason, thanks so much for being a supporter of this conference for many years. I appreciate it.

Thanks for having us.

Yes. Thanks for having us, Larry. .

So Andy, so Stryker's MedSurg and Neurotech business has grown over 11% organically for the past 3 years. Year-to-date, it was over 11% as well. What do you estimate your WAMGR is? And how do you consistently grow above your end markets, which I assume aren't growing at 11%?

It's a good assumption. They're not, but we are. And the unique thing about our MedSurg and Neurotechnology business in Stryker at least is we're 15 individual businesses. So they're diverse, both in terms of the categories that they play in, the types of technologies that they represent, but also in terms of call point. whether it's a surgeon call point or it's an administrative call point or even pre-hospital, which we have in our Medical division and emergency care.

Each of these businesses, when we talked about this in our last Analyst Day, each of these businesses has a WAMGR that's between kind of that mid-single-digit growth all the way up to upper single-digit growth. And as you know, our stated expectation as a company is to grow 200 to 300 basis points faster than our markets. We certainly have that expectation in MedSurg and Neurotechnology.

And if you look across the organization, we typically do that. Diverse businesses, like I mentioned, very focused, very specialized, which means they have their own dedicated R&D, marketing, sales, and they actually have their own dedicated M&A teams as well. So they develop deep expertise in customer and in category. They learn customer needs where you might have an unmet or undermet need, and then we figure out, of course, how to properly serve that. So very focused, very specialized organization.

We also, as many of you know, do a good job of leveraging M&A. I talked about our specialized M&A teams that sit inside of our businesses. So we are very active across MedSurg and Neurotechnology on the M&A front. We have been busy this year. You don't see as much of that, but we will start to see some of that coming forward. We were pretty busy last year. And over time, we've been very busy. We are prolific innovators in our respective markets, particularly in our power brands.

We are in the vast majority category leaders. So a strong #1 or #2 player in each of the markets. We have high expectations. We will continue to have high expectations both for performance, but also how we innovate, how we show up for our customers and you can expect that we'll continue to provide outsized growth for Stryker Corporation.

That's helpful. How are you thinking -- I know you don't guide by segment, but how are you thinking about the momentum in the second half of the year for MedSurg?

Sure. Yes. I think Jason and Kevin did a good job in the last call of taking up our guidance both in terms of the top line, but also the bottom line as well. And given -- I didn't know the precise number was 63% of the company that is MedSurg, you can't have a successful Stryker Corporation if you don't have a fast-growing MedSurg. So I think it's a pretty good sign when they take up the numbers that we're likely going to have a pretty solid second half in our world.

That's helpful. Investors are always asking what comes next for Stryker in terms of new products. I know as a company, Stryker keeps things pretty close to the vest. Any color hints that you can share with us? Or maybe you can talk about some of the new product launches right now like LIFEPAK?

Sure. Yes. We have a pretty consistent strategy, and we have for some time. It's wrapped around our power brands. And if you look at what we've done over the last few years, you mentioned a couple of those product launches that we've had. They are in our power brand categories of visualization that would be to 1788 or big professional defibrillator, LP 35, our ProCuity Bed, et cetera, et cetera, a number of key product launches System 9 on the power tool side and that's part of our offense.