Stryker Aktie

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.

So you've seen and you can expect to see over time that in that kind of every 3- to 5-year range, you're going to see refreshes around those power brands. And the ones that we've just mentioned have had a strong impact on the market. Say, by and large, they're kind of mid-cycle in their life -- launch cycle rather. So we have some legs left on those product launches. But you can bet that right behind those. We have those next-generation products that will be coming in those power brand categories.

As we get bigger, as we add more businesses from an M&A perspective, wash, rinse, repeat, power brands, you'll see us maintain that regular cadence of innovation and ensure that we're leading in the marketplace.

That's helpful. And Andy, any changes to the hospital capital equipment environment since the Q2 call?

Our Q2 call was just a few weeks ago. And I think over that period of time, we have not seen any changes. The hospital capital environment is stable. Our order book is stable. If you look at our backlog as a business, it's quite strong. So our customers are feeling pretty good. They're liquid. They are prioritizing and investing in our types of products.

So we feel good about the capital market.

That's good to hear. Jason, you have an Investor Day in coming up in November. What can we expect at the Investor Day this fall. Can you disclose which areas you're going to focus on? Typically, you focus on a few areas. And can we confirm that we will get an update on the long-term financial goals.

Sure. I'm not going to spoil it for you Larry. I want to make sure that you show up on November 13, but I would say a couple of different things. Certainly, we are going to get into areas of growth as you think about the future for Stryker and then we'll obviously update the long-range financial plan versus what we said back in 2023 and how we see the next few years going forward.

Okay. Got it. sounds good. M&A, Andy, you talked about as one of your core competencies. Where do you see interesting opportunities for M&A in MedSurg and Neurotech?

Yes. So we have 15 individual businesses, each of them maintains a list of interesting opportunities. Of course, we can't do them all. All of our businesses would like to, but that is a great problem to have when you have amazing opportunities to go out and execute on. And you have such a big, diverse company to be able to choose off of those lists. So although we have not been as active in the last months in terms of deals that we've announced publicly, of course, Inari being a big one that we did earlier this year, we are continuing to be active all across our businesses with those interesting opportunities that we have.

And we've talked in the past about spaces that we're interested in from a large adjacency perspective. Two of those, we've done a pretty good job of getting into over the last few years. I mentioned the one with Inari in Peripheral Vascular. But also an important space for us that you'll see us continue to invest in healthcare IT. We first entered into that space just a few years ago with Vocera. We followed it up last year with care.ai and I think you can expect more from us in those categories as well. And I think you may know a few others as Kevin has mentioned over time.

That's helpful. Robotics is an area...

That is one of them.

Kevin has mentioned. Obviously, you're a market leader in orthopedic robotics. How are you thinking about soft tissue robotics and robotics more broadly. There's lot of areas of surgical robotics that are interesting. How are you thinking -- how are you approaching that? And I think one area that -- the one investor concern is that it's an expensive area. And if you do a deal in that area, people are concerned about potential dilution. How do you balance that?

Yes, yes. Well, let me just be very clear. We love robots at Stryker. We have a pretty good one in Mako, as he mentioned. And the reality is robotics, whether it's in soft tissue or h tissue is only going to continue to grow. The applications, the impact on the user, on the patient is positive and will only continue to get more and more positive. So we're very interested in the robotic space in general, as you mentioned, Larry, and of course, Kevin and Jason talk about that publicly.

Soft tissue robotics, in particular, is an interesting space only because over time, we believe, as I noted, that we can provide really good medicine there. Now is it right for Stryker today? Is it right for Stryker tomorrow? We will determine that over time, and I'll get to your economic part of that question here in just a second, but I will say that we are very active as a company in assessing, deeply assessing the opportunities that are out there from a start-up perspective, and maybe some more mature robotics organizations that you might see in the market or hear about in the marketplace today that maybe someday could be for sale.

Are they right for us? TBD. We will continue to evaluate those. Now that being said, there are other opportunities, as you mentioned, Larry, in specialized robots. So we're also looking deeply into those opportunities. And again, are they the right fit for us? I will say that should you 1 day see Stryker decide to enter into spaces outside of hard tissue robotics that you can believe that we've done our homework. And we've gone in eyes wide open with what that means from an investment perspective, and we firmly believe that, that's going to be the right decision for Stryker. We get all of those concerns I would say those aren't necessarily concerns of ours, they're realities of the marketplace, and we have to synthesize those realities with what's right to first Stryker Corporation.

That's helpful. So let's transition to the individual businesses. I think it would be helpful for people to unpack them a little bit. Starting with Endoscopy, star performer in the first half of the year, 15% organic growth. endoscopy is comprised of a few different segments you've disclosed out in the past. Help us understand which segments are driving the growth there?

Sure. Yes. So A long-term high performer for Stryker Corporation are in the Endoscopy division. It's an interesting business in that it has 4 unique franchises, who I talked about those 15 businesses. 4 of them sit inside of our Endoscopy division, starting with our core visualization business unit, what we call our Endoscopy business unit. That business has our 1788 and you can, of course, imagine that 1788 has been a strong growth driver for that individual business unit and for the division.

We are kind of in that 2-year mark post-launch, we're pretty much right there, and we expect to continue to get some legs out of our 1788 launch particularly around the world, but also in the U.S., we have plenty of opportunity for ongoing upgrades of existing customers, but also it has been a terrific product for us to go out and take share.

Our Communications business unit is also in our Endoscopy division. That's our hospital infrastructure business, operating room infrastructure business. booms, lights, tables, OR integration products for audiovisual integration inside the operating room. That has been a strong grower for us over the last several years as you've had more and more new builds on the ASC side, but also new build and expansion on the hospital side. So that fits in well from a trend perspective with where we are with that business, strong growth.

Our sports medicine business has been a very strong accretive grower for now many years, a small business once upon a time that now is growing into a more material business for the corporation, where we've been prolific in innovation. We've launched 6 new products in the last 18 months in the shoulder alone. We have a strong position in the hip. We're growing fast in the knee as well. That is a terrific business for the company.

And then lastly, our reprocessing business, which I think you're all familiar with is our fourth business unit, which has been a consistent grower for us over time and is a great brand builder for the company.

That's super helpful. So Medical, there's a lot to cover. So we could spend a lot of time just on Endoscopy. I know that. And I had follow-up questions, but I want to make sure we get to other businesses that people are interested in. LIFEPAK 35 is in Medical. And so is Vocera, I believe.

Medical has been -- the growth has been good, not -- I wouldn't say above the average. You have had, I think, some supply issues there. You're launching LIFEPAK 35 outside the U.S. now. How is the LIFEPAK 35 launch going? I think you said the installed base is over 100,000 units globally. And could the OUS launch kind of accelerate the medical growth.

Last part of the question, yes. So today, we are now launching in Europe. EU MDR means that some of these launches have a little bit of a lag to them relative to the U.S. for the regulatory requirements. But we are in Europe now. We've been there for a couple of months. And you can expect as we move into the next year or 2, 3, that you'll start to see the impact of LIFEPAK 35 in that market, so internationally as well in total. In the U.S., we've been about a year on the market with LIFEPAK 35, and it's been every bit as successful as we hoped it would be. Of course, we build business models around each of these product launches, and we have exceeded what we expected from an impact of LIFEPAK 35 here in the U.S.

We're upgrading existing customers. You talk about our 100,000-plus installed base. The majority of that is here in the U.S. We're upgrading those customers. That will have a long tail as these upgrade cycles can be longer with a defibrillator and we're taking business from competitive customers as well. So we feel great about it. It's a unique technology. Our customers love it. It's durable. And we are out there saving lives with LIFEPAK 35 and pretty excited about that.

And is it the supply issues that have held you back? Growth's been good, not stellar.

Yes. So our Medical division, you mentioned that there's a lot there. There's a lot in all of these big divisions of Stryker and that they're very diverse. So 3 individual business units inside of Medical, our Acute Care business, our Emergency Care business, and our Sage products business inside of our Medical division. So some of those products, particularly the large capital, have complex supply chain.

So at times, you will see some disruption in supply from our position. The great thing is that we do have enough diversity to oftentimes cover those challenges. But from quarter-to-quarter, you might see some fluctuation based on that. We have stated and we are optimistic that, that will be a double-digit grower, that division, Stryker Medical for the company this year. So we expect strong performance. Our ProCuity Bed, our stretchers, LIFEPAK 25 all strong contributors as we deal with some challenges on the supply chain front.

That's helpful. And Vocera...

And by the way, LIFEPAK 35 is not one of those challenges in terms of supply chain.

Got it. And Vocera? So far, so good?

We are extremely excited about Vocera. We're excited about it today. Our customers love the Engage platform, the middleware that we offer the communication and care coordination that we provide through Vocera. We're just as excited about how we continue to integrate all of these technologies that have a digital integration potential across Stryker, whether that's beds or ProCuity, which we have integrated into Vocera today or some day, maybe even a Mako robot that is pushing data through the Vocera platform. And also that tie in from a platform perspective to care.ai.

So sensors in the room, voice on the badge and how all that works from an AI perspective. Workflow simplification, better patient care, better experience for nursing, of course, we know, are under an incredible amount of stress, and we have a nursing shortage. So much more efficient care. We're extremely excited about Vocera, but more so, I'll just say it one more time, excited about our entire digital vision that we have for the company.

The other business that's been a star performer, Neuro Cranial, 20% growth in the first half. Most people probably I will admit, don't know really much about Neuro Cranial. We probably -- I don't get questions on it. Let's put it that way. Help us understand why that business, it's such a strong performer. I know you've talked about -- I think Vertos is down there, the Interventional Pain, Interventional Spine business. We'll talk about -- I want to talk about Vertos as well, but just help us understand why that business is so strong?

Yes. So there's 4 businesses that are part of our Neuro Cranial franchise. Our Interventional Spine that you mentioned, our craniomaxillofacial business, our CMF business is part of Neuro Cranial, our ENT business and our Neurosurgical business. So that makes up Neuro Cranial for the company. And you might imagine in the neuro space that the neurosurgeon in particular, has a lot of leverage with their hospitals. So they kind of get what they want. They're saving logs. They're treating very sick patients. So we're in that sweet spot of care.

The IBS business, which you mentioned has been one of Stryker's fastest growers. It participates in the high-growth segments of spine, both on the pain side, but also in bone tumor ablation with our OptaBlate product. Vertos fits into that pain category. We're very excited. We can talk more, as you said, Larry, about Vertos. That's our Interventional Pain business. We acquired NICO last year, and Interventional Spine, once upon a time called Interventional Pain. I'm old. I've been around a long time. Our Interventional Spine business.

Neurosurgical. That's where our NICO acquisition from last year is. So NICO is all about going after hard-to-reach tumors and stroke care. That's been a great addition to our Neurosurgical portfolio, helping to drive greater pull-through across that entire bag and raise our brand story in the marketplace. Neurosurgical think about tumor removal and bone removal. So whether that's in the cranium or in the spine or tumors primarily in the brain with that's mostly related to both NICO and our Sonopet Ultrasonic platform. very fast growth, very innovative business, a very competitive sales team in neurosurgical.

CMF, long term, a great grower for us, out taking share, moving customers to customized implants or what we call patient-specific, CT-based, an implant specifically designed for you. That's been a great grower for us, and we continue to get traction in our ENT business, particularly as we've expanded our sales organization. We have launched some good new products there. but driving greater commercial excellence has led to a nice acceleration in growth in our ENT business as well.

Vertos, we're familiar with the company before Stryker acquired it. That's the mild procedure right?. Checks are very, very good. That turned organic, I think, in Q4. I assume that, that will be accretive to organic growth. Is that fair?

Both of those things are accurate. The deal closed at the end of Q3, so you'll start to see organic growth coming out of Vertos in the fourth quarter. And yes, that business is accretive to Stryker's growth, will be accretive to our growth overall and the other bit of good news is we're ahead of our model with Vertos, so performing very well.

That's good to hear Yes. I mean it's hard to sustain 20% organic growth, but we'll see. For a division, it's a good challenge. So let's switch gears, vascular, you renamed it. It's still kind of -- the organic growth there is still Neurovascular, right? We'll talk about Inari in a minute. But that's -- that was actually one of your software businesses in the first half. What are the trends in that business and what drives the acceleration?

Sure. Yes. So specifically in Neurovascular, Neurovascular is a strong global business for us. It's the one business in Stryker that we're bigger outside the U.S. than in the U.S. And we're particularly sensitive to BDP as we have a big China business. So you can see some movement there. in terms of our growth related to various BDP activities that many companies have experienced in China. We're not in into that in Neurovascular, in particular.

That is a crowded space, particularly on the ischemic stroke side, and we have, frankly, been what we would consider to be below our standards in terms of our offering in ischemic stroke and we're right in the early, early innings of launching a new large core catheter called Broadway. We're very excited about it. Our customers have received the product well, but it's very early, and we expect that to be a growth driver for us going forward.

Our sweet spot as a neurovascular business is on the hemorrhagic stroke side. We have a great coil business, but we also have a nice and growing flow diverting stent business, and we are also in the early innings a brand-new launch there called SURPASS Elite, our Elite system, and that is also being extremely well received by our customers, again, early innings, but we expect that to drive growth for us going forward. So overall, new products are the game in Neurovascular, when we get those new products, we drive that Stryker level of growth that you expect. And we're pretty optimistic about what we have coming in that business.

So Andy, one follow-up on Neurovascular. It's probably the most crowded space I can think of the med tech right now. I mean you can count 9 players or so, okay, private public companies. It's a nice market, but it's not huge. What are your thoughts on consolidation in that market? I mean it seems inevitable.

Yes. It's not unlike, I gulp a little bit when I say this, but the core spine market is also a very crowded space. And of course, you've seen consolidation like you're mentioning and that Stage 2 over time. And I'll talk about consolidation from our perspective. And you can imagine like we are, and we talked about earlier, very busy in that business, evaluating opportunities to consolidate as well. for a lot of those smaller players that are coming up or niche products that exist in neurovascular, but completely agree, crowded space, and it is ripe with opportunities for deals to happen.

Okay. And it's an area you're committed to, so you could participate in some of that consolidation.

Completely committed to it. It is absolutely on the right side of health care. It's great medicine. It doesn't mean it's easy. It is competitive, particularly on the ischemic stroke side, it's competitive, but 100% committed to neurovascular.

And Contour, which is available in Europe, which is a good reputation next year or 2 from the U.S.?

Sure. Yes. Contour is our intrasaccular device or one and done. You'll hear those technologies called and that's available in certain markets outside the U.S., you just mentioned in Europe. And we will -- coming to a theater near you have that in the U.S. We're not talking specifically about launch dates here in the U.S. for that, but we're excited about where we're going in Contour.

Great. So Inari, the growth in the second quarter based on your commentary, you didn't give exact numbers, but by our math, maybe slightly below 10%, but you expect an improvement in the second half of the year. What's giving you the confidence that you can accelerate so quickly?

Very excited about Inari. As you might imagine, we did our homework, and there were lots of options or at least plenty of options for us to evaluate in the market in the peripheral vascular space. And we chose Inari for a reason. We believe in their portfolio, we believe in their science. And we also believe culturally that they're a really great fit for Stryker overall. And in terms of their focus on the customer and their focus on technology. That being said, oftentimes, when we acquire companies, and this is not a new story, it's not just a Stryker story.

You see some short-term disruptions when you're integrating companies. That is not something that we don't expect. We're experienced acquirers. We know that, that happens, and we expect that. In particular, in Inari's case, we felt like we had the opportunity to make some important upgrades on the commercial side of the business. They have a number of really exceptional sales professionals, but we have the opportunity to go in and add some Stryker level talent in many places. And we feel like we're through that. We feel great about sales organization stability today and where that's going to take us from a performance perspective going forward.

We also, importantly, moved in Stryker leaders in key positions. So our division President announced on day 1 is Tim Lanier, who ran our very successful Trauma and Extremities business and happened to come to Stryker via an acquisition. He was running the shoulder business for Wright Medical. So he knows what it's like to go through an integration, and that's brought him a lot of knowledge and credibility with the Inari team as well. But he also had 6 years leading the sales organization of [ ED3 ]some moons ago.

So we have an experience level in peripheral vascular as well. So Tim is there. We have a brand-new sales leader, not new to Stryker, and 20-year veteran that we moved from one of our other high-performance businesses to lead that sales force, building the right culture, the right incentive structure, the right talent. And we did the same thing on the marketing side where we took 1 of our high-performing star marketers and move them from 1 business of Stryker into Inari. So we feel great about the management team, and where we're headed with that business. And I think you can expect Stryker level performance out of Inari going forward.

Jason, you've said for the year for 2025, you've given a sales number right for Inari that implies growth of what low teens, something like that?

Yes, that's right. So in Q1 and again in Q2, we said we expect roughly $590 million of revenue for the 10 months that we will have owned them. And then to your point, it implies kind of teens growth for the year, this year.

And is that how you see Inari longer term, Andy? A double-digit grower?

The way we think about are is twofold. One is we mentioned at the very beginning that we expect all of our businesses. It doesn't matter if it's Inari or it's our premium craniomaxillofacial business or you name it, to grow faster than their markets. And we like to say 200 to 300 basis points faster at least, and we expect Inari to do the same. So the second part of that is you have tailwinds in market growth as you drive mechanical thrombectomy adoption in both pulmonary embolism and in DVT. So you're going to get a faster growing market spend that way, and you're going to get Stryker growing faster than that market. So you can imagine that, that would equate to a strong accretive business over time to Stryker's overall growth.

One follow-up on that. Obviously, so I guess the 200 to 300 basis points faster than the market. So it's a competitive market, not only with Penumbra who seems to be doing well. They disclosed some of their growth rates in that -- in the peripheral market, but you also have new competition coming. So it does seem like -- I agree the market growth is pretty strong, but growing 200 to 300 -- going faster than market seems challenging.

It is challenging. It's not unlike our Neurovascular business, and we have high expectations for our Neurovascular business, and they know it, and that team is accountable and there's improvements that we can make there. And Inari, we will not back off. It's not who we are growing faster than our markets. Yes, it's competitive. Yes, it's getting more competitive. And we have to make our way through that maze. It's tricky for sure, but we do the right things to control what we can control, both on the portfolio side, but also how we go to market and represent through our sales organizations, we feel like we can win in that space.

And I think you can expect that we will not back off of our expectation that, over time, we grow 200 to 300 basis points faster than our market. In short-term periods, could you see that change based on some new product launch or other market dynamic? You could but over time, our expectation is that we are beating our market.

And Andy, you talked about building out the peripheral portfolio. It's a pretty heterogenous. How are you thinking about kind of building out that portfolio over time?

Right. Yes. If you look at our -- the whole total peripheral vascular universe and certainly as you include the arterial space, we're today really only playing in a small sliver of the total addressable market in peripheral vascular. So we, of course, are looking primarily at the faster-growing segments or categories of peripheral vascular. Many of you are aware of some of those that even have transacted in recent times. And we're also looking at opportunities to participate in those.

So you can bet that back to this M&A story, where we have dedicated M&A teams, of course, working alongside our marketing teams that we are assessing essentially all of the opportunities that we can, the entire universe, and we are funneling those down into the right types of acquisitions for Stryker. You can expect that we will continue to do transactions in peripheral vascular. I won't give you exactly for competitive reasons where we're going, but you can bet that we're going to be busy there.

So you name the business Vascular. which neuro, some people would define it neuro, coronary and peripheral. Should we expect at some point in the future, Stryker to also to be in coronary, I'm not asking for time line.

It is named vascular. And today, we're focused on peripheral vascular. And I would...

And neuro.

And neuro of course. But neuro relative to coronary, you obviously have a near adjacency to peripheral vascular. Also similar types of technologies, oftentimes the Neurovascular, you're right about that, Larry. We're not getting ahead of our skis. We know what we need to do today and how we need to go out and win and prove ourselves, both in terms of ensuring that Inari was a great acquisition for our shareholders and for our customers. But yes, you can imagine over time, Stryker does find its way into new categories and segments, and we'll see where we go over time.

We didn't cover Instruments. And in case there's anyone from the Instruments business online listening, I don't want them to feel slided. So it doesn't get a lot of attention, but it is a consistent double-digit grower. I think it's mainly power tools and waste management. What's driving the growth there? And what's underappreciated about this business?

Very consistent long-term grower for Stryker. Thanks for to our friends that might be listening from Instruments for asking the question. Yes, we have really strong power brands in our orthopedic Instrument business, which primarily today is being led by our System 9 heavy-duty power tools, but we also have a launch in our next generation of Steri-Shield so the hoods and togas for personal protection, that's in that business and a handful of other categories that are there.

High market share, high growth over time. On our Surgical Technologies business, it's sister business unit, inside Instruments. That's where Neptune Waste Management resides. Also, we've had incredible success over time in waste management, and we are, by far, the market leader in waste management.

Also plays nicely from a trend perspective to trends in smoke management. So smoke evacuation business resides in our Surgical Technologies business, that trend, of course, is more and more regulations. And a lot of that have been put into place around particularly states in the United States around smoke evacuation and surgical smoke. That plays into our hand there. And then we have a great business for sponge counting with our SurgiCount+ system with Triton, which also helps to measure or quantified blood loss for patients, and that business is fast growing for us as well.

So really some neat categories and product technologies that we have in our Instruments business that are helping to drive strong growth for us today and have really for a long time.

That's helpful. Look, I wanted to -- we're running out of time. I wanted to give you an opportunity to make some closing remarks, but maybe you could do that and also just -- obviously, you're not going to talk about MedSurg growth in 2026. It's just how you're feeling about the momentum. This has been a consistent double-digit grower for Stryker.

Yes. We have a pretty admirable growth profile as a company. You've mentioned the 11% growth over the last few years. I think most would love to have that. We don't take that for granted. We know it takes extremely hard work, great innovation, great M&A, great sales execution, taking care of our customers. We do not expect that to change. We will continue to innovate, we'll continue to buy companies.

We'll continue to drive specialized sales forces, and we will expect to outgrow our competitors over time. We think that part of the battle to growing like that is having high expectations. We will not back off of those high expectations. You can expect that MedSurg and Neurotechnology over time will be accretive to Stryker Corporation's growth. We expect that, and we're very excited about the future.

Perfect. Thank you for being here.

Thank you.

Thanks, everybody.

Welcome to the Second Quarter 2025 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 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 second 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 quarterly results and guidance before opening the call to Q&A.

Our second quarter results reflect being in diverse and attractive end markets, our focus on innovation and disciplined operational execution. We delivered double-digit organic sales growth of 10.2% and adjusted EPS growth of 11.4% while managing through the impacts of tariffs, NRE dilution and the spinal implant divestiture. Our robust organic sales growth was driven by strong demand across our product portfolio and included double-digit growth from MedSurg and Neurotechnology and high single-digit growth from orthopedics. Geographically, our U.S. organic sales growth of 11.5% included double-digit organic growth from our endoscopy, neuro, cranial, trauma and extremities and instruments businesses and high single-digit organic growth in medical and hips. We delivered 6.5% organic international sales growth despite supply chain challenges, with notable contributions from South Korea and emerging markets.

We continue to view international markets as a big opportunity for future growth. As a growth company, we are excited to continue delivering innovation, both internally and through M&A. We maintain a healthy deal pipeline and are well prepared to capitalize on a broad range of opportunities. We exited Q2 with strong momentum and are well positioned for the second half of the year. As a result, we are raising our full year 2025 outlook, which includes delivering another 100 basis points of adjusted operating margin expansion. We are confident in the durability of our growth and earnings power across our businesses.

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, capital demand and the integration of Inari Medical. Procedural volumes remained healthy in the second quarter driven by the continued adoption of robotic-assisted surgery, a stable pricing environment, favorable demographic trends and the ongoing shift toward ASCs. We anticipate continued strength in procedural volumes as we move into the second half of the year.

Demand for our capital products was strong once again in the quarter, and we exited Q2 with an elevated backlog. With healthy hospital CapEx budgets, we expect continued strength in our order book for the remainder of the year.

We are also excited to share that during the quarter, we reached a milestone of 2 million robotic procedures performed with Mako. We are the clear leader in orthopedic robotics and continue to launch new applications such as revision hip, which is receiving very positive surgeon feedback. Also, we delivered our best ever Q2 for Mako installations, both in the U.S. and worldwide with high utilization rates across the globe. We expect sustained momentum from installations and utilization to continue to drive growth in our hips and knees businesses. The launches of Mako Spine and Shoulder are going well and remain on track for full launches as discussed on our last earnings call. Our platform launches, such as LIFEPAK 35 and the Pangea plating system continue to have success in the marketplace and are driving meaningful contributions to growth. We recently received approval for LIFEPAK 35 in Europe and are on track to launch in late Q3. As a reminder, many of our new products are still pending approval in Europe such as Insignia and Pangea.

In addition to these launches over the past several quarters, we have introduced a number of next-generation and innovative products across our diverse businesses that continue to drive our growth. Lastly, we continue to make solid progress on the integration of Nari. We did experience some disruption in Q2, including working through destocking over the first half of the year as well as the onboarding of new sales professionals. We have moved quickly to convert the business to our Stryker offense, which will position us well for the future.

Even as we navigate these changes, we still expect double-digit pro forma revenue growth for 2025.

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

Thanks, Jason. Today, I will focus my comments on our second quarter financial results and related drivers. Our detailed financial results have been provided in today's press release. Organic sales growth was 10.2% for the quarter compared to 9% in the second quarter of 2024. This quarter had the same number of selling days as 2024. Pricing had a 0.5% favorable impact with both our MedSurg and Neurotechnology and Orthopedic segments continuing to see overall positive trends from our pricing initiatives. Additionally, foreign currency had a 0.8% favorable impact on sales.

Our adjusted earnings per share of $3.13 was up 11.4% from the same quarter last year, driven by our robust sales growth and margin expansion, partially offset by higher interest expense. Foreign currency translation had a favorable impact of $0.04.

Now I will provide some highlights around our quarterly segment performance. In the quarter,MedSurg and Neurotechnology had organic sales growth of 11%, which included 12.5% of U.S. organic growth and 5.7% of international organic growth. Instruments had U.S. organic sales growth of 10.1% led by double-digit performance from our Surgical Technologies business, which includes our Neptune Waste Management and smoke evacuation products. The number of states that have passed smoke-free legislation continues to rise, with 19 states to date having approved smoke-free operating rooms. These states represent over half the national population.

Endoscopy had U.S. organic sales growth of 18.6%, with strong double-digit performances across all businesses. Growth was fueled by robust demand for operating room infrastructure and renovations and the continued success of the 1788 video platform, as well as our Sports Medicine business, which has expanded its portfolio through the launch of several new shoulder products.

Medical had U.S. organic sales growth of 9.9%, led by double-digit performance in the acute care business, somewhat offset by lower sales in the emergency care business due to the continuing supply disruptions that are now expected to linger through the end of the year. From a product perspective, these supply matters do not affect LIFEPAK 35. We Vascular had U.S. organic sales growth of 1.4%. We expect improved growth in the second half of this year, led by recent launches of our Surpass Elite flow diverting stent, access lift intracranial based catheter and Broadway large-bore aspiration catheter. As a reminder, organic sales figures do not include [indiscernible].

And finally, neurocranial had U.S. organic sales growth of 14.8%, led by strong double-digit growth in our neurosurgical and IBS businesses, and near double-digit growth in our cranial/maxillofacial business. Internationally,MedSurg and Neurotechnologies organic sales growth was 5.7% despite the supply disruptions in Medical mentioned earlier. Growth was led by our neurocranial, instruments, endoscopy and vascular businesses. Geographically, this included strong performances in South Korea, Canada and our emerging markets.

Orthopedics had organic sales growth of 9%, which included organic growth of 9.7% in the U.S. and 7.5% internationally. Our U.S. knee business grew 6.2% organically, reflecting our market-leading position in robotic-assisted knee procedures and continued momentum from new Mako installations. Our U.S. hips business grew 8.4% organically, reflecting the ongoing success of our Insignia hip stem and the continued adoption of our Mako robotic hip platform.

Our U.S. Trauma and Extremities business grew 13.6% organically, with double-digit sales growth in our core trauma and upper extremities businesses. Our core trauma performance continues to be driven by Pangea, our differentiated plating portfolio, which also hit its 1-year anniversary of launch in the quarter and continues to generate robust interest and adoption by the market.

Our U.S. other ortho business grew 5.6% organically, led by strength of Mako installations and a strong performance in navigational technology products offset by [indiscernible]. Internationally, Orthopaedics organic growth of 7.5% included strong performances in South Korea, Japan and many of our emerging markets. Additionally, our international results do 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 first quarter. Our adjusted gross margin of 65.4% was favorable by 120 basis points over the second quarter of 2024 despite the impact of tariffs. The improvement was primarily driven by cost improvements in business. Our adjusted operating margin was 25.7% of sales, which was 110 basis points favorable to the second quarter of 2024, driven by the gross margin favorability I just discussed.

Adjusted operating expenses as a percentage of sales were consistent with prior year. Adjusted other income and expense of $106 million for the quarter was $52 million higher than 2024 due to the increased interest expense from our September 2024 and January 2025 debt issuances, slightly offset by favorable foreign exchange impacts. For 2025, we continue to expect our full year adjusted other income and expense to be approximately $430 million.

The second quarter had an adjusted effective tax rate of 15.9%, reflecting the impact of geographic mix and certain discrete tax items. For 2025, 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 $1.4 billion, driven by higher net earnings and year-over-year working capital improvements. And now I will discuss our full year 2025 guidance.

Considering our year-to-date results, strong demand for our products and our operational momentum, we're raising our full year guidance and now expect organic net sales growth of 9.5% to 10% and adjusted earnings per share to be in the range of $13.40 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. We now estimate a net impact from tariffs of approximately $175 million in 2025. This estimate, which is consistent with the amounts we have previously discussed, does reflect the reduction in the bilateral U.S.-China tariff rates and the announcement of a new framework agreement with the European Union. We continue to take thoughtful measures to address this estimated impact, which we are offsetting through our continued sales momentum, the leveraging of our manufacturing footprint, disciplined cost management and better-than-expected foreign currency impacts.

And 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.

Congrats on a nice quarter here. Kevin, there's a lot of uncertainty in the market right now. What's giving you the confidence to raise both your organic growth and your EPS guidance? And how much did the supply issue impact growth this quarter? And when exactly do you expect to resolve the issue? And I had 1 follow-up, please.

Yes. Thanks. Larry, I would say what Jason mentioned related to procedural strength, and we've even seen that in the month of July, continued procedural strength, and that includes implants as well as other procedures across the surgical space. Strong capital demand. Our order book is very healthy. We're not seeing any slowdown at all on capital. The supply issues are really limited to medical. The rest of our supply chain is in really good shape. And those issues will continue to persist throughout the year, but Medical has a lot of other products that they're continuing to sell very well, including Pangea -- sorry, including LIFEPAK 35, and we're very excited that LIFEPAK 35 has now received European approval. So that you'll start to see in Q4. So overall, strength across our portfolio, strong demand for the procedures, strong capital demand, and that's why we decided to raise it to the level we are. We're very confident in the top line outlook.

That's very helpful. And Kevin, remanufactured instruments are a hot topic again. You have unique insight to this with the sustainability business. How are you thinking about remanufactured instruments for soft tissue robotics? Do you see that as a good opportunity for Stryker? And if so, how would you enter the market?

Yes. Thanks. Larry, we don't really talk about our pipeline, and this would be a pipeline product. And so there is another company that's obviously getting into the business. And if we decide to enter that, we'll let you know when we do.

Our next question will come from Robbie Marcus with JPMorgan.

Congrats on a nice quarter. Maybe first one, Preston, impressive margins here in the quarter, the EPS guide is now basically back to where it was almost pre-tariff, pre-NRE dilution. Maybe just walk us through what's driving the strength in the underlying margins here that get you almost back to the original guidance, especially as you're absorbing all of these dilutive pressures?

Yes. Thanks for the question, Robbie. So a few things. I guess, first, I'd point to, we started as we came through the pandemic several years ago, really focus on price. And so that focus on price has continued. And so we're seeing the benefits of that slowing down and really helping us to drive margin. In addition, and we've talked about this continued focus on our manufacturing efficiency and really getting our operations into a more efficient manner in terms of supporting the sales growth that we have. And so we're really starting to see that take shape as well. And we have a lot of different initiatives going on from different lean initiatives in our manufacturing facilities to different initiatives happening across our procurement organization as we think about how we source product, where we source product. And so all of those are certainly helping us to drive the additional margin improvements that you're seeing.

I think we're also just getting more efficient with where we have product and how we're moving products through our supply chain, which is leading to some reduced costs as well. And then finally, I would just point to, we continue to look at how we support the business from an OpEx standpoint, really thinking about G&A as we look at shared service centers and other areas like that as we continue to support the business. The good news, Robbie is, and I'm really pleased with, in the first quarter, we saw a consistent a consistent delivery of that op margin. So 100 basis points in the first quarter, 100 basis points in the second quarter, which is really helping us to be much more consistent as we drive to the number that Kevin was talking about, our overall 100 basis points of delivery for the year. So all these elements that we've been putting in place over the last few years are really starting to take shape and allowing us to drive a more consistent margin story.

Great. Maybe a follow-up. Kevin, in the outpatient rule, we saw proposal to move heart ablation into the ASC for the first time. I know you -- one of your favorite things is whenever you see construction cranes up, you love it. I was wondering if I could just get your thoughts on where we are in the ASC build out? I know most people, with respect to Stryker, are focused on orthopedics, but how are you thinking about ASCs across other parts of the hospital and Stryker's [indiscernible]?

Yes. Listen, I don't think there's going to be any slowdown at all in the ASC trend. And obviously, we sought first with sports medicine and foot and ankle and then you saw it with hips and knees and it will continue, whether it's cardiology, even general surgery, I could see a lot of those type of more elective procedures being done in ASCs. This trend is not going to stop because it actually lowers the cost of health care. It's a pleasurable experience for the surgeons. It's a pleasurable experience for the patients. And I could see that healthy patients like to go to a place like this where there aren't sock people. And so I absolutely see this trend continuing. If you look at something even like total ankle, right, we just had nice reimbursement increases, both in the hospital outpatient as well as in the ASCs for total ankle. So if you asked me 5 years ago, would we be doing total ankles in the ASCs, I wasn't even sure about that. And now the reimbursement was raised $7,000 because fusions aren't nearly as successful as total ankles. So this trend is absolutely going to continue. There's no doubt about it. And I think you'll see it across all specialties.

And we like construction, as you say, because we do have a lot of products. Even in those specialties we don't play in, we do provide a lot of infrastructure that's used even in other specs.

Our next question will come from Ryan Zinnerman with BTIG.

Preston, last quarter, I think you called out the tariff impact at about $200 million. And if I heard you correctly, it's $175 milion now, most companies we've seen have come down maybe by about half. I'm just wondering if you could elaborate on why it's only coming down by about $25 million? Is that a reflection of some of the manufacturing locations and so forth? Comment on that.

Thanks for the question. You were right. Last quarter, we did call out $200 million. We've come down to about $175 million. A few things I would probably point to, in our original estimate, you may recall, we were just quoting what was in place at the time. So at that point in time, we really had the baseline 10% that was included for most areas other than some of the specific industry elements around steel and aluminum and then I think Canada and China had -- or Canada, China and Mexico had some different ones at that point in time.

As we fast forward here into the second quarter, the big change that we're seeing or the 2 big changes that we're seeing, the bilateral agreement with China and the U.S. has brought that tariff down pretty significantly. And so we saw some benefit in our number as a result of that. But then we did see some offsetting increase as Europe has entered into the framework of going to 15%, which would have been, in our model, 10% previously. So we're seeing some puts and takes, which is what gets us to that number. And you're right, it is reflective of how our manufacturing footprint is set up.

Yes. It's our manufacturing footprint in Europe as well as us not being as strong in China as other companies. So that's why it affects us maybe to a little bit of a lesser degree than others.

Fair enough. And then second question is just we've seen some kind of installed base numbers out there on orthopedic robotics out in the market. Kevin, I'd love your thoughts on kind of what you see as greenfield opportunity within Mako at this point? And obviously, an installed base number is always appreciated. But how do you think about that versus kind of maybe adding the second and third robots at various sites around the world?

Well, listen, I can tell you in the United States, there's very few places that only have 1 Mako. If they have on Mako, they tend to have more than one. And the universe of opportunity for us is every single operating room that does hips and knees. That's our universe. So there's 5,000 hospitals that do procedures and they have a lot of operating rooms. So there's still a huge room for us to continue to grow with robotic installations, installed base number we may provide at the end of the year when we provide our sort of percent of procedures being done, which continues to climb. So I'll talk to Jason impression we may provide that number at the end of the year. We tend not to like to be the only person providing these numbers, but we'll take that under consideration. And I would tell you, internationally, we're really starting to pick up steam. And we're kind of where we were in the U.S. about 5 years ago, especially places like Japan and parts of Europe and Latin America.

So we still have a long runway to go. I would say we're still in the early innings overall in the robotic penetration.

Our next question will come from Joanne Wuensch with Citibank.

I have 2. One of them -- the supply issue that you're talking about in MedSurg, can you remind us, please, how long it is going to take to resolve that? And then I'll put my second question right upfront. You launched a new Mako device, I think it was Gen 4 in the spring at AAOS, which had the shoulder and the hip and the and the spine applications altogether. How is that going? And anything you'd say on shoulder and spine that would be great.

Joanne, I'll take the first part of this, Joanna, as it relates to the supply issues and then Kevin can jump in here on Mako. But as it relates to the supply issue, and I think Preston touched on this as well. Largely in the Medical division, we do expect it will kind of linger throughout the remainder of the year. That being said, I think what you'll see of medical in the back half of the year, growth will accelerate and double digit in terms of organic sales growth for them well within reach as we think about the full year.

Yes, great. As it relates to Mako 4, so we're really excited about this launch, and this is not yet a global launch, so that we do have countries around the world where we're still selling Mako 3. And what we added with Mako 4, so the hip revision application is only available on Mako4. The spine application is only available on Mako 4. Right now, the shoulder, we are in a limited launch on shoulder because that's actually on the Mako 3, and we're in the process of of migrating the shoulder to Mako 4. So that will be available starting at the beginning of next year on Mako 4. And that's why part of the reason why the shoulder launch won't be a full launch until next year because we do want to launch that with Mako 4, but so far, so good. The feedback has been very good. We haven't moved to a full launch on Spine yet for the same reasons of just getting the workflow right and getting good feedback. And obviously, we have to partner with VB Spine to be able to do these deals, which include the robot as well as the implants. And we're working through those commercial contracts and methodologies. But everything so far is looking really good.

We have very good applications, very well received by customers, not going to have much of an impact on our sales this year, start to see much more of an impact next year.

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

And a question on NRE. I don't know if you could maybe help with how the business grew this quarter with the destock and Tele transitions and what gives confidence in double-digit growth in 2025? And then can you get back to kind of market growth rate in 2026?

Yes. Listen, destocking is not fun. We've been through this before, by the way, when we bought other companies, K2M, we went through that. And a lot of these kind of earlier start-ups have these kind of practices. One of their practice was quarterly incentives, which helped to drive the stocking. We've done away with that practice. We've also replaced the sales leader with a Stryker sales leader. We've replaced a marketing leader with a marketing leader from Stryker. Of course, the President came from Stryker as well and had prior experience in the peripheral vascular space. So we have a Stryker leadership team that's really in place, which is exciting.

We also took some medicine on forcing all the sales reps to sign noncompetes outside of California. And that was a bit of a gutsy move when you're buying a deal for sales, and then you're making sales people sign noncompetes. Some people deflected not to do that. And we took our medicine, and we've been rapidly hiring new salespeople. The good news is the underlying actual procedural demand was double digits. So we -- it's not like we -- our procedures and the surgeons doing our products for a global market. So we're in pretty good shape from a procedural standpoint, and stocking will burn out. So we're not too worried. In fact, the second half of the year will be good. And the overall year, we expect to be in double-digit growth lands. So most of the bad medicine has been taken already. There's still a little bit more stocking probably to burn, but overall, we're setting us up for the future. And we've learned through in the past is taking medicine early on these kind of deals. And we love the pipeline.

I was just actually had an NRE earlier this week, my second visit down there. And pipeline is great. talent is really good, but we've moved them now to a Stryker sales offense and put Stryker people in charge, and this is what we're really good at. They are -- they develop this market. They have amazing clinical trials that are underway as well. International is still tiny for them and it has a huge opportunity leveraging our infrastructure. So very, very pleased with NRE being part of the Stryker portfolio, and there are good times ahead even as early as the second half of this year and certainly into '26 to '27.

Great. And then maybe the follow-up question. There's some stuff in D.C. and Medicaid exchange cuts. I don't know how you're thinking about if there's any potential impact on that on the elective procedures? And like the knee business did dealt a lit bit this quarter. I hear you on the strong volumes, but I think there was some stuff international like slowdown in U.S. and international needs. I don't know if there's anything to kind of call out that was onetime in OUS needs this quarter.

Yes, it sounds like a couple of questions there, Travis, but I'll take it. This is Jason. So first off, on the bill side of this, as you can imagine, we are continuing to monitor the situation. As you think about procedures for us that involve Medicaid, it's really an immaterial amount of procedures for us. So really knowing what we know today, no concerns there for us as we think about the bill. But again, we'll continue to monitor that.

On the knee front, I'll say a couple of different things. So as you think about how we exited Q2, June can be with vacations and some of those things, a little bit of a slower month. We saw a little bit of that. I'll tell you, as we went into July off to a really nice start for the quarter. So overall, I would say no concerns about the knee market. We continue to think this will be kind of a mid-single-digit market with us growing above market, obviously.

And then just the last thing I would say, it's 1 quarter, right? So you see some of these fluctuations as you go throughout the year. But overall, we feel really good about the year.

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

This is Jenny Benoit on for David. You probably have the international expansion opportunity for a few quarters. And the Pangea and Signal launching in Europe. I was hoping you could break down how you're thinking about inorganic versus organic investment, especially as it relates to international and expansion in new countries? Thinking also here, any reflections on surface, you kind of anniversary the acquisition and expansion for Orthex in Europe?

Yes. Thanks for the question. So Surf has gone extremely well. We're really, really pleased. You can see our Hip business has done very well internationally. And yes, it laps and it's now it's going to become part of organic. And in fact, we're actually going to be bringing our first Surf product to the United States shortly. So very pleased with that acquisition and integration. We haven't done a lot of deals like that, that are primarily revenue-based outside the United States. We continue to look for those types of opportunities. I would tell you that the biggest opportunity, frankly, is increasing the penetration of products we already have in our portfolio internationally and especially acquisitions that primarily have U.S. revenue, taking those acquisitions to the international markets such as NRE.

So obviously, this quarter, international was a little bit slower than it's been over the past 3 or 4 years, but nothing alarming there. Pangea, just to be clear, is not yet approved. So that probably won't be approved until next year. And Insignia is still not approved. The only 1 that just got approved is LIFEPAK 35. So unfortunately, this EU MDR has been a real challenge, not just for Stryker, but for the whole industry. much slower regulatory pathway for products. And so a lot of the super cycle launches that we're enjoying in the United States are still not a ripe in many other international markets. In some cases, we're launching in Japan before Europe, which was unheard of 3 or 4 or 5 years ago prior to EU MDR.

So I think this slight slowdown here, it's still a good growth rate? And you're -- when you're above 6% growth, that's still pretty good, but not that we're accustomed to, we do expect to get back in the second half of this year, international growth will be much better than it was in the second quarter.

Our next question will come from Pito Chickering with Deutsche Bank.

So 2 questions here. The first 1 is on the guidance raise, really nice rate here. But could you bridge us the EPS increase you saw as it relates to a better price than expected FX to tariffs versus your core operational strength?

Yes. So Pito, thanks for the question. We can walk through a little bit as we think about the guide is really reflective, as Kevin mentioned before, on our strong performance and our expectation really on the top line of where we expect to continue for the rest of the year. the bottom part of that on the EPS side of that is really just the flow-through of that upside that we see. As you remember, when we talked about tariffs, part of the way that we're covering off on tariffs is through some spend discipline in some other areas. And so that's not necessarily going to 100% flow through to the bottom line as we're still trying to spend behind our growth initiatives. The other element, really, we do see some favorable FX that does flow through a little bit as well. So really, what you're just seeing is that top-down flow-through from the strong performance that we've had.

The other thing I would just point to, we do have a little bit of a wider range on the bottom and a lot of that just reflects some of the continued uncertainties primarily to do with macroeconomic elements like tariffs that we know are still going to have some pluses and minuses for the rest of the year.

Great. And then the follow-up is, I'm telling to understand the 19% growth you saw in Endo in the U.S. this quarter, up quite a bit versus first quarter. Comps were easier, but still a pretty big move up. Are there any reclassifications skewing that number? Or if not, can you just walk us through kind of that great growth?

Yes. First thing I'd say, no reclassifications, no accounting issues whatsoever, just pure fantastic performance from the Endosopy division. And look at last year, it was an 8% comp. So it wasn't exactly soft, but yes, it was a little bit lower than the typical double digit, but it was a boomer of a quarter for our Endoscopy division and really across the portfolio. So the booms and lights in our communications business had a phenomenal quarter. And they have great orders. They have the new [indiscernible] that they've launched, which has tremendous demand. So communications will continue to hum the rest of this year. And then, of course, 1788 and what we call the Endoscopy business unit had a terrific quarter. And that's just been a consistent trend that we've had. And then sports medicine is just on fire. You're talking about very strong double-digit growth. They've launched about 6 shoulder products over the past, let's call it, 6 to 8 months. And those products, that shoulder was the 1 area where we're not quite as strong as hip and knee in sports medicine, and they had an absolute boomer. So you had sort of all the business units kind of clicking at the same time. We also have our reprocessing business that's part of the endoscopy. They also had a solid quarter as well. So really 1 of those quarters where kind of everything caught fire, but this is a division that's been performing very consistently, very high growth quarter after quarter after quarter, just a little bit higher than normal, let's say, this quarter, which, of course, we enjoy.

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

I'd love to talk a little bit about Mako again. Just the commentary about record new system adds is great to hear again. But I mean, you've been doing that for a while. Anything you can call out as far as what's driving that again here? I know it's Q2, but is it having the shoulder application, the spine application where people are interested? Or is there any kind of pause around competitive launches? Just anything to call out there because, again, you continue to put up these Mako numbers quarter after quarter.

Yes. Listen, I was really pleased with this quarter, and this is the first quarter of of a new Mako, so Mako 4. And I was honestly just not sure that a new robot might cause a little bit of a pause, hasn't caused any pause whatsoever. Our team is executing. The robot is performing extremely well. The word is out. We have a fantastic robot. The revision hip, the surgeons are buzzing about it, just makes a very hard procedure, easy to do. They can see exactly where they're putting their screws and in which part of the bone. And you help us surge out on something that's very difficult, they enjoy that very much. But I was actually a little bit pleasantly surprised with the performance just based on when you're changing a cycle, other companies have gone through, we do this in cameras, and we do this in power tills. We've never done it before in Mako, and it has been absolutely seamless in the United States, this transition, and they want their next robot and their next robot. There's been a few cost customers that are saying, well, can I just bought a 3? Can I upgrade it to a 4. So we're having some of those discussions, but we'll be very friendly to our customers and help them upgrade if they want to upgrade to the new robot.

A lot of customers are saying, "Okay, well, just -- I'll keep the 1 I have, and I'm just going to buy another 1 for the next operating room." And -- we expect this to continue. And the funnel, like we have a visibility into the future. So we expect this momentum on Mako to continue. And there are a lot of operating room still that don't have robots. So those are all targets.

Got it. I appreciate that. And then as the follow-up, Kevin, you're pretty transparent as far as just the thoughts on your M&A strategy and you were talking about a full pipeline. Should we expect another sizable type transaction, maybe not quite as big as a [indiscernible] for you guys in the near future or somewhat in the near future. And you've also given us kind of some of the areas that you're interested in. Anything else that you just kind of highlight that might be new to that list, or something else that you're really a little more focused on I don't know if it's soft tissue robots, et cetera?

Yes. No change to the adjacencies. I would say that they're still the same ones that I've talked about in the past. Obviously, with an are now in the fold, if we do another deal in the peripheral vascular, that kind of space that won't be an adjacency anymore, that will that will kind of be a tuck-in. So don't assume that, that peripheral deal is the only deal we're going to do. We always -- once we get into a space, we want to continue. So that -- there's a pipeline there of deals that they were looking at themselves that we're going to start to evaluate. I would say that we have the financial bandwidth to be able to do another a resized deal, but I can't really predict when deals are uncertain. You don't know when you're going to do a deal and and what size. The bulk of our deals will continue to be of the tuck-in variety. If you think about last year, 7 deals we did. That's kind of the normal Stryker offense. And then every once in a while, we do a bigger deal like a right medical or an NRE. So I really can't give you more on that. We we are always looking at deals, right? Our teams are out there scouring the market. We have a nice pipeline, and we have a number of IOIs in process, but those sometimes wash out based on the price, based on our due diligence. And so it's kind of hard to predict, but I'd be pretty surprised if we don't announce anything for the rest of the year. That will be a deal or 2 or 3, I don't know exactly how many. Most will be tuck-in. And it's not impossible that we wouldn't do something bigger. We certainly have the bandwidth financially and you know I like to spend money. So we'll be active.

Out next question comes from Vijay Kumar with Evercore.

Congrats on a nice [indiscernible], Kevin. Maybe 2 product segment kind of questions. First on medical is there a 1 excluding a little bit, obviously, questions around the CapEx environment. So maybe if you could just period by the broader CapEx environment in LIFEPAK 35 launch and how that's progressing?

Yes, Vijay, this is Jason. I think I got most of your question there, so I'll take a run at it here. But I think the question is on the capital environment. I would say, and similar to my prepared remarks here, we feel really good about the capital environment. If you look at our capital backlog, again, it remains very elevated. No signs of slowdown there as we think about the rest of the year. So we're really confident in that business for sure.

Yes. And LIFEPAK 35, yes, LP-35 is doing really well. really strong order book. Again, we're still waiting for certain approvals. Just getting the European approval is exciting. So September, we're going to have kind of a launch in Europe of LP-35. But great customer feedback. It's doing really, really well. And these medical launches, they're a little different than sort of cameras or power tools. Like this will have a long -- it will be -- we'll be talking about it as a kind of a new product 3 years from now. They have a longer cycle of contribution to growth, a longer tailwind than you see with -- even Procuity is continuing to -- had a really great quarter in Q2. It was launched a few years ago, but it that these are long-term product cycles. So there'll continue to be tailwinds for a long time to come.

That's helpful, Kevin. And maybe 1 on knees here. comps did -- what was this just comping quarter sequentially or anything else that's going on within the knee performance?

No, I wouldn't say there's anything else material to call out other than what I've already said. Again, feel really good about the knee market, feel good about the full year. And like I said earlier, July off to a good start here. So really nothing additional to that.

Our next question comes from Matt Miksic with Barclays.

So I wanted to follow up on Interventional spine. Just the launch of [indiscernible], the investments that you've made in that segment. It would be great if you could talk a little bit about any of the quantitative or qualitative metrics about the launch so far, the other products the investments that you're making and the growth? And then I had 1 follow-up.

Yes. Listen, we love our Interventional Spine business. Obviously, that's reported under neurocranial. And we've been, frankly, 1 of the fastest-growing businesses in Stryker over the past 3 or 4 years has been IBS. We've added to that with [indiscernible] -- initially the Optiline launch, which is an organic launch and now we have the OPTILATE-BDN launch, which has just happened. We also have the Vertas acquisition we did last year, which for now is not appearing in organic sales growth, but will later this year.

I would say that business is just cooking on gas. We have an amazing leader of the business, a great management team. and we are very focused on the space. And we have really done really, really well with balloons early on, the CareFusion acquisition that we did, with the curve balloon has been terrific. We did the SpineJack deal in Dritspine, now we have OPTABLADE. And so we're covering oncology as well as pain and adding salespeople and just a fantastic business, a little gem. It's not huge yet, but it's growing really, really fast. But it's 1 of the gems substriker and is kind of how we drive this kind of growth so consistently is you have a number of these smaller business units that we continue to fuel really high growth, like very consistent strong double-digit growth. And I don't think that's going to slow down whatsoever. It's going to continue, especially with these -- Vertas is off to a really good start. And then the BVN is very new, but so far, getting good.

That's great. That's great. Then a follow-up just on the sort of pull word bingo here. But AI is something that we haven't talked about in a while. I know Robert, I'm sure breaks up every day thinking about it, and probably go please working on it. But maybe talk a little bit about some of the digital efforts that you have underway around whether it's orthopedics or other segments of the business? And where we might start to see more of Stryker putting its substantial data and assets in digital technologies to work to deliver solutions in that area?

Thanks. We have a lot going on in the world of AI. You know that Blueprint is already FDA approved and uses AI to create the surgical plan and inform the surgeon as to which implant they should be doing. Preplanning is going to be continued. We're going to proliferate that across our portfolio as 1 area of opportunity. We have the [indiscernible] surgical that quantifies hemoglobin that's AI product approved. We have a number of other projects -- and in addition to that, we've hired a new Chief Digital Information Officer, Debra King, who started pretty recently and has a lot of experience more on degenerative AI and is also going to bring a lot of infrastructure that can then be used by our divisions. And I would say that this is a topic that we'll probably cover in our Investor Day that's planned for later this year. We'll get the specific date out shortly. But rather than spending up time on the earnings call, going through this, I think we'll give you a lot more information on that later this year. But suffice to say, we are absolutely aggressively working in this area and see this as a tremendous opportunity to bring more science to health care versus just relying on 1 surgeon's experience in their residency and in their training to be able to bring more data to life.

So we have a lot of projects underway. We'll share more later.

Next question will come from Steve Lichtman with Oppenheimer & Company.

Have you talked about Salesforce changeout at Inari as you put noncompetes in place. Can you talk about how much sales vicinity you're assuming as a result? And I know you mentioned still double-digit growth, but has the absolute expected reported -- expected revenue contribution from [indiscernible] at all?

Yes. Look, for the full year, I think we talked about something like $590 million for the full year. We're going to be right around that number. So we are absorbing these changes, these challenges of sales rep attrition. It was starting to happen even before the deal closed, and we accelerated that with the noncompetes. And look, a lot of those people that decided not to sign on were not necessarily all regrettable, not necessarily Stryker type of salespeople. We've been aggressively hiring. So no, we're not calling down our number, but it's a little bumpier, so it was a little lower as we destocked and as we dealt with the turnover, but the reps are coming on, and we're going to expect very good numbers in Q3 and Q4.

Yes. Steve, maybe just to add just a finer point on that on the $590 just to be crystal clear here. That would be for the 10-month period since we've owned them.

Right, right. And then just on tariffs, can we still expect the impact all in the second half? Was there anything in 2Q? I thought in the prepared remarks, I heard something and just in the cadence of that $175 million between 3Q and 4Q. Can you talk to that a little bit?

Absolutely. So when you think about tariffs, there is some impact of tariffs in the second quarter. But remember, because most of the tariffs are flowing through our COGS number, they're flowing into inventory first and then onto the P&L. So we will see a bigger impact in the second half of the year than certainly what we saw in the second quarter or even the first half of the year. So back end loaded because it's going to flow through, through inventory and then to the P&L. And certainly, also, as we pick all of the tariffs up in terms of getting to the final numbers, we'll see that more consistently in the back half of the year.

Our next question will come from Chris Pasquale with Nephron Research.

I wanted to ask a couple of questions on the Robotics business. the ortho robot landscape now includes a variety of different form factors. You've got some competitors taking more of a portfolio approach to try and provide different solutions to physicians who may have different preferences. You guys have been more one size fits all with Mako. Do you see a limit to that strategy? Or do you think Mako, in a single form factor, can continue to kind of cover all your basis?

Yes. Listen, like I said before, I had a question earlier about a different product. We're not going to talk about our pipeline of robotic solutions and whether something else will be added to the Mako portfolio, I'm not going to preview that. So that will happen -- if that's something like that happens, I'll let you know when it does. But we have an absolute winning solution right now, winning in the United States, winning globally. We know we have the best rollout in the market. And our solution is add applications, add applications continue. We're not finished, right? We've got other applications planned that we're going to continue to add to the robot to create tremendous value. So hospital buys 1 robot. They get all these different applications that they can use. So we know that we're in a good position. We have a winning hand. We're going to continue to play this hand. But could we do something different in the future? It's possible. We'll let you know at that time, but not before.

Okay. I think my follow-up question also straight into the pipeline territories. So maybe I'll pivot and ask about trauma. It's been a real standout. You noted that you're now lapping the Pangea launch. I know you guys tend to talk about product rollouts being multiyear affairs. But how do you think about your ability to sustain double-digit trauma growth as those comps get tougher?

We sustained double-digit growth in a lot of our businesses as comps get tougher. You just look at neurocranial, just look at in dose look at this is something we do. This launch has been fantastic, just an absolutely beautifully executed super complex launch. And we're actually still adding to it. So we just added some MIS plates. So it's such a comprehensive system that it's not like the launch ever completely stops. You're going to continue to add little features here and there to keep it fresh and it hasn't even launched yet in Europe. That won't be until next year that it starts.

So this tremendous growth, even OUS, our growth is really strong in spite of Pangea and not being everywhere in OUS. So that, combined with upper extremities being on fire, foot and ankle starting to get better. and certainly, the change in reimbursement for total ankle where we have a very high market share is going to be exciting. Timed beautifully with the launch of our Encompass brand new total ankle, just fortuitous for us, tells me that trauma extremities continued to be a high-growth division for the company.

Our next question comes from Richard Newitter with Truth Securities.

Just 2 quick ones for me, following up to Chris' question just then on robotics portfolio. What's your view on fully autonomous robotic your competitor obviously has a solution or wants a solution there. Do you see the market going there? Is there an appetite for that? And then just a second question upfront here. On Neurovascular, Kevin, just curious if you can comment at all on U.S. neovascular end market, particularly in the [indiscernible].

Yes. So let me start with autonomous. So just to be clear, we're aware of their portfolio, and we know that they are pursuing autonomous. We have the capability today to do Mako autonomous. I've actually been in the lab where I've actually seen it operate autonomously. We have chosen not to pursue that because of the regulatory burden and the expenses required to get it through FDA. And so at some point in the future, if the market really has an appetite for autonomous, we can turn that feature on. And -- but right now, that's not our focus. Our focus is using our R&D dollars to add new applications that provide tremendous value.

And even if they try to move our robot outside of the haptic boundaries, they can't. So whether they're putting their hand on it to make it move or whether it's done autonomously, honestly, that's not a big value add for a surgeon in our opinion. But should the market start to move that way, we already have that capability today with Mako.

And then as to Neurovascular, yes, the NV market, obviously, the market for hemorrhagic is still stable, I would say, and we continue to do well in the hemorrhagic side of the market. And the ischemic market was a little bit slower, and we've seen that market kind of vary from quarter-to-quarter, and there's a lot of entrants in that market. Obviously, it was a bit of a soft quarter for us in Neurovascular this quarter, but we have 3 product launches that we mentioned in the prepared remarks that give us optimism that we're going to have a much better second half.

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

I just wanted to follow up on the neurovascular question. So you mentioned this Broadway large for catheter. Can you just talk a little bit more about the timing on that? And will that actually have enabling for aspiration use [indiscernible]?

Yes. So it is approved, and we have just started to launch it with the sales force. So initial cases have gone extremely well. It's made in completely different ways. The manufacturing process is completely different to all of our existing catheters. So it's a proprietary manufacturing method that really improved trackability. It's, I think, the lumen is 0.084, I believe, women's. So large lumen size, very trackable, getting great feedback, but it's just being launched right now. So approved in the U.S., being launched in the U.S. will take some time before it's launching in other markets relevant.

And is it cleared for delivery use or for actual aspiration use?

It's clear for aspirations?

Okay. All right. And then just one on shoulder. So I think shoulders have also started to move into the ASC setting -- [indiscernible] shoulders. So what are you seeing there how does that kind of balance out? Can you maybe increase volume but potential for some pricing pressure?

Yes. We obviously have a very expensive shoulder implant, really the best children plant on the market with the perform system. And there is a little bit less pricing in the ASC, but more volume to pick up. And a lot of people suffering with shoulders, we had another quarter, every quarter is good double-digit growth in shoulder, and we continue to love our shoulder business. We also have some products and offerings that nobody else has, right? So you have the hemiarthroplasty with PyroCarbon. You have the shoulder ID, which is custom glenoid customized to the patients so you don't have to have separate augments. And so this pipeline is fantastic. The existing implants are modern. We have Blueprint software to help with preplanning. So we have just a terrific offering.

And so yes, we've lost a little bit of price on some of those procedures I move to the ASC, but it certainly hasn't slowed down our growth at all, let alone the fact that next year, we're going to move to full launch on Mako Shoulder. So I don't expect shoulder to be slowing down anytime soon.

Our next question comes from Shagun Singh with RBC.

Two quick ones for me. Just on your implied second half guide, it seems like a step down in the back half versus front half on an adjusted basis, still really strong, but just wondering if it's conservatism or any factors to call out there? And then for my second question, I was just wondering if, Kevin, you could talk at high level directionally on 2026. Any areas that you are most excited about?

And then just thinking through 2026 as well, we've been speaking with some hospitals especially those who have very high exposure to Medicare, Medicaid, they have talked about budgets coming down in '26 versus '25. It sounds like you're not hearing it about it in for '25, but just any color on '26 would be great.

Shagun, I will take's those questions. First, as we think about the guide in the second half of the year, certainly, we have higher comps as we think about our sales growth that we have to get through in the back half. But Also, as you know, our plan always is we want to make sure that we beat and raise as we go throughout the year. And so I think we're very well set up to deliver on what we have and ideally, if we overperform to raise guidance as we continue to perform in the second half of the year.

As for 2026, we're not going to provide any update on '26 until we get through the end of this year. So at this point, we have no comments with regards to how we think about 2026 at this point.

Yes. The only thing I'd say, Shagun, is that hospitals need our procedures. They're very revenue-producing the places that we play in health care. And so if their financials are affected by less revenue from -- based on the bill that was passed, they're certainly not going to come after our procedure areas. We're the ones that are making a lot of the money in the hospital. So if anything, they'd like to do more of our procedures to help with their financial pressure. So it will take a long time before it really starts to hit our business based on where we play within the health care system.

Our next question will come from Danielle Antalffy with UBS.

Kevin, just 2 questions for me. First, on China. I know you guys have highlighted this is an area where you're underindexed and there's a lot of potential for growth there. I'm just curious, I mean, there's been a lot of been very -- evolving very quickly with tariffs, but also the broader health care market in China. Curious about how you're thinking about China from a growth perspective, and how much that's a focus for you guys today? And then just 1 quick follow-up after that.

Yes. We don't have a large China business, as you probably know. And VBP hurt everybody, but us a little bit less than some of our competitors because of our presence. But look, it's a giant market. Long term, you have to be in China. We're not withdrawing from China, but we're also being very thoughtful about the types of investments that we do and having to have sometimes some localized products, which we're experimenting with in our [indiscernible] division is one example. So we're being, I guess, careful and trading carefully is the way I would describe it, being thoughtful about our distributor arrangements. And it's not something that we're pouring a lot of money into, but we're not taking any steps to leave or to exit. We're going to hang in there, and we're going to continue to to sort of build -- have the building blocks to have a sustainable growing business. And China had a very good second quarter. That's having a good year this year. But we've been through some challenges in China. So I'm not nearly as bullish as I was, let's say, 5 or 6 years ago, before in the pre VBP era. It's a lot different in the market right now, but it is a market that we're going to continue to be active in as we are in a lot of other international markets.

Okay. And then my follow-up was on international. And you mentioned with Mako where we were 5 years ago in the U.S. Is there anything structural about the international market that would make the ramp look different for Mako than it did in the U.S.? Or should we think of the U.S. as a good proxy for how to model Mako uptake over the next few years internationally?

Yes. Thanks. It's a good proxy. Japan, it's a good project for Japan. So Japan has a financial wherewithal. They like technology, they can afford this. So I say Japan is a good proxy and some of the European countries are good proxies. The countries that are not quite as good a proxy would be something like France, which is all government paid. It takes a long time, and Canada is another example where all of a sudden, they are now starting to be very interested in Mako because they've seen long-term data that shows that it's really high performing. The Australian data was tremendous. So it showed that Mako not only performed better than manual instruments, but perform better than navigation. And that is very credible on a global stage. So that data that came out is something that we're using internationally to help drive the business. So it does vary by country. I would say, countries like the U.K. countries like Italy, that will be moving kind of like the United States, but there are some other countries that are fully socialized medicine. It will move a little bit slower. It's just the nature of the business.

Our next question will come from Matthew Asper with Jefferies.

This is Matt for Matt Taylor. Wanted to quickly ask about how do you expand a little bit of how you're thinking about the recent OBA and the implications for your business? Primarily, are you seeing any shifts in the behavior of purchasing or CapEx budgeting from hospitals given the favorable CapEx treatments they have from accelerated depreciation and et cetera? And then also maybe a follow-up to that is how should we be thinking about the tax rate for your business heading into 2026?

Yes, Matt, it's Jason. I'll take the first part of this, and Preston will pick up on the tax rate portion of this. But kind of like I said earlier, as we think about the bill, we are continuing to monitor the bill. As it relates to the Medicaid piece, a small part of our procedures are Medicaid-related. So feel really good about that. I think as we think about the capital environment again, and Kevin mentioned this as well. If you think about the majority of our capital, it's closely tied to procedures, right? So as procedures continue to be strong, we expect that there'll be a high need of our capital, and so we're positioned well on that front.

And as it relates to the tax implications of the bill, so we expect that over the next year or so, we will see some benefit in terms of our cash tax just given the bill. But from an ETR standpoint, we would relatively be in the similar area that we are this year. So this year, our guide is 15% to 16%. And as we get into next year, we'll confirm what that's going to be, but we don't expect it to have a significant impact on our ETR at this point.

Our next question will come from Caitlin Cronin with Canaccord.

Congrats on a great quarter. I guess, just starting off with Hips, I think it was a strong number. Are you guys seeing any pressure from the competitor launches in hips? And then just any update on whether you're continuing to trend higher and kind of the percentage if procedures done robotically?

Yes, I would say on robotic procedures trending, both knees and hips continue to climb. And we're very excited about the Hip 4.0 software because if you recall, the first 5 or 6 years, maybe 7 years after the acquisition, the hip percentage hadn't really changed very much. But this new software is very good. And especially now that we've added revision hip, I expect that to continue to improve. And Insignia has been an absolute home run of a product for us and has really taken off, and I can't wait until for it to get approved in Europe. So that will continue to contribute to our growth.

We've done a lot of training around direct interior, which has been terrific. And so overall, we run a really good offense in terms of our commercial offense, and we just focus more on ourselves and what we're doing with the customers rather than focusing on the competition, and that's been paying off for us.

That's great. And then just a quick 1 on navigation. I think you called that out earlier being strong. Was that related to key guidance and maybe the momentum in the financial portion of the enabling tech portfolio?

Yes, that's exactly right. So when we say enabling tech, we mean the Q guidance. And the Q guidance just a reminder, with Mako I, that's half of the system. So you can use it for spine to do navigation, but you could also combine it with the Mako robotic arm to use Mako. So we have this reuse of software type of approach, which is really effective.

We also have the Copilot product that's reported under our neurosurgery business under neurocranial, which is a burn that has haptic feedback as you get close to the key critical anatomy in the spine that will actually buzz and they actually turn off before the surgeon hits those structures. So that has been very, very favorably received by customers. So to be able to use copilot, you have to have the Q guidance system. And so even though the revenue part of it is an enabling tech and part of the revenue is in neurosurgery, it does operate as a system, and we had a really good quarter in Q2.

Our next question comes from Josh Jennings of TD Cohen.

This is Eric on for Josh. On capital, I understand you guys bucket items into large and capital items. -- for large items in particular, I was wondering if there's any detail you can share on the portion of outright capital sales versus financing options or placements for that category. And maybe an easier 1 to answer is just whether or not that has seen any meaningful shift in the ratio over the past several quarters.

Yes, this is Jason. I'll take this one. So as you think about our capital as a percent of kind of total revenue, right? You have about 15% of our total revenue. That's the smaller capital more closely tied to procedures. And then you've got the larger capital that's closer to 9% to 10% of our total revenue. And that business continues to do really well. I think Kevin mentioned earlier our communications business where you see a large percentage of our large capital did really well in the quarter, and other areas of our business that has this large capital as well continues to perform really well. So we're really happy with both the large and small capital.

Yes. The only trend towards more financing has really been on the robots under Mako where there has been -- especially in the ASC. Most of those deals in the surgery centers are financed versus hospitals, which tend to do more outright purchasing just historically, but not a major change that we're seeing from the trend that we've seen over the past year to 18 months.

Okay. Understood. And then I know there was a question earlier on Mako internationally, but if I could focus on Mako spine and shoulder, in particular. I appreciate the reiteration of the U.S. launch time line there, but I was just curious if you could share your thinking around those new offerings in international markets and what the commercial opportunity could look like outside the U.S.?

Yes. I would say the opportunity is large, right? And as you think about just the initial launch, we're looking at the end of this year for Mako Spine and then the first part of next year for for Mako shoulders. So it will be a deliberate lengthy launch. But yes, there's lots of opportunity both in the U.S. and outside.

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

Thank you all for joining our call. We look forward to sharing our Q3 results with you in October. Thank you.

This concludes the second quarter 2025 Stryker Earnings Call. You may now disconnect.