Stryker Corporation — 2024 Q1

Yes. Thanks, Robbie. Yes, we're really pleased with the performance in the first quarter, and really nothing has changed. So the good level of volumes that we're seeing in procedures that we saw through 2024 has continued into 2025. And our capital order book remains very strong. So capital equipment, whether it's large capital or small capital, remains very robust. We have a nice healthy backlog, and that gives us the confidence to raise our organic sales growth guide for the full year.

Yes. Thanks, Robbie. Not a major change. I would tell you the Interventional Spine business had a terrific quarter. That was really high growth. Our enabling technologies within Spine, the Q Guidance System has really picked up good momentum as well. The Mako Spine and the CoPilot won't be launched until the fourth quarter. So that's not really having much of an impact. And I wouldn't say that the competitive disruption or the competitive merger is really having much of an impact yet. It's still very early days. So nothing too remarkable, but overall, a good number and a good solid number for our Spine business.

Yes. Sure. Thanks, Larry. I think if you look at sort of what happened in OI&E and also what happened with our tax rate, obviously, we had some favorability just for this quarter. I think fundamentally, we're still targeting $250 million roughly in OI&E and attach rate that really is still between 14% and 15%. So we're still sort of holding to the below the op margin line sort of guidance that we had built into our initial guidance that we provided back in January.

Yes. Thanks. I'm a little bit mystified by this concern, to be honest with you. If you attended the Sage's meeting, you could clearly see that we have a very differentiated solution that will frankly enable -- they can grow at whatever rates they're growing with their new product, and we're going to continue to have a very strong performance in endoscopy, both this year and for years to come. The overlap in our businesses is minor. We are multi-specialty. We play -- and most of our procedures, frankly, aren't being done robotically today. We also are the clear leader in fluorescence imaging.

Yes. Great. So certainly, if you look at our fourth quarter last year, I wouldn't think that, that was -- those were easy comps. We had a pretty monstrous fourth quarter last year. And so comps is probably the biggest concern that we have, and we do pick up an extra selling day in Q3 and extra selling day in Q4. It's only one quarter, right? There's a lot of uncertainties out there in the marketplace. We feel very good about our business. And I think this is an appropriate raise at this time. Let's see how things go at the end of the second quarter, and we can update you further on the outlook for the year.

Yes. Certainly, when I talk about those 5 areas, those are adjacencies. So we have our core basically supplementing our existing businesses with new technology. That's always going to be the majority of the deals we do. And beyond that, as we think about adjacencies, those are what I'm calling my sort of top 5 priority adjacencies. And what I'd tell you right now is we have an incredibly healthy pipeline of deals.

Yes. Sure. I can start on the Instruments, and I'll let Jason talk about the other ortho. And you're right, these are bright, shining stars. The Instruments division had a fantastic quarter, and it was really, really across both Surgical Technologies as well as Orthopaedic Instruments. Really across the board.

Yes. Joanne, it's Jason. I'll take the other ortho here. So just a couple of additional comments, I guess, to my prepared remarks would be, like I said, we had a record quarter of installation in the first quarter this year. If you remember, we had a record quarter in the fourth quarter of last year. So the momentum is going really well on the Mako front. I commented on the direct-to-patient campaign. We've seen really good results out of that. So we feel good about it, and we like what this will translate in terms of the Hips and Knees business as we move forward as well.

Yes. So certainly, Europe continues to be a growth engine for Stryker. I would tell you in the first quarter, it was a little bit softer than it has been, and that was really because we had a big quarter last year. So really more comp related. I do expect Europe is going to continue to pick up in Q2, Q3, Q4. So the overall run rates are really healthy in Europe. And we -- the U.K. was a bit of a standout in the first quarter, but the other regions are all going to be fine. We had a really big, big sales in Germany and Southern Europe last year and so -- in the first quarter. So to me, it's just a comp issue. I'm not at all concerned about our international. We're going to have another strong year in international. So you talked about Europe. What else did you say, sorry? [ Was it all ] Europe?

Yes. Pito, I guess what I would say here, as we look at the overall capital environment, and you can see in our results in the first quarter in our capital business is very strong. So we see opportunities here across the board. I think we mentioned that our backlog continues to be elevated here. So we expect strong capital as we go throughout the year.

Yes. Thanks for the question. What I would tell you is we're in this constant rhythm of innovation. And we just had a number of products sort of collide at the same time, but they're constantly being refreshed. So I wouldn't think about this as a fleeting moment. If you think about 9.7% in '22, 11.5% in '23, another potentially double digit, we'll see. We're not guiding to that just yet, but we have a chance certainly to get to another double-digit growth this year, and next year, you're going to have the impact. We're just launching LIFEPAK 35. It's not going to have as much of an impact this year as next year. Pangea not as much impact this year as next year. The Mako applications have really no impact this year. It's really more next year. And then we'll just keep rolling other innovations on top of that.

Shagun, it's Jason. Just -- I'll go back to my prepared remarks, right? As we think about Mako Spine and CoPilot, we're looking at a Q4 launch there. And for Mako shoulder, it will be the end of this year from a launch standpoint.

Look, I'd just call it a stable market. It really hasn't changed much, if you think about waiting lists. If you think about staffing, it's continually gotten better over the course of '24. So I would just say it's very stable in terms of the overall market. I don't see shortening at all. I don't see it elongating. It's just as we saw through '24 -- '23, sorry, it's a continuation into '24 of that kind of stable marketplace.

Sure. Yes. I think in Q1, what you saw was just timing between working capital in Q4 and Q1. And then just sort of seasonally in Q1, we have higher cash outflows that occur. So that's the impact of that. On an overall basis, there's no change to the targets that we discussed back at the analyst meeting in November, and that would be the 70% to 80% free cash flow conversion number.

Travis, it's Jason. I mean for competitive reasons, we won't necessarily disclose the number in terms of the amount going into competitive accounts. But I will say that number is big for us and continues to be a winner for us in terms of going into competitive accounts.

Yes, Travis, it's Jason. I'd say a couple of different things here. The smoke evac business has continued to be, I think, high teens, 20% grower. In smoke-free states, it's higher than that and similar to kind of what we said today in the prepared remarks. So it's been a great tailwind for us, and we think it will be into the future.

Yes. We've also had our supply chain has really improved in terms of being able to meet the tremendous demand that we've had, and that was also a contributor. So we've had tremendous growth, tremendous demand. And our supply chain has really kicked in, in a strong way, and that puts us in a good position not only to deliver in the first quarter but also to deliver in the quarters ahead.

Matt, it's Jason. I mean keep in mind, right, from a regulatory standpoint, there's time lines as it relates to the FDA that can shift things by week, sometimes a couple of months. We've always been targeting a back half launch here. So I wouldn't consider this as a significant change in the time line. As you think about the guidance that we have for this year, there was certainly nothing assumed in terms of our guide relative to the spine or shoulder launch. So no impact there as we think about that.

Yes. Look, I don't think I said that. I have to double check the transcript, but I didn't give a precise number of double-digit growth for all that time. What I did say is we are in this high-growth environment based on our innovation cycle, and we're going to continue to have these new products fuel growth. It does depend on the market, right? So if the market stays at this kind of level, could we stay in that kind of double-digit range? Sure, we could. But I -- there's no guarantee that the market will stay this elevated both in terms of procedures as well as the healthy capital environment.

Yes. Sure. Thanks. Jason, every quarter, we'll talk to you about new products. And we highlighted a couple this quarter with the LIFEPAK 35 and Pangea in our trauma business, both of which are really super exciting products that are going to contribute to growth for at least a few years to come. As it relates to Mako, so the new spine robot will be 2 parts. One part is the actual robot with a different attachment that will enable the pedicle screw guidance. The second part is the Q Guidance trade that's already being sold today. So that is used for first-line procedures. It's a very lightning fast camera. You saw it at NASS. It's being sold today to do navigated spine procedures. So those 2 components will make up the Mako Spine system.

Okay. Yes. First, just so we're clear, the target is 200 basis points over the next 2 years, '24 and '25. And that's what we presented back at Analyst Day back in November. It's also the kind of the guidance we brought out in January. I think if you do the rough math, just based on our guidance, you'll see that we're in the realm of 100 basis points or 100 basis points plus in this first year. .

Yes. Well, I'd say -- if you look at our trauma business, core trauma, so excluding upper extremities and lower extremities, if you look at core trauma, we've been historically the leading nailing company in the marketplace. But we haven't been the leading plating company. Now we have some terrific places, whether it's our clavicle platters, our pelvic products. But we didn't have a comprehensive system of variable angle plating. This is an amazing product launch, very comprehensive and will really be a shot in the arm for plating, which, by the way, is more than half of the procedures in trauma are plating versus nailing.

Caitlin, it's Jason. As we think about upper extremities, this continues to be a fast grower for us. As we think about kind of transition and the opportunity in the ASC, no change from that perspective. And we expect this will continue to be a fast-growing business for us.

Yes. And as it relates to product launches, I think we talked about this on the last call, but we have about 5 products that are either going into full launch that we're in partial launch or are being launched. We have a perform fracture system, which is really exciting, a reverse stemless product. We have the pyrocarbon, which is hemiarthroplasty product. We have the hollow lens, which is -- you can visualize the surgery in the operating room. That was a limited launch last year. That's going to move to full launch. And I think it's the fifth one, Jason, the number?

Those were the -- those were the big...

Those are the main 4 ones. But there's a fifth one. I can't remember right now. But if you look -- go back to the last call, I think we did highlight all of those products. So this is a business that's been growing roughly 20% every single quarter. That continued. We have a very strong first quarter. And we expect that to continue not seeing any real change in the market dynamics at all where we have tremendous momentum, and we expect that momentum to continue.

Yes. Well, firstly, if you look at our business in Europe, it gives us tremendous market share in France. And the dual-mobility, they were the originators of dual-mobility, and they have a terrific portfolio of products not just for France, but certainly, they're well known throughout Europe. And then eventually even some of those products, we'll be looking to bring those to the United States. So it really gives us a shot in the arm in Europe where, as you know, we've historically had lower market shares than other parts of the world. So we're very excited about this product. The feedback so far from surgeons has been excellent. They're very differentiated products that are -- that have a lot of history behind them and are really well received in the marketplace.

This is actually Sam on for Rich. I appreciate the commentary you guys gave earlier on margins being stronger or expansion being stronger in the second half. But just as we think about the 80 basis points of expansion this quarter, is that reasonable to think about as a floor on a quarterly basis this year? Or maybe should we think about a step back in 2Q?

Sam, it's Jason. I'll take this one, and Glenn can pile on anything additional here. But again, to Glenn's comments, as you think about the margin expansion getting to 100 bps on a full year basis being second half weighted, it certainly would imply that you could have a quarter less than that from a margin expansion standpoint. Certainly, margin expansion in every quarter, but I wouldn't necessarily say it'd be to the levels of what you saw in Q1 every quarter.

Sure. I mean if you think about pricing, we do sort of -- there are sort of a tale of 2 cities. On the MedSurg side, we generally are able to gain pricing. There's certainly a premium placed on technology, and we work through contracts that provide bands of pricing that allow us to approach customers. On the ortho side, you're right. Traditionally, it's been a market that has had price declines.

Josh, it's Jason. I'll take this one. I'd say a couple of different things here. As we think about the market, our view has really not changed at all here. Even if you go back to Investor Day in November of last year, we said the ortho markets would grow, call that mid-single digit area. And we would outperform that 200 to 300 bps above that. So as we think about the full year this year, that's kind of how we're looking at the markets, and we feel as good as ever about that.

Okay. Great. So firstly, on international, what we're seeing is kind of the same dynamic we saw in the U.S. about 5 or 6 years ago. We are installing a large number of robots, and those tend to be leading indicators. And as you install those, then they start to do the procedures, and you see growth in the implants. So there, where we were 5, 6 years ago, it's really picking up in India, Japan, for sure. Even parts of Europe are picking up.

Thank you for joining our call. As you can see, 2024 is shaping up to be another strong year for Stryker. We look forward to sharing our Q2 results with you in July. Thank you.