Stryker Corp Q3 2024 Earnings Call Summary

The following is excerpted from the question-and-answer section of the transcript.

Question: Robbie Marcus - J.P. Morgan Securities LLC - Analyst : Great. Thanks for taking the questions, and congrats on a great third quarter here. Kevin, I wanted to ask, medical really stands out. 60% of sales is now in that medsurg and neurotech, and medical grew closer to 20% this quarter. You called out the LIFEPAK had really good orders, but also beds and stretchers as well. There's a lot in that medical line item. So just wanted to see what's going on there, how much is one-time versus sustainable, and then I have a follow-up. Thanks.

Question: Robbie Marcus - J.P. Morgan Securities LLC - Analyst : Great. Maybe just to follow up, the fourth-quarter implied guide with the updated guidance is still a really good number, but it looks to be just a bit below trend, at least on sales, versus year to date. Is there any impact that we're seeing from the hurricanes or any other disruptions we should be thinking about in fourth quarter? Thanks. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 29, 2024 / 8:30PM, SYK.N - Q3 2024 Stryker Corp Earnings Call

Question: Robbie Marcus - J.P. Morgan Securities LLC - Analyst : Understood. Thanks a lot.

Question: Larry Biegelsen - Wells Fargo Securities, LLC - Analyst : Good afternoon. Thanks for taking the question, and I'll echo Robbie's congratulations on a really nice quarter here. So Kevin, I wanted to ask a little bit about 2025. You're guiding to 9.5% to 10% this year. How sustainable is the momentum in the top-line growth we're seeing? And what are the drivers of the 100 basis points of margin expansion that you called out on the call? And Glenn, given the recent refinancing, should we be thinking about below the line or interest expense differently? Thanks.

Question: Larry Biegelsen - Wells Fargo Securities, LLC - Analyst : No. My apologies. Please go ahead. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 29, 2024 / 8:30PM, SYK.N - Q3 2024 Stryker Corp Earnings Call

Question: Larry Biegelsen - Wells Fargo Securities, LLC - Analyst : That's super helpful. Just for my follow-up, the hip growth was really strong in Q3, especially outside of the US. What drove that and how should we think about the sustainability? Thank you.

Question: Larry Biegelsen - Wells Fargo Securities, LLC - Analyst : Thank you.

Question: Joanne Wuensch - Citi - Analyst : Hi. Very nice quarter. One of the things that I think that investors struggle with is when they see this kind of growth in ortho, an impression that this is not sustainable and either at some level of pent-up demand and volume or pricing that is moved positively that may not remain positively. Can you please address that? Tell me was I right or wrong. Thank you.

Question: Joanne Wuensch - Citi - Analyst : Well, as my follow-up, can you comment on early feedback for Mako Spine? And thank you. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 29, 2024 / 8:30PM, SYK.N - Q3 2024 Stryker Corp Earnings Call

Question: Joanne Wuensch - Citi - Analyst : Excellent. Thank you.

Question: Ryan Zimmerman - BTIG, LLC - Analyst : Thank you, and congrats on the quarter. Kevin, we had the chance to see the Vocera acquisition really be integrated into your beds, your stretchers, even, to some extent, the LIFEPAK 35 product. And I'm wondering if you could just talk a little bit about kind of where Stryker's headed from a software versus hardware standpoint, how to think about maybe some of the recurring revenue that you expect to get as you create this ecosystem with Vocera, and now maybe care.ai to some extent and other products, and kind of where you're driving the business to versus what we've historically thought of as more traditional medtech, if you will. I'm just curious your thoughts on that focus.

Question: Ryan Zimmerman - BTIG, LLC - Analyst : Fair enough. And Jason, you made the comment that you expect procedures to be healthy through year-end. You've historically made those comments in kind of a three- to six-month window. And I know this is trivial, and it's kind of a follow-up to Joanne's question, but any reason why early thoughts on early '25 wouldn't result in any type of similar procedure environment? I mean, it seems like it would suggest even into the first quarter of '25 that there wouldn't be some type of slowdown. And again, I know it's a more near-term question.

Question: Ryan Zimmerman - BTIG, LLC - Analyst : Thank you.

Question: Travis Steed - BofA Global Research - Analyst : [Thanks for taking the question.] I wanted to ask one on LIFEPAK. Any sense for if you could comment on the order backlog compared to kind of typical product backlog, some of the early feedback? Do you think this is enough for medical to grow and accelerate the growth rate of medical next year? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 29, 2024 / 8:30PM, SYK.N - Q3 2024 Stryker Corp Earnings Call And then just wanted to make sure, on the installed base, the 100,000 plus, is that an installed base for the market, or is that an installed base for Stryker? There's just some confusing comments out there, so I wanted to clarify that here.

Question: Travis Steed - BofA Global Research - Analyst : Great. And I had a follow up, kind of a two-part one for you, Kevin. Just how you're thinking about the overall M&A environment and sizable deals later this year, early next year. And Jason, the $300 million you called out on M&A contribution, is that all inorganic revenue? Or is it just any of that flow into organic, and I'm curious how fast that piece of revenue is growing?

Question: Travis Steed - BofA Global Research - Analyst : Great. Thanks a lot.

Question: Matthew O'Brien - Piper Sandler Companies - Analyst : Afternoon. Thanks for taking the question. Just maybe -- I don't know if this is for you, Kevin or Glenn, but just help reconcile the commentary on, I think you said record new Mako installations, but then the other line was essentially flat this quarter. And I think you said there was an international pressure that you saw this quarter. So that would imply -- is that the case? Are you starting to see a lot of interest build in the multi-platform capability of Mako? Or is there something else just going on where you're seeing such strong domestic demand for Mako?

Question: Matthew O'Brien - Piper Sandler Companies - Analyst : Okay. So I guess just specifically then, I mean, did the domestic Mako number surprise to the upside in the quarter in terms of the installation?

Question: Matthew O'Brien - Piper Sandler Companies - Analyst : Okay. And then as I look at the ortho business, and I know medical has got a ton of growth in front of it, but the ortho business in your three biggest buckets is -- continues to be well above market averages in terms of growth. And I think trauma extremity actually accelerated here in Q3. So just the confidence that you can continue to take this much market share, I don't know if you've benefited from your competitor issues in large joints here in Q3 or not, but just the confidence in the ability to -- I know it's really put up this level of growth, but to grow so much faster than the market in '25 and even in '26. Thanks.

Question: Vijay Kumar - Evercore ISI Institutional Equities - Analyst : Hey, guys. Thanks for taking my question, and congrats on a nice print here. Kevin, maybe my first one on Mako here. I think in the past, you mentioned about a certain percentage of hips being performed robotically in the US. I think that number was maybe 25%, 30%. Where are we on Mako utilization? Any qualitative numbers? And is it up mid-singles, up double digits? How should we think about utilization? What percentage of hips are being done robotically right now?

Question: Vijay Kumar - Evercore ISI Institutional Equities - Analyst : Understood. And maybe Kevin, one on the macroenvironment here, I know you've said procedure environment remains healthy. I think in the past, you've spoken about wait times as sort of being a leading indicator. When you look at those wait times, where are we right now from procedure scheduling perspective? And I think on the capital side backlog, does it still remain robust to grow sequentially? Thank you.

Question: Matt Miksic - Barclays - Analyst : Hey, thanks so much for putting me in. Just a couple of clarifying questions on Mako. So one, I know there was a -- I think it was Matt's question on color around that product line and ways of purchasing and so on. So just a quick one I think is the mix on leasing in the US versus the mix on leasing OUS and more cash purchases in one geography or another. That kind of color might be helpful. And then I had just one quick follow-up.

Question: Matt Miksic - Barclays - Analyst : Okay. That's super helpful. And then a kind of mix question, given the strength in that business, and frankly in ortho in general is, can you give us any color on maybe the change in the percentage of new robots installations going into ASCs as a site of care versus more traditional acute care centers or [cash] centers? That'd be super helpful if you're willing to share any color. Thanks. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 29, 2024 / 8:30PM, SYK.N - Q3 2024 Stryker Corp Earnings Call

Question: Steven Lichtman - Oppenheimer & Co. Inc. - Analyst : Thank you. Hi, guys. Just on spine, you are obviously increasing your presence on the enabling technologies tier. Do you see your platform there, obviously led by Mako, as sort of the driver for accelerated growth as you look ahead? Or are there other pipeline products or M&A areas that you think could help bolster growth in that segment as well?

Question: Steven Lichtman - Oppenheimer & Co. Inc. - Analyst : Got it. Thanks. And then Glenn, just -- I think following up on Larry's question from earlier, looking at below the line expenses next year, any direction you can provide on sort of interest expense compared to 2024 based on what you guys have due and are refinancing?

Question: Steven Lichtman - Oppenheimer & Co. Inc. - Analyst : Okay, understood. Thank you, guys. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 29, 2024 / 8:30PM, SYK.N - Q3 2024 Stryker Corp Earnings Call

Question: David Roman - Goldman Sachs & Co. LLC - Analyst : Thank you, and good afternoon. I wanted just to dive a little bit more deeply on the international side. And I appreciate, Kevin, this is something that you've been focused on for several years. As we look across the portfolio now, you're still ending up in the 25%-ish of sales being OUS. Can you give us a sense of which businesses perhaps don't lend themselves to significant OUS expansion versus those that do? And then a number of your competitors have talked about exiting markets OUS. Does that provide an opportunity to accelerate your penetration into those geographies?

Question: David Roman - Goldman Sachs & Co. LLC - Analyst : That's very helpful. And maybe on the Mako expanded applications in shoulder and spine, as you think about what Mako has been able to accomplish on the hip and knee side, really consolidating a lot of market share around robotics as that's become increasingly so standard of care, should we expect to see something similar on the shoulder and spine side, where the application robotics ends up being a significant share driver overall? And is this the path to catalyzing your spine business maybe more specifically to a number one or number two position? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 29, 2024 / 8:30PM, SYK.N - Q3 2024 Stryker Corp Earnings Call

Question: David Roman - Goldman Sachs & Co. LLC - Analyst : Great. I appreciate you taking the questions.

Question: Chris Pasquale - Nephron Research - Analyst : Thanks. Kevin, I wanted to ask about the Vertos acquisition. Pain is a therapeutic area that you had expressed interest in for some time. You're there now, or at least there now in a bigger way with Vertos. Can you talk about your plans for that mild procedure? And do you see that as a platform that you can build on to add other solutions in interventional pain? Or do you view that as more

Question: Chris Pasquale - Nephron Research - Analyst : Great. Thanks.

Question: Jason Wittes - Roth MKM - Analyst : Hi. Thanks for taking the question. So clearly one of the biggest trends in knees is the move towards cementless knees. But if you look at the data, it's almost entirely driven by Mako. At least the numbers I've seen are well above -- or 75% or so. So just looking at the competition, is there any other commercial robot out there that's even capable of making the appropriate cuts to put in a cementless knee? Or is that kind of what's driving sort of this dominance here?

Question: Jason Wittes - Roth MKM - Analyst : Yes, agreed. And if I think about hips, same game plan. I mean, obviously slightly different approach, but you're obviously a first mover. In terms of just the implant or just the technology, do you see sort of those things positioning you better in hips right now than everybody else? Or how should we think about how that's going to sort of work its way through? Because obviously, knees were kind of the first focus. And now -- and obviously hips, not that they're new, but they're kind of followed knees. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 29, 2024 / 8:30PM, SYK.N - Q3 2024 Stryker Corp Earnings Call

Question: Jason Wittes - Roth MKM - Analyst : Great. Thanks for all the detail, Kevin, and I'll jump back in queue.

Question: Mike Matson - Needham & Company Inc. - Analyst : Yeah, thanks. Just have another one on Mako. I guess with spine and shoulder coming, you're kind of a different position as a company because you have such a huge installed base already of systems that are out there. So is it safe to assume that your existing installed base will provide an advantage and that you could potentially upgrade some of those to either do spine and/or shoulder? Or do you expect most of those robots doing those procedures to be sort of more greenfield placements?

Question: Mike Matson - Needham & Company Inc. - Analyst : The pricing looks good this year. I know you're not giving guidance for next year, but maybe you could just talk about what you're seeing there, kind of the areas where you're seeing better or worse pricing, and you just see your expectation of the sustainability.

Question: Mike Matson - Needham & Company Inc. - Analyst : Okay. Got it. Thank you.

Question: Danielle Antalffy - UBS Securities LLC - Analyst : Hey, everyone. Good afternoon. Thanks so much for taking the question. Congrats on a really good quarter here. Clearly, a lot of momentum here. I was wondering if I could focus the conversation on the orthopedics business, large joint orthopedics. And I appreciate your competitive position with Mako and things like that, but I guess I'm just curious at a high level. I mean, you guys continue to -- it seems like you continue to gain share here. And I'm curious, what is the leading driver there? I mean, is it led by the robot? Is it led by the product offering and Stryker's ability to provide a broad swath of product offerings to the ASC? And then I'll follow up now, the follow-up is on ASC specifically and where we are in the transition of procedures, large joint orthopedic procedures to the ASC. Thanks so much.

Question: Danielle Antalffy - UBS Securities LLC - Analyst : Thank you.

Question: Richard Newitter - Truist Securities - Analyst : Hi. Thanks for taking the questions, and congrats on a really strong third-quarter performance. So my first question, can you guys put any quantification around the amount of dilution or earnings dilution from the roughly $300 million of deals you did in '24 that you need to overcome? And is all of that going to be absorbed in '24? Is there going to be any kind of impact from a dilution standpoint in '25? And can you quantify either? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 29, 2024 / 8:30PM, SYK.N - Q3 2024 Stryker Corp Earnings Call

Question: Richard Newitter - Truist Securities - Analyst : Okay, thanks. And if you could -- actually, I'll sneak another one in just -- what divisions the key acquisitions go into if you could just remind us for modeling? And then my second question, my real second question, ischemic stroke, Kevin, what do you think it's going to take product fix? Is that a sales organization fix? How can you reaccelerate the momentum in that franchise? Thank you.

Question: Richard Newitter - Truist Securities - Analyst : Thank you.

Question: Matt Taylor - Jefferies - Analyst : Hey, guys. Thanks for taking the question. I wanted to ask you about the sustainability of the pricing trends, which have been better over time in the '25. And then also if you have to think about an upside scenario for '25, what would be the source of that? Is it better ortho growth or medsurg outperformance? Where do you think you could surprise? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 29, 2024 / 8:30PM, SYK.N - Q3 2024 Stryker Corp Earnings Call

Question: Jeff Johnson - Robert W. Baird & Co., Inc. - Analyst : Thank you. Good afternoon, guys. I'll try to be quick here at the end. So Glenn, I know you've said about everything you can on price, but can I just confirm, I think this is your first quarter of positive orthopedic pricing, at least as far back as my model goes in 2012. And if memory serves, I'll bet it acted like 2006 or '07 when orthopedic pricing first really started to slip across the industry. And how much of that is Stryker flexing its muscle the way you kind of qualified it earlier in your comments versus just hospitals have realized they've kind of cut to the bone and in an inflationary environment, if they want innovation out of all of you manufacturers, you need to start -- they need to maybe stop asking for those bigger price cuts every year and things like that? Thanks.

Question: Jeff Johnson - Robert W. Baird & Co., Inc. - Analyst : All right. That's helpful. And then Kevin, just last one. It just -- I think way back many years ago, we used to think about like medical endo and instruments. One would be going through a new cycle, double digits, strong double digits growth. One would be coming up against tough comps from a cycle maybe 18, 24 months earlier. It was in the mid-single digits and then one of the other segments kind of in between. You're double digits in all those segments here year to date. Are we -- is there just so much diversity now, a diversification in those three units and they're so big that you can just kind of keep up product cycles across all three and we don't really have to think about at least the valley part of that in any of these segments in given years down to 5% growth or something like that? Just think about conceptually the balance between medical endo and instruments. Thanks. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 29, 2024 / 8:30PM, SYK.N - Q3 2024 Stryker Corp Earnings Call

Question: Jeff Johnson - Robert W. Baird & Co., Inc. - Analyst : Thank you.

Question: Caitlin Cronin - Canaccord Genuity LLC - Analyst : Hi. Congrats on a great quarter. Thanks for taking the question. I guess just turning back to M&A, I think you've been focused on top-line growth for your acquisitions, but I've also noted that the margin expansion expectations is really inclusive of the recent acquisitions. I guess just stepping back, how do you think about the margins of potential acquisitions? Is there a floor, or is it more fluid if you're able to see how you can drive efficiencies?

Question: Caitlin Cronin - Canaccord Genuity LLC - Analyst : Got it. Thanks so much. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. OCTOBER 29, 2024 / 8:30PM, SYK.N - Q3 2024 Stryker Corp Earnings Call