Q3 2019 Earnings Call
Ladies and gentlemen, welcome to the third quarter 2019, Stryker earnings call.
My name is Simon and I will be your operator for today's call.
At this time, all participants are in listen only mode.
Following the conference we will conduct a question and answer session.
During that time participants will have the opportunity to ask one question and one follow up question.
If you would like to ask a question. Please press Star then one on your Touchtone phone.
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 FCC.
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 strikers current report on form 8-K filed today with the FCC.
I'll now turn the call over to Mr., Kevin Lobo, Chairman and Chief Executive Officer.
May proceed sir.
Welcome to strikers third quarter earnings call joining me today, our Glenn Boehnlein, Stryker, CFO and Katherine Owen VP of strategy and Investor Relations.
For today's call I'll provide opening comments, followed by Catherine with an update on Mako and Mobiuss.
Glenn will then provide additional details regarding our quarterly results before we open the call to QNX.
As I start my eight year I see all Stryker.
I'm feeling as good as ever about our performance and our outlook for the future.
Our Q3 organic sales growth of 8.6%.
Demonstrated balance strength.
Across business segments and regions.
With over 8% organic sales growth year to date, we are well positioned to deliver toward the higher end of our most recent full year guidance I'm starting to have to 8% growth.
Orthopedic side, an impressive quarter with organic growth of nearly 9%, reflecting excellent results across the portfolio maaco hips and knees.
Metrics continues its strong and steady growth coming in at approximately 9%.
Medical led the way with double digit growth.
Neurotechnology and spine was up approximately 8% as strong double digit growth in international helped offset soft legacy Stryker U.S. spine performance.
On a geographic basis total Stryker organic sales growth approached 8% in the U.S. with robust gains of nearly 12% outside the United States.
You know international has been an area of focus and it's become a sustainable and consistent above market grower.
This quarter, we had double digit organic growth in Europe , Japan and Canada.
And emerging markets once again grew strong double digits.
Looking ahead, we expect international to be a source of high growth for many years to come.
Our conviction stems from several factors, including our lower relative market shares investments in our Trans Atlantic operating model and the benefits from strengthened leadership in emerging markets.
Turning to the you know we saw good results from our cost transformation for growth initiatives, which translated into a 50 basis points year over year expansion.
After absorbing deal related dilution and impacts from foreign currency.
We also continue to invest in sales marketing and R&D to support our long term growth targets.
And a healthy pipeline of new products across our divisions.
Overall with our strong sales performance and margin expansion, we achieved adjusted per share earnings.
All are 91.
Up 13%.
With our outstanding management teams ongoing investments in our sales forces new product launches and contribution from M&A, We expect a strong momentum to continue through Q4 and into 2020 .
I'll now turn the call over to Kathryn.
Kevin I have two today will focus on May go and the key data points that allow you to track our success in executing on our orthopedic robotic strategy along with a few comments regarding our recent acquisition of Nokia.
In Q3, we sold 51 May go robots globally with 42 in the U.S.
Hi comparison in the comparable quarter, a year ago, we installed coupled with 37 real dock of which 26 where in the U.S.
Notably our installed base of robotic approaching 800 with well over 600 anywhere.
We also launched May go into Japan, with four robots sold into quarter.
We also during the first Mikko total knee, which was approved in Q3 in Japan.
Looking at U.S. procedures in Q3, maaco totally procedures approximated 18000, increasing roughly 60% from the prior year quarter, well total no maaco procedures approximated 27000.
On the knee indication. We also continue to see strong demand for me go hits, but 40% year over year growth.
Looking ahead or make order book remains robust and support our expectation for continued share gains in both hips and knees.
During Q4, we acquired movies imaging.
Leader and point of care imaging technology, along with its sister company Carton robotics in an all cash transaction for 370 million upfront and up to 130 million of contingent payments tied to development and commercial milestones.
With this deal strikers find gains immediate entry into the inter operative imaging segment as well as aligning with Stryker implant and navigation offering.
Mobiuss is aero true CTG scanner is a best in class mobile real time diagnostic quality Siti imaging session system.
In addition card in robotics is currently developing innovative robotics and navigation technology systems for both surgical and interventional radiology procedures.
Overall these acquisitions are aligned with Stryker spine strategy of providing a comprehensive offering with more complete procedural solutions with that I'll now turn the call over to Glenn.
Thanks, Catherine today I'll focus my comments on our third quarter financial results and the related drivers.
We have provided our detailed financial results in today's press release.
Our organic sales growth was 8.6% in the quarter as a reminder, this quarter included one extra selling day versus Q3, 2018 generally selling days have an approximately 1% impact on gross.
Pricing in the quarter was unfavorable 0.7% from the prior year, while foreign currency had an unfavorable 0.9% impact on sales.
You asked organic sales growth was 7.5 and international organic sales growth was 11.6%.
In the U.S. there were strong performances across all businesses.
International sales growth was led by emerging markets Europe , Japan in Canada.
Our adjusted EPS of $1.91 increased 13% from the prior year quarter, reflecting strong drop through on sales growth combined with good operating expense control due to the continued strength of the U.S. dollar third quarter EPS was negatively impacted by an additional two cents from translational and transactional for.
And currency exchange rates.
Now I will provide some highlights around our segment performance.
Orthopedics delivered constant currency inorganic growth of 8.8%, including organic growth of 9.2% in the U.S.
The U.S. performance was highlighted by strong performances in need of 8.9%, including high demand for our makeup teekay need platform.
Our trauma and extremities business also had strong organic growth in the U.S. of 8.3%.
Highlighted by continued ramping of our t. to alpha and by double digit performance of our foot and ankle and shoulder products.
Internationally orthopedics delivered organic growth of 8%, which reflects solid performances in emerging markets in Europe .
Metasearch continued strong growth across all businesses in the quarter with constant currency growth of 10% inorganic gains of 8.8%, which included an 8.1% increase in the U.S.
Instruments had us organic sales growth of 2.4% against a difficult Q3 2018 call up 13.5%.
As expected instruments of sales growth slowed in Q3 after very strong performances in Q1 and Q2.
Year to date us organic growth for instruments is 12.7% and is tracking favorably against the prior year to date growth rate of 10.7%.
Given a strong order book and demand for its power tools and waste management products, we're confident that instruments will deliver above market growth in Q4, and the full year.
Endoscopy delivered us organic sales growth of 8.6% endoscopy had strong performances across its general surgery and video products, including very strong momentum with our 16 88 platform.
Medical had us organic growth of 12.5%, reflecting solid performance in a sage acute care beds and stretchers businesses as well as the physio portion of its emergency care business.
Internationally med surge had organic sales growth of 12% with good performance in Japan emerging markets Europe in Canada.
Neurotechnology and spine at constant currency growth of 20.2% inorganic growth of 7.6%.
This growth reflects strong performance in Neurotech, NR interventional spine businesses offset by softness in our core spine business.
Our us neurotech businesses posted organic growth of 8.5% for the quarter driven by strong double digit growth in demand for our neurovascular products, specifically, our hemorrhagic an excuse me stroke products. Additionally, we saw solid demand in our neuro powered instruments business and somewhat offset softer demand from marci.
Jim CMS business.
Our spine business saw headwinds during the quarter, driven by us sales softness and price erosion.
Our key take two and integration efforts are ongoing and we are ahead of our plan relative to realize cost synergies.
Related to our Salesforce integration efforts, we are not ramping as quickly as expected as cross selling scaling of rep hires and field inventory availability is taking longer than we expected.
We remain confident that we earn and good for the future, but now expect 2019 combined sales growth to be in the low single digits.
Internationally, Neurotechnology and spine had organic growth of 17.6%. This performance was driven by continued high demand for our neurotech products across most geographies.
Now I will focus on operating highlights in the third quarter, our adjusted gross margin of 65.7% was down 50 basis points from the prior year quarter.
Compared to the prior year quarter gross margin expansion was negatively impacted by price and business mix.
Adjusted R&D spending was 6.5% of sales, which was 20 basis points favorable to prior year quarter.
Our adjusted EPS DNA was 33.8% of sales, which was favorable to the prior year quarter by 80 basis points.
This reflects the continued focus on operating expense improvements through our CPG program offsetting this benefit was the negative leverage impact of acquisitions.
In summary, our adjusted operating margin was 25.4% of sales, which was 50 basis points favorable to the prior quarter.
Our operating margin primarily reflects good leverage and continued operational savings offset by acquisitions, the latter which had an approximately 10 basis point negative impact in the quarter.
We remain highly confident in our ability to deliver on our full year commitment of driving a 30 to 50 basis point improvement in our operating margin.
Next I will provide some highlights on other income and expense other expenses increased from prior quarter, primarily due to higher interest expense year over year, driven by the additional debt related to the 2.5 billion dollar euro offering that was completed in November 2018.
Our third quarter adjusted effective tax rate of 16.1% reflects an underlying operating tax rate of approximately 17.4%, partially offset by the benefit related to stock compensation expenses.
Focusing on the balance sheet, we continue to maintain a strong position with 2 billion of cash and marketable securities of which approximately 35% was held outside the U.S. total debt on the balance sheet was 8.4 billion.
Turning to cash flow our year to date cash from operations was approximately 1.5 billion. This reflects the higher adjusted earnings growth offset by acquisition related charges higher recall related payments and an increase in core working capital primarily related to increased sales.
And now I will discuss our fourth quarter guidance.
Based on our performance to date and anticipated strength in the remainder of the year, we anticipate full year sales growth towards the higher end of our previously guided sales growth range of 7.5% to 8%.
As a reminder, Q4 has the same number of selling days as 2018 and the full year has one additional selling day.
Given our year to date performance and continued momentum we now expect that our adjusted net earnings per diluted share will be in the range of $8 in 20 cents to $8 in 25 cents for the full year.
For the fourth quarter, we anticipate adjusted net earnings per diluted share to be in the range of $2.43 to $2.48.
This guidance includes an increase of negative foreign currency impact related to ongoing strengthening of the U.S. dollar across many of our operating currencies.
We now expect the full year negative impact related to foreign currency translational and transactional impact to be approximately 15 cents per share versus our prior estimate of 10 cents per share.
And now I will open up the call for Q1.
Thank you we will now begin the question and answer session.
If you have a question. Please press Star then the number one on your Touchtone phone.
If you wish to be removed from the Q. Please press the pound Keith.
A reminder, colors will be limited to one question and one follow up question.
Your first question comes from the line of Robbie Marcus with Jpmorgan. Your line is open.
Great. Thanks for taking my question congrats on a good quarter.
One one business related question, then why now outlook related question, maybe first on the business Steve Ortho.
10 use two or.
To beat and raise here came in above expectations was hoping could talk about any initial.
Commentary you can add on robotic competition, particularly from Zimmer here any impact to the business.
Yes, Thanks, Robbie I would tell you we're really pleased with what we're seeing and continuing to execute on what's been a years long strategy here with 51 robots in the quarter. We're also pleased with the opportunity we have outside the U.S., which were continuing to build on including the recent approval in Japan and now having done.
I make a total knee in Japan.
We have approval in China and expect.
Going forward to get approval for the total knee in China. So overall, we remain focused on our strategy, we're continuing to see the benefit of having indications for the use of the robot on hips and knees on cementless knees and really a global footprint. There. So focused on that strategy and think as we said we were in good position to continue to take market share gains.
Yes.
Great and maybe just on the outlook I know you haven't given guidance yet for next year, there's a lot of moving pieces, particularly in med surge and neurovascular spine, hoping you could just give some early thoughts on puts and takes for next year to be aware.
Yes, Hi, Ravi this is Kevin I right now as I sit here today I feel very similar to how I felt at this time last year.
So without getting into all the specifics, we just have terrific momentum across our business and across our geographies and I sort of set made that statement last year and you've seen the way 2019 has unfolded so without getting specific about numbers and specific businesses on an overall basis, we're feeling very very good about the health of our business and.
And kind of imagine 2020, turning out to be very similar.
Your next question comes from the line of Bob Hopkins with Bank of America. Your line is open.
Hi, Thanks, I'm just to start out for Krish prescription for Kevin.
Look at the the knee performance this quarter and really the orthopedic performance broadly you saw strength I was wondering if you could just talk big picture about common themes that drove the performance this quarter and specifically is this is this mostly stryker taking share across the board or I was wondering if you could also offer some comments on kind of the health of the markets that you operated with.
In orthopedics.
Yes, I think it really is across the board were benefiting with really building momentum in surgeon conviction around maaco, we've seen and beginning really last couple of quarters with the launch of our new hip.
And having that approved on May go more and more surgeons now adopting hip on Mako, and obviously, having knees and continue to see increased penetration for our cementless knee offering which as you know is uniquely threed printed and now entering the next leg of that Ortho story, which is expanding the footprint. It may go globally really is.
Sided with a new Maaco training facility opened in China and.
Sorry in Hong Kong Yeah.
And.
And selling for robots into Japan, the opportunity that presents for us. So it's no one single thing, but we're taking market share across the board. We believe we're growing above the market in both hips and knees and we're going to continue to execute on this strategy and feel really good about the order book ahead of us.
As we think about May go going into fourth quarter and next year.
Okay, great. Thank you and then for for Glenn.
I was wondering if you could just comment on.
Yes, FX and and and tax rate and the outlook for those because obviously, we see your your overcoming a greater headwind here on FX pretty pretty easily.
You know anything it's worth calling out as we look forward on on FX or tax rate.
That you'd want us to consider as we as we think about modeling going forward.
Yes.
Bob as we look at as we look at 2020 in this is not guidance for 2020. So please don't misconstrue this comment.
I really think that Q4, we're also going to have a little bit of headwind on FX, just because of a where where it was sitting last year at that time.
I think going forward, though hopefully we would see at moderate and we wouldn't feel is bigger impact is we're feeling in this year and then on the effective tax rate.
We we continue to sort of execute on our sort of tax strategies.
And we're also continuing to see a really good benefit from the stock comp reclassification within our tax rate and so right now as I sit here I don't see any really big outliers that would make be thinking differently about our effective tax rate in the future.
Your next question comes from the line of David Lewis with Morgan Stanley . Your line is open.
Good afternoon, just want to pick up on.
Margins, Glenn and then a quick.
Our final question. So Glenn just there was some significant ERP programs that are kind of going into place here I think you've within instruments back half. This year. The outlook has been 30 to 50 basis points of kind of reported improvement you've done better than that on an underlying basis, you should think about the momentum and the ERP systems is the right way to think about the future still 30 50 basis points of minimum improvement.
Or if we don't see significant M&A next year can that number actually be little higher and then a quick follow up.
Yes, I think first off on ERP.
We are executing our program, we're now live with sort of three of our entities on our global S&P.
Platform corporate CMS in instruments.
We haven't an active rollout plan for all of our divisions and honestly, it's two to three years, so that will roll out over the next couple of years here before we really start to feel that the platform is spread enough across the company that will drive significant efficiencies.
Okay and just two questions for me just on Kevin Chiew on spine and May evolve catheter maaco just on spine. Kevin obviously appreciate the update is the right way to think about next year I'm, assuming you're expecting acceleration in the spine business pro forma is the right. When you think about a mid single digit so can you get back to.
The corporate corporate rate and how much of this is just integration versus perhaps just given all the moving we're seeing in robotics spine are you confident this is all integration or.
Could it be some impacts from the absence of robotic system in the portfolio and then catheters asking both for knee performance. This particular quarter procedures were sort of stable sequentially typically can draw much from one quarter trend of anything you call out from Maaco procedure perspective second to third quarter. Thanks, So much.
Okay, well, thanks for squeezing in two extra questions, there, David but but I will answer the no problem. So the first thing I'd tell you on spine, we really executing our our program and our plan and do expect acceleration next year I'm not going to get specific as to what degree of acceleration there will be.
We took a lot of pain early with the Salesforce getting them all restructured but this is the first time, we've done this type of the of an integration and really getting the inventory to scale for all of the strike or sales people that were dying to sell some of the KTM K two am products has taken longer than we thought.
Just getting the Salesforce is all fired up I'm getting competitive hires.
Back on track these things we're following the right path, we're very optimistic that we've made the right decisions our ability to forecast, obviously was a little bit off but we're still growing which I think is different than most other spine integrations.
Overall, our combined businesses are growing year over year, not mid single low single, but still growing and we do believe we're on the right path and it's really more of us.
Executing our plan than any other.
Market factors.
Make out so I think it's really important pay attention to the year over year over year growth. So if you look at what we said for total needs. We did 18000, which is becoming an increasingly larger base and that was up 60% year over year.
And keep in mind Q3 at the seasonally slow quarter. So there were simply fewer hip and knee procedures done whether its robotics or otherwise. It's just the sequentially slower quarter. Historically always has been probably always will be so when we look at the growth we're seeing in hips and knees very strong double digits on an increasingly large base and we feel really comfortable.
Your next question comes from the line of Rick Weiss with Stifel. Your line is open.
Good afternoon.
Everybody and.
Hey, Kevin Congrats on a wonderful years to you in the team.
Been seven Rick this is might I'm starting made so it's been starts vision has been seven wonderful years. Thank you I always exaggerated.
[laughter].
If I could start with instrument number obviously you had a tough a challenging comp I appreciate that I tried to model for that in my model.
But when I look at this sort of the flow of $1 last year in this.
This year is this step down still in the third quarter versus the second sequentially is a touch more than I might have guessed I'm, obviously, an excellent quarter overall, but maybe you could help us understand in more detail some of the some of the factors driving it and and obviously, you're just as optimistic about the fourth quarter and beyond help us understand.
What's next in what drives that the dollars.
Higher.
From a new product a standpoint as well.
Yes, I think the thing biggest thing to think about is.
At the beginning of this year instruments had a sales force split of their surgical salesforce and so we think about orders that might have been put in by the legacy Salesforce last year, knowing that they were going to work in a split environment.
There was really was a lot of backlog that was built up four instruments coming into this year.
I think in the first two quarters as some of the newer sales force Scott there got their feet wet got off the customers instruments was delivering a lot of the backlog.
And I think that.
Now I think that they've got the momentum and we're seeing you know that.
Power tools and.
In there.
Safety products and waste management products that we are seeing good momentum and fully expect.
Given their current order book to see good growth in Q4, and obviously, if you look year over year and I was trying to make this point that sequentially. Okay didn't flow exactly like we wanted in the nine months and these things are hard to predict, especially when you split sales forces, but you know year to date. There clearly ahead of where they were last year and if we look.
What sort of where they're targeting for Q4 I feel very confident that we're going to have above market growth again out of instruments.
Great.
And maybe this is for Kathryn.
Or Kevin on Mobiuss.
The inter operative imaging segment, maybe just talk in more detail about your expectations and the strategy with Mobiuss now in the broader stryker spine portfolio and it.
What's this due for the spine franchise and when do we start to see the impact of this or is this the right way to think about it the c. the impact in spine performance. Thanks, so much.
Yes, I think Rick it's really about building out a comprehensive portfolio of products and really being able to RMR, our spine organization with complete procedural solutions and this is absolutely best in class technology, we're bringing in longer term, we believe there'll be an opportunity to further build.
Mr. Our efforts to being robotic spine to market be premature to get into details there on the timing, but we certainly feel like there is some technology that we can leverage there, but if you look at it fundamentally near term, it's really about being able to have this best in class mobile real time diagnostic quality siti imaging that really.
Helps to to facilitate needs complete procedural solutions, which is increasingly a trend we're seeing in spine.
Your next question comes the line of Matt Miksic with Credit Suisse. Your line is open.
Great. Thanks for taking the questions I'll add.
To your just one on.
Some of the trends in Morocco.
And one on an FX so.
The seasonal.
You know pattern here in us in particular looks like you went up sequentially, maybe 20% or something if I had the numbers right on system installs, which is sort of seasonally unusual.
And just wanted to ask if there was anything.
That you've seen in terms of.
When we get all hypothesize around people holding off too.
I see a competitor before they make a decision on Stryker lots are going away. So look at this but any color that you've picked up a that drove the strain and in particular in the U.S.
Sequentially and then on on May go also if I could just a kathryn.
Mentioned to us if you're going to be able to show. This paper you had tried to show last year. It at all because ER or any updates on that and then as I mentioned I one follow up on a on on FX.
I think really what you're seeing is more just a continued momentum as the features and benefits that are really unique to make continue to get more and more well known and understood and appreciated within the clinical community in its building quarter to quarter.
Strength. So there was nothing I would call. It as unusual we're just continuing to benefit from the strategy, where we might have dedicated sales forces and a capital Salesforce focused on May go and again being several years entered its the technology and its benefits have really been validated in the market. So I think it's really we're just continuing to execute.
On a proven strategy.
With respect to us because I believe there's going to be some papers. There we will not have two year data at OCC is just given the timing of that that meeting and then we'll wait and see what may come out at Academy, but we obviously clearly expect to have a very big maaco present at the meeting at both meetings.
And then the other follow up thanks for that to follow up on FX.
Sorry, if I missed this when you're walking through the piano, but was there a and impact in any of the operating lines positive or negative as this looks like about 40 or 50 basis points worse affects than we had modeled came through and that 90 basis points and just wondering how that affects the.
You know coming through.
Yes, we thanks, Matt, we we really don't breakout FX impact that level of detail.
So what what I can say is that on an overall level. It was two cents per s. more negative than we could actually anticipated and I think you'll recall that previously guided to a 10 cents full year number.
We were thinking that FX would moderate in Q3, Q4 and be fairly flat, but that hasn't been the case and so so we're back to a full year impact of 15 cents, which is built into our guidance.
Your next question comes from the line Vijay Kumar with Evercore ISI. Your line is open.
Hey, guys. Thanks for taking my question and not congrats on a nice sprint here, Kevin maybe one other one not big picture question I had one follow up on on the U.S. Capline Wirebond, maybe could you comment on on now what you're seeing on the capital front. There now maybe how the order book is shaping up.
Yeah across our businesses, whether its maaco or whether it's our medsurg businesses, we see it very healthy capital environment. So our order book you seem that the sustainability of our sales growth over the past couple of years in capital equipment has been just as strong as as our implants on our disposables and we really arent seeing any change I would say its.
Continues to be a healthy market for capital equipment.
That's helpful and Glenn one quick one enough free cash flows yesterday of free cash conversion, maybe it seems to be at training.
A little light up maybe there's some timing issues one off items, maybe clarify on the free cash front.
Sure.
Free cash flow continues to be impacted by sort of our integration expenses and costs related to K to him.
Which were projected to be more front end loaded.
In this year and less backend loaded. So so we will see some improvement because those will start to moderate.
As I said, we also have experienced increases in working capital specifically a ours, we as we deploy asap. It instruments and then also as we consolidate our a our navy processing into regional shared services. We've also seen a little bit of a tick up in that working capital there let me keep in mind that cash flow generation.
And has always been backend loaded and that kind of matches what happens with our sales that matches what happens with our EBIT that quarterly flows.
And so I think we'll continue to see sequential improvement throughout 2019 and expect to see improvement again in Q4.
Your next question comes from the line of Raj Denhoy with Jefferies. Your line is open.
Hi, This is Anthony for ice maybe just one on maaco and robotics in General and then one and neurovascular.
I'll make I'll just wondering how pricing is kind of playing out in that market just considering.
As a couple of new entrants recently.
And how that's also playing out I guess on and planned pull through are you seeing any shifts.
And then plan specifically in non neurovascular can can you give us an idea just on share shift within the divisions. When you consider thrombectomy stenting embolization any additional color there would be helpful.
Yes, thanks pricing pricing remains extremely stable and with respect to the robot and in terms of pull through if I'm understanding correctly is once you used in a robot you need to use it for all our implant at that you're doing on the robot, so a hip or knee and it obviously gives an opportunity as we continue to sell into competitive.
Accounts for our Salesforce to sell the portfolio of hips knees, maaco indication cementless revision et cetera and.
So yes, no change in pricing and it continues to be very solid.
Thanks and.
The follow up would be on neurovascular any any comments on share shift there.
No we saw very solid growth in both hemorrhagic and a scheme and we really continue to expect to see the bigger impact from our portfolio of aspiration devices. A in 2020, but that's that's unchanged commentary from our last update so overall neurovascular remains very solid.
Your next question comes the line of Larry Biegelsen with Wells Fargo. Your line is open.
Good afternoon, thanks for taking the question.
I understand that you want to talk about growth for the different businesses in 2020, but I'm wondering if you will talk about some of the focused products and launches.
For Stryker that'll be meaningful to growth in 2020, and I had one follow up.
Yeah, it's a given the.
Number of businesses, we have and geography, if it's impossible to really give a comprehensive answer and I think largely we're ready to pull a few highlights again not all inclusive we talked about the maaco launch continuing to build in the U.S., but now with the approval in Japan and expectation for continued.
Momentum outside the U.S. next year, we're going into year, two and Dr. piece camera launch, which historically is the strongest here. So they are really well positioned with that offering we talked about some of the trauma products that were seeing improving momentum coming office and supply issues.
That we had there and obviously some very good growth in extremities.
And then medical is really well positioned going into next year as the stage that has launched on products and that will continue to build next year, we feel really good about neurovascular the opportunity an aspiration as well as just the overall market opportunity, particularly in a scheme and so at a high level I'd throw it out there add those.
Lines were just we've got a lot of momentum heading into next year and a cadence of products that are either going into peak product cycle or being launched a continued to support that growth as we think about our goal of continuing to deliver organic sales at the high end of Med Tech.
That's very helpful. Catherine the one follow up for Kevin Kevin I guess as chairman of after bad thing steps right title, maybe it would it would be helpful to hear your latest thoughts on the med Tech tax.
Being suspended for at least one more year in 2020 and could that actual suspensions spill over into early 2020 before something is finalized thanks for taking the questions.
Yes. Thanks I'm currently in my first year of a two year term has the chairman of our trade Association advent med.
We continue to believe that the med tech stacks will not be reinstated at the beginning of next year and will be suspended we are pursuing multi year a suspension.
At this point.
Even repeal is something that we obviously as the ultimate goal, but we're not optimistic just based on the realities of what's going on in Washington.
But that will happen, but remain continue to remain optimistic on.
On a multiyear suspension.
And we continue to lobby for that there are number vehicles that we are hopeful we can attach this to between now and the end of here.
Your next question comes from the line of Peto Chickering with Deutsche Bank. Your line is open.
Good afternoon, guys. Thanks for taking my questions do you guys market continues.
Market continues to accelerate pretty nicely here can you walk us through how much of that came from hips on them make a robot or suggest taking shares for the tried in Chile.
Oh, yes, the majority of our hips are still being performed traditional manually, but we're seeing sequential quarter to quarter build up that percent that are done on maaco and I think part of that is as surgeons use it for the total knee and they start to think about and trialing it for hips and see the benefits.
We're also seeing the benefited the new accolade launch that Theyre threed printed hip comp. It's been really well received we had a very deliberate rollout of that and obviously can be used on may go it's very difficult Peter to parse out.
Growth from the different parts I would tell you, though it's really a new product launch and improving momentum with the make whole hip story, Yeah. I think the bigger factor. This tried and to have cup is really terrific. It as threed printed it is very very modern and we're getting phenomenal feedback and it's being used with a variety of.
Different stems. So we had a very good stem portfolio, but the cup really didnt need to be.
We need to be changed and that is being used both with May go hand with standard instruments.
Okay, and then a follow up going back to U.S. legacy spine I can go into a little more detail on what aspects of the cross selling a bit more challenging than expected and how you change that going forward.
Yes for the most challenging aspect has been the demand for the K two m. products from the legacy Stryker Salesforce. So it's a pretty large salesforce. The K two m. offered some really terrific innovative products and we've just had.
Challenges scaling the demand both for the implants as well as the instruments that are needed to put in the implants and so the demand was very high we knew which products they would like fee, but it's been a real challenge to scale there they use OEM manufacturers and to scale, the manufacturing and be able to deploy all of that has been challenging and more challenging than than we.
First I anticipated.
Your next question comes from the line of Kristen Stewart with Barclays. Your line is open.
Thanks for taking my question.
I'm just wondering if you just dive a little bit more into the medical performance is a lot stronger than I anticipated sorry, if you can kind of breakout the different subcategories within medical within this you I think it much that my prepared remarks Chr, that's doing and then talk little bit about the better instructors I think you guys haven't you.
Med surge bad that should be launching next year, just wanted to confirm that as well and just how we should think about that business in light of sustainability of grass.
Yeah, Thanks, Kristen and so we don't break out the different components, that's behind that us growth organic growth of 12 size that I will tell you. We had very solid growth from sage from acute care, which is beds and structures as well as physio, which is now.
Encompassed under the umbrella of our emergency care business. So it was strength across the medical portfolio and I really wouldn't call out one beyond the other is really very very solid growth. We do have some new products coming for competitive reasons, not really going to get into any commentary around features benefits or timing, but I would just put it in the book.
Bucket of Tailwinds as we think about next year, Yes, and then just Kirsanow first and I just like that before your follow up just like to add that this medical business has been.
Really it consistent and terrific performer over multiple years and I think sometimes is not fully appreciated for its growth I mean, we had double digit growth organic.
In the U.S. last year and Weve on top of that post another double digit so you're a quarter of organic growth. So it's stable and strong performance terrific leadership with a with a long tenured president and terrific general managers.
And the ability to sell the going if you look at physio.
Out a lot the full bag of new products driving very very high growth. So it so it's really a terrific division.
Of our company and I expect continued very strong growth in the future.
I just wanted to follow up I think it was a question David had asked about margins you guys are overcoming a lot of FX headwinds. This year. So I just want to get an understanding for what.
What is allowing you to overcome this FX headwinds that you know your underlying margin performance is quite impressive should we think about that capability and friendly over delivering on the margin front as being able to carry over in absence of Ah M&A deployment.
That Kristen.
I think a lot of the strength of the underlying programs, we have a associated with CTG and driving really op margin performance.
Certainly helped and given us some good leverage in terms of overcoming some of our FX challenges you know the other thing I would point to is that we did a really good job accelerating the cost synergies on K. Two so early on in the year, we really attack those and we're able to sort of front end a lot of what we thought would maybe.
Send out to the this entire nine months and so the team really did a great job there.
And then lastly.
I would I would just point out too.
We do we do have a hedging program, which helped offset some of our known transactional.
FX exposures it looks out 18 months and so then that's also helped mitigate it and that would generally flow through operating expenses as well.
Your next question comes the line of Richard Newitter with SCB Leerink. Your line is open.
Hi, Thanks.
I've two questions wanted to start off a first on the robotics a initiatives and some of the deals. It did Catherine the card and deal I just wanted to get a sense for I. Appreciate I can tell us exactly kind of what you're robotics plan is inspiring but is it right to think a card and may go that.
May go is ultimately where you're going to go when you come to market with a spine robot solution and yes saw something in the card and IP that maybe accelerates getting there or is there potentially something that we see launched from card and first before we see a amigos spine teledrift about another follow up.
Yes, I don't mean to be difficult, but as you said, we're not going to tell you exactly I'm not going to tell you at all so we really are going to.
Wait on this one it would probably be premature to get into details around this we do think theres. Some complementary technology for our ultimate goal of maaco spine robotic system, but it's just too early and as you know, we really like to have clear line of sight and an ability to articulate.
A value proposition in a differentiated technology and certainty to market launch before we start talking about it. So just too early right now and.
That along with some competitive reasons, we're just not going to go into any detail.
Fair enough and just the foot and ankle and shoulder call out I think you said double digit growth between.
Putting that go on shoulder this quarter can you break out our parse out what the two divisions were growing and anything that you call out that's a breaking the trend in each of those respective upper and lower extremities markets. Thanks.
Yes. So now we're pleased with the growth, we're not going to break it out into that level of detail I would remind you shoulder is off a pretty low base so to be to be fair. When we talk about very strong growth and that that is off of a lower base. So across the board strength and feel good that we're starting to see better momentum there.
Your next question comes on the line of Matt Taylor with you'll be yes. Your line is open.
Hi, Thanks for taking the questions I wanted to ask a question about the maaco dynamics because.
It is impressive that you're able to sell you even more here as the us market as relatively large installed base I guess I was wondering if you could talk about any views that you have.
That kind of the you asked him and then some of the opportunities going forward in Japan, and China that you articulated how how big could those be.
I'm, sorry, so I apologize I missed the first part of the question around the U.S.
Total addressable market.
Yeah I mean.
So it's there's a lot of runway left here I mean, we were thrilled with the uptake in any ever increasing base of robots, but theres still a lot of opportunity given their did somewhere around 5000 orthopedic hospitals in the U.S. and keep in mind, we were now low double digit penetration for hospitals that have purchased the second Mako and so.
And I would view it as we've got years of runway here, particularly as as we continue to build on the benefit features and benefits to patients as well as the economic benefit.
And then I just had a follow up on the common extremities.
Partially covered this but can you comment at all on market dynamics in foot and ankle do you feel like you're gaining share in that same question and trauma as more of a share gain or kind of a come back on some of this product shortages that improved growth rate.
If you recall, we had some supply issues tied to some new product launches and in trauma that we spoke about earlier in the year, we're seeing the benefit that's starting to come out of that.
And then just overall just increased focus by the selling organization that are helping to deliver that performance and again as I noted some easier or lower revenue base on the shoulder side.
Your next question comes from the line of Kyle Rose with Canaccord Genuity. Your line is open.
Great. Thank you very much for taking the question I've got two one on the shoulder side and then the other on on Mako. So first on shoulders. I know you mean, the pass you've talked about the success and some of the specialty sales force since can you just remind us.
What or how the shoulder is commercialized currently in any plans to potentially develop a car or carve off a specialized salesforce specifically for for the upper extremity side and then with respect to make go I want specifically wanted to talk about the emerging market.
Are you highlighted the training facility in China in the first procedures in Japan, I guess, just help us frame the the opportunity for some of these larger enabling technologies in the emerging markets and just how if at all the business model differs from a capital perspective.
Yeah I'll take the second part it's early days I mean, we're obviously very excited to have the training facility in Hong Kong to have the approval in Japan for the total knee now so I think and probably a bit early to start talking about revenue expectations, but it's part of the overall strategy. We're obviously going to bring a lot of the lessons learned we have and some of the launch into.
You asked to end up yeah, obviously at the benefit of a surgeon global surgeon community and to really help validate the technology. So think there's a significant opportunity in those markets.
And you can see as was continuing to build that that basic robots outside the U.S.
Yes, just add I would say that Japan, and China or the two I would say big market opportunities for maaco, there's there's opportunity across the world as you can see we have well over 100 robots placed outside the United States.
And so there are many other countries I think India will be interesting, but it's going to take longer in India for that to play out, but but those that Japan and China or the two priorities in the near term on your question related to shoulder. So as you know we launched a short stem shoulder earlier. This year, we still do not have very much of a dedicated sales force.
We have a very sort of small business. It's we're very pleased with the growth, but it's a fragmented procedural base and we have a few dedicated sales people in the large emmis A's, but but don't really have to scale yet to have a fully dedicated sales force. So it has shared with our with our joint replacement sales force.
Your next question comes from the line of Josh Jennings with Cowen Your line is open.
Hi, good evening thanks.
Let's start off on the Trans Atlantic model and just you guys are having some nice success there.
So maybe some more details just in terms of the runway and I mean, you guys have laid out did you are underrepresented from a share perspective, I mean is it really straightforward is just.
Deeper investments more sales reps and introducing more products and you guys should.
People up to two years U.S. share levels, and then a different orthopedic segments and its search businesses et cetera.
And is there any NBR risks next year.
Yes, so what I'd tell you is the same thing I said four years ago, we launched the transatlantic operating model. We said, we're very Underpenetrated Europe was roughly 10, 11% of our total sales.
And we had a long runway to go and every year. Since then Europe has outgrown strikers growth rate.
And in Europe , but never done that prior to the change. So we're delighted with this operating model change the way our our division presidents have embraced it.
There's continued specialization of sales forces, we are still not a specialized in Europe as we are in the United States, we still have.
Sales bags that are larger just because of the scale that we have in certain countries in certain geographies.
Expect that specialization to continue in Europe and that we have multiple years ahead of us have continued to grow well above the market. So we're growing higher than strikers growth rate, which is multiples higher than the market growth in Europe , but again, we're making up for last time, because our market shares are lower I would to dream of being able to have the.
Same level of market shares as we have in the United States, it's going to take us time to get there.
But we still have significant runway ahead of us and Thats why I call Europe , a growth engine for Stryker, both inside the company as well as outside the company.
Thanks, just on the MDR you guys, making progress there just in terms of [noise].
The potential for a CE Mark Recertification, yes were very good regulations with our preparation we've been working out this for multiple years and we as we're obviously as we started to prepare for this there were a number of SK use that we've decided not to not to register because we've discontinued them. So it enabled us to do a bit of clean up on our ask.
For use in general, but we believe we're in very good shape, we've made the necessary investments don't perceive that being any reason to call. It as a risk for our momentum in Europe .
Your next question comes from the line of Matt O'brien with Piper Jaffray. Your line is open.
Afternoon, Thanks for taking the question.
I'll just I'll have one question is multi parts in it it's it revolves around maaco the the domestic performance in the quarter was very strong according to our math here and I think the strongest you've ever see so first question is did you see some delays maybe Q2 around double glass and people are considering different systems that were hitting the market.
That's first and then secondly, Catherine you mentioned you know your get starting to see multiple system orders now that you're in the low double digit rain. So I'm wondering if you're starting to get so much volume into some of these older facilities that theyre now having to add a second or third system and is that something that we can see an inflection in over maybe the next couple of years.
Yes, no into the first question, we didn't see any delays there there is nothing around that that a delay in Q2 that got pushed into Q3, and we usually at pretty good line of sight. When it comes to capital when that occurs so that that's not a factor I really think it go back to my earlier comments, we're just continuing to build on on a strategy.
Execution that is that is working well and so it hasnt suddenly gone to low double digits. It it spend as hospital start to use it in more and more serve surgeons pylon, there's a capacity issues that we slowly seeing that percent of hospitals buying a second robot building and I think that trend will continue it is incredibly different.
Account to model out I would just tell you that we don't see reason why and we wouldn't see that continuing to climb it won't be every hospital, but clearly as demand increases from other surgeons and hospital practice at that really is what drives that second purchase.
Helpful. Thank you.
And there are no further questions at this time I will now turn the conference over to Mr., Kevin local for any closing remarks.
Thank you for joining our call we look forward to sharing our Q4 results with you in January .
It is time, we will provide our 2020 guidance.
Thank you.
Thank you ladies and gentlemen. This concludes today's conference. Thank you for participating you may now disconnect.