Q2 2022 Stryker Corp Earnings Call
Opening comments, followed by Jason with the trends, we saw during the quarter and updates on Mako and Vocera.
Glenn will then provide additional details regarding our quarterly results before opening the call to Q&A.
For the quarter organic sales growth was 6% with high single digit growth from our med surge in Neurotechnology businesses led.
Led by Endoscopy instruments and neuro cranial.
Our hip and knee businesses delivered high single digit growth in the face of tough comparable from 2021.
Internationally, we posted high single digit organic growth with strength in Canada, Europe, and Japan, as well as double digit organic growth in emerging markets. Despite the China COVID-19 related slowdowns.
During the quarter, we continued to have robust demand for our capital products. However, we had meaningful shipment delays as a result of ongoing product supply challenges, mostly affecting our large capital businesses.
As a reminder, less than 10% of our revenue is large capital.
With about 15% of our revenue being smaller operating capital that drives revenue for hospitals.
For the quarter, we delivered adjusted EPS of $2 25.
As we faced increasing negative impacts from foreign exchange as well as inflationary pressures and significant premiums on inventory spot buys.
We expect these pressures to continue in the back half of the year. However, the supply situation is improving.
Given the higher input costs, we've begun to take a series of pricing actions across our portfolio.
These will take time to be reflected in our results given the phasing of contract renewals in many areas of our business.
We continue to invest in R&D at a healthy ratio of sales demonstrating our continued focus on new product pipelines.
We remain confident in the outlook of our business and expect to continue to deliver sales growth at the high end of Med Tech.
However, even with disciplined spending the worsening foreign exchange situation and other pressures will prevent us from delivered delivering leveraged earnings in 2022.
With half of the year behind Us and a very strong order book, we now expect full year organic sales growth of 8% to 9%.
And due largely to foreign currency exchange, we now expect adjusted earnings per share to be in the range of $9 30 to $9 50 per share.
Overall, our team has shown good resiliency and we are on track for another strong year of sales growth.
Our employee engagement remains very high and we continue to win awards as a great place to work. Most recently is a great place to work for millennials by Fortune.
We are also gearing up for some exciting new product launches in 2023 and look forward to an improved supply chain picture.
Through the many challenges that we had faced since 2020, we feel optimistic about how we are positioning ourselves for the future.
I will now turn the call over to Jason.
Thanks, Kevin My comments today will focus on providing an update on the current environment, including the procedural and geographic trends during the quarter.
In addition, I will provide an update on the integration progress of the <unk> business.
Procedure volumes continue to recover throughout the second quarter in most countries. While we are seeing volumes recover hospital staffing pressures have continued impacting the ability to reduce procedural backlog in a meaningful way.
These challenges will likely continue meaning the tailwind of pent up demand will be more moderate but last longer.
Geographically procedural volumes steadily improved during the quarter in the United States, Europe , and Latin America.
Procedural trends in parts of Asia, and Australia had been more volatile due to ongoing COVID-19 related impact.
In addition to the continued procedural recovery, we had a strong quarter of Mako installations up 19% versus 2021. However, as we are balancing customer purchasing preferences. The mix of these deals has resulted in less revenue per quarter.
We are pleased with how the growing installation base continues to fuel market, leading implant growth.
The order book remains strong for Mako and the percentage of implants, using the robot continues to increase.
We will update you on our installations and utilization metrics at the end of the year.
Demand for our capital products remained very strong in the quarter, while we experienced solid customer order performance from our capital businesses. The sales growth was restricted because of ongoing headwinds, which included raw material shortages, primarily related to electronic components and installation delays in parts of our business.
Due to hospital staffing challenges.
The raw material shortages continue to be most impactful in our medical business, both within our acute care and emergency care business units based on our current supply outlook, we expect medical to have a strong second half.
Now to our key integration activities.
We continue to be pleased with the momentum of the Vocera integration.
Since acquiring the company, we have seen double digit growth in the first and second quarter versus the same periods in 2021, we.
We are already starting to realize synergies and remain excited about the potential this product will create for both stryker and the customers we serve.
In summary, while the macroeconomic environment remains volatile procedural volumes are improving and the underlying demand for our products remains strong which gives us confidence in our ability to continue to drive strong growth with that I'll turn the call over to Glenn.
Thanks, Jason today, I will focus my comments on our second quarter financial results and the related drivers our detailed financial results have been provided in today's press release.
Our organic sales growth was six 1% in the quarter.
The second quarter's average selling days were in line with 2021, the impact from pricing in the quarter was unfavorable one 4%.
Foreign currency had a 3% unfavorable impact on sales.
Despite a challenging comparable versus 2021, our organic sales growth has been solid and was led by double digit performances in our endoscopy and instruments businesses as well as strong growth in our international businesses. Our sales growth has been somewhat constrained by the continued supply chain challenges and electronic component shortages, especially.
Impacting the capital products in our med surge businesses, primarily in our medical business.
Our capital Order book continues to be very robust demand from our customers continues to be strong.
In the quarter U S organic sales growth was four 7% international organic sales growth was nine 7% impacted by positive sales momentum across most of our international markets, specifically emerging markets, Canada, Japan, and Europe somewhat offset by lingering COVID-19 impacts in Australia.
In China.
Our adjusted EPS of $2 25 in the quarter was in line with 2021, driven by our sales momentum and favorable adjusted tax rate offset by gross margin challenges and the impact of foreign currency exchange, our second quarter EPS was negatively impacted by foreign currency exchange of <unk>.
Versus 2021.
Now I will provide some highlights around our segment performance.
In the quarter med surge in Neurotechnology had constant currency sales growth of 10, 6% with organic sales growth of seven 9%, which included seven 2% of U S organic growth of nine 9% of international organic growth.
Instruments had U S organic sales growth of 12, 1% led by double digit growth in our orthopedic instruments and surgical technology businesses from a product perspective sales growth was highlighted by double digit growth in power tools surge account irrigation smoke evacuation and Steri shield.
Endoscopy had U S organic sales growth of 15, 4%, reflecting very strong performances across all of their portfolio, including video products and double digit growth of our communications and sports medicine businesses.
Medical which includes our recently acquired both Sarah business at a U S. Organic sales decline of two 4% driven by the aforementioned supply chain challenges, primarily impacting our emergency care products.
<unk> sage and acute care businesses posted double digit organic growth during the quarter. We also saw significant growth in orders for our beds and emergency care products driven by very strong customer demand.
Our U S neurovascular business posted an organic decline of one 8% driven by a strong double digit comparable in 2021 as well as competitive pressures disruption due to hospital staffing shortages and softer market conditions in part because of supply shortages of contrast use them procedures.
The U S neuro cranial business posted organic sales growth of nine 4%, which included solid growth in our E&P navigation balloon dilation and neuro products.
Internationally med surge in Neurotechnology had organic sales growth of nine 9%, reflecting double digit growth in the endoscopy neuro vascular and neuro cranial businesses somewhat offset by medical geographically. This included strong performances in Japan and emerging markets.
Orthopedics and spine had both constant currency and organic sales growth of three 9%, which included organic growth of one 6% in the U S and nine 5% internationally. This reflects the impact of strong international growth and solid growth in our hip knee and extremity businesses.
Our U S. Hips business grew four 5% organically, reflecting strong primary hip growth reflected by the recent launch of our insignia hip stem and continued procedural growth our U S knee business grew five 3% organically, reflecting our market leading position in robotic knee procedures.
Our U S trauma and extremities business grew three 1% organically against a significant comparable in 2021.
This growth was led by double digit growth in our upper extremities somewhat offset by softness in the trauma market.
Our U S sign our U S spine business declined three 6% organically, reflecting a slightly slower scoliosis season, partially offset by solid performance in our enabling technology business.
Our U S. Other ortho declined organically by 13, 8%, primarily driven by the impact related to the aforementioned deal mix changes of Mako installations in the quarter.
Internationally, orthopedics and spine grew nine 5% organically, which reflects the strong momentum in Europe as procedure volumes improve as well as strong performances in Japan, Canada, and India somewhat offset by Covid related volatility in Australia and Korea.
Now I will focus on operating highlights in the second quarter.
Our adjusted gross margin of 63, 3% was unfavorable approximately 270 basis points from the second quarter of 2021 compared to 2021, our gross margin was adversely impacted by the purchases of electronic components at premium prices on the spot market and other.
Inflationary pressures, primarily related to labor steel and transportation costs as well as operational efficiencies due to component shortages.
We expect these adverse impacts to continue throughout 2022.
We expect Q3 gross margin to be similar to Q to Q.
Q4 should see some improvement in the full year gross margin compared to 2021 will be negatively impacted by approximately 200 basis points.
Adjusted R&D was seven 2% of sales, which represents a 60 basis point increase from 2021.
This reflects our continued commitment to innovation fund and funding and the related future growth that will provide.
Our adjusted SG&A was 32, 4% of sales, which was 100 basis points lower than 2021. This reflects continued cost discipline somewhat offset by the ramping of certain prioritize expenses and hiring that support future growth.
In summary for the quarter, our adjusted operating margin was 23, 7% of sales, which was approximately 220 basis points unfavorable to the second quarter of 2021. This performance is primarily driven by the aforementioned inflationary impacts resulting in gross margin challenges.
And the net negative impact, resulting from foreign currency.
Adjusted other income and expense decreased from 2021, primarily resulting from an equity investment gain and favorable interest income.
We anticipate a normalized run rate of adjusted Oi any to be approximately $70 million per quarter for the remainder of 2022.
Our second quarter had an adjusted effective tax rate of 13, 9%, reflecting the impact of geographic mix and certain discrete tax items.
We now expect our full year adjusted effective tax rate to be in the range of 14, 5% to 15%, which is consistent with the ETR performance, we experienced in 2021.
Focusing on the balance sheet, we ended the second quarter with $1 1 billion of cash and marketable securities and total debt of $13 4 billion.
Approximately 404 $450 million of debt was paid down in the quarter.
Turning to cash flow our year to date cash from operations of $732 million.
This performance reflects the results of net earnings and continued focus on working capital management, partially offset by the impact of higher costs for certain electronic components and pre buying certain other critical raw material inventory.
Considering our second quarter results the strong order book for capital equipment, and the sales momentum in our implant businesses. We now expect full year 2022 organic sales growth to be in the range of 8% to 9%.
This performance assumes that the market environment experienced in Q2 continues to improve throughout the rest of the year.
With supply chain disruptions easing in the back half of the year.
If foreign currency exchange rates hold near current levels, we expect net sales in the full year to be adversely impacted by approximately 2% to 3% and adjusted net earnings per diluted share to be adversely impacted by approximately 25% to 30 in the full year, which is included in our revised earning.
<unk> guidance range.
Based on our performance in the second quarter, including consideration of the continued supply chain challenges in the inflationary environment together with our increased sales guidance and continued financial discipline and most significantly the anticipated future impact related to foreign currency. We now expect adjusted earnings per share to be.
In the range of $9 30 to $9 50.
The low end of this guidance range assumes that the continued macroeconomic volatility persists, including procedural disruptions and worsening of the electronic component availability.
We will continue to evaluate the changing environment and will provide updates to our guidance as necessary and now I will open up the call for Q&A.
Secondly, if you would like to ask a question.
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The first question is from the line of Robbie Marcus with Jpmorgan. Please proceed.
Okay.
Maybe I'd start on second half fits.
Sort of like a tale of two cities, where you have this really strong topline.
And somewhat of a pressure at Bottomline and moving organic sales guidance up a 100 basis points, it's great to see.
But it does look like.
Roughly two thirds of EPS down move as currency a little bit from operation. So maybe just walk us through.
Sure.
It sounds like medical is going to get a good chunk better in the second half maybe just give us a little color of how you get the confidence to raise the top line and where exactly you are seeing.
The softening.
Operating margin constant currency.
Yeah sure Robbie this is Kevin I'll take that so first of all feel very good about the momentum that we have across all of our businesses medical for sure it's going to have a much better second half with them.
Division that was most affected by the shortages, we do have a line of sight towards.
Supply of key electronic components, and we're going to ramp up as fast as we can to meet that demand, but we also have softer comps the second quarter was the by far the most difficult comparative from the prior year. So we have softer comps across frankly, all of our businesses in Q3 and Q4.
And the order book not just for medical but if I look at the other med search businesses like instruments, and endoscopy, which both had terrific Q2s theyre going to continue to have strong growth in Q3 Q4. So we obviously feel very good about the demand from our from our hospital customers.
That gives us the confidence to raise our sales growth we exited first half at seven 5% with a very tough Q2 comps. So we feel pretty good about getting to the 8% to 9% on the top line on the bottom line as you can see based on the change in our guidance from last quarter 15.
If you look at the mid point of our range 15 of our drop is due to foreign currency. So that's the majority of the adjustment on the EPS line and we're really fighting through significant supply chain challenges and inflationary pressures.
And right now obviously, taking it on the chin for our customers.
At least for this year and but we are taking obviously starting to take pricing actions. Those we won't see a lot of that and this year. It will start to roll kind of more into next year, but but I'd say the majority of our takedown is due to foreign currency, but obviously very significant supply chain pressures that we're dealing with but a very strong demand situation overall.
Great maybe as a quick follow up Kevin or Glen.
Getting a little greedy here, but I'm already looking out to next year and we've heard from a number of companies that have reported so far to use 2022 as a base here don't treat it as a one time easy comp and I look at sell side numbers for next year, and it's about 100 basis points of operating margin expansion.
I know.
Nobody is good enough to forecast next year, yet, but do you have any early thoughts on 2023 margins are you committed to grow margins next year and just if you have any color.
Our interpretation of the cell sites right now thanks.
Yes, Thanks, Ravi as you can imagine a lot has changed in the last six months a lot could change in the next six months and as you know we always give guidance in January which will do but what I will say is the spot buy situation has been pretty significant it's been a big part of our gross margin.
Negative story for this year that is starting to abate I would hope that that gets better next year, but obviously, we will update you in January in terms of the overall outlook I would not call. This year, an easier from the topline comparative.
Driving organic growth of 8% to 9% is pretty heady, but we do have a lot of very exciting launches next year, we have system nine for power tools <unk> camera launch a life pack.
Stipulate, our launch of Neptune S, which is a smaller version of Neptune for Gi and ASC. Those are all really outstanding launches. So I do expect that the top line will continue to Hum for Stryker next year. The bottom line, we're going to work through these challenges and we'll have more to talk about in January .
Thank you. The next question is from Mark Wilson with Wells Fargo. Please proceed.
Good afternoon, and thanks for taking the question.
Wanted to follow up on the capital environment comments, Kevin maybe just a little more color on what youre seeing with the large and small capital and your comments on the Mako deal mix changes.
I assume that's because hospitals are.
Preferring volume based agreements.
So why do you think that behavior is changing I mean, I think people on the call might might that make people's concern that there is some change in the hospital capital environment and I had one follow up.
Yes, Larry first of all on the Mako side, what I would tell you is this is not a new trend. This has been happening over the past kind of six months, where were seeing more of deals being financed versus outright purchased.
And actually a move towards more rental agreements and if you have a rental agreement you can't recognize all the revenue upfront even in some of our overall finance deals we could recognize more of the revenue upfront and a rental the customer has the right to return the product and so you can't record all the revenue upfront and that's what our competitors are also offering we're not really worried because we've had.
Eventually no returns of our product once we get our product set and you can tell by our utilization of Mako, which again, we'll report on it at the end of the year, we have highly utilized machines and so but that's really that's a shift that's been ongoing it wasn't a new factor. This quarter, we're really pleased with the number of installations and but the revenue per unit.
We can recognize upfront is lower and we will be able to recognize more of this revenue over the life of the contracts.
And then as it relates to the rest of the capital equipment environment. What I would tell you is we wouldn't be taking up our sales. If we felt that the capital environment was softening in any way shape or form the small capital is needed to be able to do procedures power tools were out cameras need to be replaced and.
In the medical business is continuing to get fantastic quarter growth, whether it's on the defibrillator or power costs as well as our procured bet. The orders are continuing to really pour in we're not seeing hospital construction projects being halted at all and just look at our communications business, which has a large capital business. They had a terrific quarter in the second quarter and their order.
Books, continuing to grow so.
So the timing of construction may get delayed a quarter or so but no one's canceling these projects nobody's canceling any of our orders.
So we are feeling at least lease for them through the end of this year feeling pretty bullish about the overall environment Hospital liquidity is still strong now of course theyre feeling pressure on their profits, but their liquidity is in a healthy position and that's really where the source of funding comes for capital.
That's very helpful and Glenn.
Thanks for the color on the gross margin kind of plugging the numbers into the model.
It implies that opex growth as low as call it mid single digits year over year in 2022.
On a reported basis I don't know if my math is right, but how do you how do you do that in an inflationary environment, where youre growing sales, 8% to 9% organically. Thanks for taking the questions.
Yes, Larry that was quick with the model.
A couple of things to keep keep in mind.
We are seeing really good performance in our operating expense expenses, especially SG&A single biggest driver and just be SG&A is really sort of hiring and how prudent are we being about our hiring.
And the related costs that come along with every time, we add a new employee so we've.
We've positioned ourselves pretty well relative to that halfway through the year here and feel confident that we'll be able to drive meaningful leverage within our SG&A I mean that being said. We are we are also mindful that we need to invest in R&D to make sure that we can hit a lot of these key product launches.
We're lined up for for next year, and then honestly too if you move on down the rest of the P&L.
I think I kind of gave you a little bit of guidance on Oi and <unk> and we're also seeing favorable performance in our ETR, which which helps at the bottom as well.
Thank you.
Our next question is from the line of Vijay Kumar with Evercore. Please proceed.
Hey, guys. Thanks for taking my question and congrats on a good point sure.
Maybe Kevin.
One on the guidance here.
Organic was raised by 50 basis points versus the prior guidance.
I think the.
Press release had some commentary about the.
The guide base was based on strong capital orders.
Is the guide assuming.
The cap room.
Sales trends to improve in the back half as the supply chain improves or.
Are we still looking at perhaps a constrained supply chain environment in the back half.
You did mentioned implants trend I couldn't help but notice the hip strength and you had new products launch in hips.
Are we seeing.
Share gains within pets.
Well, let me, let me start with the hip so we're feeling really great about our hip business and as you know the insignia launch was a very big launch it's not actually even fully launched so we are still deploying sets out in the field, but the customer feedback has been overwhelmingly positive.
And that also is compatible with with the Mako robot the.
The Mako robot utilization for hips is also increasing pretty significantly which is exciting that's due in part to the 4.0 software that we launched.
I guess about two or three quarters ago.
That new software combined with the <unk> I believe will position us for for growing above the market in hips not everybody has reported yet so let's let's see how that plays out this quarter, but we're really only getting started with that stem launch and very excited about the about the hip business. What was the first part of the question.
For capital.
Oh, yes, so on the first part of your question was on capital. So clearly medical is going to improve in the second half versus their performance. They were down organically in the first half of the year theyre going to be up pretty significantly in the second half of the year because they were the most affected by the shortages of electronics.
Still even though we have regarding to this 8% to 9% that doesn't assume that.
Completely bleed everything.
We're still living in a bit of a tough environment out there.
And so there is that risk ongoing debt that might move us towards the lower end of the range or.
Move us up to the higher end of the range on the implant side, we're feeling pretty good about where procedures are largely back to normal in most parts of the world.
And really it's about the hospital staffing if that staffing gets better then obviously, there's a lot of pent up demand for procedures in.
So we're feeling very good about our position in those businesses.
That's helpful comments that Kevin maybe one for Glen I think you are.
Our updated guidance.
This assumes 200 basis points of gross margin impact I think the prior guide was 100 basis points, that's almost out an incremental I think if I'm doing the math right, 35% to 40 cents impact.
Along with FX impact of <unk> since Thats almost incremental <unk>.
Eating.
Are you holding back Glenn on the expenses.
Is that enough to sustain the 8% 9% growth or maybe just talk about.
Within the P&L, where you're comfortable with toggling the model and you can still achieve the sales growth metrics.
Yes, I think.
A couple of things first of all this this backlog of orders really gives us a lot of confidence that we have the sales in place to deliver on this increased sales guidance.
Baseline. It also implies that we've spent a lot of money on these spot buys in electronic components and pre buying other inventories. So that we feel confident and comfortable that we actually have the right sort of supply and raw materials in place to deliver on these future.
Sales I mean that being said, we are mindful and being a good steward of the operating expenses and not letting that get away from us.
Thats prudent just given the current environment and given the environment that that we might be heading into and so we haven't really taken our foot off of.
Of that pedal in terms of controlling that at all for the whole year.
And so I don't expect that that will change in the back half of the year. If you look at like Salesforce hiring it almost universally occurs for the most part and literally the first month of the year for every single division they fill out their sales forces at that point in time, So I don't feel like there's a big gap that im stay.
Airing down that can't really deliver on this sales growth I think the name of the game is really.
Going to be delivering for our customers.
<unk> finished products based on what we have in our supply chain and what we currently have in inventories and thats going to really drive that sales growth number.
Thank you. The next question is from the line of <unk> Chickering with Deutsche Bank. Please proceed.
Hey, good afternoon, guys. Thanks for taking my questions and makes execution in tough markets.
Crystal clear on this call that Capex demands.
Yes, it remains very robust.
While it's large not for profit health systems have at September 30 year end and because of the margin pressure facing hospitals due to labor. We've heard some discussions around capex reductions beginning with our fiscal 'twenty three budgets, which began in the fourth quarter. So do you assume any changes other macro capex environment, but also to update their capex plans for this calendar.
Fourth quarter.
<unk>.
Yes, right now we're not baking in any any major changes certainly if you look at prior situations, where hospitals are under fire, we really didn't see much of an impact at all on the small capital area. The one area you could see some some impact would be in the larger capital but of course, a lot of our business, we do have financing.
Through Stryker Flex financial which does help with offsetting the kind of pressures that the hospital has in terms of overall capital and as I mentioned earlier coming out of the two.
2020 with Care Act Cares Act funding liquidity of hospitals is actually pretty good right now so with our portfolio mix I think we're in good shape. If you think about something like Mako. It's still early in the cycle and hospitals are really anxious to get that product its not like they have <unk> that theyre trying to upgrade and change.
They're looking at increasing adoption early in a cycle. So I think our portfolio lens ourselves lends itself very well to what hospitals need and they're going to prioritize our capital in.
And potentially not prioritize other people's capital.
Now you could say, that's an optimistic outlook, but just the way orders are continuing to stream in.
And we haven't had really any orders canceled.
We don't have a history of that in our company. So glad to have great visibility into the second half of next year to have really good visibility through the end of this year and probably into the early part of next year, Yes, I think we do.
Yes.
Okay fair enough on the same topic of hospitals under pressure just from labor.
Can you talk to US are you getting sort of price increases versus normal decreases I'm just curious.
I understand it takes time for contracts to sort of roll off but are you seeing any rfps for today or in the last few months, which is showing confidence that hospitals are willing to absorb those price increases to offset your you're increasingly inflationary pressures. Thanks. So much.
Yes.
Yes, Peter it's Jason.
Say a couple of things I mean, we're not for competitive reasons going to get into the various tactics around pricing and those things, but I will say, we see some shoots of confidence if you will in terms of of customers willing to take price and they understand the environment that we're working in right. So.
It's going to look to your point very different depending on the business that we're talking to.
The implant side, you've got the the contract cycles and some of those things, but then there's also the med surge side that is historically gotten price right and we continue to expect that we will as we move forward.
Thank you the next.
Question is from the line of Matt Matthew O'brien with Piper Sandler.
Please proceed.
Hi afternoon. Thanks for taking the question I think this question is for Glenn Glenn.
Glenn you got a bunch of different.
<unk>.
Acute situations happening right now with FX and wages going up in raw materials and freight.
Yeah.
It's clearly youre going to carry a lot of those extra costs throughout this year, but do you think we can start to see we're starting to see easing of some of those things right. Now we can start to see somewhat of a snapback in the first half of next year in earnings or just given your inventory levels and cost structure is it something that is likely going to persist into the first half of next year and maybe get better.
There are more like second half of next year on the earnings side.
Yes.
Okay Matt.
Without giving 2023 guidance.
What I will say is the spot buy and the chip situation in the electronic components situation. We are seeing some easing of that and we are seeing examples of where we are going to our regular suppliers and they are supplying us these components based on our negotiated contract.
Pricing, so we're not necessarily having the spot market's for everything.
That being said.
Some of these other costs that are really driven by inflations in their commodity oriented for <unk>.
<unk> for plastics for transportation some of those I think are going to linger for a while for sure and I would expect to see those bleed into next year certainly the first half of next year, but I am hopeful that the spot buy kind of premium things that we have experienced pretty.
Severely in this quarter.
And in Q1 will actually start to abate.
Got it that's very helpful. And then the instruments and endoscopy numbers are really strong I would just love to hear about.
Durability of that.
Those products are not the most sexy products I guess for lack of a better term.
I guess across Med Tech. So just talk about the durability. There and then and then Kevin I think you said last quarter that neuro vascular had some competitive pressures in ischemic is that still the case today. Thank you.
Yes first of all I actually think instruments endoscopy are pretty sexy businesses, but.
But really this is really about having terrific products, our power tools, our market, leading our flight helmets are market, leading procedures are picking up and if procedures pick up every time, you do an orthopedic procedure using our flight helmet.
Using our if you're using cement you're using our cement mixers, we're using our power tools.
In the general surgery area using our cameras.
They go through the autoclave and then they breakdown and then they've got to be replaced.
So we have to obviously, the leading imaging system in and so in our sports Medicine business has just been on fire right. It's growing strong double digits in our ASC offense, we had a fabulous second quarter and ASC, we had a couple of new shoulder products with our <unk> balloon as well as our alphabet peak.
Peak anchors and so we have a lot of strength across across those two businesses and they always have been kind of consistent growers for Stryker. If you go back over the last 15 years, and so theyre going to continue their momentum that they have really great engine of R&D and new products in both power tools.
And cameras have new launches coming up next year. So I think it's absolutely there.
Absolutely durable and it was the second part sorry.
NV all envy, yes, so neurovascular look the market has been a bit soft in the U S. Just keep in mind that the U S is certainly smaller than envy.
We have more of their sales outside of the United States, a little different than the rest of the stryker portfolio, but but the market has been a bit softer and on the aspiration side. There has been a lot of competitive entrants.
The United States, a lot of new aspirational products, which when the new products are launched it does take surgeon attention. They want to try them out and so there's been a bit of a bit of a factor there that has touched that business, but overall still feel very good about the neurovascular business, it's still going to we're still treating just a small fraction of the of the patients that need to be served.
And over time, we're sure that that business will pick up not just outside the U S. But also inside the U S.
Yeah.
Thank you. The next question is from the line of Joanne Wuensch.
<unk> with Citi. Please proceed.
Good afternoon, and thank you for taking the questions I wanted to talk a little bit about the pricing environment.
Both the headwinds that you experienced in the quarter and then it sounds like you're going contract by contract and trying to right size some of that to reflect inflation.
Yeah, I think hi, Joanne.
In terms of <unk>.
In terms of Q2.
We we did experience some of the pricing difficulties that you felt in the pricing number the one 4% negative that we disclosed I will say that that's pretty consistent with the range that we feel in normal years I do think that.
We have a very big focus with our sales teams on pricing and with our customers and we actually saw positive pricing performance related to our U S. Med surge in Neurotechnology business, which is a good indicator that we are starting to enter these conversations with our customers.
<unk> our customers are doing their diligence they understand that just like with their staffing with their nursing that prices are going up and thats impacting us too and so we are having our conversations although given the contracting nature of some of our businesses. It just takes time for some of these things to stick and so I do think that we.
Beginning to really lay the groundwork to really impact pricing over the future.
Well into next year and so.
I'm confident that we're laying the processes in place now to make sure that we work with our customers to implement price increases.
Yes, and keep in mind Joanne like some of the contracts have rebate clauses and so youll see those rebates do show up in our price and a price number and thats a bit of a lag effect right. So they earn their rebate and then the rebate flows through so that's another part of this timing issue, where it will take time for this to show up even as we negotiate higher prices for.
Our products.
I appreciate that clarification.
The second question.
Some of the pipeline products, maybe even for next year, including other applications with a robot maybe finally shoulder our spine.
Yes.
Julien can you repeat that for US sorry, we had a little trouble here.
Sure No problem My question has to do with pipeline products.
And.
And the timing of other applications for robots for applications, such as spine and shoulder applications.
Yeah, Joanne it's Jason So at this point, we don't we don't have anything further to announce obviously as we get closer to it.
To launch timing, we will do that but nothing further at this point, yes. The one thing I would tell you is this fine team is pretty excited about.
Just separate from Mako Joanne I would say the spine team is pretty excited about Q guidance.
<unk> received approval locate its not a full robotic solution, but it is a pretty exciting.
<unk> within enabling technologies, we now have the spinal application approved in the cranial application is sitting with the FDA.
That should give them a bit of a lift in the second half.
Thank you. Our next question is from Joshua Jennings with Cowen. Please proceed.
Hi, good afternoon, Thanks, a lot for taking my questions.
Kevin I was hoping to just ask about staffing shortages and impact on the implant business.
We kind of felt.
Felt that they may have peaked train the omicron surgeon.
Absenteeism contributed to this.
Staffing shortage pressure electric procedure volumes, but do you feel I know, it's probably hard to quantify that as temperatures have improved gradually over the last few months, where are we kind of stalled and are you expecting within your updated organic revenue guidance that staffing shortages will improve it sounded like one of your previous answers that.
That wasn't the case, but just wanted to clarify that.
Yes, certainly we saw choppiness in the second quarter, that's kind of the word I would use and it could be related to staffing challenges just to hiring staff and having consistent staff that actually know the procedure. So you can do the same number of procedures that you used to do in a day.
And Covid, which affected frankly, some of the nursing nurses as well as patients who had to delay their procedure because they got contracted COVID-19. So that type of Choppiness is actually still lingering right now as we speak but but we've seen a nice uptick in procedural volumes and we do expect that uptick to gradually improve we're not calling it calling for a giant spike but we are.
Calling for this kind of environment to continue and see gradual improvement from where we were in the second quarter through the rest of the year.
Understood. Thank you and just a follow up on <unk>.
The spine business and I know there was this scope there were some scully softness it sounds like.
Glen called out.
Anything to highlight just with the market recovery in spine.
The other ortho procedure categories.
Do you think.
<unk> performance was more Stryker specific thanks, thanks for taking the questions guys.
Yes, it's Jason I don't think at this point Theres anything more to highlight I mean, obviously, we're early in the earnings cycle as well so.
Tough to tell how we compared to rest of the market, but I'd say nothing else to add at this point.
Thank you. Our next question is from the line of Kyle Rose with Canaccord.
<unk>.
Okay.
Great. Thank you for taking the questions.
Wanted to touch on the Mako dynamics, you talked about some different ordering patterns is that more indicative of maybe going into competitive accounts, where you haven't been historically and they want to rent before they fully commit and then I do have a follow up.
Yes, it's not that we're showing up anywhere it differently.
Just that if you're a competitor offers a rental.
Option the customer says do you have a rental option and so the idea is look we're not going to let our prior contracting approach stop us.
From competing and so we've introduced a rental option and started to promote that just to make sure that thats not one of the barriers and thats, let the technologies.
Fight head to head and let the best technology.
So it's more of a response to what has been happening in the marketplace not so much that we're going into different accounts, we've always been active in competitive accounts as well as active and with surgeons that use stryker products were really pretty agnostic.
Ever wants to use robotics as we want to make sure that if we show up and that Theyre able to try our technologies and we believe we have the best system in the market.
Great and then historically you've talked about trends in the ASC market and putting together one sales team into the ASC, maybe just touch on what trends youre seeing in the ASC.
And how that focused sales approach.
Our approach is playing out commercially thank you.
Yes look what I'm really excited about our success in the ASC market.
The ways you can gauge that is just our sports medicine business, which is normally involved in those deals and has been a big beneficiary of the overall Stryker offense and also Mako so with the Mako sales in the ASC has continued to increase so if you look at the percentage of makos in afcs versus hospitals that ratio has been gradually.
Increasing it increased again in the second quarter. So the ASC is a place that.
Stryker can really play well at given that we're so deeply in the orthopedic service lines with capital equipment as well as implants and disposables.
Thank you.
Next question is from the line of Chris Pascal with.
Nephron research. Please proceed.
Thanks for taking my questions wanted to ask two here upfront first and you can just go into some more detail on what's holding back trauma, whether that's a product portfolio issue or a market issue that would be great and then Kevin you mentioned a couple of times being excited about the pipeline.
I'd just highlight maybe two or three products that you guys have coming in the next six months to 12 months that we should be paying attention to.
Yes first of all I think there is nothing holding back our trauma business I would tell you that we had massive comp from the prior year. If you go back to the prior year's second quarter, we had pretty pretty massive comparative we have a great trauma business.
Towards the upper extremities business, which grew double digits again, and we will continue to grow double digits the rest of the year.
I think foot and ankle the total ankle had another really strong quarter in the second quarter was a little bit soft on the on the sort of the forefoot procedures and then the overall sort of underlying core trauma business to market was a little bit softer that happens from quarter to quarter right. So whether it's weather, whether it's who knows what it is not unusual but I ask the zero worries about.
Our trauma and extremities business, we are wildly excited about the way Wright medical was integrated into our business and we have we have a business as you've seen over the past five years that performs very very well and so there's nothing holding that business back I'm pretty bullish on that business for the future was our second pipeline product.
And I think I've mentioned before that were really entering a pretty exciting period.
Going into next year with system nine in next generation power tools <unk> camera. The next generation camera life pack defibrillator, which is the big sort of the big large complex defibrillator.
And then the Neptune asks which is a smaller version of Neptune that will get us into procedure areas that we're not currently in today, especially Gi, which is a very very high volume procedure and amazing feature of this product is to be the ability to be able to capture the pulp and if you have to watch what they have to do today to find polyps within.
Within the waste that they have to sort through its not very.
Pretty.
And this is a very very elegant solution with this innovation and so something we're very excited about being able to launch it will get us frankly into brand new markets, where we don't even play today.
So those are some of the launches I'm sure I'm missing a few from some of the other divisions, but those are those are big launches.
And as you know when we launched those big when we have these big launches they they really do drive growth and they have historically.
That's helpful. Thanks.
Thank you.
Our next question is from the line of Steve Lichtman with Oppenheimer. Please proceed.
Thank you hi, guys.
Glenn on the increased headwind Youre building in for inflation. This year I was wondering versus your assumptions on the <unk> call where are the biggest deltas where was it.
The persistence of spot buying at elevated prices that may be.
Our going on longer is it higher base assumption on input and labor cost I was wondering if one stood out or if it was.
Just across the board.
Yes, I think.
Probably the single biggest thing was was the spot buy and the premiums.
I think as we entered into.
Q2, and exited Q1, we saw that that was happening, but who could imagine.
The demand that was it.
It was out there relative to us competing with car companies and a whole bunch of different kind of competitors that we never really had before with.
With those vendors and so I would say that those premiums that we paid just so that we can make sure that we were serving our customers and it could deliver them products were the single biggest thing that may be changed from guidance last time the guidance at this time I think the other though persistent thing that were seeing is <unk>.
Because of the.
The supply chain has been so spotty. We are we also are just we're feeling inefficiencies in our processes and how we manage.
Our manufacturing across the globe with sort of inconsistency ease of when we'll have raw materials available for teams to work on so.
I do say, it's probably spot buys is the one big thing that really sticks out, but a lot of these little nits on inflation are also impacting us as well.
Yeah.
Got it and then just secondly on China, I know, obviously, not a big business for you and you grew.
Emerging market solidly in the quarter, but just wondering what you saw there specifically in the second quarter in <unk>.
Any easing of pressures in China.
We exited the quarter.
Yeah look China was a tough quarter and I think anybody who talked to would say that just given the lockdowns in all of the challenges. So we had certainly had negative growth in China in the quarter, but our other emerging markets, where we're a pretty fantastic and that growth was able to offset the negative that we had in China. It's looking like it's starting to get better.
But but if we didn't fare I don't think any better than our competitors. It was it was definitely a tough quarter by Q2 in China. We do have some businesses that were like our neurovascular business continued to do very well in China.
They were a little less impacted just the nature of that type of procedure, but the rest of our business has felt the same pressures everybody else.
Thank you.
The next question is from rich New Winter that's Chris. Please proceed.
Hi, Thanks for taking the questions. Kevin I was wondering if you could maybe give us a little historical perspective.
On the capital spending situation, we're all looking forward.
The prospect of recession as obviously there at what point historically for your capital mix of businesses have you seen.
What have you seen as the leading indicator for when replacement cycles. Due in fact elongate clearly youre not seeing it yet but is there a point at which we should be braced for that happening.
Well I think look the recession would have to be pretty prolonged.
We always have a delayed reaction across our portfolio, whether it's <unk>.
More elective procedures or whether it's capital equipment their 10th we tend to get affected much later in the cycle versus versus other parts of the health care system. So it would have to be prolonged which I think the economist for now we're not really calling for kind of a prolonged recession.
Their factor is really hospital liquidity, that's a big factor. So if you go back to the financial meltdown. It wasn't just that there was a recession right. There was a liquidity crisis and when that happens. That's when you see you saw our medical business for large capital business really get impacted but.
But we don't see a liquidity crisis today the hospital balance sheets are actually quite strong so that gives us some confidence in plus look Stryker is a different company than it was back in the financial meltdown large capital was a big part of our company, we have diversified dramatically in the past decade. So much so that it's less than 10% of our overall sales so even if there wasn't.
Impact it certainly not going to hurt us anywhere near the way it would have hurt us a decade ago.
That's really helpful. And then maybe just one more on Mako like Big ticket capital.
Sounds like the message was there was no real change in buying or demand for robotic a re prioritization of hip and knee Mako robotics per se, but but maybe there was just some.
Some revenue mix and some some changes in the in the revenue recognition.
That right there.
Actual in quarter demand not just the order book, but the in quarter demand for makos was pretty much unchanged and strong.
Yes. It was strong I mean, I think Jason mentioned in his prepared remarks. It was we were up 19% versus the prior year.
Part of that was international but even in the U S. We had growth versus versus the prior year and that's actually starting to pick up.
In the U S. So demand is very strong. So you have to remember where we are in the cycle of robotics right. We're in the early stages in the early cycle of robotic surgery adoption and I think if we were in a later cycle might be a little bit of a different story, but because it's robotics is still early there are still people who are anxious to.
Get their hands on robots.
We're now very active in all the teaching hospitals and the residents are coming out and they want a robot in there when they go into their new facility and that facility doesn't have a robot they put a lot of pressure on their hospital to adopt it now how they choose to pay for it what type of contracting arrangements to get into that's a whole other story, but facilities or gift buying their fourth and fifth and the sixth.
Robots, and so they're doing that because they absolutely believe in the value of robotics.
That has nothing to do with marketing.
All about really trying to provide the best value.
For their customers and for their patients.
Thank you.
Question is from the line of Travis Steed with Bank of America. Please proceed.
Hey, Thanks for taking the question Glenn Muffled, a little bit more clarification on the 200 basis point margin headwind you called out how much of that is actually coming from some of the more acute spot buying that you mentioned versus the other inflationary things like plastics metals and travel is it roughly half and half or is it $75 25, just any directional color would be helpful.
Yes.
Sure I think as you look at sort of that basket of course the <unk>.
Spot buy certainly are significant.
Approaching half of that basket of costs.
That being said keep in mind that.
As we made those spot buy purchases.
The underlying inventory goes on the balance sheet and then it bleeds out into to our P&L over the utilization period. So it's not something that goes away from us.
In the short term.
The other basket of costs, though we do feel that inflation, we feel it in labor we feel it in transportation, we're seeing in commodities.
And Thats and Thats, something that I'm, not necessarily expecting will necessarily go away for us over the longer term.
No that's really helpful as we kind of.
I think about our models for.
Next year, so that's helpful.
I guess on pricing do you think you could see it going flattish.
Next year or could it be something that goes positive and then if you have any other.
Quick comments on the sports medicine market and smoke evacuation that'd be helpful. As well I appreciate it. Thank you.
Yes, Travis this is Jason just really quickly on the pricing piece and then I'll hand, it over to Glenn on the sports med, but relative to guiding on price. We're not we're not going to guide on price for next year and.
When we get closer to 2023, earning season, you'll hear more but nothing to guide there.
Yes on your question on <unk> and sports Medicine first of all <unk> is continues to be very high growth. There are six states that are mandating smoke free ours. There are seven other states that have legislation thats pending.
And so you can see the momentum around smoke free operating rooms is absolutely increasing and we are in a great position and we had fantastic growth and smoke evacuation that should continue.
And then on sports Matt This is about.
Our company, we are now becoming.
Fast, becoming a leader in sports medicine, which obviously wasn't the case a decade ago.
First we started off with our hip portfolio with the pivot acquisition in some and really.
Becoming the leader in hip Arthroscopy, we already had a decent knee offering and shoulder were had been our weakness and we've really bolstered our shoulder portfolio. So in all the key areas. We now have very compelling product opportunities and we're absolutely growing faster than the market and have been for the last couple of years.
I think the ASC shift has has put an accelerator on our sports medicine business and I think you know that sits within our endoscopy division, but.
That that business has a fabulous outlook for the future I mentioned the in space balloon for massive rotator cuff repair.
Alpha <unk> product has just recently launched which really addresses gaps that we had.
And the smaller rotator cuff repair part of the sports medicine business. So I'm extremely bullish about sports medicine for the future.
Thank you. Our next question is from the line of drew Ranieri with Morgan Stanley . Please proceed.
Hi, Thanks for taking my questions.
Kevin just to go back to one of your comments about the trauma market and I think specifically it was on foot and ankle you mentioned there was some softness on forefoot procedures. Just curious if that was the overall market or if theres anything else that you are seeing there and then second just on <unk>, you've talked about it being just a strong launch.
Curious kind of what youre thinking in terms of the durability, there and argue taking competitive share or is it really growth really all driven by by replacement at this point thanks for taking the questions.
Yes look the orders are continuing to pile up on <unk> and it's not just in friendly shops. So we are clearly winning competitive business. This is an absolutely fantastic product.
The challenge we have is theres a lot of micro chips used in that product and so we were constrained on being able to ship to meet the demand that is going to get better in the second half and into next year, but.
It's a really it's a terrific product and that's going to continue to drive growth, it's kind of a year or two of the product launch in <unk>.
So supply constrained we'd be we'd be shipping a lot more of those products, but if bedsteads don't sort of ramp as quickly in terms of the buying cycle as a power tool, whereas a camera. So I would expect the next let's call. It two years to be really really strong for procured and what was the.
Secondly on foot and ankle look.
See what happens when everybody else reports and kind of see what is what's happening in the marketplace.
It was a little bit softer for us on the four foot side, but strong on the total ankle side and let's just we'll have to see how that plays out I really it's a little premature for us to know kind of how we're doing I would say we're pretty excited about we have a number of four foot launches we had some supply challenges in getting those launches activated but.
Like the easy clip launch for example, our <unk> as we call. It sorry, it looks like a like a staple terrific product.
<unk> procedures, but we stumbled a little bit in just because of supply chain challenges in getting these new launches for Ms. Four foot those launches will just mentioned one of those is easy to use but there's about five of these products, which will start to see the impact of those in the second half of the year. So.
Im feeling optimistic going forward, but with the second quarter was a little bit choppy.
Nothing that's overly concerning them.
Thanks for taking the questions.
Thank you.
Our next question is from Michael Matson with Needham <unk> Company. Please proceed.
Yes, thanks for fitting me in.
Just had two questions I guess I'll just go ahead.
Given to you both.
Both to you here so.
With the system nine and the 788 coming up.
Next year.
Is there any risk that we're going to see a slowdown in those businesses I know how important those product lines are to instruments and endoscopy.
And the second question would just be around R&D, it's seven 2% in the first half looking.
Looking back at my model, that's up almost 200 basis points over the past 10 years.
The new normal or could it keep going higher from here.
Yeah.
Well, let me start with the product launches when we do these new launches we have sales forces that know how to kind of drive revenue.
Our products that do wear out and do need to be replaced.
So I'm not expecting any slowdown whatsoever.
If anything you should see growth continue and then gradually.
Kris.
Sometimes it's not the first year that you see the spike as CFO you certainly see it by the second year. So to me. This is just a continuation of that will continue a very very good trend look.
R&D has gone up and part of it's because of the mix of our businesses. If you think about neurovascular or it's a little more <unk> because of the clinical.
Clinical that are required we are launching a lot of new products. So we are spent has increased and look we are over 7% of sales I think for the full year I don't know that will stay over 7%, but will be in kind of in that neighborhood as a percentage of sales I don't know that it goes a lot higher from here I think thats, a pretty healthy level of R&D, but look that fuels our growth.
Growth doesn't come for free so you do have to invest in innovation. If you want to continue to grow but I think this is probably a good level and will kind of stay at this level unless our portfolio drag.
Drastically changes we are doing more in the world of digital that does cost some money.
Mako, we're pursuing different applications that that is a bit thirsty for R&D, but I would say that this is a pretty good level.
Got it thank you.
Thank you.
Our next question is from the line of Jeff Johnson with Baird. Please proceed.
Hey, guys. Good afternoon, maybe just a couple of clarifying questions first on pricing.
You sound pretty good on pricing going forward.
That largely driven by the strong new product cycle coming in med surge and you typically can get a little price on new med surge products or would you expect in med surge to take bigger than normal price increases on these new products and then on the implant side have you had any tangible conversations with hospitals, yet about maybe less bad pricing.
Dynamics in contracts. So you know over the next couple of years or is that just still a hope at this point, but nothing tangible yet to talk about.
Yes on the first question I want to be really clear here that whenever we do launch new products whatever price, we normally will raise the price, but you won't see that in the price line of our of our quarterly results. So price the way we report prices like for like.
So the as.
As the system nine if it comes in at a higher price.
For the first year that will show up in mix and volume it will not show up in the price line. So in the second year.
That like for like we will start to show up so just just to be clear about that we always procured as a good example of that security prices higher than our <unk>, but that in the first year of that launch you don't see that showing up in the price line. It shows up in volume mix. So I hope I'm clear on that but obviously, that's going to be part of our strategy as we launch new products, we're going to be.
To <unk>.
Table to raise prices as it relates to implants early days, yet we have had a couple of early conversations and.
And they've gone reasonably well, but it is way too early for me to be able to to give you.
No.
A sign of what is going to come in the future and we'll have more to share on future calls.
Alright, that's helpful and then Glenn just one more on gross margin.
Sounds like about 100 basis points of that headwind is on the on the spot buy.
Heightened cost this year in that.
If those spot prices do come down over the next six months as it seems like you would think they could is that 30 to 60 days to work that into the product and in turn that over onto the P&L. So that tends to be a short cycle those benefits could show up quickly and then maybe on the implant side, where that is getting capitalized to the balance sheet right now those higher costs.
Is there a significantly greater headwind next year, another 100 basis points thats been capitalized onto the balance sheet right now that hasn't yet come through this year. So we have to think maybe an incremental 100 basis point headwind there that could get offset by the short cycle spot by pricing coming down next year and net net those could offset or just conceptually maybe how do we think about those two moving parts.
Yes.
Without getting too granular about next year.
The way these bleed out it's not necessarily short term in terms of how they bleed out.
We worked pretty diligently to secure the kind of supply that was available when we could get it and so that has a longer tail in terms of when we will feel the bleed out into.
Into our P&L and that would apply to either side implants or the med surge businesses.
Okay. Thank you.
Thank you. Our next question is from the line of <unk> Singh with RBC. Please proceed.
Alright. Thank you for taking the question I'll just keep it to one.
Just on M&A, how are you thinking about the current M&A.
M&A environment and your appetite for deals at the moment given valuations where they are are you more or less likely to do one.
And do you should we expect you to continue to focus on tuck ins versus larger deals given the recent <unk> acquisition. Thank you.
Yes. Thanks for the question certainly we are focused on tuck ins not just given vocera, but also Wright medical so we did write medical not so long ago, and then we did for Sarah.
As Glenn mentioned, we paid $450 million of debt down in the last quarter. So right now given our balance sheet situation.
Our focus is really on tuck ins, we have all of our businesses are actively pursuing these kind of tuck ins, but you should expect that thats kind of in our near term, let's say thrilled we see end of this year, our focus will be much more on the tuck ins. Obviously valuations are down that doesn't mean that the companies that have these lower valuations are excited to sell.
At at these new values I think it's going to take a little time for that to set in before we're going to see a lot of those companies want to sell site I don't think that were going to miss the window. So to speak just because we are focused on the tuck ins, but but we do need to digest the acquisitions, we do need to fortify our balance sheet, but we will.
We'll continue to pursue tuck ins.
Yeah.
Thank you. So last question is from the line of Ryan Zimmerman with BTG. Please proceed.
Hey, Thanks for fitting me in and I'll try and be quick one more question.
Number one just I wanted to ask the pricing question, a different way and as they think about pricing the ability to take it.
I know youre, not going to give us what kind of pricing.
But how do you think about inflation and what persist over the next six months or into next year in terms of how much that you can carry through so as inflation for instance, and 8% is a reasonable thing to do.
Pushed through a similar type of price increase into next year and then the follow up question is just around Mako dynamics and the shift to either rent or lease type model, we see with intuitive 40 plus percent in the last quarter is that the right level to think about for where this shakes out and settled out in terms.
Mako adoption and the business model, thanks for taking the questions.
Yes.
Hey, Ryan.
I'll handle the pricing slash inflation one first.
I do think some of the normal things that you think about relative to the inflationary environment, we're in and we're feeling will persist.
Will live on into next year, where we see labor increases we see increases in these commodities I do think it will take a while before transportation and freight settles down to a more what I'll call normal cadence in terms of ocean freight versus air freight.
Sure.
So I think that that will take a while to settle out.
And in fact, where we enter into conversations with our customers about sort of what our cost makeup looks like and where were very frank with them.
There are no surprises to them in terms of where we're seeing real increase in.
In the real kind of raw materials and components that go into our.
Into our products and those are the kind of discussions that.
Customers may not want to have that they know and they expect it is coming and so when we lead to go after price, we lead with with with details and with information so.
So that they understand that.
Underneath our pricing increase we are feeling real increases in the components that go into our products.
Hey, Ryan its Jason in terms of that the.
To make a question I guess, what I would say is in terms of the right mix I think what's important here is we think about the different options, we're trying to be flexible with the customer to ultimately drive the install base to then get to continue market leading growth on the implant side right. So that's really what's important for us.
And less about kind of that mix as we think about finance direct purchase et cetera. So we're excited where we are headed with Mako as.
As I said in my opening remarks of the 19% installer increase year on year and.
So I'll just kind of leave it at there as we're thinking about Mako.
<unk>.
Thank you. Thank you.
There are no additional questions waiting at this time, so I will now turn the call.
Sorry to Kevin Lobo for closing remarks.
Great well. Thank you all for joining our call and thank you for all your questions. We look forward to sharing our third quarter results with you in October .
Thank you.
That concludes today's call. Thank you for your participation you may now disconnect your lines.