Q3 2023 Stryker Corp Earnings Call
We're opening the call to Q&A.
Before I discuss the quarter I would like to address the concerns around <unk> and.
And what is being misunderstood.
Our knee business is not at risk for a slowdown.
There is an oversimplification taking place as it relates to the relationship between weight and knee replacements.
This ignores the more important aspects.
Aspects of.
A activity level and genetics.
We are in fact optimistic about the positive impacts of these drugs.
In both the short term and the long term.
In the short term it will help to make an eligible people eligible for surgery sooner.
In the long term it will likely lead to more surgery as people increase their activity levels.
With that said the rate and persistence of adoption of these medicines is still a large unknown as there are significant barriers to this taking place.
Lastly, as a reminder, we have a very diversified business.
With knees, representing about 10% of our sales.
Now moving to our third quarter results, we delivered strong organic sales growth of nine 2% against last year's nearly 10% comparable despite one less selling day versus 2022.
This performance included double digit growth in med surge in Neurotechnology and high single digit growth in orthopedics and spine, reflecting.
<unk> a sustained robust demand environment.
And our teams strong commercial execution.
Our results were strong across the globe with high single digit growth in both the U S and international markets. In addition, we remain focused on our pricing initiatives once again, realizing positive overall price.
We delivered quarterly adjusted EPS of $2 46.
<unk>, a 16% growth compared to the third quarter of 2022.
This result was primarily driven from the strength of our sales, but also demonstrates continued margin recovery.
Finally, we are narrowing our expectations for 2023 to the high end of our previously provided guidance ranges and now expect full year organic sales growth of 10% to 10, 5% and earnings per share of $10 35 to $10 45 a share.
Coming off full year 2022 organic sales growth of nearly 10%.
10% organic sales growth in 2023.
Reflects the strength of our Super long cycle of innovation and our team's sustained high performance.
And we are encouraged by an important step in our margin improvement this year.
I will now turn the call over to Jason.
Thanks, Kevin My comments today will focus on providing an update on the current environment as well as capital demand, including make out and an update on product launches.
Procedural volumes remained strong and we continue to expect patient backlog will support elevated orthopedic procedural demand through 2024.
While hospital staffing pressures and supply constraints continue in pockets around the globe. These challenges are resolved and gradually and we will continue to be a tailwind through the end of the year and into 2024.
Demand for our capital products remained healthy in the quarter with double digit organic growth in our endoscopy and instruments divisions.
Our capital order backlog remains consistent with Q2 and elevated well above normal levels.
Also demand for Mako remains robust with strong U S and international installations, which will continue to drive our hips and knees business.
Next our product Super cycle continues to drive positive momentum.
In Q3, or 17, 88 camera platform moved to its full launch which is gaining traction in the market and driving strong order growth.
In addition, we received five 10-K approval for our Pangea plating system, and our trauma and extremities Division <unk>.
Pangaea will be the largest launch in trauma history and is a very comprehensive system that will facilitate complete hospital conversions.
We are gearing up for a full launch in the second quarter of 2024.
We have also extended the capabilities of our <unk> platform to now be compatible with our newly approved prime connect stretchers. The first wireless structure on the market.
This wireless feature can be added to existing and new structures and will help address patient safety in the emergency room setting.
These launches will continue to support our growth for multiple years.
Our Mako spine and shoulder applications are on track and we've received positive feedback from surgeons, who have been exposed to the technology.
As a reminder, on November eight we are hosting our investor day with the theme delivering leading growth, which will be webcast live on the Investor Relations page at Stryker Dot com.
We will have prepared remarks from numerous leaders across Stryker, followed by a guided product tour for those attending live.
We will showcase several of our exciting product launches with investors and analysts having the opportunity to interact with many members of our leadership.
We're excited to provide our priorities and expectations for Stryker in the coming years with that I'll now turn the call over to Glenn.
Thanks, Jason.
Today, I will focus my comments on our third quarter financial results and the related drivers our detailed financial results have been provided in today's press release.
Our organic sales growth was nine 2% in the quarter. The third quarter of 2023 had one less selling day than 2022, the impact from pricing in the quarter was favorable by <unk>, 3%.
We continue to see a positive trend from our pricing initiatives, particularly in our med surge in neuro tech businesses, almost all of which contributed positive pricing for the quarter.
Foreign currency had a 3% favorable impact on sales.
In the quarter U S organic sales growth was nine 3% international organic sales growth was eight 9% impacted by positive sales momentum across most of our international markets, particularly Australia, Europe and emerging markets.
Our adjusted EPS of $2 46 in the quarter was up 16% from 2022, driven by higher sales operating margin expansion and a lower adjusted income tax rate, partially offset by the impact of foreign currency exchange, which was unfavorable <unk> <unk>.
Now I will provide some highlights around our quarterly segment performance.
In the quarter med surge in Neurotechnology had constant currency sales growth of 10, 3% and organic sales growth of 10, 1%, which included 10, 9% of U S organic growth and seven 4% of international organic growth.
Instruments had U S organic sales growth of 17, 3% with strong double digit growth across both its surgical technologies and orthopedic instruments businesses.
From a product perspective sales growth was led by power tools, Steri shield waste management smoke evacuation and surge account.
Endoscopy had U S organic sales growth of 10, 6%.
With strong double digit growth in its communications and sustainability businesses.
In September the Endoscopy business continued its full launch of the 17 88 camera system, which provided strong sales momentum at the end of the quarter.
Medical had U S organic sales growth of five 7% led by performances in its emergency care and stage businesses and was impacted by a strong comparable.
Growth comparable in 2022 of almost 14%.
Medical continues to have a large backlog of capital orders and we expect a solid Q4, despite a huge Q4 comparable.
Neurovascular had U S organic sales growth of eight 7%, reflecting a strong performance in our <unk> business.
Neuro cranial had U S organic sales growth of 14, 5%, which included double digit growth in all three business units neurosurgical CMS and Emt.
Internationally med surge in Neurotechnology had organic sales growth of seven 4%, reflecting double digit growth in our instruments endoscopy and neuro cranial businesses.
Geographically. This included strong performances in Australia, Europe, and most emerging markets.
Orthopedics and spine had both constant currency and organic sales growth of 8%, which included organic growth of six 9% in the U S and 10, 6% internationally.
Our U S knee business grew five 3% organically, which reflects our market leading position in robotic assisted named procedures.
Our U S hip business grew 3% organically, reflecting solid primary hip growth fueled by our insignia hip stem.
The growth for both our knee and hip businesses reflects one less selling day in the quarter and a very strong comparable in 2022.
Of 12, 4% per hips and.
And 14% for knees.
Our U S trauma and extremities business grew 11, 5% organically with strong performances across all businesses led by upper extremities and foot and ankle.
Our U S spine business grew five 4% led by the performance of our enabling technology and interventional spine businesses, including the recently launched Q guidance navigation system.
Our U S. Other ortho increased organically by one 8% due to higher Mako placements in the quarter.
Internationally, orthopedics and spine grew 10, 6% organically, including strong performances in Australia, Canada, and most emerging markets.
Now I will focus on operating highlights in the third quarter. Our adjusted gross margin of 64, 7% was favorable approximately 210 basis points from the third quarter of 2022.
This improvement was primarily driven by the easing of certain cost pressures that we experienced in 2022 decreases in spot buy purchases and the benefit of price and mix.
Adjusted R&D spending was six 8% of sales, which represents a 30 basis point decrease from the third quarter of 2022, primarily.
Primarily due to a higher comparable in 2022 related to the ramping of cost for product launches.
Our adjusted SG&A was 34, 5% of sales, which was 140 basis points higher than the third quarter of 2022 due to continued investments, including sales growth incentives in a more normalized cadence of travel and meetings we.
We expect our full year SG&A as a percentage of sales to be in line with 2019 levels as we continue to invest for growth.
In summary for the quarter, our adjusted operating margin was 23, 4% of sales.
Which was approximately 110 basis points favorable to the third quarter of 2022.
This performance is driven by the aforementioned easing of certain cost pressures primarily on gross margin.
Adjusted other income and expense of $61 million for the quarter was slightly higher than 2022, driven by increased interest expense, partially offset by higher interest income.
The third quarter of 2023 had an adjusted effective tax rate of 13, 2%, reflecting the impact of geographic mix and certain discrete tax items for 2023, and we now expect the full year effective tax rate to be approximately 14%.
Focusing on the balance sheet, we ended the third quarter with $1 9 billion of cash and marketable securities and total debt of $12 7 billion.
During the quarter, we paid down $100 million of debt.
Turning to cash flow our year to date cash from operations was $2 2 billion. This performance reflects the results of net earnings and higher accounts receivable collections.
Considering our year to date results, our robust backlog for capital equipment and continued positive procedure trends. We now expect full year 2023 organic sales growth to be in the range of 10% to 10, 5%.
We expect pricing to be slightly positive for the full year.
If foreign currency exchange rates hold near current levels, we anticipate sales will be unfavorably impacted by approximately <unk>, 6% and adjusted EPS will be unfavorably impacted from 10 to <unk> 15 per share for the full year both of which are included in our guidance bake.
Based on our performance in the first nine months of the year together with our strong sales momentum. We now expect adjusted earnings per share to be in the range of 10 to $35 to $10 45.
Per share and now I will open up the call for Q&A.
To join the queue to ask a question. Please press star.
On your telephone keypad.
That stockpile on your telephone to ask a question.
Please ask one question and one follow up.
The first question comes from Larry Big Olson with Wells Fargo.
Your line is open Sir you may begin.
Good afternoon, Thanks for taking the question and congrats on another good quarter here.
Kevin or Glenn you are guiding to over 10% organic growth this year.
What are some of the puts and takes to consider for next year on the top line and the bottom line. So any color on currency at this time and we've seen a lot of companies.
Kris or tax rate beyond 2003, or guide to higher taxes tax rate beyond 2003.
Anything we should be aware of with Stryker and I had one quick follow up thank you.
Larry I'll start out here and then Kevin.
While on first of all we're Super excited about 10% to 10, 5% growth for the full year 2023 and stay tuned to January.
And we'll we'll guide on 2024 as I think about currency.
It's it was a little bit of a headwind in Q3, it's a little bit of a headwind in Q4, we don't necessarily think that it's going to get worse, but it's probably going to stay right where it is.
We'll assess that for 2024, when we get to January for that guidance and then on tax. We just continue to have some favorability on some of our discrete items and also the way our sort of global mix of taxable income is rolling up and that has helped us.
Okay.
Yes, just to finish on tax as it relates to pillar two at this point, where we're not projecting really anything negative next year do you think about our overall tax position, but of course, we will include that in our guidance early next year.
[noise] ahead, I keep talking about the Super cycle of innovation and it is really in full swing <unk> seen that with the camera launch you saw that with the amazing Instruments' performance in Q3 on the backs of the Neptune at launch and the power to a launch which is really gaining momentum.
And then we've got a very exciting next generation professional defibrillator launch starting early next year. So feel very good about our momentum really driven behind innovation and strong commercial execution.
That's helpful and just one on the margins I know youre going to talk about the long term sprinting back to pre Covid operating margin six week at the analyst meeting.
So I don't I know youre not going to front run that but my question is how much visibility do you have.
And what's driving that and getting back to pre COVID-19 margins. Thanks for taking the questions.
Yes, that's a good question Larry.
We will give you more color on it next week at the analyst meeting what I can say for now though is that we we have pretty good visibility to the sort of our supply chain, our raw material purchases to the extent possible, we enter fixed contracts related to the pricing of that which certain.
Impacts our outlook for 2024.
We're not seeing any more spot buys there basically have gone away for Q3, and so we do feel pretty positive about that we're also feeling better about our freight as things get a little more normalized and were seeing less expediting of raw materials or even product. So we're in a good position.
<unk> in there.
I would tell you that all of this has a backdrop of inflation that we know we have to offset as we move forward and as we sprint back to 2019. So we are working on that part of the strategy around that has really been a lot of the positive momentum that we've seen in pricing.
And we will continue to work on our pricing strategies as we enter next year.
Thank you.
The next question comes from the line of Robbie Marcus from Jpmorgan. Your line is now open.
Oh, great. Thanks for taking the questions.
I wanted to start on ortho in hips, and knees and we've seen this a lot this quarter with the increased seasonality.
Wondering if you could speak to the trends in the quarter.
Do you think youre still gaining share and do you expect normal seasonality to return in fourth quarter.
Yes sure I'll take this question I'd say, we did see a what I'll call the more normal seasonality after the last few years.
Turbulence, starting with the pandemic and so what that means is we think Q4 is going to be strong seasonally strong as it was going back to 17 18, 19, we're already seeing that kind of with.
The month of October So I think we're doing fine there are businesses did not surprise us in terms of the results that we had and obviously we had giant comps from last year. If you look at the growth. We had in Q3 of last year feel very good about our position in both hips and knees and expect to have a good fourth quarter.
Great and maybe following up Sam same line of thought thought.
Other ortho had a nice quarter.
Maybe you could just speak to trends.
In robotics, and Mako and placements and just the capital equipment environment overall.
Yes look the capital equipment environment overall is healthy and you see that in endoscopy and instruments numbers, even medical full year medical is going to be double digit growth. It will be our fourth consecutive year of double digit growth in medical obviously Q3 was a little softer than Q2, which was huge and large capital does will vary a little bit from quarter to quarter, but.
Overall, the environment is healthy.
You saw the <unk> <unk>.
POS numbers for other ortho were very big so it make us really picking up in both Asia Pacific as well as.
EMEA.
But what we are so overall just tremendous momentum across our business on the capital side.
Great. Thanks, a lot.
Yes.
The next question comes from the line of <unk> Chickering with Deutsche Bank Your.
Your line is open. Please go ahead.
Hey, guys its Peter.
On the margins I realize that you're not giving us margins.
For 'twenty 'twenty four yet so focusing on the third quarter gross margins can you bridge us on how you grew 220 basis points of year over year that compares to the guidance last quarter by gradual margin improvement are there any one timers in there.
Are you already sort of within 100 basis points of where you were in third quarter and 19.
Yes.
Yes.
There's a couple of pieces here, obviously, one of the pieces as where we were a year ago as you looked at Q3 and the impacts we were feeling.
Pretty severely from from spot buys.
Fast forward to where we are now.
We're not seeing any spot buys a lot of that is flushed through the income statement already so that's some given improvement right there.
We're also seeing sort of a more normalization of supply chain management. So a lot of that means we can get back to things like ocean freight and not air Freighting. All the time, we can have regular manufacturing scheduling and cadence, which means that we don't have people cycling in and out which is really inefficient.
So I think that.
That combined a little bit with sort of the mix that we saw within the quarter, just really helped us give a lift to the gross margin.
We still expect gradual improvement.
And I think Thats, what youll see keep in mind for Q4 seasonally it's a big <unk> quarter.
And so we will feel that mix impact in Q4 in the gross margin.
Okay and then final question you talked about a big backlog and medical are you seeing in hospital Capex continue to grow as margins improve for hospitals or are you seeing any impact in a rising rate environment <unk> additional pressure on compensation.
Compensation.
Meaning are hospitals that your capex in the near term.
Hey, Peter it's Jason I'll take this one.
I think just to build on what Kevin said from a capital environment standpoint. It continues to be strong for us and I think just to remind you as you think about our capital right. The large percentage of our capital is this revenue generating capital that has to be replaced with procedures and so that continues to be strong and then again the.
Kevin point on medical as you think about a double digit year. The large capital continues to be strong so really no change of tone for us as it relates to the capital environment.
Great. Thanks, so much.
Yeah.
The next question comes from the line of Joanne Wuensch from Citibank. Your line is open. Please go ahead.
Good evening and thank you for taking the questions.
Number one can you quantify the impact of the fewer selling day and number two you said that the shoulder and spine applications for micro on track could.
Could you remind us what on tracking and how do you see those products adopting and ramp over time. Thank you.
Okay, great. Thanks, Joanne what we've always said about one day or one day impact, it's roughly 1% total company. It obviously has a higher impact on implants than it does on capital equipment, but approximately a 1% total company impact and we benefited from a day earlier in the year I think it was Q1 and then this quarter we.
Today, the full year will be the same number of days, what we sat around the timing as we expect.
Mako spine kind of around the middle of the year next year and that's on track we were able to show that to some surgeons at NASS and got very good feedback on that and that product will obviously be there'll be a mako application, which which I've gotten to see which is terrific. But it will also include an additional product is coming out of our instruments.
Division that will be used by spine surgeons as well so we'll have a pretty tremendous ecosystem and then shoulder will be towards the end of the year. We will have an initial launch of shoulder. So those are the timelines. We've communicated previously and we are pacing on track on both of those products.
Thank you.
Okay.
The next question comes from the line of Vijay Kumar with Evercore ISI. Your line is now open. Please go ahead.
Hey, guys. Congrats on a nice French here, Kevin maybe on that last question on not just mako spine and shoulder.
Can you come.
In contrast, what Mako application for spine and shoulder what the launch curve should look like versus hip and knees.
Are there any differences between hip and knee surgeons versus south the spine market in charter market.
Well.
I Wouldnt say theres much of a difference to be honest with you in the case of spine you have to remember we were one right. So Mako was first and when you are first the uptake tends to be a little slower to be honest.
Overcoming people's objections, having to change we have changed management.
If we think about spine there are already a couple of players in the market and we already have a very large footprint of robots in the market. So to me that should be a faster ramp than what we saw with hips and knees shoulder will be different it'll be a first time application with including bone preparation. So I think that one will probably be slower in <unk>.
Terms of its uptake, but our shoulder business doesn't really needed.
<unk>.
It's been strong double digits for a long time, and we'll continue to have an amazing pipeline. They launched a pyro carbon product we have the patient match Blennoid. We have mixed reality I mean, there's just so many new products controller, it's not exactly like we needed to drive high growth, but it'll be I think very impactful, but it will because it involves change management that won't probably go a little.
A bit slower but spine.
Especially the way we've designed it the workflow is very very seamless, it's very very efficient, it's smooth and again, it's not the first one so I think spine will probably be a faster uptake.
Fantastic and maybe Glenn one for you. This gross margin performance was pretty impressive in the quarter.
When you look at the Q1 to Q3 sequential France. Here is is Q3, the right jump off point because some of the point elements you mentioned it looks like they seem to be sustainable.
Free cash conversion related to that 60% I think you had some inventory impact should that go down for next year and see a more normalized conversion.
Yes, no as I said, you're right Q3 was a very strong performance in gross margin for a lot of those reasons.
That I talked about I do think you've got to look at sort of first of all seasonality relative to our gross margin and we talked about that for Q4, just given the amount of <unk> that will flow through.
So I do expect Q4 will moderate just a little just because of that mix issue.
And then as we get into next year, we'll talk more about that at the analyst meeting.
Great.
On free cash and Thats normalized for next year.
Yes, I mean, we've always targeted between 70%, 80% for free cash flow.
Don't expect that we would move away from that target.
Fantastic Thanks, guys.
Yeah.
The next.
Question comes from the line of.
Sheldon thing with RBC. Your line is now open. Please go ahead.
Thank you so much Kevin there's a lot of excitement about the super cycle of innovation.
Products that you already know until you get to them.
Could you help us quantify the contribution in 2003 and 24 is it low hundreds of basis points and 24 I think this quarter alone I think you beat.
Members by between 500 to 700 basis points for those segments. So it translates to about 130 basis points. If you if you apply that to.
24, but just doing trying to do some math than any any color would be helpful.
Yes. Thanks for the question, we really haven't been in the habit of providing breakouts of the impacts of new products.
It really is why why we drive at the high end of Med Tech why we consistently outperformed the market by roughly 300 basis points that that's the formula.
A consistent cadence of new products combined with really great sales force execution through our decentralized business units, but thats the Stryker model.
What's interesting about this cycle is as you point out, it's probably a little bit of a greater impact coming from organic innovation because so many.
Really impactful products are all launching around the same time.
I mean, if you look at our trauma extremities business. That's at that double digit growth performance is pretty impressive and we don't really talk about trauma extremities nearly enough and then we have this <unk> system, which we showed at the Ots Conference recently.
And the last two weeks and the feedback was incredibly positive now that won't impact our business until the second quarter of next year, but we are ramping up for the launch feedback from surgeons was amazing.
Biggest launch they've ever had.
Which is going to fuel even more growth on top of an already high performing business. So I think the way to think about it is just we can count on Stryker. It outperformed the market very consistently because of these new products and breaking out how much of that versus how much is price on new products and mix and we're not going to get into parsing those those elements, but rest assure.
That that is the engine of growth for our company.
Got it that's helpful and just as a quick follow up can you just remind us how you define <unk>.
Heico's performance at the high end of Med Tech. So how do you define that growth range. Thank you for taking the questions.
Yeah. Historically, we've said two to 300 basis points higher than the market share gains I would say right now it's tracking more towards 300 basis points faster. The market has improved clearly versus where it was two years ago, but we continued outperformance at that kind of level.
Okay.
Thank you.
Okay.
The next question comes from the line of Ryan Zimmerman with <unk>.
Your line is now open. Please go ahead.
Alright, thanks for taking my questions.
<unk> question and also Larry's earlier question on 24, and asking a different way I appreciate it.
Guys have always been at the higher end of Med Tech.
Kevin when you think about some of the puts and takes that you've outlined being robust orthopedic demand offset by some of the staffing issues that we're seeing in hospitals do you anticipate 24 to be.
At our growth rates similar to kind of what we think of as historical med tech growth rates in that 4% to 5% range.
Hey, Ryan it's Jason I'll, just jump in here and then we'll open it up for your follow up but as we think about 2024, obviously, we will get into that more in January I can give you a little bit more detail, but at this point, we won't we won't comment any further in terms of how we're thinking about the top line.
Okay I had to.
Try it in a different way so I appreciate it alright, I'll turn I'll shift directions.
And just ask you ahead of your knee business. Just gave an interview actually yesterday that sounds really interesting and you disclosed that theres nothing under robots will make those and enhance these today and what I'm wondering.
Where you see that market.
Topping out at or where do you see from a socket perspective, I mean, if there's 12000 agencies in the U S. Today I mean, there's no way that all of them can own a robot although that would be nice to think I guess I'm curious.
As we've thought as we've seen the ramp of <unk>.
Initially it was maybe 2000 hospitals and then it was potentially all 5000 hospitals in the U S.
It's early days in the ASC, but where do you think that can go over time as you sit here today.
Yes, listen the Mako is performing extremely well in the ASC and just as a reminder, right now if our hip and knee procedures roughly call. It 12% of those are being done in ASC is that number is growing dramatically and will continue to grow dramatically and as surgeons move their business to the ASC, they do not want to suffer.
They want the best technology, they won't make out so I see tremendous upside in tomatoes in the ASC.
Because they want to be able to do it lends itself very well, there's less instruments, which means less pressure on sterilization, which is a major bottleneck with an ASC. They don't have the same room for sterilization that hospitals do so it is actually a very very effective product to have in the ASC.
And so as that percentage of 12% moves in.
Based on different pundits somewhere between 30%, 40% as that goes higher youre going to see more and more robots being installed in these assays. So there is a significant upside in front of us here.
Here in United States, and frankly, Asc's now they are starting to talk about it in multiple countries in Europe.
In Switzerland, there talking about it in Germany, they were talking about it in the UK. They are starting to figure out that this model is actually a good model for the delivery of health care.
Good for surgeons could for staff staff, frankly, nurses love going to afcs, we're having less issues on staffing and surgery centers than we are in hospitals and good for the patients patients actually like going to a place where there aren't sick people and where theres easy parking and where you can go home the same day.
Yeah.
Thank you.
Okay.
The next question comes from the line of Matthew O'brien with Piper Sandler. Your line is now open. Please go ahead.
Good afternoon, Thanks for taking my question Ken.
Kevin.
That that Mako line this quarter was pretty eye popping, so I'm kind of wondering.
J&J launched in system at <unk> this year I'm not sure it's all that great but.
But again always question as well did you see a pause in the market.
Some of those dynamics and then that's kind of behind you now and you're winning a disproportionate share of Mako sales plus placements and then specifically within there are you getting more of those placements into competitive accounts that you have historically are.
Is it still kind of a hub.
Reasonable mix between existing Stryker accounts, and then and then competitive accounts.
Yes, we're not really seeing much of a change in the mix between competitive in let's call. It Stryker friendly accounts, it's pretty similar as it's been frankly throughout the launch there really hasnt its really people, who want technology and are really looking for the best that they can get.
And what we saw with the competitive <unk>.
<unk> came on the market as we saw a little bit of a slowdown as they evaluated side by side different companies, but it was pretty modest and I would say now.
Really we're not we're not concerned about a comparison side by side, we and frankly encourage that but they look at the product side by side. We really believe we have the best solution for hip and knee replacement in the same robot and then of course look forward to adding other applications again to the same robot with the spine and shoulder in the coming periods.
Okay that makes sense and then Kevin again, you touched on this at the beginning but <unk> dominated in conversation for all of US on this call.
There is.
Some Shanghai data out there about a big reduction in knee replacements.
In that study, although I'm not sure that thought he was all that robust theres. Another OA study coming out fairly soon.
Looking at I'm, just curious what Stryker has looked at internally that gives you that comfort that you can.
Hello investors.
Confidently that this is not going to be an issue not necessarily now but in 235 years from now and then I don't know if you can talk a little bit about some of these things. These near term benefits that youre seeing in terms of some patients that have lost weight that are now.
No.
Eligible to get a.
Knee or hip replacement.
Yes, Thanks look I'm not going to use todays call for this because we have an analyst day next week at Investor Day, and we're going to have a surgeon there and we'll actually devote some time to the GOP discussion.
I would tell you is the study is saying that there's going to be a reduction I think are nonsense and here at.
August meeting.
In Dallas right now spent the morning talking to multiple surgeons at massively credible teaching hospitals world renowned teaching hospitals, who have poured through the research and feel that there is no need for us to worry whatsoever about any slowdown in our knee procedures.
Great. Thank you.
Yeah.
The next question comes from the line of Josh Jennings with TD Cowen. Your line is now open. Please go ahead.
Hi, This is Eric on for Josh Thanks for taking the question.
Looking at spine there has been some consolidation in the last few quarters and I was just wondering if you could share a little more detail on your observations in that market.
I think youre benefiting from any share shifts or are you, making any competitive rep hires any detail there would be great. Thanks.
Yes look it's still early days, if you're thinking about the big consolidation thats occurring and it's not.
The only one right that the last four or five years, we've seen quite a bit of consolidation. There is still more operators in spine, we see in some of our other specialties, but I think one of the drivers of the consolidation is enabling technologies. It really is sort of a ticket to the dance to be successful long term as having really good enabling technologies.
Our <unk> guidance system, we're delighted with the performance of that with the fastest camera on the market, which we developed internally at Stryker and <unk> and that <unk> will then be paired with Mako in the future, which is which is really exciting and will provide an even smaller footprint than what you see with the other spine, enabling technology ecosystem. So I think.
That's really the catalyst for the future is and that will probably provide even more consolidation going forward, but as it relates to the sales force.
A little early days right now not a lot of.
Change I think youre going to see more of that change as you roll into next year.
They have to decide who's on which territory, who's, losing which person they're sort of holding.
Things constant for now but.
But that disruption will come and we look forward to taking advantage of that however, we can.
Understood. Thank you and then maybe on M&A I was just curious to hear your latest thoughts on deals given the current market environment.
And secondly are there any areas of the portfolio that you think could be targets for inorganic growth. Thank you.
Yes first of all I would say today every division has targets for inorganic growth. So they we have a decentralized business development Manuel trigger.
Division had a list of companies and they're just waiting for our cash position to improve such that we can start doing more deals. We obviously you've done a couple of deals this year between the share of steel and the palm deal within our instruments division, but we are lining up targets there are numerous opportunities.
<unk> is pretty rich with targets valuations in some cases come down which is not a bad thing, but I never had interest rates have gone up so.
The hurdle rate to achieve the right level of financials has raised a little bit.
But we're feeling good about where paying down debt in line with what we had committed to the rating agencies and Glenn how do you feel about our willingness to start doing deals.
Yes, I think we are.
We will live up to our commitments and assertion relative to our debt position at the point, we get to the end of this year and so to Kevin's point Theres, a long list from all of our divisions in terms of.
Potential acquisitions, I wouldn't say that we've really sort of sat on our hands. During this period of time, we have engaged with several companies to look at the possibilities. So I do think that.
M&A is a big part of our growth strategy moving forward and I'm certain that will pick up the pace in 2024.
Okay.
Great. That's helpful. Thank you guys.
The next question comes from the line of Travis Steed with Bank of America. Your line is now open. Please go ahead.
Hey, just a quick follow up on the M&A question, just curious if you'd put a little bit of framework around kind of the size of deals you are willing to do or what we should kind of expect when when you move into some of the larger deals you've commented on in 'twenty four.
Yes.
M&A is very fluid, we're not going to really comment on the size of deals over time.
Obviously, the larger volume of our deals are going to be smaller tuck ins, but our debt to equity ratio is getting right around close to that $2 five level thats, a nice level to be.
To hit and once we hit that level, then we have the freedom to be able to do what I call main course size deals I think we've been on an appetizer diet.
Towards the end of last year and into this year and we have the capacity to be able to do $1 billion deals if they present themselves and if the returns are strong so.
Not going to predict exactly what will happen, but we're going to get back to kind of our normal offense and M&A that you saw for the last 10 years prior to that the big spending on Wright medical and goes here.
Great that's helpful and then.
I know you're not going to give the answer but just curious if you kind of level.
What we should expect at the analyst day.
Can you give some sort of revenue and margin long range plan. It sounds like 24 guidance won't be until January just curious what kind of level set what we should expect there.
Yes, Tyler this is Jason.
Comments I would say first off to your point as it relates to specifically 2024, we'll get into that more in January as you think about Investor day next week, it'll be kind of more of the long range plan. We've certainly talked about sprinting back to 2019 margin Youll hear more about that and when we'll get back there and then also just how we think.
Growth over the next three years as well so but again, we'll narrow in on 2024 in January.
Alright, great. Thanks, a lot.
Yeah.
Okay.
The next question comes from the line of Richard <unk> from <unk>.
Your line is open. Please go ahead.
Hi, Thanks for taking the question.
Just coming.
Coming off a couple of weeks ago.
I figured I'd ask a question on the spine robot it sounded like you guys are still very optimistic on the timing for <unk>.
Our launch I guess I think it's second half of next year, just correct me if I'm wrong on that.
We heard from Medtronic.
<unk> already got and adapted to amaze or system to get to a bone cutting capability.
I'd love to just hear what kind of capabilities should we expect.
With your initial launch from an indication standpoint should we expect you to be at a point where others.
Third fourth generations are or are you like you'll be starting off.
Walk before you can run pedicle screws.
Stay tuned.
Yes, listen, yes, we're targeting kind of let's call. It Q3 for the spine robot on Mako, what I'd say is that we the Mako launch.
For spine will be for pedicle screw placement, but it is a fabulous workflow faster than what's on the market today.
And smoother, so im really pleased with what I've seen.
With our Mako spine robot. In addition, I keep mentioning we have this additional product that will be launched within the same ecosystem using the same navigation card that that does bone cutting it is not specifically.
Co product, it's a different product, but it operates within the same ecosystem. So I believe that will go from today being behind to being ahead of the market with the launch of those two and those two products are coming at the same time.
So the other product the bone cutting product will arrive at the same time as Mako and provide a really fabulous ecosystem.
Okay. Thank you for that Kevin and then just on augmented reality can we assume that.
The application you have been in shoulder I think for right now.
That's going to go to other orthopedic areas do you have any timeline for that or is that something you'll hear more about next week.
Look I'm not sure we're going to tell you a lot more about it next week, but we're big believers in the term. We use is mixed reality. So that you can actually see.
Through the rest of the room and also see the screens, we're big believers in mixed reality, it's going to be a big part of the future. So you don't have to look sideways when youre doing procedures, you look right into the into the surgical field, but I'm not sure. We're ready to give you timelines on that but that's something we believe is going to be powerful we're already seeing some of the value with shoulder and we have every intention of expanding.
<unk> that to other applications.
In the years ahead.
Thank you.
Yeah.
The next question comes from the line of drew Ranieri with Morgan Stanley. Your line is now open. Please go ahead.
Hi, Thanks for taking my questions Kevin for you.
You were talking about your strong U S O U S. Mako placement growth, but Youre also talking about change management when it comes to maybe the spine.
The shoulder application when you do think about O U S geographies for Mako can you just talk about the utilization that you do see for hips and knees, because theres a bit of a changed management there robotics, that's fairly new O U S.
But are you seeing any type of acceleration compared to what you saw in the early days of the U S launch.
Yes, listen we're right now in Asia Pacific and even outside of let's say the U K the rest let's call. It the rest of EMEA where kind of.
Right now, where we were $65 six years ago in the United States. So we're seeing an inflection point, we're seeing things really start to take off.
Not in Australia, because that was a fast adopter, but in Japan for sure in India for sure in some of the other European countries, where it's really starting to take off and it's kind of the inflection point. We saw this sort of terrific growth here in the U S started about 656 years ago that is now starting to happen in these other markets really really.
Sighting and.
And you see that with the other ortho number just kind of starting to pop and you see that in the hip and knee business. The growth that we're seeing internationally I think that's going to be a gift that will keep on giving for the next few years.
It took us a while honestly to get going in some of these markets and we're now starting to hit our stride and feeling very bullish about the future of Mako and this is just with hips and knees forget about not even thinking about spine and shoulder just it just took a little longer to get.
Surgeons onboard to figure out the model to get the NPS training to get the language translation. There's all these steps we had to sort of go through we've been through that and now we're starting to really realize a terrific growth and I think that that will continue in the years ahead.
Alright, thank you.
Maybe I'll say this one for next week, but just on <unk> just talking to a couple of ortho surgeons ourselves I got the sense that they actually do have your BMI patients still manually and first robotics. If you do actually see a near term benefit as these patients due to lose weight.
Would you expect to see more of a mix benefit on on Mako or just kind of a rising tide lifts all ships for your for your new business. Thanks for taking the questions. Yes, Yes to me, it's a rising tide lifts all ships and whether.
Whether they do it manually are doing with Mako, that's really a surgeon choice its not really tied to.
How thin or heavy somebody is whether they choose to do it manually to store robotically.
The next question comes from the line of Danielle <unk> with UBS. Your line is now open. Please go ahead.
Hi, Good afternoon, guys. Thank you so much for taking the question and I actually had a question I'm sure you guys will talk about this more next week, so sorry, if I'm front running that but international looks pretty strong. This quarter. Just curious about what you can say, what's driving that growth and how sustainable is that and then the second part of the question is.
On the orthopedic backlog and whether the magnitude of the backlog this quarter versus last in the quarter Pryor has come down. Appreciate you believe it's going to continue to contribute into 2024, but I guess I'm just trying to get a sense of the magnitude of that contribution going forward. How we should think about that thank you.
So much.
Yeah sure listen I'm Super excited about international as you know, we've now had five consecutive years of international growing faster than U S.
This year, we are on pace to be the sixth consecutive year.
And as I mentioned earlier on the call Mako is only just starting to really gain steam and a lot of international markets. Our camera business is gaining steam in the international market. So.
We're really poised and next week, we as part of our agenda. We have international panel that we're going to hold that we have a number of our leaders from our international markets will be there on the panel and even available in the walk around time to be able to chat with all of you investors and analysts so.
We feel bullish about international that has not always been the case. If you remember 10 years ago that wasn't a sore spot for us.
Still a source of tremendous upside if you look at our business 70 over 70% of our sales are still in the United States. So we still have tremendous potential in international and that should last for a long time to come and then the second part cases, yes, I'll take the second part here Danielle so as it relates to kind of procedural backlog.
Similar to what I said in my prepared remarks procedures are strong right and so as we as we think about kind of Q4 and into next year I'm not going to try to quantify in terms of percentages of growth that comes with that but we do think that.
We will remain elevated kind of well into next year and.
Three quarter, we reassess that based on intelligence that we have talking to surgeons et cetera, but we do expect it will continue to be a moderate tailwind into next year.
Very helpful. Thank you.
Okay.
The last question comes from the line of Matt Taylor with Jefferies. Your line is now open. Please go ahead.
Alright, great.
Young Li in for Matt. Thanks for squeezing me in here.
I guess to start was wondering.
Yes.
Price was positive this quarter continuing the trend from earlier in the year.
I guess I'm just wondering how sustainable do you think.
Positive momentum can be going forward.
Yeah.
Sure.
Youre right Q3 kind of continued our favorable pricing trend with sort of 3% coming off of Q2 that was <unk>, 5%.
A couple of comments I would say as we look at the full year, we think that will be positive for the full year.
And we also put in place kind of the incentive process as well as the contracting process to really make sure that we're considering price as we think about working with our customers on buying products. So I feel good that we have the sort of mechanism that is going to continue to look at price.
Being said, you're absolutely right, we will anniversary on product over product year over year, which may make things a little bit tougher one thing that I would keep in mind, though that Kevin talks about this product super cycle and a lot of next gen products coming out. So if you think about our pricing.
Calculation that statistic. It really doesn't include the impact of price increases that we get on those products because of the technologies that they are bringing to market. So I think that is actually an element of pricing that's going to help us as we think about next year.
And I don't think it's something we're going to walk away from as long as inflation is having an impact we will continue to have those discussions with our customers about pricing.
Alright, great.
And then I guess for the follow up.
Wanted to hear a little bit more on.
The country hiring more robotic capital grabs my head of the shoulder and spine robotic launches.
Wanted to maybe get a better sense of how you would be entering the market.
Is it more of a hybrid so our sales process.
Clinical reps.
I mean, I would assume you would focus initially on the existing customers.
Maybe how long before you start go on offense and try to convert surgeons with Mako.
Yes, listen we we have a very dedicated sales force offense that we run so even before you think about spine our shoulder even within joint replacement, we had specialized capital salespeople. We have the same thing with power tools. We have specialized people itself power tools. So we don't believe in this hybrid model.
We're going to have dedicated capital reps and they will.
Go to the market and they will sell to competitive and new surgeons right out of the gate.
That's what they do and Thats, what we do at Stryker. So I wouldn't expect that we would just go to our friendly's, we're going to go to people that one technology and we really don't care, if they're existing customers or if they are competitive customers because there isn't there really we don't like to have implant reps also selling capital is just not our model and so we think we can solve more and faster if we have these <unk>.
Indicated people and we will have that dedicated approach as we add additional applications to make.
Thank you very much.
Thank you.
There are no further questions in the queue I will now turn the call over to Kevin <unk> for closing remarks.
Thank you for joining our call we look forward to sharing our Investor day with you on November eight <unk>.
And our fourth quarter and full year results with you in January 2024.
Thank you.
Yeah.
This call has concluded you may disconnect at any time.
[music].