Q1 2024 Stryker Corp Earnings Call
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I will now turn the call over to Jason Thanks.
Jason: Thanks, Kevin My comments today will focus on providing an update on the current environment capital demand in select product highlights for.
Jason: Procedural volumes remained strong in the first quarter in line with our expectations driven by continued adoption and robotic assisted surgery demographics, a stable pricing environment and healthy patient activity with surgeons.
Jason: And while pockets of supply constraints remain our supply continues to be stable overall.
Jason: Demand for our capital products remained healthy in the quarter with continued elevated backlog across our endoscopy and medical divisions.
Jason: Our Mako direct to patient campaign continues to perform well, which contributed to our very strong mako growth with record first quarter installations in both the U S and internationally.
Jason: This will continue to drive our hips and knees businesses.
Jason: In April we performed our first cases, using the Pangaea plating system, and our trauma and extremities division and are gearing up for a full launch.
Jason: Pangaea is the largest launch in trauma history as it offers a comprehensive system that will enable larger hospital conversions.
Jason: Next we received approval from the FDA for our new life back 35, Defibrillator and monitor this is a flagship product within our emergency care business unit and was one of the catalysts for our acquisition of Physio control.
Jason: <unk> 35 is a modern platform with a touch screen interface that brings advanced connected capabilities to improve workflow.
Jason: We will launch this product at the end of Q2, and it will have a multi year benefit to our medical division.
Jason: Lastly, Mako spine and co pilot are pacing to launch in Q4, followed by the shoulder application at the end of the year.
We continue to receive positive feedback from surgeons, who have been exposed to these technologies.
Jason: With that I will now turn the call over to Glenn.
Glenn: Thanks, Jason today, I will focus my comments on our first quarter financial results and the related drivers our detailed financial results have been provided in today's press release.
Glenn: Our organic sales growth was 10% in the quarter compared to 13, 6% in the first quarter of 2023. This quarter, we had one less selling day than 2023 and the impact from pricing in the quarter was favorable by 7%.
Glenn: We continue to see a positive trend from our pricing initiatives, particularly in our med surge in neuro tech businesses, almost all of which again contributed positive pricing for the quarter.
Glenn: Foreign currency had a 5% unfavorable impact on sales in the quarter.
Glenn: In the quarter U S. Organic sales growth was 11, 3% international organic sales growth was six 6% against the very strong comparable growth of over 16% in 2023.
Glenn: This performance included positive sales momentum across most of our international markets, particularly in the United Kingdom, and Canada, and most of our emerging markets.
Glenn: Our adjusted EPS of $2 50 in the quarter was up 16, 8% from 2023, driven by strong sales growth and operating margin expansion.
Aaron currency exchange translation had an unfavorable impact of five.
Speaker Change: Now I will provide some highlights around our quarterly segment performance.
Speaker Change: In the quarter med surge in Neurotechnology had constant currency sales growth of 12% and organic sales growth of 11, 6%, which included 13, 5% of U S organic growth and 6% of international organic growth.
Speaker Change: Instruments had U S organic growth of 19% with strong double digit growth across the orthopedic instruments and surgical technologies businesses.
Speaker Change: From a product perspective sales growth was led by almost 50% growth in smoke evacuation and strong performances in power tools, Steri shield waste management and surge account.
Speaker Change: Endoscopy had U S organic sales growth of 11, 1% with double digit growth in its communications and <unk> businesses and from a product perspective standout growth included cameras light sources insulators booms and sports medicine implants.
Speaker Change: Medical had U S organic sales growth of 16, 8% led by the solid sales performances in all three businesses. This included strong growth in structures cost Vocera and sage products.
Speaker Change: Neurovascular had U S organic sales growth of two 9% highlighted by solid performances in our <unk> expense and guide wires neuro.
Speaker Change: Our cranial had U S organic sales growth of 7% driven by strong performance in our CMS business.
Speaker Change: Internationally med surge in Neurotechnology had organic sales growth of 6%, which included strong performances in our emerging markets.
Speaker Change: Orthopedics and spine had both constant currency and organic sales growth of 8%, which included organic growth of eight 3% in the U S and seven 4% internationally.
Speaker Change: Our U S hip business grew six 8% organically against a very strong comparable of 16, 2% in the same quarter last year.
Speaker Change: This growth reflects continued strong primary hip performance fueled by our insignia hip stem.
Speaker Change: Our U S knee business grew three 1% organically against another very strong comparable of 27% in the first quarter of 2023.
Speaker Change: Our knee growth reflects our market, leading position and robotic assisted knee procedures and the continued strength of our installed base.
Speaker Change: Our U S trauma and extremities business grew 10, 3% organic with strong performances across our upper extremities biologics and core trauma businesses.
Our U S spine business grew three 9% organically led by the performance in our interventional spine business.
Speaker Change: Our U S. Other ortho business grew 45, 6% organically driven by strong Mako installations in the quarter.
Speaker Change: Internationally, orthopedics and spine grew seven 4% organically, including strong performances in Canada, and most emerging markets, particularly driven by strong Mako installations.
Speaker Change: Now I will focus on operating highlights in the first quarter. Our adjusted gross margin of 63, 6% represents approximately 50 basis points favorability against the first quarter of 2023. This.
Speaker Change: This improvement reflects positive pricing trends as well as continued easing of certain cost pressures that we experienced in the first quarter of 2023.
Speaker Change: Adjusted R&D spending was six 8% of sales, which was 30 basis points higher than the first quarter of 2023 or.
Speaker Change: Our adjusted SG&A was 35% of sales, which was 60 basis points lower than the first quarter of 2023 due to continued discipline in our spending and investments to support our growth.
Speaker Change: In summary for the quarter, our adjusted operating margin was 21, 9% of sales, which was approximately 80 basis points favorable to the first quarter of 2023.
Adjusted other income and expense of $49 million for the quarter was $16 million lower than 2023 different driven by favorability in interest rates and a higher level of invested cash resulted resulting in higher interest income.
Speaker Change: The first quarter of 2024 had an adjusted effective tax rate of 12, 3%, reflecting the impact of our geographic mix and certain discrete tax items for 2024, we still expect our full year effective tax rate to be in the range of 14% to 15%.
Speaker Change: Focusing on the balance sheet, we ended the first quarter with $2 4 billion of cash and marketable securities and total debt of approximately 13 billion or.
Speaker Change: Our total debt includes $600 million of debt that is due to be repaid in may and has been pre funded.
Turning to cash flow our year to date cash from operations is $204 million, reflecting the results of net earnings and normal first quarter seasonal cash outflows.
Speaker Change: Considering our first quarter results strong procedural volumes and healthy demand for our capital products. We now expect our full year 2020 for organic sales growth to be in the range of eight 5% to nine 5% with the pricing impact to be roughly flat.
Speaker Change: If foreign exchange rates hold near current levels, we anticipate sales will be moderately unfavorable impacted for the full year being more negative in the first half of the year.
Speaker Change: EPS will be negatively impacted at the higher end of our previously guided range of five to 10.
Speaker Change: With our momentum heading into the rest of the year and our commitment to expanding operating margins. We now expect adjusted net earnings per diluted share to be in the range of $11 85 to 12 O five.
Speaker Change: And now I will open up the call for Q&A.
Speaker Change: At this time well open.
Speaker Change: The floor for questions. If you would like to ask a question.
Speaker Change: <unk>. Please press star one on your telephone keypad.
Speaker Change: You may remove yourself at any time by pressing Star Guide again.
We would like to remind callers to please limit themselves to one question and one follow up question.
Speaker Change: Can accommodate as many participants as possible.
Speaker Change: And we will pause at the moment.
Speaker Change: Okay. Our first question will come from Robbie Marcus with Jpmorgan.
Robert Justin Marcus: Your line is now open.
Robbie Marcus: Great.
Robert Justin Marcus: Thanks for taking the question congrats on a really nice quarter.
Robert Justin Marcus: A lot to ask about but maybe two from me on financials first.
Robert Justin Marcus: Kevin It sounds like procedure volumes remained really healthy across the globe in capital equipment same.
Robert Justin Marcus: Would love to hear if you're seeing any changes either up or down in the environment for capital in procedure volume growth.
Kevin: Yes, Thanks, Robby Yeah, we're really pleased with the performance in the first quarter and really nothing has changed so it would be good level of volumes that we're seeing in procedures that we saw through 2024 has continued into 2025.
Robby: And our capital order book remains very strong so capital equipment, whether it's large capital or small capital remains very robust we have a nice healthy backlog and that gives us the confidence to raise our organic sales growth guide for the full year.
Robby: And.
Speaker Change: Maybe one probably hasn't been asked on in a while but your spine business had a really nice quarter.
Speaker Change: I wanted to see is that more fundamentals and the improvements in.
Speaker Change: Technology, you've brought to market is that gaining some share from disruption of the competitor merger and is that giving you a foothold ahead of the spine Mako launch in discussions.
Speaker Change: How hospitals are.
Speaker Change: Open to that thanks, a lot.
Yes, Thanks, Ravi not a major change I would tell you the interventional spine business had a terrific.
Speaker Change: Quarter that was really high growth are enabling technologies within spine acute guidance system has really picked up good momentum as well as the Mako spine in the copilot won't be launched until the fourth quarter. So that's not really having much of an impact and I wouldn't say that the competitive disruption or the competitive.
Speaker Change: The merger is really having much of an impact yet it's still very early days, so nothing too remarkable but overall a good number and a good solid number for ourselves.
Speaker Change: Our next question comes from Laurent <unk> with Wells Fargo Securities. Your line is now open.
Laurent: Good afternoon, and thanks for taking the question and congrats on a nice quarter here.
Laurent: One for Glenn on for I think Kevin Glenn just maybe on the <unk>.
Laurent: <unk> raised about 10 cents at the midpoint can you help us bridge kind of how much of that was operational and how much.
Laurent: Each of that is coming from kind of below the line.
Laurent: Other income being a little lower.
Laurent: And and obviously FX is a greater headwind. So just kind of the pieces that led to the <unk> race and I had one follow up please.
Speaker Change: Yeah sure. Thanks, Larry.
Speaker Change: I think if you look at sort of what happened in any and also what happened with our tax rate. Obviously, we had some favorability just for this quarter I think fundamentally we're still targeting 250 million roughly in any.
Speaker Change: And a tax rate that really is still between 14 and 15. So we're still sort of holding to the below the op margin line sort of guidance that we had built into our initial.
Our guidance that we provided back in January.
Speaker Change: I think honestly if you look at the raise in terms of how we think about it the robustness of the topline obviously the earnings that we're able to to kick off with that and then lastly, we're just we're feeling.
Speaker Change: That we're seeing good momentum and positivity around the programs that we put in place to drive leverage to get back to that 2019 number and so all of that really combined to really give us the confidence to give us that <unk> raised from the midpoint in EPS.
Speaker Change: That's helpful and Kevin I'm sure you know investors are concerned about the potential impact of da Vinci five on your endoscopy business, obviously, it's not having any impact right now really strong growth here I'd love to hear from you kind of if you will if you're willing to share kind of what the potential exposure.
Speaker Change: Is it what you can do to help protect your lap tower business long term. Thank you.
Kevin Glenn: Yeah, Thanks, I'm, a little bit mystified by this concerned to be honest with you. If you attended the sages meeting you could clearly see that we have a very differentiated solution that will frankly enable they can grow at whatever rate they are growing.
Speaker Change: With their new product and we're going to continue to have a very strong performance in endoscopy, both this year and for years to come.
Speaker Change: <unk> and our businesses as minor.
Speaker Change: Our multi specialty we play in most of our procedures frankly arent being done robotically today.
Speaker Change: We also are the clear leader in fluorescence imaging.
Speaker Change: Just most recently we have the American Association of thoracic surgery, where we partner with <unk>. This new fluor for treatment to light up our lung cancer for lobectomy procedures, which were the only company that can do that can light up for <unk>.
Speaker Change: So surgeons are going to demand this for safer surgery, but that doesn't mean that intuitive can grow with their robot.
Speaker Change: We are really playing in spaces with very little overlap and both of US can continue to have very strong performance for many many years to come so to me. There's concern is frankly mystifying and not at all for me a concern for our Endoscopy Division.
Speaker Change: Our next question comes from Ryan Zimmerman with <unk>. Your line is now open.
Ryan Benjamin Zimmerman: Thanks for taking the questions and congrats on the quarter I wanted to ask about the organic growth and the guidance. If you look at the 10% organic growth this quarter.
Ryan Benjamin Zimmerman: Versus the comps and kind of where youre guiding that 9% at the midpoint the comps essentially do get easier through the balance of the year and so I'm wondering Kevin or Glenn.
Speaker Change: Wants to take this.
Speaker Change: Just talk about your guidance view, our philosophy for the top line and specifically given the performance and what we think could be better performance in the remainder of the year.
Kevin Glenn: Yeah, Hey, great. So certainly if you look at our fourth quarter last year I wouldn't think that that was those were easy comps that we had a pretty monstrous fourth quarter last year.
Speaker Change: And so comps is probably the biggest concern that we have we do pick up an extra selling day in Q3, and an extra selling day in Q4.
Speaker Change: It's only one quarter, so theres a lot of uncertainties out there in the marketplace. We feel very good about our business and I think this is an appropriate raise at this time, let's see how things go at the end of the second quarter and we can update you further on the outlook for the year.
Speaker Change: Fair enough.
Speaker Change: Kevin your comments on M&A.
Kevin Glenn: Pretty pointed.
Kevin Glenn: You highlighted a number of areas previously.
Kevin Glenn: There is five that you specifically called out before.
Kevin Glenn: Ah you're reinforcing those same areas today, because if I look at just some of the tuck ins that you've done it it's actually been outside those four or five areas.
Kevin Glenn: As of late and so.
Kevin Glenn: Just curious kind of how youre thinking about the targets for the areas for M&A.
Kevin Glenn: Yes, certainly when I talk about those five areas those are adjacencies. So we have our core basically.
Kevin Glenn: Implementation of existing businesses with new technology, that's always going to be the majority of the deals we do.
Kevin Glenn: And then beyond that as we think about Adjacencies. Those are where we are what I am calling might sort of topped by priority adjacencies.
Kevin Glenn: And what I'd tell you right now is we have an incredibly healthy pipeline of deals and of course pipeline doesn't always get realized rate.
Kevin Glenn: There is always a washout rate as you go through these processes, but I'm feeling really excited about the pipeline. They are mostly in the tuck in variety and so they are just like the one I mentioned for our communications business or our hip business Youre going to see most of those occur at least for the next couple of quarters.
Kevin Glenn: And that if we do decide to branch out those other areas I talked about are still of high interest nothing's really changed on that front.
Kevin Glenn: Our next question comes from Joanne Wuensch with Citibank. Your line is now open.
Thank you for taking the question and very nice quarter.
Joanne Karen Wuensch: Could you unpack two particular areas one is the instrument sales up 18% and then the other is other [laughter] up 44, 2%. Both of those are real bright shining star as I would love to hear what went behind that.
Joanne Wuensch: Yes.
Speaker Change: Yes, sure I can start on the instruments and I'll, let Jason talk about the other.
Jason: Other ortho and you're right. These are these are bright shining stars.
Jason: The insurance Division had a fantastic quarter and it was really really across both surgical technologies as well as.
Jason: We're at the peak instruments really across the board.
Jason: If you look at the smoke evacuation. We've just features continue to have tremendous momentum obviously the market has been growing very robustly, but we have a terrific <unk>.
Jason: Execution growing almost 50%, which is really awesome and that was great growth in the U S and also really great growth internationally and.
Jason: And we see that continuing maybe not at 50%, but we see that very high double digit growth through the rest of this year and into next year, especially as more states decide to mandate smoke evacuation. So that was really a big push we also have the <unk> plus we've launched a new product that combines the accounts surgical quantification.
Jason: Blood loss as.
Jason: As well as the sponge county, so it's all combined into one solution, which is really elegant and really being well received by our customers. So those are probably the two biggest catalyst within surgical technologies Neptune waste management continues to rule, that's but that's not new information and then if you flip over to orthopedic instruments, we have the Steri shield doing extremely well on <unk>.
Jason: Power tools, obviously, you know about the new launch that's still let's call. It just about a year and a half in.
Jason: That's continuing to do very well.
Jason: As well as pulse lavage and all the other products and just just really great commercial execution by the instruments team. It's really been a flagship division of Stryker. If you go back the last 10 plus years. It delivers very very consistently and it did so again in the first quarter.
Jason: Yeah, Joanne it's Jason I'll take the other ortho here. So just just a couple of additional comments I guess to my prepared remarks would be like I said, we had a record quarter of installation in the first quarter. This year. If you remember we had a record quarter in the fourth quarter of last year. So the momentum is going really well on the Mako.
Jason: I commented on the direct to patient campaign.
Jason: We've seen really good results out of that.
Jason: So we feel good about it and we like what this will translate in terms of the hips and knees business as we move forward as well.
Excellent. Thank you so much.
Speaker Change: Our next question comes from <unk> Chickering with Deutsche Bank. Your line is now open.
Hey, good afternoon. Thanks for taking my questions looking at the international growth can you talk about what Youre seeing in Europe.
Chickering: The higher growth markets like Japan, China, and how should we think about the growth internationally or using the six 8% seen this quarter on a constant currency basis.
Speaker Change: Yes, So certainly Europe continues to be a growth engine for Stryker I would tell you in the first quarter was a little bit softer than it has been and that was really because we had a big.
Speaker Change: Quarter last year, so really more comp related I do expect the Europe is going to continue to pick up in Q2 Q3 Q4. So the overall run rates are really healthy in Europe and we.
Speaker Change: The U K was a bit of a standard in the first quarter, but the other regions are all going to be fine. We had a really big big sales in Germany, and southern Europe last year, and then some of that in the first quarter. So it to me. It's just a comp issue I'm not at all concerned about our international we're going to have another strong year.
In international So you talked about Europe, what else to say sorry.
Speaker Change: Okay. Thanks.
Speaker Change: Great and then second question was strong the utilization across the country for hospitals and good margins. We're seeing hospitals wanted to increase our capex spending I guess what areas of your portfolio to the inks for half that has the most upside for household increase in the Capex dollars.
Yes.
Speaker Change: Yeah, I guess, what I would say here as we look at the overall capital environment and you can see in our results in the first quarter and our capital business is very strong so.
Speaker Change: So we see opportunities here across the board.
Speaker Change: We mentioned that our backlog continues to be elevated here. So we expect strong capital as we go throughout the year.
Speaker Change: Our next question comes from Jon <unk> with RBC capital. Your line is now open.
Jon: Great. Thank you so much and congratulations.
Jon: Kevin you've talked extensively about the super cycle of innovation and we are seeing strong results here. In Q1 are you able to quantify the growth contribution from new products in Q1, perhaps talk to us about what's factored into your guidance for 2024 and I guess the key question is how should investors think about growth drivers for Stryker.
Jon: Beyond the current Super cycle of innovation, I think you've indicated two and three.
Jon: Are the <unk> and I think you get there in 2425, so how should we think about growth drivers beyond that thank you.
Kevin Glenn: Yes. Thanks for the question what I would tell you is we're we're in is this constant rhythm of innovation.
Speaker Change: And we just had a number of products sort of collide at the same time, but they are constantly being refreshed. So I wouldn't think about this as a fleeting moment. If you think about nine 7% and 22 11 523, another potentially double digit we'll see we're not guiding to that just yet, but we have a chance certainly to get to another double digit growth this year and next.
Speaker Change: Two year Youre going to have the impact which is launching a lifetime 35, it's not going to have as much of an impact this year as next year.
Speaker Change: And not as much impact. This year is next year the make whole applications have really no impact. This year, it's really more next year and then we'll just keep rolling other innovations on top of that so I would just think we were in a rhythm.
The market conditions stay similar where in a rhythm where this kind of high growth is what you should come to expect from us.
Speaker Change: With no end in sight as long as we continue to invest as we are roughly 7% of our growing top line in new product innovation and we continue to be active with acquisitions because as you know we acquire high growth assets and then after the first year that rolls into organic growth.
Speaker Change: We had a bit of a pause last year, we're going to refill that tank this year and that will contribute to organic growth in the years ahead. So I would not look at this as some kind of reached a peak and we're starting for it to come down on the other side absent some kind of market adjustment. This is we're in kind of a new normal at least for a while.
Speaker Change: That's really helpful. And then just a couple of follow ups on the auto side.
Speaker Change: Just any updates on Mako for spine and shoulder robot are you still on track for a mid 2024 and a year end 'twenty one launch for both of those thank you.
Jason: Hey, Sharon it's Jason.
Jason: Just I'll go back to my prepared remarks, right as we think about Mako spine and co pilot. We're looking at a Q4 launch there and for Mako shoulder it'll be the end of this year from a launch standpoint.
Jason: Our next question comes from Vijay Kumar with Evercore. Your line is now open.
Vijay Muniyappa Kumar: Hey, guys. Thanks for taking my question.
Vijay Muniyappa Kumar: Kevin I had one for you on the backlog comments here, both on the procedures and the capital side right.
Vijay Muniyappa Kumar: On our procedures.
Vijay Muniyappa Kumar: Dave can you can you comment on any.
Vijay Muniyappa Kumar: Okay dealing I think historically scheduling was taking kind, which was elongated have you seen any shortening of that scheduling still elongated however, cancellations sort of trained and I think on the capital side, you mentioned life back a bit.
Vijay Muniyappa Kumar: That contributed in the backlog or if that's something that's supposed to come.
Vijay Muniyappa Kumar: In the coming quarters.
Look it's just call it a stable market it really hasnt changed much. If you think about waiting lists if you think about staffing is continually gotten better over the course of 24. So I would just say, it's very stable in terms of the overall market I don't see shortening at all I don't see an elongated it's just as we saw through <unk>.
Vijay Muniyappa Kumar: 423, sorry to continuation into 24 of that kind of stable marketplace and the new defibrillator just got approved so that's not really been a big contributor to our backlog. Our backlog is just a healthy order book of all of our existing products across medical across even some of the instruments businesses in endoscopy. So it really there wasn't.
Vijay Muniyappa Kumar: Any kind of new spike, but we've had a healthy backlog we had going into 'twenty three we have going into 'twenty. Four we continue to get good orders. So yes, we're shipping out at a nice rate, but the orders are still coming in at a very healthy rates. So we're really not burning through any kind of meaningful backlog and that gives us confidence for at least through the rest of this year if any.
Vijay Muniyappa Kumar: As orders continue.
Vijay Muniyappa Kumar: It obviously could potentially spike with some of these new products, that's only going to give us more tailwind for growth.
Speaker Change: That's helpful, Kevin and Glenn maybe one for you free cash in the quarter.
Speaker Change: It looks like there was some timing element can you just remind us.
Speaker Change: What kind of free cash conversion should we be expecting for fiscal of 'twenty four.
Glenn: Sure, Yes, I think I think in Q1, what you saw was just timing between working capital in Q4, and Q1, and then just sort of seasonally in Q1, we have.
Speaker Change: Higher cash outflows that occur so that the impact of that.
Speaker Change: On an overall basis, there's no change to the targets that we discussed back at the analyst meeting in November and that would be the 70% to 80% free cash flow conversion number.
Our next question comes from Travis Steed with Bank of America. Your line is now open Hey.
Travis Lee Steed: Congrats on a good quarter on the Mako installations truth.
Travis Lee Steed: No big installation number but curious how many of those are going into competitive accounts and is that a leading indicator for share gains in ortho.
Travis Lee Steed: Hey, Travis this is Jason I mean for competitive reasons, we won't necessarily disclosed a number in terms of the amount going into competitive accounts, but I will say.
Jason: That number is big for US and continues to be a winner for us in terms of going into competitive accounts.
Travis: Great and then the 50% growth in smoke evacuation was that a big step change versus where it's been running out and I'm. Just curious if there was something that drove that acceleration and smoke evacuation, if its kind of better bundling across the portfolio or are more reps pushing that product.
Travis: Yes, Travis this is Jason.
Jason: Say a couple of different things here. The smoke event business has continued to be I think high teens, 20% grower.
Jason: And smoke free states, it's higher than that.
Jason: And similar to kind of what we said today in the prepared remarks so.
Jason: It's been it's been a great tailwind for us and we think it will be into the future.
Jason: We've also had our supply chain has really improved and in terms of being able to meet the tremendous demand that we've had and that was also a contributor. So we've had tremendous growth tremendous demand and our supply chain has really kicked in in a strong way and that.
Jason: Puts us in a good position.
Travis: Not only to deliver in the first quarter, but also to deliver in the quarters ahead.
Travis: Our next question comes from Matthew O'brien with Piper Sandler Your line is now open.
Matthew O'brien: Afternoon. Thanks for taking my questions just real quick it sounds like Mako is getting make us by is getting pushed out I don't know if its three to six months is that about right and then is it a software issue hardware issue something else youre going to incorporate into it that's causing that modest question.
Jason: Hey, Matt its Jason.
Jason: Keep in mind right from a regulatory standpoint.
Jason: Theres timelines as it relates to the FDA that can shift things by week, sometimes a couple of months, we've always been targeting a back half launch here. So I wouldn't I wouldn't consider this a significant change in the timeline as you think about the guidance that we have for this year. There was certainly nothing assumed.
Jason: In terms of our guide relative to the spine or shoulder launch. So so no impact there as we think about that.
Speaker Change: Got it and then on the <unk> side of things I think Kevin you said double digit growth is what you expect for the next five years. There is that that needing to have the backlog and I mean is there anyway to quantify how significant that backlog is right now how much of a tailwind. It is versus all of these new products, you got coming like accumulators et cetera, because the street.
Speaker Change: It's nowhere near double digit growth for the med search business over the next couple of years. Thanks.
Speaker Change: Yes look I don't think I said that the hopper.
Kevin Glenn: Double check the transcript, but I didn't give a precise number of double digit growth for all that time. When I did say is we are in this high growth environment.
Kevin Glenn: Our innovation cycle, and we are going to continue to have these new products fuel growth. It does depend on the market right. So if the market stays at this kind of level could we stay in that kind of double digit range or we could.
Kevin Glenn: But there's no guarantee that the market will stay at this elevated both in terms of procedures as well as the healthy capital environment. So it does depend on the market and obviously you know we outperformed the market and you can depending on the year, it's 300 basis points or whatever that number is but we're not going to defy gravity, if the market falls down to a certain level and obviously our goal would be.
Kevin Glenn: Similarly impacted so I don't believe I was not precise with double digit over five years, but I do feel bullish about the ability for us to continue to be a very high growth business.
Kevin Glenn: Our next question comes from Matt <unk> with Barclays. Your line is now open.
Matt: Hey, thanks, so much for taking the questions and congrats on a really strong quarter.
Matt: And which looks to me like in a lot of the feedback I'm getting is that it really is all about the comps I mean double digits organic growth against.
Matt: Low teens low to mid teens organic growth last year.
Speaker Change: Is that is it.
Speaker Change: At least at present to us so.
Speaker Change: Grant's on the continued momentum and one follow up if I could on the.
Speaker Change: The Mako robot and maybe just the nature of the launch if you could walk us through that spacing limited launch and then sort of picking up momentum in 2025, and then Kevin If you could maybe talk about.
Speaker Change: Some of them, neither new aspects of that platform or some of the other products that debt.
Kevin Glenn: That you are kind of excited about the next couple of quarters that that'll start coming come into market and adding to adding to growth in the back half and 25 I appreciate it.
Speaker Change: Yes, sure Thanks, Jason and every quarter, we will talk to you about new products and you highlighted a couple this quarter with a <unk> 35 and Pangea.
Speaker Change: Trauma business, both of which are real.
Speaker Change: Really super exciting products.
Speaker Change: Theyre going to contribute to growth for for at least a few years to come as it relates to Mako. So the comp is a new spine robot will be two parts. One part is the actual robot with a different attachment that'll enable the pedicle screw guidance. The second part is the Q guidance trade thats already being sold today.
Speaker Change: So that is used for.
Speaker Change: For spine procedures. It varies lightning fast camera you saw it at NASS, it's being sold today to do navigated spine procedures. So those two components will make up the Mako spine.
Speaker Change: System and then in addition to that the copilot product will be able to do <unk> in bone preparation with haptic feedback to be able to protect you from getting close to vital structures spinal cord etcetera, so that and that again is going to be compatible with the Q camera and the <unk> and the same screen.
Speaker Change: A comprehensive ecosystem that'll be launched.
Speaker Change: And if we're already seeding the market with one half of the system with acute guidance and then the second half is really whether you're doing makeover pedicle screw placement or using two guidance to do the bone preparation. So those those are the three pieces of our enabling technology.
Speaker Change: Acknowledging solution.
Speaker Change: Part of which were already selling today with so every time, we were selling Q, which is contributing to our spine growth.
Speaker Change: As part of the solution that will then be able to be used both with co pilot.
Speaker Change: As well as with Mako, and so hopefully that clarifies things.
Speaker Change: Thanks, so much.
Speaker Change: Yes.
Speaker Change: Our next question comes from Danielle <unk> with UBS. Your line is now open.
Danielle: Good afternoon, everyone. Thanks, so much for taking the question and congrats on a really strong start to the year I guess Glenn. This is probably a question for you on that 150 bps target for operating margin expansion.
Speaker Change: I know, it's early you guys Jeff Davis.
Danielle: About six months ago, so not trying to be too greedy, but 80 bps year over year in Q1, it sounds like things are actually only getting better from here.
Danielle: What really.
Danielle: Super cycle of product.
Danielle: <unk> presumably.
Danielle: To ease hopefully.
Speaker Change: So I guess just any comments you can make about that 150 beds target based on what you guys did here in Q1 and that's it for me. Thanks, so much.
Speaker Change: Okay, Yes.
Speaker Change: First just so we're clear the target is 200 basis points over the next two years 'twenty four and 'twenty five.
Speaker Change: And Thats, what we presented back at Analyst day back in November. It's also the kind of the guidance we brought out.
Speaker Change: In January I think if you do the rough math just based on our guidance Youll see that were in the realm of a 100 basis points or 100 basis points plus in this first year.
Speaker Change: And Youre correct 80 basis points is a great start to the year.
Speaker Change: Seasonally as we think about how this plays out for this year, we expect sort of second half margin expansion to be stronger than first half just given the seasonality of earnings that we see as the year plays out.
Speaker Change: No change in sort of our overall approach. If you think about what we did in 2023, you saw margin expansion coming through gross margin 2024, we think and we expect that we'll see op expenses will lead more of the margin expansion and then our goals in 2025 will likely be more balanced between gross margin and operating.
Speaker Change: There are lots of programs, we have in place I mean, you've seen the results that we've had in price. We also have low low cost greenfield sites strategic in sourcing will continue to push shared services efficiencies.
Speaker Change: Harmonization and then honestly if you just look at the natural leverage that we drive when we're growing at the high levels that that also is a piece of this equation. So we're excited about the Q1 performance.
Speaker Change: We will still continue to be working on it through the <unk>.
Speaker Change: <unk> of this year and into next year, and we'll update you quarterly as the earnings calls play forward.
Speaker Change: Our next question comes from Matt <unk> with Jefferies. Your line is now open.
Speaker Change: Okay.
Matt: Hello, Thanks for taking the question.
Matt: I was hoping you could talk a little bit more about pangaea and white pack has two upcoming.
Matt: Catalysts, and maybe frame any acceleration or pick up we could see from those product how material could they be.
Matt: Yeah, well I'd say, if you look at our trauma business core trauma, so excluding upper extremities in lower extremities. If you look at the core trauma, we've been historically, the leading nailing company in the marketplace.
Matt: But we haven't been the leading <unk> company, we have some terrific place with her as our clinical players our pelvic Prada.
Matt: Products, but we didn't have a comprehensive system variable angle plating.
Matt: Amazing.
Matt: Product launch.
Matt: Very comprehensive and will really be a shot in the arm for <unk>, which by the way is more than half of the procedures and trauma are playing versus kneeling and so we are wildly excited about this launch we already have an incredibly high performing core trauma business Fabulous leadership in our core trauma and now we have a fabulous.
Matt: <unk> <unk> solution, we've done roughly 40 cases, so far feedback has been excellent from the surgeons. We it will take US time, we have to build out sets in these kind of launches take time to fully rollout.
Matt: But you're going to start to see the impact as early as.
Matt: As Q3, we're going to have some procedures, obviously done in Q2, it won't be too big of an impact that will start to have more of an impact Q3, Q4 and beyond as it relates to light pack, we are bringing in our sales force for a full sort of launch preparation in may and we will start to have our first shipments sometime in June so there won't be much of an impact at all in Q2, but.
Matt: Certainly it started going into Q3 Q4, we did show the product at a recent fire.
Matt: Display conference.
Matt: Fire houses and the feedback was overwhelmingly positive people were 7% and eight rows deep looking at the product it is really getting fantastic feedback.
Matt: And so we're building the product right now and getting ready for launch and these kind of launches because of the price point.
Matt: Youre not going to see probably as big an impact this year as you would see and Youll see some obviously medical is already performing incredibly well, but youll see some impact this year, but youre going to see a lot more in.
Matt: In the next two to three years. After that these are long cycle products. They last a long time, and we know how to replace capital equipment at Stryker and we're going to be doing that it's it's incredibly exciting to last.
Matt: Sort of big.
Matt: If people later that will be launched with almost 20 years ago. So there is a huge replacement market for this modern.
Matt: And really fully featured pumps.
Speaker Change: Great. Thanks for the call again.
Speaker Change: Our next question comes from <unk> <unk> with Canaccord.
Speaker Change: Your line is now open.
Canaccord: Hi, Thanks for taking the questions and congrats on a strong performance this quarter.
Canaccord: Two upper extremity, United strong performance, there any changing dynamics with the CMS ruling in ASC hospital outpatient earlier this year.
Canaccord: And can we also get a refresher on the new products coming in your portfolio and the timing of those.
Jason: Hey, Caitlin it's Jason.
Jason: As we think about upper extremity as this continues to be a fast grower for us.
Jason: As we think about kind of transitioning the opportunity in the ASC no change from that perspective, and we expect this will continue to be a fast growing business for us.
Caitlin: Yeah, and as it relates to product launches I think we've talked about this on the last call, but we have about five products that are.
Speaker Change: Either going into full launch that we are in partial onto or being launched we have a perform fracture system, which is really exciting a reverse stimulus product we have the pyro carbon which is hemi arthroplasty product.
Speaker Change: We have the two.
Speaker Change: The holo lens, which is you can visualize.
Speaker Change: The surgery in the operating room.
Speaker Change: There is a limited launch last year that is going to move to full launch and I think it's the fifth point Jason.
Speaker Change: Those are the pillars of the main ones, but there is a fifth one I can't remember right now, but if you look back to last call I think we did highlight all of those products.
Speaker Change: But so this is a business that's been growing.
Speaker Change: Roughly 20% every single quarter that continue to be on a very strong first quarter.
Speaker Change: And we expect that to continue and not seeing any real change in the market dynamics at all.
Speaker Change: We have tremendous momentum and we expect that momentum to continue.
Speaker Change: Okay.
Speaker Change: Okay, and then just a question.
Speaker Change: And.
Speaker Change: Given its close closed now what strength do you really see that bringing tiara hip portfolio going forward.
Speaker Change: Yes, well firstly, if you look at our business in Europe. It gives us tremendous market share in France and <unk>.
Speaker Change: And the dual mobility they were the originators to mobility and they have a terrific portfolio of products not just for France, but certainly they are well known throughout Europe, and then eventually even some of those products will be looking to bring those to the United States. So it really gives us a shot in the arm in Europe, where as you know, we've historically had lower market.
Speaker Change: Shares than other parts of the world. So we're very excited about this product the feedback so far from surgeons has been excellent they're very differentiated products that are that have a lot of history behind them and are really well received in the marketplace.
Speaker Change: Our next question comes from Richard <unk> with <unk>. Your line is now open.
Speaker Change: Hey, guys. Thanks for taking the question. This is actually Sam on for rich.
Sam: I appreciate the commentary you guys gave earlier on on margins being stronger or expansion being stronger in the second half, but just as we think about the 80 basis points of expansion this quarter is that right.
Sam: Reasonable to think about as a floor on a quarterly basis. This year, maybe should we think about a step back into queue.
Jason: Hey, Sam it's Jason.
Jason: Take this one and Glenn can pile on anything additional here, but.
Jason: Again to Glenn's comments as you think about.
Jason: The margin expansion getting to 100 bps on a full year basis being second half weighted.
Jason: It certainly would imply that you could have a quarter less than that from a margin expansion standpoint, certainly margin expansion in every quarter.
Jason: But I wouldn't necessarily say it would be to the levels of what you saw in Q1 every quarter.
Jason: Our next question comes from Joshua Jennings with Cowen. Your line is now open.
Joshua Thomas Jennings: Hi, good afternoon, thanks for taking the questions.
Joshua Thomas Jennings: Hoping to.
Joshua Thomas Jennings: Dig into the 20 bps of pricing pressure experienced by the orthopedics and spine units any chance you can help us think I think more who can provide more details on the pricing headwind experienced by the total joint franchise knees and hips.
Joshua Thomas Jennings: And then at AOS it seemed like.
Joshua Thomas Jennings: There was and still with your guidance, if there's optimism that the medical device industry, maybe in the new.
Joshua Thomas Jennings: Pricing.
Joshua Thomas Jennings: Any updated thoughts there and then just one follow up.
Speaker Change: Sure I mean, if you if you think about pricing.
Speaker Change: We do sort of there are sort of a tale of two cities on the on the med search side. We generally are able to gain pricing. There is certainly a premium placed on technology.
Speaker Change: And we work through contracts that provide bands of pricing that allow us to approach customers on the ortho side Youre right traditionally it's been a market.
Speaker Change: That has had price declines.
Speaker Change: I would say that as we think about our ortho business.
Speaker Change: Five years ago, or even six years ago, we were looking at price declines that were in the 3% to 5% range and I would say now what we're feeling and based on that.
Speaker Change: The contract sort of discipline that we have put in place with customers.
Speaker Change: As well as sort of maybe a little bit of the impact of Mako being a closed system. We're feeling that we see sort of less negative price performance on the ortho side of our business, but we don't necessarily anticipate that ortho will ever get to positive, but we are feeling confident about less negative.
Speaker Change: Thanks, and then maybe just a follow up.
Speaker Change: Was hoping you could share your outlook on the knee and hip markets.
Speaker Change: I think at AOS, our interpretation of some comments from your team and other orthopedic management teams.
Speaker Change: Net.
Speaker Change: We could see a higher level of growth in those markets relative to the pre pandemic, Canada just wanted to follow up any any updated thoughts there and also there's been concerns about to see utilization headwind for a strong second half last year broadly in the medical devices industry.
Speaker Change: Any thoughts on whether we should be thinking about a slowdown in utilization or procedure volumes in orthopedics in the second half year. This year, thanks for taking the questions.
Speaker Change: Hey, Jack it's Jason I'll take this one.
Jason: I'd say a couple of different things here as we think about the market our views really not changed at all here. Even if you go back to Investor Day in November of last year, We said the ortho markets would grow call that mid single digit area and we would outperform that two to 300 bps above that so as we think about the full year this year.
Jason: That's kind of how we're looking at the markets and we feel as good as ever about that.
Speaker Change: Our final question comes from Andrew <unk> with Morgan Stanley. Your line is now open.
Andrew: Hi, Thanks for taking the questions Kevin just two for you.
Andrew: You mind, just talking about the trends, you're seeing internationally and Mako Annie.
Andrew: Any plans for geographic expansion in 2024, and really kind of like what utilization levels Youre seeing with the Mako system outside the U S. And then second just with the golf surgical product you touched on that but can you also give us any more color on where you think you could take the product next within your med search.
Speaker Change: Thanks for taking the questions.
Speaker Change: Okay, great. Thanks, So firstly on international what we're seeing is kind of the same dynamic we saw in the U S about five or six years ago.
Speaker Change: We are installing a large number of robots and those tend to be leading indicators as you install those and then they start to do the procedures.
Speaker Change: You see growth in the implants. So they are where we were five six years ago, it's really picking up in India, Japan for sure.
Speaker Change: In parts of Europe are picking up we already had strength in the UK, but we're picking up another other parts of Europe.
Speaker Change: China is still a bit small, but starting to pick up as well Korea is on fire for us with Mako.
Speaker Change: We're still a bit sluggish in Latin America, I would say, that's still a big opportunity for us and there are hospitals that are that are demanding it and we have to kind of.
Speaker Change: We've made some changes in our own structure to really be able to address that.
Speaker Change: That opportunity, but overall its target rich.
Speaker Change: It's later in the market cycle and it has been in the U S and Australia.
Speaker Change: Even Canada is starting to really pick up and that's a very new dynamic they were very very late to the Mako story.
Speaker Change: So we're very excited not just with the number of installations, you've seen multiple quarters of international really humming on installations, but that is the gift that will keep on giving we've seen this in every market.
Speaker Change: Large installations it is a.
Speaker Change: Precursor for significant high growth quarter.
Speaker Change: Quarter after quarter, so very excited about the international opportunity and it's still early days and many of these markets.
Speaker Change: So so far so good we're excited.
Speaker Change: The reception frankly, the most important thing is utilization and so as we make sure. These robots installed are they being used at a high rate.
Speaker Change: Frankly today, the country with the highest utilization per robot is India.
Speaker Change: The highest in the world, but it is picking up in other markets as well.
Speaker Change: On the second part of your question was on <unk>. So yes, we're really excited about gas. Obviously this was a an AI.
Speaker Change: Solution that we acquired to quantify.
Speaker Change: Hemoglobin.
Speaker Change: For delivery as well as.
Speaker Change: The other general surgery procedures and had sort of.
Speaker Change: A different kind of.
Speaker Change: Interface for the health care worker, we would improve that interface to make it a lot easier to use and combine that with our search account product I'm sorry, the search accounts. So the sponge counting but this is also measuring the blood and the sponge in Macao, Mr. But also counting the spun just to make sure no sponges are left in the body.
Speaker Change: There is ideas that we have about how we can connect to this tablet and have other devices tied to the tablet. It's a common tablet being used for both solutions.
Speaker Change: Not ready yet to talk about what that will be there is a lot of other connectivity discussions going on inside Stryker, particularly with Vocera.
Speaker Change: <unk>, obviously, we have the bed now connected to the Los era batches in that system and there are a lot of other discussions about what else can we connect with post hearing it's just a little premature for us to talk to you about what those are I think I'd rather.
Speaker Change: How have those products ready for launch and then and then talk about it but clearly we are looking at the workflow and bringing.
Speaker Change: Better solutions.
Speaker Change: Solutions for our customers really looking at that across the portfolio, how can we improve workflow in the hospitals Franklin and reduce errors for.
Speaker Change: For hospital acquired conditions safety and outcomes is a big focus of many of our med surge divisions.
Speaker Change: I think we're on a really good track did.
Speaker Change: Did I ever think we buy an app on the iPhone, which is really what counts is no.
Speaker Change: But that's the future and that's going to be our focus in both Sarah obviously was a bigger foray into the digital solution world, but don't expect that this will be the end in <unk>.
Speaker Change: Within our deal pipeline.
Speaker Change: He is going to feature and don't be surprised if we continue to do both organic innovation as well as acquisitions to bolster our presence within HIV.
Speaker Change: There are no further questions I will now turn the call over to Kevin for closing remarks.
Kevin Glenn: Thank you for joining our call as you can see 2024 is shaping up to be another strong year for Stryker we.
Kevin Glenn: We look forward to sharing our Q2 results with you in July.
Speaker Change: Yes.
Speaker Change: [music].