Stryker Corporation Q2 FY2025 earnings call

• Procedural volumes remained healthy, driven by robotic-assisted surgery adoption, stable pricing, and demographic trends. - Strong capital demand with elevated backlog; reached 2 million robotic procedures with Mako. - Launches of Mako Spine, shoulder, LIFEPAK 35, and Pangea plating system successful. - Solid progress on Inari Medical integration, though Q2 had disruptions. - Adjusted gross margin 65.4% favorable by 120 basis points over Q2 2024 due to cost improvements and business mix.

MedSurg and Neurotechnology had organic sales growth of 11%, including 12.5% U.S. organic growth and 5.7% international organic growth. Orthopedics had organic sales growth of 9%, with 9.7% organic growth in the U.S. and 7.5% internationally. Endoscopy had U.S. organic sales growth of 18.6%, driven by robust demand for operating room infrastructure and renovations, and strong performance in Sports Medicine. Medical had U.S. organic sales growth of 9.9%, with the acute care business leading, though emergency care was affected by supply disruptions. Vascular had U.S. organic sales growth of 1.4% with expected improvement in the second half. Neurocranial had U.S. organic sales growth of 14.8%. Internationally, MedSurg and Neurotechnologies had 5.7% organic sales growth, led by neurocranial, instruments, endoscopy, and vascular businesses. Orthopedics international organic growth of 7.5% included strong performances in South Korea, Japan, and emerging markets.

• Raised full-year 2025 organic net sales growth to 9.5%-10% and adjusted EPS to $13.40-$13.60. - Tariff impact estimate for 2025 is approximately $175 million, reflecting bilateral U.S.-China tariff rate reduction and EU framework agreement. - Expect foreign exchange to have a slightly positive impact on sales and EPS if rates hold near current levels.

• Supply chain challenges in Medical segment lingering through the year. - Regulatory delays in product approvals in Europe for some products. - Potential impact of macroeconomic factors like tariffs and Medicaid cuts on elective procedures.

Q: What's giving confidence to raise organic growth and EPS guidance and how much did supply issue impact growth?

A: Confidence from procedural strength, strong capital demand, and healthy order book. Supply issues limited to Medical, with those issues persisting but Medical having other well-selling products like LIFEPAK 35.

Q: Thoughts on remanufactured instruments for soft tissue robotics?

A: Don't talk about pipeline, but if entering market, will announce when ready.

Q: What's driving margin strength absorbing dilutive pressures?

A: Focus on price, manufacturing efficiency, lean initiatives, procurement optimization, and supply chain efficiency.

Q: Thoughts on ASC build out?

A: ASC trend continuing across specialties, lowering healthcare cost and providing pleasurable experience for surgeons and patients.

Q: Why tariff impact only down $25M?

A: Reflects manufacturing locations, with bilateral U.S.-China tariff rate reduction offset by EU framework agreement changes.

Q: Greenfield opportunity for Mako?

A: Still early innings in robotic penetration, with international picking up steam like U.S. 5 years ago.

Q: How long to resolve MedSurg supply issue?

A: Lingers through remainder of year, but medical growth to accelerate in back half.

Q: Mako 4 launch status?

A: Hip revision application only on Mako 4, spine on Mako, shoulder in limited launch migrating to Mako 4 starting next year.

Q: NRE integration impact?

A: Absorbing challenges, aggressively hiring, underlying procedural demand double digits, expecting double-digit growth in 2025.

Q: Impact of Medicaid exchange cuts on elective procedures?

A: Medicaid-related procedures immaterial, no concerns.

Q: Inorganic vs organic investment for international expansion?

A: Focus on increasing penetration of existing products and tuck-in acquisitions, with Pangea and Insignia not yet approved in Europe.

Q: Bridge EPS increase to core operational strength?

A: Top-down flow-through from strong performance, some favorable FX, and continued margin improvement through spend discipline and growth initiatives.

Q: Endo U.S. 19% growth explanation?

A: No reclassifications, strong performance across portfolio including Communications, 1788, and Sports Medicine.

Q: Mako growth drivers?

A: New Mako 4 performing well, surgeon feedback positive, revision hip and spine applications driving interest.

Q: M&A strategy?

A: Active pipeline, majority tuck-in deals, potential for bigger deals, with financial bandwidth to do another Inari size deal.

Q: LIFEPAK 35 launch progress?

A: Approved in Europe, launching late Q3, strong order book, long-term product cycle.

Q: Interventional spine growth?

A: Fast-growing business, with OptaBlate and Vertos acquisitions driving growth.

Q: AI digital efforts?

A: Aggressively working on AI, Blueprint FDA approved, hiring Chief Digital and Information Officer, more info at Investor Day.

Q: Salesforce changeout at Inari and revenue contribution?

A: Absorbing changes, aggressively hiring, expecting full-year revenue around $590 million.

Q: Tariff impact cadence?

A: Tariff impact back end loaded as it flows through inventory to P&L.

Q: Neurovascular market?

A: Hemorrhagic market stable, ischemic market varied with entrants, 3 product launches giving optimism for second half.

Q: Autonomous robotic in Mako?

A: Capable of autonomous, but focus on adding applications for value, not currently pursuing autonomous due to regulatory and expense.

Q: Trauma growth sustainability?

A: Sustained double-digit growth with comprehensive Pangea launch, adding features, and strong performance in upper extremities and foot and ankle.

Q: China growth perspective?

A: Giant market, but being thoughtful about investments and distributor arrangements, not pouring heavy money in but continuing to build.

Q: OBA implications and tax rate?

A: Monitoring OBA, Medicaid-related procedures immaterial, tax rate expected to be similar to current 15%-16% range in 2026.

Q: Hips competitor pressure and Mako procedure trend?

A: No major competitor pressure, robotic hip procedures trending up with new Hip 4.0 software and Insignia Hip Stem success.

Q: Mako spine and shoulder international launch?

A: Mako Spine to launch end of year, shoulder first part of next year, with large commercial opportunity outside U.S.

Q: Capital sales and financing trend?

A: Large and small capital both performing well, slight trend towards more financing in Mako robots for ASCs.