Welcome to the First Quarter 2025 Stryker Earnings Call. My name is Luke and I'll be your operator for today's call. At this time, all participants are in a listen-only mode. Following the conference, we'll conduct a question-and-answer session. This conference call is being recorded for replay purposes. Before we begin, I'd like to remind you that the discussions during this conference call will include forward-looking statements. Factors that could cause actual results to differ materially are discussed in the company's most recent filings with the SEC. Also, the discussions will include certain non-GAAP financial measures. Reconciliations to the most directly comparable GAAP financial measures can be found in today's press release that is an exhibit to Stryker's current report on Form 8-K filed today with the SEC. I would now like to turn over the call to Mr. Kevin Lobo, Chair and Chief Executive Officer. You may proceed, sir.

Welcome to Stryker’s first quarter earnings call. Joining me today are Preston Wells, Stryker CFO; Jason Beach, Vice President of Finance and Investor Relations. For today's call, I'll provide opening comments followed by Jason with the trends we saw during the quarter and some product updates. Preston will then provide additional details regarding our quarterly results before opening the call to Q&A. In the first quarter, we delivered robust organic sales growth of 10.1% with double-digit growth in MedSurg & Neurotechnology and high-single-digit growth in orthopedics, despite one less selling day and a 10% comparable from a year ago. This performance reflects the sustained demand across our product portfolio and our team's vigorous commercial execution. Our results were led by a very strong U.S. performance, including double-digit organic growth from our trauma and extremities, neurocranial, medical, endoscopy, and instruments businesses, and strong high-single-digit organic growth in our hips and knees businesses. Internationally, we had healthy growth across a broad range of markets with notable strength in Australia, New Zealand, Japan, and Europe. We continue to see international markets as a significant catalyst for future growth. We delivered quarterly adjusted EPS of $2.84 a share, reflecting 13.6% growth compared to the first quarter of 2024, driven by our strong sales performance and margin expansion. On the M&A front, we completed the acquisition of Inari Medical at the end of February. Integration is going well, and we're excited to have Inari as part of Stryker. Additionally, we have completed the sale of our U.S. Spinal Implants business. I'm grateful to our former spine team members for their contributions and wish them continued success. We have momentum exiting Q1 and now anticipate full-year organic sales growth of 8.5% to 9.5% and adjusted earnings per share of $13.20 to $13.45. 2025 will mark the fourth consecutive year that we will hover around double-digit organic sales growth following 9.7% in 2022, 11.5% in 2023, and 10.2% in 2024. The durability of our high growth is a result of our commercial execution and extensive innovation pipelines across the company. Our guidance also implies that our operating margin expansion will be approximately 100 basis points, despite the negative impact of tariffs, dilution from Inari, and the loss of spinal implant contributions for nine months. Finally, I'd like to express gratitude to our teams for their unwavering dedication to our culture, exemplified by Stryker being recognized for the 15th consecutive year on Great Place to Work’s 100 best companies to work for list. Our operating model, exceptional talent, and differentiated culture continue to set us apart. I will now turn the call over to Jason.

Thanks, Kevin. My comments today will focus on providing an update on the current environment, capital demand, and select product highlights. Procedural volumes remain healthy in the first quarter, underscored by continued adoption of robotic-assisted surgery. We also continue to benefit from a stable pricing environment, favorable demographic trends, and the ongoing shift toward ASCs. We expect the strength and procedural demand to continue through the remainder of the year. Demand for our capital products was strong once again in the quarter with an elevated order book across our capital businesses. Mako continues to drive patient and customer interest, highlighted by our best ever Q1 for installations in the U.S. and worldwide with high utilization rates across the globe. We expect the sustained momentum from installations and utilizations will continue to drive growth in our hips and knees businesses. We continue to receive positive feedback on Mako Spine and Shoulder and remain on track for full U.S. commercial launch of Mako Spine in the second half of this year and Mako Shoulder in the first quarter of 2026. We recently launched our next generation Mako 4 smart robotic system. It features a larger monitor for improved visibility, a smaller OR footprint for fast setup and transport, and integrates more seamlessly with our fourth generation Q guidance system. We remain excited about the momentum Mako provides for our business. In addition to being a leader in robotics and orthopedics, we are also the leader in cementless knees, which continue to grow at a steady pace. During Q1, there were two publications showing 10-year survivorship exceeding 99% for our cementless offering. Next, our latest platform launches continue to thrive in the marketplace. Our LIFEPAK 35 defibrillator and monitor continue to experience robust demand, filling a strong order book, and driving meaningful sales in the quarter. We are excited about the international opportunities that remain for LIFEPAK 35 and anticipate launching in additional international markets later this year, including Europe and Japan. Our Pangea plating system also continues to drive strong growth and increase awareness of our comprehensive offering of trauma products. We continue to progress through our launch cadence and expect to release Pangea in Australia and Canada this year and in Japan in the first half of 2026. Lastly, as Kevin mentioned in his remarks, we completed the acquisition of Inari during the quarter. Inari's performance to date was strong as we expected, and its results are reported within our vascular division that includes both the neurovascular and peripheral vascular businesses. In addition to Inari, our prior year acquisitions performed well as anticipated. With that, I will now turn the call over to Preston.

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. Our organic sales growth was 10.1% in the quarter, compared to 10% in the first quarter of 2024. This quarter had one fewer selling day than 2024. We had a 0.7% favorable impact from pricing, with both our MedSurg and Neurotechnology and Orthopaedics segments seeing positive trends from our pricing initiatives. Foreign currency had a 0.9% unfavorable impact on sales. Geographically, U.S. organic sales growth was 10.7% and international organic sales growth was 8.5%, with strong sales momentum in Australia, New Zealand, Japan, and Europe. Our adjusted EPS of $2.84 was up 13.6% from 2024, driven by our strong sales growth, higher gross margins, and operating margin expansion. Our currency translation had an unfavorable impact of $0.03. Now I will provide some highlights around our quarterly segment performance. In the quarter, MedSurg and Neurotechnology had organic sales growth of 10.7%, which included 11.4% of U.S. organic growth and 8.2% of international organic growth. Instruments had U.S. organic sales growth of 10.4%, led by a robust double-digit performance in the surgical technologies business. Endoscopy had U.S. organic sales growth of 11.1%, led by double-digit performances in our core endoscopy and sports medicine portfolios. Medical had U.S. organic sales growth of 12.6%, driven by double-digit performances in the emergency care and Sage businesses. As it nears the one-year anniversary of its U.S. launch, LIFEPAK 35 continues to drive considerable excitement in the market with a strong earned pipeline. Vascular had U.S. organic sales growth of 5.6%, reflecting solid performance in our hemorrhagic products. And as a reminder, organic sales do not include Inari. And finally, Neurocranial had U.S. organic sales growth of 13%, led by strong double-digit growth in our Neurosurgical, ENT and cranial maxillofacial businesses. Internationally, MedSurg and Neurotechnologies organic sales growth of 8.2%, despite some supply disruptions affecting our medical business that continued this quarter and will linger through Q2. Growth was led by our neurocranial, endoscopy, and instruments businesses. Geographically, this included strong performances in Australia, New Zealand, Europe, and most of our emerging markets. Orthopedics had organic sales growth of 9.3%, which included organic growth of 9.5% in the U.S. and 8.8% internationally. Our U.S. knee business grew 8.3% organically, fueled by our market-leading position in robotic assisted knee procedures and continued momentum from new Mako installations. Our U.S. hip business grew 7.6% organically, reflecting the ongoing success of our insignia hip stem and the continued adoption of our Mako robotic hip platform. Our U.S. trauma and extremities businesses grew 15.2% organically with very strong double-digit sales growth in our core trauma and upper extremities businesses. Our core trauma performance was led by Pangea, our differentiated plating portfolio, which continues to maintain robust interest and adoption in the market. The U.S. spinal implants business was flat organically in the quarter. The U.S. other ortho business declined 1.9% organically against a very strong comparable of 28% in the same quarter last year. This quarter's organic change was primarily driven by Mako deal mix away from direct purchases and a decline in bone cement. Internationally, orthopedics growth of 8.8% organically included strong performances in Japan, Europe, South Korea, Canada, and many of our emerging markets. Now I will focus on certain operating and non-operating highlights in the first quarter. Our adjusted gross margin of 65.5% was favorable by 190 basis points compared to the first quarter of 2024. This improvement was primarily driven by manufacturing cost improvements, positive pricing, and business mix. Our adjusted operating margin was 22.9% of sales, which was 100 basis points favorable to the first quarter of 2024, driven by the gross margin favorability I just discussed, somewhat offset by higher SG&A spending. The increase in SG&A spending versus the same quarter last year was driven by the Inari deal and other investments to support our growth. Adjusted other income and expense of $73 million for the quarter was $24 million higher than 2024, driven by higher interest expense related to our September 2024 and January 2025 debt issuances, partially offset by interest income from higher levels of invested cash. For 2025, we expect our full-year adjusted other income and expense to be approximately $430 million. As a reminder, our previous guidance of approximately $260 million excluded the impact of Inari. We utilized cash on hand and incurred additional debt to fund the acquisition. Our updated guidance reflects additional interest expense from that debt, as well as reduced interest income from lower levels of invested cash on hand. The first quarter had an adjusted effective tax rate of 13.7%, reflecting the impact of geographic mix and certain discrete tax items. For 2025, we continue to expect our full-year effective tax rate to be in the range of 15% to 16%. Turning to cash flow, our year-to-date cash in operations was $250 million, reflecting the results of net earnings, normal first quarter seasonal cash outflows, and one-time costs associated with the Inari deal. And now I will discuss our full-year 2025 guidance. Considering our first quarter results, strong demand for our capital products, and our commercial momentum in the end markets in which we operate, we are raising our organic net sales growth guidance and now expect sales growth of 8.5% to 9.5%. Our updated sales guidance reflects a modestly favorable pricing impact and a slightly unfavorable foreign exchange impact should rates hold near current levels. As a reminder, our previous adjusted EPS guidance was $13.45 to $13.70, excluding $0.20 to $0.30 of dilution from the Inari acquisition. We are reiterating that guidance, and now expect our adjusted EPS to be in the range of $13.20 to $13.45. This guidance includes the net impact of tariffs and our offsetting mitigation efforts. We are currently estimating a tariff impact of approximately $200 million in 2025 based on what has been announced and what is in effect today, including the 10% baseline, product-specific and geographic-specific tariffs. We are taking thoughtful measures to address the estimated impact, and we expect to offset tariff costs through our continued sales momentum, leveraging our manufacturing footprint, disciplined spending, and better-than-expected foreign currency impacts. We now expect a negative foreign exchange impact in the range of zero to $0.10 should rates hold their current levels. Finally, beginning in Q2, our operating results will no longer include the results of the international spinal implants business, as those results are now attributable to VB Spine as part of the sale agreement. With that, I will now open the call for Q&A.

At this time, we will open the floor for questions. Our first question will come from Marcus Robert with JPMorgan. Your line is now open. Please go ahead.

Oh, great. Thanks for taking the questions. Congrats on a really nice quarter. I'm sure this was a really fun few weeks for you, Preston, with all that's going on. And maybe we could start there on tariffs. You're absorbing the entire impact of $200 million. How should we think about where that absorption is coming from? What's your ability to mitigate as much as possible? And how should we think about the exit rate into next year versus those mitigation efforts?

Yes, so Robbie, just to get after that, so as you said $200 million is what we're currently estimating. And just to talk through that piece for a second, that's based on what's currently in effect today. So what it does not include, it does not include anything that was paused for the 90 days. So it's all the items that we know about today. Given the dynamic environment, that's where we feel comfortable in terms of where our projections are going to be. And in terms of how we're planning on offsetting that, obviously we have great sales momentum that's continuing on the top line. So the raise that we talked about in our guidance will be a part of that. Price will be a part of that as we think about how we're going after that top line growth. We also know that we're looking at some different discretionary factors in terms of our spend and how we're looking at areas there. And then we also think about our supply chain and really just making sure that we're optimizing our supply chain to the best of our ability to minimize the impact in the short term from a tariff standpoint. And then we also have positive FX momentum that's also helping us as we think about where we are today. So in terms of the geography of where that's going to hit, obviously the tariffs will occur in our standard cost lines or cost of goods sold area. And then a lot of the mitigations will happen really in OpEx, as well as throughout the P&L when we're talking about delivering on the top line.

Great, maybe a quick follow-up, orthopedics. That had been running a little bit more in line with estimates the past few quarters. You had a great beat here. We've seen three of the four main competitors report. I would say two of those, including you, have been really good results, one a little less. So what are you seeing in terms of the ortho market, the sustainability of the growth and just the current environment here in your positioning? Thanks a lot.

In the ortho market, as we said at AOS and as we said at the end of last year, continues to be healthy. Demand is strong. Surgeons still have significant backlogs, and we've been pretty consistent in stating that we expect the market to grow in the 4% or 5% range, and then we expect to grow above that since we have been share takers for quite some time. We continue to have tremendous momentum with Mako with some endless knees. Our hip business obviously continues to grow very, very well, so we're very pleased with our performance. We've a great leadership team running our joint replacement business, and of course, you saw the trauma and extremity numbers were outstanding, and that should continue throughout the year.

Our next question comes from the line of Larry Biegelsen with Wells Fargo. Your line is now open. Please go ahead.

Good afternoon. Thanks for taking the question. I'll let go my congratulations on a really impressive quarter here. 10% organic growth in Q1, Kevin, with one less selling day. So closer to 11% underlying. The guidance of 8.5% to 9.5% I’m sorry or 9% at the midpoint implies slightly slower growth Q2 through Q4. So just talked about the environment behind beyond orthopedics that you addressed in the last question and your momentum. Is there anything you're seeing, you know, that concerns you, and I had one follow-up.

This is kind of the same place that we were at last year at this time, if you remember, and we made our raise. And do I think we could finish higher than the range? It's possible. It's just early in the year right now. There are no big red flags that I'm worried about from the top line standpoint. We did mention in our prepared remarks that medical is having some supply chain disruptions that will continue through Q2, but that is factored in our guidance, and the rest of the businesses are really in terrific shape. Launching new products, getting new approvals, and outside markets. And so we feel very good about the top line. And is it possible we could do another 10%? Sure, that is possible.

Alright, that's super helpful. And Preston, the gross margin was really strong this quarter. Talked about how to think about the rest of the year for the gross and operating margin because I assume, you know, the tariffs are going to hit the gross margin probably third and fourth quarter? Any color you can help provide on just kind of the cadence of margins to help reach that operating margin year-over-year, you know, 100 basis point improvement that Kevin talked about would be helpful. Thank you.

Yes, Larry, you mentioned it. I mean our focus really is on that 100 basis points of op margin improvement. And in the past, we've said it's going to be a bit of a balance in terms of where that comes from both from the gross margin as well as in OpEx. And that continues. Our expectation is that's going to continue. As you know, there's a lot going on in these various lines. We have some positive impact in our gross margin as a result of some of the efforts and activities that we've been taking on, as well as the business mix, which is being driven by Inari. As we go through the rest of the year, we're going to have some offsetting negatives in that which will come from tariffs. So really, as we think about it, we're still focused on driving the 100 basis points at the bottom. It will come from both gross margin and from OpEx through the different initiatives that we have. Slightly different than maybe what we thought at the beginning of the year with now tariffs and Inari, but all the same, still driving to the 100 basis points.

Our next question comes from the line of Joanne Wuensch with Citi. Your line is now open. Please go ahead.

Good evening. Thank you for taking the question and very nice quarter. I'll put both of mine upfront. CapEx environment is a question we've been asking most management teams throughout the season, both in the U.S. and outside the United States. I'd love to see what you're thinking about that. And then also with Inari closed now, I think, for two months, what are you seeing with that? Is it going according to plan? Any surprises, positive or negative you can share? And thank you.

Hey Joanne, it's Jason. I'll start with the CapEx side here, and then I'll hand it over to Kevin to talk a little bit about Inari. But just if you think about the performance in our capital businesses in the first quarter, double-digit growth kind of across the board there. We continue to see really nice growth in our capital businesses. There's really nothing in the environment today that would give us any indication of a slowdown. We feel good about the business as we move throughout this year as well.

And related to Inari, I would say we're very pleased with the early integration. We had it for about eight or nine days in the month of February and then the full month of March. So far, so good. We had a terrific performance on the top line. The culture is very consistent with Stryker's culture. Tim Lanier, who is running our Trauma and Extremities business, is now running the Inari business as the President of Inari. He had prior experience in the peripheral vascular space back from his EV 3 days, and he's digging in, and we're really excited about what he's seeing from the commercial organization as well as from our pipeline at Inari. So far, so good is how I would characterize it. We look forward to their continuing contributions to Stryker.

Our next question comes from the line of Ryan Zimmerman with BTIG. Your line is now open. Please go ahead.

Yes. Thank you and let me echo the congrats on a strong quarter. I want to ask about the OUS hip number. It was pretty good, to say the least, and it stands out amongst the broader market. I'm kind of wondering what we should think about the durability of that segment given how well it's going outside the U.S. for the past really four quarters now.

Just to be clear though, we are benefiting from the SERF acquisition. If you look at our growth, that's non-organic. So there was a non-organic component. But even that said, the organic growth internationally has been very strong in our Hip business. And this is without the benefits of Insignia. So the Insignia stem in Europe is still not launched. It's just getting launched in some of the Asia Pacific markets. And so I think good times are still ahead of us within the Hip business internationally, but we did pick up some benefit from the SERF acquisition. We've now launched a couple of their products now in the United States as well. So that will be contributing. It will no longer be inorganic starting in the second quarter of this year. So next quarter, you'll see it all on a more organic basis.

Okay. Very helpful, Kevin. And then turning to Trauma and Extremities, I'm wondering if you could unpack that a little bit because that has also been strong. I mean, you have the Pangea plating system. But is there anything in there, particularly in the extremities line, that we should think about in terms of the momentum you're seeing in that segment?

Sure. It starts with Pangea. I mean, Pangea has been just a wild success, is how I'd characterize it. Really a fantastic launch so far. And again, not yet approved in many international markets, but in the U.S., has been absolutely on fire. Surgeons love it. It's performing extremely well. That's lifting the core trauma business. And then upper extremities continues to be a fantastic grower for us, has been since we acquired. Right, quarter after quarter after quarter after quarter of strong double-digit growth. That was the same again in Q1 of this year. So those are the two engines that are really powering the Trauma and Extremities businesses. So we're very bullish on this division for the rest of this year.

Our next question comes from the line of Travis Steed with Bank of America. Your line is now open. Please go ahead.

Hey, congrats on the good quarter. Just one more tariff follow-up question. A couple of things I was going to ask. On the $200 million, curious how much of that's being offset by currency? Any details on kind of how much of that exposure is by country? What the impact would be if the 90-day pause doesn't stick and kind of goes back to the higher rates? And how do you think about 2026? Is it good to annualize that? Or if you've got extra offsets in 2026 that you think you can pull? And I know I was going to ask about exemptions too. I know you guys have a lot of close relationships with AdvaMed. So curious how those discussions are going for any assumptions for medical devices.

Hey Travis, that was a lot of questions in one. So just to answer the tariff piece first, and then we can talk a little about AdvaMed. But in terms of the tariff itself, as we said, $200 million is based on what we know today. Given the environment that we're in, it's really difficult to try to extrapolate out what that may mean kind of even beyond this year, just knowing that there's a lot of things that could still happen and likely will still happen. So we're not going to speculate on what it's going to look like next year for sure as we still try to make sure we've got this year under control. So in terms of the tariff costs, really, the number we're focused on is $200 million for this year. The one element I would say is there is a piece of this year's cost, that because it's going into our standards, that will be held on the balance sheet and then amortized through as we sell products in the next year. So that just gives you some information there. In terms of AdvaMed, I know there's a lot of those conversations that are going on. As of right now, there really is no blanket exemption for med devices. There are discussions that will continue to happen, and just like anything else, because of the dynamic environment that it is, anything could happen in terms of exemptions into the future; we're planning right now on what we know, and the mitigation factors that we have in place are based on that, and that's what we're going to really be focused on for the short term and until things change.

Great. I'll stick to the one since it was a long one. Thank you.

Our next question comes from the line of Vijay Kumar with Evercore ISI. Your line is now open. Please go ahead.

Hey guys, congrats on the nice spring here and thanks for the questions. Maybe just on the prior question on tariff here. If you could just comment on cadence of margins, how should we think about progression? And I'm assuming tariff is mostly a back-half impact in that $200 million, is this China versus Europe? Or what proportion is China versus ex-China would be helpful.

Yes, Vijay. So thinking about the progression of our margin expansion, we're really pleased with the progress that we've made in terms of the programs and activities that we have in place. And we really expect a more even flow of our margin improvement throughout the rest of this year as we think about getting to the 100 basis points for the full year. When you think about tariffs, you're right, tariffs are going to be more back half loaded, just given the nature of going into inventory and then just the timing of where we are in the year. Offsetting that, though, we're going to have our mitigation factors that we're working on. And what we hope to happen is to offset those almost in a one-to-one fashion as it comes through the back half of the year. So again, our expectation is that we have a much more consistent flow from a margin standpoint on the bottom line as we think about the rest of this year to get to the 100 basis points. In terms of the percentages of where tariffs are coming from and things of that nature, we're not going to get into all of those details. But you can certainly look at where the percentages of our business are. And as we said, we're about 2% of our business is in China.

Yes. So far, the launch is going very well. It's being very well received. The orders are picking up at a healthy rate. And again, we're pending approvals in many other international markets, and we're excited about that. I think that was mentioned in Jason's opening remarks. But we have a winner of a product, just like Pangea. It's going to take some time. Obviously, their high purchase price needs a little bit of time to trial and customers to make sure they have that in their budgets, but so far, it's off to a very good start. But it is a strong contributor to our growth in the first quarter because we did have supply chain challenges. And it showed up more in the print internationally, but it actually did affect some of our U.S. business also, but it was offset by the strength of Pangea to deliver those double-digit growth. So, so far, so good on the pending launch, and we expect it will continue to be a big contributor. Keep in mind, we have over about 100,000 of these prior generation defibrillators out there in the marketplace. So it's going to be a tailwind that'll last many, many years in the future.

Our next question comes from the line of David Roman with Goldman Sachs. Your line is now open. Please go ahead.

Thank you. Good afternoon, everybody. I was hoping to spend a little bit more time on the pricing environment. Obviously, that's something that, coming into the year, you had contemplated not realizing the same level of benefits that you accrued in 2024. Can you just talk to us about what has evolved over the course of the year? And just to clarify, this is pure price, not the impact of new product momentum?

Yes, David, absolutely. So as we think about where price has evolved for us over the last several years, it's a muscle that we have really begun to learn how to use and exercise. You saw that in our results at the end of last year, you see a really positive impact in terms of our pricing results during the first quarter, and certainly something that we'll continue to focus on as we go forward. And we are seeing positive price coming out of our MedSurg and Neurotechnology businesses. But even on the Ortho side, we've seen less negative price there. And so I would say, ultimately, it's an area that we'll continue to focus on. And certainly, in this environment that continues to be dynamic with tariffs, will be one of the levers that we're looking at pulling in terms of offsetting some of the tariff impact.

Yes, Dave, it's Jason. Similar to what I said in my prepared remarks, I mean, we're seeing, obviously, very good momentum with Pangea and a material impact to the Trauma and Extremities results in Q1. As you think about just kind of the launch cadence, we do expect to release Pangea in Australia and Canada later this year, Japan in the first half of 2026. So I would say it's continuing to ramp and will be a material contributor to that division as we move forward.

Yes, and in the U.S., we still haven't fully launched. So we're continuing to roll out sets. We're getting close to it being fully launched, but that's the base Pangea system. We still also have MIS. We have additional plates that are still going to be launched over the course of this year. So it's not something that will just stop. It will be kind of on continuous launch mode for the next couple of years, but the big bolus of sets are out in the field now and have been contributing to our growth in the United States.

Our next question will come from the line of Philip Chickering with Deutsche Bank. Your line is now open. Please go ahead.

Hey, good afternoon guys and thanks for taking my questions. Another sort of tariff question here. Looking at the inventory days, you guys run about seven months. So just looking at the timing of the tariffs, would the tariffs be fully impacting your run rate by the fourth quarter? Or will we not see that until the first quarter of '26?

Yes, Philip, that's a great question. The overall impact will vary, especially considering we have about seven months in terms of carrying days. Different lines of business will be affected differently based on where items are sourced and the opportunities for dual sourcing. It won't be as straightforward as simply matching it to the timeline. I believe the most significant impact on our run rate will be reflected at the end of the year based on what we currently know. As we move into the second half of the year and particularly the fourth quarter, that should give us a solid indication of how tariffs are affecting us given the current rates in place.

Okay. Great. And then looking at the other Ortho category, it looked to be flat year-over-year on the revenue side. We talked about record Mako placements. And just more reflective of customers switching to leases versus purchases. And is there any read-through there on how hospitals are viewing CapEx purchases today versus buying if they're more cautious on the CapEx environment?

Yes. We've been seeing this trend happening really over the last year plus as we continue to roll out Mako. And now, obviously, with Mako 4, we introduce another system into our portfolio as we transition folks. So I don't think it's an indication really of what the overall capital environment is. I think it's more an indication of how people are buying robots today and how they're then transitioning those. A lot of times when we see people taking on rentals in particular, those rentals do end up turning into direct sales over time. So again, I think it's just a trend that we've seen in the past and just continue to see in the first quarter.

Our next question comes from the line of Matthew O'Brien with Piper Sandler. Your line is now open. Please go ahead.

Hey, this is Phil on for Matt. Thanks for taking our questions. Congratulations on the great start to the year. To begin with, I wanted to get your updated thoughts on mergers and acquisitions following the sale of the Spine Implant unit. Given that you're below three times, do you anticipate a period of debt digestion or more tuck-in deals? I know you've previously mentioned areas like soft tissue robotics and neuromodulation, but I'm curious to hear your latest insights.

Yes. Just in terms of our overall ability to where we are. I mean, we're in a very good position from a liquidity standpoint, and certainly still have the ability to go out and tap the debt markets if necessary and the right deal comes through. So we're just continuing to manage in terms of our overall credit ratings in terms of investment grade, and we'll just focus on what opportunities are available and then go out and make sure we have the right funding to support those opportunities. I'll turn it over to Kevin to talk more about the specific markets.

Yes. So our first priority always is the existing businesses that we have. If they have tuck-ins that will fit their business, regardless of size, small, medium, or larger tuck-ins, that's always a priority because those deals, we know, are going to be successfully integrated and drive tremendous value. That's been our formula. So that's in play. Our BD teams are actively working with targets and identifying the ones that they would like to pursue. So that offense has never stopped, and it's not stopping even after doing Inari because we do have sufficient bandwidth right now to be able to go to the debt markets if we need to and be able to acquire other companies. There are other adjacencies, which, as you know, peripheral was one of the ones I talked about for many years, and we finally pulled the trigger on that one. Those other ones you mentioned are among the list of adjacencies that we continue to pursue. But they're not prioritized ahead of our tuck-ins. So tuck-ins will continue to be the vast majority in terms of the number of deals we do. And then, of course, those other ones, should a good deal materialize, we definitely activate on that.

Thank you. That's helpful. And then one final one on the Spine divestiture and your thoughts on Mako Spine still launching in the second half of this year. But just the relationship between Mako Spine and VB Spine, how innovation might work going forward and how you view the separation of the robot and the implant.

We will continue to work with VB Spine. They have an exclusive arrangement with us on Mako Spine on the robot. So we will contract with them. It will be a little more complicated because now two different companies versus one company. But two different divisions of Stryker can sometimes be complicated as well as we've seen in the past. But we're excited to work with them and do deals with them together, and we will obviously get the revenue for the Mako sales that we make, and they will get the revenue from their implants, but it is a partnership, and we're going to continue to work together, and we're excited about it. We also have the Copilot product that's out of our Neurosurgery business, which surgeons are very excited about, that also operates within the same ecosystem with the Q Guidance camera card, which is part of the Mako system as well. So it is a comprehensive offering, and we're excited to be selling the capital portions of that, and VB Spine will sell the implants. But so far so good, our teams are working together very well. In fact, that it is the same sales force that we had within Stryker that has now transferred over to VB. So we know each other and will continue to work well together.

Our next question comes from the line of Richard Newitter with Truist. Your line is now open. Please go ahead.

This is Ravi here for Rich. Thanks for taking the question. I want to revisit the CapEx comments you mentioned earlier. I appreciate your strong outlook for the rest of 2025, but how are the early discussions about 2026 progressing, particularly among hospital executives? Are you sensing any concerns on that front? Additionally, with Inari now in-house, could you discuss R&D priorities and any insights from Peerless One?

Yes, this is Jason. I'll start here and talk a little bit about the CapEx, and I'll turn it back over to Kevin to talk about Inari. But I would say a couple of different things, right? We're just exiting the first quarter here, so any 2026 conversation would be pretty early at this point. But the other thing that I would add is if you go back and you think about our mix of capital and how that plays out for us, we have about 10% of our capital that's kind of this larger capital, so think booms, lights, beds, those kinds of things. And then 15%-ish of our revenue is the smaller capital that's very closely tied to procedures. So as long as procedures stay strong, we've got all the reason to believe that there will be a need for that type of capital. Keeping in mind, it goes through sterilization. It gets beat up; it needs to be replaced. So we feel good about that for the remainder of 2025 and then even as we think about early 2026.

Yes. As it relates to Inari, they already have the FlowTriever, ClotTriever, and Langflow. Those three products are doing very well. We're excited about those. And there are improvements that are in the works within the R&D organization that I can't get into that right now, as we normally don't talk about products that are in the R&D pipeline, but we do have improvements to those. We have Artix, which was just recently launched, which is our first arterial product, and so far is getting very favorable responses from customers, and that will start to become a contributor to our growth in the future quarters. So we're excited about having Inari within our portfolio, and they have a very strong management team, and we're looking forward to a really bright future.

Our next question comes from the line of Chris Pasquale with Nephron Research. Your line is now open. Please go ahead.

Hi, this is Carol calling in for Chris. Thanks for the opportunity to ask questions. We've discussed at length the short-term labor measures to counter some of the tariff impacts. I'm curious if you can share any steps you're taking to reduce your potential exposure in 2026. Specifically regarding your manufacturing footprint, you mentioned expanding it internationally as a strategy for margin improvement. Has there been any change to that strategy in light of the recent developments? Thank you.

Yes. Thanks for the question. So as I said before, we're really not speculating at this point on 2026, just given how dynamic and how quickly this has all changed and continues to change. With respect to how we're thinking about manufacturing as well, at this point, nothing's changed. Just as a reminder, in our industry, of course, it's very difficult to move manufacturing, and it takes a long time to do so. So we want to be very careful about how we're approaching anything like that. At this point, we have no plans that have changed in terms of how we're expanding. We're thinking about our footprint. We are trying to leverage, though, where we can some opportunities in terms of dual sourcing where we have opportunities to produce certain products in certain regions just depending on where the tariffs are coming from in terms of mitigating those. But from a long-term standpoint, at this point, we are not looking at any major changes to our manufacturing footprint.

Great. Thank you. And I guess from an industry perspective, taking everything aside, kind of curious to get your thoughts on the FDA layoffs that happened recently. Do you think the disruption there could be an issue of getting new products approved?

The initial reductions to the FDA have largely been replaced. We pay for the FDA resources through user fees. The MDUFA. You heard three, four, or five that we negotiated; a lot of that talent is paid for by industry. When those people were released, we, through the trade association called the government and said, listen, these are people that we're funding through our user fees. Those jobs were largely reinstated. There was a slight disruption, but it was literally a week or two, and those people were brought back on staff. So we're not seeing any major slowdowns. I don't anticipate any major slowdowns. If those had stayed into effect, that probably would have had an issue or an impact. But for now, as far as we know, those resources were largely restored, and things are back on a good footing.

Our next question comes from the line of Matthew Miksic with Barclays. Your line is now open. Please go ahead.

Hey, thanks so much for taking the question. Apologies, we're all juggling a number of calls right now. But wondering if you could talk a little bit about any of the conversations you're having with hospitals about budgets, if that's an issue, or started to come out and how you're thinking about that? And then also just a comment on Shoulders. I know you mentioned the shoulder robot early in the call, but maybe what is driving your growth there? What has been, just kind of walk us through. Where has the strength been? How do you expect that to continue as you kind of move through the interim launch?

Yes, Matt, I'll take the first part of that, and I'll turn it over to Kevin to touch on Shoulder and how we feel about that. But as it relates to conversations with hospitals and the CapEx environment, hospitals are doing well. Right? And so that environment for us is very positive. I mentioned at the beginning of the call as well. If you look at our capital businesses, we grew double-digit, both in the U.S. and on a worldwide basis. So things are going well there and no signs of slowdown from that standpoint.

As it pertains to Shoulder, this has been a consistent narrative. We have experienced remarkable growth in the Shoulder segment, which began even before our acquisition of Wright Medical and has continued afterwards. We have introduced impressive new products, such as the Perform system, a state-of-the-art shoulder solution. Over the last 18 months to two years, we have added the fracture stem and reverse stemless options. Additionally, we have Shoulder iD, a patient-specific glenoid, which simplifies the procedure by allowing for an implant that is tailored to the patient's anatomy without needing augments. We also have a new hemiarthroplasty product called pyrocarbon, which has been available internationally for about ten years and received U.S. approval last year. This has generated significant enthusiasm for our Shoulder business, supported by an excellent management team that excels in execution. We hold the top position in shoulder arthroplasty and are maintaining strong growth through a successful product lineup and the Blueprint software, which leverages AI to assist surgeons in selecting the appropriate implant according to the patient's anatomy.

Our next question comes from Patrick Wood with Morgan Stanley. Your line is now open. Please go ahead.

Beautiful. Thanks so much for the question, guys. I'll just ask them both upfront, if I can. I'd love if you could unpack a little bit more on the Endoscopy side of things. I know you talked about sports med and visualization outside, but any extra details there would be awesome. And then the second one, just to riff on Shoulder again. Just like any extra details you've got on, I know you're a limited release on Mako Shoulder, but just feedback you've been having, how you think about that when we move into '26? And is that a more or less meaningful addition than, say, what we saw Mako do with knee and then hip? Thanks.

Okay. Great. I'll start with the Shoulder question. And what I'd tell you is that the Shoulder business is doing great without really the Mako impact. So right now, we're just in a limited release. Mako has not been a contributor and wasn't in the first quarter in any meaningful way to the growth, but we are very excited about how it's being received in the market, and we think it will be a very meaningful contributor starting in 2026. And that's really because if you're a surgeon that doesn't do a lot of these procedures, but you have a Mako and you do hips and knees, but you do a smaller number of shoulders, this is fantastic. It makes the procedure easier to do. Right now, we have just glenoid and eventually we'll also add the humoral portion of the procedure. But again, the glenoid is the trickiest part. So what we're hearing so far is very positive feedback, and we're excited about that. And as it relates to Endoscopy, our 1788 camera continues to absolutely win with customers, and it continues to be an engine of very high growth. Sports medicine has been a strong double-digit grower. We've launched about five or six different shoulder products in the last year, and the most important of which is AlphaVent Knotless, which is a terrific product that's getting great feedback. So both in the U.S. and outside the U.S., we had very strong double-digit growth in sports med, and we really have a fixed sports med business now, starting very, very small over a decade ago and really mostly driven by organic growth because all of these shoulder products we're launching are really all organically driven. We've built a very strong implant portfolio. We've only done the Pivot deal, the IV deal, and InSpace, only three small acquisitions in sports. The rest have all been organic growth, and we're really excited about that. So those are the two biggest contributors. We have a really strong team in Endoscopy. And then, of course, booms and lights in the United States were pretty strong as well. We have a new light called Oculan that just launched, which will also be a big contributor in future quarters. We have very strong orders in our communications business unit, and so you'll see that start to contribute as well. So Endoscopy has been a consistent high performer, and that will not change this year.

Our next question comes from Shagun Singh with RBC. Your line is now open. Please go ahead.

Great, thank you so much. So two quick ones for me. On international, you indicated that it could be a significant catalyst for future growth. I'm wondering if you can elaborate on that in terms of just mix of growth expectations? And then the second question is just on operating margins. Obviously, you guys are doing a great job, and you've elaborated on it. But can you share any long-term expectations on where we could see gross margins and operating margins go? Thank you for taking the questions.

I'll take the first part of the question around international. Now obviously, with Inari coming in, largely a U.S.-based business. All the acquisitions we've done in the recent past have been heavily weighted toward the U.S. It's now about 75% of our sales are in the U.S. And just looking at Inari, only 7% of our sales are in international markets with fabulous products. If you look at our Neurovascular business, we actually have more of our sales outside the United States. So that alone has a massive opportunity internationally. And taking all of these great products we've launched and then taking those international markets, we know it's going to be a successful formula. We're seeing it with Mako. There is always a time delay because of the regulatory process, especially with Europe following the MDR legislation. It takes longer to get these products. We know they're successful, they will be successful. Starting with only 25% of our total company there, there's no question that that is going to be a huge engine of growth in the years to come.

Shagun, I'll take the second part of this of longer-term gross and op margin goals. First off, as you know, we don't guide to gross margin. If you think about op margin expansion, and if you go back to Investor Day back in '23, we said '26 and beyond, kind of 30 basis points of expansion was the floor. We obviously have an Investor Day coming up in November, and we'll certainly do the work to update that as we think about '26 and beyond.

Our next question comes from Mike Matson with Needham & Company. Your line is now open. Please go ahead.

Yes, thanks. So with the update to the revenue guidance, sorry, the organic revenue guidance specifically, you're calling out a slightly unfavorable foreign exchange impact. Can you maybe explain what that means? Because I guess I thought that this was constant currency growth?

Yes. So good point. As we think about where our revenue growth, our organic growth is going to be that. So what we're just saying is, in total, we are expecting some unfavorable currency impacts really as it flows down through to our EPS.

Okay, I understand. Regarding the Spine divestiture, can you share how much you received for that business? I anticipate we'll see some details in the second quarter cash flow statement. Additionally, could you clarify what amount VB paid and how you plan to use the proceeds? I assume you're using them to repay debt, but please let me know if that's not accurate.

Yes. So we did not disclose the overall price that we received for that. We have it come back to actually through some milestones as well. So a little broken up over time as we see that coming back in. It will certainly be part of our overall financing as we look at opportunities, whether that's paying down debt or looking at future M&A opportunities as well.

Our next question comes from the line of Caitlin Cronin with Canaccord Genuity. Your line is now open. Please go ahead.

Hi, congrats on another great quarter. I'll just ask both of my questions upfront. I think you noted earlier in the call that the tuck-in acquisitions you made last year were going well. Just any more color on those? And also with continued strong Ortho performance, anything to really take away from that and how you're performing in the ASP?

Yes, I'll take the ASC portion of this and Kevin will touch on M&A here. But I think this is very consistent in terms of what we've said in prior quarters, where we continue to see more and more procedures move to the ASC. If we think about our percentage of knees and hips that are done in the ASC, that continues to tick up every quarter. The first quarter was no exception there and has truly been a great tailwind to our business in the first quarter.

Yes. Regarding the seven deals we closed last year, it’s quite surprising that all seven are either meeting or exceeding expectations, whereas typically, a few would start off slower. All of them are performing excellently. I want to highlight that the Artelon deal and the Vertos deals have really made a strong start. If I had to choose a couple to emphasize, I apologize to those involved in the other deals as they are all valuable to us, but those two have clearly stood out. We’re very enthusiastic about them. These tuck-ins work exceptionally well for us because we already have the call point and sales force in place, and when we introduce a product like this, we know positive outcomes will follow, which has been demonstrated with these seven deals.

Our next question comes from the line of Danielle Antalffy with UBS. Your line is now open. Please go ahead.

Thank you for taking my questions and congratulations on a strong start to the year. I know we've discussed capital equipment extensively, but I'd like to approach it from a different angle. One lingering question is whether we will enter a recession, which seems to depend on the day. I'm interested in hearing your thoughts on how recession-proof your businesses are and where you perceive the most exposure. Additionally, I have a question regarding capital equipment. My concern isn't so much about the capital budget itself, but rather the hesitation among hospitals as they await potential changes to Medicare and other budget issues. It seems like you haven't noticed any shifts in that area, but I would appreciate your insights. Thank you.

So far, we're not experiencing any signs of a slowdown. Our order book is very strong, and our backlog is at an all-time high. There's no indication of any issues. While we can't predict what might happen in the future, our order book extends well into the latter part of the year. We typically maintain a clear visibility window of around six months regarding capital. No orders are being canceled, and we're not seeing any stagnation in hospitals. They might occasionally adjust their financing needs, leading to slight changes in payment methods, but demand remains robust across the board. We wouldn’t raise our guidance if we had concerns about a potential slowdown in capital. In fact, our business tends to be resilient to economic downturns because procedures are necessary. While a recession might slightly affect some elective procedures, that part represents a minimal portion of our overall business. Most of our procedures are urgent or essential, and postponing a knee surgery is one of the few exceptions. Therefore, we’re not anxious at all. In reality, we’re witnessing increasing demand for hip and knee procedures, which is steady. Once patients schedule their surgeries, they are unlikely to cancel. With that in mind, we have good visibility through the end of the year and currently see no warning signs or concerns.

Our final question comes from the line of Matt Taylor with Jefferies. Your line is now open. Please go ahead.

Hi, thank you for taking the question. I'll just ask one kind of conceptual question about tariffs. So I was wondering, if we woke up tomorrow and the tariffs were gone, maybe theoretically had this $200 million back or some function of that, can you talk about how much you would put back into the business versus what would drop through to the bottom line? I just want to understand that a little bit better as we may see things change again and again.

Yes, so we're not going to give the specific numbers because as we talked about, we're trying to solve for this tariff impact in a variety of ways. Certainly, we would put some investment back into the business. But I think it's safe to say that without the tariffs, we certainly would have a raise on the bottom line as a result.

Yes. If you see the tariffs going down, you should expect a raise from us on the bottom line. We would have raised our earnings without question, had the tariffs not appeared at this time.

There are no further questions. I'll now turn the call over to Kevin Lobo for closing remarks.

Well, thank you all for joining our call. As you can see, we have a very strong start to the year, and we're excited about working through tariff challenges as well as continuing with the great business momentum and sharing our Q2 results with you in July. Thank you.

This concludes the first quarter 2025 Stryker Earnings Call. You may now disconnect.