Welcome to the fourth quarter and full year 2025 Stryker Earnings Call. My name is Leila 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 will conduct a question and answer session. This conference call is being recorded for replay purposes. Before we begin, I would 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 will now turn the call over to Mr. Kevin Lobo, Chair and Chief Executive Officer. You may proceed, sir.

Welcome to Stryker's fourth quarter earnings call. Joining me today are Preston Wells, Stryker CFO, and 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 results and guidance before opening the call to Q&A. our 2025 results were outstanding for both q4 and the full year across all key financial metrics against double digit comparatives from the prior year organic sales growth was 11 for q4 and 10.3 percent for the full year surpassing 25 billion dollars in sales globally for the full year our neurocranial endoscopy instruments and trauma extremities businesses all delivered double digit organic sales growth demonstrating continued robust demand across our product portfolio full-year u.s organic sales growth was an impressive 11.2 percent and international organic sales growth was 7.5 percent international results were led by strong performances in our emerging markets south korea and japan these countries and our other international markets continue to represent significant growth opportunities for us, and we look forward to launching products internationally that have already demonstrated success in the United States. We also had excellent earnings and cash flow performance in 2025. While managing tariff headwinds, our teams delivered a second consecutive year of at least 100 basis points of adjusted operating margin expansion. This performance demonstrates strong operational execution and earnings power that we have been building up over time. Preston will cover cash flow, which was also a standout for us in 2025. Overall, our financial results reflect the durability of our high-growth offense with the following structural components. exceptional talent and culture, active M&A, a steady cadence of product launches, and systematic specialization by creating new business units and splitting sales forces. The new smart care business unit within medical combines Vocera and CareAI, and we have split multiple sales forces in the past two years. One example is the new breast care sales force within endoscopy that launched at the beginning of 2025 and has contributed to their terrific growth. We have momentum entering 2026 and expect to continue delivering growth at the high end of MedTech, which is reflected in our full year 2026 guidance. Our financial position remains strong, providing firepower to execute on M&A in 2026. I would like to thank our teams for another terrific year, fueled by their commitment and to our mission and unwavering dedication to our customers. With that, I'll now turn the call over to Jason.

Thanks, Kevin. My comments today will focus on providing an update on the current environment, as well as a few other highlights. Procedural volumes remain healthy in the fourth quarter, and we continue to expect the markets will remain strong in 2026, underscored by the continued adoption of robotic-assisted surgery, favorable demographics, and durable demand for our capital products. Our U.S. capital-related businesses delivered robust performance in the quarter, helping to drive double-digit organic sales growth for Q4 in our instruments, medical, and endoscopy divisions. Hospital CapEx budgets remain healthy, and our capital order book continues to be elevated as we enter 2026. Next, powered by MAKO4, we delivered a stunning quarter and year of Mako installations with yet another record quarter both in the U.S. and worldwide. Our install base now includes more than 3,000 Mako systems worldwide. Alongside our record number of installations, we also continue to see steady increases in utilization, bolstering our number one position in U.S. knees and hips. As we exited the year, over two-thirds of our knees and over one-third of our hips were performed on Mako in the U.S. Globally, utilization rates were approximately 50% for knees and over 20% for hips. We have significant momentum heading into 2026 and continue to receive very positive feedback on the latest mako applications including advanced primary with revision hip spine as well as shoulder which will launch on mako 4 mid-year finally inari which is now known as our peripheral vascular business had a strong finish to the year highlighted by robust procedural growth in the high teens that was partially offset by de-stocking, which will be minimal in Q1. We are set up for success in 2026 as the business approaches its one-year anniversary as a part of Striker. As a reminder, peripheral vascular is reported as part of our vascular division results. With that, I will now turn the call over to Preston. Thanks, Jason. Today,

Today I will focus my comments on fourth quarter financial results and the related drivers. Our detailed financial results have been provided in today's press release. Organic sales growth was 11% for the quarter compared to 10.2% in the fourth quarter of 2024, with the same number of selling days in both periods. Pricing had a slightly favorable impact, and additionally, foreign currency had a 1% favorable impact on sales. For the full year, our organic sales growth was 10.3% against a strong comparable of 10.2% in 2024. The impact from price was favorable by 0.4%, while foreign currency had a 0.5% favorable impact, and 2025 had one fewer selling day than 2024. Our fourth quarter adjusted earnings per share of four dollars and 47 cents was up 11.5 percent from the same quarter last year during by sales growth and operating margin expansion partially offset by tariffs higher interest expense and a higher effective tax rate foreign currency translation had an unfavorable impact of two cents our full year adjusted earnings per share of 13.63 was up 11.8 from in 2021, 2024, driven by our outstanding sales growth and a return to pre-COVID adjusted operating margins with a second consecutive year of at least 100 basis points of expansion. Our margin expansion included improvements in gross margin from business mix and cost improvements despite the impact of tariffs. For the year, foreign currency translation had a favorable impact of one cent. Now I will provide some highlights around our quarterly segment performance. In the quarter, MedSurge and Neurotechnology had an exceptional organic sales growth of 12.6%, including U.S. organic growth of 13%, and international organic growth of 10.9%. Instruments had U.S. organic sales growth of 19.1%, with high teens growth from both our orthopedic instruments and surgical technologies businesses. performance was fueled by strong capital demand in power tools stair shield smoke evacuation and neptune waste management endoscopy had u.s organic sales growth of 11.1 led by robust double-digit performances from our sustainability and sports medicine businesses and high single digit growth from our core endoscopy portfolio we continue to see strong demand for our sports medicine shoulder products in 1788 video platform medical had u.s organic sales growth of 13.6 that included strong double-digit performances in acute care and sage businesses from a product perspective medical's fourth quarter growth was driven by life pack 35 procuity vocera and sage products we do not expect the supply constraints we experienced in 2025 to negatively impact growth rates in 2026. Vascular had U.S. organic sales growth of 4.3 percent, reflecting a strong double-digit performance in our hemorrhagic business that was powered by the recent launch of our Surpass Elite flow-diverting stent. This performance was offset by competitive pressures in our ischemic business. As a reminder, vascular's organic sales growth figures do not include our peripheral vascular business. And finally, neurocranial had U.S. organic sales growth of 9.9%, led by an outstanding double-digit performance in our IBS business and near double-digit performance from our cranial maxillofacial business. Internationally, MedSurg and Neurotechnology's organic sales growth was 10.9%, led by double-digit growth in our endoscopy and neurocranial businesses. Geographically, a slower capital environment in Europe during the quarter was offset by robust demand in other international markets, including very strong performances in Australia and New Zealand, our emerging markets, and South Korea. Orthopedics had organic sales growth of 8.4%, including U.S. organic growth of 9.6% and international organic growth of 5.4%. Our U.S. knee business grew 7.6% organically, reflecting our market-leading position in robotic-assisted knee procedures and continued momentum from recent mako installations our u.s hips business grew 5.6 percent organically highlighted by the enduring success of our insignia hip stem and continuing adoption of our mako robotic hip platform with expanded ability to address more difficult primary hip cases as well as hip revisions our u.s trauma and extremities business grew 8.5 percent organically in the quarter led by double digit growth in our upper extremities business as our multi-year strong shoulder growth trajectory continued throughout the year additionally our core trauma business had solid high single digit growth against a very high prior year comparable core trauma's performance continues to be driven by pangia our differentiated plating portfolio as well as our market leading position in nailing our u.s other ortho business grew 28.7 organically driven by robust installations in the quarter led by momentum from the successful launch of NACO 4 in the U.S. Internationally, orthopedics had an organic growth of 5.4 percent against the double-digit comparable in the prior year. Growth was led by strong performances in Canada and many of our emerging markets. As a reminder, our international results include a nominal amount of spinal implant revenue because of previously accepted tenders that we are fulfilling before exiting those markets. NIA will focus on certain operating and non-operating highlights in the fourth quarter. Our adjusted gross margin of 65.2% was 10 basis points lower than the fourth quarter of 2024, reflecting the impact of tariffs that were mostly offset by business mix and cost improvements as we continue to optimize our supply chain and manufacturing processes. Our adjusted operating margin was 30.2% of sales, which was 100 basis points favorable to the fourth quarter of 2024, driven by lower adjusted SG&A as a percentage of sales primarily due to our ongoing focus on operational excellence and margin expansion adjusted other income and expense of 107 million dollars for the quarter was 56 million dollars higher than 2024 due to increased interest expense from debt issuances early in the year and lower interest income for 2026 we expect our full year other income and expense to be approximately 420 million dollars the fourth quarter had an adjusted effective tax rate of 16.1 reflecting the impact of geographic mix and certain discrete tax items. For 2026, we 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 from operations was $5 billion, an increase of $802 million from 2024 that was primarily driven by higher earnings and year-over-year working capital improvements. As a As a result, we delivered free cash flow as a percentage of adjusted net earnings this year, 81% compared to 75% last year. Consistent with the long range plan we presented at our investor day, we will continue to target a range of 70% to 80% for free cash flow as a percentage of adjusted net earnings. And now I will provide full year 2026 guidance. Given our strong exit from 2025, our presence in healthy end markets, sustained procedural volumes and strong demand for our capital products we expect 2026 organic net sales growth to be in the range of eight percent to nine and a half percent and adjusted net earnings per share to be in the range of fourteen dollars and ninety cents to fifteen dollars and ten cents our full year 2026 sales guidance includes a modestly positive impact from price additionally if foreign exchange rates hold near year-to-date levels we anticipate a slightly favorable impact on both sales and adjusted earnings per share. Compared to 2025, we will have the same number of selling days in each quarter during 2026. Finally, we expect the seasonality of our sales to be similar to 2025. In addition, we expect full year tariff impacts to be approximately $400 million, which includes an incremental $200 million compared to 2025 that will be realized in the first half of the year. With that, I will now open up the call for community.

At this time, we will open the floor for questions. If you would like to ask a question, please press star five on your telephone keypad. You may remove yourself at any time by pressing star five again. We would like to remind callers to please limit themselves to one question and one follow-up question so we can accommodate as many participants as possible. And we'll pause just a moment. Okay, our first question will come from Larry Beigelson with Wells Fargo. Your line

is now open. Please go ahead. Good afternoon. Thanks for taking the question and congratulations on a really strong end to the year and a strong 2025. Kevin, you're guiding to eight to nine and a half percent organic growth for 2026 versus eight to nine percent to start last year. You know, what's giving you the confidence to start this year slightly higher? And at the investor day in November, you seemed to believe it was possible to grow in 2026, 10%, given the market conditions at the time. Is that still the case? And I had one follow-up. Thanks, Larry. As you

saw, this is our fourth consecutive year of double-digit organic sales growth. At some point, you start to think maybe the comparatives will catch up to us. But given the order book, given the strength of the make-up performance we had in the fourth quarter, which of course then contributes to implant growth in the future. We really feel more positive, I'd say modestly more positive this year than we did one year ago, which gives us the confidence to start the year with that range, a little wider range, but a little on the higher end. And as I said at this call a year ago, 10% is certainly possible, but it does depend on a lot of things that are in the macro environment, procedure growth, but we do have a strong order book. We do feel good about procedures and certainly possible that we could do a fifth year in a row that's helpful and for

my follow-up kevin uh you elevated spencer styles to president and chief operating officer in december it's not the first time you know strikers had a president um i think uh you know tim scannell had that role until 2021 so can you please talk about you know why this was the right time for this change you know what it means for striker you know and perhaps uh you know what it means for you going forward thanks for taking the question yeah yeah thanks larry as you as you

know we did it before and i think spencer clearly is ready for a challenge he's been a group president for some time now it provides him really a tremendous platform to lead our global commercial organization it also enables a cascade of other promotions including dylan crotty to end up orthopedics and then a ripple down throughout the organization so this is really a great chance for our fantastic leaders to assume more responsibility and i look forward to partnering with Spencer to lead the company as we continue to grow. 25 billion in sales and clearly with momentum behind us does enable us to have additional leaders running large businesses.

Your next question will come from Robbie Marcus with J.P. Morgan. Your line is now open. Please

go ahead. Oh, great. Thanks for taking the questions. I'll add my congratulations on a nice quarter. Two for me. Maybe to build on Larry's question on just sort of the confidence going forward. Clearly, the capital equipment market ended on a really strong year in 2025. Kevin, how are you thinking about pricing both for your capital business and your implant business in 2026 and your expectations for the capital environment in 2026 US and outside US? And then

I have a follow-up. Hey, Robbie, just on the pricing piece of it, we've talked about pricing before, it's something that we certainly have been focused on the last few years. And I think you've seen that reflected in our price gains that we've been able to deliver over the last couple of years. And now, as we see the numbers, we're building price gains on top of price gains from before. And so we expect that to be something that continues in the next year, just given the muscle that we've developed and the focus that we have. So if we think about 2026, we expect 2026 to look pretty similar from a price standpoint to 2025. Hey, Robbie, it's Jason. Just as it

relates to kind of the overall capital environment. I mean, you said it well, we had a strong finish to the year if you think about our capital businesses. And then if you just consider similar to what I said in some of my prepared remarks, from an elevated backlog perspective, the environment's pretty good. And so we feel really good about the capital environment as

we go into 2026. Great. Maybe looking at the quarter, there were a couple businesses that did particularly well um you mentioned mako the the other number was particularly strong as was endoscopy and instruments um and one that stood out on the opposite side or two trauma and extremities and vascular i was hoping you could just give us a little more color what happened there is there stocking destocking and um you know just just a little more appreciate it thanks

Okay, well, that was a lot of questions, Robbie. So let me just say on the positive side, Endospy and Instruments and Mako were absolutely on fire at the end of the year. I mean, Instruments included power tools as well as the products Preston mentioned in his remarks. Endospy was a really amazing performance if you think sports and sustainability did well, but the camera is a few years into its launch. And unlike prior years, if you look at our prior launches, our growth would start to wane a little bit. our camera is just phenomenal with fluorescence imaging and we're continuing to solve that very very well and Mako was this transition to Mako 4 has been incredible this is the first time we've had a change of the actual robot to a new robot since we bought Mako and to be honest coming into the year I wasn't sure how this new transition would go and the team has done a phenomenal job but the extra application certainly helps the feedback has been terrific on the other side of defense. I mean, I'm still extremely bullish on trauma extremities. We had a monster comp from the prior year because PNG was really gaining steam. And we still don't have PNG in Europe and some other markets. Shoulder continues to be on fire. Our foot and ankle business was a bit soft this year. And we are now launching a new total ankle called Encompass with much better reimbursement from CMS, which is pretty exciting. We won't see much of that impact in first quarter, but starting in second quarter, that'll start to really kick in. So I don't feel in any way, shape or form is that business is slowing down. It's just a question of comps. And over the course of the year, you're going to see them have another really strong year in 2026. On the vascular side, I think we commented that the ischemic sector has been tough for us. It's not just new for the fourth quarter. That's been going on for the last couple of years. We did launch a new large four catheter called Broadway. It's a 0.084 lumen. That was a big gap in our portfolio that feedback has been very positive but it's the early days of that launch in the U.S. and then we'll be launching that around the world so I think over time that'll start to improve somewhat but our hemorrhagic business continues to be very strong and we are now the largest neurovascular player in the marketplace we took over leadership roughly about a year ago and have continued to be the largest player your next question will come from

I'm Joanne Wunsch with Citi. Your line is now open. Please go ahead.

Good afternoon, and thank you for the quarter. There's a number of bits and pieces of the competitive landscape that's changing for you, and I'd love to get some commentary or thoughts. Penumbra being bought by Boston Scientific, J&J announcing the spit out of their ortho business. How do you think about either those moves specifically or just sort of generally on how the landscape may or may not be changing?

Hey, Joanne, it's Jason. I'll take a run at this, but I would say first off, you know, in terms of our strategy and how we go to market, absolutely no change. We have tremendous teams on both of those businesses and certainly like our chances here in 2026.

Okay. My second question, not quite a follow-up, is there's a fair amount of concern about patient volumes sort of with changes in the Affordable Care Act coverage. Is there anything that you can comment on that or what you're seeing or what you expect for patient volumes throughout the year?

Thank you. Yeah, Joanne, it's Jason again. What I would say is as we ended the year and certainly starting off 2026, volumes continue to be robust. Tough to speculate, obviously, as you go into later in the year, but we continue to believe, as you think about the ortho markets, these are going to be mid-single-digit growing markets, and we're going to outperform the markets in 2026, just like we did last year.

Your next question will come from Ryan Zimmerman with BTIG.

Thank you. And let me echo the congratulations on the quarter of the year. This may be a little in the weeds, but there's actually a local coverage determination this morning around total joint arthroplasty in robotics, I think specifically with CGS. It wasn't very impactful, but it would appear to me that there's been some efforts to get incremental reimbursement for the use of robotics. I could be wrong in that assumption. And in the response, some of the MACs argue that the evidence may not be sufficient to warrant this. I'm curious if you have any thoughts about what's going on here, whether this does create any risk, in your view, from payers, or alternatively, you know, an opportunity to get incremental reimbursement for robotic usage, specifically for specific robotic systems in the market in orthopedics.

Well, I'm not familiar with that particular case that you're citing. but what i can say is in other parts of the world there is extra reimbursement for robotic procedures whether it's in japan or in other markets around the world we have examples where we do get extra reimbursement and we love the opportunity for that in fact in australia there are studies that are showing that mako outperforms other robotic systems as well as navigation as well as manual so it kind of stands on its own in australian data that has been peer-reviewed and published so we love our chances of being able to demonstrate that data we've been in the market for long enough now that the data is starting to come out and would support potentially extra reimbursements i can't imagine don't foresee any uh reduction uh in reimbursement and certainly you can see with the with the uptake of robotics and over two-thirds of our knees uh being done robotically surgeons aren't going to be going backwards it's only going to continue yeah okay

Okay. Fair enough, Kevin. And I'll maybe zoom out a little bit then on operating margins and turn this to Preston. But 150 basis points, I think, through 2028 was the target, Preston, at the Analyst Day not too long ago. You know, as you sit here today, just given the performance that we have seen, you know, how would you characterize that trajectory? How would you characterize your confidence to achieve that? I think if I look at kind of where numbers are you know that that was kind of in the range of possibilities but I think we are still kind of left wondering kind of the pace at which you may have achieved that those targets thank you yeah right good good question so as we think

about it the confidence is the same you know we gave you those that guide for the next three years because we believe very much in the ability to go out and achieve it based on the activities and actions that we have going on internally focused on operational excellence particularly with areas like lean and other elements with regards to shared services and things of that nature. But when we think about what we gave you for 26 here, we gave you a lot of the different pieces in terms of our overall growth and what we expect from an EPS standpoint. I think if you plug that in, you'll see it's a healthy margin that we're planning for 26 that really leads you down that path for that expectation of delivering 150 and above potentially as we go through the next three years.

Your next question will come from Travis Steed with Bank of America.

hey congrats on a good quarter i wanted to focus on on med surge it's kind of bigger picture like if you put the numbers against all the markets in medtech your med surge business actually is probably one of the fastest growing medtech markets uh at the moment and just just curious like what what's driving that growth how do you have the confidence to keep doing that longer term it's just like surprising how good the growth is in that med search business yeah i kind

of alluded to some of that in my prepared remarks and i think it's something that's not fully understood first it starts off with our tremendous market shares we have incredibly high market shares across our metric portfolio very strong position we are constantly upgrading these products launching next generations of each of these products and then we fill in little acquisitions that are very fast growing if you remember acquisitions like nico that just continues to fuel extra growth of our business and on and on and then we specialize sales forces and split sales forces continually. A couple of examples. We split our CMF sales force a couple of years ago into a oral maxillofacial sales force and a neural sales force. We split our SAGE sales force into an infection sales force and an injury sales force. And I can go on and on. We created a separate sales force for law enforcement within our emergency care business. So we don't talk about all these publicly for competitive reasons, but this is part of the offense is we bring those constant innovations, add in little tuck-in acquisitions, split sales forces, and that just fuels continual growth. And we already have a number of sales force splits that we're contemplating for the next couple of years. We had the, if you think about the Vertos deal, that enabled us to add specialized pain salespeople, because today the IVS business sells to interventional oncologists as well as pain docs. So that's really part of the formula, secret sauce, if you will, high market shares, continual internal innovation, constant tuck-ins, which enable us sometimes to even create separate business units. If you recall, we split surgical a while ago, back in 2019-20, into orthopedic instruments and surgical technologies, and surgical technologies crossed a billion dollars this year. So it's just would have never happened if we had not split the business units. So those are the kind of things we do in that surge and it's totally continually sustainable as you look over the last five six seven years this is our offense and uh and we expect that to continue going forward that's helpful and kevin

how do you think about tuck ends in 2026 or maybe chunkier tuck ends uh and then preston how do you think about protecting margins with with potential bills in 2026 yeah we have really a strong balance

sheet right now. And so we're on offense right now looking at deals. The deal pipeline is very healthy with tuck-ins and even looking at other adjacencies as we always do. So we're excited about the potential to do acquisitions in 2026, but I'm not going to say more than that right now.

Yeah, Travis, from a tuck-in standpoint, we've generally said that for tuck-in type deals, those are elements that we try to build into our margin expectations. But as we do each of these deals, certainly it's something that we would communicate back to you all in terms of what

expectations are your next question will come from vj kamar with evercore isi your line is now open

hey guys uh thank you for taking my question congrats on a nice sprint here kevin maybe uh one on innovation for you i think in the past you've spoken about product super cycles um what are you excited about when you look at 26 um feels like uh some of these super cycles are probably in second or third year uh so what is incremental uh what are you excited about

Yeah, thanks, Vijay. I'd say, look, there's a ton of innovation always going on in this company. And even if you think of something like Procurity, that's in its, whatever, third or fourth year, but it still adds our long-term cycle. That still behaves like a new product in our hands because it's just a long buying cycle. But we have a number of other exciting launches. We have the Mako RPS, the handheld robot. Initial cases started this month. they're going extremely well that's a brand new segment for us between our our manual power tools and mako we have the vocera sync badge that launched you know towards the latter part of last year which is getting you know tremendous feedback we have all kinds of optibly bvna and ids uh the encompass total ankle which i talked about we have arctics which is a new arterial product within uh inari i can go on and on i could go on for another 10 minutes but there are there aren't right now this let's say the new power tool the new camera those are sort of flagship products in the past that we would always focus on but the reality is as we become much more diversified even those launches become a little bit less important to the overall company as the split of cmf is driving cmf to double digit growth and all these other tuck-ins like a nico and all these all these little products contribute to really high growth and then when you have those other new bigger platforms launch that gives you just an extra jolt but the fact that endoscopy posted these kind of numbers with a camera that's three or almost three to four years into its cycle is really impressive and of course we do have 1888 in development and you'll be hearing about that at the right time but i would tell you i feel great about the health of our r d pipelines across

the company yeah that's helpful kevin and maybe one follow-up on uh you know already you did bring up some destocking to just talk about visibility um on uh you know what gives us the confidence these stockings or and uh in any uh salesforce disruption um you know um that perhaps impacted

numbers here in q4 yeah vj it's jason as it relates to the sales disruption i would tell you we are we're beyond that at this point um you know i even made the comment in my prepared remarks as it relates to the stocking uh minimal in q1 i will tell you q4 we had a little bit more de-stocking than maybe we anticipated uh but good visibility as we as we move into 2026 knowing it'll be minimal in q1 and then obviously we start to get to organic growth rates as you get

into late q1 into q2 your next question will come from matthew o'brien with piper sandler

thanks so much for taking the questions just yeah i'd love to double click a little bit on the MACO commentary, just given how strong it was, if you wouldn't mind talking a little bit about the US OUS strength on the record, you know, placement side, and is it fair to think after a period of trialing, you know, with some competitive systems that it's kind of over in terms of some of that trialing or even thoughts about using something outside of MACO and that you guys are winning a disproportionate number of these RFPs and, you know, I guess What I'm really trying to get at is the durability of your implant strength, which has been great for several years. And then I do have a follow-up.

Yeah, thanks. Listen, Mako 4 has been an absolute home run. We already felt like we had the best robot on the market, and we've just only added to that with these additional applications. The feedback on RevisionHip, one surgeon actually told me he thought it was a cheat code for revisions. Those were his words. It just makes a very hard procedure very easy to do, providing tremendous value to the surgeon. So these extra applications make it totally compelling, a great investment for a hospital. I think we're in, obviously, a clear leading position. And there's still a lot of hospitals that only have one MAKO, and they're starting to add more and more and more. I think we're up to 30% to 40% now have more than one MAKO. But every operating room for us is an opportunity for a MAKO to be installed. and we have clearly the wind at our backs on that and we're seeing it start to take off in international markets, Japan being the most important one where it took a while, first of all, to get the regulatory approval. They're obviously very data conscious there, but now Japan is really starting to take off. In fact, even other countries in Asia Pacific are starting to really drive the incremental growth. So we're very bullish on this. I think the shoulder is to be really exciting when we bring that to the market our our limited launch has been on the mako 3 robot but we so that's why we're staying in a limited mode because we really want to get that on the mako 4 robot which again will be sometime in the middle of the year and obviously the shoulder business continues to grow exceptionally well without mako but again hard procedure to do every time the harder the procedure is the more mako brings value so we are we're in the pole

position and we're going to continue to press our lead thanks for that and then you mentioned rps um kevin why go with an x-ray for the imaging versus ct which has been so successful with with traditional mako and and how do we frame up how big that could be for you guys between asc

international etc thanks yeah look this is a really great solution for some surgeons that aren't ready to go through the change management of mako mako requires a lot of change for the surgeon as well as for the staff and if you think about this handheld it really is very simple very easy to use doesn't require the surgeon to go through that type of transition this launch is just for total need so if you want a robot that can do multiple applications obviously that's not possible with this but if you think about in the asc some surgeons not wanting the complexity of mako i think it's going to open up new customers for us that weren't ready for mako but want something better than using the manual instruments and have the visualization and we're using the intellectual property from Mako to provide some haptic boundaries and the feedback has been incredible from the surgeons using it but this is easy to use it provides tremendous value so I do believe this will be an extra accelerator for our knee business and something that will live between Mako, as well as our manual instruments. And it will be sold by the same sales force that sells Mako. So the positioning, it's really about meet the surgeons where they are and provide the value that they're looking for. And right now, we understand our customers very well. And we believe there is a home for this. And it's under the Mako name. So you can believe we feel very good about the performance. We would never want to tarnish the performance of the Mako brand. So So we know this product can sink.

Your next question will come from David Roman with Goldman Sachs.

Thank you, good afternoon everybody. I wonder maybe at the analyst meeting you introduced, I think in video form, the form factor for a handheld version of Mako that I think you had planned to provide more details on over the course of this year. Maybe any latest thinking on your robotic strategy from a portfolio standpoint as you roll out Mako 4 and any updates you can provide on the handheld instrumentation?

Yeah, I think I just mentioned that we started cases on the handheld. They're going very well. It will be on display at Academy. So it'll be in the booth. You'll be able to see it. You'll be able to talk to our people about it. That's the coming out party for Mako RPS will be AOS. It's not very far from now. So I'd say just stay tuned. You'll get the chance to really see it in full color.

Okay, maybe just a follow-up. As Spencer moves into this role as president and CEO, I think you talked about this in Larry's question, but as he takes on perhaps more of some of the day-to-day operational responsibilities, Kevin, are there priorities where you can now allocate more time or that might require more of your focus, whether that's on the strategy M&A or long-term growth side of the business?

Yeah, obviously, you know, when you have somebody in this role that can handle the the overall commercial part of the business that allows me frankly to spend more time with our operations team spend more time with our we have a brand new leader for information technology and ai i really want to make sure we we are an ai forward company we've done a terrific job on ai for customer solutions but we really haven't made a lot of progress yet on productivity with ai we've done great job on lean and much better job on inventory but there's a lot of work we can do to drive productivity in AI and that I can now spend a bit more of my time engaging in those other parts of the of the business that in the past would sort of the gravitational pull would be towards the commercial size of the business so I'm excited about the division of labor that we're going to have in this job and the freedom that will afford me to spend on these other areas and of course looking at adjacencies BD will always be a big part of of my job but having spencer involved in that as well will be uh will be terrific for when he's running ortho group his head is down running ortho and for him to be able to have a little bit more bandwidth there uh together with me will be uh i think will be excellent for striker your next question will

come from caitlin roberts with canaccord genuity hi thanks so much for taking the questions and

congrats on a great quarter um you know as you end the year any update on the percentage of hips knees shoulders flowing through the ac channel for you guys yeah kayla it's jason um

as you know we did not disclose that in our prepared remarks uh i think we've said recently that hips and knees are kind of in the high teens uh and we've you know ticked up quarter after quarter in that environment so so very happy with uh the asc performance great and then just some

color on triathlon gold and if that has launched already yes triathlon gold is is in a limited

launch right now uh feedback is extremely positive you can do it both cemented and cementless which is uh which is a huge draw for surgeons as you know so many of our knees are now cementless and that that percentage of cementless continues to grow and the ability to to both is really tremendous and that will also be on display at aos to be able to see that and be able to interact with our people as they can explain that product to you but we are extremely pleased with the design again it's an unlimited launch we always like when these implant launches we we tend to want to have a limited launch for the number of surgeons make sure everything's going smoothly with the instrumentation and the actual performance but so far so good this should be a winner for us

your next question will come from matt nixick with barclays hey uh thanks so much for taking

the question and congrats on a really really impressive uh performance everybody um so one One on kind of growth and one on margins for Preston, if I could. So on the growth side, I was hoping you could maybe talk a little bit about the differences in the way the growth driver is in the U.S. and the growth driver is in the U.S. Obviously the U.S. has got a bigger contribution of ASCs and maybe robots are making different kinds of contributions, different part of the life cycle in the U.S. versus the U.S. and and then maybe just as part of that um i get the question sometimes about the the recurring nature of your business some of the you know i don't know if you've ever carved it out and talked about it but there's clearly parts of the business roll up being one of them where you're it's it's a recurring model um you know any any color you can give us as to how big or important or where the strengths are there and as i mentioned one quick follow-up for Thanks.

Sure. I'll start with that question. The dynamics internationally are not different than the United States. We have premium products that we sell through specialized sales forces. The reason that we're having experiencing higher growth in the US right now versus these markets primarily is because of the timing of launches. So we get these approvals early in the US, Europe in particular with the UMDR has been extremely frustrating. And it's taking us Insignia, Pangea, these LifePack just got approved. These products aren't yet on the market, and they're really important products. And then Mako has taken longer for us to really get that going. And that's not unusual, where these international markets tend to want to wait to see more data before they'll start to grow. But aside of the last two years, we had about five years in a row where international was growing faster than the US. We've now stepped up our US growth rate really significantly. But the opportunity in international is significant and as these products do reach these markets you should expect to see a pretty similar dynamic as to what you see in the united states obviously pricing and margins can vary by country some being as good as the u.s some being a little less but we don't see the growth opportunity being uh being really much different outside the u.s than it is in the united the United States.

Matt, I'll take that. Any other recurring?

Yeah, Matt. I'll take that. No, no problem. I think the way I would characterize that and you've heard us kind of say this in the past is, you know, 25% ish of our revenue is capital related. And of that split, 15% of the capital is more closely tied to procedures. so the smaller capital uh and then the 10 revenue the larger capital so booms lights feds etc and then kind of that 75 percent i would say you know procedurally driven whether it's reoccurring in disposables the implants etc got it thank you and then on for preston just

um you know there's a couple questions on margins but the one that we often wonder at this point in year is because you've got a range for the top line and a chance to beat the top end of the range um you know how should we think about the collection the model uh if if and possibly when you you break through the the higher end of the range where you know thinking about opex investment versus versus you know drops to the bottom line thanks yeah absolutely so so we have a range on

the top as you said and and certainly as we we deliver that if we were able to deliver towards top end of that range it does drop some additional some additional margin or additional profits down but it also remember there's some costs that come with that in terms of obviously tariffs are fluctuating with our business and then also just the investment that it takes for us to put back in to to have those growth rates so it's something that we balance as we look at the entirety of our our pnl and and obviously with both the growth rates but then funding for future growth rates as well uh when we look at what we drop down from a margin standpoint but i think

could look at this year as a good example right so we moved up our top line this year we also moved up our bottom line this year so that could be a good proxy for you to see that if we start moving the top line up we're not going to just reinvest all of it there will be an amount that we drop through if we see some opportunities for we're always looking to sort of self-fund reinvestment but uh this is a good you could look at 2025 as a good proxy for what uh hopefully will happen in

2026. Your next question will come from Chris Pascual with Nefron Research. Thanks. One on

pricing and then one on Inari. So the pricing benefit you reported for MedSurg this quarter, I think it was the smallest we've seen since 2022. Was there anything sort of quirky about this quarter that drove that? And since MedSurg has been the primary driver of the net positive pricing across the broader business, are you expecting to see that go back up here as we go

to 26 yeah there was uh there was one one deal in particular outside the us uh that drove some negative pricing on the med search side but overall the fundamentals still remain the same and we would expect to continue to see a pretty pretty steady uh cadence of price coming from

that business in 2026. okay that's helpful and then on inari and the clinical pipeline there We saw one competitor's pulmonary embolism trial readout back at TCT. We're going to see another one at ACC in late March. Clinicaltrials.gov right now has PeerList 2 wrapping up this year. Is that still accurate, and when should we expect to see your data?

Hey, Chris, it's Jason. No, it's actually going to be closer to middle of next year in terms of results.

Your next question will come from Danielle Antalfi with UBS.

hey good afternoon guys thanks so much for taking the question congrats on a really strong 2025 um just following up on excuse me chris's question on pricing i just at a higher level serious i know you guys had um talked about you know broadly speaking um that you saw over the last two years starting you know you're expecting that to wane sounds like that's reflected in guidance but i'm just curious about how you're seeing potentially your hospital customers asp customers are they changing um the way they're contracting at all or on price i'm just curious because obviously one of the narratives is is with aca subsidies expiring you know hospitals could be more uh constrained from a budget perspective and as we move further away from um the change in purchasing

patterns during covid thanks so much yeah daniel thanks for the thanks for the question in terms of the price i mean price has always been something that that's been a negotiation in terms of where we've been trying to gain price and it's something that we quite frankly have gotten better as we've talked about over the last few years and certainly as we look at contracting that's an element of where we've really improved over the last few years and so i think our ability to go out and make sure that we are are working those contracts appropriately across our entire book of business has really helped us in terms of that that pricing element and we expect that to continue into 2026 and as you said it is built into what our expectations are uh from a top line

and guidance standpoint yeah i think overall for the full year you should expect a pricing result that's not that different than we had in 2025. you know from quarter to quarter it may move a little bit but we expect something pretty similar in 26 as we experience in 25. okay thank you your next

question will come from Patrick Wood with Morgan Stanley. Beautiful. Thanks so much for the

question. ASCs, obviously, we've all talked about hips and knees a fair bit, but CMS moved the back end of last year to really delete all the rest of the inpatient-only list, and it seems kind of clear where the direction is going. From your perspective, what are the implications for that, if any, with an endoscopy and everything else? Is your share in some of these categories is high enough that it's like, hey, it's just a change of side of care, or is this like a marginal

change that actually matters for the business? Yeah, I think you answered it well. Our high market share is just a new site for us. But I think what really can help us is, again, if they have new construction of ASCs, it just gives us, if new procedures are added and start being done in ASCs, procedures where we have implants, that only helps us to provide it a more full offering to the ASC. We already have the broadest offering by far in industry, which is why we win at a very high rate, new construction and big rebuilds of ASCs. So the more procedures that go, the more that provides, we provide that full service and they need financing for their capital equipment in these ASCs, unlike hospitals that have the capital balance sheets to be able to provide to buy capital. So we look forward to this change as as things move to the asc which i think will continue clearly you can see cms is pushing it we've seen this trend happening uh our sports business tends to be a big beneficiary and they had a absolutely phenomenal year again uh they continue to grow extremely well and benefit from this push to the asc because if they're doing orthopedics hips and knees they always do sports as well and they they tend to to be a big part of these contracts so uh so we look forward to the change of procedures moving to AAC. And I think it only helps Striker just given the breadth of

our portfolio. That's great. And then just very quickly on the M&A side of things. If I remember correctly, when you guys did Nari, you sort of referenced it as part of maybe a launch pad or something to that degree. It was clear that that channel and vascular in general was something you wanted to continue to build out. Is that still the case? Would you look at things like calcium management and other things that are sort of ancillary to that? Is that still a key focus area

or not so much yeah listen whenever we buy a business that that enters a space we never are one and done we're going to continue to build all around that that business and fortify the pv business and obviously that links to a broader vascular set of customers that uh once we start to get know a customer we want to help solve their problems so yes that's now part of our acquisition set that previously wasn't the case uh and then same thing with hit so we did vocera then we did care ai don't be surprised if we do more acquisitions in the health it space so we're constantly on the hunt every time we buy something it opens up new windows for us and we are definitely looking uh in at the broad universe in the in that vascular world

your next question will come from mike matson with needem and company

yeah yeah thanks for taking my questions um you know just a couple more on mako so with mako 4 Or are you getting pricing increased relative to the older version? And then, you know, similar question with, as you start to launch Mako Shoulder and Spine, are there, I seem to remember you talking about some upgrade fees the customer would have to pay even if they have an existing Mako system that they want to add that capability to. And are these things that could become, you know, meaningful drivers for that part of the business?

Yeah, listen, we're not going to get into pricing for competitive reasons. we're not going to disclose our pricing, at least for the base robot. But every time you have extra applications, you have to pay a software fee or license, if you will, to be able to use the new software. So if they buy the Mako 4 for knees and hips, but then they want to add shoulder, then there is a charge for that, a one-time charge upon the installation of that software. That's been consistent throughout our makeover approach.

Okay, got it. And then just on the tariff impact, the $200 million this year, last year you said you would fully absorb that. Is that the case again this year? And is there any ability to mitigate any of the impact of the $200 million? Can that come down over time with mitigation efforts?

Yeah, so what you see with that 200 really is the net result of mitigation activities that we've been taking for the past year as this whole tariff item has really come to bear over the last year. So that is reflective of the annualization, really, of all the work and activity that's been done. And as you'll look at our guidance that we gave, you can see when you do the work around the margin pieces of it that we have, in fact, built that into our expectations.

yeah a total of 400 million and we're still driving margin expansion we drove a significant amount this year with 200 million we've got another 200 million and you'll do the math through your models you'll see we're going to drive meaningful margin expense in the face of this extra 200 million dollars so our margin muscle is really good this is not something i could have said you know seven eight years ago i think if we had had this level of tariffs you would not be seeing us continue to drive expansion to the level that we are. So,

we have built some earnings power in our company. Your next question will come from Shagan Singh

with RBC. Great, thank you so much. One on Mako, you guys shared some metrics, two-third, one-third of knees and hips on Mako, and then utilization rate, 50% and 20% respectively. Where do you think these metrics go over time and what are the key drivers there? And then as we think about market penetration of recon robotics, anything you can share with respect to, you know, where we stand from a procedure and then a capital placement standpoint? Thank you for taking the question.

Well, as it relates to robotics, I don't think there's any limit. I think robotics can become standard of care at some point in time. I don't I don't it's not like cementless where, you know, I don't think cementless needs will get to 100 because of bone quality. in the case of robotics i don't see a limit to how how much can be done and we're over two-thirds uh in the u.s and over a third and what i like is i see the hip starting to inflect upwards so with the launch of mako for that the new software is called the 5.0 software for hip which is really amazing for revisions but once the surgeon starts europe for revisions they start to realize it could be very good for primaries also so uh very bullish on on the on that on that potential. Is there a second question? Okay, thank you. Your next question will come from

Richard Newhitter with Truist. Hi, thanks for taking the questions. I just wanted to go back to the price comments. You know, I hear you loud and clear, Kevin. Your overall price assumption is not dramatically different from last year for 26. But just within the components, I just want to kind of reconcile with some comments I think I've heard you make in the past between med-surg and ortho. And just tell me if you can, if this is directionally correct. But my understanding was that med-surg is, you know, over the long-range plan, I would presume in 26 as well, about positive 100 to 200 basis points. And then your ortho, I think, has tended to be in a negative one to negative two percent range. And maybe that's a little bit more towards the negative two percent part of that range then you net those two out you're somewhere you know you're somewhere similar as to last year is that the right way to think about it you know sorry to get so specific but i'm just i think it would be helpful to investors yeah look i'm not going to be that

specific i think your outer ranges are probably a little bit high on both sides on both the implant side as well as the med surge side but med surge will be positive the orthopedics will be slightly negative and the two will net to something similar to what we experienced this year going forward it's i'm not excited or worried at all about our price we have a really good offense we understand what happens quarter by quarter we feel like we're in a pretty stable pricing environment and keep in mind these are just like for like products right so this does not include when we launch a new product we obviously launch at a higher price and those products don't show up in price for at least another year until an anniversaries. So I just want to make sure you remember that as well.

Got it. And then maybe just on Triathlon Gold, this sounds like a pretty interesting incremental opportunity for you to kind of gain back some share in an area where you just didn't have a product. Could you just quantify kind of what percentage of the market this potentially just gives you re-access to and, you know, how we should think about that and if that's the right

way to think about it. Yeah, look, it's an important product that is actually premium priced versus a standard implant. It's roughly 5% of the market, but we didn't have an offering. So we would have striker loyal surgeons that would actually switch to a competitor to be able to do this if they had a metal sensitive patient. And frankly, what my hope is, given that you can do this cementless and if the product performs really well, that 5% might actually grow. It's not just for metal sensitivities. This is, let's call it an advanced bearing implant. So I'm not going to promise that, but there is the potential for this to continue to grow and grow the market beyond 5% of the total implants. It's really a wonderful product. The feedback so far has been very positive, but it's roughly 5%. We were not playing at all. Striker surgeons were not using our product. So this was an important gap in our portfolio that we've now filled.

Your next question will come from Jeff Johnson with Baird.

Thank you. Good evening, guys. Preston, just one follow-up question. You pointed in your prepared remarks to softer capital environment in Europe. Could you flesh that out a little bit, number one? And number two, you know, Kevin, you pointed to some of the challenges of the MDR stuff in Europe. Obviously, that's not new for you guys. Did that have any impact on the med surge business in Europe and with the new proposals to simplify some of that MDR stuff? You know, I know they're not going to vote on it in Europe until later this year, but, you know, could that accelerate some of your product approval there?

Yeah, I'll take the second part of the question on UMDR. Yeah, we're really excited. Europe has woken up to the reality that they are stunting innovation and not giving patients access to products in a timely manner. they in many ways overreacted to some a couple of uh safety issues that occurred in europe so we welcome the changes and and that will help us accelerate the launch of our products it's frankly a little bit even more important on the implant side than it is on med search side with products like insinua and pangia taking longer to get to the market but it affects the entire portfolio not just for us but for the entire industry yeah jeff it's jason

on the the capital environment in europe i'm not going to get overly specific here but what i would say you know like our capital businesses in the u.s there are some you know quarter to quarter where you get ups and downs in the capital business just just based on purchasing cycles so as we move into 2026 look the the order book here is healthy and and i think we'll have a good 2026

there in europe your next question will come from matt blackman with td cowan hi everyone it's a

drew an area on for matt uh just a couple questions uh one for kevin and one for preston uh kevin you brought up the breast care opportunity uh now that you have a specialized sales force can you just talk about what that might mean for the endo business uh are you going to be able to push more uh through your installed base or is this about utilization yeah so first

of all that opportunity yeah thanks first of all the breast care sales force is within our endoscopy business. So we were already calling on them, but we didn't have a focus. And the acquisition of MOLLE, the marker, in addition to Novodac, the exoscope, in addition to the tissue from Novodac, in addition to the Invuity retractors, the Invuity was bought by our instruments business, but we moved it over to endoscopy because it's absolutely perfect for those procedures, breast reconstruction procedures. So a combination of acquired products and obviously our internal products within endoscopy created enough of a basket to have a dedicated Salesforce. It was really successful in year one. And yes, we look to continue to expand within breast care. We could potentially do additional acquisitions to fill out the bag, continue to add more specialized salespeople. But this is what we do at Strike. You know, we did this in GI. If you recall, when we launched Neptune S, we created a GI Salesforce. We did the acquisition of the palm, the mask, procedural-specific mask as well to add into that sales force. We do this all the time in our med search businesses. It's part of the fuel for growth, and that's why we stay so high in our growth rates is we just don't sit still. We either bring in these tuck-in acquisitions, cobble them together, create a specialized sales force, and then at some point, if we do a big enough deal, we could create a separate business unit as we've done with SmartCare and as we've done with other business units in the past.

Thanks, and I appreciate that, and maybe pressing on the free cash flow, really great growth this year. I hear you on the conversion range, but can you just maybe talk about what you're expecting for CapEx? It was flat year-over-year. Expecting a 26? Like hold back on spending. Yeah, for 2026, what you're expecting more for free cash flow on CapEx.

Yeah, so from a free cash flow standpoint, as I said before, I mean, we're still going to target in that same range of 70 to 80. that's been the range that we've been targeting for the last few years we feel like that's a good place for us we can balance investment with also obviously being more productive with from a cash perspective when it comes to capital i mean really our capital focus is is around how do we support growth so whether that's investments we're making in our plants or obviously investments we're making in our it systems for structure as well as in terms of how we're running our businesses so there's really no change in our overall approach that we're thinking about from a cash flow standpoint. We are looking at how do we improve areas like working capital, which give us even more flexibility from a cash standpoint as we move forward. Your next question will come from

Jason Bedford with Raymond James. Jason, your line is open. Please feel free to proceed. Well, we have no further questions after Jason, so I'll now hand the call over to Kevin Lobo for

closing remarks. So thank you all for joining our call. As you can see, we have strong momentum entering 2026, and we look forward to sharing our first quarter results with you in April.

This concludes the fourth quarter and full year 2025 Stryker Earnings Call. You may now disconnect.