Stryker Corp (SYK) Q2 2026 Earnings Call Transcript

Welcome to the second quarter 2026 Striker Earnings Call. My name is Megan 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 8K filed 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 second quarter earnings call. Joining me today are Preston Wells, Stryker CFO, and Nick Mead, Vice President of Investor Relations. For today's call, I will provide opening comments, followed by Nick, with market trends and some product updates. Preston will then provide additional details regarding our results and guidance before opening the call to Q&A. Our second quarter results demonstrated the strength of our broad product portfolio and resiliency of our teams. Our recovery from the cybersecurity incident continued as we ramped overall production to meet ongoing demand and support patient care. We delivered strong organic sales growth of 9%, including high single-digit growth from both our med-surg and neurotechnology and orthopedics businesses. Geographically, our U.S. organic sales growth of 9% included double-digit organic growth from our medical, trauma extremities, and endoscopy businesses, and high single-digit organic growth in orthotech and instruments. This growth was offset by supply disruptions in our peripheral vascular business. While our sales force hiring and integration has made great progress, the supply disruption resulted in a meaningful backorder situation with lost sales in the quarter. We have addressed the issue, and backorder should reach a manageable level by the end of Q3. We remain confident in the long-term outlook for peripheral vascular, including the AVS acquisition, which closed in the quarter. internationally our 8.9 percent organic sales growth was driven by strong performances in australia new zealand germany canada south korea japan india and brazil we continue to see long-term growth opportunities in our international markets through strong commercial execution and the introduction of products that have demonstrated success in the united states in recent years. From an earnings perspective, we delivered adjusted EPS growth of 17.9%, reflecting improved gross margins as well as our ongoing commitment to rigorous operational execution. We exited Q2 with regained momentum and expect a strong second half of the year, driven by high demand for our capital products, continued production ramp, and strong commercial execution. We are narrowing our full year guidance and our businesses are well positioned to deliver another strong year of financial performance. Finally, our financial position and cash flow generation remains strong, providing firepower to deploy capital. Preston will elaborate on that in his section. I would like to acknowledge our teams for their efforts in putting us on track to deliver another strong year of organic sales and adjusted earnings growth. With that, I will now turn the call over to Nick.

Thank you, Kevin. My comments today will focus on the capital and procedural environment, as well as several key product highlights. Capital delivery was a key driver of the growth in the quarter as we recovered from the cybersecurity incident and demand remained strong. We exited the quarter with an elevated backlog and expect continued strength in the hospital capital environment through the remainder of the year. The U.S. procedural environment remains stable. While there has been some commentary on softness in surgical volumes, particularly in discretionary procedures, we have not observed meaningful changes in volume trends. Our portfolio is highly diversified, with the vast majority of our businesses supporting high-acuity, medically necessary, and emergent care, where clinical demand remains strong. Importantly, the fundamental drivers of health care demand remain firmly in place, including an aging population, the ongoing need for hospital workforce productivity, and the increasing occurrence of chronic disease. Together, these trends continue to support durable demand for our differentiated product portfolio. Now I'd like to turn to some product highlights. We delivered our best-ever Q2 for Mako installations, both in the U.S. and internationally, and utilization rates across our install base continue to trend upward. This year, we celebrate 20 years of Mako and its evolution into a multi-specialty robotics platform, with applications spanning hip, knee, spine, and shoulder procedures. Furthermore, we recently announced the full commercial launch of MAKO RPS in the U.S., expanding our robotics portfolio and offering surgeons additional options across a range of care settings. With more than 2.5 million procedures performed globally and systems installed across 47 countries, MAKO remains well-positioned to drive continued growth through innovation, clinical evidence, and expanding adoption worldwide. We are rapidly moving to full commercial launches of Triathlon Gold and our Triathlon Medial Stabilized Insert, both of which are generating strong interest and positive customer feedback. During Q2, we also gained approval on the prophecy patient-specific planning and guides for our new Encompass Total Ankle Replacement System, and we've just moved to full commercial launch. Additionally, we recently received approval and have initiated a limited launch for our Pangea trauma plating system in Europe, to be followed by a full commercial launch during the fourth quarter. Within instruments, we look forward to the upcoming launch of the Sinopad 3 ultrasonic aspirator. These products are part of the steady cadence of next generation and innovative products across our broad base of businesses that fuel our growth.

Let me now turn the call over to Preston. Thanks, Nick. Detailed financial information has been provided in today's press release. Today, I will focus my comments on our second quarter financial results and the related drivers. Organic sales growth was 9% for the quarter against a double-digit comparable in the second quarter of 2025. Pricing was flat, and foreign currency had a 0.4% favorable impact on sales. This quarter had the same number of selling days compared to the prior year. adjusted earnings per share of $3.69 was up 56 cents or 17.9% from the same quarter last year driven by our strong sales growth a continued focus on operational excellence and a net benefit in the quarter from tariff related costs foreign currency translation had a favorable impact of one cent now i will provide some highlights around our quarterly segment performance for the quarter MedSurge and Neurotechnology delivered organic sales growth of 9.2 percent, which included 8.9 percent of U.S. organic growth and 10.5 percent of international organic growth. Instruments U.S. organic sales rose 8.4 percent against a prior year comparable of 16.3 percent. Growth this quarter included a robust double-digit performance in our interventional spine pain portfolio, as well as a strong performance from our surgical technologies business, which includes Neptune waste management, smoke evacuation, and surge account products. Endoscopy U.S. organic sales grew 10.2%, reflecting strong demand across multiple areas of the business. Operating room infrastructure and renovations were a key growth driver, including a robust performance from the recently launched Oculin Light. We also delivered strong growth in our urology and connected OR products within the core endoscopy portfolio, as well as in sports medicine, where double-digit growth was driven by its expanded range of shoulder implant products. Medical U.S. organic sales increased 13.1% and included very strong double-digit performances from our sage and emergency care businesses. From a product perspective, growth was led by preoperative skin prep products, Howard Kotz, and Lifeback 35, which continues to generate strong customer interest and capture additional market share. Capital demand also remains elevated, as evidenced by an increased backlog and strong orders as we exited the quarter, including Procuity VEDs and our smart care business, which includes Vocera and Care AI. vascular u.s organic sales declined 6.7 percent from a year earlier due to the operational disruption in peripheral vascular that kevin discussed in his remarks partially offset by solid growth in our hemorrhagic portfolio driven by the surpass elite flow diverting stents internationally med surge and neurotechnology organic sales growth of 10.5 percent included broad strength across endoscopy medical and instruments geographically growth was led by robust performance in Australia and New Zealand, Germany, Canada, Brazil, and India. Orthopedics delivered organic sales growth of 8.6% in the quarter, which included 9.1% of U.S. organic growth and 7.5% of international organic growth. U.S. knee's organic sales grew 6.2%, reflecting the continued adoption of MAKO for robotic-assisted knee procedures and momentum from our cementless new products. U.S. HIP's organic sales rose 4.9 percent, reflecting the ongoing success of our Insignia HipStem and the Mako Robotic HIP platform, with our latest application having the expanded ability to address more difficult primary HIP cases and HIP revisions. U.S. trauma and extremities organic sales increased 12.5 percent, with strong double-digit sales growth in our trauma and upper extremities businesses. Pangaea continues to be a key driver of our growth in our trauma business, and our multi-year growth momentum in shoulders was driven by the continued strong performance of our differentiated portfolio and the recent full commercial launch of Mako Shoulder on Mako 4. U.S. orthotech organic sales grew 9.2 percent, driven by robust Mako installations. Internationally, orthopedics organic sales growth of 7.5 percent included strength in knees, orthotech, and trauma extremities, and was led regionally by Canada, South Korea, Australia, New Zealand, Brazil, and India. Similar to the first quarter, the conflict in Iran had a modest impact on overall company growth. Now I will focus on certain operating and non-operating items in the quarter. Our adjusted gross margin of 66% was 60 basis points favorable to the second quarter of 2025, reflecting the impact of the net tariff benefit I previously mentioned, as well as improvements in business mix and cost discipline. Our adjusted operating margin was 27.4 percent of sales, which was 170 basis points favorable to the second quarter of 2025, driven by the gross margin improvement as well as lower adjusted SG&A as a percentage of sales due to our ongoing focus on spend discipline and margin expansion. Adjusted other income and expense of $101 million was $5 million lower than 2025. We continue to expect our full year 2026 adjusted other income and expense to be approximately $420 million. The second quarter had an adjusted effective tax rate of 16.5%, reflecting the impact of geographic mix and certain discrete tax items. For 2026, we continue to expect our full-year effective tax rate to be in the range of 15% to 16%. Turning to cash, we ended the second quarter with approximately $3.5 billion of cash in marketable securities, and year-to-date cash from operations of $1.8 billion. Supported by a strong balance sheet and robust cash flows, we remain focused on M&A opportunities to drive top-line growth as our primary capital allocation priority. Additionally, considering our elevated level of cash flow generation and recent valuation compression across the medtech sector, we plan to resume share repurchases this quarter. And now I will discuss our full year 2026 guidance. Considering our year-to-date results, our presence in attractive end markets largely supporting acute and emergent procedures and durable demand for our capital products, we are narrowing our full-year guidance and now expect organic net sales growth to be in the range of 8.3% to 9.3% and adjusted net earnings per share to be in the range of $14.95 to $15.10. Our full-year sales guidance reflects a modestly positive pricing impact. Additionally, should rates hold near current levels, we anticipate a slightly favorable impact to both sales and earnings per share. With that, I will now open up the call for Q&A.

At this time, we will open the floor for questions. If you would like to ask a question, please press star 5 on your telephone keypad. You may remove yourself at any time by pressing star 5 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. We'll pause just a moment for the queue to form. Our first question will come from Joanne Winch with Citibank. Your line is open. Please go ahead.

Good afternoon, and thank you so much for taking the question. I actually have a lot. I'm curious for guidance, the updated guidance, what your thought process was in narrowing it, particularly lowering the top end of the range, which leads me to my second question of how you're thinking about revenue growth, and it's back half of the year. And then I'm just going to go real straight into this. EPS, you had a really nice beat in the quarter versus what we were looking for, but it doesn't look like it's flowing through for the full-year guidance, and I'm curious why. Thank you.

Hi, Joanne. I'll take the first part of your question and then the EPS question, then we'll let Kevin jump in on how we're thinking about sales from a remainder of the year perspective. So from a top-line guidance standpoint, Really, we have half the year done. Obviously, we're coming out of the cyber event that impacted Q1. We've seen the momentum and the recovery starting to come back in Q2. And we have a good ways to go in the second half in terms of continuing that momentum to deliver on the guidance range. And quite frankly, when we look at what's left to do with the rest of the year and where we are with our products and with the markets right now, we felt like it was a prudent range to be in the 8.3 to 9.3, just looking at it in totality. And so Kevin can talk a little bit about the revenue piece a little bit in just a second. Let me just address your EPS question. So from an EPS standpoint, when we look at the beat in the quarter, it is driven partially by the tariff refunds that are happening, that happen in the quarter. But as a reminder, when we talked about the first quarter earnings, and those were obviously well below expectations driven by the cyber event, There are costs that are coming through from a cyber perspective, both with loss of absorption from manufacturing, as well as our IT costs that we have, that we're planning for as we come through the remediation that will offset that benefit. So when you look at it on a half-year basis, it actually, you can see those offsets already happening.

Yeah, and related to your question about lowering the top end, Joanne, to Preston's point, half a year is already done. as we look at the production that we have to just the building of all of the capital equipment that's required we have the orders to really drive very high growth it's just how fast can we actually make everything to deliver i would say our ability to beat the top end would be hinging on two factors one is the market would have to be strong in procedures we expect it to be consistent if it improves a little bit that obviously gives us a tailwind and then if we can ramp our products and including some of the new products that we're launching ahead of what we're projecting right now then that could cause us to actually raise on the top end but right now this is the best visibility that we have with what we know now obviously at the end of q3 we will update our guidance and if things improve uh on a faster trajectory then we could look to maybe move it up but at this point this is the best visibility that we have and honestly on a 25 billion dollar business if you're growing it around the nine percent range it's uh it's still a pretty good year given that we were knocked out for almost an entire month.

Thank you.

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

Oh, great. Good afternoon, and thank you for taking the questions. Two for me. One, Kevin, you know, one of the, or Preston, whoever wants to take it, one of the things we're all trying to figure out is sort of what's underlying and what's catch up from first quarter? I know you had talked to some of the capital being more second half weighted. The quarter was in line with expectations with some puts and takes, vascular being one of them, hips being another, medical being on the plus side. How should we about what's underlying and normal trend versus, you know, where you saw the recapture from first quarter. And if you're able to quantify anything, that'd be helpful. And then I have a follow-up after. Thanks.

Yeah. So thanks, Robbie. As we talked about really in the first quarter call, you remember we talked about the variability of the different businesses that we have. So it's hard to really pin down, okay, this is specifically the underlying versus catch-up. I mean, there are some areas that that was a little bit easier where there's just some catch-up revenue to book. I would say for the most part, what we are seeing is we are seeing continued momentum across all of our businesses. We see really strong demand for our capital products. I think that's the one where we'll see a more significant uptick in the second half of the year based on what Kevin talked about earlier with production ramping and really getting ourselves back online to be able to produce at a faster rate to support the volumes that we have. So really, I'd say what you see really in the second quarter is primarily just the momentum of the underlying business primarily with a few other elements that are kind of maybe coming into play here and there throughout that business.

Yeah, the only thing I'd add, Rodney, is we always have variability in our quarters, just the range of businesses that we have. I would tell you peripheral vascular was certainly not something we were expecting. That supply disruption was acute and we took the pain, But overall, we hit the number that we were aiming for in the quarter because we had some outperformances in endoscopy and medical. And even within medical, our bed business, we have tremendous number of orders that we have a big job to catch up to deliver. So that actually wasn't a very strong performer in spite of medical's overall terrific growth. And it's not because we don't have the demand. It's just because making beds takes time and we were out of production for a long period of time. So that's one particular product that we have a lot of catch up to do. But so there's a lot of noise underneath these numbers, but overall, the business performed very well. The demand is still strong. And you're going to see a little bit of volatility across our businesses, probably in Q3, Q4. But we feel good about the overall health of our businesses and they're going to recover at kind of different points of time. And even the procedures, right, rescheduling procedures was very, very hard. You know, no one's ever gone through at least this kind of an event that we went through. And so it has created a little bit of inconsistency across our businesses. But overall, for the full year, we're feeling really good about our business.

And one quick follow-up. Kevin, one of the things everybody's been concerned about, and you kind of touched on this, but I'd love a little more color, just the backdrop of slowing or stable procedure volumes. We've had a lot of mixed data points and the current and future state of the CapEx environment. We'd love to get your thoughts on both of those. Thanks.

Yeah, I think we sort of talked about them in Nick's remarks. Look, we see the procedure environment as healthy and in the businesses where we operate. We see us the demand for procedures is strong. It's healthy. It's stable. It's whatever word adjective you want to use. We don't see issues with the procedures that we or we play. And capital, I would say, is very. If I look at our back, we have an elevated backlog. We had a record month of, you know, Mako sales. We're just not seeing any issues related to capital. We did see and we have commented on this even in the last quarter, a slight slowdown in Europe related to procedures, but certainly not in the United States and not in the other markets.

Our next question will come from Larry Biggelson with Wells Fargo. Your line is open. Please go ahead.

Good afternoon. Thanks for taking the question. Kevin, just to follow up on the revenue guidance, the organic growth needs to be about 11%, I think, in the second half to reach the midpoint of the guidance. So is there any more color you can provide on what's driving your confidence to be able to recapture the lost sales, to achieve that, and, of course, offset the vascular supply issue you had? And just remind us of why you expect more catch-up in the second half versus in the second quarter. I think that's just been a lingering question investors have had.

Listen, we lowered the bottom end of our range. That should give you some idea. We're not going to lower the bottom end of our of our sorry, you raise the bottom end of our sales guidance from eight to eight three. Right. So if you're raising that, that means you really don't see a risk of us being able to deliver at the lower end. And that that raising is based on just tremendous orders for our capital. And that's just execution. All we have to do is make the products and ship the products. And we can see the production ramp now that our plants have been operating pretty consistently since April 1st. And so that visibility is very clear on the capital side, even on the procedure side. So the small capital, we do have orders for small capital. We have pretty good visibility into those orders and surgery schedules. And our businesses are feeling really healthy. So that 11%, we feel very, very confident delivering. Otherwise, we wouldn't have raised the lower end of our sales guidance there.

Any color just on how to think about the catch-up in Q3 versus Q4? Thanks for taking the questions.

No, I think, again, like we said before, we're going to see that happening at different paces and different times. And part of it is, as Kevin said, the ramping up of production for those capital products that we can get those out the door.

So I think you're going to see kind of a steady cadence across both quarters as we go forward.

Your next question will come from Ryan Zimmerman with BTIG.

Your line is open. Please go ahead.

Thank you. Thanks for taking the question. Preston, you've talked enough about the top line, I think, with the questions. But can you spend a little bit on margins and the EPS guide, particularly in the back half of the year? If I look at kind of how the street is thinking about Q3 to Q4, what is it that, you know, going to drive maybe lower EPS in fourth quarter, which is kind of what the street is assuming to get to the guidance? Is there, you know, additional expenses that are needed? Is there a margin impact, you know, when you think about kind of the excess production that you're going to do that we need to consider? Just, you know, help us think through the cadence there on the margin and P&L for the EPS guide.

Sure. So, first of all, we are still committed to what we talked about last year, which is our 150 basis points over the course of three years. So that's still our commitment. I think we've demonstrated the ability over the last couple of years to drive op margin, and we're going to continue to do that. So the teams are fast working on continuing to find ways to get better from an efficiency and productivity standpoint. So that is the underlying kind of focus of the organization. We do have this year several larger moving parts. So obviously with the cyber events, we have manufacturing shut down for some period of time. And so you've lost absorption, you have idle costs that are sitting there that we have to recover from. We also have a lot of work ahead of us in terms of the remediation and stabilization from a cybersecurity perspective. So there's money that's going to be spent throughout the year to support those two activities that are really related to the cyber event itself. In addition, we know that there are some pressures on some different areas around oil and other raw materials that we're managing in this overall guide as well. That's offset by what I talked about before in the tariff refund piece of it. So we have a lot of moving parts. It's a lot of different items that are happening from a macro perspective that we're managing. And so I think it's those elements that are still kind of what's left us with a little bit wider of a guide on the EPS side. But at the same time, we feel really good about being able to fall in that range. And certainly, as Kevin mentioned before, you know, as sales are delivering, the more we can do and deliver on the top line, we expect that to fall through EPS as well as we go. So I think it's really just managing those big macro items throughout the rest of the year is going to be what we're going to be wrestling with.

Okay, very helpful. And then, Kevin, one for you, you know, we've seen physician reimbursement on large joint replacement come down over the last 10, 15 years pretty steadily. But this year, Medicare took a pretty big swing as much as, you know, 20 plus percent on knees, hips, shoulders, et cetera.

I'm just wondering if you have any thoughts on, you know, what the industry and the orthopedic industry is doing, you know, to maybe push back on this or whether you think this has any impact in future years on, you know, knee and hip replacement, you know, on the physician side. yeah listen we proposed rules are always um sort of there's sticker shock this has been going on ever since i've been at striker for 15 years we see the proposed rules come out they look they create noise and and then the normal course of sort of everybody voicing their opinions uh it ends up getting to a reasonable place and so i don't assume that it'll be any different this time uh what you are seeing of course is you know there are shifting of site of care within orthopedic procedures, that is going to continue without question. And frankly, for Stryker, that's a good thing because we like the ASC as a place where we can win not just in hips and knees but across our entire portfolio. And so that trend, I think, will continue related to reimbursement pressures. But the demand for joint replacement procedures is unabated. Every day, 12,000 people are turning 65. There's more and more people being active. So I don't see that changing, that dynamic changing, and I think the physicians will do fine. They're needed, and their voice will be heard.

Your next question will come from Travis Steed with Bank of America. Your line is open. Please go ahead.

Hey, thanks for the question. I wanted to push a little bit more on the U.S. ortho numbers, especially the U.S. tip number. It's hard for us to see the underlying growth there, but it was a little lighter than I think some expected. I don't know if there was anything on share shifts to the market and U.S. Hips and Needs that kind of took some of the upside away this quarter.

Travis, in terms of U.S. Hips, nothing that we would point to in terms of major share shifts or changes there. I think the one thing I would point out is, again, the delivery of the number this year was, again, a pretty large prior year comparable. So we had an 8% growth last year in that space. So it's really just a comparable. Well, I think as we look at any of our numbers across orthopedics, we always say, you know, one quarter doesn't make a trend. And so I think that's true here. So nothing major has changed in terms of anything that we've seen in underlying market conditions standpoint.

Okay, thank you. And maybe a little more color on the Inari supply disruption. What exactly happened? Is it just the Inari business or other parts of vascular certain products? Is there a catch-up in Q3 assumed in the guide, or is there some lingering impact on it? You said manageable by the end of Q3. Just curious how it works out on the numbers for Q3.

Yeah, the supply disruption, I'm not going to get into the details of what it was, but let's just say it did cause a significant backorder specific to one plant in the Inari business, which frankly makes virtually most of the products, other than third-party products, manufactured for us. So we had an issue with that plant. That created the backorder. The backorder is pretty elevated right now, and it'll work down to a manageable level by the end of the quarter. We still do expect the business to grow in Q3 and to grow in Q4, but it's going to take a little time for that to build because of the backorder situation. So we finally got the Salesforce stabilized. We're feeling really good about things, and then we had this hiccup. And unfortunately, when we do acquisitions, we've felt this pain before with some of our other deals in the past and obviously moving it to our Striker sales force and now to our Striker manufacturing systems that we have experienced this. We did this with Sage. It's happened to us with Mako. It's happened to us. We don't obviously enjoy it, but we do love the market and we do love the products that they have, the pipeline that they have, and we'll be back.

It'll just take us a little bit of time to dig out from under this backward situation.

Your next question will come from Vic Chopra with BMO Capital Market. Your line is open. Please go ahead.

Oh, good afternoon, and thanks for taking the question. Kevin, you characterized the second half outlook as strong. I'm just curious what key assumptions are embedded in the back half regarding volume growth, capital conversion, and backlog realization. And then I had a quick follow-up, please.

Hey, Dick, I'll take that one. You know, in terms of the back half of the year, you know, we're not going to give all the specifics in terms of what we're expecting across each one of those elements that you laid out, but what I can tell you is when we've exited this quarter, the momentum that we see really across the business, so even just from a procedural standpoint, as well as the capital business, and the way we look at the capital business in particular is looking at the order book, looking at how strong that is. I've mentioned even some of the products that are driving it for medical, but we see that really across all of our capital businesses, and so it's really our ability to capitalize on that through the production ramp that Kevin's talking about is what gives us a lot of confidence in being able to deliver on the capital side. And the same thing on the procedural side. It's really just continuing to run the offense behind Mako on the joint replacement side. And obviously, RPS hitting full launch as well. I think those are the things that we really believe in that are going to help drive both sides of those businesses.

Great.

And then just for my follow-up, you know, if you could just talk about the early feedback on Mako RPS and how we should think about the ramp and impact in 2026 thank you yeah listen we were in limited launch for the second quarter and the feedback has been really outstanding it's really easy to use the surgeons really uh enjoy the experience that the haptics surprises them frankly how you can do that in a handheld robot so uh we're getting really great feedback and now we're going to move on to full launch there are there is a subset of surgeons that are not ready to move all the way to MAKO, who are only interested in doing total knees, especially in the ASC, that this is going to be a beautiful fit for. We've already had some conversions, but it's been small for now, but we are planning to really wrap this up and excited about this.

Your next question will come from Matthew O'Brien with Piper Sandler. Your line is open. Please go ahead.

Afternoon. Thanks for taking the questions. Kevin or Preston, I hate to keep harping on this, this back half, because I think everybody's really nervous now about your ability to hit the back half numbers, but you keep talking about this production ramp, your facilities being able to meet this sizable ramp in the back half. You know, I'm no manufacturing expert by any means, but are there any factors that potentially could impact your ability to make enough product? It seems like primarily in med-surg to be able to deliver a significant ramp in Q3 and Q4. And it seems like it's a little bit more even in Q3 than we're accustomed to be able to get to the full-year guidance? Because I think that's what everybody's really worried about.

Yeah, listen, we're not worried. I mean, the guidance that we're giving is based on what we know. We know how many shifts to run. These are products that we, they're not new products we're making. These are products that we know how to make and that we've made in the past. So based on adding shifts and being able to plan for this, we feel really comfortable with the guide that we're giving to you. Obviously, we're going to try to make even more if we can. But we're setting the guidance in a place that we feel very comfortable being able to deliver. The orders are already there. So demand isn't the problem as it relates to capital equipment. It's really just being able to fulfill those demands. And could we have an issue here or there? It's always possible. We think we've accounted for that in the guidance that we've provided. We have a habit of hitting the numbers that we provide to you and potentially beating the numbers that we provide to you. And this is no different when we give this guide. It's we give this guide with great confidence in our team's ability to deliver that. These are businesses we know. These are products that we know. Our plants are fully operational after the cyber event. And so we have added shifts here and there. Those shifts are performing well. And based on that, we've laid out our guidance for the year.

Got it. And then just to follow up on peripheral vascular, you know, I know you have the Salesforce in place and And then you have this hopefully short-term supply issue. That space, though, I mean, those procedures, they can't be delayed. So I just want to hear a little bit more about your confidence in re-energizing and re-accelerating growth in that franchise, getting through this supply issue. Do you think it's something where you could lose some share durably, or is it something where you can recover based on your early experience with that business?

Yeah, you're right. We did lose sales. I think I said that in my opening comments, that those are procedures you don't, it's not like capital equipment that's used. So we did lose business because those cases are emergent. We did prioritize our products. We had an allocation process, as you can imagine. So we kept our highest volume, most loyal customers, we kept them happy. And then the customers that ordered sort of smaller amounts, and we let some of that business go because we had to. But we have a fully ramped up sales force. And that is something that we hadn't had in the past year. We've gone through a lot of turmoil with the signing of non-competes and a lot of sales force turnover. We now have a very stable and hungry sales force, and they're going back on offense. And as this back order starts to come down, which it's already starting to, I think we're going to be in great position to recapture some of that business from those other accounts and actually fortify ourselves. So we're feeling pretty good about our ability to recover. We have great products in this business.

We have a great brand in this business, and we'll be back.

Your next question will come from Vijay Kumar with Evercore ISI. Your line is open. Please go ahead.

Hi, Kevin. Thank you for taking my question. I guess one on, you know, you get asked on capital deployment and M&A historically. We're curious, given what the stock is, Kevin, and you guys just put up great numbers. Is there a bias towards ShareReport? I know you mentioned on the call, maybe talk about the opportunity that you see, you know, and what's the size that we could think of from a share repo perspective.

Thanks. Thanks, Vijay. As we look to think about our capital deployment strategy, I mean, really nothing major has changed. I mean, the M&A continues to be our number one priority and our plan is to continue to find those opportunities that are going to drive future growth. So that's first and foremost. What we have seen, though, as we continue to grow and scale and continue to focus on delivering more efficient cash flows, it has given us the ability to try to return shareholder value in a few different ways. And so as a result, that's why we're talking now about potentially going back and doing share buybacks. And so we are looking at doing some more, some of that in the second half of this year, really focused on trying to just continue to use cash in a really efficient way. In terms of size and what that could look like, we do have already approved from a prior approval by the board about a billion dollars available for us. I'm not saying that's what we're going to do, but that's what we have available. And it's something that we are going to take a look at. It's going to really depend on deal flow and timing of that deal flow from an M&A standpoint, as well as what the current valuation is of our share. So those are going to be some of the elements to determine when we go out and do something and how much we do. But really, our focus and our number one priority is not changing from M&A, but we will also supplement it with some shared buybacks this year.

That's helpful. And Kevin, maybe one on backlog and orders. Any elongation of backlog or cancellations, just given some of these concerns from cautious comments from hospitals, if you could comment on backlog and order book, that would be helpful.

Yeah, look, as we mentioned earlier, we have an elevated backlog as we exit the quarter. We've seen zero cancellations in our order books. And our teams know how to deal with slight delays when we have issues with manufacturing. And our customers order a lot, quite a bit in advance. And we're able to meter that. But thus far, we haven't seen really any cancellations and feel really good about the capital business. And getting back to your first question on cash flow, because you, PJ, were one that used to challenge us a lot, if I remember, 10 years ago on cash flow. If you look at the amount of cash flow we generate now versus six years ago when we stopped doing share buybacks, we can now start to do some level of buybacks and still have a huge amount of firepower to do acquisitions. So we still have a very, very robust pipeline of deals. We are very disciplined, so we will pass if the price isn't right on deals. But we are going to execute M&A, no question about it. But just given the sheer size of our cash flow, we can also start to do opportunities to pay some share buybacks. And given where the price of our stock is, we're going to start to do that.

Your next question will come from Patrick Wood with UBS.

Your line is open. Please go ahead.

Thank you so much. I'll just ask the two up front if I can. um first one it's an area that doesn't get a lot of questions but curious about you know smart care and the smart hospital that you guys pushed out you know viscera's obviously going very strongly in the background how the feedback to that has been and vision for that so that's that's one and then the second is you know obviously equipment business very strong you know i know that it's a slow tanker moving into the asc that's been happening for a very long time and over years but have you seen any pickup of that in late it just looks from some of the data that we see that But that ASC volume shift seems to have picked up this year a little bit more. Curious if you're seeing that.

Yeah, first, on SmartCare, I'm super excited about the creation of the business unit. It's a new business unit that started at the beginning of this year. The tech stack has been modernized, which took us a little bit of time. Everything's cloud-based. Carri was already modern. We had to kind of upgrade the tech stack. The orders were very strong in SmartCare. So we're expecting a really big second half of sales growth because the orders have really, really picked up. Since we've created the business unit, integrated the tech stack, we're getting great feedback from our hospital customers. And I'm expecting a very strong second half of the year and future related to smart care. So bullish on smart care. On the ASC trend, it's more of the same, honestly. It's just the limiting factor right now is construction of ASCs. And that just takes time. But every single hospital system we talk to are looking at doing that. If you look at our hip and knee business, it's now in the high teens percent, pushing 20 percent of the procedures now being done in ASCs. And you remember before COVID, it was 5 percent. So that's a pretty significant ramp, but it's steady. It's not going to sort of inflect. I think it'll just continue to be kind of on the current trajectory just based on construction of ASCs or rebuilding and renovations. Those things just take time. And we get to be on the front end of those with our communications business with booms and lights. And we actually help customers design the ASCs with our architects that are part of our communications business in Dallas. So we have a pretty good line of sight into the trend on ASCs. I think just steady growth. And now you're starting to hear even in Europe and other countries, they're starting to have an interest. And I think that ASC trend will actually start to pick up around the world as well.

It's very early there, though.

Your next question will come from Richard Newitter with Truist. Your line is open. Please go ahead.

Hi, this is actually Ravi here for Rich. Thanks for taking the question. I want to kind of pivot to IVL, Amplitude, maybe the PVN market. Could you talk about, I guess, timing of some of the clinical trials there and what you expect to come to market? And then just overall, what the market growth that you see kind of from a procedure perspective, I think a couple of quarters ago you said mid to high teens. Is that still the case? And then just finally, you know, one of the things that we've heard about IVL is that it brings pull through other kind of coronary products. So kind of given that hypothesis, you know, how do we think about, you know, your desire to kind of build out that portfolio even more or even quicker than maybe FDA approval?

Yeah, okay. There's a lot in that question. So, look, we're excited about the ABS acquisition. The first product, the IBL, the first indication is going to be above the knee, and that will drop right into our peripheral vascular sales force. The feedback from our customers has been really positive. They love the method of action, the way the product performs, at least from what they've heard and what they've seen, those participating in the clinical trial. So we've submitted. We don't know when it will be approved, but there is a chance that we will start to be selling that product before the end of this year. We'll keep you posted as we hear from the FDA on that. And we have commenced a trial on coronary indication. That trial will take a little while, so we'll keep you posted on that. But it's certainly not something you can think about in the next six months to a year. It's going to take longer than that. And then, as you know, we never just do one thing. When we buy something, as we've done with Inari, we follow on with AVS. And we'll continue to look for other technologies to broaden the call point and the products that serve those call points. That's the striker offense. We've done that. You've seen us do that repeatedly with neurovascular. We started with the Boston Scientific business, and then we quickly followed up with Surpass and Concentric. And so that's our offense. So we will continue to do that. But these products kind of stand on their own. They're very, it's a very compelling treatment area. huge demand. We'll start to size the demand and the opportunity as those products come to market rather than spend time today, but we're very excited about the technology. Feedback from surgeons has been incredible, and I'm looking forward to getting those on the market.

Your next question will come from Matt Taylor with Jeffrey. Your line is open. Please go ahead.

Hi. Thanks for taking the question. I guess I was hoping you could discuss the results in Q2 and the recovery going forward in terms of the three buckets that you had talked about before with revenue recognition, some catch-up in procedures, and then the capital that you've been talking about a lot on this call. So, could you be specific at all in Q2 in terms of how much REVREC or procedural recovery helped, and then, you know, which of those buckets, presumably the last two, are going to contribute the most in the second half?

Yeah. So, as I mentioned before, Or really, the REVREC piece we would have seen, we didn't quantify that specifically, but certainly that would have been a small piece of what happened in Q2. You're right. The last two buckets are the largest, particularly around the capital side of things. And so that you'll really see, as we talked about before, ramping in Q3 and Q4. So I would say we expect to see that. We have not quantified any of those pieces, again, because across all our various businesses, it is a little bit different how they're all interacting. But the way probably to think about it is the REVREC piece is done, and you really start to see the capital components of that and the rescheduling of procedures more so in Q3 to Q4.

Okay, great.

Thank you very much.

Your next question will come from Matthew Blackman with TD Cowan. Your line is open. Please go ahead.

Good afternoon, everybody. Thank you for taking my questions. I've got two. Both are NARI-related. I'll just throw them out up front. And maybe just to start quickly, Preston, just hoping for a little bit more color on the Nari supply shortfall. How much of an organic drag was it? Our math, it could have been 50 to 75 basis points. Is that sort of roughly the right ballpark as you think about the impact in the second quarter? And then, Kevin, I was hoping you could give us a bigger picture State of the Union on the mechanical frontback to the market, maybe in two parts. You know, what does the market look like today? It's harder for us to get a feel for the underlying market trajectory, and there are a few cross-currents. You have a supply headwind to work through your biggest competitors in the throes of integration. There are emerging players coming, but there's also a bevy of supportive data out there and still coming. And so the real question is, how do you think about a sustainable market growth rate over the next couple of years, and could that growth step higher over time? And then the quick follow-up there is, how do you position mechanical thrombectomy and IVL when you have it later this year, perhaps, at the peripheral vascular call point? Is there an opportunity to cross-sell, and are we underappreciating that aspect of these assets? Thank you, and sorry for throwing that all out there at once.

Yeah, that was a lot. Let Preston start, and then I'll finish. Yeah, I'll take the easy one. You're in the ballpark on the impact. Financial back to you, State of Humus, Swiss, you're in the ballpark. Look, as it relates to the market, this is a market that has huge potential to grow. Kind of like if you think about neurovascular, the Mr. Clean study that happened kind of created a big step up in the overall market demand. The equivalent of that is a peerless to study that we just finished enrolling. 1,200 patients just finished enrolling. It takes roughly a year to do the data readout on all the processing and everything. So that will come out kind of mid next year. And I think that will lift the entire market because it's really a high-powered, very, very important clinical trial, the most important. We have some other trials going on, but this is by far, I would call it the seminal trial within peripheral vascular that will really hopefully blow the market open. There are some new competitors. They tend to be more in just the aspiration kind of portion of the market. As you know, Inari has a full suite of products, which includes a clot retriever as well as the floor retriever. And so it's really a full product portfolio. But I would say that that's going to be the biggest catalyst for the market to grow. And we're looking forward to that data readout and that being published in the middle of next year. But meanwhile, the market is still a good market even today. Our problems are internal to us. We will get those problems resolved. we'll get back to the double-digit growth as we rectify our supply chain challenges.

Great. Thank you.

Your next question will come from Caitlin Roberts with Cancord Genuity.

Your line is open. Please go ahead.

Hi. Thanks for taking the questions. Maybe just two for me. On the innovation front, you called out some recent product launches earlier in the call. Just wondering if the, you know, manufacturing disruption has impacted the timing or pace of any of the recent or upcoming launches. And just some more color on RPS, you know, like what's the site mix been between AACs versus hospitals? And has the converters been more existing MAKO surgeons adding to their capabilities with RPS, or have you been converting new to striker surgeons?

Yeah, listen, it's really early in the RPS days is what I would tell you. And we've done both hospital as well as ASC, but it's been very early. We focused actually more on competitive users than we have existing striker users. That's been very intentional. And so that we're going to continue to push probably much more on the competitive front in the early days. And then eventually, obviously, reach out to the striker service. That's typically what we do. As it relates to ramping new products, I would tell you that probably Triathlon Gold is the one that's just a little bit slower out of the gates than we would like. just because we lost production for for a few weeks but the demand for triathlon gold is very good and we are ramping the production but that's probably the one of course if you should close your plans for a few months a few weeks sorry that's going to delay you know your ability to to get the sets out as an instruments and everything out as fast as you would like but but nothing in a in a material way so we're really excited if i think about something like total ankle with prophecy we didn't have the prophecy planning and guides approved so we We were kind of on only a limited launch anyways, and so that production really wasn't hurt as much. So it kind of varies by product, but now that we have all our plants humming, we do have a lot of new products coming, scaling in the second half, and in the case of Sonopet, launching in the second half. And that's going to be an extra catalyst to help propel our growth.

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

Well, thank you all for joining our call. As you can see, we have definitely fought back from the cyber event. delivered an overall growth that was in line with what we planned. And we've narrowed our guidance where we feel like we can deliver a very strong year for Stryker. And we look forward to sharing our Q3 results with you in October. Thank you.

This concludes the second quarter 2026 Stryker earnings call. You may now disconnect.