Stryker Corporation (SYK) Earnings Call Transcript & Summary

[Operator Instructions] Please welcome Vice President of Investor Relations, Jason Beach.

Thank you. Well, first off, welcome, wow, what a turnout here in Mahwah, New Jersey. If you remember, you go back a couple of years ago, the last time we did this, the environment was a little bit different. So the turn out looked a little bit different. So I appreciate making the effort to be with us in person. I think it's going to be a lot of fun today. Thank you to those on the webcast as well for joining us. So let's jump into the agenda here. You can see we have a variety of topics with a variety of speakers. I think we'll cover a lot of ground this afternoon. And then towards the end, I'm going to point at one piece of the agenda here. You can see at the very bottom, there's a product demonstration and cocktail session for those that are in person. So we'll get done here. We'll end Q&A. We'll go over to the Homer Stryker Center [indiscernible] of our division presidents here as well. So that will be an opportunity for you to spent some time with them as well in person. So I'm going to throw up the disclaimer here, and then we'll get rolling. I'm not going to read it to you. As you can imagine, there's going to be some forward-looking statements as we go throughout the day today as well as some non-GAAP financial measures. So with that, how about we get into it. I'd like to introduce to the stage our Chair and CEO, Kevin Lobo.

View to Mahwah, New Jersey. We're very excited to share our outlook with you about the future equally important to get you to see and get to give you exposure to our amazing challenge. You're going to hear from many people from the stage, but you also get a chance to interact with all of our people at the Homer Stryker Center afterwards. Last month, I completed my 11th year as CEO of Stryker. Time flies, for sure. But I can honestly say that I've never felt more optimistic about our future. Now obviously, this comes on the heels of a pandemic and a supply chain crisis. So obviously, things feel a lot better now. But honestly, if I step back and look at our product pipelines, they've never been stronger. If I look at our international opportunity and how poised we are for the future, never been better. So like I always like to do, start off my presentation with our mission and values. We launched these 10 years ago, not a single word has changed. Everybody starts our presentations with this. It's on all the walls of our building around the world. One thing we did add was the gold color. So we did not have a color, if you recall Stryker 10 years ago didn't have a color. So 9 years ago, we added the gold accent color, which you see all over the stage. If you go to our booth at Academy or any other meetings, you see the gold color. So that is our master brand accent color. So 10 years ago, the mission and values, 9 years ago, the gold accent color. This is our company's strategy. It really has evolved a little bit over the 11 years. We've made certain changes. We have the customer focus more prominent than it was before. But since the last time we had an Investor Day, not a single word has changed on this slide. So it changed about 6 years ago, it changed again about 4 years ago. But this is a winning strategy. This category leadership approach is a winning formula for success. These pillars are the pillars that are helping drive our strong performance both on the top line and as well on the bottom line. This is a really interesting slide here. If you look at our organic sales growth, if you recall back in '11, '12, we were growing around 4% a year, then we moved it up to 5% to 6% to 7% to 8%. Of course, we had the pandemic. And then if you look at the 2022, we grew 10% organically. And this year, again, we're going to grow a little over 10% organically. Two years in a row of 10% organic sales growth. This is not what you normally see. As companies get larger, normally their growth slows down. So I think we are defying the odds by accelerating our organic sales growth as we get larger as a company. Equally interesting is if you look at how much growth was that delivering for the company back in 2011, '12, it was about $300 million. Now that growth is about $2 billion. That's the strength of the size and the growth engine. It's contributing tremendous amount of growth in percentage terms as well as dollar terms. Just kind of doing a before and after picture from 2013 to 2023, we were around $9 billion in 2013, growing at 4%. We had 14 business units. Fast forward to 2023, we now have 22 specialized business units growing 10%. So we continue to specialize, continue to increase that focus on the customer, and that is the formula for continuing to drive very high growth is continuing to specialize, continue to get into faster-growing spaces. When I joined Stryker and became CEO, we were largely considered a hip and knee company. We have Don Payerle sitting in the front. He loves that we're considered a hip and knee company because he's the President of joint replacement. We do love our hip and knee business. But to be honest, we weren't hip and knee company back in 2013. We're even less of a hip and knee company in 2023 as hips and knees represent only 19% of our business, just something that I don't think people fully understand. You can do the math yourselves, but I think just the history of the company kind of tends to lead the people to think of us in that context. I just wanted to put a spotlight on that. Lastly, if you look at capital allocation, we had a very balanced approach back in 2013. Balance, meaning we did buybacks, we had dividends, and we had some acquisitions. We clearly shifted our focus towards first use of capital doing deals. And we've done over 50 acquisitions in the last 10 years. And that will continue to be our first priority for capital, doing deals. Now obviously, we've been in a pay down debt mode, but we are really excited and Glenn will talk about that a little later on getting back on offense on acquisitions. Now just putting another slant on this diversification of what's occurred in our company. If you look at these 2 pie charts, 2013, 2022, you can see how much our business has changed. And through that change, we've intentionally gotten into faster-growing spaces. So we are now exposed to faster-growing markets than we were back in 2013. Look at Medical. Medical was 8% of Stryker's revenue in 2013. It is now 16% of our revenue. And when you think about medical, there are 3 business units in medical. You have acute care, which has now moved from low single-digit end markets to mid-single-digit end markets through the Vocera acquisition, giving us exposure to a much faster growing part of the market. If you look at emergency care, that's a high single-digit grower. That includes our Physiocontrol defibrillator business as well as the powered cots you see in the back of the ambulance. And then you have stage, which is also high single-digit end markets. And of course, as you know with Stryker, we perform a little above our markets. But we now are exposed. The Medical division is a big division. It's also very fast and participating in a fast-growing segments. That's been a big transformation. If you look at 16% of sales, it's not that far away from hip and knees. If you look at the hip and knee at 19%. And this year will be the fourth consecutive year our Medical division is growing double digits on a full year basis. So that is very different than it was in 2013. Extremities. Obviously, a huge acquisition of Wright Medical, wildly successful acquisition. You have Tim Lanier sitting over here, who led the upper extremities portion of Wright and is now our Trauma and Extremities overall President. But that's increased from 12% of our business to 15%. More importantly, we have turbocharged our presence in lower and upper extremities, which are high single-digit end markets. So again, more exposure to faster-growing markets. People always ask me, how durable is your sales growth? Well, I think if you look at the chart going from 4% to 10% and not only the chart, not only what you're going to hear about our talent and culture, our 22 business units, but we are now participating in faster-growing markets than we used to participate. And then you look at neuro, we had this big bucket called Neurotechnology at 10%. We've now divided it up into Neuro Cranial and neurovascular, given how fast it is now that's at 14%. Those are again faster-growing markets than the traditional implant businesses. So this is a portfolio transformation that's occurred very intentionally largely through acquisitions but also through internal innovation. So overall, if you look at our end markets, they're roughly mid-single-digit growth end markets. Later tonight, we're going to post on the website our market outlook by division and by business. For all of our 22 businesses, you'll be able to see what the TAM is for each of those businesses, and for the next 3 years, whether we expect the market to be low single digit, mid-single digit, high single-digit or double-digit growth. And as you look through that, you'll really understand clearly why our exposure to these markets positions us extremely well to sustain the kind of high growth you've become accustomed to. So again, that will be available online later tonight. And then the last point on this slide talks about international. Significant opportunity for us. It's 26% of our sales, but we've now built some muscle and you're going to hear about that later today with the international panel, big opportunity, multibillion-dollar opportunity in international. So here's how the day is organized. So we're going to start off talking about our talent, our culture, our structure. We're going to have a number of presenters talk to you about organic growth and inorganic growth through M&A. We have the international section I just referenced. And lastly, we're going to focus on driving growth and profitability. And that's in Glenn's section where we're laser-focused on improving our operating margins. I can tell you he'll give you the details, but just to tease you a little bit, we are going to have accelerated operating margin expansion in '24 and '25. And then starting in '26, you'll see kind of a resumption of a more normal cadence. But there will be an acceleration, and those details will be forthcoming. So with that, I'll turn it over to Katy.

I'm really excited today to get time with you to talk about some of the elements of our organization that are truly differentiating. So as I'm sure you've heard many times, our structure, our talent, and our culture are some of our secret sauce here at Stryker, and are really foundational to our belief in continuing to grow. So every day, we have over 51,000 employees that show up to deliver for our customers in over 75 countries around the world. And we have the pleasure of being able to positively impact over 130 million patients every single year. These people, this talented group of highly mission-driven employees show up to do this in a very specialized structure, as Kevin just talked about. So when you think about our structure, our ability to really deeply understand our customers' needs is driven by and grounded in these focused specialized commercial teams that are dedicated to our 22 business units. This unique structure allows us to very quickly identify innovation opportunities. And then it builds this engagement and collaboration within the business units where they are highly autonomous and can make very quick resource decisions to deliver on those innovation opportunities. And then we have our enabling functions that really line up every day behind our business units to make sure that we deliver for our customers and for our patients while also looking for opportunities for us to drive efficiency and scalability through process standardization through systems and platforms. So to put it really simply, we are nimble and focused where it matters, and then we drive scalability and standardization where it's value creating. But this structure is only really effective if you have the right talent in the right roles focused on the right outcomes. And that is why we are relentless in our pursuit to make sure that we are attracting, developing, engaging and aligning people to Stryker who are mission inspired and driven to deliver for our customers. Now I've had the opportunity to work at other organizations, and I spend a lot of time networking with other CHROs. And I can tell you that the level of commitment and focus that we put on our talent practices is different from other companies. It truly is differentiating. And it starts with a rigorous screening approach. So we use an unbiased databased approach to really look at how we attract and bring people into Stryker who want to deliver on our mission. For example, we study our best performers in roles to really understand what are those attributes that make them the best. And then we take those results and we develop interview questions that are focused on assessing those attributes and candidates as we bring them in. And then we have a focus on what we call strength base development. So we really think it's important to find out what people are best in doing and then give them the opportunity when they come in to do those things that they're best at doing to thrive in their career and continue. So all of our employees take the Gallup StrengthsFinder assessment when they come into Stryker. And that allows them to better understand themselves and allows them to grow in their career and help us figure out how we put them enrolled, so they're going to be most successful. And then if you think again about our structure, because we have these focused specialized businesses, we're able to have people move across different businesses, into different segments, into different geographies, into different functions, which really stretches them and grows them, and they have a diversity of experience that helps them thrive in their career, builds collaboration across the company and then also keeps this company as against larger, smaller feeling. And then finally, we are known for having a highly engaged workforce. The surveys that we do show us that we're in the top quartile of engagement. And a big part of that is that we make sure we're always listening to our employees. It is so important for us to make sure that the employees across this organization have the opportunity to share with us what we can do to be better as an organization. It also drives a very innovative culture. The more that people feel that their voice matters and the more they're willing to bring innovation. So we do this through a multitude of ways. We do it through surveying, we do it with one-on-ones. We do it through our employee resource groups. But one thing that's very unique at Stryker is how accessible everybody is to each other. There is no ivory tower at Stryker. Everybody is on the same team rolling up their sleeves every single day to deliver. And our employees here know that their voice matters. It makes a huge difference. And this is really foundational to what drives our culture. So you hear about Stryker culture all the time. And it really is a catalyst for our success. And to put it in the most simplest terms, culture means this is how we get things done. And it all starts for us, as Kevin said, with our mission. We keep the patient and the customer at the center of our decision-making. And one of the ways that we do this is we regularly share patient stories around the company, and having the opportunity for all employees at Stryker to hear from someone who has been directly positively impacted at probably one of the most vulnerable times in their lives is so inspiring to all of us. And it keeps us humble and it makes us hungry to want to continue to have this impact around the world. And so this makes us think about from a growth mindset, what more can we be doing? What areas can we get into? How do we try new things to make sure that we can deliver more for more patients? It keeps us curious. We know we don't have all the answers, and we want to figure it out so that we can help more patients. And then ultimately, it pushes us to be better. We set really high standards for ourselves and for each other, and we regularly deliver on that. This is a performance culture. We in public settings, regularly share who's performing well, where we have opportunities to get better and what we're going to do about that. We do not shy away from accountability here. We just do not. And so you've heard me say a number of things about our talent and culture and structure that make us unique, but you don't have to just listen to me. We are regularly recognized as an incredible place to work. And these are just some of those recognitions. And although we take some pride in this, ultimately, why this is so important to us is the message that it sends to our customers and our employees. We bring the best products and services. We keep our promises, and we are part of making healthcare better. So to share more on this, I want to invite up Andy Pierce, our Group President, MedSurg and Neurotechnology to talk about innovation.

Alright. Katy, nice job. Thank you so much. We love talking about our people, and I'm pumped. I hope you guys are too. I can see it in all of your faces as you're down typing on your screens. All right. So I am actually thrilled to be here talking with you because we love this topic. At Stryker, not only do we love talking about our great talent and culture that Katy talked about, but we love talking about our innovation and how we inspire innovation across all of those 22 business units that were mentioned in our company. So that's what I get to share a little bit around the how. Now we have many thousands of products in Stryker. So I won't go into each and every one of them, but I will be available in the Q&A, as well Spencer, for any questions that you have around specific technologies, new platform launches, et cetera, and of course, at the product fair. So with that, we can't talk about inspiration and innovation at Stryker if we don't first start with our origin story. As many of you know, Stryker Corporation was founded in Southwest Michigan by a local orthopedic surgeon. Born and raised in Southwest Michigan founded the company in Kalamazoo. And Dr. Stryker was unique. He's unique in our industry, in fact, even today, to have founded a company and certainly one of our scale as a surgeon. That's actually rare. So not only was Dr. Stryker surgeon, of course, he was an entrepreneur. He started this company, and he did it for the right reasons. And you can see up there in his quotation what those reasons were to make some tools that work when they don't. So he was an inventor. He was a surgeon. He was an entrepreneur. And I think more importantly, if you ask him, relative to his company to Stryker Corporation, he was a customer. Yes, of course. He used the products on the patients that he served that is company invested and built. That drive to make health care better. That drive to create new tools that raise the standards of patient care all around the world is what drives us as a company today. And I do think that, that's unique. When you think about the origin stories of so many companies around the world, we love business people. We love engineers who start companies, but it is unique that we have a surgeon's DNA inside of Stryker. So that innovation has to ultimately -- that inspiration rather has to ultimately lead to innovations. And as they say, you got to put your money where your mouth is to some degree. And how do we do that? We believe that we invest in our innovation at the high end of our respective markets. And you can see today that's over $1 billion annually in the company in investments in R&D and upwards of 7% of sales. We also believe that a sign of a vibrant, thriving innovation culture is a culture that invents or develops novel technology. And these are technologies to use basic parlance, that can be patented. If you look at Stryker's patent portfolio today, it's over 5,000 patents. It sounds great. But I think what's even more impressive is you think about that vibrancy and how you're growing innovation over time, novel innovation that solves real problems, and you look at 50% growth in our U.S. patent portfolio just since 2019. And to make that even a little more exemplary, I'll use a specific example in the company. If you look at how we continue to innovate around our Mako portfolio, today, our digital robotics and enabling technology organization inside the company holds over 400 patents. When we acquired Mako in 2013, so just 10 years ago, we had 60. So if you think about the effort and energy and creativity that's coming out of all of our great wonderful creative engineers, it's exemplary in the fact that we are patenting more technologies every single year in this company. And last, as Katy noted, we love our culture and there's nothing more though that we love than our talent and our great people. And we believe here at Stryker when it comes to engineering talent, our creative innovators inside the company that we have the best in the business. And if you have the best in the business, you should probably treat them like they're the best in the business. And we do that. Now we do that in normal ways, how they're compensated, titled, et cetera. But we do it in a few unique ways as well. One, it goes back to that second bullet that I talked about that. So I can call them around novel inventions, new ideas. We actually -- whether it's a new idea that is applied for a patent or has actually issued a patent, we compensate around that. So we motivate through some incentive on creating ideas that matter. Additionally, we have some other unique elements that we use mechanisms to drive motivation in the company and appreciation for our R&D specialists. One of those is we have a fellows program. What's a fellows program. Fellows program is a recognition, a title, if you will, that we designate on the very best of the best engineers inside of our company. This is, as they say, the top of the food chain. So we have a fellows program. It's broken into 2 groups, what we call distinguished fellows, and that is a very small group inside the company. These are 15-, 20-plus year innovators inside the company that have a long legacy of creating technologies that make a difference for all of our stakeholders. And we have a newer program that's up and coming called technical fellows. Now these are a little more junior. These are kind of in that 7- to 10-year range engineers that also have that distinguished track record of contributing in an outsized manner. Now what does that do? Of course, that creates inspiration and motivation to all of our engineers to one day become a distinguished fellow or a technical fellow inside of our company. And last but not least, this would not be Stryker if there wasn't a friendly competition. And every single year, we have an annual awards banquet for our R&D professionals inside the company. What do they do inside the awards banquet, of course, if it's in awards banquet, you're going to compete, right? You're going to compete. So all of our engineers across those 22 specialized business units, they submit their nominations for respective awards like best invention or best product, best team, best collaboration, and they have a spirited evening of jabbing one another and hopefully, congratulating one another when they win. So these are just some of the unique ways that we motivate and inspire our very best on the innovation talent side and some of how we believe in our ecosystem, we drive innovation across the company. Our decentralized specialized model that Katy and Kevin mentioned is wired to drive innovation inside Stryker. We want each and every one of our business leaders, those 22 business units that we talk about to realize the thrills of success and the anxieties of failure. This is an entrepreneurial company. We push those decisions down into our businesses, and they get to run them. And most of the time, they get those thrills of success. And sometimes, I hear some giggles over here from some of our business leaders. They also get those anxieties of failure, very rare is that. But the bottom line is there are business people that get to run their own business inside of Stryker. And what are some of the advantages that come from that specialization drives in the first bullet that you see there, deep command and Katy alluded to this as well, deep command over the needs of our customers. So when you're very narrow, very specialized, you can go very deep in your respective space as to what your customers need. So they get a deep understanding of met needs of met needs that could use some improvement, and of course, of unmet needs. And when you have that understanding, you can put it all together and really go deep as a team and understand and make decisions around what kind of problems need our solutions at Stryker. Differentiated core competencies. When you have this specialization and it's so narrow and we build these businesses over decades, you get incredible specialized core competencies in our power brand areas. So if you think about power tools, the history of power tools inside Stryker for over 40 years, our bed business, Dr. Stryker invented the very first bed inside of our company over 80 years ago. Our MIS video business, which I'll talk a little bit more about, over 40 years inside the company. So we get incredibly deep technical expertise in these spaces. Kevin mentioned category leadership. This is a key means to driving category leadership, that deep expertise that we have around those core competencies. And then finally, when you have specialization, when you have leaders who have been in their businesses for long periods of time and their business owners, in essence, they're entrepreneurial, they make great decisions with our resources. So if you think about an important element of leadership being resource allocation, how do we put our money to work. We believe that the best means to put our money to work is put it in the hands of business leaders who are closest to the customer. And they will make great decisions on the portfolios that they decide to invest in. By the way, we believe that's paid off quite well for us over time. So recently, we've launched a number of wonderful platforms across the company. As I noted, I won't go into each of those, but happy to take questions as is Spencer. But what I will say is these are just a small sampling of all of the products that we've launched over the last several years and a very small sample. We have to have some secrets over products that we're going to launch in the upcoming years. The magic of our business is noted what I mentioned earlier, and that is these are generational launches. So if you look at ProCuity, I mentioned Dr. Stryker was the original inventor. He had the turning frame. Or you look at 1788, which I'll go a little deeper into. The first soakable 3-chip camera invented by Stryker in the early 1980s. These are generational advancements that allow us to raise the standard of patient care over time. You see the 2 starred product categories. Those are 2 product categories that you'll be able to see at the product fair as noted, 1788, we'll actually go a little deeper with the team there. But we have a number of exciting products that are in the market today and making a big difference. Now one last thing about our portfolio is, yes, we've launched a number of great platforms. Over the last several years, we have others coming. But if you look at our history, we've always done that. This is a durable growth company. We are launching new products that make a difference every single year. And as Kevin noted, completely agree with Kevin that our pipeline, as we look out into the future, what's being developed inside of those specialized business units, has never been better than it is today. So I'll go tiny bit deeper on 1788. And really, I just want to use 1788 as an example, of how innovation happens, how it works, how we execute within Stryker. I think this is a fairly typical example. It doesn't mean it's not a remarkable story and a remarkable technology, but it's typical inside the company. How did our video business begin in Stryker, over 40 years ago? Via an acquisition, we bought a small company in Silicon Valley. That became our Stryker Endoscopy business, large thriving business today. This is 1981. By the way, the Chief Technology Officer, we acquired as part of that acquisition is still working on all of our camera technologies today, including the 1888. Which will come next. Don't ask me when that's coming. But he's there. We enter a new space. We really developed the space. If you think about MIS surgery, keyhole surgery, safer surgery, for patients. We allow surgeons to perform through smaller incisions versus larger incisions. Picture on the screen, really grainy, all the technology around the platform not very good, but it's a step change in how you can perform surgery. So what do we do? We get to work. We get to work generationalizing, like I mentioned, we make the next generation, the next generation, the next generation, up until 1788, which over the last 40 years is our 26th generation of video camera. So if you look generation to generation, you might say, well, that's very incremental. One camera to another, to another. But if you look generation and you have the context of time and you look to where we are today, that's step change innovation, that we're driving. That's disruptive change, but we do it in a very methodical way over time. Now sometimes between generations, those step changes are a little bigger and a little less incremental. So if you think about moving through our early versions, standard definition, that grainy image on the screen, getting less grainy and then boom, a step change to high-definition HD video, that happened in 2004 with our 1088. Many of our sales reps are still very fond of our 1088 system. It was a great system. Step change up to HD. And then we chased resolution for a few more generations. Crisper, clearer images, better depth of field, better color pop on the screen. And then came 2015, with the launch of the 1588. Where our great engineers brought in technology, that was beyond the visible spectrum, beyond what your naked eye can see. So that means we had to use infrared lasers. When you couple a fluorescent imaging technology like indocyanine green, which many of you are familiar with as ICG, with a laser, you can actually pop on the screen perfusion. You could see blood perfusion inside of the patient. What does that lead to? Leads to safer surgery. Cut this, don't cut that, fewer mistakes, better for the patient. right? That was step change that was driven with 1588. You moved from 1588 to 1688. You take that fluorescence imaging, you add some more features to it, and you add 4K. So ultra-high definition. Now 1788. 1788 brand-new camera just launched back in September. What does 1788 bring to the table? Brings even better resolution, so that's continuing to improve over time. But as you see right at the bottom, 1788 is future-ready with more imaging agents and modalities. So more tools for our customers to be able to make better and better clinical decisions for their patients, which, as Dr. Stryker was trying to do, ultimately raises the standard of patient care. That which we get most inspired by in this company. Now I'll give you a quick little secret. The 1788. It's an out secret. You've heard it before, but I want to tell you anyway, 1788, we're working with a third-party company on a drug that we have, and we're selling and marketing and a co-marketing fashion today with this company. We have a modality inside of 1788, that allows us to couple that drug, which targets lung cancer with Indocyanine green to image cancer inside patients. In this case, lung cancer, we have other modalities and other drugs coming down the pipe. So if you ask me, when I started in our Endoscopy division 10 years ago, if we would one day be able to see cancer inside of somebody's body. I would have said that's a little science fiction, but it's kind of holy-grailish. And here we are today, and you'll learn more about that in the product fair. So I wanted to use 1788, as an example of how innovation happens in our company. Very methodically, very generationally, very disciplined and committed but also very much over time. When you think about category leadership, we are not your veritable overnight success. We do it the right way, and we earn our customers' business over time. So with that, I'll wrap and simply reinforce that our decentralized operating model, our entrepreneurial culture, our innovative spirit, that was laid into the DNA, the foundation of this company by Dr. Stryker is alive and well today. And we have many, many great years ahead of us. Thank you so much. With that, we will talk about inorganic innovation with my friend, Spencer Stiles. Thank you.

Thank you Andy. Hi, everyone. Super to be with you this afternoon. Andy, thanks for the great remarks. You've heard a lot about growth, and I'm going to continue that story here and talk a little bit about our journey through M&A and how we think about it in the company and maybe how we're slightly differentiated. Just for context, my name is Spencer Stiles. I lead our Orthopaedics and Spine business. And Andy and I lead the commercial businesses across the world. We sort of cut the world in half. And then we cut some of the functions up and I have M&A, a very small but mighty-centralized team, and then we actually have M&A out in these business units, as been described in the operating model. So I'm going to share a little bit about that. I'm going to also talk a little bit about a couple of the deals that we've done in our learnings and how this is amplified who we are as a company. But ultimately, I will build on what Kevin has said, what Katy has said, what Andy has said, that we're about growth at this company, today and tomorrow. And I, too, couldn't be more excited about the direction of the organization, thinking about the portfolio. And ultimately, one of our strongest strategies, which is up on the screen. And that's utilizing M&A for growth. And that strategy is not changing. As a matter of fact, we're going to remain committed to building out our core to entering adjacencies, to finding those right gap fillers to continue to accelerate, both innovation, as we think of the core in our business and accelerate new spaces. And Kevin mentioned it. We look at the markets, we look at the culture, we look at the growth potential, we look at the demographics, and we've learned a lot. As you can see on the screen now, we've spent over 10 years doing 50-plus deals across Stryker. And really, we're quite proud and humble of the learnings, but ultimately, the growth and how this has positioned our company in its space. And maybe what we're most proud of, when we think about this is the impact we're having on patients and the customer relationships, we've been able to further accelerate and form across the world. That's ultimately why we do this. And as we think of our future, we're going to continue to do this and do a lot of it. Now we're paying a little debt down. As you can see, maybe it's trickled a little. And then the other unfortunate news, there's not a second slide that builds out the future. We're not allowed to share that, but know that we're working on it and the pipeline is robust. And I'll make some more remarks about that in a couple of minutes. So as you can see, we break down our acquisitions between core and adjacency. And ultimately, the majority of our acquisitions have been in the core, and that will remain true, as we really think about gap fillers as our strongest returns and fastest ways to make an impact. It's also where a lot of the energy and focus in our decentralized model exists. With that being said, we've also had some bigger ones in new adjacencies, and Kevin mentioned the transformation at Medical. The addition of Physiocontrol and Sage and now Vocera, has really transformed Medical is one of our most large and strongest franchises in our organization. It's truly remarkable and a credit to Brad Saar, Jess Mathieson and the rest of the leadership team for what they brought to this organization. It's truly awesome. I'll touch on NOVADAQ and build on the story, Andy just talked about, with the 1788. It's really neat as he described that evolution. I'll talk in a minute about the addition of that technology, both thinking about the core and strengthening what we do, but getting us in new adjacencies and exposing us to new spaces and clearances of where we can sell those particular technologies. And then I'll touch on Mako, our crowd favorite, and we'll go a little deeper on that, and we'll also round it out with a few remarks on Wright Medical. I would love the opportunity to update you on how things are going there. So we'll talk about that and really the specialization that has brought. And then you get a deep dive into Vocera. And I will tell you, Vocera has just been an outstanding addition to the Stryker portfolio. I've been in this business now for about 24 years and I think about the improvements in workflow, the safety, the clarity it brings to the care providers. It is just a phenomenal platform to grow. So really excited about this -- we've got a world-class leader and Jeff leading that cause and you'll hear her in just a little bit. So let's build on where my partner and growth, Mr. Andy Pierce left it with the 1788. For those who don't know, I too started our Endoscopy business a long, long time ago, pre the cameras that he even showed, well along that journey, I suppose, but well before 2017. And I remember when we went out to acquire NOVADAQ, and NOVADAQ was the largest deal Stryker Endoscopy had done, and really needed, brought over tremendous engineering competency. I think we added about 40 engineers with that acquisition. And the breadth of technology really giving us open visualization capabilities, thinking about what could you see with an open platform and they actually had a small MIS camera as well. But they start to say, hey, think of the markets we serve today. What could that look like in 2 years and 3 years and 4 years and 5 years. And really crescendoing to things like today, I mean, Andy said it best, we're detecting cancer through visualization, to fluorescence through ICG. It's a remarkable change. And it went from a maybe feature and benefit sale and even the value of a sales professional was features, benefits, lines of resolution, look at my image versus yours, to over here, a deep connected clinical sale, creating value and how we're taking care of a patient. A remarkable journey as we think about this, maybe crescendoed to this breast surgery capabilities with lymphatic mapping. Just remarkable to think about where the technology is going. And all in the backs of a deal we did. So the deal obviously was built to say, "Oh, we've got to do this deal, it's got to bring value, but then it drives this innovation mindset. So our [ gap doors ], often, when we buy them, they bring us products, they bring us people, but it also brings us future innovation to build upon. Which there's maybe no better story to tell than one of our favorites I know we're all favorite of it now. There were some skeptics a few years ago, but the acquisition of Mako. And obviously, Mako started well before 2013. The commercialization really was in the mid-2000s when it started to gain traction but obviously landed in the hands of Stryker Corporation and which was a bold move by the CEO, at the time to acquire Mako Corporation, in 2013. And it really then put us on a path to transform how musculoskeletal care is delivered, especially in today's environment of adult hip and knee surgery. And it's been a remarkable journey and one that we are quite proud of. One that I think we're midway through the book, but it's a novel, and we've got many, many, many more chapters of growth in front of us. As we think about the scale and the platform that exists. Really some remarkable moves. In 2015, we launched a third generation of what that product looks like under the Stryker umbrella, brought that technology, that competency, that know-how, partnered with our clinicians. Brought it right next to our world-class implant specialized sales forces. And since then, have moved an unprecedented 6.6 points of market share in hips and knees, since we launched third-generation system in 2015. There has not been that type of share shift in Orthopedics ever, period. And it's because of this technology set. The first Mako Total Knee, we were focused, we said we have to get this application right and boom, it landed in 2016, and it's changed the way that we deliver knee arthroplasty today at Stryker. As you know, over 60% of our knees are done inside the United States robotically. It's a staggering statistic, and we're not done. It's growing each and every day, more and more and more. And this has now informed us with over 500,000 cases done, to get us to now our Mako Total Knee 2.0. Which you will get to see that new software application in the product fair later this evening. And then we're really proud earlier this year, we surpassed 100 million -- million cases, take the 100 out, 1 million cases. We're on our journey to 100 million, I got really excited. A million cases in our Hips, Knees and Partials, since we brought this product to market, and we surpassed that earlier this year. So here's the beauty of our portfolio. Not only are these enabling technology robots out there, but they're highly, highly utilized. So they don't sit in the back room, they don't collect dust, they're actually utilizing surgery each and every day. In Hips, our Mako Total Hip 4.0 and then recently launched after 4.1 was coupled with Insignia, our new Hip Implant, which has really accelerated our hip utilization on Mako. It was once upon a time, a mere single digit, roughly 9%. We launched Insignia, that's now surpassed over 30% of our hips are done robotically at Stryker in the U.S., another remarkable number. So when you think about this, this is an acquisition that stand-alone as a technology, would have been one thing when coupled with our world-class implants, built around the specialization of that sales force, the enabling technology has transformed the way that we're delivering musculoskeletal care. And I suppose you want to know what's that future look like. Now there's not another slide here either. However, as you know, we've talked about the additional applications that we're coming forward with. In Shoulder, in Spine. And you can imagine further down the road other musculoskeletal disease applications. So imagine this, the scale and scope of our installed base, that massive utilization number, we're really thinking about a future to leverage all those installed robots and deliver more applications for greater utilization for better use of that hardware and continue the ability to grow and take market share out in the marketplace. So extremely exciting and maybe will go down as one of our best acquisitions in history. There's a close battle of that, though, right now, which is our next one, and that's Wright Medical. And maybe those are stories of innovation and continuing innovation over time. This one is all about specialization. Where do you go out and look at these markets that are growing a little faster in a place that you play and accelerate the portfolio you have, through deep domain expertise and that specialization. It's truly quite remarkable. So we went out, we bought Wright Medical. We had a Combined Joint Replacement, Adult Hip and Knee, and Trauma Business together in really small Extremities. And we said, we're going to go do this deal, and we're going to build specialization across all those different business units. First, we're going to make 2 big divisions; one, Joint Replacement, Don Payerle is in charge of that. And now he has 3 distinct business units underneath this. He has Mako, he has a Knee business and Hip business; and Tim Lanier, he runs our Trauma and Extremities business. A stand-alone division with a specialized Trauma business, a specialized Foot and Ankle business, and a specialized Upper Extremities business. And by the way, those businesses are rockets, rockets, grown like crazy. Not only are they strong markets, but we're outperforming the market by a long shot, and it's truly impressive. We believe it's because of the great portfolio, coupled with that specialized selling organization across the various geographies. Since the acquisition, we've moved to the #1 market share in Upper Extremities, and Foot and Ankle. Category leaders really driving that position on top of our current and maintained category leadership and robots. And I think Don's got a plan to get to #1 in Hips and Knees in the coming years. And so we're lined up behind this market-leading growth strategy and utilizing acquisitions to do this. A few other things. The portfolio didn't slow down at Wright. As we acquired it, you go, okay, are you going to be able to get the products out. Our Trauma and Extremities business today since acquisition has launched over 40 new products and a few more on the horizon. Pangea, our comprehensive plating solution in Trauma is on the horizon, and we'll be seeing that in the marketplace next year. Foot and Ankle with a variety of unique MIS technologies, as we see that market continue to shift to more MIS procedures, after extremely strong position in total anchors -- total ankles, excuse me. And then in Upper Extremities, the innovation just doesn't stop. One of the neatest things that we picked up was the competency around a software solution and an implant coming together. And really, the drive behind that is a technology called BLUEPRINT, which I've shared with many of you before, this pre-planning capability has phenomenal adoption and great clinical value. And over 65% of our Total Shoulder cases are pre-planned and done on BLUEPRINT. And most recently, we've just launched the revision application of BLUEPRINT. So you can preplan a revision procedure. The utilizations through the roof, and we're monetizing that technology as well. So people are paying us to utilize our preplanning, to make sure they know exactly what they're going to do, when they execute a Total Shoulder procedure. And this is a share-taking strategy and has done very, very well for us. So we're extremely excited at that. It's a good race. We'll see over time, Mako and Wright, and where we go down in history as one of the best, and I bet Jess is going to make an argument for Vocera, when she gets up here in just a minute. So maybe where are we going and how do we think about M&A in the future? So we love looking at accelerated growth markets. We want to make sure that we're playing in places that we can see a pathway to category leadership. We love the idea of investing in our core, through these gap fillers, but we're constantly assessing the adjacencies as well. And the beauty of our model, and as you know it, there is a tremendous amount of markets, there are still opportunities for Stryker, tremendous. And the beauty of this decentralized 7 divisions, 22 business units is embedded in each one of those business units, is an M&A expert, as well as an upstream marketer, and they are thinking about the needs of the future of that business. And it is almost impossible to come across a company, a technology, a deal that we haven't heard of, or are in discussions with. We love time over target. And honestly, our division presidents, many sitting here, they love doing deals. So if anything, we've got the reins pulled back to make sure it's creating the value that's necessary for our company that it's the right time that has the right strategic fit and that we get the culture right. And through all those 50-plus deals, we haven't been totally perfect. There are learnings, and the beauty is, when you learn, you get better, and you do this over and over and over. And you think about our integrations, we have a sophisticated systematic approach, a playbook, and every time we do it, we look at this and then we refresh it and get better at it. But this is all of what makes it differentiated at Stryker. And we think about this pipeline. We discuss it. We debate it. We battle and argue about it at times in a wonderful way, but it's rich and robust. The lists are long, the markets are vast, and we're really excited about what we can continue to do, as we think about M&A in our future. So I've talked a lot about M&A. One area I've stayed away from is on the technology side of DRE. And this is our Digital, Robotics, and Enabling Tech portion of our business. And that's led by Robert Cohen. He's going to come up in a minute. But that too, really was built out of thinking about some of the technology that we have in our portfolio that we've acquired that we can leverage and look across the entire Stryker portfolio and create value. So you can imagine is things like pre-planning software, technologies that we picked up from Wright Medical, learnings that we've gotten through being a leader in Enabling Tech. How do we take that and build that across Stryker Corporation. And that's what Robert Cohen will share a little bit about in what he's been leading and he'll share a little bit more about how we're utilizing some of the technology for the future. So again, thanks for your time. We're super excited about the growth, and we're now going to invite Mr. Cohen to stage. Robert please join me.

Okay. So when you hear DRE, Digital, Robotics, and Enabling Technologies, it's too hard to say that repeatedly over and over again, but Digital, Robotics, and Enabling Technologies. Don't confuse it with Dr. Dre. I know it's obvious, but that's okay. So why a decentralized organization -- why centralized organization in the decentralized world, right? Because there's a lot of commonalities, especially on the R&D side of it, right? So this is nothing, we don't own go-to-market, those divisions, upstream marketing, partnering with the division presidents and such. This is about leveraging technologies that we have already in Stryker. And when we think of those technologies, there's a lot of capability of those technologies, but those technologies, they're capable of collecting some data. And think about where all those technologies are. And are we utilizing and leveraging that to our fullest extent? Stryker is quite unique. Now we're into this world of digital, it's funny, robotics journey 10 years ago, we weren't really talking all that much about digital. Now when you think about digital in the world, what happens when you couple digital to Stryker enabling tech. That's a very different value proposition. That's a very different value to our patients. So when we think about leveraging that, we can think about it in so many different ways. We'll also tell you the way we structure this DRE organization as a centralized fashion, it's meant for agility. For digital, if you go slow, you lose. This digital is moving so fast. This digital, you have to be careful, right? Cloud computing, product security, patient de-identified data, we got all that, and we have an infrastructure in place right now to be able to handle that. Now how do we build it? Well, we build on it with agility. So we set up DRE a little bit differently. We set it up as tech blocks. So we have people that know AI. We have people that know electronic health records. We have people who know connectivity. We have now structured. This is in place as I stand here today. Now what do we do with that? Where is the Stryker advantage? There's 85-plus solutions already deployed around the world that have some form of digital component to it. I'm not talking about things we have to deploy. I'm talking about things that are already around the globe. And if you think of those capabilities, think about the market-leading products that Stryker has. Think about it. We're one of the only companies that can outfit a whole operating room. We're the only one of the companies, think about a back of an ambulance. How about all the hospital beds we have deployed everywhere. Think about patient care, think about the continuum of patient care from preop, intraoperative and post-op. Stryker is poised very, very well for this. Yet all our equipment was not connected. Nor did we have a common means to get electronic health records and data, nor did we look at things where we can provide more benefit to the patient. So when you think in this world, think about all of these things. Now think about the potential for connecting it. And think about now, if we looked at pre-planning and digital plans, think about predictive analytics. Can we improve outcomes on equipment that Stryker procedures are already part of. Think about the equipment and think about the millions and millions of operations per day if we just focus on the operating room itself. Now if we connected it, think about all the Stryker equipment that could then further benefit and add value. Add to that story, then let's say, augmented reality. Can that help operational efficiencies in the operating room. Can we have more consistency. Can we help the quality of care. Think about remote sensors. Can that help the patient experience postoperatively. Think about now how we could collect data in the Stryker world from information, let's just look at Mako, there's electronic CT scan. We also have session falls on the robot. And if we have patient input software, we could connect the whole continuum of care. Can we get to the point of predicting a patient implant size? Can we get to the point of predicting what implant that patient is best for? How about for the hospital efficiency in perioperative, can we help project the time of the procedure. So there's a lot of benefits we can do, and we sort of think about this in the world of improved outcomes, quality of care, safety, efficiency, economics equity for the hospital, the surge in the patient. It could be for Stryker. So there's a lot of different potential. So we'll go into maybe one of the areas that everybody is talking about, and that's AI. And when you think about AI, AI is very confusing. And we could just talk about AI, and AI, and people get all excited about it. I often talk about when I present on the podium at medical meetings, the #1 attendant session happens to be on AI. I'm not sure fully our surgeons fully understand the capability of AI, but they know it's going to be in their life, and they want to understand why. So this is the way we break up AI and Stryker. We put it into these 5 categories. So radionomics on the front end, radionomics is so imaging. What can we do, say, with the CT scan? What can we do when we make an impression of someone's bone? Can we get more insights? Can we look at the arthritic condition and qualify the condition of a CT scan and more value of CT scans, think Mako, predictive intelligence. Think about our inventory efficiencies. Think about how we can control what size is used for that specific patients, think about the ASCs, and ASCs which have limited space, who we help out in a big kind of way and partner now looking at the profile and the usage profile of that ASC. We have that data. That data is remarkable data. We just haven't utilized it to a full extent. Intelligent guidance. Can we reduce the amount of fluoro in the operating room? Can we increase the round of procedures if we're putting a stent when you have to go right or left, can we help with that decision-making based on predictions of what we see of the model of that individual patient. Ambient intelligence, cameras in the operating room, can we actually get into contributing to nurse workflow? And then will that result in possibly the reduce nursing staff in the operating room and handle one of the biggest challenges, the hospitals we work with have. Can we actually look at where Stryker product should be? Can we improve workflows and reduce the time of the procedures. All these capabilities and generative AI, can we help surgeons look through all the Mako clinical research as an example, or endo clinical research and come up through querying all this through generative AI of what a possible solution is. So these are all valuable areas. And when we break it up, we just want to share with you the 5 categories we're thinking, but we also want to remind you that we can add this and the beauty of our Enabling Tech and Robotics that's already field is marrying that with all the Digital capabilities, that help either execute a plan on that patient to help deliver that type of care. And we've done it. And the 2 examples, one Spencer talked about on BLUEPRINT on the right. So this is AI. And this is AI we have already deployed. And this is AI that's contributing to the selection that best fits that patient of the implant and where that implant goes. What did AI contribute here? Individualized medicine. That's the future of it. Individualized medicine, and then coupling that with Stryker technology in the operating room to deliver that patient plan. And what you see on the left, that's Tritanium. So that's a blood sponge. If you think of some of the complications in cesarean births, think of maternal hemorrhaging. People die from a terminal hemorrhaging. This is a capability where you take a camera. And then you take the camera and you look at the picture image of the camera and the color profiles of the blood on the sponge and you could give that surgeon an indication of whether that person is hemorrhaging and that is not a normal blood. And you can do that intraoperatively, where the human eye cannot see it. That is AI-driven. So we're sitting in a place right now at Stryker, where we're in a good position with our Enabling Tech. Combining Digital and Enabling Tech, we started that. Here's 2 examples, and I can tell you, our future is going to be an exciting one. Thank you. And with that, we will go to a 15-minute break and be back in 15 minutes. Thank you. [Break]

I think it's a great perspective. And we talked earlier also about robotics and how it is driving adoption in the U.S. Talk a little bit about robotics and how it's doing internationally, Satoshi.

Okay. Thanks, Yin. So our Mako strategy is to drive installation and utilization for both hip and knees. And globally, we have the leading [ e-store ] base. And outside of U.S., we are still in very early stage of robotic adoption. That's why there remains a lot of opportunity to grow in international markets. And market like Japan is ideal for international growth because of the stable social dynamics, aging population and technology-driven approach. As Asian population has different anatomy and in some cases, this is the progression. Mako is proving to be very useful in treating those patients. As we expand Mako's presence in Asian market, we have the unique opportunity to keep innovating our technology to better serving those patients. So in Japan, Stryker has led the market by building the foundation of computer-assisted surgery with orthopedics navigation. So this foundation enable us to keep leading the market. And with Mako, we are leading the way. So our TKA procedure with Mako grew by 65% and THA procedure with Mako grew by 35% compared to last year, while manual procedure only grew by 5% in Japan. And by the way the market growth -- entire market growth is low single digit. And even more exciting is that more than 50% of installation this year is from the competitive account. And today, about 1/3 of Stryker TKA is done by Mako. And about 1/4 of Stryker THA is done by Mako in Japan. So momentum is great. and expansion is on track, and there remains a lot of opportunity to grow in the international market.

Very well said Satoshi, and your point around momentum. Hopefully, today, you have a just a small glimpse the momentum and the progress that we're making in our international expansion. Our leaders have come a long way, and they're also looking forward to spending more time with you. For those of you who are participating in the product demonstration, they will be available for further questions that you may have for us. So I hope, as you're thinking about our international expansion that our focus is on the talent, the culture, specialization of our sales force, meeting our customers where they are through local action. Thank you. My apologies -- introduce Glenn Boehnlein, who is going to be your next presenter.

All right. I'd like to add my welcome to everybody that's here live and also to everybody that is attending virtually. So we made it kind of to the end, that feels good, just maybe sit up a little stretch, how great were the past presentations, but I'm thinking maybe you might want to lean in on this one a little bit. So with that, let me just talk about and spend a little bit of time on our financial focus. I was last up here in 2021. And sort of giving you sort of the continuation of what was going to be our longer-term financial strategy and focus. And you can see that on this slide, our historical focus has really been growth at the high end of medtech. We are focused on delivering op margin expansion. That drops down into double-digit EPS and then obviously, we have a capital allocation strategy that is very focused on M&A. The good news is that you can largely edit from your past transcripts to figure out what you need to say now because we're not walking away from a financial strategy that has worked. We are going to continue to grow at the high end of medtech. We'll focus on op margin. But as Kevin alluded, we're going to have a little bit of an elevated focus over the next couple of years on that. All of that will drop down to double-digit EPS and you'll see that we still are going to prioritize M&A as our #1 use of capital. We've demonstrated strong performance in the past. This strategy has worked. If I look at organic sales growth from 2016 to 2022, you can see that the market was growing about 4%, we were growing 6.6%. If I look at sort of where we landed on EPS and what that growth looks like, largely 12% over that period of time. So we were delivering solid EPS on solid growth. The good news for you is that all of this is going to continue. We believe in this strategy. We know it's a formula that works for us. So how this is, organic sales are going to continue to grow at the high end of medtech. What does that mean? That means 200 to 300 basis points in excess of market. We're not walking away from op margin. We believe very strongly, to use my boss's words, that we are going to sprint back to our 2019 op margin. That means 200 basis points op margin expansion in the next 2 years. After that, we will get back to our regular cadence of a floor of at least 30 basis points of expansion and we didn't put a ceiling on that because we've demonstrated in the past that we often exceed 30 basis points of op margin expansion. Moving down, that sort of op margin expansion obviously leads us to the opportunity to deliver double-digit EPS growth. And that's in an environment of rising interest rates and in an environment where we may have tax increases in the future. And then lastly, if you think about free cash flow and cash is the engine that really fuels a lot of the things we do at Stryker, we think that our historical 70% to 80% free cash flow conversion is the right place to be. So if you think about our growth strategy, it's really based in 4 key pillars. And I think you've got a really good flavor for this first one in terms of commercial excellence. And if you look at sort of, "Hey, how is Stryker, how do you keep delivering growth in excess of market? What is that formula?" And I think what you heard all day today is that it starts with commercial excellence. It starts with specialized sales forces, focused divisions, divisions that make decisions about sales, marketing, innovation and R&D spending and business development. And you know why they make those decisions? Because they are closest to the customer. They're the ones who know, not CFOs, not CHROs, not legal. They're the ones that know. And they're the ones who know the direction to take their businesses, what strategies to apply so that we continue to grow at that rate. You just heard from all my friends internationally, they're on that bus. They are a real opportunity to drive growth. We are under-indexed from a growth perspective around the world. And I believe Stuart used the B word when he was talking about that opportunity, it's billions. And we are getting after it actively. You heard Andy talk about innovation and how innovation really is such a big driver of organic growth. It's the one place where we continue to make sure that we're investing enough so that we can drive the kind of products and the kind of technologies that our customers want. And guess what, they want it more than our competition. And then lastly, you heard Spencer talk about our strategy relative to M&A, and you know that strategy. We are very acquisitive, we have been. 50 acquisitions over Kevin's 10 years, and we don't shy away from that. We may have taken a little pause, but we'll talk about how we're jumping back in on that. The next pillar is really margin expansion, and this has been a journey. Over 5 years ago, we talked about, "Hey, we need to get after op margin expansion." And 5 years ago, when I would say that in a roomful of Stryker people, they might actually not even know what that meant. And so we have really driven that into our business leaders, driven it into the business people. It is part of our incentive plans. There's not a person at Stryker that doesn't understand op margin expansion. And frankly, they're all going to be on this journey to sprint back to our 2019 op margin. And lastly, that leverage leads us all the way down to EPS, and we'll be able to deliver double-digit EPS growth on that. The next real big focus item in our pillars here financially that we really have driven a lot of focus around as well as op margin expansion is really just cash flow and generating this 70% to 80% free cash flow year in and year out so that we are making the right decisions about investing back in the businesses, being able to drive that innovation, making sure our manufacturing engine is operating effectively. And all of that starts with making sure that we have an appropriate level of focus on free cash flow conversion. And I would tell you that we still have opportunities in working capital. We still have opportunities with operational efficiencies, but that cash flow is a prominent component on everyone's bonus plan. So I assure you, given Stryker DNA, which Katy talked about, it gets a lot of attention. And then lastly, how do we look at this capital that we have and what is the best way to put that capital to work to make sure that we've got this model of driving growth, driving leverage. And honestly, we haven't changed that model. You'll see, I'm going to flash that slide at the end here. And you'll see that we are still allocating the lion's share of our capital towards M&A. And I know one thing that you're probably thinking is like, "Okay, margin expansion. That's a pretty big hill to climb over the next 2 years." We've already begun that journey. This year has begun a lot of the foundational work that we need to do to make sure that we're in a position to get back to 2019 margins in 2025. There are opportunities in gross margin, opportunities in operating expenses. But I would tell you that one of the things that just is naturally happening is that our operating environment is normalizing. So things like -- and please strike these words from your transcripts, spot buys don't happen anymore. We don't say spot buys around here anymore. They're not material this year. Those have really gone away. That was a big prominent feature in our costing over the past year. I would tell you that freight and logistics is stabilizing. Guess what, we're not putting everything on a plane and flying it over here anymore. We're actually using more economical modes for our logistics and freight that naturally drive better leverage. And in this normalizing operating environment, it's going to allow us to go after and start attacking some of our purchasing and procurement opportunities that, frankly, over the last few years, we're not being able to attack just because of the inflationary environment. The other thing that I would tell you in this margin expansion journey is that we're having those pricing conversations with our customers. It really is a muscle that we have built up over the last couple of years, and we won't walk away from that. And so those things are things that are already ongoing that will carry forward in the next 2 years that should give you some assurance that we'll be able to deliver on this. But let me -- just in case you still don't believe me, let me double click down a little further into how we're going to get to 200 basis points. So at the very sort of macro level, I have this normalized operating environment that's going to allow me to really get after some of these cost things. Price realization is real. We have had quarters now where we have positive pricing at Stryker. The team over at MedSurg to a division, positive pricing every single division in Q3 and Q4. And I would also tell you that if you look at some of the technologies that Andy was showing you or even if you think about some of the technologies that Jessica presented, those are market-leading technologies and you know what happens with market-leading technologies? You charge a high price. And that is exactly what we're doing. And you don't necessarily see that in the quarterly pricing statistic I give you because that is really just like-for-like product. New technologies or newer products that get released, we're able to charge a higher price. The other thing on pricing, too, is that we've done over the last couple of years is we combined the teams that really focus on contracting with GPOs or contracting with larger IDNs. And those teams have put together a playbook, have put together metrics, are tracking how we're doing. We don't routinely sign contracts at all. We negotiate. We make sure customers understand, hey, we have inflation. Prices are going up. And so even in businesses where generally, it has been very difficult to hold price, let alone get a price increase, we've been fairly successful at being able to do this. So that contracting excellence item is really something that's really going to benefit us. If I think about gross margin, there's a lot of opportunities. And again, a lot of this is in process. We opened up low-cost manufacturing sites in Tijuana and in Poland. We're just beginning to really utilize a lot of those sites, but those are, frankly, at a much lower cost than some of our other manufacturing facilities. We will selectively move products into those facilities to really drive lower cost. We're also looking very selectively, but through the pandemic sourcing kind of got a really sort of unique focus. And we started to really look and said, "Hey, you know what, where should we look at in-sourcing things because we can do it for a lot cheaper than the vendors that we're buying it for." Another great strategy. We also, frankly, have not taken our eyes off of do we need all the sites we have. Where do we have sites that maybe are not best economically suited for us to drive cost improvement and thinking about rationalizing those. On the operational side, if you look at sort of what we spend on sort of that last mile in sales operations, those are big dollars. And so if we think about how do we consolidate that thoughtfully and still serve our customers, there is savings to be had there. Over the past few years, we've stood up shared services in Costa Rica and in Poland. And we are actively moving sort of centralized business processes into those centers and really driving down the cost for finance, HR, IT, the more centralized services that are provided to our divisions. The other thing that we're really working on is just harmonizing our IT system. If you think about having a big footprint of a lot of IT, that is not efficient. That's not efficient for servicing. It's not efficient for working with those vendors. So we've been on a journey over the past 4 years to really start to really harmonize a lot of our IT systems. And then lastly, I would tell you that when you're growing 200 or 300 basis points faster than the market, you get natural leverage. Not everything goes up at that rate. And so we actually enjoy a lot of natural leverage in the gross margin line because of volume and in operating expenses just because of pure growth. So capital allocation, I don't think I need to say a lot about this. This slide probably looks exactly like the same it did the year 2021, the year before that and the year before that. The only thing that's growing is amount of dollars we're spending on M&A and you could see that here, 73% of that $24 billion or almost $17 billion has been spent on M&A. I would say that is our #1 priority. We haven't done share repurchases since 2019. We really focus on balancing our dividend growth with our M&A prioritization, and we've had healthy dividend growth as well. All of this stems from a very solid balance sheet. Our deleveraging commitments are on track. I fully expect that to be finished by the end of this year. And we have a credit rating that we're very happy with and allows a lot of leeway relative to work on lending. So how should you think about this? I think the way you should think about this is that our historical formula is intact. It's working, and we are going to continue to deliver value. We will have an elevated focus on op margin. Frankly, we're doubling down. And I am very confident that Stryker is going to get back to its 2019 op margin by 2025. We've already put a lot of the pieces in place, and we have a clear road map to get there. So what I would tell you is that I'm very bullish on this plan. I know everyone at Stryker is bullish on this, and I think you should be, too. Thank you. All right. And now I'd like to welcome up Kevin Lobo, our CEO.

Great. Thank you, Glenn. Could I please have Dr. Mayman up as well? Okay. Great. This is -- we're now going to move to the Q&A portion of our agenda. And so GLP-1, got through a lot of time without talking about GLP-1s, but I did promise on the earnings call last week that we would talk about GLP-1s. And you can see here, we have Dr. Mayman, who is the Chief of Adult Reconstruction and Joint Replacement Service for Hospital for Special Surgery, so not too far from here, obviously, the #1 rated, I think, orthopedic center for many, many years in the United States. And he's also a fellow Canadian-American like me. We like that, too.

So let me start first with maybe you can make a comment or 2 about GLP-1s, and then I'd like to open it up for questions on -- specifically on GLP-1s.

Yes. Thanks, Kevin. Thanks for having me here today. So I'll just start with a story. So I was actually seeing patients in the office this morning, and I saw this woman, 63-year-old woman, I did her knee 5 years ago. She knew at the time she had a bad hip on the other side as well. And at some point, we were going to have to do her hip. And then we got into this pandemic thing and everything shut down. And she actually put on a bunch of weight during the pandemic, like many people across the country did. And then about a year ago, she said, "You know what, I got to take off this weight, my hip is killing me. I know I'm going to need to have my hip done," and now she could not walk very well because her hip was so sore. So she came in to see me today. She's limping around. She really needs her hip done. And she said, "Hey, Dr. Mayman, I've put on 40 since you last saw me. I saw my primary care doctor 2 months ago. I'm on Ozempic now. I'm going to be ready for you in February." So the point of the story is that when we look at these medications now, we talk about perioperative optimization of patients, so making sure that they're healthy enough for surgery, making sure that we can minimize our risks and complications at the time of surgery, and it actually makes surgery easier for us if patients are a little thinner. So we talk about controlling diabetes, making sure diabetes is well controlled, weight management, smoking cessation, those are really the things that we're looking at. So this class of medications is actually bringing a whole cohort of patients that were ineligible for surgery into that group of patients that we can now treat. So most of us -- most of my colleagues are looking at these medications thinking, "Wow, it's going to help control diabetes, people are going to actually lose some weight, they are going to be better candidates for surgery." So we're actually seeing, I think, more patients because of these not less.

And is there -- there are talks about how this with reducing weight that people won't feel the osteoarthritis or it could potentially delay the time for surgery. What's your thought on that?

Yes. So first of all, we've got such a backlog of patients needing surgery that's not really an issue today. There's no question, we talk about conservative management of arthritis, right? So we talk about anti-inflammatory medications, physical therapy, all sorts of different injections, cortisone injections, viscosupplementation injections, PRP injections and weight loss are all our conservative management options that we talk about for treatment of arthritis. Those have all been out there for years and years and years yet the number of people coming in for joint replacements keeps going up. So these aren't medications that are reversing arthritis. The arthritis, once it's started, right, this is -- most of our patients, it's osteoarthritis. I explain it to my patients. It's the treads on the tires of the car and you're wearing out those treads. And those treads will continue to wear out over time. If people take some weight off, will they wear out those treads a little slower? We haven't really seen it. The insurance companies now are also asking for weight management plans before surgery for a lot of these patients. So again, it's kind of -- it's bringing more patients into that loop. It's not getting rid of them.

Okay. Great. Maybe we'll open up for questions from the audience. I see Rick's hand. Go ahead, Rick. I'm going to have to stand. These bright lights, you're a little hard to see.

Thank you, Kevin. I have a couple of questions, and maybe they might be directed at you and Glenn, I'll just say them both at the same time. Your excellent operating margin guidance...

No, no, hang on. We're doing GLP-1s first.

It's only two...

Yes, yes. So what we're going to do that you'll be first in the second portion of the Q&A. So...

I'll let somebody...

I brought Dr. Mayman here not to talk about op margin.

Yes, I can talk about hip replacements, I can talk about knee replacements, I can't talk about operating margins.

There's a 2-part Q&A. First part is going to be just with the doc. You can ask him about other things other than GLP-1 if you like, but really GLP-1 that maybe you could talk about sort of orthopedic volumes in general. But questions for him first, then we're going to have him exit. We're going to bring out my management team and then we'll do. So you can be first in that queue, but maybe just right beside you, 2 people over.

Chris Pasquale, Nephron. One question, not solely related to GLP-1s, but you mentioned the backlog of patients. I think we've all been wondering about how quickly we would catch up on that given the under-treatment during the pandemic. I'm curious what you see as the gating factors to catching up on that backlog and how you would characterize it today versus maybe 6 or 12 months ago?

Yes. So there's definitely a backlog. I think we're starting to catch up on the backlog a little bit, but it's still definitely out there. We've -- just like everybody else, we're coming through a staffing crisis now. We're really starting to come out the other end. I can tell you, HSS experience specifically. We, as of 3 weeks ago, are fully staffed in terms of OR nursing now, and it's been 2 years since we've been fully staffed in terms of OR nursing, so we're coming through that. That's helping us with the backlog, but the volume of joint replacement, as you can see from some of the numbers that have been described here today, continues to grow. So we're having trouble keeping up with the backlog, which is a great problem for us to have.

Okay, one right here. And then Shagun after that.

Larry Biegelsen, Wells Fargo. Dr. Mayman, can you talk about 2 things: one, the relationship between OA and weight. And second, the medtech medical device investment community is waiting for this Novo trial called STEP 9 with semaglutide. And basically, one of the primary point is the WOMAC score. Most of us are not that familiar with WOMAC scores, but my understanding is WOMAC pain score, you start at, let's say, 40, you need total knee replacement. If that goes down by 15, that's really good. So what should we -- what would be the good result? And what would be a result that you would say, "Okay, that's going to reduce total knee replacement." So like how should we evaluate this trial when we see WOMAC pain score in that trial?

Yes. So it's a great question. So being the Canadians up here, the WOMAC score is the Western Ontario and McMaster score, so 2 Canadian universities. So it's a pain-rating score. And when we look at outcomes for patients, and this has really been outcomes of joint replacements. We've looked at what their WOMAC scores were prior to surgery and what their WOMAC scores were after surgery. And what the differences between those scores are. They've never really been used or haven't been used well for deciding whether people need surgery or not. So if we talk about weight loss or weight and surgery, there is no question, you take 20 pounds off and you're taking 20 pounds off your joints and they hurt a little bit less. What we haven't seen is people saying, "Oh, well, I've lost 20 pounds, and I can play tennis again or I've lost 20 pounds, and I can chase after my kid and play basketball with them again." And our joint replacement patients today are much more demanding than our joint replacement patients were 20 years ago. So when I started in practice, which was 19 years ago now, a joint replacement was so somebody can walk around the block, they could sleep comfortably. They could sit comfortably, they could walk comfortably and maybe they played some doubles tennis. And now my patients coming in, I just had a woman that ran a marathon with a hip replacement this past weekend. Now that's extreme, but it happens and everybody is out there playing pickleball and they're playing tennis and they want to golf and they want to walk the golf course. So the demands are much higher. And we haven't seen weight loss getting rid of that. So we'll see what these studies show. They're probably going to show that weight loss does decrease pain. I don't think it's going to decrease the number of patients coming in for joint replacements.

Great. Shagun.

Dr. Mayman, this is Shagun from RBC Capital. Just one for you. How meaningful is this positive impact on your patient funnel due to GLP-1s that you just referred to? Is that a trend? Could it be a trend? And perhaps if you had to put a percentage on it towards 2024 or '25, how meaningful could it be for volumes?

Yes. So that's a great question. The honest answer to that is we don't know and the reason we don't know is because a lot of people don't show up at our doors right now because they know that they're not candidates, right? They've been told by somebody else along the way, your BMI is too high, you weigh too much. Your diabetes isn't controlled. So they don't even show up on our doorstep. So there -- I would say that most of us would say that close to 10% of the patients that we see currently today are not eligible to go ahead with surgery because they need to be medically optimized. And this is definitely a class of medications that will help optimize those patients. How many of those patients we never even see, I don't know.

So at least 10%.

Yes. I think that's...

Okay, the one -- last question was behind her -- yes. I think Mike -- is that Mike? I think so.

It's Matt Miksic from Barclays. Just maybe a follow-up on the backlog that's something that Stryker and others have talked about, everyone over the summer seemed quite bullish in the clinical community about how basically they are, you sound bullish. But there was a little bit of a kind of market lull in the third quarter. And I'm just wondering, we certainly asked a lot of questions about, hey, is it people taking vacations? Trying to understand heading into this. Are we going to [ space ] seasonality and we got it. And I just wonder if you could maybe give color as to in your center, maybe how it felt and how it feels going forward?

Yes. So Q3 is generally a lull in joint replacement surgery. Remember, a lot of these patients coming in, so ages kind of 50 to 70 kind of ballpark patients. They've got kids at home, they've got kids that are leaving for college. They've got summer vacations or fall vacations. The surgeons take vacations that time of the year just like everybody else. So Q3 tends to just generally have a lull. I think if we look 2 years ago, like not this Q3, but Q3 before, we were so backloged that there was no lull in Q3, and we're back to a little bit more of our normal lull in Q3. So I can tell you, we had a little bit of a dip in Q3, just like everybody, and Q4 is rocketing ahead.

Yes. So kind of a return to normal seasonality is the summary. Okay, great. So we're going to close this portion. Dr. Mayman is staying with us. So when we go to the Homer Stryker Center and do the product displays and for the cocktail hour, he'll be available for all of you to ask any other questions one-on-one with him. So thank you, Dr. Mayman.

So now can I bring up with the other members of the Stryker leadership team, and we're going to move to moderated questions. And I think Rick Wise, you get to be first. We'll just wait until they take the stage. And we've included Viju, who runs our Global Quality and Operations. I think many of you know Viju as well. I could stand, but it's easier to see everybody from here. So I'm going to stand over here. Go ahead.

Rick Wise, Stifel. I guess I got so excited by Glenn's commentary that I -- rushing ahead.

It's okay. Dr. Mayman was ready to jump in, but I had to hold him back.

All these orthopedic surgeons, they can do it all. Glenn, I was -- I think of all the times I've heard you present at these kinds of events, I think this was the excited and positive and enthusiastic that you've been, which I think is a positive. It frightens me a little bit. Glenn, just sprinting back to 2019 margins. Gosh, I looked at my model, that's 26.2%, the Street. My numbers are more in the 25% range. Are you hoping we all leave here and head back and adjust accordingly? And maybe just talk a little bit more about -- I appreciate, it's everything we've seen today that's giving you confidence. I get that. But is there anything in particular? Is it the new technology? Is it the recovering markets? What's giving you as a financial person, such confidence?

Yes. First of all, far be it for me to tell you what to put in your model. But I think it would be a good guide. I think a couple of things, Rick, like first of all, we really are seeing a more normalized operating environment, so that means we are working with our customers more normally. We are working with our vendors more normally. Our people are settling into the routines that they're in. I think that we're leaning into this sort of new world of inflation and how do we think about that and how do our customers pay for that? How do we look to our vendors to say, "Hey, we're growing 10% and that's got to be worth something from a volume discount standpoint." We're also seeing that we're hitting the strides of looking at places for low-cost manufacturing and how those will scale for us in the next 2 years, but then also really hitting our stride on shared services and really trying to leverage these locations where we can offer centralized services to the divisions at a much lower cost. And so I think the combination of that environment, plus the natural leverage, I know I'm going to get off of growth really gives me the confidence to know that we'll be able to do this by 2025.

That's great. And one quick follow-up, if I could. You're internationally under-indexed around the world. I heard a lot of encouraging commentary about the potential there. But 2 years ago, if memory serves, you said, well, sales were -- your sales were like 26% -- 27% or 26% of sales now. Help us understand what's changing, why now is the growth going to be sustainably faster, which I guess is becoming a bigger percent of the Stryker sale?

Yes. I think -- Can I start on that one? So looking at the percent of business is a tricky thing, when you're as acquisitive as Stryker is, because when we tend to buy things, like you buy Vocera, you buy a ton of U.S. revenue. You buy Wright Medical, heavily indexed to the U.S. We buy Sage, it's virtually all U.S. business. Because of our acquisitive nature, we're going to continue to be fighting with getting those products initially, which drives up the U.S. percent. And then as we extend globally, then eventually it grows. What's more important is to say, are we continuing to grow faster outside the U.S. than inside the U.S.? We now have 5 consecutive years to -- this year will be #6. That is momentum. That is sustained momentum. You saw the leadership that we have up there, never felt better about our leadership that we have in International. We had a talent deficit historically. We had -- we were subscaled historically. We still are, in Latin America, subscaled. We have a terrific new leader that's leading our Latin America business that came from our Southern Europe business, and he's just salivating at the opportunity, especially with Mako and joint replacement. In fact, he has a lot of experience with that. So we are poised from a talent standpoint, from a business model standpoint. Dragana's success has been shocking in EMEA. I had no idea we could grow this well in places like Turkey and South Africa, in the Eastern Europe markets, it's been incredible. And that's due to her leadership and her team's leadership. This is sustainable. We bought out our distributor, we went direct in Turkey. That wasn't so easy. And so that's what we're doing. We're going to go more direct. We have confidence in doing that. We've created an indirect channel function that manages distributors way better than before. So not only does it reduce compliance risk, but we're actually putting our product in the hands of the right people, in front of our customers. So it's a comprehensive approach that tells me it's sustainable. Now I don't expect that percentage to change dramatically because if we go 12% versus 9% or 8%, it doesn't -- it's going to take forever to move the needle. But the goal is to continue to grow faster outside U.S., and then those businesses become businesses of scale, which we aren't today. We still are way underpenetrated. So it's a massive opportunity. And as we gain scale, I think you're going to see some inflection points in some of these international markets. Mako is just in the early stages. Outside of South Pacific, Australia and New Zealand is well penetrated for Mako, the rest of the world isn't. And we are now starting to gain some steam. As [ Satoshi ] talked about Japan. Japan for me is a massive opportunity for Stryker. We are under-indexed in Japan in some of our businesses, and these great technologies are going to really take over. I mean, there's just no reason -- just because Olympus is Japanese doesn't mean they should have the market share they have in cameras. No offense to their business, but we have the leading technology with ICG. We have the leading technology with 1788 that's coming to the market. And we now have the team in place under Satoshi's leadership that are confident in selling against Olympus. We even have -- John is here somewhere. I think he's in the back. He came over from Olympus to join us to lead our endoscopy business. That would have never happened 5 years ago. He sees the writing on the wall. He's a smart guy, right? He's now over at Stryker. And so that just gives us -- these are things that never happened historically, so that's why I feel, I don't know if you guys want to add anything?

Kevin, maybe just one other comment, thinking about the last, I'll say, 5 years, the pandemic did slow things down. I'm amazed, and I think Kevin and I have chatted about this, a lot of times, we'll show up in a place in the world in more recent days and they'll say, we haven't seen a leader here in a long, long time in years. So that's because the pandemic limit our ability to go into the market, spend time with customers, understand their needs, and I'd say, over the last 1.5 years, that's massively accelerated, including all these presidents, my entire leadership team. We were just in Asia with Satoshi and John Collin's leadership team talking about -- what are the regulatory pathways and get the clearances of the existing products in our portfolio. That's the beauty. These are technologies we own that we're just putting the pathways in place to make sure we can turn those products on and go, and that's been a super exciting opportunity for us.

Okay. Lots of hands. We'll go with Robbie here in front. Right up front, here. We've got 3. We've go 1, 2, 3, and then we'll go over to Joanne. And we'll do that side of the room and then behind Joanne.

Robbie Marcus, JPMorgan. Two for me. Kevin, you talked about growth on the top line at the high end of med tech. Any numbers you could put around that historically 6% to 8%, 7% to 9%, something in that range.

Yes. No, we're not going to put hard numbers because it really depends on the market, right? So think about our history or at least our recent history is we're 300 basis points faster than the market. And as you know, in the slide I presented earlier, we're participating in faster end markets than we participated in 2013. So that gives me a lot of confidence. I don't want to give a number because if the market slows down, we're going to continue to outperform by that 300 bps, call it roughly 300, but it depends on the market. The market grows faster, you expect more from Stryker. If the market grows a little slower, then our growth will be a little bit slower, but we're not going to put numbers around it. We'll give you guidance in January for 2024. That will be specific numbers, but this is a kind of a 3-year outlook. So we're just going to stay high end of med tech, you can model whatever you think the market is plus 300 bps, that's where we're going to grow.

Great. Maybe, Glenn, on margins. How do we think about the 200 basis points expansion '24 versus '25 and how much is built into that for potential M&A, which is pretty clear you're going to be doing?

Yes. I think in terms of the phasing of the 200 basis points, we'll give guidance in January. So you'll sort of be able to factor in what 2024 looks like and then the rest will just be math for 2025. In terms of M&A, our goal was to basically pay down that term loan borrowing that we had for Vocera. And we will have that completed at the end of this year, and that really frees up more of our free cash flow to really direct to M&A.

On margins. On margins. Well, it really depends on the M&A, right?

Yes.

So not all the M&A, if you look at Wright Medical, an M&A, really wasn't dilutive at all. If you look at Vocera, an M&A, not dilutive at all. Sometimes deals come with dilution, usually, it's pretty modest. The dilution, usually, we offset the dilution. So at the time we do a deal if it's of size and scale, if there's going to be any kind of impact on margins that would take us off the 200 bps or improve the 200 bps, we'd update you at that time. But we're assuming kind of a stable environment with, let's say, call it, very modest deal dilution. If something bigger, positive or negative happens we just [ indiscernible ].

We'll call it out.

This is underlying. This is -- this $200 million is underlying. We plan to drive this. And then if something weird happens with a deal that could affect that, we just update you at that time. Vijay?

Vijay Kumar from Evercore. Kevin, maybe one for you on the top line here, revenues. When you look at the cadence, 200 to 300 basis points about end markets, what -- should next year be a normal year, just given you have this backlog benefit, new product cadence? And how should we think about beyond '24, is comp an issue beyond '24, can Stryker maintain this innovative engine?

Well, look, we just -- we're growing 10% off of 10%. So comps haven't been an issue this year. I don't want to prejudge next year because Jason will kill me, if I start talking about '24. We'll do that in January, we'll tell you what '24 is going to be. You can tell we feel pretty bullish about the ability to sustain high growth in our company. We'll give you specific numbers in January.

And maybe, Glenn, one for you on the margins here. What are the sensitivities variables for this margin's rate when you think about FX. Is that something that can move those numbers when you say 200 basis points, is that constant FX margins? Or maybe talk about the plus and minuses?

Yes. I mean I think that number assumes that we're sort of in the FX environment that we're currently in. If FX moves dramatically, and we give you those numbers in terms of the impact, I think you could factor that in. But right now, it just assumes that the FX environment that we're feeling right currently in the fourth quarter here, continues over that period of time.

Okay. And then we're going to go over there next.

Great. Thanks. Travis Steed, Bank of America. Glenn, any reason the margin wouldn't be more linear when you think about like product launches to consider? And can you talk a little bit about gross margin, R&D, SG&A, some of the drivers where we should think through that, is the 100 basis points still a lot to think about for Stryker, historically. So I wanted to think about the line items? And then and how you thought about tax and the double-digit EPS growth given Pillar 2?

Yes. I think in terms of the phasing, I'm not really going to say anything on that, again, because Jason will kill me, but you'll get that in January relative to our overall guidance when we provide that, and I think it will be evident. I'll turn it over to Viju to talk about maybe gross margin and opportunities there and how we see that playing out. And then I can talk a little bit more about operating expense.

Yes, I'd be happy to, Glenn, and thanks to the question. I wasn't sure when that was going to finally come. Great. So from an operational aspect of margins, a lot of our cost structure is in our manufacturing network. The other big part of the cost structure is the supplier network, right? So if I think about our manufacturing network, in the last 3 years, we have successfully completely closed and consolidated 17 manufacturing plants across our footprint. That's a pace and a rate that had never been done before. What that freezes up is, if we think about it, if all the acquisitions we have done in the last 3 years, our footprint today is smaller than it was 3 years ago in terms of the number of manufacturing facilities. A lot of these manufacturing facilities were smaller, subscale and not an ideally cost-advantaged geographies in the world. So as we continue that, that gives us tremendous confidence, we have built our muscle and are doing it at scale. The other aspect is we talked about 2 different manufacturing plants. The last time we were here, we had just opened the Tijuana facility 2 years ago. That facility is about 70%, 75% full already. And just to put things into perspective, we're roughly talking $18 an hour labor cost here versus $18 a day labor cost in Tijuana. We now have opened up a second facility in Poland. Our first greenfield facility in Poland, but second greenfield facility Tijuana and now Poland. It's going to be a high-scale orthopedic implant manufacturing facility. All of our orthopedic facilities are pretty much here or invested in Europe. This gives us a scale play in a very nice cost advantage geography. If I now think about product transfers, there's a lot of cost that's unlocking. So we now -- just to give you an idea, just in the last couple of years, we have transferred over 100 products successfully, either from plant A to plant B, or from supplier A to supplier B, or from a Stryker plant to a supplier, or from a supplier to a Stryker plant, all of those. What that gets done for us is tremendous leverage, that we get to negotiate with fact-based cost-based negotiations. It's playing out in scale now. It gives us tremendous supply resiliency, the dual sourcing. After the K2M acquisition, we in-sourced several of the K2M third-party manufactured products into our Cestas brands manufacturing facility smoothly. Every one of them had a cost benefit. So I could probably keep talking about [ indiscernible ].

I think that last point is really important. This product trends for skill. We didn't really have that at Stryker. These division presidents would tremble whenever we talk about moving a product from one plant to another plant, or bringing in a product from a third party because their first worry would be we're going to have trouble with the transfer, we're going to be in a bad quarter. And in the old days of Stryker, they could overrule. Now it's just much more collaborative and trusting the relationship. The timing, of course, can be -- they could affect the timing of when to do it, but it's happening now. And more importantly, the suppliers know that it's not an idle threat. They don't give us the price we want, they're out. And we're just going to bring it inside, and we've now done that and proven we can do that. And that is kind of a shot heard around the world where in the past, I would say Stryker was probably taken advantage of a little bit by some of our suppliers. So that's a new muscle and that gives us a lot of confidence. Okay. I'm going to go to Joanne and then behind Joanne.

I think we're going to do -- sorry...

Oh, sorry, did you want to follow-up?

I think -- I'll just -- I'll add a comment about operating expenses. If you think about the single biggest thing in operating expenses, and I'll tell you that R&D is pretty sacred, in terms of percent of sales as we look at the spend. But if you move on down to SG&A, the single biggest cost in there is heads, people. And I would tell you that over the past few years, we have exercised really good discipline around adding heads. So it doesn't scale. It doesn't leverage with the top line. So that discipline will continue for the next few years. And then if you look to how we naturally budget with the divisions and the geographies, we build in leverage. And then we leave it to them to figure out where do they want to spend their dollars. A lot of savings can be generated through this sales operations and distribution function that exists in most divisions. We also on the G&A front, moving to shared services is it provides labor arbitrage of almost 30%, 3:1 and cheaper. And so we're moving a lot of positions there that can operate effectively in those environments. And so I really do think SG&A has a lot of good opportunities as well, as what Viju talked about in gross margin.

And then tax on the double-digit EPS growth. And that was the final question. The tax rate, what do you assume for tax with the Pillar 2?

Pillar 2 tax. So what we've said on the earnings call is we believe we're going to be okay for 2024. We are aware that there's an impact, but we have tax planning strategies that get us through '24, not sure yet onto '25 and beyond.

And we'll provide guidance in January.

We'll provide guidance in January, but we're not -- I know other companies have kind of flagged '24 being a challenge. I think you could expect a more normal year in '24. So this year, we're guiding to 14%, that's a little bit low because we had some discrete items, but it won't be materially higher than that next year -- 20, we're still working on plans for '25 and beyond. So there could be an impact in potentially in '25. Stay tuned. Okay. Now we finally can go to Joanne.

Joanne Wuensch from Citibank. You gave a statistic I found interesting, 60% of knees selling U.S. are done robotically, and so 60% of all of Stryker knees?

Stryker knees.

Stryker knees. 60% of our knees are done robotic.

Yes.

Okay. And then I think I heard a statistic for some segment in Asia, 1/3 of procedures, just if you can clarify on that.

In Japan, for a 1/3 of Stryker's Japan knees, on total knee are done. So let's say, 33% in Japan's total knees are done on the Mako, 60% of U.S. knees are done on Mako. So Japan is in an earlier phase of its life cycle. And not only does the percent matter in a place like Japan, where our market share is not as high, not only will the percent go up of Mako, but our business will go up as a result because we're going to take a lot more share.

That's helpful. One of the things you didn't mention or maybe I missed it, was the ASC, which is an area Stryker has been on the forefront of for the last several years.

Yes. We love the ASC. Why don't you 2 guys want to take.

Do you have a specific question, Joanne, or?

I'm more curious it wasn't mentioned, but also what percentage of revenue if you can share is done in the ASC or Knees or Hips or anything that you can sort of ground up.

Sure. It wasn't intentionally not discussed, as a matter of fact, we're extremely bullish on our ASC program and the success we've had yet again this year in 2023. It's really quite a fascinating phenomenon where we've seen this shifting side of care. And more and more, in particular, adult hip and knee procedures being moved to the outpatient setting a little bit like what Dr. Mayman said, part of this is a space reality and an efficiency reality where there is the demand, they're saying, well, we can move this to the outpatient center. And there's some economics that are favorable there for the physician ownership, if that's how it's set up. We've been really excited about our progress, in particular, led by Mako. And so Mako has been a phenomenal tool to actually drive a broader conversation about the portfolio that Stryker can offer, which is second to none. No one has the breadth of portfolio when we're talking about an ASC, either an existing ASC or one that's from the ground-up build, and it's probably a great differentiator for Stryker in the marketplace. If you recall how we do this, we provide our specialty sales forces that are domain experts and their clinical capabilities like the hip and knee, but then we also have a resource that helps guide this to be the single point of contact to sell the entire breadth of the portfolio, and this compared to anybody else is, it can't be competed with. It's been really successful. There's still great opportunity here for us. And so I think we're still in early days of the growth trajectory in outpatient surgery, especially in hips and knees. And the last thing I'd share what I've personally seen, I'm still often surprised that there is a physician that has strong brand loyalty of product X. When the adult hip and knee surgeon comes in and says they want to use Mako, that loyalty flies out the door to that other competitor. And they quickly switch to Stryker's comparable product there. It's really a fascinating phenomenon and one that we're continuing to build upon.

So, yes sure. The only thing that I would add, and Joanne, we talked about this in the last Investor Day, we actually had a panel on ASC, as you recall. We built and launched our dedicated ASC team in January of 2020. So we're almost 4 years in and actually sounds like it could have been bad timing because there was a pandemic, but we know the pandemic drove cases to the ASC. So it was actually really amazing timing. And we were first to market in building an ASC organization. We would say we're the most mature process wise, the most mature and building the key relationships to drive these wins in ASCs, and how it works internally. As Spencer mentioned, how we -- using an American football term, how we quarterback these deals with our ASC regional managers, we're pretty advanced now. So if you look at growth in the ASC, we talk about accretion in our international markets. The growth in our ASCs has been very accretive to Stryker's growth over the last few years. And Spencer is absolutely right. there's only upside to come as that momentum, particularly with the total joint, moves from the hospital to the ASC.

Roughly -- pass the mic behind you. Roughly 10%, 12% of our hips and knees are done in ASCs, but it's growing at a faster rate than in the hospitals or in the hospital outpatient. And that number is only going to continue to rise. And I'd tell you that the business of the [ 22 ] business is the one that loves the ASC, the most is our Sports Medicine business, which has been a huge beneficiary and that sits inside our Endoscopy division that continues to just drive incredible growth, sometimes on the back of Mako and some of the other products that are offered in the basket of products that we provide at ASCs.

Ryan Zimmerman, BTIG. We hear you guys talk all the time, acquisition, acquisition, acquisitions. We've never -- I mean in my 10 years covering the company, I don't think we've ever talked about a divestiture. And I'm wondering at what point does it make sense to get smaller to get bigger, and how you think about at what point you would consider something like that, if at all?

Well, a lot of other companies [are spins] are in, right? They're spinning stuff off or they're divesting things, typically, it's because they're not growing in the businesses or the businesses don't fit with their existing business model. All the products we sell are sold to the same customer, hospitals by all our products. Every single one. We don't have sideline businesses that are sold to a different customer. And we believe if we can grow something, why would we want to sell something? And if you look at the last decade, other than Spine, which has been a little bit up and down and maybe not growing as fast, every other business has had fantastic growth. they're all high-growth businesses. Why would you want to sell something that's a high-growth business, that's complementary. Think about the ASC office, which, by the way, Spine is wonderful to have in an ASC because a lot of times, spine procedures, cervical spine, increasingly, lumbar spine procedures are done. When you have everything you can offer for that ASC, whether your foot and ankle, shoulder, sports, hips, knees, spine, we have it all, and we can block out the competition. It's a tremendous thing. And so we love the fact that we're in this big market of spine. I wish it was an easier market. It has started to consolidate quite a bit, still more players than you see in most normal markets. But because of our enabling technology platform, I'm really bullish on the future of spine. If I didn't have Mako spine coming, if I didn't have the other product, which is I think the project name is copilot, which is going to be able to do bone preparation for some procedures within the same ecosystem as our Q Guidance System. If I didn't have the enabling technology platform, that could be one you could talk about. But the problem for Stryker, unlike Zimmer, they were able to spend out their spine. They didn't have a neuro business. If you're doing a neuroscience deal with a hospital, they need spine. They need spine with the neuro drills, with the neurovascular, with the CMF, with the ENT, and we need to work increasingly within Andy's offense, which was an ASC offense, we've now created a neurotech offense, much, call it, a baby-sized organization for now, but we've already started to win some neurotech deals. And spine is a critical part of being within neural because the neurosurgeons are doing spine procedures. So if you just look at it from a growth standpoint, that will be the one you'd say, "Hi, what about that one?" It's strategically really important for us. We can also leverage robotics. We can leverage enabling technologies. I think can you comment on NASS, what the reaction was? The surgeons that saw the enabling tech. I was in a private room, provide a little color.

Customers, the ecosystem of the enabling tech, they say it's differentiated versus anything else they see in the marketplace. And that comes on the back of the technology of Mako and then obviously, the decades of experience in our cutting accessories that comes out of our Instruments business. So you bring those together, and it's really impressive. Also, rest assured that part of any of my job is to push the divisions to look at their portfolios. There are some small product divestitures we've done over time. And Andy and I go through a portfolio assessment discussion all the time, and we look, obviously, the long-term strategy, the demographics or the market, we assess the geographies. We assess the connectivity of the KOLs, what impact this has and it points to everything Kevin just shared, we feel really good about our holistic portfolio right now.

Yes. I mean, juvenile tumor system we sold. We sell little things. They're just little products. They don't make up -- they don't hit your radar screen. But so we've sold little things over time. But reality is we like the business that we're in. Our growth is pretty good. right? And if we weren't able to grow our businesses the way we are, then potentially we would think differently.

Okay. And then just a follow-up. This is more for Robert, but you may not let him answer this. So I'm going to ask you kind of -- but as you think about the digitization of your technology. I mean, how do you decide kind of what to monetize and kind of what to make value additive? And as we think about software as a percentage of Stryker sales today, what does that look like in 5 years or 10 years, as you're making these inroads into Vocera and other areas.

Look, we're widely excited about the digital robotics enabling tech. And everything we launch is going to be smart in the future, just about everything. And the question of what we can monetize and what we cannot monetize, Believe me, those are active discussions going on. I don't know if you want to add anything to that, Spencer?

Sure. Yes. We have them on a portfolio-by-portfolio basis. And we actually have some active projects underway where we are monetizing capabilities. So I mentioned the revision capability of BLUEPRINT. We actually have a monetization sales structure in place that's been growing like crazy. I just checked before today, and we have well over 500 customers now that are paying Stryker and ongoing service fee to utilize that particular platform to plan their revisions, as an example. So we look at that and we build this. And our theory is we don't have to ramp it overnight to look like the Nike solution, instead, I think we want to do it right way and build the technology capability where the customer really goes, okay, this is bringing value to me -- that money will come, and we're seeing it. We're having these discussions now. We also have some XR technology, even in our upper extremities business right now. They have an XR capability. There's a solution-based sale that's in place. Vocera has some amazing software capabilities and obviously, the model that supports us from a monetization standpoint. It's still a small percentage in Stryker's revenue portfolio. With that being said, this will be something that will continue to grow over time.

And it will accelerate without question, over time. Jason, how are we doing for time?

It looks like we're up against it. Maybe we'll just take these last 2 hands here. Sorry. But we're going to be around for the cocktail. You can grab us at the cocktail hour.

Rich Newitter from Truist Securities. Kevin or Glenn, it sounds like you're clearly ready to get a little bit more aggressive on the M&A front after, I guess, you referred to it as a pause. You are an increasingly large organization than you were several years ago, bigger growth rates to maintain, valuations in the sector, if we rate it downward. Should we think of the needs for a larger deal to move the needle factoring into the M&A strategy? Or said another way, what's your appetite for larger deals?

Look, I think the majority of our deals will still be those smaller kind of deals by number but we're not against doing larger deals. I don't feel any pressure that I have to do something of size, given that we're driving pretty good growth without doing anything of size. If a larger deal is what we think very value creating, like we do with the Wright Medical, if something of that size or scale, we think could be value grading, we're not going to be afraid to pull the trigger, but we don't feel a need to get big just for the sake of being big. But everything will be on the table now that we're getting our debt ratio, our debt equity ratio to a very healthy level, meeting the commitments to the rating agencies. If you remember, we sort of jumped the gun a little bit on Vocera because it was just too good to wait on, thank goodness we did, but that was a little bit ahead of our commitments to the rating agencies, this time we're actually going to fulfill the commitments we made and then get back on offense. So nothing is out of -- off the table, but that's not new. That's kind of the same open mindedness that we've had for the last decade we still have today. Okay. Matt, you get to close out the Q&A here.

Keep this simple. So just one question on MedSurg and the product cycles there. I think over the years, everyone has often been surprised by just how fast that business grows and often has something to do with just a great product cycle or [indiscernible] product cycles. We're kind of in the middle of that now. I'm just wondering if this kind of cluster of products that are all kind of coming out at the same time, does that say something about bandwidth, say something about your business lines that we may just be seeing more of these kind of overlapping like product cycles in MedSurg going forward? And I have just 1 quick follow-up.

I'll let Andy [indiscernible] answers.

Yes. Yes. Thanks, Matt. And I'm glad you recognize that we have a lot of products launching recently. But I did allude to it in my comments earlier that historically, we have been prolific in new product line, new generation, particularly of product launches in our MedSurg businesses. This is where we have that deep command. Here's where I think we are getting better. I think we're getting better in 2 key areas. One, how we utilize our resources. So project selection. In the past, we may have had a number of singles and doubles, and now we have doubles and triples, and maybe an occasional home run. So bigger projects, bigger impact take a little more time and a little more engineering resource, but have a more material impact on our customers and on our company, of course. And I think on the second part that of -- my 2, we're getting more effective at moving our projects through the system faster. So removing low or nonvalue-added tasks in our quality system. So something that may have taken 48 months, we may have shaved our 10 months off of that today. And I think that will continue over time. I'll also add, I mentioned it, Kevin mentioned it, that our pipelines today are as strong as they've ever been. So these are products that are not on the market yet. They're coming down the pike. So should we expect that on a continual basis going forward? Absolutely. That's what we do.

Yes, we now have what's called a PMO Council, project Management Council, of professionals that are helping us launch these products with tremendous rigor and tremendous cadence. 12 years ago, when I joined the company, if you said they were project management, people would just kind of look around or look at their shoes, it just wasn't something we valued at Stryker. And so we're -- not only are we launching at probably a faster clip when we launch, we don't have to go back and kind of pull back and we don't go into back order right away. We're launching with excellence out of the gate because we've really professionalized project management. It's a badge now being a PMO person, project manager office person is kind of a badge of honor at Stryker. That was not the case 12 years ago, not even close. So you should expect us to continue. I think one of the good decisions we made was when the pandemic hit, we did not take our foot off the gas on R&D. You saw R&D spending didn't slow down at all, and we're obviously benefiting from that. But I think MedSurg is an under appreciated part of Stryker. I mean these are fast, high-growth end markets. We have tremendously high market share. We know our customers very well. They renew very quickly. They're eager to see our next product, and they're eager to buy our next product just based on the legacy that we've established. But because a lot of our competitors are private or it's harder to line up our businesses, I think it gets kind of overlooked if you look back at the last -- look at the last decade, there's been a tremendous amount of growth coming out of the MedSurg. MedSurg is now our biggest of our 3 reporting segments, and that's not a coincidence. And some of the acquisitions we've had are tremendously high growth, think about Physio-Control, which is a deal that many of you weren't so thrilled about, I mean, that's been an absolute home run of a financial deal, spent $1.2 billion for a $500 million business that's grown double digits since we've owned it and has a big backlog. I mean in our hands, that's just been a home run of a deal, kind of lost in the overall size of Stryker. But you can count on MedSurg, right, Andy, continuing to drive tremendous growth in the years ahead.

There's a few people over here you can ask later, Matt.

Yes. Yes. We have some of our MedSurg presence here, and you can ask them that. We're going to have to close down the broadcast now. So thank to all of you who are attending virtually. We're going to exit the panel and then you're going to hear some instructions about moving over to the product tour and then the cocktails. Thank you.