Stryker Corporation (SYK) Earnings Call Transcript & Summary

Joanne Wuensch, the medical technology analyst here at Citi Bank. So for our next session, I'm quite thrilled to have the incoming CFO, Preston Wells and Jason Beach, which I think people know quite well. But thank you for joining us today.

Thank you for having us.

I hope you're having a good day.

So I want to kick off, Preston, you're stepping into some big shoes here. And I know we all know you from your IR days. But I'm curious how you're feeling about this new role? And how do you think you're going to make your mark?

Well, first of all, thank you for having us. It's been a good morning so far, and I look forward to a good afternoon as well. The good news is the shoes that I'm stepping into, they are big, but we are certainly in a good position as a company. We've got really well-defined targets of where we're heading and a real clear vision of where we're going. And obviously, maybe Kevin -- you heard Kevin talk about it on the earnings call, as long as he's at the helm, we're steering the ship in the same direction. So, now I'm looking forward to just helping to continue the pathway that we've been on and looking forward to working with folks like Jason, Kevin and some of the leadership team and continuing the trajectory that we've been both on the top and with our op margin and EPS goals.

All right. I need to get some things out of the way. Some of them are specific to the markets you participate in and others I'm asking absolutely everybody today. So let's do with the everybody today, Washington, directives. It's putting a little volatility into the stocks. What do you think the impact is in no particular order: tariffs, FDA, staffing cuts, NIH funding, Medicare, Medicaid.

All right. See if we can hit all of those for you. That's right. We'll see if we can hit all of them for you. So I guess maybe a couple of things. I think number one, and this is probably true for all of the above is we're still waiting to see what really what happens. Obviously, there's a lot of noise. There's a lot of discussion that's going back and forth. But ultimately, we'll have to wait and see what policies actually get put in place before we react to too much. Maybe just hitting a few of these. So if I think about NIH and Medicaid and FDA, which all have to do kind of with either funding or how quickly maybe we can get some of our products through. Right now, we're not overreacting to anything. We're not hearing too much anything in terms of changes in trajectory of where we're going. If I think about from a funding standpoint, our capital markets remain pretty strong. The information that we're hearing as we talk to customers and hospitals is pretty good. The start to the year that we had is continuing the momentum that we had at the end of last year. And I would say the same thing on the procedural volumes. We're still seeing pretty strong procedural growth. Obviously, if there are major, major changes, we'll have to adapt to what those are. But right now, we're not seeing much in the way of any major impacts as of yet. From a tariff standpoint, I'd just maybe articulate, we are and we do have facilities in the geographies that have been discussed. We have a small plant in Canada. We have a facility in Mexico. And just as a reminder, those are 2 of our 40-plus facilities that we have. So they're a small portion of what our actual cost of goods are or what our supply chain is. And we already are impacted by some of the previous tariffs that were coming out of China. And we would expect there might be a little bit more impact there. But overall, not overly worried about what may happen there from an overall impact. And again, I think some of what we've heard versus what actually might happen is still a little bit up in the air, but we are less exposed in some of those markets, maybe than others.

Okay. And you went right into my next question, which is some of the orthopedic stability. I keep hearing from many of the manufacturers that this is sort of a new growth rate as it relates to procedures. And pricing, which had historically been 2% to 3% headwinds seems stable, maybe positive.

It's certainly less bad. And I think we'll call it less bad. And I think it's been a -- just an effort in terms of showing what is the value that we bring with our products and services. And that's true both in orthopedics and in our MedSurg and capital businesses as well. And so we've seen very positive momentum over the last year, and we expect that to carry forward into '25 as well. As it relates to the overall, what is the new ortho market, you're right, it does appear to be better than maybe what we thought when we were coming out of COVID where that might stabilize. And it certainly is -- appears to be on a growth rate trajectory a little bit higher than what it was pre-COVID. Probably a few different things that are driving that price is one, as you mentioned. The other as we think about it, we've seen a pretty big explosion in where procedures get done. I mean the ASCs have really grown since COVID, and that's created more capacity. It's created other places where people can get procedures done. The other thing we're seeing is that folks are getting procedures done at a lower age. So traditionally, it was about 65 or so where people were getting procedures done, and we're seeing that tick down to about 60. So all of that's just introducing additional position that's in the system right now that we think will be there for everybody.

Okay. Good. I do want to spend some time talking about fourth quarter call. It was shared that it accounts now for 17% of knees and 14% of hips. You and I were talking about this. You're already laughing. You and I were talking about this a couple of years ago.

Wow, I think when we were talking about it a couple -- when we were a couple of years ago. I think we were probably in that 5-ish percent range, if not even a little bit lower. It was really in the early days at that point where people -- I think the way we think about the ASC is it's going to continue to grow because it's a place where otherwise healthy patients want to go have procedure done. If you don't have other comorbidities or other issues or ailments, why not go to a place where you can get the procedure done, get in and out as opposed to staying in a hospital or maybe other things are happening there. So we really do believe that it's going to be a place that will continue to expand and grow. And certainly, we've seen that over the last couple of years.

Where it's going to peak out?

I don't know that we have a number of where it's going to peak because a lot of it is going to just depend on the type of patient, but we do expect it to keep growing for sure. And I don't think we're near where the peak may. So I think we have lots of room for expansion and opportunity to grow.

And one of the things that strikes me about Stryker is that it's not just that you sell orthopedic implants into the ASC. You sell 1 or 2 other things. So walk me through 1 or 2 and walk me through a new ASC is going up in New Jersey, and you're not -- your Stryker sales are knocking on board. What do you do?

Yes. So I'll talk through some things and Jason can certainly help clean me up here. But when we start a new build, there's a lot that we can offer. So we have our communications business, which you go into any operating room and you see booms and lights and things that are hanging down off the ceiling. Those are products that we sell and actually the infrastructure even behind that. So if you looked behind the wall of any of those big booms and lights, there's a tremendous amount of infrastructure that's going into that build that's holding all of that up. And so that's 1 element that we add -- that we were able to add to any new build. And then on top of that, just retrofitting out that operating room, whether it's the beds, it's the Neptune Waste Management, it's the stretchers. It's all of the different capital that might go into actually supporting that operating room. And then on top of that, all of the implants that it would take to support the procedures happening, particularly in the orthopedic focused ASCs. So we really -- as a rep, we have an organization that we created a few years ago called Customer Solutions that our ASC business kind of sits within. And so we have 1 rep that will approach that ASC to help simplify the administrative burden of working with a Stryker. And so we have individual reps that are still working with that 1 rep to make sure that we are selling the best of Stryker into that ASC at that point.

How many Mako procedures were done in the ASC versus in the hospital these days?

I don't know that we have disclosed that number. But what we are seeing, and I would say early when you and I were talking about ASCs, I think there was some concern, would you have robotics in the ASC?

Yes. We didn't think it was possible.

What we're seeing is it's quite the opposite, actually. I think that robotics is making a big [indiscernible]. Part of it is because of the ability to get the procedure done and get the patient out relatively soon, the same day even. And so we're actually seeing a pretty significant tick up as we think about all the installs that we've had of Mako, which we've mentioned on the call, was a record year. we are seeing a significant portion of those go into ASCs as well.

Okay. When do you top out on the number of potential procedures that can be done on Mako. I think you gave a statistic on the call that 45% of knees and 20% of hips are being done on a Mako device.

Is it higher in knees?

Those are global numbers.

The global number. Global number.

Those are global numbers. Okay. Global number.

So I mean, I think what we're seeing, and those numbers are higher in the U.S. And what I think is that we're continuing to see that grow. If you're an otherwise healthy patient getting a procedure done on Mako is becoming for us the standard of care. And so I'd see that continuing to grow. I don't know we've given a top out number, but there will always be some element of people that have comorbidities and things that won't do that. But for the most part, we believe most patients can move towards the Mako. We're seeing that same trend happen outside the United States as well, which is even just as exciting. If you think about the early days of Mako, and we started to see that adoption really take hold. We're seeing that same thing happen in countries outside the United States, which is going to then just further that growth rate that we have in those markets as well.

And what stops -- I'm trying to figure out like if I was going to go and get a hip or knee, I'd be like robotics Mako. What stop somebody from saying "no, no, that's okay."

Yes. I think it's education.

Education of the physician or the patient?

It's a bit of both. And I think as patients, one of the things we've done, and we saw -- we had a direct-to-consumer advertising last year to help educate patients, they can ask for it. I think most folks that know Stryker, that cover Stryker, that are in Stryker have educated their family members to ask for it. And I think that what we would just continue to try to do is having people ask for robotic procedures, ask for those surgeries. And now we have enough of an installed base that most of the times when people ask for it, we are in that area or there is a robot in that area. So I think that's one of the things that's just continued education and I think there is more and more consumer awareness around that is going to help drive that. Also surgeons, we're seeing more and more surgeons that are coming out of school, coming out of training as we have Makos that are in many of the training institutions that are training folks on Mako. So they want to do make procedures, they want to do robotic procedures as they start their practices. So I think it's training and education on both sides of it that is really at it.

But is there a reason a physician would not want to do robotic surgery? I mean, again, you...

No, I think there's going to be some preferences. There's going to be some people [indiscernible]. But I think what we are seeing is that certainly newer surgeons as they come into the market, just like with anything else, they want to utilize technology, and this is one of the things [indiscernible].

Okay. Is there -- because it is a capital equipment purchase.

It is. It is. So I mean that -- in terms of getting a Mako, we have to make sure that, that equipment purchased by the hospital and brought in. And now we were able to work with hospitals in many different varieties on how we do that. And so as a result, we are able to enable a lot more of Makos to go in to support where surgeons want them.

So 1 of the things that when I do diligence robotics, whether it's soft tissue robotics or orthopedic robotics that surprises me is if you have a center that has 3 robots, they are more likely to buy a fourth and a fifth than a center of that has nothing.

That's right.

Why is that?

I think the proof is in the pudding, right? I think when surgeons are using it. And what we see is we really rally behind a surgeon champion to get a robot into a particular system. And once we do, that surgeon then starts using it and other surgeons want to use it. And it's really a word of mouth and people getting the experience of using the Mako and once that happens, you're right, it just -- it starts to put more and more and then you have capacity. And so once you run into capacity issues, they're asking for another. And so you're right, getting over that initial hurdle is important because once you do, we really do see a lot of uptick. We were talking at one of our meetings earlier today, one of the mechanisms that we've seen at rentals. We do have Mako set of rentals. What's interesting about that is a significantly large percentage of the rentals that we have turn into purchases. Because as they utilize the Mako, they want to actually then own the Mako.

Do you have to have a 2.0 or 3.0 version of Mako?

I think we always have to think about innovation. If we just stood still, eventually, somebody will innovate something. And so we're always constantly thinking about innovating. We launched different applications. We've launched different software upgrades. And so we will continue to look at innovation. As the matter of fact, when it comes to AAOS, we'll probably talk about a few different things that are happening on Mako in addition to our shoulders and spine applications.

Okay. There's like 4 questions I want to ask out of that. But I'm going to stick to my plan here, and I need to talk next about shoulder applications for Mako. And where are you in the rollout? And I think it's sort of interesting to think about you have a Mako for hip and knee. Can the same one be used for shoulder? Do you need a different one?

You can use the same Mako. So the good news is, is that we are launching Mako and then we're going to launch these applications to retrofit into Mako. So really, the big change will be there will be software that's required. There's going to be a change in factor, change in some of the hands that are associated. But ultimately, the goal is that you have one Mako that's able to service all of these different elements and applications that we have. Now the challenge is as you think about how do you split that from a capacity standpoint, and it goes back to question 1. And so I think that's 1 of the areas where we think we have a big opportunity is to build on the existing installed base as you widen the number of procedures that are being done here. And so you asked about shoulder and where we are. So we launched shoulder at the end of last year. We've done a few procedures over the course of last year that continues into this year. We're in more of a limited launch while we continue to gain feedback from many different surgeons on how that's going and are there tweaks that we need to make. But so far, the feedback has been really, really positive. And we think about Mako for shoulder aligned with our Blueprint technology from a planning standpoint and really just continuing to evolve a really difficult procedure in a tight space to continue to make that a better procedure for everyone.

Okay. I'm familiar with Blueprint because I covered 28, I covered [indiscernible] Medical and now I'm covering Stryker. What's special about Blueprint?

Yes. I think what's really special about Blueprint is it allows the surgeon on CT scan to do a whole plethora of preplanning. And even on the spot plan with some of the virtual reality opportunities that we have in that space as well. So that surgeon can make sure they're making the right plan and even at times, get suggested that the right type of implant to be used for that patient. So it just gives a lot more power to the surgeon, in terms of that planning opportunity that they have. And then you think about that combined with Mako, so more power and planning and then a better opportunity around execution is really what we're focused on.

Okay. You mentioned Spine. Is that staying with you? Is that going with Spinal Implants?

Of course, Spine will remain part of Stryker. And it will be part of our overall Enabling Tech organization. And so maybe if I just think about and help everybody think about Spine and the way we think about it, pre-divestiture and then maybe post. So pre, when we talk about our Spine business, it's really 3 components. So it's our Spinal Implants, which is really the metal business. It's our Interventional Spine business, which is a different segment of that Spine market or a faster-growing segment of the Spine market, and then it's Enabling Tech. And so those are the 3 elements that made up Spine as we would think about it before our announcement. And so what's really being impacted is the Spinal Implants. So the metal business, the implant business is what we've sold to BB Spine. And that part of the business will exit, but we will maintain those other elements of Spine. And just for clarity's sake, even before this happened, each 1 of those verticals had its own sales force, they have their own organization that was lining up behind it from an R&D standpoint, a marketing standpoint. So it is really like sectioning off just a portion of what our Spine business was.

And why? What makes now the right time to do that because launching Stryker build up Spine.

Yes. I would say we've tried. And I think it was 1 of those areas that we felt like over time was important for us as we connected the overall orthopedic markets, with our neuro technology markets. And I think the key here is we're not leaving overall Spine. We're just leaving a portion is Spine, the hardware portion. And if I could remind everybody back from when we did Analyst Day, I think Jason showed a slide that talked about where our markets were and our market growth rates and that Spine Implant market growth rate was very different than the others. And so as we think about our overall -- just understanding our portfolio and again, adding Inari into that portfolio, which is another faster-growing segment, from just a capital allocation and where we're going to spend our resources, it just made more sense to make a move now with Spine and understanding that we've moved it to a strategic partner that we can still work with in terms of promoting and how we utilize our Enabling Technology with that.

So they're still going to have access to your technology?

They will have access to our technology.

Okay. And it's revenue accretive, getting rid of Spinal Implants.

From a growth standpoint, yes, it is accretive for us.

And you did not share the timing of the sale or the amount of the sale?

Correct.

We'll be, at some stage of this?

You will. Well, yes, you will know when we close. We will make sure everybody will know. And certainly, you will see for where those cash flows are and what's coming from it.

Okay. There are other recon products across the portfolio that we don't spend as much of the time. Is there something you'd like to highlight?

Yes. Maybe -- so we -- obviously, we've talked about Pangea, which is [indiscernible], we talked about, Mako and all the things that are happening there. But as we think about our orthopedic business, and this is true for all of our businesses, we're in a constant cycle of innovation. Orthopedics might be less predictable than maybe some of our MedSurg businesses, but we do. We just launched our Triathlon Hinge, which is for our vision products. And that is another area of our portfolio that we continue to [indiscernible] and we have our gamma nailing platform that we launched for Trauma and Extremities. And so again, continuing to build out small portions of our portfolio. And 1 of the interesting ones and 1 of the ones we probably talked about before I left the IR chair was Insignia. And so we launched our Insignia Hip Stem about 3.5 years ago or so, and that continues to be a giant contributor to our overall hip growth as we go forward. And so it's just -- those are the key products that really supplement some of these bigger ones that we tend to talk about. But it's important to note that across all of our divisions, there is this constant wave of innovation that's happening that's supporting these larger, bigger name items that are launching as well.

So when we go to AAOS, what are we going to be seeing?

I will turn it over to my friend, Jason, who can tell you about all the things that you're going to be seeing when you go to AAOS.

So Preston talked a little bit about Mako being prominent at the show for sure. We will absolutely have Mako Spine, Mako shoulder there for folks to see. So I know that will be a bit of the excitement for sure. I think the other elements here that you'll see, you'll see a bit of our Sports Med business and 1 or 2 products there as well on display. And then you'll also get an opportunity to see our latest line of Steri-Shield. So that's in our Instruments division. So think hoods and togas that will be on display as well. So there'll obviously be other ones, but those will be the main just kind of the showcase.

Okay. MedSurg. Tied to the hospital CapEx environment. A number of questions that I have about the hospital CapEx. Tell us your view, please.

I feel like any time there's some sort of economic thing, the first question is what's going on with hospital CapEx. Yes. CapEx, CapEx, CapEx. Yes. Look, I've mentioned it before, we obviously are very close with hospitals as they continue to build out orders for things. As of now, we're not hearing any major changes in strategies, major changes in approach to what they're doing. Our capital order book is -- it remains really strong. It was strong as it ended last year. We've seen those orders continue to be strong heading into this year for the first couple of months. And maybe just a reminder, as we think about what our capital business is, we've talked about this before, it's about 25% of our overall business. And so much smaller maybe than what people are thinking when we start talking about some of these different categories that we're in with medical and instruments endoscopy. But really, it's about 25% of our overall business, and that's broken into 15% of that is small capital, 10% of that larger capital like your Makos and beds and things like that. And so I think it's just a matter of -- it is a smaller piece of our overall and of what we have, we have a pretty good line of sight at least for the next several quarters of what that looks like and right now, again, the feedback that we're hearing from hospitals hasn't changed too dramatically from what we saw at the end of last year.

Okay. I don't think MedSurg gets enough attention.

I agree with you.

All right. So if I want to be more attentive to it. What is -- what I'd be paying attention to? Just trying to figure out how to say that properly, but those are the ones I think.

Yes. No, I think I understand. So it's interesting. I think we were talking about this too a few years ago. It is interesting in the evolution of our MedSurg business and let's just take a business like medical, for example, which maybe 15 years ago was beds and stretchers. And that's all it was. And now when we look at that business and it's fibrillators, it's beds and stretchers still, of course, it's IT health -- it's health care IT type products with Vocera and care.ai. It's a whole host of different things. And so I think I would just pay attention to the evolution of these businesses. So we do a lot of deals. I think last year, we did some close 7 deals. Most of those were in the MedSurg space. And all of those deals continue to build out these categories in slightly different ways so that they are different -- they're very different organizations from a product portfolio and where we're playing than maybe what they were 5, 10, 15 years ago. And so I think just continuing to pay attention to that, continuing to pay attention into those markets that we're getting into these because generally, we'll get into faster subsegments that are helping us to continue to maintain the growth rates that we do on those businesses.

So when you think about adding businesses, M&A, how do you think about building out that portfolio?

Yes. The beauty of the bar approach is that it is from the bottom up. We have very few things that happen top down from an M&A standpoint, if any, really. And so all of the M&A that we do in each of these business units is coming from the business unit. So they all have dedicated business development people. They're constantly looking at the market. They're constantly working with the sales force, who are working with customers to understand needs, and they also understand where the opportunities exist at those call points. And so as a result, that's where the M&A bubbles up from. And then after we do the M&A, those divisions and businesses own it. And so there's an ownership element that's there as well. So we spend a lot of time over our targets. We spend a lot of time understanding our targets, understanding their needs and then we jump in and make those deals and then we own those deals.

So when you buy something, do you leave it alone? Do you let it run on its own? Do you fold it in? Is the goal -- I'm going to throw up 5 things here. So just stop me in a minute. Do you just say, okay, we're owning this for revenue or owning this to cross-sell. I mean how do you think about this?

I would tell you it varies. And each market varies. So if I think about -- let's just go back to MedSurg for a minute, One of the beauties of MedSurg is there's lots of room to expand. So if I think about the operating room, so 1 of the businesses that Jason was responsible for when he was the Vice President of Finance for Instruments was our Surgical Technologies business. That's Neptune Waste Management, and it's a whole plethora of other products that exist in an operating room that most people probably don't really know about. And so there's so many more opportunities to expand into other little parts of that operating room that maybe aren't as well we don't know, for people. But our businesses since they are specialized in a category, they're able to look deeper into that. And so that might be one where they identify a product and they say, you know what, this is a good add. We'll add this smoke evacuation would be a great one. We find smoke evacuation. We're going to add it to the existing bag and off we go. There's others, and I'm sure we'll talk about Inari, but there's others like Inari, which is a much larger scale adjacency that's going to be a little bit more left alone in terms of where they are and what they're doing because if not, there's not a specific bag that it just fits into. And then there's going to be others that are more, how do we get this and make it more scale play. So we did the SERF acquisition in France for joint replacement, it's a hip product, and that's about how do we get new technologies into Europe. And so take that technology that's primarily in France and broaden it across Europe and then broaden it into other markets. So there's a variety of approaches that we take. And a lot of it depends on that marketplace, that sales organization and then probably the size of the acquisition.

So I want to talk about Inari. Well, straight there. Recently closed. Congratulations. Why and why now?

Yes. I mean I guess similar to the opposite of what we talked about with Spine is we've talked about peripheral for a while. We've talked about trying to find what's the right entry point into peripheral and quite frankly, I think just the timing of when this asset became available and our time having spent time looking at it and understanding what we really wanted to do just gave us -- just the timing just lined up. And I think it lined up with adding a faster-growing segment into our overall market growth and then taking one that was slower growing and eliminating it with Spine. So I think it's just really a timing of our portfolio evolution from that standpoint with an asset that we knew that it's something that we wanted to get into.

Why do you want to get into it?

I think just with regards to the faster growth than it is. And then also there's some synergies from an R&D perspective with our current neurovascular business. So we really do believe there's an opportunity to leverage know-how, to leverage some of the expertise on both sides, to really help get products out to market faster to maybe even develop some differential technologies in that space. And then we also believe just with our scale that there's an opportunity to scale them broader, particularly on a geography basis outside the United States.

So I get questions about things like sales force? Are they going to be able to retain? What does this mean for pricing in the market? What does this mean for maybe investments you need to make it a Stryker asset?

Yes. So all of that is factored in when we think about making the acquisition, and I can't -- and I don't know all the specifics of how that's going to roll out. But what I would tell you is we are going to maintain a relatively separate sales force. We've just hired a head of that business. We hired a President for that business. He was a Stryker person that's coming in that has a PV experience. And so they're going to be able to leverage their Stryker know-how and their previous neurovascular know-how to lead that organization. There will certainly be elements of how do we operate at Stryker and line up behind our sales force and all of our businesses, and we'll continue to do the same here for the Inari business. And it's one of those things that there will be investments, and there will be elements that we have to do things for. And again, back to looking at our overall portfolio, these are areas we want to make investments in versus other areas that, quite frankly, we weren't going to get the same return.

Okay. Anything else you'd like to say on that?

I don't know, anything I missed on Inari, Jason?

Well said.

Moving on. I want to go back to MedSurg products for 1 second. We've spent a lot of time over time talking about things such as LIFEPAK 35, 1388 camera system. I didn't hear you mention those in AAOS speak, any particular reason?

No. I mean, again, I just highlighted a few. I think you meant 1788, just in terms of the cameras. But no, look, the -- these big platform launches are very much a part of how we deliver the revenue, we deliver quarter after quarter, year after year. And I think Preston even touched on this earlier, but as we think about just the long-term growth rate of Stryker, these will be things that 1788 becomes 1888, right? They'll be the next gen of LP35, though that was the next gen AEB, the first 1 in whatever 17, 18 years, but this is part of how MedSurg goes to market. And so no, you should expect to see those as well.

Okay. 2025 guidance. When you gave it, you had Inari coming in, Spinal Implants going out, a stable ortho market and hunting towards your margin expansion that you had set at your last analyst meeting. How do you put all those pieces together?

Very carefully.

Okay. No, but you were part of that. It wasn't like Glen put it together and then hi-five with you and said, "Hey, Preston...

I can't play the new guy card?

No.

No, in all seriousness, it is -- one, it's a continuation from -- if we think about the top line growth, the top line growth is really a continuation of the momentum in the markets and the execution. And it's the new products that we've been highlighting here. It's also lining up behind the sales force and [indiscernible] the sales force. It's also the acquisitions that we've done over time really over the last year that are going to flip into organic growth bucket. And so all of those give us a lot of comfort around our top line. Obviously, there's going to be some noise with Spine exiting and with Inari coming in, we'll manage and we'll manage through those integrations on both sides. And all of that is going to be on the foundation that we will deliver an additional 100 basis points to get back to our pre-COVID operating margin. So we're well positioned coming out of last year, both from a top and bottom line standpoint [indiscernible].

Why was 8% to 9% the right number?

I think it was really just, again, starting with our end markets and understanding where our execution is versus those markets and understanding that we're growing off of big growth rates as well. And so giving ourselves the opportunity to deliver to the high end of that is part of it.

What gets you to the high end?

Yes, it's really going to be around, like I said before, it's going to be execution. It's going to be can we get these new products out? Can we get them out in a manner that it gets into the marketplace even faster in some cases, and just delivering on our commitments from that standpoint.

What can go wrong?

Washington. No. I think, look, there's always things that are going to happen. There's always going to be some events somewhere that might cause some disruption. And so I think what we feel really good about our ability to work through that in the 8% to 9%. So all of those pluses and minuses get factored in. There could be any sort of economic thing that happens, there could be any sort of [indiscernible] happen, there's always something but we'll work through that as we go throughout the year. But we feel good about the 8% to 9% with all the pluses and minuses.

Could you have another double-digit year?

Never say never.

Never say never. I'll take that. All right. So at the end of '25, you're going to hit, no, what was the phrase back to pre-pandemic.

Back to pre-pandemic, yes.

Yes, but there is a phrase swiftly or marching.

We're marching back to...

No, wasn't marching, there was a phrase...

Sprinting back.

Sprinting, okay. So you're in the sprint back and then what?

We're going to take a break. We're going to -- I think what we're going to do is we will have some level of [indiscernible] margin improvement. And I think that was something we committed to pre-COVID and then, of course, COVID happened with all the hyperinflation and things of that nature that we had to work through. I think we'll get back to those pre-COVID levels at the end of this year. And then you can expect that there will be some ongoing margin improvement. We'll talk about that at our Analyst Day later this year and to what specifically that is. But certainly, we are expecting that we'll continue to deliver the high-end growth and we'll continue to deliver some level of margin expansion as we go forward.

What helps you get to that margin expansion?

Yes. This year, it's probably categorizing 3. We talked about price already. That will be a [indiscernible] component of it for sure. Certainly, when we look at our manufacturing and supply chain, our operations, will be an area just in terms of gaining efficiencies within those operating areas. When we do these acquisitions, they come with plants a lot of times. So making sure that we're deploying the right network strategy and optimizing our plant structure and network, that will be another component of it. We're certainly spending a lot of time in some of the verticals within supply chain. If I think about procurement and really looking at the overall basic suppliers that we have and calling that down and making sure we have a focus there. And then the last thing I would maybe point to is when I think about SG&A and thinking about the G&A part and elements like the finance, organization or IT or HR and how do we make sure that we're setting those organizations up from a scalability standpoint, and so we've started moving things into shared services and other elements like that, that are going to help us to create a more [indiscernible] model all the way through.

Joanne, maybe just 1 other comment on the margin expansion piece. For '26 and beyond, right, last Investor Day, we said 30 basis points is the floor. We'll obviously update it again in November when we get there. But I think the point is, no reason to think we'd walk away from 30 being the floor. And we've said it could be years where there's more depending on levels of M&A and some of those things. So again, we'll update it in November. But just didn't want to lose the point that 30 basis points, '26 and beyond is absolutely [indiscernible].

At least.

That's right. That's right.

Okay. It gets harder and harder, I would think, leveraging an organization of your size, is that true?

I think that's generally true, but I think we have lots of opportunity. I mean part of our acquisition strategy, gives us more opportunity because we are bringing in a lot of different things, each acquisition. And I think the other element is we have some opportunity in some of those buckets like G&A that we haven't necessarily set up for a longer-term scalability that we have opportunity there as well. Pricing will continue to be an opportunity for us. So all those buckets that I outlined for you, they're not at their end state. And so there's a lot of opportunity to continue to drive those. As we go forward, plus the other element I would just point to with growth in the ranges that we're talking about, if we can sustain those growth, there's some natural leverage that comes from that as well.

How do you think about white spaces and continue [indiscernible] out to sort of further Stryker?

Yes. I think we've talked about a lot of these different spaces and some of them we've been able to get into. I mean we've gotten into PV, we've gotten into health care IT, we talked about urology in the past. And I think we'll continue to evaluate these higher growth areas. I think the other is that even though we're in some of them, I would say that we'll continue to evaluate how to even get further into some of those areas, health care IT is one, for example, where we've done Vocera, we've done care.ai. There's probably other opportunities to continue to enhance what we have in that space. So I think we'll look at all different sorts of opportunities that exist or they make sense, we'll continue to make some place there. But we'll also strategically look at our existing markets that we're in and where there's opportunities to either to fill gaps or add or build on adjacencies that are in a smaller way into those spaces.

Artificial intelligence is a cool word.

It's a very good word.

How do you think about folding that into the Stryker product family?

Yes. It's 1 that we spend a lot of time talking about. So you may [indiscernible] formed what we call our digital robotics and enabling technology organization. And that organization is responsible for a lot of our platform technologies. And so as part of that, they're looking at a lot of how we think about AI across our product portfolio. We have done some work. Obviously -- the care.ai business brings in some elements of artificial intelligence. But really understanding how we're going to build that across our portfolios in a sustainable way [indiscernible] focused on. And so I don't know that I have anything I would point to other than that specifically right now, but just knowing that it is a topic of discussion as we think about product development moving forward.

So when I think about the medical technology industry, AI may mean fee-for-service revenue and maybe fold it into robot, for example.

Potentially. Yes. I mean I think a lot -- I mean, that's kind of care.ai. if we think about the bit of the model like how that's going to follow.

What is care.ai?

care.ai is a business that we bought that's more of a monitoring business if you think about in a hospital, so it's able to detect a lot of what's going on in that room. And so we think about 1 of the things that you're trying to prevent in a hospital room is patient falls, if you're trying to understand when a patient might be in distress. And oftentimes, there's not enough nurses that are running around a particular wing or particularly, the hospital. What care.ai will do is help to facilitate a lot of that by kind of a visualization.

Okay. I think the Vocera acquisition did not get a lot of attention. I can't guess why, but what was it about the technology that was appealing for Stryker?

Yes. I mean I think it was really a couple of things. I think number one, at the time, it was a big shortage on nurses and a lot of pressure on nurses. And so 1 of the things that Vocera does is lightens the load from a nurse perspective. The other thing that's probably a little bit less known is it's actually a platform that goes into a hospital that becomes more of a connected care type platform. And so the goal being that ultimately, you could have a lot of different elements [indiscernible] that are lined up and connected behind that Vocera application. So it really is about building a bit of an infrastructure as well as lessening the burden on the nurses.

Where do you guys get your ideas?

They come locally. I mean they really do. And that's the kind of sweet thing here is that we have business development teams that are local with sales reps, that are local with marketing teams and R&D teams that are focused on a specific category. I mean, that's what they do. They eat, live and breathe those categories. And as a result, they understand the landscape, they understand the customers, they understand where the pain points are. And as a result of that, that's where a lot of ideas come from. And whether they're inorganic or organic in terms of R&D.

When I think about several years ago, there was an increase in verbalized push outside the United States. And majority of Stryker sales are still inside the United States. Why is that? And what makes that hold a little bit more in the other direction?

Yes. It is. I think this -- there's still -- we still have a very big geographic push to grow our business in all parts. The part that it's hard to get bigger outside of the United States meaningfully when your United States business is growing just as fast. So it's not that we have a deficiency that we're trying to offset. So I think that's part of it. But we have made some concerted efforts. I'd just point back to surf. I mean, where we've done an acquisition purely and focused outside the United States, and that really will help grow our business primarily in Europe to begin with. And so we are making clear efforts to do the same in some key markets around the world, so Japan being another one that we're highly focused on, on how do we grow that market. But ultimately, all of our businesses are focused on not only maintaining this credible growth rate that we have in the U.S. But we're trying to meaningfully grow outside the United States. And we do look every year that we grow faster outside of the United States or not, we traditionally have.

Okay. When we're sitting here together a year from now, what do you think we're going to be talking about.

I hope we're talking about this great momentum out of '25 and into '26 and all these new products and maybe some acquisitions that are going to drive us forward beyond that. But ultimately, look, our goal this year is to [indiscernible] the guidance that we set, we want to grow at the high end of med tech, which we believe for us is about 8% to 9%. We want to make sure we're delivering on those op margin commitments and ultimately, then delivering back to the business for future growth.

Excellent. Preston and Jason, thank you so much.

Thank you.

Thanks.