Vocera Communications, Inc. (SYK) Earnings Call Transcript & Summary

Hello, welcome to Stryker's conference call. My name is [ Emily ], and I will be your operator for today's call. [operator Instructions]. This conference call is being recorded for replay purposes. Before we begin, I would like to remind you that the discussions during this conference call will include forward-looking statements. Factors that could cause actual results to differ materially are discussed in the company's most recent filings with the SEC%. Also, the discussions will include certain non-GAAP financial measures. Reconciliations to the most directly comparable GAAP financial measures can be found in today's press release that is an exhibit to Stryker's current report on Form 8-K filed today with the SEC. I will now turn the call over to Mr. Kevin Lobo, Chair and Chief Executive Officer. You may proceed, sir.

Good morning and thank you for joining the call today to discuss our agreement to acquire Vocera Communications. Joining me is Andy Pierce, Group President, MedSurg and NeuroTechnology; Glenn Boehnlein, our CFO; and Preston Wells, Vice President of Investor Relations. I will make some opening comments before turning the call to Andy, who will expound on the strategic rationale. Glenn will then cover the transaction details before opening the call to Q&A. Please note that we have included a PowerPoint presentation with the slides available on our website. Today's announcement is aligned with Stryker's mission, which is shown on Slide 3 and which we have shown you this previously. With Vocera as part of our company, we will be better positioned to serve and improve the lives of health care professionals by enabling hospitals to enhance the quality of their care and improve operational efficiency. These are critical needs that have been recently magnified by the impacts to hospital staffing driven by the ongoing pandemic. On Slide 4, this shows our corporate strategy and Vocera is a logical adjacency for our MedSurg segment, as you would have seen during our Analyst Day spotlight on safety and outcomes. Turning to Slide 5. With Vocera, Stryker will be a leading player in the fast-growing digital care coordination and communications segment. This deal further diversifies the Stryker Medical business through an innovative portfolio of technology product offerings, including Software as a Service that will deepen our customer relationships. Vocera's hands-free badge and smart badge advanced software offerings and embedded technical capabilities complement our legacy capital business and provides us with an opportunity for our products to be at the center of the care delivery model. working to improve the connection between disparate devices and systems and between patients, analysts, and caregivers. We are excited about the opportunity to be a leader in the fast-growing new market, which is similar to what we have done in the past with Neptune waste management and Mako in Orthopaedic Robotics. As you saw with Sage and Physio-Control, our medical division leadership team has proven capabilities in integrating adjacencies and have built strong relationships with Vocera over the past five years. We know the company well and are confidence in our ability to drive meaningful synergies. This acquisition will add to our growing digital capabilities, which you have seen recently strengthened through the acquisitions of OrthoSensor and Gauss Surgical. Vocera is primed for continued high growth and increasing profitability, which will be further enhanced as part of Stryker. Finally, I would like to complement Brent Lang and the entire Vocera leadership team for building a strong mission-driven company with an intense customer focus that is delivering advanced technology solutions for the well-being and safety of health care workers. These attributes give us conviction in our ability to drive a successful integration that will create significant shareholder value. I will now turn the call over to Andy.

Thanks Kevin. I would also like to express my gratitude to both the Vocera and Stryker leadership team for their incredible efforts to bring together these highly complementary organizations and product portfolios. Both Stryker and Vocera are mission-driven companies focused on their customers and delivering and enhancing the quality of health care. As outlined on Slide 6, our mission at Stryker is, together with our customers, we are driven to make health care better. This statement is a common goal that unites our organization, including our team, customers and ultimately their patients. We believe that the addition of Vocera will strengthen our ability to deliver on our mission. Turning to Slide 7. Our customers are experiencing overwhelming challenges caused by operational inefficiencies, administrative burden, staffing shortages and increased workloads. You'll see some of the specifics here on this slide, and these challenges have only gotten worse with the COVID pandemic. In addition to adding pressure to our caregivers, these challenges also significantly reduced the amount of time that they are able to spend caring directly for their patients. As shown on Slide 8, these headwinds create a significant opportunity for Vocera's portfolio, which is a key value driver for this acquisition. Vocera provides customers with a secure, flexible and digital communication platform that reduces the administrative burden for health care systems. The increased connectivity promotes operational efficiency and reduces cognitive overload, which directly contributes to more time spent with patients and drives improved patient outcomes. In addition, these advanced technology solutions will allow us to continue our commitment to helping our customers deliver high-quality patient care by further diversifying our existing product offering while also enhancing future product development. As we have met with many of you over the years at various investor events, a common theme for Stryker has been our ability and belief to consistently deliver organic sales at the high end of Med Tech. This belief requires achieving category leadership in the segments in which we operate and the markets in which we compete. Turning to Slide 9. As we bring Vocera into Stryker, we will be a category leader in the fast-growing digital care coordination and communication segment. The global digital care coordination and communication segment is in its infancy and is estimated to be approaching $1 billion today. However, we believe that the addressable opportunity is significantly larger and will further expand over time as hospitals prioritize investment and more modern communication and workflow solutions. The annual rate for the category is -- growth rate for the category is in the mid-teens and is accretive to the total Stryker growth rate making it an attractive market adjacency to continue to drive our growth profile. There are numerous avenues for future growth, including expansion of the full suite of products in existing hospital customers, adoption by new hospital customers, penetration into alternate sites of care such as the ASC and expansion into global markets. They also have a very strong customer retention rate of over 95% and a healthy level of recurring revenue. Turning to Slide 10. We believe Vocera will bring a complementary and innovative portfolio to our Medical division and in particular, our acute care business unit. Vocera has 3 critical pillars to their product portfolio. The first, is their proprietary Badges and Smartbadges; the second is, their Engage rules engine ; the third, is their software offerings, which includes their Edge platform and their Ease caregiver, patient family communication app. Collectively, these pillars come together to enable caregivers to seamlessly communicate with each other, their patients and their patient families. Both Vocera and our medical team are acutely focused on enhancing patient and caregiver experiences, reducing adverse events and helping hospitals improve their workflow and communication processes. Specifically, the Stryker ProCuity bed series addresses the issues of patient falls, pressure injuries and caregiver injuries through unique bed exit alarm capabilities, pressure redistribution and low-height technology. And Vocera solutions alleviate caregiver burden through intelligent alarm management and they help increase workplace safety with hardware features such as their exclusive panic button. By leveraging the innovation engines of both organizations, we will have numerous opportunities to enhance the market-leading products, Stryker and Vocera offer today. From a purely commercial perspective, we are excited about the great synergies that exist between our teams. Vocera has exhibited segment-leading growth in a new category by learning and listening to their customers and delivering solutions that exceed those needs. Their enterprise- based selling approach and team commercial model are positive attributes that align well with our go-to-market strategy at Medical. Given our embedded customer base at Medical and Vocera's growing book of business, we believe there is a complementary commercial strategy that we are uniquely positioned to unlock. Overall, we are excited about the opportunity to bring Vocera into our medical team. We believe our extensive experience in M&A positions us well to execute the integration and deliver advanced digital solutions to our customers. As a company with a long history of investing in customer-focused technologies, we look forward to achieving best-in-class performance through a world-class sales force, a highly complementary market-leading product portfolio and an exciting pipeline to ensure we continue to grow the market and to gain market share. With that, I will now turn the call over to Glenn.

Thanks, Andy. As detailed in today's press release and summarized on Slide 11, we have reached a definitive agreement to acquire all the issued and outstanding common shares of Vocera Communications were $79.25 per share for a total equity value of approximately $2.97 billion and an enterprise value of approximately $3.1 billion, including the convertible notes. Under the terms of the agreement, Stryker will commence a tender offering for all the outstanding common shares of Vocera Communications for $79.25 per share in cash. The Board of Directors of both Stryker and Vocera have approved the transaction. The closing of the transaction is subject to the receipt of applicable regulatory approvals and other customary closing conditions. We anticipate the acquisition to be funded largely with cash on hand and shorter-term borrowings. This provides us with greater flexibility to pace future deleveraging, much like we did with the Wright Medical acquisition. Both Moody's and S&P were apprised of the deal prior to the announcement, which is customary in these types of acquisitions. We remain committed to an investment-grade rating and plan to deleverage in the near term but expect some negative reaction from both agencies in the short term. The acquisition of Vocera is expected to close in the first quarter of 2022, assuming that close timing, we expect the transaction to have a neutral impact to our 2022 adjusted earnings per share and be accretive thereafter. This does not impact our long-term post-COVID guidance that was outlined during our Analyst Day in November of last year. We will provide an update on our full year guidance for 2022 during our Q4 earnings call, which is scheduled for late January. With that, we will now open the call to Q&A.

[Operator Instructions] Our first question today comes from the line of Matthew O'Brien from Piper Sandler.

Kevin, for starters, you're in 13 -- [indiscernible] 1,300 hospitals, there's 6,000 in the U.S. There's an opportunity to go deeper in those 1,300 hospitals across the entire platform. What's going to be the focus for Stryker? Is it going to be adding new hospitals with Vocera, given all your relationships, especially at the C-suite level? Or is it going to be focused on going deeper in existing centers right off the bat?

Thanks for the question. I would say it's both. There isn't one approach only. There -- as you've seen driving terrific growths on their own but with our sales force that's very complementary, we obviously will facilitate their access to new customers. So I would expect that the new customer will accelerate under Stryker, and they'll continue their great momentum with their existing customers. But it isn't one or the other, I would say it's both.

Okay. And then on the international side of things, 340 hospitals. They don't have a huge presence. In Asia PAC they have got a little bit. But can you talk about the opportunities to grow the international component of the business over the next couple of years?

Yes, this is Andy. I'll take that one. We really do see, as part of our deal thesis international being a really important part of future value for the acquisition. As you noted, we have a generally smaller presence, Vocera does today. In international markets, we sell into about 10 markets today. It's roughly 10% of the overall business of Vocera. So you can imagine if 90% of the business is done here in the U.S. that will have really strong upside to expand through our very capable, very competent medical organization and all of the Stryker relationships that exist with international customers. So we're very excited about that opportunity.

Our next question comes from Pito Chickering from Deutsche Bank.

So nurse staffing has been an issue for the last decade, and it's obviously gotten worse sort of post COVID. And I understand that Vocera helps make nurses and health care workers more efficient. But the question for me is sort of why now? What do you think Stryker can do for Vocera that it has been unable to do for itself? Do you think that the appetite for technology solutions to increase nurse efficiency is growing at this point?

Yes, sure. I'll take this one again. It's Andy. The question of what can Stryker do for Vocera that they can't do for themselves. As Kevin noted, we have to complement the Vocera team. They've done a tremendous job in growing that business quite successfully. But that being said, we do know that our world-class commercial [ might ] we have in Stryker tied to our strong market position, particularly in our medical and our acute care business, will provide opportunities for cross-selling the portfolios and also provide entry points, as Kevin noted, to introduce Vocera to new customers that maybe they may have a challenge getting into today or just accelerate that process. So we believe that our ability to add to the revenue trajectory of Vocera is very strong.

And as to the question about why now, I would say that Vocera really has hit kind of an inflection point if you look at their Q3 EBITDA margin, very high profitability in addition to very high growth. We've liked the asset for at least 5 years. We've been in close connection and we kind of run alongside Vocera in hospitals. And we've also done a very nice job deleveraging after the Wright acquisition. So we are now at the position where we could actually financially do this deal -- So it's a combination of our ability to generate cash and pay down the Wright debt with their -- the growth that they've experienced themselves. It's really the stars aligned around this being a great time to do this. And they're really starting to take off as you've seen with their results. And I think we're going to help accelerate that.

And then the follow-up question being. This is a fascinating move into the world of health care IT. Do you think that Vocera could be a platform to build additional products in the IT world around?

Yes, we're really excited about what this can do. You have to remember, we're also in a lot of different sites of care. And you mentioned the ASC, there's also a workplace public access, the ambulances. So you can just imagine the idea of connectivity and communication capabilities across the sites of care were replay and with the broad portfolio that we have, you could imagine connectivity with other devices within our portfolio. So we do see this as a really foundational platform that I think will make Stryker better overall...

Our next question comes from the line of Robbie Marcus from JPMorgan.

Great. And congrats on the deal. Kevin, maybe a build on that last question a bit. Connected Care is a term we've been hearing more and more throughout Med Tech and it seems to be the way for the future. You mentioned some of the opportunities you have, maybe help just set realistic expectations for us. How long should it be before we might see more connected care, better communication between some of your existing Stryker products and the Vocera network? And is it fair to think that this might be a much more fully integrated network in several years out?

Yes. This is Andy again. I'll take that one. Absolutely. As Kevin just said, the foundation that this provides us and not just the foundation from a technology perspective, but the over 200 R&D engineers showing up every day working in the digital space to drive connected technologies. That is very attractive to us as a company. So certainly, from a platform perspective, we have high expectations, again, as Kevin noted. That being said, we also need to be realistic from a time frame perspective. We have to get this deal closed. We have to integrate the business. And over time, we will work with our organization across the entire enterprise to seek those opportunities for synergies between our businesses. But as noted prior, we have a natural synergy today with our medical business, our acute care franchise and that will be day 1, we will protect that and will grow that over time inside the company.

And maybe just a quick follow-up, Glenn. You said it will be neutral this year, accretive next year and beyond. Any sense of the accretion we should be expecting? It seems like there is top line and OpEx synergies. Just want to make sure we're thinking about it the right way.

Yes, I think you can look at Vocera's historical performance and get a feel for how fast they are growing, you can also get a feel for where their EBITDA margin currently sits and what we might be able to do, both from a top line perspective in synergies, but also from even just a removing sort of key G&A items that drive better cost synergies. So I think you can get a feel for, we feel very confident that moving forward, it will be accretive to us, both top and bottom.

Our next question comes from Ryan Zimmerman from BTIG.

Great. Thank you. I just want to follow up on Robbie's first question. You alluded to the fact that there may be integration down the line with some of your products called beds and wheelchairs, ambulation technology, things like that. What about EMRs, though, Andy, I mean how does the Vocera technology potentially integrate with EMRs and what kind of capability will there be to integrate with other EMRs that are outside of kind of your ecosystem right now? And then a follow-up question will be -- and I was just asking now is, how do you think about the sales force integration and kind of with that sales channel into that call point. We've heard really good things about today, the Vocera sales force ahead of this transaction. And so your thoughts there would be appreciated as well.

Yes, absolutely. On the first part of the question in terms of EHR, EMR integration, the great news here is that just stepping back, 30,000-foot view, Vocera today has interoperability with over 150 partners. Now that's across the spectrum of products, devices and different technologies. But within that, they do have current relationships interoperability, so moving data in and out with existing EHR partners. So think about Allscripts, Cerner, Epic, GE Healthcare, McKesson, et cetera, we already have that today, which is terrific. And the second part of your question is one that we are extraordinarily enthusiastic about. And frankly, as we move through diligence with an acquisition partner that we already knew very well, we got to know better due diligence, their extraordinary capabilities around programmatic selling, full system sales and selling into the C-suite. So we truly believe that they bring a competency to our company that in many ways, we have in parts, but they bring a fulsome view of what it means to be a strategic seller, and we believe that we're going to build off of that. So from an integration perspective, we fully anticipate continuing to invest in their sales team, expand their sales team and partner as noted, their sales team with our acute care sales force. We believe that, that relationship will be quite synergistic and produce terrific results for both the new organization, Vocera, and our acute care team. Over time, we will integrate likely in terms of management structure, et cetera. But in terms of feet on the street, we are very, very focused on keeping them as is and expanding on their organization as they're structured today.

Our next question comes from Joanne Wuensch from Citi.

I just want to spend a couple of minutes as I think about synergies because it sounds like there are both revenue and expense synergies. And is there a way to quantify or just maybe qualitatively talk us through how these are going to progress over the next period of time.

Yes. Joanne, Yes, there are 2 things. I mean I think -- and Andy has really elaborated pretty extensively on some of the sales synergies that we see. And obviously, if you think about our past acquisitions where we integrate our sales force in with products and also take advantage of a lot of the positive impacts that their sales force has had. We really think that top line synergies will accelerate growth for sure. This -- on the cost side, this acquisition is really not sort of a cost synergy play in sort of traditional valuation metrics. But I do think there are obviously places if you think about public company costs that we would eliminate, there are also opportunities to bring Vocera into our shared services platforms that will also drive some nice cost synergies too. But I think overall, as you think about this, this is much more of a top line synergistic play than it really is a cost synergy plan.

And then I think you mentioned that there are products in the pipeline for Vocera that you're excited about. Is there any way to provide some color on that?

Yes. Right now, we are not going to provide any additional extensive color on that, but we will say that through the diligence process, we became very enthusiastic about our future vision and future pipeline, but we'll see those solutions come to market down the road.

Our next question comes from Lawrence Biegelsen from Wells Fargo.

One for Glenn, one for Andy. Glenn, how are you thinking about ROIC on this deal? It's obviously not an inexpensive deal on traditional metrics? So first question is ROIC 3 to 5 years out. And Andy, could you talk a little bit about how Vocera compares to the competition? We did a call this morning and one hospital administrator compared Vocera to Voalte. They did say that Vocera is more sophisticated, I think, a better product. But how does it compare -- who's the competition? And how does it compare?

Larry, great question. First of all, as it relates to ROIC, we don't necessarily disclose those numbers specifically. What I would tell you is that we have a pretty disciplined framework about how we look at assets and how we look at the valuation of those assets over time. And Vocera clearly fits within that framework. I think a few things to keep in mind from a valuation perspective. First of all, this is a high-growth asset in a very attractive health care SaaS category that's going to command a certain premium. This asset will be accretive to Stryker. It has increasing revenue potential as well as increasing earnings potential. As we look at the revenue profile, it is highly sticky and there are significant recurring revenues that we really like. And then lastly, I think as you've heard Kevin and Andy really focus on, this is a direct fit to Stryker's customer strategy and to Stryker's digital strategy. So all of those things combined relative to how we might look at returns over time and it clearly fits within our framework for this category of assets.

Yes. So the second part of your question around how do we stack up relative to our competition Larry, as you know, Stryker, we pursue market leaders here. So category leadership is really important to us, and that is no different certainly in this deal, both from a market share perspective, category leader and from a capabilities perspective. So if you look at the portfolio that's offered, it is the most complete portfolio in care coordination and communication. They provide unique aspects such as the Engage workflow engine. They provide unique aspects such as the Smartbadge, which has hands-free communication, which is also unique to this business and the panic button, which we talked about, which unfortunately has become quite important for our hospital customers as workplace violence has escalated and certainly escalated over the last 24 months. So again, we believe that from a competency perspective, holistically, the technology is market-leading and certainly from a share perspective, category leading.

Our next question comes from Matthew Taylor from UBS.

So I just wanted to ask you about the market opportunity. I think you called it a billion-dollar market today. I just wondered what were you defining within that? Could you put a little bit of a bracket around that and talk about how that could expand over time? What's kind of the long-term blue-sky TAM you see for this space?

Yes, sure. This is Andy again. So that is the existing space that all of the competitors serve today that approaching a billion-dollar current market opportunities. So that's the Vocera's of the world, the Baxter is, as noted, with the Voalte offering, Ascom, other competitors that exist in this space. That's the billion-dollar opportunity. As noted, we have tremendous share upside opportunity to expand these types of technologies into our hospital customers. Our ASC customers, which is truly a white space area for us. ASC has very low penetration today, and we know that's a terrific opportunity that Stryker is taking well advantage of. And then as noted, our international opportunity is virtually untapped. So that provides strong upside for our business in spaces where today, our Medical division has a strong footprint and will allow us to sell through that organization outside the U.S.

Maybe just a follow up...

On slide...Sorry, Matt, it's pressing on Slide 9, you can see there the TAM that we think this can get to upwards of $5 billion.

Okay. And then a follow-up on that. I just wanted to hear from you. You threw out some interesting and unique ideas, ASCs, you are a device manufacturer in very specific categories. Are there unique things that you think you can do that you could call out that, let's say, a Baxter or another peer couldn't do that are really unique to Stryker. I would love to hear any more thoughts on that.

Yes. Certainly, one area where we are very excited is all of the connected devices that we have in the side of our company. So if you look at our footprint, our portfolio of products that we have across the enterprise, we have connected devices in the operating room in the ED in the back of the ambulance as you know, in the patient on the patient floor in the ICU, products that we can build off of to collect data, provide insights through that data. So Stryker's overall product portfolio footprint, our breadth and depth will be a big advantage here. And then as we think about how we further the utilization of their technology across our business. We do feel that, again, as noted, our selling prowess across entire continuum of care and health care will be an advantage to help grow the Vocera business.

Our next question comes from Danielle Antalffy from SVB Leerink.

Just a question on future potential investment and innovation here. I mean seeing as you're using a pretty large cash balance to do this all-cash acquisition. Would love to hear how you're thinking about the progression of incremental investment innovation over the next few years when you can start really investing in this business on top of what's being done already within Vocera.

Yes, sure. With all of our businesses, we always preserve a healthy level of reinvestment, both in R&D as well as expanding sales force. As you would expect that Vocera will be no different than the way we run the rest of our businesses within Stryker. So we will continue to fuel the growth with consistent increases in investments in R&D as well as the sales force. And then as it relates to external, clearly, we're going to primarily focus on delevering right now. We will preserve the right to do very small kind of tuck-in deals, just like you saw the discipline we showed following the Wright medical acquisition, where we delevered very significantly, but did do some small tuck-ins. And so we'll continue to be looking at small tuck-ins across the whole portfolio of Stryker.

Got it. Okay. And one quick follow-up, if I could. On the Vocera business specifically, I mean, obviously, COVID has driven higher demand of these types of offerings, right? So just curious about how you think of how much demand that we've seen over the last 18 months is pull forward versus potential sustainable long-term demand here?

Sure. We really don't feel like this is a pull-forward business. The business growth over the last 24 months is simply a highlight of existing trends. And in particular, the recognition that nurses matter by our customers. And we don't feel that, that's going to go away. That is a sustainable trend. So as the nurse has taken a more prominent position in the health care setting, these types of technologies will only become more important over time. And then as noted, workplace safety has become -- as part of that value proposition for the nurse, a very important part of the equation and Vocera really addresses that quite nicely.

Our next question comes from Jeff Johnson from Baird.

Maybe following up, I know we've had a lot of product-specific questions. But most of those product questions have been external-based connectivity, patient to nurse communication with beds and ambulances in that. I guess to be more direct. Kevin, is there a play here you could put this communication and connectivity technology within your implants itself? Is this something that can complement the OrthoSensor deal and kind of some of the connected care we think about coming forward in implants themselves?

Yes. Actually, I think that's a bit of a leap right now. We have so much runway within, what I'll call, workflow improvements, communication workflows that's we're going to be laser-focused on that. I would say digital capabilities will abound across all of Stryker, but I wouldn't think about this necessarily getting involved with the actual implants. It certainly can help with the communication of patients when patients are going in for their procedure and the patient families, there's the communication capabilities that will be used there, both in the hospital and the ASC. But now, I think that's a bit of a leap. There are a lot of other potential connections, but more on the MedSurg side than on the implant side.

Yes, that's helpful. And then, Glenn, just on the cost synergy side, I know you said not a lot of cost synergies. I think that makes sense here given this is an adjacency. Are there any vertical integration benefits? I mean, how -- are they more efficient on the communications side than what you guys have been building into some of the power tools. I think you have to deal with them on the bed side itself, things like that. Can we think about any kind of vertical integration cost savings? Or really, this is more just all top line focused?

Yes. I think first and foremost, this is top line focused as we think about accelerating both Vocera's platform and our own products that's where we're really going to drive the synergies and frankly, spend our time in our energy. I really think if you think about the cost side, it's much more about kind of public company costs and back-office type costs is where we'll drive some synergies. And then beyond that, clearly, as we share sort of innovation excellence and things like that, there will be synergies that occur in the R&D line between Vocera and not just medical but also other MSNT divisions.

Our next question comes from Chris Pasquale from Guggenheim Securities.

Glenn, I wanted to follow up on the accretion guidance. The Street is modeling almost $50 million in EBITDA for Vocera this year, and you guys should be able to realize some synergies around public company costs and G&A pretty quickly. So why is this not meaningfully accretive in year 1? What are you assuming there in terms of offset that gets you to neutral ?

Yes. Chris, that's a great question. We're not going to guide sort of at this point in time just based on where we are and also the proximity to our sort of 2022 guidance that we'll provide in January. I do think suffice to say there are integration matters that will certainly incur relative to this acquisition, just like every other acquisition that impacts somewhat of the profitability. But I really can't comment at this time until we get beyond close and also relative to our earnings call at the end of January.

Okay. So just to be clear, you don't assume any year 1 investment cycle or anything else that would reduce the underlying profitability of the asset beyond what it was doing on a stand-alone basis?

Yes. I mean we're not going to get into that level of detail. Keep in mind, as you look at all these assets, we obviously will have some interest expense that will impact sort of profitability as we integrate it through the first year. But beyond that, it's a quick cycle 9 months and then we fully expect it to be accretive.

Our next question comes from the line of Kyle Rose from Canaccord Genuity.

For either Kevin or Glenn, just obviously, digital and connected health and analytics is a major focus point. I just wondered, could you talk just from a high level, I mean where the organization stands from an investment perspective? I mean are you bringing on the capabilities in these resources with some of these acquisitions you're making with OrthoSensor, Gauss and Vocera? Or are you going to need incremental investments in human capital and technology to kind of propel the company forward when you think about these digital initiatives?

Look, this is not a new trend for us. We've been focused on digital for probably the last decade. It's been very progressive and then every once in a while, we make a step change by bringing on technologies such as Vocera that really propels us to the next level. But I would say we're going to continue. It's going to be -- a key component of our R&D investment will be digital. And everything we launch will have some smart features or some digital components to it, all of our new products. And so you should expect that to continue. But there won't be some sort of new step change level of digital investment that I would call out separately, where we're building it very progressively and very excited about that. And we're retaining a lot of the talent, which is really obviously very important in this space.

Our next question comes from Rick Wise from Stifel.

And Kevin, congratulations on this exciting deal. One question for Glenn, one question for you, Kevin. For Glenn, maybe I'm not fully understanding it, but you've referred to the deleveraging, and I know you're -- it sounds like you're going to put some debt in place over time. Where should we imagine leverage will look like when the dust settles, where do you want to see leverage to get to. And do you think it's a year to get back to where you'd like to see, Glenn? And I'll go ahead and ask my second question now you, Kevin, just it's always difficult to ask a CEO about M&A and the future plans for a billion reasons. But how would you have us think about your priorities from here? Is it going to be looking for transformative growth platforms like this? Is it filling out what you've got? Is it investing inside of care? Any perspectives would be welcomed.

Okay. First of all, on the debt-to-EBITDA ratio. Obviously, post this transaction, we expect that will peak somewhere around 4x. Very quickly, just like you saw with Wright Medical, based on our performance relative to cash flow we're generating, you'll see us pay down debt this year quickly. And I think the normal place that we'll land is somewhere between 2.5 and 3 once kind of the dust settles relative to that. We are focused on maintaining investment grade and we'll have the organization focused on getting there pretty quickly.

And Rick, as it relates to your question on M&A, I think I've said this recently that most of the areas that we play in, we plugged our gaps to category leadership. If you think about sports, if you think about spine, you could think about extremities, and so now the larger dollar deals would be more like what you're seeing today, adjacencies. And there are many attractive adjacencies that we have at Stryker. Every business will always continue to pursue what I'll call tuck-ins to strengthen their portfolios, product gaps in specific areas, but those won't be the larger size deals typically. But we have a number of adjacencies. I've mentioned them in the past. I mentioned some of them during Analyst Day. I think Healthcare IT was one that I actually called out. And here, we have one deal not so long after the Analyst Day in the health care IT space. But given the breadth of our portfolio, we have a lot of room to play in adjacencies. And what I love about this one is it has a lot of recurring revenue software. We'll continue to increase as a percentage of the mix over time, which is really terrific. And it's so complementary to our Medical division, where we run right alongside them. We know them very well. And the timing is terrific with the focus on nursing, which, as you know, with our Neptune products and others. We are already very, very closely aligned with nurses. So there's a culture fit. There's a mission fit. There's complementary products and it's bringing us terrific high growth and increasing levels of profitability. A lot of the high-growth assets we bought historically have not brought with them this level of profitability. And that will be sustainable given the recurring revenue that we have. So hopefully, that answers your question, Rick.

Our next question comes from Joshua Jennings from Cowen.

Just a quick one on things we appreciate the sharing some of the competitive dynamics in the landscape. And just wondering if you could comment on whether this was a competitive process or if not, whether you're expecting more consolidation in the space? And then the follow-up question is really just Kevin, as you -- team is building out digital capabilities and thinking about the ultimate $3 billion to $5 billion TAM that's been laid out. Can you just talk about where those portfolio gaps sit now? And I know there's a lot of opportunity that you just said in your last answer, but what areas have been global digital care coordination is Stryker need to -- where do they need to build out?

Yes, Josh, I'll take the first question. As you think about the process, right now, we won't comment on that just given where we are in the process. Very quickly here, I would refer you to the background section that will be filed in the next couple of weeks that will lay out sort of the process in detail and you guys will get insights into how the acquisition process played out. Then I'll let Kevin comment on the next one.

Yes. On your second question, we're really talking about the market that Vocera is playing in today. So in the market they're playing in today with the solutions that they have today, this is the type of expansion you can imagine. So that's not even thinking about really getting into the other areas that Andy alluded to. That would actually even grow the market potential even further. So it's really difficult when you're in new markets to estimate the -- usually, you tend to underestimate the size of the total addressable market that's what we saw with Orthopaedic Robotics. That's what we saw with Neptune Waste Management. That's why I love getting into these new markets where they're really -- you're competing against non -- there's nonconsumption of these products and services today. And so that's what really is exciting is all the numbers we're showing you is our estimates with today's offerings in kind of today's customer set. I don't know if, Andy, if you want to add anything further to that.

I think that's terrific.

There are no further questions at this time. I will now turn the conference over to Mr. Kevin Lobo for any closing remarks.

Thank you for joining today's call. As you have heard, we are tremendously excited about the opportunity to bring Vocera into Stryker and achieve category leadership in this fast-growing segment of digital care coordination and communication. Thank you.

Thank you. This concludes today's conference. Thank you.