Welcome to the first quarter 2026 Stryker earnings call. My name is Megan, and I'll be your operator for today's call. At this time, all participants are in a listen-only mode. Following the conference, we will conduct a question-and-answer session. This conference call is being recorded for replay purposes. Before we begin, I would like to remind you that the discussions during this conference call will include forward-looking statements. Factors that could cause actual results to differ materially are discussed in the company's most recent filings with the SEC. Also, the discussions will include certain non-GAAP financial measures. Reconciliations to the most directly comparable GAAP financial measures can be found today in today's press release that is an exhibit to Stryker's current report on Form 8-K filed today with the SEC. I will now turn the call over to Mr. Kevin Lobo, Chair and Chief Executive Officer.
You may proceed, sir.
Welcome to Stryker's first quarter earnings call. Joining me today are Preston Wells, Stryker's CFO, and Jason Beach, Vice President of Finance and Investor Relations. Today's call will reflect a dynamic quarter. The cyber incident had a big impact on our results and affected each of our businesses differently given their varied go-to-market models and processes to record revenue. This resulted in distortions in our first quarter results that will normalize over the course of the year. Preston will provide additional color in his remarks, but this situation will not enable us to provide the normal level of detail or explanations that you are accustomed to hearing from us. The incident occurred late in the quarter and resulted in a global disruption to our business operations. In partnership with third-party experts, our internal teams reacted quickly to remove the unauthorized party from our environment.
We also began to work tirelessly to bring our systems back online to mitigate the disruption to our customers and the patients they serve. Patient care is our top priority, and we are incredibly thankful to our employees, customers, healthcare professionals, and other partners for their continued trust. As of the week of April first, we were fully operational across our global manufacturing network as we continued to meet demand and support patient care. We are proud of the resilience shown by our teams and partners during the recovery effort. Now, moving to our financial results. For the first quarter, organic sales growth was 2.4% on a worldwide basis, 1.9% in the U.S., and 3.9% internationally.
While our growth this quarter was meaningfully impacted by the cyber incident, we remain encouraged by the solid fundamentals in the markets we serve and remain well-positioned within them. As a result, we are maintaining our full year guidance and look forward to another year of healthy performance in 2026. On the M&A front, we recently announced the agreement to acquire Amplitude Vascular Systems that we expect to close in the second quarter. The acquisition of AVS will help expand treatment options for our peripheral vascular customers and is also a step toward expanding our presence in the broader cardiovascular space. Also, at the beginning of Q1, we established our new Ortho Tech business by combining the Mako and Enabling Technologies with the orthopedic instruments portfolio from our instruments business to simplify the customer experience, accelerate innovation, and increase our speed to market.
This move aligns two units that serve orthopedic customers with products such as System 9 power tools, Flyte Personal Protection products, Pulsed Lavage, as well as Mako and Enabling Technologies. I'd like to thank Jason for his last four years as Vice President of Finance and Investor Relations and wish him continued success as CFO of our MSNT group. We look forward to Nick Mead assuming the role of VP in Investor Relations on May 1st. With that, I will now turn the call over to Jason.
Thanks, Kevin. My comments today will focus on providing an update on the current procedural environment, select product highlights, and reporting changes. As Kevin mentioned in his remarks, we are fully operational across our global manufacturing network and have provided information on our website and recent SEC filings. For today's call, inclusive of Q&A, our focus will remain on recovery and business performance. Turning to the environment, underlying demand across our businesses remained healthy in Q1, even as the cyber incident created operational disruption. Procedural volumes were solid, supported by favorable demographics and the continued adoption of robotic-assisted surgery. The hospital CapEx environment also remains steady, and our capital order book remains elevated as we enter the remainder of the year.
Additionally, we delivered our best ever Q1 for Mako installations, both in the U.S. and internationally, with high and increasing utilization rates across the globe. We continue to expect sustained momentum from installations and utilization to drive growth in our joint replacement businesses. We also continue to receive ongoing positive feedback from surgeons on Mako Shoulder, for which we anticipate fully launching on Mako 4 midyear. Next, to reflect the launch of the Ortho Tech business, we've updated our segment disclosures beginning with our first quarter earnings materials. Within the Orthopedic segment, Ortho Tech results include our orthopedic instruments and Mako and Enabling Tech portfolios, as well as other products such as bone cement. Additionally, the neurocranial businesses are now reported together with the remaining Surgical Technologies portfolio under Instruments. These changes align with our internal organizational structure, where we have presidents leading both our Ortho Tech and Instruments businesses.
On our investor relations website, we've also provided additional information with our earnings release on segment quarterly revenues for 2023 through 2025 that reflects the changes I've discussed as if they had been effective for those years. With that, I will now turn the call over to Preston.
Thanks, Jason. Detailed financial information has been provided in today's press release. Today, I will discuss key elements of our performance and provide color on several items that meaningfully impacted our results in the quarter, most notably the recent cyber incident. Before I go into our overall performance, let me start by saying we continue to see healthy demand across our businesses, and we are encouraged by the progress we are seeing as we head into the remainder of the year. For the first quarter, organic sales growth was 2.4%. Pricing had a 0.3% favorable impact, and foreign currency had a 1.6% favorable impact. This quarter had the same number of selling days compared to the prior year.
Adjusted earnings per share of $2.60 was down $0.24, or - 8.5% from 2025. This decline was driven by limited sales growth and lost manufacturing absorption related to the cyber incident, as well as tariffs and increased interest expense, partially offset by our ongoing focus on operational excellence and a slightly favorable impact from foreign currency translation. We have diverse businesses, and the incident affected each of them differently. Because their individual results this quarter are not indicative of the underlying market performance, I will not be going into detailed sales results by business. It is also important to note that the cyber incident occurred towards the end of the quarter, creating an outsized impact on sales due to delays in revenue recognition in addition to the delayed shipments. As Kevin noted, patient care remains our top priority.
From a sales standpoint, our U.S. and international markets maintained healthy demand trends throughout the quarter, despite overall sales growth being constrained by the cyber incident. Differences in the impact of the incident across our businesses primarily reflect their varied operating models and go-to-market strategies. Certain businesses, such as acute care and emergency care within Medical, are more heavily weighted towards capital equipment such as beds, stretchers, and defibrillators, which can be made to order and have longer fulfillment cycles. Other businesses are more focused on recurring consumables, such as disposable waste management products that are replenished regularly and tend to demonstrate greater demand resilience. The degree of the disruption also varied based on inventory levels and consignment structures, including the extent to which products are held locally at customer sites versus centrally within our supply chain.
In addition, differences in supply chain and manufacturing complexity, sourcing flexibility, and logistics requirements influenced how quickly each business could adapt to the disruption. Procedural dynamics also affected the degree of the incident's impact. Businesses supporting procedures that could be deferred or rescheduled, such as hips and knees, experienced different timing effects compared to those supporting more urgent or non-deferrable procedures such as trauma and vascular, resulting in variability in both near-term volume and revenue recognition across the portfolio. Turning to the Middle East, the conflict in Iran has had modest effect on our international growth for the quarter. The impact on our overall results was limited. Despite persistent geopolitical risks, we continue to see meaningful opportunities for long-term growth in countries like Saudi Arabia, as well as other markets within the region. I will focus on certain operating and non-operating items in the quarter.
Our adjusted gross margin of 63.6% was 190 basis points lower than the first quarter of 2025, reflecting the impact of lost manufacturing absorption from production shutdowns due to the cyber incident, as well as the impact of tariffs. As a reminder, there were no incremental tariff impacts in the first quarter of 2025. Our adjusted operating margin was 21.1% of sales, which was 180 basis points lower than the first quarter of 2025, driven by the gross margin pressure I previously discussed and the deleveraging impact of lower sales growth on operating expenses, partially offset by continued cost discipline and our focus on operational excellence.
Adjusted other income and expense of $97 million was $24 million higher than 2025 due to higher interest expense from debt issued in 2025 to help fund the acquisition of Inari, as well as lower interest income from a combination of lower average cash balances and lower interest rates. We continue to expect our full year 2026 adjusted other income and expense to be approximately $420 million. The first quarter had an adjusted effective tax rate of 14.5%, reflecting the impact of geographic mix and certain discrete tax items. For 2026, we continue to expect our full year effective tax rate to be in the range of 15%-16%.
Turning to cash flow, our year to date cash from operations was $581 million, reflecting the results of normal first quarter seasonal cash outflows and the cyber incident's impact on net earnings and working capital, including inventories and the timing of receivables. Now I will discuss our full year 2026 guidance. Despite the disruption we experienced this quarter, we are maintaining our full year guidance. Given our presence in attractive end markets, healthy procedural volumes, strong demand for our capital products. We continue to expect organic net sales growth to be in the range of 8%-9.5%, and adjusted net earnings per share to be in the range of $14.90-$15.10.
We expect most of the first quarter's lost sales to be realized throughout the rest of the year, with the timing and magnitude reflecting the different product types and operating models we have across our portfolio. In limited cases involving emergent or non-elective care, we expect to offset any permanently lost sales through the strength of our continued commercial execution. While we don't provide quarterly guidance, the cadence of our sales momentum that occurs through the rest of the year is expected to reflect the catch-up of revenue recognition in Q2, while the rescheduling of certain delayed procedures and the fulfillment of customer orders impacted by production shutdowns will be delayed into the second half of the year. Our full year sales guidance reflects a modestly positive pricing impact. Additionally, should rates hold near current levels, we anticipate a slightly favorable impact to both sales and earnings per share.
Our full year adjusted earnings per share guidance reflects our expected sales recovery, our continued focus on operational excellence, and some anticipated improvements in the tariff outlook. Before I wrap up, I would like to reiterate that we are incredibly grateful for the continued trust and partnership from our employees, customers, and healthcare professionals throughout the past several weeks. Patient care remains our highest priority, with a continued focus on supporting healthcare providers and the patients they serve. With that, I will now open up the call for Q&A.
At this time, we will open the floor for questions. If you would like to ask a question, please press star five on your telephone keypad. You may remove yourself at any time by pressing star five again. We would like to remind callers to please limit themselves to one question and one follow-up question so we can accommodate as many participants as possible. We'll pause just a moment for the queue to form. Our first question will come from Robbie Marcus with JP Morgan. Your line is open. Please ask your question.
Great. Thanks for taking the questions. I imagine this was probably a busier last quarter as IR, Jason, but we'll miss you. I wanted to ask just on sort of the cadence through the rest of the year and how you're thinking about the updated guidance. I think it's pretty fantastic despite the disruption, you were able to reiterate the top and bottom line for the full year. I guess any more specific color on how we should think about the recovery in sales, just given how much of a wild card it is and the variability quarter to quarter versus street numbers.
Also, you know, one of the discussions with investors is how much of the upside was removed to be able to reiterate the guide? Or is this still the typical Stryker philosophy that you think you'll get almost all of it back and there's still the potential for upside? Thanks a lot.
Hey, Robbie. Thanks for the question. As you can imagine, you're right. It was definitely a pretty big event, especially as we ended the quarter. Certainly having that disruption so late in the quarter did cause the numbers that you're seeing. You know, in terms of how we think about it the rest of the year, as I mentioned in my prepared remarks, you know, it depends. We have a lot of variability across our business with the different operating models that we have and how they essentially serve the customers that we support. We think about areas like orthopedics, for example, we know we had procedures that continued, but we do have revenue recognition items that will be caught up in the second half of the year.
In the case where we had some instances where some of the cases got deferred or need to be rescheduled, given where the scheduling is for those products today, we know that that'll happen, but it'll probably happen not all in Q2. It'll probably bleed into Q3 and Q4 for those. Similarly, when we have some of our products, like I mentioned, that are make to order, where we had production down for a bit of time, and so getting those back into the schedule, getting those products made, that'll happen probably in the back half of the year rather than in Q2. So we'll see some recovery in the second quarter, and then we'll really see some additional recovery as well as what we would normally see in our Q3 and Q4 kind of seasonality happening in the back half of the year.
That's how we're thinking about the cadence. As you know, we don't provide exact guidance on our quarters, that's really how I would frame it for you. In terms of the overall guidance itself on an annual basis and the upside, et cetera, look, I think at this point, just getting to the numbers of reconfirming our guidance from where we are, we feel really good about that. We're going to really live into those numbers as we get through second quarter. We get through second quarter and have our results there, we'll take a look at where we are again on the full year basis and provide an update at that point in time.
Fantastic. Thanks a lot.
Your next question will come from Larry Biegelsen with Wells Fargo. Your line is open. Please ask your question.
Congrats, Jason , on the new opportunity there. I guess the same question as Robbie, maybe, you know, on the margins, pressed in this year. You know, I'm sure that changes the cadence, you know, the recovery here. Do you still expect operating margin to be up about 50 basis points year-over-year this year? I have one follow-up.
Larry, I guess I would tell you from a full year perspective, nothing's changed. If we think about what our guidance is and what our expectations were for the year, there's not a change in even those margin expectations off of what we set from the three-year window that we gave, the 150+. We're going to continue to expect to live into that. You're right, in terms of how we're going to see that play out, it might change slightly quarter-over-quarter for this year. As a reminder, we do have some headwinds on that margin in the first, you know, the first and second quarter, just given where some of the tariffs are coming in versus last year. We've talked about that before.
Really from a full year standpoint, given that we've reconfirmed where our guidance is, we don't expect much of a change overall in terms of what our margin performance will be for the year.
That's helpful. Just for my follow-up, Preston, there's been a lot of, you know, noise around inflation, higher oil costs, et cetera. Remember, you know, 50 basis point increase in operating margin is still the guidance. How are you know, mitigating these higher input costs? Thank you.
Yeah. Thanks, Larry. You cut out a little bit, but I think you're asking particularly about some of just the higher input costs as a result of maybe the oil and other inflationary areas. We are expecting that we will see some level of pressure just coming out of some of the geopolitical items that are happening and events that are happening across the world. As a result, we do expect that there will be some level of pressure on some of our input costs. You know, we have our procurement team is actively working right now in terms of trying to mitigate those where necessary or where we can.
Certainly we have contracts that are in place to help us do that a little bit in terms of mitigating some of those input costs as we go forward. That's something that's factored into our guidance as we have it right now. So we anticipate based on what we know today, to be able to absorb those input costs that are rising as we see them right now.
Your next question will come from Joanne Wuensch with Citi. Your line is open. Please ask your question.
Good afternoon. Thank you for taking the question, Jason, best of luck. I'm curious of what you're seeing competitively in the market at this stage. I mean, there's a lot happening, not just given the cyber issue for Stryker in the first quarter, but also another orthopedic company looking to be spun, another orthopedic company reorganizing its sales force. Can you just sort of give us a lay of the land of what you're actually seeing out there, as the market absorbs these shifts? Thank you.
Hi, Joanne. This is Kevin. I'm assuming you're talking about the orthopedic marketplace. What we would say there is we love our position as market leaders in robotics, and you can see with Mako 4 getting a huge uptake in that, tremendous excitement about that. In addition to, you know, shoulder being launched on Mako 4 mid-year. The feedback's great on that. We have the Mako RPS, the handheld. Early stage, we haven't had much in the way of revenue, getting great feedback from customers, that'll pick up in the second half of the year. We also have obviously the launch of Triathlon Gold, our medial stabilized insert. There's just a lot of momentum that we have.
Regardless of what competitive actions are occurring, we're really not seeing that take away from customer interest in Stryker, our leading position. If you look at our full year guidance that we've reaffirmed, that assumes we will continue to outgrow the orthopedic marketplace by 200-300 basis points, just as we have in the last few years. Really no change in the end markets. If anything, probably a bit of an acceleration towards the end of the year with those three launches that are more back half loaded.
Thank you.
Your next question will come from Ryan Zimmerman with BTIG.
Thanks for taking our questions, Jason. Echo those congrats. On the health of your customer base, I'm wondering if you could talk a little bit about, you know, the dynamics in the hospital market right now. I appreciate that you guys, you know, were under very extenuating circumstances this past quarter, but some of that pause in orders, I'm wondering if you kind of parse out between, you know, what is your ability to serve the market versus what may or may not be changes in demand and just kind of how you think about, you know, those two dynamics interplaying, particularly as it relates to your capital business.
First thing I would say is we did not see a pause in orders. We definitely had a pause in shipments because we obviously couldn't make product for almost three weeks, and so we were not able to ship the capital equipment that we normally would ship. We have a very healthy order book. There's no new dynamic in Q1. There's no way we'd be reaffirming our full year guidance if we suddenly felt there was some kind of slowdown in orders. Hospitals still have healthy balance sheets. They have a strong interest in our products. You know, Mako, again, had record Q1. It would've been even higher had we been able to continue to ship through the end of the first quarter.
No, we're not seeing any slowdown in orders, and our hospital environment is still very stable.
Very helpful, Kevin. If I could ask about M&A for a minute here, you know, if you look at the M&A contributions to top-line growth, they've come down a bit, I guess, over the last few years, particularly, you know, as we think about fourth quarter 2025 and into first quarter 2026. Historically, M&A has contributed closer to 18%-20%, you know, to your growth. You know, given your comments at AAOS and, you know, kind of where the net debt to EBITDA sits right now and your, you know, your eagerness to deploy capital, I guess, you know, what is holding you back or what isn't holding you back, I guess, to re-accelerate M&A as a contributor to Stryker's top line growth?
Yeah, great question. I can tell you, we're very excited about the deal pipeline, and we're excited about our cash position. Being at sort of ending the quarter at 2.1 gross debt to EBITDA definitely means we have firepower to do more acquisitions. You obviously heard about AVS, which we're very excited about for peripheral vasculature, but we have a good pipeline. You should expect us to be active in M&A, going through the end of this year and into next year.
Your next question will come from Travis Steed with Bank of America Global Research. Your line is open. Please ask your question.
Hey, thanks for the question. Maybe one on Amplitude and the deal you did there, and I think I'd ask it kind of higher level. You know, we rarely see you buy kind of pre-commercial stage companies, given how critical commercial excellence is to the Stryker strategy. Does this deal kind of signal that maybe you're willing to take on more risks to grow revenue now that your base is over $20+ billion? Should we kind of expect more earlier stage deals going forward?
Yeah, it's not really related to the size of our company. It's the nature of the business. If you look at these PMA-type products in peripheral vascular, this space sometimes requires early stage investment. That's been the case for us in neurovascular, and in this case, we're not long away from an approval in the PV space, right? We might actually be able to sell this product before the end of this year based on the filing of their submission. This is not pre-revenue years away from launch. Now, obviously, we'll pursue other indications in addition to above-the-knee indications. This is a pipeline that will live on for many years to come, but it's pretty close. We know the technology. We've assessed the technology.
We think it's very differentiated. Obviously IVL is a very exciting space, and we're excited to be embracing that. It's more related to the type of business than the size of our company. As you've seen in the past, we're not afraid to take risks if we believe we're gonna have value-creating deals. This is one where we feel very confident about.
Great. Thank you.
Your next question will come from David Roman with Goldman Sachs. Your line is open. Please ask your question.
Thank you. Appreciate your taking the question here. Maybe I could start on Inari. I think we're just around a year into anniversary-ing the acquisition. It looks like a lot of the commercial and sales force challenges had already faded behind you exiting 2025. Maybe you could give us an update on how you're thinking about that business on a go-forward basis here, especially given impending acquisition in the space and what opportunities that may provide for you to further hit the accelerator.
Yeah, look, we're very excited about the space. We're excited about the company. We've made the management changes that we've that we normally do when we do an acquisition, putting in Stryker people in charge of some parts of the business, bringing our commercial offense to bear. We wouldn't be doing the AVS deal if we didn't feel very strongly about this business. Then that's gonna be a turbo booster because that'll be, again, in the same call point with the same physicians doing those procedures. We love the space. There's a huge market potential growth that a lot of people that are not being treated today that can be treated. As I said when we did the deal the first time, you know, we're not a one-and-done kind of company.
We're gonna continue to look for ways to increase the pace of innovation in the business with either internally developed products or products through acquisitions. We, you know, obviously it's been a challenging first year as you go through all the attrition and you Strykerize the sales force and that's mostly behind us now. We're looking for clear sailing in the years ahead.
That's great. Maybe just follow up on international. I know it's been an area you've continued to highlight over a long period of time and at the analyst meeting that you had in November. Appreciating that results do bounce around quarter to quarter, but it does look like you've re-accelerated your relative performance versus peers, especially in orthopedics in markets outside the U.S. Is there anything specific to call out there? As you look at just the spread between your performance versus others does look to be widening here as we start the year. Any color you could provide there, I don't know if it's product launch or specific geography related or just a culmination of some of those efforts that have been in play for a while.
It's really probably more of a culmination of these efforts that have been playing out. As you know, from 2016 to, let's say, 2023, Europe was the biggest contributor to our international strength. More recently, we've seen Japan come on and really perform at a very, very high level, and that's our second largest country outside of the United States, which is experiencing tremendous growth certainly last year. Again, we're gonna see that again this year. We're starting to now get some of the approvals of the great product pipeline that we've been launching in the United States over the past few years. Just recently, we received approval of Pangea in Europe.
Obviously, not the best timing when you have production shut for a period of time, but we are going to start to ramp up production of Pangea, and that'll start to have an impact in Europe towards the back half of this year and certainly into next year. It's really the innovation that we have and the commercial model that we've put in place. Places like India are accelerating, East Asia, Korea. It's been a culmination of a lot of efforts over a long period of time. Still have a lot of scope for improvement. Middle East is a good example. Obviously a tough time over there now, but if you think about Saudi Arabia, that's gonna be a very big market for us. We still have work to do in Latin America. I'm pleased with the management we have in place.
We have a path to improve that business. As products like Mako and our Fluorescence Imaging are really starting to take off in these markets. I would say the last three, four years, you've seen we're double-digit growth in international or high single digits, depending on the cadence. International still is a huge growth engine for Stryker. There are a lot of market shares that are below where they should be, and we're getting after them.
Your next question will come from Matthew O'Brien with Piper Sandler. Your line is open. Please ask your question.
Hi, this is Samantha on for Matt. Thank you for taking our question. I guess I just want to go back and touch on the cyberattack real quick. I know you mentioned how it impacts the different businesses differently, and I was hoping you could speak to just how it could impact.
MedSurg versus Ortho differently and the cadence of that throughout the year.
Certainly. In our orthopedic businesses where we have a lot of-- Most of those businesses have consigned inventory, so in many cases that inventory is located at the hospital. Those cases we're able to proceed as almost normal in many instances. As a result of that, the procedure happened, but given the fact that our systems were down, we had some revenue recognition activities that still need to be performed. Some of those activities and revenues are going to get pushed into second quarter. As I mentioned before, where we had to defer some of those procedures and reschedule those surgeries, those will happen probably throughout the rest of the next three quarters, not necessarily all in second quarter.
On the MedSurg side, you had some different impacts just given the fact that some of that business is, or a lot of that business is capital-related. Some cases it's make-to-order. Any of the make-to-order items certainly are going to get deferred until later into the year given the fact that production was down. We had to bring production back up and then get those items back into the scheduling from a production standpoint. In other cases where we had items that just need to be shipped and just getting those items shipped through our network is going to take some time. Really we expect to see, again, like I mentioned, some recovery in the second quarter, primarily as it relates to the revenue recognition in some of those areas.
Really in the back half of the year is where we would expect to see the rest of the recovery based on delays in rescheduling or even just delays in some of the production as a result of the shutdown that was happening, that happened in the first quarter.
The way to think about that in terms of the MedSurg side of the business is Endo and medical are more capital intensive than, let's say, instruments. You would expect more of their recovery to occur in Q3 and Q4 as opposed to Q2.
Perfect. Thank you. I also wanted to touch on, Pangea and LIFEPAK, wondering about the room for continued rapid growth there. I know you touched on international. Just any more thoughts on the runway for those products?
Listen, I'm really excited about both of those. We know they're winners. Pangea has driven explosive growth in our trauma business in the U.S. We have approval in Japan, that's starting to take off there. Just literally a week or two ago received approval in Europe. A little bit ahead of schedule, to be honest. We're really excited about that. It's a phenomenal platform that is going to drive above market growth without question. Our European team is super excited. We just have to make the product as fast as we can. They're very complex kits. As you know, with these big orthopedic launches, they take many quarters to be fully launched. We're gonna have this tailwind, and the tailwind will last well into 2027 and even 2028.
Really excited about Pangea, and LIFEPAK we know is a fantastic product as well, and we now have that approved in Europe as well as the United States. I think most markets around the world, LIFEPAK is approved. Again, production was slowed, we have to re-ramp production on LIFEPAK 35, but it's a great product and still has many, many years. We'll be talking about that as a new product five years from now because of the replacement cycle is so long on these defibrillators.
Your next question will come from Matt Miksic with Barclays. Your line is open. Please ask your question.
Hey, thanks so much for taking the questions, guys. You know, I would say, you know, everything that happened in the last eight weeks or so obviously must have been difficult to get through. It is great to see kind of the focus on customers, focus on patients, and all the communications and I'm sure a lot of hustle that sort of get things together. Congrats on getting through it, at least to this point. I wanted to ask one question around the consolidation of the, of the, and they call it, you know, tech businesses in orthopedics. Makes a lot of sense. I mean, Mako pulls through implants, you know, Powered Instruments pulls through blades and service support revenue and so on.
Wondering if you could give us a sense of maybe, you know, as those things move into one line, you know, round numbers, what kind of the recurring revenue aspect of that or less capital? I'm assuming that part of that's gonna be blades and service. Just some sense of how much of that is recurring. I have one follow-up.
Yeah. Hey, Matt. In that line item, I think you have all the different parts. Certainly the one item that doesn't flow into that line, there's no pull-through of the knee number into that Ortho Tech line, that the knee number will stay separate.
Right
... on its own line item. The other items that you mentioned will all be a part of that. We're not breaking out the specific components of each of our different businesses. I think, you know, if you just go back and just think about the overall mix of our capital, large and small capital, you know, as part of our overall business, that has remained relatively the same as what we've said in the past. Again, just to think about the entirety of our business along those lines. Those other elements that you called out in Ortho Tech, that's right. You'll see both the capital elements of the orthopedic instruments business flowing through there, as well as some of the pull-through items. Then also Mako will be in that number as well.
Okay. On some of the new product launches like RPS, you know, made a pretty big splash at AAOS. Maybe just, you know, an update as to what that early traction looks like, how it's either complementing, you know, deals and contracts and on the Mako side or, you know, what independent growth looks like if that's being pulled more into the ASC channel or, you know, just anything that you've seen so far in the launch would be great.
Listen, it's still a bit early, but what I tell you is we're getting tremendous feedback from customers that felt that the move all the way to Mako was a bit too big of a leap. For now, it seems like the ASC has been a bit of a sweet spot. Again, that's early. I'm not saying we're gonna limit this at all to just the ASC, but the actual transition to RPS is much easier for a surgeon than going all the way to Mako. In terms of how you do the procedure, it's just very easy to adopt.
There were some competitive surgeons that felt that they really liked the idea of going to a robotic solution, obviously with haptic boundaries, but just the, the move all the way to Mako was just a bit little bit too intimidating. They're we're receiving great feedback. As they try this, we're really in a very, very active phase of trialing and getting our customers to actually try the product. They really can't believe how well it performs. We're getting great feedback on it will be a really great product that will be frankly additional. It's not slowing down any of our Mako momentum.
It's really going after a set of customers that we would've just left to the sideline prior, who see this as something that, can move them from manual power tools into robotics.
Your next question will come from Mike Matson with Needham & Company.
Yeah, thanks. I just had a few more on the Amplitude Vascular acquisition. When you close the deals, the idea that those products will, you know, once they're approved and everything, largely be sold through the Inari sales team. Is that kind of going to be the approach as you do acquire more peripheral and potentially coronary products? It'll just continue to kind of feed them through that sales force, or would you have a separate sales team for IVL?
Well, I think initially, given that it's the same call point, it'll be run through the peripheral vascular sales force. Is there a chance that we could add additional sales reps? Sure. Of course. As that technology gains further indications or as we do additional indications and/or new acquisitions, depending how broad the applications are and how broad the sales forces are, specialization down the line is not something we would rule out, certainly we're a long way from that right now.
Okay. Do you happen to know the expected timing on FDA approval for both peripheral and coronary indications for their product? Where they're standing with the trials, I guess. Yeah.
Yeah, Mike. Sorry, it's Jason. Just given the fact that the transaction is not closed at this point, we won't comment much further at this point, but once we get to that point, obviously we'll expand on that.
Your next question will come from Vijay Kumar with Evercore. Your line is open. Please ask your question.
Hi, guys. Thank you for taking my question. Kevin, maybe one for you on big picture M&A. I think there's been some, you know, questions around soft tissue robotics. I know you made some comments in the past, but as you look at the landscape, sort of how are you looking at, you know, product versus channel play within soft tissue robotics?
I'm sorry, I don't really understand. Product versus channel player? I'm not sure I understand, Vijay. Can you just clarify that?
A product company versus more perhaps, an instrument consumable kind of play, you know, remanufacturing, et cetera.
Oh, I see. You're talking about reprocessing?
Yes.
Yeah. Listen, the reprocessing business, it sort of stands on its own, and they'll look for any opportunity to provide products that create value for the customers. There was one company that had that approved. We have not pursued that indication yet. We have a pretty good portfolio within our sustainability solutions business. When we talk about soft tissue robotics as an adjacency for Stryker, we're looking at actually getting into the business of soft tissue robotics. There are, as you probably know, at least 50 startup companies at all different stages that are, that are pursuing indications, and some of them have FDA approval already. We are evaluating all of those companies. If we believe that we can find a company that could be successful and could be value-creating for Stryker, we would pursue that.
It's one of the many adjacencies that I've pointed out. One was peripheral vascular, where we actually did an acquisition. We're in just the evaluation stage and not predicting that we will do it, but it's one area that we like. It's an interesting space, but it's not for the faint of heart, right? These are not easy, as you've seen with other people who have tried to enter the market, it's not easy. Certainly, all of the different adjacencies, none of them we have to do. Soft tissue is a good example. We don't have to do it. We're not defending any business. If we do it, we'll feel very confident that we'll create value from it.
That's very helpful. Maybe Preston, one for you on, I don't know if you've answered this, how are you thinking about margin cadence? I know you've reiterated the guidance, you know, it'd be helpful if you can give some guidepoints on margin cadence.
Vijay, I guess I would tell you that from a margin standpoint, again, full year, no different than where we were when we started and gave our initial guide that we would expect to deliver on a full year basis. Certainly, we've had a little bit of a hiccup in the first quarter as a result of the cyber incident, but we expect fully to recover over the next three quarters in terms of achieving that number. I wouldn't expect any outsized kind of margin component in one quarter versus the other, but we will continue to work on delivery through those channels that we've talked about. Operational excellence and manufacturing supply chain focus and pricing really being the drivers over the rest of the year.
Your next question will come from Matt Taylor with Jefferies. Your line is open, please ask your question.
All right, great. Thanks for taking my questions. This is Young Li on for Matt. I guess one more on the cyber incident. Just on sort of getting manufacturing back to normal, I think by early April you are back to that. How long does it take for you guys to sort of, you know, restock inventories and get enough products back in the field so that your reps can get back to offense?
You're right. We got things back on track at the beginning of the month here in April. As soon as we're back on track, manufacturing's back up and going. It's not that we were completely depleted across our whole portfolio of business. As I mentioned before, we have areas like orthopedics, which we have a lot of inventory that's in the field. Much of that is already at the customer location. That flows a little bit more seamlessly in terms of getting production back online and getting product replenished out into the field, and then ultimately into the customer. Similarly, with many of our disposable businesses, those are held at distributors in many cases, that was also able to flow pretty regularly.
Really, it's gonna be on some of the MedSurg products where we have make to order, as I mentioned before. That'll take some time. A lot of it is just not in getting production ramped back up and going, it's really getting those products rescheduled back in so that we can put them back into the, into the program and actually get them produced and made for those specific orders. Our expectation, as I've mentioned before, is that we will do that throughout the rest of the year. You'll see that recovery, particularly on the MedSurg products that are capital driven, in really the third and fourth quarter.
All right, great. Very helpful. I guess maybe one more on Mako Shoulders. You know, it seems like the early feedback so far is pretty positive. Can you maybe level us status a bit on the ramp expectations, as well as maybe some color on the health of the shoulder market, if you saw enough data points so far?
Hey, this is Jason. A couple of comments here. I'd say, first off on the market, continues to be a very strong market for us. It's a business that quarter after quarter, you know, maybe Q1 aside with the cyber incident, is continually growing double digits, so very happy with that business and that market. You know, as I mentioned in my prepared remarks as it relates to Mako Shoulder, it is available today on Mako 3.0. It'll be available in Mako 4 kind of mid-year, but very excited to see that on Mako and the potential as we move forward here.
Your next question will come from Steven Lichtman with William Blair & Company.
Thank you. Evening, everyone. Kevin, I'm wondering how you're feeling about your customer relationships coming out of the cyber incident. You know, it certainly doesn't sound like you're expecting any notable impact, given your response to the incident and your guidance reiteration. I'm wondering what kind of response you've gotten as you've talked to customers.
Yeah, great question. In fact, I've been really overwhelmed by a lot of positive commentary from our customers about how we handled this incident. They're very empathetic to having 40,000 laptops wiped, having, you know, computers wiped. It's, it's just not, has not been easy to go through this. People's phones and the way we've responded, the clarity of our communication, how we were able to keep a lot of cases going in spite of this, was really something that they gave us a lot of high marks on. You sort of don't know until you're going through a crisis kinda how things are really gonna go. We've come out of this very strong. There isn't really any business I could think of that we've lost. We did lose some cases.
Obviously, if you couldn't, reps couldn't get into hospitals and, so there's some urgent cases that we lost, but not really loss of any customers that I can think of. If anything, they feel better about our resilience through this process. I think the Stryker brand is stronger than ever, but it was certainly not something I'd wish upon any other company to have to go through. It was very, very challenging. There were cases, certain incidents where we weren't allowed into hospitals for a period of time. It was challenging, to say the least. The customer response to me directly has been actually very positive and very supportive.
That's great. Just, Preston, how are you thinking about free cash flow conversion for this year coming out of an obviously unusual 1Q? Do you think it can be in that 70%-80%? Are there some one-time outlays you needed to make in the cyber recovery?
Yeah. We're still thinking about it in that 70%-80% range. We are contemplating different investments that we'll be making as a result, and all of that is contemplated in our guidance that we have. Again, not changing the overall trajectory of where we're headed or what we've committed to in our long-term financials.
Your next question will come from Jayson Bedford with Raymond James. Your line is open, please ask your question.
Sorry, this is [inaudible] on for Jayson. Thanks for taking my question. I had one on Smart Hospital, which officially launched in March, if I'm correct. Can you please remind us on what are the key parts of the system? How does it differ from a hospital that's maybe already using Vocera or care.ai? What has been the early feedback from customers? Thanks.
Yeah, thanks. We created a new business unit called Smart Care at the beginning of this year, which combines the Vocera and the care.ai businesses. The launch of Smart Hospital is really providing seamless integration. The Vocera is seamlessly integrated with care.ai and integrated with our ProCuity beds and a whole host of other products. It's a very seamless system that we're now providing to hospitals. The feedback has been very positive. In fact, they had a really good first quarter. Obviously we weren't able to ship everything, but think they're building really good momentum within Smart Care. I'm very bullish on this for the long term. The creation of the business unit was really well timed to really be very focused and to be able to pour more investment into this area.
Your next question will come from Shagun Singh with RBC Capital Markets. Your line is open. Please ask your question.
Thank you so much. I just wanted to go back to the cyber incident and how to think about it. The guidance now implies 10.5% growth for the balance of the year. It looks like the impact is about $375 million. I don't know if you can directionally tell us, you know, how much is deferred procedures versus production delays. You know, as I start to think about the Q2 growth rate, you know, should we be modeling, you know, closer to the full year guidance for Q2? Are you able to do that? Then even more so, more than 10.5%, I guess, in the back half because of the MedSurg orders that you referred to.
Just as a follow-up, I'm just wondering, what are the learnings from the cyberattack to prevent something like this in the future? Thank you for taking the questions.
All right. In terms of your question around the guidance and how to think about Q2 and Q3, you know, we don't, we don't guide to the quarters, and we haven't for quite some time. The way, again, that I've laid it out before is how we continue to think about it. There is going to be some level of recovery in Q2, and then we will see some additional recovery in the rest of the year, ultimately getting to the full year guide number that we mentioned. Again, I can't give you any more breakout of what portion of that was deferred procedures versus capital delays, things of that nature.
Just in terms of how you're thinking about it, just know that it'll flow back in kind of throughout the rest of the year, in terms of that guide.
Yeah. In terms of the cyber event, I'm not going to get on this call to all the lessons learned. Certainly, we had an incursion, whenever that happens in any cyber event for any company, there are going to be lessons learned around that. What I can say is the recovery of our backups, 100% of those worked, we were able to get the threat actor out very quickly. The recovery portion was pretty stunning. Frankly, you don't know until you go through something, will it actually be that successful? The recovery was incredibly successful. There are lessons learned. We are going to, you know, at some point down the line, share those lessons learned with other industry actors. It's not time for that right now.
Right now we're still very focused on recovery, getting our business back to health. And as Preston mentioned, you know, we'll be making some investments, but all of that's contemplated within our guidance and we feel very good about the position we're in going ahead.
Your next question will come from Mike Kratky with Leerink. Your line is open. Please ask your question.
Hi, everyone. Thanks very much for taking our questions. Just in terms of the April volumes and overall med tech procedure environment, what's giving you the confidence to reiterate the guidance and, you know, especially in the backdrop of any ongoing disruptive factors like GLP-1 impact, what have you seen so far this quarter?
We're not seeing any GLP-1 impact, certainly for our business. Maybe impacting other people's business, but we're not seeing any impact whatsoever on our business. We would not be reiterating guidance if we suddenly had seen any kind of impact. The underlying demand is strong. Surgery schedules are still full. Our business is in good shape. There really isn't, I'm not sure where you're picking that up from. It might be businesses really unrelated to Stryker's portfolio.
Understood. Maybe just a follow-up, but another one on the AVS acquisition. In terms of how you think about maybe broadening your presence in cardio, what might that look like moving forward? Could you look to do that through piecemeal M&A, or would you potentially be open to considering more of a platform acquisition?
Well, listen, we're getting into new call points. With Inari, we now have new call points. The vascular surgeon's a new call point. The interventional cardiologist is a new call point. As a company, you've seen when we do acquisitions, most of them tend to serve the existing call points. As we look to serve that interventional cardiologist, that'll get us into different technologies and over time, you know, that could lead to different assets being acquired and/or internally developed. I'm not going to predict. We are excited to be in this space. It's a fast-growing space, and we'll continue to look at assets that serve those call points. Over time, could it lead to a platform deal? Sure. I'm not going to predict that right now.
Your next question will come from Matt Blackman with TD Cowen. Your line is open. Please go ahead.
Hey, everyone, it's [inaudible] for Matt. Kevin, maybe just for you to start. At AAOS, you talked about the neurocranial business maybe being a pretty underappreciated business within MedSurg. With you rolling it up into instruments now, kind of what should we expect and maybe what are some of the key products or innovation or markets that you might be more willing to go into? Just as a follow-up, sorry to pile this all on. With Mako 4, maybe how should we be thinking about the installed base growth versus maybe replacing the fleet and maybe any early feedback you've gotten on utilization changes from Mako 4 versus Mako 3.0? Thanks for taking the questions.
Okay, great. First on neurocranial. These internally, we were running neurocranial as part of Instruments. Instruments had the Orthopedic Instruments business, it had the Surgical Technologies, and then it had the four business units that were part of neurocranial. That was all being run by one president. Now the new president is running five of the six business units with Orthopedic Instruments moving over to join Mako as part of Ortho Tech. This really goes back to aligning to the way we're running the company today. That's there's no change to our internal way that we run the company. I think you're gonna gain a greater appreciation because when Instruments had the power tools and Neptune Waste Management, that kind of took up all the airtime in terms of attention and questions.
You're gonna learn a lot more about the neurosurgical power tools, the craniomaxillofacial products. Our IVS business has been one of our fastest businesses for the past five, six years, and as you know, we did the recent acquisition of the mild procedure and that business is gonna continue to grow. You're just gonna get a bit more granularity around that business 'cause it won't be overshadowed as it has been in the past. But no change in terms of how it's run internally, and lots of innovations going on in those businesses. We have an upcoming launch of SONOPET 4, which is really exciting. The ultrasonic aspirator for neurosurgeons. That'll be towards the latter part of this year.
It'll just give us a little chance to share a little bit more of those diverse businesses, but they're all very, very fast growing businesses. As you even saw, and even in Q1, everything was kind of thrown off by the cyberattack. On the second part you said about Mako 4. The way to think about Mako 4 in terms of utilization, you know, all of our Mako get utilized, you know, pretty similar rates. What's different about Mako 4 is you're getting into new procedures. Advanced hip and revision hip is really getting tremendous feedback from our surgeons. Revisions are hard, Mako 4 makes the revision hip procedure much, much easier. Of course it's being also used for knees and other applications. It's more multifunctional.
What we're seeing really is just tremendous uptake in the interest around having a robot that's so multifunctional and that can, that it can even do eventually Mako Shoulder soon coming up. It's gonna put pressure on the number of robots required in addition to Mako Spine. What that'll drive is actually more demand for Mako 4 over time. I would think for this year and maybe into the early part of next year, you should see kind of a similar cadence between the utilization of Mako 4 as you saw with our past Makos, but then it'll probably pick up thereafter as the word gets out on certainly on the Mako Shoulder.
'Cause a lot of surgeons are not gonna wanna wait for the robot to be available on a Friday to do their shoulder procedures, they'll start asking for additional Makos. Demand is strong. We're super excited about this platform and the ability to add these extra indications. We're not gonna stop. We have some other things in the pipeline I'm not ready to share today, but we're gonna continue to build upon this multifunctional robot with additional procedures.
The next question will come from Caitlin Roberts with Canaccord Genuity. Your line is open. Please ask your question.
Hi. Thanks for taking the question. You called out on the last earnings call that foot and ankle was softer last year. I mean, what did you see in the Q1 and, have you launched the Incompass Total Ankle?
Yeah. Listen, the foot and ankle market as a whole was pretty soft last year, not just Stryker's business. If you look at the market itself, it was pretty soft. Q1, of course, was obscured by the cyber incident. But we have launched the Incompass total ankle. We're really excited about the product. Unfortunately, the Prophecy guides have not yet been approved, so these are the cut guides that are used. The surgeons who are using the ankle today, they're very proficient surgeons that can actually do it without the cut guides. Most of the surgeons want the cut guides before they're gonna start to adopt the ankle. That should get approval very, very soon. That's been in. We've had a couple of volleys with the FDA. I think we're at the final stages now.
Once those cut guides are approved, that ankle will really take off. It is absolutely a market leading product that we know is a winner, but just need to have the guides. Once the guides are approved, certainly that'll start to pick up in the second half of the year. Plus, with the additional extra reimbursement on total ankle procedures, this couldn't be better timing to launch a new total ankle.
Great. Thank you.
There are no further questions. I will turn the call over to Kevin Lobo for closing remarks.
Thank you all for joining our call. As you heard, despite the cyber incident, our business remains poised for another strong year of performance, and we look forward to sharing our Q2 call with you in July. Thank you.
This concludes the first quarter 2026 Stryker earnings call. You may now disconnect.