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Date

Thursday, July 31, 2025, at 4:30 p.m. ET

Call participants

  • Chair and Chief Executive Officer — Kevin Lobo
  • Chief Financial Officer — Preston Wells
  • Vice President, Finance and Investor Relations — Jason Beach

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Risks

  • Supply disruptions in Medical division: Management confirmed ongoing supply chain challenges affecting the medical business, stating, "those issues will continue to persist throughout the year."
  • Tariff impact: Preston Wells stated the company expects an estimated $175 million net tariff impact for fiscal 2025, with the "bigger impact in the second half of the year" as inventory flows through cost of goods sold.
  • Lower sales in emergency care: The acute care business drove double-digit organic growth within Medical in the US, but this was "somewhat offset by lower sales in the emergency care business due to the continuing supply disruptions that are now expected to linger through the end of the year."
  • Interest expense increase: Adjusted other income and expense rose to $106 million in Q2 2025, up $52 million from Q2 2024, primarily due to higher interest expense from recent debt issuances.

Takeaways

  • Organic sales growth: 10.2% in Q2 2025, compared to 9% in Q2 2024, driven by product demand, favorable pricing of 0.5%, and a currency impact of 0.8%.
  • Adjusted EPS: $3.13, up 11.4% year over year in Q2 2025, with a $0.04 favorable currency impact and margin expansion, partly offset by higher interest expense.
  • US organic sales growth: 11.5% in Q2 2025, including double-digit gains in Endoscopy, Neurocranial Trauma and Extremities, and Instruments, and high single-digit growth in Medical and Hips.
  • International organic sales growth: 6.5% in Q2 2025, led by South Korea and emerging markets, despite ongoing supply chain issues.
  • MedSurg and Neurotechnology segment: 11% organic growth in Q2 2025, with US at 12.5% and international at 5.7%.
  • Orthopaedics segment: 9% organic growth in Q2 2025, with US at 9.7% and international at 7.5%.
  • Instruments US growth: 10.1% organic sales growth in Q2 2025, led by double-digit growth from surgical technologies including Neptune and smoke evacuation.
  • Endoscopy US growth: 18.6% organic sales growth in Q2 2025, driven by demand for operating room infrastructure, the 1788 video platform, and sports medicine expansion in shoulders.
  • Medical US growth: 9.9% organic sales growth in Q2 2025, led by acute care and partially offset by persistent supply disruptions in emergency care; LifePack 35 was unaffected and received European approval.
  • Vascular US growth: 1.4% organic sales growth in Q2 2025; management expects acceleration in the second half, citing three recent product launches.
  • Neurocranial US growth: 14.8% organic sales growth in Q2 2025, led by double-digit performance in neurosurgical and IBS, and near double-digit gains in cranial maxillofacial.
  • Adjusted gross margin: 65.4% in Q2 2025, up 120 basis points, driven by cost improvements and business mix, despite tariffs.
  • Adjusted operating margin: 25.7% of sales in Q2 2025, up 110 basis points, due to margin expansion from improved gross margin.
  • Year-to-date cash from operations: $1.4 billion, supported by higher net earnings and improved working capital.
  • Raised 2025 guidance: Organic net sales growth now expected at 9.5%-10% for fiscal 2025; adjusted EPS guided to $13.40-$13.60 for fiscal 2025, with 100 basis points of adjusted operating margin expansion targeted for the full year.
  • Mako milestone: Surpassed 2,000,000 robotic procedures performed with Mako as of Q2 2025, marking the best-ever Q2 for Mako installations globally and high utilization rates.
  • Mako Spine and Shoulder launches: Remain on schedule, with LifePack 35 set for Europe in Q3 2025; some new products in Europe are pending approval (e.g., Insignia, Pangaea).
  • Inari Medical integration: Experiencing disruption and destocking in Q2 2025, but management expects double-digit pro forma revenue growth for fiscal 2025.
  • Adjusted effective tax rate: 15.9% for Q2 2025, with full-year 2025 guidance at 15%-16%.
  • Tariff estimate: $175 million net impact expected for the full year, reflecting both reduced US-China rates and the new EU framework; offsetting actions are underway.

Summary

Stryker(SYK -0.88%) management reported sustained procedural demand, with hospital capital expenditure budgets and a backlog supporting ongoing product orders as of Q2 2025. The rollout of Mako Gen 4 and associated software, offering new hip, spine, and limited-shoulder applications, drove a record pace of robotic system installations in Q2 2025 without causing purchase deferrals. Supply chain issues remain isolated within Medical, particularly emergency care, while other business areas are unaffected. New product approvals and launches, such as LifePack 35 in Europe (approved and on track to launch in late Q3 2025), along with advancements in enabling technology, are expected to support future revenue streams.

  • Kevin Lobo said, "The underlying actual procedural demand was double digits," regarding Inari Medical, confirming that the procedural base remains strong despite short-term integration friction.
  • Marketing efforts and product launches in endoscopy and sports medicine contributed to double-digit U.S. organic growth in Q2 2025, with new shoulder products and communication solutions outperforming across the business.
  • Instruments U.S. organic sales growth in Q2 2025 benefited from increased adoption of Neptune and smoke evacuation products, as legislative actions expanded smoke-free operating rooms to 19 states, now covering over half the U.S. population.
  • The company is raising full-year 2025 guidance, reflecting confidence in order visibility, continued innovation, and successful pricing initiatives implemented since the pandemic.
  • No significant change in capital order trends was noted; management observed that hospital purchases and ambulatory surgery center financing continue as expected with strong capital backlogs.

Industry glossary

  • ASC: Ambulatory surgery center—a healthcare facility focused on providing same-day surgical procedures.
  • Mako: Stryker's proprietary robotic-assisted surgical platform used for orthopedic procedures, including hips, knees, shoulder, and spine.
  • Neptune: Stryker's waste management and smoke evacuation product line for surgical operating rooms.
  • Pangaea: Stryker's advanced plating system for trauma and extremities surgery, noted for its comprehensive configuration and recent strong market adoption.
  • Insignia: A hip stem implant system within Stryker's orthopedics portfolio, representing new-generation technology.

Full Conference Call Transcript

Kevin Lobo: Welcome to Stryker's second-quarter earnings call. Joining me today are Preston Wells, Stryker's CFO, and Jason Beach, Vice President of Finance and Investor Relations. For today's call, I will provide opening comments followed by Jason, with the trends we saw during the quarter and some product updates. Preston will then provide additional details regarding our quarterly results and guidance before opening the call to Q&A. Our second quarter results reflect being in diverse and attractive end markets, our focus on innovation, and disciplined operational execution. We delivered double-digit organic sales growth of 10.2% and adjusted EPS growth of 11.4% while managing through the impacts of tariffs, NRE dilution, and the spinal implant divestiture.

Our robust organic sales growth was driven by strong demand across our product portfolio and included double-digit growth from MedSurg and Neurotechnology and high single-digit growth from Orthopedics. Geographically, our US organic sales growth of 11.5% included double-digit organic growth from our Endoscopy, Neurocranial Trauma and Extremities, and Instruments businesses and high single-digit organic growth in Medical and Hips. We delivered 6.5% organic international sales growth despite supply chain challenges with notable contributions from South Korea and emerging markets. We continue to view international markets as a big opportunity for future growth. As a growth company, we are excited to continue delivering innovation, both internally and through M&A.

We maintain a healthy deal pipeline and are well prepared to capitalize on a broad range of opportunities. We exited Q2 with strong momentum and are well-positioned for the second half of the year. As a result, we are raising our full-year 2025 outlook, which includes delivering another 100 basis points of adjusted operating margin expansion. We are confident in the durability of our growth and earnings power across our businesses. With that, I will now turn the call over to Jason. Thanks, Kevin.

Jason Beach: My comments today will focus on providing an update on the current environment, capital demand, and the integration of Inari Medical. Procedural volumes remained healthy in the second quarter, driven by the continued adoption of robotic-assisted surgery, a stable pricing environment, favorable demographic trends, and the ongoing shift toward ASCs. We anticipate continued strength in procedural volumes as we move into the second half of the year. Demand for our capital products was strong once again in the quarter, and we exited Q2 with an elevated backlog. With healthy hospital CapEx budgets, we expect continued strength in our order book for the remainder of the year.

We are also excited to share that during the quarter, we reached a milestone of 2,000,000 robotic procedures performed with Mako. We are the clear leader in orthopedic robotics and continue to launch new applications such as revision hip, which is receiving very positive surgeon feedback. Also, we delivered our best-ever Q2 for Mako installations, both in the US and worldwide, with high utilization rates across the globe. We expect sustained momentum from installations and utilization to continue to drive growth in our hips and knees businesses. The launches of Mako Spine and Shoulder are going well and remain on track for full launches as discussed on our last earnings call.

Our platform launches, such as LifePack 35 and the Pangaea plating system, continue to have success in the marketplace and are driving meaningful contributions to growth. We recently received approval for LifePack 35 in Europe and are on track to launch in late Q3. As a reminder, many of our new products are still pending approval in Europe, such as Insignia and Pangaea. In addition to these launches over the past several quarters, we have introduced a number of next-generation and innovative products across our diverse businesses that continue to drive our growth. Lastly, we continue to make solid progress on the integration of Inari, including working through destocking over the first half of the year.

We did experience some disruption in Q2, as well as the onboarding of new sales professionals. We have moved quickly to convert the business to our Stryker offense, which will position us well for the future. Even as we navigate these changes, we still expect double-digit pro forma revenue growth for 2025. With that, I will now turn the call over to Preston. Thanks, Jason.

Preston Wells: Today, I will focus my comments on our second-quarter financial results and related drivers. Our detailed financial results have been provided in today's press release. Organic sales growth was 10.2% for the quarter, compared to 9% in 2024. This quarter had the same number of selling days as 2024. Pricing had a 0.5% favorable impact, with both our MedSurg and Neurotechnology and Orthopedic segments continuing to see overall positive trends from our pricing initiatives. Additionally, foreign currency had a 0.8% favorable impact on sales. Our adjusted earnings per share of $3.13 was up 11.4% from the same quarter last year, driven by our robust sales growth and margin expansion, partially offset by higher interest expense.

Foreign currency translation had a favorable impact of 4¢. Now I will provide some highlights around our quarterly segment performance. In the quarter, MedSurg and Neurotechnology had organic sales growth of 11%, which included 12.5% of US organic growth and 5.7% of international organic growth. Instruments had US organic sales growth of 10.1%, led by double-digit performance from our surgical technologies business, which includes our Neptune waste management and smoke evacuation products. The number of states that have passed smoke-free legislation continues to rise, with 19 states to date having approved smoke-free operating rooms. These states represent over half the national population. Endoscopy had US organic sales growth of 18.6%, with strong double-digit performances across all businesses.

Growth was fueled by robust demand for operating room infrastructure and renovations, and the continued success of the 1788 video platform, as well as our sports medicine business, which has expanded its portfolio through the launch of several new shoulder products. Medical had US organic sales growth of 9.9%, led by double-digit performance in the acute care business, somewhat offset by lower sales in the emergency care business due to the continuing supply disruptions that are now expected to linger through the end of the year. From a product perspective, these supply matters do not affect LifePack 35. Vascular had US organic sales growth of 1.4%.

We expect improved growth in the second half of this year, led by recent launches of our SURPASS Elite flow-diverting stent, access lift intracranial base catheter, and Broadway large bore aspiration catheter. As a reminder, organic sales figures do not include Inari. And finally, Neurocranial had US organic sales growth of 14.8%, led by strong double-digit growth in our neurosurgical and IBS businesses and near double-digit growth in our cranial maxillofacial business. Internationally, MedSurg and Neurotechnology's organic sales growth was 5.7% despite the supply disruptions in medical mentioned earlier. Growth was led by our neurocranial, instruments, endoscopy, and vascular businesses. Geographically, this included strong performances in South Korea, Canada, and our emerging markets.

Orthopedics had organic sales growth of 9%, which included organic growth of 9.7% in the US and 7.5% internationally. Our US knee business grew 6.2% organically, reflecting our market-leading position in robotic-assisted knee procedures and continued momentum from new Mako installations. Our US hips business grew 8.4% organically, reflecting the ongoing success of our Insignia hip stem and the continued adoption of our Mako robotic hip platform. Our US trauma and extremities business grew 13.6% organically, with double-digit sales growth in our core trauma and upper extremities businesses.

Our core trauma performance continues to be driven by Pangaea, our differentiated plating portfolio, which also hit its one-year anniversary of launch in the quarter and continues to generate robust interest and adoption by the market. Our US Other grew 5.6% organically, led by the strength of Mako installations and a strong performance in navigational technology products, offset by bone cement. Internationally, orthopedics organic growth of 7.5% included strong performances in South Korea, Japan, and many of our emerging markets. Additionally, our international results do include a nominal amount of spinal implant revenue because of previously accepted tenders that we are fulfilling before exiting those markets. Now I will focus on certain operating and non-operating highlights in the first quarter.

Our adjusted gross margin of 65.4% was favorable by 120 basis points over 2024 despite the impact of tariffs. The improvement was primarily driven by cost improvements and business mix. Our adjusted operating margin was 25.7% of sales, which was 110 basis points favorable to 2024, driven by the gross margin favorability I just discussed. Adjusted operating expenses as a percentage of sales were consistent with the prior year. Adjusted other income and expense of $106 million for the quarter was $52 million higher than 2024 due to the increased interest expense from our September 2024 and January 2025 debt issuances, slightly offset by favorable foreign exchange impacts.

In 2025, we continue to expect our full-year adjusted other income and expense to be approximately $430 million. The second quarter had an adjusted effective tax rate of 15.9%, reflecting the impact of geographic mix and certain discrete tax items. For 2025, we continue to expect our full-year effective tax rate to be in the range of 15% to 16%. Turning to cash flow, our year-to-date cash from operations was $1.4 billion, driven by higher net earnings and year-over-year working capital improvements. And now I will discuss our full-year 2025 guidance.

Considering our year-to-date results, strong demand for our products, and our operational momentum, we are raising our full-year guidance and now expect organic net sales growth of 9.5% to 10% and adjusted earnings per share to be in the range of $13.40 to $13.60. Our updated sales guidance includes a modestly favorable pricing impact. In addition, foreign exchange is expected to have a slightly positive impact on both sales and earnings per share should rates hold near current levels. We now estimate a net impact from tariffs of approximately $175 million in 2025.

This estimate, which is consistent with the amounts we have previously discussed, does reflect the reduction in the bilateral US-China tariff rates and the announcement of a new framework agreement with the European Union. We continue to take thoughtful measures to address this estimated impact, which we are offsetting through our continued sales momentum, the leveraging of our manufacturing footprint, disciplined cost management, and better-than-expected foreign currency impacts. And with that, I will now open up the call for Q&A.

Operator: At this time, we will open the floor for questions. If you would like to ask a question, please press 5 on your telephone keypad. You may remove yourself at any time by pressing 5 again. We would like to remind callers to please limit themselves to one question and one follow-up question so we can accommodate as many participants as possible. We will pause just a moment. Our first question will come from Larry Biegelsen with Wells Fargo. Your line is open.

Larry Biegelsen: Good afternoon. Thank you for taking the question. Congrats on a nice quarter here.

Kevin Lobo: Thanks, Larry. I would say what Jason mentioned related to procedural strength. And we have even seen that in the month of July, you know, continued procedural strength. And that includes implants as well as other procedures across the surgical space. Strong capital demand. Our order book is very healthy. We are not seeing any slowdown at all on capital. The supply issues are really limited to medical. The rest of our supply chain is in really good shape. And those issues will continue to persist throughout the year. But medical has a lot of other products that they are continuing to sell very well, including LifePack 35, and we are very excited that LifePack has now received European approval.

So that you will start to see in Q4. So overall, strength across our portfolio, strong demand for the procedures, strong capital demand, and that is why we decided to raise it to the level we are. We are very confident in the top-line outlook.

Larry Biegelsen: That's very helpful. And, Kevin, remanufactured instruments are a hot topic again. You have unique insight into this with the sustainability business. How are you thinking about remanufactured instruments for soft tissue robotics? Do you see that as a good opportunity for Stryker? And if so, how would you enter the market? Thanks for taking the question.

Kevin Lobo: Yeah. Thanks. You know, Larry, we do not really talk about our pipeline, and this would be a pipeline product. And so there is another company that is obviously getting into the business. And if we decide to enter that, we will let you know when we do.

Larry Biegelsen: Alright. Thank you very much.

Operator: Our next question will come from Robbie Marcus with JPMorgan. Your line is open.

Robbie Marcus: Great. Congrats on a nice quarter. Thanks for taking the questions. Maybe first one, Preston, impressive margins here.

Preston Wells: Yeah. Thanks for the thanks for the question, Ravi. So a few things. I guess, first, I would point to, you know, we started as we came through the pandemic several years ago. Really a focus on price. And so that focus on price has continued, and so we are seeing the benefits of that flowing down and really helping us to drive margin. In addition, and we have talked about this continued focus on our manufacturing efficiency and really getting our operations into a more efficient manner in terms of supporting the sales growth that we have. And so we are really starting to see that take shape as well.

And we have a lot of different initiatives going on from different lean initiatives at our manufacturing facilities to different initiatives happening across our procurement organization as we think about how we source product, where we source product, and so all of those are certainly helping us to drive the additional margin improvements that you are seeing. I think we are also just getting more efficient with where we have product and how we are moving product through our supply chain, which is leading to some reduced costs as well.

And then finally, I would just point to, we continue to look at how we support the business from an OpEx standpoint, really thinking about G&A, we look at shared service centers and other areas like that as we continue to support the business. The good news, Ravi, is and I am really pleased with in the first quarter, we saw a consistent delivery of that op margin. So 100 basis points in the first quarter, 100 basis points in the second quarter, which is really helping us to be much more consistent as we drive to the number that Kevin was talking about, our overall 100 basis points of delivery for the year.

So these elements that we have been putting in place over the last few years are really starting to take shape and allowing us to drive a more consistent margin story.

Robbie Marcus: Great. Maybe a follow-up, Kevin, in the outpatient rule, we saw a proposal to move heart ablation into the ASC for the first time. I know one of your favorite things is whenever you see construction cranes up, you love it. I was wondering if I could just get your thoughts on where we are in the ASC buildout. I know most people with respect to Stryker are focused on orthopedics, but how are you thinking about ASCs across other parts of the hospital and Stryker's part in? Thanks.

Kevin Lobo: Yeah. Listen. I do not think there is going to be any slowdown at all in the ASC trend. And obviously, we saw it first with sports medicine and foot and ankle, and then you saw it with hips and knees, and it will continue whether it is cardiology. Even general surgery, I could see a lot of those types of more elective procedures being done in ASCs. This trend is not going to stop because it actually lowers the cost of health care. It is a pleasurable experience for the surgeons. It is a pleasurable experience for the patients.

And I could see that healthy patients like to go to a place like this where there are not sick people. And so I absolutely see this trend continuing. If you look at something even like total ankle, right, we just had nice reimbursement increases both in the hospital outpatient as well as in the ASC. For total ankle. So if you asked me five years ago, would we be doing total ankles in the ASCs? I was not even sure about that. And now that the reimbursement was raised $7,000, because fusions are not nearly as successful as total ankle. So this trend is absolutely going to continue. There is no doubt about it.

And I think you will see it across all specialties.

Robbie Marcus: Appreciate it. Thanks.

Kevin Lobo: And we like construction, as you say. Because we do have a lot of products even in those specialties we do not play in. We do provide a lot of infrastructure that is used even in other specialties.

Operator: Our next question will come from Ryan Zimmerman with BTIG. Your line is open.

Ryan Zimmerman: Thank you. Thanks for taking our question. Preston, last quarter, I think you called out the tariff impact at about $200 million. And if I heard you correctly, that is $175 million now. Most companies we have seen have come down maybe by about half. I am just wondering if you could elaborate on why it is only coming down by about $25 million. Is that a reflection of some of the manufacturing locations and so forth? Comment on that. Thanks for the question. You are right. Last quarter, we did call out $200 million. We have come down to about $175 million. A few things I would probably point to.

In our original estimate, you may recall, we were just quoting what was in place at the time. So at that point in time, we really had the baseline 10% that was included for most areas other than some of the specific industry elements around steel and aluminum, and then I think Canada and China had or Canada, China, and Mexico had some different ones at that point in time.

As we fast forward here into the second quarter, the big change that we are seeing or the two big changes that we are seeing, the bilateral agreement with China and the US, has brought that tariff down pretty significantly, and so we saw some benefit in our number as a result of that. But then we did see some offsetting increase as Europe has entered into the framework of going to 15%, which would have been in our model 10% previously. So we are seeing some puts and takes, which is what gets us to that number. And you are right. It is reflective of how our manufacturing footprint is set up.

Kevin Lobo: Yeah. It is our manufacturing footprint in Europe as well as us not being as strong in China as other companies. So that is why it affects us maybe to a little bit of a lesser degree than others.

Ryan Zimmerman: Fair enough. And then, you know, the second question is just, we have seen some kind of install base numbers out there on orthopedic robotics, you know, out in the market. You know, Kevin, I would love your thoughts on kind of what you see as greenfield opportunity within Mako at this point? And obviously, an install base number is always appreciated. But, you know, how are you thinking about that versus kind of maybe adding, you know, the second and third robots at various sites around the world. Thank you.

Kevin Lobo: Listen. I could tell you in the United States, there are very few places that only have one Mako. If they have one Mako, they tend to have more than one, and the universe of opportunity for us is every single operating room that does hips and knees. That is our universe. So there are 5,000 hospitals that do procedures, and they have a lot of operating rooms. So there is still, like, huge room for us to continue to grow with robotic installations. Installed base number, we may provide at the end of the year. When we provide our sort of percent of procedures being done, which continues to climb. So I will talk to Jason and Preston.

We may provide that number at the end of the year. We tend not to be like to be the only person providing these numbers, but we will take that under consideration. And I would tell you internationally, we are really starting to pick up steam, and we are kind of where we were in the US about five years ago. Especially places like Japan and parts of Europe and Latin America. So we still have a long runway to go. I would say we are still in the early innings overall in the robotic penetration.

Ryan Zimmerman: Thank you.

Operator: Our next question will come from Joanne Wuensch with Citibank. Your line is open.

Joanne Wuensch: Good evening, and thank you for taking the question. I have two. One of them, the supply issue that you are talking about in MedSurg, could you remind us please how long it is going to take to resolve that? Then I will put my second question right up front. You launched a new Mako device, I think it was Gen four in the spring at AAOS, which had the shoulder, the hip, and the knee, and the spine applications altogether. How is that going? And anything you would say on shoulder and spine would be great.

Jason Beach: Thank you. Joanne, I will take the first part of this, Joanne, as it relates to supply issues, and then Kevin can jump in here on Mako. But as it relates to the supply issue, you and I think Preston touched on this as well. Largely in the medical division, we do expect it will kind of linger throughout the remainder of the year. That being said, I think what you will see in the back half of the year, growth will accelerate and, you know, double digits in terms of organic sales growth for them, well within reach as we think about the full year.

Kevin Lobo: Yeah. Great. As it relates to Mako four, so we are really excited about this launch. And this is not yet a global launch, so we do have countries around the world where we are still selling Mako three. And what we added with Mako four, so the Hip Revision application is only available on Mako four. The spine application is only available on Mako four. Right now, the shoulder, we are in a limited launch on shoulder. Because that is actually on the Mako three, and we are in the process of migrating the shoulder to Mako four. So that will be available starting the beginning of next year on Mako four.

And that is why the reason why the shoulder launch will not be a full launch until next year because we do want to launch that with Mako four. But so far, so good. The feedback has been very good. We have not moved to a full launch on Spine yet for the same reasons of just getting the workflow right and getting good feedback. And, obviously, we have to partner with VB Spine to be able to do these deals, which include the robot as well as the implants. And we are working through those commercial contracts and methodologies, but everything so far is looking really good. We have very good applications, very well received by customers.

Not going to have much of an impact on our sales this year, start to see much more of an impact next year.

Operator: Our next question will come from Travis Steed with Bank of America. Your line is open.

Travis Steed: Hey, thanks for taking the question. I wondered if I could question on Nari. Know if you could maybe help with how the business grew this quarter with the destocking sales rep transitions and what gives confidence in double-digit growth in 2025? And then can you get back to kind of market growth rate in 2026?

Kevin Lobo: Yeah. Listen. You know, destocking is not fun. We have been through this before, by the way, when we bought other companies. K2M, we went through that. And a lot of these, these kind of earlier startups have these kind of practices. One of their practices was quarterly incentives, which helped to drive the stocking. We have done away with that practice. We have also replaced the sales leader with a Stryker sales leader. We have replaced the marketing leader with a marketing leader with Stryker. Of course, the president came from Stryker as well and had prior experience in the peripheral vascular space. So we have a Stryker leadership team that is really in place, which is exciting.

We also took some medicine on forcing all the sales reps to sign noncompetes outside of California. And that was a bit of a gutsy move when you are buying a deal for sales. Then you are making salespeople sign noncompete. Some people deflected not to do that. And we took our medicine. And we have been rapidly hiring new salespeople. The good news is the underlying actual procedural demand was double digits. So it is not like our procedures and the surgeons doing our products were below market. So we are in pretty good shape, from a procedural standpoint, and stocking will burn out. So we are not too worried.

In fact, the second half of the year will be good. And the overall year, we expect to be in double-digit growth line. So most of the bad medicine has been taken already. There is still a little bit more stocking probably to burn, but overall, we are setting this up for the future. And we have learned through the in the past is taking medicine early on these kinds of deals. And we love the pipeline. I was just actually at an earlier this week, my second visit down there. And the pipeline is great. Talent is really good.

But we have moved them now to a Stryker sales offense and put Stryker people in charge, and this is what we are really good at. They have developed this market. They have amazing clinical trials that are underway as well. International is still tiny for them, and it has a huge opportunity leveraging our infrastructure. So very, very pleased with Nari being part of the Stryker portfolio, and there are good times ahead. Even as early as '26 and '27.

Travis Steed: Great. Thank you. And then maybe the follow-up question. There is some stuff in D.C. on Medicaid exchange cuts. I do not know how you are thinking about if there is any, you know, potential impact on that on the procedures. Like the knee business did decelerate a little bit this quarter. I hear you on the strong volumes, but I think there was some stuff international, like slowdown in US and international needs. So do not know if there is anything to kind of call out that was one-time. In OUS needs this quarter.

Jason Beach: Yeah. It sounds like a couple of questions there, Travis, but I will take it. This is Jason. So first off, on the bill side of this, as you can imagine, we are continuing to monitor the situation. You know, as you think about procedures for us that involve Medicare, it is really an immaterial amount of procedures for us. So really, knowing what we know today, no concerns there for us. As we think about the bill. But, again, we will continue to monitor that. On the knee front, I will say a couple of different things.

So, you know, as you think about how we exited Q2, June can be with vacations and some of those things a little bit of a slower month. We saw a little bit of that. I will tell you as we went into July off to a really nice start for the quarter. So overall, I would say no concerns about the knee market. We continue to think this will be kind of a mid-single-digit market with us growing above market, obviously. And then just the last thing I would say, it is one quarter. Right? So you see some of these fluctuations as you go throughout the year, but overall, feel really good about the year.

Travis Steed: Great. Thanks, Jason.

Operator: Our next question will come from David Roman with Goldman Sachs. Your line is open.

David Roman: Hi, this is Jenny Rubinovitz on for David. You have highlighted the international expansion opportunity for a few quarters, and you have the Pangaea and Insignia launching in Europe. I was hoping you could break down how you are thinking about inorganic versus organic investment, especially as it relates to international and expansion in new countries. Thinking also here, any reflections on the surface you kind of anniversary the echo at the acquisition and expansion for Orthopedics. Europe. Thank you.

Kevin Lobo: Yeah. Thanks for the question. So SURF has gone extremely well. We are really, really pleased. You can see our hip business has been done has done very well. Internationally. And, yes, it will it laps, and it is now going to become part of organic. And we in fact, we are actually going to be bringing our first surf product to the United States shortly. So very pleased with that acquisition and integration. We have not done a lot of deals like that are primarily revenue-based outside the United States. We continue to look for those types of opportunities. I would tell you that the biggest opportunity, frankly, is increasing the penetration of products we already have.

In our portfolio internationally. And especially acquisitions that primarily have US revenue taking those acquisitions to the international markets such as Inari. Obviously, this quarter, international is a little bit slower than it has been over the past three or four years, but nothing alarming there. Pangaea, just to be clear, is not yet approved. So that probably will not be approved until next year. And Insignia is still not approved. The only one that just got approved was LifePack 35. So unfortunately, this EU MDR has been a real challenge, not just Stryker, but for the whole industry. Of a much slower regulatory pathway for products.

And so a lot of the super cycle launches that we are enjoying in the United States have still not arrived in many other international markets. In some cases, we are launching in Japan before Europe. Which was unheard of three or four or five years ago prior to 6% growth, that is still pretty good, but not what we are accustomed to. We do expect to get back in the second half of this year. International growth will be much better than it was in the second quarter.

Operator: Our next question will come from Pito Chickering with Deutsche Bank. Your line is open.

Pito Chickering: Hey, good afternoon, guys. So two questions here. The first one is on the guidance raise. Really nice raise here. But could you bridge us the EPS increase you saw as it relates to better pricing than expected FX changes to tariffs versus your core operational strength?

Preston Wells: Yeah. So, Peter, thanks for the question. We can walk through a little bit. As we think about the guide, it is really reflective, as Kevin mentioned before, on our strong performance and our expectation really on the top line of where we expect to continue for the rest of the year. The bottom part of that and the EPS side of that is really just the flow through of that upside that we see. As you remember, when we talked about tariffs, part of the way that we are covering off on tariffs is through some spend discipline and some other areas.

And so that is not necessarily going to 100% flow through to the bottom line as we are still trying to spend behind our growth initiatives. The other element, really, we do see some favorable FX that does flow through a little bit as well. So really, what you are just seeing is that top-down flow through from the strong performance that we have had. That is it. The other thing I would just point to, we do have a little bit of a wider range on the bottom. And a lot of that just reflects some of the continued uncertainties primarily to do with macroeconomic elements like tariffs.

That we know are still going to have some pluses and minuses for the rest of the year.

Pito Chickering: Good. Right. And then the follow-up is I am struggling to understand the 19 plus growth you saw in Endo in the US this quarter. Up quite a bit versus first quarter. Comps were easier, but still a pretty big move up. Are there any reclassifications skewing that number if not, can just walk us through kind of that great growth?

Kevin Lobo: Yeah. First thing I would say, no reclassifications, no accounting issues whatsoever. Just pure fantastic performance from the endoscopies. Division. And, you know, look at last year. It was it was it was an 8% comp. So it was not exactly soft. But so it was a little bit lower than the typical double-digit, but it was a boomer of a quarter. For our endoscopy division, and it was really across the portfolio. So the booms and lights in our communications business had a phenomenal quarter. And they have great orders. They have the new Oculon Light that they have launched, which has tremendous demand. So communications will continue to the rest of this year.

And then, of course, 1788 and what we call the endoscopy business unit had a terrific quarter, and that has just been a consistent trend that we have had. And then sports medicine is just on fire, and you are talking about very strong double-digit growth. They have launched about six shoulder products over the past, let us call it, six to eight months. And those products that shoulder was the one area we are not quite as strong, as hip and knee. In sports medicine, and they had an absolute boomer. So it is you had sort of all the business units kind of clicking at the same time. We also have our reprocessing business.

That is part of the endoscopy. They also had a solid quarter. As well. So, really, one of those quarters where kind of everything caught fire, but this is a division that has been performing very consistently very high growth quarter after quarter after quarter. Just a little bit higher than normal, let us say, this quarter, which of course, we enjoy.

Pito Chickering: Great. Thanks so much.

Operator: Our next question will come from Matthew O'Brien with Piper Sandler. Your line is open.

Matthew O'Brien: Good afternoon. Thanks for taking the questions. I would love to talk a little bit about Mako again. Just, you know, the commentary about record new system ads is great to hear again. But, I mean, you have been doing that for a while. Anything you can call out as far as what is driving that again here? I know it is Q2, but is it, you know, having the shoulder application, spine application, more people are interested? Or is there any kind of pause around, you know, competitive launches? Just anything to call out there because, again, you know, you continue to put up these great Mako numbers quarter after quarter.

Kevin Lobo: Yeah. Listen. I was really pleased with this quarter. This is the first quarter of a new Mako, so Mako four. And I was honestly just not sure that it would a new robot would might cause a little bit of a pause. Has not caused any pause whatsoever. Our team is executing. The robot is performing extremely well. The word is out. You know, we have a fantastic robot. The revision hip, the surgeons are buzzing about it. Just makes a very hard procedure easy to do. They can see exactly where they are putting their screws and which part of the bone, and help a surgeon out on something that is very difficult. They enjoy that. Very much.

But I was actually a little bit pleasantly surprised with the performance just based on when you are changing a cycle. Other companies have gone through we do this in cameras. We do this in power tools. We have never done it before. In Mako, and it has been absolutely seamless in the United States, this transition. And they want their next robot and their next robot. There have been a few sort Costco customers that are saying, can I just bought a three? Can I upgrade it to a four?

And so we are having some of those discussions, but we will be very friendly to our customers and help them upgrade if they want to upgrade to the new robot. A lot of customers are saying, okay. Well, I will just keep the one I have, and I am just going to buy another one for the next operating room. And so we expect this to continue, and the funnel, like, we have a we have a visibility into the future. So we expect this momentum on Mako to continue. There are a lot of operating rooms still that do not have robots. So those are all targets.

Matthew O'Brien: Got it. I appreciate that. And then as the follow-up, you know, Kevin, you are pretty, you know, transparent as far as just the thoughts on your M&A strategy and either talking about a full pipeline. Should we expect another sizable type transaction, maybe not quite as big as an Nari, you know, for you guys in, you know, the near future, somewhat near future. And you know, you have also given us kind of some of the areas that you are interested in. Anything else that you would kind of highlight that might be new to that list, or is there something else that you are really a little more focused on?

I do not know if it is soft tissue robots, etcetera. Thanks so much.

Kevin Lobo: Yeah. No change to the adjacencies. I would say they are still the same ones that I have talked about in the past. Obviously, with an ARI now in the fold, if we do another deal in the peripheral or vascular in that kind of space, that will not be an adjacency anymore. That will kind of be a tuck-in. So do not assume that peripheral deal is the only deal we are going to do. We always, when we once get into a space, we want to continue. So there is a pipeline there of deals that they were looking at themselves that we are going to start to evaluate.

I would say that we have the financial bandwidth to be able to do another an RE-sized deal, but I cannot really predict, you know, when you know, deals are uncertain. You do not know when you are going to do a deal, and what size. The bulk of our deals will continue to be the tuck-in variety. Think about last year's seven deals we did, that is kind of the normal Stryker offense. And then every once in a while, we do a bigger deal like a Wright Medical or an NRE. So I really cannot give you more on that. We are always looking at. Right? Our teams are out there scouring the market.

We have a nice pipeline. And we have a number of IOIs in process, but those sometimes wash out. Based on the price, based on our due diligence. So it is kind of hard to predict, but I would be pretty surprised if we do not announce anything. For the rest of the year. There will be a deal or two or three. I do not know exactly how many. Most will be tuck-in, and it is not impossible that we could not do something bigger. We certainly have a bandwidth financially, and you know I like to spend money, Sam. We will be active.

Operator: Our next question comes from Vijay Kumar with Evercore. Your line is open.

Vijay Kumar: Congrats on the nice quarter, Kevin. Maybe two product segment kind of questions. First, on medical. Is there a question is around hospital CapEx environment. So maybe if you could just touch upon the broader CapEx environment and in LP 35 launch and how that is progressing.

Jason Beach: Yeah, Vijay. This is Jason. I think I got most of your question there, so I will take a run at it here. But, I think the question is on the capital environment. I would say, you know, similar to my prepared remarks, here, we feel really good about the capital environment. If you look at our capital backlog, again, it remains very elevated. No signs of slowdown there as we think about the rest of the year. So really confident in that business for sure.

Kevin Lobo: Yeah. And LifeVac thirty-five. And that would be yeah. LP thirty-five is doing really well. Really strong order book. Again, we are still waiting for certain approvals. Now just getting the European approval is exciting. So September, we are going to have this kind of a launch in Europe of LP thirty-five, but great customer feedback. It is doing really, really well. And, you know, these medical launches, they are a little different than sort of cameras or power tools. Like, this will have a long it will be we will be talking about it as a kind of a new product three years from now.

They have a longer cycle of contribution to growth, a longer tailwind than you see with even procurity, right, is continuing to add a really great border and in Q2. It was launched a few years ago, but it is you know, these are long-term product cycles, so they will continue to be tailwinds for a long time to come.

Vijay Kumar: That is helpful, Kevin. And maybe one on that niche. Your in the comps, was this just comp getting harder sequentially or anything else going on within the knee performance?

Jason Beach: Hey, Vijay. No. I would not say there is anything else material to call out other than what I have already said. Again, feel really good about the knee market. Feel good about the full year. And like I said earlier, July off to a good start. So really nothing additional to add.

Vijay Kumar: Fantastic. Thank you, guys.

Operator: Our next question comes from Matt Miksic with Barclays. Your line is open.

Matt Miksic: Great. Thanks so much for taking the question. So I wanted to follow-up on interventional spine. Just to you know, the launch of OptiBlade, the investments that you have made in that segment, it would be great if you talk a little bit about, you know, any of the quantitative or qualitative metrics about how the launch so far, the other products, and the investments that you are making. And the growth? And then I had one follow-up.

Kevin Lobo: Yeah. Listen. We love our interventional spine business. Now, obviously, that is reported under neurocranial. And we have been, frankly, one of the fastest-growing businesses in Stryker over the past three or four years. Has been IBS. We have added to that with OptiPlate initially, the OptiPlate launch is an organic launch, and now we have the OptiPlate BDN launch, which just happened. We also have the Virtus acquisition we did last year. Which now is not appearing in organic sales growth, but will later this year, I would say that business is just cooking on gas. We have an amazing leader of the business, a great management team, and we are very focused on the space.

And we have really done really, really well with balloons early on, the CareFusion acquisition that we did. With the curve balloon has been terrific. We did the spine jack dealing, ventral spine. Now we have OptiBlade, and so we are covering oncology as well as pain. And adding salespeople and just a fantastic business, a little gem. It is not huge yet, but it is growing really, really fast. But it is one of the gems of Stryker, and it is kind of how we drive this kind of growth so consistently as you have a number of these smaller business units.

That we continue to fuel really high growth, like very consistent strong double-digit growth, and I do not think that is going to slow down whatsoever. It is going to continue, especially with these Virtoz is off to a really good start. And then the BVN is very new, but so far getting good feedback.

Matt Miksic: That is great. That is great. And then the follow-up was just on I have to sort of pull the keyword bingo here, but AI is a that we have not talked about in a while. I know, you know, Robert, I am sure, wakes up every day thinking about it and probably goes to sleep working on it. But, you know, maybe talk a little bit about some of the digital efforts that you have underway around whether it is orthopedics or other segments of the business, and where we might start to see more of, you know, Stryker putting its substantial data and assets and digital technologies to work, to deliver solutions in that area.

Kevin Lobo: Hey. Thanks. We have a lot going on in the world of AI. You know that BLUEPRINT is already FDA approved and uses AI to create the surgical plan and inform the surgeon as to which implant they should be doing. Preplanning is going to continue to proliferate that across our portfolios as one area of opportunity. We have the Gau Surgical that quantifies hemoglobin and sponges. That is an AI product approved. We have a number of other projects.

And in addition to that, we have hired a new chief digital information officer, Deborah King, who started pretty recently and has a lot of experience more on the generative AI and is also going to bring a lot of infrastructure that can then be used by our divisions. And I would say that this is a topic that we will probably cover in our investor day. That is planned for later this year. We will get the specific date out shortly, but rather than spending up time on the earnings call, going through this, I think we will give you a lot more information on that later this year.

But suffice to say, we are absolutely aggressively working in this area and see this as a tremendous opportunity to bring more science to health care, versus just relying on one surgeon's experience in their residency and in their training to be able to bring more data to life. So we have a lot of projects underway. We will share more later in.

Matt Miksic: Thanks, Kevin.

Operator: Our next question will come from Steve Lichtman with Oppenheimer and Company. Your line is open.

Steve Lichtman: Thank you. Evening, guys. Kevin, you talked about Salesforce change out at Inari as you put noncompetes in place. Can you talk about how much sales affinity you are assuming as a result? And I know you mentioned still double-digit growth, but as the absolute expected reported expected revenue contribution from an RA change at all?

Kevin Lobo: Yeah. Look. For the referral here, I think we talked about something like $590 million for the full year. We are going to be right around that number. So we are absorbing these changes, these challenges of sales repetition. It was starting to happen even before the deal, you know, closed, and we accelerated that with the noncompetes. And look. A lot of those people that decided not to sign on were not necessarily all regrettable. Not necessarily Stryker type of salespeople. We have been aggressively hiring. So we are not calling down our number. But it is a little bumpier.

So it was a little lower in the as we destocked and as we dealt with the turnover, but the reps are coming on. And we are going to expect very good numbers in Q3 and Q4.

Steve Lichtman: Yes. Steve, maybe just to add just a finer point on that on the May, just to be crystal clear here, that would be for the ten-month period. Since we have owned them.

Steve Lichtman: Right. Right. Thanks. And then just on tariffs, do we still expect the impact all in the second half? Was there anything in 2Q? I thought in the prepared remarks, heard something. And just in the cadence of that one seventy-five, between 3Q and 4Q, can you talk to that a little bit? Thanks.

Preston Wells: Absolutely. So when we think about tariffs, there is some impact of tariffs in the second quarter. But remember, because most of the tariffs are flowing through our COGS number, they are flowing into inventory first. And then onto the P&L. So we will see a bigger impact in the second half of the year than certainly what we saw in the second quarter or even the first half of the year. So back-end loaded because it is going to flow through inventory and then to the P&L. And, certainly, also, as we pick all of the tariffs up in terms of getting to the final numbers, we will see that more consistently in the back half of the year.

Steve Lichtman: Got it. Thanks, Christine. Thanks.

Operator: Our next question will come from Chris Pascal with Nephron Research. Your line is open.

Chris Pascal: Thanks. I wanted to ask a couple of questions on the robotics business. The ortho robot landscape now includes a variety of different form factors. You have got some competitors taking more of a portfolio approach. To try and provide different solutions to physicians who may have different preferences. You guys have been more one size fits all with Mako. Do you see a limit to that strategy, or do you think Mako in a single form factor can continue to kind of cover all your bases?

Kevin Lobo: Yeah. Listen. Like I said before, had a question earlier about a different product. We are not going to talk about our pipeline of robotic solutions and whether something else will be added to the Mako portfolio. I am not going to preview that. So that will happen. If something like that happens, I will let you know when it does. But we have an absolute winning solution right now. Winning in the United States, winning globally, we know we have the best role on the market. And our solution is to add applications, add applications, continue. We are not finished. Right?

We have got other applications planned that we are going to continue to add to the robot to create tremendous value. So a hospital buys one robot. They get all these different applications that they can use. So we know that we are in a good position. We have a winning hand. We are going to continue to play this hand. But we do something different in the future? It is possible. We will let you know at that time, but not before.

Chris Pascal: Okay. I think my follow-up question also strayed into pipeline territory. So maybe I will pivot and ask about trauma. It has been a real standout. You noted that you are now lapping the Pangaea launch. I know you guys tend to talk about product rollouts being multiyear affairs. How do you think about your ability to sustain double-digit trauma growth as those comps get tougher?

Kevin Lobo: Yeah. We sustain double-digit growth in a lot of our businesses. As comps get tougher. Just look at neurocranial, just look at endoscopy, look at oh, this is something we do. This launch has been fantastic. Just an absolutely beautifully executed, super complex launch. And we are actually still adding to it. So we just added some MIS plates. So it is such a comprehensive system that it is not like the launch ever completely stops. You are going to continue to add little features here and there to keep it fresh. And it has not even launched yet in Europe. That will not be until next year. That it starts.

So this tremendous growth, even OUS, our growth is really strong in spite of Pangaea not being everywhere in OUS. So that combined with upper extremities being on fire, foot and ankle starting to get better, and certainly the change in reimbursement for total ankle where we have a very high market share is going to be exciting, timed beautifully with the launch of our Encompass brand new total ankle, just fortuitous for us. Tells me that trauma and extremities continue to be a high-growth division for the company.

Chris Pascal: Great. Thank you.

Operator: Our next question comes from Richard Newitter with Truist Securities. Your line is open.

Richard Newitter: Hi. Thanks for taking the question. Just two quick ones from me. Following up to Chris' question just on robotics portfolio. What is your view on, you know, fully autonomous robotic the competitor your competitor, obvious? You know, has a solution or wants a solution there. Do you see the market going there? Is there an appetite for that? And then just a second question upfront here. On neurovascular, Kevin, just curious if you can comment at all on the U.S. Neurovascular end market. Particularly in ischemic stroke.

Kevin Lobo: Yeah. So let me start with the autonomous. So just to be clear, we are aware of their portfolio. And we know that they are pursuing autonomous. We have the capability today to do Mako autonomous. I have actually been in the lab where I have actually seen it operate autonomously. We have chosen not to pursue that because of the regulatory burden and the expenses required to get it through FDA. And so at some point in the future, if the market really has an appetite for autonomous, we can turn that feature on. But right now, that is not our focus. Our focus is using our R&D dollars to add new applications that provide tremendous value.

And even if they try to move our robot outside of the haptic boundaries, they cannot. So whether they are putting their hand on it to make it move or whether it is done autonomously, honestly, that is not a big value add. For a surgeon in our opinion. But should the market start to move that way, we already have that capability today with Mako. And then as for neurovascular, yeah, the NV market, obviously, the market for hemorrhagic is still stable, I would say, and we continue to do well. In the hemorrhagic side of the market. In the ischemic market, it was a little bit slower.

And we have seen that market kind of vary from quarter to quarter, and there are a lot of entrants in that market. Obviously, it was a bit of a soft quarter for us in neurovascular this quarter, but we have three product launches that we mentioned in the prepared remarks that give us optimism that we are going to have a much better second half.

Richard Newitter: Thank you.

Operator: Our next question will come from Mike Mac with Needham and Company. Your line is open.

Mike Mac: Yes, thanks. I just wanted to follow-up on the nerve question. So you mentioned this Broadway large bore catheter. Can you just talk a little bit more about the timing on that and will that actually have labeling for aspiration use for stroke?

Kevin Lobo: Yeah. So it is approved, and we have just started to launch it with the sales force. So initial cases have gone extremely well. It is made a completely different way. The manufacturing process is completely different from all of our existing catheters. So it is a proprietary manufacturing method that really improves trackability. It is, I think, a luminous of point zero eight four, I believe. Lumen size. So large lumen size, very trackable, getting great feedback, but it is just being launched right now. So approved in the US, being launched in the US. It will take some time before it is launched in other markets realm.

Mike Mac: And is it cleared for delivery use or for actual aspiration use?

Kevin Lobo: It is cleared for aspiration use.

Mike Mac: Okay. Alright. Thanks. And then just one on shoulders. So I think shoulders have also started to move into the ASC setting, so total shoulders. So you know, what are you seeing there? You know, how does that kind of balance out between maybe increased volume, but potential for some pricing pressure?

Kevin Lobo: Yeah. We obviously have a very expensive shoulder implant. Really the best shoulder implant on the market with the Perform system. And there is a little bit less pricing in the ASC, but more volume to pick up. And a lot of people suffering with shoulders, we had another quarter. Every quarter is we had good double-digit growth in shoulder. And we continue to love our shoulder business. We also have some products and offerings that nobody else has. Right? So you have the hemi arthroplasty with pyrocarbon. You have the shoulder ID, which is a custom glenoid. Customized to the patient so you do not have to have separate augments. And so this pipeline is fantastic.

The existing implants are modern. We have blueprint software to help with preplanning. So we have just a terrific offering. And so, yes, we have lost a little bit of price on some of those procedures that moved the ASC, but it certainly has not slowed down our growth at all. Let alone the fact that next year, we are going to move to full launch on Mako shoulder. So do not expect shoulder to be slowing down anytime soon.

Mike Mac: Okay. Thank you.

Operator: Our next question comes from Shagun Singh with RBC. Your line is open.

Shagun Singh: Great. Thank you so much. Two quick ones for me. Just on your implied second-half guide, it seems like a step down. In the back half versus a front half, on an adjusted basis. Still really strong, but just wondering if it is conservatism or any to call out there. And then for my second question, I was just wondering if Kevin, you could talk at a high level or directionally on 2026, any areas that you are, you know, most excited about?

And then, you know, just thinking through 2026 as well, you know, we have been speaking with some hospitals, you know, especially those who have very high exposure to Medicare Medicaid, you know, they have talked about budgets coming down in '20 versus '25. Sounds like you are not hearing about it in for '25, but just any color on '26 would be great. Thank you for taking the questions.

Preston Wells: Hi, Shagun. I will take those questions. First, as we think about the guide in the second half of the year, certainly, we have higher comps as we think about our sales growth. That we have to get through in the back half. But, also, as you know, our plan always is we want to make sure that we beat and raise as we go throughout the year. And so I think we are very well set up to deliver on what we have and ideally, if we overperform, to raise guidance as we continue to perform in the second half of the year.

As for 2026, you know, we are not going to provide any update on '26 until we get through the end of this year. So at this point, we have no comments with regards to how we think about 2026 at this point.

Kevin Lobo: Yeah. The only thing I would say, Shagun, is that hospitals need our procedures. They are very revenue-producing. The places that we play in health care. And so if their finances are affected, by less revenue from based on the bill that was passed. They are certainly not going to come after our procedure areas. We are the ones that are making a lot of the money in the hospital. So anything, they would like to do more of our procedures to help their financial pressure. So it will take a long time before it really starts to hit our business based on where we play within the health care system.

Shagun Singh: Thank you.

Operator: Our next question will come from Danielle Antalffy with UBS. Your line is open.

Danielle Antalffy: Hey, good afternoon, guys. Thanks so much for taking the question. Kevin, just two questions for me. First, on China. I know you guys have highlighted this as an area where you are under-indexed and there is a lot of potential for growth there. I am just curious, I mean, there has been a lot of, you know, been very evolving very quickly with tariffs but also, you know, the broader health care market in China. Curious about how you are thinking about China from a growth perspective and how much that is a focus for you guys today? And then just one quick follow-up after that.

Kevin Lobo: Yeah. We do not have a large China business as you probably know. In VBP, hurt everybody. Us a little bit less. Some of our competitors because of our presence. But look. It is a giant market. Long term, you have to be in China. You know, we are not withdrawing from China. But we are also being very thoughtful about the types of investments that we do and having to have sometimes some localized products, which we are experimenting with. In our endoscopy division as one example. So we are being, I guess, careful and treading carefully is the way I would describe it, being thoughtful about our distributor arrangements.

And it is not something that we are pouring a lot of money into, but we are not taking any steps to leave. Or to exit. We are going to hang in there, and we are going to continue to sort of build have the building blocks to have a sustainable growing business. And China had a very good second quarter. That is having a good year this year. But we have been through some challenges in China. So I am not nearly as bullish as I was, let us say, five or six years ago. Before in the pre-VBP era. It is a lot different, the market right now.

But it is a market that we are going to continue to be active as we are in a lot of other international markets.

Danielle Antalffy: Okay. And then my follow-up was on international, and you mentioned with Mako where, you know, where we were five years ago in the US. Is there anything structural about the international market that would make the ramp look different? For Mako than it did in the US? Or should we think of the US as a good proxy for how to model Mako uptake over the next few years internationally. Thanks so much.

Kevin Lobo: Yeah. Thanks. It is a good proxy. Japan is a good proxy for Japan. So Japan has a financial wherewithal. They like technology. They can afford this. So I say Japan is a good proxy and some of the European countries are good proxies. The countries that are not quite as good a proxy would be something like France, which is all government-paid. It takes a long time, and Canada is another example where all of a sudden, they are now starting to be very interested in Mako because they have seen long-term data that shows that it is really high performing. The Australian data was tremendous.

So it showed that Mako not only performed better than manual instruments but performed better than navigation. And that is very credible on a global stage, so that data that came out is something that we are using internationally to help drive the business. So it does vary by country. I would say countries like the UK, countries like Italy, they will be moving kind of like the United States, but there are some other countries that are really socialized medicine. It will move a little bit slower. It is just the nature of the beast.

Operator: Our next question will come from Matthew Aspero with Jefferies. Your line is open.

Matthew Aspero: Thanks for taking the questions. This is Matt on for Matt Taylor. Wanted to quickly ask about or have you expand a little bit on how you are thinking about the recent OBVVA and the implications for your business. Primarily, are you seeing any shifts in the behavior of purchasing or CapEx budgeting from hospitals given the favorable CapEx treatments they have from, whatever, accelerated depreciation, etcetera? And then also maybe a follow-up to that is how should we be thinking about the tax rate for your business heading into 2026?

Jason Beach: Yeah, Matt. It is Jason. I will take the first part of this and, Preston will pick up on the tax rate portion of this. But kind of like I said earlier, as we think about the bill, we are continuing to monitor the bill as it relates to the Medicaid piece. You know, a small part of our procedures are Medicaid related. So feel really good about that. I think, you know, as we think about the capital environment again, and Kevin mentioned this as well, if you think about the majority of our capital, it is closely tied to procedures. Right?

So as procedures continue to be strong, we expect that there will be a high need for our capital, and so we are positioned well on that front. And as it relates to the tax implications,

Preston Wells: of the bill, so we expect that over the next year or so, we will see some benefit in terms of our cash tax just given the bill. But from an ETR standpoint, we would relatively be in the similar area that we are this year. So this year, our guide is 15 to 16%. And as we get into next year, we will confirm what it is going to be, but we do not expect it to have a significant impact on our ETR at this point.

Matthew Aspero: Great. Thank you very much.

Operator: Our next question will come from Caitlin Cronin with Canaccord. Your line is open.

Caitlin Cronin: Thanks so much for taking the questions and congrats on a great quarter. I guess, you know, just starting off with hips, I think it was a strong number. Are you guys seeing any pressure from, you know, the competitor launches in hips? And then just any update on whether you are continuing to trend higher in kind of the percent of stick procedures done robotic?

Kevin Lobo: Yes. I would say on robotic procedures trending, both knees and hips continue to climb. And we are very excited about the hip four-point zero software because if you recall, the first five or six years, maybe seven years after the acquisition, the hip percentage had not really changed very much. But this new software is very good, and especially now that we have added revision hip, I expect that to continue to improve. Insignia has been an absolute home run of a product for us. And has really taken off, and I cannot wait for it to get approved in Europe without that will continue to contribute to our growth.

We have done a lot of training around direct anterior, which has been terrific. And so, overall, we run a really good offense. In terms of our commercial offense. And just focus more on ourselves and what we are doing with the customers rather than focusing on the competition, and that has been paying off for us.

Caitlin Cronin: That is great. And then just a quick one on navigation. I think you called that out earlier being strong. Was that related to, you know, Q guidance and maybe the momentum in the spine and cranial portion of the enabling tech portfolio?

Kevin Lobo: Yes. That is exactly right. So when we say enabling tech, we mean the Q guidance and the Q guidance just does a just a reminder. With Mako four, that is half of the system. And so you can use it for spine to do navigation, but you could also combine it with the Mako robotic arm to use Mako. So we have this reuse of software type of approach, which is really effective. We also have a CoPilot product that is reported under our neurosurgery business, under neurocranial, which is a bur that has haptic feedback as you get close to the key critical anatomy.

In the spine, it will actually buzz and they actually turn off before the surgeon hits those structures. So that has been very, very favorably received by customers. So to be able to use Copilot, you have to have the Q guidance system. And so even though the revenue part of it is in enabling tech and part of the revenue is in neurosurgery, it does operate as a system. And we had a really good quarter in Q2.

Caitlin Cronin: Great. Thanks.

Operator: Our next question comes from Josh Jennings with T. B. Cohen. Your line is open.

Eric Anderson: Hi, this is Eric on for Josh. Thank you for taking the question. On capital, I understand you guys bucket items into large and capital items. For large items in particular, I was wondering if there is any detail you can share on the portion of outright capital sales versus financing options or placements for that category and maybe an easier one to answer is just whether or not that has seen any meaningful shift in the ratio over the past several quarters.

Jason Beach: Yeah. This is Jason. I will take this one. So as you think about our capital as a percent of total revenue, right, you have about 15% of our total revenue. That is the smaller capital, more closely tied to procedures. And then you have got the larger capital that is closer to nine to 10% of our total revenue. And that business continues to do really well. I think Kevin mentioned earlier our communications business where you see a large percentage of our large capital did really well in the quarter. And other areas of our business that have this large capital as well continue to perform really well.

So we are really happy with both the large and small capital.

Kevin Lobo: Yeah. The only trend towards more financing has really been on the robots under Mako. Where there has been especially in the ASC, most of those deals in the surgery centers are financed versus hospitals which tend to do more outright purchasing. Just historically. But not a major change that we are seeing from the trend that we have seen over the past year to eighteen months.

Eric Anderson: Okay. Understood. And then I know there is a question earlier on Mako internationally, but if I could focus on Mako Spine and Shoulder in particular, appreciate the reiteration of the US launch timeline there, but was just curious if you could share your thinking around those new offerings in international markets and what the commercial opportunity could look like outside the US?

Jason Beach: Yeah. I would say the opportunity is large. Right? And as you think about just the initial launch, we are looking at the end of this year for Mako Spine and then the first part of next year for Mako Shoulders. So it will be a deliberate lengthy launch, but, yeah, there is lots of opportunity both in the US and outside.

Eric Anderson: Okay. Appreciate it. Thank you so much for the questions.

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

Kevin Lobo: Thank you all for joining our call. We look forward to sharing our Q3 results with you in October.

Operator: Thank you. This concludes the second quarter 2025 Stryker earnings call. You may now disconnect.