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spk21: Welcome to the third quarter 2022 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 discussion will include certain non-GAAP financial measures. Reconciliations to the most directly and comparable GAAP financial measures can be found in today's press release that is an exhibit to Stryker's current report on Form 8-K filed today with the SEC. I will now turn the call over to Mr. Kevin Lobo, Chair and Chief Executive Officer. You may proceed, sir.
spk23: Welcome to Stryker's third quarter earnings call. Joining me today are Glenn Bainline, Stryker's CFO, and Jason Beach, Vice President of Investor Relations. For today's call, I'll provide opening comments, followed by Jason, with the trends we saw during the quarter and updates on Vocera and capital equipment. Glenn will then provide additional details regarding our quarterly results before opening the call to Q&A. For the quarter, organic sales growth was 10%, with double-digit growth from our med-surg and neurotechnology businesses, led by endoscopy, medical, and neurocranial. Our hip and knee businesses also delivered double-digit growth, reflecting the continued recovery of elective procedures and our worldwide MAKO momentum. Lastly, we continued our strong international performance with double-digit organic growth led by Europe, Canada, and emerging markets, despite negative growth in China. For the quarter, we delivered adjusted EPS of $2.12 share, driven by our strong sales performance, partially offsetting negative foreign currency and inflationary pressures. We expect these pressures to continue, but at a more moderate level for the remainder of 2022. We are pleased with our strong sales growth, which would have been even higher if not for material shortages, mostly affecting medical and instruments. Meanwhile, we are taking actions to deal with the cost headwinds, including inflationary challenges. First, as noted in Q2, given the higher input costs, we took a series of pricing actions across our portfolio. We have begun to see the impact of these initiatives, lessening the negative price impact on our business in Q3 but it will take time to see the full effect given the timing of contract renewals and rebates from prior contracts expiring. Second, we have taken additional actions around cost, including the reduction of discretionary items, hiring actions, and are proceeding with targeted restructuring plans in parts of our business. We continue to invest in R&D, demonstrating our continued focus on new product pipelines. This includes investments in R&D for enabling technologies robotics, imaging, and navigation, including our recently launched Q guidance navigation system in spine. Notably, we are making good progress with the development of our spine and shoulder applications for Mako. We have stopped the card and spine robotic project to focus all our energies on Mako and expect that the Mako spine and shoulder launches will occur in a similar timeframe. Also during the quarter, we signed an agreement to purchase Saris Endovascular, a technology leader in the hemorrhagic segment. This deal is pending customary closing conditions. We remain confident in the outlook of our business and expect to continue to deliver sales growth at the high end of MedTech, which is reflected in our narrowing of full-year organic sales growth to the higher end of our prior range, now 8.5% to 9%. However, worsening foreign currency and continued inflationary pressures have caused us to lower our full-year adjusted EPS range to $9.15 to $9.25 per share. Overall, our team has shown good resiliency, and I'm pleased that employee engagement range is very high. We continue to be recognized across many countries, professions, gender, and age groups as a great place to work, most recently as one of the world's best workplaces by fortune. As we look ahead to 2023, we feel optimistic about growth with high customer demand and exciting new product launches. Though the inflationary pressures and supply chain challenges will continue to impact next year, the strong growth outlook combined with our pricing and cost actions will position us well to return to strong earnings growth. I will now turn the call over to Jason.
spk05: Thanks, Kevin. My comments today will focus on providing an update on the current environment including the procedural, geographic, and capital trends during the quarter. In addition, I will provide an update on the integration progress of the Vocera business. Procedural volumes continue to recover throughout the third quarter in most countries, and we are beginning to reach normalized levels across most of our business. While we are seeing volumes recover, hospital staffing pressures have continued to impact the ability to reduce procedural backlog in a meaningful way. These challenges will likely resolve gradually, and we continue to expect this will be a moderate tailwind into next year. Geographically, procedural volumes steadily improved during the quarter in the United States, Europe, and Latin America. Parts of Asia Pacific have continued to be more volatile due to ongoing COVID-related impacts. Demand for our capital products remained very strong in the quarter, as seen from the double-digit growth of our medical division. However, we did realize some installation delays as well as hospital scheduling challenges. Specific to MAKO, installations for the quarter were soft as we realized delays stemming from variability in the hospital environment. However, our order book remains strong and we expect a good fourth quarter for MAKO. We will update you on our key MAKO metrics in January. Now to our key integration activities. We continue to be pleased with our Vocera integration progress and remain excited about the strong growth potential of this platform technology. However, in Q3, we elected to delay some installations shifting from on-prem servers to our cloud solution with certain customers. Also, as we do with all acquisitions, we are shifting the legacy Salesforce to the Striker model, which has caused some disruption. These delays resulted in revenues that were essentially flat to Q3 2021. However, the order pipeline remains strong and customer retention remains very high at 99% for software renewals. We expect these processes to continue into Q1 of next year, after which we will be positioned to drive robust sales growth. In summary, while the macroeconomic environment remains dynamic, procedural volumes are improving, and the underlying demand for our products remain strong, which gives us confidence in our ability to continue to drive strong revenue growth. With that, I'll turn the call over to Glenn. Thanks, Jason.
spk14: Today I will focus my comments on our third quarter financial results and the related drivers. Our detailed financial results have been provided in today's press release. Our organic sales growth was 9.9% in the quarter. The third quarter's average selling days were in line with 2021. The impact from pricing in the quarter was unfavorable 0.7%. We have started to see the positive impact of pricing initiatives, particularly in our US MedSurg businesses, which all had positive pricing for the quarter. Foreign currency had a 3.7% unfavorable impact on sales. We continue to experience supply chain disruptions that have increased costs and led to inconsistent product availability. This is especially impacting the shipping and delivery timelines related to capital products in our Med-Surg businesses. Nevertheless, our capital order book continues to be very robust as demand from our customers remains strong. In the quarter, U.S. organic sales growth was 9.2%. International organic sales growth was 11.8%, impacted by positive sales momentum across most of our international markets. specifically emerging markets, Canada, Japan, and Europe, somewhat offset by lingering COVID impacts in other Asia-Pac countries. Our adjusted EPS of $2.12 in the quarter was down 8 cents from 2021 due primarily to the impact of foreign currency exchange translation of 8 cents. Additionally, higher costs associated with gross margin challenges were offset by the benefit from higher sales and cost discipline. Now I'll provide some highlights around our segment performance. In the quarter, MedSurg and Neurotechnology had constant currency sales growth of 13.5%, with organic sales growth of 10.8%, which included 9.6% of U.S. organic growth and 14.4% of international organic growth. Instruments had U.S. organic sales growth of 2.2%, led by our surgical technology business. From a product perspective, sales growth was highlighted by growth in smoke evacuation and sterish yield. During the quarter, Instruments experienced supply chain challenges, primarily related to its capital products. Endoscopy had U.S. organic sales growth of 14%, highlighted by double-digit growth in both the core endoscopy and sports medicine businesses. Medical had U.S. organic sales growth of 13.7%, driven by growth in our SAGE and acute care businesses, fueled by precuity and prime structure demand. As previously noted, medical continues to experience supply chain challenges that primarily impact emergency care products. Our U.S. neurovascular business had an organic decline of 2%, driven by a strong double-digit comparable in 2021, disruptions due to hospital staffing shortages, and slower clinic volumes, as well as competitive pressures. The U.S. neurocranial business had organic sales growth of 12.7%, which included solid growth in our MaxFace and Neuro products. Internationally, MedSurg and Neurotechnology had organic sales growth of 14.4%, reflecting double-digit growth in all businesses. Geographically, this included strong performances in Japan, China, and other emerging markets. Orthopedics and spine had both constant currency and organic sales growth of 8.7%, which included organic growth of 8.7% in the U.S. and 8.9% internationally. This reflects the impact of our strong international growth and solid growth in our hip, knee, and trauma and extremities businesses. Our U.S. hip business grew 12.4% organically, reflecting strong primary hip growth fueled by the recent launch of our insignia hip stem and continued procedural growth. Our U.S. knee business grew 14% organically, reflecting our market-leading position in robotic-assisted knee procedures. Our U.S. trauma and extremities business grew 10.4% organically, with strong performances across all four businesses, led by double-digit growth in upper extremities, highlighted by our new products Perform and Blueprint. Our U.S. spine business sales grew 2% from solid performance in our enabling technology business, somewhat offset by the impact of lower surgery volumes and the competitive environment. Our U.S. other ortho declined organically by 11.2%, primarily driven by the impact of the aforementioned delays in Mako installations in the quarter. Internationally, orthopedics and spine grew 8.9% organically, which reflects the strong momentum in Europe as procedural volumes improve, as well as strong performances in Japan, Canada, and India, somewhat offset by COVID-related volatility in Australia. Now I will focus on the operating highlights in the third quarter. Our adjusted gross margin of 62.6% was unfavorable, approximately 370 basis points, from the third quarter of 2021, reflecting the impact of the purchases of electronic components at premium prices and other inflationary pressures, primarily related to labor, steel, and transportation costs, as well as inefficiencies from supply chain disruption and the unfavorable impact of price and foreign exchange on sales. Sequentially from Q2 2022, gross margin was 70 basis points unfavorable. This included the impact from unfavorable business mix, higher than expected inflationary pressures, including premium pricing and operational inefficiencies. We expect these adverse impacts to continue throughout the remainder of the year and into 2023. For the full year 2022, we now expect adjusted gross margin compared to 2021 to be adversely impacted by approximately 250 basis points. Adjusted R&D spending was 7.1% of sales, which represents a 40 basis points increase from 2021. This reflects our continued commitment to funding innovation and the related future growth it will provide. Our adjusted SG&A was 33.1% of sales, which was 100 basis points lower than 2021. This reflects the impact of an increased focus on discretionary cost control and headcount discipline. In summary for the quarter, our adjusted operating margin was 22.3% of sales, which was approximately 310 basis points unfavorable to the third quarter of 2021. This performance is primarily driven by the aforementioned gross margin challenges and the net negative impact resulting from foreign currency exchange translation, somewhat offset by cost discipline. Adjusted other income and expense decreased from 2021, primarily resulting from lower interest expense and favorable interest income. We anticipate Q4 OINE to be approximately $70 million. Our third quarter had an adjusted effective tax rate of 14.5%, reflecting the impact of geographic mix and certain discrete tax items. We now expect our full-year adjusted effective tax rate to be at the low end of our previously communicated range of 14.5 to 15%, which is slightly lower than 2021. Focusing on the balance sheet, we ended the third quarter with $1.5 billion of cash in marketable securities and total debt of $12.8 billion. Approximately $250 million of term loan debt was paid down in the quarter, which brings our year-to-date payments to $500 million. Turning to cash flow, our year-to-date cash from operations is $1.6 billion. This performance reflects the results of net earnings partially offset by the impact of higher costs for certain electronic components, pre-buying of certain other critical raw material inventory, and seasonal inventory increases. Considering our third quarter results, our strong order book for capital equipment, and the sales momentum in our in-plant and capital businesses, we now expect full-year 2022 organic sales growth to be in the range of 8.5% to 9%. If foreign currency exchange rates hold near current levels, we now expect net sales in the full year to be adversely impacted by approximately 4%. and adjusted net earnings per diluted share to be adversely impacted by approximately 35 to 40 cents for the full year, which is included in our revised earnings guidance range. Based on continuing inflationary and supply chain pressures, balanced with our strong sales and additional cost reduction actions, and most significantly, the anticipated future impact of foreign currency, we now expect adjusted earnings per share to be in the range of 915 to 925. And now I will open the call up for Q&A.
spk21: Thank you. If you would like to ask a question, please press star followed by 1 on your telephone keypad. If for any reason you would like to remove that question, please press star followed by 2. Again, to ask a question, press star 1. As a reminder, if you're using a speakerphone, please remember to pick up your handset before asking your question. We will pause here briefly as questions are registered. Our first question comes from the line of Robbie Marcus with JPMorgan Chase. Your line is now open.
spk15: Thank you, and congrats on a really nice top line here. That said, I do want to ask my first question on operating margins, both for third quarter and fourth quarter. You know, it came in a lot lower. It looks like half was for currency. I think what I'd like to know is how much of what we saw to the negative was transient in third quarter, and what's driving the strong sequential improvement into fourth quarter here? Thanks.
spk14: Hey, Robbie. This is Glenn. Good questions. You know, as we looked at the third quarter and the impact and, you know, what changed from Q2 specifically, what we saw was we saw that our visibility to supply had improved and that we were seeing sort of moderate sort of improvement, but the rate of improvement relative to the cost was not improving at that kind of outlook. So we continued to see higher than expected premium costs. We saw other inflation across almost all categories, but as I noted, most noticeably in labor, metals, transportation. And then all of that and that sort of variability of supply chain really drove just inefficiencies in our manufacturing process. And so that, you know, we had lots of stops and starts, which as you know, just drives up more cost. So I think, you know, if I think about it, what's transient, what's not, I think, you know, in Q4, We have good visibility to supply and feel confident enough to raise our sales guidance, which is what we did. We'll feel that in Q4. I still think we're going to see a little bit of this fluid environment where we'll continue to experience some higher costs. I would tell you that once we get our hands around one electronic component issue, then we'll be contacted from an N-2 vendor about another issue. We're feeling that sort of through as we're managing through sort of our supply chain issues.
spk15: Great. And, you know, as we go into 2023, where I think everybody's starting to focus, you know, I don't think there's much issue with the top line with, you know, 9.9 in the quarter, 8.5 to 9 for the year. That looks really good. I think people feel comfortable into next year. Where there's questions is down the P&L and on EPS. Kevin, you mentioned the comment about strong EPS growth next year. I see the street. My numbers look north of 50 basis points margin expansion next year, which might be a little high given... you know, the trends we're seeing here. We'd love to hear if you have any initial comments on thoughts on 2023 and particularly what that strong EPS growth means. Thanks.
spk23: Yeah, thanks, Robbie. As you know, we're going to give specific guidance in January, as we always do. But I did make that comment in my opening remarks to signal that this year is an aberration. We will get back to strong earnings, which does absolutely imply margin expansion in 2023. But specifics will get to you in January.
spk20: Thank you.
spk21: Our next question comes from Lawrence Bigelson with Wells Fargo. Your line is now open.
spk02: Good afternoon. Thanks so much for taking the question. I wanted to ask first about the supply shortages. Kevin or Glenn, I don't know if you are willing to comment on how much you think they impacted you. how much you expect to be impacted in Q4, and are these sales you expect to get back over time? And I had one follow-up.
spk14: Yeah, Larry, I think, you know, not to give specific guidance on numbers relative to this disruption, but, you know, suffice to say that on some products, we are very hand-to-mouth in terms of how we're getting componentry to complete those products and ship them to customers. On some, we have a little bit better visibility. I would tell you that with our order backlog at an all-time high, we are seeing pretty significant disruptions across our capital businesses. We're very focused on getting product to customers. We know that's important. And we are working hard to make sure that as we can secure supply, that we work around the clock to get those products finished and get them out to customers.
spk23: Yeah, Larry, what I'd add is our problems are in the med-surg side of our business. And on the med-surg side of our business, we're not going to lose sales. So if we have problems in the implant side, those sales would be lost to competitors. In this case, customers are waiting. The products aren't urgent. We do have a plan to get these products to our customers. Medical's numbers, which were pretty impressive, at 13% plus percent organic would have been materially higher because of the emergency care demand and same with instruments. Those were the two divisions that had the most impact. Frankly, we have a lot of niggling issues across our portfolio, but those two divisions were severely impacted in Q3. You'll see recovery, some recovery in Q4 and into next year, but I really don't expect to lose any of those sales, which gives me a lot of confidence going into next year that our sales, positive sales trajectory will continue.
spk02: That's helpful. And then maybe a little bit more color on the softness with Mako this quarter. How confident are you in the rebound in Q4? And Glenn, I know the other line is not just Mako, but when can we expect to see that line turn positive? Thanks so much.
spk05: Hey, Larry, it's Jason. I'll start here and talk a little bit about Mako. And then, Glenn, if you want to comment on the other piece, feel free. But As it relates to Mako, like I said in my prepared remarks, the orders were soft. But if you look at the order pipeline, it is very robust. And we continue to be, I'll say, the robotic-assisted choice in the marketplace. And so we feel good about Q4. And like I said in my prepared remarks, we expect a strong quarter.
spk14: Yeah, Larry, the only thing I add is there are – couple of products in that line item of other, but yeah, you're right, that's where Mako is. I don't really want to guide you on Q4. I think sequentially we will definitely see improvement, but in terms of when will we see full positivity, we'll talk about that in January.
spk23: Yeah, just one last comment to add. What I'm really encouraged by is quarter after quarter after quarter, we're seeing the knee, Mako has a percent of our total knees go up hips as a percent of, Mako hips as a percent of total hips go up, cementless percent of total knees go up, and cementless tends to correlate very well with Mako. So all of those metrics are heading in the right direction. Yes, we've had some more delays in getting these robots installed and sold to our customers, but Q4 will be good, and we'll continue our positive trajectory.
spk21: Thank you. As a reminder, if you have, please remember to limit yourself to one question and one follow-up. Thank you. Our next question comes from the line of Vijay Kumar with Evercore ISI. Your line is now open.
spk07: Hey, guys. Congrats, and good compliment, Prince, here. Kevin, maybe my first question here is on 23. I guess... Did I hear you guys say labor situation improves and that could be tailwind in 23? And how should we think about this capital versus supply chain impact, those dynamics, right? It's strong capital order work versus supply chain dynamics. How does that impact 23? Any new products that we should be thinking of? Again, I'm not asking for specific guidance, but maybe some qualitative comments on these variables.
spk23: Okay, sure. I'll stay in the land of qualitative, Vijay, at this time of the year. But first, we are seeing a tailwind in procedural demand. So procedures are recovering around the world, a little slower in the Asia-Pac regions. But given what happened with COVID, we expect that tailwind, as you saw, with very good growth in our hip and knee business, that will continue into fourth quarter. And I think a pretty modest or moderate tailwind throughout 2023 and maybe even into 2024. So that's one positive tailwind. We have a number of new products we're launching. System 9 camera in the early part of the year. Sorry, System 9 power tool in the early part of the year. 1780 camera around the middle of the year. And then we've got a defibrillator, which is a little less certain on timing because it's a PMA product, but the LifePak perhaps towards the latter part of the year. But those are big, massive, and important products. And you know what happens when we launch those products. I kind of call it a super cycle of within MedSurge of new product launches. We have the Insignia hip stem, which is less than 50% of the way launched. You know that these implant launches take multiple years to get all the sets out into the field, but a tremendous momentum. You saw our hip numbers have looked good the last couple of quarters relative to competition because of the Insignia stem, and that will just continue to gain steam going forward. So those are a number of the positives. What I'd say on the order book side, that we know we have this big, big backlog of orders. that customers are willing to wait for in many cases, especially in emergency care. Orders are not being canceled. That gives us a lot of confidence that the demand is there. We just have to make sure we can get the supply to the customers. And we've been securing chips. We've been securing different products. But as Glenn mentioned, it's been hit and miss along. Sometimes it's just a resin. Sometimes it's a small component. So there's been spottiness. It's getting better, but it's kind of getting better slowly. So we'll fight our way through that probably in the first half of next year, but tremendous demand in the absence of new products, and then those new products will just sort of give us extra momentum going into next year. I just picked a few, but sorry for some of my divisions. I didn't mention the shoulder, the foot and ankle, and so there's a lot of other ones, but those are sort of some of the big ones.
spk07: That's helpful color, Kevin. Glenn, maybe one for you. At current FX rates, how should we think about EPS impact for 2020 and the 250 basis points of gross margin impact? What is being capitalized? You know, what percentage of, you know, that 250 basis points is being capitalized on the balance sheet?
spk14: Okay, Vijay. Vijay. On the FX rates, without overly guiding for next year, but I think if you look at sort of what happened in 2022, rates really took off in sort of Q3, Q4. And so the comparable for Q1, Q2, I still think will have a pretty big impact for rates next year as you look at sort of your modeling for next year. And then in terms of just the capitalized variances I won't give you specifics, but I will remind you that to the extent we are making spot buys, it relates to raw materials that get put in inventory and then the future utilization of those raw materials is usually over an eight to nine month time frame. So that gets a little bit more to Kevin's comment that we'll still fill some of this well into Q2 of next year. And to the extent we're still in a spot by premium situation in Q1 of 2023, then that will bleed into say Q3 as well.
spk20: Thank you. Our next question comes from Pito Chickering with Deutsche Bank.
spk21: Your line is now open.
spk22: Hey, good afternoon, guys. Thanks for taking my questions. The first one is, messaging has been very consistent throughout this year about the strong capital demand. And I understand that there's a give and take between backlog of orders, orders fulfilled, orders canceled, then new orders. So I guess, can you talk specifically on new orders during 3Q and what you're sending for 4Q? Against your expectations.
spk05: Jason, I'll jump in here. You know, I would point you back to some of the commentary around the order book. And if you look at our capital businesses, it continues to be very strong. And so as we looked at the fourth quarter, similar to the comments Kevin said around medical and instruments, we certainly expect a recovery in the fourth quarter with instruments and another strong quarter for medical as well.
spk23: And even Endoscopy, who had a very strong Q3, they grew their orders as well. in the quarter. So they will also have another strong quarter in Q4. So it's really across our portfolio where the demand is very, very strong. And we're not seeing sort of a capital slowdown, which I know I've heard some other companies mention. We're just not seeing that in our orders. We're not having orders canceled. It's something I haven't seen in my 10 years here. Customers ordering things and then canceling it. So we feel very good about our Our orders have not slowed down. They just continue to grow. Just one little example which I really enjoy is on Beaucera, we've now integrated that with our Percuity bed. So the alerts for falls from the bed actually go straight to the badge and we're already showing this to our customers and getting really wild positive feedback from customers on this. And again, it's early days, but the Percuity momentum, which really powered our strong medical growth this quarter, is just building, and it's kind of the second year of the launch. It's really just gaining steam, and now with its interoperability with Vocera, it provides an extra bit of energy to that business.
spk22: Okay, fair enough. And then a follow-up on neurovascular is a touch weaker this quarter. Just curious how much of that is a market versus competition versus supply shortages? Thanks so much.
spk23: Yeah, thanks. You know, we've seen a slow market this year in the U.S., in neurovascular. Not exactly sure why. There's a number of different theories out there as to why the market itself has been slow. I'd say that's probably most of it. But there are new competitors in both aspiration as well as dent retrievers. The FDA has kind of reduced the requirements, the clinical requirements in those categories. So there are a number of new players which affects part of it. But the market has been soft. And maybe it's a COVID issue that some of these patients that would have had strokes are not having strokes because the mortality effects of COVID. It's hard to know exactly why, but the market has slowed down, definitely in the U.S. I think that's probably the bigger portion, but there are also some competitive pressures. Keep in mind that for us, the U.S. is much smaller than our OUS business in neurovascular. It has always been that way. It's the one business that kind of has the reverse of the rest of our portfolio. So we continue to feel bullish about the long-term prospects on this business. We're only treating a small percentage of people that have strokes And as I noted in my opening remarks, we've just signed an agreement for a tuck-in acquisition in the intrasocular space.
spk20: Thank you.
spk21: Our next question comes from the line of Matthew O'Brien with Piper Sandler. Your line is now open.
spk08: Thanks for taking the questions. The first one is just on the restructuring you talked about. Is that something that's going to be impactful to next year specifically to help drive that EPS growth? And then do you have other levers that are kind of below the line that you can pull on to help with the EPS growth for next year?
spk23: Well, EPS growth, as I mentioned, there'll be a combination of price. And in fact, some businesses are taking on their second round of price increases. And having the timing of those start to really appear as contracts roll off. So price is one component, cost reduction clearly is another component. The restructuring, these actions are very targeted. So it's really around things we were going to do anyways to improve our processes. We're just accelerating those activities. We'll see some of that this year. We'll see some of that into early part of next year. And it will have an impact in our earnings per share for sure next year.
spk14: And Matt, below the line, if you look at sort of OI&E and taxes, there are some opportunities related to how quickly we pay down the term loan. So there could be some pickups relative to interest expense, although those would be minor given the rates. And then taxes, I don't expect any surprises sort of steady as we've been there. Okay, thanks for that.
spk23: And then Kevin, on MAKO with the new... Sorry, go ahead. I was going to say one last comment before. We will get mixed benefits from the new products that we launch. So that's one thing. You won't see that in the price line, but we'll definitely get that benefit through the P&L, which helps our earnings.
spk08: Okay, okay. Appreciate that. And then, Kevin, I think back to the analyst day, maybe a year and a half ago, You talked about Mako with these new indications of shoulder and spine kind of coming out, I think more a step like, you know, having one, one year than one, then the following year is this now commentary about these two coming out at the same time, because maybe spine is getting pushed to a little bit later than you expected before. And I didn't hear you specifically say, you know, spine and shoulder for Mako next year. So is this something we should expect more like 24 and beyond?
spk23: Yeah. You know what? We're not ready to give you a timeline now. I wouldn't expect it next year. But in one of the next upcoming calls, perhaps January or the one after that, we will give you some expected timelines. The reason that they're coming out at the same time now, there's two things. One is spines kind of moved ahead in its pace and shoulder kind of moved back a little bit because we had to adapt to the tournier implants and bring in the blueprint software and marry that with Mako. So we were on a certain timeline with striker shoulder implants. but we wanted to switch to the Tournier implants. They're the market-leading implants. So we had to sort of delay that one, but Spine's been moved forward. So the team's done a terrific job. We had two projects that we're pursuing, the Cardan one as well as Mako. Mako's going to be the answer for us. We've already started to show some surgeons, and we've received very, very positive feedback on that. So we're excited. And so, again, the timing, hopefully, possibly as early as January, I'll give you more specifics on it. As you know, robots are complicated. That's why we're sort of hesitant to first give you timelines until we feel more confident. But I'd say that a lot of the challenges that we had before we've overcome, and we've had good meetings with the FDA. We're on a very good trajectory on both of those projects. Hard for me actually to know which one will be first.
spk19: They'll come out in pretty close proximity to each other.
spk20: Thank you.
spk21: Our next question comes from the line of Joshua T. Jennings with Cowan. Your line is now open.
spk01: Good evening. Thank you. I wanted to start just on pricing. It sounds like you guys are getting some traction there on your pricing initiatives. Should we be thinking about price turning positive? I think it's 70 basis points, headwind, and 3Q, or is that too aggressive? Just wanted to get a better sense. And the follow-up question is just on just the ASCs with your ortho business for primarily joints. Any updates just in terms of receptivity for NACO robots and also just the pace of ASCs opening? And that seems to be maybe the bottleneck in terms of the pace of migration overall with the procedures into ASCs. But I wanted to just get a better sense of what you're seeing. Thanks for taking the questions.
spk14: Hey, Josh. It's Glenn. I'll take the first one on pricing. I think, you know, first of all, we're having obviously some big initiatives going on around pricing, making sure that we're educating customers in terms of what's happening to us relative to the cost of raw materials and things like that. Pricing is mostly impacting Med-Surg. That's not to say there's not as big of impact on the ortho side. Keep in mind too that most of our businesses are under some sort of contracts, and so a lot of this sort of pacing is relative to as those contracts come up for negotiation, we can enter into that with those customers. You know, I think so far we're seeing good progress. We expect to continue to see good progress into Q4. I won't call out a guide yet for next year, but what I would tell you, one of the things that also will give us a little bit of lift that may not be reflected in pricing is the comment that Kevin made relative to new products that are released. And most new products that are released are released at a premium price. Relative to the legacy price and so that will give us a little bit of uplift as well Okay, and related to your question on ASCs.
spk23: You know we our offense continues to exceed our expectation Just the bundle that we provide for the ASC to make life easy for them as being very well received close to half of the deals that we win includes a Mako in these orthopedic ASCs We've now crossed sort of the 10% mark of large joints that are done in ASCs. It keeps going up, not at a rapid rate, but it's a steady climb. And to your point, the gating factor is just construction and refurbishment of these ASCs to enable more procedures. But every hospital system I talk to is preparing themselves for another new ASC. It's a trend that had started prior to COVID and has accelerated, and we expect that that will continue. But we love our position. The breadth of our portfolio, having capital, disposables, and implants puts us in a really leading position. And MAKOs, as I said, almost half the time are included, and that gives us a giant advantage.
spk20: Thank you. Our next question comes from the line of Matt Mixick with Barclays.
spk21: Your line is now open.
spk06: Great. Thanks so much for fitting me in. A lot of great colors have been covered here, but I'd first just love to see the interoperability and connected care comments around Beaucera and this color around Mako for spine and shoulders is exciting. I wanted to just maybe focus a little bit back to margins on some of the purchasing comments you made, Glenn, and just to get a feel for how much of what impacted you in the third quarter had to do with, you know, spot buys, purchases made in previous quarters, and then whether any, I think you mentioned that some of those prices are getting a little bit easier, or better maybe, which then, you know, is that, you know, have we hit a high watermark in terms of the sort of impact on margins, or is it too early to say in that one follow-up?
spk14: Okay. Yeah, Matt, I think, I mean, a couple things. As you sort of think about the guidance, the 250 basis points, in rough terms, half of that is being driven by sort of the premiums that we're paying on those spot-by purchases. And then the other half is really kind of solidly grounded in, you know, what we're seeing on the inflation and the inefficiency side. somewhat tempered by some cost discipline, even within our operations. On the spot buys, I think what I was saying is that we have better visibility now to our ability to acquire supply. We are seeing some moderation, although not as much as I think we were hoping to see. as we entered into Q3 in terms of what those costs are. So things are just, they're not coming down as quick as we wanted them to, nor do I expect that our spot purchases in Q4 will come down significantly either. And then on the inflation side, a lot of that is flowing through increases in labor, increases in commodity prices that we're paying. Because we're in this difficult supply chain situation, You know, we're having to use a lot of, say, air freight versus ocean freight, which costs a lot more, to expedite raw materials coming in so that we can, you know, manufacture and get out to customers. And so those are the type of inflationary things that we're feeling that are in that number.
spk06: Got it. That's helpful. And then, you know, maybe just One of the dynamics, Q3 to Q4, you mentioned that product mix was a bit of a headwind for you on Q3. Maybe if you could highlight some of the ways in which you expect that to improve in Q4, Q1, and around that in particular, it seems like your businesses are sort of seeing a better approach You know better look from from some of the staffing challenges and hospitals and some other companies and You know, not, not everyone is seeing improvements. They're just wondering, you know, how you think about what you're seeing your priorities of hits the news. Versus other procedures, you know, any color that you're getting that would kind of help folks understand you know what exactly is happening with tapping out unevenly affecting different procedures in different settings. Thanks.
spk14: Okay, let me take the first part of that question relative to mix and what we saw in Q3 and how we think that might play out in Q4. I think you can sort of look at sort of sales growth as a proxy for where we felt the pain of mix. Instruments was down and that's a fairly highly profitable business for us. Envy was also a little bit down and that too is a highly profitable business for us. You know, those not being a normal proportion of our sales really sort of hurt us somewhat at the margin line. You know, I think Instruments has good visibility to supply moving into Q4, and so I do expect that we'll see a good performance out of Instruments as we wrap up the year. You know, NV, it's a little bit different. It's not capital, and there's not sort of a backlog of orders. NV is very procedural-based. But I know that NV is very focused on finishing out the year and hitting their quotas. And so I think we'll see some improvement out of NV as well.
spk23: Yeah, just last point on mix. I think Australia is one of the big, big markets for Striker. And they've been hit by COVID and delays. And they do expect a stronger – it's already started. We're seeing that start to build. And that's a highly profitable business as well. So that's another element of mix we're going to see improve. in Q4 versus Q3. And then your other question, I'm not sure I totally got it, but I think you were talking about different procedures and how we're seeing the recovery and clearly hit the knees. We're seeing, you know, robust recovery. There's big waiting lists, which in the UK and physicians who took maybe took some time off in summer a little bit more than they normally would given coming off the COVID are very busy now. And they're starting to operate more. As much staff is available for them, the more they're going to operate. And staffing is still a little bit challenged, but it's been gradually improving. So there we see robust kind of growth going into next year. Spine has been a little bit more choppy, to be honest. And I don't think it went down as much as hip and knees did. If you look at the Omicron variant and everything, the spine procedures were still a little bit more resilient. And so we're not seeing that pop quite to the same extent as we are in our hip and knee. And I mentioned already neurovascular in the US where the market is soft. And that's the one that, you know, I saw some comments related to TAVR that talked about the market being a little bit soft. And I wonder if that patient profile with all these comorbidities, there might be something similar that could be impacting the ischemic stroke portion of the market.
spk19: So that's hopefully answered that part of your question.
spk20: Thank you. Our next question comes from the line of Rick Wise with Stifel.
spk21: Your line is now open.
spk03: Good afternoon. Hi, Kevin. Two questions for me. First, we touched on it a little bit, but you talked about Asia Pacific being continuing to be volatile and China negative growth and that those pressures continuing. through the end of 22. Just in general, at a high level, what's the setup for next year? Are you assuming, as you look at the landscape, that things are going to get better? Just, again, your high-level thoughts there.
spk23: Sure. At a high level, COVID has had a delayed impact in a lot of Asia Pacific, and we certainly expect it to get better.
spk16: We're already seeing it.
spk23: Japan had a really nice quarter this quarter. Australia will pick up in Q4. Some of the ASEAN countries are improving. So I do expect the outlook to be better next year in Asia Pacific overall than this year. Our emerging markets had really robust double-digit growth in spite of China being slightly negative. It was negative really driven by volume-based procurement in the orthopedic side of our business. and pretty good performance on the med search and neurotechnology side of the business. But we've finally, after many years, started to build tremendous momentum in Latin America, as well as emerging Europe, at least in Africa, where we're gaining really tremendous momentum, really driven by Mako, as well as our 1688 camera. That's driving really strong growth this year, and I think that should continue going into next year. Even India has really had a terrific year this year. And as you know, we've had our share of challenges in the past. So I would say the international story for Stryker is starting to click. As you saw, you know, since 2019, our international organic growth has outpaced the U.S. And that did not happen my first seven years as CEO. And I do expect that to continue. And frankly, the COVID tailwind should really cement that going forward.
spk03: Great. And one other sort of big picture question, Kevin. I mean, you usually have great perspectives on this kind of stuff. One of the toughest questions to answer for me these days is how, when, where do some of these supply chain issues, particularly around chips, how do they get resolved? When do they get resolved? And I'd be curious to hear what you're thinking for the industry, but what are you thinking how are you going to resolve this so that you can stop worrying about it for a striker? Is it just, you just have to wait or are there tangible steps that you can take or industry needs to take still to get past this topic? Appreciate that.
spk23: Yeah, look, it's a great question. I would tell you this year has been extremely frustrating. Unlike any year I've had where, you know, to be honest, we, we misestimated. We thought early on we were going to, have 100 to 200 basis points of pressure. And now Glenn's saying it's 250. So that's something we did not call. It's been difficult to predict. I think one of the steps that we're taking, which is really kind of exciting, is as you move to new products. So as we move to System 9 and as we move to 1788, we're using new generation chips. And the supply availability is actually quite high for new generation chips. And so the faster we can migrate to new products, it actually helps secure our ability to have supply. And so we are pushing our R&D teams really hard to be able to shift to these newer products. Because our challenge is, frankly, the older generation chips. And that's why emergency care is so pressured, emergency care being defibrillators primarily, because they're PMA products. We can't just swap the chip out. It goes through a whole regulatory regime. And those are older generation chips. So the faster we can migrate to new products, the faster that secures our chip availability. It's been kind of a moving target. As we've secured chips with one supplier, we have a new problem with another supplier, and even things like resins. So it's been a very unusual and tough year, but it's slowly getting better, Rick, and as we launch new products, that'll get us really healthy, because new chips aren't a problem. Our problem is really getting the old electronics and frankly the camera business I give our industry team a lot of credit that they were able to actually qualify some new products and because it's not PMA they were able to really drive good growth but it's been a scramble and we're hopeful that things get stable really I think we're going to be in this soup for probably another couple of quarters by the middle of the year and then I think the skies will start to clear but you know what I don't have a total crystal ball, and we haven't been right this year, but that's sort of how it looks right now. It'll still be a little choppy, but it's just moderately getting better as we go through the year.
spk20: Thank you.
spk21: Our next question comes from Drew Ranieri with Morgan Stanley. Your line is now open.
spk13: Hi, Kevin and Glenn. Thanks for taking the questions. Just maybe, Kevin, on your comments about Pricuity, the bed launch, you're gaining momentum there and it's in your second year of launch. Just kind of curious how the launch is progressing and if you could give us an update on where you are in terms of market share, the replacement cycle, and then really what should we expect now that you have integrated Vocera into the Pricuity bed? Should that have a meaningful acceleration into the Pricuity launch?
spk23: Yeah, I'm very bullish on Percuity. It's a fantastic product and the cross-sell capability with Vocera where we were strong let's say with Percuity or beds and Vocera wasn't as strong as Vocera. Conversely, Vocera was strong but we didn't have a strong bed position. That cross-sell opportunity is already presenting itself. We've been in front of some very big accounts and we're showing them this integrated system we've already gotten some orders, and so I'm bullish. They had a terrific third quarter. We're trying to make them as fast as we can right now, which is a high-class problem, and so I think you're going to see very good results for QUITY. It's a winning bet, and Beaucera is just going to add gas to the fire.
spk13: Thank you, and Glenn, maybe one for you, but I know you don't necessarily want to give 23 guidance at all, but just as you're thinking about free cash flow and Kevin's comments about strong EPS growth for next year. Can you help us contextualize that on maybe what free cash flow growth we should see for next year or working capital improvements? Thank you.
spk14: Yeah. You know, I think right now, just given all the variability and kind of where we are with just focused on this year and finishing up, you know, I'd hate to throw out a number for free cash flow conversion. You know, I think it would be safe to assume that, you know, it wouldn't be far away from our historical averages and that's probably where we would land for next year. Keep in mind for next year, our focus will still be debt repayment and we'll pay down the rest of that term loan before we allocate other capital to M&A.
spk20: Thank you. Our next question comes from David Saxon with Needham and Company.
spk21: Your line is open.
spk11: Hi. Good afternoon. Thanks for taking the questions. Maybe to start on extremities, just wondering what you're seeing in the foot and ankle market. Did any procedures perform better or worse than others? And then I'll ask my second question up front here. Maybe can you talk about the Q guidance system? how that early launch is going and maybe can touch on the, you know, launch strategy, pricing, and feedback you got from NASA. Thanks so much.
spk23: Yeah, so starting with foot and ankle, they had a really terrific Q3. The highest growth within foot and ankle is coming out of our total ankle where we have a clear market leadership that had double-digit growth. But even though the midfoot, forefoot procedures are picking back up, as you know, the pandemic did kind of slow dampen those. somewhat, but they had a very good Q3. We had a number of new launches in that category, four-foot launches, so we're feeling very good about that going forward, but it was a strong Q3 that contributed to, especially in the United States, that contributed to the double-digit growth that we had in trauma extremities in the U.S. in the second year. Oh, Q guidance, yeah, we had really terrific feedback because it's an incredibly fast, internally developed camera, much faster, and what you see the competition using it also actually provides suggestions about which screws to use and so that's very novel as well and that will be the camera that will be ported to Mako for the future and it really simplifies the workflow very very positive feedback that contributed to the strong enabling technology performance so we had a number of very good sales of the cue guidance system in Q3 and that's picking up into Q4. So far so good on that launch. Obviously we still want to get to Mako and we also have another project called Co-Pilot. That's kind of an internal code name which is really around drills and providing some haptic feedback which we were able to show some of the surgeons at NASS to great feedback because that doesn't exist in the market today. So we have a pretty comprehensive portfolio in enabling technology for spine. It's going to take some time. to bring these additional products to the market, but Q-Guidance was very well received, especially because of the speed and efficiency that we offer without requiring them to change their workflow.
spk18: Great. Thank you.
spk20: Thank you. Our next question comes from Steven Lichtman with Oppenheimer.
spk21: Your line is now open.
spk04: Thank you. Hi, guys. A couple of follow-ups. Jason in Capital, we talked a lot this evening about supply, but in the prepared remarks, you talked about installation delays due to variability in the hospital environment and scheduling challenges. Can you provide a little more color of what you're seeing specifically when you talk about that and that variability and were those comments related to both traditional medical and MAKO? And then I just have a quick one for Glenn.
spk05: Yeah, I'd say a couple different things just as you think about that and think about capital. Obviously, our larger capital is beyond MAKO, right? But what we're seeing is, you know, sometimes I think when we talk about staffing challenges, people go right to nurses and some of those things. But really what we're talking about here is even like if you think about our comm business, you'll have scheduled installations, people show up to do an install, they'll get canceled, they'll have to come back. That's the variability that I'm referring to that, you know, sometimes delays installs and ultimately revenue and gets pushed out. Glenn, in terms of second piece?
spk04: Yeah, so Glenn, just my, the follow-up for Glenn, you know, just one variable for next year I wanted to ask you about is FX. So, I mean, based on where rates are today, I mean, you talked about some of the qualitatively about the impact next year, but would the impact next year versus this be about the same as what you're seeing this year versus last based on where rates are sitting today?
spk14: Yeah, I think, you know, without doing the math or having any other basis in next year, if I just look at rates, it's, yeah, roughly going to be the same. Yeah, we'll be more precise in January, but that's a pretty good starting point.
spk04: Okay. Thanks, guys.
spk10: thank you our next question comes from ryan zimmerman with btig your line is now open hey guys thanks for taking the questions and happy halloween uh just a couple for me um kevin you know we're a few years past uh the k2 acquisition and you know given where the performance has been you know these past few years i want to get your assessment of kind of the spine business and how you feel that's come together. And that dovetails into my next question, which is just Vocera having some disruptions, you know, what did you learn from the disruptions in K2 and kind of what are you expecting from the disruption you have in Vocera and how you maybe, you know, improve upon what you went through with K2 in terms of disruptions with Vocera? Thanks.
spk23: Yeah, so let me first say that Vocera disruption is very different than K2M disruption. K2M is an overlap deal where you have the same sales rep selling the same kinds of products. That's the hardest kind of deal to integrate. Frankly, we learned a lot from K2M that we then put into our right medical integration, which has gone extremely well. That's more analogous, where the foot and ankle, as an example, or upper extremities, you have overlapping reps. Well, Sarah's not an overlap deal. So that one is going to be a lot easier. to get through. We did the same thing with physio control. If you remember, we merged the emergency care, our powered costs for the ambulances with defibrillators, and we merged that sales force. And we had some disruption in the first year, but we got through pretty fast. And then we got into a torrid double-digit kind of growth trajectory thereafter. So Bosera, we'll have a little bit of disruption. It's not just because of the sales force, but also because we'd like to move more of the business to the cloud, which will be better for us and better for our customers. long-term versus being on premise and so we we don't mind taking a little bit of pain in the for the next quarter or two but thereafter you should expect that to be able to sing it's a lot easier from an integration standpoint this is just running the striker offense without having to have reps competing as I think about spine it's obviously the most competitive mark we play in it's a very tough market k2m was not a very expensive acquisition compared to alternatives that we looked at at the time It's been an okay deal. It hasn't been one of our best deals, but it solved a problem for us where we would have, frankly, been growing below market rates had we not done the deal. We were able to kind of hang on to be able to grow around market rates with some good innovation. And now that we've got our enabling technology roadmap, I'm actually pretty excited about Spine in the future. It's going to continue to be a bit of a dogfight through sort of the end of next year, but going into 2024, already with Q Guidance, we've have a bit of a spring in our step, a new expandable distribution deal with Lifespine. So we're starting to feel a little bit of momentum, our Monterey new launch as well. So we're starting to feel a bit of momentum, but not having a robot is a problem. We do have this project with Mako that will help solve that problem. And we are committed to Spine long-term, but clearly it is the most challenging market of all. But certainly, for me, Vosera will have probably roughly flat sales growth year over year. for Q4, Q1, and then you should expect Bosera to start to Zoom after that.
spk10: That's very helpful. And then if I could just squeeze one more in real quick. In terms of delivery, you talked about some of the capital cycle and the dynamics with the supply chain. If you were to order a product today from you guys and upon receipt it takes maybe 90 days under normal circumstances, You know, just help us understand some of these orders that are pulling through or extending beyond, you know, the quarter. I mean, I don't know if you guys, Glenn, want to quantify this, but is it, you know, 20 days now because of the delays? 110 days total, I mean. Is it, you know, a few months after? Just as we think about kind of the extension of the order book, which still continues to be strong, you know, what does it mean quantitatively in terms of order to delivery?
spk05: Ryan, it's Jason. I'll jump in here. And what I would say is, first off, I'd point you back to my prepared remarks in terms of this being a moderate tailwind for some time, right? In terms of, you know, how much longer is the delivery cycle, candidly, it's going to vary by product cycle, right, or the type of product that it is. And so, you know, we're certainly not going to quantify in terms of the impact there, but it certainly does vary.
spk20: Thank you. Our next question comes from Matt Taylor with Jefferies.
spk21: Your line is now open.
spk09: Thank you. Hi, guys. Thanks for taking the question. I'll just ask a follow-up on that theme, I guess. I was really interested in your comments about kind of the procedural backlog and perhaps taking some time to burn off in addition to your order book. So the way I'll tee that up is just to ask, you know, A, Are there areas of your portfolio where you see greater or lesser backlogs to help us think about how those things could come back over time? And I guess, what are you looking at to predict that you could actually see this procedural runoff take more than 2023 and into 2024?
spk23: Yeah, I think hip and knees are the areas where I think it's not just a striker thing. I think the market will be more robust. And certainly, you can talk to our competitors and I think they would share that osteoarthritis doesn't improve itself. These patients are going to need these procedures. Aging population and demographics play in our favor. And I think you're going to see that tailwind. I just don't think it's going to be surgeons aren't going to be operating on weekends and their staff's not available to have a big spike and then kind of a return to normal. That's why I think it'll be a gradual tailwind for multiple quarters. But that's the business I think you're going to see. that kind of sustained positive momentum on the surgery volumes.
spk09: All right, great. I'll leave it there. Thank you so much.
spk18: Thank you. Moderator?
spk20: Oh, I do apologize.
spk21: Thank you, Matt Taylor. Your line is now closed. The next question comes from Richard Newiter with Truist. Your line is now open.
spk12: Hi, thanks for taking the question. This is Sam on for the team. I'll just ask both of ours up front. On SG&A, call it 100-ish basis points improvement in 2Q, 3Q here, should we think about that being sustainable into 4Q and then with the restructuring, is there room for that to continue to improve into 23? And then similar question on R&D. I mean, should we think about that 7% level being right for the full year, and how should we think about that directionally into 23? Thanks.
spk14: Yes, Sam. This is Glenn. You know, on SG&A, I think generally, you know, the only thing that really becomes significantly variable is just sales commissions that flows through there. So in terms of the kind of procedures and controls that we put in place relative to discretionary cost control, we should see that continue into Q4. And so that's probably a pretty good proxy. And then on R&D, we've been hovering at that level, honestly, for several quarters. And so the only variability might be that sales are a little larger in Q4, which might actually make the percentage go down a little bit in R&D. But I do think that that run rate is a good approximate. For the full year? For the full year.
spk12: Is that on a dollar basis?
spk23: On a percentage basis. Percentage. I think 7% of sales roughly. That's a pretty good number for a full year. Keep in mind, Q4 is seasonally our strongest. So you are going to see much higher off margin than you've seen certainly the last two quarters in Q4.
spk20: Thank you.
spk21: Our next question comes from Jason Bedford with Raymond James. Your line is now open.
spk17: Hi, good evening. I'll just be quick here, realizing we're deep into the call. But just on China, when do you expect the VBP dynamics to subside or anniversary for you?
spk05: Jason, I'll take this one. So just as a reminder, right, China overall is less than 2% of our sales. And the sales that are exposed to VBP are actually less than 1%. So fairly immaterial. But relative to kind of the next impact, there will be an impact as we go into next year around NV. Obviously, we're not going to guide at this point, but you'll hear more about that as we get into next year.
spk17: Jason, does that start in 23, or will you see any impact here in the fourth quarter?
spk05: It'll start in 23. Again, we'll talk more about timing when we get closer, but it will be 23.
spk17: Okay, thank you.
spk20: Thank you.
spk21: Our next question comes from Jeff Johnson with Baird. Your line is now open.
spk00: Hey, guys. Good afternoon. Thanks for speaking to me. And just a quick follow-up, really just a clarification. Jason, in your prepared remarks, you talked about MAKO installs being delayed during the quarter. I think in a follow-up to Larry Beagleson's question, you talked about orders for MAKO being soft. Just was it orders? Was it the installs? And maybe a little more color just on what exactly happened in the third quarter and what the confidence is on it recovering in the fourth. Thanks.
spk05: Yeah, no, my comments were definitely specific to installs. You know, I may have made a comment relative to a strong order book, which is absolutely the case, and we do expect a strong fourth quarter.
spk18: Thank you.
spk20: Thank you.
spk21: There are no more questions waiting, so I'll pass the conference back over to Kevin Lobo for closing remarks.
spk23: Well, thank you all for joining our call. We look forward to sharing our fourth quarter and full year end 2022 results with you, as well as our 2023 guidance in January. Thank you.
spk20: That concludes today's call. Thank you for your participation. You may now disconnect your line.
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