Stryker Corporation

Welcome to the second quarter 2024 Striker earnings call. My name is Luke, 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'll conduct a question-and-answer session. This conference is being recorded for replay purposes. Before we begin, I'd like to remind you that discussions during this conference call will include forward-looking statements. Factors that could cause actual results to differ materially are discussed in the company's most recent filings with the SEC. Also, the discussions will include certain non-GAAP financial measures. Reconciliation to the most directly comparable GAAP financial measures can be found in today's press release as an exhibit to Stryker's current report on Form 8K filed today with the SEC. I now turn over the call to Mr. Kevin Lobo, Chair and Chief Executive Officer. You may proceed, sir.

Welcome to Stryker's second quarter earnings call. Joining me today are Glenn Bainline, Stryker's CFO, and Jason Beach, Vice President of Finance and Investor Relations. For today's call, I'll provide opening comments, followed by Jason with the trends we saw during the quarter and some product updates. Glenn will then provide additional details regarding our quarterly results before opening the call to Q&A. In the second quarter, we delivered strong organic growth sales of 9% against last year's nearly 12% comparable. Our performance included high single-digit growth across both med-surgeon neurotechnology and orthopedics and spine. This broad performance reflects our diverse business model, sustained demand for our products, and our team's strong commercial execution. Our organic growth was well-balanced between the U.S. and international, with both growing roughly 9%. Our strong results were led by double-digit organic growth in instruments, neurocranial and Mako, and high single-digit growth in our medical, endoscopy, neurovascular, trauma and extremities, and knee businesses. Internationally, our organic sales growth accelerated from the first quarter, with strength in Europe, emerging markets, Australia and New Zealand, and Japan. As we expand our global share, we continue to see international markets as a key catalyst for our long-term growth. On the M&A front, we continue to execute on our offense. In July, we completed the acquisition of Ardalan, which specializes in innovative soft tissue fixation products for foot and ankle and sports medicine procedures. Also yesterday, we closed our acquisition of Molly Surgical. Molly offers wire-free soft tissue localization technology that allows surgeons to precisely mark the location of lesions for removal during breast cancer surgeries. Molly's differentiated technology enhances our endoscopy portfolio. We remain bullish about our deal pipeline, and we expect continued activity as we move into the back half of the year. We delivered quarterly adjusted ETS of $2.81, reflecting 10.6% growth compared to the second quarter of 2023. This performance was primarily driven by the strength of our sales, as well as continued expansion of our margins. Finally, we are raising our expectations for 2024 and now anticipate full-year organic sales growth of 9% to 10% and adjusted earnings per share of $11.90 to $12.10. Coming off full-year organic sales growth of 11.5% in 2023, our updated guidance reflects the strength of our capital backlog, innovative product portfolio, healthy procedure volumes, and passionate commercial execution across the globe. I will now turn the call over to Jason.

Thanks, Kevin. My comments today will focus on providing an update on the current environment, capital demand, and select product highlights. Procedural volumes remained robust in the second quarter, driven by strong fundamentals, increased adoption of robotic-assisted surgery, and healthy patient activities with surgeons. We continue to expect strength in procedural demand as we move into the second half of the year. Demand for our capital products also remained healthy in the quarter with continued elevated backlog across our endoscopy and medical divisions. Continued patient interest in MAKO contributed to our best ever second quarter for installations worldwide and in the U.S. with high utilization rates across the globe. Also in the quarter, we reached over 1 million robotic total knee procedures performed to date with MAKO and Triathlon. We expect the growing momentum in installations and utilization will continue to drive sustained growth in our hips and knees businesses. Our recent product introductions highlight our commitment to innovation and the durability of our innovation cycle. Pangea's comprehensive plating system complements our market-leading nailing portfolio and will enable sustained above-market growth in our core trauma business. We expect Pangea availability to continue to ramp and reach full launch in the U.S. by the second half of 2025. Next, our LifePak 35 defibrillator and monitor continues to drive significant excitement in the marketplace. This flagship product within our emergency care business unit was launched near the end of the second quarter with a strong order book, and we believe it will have a multi-year benefit to our medical division. Lastly, we announced this morning that we received FDA clearance for our Spine Guidance 5 software featuring CoPilot, which introduces smart powered instruments to our cue guidance ecosystem. This innovative technology is designed to support surgeon precision by providing auditory and sensory alerts when approaching anatomical boundaries during spinal procedures and enhance patient safety and outcomes. Co-Pilot is an important step on our development pipeline, which also includes MAKO Spine. MAKO Spine with Co-Pilot is on track to launch in Q4, and MAKO Shoulder is on track to launch at the end of the year. With that, I will now turn the call over to Glenn.

Glenn Goulden Thanks, Jason. Today, I will focus my comments on our second 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% in the second quarter compared to 11.9% in the same quarter of 2023. Average selling days are in line with 2023. We had a 1.1% favorable impact from pricing. We continue to see positive trends in our pricing initiatives, particularly in our med-surg and neurotech businesses, all of which contributed positive pricing for the quarter. Foreign currency had a 0.9% unfavorable impact on sales. In the U.S., organic sales growth was 9%. International organic sales growth was 8.9%, driven by positive sales momentum across most of our international markets. Our adjusted EPS of $2.81 in the quarter was up 10.6% from 2023, driven by higher sales and partially offset by foreign currency exchange translation, which had an unfavorable impact of 3 cents. Now we'll provide some highlights around our quarterly segment performance. In the quarter, med-surg and neurotechnology had constant currency sales growth of 9.8% and organic sales growth of 9.7%, which included 10.1% of U.S. organic growth and 8.2% of international organic growth. Instruments had U.S. organic sales growth of 11.9%, led by strong double-digit growth in the surgical technologies business, From a product perspective, sales growth was led by power tools, waste management, smoke evacuation, and Sterishield. Endoscopy had U.S. organic sales growth of 8% with strong growth in its core endoscopy business and its sports medicine business. This growth was led by the continued success of the 1788 platform and sports medicine shoulder and knee products. This was somewhat offset by slower communication sales, due to the timing of installations, which will recover in the second half of this year. Medical had U.S. organic sales growth of 11.9 percent, driven by strong sales performances in its emergency care and sage businesses, with growth in transport capital, defibrillators, and sage products. Neurovascular had U.S. organic sales growth of 2.3 percent, which reflects some U.S. supply disruption related to flow diversion products. And finally, neurocranial had U.S. organic sales growth of 10.6%, led by double-digit growth in our bone mill, bipolar forceps, and cranial maxillofacial products. Internationally, med-surgeon neurotechnology had organic sales growth of 8.2%, led by double-digit organic growth in our instruments, neurovascular, and neurocranial businesses. Geographically, this included strong performances in China, Australia, and Japan. Orthopedics and spine had constant currency sales growth of 8.9% and organic sales growth of 8%, which included organic growth of 7.3% in the U.S. and 9.8% internationally. Our U.S. knee business grew 6.6% organically, reflecting our market-leading position in robotic-assisted knee procedures and the continued strength of our installed MAKO base. Our U.S. hip business grew 4.3% organically, fueled by our insignia hip stones. Our U.S. trauma and extremities business grew 9.1 percent organically with strong performances across our upper extremities, biologics, and core trauma businesses. Our U.S. spine business grew 4.4 percent organically, led by the performance in our interventional spine business. Our U.S. other ortho business grew 15.4% organically, particularly driven by robust, continued momentum of MAKO installations. Internationally, orthopedics and spine grew 9.8% organically, including strong performances in Canada, Europe, and most emerging markets. Now I will focus on operating highlights in the second quarter. Our adjusted gross margin of 64.2% represents approximately 30 basis points of favorability against the second quarter of 2023 and 60 basis points sequentially as compared to the first quarter of this year. This favorability primarily reflects positive pricing trends and improved material costs and manufacturing efficiencies. Adjusted R&D spending was 6.5 percent of sales, which was approximately 10 basis points higher than the second quarter of 2023. Our adjusted SG&A was 33.1 percent of sales, which was consistent with the second quarter of 2023. In summary for the quarter, our adjusted operating margin was 24.6 percent of sales, which was approximately 30 basis points favorable to the second quarter of 2023. Net adjusted other income and expense of 54 million for the quarter was 12 million lower than 2023, driven by favorable interest income in our invested cash balances. The second quarter of 2024 had an adjusted effective tax rate of 15.2%, reflecting the impact of geographic mix and certain discrete items. For 2024, we still expect our full year effective tax rate to be in the range of 14 to 15%. Focusing on the balance sheet, we ended the second quarter with approximately $2 billion of cash from marketable securities and total debt of approximately $12.2 billion. During the quarter, we repaid $600 million of debt that came due in May. Turning to cash flow, our year-to-date cash from operations is $837 million, reflecting the results of net earnings somewhat offset by working capital changes. Based on our year-to-date performance and our positive outlook related to sustained procedural volumes and a healthy demand for our capital products, we now expect full-year 2024 organic sales growth to be in the range of 9% to 10%, with favorable pricing impacting of approximately 0.5%. If foreign exchange rates hold near current levels, we anticipate a moderately unfavorable impact on the full-year sales, and now expect EPS will be negatively impacted in the range of 10 to 15 cents. This is reflected in our guidance. Given our sales momentum, we now expect adjusted net earnings for diluted share to be in the range of $11.90 to $12.10 per share. And now we'll open the call up for questions.

At this time, we'll open the floor for questions. If you'd like to ask a question, please press star five on your telephone keypad. You may remove yourself at any time by pressing star five again. Please limit to one question and one follow-up. We'll pause for just a moment. Okay, our first question will come from Larry Beagleson with Wells Fargo Securities. Your line is now open. Please go ahead.

Good afternoon. Thanks for taking the question, and congrats on a nice quarter here. So, Kevin, you know, it's hard to not notice the quote in the press release about you're being excited about the product and M&A pipeline. So I'd love to hear your updated thoughts on M&A in 2024. You know, you've talked about smaller deals in the first half and potentially larger deals in the second half. Is there any change to your view, and how should we think about the impact of larger deals on the margin targets you have for 2024 and 2025? And I had one follow-up.

Yes, listen, we're still committed to our margin targets of 200 basis points, roughly 100 basis points this year, another 100 basis points next year. And that is inclusive of M&A. We do have a very active deal pipeline. Most of them are in the tuck-in variety. and most of them are not very large, but you continue to see us be active, as you've seen in the first two quarters of the year, much more active than we were last year, and we will be very active in the second half of the year. It's always hard to predict exactly which deals will land, as you know, but we have a very strong balance sheet now, given the debt that we paid down after Wright and Beaucera, and we're going to put our balance sheet to work.

That's helpful. And, Glenn, in order to hit the margin goal for this year, it requires a pretty big step up in the margins in the second half. What are the drivers? Is it gross margin or op-ex? And, you know, what's your visibility? Thank you.

Yeah, Larry, really good question. You know, I think if you looked at our performance historically, you would always see that op-margin leverage in the second half of the year just really, really takes off. And so I don't think this year is really going to be different from performances in past years. I would tell you that we're seeing, like you saw here in the first half of this year, kind of a good balance, honestly, between gross margin and SG&A. I think moving forward in the back half of the year, just given sort of how we spend in SG&A, our variable comp models, we'll probably see more leverage come out of SG&A than gross margin in the back half of the year. And we're very bullish on, like Kevin said, still holding to our basis points of out margin expansion for this year.

Robert Hopkinson Thank you.

Our next question will come from the line of Robbie Marcus with JPMorgan. Your line is not open. Please go ahead.

Robbie Marcus Oh, great. Thanks for taking the questions. Two for me. I'll just ask them up front. Kevin, you guys don't guide quarter to quarter. And, you know, I saw you during the quarter. I know you've made a bunch of public comments. And the quarter came just in line versus the street again. You don't guide quarterly. I understand that. But you did raise guidance for the year. So I was hoping you can reconcile, you know, in line versus the street 2Q with the confidence to raise the guide both on the top and bottom. And then the second question, I imagine part of that is also the – you know, what you're seeing and the visibility you have into the capital equipment and procedure volume complex. Just maybe you could touch on that as well. Thanks a lot.

Yeah, sure. Thanks, Robbie. And thanks for remembering that we don't guide to quarters. We were actually very pleased with the way the quarter played out. We can kind of see our seasonality and how things are going to flow from quarter to quarter. We had a big Q2 last year, big comp quarter. If you look at the back half of the year, we're very bullish on capital. We have a big backlog, particularly in endoscopy and in medical. We're also seeing very strong demand. As you've seen, quarter after quarter, our MAKO installations are very high. That leads to future strong demand for hips and knees, and July is off to a really strong start in joint replacement. We've also been able to achieve more price than we thought at the beginning of the year, and we expect that that Price tailwind will continue into the back half of the year. And lastly, I'd say the new products, the two big products we've talked about, Pangea and LifePak 35, are both receiving tremendous positive feedback and really both had very negligible impact in Q2, but you're going to see those in a big way in Q3, Q4 and into next year. So a lot of tailwinds that are going to push our growth up in Q3. Certainly in Q3 is going to be a big one and also in Q4. So we're very confident of raising the guide. Love the fact that we have 10% at the high end of our growth coming off a year of 11 and a half last year and 9.7 the year before. So we are growing off big numbers and we're feeling very good about the top point.

Appreciate it. Thanks a lot. Our next question comes from the line of Ryan Zimmerman with BTIG. Your line is now open. Please go ahead.

Thanks for taking the questions and congrats on the nice quarter here. I want to kind of dovetail on Robbie's question a little bit and appreciate that there's some product drivers in the back half of the year, Kevin. There's some easier comps. Can you just comment maybe on seasonal dynamics a little bit and expectations around the health of the orthopedic market the ability to see kind of that sustained growth rate through the back half of the year and then potentially into 2025. And then I have one question for Glenn on pricing.

Yeah, listen, we're not changing our story on the market. So we've been saying for many quarters now that we see the hip and knee market as kind of a mid-single-digit market, and our ability to outpace that market largely on the backs of Mako as well as Insignia for hips. But that's the same story we've been telling, and frankly, we're seeing that. And we're seeing that in July as we've talked to surgeons and see their surgery schedules. We see a healthy... and sustained good market for hips and knees elevated from pre-pandemic and something that we see through the end of this year and potentially into next year.

Very helpful. And then just the second question for me around pricing, Glenn, I mean, it's really nice to see, you know, the tailwind that you're getting from pricing. If you think about pricing as an opportunity, I mean, do you see an upper bound on pricing where, you know, you can't go beyond that? I mean, how long can you sustainably push pricing as you think about both this year and then potentially into 2025?

Yeah, maybe I'll limit my comments really just to 2024. So, I would tell you that, you know, if you just look at our pricing teams and what they've accomplished, you know, first of all, we've seen really great positive outcome on the MS&T side and related to the MS&T products. And I would tell you that if you think about their product cycle and how they introduce new innovations, we'll constantly gain price on those innovations. I would tell you that on the ortho side, I'm equally pleased. We're addressing this in contracts as they come up. And frankly, we're less negative. We are just less negative than we used to be on ortho, which honestly is a win. I would tell you that This carries over not just to the people at our enterprise level that are working on this, but it's down in the field with our salespeople. So, you know, the divisions have put in various programs that drive certain incentives related to positive pricing or improvements in margins. And so, you know, my money is on our sales force in terms of keeping this going. That's what I would say. I would tell you that, you know, if you just look at our performance year to date in Q1, 0.7%, 1.1 in Q2, you know, in the back half of the year, we're going to see some anniversary of products and contracts. And so there may be a little bit of moderation, but I do think that, you know, to Kevin's point, there's a lot of newer products that are going to be out there that are going to drive price that maybe isn't necessarily captured in here. But I'm bullish on it. I think we'll continue to see really good price performance this year. And I'll hold my comments till we guide 2025.

Thank you. Our next question will come from Joanne Winch with Citibank. Your line is now open. Please go ahead.

Thank you very much. And very nice quarter. I'm trying to figure out where to go here because there's so much. I'm going to pause on Mako. It sounds like when I look at my notes, the fourth quarter, 23 was record Mako. First quarter, 24 was record Mako. Second quarter, the same. What is going on that each quarter you're placing record Mako robots? Thank you.

Yeah, thanks. I'll take that question. So first of all, a big contributor is international, Joanne. We are really picking up the pace in international, particularly in countries like Japan, some of the emerging markets, India, and even Europe. So international is really where the U.S. was four or five years ago. That is a new, I would say, a new tailwind. Obviously, we were very well penetrated in Australia, but the rest of international has lagged. That is now coming on and coming on strong. And that on top of the U.S. organization that's really done a terrific job continuing to promote a Mako and the use of Mako. And every quarter, the percent of hips and knees on the robot is actually increasing. And the demand, as more offerings came on the market, people got a chance to look at that. And they're just, they clearly are preferring our technology. It's just, and we're winning in the marketplace. And people are putting in their fifth system and their sixth system and their seventh system. And so there are a lot of ORs that still don't have NACOs in them. And our teams are out there. out there hunting. So we're super excited. I think the software changes we made with the 4.0 software for hip, the 2.0 software for knee with functional alignment, these have been really sort of quiet successes that have fueled growth. And then, of course, we're going to add spine and then shoulder to Mako. So it's an engine that still has a lot of juice in the tank.

Just as a follow-up to that, with spine and shoulder coming on, How do you anticipate rolling those out? Are there software and hardware upgrades or just walk us through that? Thank you and have a great night.

Yes, thank you. Yes, in both cases, there are attachments. So it's the same robot that you can use, but there are attachments that would be specifically for spine as well as software. So it comes with both software and hardware, just as the knee application did when we launched the Total Knee back in 2017.

Our next question will come from Vijay Kumar with Evercore ISI. Your line is not open. Please go ahead.

Vijay? Hello, Vijay. We can't hear you.

We'll go to the next question. We'll go to Travis Deed with B of A Global Research. Your line is not open. Please go ahead.

Hey, thanks for taking the question. First, to start with, so Stryker typically, you know, your 9% to 10% growth this year is kind of well above the historical growth rate for Stryker. So a question I get a lot is how sustainable is this level of growth? And you kind of look at some of the growth drivers this year. You know, what are these drivers that's kind of sustainable next year? Anything getting better, getting worse, you know, over the next one to two years? Just kind of curious your confidence of kind of sustaining this kind of above normal Stryker growth rate going forward.

Yeah, let me start by two years ago, we grew 9.7% organically. Last year, we grew 11.5% organically. This year, we're growing 9 to 10% organically. So I think we are showing that we can sustain high growth over multiple years. If I think about next year, these two big flagship launches in trauma and in medical are really only going to take much more of an impact next year. They'll have some impact obviously in the back half, but a bigger impact next year. Our camera launch is still gaining steam. Our Procurity Launch still has years ahead of it. Our Power Tool Launch still has plenty of opportunity. MACO is going to continue to expand as it has been, actually both internationally, which is a giant opportunity, as well as in the United States. Our international growth has been high single-digit, double-digit for the last few years. That's going to continue. We still have huge opportunities in international. And then as we get back to our M&A offense, Recall that we tend to buy fast-growing assets. That's part of our formula. And after one year, that then rolls into organic growth. So I'm bullish on the future of our ability to sustain high organic growth. If you think about this year, a lot of the organic growth is actually not M&A related. It's really product cycle, innovation cycle growth. And all of our innovation teams, as I travel around and meet our different divisions, they have tremendous innovation. Mako Spine hasn't had any impact yet, nor has Coal Pilot, nor has Mako Shoulders. So there is plenty of room for high growth in this company. And the expectations have changed. If you go back 10 years ago, we were growing 4%, 5%, 6% organically. And that has clearly changed. And there are new expectations. And we continue to split business units and split sales forces and play offense. And it's a formula that's working. And I don't see it slowing down anytime soon.

Super helpful. And another question I'm getting more lately is kind of your interest in soft tissue surgical robotics, if that's going to change at all or how you're thinking about that market. I know it's a market you guys have looked at. mostly for many years now?

Yes, look, it's an area that we like as a space. It's complicated. And there is room for more than one big player. If you think about all the types of procedures that are done that are not done robotically, but We're going to be cautious and careful about how we choose to enter. Fortunately for us, we're not defending any business in this case. This would be all playing offense if we decide to move into that space. So we do like it. There are a lot of startups, as you know, that are in the space. We've looked at many. We haven't pulled the trigger. I'm not going to predict if we will or if we won't. We don't need to get into it, but it's an attractive space. And there are still a very small fraction of of general surgery procedures that are done robotically. And so there is that opportunity. We're going to continue to explore it, but we explore multiple adjacencies. That's not the only one that we like. And I can't predict which one we're going to enter first or second or third.

Great. Thanks a lot, Kevin. Our next question will come from the line of Matthew O'Brien with Piper Sandler. Your line is now open. Please go ahead.

Thanks for taking that question. Maybe just to start with Glenn, as I look at the stock, it's down about 5% in the aftermarkets, and I think it's related to this margin concern that Larry surfaced in the back half. If I go back several years for Stryker, you put up this type of growth in operating margins in the back half of the year, but typically off of easy comps, you have tougher comps this time around. So can you be a little more specific in terms of where you can see some of these improvements on the margin side, especially in SG&A, and then how do you do that without potentially impacting strength areas on the top line and impacting the top line the next year or even in 26?

Sure. I think, you know, first of all, a couple of things. If you look at sort of getting margin out of sort of gross profit or getting margin out of SG&A, I mean, a lot of the drivers are honestly in our control. You look at hiring, that's completely in our control. You look at, you know, travel and meetings, completely in our control. And so a lot of these just come down to, say, good budgeting, let's say, in terms of how we plan it and how we know that we have the confidence that we're going to be able to drive that margin. You know, the other thing is, is if we look at sort of when we grow with these sort of lofty rates across a lot of our businesses, you know, those are growing off of leverage that will drive in our business. So we won't be spending at a comparable level. And, you know, if you look at Q4's time in and time out, that honestly has been what's happening. We also have a lot of exciting things that are going on. And, you know, if you look at sort of what we're doing in supply chain and changes that we're making there in terms of, you know, working with vendors, working down some of those inflation charges that we took over the last two years. We also look at, you know, low-cost manufacturing. We have facilities now in Poland and also in Mexico where we're sourcing product in those. And then lastly, sort of back into operating expenses, you know, we continue to push more and more of sort of that day-to-day transactional work into these shared service centers, which are at a third of the cost of what we see in sort of our developed areas, U.S. and Europe primarily. So honestly, I think we have a very good pathway to deliver that 100 basis points. And we wouldn't have talked about it so loudly if we weren't confident that we did have a plan that is going to get us there.

Got it. I appreciate that. And then just across the portfolio, everything's doing well, you know, with a couple of modest exceptions. I mean, neurovascular is doing pretty well. I think there's a little hiccup in the quarter. And I don't, Kevin, I didn't really hear you talk about lower extremities. So you've got these new products, Tangier, LifePak, you know, tons of runway there. Are there things coming down the pike on the organic side in those categories that we should maybe start thinking about? I know you don't like to show your cards too early, but, you know, are there things coming down the pike there that can help those big markets or do you need to go inorganic to be more successful there? Thanks.

Hey, Matt, this is Jason. I'll start with maybe make a quick comment on neurovascular, and then I'll turn it over to Kevin for foot and ankle. But, you know, to your point on neurovascular, I'll tell you, globally, you know, we were pleased with the business overall. You know, I think Glenn made a comment in the prepared remarks around a little bit of a supply hiccup, I'll say, as it relates to business in the U.S. July is actually off to a really nice start, so we feel much better about that. I think you also know that You know, the ischemic business, specifically in the U.S., continues to be quite competitive. We are making adjustments in the sales force to address that and better serve our customers, but overall still feel good about the market.

Yeah, and as you talk about foot and ankle, if you recall, since we did the right medical acquisition, foot and ankle has been a really good grower for us, growing kind of high single digits, low double digits. I would tell you this year, the foot and ankle market has been softer. You saw that in the first quarter, not just with us, but with the standalone foot and ankle companies. That continued in the second quarter where we're seeing the market being softer than we have seen in the past. So the big trauma number that we put up was really driven by upper extremities, which continues to be a freight train of growth. And now core trauma, which had a fabulous second quarter. But in foot and ankle, it's not that we need any kind of inorganic products. We have great product pipeline that's organic. including Footprint, which is pre-planning software for total ankle replacement. And we launched a number of products for forefoot procedures at the end of last year and into this year. So it's really more about the market. The market's gone a bit quiet. This has happened in the past in foot and ankle. We've been in the business a long time where you've had a quarter or two where the market slows down. The patients haven't gone anywhere. They'll come back. And so it is kind of a little bit more semi-elective. So we're going to watch the market closely. We'll give you an update next quarter on that. But overall, the trauma and extremities business is a terrific business for our company. And we have a slight slowdown in the foot and ankle area now for two quarters. But the overall growth of the business is still terrific.

Thank you. Our next question will come from the line of Shagun Singh. With RPC, your line is now open. Please go ahead.

Great. Thank you so much. So, Kevin, you have a new robotic platform in the U.S. market with OR integration capabilities. I was just wondering, you know, what are you seeing or hearing in the market currently? You know, what impact do you expect it to have? And, you know, I guess more importantly, I'm just trying to understand, you know, what efforts you have in place to better drive OR integration with your products longer term. And then I have a follow-up.

Yeah, listen, if you look at our portfolio, the new entrants that we're seeing, whether it's our integration, whether it's new robots, we're really not seeing it having much of an impact at all on our business. We have great technology that's meeting the needs of what our customers want. And if you can see the type of growth we continue to post and the guidance that we're providing of what we see for future growth, we're not really concerned about what we're seeing. We like our chances. We believe we're on the right path with our technologies. There really isn't anything out there, at least right now, that is a cause for major concern for us to maintain our strong and high growth organic profile.

Got it. And I just wanted to get your thoughts on one of the adjacencies you previously called out that is of interest to you, which is neuromodulation. And you said including sleep apnea as an adjacency. So could you just share your thoughts there? And is that something that makes sense for you to have in-house given the ENT call point? Thank you for taking the question.

Yeah, this kind of relates back to the soft tissue question, right, which is do we need to be in this phase? No, we don't need to be in neuromodulation. There are a lot of electrical treatments that I think are fascinating, whether it's deep brain stem, peripheral nerve stem, spinal cord stem, and obviously related to sleep apnea. So I do believe that's going to be part of the future. I do believe Stryker one day will be in the neuromodulation space. I really can't predict where we'll enter first. and how we'll grow from there. But it is a place that's appealing to us. But again, we have to make sure that we can win in the market. If we're going to spend money and buy a company, that we can deliver strong value for our investors with those acquisitions. And so we're going to be careful and thoughtful like we always are. But that is a space that continues to be of interest. And stay tuned.

Thank you.

Our next question will come from Matt Mixick with Barclays. Your line is now open. Please go ahead.

Hey, great. Thanks so much for taking the question. So first, congrats, obviously. And I, Kevin, love the bullish posture on sort of sustainability of growth in some of your end markets like orthopedics. And I think the perception was maybe the first quarter, maybe the first half, wasn't as strong as folks maybe came into the year thinking. And, I mean, when you talk about mid-single digits, you know, is it as simple as saying, you know, look at last year's comps and you start seeing that, you know, mid-single digit number play out? Or what gives you the confidence that, whether it's backlog or something else, that you're going to be able to sustain this, as you said, like into sometime early next year and it won't follow up?

Yeah, it's really our insight in the market, right? Talking to surgeons, looking at their surgery schedules and seeing how far they're booked out. That is a very... good indicator for us. And over the years, we've built sort of our internal models that can kind of project that. Now, it's hard to go out past six, seven, eight, nine months. Then it gets a little murkier. But we have a pretty good visibility. And right now, we see the market as robust and healthy. And of course, we love our position. And as you've seen, the demand for Mako would not be this strong if you didn't have surgeons that are really excited about doing all of these procedures. And I think I mentioned earlier, July is off to a very strong start. And so that's, it's obviously only one month, but strong month of volume. And then looking at the surgery schedules that we survey and talk to surgeons and actually gather data on, we're feeling bullish about the market.

That's super helpful. And on a great point on Mago and, and, Thinking internationally, your comments on MAKO and the fact that you're starting to get traction, you're starting to, I guess it sounds like, you know, taking shape maybe the same way in intermediate years of MAKO launching in the U.S. If you could talk about other areas of strength internationally, because it was sort of a notable lift in some of your core markets. Is there a pull-through effect? Any other drivers you can see that might be sustainable there on the international side? And thanks so much for taking the question.

Yeah, great question there on international. What we're seeing, Matt, is there are two tips of the spear in international. One is Mako and the other is our cameras, the 1788. So whenever we sell cameras and towers and when we sell Mako, it does create a pull through of other striker business. And we're seeing that in multiple countries. And Mako took a little longer to move, but now it's really starting to take off. And because our market shares are actually a little bit lower internationally, As we get Makos placed, more of that business actually is coming from competitive accounts than they were in the United States. But those we've discovered that those are the two really important platforms. And as we sell more cameras and as we sell more Makos, it lifts the entire Striker portfolio. And so we're laser focused on those two businesses as the tips of the spear. But we've also really done a good job. It took us a while, as you know. to really get great leadership and better connection between our divisions and international getting international financials into the bonus plans of our U.S. division leaders. It's been a series of, I'll call them small steps, that have really made us a much more global company. And so we've had, I think, five years now in a row where international growth has been at or above the U.S. growth. I know the first half of the year international is a little bit behind, but we expect international to accelerate in the second half of the year and will be at or above the U.S., for the full year once again. And that should continue for another many five, 10 years, just to make up for lost time as we gain the same kind of market shares that we enjoy in the US and many other countries around the world.

Thanks so much.

Our next question will come from Steve Lichman with Oppenheimer. Your line is now open. Please go ahead.

Thank you. Evening, guys. Kevin, I wanted to ask you about China. Some mixed commentary during the quarter so far. You mentioned it as a positive. Can you talk about the environment overall from where you guys sit from a macro perspective and just an operating environment perspective?

Yeah, Steve, it's Jason. I'll take a swing at this, and Kevin can jump in if you want anything additional. But I would tell you, as you think about China in the quarter, good growth for us in China. I would say less impact from VBP than maybe we originally anticipated. So I think from a VBP standpoint, that environment is starting to stabilize and turning to growth for us.

Yeah, and just as a reminder, it's a pretty small portion of Stryker's overall business. And just sort of keep that in mind. When you see the growth rates, they can be a little bit more volatile, both positive and negative. Just given that it's small, the base is very small for us. Look, it's an important market with a large population. We're not going to sort of move away from China. But it's been a challenge the last couple of years, and I think the worst is over. And now hopefully we'll get into a more sustained positive profile like we saw last quarter.

Appreciate it. And then just a follow-up on free cash flow. So, you know, it's trailed a bit here, first half of this year versus last. You mentioned, you know, some working capital movement. Any thoughts you could provide on sort of full-year free cash flow outlook or, you know, improvements on that working capital moving parts that you talked about?

Sure. I think, you know, You know, first of all, we still have that target out there, 70, 80% free cash flow conversion. We don't think any differently about that given our performance year to date this year. I think kind of what you're seeing, you know, in the first half of this year are some working capital differences year over year from last year. Some of those having to do with, you know, we picked back up M&A, so we're seeing a little bit more of integration flow through. We also are seeing, you know, Inventory changes just related to higher sales. That naturally happens. Same thing with account receivable. And then lastly, you know, we have timing of some transition tax payments that fell into this first half of the year that are, say, larger payments than what we normally would expect. And so that also impacted our cash flow in the first half of this year. For the back half of this year, you know, I feel like we'll see – You know, we'll see what we normally see seasonally, a lot of pickup in our free cash flow conversion in Q3 and then honestly on into Q4. And a lot of that has to do with just, you know, the flow of earnings is much higher in Q3, Q4. So that really impacts our cash flow performance. It also brings down inventory. And then we'll work to keep AR in line. So, you know, we'll still target between 70% and 80% free cash flow. And we haven't backed away from that.

Got it. Thanks, guys.

Our next question will come from BJ Kumar with Evercore SI. Your line is now open. Please go ahead.

Hi, guys. Thanks for taking my question. Apologies for the audio issues on our end. Kevin, maybe one on LP35. Maybe talk about the launch. I think in the past you had mentioned some capacity constraints. Did it contribute in 2Q? Are we at full launch mode right now?

Well, we've already started taking orders. Let me put it to you that way. And we have the ability to ramp production pretty fast. So this is not like a implant launch. Like if you think about Pangea, you have to make sets of implants. You have to make sets of instruments. This is an assembly operation. So we'll be able to scale this pretty quickly. And so I wouldn't look at this as being capacity constraint. The only constraint is obviously getting out there, having customers see it. putting it in their budgets, ordering it, and then our ability to meet the demand will be faster out of the gates with LP35 than we would be for any kind of an implant launch. So don't think about capacity as a major concern.

Understood. And maybe one on that guidance here. The overall organic dollar revenues, it seemed in line with the street, but guidance was raised. Just talk about, I think you mentioned about, you know, July being strong. Looks like there were some one-off items impacting in QQ. So talk about the visibility and confidence in the guide race for that calf.

Yeah, listen, we don't raise guidance without having pretty good confidence. And you saw we raised after Q1, we raised again after Q2. We have very good visibility into our capital, and we have a very significant backlog of capital, which we know we're going to ship. So that gives us a lot of confidence. And then how you feel about the procedures, and that's the other part of it. And again, we have pretty good visibility into the procedures. So at least for six months, we've tended to be pretty good at predicting six months. Predicting beyond six months, that's a little harder. But we feel very confident that we're going to deliver this raised guidance. And don't be afraid if we... we scare 10% again, that'll be the third year in a row of being, you know, hovering around that number or being above that number. And so we have a lot of headwinds. I think I enumerated those earlier in the call. And those tailwinds are really going to help us.

Understood.

Thanks, guys.

Our next question will come from Matt Taylor with Jefferies. Your line is now open. Please go ahead.

Hi, guys. Thanks for taking the question. I guess I wanted to follow on. I think it was Travis's question before asking about some of the growth drivers next year. You called out Pangea and the DFIB as being big incremental drivers. Could you help us think about the shape of those launches or the contributions in 2025? Any guideposts that you would give us in thinking about how they could roll in and contribute the opportunity sets? And I guess how long you view those as growth drivers in 25 and beyond?

Listen, they're both very significant contributors to future growth. I would say LP35 will be more rapid. So you'll see a pickup in the second half of this year, a big year next year, a big year the year after. But these products last a long time. And so some people who are buying these defibs will hold them for seven, eight years. So it'll have a long sort of tailwind, but it'll be spiky in the first sort of two years, two to three years, you'll see pretty meaningful growth out of LIHPAC 35. Pangea is a little different, so it won't be fully launched until the second half of next year. It takes multiple quarters to be able to build all of the instrument sets and the implant sets. And so it'll be, but these implant launches will last a long, long, long time. It'll be providing a more, let's say a little bit more moderate, but sustained and consistent tailwind to our core trauma business and makes us comprehensive with a fabulous nailing systems as well as plating. So we will be a... an absolute leader in the trauma and extremities business and, you know, super excited. But that doesn't also, it doesn't stop at those two products, right? You still have the Mako Spine coming, the Coal Pilot coming, the Mako Shoulder coming. 1788 is still, I mean, we're still getting new indications with new fluorophores to be able to light up cancer. We have that for lung, but we're going to get that for bladder and as well as ovarian cancer. That opens up new markets and new opportunities as well. So this new product cadence that we're in right now, these products are multi-year. They don't sort of just provide a small one-year benefit. And many of these products haven't yet been launched internationally. So we've launched these in the US and maybe in some markets, Europe, because of UMDR, These products we're going to be talking about as new products a year or two from now. They haven't even been launched, right? So that's going to provide that international tailwind for many years to come. So there's a lot to be excited about in terms of the product innovation cycle. We're hitting the mark. That's another reason for the raise, right? So you launch a new product. You see the customer feedback. You realize you have a winner. And Pangea is a winner, and LifePak 35 is a winner. And then you can lean forward. And we already know with the orders that are coming in already that these are going to be winners, and they're going to be multi-year winners.

Thanks, Kevin. Could I ask a follow-up on the margins? We talked a lot about the margins facing this year, Glenn, and the contributions in the second half. And I guess I was just wondering if you could make some high-level comments on how the shape of the margin progression would look in 2025. Do you think it's going to be similar where there's more expansion in the second half than the first half, or would it be different because of the progress you're making this year?

Hey, Matt, it's Jason. I'll jump in here. You know, as we think about 2025, obviously, we'll talk more about that in January. Certainly, you can expect us to deliver on the 100 basis point of op margin expansion next year. But in terms of how that shape will look, we'll give you more information when we get to January. All right. Thanks, Jason.

Our next question will come from the line of Josh Jennings with TD Cowan. Your line is not open. Please go ahead.

Hi, good evening. Thanks for taking the questions. Congratulations on organic revenue growth being raised quarter. We're looking for just some commentary, Kevin and team, just on the Inventory Surgical Center channel in the United States. Our understanding is that just the infrastructure, the number of ortho-ASCs are the bottleneck in terms of the pace of migration for total joints into that that setting. Anything you can share just in the first half in terms of infrastructure build-out, was it impacted by interest rates and any change in the outlook in this migration pace over the next couple of years for total joints? And then lastly, sorry for the three-part question, just the pricing commentary for the company, should we hold that for the AFC business as well? Or was there more pricing pressure or less pricing pressure or more pricing improvement or less pricing improvement in that ASC channel? Thanks for taking the question.

Okay. I hope I get all parts of this question in my answer. But let me start by saying that the pricing that we're seeing, ASC versus hospital, there really isn't any difference. Our pricing is very consistent across the different channels where we sell. So that's the first part. The second part is I'd say the ASC continues to be a positive trend that you're going to see, and it's not going to slow down anytime soon. Even with interest rates being high, hospitals are finding ways to get their ASCs built and constructed. And we've seen continued, I would call it, steady growth. This second quarter finished with the highest percent of knees and hips done in ambulatory surgery centers. We're not going to give the exact number. Perhaps at the end of the year, we'll give you the exact percentage. But it continues to climb. Our percent of hips and knees done in the ASC every quarter continues to move up. And that happened in the first quarter. It happened again in the second quarter. And if we look at our growth in ASCs, it is accretive to Stryker's overall growth. So we are growing at a high rate in ASCs. This trend, we believe, favors us given the breadth of our offering in orthopedic ASCs. And so we welcome this shift, and so far, so good.

Great. Thanks for that. And then just to follow up, you know, you've kind of given into Stryker's outlook for multiple ortho categories or segments, I was hoping you could do the same for the U.S. spine industry and just your outlook there, health of the market. And, you know, you've got Q Guidance and Copilot update of approval today. We're launching Mako Spine. Do you think Stryker Spine is kind of maintaining share? in the first half of 2024 and can gain share with these enabling technology ads, or is Strikers Fine gaining share currently in the US market? Thanks a lot.

Yeah, Josh, this is Jason. I'll take this one. I would say, you know, just as you think about specifically the second quarter, we'd say we have had a solid quarter in spine led by interventional spine. You know, as we think to the future, we've certainly talked about, you know, Copilot and Mako Spine and how that will help us in the spine market. And so really nothing additional to add there in terms of how we think about the future.

Appreciate it. Thanks. Our next question will come from the line of Danielle Antalti with UBS. Your line is now open. Please go ahead.

Hey, good afternoon, guys. Thanks so much for taking the question. Congrats on a really good quarter. Just a follow-up question on the ASC dynamic. Kevin, just curious about how you're seeing, if there's any difference you're seeing from a market share perspective in the ASC versus outside the ASC for both the robot and the hip and knee implant? And I ask this question because I think one of the advantages of Stryker is just the breadth of the product offering in the ASD. So just want to sanity check that with you.

Yes. Danielle, what I'd say is that if there is a big renovation or new construction, we do extremely well. So I don't want to speak on behalf of all ASCs, right? If it's already an ASC that's an orthopedic ASC and there's entrenched surgeons that are using competitive products, that's a little harder for us to displace, but if they're doing a big renovation or if they're doing new construction, we have a fantastic offense that wins at very, very high rates. And that's been one of the engines that's caused this tremendous growth for us in the ASC and why we continue to believe that that's the area where we're going to be laser focused, that's the area where we are winning today, and that's the area we're going to continue to win in the future. So it's not necessarily all ASCs. Definitely that segment. And there's new construction going on all the time.

Yeah, got it. Understood. Thank you so much for that. And then just to follow up on that, if we fast forward, so the shift has been happening over the last few years now. I mean, where do you think this settles out if you're talking about hips, knees, and extremities and percentage of procedures being done at the ASC versus in the hospital in, say, five years. Thanks so much.

Yeah, look, I don't have a crystal ball. It's going to go higher. This is an undeniable trend. Surgeons love it. They get a piece of the action in terms of their ownership interest. Patients love it because they don't have to worry about parking. It's close to their home. Everybody's happy. There are no sick people. So it's just good for the healthcare system. And so it's just going to continue to increase. What's the upper limit? I don't know. But I would tell you, I feel differently about this than I did five years ago. I thought it would grow. It is growing at a faster rate than I thought. We are even seeing, you know, total ankles done in ASCs, obviously shoulder replacements done in ASCs, even lumbar spine, which I didn't think, I thought cervical, sure, didn't think I'd see lumbar. So you're just gonna see more and more procedures being done. Now, obviously you're not gonna see revisions and very high acuity, scoliosis, those types of procedures, I think it's frankly exceeded our expectations internally. And I think that's gonna continue. The rate limiting factor is just being able to construct these ASCs and obviously have the financing and the capital and the ownership structure sorted out between the hospital and the surgeons. That's the rate limiting factor. But I just see this continuing to grow and I don't really see sort of where this stops. It's just gonna keep growing. Five years from now, what will it be? It's in the 10% to 15% range now. It'll cross 15% next year. And then it could go to 30%, 40%. It could.

Thank you. Thank you.

Our next question comes from Mike Madsen with Needham. Your line is now open. Please go ahead.

Yeah, thanks. So good to hear about the momentum in the international business. I wanted to ask about the, what that would mean to your margins if you see that business continue to outpace the U.S.? You know, how does it compare from the gross and operating margin perspective? Is this something that could be kind of a headwind to your margins?

Oh, yeah. Hi, Mike. You know, as we look at international, a couple things to keep in mind. You know, we don't have R&D expense in our international sort of numbers as we look at sort of performance of their margins. So you have that performance. We also, you know, it can vary market by market. I mean, I think in some of these more developed markets, we see good price performance and good operating margins. Sometimes in more sort of emerging markets, we, you know, we will see a slight headwind relative to sort of what we're realizing from a pricing standpoint in those markets. I would tell you that... You know, I think that, you know, as we look out over the long term, though, you know, we obviously are cognizant of the fact of what international sales and how that will contribute to our overall margin profile. And so, you know, we have planned for, you know, the kind of infrastructure needs and the kind of other saving needs that we need to do to make sure that we drive this consistent margin and drive a consistent, you know, 30 basis points plus points increase that we're looking at. So, there will be some, but overall, I think that as we look at it, we're not seeing that it's going to be a headwind that we will not overcome.

Okay, got it. And then just, I think you did do one small acquisition, the Artelon Company, I believe it was in the extremities area. Can you just comment on that and kind of how it fits or what it brings to the table?

Yeah, listen, this is a gap filler for us and soft tissue fixation that's used in foot and ankle procedures by sports medicine doctors as well as foot and ankle doctors. It's an elegant, terrific product. We're really excited about it. Both of our sports business unit and foot and ankle business units, both teams are going to be selling this product based on the surgeon call point that they have. So really, really terrific product. We've been tracking the company for quite some time. And, you know, we're not going to get into details of how much. It's not a big product, but it's a really great gap filler that, again, our sports business has, as you know, been growing at very high rates for many years now. And this fits in with them. It also fits in with our foot and ankle business.

Okay, got it.

Thanks.

Our next question comes from Caitlin Cronin with Canaccord. Your line is now open. Please go ahead.

Hi, thanks so much for taking the questions. Just jumping off of the fine question earlier, the interventional fine business had a good quarter this quarter and last quarter as well. Can you talk about what makes up that business for you and why you think you're seeing strength there? Is this more of a market sale one that you're capitalizing on or specifically the striker?

Yeah, listen, this IBS business of ours has been a really terrific business. If you think about what is in that business, we bought these curved balloons earlier. from the CareFusion a while back. We acquired the SpineJack product. We've also developed some terrific internal products. We launched the OptiBlade blade product. So, we have the pain docs and we have the oncology. So, two different call points within our IDS business and a pretty robust portfolio and just outstanding commercial execution. has been really a terrific engine of growth for us. And it's an area we like, and we continue to believe we're going to expand in this area at some point in the future. We're certainly going to be adding salespeople, as we have been doing, because we have the product portfolio partially organic and partially inorganic.

Great. And you maintained expectations to launch Mako Shoulders later this year, you know, what are you seeing in the market with Zimmer's early launch of its shoulder robotic application? And any updates you're seeing in the use case of shoulder robotics?

Yeah, no feedback yet competitively. So it's not really had any impact thus far. It's early. So there really isn't anything to share right now. Once we learn something, we'll let you know. But we like our chances. We like our chances with our MAKO shoulder.

Our next question comes from the line of Jason Bedford with Raymond James. Your line is now open. Please go ahead.

Good afternoon. Thanks for squeezing me in. I'll be quick. Just on neurovasc, I thought I heard you mention a supply issue within flow diverters. I'm just wondering, when will this resolve? And maybe you can just give us a a broader view on the health of the supply chain, whether it be input costs, rate costs,

Hey, Jason. It's Jason. I would say just overall, Stryker, I would say supply is in quite good shape. Do we see spotty issues, like I mentioned, relative to neurovascular? Yes. We saw a little bit of a supply disruption as it relates to our medical business outside of the United States as well. But these things are resolving themselves. July for neurovascular, off to a good start. And as it relates to medical, I think you should expect robust growth in the second half as well. So nothing from a supply standpoint is a concern for us as we move forward.

Okay. That's helpful. And just quickly, I wanted to follow up on the foot and ankle commentary. I'm just wondering why you think the market is soft and just historically, what drives the rebound out of these lulls?

Yeah, look, there's a lot of different dynamics. And one of the dynamics is OR time. It's getting prioritized for other procedures. So you have surgeons that actually are getting squeezed out of operating because the ORs are being used for, let's call them more higher value, higher revenue producing procedures. That's one part. You've got these co-pays that people have to pay. And sometimes, you know, they're just a little bit squeezed and that can cause a bit of a delay. So there are multiple factors at play. And like I say, we've seen this happen in the past. I don't know how long it'll last. It It kind of caught us a little bit by surprise, to be honest. But we've liked the business that we have. We like the portfolio that we have. And these patients aren't, they're going to, these bunions don't heal themselves. So they're going to come back to the market. And I think we're going to be well positioned when that happens. But yes, it has been two quarters in a row. We'll let you know how Q3 goes. But again, it's not going to be a problem for our trauma and extremities business. It will continue to have very high growth, regardless of what happens in this market.

Thank you. Our next question comes from the line of Drew Ranieri with Morgan Stanley. Your line is not open. Please go ahead.

Hi, thanks for taking the question. Maybe just one for Kevin, but I think you also mentioned that you did another small acquisition of Malib. But just curious if you can kind of detail a bit more about that deal. And I imagine it would be fairly small, but kind of curious to hear about how this kind of informs your overall breast strategy in the market, how you might be able to bundle this with 1788 and some of the other maybe prior deals you've done in the breast space. Thanks for taking the question.

Yeah, thanks. Women's health and urology has been an area of interest for us, and the endoscopy division is pretty excited about Molly's, to be able to localize the lesions that need to be removed in surgery. And for surgery, as you mentioned, we have Novodac with the exoscope. We have the, from the InDuity acquisition, we have the photon blade. We can do single-stage procedures because you can assess the health of the tissue. And then having the localization, we already have the rep there. So this is a perfect classic tuck-in for Stryker. The reps are there. They're in the procedure. And this product, even though it's not a big revenue producer, at least now, it is elegant. It is easy to use. It is a terrific product. And so... We've watched all the other products in this space. This is the one we've had our eye on, and we are really excited to have that as part of Stryker. And it will enable us to be a bigger force in breast care.

Our final question comes from the line of David Roman with Goldman Sachs. Your line is now open. Please go ahead.

Thanks, and good afternoon. Kevin, I wanted to follow up on a comment you just made about capacity in the hospital and the prioritization around certainly whether it's acuity cases or other dynamics influencing how hospitals are managing capacity constraints in their surgical suites. How should we think about that as a potential long-term or even intermediate-term tailwind to your med-surg business?

Yeah, it's a good question. And certainly, the demand for capital is very high. There is construction, as you know. Hospitals are being constructed. ASCs are being constructed. Patients are getting great outcomes. I think the ASC is a contributor. People, they go home the same day. They can't believe they can get back to playing their sport of choice so quickly. Word is spreading. And so I think this is one of those reasons where you're seeing the demand increasing. And as the operating rooms fill up, They're looking for outlets to be able to do more and more procedures. So I do believe that that's contributing to this sort of elevated procedures. And for our med-surg business, a lot of our small capital, that has to be replaced. And that's probably why we're experiencing the kind of high growth. I mean, you look at instruments, you look at power tools, you... I mean, very, very high growth and a promising outlook going forward. So I hope this continues. We see it continuing at least through the end of this year, and obviously we'll let you know what we think about guidance for next year in January.

Got it. And then maybe just a follow-up for Glenn and maybe Jason, just on the P&L, I think on the last call you had laid out a path that more of the gross margin on a go-forward basis would come from, sorry, more of the operating margin expansion would come from gross margin versus OPEX. I think you're pointing to the back half of the year, reflecting more SG&A leverage. How should we think about just the interplay between different line items of the P&L with MedSearch becoming a larger percentage of total, and how we think about in the context of the different drivers for operating margin expansion?

Yeah. Hi, David. I think, though, as I think back to how we have characterized it, if you think about what we did in 2023, that had more gross margin expansion and not margin. And we've always said that 2024 would lean more to sort of SG&A and leverage of op expenses. So I don't think we've really sort of changed sort of how we think about how the year is going to play out for op margin expansion. So I do think that we're, you know, we are bullish on opportunities and gross margin, but a lot of those are, things you do this year that are going to benefit us in 2025. On SG&A, you know, that's more near-term things that we have that we budgeted for and planned for that I think actually will allow us to give us a lot of confidence to say that we will get to that 100 basis points, a lot more of an expansion.

John Wiesman. Got it. Okay. Thank you for the clarification.

John Wiesman. Sir? John Wiesman. There are no further questions? I'll turn the call over to Kevin Lobo for closing remarks.

Thank you for all your questions and for joining our call. We look forward to sharing our Q3 results with you in October. Thank you.

This concludes the second quarter 2024 striker earnings call. You may now disconnect.