Stryker Corporation (NYSE:SYK) Q1 2024 Earnings Call Transcript

Stryker Corporation (NYSE:SYK) Q1 2024 Earnings Call Transcript April 30, 2024

Stryker Corporation beats earnings expectations. Reported EPS is $2.5, expectations were $2.35. Stryker Corporation isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Welcome to the First Quarter 2024 Stryker Earnings Call. My name is Christine, and I’m your operator for today’s call. At this time, all participants are in a listen-only mode. Following the conference, we will conduct a question-and-answer session. This conference call is being recorded for replay purposes. Before we begin, I would like to remind you that the discussions during this conference call will include forward-looking statements. Factors that could cause actual results to differ materially are discussed in the company’s most recent filings with the SEC. Also, the discussions will include certain non-GAAP financial measures. Reconciliations to the most directly comparable GAAP financial measures can be found 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.

Kevin Lobo: Welcome to Stryker’s first quarter earnings call. Joining me today are Glenn Boehnlein, Stryker’s CFO; and Jason Beach, Vice President of Finance and Investor Relations. For today’s call, I will provide opening comments followed by Jason with the trends we saw during the quarter as well as some product updates. Glenn will then provide additional details regarding our quarterly results before we open the call to Q&A. In the first quarter, we delivered organic sales growth of 10% with double-digit growth in MedSurg and Neurotechnology and high single digit growth in Orthopaedics and Spine, despite one less selling day and tough comparables from a year ago. This reflects our team’s continued strong commercial execution.

Our results were led by very strong U.S. performance, notably in Instruments, Medical, Endoscopy, Trauma and Extremities and Mako. Internationally, growth momentum continued against strong double digit growth organic sales comparables from the first quarter of last year. We expect this growth rate to accelerate for the remainder of the year as international remains a significant opportunity for us. We delivered quarterly adjusted EPS of $2.50, reflecting 16.8% growth compared to the first quarter of 2023, driven by our strong sales performance and margin expansion. As anticipated, we began to accelerate our M&A activity. We just completed the acquisition of mfPHD, a leading provider of modular stainless steel wall systems. This further enhances our communications business unit portfolio within Endoscopy and helps us meet our customers’ needs for turnkey operating room design and construction.

At the end of the quarter, we also closed on our acquisition of SERF within our hip business. Our deal pipeline is strong and we expect to be active over the course of the year. With one quarter behind us, we now expect an increased full year organic sales growth of 8.5% to 9.5% and we are increasing our adjusted EPS range to $11.85 to $12.05 a share. Coming off organic sales growth of 9.7% in 2022 and 11.5% in 2023, this guidance demonstrates the durability of our high growth and is a testament to our commercial strength and extensive pipeline of innovation across the company. Also, it reinforces our ability to meet our target of 200 basis points of operating margin expansion by 2025. Next, I want to thank our teams for their ongoing commitment to talent and culture, which is reflected in the recognition of Stryker for the 14th year in a row as one of Fortune’s 100 Best Companies to Work For.

Our operating model, talent and culture are true differentiators for us. In addition, we recently published our fourth annual comprehensive report, which captures our commitments and disclosures on corporate responsibility. I will now turn the call over to Jason.

Jason Beach: Thanks, Kevin. My comments today will focus on providing an update on the current environment, capital demand and select product highlights. Procedural volumes remained strong in the first quarter in line with our expectations driven by continued adoption in robotic-assisted surgery, demographics, a stable pricing environment and healthy patient activity with surgeons. And while pockets of supply constraints remain, our supply continues to be stable overall. Demand for our capital products remained healthy in the quarter with continued elevated backlog across our Endoscopy and Medical divisions. Our Mako direct-to-patient campaign continues to perform well, which contributed to our very strong Mako growth with record first quarter installations in both the U.S. and internationally.

This will continue to drive our hips and knees businesses. In April, we performed our first cases using the Pangea plating system in our Trauma and Extremities division and are gearing up for a full launch. Pangea is the largest launch in trauma’s history as it offers a comprehensive system that will enable larger hospital conversions. Next, we received approval from the FDA for our new LIFEPAK 35 defibrillator and monitor. This is a flagship product within our emergency care business unit and was one of the catalysts for our acquisition of Physio-Control. LIFEPAK 35 is a modern platform with a touchscreen interface that brings advanced connected capabilities to improve workflow. We will launch this product at the end of Q2 and it will have a multiyear benefit to our Medical division.

Lastly, Mako, Spine and CoPilot are pacing to launch in Q4, followed by the shoulder application at the end of the year. We continue to receive positive feedback from surgeons who have been exposed to these technologies. With that, I will now turn the call over to Glenn.

Glenn Boehnlein: Thanks, Jason. Today, I will focus my comments on our first quarter financial results and the related drivers. Our detailed financial results have been provided in today’s press release. Our organic sales growth was 10% in the quarter compared to 13.6% in the first quarter of 2023. This quarter, we had one less selling day than 2023. The impact from pricing in the quarter was favorable by 0.7%. We continue to see a positive trend from our pricing initiatives, particularly in our MedSurg and Neurotech businesses, almost all of which again contributed positive pricing for the quarter. Foreign currency had a 0.5% unfavorable impact on sales in the quarter. In the quarter, U.S. organic sales growth was 11.3%. International organic sales growth was 6.6% against a very strong comparable growth of over 16% in 2023, this performance included positive sales momentum across most of our international markets, particularly in the United Kingdom and Canada and most of our emerging markets.

Our adjusted EPS of $2.50 in the quarter was up 16.8% from 2023, driven by strong sales growth and operating margin expansion. Foreign currency exchange translation had an unfavorable impact of $0.05. Now I will provide some highlights around our quarterly segment performance. In the quarter, MedSurg and Neurotechnology had constant currency sales growth of 12% and organic sales growth of 11.6% which included 13.5% of U.S. organic growth and 6% of international organic growth. Instruments had U.S. organic growth of 19% with strong double-digit growth across the Orthopaedic Instruments and Surgical Technologies businesses. From a product perspective, sales growth was led by almost 50% growth in smoke evacuation and strong performances in power tools, Steri-Shield, Waste Management and SurgiCount.

Endoscopy had U.S. organic sales growth of 11.1% with double-digit growth in its communications and Endo BU businesses. And from a product perspective, standout growth included cameras, light sources, insufflators, booms and sports medicine implants. Medical had U.S. organic sales growth of 16.8%, led by the solid sales performances in all three businesses. This included strong growth in stretchers, cots, Vocera and Sage products. Neurovascular had U.S. organic sales growth of 2.9%, highlighted by solid performances in our hemorrhagic stents and guidewires. Neuro Cranial had U.S. organic sales growth of 7%, driven by strong performance in our CMF business. Internationally, MedSurg and Neurotechnology had organic sales growth of 6% which included strong performances in our emerging markets.

Orthopaedics and Spine had both constant currency and organic sales growth of 8% which included organic growth of 8.3% in the U.S. and 7.4% internationally. Our U.S. Hip business grew 6.8% organically against a very strong comparable of 16.2% in the same quarter last year. This growth reflects continued strong primary hip performance fueled by our insignia hip stem. Our U.S. Knee business grew 3.1% organically against another very strong comparable of 20.7% in the first quarter of 2023. Our Knee growth reflects our market-leading position in robotic-assisted knee procedures and the continued strength of our installed base. Our U.S. Trauma and Extremities business grew 10.3% organic with strong performances across our upper extremities, biologics and core trauma businesses.

Our U.S. Spine business grew 3.9% organically, led by the performance in our Interventional Spine business. Our U.S. other ortho business grew 45.6% organically, driven by strong Mako installations in the quarter. Internationally, Orthopaedics and Spine grew 7.4% organically including strong performances in Canada and most emerging markets, particularly driven by strong Mako installations. Now I will focus on operating highlights in the first quarter. Our adjusted gross margin of 63.6% represents approximately 50 basis points favorability against the first quarter of 2023. This improvement reflects positive pricing trends as well as continued easing of certain cost pressures that we experienced in the first quarter of 2023. Adjusted R&D spending was 6.8% of sales which was 30 basis points higher than the first quarter of 2023.

Our adjusted SG&A was 35% of sales, which was 60 basis points lower than the first quarter of 2023 due to continued discipline in our spending and investments to support our growth. In summary, for the quarter, our adjusted operating margin was 21.9% of sales which was approximately 80 basis points favorable to the first quarter of 2023. Adjusted other income and expense of $49 million for the quarter was $16 million lower than 2023, driven by favorability in interest rates and a higher level of invested cash resulting in higher interest income. The first quarter of 2024 had an adjusted effective tax rate of 12.3%, reflecting the impact of our geographic mix and certain discrete tax 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 first quarter with 2.4 billion of cash and marketable securities and total debt of approximately 13 billion. Our total debt includes 600 million of debt that is due to be repaid in May and has been prefunded. Turning to cash flow. Our year-to-date cash from operations is 204 million, reflecting the results of net earnings and normal first quarter seasonal cash outflows. Considering our first quarter results, strong procedural volumes and healthy demand for our capital products. We now expect our full year 2024 organic sales growth to be in the range of 8.5% to 9.5% with the pricing impact to be roughly flat. If foreign exchange rates hold near current levels, we anticipate sales will be moderately unfavorable impacted for the full year, being more negative in the first half of the year.

EPS will be negatively impacted at the higher end of our previously guided range of $0.05 to $0.10 cents. With our momentum heading into the rest of the year and our commitment to expanding operating margins, we now expect adjusted net earnings per diluted share to be in the range of 11.85 to 12.05. And now I will open up the call for Q&A.

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Q&A Session

Operator: [Operator Instructions]. Our first question will come from Robbie Marcus with JPMorgan. Your line is now open.

Robert Marcus: Great thanks for taking the question. Congrats on a really nice quarter. A lot to ask about, but maybe two for me on financials. First, Kevin, it sounds like procedure volumes remain really healthy across the globe and capital equipment, same would love to hear if you’re seeing any changes, either up or down in the environment for capital and procedure volume growth.

Kevin Lobo: Yes. Thanks, Robbie. Yes, we’re really pleased with the performance in the first quarter and really nothing has changed. So the good level of volumes that we’re seeing in procedures that we saw through 2024 has continued into 2025. And our capital order book remains very strong. So capital equipment, whether it’s large capital or small capital remains very robust. We have a nice healthy backlog, and that gives us the confidence to raise our organic sales growth guide for the full year.

Robert Marcus: And maybe one probably hasn’t been asked on in a while, but your Spine business had a really nice quarter. I wanted to see, is that more fundamentals and the improvements in technology you’ve brought to market? Is that gaining some share from disruption of the competitor merger? And is that giving you a foothold ahead of the Spine Mako launch and discussions and how hospitals are open to that? Thanks a lot.

Kevin Lobo: Yes. Thanks, Robbie. Not a major change. I would tell you the Interventional Spine business had a terrific quarter. That was really high growth. Our enabling technologies within Spine, the Q guidance system has really picked up good momentum as well. The Mako, Spine and the CoPilot won’t be launched until the fourth quarter. So that’s not really having much of an impact. And I wouldn’t say that the competitive disruption or the competitive merger is really having much of an impact yet. It’s still very early days. So nothing too remarkable, but overall, a good number and a good solid number for our Spine business.

Operator: Our next question comes from Lawrence Biegelsen with Wells Fargo Securities. Your line is now open.

Lawrence Biegelsen: Good afternoon. Thanks for taking the question and congrats on a nice quarter here. One for Glenn, one for, I think, Kevin. Glenn, just maybe on the EPS raise of about $0.10 at the midpoint. Can you help us bridge how much of that was operational? How much of that is coming from below the line, other income being a little lower? And obviously, FX is a greater headwind. So just the pieces that led to the $0.10 raise, and I had one follow-up, please.

Glenn Boehnlein: Yes. Sure. Thanks, Larry. I think if you look at what happened in OI&E and also what happened with our tax rate, obviously, we had some favorability just for this quarter. I think fundamentally, we’re still targeting 250 million roughly in OI&E and attach rate that really is still between 14% and 15%. So we’re still holding to the below the op margin line guidance that we had built into our initial guidance that we provided back in January. I think, honestly, if you look at the raise in terms of how we think about it, the robustness of the top line, obviously, the earnings that we’re able to kick off of that. And then lastly, we’re just — we’re feeling that we’re seeing good momentum and positivity around the programs that we put in place to drive leverage to get back to that 2019 number. And so all of that really combines to really give us the confidence to give us that $0.10 raise from the midpoint in EPS.

Lawrence Biegelsen: That’s helpful. And Kevin, I’m sure you know investors are concerned about the potential impact of da Vinci 5 on your Endoscopy business. Obviously, it’s not having any impact right now, really strong growth here. I’d like to hear from you if you’re willing to share what the potential exposure is? And what you can do to help protect your lab tower business long term? Thank you.

Kevin Lobo: Yes. Thanks. I’m a little bit mystified by this concern, to be honest with you. If you attended the Sage’s meeting, you could clearly see that we have a very differentiated solution that will frankly enable — they can grow at whatever rates they’re growing with their new product, and we’re going to continue to have a very strong performance endoscopy, both this year and for years to come. The overlap in our businesses is minor. We are multi-specialty. We play in most of our procedures, frankly, aren’t being done robotically today. We also are the clear leader in fluorescence imaging. Just most recently, we had the American Association of Thoracic Surgery, where we partner with Cidolux, this new fluorophore to be able to light up lung cancer for lobectomy procedures, which we’re the only company that can do that, that can light up that 404.

So surgeons are going to demand this for safer surgery, but that doesn’t mean that Intuitive can’t grow with their robot. It’s — we are really playing in spaces with very little overlap and both of us can continue to have very strong performance for many, many years to come, so to me, this concern is, frankly, mystifying and not at all for me, a concern for our endoscopy division.

Operator: Our next question comes from Ryan Zimmerman with BTIG. Your line is now open.

Ryan Zimmerman: Thanks for taking the questions and congrats on the quarter. I want to ask about the organic growth and the guidance. If you look at the 10% organic growth this quarter versus the comps and kind of where you’re guiding that the 9% of the midpoint. The comps essentially do get easier through the balance of the year. And so I’m wondering Kevin or Glenn whoever wants to take this, just talk about your guidance view or philosophy for the top line, specifically given the performance and what we think could be better performance for the remainder of the year?

Kevin Lobo: Yes. Great. So certainly, if you look at our fourth quarter last year, I wouldn’t think that, that was — those were easy comps. We had a pretty monstrous fourth quarter last year. And so comps is probably the biggest concern that we have, and we do pick up an extra selling day in Q3 and extra selling day in Q4. It’s only one quarter, right? There’s a lot of uncertainties out there in the marketplace. We feel very good about our business. And I think this is an appropriate raise at this time. Let’s see how things go at the end of the second quarter and we can update you further on the outlook for the year.

Q – Ryan Zimmerman: Fair enough. And Kevin, your comments on M&A were pretty pointed. You’ve highlighted a number of areas previously. I think there was five that you specifically called out before. Are you reinforcing those same areas today? Because if I look at just some of the tuck-ins that you’ve done, it’s actually been outside those four or five areas as of late. And so just curious kind of how you’re thinking about the targets for the areas for M&A today?

Kevin Lobo: Yes. Certainly, when I talk about those five areas, those are adjacencies. So we have our core basically supplementing our existing businesses with new technology, that’s always going to be the majority of the deals we do. And beyond that, as we think about adjacencies, those are what I’m calling my sort of top five priority adjacencies. And what I’d tell you right now is we have an incredibly healthy pipeline of deals. Now of course, pipeline doesn’t always get realized, right? There’s always a washout rate as you go through these processes. But I’m feeling really excited about the pipeline. They are mostly in the tuck-in variety. And so they’re just like the one I mentioned for our Communications business or our Hip business. You’re going to see most of those occur at least for the next couple of quarters. Beyond that, if we do decide to branch out, those other areas I talked about are still of high interest. Nothing has really changed on that front.

Operator: Our next question comes from Joanne Wuensch with Citibank. Your line is now open.

Joanne Wuensch: Thank you for taking the question and very nice quarter. Could you unpack two particular areas? One is the instrument sales up 18% and then the other is other, up 44.2%, both of those are real bright shining stars. I’d love to hear what went behind that? Thank you.

Kevin Lobo: Yes. Sure. I can start on the instruments, and I’ll let Jason talk about the other ortho. And you’re right, these are bright shining stars. The Instruments division had a fantastic quarter, and it was really, really across both Surgical Technologies as well as Orthopaedic Instruments really across the board. If you look at the smoke evacuation, we just continued to have tremendous momentum. Obviously, the market has been growing very robustly but we have a terrific commercial execution, growing almost 50%, which is really awesome. And that was great growth in the U.S. and also really great growth internationally. And we see that continuing, maybe not at 50%, but we see that very high double-digit growth through the rest of this year and into next year, especially as more states decide to mandate smoke evacuation.

So that was really a big push. We also have the SurgiCount plus we’ve launched a new product that combines the Gauss Surgical quantification of heme blood loss as well as the sponge coming. So it’s all combined into one solution, which is really elegant and really being well received by our customers. So those are probably the two biggest catalysts within Surgical Technologies. Neptune Waste Management continues to roll, but that’s not new information. And then if you flip over to Orthopaedic Instruments, we have the Steri-Shield doing extremely well. Our power tools, obviously, about the new launch that’s still, let’s call it, just about 1.5 years in, that’s continuing to do very well as well as pulse lavage and all the other products and just really great commercial execution by the instruments team.

It’s really been a flagship division of Stryker, if you go back the last 10-plus years. It delivers very, very consistently, and it did so again in the first quarter.

Jason Beach: Yes. Joanne, it’s Jason. I’ll take the other ortho here. So just a couple of additional comments, I guess, to my prepared remarks would be — like I said, we had a record quarter of installation in the first quarter this year. If you remember, we had a record quarter in the fourth quarter of last year. So the momentum is going really well on the Mako front. I commented on the direct-to-patient campaign. We’ve seen really good results out of that. So we feel good about it, and we like what this will translate in terms of the Hips and Knees business as we move forward as well.

Joanne Wuensch: Excellent. Thank you so much.

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

Pito Chickering: Hi, good afternoon. Thanks for taking my questions. Looking at the international growth, can you talk about what you’re seeing in Europe versus the higher growth markets like Japan and China? And how should we think about the growth international lease for using the 6.8% seen this quarter on a constant currency basis?

Kevin Lobo: Yes. So certainly, Europe continues to be a growth engine for Stryker. I would tell you in the first quarter, it was a little bit softer than it has been, and that was really because we had a big quarter last year. So really more comp related. I do expect Europe is going to continue to pick up in Q2, Q3, Q4. So the overall run rates are really healthy in Europe. And we — the UK was a bit of a standout in the first quarter, but the other regions are all going to be fine. We had a really big, big sales in Germany and Southern Europe last year and in the first quarter. So to me, it’s just a comp issue. I’m not at all concerned about international. We’re going to have another strong year in international. So you talked about Europe what else did you say, sorry, what was really here?

Q – Pito Chickering: Great. And then the second question was strong legalization across the country for hospitals and good margins. We’re seeing hospitals want to increase our CapEx spending. I guess, what areas of your portfolio do you think sort of has the most upside for hospitals increase in the CapEx dollars?

Jason Beach: Yes. Pito, I guess what I would say here as we look at the overall capital environment and you can see in our results in the first quarter in our capital business is very strong. So we see opportunities here across the board. I think we mentioned that our backlog continues to be elevated here. So we expect strong capital as we go throughout the year.

Operator: Our next question comes from Shagun Singh Chadha with RBC Capital. Your line is now opened.

Shagun Singh Chadha: Great. Thank you so much and congratulations. Kevin, you’ve talked extensively about this super cycle of innovation and we are seeing strong results here in Q1. Are you able to quantify the growth contribution from new products in Q1? Perhaps talk to us about what’s factored into your guidance for 2024. And I guess the key question is how should investors think about growth drivers for Stryker beyond the current super cycle of innovation? I think you’ve indicated year two and three are the peak years. And I think you get there in ’24 and ’25. So how should we think about growth drivers beyond that?

Kevin Lobo: Yes. Thanks for the question. What I would tell you is we’re in this constant rhythm of innovation. And we just had a number of products sort of collide at the same time, but they’re constantly being refreshed. So I wouldn’t think about this as a fleeting moment. If you think about 9.7% in ’22, 11.5% in ’23, another potentially double digit we’ll see. We’re not guiding to that just yet, but we have a chance certainly to get to another double-digit growth. This year and next year you’re going to have the impact. We’re just launching LIFEPAK 35. It’s not going to have as much of an impact this year as next year Pangea not as much impact this year as next year. The Mako applications have really no impact this year. It’s really more next year and then we’ll just keep rolling other innovations on top of that.

So I would just think we were in a rhythm assuming the market conditions stay similar. We’re in a rhythm where this kind of high growth is what you should come to expect from us with no end in sight as long. As we continue to invest as we are roughly 7% of our growing top line in new product innovation and we continue to be active with acquisitions because as you know, we acquire high growth assets. And then after the first year that rolls into organic growth we had a bit of a pause last year as we’re going to refill that tank this year and that will contribute to organic growth in the years ahead. So I would not look at this as some kind of — we reached a peak and we’re starting going to come down on the other side, absent some kind of market adjustment, this is — we’re in kind of a new normal, at least for a while.

Shagun Singh Chadha: That’s really helpful. And then just a couple of follow-ups on the ortho side. Just any updates on Mako for spine and shoulder robot? Are you still on track for a mid 2024 and a year-end ’24 launch for both of those?

Jason Beach: Shagun, it’s Jason. I’ll go back to my prepared remarks. As we think about Mako spine and CoPilot we’re looking at a Q4 launch there and for Mako shoulder, it will be the end of this year from a launch standpoint.

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

Vijay Kumar: Hi, guys. Thanks for taking my question. Kevin I had one for you on the backlog comments here, both on the procedures and the capital side. On procedures, can you comment on any scheduling I think historically scheduling was taking time which was elongated. Have you seen any shortening of that scheduling sale elongated? How cancellations sort of trended? I think on the capital side, you mentioned LIFEPAK. Did that contribute in the backlog or is that something that’s supposed to come in the coming quarters?

Kevin Lobo: Look, I’d just call it a stable market. It really hasn’t changed much. If you think about waiting lists, if you think about staffing is continually gotten better over the course of ’24. So I would just say it’s very stable in terms of the overall market. I don’t see shortening at all. I don’t see it elongating. It’s just — as we saw through ’24 — ’23, sorry, it’s a continuation into ’24 of that kind of stable marketplace and the new defibrillators just got approved. So that’s not really been a big contributor to our backlog. Our backlog is just a healthy order book of all of our existing products across medical, across even some of the instruments businesses in endoscopy. So it really — there wasn’t any kind of new spike, but we’ve had a healthy backlog.

We had going into ’23. We have it going into ’24. We continue to get good orders. So yes, we’re shipping out at a nice rate, but the orders are still coming in at a very healthy rate. So we’re really not burning through any kind of meaningful backlog and that gives us confidence for at least through the rest of this year if — and as orders continue and obviously could potentially spike with some of these new products. That’s only going to give us more tailwind for growth.

Q – Vijay Kumar: That’s helpful, Kevin. And Glenn, maybe one for you. Free cash in the quarter looks like there was some timing element. Can you just remind us what kind of free cash conversion should we be expecting for fiscal ’24?

Glenn Boehnlein: Sure. Yes. I think in Q1 what you saw was just timing between working capital in Q4 and Q1 and then just sort of seasonally in Q1 we have higher cash outflows that occur. So that is the impact of that. On an overall basis, there’s no change to the targets that we discussed back at the analyst meeting in November and that would be the 70% to 80% free cash flow conversion number.

Operator: Our next question comes from Travis Steed with Bank of America. Your line is now opened.

Travis Steed: Congrats on a good quarter. On the Mako installations curious big insulation number but curious how many of those are going into competitive accounts and is that a leading indicator for share gains in ortho?

Jason Beach: Travis, it’s Jason. I mean for competitive reasons we won’t unnecessarily disclose the number in terms of the amount going into competitive accounts. But I will say that number is big for us and continues to be a winner for us in terms of going into competitive accounts.

Travis Steed: Great. And then the 50% growth in smoke evacuation, was that a big step change versus where it’s been running at? And I’m just curious if there was something that drove that acceleration in smoke evacuation if it’s kind of better bundling across the portfolio are more reps pushing that product?

Jason Beach: Yes, Travis, it’s Jason. I’d say a couple of different things here. The smoke evac business has continued to be, I think, high teens, 20% grower in smoke-free states it’s higher than that and similar to kind of what we said today in the prepared remarks. So it’s been a great tailwind for us and we think it will be into the future.

Kevin Lobo: Yes. We’ve also had our supply chain has really improved in terms of being able to meet the tremendous demand that we’ve had, and that was also a contributor. So we’ve had tremendous growth, tremendous demand and our supply chain has really kicked in, in a strong way, and that puts us in a good position not only to deliver in the first quarter but also to deliver in the quarters ahead.

Operator: Our next question comes from Matthew O’Brien with Piper Sandler. Your line is now open.

Matthew O’Brien: Good afternoon. Thanks for taking the question. Just real quick, it sounds like MAKO is getting — MAKO spine is being pushed out just I don’t know if it’s three to six months. Is that about right? And then, is it a software issue, hardware issue? Is something else you’re going to incorporate into it that’s causing this modest push?

Jason Beach: Hi, Matt, it’s Jason. I mean keep in mind, right, from a regulatory standpoint, there’s time lines as it relates to the FDA that can shift things by week, sometimes a couple of months. We’ve always been targeting a back half launch here. So I wouldn’t consider this as a significant change in the time line. As you think about the guidance that we have for this year, there was certainly nothing assumed in terms of our guide relative to the spine or shoulder launch. So no impact there as we think about that.

Q – Matthew O’Brien: Got it. And then on the MedSurg side of things, I think, Kevin, you’ve said double-digit growth is what you expect for the next five years there. Is that needing to have the backlog? And I mean, is there any way to quantify how significant that backlog is right now? And how much of a tailwind it is versus all these new products that you got coming like defibrillators, etcetera, because the Street is nowhere near double-digit growth for the MedSurg business over the next couple of years? Thanks.

Kevin Lobo: Yes. Look, I don’t think I said that. I have to double check the transcript, but I didn’t give a precise number of double-digit growth for all that time. What I did say is we are in this high-growth environment based on our innovation cycle, and we’re going to continue to have these new products fuel growth. It does depend on the market, right? So if the market stays at this kind of level, could we stay in that kind of double-digit range? Sure, we could. But I — there’s no guarantee that the market will stay this elevated both in terms of procedures as well as the healthy capital environment. So it does depend on the market. And obviously, you know we outperformed the market, and you can depending on the year, it’s 300 basis points or whatever that number is.