Dive Brief:

• Stryker's second quarter revenue dropped nearly a quarter, the medtech reported Thursday. Greater demand for equipment like hospital beds was offset by up to 50% of its business facing procedure deferrals as hospitals prioritized COVID-19 response. The upshot was a 24% decline in quarterly sales to $2.8 billion.
• Stryker execs and Wall Street analysts expressed pleasant surprise over momentum in expanding the Mako joint replacement robot systems' footprint during the quarter. That trend bucks worries that COVID-19's financial pressures could tank hospital investment in large capital equipment, constraints offset in part by government support like the CARES Act.
• In the third quarter, "we expect the recovery to continue, but do not expect it to be linear, while local governments deal with varying degrees of resurgences," CEO Kevin Lobo said on an earnings call Thursday. 

Dive Insight:

Stryker mirrored other medtechs reporting during earnings calls that business saw sequential recovery over the arc of the quarter and into July. While some players, including Edwards Lifesciences, Abbott and Baxter, have returned to providing some financial guidance during this round of reports, Stryker said the environment is still too uncertain for it to share an outlook for the coming quarter or full year.

Stryker struck an overall optimistic tone about the nature of the recovery of elective procedures, particularly in the U.S.

April sales were down 36%, improving to a 10% decline by June. Across the second quarter, the Orthopaedics and Neurotechnology and Spine divisions each saw revenue declines near 30%, while the MedSurg unit fared slightly better with a roughly 17% drop in sales. The stop and restart of elective procedures particularly affects Stryker's hip, knee, spine, sports medicine, extremities and ENT product lines, management specified.

Stryker acknowledged recent regional COVID-19 outbreaks, but also noted that many surgeries are happening in July in hotspot states Texas, Florida and Arizona.

"We will have flare-ups. And the reason we don't want to give guidance is it's hard to predict the nature of those flare-ups and how big those flare-ups will be," Lobo said. Still, "this notion of complete shutdowns — I don't think we're going to see that unless we have some type of rampant change in the way the virus is mutating and spreading."

Despite industry concerns that hospitals' loss of lucrative elective procedures could mute spending on expensive technologies like surgical robots, Stryker said it was successful in placing new robots during the quarter. How many robots Stryker placed exactly is unclear, as the company opted to stop sharing those quarterly numbers within the past year.

Ambulatory surgery centers are increasingly important customers, Lobo said. "It was already starting to ramp and I think the pandemic is causing that to increase further," Lobo said, noting that ASCs currently only do about 5% to 10% of U.S. hip and knee replacements.

Customer concerns about liquidity have led to more flexible financing arrangements. "We definitely are seeing a shift to financing more deals than we have historically experienced. And I fully believe that that will continue throughout the rest of this year," CFO Glenn Boehnlein told investors.

Finalization of Stryker's Wright Medical buy is drawing closer, with Stryker anticipating a deal to close at the end of the third quarter, or potentially a bit later, at the beginning of the fourth. Wright Medical's quarterly filing, submitted to the Securities and Exchange Commission on Wednesday, shows the extremities-focused medtech took a 43% hit to sales during the quarter.

Baird analysts noted that Wright's decline was worse than numbers reported by medtechs in similar markets including Johnson & Johnson, Smith & Nephew and NuVasive, likely due to a high rate of deferrable procedures and sales rep disruption during the Stryker transition. But sales are showing a promising rebound, down by just 3% in June.

Going forward, Stryker sees areas to cut capital spending as all sectors adapt to a different future of work. The pandemic has "shown us how effective we can be without having to be the high cost, high travel company we've been historically," Lobo said, adding the company will boost flexible work schedules. 

"We're realizing that there's a lot that we can do virtually that will be permanent," he added. "We are not going to need the same real-estate by any stretch that we have today," Lobo said, noting that much capital spending in recent years has been tied up in office buildings as the company made acquisitions.

"Frankly, we're seeing a big change of what's going to be required in the future."