Stryker Corporation

Welcome to the second quarter 2019 Strikers Earning Call. My name is Chantelle and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Following the conference, we will conduct a question and answer session. During that time, participants will have the opportunity to ask one question and one follow-up question. If you would like to ask a question, please press star, the number one on your touch-tone phone. 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 8K filed with the SEC. I will now turn the call over to Mr. Kevin Lobo, Chairman 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 Catherine Owen, VP of Strategy and Investor Relations. For today's call, I will provide opening comments, followed by Catherine, with an update on MACO. Glenn will then provide additional details regarding our quarterly results before we open the call to Q&A. With organic growth of 8.5%, our Q2 results reflect excellent momentum in all three segments, med-surg, orthopedics, and neurotechnology and spine. Med-surg delivered a roughly 12% organic sales increase with strong performances across the board. Instruments had a particularly strong quarter with 17% organic sales growth, and we were pleased with the performances in medical, endoscopy, and sustainability. Looking ahead, we assume continued robust organic growth for all med-surg divisions in the second half. Orthopedics is up 6% in Q2, with hips gaining 4% and knees up roughly 6%, as Mako robot sales and increased robot utilization across both joint applications are driving implant share gains. Neurotechnology and Spine delivered 7% growth, powered by another quarter of double-digit gains in neurotechnology. We have also made considerable progress in the integration of K2M and are on track with our full-year growth target for Spine. On a geographic base, the U.S. was up 9% and international was up 7%. We continue to see the benefits of our transatlantic operating model with high single-digit growth in Europe. Given our lower market shares in this region, we are well positioned to continue to grow meaningfully above market in 2019 and beyond. Our international performance also included strong double-digit gains in emerging markets. With the strong top line and ongoing focus on our cost transformation initiatives, we achieved operating margin expansion of 20 basis points, which includes considerable deal-related dilution. Our adjusted per share earnings in Q2 came in at $1.98, topping the high end of our targeted range of $1.90 to $1.95, which is driven by our robust sales performance. We also continue to benefit from investments in R&D, acquisitions, sales, and marketing, which translate into healthy product pipelines and strong commercial execution. That, combined with our talented employees and culture of performance, positions us well to sustain high growth going forward. With that, I will now turn the call over to Catherine.

Thanks, Kevin. My update today will focus on MAKO and the key data points that allow you to track our success in executing on our orthopedic robotics strategy. In addition, we will continue to provide our new growth, which excludes any robot revenue. As a reminder, sales tied to MAKO continue to be included in our other orthopedic revenue line, while navigation is reported in instruments. In Q2, we sold 44 Mako robots globally, with 35 in the US. By comparison, in the comparable quarter a year ago, we installed a total of 39 robots, of which 29 were in the US. Globally, our installed base of robots is north of 700, with close to 600 in the US. Looking at U.S. procedures, in Q2, MACO total knee procedures exceeded 18,000, increasing approximately 80% from the prior year quarter, while total MACO procedures approximated 27,000. We're also pleased with the acceleration we are seeing in our hip performance. These results reflect uptake for our new 3D-printed Trident II hip cup, as well as increasing utilization of MAKO for hip procedures, where we achieved strong double-digit procedure growth in the quarter. Based on these performances, it's clear we are continuing to see high demand for MAKO, given its unique features, as well as applications that span hips, knees, and uni. Combined with a robots order book, this positions us well to see ongoing success both in robot sales and recon market share gains. With that, I will now turn the call over to Glenn.