Stryker Corporation

Ladies and gentlemen, welcome to the third quarter 2019 Striker earnings call. My name is Simon, 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 then one on your touchtone 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 today 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 third 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'll provide opening comments followed by Catherine with an update on Mako and Mobius. Glenn will then provide additional details regarding our quarterly results before we open the call to Q&A. As I start my eighth year as CEO of Stryker, I am feeling as good as ever about our performance and our outlook for the future. Our Q3 organic sales growth of 8.6% demonstrated balanced strength across business segments and regions. With over 8% organic sales growth year-to-date, we are well-positioned to deliver toward the higher end of our most recent full-year guidance of 7.5% to 8% growth. Orthopedics had an impressive quarter with organic growth of nearly 9%, reflecting excellent results across the portfolio of Mako, hips, and knees. MedSearch continues its strong and steady growth, coming in at approximately 9%, as medical led the way with double-digit growth. Neurotechnology in spine was up approximately 8%, as strong double-digit growth in international helped offset soft legacy striker U.S. spine performance. On a geographic basis, total striker organic sales growth approached 8% in the U.S., with robust gains of nearly 12% outside the United States. As you know, international has been an area of focus and has become a sustainable and consistent above-market grower. This quarter, we had double-digit organic growth in Europe, Japan, and Canada, and emerging markets once again grew strong double digits. Looking ahead, we expect international to be a source of high growth for many years to come. Our conviction stems from several factors, including our lower relative market shares, investments in our transatlantic operating model, and the benefits from strengthened leadership in emerging markets. Turning to the P&L, we saw good results from our cost transformation for growth initiatives, which translated into a 50 basis point year-over-year expansion after absorbing deal-related dilution, and impacts from foreign currency. We also continue to invest in sales, marketing, and R&D to support our long-term growth targets and have a healthy pipeline of new products across our divisions. Overall, with our strong sales performance and margin expansion, we achieved adjusted per share earnings of $1.91, up 13%. With our outstanding management teams, ongoing investments in our sales forces, new product launches, and contribution from M&A, we expect the strong momentum to continue through Q4 and into 2020. 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 robotic strategy, along with a few comments regarding our recent acquisition of Mobius. In Q3, we sold 51 Mako robots globally, with 42 in the U.S. By comparison, in the comparable quarter a year ago, we installed a total of 37 robots, of which 26 were in the U.S. Globally, our installed base of robots is approaching 800, with well over 600 in the U.S. We have also launched Mako into Japan, with four robots sold in the quarter. We also performed the first Mako total knee, which was approved in Q3 in Japan. Looking at U.S. procedures, in Q3, Mako total knee procedures approximated 18,000, increasing roughly 60% from the prior year quarter, while total Mako procedures approximated 27,000. Beyond the knee indication, we also continue to see strong demand for Mako hips with 40% year-over-year growth. Looking ahead, our MAKO order book remains robust and supports our expectation for continued share gains in both hips and knees. During Q4, we acquired Mobius Imaging, a leader in point-of-care imaging technology, along with its sister company, Cardin Robotics, in an all-cash transaction for $370 million up front and up to $130 million of contingent payments tied to development and commercial milestones. With this deal, Stryker Spine gains immediate entry into the interoperative imaging segment, as well as aligning with Stryker's implant and navigation offering. Mobius's Aero True CT scanner is a best-in-class, mobile, real-time, diagnostic-quality CT imaging system. In addition, Cardin Robotics is currently developing innovative robotics and navigation technology systems for both surgical and interventional radiology procedures. Overall, these acquisitions are aligned with Stryker's fine strategy of providing a comprehensive offering with more complete procedural solutions. With that, I will now turn the call over to Glenn.