Stryker Corporation

Welcome to the fourth quarter 2019 Stryker earnings call. My name is David, 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 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 8-K, 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 Fourth 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 MACO. Glenn will then provide additional details regarding our quarterly results before we open the call to Q&A. We finished 2019 on a particularly strong note, with Q4 organic sales growth of 8%, despite notably difficult year-over-year comparisons. This performance helped propel full-year organic revenue growth to 8.1%, topping the high end of our most recently raised target of 7.5% to 8%. 2019 marks the seventh consecutive year of delivering accelerating organic sales growth, which has consistently been at the high end of MedTech. In 2013 and 2014, we grew in the fives organically. 15 and 16, we grew in the sixes. And 17 and 18, it was in the sevens. Also, this past year marks our 40th consecutive year of sales growth since Stryker went public in 1979. The performance in 2019 was balanced across divisions and geographies, reflecting the durability of our business model. Turning to the results by our three segments, Q4 was led by over 12% organic sales growth for neurotechnology and spine, with our neurotechnology businesses growing in the high teens. Orthopedics posted a 7.3% organic sales increase in the quarter, powered by impressive double-digit growth in knees. Our orthopedics performance continues to reflect meaningful share gains fueled by Mako and our 3D printed implants. As Catherine will detail in her comments, Q4 delivered the strongest robot quarter since the launch of Mako. We finished the year with a healthy order book, demonstrating the commercial and clinical success of this highly differentiated technology. MedSurg was up roughly 7% organically in the quarter, as endoscopy led the way, growing 10%. All other divisions achieved mid-single-digit gains despite challenging comparisons. MedSurg continues to be a strong and consistent grower year in and year out. International organic growth was 7.6% in Q4, and for the full year, matched the U.S. growth rate of 8.1%. Emerging markets led the way with strong double-digit gains in Q4 and the full year. While it has taken some time, 2019 was an excellent year in emerging markets, and we are well positioned to continue this momentum into the future. Europe once again registered full-year organic sales gains in high single digits as we make progress towards achieving similar market share levels as we have in other developed market regions. This performance was well above the market and has significant runways as we continue to drive Salesforce specializations. Australia and New Zealand also had a strong Q4 across its portfolio. In the past seven years, we have strengthened our international businesses and have taken key steps to strengthen category leadership across our portfolio. The pending addition of Wright Medical later in 2020 will address our last meaningful category leadership gap, upper extremities. We continue to make investments in our sales, marketing, and R&D teams around the globe, in order to support our goal of consistently growing at the high end of MedTech. But with our focus on our cost transformation for growth initiatives, we are also delivering leverage. Off-margin expanded roughly 40 basis points in the year, which included absorbing approximately 30 bps of dilution related to acquisitions. We exited 2019 with nearly $15 billion in global sales and have demonstrated the ability to continue to drive high growth despite our larger size. We have expanded our offering through internal investments and acquisitions and believe we are well positioned to achieve continued success for our customers, employees, and shareholders. Looking at 2020, we are on track to continue to achieve strong organic sales growth and leverage earnings. In closing, the tremendous efforts of our 40,000 employees around the globe enabled us to once again achieve strong results and deliver on our promise to our customers and patients to make healthcare better. 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 have allowed you to track our success in executing on our orthopedic robotics strategy. In Q4, we sold 89 Mako robots globally versus 54 in the comparable quarter a year ago. This includes 63 in the U.S. in Q4. Globally, our installed base of robots is approximately 860, with close to 700 in the U.S. In January, we received Japanese approval for the Mako partial knee indication, adding to the indications for the total knee and total hip procedures. We now have nine Mako robots in Japan and continue to believe this represents a significant market opportunity. Looking at U.S. procedures, in Q4, MACO procedures increased nearly 50% to 36,600, bringing the full-year total to over 114,000. Total need procedures posted a roughly 59% increase in Q4 to approximately 24,000, while full-year MACO need procedures increased roughly 66%, topping 75,000. Demand for MAKO is being driven by the myriad of unique benefits of our robotic technology, multiple reconstructive applications, and the ability to perform a cementless knee. MAKO's smart robotics have enabled surgeons to achieve a no-more-so-as-to-cut-less approach to joint replacement, which is driving improved outcomes for patients. These capabilities are clearly helping to increase robotic utilization rates, which achieves strong double-digit growth both year over year and sequentially. Lastly, it's worth noting that demand for our 3D-printed cementless knees continues to climb, exiting the year at over 36% of our U.S. knee procedures. We also continue to see growing demand for the MAKO hip application, underscored by over 40% growth in hip procedures on MAKO in 2019. Please note that going forward, we will no longer be providing quarterly MAKO results. Since acquiring the company in early 2014, we have provided detailed MACO data for 23 consecutive quarters in order to allow investors to accurately track the performance of this differentiated robotic technology. As we are now six years since the acquisition and nearly five years since the initial launch of the total lead indication, we believe we have validated the strategic rationale and competitive advantage of MACO as witnessed by the roughly 600 basis points of U.S. need market share that we have gained since 2013. Going forward, we continue to expect to take meaningful market share in knees owing to Mako, along with our differentiated portfolio of knee products, including our 3D printed implants. We will continue to report on a combined basis both manual and Mako implanted knees in our knee line, while robot sales will be reported in other orthopedics to allow for accurate tracking of our knee revenue. Looking at 2020, our MACO order book remains robust and supports our expectation for continued share gains in both hips and knees. With that, I'll now turn the call over to Glenn.