Stryker Corporation

Welcome to the fourth quarter 2020 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 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 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 Preston Wells, Vice President of Investor Relations. For today's call, I'll provide opening comments, followed by Preston, with an update on the current environment and our most recent acquisitions. Glenn will then provide additional details regarding our quarterly results before opening the call to Q&A. I would like to start my comments by expressing my appreciation for the perseverance shown by our employees as they worked through the many challenges that we faced during 2020. Throughout the year, we maintained high employee engagement while continuing to support surgeons and caregivers around the world. our fourth quarter organic sales declined roughly 1%, reflecting the impact of a resurgence of COVID-19 infections offset by a continuation of emergent procedures and strong performance by our large capital products. We are also excited about closing the right medical deal during the quarter and the category leadership that we gain in the fastest growing segment within the orthopedics market. Preston will provide some additional updates on the integration shortly. Throughout the quarter, we maintained the financial discipline instituted at the beginning of the pandemic, which combined with a favorable tax rate led to an adjusted earnings per share of $2.81 in the quarter, up approximately 13% versus 2019. And we delivered impressive cash flow from operations which exceeded $3 billion for the full year. In addition to closing the Wright Medical acquisition, we also made progress in many areas that will provide future growth opportunities. We have established a structure focused on digital, robotics and enabling technology, where we see a significant opportunity to create a company-wide, unified digital ecosystem, including NACO. We maintained our commitment to drive innovation across our various business units including neurovascular, where we gained new product approvals across aspiration, stent retrievers, and float-averting stents, and in our med-surg segment, where we continue product introductions with a focus on safety and prevention. Finally, we successfully launched our ASC sales model, which leverages the Stryker portfolio to provide end-to-end solutions to meet the growing demand and shift to the outpatient setting. Our continued support for our customers and our commitment to innovation will position us well for growth as the pandemic eventually subsides. Turning to 2021, our people and culture of execution remains strong, which will allow us to deliver on our commitment to make healthcare better and to resume our customary strong organic sales growth and leverage earnings. With that, I'll now turn the call over to Preston.

Thanks, Kevin.

My comments today will provide an update on the current environment, trends related to the latest COVID-19 impacts, and updates on our most recent acquisitions of Right Medical and OrthoSensor. During the fourth quarter, elective procedures were negatively pressured in most regions globally, as localized infection and hospitalization rates surged through the month of December. As a result, growth was uneven and correlated to the state of the pandemic in each region. The areas impacted the most include the U.S. and many of the countries in Western Europe, most notably the United Kingdom, driven by a countrywide lockdown. Even with the procedural variability, we saw growth in emerging markets, including China, which grew double digits over prior year quarter. Looking forward, hospitals are better equipped to handle this resurgence, and they are working to bring back the procedures that have been delayed. But we expect that the variability of elective procedures will continue through the first quarter, until infection rates begin to decline and the distribution of the vaccines become more prevalent. This slowdown in elective procedures had a negative impact on our more deferable businesses, which make up approximately 40 to 50% of our total sales. However, the slowdown this quarter was not as impactful as the decline in the second quarter, as hospitals were better equipped to manage COVID patients while maintaining some level of elective surgeries. Despite the overall slowdown, we experienced continued growth in our neurovascular, medical, NACo, and upper extremities businesses. Specifically, demand for medical's large capital products continued in the fourth quarter, driven by the focus on expanding bed capacity, the need for our emergency care products like PowerCots and the Lucas device, and the availability of some remaining CARES Act funding in the U.S. In addition, the early trends in the launch of our new Percuity bed are positive and expected to continue into 2021. During the year, our Mako install base grew by 33% and exceeded another milestone, with over 100 robots sold and installed in the fourth quarter. This growth continues to highlight the demand for our differentiated Mako robotic technology, as well as our ongoing success selling and installing robots in major teaching institutions, ASCs, and competitive accounts. We are also excited about our recent approvals for Mako TKA in China, Russia, and Brazil, which all provide opportunities for growth as these markets continue to embrace robotic, digital, and enabling technologies. Turning to U.S. need procedures, in the fourth quarter, approximately 44% of our total needs were MAKO need procedures, a trend that continues to increase. The shift towards cementless needs also continued, and in the fourth quarter, cementless needs made up 42% of our U.S. need procedures. During the pandemic, feedback from surgeons has pointed to limited trialing of competitive products in businesses like joint replacement, as surgeons work to perform procedures restricted by cancellations and deferrals. However, as the pandemic subsides and we return to a more normal environment, we expect to continue to outpace the market driven by our Mako installations throughout the year and our strong order book heading into 2021. We are also enthusiastic about the right medical acquisition and the category leadership we gain in both upper extremities and foot and ankle through Wright's diverse portfolio of implants, biologics, and enabling technologies. The combination of Stryker and Wright will continue to drive innovation that enhances our customers' ability to address patient needs across the more than $3 billion extremities market. The integration has been progressing well over the last few months. The long period from sign to close was used to ensure that the appropriate integration plans were in place, leveraging our years of deal experience. To date, the teams have been focused on moving quickly to align the new combined organization. Considerable progress has been made, including the creation of specialized business units and sales forces for trauma, upper extremities, and foot and ankle, which is a key part of our overall decentralized strategy that allows us to remain close to the customer. The U S sales leadership organizational structure for these three specialized business units has been announced and the rollout and full alignment of territories will be finalized during the first quarter as planned outside the U S the leadership team is working to align the sales forces throughout the year. Our teams are executing the sales integration while continuing to drive day-to-day business. And during the quarter, there was minimal disruption caused by the closing and integration activities. Finally, I want to restate our ongoing commitment to M&A, which was most recently demonstrated by our acquisition of OrthoSensor, a leader in the digital evolution of musculoskeletal care and sensor technology for joint replacement. Smart devices and implants will play an important role in the future of orthopedics, and the addition of OrthoSensor will allow us to continue to innovate and advance smart sensor technologies, including interoperative sensors, wearables, and ultimately smart implants. As it relates to 2021 guidance, Glenn will provide an update on our full year guidance for sales, operating margin, and EPS. Updates to this annual guidance will be made each quarter as necessary throughout the year. With that, I'll now turn the call over to Glenn.