Stryker Corporation

Welcome to the second quarter 2021 Striker Earnings Call. My name is May 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 touchstone 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 second 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 right medical integration. Glenn will then provide additional details regarding our quarterly results before opening the call to Q&A. Please note that our press release contains our results versus both 2020 and 2019. For this call, our commentary will be based on our performance versus 2019, which we believe provides a more relevant point of comparison. For the quarter, we posted organic sales growth of 9.3%, reflecting growth versus 2019 for all our major businesses. This strong result was driven by standout performances from neurovascular, Mako, emergency care, sports medicine, and our U.S. shoulder and total ankle products. Each of these posted very strong double-digit growth. International organic growth outpaced the U.S. at 14.2% despite COVID challenges in some countries. We posted double-digit growth across in most regions, including excellent results in South Pacific, China, Canada, South Korea, and many countries in Western Europe. We were also pleased to see the continued rebound in elective procedures, as both hips and knees saw quarter over quarter sequential improvement, and both returned to growth. Also, now that we have a fuller appreciation of Wright Medical, we are delighted to have it within the Stryker family. With our first half organic growth of 7.1%, combined with continued recovery of electric procedures, a strong order book across our capital businesses, and new product innovations, we have increased confidence in the full-year outlook. This is reflected in our upward narrowing of organic sales guidance to 9% to 10% compared to 2019. Our sales performance carried through the rest of our results with strong margin performance, and adjusted EPS growth, and cash flow conversion of over 100 percent in the quarter. Through the remainder of the year, we do expect a disciplined increase in spending to support our future growth expectations. Our bullish sales outlook, combined with ongoing execution on margins and continued progress on rate medical integration, has resulted in a raised full-year adjusted earnings per share guidance of $9.25 to $9.40 a share. I continue to be impressed with the resiliency of our people and culture, which positions us well for a successful 2021 and beyond. I will now turn the call over to Preston.

Thanks, Kevin. My comments today will focus on the second quarter performance of our combined trauma and extremities business, including an update on the ongoing integration of Wright Medical. During the quarter, our combined worldwide trauma and extremities business, including Wright Medical, had a strong performance, growing 7% compared to 2019. The performance in the quarter was driven by double-digit growth in our U.S. trauma and upper extremities businesses. U.S. businesses were benefited by the recovery from COVID-related restrictions, which continues to outpace the rest of the world, as well as the ongoing execution of the U.S. selling integration. The trauma business unit was positively impacted by the reopening of economies and the continued strong performance of key products, including T2-alpha and the mini-frag plating system. Our U.S. upper extremities business, which remained number one in shoulder arthroplasty, grew strong double digits in the quarter behind continued strength within reverse arthroplasty portfolio with perform reverse and revision driving the growth. The upper extremities performance in the quarter was enhanced by the continued adoption of our Blueprint planning software with approximately 50% of total shoulder cases completed using Blueprint. As a result of the strong performance of our trauma and extremities business, which grew approximately 5% in the first half of the year, we are confident in the combined business to grow at least 6% for the full year when compared to 2019. We are now about nine months into the integration of Wright Medical, and we remain very pleased with the progress and efficiency at which the team is moving through the integration. The U.S. integration is pacing ahead of our expectations, and cross-selling has begun in a limited capacity. We expect to continue to execute on our cross-selling priorities during the second half of the year as we work to fortify the supply chain and processes to support cross-selling activities. Outside the US, the teams have successfully executed integration plans in several key markets, including the UK, Germany, France, Japan, and China, with further countries to follow into 2022. In addition to the commercial activities, we are also executing on the integration of other operational areas, including the consolidation of distribution and sales offices, harmonization of key operational processes, and executing on our manufacturing site strategy. Within R&D, the team also continues to make progress on aligning the long-term portfolio, pipeline strategies, and harmonized design processes. While the team has moved through the integration, they have also remained focused on executing the critical existing projects in the pipeline. This includes the recent launch of the new Tournier Perform Humeral System, which offers clinical solutions for the simplest and most complex arthroplasty procedures and delivers on our mission to make healthcare better for surgeons and the patients they serve. With that, I will now turn the call over to Glenn.