Stryker Corporation

Welcome to the fourth quarter 2021 striker earnings call. My name is Emily and I'll 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. Chair 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 trends we saw during the quarter and our annual MACO update. Glenn will then provide additional details regarding our quarterly results before opening the call to Q&A. As a reminder, as announced during our analyst day in November, we have reclassified our reporting segments into two groups, med-surgeon neurotechnology and orthopedics and spine. This better aligns to how our businesses are managed internally. We have also pulled out neurovascular on its own line and have the business units of neurosurgical instruments, CMF, and ENT, now grouped under neurocranial. As we have done all year, we will comment on our performance versus 2019, which we believe is a better basis for comparison. For the quarter, organic sales growth exceeded 6% versus 2019, driven by double-digit growth from our med-surg and neurotechnology businesses, but offset by softer sales of our hips, knees, and spine as COVID and hospital staffing challenges had a meaningful impact on elective procedures during the quarter. We posted double-digit organic growth in international compared to 2019 as our globalization efforts continue to bear fruit and where COVID impacts were generally less severe than in the U.S. While our more deferable businesses were challenged, we saw excellent results from our Mako robotic technology, capital products across our Medford portfolio, and continued double-digit organic growth in neurovascular, which reached approximately $1.2 billion in sales for the year. Despite the unanticipated Omicron variant, we were able to achieve full-year sales growth and adjusted EPS within our latest guidance ranges. Our full-year organic growth exceeded 7% and reflects strong demand for our MACO and MedSurg capital equipment and strong double-digit sales growth within neurovascular and neurocranial. In addition, we are very pleased with the right medical integration, particularly in the US. Our full year adjusted EPS grew 10% versus 2019, and we delivered free cash flow conversion of 85%. The EPS growth was a strong result given the inflationary pressures that grew in the quarter and the COVID impact on our implant procedures. We continue to invest in R&D at a healthy rate of 6.6% of sales for the year, and our new product pipelines are poised for continued success. Our strong cash flow performance provided us with additional flexibility to execute on M&A opportunities in the quarter, including Thermetics, a small tuck-in within Endoscopy, and the recently announced agreement to acquire Vocera. Despite the impacts of the pandemic throughout the year, we were able to surpass $15 billion, $16 billion, and $17 billion in revenue for the first time and we remain confident in the outlook for our business as the pandemic recedes. We continue to execute on our key growth strategies, including the expansion of our ASC offense, continued product innovation, and category leadership across our businesses. Turning to 2022, the volatility caused by COVID variants remains ongoing and is further impacted by hospital staffing challenges and supply chain disruptions. In spite of this, we expect to continue to deliver above market sales growth. However, given the pressures on our supply chain within MedSurge, we do not expect to deliver our typical degree of earnings leverage. We continue to be disciplined with our spending. However, we will continue to fuel new products with healthy R&D spending and will maintain our focus on above-market growth while we work through these cost pressures. As noted in the press release, we are guiding to 6% to 8% full-year organic sales growth and adjusted EPS of $9.60 to $10 per share. As I conclude my comments, I remain confident in our strategy, talent, and culture. I would like to thank our teams for continuing to persevere in these challenging times. I will now turn the call over to Preston.

Thanks, Kevin. My comments today will focus on providing an update on the current environment, including the latest impacts of COVID-19 across certain products during the quarter. In addition, I will provide an update on MAKO and recent acquisitions, including the continued integration of Wright Medical and the performance of our combined trauma and extremities business. During the quarter, hospital bed and operating room capacities were challenged because of the Delta variant early in the quarter, and most recently by the Omicron variant, which started to pressure elective procedural volumes in December. In addition, ongoing nursing staffing shortages disrupted hospital scheduling of procedural volumes. The delay in procedural volumes primarily impacted our implant-related businesses, including hips, knees, spine, and foot and ankle, which can be in many cases deferred for a period of time. However, we know that most of these patients will eventually return to have those procedures completed as the impacts from COVID decline and procedural volumes return to more normal levels. Demand for our capital products was strong in the quarter, including double-digit orders and sales, which created a strong order book for capital products. Despite the strong capital demand, there were some headwinds in the quarter that primarily impacted our medical business including installation delays caused by hospital staffing challenges and raw material shortages primarily related to electronics that created some supply disruptions. For the full year 2021 versus 2020, our global Mako install base grew by 27 percent, and we now have an install base that is approaching 1,500 Mako robots. This growth continues to highlight the high demand for our differentiated Mako robotic technology. The strong double-digit growth also underscores our ongoing success installing robots in major teaching institutions, ASCs, and competitive accounts, as well as our focus on expanding into international markets. In the fourth quarter, we saw a meaningful increase in the percentage of robots installed into competitive accounts. Turning to U.S. knee procedures, in the fourth quarter, over 50 percent of our total knees were Mako knee procedures, a trend that continues to increase and demonstrates the outstanding utilization of the MAKO install base. The shift towards cementless knees also continued, and in the fourth quarter, cementless knees made up 47% of our U.S. knee procedures. Additionally, in the fourth quarter, over 25% of our total hip procedures were MAKO hip procedures, which, similar to knees, continues to increase in utilization. Our recently launched Insignia hip stem will also be MAKO capable by the end of the first quarter. We expect to further our leadership position in orthopedic robotic assisted surgery through the continued adoption of our Mako Smart Robotics platform on a global basis. Shifting to our trauma and extremities business, we are now over one year into the integration of Wright Medical, which continues to progress well in all regions and across all functions, despite the headwinds from COVID, including Wright Medical, the combined U.S. trauma and extremities business through high single digits in 2021, which exceeded our expectations. the full year growth in the United States was driven by strong growth in core trauma and double digit growth in the upper extremities business, which offset the COVID related impact on foot and ankle. This strong result reflects excellent execution of the sales integration and the strength of the product portfolio. Finally, our dedicated divisional business development teams continue to identify and execute on meaningful acquisitions. As Kevin mentioned, We recently announced our agreement to acquire Vocera and enter the fast-growing digital care coordination and communication segment. We expect the Vocera acquisition to close by the end of the first quarter. During the fourth quarter, we also finalized the acquisition of Thermadex. Thermadex is an innovative developer and manufacturer of fluid management solutions and will allow our endoscopy business to improve surgical visualization across the women's health segment and advance the standard of care in the urology segment. We believe these and other acquisitions completed during the year will help us continue to drive above-market growth in the future. The overall environment remains uncertain as a result of the continuing COVID pandemic, and we expect hospital staffing shortages, supply constraints, and significant inflationary pressures caused by raw material shortages to persist throughout 2022. However, we believe that the underlying demand for our products remains strong, And coupled with a robust order book for our capital products gives us confidence in our ability to drive market leading growth when the impacts of the pandemic subside. With that, I'll now turn the call over to Glenn.