Stryker Corporation

Welcome to the first quarter 2022 Strikers Earnings Conference Call. My name is Brika and I'll be your operator for today. At this time, all participants are in a listen-only mode. Following the conference, we will conduct a question and answer session. 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 listening 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.

Thank you. Welcome to Stryker's first quarter earnings call. Joining me today are Glen Bainline, Stryker's CFO, and Preston Wells, Vice President of Investor Relations. For today's call, I will provide opening comments, followed by Preston, with an update on the trends we saw during the quarter, as well as recent acquisitions. Glen will then provide additional details regarding our quarterly results before opening the call to Q&A. For the quarter, organic sales growth exceeded 9% with double-digit growth from our med-surg and neurotechnology businesses led by endoscopy, instruments, and neurocranial. Our orthopedics and spine businesses delivered high single-digit growth, highlighting procedural recovery throughout the quarter. Internationally, we posted mid-single-digit organic growth, highlighted by double-digit organic growth in Europe, and emerging markets. During the quarter, we continued to have robust demand for our capital products. However, we had meaningful shipment delays as a result of ongoing product supply challenges, mostly affecting our large capital businesses. For the quarter, we delivered adjusted EPS of $1.97, reflecting growth compared to the first quarter of 2021, despite the ongoing impacts from inflationary pressures and significant premiums on inventory spot buys. We expect these supply chain pressures to persist throughout the year, although they will moderate with less reliance on spot buys in the second half of the year. In addition, we continue to invest in R&D at a healthy rate of 7.2% of sales, demonstrating our continued focus on our new product pipelines. Despite the ongoing supply chain pressures and the continued COVID volatility, in certain regions of the world we remain confident in the outlook of our business and we expect to continue to deliver sales growth at the high end of med tech however as previously mentioned despite continued discipline with our spending the pressure on our supply chain will impact our ability to deliver earnings leverage in 2022 with one quarter behind us a very strong order book and these macroeconomic dynamics We now expect full year organic sales growth towards the high end of our guidance range of six to 8%, and expect adjusted earnings per share at the lower end of our guidance range of $9.60 to $10 a share. During the quarter, we also closed the acquisition of Vocera, and I'm excited about the highly complimentary and innovative portfolio that Vocera brings to our medical division. We believe that this deal will drive strong value creation in the years ahead. Finally, I am pleased about our ongoing commitment to our talent and culture, which is reflected in the recognition of Stryker for the 12th year in a row as one of Fortune's 100 best companies to work for. Over this time, our employee base has moved from 20,000 to 46,000, and I would like to thank our leaders for maintaining our positive culture as we have grown. In addition, we also published our second annual comprehensive report during the quarter, which captures our environmental, social, and governance strategy and details our commitments and disclosures on our three pillars of corporate responsibility, stronger people, healthier planet, and good business. Overall, I am pleased with our start to the year, despite the challenging macroeconomic environment, and believe we are well positioned for the future. 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 procedural and geographic trends during the quarter. In addition, I will provide an update on the continued integration of Wright Medical and the initial integration progress of the Vocera business. After being impacted in January by the Omicron variant, procedural volumes recovered sequentially throughout the quarter as COVID-related delays and restrictions eased. While we're seeing volumes recovered towards more normal levels, there continues to be some overhang from hospital staffing shortages, which is causing scheduling disruptions around the world. This improvement in procedural volumes is primarily impacting our implant-related businesses, including hips, knees, spine, and extremities. In addition to the procedural recovery, our double-digit growth in knees continues to benefit from the growing MAKO install base. We also grew high single digits in foot and ankle, upper extremities, and hips, driven by continued new product penetration. Within our hips business, the launch of the new Insignia hip stem, along with the MAKO 4.1 software, which also incorporates Insignia into the Mako robotic platform, continues to proceed well and should be a tailwind to our hip business throughout the year. Geographically, procedures recovered during the quarter in the United States, Europe, and Latin America, which resulted in strong double-digit growth in those regions. Procedural trends in Asia have been more volatile due to the ongoing COVID-related impacts, with Japan and Australia beginning to see improvements towards the end of the quarter while other parts of the region saw COVID rates peak in March. In China, COVID-related impacts were more widely seen beginning in March, and we expect to see negative impact on procedural volumes in China during the second quarter as a result of strict lockdown restrictions across major cities in the country. Demand for our capital products remained strong in the quarter, including double-digit growth in orders, which bolstered the strong order book for capital products that we carried over from 2021. As a reminder, our capital business makes up less than 25% of our total sales, with under 10% coming from large capital items like beds, robotics, booms, and lights, and the remainder coming from small capital products like power tools and cameras, which facilitate surgical procedures. The strong demand in the quarter is occurring across our portfolio, including our small capital products within instruments, endoscopy, and neurocranial that support the recovery of procedural volumes. While we experienced solid growth from our capital businesses in the quarter, the growth was limited as a result of ongoing headwinds, including raw material shortages, primarily related to electronic components and installation delays because of hospital staffing challenges. The raw material shortages have had the largest impact in our medical business, both within our acute care and emergency care business units. These macro challenges will continue to be pronounced in the second quarter. We continue to partner closely with our customers to ensure we are meeting their more immediate and longer-term capital requirements. Turning to our key integration activities, the integration of Ocera is in its early stages, and we are pleased with how the teams are working together to maximize the opportunity. On a pro forma basis, the Ocera business continued its strong double-digit momentum during the quarter. And finally, the right medical integration continues to progress well across all regions. which is reflected in the double-digit growth of our U.S. trauma and extremities business during the quarter, which was led by excellent performances in both U.S. foot and ankle and U.S. upper extremities. In summary, while the macro environment remains volatile, procedural volumes are improving, and the underlying demand for our products remains strong, which gives us confidence in our ability to continue to drive market-leading growth. With that, I will turn the call over to Glenn.