Stryker Corporation

Welcome to the second quarter 2022 Striker earnings call. My name is Hannah, 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. 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, Chair and Chief Executive Officer. You may proceed.

Welcome to Stryker's second quarter earnings call. Joining me today are Glenn Bainline, Stryker's CFO, and Jason Beach, Vice President of Investor Relations. For today's call, I'll provide opening comments, followed by Jason, with the trends we saw during the quarter and updates on MACO and Vocera. Glenn will then provide additional details regarding our quarterly results before opening the call to Q&A. For the quarter, organic sales growth was 6%, with high single-digit growth from our med-surg and neurotechnology businesses, led by endoscopy, instruments, and neurocranial. Our hip and knee businesses delivered high single-digit growth in the face of tough comparables from 2021. Internationally, we posted high single-digit organic growth, with strength in Canada, Europe, and Japan, as well as double-digit organic growth in emerging markets, despite the China COVID-related slowdown. During the quarter, we continue 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. As a reminder, less than 10% of our revenue is large capital, with about 15% of our revenue being smaller operating capital that drives revenue for hospitals. For the quarter, we delivered adjusted EPS of $2.25 as we faced increasing negative impacts from foreign exchange, as well as inflationary pressures and significant premiums on inventory spot buys. We expect these pressures to continue in the back half of the year. However, the supply situation is improving. Given the higher input costs, we've begun to take a series of pricing actions across our portfolio. These will take time to be reflected in our results, given the phasing of contract renewals in many areas of our business. We continue to invest in R&D at a healthy ratio of sales, demonstrating our continued focus on new product pipelines. We remain confident in the outlook of our business and expect to continue to deliver sales growth at the high end of MedTech. However, even with disciplined spending, the worsened foreign exchange situation and other pressures will prevent us from delivering leveraged earnings in 2022. With half of the year behind us and a very strong order book, we now expect full-year organic sales growth of 8% to 9%. And due largely to foreign currency exchange, we now expect adjusted earnings per share to be in the range of $9.30 to $9.50 per share. Overall, our team has shown good resiliency and we are on track for another strong year of sales growth. Our employee engagement remains very high and we continue to win awards as a great place to work, most recently as a great place to work for millennials by fortune. We are also gearing up for some exciting new product launches in 2023 and look forward to an improved supply chain picture. Through the many challenges that we had faced since 2020, We feel optimistic about how we are positioning ourselves for the future. I will now turn the call over to Jason.

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 integration progress of the Vocera business. Procedural volumes continued to recover throughout the second quarter in most countries. While we are seeing volumes recover, hospital staffing pressures have continued, impacting the ability to reduce procedural backlog in a meaningful way. These challenges will likely continue, meaning the tailwind of pent-up demand will be more moderate but last longer. Geographically, procedural volumes steadily improved during the quarter in the United States, Europe, and Latin America. Procedural trends in parts of Asia and Australia have been more volatile due to ongoing COVID-related impacts. In addition to the continued procedural recovery, we had a strong quarter of Mako installations, up 19% versus 2021. However, as we are balancing customer purchasing preferences, the mix of these deals has resulted in less revenue per quarter. We are pleased with how the growing installation base continues to fuel market-leading implant growth. The order book remains strong for make-out, and the percentage of implants using the robot continues to increase. We will update you on our installations and utilization metrics at the end of the year. Demand for our capital products remained very strong in the quarter. While we experienced solid customer order performance from our capital businesses, the sales growth was restricted because of ongoing headwinds, which included raw material shortages primarily related to electronic components and installation delays in parts of our business due to hospital staffing challenges. The raw material shortages continue to be most impactful in our medical business, both within our acute care and emergency care business units. Based on our current supply outlook, we expect medical to have a strong second half. Now, to our key integration activities. We continue to be pleased with the momentum of the Vocera integration. Since acquiring the company, we have seen double-digit growth in the first and second quarter versus the same period in 2021. We are already starting to realize synergies and remain excited about the potential this product will create for both Stryker and the customers we serve. In summary, while the macroeconomic environment remains volatile, procedural volumes are improving and the underlying demand for our products remain strong. which gives us confidence in our ability to continue to drive strong growth. With that, I'll turn the call over to Glenn.