Stryker Corporation

Welcome to the third quarter 2022 Stryker earnings call. My name is Megan, 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. 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 discussion will include certain non-GAAP financial measures. Reconciliations to the most directly and 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, sir.

Welcome to Stryker's third 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 Vocera and capital equipment. Glenn will then provide additional details regarding our quarterly results before opening the call to Q&A. For the quarter, organic sales growth was 10%, with double-digit growth from our med-surg and neurotechnology businesses, led by endoscopy, medical, and neurocranial. Our hip and knee businesses also delivered double-digit growth, reflecting the continued recovery of elective procedures and our worldwide MAKO momentum. Lastly, we continued our strong international performance with double-digit organic growth led by Europe, Canada, and emerging markets, despite negative growth in China. For the quarter, we delivered adjusted EPS of $2.12 share, driven by our strong sales performance, partially offsetting negative foreign currency and inflationary pressures. We expect these pressures to continue, but at a more moderate level for the remainder of 2022. We are pleased with our strong sales growth, which would have been even higher if not for material shortages, mostly affecting medical and instruments. Meanwhile, we are taking actions to deal with the cost headwinds, including inflationary challenges. First, as noted in Q2, given the higher input costs, we took a series of pricing actions across our portfolio. We have begun to see the impact of these initiatives, lessening the negative price impact on our business in Q3 but it will take time to see the full effect given the timing of contract renewals and rebates from prior contracts expiring. Second, we have taken additional actions around cost, including the reduction of discretionary items, hiring actions, and are proceeding with targeted restructuring plans in parts of our business. We continue to invest in R&D, demonstrating our continued focus on new product pipelines. This includes investments in R&D for enabling technologies robotics, imaging, and navigation, including our recently launched Q guidance navigation system in spine. Notably, we are making good progress with the development of our spine and shoulder applications for Mako. We have stopped the card and spine robotic project to focus all our energies on Mako and expect that the Mako spine and shoulder launches will occur in a similar timeframe. Also during the quarter, we signed an agreement to purchase Saris Endovascular, a technology leader in the hemorrhagic segment. This deal is pending customary closing conditions. We remain confident in the outlook of our business and expect to continue to deliver sales growth at the high end of MedTech, which is reflected in our narrowing of full-year organic sales growth to the higher end of our prior range, now 8.5% to 9%. However, worsening foreign currency and continued inflationary pressures have caused us to lower our full-year adjusted EPS range to $9.15 to $9.25 per share. Overall, our team has shown good resiliency, and I'm pleased that employee engagement range is very high. We continue to be recognized across many countries, professions, gender, and age groups as a great place to work, most recently as one of the world's best workplaces by fortune. As we look ahead to 2023, we feel optimistic about growth with high customer demand and exciting new product launches. Though the inflationary pressures and supply chain challenges will continue to impact next year, the strong growth outlook combined with our pricing and cost actions will position us well to return to strong earnings growth. 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, geographic, and capital trends during the quarter. In addition, I will provide an update on the integration progress of the Vocera business. Procedural volumes continue to recover throughout the third quarter in most countries, and we are beginning to reach normalized levels across most of our business. While we are seeing volumes recover, hospital staffing pressures have continued to impact the ability to reduce procedural backlog in a meaningful way. These challenges will likely resolve gradually, and we continue to expect this will be a moderate tailwind into next year. Geographically, procedural volumes steadily improved during the quarter in the United States, Europe, and Latin America. Parts of Asia Pacific have continued to be more volatile due to ongoing COVID-related impacts. Demand for our capital products remained very strong in the quarter, as seen from the double-digit growth of our medical division. However, we did realize some installation delays as well as hospital scheduling challenges. Specific to MAKO, installations for the quarter were soft as we realized delays stemming from variability in the hospital environment. However, our order book remains strong and we expect a good fourth quarter for MAKO. We will update you on our key MAKO metrics in January. Now to our key integration activities. We continue to be pleased with our Vocera integration progress and remain excited about the strong growth potential of this platform technology. However, in Q3, we elected to delay some installations shifting from on-prem servers to our cloud solution with certain customers. Also, as we do with all acquisitions, we are shifting the legacy Salesforce to the Striker model, which has caused some disruption. These delays resulted in revenues that were essentially flat to Q3 2021. However, the order pipeline remains strong and customer retention remains very high at 99% for software renewals. We expect these processes to continue into Q1 of next year, after which we will be positioned to drive robust sales growth. In summary, while the macroeconomic environment remains dynamic, 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 revenue growth. With that, I'll turn the call over to Glenn. Thanks, Jason.