The operator welcomes participants to the Fourth Quarter and Full Year 2023 Stryker Earnings Call. The call will include forward-looking statements and non-GAAP financial measures. CEO Kevin Lobo highlights the company's achievement of surpassing $20 billion in sales and expresses excitement for the future. CFO Glenn Boehnlein will provide more details on the quarterly results and 2024 guidance. Lobo thanks employees for their hard work and dedication.

Despite strong comparisons from the previous year, the company has seen a terrific sales growth of over 11% in Q4 and for the full year. This was driven by successful product introductions and strong commercial execution across all businesses and regions. The company also saw double-digit organic sales growth in various areas, including instruments, endoscopy, and medical devices. International sales growth has also outpaced the US for the sixth consecutive year. The company has also reported strong adjusted EPS growth and plans to continue investing in organic innovation and M&A to drive future growth. The focus of the call will be on providing updates on the current market environment and recent acquisitions.

The company saw strong demand for orthopedic procedures and capital products in the quarter, with expectations for continued growth in 2024. The MAKO system had a record number of installations globally, and the company is focused on increasing adoption. The Vocera acquisition has been successfully integrated, leading to double-digit sales and order growth. Cross-selling opportunities have also been successful, including leveraging Vocera for new bed business and integrating it with other products.

The company is expecting further growth and improvements in the coming years, with a focus on scalability, user experience, and automation. They anticipate strong sales growth and are excited about their acquisition of SERF. In the fourth quarter of 2023, the company saw organic sales growth of 11.4%, with positive pricing and a favorable impact from foreign currency. U.S. organic sales growth was 12.7%, while international growth was 7.7%. For the full year, organic sales growth was 11.5%, with positive growth in both the U.S. and international markets. Foreign currency had a slight negative impact, and the number of selling days remained consistent with the previous year.

The adjusted EPS for the quarter was $3.46, a 15.3% increase from the previous year, driven by higher sales and operating margin expansion. The full year adjusted EPS was $10.60, a 13.5% growth from the previous year. MedSurg and Neurotechnology had a constant currency sales growth of 12%, while Instruments had a U.S. organic sales growth of 11.5%. Endoscopy had a U.S. organic sales growth of 17.9%, with strong growth in its Communications, Endo, BEU and Sports Medicine businesses. Medical had a U.S. organic sales growth of 12.9%, led by performances in its Vocera, Acute Care and Sage businesses. Neurovascular had a U.S. organic sales growth of 7.6%, reflecting solid performance in the hemorrhagic business.

In the fourth quarter, the company saw strong organic sales growth of 14%, with double-digit growth in the neurosurgical and ENT businesses. Internationally, MedSurg and Neurotechnology had organic sales growth of 5.7%, with strong performances in Australia, Canada, and Japan. In Orthopedics and Spine, there was constant currency and organic sales growth of 10.7%, with strong performances in the US and internationally. The US Knee, Hip, Trauma and Extremities, and Spine businesses all saw double-digit organic growth. Adjusted gross margin improved by 120 basis points due to easing cost pressures and pricing initiatives, and adjusted R&D spending was 5.6% of sales.

In summary, the company's adjusted operating margin and other income and expense showed favorable results in the fourth quarter and for the full year of 2024. The company also expects its full year effective tax rate to be in the range of 14% to 15%. The company ended the year with a strong balance sheet, with $3 billion in cash and marketable securities and total debt of $13 billion. In addition, the company paid down a significant amount of debt and refinanced certain debt maturities. The company's cash flow from operations for the year was $3.7 billion, and it anticipates capital spending of $650 million to $700 million for 2024. The company does not anticipate any share buybacks and will now provide guidance for 2024 full year sales and earnings.

The company expects strong organic sales growth for 2024, driven by momentum from 2023, high procedural volumes, and healthy demand for capital products. They anticipate a flat impact from pricing actions and a negative impact from foreign exchange rates. The company also expects accelerated operating margin expansion and a stabilized operating environment. They do not provide quarterly guidance but expect similar seasonality as 2023. The first question in the Q&A session asks for more details on the 7.5% to 9% organic sales growth, including the breakdown between transitory and durable factors and key drivers.

The company had a successful year in 2023 with over 11% organic growth. They expect to continue this trend in 2024 with a projected 7.5% to 9% growth. The company is seeing strong demand for their products and is planning to launch new innovations in the upcoming year. They anticipate similar seasonality in sales and earnings as in 2023. The operating margin is expected to expand by 50 to 100 basis points, with a one-day adjustment in Q1 and two additional days in the last quarter.

The speaker discusses the company's plans for delivering operating margin expansion throughout the year and mentions that it may be more back-loaded due to sales and income projections. They then answer a question about the company's approach to M&A in the coming year, stating that they are back to their normal M&A strategy and are open to larger deals. The speaker also mentions their commitment to margin expansion and states that the majority of deals will likely be smaller tuck-ins.

The speaker is discussing the company's financial performance and their plans to reach pre-COVID margins. They mention opportunities for growth in gross margin and operating expenses, and highlight the success of their orthopedics division.

Kevin Lobo, CEO of Stryker, discusses the company's strong performance in robotic-assisted surgery and Cementless procedures, which are both growing in demand. Mako, the company's robotic platform, is driving growth in hospitals and ambulatory surgery centers. The company's recent acquisition, Wright Medical, has also been successful in boosting the extremities business. Lobo expects continued growth in 2024 and mentions upcoming product launches in the trauma and extremities business. The medical unit is now the company's largest and faces tough comparisons in the first half of the year.

Stryker's medical business has been experiencing strong growth and is expected to continue growing above the company's average rate for the next five years. This is due to the success of their AED, Sage, and Vocera products, as well as their innovative new products such as the Xpedition stair chair and wireless stretchers. The medical segment is often underestimated, but it has a diverse set of businesses and a strong leadership team. Stryker has several new launches planned for the medical segment in the coming year, making it an exciting time for the company.

The speaker is bullish on the medical industry and believes they have a strong focus on talent. They have a strong pipeline of innovation and are in the middle of a super cycle with big platform launches. They have upcoming launches planned and are constantly reloading. The AAOS conference will be exciting.

The company will be demoing some of their products at AAOS, including Blueprint, Pangea, and the 1788 camera. The guidance for fiscal 2024 is 7.5% to 9%, with a tougher comp in Q1. The company feels good about the capital environment and the direct-to-consumer campaign for MAKO has been successful.

The speaker is discussing the potential for adoption of MAKO robotic technology in spine procedures. They mention the success of their direct-to-consumer advertising and the positive feedback from surgeons on the MAKO spine's workflow and efficiency. They believe that, over time, robotic technology will become the standard of care in orthopedic procedures, including spine surgeries. They also mention the compatibility of the Q Guidance software and the MAKO camera, which will make the technology even more appealing to surgeons. The speaker is optimistic about the future of MAKO in the spine market.

In this paragraph, Shagun Singh asks Kevin Lobo about the current trends in healthcare utilization and what is driving it. Lobo mentions that hospitals are busy and aging demographics, increasing activity levels, and the popularity of activities like Pickleball are contributing to this trend. He also mentions that there is a strong demand for surgeries and hospitals are ordering more capital, including building more ASCs. The ASC trend is also helping as patients prefer this setting.

The company is experiencing strong demand for hip and knee surgeries, with word of mouth spreading and a growing number of procedures being performed in ASCs. The CEO is confident in the company's guidance for the year and potential for sales and margin expansion. In the Q&A portion of the earnings call, the CFO is asked about the gross margins for the third and fourth quarters and explains that the change was due to a mix of factors, including good and bad influences.

The biggest factor in the growth of Stryker in the fourth quarter was mix, followed by solid price performance and a surge in sales. The company expects flat pricing in 2024, but this is an average and some products will see price increases while others may see decreases. The operating margin guidance includes 200 basis points, with more than half of that expected in 2024.

The speaker is asked about the company's plans to achieve a 100 basis points plus growth in 2024. He explains that the company will benefit from natural leverage from growth, as well as ongoing initiatives to improve gross margins. He also mentions the upcoming launch of MAKO shoulder in 2024, but notes that the company's shoulder business is already doing well with other products. The launch of MAKO shoulder is expected to have a minimal impact on revenue.

The speaker discusses the positive feedback received about the company's searches, but notes that the impact will be greater in 2025 rather than 2024. The next question is about the dynamics of the MAKO market, particularly in terms of placing and selling systems and pricing. The speaker mentions the company's flexibility in financing options and the fact that all ASC MAKO installations are financed. They also mention that the company still has a lot of potential for growth in both the US and international markets.

The installation growth for MAKO is higher than what is currently being seen, and it is expected to normalize over time. The company charges for the robots to ensure customer engagement and monitors utilization closely. International sales are strong, and the potential for growth is significant. The company is doing well in the shoulder market and has seen improvement in the spine market in recent quarters. The MAKO brand is well known and expected to have a positive impact on the spine business in the future.

The speaker discusses the expected success of MAKO's new spine surgery robot, which will have a faster uptake due to the company's previous success with MAKO on hips and knees. They anticipate some challenges with sharing the robot between spine and hip/knee surgeons, but are confident in their commercialization plans. The speaker mentions the success of their Q guidance system and the anticipation of the CO-PILOT product, both of which will set them ahead of their competitors. They believe that the MAKO brand and the benefits of the robot will lead to a fast scaling and trust from customers.

The speaker, Kevin Lobo, addresses a question about the capacity for orthopedic procedure growth in the U.S. health care delivery system. He states that while there were concerns in the past, these issues have largely been resolved and the system is now in a normalized state. Hospitals have prioritized staffing for orthopedics and have the capacity to operate additional days. The only area with room for growth is in ASCs, which are being constructed by hospitals.

During a conference call, Josh Jennings asked about the placement of MAKO systems in hospitals and the potential for second or third system purchases. Jason Beach and Kevin Lobo from the company did not disclose specific numbers but stated that many hospital systems have multiple MAKO systems and that this trend is expected to continue with the introduction of new applications. They also mentioned that the recent SERF acquisition will help expand their hip portfolio, but did not provide further details as the deal has not yet closed.

The speaker discusses the outlook for the neurovascular market in 2024 and mentions that it was a challenging year in 2023 due to international factors. They express confidence in the market's growth potential and mention strategies to drive better growth, such as the Cerus acquisition and potential products in the pipeline. They also mention the impact of China's VBP and the potential for adding liquid embolic products to the business. Overall, they expect to see improved growth in the coming years.

The speaker discusses the current state of the orthopedics market, noting that it has become more competitive on the ischemic side but remains strong on the hemorrhagic side. The company launched new products last year which led to good growth in the US. Despite not being as fast-growing as before, the company is committed to the business and expects growth to pick up once current challenges are overcome. A question is asked about the underlying market growth in orthopedics, and the speaker mentions factors such as demographics, activity levels, and pricing that may be contributing to higher growth rates.

Stryker is confident in the adoption of robotic-assisted surgery and expects to see mid-single-digit growth in the next two to three years. They have a history of outgrowing the market by 300 basis points and this trend is expected to continue. The company's success is attributed to their innovation, particularly in the MAKO system, and their strong team. In the Q&A session, they also mentioned being back on OpEx and the potential for future M&A.

The speaker, Kevin Lobo, is discussing the company's plans for mergers and acquisitions (M&A) in the upcoming year. He mentions that due to the high demand in their business, they will likely focus on smaller "tuck-in" deals in the first half of the year, but may also pursue larger deals in adjacent categories. He notes that the company has improved in its ability to evaluate and integrate these deals.

The speaker praises Wright Medical for its successful integration of a complex business and mentions that ASCs (ambulatory surgical centers) are a hot topic in the industry. The company has seen a gradual increase in the percentage of hips and knees being done through ASCs, and they have all the necessary equipment and implants for orthopedic procedures. The speaker also mentions a recent successful ASC deal in spine and the company's strong position in new builds and renovations.

The company is exploring opportunities in the GI space following their acquisition of Neptune and POM. They are also focused on bringing value to every call point they enter and are well positioned to succeed in the ASC market. The strong performance in spine is not solely due to disruption in the market, but rather improvements in their offense and enabling technology. The disruption is expected to have a greater impact in the future.

The speaker discusses the lack of disruption in the market and predicts that this will continue throughout the year. They also mention the success and benefits of their MAKO shoulder product, which makes a difficult procedure easier for surgeons and improves outcomes. The next question is about pricing, and the speaker explains that they have a dedicated team focused on pricing and they do not expect significant changes in pricing in different segments.

The company's MedSurg and Neurotech businesses have the ability to increase prices, while the Ortho side has seen less negative trends due to three-year contracts. The company has offset the impact of Pillar 2 in 2024 through tax planning and is currently looking at potential impacts in 2025. They generally maintain a leverage ratio of 2.5 to 3 and are currently on the lower end of that range. The company is also looking at potential M&A opportunities.

Stryker has room for potential acquisitions, but they usually only go after product tuck-ins. They are not afraid to go beyond their usual debt limit of 3 if it is a valuable asset. The Sports Medicine business has been a strong source of growth for Stryker, with upcoming shoulder launches and success in ASC deals.

The company has a lot of new product launches coming up, especially in the shoulder area. They have a strong leader in the sports medicine business and have seen impressive results in Endoscopy. The company is interested in soft tissue robotics but acknowledges the dominance of a large competitor. The PROstep launch in the fourth quarter was successful, but no specific metrics were shared.

The company is interested in the robotics space and may make a move in the future, but it is a difficult area. They are focused on maintaining a 200 basis points expansion in margins and will not sacrifice this goal for short-term gains. The company is also seeing success with Vocera and it is expanding throughout their organization.

Kevin Lobo, CEO of Stryker, discusses the challenges of integrating different technologies and the potential for cross-selling opportunities in the future. He mentions that the company has already seen successful integration with beds and wireless stretchers, and is receiving interest from third-party companies to be connected to their ecosystem. Lobo is excited about the potential for the acquisition to become a vital resource in hospitals, and plans to give a full update on integrated products in a year. He believes this acquisition has the potential to be a platform for future growth and recurring revenue.

The speaker discusses the company's goal of expanding its ecosystem and becoming an essential part of hospitals. They express optimism about achieving this goal due to the company's momentum and interest from third-party companies. The speaker also mentions the company's commitment to margin expansion and how they have been able to achieve it in the past despite some margin dilution. They believe they can continue to expand margins even with potential M&A deals and high organic growth rates.

The company is open to making acquisitions, even if they result in dilution, as long as they are beneficial for the company's future. The company is confident in its ability to maintain its financial targets, but is not ruling out the possibility of a larger, dilutive acquisition if it is beneficial for the company. The company has strong momentum as it finishes the year.

The author is looking forward to 2024 and will share their first quarter results in April. They express excitement for the future.

This summary was generated with AI and may contain some inaccuracies.