The operator welcomes participants to the Second Quarter 2024 Stryker Earnings Call and reminds them that the call will include forward-looking statements and non-GAAP financial measures. CEO Kevin Lobo and CFO Glenn Boehnlein will provide updates on the company's second quarter performance, which included strong organic growth in both MedSurg and Neurotechnology and Orthopaedics and Spine, with balanced growth in both the US and international markets.

The company had strong results in the second quarter, with double-digit organic growth in various business segments and strong growth in international markets. They also completed two acquisitions and expect continued growth in the future. Adjusted EPS grew by 10.6% and the company has raised their expectations for 2024. The focus of the call will be on the current market environment, capital demand, and product highlights.

The company had strong procedural volumes in the second quarter due to increased adoption of robotic assisted surgery and healthy patient activities. They expect continued demand for their capital products and anticipate sustained growth in their hips and knees businesses. The company also introduced new products, such as the Pangea plating system and the LIFEPAK 35 defibrillator, which are expected to contribute to future growth. They also received FDA clearance for their Spine Guidance 5 Software, which aims to improve surgeon precision and patient safety during spinal procedures.

In the second quarter, the company saw organic sales growth of 9%, driven by positive trends in pricing initiatives and sales momentum in most international markets. Adjusted EPS was up 10.6% from the previous year, with MedSurg and Neurotechnology leading the way with 9.7% organic sales growth. Instruments and Endoscopy also had solid growth, driven by strong sales in surgical technologies, power tools, and endoscopy products. The company's development pipeline includes Mako Spine and Copilot, which are expected to launch later this year.

The slower communication sales were offset by strong performances in the Medical, Neurovascular, and Neuro Cranial businesses. Internationally, MedSurg and Neurotechnology saw double-digit growth, with strong performances in China, Australia, and Japan. Orthopaedics and Spine had constant currency sales growth of 8.9% and organic sales growth of 8%, with strong growth in the US and internationally driven by the knee, hip, trauma, extremities, and spine businesses. The US saw strong growth in robotic assisted knee procedures and Mako installations, while internationally, there were strong performances in Canada, Europe, and emerging markets.

In the second quarter of 2024, the company saw a 30 basis point increase in adjusted gross margin, driven by positive pricing trends and improved efficiencies. Adjusted R&D spending and SG&A were consistent with the previous year. The adjusted operating margin was 24.6% of sales, a 30 basis point increase. Net adjusted other income and expense was $54 million, $12 million lower than the previous year. The adjusted effective tax rate was 15.2% for the quarter, and the company expects it to be in the range of 14% to 15% for the full year. The company ended the quarter with $2 billion in cash and marketable securities and total debt of $12.2 billion. Cash flow from operations was $837 million year-to-date. The company now expects full year organic sales growth to be 9% to 10%, with a negative impact of $0.10 to $0.15 on EPS due to foreign exchange rates.

The company has seen strong sales momentum and expects adjusted net earnings per share to be in a specific range. They are open to questions and the first one is about their thoughts on M&A for 2024. The CEO confirms their commitment to their margin targets and mentions an active deal pipeline. The CFO explains that they will be active in the second half of the year and that they have a strong balance sheet. The second question is about the margin goal for this year and the drivers for achieving it.

The speaker responds to a question about the company's performance and predicts that the second half of the year will see increased leverage in operating margin. They also mention a balance between gross margin and SG&A in the first half of the year and express confidence in meeting their goal of 100 basis points of operating margin expansion for the year. The speaker also addresses a question about the company's guidance for the quarter and explains that they do not guide quarterly but were pleased with the results and confident in raising their guidance for the year. They mention visibility into capital equipment and procedure volume as factors in their confidence.

The speaker is optimistic about the company's performance in the back half of the year, citing a strong backlog and demand for their products. They also expect new products to have a positive impact on growth in the third and fourth quarters. The speaker is confident in raising their guidance, and mentions that they are growing off of high numbers from previous years. They are also considering seasonal dynamics and the overall health of the orthopedic market.

The company has consistently outpaced the market for hip and knee products, thanks to Mako and insignia. They expect this trend to continue through the end of the year and potentially into next year. The company has seen a positive impact from pricing, especially on the MSNT side, and they plan to continue pushing for higher prices in the future. The salesforce is also incentivized to drive positive pricing and margin improvements.

The speaker explains that the company has seen record Mako robot placements in each quarter, with international markets being a major contributor. The US organization has also done a great job promoting the use of Mako, resulting in an increase in the percentage of hips and knees performed with the robot.

The speaker discusses the success of Stryker's technology in the marketplace and the company's plans to expand into spine and shoulder applications. They also address questions about the sustainability of the current growth rate, which is expected to be above historical levels.

The CEO of Stryker, Kevin Lobo, believes that the company can sustain its high growth rate over the next one to two years. This is evident by the company's consistent growth over the past few years and the potential impact of new product launches in trauma and medical fields. Other product launches, such as cameras, ProCurity, and power tools, also have room for growth. International growth is also expected to continue, and the company's M&A strategy focuses on acquiring fast-growing assets to further boost organic growth. Overall, Lobo is confident in the company's ability to maintain high organic growth, which has significantly increased compared to 10 years ago.

The speaker, Kevin Lobo, discusses the company's success in splitting business units and salesforces, and states that this formula is working and will continue to be successful. He also mentions the company's interest in soft tissue surgical robotics, but states that they will be cautious in entering this market. The next speaker, Travis Steed, asks about the company's interest in this market and Lobo responds that they are exploring multiple adjacencies and cannot predict which one they will enter first. Another caller, Matthew O'Brien, asks about the stock's decline in the aftermarkets, which is potentially related to concerns about margins in the second half of the year.

The speaker is discussing the growth in operating margins for Stryker over the past few years and potential improvements in the future. They mention controlling factors such as hiring and travel expenses, as well as natural leverage from growing off a fixed cost basis. They also mention exciting developments in supply chain and low-cost manufacturing that could contribute to margin growth.

The company is shifting its transactional work to shared service centers to reduce costs and is confident in its plan to achieve a 100 basis point improvement. The overall portfolio is performing well, with some exceptions in the neurovascular and lower extremity markets. The company is making adjustments in the salesforce to address competition in the ischemic business, but is still optimistic about the market.

The speaker discusses the growth of the foot and ankle market since the acquisition of Wright Medical and notes that it has been softer in the first and second quarters of the year. They attribute this to market fluctuations and reassure investors that their product pipeline is strong. They also mention the success of their upper extremity and core trauma products. The speaker then addresses a question about their new robotic platform and its integration capabilities in the US market.

Kevin Lobo, CEO of Stryker, discusses the impact of new entrants in the OR integration and robotics space on their business. He expresses confidence in their current technology and growth trajectory, and is not concerned about competition. Lobo also mentions their interest in the neuromodulation space, particularly in relation to sleep apnea, but does not have a specific plan for entry at this time.

The speaker discusses the company's interest in potential acquisitions and the need to ensure they will be successful in the market. They also express confidence in sustained growth in certain markets, citing indicators such as surgeon schedules and demand for their products. The month of July has been particularly strong in terms of volume.

The speaker discusses the positive outlook for the market and the success of Mako internationally. They mention the impact of Mako and cameras on pulling through other Stryker products. The company has improved its international leadership and connections, making it a more global company.

The company has seen international growth above US growth for five consecutive years and expects this trend to continue for the next five to ten years. In the current quarter, China has shown positive growth, with less impact from VBP than anticipated. While China is a small portion of the company's overall business, it is an important market that they will continue to focus on. The company expects a more sustained positive profile in China going forward.

Vijay Kumar from Evercore ISI asks about the launch of LP 35 and potential capacity constraints. Kevin responds by saying that they are still targeting between 70% and 80% free cash flow conversion and that there have been some working capital differences in the first half of the year, but they expect to see normal seasonality in the back half of the year. He also mentions that there have been some inventory changes due to higher sales and timing of transition tax payments.

In the second quarter, the company has already started taking orders for their new product and they are confident in their ability to ramp up production quickly. They do not foresee any capacity constraints. The company has raised their guidance for the back half of the year due to strong sales in July and a significant backlog of capital to be shipped. They have good visibility into their procedures and are confident in their ability to deliver on their raised guidance.

The speaker discusses the tailwinds that will help the company in the future and mentions the significant contributions of Pangea and the Defib. He explains that LP 35 will have a rapid growth in the next two to three years, while Pangea will have a more sustained and consistent growth. He also mentions other products in the pipeline, such as Mako Spine, Copilot, and Mako Shoulder.

The company is continuously developing new products to detect cancer using fluorophores, with new markets and opportunities opening up. These products have a multi-year benefit and have not yet been launched internationally. The company has seen success with previous products and expects the same for the new ones. Margins are expected to continue to expand, with more significant growth in the second half of the year. The company will provide more information about 2025 in January.

The speaker, Kevin Lobo, responds to a question about the company's expected op margin expansion and provides updates on the inventory and pricing trends in the surgical center channel in the United States. Lobo mentions that they will provide more information in January and that ASC pricing is consistent with hospital pricing. He also notes that the ASC trend is positive and is not expected to slow down despite high interest rates.

The second quarter saw a significant increase in the percentage of knee and hip surgeries being performed in ambulatory surgery centers for Stryker. The company is experiencing overall growth in ASCs and believes this trend will benefit them due to their strong offering in orthopedic ASCs. The company's outlook for the US spine industry is positive, with solid performance in interventional spine and the potential for growth with the recent approval of Copilot and Mako Spine. No additional information was provided regarding future plans.

The ASC market share for Stryker is strong due to their product offering and success in new construction and renovations. While they may struggle to displace entrenched surgeons in existing ASCs, they are confident in their growth potential in this segment. The trend of ASC procedures is expected to continue increasing in the future.

The article discusses the growth of ambulatory surgery centers (ASCs) and their increasing popularity among patients due to their convenience and proximity to their homes. The author believes that this trend will continue to grow and that more procedures will be performed in ASCs, including complex surgeries like lumbar spine procedures. The only limitation to this growth is the availability of financing and ownership structures between hospitals and surgeons. The author predicts that ASCs will account for 10-15% of surgeries in the next five years and could potentially reach 30-40% in the future. The momentum in international business is also expected to contribute to the company's growth, but may have a slight impact on margins.

The company does not include R&D expenses in their international numbers when looking at margins. In developed markets, there is good price performance and operating margins, but in emerging markets there may be a slight headwind. The company is aware of the impact of international sales on their overall margin profile and has planned for infrastructure needs and savings to maintain a consistent margin. They recently acquired Artelon, a soft tissue fixation product used in foot and ankle procedures, as a gap filler in their product line. Both the sports and foot and ankle business units will sell the product. The company had been tracking the company for some time and did not disclose the acquisition cost.

The interventional spine business has been a strong performer for Stryker, with a diverse portfolio of products and strong commercial execution. The company plans to expand in this area in the future and is maintaining expectations to launch Mako Shoulder later this year. There has been no impact from Zimmer's early launch of its shoulder robotic application.

During a recent earnings call, Stryker executives were asked about the company's performance in the neurovascular and medical businesses. They mentioned a supply issue in neurovascular, but overall, supply is in good shape. They also discussed a softness in the foot and ankle market, attributing it to factors such as prioritization of OR time for other procedures and copays. They are optimistic about the second half of the year for both businesses.

The speaker discusses the recent acquisition of MOLLI and how it fits into Stryker's overall strategy in the women's health and urology market. They mention the potential for bundling with other breast-related acquisitions and the benefits it brings to their endoscopy division. The acquisition is described as a "perfect, classic tuck-in" for Stryker, as the company already has representatives in the procedures and can offer a comprehensive solution for surgeons.

The speaker discusses a product that is not a major source of revenue but is highly praised and a key factor in Stryker's success. They also mention the high demand for capital and construction of hospitals and ASCs, leading to increased demand for procedures and growth in their MedSurg business. The speaker hopes this trend will continue through the end of the year and will provide more information on next year's guidance in January.

During the Q&A portion of the earnings call, David Roman asks about the interplay between different line items of the P&L and how it will affect operating margin expansion. Glenn Boehnlein clarifies that the company's plan for op margin expansion has not changed and that they are confident in achieving 100 basis points of expansion through both gross margin and SG&A leverage. Kevin Lobo thanks everyone for their questions and concludes the call.

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