Q4 2022 Stryker Corp Earnings Call
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 Strykers current report on form 8-K filed today with the SEC I will now turn the call over to Mr. Kevin Lobo, Chairman and Chief Executive Officer, You May proceed.
Welcome to the fourth quarter and full year 2022 striker earnings call. My name is tmeia and I will be an operator for today's call. At this time, all participants are a listen-only mode. Following the conference, we will conduct a question-and-answer session. This conference call is being recorded for replay purposes.
Sure.
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.
Welcome to Strykers fourth quarter earnings call. Joining me today are Glenn mainline Strykers, 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 Mako performance insights and updates on both Sarah and Wright medical.
can be found in today's press release that is an exhibit to Shriker'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.
Glenn will then provide additional details regarding our quarterly results and 2023 guidance before we open the call to Q&A.
I will begin with the macroeconomic environment.
Welcome to striker's fourth quarter earnings call. Joining me today our Glenn mainelline, striker CFO , and Jason Beach, Vice President of Investor Relations.
2022 was a year, where we alongside many companies faced unprecedented supply chain challenges and inflationary pressures, we face these challenges and delivered for over 130 million patients.
For today's call. I'll provide opening comments, followed byadjacason with the trends we saw during the quarter, make o performance insights and updates on boera and right medical.
And for our customers all over the world.
We also remain focused on the future as we progressed our pipeline of innovation, enabling a super cycle of new product launches across our portfolio in 2023 and 2024.
Glenn will then provide additional details regarding our quarterly results and 2023 guidance.
before we open the call to Q&A.
I want to thank our 50000 employees for their unrelenting determination and agility.
I will begin with the macroeconomic environment.
2022 was a year where weep, alongside many companies, faced unprecedented supply chain challenges and inflationary pressures. We faced these challenges and delivered for over 13 million patients and for our customers all over the world.
In the fourth quarter, we delivered organic sales growth of 13, 2%, which brought our full year organic sales growth to nine 7%.
During my 10 plus years in this role these were record quarterly and annual growth rates.
We also remain focused on the future as we progress our pipeline of innovation, enabling a supercycle of new product launches across our portfolio in 2023 and 2024.
The growth was balanced across our businesses and regions and implants disposables and capital equipment and was highlighted by our medical Division, which had Q4 organic sales growth of over 25%.
I want to thank our 50,000 employees for their unrelenting determination and agility.
Additionally for the fifth consecutive year, our international organic growth rate exceeded our U S growth rate demonstrating the progress we are making on globalization.
In the fourth quarter, we delivered organic sales growth of 13.2%, which brought our full-year organic sales growth to 9.7%.
This was highlighted by Europe , Canada, Australia, and emerging markets, which all posted double digit growth in the quarter.
During my 10 plus years in this role, these were record quarterly and annual growth rates.
International growth remains a significant opportunity in the years ahead and should continue to complement our strong U S business.
The growth was balanced across our businesses and regions in implants, disposables and capital equipment, and was highlighted by our medical division which had Q4 organic sales growth of over 25%.
Next we delivered quarterly and full year, adjusted EPS of $3 and $9 34, respectively.
Additionally, for the fifth consecutive year, our international organic growth rate exceed our U's growth rate, demonstrating the progress we are making on globalization.
Exceeding our latest guidance range.
This was driven by our strong sales performance, which offset inflationary pressures and negative foreign currency.
Also we are progressing with our actions to address the higher costs, which include both pricing and targeted restructuring plans. We have begun to see the impact of these initiatives and expect an improving trend over the course of 2023.
This was highlighted by Europe , Canada, Australia, and emerging markets, which all posted double-digit growth in the quarter.
International growth remains a significant opportunity in the years ahead and should continue to complement our strong? U's business.
We also expect the positive trends in procedural recovery to continue alongside strong demand for capital products and.
Next, we delivered quarterly and full year adjusted EPS of $3.09.34 respectively.
While component availability will continue to be variable in 2023, we do expect that it will gradually improve throughout the year.
exceeding our latest guidance range.
This was driven by our strong sales performance, which offset inflationary pressures and negative foreign currency.
<unk> the need for spot buys.
Also, we are progressing with our actions to address higher costs, which include both pricing and targeted restructuring plans. We have begun to see the impact of these initiatives and expect an improving trend over the course of 2023.
We will remain disciplined with our spend and we'll continue to invest in innovation, including potential tuck in M&A.
We remain confident in the outlook of our business and expect to continue to deliver sales growth at the high end of Med Tech, which is reflected in our full year 2023 guidance of organic sales growth of seven to eight 5%.
We also expect the positive trends in procedural recovery to continue alongside strong demand for capital products.
And while component availability will continue to be variable in 2023, we do expect that it will gradually improve throughout the year, lessening the need for spot buys.
This growth combined with the continued challenging macroeconomic environment.
Our pricing and cost actions will translate to an adjusted EPS of $9 85 to $10 15 per share.
We will remain disciplined with our spend and will continue to invest in innovation, including potential tuck-in M&A.
I'll now turn the call over to Jason.
Thanks, Kevin My comments today will focus on providing an update on the current environment as well as Mako, both Sarah and Wright medical.
We remain confident in the outlook of our business and expect to continue to deliver sales growth at the high end of medtechking, which is reflected in our full year 2023 guidance.
<unk> volumes continue to recover throughout the fourth quarter in most countries.
Parts of Asia Pacific, However, have continued to be more volatile due to ongoing COVID-19 related impacts.
of organic sales growth of 7 to 8.5%.
This growth, combined with the continued challenging macro Comm environment, our pricing and cost actions.
While volumes are recovering hospital staffing pressures have continued in pockets around the globe and patient backlog remains.
will translate to an adjusted EPS of $9.85 to $10.15 per share.
As mentioned on the Q3 call. These challenges will likely resolve gradually and we continue to expect this will be a moderate tailwind as we move through 2023.
I will now turn the call over to Jason.
Thanks Kevin. My comments today will focus on providing an update on the current environment, as well as Mako, bothcerra and right medical.
Additionally, demand for our capital products remained very healthy in the quarter as seen from the double digit organic growth of our medical endoscopy and instruments Division.
Procedural volumes continued to recover throughout the fourth quarter in most countries.
Parts of Asia Pacific, however, have continued to be more volatile due to ongoing COVID-related impacts.
Even considering our finish we exited the year with a very strong order book.
Next specific to Mako, we had a record quarter of installations in both the U S and internationally.
While volumes are recovering, hospital staffing pressures have continued in pockets around the globe and patient backlog remains.
We continue to be agnostic to the form these deals take and we will continue to offer flexible options for our customers to acquire capital equipment.
As mentioned on the Q3 call, these challenges will likely resolve gradually, and we continue to expect this will be a moderate tailwind as we move through 2023.
The great progress of our Mako often has resulted in strong growth of our installed base alongside continued increases in utilization.
Additionally, demand for our capital products remain very healthy in the quarter, as seen from the double-digit organic growth of our medical and doscopy and instruments divisions.
In the U S. We saw approximately 55% of needs and almost 30% of hips performed using mako in the quarter.
Even considering our finish, we exited the year with a very strong order book.
Also in December we surpassed our $1 million cement less knee procedure with <unk> continuing to index higher than Mako accounts.
Next, specific to MACO, we had a record quarter of installations in both the US and internationally.
We continue to be agnostic to the form these deals take and will continue to offer flexible options for our customers to acquire capital equipment.
So in addition to being the leader in robotic assisted surgery. We are also well ahead on cement less knee adoption.
Finally, we are making good progress with the development of our Mako spine and shoulder application and expect to have the initial launch of spine in the back half of 2024 and the initial shoulder launch at the end of 2024.
The great progress of our MACO offense has resulted in strong growth of our install base alongside continued increases in utilization.
In the U's we saw approximately 55% of needes and almost 30% of hips performed using maico in the quarter.
Now to our key acquisition and integration activities.
Also, in December , we surpassed our 1 millionth cementless need procedure with cementless needs continuing to index higher in MACL accounts.
Our Vocera integration continues to progress well and as a reminder, we will anniversary in February of this year.
So, in addition to being the leader in robotic assisted surgery, we are also well ahead on cementless knee adoption.
Q4 results were consistent with our commentary on the last earnings call as the expected sales ramp beginning in Q2 of this year.
Finally, we are making good progress with the development of our MACO spine and shoulder applications and expect to have the initial launch of spine in the back half of 2024 and the initial shoulder launch at the end of 2024.
Turning the page to write medical we've now passed the two year Mark of the integration of Wright Medical This has been our largest acquisition to date now complete we have exceeded expectations on both our sales and synergy assumptions as the cultural fit was strong and we implemented our integration playbook very effectively.
Now to our key acquisition and integration activities.
Our Vocera integration continues to progress well and, as a reminder, will anniversary in February of this year.
Additionally, it was the catalyst that drove the creation of three separate business unit, allowing us to serve unique customers across core trauma, upper extremities and foot and ankle.
Q4 results were consistent with our commentary on the last earnings call, as is the expected sales ramp beginning in Q2 of this year.
All three businesses exited the year with terrific momentum and strong R&D pipeline.
Turning the page to Wright Medical, we've now passed the two-year mark of the integration of Wright Medical. This has been our largest acquisition to date. Now complete, we have exceeded expectations on both our sales and synergy assumptions as the cultural fit was strong and we implemented our integration playbook very effectively.
Overall this acquisition has proven to be a great success and we are excited about what the future holds and with that I'll now turn the call over to Glenn. Thanks, Jason Today, I will focus my comments on our fourth quarter financial results and the related drivers our detailed financial results have been provided in today's press release.
Additionally, it was a catalyst that drove the creation of three separate business units, allowing us to serve unique customers across core trauma, upper extremities and putot and ankle.
Our organic sales growth was 13, 2% in the quarter.
Fourth quarter's average selling days were in line with 2021, the impact from pricing in the quarter was unfavorable by one 6%.
All three businesses exited the year with terrific momentum and strong R&D pipelines.
We continue to see a positive trend from our pricing initiatives, particularly in our U S med surge businesses, which all contributed positive pricing for the quarter.
Overall this acquisition has proven to be a great success and we are excited about what the futature holds.
With that, I'll now turn the call over to Glenn. Thanks, Jason. Today, I will focus my comments on our fourth quarter financial results and the related drivers. Our detailed financial results have been provided in today's press release.
Foreign currency had a three 8% unfavorable impact on sales the.
The supply chain disruption somewhat lessened during the quarter and our capital order book continues to be very robust as demand from our customers remained strong in.
Our organic sales growth was 13.2% in the quarter. The fourth quarter's average selling days were in line with 2021. The impact from pricing in the quarter was unfavorable by 0.6%.
In the quarter U S. Organic sales growth was 11, 2% international organic sales growth was 18, 3% impacted by positive sales momentum across most of our international markets.
We continue to see a positive trend from our pricing initiatives, particularly in our U's medsurge businesses, which all contributed positive pricing for the quarter.
For the year organic sales growth was nine 7% with U S organic sales growth of eight 9% and international organic growth of 11, 7%.
Foreign currency had a 4% unfavorable impact on sales.
The impact from pricing in the year was unfavorable by <unk>, 9% in 2022 had the same number of selling days as 2021.
The supply chain disruption somewhat lessened during the quarter and our capital order book continues to be very robust as Demand from our customers remains strong.
Our adjusted EPS of $3 in the quarter was up 10, 7% from 2021, driven by higher sales and strict cost discipline, partially offset by inflationary pressures and the impact of foreign currency exchange translation, which was unfavorable 16.
In the quarter, US organic sales growth was 11.2%, international organic sales growth was 18.3%, impacted by positive sales momentum across most of our international markets.
For the year, organic sales growth was 10%, with U's organic sales growth of 9% and international organic growth of 12%.
Our full year adjusted EPS was $9 34, which represents growth of two 8% from full year 2021, reflecting the favorable impact of sales growth lower net interest costs and a lower effective tax rate, partially offset by inflationary pressures and the unfavorable impact of <unk>.
The impact from pricing in the year was unfavorable by zero 9% and two thousandy and 22 had the same number of selling days as 2021 .
Our adjusted EPS of $3 in the quarter was up 10.7% from 2021, driven by higher sales and strict cost discipline, partially offset by inflationary pressures and the impact of foreign currency exchange translation, which was unfavorable $0.16.
<unk> currency exchange translation of 31.
Now I will provide some highlights around our quarterly segment performance.
In the quarter med surge in Neurotechnology had constant currency sales growth of 19, 3% with organic sales growth of 16, 9%, which included $14, 9% of U S organic growth and 22, 5% of international organic growth.
Our full year adjusted EPS was $9.34, which represents growth of 2.8% from full year 2021, reflecting the favorable impact of sales growth, lower net interest costs, and a lower effective tax rate partially offset by inflationary pressures.
Instruments had U S organic sales growth of 11, 7% led by double digit growth in the surgical technology business from a product perspective sales growth was led by power tools, Steri shield waste management and smoke evacuation.
And the unfavorable impact of foreign currency exchange. Translation of 31 cents.
Now we'll provide some highlights around our quarterly segment performance.
In the quarter, medt surge Neurotechnology had constant currency sales growth of 19%, with organic sales growth of 17%, which included 15% of U's organic growth and 22% of international organic growth.
Endoscopy had U S organic sales growth of nine 7% highlighted by strong growth in sports Medicine Communications video general surgery and prepare.
Medical had U S organic sales growth of 22, 9% driven by our emergency care and acute businesses. The growth was fueled by double digit growth across our emergency care and prime structure businesses and also benefited from improvement in product supply throughout the quarter.
Instruments had U's organic sales growth of 12%, led by double-digit growth in the surgical technology business. From a product perspective, sales growth was led by power tools stairoshield, waste management and smoke evacuation.
Our U S. Neurovascular business had organic sales growth of one 5% driven by continued market softness and competitive pressures.
Endoscopy had US organic sales growth of 9.7%, highlighted by strong growth in sports medicine, communication, video, general surgery, and pro care.
The U S. Neuro cranial business had impressive organic growth of 19, 7%, which included double digit growth in our <unk> IQ signature high speed drills, silverglade bipolar <unk> and Max space Neuro product lines.
Medical had U's organic sales growth of 23%, driven by our emergency care and acute businesses. The growth was fueled by double-digit growth across our emergency care and Prime structure businesses and also benefited from improvement in product supply throughout the quarter.
Internationally med surge in Neurotechnology had organic sales growth of 22, 5%, reflecting double digit growth in all businesses geographically. This included strong performances in Europe , Australia and emerging markets.
Our U's neuvascular business had organic sales growth of 2%, driven by continued market softness and competitive pressures.
Orthopedics and spine had constant currency sales growth of eight 3% with organic sales growth of eight 4%, which included organic growth of six 2% in the U S and 13, 6% internationally.
The US neurocranial business had impressive organic growth of 19.7%, which included double-digit growth in our Sonopet IQ, signature high-speed drills, Silverglide bipolar forceps, and MaxFace neuro product lines.
Our U S hip business grew 11, 3% organically, reflecting strong primary hip growth fueled by the recent launch of our insignia hip stem. The ongoing success of the Mako P. H a $4 one software upgrades and continued procedural growth our U S knee business grew seven 8% organically.
Internationally, MedSurg and Neurotechnology had organic sales growth of 22.5%, reflecting double-digit growth in all businesses. Geographically, this included strong performances in Europe , Australia and emerging markets.
Orthopedics and Spine had constant currency sales growth of 8.3% with organic sales growth of 8.4%, which included organic growth of 6.2% in the US and 13.6% internationally.
<unk> against a very strong Q4 2022 comparable of over 14%.
This reflects our market leading position in robotic assisted knee procedures.
Our U S trauma and extremities business grew 11, 9% organically with strong performances across all three businesses led by double digit growth in upper extremities in foot and ankle and strong performances in plating and nailing.
Our US hip business grew 11.3% organically, reflecting strong primary hip growth fueled by the recent launch of our Insignia hip stem, the ongoing success of the MAKO PHA 4.1 software upgrade, and continued procedural growth.
Our U S spine business grew 5% led by performance in our enabling technology business, including the recently launched Q guidance navigation system.
Our U.S. knee business grew 7.8% organically against a very strong Q4 2022 comparable of over 14%.
U S. Other ortho declined organically by 18, 7%, primarily driven by the impact of deal mix changes, specifically more rentals related to Mako installations in the quarter.
This reflects our market leading position in robotic assisted knee procedures.
Our US trauma and extremities business grew 11.9% organically with strong performances across all three businesses, led by double-digit growth in upper extremities and foot and ankle, and strong performances in plating and nailing.
Internationally, orthopedics and spine grew 13, 6% organically, which reflect strong performances in Europe , Australia, Canada and India.
Now I will focus on operating highlights in the fourth quarter. Our adjusted gross margin of 62, 7% was unfavorable approximately 310 basis points from the fourth quarter of 2021 and in line with Q3 2022, reflecting the impact of the purchases of electronic components at premium prices and other inflationary pressures.
Our US spine business grew 0.5% led by performance in our enabling technology business, including the recently launched QGuidance navigation system.
U's other ortho declined organically by 19%, primarily driven by the impact of deal mix changes, specifically more rentallds related to meo installations in the quarter.
Primarily related to labor steel and transportation costs and unfavorable business mix.
Internationally. Orthopedics and spying grew 14% organically, which reflects strong performances in Europe Australia, Canada and India.
Adjusted R&D spending was five 5% of sales, which represents a 90 basis point decrease from the fourth quarter of 2021 full year. Adjusted R&D spending was six 7% of sales, which was slightly higher than our 2021 adjusted R&D spending of six 6% of sales.
Now I will focus on operating highlights in the fourth quarter. Our adjusted gross margin of 62.7% was unfavorable approximately 310 basis points from the fourth quarter of 2021 and in line with Q3 2022, reflecting the impact of the purchases of electronic components at premium prices.
Our adjusted SG&A was 36% of sales, which was 150 basis points lower than the fourth quarter of 2021. This reflects.
and other inflationary pressures primarily related to labor, steel, and transportation costs, and unfavorable business next.
The impact of increased focus on discretionary cost control and head count discipline.
In summary for the quarter, our adjusted operating margin was 26, 6% of sales, which was approximately 70 basis points unfavorable to the fourth quarter of 2021.
Adjusted R&D spending was 5.5% of sales, which represents a 90 basis point decrease from the fourth quarter of 2021. Full year adjusted R&D spending was 6.7% of sales, which was slightly higher than our 2021 adjusted R&D spending of 6.6% of sales.
This performance is primarily driven by the aforementioned inflationary pressures primarily on gross margin and the negative impact, resulting from foreign currency exchange translation somewhat offset by cost discipline.
Our adjusted SGNA was 31% of sales, which was 150 basis points lower than the fourth quarter of 2021. This reflects the impact of increased focus on discretionary cost control and headcount discipline.
Other income and expense of $53 million for the quarter decreased from 2021, primarily due to net favorable interest income for 2023, we expect a quarterly run rate of $65 million for other income and expense.
In summary, for the quarter, our adjusted operating margin was 26.6% of sales, which was approximately 70 basis points unfavorable for the fourth quarter of 2021.
Our fourth quarter and full year had an adjusted effective tax rate of 13, 8% and 14%, respectively, reflecting the impact of geographic mix and certain discrete tax items for 2023, we expect our full year effective tax rate to be in the range of 14, 5%.
This performance is primarily driven by the aforementioned inflationary pressures, primarily on gross margin, and the negative impact resulting from foreign currency exchange translation, somewhat offset by cost discipline.
To 15, 5%.
Other income and expense of $53 million for the quarter decreased from 2021 primarily due to net favorable interest income. For 2023, we expect a quarterly run rate of $65 million for other income and expense.
Focusing on the balance sheet, we ended the fourth quarter with $1 9 billion of cash and marketable securities and total debt of $13 billion approximately $150 million of term loan debt was paid down in the quarter, which brings our year to date payments to $650 million.
Our fourth quarter and full year had an adjusted effective tax rate of 13.8 percentand 14% respectively, reflecting the impact of geographic mix and certain discrete tax items.
Turning to cash flow our year to date cash from operations is $2 6 billion. This performance reflects the results of net earnings partially offset by lower accounts receivable collections due to higher sales at the end of the year the impact of higher costs for certain electronic components and pre buying of certain other critical raw materials.
For 2023, we expect our full year effective tax rate to be in the range of 14.5...
To 16%.
Focusing on the balance sheet, we ended the fourth quarter with $1.9 billion of cash and marketable securities and total debt of $13 billion. Approximately $150 million of term loan debt was paid down in the quarter, which brings our year-to-date payments to $650 million.
Inventory during the year.
For 2023, we anticipate that capital spending will be approximately 600 million.
Again in 2023, we do not plan to do any share buybacks and we will continue to focus on further debt reduction.
Turning to cash flow, our year-to-date cash from operations is $2.6 billion. This performance reflects the results of net earnings partially offset by lower accounts receivable collections due to higher sales at the end of the year, the impact of higher costs for certain electronic components.
And now I will provide 2023 full year sales and earnings guidance.
As we assess the current operating environment, we believe that there will continue to be macroeconomic volatility, including supply chain constraints recession in an inflationary risks and currency fluctuations <unk>.
And prebuying of certain other critical raw material inventory during the year. For 2023. We anticipate that capital spending will be approximately six million again in 2023. We do not plan to do any share buybacks and will continue to focus on further debt reduction.
Despite this environment, we have positive momentum in many parts of our business heading into 2023, including continued procedural recovery, many new product introductions and a very robust order book for our capital products.
Given the above we expect organic sales growth to be in the range of seven to eight 5% for the full year 2023, when compared to 2022.
And now I will provide 2023 full year sales and earnings guidance.
As we assess the current operating environment, we believe that there will continue to be macroeconomic volatility, including supply chain constraints, recession and inflationary risks, and currency fluctuations.
There are the same number of selling days in 2023 compared to 2022 with one extra day in Q1, and one less day in Q3.
Based on the steady progress of our pricing actions, we would expect the full year impact of price to be between zero percent and minus <unk>, 5%.
Despite this environment, we have positive momentum in many parts of our business heading into 2023, including continued procedural recovery, many new product introductions, and a very robust order book for our Capital products.
If foreign exchange rates hold near current levels, we anticipate sales and EPS will be modestly unfavorable impacted for the full year being more negative in the first half of the year. This is included in our guidance.
Given the above, we expect organic sales growth to be in the range of 7-8.5% for the full year 2023 when compared to 2022. There are the same number of selling days in 2023 compared to 2022, with one extra day in Q1 and one less day in Q3.
While we are not specifically guiding the quarters keep in mind that as you compare the first quarter to the prior year quarter Q1, 2022 did not have the inflationary pressures that we are now experiencing so despite a strong growth outlook, we do not expect Q1 EPS to be much better than Q1 2022.
Based on the steady progress of our pricing actions, we would expect the full year impact of price to be between 0% and minus 0.5%.
If foreign exchange rates hold near current levels, we anticipate sales and EPS will be modestly unfavorably impacted for the full year, being more negative in the first half of the year. This is included in our guidance.
Bill.
Finally for the full year 2023, we expect adjusted net earnings per diluted share to be in the range of 985 to $10 15, representing a return to op margin expansion.
While we are not specifically guiding the quarters, keep in mind that as you compare the first quarter to the prior year quarter, Q1 2022 did not have the inflationary pressures that we are now experiencing. So despite a strong growth outlook, we are not necessarily guiding the quarters.
This guidance range assumes a gradual improvement of the global operating environment, including a progressive easing of supply chain disruptions throughout the year.
Now I will open up the call for Q&A.
I'll now begin the question and answer session. Thank you I would like to ask a question. Please press star followed by one on your telephone keypad.
We do not expect Q1 EPS to be much better than Q1 2020 -two.
And for any reason at all you would like to move that question. Please press star followed by two.
Finally for the full year 2023, we expect adjusted net earnings per diluted share to be in the range of 985 to 10 to 15, representing a return to oppt margin expansion.
Again to ask a question please press star one.
A quick reminder, if you are using a speaker phone. Please remember to pick up your handset before asking your question.
This guidance range assumes a gradual improvement of the global operating environment, including a progressive easing of supply chain disruptions throughout the year.
Our first question comes from the line of Robbie Marcus with Jpmorgan you May proceed.
Great. Thanks for taking the questions and congrats on a really nice quarter.
And now I will open up the call for Q&A.
Wanted to start out on the.
The.
Med search side of the business, where you had really really strong performance in the fourth quarter, you talked about a healthy order book, but I was hoping you could give a little more visibility into exactly what you saw was was there a bolus of demand. There was this all underlying or catch up demand and then you talked about a healthy order book, but just what youre seeing.
We will now begin the question and answer session. If you would like to ask a question, please press starfollow by one on your telephone key pad. If any any reason met all you would like to remove that question. Please press starfollow by two again to ask a question. Please press star one as a quick reminder. If you are using a to speak perfollow.
In terms of your hospital clients around the world and their desire to continue to buy capital here.
Yes, as you can tell Rob it was a terrific quarter for all of instruments endoscopy and medical and medical in particular had a giant growth in the quarter really digging out of some of the backlog that they had a orders. If you look at the backlog entering 'twenty three it's actually higher than what we had at the end of 'twenty. Two so it was a little bit of <unk>.
Please remember to pick up your handset before asking your question.
Our first question comes from the line of Robbie Marcus with J.P. Morgan. You may proceed.
Great, thanks for taking the questions and congrats on a really nice quarter.
Catch up from prior quarters, but as we think about next year the outlook for all three divisions is strong again next year. We also have a lot of new products coming and those three divisions. So a strong order book strong demand for our product is strong cadence of new pipeline terrific leadership teams.
These three divisions have been if you go back even to from 2016, there every year, they're either high single digit or low double digit growers and that was no different in 2022.
Great.
Maybe a follow up for Glenn you talked about.
Second half probably better than first half a bit on this call a bit before this call and you talked about first quarter EPS not being much better year over year.
Any other color you could give us.
On the top line in China, as we think about 2023, just given there are some highly variable growth rates on the top line.
As well as margin.
Margin things to think about down the P&L. Thanks.
Yes first of all.
Picking up where Kevin left off if you think about the top line.
Entering the year with such a strong order book is really going to kind of bode well for growth of our big capital businesses.
As I say, we're really seeing is this procedural.
Expansion and so we feel really good about our momentum, especially in hips and knees and trauma.
In extremity, so we're going to continue to see those grow as well.
That plays into the mix of what we see when we get down the gross margin.
We do think the first half of the year, we'll be working our way through some of that higher dollar inventory that was built up at the end of last year.
We are seeing some bright spots in supply chain, we are seeing.
An environment, where we think there'll be less spot buys and so all of that will go into in terms of.
US progressing Lee improving both our gross margin and our op margin I think the other thing to keep in mind too is that our pricing initiatives and actions really took hold in Q4, and we felt that especially on the med search side, we will benefit from those actions for the full year in 2023, we'll also see.
See that's not included in price all the new products that Kevin talked about that will launch those come out of premium prices. So that will also benefit.
And help us with our op margin improvement and then the last thing is we still have some targeted restructuring that will.
Will take place in 2023, especially in the first half of 2023. So we will also begin to feel the benefit of those in the second half. So I think Q1 is a little pressured year over year, just because the inflation wasn't sitting in last year's op margin is sitting in 2023 op margin, but I think as the year progresses, we will continue.
To improve on that op margin, and obviously that will drive to the EPS growth that we guided to.
Really helpful. Congrats again thanks.
Thank you.
Thank you. The next question comes from the line.
Matthew O'brien with Piper Sandler you May proceed.
Afternoon, Kevin.
The analyst day.
It was a couple of years ago, you really emphasized international.
Performance in the quarter was phenomenal and it's been really strong I'm just wondering the durability of that and should we think about international being not quite half of the growth.
The top line this year, but something something around that level is that how important international should be for you guys.
23% even beyond thank you.
Yes, rather than thinking about what percentage of the growth is just how durable is it five years in a row now organic sales growth has exceeded the U S organic sales growth and of course, China is really didn't contribute anything in 2022, So Europe was double digit grow or it's a growth engine for Stryker I've talked about.
Europe for the last six or seven years, and we are hitting our stride in Europe , but even other emerging markets, whether it's Latin America or whether it's the middle East Eastern Europe parts of East Asia.
We've really started to hit our stride, it's feel it feels exciting we have great leadership teams, we're getting great penetration now with Mako and fluorescence imaging. Some of those power brands are now really starting to show up effectively so the way I'd like to think about it is that emerging markets should grow roughly double the growth rate of strykers growth rate in overall.
We should continue to grow above the stryker growth rate in these international markets and.
Over time, if we don't continue to have a large acquisitions in the U S. Then that will become a bigger and bigger percentage of our business, but being acquisitive.
Pretty small if you think about 72% roughly of our sales are in the United States, but it's starting to have a material impact and you saw really an outstanding quarter.
Q4.
Got it thank you.
Thank you. Our next question comes from Vijay Kumar with Evercore you May proceed.
Please proceed.
Yeah.
Hi, guys. Thanks for taking my question and congratulations on the really strong and a share.
Kevin maybe.
First one on the performance here in the fourth quarter.
Organic.
That's quite outstanding.
Sequentially, it looks like growth accelerated by 350 basis points.
Is this that can you.
Put some.
Put those numbers in context for US is this share gains or is this your supply chain situation improving.
And I'm, assuming there was some headwind from China, and maybe if you could quantify it just help us understand what went into that gap.
Pretty stellar 13% number in the fourth quarter.
Yes look I think the outsized growth it was in the medical Division right. So medical division isn't going to typically grow.
26% organic that's outsized and that's really let's call it making up for supply. So they had huge orders and we were able to get healthy and some of the product lines and we were able to get a lot of shipments out the door that kind of variability could happen from quarter to quarter, but if you look at our full year kind of organic growth rate instruments 10 person.
Endoscopy, 15% medical 11% kind of on a rolling four quarter basis. Those are really outstanding results. So it's not a one quarter wonder I would kind of look at the overall year, having organic growth of nine 7%. That's the highest I had in my tenure and we have new products I would say, they're as good a set of pipeline.
As I've had since I've been in this role so that bodes well for next year, we're starting with the highest organic growth guide that we've ever started with.
And assuming launches go well and everything this should be another very very strong year. I think you will see a little bit of volatility quarter to quarter, primarily with medical because they do have the largest.
Backlog.
All of the divisions in the company and a more consistent performance with the implants side of the house.
Understood and maybe off of those comments Ken.
Kevin and maybe perhaps Glenn as well about 7% in half.
For fiscal 'twenty.
Is that a frontloaded guidance.
I look at the comps here for 'twenty two.
Is that temp eight and a half frontloaded.
Is it assuming for supply chain are you assuming supply chain to improve just given off of Q4 levels.
And the order that you mentioned, Kevin did that backlog growth versus third quarter R. R.
We are starting to work down on that backlog.
Hi, Vijay Vijay I'll take the I'll take the some of these that I missed the part you can you can correct me.
First of all the growth is not front end loaded.
Its pretty steady throughout each of the quarters.
And Youll see that there is going to be solid growth just given sort of the momentum that were feeling from from fourth quarter.
In terms of the order book, we exited 2022.
With an increase in the order book year over year. So we're actually feeling very bullish about capital sales and about our customers' willingness to buy capital. So we don't we don't we feel like that's a great tailwind for us.
For the whole year, and then I missed the third part.
No I think yeah, sorry on the supply chain situation.
Oh, yes, as I mentioned, we assume that we will see gradual improvement in the supply chain. We saw some of that in Q4.
We actually feel pretty good about our access to supply we are seeing a reduced volume of spot buys which are those really high cost items.
And we're also beginning to work with.
Our original set of vendors and also going up the food chain and actually working with chip suppliers so that.
We feel like we have a good handle on what's going to happen with supply chain, but it should become better quarter to quarter to quarter with good improvement in visible improvement in the back half of the year.
Understood. Thanks, guys.
Thank you.
Thank you. Our next question comes from Cheng Cheng with RBC you May proceed.
Great. Thank you so much for taking the question.
I was just wondering what you have assumed for margin expansion in 2022.
30 basis points.
Outlook that you previously shared and then I was wondering if you could talk a little bit about the <unk> business in hips and knees.
In need.
Your major competitor does have a new cement this launch.
You see that the price mix benefit for them or something that could drive competitive account conversions and then on hips and came out stronger than would be would expecting I was just wondering if you could talk a little bit about the drivers and if you could see meaningful share gains on the hip side similar to what we've seen in the thank you for taking the questions.
Yes, great question I'll start out just touch on the margin expansion.
We typically do not guide on op margin. So we're not going to we're not going to pinpoint an expansion number.
I think backing up from EPS and looking at tax NOI, any and where we are with sales.
Youll see that the math doesn't work unless we expand op margin. So I think what youll see is a progressive improvement each quarter in that expansion, especially as the comparable includes inflation from the prior year and so that's what our plan is.
Yes related to join its obviously, we are delighted with the year that we've had in both hips and knees, having global double digit growth.
Hips and knees is terrific the hip strength clearly driven by the launch of the insignia hip stem and as a reminder, only about little less than halfway through that launch. So we still have a lot of sense to get out it will take us all of this year and maybe into a little bit of the first quarter of 'twenty four to be fully launched with insignia.
So we're still.
And the gaining momentum mode with insignia and that's coupled with a $4 one.
Mako hip software. So we can we expect him to continue to be very strong as it relates to knees.
Clearly that's been an outperformer for us for the past six seven years since we launched the Mako total knee application.
And with cement lists where we continue to gain.
I am not at all worried about competitive entrants on some atlas people aren't going to move away from us with Atlas for for a competitive product when we.
We have tremendous proven Jason mentioned a million procedures already done and competitors just starting to launch there is there going to be awfully very cautious before they move to another product on something like that.
And the synergy with with some analysts and Nico has really significant last thing I'd say is we are launching new software. It just like we did with hip with the $4. One we call. It teekay to Mako software. We've just we're in the middle of a limited launch it's going exceptionally well, we expect a full launch sometime by around Q.
Three of that new software upgrade which creates better user experience better for training residents and teaching hospitals. So very very good feedback on that so we do expect to continue to outperform in both knees and hips again in 'twenty three.
Thank you for the comments.
Thank you. Our next question comes from Ryan Zimmerman with <unk>.
Proceed.
Hey, thanks for taking the questions.
Not to take away. This is a really good quarter, Kevin, but I do want to ask about two segments that are maybe a little softer than expectations.
Neuro vascular and spine.
Come on the back of what I think what we'd consider easier comps and you can certainly challenge me on that but.
What are you contemplating in terms of your guidance for growth in those areas for 'twenty.
Commentary on on both the neurovascular spine segments this quarter.
Kind of what impacted results.
Yes, certainly on the neurovascular comps.
We did have pretty good performance a year ago.
In Neurovascular I think that the challenge is kind of looking at versus the prior year Neurovascular, and then going back versus at 19. So.
But certainly we've had our challenges with neurovascular in the U S. We've had continued good growth outside the United States on the I think I've mentioned on prior calls that.
<unk> market segment is certainly gotten softer there are a lot more competitors that are kind of distracting and ticking up time.
We still think it's a great market theres still a lot of patients that are that have not been treated.
Treating a small percentage of people that have these large vessel occlusions.
In the brain. So we do think it's a good long term market, we are launching a new coil cold Tetra coil.
Here in the United States, which is exciting and we will continue to continue to invest we have a deal that's pending obviously regulatory clearances before it closes on a one and done.
For the for the hemorrhagic segment, we're very excited about that acquisition that will give us another shot in the arm. So yes, we've had our challenges in the U S. This year, we continue to grow very well outside the United States. Its still a market. We're very committed to that's kind of on the neurovascular side.
On the spine side look at the launch of Mako spine is going to be critical Q guidance launch is going very well and that was important for us we had a gap obviously with the enabling technologies, which is really important and the spine segment. So I do believe this is 23 will be a year, where we will continue to grow kind of around the market growth.
Right.
Then really get ready for the for the Mako launch to be able to start to grow above market. So yes. They are not as growing the divisions right now as some of our other divisions, but they are certainly competing well in the marketplace growing.
Roughly in line with the market, maybe a little bit below, but but still highly profitable highly important businesses to the long term future of Stryker.
Alright, very helpful. And then if I could just ask a follow up I mean this is the.
First time, we've really I think put those timelines out on spine and shoulder, we've kind of dance around these topics for some time what is it now.
Comfort to to put those out there.
And ensure that those will be on time with.
With the timelines you outlined.
Yes, you know as a company, we tend to be pretty conservative on getting timelines and robots or heart rate ask any of the companies who are trying to launch robots whether there.
In hard tissue robotics, our soft tissue robotics robots are difficult.
What gives us confidence as our prototypes are built we've tested it with surgeons.
The feedback we've had some meetings one case with the agency to get an idea on the regulatory pathway.
So we have enough in the pipeline right now there is always a little bit of uncertainty around approvals and full launch and noticed the term I used was initial launch right. So we do expect to get approved and to start doing cases.
But then as you do those initial cases, you might have to refine some of the training and things so it might be a little bit slow out of the gate, we will see the beauty of our approach is it's the same robot that's being used for hips and knees, that's going to be used and we have as you know thousands of them now.
Out there so that is exciting that we'll be able to just do a software upgrade to have a different attachment to be able to use the same robot and I think a lot of hospitals will be excited about that.
If their robot is not being used on one day of the week and they can have that being used for spine. Initially and then as the demand increases then they can have a dedicated robot for spine. So we really believe that will be different than when we started were each robot had to sort of be justified on its own having.
Having one sort of robot, but all of these different applications will be powerful overtime, but we feel confident just based on we spent a lot of money and we spent a lot of time on this the shorter one took a little longer.
As you recall, we were we thought that was initially going to be before spine.
But we decided to move away from our implants to <unk> implants and to use the blueprint planning software so that caused a slight delay, but the teams are really working well and the <unk>.
Feedback, we're getting from surgeons that are seeing it is extremely positive.
Great looking forward to it thank you for taking the questions.
Yes, we are too.
Thank you. The next question comes from Joe Pratt with Wells Fargo. Your line is open.
Okay.
Hey, Thanks for taking the question this is <unk>.
Every single thing Kevin.
You talked about a super cycle of new product, just remind us sort of what they are and how we should think about their impact.
23, and my second question is maybe just comment on your trends in China.
There.
And maybe just the impact on that.
Color you could provide would be helpful. Thank you.
Okay. So a few questions in there so I'll do the Super cycle, and then I'll pass it to Jason for.
For China.
On the Super cycle, So system nine our new power tool and instruments launched just at the end of last year. So we're going to see the first real year of impact here in 2023 initial feedback extremely positive we know how to do these as you know from.
From system, 6% to 7% to eight to now nine so that's that's one of the <unk>.
<unk> shipped product, we have the <unk> camera and endoscopy that will be initially launched in Q2, probably see more of a pickup in Q3, Q4, but fabulous new camera, which.
As you know we've done in the past, whether it's $14 15 80 868. So so these are things we know how to do and these are tied to those products we have Neptune.
Which is a small footprint Neptune product designed really for Gi.
Terrific new market for us. So we today <unk> are not really been used in GI is designed special purpose for that to catch the polyps nurses are going to absolutely love. This we actually believe it could increase that the procedures that they can do in a day, which of course the Gi teams are going to love. So that's also another really.
Powerful product that we're excited about towards the end of the year and what are the big impact in 'twenty, three but certainly much more in 'twenty four is going to be a new defibrillator.
23 outside the United States and then early in 2000 and for inside the United States, which is the big pre hospital expensive complex life pack defibrillators. So that those are three big flagship products very rare to have them all within.
And have an 18 month period.
That's a super cycle, but beyond that obviously insignia product is going to continue to launch we have the CD next product, which allows for depth perception as youre drilling we have signature too in the which was launched just this year, which we can have a full effect next year in neuro cranial which is for neuro power drills.
And I could list another whole bunch of foot and ankle products we've got.
Products in the shoulder space so.
There is a full full list of products, but those big ones that I mentioned that's called.
What I call it a super cycle as you normally have one of those every two years or three years not all in a short compressed timeframe that you've got the <unk> bed thats continuing to get rave reviews.
That's kind of still in the early phases of its launch so.
As healthy as I've had in my time here at Stryker in terms of new product cadence.
China Yeah.
Vik as it relates to China as you all know China as it relates to total stryker less than 2% of our sales. So even as you consider some of the Lockdowns and things in 2022 immaterial to our results in terms of Q4, and then as you think about 2023 early days as it relates to neurovascular GBP.
We're certainly keeping an eye on that and as we think about Q1 and full year of 2023, when we get to the next earnings call. If theres anything material to disclose we'll certainly good at that time.
Yes.
The next question comes from Matt Music with Barclays.
You May proceed.
I just.
I wanted to maybe get a sense.
I know, we could we could spend a lot of time talking about that.
There are many things that are going well and could go really well this year.
But just to follow up on spine.
The investment and the robot is significant the portability of that.
Hardware and upgrading of the App as you described Kevin This is great.
Between now and then.
Whether it's Q guidance or whether it's.
And planned launches of system launches and investments that youre, making.
Can you talk about maybe anything that you would see us as kind of gradually driving up momentum in that business as you head into as you head into that introduction of the robot next.
Next year, yes.
Yeah sure Matt. So certainly we can't just wait only for Mako and I would tell you that Q2 guidance has actually exceeded our expectations and customer feedback has been excellent on that end.
The sales of those.
<unk> systems has been terrific.
Also have a bunch of distribution deals that we've entered into.
For expandable for different products, so two or three of those we have the Monterrey, new product as well with titanium which is pretty exciting. So we do have a we'll call. It a cadence of new products planned that will be either developed by stryker or through distribution to help fill product gaps.
Pretty excited we have our sports medicine leader, Andy Hamill, who is our head of R&D has moved over to spine and if you look at the last decade, our sports business was the fastest launch of products across all of Stryker.
I think youll give that team a big shot in the arm. He moved over kind of midway through last year I'm excited to have him as part of the team as you know we've made other changes within our management team.
I'm pretty bullish on their prospects for the future. So we won't sit on our hands and just wait and already some of those products, even the lifespan distribution deal those kind of products are really helping that I was at the spine sales kickoff meeting for the year. The momentum has is really really strong but teams are feeling good about the future.
Knowing that make us coming of course helps a lot.
But yes, it's going to be it's a tough market as you know and it has been a tough market for a long time, but I feel like the combination of this distribution filled gap filling products as well as some new products that we have planned should put us in pretty good position even prior to the launch.
Excellent. Thanks, so much.
No problem. Thanks, Matt.
Thank you. The next question comes from Peter Chickering with Deutsche Bank. Please proceed.
Hey, Thanks, guys.
Taking my questions can you guys hear me.
Yes, we can thank you Peter.
Alright, great so pre COVID-19.
The first quarter is about 23% of annualized EPS, sorry, with the commentary around no EPS growth for our first quarter 'twenty three.
We guided about 20% of annual EPS.
And it's hard to say, Greg Thompson with key but why should <unk> be underweight. The annual EPS number, but just a couple of years or should we take this as just back half margin expansion for 2003.
Yes, I think.
Your astute in your numbers.
It definitely it will be back half margin expansion for 2003.
So you are right, we will see relative flat EPS in the first quarter and then obviously meaningful expansion starting in Q2, but really accelerating in Q3 and Q4 to drive to the <unk>.
<unk> that we got it.
Okay, and then just a quick one here on capital outlook commentary was very bullish can you just quantify us whats the new orders in fourth quarter of 2018 word how it compared to the fourth quarter 'twenty one thanks, so much.
Hey, Jason.
We won't quantify in terms of <unk>.
What we have from an order book perspective, but.
I'd just point back to I think what Glen said earlier around and maybe it was Kevin but the order book as we exited 2022 is even larger than when we exited 2021. So we continue to be quite bullish on the on the capital side as we as we entered the new year and Thats not a new commentary so.
The last four months I think our commentary has been very consistent on capital our hospitals, having challenges with there.
In some cases sure it's not yet we're not seeing it in orders, we're not seeing any cancellation of orders or some projects being delayed here and there sure but it really is not having any kind of material impact on our outlook for capital again, a lot of our capital is revenue producing type of capital. So you wouldn't expect any kind of slowdown, but even the large capital.
Larry if I look at our communications business within Endoscopy and had a fantastic year helped drive some of the endoscopy growth and they have a terrific order book going into next year and Thats large capital that.
Sometimes in prior recessionary cycles had been deferred so we just arent seeing it yet so that gives us optimism to kind of lean in on the growth for at least for 'twenty three.
Yes.
Great. Thanks, so much.
The next question comes from Steven Lichtman with Oppenheimer. Your line is open.
Okay great.
On growth in the in the quarter one of the factors you pointed to Kevin was procedural volume recovery.
One of the factors discussed obviously throughout 2022 on in terms of capturing those procedures was hospital staffing are you starting to see an easing of that factor.
Color you're seeing in terms.
Of that here in the U S would be helpful.
Yes look there are flash points, where you do see staffing is a challenge, but the hospital systems are getting better at dealing with it and we've saw through from September through to the end of the year kind of a nice building of procedure and a steady kind of high volume. The demand is clearly there is no question that there is some pent up demand and surgeons are booked out.
For a good three four months in general.
And so we're seeing I would call it a nice steady kind of improving trend and I think we'll see a moderate tailwind throughout the rest of this year. If these flash points tend to be very short and even some of the if you look in Europe and some of the areas that had strikes and real causes for worry they.
They've kind of come and gone pretty quickly and so we're feeling good about the outlook on a procedure standpoint, and expect this to be a tailwind throughout the year.
Got it.
Great and then and then Glenn just real quickly I know you don't want to provide specific margin guidance, but relative to inflation.
Did you call out or could you talk about what the impact to gross margin in 'twenty, two from inflationary headwind and generally.
Either directionally or specifically, what youre looking for in 'twenty three on that side.
Yes, I think as you think about inflation, obviously, we felt the impact of the.
The inflation.
Numbers.
That were in Q3, especially that were very large a moderation of that I would say occurred in Q4, but keep in mind to the extent that that we purchased raw materials or inventory.
Inflated raw material prices, that's capitalized in our inventory the other place that we all feel inflation and that carries over to in this year is really going to be labor costs that went up that are that are baked in now solidly for the year, we're still experiencing a pretty high inflation in our in our freight and transportation cost.
Costs <unk>.
Energy costs, especially in Europe , now have inflation baked into them will feel it there I think what we're thinking though is we're not as we look at 2023 that we're not thinking that inflation will continue to be at the levels that it was showing in 2022. So we're feeling that that will moderate.
And that's what's included in our guidance.
Sure understood. Thanks, guys.
Thank you. Thank you.
Thank you. Our next question comes from <unk> <unk> with Morgan Stanley You May proceed.
Hi, everyone and thanks for taking the questions.
Kevin just for you to start.
We've talked about the capital order book being stronger year over year, but can you maybe talk a little bit more specifically of what youre seeing in the hospital versus in the ASC setting any noticeable trends and even in procedures in the ASC as you're as you're entering 'twenty three and then I had a follow up.
Yeah. So clearly the this trend towards procedures being shifted to the ASC is continuing.
It really accelerated during the pandemic, but there is no signs of that slowing down even if I look at our Mako installations I would say this year.
A record number in the ASC setting so as procedures move to ASC. They certainly want to use great technology, and I don't think thats going to slow down and we're going to make.
Every hospital system, you talked to has construction plans around.
And so I think that's just an undeniable future trend, obviously that takes it will take time to build out more and more capacity, but we saw that increase in Q4 versus Q3, which increased versus Q2. So it's just a steady gradual trend and I'm talking mostly about hip and knee replacements, but we're also seeing even some spine procedures being done.
And the surgery centers total shoulders and I just don't think there's any slowdown it's just going to continue over the next few years.
Got it.
And then just for Glenn.
You talked about the margin expansion for 2023 could you maybe just.
Highlight kind of what youre expecting for free cash flow generation.
2022 was obviously a tough year it sounds like inventory will get better in the back half, but just any broad based.
Thoughts on free cash flow for 23, thank you.
Yes, I think.
As you think about the biggest contributor to cash flow honestly its earnings so as we see progressive improvement in earnings throughout the year I think we will see that carryover into cash flow.
There are some things that were maybe one offs that we felt that we hope will get better in 2023 that bolus of AAR that we had at the end of the year in 2022, obviously, we'll collect that and kind of get back to a regular cadence of DSO and then finally as inventory cost moderate and we feel.
I'm more confident about supply we will draw down on some of those safety stocks that we had pre buy will also see just lower cost of inventory and raw materials and that should carry over to cash flow too and then the other area that I would highlight that maybe doesn't get a lot of attention as we continue to work on our AP and AP.
Days, and we've made incredible improvements over over the past two to three years in terms of working with vendors and pushing out to beyond 70 days and we will continue to work on that as well. So I think all of that bodes well for cash flow improvement, but generally I think what youll see is as you see progressive improvement.
And earnings Youll also see cash flow fallout.
Thank you.
Our next question comes from Michael Matson with Needham <unk> Company you May proceed.
Yes, Thanks for fitting me in I guess I want to ask one on M&A. So I think you called out that you'd be looking to do some more tuck ins.
What are you seeing out there with regard to valuation expectations from potential targets it.
It seems like there was over the past year theres been sort of a disconnect between what.
The buyers are willing to pay and what sellers. One I mean is that starting to get more of a stick now and you're just maybe you can just comment generally what youre seeing there in terms of.
Deal flow.
Yes, but there is obviously the stock market.
Reaction over the last year on companies that weren't making profits was pretty harsh.
And it takes time for that let's call. It a new reality set in with people that want to sell but.
A company that is acquisitive and it has been acquisitive over time.
This could bode well for us over the next couple of years, if valuation was kind of stay at this level, obviously, the tuck ins that a lot of the tuck ins, we do tend to be private companies not necessarily publicly traded companies, but we have an active list of companies that we look at where we are.
Our focused also on paying down debt given that we took on a lot of debt for Wright medical and both Sarah So that's kind of job one let's continue to keep paying down that term loan we still have about $850 million left on the term loan we want to pay that down, but if we see good opportunities in there.
Tuck in nature, we arent going to wait we'll we'll make sure we do that we.
We can do two things at the same time, we will continue to pay down debt, but also do some small tuck ins and so the divisions are actively pursuing those and we'll be ready to strike. If the prices are right, but I think this pricing environment is going to be positive.
Net profits do matter and there was a sort of a period of time, where.
A lot of companies around away from us to be honest just on valuation given that they were growing fast in the valuations were just out of sight and we just won't pay just whatever personal thing given if we like the technology, we have to make sure it's going to to meet financial returns. So thanks.
Thanks for the question, we will continue to look and see.
Sort of thread the needle between paying down the debt and then being opportunistic where we can.
Thank you.
Thank you. Our following question comes from Joanne Wuensch with Citi. You May proceed.
Yeah.
When you were rattling off not only maybe the wrong word all the different groups.
Monster generic technology.
Im not getting my head around some of these numbers and Im just kind of curious how maybe this has been addressed.
How did this happen.
Pent up demand and the Catholic.
Capital equipment cycle with it just the end of the year that people have money in their budgets.
So help me understand what this is and.
Do you expect there to be more of a depleted effort and the beginning of this year.
Yes look Joanne what are the great news about this quarter first of all it's not like a pre pandemic stryker quarter.
The way I'd describe it where our sales teams, we're kind of firing the way they normally do at Stryker you've seen in the past.
You've been covering us for some time, having big fourth quarters is not new for Stryker, we had a big fourth quarter as many many many times our teams know how to finish.
Chase their numbers are hospitals also kind of want to use up some of their budgets if theyre on depending on their calendar cycle that they're on.
Okay.
Not new what's what's really exciting is that we were able to dig out of some of the backlog specifically in medical.
But not deplete these are not pull forward sales, we still have a strong orders we still have.
Growth momentum that's going to continue next year and that's why you saw such a.
I would say positive.
Guidance on organic sales growth, we're not calling for a soft Q1, and I think Glenn even in the Q&A you mentioned that we're not calling for a soft top line in Q1, our implant businesses are continuing to Hum.
And these businesses are just they're special businesses, we have these dedicated business units.
Split them many times, if I look at with and instruments instruments had 10% organic growth in 2022.
That's because we decided to split.
Orthopedic instruments in surface technologies, a few years ago and they are both growing extremely well they both have new products, where we have a new Neptune and we have a new power tool in the old days. It was the same rep trying to sell both of those now we have different reps selling them. So our ability to scale. Those launches is so much better with specialization in debtor.
<unk>, that's kind of our formula our growth formula.
That's just it's absolutely happening in our company. So our leadership teams are terrific. Our dedicated business units are firing in the products are flowing so.
Expect more of the same but if you look back even going back to <unk> 16, as I mentioned before and if you look at the kind of organic growth.
Of these three divisions in instruments endoscopy and medical not to mentioned Neurocrine, which has been an absolute homerun right and that's really run by instruments, but we reported.
Separately.
They're growing every year at eight 910 11, 12% that's not unusual and now that they have when you have new product launches that tends to be on the higher side of it so.
Yes, it's a good time to be at Stryker right now, especially in those businesses.
If I may you did discuss new product cycle, a couple of times.
Got it powerful eat that Neptune, what else would you like to highlight.
Yes, I mentioned before the camera so in endoscopy, a new camera.
Big sort of blockbuster flagship product <unk>.
Medicine hat, a number of new shoulder products that they're launching those are but that's supposed to help us fill out the bag.
At the end of the year, we have the new defibrillator within.
Within our emergency care business, they launched a new I'd even mentioned they launched a new powered chair at the beginning of this year. So if you want to go up these apartment buildings. We now have a powered chair, which is fabulous called expedition I didn't even mention that one.
And it's just there is no and I mean, we've invested pretty heavily in R&D over the past 4567 years spending close to 7% of sales and the new products are flowing. So those are I mentioned, a couple of other ones before Joanne but that hopefully is a.
That's a good look forward.
It is thank you so much.
Thank you.
Thank you. Our next question comes from Eric Anderson with Cowen with Cowen. Please proceed.
Hi, This is Eric on for Josh can you guys hear me.
Yes, we can.
Excellent maybe thinking about cement with knees I think about half of your knees are now going into <unk> correct me, if I'm wrong there.
Where do you think that rate could be exiting 2023, and then maybe thinking longer term what portion of your needs do you think will ultimately be some atlas.
Yes, it's a great question. So we have now.
The year over 50% and the use of our needs being some atlas the rates does vary in other countries of the world, but it's been a steady climb frankly, they're going to be more conservative on some atlas than hips, just because its weight bearing versus hips and do I think it'll get to close to a 100 like hips, probably not just because of bone quality.
City.
Because its weight bearing but we've not seen a slowdown it's been just this kind of steady March if you recall.
A few years ago was kind of 30% that it moved up to 40% now it's just north it's north of 50% now and I think Youll just continue to see that kind of steady decline, where it will end I don't know, it's hard to predict but probably somewhere in the <unk> is kind of what I would I think it will so there's still room to run on some emphasis.
We have a proven system that that's delivering terrific long term results given that we've done a million of them already.
Understood. Thanks for that and I apologize if I missed it but are there any selling day impacts in 2023 that we need to consider.
Yes, there's one.
Extra selling day in Q1, one less selling day in Q3, but for the full year. It's the same number of days.
Okay understood. Thank you.
Great. Thank you.
Thank you and our final question comes from Eric Fleming with Raymond James You May proceed.
Hey, guys, it's on for Jason.
James.
Quick question on your pricing.
Are there any segments at her.
I have a particular impact on that.
Yes.
Yes.
Obviously the segment that has the biggest impact is really our med search businesses.
We saw Q4 pretty much all positive pricing impacts across med surge and so we expect that to continue into 2023.
<unk> said on the ortho side Theres a lot of work around <unk>.
Contracts and structures and rebates and so we are seeing good momentum there as well on pricing I think the other thing to keep in mind is that pricing is legacy product over legacy product and so to the extent that we have these product launches like Kevin was talking about we generally will launch with premium priced.
Over the legacy product, but it won't be included in that pricing statistic. It really gets included in volume so.
Net net I think youll see probably more favorable pricing coming out of the med surge businesses, but we are making great progress on the ortho side Tim.
Thank you. So much there are no further questions I will now pass it back over to Kevin Lobo for concluding remarks.
Okay, great. So first of all I want to thank all of you for your patients working through our technical challenges.
As you can see we had a terrific finish to last year, a really good start this year and then it tends to be out with our sales teams.
Cross Stryker and I can tell you that.
The momentum is palpable.
Looks like it's going to be a strong year, we obviously.
We're going to continue to have some challenges around slotting us in the supply chain, but it certainly feels like the worst is behind us.
Experienced last year, so I want to thank you all for joining our call. We look forward to sharing our first quarter results with you.
Thank you.
This concludes the conference call. Thank you for your participation you may now disconnect your line.