Stryker Corporation Wells Fargo 21st Annual Healthcare Conference

Yeah. First of all, thank you for having us. We appreciate the opportunity to be here. Apologies for being a little bit late. There was a log jam at the elevator. Maybe a couple of comments as we think about the second half of this year and kind of where things have progressed. We gave our guide, 8.3% to 9.3%, so you're right, the midpoint of 8.8%. And the reason we give a guide, obviously, with a range is to anticipate a range of outcomes. One of the things we talked about in the second quarter call was our peripheral vascular business and some of the challenges that we were seeing on the PV business.

I think during the call, we talked about the manufacturing issue that's not allowing us to reach a full supply of inventory at all of our customers, and quite frankly, not allowing us to go out and really win new business. We anticipated that that would rectify itself in the third quarter. What we're seeing is that is continuing into the third quarter, and certainly, it will continue. We expect it to continue a little bit into the fourth quarter as well. A little bit of a different nuance to what we originally anticipated is that peripheral vascular isn't quite seeing that same recovery that we would have expected from a supply standpoint. And so it's just a matter of us continuing to work on generating supply for the rest of the year to continue to support customers.

The other thing I would probably point to, as we think about a couple of the soft spots that we saw in the second quarter was on the joint replacement business. Our hip number in the second quarter, we talked a little bit about. We did expect, and we saw a very strong June, and we expected to see some better recovery, actually, of that business and that market in the summer months. But what we actually are seeing is a bit more of the seasonality that we would typically see. And so with that seasonality, we actually did not see the recovery that we expected so far in the quarter, although we are anticipating to have a better September. Certainly a little bit slower than anticipated from a joint replacement standpoint in the second quarter.

So that is some of the elements that continue to be pressures on our business. We do see really strong capital demand for our capital products. We highlighted that coming out of the second quarter. That remains really strong. Our back order remains really strong. The order book remains strong for those capital products. Also on our trauma and extremities business, that business remains really, really robust as well and growing much faster than market. Again, the range of outcomes that we provided is really because there is a lot of different things that are happening. The cyber event earlier in the year certainly exacerbated that, put a lot of pressure on our second half, as you all very well know. So we are seeing some variation maybe to some of the things that we expected while we continue to see really strong demand on our capital business.

Yeah. So maybe, we reported at a vascular level. I think on the earnings call, I talked to it in terms of our U.S. business, and our U.S. business was negatively impacted on the peripheral side. I think on the call, somebody asked about what the impact on the growth rates were. I think they estimated 70 to 80 basis points on the quarter, and I said that is about right. I think that expectation is continuing into the third quarter, that that peripheral business will not be as healthy as what we would have expected.

I think Kevin said that we expected to get back to growth, in the quarter, and as of right now, that is still challenged based on our supply challenges that we have and the ability, quite frankly, to maintain enough inventory in the system, that we can support kind of not only the existing customer base, but quite frankly, get out and grow a new customer base. Maybe as I think about peripheral in general, as we talked about at the end of last year, we obviously had some sales force execution things that we were working through, as we were kind of bringing the sales force up to a Stryker standard. We got that to a point in the first quarter that we felt really good about where that was headed, only to have the cyber event. Maybe to put a little bit more on that cyber event.

When the cyber event happens, we talked a lot about it. We took all our manufacturing down, or our manufacturing was taken down for several weeks. We brought that back up, and for all of our existing businesses, it was just a process of restarting. You restarted back on the processes that you have, and you are off and running. On the peripheral side, and I think this happens a lot when you have a smaller organization, quite frankly, that is growing very rapidly. As you can imagine, there is a lot of process things that have to still get improved as that business is able to ramp and scale.

As we think about integrations, as for us and we integrate manufacturing, you are always going to run into some things over time, and quite frankly, you fix those things kind of one-off as you find them, and you just continue to move on. They are not that disruptive to the overall business. In this case, when we brought manufacturing all the way down to a full stop, and then you have to bring it back up, all of those process-related opportunities or challenges present themselves all at the same time.

To work through some of those elements and get things back up to a process standard that we want it to be for Stryker, it has just taken us a lot longer to get that back to full capacity, to the point where we are able to produce all the different SKUs that are required in enough fashion, like I said, to support the inventory requirements of the existing customers, which we are prioritizing our existing customers and supporting procedures. But it is really inhibited our ability to try to get out with new customers as well. A lot of work to do to make sure that we get inventory levels to where they need to be, and the team is heavily focused on doing so. Our expectation entering the quarter was that it would be a bit faster than maybe what it has been so far.

That was total Stryker, and in the second quarter I said was a pretty good estimate.