Earnings Call Transcript
STRYKER CORP (SYK)
Earnings Call Transcript - SYK Q4 2020
Operator, Operator
Welcome to the Fourth Quarter 2020 Stryker Earnings Call. My name is David, and I will be your operator for today's call. At this time, all participants are in listen-only mode. Following the conference, we will conduct a question-and-answer session. During that time, participants will have the opportunity to ask one question and one follow-up question. 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 Stryker's 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, sir.
Kevin Lobo, CEO
Welcome to Stryker's fourth quarter earnings call. Joining me today are Glenn Boehnlein, Stryker's CFO; and Preston Wells, Vice President of Investor Relations. For today's call, I'll provide opening comments, followed by Preston, with an update on the current environment and our most recent acquisitions. Glenn will then provide additional details regarding our quarterly results before opening the call to Q&A. I would like to start my comments by expressing my appreciation for the perseverance shown by our employees, as they work through the many challenges that we faced during 2020. Throughout the year, we maintained high employee engagement while continuing to support surgeons and caregivers around the world. Our fourth quarter organic sales declined roughly 1%, reflecting the impact of a resurgence of COVID-19 infections, offset by the continuation of emergent procedures and strong performance by our large capital products. We are also excited about closing the Wright Medical deal during the quarter and the category leadership that we gain in the fastest-growing segment within the orthopedics market. Preston will provide some additional updates on the integration shortly. Throughout the quarter, we maintained the financial discipline instituted at the beginning of the pandemic, which, combined with a favorable tax rate, led to an adjusted earnings per share of $2.81 in the quarter, up approximately 13% versus 2019. And we delivered impressive cash flow from operations, which exceeded $3 billion for the full year. In addition to closing the Wright Medical acquisition, we also made progress in many areas that will provide future growth opportunities. We have established a structure focused on digital, robotics, and enabling technology, where we see significant opportunity to create a company-wide unified digital ecosystem, including Mako. We maintained our commitment to drive innovation across our various business units, including Neurovascular, where we gained new product approvals across aspiration, stent retrievers, and flow diverting stents. And in our MedSurg segment, where we continued product introductions with a focus on safety and prevention. Finally, we successfully launched our ASC sales model, which leverages the Stryker portfolio to provide end-to-end solutions to meet the growing demand and shifts to the outpatient setting. Our continued support for our customers and our commitment to innovation will position us well for growth as the pandemic eventually subsides. Turning to 2021, our people and culture of execution remain strong, which will allow us to deliver on our commitment to make healthcare better and to resume our customary strong organic sales growth and leverage earnings. With that, I will now turn the call over to Preston.
Preston Wells, VP of Investor Relations
Thanks, Kevin. My comments today will provide an update on the current environment, trends related to the latest COVID-19 impacts, and updates on our most recent acquisitions of Wright Medical and OrthoSensor. During the fourth quarter, elective procedures were negatively pressured in most regions globally as localized infection and hospitalization rates surged through the month of December. As a result, growth was uneven and correlated to the state of the pandemic in each region. The areas impacted the most include the U.S. and many of the countries in Western Europe, most notably, the United Kingdom, driven by a countrywide lockdown. Even with the procedural variability, we saw growth in emerging markets, including China, which grew double digits over the prior year quarter. Looking forward, hospitals are better equipped to handle this resurgence, and they are working to bring back the procedures that have been delayed, though we expect that the variability of elective procedures will continue through the first quarter until infection rates begin to decline and the distribution of the vaccines becomes more prevalent. This slowdown in elective procedures had a negative impact on our more deferrable businesses, which make up approximately 40% to 50% of our total sales. However, the slowdown this quarter was not as impactful as the decline in the second quarter, as hospitals were better equipped to manage COVID patients while maintaining some level of elective surgeries. Despite the overall slowdown, we experienced continued growth in our Neurovascular, Medical, Mako, and upper extremities businesses. Specifically, demand for Medical's large capital products continued in the fourth quarter, driven by the focus on expanding bed capacity, the need for our emergency care products like power cars and the LUCAS device, and the availability of some remaining CARES Act funding in the U.S. In addition, the early trends on the launch of our new ProCuity are positive and expected to continue into 2021. During the year, our Mako installed base grew by 33% and exceeded another milestone, with over 100 robots sold and installed in the fourth quarter. This growth continues to highlight the demand for our differentiated Mako robotic technology, as well as our ongoing success at selling and installing robots in major teaching institutions, ASCs, and competitive accounts. We are also excited about our recent approvals for Mako TKA in China, Russia, and Brazil, which all provide opportunities for growth as these markets continue to embrace robotic, digital, and enabling technologies. Turning to U.S. knee procedures. In the fourth quarter, approximately 44% of our total knee procedures were done with Mako, a trend that continues to increase. The shift towards cementless knees also continued, and in the fourth quarter, cementless knees made up 42% of our U.S. knee procedures. During the pandemic, feedback from surgeons has pointed to limited trialing of competitive products and businesses like joint replacement, as surgeons worked to perform procedures restricted by cancellations and deferrals. However, as the pandemic subsides and we return to a more normal environment, we expect to continue to outpace the market, driven by our Mako installations throughout the year and our strong order book heading into 2021. We are also enthusiastic about the Wright Medical acquisition and the category leadership we gain in both upper extremities and foot and ankle through Wright's diverse portfolio of implants, biologics, and enabling technologies. The combination of Stryker and Wright will continue to drive innovation that enhances our customers' ability to address patient needs across the more than $3 billion extremities market. The integration has been progressing well over the last few months. The long period from signing to close was used to ensure that the appropriate integration plans were in place, leveraging our years of deal experience. To date, the teams have been focused on moving quickly to align the new combined organization. Considerable progress has been made, including the creation of specialized business units and sales forces for Trauma, upper extremities, and foot and ankle, which is a key part of our overall decentralized strategy that allows us to remain close to the customer. The U.S. sales leadership organizational structure for these three specialized business units has been announced, and the rollout and full alignment of territories will be finalized during the first quarter as planned. Outside the U.S., the leadership team is working to align the sales forces throughout the year. Our teams are executing the sales integration while continuing to drive day-to-day business. And during the quarter, there was minimal disruption caused by the closing and integration activities. Finally, I want to restate our ongoing commitment to M&A, which was most recently demonstrated by our acquisition of OrthoSensor, a leader in the digital evolution of musculoskeletal care and sensor technology for joint replacement. Smart devices and implants will play an important role in the future of orthopedics, and the addition of OrthoSensor will allow us to continue to innovate and advance smart sensor technologies, including intraoperative sensors, wearables, and ultimately, smart implants. As it relates to 2021 guidance, Glenn will provide an update on our full-year guidance for sales, operating margin, and EPS. Updates to this annual guidance will be made each quarter if necessary throughout the year. With that, I'll now turn the call over to Glenn.
Glenn Boehnlein, CFO
Thanks, Preston. 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. Our organic sales decline was 1.1% in the quarter. As a reminder, this quarter included the same number of selling days as Q4 2019. Pricing in the quarter was unfavorable, 0.8% from the prior year, while foreign currency had a favorable 1.2% impact on sales. Early in the quarter, there was continued momentum from Q3. However, during November, the impact of the resurgence of COVID-19 and the related cancellations of procedures, primarily in the U.S. and Europe, significantly impacted our sales momentum. However, we did see demand for certain capital products continue as we had strong results in our Mako, medical beds, and emergency care products. For the quarter, U.S. organic sales declined 1.5%, reflecting the slowdown in elective procedures as a result of the pandemic, somewhat offset by strong demand for Mako, medical products, and Neurovascular products. International organic sales were flat, impacted by the resurgence of the COVID-19 pandemic primarily in Europe, which was mostly offset by growth in Canada, China, and Brazil. Organic sales decline for the year was 4.8%, with a U.S. decline of 5.8% and an international decline of 2.1%. 2020 had one additional selling day compared to 2019, and for the year, price had an unfavorable 0.7% impact on sales. Our adjusted quarterly EPS of $2.81 increased 12.9% from the prior year, reflecting strong financial discipline, good operating expense control, and a favorable operational tax rate. Our fourth quarter EPS was positively impacted by $0.03 from foreign currency. Our full-year EPS was $7.43, which is a decline of 10%, reflecting the impact of lower sales, especially in Q2, as well as the impact of idling certain manufacturing facilities during the year, offset by strong expense discipline throughout the year. Now, I will provide some highlights around our segment performance. Orthopaedics had constant currency sales growth of 2.8% and an organic sales decline of 5.8%, including an organic decline of 5.7% in the U.S. This reflects a slowdown in elective procedures related to COVID-19 and a very strong prior year comparable as Q4 2019 U.S. organic growth was 7.2%. Other ortho grew 12.3% in the U.S., primarily reflecting strong demand for our Mako robotic platform, partially offset by declines in bone cement. The Trauma & Extremities business also delivered positive growth led by our core trauma and shoulder products. Internationally, Orthopaedics declined 6% organically, which also reflects the COVID-19 related procedural slowdown, especially in Europe. This was somewhat offset by stronger performances in Australia and Canada. During the quarter, the Wright Medical acquisition was successfully closed. For the quarter, Wright delivered flat growth on a comparable basis. This included positive performances in U.S. shoulder, double-digit growth in U.S. ankle, as well as strong international growth led by Australia. On a comparable basis for the full year, Wright had a 10.3% decline, mainly driven by the COVID-19 related slowdown in the second quarter. In the quarter, MedSurg had constant currency growth of 1.5% and organic growth of 1.3%, which included 2.2% growth in the U.S. Instruments had U.S. organic sales growth of 4.5%. In the quarter, sales growth was driven by gains in its power tool, waste management, smoke evacuation products, and its service business. Endoscopy had a U.S. organic sales decline of 7%, primarily impacted by the slowdown in the capital businesses, offset by gains in the sports medicine business, which grew over 9% in the quarter. The Medical division had U.S. organic growth of 9.7%, reflecting solid performances in patient care, emergency care, and at Sage businesses. Internationally, MedSurg had an organic sales decline of 2.4%, reflecting a general slowdown in instruments and endoscopy businesses and strong comparables across most geographies. Neurotechnology and Spine had constant currency and organic growth of 2.1%. This growth reflects many strong performances within our Neurotech product line, including neuro-powered drill, SONOPET, and Neurovascular, offset by the impact of procedural deferrals, especially in the U.S. Our U.S. Neurotech business posted an organic decline of 1.2%, as procedural deferrals impacted sales in the quarter. Internationally, Neurotechnology and Spine had organic growth of 13.5%. This performance was driven by strong demand in Australia, Japan, and China. Now, I will focus on operating highlights in the fourth quarter. Our adjusted gross margin of 65.1% was unfavorable, approximately 120 basis points from the prior year quarter. Compared to the prior year quarter, gross margin dilution was impacted by price, business mix, and unabsorbed fixed cost as production was brought in line with reduced demand during the quarter. This was primarily offset by acquisitions and foreign exchange. Adjusted R&D spending was 5.5% of sales. Our adjusted SG&A was 30.3% of sales, which was favorable to the prior year quarter by 200 basis points. This reflects the continued focus on disciplined operating expense controls, which have been in place since the second quarter. These cover most of our discretionary spending, including curtailments in hiring, travel, meetings, and consultants. In summary, for the quarter, our adjusted operating margin was 29.2% of sales, which is a 90 basis points improvement over the prior year quarter and reflects the impact of the spending discipline previously discussed. Related to other income and expense as compared to the prior year quarter, we saw a decline in investment income earned on deposits and interest expense increases related to increases in our debt outstanding related to the funding of the Wright Medical acquisition. Our fourth quarter had an adjusted effective tax rate of 8%. Our full-year effective tax rate was 12.6%. These rates reflect one-time operational fluctuations that arose due to the pandemic, with a mix of foreign losses related to lower foreign manufacturing activity, combined with reduced U.S. sourced income that resulted from the sharp drop in sales at the end of the year. For 2021, we do not anticipate these circumstances arising, as we expect to return to normalized operations during the year and we expect our full-year effective tax rate to be in the range of 15.5% to 16.5%. Focusing on the balance sheet, we ended the year with $3 billion of cash and marketable securities and total debt of $14 billion. During the quarter, we executed the Wright Medical acquisition, which resulted in the disbursement of $5.6 billion, inclusive of the retirement of Wright's convertible debt. Turning to cash flow. Our year-to-date cash from operations was approximately $3.3 billion. This historically strong performance resulted from the disciplined working capital management, somewhat offset by lower earnings. Turning to cash flow for 2021. We will not be repurchasing any shares and we anticipate that capital expenditures will be approximately $650 million. Anticipating a more normalized year in 2021 and a ramping of investment in our businesses, we expect the free cash flow conversion rate as a percent of adjusted net earnings, excluding the one-time impacts from the Wright Medical integration, of 70% to 80%. And now, I will provide 2021 guidance on a standalone legacy basis and further guidance including Wright Medical. We are providing our guidance in comparison to 2019, as it is a more normal baseline given the variability throughout 2020. As Preston indicated, we will be providing annual guidance on organic sales growth and earnings and will update this throughout the year as part of our regular earnings calls. As we assess the current operating environment, we believe that the recovery ramp of elective procedures will continue to be variable based on region and geography and will continue into the second quarter of 2021. Given this variability, we expect organic sales growth to be in the range of 8% to 10% for the full year 2021 when compared to 2019. As a reference, our organic sales growth excludes Wright Medical. There are the same number of selling days in 2021 compared to 2019 and one less when comparing to 2020. Consistent with the pricing environment experienced in both 2019 and 2020, we would expect continued unfavorable price reductions of approximately 1%. Additionally, as we are comparing growth to 2019, our 2021 organic sales growth guidance includes two years of price reductions. The foreign exchange rates hold near current levels, we anticipate sales and EPS will be modestly favorably impacted as compared to 2020 and 2019. For the full year 2021, we do not expect to deliver operating margin expansion as a result of the operating margin dilution of the Wright Medical acquisition. However, excluding the dilutive impact from Wright, we do anticipate expansion of 30 to 50 basis points of operating margin in 2021 for our legacy Stryker business compared to 2019. This includes anticipated increases in hiring, discretionary expenses, and other costs that support future growth and business expansion as our businesses continue to ramp back to more normalized levels. Finally, for 2021, we expect adjusted net earnings per diluted share to be in the range of $8.80 to $9.20 for the full year. This includes the previously announced $0.10 dilution, driven by the addition of the Wright Medical business for the full year. While Wright Medical is dilutive in 2021, we expect it to be accretive starting in 2022. As it relates to other aspects of Wright Medical, we expect comparable growth for trauma and extremities to be in the low to mid-single digits in 2021 when compared to 2019. This includes the integration of Stryker's legacy extremity business with Wright Medical, which will all be part of our trauma and extremities division. This growth is impacted by the recovery from COVID-19, partially offset by the synergies from the integration activities in 2021. We also reiterate our previous guidance on cost-saving synergies from the deal of approximately $100 million to $125 million over the next three years. And now I will open up the call for Q&A.
Operator, Operator
Thank you. We will now begin the question-and-answer session. Your first question comes from the line of Vijay Kumar with Evercore. You may proceed.
Vijay Kumar, Analyst
Hey, guys, congrats on the Q here. I guess maybe to start off with a high-level question on the guidance. Eight to ten organic for the base business, what are we assuming for Wright Medical here for growth for our fiscal 2021? Hello?
Glenn Boehnlein, CFO
Yes. Hi, Vijay. Sorry I was on mute. Our organic guidance is 8% to 10%, and the guidance that we provided related to Wright Medical, you have to understand that it's being integrated into our Trauma Extremities businesses. So we will be combining our legacy extremities business with Wright Medical and running that combined group as part of our Trauma Extremities division. So when you mix all that together and look at what trauma and extremities growth will be in 2021 as compared to 2019, we do think it will be low to mid-single digits, but keep in mind that also takes into account sales to synergies for Wright Medical that we fully expect will happen in 2021.
Vijay Kumar, Analyst
Understood. And Glenn, maybe if I could, just one quick one on margins off the cash. I mean Q4 was really impressive. The margin on the OpEx side, if I look at the guidance here, perhaps it seems a little conservative, and I look at the EPS guidance range, it's coming in a little bit lighter versus the typical Stryker in the guidance range, if you will. What would cause – I mean, that's almost a 100 basis point swing within the low-end and the high-end, perhaps talk about what goes in at the low-end and the high-end?
Glenn Boehnlein, CFO
Yes, Vijay, I would tell you that based on what happened this year and the variability that we saw in our operations, we fully expect to continue to experience some variability into Q2. Our guidance range really reflects how that ramp comes back. On the low-end, it could be all the way through Q2. On the better end, we start to see much more improvement towards the beginning in Q2. It really is going to be variable depending on that. We have passed our legacy Stryker business on the op margin front with 30 to 50 basis points improvement. But keep in mind if you look at Q4 or even go back and look at Q3, it really reflected pretty draconian expense control in terms of hiring, travel, meetings, consultants, you name it, discretionary expenses and we put the lid on that. That's not sustainable, especially if you think about our aspirations to grow at the high end of med device. So we will start seeing that spending pick up as we continue to supplement and hire our sales forces, meet with customers, and add to our prototypes and loaner pools. All those things will start to add to our expenses. So that's really what's underlying the guidance.
Operator, Operator
Your next question comes from the line of Bob Hopkins with Bank of America. You may proceed.
Bob Hopkins, Analyst
Thanks and good afternoon. Just to clarify that guidance on the revenue side, I appreciate that you're guiding to organic growth, but it sounds like Wright Medical was flat in the quarter, which is actually pretty impressive. So, I come out a little bit over $17 billion for the year, just based on your guidance of 8% to 10% organic, and then I'm just tacking on $900 million to $1 billion for Wright Medical, and getting to a little over $17 billion. So I was wondering if you thought that was in the ballpark.
Glenn Boehnlein, CFO
Yes, Bob, again, I just can't reiterate the variability that we're seeing and so maybe that's sort of adding up the obvious set of numbers, if you will. I think we took the range 8% to 10% because we do feel like there is going to be some variability that we can't exactly forecast at this point in time and where we're sitting in Q1 and what we're seeing. As far as Wright Medical goes, we were pretty pleased with where their Q4 performance came out, but they are also subject to a lot of the same variability, which is why, we're looking that once we integrate it with trauma and extremities, we will have some sales, the synergies that just naturally occur. We felt that with K2 and Spine and we will fill that with Wright Medical. So taking into account that variability, you're really looking at 8% to 10% for the - for Stryker legacy and low to mid-single digits as we look at the combined Wright and Trauma & Extremities.
Kevin Lobo, CEO
Yes. Thanks, Bob. I would say, certainly at the end of the year, we got that second wave spiking and certainly you saw that in the discretionary procedures, a pretty big slowdown after a pretty good month of October. It really started to tail off November-December. On the large capital front, we're actually very excited. What we experienced through Q2, Q3, and Q4 from an order book standpoint is continuing to be very strong. That is really good news; it's good news for Mako, it's good news for Medical. On the small capital side, we've always said that that tends to lag a little bit, that the recovery in discretionary procedures, and you certainly saw that within the endoscopy division and the instruments division, where I would say that those orders are maybe going to take a little longer to really come back in the same way. But overall, I mean, we have enough confidence now with the hospitals being ready to do these procedures as soon as the pandemic starts to subside, and the vaccines start to become more prevalent. They'll turn it on pretty quickly and they'll be pretty agile, and that's why we feel confident about giving a healthy guide certainly going back-half of 2019 around 8% to 10% organic, so it will spike throughout the year, starting with a slower Q1. The good news is we have the whole year. So even if the discretionary procedures drag a little bit, we saw in Q3 a pretty big spike once things started getting healthy. Over the course of the year, we hope and believe that the guidance will be sustainable, even if it's maybe a little softer in Q2 and a little stronger, maybe in Q3.
David Lewis, Analyst
Good afternoon, and thanks for taking the question. Just two quick ones from me. Kevin, I was comparing the revenue guide to the earnings guidance. The earnings guidance is interesting to me and that it's basically 12% earnings growth, what you guys are doing over the last couple of years minus Wright Medical. But the revenue growth is a little higher, right? The 8% to 10% over 2019 is a little better than the earnings growth guidance. So how should we interpret that 8% to 10% number, Kevin, relative to the structural growth rate? And what are some key factors underpinning that? Or how do you think about the structural growth rate of Stryker here as we come out of October 2019? And I have a quick follow-up.
Kevin Lobo, CEO
Sure, David. Without getting into every single division, what I would just give you as a macro comment is we feel that we have the right offense to continue to win in the market and continue the strong growth. You saw for seven straight years, we accelerated our organic growth. In 2019, we culminated with over 8% organic growth, and I think that muscle we developed, the structure we have in our business units, the new product pipeline we have, has positioned us to be an above-market grower, and we fully expect that to continue into 2021. There are obviously differences by divisions, but we feel like we're in a very healthy position overall. That gives us confidence in the guide. Clearly, Wright Medical is a big acquisition. There are dis-synergies that we've assumed there. It was highly dilutive to the normal operation of our business. We'll see how that unfolds over the course of the year. The early signs of the integration are very positive, but we have put in some improvements there based on what we've experienced with our K2M acquisition and what frankly all other implant companies have experienced with their integration. Yes, we remain very bullish about our joint replacement business and Mako. The increase in Mako installations has been remarkable. To have almost one out of two knees being done on Mako has been unprecedented, and it's not been that many years since we launched the system. Unlike navigation in the past, which never had this type of an uptick, we continue to have strong, not only installations of robots but utilization. We're also seeing that continue to increase with hips as well; the new hip software was installed in about 400 accounts in Q4. We approved earlier in the year, but because of the pandemic, it's taken us time to actually implement the upgrades. However, that will pick up steam again into 2021. Looking at one quarter, whether positive or negative during a pandemic world isn’t something to be overly concerned about. It's based on regional strength; there may be locality benefits if procedures are taking place, while others are hindered.
Shagun Singh, Analyst
Thank you so much. This is Shagun in for Larry. I wanted to touch on the acquisition of OrthoSensor. Kevin, the acquisition really marks your entry into the sensor technology, remote patient monitoring, and smart implant space in a much more meaningful way. I was wondering if you could comment on the timing here. Why now, given that you've had a relationship with them for several years with soft tissue balancing? And how are you thinking about timelines for integration and launch with Mako? Also, the launch of smart implants, any timing you could share? Lastly, how are you thinking about the application of sensor technology beyond knees into shoulders and hips? Anything on timing would be great. Thank you.
Preston Wells, VP of Investor Relations
Shagun, this is Preston. In terms of the timing of the deal itself, we are constantly looking at different opportunities, and it just was the right time with the team to make this acquisition in terms of what we thought we were able to do with it. I think just the timing of it just happened to work out the way that it did. We typically do look at our targets for a long period of time. As for other timelines about when we're going to be bringing some of the different things to market, at this point, we're not ready to disclose those timelines. Just know that the teams are working to develop a robust pipeline around that sensor technology. As we have more information, we will certainly be bringing that to you.
Robert Marcus, Analyst
Kevin, I was hoping you could comment on, as you're thinking about later this year and into next year, there were a lot of patients that didn't end up getting procedures in 2020 and probably the first half of 2021. How should we think about the potential for a backlog of patients? I realized there are limitations to what the system can do, but there are still many patients that need to be treated. So how are you thinking about that as an organization?
Preston Wells, VP of Investor Relations
Robbie, it's Preston. In terms of that patient backlog, we saw some of that being worked down in the third quarter as we saw the recovery starting to happen. We saw more deferrals happening in the fourth quarter, adding more people to that backlog. As Kevin and Glenn both articulated, with the recovery happening in 2021, we expect to see some of that recovery include the backlog of patients that have been deferring now anywhere from three to six months. We would expect to see some of that flowing back into the numbers through 2021. The caveat is that we won't necessarily see a dramatic spike in those numbers, just given certain aspects around capacity. Surgeons and hospitals will still be working to fit additional surgeries in, but you won’t see a significant dramatic spike at any one point in time as a result of the backlog. Yes, thanks, Robbie. Neurovascular had a really terrific year. They had double-digit growth in the fourth quarter. They were affected in the second and third quarters, but double-digit growth in the fourth quarter, with an exciting portfolio of new product introductions. We have the Vecta 74 catheter out for Aspiration and are doing well. The pump is also performing strongly. We have the second-generation flow-diverting stent approved in the United States, the Surpass Evolve, and the first-generation flow-diverting stent approved in China, our Atlas stent. Our adjunctive stent is doing very well in China. We have a great portfolio and many new launches. This management team has been outstanding since we acquired the business. They have a healthy pipeline of other products coming as well. I'm very bullish on the Neurovascular business. We ended the year with great momentum, and I expect to continue to see strong performance in the years to come.
Pito Chickering, Analyst
Good afternoon, guys. Thank you for taking my questions. One quick guidance question for you. I understand you're not providing quarterly guidance at this time, but normally, you get about 23% of annual EPS in the first quarter. Because you are still seeing pressures in deferrable procedures in January, is there any chance you can give us some cadence on the first quarter earnings versus your normal run rate?
Kevin Lobo, CEO
Pito, I would just tell you we're not in a normal run rate period. I think we're still coming out of some pretty variable trends that we saw in the fourth quarter and continuing into the first quarter. A lot of it depends on localized hospitalization infection rates and really how those decline over time and how the vaccines are rolled out. It's too hard to really give you a precise guide on that. That's why you see the wider guidance that we provided.
Pito Chickering, Analyst
As more procedures are moving into ASCs due to COVID to free up space and capacity, have you seen hospitals change their purchasing habits to buy either cheaper - begin plans or push back on pricing or adapt to the lower reimbursements in the ASCs?
Kevin Lobo, CEO
No, not at this time. We have not seen any significant changes in those habits at all.
Matt Hendrickson, Analyst
This is Matt Hendrickson in for Joanne. First question we have is just around Mako and robotic knee systems. You guys had a great quarter and great momentum in the New Year. But J&J is coming out with their Velys robot. They received FDA approval, and Zimmer is kind of in full swing with their launch. So, just putting the two together, is there any change in your commercial plans with more technology out in the market?
Kevin Lobo, CEO
First thing, the introduction of competitive systems has not slowed down our Mako momentum whatsoever, and we don't expect that to change with one more system on the market. If anything, it further validates that robotics is here to stay in orthopedics. We really believe we have the best solution on the market as evidenced by the uptick in the procedures and the nearly 50% of knee surgeries in the U.S. being performed with Mako. So, surgeons absolutely love our system and are using it at very high rates. There is synergy in how our system ensures an absolutely perfect cut. With HaptX, which we're the only ones to have, that is very complementary with cementless knees, and you see both of those adoption rates moving in the same direction. So we remain very confident in our chances to compete side by side and believe this provides a further tailwind in the adoption of robotics in orthopedics. Yes, absolutely. We've always been believers in enabling technologies, as evidenced by some of the different businesses we’ve acquired with different products we've launched, focusing on improving patient outcomes. The Wright technology, including the blueprint technology they invested in, are complementary to some of the platforms we have. In the integration with Wright, the R&D and technology teams are working together to build long-term pipeline plans to leverage the unique products and capabilities from both sides. We will continue to invest in those areas.
Kaila Krum, Analyst
Thanks for taking our questions. I appreciate the guidance you gave for 2021. Can you speak to how you think each segment of the business will grow relative to the total organic range you provided? I guess I'm most curious about MedSurg and Orthopedics. I know you’re assuming the demand slows down in the coming quarters and that backlog picks up in ortho. Any more detail on that would be helpful.
Kevin Lobo, CEO
We don't typically provide segment breakdowns in our guidance, but certainly, those businesses affected more by elective procedures should see the benefit of elective procedures returning throughout the year. Our smaller capital products, which facilitate many elective procedures, should also see some benefit. As for the large capital segment, we'll continue to see strong demand and expect it to persist throughout '21.
Kaila Krum, Analyst
Just a follow-up I guess to Pito's earlier question: is it fair to say that Q1 will be the softest of the year, Q2 will have the higher growth kind of off an easier comp, and the second part of this year should feel a little more normal?
Kevin Lobo, CEO
Yes, it's certainly fair to say that the variability we experienced in Q4 will continue into Q1, and we should see benefits happening as we progress throughout the remainder of the year.
Steven Lichtman, Analyst
First, could you provide additional color around the ASC sales model that you're rolling out? Any details you could provide on what the model looks like and any early feedback from the field would be great?
Kevin Lobo, CEO
I'm not going to get into too much detail just for competitive reasons, but I would say that I am delighted with the ASC strategy we put in place. It involves cross-department collaboration to meet the unique needs of each ASC. The flexibility allows our portfolio with capital equipment, disposables, and implants to come together, enabling us to provide effective solutions for ASCs and we have had success with this approach in other countries. It has significantly exceeded my expectations in the U.S.
Preston Wells, VP of Investor Relations
The spine business has held up slightly better. We saw spine procedures in general holding up a little better than some other elective procedures, particularly outside the U.S. which performed well. Our successful integration with K2M and enabling technologies like those from Mobius contributed to this. We expect continued performance in 2021 from the combined businesses.
Ryan Zimmerman, Analyst
Thanks for taking the questions. First for me, Kevin, around the capital equipment demand, I was wondering if you can talk about dynamics in 2021. You've been strong in that area, but you haven't talked much about booms and lights. Is this a story of the first half, second half?
Kevin Lobo, CEO
Booths and lights haven’t been as positive as Mako and beds. There was a pandemic tailwind influencing demand for medical capital, so projects were delayed. They are starting to pick up now, though. Our Medical products continue to be strong, and the products in our portfolio are getting positive feedback. So we are optimistic for growth in Medical, independent of the pandemic effect. Yes. Those products are used in elective procedures, so they were directly hit as elective procedures were deferred during the pandemic. Those products will grow as we normalize, but our hospital behaviors didn’t significantly change when it came to the products.
Andrew Stafford, Analyst
This is Drew on for Matt. I wanted to start off briefly on Wright. Could you help compare and contrast the Wright integration process to the one you went through with K2? What stage of the process have you already completed so far, considering the longer deal closed timeline? What gives you confidence in the contribution you baked into guidance?
Kevin Lobo, CEO
There are similarities and differences between the two acquisitions. We leveraged the long period from signing to closing, ensuring correct integration plans were in place. The key difference is that it's more integration of Wright into Stryker rather than a merger since Wright had a bigger upper extremities business than Stryker, which mainly relied on aides. The integration is going well, and they have executed the plans in a timely manner. We will continue to provide updates.
Andrew Stafford, Analyst
As we look out a year, do you see the interest from ASCs tapering down? Or do you think it continues ramping over the long term?
Kevin Lobo, CEO
The trend of ASCs was already accelerating before the pandemic and will continue without a doubt, especially for hip and knee procedures as well as foot and ankle procedures. This is a permanent trend. The transition to these cheaper sites of care will only expand; it’s a good thing for healthcare overall.
Richard Newitter, Analyst
A couple of quick ones on OrthoSensor. Can you remind us what you plan to do with the intraoperative Verasense capability? Will that continue to be sold in an open architecture? Should we expect your first product iteration to be separately charged or packaged with the procedure?
Kevin Lobo, CEO
We haven't fully developed marketing tactics for all products yet, so we'll come back with the updates on how we will do proceed and what the implications will be. We took on additional debt with the Wright acquisition, but M&A is crucial to our growth strategy. We will continue with smaller tuck-in deals and won’t anticipate anything bigger for a couple of years.
Mike Matson, Analyst
I wanted to ask about the ProCuity bed launch. Could you provide an update on where things stand and an overview of the smart bed capabilities?
Kevin Lobo, CEO
The ProCuity bed was launched in a limited way in Q4 and is rolling out fully in Q1 2021. Key features include advanced fall prevention with a low height feature dropping to about 11 inches off the floor and being truly wireless, Merely designed to meet unmet needs in the market.
Glenn Boehnlein, CFO
For 2021, we expect adjusted net earnings per diluted share to be in the range of $8.80 to $9.20 for the full year. This includes the previously announced $0.10 dilution driven by the addition of the Wright Medical business for the full year. Wright Medical will be dilutive in 2021, but accretive starting in 2022.
Kevin Lobo, CEO
Thank you all for joining our call. Like you, I'm very pleased to have 2020 behind us, looking forward to a strong year in 2021. We must get through the remainder of the pandemic, but as you saw from our guidance, we feel very confident about the future. We look forward to sharing our Q1 results with you in April. Thank you.
Operator, Operator
Thank you. Ladies and gentlemen, this concludes today's conference. Thank you for participating. You may now disconnect.