Q4 2022 Cooper Companies Inc Earnings Call
[music].
Good afternoon, and welcome to Cooper companies' fourth quarter 2022 earnings conference call.
All participants are in a listen only mode. After the speaker's presentation, we will conduct a question and answer session.
To ask a question you will need to press star followed by the number one on your telephone keypad.
This conference call is being recorded.
I would now like to turn the call over to Kim Duncan Vice President of Investor Relations and risk management. Please go ahead Ms Duncan.
Good afternoon, and welcome to the Cooper companies fourth quarter and full year 2022 earnings conference call. During today's call. We will discuss the results and guidance included in the earnings release, and then use the remaining time for questions.
Our presenters on today's call are al White, President and Chief Executive Officer, and Brian Andrews, Chief Financial Officer and Treasurer.
Before we begin I'd like to remind you that this conference call contains forward looking statements, including all revenue and earnings per share guidance and other statements regarding anticipated results of operations market or regulatory conditions or trends product launches operational initiatives regulatory submissions and closing or integration of.
Any acquisitions or their anticipated benefits.
Forward looking statements depend on assumptions data or methods that maybe incorrect or imprecise and are subject to risks and uncertainties.
And that's that could cause our actual results and future actions of the company to differ materially from those described in forward looking statements are set forth under the caption forward looking statements in today's earnings release and are described in our SEC filings, including Cooper's Form 10-K, and Form 10-Q filings all of which are available on our <unk>.
Site at <unk> Dot com.
Also as a reminder, the non-GAAP financial information, we will provide on this call is provided as a supplement to our GAAP information. We encourage you to consider our results under GAAP as well as non-GAAP and refer to the reconciliations provided in our earnings release, which is available on the Investor Relations section of our website under quarterly results.
Should you have any additional questions. Following the call. Please email IR at <unk> Dot Com and now I'll turn the call over to al for his opening remarks. Thank you Kim and welcome everyone to Cooper companies' fourth quarter and fiscal 2022 year end conference call. We finished this year with coopervision reporting its seventh consecutive quarter of double.
Organic revenue growth and Cooper surgical posting an eighth consecutive quarter of double digit organic revenue growth within its fertility business.
Demand for our products and services was very strong in Q4, and we're seeing that continue into fiscal 2023 and.
I'm extremely proud of the dedication of our Cooper employees and the hard work. It took to post another year of record revenues in fiscal 2022, and I look forward to another record setting year in fiscal 2023.
Moving to the numbers consolidated quarterly revenues reached an all time high of $848 million and we closed the fiscal year with record revenues of $3. Three 1 billion Coopervision posted quarterly revenues of $562 million up 11% organically and reached a new record high of 2.24 billion in fill.
So year revenues.
Cooper surgical posted record quarterly revenues of $286 million up 15% organically and reached new record fiscal year revenues of 1.07 billion.
For the quarter Coopervision growth was led by our daily silicone hydrogel portfolio and myopia management products, while Cooper surgical as growth was broad based with strength in PARAGARD fertility and our broader medical device portfolio non-GAAP earnings per share were $2 75 stars.
This was lower than we were forecasting primarily due to commercial spending tied to product launches and the elevated distribution costs and Brian will cover. This later in the call.
For Coopervision in Q4 and reporting all percentages on an organic basis revenue growth was strong and diversified in all geographic regions and across all product categories spheres, Toric and multifocal.
The Americas grew 5% EMEA was up 13% and Asia Pac grew 16%.
This performance was driven by new product launches expanded product ranges market, leading flexibility through our customized offerings and growth in key accounts.
Regarding product details daily silicone hydrogel lenses grew 20% with especially strong growth for Monday and from clarity on the Asia Pac region Dave.
Daily Silicones continue to be the main driver of growth for the contact lens industry and we offer the broadest portfolio in the market with my day and clarity available on a broad range of spheres toric and multifocal.
Our silicone hydrogel FRP lenses bio affinity and of error reported another solid quarter of 6% growth.
Regarding product launches, we remain extremely active the <unk> multifocal launch is going incredibly well and the feedback from customers and practitioners remains outstanding in the meantime, the Mighty Toric parameter expansion loss has been overwhelmingly positive in the U S and Canada with over 4000, Skus, We now match our standard.
<unk> toric range and have the widest daily toric range in the market by a wide margin.
Not only does this expand the daily toric category for everyone, but for many FRP toric worse. This is our first opportunity to enjoy the freedom of a daily contact lenses will be rolling out these expanded parameters in additional markets as we move through fiscal 2023 and look forward to continued success.
And lastly, we're excited to be bringing <unk> to the market. This lens uses the same innovative technology is bio affinity and or just to alleviate digitalized strain and eye care practitioners are excited to be getting this technology at a premium daily offering we started seeding the U S market and a full national rollout is scheduled for early spring.
Combining all of this mighty activity truly exemplifies coopervision leadership in the daily silicone hydrogel space and our focus on offering practitioners a wide variety of market, leading technologically superior products.
Inside of my day demand for both and Eddie remains, especially strong to the point where were somewhat capacity constrained.
We've increased price and production, especially in extremely high demand made to order extended range torque and toric multifocal and will continue to focus on increasing capacity on a broader scale moving forward.
Moving to myopia management, we posted revenues of $26 million up 29%, including my site up 88% for the full fiscal year, we reported myopia management revenues of $93 million, which was impressive given the negative impact of currency and ongoing COVID-19 restrictions in China.
For my site, we're rolling out an expanded parameter range and launching in new countries and I'm happy to report that my site is now available in 41 countries.
Within this we are seeing increased bidding activity from both independent optometrist and key accounts and we're continuing to see a positive halo effect with our mine site customers accelerating their use of other coopervision lenses.
All of this is a good sign and points to a strong fiscal 2023, where we expect myopia management revenue of $120 million to $130 million up roughly 35% at the midpoint in constant currency.
And as a reminder, MISO contact lenses are the first and only FDA approved soft contact lens proven to slow the progression of myopia in children, aged eight to 12 at the initiation of treatment the <unk>.
<unk> is backed by extensive clinical data. It remains a shining example of coopervision is leadership in the contact lens industry.
Moving to side glass, we've been making progress with these myopia control glasses as part of our great joint venture with Essilor Luxottica. This includes selling in China in pilot programs in Canada, the Netherlands, the UK and Israel.
In the U S. The JV submitted an FDA application to be the first spectacle lens product to receive FDA approval for myopia control and we hope to receive a positive response by calendar year end.
And to conclude on the importance of myopia management why it needs to become standard of care the risk of visual impairment and eye complications such as glaucoma gross exponentially with vision loss, so preventing higher levels of myopia is critically important for the long term health of our children's eyes.
To finish on coopervision, the contact lens market is performing exceptionally well with growth of roughly 9% in calendar Q3, Theyre still COVID-19 related challenges, especially with respect to staffing shortages and optometry offices negatively impacting patient flow, but progress is being made.
Meanwhile, the long term growth drivers of the industry remain intact. This starts with the macro growth trend and more people needing vision correction with an estimated 50% of the global population expected to have myopia or nearsightedness by 2050 up from roughly 34% of the population today.
This is driven by a variety of factors, including greater levels of screen time, and less time outdoors, especially among children.
Other industry drivers include the market's continuing shift to silicone hydrogel dailies, the increasing focus on higher value products, such as towards a multifocal at higher pricing, which is running ahead of historical trends, we expect global growth to remain healthy and believe will remain a leader with our robust product portfolio ongoing product.
Launches fast growing myopia management business, and leading new fit data.
Moving to Cooper surgical we posted a great quarter with growth throughout our portfolio fertility reported sales of $109 million up 15% organically its eighth consecutive quarter of double digit organic growth success was seen throughout the product portfolio and around the world given our momentum as we enter fiscal 2002.
'twenty three we're continuing to invest in our team and in our fantastic product portfolio, which includes leading consumables capital equipment and genomics.
Demand remains very strong, especially among our key accounts. So we need to keep building infrastructure investing in our people and delivering the products and services required in this high growth market.
Regarding the overall fertility market the future looks bright there are several industry growth drivers one of the key factors being women delaying childbirth. The average age of a woman's first first birth in the U S and several other developed countries now stands at a record high of 30 years old and age is one of the key factors in meeting fertility assistance.
Sully factors, such as improving access to treatment, increasing patient awareness improved product offerings, such as cryopreservation, increasing fertility benefits coverage and technology improvements for both male and female and fertility are driving the industry forward.
In total it's estimated that roughly 15% of reproductive age couples have fertility challenges and that over 750000 babies are born annually through fertility assisted measures and these numbers are growing.
Regarding Cooper Surgical's market positioning we compete in a portion of the market that's roughly $2 billion in annual sales and we forecast growth of 5% to 10% for many years to come.
Within this we're well positioned to continue delivering strong results with the broadest portfolio in the industry, a market, leading commercial footprint and stripe and key accounts.
Moving to office and surgical products, which includes obgyn medical devices, PARAGARD and stem cell storage, we posted sales of $178 million up 58% and up 15% organically within this PARAGARD grew 19% and office and surgical medical devices were up 13%.
<unk> posted strong results rebounding from several tough quarters, and our obgyn medical devices benefited from strong demand, especially for surgical products to bind with clearing some backlog.
Lastly, our stem cell storage business grew 2% in line with expectations against the difficult comp.
To conclude our Cooper surgical we made a ton of progress this year, our fertility business continues to post great results, our office and surgical products closed the year strong and we completed an incredible amount of integration activity associated with several acquisitions, including that generate deal.
Before I turn the call over to Brian Let me say this was a great fiscal year for Cooper, we reported record revenues and made significant advancements throughout our organization as we enter fiscal 2023 demand remains strong supported by stable consumer activity and price increases our investment activities, including new product launches and.
<unk> expansion are growing well our employees are highly engaged and we're continuing to execute on our long range strategic objectives.
Having said that we are aware of global inflation geopolitical risks and other factors that could cause a global recession and were thus managing our investment activity with prudent cost controls and we will continue to be vigilant in our operations with that let me turn the call over to Brian .
Thank you al and good afternoon, everyone. Most of my commentary will be on a non-GAAP basis. So please refer to our earnings release for a reconciliation of GAAP to non-GAAP results.
Fourth quarter consolidated revenues were $848 million up 12% as reported and organically.
Holidayed gross margin was 65% down 250 basis points from last year, primarily due to currency and higher costs associated with supply chain challenges.
Operating expenses grew 12% and were 42, 8% of revenues, primarily as a result of the acquisition of generate.
Consolidated operating margin was 22, 2% down from 24, 9% last year, primarily due to currency.
Before moving on.
Let me say, our Q4 operating income did not meet expectations.
The primary drivers were commercial spending tied to product launches.
And elevated distribution costs tied to shipping and inefficiencies associated with capacity expansion and automation efforts.
Some of this activity will continue in fiscal 2023, and I'll touch on that in guidance.
Hello, moving below operating income interest expense of $23 million with higher rates and debt balances driving the increase.
The effective tax rate was 14, 2% and non-GAAP EPS was $2 75.
With roughly $49 6 million average shares outstanding.
Regarding earnings FX negatively impacted the quarter by 75.
Which was 11 more than we had built into our guidance on our September earnings call.
A large part of the 11 was attributable to the Remeasurement of foreign currency based intercompany trade receivables, including exposures from before we began mitigating certain balances.
Free cash flow was $36 million, including Capex of 95 million.
Tied to capacity expansion and.
Net debt reduced by $31 million to $2 $61 billion.
Moving to fiscal 2023 guidance, we are assuming a modest recession ongoing inflation and rising interest rates.
For the year were guiding to consolidated revenues of $3 45 to $3 $5 5 billion.
Up 6% to 8% organically with coopervision revenues of 2325 to $2 $3 65 billion up 79% organically and Cooper surgical revenues of $1, one three to 115 billion up 4% to 6% organically.
non-GAAP EPS is expected to be in the range of $12 30.
To $12 60.
On $106 million of interest expense and.
And a 15% effective tax rate.
For interest, we're assuming a 50 basis point rate increase from the fed in December .
Another 50 basis point increase in February and then an additional 25 basis point increase in March.
For the tax rate, we're assuming no discrete items.
For currency, we're using yesterdays rates with a little conservatism given the FX volatility.
This results in year over year, FX headwind of roughly two 5% to revenues, while being neutral to EPS.
From a quarterly gating perspective, we expect consolidated Q1 revenues and earnings to be slightly less in Q4 with.
With currency continuing to have a significant negative impact.
After our Q1, assuming rates hold steady the currency impact will lessen and ultimately turn positive towards the middle of the fiscal year.
Moving to the full year P&L, let me touch on details that will drive our financial results.
During Q4, we ramped up investment activity and expect that to continue.
As an example, we accelerated work on roughly doubling our U S.
Coopervision distribution center to get the building shell done before winter and we now expect it to be utilizing this additional 150000 square feet of space This coming summer.
We're also expanding other distribution and manufacturing locations that coopervision, and Cooper surgical and implementing substantial automation.
Additionally, we're adding significant capacity to our contact lens manufacturing footprint.
We saw some of this activity in Q4 with Capex of $95 million and we expect this to continue with capex being around $400 million this fiscal year.
Near term demand is strong and long term growth trends are very positive.
This activity is needed to support our growth initiatives.
Having done this type of expansion work in the past, we know we will get it done and probably ahead of schedule, but it does create inefficiencies.
When youre dealing with an already strained global supply chain and make things even more difficult.
We built expectations around this inefficiency into our guidance along with inflation assumptions and believe we are sufficiently captured everything.
In total for fiscal 2023.
This means strong revenue growth slightly improving gross margin supported by price increases and higher than normal opex, resulting in our operating margin being up slightly year over year.
To conclude on guidance note that this does not include the pending acquisition of Cook Medicals reproductive health business.
But does include the acquisition of synergize, our small specialty contact lens business, we closed on November one.
Regarding coke, we're exploring options to get regulatory approval, including the.
Potential sale of certain coke assets and are hoping to close by June 32023.
And with that I'll hand, it back to the operator for questions.
Thank you as a reminder to ask a question you will need to press star followed by the number one on your telephone keypad and the interest of time, we ask that you. Please limit yourself to one question and one follow up question.
You.
Our first question comes from Jon Block from Stifel. Please go ahead. Your line is open.
Great. Thanks, guys.
Well I'll start on maybe you might have entered just any I know, it's very soft launch but any.
Early early feedback on the lens.
You've got a competing lens for Digitalized training.
Priced at the really high end of the market.
Does that give you any thoughts on how you can prices or get a little bit more aggressive on the positioning of <unk> in the market and then I'll ask my follow up.
Yes.
John .
Spots so far from eye care practitioners, who has been pretty positive a lot of them know this technology, because they've used it with <unk>, so theyre comfortable with it Dave.
They've been requesting it in a more premium daily which is obviously my day that were given to them now so I'm optimistic it's going to do well, we're just getting it in the hands of key opinion leaders starting really here in November and we will continue to expand that out in the coming months.
Positive response on that it will be priced at a premium.
To the sphere to the Monday sphere, I won't go into a pricing details yet as we don't have it out in the market, but but it will be a premium priced product.
Okay helpful. Thanks, and then maybe just shift gears, Brian This one might be for you just any details on call. It the low $13 EPS number for 'twenty three last quarter on the <unk>.
<unk> died and now the $12 45 at the midpoint that you came out with this afternoon.
Is it all attributable to some of those elevated opex cost that you called out on the distribution side that seem to be playing a role in 'twenty three or are there any other variables. We should be thinking about and then just wanted to tack on to that is do you really see those higher distribution cost is somewhat trends you had call. It a 23 of that and hopefully that.
Subsides as we think about 'twenty four thanks guys.
Hi, John Yes, good questions I'll take the second part of your question first yes. There is a good part of that that was transient that really was particular to the quarter.
And then there is an element of the inefficiencies which is elevated opex.
That will persist into 2023 now I touched on some of the things that drove our guidance, including the strong revenue growth gross margins, improving driven by price increases and operating margins up slightly we are assuming a modest recession, including those inflationary pressures in and those continued inefficiencies.
And then of course the rate increases in some conservatism perhaps.
Next.
But the nice thing is is obviously currency was brutal last year. So it will be bad in Q1, it will improve quite a bit after that.
But we got hit hard with increased costs in 2022.
Those will settle down a little bit, but but we are factoring some of that and we are seeing some normalization of freight.
And wages.
We'll annualize some of those and we're seeing some improvements already but we did not factor some of those improvements into our guidance.
So in short, yes, the elevated opex.
Is taking our EPS guidance, maybe a touch lower than where we were.
Three months ago.
But it's still not materially different from where we had set guidance, where we what we had said about a quarter ago about driving to low single digit earnings growth and we just have higher interest.
And just the some of the elevated opex that we've factored in perhaps for a little bit of conservatism as we start the year.
That's helpful color. Thanks, guys.
Our.
Question comes from Larry <unk> from Wells Fargo. Please go ahead. Your line is open.
Hi, its lei, calling in for Larry Thanks for taking our question.
Can we talk a little bit more about margin gross margin operating margin and you talked about the higher distribution cost then.
The investment for new product.
Can you help us bridge from fiscal Q4 into fiscal 'twenty three.
Thanks Bye bye.
Thanks Scott.
The margins get worse before they start to improve or even more painful.
Yes, so on.
On margins.
Q4 to next year.
I touched on I gave a little bit of guidance in my prepared remarks, just around Q1 being a little bit lower than <unk>.
Q4, some of that gross margin is going to be somewhat similar but opex is still going to be elevated we saw some of the issues that we dealt with in Q4 kind of bleed into Q1.
As you work through the year like I said currency improves gross margin will improve from from price.
And then operating margins, while theyre going to be up slightly year over year.
They are being held down a little bit from the elevated opex.
The cadence and the gating around revenues is going to be pretty similar to the way. It is typically.
And.
So that's basically the gating.
Did I answer your question Lee.
Thanks, Brian just to be clear you said both of revenue and margin will be lower in Q1 versus Q4.
So revenues will be a little bit lower and gross margins, probably a little bit similar but you have got.
You've got <unk>.
Higher Opex and certainly higher interest expense, which will drive your EPS, a little bit lower versus Q4.
Okay. Thanks Thats helpful.
If I can just add.
I have another question on the guidance you talked about 120 $230 million.
Malibu management revenue.
Tim.
Hi, glass mat and what do you assume about high class launch cost in the guidance. Thanks.
And so there is nothing in there for <unk> revenue.
That's a joint venture that we have so we don't recognize revenue from that other than a little bit of a product that we distribute but it's pretty minimal.
We've assumed continued cost there we've had expenses associated with <unk> that have been rolling through our P&L every quarter. We've assumed that we'll continue the only thing that I.
I would probably highlight that is not factored in there is what happens with.
FDA approval, if we do get FDA approval I'm sure there'll be incremental launch costs associated with that activity and we will obviously pull that out and highlight that specifically, but that's a little bit of an unknown. So thats the only thing that wouldn't be in there.
Thank you.
Yes.
Our next question comes from Jeff Johnson from Baird. Please go ahead. Your line is open.
Hey, guys. This is zane on for Jeff. Thanks for taking the questions on the kind of 7% to nine DVI organic guide it looks like maybe you got 150 basis points of tailwind for myopia management.
We're just wondering kind of what is the pricing assumption in there I know I think you mentioned it being a little bit higher than this year. So what's kind of the organic ex price ex myopia.
CVI growth Youre expecting.
Yes, I think that if price this year.
Ends up being somewhere around 2% as a positive and thats probably true.
For us and an industry comment it's going to be somewhere around in that range. So yes. When you look at the 79.
Depending upon how you want to look at that compared to prior years and so on and so forth you got 115% coming from myopia management and a couple of points coming from price built within that.
Okay, and just to clarify that 2% for 2003.
Correct.
Okay.
Then just one follow up on PARAGARD I know this quarter you guys had an easy comp.
But we did see some data starting to suggest office visits improve and just IUD use improve our overall so what are your kind of thoughts on that end market growth for IUD and PARAGARD into 'twenty three.
Yes, I think that it's okay, but I wouldn't go really any farther than okay.
When I look at fiscal Q4, certainly in how we started this year I mean, we've got some good numbers there because a rebound activity, but if I look at actual patient traffic with respect to obgyn visits specifically associated with Iuds, we haven't really seen much of an improvement there. So I think there are signs of potential.
So improvement, but I wouldn't read too much into that right now I think we'll still have bought.
The challenging year, if you will with PARAGARD in terms of getting a lot of unit growth out of it.
Our next question comes from Joanne Wuensch from Citibank. Please go ahead. Your line is open.
Thank you Helen.
Question, you're talking about a 9%.
Mark next door.
Got absorbed 2% price, maybe that makes a 7% market growth that's higher than the normal average.
What's driving that growth.
Yeah.
Boy, there's a lot of good demand out there when it comes to the contact lenses I can tell you and I would say, it's probably true for all visual correction.
Correction companies.
We were running pre Covid, we got up to running kind of around for a market, 5% to 6% and maybe there was a <unk>.
5% of our point of price something like that and there it is stronger than that right now so whether it ends up being.
The shifts I talk about the tour to a shift of multifocal is the shift to daily silicones that kind of stuff that was happening before is still happening.
You get youre getting a little bit honestly I think from Covid I think that you have so many kids who were inside and so many people who have not been able to go to the optometrist that.
Youre still seeing a push there I mean, you can still talk to retailers and optometry offices about issues. They are having meeting the demand from patients and some of that is not enough optometrist and changes in optometry work habits, and so forth, but theyre still staffing challenges. There is still demand related challenges that are out there. So I think it's just ends up being.
Better industry frankly than it was even years ago that the macro growth drivers are arguably stronger than they were pre COVID-19.
And then as a follow up.
Understand my first margins might look like next year given.
Thanks.
Yes, I think that you've got a couple of different things that push gross margins are higher and lower and you certainly have currency in there that ends up starting to be a positive to help us but the price increases we're talking about also flow directly through so at the end of the day.
We're expecting to see improvement year over year and gross margins will go into specific numbers on that but but gross margin should be up year over year.
Okay. Thank you.
Yes.
Our next question comes from Jason Bednar from Piper Sandler. Please go ahead. Your line is open.
Hey, good afternoon.
Thanks for taking my questions and sorry for any background noise here.
Brian within that 7% and 9% organic revenue guide for CVI.
Can you help us understand how you're thinking about the geographic buildup within that guide.
The Americas performance was a little soft this quarter.
Im curious how youre thinking about the growth contribution when you look around the globe for fiscal 'twenty three.
Yes, the Americas is kind of in line with market. If you will that's where we've been running a little bit here for coopervision for a couple of quarters and then we've been outperforming in Europe and outperforming in Asia Pac.
I would assume that that's going to continue.
We put up some good numbers right. There is and there is in Europe and there are some questions about that in terms of what happens with the with the consumer there, but we're continuing to see good demand in Europe . Our key account strategies are really successful there. So I am expecting us to continue to put up solid results in Europe Asia Pac is certainly coming back we posed.
A good quarter as Youll remember pre COVID-19 for number of years, we were double digit in Asia Pac.
Got a great presence there a great team there and I would expect us to continue to put up strong numbers in Asia Pac the Americas I think continues to kind of grow around in this area I do think one thing that could help the America, some will end up being price.
We all talked about price, but the key on price ends up being the net price that you realized taking price and then offering discounts or other activity to retailers and people doesn't get you. The true price you have to look at the net price increases I think as an industry and us included.
Everybody is doing a better job focusing on that saying hey, we have to get the net price increase so I think thats going to help the Americas market a little bit as we're in 2023 also.
Okay. That's helpful and then.
As youre thinking about pricing for next germinate cure stability for for fiscal 'twenty three 2% next year versus 2% you just put up.
I thought the results were supposed to be maybe some lagged effect on some of those key.
Key accounts you have the contracts really setting so I guess is the 2% tailwind for pricing next year is that just conservatism or are those contracts not resetting like we thought they were just curious how youre thinking about that dynamic. Thank you.
Sure, Yes, I think that I don't think we got 2% last year in terms of price increases.
Did not coopervision did not get 2% in terms of price increases. So I think we were probably more in the one to one five kind of range for price increases.
And I think that increases to two which picks up the things that you are talking about and I think that that bodes well. If you will when you think about that from the perspective of what that means for like Q3, Q4, this year and probably fiscal 'twenty. Four also because of the things that you are referencing are all future positives for us.
Alright, thank you.
Yes.
Our next question comes from Robbie Marcus from Jpmorgan. Please go ahead. Your line is open.
Hi, This is actually Lili on for Robbie Thanks for taking my question.
Please go about supply and manufacturing issues from both you and some of your competitors. So Steven this is affecting Sharon have you seen any benefits or loss from these dynamics.
I don't think we've seen really share shifts.
We've all had our challenges.
I think that.
It cost us some we met a lot of the <unk>.
Customer expectations through expedited shipping that kind of thing and Thats. Some of what Brian was talking about right, which is those costs to meet consumer expectations can get expensive.
I think at the end of the day when you are talking about share shifts and so forth, though it takes a little bit longer to see that the practitioner, stating what they want to fit they need to go through a period of time, where they are unable to get product from someone before they really start changing their fitting behavior. So I don't think we've seen shifting share dynamics because of that we've been taking share I would say for the same reasons.
We've taken a historically.
Great product portfolio and a great sales team out there executing I don't think we've really seen much in terms of share shift because of supply chain challenges our shipping related issues.
Got it.
And just a follow up.
Daily number came in pretty well above what we were thinking so maybe just on the competitive environment. There is there any color you can share on what you've been seeing in terms of share capture first day trade ups from your own base. Thanks, so much.
Yes, yes, I think that people are underestimating the power of Coopervision daily silicone hydrogel portfolio.
I know theres a lot of it's complicated right and it's probably it's more complicated than some of our competitors in terms of the offerings that we have but when we talk about something like the <unk> toric parameter expansion launch that we're going through I mean, I understand thats, a hard thing for people to understand or get their arms around but it's powerful and it's important and theirs.
Incredible traction associated with that and it's in great annuity streams on high priced products. So I think at the end of the day, that's probably what it is and if you think about that in the context of not only our product I might a toric, but also the multifocal and you think about <unk>.
A really really strong products and by the way I don't want to ignore clarity, which is doing really well, especially in Asia Pac right. Now so it's not surprising me that we're continuing to put up strong daily silicone numbers and I would expect those to continue as we move through 2023.
Our next question comes from Zach Leaner from Jefferies. Please go ahead. Your line is open.
Hey, Thanks for taking the question I just wanted to focus on my side.
Can you give some color on how patient volumes are churning through optometry offices and this thing is impacting my side at all.
And then any color on my site retention rates through the quarter.
Sure. Yes, my site was a positive this quarter better than my expectations. The myopia management number if you will in total we hit the $93 million, but ortho K was weaker than expected we ran into some issues in September and October with our ortho K product line in China.
We all know what's been happening in China, and our ortho K sales came in definitely lower than expected to flip was true on my site, where we posted some good numbers I was happy with that.
The fitting activity is pretty strong there.
Interest and activity, we're seeing from some key accounts and retailers and so forth is positive.
<unk> was.
Positive again definitely this past quarter. So some good positive trends with respect to my site.
Almost a little under the surface. If you will but I was really happy with with our Q4 performance there.
Our next question comes from David Saxon from Needham. Please go ahead. Your line is open.
Hi, good afternoon, and thanks for taking the questions maybe I'll start with the guidance the organic guidance at least culture a slowdown Steve.
<unk> 79 versus I think with 12% in fiscal 'twenty, two and CSI <unk> six versus 8% in 'twenty, two and below the 5% to 10 market growth you called out so just wanted to ask two.
Kind of.
Comp dynamic youre facing tough comps or are there any changes in the marketplace.
That's causing that slowdown.
So yes tough comps is part of it is a matter of fact, a couple of years of pretty decent performance here and tough comps.
We're seeing strong results. So far this quarter, we're not seeing anything to really indicate a material slowdown thats for sure Havent.
Having said that we're giving guidance for the full year. So when you think about that.
The factors, Brian mentioned talking about guidance right and the potential that we're factoring in a moderate recession and inflation and other items that are out there we try to take that all into consideration and give what we felt were prudent guidance ranges.
Yeah.
Okay got it and then maybe a two parter on the M&A front.
I guess any any update on the math around the coke deal.
Help us think through kind of the impact from selling assets needed to get the deal done and higher interest rates.
Then on the synergize deal maybe give us a brief overview view on that and kind of how it fits into your specialty lens portfolio. Thanks, so much.
Sure Yeah on Cook I'll stay away from commenting on it and staying on that we're actively out in the market right now trying to see if we can make a transaction happen and.
Depending upon what happens will obviously have a decent impact on what the final numbers will look like right. Obviously, some things have moved against us interests being clearly one of them.
When you update for interest rates, that's clearly more negative than it was when we announced that deal, but I will kind of stay away from commenting beyond that just because there's a lot of activity behind the scenes on that one now.
On synergize, yes a.
Nice little specialty business here in the U S around $20 million in revenues, we paid about $30 million for that business.
A nice little tuck in into our specialty business unit they have.
Cool Highbred lens at some other technologies that will fit well into our space as you know.
We're a leader in the specialty space, whether it's things like buy side, and ortho K and scleral lenses and so forth. So that's an important part of our legacy our history and something we want to remain a market leader in so.
Looking in that.
<unk> is a positive for us it's new to US we don't have that technology. So, it's adding something new for us. So yes, that's kind of story behind that one small deal.
Great. Thank you.
Yes.
Our next question comes from Steve Lichtman from Oppenheimer <unk> Company. Please go ahead. Your line is open.
Thank you hi, guys.
And you mentioned during the prepared remarks, assuming a mild recession in your guidance.
Can you guys talk more about what that means in terms of assumed headwinds.
And what we cross CVI CSI are you, assuming a modest recession could potentially impact growth into mix.
Len sitting.
We can provide them qualitatively would be helpful.
Sure Hi, Steve.
Yes, I mean as it relates to the recession risk comment, we factored that into our opex assumptions primarily.
But also in our revenues and cost of goods, we feel we can hurdle the latter two with price increases.
Regarding opex you still have wages and freight for example that we put in assumptions in around inflation.
As I said earlier, we're seeing some improvements in normalization, we didn't factor them in though into the guidance. So.
So now putting that inflation abatement or any upside that we're starting to see.
We're starting the year off one of your little bit Conservative we've got a full year ahead of us we want to be prudent as al said.
So thats kind of what we put in and then of course, just some of the commentary around interest rates and FX of course.
Also maybe a touch conservative there too.
Got it thanks, Brian and then just a quick follow up I appreciate the comments.
On Capex for this coming year can you talk about overall, what youre thinking regarding free cash flow this year, either quantitatively or just directionally versus.
'twenty two.
Sure Yes.
Operating cash flow should be better than last year, you still have things like interest in <unk> and.
And taxes that will offset some of the operating cash flow versus last year, but still net net operating cash flow up probably just a bit just slightly and.
And then with the $400 million Capex that I cited youre, probably somewhere around $300 million of free cash flow in.
In 2023.
Got it thanks, Brian .
Yep.
Our last question will come from Matthew Mitchell from Keybanc. Please go ahead. Your line is open great.
Great and thanks for taking the questions.
Just the first one is on is on Europe , I understand the Asia growth anything that seems like it's been a great market for you for a good amount of time.
Just help me help me understand how you guys are doing like double digit growth right now in Europe , and maybe is there a difference in how consumers purchase contact lenses in Europe than they do in the U S is it more of a script subscription service versus like a sale of the optometrist.
Yeah, well part of Europe , as we have a really strong team there Debbie olive runs that team I was just over in Europe with our Italian team, who is crazy strong just really really proud of that team and they are executing incredibly well I wouldn't highlight anything necessarily where I'd say hey, there is that.
Different subscription model and so forth there are differences, but they are more subtle.
But Doug.
<unk> is just executing well all over there, especially with respect to key accounts or key account team is really really strong and they've been executing and being successful there. So we're taking share.
And believe that there's a decent chance, we're going to continue to be able to do that moving forward.
Okay.
And then on the investments you're making in distribution and capacity I remember a couple of years ago, you were kind of really making major investments to drive that just help me understand.
To put this investment that you're making these investments that you're making in the context of the investments that you've made a couple of years ago.
Yes, that's a good question, yes, we took a decent step forward a few years ago in terms of investing in our distribution networks.
What I would kind of describe this says is we did a bunch of that work and some of our big distribution facilities and our big manufacturing facilities. We've continued to see significant growth around the world.
So we're needing to expand on one of the great things about this that actually gives me. Some comfort is a lot of the technology is already in some of our distribution centers. As an example, we're rolling it out to other distribution centers. They used to be small that have now gotten larger and we need to automate or automate sections of that when I look at manufacturing.
We were upgrading a lot of our lines and improving a lot of our lines as we move to like really high volume production.
It's expanding on those high volume line. So this is a pretty big expansion, though I'd step back and kind of look at it Brian talked about the numbers I mean, it's pretty sizable dollar. So we're going around we're doing this expansion we're building out capacity to really support our long term growth story.
Talked about that in the past right I continue to say that we're in some great growth markets when it comes to contact lenses and fertility.
We're investing accordingly to be able to continue to put up strong topline growth for for many many years. So this is this is real I mean, we're spending some money and doing some hard work to do it.
And why we're doing it by the way.
It is hitting the P&L a little bit, but let me give you. An example on that side of things you know when when Youre doing an upgrade on some packaging lines. As an example, let's just use let's say youre doing an upgrade right. We're continuing to run those lines while at the same time, we're putting in the upgrades right and we're not disrupting service. So we will get <unk>.
<unk> sees baidu on two things at the same time alright as soon as we're comfortable that the new upgraded system is better then we will both stop using the old system, and we will get rid of it get rid of it and get rid of those duplicate costs. So we've done this before we're doing it again, we're trying to maintain high customer service levels were trying to.
Meet the demand that's out there from a long term perspective, we're entering into contracts that are tied to long term growth. So there are things that we're comfortable that the demand is there. So anyway long story, there I guess, Matt just kind of saying that I am excited about it I think there's some really cool things that are that are going on isn't going to support a lot of long term.
Growth for us.
Alright excellent thanks, Jeff Thanks, Brian .
Yes.
We have no further questions I would like to turn the call back over to Albert <unk> for closing remarks.
Great. Thank you Akshay.
I'll give you one closing remark and thats that if FX rates stay where theyre at I am certainly happy that we're going to spend less time talking about currency I mean last year currency was a negative to us around $2.32 I think so a pretty significant hit to EPS and a big hit to the top line as Brian mentioned.
Fax is still a decent negative to us in Q1, but then it actually starts turning the other direction to the point, where it actually starts moving positive.
<unk> holds where it's at right now that's going to put us in a good position to get back to the back half of this year were all.
All else being equal at holdings. The study, we could be back up to double digit EPS growth. So I'm excited to get currency behind us.
Excited about what the team is doing right now and the momentum that we have and the investment activity that we're putting dollars behind I think our businesses are in a really really good place right now so with that ill.
Thank you everyone for the call and say happy holidays happy holidays, and look forward to speaking with everybody in the future. Thank you.
This concludes today's conference call. Thank you for your participation you may now disconnect.
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