Q2 2023 Cooper Companies Inc Earnings Call

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Good afternoon. My name is Emma and I will be your conference operator today. At this time, I would like to welcome everyone to the Cooper Company's second quarter, 2023, earnings conference call. All lines have been placed on mute to prevent any background noise. After this speaker's remarks, there will be a question and answer session.

If you would like to ask a question during this time, simply press star, followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press the star one.

We ask today that you limit yourself to one question and one follow-up. Thank you.

Kim Duncan, VP of Investor Relations and Risk Management, you may begin your conference.

Good afternoon and welcome to Cooper Company's second quarter, 2023, Credit's 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 called contains forward-looking statements, including all revenue and earnings for share guidance, and other statements regarding anticipated results of operations, market or regulatory conditions or trends, product launches, operational initiatives.

regulatory submissions and closing our integration of any acquisitions or their anticipated benefits.

Forward-looking statements depend on assumptions, data, or methods that may be incorrect or imprecise in our subject to risk and uncertainties. Events 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 10K and Form 10Q filings, all of which are available on our website at CooperCose.com.

Also as a reminder, the non- GAAP financial information move we will provide on this call is provided as a supplement to our gap information.

We encourage you to consider our results under GAP as well as non-GAP and refer to the reconciliation provided in our earnings release, which is available on the Invest relations section of our website.

Should you have any additional questions following the call, please email iriscupercode.com. And now I'll turn the call over to Al for his opening remarks.

Great, thank you Kim, and welcome everyone to Cooper Company's second quarter fiscal 2023 conference call. This was another strong quarter with Cooper vision and Cooper surgical both outperforming expectations. For Cooper vision, we reported record quarterly revenues and our ninth consecutive quarter of double digit organic revenue growth.

For Cooper-Surgical, we reported record quarterly revenues, and our fertility business reported its 10th consecutive quarter of double digit organic revenue growth, and earnings exceeded expectations.

Our teams are delivering impressive, consistent growth, and we're seeing nice momentum. So we're going to remain very positive about the future.

Moving to the numbers, consolidated revenue reached a record quarterly high of 877 million. Cooper Vision posted revenues of 589 million, up 10% organically. And Cooper Surgical posted revenues of 288 million, up 5% organically.

Cooper Visions Growth continues to be led by our daily silicone hydrogel and myopia management portfolios and Cooper surgical's growth was led by our fertility and OB-GYN medical device portfolios.

Non-Gab earnings per share were $3.08. For the quarter and reporting all percentages on an organic basis, Cooper Visions revenue growth was strong and diversified. By geography, the Americas grew 6%, Amia grew 7%, and Asia pack grew 19%.

Results were driven by new product launches, expanded product ranges, market leading flexibility and growth in key accounts.

But then categories, torques and multifocals remain especially healthy with both posting growth of 15%.

Within modalities, daily silicone hydrogell lenses grew 17% with especially strong performance from my day.

David Silicone Hydra Gel Lenses continue to be the main driver of growth for the contact lens industry, and we offer the broadest portfolio with my day in clarity available in a wide range of spheres, torques, and multi-focus.

And lastly, our silicone hydrogel monthly in two-week lenses by Elfinity and a verivitality, reported growth of 5%. Turning to products, the US rollout of our latest innovative offering, my day, Energis, is going exceptionally well. This premium lens cator is to the demands of today's lifestyles by incorporating digital boost technology.

to alleviate the impacts of digital eye strain.

Interestingly, we've been receiving a lot of positive feedback that patients in their 20s and 30s really like this lens, which is great news as the original biofinity energy has been more heavily used by patients in their 40s.

Given almost all of us are spending considerably more time on screens, which reduces blinking and causes eyes to try out and become uncomfortable, it's not surprising that wears of all ages are appreciating the digital boost in their my day energies.

Meanwhile, my day multi-focal sales remain robust and we're seeing great momentum and new geographies as the lens becomes more readily available in Amia and Asia pack.

I'm happy to report these launches are proceeding better than expected with feedback from customers and practitioners remaining very positive.

Our My Day TORRQ parameter expansion rollout in North America is also continuing successfully, and our recent launch in Amia is ahead of schedule. Given the success of this product, we'll be increasing availability throughout Amia, and we're looking forward to launching an Asia Pack in the near future. With almost 4,000 SKUs, My Day TORRQ is set the industry standard, third place all making one unit run in severe

product family is performing exceptionally well and momentum is strong.

And lastly, within the daily segment, our clarity family of lenses continues to perform well by offering a high quality option at a mass market price point.

Outside of daily, demand for biofinity remains healthy, led by TORRx multifocals and extended range offerings. We still have some capacity challenges, but with new production continuing to come online, we remain in good shape to meet ongoing demand. Ground

Moving to myopia management, we posted revenues of 30 million, up 36% would my side up 49%. This slightly exceeded expectations and keeps us well on track to reach our goal of 120 to 130 million this year.

My side, Norfolk case sales were strong around the world, except China, where we didn't see a rebound until late in the quarter.

Regarding my site specifically, we're seeing improving performances we increase availability in key accounts, target practices with higher levels of pediatric patient flow, and integrate the sales process into our regular sales channel. All this bodes well for my site, but also for our other products.

There's a nice halo effect with my site practitioners accelerating their use of other co-provision lenses.

It's important to remember that my side is the first and only FDA-approved contact lens for myopia control and the product is backed by extensive clinical data. This is a critical differentiator as the proactive management of myopia becomes standard of care within the eye care community to help reduce the progression of myopia in children.

Along with reducing the risk of long-term, I-held problems associated with myopia, such as cataracts, retinal detachment, and macular degeneration.

To finish on Cooper Vision, the contact lens market grew 12% in calendar Q1, with Cooper Vision growing faster at 14%.

We expect the market to remain healthy, supported by the macro growth trend and more people needing vision correction.

It's estimated 50% of the global population will have myopia or near-sightedness by the year 2050 up from roughly 34% today.

This is driven by the increasing use of digital screens among other factors. When you combine this with the ongoing shift to silicone hydrogel, daily, the increasing focus on higher value products such as torque to multi-focals and higher pricing, we expect many years of solid growth for the industry.

Within this, we expect Cooper Vision to remain a leader with its robust product portfolio. I'm going product launches, fast growing myopia management business, and leading new fit data.

Moving to Cooper-Surgical, this was another strong quarter. Our fertility business posted sales of 125 million up 11% organically for its 10th consecutive quarter of double digit organic growth.

Success was seen throughout the product portfolio as the team executed exceptionally well with our diverse offerings within consumables, capital equipment, reproductive genetic testing and donor activity.

Regionally, the Americas and Amia continue to lead growth and the future is bright as we have solid momentum in both regions. Asia PAC is also performing well and we're excited about the potential of that region. With the uncertainty of the Cook transaction, we do have work to do on that region to build out our footprint and we'll do that. In this life, we're currently doing target investment activity while also exploring ways we can advance...

and then it has multiple growth drivers starting with women delaying childbirth. The average age of a woman's first birth in the U.S. and within several other developed countries now stands at 30 years old and age is a key factor in contributing to the need for fertility assistance.

Other growth drivers include improving access to treatment, increasing patient awareness, increasing fertility benefits coverage, and technology improvements for both male and female infertility challenges. The World Health Organization just released updated data showing that the prevalence of infertility affects more people than we thought.

with approximately one in six people having experienced infertility at some stage in their lives. So the macro trends clearly support this industry's growth.

Moving to office and surgical products, which includes OB-GYN medical devices, stem cell storage and ParaGuard. We posted sales of $163 million, up 1% organically.

Within this, OB-GYN medical devices reported excellent results, growing 11%, driven by positive trends in patient activity and strength in several core products.

In particular, our labor and delivery group continued performing really well. Our stem cell storage business grew 3 percent in line with expectations. Our current educational campaign which is starring Chrissy Teigen, highlights the importance of preserving newborn stem cells. We're really happy with the positive feedback and we're looking forward to that effort gaining more traction.

Meanwhile, ParaGuard declined 15% primarily due to buy-in activity from the price increase in Q1. Our IUD revenues remain a challenge and we're continuing to not expect any unit growth in ParaGuard this year, so any growth we do see will be driven by price.

To conclude on CuperSurgical, it's with great pride that we say that every minute, somewhere around the world, a baby is bored using CuperSurgical products.

Our business makes a difference in people's lives, and we love that.

We're also operating in several markets that have fantastic log terms, sustainable growth characteristics such as fertility. So we feel good about where we're positioned and what the future holds.

Before turning the call over to Brian , let me summarize by saying this quarter really highlights the stability and consistency of our businesses.

Cooper Vision posted its ninth consecutive quarter of double digit growth and Cooper's surgical's fertility business posted its tenth consecutive quarter of double digit growth.

and both businesses reported record quarterly revenue.

Our momentum is strong, our investments are yielding solid returns, and our management team is fully engaged in executing at a high level. And lastly, I hope everyone has had a chance to read our recent ESG report, which highlights a lot of accomplishments.

Advancing our ESG efforts is an important part of Cooper's culture and I'm proud of the success we've had and excited about what will be accomplishing in the future.

With that, let me turn the call over to Brian .

Thank you, El, and good afternoon, everyone. Most of my commentary will be on a non-gap basis, so please refer it to our earnings release for a reconciliation of gap to non-gap results. Thank you.

Second quarter consolidated revenues were $877 million. Up to 6% as reported, or up 8% organically.

Consolidated gross margin was up 40 basis points to 67.1% driven by currency improvements.

Operating expenses grew 9% to 43.5% of revenues.

Consolidated operating margin was in line with expectations at 23.7 percent.

This is down from 24.5% last year, primarily due to commercial investments and distribution.

Below operating income, interest expense was $26 million and the effective tax rate was 13.9%.

Non-GAP EPS was $3.8 with roughly $49.8 million average shares at standing.

to summarize the P&L this quarter.

Reve News came in ahead of expectations while margins meant expectations. The net impact from non-operational items, such as FX, interest expense and taxes,

was slightly negative against our initial expectations. Overall, we exceeded our consolidated EPS expectations by roughly 6 cents and will pass along that in guidance.

Free cashflow was $51 million, including CapEx of $74 million.

Net that decreased to 2.51 billion.

And during this last quarter, we fixed the interest rate on an additional 300 million of debt. So we're now, we now have 1.3 billion fixed.

Going out roughly two to four years.

Regarding 2020's regidance, we're increasing expectations for revenues and earnings by incorporating our Q2 revenue and earnings speeds.

This results in consolidated revenues of 3.51 to 3.57 billion up 7 to 9% organically.

with co-provision revenues of 2.37 to 2.4 billion of 8 to 10 percent organically.

and Cooper-Surgical revenues of 1.15 to 1.17 billion of 5 to 7% organically.

Non-Gabby FES is expected to be in a range of $12.66 to $12.96.

Interest expense is expected to be around $110 million, assuming another 25 base point rate increased by the Fed this month.

And the effective tax rate is forecasted to be slightly below 14.5% when incorporating Q2.

Within this, we're continuing to invest in our businesses to support long-term growth objectives.

Demand across both businesses remain strong, and a long-term growth trends are very positive.

Before concluding, let me add that we took a $45 million charge this quarter for the breakage fee associated with the pending acquisition of Cook Medical's reproductive health business.

We now believe it's probable that this transaction, as originally contemplated, does not close.

We are still working on a deal though, and we'll provide updates as we have more information.

In conclusion, this was another strong quarter.

We're very happy with the consistency of our businesses and we have great momentum. We're closely monitoring expenses and we'll continue to do so.

but we're also investing to drive long-term sustainable revenue growth.

We're taking guidance up again and remain positive. We'll execute at a high level, delivering strong operating results through the back half of this year, and it's the next year.

And with that, I'll hand it back to the operator for questions. As a reminder, if you would like to ask a question, press star followed by the number one with your telephone keypad. Again, we ask today that you limit yourselves to one question and one follow-up. Thank you.

Your first question comes from the line of Jeff Johnson with Baird. Your line is open. Thanks guys. Good evening. Can you hear me okay? Yep. There you go.

Hey guys, so Al I know when we look at like the GfK data that sell out data you guys and everybody else kind of report Sell-in data, so it's never apples to apples in that but I think it's pretty clear January was a very strong month for contact lenses. It really was across all of Medtech April obviously a weaker month

So just maybe help us understand kind of the gating throughout the period of the quarter you just reported February , March, April and then maybe any updates on what you've been seeing so far in May. Just kind of the range of implied guidance for CVI now kind of 6 to 10 percent in the back half. Just how you're feeling about the low end versus the high end of that range. Thanks.

Yeah, you're right. January was a really strong month. As we worked through the quarter, it was okay. I mean, February was a good month. March, April was a weaker month for us. You can kind of see that if you look at the calendar quarter compared to the fiscal quarter for us because we grew in the calendar quarter 14% and then grew 10% in the fiscal quarter. So when you trade those months, you're right.

Okay, and then maybe just as a follow up, you know, if you can address that CVI guidance that's implied in the back half to six to 10%, just kind of high end low end where your confidence is there, but the real follow up question I wanted to ask was on pricing, it seems, you know, talking to Alcon and some of your other competitors, looking at some of the pricing data we have for for your lenses.

There's a good price tail in this year forming probably two to three points, something like that. Is that about the ballpark you're expecting? And then secularly or longer term, how comfortable are you if we stay in a persistent inflationary environment that you can maybe keep up to 3% price in a year for the next few years? Thanks.

Sure, yeah, I think you're spot on. I think that two to three percent net pricing, talking about net pricing, is the way to look at it. The actual pricing that we've seen out there has been higher. The actual price increases has been higher, but if you look at the rebates and everything else, two to three is probably a good way to look at it right now.

I think that's going to continue. I think that we're probably a little bit behind our competitors in that because we do have a lot of large contracts, especially some of the bigger store brand contracts that are multi-year contracts. So as those renew, we'll look at opportunities to adjust pricing on those. But I think that you're seeing that now. And frankly, I think you're going to see that for the next several years given.

economic event or something out there. I mean we spent some time this even this past week has been a little bit of a tough Time for us coming up with some of the guidance and so forth with the debt ceiling and all the other activity that is Bingo and on here recently, but now we have good momentum. I feel optimistic that we'll continue to put up strong revenue numbers. Thank you. Your next question comes from the line of Larry Bagel with Wells Fargo.

I guess I would think FX was a little more favorable, particularly on EPS. Brian , maybe you could help us with that bridge, how much currency changed from last quarter to this quarter for fiscal 23. And I guess the question is, why not raise by a little more than the beat? And I had one follow-up.

Larry, I'll take the currency question. Currency is kind of, we're starting to move in our favor as we are working through the quarter. And then they retrace. I mean, there was a little bit of positive, very little positive sort of to the P&L from revenues down to O.I. But really, the impact that we saw in the quarter

was a negative tie to our ethics losses below the line. We have, you know, as we talked about before, you know, we're hedging some of our material currencies, but we still have several currencies and smaller exposures that we're not hedging. And so we had a loss below the line that took our earnings down to 308.

would have been a little bit better. But we basically adjusted for the currency in the quarter, but the impact for the second half of the year for currency. Strangely or interestingly enough, kind of all-inetted to being sort of the same. So we're still looking at a two and a half, roughly two and a half percent headwind to revenues for the year and kind of a week or one percent tailwind.

to EPS for the year. And why not raised by more than the V?

And why not raised by more than the V? On EPS?

Yeah. Well, we raised by the operational, the net beat, but with everything, as I was just said, with the macro uncertainty, Fed, FX recession, we just decided, look, we're exercising prudence and setting guidance.

The good news is that we're not seeing demand or behavior shifts and since gross and operating margins fell in as expected and things are progressing, we're just exercising some caution and lighting the macro.

Just, Al, on my follow-up here, Asia-packed plus 19% really strong. And myopia management, if I heard correctly, the 30 million up 5%... 5 million, I'm sorry, sequentially. That was one of the strongest sequential.

growth, absolute growth increases we've seen in a while. Just talk about the drivers in Asia-Pac and myopia management and the sustainability. Thanks a lot.

Yep, yeah, interesting on myopia management. It was a good quarter and we're gaining some traction there on my site Finally, we talked about it for a long time. It's great to finally be gaining some real traction And interestingly it was not China We actually struggled in China with my site this quarter until the very end of the quarter. So the my site was being driven by

success here in the US and throughout Europe were big drivers and some of the markets and Asia packs So I think we're in good shape with our myopia management business And I'm expecting you know Q3 to be a good quarter Q4 to be a good quarter as I say I mean We're certainly in good shape to to head if not beat our 120 to 130 million dollar Quote unquote guidance range for myopia management

Asia pack were in good shape. I would say Asia pack China being a little bit different if I look at our regular lenses and that it was more of a contributor in terms of our regular sales. But no, Kathy is doing a great job running that business and we finally have some momentum going in Asia pack and I think we're going to continue to put up good quarters as we move through.

sure that I understand what's going on there. Is this another setup where you've got four quarters of, you know, pricing headwinds and then you start to grow again? Or how do I think about that? Thank you.

No, great question. No, it won't be that way. I would expect ParaGuard to grow here in Q3 and Q4 and for us to kind of put up low single-digit growth probably for this year. We did have the tough quarter here Q2, obviously, but some of that was tied to kind of inventory in the channel, some of that kind of movement around the price increase.

about how the rest of that business is doing, because that was pretty much only the week link in the quarter. Thank you.

Yeah, well obviously fertility really strong. That team is doing an amazing job, just consistent strong performance and it's really diversified around the world and by product, or product family. So fertility is in good shape, we should continue to do well in fertility. Our med device business is doing really well, kind of our traditional OBGYN medical devices. We've seen some strength there.

Your next question comes from the line of Anthony Petrou with Missouhou.

Your line is open. Thanks, thanks again, and maybe just a couple clarifying on ParaGuard. Can you remind us, Al, just the price increase that was put in earlier in the year and the extent of the volume declines, I guess, through the first two quarters of the year? So that would be my first question and then...

Maybe just in terms of overall share in contact lenses, at least according to our numbers, it looked like certainly there was gains for Cooper and Torix as well as multifocals, but perhaps maybe a little bit of slippage in dailies. Again, just looking at the fiscal at plus eight and it looked like competitor data for dailies was a little bit higher.

What you're seeing here in Q1 and the quarter we just had, and frankly you'll see a little bit here in Q3, is tied more to channel inventory, whether it's through the distributor or down actually into the physician's office. You're seeing some fluctuations in that driving our as-reported results.

I think if you look through that, which I try to do, right, and say regardless of inventory, how are we looking at actual volume, that's where volume's been flat. We just haven't really seen those increases. I'm not anticipating that we're going to here in the near term. So again, I said it last quarter, I'd say it again. I hope I'm wrong on that and being conservative, but as right.

As of right now, I think that's where we stand with ParaGuard. But again, a lot of movement tied to inventory, so I do think that we'll get growth in Q3 and Q4 to be clear. And I do think we'll post some low single-digit growth in ParaGuard for the full year. Contact lenses, yeah. This was a great quarter. Now if you look at it and you kind of step back and you say, you know, Bioaffinity.

bit of bioaffinity sphere activity there. So I wouldn't read too much into that. I mean, if you're thinking about a quarter end, yes, that number came in a little bit lighter, but we'll pick that up because we started off Q3 with a good quarter, or from a good perspective when you look at that part of our business.

Very helpful. Thanks. I'll get back in queue. Yep.

Your next question comes from the line of Robbie Marcus with JP Morgan.

in the line of Robbie Marcus with JP Morgan. Your line is open.

Oh great, thanks for taking the questions. I wanted to start with free cash flow and cash flow generation in general. It's been a little low the past few quarters. Maybe speak to the reasons behind it and how you're thinking about cash flow generation going forward.

Hi Robbie, yeah sure. So operating cashflow continues to drive higher. We do have some things that are driving free cashflow a little lower. One of them obviously is CapEx.

It's quite a bit higher than in years past. Some other larger components that are driving it, that are having an impact downwards are frankly interest. I mean our interest expense is doubling from 53 to 110 million last year to this year. Taxes over the course of, depending on what time horizon you're looking at, our taxes, our tax rates keep going up.

You know, our inventory levels from last year to this year also are going higher, so that's having an impact as well. But overall, I mean, our operating cash flow continues to be strong and expected to deliver still a strong free cash flow for this year, just offsetting, obviously, the operating cash flow. It's just a higher CapEx.

which we've been talking about around $400 million this year. Great. And then maybe on new fits, you talked about strong global new fits. Are you seeing any divergence in different regions? Just trying to get a sense of the future of the business and the trends there.

Our Cooper Vision New Fed activity is looking really good right now. We're winning certainly our fair share when it comes to New Fed. So I'm pretty optimistic from that perspective.

Okay. Hey guys, this is Brett on today for Matt. Thanks so much for taking the questions. Just wanted to ask a little bit about the trends in Europe given how robust several of the historical quarters looked. A little bit of a deceleration here. Just wondering if there was anything driving that step down. Hey Brett.

We have we're number one in Europe when it comes to contact lenses. We get fantastic franchise there that Teams done a great job not only building up our infrastructure if you will around a lot of the independent optometrists But also with some of the key accounts where we're especially strong So no, I think that the European market is doing well. We have not seen a pullback in that market

tied to any economic concerns or anything. The contact lens market is strong there and we're kind of leading the charge, if you will, and I think we'll continue to do that. All right, thank you. And then just turning to my site, it sounded like trends in America.

in retelling C accounts was actually the driver of the step up this quarter. So, you know, is there, do you see potential maybe to drive some upside to that guidance range given China is now, it seems like it's starting to recover and might actually be like an incremental driver to the positivity you're seeing in the Americas? I guess the short answer, that would be yes.

Yep, we're in a better spot when it comes to my site today than we were six months ago when we initiated that 120 to 130. So I think we've got a good shot to be at the higher end of that range or even push above it. All right, awesome. And then last question from me. I think you touched on some of the continued supply chains in the industry being a positive driver for pricing growth.

I'm wondering if there are any pockets of particular issues from other companies that might be benefiting Cooper given the investments you've been making in your own production. Thanks very much for taking the questions. Yeah, that's a tough one. I don't think there's too much there in terms of disruption from others. There are supply chain challenges, I think, that we all have right now. Our competitors do, and we do too, in terms of just being able to produce enough product.

I mean, in a lot of cases, I think a lot of us are selling everything that we can make right now. So not only are we dealing with, you know, whatever supply chain issues you could have associated with distribution and everything else, and all those are certainly lightening up, but we're also dealing with demand. I mean, I'll talk about ourselves, right? We're a business that's been healthy for a long time, growing around 7%, and now we've pushed up, what, our ninth straight quarter double-digit growth. That which...

but it takes time, it takes effort, and the demand is there, right? So we're going to continue to see strength in the contact lens industry. I don't think you're seeing too much in terms of one person struggling so much that someone else is picking up business, as much as you're seeing supply chain issues or challenges just because of the global demand of the contact lens industry.

Your next question comes from the line of Jason Bednar with Piper Sandler. Your line is open. Hey guys, thanks for taking the questions. Al, I wanted to ask on biophonity toric. We've been hearing of some greater channel inventory shift from.

a few in here but how much tail is left you know from this this conversion to to Toric and whether or not you're seeing any again channel inventory shift with Toric or even more broadly.

Yeah, you know there's probably something there but I just don't put too much weight on it honestly. I mean we've had some competitors pull back a little bit on some of their skew ranges and we have those skew ranges. As a matter of fact, our Bioaffinity Toric family is the widest Toric offering out there.

when you roll in things like the tort multifocal and so forth, I mean it's just an amazing franchise right now. We've been building that franchise out for a number of years. We spent a lot of time and a lot of money on the manufacturing side and also on our distribution network to be able to manufacture and distribute all those products in a wide SKU range. So, do I think that we're maybe getting a little bit of help because some competitors or a competitor is pulled back on some of their SKU ranges.

You know, yeah, probably, but this isn't coming because of like one quarter an action that somebody took. This is coming because of a multi-year strategy that Cooper Vision has deployed to drive growth in our torques. You know, I mean, Jerry Warner runs that business for us, does a fantastic job. He's just laid out a great strategy there.

in terms of torques and multifocals, appreciating that the market is growing. That portion of the market is growing faster than the sphere market, and it's a really sticky and great market. So I mean, we've again invested a lot of time and money for a lot of years to be in the position we're in, and I give the team a lot more credit around that activity than I do saying that a small movement by a competitor is allowing us to take a lot of share.

Okay, that's helpful. Maybe if you just follow up your comment on whether or not you're seeing any shareships or sorry, not shareships, but inventory shifts in the channel at all. But then separate follow up. Actually wanted to ask another one on ParaGuard here. I think you probably tried every which way to get this.

this product line to grow. We've seen different advertising, sales repetitions, greater commercial focus. The effect here has been tough. Does there come a point where you'd look to evaluate different options for ParaGuard? Maybe a better set of strategic and financial fit still make this a good asset for Cooper.

line to grow. We've seen different advertising, sales repetitions, greater commercial focus. The effect here has been tough. Does there come a point where you'd look to evaluate different options for ParaGuard or maybe a better set of strategic and financial fit still make maybe this a good asset for Cooper? Thanks.

On the channel inventory side, I'd say we probably ended our fiscal quarter a little light on channel inventory. I kind of referenced that a little bit with some of the bioaffinity shipments, but I'd say we were probably a little lighter from a channel inventory perspective. Nothing to go crazy about, but since you're asking. ParaGuard, yeah, you know.

Boy, we bought that, we put some money into it. I think we've gotten a great return on that asset, but having said that, we put some money into it. We put some TV advertising out there and a lot of different marketing campaigns and so forth to really try to energize the non-hormonal IUD market. We had some success on that, not a ton. You kind of get to where you're at today.

there's some fundamental shifts in the market that are causing challenges for us. You know, you're not seeing women go into their gynecologist as much as they were pre-COVID for kind of annual wellness exams and so forth. And as that's happened, combined with the fact that a lot of birth control options, especially birth control pills, the availability has increased.

or the ease, if you will, to get that burst control has improved. It's hurt the IUD market and it's hurt ParaGuard. We're evaluating that like we always do right now. That's a good product.

It does okay in the marketplace, right? It's a decent fit in terms of our women's healthcare franchise, but we'll always evaluate that just like we do everything else in terms of kind of our long term strategic planning.

Thank you. Your next question comes from the line of John Block with Stiefel. Your line is open.

Great, thanks guys. Good afternoon.

A really good quarter, but just despite the top line beat, you came in a little bit hot on OpEx as a percent of sales relative to our estimate and you know if I look at sort of fiscal 1H23 I think OpEx as a percent of sales you might be roughly a hundred bits from last year. I think you mentioned some investments. Is that CBI? Is that CSI? You know, where are those investments being made?

dollars came in kind of where we expected along with our gross and operating margin results. You know we continue to invest in commercial activities including sales and marketing tied to the product launches and the rollouts that I'll mention in this prepared remarks. You know we had also continued fertility investments and that includes kind of building out you know more of our competencies in various regions like Asia PAC.

And then lastly, I mean, we still have inefficiencies that we expected in distribution that were higher year over year, and I'll just mention sort of the challenges that we have when revenues continue to drive higher and the strain it puts on distribution. But we're working through those challenges, and I'd say total OPEX, again, landed where we expected, but our real focus is on driving operating margin expansion.

And like I've said before in the last call, and I'll say it again here, our operating margin at the midpoint of our constant currency revenue guide, we're expecting constant currency OI growth of around 11%. So, we're expecting constant currency OI growth of around 11%.

As long as we're driving that operating margin expansion, and that's this year driven in large part from gross margin expansion, then we're putting up a leveraged P&L. And so that's the goal for this year.

Got it, fair enough. Maybe just to shift gears now, this one might be for you, but within APAC, I know you're overweight to Japan, but I sort of want to take the opportunity to ask what you're seeing in China in the slope of the business of late. I just think there's been a lot of headline, noise, news, and so just love to get your thoughts on what you're seeing on the ground in that sort of April into May timeframe. Thanks.

Sure, yeah we've seen some improvements in China but I mean China kind of even now comes and goes a little bit. When you look at it from our perspective it's probably two different stories right because you have our regular contact lens business there the retail side if you will which we've seen some traction on and we've seen some improving results.

And then you have the myopia management side, which is my site but also a lot of WorthOK, that gets sold through the hospital. That's a different channel. So I do think that we're seeing some improvements in that channel, in the hospital channel, which is actually going to help us a little bit on WorthOK and my site. The other side, the retail, the general population, if you will.

kind of comes and goes a little bit. Now, having said that, John , remember that's a pretty small market for us. I mean, some of our competitors have much bigger shares in China than what we have. Perfect. Thanks for the color, guys.

Your next question comes from the line of Steven Lynchman with Oppenheimer. Your line is open.

Hi guys, this is Ranaan for Steve. I wanted to ask you guys about side class a little bit. What is your estimate for the approval timing and...

With my site being in the field for a bit now, how are you thinking about how Cyclops will be positioned in the field versus it? Thanks Yeah, so no real update on Cyclops when it comes to regulatory approval here waiting to receive the final four-year data and compile that and then take next steps so nothing really to add from that perspective.

As you know, we've got a great partnership with Estoloy Lutotica on that product, and the product's been launched in many markets around the world, and it's selling and it's doing well. That's within the joint venture itself. So I continue to be really optimistic about that product long term, but that is within that joint venture, not in RP&L other than the Investment Act.

they need to be wearing the product. So children need to be wearing those glasses. Compliance is really important. As children get into myopia control, let's say they do that a lot at 5, 6, 7, 8, 9, 10, certainly as they get to become teenagers, and certainly anyone who has compliance as an issue, you're going to want to be moving.

You guys mentioned that the headwinds on myopia in China are kind of abating towards the end of the quarter. Can you say what changed towards the end? What was the shift? Because China's been a headwind on myopia for a little bit. Yeah, it's really those products are sold through the hospital channel. So you need the hospitals to kind of open up and.

have more kind of, if you will, availability for children and so forth. You need to transition back to a more traditional, normal hospital environment within China. So I think that's what we're seeing right now, right, as COVID starts to get in the rear-view mirror and you're getting patients going back into the hospital for more traditional needs and so forth.

you're opening up some space for optometry and that's helping with it with the fittings. Thanks. Your next question comes from the line of Patrick Wood with Morgan Stanley . Your line is open. Amazing. Thank you very much. Two left from me, please. I guess the first one is on the fertility side.

you feel about the region, how critical that is for you and fertility going forward.

Yeah, that's a really good question. That is an important region and we are going to invest in that region. So we are right now, we're going to continue to invest there. One of the primary reasons we were doing the Cook transaction was for growth in that region. There's a number of markets there that are really...

really strong fertility markets. I mean really strong growth rates. So we have a solid presence I think in parts of that region like Australia and so forth, but there's a number of countries where we don't have a presence or the presence is pretty small. We need to hire some people, build out some infrastructure there. So we're evaluating that activity right now because when you look at our business as a leader in the space, right, and as well as we do.

with our broad portfolio in the Americas and throughout Europe and in parts of the Asia pack, there's no reason we shouldn't be able to build out infrastructure and continue to drive growth there. So that's a matter of, you know, the typical thing we do as a company, which is evaluate those opportunities, look at the return metrics associated with them.

because you do have inefficiencies anytime you're building out infrastructure in a new region like that. So we're going through the process and evaluating all that activity right now. Amazing. And then one more, which is, I was really interested around my side and the positive halo effect of selling in the rest of your offering. I mean, is that more a function of my side opening the door in the first place where there isn't a relationship because it's such a unique offering and then being able to...

sell more in or is it more about incremental depth with accounts where you already have that relationship? Yeah, that's a really good it's a really good point because you're right there's a lot of optometry offices where they're they're much stronger with some of our competitors to the point where they might just use competitor products and not our products and my site is cracked open the door in a number of those accounts and it's gotten our people in

with Cooper, but you're spot-on. I would not discount the importance of kind of Virgin Cooper stores, if you will, or we can go in there and finally start selling some of our core products.

Really helpful. Thank you for taking the questions. Your next question comes from the line of David Saxam with Needham. Your line is open.

Yeah, thanks for taking the questions and congrats on the quarter. Maybe I'll ask two on Cooper Surgical starting with ParaGuard. I mean I heard the comments about flat volume growth and you talked about some of the market dynamics. Do you think ParaGuard can return to seeing volume growth over time or is this

you know, flat volume growth, more of a longer term expectation, and kind of pricing is really the key driver, you know, over the long term. My gut tells me, depending upon how you define long term, but certainly for the coming years here, that volume is going to be flat.

I think when you look at the availability of other offerings, the ease of availability and the additional offerings that are out there, now those are on the hormonal side, but when you look at the birth control market out there, I think the volumes for IUDs and ParaGard are going to be flat for a little while here. Okay, got it. And then in fertility, I just wanted to hear what you...

you're seeing in terms of new fertility clinic openings, trends there, and any way to size, how much of fertility growth is driven by de novo clinics opening up, and how big of an opportunity that is for you guys. Thanks so much. Yeah, the new fertility clinics is a phenomena outside of the US, if you will. You're definitely seeing more of that activity in some of Asia pack and some parts of Europe .

terms of quantifying it because it hasn't been a spike or anything. It's been consistent here for probably the last four or five years even through COVID we were seeing new clinics continuing to open up. So I guess I would probably answer that by saying you know the fertility industry I keep talking about like five to ten percent but that obviously it's growing you know more towards the upper end of that certainly.

embedded within that is new fertility clinics opening. And I would envision the number of new clinics that we've been seeing open over the last five years or something to continue on a very similar pace probably for the next five years.

embedded within that is new fertility clinics opening. And I would envision the number of new clinics that we've been seeing open over the last five years or something to continue on a very similar pace probably for the next five years. Great, thank you. Good luck if you're diverse and we look forward to seeing datasets from years to years of data analysis.

Your last question today comes from the line of Anthony Petrone with Mizzoujo. Your line is open. Hey, just wanted to follow up on Cook. Apologies if I missed it, just had another call there. But maybe just it sounds like it's certainly the probability is lower, but there's still efforts to find a resolution. So maybe a little bit on just where the process sits. Ok thanks for reading that question. Cruel number V Schl des

probability for close. Under a scenario where it does not close, there was an 875 million commitment and maybe just thoughts on where Cooper Surgical M&A activity can go from here if this deal does not close. Thanks. Sure. Yeah, just a quick recap on Cook. We did take the $45 million hit to the P&L. We accrued for it this quarter because the original transaction that we discussed is...

frankly, it's probably not going to happen. That $45 million would get paid under that scenario at the beginning of August . So that's where we sit with that transaction today. You're exactly right. We are talking with Cook. We have a great relationship. They're a great group of people there. So we continue to have conversations with them to see if there's some transaction that we could still do. But I would certainly say we'll respect that transaction.

the likelihood is that we'll pay that $45 million. You're right, it was a big number, $875 million that we committed on that transaction. Right now, the focus, the kind of capital focus, if you will, is very similar to what it's been over the last couple years. We're gonna look at paying down debt. We're gonna look at acquisitions if they make sense. They're gonna.

I turn the call back to Al for closing remarks.

Great, thank you. Thank you everyone for joining today. We appreciate the time. As I mentioned, we're pretty proud of where we're at. We had a good quarter and things are starting off well this quarter, so we're well positioned and look forward to getting together again in three months and updating everyone after our next quarter. Thanks again.