Q4 2023 Cooper Companies Inc Earnings Call
[music].
Yes.
Thank you for standing by and welcome to the Q4 'twenty twenty-three Cooper companies' earnings conference call.
I'd now like to welcome Kim Duncan VP Investor Relations and risk management to begin the call Jim over to you.
Awesome. Thank you good afternoon, and welcome to Cooper companies' fourth quarter and full year 2023 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.
Actual officer and Treasurer.
Before we begin I'd like to remind you that this conference call contains forward looking statements, including revenue E. P. S operating income tax rate in other financial guidance.
Stocks, but expected revenue growth and accretion related to our recent acquisition strategic and operational initiatives market and regulatory conditions and trends and product launches and demand.
Forward looking statements depend on assumptions data or methods that maybe incorrect or imprecise and are subject to risks and uncertainties.
Events that could cause our actual results and future actions of the company could 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 website at Cooper codes dotcom.
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 under 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 materials.
You have any additional questions. Following the call. Please email I R. I Cooper co dot com.
Now I will turn the call over to al for his opening remarks.
Thank you Kim and welcome everyone to Cooper company's 2023 fiscal fourth quarter and year end conference call.
This was a fantastic year for Cooper as we finished with all time record revenues of almost $3 6 billion and we closed the year on a really positive note with coopervision posting its 11th consecutive quarter of double digit organic growth and Cooper surgical posting record quarterly revenues driven by our fertility business posting its 12.
<unk> consecutive quarter of double digit organic growth truly tremendous or complement our accomplishments right phenomenal teams.
We've now entered fiscal 2024 with a lot of excitement and focus on executing on our long range strategic objectives, including gaining market share driving profitability launching innovative products and services and maintaining our fantastic Cooper culture.
Moving to the quarterly numbers consolidated revenues were $927 million up 9% organically year over year Coopervision posted revenues of $623 million up 11% organically and Cooper surgical posted revenues of $304 million up 7% organically.
Provisions growth was led by strength in our daily silicone hydrogel portfolio and Cooper Surgical's growth was led by a very strong quarter in our fertility business margins improved and profits were solid with non-GAAP earnings per share of $3 47.
Up 26%.
For Coopervision and reporting all percentages on an organic basis revenue growth was strong and diversified the Americas grew 12% EMEA grew 9% and Asia Pac grew 10% with all three regions, having success with our innovative products market, leading flexibility and growth in key accounts within categories towards grew 50.
15% Multifocal is grew 18% single use spear grew 7% and non single use for your other grew 4%.
We then modalities daily silicone hydrogel lenses grew 19% and our silicone hydrogel monthly in two week lens is bio affinity in ovarian vitality grew 8%.
Turning to products and starting with our high growth daily silicone hydrogel portfolio, we continue to outperform expectations with my day, we just passed the two year anniversary of the <unk> multifocal launch and the pace of growth on this product remains outstanding.
Combination of an advanced multifocal design paired with an easy fitting system has resulted in very high satisfaction levels, including a 98% fit success rate and two pairs or less.
This makes it a win for the Doctor and the patient and it shows in our results and momentum from a personal perspective as I shared last quarter, I know, where my <unk> multifocal and I continue to be amazed at how easy the lenses are too uncertain remove and how fantastic my distance in near vision are and I put these lenses in as soon as I wake up and I don't.
The amount until bedtime.
May be biased, but I truly believe these are the best multifocal lenses on the market and our sales growth certainly supports that.
Moving to my day torque demand remains very strong following the rollout of our parameter expansion across North America and Europe. This success is due to the products market, leading torque design, which mirrors <unk> design and our industry, leading SKU range and <unk> <unk>. Our most recent launch continues to impress eyecare practitioners and patients.
<unk> with its innovative digital boost technology designed specifically for today's digital lifestyle.
Lenses deliver fantastic comfort and sales are exceeding our expectations and I am proud to say that <unk> was recently voted the most innovative product of 2023 by USA care practitioners and awesome accomplishment and a great recognition for our team.
With the success of these <unk> products, we certainly look forward to rolling them out in additional markets around the world as soon as capacity allows.
And while my day continues to be our key growth driver in the daily silicone segment, we're continuing to have success with clarity, which offers a full family of spheres toric and multifocal at a great price point.
The initial comfort excellent handling and price positioning have led clarity to be a lens of choice for new wears out.
Outside of dailies demand for our <unk> family of products remains healthy led by towards the multifocal and I'm excited to announce we will be launching our highly successful <unk> toric multifocal to several new markets in the coming year and response to extremely strong demand.
<unk> also had a nice quarter led by <unk> <unk>.
Moving to myopia management, we posted revenues of $35 million up 41% with my site up 46%.
This was another excellent quarter for my site powered by growth in the Americas and EMEA, While Asia Pac was flat due to challenges in China.
As we enter fiscal 2024, we're expecting excellent growth with the positive trends in the Americas and EMEA continuing in Asia Pac returning to growth as a region has hurdle past stocking orders and is already showing improving trends.
Additionally, we're continuing to see high retention rates growing momentum in key accounts in a nice halo effect on our other products.
All of this adds up to over 250000 share children around the world wearing my site and momentum being very strong MISO.
<unk> remains the first and only FDA approved contact lens for myopia control and is backed by extensive clinical data. This is a crucial differentiator as a proactive management of myopia become standard of care within the eye care community to help reduce the progression of myopia in children, a lot more reducing the risk of long term.
Health problems associated with myopia, such as cataract retinal detachment and macular degeneration.
Meanwhile, our ortho K franchise had a nice rebound quarter growing 37% year over year.
To finish on coopervision, the contact lens market grew roughly 7% in calendar Q3, with coopervision, taking share growing 10%.
We expect the markets remained healthy growing 5% to 7% this coming year supported by the long term macro growth trend or more people needing vision correction. It's estimated that 50% of the global population will have myopia by the year 2050 up from roughly 24, 34% today.
This is driven by kids spending more time indoors and the related greater use of digital screens. Among other factors. When you combine this with the ongoing shift to silicone hydrogel dailies, the increasing focus on higher value products and higher pricing, we expect many years of solid growth for the industry.
Within this we expect to remain a leader with our innovation robust product portfolio ongoing product launches strengthened premium toric and multifocal products are fast growing myopia management business, and our leading new fit data.
Moving to Cooper surgical we posted record revenues of $304 million up 7% organically. This included fertility sales of $121 million up 15% organically, which was our 12 consecutive quarter of double digit organic growth.
Within this we saw share gains around the world and throughout our portfolio driven by our market, leading products and services, including consumables capital equipment and reproductive genetic testing. We also continued investing in geographic expansion and key accounts and R&D.
Entering fiscal 'twenty four is one of the fastest growing and most innovative fertility companies in the world, we're developing and launching new products opening new donor sites, providing extensive trading through our centers of excellence expanding in new and existing geographies and we're well positioned to continue delivering success given our great team diverse portfolio.
In global momentum.
For the broader fertility market the macro growth trends remain intact, starting with women delaying childbirth age as a key factor in contributing to the need for fertility assistance and the median age of womens first birth in the U S and within several other developed countries is roughly 30 years old and moving higher.
Other growth drivers include improving access to treatment, increasing patient awareness, increasing fertility benefits coverage and technology improvements to address both male and female and fertility challenges the world Health organization data highlights at one in six people globally are affected by infertility at some point in their lives and given that one third of the <unk>.
Underlying cause of infertility as women one third as men and one third is a combination of the two are unknown. This is an issue that impacts a lot of people and we will continue to do so in the future.
Moving to office and surgical we posted sales of $183 million up 3% organically with medical devices growing 3% against a very challenging comp.
Within this part of our business. We recently closed the acquisition of several highly strategic products from Cook medical given the strength of our medical device team and the success, we're having in the labor and delivery space, where several of these acquired products reside this will be a great deal for us and I look forward to reporting future results on these products.
Stem cell storage posted solid growth of 6% and PARAGARD was flat as higher pricing offset declining unit sales.
To conclude our Cooper surgical we take great pride being able to say to every minute somewhere around the world. A baby is born using Cooper surgical products, we're making a difference in People's lives and that's part of what makes this business really special for us.
Moving to fiscal 2024, let me provide comments on revenue guidance and Brian will cover the rest of the P&L.
We expect coopervision to post strong results and are guiding to 7% to 9% organic revenue growth for the year.
The main limiter to this growth is capacity challenges from new where demand, especially from Ida.
We expect these capacity constraints to pressure revenues in fiscal Q1, resulting growth of around 7% for the quarter.
We are actively bringing additional capacity online now and expect to report high single digit to double digit growth as we move through the year for.
For Cooper surgical we're guiding the full year organic revenue growth of 4% to 6%, which includes another year of strength in fertility low to mid single digit growth in medical devices, and stem cell storage and flat to slightly down in PARAGARD due to declining volumes.
To conclude let me say this was a great year for Cooper and we've entered fiscal 2024 with great momentum, but none of this is possible without the incredible hard work and dedication of our employees. So a big thank you to the entire global Cooper team for another incredible year and now I'll 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.
For the fourth quarter consolidated revenues were $927 million up 9% as reported.
And up 9% organically.
<unk> gross margin was 66, 7% up from 65% last year, driven by better operational performance at both coopervision and <unk> surgical along with favorable currency.
Yes.
Operating expenses grew 8% improving to 42, 3% of revenues as we saw leverage from prior investment activity.
Consolidated operating margin improved to 24, 4% up from 22, 2%.
Led by the strong gross margins and leverage from our operating expenses.
Below operating income interest expense was $26 4 million and the effective tax rate was slightly higher than guidance at 12, 8%.
non-GAAP EPS was $3 47, with roughly $49 9 million average shares outstanding.
With respect to FX. It was 25 positive year over year for the quarter.
Which was <unk> <unk> worse than expected and our Q4 guidance.
Free cash flow was 29 million with capex of $145 million.
Net debt decreased to $2 45 billion.
For the full year 2023, we reported record revenues of $3 6 billion up 9% or up 10% organically.
And non-GAAP EPS of $12 81.
Within this consolidated operating income grew 11% on a constant currency basis.
To provide additional color on our fourth quarter results first we had solid execution with an emphasis on delivering stronger gross margins.
And leveraging our operating expenses.
This focus on delivering a more leveraged P&L is continuing in fiscal 2024.
Second we completed a significant amount of infrastructure and integration and integration activity this quarter.
This puts us in an excellent position to deliver success moving forward, including ramping up capacity and implementing continuous improvement projects.
And lastly, we finished the majority of the integration of our specialty lens care unit into our core coopervision business.
This is a great move from a commercial and efficiency perspective, but it did result in a noncash intangible asset impairment charge associated with the discontinuation of certain products, which was a large part of our non-GAAP adjustments this quarter.
Before moving to guidance.
Let me mention that we closed the acquisition of select Cook medical assets on November one.
The purchase price was $300 million with 200 million paid at closing and the remaining 100 million to be paid in $250 million annual installments.
The acquired assets generated approximately $56 million in trailing 12 months revenue as.
As of September 32023, and we expect growth of 5% to 7% in constant currency this year.
Excluding one time charges and deal related amortization.
The transaction is expected to be accretive to non-GAAP gross and operating margins and accretive to non-GAAP earnings per share by approximately <unk> 20 in fiscal 2024.
Okay.
Moving to guidance, we're guiding to fiscal 2020 for consolidated revenues of $3 81 to $3 88 billion up 6% to 8% organically.
With coopervision revenues of $2 55 to $2 6 billion up 7% to 9% organically.
And Cooper surgical revenues of $1, two six to $1 $2 8 billion up 4% to 6% organically.
non-GAAP EPS is expected to be in the range of $13 60 to $14.
This assumes roughly $110 million of interest expense, which includes the debt from the assets acquired from Cook medical and no interest rate changes by the fed during our fiscal year.
For tax we're still expecting a roughly 15% effective tax rate, excluding any discrete items such as stock option exercises.
For currency, we're using roughly current rates, which results in a year over year FX headwind of roughly 1% of revenues and roughly 5% to earnings.
And lastly, the EPS range corresponds to roughly 10% to 13% constant currency Oi growth.
Excluding coke.
We're 13% to 16% with the Cook acquisition accretion.
To wrap up as announced in our earnings release, our board has approved a four for one stock split with an effective date of February 16th 2024.
This is in response to many years of strength in our stock and our desired and our desire to adjust the price to make ownership more accessible to employees and investors.
And lastly, we made a decision to stop paying are de Minimis semi annual dividend.
With that let me conclude by saying fiscal 2023 was a record year for Cooper.
And we are well positioned to deliver solid growth and leverage in fiscal 2024.
And now I'll hand, it back to the operator for questions.
At this time I would like to remind everyone in order to ask your questions.
Then the number one on your telephone keypad.
We ask that you limit yourself to one question and one further follow up question. Please we'll pause for just a moment to compile any questions.
Again, if you'd like to ask a question. Please press star one on your telephone keypad now.
Our first question comes from the line of Jason Bednar with Piper Sandler. Please go ahead.
Hey, good afternoon, thanks for taking the questions and congrats on the close of the year.
Wanted to start first on the CVI revenue growth guidance and really connect the discussion on pricing.
You are guiding to more share gains here, Alan Brian I think growth that's like two points above the market at.
Colin I think you've historically been seen price gains below peers, though.
Hearing you implemented a price increase at the end of this month, that's at or above peers. So when we think about your CVI growth guidance and youre getting a little bit more aggressive with pricing than you have in the past, but your growth in performance versus the market is similar to where we started fiscal 'twenty three.
Does this imply youre anticipating volume growth to moderate due to those capacity challenged you mentioned.
And then maybe just again sorry for pack and a few in here, but can you confirm that you have visibility these capacity challenges aren't going to be a headwind beyond the current fiscal first quarter.
Sure Hey, Jason a.
A couple of things.
We're still going to put up good growth in the first quarter here and I had mentioned, we think we'll be somewhere about roughly 7% we are.
<unk> constrained and that we could grow faster than that if we had more capacity, but a lot of where demand on that so we have new lines coming in will progress through the year, bringing additional lines on so that will be able to continue to report upper single digits or even double digit growth in some quarters.
When I look at our guidance of seven to nine I think about price I'll kind of probably.
Maybe if you could maybe give it in the context of the market right last year. If we look at 'twenty three the market pricing was about 2% to 3% we were on the lower end of that.
I think if you looked at this year if pricing again in the market will probably be 2% to 3% will be at the higher end of that and that's probably how I would define it so I wouldn't read too much into a dramatic delta between our price increases and where I think the market is ultimately going to be I mean, we we get our price increase for some of our pricing at least here early.
Later in the year and then normal we'll see what some of our competitors do with respect to pricing in the coming months.
Okay, Yeah, no definitely a high class problem with the capacity challenges.
It sounds like the pricing may be more in line with peers on the past.
I wanted to zoom out one other maybe bigger picture question al.
And this is a question I get a lot from investors, what's it going to take to get operating margin expansion to come back to the business. It's the most common question. We get I think we're now three years and they're really seen good growth across CDI and fertility.
I guess can you sustain that good top line growth if you moderate some of those investments.
FX has been a challenge, but I guess will there be come a time when you are more willing to commit to like a multiyear margin expansion plan that could take us back into that 27%, 28% margin range for the business.
Yes, I guess my response would be that we grew operating income 11%. This year on a constant currency basis thats faster than revenues.
Our consolidated guidance this year at the midpoint is 7% and.
Brian just mentioned that our operating income constant currency growth is 10% to 13% so.
That's leverage again, and we're and we're focused on improving our operating margins and driving successor. So we did it in 'twenty three we're anticipating doing it in 'twenty four and <unk>.
My belief is youll continue to see that in the coming years.
Okay, Alright fair enough. Thanks, so much.
Yep.
Our next question comes from the line of Larry <unk> Olsen with Wells Fargo. Please go ahead.
Hey al.
Everyone. Thanks for taking the question.
Just I just wanted to understand on the last call you talked about guiding less conservatively at the start of the year.
The guidance for fiscal 'twenty four is I think exactly the same as it was to start fiscal 'twenty. Three is the only thing that changed the <unk>.
Capacity.
And any more color on where those capacity constraints are.
Yes, the capacity constraints are tied to <unk>. So we have continued to win wearers and my day at a faster clip than we were anticipating.
A lot of that where growth.
And growth in my day is coming from toric, especially which have a wide SKU range.
That's put some pressure on us so I would kind of say hey, the success that we're having again in terms of where growth has driven some of those capacity changes now we knew it we saw that stuff we've been that investing in Capex you can see that in our capex numbers, we have additional manufacturing capacity coming online so.
So we're in good shape, we're just running into kind of a little bit more of a very short term issue here, where we will have a strong quarter, but maybe not a double digit quarter.
And is that the reason the guidance is exactly the same where you alluded to it on the Q3 call of being a little bit more.
<unk> just started this year versus last year.
Yes, if we hadn't done.
Now if we have more in my day capacity the guidance range would be higher.
Okay, and then Brian can you talk about the assumptions in the guidance for gross and operating margin for the full year and the cadence I thought I heard sales commentary for the cadence, but not margin and I didn't hear the myopia management number for fiscal 'twenty four thank you.
Yes, Hi, Larry.
Currency is a negative for both gross and operating margins next year, but gross margins should be pretty similar.
Up to last year.
Obviously up from a constant currency basis.
With respect to operating margins again currency is a negative but it'll be a little bit better on an as reported basis and last year, we're getting operating leverage from from from others.
With respect to where my question I'm, sorry, with respect to our myopia management range we.
I would want to take that.
Sure.
Yes, we're not going to give a guidance range for myopia management. This year I mean, similar to all of our other products, where we're just not going to do guidance like we don't do for daily Si Hy or anything else. I mean, we will continue to give growth rates and details and so forth, but I'm not going to get into our guidance range.
One other thing Larry I, just wanted to mentioned like our usual guidance. If you will put that in quotes usual guidance.
And certainly pre Covid was kind of running at the market at 4% to six and US six to eight are in the market at $5 to 7% and 7% and nine is greater than our kind of pre COVID-19. If you will traditional guidance. So I just want to be clear that that we are guiding to a stronger market.
Overall and stronger performance from us than we used to guide to at least pre COVID-19.
Thank you.
Yes.
Our next question comes from the line of Jeff Johnson with Baird. Please go ahead.
Yes, thanks, good evening guys.
Al just going back to some of the capacity and supply issues.
Here, our letter went out in Japan, I'm not sure if it if it did in other markets as well.
And some of those supply constraints. So should we think be thinking about geographically that 7% is going to is going to be most impacted in the Asia Pac region number one and number two.
Over the last couple of years is a lot of contact lens companies. You guys included are dealt with a lot of this rebound in strong move to dailies and that which is helping fuel that top line. We've seen some things pop up right on the distribution side on the warehousing side some added costs.
You are having to put in some extra lines to kind of hit these demand things, which are good can you give us any assurances that this year you don't feel like theres going to be anything that gets uncovered kind of mid year that all of a sudden adds some cost or it takes away from some of the earnings that are being guided to for this year. Thanks.
Yes, great questions.
Let me answer that second one first.
You are right, we have a lot more volume going through our supply chain, if you will or through our logistics chain.
We did a significant amount of that work over the last couple of years and I take my hat off to our global distribution team they've done an amazing job.
I am happy to say that the vast majority of that activity is getting behind us and I'll use. The example, I've talked about which is our west Henrietta distribution center outside of our Rochester, New York, Great team and a great group of people they've done a really nice job of that expansion is done.
So the risk associated with that kind of activity is significantly lower same thing our liaison team in Europe did a fantastic job with that.
Software updates and so forth. So I think we're in a really good spot when it comes to our distribution and our packaging labeling distribution and so forth and I've got a lot of confidence in the team there. So.
To say a lot of that work is behind us.
The supply constraints.
Again, it's <unk> related.
From a regional perspective, we will see how that plays out.
I don't want to kind of point to any particular region or tip my hat from a competitive perspective or anything else to anyone. So we'll see how it plays out will certainly obviously.
Give commentary on that on the Q1 quarter, but again I just wanted to be clear were still expecting a good solid Q1.
Yes.
Up against double digit comp I get that Paul So I'll go there and then Brian I guess, if I could just pin you down a little bit.
On the guidance on the EPS guidance I, just want to make sure I understand the yen or the pound the.
Euro some of those currencies have been kind of.
You had a pretty tight range here over the last few weeks. The yen is what has really strengthened quite a bit and just the last week or two obviously you guys have a pretty big sensitivity.
Two the yen. So when you say youre using current rates I'm, assuming you guys Didnt update your guidance. This morning is the yen was off or it will strengthen a couple 253 points.
So just you know are you at $1 48 on the yen 146 on the <unk> 144, I know, it's ridiculous to ask the single currency, but just the sensitivity is there so I'd like to know kind of where we're starting the assumptions on that $13 6 million to $14. Thanks.
Hi, Jeff Yes.
I guess, what I'll say is we use roughly current rates for Europe Youre, absolutely right. We did not factor in today's currency moves.
In particular the yen so.
With guidance, we're initiating the year.
We always exercise with a certain level of prudence and I would say, we did that with respect to currency as well.
Thank you.
Our next question comes from the line of Jon Block with Stifel. Please go ahead.
Hey, guys great. Thanks for the question I'll, Let me just stick with the constraint for a second and Ali you always mentioned the challenges on capacity I think you were always very transparent about it but you had been seemingly staying ahead of the demand curve. Unlike some of your competitors.
But recently changed because I wouldn't think that demand in an industry. That's very consistent in terms of the growth rate because the demand really spiked suddenly.
Six 810 week timeframe College.
Cause you to be probably in quite a bit behind it or was it really acute because it's in one particular part of the portfolio and then maybe if that's the case how do you have the confidence that you are able to rectify or reconcile it over the next two to three months.
Yes, Great question, Jon dinner away, it's not a demand spike so to speak as much. It has been consistently strong demand remember that when youre talking about the <unk> lines and a lot of our manufacturing lines now.
Still taking us somewhere in the area of 18 months from the time, we order that line to the to the time. The line is producing product that we can sell into the marketplace.
Thats still a little bit longer because of all the robotics camera systems and so forth.
So you are talking about if we had an increase in demand, which we've seen on those products say over the last six nine months that kind of thing right you can order new lines, but to catch up on that sometimes it takes a little while right. So what you're getting in for production here right now will be lines that we ordered a year and a half ago. So I think the team did a really nice.
Job in terms of planning that out and we continue to plan that out in advance.
But it's a little hard to tie that together when you get an extended period of time of winning more work than you anticipated.
You can get yourself in these kind of situations, but where I get comfortable is we know what lines are coming on we could see the production we see the lives coming on our manufacturing team is insanely strong at getting these lines ramped up into production and they are doing a great job. So we have all the schedules we have the demand we see all the activity and so forth and we're able to.
Manager.
Okay. Thanks that was great color and just to ship pride over to you and sorry, if I missed this earlier on EPS, so anything to call out regarding the cadence throughout fiscal 'twenty four as we think about FX being particularly violent last year and maybe I don't know less leverage in fiscal <unk> due to some of those constraints that are most.
In the third quarter.
Hi, John.
I guess I wouldn't really theres nothing in particular that I would point out we're going to have.
I think we will start out with a good year as al said.
But if theres going to be something maybe that I would point out is if I look at currency today.
The biggest impact.
From currency is probably hitting us in Q2.
Versus the other quarters, but outside of that I would say kind of normal seasonality gaining kind of phasing through the year.
Fair enough thanks, guys.
Yes.
Our next question comes from the line of Joanne.
With Citi. Please go ahead.
Hi, Good afternoon. This is actually Anthony on for Joanne Thanks for taking our questions just one from us.
Are you do you think you're losing any potential new customers related to capacity challenges in my there.
Are we are we were.
Definitely not losing any customers that's for damn sure and we're continuing to gain new wearers Theres no question about that could we be gaining even more wearers.
Yes, do I think we're going to permanently lose them no. Because we are going to have the product that's rolling into the market I'm not talking about a dramatic change, we're giving guidance for the year of seven to nine and we're talking about doing it seven in Q1, so whats not blow this out of proportion right acres is that there's a short term like little thing here from a revenue perspective, but we are we.
Winning wearers additive normal at a normally large clip we're going to continue to win wearers. This quarter in Q1, and we're going to win them. The rest of this year.
Okay.
Yes.
Our next question comes from the line of Greg <unk> with Bank of America. Please go ahead.
Good afternoon, guys. Thanks for thanks for taking the questions I wanted to start with a follow up on FX and obviously, it's been volatile.
To the.
The dollar weakens.
Over the course of your fiscal year, I guess I just wanted to get a sense for how you guys plan to.
Either let that fall to the bottom line or if there is potential reinvestment of some of the benefits there.
Hi, Craig.
Yes, great question, we've been getting this question a lot because currency has been really moving against us year. After year after year I certainly would love to see this trend continue but certainly if it does.
The dollar were to weaken yes, we're going to let that currency fall through to the bottom line.
You want the recent trend in the region.
That's exactly right.
Thank you.
Yes understood.
And then maybe for you al just.
Any update on on site glass, and the timing or any communications or or maybe even any expectations that you expect on the data front or where that you've heard from the FDA just whats the timing whats the thinking on cyclists.
Yes, I mean, no. Unfortunately, I guess I'd say no updates right now on site glass, we're continuing to progress and do work, we're selling that product in markets around the world.
There continues to be positive momentum I'm excited about it but I don't have any good updates to give you right now maybe on the next call that we have but really nothing right now.
Okay. Thanks for taking the questions guys.
Sure.
Our next question comes from the line of Robbie Marcus with JP Morgan. Please go ahead.
Oh, great Hello, and thanks for taking the questions two from me.
First on.
Free cash flow it looks like you came in plus or minus the $170 million in the year I think that.
Time last year, you guided to $300 million.
So what drove the shortfall in 'twenty, three and how should we think about free cash flow generation in 'twenty four.
Hi, Ravi, Yes, we actually came in at <unk>.
$215 million of free cash flow.
Obviously, we had a pretty large capex year, we ended the year at $393 million in Capex. We've been guiding we had been guiding around 400, so we kind of landed right at that Mark.
We had to Cook.
Termination fee that we paid in.
2023, so that offset some of the some of the free cash flow intra.
Interest FX taxes.
Were also headwinds in 2023.
So.
So that kind of really put a damper on free cash flow generation I would you expect that free cash flow will improve in 2024, probably in excess of $100 million over 2023.
We still have some headwinds tied to FX taxes, and interest probably about $50 million.
Better that are creating more of a headwind for us, but certainly if I look at Capex is going to be elevated again in 2024, probably similar levels as we saw in 'twenty three.
Great and I apologize on my math.
Maybe more of a.
A strategic question here.
You've had.
Past few year double digit organic top line growth yet, we're just not seeing it translate down to the bottom line for a number of reasons, whether it's the operating margin or currency. So.
How do you think about your commitment to double digit EPS growth on a reported basis and are there any things you could do moving forward to help.
With the consistency I don't know if its a return to hedging or something else but.
How do you think about the necessity.
Giving us.
Reported EPS leverage growth.
Sure, Yes, I think I'll go back a question Craig asked there where Brian right I mean, a couple of things one is.
As we talked about last year as we gave guidance. This year, we are talking about our operating income growth in constant currency.
When it comes to FX, we've seen them move nicely in our favor as Jeff said some of that our out of some of Thats not incorporated in the current guidance, but it's great to have currency moving in our favor and I'll reiterate what Brian said, which is.
We're going to continue to manage the business that way if currency moves in our favor that currency is going to flow through the P&L.
We have great investors and a lot of them have stuck with us as we've worked through the last several years, where currency moved against us and they deserve to get the opposite side of that of currency moves on our favorite that will flow through the P&L and we'll post some some strong quarters I mean I think.
EPS was up 26% this quarter I'd love to see currency move in our favor and posted more really strong quarter. So that's what I would tell you is we run this business to drive <unk>.
Instant currency leverage and growth in <unk>.
We plan on delivering that and hopefully fingers crossed like we get some positive currency to help us drive that.
And then on top of that I guess, one other add would be generating cash flow paying down some debt reducing interest expense.
Great. Thanks for taking my questions.
Yes.
Our next question comes from the line of Steven Lichtman with Oppenheimer. Please go ahead.
Thank you Al you mentioned expected price increases for the industry here near term.
At about the same year over year level as we saw over the last 12 months.
What is your confidence in the sustainability of price increases for you and the industry is as year over year inflation moderates I think you've said that 2% to 3%, maybe a point point and a half above historical levels.
Yes, we are.
Little early probably this year compared to some other years in terms of our price increases. So we'll see what other people do but I mean, I've talked a little bit about some of the constraints we have here in capacity.
We have competitors, who have similar challenges.
Don't have some of the other supply chain challenges some of them have had been working through but at the end of the day. The core contact lens industry is growing nicely and it's growing for a number of different reasons. Some tradeoffs growth in tour X growth in multifocal growth in wearers Jia.
Geographic expansion one of the things that's happening as we move to this kind of happy oligopoly, because remember ourselves J&J and alcon or close to 90% of global revenues for contact lenses is youre seeing a lot of demand for contact lenses, and that's creating an environment, where all of us are struggling to keep up with that demand.
And it takes a lot of time to get new manufacturing lines in a ramp up capacity and manage through all the logistics that you have to do with this growth. So that's a long way of saying that I believe for the foreseeable future. The contact lens industry is going to have very strong demand anytime you have strong demand and you have capacity related issues associated.
With demand challenges.
You normally have an environment, where you have pricing.
Companies are able to take pricing in that to offset some of those challenges.
And then I would also add any inflationary pressures that are potentially out there. So I happen to believe youre going to see pricing trend at a higher level here for a number of years in front of us.
Got it thanks Al and Brian just to follow up on the tax rate for FY 'twenty four here does that contemplate pillar two or based on your fiscal year. It doesn't and if it does how should we be thinking about that over the medium term.
Hi, Steve Yes that does contemplate pillar two it's incorporated our expectations are incorporated in guidance and I'll just restate, we expect our ETR to be around 15% previous guidance.
Got it thank you.
Our next question comes from the line of David Saxon with Needham. Please go ahead.
Great. Good afternoon, Thanks for taking my questions maybe.
Maybe one on.
CVI went on CSI.
Coopervision just wanted to ask on my side.
What inning are we in terms of <unk> coverage and so the payers that are covering it like aetna and Kaiser or what portion of the cost today actually reimbursed.
We are in the first inning on that.
Yes.
I don't even know if theres one out.
Dave It's very early in that so <unk> just started coverage that kaiser's there has some coverage on that but in terms of insurance reimbursement and getting that through the industry to optometrists and so forth.
Very very early in that process. So there is there are some very significant potential upside associated with that.
I do not want to get in front of that because we're very very early in that game.
Okay and just.
How much they're reimbursing.
And then I'll just ask my second question on PARAGARD.
Volumes, obviously have been.
Flat to down, especially this past quarter. So just wanted to get your updated thoughts on that product is there anything you can do to drive.
And volumes are as Kurt.
PARAGARD growth going to be.
Primarily driven by pricing over the long term and if so I guess at what point does that ability to drive growth through pricing kind of go away. Thanks, so much.
Yes, sure yes, the amounts vary depending upon who it is.
And how it's covered and what plans people have for my site I mean, some of the coverage gets fairly high.
As high as 50 <unk>.
80%, So I think a lot of that coverage would be half up to 80% coverage, but again I just want to caveat that by saying, it's very early in the process of how it's divine define and how it's reimbursed.
So a lot of work there on PARAGARD, yes, we're guiding to a flat to maybe down year. The challenge is around volume. There is access to other birth control options that are out there be it easier access to birth control pills as an example, or other areas I think the IUD market is going to continue to be <unk>.
From a volume perspective, we do take price as do other people in that space and that kind of offsets that but I think as you look at iuds for at least for this year and I don't know if I want to forecast too much farther out, but we're going to be looking at flat to declining volume. So that's that's just the world that we live in right.
Now with respect to iuds.
Great. Thank you.
Yes.
Our next question comes from the line of Nevin tie with BNP Paribas. Please go ahead.
Hi, good afternoon, thanks for taking my questions and congrats.
So will the 2020 for share gain.
Contact lenses and surgical as well and will that be driven by innovation.
And can I. Please ask you about your capital allocation priorities after the maternal health acquisition.
Yes, so I would say on capital allocation, our focus frankly is on paying down debt right now.
We will continue to do the things, we do but we will have a heavier focus on paying down.
Debt.
If I look at share gains, yes, we anticipate continuing to take share in contact lenses a lot of that will come from innovation, because theres some exciting products out there.
Like I talked about <unk> as an example, which is doing really well.
Cool innovative product, that's doing well and then some of it I would call innovation tied to some of the stuff that we've been doing like on the multifocal side and on the toric side. So I think we'll have another good year within vision space and I think we'll take share also.
Within Cooper surgical certainly within fertility great team. They are doing just an absolutely fantastic job just posted a tremendous quarter I have all the faith in the world in them.
We're continuing to invest behind them and we'll continue to invest behind them moving forward and I think we will see ongoing share gains within fertility.
Thank you.
Yes.
Our final question comes from the line of Anthony Petrone with Mizuho. Please go ahead.
Thanks, maybe you want to envision one on on surgical on the vision side going back to my site, maybe just a recap on what youre seeing from early patient adopters are are there any noticeable drop offs or is the attach rate is still high.
And then when you think of prescribers the early adopters on the prescriber and.
Are they writing more prescriptions for my site.
And then just really quickly on surgical when we think of just kind of the M&A landscape.
I'd assume that Ibs, there was issues there from antitrust so that wouldn't be an area.
What other areas in womens health potentially.
Attractive to CSI.
For CSI, Yes, we will continue to look at some tuck in acquisitions and so forth. If we can find them again I would reiterate though that we are looking at at paying down debt. We've done I think a deal that's going to turn out to be fantastic for us that we closed November one.
We will keep our eyes open maybe on some medical device stuffer, some smaller tuck ins that are out there and if something comes along that makes sense, we would evaluate that.
Otherwise, we'll focus on paying down debt if I look at my site.
Our retention rates remain very high.
We use an app that tracks all of ads all of our patients are on an app and we're still running somewhere around that 90% retention rate.
<unk> increasing fitting activity.
And around the world, we're seeing increasing fitting activity within key accounts also which is kind of exciting for us right. Now so the trends are good there we had a.
Good Q4, I'm anticipating a good Q1 right off the bat.
We normally have our business kind of a sequential decline it'll be interesting to see whether we even have that within <unk>.
<unk> given the strength of that business the momentum that's going on right now in terms of the number of fits are out there and the growth that we're seeing so more to more to come on that one.
Thanks again.
Yes.
I would now like to turn the call over to al White for closing remarks.
Great. Thank you just to summarize record year.
Record revenues in vision surgical <unk>.
Strong OE growth this year, we're giving guidance and we believe we're going to have another strong year. This year all the way through the P&L. So I'm excited about where things stand today and.
Looking forward to this year, because I think it's going to be really good year for us. So thank you to all of our employees around the world who killed. It this year and are continuing to do an amazing job and thank you for everyone who called in and we'll talk later. Thank you. Thank you operator.
I would like to thank our speakers for today's presentation and thank you all for joining US. This now concludes today's call and you may now disconnect.
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