Q3 2024 The Cooper Companies Inc Earnings Call

Okay.

Thank you for standing by my name is Pam and I will be conference operator today at this time I would like to welcome everyone to the third quarter of 'twenty 'twenty four Cooper companies' earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer.

Session.

He would like to ask a question. During this time simply press star followed by the number one on your telephone keypad. If he would like to withdraw your question Press Star One again I would now like to turn the conference over to Kim Duncan VP of Investor Relations and risk management you may begin.

Good afternoon, and welcome to Cooper Company's third quarter 2024 earnings conference call. During today's call. We will discuss the results and guidance included in the earnings release, and then use the remaining time for questions. Our presenters on today's call are al White, President and Chief Executive Officer, and Brian Andrews, Chief Financial Officer and Treasurer.

Before we begin I'd like to remind you that this conference call will contain forward looking statements, including revenues EPS interest expense operating income tax rate FX, and other financial guidance and expectations strategic and operational initiatives expectations for recent acquisitions market and regulatory conditions and trends and product launch.

And demand.

Forward looking statements depend on assumptions data or methods that maybe incorrect or imprecise and are subject to risks and uncertainties 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 earnings release and are described in our SEC.

<unk>, including Coopers Form 10-K, and Form 10-Q filings all of which are available on our website at Cooper coast 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 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.

Should you have any additional questions. Following the call. Please email IR at Cooper co Dot Com and now I'll turn the call over to al for his opening remarks.

Thank you, Ken and welcome everyone to todays earnings call I'd like to start by congratulating, our 15000 plus employees for delivering Cooper's first ever billion dollar revenue quarter.

Couldnt have reached this milestone without the hard work and dedication of our amazing employees. So a big thank you to the entire Cooper team.

I'm also proud to announce that both coopervision and Cooper surgical reported record revenues and net margins improved nicely driving double digit earnings growth and record non-GAAP quarterly earnings.

This performance highlights the strength of our business as our multiyear growth strategy to become a leader in the daily contact lens space and a leader in the global fertility industry moves into a stage of healthy revenue growth combined with leverage through the P&L.

To expand on that at Coopervision, we've taken our highly successful monthly lens strategy built on innovation and flexibility and taken it to the daily space, where we're expanding the segment and gaining share.

Cooper surgical we've expanded our global fertility capabilities, while continuing to provide clinics with premium products and services that support every step of their fertility journey.

And in both cases, we've crafted our portfolio to expand our customers businesses and improved patient outcomes. We've accomplished this by strategically investing throughout the organization, including installing state of the art manufacturing capabilities implementing technological advancements in packaging and distribution.

Valid thing in launching numerous new products, completing significant upgrades and providing extensive employee training.

Activity is paying off and I'm proud of our success and excited about what the future holds.

Moving to the details and reporting all percentages on an organic basis consolidated accordingly revenues were slightly over $1 billion up 8% year over year Coopervision posted record quarterly revenues of $676 million up 10% led by strength throughout our broad based product portfolio.

And Cooper surgical posted record quarterly revenues of $327 million up 5%, including fertility returning to double digit growth.

non-GAAP earnings per share grew 14% to <unk> 96.

For Coopervision, we continue to be the most innovative company in the $10 billion plus contact lens industry with the broadest portfolio of lenses. The only FDA approved product for myopia control arguably the most active product launch schedule and a fantastic R&D pipeline.

This has led to the consistency of our results and is why coopervision is the number one contact lens company in the world in terms of wears.

For the third quarter, we once again take share with the Americas growing 13% EMEA was 7% and Asia Pac 7% within categories Toric and multifocal is grew 12% as fears grew 8% within modalities, our daily silicone hydrogel lenses, <unk> and clarity grew 13% and our <unk>.

Silicone hydrogel FRP lenses by open any in a barrel grew 11%.

And our myopia management portfolio posted growth of 29% with my site up 50%.

In a very nice quarter against the tough comp from last year.

Turning to products and starting with our high performing daily portfolio, we continue to see strong growth and healthy momentum with my day in every category sphere, Toric and multifocal in particular, we're seeing extremely strong growth in our most innovative product areas led by Monday NHS with its digital boost technology with our industry leading toric.

Range and with our easy to fit multifocal, which as everyone knows is a personal favorite of mine.

This product family has been extremely well received by air care eye care practitioners and customers.

We have more upside to our growth as we continue bringing manufacturing capacity online to meet the significant demand. This is particularly true of our market, leading toric, where there is considerable new where opportunity along with upgrade potential given the decade plus success of bio affinity toric with shares the same design.

Moving to our mass market daily silicone hydrogel product family clarity I am excited to report that we recently launched an upgraded clarity multifocal in the U S. This past quarter.

<unk> design matches, our <unk> multifocal design, featuring next generation enhancements that provide better vision and comfort for presbyopic patients as well as an easy bidding experience for eyecare professionals. The clarity family as a whole is known for its comfort easy handling and affordability and patients appreciate the price point, where we're continuing.

To successfully upgrade legacy hydrogel wearers.

Moving to frequent replacement silicone hydrogel lenses, <unk> and <unk> continued performing exceptionally well for <unk>, we're seeing nice growth across the entire portfolio with <unk> and our made to order products such as extended range towards <unk> multifocal is leading the way.

These lenses are made using some of our most innovative manufacturing technologies and this allows us to provide the widest range of prescriptions in the market.

That is especially imported important and bidding patients with the most complex vision needs.

Turning to Myopia management my site posted record quarterly revenues across all regions and our momentum is strong we are in the middle of our U S back to school campaign and early results indicate we will see a significant increase in consumption through the end of this year.

And we've taken the learnings from our successful U S programs and were running similar programs and other key markets, such as Spain, The UK and Korea.

Incredibly proud of the number of children's lives were meaningfully impacting through the growing adoption of my site and we continue to demonstrate leadership in driving global awareness and myopia management working closely with the entire global optical industry to expand usage and establish it as standard of care.

In this spirit in July at the World Congress of pediatric ophthalmology, the Coopervision professional affairs team showcase long duration of my site Science, which now spans 10 years.

With multiple additional studies underway in the U S and China My side, it's the most thoroughly researched contact lens for children and the clinical data is excellent we will showcase more data this quarter at the upcoming International Myopia conference in China as well as in Korea at our Asia Pacific Myopia Management Symposium, which has become a premier.

Annual debt for practitioners and researchers across the region.

To conclude on coopervision, the contact lens market grew roughly 7% in calendar Q2, with Cooper continuing to take share up 10%.

The market remains very healthy and that should continue supported by several long term macro growth trends.

In this we're leading with innovation, our broad product portfolio ongoing product launches strength in premium products fast growing myopia management business and leading new fit data.

Moving to Cooper surgical we posted record quarterly revenues of $327 million up 5% within this fertility sales were $129 million up 10% fertility continues to be a great business for us in the future is bright as we're taking share and expanding our leadership position globally.

Our broad portfolio of products and services, including consumables capital equipment reproductive genetic testing and donor activity continues to lead the market and we are investing by launching new products.

Accelerating innovation and R&D opening new donor sites, providing extensive training in our centers of excellence and expanding geographically or.

Our focus on delivering the most advanced fertility solutions remains unmatched in our dedication to improving fertility outcomes for patients remains a guiding principle.

Meanwhile, we're seeing strong demand in our focus markets with fertility clinics, increasing patient activity upgrading of new technologies and opening and expanding facilities in several markets.

Regarding current activity, we just have one of the busiest global fertility events, we've ever had at a large European conference in July exciting.

The excitement was high for the industry and for our products and services in particular, there was a lot of excitement around our new culture and transfer media, which just launched in Europe around our new fast track genomics testing, which is now launched globally and around embryo options, our Premier Cryo management software, which recently launched in targeted European countries.

Regarding the broader fertility industry, the macro trends supporting growth remain intact with the world Health organization, highlighting that one in six people globally will be affected by infertility at some point in their lives due to a variety of factors, including women delay childbirth as the leader in the space, we remain incredibly committed to advancing the industry.

By standing in support of patients and clinics and improving access to treatment on a global basis.

Moving to office and surgical we posted sales of $198 million up 2% medical devices grew nicely led by our minimally invasive gynecological surgical products, including our ally uterine manipulator portfolio and our labor and delivery portfolio led by Peter Pillow, a balloon device used in C sections to elevate that.

<unk> had and facilitate ease of delivery of the baby.

Stem cell storage had a solid quarter in PARAGARD slightly declined as expected after last quarter's strong results.

One quick note on PARAGARD, we recently received approval for a new single hand, and added Cerner, which makes placing the IUD easier and we are now in the process of launching this improvement.

And with that I'll turn the call over to Brian.

Okay.

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 our third fiscal quarter consolidated revenues were 1.0 in year $3 billion up 8% as reported and up 8% organically.

Consolidated gross margin was 66, 6% up from 66, 1% last year, driven by continuing efficiency gains and product mix.

Offset by FX.

Operating expenses shows leverage growing slower than sales as efficiency gains from prior investment activities.

To offer positive returns within SG&A.

Meanwhile, R&D grew faster than sales as we maintain our R&D activity in several exciting areas, including myopia management and fertility.

Consolidated operating margin improved nicely up to 25, 5% from 23, 9% last year.

Led by growth improved gross margins and SG&A leverage.

Below operating income interest expense was $27 $1 million and the effective tax rate was 16, 6% higher than expected mainly due to the geographic mix and income.

non-GAAP EPS was <unk> 96 up 14% year over year with roughly 201 million average shares outstanding.

Free cash flow was $118 million with capex of $89 million.

Net debt decreased to $2 5 billion.

Foreign exchange negatively impacted earnings by 5% in the quarter <unk> better than expected, helping to offset the higher effective tax rate.

To summarize fiscal Q3, coopervision reported double digit organic revenue growth against last year's tough 13% comp for.

Fertility returned to double digit growth and we passed the $1 billion threshold in quarterly revenues for the first time.

Gross and operating margins, both improved nicely year over year, even against currency headwinds.

And this resulted in a very strong operational quarter that delivered solid double digit earnings growth.

Before moving to guidance, let me mentioned two tuck in acquisitions.

The first is <unk>, which closed in June.

This deal adds a first of its kind patented sperm separation device that helps optimize fertility procedures.

The company had roughly $9 $5 million in trailing 12 month revenue.

And the purchase price was approximately $34 million.

The second deal is obesity surgical which closed on August one.

This deal as both a lighted retractor with an integrated spoke smoke evacuation system and related surgical suction device.

The company had trailing 12 month revenues of roughly $14 5 million.

And the purchase price was approximately $100 million.

Both deals are accretive to consolidated revenue growth rates.

Margins and non-GAAP earnings.

Yeah.

Moving to fiscal 2024 guidance, we are increasing our consolidated revenue and earnings per share guidance on our third quarter results and expectations for continuing operational strength.

For the full fiscal year. This resulted in consolidated revenues of $3 89 to $3 91 billion up eight to eight 5% organically.

For Coopervision the guidance range is $2 61 to $2 62 billion up nine to nine 5% organically.

Africa for surgical the range is.

One six to 1.2 dollars 94 billion up five five to six 5% organically.

We expect interest expense of roughly $109 million, which assumes no interest rate changes by the fed for the remainder of our fiscal year.

We expect our full year effective tax rate to be slightly over 14% assuming no additional discrete items.

And we expect non-GAAP EPS in the range of $3 64 to.

The $3 67.

Up 14% to 15%.

Built within this guidance is our fiscal Q4 expectations, including coopervision growing 8% to 10% organically.

Surgical growing 6% to 8% organically and non-GAAP EPS in the range of 98.

To $1 one.

Regarding fiscal 2025, we will provide.

Specific guidance in December on our Q4 earnings call, but let me say that we remain focused on delivering strong operational performance and low double digit constant currency operating income growth.

To conclude let me briefly touch on where we are in our strategic journey from a financial perspective.

As we've discussed on prior calls we've spent considerable time and money positioning our business for higher long term sustainable organic revenue growth.

This has made significant investments throughout the company and we're now seeing that activity pay off with strong revenue growth and leverage through the P&L.

We expect this to continue and to lead to improving free cash flow as operating cash flow improves and.

And Capex moderates.

With that I will hand, it over to the operator for questions.

Thank you we will now begin the question and answer session. If you have dialed in and I would like to ask a question. Please press star one on your telephone keypad.

Go ahead and join the queue.

I would like to withdraw your question simply press Star one again please.

Please bear in mind is that you can ask one question and one follow up.

And your first question comes from the line of Jeff Johnson of Baird. Please go ahead.

Hey, guys. Thanks, Good evening, sorry, I was on mute there.

So two quick questions I guess al you kind of talk about that 10%.

Growth you did in the quarter, sorry, the 7% contact lens market growth in the 10% you did in calendar <unk>.

What are you seeing from an end market perspective, there has been some chatter over the last maybe few weeks couple of months about has rebate activity gone up has it not gone up as end market softened a little bit with the consumer it sure seems from the numbers, we're seeing from all the companies that the market is holding in well, but I'd just maybe your state of the market U S and globally would be helpful. Here on the contact lens.

Thanks.

Sure, Yes, the state of the market is holding up really well.

There is a little bit of noise every once in a while that work here right you mentioned that with rebates, which is.

U S consumer rebates relatively small in the Grand scheme of things, but if we look at the market whether it's the U S or we look on a global basis. It remains really healthy and you're continuing to see growth and a lot of the more.

Mid and higher end products, and toric and multifocal and some of the more premium products within those segments. So yeah, I would just say, maybe a little bit noise here and there but.

A U S basis on a global basis still pretty healthy market.

Alright, that's helpful. And then just on the return to double digit fertility growth late last year you had a.

Culture media recall.

Should we assume with your back to double digit growth, there and you're calling out culture media is one of the growth drivers that there's no kind of lingering impact any bad will that built up in any of these fertility centers there anything and do we need to think about any kind of big dollar potential litigation risk or is this all kind of normal course of business that companies have to deal with it.

Thanks.

Yes, I would say on the litigation side, we're working through that we have insurance to cover that.

And it's something that we'll work through us as other companies work through similar situations I think that data.

That event that you are referencing happened kind of back in the December timeframe and rolled a little bit in the beginning of this year, but our fertility team is fantastic and they've done a great job and the message that they deliver and the message. They believe in is that we are going to do what's best for our patients.

And we're going to do what's best for our customers and we put our hard behind that and I think the team did just a fantastic job going out and talking to people being open honest and transparent and so forth and working through the issue to get back on good footing and Thats, what youre seeing and that's why we're back to double digit growth here.

Your next question comes from the line of Larry <unk> Olsen of Wells Fargo. Please go ahead.

Your next question comes from the line of Jon Block of Stifel. Please go ahead.

Great guys. Thanks, good afternoon.

Maybe on the first one in the Americas CVI two year stacked growth.

With notably strong I think one of the strongest in a good couple of years and just anything to call out.

To frame that is that a function of increasing capacity with some lenses and that going into the Americas and then maybe if you can just use that as an opportunity to remind us of where you are with the overall capacity initiative relative to maybe where your expectations were six or nine months ago.

Sure, Yes, it was actually one quarter. When you think about last year I think we were at 13%. So on a two year stack base.

A strong quarter you are seeing some of what you referenced how much is we've got some capacity coming online and thats, putting us in a position to be able to meet demand as we sit here today demand is still greater than.

Supply if you will.

And I would say, that's especially true with my day and some some parts of the <unk> portfolio.

And it's a little bit of a limiter in terms of our ability to meet the demand and locations and also a little bit of a restricted in our ability to be able to launch some of the activity. We won around the world. So that makes me optimistic about the future certainly as we continue to bring capacity on and expand our capabilities in the <unk>.

In time, Youre seeing the results of bringing capacity on and the continuing strength of the product portfolio.

Okay. Thanks for that and then Brian I'll turn to you you mentioned the leverage it was really solid and better than <unk> been in the quarter I'm looking at.

Opex that was basically flattish Q over Q despite call. It mid single digit sequential revenue growth. Maybe if you can talk to is that more CVI that CSI was there anything abnormal in the quarter in terms of cadence in opex, but that really stood out in the quarter. Thanks.

Hi, John Yes. Thanks for the question, Yes, I mean, we expected strong results for the second half of the year. We you heard Mike My gross margin commentary.

And the first couple of quarters being stronger than the first half in the second half, but we're going to make up for it with meaningful SG&A leverage in the second half. So we certainly put up some great results in the third quarter with SG&A leverage I would say both businesses are executing really well.

Certainly those investments that we've been that kind of sex stacked up on top of one another over the last several years are yielding positive returns and we're getting efficiencies from those I mean, it's it's not a one quarter thing its a multi quarter thing and I think youll expect we expect to see that.

Next quarter and into next year, So, yes happy with the results.

Your next question comes from the line of Larry <unk> of Wells Fargo. Please go ahead.

Hey, Fla, calling in for Larry can you hear me okay.

Yes.

Thanks for taking the question.

Yes.

Yeah.

First you talked on the call you talked about.

Double digit low double digit oi growth for fiscal 'twenty five can you give any other commentary.

In the top line the last three fiscal years, you started guidance at 60%, 6% to 8% constant currency growth is there any reason to think that you would start definitely for fiscal 'twenty five and anything below the line as far as the interest rate tax rate.

You can call out at this point for fiscal 'twenty and I have a follow up.

Sure.

I'm not going to get into much detail on guidance at this point in time.

Speaker Change: As we never do.

A couple of things I would just say I mean, the contact lens market is certainly healthy is as we're just discussing with Jeff I mean, we're giving guidance for ourselves in the fourth quarter here.

8% to 10% Cooper Surgical's market is healthy fertility is healthy, we're giving guidance for Cooper surgical in the fourth quarter of 6% to 8%.

So we're optimistic about both marketplaces, and where we sit today here I would say remaining optimistic that both markets are going to continue to be strong into next year, but.

Outside of saying that I'm going to hold off on giving any revenue detail until we get to December I'll turn it over to Brian on below the line items.

Yes, so similar to how I mean, I'm going to hold off on providing details until December but you picked up on the commentary I said about delivering our long term commitment and our objective to deliver low double digit constant currency Oi growth.

So people can take comfort in the fact that that objective hasnt changed.

We've got a lot of momentum going into next year next year should be another solid year free cash flow is going to be stronger next year.

We expect we'll pay down some debt so hopefully.

Assuming rates hold that will mean that our interest expense goes down to the extent that the fed does something in our favor then thats going to be beneficial and that will help.

I guess, if I talk about FX I'm, knocking on wood right now, but as we sit here today FX is a positive for fiscal 2025, So I don't want people to get ahead of themselves but.

That could be some upside in.

And while I'm not providing guidance on taxes.

If we use 2024 as a guide.

Our effective tax rate pre discrete this year will be around 25 million I am sorry, 15, 5%.

So we've got momentum hopefully some of these upsides play out and we're going to have a great year.

That's helpful. Thank you and for my follow up can you just remind us when when you last took price and CVI.

When does that anniversary and how are you thinking about price.

Thanks, Phil.

Five.

Taking the questions.

Sure we took price in fiscal Q1 of this year I would anticipate we'd take price again in fiscal Q1.

When I look at ourselves or the industry inflation.

Inflation has come back a little bit, but it's still running in that 3% kind of range. So I think.

Where we've been is raising pricing to offset inflation and I would anticipate the industry will continue to take price to offset inflation and I would anticipate.

They will do that in fiscal Q1, so more to follow on that.

Your next question comes from the line of <unk> of Bank of America. Please go ahead.

Hi, Good afternoon, guys. Thanks for taking the questions I wanted to start on the distributor.

Issue that you had last quarter end.

Really just wanted to see if it impacted any of your sales are growth numbers in the quarter.

If it will continue into Q4 at all.

Sure correct, yes that was a cooper surgical related upgrade issue that.

That we worked through last quarter, I would say that yes, it did disrupt things a little bit into this quarter.

Speaker Change: But we've worked our way through that I think you'd probably get a little bit of the residual upside from that frankly in Q4 as you saw we did 5% growth in Cooper surgical in Q3, and we're guiding to 6% to 8% and.

In Q4, so finishing the year strong.

And as Cooper surgical gap gets back on full footing, if you will.

Got it that's helpful. Thanks al.

Switching over to the CBI and.

Speaker Change: Maybe a follow up on one of the earlier questions and just looking at APAC growth.

And.

I guess I wanted to ask where you are in getting.

Getting full capacity or full.

<unk> two is to that specifically that's one.

If you look at the growth rates at it stands out as maybe a little bit more.

Sluggish than some of the other <unk>.

Fees and I know.

And I know that Youre working on meeting the demand there. So just maybe a little bit of color on where you are and how we should expect that to ramp over the next several quarters and into 'twenty five.

Sure that's a good question.

Our Asia Pac numbers, yeah, a little bit softer than maybe we were running historically.

Got a great team there Cathy and her team of folks.

In Asia Pac Ive got all the confidence in the world at a strong team.

Just need more product is what they need at the end of the day.

And if we have more product those numbers would be stronger that's what it comes down to.

So we're working hard on that we're bringing capacity online.

We're trying to get more my day, so we can get it out in the marketplace and get it over to help that team execute at the level that we know they can.

I won't give any specific details on that at this point I'll touch on that and give a little bit more color in December as we start discussing next year's guidance.

Great.

Your next question comes from the line of Joanne Lim of CD. Please go ahead.

Time talking about myopia management I mean, if my math is right, you're probably looking at about a $40 million per quarter revenue run rate really healthy double digit growth.

How do you think about where you are on some of the adoption curve and in the marketing of it and sort.

The education market. Thank you.

Yes, that's a great question Joanne Yes, we did about I think it was somewhere around $37 million this quarter total myopia management.

My sights bigger than ortho K now and as you can see in a number of continuing to gain traction. So I would say, though we're still in the early innings of that.

Youre seeing myopia control continue to gain interest among the eye care community around the world Youre seeing more interest in some of the parts of the world, where Theres myopia control spectacles.

We have a joint venture as you know with ASUR, Laura Luxottica, who is doing a great job with the last we're seeing some great numbers.

With site glass in China, So I'm really optimistic about about that entire marketplace. I mean, I still believe the myopia control market is just going to be a really large market.

As everyone knows the only approved product right now in the U S through the FDA as my site I look forward to getting glasses approved at some point in time, I think that's going to take everything to a whole another level, but to your point Joanne.

We're doing well business is growing and we're gaining traction that's moving closer to standard of care in pediatric optometry, which is fantastic in many markets around the world. So.

So that's all positive news is not as big as I'd like it to be but but it is definitely moving in the right direction and continuing to get larger and to be fair at 50% growth on my side off a little bit bigger number that number is keep getting bigger and the growth rate has been opened so.

Things are pretty positive there.

Perfect. Thank you so much have a good evening.

Thanks.

Your next question comes from the line of Robbie Marcus of Jpmorgan. Please go ahead.

Oh, great, Thanks, and I'll add my congratulations on a nice quarter.

Wanted to see if I can.

Maybe pushing my luck a little bit here with fiscal 'twenty five and I appreciate it's early.

It's a really strong guide to start.

With.

Low double digit operating income growth and positive that back.

Does that translate down to EPS as well I think what people are looking for is that low double digit or better EPS growth in 2005 is that the implication.

Yes.

I think Brian kind of covered it well, which is FX as we sit here today would be.

A positive on a year over year basis.

We will see what happens with interest expense right, but we're going to generate some decent free cash flow, we'll pay that down that's going to help if the fed lowers rates that's going to help.

Taxes, the effective tax rate is going to be higher year over year as Brian said 15, 5% was without the discrete time. So I think it would be higher next year, but if you plug all of that in yes that should result in some pretty decent etfs.

Great and.

Yes, maybe just to dive in you touched on some of this but gross margins and operating margins were particularly strong and I know you touched on that already but maybe just some of the particular drivers, especially in gross margin as more and more daily come online you would expect that to maybe drop down but.

Clothing and firm the how are you offsetting that and how should we think about that moving forward. Thanks a lot.

Hi, Ravi yes so.

Price and efficiency gains are offsetting the FX.

On the efficiency side of things, we're making progress.

On our intercompany shipping so when we when we put all of those infrastructure investments tied to packaging.

Some of the labeling and so forth and when we're moving product intercompany between and among our sites, we've gotten a lot more efficient.

At doing that and so what you've seen is efficiency.

Efficiency flowing through cost of goods.

Well as the price helping to improve gross margins, you've got a little bit of mix there as well you know Americas, we've got a bit higher margin than in other parts of the world.

Speaker Change: And then some of the mix.

Mix also at Cooper Surgical's, So you put it all together and.

And it's offsetting that FX.

To a large extent so.

I would expect that we'll continue to do that type of activity you will see.

Daily Si Hy is be a bit of a headwind, but as we work through our capacity increases and we eventually get to moderating moderating that capex and we start working on continuous improvement activities.

That's going to be another opportunity for us to continue to hit gross margins higher over the longer term.

Great. Thanks, a lot.

Your next question comes from the line of Anthony Petrone of Mizuho Group. Please go ahead.

Thanks, and congratulations on the strong quarter here.

A couple on on CVI and then one on on CSI.

London is maybe just a little bit on the pricing dynamic.

A tailwind here for a number of quarters.

I believe resets, possibly every six months, depending on the distributor versus optometry versus.

Retailer contracts and so maybe just the visibility on pricing.

Is something in the range of 200 basis points.

Sort of the new normal for contact lenses and when we think about our mix towards toric.

And any modality when we go from a sphere toric or just yet a new toric.

Users relative to a sphere, what does the margin uplift of two.

<unk> versus sphere, and then I'll have one on on CSI.

Sure Anthony.

Yes, a couple of different things on pricing, we have really strong visibility internally on pricing of course.

But it's a complex model as you could imagine I mean, you talked about a couple of the items are distributors versus <unk>.

Retailers in the direct channel to optometrists.

That's why I always say to people like be careful reading too much into something like consumer rebate activities in the U S that occur in the U S and not outside of the U S. Right I think at the end of the day, what Youre thinking about is right 2% to 3%.

Support for market growth is probably the range that we're sitting in I think where inflation is it won't surprise me. If we continue to sit in that range for a little while longer we'll.

We'll see what happens long term on that when you think about the growth of the market overall.

Ties to your question on towards which is one of the reasons. The market is growing nicely as it is not only price in terms of pure price, but its price coming from a product mix shift and as you get more growth and towards when you get more growth and multifocal.

The other specialty lines I mean, we have some of the most innovative products in the market when it comes to products like energy and so forth.

You get a different margin profile now that one is a little challenging to answer specifically because it depends on the lifecycle meeting when youre launching some of these products, especially wide SKU range torch youre going to have lower margins, but once you get that product fully into the market youll get margins at or even above.

Spear margins, so I would say at the end of the day, we really look at operating margins more than gross margins and all of this activity is going to end up being long term accretive to operating margins.

Very helpful and quick one just on CSI, we've been hearing a little bit on competition for PARAGARD.

From a competing copper non hormonal device coming on the market. So maybe just a little bit on.

The competitive landscape and in and Iuds broadly.

Your take on just brand loyalty to PARAGARD versus.

A new copper alternatives in the marketplace.

Sure, Yes, I mean right now PARAGARD is the only approved product in the marketplace and I think it's worth remembering that iuds are governed as pharma products. So the regulatory approval process is long and arduous.

And I can't comment on somebody else's process or their journey to getting approval, but what I can say is that we have a fantastic team selling PARAGARD, it's been in the market a long time.

As a 10 year indication, which is very unique to it.

We just went through the fall.

Proven process to get single hand in Cerner approve we've got that product into the market right now that's a more efficient way for the practitioner to uncertainty IUD.

That's fantastic and if there was pushback on PARAGARD a lot of times. It was tied to that so that's a nice improvement we have in the marketplace. So we're we're PARAGARD sits right now is actually in a pretty good spot.

Thank you congrats again.

Speaker Change: Thank you.

Your next question comes from the line of.

Jason Bednar of Piper Sandler. Please go ahead.

Hi, good afternoon, thanks for taking my questions.

Wanted to come back to CVI and received it you can provide a bit more color on the cadence of demand throughout the quarter.

The exit rate you had from July into August I think you mentioned a good back to school season from my side. So I guess, just wondering if that extends to the rest of your business.

As we exited the third quarter that was on a high note.

Yeah, we had a good July.

I would say we're having.

Good August so yes somebody asked a question earlier about market demand and so forth I'd say the markets remaining healthy certainly and we're seeing that in our business.

I am excited about <unk> and where we're at the receptivity on that seems to have increased and we're seeing more positive news on my side. So im expecting another good quarter here for fiscal Q4, but yes in general last couple of months have been good in months, where in is starting off well.

Okay, Alright thats helpful. Thanks Al.

And then one other one.

Procuring that J&J has reversed course on its decision to cut its tour excuse I think that was a decision from 18 months ago or so, but Cooper was a big beneficiary of that original decision from J&J to cut those skus that <unk> won over a lot of toric patients do you see any risk of share give bob for that lens class or is there any reason to think that share.

There would be less sticky any less sticky.

For those patients than what you would normally see with a typical contact lens consumer.

No.

Im not too worried about that I mean first of all I would say that it wasn't that big of a deal. They cut some skus out of some ranges in the wider part of the Bell curve. If you will so it would not be fair to say, we took a lot of torque business or a lot of to our patients from them because of that decision. We did take some and when you.

Did somebody in a tour, especially a toric like ours, just I mean, we're a market leader there with some of the best design the best designed toric in the marketplace period.

We don't lose patients once they come into our products.

No I think we're fine on that side of things.

Okay I figured thank you.

Okay.

Your next question comes from the line of Brett participant of Keybanc capital markets. Please go ahead.

This is Tom.

It's been pretty striking I have to say some of the uneven results that we've seen in the contact lens space. This year with the market seemingly really healthy and perhaps like a major exception over the past few quarters I'm. Just curious if you can comment maybe on like that level of difference that we've seen across some of the different players and.

What's driving what are the biggest differentiator separating call it like the outperformers Patrick yourself from the Underperformers over the past few quarters.

Yes, I think that when you look at the contact lens market, it's always a little tough to pick at any individual quarter, because a lot of different things can happen and we've seen them over the last couple of years when it comes to people, having some shipping issues or supply issues and so forth, but at the end of the day I look at our business model and I say, okay. We have the <unk>.

Broadest portfolio.

Some of the best arguably the best markets in our best products and a lot of segments of the market.

So I think youre going to get consistency.

I mean from US I think when you look at the rest of the market <unk> got disruptions in business profiles, and then you've got portfolios where people are in their portfolios. The market has shifted over and continues to shift to.

Silicone hydrogel dailies, and specifically daily Toric and daily Multifocal <unk> as you know I mean over the last geez.

GE is now five six years or so we've put a heavy emphasis on.

Expanding our capabilities in the daily side of things, bringing our monthly portfolio into the daily side of things I'm, expanding parameter ranges for torque and creating products like <unk> and <unk>.

My site and so forth to expand the daily market and Thats worked out really well for us. So I don't know I don't read too much necessarily and all the competitors quarterly results because at the end of the day you got a strong market and everyone is going to continue to put up decent results moving forward because you just have healthy underlying demand.

Alright, I appreciate that commentary and color and then just a really quick follow up on the other side of the coin with myopia management.

Have there been any.

Any updates around the site class FDA approval timeline and if not what's really like the next data points that we should be paying attention to thank you very much.

Sure Yeah on cycle has no updates on that we're working through that clinical process right now.

Try to get FDA approval.

Last kind of commentary we gave on that was looking to hoping to get FDA approval in the latter part of next year.

I mentioned it earlier.

We have an excellent relationship and joint venture with Essilor Luxottica, who is a true leader in myopia control and they are doing some fantastic things in that space and we're working with them. We're doing some fantastic things. So two great companies working together to promote myopia care and really trying to help children that need visual.

Correction around the world with <unk>, we have the product in China right now, it's it's doing really well there and we're looking forward to continuing to do really well there and get launched make its way around the world and ultimately get FDA approval and be really successful here and really help my.

<unk> also.

Okay.

Your next question comes from the line of Gabe Jackson of Needham.

Please go ahead.

Great.

Afternoon, Allan Brian Thanks for taking my questions and congrats on the quarter, maybe I'll continue on with Myopia management.

So okay at least on my math I mean, it looks like growth.

Or it returned to growth in the quarter I should say, so I guess, what's driving that how much of that is driven by China recovery versus kind of.

Strengthening the rest of the world.

Then for my side can you talk about what percent or what inning youre in in terms of commercial payer coverage kind of win when should we expect you to reach critical mass.

On that and one follow up thanks.

Sure I would say when it comes to myopia management and I would say this is true for ortho K and my site, our weakest market is China.

Now, we don't do a lot of business in China period as a company.

There is a tremendous amount of opportunity with myopia control and these treatments in China, because there is such a high percentage of the pediatric population Thats myopic.

But that would be a market, where we have struggled so as well as we're doing it's largely being driven by success outside of China.

You guys, probably even know better than I'd, probably followed China closer than I do but it would be great to get some consistency in growth out of China, because I think theres some tremendous growth opportunities there with.

With my side and ortho K, but right now we're not really seeing it that's not a driver.

If I think about my site in insurance coverage I would say, we continue to make progress slow, but sure ive talked about aetna coverage in the past and Kaiser coverage in the past.

Speaker Change: I think we're just continuing to make slow and steady progress on insurance reimbursement I will go back to some prior comments I've made on other calls that we really need to get spectacles into market and really get the myopia control market to become standard of care. So that all optometry practices are are looking.

Looking at that when kids come in right and treating them the way they should be trading and I think thats going to really kickstart the insurance reimbursement.

Until that point I think we'll just continue to plug along slowly but surely.

Okay.

Thanks for that and then on Cooper surgical I think last quarter, you talked about PARAGARD expectations of being flat to slightly up is that still the case and then.

In the stem cell storage and medical devices as part of the business I think.

Brian you had called out some growth maybe can you get a little more granular what kind of growth.

Is that single digits high single is et cetera, and then what is driving that is that kind of M&A contribution or some of these.

Organic product launches thanks, so much.

Yes, I'll give a couple here I'll stop my head and see if Brian has anything to add I mean, PARAGARD is going to be up this year or were anticipating it being up this year.

Just a little bit not a lot, but it'll be up slightly.

<unk> was kind of as usual it was up I think around 4% and that was just organic growth I mean, we haven't done any acquisitions or anything on that side of things. We just did two small ones Brian mentioned.

Yes.

David I don't have anything else that out because those are the right numbers.

Okay, great. Thanks, so much.

Your next question comes from the line of Steve Mcmahon of Oppenheimer. Please go ahead.

Thank you good evening guys.

Just wanted to follow up on PARAGARD.

<unk> had no moving parts with the stocking dynamics of last few quarters.

As you look beyond just this coming quarter, what is your outlook for underlying growth for PARAGARD looking forward and sort of the pluses and minuses driving your outlook.

Sure, Yes, I mean, I think you can back into the numbers PARAGARD it'll be down a little bit in Q4 again.

But I think if I look longer term.

Talking about a marketplace that has declining unit sales.

So we're getting a little bit of growth because of price.

We've taken price few times, maybe we will take price again.

But the marketplace is declining in terms of units, which creates the challenge I mean, ultimately there's more options available to women for birth control.

Speaker Change: And I think non hormonal IUD, meaning PARAGARD is going to continue to do okay.

But.

That's not that does that.

Big growth market right I mean, it's just not but it's fine I mean, it's less than 5% of our revenue. So it's.

We talked about I don't know why we spent so much time talking about it but.

That would be the answer okay.

Okay got it.

And then Brian you mentioned.

Capex moderating.

Given the demand outstripping supply what drives the ability to moderate that investment.

Brian: Hi, Yes, I just wanted to be clear, though I mean.

I talked about in the future when Capex moderates, we'll get to work on continuous improvement activities and that will result in efficiency gains.

Isn't necessarily suggesting that next year is going to be a light capex year and I wasn't certainly even giving guidance for next year. So.

Certainly we have.

Demand is still outstripping supply we are capacity constrained in a number of places.

We're modulating some of our launch our launches and our launch activities based on the capacity and the supply that we have the capacity is coming on just about every month and we are doing great.

At adding capacity and better than expected.

Yields in results. So I would expect that next year, we're still going to have a big Capex number I, just I talked about free cash flow being better next year than this year and this year I'm reiterating that sort of around $300 million or free cash flow. So.

Things are looking positive, but I wouldn't I wouldn't necessarily say that.

A major change in Capex for next year.

Understood. Thanks, guys.

Okay.

Your next question comes from the line of Christmas Koala of more from Stifel. Please go ahead.

Thanks.

I'll ask one more question for you just to.

Just to fill out the slate could you just clarify the number this quarter I thought we were looking for down sequentially I think I heard down a little bit year over year, which would be up actually a fair amount sequentially.

PARAGARD do in <unk>.

$48 million.

Okay. Thank you.

And then the <unk> growth was strong this quarter every time the delta between daily and FRP compresses kind of stands out relative to what we're used to seeing historically was there anything unusual that helped those products and then I'd love just a general sense of where we are in that transition to dailies in places like the U S and <unk>.

Europe that have been playing this very long game of catch up relative to markets like Asia, there were quicker to adopt.

Sure.

Probably not too much to read into <unk>. This quarter was a strong quarter.

And it was driven by some of the products that I mentioned energy is an extended range torque and toric multifocal and so forth.

I think youre going to get some stronger quarters, and then some lower quarters. There I mean that will fluctuate around with daily so not too much to read into that.

Think about the marketplace on dailies.

We still have a long run way as an industry there.

And less than half of people are being fit in dailies right now.

If we call it somewhere around 45% of fits going into dailies about 75% of those bits are going into daily silicone hydrogel.

Those numbers are increasing they continue to increase but the fact that less than half of people are being fit into dailies right. Now just tells you how much of a runway we have to go.

Industry.

It's amazing I, where dailies and I would never go back.

Okay.

They're just so easy to put them in and take them out throw them out.

Clean safety everything else that goes along with it. So I just think that trend is going to continue and then I would add on to that that as <unk> seen products like the one I'm wearing <unk> multifocal, which just I mean, it's an amazing amazing product and.

What we've seen as people try might a multifocal and they stick with it and they stay on it for years and years and years, rather than dropping out of contact lenses and the last one I would add historically I mean getting the fit that you should get the correct lens for your eyes that gives you. The best Eisai is critically important and doctor's ability to fit people in <unk>.

Right now he has improved and now that youre getting the availability of <unk> within dailies, it's continuing to grow that market. So I think I don't know what inning. We're at if you asked me that way, but we have many years left as an industry shifting continuing to shift over to daily silicone hydrogel and towards a multifocal.

Yes.

Your last question comes from the line of novelty of Donkey Powerbar. Please go ahead.

Hi, good afternoon.

Sorry, Tom capacity progress at Susan why do you have enough visibility to Jim more launch activity in the near term.

And then I have a follow up on that.

Please go.

Go ahead <unk>.

Sure.

Upcoming competition. Thank you.

On the single handed <unk> I'd say it puts us on par if you will with the market.

There is single hand in Cerner used by hormonal iuds and that puts us on par with the market I don't know what the Ah <unk>.

Competitors going to do and what they will get approval on or wont get approval on so I won't speculate there, but I will say that it puts us on par with the other products like Marina that are in the marketplace.

On capacity, we are making great progress on capacity and we are.

More active in terms of getting product into the market and evaluating some some incremental launch opportunities. If you will so yes, I would answer that we have very good visibility visibility on that.

It would be positive news.

Thank you.

Yes.

There are no more questions I will now turn the conference back over to Al White, President and CEO for closing remarks.

Great. Thank you.

And thank you to everyone who called in.

At a really strong operational quarters, we talked about as Brian said, we're really focused on that.

And we're going to continue to deliver results here in the short term and long term. That's our plant. So thank you again and look forward to seeing everyone. During this quarter.

Ladies and gentlemen that concludes today's call. Thank you all for joining you may now disconnect.

Okay.

Okay.

Okay.