Q4 2024 The Cooper Companies Inc Earnings Call
[inaudible]
and of course Kim.
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Abby: Ladies and gentlemen, thank you for standing by. My name is Abby and I will be your conference operator today. At this time, I would like to welcome everyone to the Cooper Company's 4th Quarter 2024 Earnings Conference Call. All lines have been placed on mute to prevent any background noise.
Abby: After the speaker's remarks there will be a question and answer session. If you would like to ask a question during that time simply press the star key followed by the number 1 on your telephone keypad. If you would like to withdraw your question press star 1 a second time.
Speaker Change: Thank you, and I would now like to turn the conference over to Kim Duncan, Vice President of Investor Relations and Risk Management. You may begin.
Kim Duncan: Good afternoon and welcome to Cooper Company's fourth quarter and full year 2024 earnings conference call.
Kim Duncan: 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.
Speaker Change: Before we begin, I'd like to remind you that this conference call will contain forward-looking statements, including revenues, EPS,
Speaker Change: interest expense, operating income, tax rate, FX, and other financial guidance and expectations, strategic and operational initiatives, expectations for collaborations and acquisitions, market and economic trends, and product launches and demand.
Speaker Change: Forward-looking statements depend on assumptions, data, or methods that may be incorrect or imprecise and are subject to risks and uncertainties.
Speaker Change: events that could cause our actual results and future actions of the company to differ materially from those described in forward-looking statements are set forth under the caption forward-looking statements in today's earnings release.
Speaker Change: that 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 coopercodes.com.
Speaker Change: Also, as a reminder, the non-GAAP financial information we will provide on this call is provided as a supplement to our GAAP information.
Speaker Change: 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.
Speaker Change: Should you have any additional questions following the call, please email IR at cooperco.com.
Al White: And now I'll turn the call over to Al for his opening remarks.
Al White: Thank you, Kim, and welcome everyone to today's earnings call. I'd like to start by congratulating our employees on a fantastic fiscal 2024.
Al White: This was a tremendous year with all-time record revenues of $3.9 billion, including both Cooper Vision and Cooper Surgical reporting record revenues. Within this, Q4 also closed with record revenues and improving margins that drove record non-GAAP quarterly earnings.
Al White: We've now entered Fiscal 2025 with a focus on taking share, driving profitability, and executing on our strategic priorities, including increasing the availability of our innovative products.
Al White: expanding our state-of-the-art manufacturing capacity, optimizing our technology investments, developing and launching new products, and investing in our people.
Al White: Before getting into the details, let me provide some high-level comments on Q4 and FY2025.
Al White: For Q4, Coopervision have a solid quarter led by strength and silicone hydrogel dailies and our full suite of Torics and multifocals, with the main offset being unexpected softness at the end of the quarter.
Al White: Cooper Surgical also had a solid Q4, led by double-digit growth in fertility, offset by a greater decline in Paragard than expected.
Al White: Our P&L improved, with prior investment activity driving margin improvements and strong earnings growth.
Al White: Moving into fiscal 2025, we forecast the contact lens market growing 5-7% in constant currency, with us taking share growing 6.5-8.5%.
Al White: Price should offset inflation supporting around one-third of the growth with the rest coming from a variety of items including the ongoing trade up to dailies, growth in torques and multifocals, growth in wearers, and for us growth in myopia management.
Al White: For Cooper Surgical, we expect organic growth in the mid-single digits, with fertility reporting high single-digit growth and the remainder of the business posting low single-digit growth.
Al White: Moving to Q4 details, consolidated revenues were $1.018 billion, up 10% year-over-year or up 7% organically.
Al White: Cooper Vision reported quarterly revenues of $676 million, up 9% or 8% organically, led by strength throughout our market-leading product portfolio.
Al White: Cooper Surgical posted quarterly revenues of $342 million, up 12% or up 5% organically, including fertility taking significant share, growing 15% or 13% organically.
Non-GAAP earnings per share grew 19% to $1.04.
Al White: For Coopervision, we extended our position as the number one contact lens company in the world in terms of wearers, with our new fit data remaining very healthy. We also gained share in a revenue basis driven by strength in dailies, torques, and multifocals, with the Americas growing 6%, EMEA 11%, and Asia-Pac 7%.
Al White: Within categories, Taurex and multifocals grew 9% and spears grew 7%.
Al White: Within modalities, our daily silicone hydrogel lenses, Mi-Day and Clarity, grew 14%, and our silicone hydrogel FRP lenses, BioAffinity and Avera, grew 8%.
Al White: and our myopia management business grew 7% with my site up 24%.
Thank you.
Speaker Change: Turning to daily silicone hydrogel lenses, we posted another great quarter. MiDay, our premium daily silicone hydrogel lens, led the way with strong growth across its full portfolio of spheres, torques, and multifocals. In particular, MiDay Energis drove growth in the U.S. and we look forward to that trend continuing.
Speaker Change: My Day Energist offers an innovative digital boost technology designed specifically for today's digital lifestyle and patients love it.
Speaker Change: Meanwhile, our MyDayTor parameter expansion across North America and Europe is performing nicely with its market-leading design and industry-leading skew range.
Speaker Change: And our Mi-Day Multifocal continues to do well with its unique combination of an advanced design paired with an easy fitting system that has resulted in very high satisfaction levels, including a 98% fit success rate in two pairs or less.
Speaker Change: For all these products, the future remains bright as demand is strong and improving capacity will allow us to expand availability.
Speaker Change: Moving to Clarity, we had another solid quarter. These lenses are known for their comfort, easy handling, and affordability, and this is resulting in strength and fitting new wearers and upgrading legacy Hydrogel wearers.
Speaker Change: We've also seen momentum with the launch of our upgraded multifocal, which brings our highly successful Mi-Day multifocal design into the Clarity material. This lens is being received well in the U.S. and we'll be launching it around the rest of the world during this year.
Speaker Change: Speaking from personal experience, both of these multifocals are terrific products. If you're presbyopic and not wearing multifocal contact lenses yet, you're missing out. For me, I didn't need any visual correction until I got into my 50s and then it hit me.
Speaker Change: Getting clear, crisp vision without reaching for reading glasses has been a game-changer, so I'm really happy that we now offer several outstanding multifocals to choose from.
Speaker Change: Moving to our frequent replacement silicone hydrogel lenses, Biofinity and Avera had another strong quarter in Q4. We continue to see consistent growth from both of these franchises, and our innovative manufacturing platforms and market-leading lens designs have created an effective moat, especially with respect to extended ranges and made-to-order products.
We expect this performance to continue given our momentum.
Speaker Change: Moving to myopia management. My site fitting activity remained strong in the quarter and October was our second highest revenue month ever, benefiting from back-to-school momentum. That being said, U.S. inventory contraction in October depressed results.
Speaker Change: Regardless, given the positive fitting trends that we're seeing around the world, we remain comfortable that my site will grow around 40% in fiscal 2025 similar to what it did this year.
Speaker Change: Regarding activity, we just concluded national media campaigns in the U.S. and targeted Asia-Pacific markets educating parents about myopia and the benefits of proactive treatment.
Speaker Change: These campaigns were very successful and resulted in a significant number of children being fit in my site.
Speaker Change: We also showcased our global scientific leadership and extensive clinical evidence at the 2024 International Myopia Conference in China.
Speaker Change: and at our annual Asia-Pacific Myopia Management Symposium in Korea, partnering with the Korean Association of Pediatric Ophthalmology to deliver insights on gold standard clinical interventions.
Speaker Change: In the U.S., our Myopia Collective partnership with the American Optometric Association continues to gain momentum, creating considerable visibility through media interviews, seminars, and presentations at conferences.
Speaker Change: Moving to Cooper Surgical, we reported revenues of $342 million, up 12% or up 5% organically.
Speaker Change: Within this, fertility posted quarterly revenues of $139 million, up 15%, or up 13% organically.
Speaker Change: Fertility continues to be driven by our leading portfolio of innovative products and services including consumables, capital equipment, reproductive genetic testing, and donor activity.
Speaker Change: and we're continuing to drive our portfolio forward with innovation. This was highlighted at the recent American Society of Reproductive Medicine conference, which featured meetings and presentations on our leading genomics capabilities.
Speaker Change: As the forefront fertility company offering genetic testing built on statistical machine learning and artificial intelligence methods, we were excited to present updates to our suite of tests being developed that will detect variations in the DNA at an embryo level, providing further insights to improve the likelihood of having a healthy baby.
Speaker Change: We also announced a groundbreaking collaboration with ASRM and the Society for Reproductive Biologists and Technologists for a newly formed clinical embryology learning lab, a first-of-its-kind national training program to support the growing need for more highly trained professionals in the fertility space.
Speaker Change: Regarding the broader fertility industry, the global market continues to expand, driven by strong underlying macro growth trends. These include women delaying childbirth, improving access to treatment, increasing patient awareness, increasing benefits coverage, and improving technology.
Speaker Change: The World Health Organization estimates that 1 in 6 people worldwide will experience infertility at some point in their lives due to a variety of health factors. So this is a large industry that offers significant long-term growth potential. As a leader in the space, we remain deeply committed to supporting patients and clinics by driving innovation, improving access to care, and addressing the critical global challenges of declining birth rates.
Speaker Change: Our focus on offering the most advanced solutions is continuing into 2025, where we'll be launching new products and services, providing extensive clinical training, expanding geographically, and advancing our R&D efforts.
Speaker Change: Moving to office and surgical we posted sales at 203 million up 11% year over year driven by the successful strategic acquisitions of certain cook medical assets at the beginning of the year and more recently OBP surgical.
Excluding these deals, office and surgical sales were flat organically.
Speaker Change: Our medical devices delivered solid growth led by our minimally invasive gynecological surgical devices such as our Ally uterine manipulator portfolio and our labor and delivery portfolio of products.
Speaker Change: But this was offset by a 10% decline in Paragard, which was weaker than expected as we continue to feel the pressure from other birth control options.
I'm a little bit nervous.
Speaker Change: To wrap up on Cooper Surgical, we had some challenges this year with the Q2 upgrade of our US IT system, but that system is now stable and puts us in a much better position to continue our great growth trajectory.
Speaker Change: With our diversified portfolio of products and services, we expect solid revenue growth and margin improvements this coming year as we launch new products, leverage prior investment activity, and reap the benefits of successful integration work.
Speaker Change: Before I turn the call over to Brian, let me say this was a great year for Cooper.
Speaker Change: We reported record revenues and made significant advancements throughout our organization, investing in capacity expansion, operational improvements, and employee development.
Brian Andrews: As we enter fiscal 2025, we're continuing to execute on our long-range strategic objectives and looking forward to reporting another strong year. And with that, I'll turn the call over to Brian.
Thank you very much.
Brian Andrews: 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.
Brian Andrews: For the fourth fiscal quarter, consolidated revenues were $1.018 billion, up 10% as reported, and up 7% organically.
Brian Andrews: Consolidated gross margin was 66.9%, up from 66.7%, driven primarily by price and efficiency gains.
offset by the negative impact of currency.
Brian Andrews: Operating expenses were managed well, up only 6.8% and reducing to 41.1% of revenues.
Brian Andrews: We're continuing to see leverage at both Cooper Vision and Cooper Surgical as our prior investment activity pays off.
Brian Andrews: Consolidated operating income was up 16.2%, improving the margin to 25.9%, led by strong SG&A leverage.
Brian Andrews: Below operating income, interest expense was $25.6 million and the effective tax rate was lower than expected at 11.8% due to stock option exercises.
Brian Andrews: Non-GAAP EPS was $1.04 with roughly 201 million average shares outstanding.
Brian Andrews: With respect to FX, it was two cents negative for the quarter, as expected in our Q4 guidance.
Pre-cash flow was $128 million, with CapEx of $140 million.
Brian Andrews: Net debt decreased to $2.48 billion, with our bank-defined leverage ratio dropping to 1.94 times.
Brian Andrews: Regarding full year results, we delivered record revenues of $3.9 billion, up 8% and up 8% organically.
Brian Andrews: This included 9% organic revenue growth at Cooper Vision, which was at the high end of our initial guidance range.
Brian Andrews: and 5% for Cooper Surgical, which was at the middle of our initial guidance range.
Brian Andrews: This was an excellent year with particular strength in daily silicon hydrogels and fertility.
Brian Andrews: Within the P&L, we continued our momentum delivering stronger gross margins and leveraging our SG&A investments.
Brian Andrews: Gross margin improved 60 basis points. SG&A improved by 90 basis points.
and Operating Margin expanded 130 basis points.
Operating income grew 19% in constant currency.
Brian Andrews: which exceeded the top end of our initial guidance of 13 to 16 percent.
Brian Andrews: and EPS grew 15% which hit the top end of our initial guidance of 12 to 15%.
Brian Andrews: We've talked about our commitment to driving efficiency gains and EPS growth, and we delivered in 2024.
Moving to fiscal 2025 guidance for
Brian Andrews: The Revenue Guidance Range is $2.733 to $2.786 billion, up 6.5% to 8.5% organically. And for Cooper Surgical, the range is $1.347 to $1.372 billion, up 4% to 6% organically.
Brian Andrews: On a consolidated basis, this translates to revenues of $4.08 to $4.158 billion.
up roughly 6% to 8% organically.
Brian Andrews: Moving down the P&L, we close this past fiscal year strong from a production perspective and expect this to translate to improving gross margins.
Brian Andrews: which should help deliver roughly 10-12% cost and currency operating income growth.
which matches our guidance commentary from our last earnings call.
The
Assuming no interest rate changes by the Fed.
Brian Andrews: We expect interest expense to be roughly $90 million, with improving free cash flow being prioritized to reduce debt.
Brian Andrews: We expect the full year effective tax rate to be slightly over 15%.
Brian Andrews: and expect non-GAAP EPS in the range of $3.92 to $4.02.
Brian Andrews: For currency, we're expecting a headwind of roughly 1.5% to revenues.
and roughly 4% to earnings.
Brian Andrews: With that, let me conclude by saying that we met or exceeded the expectations we set for fiscal 2024, and we'll work hard to do that again in fiscal 2025.
Brian Andrews: We're in a great position from a revenue perspective with market-leading products and improving capacity.
Brian Andrews: and we expect strong operational performance as we remain focused on delivering a more leveraged P&L.
Brian Andrews: This includes gross margin expansion from higher production levels, price increases, and cost reduction projects, helping to drive operating margin expansion.
Brian Andrews: Within this, we'll still invest, balancing our financial objectives with support for new product launches and expanding our leadership positions in myopia management and fertility.
Speaker Change: And now I will hand it back to the operator for questions.
Thank you.
Speaker Change: Thank you. And we will now begin the question-and-answer session. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue.
Speaker Change: If you would like to withdraw your question, simply press star 1 a second time.
Speaker Change: If you are called upon to ask your question and are listening via speakerphone on your device, please pick up your handset and ensure that your phone is not on mute when asking your question. To be able to take as many questions as possible, we ask that you please limit yourself to one question and one follow-up.
Speaker Change: Again, it is star 1 if you would like to join the queue. And your first question comes from the line of Crate Bijou with Bank of America. Your line is open.
Thank you very much. Bye.
Bye, Craig.
Thank you for watching!
Sorry about that, I was on mute.
Speaker Change: Good afternoon, guys. Thanks for taking the question. So wanted to start with the comment on unexpected softness at the end of the quarter and hoping that you can provide a little bit more color on that. And is that maybe just clarification of where that softness was from a geographic perspective as well.
Speaker Change: Sure, sure Craig. Yeah, because we were running along with a pretty good quarter and it had some softness at kind of mid-October to end the year and frankly carrying over
into the beginning of November here.
Speaker Change: We saw some softness in the U.S. market, no doubt. It's a little hard to put your finger on whether that was coming from, you know, something with the hurricanes or some other activity.
Speaker Change: But saw some softness here, and then there were a few other pockets.
Speaker Change: around the world where we saw some softness, like China as an example. As I mentioned, it kind of has worked its way into November for a little bit, but then it kind of stopped, and we've seen things move back to normal here. So, kind of like a month of softness there, which was unexpected.
Speaker Change: Okay, that's helpful and maybe if I could follow up on on the CVI guide. So the last two years you've guided seven to nine. Obviously it's six and a half to eight and a half this year. Your 50 basis points less.
Speaker Change: I think the market expectations are still, I think you said it was five to seven for next year, and I think that's what you said last year as well. So maybe just a little bit more color on the lower guide, what's reflected in that, any concern about the level of.
Speaker Change: share you can take. I just want to understand the dynamics of the slightly lower guide than what you've done previously.
Speaker Change: Sure. Yeah, I wouldn't read too much into that from the perspective of comparing the prior years. To me, I think we're going to continue to grow faster than the market. The five to seven, when I look at it, is a little bit slower. I think that I was thinking at least for last year, we came in a little bit higher. This
Speaker Change: current year the market grew five in the first calendar quarter and then seven and then seven We'll see how it plays out going forward for us And when I look at our growth guidance the six and a half to eight and a half I think is a fair way to start the year We're still in a situation where demand for my day
exceeds our manufacturing capacity.
Speaker Change: So we're bringing new lines on, we're advancing that, we're doing well in those efforts and so forth, but we're not able to meet all the demand that we have right now. So that would be one of the things that would kind of hold us back just a little bit. I think we're going to continue to make advancements, I know we're going to continue to make advancements, bringing lines and so forth on. It'll position us well as we move through this year and certainly as we think about fiscal 26 and 26 and 27.
Great. Thanks for taking the questions.
Yep.
Speaker Change: And your next question comes from the line of Larry Beagleson with Wells Fargo. Your line is open.
Speaker Change: Hey guys, good afternoon. Thanks for taking the question. Al, maybe first question on Paragard you know the 10% decline in Q4 and the pressure you talked about Talk about give you a little bit more color on that and what you're assuming for fiscal 25 from a growth standpoint for Paragard and a competition standpoint and I had one follow-up
Yeah, so Paragard grew 2% for the year, which was
Al White: probably pretty similar to what we were thinking at the end of the day. We came in softer than I was thinking we were going to, down 10% in this quarter.
Al White: I think when you look at the market right now and you look at competitive products out there we're going to continue to see pressure in Paragard from a unit perspective, and I've talked about that for a while now, and I think we're going to continue to see that next year. Now, each individual quarter will bounce around a little bit like it does for Paragard, so I think when I look at fiscal 25, it's going to be, you know, down a little bit to maybe up a little bit. We haven't heard anything new on the competitive side of things, so if a competitive product does get approved, it'll depend when and how it launches and so forth, but I think to think about Paragard in that kind of down a little bit to up a little bit range for fiscal 25 is probably the best.
That's the best way to think about it.
Speaker Change: That's helpful. And Brian, any color on cadence of sales and margins in fiscal 25 and any, you know, color on Q1. Thanks.
Hi Larry, thanks for the question.
Speaker Change: You know, I honestly I really wouldn't highlight much of anything. I mean you you follow us really closely and
Speaker Change: You know all about the seasonality, how Q1 and Q2 fought, you know.
tend to be lighter than...
Speaker Change: I would just think about 2025 and Modeling 2025 kind of similar to the way you've seen it in the past.
Speaker Change: And your next question comes from the line of Jeffrey Johnson with Baird. Your line is open.
Thank you very much.
Speaker Change: Thank you. Good afternoon, guys. Al, maybe I just want to confirm the lightness in the market, softness in the market that you were seeing in October into the first couple of weeks of November. Is that different than the MySite inventory reduction? Assuming those are different factors, any way to quantify how much that MySite inventory reduction weighed on...
Speaker Change: FQ4 and then just kind of what drove that channel correction there.
Speaker Change: Yeah, so my site would have been pretty similar to its normal growth rates without that So I think what we ended up seeing was some buy-in in fiscal Q3
Speaker Change: and you saw some of that kind of level itself out in fiscal Q4, meaning kind of like, hey, Q3 wasn't quite as strong as we thought, Q4 is clearly not quite as weak as we thought.
Speaker Change: The marketplace itself, I think, being different than that, you're right, the marketplace itself was, it wasn't dramatic, right? Like I don't want to act like there was some big, all of a sudden thing, but it was softer, oddly enough than we saw. Now we see that every once in a while. It usually doesn't happen where it impacts a quarter where I talk about it.
Speaker Change: But it did this quarter for a little bit in a couple markets So but again, I mean, you know It happened and it ran through a little bit and we've kind of seen things return back to normal here So I think it feels like that was just a little blip for some reason and maybe that was even kind of Inventory or or something where some people were tightening themselves
Speaker Change: some things down, but there's nothing that indicates that there's any continuation of that.
Speaker Change: Okay, now that's fair. And then I guess just push you a little bit on that it kind of comment there about the end market and what have you.
Speaker Change: If I look at J&J and Bausch, they both put up kind of double-digit U.S. growth in their calendar third quarter, and I know it's not a perfect overlap, and they didn't have October in there, obviously. But look, I think the U.S. market's getting a little bit more competitive, or there's just lots of new products coming out from a lot of good manufacturers in that. So, you know, how to think about, I guess, the 6 1⁄2, 8 1⁄2 that you're guiding to, you know, your confidence level on being above market in 2025, and, you know, how important is it that you maintain? Are you managing the business to beat the market by a couple hundred basis points? Or if the market's a good market, you just try to, you know, if you're a point or two above it, you know, that's good enough.
Speaker Change: Yeah, I think a couple points on that, and all fair points, good question, right, is that if I look at calendar Q3, in calendar Q3 we grew 9% and the market grew 7%.
Speaker Change: So when I look at it by calendar quarter, I didn't really see much of a difference in performance against our competitors.
Speaker Change: But when you rolled October in, you drop a month, pick up a month, right, for our fiscal, and you get the impact of October, like, that's where you start to see a little bit of a difference. Now, obviously, I don't know what our competitors did in October. And so we'll be able to comment on that at a later date. But no, I think that there are some good competitive products that are entering the market. But at the end of the day, we're going to continue to take share. We're going to grow a little bit faster than the market. I don't see that change. And some of that will be because of our Myopia management, our MySite franchise. And some of that will be because of what's happening in the daily space with...
My day. I do think that the
Speaker Change: We're not trying to hit like some particular number and we wouldn't take any strange like short-term moves or anything in order to try to drive market share gains.
Speaker Change: I mean, I think we're going to have a good market, and I think we'll grow faster than the market. I mean, my gut tells me we're probably being a little conservative when we talk about five to seven to the market, when I look at what the market is doing right now, and I look at price increases and so forth. And then my gut tells me we're probably a little conservative on our guidance, but beginning of the year, right, prudent to set expectations at an appropriate range.
Yep, makes sense. Thank you. Yep.
Speaker Change: And your next question comes from the line of John Block with Stiefel. Your line is open.
Thank you.
Speaker Change: Great. Thanks, guys. Good afternoon. I'll start on my day and any color of when you think.
Speaker Change: That supply will sort of get back to where it needs to be.
Speaker Change: I just feel like that might be taking a little bit longer than anticipated, and just to tack on to that, you know, would you point to that as sort of the sole culprit?
Speaker Change: to the more modest APAC numbers that we saw in fiscal 24, that growth rate was steadily right around 13, 14% and 21, 22, 23 sort of cut in half. Or would you point to any changes to the competitive landscape in APAC as well? And then I've just got to follow up.
Speaker Change: Sure, yeah. APAC is definitely tied to MiDAE. There's no question about that. That would be a region, probably out of the three regions, that's the one most negatively impacted by not having sufficient MiDAE capacity. So I think as capacity improves, you'll see the Asia-Pac region strengthen there.
Speaker Change: We're gonna continue to add capacity there. We continue to be challenged, to be honest with you, by new fit data. So,
We're continuing to see strong new fit activity
in my day, and we keep adding capacity.
Speaker Change: I think we're investing enough right now, and you can see it in our CapEx numbers, that we're catching up and we're going to be in a good spot as we work through this year and into next year, catching up by adding capacity.
Speaker Change: and being able to meet the demand out there, but it's a journey, right? Because this isn't an industry where you can order a line and get it the next day. It can still take a year and a half or something to get a line in and have it ordered and in for full production, so that's what's taking time.
Okay, helpful. Thank you. And then maybe.
Speaker Change: Just as a follow up, I'll stick to CVI. The delta from like torques and multifocals, I think that was up 9% and overall CVI was up seven. So both, you know, certainly healthy numbers.
Speaker Change: But it's sort of one of the tightest spreads that I can remember, you know, between the two, call it the specialty and overall CVI. So, is there anything on the torque and multifocal competitive landscape, new entrance or anything there that you'd point to that changes dynamic?
uh
Speaker Change: Not too much. Multifocal is strong, no doubt about that. I think if we broke those out, you'd be like, okay, that's the one that makes sense to me. Torx maybe a little bit in just that we're trying to build some inventory and so forth with respect to my day to get some additional product out in the marketplace in some different locations. So I wouldn't take too much out of that. Probably that's more us than it is the marketplace.
Fair enough. Thanks, guys.
Speaker Change: And your next question comes from the line of Robbie Marcus with JP Morgan. Your line is open.
Robbie Marcus: Thanks for taking the questions. I wanted to ask on the P&L for 2025 and I know you've been talking a lot about a focus on reported margins and we saw that play out in fiscal 24 particularly in fourth quarter here with nice margin upside.
How should we be thinking about...
Robbie Marcus: gross margin and operating margin in 25. I know you said improving gross margin and 10 to 12 percent operating income growth. How do we translate that into hard reported numbers for 25? And then I have a follow-up. Thanks.
Speaker Change: Hi Robbie, yeah I'll take that, thanks for the question. Yeah I mean I'd say...
Speaker Change: We are executing at a high level, you know, we're seeing leverage from the investments that we've been putting into the business paying off You saw that play out in 24. I think as I sit here today, I'm probably a bit more confident
Today than I was a year ago
Speaker Change: that we would see gross margin expansion. We're raising prices, we're getting better freight costs that help out our intercompany shipping, but the productivity and the successes that we're driving within manufacturing, I've got a lot of confidence we're going to see gross margin expansion this year. So, I'm going to leave it at that.
Speaker Change: That will drive those efficiencies and I think our ability to leverage the P&L.
and also balance out our investment activity.
Speaker Change: while also being committed to operating margin expansion, you know, that 10 to 12% constant currency OI growth, you know, we're committed to that. And so, you know, the investments, we wanna make sure we invest in this business to drive future growth and get future returns. So it'll be a bit of a balance this year, but certainly, you know, we've got shots on goal to drive leverage in 2025.
Speaker Change: And any color on the reported numbers, how we think about gross and operating margins on a reported basis.
Speaker Change: Well unfortunately FX from where we were three months ago to today has turned kind of in the other direction but even with the guidance that we've given as reported operating margins are going to be up year over year based you know implied based on what the guidance that we shared today.
Speaker Change: Okay, and then as a follow-up, you know, I think at this point it's anyone's guess as to what will actually happen.
Speaker Change: with the incoming administration and tariffs. I know you have a lot of manufacturing plants outside of the U.S. Maybe just help us understand your exposure. Should there be tariffs put in place? And how much of your product is manufactured outside the U.S. and sold inside the U.S.? Thanks.
Speaker Change: Yeah, I mean, it's hard, I don't want to speculate on what happens with the administration change, but based on the news that's out there, and it seems like there's a lot of concern about companies that are manufacturing in places like China, Mexico, and Canada, and I'm happy to report that we have no manufacturing in any of those countries.
Speaker Change: So, you know, we've got manufacturing in a number of different places, and they serve, you know, different markets around the world, but, you know, without sort of knowing what the new administration says and how it's gonna come down, it's really hard to speculate.
Great, I appreciate it. Thanks a lot.
Speaker Change: And your next question comes from the line of Chris Pasquale with Nefron. Your line is open.
Chris Pasquale: Thanks. Al, I was hoping you could just comment on the sustainability of the pricing environment you're seeing in contact lenses. Inflation is not quite where it was pre-pandemic, but it's come down and it feels like the improved pricing environment is sticking. So as you look at FY25, are you confident that that trend will continue?
Al White: Yeah, I think that we're in a market right now where the contact lens industry will offset the impact of inflation.
Al White: So, we'll see where our competitors come out with their price increases, but if we look at inflation being somewhere around two and a half, three percent, something like that, I think you'll see pricing offset that. So, my belief is we'll see that this year, and frankly, where pricing is and where products are and so forth.
Al White: I think you probably have a pretty good chance that you'll see that kind of pricing next year. I won't speculate too much on the future, but depending upon where inflation is, I think the industry itself is now at a position where it will pass along those inflationary pressures.
Speaker Change: That's helpful, and I just want to make sure that we're thinking about the contribution from
Speaker Change: acquired revenue, particularly before it sort of becomes part of the organic base. I think we've lapped Cook now, so that should be done, but are we right in thinking you guys have about $25 million in annualized revenue from the more recent deals that will be coming out over the next few quarters? And then maybe just talk a little bit about the M&A environment that you see heading into FY25. Do you expect to continue to be active?
Speaker Change: Yeah, that number, that $25 million, is pretty close to right. I mean, we had OBP, which grew really nice. It was up like 30% or something like that since we bought it. And Zymote has been up nicely. I think maybe that's 10%, 11% or something since we bought that. So, a couple smaller deals, but performing really well. I would say, right now, for us, the environment is really quiet.
Speaker Change: It's really quiet. So we did a couple good deals there. It's worked out really well for us We're continuing to integrate those we have to finish some integration activity We have out there continue to perform on those deals if other deals come along So be it and if they don't then that's okay, too right now. It's pretty quiet
Great, thank you.
Speaker Change: And your next question comes from the line of Jason Bednar with Piper Sandler. Your line is open.
Thank you very much.
Speaker Change: Good afternoon. Thanks for taking the questions here. Al, as we contemplate the revenue softness that we were discussing earlier, you know, you did institute a price increase that took effect, I think, November 1st. Can you talk about when you communicated those price increases? I guess I just thought I saw the communication maybe didn't come out as early as normal, which maybe would have limited some of that pre-buying activity that normally occurs in October. Maybe I'm totally out based and just trying to understand to what extent price increases influenced or didn't influence contact lens buying activity in your fourth quarter.
Speaker Change: Yeah, Jason, that's a good question. I asked that same question, right?
Speaker Change: The price increases that we put in place go in kind of throughout the first quarter around the world. So different geographies at different times and different amounts by products and so forth. So it's pretty hard to triangulate back and say, oh, it was due to this or it was due to that. But I think that's a fair question as to whether there was an impact because of some of the price increases, especially since the timing was slightly different than it was last year.
Okay, all right, that's helpful.
You mentioned, you know,
Speaker Change: a couple of things at the outset, you know, just kind of in your very first part of your prepared remarks, you know, expanding manufacturing capacity, launching new products, maybe, you know, on that ladder piece, you know, if you could help us out, what's on the docket? What's coming out of the pipeline here over the next 12 to 18 months that we can look for? Because as Jeff noted, your competition has, you know, seems like picked up the pace on their own respective launches.
Speaker Change: Yeah, and I think that the one thing they're going to do and that we're going to do is continue to get products Pushed out if you will around the world So when you think about things like my day energist, which has been a really nice success for us here in the u.s
Speaker Change: We'd love to get that product launched in additional markets and have it around the world. I think we'll get there. We'll be able to do that. You know, when I look at MyDay Toric, the expanded range, love to get that in more markets and increase availability. MyDay Multifocal, love to get that in a few more markets, increase availability.
Speaker Change: So when I look at when I look at almost anything associated with my day, it is, I mean, even includes fears, right? Like, I mean, that's what you're going to see more of. So it might sound like the same old same old because we've talked about my day for a little while.
Speaker Change: but we still have products that we have to get out into the marketplace around the world.
Speaker Change: And I think you'll see something similar from our competitors, right? If you listen to them, they're saying, hey, we've got some product launch We need to continue to get those products out around the world So I think we're all probably in a pretty similar boat right now, but I feel good that
Speaker Change: Our products have proven to be very successful products, and as we launch them and increase availability, that we're gonna get a good return from that.
Absolutely. All right. Thanks so much. Yep.
Speaker Change: And your next question comes from the line of Issy Kirby with Redburn Atlantic. Your line is open.
Issy Kirby: Hi guys, thanks for kicking my question. First one on the vision piece, one of your competitors coming out with a seven day wear lens in 2025, just wanted to get your thoughts on that category and any risks you potentially see to your FRP portfolio.
Speaker Change: Yeah, so very early on that, haven't seen any reaction in the market yet. I think that that's probably more targeted kind of the two-week market. We don't really play in the two-week market. I mean, we're dailies and monthlies, which is where the majority of the market is, but there still is a two-week market. You see it certainly here in the U.S.
Speaker Change: So at the end of the day, we'll see how that seven-day lens plays out I'm not quite sure how it'll play out, but I do think that it'll be much more linked to Those wearers who are too weak wearers and people who use contact lens solutions
Speaker Change: Okay, great, thank you. And on fertility and the growth, can you just comment on exactly or perhaps give some color on what's really supporting the outperformance there, the share gains, and what you're also seeing in the market again, particularly with some of the commentary that's been made by the incoming administration.
Speaker Change: Sure, you know it's interesting when you look at the incoming administration you know they've made a number of comments Trump has about being very positive about IVF and reimbursement associated with IVF so it seems like a lot of people
Speaker Change: have asked us questions or have asked me questions about that from a negative angle, like it's the new administration is bad. From everything I've seen and that we're hearing in the marketplace, I would argue that it's actually going to be positive for the industry. So we'll see how that one plays out. I mean, we had strength this quarter from a number of different areas and fertility or consumables were good with products like media and so forth. Our genomics was good. I mentioned some of the new tests we have coming out. So that part of our business was good. Our donor activity that we had acquired back from the old Gener8 acquisition, that was good.
Speaker Change: We were probably a little bit stronger than usual this quarter with some of our capital equipment. And I've mentioned in the past how sometimes you'll see quarters be a little stronger or a little bit weaker depending upon capital equipment. This would have been a quarter that was lifted up because of capital equipment activity. So it was pretty much across the board. It's just a really good sound.
quartered by the fertility team.
Great, thanks so much.
Speaker Change: Your next question comes from the line of Steve Lichtman with Oppenheimer. Your line is open.
Speaker Change: Thank you, evening guys. A couple of questions on the financial side. First on free cash flow as we look into FY25.
Speaker Change: CapEx obviously moved up in this past year and put a little bit of pressure on free cash flow conversion. How should we be thinking about that in TAF by 25? Will you see any relief on CapEx? Or given the supply commentary we've talked about today, you know, it will be pretty steady.
Speaker Change: Hi Steve, thanks for the question. Yeah, the CapEx came in just a little bit higher than we anticipated. We talked last year about how free cash flow is going to be around.
Speaker Change: We ended up around just under that, and then CapEx is around 420. So, I would probably steer people towards really thinking about CapEx on a percentage basis. So, if you think about CapEx as a percentage of revenue being around 11%, that's probably a good place.
Speaker Change: to think sort of where CapEx will land in 2025. You know, I talked about in my prepared remarks how free cash flow is going to be driving higher from somewhere in the neighborhood of $350 to $400 million.
Speaker Change: You know, I think that's going to come from some combination of revenues and, you know, operational improvements, working capital improvement.
Speaker Change: You know, interest expense will be a little bit better, but, you know, FX and taxes and then that CapEx driving a bit higher somewhere in that neighborhood of 450, you know, is going to be sort of your puts and takes that get you, you know, free cash flow higher next year. So certainly capacity expansion drives future growth and we're investing in the business to ensure that we capitalize on the opportunities.
Speaker Change: Okay, great. And then just a follow-up on FX, obviously as you mentioned, dynamic here.
Speaker Change: One, where will we see some of that headwind? Will it be on gross margin again on a reported basis? And two, anything first half, second half on that front in terms of when, you know, where the flow through of that headwind will show up?
All in favor. Aye. Aye.
Speaker Change: Yeah, I guess I would just say FX is kind of hitting us relatively evenly through the quarters. You know, I mentioned 1.5% headwind to revenues.
Speaker Change: and 4% headwind to EPS. So, you know, I think on the EPS side you're kind of looking at it sort of fairly consistent from quarter to quarter.
Speaker Change: and primarily in the gross margin side, which is where we'll see it. Yeah, I mean, cost of goods isn't impacted quite so much, but certainly to revenues.
you see it.
Okay, thanks so much.
Speaker Change: And your next question comes from the line of Brett Fishbin with KeyBank Capital Markets. Your line is open.
Speaker Change: Hey guys, thank you very much for taking the questions. A lot of good ones are already asked, so I'll just ask a question on my site. I think you mentioned 40% growth expectation for FY25, and was just curious how you're thinking about the contribution from the U.S. versus some of the international markets, and then maybe just as a follow-up to that, any more color on how you've seen the momentum progress in areas such as Spain, the U.K., and Korea for my site? Thank you.
Speaker Change: Yeah, good question. So some of the areas out there, like Korea as an example, we've been very successful with my site in and we're trying to take a lot of those learnings and put them in other markets.
Speaker Change: We grew about 40% this year. The number's bigger, but I still think we'll grow 40%, something like that, next year. And I think you'll end up seeing it driven by markets around the world. The one thing that could drive that higher that I continue to watch is the up.
Speaker Change: uptake by some of the bigger key accounts and some of the bigger retailers that are out there. That activity
Speaker Change: I've talked about it in the past, is definitely started, is definitely gaining traction. So we're getting some good positive movement there. So I'm optimistic that we'll be able to be north of 40% this year, but we'll see how that plays out and we'll see what markets move a little bit faster in that direction. But I think Europe will definitely be one of them and Asia-Pac should be pretty good too.
Speaker Change: The New York Times, the New York Times, and the New York Times.
Speaker Change: All right, super helpful, Culler. And then just one follow-up. You've talked a bunch in recent quarters about MyDay Energist as well as Biofinity Energist supporting growth for their respective product families. I'm just curious if you can comment a little bit directionally how sizable the Energist product lines have become, just thinking about the CBI business as a whole.
Thank you.
Speaker Change: Yeah, well I guess for competitive reasons I won't get into the size of them, but I will say that they're doing well, and certainly MyDay Energis is doing well. I highlighted that one as a product that's pulling a lot of growth forward. Yeah, that's a true innovation, right? It's a very unique product for us. I think people sometimes have a tendency to forget some of the innovation that we deliver to the market, whether it is something like MySight or Energis. But yeah, I'll still clear a given numbers, but I will say it's becoming more material.
All right, fair enough. Thank you very much.
Yep.
Speaker Change: And your next question comes from the line of Navon Tai with BNP Paribas. Your line is open.
and the other one.
Speaker Change: Hi, thanks for taking my question. I had a follow-up on the greater erosion in Paragard, so is that in anticipation of that new...
competitor or asparagus losing share versus organ implant, Nexplanon.
Speaker Change: and also the 2025 guidance including the low double-digit operating income growth assume the entry of that new low copper IUD. And then also on fertility if you could discuss the trends across the governments, I know you touched base on the U.S., also the corporate fertility benefits and the competitive landscape that supports the high single-digit growth going forward. Thank you.
Speaker Change: Sure, a couple points there. On the fertility market, I think the fertility market will grow nicely again this year. I mean, the piece that we play in, if you will, the medical device broadly defined piece,
Speaker Change: I'll be surprised if we don't see mid-single-digit growth there, maybe a little bit above mid-single-digit growth. We've been seeing pretty good growth in the industry for a while now. There's great underlying growth characteristics. I mean, you touched on some of them when you look at insurance reimbursement, and there's some countries that are getting more focused on reimbursement for fertility.
Speaker Change: So the trends there are positive. So I think the industry-wide growth being mid-single digits, a good solid mid-single digits, is probably gonna be in place for a number of years. And that's why I always talk about us kind of being upper single digits. And we clearly posted double-digit quarters and we can continue to post that. But I think that's a good, solid, healthy market with a lot of good underlying macro growth trends.
Speaker Change: When I look at Paragard in the IUD space, I mean Paragard is still the only non-hormonal IUD on the market, so it has the full market share here in the U.S.
Speaker Change: The competitive product has not been approved. I don't know when that's going to get approved. I don't have any details on that. So I would say the performance of ParaGuard has had nothing to do with that.
Speaker Change: I do think that some of the other products that are out there, some of the competitive products that are out there and they're hormonal products, but some of the products out there are doing a little bit better and maybe taking a little bit of share from IUDs in general, I think. I'm not sure we're doing...
Speaker Change: worse than the IUD market, but the IUD market is a little bit softer, I believe, from a unit basis. And that's probably due to some of the other competitive products that have entered the marketplace.
Thank you, that's very helpful.
Sure.
Speaker Change: And your next question comes from the line of Young Lee with Jeffries. Your line is open.
Young Lee: All right, great. Thanks for taking the questions. I guess to start, I wanted to ask about the health of the consumer.
Young Lee: key regions worldwide. You know, you have a sizable private label business, so, you know, wide range of pricing. Any incremental changes with the consumer price sensitivity, daily side height, adoption, trade-ups, trade-downs, and private label growth?
Speaker Change: Nothing to highlight there. I mean, we're continuing to get nice growth and similar growth in our branded products as we are our store brand products that are in the marketplace. You're seeing kind of the...
consumer fitting activity and consumer wearing habits.
Speaker Change: Okay, very helpful. For my follow-up, just on the supply-demand dynamics...
you know, their capacity comes online in addition to yours.
Speaker Change: I don't believe so. I believe everybody's investing right now because of the shift to dailies. So as wearers move to dailies, we as an industry, and obviously Cooper Vision, we have to produce a lot more lenses.
Speaker Change: Producing a lot more lenses, obviously, is taking more machinery, more time. It creates more challenges throughout your logistics.
Speaker Change: So, I think the shift over to dailies is going to continue for many, many years in front of us, and that's going to require a lot of capital from a lot of people. Now, we've kind of had this bulbous going, and I think we'll probably have it again in 25 before it starts coming down some, because we've had some facility expansion and so forth in addition to the line. So, we're putting ourselves into a lot better position here with...
with more flexibility in our manufacturing lines.
Speaker Change: and kind of a little bit of a different mindset around some of our expansion activity. So I think we're in a better spot here to position ourselves for kind of 2026, 2027, 2028. But at the end of the day, I think as long as the markets shift into dailies, you're going to have to continue to add capacity and I think the industry is and will for a while to be catching up. Because again, the point I made earlier is well worth remembering, right? Like when you order a manufacturing line, it's going to take a year or two years from the time you're ordering that to getting it in and fully producing product to put it into the marketplace. So it's not a fast solution.
Thank you very much. Yep.
Speaker Change: And your next question comes from the line of Anthony Patron with Mizuho. Your line is open.
Speaker Change: Thanks, maybe one on CVI and one on my site. Al, just on CVI, CyHi daily torics in particular, silicone hydrogel daily torics are margin accretive to the business.
Speaker Change: Sci-Hi as a material within dailies has been growing but maybe just a recap on where your Sci-Hi daily mix is overall and how much of that can shift to torque over time and you know what what would that mean for margins and then I have one quick follow-up on my site.
Speaker Change: Yeah, Anthony, boy, that's a good question. There's a lot to that when you kind of peel that onion back, right? Because
Speaker Change: When you're talking about a spear wearer, making a spear and getting a spear throughout your logistics system, your distribution, and into the marketplace is pretty straightforward.
Speaker Change: As somebody who has an astigmatism and gets fit in a toric, the toric range is considerably larger, right? I mean, we're...
Speaker Change: We're the number one company in the world in terms of selenotoric lenses out there. We know how complex it is, and as you do those expanded ranges, it increases the complexity. I mentioned earlier how we're trying to build up some inventory on that to be able to launch that a little bit more aggressively in a couple spots and get some more fitting sets out there. So that's a dynamic that I could probably talk about for a couple hours. I'll kind of try to summarize it quickly by just saying that we are seeing nice growth in torques. You are seeing opticians recognize, if you will, and correctly fit patients who have astigmatisms in torques.
Speaker Change: It's a great product for us. It's got good margins. We're going to continue to see it grow.
Speaker Change: So I'll kind of pause there just because that's a little bit of a hard one to answer. It's a good question.
Speaker Change: But it's a hard one to answer and I do think because of the price point you're going to continue to see Torex grow faster than the overall market for ourselves and our competitors. I'll be surprised if you're not hearing for years almost every competitor getting on and talking about strength in Torex driving their contact lens numbers higher.
Speaker Change: That's helpful and really just quick on my site you mentioned a little bit on an inventory contraction so you had strong back-to-school fits
Speaker Change: But then in October you had inventory contraction. So anything there or is that do you think that's just going to be the seasonal pattern? Thanks
Speaker Change: Yeah, I think that's just seasonal pattern tied to distributors I mean we have seen distributors around the world, you know, tighten some of their inventory up. We've kind of seen people Generally tighten up inventory just a little bit right as everybody's looking at cash and interest expense and and so forth So to me, that's just a matter of a fairly high growth product where you have distributors Managing their inventory and I think you'll see some fluctuations higher and lower
Speaker Change: on my site because of that, and I think we'll probably deal with that a little bit.
Speaker Change: as we move through next year. And I'll just try to really be transparent on that, that if it's helping growth, you know, kind of highlighting that a little bit, and in a quarter like this one where it kind of pulled the growth numbers down a little bit, you know, mentioning it.
Thank you. Yeah.
Thank you for watching!
Speaker Change: And that concludes our question and answer session. I will now turn the conference back over to Mr. Al White for closing remarks.
Al White: Well, great. Well, thank you, everyone. As Brian summarized with the numbers, and I said, you know, fiscal 24 was a really good year. We closed strong, and we feel good about where we're at today, and we're confident we're going to be able to produce really strong results in fiscal 25. And we're obviously going to do what we always try to do, which is outperform the guidance that we give. So I look forward to catching up with everybody through the quarter and when we report our next quarter. Thank you. Thank you, operator.
Speaker Change: You're welcome and ladies and gentlemen, this concludes today's call and we thank you for your participation. You may now disconnect.
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