Cooper : 05 29 25 COO 2Q25 ER Transcript

Published: 2025-06-02 16:01:04 ET COO

Published on 06/02/2025 at 16:01

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COO.OQ - Q2 2025 Cooper Companies Inc Earnings Call

EVENT DATE/TIME: MAY 29, 2025 / 9:00PM GMT

OVERVIEW:

Company Summary

Hello, thank you for standing by. This time I'd like to welcome you to the Q2 2025 CooperCompanies earnings conference call. (Operator Instructions) I would now like to turn the conference over to Kim Duncan, VP of Investor Relations, and Risk Management. Please go ahead.

Good afternoon, and welcome to CooperCompanies' second quarter 2025 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 statements relating to revenues, EPS, cash flows, FX and tax rates, tariffs, and other financial guidance and expectations, strategic and operational initiatives, market conditions and trends, and product launches and demand. Forward-looking statements depend on assumptions, data or methods that may be incorrect or emphasized and are subject to risks and uncertainties. Events that could cause our actual results and future actions of the Company to differ materially from those described in forward-looking statements are set forth under the caption, "Forward-Looking Statements", in today's earnings

release and are described in our SEC filings including Cooper's Form 10-K and Form 10-Q filings, all of which are available on our website at coopercos.com.

Also, as a reminder, the non-GAAP financial information we will provide on this call, is provided as a supplement to our GAAP information. We encourage you to consider our results under GAAP, as well as non-GAAP, and refer to the reconciliations provided in our earnings release which is available on the Investor Relations section of our website under quarterly materials. Should you have any additional questions following the call, please e-mail [email protected]. And now I'll turn the call over to Al for his opening remarks.

Thank you, Kim, and welcome, everyone, to today's fiscal Q2 earnings call. This was another solid quarter with consolidated organic revenue growth of 7%, led by double-digit growth in both our daily silicone hydrogel lenses at CooperVision, and our office and surgical portfolio at CooperSurgical. We also continued executing at a high level, delivering operational improvements and OpEx leverage that drove double-digit non-GAAP earnings growth.

Similar to other companies, we're dealing with a more complex global operating environment, but we're controlling what we can by executing well, including taking share, delivering leverage, launching products, and completing capacity expansion projects. And we'll cover all of that on today's call. Moving to the numbers, consolidated revenues were $1.002 billion, up 6% year-over-year or up 7% organically. CooperVision reported quarterly revenues of $670 million, up 5% or up 7% organically. CooperSurgical posted quarterly revenues of $333 million, up 8% or up 7% organically. Margins improved nicely, and non-GAAP earnings were $0.96, up 14% year-over-year. For CooperVision, and reporting growth rates organically, the Americas grew 8%, EMEA 6%, and Asia Pac 5%. Within categories, torics and multifocals grew 7%, and spheres were up 6%. Within modalities, our daily silicone hydrogel lenses, MyDay and clariti, grew 10%, and our silicone hydrogel FRP lenses, Biofinity and Avaira, were up 6%. Our myopia management portfolio grew 19% with MiSight up 35%. Turning to products and starting with daily silicone hydrogel lenses, MyDay continued growing double digits with particular strength in torics, multifocals, and our innovative Energys offering. We remain very bullish on this product family as we increase availability in new markets and in new channels to capitalize on opportunities from greater penetration in existing accounts and with new customers.

With improved capacity, we're back to being aggressive and that can be seen in a number of areas including increasing availability of our multifocal and extended toric ranges, new launch activities such as MyDay Energys in Canada, and our upgraded clariti 1 day sphere with WetLoc technology in Japan, and expanded private label discussions. A lot of this activity is tied to increasing fitting sets and trial lenses, so we expect this to accelerate revenue growth starting in fiscal Q4, which is supported by the strong fitting activity we're seeing today. To add a little more color, we just launched MyDay Energys with its innovative DigitalBoost technology in Canada through a series of well-covered events and early feedback is extremely positive. We're receiving significant requests for fitting sets and initial orders are rolling in.

Meanwhile, our MyDay Toric parameter expansion, which provides eye care practitioners with the widest SKU range by far for a daily toric lens continues progressing well across North America and Europe, and we'll be launching the range expansion in targeted Asia Pac markets soon. And lastly, MyDay Multifocal's unique advanced 3 - add design paired with its easy fitting system is performing exceptionally well as market availability continues to increase.

Turning to clariti, we posted solid results with this high-quality, lower-priced lens portfolio, offering a great alternative to MyDay. The redesigned multifocal, which now mirrors MyDay's design, is a fantastic product and grew double digits this quarter. And I can speak to this products great handling, comfort, and visual acuity as I'm happily wearing them right now reading this script. Moving to frequent replacement lenses, Biofinity continues to strengthen its position as the number one contact lens in the world with more people wearing it than any other lens. We're seeing nice growth throughout its full portfolio of market-leading prescription options, including spheres, torics, multifocals, extended ranges, made-to-order products, and Energys. Biofinity provides eye care practitioners the ability to fit an amazing 99.9% of all patients, by far the widest offering of any contact lens family on the market.

Turning to MiSight, we saw growth in fitting activity accelerate this quarter with revenues reaching $25 million, up 35%. A key component to the improved fitting activity is the implementation of a new pricing model initiated following the conclusion of our global pricing review that confirmed

that the annual wearer cost is not a significant barrier to greater fitting activity. Price certainly matters, and training eye care practitioners and educating parents on myopia is important, but the key driver is just getting kids into the lens. Once kids begin wearing MiSight, they love it, and with retention rates running around 90%, they stay in it. And when parents verify the benefits of the treatment with their ECPs, they're sold on the technology. With this data, our focus is now heavily on reducing upfront fitting barriers by offering promotions such as an initial 1 - 3 months free. This provides a no-risk opportunity for parents to get comfortable with their children wearing contact lenses and for kids and young adults to get comfortable wearing contacts for the first time. With the broader rollout of this strategy, along with the launch of a large key account private label deal, we're already seeing a nice acceleration in fitting activity in EMEA, and we expect similar success in other markets. This new initial free fitting period will result in a moderate headwind in Q3, but based on current fitting activity we expect a considerably stronger Q4. And lastly, we're progressing well with our launch planning for MiSight in Japan, along with MyDay MiSight in EMEA, with both anticipated to occur in early 2026. Moving to CooperSurgical. We reported revenues of $333 million, up 8% or up 7% organically. The quarter was driven by success in our surgical medical devices, labor & delivery portfolio and PARAGARD. Fertility was a little softer than we were expecting, so let me start there. For the quarter, fertility revenues were $127 million, up 3% and up 2% organically. Although supported by positive signs such as double-digit growth in our donor business and in our Witness system consumables that fertility labs use to track activity, overall growth was lower than expected due primarily to market softness. This was largely tied to Asia Pac where fertility cycles continue to decline year-over-year and from fertility clinics managing cash tighter, which is including delaying capital purchases and installments. We expect this softness to continue and to put pressure on market growth and our growth. Having said that, cycle growth in EMEA and the Americas remains solid which supports the market near term, and we remain incredibly bullish on the long-term prospects for fertility as the underlying growth fundamentals remain intact, including women delaying childbirth, improving access to treatment, increasing patient awareness, increasing benefit coverage, and improving technology. Additionally, it's estimated that 1 in 6 people worldwide will experience infertility at some point in their lives, so this is an issue that impacts a lot of people. As a leader in the space, we will continue delivering innovation, launching new products and services, providing extensive clinical training, and expanding geographically. Moving to office & surgical, we posted sales of $206 million, up 13% or up 10% organically. As mentioned on our last earnings call, we expected a strong Q2, and we delivered. Performance was driven by strength in minimally invasive gynecological surgical devices, such as our Ally uterine manipulator portfolio, and within labor & delivery with products such as Fetal Pillow and our Cervical Ripening Balloon. Although not included in organic growth, we also saw considerable strength in obp Surgical, our most recent acquisition of an innovative suite of single-use, lighted, cordless surgical retractors, which grew 31%. PARAGARD grew 18% this quarter, supported primarily by the conclusion of buy-in activity before our May 1 price increase, but also due to continued interest in our new single hand inserter, which we launched earlier this year. With PARAGARD now having grown 15% through the first six months of the year, heavily driven by channel fill, we now expect a mid-teens decline in fiscal Q3 before a flattish Q4, resulting in low to mid-single-digit growth for the full fiscal year.

To conclude, let me comment on our revenue guidance which we're tightening and raising at the midpoint. This incorporates our solid Q2 performance and the positive impact from updated currency rates, offset by lower organic growth rates that corresponds to a reduction in our market growth assumptions for contact lenses and fertility.

‌For contact lenses, the industry grew 4% in calendar Q1, so we're reducing growth expectations to the 4% to 6% range for the year, down from 5% to 7%. This new range matches the industry's historical growth range, which we saw for many years pre-COVID. With this change, we're adjusting CooperVision's organic growth expectations to 6% to 7%. To be fair, industry pricing remains solid, and consumption remains healthy, so this may prove conservative depending on market conditions and channel inventory. For CooperSurgical, we're reducing market growth expectations for fertility to the low single digits, down from mid- to upper single digits, and correspondingly reducing our fertility growth expectations. This is partially offset by the strength we've seen in PARAGARD, but still reduces CooperSurgical' s consolidated organic growth rate to the 3.5% to 4.5% range. Again, it's important to note, our commercial execution at CooperVision and CooperSurgical remains strong and we're taking share, but against an expectation for softer market growth. And with that, I'll turn the call over to Brian to cover our financial results in more detail, including our earnings guidance.

Thank you, Al, and good afternoon, everyone. Most of my commentary will be on a non-GAAP basis, so please refer to the earnings release for a reconciliation of GAAP to non-GAAP results. For the second fiscal quarter, consolidated revenues were $1.002 billion, up 6% as reported and up 7% organically. Consolidated gross margin was 68%,up from 67.3%, driven by continuing efficiency gains and mix. Operating expense increased

6% but declined as a percent of revenue to 43.1% driven by leverage in several functional areas as prior investment activity continues to yield positive returns.

One line-item worth highlighting this quarter is R&D where expenses increased 21%. Investments in this area were higher than historical levels for both CooperVision and CooperSurgical as development work continues on several exciting projects. For competitive reasons, I won't get into the details, but we're certainly looking forward to launching these new products in future years. Consolidated operating income was up 11%, improving the operating margin to 24.9%. Below operating income, interest expense was $23.5 million, and the effective tax rate was 14.6%. Non-GAAP EPS was $0.96, up 14%, with roughly 201 million average shares outstanding. Free cash flow was $18 million with CapEx of $78 million. Net debt increased slightly to $2.47 billion, while our bank-defined leverage ratio reduced to 1.9 times.

Lastly, we repurchased approximately 537,000 shares of stock back this quarter for roughly $40.6 million. This leaves $215.8 million of availability under our Board approved $1 billion repurchase plan. Moving to fiscal 2025 guidance, we're adjusting our revenue guidance to incorporate Q2, improving FX rates and updated market assumptions. On a consolidated basis this translates to revenues of roughly $4.11 billion to $4.15 billion, up roughly 5.5% to 6.5% or up 5% to 6% organically. CooperVision's revenue guidance range is now $2.76 billion to $2.79 billion, up roughly 6% to 7% as reported and up 6% to 7% organically. CooperSurgical' s range is $1.35 billion to $1.36 billion, up 5% to 6% as reported or up 3.5% to 4.5% organically.

Regarding gating for revenues, we expect organic growth in Q4 to be stronger than Q3 when considering year-over-year comps, the timing around the rollout of products at CooperVision and the gating impact of PARAGARD for CooperSurgical. For earnings, we're raising our non-GAAP EPS guidance to $4.05 to $4.11, which is growth of roughly 10% to 11.5% year-over-year. For free cash flow, after a seasonally slow Q2, we expect sizable improvements in the back half of the fiscal year and continue to expect free cash flow to be in the range of $350 million to $400 million. We'll prioritize debt reduction with these proceeds, but also opportunistically evaluate share repurchases as we did in Q2.

Regarding tariffs, we expect a negative impact to cost of goods this year of roughly $4 million, which is built into our guidance. It's too early to guide to next fiscal year, but to help level set everyone, if tariffs remain as is, we expect a pre-mitigation negative impact of roughly 3% to fiscal 2026 earnings. Once we have clarity on what the tariffs will be, we will implement mitigation actions to reduce this impact. With respect to the impact of currency on revenues and earnings for fiscal 2025, we now expect a roughly 0.5% headwind to revenues and a roughly 1% headwind to earnings. This is down from roughly 1.5% and 4% headwind to revenues and EPS, respectively, that was assumed in last quarter's guidance. There are a number of moving parts, but to summarize our updated guidance for earnings, we're increasing the midpoint of guidance by $0.10, passing along the positive impact of currency and our Q2 beat, offset by tariffs. With that, I'll now hand it back to the operator for questions.

(Operator Instructions) Jeff Johnson, Baird.

I was wondering if we can just start contact lens end market, sorry, that's my phone making some noise there. I guess my question more than anything is last quarter, you seem to be a decent amount below market or a point or two below market for CVI this quarter, one point or two above.

It'd be interesting to hear about some of your online data, other independent industry data that you might have because it does seem like channel inventory has really been making it hard to compare to your growth rates versus others for the last couple of quarters when we just look at revenue reported from the different companies. So any one and or other independent industry data you can share?

Disclaimer

The Cooper Companies Inc. published this content on June 02, 2025, and is solely responsible for the information contained herein. Distributed via Public Technologies (PUBT), unedited and unaltered, on June 02, 2025 at 20:00 UTC.