The Cooper Companies, Inc.

Ladies and gentlemen, thank you for standing by and welcome to the Q1 2023 Cooper Company's Earnings Conference Call. I would now like to turn the call over to Kim Duncan, BP Investor Relations and Risk Management. Please go ahead.

Good afternoon and welcome to Cooper Company's first quarter 2023 Earnings Conference Call. During today's call, we will discuss the results and guidance included in the earnings release and then use the remaining time for questions. Our presenters on today's call are Al White, President and Chief Executive Officer, and Brian Andrews, Chief Financial Officer and Treasurer. Before we begin, I'd like to remind you that this conference call contains forward-looking statements, including all revenue and earnings per share guidance, and other statements regarding anticipated results of operations, market or regulatory conditions or trends, product launches, operational initiatives, regulatory submissions, and closing or integration of any acquisitions or their anticipated benefits. Forward-looking statements depend on assumptions, data, or methods that may be incorrect or imprecise 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 results. Should you have any additional questions following the call, please email ir at cooperco.com. And now I'll turn the call over to Al for his opening remarks.

Thank you, Kim, and welcome everyone to Cooper Company's first quarter fiscal 2023 conference call. We started this year on a positive note with strong operational performances at both Cooper Vision and Cooper Surgical. For Cooper Vision, we reported record quarterly revenues in our eighth consecutive quarter of double-digit organic revenue growth. For Cooper Surgical, we posted strong results, including fertility, reporting its ninth consecutive quarter of double-digit organic revenue growth. Earnings exceeded expectations, driven by the strength in revenues and investment activities yielding operational efficiencies faster than expected. This is exactly how we wanted to start the year, and we'll continue balancing investment activity with prudent operational management to deliver solid results. Moving to the numbers, consolidated quarterly revenue reached an all-time high of $858 million. Cooper Vision posted record quarterly revenues of $581 million, up 10% organically, and Cooper Surgical posted revenues of $277 million, up 10% organically. Cooper Vision's growth was led by our daily silicone hydrogel portfolio and myopia management products, and Cooper Surgical's growth was broad-based with strength in many areas. Non-GAAP earnings per share were $2.90. For Coupa Vision and Q1, and reporting all percentages on an organic basis, revenue growth was strong and diversified. The Americas grew 9%, EMEA grew 12%, and Asia-Pac grew 10%. This performance was driven by new product launches, expanded product ranges, market-leading flexibility through our customized offerings, and growth in key accounts. Regarding product details, Daily silicone hydrogel lenses grew 17%, with especially strong growth from my day. Daily silicone hydrogel lenses continue to be the main driver of growth for the contact lens industry, and we offer the broadest portfolio with my day and clarity available on a wide range of spheres, torix, and multifocals. Our silicone hydrogel monthly and two-week lenses, BioAffinity and Avera Vitality, reported another solid quarter of 9% growth. Turning to product news, we remain extremely busy. Our MyDay multifocal rollout is going incredibly well, and we expect strong growth to continue as the product becomes more readily available in EMEA and Asia-Pac. Feedback from customers and practitioners remains outstanding, and we continue taking share. Our MyDay Toric parameter expansion rollout in the US and Canada is also going well, and we'll be launching the expanded range in EMEA this quarter. With over 4,000 SKUs, our MyDay Toric has the widest daily Toric range in the market by a wide margin, and it's opening the door to many two-week and monthly Toric wearers to enjoy the freedom of wearing a daily contact lens for the first time ever. All this activity is having a positive halo impact on the MyDay sphere, which is also performing well. And lastly, on our MyDay franchise, I'm excited to announce we've started the national rollout of MyDay energies in the U.S. This premium lens uses the same innovative digital boost technology as BioAffinity Energist to alleviate the impacts of digital eye strain. Studies show that adults are now spending more than seven hours a day on screens, resulting in eyes feeling strained and uncomfortable. Energist, with its boost technology, is the perfect solution to address this digital eye fatigue, and our survey work clearly shows that practitioners and customers are excited to get this technology in a daily offering. All this My Day activity is exciting, and we remain dedicated to developing and rolling out technologically superior My Day products for many years to come. Lastly, within the daily segment, Clarity is performing well. Its mass market price point is allowing eye care practitioners to continue utilizing the Clarity franchise as a great way to bring wearers into the daily silicone hydrogel space. Moving outside of dailies, demand for BioAffinity remains strong, led by our Torex multifocal and extended range offerings. We continue to be capacity constrained in some of these areas, especially around our extremely high demand made to order products, such as extended range Torex and Torex multifocals. But the continued ramp up of our manufacturing facilities is allowing us to address the significant demand. And lastly, we had a nice quarter with Avera Vitality, especially in Asia-Pac. Moving to Myopia Management, we posted revenues of $25 million, up 32%, with MySite up 50%. This was in line with expectations and keeps us on track to reach our goal of $120 to $130 million in sales this year. Regarding MySite, we're expanding availability in numerous key accounts, actively launching our expanded parameter range, and making great progress on numerous R&D efforts. We're seeing increased fitting activity as optical offices become more comfortable with their myopia control practice management, and we're continuing to see a positive halo effect with our MySight customers accelerating their use of other Cooper Vision lenses. MySight is the first and only FDA-approved contact lens for myopia control, and the product is backed by extensive clinical data. This is a critical differentiator as the proactive management of myopia becomes standard of care within the eye care community to help reduce the risk of long-time eye health problems associated with myopia, such as cataracts, retinal detachment, and macular degeneration. Finally, I want to mention the great work the Coopervision team has done in our environmental sustainability efforts. In January, we announced that our net plastic neutrality initiative reached a major milestone with the prevention of the equivalent of more than 100 million plastic bottles from entering the oceans. This program has been incredibly well received by contact lens wearers and eye care professionals, and we're extremely proud of its success. To finish on CooperVision, the contact lens market grew roughly 9% in calendar 2022, with CooperVision growing faster at 11%. And we expect 2023 to be another robust year supported by the macro growth trend of more people needing vision correction. It's estimated that 50% of the global population will have myopia or nearsightedness by the year 2050, up from roughly 34% today. This is driven by a variety of factors, including greater screen time. And when combined with the ongoing shift to silicone hydrogel dailies, the increasing focus on higher value products such as torques and multifocals and higher pricing, We expect many years of strong growth for the industry, and we expect to remain a leader with our robust product portfolio, ongoing product launches, fast-growing myopia management business, and leading new fit data. Moving to Cooper Surgical, this was an excellent start to the fiscal year. Our fertility business posted sales of $112 million, up 10% organically, for its ninth consecutive quarter of double-digit organic growth. Success was broad-based with strong results throughout the product portfolio and around the world. The global fertility market remains a very exciting space with strong macro trends supporting significant long-term growth potential. There are multiple drivers in this industry, beginning with women delaying childbirth. The average age of a woman's first birth in the U.S. and within several other developed countries now stands at a record 30 years old, and age is a key factor in contributing to the need for fertility assistance. Other growth drivers include improving access to treatment, increasing patient awareness, improved product offerings, increasing fertility benefit coverage, and technology improvements for both male and female infertility challenges. It's estimated that roughly 15% of reproductive age couples have fertility challenges and that over 750,000 babies are born annually through fertility-assisted measures, and these numbers are growing. Within the broader fertility space, we compete in a market that's roughly $2 billion in annual sales, and we forecast growth of 5% to 10% for many years to come. Our positioning is excellent, with the broadest portfolio in the industry, a solid commercial footprint, and striking key accounts. We're also investing in our team and in our product portfolio, which includes consumables, capital equipment, and reproductive genetic testing, and we're expanding geographically. Demand remains very strong, especially within our key accounts, so we need to keep building infrastructure by investing in our people and delivering the products and services required in this high-growth market. Moving to office and surgical products, which includes OBGYN medical devices, ParaGuard, and stem cell storage, we posted sales of $165 million, up 10% organically. Within this, OBGYN medical devices grew 10%, with strike seen in several of our core products. This team is doing a A great job managing strong demand with ongoing supply chain challenges, and I'm proud of the hard work and success we're having. Paragard grew 11%, driven by buy-in activity from a price increase of roughly 8% implemented at the end of the quarter. We'll see a natural offset to this in Q2, but it's nice to get the year off to a good start. And lastly, our stem cell storage business grew 5% organically. We've owned this business for just over a year now, and I'm happy to report that we're seeing improving traction. The synergies we expected as part of the transaction are occurring, and the business is in a good position. As part of our focus in this space and ongoing investment activity, I'm happy to report we recently kicked off an exciting marketing campaign with Chrissy Teigen leading our latest educational efforts around the importance of preserving newborn stem cells. The early reaction to this social media campaign has been very positive, and I'm excited to see how it progresses and delivers value through the year. To conclude on Cooper Surgical, I want to mention something that I'm really proud of. Worldwide, every minute, a baby is now born using Cooper Surgical products. I just love that, and it truly shows what a fantastic and meaningful business Cooper Surgical is. So to summarize, let me again say this is exactly how we wanted to start this fiscal year. Our operational performance was excellent, our momentum is strong, and we're executing on our investments to drive long-term sustainable growth. And with that, let me turn the call over to Brian.

Thank you, Alan. 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. First quarter consolidated revenues were $858 million. up 9% as reported, or up 10% organically. Consolidated gross margin was 65.7%, down 1.2% from last year, primarily due to currency and product mix. Operating expenses grew 11% to 43.1% of revenues, and consolidated operating margin was 22.6%, down from 24.6% last year, primarily due to currency. To add some color, I'm happy to report that many of the freight and distribution challenges that we experienced in Q4 that continued into Q1 have now been resolved, and these financial results exceeded our expectations due to the strength at the end of the quarter. Below operating income, interest expense was $26 million, and our effective tax rate was 14.4%. Non-GAAP EPS was $2.90. with roughly 49.7 million average shares outstanding. FX negatively impacted earnings by roughly 30 cents year over year, which is 5 cents better than we were forecasting when we provided guidance in December. Free cash flow was $84 million, including CapEx of $83 million. CapEx continues to be heavily driven by capacity expansion, and we expect that to continue. Net debt decreased by $48 million to $2.56 billion. Turning to fiscal 2023 guidance, we're increasing expectations for revenues and earnings by incorporating our Q1B, improved operational performance, and slightly better FX rates. This results in consolidated revenues of $3.5 to $3.55 billion, up 7% to 9% organically. with Cooper Vision revenues of $2.35 to $2.39 billion, up 8% to 9% organically, and Cooper Surgical revenues of $1.14 to $1.17 billion, up 5% to 7% organically. Non-GAAP EPS is expected to be in the range of $12.60 to $12.90. Within this, interest expense is expected to be slightly higher at around $110 million but our effective tax rate is forecasted to be around 14.5% offsetting this. For interest expense, we're assuming three future Fed moves, a 25 basis point rate increase this month, another 25 basis point increase in May, and then an additional 25 basis point increase in June. For currency using updated rates, we are now expecting a slightly more positive impact to the P&L which we're fully passing along. And from an operational perspective, we're raising expectations tied to actions we've taken to drive efficiencies. To summarize this, we're raising the midpoint of our earnings guidance by $0.30, with $0.20 coming from our Q1 beat, $0.05 coming from operational improvements that we're expecting in Q2 to Q4, and $0.05 from better effects in Q2 to Q4. The increase in our revenue guidance is similar, incorporating the Q1 beat, stronger expected performance in Q2 to Q4, and better FX. Regarding the operational improvements, in addition to addressing the supply chain challenges from Q4, we've taken further steps to improve our operational efficiencies. One such example would be the consolidation of our specialty lens business into our core lens franchise. Over the past several years, ProVision has created the world's most comprehensive specialty contact lens portfolio, comprised of products such as leading ortho-K and scleral lenses to treat myopia and more severe cases of irregular cornea. This part of our business has grown nicely, and it's now time to consolidate it into our core operations and leverage our infrastructure. In the meantime, we're continuing to invest in our product launches, manufacturing footprint, and distribution capabilities to support our long-term growth objectives. Demand is strong, and long-term growth trends are very positive, so we're investing prudently but accordingly. There are a lot of positives to take away from this activity. Our capabilities are expanding, our operations are becoming more efficient, and the numbers are looking better. That being said, we remain cautious regarding recession risk and continued inefficiencies tied to supply chain challenges and have incorporated that into our expectations. To conclude on guidance, note that it does not include the pending acquisition of Cook Medical's reproductive health business. We're exploring all options related to this transaction in order to obtain regulatory approval, including the potential sale of certain Cook assets. And we expect the transaction to be resolved by August of this year.

And with that, I will hand it back to the operator for questions.

The floor is now open for your questions. To ask a question at this time, please press star 1 on your telephone keypad. If at any point you'd like to withdraw from the queue, please press star 1 again. You will be provided the opportunity to ask one question and one further follow-up question. We'll take a moment to render our roster. Our first question comes from the line of John Block from CIFL. Please proceed.

Hey, guys. Thanks, and good afternoon. Brian, maybe I'll just start with some clarifying questions. So the update from FX, I think previously it was a 2.5% drag to revs and net neutrals. for EPS that was prior quarter. How has that changed? So is there a new FX number on revenues, you know, from the 2.5% drag? And then the impact to EPS, I want to make sure I heard you right, is that improved by $0.10, $0.05 is embedded in the 1Q outperformance, and then $0.05 is sort of the balance of fiscal 2Q to 4Q? Maybe if you can just clear that up a little bit.

Sure, sure. Hi, John. Yeah, so you're right. So on the prior guidance, we had a 2.5% headwind to revenues. It's a little bit better. I'd say it's just on the margin. It still kind of rounds to 2.5%. It's a stronger 2.5%, I'd say, for revenues, but still a headwind. And then to EPS, where we were saying neutral to EPS before from FX for the year, we're about 1%. When it comes to the updated guidance, just to recap, you know, we beat Q1 by 20 cents. Five cents is from FX, the other 15 cents operational. The rest of the year, Q2 through Q4, we're raising by 10 cents, half of which coming from FX, that's the five cents, and then the other half from operational performance.

Yep. Okay, perfect. I think I got you, and that certainly helps. Maybe, Al, just for the second question, I'll just ask big picture. There's certainly been a lot of chatter about supply concerns within the contact lens industry. You guys certainly seem to be faring okay, but maybe just talk about where you guys sit. I know you mentioned a little bit around some of your product lines, but broadly speaking, where you guys sit and your confidence or comfort level that you're probably going to be able to stay ahead of the demand curve, especially with you know, hitting the gas and getting the mighty energy slalom off the ground. Thanks, guys.

Sure. Yes, I mean, there's still supply chain challenges in the market, if you will, and we still see those also, and some of our competitors have talked about that and have had some challenges. I feel pretty good about where we're at. As I mentioned, we do have some capacity constraints, if you will, within BioAffinity and a couple other spots that we're working pretty aggressively at right now to resolve. But at a high level, I feel pretty good about where we're at. We're in a good spot with MyDay. We've got the energies rolling out right now. We're in a good position with that from a production perspective and distribution perspective. We're in a good spot with Clarity. We're in a good spot with BioAffinity. We're in a good spot with Avera Vitality. So pockets of challenges, but for us at least, from a supply chain perspective, we're definitely getting in a better position.

Our next question comes from the line of Larry Beagleson from Wells Fargo. Please proceed.

Good afternoon. Thanks for taking the question. And congrats on a really nice quarter here, guys. So I wanted to start, Al, on the contact lens market. And then I had one margin question for Brian. So, Al, the guidance implies roughly 8% organic growth the rest of the year. Alcon called out some softness in the contact lens market on their call this week. What are you assuming for the contact lens market for 2023? Have you seen any changes in consumer behavior? And how does your private label business help insulate you?

Yeah, so we've had a good start to the year. We had a good January. February was definitely a good month. So we're seeing positive momentum. I'm speaking for Cooper. So I think we're in a good place from that perspective. And you see that build into our guidance. If I think about the market a little bit more broadly, I would say we're taking share similar to what we've taken historically. So not a massive amount of share, but, you know, a point, two points, something like that over what the market's growing. kind of similar to last year. So I think the market's going to have another good year, frankly. At this point in time, the way the year's starting off and the visibility we have, I think the overall contact lens market's going to be certainly mid-single digits and probably on the higher end of the mid-single digits. When you look at our portfolio, we have the broadest portfolio in the market. We also manage a lot of customer brands, and that definitely helps. When you look at... retailers right now and some of our bigger accounts who are looking at their own profitability and managing their own supply chain issues and so forth, one of the areas that they'll have a tendency to turn around and focus on is their own store brands. Those are products that we have a tendency to support to them, and we take a lot, a lot of pride in that, and we work very closely with our key accounts and have strong relationships with them to continue to supply their customer brand. So I think that does help us, and I think it'll help us as we move through this year We have not really seen much in terms of any wearing habit changes, in terms of a trade down or anything along those lines. We're still seeing success driven heavily by products like My Day, frankly, within our franchise. We are having success with Clarity. That's more of a mass market price point. I think that if you do see any moves associated with consumers being a little bit more concerned about the cost of things, we have a great option in Clarity, and I think we'll continue to do well with that. Yeah, net-net at the end of the day, I'd say I'm envisioning a strong market this year and us taking a little bit of share off it.

That's super helpful. Thanks for the comprehensive answer. Brian, on the margins, you know, they peaked the operating margin, you know, in 2019, call it 27.6%. The past two quarters have been kind of in the low to mid 22% range. Can you help us understand, you know, the decline, the bridge, the decline, you know, call it 500 basis points. And what's the path back to 27.6%? And, you know, embedded in 2023 is the operating margin embedded in the guidance about 24%. Thanks for taking the questions.

Yeah, hi, Larry. Good question. So, yeah, since 2019, FX has had obviously a fairly decent headwind to us. So that's been about 1.5%. The other sort of 2%, I would kind of bucketize into three parts, kind of one-third each. You know, one of them is just equity as a share-based comp. We moved a couple years ago from five years to four years vesting, and that's created a headwind for us. So that's about a third of the delta investment. Supply chain and distribution, no surprise. We've got about a third tied to that, and that's just all the things we've been talking about recently here. And then, of course, the infrastructure investments that we've been putting into our business, and I kind of focus largely on IT. That includes the automation work that we're doing, but also just ERP and other sort of IT upgrades we've been making over the years. So, I'd say that we're eventually going to hurdle the equity piece and we'll continue to grow into our infrastructure. But your operating margin comment for the year is directionally, is in the neighborhood of where we think we're going to land. And I would say that all of the moves that we're making from an efficiency effort, the cost containment exercises, and one example I gave in my prepared remarks is just one of the many. But we're going to continue to go after some structural changes to centralize and automate and leverage our infrastructure, so that I expect that we'll continue to get leverage as we look forward. The one thing I'd also say is just from an operating income perspective, the midpoint of our guidance is taken up by 1% on a constant currency basis. You would expect this year. We're already getting leverage. We're going to get around ten and a half percent constant currency oil growth at the midpoint of our guidance Thank you very much Our next question comes from the line of Jeff Johnson from Baird, please proceed Thank you.

Good afternoon guys I'll maybe starting on the contact lens business. Just you know, what do you see from a pricing standpoint this quarter and Do you still feel like this year could be a little bit better pricing environment for you specifically given some of those larger retail contracts? And should we expect My Day Intergest to come out at a price premium? You know, I know Biofinity Intergest kind of was back and forth whether it was a premium or just a premium value, you know, that the wearer got value out of it at the same price. So what are you planning on My Day Intergest? Thanks.

Yeah, so My Day Intergest will be a price premium to the My Day Sphere. I'm not sure exactly where the number will settle out, but it'll be somewhere around a 20% price premium to the regular my day lens. On pricing in general, yes, I think that this will be a decent year from a pricing perspective for us. 2% plus pricing we'll get this year. As an industry, you're seeing positive pricing and it's probably in that 2% plus range, same thing. And I'm talking about net pricing, right? Because a lot of people are putting price increases through, but then you'll run programs kind of behind the scene, rebate programs or whatever else, right? But net pricing looking at that two to maybe as high as even 3% range. So it's a pretty good market from that perspective.

Yeah, that's helpful. And then I think one of the numbers that stuck the most to me was that 9% constant currency in your FIP business. You know, I know there's different data sources out there. One of your competitors talked about that FIP market being flat in the fourth quarter. I don't know if you agree with that, but to beat the market by nine points, you know, does that speak to some of the private label benefits that Larry was asking about or how else to think about kind of that outperformance?

Yeah. I don't believe the market was flat, but the market was not up a lot. We are definitely taking share and growing when you look at that space. A big part of that ends up just being the magnitude of our product offering, right? Because, I mean, you have a really good product in BioAffinity and a really good product in Vera Vitality, but you're getting an add-on and growth from a product like BioAffinity from things like the extended range sphere and and the extended range torques that we have, the multifocal torque that's out in the marketplace. A lot of that kind of stuff is driving pretty nice growth. And then I think when you put it all together, that entire franchise together, and you put it under some of these retailers' store brands that are out there that now they're probably focusing a little bit more on and will frankly probably continue to focus a little bit more on, yeah, that's going to be beneficial for us. And that monthly price point is a really good price point for a lot of contact lens wearers. So If you believe the economy is going to move in that direction, then the likelihood is you're going to see things continue to move more towards store brands and probably, not surprisingly, a little bit more towards a product like a monthly. And BioAffinity is just perfectly placed for that.

Thank you.

Our next question comes from the line of Anthony Patron from Mizuho Securities. Please proceed.

Great, thanks. I appreciate you taking the call here. This is Brad Bowers on for Anthony. I just wanted to kind of hear about progress on my site. It sounds like the myopia management business was strong in the quarter. I just wanted to kind of see where you're seeing the growth and kind of where you're on track there.

Sure. Yeah, myopia management was, I would say, was solid this quarter. The reason I wouldn't say it was strong, so to speak, really is China. that's where we ran into difficulty. So if you're outside of China, whether it's my site or whether it's our OrthoK products, we had a really good quarter, and we've got good momentum. We're expanding those offerings. We're seeing my site in more big retailers and more big key accounts as they're rolling it out and getting more active on their myopia control practices. So things are going fairly well with respect to my site. Again, I would say the one clear – negative within that space. And the challenge that we had this quarter, frankly, was in China, that market just has not returned. So if it does start to return, we'll see some upside from that. We don't have a lot built into our expectations around that. So hopefully we see that. Got it.

That's helpful. And then just a little, switching gears a little bit on this one, but I do understand that there is probably not much you can say on that, but just wanted to hear if there was Any contemplation of additional strategic options to kind of get the Cook Medical deal across the goal line or just any real update that you could provide on that? I appreciate the questions.

Yeah, Brad, unfortunately, there's not really much I can add other than just kind of repeating what we said, which is we're working through that process right now. There's a lot of regulatory implications there. So we're evaluating our different alternatives, kind of have everything on the table to see if we can figure something out. And as I mentioned, we'll have resolution to that no later than August of this year.

Our next question comes from the line of Jason Bednar from Piper Sandler. Please proceed.

Hey, good afternoon. Thanks for taking the questions, and I'll echo the congrats here on a real nice start to fiscal 23. I want to do maybe start in the Americas, you know, that 9% growth, and I think it's some of the best growth we've seen from the region in several years, really outside of the COVID period when comps were really easy. Can you talk about the dynamics there? I mean, help us understand how much, you know, this America strength is a function of whether it's new products or, you know, if the price there is any different from the two to three points you were talking about there, Al, or just if volume is really just kicking it. And then, you know, maybe to follow up on some prior questions, I want to clarify that you haven't really seen any trade down or softening in the consumer, at least within your portfolio, but your guidance still embeds some cautiousness around the economy. I just want to make sure I have that all correct.

Yeah, let me hit that second one. So, no, we have not really seen anything with respect to a trade down or softness in the contact lens marketplace at this point in time. As a matter of fact, we're continuing – to hear from some of the big retailers and buying groups out there, including in the U.S. and around the world, challenges they're having with respect to staffing and whether that's staffing as office workers or even optometrists, finding optometrists and getting optometrists to work enough hours. So, no, we're in a good spot from that. We haven't seen that activity per what Brian said. Yeah, we are trying to incorporate some of that just to be a little conservative within our guidance. I think that makes sense. On the Americas, yeah, we had a good quarter. Alex is running that business for us now. He's doing a really, really nice job. We've just got some great people on our America sales team that are executing really well. So we were kind of growing in line with market there for a while. Maybe we're kind of shaking that loose a little bit now and starting to get rolling, getting, sorry, my day energies into the market is going to be another step forward. So It's only one quarter. I don't want to attach too much to it, but certainly you can't have a second good quarter without a first one. So a step in the right direction.

Yeah, no, well said. Appreciate that. Maybe just another maybe follow-up or clarifying point from some earlier questions. Al, I don't think you typically bifurcate the growth that you see in different channels, but can you talk about directionally how much stronger your private label business is relative to sales that are going into private practices? You know, is the delta between those groups, you know, one to two points, three to four points? How should we think about that?

Yeah, actually, they're probably pretty even right now. We did see a little bit more strength in our branded products for several quarters there last year. A lot of that tied to my day and a lot of success we were seeing in my day. But right now, from the numbers, there's not a big difference. We're getting... kind of similar growth, if you will, from what I have a tendency to call customized solutions, right, all the customer brands and so forth that are out there, and the direct sales, if you will, to optometrists' offices and so forth. So I wouldn't, at this point in time, I wouldn't highlight really a swing in any direction from that.

All right. Thank you. Yep.

Our next question comes from the line of Matthew Michon from KeyBank. Please proceed.

Hey, good afternoon. Thank you for taking the questions. This is for Brian. Can you elaborate further on kind of operational efficiency, kind of where that's coming from? Is that more of a gross margin type driver for you? And how should we think about gross margin year over year now?

Yeah, I mean, we're going after several different cost containment initiatives. I mentioned in my prepared remarks the consolidation of our specialty ICARE division into our core. Long-term, that'll be a gross margin benefit, but for the short-term, that's going to be more OPEX benefit. We've gone after some other centralization activities, including consolidating our high-growth sub-region within Eastern Europe and Middle East Africa into our European region, and so that'll drive some better efficiencies So, you know, I would say it's probably more of an OpEx play than anything else. Within gross margin, you know, our guidance still is implied in our guidance is gross margins up year over year a little bit more from currency than on a constant currency basis.

Okay, that's fair. And then for Al, I think one of the things we've heard is that some of your competitors did fall back on some of the extended parameters or extended ranges, you know, that may not be kind of higher volume, but, you know, could add up for you. I guess, is that enough to help you kind of drive some share, or is that just something that just adds, like, increased relevance for Cooper with ECP?

I think that that does drive share gains for us, and I think longer term it'll drive share gains for us. Yeah, some of our competitors have pulled back on some, like, the extended range, or I shouldn't even call it extended range in our world. They would kind of be more regular TORIC ranges that are out there. But some of the broader TORIC ranges, we haven't really seen much impact from that yet because a lot of that activity is fairly new in the marketplace. But I do think one of the differentiators for us and one of the reasons we take share and have taken share consistently for a long time is the breadth of our product portfolio. It's very difficult to manage those wide parameter ranges. It just is. From a production perspective all the way through distribution and all your packaging and labeling and inventory management and so forth, as you can imagine, when you get those really wide SKU ranges, it just creates a much more complex environment. So we're pretty good at that. We've invested a lot of money at that over the years. As I said, that's a differentiator for us, and I think it'll continue to put us in a position to to help us gain a little bit of share. So like you said, I wouldn't overdo that because the dollar amounts aren't that big. But anytime you can get something to differentiate you in a positive way, that's a good thing. And I would say that's one of those things. All right. Thank you. Yep.

Our next question comes from the line of Robbie Marcus from JP Morgan. Please proceed.

Oh, great. Nice quarter. And thanks for taking the questions. Maybe to start... Are you able to quantify, if at all, any of the share you think you gained as competitors seem to have had more supply chain issues than you did around the world and the impact to the different product lines?

I don't think, frankly, very much. Some of the issues that competitors have had around supply chain are relatively recent. We've had some of our own challenges around supply chain. I don't want to act like we haven't. So, frankly, I don't think there's very much that's come from supply chain challenges. They haven't been significant or long enough to really start moving market share at this point in time. If they hold and they continue to be a challenge, I do think that could provide positive upside to us. But I wouldn't put much on it for the results that we're reporting right now.

Got it. Okay, great. And maybe, I know you're not assuming that the Cook deal closes in guidance, but hopefully we'll know by later in the year. Do you have any thoughts on where it might be either accretive or dilutive at this point if it goes through as is and what it might look like if you have to divest any of the assets? Do you think it would still be accretive?

Yeah, I mean, as you can imagine, highly dependent upon what we have to sell off and what price we would get for what we have to sell off. At this point in time, I just can't answer that question. If I could, I would. But, yeah, at this point, I just can't give you color on that one.

Okay. Do you think you'd still do the deal if it's going to be dilutive at this point?

Well –

You know what? I'll refrain from answering that one. I mean, I'm a believer in accretive transactions. They need to be strategic, and they need to be accretive, and they need to make sense for your company, short and long term. I guess that's how I would answer it. There's enough moving parts on that one behind the scenes that I just don't want to get into details on that.

All right. Fair enough. I appreciate it. Thanks, Al. Yeah.

Yeah.

Our next question comes from the line of David Saxon from Needham. Please proceed.

Yeah, thanks and congrats on the quarter. Maybe starting on surgical, you called out some pull forward buying for Paragard in front of some pricing. Just wanted to see if you could quantify that impact and talk about kind of what the underlying demand looks like with Paragard.

Yeah, for Paragard, I think we probably had about $3 million if we had to put a number on it that was pulled in from what would be Q2 here into Q1. And that's what I was talking about, like a little bit more positive in this quarter. That'll result in a little bigger hurdle, if you will, in Q2 from that. From a unit perspective, if you will, I would stand by the statements that I made last quarter, which I think we're going to have a hard time getting unit growth this year. There's still patient flow challenges with respect to the OBGYN marketplace and definitely with respect to IUD. So I think for this year, we grow some, but it's not driven by units. It's driven by price. I still think we're kind of there. I hope I'm wrong. I hope I'm being too conservative on that one, but that's kind of where we're at right now.

Okay, got it. Thanks. And then you've talked about some contact lens capacity expansion projects happening this year. Just wondering if you could give an update there and how we should think about the impact to gross margin this year. Thanks so much.

Yeah, we won't have much of an impact on gross margins this year. I think Brian was spot on. We'll see a little bit of improvement in gross margins. I think we've got the potential for more expansion of gross margins in the coming years. But if you look at capacity expansion right now, we've been busy. We were busy last year, certainly busy in Q4. I talked about that last quarter, and we start the year. But doing some expansion in Puerto Rico and Costa Rica, in our U.S. facilities, doing work in the U.K. So there's a lot of facilities around the world where we're doing expansion right now. And a lot of that's tied to capacity expansion. I mean, the long-term growth dynamics within the contact lenses industry are pretty damn good right now. So we're looking at mid-upper single-digit growth, I think, for 10 years or something like that. So we need to put some capacity in to support that. So we're doing that kind of intelligently, if you will.

And if I could just follow up on that last comment about mid to upper single digit growth, I guess, you know, you had a peer talk about kind of flattish to down unit growth. A lot of it's driven by pricing and mix. So just wanted to ask, you know, if you're thinking about mid to high single digit growth, how much of that is, you know, units versus price and mix? Thanks so much.

Yeah. Well, you know, I talk about this kind of every quarter, but somewhere around a third of the world is myopic today. And by the year 2050, half the world is going to be myopic. I mean, that's where the current trends are. So the macro trends are saying that more and more people are going to need visual correction, and that's going to continue year in and year out for a long time. And that's no surprise to anyone on the phone. And we all know how much people are staring at screens and how much kids are staring at screens and so forth. So at the end of the day, you're going to have an expansion of wearers that need visual correction and a percentage of those are going to want contact lenses. So you are going to continue to see more and more people needing visual correction and contact lenses. Certainly here in the near term, you're going to see price. I don't think anybody's raising price like crazy, but I think I'll speak for ourselves and I'll say, you know, we're not trying to gouge anybody by any means. I mean, we're raising price because price of raw materials and other costs are going up for us. And we're not raising any prices to cover all that stuff because part of our responsibility is to drive efficiencies to cover part of that. But at the end of the day, you're going to see pricing. So when you look at pricing, when you look at expansion of the wearer base, when you look at better fitting, and by better fitting, I mean more torques and more multifocals, higher price products, all that kind of activity, all that's going to continue to drive growth. So If we look back 10 years from today and the contact lens industry grew, let's say, 6% a year, I would be comfortable talking about that kind of growth rate. And I think, you know, half of that could certainly be driven, if not more than that, ultimately by expansion in terms of number of wearers.

Great. Thanks so much. Yep.

Our next question comes from a line of Chris Pascal from Nefron. Please proceed.

Yeah, thanks, and congrats on a solid quarter, guys. I was curious, the Cooper Vision upside really came, at least relative to our numbers, outside of the core PSI high or myopia management segments that get all the attention. Is there anything unusual in that non-PSI high part of the portfolio? I know there was a lot of noise last year with LendSolution coming out, and we thought you had at least one more tough comp before you lapped that.

Yeah, yeah. I'm not sure there was anything too unusual in there. I will say that it's interesting you mentioned that because we did have strength, obviously, within areas like our daily silicones and our biofinity and Avera product, but there's still demand for our products out there like ProClear and some of the older products that we have out there. Those are all declining products, but they're maybe not declining as fast as they were, so we're kind of seeing across the board decent demand, including in some of the areas you're talking about that we don't highlight or discuss anymore. Okay, thanks.

And then any update on Cyclas, timing of next milestones there, what we should be looking for as we go through 23?

Cyclas, we're continuing to work on that. We're moving through the fourth year of that clinical data, which we'll get later this year. We'll take a look at it and and hopefully get that back in the FDA's hands and, you know, knock on wood, get an approval off that. We still have work to do there. In the meantime, the product's launched in several markets around the world. We're selling that product. As you know, we have a great joint venture with Essilor Luxottica, a great team there that we're really, really happy about and excited about, and I think a bright future with that product. That's, I guess, what I would say about it right now.

Okay, thanks.

Yep.

Our next question comes from the line of Steven Lichtman from Oppenheimer. Please proceed.

Thank you. Hi, guys. Al, I was wondering if you could talk on my site relative specifically to the US. Any color you can provide in terms of how that ramp is going, what you're hearing from customers, any feedback on that would be helpful.

Sure. I would say here in the U.S., it's kind of the same old, same old. Good, strong, consistent performance. You know, it's not ratcheting up. It hasn't turned and all of a sudden we've hit a point where it's escalating higher at a faster trajectory. It's just good, solid, consistent performance. And we're seeing that in a number of markets around the world. Now, a lot of markets have much higher incidences of myopia than the U.S. does. But if you're talking specifically the U.S. market, I would say good, solid, consistent performance. And I think, frankly, that's what we're going to continue to see, right? I mean, as I sit here today, that's what we've seen, which is more independent optometry offices utilizing the product, more retailers buying groups getting in, evaluating the product, starting to use it. We haven't hit an inflection point, if you will, where it shoots up, but we certainly have not slowed down on it. So I would just say good, solid, strong, consistent growth.

Got it. Great. And then I think last quarter you guys talked about some increased investments this year overall on the OPEX line. I apologize if you mentioned this already, but You know, is that still consistent this quarter? Still expecting an elevated investment on that front? And can you just update us in terms of what some of those investments are?

Sure.

Yeah.

I mean, we're continuing, no question, to have investment activity, whether it's the infrastructure of the business or whether it's commercially based around product launches. I mean, Obviously, in a product like My Day Energist, we're putting dollars behind the launch on that product, and we'll continue to do that. When you look at some of the other products we have, My Day Multifocal, as we roll it out in different spots around the world, we have promotional campaigns, marketing campaigns supporting that. those products. So we'll continue to do that. I would say we did that in Q1, and we're going to continue to do that. I think that what Brian talked about here, that he's really spearheaded of driving efficiencies within our business, that's a different story. So that's not a matter of like cutting back on investment activities that we need to do and that are part of driving the growth of our business. That's about operating our businesses or businesses more efficiently than we've done in the past. And I think that's great. And in today's world, that's something we have to do. So I can tell you that's a focus and maybe a relatively newer focus, if you will, within the organization. But a focus within this organization is driving strong, efficient growth.

Got it. Thank you, Al.

Yeah.

Our final question comes from Navon Tai from BMB Paribas. Please proceed.

Hi, thanks for squeezing me in. My first question is, what is your outlook on OBGYN visits in 2023? And do you foresee a sustainable recovery of Paragard longer term and volume market share opportunities in addition to price increases?

Yeah, I mean, I might be more conservative than many people on that, but I'm still... concerned about patient traffic within the OBGYN office. We've seen some improvements there, but we haven't seen a lot of improvement there. And I think that might be the case as we roll through this year. Now, I'm not saying that's necessarily true on all areas of the OBGYN world, but in the areas where we operate and we compete, that's true in a lot of those spaces. One of those areas where that's true would be in the IUD market. we just haven't seen that foot traffic, if you will, the patient flow return at the levels that I've been hoping. And that's one of the reasons I was saying that I think at the end of the day, Paragard unit volume ends up being relatively flat this year, so that growth comes from price. Again, I hope I'm wrong on that. I hope we see the traffic because that would certainly be upside. But right now, not anticipating that.

Thanks. And maybe one on cookies I made. So if If the FTC requires disposal of the cook business you'd like to keep, could you redirect M&A in other women's health acquisitions?

Well, we could. Right now, I would say that from a capital perspective, our focus is on paying down debt. I mean, obviously, the cook transaction is out there, and we're going to evaluate that cook transaction and come to a resolution on it. Outside of that, I would say the majority of our focus from a capital perspective right now is on paying down debt.

Thank you. Yep.

I would now like to turn the call over to Al White for closing remarks.

Great. Well, thank you. Thank you, everyone, for your time and for joining the call today. As I mentioned earlier, this is exactly how we wanted to start. this fiscal year off on a good basis. So good revenue growth at Vision, good revenue growth at Surgical, efficiencies within the company driving earnings upside. And I think we're well positioned to have a good Q2 to Q4. So I look forward to seeing you guys during the quarter and certainly to our next quarterly conference call. Thank you.

Thank you, ladies and gentlemen. This does conclude today's call. Thank you for your participation. You may now disconnect.