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spk01: Good afternoon. My name is Emma and I will be your conference operator today. At this time, I would like to welcome everyone to the Cooper Company's second quarter 2023 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press the star one. We ask today that you limit yourself to one question and one follow-up. Thank you. Kim Duncan, VP of Investor Relations and Risk Management, you may begin your conference.
spk07: Good afternoon and welcome to Cooper Company's second 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. 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.
spk10: Great. Thank you, Kim, and welcome everyone to Cooper Company's second quarter fiscal 2023 conference call. This was another strong quarter with Cooper Vision and Cooper Surgical both outperforming expectations. For Cooper Vision, we reported record quarterly revenues and our ninth consecutive quarter of double-digit organic revenue growth. For Cooper Surgical, we reported record quarterly revenues and our fertility business reported its 10th consecutive quarter of double-digit organic revenue growth. and earnings exceeded expectations. Our teams are delivering impressive, consistent growth, and we're seeing nice momentum, so we remain very positive about the future. Moving to the numbers, consolidated revenue reached a record quarterly high of $877 million. Coopervision posted revenues of $589 million, up 10% organically, and Coopersurgical posted revenues of $288 million, up 5% organically. Cooper Vision's growth continues to be led by our daily silicone hydrogel and myopia management portfolios, and Cooper Surgical's growth was led by our fertility and OBGYN medical device portfolios. Non-GAAP earnings per share were $3.08. For the quarter, and reporting all percentages on an organic basis, Cooper Vision's revenue growth was strong and diversified. By geography, the Americas grew 6%, EMEA grew 7%, and Asia-Pac grew 19%. Results were driven by new product launches, expanded product ranges, market-leading flexibility, and growth in key accounts. Within categories, torques and multifocals remain especially healthy with both posting growth of 15%. Within modalities, daily silicone hydrogel lenses grew 17% with especially strong performance 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 MyDay and Clarity available in a wide range of spheres, torques, and multifocals. And lastly, our silicone hydrogel monthly and two-week lenses, BioAffinity and Avera Vitality, reported growth of 5%. Turning to products, the U.S. rollout of our latest innovative offering, MyDay Energis, is going exceptionally well. This premium lens caters to the demands of today's lifestyles by incorporating digital boost technology to alleviate the impacts of digital eye strain. Interestingly, we've been receiving a lot of positive feedback that patients in their 20s and 30s really like this lens, which is great news as the original BioAffinity Energist has been more heavily used by patients in their 40s. Given almost all of us are spending considerably more time on screens, which reduces blinking and causes eyes to dry out and become uncomfortable, It's not surprising that wearers of all ages are appreciating the digital boost in their MyDay energies. Meanwhile, MyDay multifocal sales remain robust, and we're seeing great momentum in new geographies as the lens becomes more readily available in EMEA and AsiaPAC. I'm happy to report these launches are proceeding better than expected, with feedback from customers and practitioners remaining very positive. Our MiDay Toric parameter expansion rollout in North America is also continuing successfully, and our recent launch in EMEA is ahead of schedule. Given the success of this product, we'll be increasing availability throughout EMEA, and we're looking forward to launching an Asia pack in the near future. With almost 4,000 SKUs, MiDay Toric has set the industry standard with the widest daily Toric range in the market by a wide margin. With this broad range, it's providing many two-week and monthly toric wearers the option to enjoy the freedom of wearing a daily contact lens for the first time in their lives. To conclude on my day, this technologically superior product family is performing exceptionally well and momentum is strong. And lastly, within the daily segment, our clarity family of lenses continues to perform well by offering a high-quality option at a mass market price point. Outside of dailies, demand for BioAffinity remains healthy, led by Torex multifocals and extended range offerings. We still have some capacity challenges, but with new production continuing to come online, we remain in good shape to meet ongoing demand. Moving to myopia management, we posted revenues of $30 million, up 36%, with my site up 49%. This slightly exceeded expectations and keeps us well on track to reach our goal of $120 to $130 million this year. MySite and Ortho K sales were strong around the world, except China, where we didn't see a rebound until late in the quarter. Regarding MySite specifically, we're seeing improving performance as we increase availability in key accounts, target practices with higher levels of pediatric patient flow, and integrate the sales process into our regular sales channel. All this bodes well for MySite, but also for our other products, as there's a nice halo effect with my site practitioners accelerating their use of other Cooper Vision lenses. It's important to remember that my site 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 progression of myopia in children along with reducing the risk of long-term eye health problems associated with myopia, such as cataracts, retinal detachment, and macular degeneration. To finish on CupraVision, the contact lens market grew 12% in calendar Q1, with CupraVision growing faster at 14%. We expect the market to remain healthy, supported by the macro growth trend and more people needing vision correction. It's estimated that 50% of the global population will have myopia or near-sightedness by the year 2050, up from roughly 34% today. This is driven by the increasing use of digital screens, among other factors. When you combine this with the ongoing shift to silicone hydrogel dailies, the increasing focus on higher-value products such as torques and multifocals, and higher pricing, we expect many years of solid growth for the industry. Within this, we expect Cooper Vision to remain a leader with its robust product portfolio, ongoing product launches, fast-growing myopia management business, and leading new fit data. Moving to Cooper Surgical, this was another strong quarter. Our fertility business posted sales of $125 million, up 11% organically for its 10th consecutive quarter of double-digit organic growth. Success was seen throughout the product portfolio as the team executed exceptionally well with our diverse offerings within consumables, capital equipment, reproductive genetic testing, and donor activity. Regionally, the Americas and EMEA continue to lead growth, and the future is bright as we have solid momentum in both regions. Asia-Pac is also performing well, and we're excited about the potential of that region. With the uncertainty of the Cook transaction, we do have work to do in that region to build out our footprint, and we'll do that. In this light, we're currently doing target investment activity while also exploring ways we can advance efforts more quickly. Overall, though, we're well positioned to maintain success given our strong team, diverse portfolio, and global momentum. Regarding the broader fertility market, we compete in a segment that's now over $2 billion in annual sales, and we expect strong growth for many years to come. This industry is unique in that it has multiple growth drivers, starting 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 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, increasing fertility benefits coverage, and technology improvements for both male and female infertility challenges. The World Health Organization just released updated data showing that the prevalence of infertility affects more people than we thought, with approximately one in six people having experienced infertility at some stage in their lives. So the macro trends clearly support this industry's growth. Moving to office and surgical products, which includes OBGYN medical devices, stem cell storage, and Paragard, we posted sales of $163 million, up 1% organically. Within this, OBGYN medical devices reported excellent results, growing 11%, driven by positive trends in patient activity and strength in several core products. In particular, our labor and delivery group continued performing really well. Our stem cell storage business grew 3%, in line with expectations. Our current educational campaign, which is starring Chrissy Teigen, highlights the importance of preserving newborn stem cells And we're really happy with the positive feedback, and we're looking forward to that effort gaining more traction. Meanwhile, Paragard declined 15%, primarily due to buy-in activity from the price increase in Q1. Our IUD revenues remain a challenge, and we're continuing to not expect any unit growth in Paragard this year. So any growth we do see will be driven by price. To conclude on Cooper Surgical, it's with great pride that we say that every minute, somewhere around the world, a baby is born using Cooper Surgical products. Our business makes a difference in people's lives, and we love that. We're also operating in several markets that have fantastic long-term sustainable growth characteristics, such as fertility, so we feel good about where we're positioned and what the future holds. Before turning the call over to Brian, let me summarize by saying this quarter really highlights the stability and consistency of our businesses. Cooper Vision posted its ninth consecutive quarter of double-digit growth, and Cooper Surgical's fertility business posted its 10th consecutive quarter of double-digit growth, and both businesses reported record quarterly revenue. Our momentum is strong, our investments are yielding solid returns, and our management team is fully engaged in executing at a high level. And lastly, I hope everyone has had a chance to read our recent ESG report, which highlights a lot of accomplishments. Advancing our ESG efforts is an important part of Cooper's culture, and I'm proud of the success we've had and excited about what we'll be accomplishing in the future. And with that, let me turn the call over to Brian.
spk11: 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. Second quarter consolidated revenues were $877 million, up 6% as reported, or up 8% organically. Consolidated gross margin was up 40 basis points to 67.1%, driven by currency improvements. Operating expenses grew 9% to 43.5% of revenues, and consolidated operating margin was in line with expectations at 23.7%. This was down from 24.5% last year, primarily due to commercial investments and distribution. Below operating income, interest expense was $26 million, and the effective tax rate was 13.9%. Non-GAAP EPS was $3.08, with roughly 49.8 million average shares outstanding. To summarize the P&L this quarter, revenues came in ahead of expectations, while margins met expectations. The net impact from non-operational items, such as FX, interest expense, and taxes, was slightly negative against our initial expectations. Overall, we exceeded our consolidated EPS expectations by roughly six cents, and we'll pass along that in guidance. Free cash flow was $51 million, including CapEx of $74 million. Net debt decreased to $2.51 billion. And during this last quarter, we fixed the interest rate on an additional $300 million of debt. So we now have $1.3 billion fixed, going out roughly two to four years. Regarding 2023 guidance, we're increasing expectations for revenues and earnings, by incorporating our Q2 revenue and earnings beats. This results in consolidated revenues of $3.51 to $3.57 billion, up 7% to 9% organically, with Coopervision revenues of $2.37 to $2.4 billion, up 8% to 10% organically, and Coopersurgical revenues of $1.15 to $1.17 billion, up 5% to 7% organically. Non-GAAP VPS is expected to be in the range of $12.66 to $12.96. Interest expense is expected to be around $110 million, assuming another 25 base point rate increase by the Fed this month. And the effective tax rate is forecasted to be slightly below 14.5% when incorporating Q2. Within this, We're continuing to invest in our businesses to support long-term growth objectives. Demand across both businesses remains strong, and the long-term growth trends are very positive. Before concluding, let me add that we took a $45 million charge this quarter for the breakage fee associated with the pending acquisition of Cook Medical's reproductive health business. We now believe it's probable that this transaction, as originally contemplated, does not close. We are still working on the deal, though, and we'll provide updates as we have more information. In conclusion, this was another strong quarter. We're very happy with the consistency of our businesses, and we have great momentum. We're closely monitoring expenses and will continue to do so, but we're also investing to drive long-term sustainable revenue growth. We're taking guidance up again. and remain positive will execute at a high level, delivering strong operating results through the back half of this year and into next year. And with that, I'll hand it back to the operator for questions.
spk01: As a reminder, if you would like to ask a question, press star followed by the number one with your telephone keypad. Again, we ask today that you limit yourself to one question and one follow-up. Thank you. Your first question comes from the line of Jeff Johnson with Baird. Your line is open.
spk08: Thanks, guys. Good evening. Can you hear me okay?
spk10: Yep. Hey, Jeff.
spk08: Hey, guys. So, Al, I know when we look at, like, the GFK data, that sell-out data, you guys and everybody else kind of report sell-in data, so it's never apples to apples in that, but I think it's pretty clear January was a very strong month for contact lenses. It really was across all of MedTech. April, obviously, a weaker month. So just maybe help us understand kind of the gating throughout the period of the quarter you just reported, February, March, April, and then maybe any updates on what you've been seeing so far in May. And just, you know, kind of the range of implied guidance for CBI now, kind of 6% to 10% in the back half, just how you're feeling about the low end versus the high end of that range. Thanks.
spk10: Yeah. Um, and you're right. January was a really strong month. Um, as we worked through the quarter, um, it was okay. I mean, February is a good month. March, April was a weaker month for us. You can kind of see that, you know, if you look at the calendar quarter compared to the fiscal quarter for us, cause we grew in the calendar quarter, um, 14% and then grew 10% in the fiscal quarter. So when you trade those months up, um, so you're right. April was a little weaker. Um, May has been a good month. We did have some stuff move kind of from April into May, but May has been a good month for us. So we've seen the contact lens marketplace, at least for our business, rebound in the month of May. So that's been a positive.
spk08: Okay. And then maybe just as a follow-up, if you can address that CVI guidance that's implied in the back half to 6% to 10%, just kind of high-end, low-end, where your confidence is there. But the real follow-up question I wanted to ask was on pricing. It seems, talking to Alcon and some of your other competitors, looking at some of the pricing data we have for your lenses. There's a good price tailwind this year for, I mean, probably two to three points, something like that. Is that about the ballpark you're expecting? And then secularly or longer term, you know, how comfortable are you if we stay in a persistent inflationary environment that you can maybe keep up to 3% pricing a year for the next few years? Thanks.
spk10: Sure. Yeah, I think you're spot on. I think that 2% to 3% net pricing, talking about net pricing, is the way to look at it. The actual pricing that we've seen out there has been higher. The actual price increases have been higher. But if you look at the rebates and everything else, 2% to 3% is probably a good way to look at it right now. I think that's going to continue. I think that we're probably a little bit behind our competitors in that because we do have a lot of large contracts, especially some of the bigger store brand contracts. that are multi-year contracts. So as those renew, we'll look at opportunities to adjust pricing on those. But I think that you're seeing that now. And frankly, I think you're going to see that for the next several years, given supply constraints within the industry in general. If I look at our performance in the kind of back half of the year, the 6% to 10% you're I expect to be at the higher end of that range unless something happens to derail that. It'd have to be something unexpected, right? Some economic event or something out there. I mean, we spent some time, even this past week, it's been a little bit of a tough time for us coming up with some of the guidance and so forth with the debt ceiling and all the other activity that has been going on here recently. But no, we have good momentum. I feel optimistic that we'll continue to put up strong revenue numbers.
spk13: Thank you.
spk01: Your next question comes from the line of Larry Beigel with Wells Fargo. Your line is open.
spk04: All right. Thanks for taking the question. Congrats on the nice quarter. Al, can you hear me okay?
spk08: Yep, I can hear you.
spk04: Hello. Yeah, I guess I'll ask the question on the guidance first here. You know, the top line, you know, you raised the top line and the bottom line by the amount that would be in the quarter. I guess, you know, I would think FX was a little more favorable, particularly on EPS. Brian, maybe you could help us with that bridge, you know, how much currency changed, you know, from last quarter to this quarter for fiscal 23. And I guess the question is why, you know, why not raise by a little more than the B? And I had one follow-up.
spk11: Larry, I'll take the currency question. You know, currencies kind of were starting to move in our favor as we were working through the quarter. And then they retraced. I mean, there was a little bit of positive, very little positive sort of to the P&L from revenues down to OI. But really, the impact that we saw in the quarter was a negative tied to our FX losses below the line. We have, as we talked about before, you know, we're hedging some of our material currencies, but we still have several currencies and smaller exposures that we're not hedging. And so we had a loss below the line that took our earnings down to 308. It would have been a little bit better. But, you know, we basically adjusted for the currency in the quarter. But the impact for the second half of the year for currency, strangely or interestingly enough, kind of all netted to being sort of the same. So we're still looking at a 2.5%, roughly 2.5% headwind to revenues for the year and, you know, kind of a weaker 1% tailwind to EPS for the year.
spk13: And why not raise by more than the beat? On EPS? Yeah.
spk11: Well, we raised by the operational, the net beat. But with everything, as Al just said, with the macro uncertainty, Fed, FX, recession, we just decided, look, we're exercising prudence and setting guidance. The good news is that we're not seeing demand or behavior shifts and You know, and since gross and operating margins fell in as expected and things are progressing, we're just exercising some caution in light of the macro.
spk04: That's helpful. Just, Al, on my follow-up here, Asia-Pac plus 19%, really strong. And myopia management, if I heard correctly, the 30 million, up 5%, 5 million, I'm sorry, sequentially. That was one of the strongest, you know, sequential growth, you know, absolute growth increases we've seen in a while. Just talk about the drivers, you know, in Asia-Pac and myopia management and the sustainability. Thanks a lot.
spk10: Yep. Yeah, interesting on myopia management. It was a good quarter. And we're gaining some traction there on my site finally. We've talked about it for a long time. It's great to finally be gaining some real traction. And interestingly, it was not China. We actually struggled in China with MySite this quarter until the very end of the quarter. So the MySite was being driven by success here in the U.S. and throughout Europe were big drivers in some of the markets in Asia-Pac. So I think we're in good shape with our myopia management business, and I'm expecting Q3 to be a good quarter, Q4 to be a good quarter. As I was saying, I mean, we're certainly in good shape to hit, if not beat, our $120 to $130 million quote-unquote guidance range for myopia management. Asia-Pac, we're in good shape. I would say Asia-Pac, China being a little bit different if I look at our regular lenses and that it was more of a contributor in terms of our regular sales. But no, Kathy's doing a great job running that business, and we finally have some momentum going in Asia-Pac, and I think we're going to continue to put up good quarters as we move through the back half of this year.
spk04: Thanks for taking the questions.
spk01: Your next question comes from the line of Joanne Wunsch with Citi. Your line is open.
spk06: Good evening, and thank you for taking the question. Can we pick apart Paragard a little bit? Because I want to make sure that I understand what's going on there. Is this another setup where you've got four quarters of pricing headwinds and then you start to grow again? Or how do I think about that? Thank you.
spk10: No, great question. No, it won't be that way. I would expect Paragard to grow here in Q3 and Q4 and for us to kind of put up low single-digit growth probably for this year. We did have the tough quarter here Q2, obviously, but some of that was tied to kind of inventory in the channel, some of that kind of movement around the price increase. So I wouldn't necessarily read too much into that. I would kind of restate what I said on some of the prior quarters and We're not envisioning unit growth there, but I still think we'll post an OKQ3, OKQ4, and post growth for the full year.
spk06: Excluding Paragard, is there a way to describe how the rest of that business is doing? Because that was pretty much only the weak link in the quarter. Thank you.
spk10: Yeah, well, obviously fertility really strong. Just that team's doing an amazing job, just consistent, strong performance. And it's really diversified around the world and by products or product families. So fertility is in good shape. We should continue to do well in fertility. Our med device business is doing really well, kind of our traditional OBGYN medical devices. We've seen some strength there in the labor and delivery side and some of our surgical products doing really well. So, yeah, I mean, outside of Paragard, that was a pretty good quarter. I mean, Holly's got that business humming over at Cooper Surgical, so expecting them to continue to put up good results.
spk01: Thank you. Your next question comes from the line of Anthony Petrone with Mizuho. Your line is open.
spk00: Thanks again. And maybe just a A couple of clarifying on Paragard. Can you remind us, Al, just the price increase that was put in earlier in the year and the extent of the volume declines, I guess, through the first two quarters of the year? So that would be my first question. And then maybe just in terms of overall share in contact lenses, at least according to our numbers, it looked like certainly there was gains for Cooper and Torex as well as multifocals. but perhaps maybe a little bit of slippage in dailies. Again, just looking at the fiscal at plus eight, and it looked like competitor data for dailies was a little bit higher than that. So just an overview on the share trends through May and lenses. Thanks again.
spk10: Sure. Sure, Anthony. The paragraph price increase, I think, was 6% that we put in place. Yeah, from a volume perspective, I don't know if I'd highlight necessarily too much on volume. What you're seeing... here in Q1 and the quarter we just had, and frankly, you'll see a little bit here in kind of Q3, is tied more to channel inventory, whether it's through the distributor or down actually into the physician's office. You're seeing some fluctuations in that driving our as-reported results. So I think if you look through that, which I try to do, right, and say, regardless of inventory, how are we looking at actual volume, that's where volume's been flat. Like, we just haven't really seen those increases. And I'm not anticipating that we're going to here in the near term. So again, I said it last quarter, I'd say it again. I hope I'm wrong on that and being conservative. But as of right now, I think that's where we stand with Paragard. But again, a lot of movement tied to inventory. So I do think that we'll get growth in Q3 and Q4, to be clear. And I do think we'll post some low single-digit growth in Paragard for the full year. On contact lenses, yeah, I mean, this was a great quarter. Now, if you look at it and you kind of step back and you say, you know, BioAffinity and Avera grew 5%, you can see our non-single-use sphere other grew 2%. So that's what you're getting to, Anthony, right, which is kind of the sphere side of things. We did have a couple larger BioAffinity orders that fell from April into May, and you had quite a bit of BioAffinity sphere orders activity there so I wouldn't read too much into that I mean if you're thinking about a quarter end yes that number came in a little bit lighter but we'll pick that up because we started off Q3 with a good quarter from a good perspective when you look at that part of our business very helpful thanks I'll get back in queue your next question comes from the line of Robbie Marcus with JP Morgan your line is open
spk09: Oh, great. Thanks for taking the questions. I wanted to start with free cash flow and cash flow generation in general. It's been a little low the past few quarters. Maybe speak to the reasons behind it and how you're thinking about cash flow generation going forward.
spk11: Hi, Ravi. Yeah, sure. So operating cash flow continues to drive higher. We do have some things that are driving free cash flow a little lower. One of them, obviously, is CapEx it's quite a bit higher than in years past. Some other larger components that are driving it, you know, that are having an impact downwards are, frankly, interest. I mean, our interest expense is going from, you know, is doubling from 53 to 110 million last year to this year. Taxes, you know, over the course of, depending on what time horizon you're looking at, our taxes, our tax rates keep going up. You know, our inventory levels from last year to this year also are going higher. So, that's having an impact as well. But overall, I mean, our operating cash flow continues to be strong and, you know, expected to deliver still, you know, strong free cash flow for this year, just, you know, offsetting, obviously, the operating cash flow is just a higher CapEx, which we've been talking about, you know, around $400 million this year.
spk09: Great. And then maybe on new fits, you talked about strong global new fits. Are you seeing any divergence uh, in different regions. Um, just trying to get a sense of the future of the business and the, uh, the trends there. Thanks a lot.
spk10: Uh, from a new fit perspective, no, not really. Um, in terms of regional, uh, we're seeing pretty good activity there. There's still a lot of demand on optometrists for appointments and so forth. And, and the new fit activity is pretty strong and our, our Cooper vision, uh, new Fed activity is looking really good right now. We're winning certainly our fair share when it comes to new Fed. So I'm pretty optimistic from that perspective.
spk09: Great. Thanks a lot. Yep.
spk01: Your next question comes from the line of Matthew Mission with KeyBank. Your line is open. Okay.
spk14: Hey, guys. This is Brett on today for Matt. Thanks so much for taking the questions. Just wanted to ask a little bit about the trends in Europe given, you know, how robust several of the historical quarters looked. A little bit of a deceleration here. Just wondering if there was anything driving that step down.
spk10: Hey, Brett. We're number one in Europe when it comes to contact lenses. We've got a fantastic franchise there. The team's done a great job not only building up our infrastructure, if you will, around a lot of the independent optometrists, but also with some of the key accounts where we're especially strong. I think that the The European market is doing well. We have not seen a pullback in that market tied to any economic concerns or anything. The contact lens market is strong there, and we're kind of leading the charge, if you will, and I think we'll continue to do that.
spk14: All right, thank you. And then just turning to my site, it sounded like trends in America in retail and key accounts was actually the driver of the step-up this quarter. So Do you see potential maybe to drive some upside to that guidance range, given China now seems like it's starting to recover and might actually be an incremental driver to the positivity you're seeing in the Americas?
spk10: I guess the short answer to that would be yes. Yep. We're in a better spot when it comes to my site today than we were six months ago when we initiated that 120 to 130. So I think we've got a good shot to be at the higher end of that range or even push above it.
spk14: All right, awesome. And then last question from me. I think you touched on some of the continued supply chains in the industry being a positive driver for pricing growth. I was wondering if there are any pockets of particular issues from other companies that might be benefiting Cooper, given the investments you've been making in your own production. Thanks very much for taking the questions.
spk10: Yeah, that's a tough one. I don't think there's too much there in terms of disruption from others. There are supply chain challenges, I think, that we all have right now. Our competitors do, and we do too, in terms of just being able to produce enough product. I mean, in a lot of cases, I think a lot of us are selling everything that we can make right now. So not only are we dealing with whatever supply chain issues you could have associated with distribution and everything else, and all those are certainly lightening up, but we're also dealing with demand. I mean, I'll talk about ourselves, right? We're a business that's been healthy for a long time, growing around 7%, and now we've pushed up, what, our ninth straight quarter double-digit growth. That puts pressure on the business in terms of having to make more product and run more product through your distribution channels. So there's just a natural challenge on that from a supply chain perspective. I think it's industry-wide, and we're all going to continue to deal with it because I think we're all increasing our production capabilities and kind of expanding our capabilities throughout our logistics networks. But it takes time, it takes effort, and the demand is there, right? So we're going to continue to see strength in the contact lens industry. I don't think you're seeing too much in terms of one person struggling so much that someone else is picking up business as much as you're seeing supply chain issues or challenges just because of the global demand of the contact lens industry.
spk01: Your next question comes from the line of Jason Bednar with Piper Sandler. Your line is open.
spk13: Hey, guys. Thanks for taking the questions.
spk15: Al, I wanted to ask on BioAffinity Toric. We've been hearing of some greater channel inventory shifts from a competing Toric lens to BioAffinity Toric. I know this has been going on for a while, but, you know, are you able to quantify or do you have any metrics around, you know, maybe what kind of share you've picked up with biofinity TORIC, how much this is maybe adding to the TORIC revenue growth is pretty impressive in the quarter. And then, sorry to pack a few into here, but how much tail is left, you know, from this conversion to TORIC and whether or not you're seeing any, again, channel inventory shift with TORIC or even more broadly?
spk10: Yeah. There's probably something there, but I just don't put too much weight on it, honestly. I mean, we've had some competitors pull back a little bit on some of their SKU ranges, and we have those SKU ranges. As a matter of fact, our BioAffinity Toric family is the widest Toric offering out there. And when you roll in things like the Toric Multifocal and so forth, I mean, it's just an amazing franchise right now. We've been building that franchise out for a number of years. We spent a lot of time and a lot of money on the manufacturing side and also on our distribution network to be able to manufacture and distribute all those products in a wide SKU range. So do I think that we're maybe getting a little bit of help because some competitors or a competitor has pulled back on some of their SKU ranges? You know, yeah, probably. But this isn't coming because of like one quarter or an action that somebody took. This is coming because of a multi-year strategy that Cooper Vision has deployed to drive growth in our TORCs. Yeah, I mean, Jerry Warner runs that business for us, does a fantastic job. He's just laid out a great strategy there in terms of torques and multifocals, appreciating that the market is growing. That portion of the market is growing faster than the sphere market, and it's a really sticky and great market. So, I mean, we've, again, invested a lot of time and money for a lot of years to be in the position we're in. And I give the team a lot more credit around that activity than I do saying that a small movement by a competitor is allowing us to take a lot of share. Okay, that's helpful.
spk15: And maybe if you just in the follow-up here comment on whether or not you're seeing any inventory shipped in the channel at all. But then separate follow-up, I actually wanted to ask another one on Paragard here. I think you've probably tried every which way to get this product line to grow. We've seen different advertising, sales reputations, greater commercial focus. The effect here has been tough. Does there come a point where you'd look to evaluate different options for Paragard, or maybe, better said, a strategic and financial fit still make this a good asset for Cougar? Thanks.
spk10: Yeah, on the channel inventory side, I'd say we probably ended our fiscal quarter a little light on channel inventory. I kind of referenced that a little bit with some of the bioaffinity shipments, but I'd say we were probably a little lighter from a channel inventory perspective. Nothing to go crazy about, but, you know, since you're asking. On Paragard, yeah, you know, boy, we bought that. We put some money into it. I think we've gotten a great return on that asset. But having said that, we put some money into it. We put some TV advertising out there and a lot of different marketing campaigns and so forth to really try to energize the non-hormonal IUD market. We had some success on that. Not a ton. You kind of get to where you're at today. There's some fundamental shifts in the market that are causing challenges for us. You know, you're not seeing women go into their gynecologist as much as they were pre-COVID for kind of annual wellness exams and so forth. And as that's happened, combined with the fact that a lot of birth control options, especially birth control pills, the availability has increased or the ease, if you will, to get that birth control has improved. it's hurt the IUD market and it's hurt Paragard. So, you know, we're evaluating that like we always do right now. I mean, that's a good product. It does okay in the marketplace, right? It's a decent fit in terms of our women's healthcare franchise. But we'll always evaluate that just like we do everything else in terms of kind of our long-term strategic planning.
spk13: Very helpful. Thank you. Yep.
spk01: Your next question comes from the line of John Block with Stiefel. Your line is open.
spk03: Great. Thanks, guys. Good afternoon. You know, really good quarter, but just despite the top line beat, you came in a little bit hot on OPEX as a percent of sales relative to our estimate. And, you know, if I look at sort of fiscal 1H23, I think OPEX as a percent of sales, you might be up roughly 100 bits from last year. Brian, I think you mentioned some investments. Is that CBI? Is that CSI? You know, where are those investments being made? And Does that sort of remain front and center for the next couple quarters until sort of you lap them, call it exiting fiscal 23, and we can think about recapturing leverage into fiscal 24?
spk11: Yeah, good question. Thanks, John. Yeah, I mean, I'd say our OPEX kind of, the total OPEX dollars came in kind of where we expected, along with our gross and operating margin results. You know, we continue to invest in commercial activities, including sales and marketing, tied to the product launches and the rollouts that Al mentioned in his prepared remarks. You know, we had also continued fertility investments, and that includes kind of building out, you know, more of our competencies in various regions like Asia Pac. And then lastly, I mean, we still have inefficiencies that we expected in distribution that were higher year over year, and Al just mentioned sort of the challenges that we have when revenues continue to drive higher and the strain it puts on distribution. But we're working through those challenges, and I'd say total OpEx, again, landed where we expected, but our real focus is on driving operating margin expansion. And like I've said before in the last call, and I'll say it again here, our operating margin, at the midpoint of our constant currency revenue guide, we're expecting constant currency OI growth of around 11%. you know, as long as, you know, we're driving that operating margin expansion, and that's in this year driven in large part from gross margin expansion, then we're putting up a leveraged P&L. And so, you know, that's the goal for this year.
spk03: Got it. Fair enough. And maybe just to shift gears now, this one might be for you, but, you know, within APAC, I know you're overweighted to Japan, but sort of want to take the opportunity to ask what you're seeing in China, you know, the slope of the business of late. I just think there's been a a lot of headline, noise, news. And so just love to get your thoughts on what you're seeing on the ground, you know, in that sort of April into May timeframe. Thanks.
spk10: Sure. Yeah, we've seen some improvements in China, but I mean, China kind of even now comes and goes a little bit. When you look at it from our perspective, it's probably two different stories, right? Because you have our regular contact lens business there, the retail side, if you will, which we've seen some traction on and we've seen some improving results. And then you have the myopia management side, which is my site, but also a lot of OrthoK that gets sold through the hospital. That's a different channel. So I do think that we're seeing some improvements in that channel, in the hospital channel, which is actually going to help us a little bit on OrthoK and my site. The other side, the retail, the general population, if you will, kind of comes and goes a little bit. Now, having said that, John, remember that's a pretty small market for us. I mean, some of our competitors are have much bigger shares in China than what we have. Perfect.
spk03: Thanks for the call, guys.
spk01: Your next question comes from the line of Stephen Lynchman with Oppenheimer. Your line is open.
spk05: Hi, guys. This is Ron on for Steve. I wanted to ask you guys about side glass a little bit. What is your estimate for the approval timing? And with my side being in the field for a bit now, how are you thinking about how side glass will be positioned in the field versus it? Thanks.
spk10: Yeah, so no real update on SiteGlass when it comes to regulatory approval here. Waiting to receive the final four-year data and compile that and then take next steps. So nothing really to add from that perspective. As you know, we've got a great partnership with Essilor Luxottica on that product, and the product's been launched in many markets around the world, and it's selling and it's doing well. That's within the joint venture itself. So I continue to be really optimistic about that product long term. But that is within that joint venture, not in RP&L, other than the investment activity gains or losses below the line. When it comes to my side and how that looks, I mean, to me, glasses are going to do nothing but be a positive for the myopia control market. We want people getting into myopia control. They need to be wearing the product, so children need to be wearing those glasses. Compliance is really important. As children get into myopia control, let's say they do that a lot at 5, 6, 7, 8, 9, 10, certainly as they get to become teenagers and certainly anyone who has compliance as an issue, you're going to want to be moving to contact lenses. So anything that we can do to drive the myopia control market forward and increase it is a positive for us, positive for my site, positive for the industry.
spk05: Thanks. That's really helpful. Um, and I guess sort of a follow up on that. Um, you guys mentioned that, uh, the headwinds on myopia in China are kind of abating towards the end of the quarter. Can you say what changed like towards the end? What was the shift? Cause China has been a headwind on myopia for a little bit.
spk10: Yeah, it's really, those products are sold through the hospital channel. Um, so you need the hospitals to kind of open up, um, and, and, uh, have more kind of, if you will, availability for children and so forth. You need to transition back to a more traditional, normal hospital environment within China. So I think that's what we're seeing right now, right? As COVID starts to get in the rear of your mirror and you're getting patients going back into the hospital for more traditional needs and so forth, you're opening up some space for optometry and that's helping with the fittings.
spk13: Thanks.
spk10: Yep.
spk01: Your next question comes from the line of Patrick Wood with Morgan Stanley. Your line is open.
spk02: Amazing. Thank you very much. Two left from me, please. I guess the first one is on the fertility side, maybe just zooming out. If we just hypothetically say Coke doesn't close, how committed are you to APAC as a region? You hinted by saying maybe some accelerated pathway to growing there. I'm just curious if you could put a little bit of meat on the bone there how you feel about the region, how critical that is for you and fertility going forward?
spk10: Yeah, that's a really good question. That is an important region and we are going to invest in that region. So we are right now, we're going to continue to invest there. One of the primary reasons we were doing the Cook transaction was for growth in that region. There's a number of markets there that are really, really strong fertility markets. I mean, really strong growth rates. So we have a solid presence I think in parts of that region like Australia and so forth but there's a number of countries where we don't have a presence or the presence is pretty small we need to hire some people build out some infrastructure there so we're evaluating that activity right now because when you look at our business as a leader in the space right and as well as we do with our broad portfolio and the Americas and throughout Europe and in parts of Asia pack there's no reason we shouldn't be able to build out infrastructure and continue to drive growth there So that's a matter of, you know, the typical thing we do as a company, which is evaluate those opportunities, look at the return metrics associated with them, because you do have inefficiencies anytime you're building out infrastructure in a new region like that. So we're going through the process and evaluating all that activity right now.
spk02: Amazing. And then one more, which is, I was really interested around my side and the positive halo effect of selling and the rest of your offering. I mean, Is that more a function of my site opening the door in the first place where there isn't a relationship because it's such a unique offering and then being able to sell more in? Or is it more about incremental depth with accounts where you already have that relationship?
spk10: Yeah, that's a really good point because you're right. There's a lot of optometry offices where they're much stronger with some of our competitors to the point where they might just use competitor products and not our products. And my site has cracked open the door in a number of those accounts. And it's gotten our people in there, and all of a sudden we're able to have conversations about products like MyDay, as an example, and about our extended Toric ranges and so forth. It's opened the door, and it's continuing to open the door into more new opportunities for us. So I do think there's some in terms of existing accounts where we're going in with an innovative product, right, and they can kind of see the technology advancements and they get more comfortable with Cooper. But you're spot on. I would not discount the importance of kind of virgin Cooper stores, if you will, where we can go in there and finally start selling some of our core products.
spk02: Really helpful.
spk10: Thank you for taking the questions. Yep.
spk01: Your next question comes from the line of David Saxon with Needham. Your line is open.
spk12: Yeah, thanks for taking the questions and congrats on the quarter. Maybe I'll ask two on Cooper Surgical, starting with Paragard. I heard the comments about flat volume growth, and you talked about some of the market dynamics. Do you think Paragard can return to seeing volume growth over time, or is this flat volume growth more of a longer-term expectation, and pricing is really the key driver over the long term?
spk10: My gut tells me, depending upon how you define long-term, but certainly for the coming years here, that volume is going to be flat. I think when you look at the availability of other offerings, the ease of availability and the additional offerings that are out there, now those are on the hormonal side, but when you look at the birth control market out there, I think the volumes for IUDs and Paragard are going to be flat for a little while here.
spk12: Okay, got it. And then in fertility, I just wanted to hear what you're seeing in terms of new fertility clinic openings, you know, trends there and any way to size how much of fertility growth is driven by like de novo clinics opening up and kind of how big of an opportunity that is for you guys. Thanks so much.
spk10: Yeah, the new fertility clinics is kind of a phenomena outside of the U.S., if you will. You're definitely seeing more of that activity in some of Asia Pac and some parts of Europe. You're seeing kind of consistent opening of new fertility clinics. The numbers aren't that huge in the end of the day, you know, but they're big enough to continue to drive growth because we see some of that in our capital equipment sales. And obviously, you know, that's a great part of our business. Anytime you can get capital equipment in, you've got the consumables following afterwards. So I'm not sure I've looked at it in terms of quantifying it because it hasn't been a spike or anything. It's been consistent here for probably the last four or five years. Even through COVID, we were seeing new clinics continuing to open up. So I guess I would probably answer that by saying, you know, the fertility industry, I But obviously, it's growing more towards the upper end of that, certainly. Embedded within that is new fertility clinics opening. And I would envision the number of new clinics that we've been seeing open over the last five years or something to continue on a very similar pace probably for the next five years. Great. Thank you.
spk13: Yeah.
spk01: Your last question today comes from the line of Anthony Patron with Mizuho. Your line is open.
spk00: Hey, just wanted a follow-up on Cook. Apologies if I missed it, just had another call there. But maybe just, it sounds like it's certainly the probability is lower, but there's still efforts to find a resolution. So maybe a little bit on just where the process sits and probability for close. And under a scenario where it does not close, it was an $875 million commitment and Maybe just thoughts on where Cooper Surgical M&A activity can go from here if this deal does not close. Thanks.
spk10: Sure. So, yeah, just a quick recap on Cook. We did take the $45 million hit to the P&L we accrued for this quarter because the original transaction that we discussed is, frankly, it's probably not going to happen. That $45 million would get paid under that scenario at the beginning of August. So that's where we sit with that transaction today. You're exactly right. We are talking with Cook. We have a great relationship. They're a great group of people there. So we continue to have conversations with them to see if there's some transaction that we could still do. But I would certainly say with respect to that transaction, the likelihood is that we'll pay that $45 million. You're right, it was a big number, $875 million that we committed on that transaction. Right now, the focus, the kind of capital focus, if you will, is very similar to what it's been over the last couple years. We're going to look at paying down debt. We're going to look at acquisitions, if they make sense. They've got to be strategic, accretive acquisitions that fit well into what we want to accomplish at Cooper Surgical or Cooper Vision. And that will probably continue, right? But there's nothing wrong with paying down some debt either.
spk13: Thanks again.
spk01: This concludes the question and answer session for today. I turn the call back to Al for closing remarks.
spk10: Great, thank you. And thank you everyone for joining today. We appreciate the time. As I mentioned, we're pretty proud of where we're at. We had a good quarter and things are starting off well this quarter, so we're well positioned and look forward to getting together again in three months and updating everyone after our next quarter. So thanks again.
spk01: This concludes today's conference call. You may now disconnect.
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