The Cooper Companies, Inc.

Ladies and gentlemen, thank you for standing by. My name is Desiree and I will be your conference operator today. At this time, I would like to welcome everyone to the Q3 2025 Cooper Companies Earnings Conference Call. All lines have been placed on mute to prevent any backward 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. I would now like to turn the conference over to Kim Duncan, Vice President of Investor Relations and Risk Management. You may begin.

Good afternoon, and welcome to Cooper Company's third quarter 2025 earnings conference call. During today's call, we will discuss the results and guidance included in the earnings release and then use the remaining time for questions. Our presenters on today's call are Al White, President and Chief Executive Officer, and Brian Andrews, Chief Financial Officer and Treasurer. Before we begin, I'd like to remind you that this conference call will contain forward-looking statements, including statements relating to revenues, EPS, cash flows, interest, FX and tax rates, tariffs, and other financial guidance and expectations, strategic and operational initiatives, market conditions and trends, and product launches and demand. Forward-looking statements depend on assumptions, data, or methods that may be incorrect or 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 materials. 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 our earnings call. In today's discussion, we'll cover our Q3 results, Q4 guidance, and early thoughts on fiscal 2026. Starting with the numbers, Q3 consolidated revenues were up 5.7% year-over-year or up 2% organically to $1.06 billion. Margins improved and non-GAAP earnings grew double digits to $1.10 of 15% year-over-year. Free cash flow was strong at $165 million, and we repurchased $52 million of our stock during the quarter. While revenues were lower than expected, and I'll speak to that in a minute, I'm pleased to report that we delivered strong margins, double-digit earnings growth, and robust free cash flow, reflecting the operational excellence that remains central to our growth strategy. These results reflect disciplined execution and our ability to capitalize on prior investments to drive consistent operating performance across our business. And looking ahead, we expect this type of execution to continue as reflected in our updated earnings guidance and upcoming commentary on free cash flow. For Cooper Vision, we reported revenues of $718 million for the quarter, reflecting 6.3% reported growth and 2.4% organic growth. These results came in below our expectations, driven primarily by two factors. First, clarity declined globally, led by a noticeable drop in Asia-Pac and a slowdown in the Americas and EMEA. As customers continued favoring premium daily lenses, the significant increase in My Day fitting sets and trial lenses led to a faster than expected return to My Day fitting activity. While My Day delivered double-digit growth this quarter, and this fitting activity indicates the future is incredibly bright, this near-term activity meaningfully impacted clarity orders. Second, we saw greater than expected weakness within the pure play e-commerce segment in Asia-Pac, excluding Japan. This mirrored our experience in Q1 in China and was, again, most pronounced there, although it also affected several smaller regional markets. Despite the top-line pressure from this activity, the impact on profitability was minimal, as this region's pure play e-commerce channel has very low margins. Regarding the regional results, importantly, EMEA delivered a strong quarter, growing 14% or 6% organically, driven by continued strength across key markets. This performance reinforced our number one position in the region and moved EMEA to being Coopervision's largest revenue region globally. Additionally, early fit set and trial lens activity for MyDay is extremely strong in this region, and we expect continued success moving forward. Meanwhile, the Americas grew 2% or 3% organically, navigating the distributor channel inventory dynamic that we discussed on last quarter's earnings call and clarity softness. And Asia Pac grew 1%, but declined 5% organically, reflecting the pressure from clarity and which was down double digits in Japan and China, and the weakness in the e-commerce channel. Digging deeper into MyDay, we're encouraged by several positive developments surrounding this flagship product family. First and foremost, we successfully resolved the manufacturing constraints that previously limited our ability to fully compete. With full sales execution capabilities now in place, we're regaining momentum as we accelerate the global rollout of fitting sets and trial lenses. This marks a key turning point in our ability to deliver sustained growth and meet increasing demand across global markets. We've also recently renewed several large contracts that feature MyDay as a growth driver, and we've won several new private label agreements that offer significant MyDay growth opportunities. These wins are driving fit activity and increasing our confidence in accelerating growth as we move into fiscal 2026. Turning back to the quarterly details and reporting on an organic basis, within categories, TORX and multifocals grew 6%, while SPHERES were down 1%. Within modalities, our daily silicone hydrogel lenses, MyDay and Clarity grew 7%, and our silicone hydrogel frequent replacement lenses, BioAffinity and Iberra, were up 2%. MySight grew 23%. Starting with MyDay and adding some additional color, MyDay grew double digits this quarter, With our most innovative and premium price lenses, Torex, Multifocals, and Energist all posting double-digit growth. In particular, MyDay Multifocal grew 20% as this fantastic lens continues to perform extremely well. And importantly, the full family of MyDay products has considerable upside as we expand availability and deepen penetration within existing accounts and new customer segments around the world. Supporting this, we have considerable activity with fitting sets and trial lenses, but also launch activity. This includes My Day Energist, featuring our premium digital boost technology designed for today's digital lifestyle, which we expect to launch in Europe in early fiscal 2026. My Day Multifocal, which we expect to launch in several major APAC markets soon, along with increasing availability in others. and our MyDay Toric parameter expansion, which is actively being rolled out in multiple markets now. Moving to clarity, this was a challenging quarter as customers shifted focus to MyDay. However, looking ahead, we're confident that this high-quality value price lens will regain its footing with success from new launches such as our 3-add multifocal, which recently entered the U.S. market and grew double digits, and from wearers focused on high quality at a reasonable price. Turning to frequent replacement lenses, our BioAffinity brand maintains strong fitting activity across its broad portfolio. While a reduction in channel inventory impacted SPHERES, growth was supported by continuing strength in TORX and multifocals. Additionally, our innovative made-to-order products, such as the TORX multifocal and extended range SPHERES and TORX, delivered healthy growth again this quarter. These offerings remain unmatched in the market, offering the broadest range of prescriptions available. Eye care professionals consistently value these products for enabling patients with complex vision needs the ability to wear contact lenses. Turning to myopia management, my site grew nicely led by another record-setting quarter in EMEA. This performance was driven by increased fitting activity and robust customer engagement initiatives. The new pricing promotions we discussed last quarter are gaining traction and generating encouraging momentum, and we expect this to continue. In the Americas, MySite delivered mixed results as we rolled out the new promotional structure. But our back-to-school campaign is well underway, and we're seeing positive trends and fits. We're also pleased to share that we just received final regulatory approval for MySite to launch in Japan, and commercialization is planned for early 2026. Additionally, we're actively preparing for the launch of MyDay MySite across Europe and select Asia-packed countries in the first half of 2026. We remain well on our way to hitting our objective of 100 million of my site sales this year and are confident that our momentum and upcoming launches will support continued success in fiscal 2026. To conclude on vision, let me share a few thoughts on the contact lens market. Overall market conditions remain healthy and continue to track to the mid single digit growth range we discussed on last quarter's earnings call. Consumption trends remain solid, and the market continues to see a steady shift towards silicone hydrogel lenses and sustained interest in toric and multifocal products. Looking ahead, we expect this level of market performance to continue, with the key drivers remaining the ongoing transition to silicone hydrogel dailies, expanding adoption of toric and multifocals, and to a lesser extent, pricing and growth in wearers. Moving to Cooper Surgical, we posted a Quarterly revenues at $342 million, up 4.5% or up 2% organically. Within this, fertility revenues totaled $137 million, growing 6% or up 3% organically, led by strengthened genomics and consumables, where we gained market share in EMEA. However, we're still seeing signs of pressure on the market, with clinics continuing to manage cash conservatively by delaying capital purchases and installations, along with ongoing softness and cycles in Asia-Pac. Despite these near-term headwinds, we remain highly optimistic about the long-term outlook for fertility. The underlying fundamentals are strong, supported by trends such as delayed childbirth, increasing access to treatment, rising patient awareness, expanded benefits coverage, and continued innovation in technology. It's estimated that one in six people globally will experience infertility at some point in their lives, underscoring the significance and resilience of this market. Moving to office and surgical, we reported sales at $205 million, up 3% year-over-year, and up 1% organically. Growth in medical devices was driven by our labor and delivery portfolio of products, which grew double-digit, and our specialty surgical device portfolio, which grew upper single digits. And within this portfolio, while not included in organic growth, we continue to see excellent performance from OBP surgical and Our most recent acquisition featuring an innovative suite of single-use lighted cordless surgical retractors, which grew 23%. This was offset by a 10% decline in Paragard following a strong start to this fiscal year driven by advanced purchasing ahead of our price increase and the successful launch of our one-handed inserter. Now, before turning the call over to Brian, let me share thoughts on our Q4 revenue expectations. For Cooper Vision, we expect continued headwinds from Clarity. While trends for MyDay are very positive and may present upside, a significant portion of the activity is tied to fits and trial lenses, which typically take a couple quarters to convert into revenue. As a result, we're guiding to 2% to 4% organic growth to avoid being overly optimistic about the ramp of MyDay. And this guidance also factors in risk with the PurePlay e-commerce channel and Asia Pack, as well as the potential for any further inventory contractions. For Cooper Surgical, we're also guiding to 2% to 4% organic growth as softness and fertility is expected to persist through Q4. Looking ahead to fiscal 2026, we remain confident in our ability to deliver sustainable revenue growth and gain market share. For Cooper Vision, this confidence is grounded in the strong momentum we're seeing with MyDay, the positive impact we'll receive from upcoming product launches, and recent contract wins. We expect to outpace the contact lens market in fitting activity and to gain market share. For Cooper Surgical, we expect improvements driven by a rebound in the fertility market as the Asia-Pac region returns to growing cycles and fertility clinics start investing again. Beyond the top line, we expect operating margin expansion as we lever prior investment activity and a more efficient organization. And with that, I'll turn the call over to Brian.