Krista, the conference operator, welcomed everyone to the Third Quarter 2023 Cooper Companies Earnings Conference Call and introduced Kim Duncan, the Vice President of Investor Relations and Risk Management, who then introduced Al White, the President and Chief Executive Officer, and Brian Andrews, the Chief Financial Officer and Treasurer. Kim reminded everyone that the call will contain forward-looking statements and that these statements are subject to risks and uncertainties. Non-GAAP financial information is also provided as a supplement to GAAP information.

Cooper Company reported record quarterly revenues of $930 million, driven by strong organic growth. CooperVision reported record quarterly revenues and CooperSurgical reported record quarterly revenues with its fertility business posting its 11th consecutive quarter of double-digit organic revenue growth. Non-GAAP earnings per share were $3.35. CooperVision's growth was driven by its daily silicone hydrogel portfolios and CooperSurgical's growth was led by its fertility business. Geographically, the Americas grew 12%, EMEA grew 13% and Asia Pac grew 16%.

CooperVision is leading the contact lens industry with innovative products, such as the MyDay Energous lens, which offers digital boost technology to alleviate digital eye strain. MyDay Toric and MyDay Multifocal lenses are also gaining considerable share around the world, with CooperVision's range of Toric lenses being the widest in the daily market and its multifocal lens offering fantastic visual acuity.

CooperVision's MyDay family of products has seen high growth, and their Clarity family of lenses has performed well, particularly in international markets. The company's MiSight franchise had a difficult quarter, but has since started off well and is expected to reach their full-year guidance of $120-130 million. MiSight is seeing improving fitting trends due to key accounts, higher-volume pediatric optometry practices, and successful integration of sales processes. Retention rates for MiSight are also high, with roughly 90% in the U.S. and a positive halo effect with MiSight practitioners accelerating their use of other CooperVision lenses.

Aetna and Kaiser are now covering MiSight, the first and only FDA-approved contact lens for myopia control, under their medical plans. CooperVision is taking share in the contact lens market, which is estimated to grow 8% in the second quarter of the year. This is due to a shift to silicone hydrogel dailies, the increasing focus on higher value products, and higher pricing. CooperVision is expected to remain a leader due to its market-leading innovation, robust product portfolio, and fast-growing myopia management business. CooperSurgical is also mentioned.

This paragraph discusses the success of a fertility company, which has achieved 11 consecutive quarters of double-digit organic growth, and its diverse offerings. It also discusses the macro trends that are driving global growth in the fertility industry, such as women delaying childbirth, improving access to treatment, increasing patient awareness, increasing fertility benefits coverage, and technology improvements. The World Health Organization recently reported that one in six people globally are affected by infertility.

CooperSurgical posted sales of $178 million, up 8% organically, driven by positive procedure volume and strength in several core products. The company is investing to drive sustainable organic growth and is expanding areas such as sales and marketing, investing in R&D, and investing in their people. CooperSurgical is proud to say that every minute, somewhere around the world, a baby is born using their products. The company is positioned well for the future and is dedicated to making a difference in people's lives.

Brian Andrews discussed the third quarter consolidated revenues, which were up 10% as reported and 12% organically. The consolidated gross margin was flat year-over-year, but operating expenses grew 9%. Operating margin improved to 23.9%, and the effective tax rate was better than expected. Non-GAAP EPS was $3.35, but FX was $0.07 worse than expected. Period costs and inventory write-offs negatively impacted earnings by $0.08. These matters are expected to be resolved in the fourth quarter and not impact fiscal 2024.

CooperVision and CooperSurgical have made several infrastructure improvements this year which will benefit them in the future. Free cash flow was $52 million with CapEx of $91 million and net debt decreased to $2.46 billion. After quarter end, a $45 million termination fee was paid for the planned acquisition of Cook Medical's reproductive health business. For fiscal Q4, consolidated revenue guidance is $912 million to $929 million and non-GAAP EPS is expected to be in the range of $3.39 to $3.57. For fiscal 2024, direction is being given but no detailed guidance yet.

Brian Andrews, CEO of Cooper Companies, reported that the company had a solid top-line increase for both businesses in the quarter, but the EPS midpoint was unchanged due to a gross margin miss. He also mentioned that the company will have higher margins sequentially in Q3 and that they are focusing on expanding capacity and enhancing their supply chain capability to deliver low double-digit constant currency operating income growth next year.

Albert White discusses the pricing durability and the company's ability to stay ahead of the demand curve. He confirms that the market is currently in the range of 2%-3%, and they are on the lighter side of that. He also notes that they have some capacity issues and supply chain challenges, but overall the demand is strong. He hopes to gain additional leverage from operating expenses in the future.

Brian Andrews stated that subject to the Federal Reserve not doing anything surprising, interest expense should be flat or decline with the debt paydown. Albert White noted that Cooper is currently guiding to 9-10% organic growth and that they may be leaning towards a more conservative estimate for the following year, as their business remains strong and healthy.

Albert White states that Clarity is performing well in the US, though not as well as MyDay. Clarity's growth has accelerated in Asia Pac, and White is optimistic about continued PVI growth and share gains in the coming year.

CooperVision has increased their R&D investments, primarily due to their MiSight activity which focuses on myopia management. Jeffrey Johnson asked Albert White about the $50 million dollar PARAGARD number for the quarter, to which White replied that it was predominantly due to pricing, with a little bit of channel inventory and other factors.

Albert White and Brian both discussed the investments being made to push fertility into a global business. They noted that fertility is already a global business with a strong presence in Europe and Asia Pacific. Investments have been made in the third and fourth quarters of the current fiscal year to support long-term growth, and more investments are planned for the next fiscal year with the goal of delivering low double-digit constant currency OI growth. The performance of contact lenses has been good compared to the market, and the benefit of trading in April for July has been beneficial.

Albert White explains that the company is in a better and more stable environment than they were expecting at the beginning of the year. He also mentions that their higher priced products are selling better and even accelerating, which is a good sign for the fourth quarter. He continues to explain that their key account strategy is seeing positive results, with share gains and no shift in emphasis on the strategy for fiscal '24.

In response to a question about revenue guidance for next year, Albert White said that they will provide an update in December and his gut feeling is that they will not be able to give conservative guidance. In response to a question about GM headwinds, it was estimated that it was a 50 basis point headwind, implying a step-up into 4Q.

Albert White confirms that the math checks out and explains that Cooper has historically seen strong demand that requires infrastructure investments, and once these investments are in place and the organic growth is sustainable, they will be able to leverage it and drive margin expansion. He is confident that this will happen.

Albert White answers Brad's question about CooperVision's SKU range and how it contributes to their success in the ophthalmology market. He explains that CooperVision has the widest SKU range in the industry, particularly in the daily Toric lenses, and that this wide range is expensive to manufacture. He also mentions that the company's strategy is to make sure that any patient who walks into an optometrist's office can be fit in a CooperVision product.

Albert White states that the focus of spending money is on the optometrists rather than DTC, as they have already spent money in that area. He adds that there is potential for insurance reimbursement and coverage for MiSight, and they are working with optometrists and families to ensure they are aware of the availability and how it works.

Albert White and Patrick Wood discussed the need for investment in MiSight, a long-term sustainable business, and the supply chain challenges with some players in the vision market. Brian Andrews then addressed Robbie Marcus' question regarding the company's ability to return to pre-COVID margins and operating margin, stating that it is something they are currently working on.

Brian Andrews discussed the factors that have driven down operating margins pre-COVID, including FX, operational items, share-based comp, supply chain inflation, higher freight costs, and IT infrastructure investments. He mentioned that they will start to leverage some of these investments and that they are confident they will start to get some OpEx leverage. He also discussed free cash flow conversion and mentioned that CapEx and interest expense are driving it lower, as well as the Cook termination fee of $50 million.

Albert White, who is not an expert on China, states that myopia management in China has been difficult to predict and that the receptivity to MiSight has been strong. He also mentions that the company accelerated its growth in the quarter, which was a positive development.

The company had to realign their portfolio in order to make up for last year's stocking order, and they are optimistic that they will see a decent fourth quarter, with at least $5 million more in their myopia management business. They are expecting the tax rate to bounce back to 15%, and depending on the Federal Reserve, they may pay down some debt.

Albert White expressed his pride in the company's success, citing strong revenue and EPS numbers and optimistic guidance for the future. He also expressed his anticipation for the upcoming Q4 earnings call, where he will discuss guidance for the next year and its details.

This summary was generated with AI and may contain some inaccuracies.