Thank you for joining us. My name is Pam, and I will be your operator for today’s conference. I would like to welcome everyone to Cooper Companies' earnings conference call for the third quarter of 2024. I will now hand it over to Kim Duncan, VP of Investor Relations and Risk Management. You may begin.

Good afternoon, and welcome to Cooper Companies Third Quarter 2024 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 revenues, EPS, interest expense, operating income, tax rate, FX and other financial guidance and expectations strategic and operational initiatives, expectations for recent acquisitions, market and regulatory conditions and trends and product launches and demand. Forward-looking statements depend on assumptions, data or methods that may be incorrect or precise and are subject to risks and uncertainties. Events that could cause our actual results and future actions of the company to differ materially from those described in forward-looking statements are set forth under the caption forward-looking Statements in today's earnings release and are described in our SEC filings, including Cooper's Form 10-K, and Form 10-Q filings, all of which are available on our website at coopercos.com. Also, as a reminder, the non-GAAP financial information we will provide on this call is provided as a supplement to our GAAP information. We encourage you to consider our results under GAAP as well as non-GAAP and refer to the reconciliations provided in our earnings release, which is available on the Investor Relations section of our website under quarterly materials. Should you have any additional questions following the call, please e-mail [email protected]. And now I'll turn the call over to Al for his opening remarks.

Thank you, Kim, and welcome, everyone, to today's earnings call. I'd like to start by congratulating our 15,000-plus employees for delivering Cooper's first ever billion-dollar revenue quarter. We couldn't have reached this milestone without the hard work and dedication of our amazing employees. So a big thank you to the entire Cooper team. I'm also proud to announce that both CooperVision and CooperSurgical reported record revenues and that margins improved nicely, driving double-digit earnings growth and record non-GAAP quarterly earnings. This performance highlights the strength of our business as our multi-year growth strategy to become a leader in the daily contact lens space and a leader in the global fertility industry moves into a stage of healthy revenue growth combined with leverage through the P&L. To expand on that, at CooperVision, we've taken our highly successful monthly lens strategy, built on innovation and flexibility and taken it to the daily space, where we're expanding the segment and gaining share. At CooperSurgical, we've expanded our global fertility capabilities while continuing to provide clinics with premium products and services that support every step of the fertility journey. And in both cases, we crafted our portfolios to expand our customers' businesses and improve patient outcomes. We've accomplished this by strategically investing throughout the organization, including installing state-of-the-art manufacturing capabilities, implementing technological advancements in packaging and distribution, developing and launching numerous new products, completing significant IT upgrades and providing extensive employee training. This activity is paying off, and I'm proud of our success and excited about what the future holds. Moving to the details and reporting all percentages on an organic basis, consolidated quarterly revenues were slightly over $1 billion, up 8% year-over-year. CooperVision posted record quarterly revenues of $676 million, up 10%, led by strength throughout our broad-based product portfolio. And CooperSurgical posted record quarterly revenues of $327 million, up 5%, including fertility returning to double-digit growth. Non-GAAP earnings per share grew 14% to $0.96. For CooperVision, we continue to be the most innovative company in the $10 billion-plus contact lens industry with the broadest portfolio of lenses, the only FDA-approved product for Myopia control, arguably the most active product launch schedule and a fantastic R&D pipeline. This has led to the consistency of our results and is why CooperVision is the number one contact lens company in the world in terms of wearers. For the third quarter, we once again took share with the Americas growing 13%, EMEA 7% and Asia PAC, 7%. Within categories, torics and multifocals grew 12% and spheres grew 8%. Within modalities, our daily silicone hydrogel lenses, MyDay and clarity grew 13%, and our silicone hydrogel FRP lenses Biofinity and Avaira grew 11% and our Myopia management portfolio posted growth of 29%, with MiSight up 50%. All in, a very nice quarter against a tough comp from last year. Turning to products and starting with our high-performing daily portfolio, we continue to see strong growth and healthy momentum with MyDay in every category: spheres, torics and multifocals. In particular, we're seeing extremely strong growth in our most innovative product areas led by MyDay Energys with its DigitalBoost technology with our industry-leading toric range and with our easy-to-fit multifocals, which, as everyone knows, is a personal favorite of mine. This product family has been extremely well received by eye care practitioners and customers, and we have more upside to our growth as we continue bringing manufacturing capacity online to meet the significant demand. This is particularly true of our market-leading toric, where there is considerable new wearer opportunity, along with upgrade potential given the decade-plus success of Biofinity toric, which shares the same design. Moving to our mass market daily silicone hydrogel product family, clariti. I'm excited to report that we recently launched an upgraded clariti multifocal in the U.S. this past quarter. The lens design matches our MyDay multifocal design, featuring next-generation enhancements that provide better vision and comfort for presbyopic patients as well as an easy fitting experience for eye care professionals. The clariti family as a whole is known for its comfort, easy handling and affordability, and patients appreciate the price point where we're continuing to successfully upgrade legacy hydrogel wearers. Moving to frequent replacement silicone hydrogel lenses, both Biofinity and Avaira continue performing exceptionally well. For Biofinity, we're seeing nice growth across the entire portfolio with Biofinity Energys and our made-to-order products such as extended range torics and toric multifocals leading the way. These lenses are made using some of our most innovative manufacturing technologies, and this allows us to provide the widest range of prescriptions in the market, something that is especially important in fitting patients with the most complex vision needs. Turning to Myopia management, MiSight posted record quarterly revenues across all regions, and our momentum is strong. We're in the middle of our U.S. back-to-school campaign, and early results indicate we'll see a significant increase in consumption through the end of this year. And we've taken the learnings from our successful U.S. programs, and we're running similar programs in other key markets such as Spain, the U.K. and Korea. We're incredibly proud of the number of children's lives we're meaningfully impacting through the growing adoption of MiSight and we continue to demonstrate leadership in driving global awareness of Myopia management, working closely with the entire global optical industry to expand usage and establish it as standard of care. In this spirit, in July, at the World Congress of Pediatric Ophthalmology, the CooperVision professional affairs team showcased long-duration MiSight science, which now spans 10 years. With multiple additional studies underway in the U.S. and China, MiSight is the most thoroughly researched contact lens for children, and the clinical data is excellent. We will showcase more data this quarter at the upcoming International Myopia Conference in China as well as in Korea, at our Asia Pacific Myopia Management Symposium, which has become a premier annual event for practitioners and researchers across the region. To conclude on CooperVision, the contact lens market grew roughly 7% in calendar Q2 with Cooper continuing to take share up 10%. The market remains very healthy, and that should continue, supported by several long-term macro growth trends. And within this, we're leading with innovation, our broad product portfolio, ongoing product launches, strength in premium products, fast-growing Myopia management business and leading new fit data. Moving to CooperSurgical. We posted record quarterly revenues of $327 million, up 5%. Within this, fertility sales were $129 million, up 10%. Fertility continues to be a great business for us, and the future is bright as we're taking share and expanding our leadership position globally. Our broad portfolio of products and services, including consumables, capital equipment, reproductive genetic testing and donor activity continues to lead the market, and we're investing by launching new products, accelerating innovation in R&D, opening new donor sites, providing extensive training in our centers of excellence and expanding geographically. Our focus on delivering the most advanced fertility solutions remains unmatched, and our dedication to improving fertility outcomes for patients remains a guiding principle. Meanwhile, we're seeing strong demand in our focused markets with fertility clinics increasing patient activity, upgrading to new technologies and opening and expanding facilities in several markets. Regarding current activity, we just had one of the busiest global fertility events we've ever had at a large European conference in July. Excitement was high for the industry and for our products and services. In particular, there was a lot of excitement around our new culture and transfer media, which just launched in Europe, around our new Fast Track genomics testing, which has now launched globally, and around embryo options, our premier cryo management software, which recently launched in targeted European countries. Regarding the broader fertility industry, the macro trends supporting growth remain intact, with the World Health Organization highlighting that one in six people globally will be affected by infertility at some point in their lives due to a variety of factors, including women delaying childbirth. As a leader in the space, we remain incredibly committed to advancing the industry by standing in support of patients and clinics and improving access to treatment on a global basis. Moving to office and surgical, we posted sales of $198 million, up 2%. Medical Devices grew nicely, led by our minimally invasive gynecological surgical products, including our Ally Uterine manipulator portfolio and our labor and delivery portfolio led by Fetal Pillow, a balloon device used in C-sections to elevate the fetal head and facilitate ease of delivery of the baby. Stem cell storage had a solid quarter, and PARAGARD slightly declined as expected after last quarter's strong results. One quick note on PARAGARD, we recently received approval for a new single-handed inserter, which makes placing the IUD easier, and we are now in the process of launching this improvement. With that, I'll turn the call over to Brian.

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. For our third fiscal quarter, consolidated revenues were $1.003 billion, up 8% as reported and up 8% organically. Consolidated gross margin was 66.6%, up from 66.1% last year, driven by continuing efficiency gains and product mix, offset by FX. Operating expenses showed leverage growing slower than sales as efficiency gains from prior investment activities continue to offer positive returns within SG&A. Meanwhile, R&D grew faster than sales as we maintain our R&D activity in several exciting areas, including myopia management and fertility. Consolidated operating margin improved nicely, up to 25.5% from 23.9% last year, led by improved gross margins and SG&A leverage. Below operating income, interest expense was $27.1 million, and the effective tax rate was 16.6% higher than expected mainly due to the geographic mix in income. Non-GAAP EPS was $0.96, up 14% year-over-year with roughly 201 million average shares outstanding. Free cash flow was $118 million with CapEx of $89 million. Net debt decreased to $2.5 billion. Foreign exchange negatively impacted earnings by $0.05 in the quarter, $0.01 better than expected, helping to offset the higher effective tax rate. To summarize fiscal Q3, CooperVision reported double-digit organic revenue growth against last year's tough 13% comp, fertility returned to double-digit growth, and we passed the $1 billion threshold in quarterly revenues for the first time. Gross and operating margins both improved nicely year-over-year, even against currency headwinds. And this resulted in a very strong operational quarter that delivered solid double-digit earnings growth. Before moving to guidance, let me mention two tuck-in acquisitions. The first is ZyMot, which closed in June. This deal adds a first-of-its-kind patented sperm separation device that helps optimize fertility procedures. The company had roughly $9.5 million in trailing 12-month revenue, and the purchase price was approximately $34 million. The second deal is obp Surgical, which closed on August 1. This deal adds both a lighted retractor with an integrated smoke evacuation system and a lighted surgical suction device. The company had trailing 12-month revenues of roughly $14.5 million, and the purchase price was approximately $100 million. Both deals are accretive to consolidated revenue growth rates, margins and non-GAAP earnings. Moving to fiscal 2024 guidance. We are increasing our consolidated revenue and earnings per share guidance based on our third quarter results and expectations for continuing operational strength. For the full fiscal year, this results in consolidated revenues of $3.89 billion to $3.91 billion, up 8% to 8.5% organically. For CooperVision, the guidance range is $2.61 billion to $2.62 billion, up 9% to 9.5% organically. And for CooperSurgical, the range is $1.286 billion to $1.294 billion, up 5.5% to 6.5% organically. We expect interest expense of roughly $109 million, which assumes no interest rate changes by the Fed for the remainder of our fiscal year. We expect the full year effective tax rate to be slightly over 14%, assuming no additional discrete items. And we expect non-GAAP EPS in the range of $3.64 to $3.67, up 14% to 15%. Built within this guidance is our fiscal Q4 expectations, including CooperVision growing 8% to 10% organically, CooperSurgical growing 6% to 8% organically and non-GAAP EPS in the range of $0.98 to $1.01. Regarding fiscal 2025, we'll provide specific guidance in December on our Q4 earnings call, but let me say that we remain focused on delivering strong operational performance and low double-digit constant currency operating income growth. To conclude, let me briefly touch on where we are in our strategic journey from a financial perspective. As we've discussed on prior calls, we've spent considerable time and money positioning our business for higher, long-term sustainable organic revenue growth. This has meant significant investments throughout the company, and we're now seeing that activity pay off with strong revenue growth and leverage through the P&L. We expect this to continue and to lead to improving free cash flow as operating cash flow improves and CapEx moderates. With that, I will hand it over to the operator for questions.

Thank you. Your first question comes from the line of Jeff Johnson from Baird. Please go ahead.

Thank you for the opportunity. Good evening. I apologize for being on mute. I have two quick questions. Al, you mentioned the 10% growth for the quarter and the 7% growth in the contact lens market for calendar Q2. Can you share what you're observing from an end market perspective? There's been some discussion recently about whether rebate activity has increased or not and if the end markets have softened a bit with consumers. Based on the numbers from various companies, it appears the market is performing well. However, I would appreciate your insights on the current state of the market, both in the U.S. and globally, regarding contact lenses. Thank you.

Yes, sure. The state of the market is holding up really well. There's a little bit of noise every once in a while that we'll hear, right, you mentioned it with rebates, which is U.S. consumer rebates, relatively small in the grand scheme of things. But if we look at the market, whether it's the U.S. or we look on a global basis, it remains really healthy, and you're continuing to see growth in a lot of the more mid- and higher-end products in torics and multifocals and some of the more premium products within those segments. So yes, I would just say maybe a little bit of noise here and there, but on a U.S. basis and a global basis, still pretty healthy market.

All right. That's helpful. And then just on the return to double-digit fertility growth, late last year, you had a culture media recall, should we assume, with you back to double-digit growth there and you're calling out culture media as one of the growth drivers that there's no kind of lingering impact, any bad will that built up in any of these fertility centers there, anything? And do we need to think about any kind of big dollar potential litigation risk? Or is this all kind of normal course of business that companies have to deal with at times? Thanks.

Yes. I would say on the litigation side, we're working through that. We have insurance to cover that. And yes, it's something that we'll work through as other companies work through similar situations. I think that that event that you're referencing happened kind of back in the December time frame and rolled a little bit in the beginning of this year. But our fertility team is fantastic, and they've done a great job, and the message that they deliver and the message they believe in is that we are going to do what's best for our patients. And we're going to do what's best for our customers. And we put our heart behind that. And I think the team did just a fantastic job going out and talking to people, being open, honest and transparent and so forth and working through the issue to get back on good footing, and that's what you're seeing. That's why we're back to double-digit growth here.

Your next question comes from the line of Larry Biegelsen from Wells Fargo. Please go ahead.

Thank you all. Good afternoon. On the first point, the growth in the Americas CVI was significantly strong, one of the best we've seen in a few years. Can you provide any insights to explain this? Is this due to increased capacity with some lenses being introduced in the Americas? Also, could you take this opportunity to update us on your overall capacity initiative compared to your expectations from six or nine months ago?

Sure. Yes, it was an excellent quarter. When you think about last year, I think we were at 13%. So on a two-year stack basis, definitely a strong quarter. You are seeing some of what you referenced, John, which is we've got some capacity coming online, and that's putting us in a position to be able to meet demand. As we sit here today, demand is still greater than supply, if you will, and I would say that's especially true with MyDay and some parts of the MyDay portfolio. And it's a little bit of a limiter in terms of our ability to meet the demand in locations and also a little bit of a restrictor in our ability to be able to launch some of the activity we want around the world. So that makes me optimistic about the future, certainly, as we continue to bring capacity on and expand our capabilities. In the meantime, you're seeing the results of bringing capacity on and the continuing strength of the product portfolio.

Thank you for that. Brian, I'll pass it over to you regarding the leverage you mentioned. It was quite impressive, even better than my estimate for the quarter. I'm looking at the operating expenses, which were essentially flat quarter-over-quarter despite a mid-single-digit sequential revenue growth. Can you clarify if that was primarily due to CVI rather than CSI? Was there anything unusual in the quarter regarding the operating expense cadence that stood out? Thank you for your time.

Hi, John. Thank you for the question. We anticipated strong results in the second half of the year. My commentary regarding gross margin in the first couple of quarters suggested it would be stronger in the first half than in the second half, but we planned to compensate for that with significant SG&A leverage in the latter half. We definitely achieved impressive results in the third quarter with that SG&A leverage. Both of our businesses are performing exceptionally well. The investments we've made over the past several years are generating positive returns and increasing efficiencies. This improvement is not limited to a single quarter; it will extend over multiple quarters, and we expect to see continued positive results next quarter and into next year. Overall, we are pleased with the results.

Your next question comes from the line of Larry Biegelsen from Wells Fargo. Please go ahead.

Hi. It's Lay calling in for Larry. Can you hear me okay?

Yes. Hey, Lay.

Yes. Thanks for taking the question. Just two for me, please. First, on the call you talked about low double-digit OI growth for fiscal 2025. Can you give any other commentary in the top line the last three fiscal years? You started guidance 6% to 8% constant currency growth, is there any reason to think that you would start differently for fiscal 2025 and anything below the line as far as interest rate, tax rate that you can call out at this point for fiscal 2025? And I have a follow-up.

Sure. Lay, I'm not going to get into much detail on guidance at this point in time, as we never do. A couple of things I would just say, I mean, the contact lens market is certainly healthy, as we're just discussing with Jeff. I mean, we're giving guidance for ourselves in the fourth quarter here of 8% to 10%. CooperSurgical's market is healthy, fertility is healthy. We're giving guidance for CooperSurgical in the fourth quarter of 6% to 8%. So we're optimistic about both marketplaces. And where we sit today here, I would say, I remain optimistic that both markets are going to continue to be strong in the next year. But outside of saying that, I'm going to hold off on giving any revenue detail until we get to December. I'll turn it over to Brian on below the line items.

Hi, Lay. Yes. So similar to Al, I'm going to hold off on providing details until December. But you picked up on the commentary I said about delivering our long-term commitment and our objective to deliver low double-digit constant currency OI growth. So people can take comfort in the fact that that objective hasn't changed. We've got a lot of momentum going into next year, next year should be another solid year. Free cash flow is going to be stronger next year, so we expect we'll pay down some debt. So hopefully, assuming rates hold, that will mean that our interest expense goes down; to the extent that the Fed does something in our favor, then that's going to be beneficial and that will help. I guess if I talk about FX, I'm knocking on wood right now, Lay, but as we sit here today, FX is a positive for fiscal 2025. So I don't want people to get ahead of themselves, but that could be some upside. And while I'm not providing guidance on taxes, if we use 2024 as a guide, our effective tax rate pre-discrete this year will be around 15.5%. So we've got momentum, hopefully some of these upsides play out, and we're going to have a great year.

That's helpful. Thank you. And for my follow-up, can you just remind us when you last took price in CVI? So when does that anniversary? And how are you thinking about price into fiscal 2025? Thank you for taking the questions.

Sure. We took price in fiscal Q1 of this year. I would anticipate we'd take price again in fiscal Q1. When I look at ourselves or the industry, inflation has come back a little bit, but it's still running, what, in the 3% kind of range. So I think where we've been is raising pricing to offset inflation. And I would anticipate the industry will continue to take price to offset inflation. And I would anticipate we'll do that in fiscal Q1. So more to follow on that.

Your next question comes from the line of Craig Bijou from Bank of America. Please go ahead.

Good afternoon, guys. Thanks for taking the questions. I wanted to start on the distributor issue that you had last quarter? And really just wanted to see if it impacted any of your sales or growth numbers in the quarter and if it will continue into Q4 at all?

Sure, Craig. Yes, that was the CooperSurgical-related IT upgrade issue that we worked through last quarter. I would say that yes, it did disrupt things a little bit into this quarter. But we've worked our way through that. I think you probably get a little bit of the residual upside from that, frankly, in Q4. As you saw, we did 5% growth in CooperSurgical in Q3, and we're guiding to 6% to 8% in Q4. So finishing the year strong as CooperSurgical gets back on full footing, if you will.

Got it. That's helpful. Thanks, Al. And switching over to CVI and maybe a follow-up on one of the earlier questions. And just looking at APAC growth. And I guess I wanted to ask where you are in getting full capacity or full supply to that region specifically. That's one, if you look at the growth rates, it stands out as maybe a little bit more sluggish than some of the other geographies. And I know that you're working on meeting the demand there. So just maybe a little bit of color on where you are and how we should expect that maybe to ramp over the next several quarters and into 2025.

Sure. That's a good question. Our Asia PAC numbers, yes, a little bit softer than maybe we were running historically. We've got a great team there, Kathy and her team of folks in Asia PAC, I've got all the confidence in the world, a strong team. They just need more product, as what they need at the end of the day. And if we have more product, those numbers would be stronger; that's what it comes down to. So we're working hard on that. We're bringing capacity online. We're trying to get more MyDay so we can get it out in the marketplace and get it over to help that team execute at the level that we know they can. I won't give any specific details on that at this point. I'll touch on that and give a little bit more color in December as we start discussing next year's guidance.

Your next question comes from the line of Joanne Wuensch from Citi. Please go ahead.

I spent some time discussing myopia management. If my calculations are accurate, it seems we are looking at a revenue run rate of approximately $40 million per quarter, accompanied by strong double-digit growth. Could you share your thoughts on where you stand regarding adoption, marketing, and physician education? Thank you.

Yes. That's a great question, Joanne. Yes, we did about, I think it was somewhere around $37 million this quarter total Myopia management. MiSight is bigger than ortho-K now. And as you can see in the number, continuing to gain traction. So I would say, though, we're still in the early innings of that. You're seeing Myopia control continue to gain interest among the eye care community around the world. You're seeing more interest in some of the parts of the world where there's Myopia control spectacles. We have a joint venture, as you know, with EssilorLuxottica who's doing a great job with Stellest. We're seeing some great numbers with SightGlass in China. So I'm really optimistic about that entire marketplace. I mean I still believe the myopia control market is just going to be a really large market. As everyone knows, the only approved product right now in the U.S. through the FDA is MiSight. I look forward to getting glasses approved at some point in time. I think that's going to take everything to a whole nother level. But to your point, Joanne, like we're doing well. Business is growing. We're gaining traction. That's moving closer to standard of care in pediatric optometry, which is fantastic in many markets around the world. So that's all positive news. It's not as big as I'd like it to be, but it is definitely moving in the right direction and continuing to get larger. And to be fair, 50% growth on MiSight off a little bit bigger number, the numbers keep getting bigger, and the growth rate has been holding. So things are pretty positive there.

Terrific. Thank you so much, and have a good evening.

Yes, thanks.

Your next question comes from the line of Robbie Marcus from JPMorgan. Please go ahead.

Great, thanks. And I'll add my congratulations on a nice quarter. I wanted to see if I can maybe push my luck a little bit here with fiscal 2025. And I appreciate it's early, and it's a really strong guide to start. With low double-digit operating income growth and positive FX, does that translate down to EPS as well? I think what people are looking for, is that low double-digit or better EPS growth in 2025? Is that the implication?

Yes. I mean, I think Brian kind of covered it well, which is FX as we sit here today would be a positive on a year-over-year basis. We'll see what happens with interest expense, right? But we're going to generate some decent free cash flow. We'll pay down debt; that's going to help. If the Fed lowers rates, that's going to help. Taxes, the effective tax rate is going to be higher year-over-year, as Brian said, 15.5% was without the discrete this time. So I think it'd be higher next year. But if you plug all that in, yes, that should result in some pretty decent EPS.

Great. And maybe just to dive in, you touched on some of this, but gross margins and operating margins were particularly strong. I know you touched on that already. But maybe just some of the particular drivers, especially in gross margin, as more and more dailies come online, you would expect that to maybe drop down, but it's holding in firm. So how are you offsetting that? And how should we think about that moving forward? Thanks a lot.

Hi, Robbie. Yes. So price and efficiency gains are offsetting the FX. On the efficiency side of things, we're making progress on our intercompany shipping. So when we put all of those infrastructure investments in tied to packaging, some of the labeling and so forth. And when we're moving product intercompany between and among our sites, we've gotten a lot more efficient at doing that. And so what you've seen is efficiency, that efficiency flowing through cost of goods as well as the price helping to improve gross margins. You've got a little bit of mix there as well. Americas, we've got a bit higher margin than in other parts of the world, and then some of the some mix also at CooperSurgical. So you put it all together, and it's offsetting that FX to a large extent. So I'd expect that we'll continue to do that type of activity. You'll see dailies thigh high to be a bit of a headwind. But as we work through our capacity increases and we eventually get to moderating on that CapEx and we start working on continuous improvement activities, that's going to be another opportunity for us to continue to take gross margins higher over the longer term.

Your next question comes from the line of Anthony Petrone from Mizuho Group. Please go ahead.

Thanks. And congratulations on the strong quarter here. Maybe a couple on CVI and then one on CSI. On lenses, maybe just a little bit on the pricing dynamic. It's been a tailwind here for a number of quarters. Pricing, I believe, resets possibly every six months depending on distributor versus optometry versus retailer contracts. And so maybe just the visibility on pricing is something in the range of 200 basis points sort of the new normal for contact lenses. And when we think about a mix toward toric, in any modality when we go from a sphere or a toric or just get a new toric users relative to a sphere, what is the margin uplift of toric versus sphere and then I'll have one on CSI.

Sure, Anthony. Yes, a couple of different things. On pricing, we have really strong visibility internally on pricing, of course. But it's a complex model, as you could imagine. I mean, you talked about a couple of the items there, right? distributors versus retailers and the direct channel optometrists. That's why I always say to people, like be careful reading too much into something like consumer rebate activities in the U.S. that occur in the U.S. and not outside of the U.S., right? I think at the end of the day, what you're thinking about is right, like 2% to 3% support for market growth is probably the range that we're sitting in. I think where inflation is, it won't surprise me if we continue to sit in that range for a little while longer. We'll see what happens long term on that. When you think about the growth of the market overall, it ties to your question on torics, which is one of the reasons the market is growing nicely is it's not only price in terms of pure price but it's price coming from a product mix shift. And as you get more growth in torics and you get more growth in multifocals and some of the other specialty lines, I mean, we have some of the most innovative products in the market when it comes products like Energys and so forth. You do get a different margin profile. Now that one is a little challenging to answer specifically because it depends on the life cycle, meaning when you're launching some of these products, especially wide SKU range torics, you're going to have lower margins. But once you get the products fully into the market, you'll get margins at or even above sphere margins. So I would say, at the end of the day, we really look at operating margins, more than gross margins. And all of this activity is going to end up being long-term accretive to operating margins.

Very helpful and a quick one just on CSI. We've been hearing a little bit on competition for PARAGARD from a competing copper, non-hormonal device coming on the market. So maybe just a little bit on the competitive landscape in IUDs broadly and your take on just brand loyalty to PARAGARD versus a new copper alternative in the marketplace. Thanks.

Sure. Yes. I mean right now, PARAGARD is the only approved product in the marketplace. And I think it's worth remembering that IUDs are governed as pharma products. So the regulatory approval process is long and arduous, and I can't comment on somebody else's process or their journey to getting approval. But what I can say is that we have a fantastic team selling PARAGARD, it's been in the market a long time. It has a 10-year indication, which is very unique to it. We just went through the full approval process to get single hand inserter approved. We've got that product into the market right now. That's a more efficient way for the practitioner to insert the IUD, so that's fantastic. And if there was pushback on PARAGARD, a lot of times, it was tied to that. So that's a nice improvement we have in the marketplace. So where PARAGARD sits right now is actually in a pretty good spot.

Thank you. Congrats again.

Thank you.

Your next question comes from the line of Jason Bednar from Piper Sandler. Please go ahead.

Hey, good afternoon. Thanks for taking the questions. I wanted to come back to CVI, and really see that you can provide a bit more color on the cadence of demand throughout the quarter, the exit rate you had from July into August. I think you mentioned a good back-to-school season for MiSight. So I guess just wondering if that extends to the rest of your business as we exited the third quarter, if that was on a high note.

Yes. We had a good July. I would say we're having a good August. So yes, somebody asked the question kind of earlier about market demand and so forth; I'd say the market is remaining healthy certainly. And we're seeing that in our business. I am excited about MiSight and where we're at. The receptivity on that seems to have increased and we're seeing more positive news on my side. So I'm expecting another good quarter here for fiscal Q4. But yes, in general, the last couple of months have been good, and the month we're in is starting off well.

Okay. That's helpful. Thanks, Al. And then one other one. We're hearing that J&J's reversing course on its decision to cut its toric SKUs. I think that was a decision from 18 months ago or so. But Cooper was a big beneficiary of that original decision from J&J to cut those SKUs that you won over a lot of toric patients. Do you see any risk of share give back for that lens class? Or is there any reason to think that share would be less sticky, any less sticky for those patients than what you would normally see with a typical contact lens consumer?

No, I'm not too worried about that. I mean, first of all, I would say that it wasn't that big of a deal. They cut some SKUs out of some ranges and the wider part of the bell curve, if you will. So it would not be fair to say we took a lot of toric business or a lot of toric patients from them because of that decision. We did take some. And when you fit somebody in a toric, especially torics like ours, just, I mean, we're a market leader there with some of the best designs in the marketplace, period. We don't lose patients once they come into our products. So no, I think we're fine on that side of things.

Okay, kind of what I figured. Thank you.

Okay.

Your next question comes from the line of Brett Fishbin from KeyBanc Capital Markets. Please go ahead.

It's been pretty striking, I have to say, some of the uneven results that we've seen in the contact lens space this year with the market seemingly really healthy and perhaps like a major exception over the past few quarters. Just curious if you can comment maybe on like that level of the difference that we've seen across some of the different players? And what are the biggest differentiators separating, call it, like the outperformers such as yourself from the underperformers over the past few quarters?

Yes. I think that when you look at the contact lens market, it's always a little tough to take at any individual quarter because a lot of different things can happen. But we've seen them over the last couple of years when it comes to people having some shipping issues or supply issues and so forth. But at the end of the day, I look at our business model and I say, okay, we have the broadest portfolio, some of the best, arguably the best markets and best products in a lot of segments of the market. So I think you're going to get consistency. I mean, from us, I think when you look at the rest of the market, you've got disruptions and business profiles, and then you've got portfolios where people are in their portfolios. The market has shifted over and continues to shift to silicone hydrogel dailies and specifically, daily torics and daily multifocals. As you know, I mean, over the last, geez, now five, six years or so, we put a heavy emphasis on expanding our capabilities in the daily side of things, bringing our monthly portfolio into the daily side of things on expanding parameter ranges for torics and creating products like MyDay Energys and MiSight and so forth to expand the daily market. And that's worked out really well for us. So I don't know. I don't read too much necessarily into all the competitors' quarterly results because at the end of the day, you've got a strong market, and everyone is going to continue to put up decent results moving forward because you just have healthy underlying demand.

All right. Appreciate that commentary and color. And then just a really quick follow-up on the other side of the coin with Myopia management. Have there been any updates around the SightGlass FDA approval timeline? And if not, what's really like the next data points that we should be paying attention to? Thank you very much.

Sure. Yes. On SightGlass, no updates on that. We're working through that clinical process right now to try to get FDA approval. The last kind of commentary we gave on that was looking to get FDA approval in the latter part of next year. I mentioned it earlier, we have an excellent relationship and joint venture with EssilorLuxottica who is the true leader in Myopia control, and they're doing some fantastic things in that space, and we're working with them. We're doing some fantastic things. So two great companies working together to promote Myopia care and really trying to help children that need visual correction around the world. With SightGlass, we have the product in China right now. It's doing really well there, and we're looking forward to continuing to do really well there and get launched, make it its way around the world. And ultimately get FDA approval and be really successful here and really help MiSight also.

Your next question comes from the line of David Saxon from Needham. Please go ahead.

Great. Good afternoon, Al and Brian. Thanks for taking my questions and congrats on the quarter. Maybe I'll continue on with Myopia management. So ortho-K, at least on my math, I mean, it looks like growth or return to growth in the quarter, I should say. So I guess what's driving that? How much of that is driven by China recovery versus kind of strengthening the rest of the world? And then for MiSight, can you talk about what percent or what inning you're in in terms of commercial payer coverage, kind of when should we expect you to reach critical mass on that? And I'll have one follow-up. Thanks.

Sure. I would say when it comes to Myopia management, and I would say this is true for ortho-K and MiSight. Our weakest market is China. Now we don't do a lot of business in China, period, as a company. There's a tremendous amount of opportunity with Myopia control in these treatments in China because there's such a high percentage of the pediatric population that's Myopic. But that would be a market where we struggle. So as well as we're doing, it's largely being driven by success outside of China. You guys probably even know better than I do; you probably follow China closer than I do, but it'd be great to get some consistency in growth out of China because I think there's some tremendous growth opportunities there with MiSight and ortho-K. But right now, we're not really seeing it; that's not a driver. If I think about MiSight and insurance coverage, I would say we continue to make progress, slow but sure. I've talked about Aetna coverage in the past and Kaiser coverage in the past. I think we're just continuing to make slow and steady progress on insurance reimbursement. I will go back to some prior comments I've made on other calls that we really need to get spectacles in the market and really get the myopic control market to become standard of care so that all optometry practices are looking at that when kids come in, right, and treating them the way they should be treating. And I think that that's going to really kick start the insurance reimbursement. Until that point, I think we'll just continue to plug along slowly but surely.

Okay, that's great. Thanks for that. And then in CooperSurgical, I think last quarter, you talked about PARAGARD expectations of being flat to slightly up. Is that still the case? And then in the stem cell storage and medical devices part of the business, I think, Brian, you had called out some growth. Maybe can you get a little more granular, what kind of growth? Is that single digits or high singles, et cetera? And then what is driving that? Is that kind of M&A contribution or some of these organic product launches? Thanks so much.

Yes. I'll give a couple here; I'll stop my head and see if Brian has anything to add. I mean, PARAGARD is going to be up this year, or we're anticipating it being up this year, just a little bit, not a lot, but it will be up slightly. STEM was kind of usual; it was up, I think, around 4%, and that was just organic growth. We haven't done any acquisitions or anything on that side of things. We just did the two small ones Brian mentioned.

Yes, David, I don't have anything else to add. Those are the right numbers.

Your next question comes from the line of Steve Lichtman from Oppenheimer. Please go ahead.

Thank you. Good evening, guys. Just wanted to follow up on PARAGARD, so you've had moving parts with the stocking dynamics in the last few quarters. As you look beyond just this coming quarter, what is your outlook for underlying growth for PARAGARD looking forward and sort of the pluses and minuses driving your outlook?

Sure. Yes. I think you can expect PARAGARD to see a slight decline in Q4 again. However, when I look at the long-term picture, the marketplace is experiencing falling unit sales. We're seeing a bit of growth due to price increases; we've raised prices a few times and may do so again. Nevertheless, the overall marketplace is declining in units, which poses a challenge. Ultimately, there are more options for women regarding birth control, and while non-hormonal IUDs like PARAGARD will continue to perform reasonably well, that's not the major growth segment. It really isn't, but that's okay since it represents less than 5% of our revenue. I'm not sure why we spent so much time discussing it, but that summarizes the situation.

Hi, Steve. Yes.

Understood. Thanks, guys.

Yes.

Your next question comes from the line of Chris Pasquale from Nephron Research. Please go ahead.

Thanks. Al, I'll ask one more PARAGARD question for you just to fill out the slate. Could you just clarify the number this quarter? I thought we were looking for down sequentially. I think I heard down a little bit year-over-year, which would be up actually a fair amount sequentially. So what did PARAGARD do in 3Q?

$48 million.

Okay, thank you. And then the Biofinity and Avaira growth was strong this quarter. Every time the delta between dailies and FRP compresses kind of stands out relative to what we're used to seeing historically. Was there anything unusual that helped those products? And then I'd love just a general sense of where we are in that transition to dailies in places like the U.S. and Europe that have been playing this very long game of catch-up relative to markets like Asia that were quicker to adopt.

Sure. There isn't much to analyze regarding Biofinity and Avaira this quarter. It was a solid quarter, influenced by products like Energys, extended-range torics, and toric multifocals. We’re likely to see stronger and weaker quarters, which will fluctuate with daily sales, so there isn't much to infer from that. Looking at the daily lenses market, we still have significant growth potential as an industry. Currently, less than half of people are using daily lenses. About 45% are fitted with dailies, and of those, approximately 75% are daily silicone hydrogels. Those figures are on the rise, which highlights our industry’s growth opportunity. Personally, I wear daily lenses and would never consider going back to not using them. They are incredibly convenient to use, and the ease of disposal and maintenance adds to their appeal. I believe this trend will persist. Additionally, products like MyDay multifocal are remarkable. Users who try them tend to stick with them for many years rather than reverting to other options. Lastly, the improvement in fitting toric lenses is crucial for achieving optimal vision. The availability of torics in dailies is expanding the market. While I can’t specify our progress in terms of innings, it's clear we have many years ahead of us in transitioning to daily silicone hydrogels, torics, and multifocals.

Great. Thanks.

Yes.

Your last question comes from the line of Navann Ty from BNP Paribas. Please go ahead.

Hi, good afternoon. First on capacity progress at CVI, do you have enough visibility to resume more launch activities in the near term? And then I have a follow-up on PARAGARD. Is the single-hand inserter a differentiator versus the upcoming competition? Thank you.

On the single-hand inserter, I'd say it puts us on par, if you will, with the market. There is a single-hand inserter used by hormonal IUDs, and that puts us on par with the market. I don't know what the competitor is going to do and what they'll get approval on or won't get approval on. So I won't speculate there. But I will say that it puts us on par with the other products like Marina that are in the marketplace. On capacity, we are making great progress on capacity, and we are more active in terms of getting product into the market and evaluating some incremental launch opportunities, if you will. So yes, I would answer that we have very good visibility on that, and it would be positive news.

Thank you.

Yes.

There are no more questions. I will now turn the conference back over to Al White, President and CEO, for closing remarks.

Great. Thank you, and thank you to everyone who called in. We had a really strong operational quarter as we talked about. As Brian said, we're really focused on that, and we're going to continue to deliver results here in the short term and long term. That's our plan. So thank you again. Look forward to seeing everyone during this quarter. Thanks.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.