Earnings Call Transcript - COO Q4 2024

Operator, Operator

Thank you for being here. I'm Abby, your conference operator today. I want to welcome everyone to the Cooper Companies Fourth Quarter 2024 Earnings Conference Call. All lines are muted to minimize background noise. After the speakers finish their remarks, we will have a question-and-answer session. I will now hand the conference over to Kim Duncan, Vice President of Investor Relations and Risk Management. You may begin.

Kim Duncan, Vice President of Investor Relations and Risk Management

Good afternoon, and welcome to Cooper Companies fourth quarter and full year 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 collaborations and acquisitions, market and economic 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 that 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 [email protected]. And now I'll turn the call over to Al for his opening remarks.

Al White, President and Chief Executive Officer

Thank you, Kim, and welcome, everyone, to today's earnings call. I'd like to begin by congratulating our employees for a remarkable fiscal 2024. This year has been outstanding, with record revenues reaching $3.9 billion, as both CooperVision and CooperSurgical achieved their own record revenues. In Q4, we also saw record revenues alongside improving margins that contributed to record non-GAAP quarterly earnings. As we enter fiscal 2025, our focus is on gaining market share, enhancing profitability, and executing our strategic priorities. These include increasing the availability of our innovative products, expanding our advanced manufacturing capacity, optimizing our technology investments, developing and launching new products, and investing in our workforce. Before diving into specifics, let me share some high-level insights regarding Q4 and fiscal 2025. In Q4, CooperVision experienced a strong quarter, driven by robust performance in silicone hydrogel dailies and our comprehensive range of torics and multifocals, with a slight offset from unexpected softness towards the end of the quarter. CooperSurgical also performed well in Q4, achieving double-digit growth in fertility despite a more significant than anticipated decline in PARAGARD. Our P&L showed improvement due to earlier investment activities, leading to margin enhancements and substantial earnings growth. Looking ahead to fiscal 2025, we project a 5% to 7% growth in the contact lens market in constant currency, with our share expanding by 6.5% to 8.5%. Price adjustments should counter inflation, contributing roughly one-third of the growth, with additional gains coming from various factors including the continued shift to dailies, growth in torics and multifocals, an increase in wearers, and growth in myopia management. For CooperSurgical, we anticipate organic growth in the mid-single digits, with fertility growth reaching high single digits and the remaining segments showing low single-digit growth. Now, regarding Q4 specifics, consolidated revenues hit $1.018 billion, marking a 10% increase year-over-year, or up 7% organically. CooperVision's quarterly revenues were $676 million, a 9% increase or 8% organically, benefiting from strength across our leading product portfolio. CooperSurgical achieved quarterly revenues of $342 million, up 12% or 5% organically, with fertility gaining significant market share and growing 15% or 13% organically. Non-GAAP earnings per share increased by 19% to $1.04. For CooperVision, we cemented our status as the top contact lens company globally in terms of wearers, with our new fit data remaining robust. We also captured revenue share, strengthened by performance in dailies, torics, and multifocals, with growth in the Americas at 6%, EMEA at 11%, and Asia Pac at 7%. In category performance, torics and multifocals grew by 9%, while spheres saw a 7% increase. Our daily silicone hydrogel lenses, MyDay and clariti, experienced a growth of 14%, with our silicone hydrogel FRP lenses Biofinity and Avaira increasing by 8%. Our myopia management business also grew by 7%, with MiSight seeing a notable 24% increase. We had another excellent quarter for daily silicone hydrogel lenses, with MyDay leading the charge, showing strong growth across its full range of spheres, torics, and multifocals. Notably, MyDay Energys has driven growth in the U.S., and we are optimistic about continuing this trend. MyDay Energys features innovative digital boost technology tailored for modern digital lifestyles, which patients appreciate. Furthermore, our MyDay toric parameter expansion across North America and Europe is performing well with its leading design and extensive SKU offerings. The MyDay multifocal is also thriving, thanks to its advanced design combined with a straightforward fitting system that has resulted in very high satisfaction levels, including a 98% fit success rate in two pairs or less. Given the strong demand, the outlook remains positive, and enhanced capacity will enable us to increase availability. As for clariti, it had another good quarter, known for its comfort, easy handling, and affordability, driving strong demand among new wearers and transitioning legacy hydrogel users. We've also made strides with the launch of our upgraded multifocal lens, which incorporates our successful MyDay multifocal design into the clariti material, receiving positive feedback in the U.S., with a global launch planned for this year. Based on personal experience, these multifocal products are exceptional. Many people, like myself, didn’t require any visual correction until later in life, and gaining clear vision without needing reading glasses has been transformative. I'm pleased that we now offer various outstanding multifocal options to choose from. Regarding our frequent replacement silicone hydrogel lenses, Biofinity and Avaira reported another strong quarter in Q4, showing consistent growth from both franchises. Our innovative manufacturing capabilities and leading lens designs have created a significant competitive advantage, especially with extended ranges and custom products. We anticipate this positive performance to continue due to our momentum. In terms of myopia management, MiSight fitting activity remained strong, with October marking our second highest revenue month ever, benefiting from back-to-school momentum. However, inventory contractions in the U.S. in October impacted results. Nevertheless, we believe that MiSight will grow around 40% in fiscal 2025, similar to this year's growth. We recently completed national media campaigns in the U.S. and targeted Asia Pacific markets to educate parents on myopia and the advantages of proactive treatment. These initiatives yielded successful results, leading to a significant increase in MiSight fittings for children. Our commitment to scientific leadership and clinical evidence was showcased at the 2024 International Myopia Conference in China and during our annual Asia Pacific myopia management symposium in Korea. Partnering with the Korean Association of Pediatric Ophthalmology, we provided insights into best clinical practices. In the U.S., our partnerships within the myopia collective with the American Optometric Association continue to gain traction, creating substantial visibility through media opportunities, seminars, and conference presentations. Transitioning to CooperSurgical, we reported revenues of $342 million, up 12% or 5% organically. Fertility revenues were $139 million, reflecting a 15% increase or 13% organically, driven by our robust portfolio of innovative products and services including consumables, capital equipment, reproductive genetic testing, and donor activities, which we are enhancing with continued innovation. Highlights include our presentations at the recent American Society of Reproductive Medicine Conference regarding our cutting-edge genomic capabilities. As a premier fertility company utilizing genetic testing based on machine learning and AI methodologies, we are excited to unveil advancements in our suite of tests, which will detect variations in DNA at the embryo level, thus increasing the chances of achieving a healthy pregnancy. We announced a pioneering collaboration with ASRM and the Society of Reproductive Biologists and Technologists for the establishment of a national training program, aimed at addressing the growing demand for skilled professionals in the fertility sector. The fertility industry is rapidly expanding, propelled by strong underlying trends such as women postponing childbirth, enhanced access to treatments, increased patient awareness, broadened benefits coverage, and technological advancements. According to the World Health Organization, one in six individuals globally will face infertility at some point due to various health factors, highlighting the substantial long-term growth potential of this industry. We are committed to supporting patients and clinics by fostering innovation, promoting access to care, and tackling pressing global challenges, such as declining birth rates. Our commitment to providing the latest solutions will extend into 2025, where we look forward to launching new products and services, offering extensive clinical training, expanding our geographical presence, and advancing our R&D efforts. In office and surgical sales, we recorded $203 million, an 11% year-over-year increase driven by strategic acquisitions of select Cook Medical assets earlier in the year and the recent acquisition of obp Surgical. Excluding these transactions, office and surgical sales remained unchanged organically. Our medical devices achieved solid growth, particularly with our minimally invasive gynecological surgical devices such as the Ally Uterine manipulator and our labor and delivery product line, although this was countered by a 10% decline in PARAGARD, which faced more competition than anticipated. In conclusion, while we encountered challenges this past year due to the Q2 upgrade of our U.S. IT system, that system is now stable, positioning us for continued growth. With our diverse portfolio of products and services, we anticipate strong revenue growth and improved margins in the upcoming year as we introduce new offerings, leverage past investments, and benefit from successful integration efforts. Before I hand it over to Brian, I want to reiterate that this has been an exceptional year for Cooper. We achieved record revenues and made substantial progress across our organization, investing in capacity expansion, operational enhancements, and employee development. As we move into fiscal 2025, we are committed to advancing our long-term strategic goals and look forward to reporting another successful year. Now, I will turn the call over to Brian.

Brian Andrews, Chief Financial Officer and Treasurer

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 the fourth fiscal quarter, consolidated revenues were $1.018 billion, up 10% as reported and up 7% organically. Consolidated gross margin was 66.9%, up from 66.7% driven primarily by price and efficiency gains, offset by the negative impact of currency. Operating expenses were managed well up only 6.8% and reducing to 41.1% of revenues. We're continuing to see leverage at both CooperVision and CooperSurgical as our prior investment activity pays off. Consolidated operating income was up 16.2%, improving the margin to 25.9%, led by strong SG&A leverage. Below operating income, interest expense was $25.6 million and the effective tax rate was lower than expected at 11.8% due to stock option exercises. Non-GAAP EPS was $1.04, with roughly 201 million average shares outstanding. With respect to FX, it was $0.02 negative for the quarter as expected in our Q4 guidance. Free cash flow was $128 million with CapEx of $140 million. Net debt decreased to $2.48 billion with our bank-defined leverage ratio dropping to 1.94x. Regarding full year results, we delivered record revenues of $3.9 billion, up 8% and up 8% organically. This included 9% organic revenue growth at CooperVision, which was at the high end of our initial guidance range and 5% for CooperSurgical, which was at the middle of our initial guidance range. This was an excellent year with particular strength in daily silicone hydrogels and fertility. Within the P&L, we continued our momentum, delivering stronger gross margins and leveraging our SG&A investments. Gross margin improved by 60 basis points, SG&A improved by 90 basis points and operating margin expanded 130 basis points. Operating income grew 19% in constant currency, which exceeded the top end of our initial guidance of 13% to 16%, and EPS grew 15%, which hit the top end of our initial guidance of 12% to 15%. We've talked about our commitment to driving efficiency gains and EPS growth, and we delivered in 2024. Moving to fiscal 2025 guidance for CooperVision. The revenue guidance range is $2.733 billion to $2.786 billion, up 6.5% to 8.5% organically and for CooperSurgical, the range is $1.347 billion to $1.372 billion, up 4% to 6% organically. On a consolidated basis, this translates to revenues of $4.08 million to $4.158 billion, up roughly 6% to 8% organically. Moving down the P&L. We closed this past fiscal year strong from a production perspective and expect this to translate to improving gross margins, which should help deliver roughly 10% to 12% constant currency operating income growth, which matches our guidance commentary from our last earnings call. Assuming no interest rate changes by the Fed, we expect interest expense to be roughly $90 million, with improving free cash flow being prioritized to reduce debt. We expect the full year effective tax rate to be slightly over 15% and expect non-GAAP EPS in the range of $3.92 to $4.02. For currency, we're expecting a headwind of roughly 1.5% to revenues and roughly 4% to earnings. With that, let me conclude by saying that we met or exceeded the expectations we set for fiscal 2024, and we'll work hard to do that again in fiscal 2025. We're in a great position from a revenue perspective with market-leading products and improving capacity, and we expect strong operational performance as we remain focused on delivering a more leveraged P&L. This includes gross margin expansion from higher production levels, price increases and cost reduction projects, helping to drive operating margin expansion. Within this, we'll still invest, balancing our financial objectives with support for new product launches and expanding our leadership positions in myopia management and fertility. And now I will hand it back to the operator for questions.

Operator, Operator

Your first question comes from Craig Bijou with Bank of America.

Craig Bijou, Analyst

I wanted to start with a comment on the unexpected softness at the end of the quarter and hope you can provide a bit more detail on that, as well as clarification on where that softness originated geographically.

Al White, President and Chief Executive Officer

Sure, Craig. Yes, because we were running along with a pretty good quarter and had some softness at kind of mid-October to end the year. And frankly, carrying over into the beginning of November here. We saw some softness in the U.S. market, no doubt. It's a little hard to put your finger on whether that was coming from something with the hurricanes or some other activity, but saw some softness here. And then there were a few other pockets around the world where we saw some softness like China as an example. As I mentioned, it kind of has worked its way into November for a little bit but then it kind of stopped and we've seen things move back to normal here. So kind of like a month of softness there, which was unexpected.

Craig Bijou, Analyst

Okay. That's helpful. I would like to follow up on the CVI guidance. In the past two years, you provided guidance of 7% to 9%. This year, it is 6.5% to 8.5%, which is a reduction of 50 basis points. It seems that your market expectations are still at 5% to 7% for next year, similar to last year's expectations. Could you provide more insight into the reasons for the lower guidance? Are there concerns about your market share? I want to understand the dynamics behind the slightly lower guidance compared to previous years.

Al White, President and Chief Executive Officer

Sure. I wouldn't read too much into that when comparing to previous years. I believe we will continue to grow faster than the market. The 5% to 7% growth seems a bit slower; last year we came in slightly higher. Currently, the market grew 5% in the first quarter, followed by 7% and another 7%. We'll see how things unfold for us moving forward. Regarding our growth guidance of 6.5% to 8.5%, I think it's a reasonable starting point for the year. Demand for MyDay currently exceeds our manufacturing capacity, so we are adding new production lines and making progress in that area, but we can't meet all the existing demand right now, which might hold us back slightly. Nevertheless, I am confident we will continue to make progress and expand our lines, positioning ourselves well as we move through this year and as we plan for fiscal '26 and '27.

Operator, Operator

And your next question comes from the line of Larry Biegelsen with Wells Fargo.

Larry Biegelsen, Analyst

Can you provide more details on the 10% decline in Q4 for PARAGARD and the pressures you mentioned? What are your expectations for growth in fiscal '25 for PARAGARD, considering competition? I also have a follow-up question.

Al White, President and Chief Executive Officer

Yes. So PARAGARD grew 2% for the year, which was probably pretty similar to what we were thinking at the end of the day. We came in softer than I was thinking we were going to down 10% in this quarter. I think when you look at the market right now and you look at competitive products out there, we're going to continue to see pressure in PARAGARD from a unit perspective. And I've talked about that for a while now. And I think we're going to continue to see that next year. Now each individual quarter will bounce around a little bit like it does for PARAGARD. So I think when I look at fiscal '25, it's going to be down a little bit too maybe up a little bit. We haven't heard anything new on the competitive side of things. So, if a competitive product does get approved, it will depend when and how it launches and so forth. But I think to think about PARAGARD in that kind of down a little bit to up a little bit range for fiscal '25 is probably the best way to think about it.

Larry Biegelsen, Analyst

That's helpful. And Brian, any color on the cadence of sales and margins in fiscal '25. And any color on Q1.

Brian Andrews, Chief Financial Officer and Treasurer

Thanks for the question. Honestly, I really wouldn't highlight much of anything. I mean you follow us really closely, and you know all about the seasonality of Q1 and Q2 tend to be lighter than Q3 and Q4. So I would just think about 2025 and modeling '25 kind of similar to the way you've seen it in the past.

Operator, Operator

And your next question comes from the line of Jeffrey Johnson with Baird.

Jeffrey Johnson, Analyst

Al, maybe I just want to confirm the lightness in the market, softness in the market that you were seeing in October into the first couple of weeks of November. Is that different than the MiSight inventory reduction? And assuming those are factors, any way to quantify how much that MiSight inventory reduction weighed on F Q4 and then just kind of what drove that channel correction there?

Al White, President and Chief Executive Officer

MiSight's growth would have likely remained consistent without the recent changes. In fiscal Q3, we observed some influx, but that leveled off in fiscal Q4. Essentially, Q3 was not as strong as anticipated, whereas Q4 performed better than expected. Regarding the marketplace, it was somewhat softer than we had anticipated, but there wasn't a drastic change. Such occasional fluctuations can happen, but this quarter, it did affect a few markets for a short period. Nevertheless, we've begun to see a return to normal conditions, suggesting that this was just a minor disruption, possibly linked to inventory adjustments. Importantly, there are no signs indicating that this issue will continue.

Jeffrey Johnson, Analyst

Okay, that's understandable. I'd like to dive a bit deeper into your comments about the end market. Looking at J&J and Bausch, both experienced significant double-digit growth in the U.S. during their third quarter, though it's important to note that their periods don't completely align and they didn't include October. It seems like the U.S. market is becoming more competitive with numerous new products being introduced by reliable manufacturers. How should we interpret your guidance of 6.5 to 8.5 in terms of your confidence level for surpassing market growth in 2025? Additionally, is it crucial for you to manage the business to exceed the market by a few hundred basis points, or is it sufficient to be just a point or two above if market conditions are favorable?

Al White, President and Chief Executive Officer

I appreciate your question. In calendar Q3, we experienced a 9% growth while the market grew by 7%. When comparing our performance against competitors on a quarterly basis, I didn’t observe any significant differences. However, as we transition into October, the dynamics begin to shift. I am not yet aware of our competitors' performance in October, but we will provide insights on that in the future. There are indeed some strong competitive products emerging in the market, but I am confident we will continue to gain market share and grow faster than the industry. A portion of our growth will come from our myopia management and MiSight offerings, along with developments in the dailies sector with MyDay. We are not aiming for any specific number, and we won’t make any hasty, short-term decisions purely for market share. I believe the overall market is promising, and we are likely to outperform it. Although we have set our expectations at 5% to 7%, I feel we may be a bit conservative considering the current market trends and price increases. However, it is prudent to set realistic expectations at the start of the year.

Operator, Operator

And your next question comes from the line of Jon Block with Stifel.

Jon Block, Analyst

I'll start on MyDay. And Al, just any color on when you think that supply will sort of get back to where it needs to be. I just feel like that might be taking a little bit longer than anticipated. And just to tackle on to that, would you point to that as sort of the sole culprit to the more modest APAC numbers that we saw in fiscal '24, that growth rate was steadily right around 13%, 14% in '21, '22, '23, sort of cut in half? Or would you point to any changes to the competitive landscape in APAC as well? And then I just had a follow-up.

Al White, President and Chief Executive Officer

Absolutely, APAC is closely linked to my daily activities. There's no doubt about that. It is likely the most adversely affected region due to insufficient MyDay capacity among the three regions. As we enhance our capacity, I anticipate that the Asia Pacific region will show improvement. We will persist in expanding capacity there. To be frank, we're still facing challenges with new fit data, but the new fit activity in MyDay remains robust, and we are continuously increasing our capacity. I believe our current investments are adequate, as reflected in our CapEx numbers, and we are on track to meet demand as we progress through this year and into next year by increasing capacity. However, it's a gradual process because in this industry, you can't just order a production line and receive it the next day; it may take around 1.5 years to have it ready for full production. That is the source of the delay.

Jon Block, Analyst

Okay. Helpful. And then maybe just as a follow-up, I'll stick to CVI. The delta from like torics and multifocals, I think that was up 9%. And overall CVI was up 7%. So both certainly healthy numbers, but it's sort of one of the tightest spreads that I can remember between the two, call it the specialty and overall CVI. So is there anything on the toric and multifocal competitive landscape, new entrants or anything there that you'd point to that changes dynamic?

Al White, President and Chief Executive Officer

Not too much. Multifocal's strong, no doubt about that. I think if we broke those out, you'd be like, okay, that's the one that makes sense to me. Torics may be a little bit in just that we're trying to build some inventory and so forth with respect to MyDay to get some additional product out in the marketplace in some different locations. So I wouldn't take too much out of that. That's more us than it is the marketplace.

Operator, Operator

And your next question comes from the line of Robbie Marcus with JPMorgan.

Robbie Marcus, Analyst

Wanted to ask on the P&L for '25. And I know you've been talking a lot about a focus on reported margins and we saw that play out in fiscal '24, particularly in the fourth quarter here with nice margin upside. How should we be thinking about gross margin and operating margin in '25? I know you said improving gross margin and 10% to 12% operating income growth. How do we translate that into hard reported numbers for 25? And then I have a follow-up.

Brian Andrews, Chief Financial Officer and Treasurer

We are executing at a high level, and the investments we have made in the business are paying off, as seen in '24. I am more confident today than I was a year ago that we will see gross margin expansion. We're raising prices and benefiting from better freight costs, which improve our intercompany shipping. The productivity and successes we're achieving in manufacturing give me confidence that gross margin expansion is on the horizon this year. This will drive efficiencies, and we are also focused on balancing our investments while remaining committed to operating margin expansion with 10% to 12% constant currency operating income growth. We will ensure that our investments continue to support future growth and returns. It will require careful balancing this year, but we certainly have opportunities to drive leverage in 2025.

Robbie Marcus, Analyst

And any color on the reported numbers, how we think about gross and operating margins on a reported basis?

Brian Andrews, Chief Financial Officer and Treasurer

Unfortunately, foreign exchange rates have shifted against us from three months ago to today. However, despite that, the operating margins we have reported will show a year-over-year increase based on the guidance we provided.

Operator, Operator

And your next question comes from the line of Chris Pasquale with Nephron.

Chris Pasquale, Analyst

Al, I was hoping you could just comment on the sustainability of the pricing environment you're seeing in contact lenses. Inflation is not quite where it was pre-pandemic but it's come down. And it feels like the improved pricing environment is sticking. So as you look at FY '25, are you confident that, that trend will continue?

Al White, President and Chief Executive Officer

Yes. I think that we're in a market right now where the contact lens industry will offset the impact of inflation. So, we'll see where our competitors come out with our price increases. But if we look at inflation being somewhere around 2.5%, 3%, something like that I think you'll see pricing offset that. So my belief is we'll see that this year, and frankly, where pricing is and where products are and so forth, I think you probably have a pretty good chance that you'll see that kind of pricing next year. I won't speculate too much on the future, but depending upon where inflation is, I think the industry itself is now at a position where it will pass along those inflationary pressures.

Chris Pasquale, Analyst

That's helpful. And I just want to make sure as we're thinking about the contribution from acquired revenue, particularly before it sort of becomes part of the organic base. I think we've lapped cook now, so that should be done. But are we right in thinking you guys have about $25 million in annualized revenue from the more recent deals that will be coming out over the next few quarters? And then maybe just talk a little bit about the M&A environment that you see heading into FY'25. Do you expect to continue to be active?

Al White, President and Chief Executive Officer

Yes, that $25 million figure is about right. We saw significant growth from our acquisition of obp, which increased around 30% since we bought it. ZyMot has also performed well, with growth around 10% to 11%. While we've made a few smaller deals that are doing great, the current environment feels very quiet. We secured some good deals that have turned out well, and we're working on integrating those. We still need to complete some integration activities and maintain performance on those deals. If new opportunities arise, that's fine, but if not, we're okay with that too. Overall, it's quite calm at the moment.

Operator, Operator

And your next question comes from the line of Jason Bednar with Piper Sandler.

Jason Bednar, Analyst

Al, as we contemplate the revenue softness that we were discussing earlier, you did institute a price increase that took effect, I think, November 1. Can you talk about when you communicated those price increases? I guess I just thought I saw the communication maybe didn't come out as early as normal, which maybe would have limited some of that pre-buying activity that normally occurs in October. So maybe I'm totally off base, but just trying to understand to what extent price increases influenced or didn't influence contact lens buying activity in your fourth quarter.

Al White, President and Chief Executive Officer

Jason, that's a good question. I asked that same question, right? Because the price increases that we put in place go in kind of throughout the first quarter around the world. So different geographies at different times and different amounts by products and so forth. So it's pretty hard to triangulate back and say, it was due to this or it was due to that. But I think that's a fair question as to whether there was an impact because of some of the price increases, especially since the timing was slightly different than it was last year. Yes, I believe our main focus will be to continue launching products globally. For instance, MyDay Energys has been quite successful in the U.S., and we aim to introduce it to more markets worldwide. I’m optimistic that we will achieve this. Additionally, I would like to expand the availability of MyDay toric and multifocal products in other markets. In fact, we plan to increase the availability of all MyDay products, even the spheres. It may seem repetitive since we've discussed MyDay for some time, but we still have products to introduce globally. I anticipate our competitors are in a similar position, as they also have products to launch worldwide. Overall, I’m confident in the success of our products and believe that as we increase their availability, we will see positive results.

Operator, Operator

And your next question comes from the line of Issie Kirby with Redburn Atlantic.

Issie Kirby, Analyst

First one on the vision piece. One of your competitors coming out with a seven day wear lens in 2025. Just wanted to get your thoughts on that category and any risks you potentially see to your SRT portfolio.

Al White, President and Chief Executive Officer

Yes. So very early on that. I haven't seen any reaction in the market yet. I think that that's probably more targeted kind of the two week market. We don't really play in the two week market. I mean we're dailies and monthlies, which is where the majority of the market is. But there still is a two week market. You see it certainly here in the U.S. So at the end of the day, we'll see how that seven day lens plays out. I'm not quite sure how it will play out, but I do think that it will be much more linked to those wearers who are two week wearers and people who use contact lens solutions.

Issie Kirby, Analyst

Okay. Great. And on fertility and the growth side, I mean, can you just comment on exactly perhaps give some color on what's really supporting the outperformance there, the share gains and what you're also seeing in the market, again, particularly with some of the commentary that's been made by the incoming administration.

Al White, President and Chief Executive Officer

Sure. It's interesting when you look at the incoming administration, they've made a number of comments, Trump has about being very positive about IVF and reimbursement associated with IVF. So it seems like a lot of people have asked us questions or have asked me questions about that from a negative angle, like the new administration is bad. From everything I've seen and that we're hearing in the marketplace, I would argue that is actually going to be positive for the industry. So we'll see how that one plays out. I mean we had strength this quarter from a number of different areas in fertility. Our consumables were good with products like media and so forth. Our genomics was good. I mentioned some of the new tests we have coming out. So that part of our business was good. Our donor activity that we had acquired back from the old Generated acquisition that was good. We are probably a little bit stronger than usual this quarter with some of our capital equipment. And I've mentioned in the past how sometimes you'll see quarters be a little stronger or a little bit weaker depending upon capital equipment. This would have been a quarter that was lifted up because of capital equipment activity. So it was pretty much across the board. It's just a really good sound quarter by the fertility team.

Operator, Operator

And your next question comes from the line of Steve Lichtman with Oppenheimer.

Steve Lichtman, Analyst

A couple of questions on the financial side. First on free cash flow as we look into FY'25, CapEx obviously moved up in this past year and put a little bit of pressure on free cash flow conversion. How should we be thinking about that into FY'25? Will you see any relief on CapEx or given the supply commentary we've talked about today will be pretty steady?

Brian Andrews, Chief Financial Officer and Treasurer

Thanks for the question. Yes, the CapEx came in just a little bit higher than we anticipated. We talked last year about how free cash flow is going to be around $300 million, we ended up around just under that. And then CapEx is around $420 million. So I would probably steer people towards really thinking about CapEx on a percentage basis. So if you think about CapEx as a percentage of revenue being around 11%, that's probably a good place to think sort of where CapEx will land in 2025. I talked about in my prepared remarks how free cash flow is going to be driving higher from somewhere in the neighborhood of $350 million to $400 million. I think that's going to come from some combination of revenues and operational improvements, working capital improvement. Interest expense will be a little bit better but FX and taxes and then that CapEx driving a bit higher, somewhere in the neighborhood of $450 million is going to be sort of your puts and takes that gets you free cash flow higher next year. So certainly, capacity expansion drives future growth, and we're investing in the business to ensure that we capitalize on the opportunities.

Steve Lichtman, Analyst

Okay, great. I have a follow-up on foreign exchange. As you noted, the situation is dynamic. Firstly, where are we likely to see that headwind? Will it impact gross margin on a reported basis again? Secondly, do you have insights on the first half and second half regarding when that headwind will manifest?

Brian Andrews, Chief Financial Officer and Treasurer

Yes. I guess I would just say FX is kind of hitting us relatively evenly through the quarters. I mentioned 1.5% headwind to revenues and 4% headwind to EPS. So I think on the EPS side, you're kind of looking at it sort of fairly consistent from quarter-to-quarter.

Operator, Operator

And your next question comes from the line of Brett Fishbin with KeyBanc Capital Markets.

Brett Fishbin, Analyst

A lot of good ones already asked. So I'll just ask a question on my side. I think you mentioned 40% growth expectation for FY'25. And I was just curious how you're thinking about the contribution from the U.S. versus some of the international markets? And then maybe just as a follow-up to that any more color on how you've seen the momentum progress in areas such as being in the U.K. and Korea for MiSight?

Al White, President and Chief Executive Officer

Yes. Good question. So some of the areas out there, like Korea is an example. We've been very successful with MiSight. And we're trying to take a lot of those learnings and put them in other markets. The U.K. is another market where we're gaining some real traction there as we start working with some of the bigger key accounts in the U.K. and in Europe. I think at the end of the day, when I look at the U.S. and the other one, I think all the markets are going to drive MiSight forward. We grew about 40% this year. The number is bigger but I still think we'll grow 40%, something like that next year. And I think you'll end up seeing it driven by markets around the world. The one thing that could drive that higher that I continue to watch is the uptake by some of the bigger key accounts and some of the bigger retailers that are out there. That activity I've talked about it in the past has definitely started, it's definitely gaining traction. So we're getting some good positive movement there. So I'm optimistic that we'll be able to be north of 40% this year. But we'll see how that plays out, and we'll see what markets move a little bit faster in that direction. But I think Europe will definitely be one of them. And Asia Pac should be pretty good, too.

Brett Fishbin, Analyst

All right. Super helpful color. And then just one follow-up. You've talked a bunch in recent quarters about MyDay Energys as well as Biofinity Energys supporting growth for their respective product families. Just curious if you can comment a little bit directionally how sizable the Energys product lines have become just thinking about the CVI business as a whole?

Al White, President and Chief Executive Officer

Yes. Well, I guess, for competitive reasons, I won't get into the size of them, but I will say that they're doing well. And certainly, MyDay Energys is doing well. I highlighted that one as a product is pulling a lot of growth forward. Yes, that's a true innovation, right? It's a very unique product for us. I think people sometimes have a tendency to forget some of the innovation that we deliver to the market, whether it is something like MiSight or Energys. But yes, I'll steer clear of giving numbers, but I will say it's becoming more material.

Operator, Operator

And your next question comes from the line of Navann Ty with BNP Paribas.

Navann Ty, Analyst

I had a follow-up on the greater erosion in PARAGARD. So is that in anticipation of that new competitor? Or is PARAGARD losing share versus organisms in plants? And also does the 2025 guidance, including the low double-digit operating income growth assume the entry of that new low copper IUD? And then also on fertility, if you could discuss the trends across the government. I know you touched base on the U.S., also the corporate fertility benefits and the competitive landscape that supports the high single-digit growth going forward.

Al White, President and Chief Executive Officer

Sure. Couple of points there. On the fertility market, I think the fertility market will grow nicely again this year. I mean, the piece that we play in, if you will, the medical device broadly defined piece. I'll be surprised if we don't see mid-single-digit growth there, maybe a little bit above mid-single-digit growth. We've been seeing pretty good growth in the industry for a while now. There's great underlying growth characteristics. I mean you touched on some of them when you look at insurance reimbursement. And there are some countries that are getting more focused on reimbursement for fertility. So the trends there are positive. So I think the industry-wide growth being mid-single digits, a good solid mid-single digits is probably going to be in place for a number of years. And that's why I always talk about us kind of being in upper single digits. And we clearly posted double-digit quarters, and we can continue to post that. But I think that's a good, solid, healthy market with a lot of good underlying macro growth trends. When I look at PARAGARD in the IUD space, I mean, PARAGARD is still the only non-hormonal IUD on the market, so it has the full market share here in the U.S. The competitive product has not been approved. I don't know when that's going to get approved. I don't have any details on that. So I would say the performance of PARAGARD has had nothing to do with that. I do think that some of the other products that are out there, some of the competitive products that are out there and they're hormonal products, but some of the products out there are doing a little bit better and maybe taking a little bit of share from IUDs in general, I think. I'm not sure we're doing worse than the IUD market, but the IUD market is a little bit softer, I believe, from a unit basis. And that's probably due to some of the other competitive products that have entered the marketplace.

Operator, Operator

And your next question comes from the line of Young Li with Jefferies.

Young Li, Analyst

I guess to start I wanted to ask about the health of the consumer in key regions worldwide. You have a sizable private label business, so a wide range of pricing. Any incremental changes with the consumer price sensitivity daily adoption, trade-ups, trade downs and private label growth.

Al White, President and Chief Executive Officer

Certainly, there's nothing noteworthy to mention there. We are continuing to see solid growth in both our branded and store brand products available in the marketplace. The monthlies segment is showing consistent strength, which is slightly more affordable. Additionally, we are experiencing ongoing growth in multifocals and dailies, where we saw growth in the teens again. Overall, our portfolio is performing consistently, and there hasn't been a noticeable change in consumer behavior at this time. This quarter, our calendar growth was 7%, consistent with the previous calendar quarter's growth of 7%. So, we are not observing significant changes in consumer fitting activity or their wearing habits.

Young Li, Analyst

Okay. Very helpful. For my follow-up, just on the supply-demand dynamics. You made a lot of investments in the past two years, doubling CapEx and are seeing some of the excess capacity coming online. Where do you think the competitors are in terms of ramping up their own supply? How much more manufacturing capacity is still needed to sort of balance demand as an industry? Any risk for overcapacity as their capacity comes online in addition to yours?

Al White, President and Chief Executive Officer

I don't believe so. I believe everybody is investing right now because of the shift to dailies. So as wearers move to dailies, we have – we as an industry, obviously, CooperVision, we have to produce a lot more lenses. Producing a lot more lenses, obviously, is taking more machinery, more time. It creates more challenges throughout your logistics. So I think the shift over to dailies is going to continue for many, many years in front of us and that's going to require a lot of capital from a lot of people. Now, we've kind of had this ball going, and I think we probably have it again in '25 before it starts coming down some because we've had some facility expansion and so forth in addition to the line. So we're putting ourselves into a lot better position here with more flexibility in our manufacturing lines and kind of a little bit of a different mindset around some of our expansion activity. So I think we're in a better spot here to position ourselves for kind of 2026, '27, '28. But at the end of the day, I think as long as the market shift into dailies, you're going to have to continue to add capacity. And I think the industry is and will for a while to be catching up. Because, again, the point I made earlier is well worth remembering, right? Like when you order a manufacturing line, it's going to take you a year or two years from the time you're ordering that to getting it in and fully producing product to put it into the marketplace. So it's not a fast solution.

Operator, Operator

And our next question comes from the line of Anthony Petrone with Mizuho.

Anthony Petrone, Analyst

Maybe one on CVI and one on MiSight. Al just on CVI, SiHy daily torics in particular, silicone hydrogel daily torics are margin accretive to the business. SiHy as a material within dailies has been growing. But maybe just to recap on where your SiHy daily mix is overall? And how much of that can shift to toric over time? And what would that mean for margins? And then I have one quick follow-up on MiSight.

Al White, President and Chief Executive Officer

Yes, Anthony. That's a great question with many layers. When discussing sphere wearers, creating and distributing a sphere through our logistics system is fairly simple. However, when it comes to individuals with astigmatism who require toric lenses, the range of options is significantly broader. We are the leading company globally in the sales of toric lenses and understand the complexities involved. As we expand our range, this adds to the complexity of our operations. I mentioned earlier that we are working on increasing our inventory to launch more aggressively in certain areas and to provide more fitting sets. This topic could take a while to cover fully, but to summarize, we are seeing solid growth in torics. Opticians are increasingly recognizing and effectively fitting patients with astigmatism to toric lenses. This product line is beneficial for us due to its good margins, and we expect it to continue growing. I'll pause here because it's a complex question, but I believe the price point will allow torics to outpace overall market growth, including for us and our competitors. I wouldn't be surprised if you hear competitors frequently discussing how strength in torics is boosting their contact lens sales.

Anthony Petrone, Analyst

That's helpful. And really just quick on MiSight side. You mentioned a little bit on an inventory contraction. So you had strong back-to-school fits. But then in October, you had inventory contraction. So anything there? Or is that do you think that's just going to be the seasonal pattern?

Al White, President and Chief Executive Officer

Yes. I think that's just seasonal pattern tied to distributors. I mean, we have seen distributors around the world tightened some of their inventory up. We've kind of seen people generally tighten up inventory just a little bit, right, as everybody is looking at cash and interest expense and so forth. So to me, that's just a matter of a fairly high-growth product where you have distributors managing their inventory. And I think you'll see some fluctuations higher and lower on MiSight because of that. And I think we'll probably deal with that a little bit as we move through next year. And I'll just try to really be transparent on that, that if it's helping growth, kind of highlighting that a little bit, and in a quarter like this when we kind of pull the growth numbers down a little bit, mentioning it.

Operator, Operator

And that concludes our question-and-answer session. I will now turn the conference back over to Mr. Al White for closing remarks.

Al White, President and Chief Executive Officer

So great. Well, thank you, everyone. As Brian summarized with the numbers, and I said, fiscal '24 was a really good year. We closed strong, and we feel good about where we're at today. And we're confident we're going to be able to produce really strong results in fiscal '25. And we're obviously going to do what we always try to do, which is outperform the guidance that we give. So I look forward to catching up with everybody through the quarter and when we report our next quarter. Thank you. Thank you, operator.

Operator, Operator

You're welcome. And ladies and gentlemen, this concludes today's call and we thank you for your participation. You may now disconnect.