Earnings Call Transcript - COO Q1 2023

Operator, Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Q1 2023 Cooper Companies Earnings Conference Call. I would now like to turn the call over to Kim Duncan, VP, Investor Relations and Risk Management. Please go ahead.

Kim Duncan, VP, Investor Relations and Risk Management

Good afternoon, and welcome to Cooper Companies First Quarter 2023 Earnings Conference Call. During today's call, we will discuss the results and guidance included in the earnings release and then use the remaining time for questions. Our presenters on today's call are Al White, President and Chief Executive Officer; and Brian Andrews, Chief Financial Officer and Treasurer. Before we begin, I'd like to remind you that this conference call contains forward-looking statements, including all revenue and earnings per share guidance and other statements regarding anticipated results of operations, market or regulatory conditions or trends, product launches, operational initiatives, regulatory submissions and closing or integration of any acquisitions or their anticipated benefits. Forward-looking statements depend on assumptions, data or methods that may be incorrect or imprecise and are subject to risks and uncertainties. Events that could cause our actual results and future actions of the company to differ materially from those described in forward-looking statements are set forth under the caption forward-looking statements in today's earnings release and are described in our SEC filings, including Cooper's Form 10-K and Form 10-Q filings, all of which are available on our website at coopercos.com. Also, as a reminder, the non-GAAP financial information we will provide on this call is provided as a supplement to our GAAP information. We encourage you to consider our results under GAAP as well as non-GAAP and refer to the reconciliations provided in our earnings release, which is available on the Investor Relations section of our website under quarterly results. 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.

Albert White, CEO

Thank you, Kim, and welcome, everyone, to Cooper Companies First Quarter Fiscal 2023 Conference Call. We started this year on a positive note with strong operational performances at both CooperVision and CooperSurgical. For CooperVision, we reported record quarterly revenues in our eighth consecutive quarter of double-digit organic revenue growth. For CooperSurgical, we posted strong results, including fertility reporting its ninth consecutive quarter of double-digit organic revenue growth. Earnings exceeded expectations, driven by the strength in revenues and investment activities yielding operational efficiencies faster than expected. This is exactly how we wanted to start the year, and we'll continue balancing investment activity with prudent operational management to deliver solid results. Moving to the numbers. Consolidated quarterly revenue reached an all-time high of $858 million. CooperVision posted record quarterly revenues of $581 million, up 10% organically and CooperSurgical posted revenues of $277 million, up 10% organically. CooperVision's growth was led by our daily silicone hydrogel portfolio, and myopia management and CooperSurgical's growth was broad-based with strength in many areas. Non-GAAP earnings per share were $2.90. For CooperVision in Q1 and reporting all percentages on an organic basis, revenue growth was strong and diversified. The Americas grew 9%, EMEA grew 12% and Asia Pac grew 10%. This performance was driven by new product launches, expanded product ranges, market-leading flexibility through our customized offerings and growth in key accounts. Regarding product details, daily silicone hydrogel lenses grew 17% with especially strong growth from MyDay. Daily silicone hydrogel lenses continue to be the main driver of growth for the contact lens industry, and we offer the broadest portfolio with MyDay and Clariti available on a wide range of spheres, torics and multifocals. Our silicone hydrogel monthly and 2-week lenses, Biofinity and Avaira Vitality, reported another solid quarter of 9% growth. Turning to product news. We remain extremely busy. Our MyDay multifocal rollout is going incredibly well, and we expect strong growth to continue as the product becomes more readily available in EMEA and Asia Pac. Feedback from customers and practitioners remains outstanding, and we continue taking share. Our MyDay toric parameter expansion rollout in the U.S. and Canada is also going well, and we'll be launching the expanded range in EMEA this quarter. With over 4,000 SKUs, our MyDay toric has the widest daily toric range in the market by a wide margin and it's opening the door to many 2-week and monthly toric wearers to enjoy the freedom of wearing a daily contact lens for the first time ever. All this activity is having a positive halo impact on the MyDay sphere, which is also performing well. And lastly, on our MyDay franchise, I'm excited to announce we started the national rollout of MyDay Energys in the U.S. This premium lens uses the same innovative digital boost technology as Biofinity Energys to alleviate the impacts of digital eye strain. Studies show that adults are now spending more than 7 hours a day on screens, resulting in eyes feeling strained and uncomfortable. Energys, with its boost technology, is the perfect solution to address this digital eye fatigue and our survey work clearly shows that practitioners and customers are excited to get this technology in a daily offering. All this MyDay activity is exciting, and we remain dedicated to developing and rolling out technologically superior MyDay products for many years to come. Lastly, within the daily segment, Clariti is performing well. Its mass market price point is allowing eye care practitioners to continue utilizing the Clariti franchise as a great way to bring wearers into the daily silicone hydrogel space. Moving outside of dailies. Demand for Biofinity remains strong, led by our torics, multifocal and extended range offerings. We continue to be capacity constrained in some of these areas, especially around our extremely high demand made-to-order products such as extended range torics and toric multifocal, but the continued ramp-up of our manufacturing facilities is allowing us to address the significant demand. And lastly, we had a nice quarter with Avaira Vitality, especially in Asia Pac. Moving to myopia management. We posted revenues of $25 million, up 32% with MiSight up 50%. This was in line with expectations and keeps us on track to reach our goal of $120 million to $130 million in sales this year. Regarding MiSight, we're expanding availability in numerous key accounts, actively launching our expanded parameter range and making great progress on numerous R&D efforts. We're seeing increased fitting activity as optical offices become more comfortable with their myopia control practice management, and we're continuing to see a positive halo effect with our MiSight customers accelerating their use of other CooperVision lenses. MiSight is the first and only FDA-approved contact lens for myopia control, and the product is backed by extensive clinical data. This is a critical differentiator as the proactive management of myopia becomes standard of care within the eye care community to help reduce the risk of long-term eye health problems associated with myopia such as cataracts, retinal detachment and macular degeneration. Finally, I want to mention the great work that the CooperVision team has done in our environmental sustainability efforts. In January, we announced that our net plastic neutrality initiative reached a major milestone with the prevention of the equivalent of more than 100 million plastic bottles from entering the oceans. This program has been incredibly well received by contact lens wearers and eye care professionals, and we're extremely proud of its success. To finish on CooperVision, the contact lens market grew roughly 9% in calendar 2022, with CooperVision growing faster at 11%, and we expect 2023 to be another robust year supported by the macro growth trend of more people needing vision correction. It's estimated that 50% of the global population will have myopia or nearsightedness by the year 2050, up from roughly 34% today. This is driven by a variety of factors, including greater screen time. When combined with the ongoing demand for silicone hydrogel dailies, the increasing focus on higher-value products such as torics and multifocals, and higher pricing, we expect many years of strong growth for the industry, and we expect to remain a leader with our robust product portfolio, ongoing product launches, fast-growing myopia management business and leading New Fit Data. Moving to CooperSurgical. This was an excellent start to the fiscal year. Our fertility business posted sales of $112 million, up 10% organically for its ninth consecutive quarter of double-digit organic growth. Success was broad-based with strong results throughout the product portfolio and around the world. The global fertility market remains a very exciting space with strong macro trends supporting significant long-term growth potential. There are multiple drivers in this industry, beginning with women delaying childbirth. The average age of women's first birth in the U.S. and within several other developed countries now stands at a record 30 years old, an age that is a key factor contributing to the need for fertility assistance. Other growth drivers include improving access to treatment, increasing patient awareness, improved product offerings, increasing fertility benefit coverage and technology improvements for both male and female fertility challenges. It's estimated that roughly 50% of reproductive age couples have fertility challenges and that over 750,000 babies are born annually through fertility-assisted measures, and these numbers are growing. Within the broader fertility space, we compete in a market that's roughly $2 billion in annual sales, and we forecast growth of 5% to 10% for many years to come. Our positioning is excellent with the broadest portfolio in the industry, a solid commercial footprint and strength in key accounts. We're also investing in our team and in our product portfolio, which includes consumables, capital equipment and reproductive genetic testing, and we're expanding geographically. Demand remains very strong, especially within our key accounts, so we need to keep building infrastructure by investing in our people and delivering the products and services required in this high-growth market. Moving to office and surgical products, which includes OB-GYN medical devices, PARAGARD and stem cell storage, we posted sales of $165 million, up 10% organically. Within this, OB-GYN medical devices grew 10% with strength seen in several of our core products. This team is doing a great job managing strong demand with ongoing supply chain challenges, and I'm proud of the hard work and success we're having. PARAGARD grew 11%, driven by buy-in activity from a price increase of roughly 8% implemented at the end of the quarter. We'll see a natural offset to this in Q2, but it's nice to get the year off to a good start. Lastly, our stem cell storage business grew 5% organically. We've owned this business for just over a year now, and I'm happy to report that we're seeing improving traction. The synergies we expected as part of the transaction are occurring and the business is in a good position. As part of our focus in this space and ongoing investment activity, I'm happy to report we recently kicked off an exciting marketing campaign with Chrissy Teigen leading our latest educational efforts around the importance of preserving newborn stem cells. The early reaction to this social media campaign has been very positive and we are excited to see how it progresses and delivers value through the year. To conclude on CooperSurgical, I want to mention something that I'm really proud of. Worldwide, every minute, a baby is now born using CooperSurgical products. I just love that, and it truly shows what a fantastic and meaningful business CooperSurgical is. So to summarize, let me again say this is exactly how we wanted to start this fiscal year. Our operational performance was excellent. Our momentum is strong, and we're executing on our investments to drive long-term sustainable growth. And with that, let me turn the call over to Brian.

Brian Andrews, CFO

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. First quarter consolidated revenues were $858 million, up 9% as reported or up 10% organically. Consolidated gross margin was 65.7%, down 1.2% from last year, primarily due to currency and product mix. Operating expenses grew 11% to 43.1% of revenues, and consolidated operating margin was 22.6%, down from 24.6% last year, primarily due to currency. To add some color, I'm happy to report that many of the freight and distribution challenges that we experienced in Q4 that continued into Q1 have now been resolved. These financial results exceeded our expectations due to the strength at the end of the quarter. Below operating income, interest expense was $26 million, and our effective tax rate was 14.4%. Non-GAAP EPS was $2.90, with roughly 49.7 million average shares outstanding. FX negatively impacted earnings by roughly $0.30 year-over-year, which is $0.05 better than we were forecasting when we provided guidance in December. Free cash flow was $84 million, including CapEx of $83 million. CapEx continues to be heavily driven by capacity expansion, and we expect that to continue. Net debt decreased by $48 million to $2.56 billion. Turning to fiscal 2023 guidance. We're increasing expectations for revenues and earnings by incorporating our Q1 beat, improved operational performance and slightly better FX rates. This results in consolidated revenues of $3.5 billion to $3.55 billion, up 7% to 9% organically, with CooperVision revenues of $2.35 billion to $2.39 billion, up 8% to 9% organically and CooperSurgical revenues of $1.14 billion to $1.17 billion, up 5% to 7% organically. Non-GAAP EPS is expected to be in the range of $12.60 to $12.90. Within this, interest expense is expected to be slightly higher at around $110 million, but our effective tax rate is forecasted to be around 14.5%, offsetting this. For interest expense, we're assuming 3 future Fed moves, a 25-basis point rate increase this month, another 25 basis point increase in May and then an additional 25 basis point increase in June. For currency using updated rates, we are now expecting a slightly more positive impact on the P&L, which we're fully passing along. From an operational perspective, we're raising expectations tied to actions we've taken to drive efficiencies. To summarize this, we're raising the midpoint of our earnings guidance by $0.30, with $0.20 coming from our Q1 beat, $0.05 coming from operational improvements that we're expecting in Q2 to Q4, and $0.05 for better FX in Q2 to Q4. The increase in our revenue guidance is similar, incorporating the Q1 beat, stronger expected performance in Q2 to Q4 and better FX. Regarding the operational improvements, in addition to addressing the supply chain challenges from Q4, we've taken further steps to improve our operational efficiencies. One such example would be the consolidation of our specialty lens business into our core lens franchise. Over the past several years, CooperVision has created the world's most comprehensive specialty contact lens portfolio comprised of products such as leading Ortho-K and scleral lenses to treat myopia and more severe cases of a regular accordion. This part of our business has grown nicely, and it's now time to consolidate it into our core operations and leverage our infrastructure. In the meantime, we're continuing to invest in our product launches, manufacturing footprint, and distribution capabilities to support our long-term growth objectives. Demand is strong and long-term growth trends are very positive, so we're investing prudently but accordingly. There are a lot of positives to take away from this activity. Our capabilities are expanding. Our operations are becoming more efficient, and the numbers are looking better. That being said, we remain cautious regarding recession risk and continued inefficiencies tied to supply chain challenges and have incorporated that into our expectations. To conclude on guidance, note that it does not include the pending acquisition of Cook Medical's reproductive health business. We're exploring all options related to this transaction to obtain regulatory approval, including the potential sale of certain Cook assets. We expect the transaction to be resolved by August of this year. And with that, I will hand it back to the operator for questions.

Operator, Operator

Our first question comes from Jon Block from Stifel.

Jonathan Block, Analyst

Brian, maybe I'll just start with some clarifying questions. So the update from FX, I think previously it was a 2.5% drag to revs and net neutral for EPS. That was prior quarter. How has that changed? So is there a new FX number on revenues from the 2.5% drag? And then the impact to EPS, I want to make sure I heard you right. Is that improved by $0.10, $0.05 is embedded in the 1Q outperformance and then $0.05 is sort of the balance of fiscal 2Q to 4Q? Maybe if you can just clear that up a little bit.

Brian Andrews, CFO

Sure, sure. Yes. So you're right. So on the prior guidance, we had a 2.5% headwind to revenues. It's a little bit better. I'd say it's just on the margin. It's still kind of rounds to 2.5%, it's a stronger 2.5%, I'd say, for revenues, but still a headwind. And then on EPS, where we were saying neutral to EPS before from FX for the year were about 1%. When it comes to the updated guidance, just to recap, we beat Q1 by $0.20. $0.05 is from FX, the other $0.15 operational. The rest of the year, Q2 through Q4, we're raising by $0.10, half of which coming from FX, that's the $0.05, and then the other half from operational performance.

Jonathan Block, Analyst

Yes. Okay. Perfect. I think I got you. And that certainly helps. Maybe, Al, just with the second question, I'll just ask a big picture. There's certainly been a lot of chatter about supply concerns within the contact lens industry. You guys certainly seem to be fairly okay. But maybe just talk about where you guys sit. I know you mentioned a little bit around some of your product lines, but broadly speaking, where you guys sit? And your confidence or comfort level that you're broadly going to be able to stay ahead of the demand curve, especially with hitting the gas and getting the MyDay Energys launch off the ground?

Albert White, CEO

Sure. Yes. I mean there's still supply chain challenges in the market, if you will. And we still see those also. And some of our competitors have talked about that and have had some challenges. I feel pretty good about where we're at. As I mentioned, we do have some capacity constraints, if you will, within Biofinity and a couple of other spots that we're working pretty aggressively at right now to resolve. But at a high level, I feel pretty good about where we're at. We're in a good spot with MyDay. We've got the Energys rolling out right now. We're in a good position with that from a production perspective and distribution perspective. We're in a good spot with Clariti. We're in a good spot with Biofinity. We're in a good spot with Avaira Vitality. So pockets of challenges. But for us, at least from a supply chain perspective, we're definitely getting in a better position.

Operator, Operator

Our next question comes from the line of Larry Biegelsen from Wells Fargo.

Larry Biegelsen, Analyst

Congrats on a really nice quarter here, guys. So I wanted to start, Al, on the contact lens market. And then I had one margin question for Brian. So Al, the guidance implies roughly 8% organic growth the rest of the year. Alcon called out some softness in the contact lens market on their call this week. What are you assuming for the contact lens market for 2023? Have you seen any changes in consumer behavior? And how does your private label business help insulate you?

Albert White, CEO

Yes. So we've had a good start to the year. We had a good January. February was definitely a good month. So we're seeing positive momentum. I'm speaking for Cooper. So I think we're in a good place from that perspective, and you see that build into our guidance. If I think about the market a little bit more broadly, I would say we're taking share similar to what we've taken historically. So not a massive amount of share, but 1 point to 2 points, something like that over what the market is growing, kind of similar to last year. So I think the market is going to have another good year, frankly. At this point in time, the way the year is starting off and the visibility we have, I think the overall contact lens market is going to be certainly mid-single digits and probably on the higher end of the mid-single digits. When you look at our portfolio, we have the broadest portfolio in the market. We also manage a lot of customer brands, and that definitely helps. When you look at retailers right now in some of our bigger accounts who are looking at their own profitability and managing their own supply chain issues and so forth, one of the areas that they'll have a tendency to turn around and focus on is their own store brands. Those are products that we have a tendency to support to them, and we take a lot of pride in that, and we work very closely with our key accounts and have strong relationships with them to continue to supply their customer brands. So I think that does help us, and I think it will help us as we move through this year. We have not really seen much in terms of any wearing habit changes in terms of trade down or anything along those lines. We're still seeing success driven heavily by products like MyDay, frankly, within our franchise. We are having success with Clariti. That's more of a mass market price point. I think that if you do see any moves associated with consumers being a little bit more concerned about the cost of things, and we have a great option in Clariti, and I think we'll continue to do well with that. So yes, net-net, at the end of the day, I'd say I'm envisioning a strong market this year and us taking a little bit of share of it.

Larry Biegelsen, Analyst

That's very helpful. Brian, the operating margin peaked at 27.6% in 2019, and the last two quarters have been around the low to mid-22% range. Can you clarify the reasons for the decline of approximately 500 basis points? What is the path to return to 27.6%? Also, the operating margin for 2023 is projected to be about 24%.

Brian Andrews, CFO

Yes, Larry, that's a great question. Since 2019, foreign exchange has presented a notable headwind for us, around 1.5%. The remaining 2% can be attributed to three main factors, roughly one-third each. First, there's equity, specifically share-based compensation. A couple of years ago, we shifted from a five-year to a four-year vesting period, which has been a challenge for us, accounting for about a third of the difference. Second, supply chain and distribution issues, which is not surprising given our recent considerations, make up another third. Lastly, we've made significant investments in our infrastructure, particularly in IT, which includes our automation initiatives as well as ERP and other IT enhancements we've implemented over time. I believe we will eventually overcome the equity challenge and continue to grow with our infrastructure. Regarding your comment about operating margins for the year, I think it's in line with our expectations. All the efficiency measures we’re undertaking and the cost containment efforts I mentioned in my prepared remarks are just examples of this. We’ll keep pursuing structural changes to centralize, automate, and optimize our infrastructure, and I anticipate that we'll see continued leverage moving forward. Additionally, from an operating income standpoint, the midpoint of our guidance reflects a 1% increase on a constant currency basis, suggesting that this year we are already gaining leverage, with an expected constant currency operating income growth of around 10.5% at the midpoint of our guidance.

Operator, Operator

Our next question comes from the line of Jeff Johnson from Baird.

Jeffrey Johnson, Analyst

Al, maybe starting on the contact lens business. Just what do you see from a pricing standpoint this quarter? Do you still feel like this year could be a little bit better pricing environment for you specifically given some of those larger retail contracts? And should we expect MyDay Energys to come out at a price premium? I know Biofinity Energys kind of was back and forth, whether it's a premium or just a premium value that were got value out of it at the same price. So what are you planning on MyDay Energys?

Albert White, CEO

Yes. So MyDay Energys will be a price premium to the MyDay sphere. I'm not sure exactly where the number will settle out, but it will be somewhere around a 20% price premium to the regular MyDay lens. On pricing, in general, yes, I think that this will be a decent year from a pricing perspective for us. 2% plus pricing will get this year. As an industry, you're seeing positive pricing, and it's probably in that 2%-plus range, same thing. I'm talking about net pricing, right, because a lot of people are putting price increases through, but then you'll run programs kind of behind the scene rebate programs or whatever else, right? But net pricing, looking at that 2% to maybe as high as even 3% range. So a pretty good market from that perspective.

Jeffrey Johnson, Analyst

Yes. That's helpful. And then I think one of the numbers that set out the most of me was at 9% constant currency in your SiHy FRP business. I know there's different data sources out there. One of your competitors talked about that FRP market being flat in the fourth quarter. I don't know if you agree with that, but to beat the market by 9 points. Does that speak to some of the private label benefits that Larry was asking about or how else to think about kind of that outperformance?

Albert White, CEO

Yes, I don't think the market was flat, but it did see a modest increase. We are certainly gaining market share and experiencing growth in that area. A significant factor in this is the breadth of our product range. We offer strong products like Biofinity and Avaira Vitality, and we're also seeing additional growth from products such as the extended range sphere and the extended range torics, along with the multifocal toric available in the market. These elements are contributing to solid growth. Additionally, when you consider our entire franchise, combined with some of the store brands that retailers are focusing on more, this will likely be advantageous for us moving forward. The monthly price point is attractive to many contact lens users. If you anticipate that the economy will trend in that direction, it is likely we will see a shift towards store brands and a preference for monthly products, making Biofinity well-positioned for that shift.

Operator, Operator

Our next question comes from the line of Anthony Petrone from Mizuho Securities.

Bradley Bowers, Analyst

This is Brad Bowers on for Anthony. I just wanted to kind of hear about progress on myopia. It sounds like the myopia management basis was strong in the quarter. Just wanted to kind of see where you're seeing the growth and kind of where you're on track there?

Albert White, CEO

Sure. Yes. Myopia management was, I would say, was solid this quarter. The reason I wouldn't say it was strong, so to speak, really is China; that's where we ran into difficulty. So if you're outside of China, whether it's my sight or whether it's our Ortho-K products, we had a really good quarter, and we've got good momentum. We're expanding those offerings. We're seeing MiSight in more big retailers and more big accounts as they're rolling it out and getting more active on their myopia control practices. So things are going fairly well with respect to my sight. Again, I would say the one clear negative within that space and the challenge that we had this quarter, frankly, was in China; that market just has not returned. So if it does start to return, we'll see some upside from that. We don't have a lot built into our expectations around that. So hopefully, we'll see that.

Bradley Bowers, Analyst

Got it. That's helpful. I'm curious if there are any additional strategic options being considered to finalize the Cook Medical deal, or if you could share any updates on that.

Albert White, CEO

Yes, Brad, unfortunately, there's not really much I can add other than just kind of repeating what we said, which is we're working through that process right now. There's a lot of regulatory implications there. So we're evaluating our different alternatives, kind of have everything on the table to see if we can figure something out. And as I mentioned, we'll have a resolution to that no later than August of this year.

Operator, Operator

Our next question comes from the line of Jason Bednar from Piper Sandler.

Jason Bednar, Analyst

I'd like to congratulate you on a strong start to fiscal '23. I wanted to begin with the Americas, noting the 9% growth, which I believe is some of the best growth we've seen from that region in several years, aside from the COVID period when comparisons were easier. Can you discuss the factors behind this? Help us understand how much of this strength in the Americas is due to new products, whether pricing differs from the 2 to 3 points you've mentioned, or if volume is driving this growth. Additionally, I want to clarify your earlier points. You indicated that you haven't observed any trade-down or softening in the consumer within your portfolio, but your guidance still reflects some caution regarding the economy. I just want to confirm that I have understood this correctly.

Albert White, CEO

Yes. Regarding the second point, we haven't noticed any trade down or weakness in the contact lens market at this time. In fact, we're hearing from major retailers and buying groups, both in the U.S. and globally, about challenges related to staffing, including difficulties in finding optometrists and ensuring they work sufficient hours. So, we are in a solid position. We haven't seen that activity, and as Brian mentioned, we are incorporating a bit of caution into our guidance, which I believe is sensible. In the Americas, we had a strong quarter. Alex is now managing that business effectively, and our Americas sales team is performing exceptionally well. We have been growing in line with the market, and we are starting to gain momentum, especially with the launch of MyDay Energys. It's just one quarter, and while I don't want to overemphasize it, you can't have a second strong quarter without a first one, so it's a positive step forward.

Operator, Operator

Our next question comes from the line of Matthew Mishan from KeyBanc.

Matt Mishan, Analyst

I guess this is for Brian. Could you elaborate further on kind of operational efficiency, kind of where that's coming from? Is that more of a gross margin type driver for you? And kind of how should we think about gross margin year-over-year now?

Brian Andrews, CFO

Yes. We're pursuing several different cost containment initiatives. I mentioned earlier the consolidation of our Specialty eye care division into our core operations. In the long term, this will improve our gross margins, but in the short term, it is expected to provide more operational expense benefits. We are also centralizing some activities, including consolidating a high-growth subregion in Eastern Europe and the Middle East Africa into our European region, which will enhance efficiencies. Therefore, I would consider this more of an operational expense initiative than anything else. Regarding gross margin, our guidance implies a year-over-year increase, with a bit more influence from currency fluctuations than from constant currency factors.

Operator, Operator

Our next question comes from the line of Robbie Marcus from JPMorgan.

Robert Marcus, Analyst

Great. Nice quarter. Maybe to start, are you able to quantify, if at all, any of the share you think you gained as competitors seem to have had more supply chain issues than you did around the world and the impact on the different product lines?

Albert White, CEO

I don't think, frankly, very much. Some of the issues that competitors have had around supply chain are relatively recent. We've had some of our own challenges around supply chain. I don't want to act like we haven't. So frankly, I don't think there's very much that it's come from supply chain challenges. They haven't been significant or long enough to really start moving market share at this point in time. If they hold and they continue to be a challenge, I do think that could provide positive upside to us. But I wouldn't put much on it for the results that we're reporting right now.

Operator, Operator

Our next question comes from the line of David Saxon from Needham.

David Saxon, Analyst

Congrats on the quarter. Maybe starting on surgical. You called out some pull-forward buying for PARAGARD in front of some pricing. Just wanted to see if you could quantify that impact and talk about kind of what the underlying demand looks like with PARAGARD?

Albert White, CEO

For PARAGARD, I think we probably had about $3 million in sales pulled from what would typically be Q2 into Q1. This means that Q2 will have a larger challenge as a result. From a unit perspective, I maintain what I said last quarter: we might struggle with unit growth this year. There are still challenges with patient flow in the OB-GYN market and particularly with IUDs. So for this year, we may experience some growth, but it's not due to an increase in units; it's because of pricing. I still believe that's the case. I hope I'm mistaken and being too conservative, but that's the situation as it stands now.

Operator, Operator

Our final question comes from the line of Navann Ty from BNP Paribas.

Navann Ty Dietschi, Analyst

My first question is what is your outlook on OB-GYN visits in 2023? And do you foresee a sustainable recovery of PARAGARD longer term and volume market share opportunities in addition to price increases?

Albert White, CEO

Yes. I mean I might be more conservative than many people on that, but I'm still concerned about patient traffic within the OB-GYN office. We've seen some improvements there, but we haven't seen a lot of improvement there. And I think that might be the case as we roll through this year. Now I'm not saying that's necessarily true on all areas of the OB-GYN world, but in the areas where we operate and we compete, that's true in a lot of those spaces. One of those areas where that's true would be in the IUD market. We just haven't seen that foot traffic, if you will, the patient flow return at the levels that I've been hoping. And that's one of the reasons I was saying that I think at the end of the day, PARAGARD unit volume ends up being relatively flat this year, so that growth comes from price. Again, I hope I'm wrong on that. I hope we see the traffic because that would certainly be upside. But right now, not anticipating that. Great. Well, thank you. Thank you, everyone, for your time and for joining the call today. As I mentioned earlier, this is exactly how we wanted to start this fiscal year off on a good basis. So good revenue growth at vision, good revenue growth at Surgical, efficiencies within the company, driving earnings upside. And I think we're well positioned to have a good Q2 to Q4. So I look forward to seeing you guys during the quarter and certainly to our next quarterly conference call. Thank you.

Operator, Operator

Thank you, ladies and gentlemen. This does conclude today's call. Thank you for your participation. You may now disconnect.