Outcome MedTech Market Movers: COVID Concern Diminishing, CooperCompanies Exceeds Q1/22 Guidance, M&A Strategy Energizing Returns

Outcome MedTech Market Movers: COVID Concern Diminishing, CooperCompanies Exceeds Q1/22 Guidance, M&A Strategy Energizing Returns

By: Thomas Busby, Vice President & Derrick Holmes, CFA, Analyst

CooperCompanies (NYSE:COO), acting through its two business segments, CooperVision (opthamology) and CooperSurgical (women’s health),  announced Q1/22 earnings Thursday afternoon (3/3/2022) after the closing bell. The company reported impressive results, bookmarking an inspiring start to their 2022 fiscal year. CooperCompanies topped wall street expectations with Non-GAAP earnings of $3.24 per share and revenue of $787.2M, a beat of $0.14 per share and $47.9M, respectively. CooperVision posted revenue of $561 million, up 11%; and CooperSugical logged a new all-time high with revenue of $226 million, up 30% quarter over quarter. Both business segments enjoyed revenue growth at a rate which exceeds that of their corresponding markets and are uniquely positioned for success as COIVD dissipates and the global economy recovers.

Al White, President & CEO of CooperCompanies, reflects on first quarters results, “I am pleased to report a strong start to the fiscal year, led by a fantastic quarter at CooperVision and another solid quarter at CooperSurgical. Within vision, our daily silicone hydrogel and myopia management portfolios continued posting strong results, leading to share gains around the world. Within surgical, our fertility business posted great numbers and the integration of Generate Life Sciences is going really well with that business off to a fast start as part of Cooper. We also recently announced the pending acquisition of Cook Medical’s reproductive health business, which will be a great addition to our surgical franchise.”

CooperVision registered 14% organic growth for the first quarter of the fiscal year, driven by their daily silicone hydrogel contact lens portfolio, which grew at an exceptional rate of 25%. MyDay is their premium offering while Clariti is targeted as a mass market product and continues to gain traction in the Asia Pacific region. Within Myopia management, Cooper’s MiSight line grew at a boastful rate of 172% over the quarter, conveying undeniable market adoption. MiSight is the first and only FDA approved myopia control contact lens and has proven to reduce myopia progression by about 59% on average. With strong momentum and $20M of revenue credited to myopia management in Q1, Cooper estimates this line will generate $100M of revenue over the fiscal year.

CooperSurgical posted organic growth of 9% in Q1 of FY2022. Consisting of two main operating segments, fertility and office & surgical, Cooper’s fertility business recorded $97M of revenue paired with a robust growth rate of 27% over the quarter. Within the company’s office & surgical business, sales as reported were up 24%, but are down 3% when excluding recent M&A activity. A focal point of their office & surgical business, PARAGARD, saw a decline in sales of 10% over the most recent quarter. Management guidance provided that the lull in sales due to COVID and lower foot traffic is expected to revert in the following quarters. Overall, outlook is positive for CooperSugical as macro headwinds ease and acquisitions continue to be integrated into the business.

CooperCompanies has exhibited a large appetite for acquisitions and tuck-in opportunities over the past three years. The company has completed eight transactions totaling over $1.725 billion; five of such transactions expanding the CooperSurgical franchise. Additionally, Cooper announced plans to purchase Cook Medical’s reproductive health business for $875 million on February 27^th, 2022. Management has targeted Cook as a strategic investment to expand upon and effectively utilize Coopers’ existing international fertility business. Cook Medical’s reproductive health franchise sells and manufactures minimally invasive fertility and gynecology related medical devices. This transaction is anticipated to close in fiscal Q2 2022.

“We invest in our business wherever we can find opportunities. That always provides the best return for us. We look at acquisitions if they make sense, and we will buy stock back if we think it makes sense.”  – Al White, President & CEO of CooperCompanies

Further forward-looking guidance suggests that CooperCompanies may taper back on M&A activity due to financial leverage climbing above historical averages. However, there is no need to sound the alarms quite yet with a current interest coverage ratio of 26.1x, stating that operating income is capable of satisfying interest payments twenty-six times over. In the near term, if management chooses to maintain this increased level of indebtedness and given steady or improving net profit margins and asset turnover, returns to shareholder should also increase. This dynamic can be explained as return on equity (ROE). ROE reveals how effectively management utilizes capital from equity investors and more specifically, can be helpful for evaluating how a company is generating returns to their shareholders.

Key Takeaways:

• M&A and Tuck in acquisitions continue to provide inorganic growth opportunities for companies seeking to leverage current footprint and fast track product offerings.
• Companies with strong balance sheets look to strategic M&A to provide shareholders with accretive return.
• Management’s ability to execute, integrate, and realize synergies through M&A is critical to equity valuation.