Item 2. Management’s Discussion and Analysis of Financial Condition

23K characters. Original on sec.gov · Markdown

Item 2. Management’s Discussion and Analysis of Financial Condition

and Results of Operations

Selling, General and Administrative (SGA) Expenses



Three Months Ended July 31,									2024 vs 2023 % Change
($ in millions)	2024		% Net Sales		2023		% Net Sales
CooperVision	$	232.5	34	%	$	228.2	36	%	2	%
CooperSurgical	127.1		39	%	128.1		43	%	(1)	%
Corporate	21.5		—		18.9		—		14	%
	$	381.1	38	%	$	375.2	40	%	2	%

Nine Months Ended July 31,									2024 vs 2023 % Change
($ in millions)	2024		% Net Sales		2023		% Net Sales
CooperVision	$	679.9	35	%	$	637.3	35	%	7	%
CooperSurgical	395.1		42	%	423.7		49	%	(7)	%
Corporate	67.3		—		52.6		—		28	%
	$	1,142.3	40	%	$	1,113.6	42	%	3	%

CooperVision's SGA expenses increased in the three months ended July 31, 2024, compared to the three months ended July 31, 2023, due to increase in advertising and marketing activities. The increase in the nine months ended July 31, 2024, was primarily due to $31.8 million release of contingent consideration liability associated with SightGlass Vision's regulatory approval milestone in the nine months ended July 31, 2023.

CooperSurgical's SGA expenses was relatively flat in the three months ended July 31, 2024, compared to the three months ended July 31, 2023. The decrease in the nine months ended July 31, 2024 was due to an accrual of $45.0 million associated with the payment of a termination fee under an asset purchase agreement related to Cook Medical’s reproductive health business in the nine months ended July 31, 2023, partially offset by an increase in selling activities and distribution costs.

Corporate SGA expenses increased in the three and nine months ended July 31, 2024, compared to the three and nine months ended July 31, 2023, primarily due to share-based compensation related expenses.

Research and Development (R&D) Expenses



Three Months Ended July 31,									2024 vs 2023 % Change
($ in millions)	2024		% Net Sales		2023		% Net Sales
CooperVision	$	21.6	3	%	$	19.4	3	%	11	%
CooperSurgical	17.4		5	%	17.1		6	%	2	%
	$	39.0	4	%	$	36.5	4	%	7	%

Nine Months Ended July 31,									2024 vs 2023 % Change
($ in millions)	2024		% Net Sales		2023		% Net Sales
CooperVision	$	63.2	3	%	$	53.0	3	%	19	%
CooperSurgical	54.2		6	%	47.7		6	%	14	%
	$	117.4	4	%	$	100.7	4	%	17	%

CooperVision's R&D expenses increased in the three and nine months ended July 31, 2024, compared to the three and nine months ended July 31, 2023, primarily due to myopia management programs and R&D projects. CooperVision's R&D activities are primarily focused on the development of contact lenses, manufacturing technology and process enhancements.

CooperSurgical's R&D expenses increased in the three and nine months ended July 31, 2024, compared to the three and nine months ended July 31, 2023, mainly due to an increase in R&D project spend. CooperSurgical's R&D activities are focused on developing and refining diagnostic and therapeutic products including medical interventions, surgical devices and fertility solutions.

THE COOPER COMPANIES, INC. AND SUBSIDIARIES

Item 2. Management’s Discussion and Analysis of Financial Condition

and Results of Operations

Amortization Expense



Three Months Ended July 31,									2024 vs 2023 % Change
($ in millions)	2024		% Net Sales		2023		% Net Sales
CooperVision	$	7.9	1	%	$	8.3	1	%	(5)	%
CooperSurgical	42.5		13	%	38.4		13	%	11	%
	$	50.4	5	%	$	46.7	5	%	8	%

Nine Months Ended July 31,									2024 vs 2023 % Change
($ in millions)	2024		% Net Sales		2023		% Net Sales
CooperVision	$	23.3	1	%	$	25.0	1	%	(7)	%
CooperSurgical	127.7		14	%	114.7		13	%	11	%
	$	151.0	5	%	$	139.7	5	%	8	%

CooperVision's amortization expense for the three and nine months ended July 31, 2024, remained relatively flat year over year. CooperSurgical's amortization expense increased in the three and nine months ended July 31, 2024, compared to the three and nine months ended July 31, 2023, primarily due to the amortization of intangible assets recently acquired through acquisitions.

Operating Income



Three Months Ended July 31,									2024 vs 2023 % Change
($ in millions)	2024		% Net Sales		2023		% Net Sales
CooperVision	$	172.7	26	%	$	151.7	24	%	14	%
CooperSurgical	41.3		13	%	18.8		6	%	120	%
Corporate	(21.5)		—		(18.9)		—		14	%
	$	192.5	19	%	$	151.6	16	%	27	%

Nine Months Ended July 31,									2024 vs 2023 % Change
($ in millions)	2024		% Net Sales		2023		% Net Sales
CooperVision	$	487.7	25	%	$	449.7	25	%	8	%
CooperSurgical	86.9		9	%	0.3		—	%	28,003	%
Corporate	(67.3)		—		(52.6)		—		28	%
	$	507.3	18	%	$	397.4	15	%	28	%

CooperVision's operating income increased in the three and nine months ended July 31, 2024, compared to the three and nine months ended July 31, 2023, primarily due to a net increase in net sales, partially offset by a net increase in operating expenses.

CooperSurgical's operating income increased in the three months ended July 31, 2024, compared to the three months ended July 31, 2023, primarily due to a net increase in net sales, partially offset by a net increase in operating expenses. The increase in the nine months ended July 31, 2023, was due to an accrual of $45.0 million associated with the payment of a termination fee under an asset purchase agreement related to Cook Medical’s reproductive health business.

Corporate operating loss increased in the three and nine months ended July 31, 2024, compared to the three and nine months ended July 31, 2023, primarily due to higher share-based compensation expenses.

THE COOPER COMPANIES, INC. AND SUBSIDIARIES

Item 2. Management’s Discussion and Analysis of Financial Condition

and Results of Operations

Interest Expense



Three Months Ended July 31,									2024 vs 2023 % Change
($ in millions)	2024		% Net Sales		2023		% Net Sales
Interest expense	$	28.5	3	%	$	26.8	3	%	7	%

Nine Months Ended July 31,									2024 vs 2023 % Change
($ in millions)	2024		% Net Sales		2023		% Net Sales
Interest expense	$	87.3	3	%	$	79.0	3	%	11	%

Interest expense increased during the three and nine months ended July 31, 2024, compared to the three and nine months ended July 31, 2023, primarily due to higher debt balances and higher interest rates.

Other Expense, Net


Periods Ended July 31,	Three Months				Nine Months
($ in millions)	2024		2023		2024		2023

Foreign exchange (gain) loss	$	(0.5)	$	4.3	3.2		$	6.1
Other expense, net	0.8		1.7		3.1		5.8
	$	0.3	$	6.0	$	6.3	$	11.9

Foreign exchange (gain) loss was primarily associated with the relative weakening of the U.S. dollar against foreign currencies and the effect on intercompany receivables during the three and nine months ended July 31, 2024.

Other expense, net decreased in the three and nine months ended July 31, 2024, compared to the three and nine months ended July 31, 2023, primarily due to a decrease in loss on minority investments.

Provision for Income Taxes

The effective tax rates for the three months ended July 31, 2024, and 2023, were 36.1% and 28.2%, respectively. The effective tax rates for the nine months ended July 31, 2024, and 2023, were 33.6% and 31.6%, respectively. The increases were primarily due to changes in the geographic composition of pre-tax earnings and an increase in the UK statutory tax rate from 19% to 25%.

THE COOPER COMPANIES, INC. AND SUBSIDIARIES

Item 2. Management’s Discussion and Analysis of Financial Condition

and Results of Operations

Capital Resources and Liquidity

Working capital as of July 31, 2024, and October 31, 2023, was $957.2 million and $735.9 million, respectively. The increase in working capital was primarily due to an increase in trade accounts receivable mainly due to higher sales and timing of collections, an increase in prepaid expenses and other current assets, and an increase in inventories.

Cash Flow


Nine Months Ended July 31,
($ in millions)	2024		2023
Operating activities	$	441.2	$	433.3
Investing activities	(523.0)		(288.2)
Financing activities	67.6		(167.4)
Effect of exchange rate changes on cash, cash equivalents, restricted cash	3.1		1.2
Net decrease in cash, cash equivalents, and restricted cash	$	(11.1)	$	(21.1)

Operating Cash Flow

Cash provided by operating activities in the first nine months of fiscal 2024 increased compared to the first nine months of fiscal 2023, primarily due to net changes in other non-cash items and the $31.8 million release of contingent consideration liability associated with SightGlass Vision's regulatory approval milestone in the first nine months of fiscal 2023, partially offset by net changes in operating capital.

Investing Cash Flow

Cash used in investing activities in the first nine months of fiscal 2024 increased compared to the first nine months of fiscal 2023, primarily attributable to $233.5 million cash paid for acquisitions in the first nine months of fiscal 2024, and an increase in purchases of property, plant and equipment.

Financing Cash Flow

Cash provided by financing activities in the first nine months of fiscal 2024 was primarily attributable to funds received from the 2024 Revolving Credit Facility, partially offset by repayments to fully repay all borrowings outstanding under the 2020 Term Loan Facility and the 2020 Revolving Credit Facility.

Cash used in financing activities in the first nine months of fiscal 2023 was primarily due to repayments of $338.0 million on the 2021 364-day term loan, partially offset by $163.5 million of funds drawn on the 2020 Revolving Credit Facility.

The following is a summary of the maximum commitments and the net amounts available to us under different credit facilities as of July 31, 2024:


(In millions)	Facility Limit		Outstanding Borrowings		Outstanding Letters of Credit		Total Amount Available		Maturity Date

Revolving Credit:
2024 Revolving Credit	$	2,300.0	$	1,090.2	$	2.4	$	1,207.4	May 1, 2029
Term loan:
2021 Term Loan	1,500.0		1,500.0		n/a		—		December 17, 2026
Total	$	3,800.0	$	2,590.2	$	2.4	$	1,207.4

As of July 31, 2024, the Company was in compliance with all debt covenants. On May 1, 2024, the Company entered into a Revolving Credit Agreement (the 2024 Credit Agreement). The Company drew on the 2024 Credit Agreement to fully repay borrowings outstanding under the 2020 Term Loan and 2020 Revolving Credit Facility and terminated the 2020 Credit Agreement. See Note 5. Financing Arrangements of the Consolidated Condensed Financial Statements for further information.

THE COOPER COMPANIES, INC. AND SUBSIDIARIES

Item 2. Management’s Discussion and Analysis of Financial Condition

and Results of Operations

Considering recent market conditions, we have re-evaluated our operating cash flows and cash requirements and continue to believe that current cash, cash equivalents, future cash flow from operating activities and cash available under our 2024 Credit Agreement will be sufficient to meet our anticipated cash needs, including working capital needs, capital expenditures and contractual obligations for at least 12 months from the issuance date of the Consolidated Condensed Financial Statements included in this quarterly report. To the extent additional funds are necessary to meet our liquidity needs such as for acquisitions, share repurchases or other activities as we execute our business strategy, we anticipate that additional funds could be obtained through the incurrence of additional indebtedness, additional equity financings or a combination of these potential sources of funds; however, such financing may not be available on favorable terms, or at all.

Share Repurchase

In March 2017, the authorization under the 2012 Share Repurchase Program was increased to $1.0 billion by the Company's Board of Directors. As of July 31, 2024, $256.4 million remains authorized for repurchase.

During the nine months ended July 31, 2024, and 2023, there were no share repurchases.

Dividends

In December 2023, the Company's Board of Directors decided to end the declaration of the semiannual dividend.

Stock Split

On February 16, 2024, the Company effected a four-for-one stock split of its outstanding shares of common stock. All share and per share information has been retroactively adjusted to reflect the stock split for all periods presented. The par value of the common stock remains $0.10 per share.

Estimates and Critical Accounting Policies

Information regarding estimates and critical accounting policies is included in Management's Discussion and Analysis in our Form 10-K for the fiscal year ended October 31, 2023. There have been no material changes in our policies2 from those previously discussed in our Form 10-K for the fiscal year ended October 31, 2023.

Accounting Pronouncements

Information regarding new accounting pronouncements is included in Note 1. General of the Consolidated Condensed Financial Statements of this Quarterly Report on Form 10-Q.

2 To further clarify the policy detailed in our Annual Report on Form 10-K for the fiscal year ended October 31, 2023, the current portion of the deferred revenue balances at the beginning of each period presented were generally fully recognized in a ratable manner in the subsequent 12-month period. We recognized revenue of approximately $30.0 million and $92.0 million for the three and nine months ended July 31, 2024, respectively, that was included in the deferred revenue balance at April 30, 2024, and October 31, 2023.We recognized revenue of approximately $30.0 million and $80.0 million for the three and nine months ended July 31, 2023, respectively, that was included in the deferred revenue balance at April 30, 2023, and October 31, 2022.

THE COOPER COMPANIES, INC. AND SUBSIDIARIES

Previous: Item 1. Unaudited Financial Statements · Next: Item 3. Quantitative and Qualitative Disclosure About Market Risk