Cooper Companies, Inc. — Q1 FY2022 Form 10-Q
Reporting period: Three months ended January 31, 2022. The unaudited results cover CooperVision, which sells contact lenses, and CooperSurgical, focused on women’s health, fertility and related services. Comparisons are with the three months ended January 31, 2021.
Financial performance
| Metric | Q1 FY2022 | Prior-year period | Change / context |
|---|---|---|---|
| Net sales | $787.2 million | $680.5 million | Up 16%; up 14% in constant currency |
| Gross profit / margin | $518.4 million / 66% | $450.7 million / 66% | Gross profit up 15%; margin approximately flat |
| Operating income / margin | $130.8 million / 17% | $133.4 million / 20% | Operating income down 2% |
| Net income | $95.3 million | $2,101.1 million | Prior period included a $1,987.9 million income tax benefit |
| Diluted EPS | $1.91 | $42.31 | Prior period was substantially elevated by the tax benefit |
| Operating cash flow | $166.0 million | $147.7 million | Up $18.3 million |
| Capital expenditures / free cash flow | $57.1 million / $108.9 million | $55.9 million / $91.8 million | Free cash flow up 19%; company-defined non-GAAP measure |
Sales increased in both segments: CooperVision to $561.5 million, up 11%, and CooperSurgical to $225.7 million, up 30%. CooperVision growth reflected higher lens volumes and demand recovery; CooperSurgical growth included Generate Life Sciences and stronger demand across products and services. Foreign exchange reduced current-quarter sales by approximately $21.1 million across the two segments.
SG&A rose 22% to $319.1 million and amortization rose 22% to $42.3 million, contributing to lower operating income and margin. Management cited higher distribution, marketing and administrative costs, acquisition and integration costs, and acquisition-related amortization. Interest expense was $6.6 million versus $6.4 million.
Liquidity, debt and balance sheet
At January 31, 2022, cash and cash equivalents were $280.7 million and working capital was $33.7 million, down from $733.2 million at October 31, 2021. Total debt increased to $3,258.5 million from $1,479.0 million, primarily in connection with the Generate acquisition. Debt-to-equity was 0.47:1, versus 0.21:1.
The company had $1,288.6 million available under its revolving credit facility. Debt included an $840 million term loan maturing November 1, 2022, an $850 million term loan maturing April 1, 2025, and a $1.5 billion term loan maturing December 17, 2026. The company reported compliance with its leverage and interest-coverage covenants and expected to meet debt service obligations and remain covenant-compliant for at least 12 months after issuance. It reported that a 1 percentage-point interest-rate change would change quarterly interest expense by approximately $3.7 million, after swaps.
Material changes, outlook and risks
- Generate acquisition: CooperSurgical acquired Generate Life Sciences on December 17, 2021, for approximately $1.666 billion in cash, funded with a $1.5 billion term loan and cash on hand. Generate contributed $33.8 million of revenue and $1.6 million of net income from acquisition through quarter-end. Purchase-price accounting remained provisional.
- Further acquisition proposed: On February 7, 2022, CooperSurgical entered a binding letter of intent to acquire Cook Medical’s Reproductive Health business for $875 million, including $675 million at closing and four annual $50 million payments. Closing remains subject to a definitive agreement, regulatory approvals and other conditions.
- Outlook: Management expressed optimism about the long-term contact lens and general healthcare markets but gave no specific numerical earnings or revenue guidance in the provided filing text. It warned that COVID-19 and related disruptions may continue to pressure demand, sales, cash flow and performance. Management reported no significant manufacturing, supply or distribution disruption to date, but cited higher production, labor and freight costs.
- Other risks: Risks include inflation, currency and interest-rate movements, supply-chain and manufacturing interruptions, acquisition integration and leverage, regulatory changes, product liability and recalls, and international political and economic uncertainty. The filing specifically discusses potential effects of Russia’s invasion of Ukraine. The company said ordinary-course legal matters were not expected to have a material adverse effect.
Important facts for investors to verify
- Separate underlying operating performance from the prior-year one-time $1,987.9 million tax benefit when comparing earnings and EPS.
- Track integration, contribution and final purchase accounting for Generate, including acquired intangible amortization and goodwill.
- Confirm the status, financing and eventual terms of the proposed Cook Medical Reproductive Health acquisition.
- Monitor repayment or refinancing of the $840 million term loan due November 2022, leverage, covenant headroom and interest-rate exposure.
- Assess whether margin pressure, COVID-related demand volatility, inflation, foreign exchange and supply-chain risks persist.