Full Year 2024 Cochlear Ltd Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Andrew Goodsall - MST - Analyst : Good morning. Thanks very much for taking my questions. Just -- if we look at the second half growth rate for CI, particularly the US, just what read-through you're taking from that in terms of your efforts to grow the market? And I guess, how are those investments being placed? I'm just trying to get a bit of interpretation around that particular number?

Question: Andrew Goodsall - MST - Analyst : Would it be fair to say that some of the sort of growth over the last couple of years might have been attributed to a COVID sort of recovery and I guess we're more normalizing now?

Question: Andrew Goodsall - MST - Analyst : And just a quick follow-up one for Stuart, just the Oticon integration expenses, just any flow through into 2025 with that?

Question: Andrew Goodsall - MST - Analyst : And just ballpark, the cost of opening up Chengdu or the cost that you've incurred that wouldn't be normal?

Question: Andrew Goodsall - MST - Analyst : Okay. But no sort of one-off costs in this last 12 months that you'd describe as sort of just getting doors open that --

Question: Andrew Goodsall - MST - Analyst : Weren't capitalized? Okay. No worries.

Question: Andrew Goodsall - MST - Analyst : Thanks very much.

Question: David Low - JPMorgan - Analyst : Thanks very much for taking my questions. I might stay on the same topic that Andrew started with. Just -- could I get you to talk a bit more directly about what assumptions you've made about bottlenecks in the system? Given the senior segment's growing 15%, it strikes me that double-digit growth in developed markets is achievable if there isn't bottlenecks. And if I could get you to expand into developing markets as well, and given there's a lot of timing issues there, it seems a bounce back would be a reasonable assumption. Just wondering what you're thinking there, please?

Question: David Low - JPMorgan - Analyst : The other one was the emerging markets, given they were very successful in half of India. Does that recover?

Question: David Low - JPMorgan - Analyst : Okay. Thanks for that. Just a couple of other quicker ones, I hope. The Acoustics market, you said that it's a similar sized opportunity to Cochlear Implants, which if I knew that I'd forgotten. Where are we at in terms of the level of penetration? Maybe you could give us something around volumes versus Cochlear Implants, so we could assess sort of how big an opportunity that is, perhaps in dollars as well as volumes?

Question: David Low - JPMorgan - Analyst : Allright. I'll leave it there. Thanks very much.

Question: Saul Hadassin - Barrenjoey - Analyst : Thanks. Good morning, Dig. Good morning, Stuart. Maybe just a comment -- a question on unit sales growth and your guidance for FY 2025, that sort of 10% range. I'm just wondering if you think that is consistent with market growth or industry growth or whether you think you'll be taking some share in FY 2025 consistent with sort of what you've seen in the last couple of years?

Question: Saul Hadassin - Barrenjoey - Analyst : Great. And then, Dig, just on the services commentary, slowing revenue growth, not unexpected as it relates to where you are in the cycle of the N8 upgrade, but historically there's been some commentary from Cochlear about trying to smooth the upgrade revenue through mid-cycle technology upgrades or the cans, et cetera. Just so your comments on the ability to as we look forward into the next cycle, what is the ability of you guys to actually transmit you'd actually have negative revenue growth in a particular year?

Question: Saul Hadassin - Barrenjoey - Analyst : Great. Thanks. And just if I could squeeze one more in for Stuart, you mentioned on the call, just with cloud-based expenses coming through, I think you said AUD30 million to AUD38 million roughly per year the next two years. You've guided to AUD34 million for FY 2025. If I add up all the expenditure today, that gets me to around just under AUD130 million. So for FY 2026, is the expectation then that the whole program exceeds AUD150 million? Because otherwise I would have thought it's about a AUD20 million expense that you're facing in FY 2026?

Question: Saul Hadassin - Barrenjoey - Analyst : And then (inaudible) away meaningfully then once that AUD150 million is complete or does it again depend on where you are in the cycle of SaaS investments? In other words, it could linger for an extended period of time?

Question: Saul Hadassin - Barrenjoey - Analyst : All right. That's all I had. Thank you very much.

Question: Steve Wheen - Jarden - Analyst : Yeah. Good morning. Follow-up question on the services side. And the second half, the revenue went, was basically flat, just a little bit under flat. And as a result, is that deceleration in the services perhaps a little bit faster than expected? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 15, 2024 / 12:00AM, COH.AX - Full Year 2024 Cochlear Ltd Earnings Call And I wonder if you could just touch on that, maybe explain that. Is there any affordability-type issues emerging and what sort of penetration of the installed base that are due an upgrade, would you say you've reached in the first 18 months since you've launched the N8? Thanks.

Question: Steve Wheen - Jarden - Analyst : Great. Thanks, Dig. And Stuart, just wanted to reconfirm, I didn't quite hear your comments on working capital, in particular, the inventory balance. Are you saying that that's the sort of level that you would expect to maintain or can that come down now that we are seeing that slowdown in the upgrade cycle that you're anticipating in the Nucleus 8?

Question: Steve Wheen - Jarden - Analyst : Great. Thanks, guys.

Question: David Stanton - Jefferies - Analyst : Good morning, team, and thanks very much for taking my questions. I'd like some more color on what you're calling out in terms of surgical constraints. What's driving that? Is there a focus on sort of other more emergency surgery that's emerging, particularly in the developed markets?

Question: David Stanton - Jefferies - Analyst : Understood. Thanks. And I guess a follow-up, in terms of second half FY 2024, you talked about in the emerging markets, some tender delays. I mean, are they delays or do you think, is your understanding that there may be cancellations being given? I mean, I guess the question is, are they delays or do you think you can get that volume back in time?

Question: David Stanton - Jefferies - Analyst : Understood. And final one from me, if that's okay. Cochlear used to talk to 55% to 60% penetration of -- with a new implant into that upgrades market. Are we around that getting -- topping out around there at the moment or is there more to go? I guess it's a follow-up to Steve's question.

Question: David Stanton - Jefferies - Analyst : Thank you. Understood. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 15, 2024 / 12:00AM, COH.AX - Full Year 2024 Cochlear Ltd Earnings Call

Question: Gretel Janu - E&P - Analyst : Thank you. Good morning. I just want to go back to Saul's question on the CI units. You've historically always said market growth was high single digits and now you're guiding to CI unit growth of 10%. So I guess what has really changed here is that you now have this increased confidence to guide higher from a market growth perspective and do you expect that acceleration in market growth to continue into past FY 2025 into the medium-term? Thanks.

Question: Gretel Janu - E&P - Analyst : Okay. So do you expect that 10% to continue more into past FY 2025, I guess or is it just more of one-off factors that have led to the 10%?

Question: Gretel Janu - E&P - Analyst : Right. Understood. Thank you. And then just in terms of capital management, you've announced that AUD75 million buyback. That's not really going to make a dent to the cash balance. So I just think, what is your long-term thinking about capital management here and what would make you increase the buyback, understanding that you do want to keep reinvesting back into the business?

Question: Gretel Janu - E&P - Analyst : Understood. Thanks very much. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 15, 2024 / 12:00AM, COH.AX - Full Year 2024 Cochlear Ltd Earnings Call

Question: David Bailey - Macquarie - Analyst : Yeah. Thanks. Good morning, Dig and Stu. Some questions there just around the industry growth rate. Just interested in your views on the competitive dynamics at the moment. Obviously, some market share gains have come through in more recent years. But what are you seeing at the moment? And then just given some of the updates coming through from peers, new technology from (inaudible), just thoughts around market share opportunities from here?

Question: David Bailey - Macquarie - Analyst : Great. Just on the COACH trial, just can you remind us as to the recruitment for that I couldn't see on the website and potential timing for that one?

Question: David Bailey - Macquarie - Analyst : Okay. Understood. And then just a quick one for Stuart maybe, just the impact of currency for 2025. So obviously the currency is looking pretty flat in terms of your guidance, but thinking through hedge movements, just your thoughts on what that could mean for earnings either pre-tax or post-tax earnings for 2025?

Question: David Bailey - Macquarie - Analyst : Thanks very much.

Question: Andrew Paine - CLSA - Analyst : Good morning. Thanks for taking my question. Just coming back to the surgical capacity constraints and tenders, just trying to understand how big a headwind was that in FY 2024, and are you expecting that to subside and essentially unwind in FY 2025 or is this kind of a multiyear journey you're on there?

Question: Andrew Paine - CLSA - Analyst : Yeah. Okay. That makes sense. And you also said direct-to-consumer is about 30% or greater than 30% of Cochlear Implant surgeries. Just trying to understand what that was historically and what you think it grew to. Also, is there an ASP or margin impact there? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 15, 2024 / 12:00AM, COH.AX - Full Year 2024 Cochlear Ltd Earnings Call

Question: Andrew Paine - CLSA - Analyst : Okay. And sorry, is there an ASP or margin impact there?

Question: Andrew Paine - CLSA - Analyst : Yeah. Got you. Okay. Thanks.

Question: Shane Storey - Wilsons Advisory - Analyst : Yeah. Good morning. My question is just back to just looking at where the profit ended up this year. I mean, when you look back at what prompted you to guide, I mean, upgrade the guidance in February, what would you say would be the most important factor or upside component that you saw then that show up and to explain where we ended up this year?

Question: Shane Storey - Wilsons Advisory - Analyst : No. Just, I guess, when we looked at the top end of the revised guidance, it's say AUD400 million [on PAT], you're just trying to think through that because it seems most of the, most of the elements of in terms of the commentary have been reasonably in line. It's just trying to understand what you felt the biggest contributor to the delta, say from, in missing the top end was. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. AUGUST 15, 2024 / 12:00AM, COH.AX - Full Year 2024 Cochlear Ltd Earnings Call

Question: Shane Storey - Wilsons Advisory - Analyst : That's exactly what I want to check. Thanks, Dig. That's all for me.

Question: Craig Wong-Pan - RBC - Analyst : Thank you. It's just on services on a constant currency basis. The services revenue declined year in the second half. So I just wanted to clarify for your FY 2025 outlook. Are you expecting negative services revenue growth in FY 2025 or just a lower level than the 12% growth you achieved for the full year of FY 2024?

Question: Craig Wong-Pan - RBC - Analyst : Okay. And then just on the Oticon integration costs, I didn't quite understand the, if there's any more cost to come through in FY 2025 or not, or is that done now?

Question: Craig Wong-Pan - RBC - Analyst : Okay. And then my last question, just on the CapEx, that AUD110 million to AUD130 million, that's something that's going to Lane Cove and Malaysia. I just want to understand what that investment's going to be directed towards there.

Question: Craig Wong-Pan - RBC - Analyst : Okay. Thanks. That's very helpful.

Question: Lyanne Harrison - Bank of America - Analyst : Yeah. Good morning all. If I could come back to Cochlear Implants again. Developed market adults and seniors was quite strong for 14% and at 15% growth. Is that the sort of growth that we should be expecting or similar growth in 2025 or is there a possibility to track high given what you're

Question: Lyanne Harrison - Bank of America - Analyst : Okay. Thank you. And then just one more on price increases. What can we expect for 2025?

Question: Lyanne Harrison - Bank of America - Analyst : Okay. Thank you very much.

Question: Mathieu Chevrier - Citi - Analyst : Yeah. Good morning. Thanks for taking my question. I just had a last one on CapEx beyond FY 2025. How should we think about it given that it's been a bit higher than what we were expecting in going into FY 2025?

Question: Mathieu Chevrier - Citi - Analyst : Got it. So AUD100 million to AUD110 million is kind of the new your CapEx.

Question: Mathieu Chevrier - Citi - Analyst : Yeah. Excellent. Thank you so much. That's all I had.

Question: Laura Sutcliffe - UBS - Analyst : Hello. Thank you for taking my questions. Could I just go back to Chengdu for a second? Does what you said today about gross margin impact for 2025 impact any of your projections for when that turns from a headwind into a tailwind for you?

Question: Laura Sutcliffe - UBS - Analyst : All right. Thanks. And then just one more. I was wondering if you could talk a little bit about what portion of seniors at the moment are receiving two implants or one? And to what degree there's any focus on changing that versus trying to drive recruitment of completely new patients as you try and further penetrate that large senior population?

Question: Laura Sutcliffe - UBS - Analyst : And that's 50 in 15%?

Question: Laura Sutcliffe - UBS - Analyst : Thanks very much.