• Revenue Growth: Overall net sales increase of 6% in constant currency.
• Cochlear Implant Revenue: Increased by 13% with unit growth of 6%.
• Acoustics Revenue: Increased by 22%.
• Services Revenue: Declined by 12%.
• Underlying Net Profit: Increased by 7% to $206 million.
• Gross Margin: Maintained at 75%.
• Operating Expenses: Increased by 10%.
• Cash Position: $383 million, decreased due to inventory buildup.
• Dividend: Increased by 8% to $2.15.
• Inventory Increase: $69.5 million increase due to new product launches.
• Operating Cash Flow: Decreased by $47 million.
• Cloud Investment: $11.7 million in H1, expected $40 million for the full year.
• Guidance: Expected to be at the lower end of $410 million to $430 million.

• Warning! GuruFocus has detected 2 Warning Sign with CHEOF.

Release Date: February 13, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Cochlear Ltd (CHEOF) reported a 13% increase in Cochlear implant revenue and a 22% rise in Acoustics revenue, contributing to a 6% net sales increase in constant currency.
• The company achieved a 7% increase in underlying net profit, reaching $206 million, aligning with sales growth.
• Cochlear Ltd (CHEOF) maintained a strong balance sheet with $383 million in cash, despite inventory build-up for new product launches.
• The dividend increased by 8% to $2.15, reflecting a commitment to shareholder returns.
• The company is on track to help over 50,000 people with implants this year, maintaining its guidance range, albeit at the lower end due to specific challenges.

Negative Points

• Services revenue declined by 12%, attributed to cost of living pressures and higher cancellation rates, particularly in the US.
• Operating expenses increased by 10%, outpacing sales growth, due to continued investment in R&D and growth initiatives.
• Emerging markets underperformed expectations, with only 3% growth in the first half, partly due to delayed tenders in countries like India.
• The company anticipates coming in at the lower end of its guidance range due to lower services revenue and increased cloud spending.
• Chengdu manufacturing site is still in ramp-up stage, contributing to a slight headwind in gross margin, expected to persist for another year or two.

Q & A Highlights

Q: Can you explain the expected growth in unit sales for the second half and any factors contributing to this? A: We anticipate around 10% unit growth for the year, with stronger momentum in key countries. Europe, which was slower in the first half, typically sees a bigger second half due to the Northern Hemisphere summer. Emerging markets, which grew only 3% in the first half, are expected to show significantly stronger growth in the second half. Regarding China, the volume-based pricing mechanism aims to lower prices and expand access, which could increase volumes in the long run. However, the exact impact remains uncertain. (Diggory Howitt, CEO)

Q: How is the current exchange rate affecting your financials, particularly with the Australian dollar's drop against the US dollar? A: We averaged USD 0.66 in the first half and expect around USD 0.65 for the second half. Although the spot rate is lower, our hedging from 6, 12, and 18 months ago moderates the impact. We anticipate a slight negative impact, estimated between $5 to $10 million. (Stuart Sayers, President - Asia Pacific and Latin America)

Q: What challenges are you facing with service revenue, and how are you addressing them? A: We are not seeing significant insurance rejections due to lack of benefit. We have clinical evidence showing the benefits of Nucleus 8 over Nucleus 7. The main challenge is cost of living pressures, particularly in the US, leading to higher cancellation rates. We are implementing a new CRM and cloud-based marketing automation system to better target and inform customers about upgrades. (Diggory Howitt, CEO)

Q: Can you discuss the impact of new implant launches on sales and any potential postponement by customers? A: We expect the impact of postponement to be muted. Most cochlear implant recipients are new to the field and unaware of upcoming products. Additionally, hospitals are unlikely to give up surgical slots. We have a couple of regulatory approvals pending, and historically, we haven't seen significant postponement without these approvals. (Diggory Howitt, CEO)

Q: How are you addressing the bottlenecks in audiology and surgical capacity? A: We are working with clinics to reduce the number of post-surgery appointments, freeing up capacity for evaluations. Our remote care technology allows for more efficient patient management. While audiology remains a constraint, we are seeing improvements in capacity. The demand and waiting lists are motivating clinics to increase capacity. (Diggory Howitt, CEO)

For the complete transcript of the earnings call, please refer to the full earnings call transcript.