Cochlear Ltd (CHEOF) (FY 2026) Earnings Call Highlights: Navigating Market Headwinds with Nexa ...

Negative Points

• Cochlear Ltd ( CHEOF ) reported sales revenue growth of only 2% in constant currency, below expectations, with underlying net profit of $322 million, reflecting a net profit margin of 14%, below the medium-term target of 18%.

• Developed market implant revenue grew only 1%, with Western Europe declining 8% due to healthcare system pressures, including NHS waiting lists, industrial action in Spain, and market share loss in Germany.

• The company faced significant headwinds in the US, including higher insurance delays and broader economic pressures, which made people more hesitant to proceed with surgery, leading to a decline in the self-navigated pathway.

• Gross margin declined 3 percentage points to 71%, impacted by product mix, manufacturing overhead absorption, and a stronger Australian dollar, with FY27 guidance expecting gross margin to remain flat.

• Emerging markets revenue declined 2%, with a full year of volume-based pricing in China and an unexpected reduction in reimbursement in special zones, reducing premium segment sales.

• The company recorded a $109 million fair value loss on investments, mainly driven by a non-write-down of its investment in Epiminder, impacting overall profitability.

• Cochlear Ltd ( CHEOF ) expects FY27 revenue growth to remain low single-digit, with modest developed market growth and continued instability in the Middle East, indicating a slow recovery.

Q & A Highlights

Q: Dig, the medicalization of hearing loss, I know I get you talk to over what time period do you think these programs can address this issue because it feels like it's come on quite quickly. We haven't spoken I didn't think about the hearing aid channel at all, whereas what you set out is something that's going to take quite some time to deliver a benefit that shareholders would see. A: Diggory Howitt (CEO and President): The medicalization of hearing loss does take some time. We've been working on it for nearly 10 years now, and we expect it to continue to take longer, but it's also a gradual improvement. It's not something that we just work on and all of a sudden it's done and then you see a sort of a rapid increase in the growth rate. The work that we do year on year will improve referrals, but we're also conscious that given our market penetration products of seniors is under 5%, we've got a long way to go before we get there. So it is a long-run program, but it has year-on-year benefits. We haven't mentioned the hearing aid channel, but hearing aid channel referrals remain important for us. Our referrals from the hearing aid channel in the US, for example, were flat on year when we look at '26 versus '25. What we're doing with the work in what we're calling that self-navigate channel is to expand beyond just hearing age and actually get into the medical channel, where we're already seeing referrals come through. The examples I gave show that when we do intervene in that medical channel and we do educate, we do see an increase in referrals and it's the right time in terms of our development and the execution of our strategy to be expanding that presence in the medical channel and getting those more medicalized referrals.

Q: At the trading update we heard a lot about the market not growing, particularly the US market. I think Western Europe had some explanation with UK, Spain, et cetera. But if I could get you to focus a little on the US and what you think the dynamics are that are causing market growth to be so slow? And what should we as investors and outside the company be looking for as signals that things are starting to improve? A: Diggory Howitt (CEO and President): In the US, where we are working through our direct-to-consumer activities or the work we're doing in cycle, we're seeing growth in referrals. We're seeing growth in surgeries. Clinics that have established referral networks continue to grow. Where the growth didn't come was in the other parts of the -- in that self navigator channel where there's always been an underlying level of market growth that didn't occur this year, actually declined slightly. What we see going on there is a couple of things. One is the insurance preauthorization denials, which are leading to delays in surgery. And we continue to hear from clinics that sentiment broadly macroeconomic conditions is having some people more hesitant to go through the surgery. Clearly, not all because there's lots of surgery still happening, but it's been enough to take the edge off that growth. When we intervene, we're able to provide people with information on will this be covered by insurance, what were the level of out of pockets be? In that self never go part of the way, people used to paying $5,000 for a pair of high-powered hearing aids assume this is going to cost more. And without getting a strong referral in getting that information, they're more likely to pull out along the way.

Q: Just -- you've talked a lot about the volumes and so on, but I wondered where you sort of see the opportunity to get price? I think you sort of talked about China, you've taken price and then just you had some plans there. And I guess, finally, if it's -- if you're not getting it back through Nexa can you get back -- can you get price up with TICI? A: Diggory Howitt (CEO and President): We did get average price increase about 3% with Nexa, which was good to see. One of the things we were doing with Nexa is testing our ability to get a price increase. We hadn't gotten to put a price increase through at this level for quite a long time. As we look forward with TICI, we are thinking very carefully about the commercial strategy, about the pricing that we'd like to achieve, about how we realized growth with TICI. We're certainly seeing from our market research and the clinical studies. There's a lot of interest in TICI. Interestingly, from market research, we're seeing it's potentially a different patient cohort to we're getting now. It's an extra patient cohort. So we've got -- we're building a commercial strategy that looks at how do we drive growth, how do we work within the reimbursement parameters that they have around the world, what's the right level of pricing and lifetime value that we can get.

Q: Dig, maybe just a comment that you've made on the US market about insurers pushing back, initiating sort of more prior authorizations. I guess what's within your control sort of help with that dynamic and some changes that you've put through to address? A: Diggory Howitt (CEO and President): We're certainly seeing that pushback. When someone is getting an upgrade, we're often managing the insurance processing part for them. Where they're getting an implant, the vast majority of those authorization -- pre-authorizations are sought by the hospital. So it's actually then up to the hospital to -- if they get a denial to appeal because most times when there's an appeal, that denial gets overturned. So we don't have a direct role in that. If it's a candidate we're working with, like through our DTC and we see that, then we can talk to the clinic without getting the clinic to appeal. If it's from that other side, then you don't get the visibility. But I think what we'll see there is these denials are not just Cochlear implants, obviously, it's across a whole range of surgery areas. The primary impact of these denials is actually on hospitals, not hospital revenue. And that's where we think the hospital is actually going to take the lead here and lift their work in terms of challenging, appealing the denial and seeing that over time. It's exactly the response we had when two years ago, we saw insurers pushing back harder on replacement processes. We lifted our game on the documentation we've provided to insurers. We appealed when there were denials in place, and you saw the result with stronger growth in Services.

Q: There's [constant] talks to the developed market implant growth. And so the revenue is expected to grow modestly. From the release, though, it looks like you've got a price increase on average of 3% from Nexa. Most

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