Profit Pressure Mounts as Cochlear Faces Nexa System Rollout Delays

Half-Year Financial Snapshot

Cochlear Limited’s half-year results for the period ending December 2025 reveal a company in transition. Sales revenue edged up 1% to $1,176 million, though this translates to a 2% decline when adjusted for currency fluctuations. Underlying net profit fell by 9% to $195 million, reflecting a challenging first half marked by delays in the rollout of its flagship innovation, the Nucleus Nexa System.

The interim dividend was held steady at $2.15 per share, representing a payout ratio of 72%, signalling management’s confidence in the company’s cash flow and long-term prospects despite near-term headwinds.

Nucleus Nexa System, Innovation Meets Regulatory Reality

The Nucleus Nexa System, heralded as the world’s first smart cochlear implant with upgradeable firmware, is the culmination of two decades of research and development. Its launch in mid-2025 was highly anticipated, but the product registration and contract renewal process took longer than expected. This delay, coupled with efforts to secure modest price increases, tempered revenue growth in the first half.

Despite these hurdles, the new system has been well received by both clinicians and recipients, with market share gains evident towards the end of the half. Notably, in November and December, cochlear implant unit sales grew approximately 10% year-on-year, with 80% of December’s units comprising the Nexa System. This momentum bodes well for the second half as broader availability is achieved.

Operational Dynamics and Market Segments

Unit sales of cochlear implants increased 6%, driven largely by emerging markets where lower-priced units dominate, explaining the flat revenue in this segment. Developed markets are focused on transitioning to the Nexa System, while emerging markets showed over 15% growth in units despite a revenue decline due to product mix.

Services revenue, including sound processor upgrades, rose 2%, supported by growth in developed markets and initiatives to raise awareness of eligibility and clinical benefits. The acoustics segment remained flat overall but faced competitive pressures in key markets like the US and UK, offset by gains in Western Europe and Australia.

Financial Health and Investment Outlook

The gross margin slipped two percentage points to 73%, reflecting the higher proportion of lower-margin emerging market sales. Operating expenses rose slightly, driven by increased R&D investment, which climbed 9% to $152.8 million, underscoring Cochlear’s commitment to innovation and pipeline development.

Operating cash flow improved by nearly $27 million to $136.8 million, with free cash flow up $24 million to $82.7 million. Capital expenditure is forecast between $100-120 million for FY26, focusing on capacity expansion in Australia and Malaysia.

Looking Ahead, Guidance and Growth Prospects

Cochlear expects a strong second half driven by the full rollout of the Nexa System, robust growth in services, and improved acoustics performance. The company maintains FY26 underlying net profit guidance at the lower end of $435-460 million, factoring in the first half’s contracting delays. Foreign exchange volatility remains a risk, with a potential $30 million profit impact if current AUD/USD and AUD/EUR rates persist.

Strategically, Cochlear is focusing on expanding access for adults and seniors, leveraging clinical evidence linking hearing treatment to cognitive health, and enhancing care delivery through digital tools like Remote Check and Remote Assist.