Cochlear Limited posted a modest 1% increase in sales revenue for the half year ending December 2025, while underlying net profit fell 9%, impacted by cloud computing costs and a slower-than-expected Nexa System rollout. The company maintains its dividend and outlines cautious FY26 guidance.
- Sales revenue up 1% to $1.176 billion
- Underlying net profit down 9% to $194.8 million
- Cochlear implant units grew 6%, driven by emerging markets
- Nucleus Nexa System rollout slower than anticipated, delaying revenue growth
- Interim dividend steady at $2.15 per share
Modest Revenue Growth Amid Market Shifts
Cochlear Limited reported a 1% increase in sales revenue to $1.176 billion for the half year ended 31 December 2025, reflecting steady demand across its implantable hearing device portfolio. However, underlying net profit declined 9% to $194.8 million, weighed down by higher cloud computing expenses and fair value losses on investments.
The company’s cochlear implant unit sales rose 6% to 27,016, driven primarily by emerging markets where lower-priced units gained traction. Yet revenue from implants remained flat in constant currency terms, as the rollout of the new Nucleus Nexa System encountered a longer-than-expected contracting process in developed markets, delaying broader revenue growth.
Nexa System Transition and Market Dynamics
Following regulatory approvals in Europe, Asia Pacific, and the US, Cochlear has been progressively expanding availability of the Nucleus Nexa System. The new system has been well received by clinicians and recipients, contributing to market share gains late in the half. Notably, approximately 80% of cochlear implant units sold in December were Nexa devices, with key markets showing around 10% year-on-year growth in implant units during November and December.
Despite this positive momentum, the slower contracting process with healthcare providers and payers meant revenue growth was limited to low single digits in developed markets. Emerging markets showed over 15% unit growth but revenue declined due to a higher mix of lower-tier products, particularly in China.
Services and Acoustics Segments
Services revenue, including sound processor upgrades, increased 2% to $311.6 million, supported by growth in developed markets and initiatives to raise awareness of eligibility and clinical benefits. Acoustics revenue remained flat at $140.4 million, with volume declines in the US and UK due to increased competitor activity offset by growth in Western Europe and Australia.
Financial and Strategic Highlights
The gross margin contracted by two percentage points to 73%, reflecting the higher proportion of lower-margin emerging market sales. Operating expenses rose slightly, driven by increased investment in research and development (R&D) and growth initiatives. Cochlear invested $152.8 million in R&D, up 9%, focusing on product pipeline development and clinical support tools.
Cloud computing expenses, reported as a one-off item, amounted to $24 million after tax, contributing to the profit decline. The company also recorded a $9 million non-cash write-down on its investment in Saluda. Despite these headwinds, operating cash flow improved by $26.9 million to $136.8 million, with free cash flow rising to $82.7 million.
Outlook and Dividend Policy
Cochlear declared an interim dividend of $2.15 per share, unchanged from the prior year and representing a payout ratio of 72% of underlying net profit. Looking ahead, the company expects to help over 60,000 people with cochlear or acoustic implants in FY26.
Guidance anticipates underlying net profit at the lower end of the $435-460 million range, reflecting the delayed Nexa System contracting and ongoing investments in R&D and capacity expansion. Cloud computing expenses are forecast to total around $80 million after tax for the full year. Cochlear is restructuring to strengthen its focus on the adults and seniors segment, leveraging clinical evidence linking hearing treatment to cognitive health benefits.
Bottom Line?
Cochlear’s near-term profit pressures highlight the challenges of innovation rollout, but its strategic focus on emerging markets and clinical evidence positions it for long-term growth.
Questions in the middle?
- How quickly will the Nucleus Nexa System contracting process normalize to drive revenue growth?
- What impact will cloud computing expenses have on profitability beyond FY26?
- How effective will Cochlear’s restructuring be in capturing growth in the adults and seniors segment?