Q4 2019 Earnings Call
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I would now like to hand, the conference over to Kim Duncan VP Investor Relations and administrations.
Good afternoon, and welcome to the Cooper companies' fourth quarter and full year 2019 earnings conference call.
During today's call will discuss the result was in the earnings release, along with updated guidance and then use or any type of viewing.
On today's call out White, our Chief Executive Officer, right, I agree Chief financial Officer and trainer.
Before we begin I'd like to remind you that this conference call contains forward looking statements.
Already with earnings per share guidance and other statements regarding anticipated results of operation market or regulatory conditions.
Got it merger and integration of any acquisition on a failure to achieve.
Forward looking statements depend on assumptions they are methods that maybe incorrect or imprecise.
Subject to risks and uncertainties events that could cause our actual results and future actions on the company.
For materially from there just driving forward looking statements.
Fourth under the captions forward looking statements in today's earnings release.
Right in our filings when he covers Form 10-K , all of which are available on our website after because uh huh.
She having additional questions. Following the call. We've all learned after mine at 95 or six.
Do you think sixthree or email I are actually workout dotcom and I'll turn the call word out for his opening remarks.
Thank you can't and good afternoon, everyone welcome to our fiscal fourth quarter 2019 conference call. We closed the year and I know with a strong acute or driving record full year revenue and earnings.
Our business as opposed to 7% pro forma growth for acute for each reached record full year revenues coopervision up 7% Coopersurgical up 6% for the year.
This was very successful year, we're well positioned to continue producing strong results moving forward.
The corner consolidated revenues were 692 million with Coopervision reporting revenues of 510 million up 6% or up 7% pro forma coopersurgical posting revenue of 182 million up 7% as reported in pro for.
non-GAAP earnings per share grew 15% you're already year to three hours 30 side.
Anyone coopervision the results were impressive given the challenging 10% from last year's fourth quarter.
Pro forma basis, the Americas grew 6% led by our daily silicone Hydrogels franchises, where we continue to provide the broadest offering in the market what might be available in this year in fourq and clarity atmosphere to work in Malta.
Of note was the performance we saw the clarity or we posted solid growth across the product there.
EMEA grew 5% driven by daily enough RP results with strikes in several marquee accounts Asia Pac posted strong growth, an 11% against the tough 19%.
We strike seen throughout the product portfolio and across the region.
There were some buying activity in Japan prior to the VAT increase which went into effect October 1st this was largely in line with our Guy.
All three regions were led by our daily silicone Hydrogels portfolio, which grew 18%.
Within that it's important to note we did see some negative impact from my days supply constraint and this will also impact Q1, which I'll discuss later and guy.
We saw a nice performance and our silicone fr P. franchises like Biofinity energize them, all but Oh in America vitality Spears and tours, leading to a combined growth an 8% for these two product family.
Moving outside brands torture, you, 6% and Multifocals rebounded nicely growing 10% led by Clarion Biofinity.
So in summary, this was a solid quarter, we strike seen throughout the portfolio and geographically.
Moving to Coopervisions infrastructure investments. This past year was extremely active as we open new distribution centers in Spain.
In South Africa.
Significantly expanded our distribution center in Belgium added a new packaging facility in the UK began construction on doubling our Costa Rica manufacturing facility and expanded our manufacturing operations in Puerto Rico in the UK.
For fiscal 2020, our focus is on expanding our daily silicone hydrogel manufacturing base and supporting my site or innovative myopia management contact lens.
We received FDA approval on my side earlier than expected. So we've accelerated our targeted U.S. launch plans to March including hiring several marketing specialist starting education on marketing programs and finalizing package laying on packaging and labeling to meet FDA remark I.
Im happy to report the early interest is that phenomenal for both consumers and optometrists, we're now becoming more where are the clinical benefits of mine site and why this prevention be standard of care for young patients with mild yeah.
From an investment perspective, we spent around $10 million in fiscal 2019, LD launching in selling my side around the world.
Activity helped generate 4.2 million sales over 100% year over year.
This fiscal year, we're targeting investing around 25 million dollar as we accelerate our U.S. wash expand geographically continued clinical activity increased regulatory work, an increase sales marketing and educational support.
We're forecasting roughly 10 million in sales for fiscal 2020, with the U.S. being around 2 billion at that.
Moving forward, we expect that did more than doubled to around 25 million in fiscal 2021, and then doubled to around 50 million in fiscal 2022.
Lastly on my side, if you comment on myopia and why we're so excited about this product.
It's currently estimated at roughly one third of the World population is myopic and this will increase of 50% in 2050 anyone who has ever needed visual correction due to your sightedness knows the challenges of myopia that left my albeit that significantly improved ones quality of life.
Most importantly for US parents, who I have myopic children were educated on the benefits of my site watch it provides us life altering treatments are there.
This is the reason we've already seen over 13000 kids around the world use my side.
Given my albeit that length to severe ice conditions later in life. This is like Omar cataract and retinal detachment. Good reason to get excited about having the first FP approved product to proactively address this epidemic every member even children with mild prescriptions have a higher risk series eye health problems later in life.
By the way all this is also largely the reason there's a growing global 100 million dollar or okay market. We're in active participant.
Outside of my side, our investment activity largest largely focused on expanding our daily silicone hydrogel manufacturing base.
Demand for clarity remains robust and the demand for Myday is extremely strong celebrating.
We recently realized significant resources to accelerate startup efforts on new line. This is going really well with the main detriment being a reduced our ability to tackle cost reduction projects in the near term.
Regardless getting these lines operational as soon as possible is imperative to capitalizing on a growth opportunities, we're seeing and we can focus on cost containment project later date I.
I believe these investments position us well for this fiscal year and they certainly position us extremely well for fiscal 2021.
Before concluding I Coopervision, let me remind everyone at the multiple growth drivers that underlie the 8.9 billion dollar contact lens industry. In addition to the increasing incident. The myopia mentioned earlier Theres geographic expansion growth and Torics and Multifocals and then continuing trade up from Fr piece the daily specifically today.
Two daily silicone Hydrogels.
The net daily this powerful doubled trade off should last a long time as we estimate only 25% to 30% of whereas our daily today and only 42% of those arent silicone gel dailies.
All this continues to support market growth in the upper part of the 46% range for many years because.
And finally on once again happy to report our new fit data was very strong this quarter, especially were with respect to silicone Hydrogels daily.
So this bodes well for our performance moving forward.
Moving to Coopersurgical, we reported revenue 182 million up 7% fertility growing a healthy 12% and office and surgeon go up 4% pro forma.
The only growth was led by our device portfolio, which includes consumable products like I've, yet media and our market, leading wallet embryo needles and transfer catheters. The team executed exceptionally well the finished the year with a focus on key accounts and cross selling our market leading portfolio of products.
All year fertility posted growth of 8% and we expect continued strong growth as a utility market has fantastic global growth trends.
Within office and surgical growth was driven by Endosee, which was up 67% as our second generation devices, showing very strong performance impaired darwish grew 5% against a difficult 20%.
Third arm is driven by solid unit demand along with buying activity in advance of an upper single digit price increase the implement an effective September thirtyth.
On a full year basis parent guard grew 6% and we continue to believe.
We'll see mid single digit growth for many years become supported somewhat evenly by unit growth and price I'm pricing remember that increases rolling over three years due to inactivity contractual arrangement and public market purchases such as Medicaid.
Outside of sales I'm happy to report that we made significant progress on our expansion activity are supposed to recur project is proceeding well with several products transferred in production several other product transfers in process and construction to triple the size of the facility running on schedule.
Well well on our way to having a state of the our manufacturing facility that will include what we believe will be most technologically advanced utility manufacturing operation in the world.
We also expanded our headquarters in Connecticut, this year that support our growth, adding a new distribution center in Europe and completed the consolidation of 16 genetic testing last down the drain.
For this upcoming year, our investments will be focused on similar activity, including partner, where we recently added 10, new sales reps and we'll be continuing our marketing and advertising activity, we've targeted television print and social media campaign, along with educational activity with decision.
Additional investment activity will be focused on growing our facility business as we expand our international key account operations within our medical device business, where we started expanding our international management team.
In addition, we'll finish construction of our post to recover facility, which is a key part of our long term strategy upgrade manufacturing improve logistics reduce cost and improve efficiency.
Moving to guide.
We're expecting a strong year myday constraints will continue to impact that we'll see that impacted EMEA to some degree of more so in our Asia Pac business as we all have clarity in Japan, yet so don't have an alternative option to present customer.
Asia Pac also needs our hurdle some of the Japan back high end. So we're forecasting low single digit growth for that region in Q1 to four returned to double digit growth in Q2.
Regarding myday. The good news is demand is continuing to accelerate we're increasing our but every month as our existing line become more efficient and we're adding additional lines. So we expect improvement as we execute one.
For Coopersurgical, we're expecting something similar to coopervision.
Where we're forecasting Q1, beating our soft this quarter the year due to buying activity associated with the Paragon price increase which we just completed in Q4.
With that let me say this is a really exciting time for Cooper not only are we excited about my site and the demand were seeing for our products that in coopervision and Coopersurgical, but we're also continuing to make fantastic strides with our ESG and corporate responsibility efforts. This includes increasing supported by local communities continue we'll focus on improving the sustain.
The ability of our operations and expanding our philanthropic efforts.
An example, where our longstanding sponsor of optometry, giving site a world class purity, which supports adults and children by providing vision care and underserved communities around the world since initiating our partnership we have surpassed 1.1 million in cumulative funds raised by employees, including corporate matching dollars. We also have a program.
I'm, allowing our customers to donate all or part of their contact lens rebates, which has resulted in more than 800000 donations. This is an important part of our culture and something I'm proud to say as part of Cooper and what I will turn call over to Brian .
Thank you al Good afternoon, everyone. Most of my commentary will be a non-GAAP basis. So please refer to today's earnings release for a full reconciliation of GAAP to non-GAAP results.
Covered by the revenues so let me move to the rest of the piano.
Consolidated gross margins for the quarter improved 50 basis points.
The 7% from 66.5 presented last year.
Coopervisions gross margin was up a solid 130 basis points year over year, 65.4% from 64.1%.
The improvement was largely due to currency and product mix with the only real negative being higher than expected write offs legacy hydrogen products.
Research was gross margin decreased to 71.6% from 73.1% last year, primarily due to inefficiencies from clearing backorders generated largely from our global consolidation activity to Costa Rica.
On the flip side, we made a lot of progress in this work and expect only minimal disruption in Q1, and then improvement as we move through the remainder of the year.
Moving forward Opex is tightly managed and grew only 3%.
Yes, thanks control.
Combined with gross margin expansion resulted in consolidated operating margins, increasing 180 basis points to 28.5% from 26.7% last year.
Interest expense was $13.8 million, driven by lower average debt balances and lower interest rates.
In other expense.
We posted a 3.3 million dollar noncash FX loss, primarily tied to the remeasurement of non functional intercompany trade balances, particularly those tied to the pound, which made significant move this past quarter.
But a lot more internal restructuring activity, mostly completed.
Reduced a considerable amount of FX exposure, which should help to reduce FX gains and losses moving forward.
The effective tax rate was lower than anticipated at 8% largely due to our remeasurement of certain state income attributes and audit settlements.
non-GAAP EPS for the quarter grew 15.2% to $3.30 with roughly 50 million average shares outstanding.
Free cash flow was $115 million comprised of 200 million a free operating cash flows offset by 85 million Capex.
In the quarter, we bought back 150 million in stock.
Which equated to roughly 512000 shares at an average price of two $293 per share.
This increase net debt by $37 million to 1.74 billion.
And our adjusted leverage ratio moved slightly higher to 1.85 times.
Regarding the full year fiscal 2019 years old.
Consolidated revenues were 2.654 billion up 5% or 7% pro forma.
Coopervision revenues were 1.973 billion of 5% or 7% pro forma and Coopersurgical is revenues were 680.5 million.
5% or 6% pro forma.
non-GAAP , EPS and $12.35 up 7% and free cash flow was $421 million.
Lastly on fiscal 2019, the FX impact to revenue and EPS for the year was negative 62.6 million.
A negative 62 cents, respectively, and the impact Q4 was a negative $8 million to revenue and negative five cents EPS.
Moving to fiscal 2020, we're introducing consolidated revenue guidance.
2.767 to 2.817 billion.
Which is comprised of $2.07 billion to $2.1 billion into revision of roughly 5.57% in constant currency.
And 697 $717 million Coopersurgical up 3% to 6% in constant currency.
We expect consolidated gross margins to be up slightly.
When coopervision expected to be roughly flat due to the deferment of cost reduction projects to ramp up by the production faster.
Gross margins and Coopersurgical are expected to improve due to the increased Costa Rica manufacturing in Paraguay.
Consolidated operating margins are expected to improve slightly even including the incremental lifesize investments higher pension costs, roughly $4 million, primarily due to a much lower discount rate tied to lower interest rates.
As a side note remember, we announced last quarter that we implemented a soft freezing our pension so expect to pension cost or to reduce overtime.
Interest expense is forecasted to be in a low $40 million range and that assumes all cash flow goes reducing debt not share buybacks.
Our effective tax rate is forecasted to be around 13%.
And this does not include any assumption for excess tax benefits from stock based compensation associated with the exercising the stock options.
non-GAAP earnings per share is expected to be between $12 in 60 cents and $13.
Based on approximately 50 million shares outstanding.
Dps growth is expected to be roughly 11% to 14% in constant currency when excluding the mindset investments and impact of the tax increase.
With this within this we're forecasting the year over year currency impact to be a negative $11 million to revenues.
Positive six cents EPS.
All this assumes roughly current FX rates with our three primary currencies in one tempered in euro.
129 for the pound and one on nine for the yen.
Free cash flow is expected to be around $425 million capex remaining elevated around 325 million.
Due to the build out of our daily Silicon hydrogel production capacity.
No. This guidance does not include the reinstatement of the medical device excise tax we're assuming what we suspended again.
Lastly on guidance.
Regarding Q1 consolidated revenues and 630 653 million.
When coopervision at 480% portion 90 million or 3% to 5% constant currency growth.
And Coopersurgical at 158 to 163 million or flat to 4% constant currency growth.
Q1, non-GAAP EPS is expected to be between two hours and 65 cents and $2.75.
And with that.
Actually operator for questions.
Thank you.
As a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound Keith.
And we ask that you please limit yourself to one question and one follow up.
Our first question comes from the line of Jeff Johnson with Baird.
Good afternoon, everyone. This is Jason on for Jeff Alan Brian I, just wanted to start on CBS guidance I appreciate all the color there on the.
I'd capacity constraints that seem to reflect the during the Q1 guidance maybe some pull forward that's impacting here from just the VAT tax but is there anything you'd point to with respect to maybe competitive forces or anything else that are impacting the Q1 guide and maybe the Q2 through a few for implied guide for CVI growth.
No I wouldn't say anything from a competitive perspective, if you look at the guide for Coopervision for Q2 to Q4 is around that kind of 7% range. We get seven this year and started the year before so I think that's kind of like the true run rate. There were Ryan. This is this is really truly more around capacity constraints on mine.
And some shifts we've made with respect to Myday, that's impacting us and then a little bit of the vast situation in Japan.
Okay, and then maybe shifting over to my say briefly.
That was helpful. I mean, how to think about do you maybe the cost in first picks cross fixed cost infrastructure here as we think about my site.
We look beyond fiscal 2000, I know you get gave some of those spending numbers for fiscal 2000, the guide but.
Just as you think about the revenue guide for 20 122.
Is 21, when we started getting a little bit of leveraging some of that spending levels out or how it maybe how to think about that.
Yes, I really think it's going to end up depending upon the success of the product and and what countries. We get additional approval and there's there's a massive opportunities out there China is that gargantuan opportunity that we don't have approval in right now Japan's another market that would be a fantastic opportunity for growth once we get approval there ultimately so.
I think it'll depend how well the market I, while the market develop how well we're doing in terms of how much more we invested to be honest with you I mean, I hope that the investing stays pretty high for quite awhile, because I'm pretty excited about product I think it's going to do really really really well so.
It does and it goes in that direction, then, we'll invest and again pretty heavily next fiscal year youre naturally going to get a lot of leverage at some point, though because you have good gross margins on that product as it is a proclear product. So you start with good solid gross margins right off the bat everything else is investment dollars, that's all educational active.
A lot of that is regulatory work clinical work and so forth.
So you've given a couple of years, no matter, where you're going to get pretty significant levers and they'll just be a question on when that is.
Okay, great. Thanks.
Thank you and our next question comes from the line of Larry Biegelsen with Wells Fargo.
Hey, good afternoon, guys. Thanks for taking the questions one on the CVI Q1 guidance and one on my side out. So just on the Q1 CVI guidance could you quantify the benefit from the Japan buying in Q4 any impact you're assuming in Q1 from that.
Rolling off if you will and the my day supply constraint impact in Q4 in Q1 could you quantify those for US. Please.
Yes, the by him was somewhere around $4 million in Japan.
So that.
On a percentage basis, obviously would have affected Asia Pac a little bit more 11, seven or eight somewhere in that kind of percent growth and a little bit less than one per cent impact on the overall business, but.
And then we have to hurdle that obviously in Q1, if you look at the Myday history that I think that's everything else. Besides that is really myday constrained Larry.
Plug it in a number but everything is late divided the rest of the business is pretty strong clarity is looking like it's continuing to goes wrong Biofinity strong America vitality is finally ROE and everything else is a pretty good shape. It and just to give you a little bit more color on myday. What's happening is we already good spot from a manufacturer.
Perspective, and we're increasing production on our existing lines as I mentioned.
I feel good about our ability to get right back in shape on Q2, we had another line come on last week. So we have other lines comments are pretty good shape. We have good visibility on that where we ran into a little bit of a problem. There was associated with might work as demand really was accelerating we really saw a lot of the strength coming from.
Myday toric and once we started a change in production, there and producing more of that product and increasing inventory that we had that's kind of what is created the short term constraint that we're dealing with so we have to look at that what could we do right. You pulled back I think thats, a little bit trial lines, a little bit you raise price a little that you do that.
Yes, you can do knowing that you're going to solve your capacity problem and really get back in the market the big way in the near future. So there was a lot of course, all the way we ended up doing it to have the least impact on our customers.
The do it this way and then build in inventory expand our store toward range and so forth and kind of level set ourselves. After this after this one quarter.
That's very helpful and now on my side, Yeah, congratulations on the approval there.
Thank you talk about a little bit more about the commercialization plan there it sounds like you're going to certify.
Optometrist and if you're if the demand is so strong or the enthusiasm is so high as you mentioned wildly $2 million in U.S sales in fiscal 2020, thanks for taking the questions.
Yes.
I, probably being a little conservative on that 2 million number at the end of the day, if we launched in March and we're out there would do in training and educational activity.
As a treatment and keep in mind, we aren't doing this is the treatment, which means working with the doctor working with families to sell them. This product for their kids as a full year treatment they need to understand at the end of the day. This is a multiyear commitment to get the best bank for the box. So as we go through that process.
Work with dollar work when doctors and get the product out in the marketplace I think you'll see a fairly quick ramp and that's kind of where we talk about 2 million gone and 9 billion and accelerating off that the question is just going to be solely a matter how fast the gain traction when when we kind of looking at the market in Canada, and how we started in Canada, and how fast and accelerate.
Yes initial start with a little slower when you took into consideration all the training all the educational activity and everything else that needs to be done now Canada was a little different we launched that off our strong three year clinical data. This is all that FDA approval and there's been a lot more consumer activity associated with the so so we'll see ambien I'm optimistic that.
Got a little bit faster than that I think but for now is probably kind of prudent to say $2 million is a fair number for the partial year.
Thanks for taking the questions guys.
Yes.
Thank you. Our next question comes from the line of Larry COO with Raymond James.
Thanks, Good afternoon.
I just want to start on.
On my side, you said something that was important here with with the FDA clearance you.
We can now position this differently than traditional contact lens given given the data I know that pricing is buried around the world and Canada. For example is fairly low.
So how should we think about where you're thinking about pricing on an annual basis for this product with that AFG Clarence behind it.
Yes. Good question Laramie, we are working on cleaning that up around the world right. Now that's part of the internal project is to ensure we standardized price. Obviously this is not the kind of product is going to go out with a bunch of rebates and discounts and all that are kind of activity but.
It's a little challenging to answer because at the end of the data pricing that you're going to see will largely be dictated between the optometrists and the patient and it will be what the optometrists wants to see so so let's say that a band. We go then they decided but their child into my side and the optometrists and Hey, I'd like to see every 30 days I'd like to have you backing here just.
I can make everything working everything is okay. This is it true treatment right that could be a little bit more expensive process than you see in certain spots around the world right now where a lot of times. This is sold as more of the contact lens that is treatments. So long story short I guess my answer on that one is the pricing is going to result.
In a very profitable product for us at the end of the day, but TBD on on where it settles out in terms of how optometrists analysts with patients themselves.
Okay, but at a minimum we should probably thinking this is.
At least.
Pricing for or above premium silicone daily correct.
Yeah, I would think of it that way.
Yeah, Okay, perfect and then and then the second question really it's just more of a longer term question you laid out 20 122 objectives from my side revenues. So you know those imply a little over 100 basis points in 200 basis points of growth here.
Hi, I know you guys are investing a lot you are really trying to drive a durable growth engine here is the right way to think about my site as sort of incremental growth that we really could be looking at franchise as growing seven 8% or is the right way I really think about CVI over the next several years is.
You know theres a lot of certainty around 6% Clos. When you include my side ads Myday myday capacity coming on I'm, just trying to really think about what what's the right way to calibrate the long term growth.
Yeah, Larry we we've positioned the more as the higher end of what you're talking about so when you look at the distribution center expansions the build out everything else. We're doing has been put us in a position to accommodate all the growth is coming in and you'll get leverage associated with that when you look at a significant capex and we were 80 million a capex.
This quarter, we're talking about the highest capex, we've had as a company. This coming year, that's all to drive capacity expansion and daily silicone Hydrogels side of things. So I look at us being able to grow in that.
Ill, 7% kind of range that we've been running and talkin my side on top of that that's not out of the question. We look at the outer years, it's just a matter of getting our means so that's what we're Brazil positioning ourselves has to say.
Good about at the market holds as is similar conditions, 6% and I are absolutely do I think we have a chance to put up some stronger numbers like you're talking about yeah yep.
Okay terrific. Thanks outbreaks here, yes.
Thank you. Our next question comes from the line of Anthony Petrone with Jefferies.
Thanks, maybe a couple on my side, one actually on on Para guard. There just to go back to my side I'm kind of just when you look at that that target market myopia progression pediatric Sina is there sort of a.
A number that you're thinking about in terms of a Tam and I'm just trying to size that opportunity. It strikes me that possibly not all.
My Oaks within that age category of candidates I am just maybe just to fine tune.
The actual target market, you're going after there and then in terms of the 20 550 million guidance for 2020 and 2021, how much of that actually is us.
Well take that one is I think if you will give us your kind of talking about 2 million remember talking about this year and dense and we've got forecast around 9 billion and then.
Yes, if you.
Kind of looked at the Oh, you as a doubling on existing platform you kind of look at the U.S. being in that same thing.
Right. So you kind of get it done one that you asked about the 18 million $20 million up behind that and rest of the world doubling again also.
Upside from that would probably come more than anything.
From the U.S. market, where I think that we've actually get better uptake than that more than double was we the two to nine doesn't necessarily just stop 18.
What I'm, saying and then also other markets I mentioned, China, and Japan, There's a number of other markets right now awaiting regulatory approval on the FDA approval how.
Yes approval in those markets I think that provides a little offset on that side. When you look at the addressable market.
I think is going to be very very large I mean any child in that age group that has myopia in candidate from my side now as we know a lot of kids don't go to the optometrist. They don't even say anything so it goes on treated at the point, where there are finding complaining that that amount or data they can't be the back blackboard are there.
Having to issue seeing they finally get taken to the optometrists, but at the end of the day any child in that age group is there an update and one of the things that I'm excited about it some of these guys on the.
The spectacles side I mean other people come in that as a positive for us. So I'd be excited to have looked vessel or someone else come out and start educating the market on on this epidemic that has myopia and how important is rather than be proactive and get in front of it and ultimately if you start moving more in that direction and your did.
Spectacle, there and spectacles are working and we're all together kind of in one pushing that you get insurance reimbursement well then wash out.
And then the market will really slow so I haven't I mean multiple multiple billions of dollar market bye-bye no question.
Very helpful and just quick on PARAGUARD I know you took some TV ads down Im just wondering what the update is on apparel guard DTC and TV edge, specifically, thanks again.
Yes so.
The Tds works really well, they're expensive that they worked really well, we determined northern Cal and the New York Metro area. So what we're looking to do it. This year is to take that in a little different angle and put it in a number of markets around the U.S. smaller market that's spread much more broadly.
And we'll kick that off year in and not too distant future. So I think once you kind of saw was the first year Big investments, we hired a lot of sales people. We did a lot print social media and the TV advertising in a couple of big market. We've learned a ton this coming year. We're back at it again, we're going to do the TV advertising, a little different a little bit.
There are fine tune on some of the other stuff.
But I'll tell you at the end of the day, we weren't thinking or they were probably going to spend $5 million more in a in sales and marketing this year than we did last year. So this is another pretty heavy investment your parents aren't I do think we'll start seeing some much better leverage on that in fiscal 2021, but we are taking another year year.
Year to understand the market make sure we capitalize on we're talking a very high gross margin product and if we can begin mid single digit growth like it looks like we're going to be able to for a number of years in front of us than it is it is a product we definitely want to.
Thanks again.
Yes.
Thank you. Our next question comes from the line of Matthew Mishan with Keybanc.
Great. Thanks for taking the questions.
Hi, how are you bring it on enough capacity to meet fee increased demand and that's why 21 or is this going to be like a persistent ceiling for growth.
Hi.
I'd say, we're bringing a lot. So let me say that first of all I mean, it will support very solid growth for a couple of years, but.
In reality is in market continues to ship like I think is going to shift to give you a couple of numbers on that you know about 53, 54% of the market is daily that's going to go in my mind, probably two thirds of the market will be daily. If you look at daily Silicones, that's like 40 to 43 per.
The market right now that's kind of go up delay 84, 83% kind of wherever our piece are you look at that that trade up in that conversion over to daily is several billion dollars of incremental sales as probably when I did the math there was about two and a half the $3 billion.
Methanol revenue to the contact lens industry. If that's the case you were going to see that rising tide lifts all boats, but it will definitely include us.
I don't think again like the massive years that we're seeing now in terms of Capex is I think it will naturally level off a little bit, but you'll continue to see us for capex that market moves like I guess.
Okay.
I know you can't win every contract, but there were a couple of private label or key account wins from from competitors in Asia.
In the quarter.
Given you seem capacity strain are you able to onboard like new customers at a level you are like a year or two ago.
[laughter].
Short answer is no we're not.
Q4 would have been stronger we were able to do things.
That we could have done so to speak automate based on the contract in the opportunities that we could have executed I know, it's like we wanted to Q4 would have been at a better quarter. We celebrate corner. So I don't want to downplay by anything, but but it would've been better I think will be much much better position to take advantage of those opportunities in Q2.
Going forward so right now a couple of things are.
A little at all what are the things that I'm really happy about is as well as by it.
And it's all this is attention around the world and we're seeing all the accelerated growth we should lose sight of clarity rate product is doing really well clarity to work in particular, the really good product is doing well. So we're seeing some nice sales there I'm happy about that so we'll see as these private label contracts all that stuff growth are you looking you say.
Are there more opportunities for clarity within their myday and so far so what kind of push and pull on on that one right now, but I do think of that we're a little muted in our results right now, but you'll see that.
Free up here as we move Q2 and going forward in here.
Alright, thank you.
Yes.
Thank you.
Our next question comes from the line of Matthew O'brien with Piper Jaffray.
Afternoon, Thanks for taking my questions.
Just al I think I think what everybody is a little bit nervous about is just the competitive dynamic.
Surrounding the mass mass I product that you have and.
Bigger competitor coming out, but you're talking about some pretty robust numbers.
Growth in CVI over the next couple of years, a lot of investments and new products. So I know you don't want to waive off the competitive threat, but how should investors think about the potential impact and how that how you can kind of navigate around.
Those launches both on the Spears steer side and Torics side next year.
Yeah, well unless JJ coming out with something I don't know, there's not a competitor that's bigger than us. So there could be other competitors coming out with product, but they're not bigger than we are.
And that's why as I was just talking about when you look at the conversion that we're seeing from herpes over to dailies in daily Daily silicone.
There's clearly opportunities for other products the covenant market, so whether that's a.
Competitor or direct competitor here, whether it's in Asia Pac competitor coming into the market. There's a lot of opportunities for people to get into this market and be a participated I broke were little unique in our positioning Joe is that we do have great branded products. We do have great customized solution, we grade geographic presence in so for us so when I kind of look.
With that I'd say, yes competition always there is always part of what we live with when you look at the our main competitors they are coming out with new product, but we're coming out with new products. Also you know, we're expanding parameter range as we'll be launching new products. This year, we'll be launching some new products next year, we have something really exciting stuff going on so.
At the end of the day I'd say as our competitive activity absolutely are we in front of that competitive activity. There's no question clarity itself is a sphere toric and multifocal ill.
Myday is sphere in a fantastic to work on the market. So I'm really happy with our competitive positioning there's always going to be something thats out there.
But this marketplace is picking up and it's growing fast enough that theres opportunities for a number of people to put up really nice strong numbers.
Okay. Thanks for that and then as a follow up and I know this is looking out a ways. The night sorry to get too far ahead, but just any thoughts on timing for Japan and then.
You mentioned reimbursement per myopia control that seems like a lot of heavy lifting but how do you go about getting reimbursement for for my side. Thanks.
Yes on Japan, and the other market some of those markets.
Help considerably by the FDA approval, so they don't necessarily use the FDA approval, but they will take into consideration. So I don't want to speculate on that yet, but I'm kind of.
I would say.
Kind of looking at it in two years for a number of those markets, Japan, China, and so forth hopefully earlier, but they could be a couple of years. So we'll see how that plays out the FDA approval just getting through pretty recently here for us. So we're doing a lot of work on that's been pretty good money on the regulatory side right now and additional clinical work and so forth to make sure which.
Second the box to get all the approvals that we need if you look at the insurance reimbursement that that's a topline and that's probably multiple years out that's why kind of put that.
Is it in the same vein of talking about spectacle myopia management lessors coming in the marketplace as the market get bigger as as.
Insurance agencies, and so for that and a topic worried as ophthalmic organizations and so forth realized value and the benefit of this product and that as a treatment of an epidemic and it's something that can now be proactively address don't I don't know why people would not get behind it.
But I think it will take a little bit of type one contact lens coming to the market will do fantastic, but in order to really drive this market and get it going you'd like to see some other players in there and now and that will be the thing that ultimately really helping drive enough to get to the point of insurance reimbursement.
Got it many thanks.
Thank you and our next question comes from the line of Jon Block with Stifel.
[laughter].
Hey, guys. Thanks, Good afternoon to for me I guess first and PARAGUARD. You mentioned you took price in the buying and I don't know if you can quantify the amount of the buy and if so that'd be helpful. And then what is the price increase how that we should we thinking about it or is it all of fiscal 20 or their contracts or is it more fees in.
Call it over fiscal 2021, and then I just got a follow up.
Yes, so the price increase was around 9% the way that ill kind of flows through the PNM because of.
A number of different dynamics is kind of like think of it almost like a third a third of earn over the next couple of years. So when I think about paired gardens growth I'd say, there's an underlying kind of 3% from price and then we've been running in that kind of 3% unit growth range. So you combine those two and you get about 6%. The are you de market.
Sell from a unit perspective is growing 2% to 3% and then prices a little hard to tell when you look at some of the the hormonal options out there, but probably similar so we're growing kind of a little bit faster than than the value D market overall, but that's kind of how to think about price.
When you look at Terra Garden, Yeah, when you look at Paramount and buy it activity, that's always a little challenging to get in terms of like defining okay exactly how much was buying activity versus.
Normal activity and so forth you now I.
I would have said that we were probably looking at a quarter, where I thought Q4, we would've declined so maybe there is $5 million or something to buying activity between.
Q1 and going into it.
Q4 going into Q1 and make it makes you want to our quarter to grow one.
When you look at last year was a decent Q1 also but somewhere in that guide right.
Okay got it very well and then just to shift gears those out year might say numbers you referenced Im just curious how are those because of I mean, there certainly very impressive but.
He doesn't have the cap arguably for manufacturing perspective, I guess from time to go with this is it might say, we're really begin to inflect call at 18 months from now so about China and or Japan came on board would you guys be able to take advantage that fill demand or were you alluded to some of those numbers out because of potential.
Strain through manufacturing standpoint, thanks.
Yeah, one of the exciting thinks about my side is that it is a proclear lands. So we have capacity to be able to produce that lands and what makes it probably extra nices as as we see the entire market shifting silicone hydrogel lenses from our older traditional hydrogen allows us that puts constant pressure out as Brian kind of touched on a little.
There was some of our product in that space. So we're getting increasing capacity within our proclear lines as everyone shifts over to silicone hydrogel, that's fantastic because we can allocate that.
New capacity to my side. So if we do get a situation where some of those markets come on faster, we'll be able to meet that demand when we're in good shape from a production perspective on my side.
Got it thank you.
Thank you and our next question comes from the line of Chris Cooley with Stephens.
Good evening. Thanks for taking my question just just a couple from me if I may just thinking about the incremental spend some of the investments in fiscal 2000.
Appreciate you called out about 25 million there obviously with my sites about 40 to 45 cents depend upon the tax rate the incremental 5 million in investment on incremental Perigord spend.
The only two one time items, there or was there additional apologize chemicals that light additional investment in fiscal 20.
Do somewhat of a unique or onetime in nature than I have just a quick follow up.
Those are the two clear ones to point out no question I mean, we were doing some expansion activity within vision geographically and within the marketing side, where we're hiring more sales people and so forth same thing within.
Coopersurgical you know with it Coopersurgical as an example, we do most of our international business through distributors were really excited that we just hired a really talented individuals to come on and lead our international medical device efforts. There. So I think we have some pretty good opportunity to drive better growth internationally, our core coopersurgical.
Medical device products. So there are some of that kind of activity, but but I would call that kind of more normal activity. If you will normal growth activity the to the stand out certainly our our my side No question and then or in some degree.
Understood appreciate the color and then just lastly from me.
How to say this but any any commentary that you would say just regarding competitor recent competitive launches and they lease.
Marketplace and assign high space, just it's just broadly if its pricing where you expected to adoption curves are ramping up I'm. Just curious if there's any change in your views on how some of the newer silicon hydrogel dailies our feet are or will be adopted here in the U.S. Thanks, so much.
No real change there I haven't seen.
Anything recently that would change my math my mind about the marketplace or our positioning in terms of any new products that are entering the market.
Thank you.
Thank you.
Our next question comes from the line of Chris Pesky, Kelly with Guggenheim.
Thanks.
One quick one on the device tax and one on surgical so the device tax only gets a portion of the business do you have that an estimate for yes that suspension is not extended what the likely impact would be and is there a contingency plan in place to offset or would you just let that drop through to earnings.
Yeah I'll take the.
Chris.
Yeah, if the excise tax were to be reinstituted in January we'd expect impact us uniquely of roughly five to five and a half million dollars.
Total coopervisions products are exempt from that.
And only the sale of us products sold.
By Coopersurgical, excluding pair or our are included in the tax so that were to happen. It would be something we hurdle try to her just like terrorists and these other.
With that.
Okay. That's helpful. And then I will just on Coopersurgical in the growth forecast for 2020, I mean, it seems like the utility business in the core office business are both exiting year here with pretty good momentum.
You're coming off a year, where you grew.
Slide five an 8% or so.
Why shouldn't grow stay at more that said at mid single digit level why why three to six as we look at 2020.
Yeah, I think that surgical similar division is kind of way. We finished the year here is the way that both the businesses our operating right now and I think you'll see them operating more along those lines in Q2.
Three for going forward I think I think into Q1 thing with respect to pair northern Indiana today, So I think fertility do fine.
The base business. So far I think it's just a matter how this pair or do we got to get the ups and downs every channel inventory [laughter] then.
I would be ideal repair garza, depending upon how that does I think we end up with a soccer Q1.
But then you're you're right back to normal I I would not read anything negative into the guidance in terms of saying that it haters. There is a fundamental issue or anything else. Because this is just a matter of.
Q1 impacting the full year once we get past Q1 will be back pretty good shape.
Thanks.
Thank you and our next question comes from the line of Robbie Marcus with JP Morgan.
Hi, Thanks for taking the question I was wondering after you're investing in these key accounts grew at 2019, you know how can you measure the success here in any kind of qualitative or quantitative.
Benefits or impacts you can pass on.
Yeah.
Well, our key accounts are growing faster than our overall business, that's probably the easiest way to define it you know we put investments in place kind of putting infrastructure in there to drive global key accounts and that's even done a really really nice job.
Got it throughout that team.
Really really does a nice job so at the end of the day, that's growing faster than our overall business. We continue to expect key accounts to grow faster than our overall business I kind of touched on earlier that there's some opportunities out there that we think we're going to be capitalizing on as we move forward years, though.
At the end of the day, that's turned out to be a positive strategy is that a future certainly looks bright from our key account perspective to continue to drive our overall topline growth.
Thanks, and on the my day manufacturing I guess capacity issue.
How much did that impact growth exactly so is 18% for.
The the daily Silicon lenses overall.
What would that have been if you had full capacity.
Oh, that's sort of [laughter], if we add.
Okay.
Quite a bit higher.
Well can throw a number out there, but there was a lot of demand for that probably there is a lot of demand for that product right now so.
That's where I do feel good about we're bringing a lot of capacity online here and we are heavily focused on selling that as we move forward but.
We'll be using that capacity that comes on so other than the guy to say it made it even difference I won't go in a specific number that.
Appreciate it thanks Les.
Yes.
Thank you and our next question comes from the line of Steve Willoughby with Cleveland Research.
Hi, good evening, Thanks for taking my questions I have to.
I guess first following up on the last question.
Al you know it sounds like you're continuing to add more manufacturing capacity can you provide a little bit more color on.
How long these capacity additions will take to come on and I guess with that.
What did you could quantify at all how much of a capacity increase you're hoping to eventually get or how much came capacity increase in 2020, and then I've a follow up as well.
Yeah, that's a great question and really great point that I didn't touch on there but.
This is especially relevant for anyone of these newer to the story you know I mean, it can take 12 months 24 months and I'm sure. Some of our competitors are dealing with this right now in order to get a new line up and running and I meet up from the time, you order that Lyons, who is actually producing product that you could shift to your warehouses and ultimately sell so.
It could take a decent amount of time and you can't just kind of snap your fingers. It in order to these manufacturing lines and get them in the next month right, let's say take on averaged 18 months or something to get those lines. So we ordered I'm quite a while ago I mean, we saw a bunch of this coming we ordered these mine.
We haven't come in as I mentioned I mean, we are willing to who runs our manufacturing group has done is saying good job buddies almost 17 go at this point like 24, seven working on getting those lines up and running and accelerating to start dates.
Did take it takes time and that and that's part of the problem. That's part of the the big the mode. If you will that barriers to entry into this industry, a pretty significant because of that type of thing. So anyways long story short number Elias comment on I'm not going to get into.
How much where that increases our capacity in the dollar amounts associated with other than to say, there's numerous lines that are coming out which is that one last week. Many more to come this year and into next year, because just the timing it takes to get those lives.
So do I guess with that I'll do you think you'll still be capacity constrained at the end of 2020.
I think that as we move into 2021 will still be capacity constrained I do think so but having said that.
We'll be in 10 times better positioned than we are today.
Sure. Okay and then my follow up question now you know over the last kind of take a little bit longer term view here over the last lets say decade.
The company has outgrown the contact lens market by.
Two or 300, maybe even 400 basis points.
Pretty consistently.
During a lot of that much of the last decade, you've had a favorable competitive position with your product portfolio, particularly tabbing, myday, but especially clarity being sort of unique in the marketplace.
The two or three or 400 basis points you have outperformed the market have you put any thought to how much of that outperformance has come from your ability to trade up to more expensive silicon hydrogel daily lenders versus gaining shares.
From competitors and just wondering if you've ever looked at it that way in terms of the breakdown from how you've outperformed the market.
Yes, so we have.
We did you know what kind of interested right now in some of the competitors coming out with products right now that's still trade up their existing wearer base and get a 20, 30% kind of premium on those trade up that's fantastic form in animal driving solid growth for them for a number of years. As you know we don't have quite that base of trade out because we don't have as big a daily hybrid gel.
Okay. So when you look at our growth over the years your that growth or a lot of that growth, especially more recently has become has been coming from winning new wares and I'm kind of happy when I look I am happy when I look at the new bit data that we get that we're continuing to win new where new fits with new whereas in the daily silicone.
Gels space. So that's one of the key for us. So I think at the end of the day little interesting that you're going to get good market growth, because you're going to see some competitors trading up existing wearers and again getting that 20, 30% trade up.
We're going to get growth because we are going to continue to give some of that trade out we're going to see growth from the conversion of AEP ARPU wearers over to daily wearers, we're going to get growth from winning new wares and then some of the new products. We rollout will drive growth. When you look at like Myday you asked about constrains. We entered 2021 one of the things I'm excited about is ultimately get antibody.
Multimode while marketplace.
I don't know coming at some point in the future right, but we just have to get the capacity to deal to do that so we are we're doing a good job right now I will say and winning new wearers and I can see that in the new fit data that ultimately will translate itself into revenues matter, how long that Dave.
Okay, great. Thanks, so much else.
Yes, I did.
Thank you.
And our last question comes from the line of Steven Lichtman with Oppenheimer.
Thank you hi, guys out just a question on the regulatory and clinical work around my type that you mentioned you probably a little more color. What that includes is is that reflective of investment in the geographic expansion or in the post market study as well and can talk a little bit about the post market study design in terms of number of patients and when we.
My T. data.
Yes, so it's a number of things to your point right. So its clinical data in terms of.
In it as one of the things that we want to look at it say some children don't react as well as other children due to mine site why is that right. So doing clinical work on that when you look at laid on that.
Myopia, how can we tackle that what's the best way to tackle that so we're not talking eight to 12 year old by older Kids were getting.
Yeah, we look at.
Go into a silicone hydrogel my signed prior to that kind of work that you also Roland and regulatory work and it actually kind of China, Japan and number of other countries going through the regulatory process to get approvals, there's investment activity associated with that you look at the post market study. That's another one that degree when that's expensive one.
That's how we're kicking off right now I'm not going to go into much detail on that at this point in time, there will be information that will come out on that here in the coming months. So I'll kind of wait to give more color on that but but that is another thing as expensive as part of those investment dollar. So a lot of that activity. As you can imagine is on front activity you do it you get approved.
Well band your Don you do the clinical work you get those Clinicals behind you you ultimately get approval on the expanded product offerings or new product space and so for the year done that's where you start seeing that real leverage I got the future that I was talking about but those dollars. Both investment dollars are going to multitude of different areas.
Got it and then lastly on the up on the increased up sales marketing and educational support you mentioned from my side is it some of that around expanding the sales force and will you have a targeted salesforce around my side or no.
We may right now most of that is professional sales as you will kind of the clinical side of that where you're going out in talking to optometrist and individuals who really want to understand lines fit the lens of the treat and drive the product forward. So right now because it's early stages more along those lines.
Ultimately move to Plano, saying, Hey, my existing sales or sell this might also yeah, no surprise to anyone or didn't talk the questions right now and they're just referring it over to some of the specialists. So well see how kind of plays out over time I think that you will probably get some dedicated sales per people dedicated sales professionals.
And as it becomes more mainstream and left clinically based on the sale, you'll move yourself more in that direction.
Got it thanks out.
Yep.
Thank you and that's all the time, we have today for questions I'll now turn the call back over to President and CEO I'll wait for closing remarks.
Well. Thank you everybody we covered a lot of good topics today and as you can tell I'm pretty excited about where we are aware business add them whether future holds kinda.
To work our way through Q1 here and.
Rolled through the rest of year, but things are looking pretty good I'm pretty excited so I hope everyone had a good Thanksgiving and happy holidays coming up and look forward to see everyone out on the road here in the coming weeks a month. So thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating and you may now disconnect.