Q1 2020 Earnings Call
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Ladies and gentlemen, please stand by your.
You won 2020.
Cooper companies' Inc. earnings conference call begin momentarily. Thank you for your patience simply standby.
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Ladies and gentlemen, thank you for standing by welcome to the Q1 2020 Cooper companies' Inc. earnings Conference call.
This time all participants are in listen only mode. After the speaker presentation. There will be a question answer session asking question during the session you'll need to press star one on or telephone. Please be advised the today's conference is being recorded if you require any further assistance. Please press star zero I would not like the hand the conference over to your speaker today, Kim Duncan Vice President Investor.
Relations and administration. Please go ahead ma'am.
Good afternoon, and welcome to the Cooper companies' first quarter 2020, <unk> earnings Conference call. During today's call will discuss the result included in the earnings release, along with the updated guidance and then use the remaining time for QNX.
Presenters on today's call, Oh, wait President and Chief Executive Officer, and Bright Andreson, Chief Financial Officer and try to.
Before we begin I'd like to remind you that this conference call contain forward looking statements, including all revenue earnings per share guidance and other statements regarding anticipated results of operations market or regulatory conditions and integration of any acquisitions or their failure to achieve anticipated benefits.
Forward looking statements depend on assumptions data or methods that may be incorrect or imprecise and are subject to risks and uncertainty.
That's a good cause our actual results and future actions of the company to differ materially from those described in forward looking statements are set forth under the captions forward looking statements in today's earnings release and are described in our SEC filings, including Cooper's form 10-K, all of which are available on our website at Cooper co dotcom.
Did you have any additional questions. Following the call. Please call investor morning, at 95, or 603663 or email I R. Two bercow dot com and.
Now I'll turn the call over to allow for his opening remarks.
Great. Thank you Kim and good afternoon, everyone.
Welcome to our first quarter 2020 conference call this quarter met expectations, and we're not well positioned to deliver stronger results moving forward.
This is especially true given recent operational improvements, including increased Myday production, having said that there's the krona virus impact in the obvious challenges at present.
Before getting into those details, let me walk through the quarters performance.
For Q1 consolidated revenues were 646 million with coopervision, posting revenues of 485 million up 3% as reported that 4% in constant currency and coopersurgical posting revenues of 161 million up 2% as reported and 2% in constant currency non gap.
Earnings per share were $2.69.
The coopervision all on a constant currency basis, the Americas grew a healthy 8% led by our daily silicone hydrogel franchises, where we continue to offer the broadest portfolio in the market with my day available on a sphere and torque and clarity into sphere, toric and multifocal, both once families performed exceptionally well with toward.
Nothing particular strength.
EMEA grew 3% supported by our entire silicone hydrogels portfolio in Asia Pac was down 1% due to my day capacity constraints as well as Biofinity and Avaira vitality not rebounding as fast as expected from the de stocking associated with the September VAT increase in Japan.
Having said that Asia Pac is already rebounding and we expect growth in Q2, even in the face of the crowd of ours.
All three regions were led by our daily silicone hydrogel portfolio, which grew 19% continuing to take share in the fastest growing segment of the contact lens industry.
This growth really demonstrates our strength would daily silicone and it bodes well for the future as Myday capacity is quickly improving.
Meanwhile, our biofinity and Avaira franchises grew 3% a little softer than usual due to the de stocking issue and Asiapac, having said that we expect better performance moving forward in Asia Pac along with an uptick from our launch of the recently approved Biofinity Toric Multifocals in the U.S. with the rest of the world following shortly.
Torch grew 7% led by Myday and Clariti and Multifocals grew 6% led by clarity and Biofinity. So in summary of solid quarter, given we expect Asia Pac to return to stronger growth in Q2, the Americas to remain strong and EMEA to start showing a rebound in Q3 is the comps get easier we're optimistic about the remained.
During the year.
Before moving to my side I want to cover some positive news I My day as we discussed on last quarters earnings call. The demand for Myday is extremely strong and we produced great results, but we think capacity constrained as such we realized significant resources to accelerate start up efforts on new line and I'm happy to report that activity is going exceptional.
Well I want to come in or manufacturing team for their efforts and a truly fantastic job.
Moving to my site, our innovative myopia management contact Glenn sales. This quarter were 1.5 million up, 87%, which was slightly above expectations and positions us well to achieve our objectives for the year. As a reminder, my side is our FDIC approved daily Lance has been clinically proven to slow the progression of myopia in.
Shoulders eight to 12 years old has extensive five year clinical data and experience has shown its safe an easy for children to handle on where.
We're continuing to have success around the world, finishing February with over 17000 kids wearing the product up from 13000 last quarter and I'm happy to report. This includes our first children in the U.S.
Regarding U.S. activity, we completed our Caone launch in January completed training of our U.S. sales reps in February and have now invited roughly 1800 dock into the first round of them I say program for education in certification happening in seven of the top optometry universities in the U.S.
We're also continuing our sales marketing and educational activity around the rest of world along with continuing investments in clinical and regulatory work.
Well the U.S. launch underway the product is now being sold as part of a holistic myopia management program called brilliant futures well report, where we provide the eye care practitioners to lenses a suite of resources to help educate connect with parents and targeted marketing tools to assist the eye care practitioner and building their myopia management Pratt.
Yes.
The Doctor can that incorporate all this into their own customize program, which could include eye exams and potentially other offerings such as north Okay. What does and then charge in appropriate price for their complete offering.
The early feedback has been phenomenal and it's really exciting to see the progress we're making it easy piece on the clinical benefits of my side and why this treatment should be standard of care for young patients we myopia.
It's important to remember that myopia, especially high levels of myopia has been linked to severe I conditions later in life, such as glaucoma cataract in rental retinal detachment so products such as my side that actually treats us condition is incredibly exciting.
We believe might say has the potential to be a true game changer in the optical industry. So we're happy and proud to be leading the way with is truly innovative product.
Regarding financial expectations from my side, we're still forecasting roughly 10 million and sales this year, including 2 million in the U.S. and 25 million in fiscal 2021 at around 50 million in fiscal 2022.
My side is a great growth driver for us as its an entrance into a brand new market that being children. While also offering high margins as it's a proclear base lens produced on an existing platform. Additionally, it offers a strong halo effect on the rest of our portfolio and is already driving eye care practitioner interesting coopervisions other products.
Before concluding our vision, let me remind everyone of the multiple growth drivers that underlie the 8.9 billion contact lens industry. It starts with myopia, where it's currently estimated at roughly one third of the world population as myopic and this will increase to 50% in 2050. This obviously means a lot of visual correction, which is great.
The entire optical industry, Additionally, and more specifically to contact lenses, there's the continuing trade up from fr piece. The daily the trade up from legacy Hydrogel Daily silicone hydrogel dailies geographic expansion and growth in Torics and Multifocals within dailies only 25% to 30% of wears are in dailies today.
And only 43% occurred daily sales are in silicone hydrogel lenses, our expectations. Therefore remain that this is a multibillion dollar trade up opportunity, which will occur over the next to five to 10 years and all this continues to support market growth in the upper part of the 4% to 6% range for many years to come with us taking.
Share for the foreseeable future led by our market, leading daily silicone hydrogel portfolio.
And finally I'm happy to report our new fit data was once again very strong this quarter, especially with respect to silicone hydrogel daily fits which bodes well for our future.
Moving to Coopersurgical, we reported revenues of 161 million up 2% in constant currency with office in surgical up 3% infertility up 1% within office in surgical growth was driven by Endosee, Our second generation handheld office history scope and our surgical retractors.
Burger was flat for the quarter following Q4, where we had significant buying activity associated with a 9% price increase implemented during the quarter I'm pricing remember that increases rolling over three years due to buying activity contractual arrangements and public market purchases such as Medicaid for the year, we're still forecasting mid single digit.
Growth repaired or.
Fertility was led by our device portfolio, which includes consumable products like Ivy F. media and our market, leading Wallace embryo needles and transfer catheters.
This was offset impart by our genomics business, but more so by shipment delays at quarter end, which moved to Q2.
Given that we expect a stronger Q2 from for kildee, even with the impact of the Corona virus in Asia Pac overall for Coopersurgical, we expected this quarter to be our most challenging due to tough 8% comp from a year ago in the Q4 pair garb by it but we hit our expectations and remain confident and posting a strong year.
Now before concluding let me cover the Corona virus and its impact first and foremost our thoughts or with our employees their families and communities impacted by the virus.
We've been fortunate and that we havent had any employees infected by the virus that were aware our business in China is relatively small only roughly 2.5% of our revenues and we have no manufacturing or packaging located in the country. So that's obviously health.
We haven't been able to maintain our supply a product in China, which is sold through third party distributors. So the impact is largely been around the parts of our business that fell in hospitals that being fertility and our specialty lens business.
We're also seeing a modest impact in other countries, where there is heightened virus activity that our businesses are proving to be relatively resistant.
At this point, we're estimating the total revenue impact in Q2 will be roughly $15 million comprised of $11 million in coopervision and $4 million and Coopersurgical.
I believe will likely call. Some of this back as we move through the year, but we're not including that in guidance, having said that we're holding our full year revenue guidance unchanged driven by the improved myday production and new contracts. We've won in our fertility business, which we expect to generate higher sales in Q3 in Q4.
Underlying all this is the assumption our global operations largely return to normal in May the beginning of our fiscal third quarter.
Brian will provide additional numbers, but our expectations for a strong year remain intact.
With that let me conclude by saying, we're taking share in the global contact lens market Myday capacity is ramping up nicely. The my side launched is progressing well and coopersurgical is well positioned to accelerate growth.
We're also continuing to make positive strides with our E.S.G. efforts, including expanding support a several community involvement effort and my recent signing of the CEO action for diversity inclusion pledge, which is the world's largest CEO driven initiative to advance diversity and inclusion within the workplace and with that I'll turn the call over to Brian.
Thank you al and good afternoon, everyone. Most of my commentary will be on a non-GAAP basis. So please refer to today's earnings release for a full reconciliation of GAAP to non-GAAP results.
Well covered revenues so let me move to the rest of the piano.
So David gross margins for the quarter were roughly flat year over year at 67.3% from 67.5%.
Coopervisions gross margin improved 50 basis points to 66.5% from 66%.
Largely due to a reduction in year over year expenses associated with the infrastructure improvement projects, we discussed last year, which we've now completed.
Coopersurgical is gross margin decreased to 69.7% from 72%.
Partially due to disruptions. We previously previously discussed associated with consolidating our global manufacturing operations into Costa Rica.
As expected, though the upfront work associated with this consolidation activity is completed and we continue to forecast gross margins improving year over year, including Q2 moving back into the low seventies.
Opex was up 5.4% year over year, resulting in consolidated operating margins of 25% down from 26.2% last year.
Within this coopervisions operating margin improved nicely driven by gross margin improvements in operating leverage.
But coopersurgical is profitability was down due to the reduction in gross margin combined to pull forward of certain expenses, including selling and marketing costs associated with a relaunch of repair guard DTC activity.
It should be noted this is mostly timing related and does not alter our full year expectations.
Interest expense was 11.6 million driven by lower average debt balances and lower interest rates.
The effective tax rate was 10% largely due to the timing a normal equity grants.
And larger than expected Q1 true ups related to restructuring activity.
Non-GAAP EPS for the quarter was $2.69 with roughly 49.7 million average shares outstanding.
Free cash flow was 60.7 million comprised 129.7 million of operating cash flow offset by $69 million of Capex.
Net debt decreased by 37.6 million to 1.7 billion.
And our adjusted leverage ratio move slightly lowered to 1.82 times.
Lastly on Q1, the year over year FX impacts of revenues was negative 2.8 million and there was no impact to EPS.
Moving to fiscal 2020 guidance given the variability currencies, we decided to use the same rates we used in December including the euro at 110.
The yen at went online and the pound at 129.
For revenues as Al mentioned, we anticipate a roughly negative 15 million dollar impact from the Corona virus in Q2, but both businesses expect to make that up in Q3 in Q4.
Therefore, we're holding our revenue guidance unchanged, we consolidated revenue guidance for the fiscal for fiscal 2020 remaining 2.767 to 2.817 billion.
This includes coopervision revenue in the range of 2.070 to 2.1 billion.
Up roughly 5.5% to 7% in constant currency and Coopersurgical in the range of 697 to 717 million up roughly 3% to 6% in constant currency.
No no one incorporating our Q1 performance our full year guidance implies an accelerating growth rate for coopervision of roughly 6% to 8% for Q2 to Q4 and roughly 3% to 7% for Coopersurgical.
We remain comfortable with these ranges for the reasons al mentioned, including improved Myday production and improving fertility performance.
We continue to expect consolidating consolidated gross and operating margins to be up slightly while while now forecasting interest expense to be in the 37 to 39 million dollar range.
Which includes the recent 50 basis point fed rate reduction, but no additional rate moves.
Given we have roughly 1.7 billion of dead and is also doing any additional interest rate reductions would be a nice positive benefit.
For our effective tax rate, we're now forecasting the full year to be roughly 12%, which incorporates Q1, along with the updated regional profit estimates and benefits from existing share based comp.
Our non-GAAP earnings per share range is being increased 20 cents on the top and bottom ends.
12, 80, so $13 in 20 cents.
To reflect lower interest expense and tax rate.
Free cash flow is still expected to be around 420 $425 million would capex remaining elevated at around 325 million due to the buildout of daily Silicon hydrogel production capacity.
And with that I'll hand, it back to the operator for questions.
Thank you as a reminder to ask a question you need to press star one on your telephone to strike a question press the pound Keith Please limit yourself to one question and one follow up question. Please stand by all we compile the county roster.
Our first question comes from Larry King with Raymond James You May proceed with your question. Okay. Great. Thanks, Good afternoon, everyone.
I guess, just first question relative to our model the DNA spend was a bit higher than anticipated I was just wondering if.
That was if the spend was actually inline with what you guys were planning or words were there any discrete items behind it that might have pushed a little bit higher.
Yeah, Larry It was roughly in line, but it was higher than we were expecting it came from a a little bit higher than we were expecting it came from coopersurgical really the PARAGUARD DTC activity was pulled forward a little bit and thats fairly extensive the TV ads were doing them a little differently. This year, we're going to cable rather than hitting the.
Mary stations in the big markets, but it's still fairly extensive and that was pulled forward into Q1. So that's not going to change our full year expectations for surgical and our SGN a expenses, but it did move some indebt into the first quarter.
Okay, perfect and then.
Just a an another one.
And on.
I guess on the.
Improving capacity that you have for Myday Toric can you can you just talk a little bit about what's what's progress since you updated people in January at the Jpmorgan Conference and I guess, just along with that I know you said you don't have a manufacturing in China, but do you saw source any raw.
Materials for contact lenses coming out of China is or is that Japan or somewhere else. Thanks.
Yeah, we do not source any raw material out of China, We do well, we certainly don't have anything material out of China, I think there's a apart for coopersurgical, maybe something really small, but but certainly nothing large by any means most of that's from the rest of the world, including Japan that you mentioned.
On my day, Yeah. It's my days is solely a matter of getting production up and running faster. That's it. So we have a number lines coming in.
At bringing those line forward by a month or two months or two and a half months in some cases has pulled production from the latter part of this year and the beginning of 21 into 20 uneven.
Months earlier here in 20, so all that's doing has allowed us to produce more product as we've talked about the demand on that is really strong.
We pulled back on some markets took a lens out of the market cut back putting fitting sets and a lot of that kind of stuff. So the demand remains really strong. This is solely a matter of comfort in the fact that production is ramping up and that's going to give us rather than we'll have more sales because of it okay terrific. Thanks guys.
Yep.
Thank you. Our next question comes from Jeff Johnson with Baird. You May proceed with your question.
Thanks, Good afternoon, guys. Let me follow up maybe on Larry's question there on my day just.
And I guess, it's a little bit of a guidance question as well, but on the 68% CV I guide for the balance of the year.
If I take 11 million out of the second quarter like you're saying, Brian and also assume I don't think Myday correct me if I'm wrong is back in Japan, yet at least not the one check we have over in Japan on that.
So should we assume that six day kind of build throughout the year, maybe at the lower end of that in the second quarter, and then a higher than that over the balance of the or how to think about that Alan.
Yeah, you're spot on it'll be just because if nothing else because of the $11 million pulling out of Q2.
And the fact that a lot of that Myday production is currently ramping right and so you're right. We pulled the product out and it's a few different markets and and pulled back on supplied as some supplier to some retailers and so forth you'll see that start to approve a little bit in Q2, but definitely improved quite a bit more for Q3 in Q4, So you're right I.
End up kind of back getting it right. So if you're talking about taken $11 million out.
I don't know exactly what that number will be but maybe it's you know you get 4 million more in Q3, and 7 million in Q4 that type of thing.
All right and then al maybe just talk to us about kind of what you're hearing or seeing a you know in China I know, it's a small market or bank, maybe even in Japan, or Italy or any of your other markets.
Our sense is a lot of people have plenty of lenders at home, they're going through those lenses utilizing those lenses, but maybe not going into the I docker themselves. So if there is an impact to you. This year bigger than the 11 million do you think would be a timing impact is there risk that we just lose contact lens sales for a while just how how to think about maybe what you're seen so far in.
Maybe conceptually help us think about how the next few quarters could play out if this continues to spread and impact greater region. Thanks.
Yeah, I I'll split it into two because coopervision has a pretty decent specialty lines business and a lot of that is in China and the specialty lens business is sold through hospitals. There. So we end up taking a bigger hit there right because people are going to hospital don't want to go to hospital now that's that's our bigger portion.
To the hit now I do think that our expectations, if things get back to normal and May moving forward.
Covers that I think will be okay with the specialty lines is starting to sell more there I'm not sure we pick that business up to be honest with you I kind of think we will but but im not positive that if you look at the rest of the world. That's out there you know we rolled in about 5 million Bucks. We just said generally speaking I do think that if there is deferrals because of.
Grown a virus that we do pick that up.
We didn't roll that into guidance, but I'm not sure why we wouldnt right. If somebody has lenses at home and for some reason, they're not going to get more than they're going to ultimately need him now where honestly, we're not seeing much of an impact because people are buying things online or in other ways that people can get products. So as of right now end user demand remains strong.
Our sell through remains strong so we're not seeing a lot of impact from that right. Now I mean, I think I think we're covering ourselves sufficiently by just saying hey, we're going to have that impact this quarter.
Everything will be fine and kind of go fully back to normal. So I don't know that at the end of the day I think we're pretty decently cover with the expectations we haven't there.
Thank you. Our next question comes from Anthony Petrone.
Jefferies. You May proceed with your question.
Oh, great. Thanks.
Just a stick on the the guide for Corona virus, just the totaled 15 million them I'm wondering how many countries actually is that says that Sean I think it's actually more than China. So maybe even just the 10 million in CVI, how much of that is China and how much of that is outside of China, and then I'll have a couple of.
A follow ups. Thanks.
Yeah. So if you look at break it down a couple of ways right $15 million about.
4 million is coopersurgical, that's all from China, So thats, where in fertility clinics operate out of hospitals in China. So that's all for China for them, we're not really seen an impact outside of China.
If you look at Coopervisions 11 million somewhere around 6 million of that is China related and that's largely related to especially lens business a little bit associated with some of the other lens products out there and then that remaining portion is that remaining 5 million as kind of spread a little bit to a couple of different countries.
We're not seeing like a dramatic impact in any particular country other than probably.
South Korea, where there is a little bit bigger impact there, but the numbers aren't that big right. So you get a little bit South Korea get a little bit in Italy, a little bit in a couple of spots.
But nothing nothing dramatic as you can tell from my commentary.
And then just on the the fiscal one Q print in Asia Pac the one on nine that was down 1% constant currency last quarter. It was up.
11.
But you know it ends in January so was there any impact in the quarter in any pack and is a new growth rate on a pack sort of.
Down or is it mid single digits as we move to the year and then just to put it in the last question. There just on on Paragon just wanted to confirm did national ads and in the U.S. did did where those up and running in the fiscal one Q or have they started again as we move through 2020. Thanks again.
Yeah, so the national ads on PARAGUARD are up and running.
So those started I, even Q1 I know it costs were certainly starting in Q1 your shaking her head. They just started in December the actual TV ads. So yeah. So the ads were up and running in Q1.
If you look at Asia Pac Yeah, we had to minus 1%.
Kinda surprisingly biofinity and Avaira, we're a little bit softer as we finished the quarter than what we thought they were gonna be so we've seen those come back already in February. So that makes me feel good I think that ended up being tied to the the VAT purchases that happened in with the September change.
Asia Pac is going to grow right now I believe for this second quarter I'm not sure how much. It will grow you know I wouldn't be surprised but low mid single digits something like that is kind of what I expect even with the krona virus.
Then we should be back to double digit growth certainly in Q3 in Q4.
Thank you. Our next question comes from Larry Biegelsen with Wells Fargo. You May proceed with your question.
Hey, guys. Thanks for taking the question just two for me out you threw out there.
In addition got approval of my day, multi focal toric arm, how what kind of ramp should we expect it to you asked how big can that product be I just second our throughout my second question now what are you seeing from new competition in the silicone hydrogel dairy disposable space, particularly problem.
Precision one and the new BSP lens, thanks for taking the questions.
Yeah.
The approval was Biofinity Multifocals, who are yeah, yeah, we got that approved and we've launched that product here, yes, that's never a massive product, it's a highly profitable product, but from a revenue perspective, it's never that huge because it's a pretty targeted market having said that.
We'd get we'll get a few million dollars out of that and the other thing is it's great for the Biofinity franchise like for the whole family to go out there and to be able to have a product to talk about I mean that'll in my mind clearly will be the best multi focal toric f. RP in the marketplace. No question about it so having that product out and being able to talk about it and just continue to talk about biofinity is.
Great. It helps the entire the entire family. If you look at that the competition side of things. Yeah. Precision. One is is being launched in that product starting to make its way out into the marketplace a little bit here. So we haven't seen too much impact from that yet.
And if you look at VSP I know, that's making its way that lens is making its way out also.
I haven't seen frankly too much impact on on that either so not too much impact from a from a competitive standpoint at this point and as I've said before I mean, there's room for other people within this space, but more in a pretty good spy you know what I am really happy with where we stand with clarity in a successful clarity that we've seen especially clarity toric and and would myday.
Continuing to hold up as well as the as and us being able to come out here with the with more of the toric and everything puts us in a pretty good spot.
Thanks for taking the questions.
Yep.
Thank you. Your next question comes from Matthew Mission was.
Keybanc you May proceed with your question.
Great. Thanks for taking my question.
Right.
Alcon appears to be moving forward with with a DT one toric for later in the year does that get to the point, where rounding out the but the full family of Myday becomes greater priority.
Yeah, you really go into you know a.
Myday Multifocals. So we have the toric out there the key for US right now is to be able to meet that demand for the tour, we need to get more fitting sets out in the marketplace and then.
We will fulfill that demand so for right now it's a matter of just saying, there's a lot of demand out there for premium daily silicone Hydrogels work a lot of demand out there.
We are doing well, we'll we'll launch you know I shouldn't say launch, but well get the product out there more robustly here as we proceed through the year and do really well and I imagine DT went oracle actually do fairly well when they come out with that product. So.
I think we're both in a good spot when you look at the multi focal for myday, we'd like to get that out there our problem ends up being we're going to be capacity constrained here for.
I will answer that for and we used a year could be a couple of years before we moved through the capacity for others fear in the torque itself. So I do think we'll get a multi focal out there at some point, but it's going to be a little while before we get it out of market.
And then my easier question, how how is this thing does get a little bit worse in that region. How flexible are you.
With an ability to move lenses between regions. So so Asian demand wear to work to weaken as a result at this could you move that capacity the others are world where your constraint.
Short answer is yes, we ship the product over there, obviously, but if demand pull back there we would take that product and reallocate it into the a European market in the U.S. Amini, even Europe was hit a little bit this quarter. They were okay, but they were hit a little bit this quarter because of myday capacity constraints, that's for sure and Weve.
If that did happen, we would allocate those lenses and certainly sell them elsewhere, there's there's plenty of demand.
Excellent. Thank you.
Yes.
Thank you. Our next question comes from Chris Cooley with Stephens You May proceed with your question.
Thank you appreciate you taking the questions. This afternoon, just too quickly for me one I'll just to clarify not to belabor the corn, but.
And your.
Oh krona virus guidance, you're not assuming no further acceleration of the virus in the United States not putting the Paul over domestic demand it sounds like its relegated more so.
To the Asiapac region.
And to a lesser extent, Italy, and then just quit until my second question in as well can you just remind us what the production delays were in fertility during the quarter.
And help us kind of better understand the contract that was wondering why that gives you confidence. Despite two krona virus you still can see acceleration in that so franchise as you go forward in the back half the fiscal year. Thank you.
Yeah sure extra yeah with the Corona virus, we're we're assuming everything gets back to normal kind of in may, but you're right we're not assuming.
Anything gets worse from a sales perspective like that doesn't mean, obviously, it's going to be headline news is unfortunately, there there will be additional.
People in fact, it as they move through the U.S. and so forth, but we're assuming that we continue to sell product pretty similar to how we're selling it today and then moving back to normal as we go into Q3.
If you look at fertility it wasn't production delays infantile fertility. It was shipment delays. So we had product that should have gone out at the end of Q1 that is going out in Q2 large portion of its already gone out, but it's going out this quarter. So that's just a movement of.
Shipping of goods, obviously, so we recognize that in the second quarter.
On the contracts, we did have a couple of contract here are some nice some nice contracts. We've won outside of the U.S. a few opportunities that will start capitalizing on and you will see the revenue impact from that in Q3 and Q4 I will go into specific details other than to say I'm, obviously gives us comfort and our guidance.
In keeping revenues the same because we already have visibility to kind of increase revenue so to speak from those contracts.
Thank you.
Thank you. Our next question comes from Jon Block with Stifel. You May proceed with your question.
Thanks, Good afternoon guys.
I'll start with my side, you mentioned the certification program, maybe at a high level, what does that certification program. Intel and then you mentioned I think it was 1800 docs, taking part in that program, how does the interest level log or the backlog. If you would beyond the first 1800 and that I just got a follow up.
Sure. So yeah. The certification, there's kind of the education and certification so to speak associated with that so we did that with the key opinion leaders in January and we had we had a group of them down in Miami to kick that off and then they did the training. They went through the online certification, which is pretty straightforward honestly for enough time of trust we have.
20 certified docs in the U.S. right now already prescribing selling the land I think that was all the docs frankly that went to that are now certified and selling it the invitation to the 1800 docs to go to the training at the seven universities. Just went out I think it went out a couple of days ago. So the.
Feedback if you will that verbal feedback has been very positive on that Theres a lot of those dogs that we targeted who have pretty decent pediatric.
Practices. So there was there would definitely some excitement there and a number of people who are looking to jump in and move forward relatively quickly so I feel pretty good about that.
Okay. So maybe I'll ask a follow up to that and just also layer in the next one I guess are you going to pursue that introductions in other words gather some learnings from the first subset of 1800, and then maybe bring on the next Trojan.
Arguably question to just key accounts back to where are you back to where you want to be in terms of pursuing some of these larger strategic accounts I think in fiscal Fourq to 19, you mentioned you had to hold back because of where you were from a capacity standpoint is it all systems go right now thanks guys.
Yes, yes, so we'll keep going on 1800 docs, what we tried to do was kind of target docs, who had a bigger pediatric Pratt presence.
And of course anyone who is already doing some form of myopia management. So that 1800 should be a pretty good group of docs.
We ended up expanding it was going to be a little bit smaller than that the interest was strong. So we expanded that and we actually ended up including a number of dockson that who are not coopervision docs. If you will there were there were a number that came that really wanted to be involved and wanted to get signed up early so we expanded that as much as we could our limitation is that we have.
Seven of the top colleges doing the training. So it's just a matter how many people, we can get and classes and push through there as we work through that process will will expand at an invite more practitioners and no question.
If you look at key accounts, yeah that team boy. They did just crazy good job for a long time, and we got a kind of on our heels a little bit because of that myday production side of things. We are we're back at it there. So things are moving back long, we're having those conversations.
I'm kinda optimistic that we'll get some good news out there before before too much longer here in terms of a maybe a new a key account that will raise your eyebrows.
Thank you. Our next question comes from Matthew O'brien with Piper Jaffray. You May proceed with your question.
So afternoon. Thanks for taking my questions hopefully you can hear me okay.
Now you know we're hearing about some new market dynamics from one of your bigger competitors, that's coming up starting April 1st as far as.
Cutting back on Rebidding of legacy products, and then trying to cut down on the gray market. So can you if I heard about as I'm sure. You have can you talk about how that could potentially disrupt the market place proven marketplace and then.
What kind of opportunities could that present for Cooper, maybe over the next six to 12 months.
Yeah, well I'll tell you we talked about the gray market.
Probably at least a year or two two years ago something like that that's.
Yeah, we got through that but I'll tell you what that takes some work and what we're talking about right is that you're shipping lenders into one market in someone's taking advantage of pricing discounts and so forth and their intent is not to sell it in that market, but they're getting volume discounts for some reason a lot of times tied to legacy contracts. So they're buying product and then re routing that.
Product into another market and hurting the pricing that you have there. So that's that's a tough one that's it that's an actual project to get your arms around that evaluate contracts and so forth in clean that up we went through that and it improved our profitability and anyone else who is going through a great market analysis to clean that up.
That will be a positive benefit for them.
If you look at the pricing dynamics in the market you're exactly right. We haven't seen anything really recent but we did see rebate activity getting taken down you had a lot of $200 for annual rebates and you've seen a lot of that move down for 100 dollar rebate for existing were still 200 or something for new errors, but that's a positive dynamic I know you also.
We'll saw list pricing be increased by everybody. This year. So we're looking at our own pricing right now we're looking at our own rebate activity, we did take a little bit of pricing this year already.
Well look at incremental pricing and any adjustments to rebates as we kinda move through the year here.
Okay, and then as a follow up you know that torque performance again this quarter was quite good on a constant currency basis toughest comp as the year can you just talk about that marketplace generally speaking and how things are evolving as your lenses are getting more and more comfortable are you seeing more clinicians comfortable prescribing tore x. I either market starting to expand.
Because I think a lot of people are worried about DTA onto our coming out and really impacting you.
Sure, but what I'm trying to get to is is there a lot of room for this market generally to expand even if you do have some competition in the space you guys still being I think the best tour.
And out there.
Yeah. The tour markets Gray market. It is expanding one of the thing is if you look at practitioners right everybody wants to just fit their patient and have their patient by lenses from them you don't want to fit them and haven't turnaround and walk out the door and just by it I lied I, it's pretty easy to walk out the door and byproduct online. If you are fitting someone in.
Sphere, if you're just fit fitting someone in a toric, it's much more challenging for that patient to turnaround and walk out and by that online and you'd be comfortable buying it online.
Significant upkeep significant number of people, having astigmatism. So they needed to work now they don't have to have a tour, but as docs have become better and better at understanding that and looking for astigmatism and fitting patients with really truly the correct and lends a lot of times more.
More often than be and fit right now that correcting lenses. The toric lens, so you're going to continue to see growth and Torics and as you are getting better daily torques out there you're going to see that growth. That's obviously premium price points and so forth. So in my mind, you're going to see many many many years in front of US here of tour gross now I do think we had the best toric lenses out there and we.
Certainly do well in that space.
Our market share still number one but there is definitely space for other people as we move forward here no question about that that's a really really strong part of the market maybe the strongest part of the market out there it daily silicone Hydrogels works.
Thank you.
Thank you. Your next question comes from Chris Press call with Guggenheim You May proceed with your question.
Thanks.
How can you quantify at all how much you think myday capacity constraints have really held back the business and I'm thinking in particular, how what's happening with those customers, so even pushing them into clarity and so the opportunity as you have more capacity is really the price difference between those two lines, what's been happening with those patients.
Yes, a lot of those patients frankly are wearing older hydrogel lenses. So they're doing one or two things are either wearing a product like a biofinity toric or or someone else's monthly or two week to work or they're wearing a daily to work like up proclear or one of our competitors daily to work so unfair.
Finally, there hasn't been a lot of options form there, we're selling a lot of clarity toric right. Now we just had another fantastic quarter with clarity to work. Its I don't know flying off the shelf is the right word, but it's doing really well and same with Myday toric. So.
I think at the end of the day, you're not going to see Myday.
Toward cannibalizing clarity that's for sure I think it's more legacy Hydrogels daily Torics and F RP torques.
Okay. That's helpful.
And then on my side, what is the $2 million in U.S. sales assume in terms of the number of patients who actually going to be using the product by the time, we get to the end of the are you guys have a target for where you want to be in terms of users in October.
Yeah, well you're in order to hit the number of of a couple of million. Your your many many thousands of wearers that's for sure.
Because you know at the end of the day, you're selling where it will be selling the product, we're selling a year supply of the product, but we recognize the revenue on what gets shipped a lot of those patients because there I'd say, it's changing we might be shipping them, depending upon what the dock wants to do say six months of the year supply. So we'll be recognizing six months worth of revenue on that.
If you look at the price point, which is the kind of package cells north of kind of a premium.
Daily Silicone hydrogel land you just kinda back into the math right that that it's going to cost or it's going to require us to get many thousands of patients and I'm not quite sure. What the guys are assuming but it's got to be 5000, or so as we're exiting the U.S.
Thanks, 5000, as we exit the fiscal year in the U.S. right.
All right that's helpful. Thank you.
Thank you. Your next question comes from Joanne lunch with City you May proceed with your question.
Oh, Thank you very much and nice can you talking with you.
Just two questions. When you go to start funding conditions out for the my height training.
How do you explained the products to them and what kind of push back. If any are you receiving and then my second question has to do I'm, sorry, with current up which is if my understanding is correct you're asking that does not include that spreads anywhere outside of the Asia Pac specifically, the China region.
How do we think about other scenarios if there is something comparable.
Where you've had your adapt to a more regional or global.
Thank you.
Yes sure yeah. So we are assuming to be clear that the krona virus continues to spread I think that that's definitely going to happen. Unfortunately. The question is the impact on our business, we're not assuming a big impact business as it spreads right. Because if you look at like Japan for an example, we're not seeing a big impact on our business enjoy.
Pan from the grown of ours. So it's obviously there it's spreading through there, but it's not impacting our sales that much. So that's kind of what we're saying is as the spreads through the U.S. and and other marketplace. It won't have that big of an impact on our on our actual sales.
If you look at my site. The training is I think it's about three and a half hours of of training right. Now. So it's done it will be done by the by a professional that we have enough professionals at the universities, who are there making sure that.
The Cps I understand you know the clinical benefits and so forth and or and the clinical trials and all the information behind it why the lens worse, how it works how to help them with any fitting questions or anything they may have.
Generally speaking the pushed back that we've received that and as has been around kids. It's been around Hey, we're talking about eight to 12 year old how do how do I get not pushed back as much maybe but as a question like how do I get parents comfortable I do I get the parent comfortable that there are eight year old can do this or their nine year old or tenure open where are these lenses and.
That's a matter of what we talked about like working with them to help educate the parents and you bring the parent in your work with them you talked to him you have someone in your staff depending upon the size of your practice someone in your staff, who specializes in talking to families and educating them in helping the children fit the lenses. What we've seen is that when kids actually put the lens then and do.
But a couple of times, they're good to go unlike older people, who continue to seem to struggle and then drop out the younger kids figure it out and then they are done and they move on so it's more of that kind of stuff. We haven't had a lot to push back so to speak but certainly a number questions.
By the way welcome back Joanne [laughter].
Yeah.
Thank you. Our next question comes from Robbie Marcus with JP Morgan You May proceed with your question.
Hi, Thanks for the question maybe to start off just to clarify and questions. One on Corona virus that I caught maybe conflicting comments I just want to make sure you are assuming that the the revenues come back in the second half is that correct.
No. So right now we're saying were built will lose so to speak 15 million in those revenues will not come back is what is assumed in our guidance I happened to personally believe that some of them well, but but we'll see how that plays out in terms of being trying to be a little conservative on that we assume that do not come back.
Got it and then are you know again, another great quarter with a tax rate well below expectations, you lowered a 1% for the year you know what is it that twoq through Fourq, you wouldn't see a tax rate, maybe similar to first quarter or.
Well were like last year, and then I'll just slip one more and I I might've missed it but what was the FX impact in the quarter on sales and EPS and gross margin. If you have it. Thanks.
Brian I'll, let Brian.
Had a chance to talk [laughter], yeah. So the tax rate came in a little bit lower than we expected. Our Q1 tax rate is always tends to be when we started off year the lowest.
TR, because we we issue equity grants in the first quarter. So.
That was that's always going to kind of take it down somewhere around 2%. If you were kind of straight line the year.
What also happened this quarter, we had a true up in the quarter that was generated from from the provisions enacted by tax reform.
From fiscal 19 that that kind of flowed into this quarters. So obviously with tax planning your you've got estimates you're truly nose up and we just happen to have a true up that brought us that a little bit more than we expected in Q1. So when we look through the balance of the year.
With our tax rate going down by roughly 1% from our last guidance I would expect the each year to be somewhere in the neighborhood of 12 and a 5% for the for Q2, three and four relatively flattish.
Your next question is on FX.
So keeping guidance or FX rates the same.
We have about a $10 million detriment to sales and to roughly a four cents a positive EPS.
And that's for the quarter or for the year now.
For the year for the for the quarter Q1 was about $2.8 million detriment to revenues and no no impact GPS.
Great. Thanks for the question.
Yep.
Thank you. Our next question comes from Steve Willoughby with Cleveland Research You May proceed with your question.
Hi, good evening, Thanks for taking my questions I have a couple still actually.
Just a I guess, Brian just a real quick follow up there on that last comment the negative 10 million to revenue and positive four cents Dts from FX, that's relative to your previous guidance or your what you're expecting for the full year overall.
That's relative to the rates we used on the last quarter's guidance. So when we when we gave you a rate for the year of 110 on a one tenant to euro 129 for the pound and window nine for the yen you basically have rates more or less and you basically have the impact yeah listen Jay.
Yeah.
Does that answer your question does yup I.
I guess just another follow up question.
The 15 million dollar impact from Colorado virus being a headwind what is what's the offset that to be able to keep your your growth rates for the full year unchanged.
Yeah 15 million headwind in Q2 here and then I think once you get is ultimately kind of five more made up in Q3, intending Q4 and that comes from higher Myday sales because that production improvement and from those fertility contracts that we won during the first quarter.
Okay al on the by day is there any way to sort of quantify at all some of these realignment and improvements you're seeing invite a production and just wondering if you.
Last quarter, you mentioned, you thought you'd still be capacity constrained by day as you ended this fiscal year as wondering if I was still the case.
Yeah, I won't quantify them other than to say I'm kind of comfortable with the revenue growth. We're talking about in the back half of the year and as a matter of fact, if we can keep moving along it at the pace, we that move and we could have some upside to that.
We'll be capacity constrained I think well into next year, because until we get myday multi focal out in the marketplace I would say work capacity constrained at the end of the day. That's the thing that allow us to so I think that will probably be Steve you know sometime next year, but I think we'll have some headwinds having said that we've got it we have.
No product coming off right now that we're going to be able to put up some pretty good growth rate.
Okay, if I could slip one last one and then just talking about dailies dailies. Overall I believe you said dailies overall grew five and I think you said daily silicone Hydrogels grew 19.
The 5% overall data growth you know as it was slower than it's been in quite a while so just wondering if you could give us any color on on what's happening with the non silicon hydrogel daily performance.
Yeah, and a little apples and oranges there because the five is single use fear. So we're seeing a lot of our growth coming from those daily Torics. So that number ends up getting put into that torque number.
That's one of the things that throws it off just a little bit but to your but to your question as to your point the legacy Hydro gel business is continuing decline no question about that I mean, we're continuing to feel pressure there on that as people convert over that's one of the reasons.
I want to keep driving my side, because you know as Proclear declines, which it is right. Those lines are the exact same lines. We used to make my site product that so I'm kind of hopeful that as that declines we see the growth in Myday and Clariti and then we throw my side over on those lines and you know we need it don't need to putting.
Capital or anything out there.
Hey by the way Steve One one quick point on your question on currency just to be clear to everybody and Brian might have these numbers I don't on top of my head, but we did use the same currency rates. So everything kind of stay the same but I'll tell you over the last few days here currency as moves like in our favor I almost never say that you guys know.
And I Cooper it seems like I'm only talking about a headwind from currency, but by currency has moved in our favor from those rates. We were using the same rates to make life easier because at the time, we were doing the work they were more similar but if the rates held where they are today that would be an incremental positive for us do you have any idea what yeah, yeah. So.
If we use current rates today's rates the revenues would be about $5 million better and the EPS would be about seven cents a better. So your four cents would go to 11 cents on NPS and your detriment of $10 million goes.
To roughly a detriment of $5 million in revenues.
Oh, we shouldn't go crazy on that because rates are moving around like crazy area moving around like crazy, but just just to be clear on that.
Thank you and as a reminder to ask a question you only its press star one on your telephone. Our next question comes from Steven Lichtman with Oppenheimer <unk> co.
Yes.
Thank you Hi, guys. It's just one left for me on the power Guard that you see how can you update us on how much you anticipate that spend will will be this year and and when do you expect to be able to evaluate whether you have the return is coming through your for that investment.
Yeah, Steve I think that we're still in a position right now to say that year over year, it'll be about $5 million higher.
In kind of that sales and marketing spend for for PARAGUARD on a year over year basis, I think that as we end. This year will really be in that spot you know the first year, we hired a much the salespeople we did ads on kind of all the TV stations. If you will in the near Metro area Northern Cal now this year, we have a lot of salespeople in place.
We're doing the TV ads more on a cable basis I think is like 10 or 12 cities around so we'll be able to look and see with some detail around where we most successful in the markets, where we have salespeople, where we don't.
How successful, we where we where the targeted marketing being I, just cable versus being a national channels and so for US I think this is this is a really good an important year for us in terms of pair guard next year. No reason next year should be a good variguard year for us and may be extra good depending upon what we end up doing from an expense.
Perspective, but but I think it's this year will give us those answers.
Got it thanks.
Yep.
Thank you and I'm not showing any further questions. At this time I would now like to turn the call back over to outweigh President and CEO for any further remarks.
Great. Thank you good questions and good discussion today so.
Thank you very much thank you for calling in and so forth than we look forward to talking to you again on our next quarterly call here in a few months that's it. Thank you.
Thank you ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect.
Yeah.
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