Q3 2020 Cooper Companies Inc Earnings Call

[music].

And just the mine. Thank you for standing by and welcome to the Cooper companies' Inc. third quarter Twentytwenty earnings call. At this time, all participants are not listen only mode. After the speakers presentation, there will be a question and answer session.

A question during that portion of the call you want me to press Star one when your telephone. Please be advised that today's conference is being recorded I would now hand to conference all work Stoking <unk>, Vice President Investor Relations and mix management. Please go ahead.

Good afternoon, and welcome to the Cooper companies' third quarter 2020, <unk> earnings Conference call.

During today's call we will discuss the results included in the earnings release and they use the remaining time for queuing up are centered on today's call or a white, president and Chief Executive Officer, and rainy Andrews, Chief Financial Officer and Treasurer.

Before we begin I'd like to remind you that this conference call contains forward looking statements, including all revenue and earnings per share guidance and other statements regarding anticipated results of operations market or regulatory conditions and integration of any acquisitions, where their failure to achieve anticipated benefits.

Forward looking statements depend on assumptions data or methods that maybe incorrect or imprecise and are subject to risks uncertainties.

And then that could 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 caption forward looking statements in today's earnings release in are described in our FCC filings, including Cooper's form 10-K, and form 10-Q filings all of which are available on our website at Cooper code.

<unk> Dot com.

Sure do you have any additional questions. Following the call. Please call learned Dr. line at nine to 5.46036 to six three or email I are at Cooper called Dotcom and.

Now I'll turn the call over to out for his opening remarks.

Thank you Kim and good afternoon, everyone. There are number thanks to cover on today's call, but let me start by saying our businesses are performing really well.

Improved as we move through the quarter and that momentum continued in August before getting into the detailed I want to first congratulate damage bride and the entire CVI organization for their performance during cold it with our relatively strong June performance of down 3%, we had key milestones, including increasing our global market share.

And at 25% and becoming the number to contact lens company in the world. The team is executing at an incredibly high level right now driving our key strategic initiatives have expanded key account relationships launching new products upgrading distribution capabilities and expanding manufacturing combining this with our structure.

Or to the independent optometrists are extremely high customer service levels and the recent U.S. launch of the most innovative contact lens in the world My side, we remain in a great position to continue taking share.

Moving to the numbers and reporting all percentages on a constant currency basis, we posted consolidated revenues of 578 million in Q3 with coopervision revenues of 449 million down, 11% and Coopersurgical revenues of 129 million down 24%.

Non-GAAP earnings per share were $2.28.

These results were stronger than expected as both businesses bounced back nicely from Kobin lows. Our strike continued in August and we've incorporated that in our guidance, which Brian will cover later in the call.

For Coopervision, all three regions posted improving performance as we progress through the corridor with both June and July being down low single digit for the full quarter. The Americans in Asia Pac were down 9%, while EMEA was down 15%.

These results were better than expected as a strategic initiatives we've executed on over the past couple of years really show their value during these challenging times.

We're also seeing a halo effect from my side watch, bringing attention to our other products the positive activity in our daily silicone hydrogel and Biofinity franchises.

Outside of Coopervision specific drivers, we've seen consumption improve their consumers returning to more normal worrying habits as social activity picks up and as video conferencing gains traction.

Looking ahead to the fall, including back to school activity. We believe the market will be stronger than we were previously expecting parents are concerned about their kids screen time and without online education, increasing their proactively addressing their worries about scheduling eye exams for their kids.

Digital Eyestrain is an issue for a lot of children, but also adults I screen time in video conferencing has increased significantly.

This issue causes headaches in problems, focusing and is therefore, something we all need to be attentive to.

In conjunction with improving consumption, we're incredibly busy with product launches, including my day sphere, and tour, which are being launched or relaunched around the world.

Today, it's been in high demand for a long time, so it's great to be selling this premium daily silicone hydrogels lands in an unconstrained manner. We're also successfully continuing our global launches a biofinity toric multifocal and clarity is extended daily torque range.

And lastly, my site is in launch mode, and I'll cover that in a minute.

With all this going on with new offerings in the pipeline coming will remain extremely active for quite some time.

Moving to some quarterly numbers biofinity and Avaira combined to be down 8% in the quarter with strike noted and Biofinity toric and Energous.

You May remember Biofinity energen is a very unique lend using digital zone optics to help alleviate I fatigue from excessive screen time, it's a perfect fit in today's world and it showed a nice pop growing 4% in the quarter.

Meanwhile, our silicone hydrogel dailies were down 11% rebounding nicely as a quarter progress, including growing in July with notable strength the myday to work.

With this activity, we've seen channel inventory rebound and expect to be back to pre cold and levels by fiscal year at.

Moving to my side the D. The team has done an amazing job as the only after FDA approved myopia management contact lens clinically proven to slow the progression of myopia in children interest is incredibly high.

We far outpaced our initial estimates with over a thousand optometrists in the U.S. now certified to fit my site with many more and process.

With this success, we just launched an exciting multichannel direct to consumer advertising campaign, including partnering with well known actress server Michel Geller as our celebrity spokesperson.

This initiative is already accelerated consumer interest in my site and it's being received incredibly well by optometrists.

What's most exciting it's every creating a new category myopia management is in its infancy, but it's not to become a brand new multi billion dollar category and we're at the forefront regarding the total addressable market. If we narrow the market to just eight to 12 year old which covers the FDA approval from my side, we asked.

I made the U.S. myopia management market to be around $1.5 billion from a manufacturers perspective.

Now behind US is pretty straightforward in the U.S. roughly 40% of people are myopic and we conservatively estimate the percentage of myopic children ages eight to 12 to be 20% as many kids become myopic in their teenage years.

There are roughly 20 million children between the ages of eight and 12. So this equates to 4 million kids being myopic.

All these kids would benefit from myopia management, but based on household income in the current lack of insurance.

Reimbursement, we estimate roughly half the kids are candidates.

This creates a total addressable market at 1.5 billion in the U.S., assuming an annual price a $750 for myopia management programs such as brilliant futures.

Which includes the my side specialty lens and accompanying support including training Geo targeted marketing and a dedicated myopia support specialist.

Adding Europe and the rest of the Americas increases the total addressable market to roughly 2.5 billion and adding Asia Pac where the prevalence myopia. Among young children is considerably higher takes a total addressable global market well over $5 billion.

These numbers do not include teenagers. So they may be conservative, but they appear reasonable for contact lens programs such as my say anworth. Okay. At this time.

Looking at these estimates you clearly get an appreciation for why we're so excited about creating that's new category and why are seeing optometrists now I'll talk about pediatric optometry as a new market similar to what you see what pediatric dentistry and.

And remember everyone knows myopia needs to be corrected in order to be able to see but more and more people are becoming aware that it needs to be treated to reduce the higher risk of serious eye diseases, including retinal detachment cataract and glaucoma.

Regarding sales, even with cobot challenges, our myopia management portfolio, including my site and worth Okay lenses grew 15% this past quarter to $9 million.

Within this my site grew 35% to 1.6 million.

With the U.S. My site launch now fully underway, we expect solid growth in Q4.

One additional point to highlight regarding myopia management and specifically my side is the positive impact we're seeing from telemedicine.

I Hope you management consultations involve a lot of early stage dialogue with parents that can easily be handled via virtual consultations, which is actually extra important today would kobin restrictions. These virtual consultations have been conveniently helping families I understand what myopia is how it progressive and the critical need for treatment.

To conclude on vision, let me touch on market data for calendar Q2, the market felt the impact of coded and was down 32%, while we were down 27%.

With this outperformance our global market share increased to 25% and we posted record shares in all three regions, including strengthening our number one position in Europe. We also posted extremely strong new fit data, which bodes well for the future. This is a testament to the hard work of our team and the strong execution on our multi years.

Strategic investment plan.

Regarding future market growth the underlying dynamics driving our market remain in place and may actually be increasing with the macro trend of higher screen time.

The key for our market remains myopia, where its estimated roughly one third of the world is now myopic with that number expected to increase the 50% by 2050 combine this with a continuing shifted daily silicone hydrogel lenses. The trade up from legacy Hydrogels silicone Hydrogels geographic expansion and growth in tour to multi.

Focal and our industry has a bright future.

Moving to Coopersurgical, we reported revenue of $129 million, although down 24%, we solidly exceeded expectations and a challenging market environment, even more encouraging both the fertility and office in surgical business segments posted improving results as we proceeded through the quarter and into August.

Within office and surgical our flagship brand PARAGUARD saw strong rebound as offices steadily reopened paragon replacement activity increased over the course of June July and we've seen that activity continue in August so we expect a solid Q4.

Elsewhere, we've seen deferred elective procedure steadily rescheduled and our medical device sales rebounded nicely. In particular are focused products are performing solidly such as Vince or our patented surgical scan closure device and Endosee advance our direct visualization system for evaluation at the endometrial look.

So causes of abnormal uterine bleeding.

These products were down only slightly for the quarter and we expect stronger results moving forward, especially with Endosee advance as a capitalizes on the trends of physicians and patients preferring to in office setting to an over our visit.

All this success is a testament to our R&D group's ability to continue developing innovative products and our hard working sales teams.

Moving to fertility, we were down 26% for the quarter slightly better than expected.

Until the clinics and largely reopened around the world and we're seeing some really positive trends patient flow is improving and the market is starting to address pent up demand, including through the use of Tele medicine with this we believe we'll see cycles return to normal in the U.S. and Europe by year end with Asia Pac following in Q1.

Adding products, we saw a nice rebound in our consumables such as media pets as a quarter progress.

And our genomics business actually grew nicely in July.

These trends continued in August of this belts bodes well for our business is strengthened considerably in Q4.

Moving forward will continue to focus on in office and virtual sales and marketing training sessions, adding sales personnel, where appropriate and expanding our product offerings.

Utility remains a long term global growth business were very positive trends. So we'll continue investing in this space supporting our market leading position.

In conclusion, our businesses are performing well and we're optimistic we'll continue to see improvement driven by our strong product portfolio, including some unique products like my site Biofinity energize, our ortho K lenses and Endosee advance with that I'll turn the call over to Brian.

Thank you Alan Good afternoon, everyone. Most of my commentary will be in a non-GAAP basis. So please refer to today's earnings release for a full reconciliation of GAAP to non-GAAP results.

Our third quarter consolidated revenues decreased 15% or 14% in constant currency to $578 million.

Consolidated gross margin decreased year over year to 66.3% from 67.3%.

Primarily driven by lower PARAGUARD sales and higher expenses associated with coated partially offset by positive product mix of coopervision.

Coopervisions gross margin decreased to 64.8% from 65.6%.

Coopersurgical is gross margin was 71.5% down from 72.4%.

Opex is down 5.8% year over year, resulting in consolidated operating margins of 23.2% down from 28.4 present last year.

Despite the top line pressures our performance exceeded expectations as we effectively managed expenses.

Setting higher quarter related costs.

We did this while supporting our employees funding higher my site and PARAGUARD advertising programs and maintaining investments and internal projects such as such as upgrading our IP infrastructure.

We will continue to closely monitor expenses balancing the costs against investment opportunities.

Interest expense for the quarter was 5.7 million driven by lower interest rates.

The effective tax rate was 14%, reflecting the geographic mix of income and lack of auction activity.

Non-GAAP EPS was $2.28 with roughly 49.5 million average shares outstanding.

And the year over year FX impact for Q3 to revenue and EPS was a negative 3.3 million.

And a positive three cents.

Free cash flow was six cents $68 million comprised of $113 million of operating cash flow offset by 45 million of Capex.

Net debt decreased by $67 million to 1.75 billion.

And our adjusted leverage ratio was 2.23 times.

Given we're approaching the end of our multiyear capital expansion project, we remain very comfortable with our current and expected liquidity and leverage.

Moving to guidance for Q4.

Regarding to consolidated revenues of $665 million to $693 million.

This includes coopervision at 500 to 520 million, which is minus two to plus 2% on an as reported basis were minus four to flat in constant currency.

This incorporates our strong Q3 and tough comp from last year, which included 11% growth in Asia Pac from buying associated with the Japan VT increase.

For Coopersurgical regarding to 165 to 173 million, which is minus nine to minus 5% as reported or minus 10 to minus 6% in constant currency.

It's also incorporates our strong Q3 and tough comp from last year, which included 12% facility growth.

Non-GAAP EPS is expected to be between $3 in $3.20.

And with that I'll hand, it back to the operator for questions.

Thank you and that's our reminder, ladies and gentlemen, you have a question just press Star then one to getting the Q2 remove yourself from the Q just press the pound hash key and then interests US time, we ask that you. Please ask one question and one follow up.

Our first question is from Larry cash from Raymond James. Please go ahead.

Thanks.

Good afternoon, everyone.

I guess.

Al maybe.

Just starting with a question on Rebating.

You know obviously that's been.

Stable for some quarters now and saw a little bit of movement.

In this most recent quarters. So just just wanted to get some sense of kind of how you're thinking about rebating activity out there and are you still thinking that that net pricing is actually still positive.

Yeah Larry.

When we're talking about Rebating.

Asked majority what we're discussing here and what you're referencing I believe is associated with us on consumer Rebating. So it's a relatively small part of what occurs on that on a global basis from a pricing perspective, but there wasn't activity during the quarter from one of our competitors.

I guess all I can say is when you look at that I'm not going to comment on on their strategy behind why they decided they wanted to give up profits, but for us we have a pretty strong product portfolio. Obviously, we're gaining market share we're doing really well what we have in the marketplace.

And rolling out new products, and we're excited about where we stand. So we feel like we're in a really good position. So I don't have much debt to comment on that other than just we're pretty happy with our position and where things are going okay, perfect and then I.

I just secondarily just again can you I guess kind of a two part question just talk a little bit about kind of how you're thinking about your.

Manufacturing capacity for from Myday, toric kind of where that where that sort of sits right now and then I guess along with that.

There was about 22 million adjusted out of Cogs for for co that in this quarter very similar to the to the levels in the fiscal Twoq you. So does that imply that the production lines are still idled.

And do you where do you stand versus the last call. When you expect to those expenses to start to decline in the fiscal fourth quarter.

Yeah sure so from a production perspective weren't really good shape right now we're definitely in good shape with Myday and included including Myday Toric as we talked about.

We ramped up at a number alliance here over the last couple of quarters and production is ramping up nicely. So we've continued with full production on my day I think we'll continue on full production I don't see us.

Stepping back with respect to Myday production based on the demand, we're kind of seeing around the world.

With respect to the call outs from the quarter, Yes, we had that a number of coded related call outs associated with some specific co bid related actions that we took if we had an employer someone who is infected and we had to take actions and we also proactively initiated an inventory control project and.

That does not taken some lines down so those were the cost that were incurred associated with that we do not anticipate having any of those kind of cost occurring in fiscal 21.

Okay perfect. Thank you.

Thank you. Our next question comes from Larry Biegelsen Wells Fargo. Please go ahead.

Good afternoon, Thanks for taking the question and congrats on the.

Good quarter in a tough environment.

Now let me let me start with.

CVI.

First you how much should restocking contribute to fiscal Q3 do you expect that to continue in Q4.

Will you provide us out with.

The growth rates in July and August I heard you say June July was down low single digits, but give us a specific monthly growth rates and.

You know maybe this is nit picking a little bit al but.

On the Q2 call you said you you would be flat to up slightly.

For CVI in Q4, now you're guiding to negative 4% to flat on a constant currency basis. Despite the fact.

You did a little better.

You did a lot better in Q Q3 than than you expected so why the slightly lower.

Guidance for Q4, and I guess I'll drop out given the multi part the after that given the multipart question. Thanks [laughter]. This is a multipart question.

First off thanks, Larry I was a good quarter. So appreciate that.

On the restocking some of it is a little hard to get your hands around you know as you go down in doctors' offices, and so for it but I think it would be fair to say that we probably had about half of that restocking.

In this past fiscal quarter. So in fiscal Q3, I think we'll get the rest of the stocking that we lost in Q2 back during Q4, so kind of split the two of them and to have to some degree.

If you look at June July August June was down 3%.

July was down 2%.

I'm not going to get in that specific.

Monthly numbers going forward, because I'm not sure. That's a good thing to keep doing we did it because the covet and so forth, but I guess I will say that for August.

[music] provision and Coopersurgical, both grew year over year.

On a constant currency basis.

So obviously good news there.

If you look at the Q4 guidance for Coopervision, Yeah, I was talking about fighting hard to get back to flat our guided shows minus 4% flat on a constant currency basis up a little bit without currency.

As reported.

I think part of that frankly, just goes to we've seen consumption increase and an increase faster than we were anticipating which is great news right, but that did pull some of that channel inventory fill into Q3, So let's say that we were thinking.

Hi, seven 8 million something in Q3, we ended up I would probably 10 million extra channel fill that moved from Q4 into Q3.

That you don't have that is as an easier way. If you will to report the stronger Q4, having said that I will take all day long the pickup in consumption and improvement in the marketplace.

Got it thanks, so much guys.

Yep.

Our next question from market Michele on with Keybanc. Please go ahead.

Great. Thanks tickets questions and then very nice quarter.

Well I just want to get back to.

The Cps and the you mentioned that parents were proactively scheduling Mike Hi time.

Youre out your performance seems to be outpacing.

The patient visits to the CP is kind of what do you. What do you think the capacity for Sep is are at versus a pre called the level and like down low single digits. It just seems it just seems like you're well ahead of where the each DCP is our.

With visits.

Yeah, I think so because I think right now.

DCP offices are opened there basically all open right now now there are different degrees in terms of how many patients are seeing.

Very significant percentage of them are back doing new fits so thats. Good news then they're not at the same level they were historically, but but theyre back doors opened patients coming in new fits occurring so a lot of positives from that perspective.

Yes, our performance is.

He is.

Is better than that if you will that's coming from share gains and we kind of saw that in calendar Q2, I believe we're continuing to see those share gains right now and I think that that goes back to what I've talked about over the last couple of years right watches, which has been more tied to our own strategies and I know a few people may eventually from.

Great again every quarter I get on I talked about distribution investments and product launches and that kind of stuff, but if you look at what we've accomplished over the last couple of years and where we are with key account relationships. The focus that we put their right when launching the new products with upgrading those distribution capabilities. So we can ship product directly to.

People's homes, and what we've done in terms of expanding our manufacturing. We're just in a really good spot. So so yes, the markets coming back and we're taking share in that market and when you look at some of the unique products. We have like Biofinity Energy Center Ortho K lenses specialty lines and so forth. It puts us in a really really nice position to continue.

And that's the last point I'll touch on which is where launch in my site, we're having conversations with a lot of optometrist about my side and we are starting to see that Halo effect, where you are having those conversations with what you're able to talk to him about your other product.

Excellent and I was just as a follow up to that I think you mentioned that you had new offerings and in the pipeline coming I guess, where do you where do you think you have portfolio gaps.

On the contact lens side, and how do you think it makes sense to migrate energous down to the dailies.

Yes, good question.

I'm not going to get too much into the pipeline I mean, we have some new products that will be coming out.

We also have some expanded things like the expanded toric range, we have going out for clarity right now so I don't want to get too much into that from a competitive perspective other than to say that the backlog is pretty good right now and you'll be seeing more products coming.

Great. Thank you very much.

Yep.

Thank you. Our next question is from Jeff Johnson with Baird. Please go ahead.

Hey, Thanks, Good afternoon, guys. So I wanted to talk about that you said August up a little bit for CVI sounds like ER positive territory. So you can probably your my dog darken perfect time here as I started my questions, but sorry about that but.

In August talking to flat to down 4% for the quarter.

That's just conservative.

Conservatism in there is that how we should think about that and how do you reconcile I find it interesting in the eye care business data I don't know if you follow that but they talked about June and July down four or 5% as well.

Within a little bit worse in August and you guys are obviously bucking that trend, but has there been some backlog in June and July that's helping that that might ease out a little bit over the next couple of months, just how to think about kind of the backlog versus.

Normalized demand.

Yeah, I think the backlog, helping a little bit right because we did see some of that pull out of inventory in Q2, and it's good because consumption has picked back up.

Thats, a situation where distributors retailers need to order product backup and softer shell so.

We have not really seen a pull back in terms of the marketplace right now so when you look at fitting going on our new fitting.

I am speaking with respect to our products again, I think where we took share I think we're continuing to take share. So.

I can't really comment on that on the marketplace, but I can tell you if things continue to to move into right direction for us.

If you look at Q4.

I, certainly don't want to say conservative and I guess I'd say that for two reasons, one covance still exists and it's still out there and they are still spikes and so forth. So I think you still need to take into consideration to the potential for some disruption associated with covert around the world.

And the other one I would mention is.

So as that comp, we did 7% last quarter and including we had some by in September last year in Asia Pac because of that VA increase in Japan. So.

We'll see how it plays out I mean, I'd love to be able to tell you. After the fact that was conservative but right now I think thats probably pretty reasonable.

Guidance.

All right. That's helpful. And then my side are you still think in 70 million I just don't remember what the number is 1.5 million this quarter what that brings the year to date number two and then Brian just to make sure. If there any tailwind from the see any acquisition you did in the quarter for CVI or is that too small to really matter.

Yeah on my side or what are we at or around four and a half for the year. So.

Yeah, I still think we have a chance to get into that seven to eight range based on how successful things are going right now.

You would think that new fit with the way new fits our and so for it that would be impacting it a lot more than it is but we seem to be kind of plowing through some of that from a physician's perspective. So I still think we can be in that seven day range and then I still think will be $25 million or so in my site revenue next year.

I think on the acquisition, you're talking about CP specialists, the GP GP specialist that one you're talking about yes, I'm, sorry, yes, yes specialists I'll see any but yes things like sorry, Hi, I said, okay, yeah on the product.

Yes, so we acquired that business at the beginning of August for about 25, looking at Brian 27 million something like that it will add about a million dollars of revenue per quarter.

Thank you.

Thank you operator next question is from Jon Block with Stifel. Please go ahead.

Great. Thanks, guys.

Nice quarter I'll start with mine site.

One question with too quick to adds to it.

The first is just you did a good great job, bringing down the markets in the market size what would it take for you guys get label expansion beyond the 12, you mentioned, a pretty big chunk sitting the teen years. So how do we think about your ability to go.

Turning to 18 over time and then you also talked about the Halo effect and I get it. It's early but is there any data that you have on for my side adopter, what their overall CVI growth rate is versus call. It the nod my side adopters and that I've just got a follow up thanks.

Yes, so getting the label will be on eight to 12 will be a little challenging here just in terms of where we are from a critical perspective now we're doing a lot of R&D and clinical work and so forth and we'll have we'll expand out the product offering and so forth, but I don't think we'll be seeing a label beyond eight to 12.

For a little while but keep in mind two things one that's here in the U.S. market per the FDA outside of the U.S. you don't have that restriction.

And then even here in the US based on some of the initial city fitting because we already have hundreds of kids in the U.S. already wearing my side and.

Doc could fit it off label if they wanted to.

With respect to the Halo effect, it's still really early here in the U.S., we've seen some of that Halo effect outside of the U.S., we're seeing at some here in the U.S. in terms of conversations we're having because we're getting sep is wanting to talk to us wanting to have a dialogue about what is my say how does it work how do I sell or how do I bring that into my pack this right how to.

How do I just might a practice to accommodate my side, how do I incorporate tele medicine into that sale, all that kind of stuff, which you can imagine when you're having that dialogue with them. You're also taking the opportunity to talk about your other product. So.

There's no question there is a positive halo effect there, but at this point of time I don't really have numbers to be able to give you get that specifically point too.

Okay got it fair enough and then.

Second question is just.

We talked about CVI last quarter, you talked about three distinct headwinds there was inventory was consumption. It was new bids and you mentioned about sort of clawing back to normalize inventory between Threeq and Fourq you consumption is just partially dependent on cobot and then there's a new fits I guess, where I'm going with this is with most of the practice opening when we look to next year without.

Your fiscal year or the calendar year, two we revert back to normal growth rates inventory should be trued up by the end of the fiscal Fourq to what we think out to fiscal 2001 or calendar 21 for you or the industry. We think about a reset in the market sort of reverts back to that mid single digit in mid single digit plus.

Great. Thanks, guys.

Yes, I do think it can I mean, you're gonna have inventory work itself back here as we talked about the kind of take that off you look at consumption. I think we were all concerned about consumption to some degree people working from home and what was going on you know what we've seen more recently here over the last couple of months as as one people going back to work our office here is proud.

Really.

Third to have filled up on most days.

But the other thing you're seeing is the video conferencing you do video conferencing now in our company at least in I think it's true in a lot of places.

You are on the screen. So it's not a conference call. It's a video call. So the same reason that people weren't caused.

Lenses for cosmetic reasons, there now wearing them because they're probably even more conscious about how they are looking than they were even coming into the office. So thats helped there's other anecdotal stuff you talk about.

Glasses Fogging up as an example, right I mean, so you're seeing contact lens wearers actually where their contact lenses more because they're getting a noisy glasses fogging up and you think that's only going to be worse in many parts of the country as winter gets here. So so I think theres. Some part there is obviously negatives on consumption, but theres positives on consumption that.

We probably weren't anticipating new fits or are definitely coming back up there's been some pent up demand on new fits we've heard that we've seen that into research that we're doing out there and especially among your teenagers your younger group of people. So.

Covance still out there it's still exists right, it's still a challenge and a lot of parts of the world in some markets coming back. So I certainly don't want to get ahead of ourselves, but but I do think as we move into next year, depending upon when it is during the year, you're going to see contact lenses move back to back to normal growth rates. If you will.

Got it very helpful. Thanks.

Thank you. Our next question comes from Anthony Petrone with Jefferies. Please go ahead.

Hi, Thanks, and maybe to follow ups there the John's questions. One on on on CV I'm. Just wondering what was the benefit in fiscal screen cue from new fits specifically associated with back to school.

And just how is the back to school season, playing out I guess in fiscal for Q and.

How much of that is reflected in that guide and then on margin expansion. Just just a follow up there would be you mentioned that.

Obviously some of the benefit was cost control how much of the cost control is sort of completely executed or is there more cost control efforts.

That or are still available to the company. When you look out the next 12 months should the cold mid cycle sort of extend thanks.

Sure.

I'll answer the first one give a shot in the second one that Brian atrophy. If he has color you want that.

It's tough on the back to school side of things I mean, where we were sitting at one point months ago thinking that that was going to be close to zero.

Back to school has kind to turn to you know if anything back to learning. If you will right, where you are seeing people online and learning on line and what we've seen from a lot of people and kids right. It is everything that goes along with that the headaches that digital ally fatigue, and so forth and parents reacting by calling optometry.

Yes, then and asking them about that so.

The decline that we saw that we thought we would see has not happened, it's really hard to get specific numbers around that but it's clearly better than we anticipated it was going to be and it seems to be holding that way with parents concerned about their kids eyesight.

On margin expansion or on an expense control. If you will I mean, I think we did a really nice job well I know, Brian did a really nice job and the team here in terms of of controlling expenses. Some natural some controlled if you will.

Not sure Theres quite that much more to do but I think we're in pretty good place with our expense control I'll, let Brian add to that yes, theres not much to add to that and we were down $5 million sequentially and $53 million more revenues.

We'll have some isight investments that will hit us in Q4.

But I.

I think we've we're in a good place and nothing really that though.

Thank you.

Thank you our next question.

Schooling Stephens. Please go ahead.

Thank you.

Regulations, the girls really solid quarter.

I think this also includes a little bit Coopersurgical we.

Maybe go back on that list. This I apologize, but talk about the growth that you saw on for guard negative in total.

Quarter, we think about CSRA as a whole license or abroad as a whole coming back into the most.

Sure.

You think that's kind of and along with historical expectations for growth are you starting to see more of a natural work I'm just curious about.

Let's think about the normalized growth rate per per guard.

Longer term I'll. Just go ahead now welcome my second on.

Provision.

Just following up as well the matts earlier question or can it just has been around for a while.

Thats great product.

Should we expect to see maybe higher marketing around that kind of reintroducing it.

You are correct listeners on this kind of curious what this more color provide around.

<unk> increased focus on into this brings the first come up or do you called us going out and.

So quite a long time. So this one of your little bit more those wells.

Yeah, I'll touch on that when first you know it's interesting we talk about a.

Digital I fatigue with kids, because they're doing social media or tick tock or video games and all that other kind of stuff. They do another third doing their school on.

On video, but it happens what parents also obviously you know word we're on screens and doing all of our stuff and then we're also we're doing stuff and now we're on zune calls and whatever else all the time.

That's what Biofinity Energous is about so yeah, I mean, it actually grew in the quarter, which was a pleasant surprise I I don't think you're going to see really higher marketing. If you will from us associated with it but you'll certainly see us reminding people that it's out there I mean, they know that it's out there because sales are growing but but putting a little emphasis on it and just say hey, guys. As a reminder for those.

Have you are not fitting energous for all those people, who are calling and talking to you about digital I fatigue, and some of the issues you're having this is a perfect product for them. So yes that products doing really well, we launched it probably two three years ago, something like that and it's done fine, but it's clearly doing better now and.

I guess, if anything right Cove. It is like upside if you will for a product like biofinity enter just bringing attention to it.

On Paragon I mean, we were down on on PARAGUARD for the quarter.

We were down 28% for Q3, because basically we had no sales in the first month at a quarter and that everything kind of pick back up as I talked about the channel inventory came back we'll see the rest of the channel inventory come back in Q4, we're already seeing that right now we're seeing placements go back to.

What they were at a pre Kobe level, so were pretty good impaired pretty good shape on paragould I think at the end of the day.

In regard to still be down in Q4, and some of that is because you remember last Q4, we had a re it we had a strong parago quarter, because we did a price increase so we had a buy in for Paragon in Q4 last year. So we have a tough comp on that.

But I think as you move into next year like I would anticipate parago are going back to normal to that kind of the.

True normal in terms of placements and so forth as of mid single digit grower. It obviously do better because it's got a couple of months its comping against where we didnt have sales, but no burger is doing well and people seem to be a little bit more concerned about good health and so forth and that trend in the marketplace.

About focusing on good health is obviously a positive for a product like Parago, which is a non hormonal I'd option and the only one in the market.

Congrats again on a great.

Okay. Thanks.

Thank you Sir our next question from Matthew O'brien with Piper Sandler. Please go ahead.

Afternoon, Thanks for taking my questions, how the Delta between you and the market. This quarter was larger than we've seen an identical relative that because were both down.

But can you talk a little bit about where some of those gains are coming from so we can kind of parse out.

How durable they are.

You've obviously got.

You've got obviously got.

The.

The online retailers picking up and some of your own internal investments, but what are some of the real key drivers are seeing that increase in that Delta and then how durable do you think some of those are especially in an environment, where you've got to be competitor Rebating and another another company coming out with.

Some more and more competitive products.

Yeah, I mean at the end of the day I look at it and say there's in my mind, there's no one more active in the market today with new products, and then coopervision as and I believe over the next year to probably several years there will be no one in the marketplace more active with new products that coopervision period.

So that's how I would answer that one.

From the perspective of sales you know work, we're not big with online retailers. So I think that and without online I'm talking about non fitters were big with Fitters not the kind of the online distributors. If you will write the guys who aren't fitting product so where we were probably heard initially because of that.

As the markets rebounded like when you look at June and July the market rebounded with Fitters.

Right. It rebounded with like key accounts considers and buying groups and so forth, that's where we're over index, that's where we're strong so when I look at kind of durable growth in market share gains I'd say, we grew around the world we posted record market share in all regions around the world and it was driven by the stuff were by what we're doing right were strong with.

Bidders were strong with key accounts I've been talking about all the investments we put in that over the last couple of years were strong with new product launches, where we're doing more and better product launches than anyone in the marketplace right now were strong with distribution I've been talking about that over the years and our capabilities now being able to ship product to people's homes and so forth.

Were strong on that side of things and we're strong on manufacturing, where I've talked about how we reallocated resources to focus more on manufacturing you know that that strategic plan there of focusing on those areas and executing on those areas for long term share gains.

When you had cobot hit and you're coming out of Covidien now all those past investments and so forth, although strategic initiatives are coming to light to show the value behind them and Thats why were taken share and that's why I think that it's a durable that we'll continue to take share.

Okay. That's really helpful and then shifting over to my side again.

The I understand again burning coal that environment, but it looks like you might come up a little light of that seven to eight that you talked about I know everybody loves their himself stellar and everything but.

Getting up to 25 from maybe around 6 million Bucks seems like a big step so.

I know, there's a lot of investment coming in Q4, two but what gives you that come for what have you seen maybe in some of those early accounts.

As far as uptake goes and then how you don't progress is to put together thousand optometrists that gives you comfort that you can get to that 25 million in 21, and now you're still comfortable at 50 million and 22. Thanks.

Sure. Yes, you know when we look at the 25 million for next year.

The assumptions that build to that $25 million are based on what we've already seen in other markets. So in markets around the world, where we've launched the product and as seen success like in Spain in the UK and Australia and so forth.

We did those launches that we didnt have the same consumer advertising programs and so forth, but the growth rates that we saw in those markets are the same growth rates that were assuming we'll see in the U.S. and in Canada and other places now I would think that we could do better because we do have.

Sarah and other direct to consumer programs that other activity and we're seeing a lot of acceleration and interest in new fits and so forth.

We're not looking at some abnormal growth rate or some crazy thing happening. We're just looking at say hey, if we do what we've done in other markets.

Well get up to that 25 million dollar range I think we can do better than that because at the end today. There is enough interest in enough success right now and that I think we can exceed that but.

Theres nothing special there there is nothing fancy there, it's just saying Hey, we just do what we've done in other markets. That's what we'll do and and yes, I would I would confirm the $50 million number because as you break down the Mark and you actually look at the size of the market and is it might say moves to becoming standard of care within the optometry practice and as you see more.

Offices, looking and thinking about pediatric optometry, you're going to see that accelerate and that that market size might seem really dig to some people and say wait a minute can't be that big right, but at the end of the day, you're talking about a product that sells for many multiples of what regular contact lenses sell for you're talking about a product that that has big compliance to it.

That opticians make the most money that they're going to sell out there and that it's a brand new category, we're talking about creating a brand new category I mean, there's already pediatric dentistry will why.

Because the braces because dentist can make money. They don't have to have adults come in they can treat children through braces and other reasons and they can have a pediatric dentistry practice, you haven't been able to have that in optometry, because you're talking about sunglasses well that's not the case anymore now everyone knows about myopia you have kids come in you.

Now because of my site and because worth Okay. You can now have a pediatric optometry practice and be incredibly successful with it that is a brand new market that does not exist. Today. There is no pediatric optometry market other than kids going into a regular doctor's office I. If you start seeing the market move in that direction and you.

Actually start seeing people open pediatric optometry offices to focus on my side, our defocus I myopia management, they're focusing on ortho K their focus and I My site, so and ultimately in glasses and Thats going to help also as we move in that direction. So yeah. I think the 25 millions and play I think 50 million or north of the 50 million isn't.

The next year.

Very helpful. Thank you.

Yep.

Thank you our next question.

Joe on ones with Citibank. Please go ahead.

Good afternoon, everybody and thank you for taking the question.

I'm going up to them both upfront.

The first one has to do with.

Imbursement for my side, if it is being thought of as a treatments do you think at some stage that you might be able to get copper reimbursement for and then my second question is is usually on the third quarter calls you sort of give some broad guidance or commentary about the next fiscal year is there some way that you can.

Frame next year. Thank you.

Sure on a the reimbursement from my side that would really blow up the market around myopia management I think the answer that question ultimately is yes.

I do believe there will be reimbursement for myopia management and my site in particular at some point in the future. We're working on that ourselves as a matter of fact spending money on that process right now.

To be determined on the timing around that but as.

Medical professionals become more and more comfortable with the fact that this is standard of care and this will be standard occurred as a treatment you'll ultimately get to the point, where you're going to have you're going to have reimbursement. So it's just a matter time in my mind.

Yeah 2021, right now, we're not going to give any commentary on 2021.

Im sure you can appreciate that right. We gave guidance on Q4, and we'll get 2021 commentary in December when we get there.

Thank you.

Yes.

Our next question comes from Chris Pasquale with Guggenheim. Please go ahead.

Thanks, one on guidance in a quick follow ups for Brian.

Alan I'm not sure I understand the idea that four keys, and unusually tough comp and I look at the numbers for last year.

You did seven in the fourth quarter that was in line with your full year growth rate.

APAC actually grew a little slower in Fourq last year than either Threeq, you, where the year overall, so what does it about fourq you that makes it an unusually tough comparison.

Yeah, I wouldn't say its unusually tough comparison et cetera.

We did have the buy in.

Japan that created.

Leased a tough comparison from that perspective, but I guess, maybe more than anything Chris the point behind it is that covitz still exists right. It's still out there there's still issues with that there could still be spikes and so forth with it so.

So I.

I don't want to say things are we're guiding conservative or anything by those means because I don't think that would be appropriate to say so I do think that 7% is not an easy comp you look at Q1 as an example, that's a little bit different of historic right Q4 is kind of a more normal slashed challenging comp from last year. So I don't want to overplay that by any means that just kind of highlight that it as one reason.

We're not guiding to growing in Q4.

Okay. That's fair to say is the fourth quarter guidance implies or at least bakes in.

Some increased uncertainty rather than just taking into account known factors today.

Yes, that's a good way to put it correct. Okay. All right. Thanks for that and then Brian You mentioned you coming up on the end of a multi year capex investment cycle can capex actually come down meaningfully either next year over the next couple of years to free up cash there was a time when you are averaging closer to $150 million year versus the more like.

300, we've been at for Awhile now.

Yes, yes, I, absolutely believe that there could be the case I mean, I would expect this year will be our peak year for Capex coming down next year, and then coming down the year after so.

With that comes on free cash flow delivery and I would expect free cash flow to go up.

Great. Thanks.

Thank you are in our next question. Please.

Steve Williams, who could ramp research. Please go ahead.

Hi, good afternoon, and thanks for taking my question I have two.

First as a follow up so a question Jon block is rich, yes, sort of changing consumer where trends.

Right.

Some other things potentially change to your business as the industry because of the Covance.

First.

And.

The purchasing on purchasing an annual supplies and then secondly seems like there's been a shift over the last six months.

Correct shipping just wondering what your thoughts on that.

And what impact that could potentially have.

Yes, the third has just.

And then the impact because the coconut as it relates to.

Hey, Thanks switching.

Hi, contact lenses less frequently because of a desirable location and the position I guess accretion and it out a practice and then.

One question My second question, let's just do you have any concern over any potential or.

Matt by patients want to use up their vision benefits.

Prior to potentially losing their jobs later on fourth quarter.

Sorry, Carl question, but I appreciate it yes, yeah, no or its Dave.

I don't know about a pull forward, we're not anticipating that every year, there always seems to be of a little bit of buying that goes in associated with benefits and people use enough their benefits and so far so.

Im not sure it will be any different this year, we're not anticipating any changes associated with that.

When you look at some of the different kind of consumer where China trends right. Some of the changes that have been happening out in the marketplace I talked to Biofinity enter just as an example of a nice pleasant surprise for us, but you look at some of the other stuff out their annual supply purchases, that's mostly a U.S. thing it gets driven by those rebates right, but it's more.

Finally, U.S. is not so much the rest of world and even in the U.S. It it's not that big of a number but we havent seen much of a change there so.

From where we were running to where we are today I I wouldn't really highlight it any real changes in that and I don't know, maybe there's like a push and pull there between some higher rebates, but people holding on to some money a little bit, but we haven't really seen a lot of changes on that side of things the direct to patient shipping.

I do think that that's a differential we saw a very significant spike in that around the world. We we've seen that come back.

As people are getting out and are going to their doctors offices, and so forth and I think we're all the same right. I mean every single one of US wants to help people we want to help small businesses. So when you go into your Optometrists office you are probably more likely to go ahead and purchase product from then maybe even though it's not the best deal you can get but you still want to help that the dock out you want to help.

Physician out that you're going to Rightside I think everybody is a little bit more willing to do that now having said that whether they're getting the lenses. There are shipped at our house Thats a different question I think that were on the forefront in terms of our ability to do direct to patient shipping.

We are willing to do that we've taken the financial hit associated we're willing to do that as we ramp up.

All those efforts and eventually leverage all the infrastructure that we put it but I think that that continues the director shipping think continues because you just get more packages in your home right from.

From Amazon and targeted and whatever else minus we'll get it from coopervision.

Patient switching less yeah, I think so it's a hard time to launch new products.

It's a hard it's hard to get fitting sets into doctors' offices, and so forth right now they like what they like it's been a little easier still challenged but a little easier with a product like my day, because they know it they love. It. So we then have it a little easier time launch in Myday Toric remember, we did a launch of that but we probably only did.

20% launch or something like that so we have a long ways to go we're having a little bit more success getting that product out there.

You are seeing a little bit less of of some of that kind of pace and switching but I think from that perspective, we happened to be in a pretty good place because the products that we are launching and putting out there expanded range toric all that other kind of stuff.

Our maybe it's a change maybe the patient switching lenses per se, but they're still wearing clarity or they are still wearing myday right. There go myday spirit of Myday for it that that's the kind of switch than we are seeing.

Gotcha, Thanks, very much that's very helpful Yep.

Our next question.

The plan with Oppenheimer. Please go ahead.

Thank you hi, guys.

I was wondering if you could give us an update on your key account work.

You alluded to it earlier course.

I know, it's tough to be aggressive on that front when you're capacity constrained have you been able to really reengage, there now getting better suppliers where's covert impacted that.

Yeah, I won't get into particular specific details, but yes, we have been able to reengage and be more aggressive in terms of our discussions that we're having with those key accounts right now.

Okay Fair enough and then just a follow up on.

Utility I think last quarter, you talk about delayed recovery. There you know its office has reopened yet that go through the consultation of course process first it sounds as though your visibility on on a recovery. There has has improved proved are you seeing that.

Patient consultation activity really picking up here over the last couple of months.

Yeah, it's picked up really well fertility, we were taking a lot of market share infertility right now so although our numbers weren't that gray right, but we're still we're taking good share infertility were doing really really well in that space right now.

The one thing I would say about that that that's a little bit of a struggle is Asia Pac we havent seen Asia Pac rebound as fast as we've seen Europe and the Americas in terms of fertility clinics opening and traffic coming through so I feel good if I look at the Americas and Europe in terms of analytics opening foot traffic, which we have good Vince.

Ability on our market share gains.

I think that Asia Pac is lagging a little bit you know if you look at it someplace like India. As an example, where we do fairly well and we were getting a lot of growth.

They only have about 30, 35% other I'd be f. clinics opened right now so I think that'll come Theres no reason that doesnt come and NATO opened but thats kind of I was referring to maybe it's more Q1 before you start getting cycles back to kind of free coded levels.

Got it thanks Hal.

Yes.

Thank you and our last question costs from Robbie Marcus.

And then please go ahead.

Great. Thanks for taking the question.

Maybe to start I was wondering you kind of talked around these but if you could just put a finer point on them.

What POWR gard growth in the quarter wise and how much stocking in fiscal <unk>.

Or destocking in fiscal Twoq, you and the dollar amount of stocking in this quarter on what you're expecting guidance in fourth quarter.

I don't think we ever got in any of the stocking numbers on paragraph give the Q3 numbers for that first repair AIRGARD, Yeah, PARAGUARD number for Q3 was 40 or sorry $34 million.

And any anyway, just to frame the impact is it like one or 2% in stocking more meaningful than that just trying to figure out what underlying versus.

Stocking is as we exit the year.

Yes, I guess.

Rough numbers right to say, we're running somewhere roughly in the 15 million dollar a month, so little bit higher than that kind of in PARAGUARD sales and then we didn't have anything basically in April and May So we probably.

We're down about $30 million in sales something like that because of the stocking.

And that's what you're seeing work its way back through right now.

Sorry, I'll I had two separate questions one is CVI stocking and Destocking and the other ways just power guard.

Okay, Yes, so for PARAGUARD that would that did that answer is kind of the PARAGUARD for the coopervision stocking, yes, I think that some of it somebody inventory stocking you'd probably never get back people operate at lower levels more efficient that kind of thing youre going to have some of that happen for a period of time or maybe it takes a while to come back, but I think a what we did get back.

Thank God, we got we got say half of it back in June and July and then throughout fiscal Q4 will get the other.

Whatever that amount as 15 millionaire so back in fiscal Q4.

Great I appreciate that and then just lastly balance sheet is moving to split out as a standalone efficient company.

Can you maybe give us some thoughts on how it if any way that will impact Cooper it off going forward.

Yeah.

I don't know how it would impact us I mean from our perspective, I think bounces around.

8% global market share somewhere in that kind of range right now so no I don't see that haven't much of an impact on us one way or another.

Great. Thanks, a lot.

Yes.

Okay, and I'm not showing any part of that question for next year I would like to turn the call back to Albert wide for his final remarks.

Yeah. Thank you and thank you everyone for caught and taking the time.

I think that the different this quarter from what people were expecting to some degree with some of the pickup in consumption and then a lot of the unique things we have at our capitalizing on some of the real positive trends in the marketplace. You know there there's a big trends that are going on in some new trends that are there you look at things like Biofinity energy as taking advantage of what's going on.

And that the the trend of more screen time, you know you look at my site with Myopia management, and kids and our ortho K products and and what we're seeing with Endosee advance and so forth and lastly would be fertility as another big Mega trend Thats moving into right direction. So we're just in the we have products kind of in the right place.

Right now I feel good about where we are and where the trends are going in the marketplace. So without kind of wrap up I hope everyone has a great labor day weekend and look forward to speaking with everyone in the beginning in December for our next earnings call. Thank you operator.

You're welcome Sir ladies and gentlemen, thank you for participating in today's conference you may now disconnect have a wonderful ball.

[music].