Q4 2020 Cooper Companies Inc Earnings Call
Ladies and gentlemen, thank you for anybody on the call should begin momentarily again, thank you for standing by your probably closer to getting on the tariff. Thank you.
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To eat into rooms, [laughter] domestic independent and welcome to the Q4 2020 Cooper companies earnings Conference call at this time, all participants on listen only mode.
On the taste.
Just.
To ask the question is that something that's far than me on on your Touchtone telephone.
As a lot of today's topic on these me on record.
I would now turn the call somebody Whos care docking Vice President Investor Relations with management Ma'am you may begin.
Good afternoon, and welcome to the Cooper companies' fourth quarter and full year 2020, <unk> earnings conference call. During today's call. We'll discuss the results included in the earnings release, and then use the remaining time for acuity.
Our presenters on todays call on a white, President and Chief Executive Officer, and Brian Andrews, Chief Financial Officer on Treasurer.
Before we begin I'd like to remind you that this conference call contains forward looking statements, including on revenue and 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 from.
Each other forward looking statements depend on assumptions data on methods that maybe incorrect or imprecise and are subject to risks and uncertainties events that could cause our actual results and future actions other company to differ materially from those described in forward looking statements.
I set forth under the caption forward looking statements in todays earnings release and are described in our FCC filing, including Coopers form 10-K, and form 10-Q filings all of which are available on our website I Cooper comes dotcom.
Should you have any additional questions. Following the call. Please call Investor line at nine to five or six year old Threesix sixthree or email I on like Cooper go Dot Com and now I will turn the call over to al for his opening remarks.
Thank you Kim and welcome everyone to our fiscal fourth quarter Conference call. Let me start by providing some key takeaways first we continue taking share in the global contact lens market with coopervision being flat for calendar Q3 against the market being down 3% wearing success with our strong daily silicone hydrogel portfolio.
With unique products like Biofinity, energous and with several product launches second coopersurgical outperformed what fertility PARAGUARD and medical devices, all exceeding expectations in particular, we're taking share in the fertility market, where we're seeing strong momentum.
Third our myopia management portfolio comprised of my site and Ortho K lens is performed extremely well, including my site being up 73%. So we're taking share marching products and investing intelligently, including helping expand the pediatric optometry marketplace. Our teams are executing at a very low.
High level, and we expect that to continue.
Moving to the numbers and reporting all percentages on a constant currency basis, we posted consolidated revenues of 682 million in Q4 with coopervision revenues of 506 million down, 3% and Coopersurgical revenues of 175 million down 4% non-GAAP earnings per share were three day.
Hours and 16 cents.
For Coopervision, the Americas were up 3% led by strength in my day, and Biofinity, and some rebound and channel inventory of roughly $10 million a.
EMEA was down 6%, which included corridor and purchasing delays from several large accounts as the region returned to more restrictive COVID-19ien related Lockdowns in October.
Asia Pac was down 8% with coated related softness lingering longer into the quarter than we were expecting.
To add a little more color on Asia Pac, we're well positioned in that region and taking share, but the market has been sluggish.
We are becoming more optimistic though as we saw a pick up in October and November driven by strong my day sales.
Overall for the full quarter revenues came in roughly where we expected we called it continuing to present challenges, but we're managing through it and taking share by executing on product launches and expanding our key account relationships.
Moving to some additional quarterly numbers, our silicone hydrogel dailies were up one per se in Q4 led by strength in Torics and a strong rebound in my day sphere sales, we're seeing daily silicones as the clear winner right now as health and wellness trends continue to drive adoption and this bodes well for us given our strong portfolio.
Additionally, we are now fully unconstrained on my day, So we're able to aggressively launch the product around the world, especially the torque which is still relatively early in its launch stage.
Biofinity and Avaira combined to be flat for the quarter with strike noted and Biofinity toric and Energous.
Other just continues to be a strong performer growing double digits. It was launched a few years ago, probably a little ahead of its time, but its innovative lens designs that use as digital zone optics to help alleviate iPad t. from excessive screen time is certainly catching on now as it's addressing an important need on today's digital world.
Moving to our product launches, we remain incredibly busy with my day sphere, and toric being launched or relaunched in many markets around the world Biofinity Toric multifocal and clarity is extended daily toric range continuing their successful launches and the launch from my side.
One point to highlight is how incredibly active we are in the daily silicone hydrogel space right now probably busier launching products in anyway, and we expect this to continue throughout 2021.
Given they're still exists roughly 2.4 billion and traditional daily Hydrogels sales worldwide. There is a significant multiyear trade up opportunity for us and our industry.
Moving to my site, the only FDI approved myopia management contact lens clinically proven to slow the progression of myopia and children things are going incredibly well.
We now have roughly 25000 kids around the world wearing my site, including over 1000 in the U.S. and the momentum when new fits is strong.
We're still early in our use launch, but we already have 2100 optometrists certified to fit the lens and 1400 more in the process of being certified we've.
We've also recently launched in Taiwan in Russia, and the early feedback is very positive.
Additionally, we're accumulating some really interesting data from our use launch, including the average age for a new my site, where his 11 years old.
Getting fits in this age range is fantastic as the average age for fitting a new were in regular contact lens is 17, which means we're getting an extra six years, where the revenue. Furthermore, 70% of kids being fit in my side are 12 and under so we're changing the overall perception of what age kids can be fixed income.
Contact lenses.
Regarding sales, even with continuing cobot challenges, our myopia management portfolio, including my site and ortho K lenses grew 39% to $13 million.
Within these results my site grew 73% to $2.5 million in Ortho K grew 33%, which included $1.3 million on revenue from last quarter's acquisition of GP specialties for.
For this coming year, even we covert cobot impacting the market, we're continuing to target $25 million in global My site sales, which is growth of roughly 250 per se.
We're also targeting strong growth in our ortho K franchise, driven by positive developments such as the recent receipt of European CE Mark approval for our Paragon lenses.
Well looking at the global Myopia management market, where at the forefront of an extremely exciting pediatric optometry category Myopia management is in its infancy, but as we discussed last quarter, there's a clear path to a market that we expect will ultimately be well over $5 billion annually from manufacturers, we still have a lot.
Of work to do and we're investing in sales and marketing programs, new launches regulatory approvals and R&D activities to really helped drive the market forward.
This approach is clearly working and it's great to keep hearing optometrist talk about my site as standard of care for their pediatric patients as trained professionals optometrists know that reducing the progression of myopia brings many benefits, including reducing the risk of serious eye disease later in life, such as retinal detachment cataracts and glaucoma.
To conclude on vision, let me touch on the global contact lens market. We're seeing Optometry office is mostly open around the world and we are frequently hearing that they are fully book with appointments running through January having said that patient throughput remains below pre coven levels as offices work to get more efficient with Covance safety profile Proto.
Calls and managing staffing challenges from.
From a consumption perspective wears on returning to their normal wearing and ordering habits.
The new fits are running roughly 90% of pre kobin levels on a global basis and that's the challenge.
New fits or certainly better in the U.S. and in markets like China, and its improving everywhere that eye care professionals are still struggling to meet demand.
We're not seeing any signs that demand is disappearing, though so we believe it's only a matter of time before new fit activity returns to pre co bid levels and the pent up demand is addressed.
On a longer term basis, the underlying growth drivers for our industry remains strong and may actually be improving with the macro trend of people spending more time on electronic devices with roughly one third of the world Myopic and this expected to increase to 50% by 2050 combined with the continuing shift to daily silicone hydrogel lenses.
Geographic expansion and strong growth in Torics and Multifocals, our industry has a very bright future and for coopervision, our strong product portfolio momentum within the myopia management space and strong new fit data puts us in a great position for long term sustainable growth.
Moving to Coopersurgical.
Revenues rebounded faster than expected to $175 million for the quarter, although down 4%, we exceeded expectations in a challenging market environment and expect solid performance moving forward.
Starting with our fertility business revenues rebounded nicely and were only down 2% year over year, we're taking market share and we're well positioned for future gains with a strong product portfolio and improved traction with key accounts within products. Our consumable portfolio grew this quarter led by our our eyewitness system.
This is an RF I'd lab based management system that helps fertility clinics automate their processes by identifying tracking and reporting patient samples throughout the process.
Laughs are starting to use that as a cornerstone solution to improve safety reduce errors improve work flow management and enhance compliance of standard operating procedures the product almost doubled in revenue to $2.5 million and with a growing focus on safety and compliance within fertility clinics, we expect this product.
To continue growing nicely.
Our genomics business also returned to growth this quarter as testing volume picked up and our media products also grew on the.
The only softness we saw was in capital equipment, which declined against a very tough comp from last year.
From a fertility market perspective, we're still seeing covert negatively impact patient flow and some important countries like India still have clinics shutdown or operating with minimal patient volume.
But the good news is we're seeing a patient flow improving and we believe we will see I vs cycles return to normal soon with this happening will continue expanding our business through in person and virtual sales and marketing activity, adding sales personnel and expanding our product offerings.
The fertility market has extremely positive long term macro growth trends and as a global leader in the space. We're intent on helping the industry returned to its strong historical growth rates.
Within our office and surgical unit, we were down 5% slightly better than forecasted harriger continued to rebound down 6% to $50 million against a tough comp from last year due to buying activity before price increase per.
I regard as another product that is benefiting from the positive wellness trends, we're seeing in the us as the only 100% hormone free I use on the use market. It offers a fantastic long lasting birth control option that addresses the needs and interests of women looking for a healthy alternative.
Sales of the product continued trending in the right direction through November So we're optimistic we'll see pairing our growth year over year in Q1.
Elsewhere by many medical device companies, we see deferred elective procedures steadily rescheduled and our medical device sales have improved.
We're entering this year and a really nice position with some of our focused products such as in store, our patented surgical skin closure device and Endosee advance our direct visualization system for evaluation of the endometrial positioned to grow nicely as markets rebound.
In conclusion, let me say I'm optimistic about the future our businesses are performing well and we're taking share we're very active with new product launches and we have fantastic dedicated people driving our business forward and with that I will turn the call over to Brian.
Thank you Alex and good afternoon, everyone. Most of my commentary will be on a non-GAAP basis. So please refer to our earnings release for a reconciliation of GAAP to non-GAAP results.
Our fourth quarter consolidated revenues decreased 1% as reported or 3% in constant currency to $200 million to $682 million.
Consolidated gross margin increased 70 basis points year over year to 67.7%.
This was driven primarily by currency at coopervision and efficiency improvements at Coopersurgical from our successful global manufacturing integration and consolidation efforts.
This quarter was an extremely busy one for our manufacturing teams as we work diligently to finish most of our manufacturing restructuring activity.
This now allows us to minimize costs, while optimizing production.
From more efficiently manage inventory levels and improve margins and cash flow.
We're in a significantly better positioned with our manufacturing operations right sized for the current environment well.
While also being well positioned to ramp up quickly.
We still have some absorption related inefficiencies, but we expect these to to go away quickly as growth returns.
Opex was up 4.3% year over year, largely due to planned on my side investment activity, including sales and marketing regulatory and R&D costs.
This resulted in consolidated operating margins of 26.8%.
Down from 28.5% last year.
This performance slightly exceeded expectations as we continue to effectively manage expenses balance in costs against investment opportunities.
Interest expense for the quarter was $6.7 million driven by lower interest rates and lower average debt and the effective tax rate was 11.1%.
Non-GAAP EPS was $3.16 with roughly 49.6 million average shares outstanding.
The year over year FX impact for the quarter to revenue and EPS was a positive 10.6 million and a positive 15 cents.
Free cash flow was strong at 111 million comprised of $218 million of operating cash flow on.
Offset by $107 million of Capex.
Net debt decreased by $76 million to 1.68 billion.
And our adjusted net leverage ratio decreased to 2.15 times.
Before moving to guidance I want to mentioned on item and item you will see disclosed in the tax footnote in our upcoming 10-K.
In November as part of an internal restructuring to simplify our supply chain Cooper.
Provisions intellectual property and related assets were transferred from Barbados to the UK.
Although this will impact our GAAP financials, including a significant one time benefit in Q1.
Along with the offsetting adjustments over the next 10 plus years.
We will exclude these entries from our non-GAAP results to ensure transparency.
We do not expect this having a material impact on our non-GAAP tax rate over this period.
Moving to guidance, we were hoping to give full year guidance, but the surgeon covert cases in Europe and in the us make that extremely difficult.
So we're providing only Q on guidance at this time.
This includes consolidated revenues of $642 million to $670 million down.
On 1% to up 4%.
Were down 3% to up 2% in constant currency.
Coopervision revenue of 482 to 500 to 2 million down 1% to up 4%.
Or down 3% to up 1% in constant currency.
And coopersurgical revenue of $160 million to $168 million down 1% to up 4%, both as reported and in constant currency.
Non-GAAP EPS is expected to be in the range of $2.66 to $2.86.
As compared to last year, we expect the midpoint of our non-GAAP EPS guidance to be up seven cents due to a positive 21 cents currency impact.
Offset by my site investment activity and slightly lower gross margins tied to on favorable manufacturing absorption.
Below the line, we expect lower interest expense to be roughly offset by a higher effective tax rate.
Lastly on cash flow, we made significant progress completing our multi year capacity expansion program and expect solid improvement in free cash flow moving forward as operating cash flow improves and capex reduces.
In conclusion, even with coded we expect to start the year off well.
We have strong product lines solid manufacturing and distribution capabilities.
Growing key account relationships ships plenty of my day capacity and I dynamic myopia management business.
We plan to continue taking market share and we look forward to covert vaccines and better treatments returning markets to normal.
And with that I'll hand, it back to the operator for questions.
Thank you.
I'd like to ask a question. Please press Star then one on you touched on telecom management aspect to limit your questions to one question on the follow up again, if you like to ask a question. Please press Star then one.
One moment flow first question.
Our first question comes from Lauren excuse me.
James Your line is open.
Thanks, Good afternoon, everyone.
Couple questions here I guess, the first one al if you could.
Kind of come back to my side obviously.
Obviously, it sounds like things are going extremely well there and certainly.
Way over performed the number of Optometrists net you anticipated that you would train for the year I think you were targeting closer to 1000, and obviously you did significantly better than that.
But the guidance at 25 million remains the same so what do you think it takes too.
Get more confident in moving that guidance out.
Yeah. Good question, Larry Youre spot on a day, we are doing quite a bit better than we anticipated right. The number of certified docs here in the U.S. up you're seeing similar activity outside of the U.S. and.
Sales and so forth picking up commensurate with all those certification so that.
The thing that holds that back really ends up being coated and that's really it I think if if we kind of move along like we are now in the marketplace or see anything better I think we have a chance to to beat that number.
Maybe the other reason you could argue a little bit on the conservative side is because that is backend loaded right I mean, you're looking at continuing increases every quarter, but you're going to see a big Q4 of next year or so so that's a question Mark I do think we we have the potential to beat that number though.
Okay, perfect and then.
Two other ones and I'll jump off.
Just relative to single use spheres, I think that the revenues for the quarter came in a bit below what.
The Street was anticipating you obviously called in.
Channel inventory that I think was lower than than you had anticipated and also there were some some issues in sort of orders being delayed and in.
On Europe due to Cove, it but could you parse out perhaps on the on just on the single use sphere side, what some of those dynamics might have been because it does feel like those revenues are probably held back and then just quickly for Brian the cobot adjustment to Cogs was I think if I got this right 37.2 million that was larger than that 22 million.
In roughly to the Threeq you in Twoq you. So can you walk us through why that increased so much sequentially on how we should be looking at that adjustment for that for the one two outlook. Thanks.
Yes, So let me touch on single use here, where we saw strength there was on silicone hydrogels and where there was weakness was your traditional.
Dailies right. So no surprise there we're taking share we're growing on the silicones side of things the traditional side softer if you look at the impact he add that the channel inventory came back here in the U.S. not quite as much as we were thinking.
I think you will see some of that trend back here and as we move through this year, but.
A little bit less than we were thinking there.
Same in Europe, there were some orders that we.
We were expecting kind of at the very end of October that I think we'll end up seeing come back here as we move through fiscal 21, a number of those orders whether in the us or whether in Europe would have been frankly daily silicone. So it would have improved that number.
Turn it over to Brian for the sure Larry So on the question on on adjustments. Yes. There is nothing I would highlight that was materially different from what we talked about last quarter. In fact, we talked on our last earnings call about how this activity we push into into Q4 in other words significant number of things that we needed to do to right size, our inventory levels and our future production.
On levels frankly on the work that was done by manufacturing the manufacturing teams was no small task.
Especially to get the vast majority majority of it completed by fiscal year end. So at the end of the day. The steps we've taken to address the code related challenges are putting us on a great position as we enter 2021 and the adjustments are going to be dramatically reduced starting in Q1.
Okay terrific. Thanks, guys appreciate it.
Thank you. Our next question comes from Larry Biegelsen of Wells Fargo. Your line is open.
Hey, good afternoon guys.
Two from me one on Q4 trends in Spain in CVI and one just kind of.
Big picture on on fiscal 2021, so out could you talk a little bit about the Q4 trends in CVI August was up.
You said on the Q3 call. So it looks like September and October were down a little bit year over year. How is November relative to the mid point of the CVI guidance for Q1, I think of about negative 1% net add a follow up.
Yeah.
I don't want to get too much into too much detail on a monthly basis I know, we're doing that a little bit through co that I kind of want to.
Step away from the step away from that you can kind of see a little bit of what happened, though if you look at the calendar number I gave 'em versus the fiscal quarter. So yeah, I mean October was down.
It was tied largely to what I was talking about activity at the very end of October.
The only thing I'll really say is November I'm going to give you. The same answer I gave historically you know November performance is included in our in our guidance.
Got it and how how do you see fiscal 2021, playing out just maybe Directionally I know you don't have guidance out there.
You did seem comfortable with where consensus was mid in mid September before Cove. It started obviously spiking dramatically here can you can you still grow sales and EPS in fiscal 2021 over fiscal 2019, thanks for taking the questions guys.
Yeah, So I.
I won't get into too much detail on on that or is it a little tough to compare to 19 on.
The issue ends up being it's just comment I don't want to say that it's anything else because it's not everything else in our business is going well as Brian said, we're really well positioned from a manufacturing distribution perspective on product launches are going well.
We gave guidance here, assuming things kind of continue as is which is frankly not very good koby cases, going up and and continued struggles and a lot of places. So we're assuming that continues and.
Thats baked into our Q1 guidance.
Anything that comes out better than that with respect to vaccines happening or improvements I think would provide upside for us and you can kind of look at our Q1 and hopefully make some assumptions off that as we move forward tied to whatever your assumptions are with respect to covert but I am personally optimistic with the news that I see out there that's for sure and the fact that.
You have optometrists offices opened around the world and and fits coming back and so forth and consumers who wear contact lenses are really back to what they were pre coven and terms other wearing habits and their ordering habits. So a lot of really positive signs there.
All right. Thanks al.
Thank you.
Our next question comes from Matt Miszewski. Your line is open.
Great and thank you for taking the questions.
Hey, I'm just.
When you look at the level of inventory in the channel right now where is inventory versus patient demand.
Has that is that equalized here.
To the point, where you're not going to see some stocking one quarter from destock next quarter or is it are net leased finally reach that point.
Yeah, I think so and that's one of the reasons I kind of say that we need to get away from months again, because we always see it as we always have our entire lives with in terms of orders coming in and one month being up from one month being down and so forth on the channel inventories had basically equalized.
I would I would probably say if I had to pinpoint it looking at all the numbers and charged on everything that we have is it's lower than it was pre cove. It but your sales are a little bit lower so I think you'll continue to see as we move through 21 here.
Positive trends there you know and if anything shorter term, maybe you get a little bit of positive that we're not anticipating that would come from some of the delayed October.
Aspect, but I would certainly hope that I wont be talking about channel inventory moving forward [laughter] from.
Excellent.
And then just a longer term question like it's interesting how cooper's evolved over the years like what you guys were previously fast followers and so on high end deli side, but now you're sort of Youre starting category leadership in.
And in my site in the specialty lens is kind of what's the advantages of being first in these markets.
It is.
This is just more sticky overtime, we're PCB harder for people to catch up to you.
Oh, Yeah, I mean, you're absolutely right I mean, we I remember when I started here years ago, now, we where we used to talk about ourselves as a fast follower and almost take pride in it that is not the case anymore. I mean, we're clearly the most innovative contact lens company in the market period.
And it will be in a category leader is a big deal you get in there for as you look at Myday Toric as an example that daily toric lens in the marketplace.
The wide parameter range, you get that in or you get the fitting set in there why why would somebody replace it you bring in a new one with with fewer skews why would you replace that high end fitting satellite myday. So being in there first is massive when you look at category creation like a my sight product I mean, right now the myopia management World.
Thats being created is defining that world as my site. It's almost like Coke you know you go order a coke the hands you a Pepsi right now the world is being defined as my site Thats, how powerful that program is right now as a category leader. So yeah, I can't say enough good things about what the team has done over the last several years years here has been it's a mess.
And so it's great being being the innovator right now versus being a fast follower.
Thank you.
Yes.
Thank you on this.
From comes from Matthew O'brien of Piper Jaffray. Your line is open.
Afternoon, Thanks for taking my questions.
Hello, Brian can we just focus on the daily piece of the business first because that's probably on to get the most attention tomorrow.
You know again like Larry mentioned, it is a little bit below what people were modeling get off on on the market now you've got JNJ rebating more aggressively.
Tom you've obviously, a little growth headwind people aren't going out as much. So what can you really point to maybe under.
Honorable headed here that we can't see that net.
That that really gives you confidence in a rebound in that business as we hopefully to model. The pandemic and are you getting a lot more new patients are you getting a lot more clinicians on.
What is it that you can really point to with all these other moving parts that we really can't see clearly.
Yeah, well I think some of it you are looking at the earnings release that we put out there right and so you're talking about single use spheres there.
If you look at single use torics, especially to our EPS, which are strong for us multifocals, you're seeing better performance. There. So if you narrow into that that line item you're talking about weakness in single use fears coming from.
Older Hydrogel lenses right the whole industry, that's still a massive part of this industry is 2.4 billion in sales and its declining and is being replaced by silicones and that's where we're doing well when you look at what happened at the end of the quarter in terms of people not ordering when do you see orders get delayed what we.
You've seen here through this pandemic is the orders that are getting delayed in the pulled on a channel inventory is tied a little bit more to daily silicones than it is anything so at the end of the day the weakness is coming from weakness in the industry in the marketplaces daily traditional dailies move away and daily silicones transition over.
When it comes to the sphere, we had a strong sphere quarter with my day I.
I think that one other things that makes us feel good about that and looking specifically at the daily sphere side of things is the success, we're having with my day sphere coming back in the marketplace. We were constrained I talked about that for a while on past earnings calls, we pulled that product off of market in several countries right. We didn't launch it as aggressively as we could.
We're now unconstrained on that product so you're seeing on Myday out there unconstrained, we are aggressively rolling it out I feel really positive about the future of that and I don't want to downplay clarity either by the way because clarity definitely doing well above my.
My day is definitely outperforming.
Okay that makes a lot of sense, it's more expensive and there's a lot more with the Jeff to hold so that makes sense and the inventory levels will come down.
Among other different products you saw okay makes sense. So then flipping over to my site.
So again, it's a big step up from seven to 25 at the number of docs that you've got certified now if I just do some quick back on the envelope math.
As far as what you did in revenue last year seems like.
Again don't have perfect numbers here, but it seems like a lot of your doctors are adding a couple of patients per month.
From my side on average if you were in is that a number that seems reasonable for this group fairly quickly because it is so noone because you know you're pretty much Chile only game in town on the market is that a weighted tend to put some error bars are triangulate on how to think about.
This next tranche of docs and how many patients they can add on a monthly basis, yes.
Yes, you wondering on its really been interesting about that is that that's true. So we get these docs they come in they get certified they fit a cater to they want to see how it's working out so a lot of times they'll fit a couple of kids and then they'll wait a little while and we'll see how that interaction is with the parents how successful. It is and then what weve seen.
Is a significant ramp like if you looked at as a curve. Its just a very fast ramp because once they get comfortable with it and they say, yes. This product works, yes, I can sell it I can talk to parents clearly these kids can wear it right, which was a hurdle concerned about whether an eight 910 year old can where these lenses, yes, all those things get share.
And when they get check these docs are flipping over and saying well I'm going to talk to every single pediatric patient I had that comes in here about this product and we see these big ramps going so if we continue to see that kind of activity. We should all be very excited I mean, any you're holding Cooper stock you're happy person if we can to.
Good to see ramps that were seeing there.
Got it thank you.
Thank you.
Our next question comes from Jon Block of Stifel. Your line is open.
Thanks, guys good afternoon.
Yes first one.
Well I certainly get there hasn't seen it provides specific fiscal 21 guidance, but im just curious qualitatively anything to comment on you know maybe should good market share gains continue at the same clip first.
Versus the past 12 to 24 months should they accelerate based on your comments on the daily portfolio and then Brian sort of a similar question for you you know any high level comments. If you would from a margin profile that I've just got a quick follow up.
Yeah on market share gains.
It's a little hard to tell on it I don't see anything that would indicate we're not going to continue to take share each quarter in terms on how much share that is that's a little bit of a question mark and that will vary quarter by quarter.
Clearly a product by my side ill on.
Okay. Some of that stuff from a biofinity energen those are unique products to us that our high growth products. So those are going to help continue to take market share themselves I kind of hesitant to forecast.
Whether it would accelerate or not but but I do believe we'll continue to take market share as we move through 2021.
Yes, I guess I'll take the margin question I mean, we're not giving guidance beyond Q1, but I mentioned in my prepared remarks.
Gross margins being slightly down from volume related absorption.
And then also higher.
Hi on my side spend so.
Beyond that I mean, there is obviously a lots of pluses and minuses from Cove, it and we're going to be dealing with that but those are the two primary drivers that I would say outside of FX that kind of bridge you to the midpoint of our EPS range. Okay.
Okay got it and maybe just the follow up question is.
Specific to myopia management in my side can you just remind us or detail for us to share the mice sites spend targets. This year from an advertising or DTC perspective, and if you can remind us what those investments total total during fiscal year 2000, I guess im guessing even with the revenue ramp this year.
Sure on my side, depending on what you're doing from a DTC perspective, it could actually be more dilutive before maybe we start going the other way and in fiscal 2002 and be on thanks guys.
Yeah.
Yeah, I hate to get into some of that stuff, but I'll look at Brian given I think we did we had about 15 to 18 million something like that in Q4 and on my site.
So a pretty significant number of them, we must have roughly hit where we were going to do for the full year about $25 million or thereabouts. So so it's a pretty good investments going on John No question about that on.
I would not clearly not take the Q4 spend and just annualize that.
We we spent a lot we did a lot of great stuff around the launch we're looking at it right now to determine kind of how we're doing.
And the best way to drive that market forward on but it is dilutive for a little while you know and then it should it should flip over and become pretty accretive to gross and operating margins.
Be accretive I guess to gross margins now, but accretive to operating margins and a couple of years and should.
It should be on a pretty good way yep Yep understood all right. Thanks for the color guys.
Yes.
Thank you I guess question comes from Anthony Petrone of Jefferies. Your line is open.
Thanks, Good afternoon, maybe I'll start with a couple on on CVI and then I'll have.
Question on my side as well so on CVI.
Maybe just an update on the competitive dynamics.
They've trended through this year just your updated view there and in particular of Bausch is out there with the new cellulite daily lens as is.
Al Khan with precision one so any kind of use competitively.
And in that regard as well just have you seen anything new on the rebate from and then on a follow up on my site. Thanks.
Yes, nothing new on the rebate front.
I think we're probably at a point here, where in a relatively new near future we'll on well.
We'll get some updated news from some of our competitors on the rebate activity because they have a tendency to do that as we move into new calendar year. So maybe they will maybe they wont I don't know, but there's been nothing new on.
Competitive dynamics I mean at the end of the day, we have great competitors out there.
There are always launch on products they have for as long as I've been here and Im sure. They will for as long as I am here. So.
All we can do is continue to do what we can do right. We manage our own business, we launched our own products. We drive success from our on products, we have a very active law.
Launched campaigns going on right now we have a strong pipeline so.
We control what we can control and as I mentioned I think we'll continue to take share do on that.
That's helpful on on my side, just going back to the 25 million guide I'm, just curious as to what's baked in there from a stocking standpoint amongst train dodi's at this point in and geographies that are cleared and maybe al. If you have any updated views as use continue to scrub numbers.
On the Tam opportunity for from my side in particular, it seems that the feedback we continue to get as bullish on Im curious if theres updated views on the Tam. Thanks again.
Yes, good start there first of all no stocking in the $25 million. So the assumption there as we just continue to ship product directly to People's homes, So zero stocking.
Geographically, we are expanding we launched in a couple of markets. We just got approval on another one will launch there, we're making progress I'm trying to get approvals in some huge markets right. China is one of them that has some potential. So I think you'll continue to see us talk.
Talk on on these quarters coming forward about new markets that we launch into if you look at the Tam. It's really fascinating. We we did the numbers last quarter and said.
A total market kind of over $5 billion annually.
We base that on eight to 12 year olds, you know I mentioned on this earlier in my prepared remarks that about 70% of the fits we're seeing in the U.S., our 12 years old and under.
When you start seeing fitting of 13, 14, 15, 16 year olds, which we clearly see outside of the U.S. and here in the U.S. off label that expands the size of the market. So.
Im not sure what that the market is when it comes to like a book.
Braces and so forth, but on.
You could make a pretty good argument right now that.
North of 5 billion is definitely in play and when you. When you talk about spectacles I look forward to some of the some products coming and some of the advancements I've seen out there with spectacles that they are still very early but that'll help drive this market forward I think that ultimately contact lenses are going to be more efficacious than spectacles.
Our so I think we'll have a great position there with a market leading contact lens, but I do think you're going to have him you're going to have a very large pediatric optometry market I really believe that net and it will be north of $5 billion annually from within for manufacturers.
That's very helpful. Thanks again.
Yes.
Thank you good luck.
Jeff a question. Please press Star then one on next question comes from Chris Cooley of Stephens. Your line is open.
Good evening and thanks, so much for taking the questions just two from me.
Algebra on if you could help us with the PARAGUARD number you said you do expect that to growth year over year on the coming fiscal year.
Just curious if that's growing without having to make a more aggressive DTC push or thats, assuming a continuation of.
Focused marketing and if so kind of how do we think about that spend.
Relative to my side, just kind of quick follow up on CBR as well.
Yeah. So per guard the only comment we gave on growth was expecting Q1 growth. So I do think that it will grow here in Q1 year over year.
The spending on that this year I would think would end up being pretty similar to what we did this this year.
The direct to consumer spending is trending more towards social media now we did a lot of day like the television spending and so forth and a lot of that was expensive. So we can pull back on that activity shifted over to social media type spending and get a bigger bang for our book without spending any more money. So I think ultimately.
Really we're going to see a more more profitability coming from Paragon right, because youre going to get some growth on a year over year basis, you're going to hold your spending flat. So I think we'll be in a good spot there with respect to my side, it's a little tough I mean, we're going to spend more on my side and we're going to spend on per or when it comes to the all the activity that we book by my side, but I wont get in net quantify.
But that will be that that because it does get dependent on when we get approval on markets.
Around the world.
Go on.
And just to clarify on on and then just lastly from me and I know, it's still early days in this non.
Typical operating environment by any means but when you look at your most mature.
My site centers here in the United States could you maybe just contrast, how that practice looks for use on the sales basis say versus the prior year, if we think about not only.
Just on sorry, if we exclude just on my side portion, but you think about total Cooper lens.
Utilization there I'm just kind of curious if you've seen a lift and if so.
On what type products or is it broader based thank you.
Yes.
Real interesting one you know you would think that.
The docs, who are fitting my side, we're coopervision docs right, but that's not really what we've seen the people who have gravitated towards my site are people, who either were doing myopia management beforehand through things like worth okay are attriting or something else or people, who have bigger pediatric practices.
Yes.
So obviously, we give some preferential treatment to people who are who are more part of the coopervision family on.
Or who are willing to ship more product over to the coopervision family that Halo effect kind of concept I talk about it's still very early but but it's it's broad it's not focused on coopervision DOCSIS. It's broader in terms of the optometrists, who are looking at it use.
Using our competitive products for other options.
Thank you.
Thank you. Our next question comes from Jeff Johnson of Baird. Your line is open.
Hey, good afternoon, guys. So maybe just on.
Cleanup questions here that I've got at the end of possible.
Al you talked about my idea on big in fiscal Q4 on the coming year here.
How back end loaded are you thinking guidance number one and number two what drives that is that just kind of thoughts around vaccine and the cumulative impact of all the data from training just trying to get kind of the pacing of a lifecycle.
Hi site here.
Down maybe if we could.
Yes, well from a Q4 is remember in the U.S. as an example, we were given the first two fits away for free so as we as we've done some of that activity and a lot of kids are getting fit if they get a year's supply will they're not going to get there next year supply until Q3 Q4 of next year, So you're going to get kind of a bulbous just now.
Truly that happens there's people order there your supply and they're paying us right because right now we gave that to the dock for free so the dock receive the money we didnt see the money we will in Q4 of next year and then you just get the natural ramp itself right. So we're up to what it was 2100 optometrists, we had a lot of optometrists.
Here in Q4 Q3 definitely in Q4, it's accelerated we have a lot in the backlog here in Q1, who are going through it. So is a lot of those optometrist come on and they start fitting kids and so forth in the land do if you do a few more as I mentioned it has a tendency to ramp up quickly when they are successful. So just naturally it's going to move to Q4 that.
We will continue right into Q1 of next year Q2, Q3, because its a natural ramp so it's not related to co, but theres nothing specifically related to comment on that it's just the cadence of how the revenues of book.
It makes sense and I don't think I heard you answered John's question on on.
On my site spending this year you kind of said you hit that 25 million target for the year, Obviously Q4 was.
A big part of that.
Just above or below 25 million again, as we tried to dial in kind of full year capex side of the model.
It will be over $25 million, it's just a matter of what it will be right because I mean, if we happen to get like early approval in China, I could see it being a decent amount higher than that if we don't.
Yes, it will be.
So heart hard to dial that in right now because some of it does depend on.
David we get rid of cobalt here early and use the new fits and stuff you'll see our spending increase in net again to more markets, we get into the more spending you'll say oh by the way just just to be clear on that like that spending is DTC related but it's also related to R&D. We are doing a lot R&D work from for new versions on my side and enhanced versions.
And so forth its regulatory because regulatory approval costs and so forth are high in a lot of markets around the world.
Myopia management specialists, we're so we're selling through our existing sales force is and we're not going to add sales people, but we do have and are adding more mild specific myopia management specialists, who docs can call on talk to so it is kind of a broad spending that that is attached to it rather than just DTC.
And I know you don't typically break it out but in your Americas, plus 3% growth this quarter Mike.
On my gut is that South America might have been a little lower and use higher but your competitors did put up like 10% to 20% us growth I'm, assuming they got.
Full impact of channel inventory and you guys spread it out over your Q3 and Q4.
If you give us kind of your use number that'll help us maybe kind of gauge that a little better if possible.
Yes, if you look at it from a competitive standpoint like if you looked at it on calendar Q3. So we did apples to apples, where we were flat in the market was down 3% we grew a little bit.
The U.S. with stronger right. The U.S. was stronger than Latin America was I don't have those numbers handy I mean, we don't really break those out much but but I it but there's not a big difference between us and the competitors. There. If you look at the competitors on a consolidated basis pretty similar just a little bit of share gain yes.
Okay. Thanks, guys.
Yes.
Thank you. Our next question comes from Steve Willoughby Clean Research your line is open.
Hi, good evening and thanks for taking my questions I had a couple for you if you don't mind I.
I guess just first.
Have you thought at all about the you made a comment about new fits from running 90% of normal are down 10% what is the potential impact from that over the next year or so and then I had two follow ups for you now.
Yes, if you look at on on a global basis somewhere around 15% of our revenue comes from new fits so I kind of break that up and I'd say, okay, 85% of the market has kind of gone back to normal and they're wearing habits are normal their ordering patterns are normal now we're still seeing some fluctuation.
On the maybe that's down just a little bit, but but a big big chunk on the market is back to normal if I look at the 15% of revenues that we get from new fit that's what's running at about 90% right now.
So the question to get back to our more traditional growth rates on obviously, we're going to grow faster here because of the cost, but if you look through that and get back to your seven per cent kind of growth rate that you guys have you want to see those new fids come back right, because 90% of 15 actually down a point or two so that's really.
And really where we're seeing that that we need to have that come back. So it's not a massive number right because its 90% of 15. If you will does that make you have Dave.
Yes. It does yes, so then second.
One of the changes because the co bid the.
The tap into both you guys and the industry has been more direct to patient shipping.
And so was wondering what impact that is potentially had as it relates to revenue as you know if you're shipping more direct.
Which I believe you guys are continuing to still do you know the doctors just don't need as much inventory in their offices, the distributors don't need as much inventory in their warehouses.
I guess also with that true if patients are ordering and your ship indirect has there been any change in the rate of annual supply purchases that could be impacting things as well and then I have one final question.
Yeah, you are spot on right, we're doing more direct to patient shipping than we've done because of that you have some less channel inventory this quarter, even I kind of talked about that 10 million in the U.S. and I thought that number was going to be closer to kind of 15, maybe $17 million to get us back to where we were I think what's happening is that.
What you are talking about right the direct to patient shipping the better inventory management kind of through the system prevented that from happening. So if we stay as is with the direct to shipping then fine right. If it goes back to the way. It was beforehand. Ultimately we will pull that that revenue back in I have a tendency to believe that direct to shipping.
He is going to remain so I think we've kind of stabilized from an inventory perspective, but to your to your good point there. It it did hit us a little bit.
Does that have any impact to per doctor does if the OTI doesn't have the lens that inventory does.
Does it impact potentially impact their decision on what lens. They prescribe if I'm, a doctor and I've got a lot to sitting on my shelf like I'm going to want to get rid of them does that make sense.
Yes, we havent seen that because of the fitting sets. So they have a tendency to go to whatever fitting set that they like in the lens is that they like the higher volume product that you're going to get theres still going to have there it would be more on the outside to the bell curve is outside of especially with Torics and so forth. So they'll go with like the Myday toric fitting sets they have that's how though from.
Somebody and then we'll we'll ship the product directly to him. So you're probably just taking more on the middle of the bell curve being in their office and more the tail of the bell curve is being stuff that we're shipping directly to patients gotcha.
Gotcha, Okay, and then my second question.
Following up on on Jeffs question in terms of marketing spend I know there are some variables there.
But compared to the day.
Going back a number of quarters. When you started initially talking about the potential multi year revenue ramp in my site.
It sounded like the marketing spend could continue to grow quite significantly so.
If you did 25 million in 2020.
Spending 50 million in 2021 out of the equation and also within that is that the revenue in 2021 of $25 million is that dependent upon getting any new approvals on any countries anywhere.
Yes, so no so getting to the 25 million, we don't need approvals on other countries I think we'll get a few right, but we don't need it on the spending side. It's interesting. It's I've been educated by some of our highly sophisticated marketing people here between like spend media on and earned media and so.
Fourth we're getting more.
Whatever you want to call it free media like popular Science magazine, just awarded US one of the top new products in the market.
The New Yorker, just put us in their magazine as like gift, giving idea.
We've seen it in whatever people magazine and all these different that's all free marketing. So we've been pleasantly surprised at how many people are picking up my site and talking about it and getting it out in the marketplace that we're not having to pay for right. So that's one other things that actually interestingly is helping us save a little bit.
On a money is that you are seeing the not only the profession itself gravitate towards talking about myopia management, but you're talking to people outside of profession are are talking about it a little bit more so that's kind of cool. So I don't think that you're going to see a $25 million to $50 million spend scenario.
Okay. Thanks, Alan I appreciate it.
Yep.
Thank you. Our next question comes from Joe includes of Citibank your on over from.
Hi, everybody. Thank you for taking the question.
I appreciate that the first quarter guidance, particularly when the world feel some day, it's a little bit upside down.
That's for the full year just to give us an idea of what you're thinking about the tax rate impact on foreign exchange and some of the other metrics what should be outside of the land on COVID-19.
I'll, let Brian answer that one day [laughter], but that doesn't mean, we're not going to be talking about [laughter].
I hear you Joanna you know at the end of the day I think.
We're just going on we're just going to be got into Q1, and we'll leave it at that.
I'm going to try something a different way.
Barbados to the UK can.
Can you just give us a second what the decision was behind that and what the one time PML benefit will be on I want to make sure I understand what that goes into non-GAAP numbers or is that going to go only on GAAP numbers.
Sure, Okay, well I'm going to try not to make this a lengthy conversation we might have to touch after hours, but but at the end of the day.
We we there's not a whole lot to add other than what I said on my from my prepared remarks, the IP and related assets were transferred to the UK and stepped up to new fair market value.
It's going to result in a significant deferred tax asset in Q1.
So that's going to be shielding us from future taxable income over the next 10 plus years, so what you're going to find is would that significant DTA. Our GAAP EPS is going to be significantly high in Q1, and then it all the subsequent years, it's going to be lower than our non-GAAP rate and so the non-GAAP adjustments that were going to be making.
Well basically neutralized.
On the amortization shield.
That will result from some from.
Over the over the next 10 years.
But to be clear you won't see that in non so you won't see that a non-GAAP thats correct.
Okay. So going back to my first question for tax purposes, we should think about historical low.
Recently recent historical tax level.
Non-GAAP EPS.
Yes, I'd say that that's appropriate.
Appreciate it thank you.
Thank you. Our next question comes from Chris well of Guggenheim. Your line is okay.
Thanks, Brian not to make this too much as a tax conversation here, but my understanding was that the companies historical low tax rate relative to peers was driven in large part by the favorable tax jurisdiction for the IP.
So why were changing that domiciled not have a negative impact, resulting in a higher tax rate going forward.
Well, that's a very good question.
Ultimately.
The step up in basis that we get from transferring those those that IP in the in the related assets into the UK provide.
Provides an amortization shield against that the future taxable income. So yes, we are eventually going to be paying.
Taxes on but we'll have a tax shield for the next 10 plus years.
Okay, but after that 10 year period is over the tax rate was step up because of the difference in jurisdiction.
Yes.
Okay interesting.
And then al if you could just walk me through some of the thinking around the guidance.
If I back out the inventory benefit that you got this quarter, you would've been down about 4% to 5%.
Constant currency macro picture seems more challenging now than it was through most of Q1 Q guidance is down 1% at the midpoint. So it's implying underlying improvement so use walk through the thought process there and maybe contrast, the two periods.
Yes.
What we're seeing is that optometry offices are okay, and so if you go back over the last six or seven months you head office is closed and you had reduced foot traffic and that's continued to improve so you have optometry offices open everywhere, even in Europe. They have excluded optometry offices such that they're in.
So business and can remain open. So we're we're in a better position from optometry offices being opened them. When we were and were in a better position in terms of the amount of foot traffic thats coming through those opened offices. The other thing is we've seen wearers return to their normal wearing habits and purchase patterns. Yeah. There was a study that was Joe.
Just on I, just read it today that 76% of people wearing glasses are talking to other optometrists complaining about fog Inc.
That's amazing three out of four people, who wear glasses are targeting to optometrists about fogging. Other glasses. So you are seeing more activity and I'll tell you we're going into the winter months right. So.
There are things that are making the contact lens market actually a little bit better Inc.
In our fiscal Q1 than kind of what we were seeing in fiscal Q4, and if you compare that on a year over year basis that helps because I mean keep in mind. The numbers, we're talking about here for fiscal Q1 down 1% at the midpoint that's against a really a non cobot quarter last year sales for us, we don't because of the way the fiscal quarters, where.
So we're we're back to almost growing and maybe even grow in fiscal Q1, comparing to covert impacted quarter to a non covered impacted quarter, so pretty good stuff.
Thanks.
Yep.
Our next question comes from Robbie Marcus Mani on for Paul.
Oh, great. Thanks for taking the question on Brian you touched on first quarter EPS and some of the inputs to get there.
You know if I take the revenue guidance and basically hold the SG nine R&D flat similar maybe a little step down in gross margin is that the way to think about how to get there.
Yes, yes, more or less yes.
Got it and on Al maybe just quickly on.
You know you talked about how reorders of the vast majority of the business. What are you seeing in terms of where you are as a percentage of normal are you picking up on any trends if people stretching it out is it different by geography, just trying to think about.
How the reorder business is trending and what that might look like post code that thanks.
Yeah, it's a tough one to answer because it is different around the world just because you're seeing.
Yes different amount of Kobe cases different amount of restrictions and so for a different amount of activity.
But if I just pull that back up to a high level. That's I'd go back to some of my comments that you are seeing things for the significant number of contact lens wearers going back to normal other ordering patterns going back to normal.
All that type of stuff from going back to pre coven levels. There is nothing that really highlight is particularly unique or on there.
Got it thanks a lot.
Yes.
Thank you.
I'd like to ask the questions are then one our next question comes from Steven Lichtman of Oppenheimer and company. Your line is open.
Thank you hi, guys.
I just had a couple of questions Brian just on on gross margin. Obviously, you mentioned a slight headwind in one Q.
Will that unfavorable manufacturing absorption impact on.
You mentioned will that continue past the first quarter.
Well not with growth I mean, it's really purely tied to sort of volume related.
Volume related inefficiencies on us as we growth on that starts to go away.
Okay.
And then secondly, I guess capex for the year was north of 300 million.
You mentioned that that should come that should come down can you give us a sense of what that number could be for fiscal year 21.
Well, it's going to come down materially.
Or at least meaningfully.
We did 307 million or so over 100 million of Capex in Q4, we'll still have a pretty decent capex quarter in Q1 per.
Probably followed by maybe a slight step down in Q2 and in a more meaningful step down.
In the second half of the year so.
I wouldn't be surprised if were somewhere in the neighborhood of lets say $75 million less than than than where we ended this year.
Okay. Thanks, guys.
Thank you.
Showing no further questions at this time on China.
The call back over to management for any closing remarks.
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Okay, well it sounds like we're in good shape on thank you everyone. I appreciate your time I'm heading into the holidays. So.
Good health to everyone and best wishes and look forward to speak on everyone on.
Next year, when we get to our conference call on March Thank you.
Thank you ladies and gentlemen, this does conclude today's conference. Thank you from containing you may all disconnect have a great day.
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