Q2 2021 Cooper Companies Inc Earnings Call
Please remain on your line the second quarter 2021 Cooper companies earnings Conference call will begin momentarily. Once again. Please remain on your lines. The second quarter 2021 Cooper companies earnings Conference call will begin momentarily. Please remain on your lines. Thank you.
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Welcome to the second quarter 'twenty 'twenty, 1 Cooper companies earnings Conference call. At this time, all participants are in a listen only mode. After the speaker presentation. There will be a question and answer session to ask a question. During the session you will need to press star 1 on your telephone.
If you require any further assistance. Please press star zero. It is now my pleasure to introduce Vice President Investor Relations aid risk management Kim Duncan.
Good afternoon, and welcome to the Cooper companies second quarter 2021 earnings Conference call.
During today's call, we will discuss the results and guidance, including on the earnings release, and then use the remaining time for Q&A.
Our presenters on today's call are al White, President and Chief Executive Officer.
And Brian 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.
On a regulatory conditions and integration of any acquisitions or 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 and uncertainties events 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 statement in today's earnings release.
Described in our SEC filings, including Cooper's form 10-K, and form 10-Q filings all of which are available on our website at Cooper codes Dot com.
Should you have any additional questions. Following the call. Please call our Investor line at 95.460, it can be 663 or email <unk> at Cooper co Dot Com and now I'll turn the call over to al for his opening remarks.
Great. Thank you Kim and welcome everyone to Cooper companies fiscal second quarter Conference call I'm happy to report that Coopervision and Cooper surgical both posted all time record quarterly revenues, which drove record quarterly earnings our businesses have rebounded nicely from the COVID-19 lows with silicone hydrogel lenses and myopia management, leading coopervision.
And fertility and PARAGARD driving Cooper surgical for the quarter and reporting all percentages on a constant currency basis consolidated revenues were $720 million with coopervision at $523 million up 25% and Cooper surgical at $197 million up 58 per cent non-GAAP earnings per.
There were $3.38.
For Coopervision, the Americas grew 38% with clarity my day, and bio affinity leading the way the U S was the strongest part of the region and it allowed us to rebound quickly and strongly offsetting challenges from markets, such as Canada, which are still facing significant COVID-19 restrictions.
We're still seeing nice momentum in the U S and we're looking forward to the back to school season.
<unk> grew 15% in the quarter led by strength in my day and bio affinity. We're the number 1 contact lens company in EMEA. So we're obviously over indexed in this region and the impact from Covid did temper the market's performance.
But we're executing at a very high level and taken share which is offsetting the challenges.
This is a region, where we've been a leader for quite some time and we're getting stronger due to success with key accounts. So we're really looking forward to a rebound in consumer activity is that will definitely benefit us.
Lastly, Asia Pac was up 19% led by strength in clarity on my debt.
As you pack is making progress rebounding from COVID-19, but it's slow in many countries, including Japan, where we have a strong presence. Nevertheless, similar to EMEA. Our teams are executing at a very high level and taking share which is helping offset the market challenges.
Overall, given our geographic mix I'm extremely happy with our performance and expect it to remain healthy as vaccines roll out around the world and consumer activity improves.
Moving to some details silicone hydrogel dailies grew 31% with my day and clarity both posting strong results. My day in particular is taking share led by improving availability, especially for my day tour.
From a market perspective, there's still roughly $2.4 billion in annual global sales of older Hyde of older Daily Hydrogel that we expect to be traded up to silicones in the coming years.
This tailwind is a significant positive for us as we're under indexed in dailies, but are seeing great performance from clarity in my day.
Moving to our FRP portfolio, we saw solid growth around the world led by bio affinity in particular file affinity energize, our unique and innovative lens. They use it as digital zone opex to help alleviate eye fatigue from excessive screen time, and our market, leading <unk> toric multifocal posted extremely strong results.
We also just announced that we've doubled the number of prescription options for bio affinity torque and to provide context on how significant. This is all affinity toric is the most prescribed toric lens on the world and is now available on over 33000 prescriptions, that's more options that all other monthly silicone hydrogel tour.
Eric lenses combined.
Regarding product launches, we remain incredibly active clarity and the my day second base current sphere are being rolled out in Japan, and my day torque bio affinity toric multifocal at our extended torque ranges for clarity and bio affinity continue rolling out around the world.
I'm happy to now add my day Multifocal to this launch list will start seeding select countries in the coming months with a full launch planned for late this calendar year.
As part of our prelaunch activity, we completed product testing in 8 countries with thousands of patients and I'm excited to say the responses have been absolutely fantastic.
Not a huge surprise given the extremely strong clinical data and the success of <unk> and tour, but it's still great to see.
The multifocal category is roughly 10% of the $8.5 billion global contact lens market and roughly half of that is in dailies.
Given we're currently under index in the daily segment at roughly a 16% share. We believe the my day multifocal will be very successful.
Moving to myopia management, our portfolio grew 122% this quarter to $14 million.
Within this my site grew a 152% to $4 million and ortho K grew 112 per cent to $10 million.
As a global leader in the Myopia management space our portfolio is the broadest in the industry comprised of my site. The only FDA approved myopia control product, our broad range of market, leading ortho K lenses and our innovative site glass vision spectacles.
Given the strength, we're seeing we now expect this portfolio to reach $65 million in sales this year and exceed $100 million next year.
Regarding my site, we've made fantastic progress with our key accounts and have entered into multiple new pilot programs with retailers and buying groups around the world.
Momentum has been accelerating including in the U S where sales grew sequentially from 100000 to 700000, and we're about to launch in South Korea, which should be a great market.
The only thing holding us back on growing by site, even faster as COVID-19 restrictions and several important countries, such as Canada, Spain, Taiwan, and Singapore rigs.
Regardless, we're making tremendous progress and expect very strong growth moving forward from a fitting perspective, the average age of a new my site, where remains 11 compared to a regular new contact lens wear of 17, showing this treatment is bringing kids into contact lenses at a much younger age. Additionally, multiple professional.
<unk> are now recommending myopia management as standard of care, including the World Council of Optometry and more universities are adding educational training courses to their curriculum.
Regarding worth Okay, we had a great quarter, driven by our broad product portfolio and from the Halo effect, we started seeing from my side as the myopia management market develops we're seeing the value of offering multiple options to eye care professionals and this is helping our ortho K franchise.
We also believe it will benefit our site glass myopia management spectacles, which are scheduled to be launched in multiple European markets prior to calendar year end.
With respect to site glass, we just received 2 year clinical data and are in the process of submitting it to the FDA for approval is the myopia management treatment. It took 3 years. It took 3 year data to get my site approval, but we're hoping to receive approval faster for site glass given the strong data and that these are glasses, rather than kind of tack lenses.
In the meantime, we're finishing the legal and regulatory work to close our joint venture with US Laura Luxottica and remain very excited about the potential of that partnership.
To wrap up on myopia management, we're actively investing in sales and marketing new launches regulatory approvals and R&D to keep driving success, our focus remains on leading with clinical data and providing the best and broadest portfolio on the market.
To conclude on vision the rollout of vaccines is definitely benefiting us given the consumer nature of our business, we're seeing plenty of opportunity heading into what should be a strong back to school season, and we're gearing up for some great presentations and meetings at several upcoming eye care conferences.
On a longer term basis, the macro growth trends remained solid with roughly 1 third of the world being myopic today and that number are expected to increase to 50% by 2050, given our robust portfolio new product launches momentum with myopia management and strong new fit data, we're in great shape for long term sustainable growth.
Moving to Cooper surgical this was an outstanding quarter with record revenues of $197 million and all 3 focus areas fertility, PARAGARD and office and surgical medical devices outperforming.
Starting with fertility revenues grew 53% year over year to $84 million easily becoming the best fertility quarter, we've ever had a strike.
Strength was seen around the world and throughout the product portfolio, we're taking share and we're well positioned for future gains with improving traction in several markets.
Our key account strategy is creating opportunities capitalizing on our market leading portfolio of products and services, which cover the full spectrum of clinics needs outside of pharma offerings.
We're seeing strong growth from consumable products like media and our eye witness our proprietary automated lab management system that clinics implement to maximize safety and security by optimizing their lab practices.
And we're benefiting from increased utilization of our artificial intelligence based genetic testing platform, which increases the doctor's ability to select the best embryos for transfer and also from our capital equipment business with growth in products like incubators.
From a market perspective, COVID-19 is still negatively impacting foot patient flow in many countries, but the combination of share gains and healthy patient flow in the U S and parts of Europe is driving our results overall.
Overall, increasing vaccination activity will continue supporting the recover the IVF industry as more patients are able to return to clinics and increasing maternal age and better access to IVF treatments are trends that will continue supporting strong growth for many years to come.
Within our office and surgical unit, we grew 62% with PARAGARD up 103% and office and surgical medical devices up 41 per cent.
PARAGARD performed really well as positive health and wellness trends continue driving patient activity.
As the only 100% hormone free IUD on the U S market. The product offers fantastic long lasting birth control that addresses the needs and interests of women looking for a healthy alternative.
Within medical devices, several products performed well, including <unk> advance our direct visualization system for evaluation of the endometrium and our portfolio of uterine manipulators.
To conclude our Cooper surgical this was an excellent quarter. Some of it was tied to reopening activity in capital equipment sales, which are tough to forecast, but you'll note in our guidance that we expect to continue delivering strong results similar to vision, we have powerful macro trends supporting our growth and our exposure to consumer activity is benefiting us as.
Around the world reopen.
To finish let me add that we'll be releasing our new ESG report in a few weeks for those of you like me who are passionate about environmental sustainability, social responsibility and good governance, you'll see a great summary of where we stand today and insights into our future efforts.
We're in an excellent es G position and I look forward to continuing advancements and providing additional updates in the future and with that I'll turn the call over to Brian.
Thank you al and good afternoon, everyone. Most of my commentary will be on a non-GAAP basis. So please refer to our earnings release for a reconciliation of GAAP to non-GAAP results.
Our second quarter consolidated revenues increased 37% year over year or 32% in constant currency to $728 million.
As holiday to gross margin increased year over year to 68, 1% up from 65, 8%.
Improvement was driven by strength in our higher margin Cooper surgical business led by PARAGARD and a nice improvement in her fertility margins, where we're seeing the positive impact of transferring a significant amount of production to Costa Rica.
Coopervision also posted improving margins driven by currency and product mix.
Moving forward, we're in excellent shape to continue delivering solid gross margins.
We've completed the largest parts of our capital expansion projects at Cooper at both Coopervision and Cooper surgical and expect to receive the benefits of this over time as capacity utilization increases.
Opex was up 17% year over year as expenses naturally increased with the rebound in revenues along with higher sales and marketing expenses associated with investments in areas such as myopia management.
Having said that expenses were kept under control, resulting in consolidated operating margins of 26, 8% up from 17, 4% last year.
Interest expense was $6.1 million due to lower interest rates and lower average debt levels.
And the effective tax rate was 9.6% driven by a 2.1% benefit from options exercises.
Non-GAAP EPS was $3 and 38 with roughly $49.7 million shares average shares outstanding.
Free cash flow was very solid at $143 million comprised of $193 million of operating cash flow offset by $50 million of Capex.
Net debt decreased to $1.6 billion and our adjusted leverage ratio decreased from $2..1 to 1.8 times driven by lower debt and improving EBITDA.
Before moving to guidance, it's worth noting we acquired 2 businesses since we last reported earnings. The first was number 7 on contact lens, a U K based contact lens manufacturer, we're primarily focused on specialty lenses, including ortho K.
Annual revenue of roughly $4.4 million, which we purchased for roughly $12 million.
The second was the OBP medical use based medical device company that develops and markets a suite of differentiated when women's health medical devices with integrated led illumination.
OBP medical had roughly $10 million in annual revenues and we purchased them for $60 million.
Both deals are highly strategic and fit perfectly into coopervision and Cooper surgical respectively.
Moving to guidance, we continue to monitor and evaluate the scope duration and impact of the ongoing COVID-19 pandemic on our operations and financial results.
While we still view this as a risk factor our visibility is sufficient to allow us to provide the following update to our fiscal 2021 guidance.
Consolidated revenues are expected to range from $2.8.5 to 28$8.5 billion up 14% to 15% in constant currency with coopervision revenues between $2.1 1.
And to 1.3 billion up 11% to 12% in constant currency and Cooper surgical revenues between $7.45, and $755 million of 25% to 27% in constant currency.
Non-GAAP EPS is expected to range from $13.20 to $13.40.
To provide color on this EPS range, our gross margin expectations are unchanged as we expect coopervision improved manufacturing efficiencies to be offset by moderate margin pressure from growing dailies and surgical continuing to post strong results.
We expect the Opex as a percent of revenues to track higher than the first half of the year led by sales and marketing investments to support reopening activity and for the ongoing support of Myopia management.
Given the lower tax rate in Q2, we now expect our full year tax rate to be around 11%.
Lastly, FX has moved against US primarily due to the yen.
But we expect the tax improvement to offset this negative impact.
And to wrap up on guidance, our business continues to strengthen and we now expect free cash flow to exceed $500 million this year.
And with that I'll hand, it back to the operator for questions.
Thank you.
And as a reminder to ask a question you will need to press star 1 on your telephone.
Withdraw your question press the pound key.
Due to time constraints, we ask that you. Please limit yourself to 1 question and 1 follow up.
Our first question comes from the line of Matthew Michelle on with Keybanc.
Great. Thanks for taking the questions.
First off how should we think about phasing from here.
The next couple of quarters My sense is sequentially, we should see improvement in both CCI and CSI based on them on reopening.
Yes, Matt.
As far as Phasings go obviously.
Our guidance range for revenues.
As expecting consolidated revenue is obviously to ramp up in the second half of the year Coopervision I would expect is going to be up sequentially.
Over quarter as we work through the year Cooper surgical is going to be.
We had a really strong Q2, we talked I talked about the strength from markets reopening, but also the sort of the onetime impact of some equipment sales in Q2. So we still expect really strong results for surgical maybe not quite as strong as Q2, but.
But it's still improving.
And then on a consolidated basis up sequentially.
3 in Q4.
Okay excellent.
Then 1 of your competitors just launched an ortho K products.
What sort of are labeling thing.
FDA approved for Myopia management, what is the difference between approved for myopia management versus myopia progression control, where you're going.
Yes.
Yes, so myopia control being much.
Yes.
Oh.
I don't know how to put a powerful claim.
Myopia management being the more general term right.
You'll hear people talk about worth okay, and other products being used for myopia management.
<unk> talked about it in that context fairly frequently frankly historically.
A general term myopia control being a much more specific terms so to receive approval from the FDA on a myopia control basis is much more powerful than a general management, which youll see kind of or all ortho K products are used for that youll see that spectacles that are in the market myopia management.
So much looser designation, if you will talking about myopia management versus control.
Thank you very much.
Thank you.
And our next question comes from the line of Jason Bednar with Piper Sandler.
Hey, good afternoon, thanks for taking our questions and congrats on a nice quarter here.
Hope you can help us out with how consumers are behavior behaving here.
Our society and the economies reopen we moved back to more of a normal state are you seeing any change in eye exam behavior contact lens consumption greater percentage of annual supply has been purchased just any color there.
Yeah. So that's a good question and it gets very regional dependent would probably be the easiest way to say right. Because if you look at the U S. As an example, we've seen consumption come back up a lot of activity.
Turned to normal now we're still not quite seeing the amount of new FID activity that we'd like to see that still down. So that's still impacting some of like your new dailies.
My site as an example, some of that kind of activity.
But your but were getting there and we're getting there quickly right. So I'm pretty optimistic as we get to the back to school season. This year, you know you're going to see that new FID activity and so forth in the U S.
As you move to somewhere like Europe.
The debt.
The region from a contact loans perspective is continuing to move in the right direction. It almost feels like it's like 4 months or 5 months or 6 months ago, where the U S was that so I hope that's the case and I hope we see we see the continuing progress there is consumption as things pick up as youre seeing in vaccines rollout.
Asia Pac a little different again, though you'd probably even have to break that into markets like were were weaker in China than we are on some of the other spots out there you know China is doing well, but some of the other markets like even Japan is still you know.
In the single digit when it comes to the vaccination. So I think youre seeing different levels of improvements different levels of improving consumption activity and so forth that trend mostly across the board is positive.
I guess I kind of give you that as like a high level overview.
Okay. That's super helpful. Paul goes on the original comments.
Just as a follow up you threw out that $100 million target for myopia management next year I'm. Just curious if you could bucket. The contributors there I mean, there's my sites still accounts for $50 million of that or has that changed with the peso.
Reopening progression and then within that $100 million, what's the right way to think about maybe site class contributing to that figure versus ortho K.
Thank you.
Yeah. So.
So I would still put my site in there at $50 million.
And frankly, I think we have a chance to do better than 50.
We're running into a few challenges this year, it's COVID-19 related.
No question about that because the demand out there and the interest is crazy strong.
But I think at the rate, we're going right now I would still think were $50 million plus when it comes to my site next year, the remaining portion largely being worth Okay. We'll launch.
On a site glass. This year later this year, we'll get into some European markets start rolling around it has CE mark So we will get that product out there.
And that will contribute it would just be a question on mark of how much it contributes and.
And by the way, Jason just note debt when it comes to <unk> right now that's fully rolling through our P&L.
When we close the joint venture with Essilor Luxottica that most likely will not show up in revenues any gain or loss attributable to that joint venture will be below the line. So I don't so I would envision frankly at the end of the day next year, you might not see any site glass revenue coming through our P&L.
Okay makes sense. Thank you yep.
Yes.
Thank you and our next question comes from the line of Larry <unk> with Wells Fargo.
Hey, guys congrats on the nice quarter, thanks for taking the question.
Just a couple of island on my site I guess to follow up on the last 1 is $25 million still the right way to think about 2021 are you.
And are you, making any tweaks to the business model.
I think right now it looks like going from 3 to 4 some people may be concerned about.
On the pace to get to that $25 million and I had a follow on.
Yeah, I think that's fair I wouldn't take $25 million off the table right now, but I do think we're going to have a hard time getting there we're going to need COVID-19 to move in our favor. If you will in some of these markets because I mean, we still have a significant portion of my site being outside the U S.
So we've actually seen some of the markets take a step backwards, if you will with Covid restrictions.
And then obviously other markets maintain COVID-19 restrictions so that that's a challenge for us I mean it.
Probably a more.
Attainable number would be something kind of in the low twenties, you know 2000.21 million something like that.
Again, I don't think thats going to stop us from hitting $50 million next year, because I think the momentum and so forth. We have a strong enough to get there when I look at like.
The ramp up we've seen a faster ramp than I was anticipating in terms of like Trialing piloting activity from from retailers on from buying groups and so forth. So that work takes a little time, but.
We'll work through that and I still crazy bullish on the product and I think we're gonna be in great shape. I mean, when you look at tweaks to the business model right now not really because of kind of if you will the underlying success that we're seeing with respect to the product and the interest that we're getting from some of the what are ultimately going to be very very <unk>.
Large fitters of.
Hi, Syed.
And just 1 follow up on my side Al. So China you know how are you feeling about approval there this year.
And that retailer a large retailer in Europe that you've talked about it on the last call any any update on on that thanks for taking the questions.
Yep Yep on.
China, we've had some more dialogue back and forth with them.
All good I would say.
I guess since it's regulatory based on as you just say cautiously optimistic.
I'm not going to change my stance on that as a matter of fact, maybe I'm a little bit more cautiously optimistic.
Can't wait to get that approval and get that product into China, because that should be hugely successful there.
A great response from the retailer I mentioned last quarter, we've actually expanded that trailing activity. So things are going really well there maybe.
Maybe that's part of the reason, we're seeing some other retailers and buying groups kind of jump in on that people don't want to get left behind on that activity. So you have taken this definitely taken steps forward there.
Thanks Al.
Thank you.
Our next question comes from the line of Jeff Johnson with Baird.
Thank you good evening guys.
Al.
Keep focusing on myopia I know its such a big future growth driver.
All part of the business right now but.
Hi.
We're starting to see things like SLR do Theyre, saying 1000 patients a day in China with the Astellas lens.
They seem to be having decent success at least hoya does with their myopia glasses things.
Things like that so help us think about the next couple of years is site glass potentially as big or bigger than my side do you think my site, we will still be the dominant.
Within your portfolio, just glasses versus soft contact lenses I guess, the first question and then maybe I have a follow up on top of that.
Yes, it's going to be really interesting to see how the market develops because youre right. When it comes to the myopia glasses Essilor is a great example, they're doing really well with that probably now that's a great company to start with right and great distribution network, and so forth, but theyre doing really well right now a lot of attention go on there by optometrists, So psych lapses.
It's a phenomenal product and I think once it gets in the market is going to do really well and as we tie that together with <unk> and with my site and a lot of markets and even with ortho K I think we're going to be hugely successful. The question Mark that I kind of have on on that ends up being a lot of optometrists have come back to us and obviously they like.
Glasses and they want to go with glasses, because it's an easy sell but they also have commented back, saying, Hey, I think that my say contact lenses are going to be a lot more efficacious because because we really want these kids wear on them. All the time right. It's like metal braces would want the kids wearing them all the time and we know we'll get that from contact lenses. So some of the feed.
<unk> has been hey, I wanted to get kids into our myopia management program at like 5 or 6 years old obviously, they're not going to put them in and contacts that right. So so what I'm hearing more as like Hey from 5 day, maybe 8.910, we're looking at a little bit more at glasses and from 10 kind of on where we're pushing.
Hang in talking much more about contact lenses, so it'll be it'll be interesting to see how it comes out I was just kind of happy we have both of them [laughter] Yeah, No I would agree with that and then I guess I'll forgo my other follow up and just follow up on something you said there on just the efficacy on that I mean, we have seen now 2 year data 3 year data out from Hawaii for mass the largest in the last month or so.
Showing those kind of 60% to 65%.
Reductions in myopia progression and things like that so.
Glasses do show to be as efficacious does that change kind of your marketing message does that change price points. It looks like to me.
Even even some of the UK price points on myopia glasses around $750 a year versus 500 per year and then for my side here in the U S.
How comfortable I know markets are different but how comfortable are you at the price point you are at with my site when glasses seem to be coming in at a less expensive option at least in some of your international markets.
Yeah, a couple of things.
Price point on my side is lower outside of the U S. So when we talk about the U S. FDA approval on and running at about 750, you know you're getting outside of the U S.
Let me call, let me call the global range more 500 to 750, and we're seeing a lot of the optometrist out there sell versus like a package offering.
That Wouldnt surprise me moving forward that they kind of do that as hey, regardless of what product you are getting and how we're going to sell it we're going to sell these together. So maybe you get it's a year of contact lenses or it's 2 or 3 glasses right because kids are going to lose our glasses or break them or need to update their script that kind of stuff right. So I think that at the end of the.
Day, My gut is that the pricing is probably on a pretty good place right now where I've seen the pricing on glasses lower as you were talking about.
That's also for 1 pair of glasses right. So you end up saying, okay, well you either kind of give them 2 glasses or 3 glasses, how youre going to look at that it seems to be coming together at a pretty decent price point around where we're sitting at right. Now. So then I think the next thing goes to saying too.
2 components of it right is yes, they are both efficacious and they're being proven to be relatively similar at the end of the day and their success rates. So then you go to okay is the kid going on really where those glasses right because they have to wear them. All the time right 10 hours a day every day.
And Thats, where were seeing optometrists push towards it and say hey, they're both as efficacious, but 1 of them on guarantee on the child's wearing contact lenses. The other 1 I'm not that's why we're seeing more of the push from a lot of optometrists for kids, who are 10 or older moving them into contact lenses.
Okay got it thanks, so much.
Thank you and.
And our next question comes from the line of Anthony.
Petrol with Jefferies.
Thanks, and congrats on the quarter.
Hello, I want to start with the overall.
Calendar <unk> trends in income.
In contact lenses, and <unk> and kind of matching that to the fiscal quarter. So what is your internal data, telling you about where calendar <unk> egg.
Exhibited from from sort of a market data standpoint, some competitors are saying that the global market was was flattish with mixed performances by geography the.
The company put up 25% CVI growth. So when we look at that 25% how much of that was actually the April trend and how much of that was perhaps share gains.
Yes, so well obviously April was a massive growth number for us right.
If you kind of go back I mean, this fiscal quarter we grew.
In every region every single month, so I can say that much I do think that if you look at calendar Q1.
It was.
As our industry. It was flat maybe it was up 1 or 2% something like that.
I think you just saw kind of improved through the quarter I know like we had.
We had a bunch of business I know in March that we ended up shipping in April So we don't kind of maneuver too much around some of the month and stuff.
But yeah I guess at the end of the day I would probably answer that maybe the easiest way to summarize it is to say.
On calendar Q1 was okay, you know flat to up just a little bit April was definitely a strong month and we're continuing to see that performance big differences regionally no question about that big differences regionally. The U S was very strong. So that's 1 other things I was talking about Anthony when I was saying like I'm really happy with our performance from a.
Efik perspective, you know, we're kind of under indexed in China.
We're frankly, a little under index so to speak here in the U S where we're the number 3 contact lens company. So yes, I do believe if you look at it for the fiscal quarter, a decent chunk of it was us taking share and that includes in some markets like Europe and Asia Pac.
That's helpful. A quick follow up I'll actually shift to surgical IVF and day, both strong maybe a little bit is there backlog is still out there if there is.
What is the tailwind linked to backlog in both Ibs and in.
Thanks again.
Yeah, I'd say, we're going to post another really strong PARAGARD quarter, because may of last year was pretty nonexistent. So we're going to have another really high growth rate in PARAGARD I don't think theres anything out there with respect to channel inventory or are they kind of backlog. If you will I think that's just kind of business as usual right now.
Fertility is really strong.
Taken a lot of share even with struggles in places like India. As an example, I mean, it's really tough to see what's going on there.
Really nice market force were stronger there than in some other growth markets like China.
Question really for fertility ends up being how much of that growth was tied to you know reopening in capital equipment activity that won't repeat itself.
I'm, probably more optimistic maybe than most on that because you are continuing to see fertility clinics open around the world as they open they stock up and so forth you are continuing to see new fertility clinics get built or build out and that's capital equipment purchases and so forth. So those things are always hard to forecast but.
The backlog is pretty damn good within fertility.
Thank you.
Yeah.
Thank you.
Our next question comes from the line of Chris Cooley with Stephens.
Good evening and thanks, so much for taking the questions.
Oh I apologize.
Go back and talk about myopia management, a little bit more on specifically interested in your comments on the prepared comments when you talk about greater focus.
With that kind of on.
The mass account or the chain accounts I've always thought of as current as being a little bit more high touch.
More the kind of the spoke ECP type products.
Just kind of curious when we think about my side should we think about its adoption being driven much more like dailies in the early days from push more so on the chain and then similarly.
Maybe as a second part to that question.
Little bit interest is here you have the broadest portfolio clearly been bulking up the ortho K franchise, but kind of the 1 missing piece here is farmer.
I'm curious if there is an appetite as well so maybe just complement the spectacle and contact loans piece at that exact same call point with pharma solution I've just got a quick follow up on surgical.
Sure.
Quick 1 on the pharma piece kind of atropine and so forth. We are doing work on that within R&D.
If youll see anything anytime soon on that but.
It's an interesting kind of component of the myopia management business. So.
Yeah, we're keeping an eye on it so to speak.
When it comes to my side on the retail side that is going to be 1 of the big drivers. That's out there you know the independents have grabbed a hold of this had a lot of people continue to get trained and start selling the product some of the bigger retailers are looking at this saying, okay well wait a minute you know I don't want to get left behind on this is this is clearly gaining some traction.
World Council of Optometry going out and telling people that they should be standard of care and so forth is pushing things along relatively quickly. So what youre seeing from the retailers right. Now is really trying to figure it out right say should we have this in all of our stores or should we put this in certain stores right. So if we have a bunch of stores in London should we select.
Stores, where we're going to drive all of our pediatric patients or should we have everybody get certified and kind of everybody said my site right. So you're getting retailers kind of trying to figure that strategy out you've seen the same thing here in the U S frankly with Treehouse.
Treehouse is in some different organizations, becoming more focused on myopia management. So this is still like such early stage in the marketplace, we're really creating a brand new market here that it makes it kind of exciting right, but theres. Some theres. Some definite question marks out there that the thing I am happy about and I was kind of saying, it's moving faster than I expected.
It right now is the interest from some of those big retailers have kind of saying, Hey, I don't want to get left behind here I need to I need to get moving and figure this out 1 way or another so that's a key component. The other thing I would add just quickly when it comes to retailers is it's a little easier for an independent they run their own store and so forth how they want to price it how they want it.
Selling at communicating it and so forth you go to a retailer where they want to standardize that throughout their throughout their operations that takes them a little while longer right figure out how we're going to price it how we're going to sell it.
All of the different components that go into it so.
Lot of a lot of work being done behind the scenes on that.
I appreciate all the color there and then just quickly for me on Cooper surgical.
You mentioned, obviously the strong growth in fertility.
And also continued lift with PARAGARD with both of those cash.
<unk>, having strong momentum do we think about kind of a structural lift here in the operating margin contribution going forward from Cooper surgical as you do have.
Your planned capital expenditures I believe you said completed now is there more of a step up that we should think about as we exit the fiscal year just help us think about kind of the margin contribution profile of that business unit going forward. Thanks, so much.
Yes.
So that business certainly has higher gross margins.
And we're continuing to see those trend in the right direction that the consolidation effort I've talked about over the last couple of years with respect to Costa Rica is starting to generate returns right now obviously a product like PARAGARD has very high gross margins.
We're probably still a little inefficient if you will.
With respect to that business model in total so as we continue to grow revenues will be able to continue to leverage that basis. I mean, the fertility business is a global business as an example.
With a global infrastructure, largely a global infrastructure Youre talking about a business. Even if you annualize this quarter right. That's a little over $300 million. So we need to continue to grow that to leverage yet, but long story short the answer to that is yes, we anticipate margins our operating margins continued to improve within the Cooper surgical business and that'll.
Obviously healthy overall businesses surgical continues to strengthen.
Thank you.
Thank you and our next question comes from the line of Jon Block with Stifel.
Thanks, guys good afternoon al.
I'll start with your.
Share price call, it's usually not a big driver on the lens market Asps are usually treated from call it material or modality, but and this suppose an inflationary environment is there more of an opportunity. This year for price for you guys to take that and Brian will go on down that same road for you are there any material cost to call out.
In your opinion, putting pressure on the supply chain or other areas on the business on that I've, just got a follow up.
Yes.
<unk> I would say yes.
We've seen pricing trending higher.
Matter of fact, we've just heard some stuff, which I had on confirm that it sounds like 1 of our competitors. Just recently here to list pricing up a little bit, but you have seamless pricing moving up a little bit you've seen some rebate activity come down a little bit I think when you look at the world that we're in today right with some of the inflationary pressures that we see out there theres, probably a little bit.
More ability to take price and there has been.
Certainly over the last several years.
Hey, John I'll take that.
The other question.
Nothing really to point to we've got long term contracts with our suppliers.
So nothing to highlight really right now on inflationary sort of raw materials or other costs.
Okay, Great and then a follow up question is sort of multiple parts on the MISO ROE, but maybe just start clarity 50 million next year al.
As non including China as part of the question there and then maybe the 700000 per month. This quarter that I think you referenced in the U S was that a clean number this quarter on what I mean by that is is that sort of reflecting no free fittings.
If so maybe you can just comment on the utilization I think everyone's just trying to sort of rectify a ton of docs train 700 K in U S revenue is somewhat maybe lower than anticipated utilization of function of.
Difficulty getting the kids into the Optometrists office or Tom I, just wanted to fit 1 kid and watch him or her progress for I don't know 6 or 12 months before starting kids 2 through 5 thanks.
Yes, so you do get some of that where youre getting optometrist fit a couple of kids and then they might wait a little bit maybe the other point to make on that John that does probably important is we recognize.
Our activity all of it upon shipment 1 of the challenges that we've had with my side is it is shipping it on a quarterly basis or a 6 months rather than an annual supply you've heard me talk historically more about hey, $7.50, right. We fit a kid, we get 750 Bucks I guess mentally that's how I think of it but.
Actuality from AR on accounting perspective, depending upon what you're shipping if you're shipping a full year in the U S and yes, you will get 750 or if it's outside the U or whatever you would get whatever that prices.
But certainly more than half of our.
Sales of my site or shipped as 6 months or quarterly sales. So I think maybe the maybe I haven't been as clear about that right because the number of fittings that we're actually doing the kids getting fitting is greater I think on what people think it is because we're not recognizing as much revenue as I think people.
Maybe are thinking we are right away right. That's what 1 of the things that kind of gives me more comfort on the $50 million next year, frankly is because I see the number of children actually being fit in the product I know that revenue will come right. It's a renewing cycle anyways for the annual purchaser, but for all the kids who are not annual purchasers are 6 months or whatever you know that thats going to continue to come.
So I think thats part of it the 700000 in the U S would be.
A true number if you will right no free lenses being included in that.
When it comes to China for $50 million for next year, I guess I think of about it altogether right it'll depend when we get approval for China when.
When we're able to get launch that product.
As to how much that's going to contribute but that would be part of our $50 million plus I think to say it that way in terms of my site numbers for next year.
Perfect. Thanks, guys.
Thank you.
And our next question comes from the lineup is he Kirby with Redburn.
Hi, guys. Thank you for taking my question I have on.
On my side.
1 on surgical.
Firstly just on on my side.
Just thinking about why you on.
<unk> thousand marketing I'm glad there was nothing has changed given the dynamics, you've outlined and there's lots of new talent.
What that really means for the margin for.
Part of that.
And then following up on on site gross actually on.
On my side, just thinking about your partnership with <unk>, obviously they have.
Athos distribution network, just thinking about any potential to cross sell.
Other technologies between the 2 companies outside of cycle on that.
I'll follow up on cash.
Michael.
Yeah, I'll start with Essilor luxottica, because we have a great relationship with them.
We're selling right now there are we manufacture the ray ban contact lenses here that they are selling which is a great product that's doing really well.
Yeah, I would love to to grow and expand that relationship because it's good now they have a great team of people I've gotten to know on better our team has gotten to know them better.
If we can kind of combine our efforts to improve.
Things like Myopia management, and fantastic right. They distributor our ortho K lenses in China. If we can work something out I'd love to see us kind of come together on a product by my side, that's potential home run kind of opportunity. There. So we'll see how that builds up over time right. We're in a we're having a lot of discussions with them right now and as you can kind of tell a lot of like positive.
Good discussions.
On the margin side right now with respect to the retailers.
Not impacting anything because the price point on that.
Is what the price point is if you will.
I think that only ultimately be a question mark as to like if someone becomes a really large and starts doing a lot of volume My guess based on history is that we would continue that price point that we're at we would hold the price point, where add if you will it would be more in terms of like Hey, if you do that much volume will give you a profit cross promotional activity.
For other products and services that type of thing more more sales and marketing in a broader sense and it would be any discount activity associated with a product like my site.
Yes, that's very helpful. Thank you and then on on for Tennessee, it'd be great. If you could comment on some of the dynamics you're seeing in the end market in the clinic. It took me around.
Any sort of acceleration.
Foundation of clinics, whether on the pads.
It accelerates it use to pay that and how do you guys keep the statue.
While physicians she saw that.
These large.
<unk> accounts.
Yes, so we have seen some of that we've heard a few things from competitors about supply concerns and stuff we have not had any of those.
When you look at consolidation activity, which has increased that as a positive for us because 1 of the things we started investing in and you can tell that I'm a big fan of his key account activity.
We have a very broad the broadest portfolio youre going to have so as you see consolidation activity you'd naturally get clinics coming and saying Hey, we want to buy it on volume we want all the products and we want to push those products in a standardized format through our clinic.
We're clearly the number 1 option for that kind of activity right. We can offer them everything that we can pull it we can pull it together for them so that consolidation activity.
Some of the bigger trends if you will on the fertility space are positive to us because of our current business model.
Yeah.
That's very helpful. Thank you and congratulations on the quarter.
Great Yes. Thank you.
Thank you and our next question comes from the line of Joanne Lynch with Citibank.
Good evening, and nice quarter, a couple of little things at this stage of the call.
Was there any stocking in the quarter what is your foreign exchange guidance for the year.
On gross margins you said that there was no change to your gross margin assumption for the year. Despite the 16, 1% on the quarter. So I'm just curious if you could reiterate what the assumptions are.
There'll be no change.
Yeah I'll take the first 1 then I'll flip it to Brian there was nothing to mention in terms of stocking.
With respect to vision or surgical a normal kind of activity there.
Hi, Joanne Yeah, so on the FX guide.
FX previously was a 3% tailwind to revenues.
On an 8% tailwind to EPS.
FX has moved against us.
It's on the margins are slightly worse on the on the revenue line, but still 3% tailwind on the AR to EPS, it's about a 7% tailwind now so move down about 1%.
So that's obviously factored into our guidance and the impact of FX in the second half of the year is offset by the effective tax rate reduction going from 12 around 12 on a half from last quarter or 2 to around 11% now with this new guidance.
On the gross margin side I had said last quarter around 67, 5% to 68% on a consolidated basis.
Bouncing around kind of range bound yeah. We ended up at $68..1 I still think we have a chance maybe to get to <unk>.
68, but we're still going to kind of hold to the upper 60 Sevens.
I talked on my script about the push pull around higher dailies.
Set by better utilization of better efficiencies in our manufacturing plant with volumes and then strong Cooper surgical gross margins. So some of that's going to be driven by mix, So but high 60 Sevens and then on the on the operating margin line and that's really where we're kind of where we're saying hey, theres just going to be a little bit more opex.
Then what we were expecting let's say last quarter. So all of the myopia management product launches just general market opening activity in back to school.
Is going to result in slightly higher opex as a percentage of sales and so that's how you get to our EPS guidance.
Excellent. Thank you so much.
Thank you.
Our next question comes from the line of Robert Marcus with Jpmorgan.
Great. Thanks for taking the question I'll add my congratulations on a good quarter.
Maybe just to follow up on Jo Ann's question on.
Can you remind us what FX was in second quarter on the top and bottom line and what.
Acquisitions were in the quarter and what's in the guidance now versus last quarter.
Sure.
On the FX to revenues is $24.5 million Bucks.
FX to EPS was <unk> 21.
In the guidance, we've got about $2 million for number 7 lens and about $5 million from OBP those or both.
2 quarters worth.
And then.
In the fourth M&A contribution in the quarter, you had about about $1 million from from vision and about and it was just a little bit under $3 million for CSI. So a total of 4.
Great and.
I know you don't break out segment margins anymore. I was wondering if you could just give us.
Maybe a high level thought on on fishing versus surgical and how we should think about the.
Gross and operating margin trends for each of the businesses throughout the year you talked a lot about spending in coopervision I just.
Any color you can give us to help with the split would be great. Thanks a lot.
Yeah no problem. So so on coopervision, obviously I talked about earlier some of the.
Both of them were up vision and surgical were up.
Some of the trends that we're seeing are still playing out we have we had some volume related absorption that's starting to go away as volumes pick up.
But though that's being offset by higher sales of dailies are daily our daily silicone hydrogel suite of products.
<unk> is not quite as high as our as our company wide gross gross margins our coopervision gross margin. So that's that's going to be a little bit of a push pull but we should see we have a chance of seeing coopervision margins trending a little bit upwards, but flattish and then on the Cooper surgical side, obviously stronger PARAGARD sales without high gross margin.
<unk> <unk>.
And fertility over the work that we're doing to consolidated into Costa Rica, All helps Cooper surgical gross margins.
So that's a positive trend that should should continue on the operating margin side I'll touch on Cooper surgical operating margins are just a few minutes ago on the vision side again, I think most of most of what youre seeing as markets reopen and all the rebound activity that we're doing to see these markets to prepare for product launch.
And really the 2 to put put some some some some meat around myopia management make sure we're supporting the launches of <unk>.
All of our suite of Myopia manager project products.
You'll see some some opex increases there ahead of some of the revenues that youll see down the road.
That's really helpful. Thanks, a lot.
Okay.
Thank you.
Next question comes from the line of Steven Lichtman with Oppenheimer.
Thank you hi, guys.
And finally high daily it sounds like my day continues to be very strong and I assume the main driver.
Beyond the improved supply and certainly new launches as per my day is there anything else that youre seeing in terms of broader patient preference trends is there a mix toward a more premium lens that's surprising you.
I guess overall, what's your view on the mix of clarity versus my day looking ahead.
Outlook for clarity overall.
Yes, so it's been interesting how it's played out both performing really well.
Both within their kind of segments. If you will a clarity be more mass market and we've seen good success.
Clarity kind of right through I sphere, toric and multifocal all doing okay.
My day sphere, doing well, but mighty toward doing really well so that products.
Once we got it in the marketplace, we knew it was going to be a hot product.
And I can tell you. It's just continued to go with it.
Doing really really well so that's probably been the biggest driver of the biggest positive. That's 1 of the things that makes me kind of optimistic about my day multifocal right like all our clinical testing data feedback has been very similar similar to all of that positive feedback and good stuff. We were getting on my day toric. So so I'm pretty excited about the multifocal.
I'll comment on.
Great. Thanks, and then.
Just your outlook for PARAGARD overall looking out over the next 1 to 2 years, Yeah. How are you thinking about underlying.
Growth potential and given the health and wellness trend are you anticipating increasing DTC activity.
Not necessarily I mean, we will have a new campaign that will come out and replace our old campaign, you saw some of the television advertising and so forth.
No we're continuing to get good results on that from the marketplace and a lot of interest and so forth given the momentum and interest that we have right now I don't see the necessity to kind of go blast out a DTC campaign or something above and beyond the activity we've been doing.
PARAGARD team is really strong we just moved a few people around there. So we have a great team of people who ran at great team of people who are currently running it altogether, our insight into the IUD market in PARAGARD specific particular, it's incredibly strong so youll continue to see DTC activity and targeted active.
But I wouldn't expect significant.
Increases in costs associated with it but I would continue to expect pretty good performance out of PARAGARD.
Great. Thanks Al.
Yes.
Thank you Andrew.
Our next question comes from the line of Rob Cottrell with Cleveland Research.
Hi, good evening. Thanks for fitting me in here 2 quick questions for you first al you mentioned that new fit data is still lagging a bit on a bit soft clearly that's not impacting the quarter outlook yet but.
Wondering how youre thinking about the timeline for new fits to return to normal and on whether that is included in the outlook for this year you think it can it might stretch into 2022.
Yeah.
So different by region.
We're definitely seeing the improvements.
Around the world.
The U S continues to move in that right direction and that's critical for US right now because that's an important 1 for my side, especially in the back half of the year, but also for our dailies right because what we were seeing pre COVID-19 with respected new fit data was that you were seeing a much higher percentage of people being fit in daily Si Hy, then you will or any other products. So obviously that.
It's an area of strength for us.
I'm, making the assumption that when we look at.
The world of new fits Youre going to continue to see new fits trend in the right direction I wouldn't anticipate like a big jump all of a sudden anywhere I think it's just going to be a matter of vaccines rolling out continuing to be successful continuing to allow more foot traffic. If you will will improve new fit data. The other thing is like I mean, you get to California.
You're right, we still have restrictions June 15th we get to the point finally, where we basically don't have restrictions that's going to allow a greater volume of patients going through optometry offices, and so forth. So there's some big markets other California being 1 of them that continue to take steps in the right direction. You go outside of the U S. You look at markets like the U K continue.
To move in the right direction right. So so.
Moderate positive, but I'm not anticipating like some massive big step up.
Got it okay. Thank you and then quickly on my side, you talked about revenue recognition and shipping out every 6 months I'm curious as you start to.
Expand these pilots with retailers is that something where you expect retailers and buying groups to stock inventories to where it might be a little bit more lumpy on the future or will you still retain the shipping for patients.
Right now there's no stocking on my side so.
That's a good point just to be clear right.
Everything that Youre seeing everything were reported as product being shipped out to patients to wear.
We'll see how that changes in the future I would I would guess certainly for the foreseeable future.
It's going to continue to be managed the same way. It is right now it'll be shipped when the patient orders the product and then it's just a matter of how the Doc wants to do it you know a lot of them want to say, hey, I'll get a year supply because the child's I'd say, it's not going to change that much. So let's get the product lets get it in their house, we're certainly as I said over half of of Optometrists are saying hey.
I want to see the Kid more frequently I want them to come in for eye exams.
So I'm going to do a 3 months or I'm going to do a 6 month and then I'm going to do the eye exam, and then if theres a parameter change or tweak that needs to be made I'll do it and send them new lenses, otherwise I'll continue to send them the original script.
So what kind of see how that plays out over time. My guess is though that you're not going to have a lot of stocking on my site anytime in the near future.
Got it thanks, so much.
Yep.
Thank you.
And our next question comes from the line of Chris Pascal with Guggenheim.
Thanks Al can you give us an update on where you stand in the U S with my site and physicians trained.
Or the installed base, maybe in the U S and globally.
Yeah, I think we're around 4000 certified.
Eyecare professionals in the U S right now.
I don't have the number off top my head I know it is larger than that outside of the U S to be honest with you on kind of stop looking at it just because there's so much variability around fitting and how much people felt you know anyone who is really interested in myopia management has a tendency to fit a lot and then we're getting a lot of eyecare professionals come.
And in that are kind of new that are doing 1 or 2 or are just getting started we're also starting to see people outside of the traditional optometrist. If you will getting certified on that because youre getting some staff and some other people who are now responsible for at the optometrist doesn't Wanna.
Spend their time educating mom and dad on what myopia is and how it progresses and so forth. So you kind of see a broadening of some of the trading activity, but it.
It continues to increase I know, we continue to get a pretty decent number of.
Certifications coming through on a monthly basis.
How about from an installed base perspective, how many kids do you think you have to know.
Uh huh.
Go over 30030.30, some thousand [laughter].
Numbers like started ratchet and way up I'm, sorry, I've been focusing on.
On other stuff, but yes, it's certainly over 30000.
Okay.
And then I'm curious with the fertility business.
Do you have much of a presence in China today.
The impact to you guys from the change in the child.
Child policy overload, that's something we're looking at as an opportunity as you think about that.
Yeah Boy I wish we had a bigger presence there we do not have a really large fertility presence in China.
We do have a presence we have a decent business. There we're working right now to try to get some of our products registered so we can sell them. There are some of our top products in different markets around the world are currently not registered in China, So they're going through the process.
I think the change in terms of the 3 kids is great for fertility in China, and that's going to that's going to help all of us in the fertility space, who compete in that marketplace.
We have much higher market share in other markets and we do China. So I look forward to getting some of those product registered and having some more success on that market.
Thanks.
Yeah.
Thank you I'll now turn the call back over to the President and CEO al White for any closing remarks.
Great Fantastic well. Thank you everyone I appreciate the time and the interest and so forth always happy to talk about all of this stuff as you can imagine I spend a lot of my time.
With Dan talking about my site and the team.
Myopia management in general so happy to go through all of this detail.
It was a good quarter, so happy to be and talking about it so.
So thanks for the time, and we look forward to catching up with everybody in the coming weeks here and certainly in 3 months when we reported in the beginning of September. Thank you operator.
This concludes today's conference call. Thank you for participating and you may now.
Now disconnect.
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