Q4 2021 Cooper Companies Inc Earnings Call

Yes.

Ladies and gentlemen, thank you for standing by and welcome to the Q4 2021 Cooper companies' earnings conference call.

This time, all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to answer questions. During the session you will need to press star one on your telephone.

Be advised that today's conference is being recorded if you require any further assistance. Please press Star then zero I would now like to hand, the conference over to your Speaker today, Kim Duncan Vice President Investor Relations and risk management man.

Ma'am. Please go ahead.

Good afternoon, and welcome to the Cooper companies fourth quarter and full year 2021 earnings conference call.

During today's call, we will discuss the results and guidance included in the earnings release, and then use the remaining time for questions.

Presenters on todays call are al White, President and Chief Executive Officer and Bren.

Andrews, Chief Financial Officer and Treasurer.

Before we begin I'd like to remind you that this conference call contains forward looking statements, including all revenue and earnings per share guidance and other statements regarding anticipated results of operations market or regulatory conditions and acquisitions integrations of any asset acquisitions or other anticipated benefits forward looking statements depend on assumptions that day.

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 statements in today's earnings release and are 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 Coast Dotcom should you have any additional questions. Following the call. Please call our Investor line at 90, 546 year old three 663 or email IR at Cooper Dot Com and I will turn the call over to al for his opening remarks.

Thank you, Ken and welcome everyone to Cooper companies' fiscal fourth quarter Conference call I'm pleased to report another strong quarter led by record revenues at Coopervision, where we exceeded the high end of expectations for the quarter, our daily silicone hydrogel and myopia management portfolios posted strong results in our key account strategy generated.

Share gains in markets around the world with.

But then Cooper surgical our fertility business continued to perform extremely well and we recently announced an exciting agreement to acquire generate life Sciences, a great strategic fit with our fertility in labor and delivery offerings.

For the full fiscal year 2021, I'm proud to report record revenues at both Coopervision and Cooper surgical record non-GAAP earnings and record free cash flow as we enter fiscal 2022, we have strong momentum and expect another record setting year.

Regarding fourth quarter results and reporting all percentages on a constant currency basis consolidated revenues were $759 million with coopervision at $565 million up 11% and Cooper surgical with $194 million up 11% non-GAAP earnings per share were $3 28.

Yeah.

For Coopervision, our daily silicone hydrogel portfolio led the way growing 19% all three regions reported strength in this product category with our premium product My day, and our mass market product clarity, both performing really well.

<unk> City bio affinity also had a solid quarter supported by strength in toric and multifocal.

For the region. The Americas grew 6% led by our daily silicone hydrogel lenses with particular strength in my day, where we continue seeing strong fit activity.

<unk> grew a healthy 15% with improving consumer activity and strength in our key accounts driving growth and share gains within this region, we posted broad based growth from our daily Silicones and <unk>.

Asia Pac grew 14% led by a steady improvement in consumer activity and success with several new product launches. This region remains a very important growth driver for us and were investing accordingly, as we're outperforming the market and taking share.

For our FRP portfolio, both energy posted solid results driving growth in markets around the world with its broad offerings, including a toric multifocal and energize the most innovative product in the monthly space.

Regarding product launches, we remain incredibly active I've highlighted in the past the many products and range extensions, we've been launching around the world for my day clarity and Bayou City and all of that activity continued this has driven consistent share gains and we expect that to continue.

One recent launch that I wanted to highlight this quarter as our new <unk> multifocal, we've launched the product in the U S and several major European markets and the feedback and results are absolutely fantastic.

We're consistently hearing from eye care practitioners.

That the new by Nokia level Progressive fitting system is a breakthrough approach that simplifies fit and provides optimal visual acuity at all levels and we're hearing that from patients who are touting it as the best multifocal they've ever worn for exceptional near intermediate and distance vision. We expect this loss to continue performing extremely well and to <unk>.

<unk> had a nice halo effect supporting the already successful my day brand of Toric since fears.

Moving to myopia management, our portfolio grew 63% to $21 million with my side up 165% to $7 million and ortho K products up 40% we.

We reached our goal of $65 million for the year up 76% year over year and our momentum is strong.

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 worth okay lenses and our innovative site glass vision glasses.

Regarding my site, we didn't quite reach our target this quarter, but we did reached $19 million in sales for the full year up a very impressive 149% year over year.

We're making great progress with independent optometrists buying groups and retailers around the world and we're seeing momentum in all these channels.

We're also making great progress in China, where we signed an exclusive distribution agreement with US The war.

That's the law is now actively promoting my site following a soft launch last month and one of the largest ophthalmic trade shows and we're on target for our full launch in fiscal Q2.

We've also assembled an advisory board of key opinion leaders, whose affiliated hospitals represent over 50% of myopia management contact lens volume in China. This team of experts is providing fantastic insight into our mine site positioning and how we can grow ortho K, even faster and how site glass will successfully fit in.

As a reminder, childhood myopia rates in China are estimated at over 80% and reducing myopia is a priority for the Chinese government. So the opportunity is significant.

Lastly, we recently presented our industry, leading seven year clinical study of <unk>.

MISO confirming the product works for nearly all myopic children. It cuts myopia progression by roughly 59% on average it works at any age a child starts treatment. It works for as long as a child wears it and Theres no rebound of treatment is stopped. These are the drivers that will continue supporting short and long term growth.

Regarding our other myopia management products, our ortho K portfolio performed really well led by success in China and in November we commercially co launched our site glass myopia management glasses in Europe with Us Laura and we'll be partnering with them on several additional launches coming soon.

Overall, our myopia management, our momentum is strong and we're still targeting constant currency growth of over 50% in fiscal 2022 to roughly $100 million in sales.

To conclude our vision, we estimate the overall contact lens market grew 7% in calendar Q3, while coopervision grew 8%, even as new fits remain below pre COVID-19 levels. According to recent U S data roughly 64% of eye care practitioners stated they had capacity to serve more patients.

<unk>, but cannot mostly due to staffing challenges having.

Having said that trends are positive and we expect the market to grow in the 4% to 6% range. This coming year supported by improving FID activity in the U S and EMEA and reopening activity in Asia Pac.

Meanwhile, the long term macro growth trends remain solid with roughly one third of the world being myopic today, and that's expected to increase to 50% by 2050.

For Coopervision, we closed this fiscal year in a really strong note exceeding the high end of our expectations and we've entered fiscal 2022 with a robust product portfolio, new product launches, a fast growing myopia management business and a strong fit data.

To ensure we're seizing the growth opportunities in front of US we've increased our sales force investments and we'll continue with our successful myopia management investment strategy, we have strong momentum.

We're growing faster than the market and we expect that to continue.

Moving to Cooper surgical our fertility business performed exceptionally well growing 24% year over year to $82 million.

Strength was seen around the world and throughout our product portfolio, including from consumables capital equipment and genomics.

One particular area of continued strength with our R. R I witnessed platform.

This is our proprietary automated lab management system that clinics implement to maximize safety and security by optimizing their lab practices.

A system like this is especially important in today's world to improve quality control and work for workflow management to enable social distancing and prevent mistakes such as embryo mismatches, which you. Unfortunately occasionally hear about.

Regarding the broader fertility industry, our addressable market is approaching $2 billion with 5% to 10% long term growth expected. It's estimated that one in eight couples as trouble getting pregnant due to a variety of factors such as increasing maternal age and that more than 100 million individuals worldwide suffer from in fertility.

Given the improving access to treatments, increasing patient awareness greater comfort discussing IVF and increasing global disposable income this industry should grow nicely for many years to come.

Within our office and surgical unit, we grew 3% medical devices performed well growing 20% led by our portfolio of uterine manipulators several of our surgical devices in our next generation <unk> advanced product line.

Meanwhile, PARAGARD declined 17% largely as forecasted due to buying activity from last quarter's price increase.

Having said that similar to what we've seen from the general IUD market. The performance was soft likely due to COVID-19 staffing challenges.

Lastly for Cooper surgical we recently announced an agreement to acquire generate life Sciences for $1 6 billion.

Many of you May know this company has a cord blood storage business, but they've done a phenomenal job expanding over the years in this business is now a great strategic fit for Cooper surgical as they're a leader in donor egg and sperm and cryo preservation services for fertility treatments as well as being a leader in cord blood and cord tissue storage, which is an excellent fit.

With our labor and delivery group.

We have an investor presentation on our website that summarizes the deal, but let me provide some additional color.

Roughly one third of the businesses in fertility, which we estimate will grow 5% to 10% long term supported by general industry growth.

Meanwhile, combining generates offerings with our existing portfolio allows us to leverage our infrastructure launch new products and go international to accelerate growth beyond this range.

Two thirds of the businesses and cord blood and cord tissue storage, which we expect to grow 3% to 5% long term. This is driven by increasing demand for cord tissue stem cells due to optimism around the significant number of clinical trials using these stem cells for regenerative medicine.

Consolidated this business offers long term sustainable growth of 4% to 6% and we believe there are opportunities to push that range higher with potential revenue synergies as we leverage our expertise.

To finish let me make a few comments on fiscal 2022, introducing annual guidance in today's world is a challenge given COVID-19 uncertainties, regardless, our organic revenue growth is strong and we expect that to continue we're investing in product launches and we're doing that intelligently by leveraging our operations to ensure we receive.

Strong returns.

I believe coopervision has the most innovative company in the contact lens space today, with leading products and myopia management and the broadest product offerings in the market and Cooper surgical is an extremely exciting position led by our fertility business as a company we remain on a steady upward trend and we see that continuing for fiscal 2022.

And many years beyond.

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.

Fourth quarter consolidated revenues increased 11% year over year, and also 11% in constant currency to $759 million.

Consolidated gross margin decreased year over year by 20 basis points to 67.5%.

Percent, driven primarily by currency, partially offset by lower manufacturing costs at coopervision.

Operating expenses grew 16% as our strategic investments in sales and marketing to support myopia management and fertility continued.

Within this we did see slightly higher than initially forecasted investments for site class vision and my side in China, along with elevated distribution costs tied to higher demand of direct shipments.

Consolidated operating margins were 24, 9% down from 26, 8% last year.

Interest expense was $5 million on lower average debt and the effective tax rate was 10, 3% helped by stock option exercises in the quarter.

Non-GAAP EPS was $3 in 2008.

With roughly $49 9 million average shares outstanding.

FX negatively impacted us and it was roughly <unk> <unk> worst than expected when we gave guidance last quarter.

Free cash flow was solid at $110 million comprised of $175 million of operating cash flow offset by $65 million of Capex.

Net debt decreased to $1 4 billion and our adjusted leverage ratio improved to 138 times.

Moving to 2022 guidance and excluding the recently announced generate life Sciences acquisition consolidated revenues are expected to be in the range.

Of 3.32 to $3 <unk> billion up 6% to 8% in constant currency with coopervision revenues between two to two five.

And two to $6 7 billion.

6% to 8% in constant currency.

And Cooper surgical revenues between 807, and $823 million up 6% to 8% in constant currency.

Non-GAAP EPS is expected to range from $13 60 to $14 up nine five to 12, 5% in constant currency and the tax rate is expected to be around 13%.

At the midpoint of guidance this equates to constant currency revenue growth of roughly 7% and constant currency EPS growth of roughly 11%.

Regarding currency on a year over year basis, we're expecting an FX headwind of roughly two 5% on revenues and 7% on EPS.

This impact will be most detrimental in Q1, we're expecting etfs in the three to $3 10 range.

Before opening the call to questions. Let me touch on the generate life Sciences acquisition that we announced on November 10.

As of today, we are optimistic we will close in the next couple of weeks, which would give us roughly 10 five months of their operations in our fiscal 2022.

Having said that we're still waiting for final regulatory approvals. So we're not providing specific guidance today.

In the meantime, let me walk you through the deal accretion that we expect.

As previously announced generate has roughly $250 million in trailing 12 month revenue.

Gross margins are expected to be roughly 70%.

Opex is expected to be elevated in year, one synergies are expected to be minimal as we integrate and invest in the business.

As we are now closer to securing permanent financing for this transaction.

We are updating our year, one non-GAAP EPS accretion estimate to around 50.

And I would add that we expect this accretion to improve in year two with synergies.

In summary, we're pleased with how we closed this fiscal year and we look forward and as we look forward into 2022 and beyond we continue to believe our strategic investments will drive topline momentum supporting share gains in both businesses and long term sustainable earnings growth.

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

At this time.

I would like to remind everyone in order to ask a question you will need to press star one on your telephone.

Again, that's a question. Please press star one on your telephone.

First question comes from the line of Andrew Backman William Blair Your.

Your line is open.

We actually good afternoon, and thanks for taking the questions I appreciate all the color on the guidance and support outlook, maybe just to start here on the generate business that that youre going to be acquiring here shortly.

This is sort of the first call that you've had sort of post announcement. So may be just from a strategic.

Sort of stand point al can you just sort of talk about how this sort of message with their current offering how youre going to next to each commercial.

Organizations that you have and then just broadly.

Generally had a nice DTC marketing angle anything that you guys can do there to maybe expand that capability on the <unk>.

Right now thanks.

Sure Yeah.

And happy to be talking about this I know, we made the announcement and it was frustrating for for many of you in absolutely frustrating for me to not be talking about it on a deal.

Pretty passionate about.

Yes. This is a great deal for us it's a great fit I mean, youre talking about a third of this business. That's in fertility. We as you know have a great position in the fertility industry, adding the donor piece of it to our existing product is just one more thing that allows us to walk into a fertility clinic and offer a full suite of product side. So I'm really excited.

About how that's going to roll in.

And when I think about our ability to leverage that with our existing salespeople and our ability to leverage that with our existing relationships with fertility clinics in the U S and outside of the U S. I get pretty excited about that I mean, so you've got to you've got a fertility business, that's growing 5% to 10% at least as you can see by the report.

Numbers. This part of the industry is growing along with that has been so I do think that we're going to be able to accelerate that growth. When I think of some of the new products that we're going to be able to launch in that space and then with some of the leverage we have so kind of a slam dunk fit if you will on the fertility side of things and that's not even touching on the cryo preservation, which is.

Which is a perfect fit.

If you look at the other piece of it about two thirds of that business is on the storage side for cord blood and cord tissue.

Been around for a long time and many people on the phone know about that.

One whose kids probably knows about that.

That space has gotten a little bit more exciting recently because of the cord tissue. The stem cells are used for regenerative medicine Theres a ton of clinical studies that are going on right now well over 1000.

So <unk> seen an increasing interest in storage of cord tissue. So that's kind of exciting I mean, they have a relatively small sales force handle on that.

We have a great team, that's calling on obgyns around the U S 100 people or so so we're going to be able to take.

Take that messaging directly to the obgyn and you touched on the DTC side of things and that's great right BTT is certainly fine, but the medical professional drives a lot of the decision making here.

Our ability to bring that and first time that youre actually going to have a company owned one of these businesses, whose calling directly on obgyns with or without <unk>.

Great relationships I think we're going to be able to add some real value. There so kind of excited about both pieces of that.

Great. Thanks for all that color.

Maybe just to switch gears here a little bit.

On the margin side, so 70% gross margins for generate can you just sort of talk about how this might be accretive on the operating margin side. I know you guys have sort of talked about notwithstanding total cooper margins to 30% range or so over time. It doesn't look like that's going to be this year, but can you sort of talk about how this plays into that longer term goal of around.

30%.

Sure Yeah and that continues to be an objective I mean as you know Brian touched on you know currency is a fairly decent negative to us this year. So that's that.

It's causing us to take a step back right from an as reported perspective, but not from an.

Our constant currency perspective, yes.

Yes, good good gross margins on to generate business, 70% or so.

<unk> fits in really well now this first year buying this will be a little careful on the integration activity. They had acquired a business. This past summer that took them into Australia and Canada.

We need to roll this business into our operations, we need to take care of everything with respect to.

Customer service and a variety of other things so not anticipating a lot of leverage in the first year.

But then we will roll it in and then through the year, we will we will get leverage from this business now the question Mark on it ends up really being when you look at the 50.

It's more around the interest expense side, we're not going to get into the Opex at this point in time in interest expense because one we havent closed generate yet to we haven't closed the permanent financing for it yet so.

So when we do we can supply a little bit more color, but suffice it to say that long term. This will be accretive if you will to company wide gross margins and help us get to that 30%.

Thank you. Our next question from the line of Larry <unk>. Your line is open.

Good afternoon, and thanks for taking my question and congrats on a nice quarter al.

A couple of quick couple for me just on Myopia management for fiscal 2022.

That 100 million.

Our next youre, not giving guidance anymore.

Help us think about the components of that and I guess I'm, particularly interested to hear how you're thinking about the contribution from China.

And I think we all see how many parents astellas essilor selling okay.

China for 2000 per day now.

And what do you think.

What percent of that like how should we think about the ramp of mine site in China relative to what they did with stellar I mean, we've heard things like maybe it could be.

So which would still be pretty pretty strong and then I had a follow up.

Yes.

Youre right I mean, China is really exciting we have a strong relationship obviously with SLR essilor distributes our primary ortho K product in China now we have the exclusive distribution with them for my site. We did the soft launch are already there.

We're in a really good position with them, we're kind of hitting on all cylinders. If you will early here in China.

Talk about the last which is their glasses that they are selling into China, right now and doing really well with the Chinese government is has said publicly that addressing myopia is a very significant concern other so they're taking it seriously.

These glasses or contact lenses or throat are sold through the hospitals. So I mean, it's something that can move fairly quickly. It can be very successful I won't necessarily break the dollars down in our expectations, but we definitely have high hopes for a lot of success in China. When I look at that $100 million Mark we've talked about that in the past we still see.

And by that you know my opinion on.

On my side I think we're going to have a lot of success now it's going to depend on China. How successful that is this year, but.

But at the same time, we're seeing success in China with our ortho K products. So im happy about that and maybe even a little bit more success than I was thinking about it. So a few different moving parts, there and I wouldn't discount side glass I mean, thats a product.

We just launched.

<unk> launched I should say with Este Lauder in Europe. As you said, it's the less is doing really well will bring site glass into China here at some point in time, so a lot of different moving parts in there that are going to drive that $100 million.

That's helpful and for my follow up Al I mean, obviously, we all see the inflationary pressures.

How are you thinking about your ability to coopervision.

To take pricing in fiscal 2022, what are you what are you assuming in the guidance.

We have heard that.

Competitors are taking.

Over 4%.

In 2022.

As you know a little bit above average how are you thinking about.

Pricing in 2002 thanks.

Yeah, I don't want to get into particular specific number right now.

But we will be taking price so.

Thats coming.

Youre seeing the inflationary pressures and so forth out there we're in a great industry on both sides of our business within contact lenses.

It's a good industry.

Higher pricing as warranted on an annual basis. This year, you have inflationary pressures and shipping and everything else that goes along with it. So yes, we will be taking price higher I'll, just I'll stay away from giving a number at this point in time, but youll see it at some point in the near future.

Thank you. Our next question is from the line of Matthew Michelle.

Keybanc Your line is open.

Hey, great. Thanks for taking the questions.

I'm just trying to understand your thoughts around starting at 6% to 8% with the CVI guidance.

That's where you were starting point for 2018 in 2019, but now you have myopia control portfolio as an extra lever.

You have some easier comps, especially in the first quarter and from what you. Just said you have you have some price increases also also helping you out as a potential tailwind. There. So how are you thinking about that six to eight 5% starting point.

I'll answer it.

As easy as one word COVID-19.

That's it.

So if you want to think that fixed date as conservative I am not going to argue with you on that but I'm also not sure what's going to happen with Covid and some of the variance out there.

So you have to try to factor that in a little bit it's only prudent when youre, giving annual guidance.

Period like we're in today to try to build in a little bit of <unk>.

Conservatism, if you will for that.

I think that I think thats fair enough.

And then on the EPS side, when you think about.

The year over year walk.

I think you said, 11% constant currency EPS growth, if I'm not mistaken at the midpoint.

We can all walk that down to what the FX impact was and gave it to begin with but what how should we think about the impact of year over year on increased investments that youre, making.

And tax on EPS.

Yeah.

Tax we have gone up a little bit because it was kind of in the low elevens go into 13.

So obviously, if you exclude a tax rate our profit growth would be better.

If you kind of look at kind of leverage through the P&L I guess I'd, probably just probably do it at a high level and say if I went to the midpoint of guidance at 7% is the midpoint of revenue guidance in constant currency and the midpoint of EPS guidance is 11% and that includes hurdling the tax rate that we talked about so that's your leverage.

Right there right I mean I've talked in the past about how we are a business where we can lever. This business. We've invested a lot in myopia management, we're going to continue to invest there and frankly, we're investing in vision more aggressively in a number of different areas, which we started this past quarter with some sales force expansion in several markets.

So a lot of investments going into vision right now sales for product launches might a multifocal super excited about that.

<unk> a lot of different areas, we're doing all of those investments and we're still talking about 7% and 11% leverage through the P&L. So I feel pretty good about that and that again hurdles the tax increase.

Thank you.

Next question from the line of Jeff Johnson of Baird. Your line is open.

Hey, guys good evening.

Maybe another pricing question not just on the core portfolio, but my site. When we go out and talk a lot of these docs. It just seems like everybody is really excited about the technology wants to be pushing us into more and more patients.

$750 wholesale price youre selling price. However, you want to look at it.

The big hurdle, especially if these guys want to put $500 in professional fees or something on top of that.

In some cases, even more so.

How comfortable are you with that.

If you did $19 million in MISO revenue, even if youll share cut the per box price by a good amount to really push penetration you probably make that up within a year or two.

Or maybe Pat or so I mean, what do you think that wholesale price that is pretty high right now.

Yes, that's a great question, Jeff we're talking about that internally right now we wanted to get through year end here, where we had a good comp, especially in the U S against last year, where you remember we gave a lot of the lenses away for free. So we are looking at that we are doing some sensitivity on that to your point right you cut price, but you sell more product and does that make up for it so.

We're kind of evaluating that if you will right now.

Having said that the number one pushback by far is definitely not price right. That's on the list, but it's not number one it continues to be the staffing concerns and fit it fit concerns and the amount of time it takes to.

Talk to the parents talk to the kids get the kids in it it's just a longer process than what we initially thought you're getting we're still seeing a situation, where we're getting there and we're converting a ton of the patients, but it's taking six months nine months something like that 12 months. The Kid has to come in again right. The parents. The ECP explains that they have myopia what it means.

How its progression progressing the parent doesn't want to pay to your point or they don't want their they are concerned about putting their kids in contact lenses.

So they delayed the decision and then they come back in in the ECP explains that their child's I say is worse and it's going to continue to get worse, that's when the sale actually happened so the actual sell which which frankly I thought it was going to happen a little bit quicker, obviously, when I put the numbers out there in the uptake.

It's still happening, it's just a little bit more delayed so I think pricing is a component of it but just better fit activities going to drive it also.

Yes, that's helpful. And then maybe as a follow up just kind of a tight trading around that four to six mark within six to eight for CVI.

If I take out the myopia of $35 million incremental there on a constant currency basis in Hawaii.

About a point and a half a little north of a point, perhaps so let's say you're kind of talking about your core portfolio in the 4% 456, Matt.

Saying, we think we're going to be about in line with the market historically, you've been nicely above market is that conservatism or is that again just called it is that competitive branches. So run there and the core to 6% market assumption Youre going with does that include maybe a step up in pricing you think for the whole industry. This year do you think it's four to six minutes people didn't take three core pricing.

Historically, one or two price.

There is some upside to that four to six market.

Yes, I think you do have pricing in there you could certainly make an argument that the four to six could.

It could be a little bit lower right. Because you do have obviously the COVID-19 concerns you have everything else that's going on in the marketplace.

In different markets around the world. So it's.

Sitting here today, I think that will end up in that four to six range with the pricing with some pricing in there.

I think we will take market share ill be really surprised if we don't take market share on our core and our like the light basis. If you will myopia management, our myopia management portfolio, all add to that obviously and ensure if you will that were above market growth, but on a like to like basis. I think we'll take share I'm not sure it will be a lot of share but it'll.

Ill be really surprised if its not sure theres. Some other good competitive launches and stuff going on out there. So I don't want to necessarily get ahead of ourselves, but based on the strength that you're seeing with some key accounts and so forth, especially in Europe and Asia Pac.

We'll take share.

I think the degree of share gains for us on our core portfolio basis, meaning on a like to like basis.

We will certainly be tied to some geographies right I mean, if Asia Pac continues to come back in places like Japan, where we're really well positioned right now we would stretch kind of or share gains.

Thank you next question is from the line of Jon Block.

Stifel. Your line is open.

Hey, guys. Good afternoon, Brian maybe the first one for you just any color on other parts of the P&L for 'twenty two to <unk> prior point so.

There seems to be some implied leverage in the model when we think about things, especially if they're taking into consideration the higher tax rate but.

How about just the moving parts is it a little bit of gross margin expansion, but think about opex as a percent of revenue maybe flattish because you guys have flagged had called out some ongoing investments.

Well first of all John Thank you very much for the question I don't think I've got a question last call.

Happy to take one today.

So yes as it relates to guidance.

Gross margins and operating margins.

When you take out when you when you start at the midpoint of our guidance gross margins on a constant currency basis will be up year over year and operating margins will be up even more year over year. So when I was talking about the leverage and when you're talking about hurdling, some inflationary pressures like wages and freight.

And other higher costs and then also having that there's continued investment activity in growth areas like myopia and fertility.

We're levering.

We're getting leverage from from the P&L from higher revenues.

And thats showing up in operating margin. So I would expect operating margins to be up nicely.

Year over year.

It's really good.

Got it got it all equal haul equally weighted my question. So I guess the next one just out of the fertility side I mean over the past.

For years, we've seen a lot of fertility deals obviously smaller than generate but now you've done generate are about to do generate so in your opinion is this sort of fully built out the fertility part of the business as a complete the puzzle so to say and then maybe just attack on CSI PARAGARD you'd Miss our number I know, there's some moving parts due to the.

Price last quarter and the buy ahead, but maybe exiting fiscal 'twenty. One do you feel like inventories in a good place due to the buy in on the power grid side of things. Thanks.

Yeah on fertility, you know I love that space is a great industry, it's growing it's got all kinds of potential.

Interestingly, it's still relatively fragmented and there's different players in different markets around the world.

Some sizable players in different markets around the world in different areas of fertility. So I think that generate was a good example of one that kind of came out and is a nice addition for US we will see I mean, we certainly have a great fertility franchise right now.

A lot of opportunities to grow and grow in excess of the market rates.

But I mean, if we could find other transactions to kind of fit in there that that could make sense from a geographic expansion perspective that type of thing we would certainly evaluate those.

If I look at PARAGARD, it's funny that within our medical device space.

Probably similar to a lot of companies that you follow we did see some softness softness in September that's for sure, but we even saw some softness in October I was pleasantly surprised with how our core medical device products held up during that time.

Some of them hold up naturally because theyre tied to childbirth, and so forth, but even the elective procedure products held up okay, and we had a decent October that was not the case as much for PARAGARD.

I don't think PARAGARD unique when I look at the IUD market in general and you look at the other products out there those have also been soft.

So I'm not sure how did like really fine tune that down to the point of an individual product, but I do think that some of the staffing restrictions and so forth that are out there are causing problems with iuds and some some other products.

Frankly, I think youre going to continue to have a few of those struggles even in our fiscal Q1 to be honest with you. Because you are still seeing some of those staffing challenges and so forth out there and on the medical side of things, we don't see that really on the contact lens side, but but we certainly see it on the bad.

And that device side of things and PARAGARD.

Caught up in that no I don't think it's doing any worse by the way just to be clear with respect to the IUD market. It's in line or maybe even doing a little bit better, but but that part of the market has been hit.

Thank you next question is from the line of Jason Bednar of Piper Sandler Your line is open.

Hey, good afternoon, thanks for taking the questions here, one on generate lights and one on my side for me al starting on generate light totally appreciate the strategic merits of the transaction but.

This asset does clearly come with a little bit of a checkered past because a big price tag $1 6 billion largest in your history. So I guess the question is what made this the right transaction for you right now or maybe some other faster growing assets, maybe we're looking at and then could you also talk about how you expect CLS operate more effectively under the CSI.

Relative to maybe some of the pieces did prior to maybe private equity ownership.

Yeah, I mean, one of the things that's going to make it more effective for us and one of the things that's exciting for US is the size of our business. I mean, we just have a very large fertility business and we have a large obgyn business and some great products, specifically within the Ob space. So we're talking to those professionals we.

No those professionals really well one of the challenges you have when you're a company like generate is you're.

Youre seeing a lot of your success come from like direct to consumer activities that type of thing, it's more DTC and not direct to the professional.

We're known as kind of a high quality educational shop within the within the Cooper surgical within the obgyn space and within the fertility space I mean, if you look at the training, we do Theres, just extensive training and knowledge communication and so forth that we do with medical professionals in that side of things that's.

Not something that generate has really been able to take advantage of because they just didn't have the size to be able to do that when you take their business and combine it with our strengths.

That one plus one is three.

That's what's so cool about this so yes. This opportunity came up I've been following it frankly for a long time when it was a cord blood storage business that was a little bit of a different story.

As you fast forward to where it is today and you think about things like regenerative medicine, and what's going on over 1000 clinical is in process on that who is able to talk to the obstetricians about that who's able to speak to the fertility clinics to the value of that in those clinical studies and so forth.

We have the professionals already in there talking to them and doing training and so forth. So I really think we can add a lot of value there I mean, and frankly at the end of the day deals come up when deals come up right. I mean when opportunities are available I've been looking at this thing for many many years I was happy to see it come up and I was happy to see us get the opportunity to win this business. So to me I kind of looked at.

It is yes.

Yes, it's a big deal and so it is a big deal for US it's an important deal for us, but when you find something that is a great strategic fit that's growing mid single digits, and you think that youre going to be able to enhance that growth.

You look at those opportunities you take advantage of them, especially on something thats going to throw some nice accretion to the bottom line.

Alright, that's great and very helpful.

Maybe for.

<unk> question Cooper did have a representation today at the <unk> meeting.

Logging for level two code for my site.

Could you update us on where you're at with the reimbursement strategy from my side here in the U S and we're securing this coding and associated pain that would fit into the overall plan and how you are considering that maybe is an element of adjusting price points in the future just to maybe go back to Jeff's earlier question.

Yep Yep Yep. So right now we have nothing in any assumptions regarded regarding reimbursement I mean anything that we ever could get on that side of things could be.

As upside and could be material upside.

But that's kind of all I would say at this point in time right. We're working on stuff. Obviously, we're highly interested in that and theres reasons for us to want that to be successful, but at the current state of the game nothing factored in no assumptions made around that we will see how that plays out and I hope at some point in time in the future to be able to.

To give you that good news.

Thank you next question from the line of Joanne Lynch of Citibank. Your line is open.

Thank you and good evening.

I appreciate the color on the sale process for <unk>.

Right.

On the other side of that which is the training process for physicians as a way to quantify how many of our questions have been trained all of those have been trained which ones start start.

Integrating it into their practice.

Yeah.

I don't have that number Amit it's significant because it's continued to grow.

There's a lot of Ecp's trained on it right now I would say the more important takeaway probably from that Joanna is if I had to do it over again, how would I go about that over again right because a lot of these ecp's are getting trained they are fully certified they go back into their practice. They are excited about it.

Maybe they don't have a lot of kids coming in a lot of volume and it ends up kind of following onto that.

In the back seat so to speak right because youre dealing with staffing challenges they are dealing with with patients that they are trying to pass through that are easier to fit in itself too.

We have seen is that once you get the ECP trained and excited about it and you have a myopia spec.

Specialists, which we have now we fully staffed up our myopia management specialists around the world when.

When you have that myopia management specialists talking to them and working with them and answering their questions as it comes up about how to sell it how to fit out how to charge for it and so forth we are dramatically more successful.

That's the key it ended up not being so much like how many do you have how many do you have combined with how many are you working with and helping once they fit a few kids and get rolling it's like a snowball going downhill, okay now I'm comfortable with it uncomfortable fitting children talking to parents I'm going to do this for every child that walks in the door every single child.

Talk to you about this because I've got the process down and understand how to do it I understand how to sell it so that ends up being a key and do some of these newer markets that we're going into right now we're having a lot more success a lot faster because we've learned so much over the last couple of years about how to successfully transition someone from the training to the ACA.

Selling of the product.

That's really helpful can I ask a very boring question.

In the first quarter can you quantify revenue and EPS impact.

Yeah, I'm not going to I'm not going to quantify it obviously, it's by far the biggest impact for.

For FX relative to all the other quarters in the year.

It's a double digit headwind to EPS in the first.

<unk> and cost of goods is also the worst hit the worst in cost of goods as well in the first quarter and you kind of get the double whammy right because you get the pound six months later flowing through bad and the revenues immediate hit.

Yes.

Thank you next quarter.

One is from the line of Anthony Petrone.

Sure.

Jeffrey your.

Your line is open.

Thank you a couple on my side and then one on GFS on my.

We've had calls where we've heard that the attach rate.

And the stickiness going into next year is going to be quite high. So I'm just thinking about the existing ecp's net of already implanted patients. This year instead of patients. This year do you expect the attach rate to be like a traditional contact lens and then in terms of just the effectiveness you mentioned the clinical data al.

We've heard that in some cases, they've actually slowed progression.

Most.

<unk>.

And so they have seen some some some good effectiveness in controlling the progression of myopia. So those would be the first two on my side and I'll have a follow up on GLA.

Yeah, well certainly.

There is no question the products working in the marketplace.

If you go and look at the success rate it is reducing the progression of myopia for children at a fairly high level right on average 59%.

There are a number of kids.

Who their myopia progression essentially stops entirely like which is amazing could you imagine that.

But that definitely happens and we have many instances of eye care professional professionals, telling us that so that's really fantastic to retain inch rate if you will.

Those sales is really high.

It's somewhere kind of $85, 90% or so there's still kids, who are non responders to my site or you give them the lens. They wear the lens, we've seen that in our clinical data and we see it in the real world application, where some kids for whatever reason.

To have their myopia progress at the same rate I mentioned last call. We have a lot of clinical work going on we have eight products in R&D right now specifically associated with this.

Some of those are addressing the non responders right now so that we can come out.

With some some additional products to try to address everybody, but yes, its something like 9% and 10 kids are staying in the product, it's pretty high high level retainers.

And then just to follow up on the last one you mentioned now just the opportunity on on drug development a few thousand trials.

Now how does that play out.

For that business, just when you think about clinical's versus.

When these products called commercial like how does that revenue opportunity sort of shape up.

Yes, it's really interesting.

Yes.

Is enough clinical is out there and some of them are theyre not phase one right I mean, I think the one on kidneys. As an example, I think is our livers is like stage four.

There is some real work being done there on the clinical side of things for regenerative medicine, and the best stem cells to use our the cord tissue stem cells, you don't have to use those but those are the best and just so everyone's aware those are different stem cells between the core blood.

You've always heard about when we've had kids over the years to the stem cells with cord tissue.

There are legitimate clinical is going on out there that are showing a lot of potential for success. So there is definitely more interest in that.

When we were doing our diligence on our work we were actually we actually did a bunch of survey work asking people.

That asking women, who just had children who are currently pregnant are you going to store your core tissue and.

The rates were pretty low than when we took them through the clinical side of things. If you will and said Hey, This is what's going on with regenerative medicine Theres no guarantees here, but this is what's going on.

The desire to store their cord tissue went to almost 100%. So I think a bunch of it is education. If you tried to sell that on a DTC basis youre going to have a hard time.

If youre talking to medical professionals.

There's people out there and this does not have to be an obgyn right. This could be an oncologist this could be.

Some sort of sports injury professional theres all kinds of things you could use regenerative medicine for so you are saying Hey, there is no promises here, but there's a lot of really really strong clinical work going on much more so than there is the stem cells associated with cord blood. So some good exciting stuff going on there we will see how it plays out but I think theres some.

Attunity.

To increase the storage there.

Just in case, if you will.

Yeah.

Next question is from the line of Robbie Marcus.

Morgan Your line is open.

Oh, great. Thanks for taking the questions two from me first.

You guys I believe spent $25 million in 2020 incremental on.

My site marketing do you have that number for 2021, and what you're expecting in 2022, and I guess, it's probably more better it'd be inclusive.

More of the new product launches.

No we don't Robert just because that whole thing is has kind of pushed itself together. If you will under so it's not just my site. It's altogether under myopia management, and we just we stopped breaking that number out and separating.

It was a decent number that's for sure. This year, we had some pretty decent investments going out in Q4.

And it will be a sizable number this year, having said that.

We actually get leverage on it year over year meeting that's part of the reason Youre seeing leverage we've put a pretty good infrastructure in place this year.

We're able to start to leverage that a little bit in terms of comparing year over year. When it comes to our myopia management investments.

Got it and maybe as a follow up I think it would be helpful. If you maybe run through just your thought process on M&A and capital allocation to generate deal is growth dilutive to the overall business accretive to see.

S side, but dilutive to the overall business. So maybe just how youre thinking about deals.

How you think about growth rates versus return on invested capital what kind of metrics you are looking at and how youre thinking about priorities for cash going forward. Thanks.

Yes.

I guess to start I mean, I certainly personally do not believe that the.

Generate deal is going to be dilutive to our consolidated growth rate just to be clear.

I do think that based on their history and based on where I see the market growing that's probably a 4% to 6% kind of grower and that's what we've talked about but.

We have multiple areas to drive that growth rate higher we have some new products that we're already talking about right now that we're going to be launching and we have other forms of revenue synergies coming from our sales forces in.

And then international expansion also where theres some faster growth rates out there. So I am optimistic about our ability to drive growth now it's pretty close right now I mean, 4% to six is not bad thats for sure, especially on our annuity sale and very high cash flow product with strong margin. So that's the other side of this right I mean, because at the end of the day, we still look at this.

And say, okay, well, what makes sense from an acquisition perspective, we have a tendency to really focus on traditional discounted cash flow models, we're very curious and we focus on that and we tried to be very intense about the numbers that are going in that and ensure we're getting a sufficient return on that we do that a little bit more than we would do like ROIC and some of that.

Stop because of the nature of our business right strong cash flow growth business, so on and so forth. So.

The other thing I would add on that is strategic deals I've talked about that in the past if we could find strategic acquisitions that meet the financial metrics that can drive value in this business and we're going to look at doing those kind of deals in this one kind of checks all those boxes.

Thank you next question is from the line of Rob Cottrell of Cleveland Research. Your line is open.

Hi, good afternoon, thanks for taking my questions.

Just first on the on the first quarter guidance understand the FX headwind in the three to three tiny PFS, but wondering if you've seen any change in top line trends here in November.

Just given the fourth wave in Europe or any other change in momentum.

Business.

November was a good month.

Okay.

Okay. Okay.

I guess more strategically than.

Al in the past you've talked about not wanting to change investment.

Pacing our strategy given FX headwinds.

Ali.

Now with a seven point headwind next year.

Materially worse than it's been in the past does that change your thinking at all around managing costs into next year.

No. It Frustrates me, Brian said gross margins would be up year over year on a constant currency basis, and our guidance shows that on an as reported basis. Those gross margins are going to be down year over year. So that frustrates me and when I look at operating margins and we talk about getting to 30%.

We'd be having a nice positive move in operating margins.

Currency held true, having said that we're still running a business thats a long term business. We're looking at at five years 10 years long term growth and doing what makes sense to drive long term growth I want sustainable mid upper single digit growth as a company with margin expansion, we can't jerk the business around because of FX.

And I am not going to play the game were.

FX is good and then we're going to go invest a whole bunch and then FX is bad and were not right. That's just not how we're going to run the business.

Great. Thanks for the detail.

Yes.

Next question is from the line of Chris.

Yes.

Your line is open.

Thanks Al I wanted to follow up on your comment about driving growth from the January assets above that mid single digit to get to if you just look at the business today and.

And in particular, how we should think about the opportunity for geographic expansion I would think that distance from the patient to the facility might be a factor. When you are talking about something like cryopreservation. So are you going to have to invest in building new storage facilities to get into new markets. How should we think about the capex requirements of this business because historically.

CSI has not had a lot of capex associated with it.

Yes, the Capex is really low in this business the storage tanks and so forth are cheap.

So at the end of the day you have to have everything else that goes along with a really high quality control systems security systems, all of that kind of stuff, but the actual capex itself is not high.

When you look at the international expansion opportunities lets go to fertility because that's what I would really highlight a lot of that gets done with the fertility clinic youre teaming up with the fertility clinic, because when youre talking about donor eggs and donor sperm that's usually a fairly quick transaction.

Unlike traditional storage.

Well, obviously do like permanent storage of eggs and sperm that type of thing but.

But a lot of that activity aligns itself directly with fertility clinics and you're using the fertility clinics in working with them. Their operation. So you just don't get a situation where you have significant capex, it's low capex, it's really high cash flow in that business.

Okay. That's helpful and then.

Ryan I'll give you another bad here too so we saw capex for.

The core business here come down by about $100 million. This past year can you go lower in 2022, how should we be thinking about.

The capex requirements of the existing Cooper business than just low two hundreds now a good run rate going forward or do you have more potential to drive that down.

Thanks, Chris.

I appreciate the question I know, we've given capex over the years.

As you know Capex is a moving target.

Just on timing of projects and milestones and lead time, which getting longer capacity needs demand and things like that rather than getting into that level of detail. Whatever it is will cover it I've mentioned, we'll do around $600 million of free cash flow.

In 2022, which is a nice increase over 'twenty, one so operating cash flow to be strong there for free cash flow will be strong again in 'twenty two.

Thank you and there are no further questions at this time I would like to turn the call over to Al White. Please continue.

Great Fantastic well. Thank you everyone I appreciate taking the time for the call and obviously were happy to announce the numbers and we're pretty positive about where we stand as a business. So look forward to continuing to produce here and speak to everyone. In early March when we do our next earnings call. Thank you. Thank you operator.

Thank you and that concludes today's conference. Thank you everyone for participating you may now disconnect.

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Ladies and gentlemen, thank you for standing by and welcome to the Q4 2021 Cooper companies' earnings conference call.

This time, all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to answer questions. During the session you will need to press star.

Hello your telephone.

Please be advised that today's conference is being recorded.

If you require any further assistance. Please press star then zero.

I would like to hand, the conference over to your Speaker today, Kim Duncan Vice President Investor Relations and risk management.

Ma'am. Please go ahead.

Good afternoon, and welcome to the Cooper companies fourth quarter and full year 2021 earnings conference call.

During today's call, we will discuss the results and guidance included in the earnings release, and then use the remaining time for questions. 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 market or regulatory conditions and acquisitions integrations of any actually acquisitions or other anticipated benefits forward looking statements depend on assumptions data.

Or methods that maybe incorrect or imprecise and are subject to risks and uncertainties.

So that could cause our actual results and future actions of the company to differ materially from those described in forward looking statements are set forth under the caption forward looking statements in today's earnings release.

And are 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 dotcom.

Should you have any additional questions. Following the call. Please call our Investor line at 90, 546036 fixed rate or email I are at Cooper Dot com.

And now I'll turn the call over to al for his opening remarks.

Thank you, Ken and welcome everyone to Cooper companies' fiscal fourth quarter Conference call I'm pleased to report another strong quarter led by record revenues at Coopervision, where we exceeded the high end of expectations for the quarter, our daily silicone hydrogel and myopia management portfolios posted strong results in our key account strategy generated <unk>.

Gains in markets around the world.

With Vancouver surgical our fertility business continued to perform extremely well and we recently announced an exciting agreement to acquire generate life Sciences, a great strategic fit with our fertility in labor and delivery offerings.

For the full fiscal year 2021, I'm proud to report record revenues at both Coopervision and Cooper surgical record non-GAAP earnings and record free cash flow as we enter fiscal 2022, we have strong momentum and expect another record setting year.

Regarding fourth quarter results and reporting all percentages on a constant currency basis consolidated revenues were $759 million with coopervision at $565 million up 11% and Cooper surgical at $194 million up 11% non-GAAP earnings per share were $3 28.

Yeah.

For Coopervision, our daily silicone hydrogel portfolio led the way growing 19% all three regions reported strength in this product category with our premium product My day, and our mass market product clarity, both performing really well.

<unk> also had a solid quarter supported by strength in toric and multifocal toric.

The regions. The Americas grew 6% led by our daily silicone hydrogel lenses with particular strength in my day, where we continue seeing strong fit activity EMEA.

EMEA grew a healthy 15% with improving consumer activity and strength in our key accounts driving growth and share gains.

Within this region, we posted broad based growth from our daily Silicones and Bios entity.

Asia Pac grew 14% led by a steady improvement in consumer activity and success with several new product launches. This region remains a very important growth driver for us and were investing accordingly, as we're outperforming the market and taking share.

For our FRP portfolio bio affinity posted solid results driving growth in markets around the world with its broad offerings, including a toric multifocal and energize the most innovative product in the monthly space.

Regarding product launches, we remain incredibly active I've highlighted in the past the many products and range extension as we've been launching around the world for my day clarity and bio <unk> and all of that activity continued this has driven consistent share gains and we expect that to continue.

One recent launch that I wanted to highlight this quarter as our new <unk> multifocal, we've launched the product in the U S and several major European markets and the feedback and results are absolutely fantastic.

We're consistently hearing from eye care practitioners.

Without the new by Nokia Larry Progressive fitting system is a breakthrough approach that simplifies fit and provides optimal visual acuity at all levels and we're hearing that from patients who are touting it as the best multifocal they've ever worn for exceptional near intermediate and distance vision. We expect this launch to continue performing extremely well and to <unk>.

A nice halo effect supporting the already successful <unk> brand of Toric and sphere.

Moving to myopia management, our portfolio grew 63% to $21 million with my side up a 165% to $7 million and ortho K products up 40% we.

We reached our goal of $65 million for the year up 76% year over year and our momentum is strong.

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 glasses.

Regarding <unk>, we didn't quite reach our target this quarter, but we did reached $19 million in sales for the full year up a very impressive 149% year over year.

We're making great progress with independent optometrists buying groups and retailers around the world and we're seeing momentum in all of these channels.

We're also making great progress in China, where we signed an exclusive distribution agreement with Essilor Essilor.

<unk> is now actively promoting my site following a soft launch last month and one of the largest ophthalmic tradeshows and we're on target for our full launch in fiscal Q2.

We've also assembled an advisory board of key opinion leaders, who is affiliated hospitals represent over 50% of myopia management contact lens volume in China. This team of experts is providing fantastic insight into our <unk> positioning and how we can grow ortho K, even faster and how site glass will successfully fit it.

As a reminder, childhood myopia rates in China are estimated at over 80% and reducing myopia is a priority for the Chinese government. So the opportunity is significant.

Lastly, we recently presented our industry, leading seven year clinical study of <unk>.

I cite confirming the product works for nearly all myopic children. It cuts myopia progression by roughly 59% on average it works at any age a child starts treatment. It works for as long as the child wears it and there is no rebound if treatment is stopped these are the drivers that will continue to support a short and long term growth.

Regarding our other myopia management products, our ortho K portfolio performed really well led by success in China and in November we commercially co launched our site glass myopia management glasses in Europe without the Laura and we'll be partnering with them on several additional launches coming soon.

Overall, our myopia management, our momentum is strong and we're still targeting constant currency growth of over 50% in fiscal 2022 to roughly $100 million in sales.

To conclude our vision, we estimate the overall contact lens market grew 7% in calendar Q3, while coopervision grew 8%, even as new fits remain below pre COVID-19 levels. According to recent U S data roughly 64% of eye care practitioners stated they had capacity to serve more pay.

<unk>, but cannot mostly due to staffing challenges.

Having said that trends are positive and we expect the market to grow in the 4% to 6% range. This coming year supported by improving FID activity in the U S and EMEA and reopening activity in Asia Pac.

Meanwhile, the long term macro growth trends remain solid with roughly one third of the world being myopic today and that expected to increase to 50% by 2050.

For Coopervision, we closed this fiscal year on a really strong note exceeding the high end of our expectations and we've entered fiscal 2022 with a robust product portfolio new product launches are fast growing myopia management business and a strong fit data.

To ensure we're seizing the growth opportunities in front of US we've increased our sales force investments and we'll continue with our successful myopia management investment strategy, we have strong momentum.

We're growing faster than the market and we expect that to continue.

Moving to Cooper surgical our fertility business performed exceptionally well growing 24% year over year to $82 million.

Strength was seen around the world and throughout our product portfolio, including from consumables capital equipment and genomics.

One particular area of continued strength with our our I witnessed platform.

This is our proprietary automated lab management system that clinics implement to maximize safety and security by optimizing our lab practices.

A system like this is especially important in today's world to improve quality control and work for workflow management to enable social distancing and prevent mistakes such as embryo mismatches what you. Unfortunately occasionally hear about.

Regarding the broader fertility industry, our addressable market is approaching $2 billion with 5% to 10% long term growth expected. It's estimated that one in eight couples has trouble getting pregnant due to a variety of factors such as increasing maternal age and that more than 100 million individuals worldwide suffer from in fertility.

Given the improving access to treatments, increasing patient awareness greater comfort discussing IVF and increasing global disposable income this industry should grow nicely for many years to come.

Yeah.

Within our office and surgical unit, we grew 3% medical devices performed well growing 20% led by our portfolio of uterine manipulators several of our surgical devices in our next generation <unk> advanced product line.

Meanwhile, PARAGARD declined 17% largely as forecasted due to buying activity from last quarter's price increase.

Having said that similar to what we've seen from the general IUD market. The performance was soft likely due to COVID-19 staffing challenges.

Lastly for Cooper surgical we recently announced an agreement to acquire generate life Sciences for $1 6 billion.

Many of you May know this company has a cord blood storage business, but they've done a phenomenal job expanding over the years in this business is now a great strategic fit for Cooper surgical as they're a leader in donor egg and sperm and cryo preservation services for fertility treatments as well as being a leader in cord blood and cord tissue storage, which is an excellent fit.

With our labor and delivery group.

We have an investor presentation on our website that summarizes the deal, but let me provide some additional color.

Roughly one third of the businesses in fertility, which we estimate will grow 5% to 10% long term supported by general industry growth.

Meanwhile, combining generates offerings with our existing portfolio allows us to leverage our infrastructure launch new products and go international to accelerate growth beyond this range.

Two thirds of the businesses and cord blood and cord tissue storage, which we expect to grow 3% to 5% long term. This is driven by increasing demand for cord tissue stem cells due to optimism around the significant number of clinical trials using these stem cells for regenerative medicine.

Consolidated this business offers long term sustainable growth of 4% to 6% and we believe there are opportunities to push that range higher with potential revenue synergies as we leverage our expertise.

To finish let me make a few comments on fiscal 2022, introducing annual guidance in today's world is a challenge given COVID-19 uncertainties, regardless, our organic revenue growth is strong and we expect that to continue we're investing in product launches and we're doing that intelligently by leveraging our operations to ensure we receive.

Strong returns.

I believe coopervision has the most innovative company in the contact lens space today, with leading products and myopia management and the broadest product offerings in the market and Cooper surgical is an extremely exciting position led by our fertility business as a company we remain on a steady upward trend and we see that continuing for fiscal 2022.

And many years beyond.

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.

Fourth quarter consolidated revenues increased 11% year over year, and also 11% in constant currency to $759 million.

Consolidated gross margin decreased year over year by 20 basis points to 67.5% driven primarily by currency, partially offset by lower manufacturing costs at coopervision.

Operating expenses grew 16% as strategic investments in sales and marketing to support myopia management and fertility continued.

Within this we did see slightly higher than initially forecasted investments for site class vision and my site in China, along with elevated distribution costs tied to higher demand of direct shipments.

Consolidated operating margins were 24, 9% down from 26, 8% last year.

Interest expense was $5 million on lower average debt and the effective tax rate was 10, 3% helped by stock option exercises in the quarter.

Non-GAAP EPS was $3 28.

With roughly $49 9 million average shares outstanding.

FX negatively impacted us and it was roughly <unk> <unk> worse than expected when we gave guidance last quarter.

Free cash flow was solid at $110 million comprised of $175 million of operating cash flow offset by $65 million of Capex.

Net debt decreased to $1 4 billion and our adjusted leverage ratio improved to 138 times.

Moving to 2022 guidance and excluding the recently announced generate life Sciences acquisition consolidated revenues are expected to be in the range of.

3.32 to $3 <unk> billion up 6% to 8% in constant currency with coopervision revenues between two to two five.

And two to $6 7 billion.

6% to 8% in constant currency.

And Cooper surgical revenues between 807, and $823 million up 6% to 8% in constant currency.

Non-GAAP EPS is expected to range from $13 60 to $14 up nine five to 12, 5% in constant currency and the tax rate is expected to be around 13%.

At the midpoint of guidance this equates to constant currency revenue growth of roughly 7% and constant currency EPS growth of roughly 11%.

Regarding currency on a year over year basis, we're expecting an FX headwind of roughly two 5% on revenues and 7% on EPS.

This impact will be most detrimental in Q1, where we're expecting EPS in the three to $3 10 range.

Yes.

Before opening the call to questions. Let me touch on the generate life Sciences acquisition that we announced on November 10th.

As of today, we're optimistic will close in the next couple of weeks, which would give us roughly 10 five months of their operations in our fiscal 2022.

Having said that we're still waiting for final regulatory approvals. So we are not providing specific guidance today.

In the meantime, let me walk you through the deal accretion that we expect.

As previously announced generate has roughly $250 million in trailing 12 month revenue.

Gross margins are expected to be roughly 70%.

And Opex is expected to be elevated in year, one synergies are expected to be minimal as we integrate and invest in the business.

As we are now closer to securing permanent financing for this transaction we.

We are updating our year, one non-GAAP EPS accretion estimate to around 50.

And would add that we expect this accretion to improve in year two with synergies.

In summary, we're pleased with how we closed this fiscal year and we look forward and as we look forward into 2022 and beyond we continue to believe our strategic investments will drive topline momentum supporting share gains in both businesses and long term sustainable earnings growth.

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

At this time.

I would like to remind everyone in order to ask a question you will need to press star one on your telephone.

Again, the ask a question. Please press star one on your telephone.

First question comes from the line of Andrew Backman of William Blair. Your line is open.

Good afternoon, and thanks for taking the questions I appreciate all the color on the guidance and support outlook, maybe just to start here on the generate business that youre going to be acquiring here shortly.

Sort of the first call that you've had sort of post announcement, so may be just from a strategic.

Sort of stand point al can you just sort of talk about how this sort of message with their current offering how youre going to masstige commercial.

Organizations that you have and then just broadly.

January had a nice DTC marketing angle anything that you guys can do there to maybe expand that capability on your utility side right now thanks.

Sure Yes.

And happy to be talking about this I know we made the announcement it was frustrating for for many of you in absolutely frustrating for me to not be talking about it on a deal.

Pretty passionate about.

Yes. This is a great deal for us it's a great fit I mean, youre talking about a third of this business. That's in fertility. We as you know have a great position in the fertility industry, adding the donor piece of it to our existing product is just one more thing that allows us to walk into a fertility clinic and offer a full suite of product side. So I'm really excited.

Added about how that's going to roll in.

When I think about our ability to leverage that with our existing salespeople and our ability to leverage that with our existing relationships of fertility clinics in the U S and outside of the U S.

I'm pretty excited about that I mean, so you've got to you've got a fertility business, that's growing 5% to 10% at least as you can see by the reported numbers. This part of the industry is growing along with that has been so I do think that we're going to be able to accelerate that growth. When I think of some of the new products that we're going to be able to launch in that space and then with some of the leverage we have.

So kind of a slam dunk fit if you will on the fertility side of things and that's not even touching on the cryo preservation, which is.

Which is a perfect fit.

If you look at the other piece of it about two thirds of that business is on the storage side for cord blood and cord tissue.

Been around for a long time and many people on the phone know about that.

Whose kids probably knows about that.

That space has gotten a little bit more exciting recently because of the cord tissue. The stem cells are used for a regenerative medicine theres a ton of clinical studies that are going on right now well over 1000.

So <unk> seen an increasing interest in storage of cord tissue. So that's kind of exciting I mean, they have a relatively small sales force handle on that.

We have a great team, that's calling on obgyns around the U S 100 people or so so we're going to be able to take.

Take that messaging directly to the obgyn and you touched on the DTC side of things and that's great right DTC is certainly fine, but the medical professional drives a lot of the decision making here.

Our ability to bring that and first time that youre actually going to have a company owned one of these businesses, whose calling directly on obgyns with it with great relationships I think we're going to be able to add some real value. There. So kind of excited about both pieces of that.

Great. Thanks for all that color.

Maybe just to switch gears here a little bit.

On the margin side, so 70% gross margins for generate can you just sort of talk about how this might be accretive on the operating margin side. I know you guys have sort of talked about notwithstanding total cooper margins to 30% range or so over time. It doesn't look like that's going to be this year, but can you sort of talk about how this plays into that longer term goal of around.

30%.

Sure, Yes, and that continues to be an objective I mean as you know Brian touch side, you know currency is a fairly decent negative to us this year. So that's that.

It's causing us to take a step back right from an as reported perspective, but not from us.

Our constant currency perspective.

Good good gross margins on to generate business, 70% or so.

Fits in really well now this first year by and this will be a little careful on the integration activity. They had acquired a business. This past summer that took them into Australia and Canada.

Need to roll this business into our operations, we need to take care of everything we respect from IP to customer service in a variety of other things so not anticipating a lot of leverage in the first year.

But then we will roll it in and then through the year, we will we will get leverage from this business now the question Mark on it ends up really being when you look at the 50.

It's more around the interest expense side, we're not going to get into the Opex at this point in time in interest expense because one we havent closed generate yes, two we haven't closed the permanent financing for it yet so.

So when we do we can supply a little bit more color, but suffice it to say that long term. This will be accretive if you will to company wide gross margins and help us get to that 30%.

Thank you. Our next question is from the line of Larry <unk>. Your line is open.

Good afternoon, and thanks for taking my question and congrats on a next quarter al.

A couple from couple from me just on Myopia management for fiscal 2022.

That 100 million.

I know youre, not giving guidance anymore.

Help us think about the components of that and I guess I'm, particularly interested to hear how you're thinking about the contribution from China.

And I think we'll see how many pairs astellas astellas essilor selling per day.

China for 2000 per day now.

What do you think.

What percent of that like how should we think about the ramp of my site in China relative to what they did with Stalinists I mean, we've heard things like maybe it could be a factor.

So which would still be pretty pretty strong and then I had a follow up.

Yes.

Youre right I mean, China is really exciting we have a strong relationship obviously with ASUR Lora Essilor distributes our primary ortho K product in China now we have the exclusive distribution with them for my site. We did the soft launch are already there.

We're in a really good position with them, we're kind of hitting on all cylinders. If you will early here in China.

Talk about the last which is their glasses that they are selling into China, right now and doing really well with the Chinese government is has said publicly that addressing myopia is a very significant concern of theirs, so they're taking it seriously.

These glasses or contact lenses are thorough are sold through the hospitals. So I mean, it's something that can move fairly quickly and it can be very successful I won't necessarily break the dollars down in our expectations, but we definitely have high hopes for a lot of success in China. When I look at that $100 million Mark we've talked about that in the past we still see.

And by that you know my opinion on that.

On my side I think we're going to have a lot of success now it's going to depend on China. How successful that is this year.

But at the same time, we're seeing success in China with our ortho K products. So im happy about that and maybe even a little bit more success than I was thinking about it. So a few different moving parts, there and I wouldn't discount side glass I mean, thats a product thats.

Just launched.

<unk> launched I should say with Essilor in Europe. As you said, it's the less is doing really well will bring site glass into China here at some point in time, so a lot of different moving parts in there that are going to drive that $100 million.

That's helpful and for my follow up Al I mean, obviously, we all see the inflationary pressures.

How are you thinking about your ability to cover vision.

To take pricing in fiscal 2022, what are you what are you assuming in the guidance I mean, we have that your competitors are taking.

Over 4%.

In 2022.

Which is a little bit above average how are you thinking about.

Pricing in 'twenty two.

Yes, I don't want to get into particular specific number right now.

But we will be taking price so that's coming.

Seeing the inflationary pressures and so forth out there we're in a great industry on both sides of our business within contact lenses.

It's a good industry and the higher pricing as warranted on an annual basis. This year, you have inflationary pressures and shipping and everything else that goes along with it. So yes, we will be taking price higher I'll, just I'll stay away from giving a number at this point in time, but youll see it at some point in the near future.

Thank you. Our next question is from the line of Matthew Michelle.

Keybanc Your line is open.

Alright, great. Thanks for taking the questions.

I'm just trying to understand your thoughts around starting at 6% to 8% with the CVI guidance.

Where you were starting point for 2018 in 2019, but now you have myopia control portfolio as an extra lever.

Some easier comps, especially in the first quarter and from what you. Just said you have you have some price increases also also helping you out as a potential tailwind. There. So how are you thinking about that six to eight 5% starting point.

I'll answer it as easy as one word COVID-19.

That's it right. So if you want to think that fixed data is conservative I am not going to argue with you on that but I'm also not sure what's going to happen with Covid and some of the variance out there so.

So you have to try to factor that in a little bit it's only prudent when youre, giving annual guidance.

Periods like we're in today to try to build in a little bit of <unk>.

Conservatism, if you will for that.

I think that I think thats fair enough and then on the EPS side when you think about.

The year over year walk.

I think you said, 11% constant currency EPS growth, if I'm not mistaken at the midpoint.

We can all walk that down to what the FX impact was and you gave it to begin with but what how should we think about the impact of year over year on increased investments that youre, making.

And tax on EPS.

Yes.

Tax we have gone up a little bit because it was kind of in the low elevens go into 13.

So obviously, if you exclude a tax rate our profit growth would be better.

If you kind of look at kind of leverage through the P&L I guess I'd, probably just probably do it at a high level and say if I went to the midpoint of guidance at 7% is the midpoint of revenue guidance in constant currency and the midpoint of EPS guidance is 11% and that includes hurdling the tax rate that we talked about so that's your leverage.

Right there right I mean I've talked in the past about how we are a business where we can lever. This business. We've invested a lot in myopia management, we're going to continue to invest there and frankly, we're investing in vision more aggressively in a number of different areas, which we started this past quarter with some sales force expansion in several markets.

A lot of investments going into vision right now sales for product launches <unk> multifocal Super excited about that.

<unk> a lot of different areas, we're doing all of those investments and we're still talking about 7% and 11% leverage through the P&L. So I feel pretty good about that and that again hurdles the tax increase.

Thank you.

Next question from the line of Jeff Johnson of Baird. Your line is open.

Hey, guys good evening, Hey, al.

Another pricing question not just on the core portfolio, but my site. When we go out and talk a lot of these docs just seems like everybody is really excited about the technology. Once the question list into more and more patients, but that $750 oil price youre selling price. However, you want to look at it was kind of a big hurdle, especially if these guys want to put $500 in professional fees or something.

And on top of that our.

In some cases, even more so.

How comfortable are you with that Kevin.

If you did $19 million in MISO revenue, even if you're a haircut the per box price by a good amount to really push penetration you probably make that up within a year or two.

There may be faster, so I mean, what.

What do you think on that wholesale price that is pretty high right now.

Yes, that's a great question Jeff.

Talking about that internally right now we wanted to get through year end here, where we had a good comp, especially in the U S against last year, where you remember we gave a lot of the lenses away for free. So we are looking at that we are doing some sensitivity on that to your point right you cut price.

Did you sell more product and does that make up for it. So we're kind of evaluating that if you will right now.

Having said that the number one pushback by far is definitely not price right. That's on the list, but it's not number one it continues the BV staffing concerns and fit fit concerns in the amount of time it takes to.

Talk to the parents talk to the kids get the kids in it it's just a longer process than what we initially thought youre getting we're still seeing a situation, where we're getting there and we're converting a ton of the patients but it is taking six months nine months something like that 12 months. The Kid has to come in again right. The parent the ECP explains that they have myopia what it means.

How its progression progressing the parent doesn't want to pay to your point or they don't want their theyre concerned about putting their kids in contact lenses. So.

A delay the decision and then they come back in and the ECP explains that their child's I'd say is worse and it's going to continue to get worse, that's when the sale actually happens so.

Fuel cell, which which frankly I thought it was going to happen a little bit quicker, obviously, when I put the numbers out there in the uptake.

It's still happening, it's just a little bit more delayed so I think pricing is a component of it but just better fit activities going to drive it also.

Yes, that's helpful. And then maybe as a follow up just kind of tie trading around that Florida, Mark within six to eight for CVI, one if I take out the myopia, the $35 million incremental there on a constant currency basis.

That's about a point and a half a little north of a point, perhaps so let's say you are kind of talking about your core portfolio or 400, 4565, and youre kind of saying, we think we're going to be about in line with the market. Historically has been nicely above market is that conservatism or is that again, just COVID-19 is that competitive launches so run there and the core at a 6% market.

And Youre going with does that include maybe a step up in pricing you think for the whole industry. This year or do you think it takes a minute people do take three four price instead of historic with one or two price.

There is some upside to that four to six market.

Yes, I think you do have pricing in there you.

You could certainly make an argument that the four to six.

It could be a little bit lower right. Because you do have obviously the COVID-19 concerns you have everything else that's going on in the marketplace.

In different markets around the world So is.

Sitting here today, I think that will end up in that four to six range with the pricing with some pricing in there.

I think we will take market share ill be really surprised if we don't take market share on our core on a like to like basis. If you will myopia management, our myopia management portfolio all add to that obviously, an insurer. If you will that were above market growth, but on a like to like basis. I think we will take share I'm not sure it'll be a lot of share but it'll.

Ill be really surprised if its not sure. There is some other good competitive launches and stuff going on out there. So I don't want to necessarily get ahead of ourselves, but based on the strength <unk> seen with some key accounts and so forth, especially in Europe and Asia Pac.

We'll take share.

I think the degree of share gains for us on our core portfolio basis, meaning on a like to like basis.

We will certainly be tied to some geographies if Asia Pac continues to come back in places like Japan, where we're really well positioned right now we would stretch kind of or share gains.

Thank you next question is from the line of Jon Block.

Paul Your line is open.

Hey, guys. Good afternoon, Brian maybe the first one for you just.

Any color on other parts of the P&L for 'twenty two to <unk> prior point.

There seems to be some implied leverage in the model when we think about things, especially after taking into consideration the higher tax rate but.

How about just the moving parts is it a little bit of gross margin expansion, but think about opex as a percent of revenue maybe flattish because you guys have flagged and called out some ongoing investments.

Well first of all John Thank you very much for the question I don't think I've got a question last call.

Happy to take one today.

So yes as it relates to guidance.

Gross margins and operating margins when.

When you take out when you when you start at the midpoint of our guidance gross margins on a constant currency basis will be up year over year and operating margins will be up even more year over year. So when I was talking about the leverage and we were talking about hurdling, some inflationary pressures like wages and freight.

And other higher costs and then also having that those continued investment activity in growth areas like myopia and fertility.

We're levering.

We're getting leverage from from the P&L from higher revenues.

And thats showing up in operating margin. So I would expect operating margins to be up nicely.

Year over year.

It's really.

Got it got it all equal haul equally away. My question. So I guess my next one just out of the fertility side and me over the past.

For years, we've seen a lot of fertility deals obviously smaller than generate but now you've done generate are about to do generate so in your opinion is this sort of fully built out the fertility part of the business as a complete the puzzle so to say and then maybe just attack on CSI have argued misheard number I know, there's some moving parts due to the.

Price last quarter and the buy ahead, but maybe exiting fiscal 'twenty. One do you feel like inventory is in a good place due to the buy in on the power grid side of things.

Yes on fertility.

A lot of that space is a great industry, it's growing it's got all kinds of potential <unk>.

<unk>, it's still relatively fragmented and there is different players in different markets around the world.

Some sizable players in different markets around the world in different areas of fertility. So I think that generate was a good example of one that kind of came out and is a nice addition for US we will see I mean, we certainly have a great fertility franchise right now.

A lot of opportunities to grow and grow in excess of the market rates.

But I mean, if we could find other transactions to kind of fit in there that that could make sense from a geographic expansion perspective that type of thing we would certainly evaluate those.

If I look at PARAGARD.

Within our medical device space, probably similar to a lot of companies that you follow we did see some softness softness in September that's for sure, but we even saw some softness in October I was pleasantly surprised with how our core medical device products held up during that time.

Some of them hold up naturally because they are tied to childbirth and so forth, but even the elective procedure products held up okay, and we had a decent October that was not the case as much for PARAGARD.

I don't think PARAGARD unique when I look at the IUD market in general and you look at the other products out there those have also been soft.

So I'm not sure how did like really fine tune that down to the point of an individual product, but I do think that some of the staffing restrictions and so forth that are out there are.

Causing problems with iuds and some some other products.

Frankly, I think youre going to continue to have a few of those struggles.

Even in our fiscal Q1 to be honest with you because you are still seeing some of those staffing challenges and so forth out there.

On the medical side of things, we don't see that really on the contact lens side, but but we certainly see it on the <unk>.

And that device side of things and PARAGARD is caught up in that no I don't think it's doing any worse by the way just to be clear with respect to the IUD market. It's in line or maybe even doing a little bit better, but but that part of the market has been hit.

Thank you next question is from the line of Jason Bednar of Piper Sandler Your line is open.

Hey, good afternoon, thanks for taking the questions here, one on generate life and one on my side for me al starting on generate light totally appreciate the strategic merits of the transaction but.

This asset does clearly come with a little bit of a checkered past has a big price tag $1 6 billion and largest in your history. So I guess the question is what made this the right transaction for you right now or maybe some other faster growing assets, even maybe we're looking at and then can you also talk about how you expect gms to operate more effectively under the CSI.

Relative to maybe some of the pieces did prior to and maybe private equity ownership.

Yeah, I mean, one of the things that's been.

To make it more effective for us and one of the things Thats exciting for US is the size of our business. I mean, we just have a very large fertility business and we have a large obgyn business and some great products specifically within the Ob space. So we're talking to those professionals, we know those professionals really well one of the challenges you have.

When you're a company like generate is youre seeing a lot of your success come from my direct to consumer activity that type of thing, it's more DTC and not direct to the professional.

We're known as kind of a high quality educational shop within that within the Cooper surgical within the obgyn space and within the fertility space I mean, if you look at the training we do Theres. This extensive training and knowledge communication and so forth that we do with medical professionals in that side of things.

Not something that generate has really been able to take advantage of because they just didn't have the size to be able to do that when you take their business and combine it with our strengths that one plus one is three.

That's what's so cool about this so yes. This opportunity came up I have been following and frankly for a long time when it was a cord blood storage business that was a little bit of a different story.

As you fast forward to where it is today and you think about things like regenerative medicine, and what's going on over 1000 clinical is in process on that who is able to talk to the obstetricians about that who is able to speak to the fertility clinics to the value of that in those clinical studies and so forth. We are we have the professionals already in there talking to them and doing true.

And so forth. So I really think we can add a lot of value there I mean, and frankly at the end of the day deals come up when deals come up right. I mean when opportunities are available I've been looking at this thing for many many years I was happy to see it come up and I was happy to see us get the opportunity to win this business. So to me I kind of look at it as a yes.

Yes, it's a big deal and so it is a big deal for US it's an important deal for us, but when you find something that is a great strategic fit that is growing mid single digits, and you think that youre going to be able to enhance that growth.

You look at those opportunities, we take advantage of them, especially on something thats going to throw some nice accretion to the bottom line.

Alright, thats, great and very helpful.

Maybe for the <unk> side question Cooper did have representation today at the <unk> meeting lobby.

Logging for level two code for my side.

Could you update us on where you're at with the reimbursement strategy for my side here in the U S and we're securing this coding and associated payment, which fit into the overall plan and how you are considering that maybe is an element of adjusting price points in the future just to maybe go back to Jeff's earlier question.

Yep Yep Yep.

So right now we have nothing in any assumptions regarded regarding reimbursement I mean anything that we ever could get on that side of things could be is upside and could be material upside.

But that's kind of all I would say at this point in time right. We're working on stop obviously, we're highly interested in that and Theres reasons for us to want that to be successful, but at the current state of the game nothing factored in no assumptions made around that we will see how that plays out and I hope at some point in time in the future to be able to do.

To give you that good news.

Thank you our next question from the line of Joanne.

<unk> of Citibank Your line is open.

Thank you and good evening.

I appreciate the color on the sale of process from my side can we shift to the other side of that which is the training process for our foundation as a way to quantify how many of our questions have been trained.

Trained which one start.

We're integrating it into their practice.

Yes.

I don't have that number Amit it's significant because it's continued to grow.

There's a lot of Ecp's trained on it right now I would say the more important takeaway probably from that Joanne is if I had to do it over again, how would I go about that over again right because a lot of these ecp's are getting trained theyre fully certified they go back into their practice. They are excited about it.

Maybe they don't have a lot of kids coming in a lot of volume and it ends up kind of following onto that falls into the back seat so to speak right because youre dealing with staffing challenges. They are dealing with with patients that they are trying to pass through that are easier to fit in itself too.

Where we have seen is that once you get the ECP trained and excited about it and you have a myopia spur.

Specialists, which we have now we fully staffed up our myopia management specialists around the world when.

When you have that myopia management specialists talking to them and working with them and answering their questions as it comes up about how to sell it how to figure out how to charge for it and so forth we are dramatically more successful.

That's the key its ended up not being so much like how many do you have how many do you have combined with how many are you working with and helping once they fit a few kids and get rolling it's like a snowball going downhill, okay now I'm comfortable with it uncomfortable fitting children talking to parents I'm going to do this for every child that walks in the door every single child.

Talk to you about this because I've got the process down and understand how to do it I understand how to sell it so that ends up being a key and do some of these newer markets that we're going into right now we're having a lot more success a lot faster because we've learned so much over the last couple of years about how to successfully transition someone from the training to the ACA.

Selling of the product.

That's really helpful can I ask a very boring question FX from the first quarter can you quantify revenue and EPS impact.

Yeah, I'm not going to I'm not going to quantify it obviously, it's by far the biggest impact.

For FX relative to all the other quarters in the year.

It's a double digit headwind to EPS in the first quarter and cost of goods is also the worst hit the worst in cost of goods as well in the first quarter.

Get the double whammy right because you get the pound six months later flowing through bad and the revenues immediate hit.

Yes.

Thank you next.

Next question is from the line of Anthony that Tom.

Jeffrey.

Your line is open.

Alright, Thank you and a couple on my side and then one on GFS on MISO.

We've had calls where we've heard that the attach rate.

And the stickiness going into next year is going to be quite high.

Just thinking about the existing Ecp's net of warrant implanted patients. This year in <unk> patients. This year do you expect the attach rate to be like a traditional contact lens and then in terms of just the effectiveness you mentioned the clinical data al.

We've heard that in some cases they.

Actually slowed progression by almost half.

<unk>.

And so they have seen some some some good effectiveness in controlling the progression of myopia. So those would be the first two on my side and I'll have a follow up on <unk>.

Yes, well certainly.

There is no question the products working in the marketplace.

If you go and look at the success rate it is reducing the progression of myopia for children at a fairly high level right on average 59%.

There are a number of kids.

Who their myopia progression essentially stops entirely like which is amazing could you imagine that.

But that definitely happens and we have many instances of eyecare professionals professionals, telling us that so that's really fantastic to retain inch rate if you will.

Those sales is really high.

It's somewhere kind of $85, 90% or so there's still kids, who are non responders to my site or you give them the landscape where the lens, we've seen that in our clinical data and we see it in a real world application, where some kids for whatever reason.

To have their myopia progress at the same rate I mentioned last call. We have a lot of clinical work going on we have a product in R&D right now specifically associated with this.

Some of those are addressing the non responders right now so that we can come out.

With some some additional products to try to address everybody, but yes, I mean, thats something like 9% and 10 kids are staying in the product, it's pretty high high level <unk>.

And then just to follow up on the last one you mentioned now just the opportunity on on drug development a few thousand trials.

So how does that play out.

For that business, just when you think about clinical's versus.

When these products go commercial like how does that revenue opportunity sort of shape up.

Yes, it's really interesting.

Yes.

There is enough clinical is out there and some of them are theyre not phase one right I mean, I think the one on kidneys. As an example, I think is our livers is like stage four.

There is some real work being done there on the clinical side of things for regenerative medicine, and the best stem cells to use our the cord tissue stem cells, you don't have to use those but those are the best and just so everyone's aware those are different stem cells between the core blood.

We've always heard about when we've had kids over the years to the stem cells with cord tissue.

There are legitimate clinical is going on out there that are showing a lot of potential for success. So there is definitely more interest in that.

When we were doing our diligence on our work we were actually we actually did a bunch of survey work asking people.

That African women, who just had children who are currently pregnant are you going to store your core tissue and.

The rates were pretty low than when we took them through the clinical side of things. If you will and said Hey, This is what's going on with regenerative medicine Theres no no guarantees here, but this is what's going on.

The desire to store their cord tissue went to almost 100%. So I think a bunch of it is education. If you try to sell that on a DTC basis youre going to have a hard time.

If youre talking to medical professionals.

And there are people out there and this does not have to be an obgyn right. This could be an oncologist this could be.

Some sort of sports injury professional theres all kinds of things you could use regenerative medicine for so you are saying Hey, there is no promises here, but there's a lot of really really strong clinical work going on much more so than there is the stem cells associated with cord blood. So some good exciting stuff going on and we will see how it plays out but I think there is some.

<unk>.

To increase the storage there.

Just in case, if you will.

Yes.

Yeah.

Thank you next question is from the line of Robbie Marcus.

JP Morgan your line is open.

Oh, great. Thanks for taking the questions two from me first.

You guys I believe spent $25 million in 2020 incremental on.

My site marketing do you have that number for 2021, and what you're expecting in 2022, and I guess, it's probably more better it'd be inclusive.

More of the new product launches.

Hi.

No we don't Robert just because that whole thing is has kind of pushed itself together. If you will under so it's not just my side is altogether under myopia management, and we just we stopped breaking that number out and separating.

It was a decent number that's for sure. This year, we had some pretty decent investments going out in Q4.

And it will be a sizable number this year, having said that.

We actually get leverage on a year over year meeting that's part of the reason youre seeing leverage we've put a pretty good infrastructure in place this year.

We're able to start to leverage that a little bit in terms of comparing year over year. When it comes to our myopia management investments.

Got it and maybe as a follow up I think it would be helpful. If you maybe run through just your thought process on M&A and capital allocation to generate deal is growth dilutive to the overall business accretive to see.

S side, but dilutive to the overall business. So maybe just how youre thinking about deals.

How you think about growth rates versus return on invested capital what kind of metrics you are looking at and how youre thinking about priorities for cash going forward. Thanks.

Yes.

I guess to start I mean, I certainly personally do not believe that the.

Generate deal is going to be dilutive to our consolidated growth rate just to be clear.

I do think that based on their history and based on where I see the market growing that's probably a 4% to 6% kind of grower and that's what we've talked about but.

We have multiple areas to drive that growth rate higher we have some new products that we're already talking about right now that we're going to be launching and we have other forms of revenue synergies coming from our sales forces in.

And then international expansion also where theres some faster growth rates out there. So I am optimistic about our ability to drive growth now it's pretty close right now I mean, four to six is not bad thats for sure, especially on our annuity sale and very high cash flow product with strong margin. So that's the other side of this right I mean, because at the end of the day, we still look at this.

And say, okay, well, what makes sense from an acquisition perspective, we have a tendency to really focus on traditional discounted cash flow models, we're very curious and we focus on that and we try to be very intense about the numbers that are going in that and ensure we're getting a sufficient return on that we do that a little bit more than we would do like ROIC and some of that.

Stop because of the nature of our business right strong cash flow growth business, so on and so forth. So.

The other thing I would add on that is strategic deals I've talked about that in the past if we could find strategic acquisitions that meet the financial metrics that can drive value in this business and we're going to look at doing those kinds of deals in this one kind of checks all those boxes.

Thank you next question is from the line of Rob Cottrell of Cleveland Research. Your line is open.

Hi, good afternoon, thanks for taking my questions.

Just first on the on the first quarter guidance understand FX headwind in the three to three tiny PFS, but I'm wondering if you've seen any change in top line trends here in November just.

Just given the fourth wave in Europe, or any other change in momentum in either.

Excellent.

No November was a good month.

Okay.

Okay. Okay.

I guess more strategically than.

Al in the past you've talked about not wanting to change investment.

Pacing our strategy given FX headwinds clearly right now with a seven point headwind next year.

Materially worse than it's been in the past does that change your thinking at all around managing costs into next year.

No.

Frustrates me, Brian said gross margins would be up year over year on a constant currency basis, and our guidance shows that on an as reported basis. Those gross margins are going to be down year over year. So that frustrates me and when I look at operating margins and we talk about getting to 30%.

We'd be having a nice positive move in operating margins.

Currency held true, having said that we're still running a business thats a long term business. We're looking at at five years 10 years long term growth and doing what makes sense to drive long term growth I want sustainable mid upper single digit growth as a company with margin expansion, we can't jerk the business around because of FX.

And I'm not going to play the game were.

Capex is good and then we're going to go invest a whole bunch in that FX is bad and were not right. That's just not how we're going to run the business.

Great. Thanks for the details.

Yes.

Next question is from the line of Chris <unk>.

Yes.

Your line is open.

Thanks Al I wanted to follow up on your comment about driving growth from the January assets above that mid single digit to get to if you just look at the business today and in particular, how we should think about the opportunity for geographic expansion I would think that distance from the patient the facility might be a factor when you're talking about something like cryo preservation.

So are you going to have to invest in building new storage facilities to get into new markets and how should we think about the capex requirements of this business because historically CSI has not had a lot of capex associated with it.

Yes, the Capex is really low in this business the storage tanks and so forth are cheap.

So at the end of the day you have to have everything else that goes along with a really high quality control systems security systems, all of that kind of stuff, but the actual capex itself is not high.

When you look at the international expansion opportunities lets go to fertility because thats, what I would really highlight a lot of that gets done with the fertility clinic youre teaming up with the fertility clinic, because when youre talking about donor eggs and donors firm, that's usually a fairly quick transaction.

Unlike traditional stores.

We'll obviously do like permanent storage of eggs and sperm that type of thing.

But a lot of that activity aligns itself directly with fertility clinics and youre using the fertility clinics in working with them. Their operation. So you just don't get a situation where you have significant capex, it's low capex, it's really high cash flow in that business.

Okay. That's helpful and then.

Brian I'll give you another at bat here too so we saw capex for.

The core business here come down by about $100 million. This past year can you go lower in 2022, how should we be thinking about.

The capex requirements of the existing Cooper business than just low two hundreds now a good run rate going forward or did you have more potential to drive that down.

Thanks, Chris.

I appreciate the question I know, we've given capex over the years.

As you know Capex is a moving target, it's always based on timing of projects and milestones and lead time, which getting longer capacity needs demand things like that rather than getting into that level of detail. Whatever it is will cover it I've mentioned, we'll do around $600 million of free cash flow in 2022, which is a nice increase.

Over 'twenty, one so operating cash will be strong and therefore free cash will be strong again in 'twenty two.

Thank you and there are no further questions at this time I would like to turn the call over to Al White. Please continue.

Great Fantastic well. Thank you everyone I appreciate taking the time for the call and obviously were happy to announce the numbers and we're pretty positive about where we stand as a business. So I look forward to continue to produce here and speak to everyone. In early March when we do our next earnings call. Thank you. Thank you operator.

Yeah.

Thank you and that concludes today's conference. Thank you everyone for participating you may now disconnect.