Ladies and gentlemen, thank you for standing by. Welcome to the Q4 2021 The Cooper Companies Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one on 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 now 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 acquisitions or other anticipated benefits.
Forward-looking statements depend on assumptions, data or methods that may be 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 coopercos.com. Should you have any additional questions following the call, please call our investor line at 925-460-3663 or email ir@coopercos.com. I now will turn the call over to Al for his opening remarks.
Thank you, Kim, and welcome everyone to The 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, and our key account strategy generated share gains in markets around the world. Within CooperSurgical, 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 and labor and delivery offerings. For the full fiscal year 2021, I'm proud to report record revenues at both CooperVision and CooperSurgical, 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 CooperSurgical at $194 million up 11%. Non-GAAP earnings per share were $3.28. 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 MyDay and our mass market product clariti both performing really well. Biofinity also had a solid quarter, supported by strength in toric and multifocals.
For the regions, the Americas grew 6%, led by our daily silicone hydrogel lenses with particular strength in MyDay, where we continue seeing strong fit activity. 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 Biofinity. 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 we're investing accordingly as we're outperforming the market and taking share. For our FRP portfolio, Biofinity posted solid results, driving growth in markets around the world with its broad offerings, including a toric multifocal and Energys, 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 MyDay clariti and Biofinity and all that activity continued. This has driven consistent share gains and we expect that to continue. One recent launch that I want to highlight this quarter is our new MyDay 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 Binocular Progressive System is a breakthrough approach that simplifies fit and provides optimal visual acuity at all levels.
We're hearing that from patients who are touting it as the best multifocal they've ever worn for exceptional near, intermediate and distant vision. We expect this launch to continue performing extremely well and to provide a nice halo effect, supporting the already successful MyDay brand of torics and spheres. Moving to myopia management.
Our portfolio grew 63% to $21 million, with MiSight up 165% to $7 million and Ortho-K products up 40%. 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 MiSight, the only FDA-approved myopia control product, our broad range of market-leading Ortho-K lenses, and our innovative SightGlass Vision glasses. Regarding MiSight, we didn't quite reach our target this quarter, but we did reach $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 Essilor. Essilor is now actively promoting MiSight following a soft launch last month at one of the largest ophthalmic trade shows, and we're on target for a 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 MiSight positioning and how we can grow Ortho-K even faster and how SightGlass 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 7-year clinical study of MiSight, 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's no rebound if 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. In November, we commercially co-launched our SightGlass myopia management glasses in Europe with Essilor, and we'll be partnering with them on several additional launches coming soon.
Overall, on 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 on 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 levels. According to recent U.S. data, roughly 64% of eye care practitioners stated they had capacity to serve more patients but cannot, mostly due to staffing challenges. Having said that, trends are positive and we expect the market to grow in the 4%-6% range this coming year, supported by improving fit 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, a fast-growing myopia management business, and strong fit data. To ensure we're seizing the growth opportunities in front of us, we've increased our sales force investments and will 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 CooperSurgical. 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 was our RI Witness 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 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%-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 infertility.
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, and our next generation Endosee Advance product line. Meanwhile, Paragard declined 17%, largely as forecasted due to buy-in 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 staffing challenges. Lastly, for CooperSurgical, we recently announced an agreement to acquire Generate Life Sciences for $1.6 billion.
Many of you may know this company as a cord blood storage business, but they've done a phenomenal job expanding over the years, and this business is now a great strategic fit for CooperSurgical as they're a leader in donor egg and sperm and cryopreservation 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 business is in fertility, which we estimate will grow 5%-10% long term, supported by general industry growth.
Meanwhile, combining Generate's 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 business is in cord blood and cord tissue storage, which we expect to grow 3%-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%-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 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 is the most innovative company in the contact lens space today, with leading products in myopia management and the broadest product offerings in the market, and CooperSurgical is in 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 SightGlass Vision and MiSight 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 was roughly 5 cents 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 1.38 times.
Moving to 2022 guidance and excluding the recently announced Generate Life Sciences acquisition, consolidated revenues are expected to be in the range of $3.032 billion-$3.090 billion, up 6%-8% in constant currency, with CooperVision revenues between $2.225 billion and $2.267 billion, up 6%-8% in constant currency, and CooperSurgical revenues between $807 million and $823 million, up 6%-8% in constant currency. Non-GAAP EPS is expected to range from $13.60 to $14, up 9.5%-12.5% in constant currency, and the tax rate is expected to be around 13%.
At the midpoints 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 2.5% on revenues and 7% on EPS. This impact will be most detrimental in Q1, where we're expecting EPS in the 3-3.10 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're optimistic we'll close in the next couple of weeks, which would give us roughly 10.5 months of their operations in our fiscal 2022.
Having said that, we're still waiting for final regulatory approval, 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 twelve-month revenue. Gross margins are expected to be roughly 70% and OpEx is expected to be elevated in year one, as 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 $0.50 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 as we look forward into 2022 and beyond, we continue to believe our strategic investments will drive top-line momentum, supporting share gains in both businesses and long-term sustainable earnings growth. 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, to ask a question, please press star one on your telephone. Our first question comes from the line of Andrew Brackmann of William Blair. Your line is open.
Hey, guys. Good afternoon, and thanks for taking the questions. Appreciate all the color on the guidance and on the forward outlook. Maybe just to start here on the Generate business that you're gonna be acquiring here shortly. Now, this is sort of the first call that you've had sort of post-announcement. Maybe just from a strategic sort of standpoint, Al, can you just sort of talk about how this sort of meshes with your current offering, how you're gonna mesh these commercial organizations that you have? And then just broadly, you know, Generate had a nice DTC marketing angle. Anything that you guys can do there to maybe expand that capability on your fertility side right now? Thanks.
Sure. Yeah. Happy to be talking about this. I know we made the announcement, and it was frustrating for many of you and absolutely frustrating for me to not be talking about it on a deal that I'm pretty passionate about. Yeah, this is a great deal for us. It's a great fit. I mean, you're talking about a third of this business that's infertility. 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 products on. I'm really excited about how that's gonna 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 get pretty excited about that. I mean, you got a fertility business that's growing, you know, 5%-10% at least, as you can see by the reported numbers. You know, this part of the industry is growing along with that and has been. I do think that we're gonna be able to accelerate that growth when I think of some of the new products that we're gonna be able to launch in that space and then with some of the leverage we have.
Kind of a slam dunk fit, if you will, on the fertility side of things, and that's not even touching on the cryopreservation, which is a perfect fit. If you look at the other piece of it, you know, about two-thirds of that business is on the storage side for cord blood and cord tissue. That's been around for a long time, and many people on the phone know about that. Obviously, anyone 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. There's a ton of clinical studies that are going on right now, well over 1,000. You've seen an increasing interest in storage of cord tissue.
That's kind of exciting. You know, I mean, they have a relatively small sales force handle on that. We have a great team that's calling on OB/GYNs around the U.S., 100 people or so. We're gonna be able to take that messaging directly to the OB/GYN. 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. You know, our ability to bring that in, first time that you're actually going to have a company own one of these businesses who's calling directly on OB/GYNs with great relationships. I think we're gonna be able to add some real value there. 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%, you know, 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, you know, expanding total Cooper margins to the 30% range or so over time. Doesn't look like that's gonna be this year, but can you sort of talk about how this plays into that longer term goal of around 30%? Thanks.
Sure. Yeah. That continues to be an objective. I mean, as you know, and Brian touched on, you know, currency is a fairly decent negative to us this year, so that's causing us to take a step back, right? From an as reported perspective and not from a constant currency perspective. Yeah, good gross margins on the Generate business, 70% or so, fits in really well. Now, this first year buying this, we'll 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 we expect, you know, from IT to customer service and a variety of other things.
Not anticipating a lot of leverage in the first year, but then we will roll it in. Then through the year, we will get leverage from this business. Now, the question mark on it ends up really being, when you look at the $0.50, it's more around the interest expense. We're not gonna get into the OpEx at this point in time and interest expense because, 1, we haven't closed Generate yet. 2, we haven't closed the permanent financing for it yet. When we do, we can supply a little bit more color. 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 Biegelsen. Your line is open.
Good afternoon. Thanks for taking the question, and congrats on a nice quarter, Al.
Yeah.
Yeah, a couple from me. Just on myopia management for fiscal 2022, that $100 million. You know, I know you're not giving MiSight guidance anymore, but you know, help us think about the component to that. I guess I'm particularly interested to hear how you're thinking about the contribution from China. You know, I think we all see you know, how many pairs of Stellest Essilor is selling per day in China over 2,000 per day now. What do you think you know, what % of that. Like, how should we think about the ramp of MiSight in China relative to what they did with Stellest? I mean, we've heard things like maybe it could be you know, a third or so, which would still be pretty strong.
I had a follow-up.
Yeah. You're right. I mean, China's really exciting. You know, we have a strong relationship obviously with Essilor. Essilor distributes our primary Ortho-K product in China now. We have the exclusive distribution with them for MiSight. We did the soft launch already there. We are in a really good position with them. We're kind of hitting on all cylinders, if you will, early here in China. You talk about Stellest, which is their glasses that they're selling into China right now and doing really well with. You know, the Chinese government 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 sold through the hospitals. I mean, it's something that can move fairly quickly and 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 stand by that. You know my opinion on MiSight. I think we're gonna have a lot of success now. It's gonna depend on China, how successful that is this year. At the same time, we're seeing success in China with our Ortho-K product, so I'm happy about that, and maybe even a little bit more success than I was thinking about it. A few different moving parts there, and I wouldn't discount SightGlass Vision. I mean, that's a product that we just launched, co-launched, I should say, with Essilor in Europe.
As you said, Stellest is doing really well. We'll bring SightGlass into China here at some point in time. A lot of different moving parts in there that are gonna drive that $100 million.
That's helpful. For my follow-up, Al, I mean, obviously we all see, you know, the inflationary pressures. How are you thinking about your ability, at least in CooperVision, to take price in fiscal 2022? You know, what are you assuming in the guidance? I mean, we have heard that your competitors are taking, you know, over 4% in 2022, which is, you know, a little bit above average. How are you thinking about, you know, price in 2022? Thanks.
Yeah. I don't wanna get into particular or a specific number right now. We will be taking price. That's coming. You're seeing the inflationary pressures and so forth out there. You know, we're in a great industry on both sides of our business within contact lenses. It's a good industry and higher pricing is warranted on an annual basis. This year you have inflationary pressures and, you know, shipping and everything else that goes along with it. Yeah, we'll be taking price higher. I'll stay away from giving a number at this point in time, but you'll see it at some point in the near future.
Thank you. Our next question from the line of Matthew Mishan of KeyBanc Capital Markets. Your line is open.
Hey, great. Thanks for taking the questions. Hey, Al, I'm just trying to understand your thoughts around starting at 6%-8% with the CVI guidance. That's where you were starting points for 2018 and 2019, but now you have the myopia control portfolio as an extra lever. You have some easier comps, especially in the first quarter. From what you just said, you have some, you know, price increases also helping you out as a potential tailwind there. How are you thinking about that 6%-8% starting point?
I'll answer it as easy as one word, COVID. That's it, right? If you wanna think that 6-8 is conservative, I'm not gonna argue with you on that, but I'm also not sure what's gonna happen with COVID and some of the variants out there. You have to try to factor that in a little bit. You know, it's only prudent when you're giving annual guidance in a period like we're in today, to try to build in a little bit of conservatism, if you will, for that.
Okay. I think that's fair enough. 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 I think you gave it to begin with. How should we think about the impact of year-over-year on increased investments that you're making, and tax on EPS?
The tax we have going up a little bit 'cause it was kind of in the low 11s going to 13%. So obviously if you excluded tax, right, our profit growth would be better. If you kinda look at kinda leverage through the P&L, I guess I'd just do it at a high level and say, if I went to the midpoint of guidance, it's 7% is the midpoint of revenue guidance and constant currency, and the midpoint of EPS guidance is 11%, and that includes hurdling the tax, right, that we talked about. That's your leverage right there, right? I mean, I've talked in the past about how we have a business where we can lever this business. We've invested a lot in myopia management. We're gonna continue to invest there.
Frankly, we're investing in vision more aggressively in a number of different areas, which we started this past quarter, you know, with some sales force expansion in several markets. A lot of investments going into vision right now. Sales force, product launches, MyDay multifocal, super excited about that. You know, SightGlass, a lot of different areas. We're doing all those investments and we're still talking about 7% and 11% leverage through the P&L. I feel pretty good about that. 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, maybe another pricing question, not just on the core portfolio, but MiSight. You know, when we go out and talk to a lot of these docs, it just seems like everybody's really excited about the technology, you know, wants to be pushing this into more and more patients. But that $750, you know, wholesale price or selling price, however you wanna look at it, is kind of a big hurdle, especially if these guys wanna put $500 in professional fees or something on top of that, or in some cases even more. You know, how comfortable are you with that $750?
I mean, you know, if you did $19 million in MiSight revenue, even if you haircut the per box price by a good amount to really push penetration, you'd probably make that up within a year or two, or maybe faster. I mean, just what do you think on that wholesale price that is, you know, pretty high right now?
Yeah, that's a great question, Jeff. You know, 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. 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? 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 these staffing concerns and fit concerns and the amount of time it takes to, you know, talk to the parents, talk to the kids, get the kids in it. It's just a longer process than what we initially thought. We're still seeing a situation where we're getting there, and we're converting a ton of the patients, but it's taking 6 months, 9 months, something like that, 12 months. The kid has to come in again, right? The ECP explains that they have myopia, what it means, how it's progressing. The parent doesn't wanna pay, to your point, or they're concerned about putting their kids in contact lenses.
They delay the decision, and then they come back in, and the ECP explains that their child's eyesight is worse, and it's going to continue to get worse. That's when the sale actually happens. The actual sale, which frankly, I thought was gonna happen a little bit quicker, obviously, you know, when I put the numbers out there and the uptake is still happening, it's just a little bit more delayed. I think pricing is a component of it, but just better fit activity is gonna drive it also.
Yeah. That's helpful. And then maybe as a follow-up, just kind of titrating around that 4%-6% market in 6%-8% for CVI. You know, one, if I take out the myopia, the $35 million incremental there on a constant currency basis anyway, you get, you know, that's about 1.5%, a little north of 1.5%. So let's say you're kind of talking about your core portfolio in the 4%-6%, 4.5%-6.5%. So you're kind of saying, "We think we're gonna be about in line with the market." You know, historically, you've been nicely above market. Is that conservatism? Is that again, just COVID? Is that competitive launches?
One there, and the 4%-6% market assumption you're going with, does that include maybe a step up in pricing, you think, for the whole industry this year? Or do you think it's 4%-6%, and then if people do take 3%-4% price instead of, you know, historically 1%-2% price, there's some upside to that 4%-6% market? Thanks.
Yeah. I think you do have pricing in there. You can certainly make an argument that the 4%-6% could be a little bit lower, right? Because you do have obviously the COVID concerns. You have everything else that's going on in the marketplace, in different markets around the world. You know, sitting here today, I think that we'll end up in that 4%-6% range with the pricing, with some pricing in there. I think we'll take market share. I'll be really surprised if we don't take market share on a core, on a like-to-like basis, if you will. Myopia management portfolio will add to that obviously and ensure, if you will, that we're above market growth. But on a like-to-like basis, I think we'll take share.
I'm not sure it'll be a lot of share, but it'll be. I'll be really surprised if it's not share. There's some other good competitive launches and stuff going on out there, so I don't wanna necessarily get ahead of ourselves. But based on the strength I'm 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 a core portfolio basis, meaning on a like-for-like basis, will certainly be tied to some geographies, right? I mean, if Asia Pac continues to come back and places like Japan, where we're really well-positioned right now, we would stretch kind of our share gains.
Thank you. Next question from the line of Jon Block of Stifel. Your line is open.
Thanks, guys. Good afternoon. Brian, maybe the first one for you, just any color on other parts of the P&L for 2022? You know, to Al's prior point, there seems to be some implied leverage in the model when we think about things, especially if you take into consideration the higher tax rate. 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, Jon, thank you very much for the question. I don't think I got a question last call, so happy to take one today. Yeah, as it relates to guidance, you know, gross margins and operating margins, 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.
When Al was talking about the leverage, and we were talking about hurdling some inflationary pressures like wages and freight and, you know, and other higher costs, and then also having that, those continued investment activity in growth areas like myopia and fertility, you know, we're getting leverage from the P&L and from higher revenues, and that's showing up in operating margins. I would expect our operating margins to be up nicely, year-over-year. It's really a current
Got it. I'll equally weigh my question. I guess the next one, just Al, on the fertility side, I mean, over the past handful of years, we've seen a lot of fertility deals, obviously smaller than Generate, but now you've done Generate or are about to do Generate. You know, in your opinion, does this sort of fully build that out, the fertility part of the business? Does it complete the puzzle, so to say? Maybe just to tack on CSI, Paragard did miss the number. I know there's some moving parts due to the, you know, the price last quarter and the buy ahead, but maybe exiting fiscal 2021, do you feel like inventory is in a good place, you know, due to the buy-in on the Paragard side of things? Thanks.
Yeah. On fertility, you know I love that space. It's 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. I think that Generate was a good example of one that, you know, kinda came out and is a nice addition for us. We'll see. I mean, we certainly have a great fertility franchise right now and a lot of opportunities to grow in excess of the market rates. I mean, if we could find other transactions to kind of fit in there that could make sense, from a geographic expansion perspective, that type of thing, we would certainly evaluate those.
If I look at Paragard, you know, what's funny is that within our medical device space, probably similar to a lot of companies that you follow, we did see some softness in September, that's for sure. 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're 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. Now I don't think Paragard's unique. When I look at the IUD market in general and you look at the other products out there, those have also been soft.
I'm not sure how to, like, really fine-tune that down to the point of an individual product. I do think that some of the staffing restrictions and so forth that are out there are causing problems with IUDs and some other products. Frankly, I think you're gonna continue to have a few of those struggles even in our fiscal Q1, to be honest with you, 'cause you're 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 we certainly see it on the med device side of things, and Paragard is caught up in that. Now, 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 that part of the market has been hit.
Thank you. Next question from the line of Jason Bednar of Piper Sandler. Your line is open.
Hey, good afternoon. Nice to take the questions here, one on Generate Life and one on MiSight for me. You know, Al, starting on Generate Life, totally appreciate the strategic merits for the transaction, but, you know, this asset does clearly come with a little bit of a checkered past. Has a big price tag, $1.6 billion, largest in your history. I guess the question is, what made this the right transaction for you right now over maybe some other faster growing assets that you've been looking at? Could you also talk about how you expect GLS to operate more effectively under, you know, the CSI umbrella than maybe some of the pieces did prior to maybe private equity ownership?
Yeah. You know, I mean, one of the things that's gonna 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 know those professionals really well. One of the challenges you have when you're a company like Generate is you're seeing a lot of your success come from, like, 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 the CooperSurgical, within the OBGYN space and within the fertility space.
I mean, if you look at the training we do, there's 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, you know, that one plus one is a three. I mean, that's what's so cool about this. Yeah, this opportunity came up. I've been following it, frankly, for a long time. When it was a core 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 1,000 clinicals in process on that, you know, who's able to talk to the obstetricians about that? Who's able to speak to the fertility clinics of the value of that and those clinical studies and so forth? We are. We have the professionals already in there talking to them and doing training and so forth. 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.
To me, I kind of look at it as A, it's a big deal for us. It's an important deal for us. When you find something that's a great strategic fit, that's growing mid-single digits and you think that you're gonna be able to enhance that growth, you know, you look at those opportunities, you take advantage of them, especially on something that's gonna throw some nice accretion to the bottom line.
All right. That's great and very helpful. Maybe for the MiSight question, you know, Cooper did have a representation today at the HCPCS meeting, lobbying for a level two code for MiSight. Could you update us on where you're at with the reimbursement strategy for MiSight here in the U.S. and where securing this coding and associated payment would fit into the overall plan and how you're considering that maybe as an element of adjusting price points in the future, just to maybe go back to Jeff's earlier question?
Yep. Right now we have nothing in any assumptions regarding reimbursement. I mean, anything that we ever could get on that side of things could be. It's upside and could be material upside. That's kinda all I would say at this point in time, right? We're working on stuff. Obviously, we're highly interested in that, and there's reasons for us to want that to be successful. At the current state of the game, yeah, nothing factored in, no assumptions made around that. We'll see how that plays out. I hope at some point in time in the future to be able to give you that good news.
Thank you. Next question from the line of Joanne Wuensch of Citigroup. Your line is open.
Thank you and good evening. I appreciate the color on the sales process for MiSight. Can we shift to the other side of that, which is the training process for physicians? Is there a way to quantify how many physicians have been trained? Of those that have been trained, which ones start integrating it into their practice?
I don't have that number on me. It's significant because it's continued to grow. There's a lot of ECPs 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 ECPs are getting trained. They're fully certified. They go back into their practice, they're excited about it. Maybe they don't have a lot of kids coming in, a lot of volume, and it ends up kind of takes a back seat, so to speak, right? Because they're dealing with staffing challenges. They're dealing with patients that they're trying to pass through that are easier to fit and sell to.
What we've seen is that once you get the ECP trained and excited about it, and you have a myopia specialist, which we have now, we've fully staffed up our myopia management specialists around the world. When you have that myopia management specialist talking to them and working with them and answering their questions as it comes up about how to sell it, how to fit it, how to charge for it, and so forth, we are dramatically more successful. That's the key. It's ended up not being so much like how many do you have? It's 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. Now, okay, now I'm comfortable with it. I'm comfortable fitting children, talking to parents.
I'm going to do this for every child that walks in the door. Every single child, I'm gonna talk to them about this because I've got the process down. I understand how to do it. I understand how to sell it. So that ends up being the key. 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 actual selling of the product.
That's really helpful. Can I ask a very boring question?
Mm-hmm.
FX in the first quarter, can you quantify it, revenue and EPS impact?
I'm not going to quantify it. Obviously, it's by far the biggest impact for FX, you know, relative to all the other quarters in a year. It's a double-digit headwind to EPS in the first quarter. Cost of goods is also the worst. We're hit the worst in cost of goods as well in the first quarter. You kind of get the double whammy, right? Because you get the pound six months later flowing through bad and the revenue's immediate hit.
Mm-hmm.
Yeah. Yep.
Thank you. Next question from the line of Anthony Petrone of Jefferies. Your line is open.
Thank you. A couple on MiSight and one on GLS. On MiSight, we've had calls where, you know, we've heard that the attach rate and the stickiness going into next year is going to be quite high. So just thinking about the existing ECPs that have already implanted patients this year and fitted 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. You know, we've heard that in some cases, you know, they've actually slowed progression, you know, by almost, you know, half. And so they have seen some good effectiveness in controlling the progression of myopia. So those will be the first two on my side, and I'll have a follow-up on GLS.
Yeah. Well, certainly, there's no question the product's working in the marketplace. You know, 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 professionals telling us that, so that's really fantastic. The retainage rate, if you will, on those sales, is really high. It's somewhere kind of 85%-90% or so. There's still kids who are non-responders to MiSight, right? You give them the lens, they wear the lens.
We've seen that in the clinical data, and we see it in the real-world application, where some kids, for whatever reason, continue to have their myopia progress at the same rate. I mentioned last call, you know, we have a lot of clinical work going on. We have 8 products in R&D right now. Specifically associated with this, and some of those are addressing the non-responders right now so that we can come out with some additional products to try to address everybody. Yeah, I mean, it's something like 9 in 10 kids are staying in the product. It's pretty high level retainage.
Then just to follow up on, you know, last one. You mentioned, Al, just the opportunity on drug development, a few thousand trials. Just now, how does that play out for that business just when you think about clinicals versus, you know, when these products go commercial? Like, how does that revenue opportunity sort of shape up? Thanks.
Yeah, it's really interesting. You know, there's enough clinicals out there, and some of them are. They're not phase I, right? I mean, I think the one on kidneys as an example, or livers, is like phase IV. There's some real work being done there on the clinical side of things for regenerative medicine. The best stem cells to use are the cord tissue stem cells. You don't have to use those, but those are the best. Just so everyone's aware, those are different stem cells between the cord blood that we've always heard about, you know, when we've had kids over the years, to the stem cells with cord tissue. There are legitimate clinicals going on out there that are showing a lot of potential for success. There's definitely more interest in that.
When we were doing our diligence and our work, we actually did a bunch of survey work asking people about that, asking women who just had children, who are currently pregnant, you know, "Are you going to store your cord tissue?" The rates were pretty low. 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. There's no guarantees here, but this is what's going on." The desire to store their cord tissue went to almost 100%. I think a bunch of it is education. If you try to sell that on a DTC basis, you're gonna have a hard time.
If you're talking to medical professionals and there's people out there, and this does not have to be an OB-GYN, right? This could be an oncologist. This could be some sort of sports injury professional. There's all kinds of things you could use regenerative medicine for. You're saying, "Hey, there's 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." Some good, exciting stuff going on there. We'll see how it plays out, but I think there's some opportunity to increase the storage there as a just in case, if you will.
Thank you. Next question from the line, Robbie Marcus of J.P. 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 MiSight marketing. Do you have that number for 2021 and what you're expecting in 2022? I guess it's probably more better inclusive of more of the new product launches.
No, we don't, Robbie, just because that whole thing has kind of mushed itself together, if you will, under Myopia Management. It's not just MiSight, it's all together under Myopia Management. We just stopped breaking that number out and separating it. It was a decent number, that's for sure, this year. We had some pretty decent investments going out in Q4. It'll be a sizable number this year. Having said that, we actually get leverage on it year-over-year, meaning that's part of the reason you're seeing leverage. We put a pretty good infrastructure in place this year, so 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. Maybe to follow up, you know, I think it'd be helpful if you maybe run through just your thought process on M&A and capital allocation. The Generate deal is growth dilutive to the overall business, accretive to the CSI, but dilutive to the overall business. Maybe just how you're thinking about deals, you know, how you think about growth rates versus return on invested capital, what kind of metrics you're looking at, and how you're thinking about priorities for cash going forward. Thanks.
Yeah. I guess to start, I mean, I certainly personally do not believe that the Generate deal is gonna 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 going, that's probably a 4%-6% kinda grower, and that's what we talked about. 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 gonna be launching, and we have other forms of revenue synergies coming from our sales forces and then international expansion also, where there's some faster growth rates out there. I am optimistic about our ability to drive growth. Now, it's pretty close right now.
I mean, 4-6 is not bad, that's for sure, especially on a annuity sale and very high cash flow product with strong margin. That's the other side of this, right? I mean, because at the end of the day, we still look at this stuff and say, "Okay, well, what makes sense from an acquisition perspective?" We have a tendency to really focus on traditional discounted cash flow models. You know, we're very serious and we focus on that, and we try to be very intense about the numbers that are going in that 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 kind of stuff because of the nature of our business, right? Strong cash flow, growth business, so on and so forth.
The other thing I would add on that is strategic deals. I've talked about that in the past. You know, if we can find strategic acquisitions that meet the financial metrics that can drive value in this business, then we're gonna look at doing those kind of deals, and this one kind of checks all those boxes.
Thank you. Next question 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 first quarter guidance, I understand the FX headwind and the $3-$3.10 EPS. 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 in either business?
No. November was a good month.
Okay. I guess more strategically then, you know, Al, in the past you've talked about not wanting to change investment pacing or strategy given FX headwinds. Clearly, you know, right now with a 7-point headwind next year, it's 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. I mean, Brian said, you know, gross margins would be up year-over-year on a constant currency basis. Our guidance shows that on an as reported basis, those gross margins are gonna be down year-over-year. That frustrates me. When I look at operating margins and we talk about getting to 30%, we'd be having a nice positive move in operating margins if currency held true. Having said that, we're still running a business that's a long-term business. We're looking at 5 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.
I'm not gonna play the game where FX is good, and then we're gonna go invest a whole bunch, and then FX is bad, and we're not, right? That's just not how we're gonna run the business.
Great. Thanks for the details.
Yeah.
Next question from the line of Chris Pasquale of Guggenheim. Your line is open.
Thanks. Al, I wanted to follow up on your comment about driving growth from the Generate assets above that mid-single digits you 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 to the facility might be a factor when you're talking about something like cryopreservation. Are you gonna 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, you know, historically, CSI has not had a lot of CapEx associated with it.
Yeah, the CapEx is really low in this business. The storage tanks and so forth are cheap. At the end of the day, you have to have everything else that goes along with it, really high quality control systems, security systems, all that kind of stuff, but the actual CapEx itself is not high. When you look at the international expansion opportunities, let's go to fertility because that's one I would really highlight. A lot of that gets done with the fertility clinic. You're teaming up with the fertility clinic because when you're talking about donor eggs and donor sperm, that's usually a fairly quick transaction, unlike, you know, the traditional storage. Like we obviously do like permanent storage of eggs and sperm, that type of thing. A lot of that activity aligns itself directly with fertility clinics.
You're using the fertility clinics and working with them, their operations. 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. Then, Brian, I'll give you another at bat here too. We saw CapEx for the core business here come down by about $100 million this past year. Can it go lower in 2022? How should we be thinking about the CapEx requirements of the existing Cooper business? You know, is this low $200s now a good run rate going forward, or do you have more potential to drive that down?
Thanks, Chris. Yeah, you know, I appreciate the question. I know we've given CapEx over the years and, you know, as you know, CapEx is a moving target. It's always, you know, it's based on timing of projects and milestones and lead time, which getting longer, capacity needs, demand, things like that. You know, rather than getting into that level of detail, whatever it is, we'll cover it. You know, I've mentioned we'll do around $600 million of free cash flow this year in 2022, which is a nice increase over 2021. Operating cash will be strong and therefore free cash flow will be strong again in 2022.
Thank you. 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 we're happy to announce the numbers and we're pretty positive about where we stand as a business. 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.
Thank you. That concludes today's conference. Thank you everyone for participating. You may now all disconnect.