Earnings Call: Q4 2019

Dec 5, 2019

Ladies and gentlemen, thank you for standing by, and welcome to the 4th Quarter 2019 Cooper Companies, Inc. Earnings Conference Call. At this time, all participants are in a listen only mode. After the speaker presentation, there will be a question and answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Kim Duncan, VP, Investor Relations and Administrations. Good afternoon, and welcome to The Cooper Companies 4th quarter and full year 2019 earnings conference call. During today's call, we will discuss the results included in the earnings release along with updated guidance and then use the remaining time for Q and A. Our presenters on today's call are Al White, President and Chief Executive Officer 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 from operations, market or regulatory conditions, product launches and integration of any acquisition or their failure to achieve anticipated benefits. Forward looking statements depend on assumptions, data or methods that may be incorrect or imprecite 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 ks, all of which are available on our website at coopercoast.com. Should you have any additional questions following the call, please call our investor line at 925-460-3663 or email ircoopercos.com. And now I'll turn the call over to Al for his opening remarks. Thank you, Tim, and good afternoon, everyone. Welcome to our fiscal Q4 2019 conference call. We closed the year on a high note with a strong Q4 driving record full year revenue and earnings. Both our businesses posted 7% pro form a growth for Q4 and each reached record full year revenues with CooperVision up 7% and CooperSurgical up 6% for the year. This was a very successful year and we're well positioned to continue producing strong results moving forward. For the quarter, consolidated revenues were $692,000,000 with CooperVision reporting revenues of $510,000,000 up 6% or up 7% pro form a and CooperSurgical posting revenue of $182,000,000 up 7% as recorded in pro form a. Non GAAP earnings per share grew 15% year over year to $3.30 Beginning with CooperVision, the results were impressive given the challenging 10% comp from last year's Q4. On a pro form a basis, the Americas grew 6% led by our daily silicone hydrogel franchises, where we continue to provide the broadest offering in the market with MyDay available in Aspirin Toric and Klarity in Aspirin, Toric and Multifocal. Of note was the performance we saw with CLARITY where we posted solid growth across the product family. EMEA grew 5% driven by daily and FRP results with strength seen in several of our key accounts. Asia Pac posted strong growth of 11% against a tough 19% comp with strength seen throughout the product portfolio and across the region. There was some buying activity in Japan prior to the VAD increase, which went into effect October 1, This was largely in line with our guidance. All three regions were led by our daily silicone hydrogel portfolio, which grew 18%. Within this, it's important to note we did see some negative impact from my day supply constraints and this will also impact Q1, which I'll discuss later in guidance. We saw a nice performance in our silicone FRP franchises led by Biofinity, Energous and Multifocal and a variety of vitality, SKIRS and TORUS, leading to combined growth of 8% for these 2 product families. Moving outside brands, TORX grew 6% and multifocal rebounding nicely growing 10% led by Clari and Biofinity. So in summary, this was a solid quarter with strike seen throughout the portfolio and geographically. Moving to CooperVision's infrastructure investments, this past year was extremely active as we opened new distribution centers in Spain, Budapest and South Africa, significantly expanded our distribution center in Belgium, added a new packaging facility in the UK, began construction on doubling our Costa Rica manufacturing facility and expanded our manufacturing operations in Puerto Rico and the U. K. For fiscal 2020, our focus is on expanding our daily silicone hydrogel manufacturing base and supporting MiSight, our innovative Myopia management contact lens. We received FDA approval on MiSight earlier than expected, so we've accelerated our targeted U. S. Launch plans in March, including hiring several marketing specialists, starting education on marketing programs and finalizing packaging and labeling to meet FDA requirements. I'm happy to report that early interest has been phenomenal for both consumers and optometrists who are now becoming more aware of the clinical benefits of MyoCyte and why this treatment should be standard of care for young patients with myopia. From an investment perspective, we spent around $10,000,000 in fiscal 2019 developing, launching and selling MiSight around the world. This activity helped generate $4,200,000 in sales, up over 100% year over year. For this fiscal year, we're targeting investing around $25,000,000 as we accelerate our U. S. Launch, expand geographically, continue clinical activity, increase regulatory work and increased sales, marketing and educational support. We're forecasting roughly $10,000,000 in sales for fiscal 2020 with the U. S. Being around $2,000,000 of that. Moving forward, we expect that to more than double to around $25,000,000 in fiscal 2021 and then doubled to around $50,000,000 in fiscal 2022. Lastly, on MiSight, a few comments on Myopia and why we're so excited about this product. It's currently estimated that roughly 1 third of the world's population is myopic and this will increase to 50% in 2,050. Anyone who has ever needed visual correction due to nearsightedness knows the challenges of myopia and that less myopia could significantly improve one's quality of life. And most importantly for us, parents who have myopic children who are educated on the benefits of MiSight want to provide this life altering treatment to their kids. This is the reason we've already seen over 13,000 kids around the world use MiSight. Given myopia has been linked to severe eye conditions later in life such as glaucoma, cataracts and retinal detachment, we have good reason to get excited about having the 1st FDA approved product to proactively address this epidemic. And remember, even children with mild prescriptions have a higher risk of serious eye health problems later in life. And by the way, all this is also largely the reason there's a growing global $100,000,000 Ortho K market where we're an active participant. Outside of MiSight, our investment activity largely focus on expanding our daily silicone hydrogel manufacturing base. The demand for clariti remains robust and the demand for MyDay is extremely strong and accelerating. We recently realigned significant resources to accelerate startup efforts on new lines This is going really well with the main detriment being it reduces our ability to tackle cost reduction projects in the near term. Regardless, getting these lines operational as soon as possible is imperative to capitalizing on the growth opportunities we're seeing and we can focus on cost containment projects at a later date. I believe these investments position us well for this fiscal year and they certainly position us extremely well for fiscal 2021. Before concluding IQ provision, let me remind everyone of the multiple growth drivers that underlie the 8 $900,000,000 contact lens industry. In addition to the increasing incidence of Myopia mentioned earlier, there's geographic expansion, growth in torics and multifocals and a continuing trade up from FRPs to dailies and specifically today to daily silicone hydrogels. Within dailies, this powerful double trade up should last a long time as we estimate only 25% to 30% of wearers are in dailies today and only 42% of those are in silicone hydrogel dailies. All this continues to support market growth in the upper part of the 4% to 6% range for many years to come. And finally, I'm once again happy to report our new fit day was very strong this quarter, especially with respect to silicone hydrogel daily fits. So this bodes well for our performance moving forward. Moving to CooperSurgical. We reported revenue of $182,000,000 up 7% with fertility growing a healthy 12% and office and surgical up 4%, all pro form a. Fertility growth was led by our device portfolio, which includes consumable products like IVF Media and our market leading Wallace, embryo, needles and transfer catheters. The team executed exceptionally well to finish the year with a focus on key accounts and cross selling our market leading portfolio of products. For the full year, fertility posted growth of 8% and we expect continued strong growth as the fertility market has fantastic global growth trends. Within office and surgical, growth was driven by EndoSee, which was up 67% as our 2nd generation device is showing very strong performance and PARAGARD, which grew 5% against a difficult 20% comp. PARAGARD was driven by solid unit demand along with buy in activity in advance of an upper single digit price increase we implemented effective September 30. On a full year basis, PARAGARD grew 6% and we continue to believe we'll see mid single digit growth for many years to come, supported somewhat evenly by unit growth and price. On pricing, remember that increase is rolling over 3 years due to buy in activity, contractual arrangement and public market purchases such as Medicaid. Outside of sales, I'm happy to report that we made significant progress on our expansion activity. Our Costa Rica project is proceeding well with several products transferred and in production, several other product transfers in process and construction to triple the size of the facility running on schedule. We're well on our way to having a state of the art manufacturing facility that will include what we believe will be the most technologically advanced fertility manufacturing operation in the world. We also expanded our headquarters in Connecticut this year to support our growth, added a new distribution center in Europe and completed the consolidation of 16 genetic testing labs down to 3. For this upcoming year, our investments will be focused on similar activity, including Paragon where we recently added 10 new sales reps we will be continuing our marketing and advertising activity with targeted television, print and social media campaigns along with educational activity with physicians. Additional investment activity will be focused on growing our fertility business as we expand our international and key account operations within our medical device business where we started expanding our international management team. In addition, we'll finish construction of our Costa Rica facility, which is a key part of our long term strategy to upgrade manufacturing, improve logistics, reduce costs and improve efficiency. Moving to guidance. We're expecting a strong year, but Mi Tei constraints will continue to impact us. We'll see this impact in EMEA to some degree, but more so in our Asia Pac business as we don't have clarity in Japan yet, so don't have an alternative option to present customers. Asia Pac also needs to hurdle some of the Japan back buy in, so we're forecasting low single digit growth for that region in Q1 before a return to double digit growth in Q2. Regarding my day, the good news is demand is continuing to accelerate. We're increasing output every month as our existing lines become more efficient and we're adding additional lines. So we expect improvement as we exit Q1. For CooperSurgical, we're expecting something similar to CooperVision, where we're forecasting Q1 being our softest quarter of the year due to buy in activity associated with the PARAGARD price increase, which we just completed in Q4. With that, let me say this is a really exciting time for Cooper. Not only are we excited about MiSight and the demand we're seeing for our products within CooperVision and Cooper Surgical, but we're also continuing to make fantastic strides with our ESG and corporate responsibility efforts. This includes increasing support of our local communities, continual focus on improving the sustainability of our operations and expanding our philanthropic efforts. As an example, we are a long standing sponsor of Optometry Giving Site, a world class charity, which supports adults and children by providing vision care in underserved communities around the world. Since initiating our partnership, we have surpassed $1,100,000 in cumulative funds raised by employees including corporate matching dollars. We also have a program allowing our customers to donate all or part of their contact lens rebates, which has resulted in more than $800,000 in donations. This is an important part of our culture and something I'm proud to say as part of Cooper. And with that, I'll turn the call over to Brian. Thank you, Al, and good afternoon, everyone. Most of my commentary will be on a non GAAP basis, so please refer to today's earnings release for a full reconciliation of GAAP to non GAAP results. I'll cover revenues, so let me move to the rest of the P and L. Consolidated gross margins for the quarter improved 50 basis points to 67% from 66.5% last year. CooperVision's gross margin was up a solid 130 basis points year over year to 65.4% from 64.1%. The improvement was largely due to currency and product mix with the only real negative being higher than expected write offs of legacy hydrogel products. CooperSurgical's gross margin decreased to 71.6% from 73.1% last year, primarily due to inefficiencies from clearing back orders generated largely from our global consolidation activity to Costa Rica. On the plus side, we made a lot of progress with this work and expect only minimal disruption in Q1 and then improvement as we move through the remainder of the year. Moving forward, OpEx is tightly managed and grew only 3%. The OpEx control combined with gross margin expansion resulted in consolidated operating margins increasing 180 basis points to 28.5 percent from 26.7% last year. Interest expense was $13,800,000 driven by lower average debt balances and lower interest rates. In other expense, we posted a $3,300,000 non cash FX loss primarily tied to the re measurement of non functional intercompany trade balances, particularly those tied to the pound, which made significant move this past quarter. With a lot of our internal restructuring activity mostly completed, we've reduced a considerable amount of FX exposure, which should help to reduce FX gains and losses moving forward. The effective tax rate was lower than anticipated at 8%, largely due to our remeasurement of certain state income attributes and audit settlements. Non GAAP EPS for the quarter grew 15.2 percent to $3.30 with roughly 50,000,000 average shares outstanding. Free cash flow was $115,000,000 comprised of $200,000,000 of free of operating cash flow offset by $85,000,000 of CapEx. In the quarter, we bought back $150,000,000 in stock, which equated to roughly 512,000 shares at an average price of $2.93 per share. This increased net debt by $37,000,000 to 1,740,000,000 dollars and our adjusted leverage ratio moved slightly higher to 1.85 times. Regarding the full year fiscal 2019 results, consolidated revenues were $2,654,000,000 up 5% or 7% pro form a. CooperVision revenues were 1,970,000,000 dollars up 5% or 7% pro form a and CooperSurgical's revenues were 680,500,000 dollars up 5% or 6% pro form a. Non GAAP EPS was $12.35 up 7% and free cash flow was $421,000,000 Lastly, on fiscal 2019, the FX impact to revenue and EPS for the year was negative $62,600,000 and negative $0.62 respectively, and the impact to Q4 was a negative $8,000,000 to revenue and negative $0.05 to EPS. Moving to fiscal 2020. We're introducing consolidated revenue guidance of 2.7 $67,000,000,000 to $2,817,000,000 which is comprised of $2,070,000,000 to $2,100,000,000 in provision, approximately 5.5 percent to 7% in constant currency and $697,000,000 to $717,000,000 at CooperSurgical, up 3% to 6% in constant currency. We expect consolidated gross margins to be up slightly, with CooperVision expected to be roughly flat due to the deferment of cost reduction projects to ramp up my zinc production faster. Gross margins at CooperSurgical are expected to improve due to the increased Costa Rica manufacturing and Paraguay. Consolidated operating margins are expected to improve slightly, even including the incremental mindset investments and higher pension costs of roughly $4,000,000 primarily due to a much lower discount rate tied to lower interest rates. As a side note, remember we announced last quarter that we implemented a soft freeze in our pension, so we expect the pension costs to reduce over time. Interest expense is forecasted to be in the low $40,000,000 range and that assumes all cash flow goes to reducing debt and not share buybacks. Our effective tax rate is forecasted to be around 13% and this does not include any assumption for excess tax benefits from stock based compensation associated with the exercising of stock options. Non GAAP earnings per share is expected to be between $12.60 $13 based on approximately 50,000,000 shares outstanding. EPS growth is expected to be roughly 11% to 14% in constant currency when excluding the Miata investments and impact of the tax increase. With this within this, we're forecasting the year over year currency impact to be a negative $11,000,000 to revenues and a positive $0.06 to EPS. All this assumes roughly current FX rates with our 3 primary currencies being $1.10 for the euro, dollars 1.29 for the pound and $1.09 for the yen. Free cash flow is expected to be around $425,000,000 with CapEx remaining elevated around $325,000,000 due to the build out of our daily silica high shelf production capacity. Note, this guidance does not include the reinstatement of the medical device excise tax that we're assuming will be suspended again. Lastly, on guidance. Regarding Q1 consolidated revenues to $638,000,000 to 653,000,000 dollars with CooperVision at $480,000,000 to $490,000,000 or 3% to 5% constant currency growth and CooperSurgical at $158,000,000 to $163,000,000 or flat to 4% constant currency growth. Q1 non GAAP EPS is expected to be between $2.65 $2.75 And with that, I'll hand it back to the operator for questions. Thank Our first question comes from the line of Jeff Johnson with Baird. Good afternoon, everyone. This is Jason on for Jeff. Al and Brian, I just want to start on CVI guidance. I appreciate all the color there on the Mayday capacity constraints that seem to be reflected here in the FQ1 guide and maybe some pull forward that's impacting here from just the VAT tax. But is there anything you'd point to with respect to maybe competitive forces or anything else that are impacting the FQ1 guide and maybe the FQ2 through FQ4 implied guide for CVI growth? No, I wouldn't say anything from a competitive perspective. If you look at the guide for CooperVision for Q2 to Q4, it's around that kind of 7% range. We did 7% this year instead of the year before. So I think that's kind of like the true run rate that we're running. This is really truly more around capacity constraints on MyDay and some shifts we made with respect to MyDay that's impacting us and then a little bit of the VAS situation in Japan. Okay. And then maybe shifting over to my side briefly, that was helpful. I mean, how to think about maybe the cost and fixed cost infrastructure here as we think about MiSight and as we look beyond fiscal 2020. I know you gave some of those spending numbers for fiscal 2020 in the guide. But just as you think about the revenue guide for 2021 and 2022, I mean, is 2021 when we started getting a little bit of leverage in some of that spending levels out or maybe how to think about that? Yes. I really think it's going to end up depending upon the success of the product and what countries we get additional approval in. There's a massive opportunities out there. China is a gargantuan opportunity that we don't have approval in right now. Japan is another market that would be a fantastic opportunity for growth once we get approval there ultimately. So I think it will depend how well the market develops, how well we're doing in terms of how much more we invest. And to be honest with you, I mean, I hope that the investing stays pretty high for quite a while because I'm pretty excited about the product. I think it's going to do really, really, really well. So if it does and it goes in that direction, then we'll invest in it again pretty heavily next fiscal year. You're naturally going to get a lot of leverage at some point though because you have good gross margins on that product. It's a ProClear product. So you start with good solid gross margins right off the bat. Everything else is investment dollars. That's all educational activity. A lot of that is regulatory work, clinical work and so forth. So you give it a couple of years, no matter what, you're going to get pretty significant leverage. It'll just be a question of when that is. Okay, great. Thanks Al. Thank you. And our next question comes from the line of Larry Biegelsen with Wells Fargo. Hey, good afternoon guys. Thanks for taking the question. 1 on the CVI Q1 guidance and one on MiSight Al. So just on the Q1 CVI guidance, could you quantify the benefit from the Japan buy in in Q4 and the impact you're assuming in Q1 from that rolling off, if you will, and the MyDay supply constraint impact in Q4 and Q1? Could you quantify those for us please? Yes. The volume was somewhere around $4,000,000 in Japan. So that on a percentage basis obviously would have affected Asia Pac a little bit more 11% to 7% or 11% to 8% somewhere in that kind of percent growth and a little bit less than 1% impact on the overall business. But and then we have to hurdle that obviously in Q1. If you look at the MyDay constraint that's everything else besides that is really MyDay constraint, Larry. I mean, you kind of plug it in the number, but everything is linked to my day. The rest of the business is pretty strong. Clarity is looking like it's continuing to go strong. Biofinity strong. Amerivitality is finally growing. Everything else is in pretty good shape. And just to give you a little bit more color on my day and what's happening is we are in a good spot from a manufacturing perspective and we're increasing production on all our existing lines as I mentioned. I feel good about our ability to get right back in shape on Q2. We had another line come out last week, So we have other lines coming. We're in pretty good shape. We have good visibility on that. Where we ran into a little bit of a problem there was associated with MyDay torque. As demand really was accelerating, we really saw a lot of the strength coming from the MyDay torque. And once we start a change in production there and producing more of that product and increasing inventory that we had, that's kind of what has created the short term constraint that we're dealing with. So we had to look at that and say, okay, what can we do, right? You pull back at fixed cuts a little bit, trial lenses a little bit, you raise price a little bit. You do the things you can do knowing that you're going to solve your capacity problem and really get back in the market in a big way in the near future. So there was a lot of push pull. The way we ended up doing it to have the least impact on our customers was to do it this way and build some inventory, expand our store rates and so forth and kind of level set ourselves after this 1 quarter. That's very helpful. And now on MiSight, congratulations on the approval there. Can you talk about a little bit more about the commercialization plan there? It sounds like you're going to certify optometrists. And if the demand is so strong or the enthusiasm is so high, as you mentioned, why only $2,000,000 in U. S. Sales in fiscal 2020? Thanks for taking the questions. Yeah. I'm probably being a little conservative on that $2,000,000 number. At the end of the day, if we launch in March and we're out there, we're doing training and educational activity as a treatment. And keep in mind, we are doing this as a treatment, which means working with the doctor, working with families to sell them this product for their kids as a full year treatment. They need to understand at the end of the day this is a multi year commitment to get the best bang for the buck. So as we go through that process and work with doctors and get the product out in the marketplace, I think you'll see a fairly quick ramp. And that's kind of where we talk about $2,000,000 going to $9,000,000,000 and accelerating off that. The question is just going to be solely a matter of how fast does it gain traction. When we kind of look at the market in Canada and how we started in Canada and how fast we've accelerated, the initial start was a little slower when you took into consideration all the training, all the educational activity and everything else that needed to be done. Now Canada was a little different. We launched that off our strong 3 year clinical data. This is off FDA approval and there's been a lot more consumer activity associated with this. So we'll see. I mean, I'm optimistic that it will go a little bit faster than that, I think. But for now, it's probably kind of prudent to say $2,000,000 is a fair number for this partial year. Thanks for taking the questions, guys. Yes. Thank you. Our next question comes from the line of Larry Keusch with Raymond James. Thanks. Good afternoon. Al, I just want to start on MiSight. You said something that was important here with the FDA clearance. You really can now position this differently than traditional contact lens given the data. I know that pricing is varied around the world and Canada, for example, is fairly low. So how should we think about where you're thinking about pricing on an annual basis for this product with that FDA clearance behind it? Yes, that's a good question, Larry. I mean, we are working on cleaning that up around the world right now. That's part of the internal project is to ensure we standardize price. Obviously, this is not the kind of product that's going to go out with a bunch of rebates and discounts and all that other kind of activity. But it's a little challenging to answer because at the end of the day the pricing that you're going to see will largely be dictated between the optometrist and the patient. And it will be what the optometrist wants to see. So let's say that a family goes in, they decide to put their child into MiSight and the optometrist is saying, hey, I'd like to see every 30 days. I'd like to have you back in here just to check to make sure everything's working, everything's okay. This is a true treatment, right? That could be a little bit more of an expensive process than you see in certain spots around the world right now, where a lot of times this is sold as more as a contact lens than it is a treatment. So long story short, I guess my answer to you on that one is the pricing is going to result in a very profitable product for us at the end of the day, but TBD and where it settles out in terms of how optometrists handle this with the patients themselves. Okay. But at a minimum, we should probably think of this as at least pricing for or above a premium silicone daily, correct? Yes, I would think of it that way. Yes. Okay, perfect. And then the second question really is just more of a longer term question. You laid out 2021 2022 objectives from ISIGHT revenues. So those imply a little over 100 basis points and 200 basis points of growth here. I know you guys are investing a lot. You're really trying to drive a durable growth engine here. Is the right way to think about MiSight as sort of incremental to growth and we really could be looking at franchise that's growing 7%, 8% or is the right way to really think about CVI over the next several years is there's a lot of certainty around 6% plus when you include MiSight and MyDay capacity coming on. I'm just trying to really think about what's the right way to calibrate the long term growth. Yes. Larry, we've positioned this more as the higher end of what you're talking about. So when you look at the distribution center expansions, the build outs, everything else we're doing has been to put us in a position to accommodate all the growth that's coming in. You'll get leverage associated with that. When you look at the significant CapEx, I think we're $80,000,000 in CapEx this quarter. We're talking about the highest CapEx we've had as a company this coming year. That's all to drive capacity expansion in the daily silicone hydrocall side of things. So I look at us being able to grow in that 7% kind of range that we've been running and tacking my side on top of that. That is not out of the question when we look in the outer years. It's just a matter of getting there. I mean, so that's what we're positioning ourselves as to say, do I feel good about if the market holds as is similar conditions 6% higher? Absolutely. Do I think we have a chance to put up some stronger numbers like you're talking about. Yes, I do. Okay, terrific. Thanks, Al. Appreciate it. Yes. Thank you. Our next question comes from the line of Anthony Petrone with Jefferies. Thanks. Maybe a couple on MiSight and one actually on PARAGARD. Just to go back to MiSight, I'm kind of just when you look at that target market, myopia progression in pediatrics, is there sort of a number that you're thinking about in terms of a TAM? I'm just trying to size that opportunity. It strikes me that possibly not all MYOPs within that age category of candidates. I'm just maybe just to fine tune the actual target market you're going after there. And then in terms of the $25,000,000 $50,000,000 guidance for 2020 2021, how much of that actually is U. S? Well, I'll take that one. So I think if you look at the U. S, you're kind of talking about $2,000,000 right? We're talking about this year and we've got a forecast around $9,000,000 And then if we kind of look at the OUS doubling on the existing platform, you would kind of look at the U. S. Being in that same vein, right? So you kind of get a double in the U. S. Up to $18,000,000 $20,000,000 something like that and the rest of the world doubling again also. Upside from that would probably come more than anything from the U. S. Market where I think that we actually get better uptake than that more than double as we the 2% to 9% doesn't necessarily get stopped at 18% is what I'm saying. And then also other markets. I mentioned China and Japan. There's a number of other markets right now we're waiting regulatory approval on. The FDA approval will help get us approval on those markets. So I think that provides a little upside on that side. When you look at the addressable market, I haven't think it's going to be very, very large. I mean any child in that age group that has myopia is a candidate for myocyte. Now as we know a lot of kids don't go to the optometrist. The blackboard or they're having issues seeing and they finally get taken to the the Blackboard or they're having issues seeing and they finally get taken to the optometrist. But at the end of the day any child in that age group is there. I'll tell you one of the things that I'm excited about is some of these guys on the spectacle side. I mean other people come in that is a positive for us. So I'd be excited to have Luxe Esselor or someone else come out and start educating the market on this epidemic that is myopia and how important it is for us to be proactive and get in front of it. And ultimately, if you start moving more in that direction and you're getting spectacles there and spectacles are working and we're all together kind of in one pushing this and you get insurance reimbursement, well then watch out. Then the market will really explode. So I have been I mean multiple, multiple 1,000,000,000 of dollar market my mind no question. Very helpful. And just quick on PARAGARD. I know you took some TV ads down. I'm just wondering what the update is on PARAGARD DTC and TV ads specifically? Thanks again. Yes. So the TV ads worked really well. They're expensive, but they worked really well. We did them in Northern Cal and the New York metro area. So what we're looking to do in this year is to take that in a little different angle and put it in a number of markets around the U. S, smaller market, but spread much more broadly. And we'll kick that off here in the not too distant future. So I think what you kind of saw was the 1st year big investments. We hired a lot of salespeople. We did a lot print, social media and the TV advertising in a couple of big markets. We've learned a ton. This coming year, we're back at it again. We're going to do the TV advertising a little different, a little bit more fine tuned on some of the other stuff. But I'll tell you at the end of the day, I mean, we're investing in PARAGARD. We're probably going to spend $5,000,000 more in sales and marketing this year than we did last year. So this is another pretty heavy investment here in PARIKAR. I do think we'll start seeing some much better leverage on that in fiscal 2021. But we are taking another year here to understand the market, make sure we capitalize on it. We're talking a very high gross margin product. And if we can begin mid single digit growth like it looks like we're going to be able to for a number of years in front of us, then it is a product we definitely want to invest in. Thanks again. Thank you. Our next question comes from the line of Matthew Mishan with KeyBanc. Great. And thank you for taking the questions. Hey, Al, are you bringing on enough capacity to meet increased demand in FY 2021? Is this going to be like a persistent ceiling for growth? I think we're bringing a lot on. So let me say that first of all. I mean it will support very solid growth for a couple of years. But in reality if the market continues to shift like I think it's going to shift and give you a couple of numbers on that, about 53%, 54% of the market is daily. That's going to go, in my mind, probably 2 thirds of the market will be dailies. If you look at daily silicones, that's like 42%, 43% of the market right now. That's going to go up to like 84%, 83% kind of where FRPs are. You look at that, that trade up and that conversion over to dailies is several $1,000,000,000 of incremental sales. It's probably when I did the math, it was about $2,500,000,000 to $3,000,000,000 of incremental revenue to the contact lens industry. If that's the case, you are going to see that rising tide lifts all boats, but it will definitely include us. I don't think you get like the massive years that we're seeing now in terms of CapEx because I think it will naturally level off a little bit. But you'll continue to see us put CapEx there if that market moves like I think it's Okay. And I know you can't win every contract, but there were a couple of private label or key account wins from competitors in Asia in the quarter. Given you've seen capacity strain, are you able to onboard like new customers at a level you were like a year or 2 ago? Short answer is no, we are not. Q4 would have been stronger if we were able to do the things that we could have done so to speak. You know what I mean? Like based on the contracts and the opportunities that we could have executed on those like we wanted to Q4 would have been a better quarter. We still have a great quarter, so I don't want to downplay by anything, but it would have been better. I think we'll be much, much better positioned to take advantage of those opportunities in Q2 and going forward. So right now, a couple of things are a little on hold. One of the things that I'm really happy about is as well as buy day has done. And it gets all this attention around the world and we're seeing all that accelerated growth. We shouldn't lose sight of clarity. It's a great product. It's doing really well. Claritry Toric in particular is a really good product that's doing well. So we're seeing some nice sales there. I'm happy about that. So we'll see as these private label contracts, all that stuff grows. You look and you say are there more opportunities for clarity within there or myDay and so forth. So we're kind of pushing and pulling on that one right now. But I do think that we're a little muted in our results right now, but you'll see that pretty up here as we move Q2 and going forward in the year. All right. Thank you. Thank you. And our next question comes from the line of Matthew O'Brien with Piper Jaffray. Just Al, I think what everybody is a little bit nervous about is just the competitive dynamic surrounding the Mass SiHy product that you have and a bigger competitor coming out, but you're talking about some pretty robust numbers of growth in CVI over the couple of years, a lot of investments in new products. So I know you don't want to wave off the competitive threat, but how should investors think about the potential impact and how that how you can kind of navigate around those launches both on the Sphere side and Torix side next year? Yes. Well, unless J and J is coming out with something, I don't know. There's not a competitor that's bigger than us. So there could be other competitors coming out with product, but they're not bigger than we are. And that's fine. As I was just talking about, when you look at the conversion that we're seeing from FRPs over to dailies and dailies to dailies silicone, there's clearly opportunities for other products to come into the market. So whether that's a competitor or direct competitor here, whether it's an Asia Pac competitor coming into the market, there's a lot of opportunities for people to get into this market and be a participant in that growth. We're a little unique in our positioning in that we do have great branded products. We do have great customized solutions. We have great geographic presence and so forth. So when I kind of look at that, I say, yes, competition is always there. It's always part of what we live with. When you look at our main competitors, they are coming out with new products, but we're coming out with new products also. We're expanding parameter ranges. We'll be launching new products this year. We'll be launching some new products next year. We have some really exciting stuff going on. So at the end of the day, I'd say, our competitive activity? Absolutely. Are we in front of that competitive activity? There's no question. Clarity itself is a Sphere, Toric and Multifocal. MyDay is a Sphere and a fantastic Toric out in the market. So I'm really happy with our competitive positioning. There's always going to be something that's out there. But this marketplace is big enough and it's growing fast enough that there's opportunities for a number of people to put up really nice strong numbers. Okay. Thanks for that. And then as a follow-up, and I know this is looking out of ways, and I'm sorry to get too far ahead, but just any thoughts on timing for Japan? And then you mentioned reimbursement for myopia control that seems like a lot of heavy lifting, but how do you go about getting reimbursement for MiSight? Thanks. Yes. On Japan and the other markets, some of those markets get held considerably by the FDA approval. So they don't necessarily use the FDA approval, but they'll take it into consideration. So I don't want to speculate on that yet, but I'm kind of, I would say, kind of looking at within 2 years for a number of those markets, Japan, China and so forth, hopefully earlier, but they could be a couple of years. So we'll see how that plays out. The FDA approval just came through pretty recently here for us. So we're doing a lot of work on that, spending pretty good money on the regulatory side right now and additional clinical work and so forth to make sure we're checking the box to get all the approvals that we need. If you look at the insurance reimbursement, that's a tough one and that's probably multiple years out. That's why I kind of put that in the same vein of talking about Spectacle Myopia Management lenses coming in the marketplace. As the market gets bigger, insurance agencies and so forth and, optometic organizations and so forth realize the value and the benefit of this product and that it's a treatment of an epidemic and it's something that can now be proactively addressed. I don't know why people would not get behind it. But I think it will take a little bit of time. One contact lens coming to the market will do fantastic. But in order to really drive this market and get it going, you'd like to see some other players in there. And that will be the thing that ends up ultimately really helping driving us to get to the point of insurance reimbursement. Got it. Many thanks. Thank you. And our next question comes from the line of Jon Block with Stifel. Hey, guys. Thanks. Good afternoon. 2 for me. I guess first on PARAGARD, you mentioned you took price in the buy in. I don't know if you can quantify the amount of the buy in, if so, that'd be helpful. And then what is the price increase, Al, that we should be thinking about? Is it all a fiscal 2020 or their contracts? So is it more phase in, call it, over fiscal 2020 2021? And then I just got a follow-up. Yes. So the price increase was around 9%. The way that will kind of flow through the P and L because of of a number of different dynamics is kind of like think of it almost as like a third, a third, a third over the next couple of years. So when I think about PARAGARD's growth, I'd say, hey, there's an underlying kind of 3% from price. And then we've been running in that kind of 3% unit growth range. So you combine those 2 and you get about 6%. The IUD market itself from a unit perspective is growing 2% to 3%. And then price, it's a little hard to tell when you look at some of the hormonal options out there, but probably similar. So we're growing kind of a little bit faster than the IUD market overall. But that's kind of how to think about price, the easiest way. When you look at PARAGARD and yes, when you look at PARAGARD and the buy in activity, that's always a little challenging to get in terms of like defining, okay, exactly how much was buy in activity versus normal activity and so forth. I would have said that we were probably looking at a quarter where I thought Q4 we would have declined. So maybe there was $5,000,000 or something of buy in activity between the Q1 going into or Q4 going into Q1. It makes Q1 a hard quarter to grow on. When you look at last year it was a decent Q1 also, but somewhere in that kind of range. Okay. Got it. Very helpful. And then just to shift gears, in those out year MiSight numbers you referenced, I'm just curious, are those because of I mean, they're certainly very impressive, but is this because of a cap arguably from manufacturing perspective? I guess, where I'm trying to go with this is, if MICEIGHT were to really begin to inflect, call it, 18 months from now, somehow China and or Japan came on board, would you guys be able to take advantage of that and fill demand? Or were you alluding to some of those numbers, Al, because of potential constraints from a manufacturing standpoint? Thanks. Yes. One of the things about my side is that is a ProClear lens. So we have capacity to be able to produce that lens. And what makes it probably extra nice is as we see the entire market shifting to silicone hydrogel lenses from our older traditional hydrogel lenses, that puts constant pressure on us. Brian kind of touched on a little bit with some of our products in that space. So we're getting increasing capacity within our ProClear lines as everyone shifts over to silicone hydrogel. That's fantastic because we can allocate that new capacity to MiSight. So if we do get a situation where some of those markets come on faster, we'll be able to meet that demand. We're in good shape from a production perspective on my side. Got it. Thank you. Yes. Thank you. And our next question comes from the line of Chris Cooley with Stephens. Good evening. Thanks for taking the question. Just a couple from me, Al, if I may. Just thinking about the incremental spend from the investments in fiscal 2020, I appreciate you called out about $25,000,000 there obviously with MiSight, so about $0.40 to $0.45 depending upon the tax rate and then an incremental five $1,000,000 in investment on the incremental PARAGARD spend. Are those the only 2 one time items there or was there additional, I apologize, I came on the call a bit late, additional investment in fiscal 2020 that would be somewhat of a unique or one time in nature? Then I have a quick follow-up. Those are the 2 clear ones to point out, no question. I mean, we're doing some expansion activity within vision geographically and within the marketing side where we're hiring some more salespeople and so forth. Same thing within Cooper Surgical. Within Cooper Surgical as an example, we do most of our international business through distributors. We're really excited that we just hired a really talented individual to come on and lead our international medical device efforts there. So I think we have some pretty good opportunity to drive better growth internationally on our core CooperSurgical medical device products. So there are some of that kind of activity, I would call that kind of more normal activity, if you will, normal growth activity. The 2 that stand out certainly are MiSight, no question. And then Perrigo sounds great. Understood. I appreciate that color. And then just lastly for me, how to say this, but any commentary that you would say just regarding competitor recent competitive launches in the dailies marketplace in the SiHy space. Just broadly, if it's pricing where you expected, if the adoption curves are ramping up, I'm just curious if there's any change in your views on how some of the newer, soybean hydrogel dailies are beat or will be adopted here in the U. S? Thanks so much. No real change there. I haven't seen anything recently that would change my mind about the marketplace or our positioning in terms of any new products that are entering the market. Thank you. Thank you. Our next question comes from the line of Chris Pasquale with Guggenheim. Thanks. One quick one on the device tax and one on surgical. So the device tax only hits a portion of the business. Do you have an estimate for if that suspension is not extended, what the likely impact would be? And is there a contingency plan in place to offset that? Or would you just let that drop through to earnings? Yes. I'll take that, Chris. If the excise tax were to be reinstituted in January, we expect an impact to SG and A of roughly $5,000,000 to $5,500,000 In total, CooperVision's products are exempt from that tax and only the sale of U. S. Products sold by Cooper Surgical excluding PARAGARD are included in that tax. So if that were to happen, it would be something we hurdle try to hurdle just like tariffs and any of those other anything else like that. Okay. That's helpful. And then Al, just on CooperSurgical and the growth forecast for 2020, I mean, it seems like fertility business and the core office business are both exiting the year here with pretty good momentum. You're coming off a year where you grew 5%, 5.5% or so. Why shouldn't growth stay at more that mid single digit level? Why 3% to 6% as we look at 2020? Yes. I think that surgical similar division is kind of way we finish the year here is the way that both the businesses are operating right now. I think you'll see them operating more along those lines in Q2, 3, 4 going forward. I think it's a Q1 thing with respect to PARAGARD at the end of the day. So I think fertility should do fine, the base biz and so forth. I think it's just a matter of how does PARAGARD do. We kind of get the ups and downs there with channel inventory more than would be ideal with PARAGARD. So depending upon how that does, I think we end up with a softer Q1, but then you're right back to normal. I would not read anything negative into the guidance in terms of saying that, hey, there's a fundamental issue or anything else because there's not. This is just a matter of Q1 impacting the full year. Once we get past Q1, we'll be back in pretty good shape. Thanks. Thank you. And our next question comes from the line of Robbie Marcus with JPMorgan. Hi, thanks for taking the question. I was wondering after you're investing in these key accounts throughout 2019, how can you measure the success here and any kind of qualitative or tative benefits or impacts you could pass on? Yes. Well, our key accounts are growing faster than our overall business. That's probably the easiest way to define it. We put investments in place, kind of put an infrastructure in there to drive global key accounts. And that team has done a really, really nice job kind of throughout that team and they've really, really done a nice job. So at the end of the day that's growing faster than our overall business. We continue to expect key accounts to grow faster than our overall business. I kind of touched on earlier that there's some opportunities out there that we think we're going to be capitalizing on as we move forward here. So at the end of the day, that's turned out to be a positive strategy and it's that the future certainly looks bright from our key account perspective to continue to drive our overall top line growth. Thanks. And on the my day manufacturing, I guess, capacity issue, How much did that impact growth exactly? So it's 18% for the daily silicon lenses overall. What would that have been if you had full capacity? If we had full capacity, it would have been quite a bit higher. We'll get to throw a number out there, but there was a lot of demand for that product. There is a lot of demand for that product right now. So that's where I do feel good about. We are bringing a lot of capacity online here and we are heavily focused on selling that as we move forward. But we'll be using that capacity as it comes out. So other than to kind of say it made an ease of difference, I won't go into specific numbers on it. Appreciate it. Thanks a lot. Thank you. And our next question comes from the line of Steve Willoughby with Cleveland Research. Hi, good evening and thanks for taking my questions. I have 2. I guess first following up on the last question. Al, it sounds like you're continuing to add more manufacturing capacity. Could you just provide a little bit more color on how long these capacity additions will take to come on? And I guess with that, what if you could quantify at all, how much of a capacity increase you're hoping to eventually get or how much can capacity increase in 2020? And then I have a follow-up as well. Yes. Steve, that's a great question and really a great point that I didn't touch on there. But and it's especially relevant for anyone who's newer to this story. I mean, it can take 12 months to 24 months and I'm sure some of our competitors are dealing with this right now in order to get a new line up and running. And I mean that from the time you order that line to it's actually producing product that you could ship to your warehouses and ultimately sell. So it could take a decent amount of time. And you can't just kind of snap your fingers and order these manufacturing lines and get them in the next month, right? Let's say it takes on average 18 months or something to get those lines. So we ordered them quite a while ago. I mean, we saw a bunch of this coming. We ordered these lines. We have them coming in. As I mentioned, I mean, we our Rolando who runs our manufacturing group has done just an insane good job, but he's almost got the team going at this point like 20 fourseven working on getting those lines up and running and accelerating the start dates on them. It takes time and that's part of the problem. That's part of the big the moat, if you will, the barriers to entry into this industry are pretty significant because of that type of thing. So anyways, long story short, number of lines coming on. I'm not going to get into how much we're that increases our capacity and the dollar amounts associated with that other than to say there's numerous lines that are coming out. We just had one last week, many more to come this year and into next year because of just the timing it takes to get those lines. So do I guess with that Al, do you think you'll still be capacity constrained at the end of 2020? I think that as we move into 2021, we'll still be capacity constrained. I do think so. But having said that, we'll be in 10 times better position than we are today. Sure. Okay. And then my follow-up question now. Over the last kind of taking a little bit longer term view here. Over the last, let's say, decade, the company has outgrown the contact lens market by 200, 300, maybe even 400 basis points pretty consistently. During a lot of that, much of the last decade, you've had a favorable competitive position with your product portfolio, particularly having MyDay, but especially Claroty being sort of unique in the marketplace. The 200 or 300 or 400 basis points you've outperformed in the market, have you put any thought to how much of that outperformance has come from your ability to trade up to more expensive silicon hydrogel daily lenses versus gaining share from competitors? I'm just wondering if you've ever looked at it that way in terms of the breakdown from how you've outperformed the market? Yes. So we have. It's kind of interesting right now. I mean, some of the competitors coming out with products right now that they'll trade up their existing wearer base and get a 20%, 30% kind of premium on those trade ups. That's fantastic for them and it will drive good solid growth for them for a number of years. As you know, we don't have quite that base of trade off because we don't have as big a daily hydrogel base. So when you look at our growth over the years here that growth or a lot of that growth especially more recently has become has been coming from winning new wearers. And I'm kind of happy when I look well, I am happy when I look at the new fit data that we get that we're continuing to win new wearers, new fits with new wearers in the daily silicone hydrogel space. So that's one of the keys for us. So I think at the end of the day, it's a little interesting that you're going to get good market growth because you're going to see some competitors trading up existing wearers and again getting that 20%, 30% trade up. We're going to get growth because we are going to continue to get some of that trade up. We're going to see growth from the conversion of FRP wearers over to daily wearers. We're going to get growth from winning new wearers. And then some of the new products we roll out will drive growth. When you look at like MyDay, you asked about constraints as we enter into 2021. One of the things I'm excited about is ultimately getting the MyDay multifocal out in the marketplace. That will be future, right? But we just have to get the capacity to be able to do that. So we are doing a good job right now, I will say, in winning new wearers. And And I can see that in the new fit data and that ultimately will translate itself into revenues. It's just a matter of how long that takes. Okay, great. Thanks so much, Al. Yes. Thanks, Dave. Thank you. And our last question comes from the line of Steven Lichtman with Oppenheimer. Thank you. Hi, guys. Al, just a question on the regulatory and clinical work around MiSight that you mentioned. Can you provide a little more color on what that includes? Is that reflective of investment in the geographic expansion or in the post market study as well? And can talk a little bit about the post market study design in terms of number of patients and when we might see data? Yes. So it's a number of things to your point, right? So it's clinical data in terms of expanded tests. One of the things that we want to look at is say some children don't react as well as other children do to MiSight. Why is that, right? So doing clinical work on that. When you look at late onset myopia, how can we tackle that? What's the best way to tackle that? So we're not talking 8 to 12 year olds, but older kids who are getting myopia. When we look at going to a silicone hydrogel, my site product that kind of work. Then you also roll into regulatory work that have actually kind of China, Japan and a number of other countries going through the regulatory process to get approvals. There's investment activity associated with that. If you look at the post market study, that's another one. That's a great one. That's an expensive one that we're kicking off right now. I'm not going to go into much detail on that at this point in time. There will be information that will come out on that here in the coming months. So I'll kind of wait to give more color on that. But that is another thing that's expensive as part of those investment dollars. So a lot of that activity as you can imagine it's upfront activity. You do it, you get approvals, then you're done. You do the clinical work, you get those clinicals behind you, you ultimately get approval on the expanded product offerings or new products that fit in the space and so forth that you're done. That's where you start seeing that real leverage like Optifu that I was talking about. But those dollars, those investment dollars are going to a multitude of different areas. Got it. And then lastly on the increased sales marketing and educational support you mentioned from MiSight, is some of that around expanding the sales force and will you have a targeted sales force around MiSight or no? We may. Right now most of that is professional sales if you will kind of the clinical side of it where you're going out and talking to optometrists and individuals who really want to understand the lens, get the lens of the treatment, drive the product forward. So right now because it's early stage, it's more along those lines. Ultimately, you move to the point of saying, hey, can my existing sales force sell this lens also? No surprise to anyone. They're getting tons of questions about it right now and they're just referring it over to some of the specialists. So we'll see how it kind of plays out over time. I think that you will probably get some dedicated sales people, dedicated sales professionals. And as it becomes more mainstream and less clinically based on the sale, you'll move yourself more in that direction. Got it. Thanks, Al. Yes. Thank you. And that's all the time we have today for questions. I will now turn the call back over to President and CEO, Al White for closing remarks. Well, thank you, everyone. We covered a lot of good topics today. And as you can tell, I'm pretty excited about where we are and where our business is and what the future holds kind of have to work our way through Q1 here and roll through the rest of the year, but things are looking pretty good. I'm pretty excited. So I hope everyone had a good Thanksgiving and happy holidays coming up and look forward to seeing everyone out on the road here in the coming weeks months. So thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for participating and you may now disconnect.