The Cooper Companies, Inc.

Ladies and gentlemen, thank you for standing by, and welcome to the Cooper Companies Incorporated third quarter 2020 earnings 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 that portion of the call, you will need to press star 1 on your telephone. Please, the advice at today's conference is being recorded. I will now hand the conference over to Kim Duncan, Vice President, Investor Relations and Risk Management. Please go ahead.

Good afternoon, and welcome to the Cooper Company's third quarter 2020 earnings conference call. During today's call, we will discuss the results included in the earnings release and then use the remaining time for Q&A. Our presenters on today's call are Al White, President and Chief Executive Officer, and Brian Andrews, Chief Financial Officer and Treasurer. Before we begin, I'd like to remind you that this conference call contains forward-looking statements, including all revenue and earnings per share guidance, and other statements regarding anticipated results of operations, market or regulatory conditions, and integration of any acquisitions or their failure to achieve 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 at cooperco.com. And now I'll turn the call over to Al for his opening remarks.

Thank you, Kim, and good afternoon, everyone. There are a number of things to cover on today's call, but let me start by saying our businesses are performing really well. They improved as we moved through the quarter, and that momentum continued in August. Before getting into the details, I want to first congratulate Dan McBride and the entire CVI organization for their performance during COVID. With our relatively strong June performance of down 3%, we hit key milestones, including increasing our global market share to 25% and becoming the number two contact lens company in the world. The team is executing at an incredibly high level right now, driving our key strategic initiatives of expanding key account relationships, launching new products, upgrading distribution capabilities, and expanding manufacturing. Combining this with our strong support of the independent optometrists, our extremely high customer service levels, and the recent U.S. launch of the most innovative contact lens in the world, MySite, we remain in a great position to continue taking share. Moving to the numbers and reporting all percentages on a constant currency basis, we posted consolidated revenues of $578 million in Q3, with Cooper Vision revenues of $449 million, down 11%, and Cooper Surgical revenues of $129 million, down 24%. Non-GAAP earnings per share were $2.28. These results were stronger than expected as both businesses bounced back nicely from COVID lows. Our strength continued in August, and we've incorporated that in our guidance, which Brian will cover later in the call. For Cooper Vision, all three regions posted improving performance as we progressed through the quarter, with both June and July being down low single digits. For the full quarter, the Americas and Asia pack were down 9%, while EMEA was down 15%. These results were better than expected as the strategic initiatives we've executed on over the past couple years really show their value during these challenging times. We're also seeing a halo effect from our MySite launch, bringing attention to our other products with positive activity in our daily silicone hydrogel and bio-affinity franchises. Outside of CooperVision-specific drivers, we've seen consumption improve with consumers returning to more normal wearing habits as social activity picks up and its video conferencing gains traction. Looking ahead to the fall, including back-to-school activity, we believe the market will be stronger than we were previously expecting. Parents are concerned about their kids' screen time, and with online education increasing, they're proactively addressing their worries by scheduling eye exams for their kids. Digital eye strain is an issue for a lot of children, but also adults, as screen time and video conferencing has increased significantly. This issue causes headaches and problems focusing, and it's therefore something we all need to be attentive to. In conjunction with improving consumption, we're incredibly busy with product launches, including My Day Sphere and Toric, which are being launched or relaunched around the world. My Day has been in high demand for a long time, so it's great to be selling this premium daily silicone hydrogel lens in an unconstrained manner. We're also successfully continuing our global launches of BioAffinity Toric Multifocal and and Clarity's extended daily TORC range. And lastly, my site is in launch mode, and I'll cover that in a minute. With all this going on, and with new offerings in the pipeline coming, we'll remain extremely active for quite some time. Moving to some quarterly numbers, BioAffinity and Avera combined to be down 8% in the quarter, with strength noted in BioAffinity TORC and Energist. You may remember BioAffinity Energet is a very unique lens using digital zone optics to help alleviate eye fatigue from excessive screen time. It's a perfect fit in today's world, and it showed a nice pop, growing 4% in the quarter. Meanwhile, our silicone hydrogel dailies were down 11%, rebounding nicely as the quarter progressed, including growing in July with notable strength in my day torque. With this activity, we've seen channel inventory rebound and expect to be back to pre-COVID levels by fiscal year-end. Moving to MySite, the team has done an amazing job. As the only FDA-approved myopia management contact lens clinically proven to slow the progression of myopia in children, interest is incredibly high. We far outpaced our initial estimates with over 1,000 optometrists in the U.S. now certified to fit MySite with many more in process. With this success, we just launched an exciting multi-channel direct-to-consumer advertising campaign, including partnering with well-known actress Sarah Michelle Gellar as our celebrity spokesperson. This initiative has already accelerated consumer interest in my site and is being received incredibly well by optometrists. What's most exciting is that we're creating a new category. Myopia management is in its infancy, but it's set to become a brand-new multi-billion-dollar category and we're at the forefront. Regarding the total addressable market, if we narrow the market to just 8 to 12-year-olds, which covers the FDA's approval from my site, we estimate the U.S. myopia management market to be around $1.5 billion from a manufacturer's perspective. The math behind this is pretty straightforward. In the U.S., roughly 40% of people are myopic, and we conservatively estimate the percentage of myopic children ages 8 to 12 to be 20%. as many kids become myopic in their teenage years. There are roughly 20 million children between the ages of 8 and 12, so this equates to 4 million kids being myopic. All these kids would benefit from myopia management, but based on household income and the current lack of insurance reimbursement, we estimate roughly half the kids are candidates. This creates a total addressable market of $1.5 billion in the U.S., assuming an annual price of $750 for a myopia management program such as Brilliant Futures, which includes the MyFight specialty lens and accompanying support, including training, geo-targeted marketing, and a dedicated myopia support specialist. Adding Europe and the rest of the Americas increases the total addressable market to roughly $2.5 billion, and adding Asia-Pac, where the prevalence of myopia among young children is considerably higher, take the total addressable global market well over $5 billion. These numbers do not include teenagers, so they may be conservative, but they appear reasonable for contact lens programs such as MySite and OrthoK at this time. When looking at these estimates, you clearly get an appreciation for why we're so excited about creating this new category and why you're seeing optometrists now talk about pediatric optometry as a new market similar to what you see with pediatric dentistry. And remember, everyone knows myopia needs to be corrected in order to be able to see, but more and more people are becoming aware that it needs to be treated to reduce the higher risk of serious eye diseases, including retinal detachment, cataracts, and glaucoma. Regarding sales, even with COVID challenges, our myopia management portfolio, including MySight and OrthoK lenses, grew 15% this past quarter to $9 million. Within this, MySite grew 35% to 1.6 million. With the U.S. MySite launch now fully underway, we expect solid growth in Q4. One additional point to highlight regarding myopia management, and specifically MySite, is the positive impact we're seeing from telemedicine. Myopia management consultations involve a lot of early-stage dialogue with parents that can easily be handled via virtual consultations, which is extra important today with COVID restrictions. These virtual consultations have been conveniently helping families understand what myopia is, how it progresses, and the critical need for treatment. To conclude on vision, let me touch on market data. For calendar Q2, the market felt the impact of COVID and was down 32%, while we were down 27%. With this outperformance, our global market share increased to 25%, and we posted record shares in all three regions, including strengthening our number one position in Europe. We also posted extremely strong new fit data, which bodes well for the future. This is a testament to the hard work of our team and the strong execution on our multi-year strategic investment plan. Regarding future market growth, the underlying dynamics driving our market remain in place and may actually be increasing with the macro trend of higher screen time. The key for our market remains myopia, where it's estimated roughly one-third of the world is now myopic, with that number expected to increase to 50% by 2050. Combine this with a continuing shift to daily silicone hydrogel lenses, the trade-off from legacy hydrogels and silicone hydrogels, geographic expansion, and growth in torch and multifocals, and our industry has a bright future. Moving to Cooper Surgical, we reported revenue of $129 million. Although down 24%, we solidly exceeded expectations in a challenging market environment. Even more encouraging, both the fertility and office and surgical business segments posted improving results as we proceeded through the quarter and into August. Within office and surgical, our flagship brand, Paragard, saw a strong rebound as offices steadily reopened. Paragard placement activity increased over the course of June and July, and we've seen that activity continue in August, so we expect a solid Q4. Elsewhere, we've seen deferred elective procedures steadily rescheduled, and our medical device sales rebounded nicely. In particular, our focus products are performing solidly, such as Insorb, our patented surgical skin closure device, and EndoC Advance, our direct visualization system for evaluation of the endometrium looking for potential causes of abnormal uterine bleeding. These products were down only slightly for the quarter, and we expect stronger results moving forward. especially with EndoC Advance, as it capitalizes on the trends of physicians and patients preferring an in-office setting to an OR visit. All this success is a testament to our R&D group's ability to continue developing innovative products and our hardworking sales teams. Moving to fertility, we were down 26% for the quarter, slightly better than expected. Fertility clinics have largely reopened around the world, and we're seeing some really positive trends. Patient flow is improving, and the market is starting to address pent-up demand, including through the use of telemedicine. With this, we believe we'll see IVF cycles return to normal in the U.S. and Europe by year-end, with Asia pack following in Q1. Regarding products, we saw a nice rebound in our consumables, such as media and pipettes, as the quarter progressed, and our genomic business actually grew nicely in July. These trends continued in August, so this bodes well for our business to strengthen considerably in Q4. Moving forward, we'll continue to focus on in-office and virtual sales and marketing training sessions, adding sales personnel where appropriate, and expanding our product offerings. Fertility remains a long-term global growth business with very positive trends, so we'll continue investing in this space, supporting our market-leading positions. In conclusion, our businesses are performing well and we're optimistic we'll continue to see improvement driven by our strong product portfolio, including some unique products like MySight, BioAffinity EnerGif, our OrthoK lenses, and EndoSee Advance. 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. Our third quarter consolidated revenues decreased 15% or 14% in constant currency to $578 million. Consolidated gross margin decreased year over year to 66.3% from 67.3%, primarily driven by lower paragraph sales and higher expenses associated with COVID, partially offset by positive product mix at Coopervision. Coopervision's gross margin decreased to 64.8% from 65.6%. Cooper Surgical's gross margin was 71.5%, down from 72.4%. OpEx was down 5.8% year-over-year, resulting in consolidated operating margins of 23.2%, down from 28.4% last year. Despite the top-line pressures, our performance exceeded expectations as we effectively managed expenses, offsetting higher COVID-related costs. We did this while supporting our employees, funding higher MySite and ParaGuard advertising programs, and maintaining investments in internal projects, such as upgrading our IT infrastructure. We will continue to closely monitor expenses, balancing the costs against investment opportunities. Interest expense for the quarter was $5.7 million, driven by lower interest rates. The effective tax rate was 14%, reflecting the geographic mix of income and lack of option activity. Non-GAAP EPS was $2.28, with roughly 49.5 million average shares outstanding. And the year-over-year FX impact for Q3 to revenue and EPS was a negative 3.3 million and a positive 3 cents. Free cash flow was $68 million, comprised of $113 million of operating cash flow, offset by $45 million of capex. Net debt decreased by $67 million to $1.75 billion, and our adjusted leverage ratio was 2.23 times. Given we're approaching the end of our multi-year capital expansion project, we remain very comfortable with our current and expected liquidity and leverage. Moving to guidance for Q4, we're guiding to consolidated revenues of $665 to $693 million. This includes Coup Revision at $500 to $520 million, which is minus 2 to plus 2% on an as-reported basis, or minus 4 to flat in constant currency. This incorporates our strong Q3 and tough comp from last year, which included 11% growth in Asia-Pac from buy-in associated with a Japan VAT increase. For Cooper Surgical, we're guiding to $165 to $173 million which is minus 9 to minus 5% as reported, or minus 10 to minus 6% in constant currency. This also incorporates our strong Q3 and tough comp from last year, which included 12% fertility growth. Non-GAAP EPS is expected to be between $3 and $3.20. And with that, I'll hand it back to the operator for questions.

Thank you. And as a reminder, ladies and gentlemen, if you have a question, just press star then 1 to get in the queue. To remove yourself from the queue, just press the pound or hash key. And in the interest of time, we ask that you please ask one question and one follow-up. Our first question is from Larry Kirsch from Raymond James. Please go ahead.

Thanks. Good afternoon, everyone. I guess, Al, maybe just starting with a question on rebating. You know, obviously that has been stable for some quarters now and saw a little bit of movement in this most recent quarter. So I just wanted to get some sense of kind of how you're thinking about rebating activity out there, and are you still thinking that net pricing is actually still positive? Yeah.

Yeah, Larry, you know, when we're talking about rebating, the vast majority of what we're discussing here and what you're referencing, I believe, is associated with U.S. consumer rebating. So it's a relatively small part of what occurs on a global basis from a pricing perspective. But there was some activity during the quarter from one of our competitors. I guess all I could say is, you know, when you look at that, I'm not going to comment on their strategy behind why they – decided they wanted to give up profits. But for us, we have a pretty strong product portfolio, obviously. You know, we're gaining market share. We're doing really well with what we have in the marketplace and rolling out new products. And we're excited about where we stand. So we feel like we're in a really good position. So I don't have much to comment on that other than just we're pretty happy with our position and where things are going. Okay, perfect.

And then I just secondarily just – Again, can you, I guess, kind of a two-part question, just talk a little bit about kind of how you're thinking about your manufacturing capacity for My Day Toric, kind of where that sort of sits right now. And then I guess along with that, there was about $22 million adjusted out of COGS for COVID in this quarter, very similar to the levels in the fiscal 2Q quarter. So does that imply that the production lines are still idled? And where do you stand versus the last call when you expected those expenses to start to decline in the fiscal fourth quarter?

Yeah, sure. So from a production perspective, we're in really good shape right now. We're definitely in good shape with my day, including my day, Torek, as we talked about. We ramped up a number of lines here over the last couple quarters, and production is ramping up nicely. So We've continued with full production on my day. I think we'll continue on full production. I don't see us stepping back with respect to my day of production based on the demand we're kind of seeing around the world. With respect to the call-outs from the quarter, yeah, we had a number of COVID-related call-outs associated with some specific COVID-related actions that we took. If we had an employee or someone who was infected and we had to take actions. And then we also proactively initiated an inventory control project, and that meant taking some lines down. So those were the costs that were incurred associated with that. We do not anticipate having any of those kind of costs occurring in fiscal 21.

Okay, perfect. Thank you.

Thank you. Our next question comes from Larry Nicholson with Wells Fargo. Please go ahead.

Good afternoon. Thanks for taking the question, and congrats on a good quarter in a tough environment. Al, let me start with CDI. First, how much did restocking contribute to fiscal Q3? Do you expect that to continue in Q4? Will you provide us, Al, with the growth rates in July and August? I heard you say June and July was down low single digits, but will you give us the specifics? monthly growth rates. And, you know, maybe this is nitpicking a little bit, Al, but on the Q2 call, you said you would be flat to up slightly for CVI in Q4. Now you're going to negative 4% to flat on a constant currency basis, despite the fact you did a little better, you did a lot better in Q3 than you expected. So why the slightly lower guidance for Q4. And I guess I'll drop out given the multi-part after that, given the multi-part question. Thanks.

That is a multi-part question. First off, thanks, Larry. Yeah, it was a good quarter, so appreciate that. On the restocking, some of it is a little hard to get your hands around, you know, as you go down in doctor's offices and so forth. But I think it would be fair to say that we probably had about half of that restocking in come in this past fiscal quarter. So in fiscal Q3, I think we'll get the rest of the stocking that we lost in Q2 back during Q4. So I've kind of split the two of them in half to some degree. If you look at June, July, August, June was down 3%. July was down 2%. I'm not going to get into specific monthly numbers going forward because I'm not sure that's a good thing to keep doing. I mean, we did it because of COVID and so forth. But I guess I will say that for August, Cooper Vision and Cooper Surgical both grew year over year on a constant currency basis. So, obviously, you know, good news there. If you look at the Q4 guidance for Cooper Vision, yeah, you know, I was talking about fighting hard to get back to flat. Our guidance shows minus four to flat on a constant currency basis, you know, up a little bit without currency as reported. Okay. I think part of that, frankly, just goes to we've seen consumption increase and increase faster than we were anticipating, which is great news, right? But that did pull some of that channel inventory fill into Q3. So let's say that we were thinking, you know, 5, 7, 8 million something in Q3. We ended up with probably 10 million extra of channel fill that moved from Q4 into Q3, that you don't have that as an easier way, if you will, to report to stronger Q4. Having said that, I'll take all day long the pickup and consumption and improvement in the marketplace.

Got it. Thanks so much, guys.

Yep. Thank you. Our next question is from Matthew Michon with KeyBank. Please go ahead.

Great, and thanks for taking the questions. Very nice quarter. Hey, Al, I just want to get back to the ECPs, and I think you mentioned that Parents were proactively scheduling, like, my time. Your performance seems to be outpacing, you know, the patient visits to the ECPs. What do you think the capacity for ECPs are at, you know, versus a pre-COVID level? And, like, down low single digits, it just seems like you're well ahead of where the ECPs are with visits.

Yeah, I think so, because, you know, I think right now, ECP offices are open. They're basically, you know, all open right now. Now, there are different degrees in terms of how many patients we're seeing. A very significant percentage of them are back doing new fits, so that's good news. Now, they're not at the same level they were historically, but they're back, doors open, patients coming in, new fits occurring, so a lot of positives from that perspective. Yes, our performance is – is better than that, if you will. You know, that's coming from share gains. And we kind of saw that in calendar Q2. I believe we're continuing to see those share gains right now. And I think that that goes back to what I've talked about over the last couple years, right, which has been more tied to our own strategies. You know, and I know a few people may have been frustrated, you know, every quarter I get on, I talk about distribution investments and product launches and that kind of stuff. But if you look at what we've accomplished over the last couple years and where we are with key account relationships, the focus that we put there, right, with launching the new products, with upgrading those distribution capabilities so we can ship product directly to people's homes and, you know, what we've done in terms of expanding our manufacturing, we're just in a really good spot. So, yeah, the market's coming back and we're taking share in that market. And when you look at some of the unique products we have, like biophinity energists and our ortho-K lenses, specialty lenses and so forth, you know, it puts us in a really nice position to continue that. And that's the last point I'd touch on, which is, you know, we're launching my site. We're having conversations with a lot of optometrists about my site. And we are starting to see that halo effect where you're having those conversations with people. You're able to talk to them about your other products.

Okay. Excellent. And then just as a follow-up to that, I think you mentioned that you had new offerings in the pipeline coming. Where do you think you have portfolio gaps on the contact line side? And do you think it makes sense to migrate energies down to the dailies?

Yeah, good question. I'm not going to get too much into the pipeline. I mean, we have some new products that will be coming out. We also have some expanded things, like the expanded torque range we have going out for clarity right now. So I don't want to get too much into that from a competitive perspective, other than to say that the backlog is pretty good right now. You'll be seeing more products coming.

All right. Great. Thank you very much.

Yep. Thank you. Our next question is from Jeff Johnson with Baird. Please go ahead.

Hey, thanks. Good afternoon, guys. So, Al, I wanted to talk about that. You said August up a little bit for CDI, it sounds like, or in positive territory. I'm sorry, you can probably hear my dog barking. Perfect sign here as I start my question, but sorry about that. But with up in August, talking a flat to down 4% for the quarter, you know, is that just conservatism in there? Is that how we should think about that? And how do you reconcile? I find it interesting in the eye care business data. I don't know if you follow that, but They talked about June and July down 4% or 5% as well, but then a little bit worse in August. And you guys are obviously bucking that trend. But has there been some backlog in June and July that's helping that that might ease out a little bit over the next couple months? Just how to think about kind of the backlog versus normalized demand?

Yeah, I think the backlog is helping a little bit, right, because we did see some of that pull out of inventory in Q2, and it's because consumption has picked back up. That's a situation where distributors, retailers need to order product back up and stock their shelves. So we have not really seen a pullback in terms of the marketplace right now. So when you look at fitting going on there, new fittings, but I'm speaking with respect to our products. Again, I think we took share. I think we're continuing to take share, so I can't really comment on that on the marketplace, but I can tell you things continue to move in the right direction for us. If you look at Q4, I certainly don't want to say conservative, and I guess I'd say that for two reasons. One, COVID still exists, and it's still out there, and there's still spikes and so forth, so I think you still need to take into consideration the the potential for some disruption associated with COVID around the world. And the other one I would mention is, you know, as a comp, we did 7% last quarter, including we had some buy-in in September last year in Asia-Pac because of that VAT increase in Japan. So we'll see how it plays out. I mean, I'd love to be able to tell you after the fact it was conservative, but right now I think that's probably pretty reasonable guidance.

All right. That's helpful. And then my site, are you still thinking $7 to $8 million? I just don't remember what the number is with $1.5 million this quarter, what that brings the year-to-date number to. And then, Brian, just to make sure, is there any tailwind from the C&E acquisition you did in the quarter for CDI, or is that too small to really matter? Thanks.

Yeah. On my site, what are we at? Around four and a half for the year. So, Yeah, I still think we have a chance to get into that 7 to 8 range based on how successful things are going right now. You would think that with the way new fits are and so forth, I would be impacting it a lot more than it is, but we seem to be kind of plowing through some of that from a physician's perspective. So I still think we can be in that 7 to 8 range, and then I still think we'll be $25 million or so in MySite revenue next year. I think on the acquisition you're talking about, GP Specialist? GP Specialist, that one you're talking about?

Yeah, I'm sorry. Yeah, GP Specialist. I called C&E, but, yeah, same thing. Sorry.

Oh, yeah, same thing. Okay, yeah, yeah, on the product. Yeah, so we acquired that business at the beginning of August for about $25 million, looking at Brian, $27 million, something like that. It'll add about a million dollars of revenue per quarter.

Thank you.

Thank you. And our next question is from John Gloss with CISO. Please go ahead.

Great. Thanks, guys. How you doing? Nice quarter. I'll start with my site. Sure, one question, but two quick hits to it. The first is just, you know, Al, you did a great job breaking down the market and the market size. What would it take for you guys to get label expansion beyond 8 to 12? You know, you mentioned a pretty big chunk sitting in the teen years, so How do we think about your ability to go, you know, 13 to 18 over time? And then you also talked about the halo effect. And I get it, it's early, Al, but is there any data that you have on, for a my site adopter, what their overall CVI growth rate is versus call it the non-my site adopters? And then I've just got to follow up. Thanks.

Yeah, so getting the label beyond 8 to 12 will be a little challenging here, just in terms of where we are from a clinical perspective. Now, we're doing a lot of R&D and clinical work and so forth, and we'll expand out the product offering and so forth. But I don't think we'll be seeing a label beyond 8 to 12 for a little while. But keep in mind two things. One, that here in the U.S. market, per the FDA, outside of the U.S., you don't have that restriction. And then even here in the U.S., based on some of the initial fitting, because we already have hundreds of kids in the U.S. already wearing MySite, and a doc could fit it off-label if they wanted to. With respect to the halo effect, it's still really early here in the U.S. We've seen some of that halo effect outside of the U.S. We're seeing it some here in the U.S. in terms of conversations we're having because We're getting ECPs wanting to talk to us, wanting to have a dialogue about what is my site, how does it work, how do I sell it, how do I bring that into my practice, right? How do I adjust my practice to accommodate my site? How do I incorporate telemedicine into that sale? All that kind of stuff, which you can imagine when you're having that dialogue with them, you know, you're also taking the opportunity to talk about your other products. there's no question there's a positive halo effect there. But at this point in time, I don't really have numbers to be able to give you to specifically point to.

Okay. Got it. Fair enough. And then second question is just, you know, when you talked about CBI last quarter, you talked about three distinct headwinds. It was inventory. It was consumption. It was new fits. And you mentioned about sort of clawing back to normalized inventory between 3Q and 4Q. Consumption is just, you know, partially dependent on COVID. And then there's a new fit. I guess where I'm going with this is, With most of the practice opening, when we look to next year, whether that's your fiscal year or the calendar year, do we revert back to normal growth, right? Because inventory should be trued up by the end of the fiscal 4Q. When we think out to fiscal 21 or calendar 21 for you or the industry, do we think about a reset and the market sort of reverts back to that mid-single digit or mid-single digit plus range? Thanks, Dustin.

Yeah, I do think it can. I mean, you're going to have inventory work itself back here, as we talked about, so you kind of take that off. You look at consumption, you know, I think we were all concerned about consumption to some degree, people working from home and what was going on. You know, what we've seen more recently here over the last couple months is, one, people going back to work. You know, our office here is probably, you know, a third to a half filled up on most days. But the other thing you're seeing is the video conferencing. You do video conferencing now, in our company at least, and I think it's true in a lot of places, you are on the screen. So it's not a conference call. It's a video call. So the same reason that people were wearing lenses, you know, for cosmetic reasons, they're now wearing them because they're probably even more conscious about how they're looking than they were even coming into the office. So that's helped. You know, there's other anecdotal stuff. You talk about glasses fogging up as an example, right? I mean, so you're seeing contact lens wearers actually wear their contact lenses more because they're getting annoyed with glasses fogging up, and you think that's only going to be worse in many parts of the country as winter gets here. So I think, you know, there's obviously negatives on consumption, but there's positives on consumption that we probably weren't anticipating here. New fits are definitely coming back up. There's been some pent-up demand on new fits. We've heard that. We've seen that in the research that we're doing out there, especially among your teenagers, your younger group of people. So COVID is still out there. It still exists, right? It's still a challenge in a lot of parts of the world, and some markets coming back. So I certainly don't want to get ahead of ourselves. But I do think as we move into next year, depending on when it is during the year, you're going to see contact lenses move back to normal growth rates, if you will. Got it. Very helpful. Thanks, Al. Yep.

Thank you. Our next question comes from Anthony Petron with Jefferies. Please go ahead.

Thanks. And maybe two follow-ups there to John's questions. One on CVI. I'm just wondering, you know, what was the benefit in fiscal 3Q from new fits specifically associated with back-to-school and just how is the back-to-school season playing out? I guess in fiscal 4Q and, you know, how much of that is reflected in that guide. And then on margin expansion, just a follow-up there would be, you mentioned that obviously some of the benefit was cost control. How much of the cost control is sort of completely executed, or is there more cost control efforts, you know, that are still available to the company, you know, when you look out the next 12 months should the COVID cycle sort of extend? Thanks.

Sure. I'll answer the first one. Give a shot on the second one that Brian had, if he has color he wants to add. It's tough on the back-to-school side of things. I mean, where we were sitting at one point months ago thinking that that was going to be close to zero, back-to-school has kind of turned to, you know, if anything, back-to-learning, if you will, right, where you're seeing people online and learning online. And what we've seen from a lot of people and kids, right, is everything that goes along with that, the headaches, the digital eye fatigue and so forth, and parents reacting by calling optometrists and asking them about that. So the decline that we saw, that we thought we would see, has not happened. It's really hard to give specific numbers around that, but it's clearly better than we anticipated it was going to be, and it seems to be holding that way with parents concerned about their kids' eyesight. On margin expansion or on expense control, if you will, I mean, I think we did a really nice job. Well, I know Brian did a really nice job and the team here in terms of controlling expenses, some natural, some controlled, if you will. I'm not sure there's quite that much more to do, but I think we're in pretty good place with our expense control. I'll let Brian add to that.

Yeah, no, there's not much to add to that. I mean, we were down $5 million sequentially and $53 million more revenues. We'll have some my side investments that will hit us in Q4, you know, but, you know, I think we're in a good place and nothing really to add to that. Thank you.

Thank you. Our next question is from Chris Cooley with Stevens. Please go ahead.

Thank you. Congratulations again on a really solid third quarter. Maybe just ask your skills a little bit to Cooper Surgical. Could we Maybe go back. If I missed this, I apologize. But talk about the growth that you saw in Paragard maybe there in total for the quarter. And when we think about CSI as a whole, I should say Paragard as a whole coming back into the next fiscal year, do you think that that's kind of in line with historical expectations for growth? Are you starting to see more of a natural lift? I'm just curious about what you think about the normalized growth rate for Paragard. I'll just go ahead and ask as well for my second. On supervision, just following up as well there to Matt's earlier question, Energist has been around for a while. It's a great product, but should we expect to see maybe heightened marketing around that, kind of reintroducing it to practitioners? I'm just kind of curious what additional color you can provide around that. you know, increased focus on images. That's, I think, the first time I've heard you call this one out in quite a long time. So I just want to hear a little bit more there as well, if I could.

Yeah, I'll touch on that one first. You know, it's interesting. We talk about, you know, digital eye fatigue with kids because they're doing social media or TikTok or video games and all that other kind of stuff they do, and now they're doing their school on it. on video, but it happens with parents also, obviously. You know, we're on screens and doing all of our stuff, and then we're also at work doing stuff, and now we're on Zoom calls and whatever else all the time. That's what BioAffinity Energist is about. So, yeah, I mean, it actually grew in the quarter, which was a pleasant surprise. I don't think you're going to see really higher marketing, if you will, from us associated with it, but you'll certainly see us reminding people that it's out there. I mean, they know that it's out there because sales are growing, but putting a little emphasis on it and just saying, hey, guys, as a reminder, for those of you who are not sitting energists, for all those people who are calling and talking to you about digital eye fatigue and some of the issues you're having, you know, this is a perfect product for them. So, yeah, that product's doing really well. We launched it probably two, three years ago, something like that, and it's done fine. But it's clearly doing better now, and I guess, if anything, right, COVID is, like, upside, if you will, for a product like BioAffinity, and they're just bringing attention to it. On Paragard, I mean, we were down on Paragard for the quarter. We were, what, down 28% for Q3 because, basically, we had no sales in the first month of the quarter, and then everything kind of picked back up. As I talked about, you know, the channel – Inventory came back. We'll see the rest of the channel inventory come back in Q4. We're already seeing that right now. We're seeing placements go back to what they were at a pre-COVID level. So we're in pretty good shape on Paragard. I think at the end of the day, Paragard will still be down in Q4. And some of that is because you'll remember last Q4, we had a strong Paragard quarter because we did a price increase. So we had a buy-in for Paragard in Q4 last year. So we have a tough comp on that. But I think as you move into next year, like, I would anticipate Paragard going back to normal to that kind of, you know, true normal in terms of placements and so forth as a mid-single-digit grower. It'll obviously do better because it's got a couple months it's comping against where we didn't have sales. But, no, Paragard's doing well, and people seem to be a little bit more concerned about good health and so forth and things. that trend in the marketplace about focusing on good health is obviously a positive for a product like Peridot, which is a non-hormonal IUD option and the only one in the market.

Super. Congrats again. All the great cool. Thanks, Rich.

Thank you. Our next question is from Matthew O'Brien with Piper Sandler. Please go ahead. Thanks.

Afternoon. Thanks for taking my questions. Al, the delta between you and the market this quarter was larger than we've seen it, and I get it's all relative because they're both down. But, you know, can you talk a little bit about, you know, where some of those gains are coming from so we can kind of parse out, you know, how durable they are? You know, you've obviously got, you know, the the online retailers, you know, picking up and some of your own internal investments. But what are some of the real key drivers where we've seen that increase in that delta? And then how durable do you think some of those are, especially in an environment where you've got a big competitor rebating and another company coming out with, you know, some more and more competitive products?

Yeah. I mean, at the end of the day, I look at it and say there's, in my mind, there's no one more active in the market today with new products. than Cooper Vision is. And I believe over the next year to probably several years, there will be no one in the marketplace more active with new products than Cooper Vision, period. So that's how I would answer that one. From the perspective of sales, you know, we're not big with online retailers. So I think that – and with online, I'm talking about non-fitters. We're big with fitters. not the kind of the online distributors, if you will, right, the guys who aren't fitting product. So where we were probably hurt initially because of that, as the markets rebounded, like when you look at June and July, the market rebounded with fitters. And it rebounded with, like, key accounts and fitters and buying groups and so forth. That's where we're over-indexed. That's where we're strong. So when I look at kind of durable growth and market share gains, I say, hey, we grew around the world. We posted record market share in all regions around the world. And it was driven by the stuff we're – by what we're doing, right? We're strong with sitters. We're strong with key accounts. I've been talking about all the investments we put in that over the last couple years. We're strong with new product launches where we're doing more and better product launches than anyone in the marketplace right now. We're strong with distribution. I've been talking about that over the years and our capabilities now being able to ship product to people's homes and so forth. We're strong on that side of things and we're strong on manufacturing where I've talked about how we reallocated resources to focus more on manufacturing. You know, that strategic plan there of focusing on those areas and executing on those areas for long-term share gains, when you had COVID hit and you're coming out of COVID now, all those past investments and so forth, all those strategic initiatives have are coming to light to show the value behind them. And that's why we're taking share, and that's why I think that it's durable and we'll continue to take share.

Okay, that's really helpful. And then shifting over to my side again, you know, I understand, again, we're in a COVID environment, but it looks like you might come up a little lighter, that 7 to 8 that you talked about. I know everybody loves Sarah Michelle Keller and everything, but, you know, getting up to 25 from maybe around $6 million seems like a big step. So, I know there's a lot of investment coming in Q4, too, but, you know, what gives you that comfort? What have you seen maybe in some of those early accounts as far as uptake goes and then how, you know, it progresses to the other, you know, thousand automotrists that gives you comfort that you can get to that $25 million in 21, and are you still comfortable with $50 million in 22? Thanks.

Sure. Yeah, you know, when we look at the $25 million for next year, the assumptions that build to that $25 million are, are based on what we've already seen in other markets. So in markets around the world where we've launched the product and have seen success, like in Spain and the U.K. and Australia and so forth, we did those launches. Now, we didn't have the same consumer advertising programs and so forth, but the growth rates that we saw in those markets are the same growth rates that we're assuming we'll see in the U.S. and in Canada and other places. Now, I would think that we could do better because we do have Sarah and other direct-to-consumer programs and other activity, and we're seeing a lot of acceleration in interest in new fits and so forth. But we are not looking at some abnormal growth rate or some crazy thing happening. We're just looking at, say, hey, if we do what we've done in other markets, we'll get up to that $25 million range. I think we can do better than that because at the end of the day, there's enough interest and enough success right now and that I think we can exceed that. But there's nothing special there. There's nothing fancy there. It's just saying, hey, if we just do what we've done in other markets, that's what we'll do. And, yes, I would confirm the $50 million number because as you break down the market and you actually look at the size of the market, and as my site moves to becoming standard of care within the optometry practice, and as you see more offices looking and thinking about pediatric optometry, You're going to see that accelerate, and that market size might seem really big to some people and say, wait a minute, it can't be that big, right? But at the end of the day, you're talking about a product that sells for many multiples of what regular contact lenses sell for. You're talking about a product that has big compliance to it, that opticians make the most money that they're going to sell out there, and that it's a brand-new category. We're talking about creating a brand-new category. I mean, there's already pediatric dentistry. Well, why? Because of braces, because dentists can make money. They don't have to have adults come in. They can treat children through braces and other reasons, and they can have a pediatric dentistry practice. You haven't been able to have that in optometry because you're talking about selling glasses. Well, that's not the case anymore. Now everyone knows about myopia. You have kids come in. You can now, because of my site and because of OrthoK, you can now have a pediatric optometry practice and be incredibly successful with it. That is a brand new market that does not exist today. There is no pediatric optometry market other than kids going into a regular doctor's office, right? If you start seeing the market move in that direction, if you actually start seeing people open pediatric optometry offices to focus on my site or to focus on myopia management, they're focusing on OrthoK, they're focusing on my site, and ultimately in glasses, and that's going to help also as we move in that direction. So, Yeah, I think the $25 million is in play. I think $50 million or north of the $50 million is in play the next year. Very helpful. Thank you.

Yep. Thank you. Our next question is from John Wunsch with Citibank. Please go ahead.

Good afternoon, everybody, and thank you for taking the question. I'm going to put them both up front. The first one has to do with reimbursement for my site. If it is being thought of as a treatment, do you think at some stage that you might be able to get proper reimbursement for it? And then my second question is, usually on the third quarter calls, you sort of give some broad guidance or commentary about the next fiscal year. Is there some way that you can frame next year? Thank you.

Sure. On the reimbursement for my site, that would really blow up the market around myopia management. I think the answer to that question ultimately is yes. I do believe there will be reimbursement for myopia management, and my site in particular, at some point in the future. We're working on that ourselves, as a matter of fact, spending money on that process right now to be determined on the timing around that. But as... medical professionals become more and more comfortable with the fact that this is standard of care and this will be standard of care as a treatment, you'll ultimately get to the point where you're going to have reimbursement. So it's just a matter of time in my mind. Yeah, on 2021, right now we're not going to give any commentary on 2021. I'm sure you can appreciate that, right? We gave guidance on Q4, and we'll give 2021 commentary in December when we get there.

Thank you. Yep. Our next question comes from Chris Pasquale with Guggenheim. Please go ahead.

Thanks. One on guidance and a quick follow-up for Brian. Al, I'm not sure I understand the idea that 4Q is an unusually tough comp. If I look at the numbers for last year, you did 7 in the fourth quarter. That was in line with your four-year growth rate. AsiaPac actually grew a little slower in 4Q last year than either 3Q or the year overall. So what is it about 4Q that makes it an unusually tough comparison?

Yeah, I wouldn't say it's unusually tough comparison, except we did have the buy-in in Japan that created at least a tough comparison from that perspective. But I guess maybe more than anything, Chris, the point behind it is that COVID still exists, right? It's still out there. There's still issues with it. There could still be spikes and so forth with it. So I don't want to say things are, we're guiding conservative or anything by those means, because I don't think that would be appropriate to say. So I do think that 7% is not an easy count. You look at Q1 as an example, that's a little bit different of a story, right? Q4 is kind of a more normal slash challenging cop from last year. So I don't want to overplay that by any means. I just kind of highlight that as one reason that we're not guiding to growing in Q4.

Okay. But fair to say that the fourth quarter guidance implies or at least bakes in some increased uncertainty rather than just taking into account known factors today.

Yes, that's a good way to put it, correct.

Okay. All right. Thanks for that. And then, Brian, you mentioned you're coming up on the end of a multi-year CapEx investment cycle. Can CapEx actually come down meaningfully either next year or over the next couple of years to free up cash? There was a time when you were averaging closer to $150 million a year versus the more like $300 we've been at for a while now.

Yes, I absolutely believe that that could be the case. I mean, I would expect that this year will be our peak year for CapEx, coming down next year and then coming down the year after. So, With that comes free cash flow delivery, and I would expect free cash flow to go up. Great.

Thanks. Thank you. And our next question is from Steve Willoughby with Cleveland Research. Please go ahead.

patients switching their brand or type of contact lenses less frequently because of a desire from both the patient and the physician to get the patient in and out of the practice. And then that's one question. My second question is just do you have any concern over any potential pull forward in demand Sorry for all the questions, but I appreciate it. Yeah, no worries. Yeah, I don't know about a pull forward. We're not anticipating that. Every year there always seems to be a little bit of buying that goes in associated with benefits and people using up their benefits and so forth. So I'm not sure it will be any different this year. We're not anticipating any changes associated with that. When you look at some of the different kind of consumer wear trends, right, some of the changes – that have been happening out in the marketplace. I talked to BioAffinity Energist as an example of a nice, pleasant surprise for us. You know, but you look at some of the other stuff out there, annual supply purchases, that's mostly a U.S. thing. It gets driven by those rebates, right? But it's mostly U.S. It's not so much the rest of the world. And even in the U.S., it's not that big of a number, but we haven't seen much of a change there. So... from where we were running to where we are today. I wouldn't really highlight any real changes in that. And I don't know, maybe there's like a push and pull there between some higher rebates but people holding on to some money a little bit. But we haven't really seen a lot of changes on that side of things. The direct-to-patient shipping, I do think that that's a difference. We saw a very significant spike in that around the world. We've seen that come back. as people are getting out and are going to their doctor's offices and so forth. And I think we're all the same, right? I mean, every single one of us wants to help people, and we want to help small businesses. So when you go into your optometrist's office, you're probably more likely to go ahead and purchase product from them, maybe even though it's not the best deal you can get. But you still want to help the doc out. You want to help the physician out that you're going to, right? So I think everybody is a little bit more willing to do that. Now, having said that, whether they're getting the lenses there or shipped to their house, that's a different question. I think that we're on the forefront in terms of our ability to do direct-to-patient shipping. We're willing to do that. We've taken the financial hit associated. We're willing to do that as we ramp up all those efforts and eventually leverage all the infrastructure that we put in. But I think that that continues. The direct-to-shipping thing continues because you just get more packages in your home, right, from – from Amazon and Target and whatever else, you might as well get them from Cooper Vision. Patients switching left, yeah, I think so. It's a hard time to launch new products. It's hard to get fitting sets in the doctor's offices and so forth right now. They like what they like. It's been a little easier, still a challenge, but a little easier with a product like My Day because they know it, they love it. So we've been having a little easier time launch in my day torque remember we we did a launch of that but we probably only did a 20 launch or something like that so we have a long ways to go we're having a little bit more success getting that product out there um you're seeing a little bit less of of some of that kind of pace and switching but i think from that perspective we happen to be in a pretty good place because the products that we are launching and putting out there expanded range toric all that other kind of stuff um maybe it's a change, maybe the patient's switching lenses per se, but they're still wearing Clarity or they're still wearing My Day, right? They're going My Day Spirit and My Day Quark. That's the kind of switch that we are seeing.

Gotcha. Thanks very much. That's very helpful.

Yep. Thank you. Our next question is from Stephen Vickman with Oppenheimer. Please go ahead.

Thank you. Hi, guys. I was wondering if you could give us an update on your key account work. You alluded to it earlier, of course. I know it's tough to be aggressive on that front when you were capacity constrained. Have you been able to really reengage there now, get in better supply, or has COVID impacted that?

Yeah, I won't get into specific details, but, yes, we have been able to reengage and be more aggressive in terms of our discussions that we're having with those key accounts right now.

Okay. Fair enough. And then just a follow-up on fertility, I think last quarter you talked about, you know, delayed recovery there, you know, as offices reopen, you have to go through the consultation, of course, process first. It sounds as though your visibility on a recovery there has improved. Are you seeing that patient consultation activity really picking up here over the last couple months?

Yeah, it's picked up really well, fertility. We've We're taking a lot of market share in fertility right now, so although our numbers weren't that great, right, but we're still – we're taking good share in fertility. We're doing really, really well in that space right now. The one thing I would say about that that's a little bit of a struggle is Asia-Pac. We haven't seen Asia-Pac rebound as fast as we've seen Europe and the Americas in terms of fertility clinics opening and traffic coming through. So I feel good if I look at the Americas and Europe in terms of clinics opening and Foot traffic, which we have good visibility on, our market share gained. I think that AsiaPAC is lagging a little bit. You know, if you look at someplace like India as an example where we do fairly well and we were getting a lot of growth, they only have about 30%, 35% of their IVF clinics open right now. So I think that will come. There's no reason that that doesn't come and they don't open. But that's kind of why I was referring to maybe it's more Q1 before you start getting cycles back to kind of pre-COVID levels.

Got it. Thanks, Al.

Yep. Thank you. And our last question comes from Robbie Marcus with JP Morgan. Please go ahead.

Great. Thanks for taking the question. Maybe to start, I was wondering, you kind of talked around these, but if you could just put a finer point on them, what PowerGuard growth in the quarter was and how much stocking in fiscal year or destocking fiscal 2Q and the dollar amount of stocking in this quarter and what you're expecting guidance in fourth quarter?

I don't think we ever got into any of the stocking numbers on Paragard. Do you have the Q3 numbers for Paragard?

Yeah, the Paragard number for Q3 was $34 million. $34 million.

And any way just to frame the impact? Is it like 1% or 2% in stocking, more meaningful than that? Just trying to figure out what underlying versus stocking is as we exit the year.

Yeah, I guess rough numbers, right? Say we're running somewhere roughly in the $15 million a month. It's a little bit higher than that, kind of in paragraph sales. And then we didn't have anything basically in April and May, so we probably – We're down about $30 million in sales, something like that, because of the stocking. And that's what you're seeing work its way back through right now.

Oh, sorry, Al. Two separate questions. One is CBI stocking and destocking, and the other was just Paragard.

Oh, okay, yeah. So for Paragard, that answers kind of the Paragard. For the Cooper Vision stocking, You know, I think that some of the inventory stocking you probably never get back. People operate at lower levels, more efficient, that kind of thing. You're going to have some of that happen for a period of time, or maybe it takes a while to come back. But I think of what we did get back, I think, you know, we got, say, half of it back in June and July, and then throughout fiscal Q4 we'll get the other, you know, whatever that amount is, 15 million or so back in fiscal Q4.

Great. I appreciate that. And then just lastly, Bausch is moving to split out as a standalone vision company. Can you maybe give us some thoughts on how, if any way, that will impact Cooper at all going forward?

Yeah. I don't know how it would impact us. I mean, from our perspective, I think Bausch is around – 8% global market share, somewhere in that kind of range right now. So, no, I don't see that having much of an impact on us one way or another. Great. Thanks a lot.

Yeah. Thank you. And I'm not showing any further questions in the queue. I would like to turn the call back to Albert White for his final remarks.

Yeah, thank you. And thank you, everyone, for calling in and taking the time. You know, I think that the difference this quarter from what people were expecting to some degree was some of the pickup and consumption and then a lot of the unique things we have that are capitalizing on some of the real positive trends in the marketplace. You know, there are some big trends that are going on and some new trends that are there. You know, you look at things like BioAffinity Energy is taking advantage of what's going on in the trend of more screen time. You know, you look at my site with my opium management and kids and our OrthoK products and and, you know, what we're seeing with EndoSea Advance and so forth. And lastly would be fertility is another big mega trend that's moving in the right direction. So we're just in the – we have products kind of in the right place right now. I feel good about where we are and where the trends are going in the marketplace. So with that, we'll kind of wrap up. I hope everyone has a great Labor Day weekend, and I look forward to speaking with everyone in the beginning of December for our next earnings call. Thank you, Operator.

You're welcome, sir. And ladies and gentlemen, thank you for participating in today's conference. You may now disconnect. Have a wonderful day.