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spk12: Thank you for standing by, and welcome to the Cooper Company's first quarter 2022 earnings conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you'll need to press star 1 on your telephone. As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Kim Duncan, Vice President, Investor Relations and Risk Management.
spk03: Good afternoon, and welcome to the Cooper Company's first quarter 2022 earnings conference call. During today's call, we will discuss the results and guidance included in the earnings release and then use the remaining time for questions. Our presenters on today's call are Al White, President and Chief Executive Officer, and Brian Andrews, Chief Financial Officer and Treasurer. Before we begin, I'd like to remind you that this conference call contains forward-looking statements, including all revenue and earnings per share guidance, and other statements regarding anticipated results of operations, market or regulatory conditions, and acquisitions, integration of any acquisitions, or their 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.
spk08: Great. Thank you, Kim, and welcome, everyone, to Cooper Company's fiscal first quarter conference call. Before I turn to our business, let me say the escalation of the devastating crisis in Ukraine is top of mind. The events caused great concern for everyone in that region, including our employees, partners, and their families. Our thoughts are with everyone who is being affected, and we certainly hope peace prevails soon. Moving to our business, I'm pleased to report a strong start to the fiscal year, led by a fantastic quarter at Cooper Vision and another solid quarter at Cooper Surgical. Within Vision, our daily silicone hydrogel and myopia management portfolios continued posting strong results, leading to share gains around the world. Within Surgical, our fertility business posted great numbers and the integration of Generate Life Sciences is going really well with that business off to a fast start as part of Cooper. We also recently announced the pending acquisition of Cook Medical's reproductive health business, which will be a great addition to our Surgical franchise. Regarding first quarter financial results, consolidated revenues were $787 million, with Cooper Vision at $561 million, up 11%. And Cooper Surgical reaching a new all-time high of $226 million, up 30%. Non-GAAP earnings per share were $3.24. Moving to the details and reporting all percentages on an organic basis, Our Cooper Vision growth of 14% was strong and diversified. We grew nicely in all product categories, spheres, torques, and multifocals, and all three regions posted great results with the Americas up 8%, EMEA up 17%, and Asia-Pac up 19%. This resulted in nice share gains, and we remain well-positioned to capitalize on the reopening of economies around the world as COVID subsides. All this is driven by our multifaceted commercial strategy that we began deploying years ago, which has proven to be extremely successful. This includes a consistent cadence of launching new products and product extensions around the world, providing customers with market-leading flexibility through our customized solutions, executing on key account relationships, and delivering fantastic customer service. We're continuing these efforts while also enhancing our business through Salesforce expansions and targeted marketing and infrastructure investments. Regarding products, our daily silicone hydrogel lenses, My Day and Clarity, posted strong results, growing 25%. Daily silicones continue to lead the market, and we offer the broadest portfolio of products to meet customers' needs. This includes My Day, our premium offering, which is available in a sphere, toric, and most recently, a multifocal. And speaking of the multifocal, the launch is going incredibly well. The feedback from eye care practitioners regarding use of our breakthrough binocular progressive fitting system that simplifies the fit process while providing optimal visual acuity at all levels has been fantastic. And we're continuing to receive feedback from patients that MyDay provides the best multifocal they've ever worn for exceptional near, intermediate, and distant vision. This success is having a nice halo effect on our already successful MyDay torques and spheres, so we remain very optimistic about this brand. The other brand in our daily silicone hydrogel portfolio is Clarity. This lens is also available as a sphere, toric, and multifocal, and is sold as more of a mass market product. We've seen nice growth with this brand, especially in our Asia-Pac region, where we just posted an extremely strong quarter. For our FRPs, we reported another solid quarter of 10% growth for Avera and BioAffinity, our silicone hydrogel two-week and monthly lenses. This was led by improved product availability and our unique offerings, such as BioAffinity TORIC Multifocal and Energist, the most innovative product in the monthly space. To finish on products, we're continuing to see nice strength in TORICs and multifocals as we expand parameter ranges and increase availability around the world. When you combine this with the success we're having in key accounts, it's resulting in nice share gains, and we expect that to continue. Moving to myopia management, we posted revenues of $20 million. And within this, my site grew 172%. This growth rate was an acceleration from Q4, which is impressive given the general market challenges around new fits. Overall, as a global leader in the myopia management space, our portfolio is the broadest in the industry, comprised of my site, the only FDA-approved myopia control product, a broad range of market-leading ortho-K lenses, and our innovative sight glass vision glasses. From my side, we're continuing to make progress around the world, including in China, where we're preparing for a broader launch with our partner, Essilor. Our team in China is strong, and our advisory board of key opinion leaders that are affiliated with hospitals representing over 50% of myopia management contact lens volume in China has us positioned for success in a market where childhood myopia rates are estimated to be over 80%, and we're reducing myopia as a priority for the government. Lastly, on MySight, our industry-leading seven-year clinical data has been getting a lot of exposure, as it highlights that MySight works for nearly all myopic children. It cuts myopia progression by roughly 59% on average. It works at any age a child starts treatment. It works for as long as the child wears it, and there's no rebound if treatment is stopped. Moving to SightGlass myopia management glasses, following our co-launch in the Netherlands with Estelor in November, We started early launches in additional markets, including the UK and Canada. Within Canada, we've launched the product under the MySight name, which is an exciting step in combining our myopia management glasses and contact lenses under one brand name. We've also accelerated activity in China and plan to launch the product later this fiscal year. To conclude on myopia management, our momentum is strong and we're still targeting roughly 100 million in sales for this fiscal year. To wrap up on Coopervision, for calendar Q4, we estimate the global contact lens market grew 10%, with Coopervision growing 16%. Within this, COVID-related challenges did negatively impact optometry offices around the world, and combining this with heightened patient demand as myopia rates continue to rise is resulting in many eye care offices having full calendars of appointments. This demand is great, but it's still impacting fit activity, such as in the U.S., where new fits are still roughly 8% below pre-COVID levels. Having said that, progress is being made, and we expect to continue seeing positive trends as COVID subsides and economies around the world reopen, with people returning to the office and becoming more active in social settings. Meanwhile, long-term macro growth trends remain intact, with roughly one-third of the world being myopic today, and that expected to increase to 50% by 2050. For Cooper Vision, we have a robust product portfolio, ongoing product launches, a fast-growing myopia management business, and our fit data remains strong. So we remain very bullish on our business. Moving to Cooper Surgical, we're extremely busy integrating Generate, which we just closed in mid-December. In the meantime, we had another strong quarter with organic growth of 9%. Before getting into the details, let's cover Generate. We recognized roughly 34 million of revenues in the quarter, as this was a stub period with only roughly one and a half months of revenue. Of this, $23 million was in stem cell storage and $11 million in fertility. It's tough to get exact growth rates for a stub period, but growth for the business for the full equivalent fiscal quarter was 10%. Moving to our fertility business, we posted sales of $97 million, up a very healthy 27% when excluding generate and the small acquisition of embryo options from last January. Strength was seen on a global basis and throughout our product portfolio, including from consumables, capital equipment, and genomics. Within our office and surgical unit, we posted sales of $129 million, up 24% as reported, but down 3% when excluding Generate and other acquisitions. This was due to the negative impact of COVID-19 sales of Paragard, as well as certain surgical products. Having said that, we did see growth in many areas, such as our laparoscopic surgery closure products, and our acquired businesses grew nicely, especially fetal pillow in our labor and delivery area, which grew 160%. Based on current trends, we expect office and surgical sales to improve and show organic growth in Q2. To wrap up on Cooper Surgical, let me touch on some market information. For fertility, we're largely back to pre-COVID levels. Some markets, like the U.S., are stronger, while others outside the U.S. are still dealing with COVID-related challenges. But net-net, the market is in a good place. This industry continues to grow nicely, and we estimate our addressable market is approaching $2 billion with 5% to 10% long-term annual growth. It's estimated that one in eight couples has trouble getting pregnant due to a variety of factors, such as increasing maternal age, and that more than 100 million individuals worldwide suffer from infertility. Given the improving access to treatments, increasing patient awareness, greater comfort discussing IVF, and increasing global disposable income, we expect this industry to grow nicely for many years to come. Within office and surgical, as mentioned earlier, we expect growth to return in Q2 as the market fundamentals are improving. To summarize, this was a really strong start to our fiscal year. Coopervision posted a great quarter, and we're well positioned to continue delivering success with the best team in the industry and the broadest product portfolio on the market. Our fertility business is growing nicely and taking share, and the Generate business is integrating really well with some exciting potential as we incorporate stem cell storage into our labor and delivery product portfolio. And with that, I'll turn the call over to Brian.
spk07: Thank you, Al, and good afternoon, everyone. Most of my commentary will be in a non-GAAP basis, so please refer to our earnings release for a reconciliation of GAAP to non-GAAP results. First quarter consolidated revenues were $787 million, up 16%, and up 13% organically. Consolidated gross margin decreased year-over-year by 90 basis points to 66.9%, driven primarily by currency but also lower sales of Paragard, partially offset by lower manufacturing costs at Cupervision. Operating expenses grew 19% to 42.3% of revenues, with the addition of generate and higher investment activity. Consolidated operating margins were 24.6%, down from 26.9% last year due to the negative impact of FX and higher investing. In addition, we did see higher freight secondary handling and distribution costs within cost of goods and OPEX, and expect this to continue, although price increases are helping to offset the impact. Interest expense was $6.6 million on higher average debt, partially offset by lower interest rates. The effective tax rate was 13.3%, higher primarily due to the generate acquisition. Non-GAAP EPS was $3.24 with roughly 49.9 million, average shares outstanding. FX negatively impacted us by $0.37 in the quarter, which was $0.02 worse than we forecasted at the time of our last earnings call. Free cash flow was solid at 109 million, comprised of 166 million of operating cash flow, offset by 57 million of CapEx. Net debt decreased by 1.6 billion to 3 billion, driven by the acquisition of Generate, and our adjusted leverage ratio increased to 2.71 times. During the quarter, we repurchased roughly 191.2 thousand shares of the company's common stock for $78.5 million, at an average purchase price of $410.41 per share. That's $410.41. Roughly $256 million remains authorized for repurchase under our program. Moving to guidance, we've updated our numbers to reflect our outperformance in Q1, the addition of generate, new currency rates, and the assumption of a 25 basis point rate increase by the Fed next week. Prior to the Russian invasion of Ukraine, This would have meant the midpoint for EPS would have been roughly 1435. But currency has moved significantly against us over the past week. We're increasing prices to offset the negative impact, and hopefully the currency moves are temporary. But we're taking a conservative approach and fully incorporating negative currency into our guidance, noting that the scope, degree, and duration of the crisis on the global economy is an evolving risk. With this, the new consolidated revenue range is $3.261 to $3.329 billion, up 6.5% to 8.5% organically. Within this, Cooper Vision revenue guidance is $2.221 to $2.264 billion, up 7% to 9% organically. Cooper Surgical revenues are expected to be between $1 or I'm sorry, 1.04 and 1.065 billion, up 35 to 38 percent as reported, or 5 to 7 percent organically. Non-GAAP EPS is expected to be in the range of 1370 to 1420. We estimate interest expense around $42 million, which assumes a 25 basis point rate increase, remembering that one billion of our debt is at fixed rates. We estimate the full-year tax rate to be around 14%. Regarding currency, on a year-over-year basis, the negative FX headwind is now roughly 3.5% to revenues and roughly 10% negative impact to EPS. Note this guidance does not include our pending Cook Medical Reproductive Health acquisition as the transaction is not yet closed. Regarding Cook, we announced this acquisition on February 7th for $875 million. This is a really nice strategic fit as they manufacture and sell minimally invasive medical devices focused on the fertility and gynecology markets. With this acquisition, we'll be improving our international fertility footprint, especially within the Asia-Pac region, and we'll be adding highly synergistic and respected labor and delivery medical devices. From a financial perspective, this business had roughly $158 million in sales in calendar 2021, and we expect long-term growth in the range of 5% to 9%. Additionally, we expect year one non-GAAP EPS accretion of roughly $0.60. For more information, please visit our IR website where there is a presentation. In summary, we're pleased with this quarter's performance and believe our momentum will continue, driven by strategic investments in both businesses that will support share gains and durable long-term revenue and earnings growth. And with that, I'll hand it back to the operator for questions.
spk12: Certainly. Ladies and gentlemen, if you have a question at this time, please press star then 1. We ask that you please limit yourself to one question and one follow-up. You may get back in the queue as time allows. Our first question comes from the line at Matthew Misham from KeyBank. Your question, please.
spk10: Hey, good afternoon, guys. Just first on the Cook acquisition, I mean, it's a little bit difficult because you guys have been guiding – right before closing an acquisition and then having an update and we're going to have to do the same thing again when Cook closes. Can you give an update on when you think that might close? And then given, you know, 60 cents in year one, but look, it's probably going to be half and half. How should we phase that first half of year one versus the second half of year one?
spk08: Yeah, no update on that. We're working through the regulatory approval processes right now. We have here in the U.S. and then some work councils and stuff in Europe, so no real update on that. With respect to the $0.60 when we do close, that should be pretty stable, if you will. Not a lot of seasonality in that business, so... You could almost just say 15 cents a quarter is probably an easy way to look at it. But, yeah, we seem to be closing these in the middle of the quarter, which I appreciate makes things a little bit more difficult.
spk10: Excellent. And then the second question is just on phasing of coopervision. You really had an excellent quarter in the first quarter. But as I look at, like, previous history prior to COVID, the second quarter is usually above the first quarter. like seasonally speaking. Is there any reason why that shouldn't be the case this year? And then if 2Q is better than 1Q, what would be driving the second half deceleration in the growth?
spk08: Yeah, that's a good question. I think that Q2, if we look at Cooper Vision, is going to end up being fairly similar to Q1, which is different than it usually is because usually Q2 is a little bit stronger. We did see a nice rebound in activity, certainly in Europe and Asia pack. We didn't get stocking. It was just an increase in activity. So that was a good sign. We had some good trends going. The situation with Russia and the Ukraine and how that impacts Europe is a little bit of a question mark right now. And then the impact of currency. I mean, we've had a situation here where basically the dollar has strengthened against all currencies across the board. that's obviously taken a bite out of our earnings and out of our revenues. So we'll see how that plays out. But I think that this quarter will be, meaning this quarter, meaning fiscal Q2, will be somewhat similar from a revenue perspective for Cooper Vision as Q1.
spk10: I appreciate the call. Thank you. Yep.
spk12: Thank you. Our next question comes from the line of Larry Riedelson from Wells Fargo. Your question, please.
spk11: Good afternoon. Thanks for taking the question, and congrats on a strong quarter here. Now, just to follow up on that last question, so CVI, it's the same question for CVI and CSI. So 14% organically in Q1, the guide implies 5% to 7% for Q2 to Q4. The same thing for CSI, 9% growth organically. And again, Q2 to Q4, it looks like implied about 5% to 7%. So the math, Brian will correct me on the math, but but obviously it implies a pretty steep deceleration. So FX, that's organic. So I guess my question is, you know, how much are you baking in for Russia and Ukraine and both those businesses, and is there anything else that might be leading to that deceleration?
spk08: Yeah, so the way I look at it ends up being more on a comp basis. I mean, we're starting to be in a situation here where in 2022 where we're comping against a more traditional, if you will, marketplace where we didn't have a lot of those, the COVID swings or the COVID weaker quarters. So when I look at, for instance, the contact lens market and I think about something in that, you know, maybe it's 4% to 6% growth kind of range and we're at the high end of that or should arguably go a little bit above that. But then I do ratchet it back and kind of think a little bit about what's going on around the world with supply chain and trade disruptions and that type of activity and try to incorporate a little bit of that. So Brian and I were just talking about that. It's tough, tough, tough timing with what's going on, obviously, in the world right now to try to incorporate the guidance on that. So I certainly hope that we're being a little conservative on that guidance. But for right now, I think it's probably pretty reasonable. In other words, Larry, one kind of takeaway is I don't want to imply in any way that our business isn't strong, that there's not great momentum, because there was. What we saw in Q1 was continuing in this quarter, and we feel pretty optimistic about things across the board, but a little bit more conservative, certainly, based on what's transpired over the last week.
spk11: And just for my follow-up, maybe I'll ask about Cyclas. You know, what's the timing on the approval or launch in China? And then the U.S., what's your expectation? You know, how do you feel about approval in 2022? Thanks for taking the questions.
spk08: Sure. Yeah, on Cyclops in the U.S., I think we're in a situation here where we'll just wait and we'll give the three-year data. So we've been having some conversations with the FDA about approval for that, but we're closing in on a point where we'll get the three-year data in a couple months, be able to pull that together and submit that to them. So I think I'm still optimistic that we'll get something during 2022, but my guess is it's probably more towards the latter part. With respect to China TBD and the data, you don't have the same regulatory restrictions there that you do here, so it's a matter of working out the agreements with SLR and lining up the distribution and so forth on that. So I do think that that one happens, but I'll hold back for right now at least on the timing of that one. Thanks, Al. Yep.
spk12: Thank you. Our next question comes from the line of Jeff Johnson from Baird. Your question, please.
spk01: Hey, thanks. Good afternoon, guys. I just want to go back. So if we're talking, you know, sequentially stable CVI revenue in the fiscal Q2 with Q1, you'd be talking probably a little north of double-digit organic growth for CVI in this quarter. Is that, you know, you're a month in. You obviously see what's going on in your numbers that you feel good with that. Just want to make sure I understand that.
spk08: I'm looking at Brian on that. You're talking about... In Q2 organic growth?
spk01: The way my model works, if I go to 561 million CVI in the second quarter, that's probably right around 10, 10.5% organic CVI growth, I think, unless my model is screwy.
spk07: Yeah. I think you're right. Yeah, that's about right.
spk01: Okay. It wasn't a trick question. I just want to make sure my math is right. Okay, we good?
spk08: Yeah, no, that's right, Jeff. I just pulled this sheet out. You're right.
spk01: Okay. And then, you know, just on the My Day multifocal especially, I mean, obviously we've been getting good feedback here in the U.S., but just talk to us maybe where is that lens at from a global launch standpoint, where are the tailwinds coming over the next few quarters from that launch, and just how to think about My Day multifocal.
spk08: Yeah, that's a really good question because that product is doing really well. And as you know, there's some competitive products in the marketplace that have been launched, so we've been really happy with the reception of that. We obviously have it in the U.S. and still launching it. We did launch it in some other of the larger markets around the world, but there's still numerous markets to launch into, and we still have to finish launches, if you will, in a number of markets, including rolling out more fitting sets and so forth here in the U.S., so we're going to continue to put up strong, mighty multifocal growth through the year. I would imagine every earnings call you're going to have me, you know, making a statement around that based on the momentum that we have right now.
spk01: Yeah, understood. Thank you.
spk08: Yep.
spk12: Thank you. Our next question comes to the line of Chris Pasquale from Guggenheim. Your question, please.
spk09: Yeah, thanks, guys. Congrats on a great start to the year. Al, what's left to do before you transition to the full MySite launch in China, and how are you thinking about the ramp there?
spk08: Yeah, so there's a big conference at kind of in the end of March timeframe into the beginning of April. It's just a big optical conference in China. So that's really the target. So the product is available now. We're starting to launch the product, get it into hospitals and so forth. Docs are getting their hands on it, certainly. We've done seminars and other things. The true big launch, if you will, will be at that optical conference. So... So no delays, no problems, no issues, nothing along those lines. I just think that it will really get rolling towards the end of this fiscal quarter and then in the back half of our year.
spk09: Okay. And then I don't think I heard a Paragard revenue number. Could you just give us how that performed in the quarter?
spk08: Yeah, it was down 10%. Yeah. Down 10%. Yeah. Yeah.
spk09: Is that just related to some of the issues with getting patients into offices, you think, or was there something mechanical around purchasing?
spk08: No, I think it was foot traffic. We heard some of that commentary from some of our competitors, and I would agree with that. That's what we've kind of seen because we haven't seen anything else associated with that. Based on current trends here, when I look at just what's going on, how January went and how February is and our expectations, I expect us to be back to posting growth here in Q2 on that one, but I do think that that was due to two things. One was staffing shortages associated with COVID, and then the other was just some reduced foot traffic, if you will, due to Omicron-related issues.
spk09: Perfect. Thanks.
spk12: Thank you. Our next question comes from the line of John Black from Stiefel. Your question, please.
spk05: Great. Thanks, guys. Good afternoon. Maybe for CBI to start out, I think to kick off the year, your fiscal year, you were talking about market growth of 4% to 6%. You guys, CBI, were going to grow 6% to 8%. Now I believe you've upped that to 7% to 9% for CBI. So we just love your thoughts on the underlying market. In other words, has that moved up as well, or is it just sort of your share gains that have expanded? And when we think about the extra 100 BIPs, For CVI, what do you attribute that to? How much of that is price that I believe you alluded to that you're taking to help offset some of the FX movements? Thanks.
spk08: Yeah, so basically what we did there was took the 6% to 8% guidance that we had beforehand. We increased it to 7% to 9% to reflect the strong performance in Q1. We didn't really move it outside of just incorporating that. If you look at the numbers, it's almost like you can think on a NAS reported basis. We had a nice beat, and then currency took the delta away there. So from that perspective, kind of holding our expectations where they are for Q2 to Q4, even in the face of some of the global uncertainty, if you will, A lot of that came from outperformance in Europe and in Asia-Pac, where we're over-indexed. We're number one in Europe, and we have a really strong presence, for example, in Japan. So as we've seen those markets start to come back and get closer to where the U.S. is at, we have a tendency to outperform in those areas. So that's what you saw. I mean, yes, there's a little bit of price. Everyone has taken a little bit of price, so that's a little component of it. But I think it was more starting to see global economies, really economies outside of the U.S., start to return to normal. And as they did, and they catch up to the U.S. contact lens market, if you will, we're a greater recipient of that type of positive activity.
spk05: Got it. Helpful. And second question, I think you had an early question. You mentioned Cook, somewhat linear, if you would, when we think about the accretion of the 60 cents. What about Generate? I don't know if I missed it, Brian, but is Generate still, you know, call it 50 cents accretive in the first 12 months, and then, you know, you've got it for, I guess, roughly like 10 and a half this fiscal year? How does that onboard, if you would, in any commentary around the pace or the cadence of that or, you know, from a linear perspective? Thanks, guys.
spk07: Yeah, so you're exactly right. And, you know, we're heading towards the roughly 44 or so cents that get you to that 10 and a half months of 50 cents that we guided to. So, definitely on track to hit that 50 cents, but that's kind of how you get there. And I would say that the gating, if you will, is going to be fairly similar per quarter.
spk11: Thank you.
spk12: Thank you. Our next question comes from the line of Jason Bednar from Piper Sandler. Your question, please.
spk06: Hey, good afternoon. Thanks for taking the questions. Al, I wanted to ask a follow-up here on the contact lens pricing topic as well. Just Maybe hoping you can help in interpreting some of the data that's out there. I mean, it looks like retail price points are showing something like, you know, mid-single-digit increases. But, you know, I think a chunk of those are probably stemming from increases that are happening at the distributor or the retail level to cover their own higher operating costs. So, you know, maybe you can clarify for us, like, how you're handling price increases regionally or across the board globally. And, you know, should we be thinking about any load-in or stocking ahead of some of these additional increases that you're planning to
spk08: Yeah, I don't think there's really been any activity in terms of stocking or anything that I've really seen from our perspective associated with pricing. We are taking price increases, low single-digit kind of price increases. But you're exactly right. It's very difficult to see because not only do you have the component of direct price from the manufacturer and list prices, you also have markups associated with distributors or anyone else, frankly, along the process as they look to take price to offset kind of inflationary pressures. Pricing is a little different around the world. There are some countries right now, even if we get to Russia in particular, right, where we're taking much larger price increases to offset currency moves. So it's a little bit all over the place right now. But I would say it's positive. I mean, everyone's kind of raising price to just varying degrees and then seeing how that plays through. And, you know, we've always been a little lower, for instance, if you look at rebate activities and some of our competitors have been. So that's another factor that you'd have to take into consideration when looking at price.
spk06: Okay. All right. That's helpful. And maybe just as a follow-up, I know I asked you about this topic last quarter, but I'll come back to it again. It does look like you just recently, you had CMS grant my site a level two code. I know we may still be a ways off from seeing dedicated reimbursement for my site or my opiate management contact lenses, but maybe can you talk about the significance or importance of what this code does for Cooper and Are there competitive advantages that it provides? And then how does this position the company to eventually seek elevated or dedicated payment levels for something like my site? Thanks. Yeah, sure. Absolutely.
spk08: No, we received that code. It's fantastic. And it's a relatively specific related code, which is really good news. The ultimate question ends up on that is how much is the reimbursement amount associated with that? And that would be the reason where, you know, I'm excited about that and I'm optimistic about where things are going and so forth. But I'll temper any enthusiasm until we get to a point where we're seeing what those reimbursement dollar amounts are. But overall, a clear positive and a clear step in the right direction, that's for sure. Great. Thank you.
spk12: Yep. Thank you. Our next question comes from the line of Andrew Brockman from William Blair. Your question, please.
spk02: Hey, guys. Good afternoon, and thanks for taking the questions. Al, maybe I could just get some high-level thoughts around sort of my side here. I think we're coming up on the two-year anniversary of the launch here in the U.S., so maybe could you sort of reflect on what you've learned about this product in the domestic market specifically, and maybe how has that view changed one way or the other over that time? Thanks.
spk08: Yeah, you know, I think the clear learning on this that's been over the last couple of years is it takes a little while to get traction. We were more optimistic certainly early on that as a physician got there, as an eye care practitioner got the product into their practice, they would start selling it to every pediatric patient who walked into the door. What we saw is they were pretty active right away, and they would choose a patient or two patients. But it wasn't as sticky right up front as we thought it was going to be. So we've kind of altered some of our attention, some of our focus, if you will, to ensure that we're helping eye care practitioners build up their myopia management practice. Because if you really talk to optometrists right now and you dig into what's going on in myopia management, so many of them are trying to figure out how to create a myopia management practice. It's something they want to do. They're excited about it. They see the value in it. Whether it's OrthoK, whether it's MySite, it's something they want to do. But prescribing to kids and talking to parents and so forth is oftentimes a significant difference from what they're used to doing. So helping them along that journey is proving to be really, really valuable for building a long-term relationship. but really recognizing that and understanding that and figuring out how to help eye care practitioners build a subset of their business, if you will, has been a big learning for us, and the team's done a really nice job on that. I feel like they pivoted quickly. They're understanding that. They're out there helping physicians and build practices and so forth, but I would say that's our biggest learning is that this takes time, you know, and I was really optimistic it was going to shoot up really, really fast, But it takes time. We're building a lot of traction. We're putting up good numbers. We're getting good growth, all that kind of stuff. It just takes a little bit of time. That's great.
spk02: I appreciate that. And then maybe a follow-up for Brian. Anything more that you can sort of tell us about what you saw related with sort of inflationary pressures in the quarter? And then how should we be thinking about those factors sort of playing out throughout the year? Thanks, guys.
spk07: Yeah, sure. Thanks, Andrew. So, Yeah, as I mentioned in my prepared remarks, we're definitely seeing inflationary pressures, and we're helping to offset some of those with price increases. That was obviously factored into our guidance last time, and we factored into our guidance inflationary pressures this time around. I mean, obviously, it's definitely a headwind. We're seeing, you know, I mentioned also freight secondary handling, distribution, so whether it's cost of goods or OPEX. You know, we've got some good guys offsetting that, but certainly if things get worse and there's contagion, as a result of the Ukraine crisis, and fuel prices continue to increase, and there's a knock-on effect, and that's hard to factor in. But for now, we think we've got a pretty good handle on what we've seen so far, and we think we've factored into our guidance. Thanks, Jess.
spk12: Thank you. Our next question comes from the line of Zach Wiener from Jefferies. Your question, please.
spk00: Hey, thanks for taking the question. Just want to continue off that last one. on my site retention rates after the first couple years of the launch, just if you give any color there. And then additionally, if you could give some color on new fits versus switch fits through the quarter, how that trended, and if there's any one particular one that stands out as driving those new fits and switch fit levels. Thanks.
spk08: Yeah, on my site, retention rates have remained pretty high. So they're still in that 85% to 90% kind of range, which is a really good sign and part of what's supporting the business there, the underlying growth of that business, is we don't have a lot of kids dropping out once they get into the product. New fits to switch fits. New fits are continuing to get better. We're seeing better foot traffic and optometry offices. We're seeing improvements in fit activity. That's clearly benefiting ourselves and frankly the industry, but it's benefiting us a little bit more given a lot of our growth comes from new fit activity. I'm not sure I would highlight anything Two particular other than probably daily silicones because we've talked about that in the past. That's the driver of the market. When you're getting new fit activity and patients are coming in, that's where the optometrist has a tendency to go is to grab one of the new daily silicone hydrogels in the marketplace. So that's a positive, obviously, for the entire industry. You saw it in our daily silicone numbers, 25% growth. So really strong numbers that we're certainly capturing our fair share and more of new fit activity when it comes to that space. Thanks.
spk12: Thank you. Our next question comes from the line of Robert Marcus from J.P. Morgan. Your question.
spk04: Hi, this is actually Lily on for Robbie. Thanks for taking the question. Just another one on my site. Is there any way you can quantify how many physicians you've trained at this point and what percent of the total opportunity that is?
spk08: I honestly don't know that off the top of my head. I stopped looking at that number because we were training so many people, and then we were training office people also. It wasn't just ECPs. So it's a pretty significant number. I think that there's definitely more room here for training in the U.S., but I would probably venture to say the bigger focus has shifted from getting more people trained to deeper relationships with existing accounts and with those who we know should be big accounts. Certainly more focused there. I think there's still significant opportunity. I really, truly believe that the myopia management space is going to be a multibillion-dollar industry, and that will include glasses and contact lenses. But there is a massive amount of momentum out there in the optometry space right now talking about myopia management, and I don't see that changing. So it's more about deeper relationships and helping people grow that part of their business than it is getting them trained and up to speed on it.
spk04: Got it. That's helpful. And then, you know, you've obviously been pretty active on the M&A front, not just with bigger deals like Cook and Generate, but a bunch of even smaller tuck-ins as well. So do you still have an appetite for M&A right now? And where does M&A stand on your list of priorities for capital allocation? Thanks so much.
spk08: Sure. Yeah, we do acquisitions. We've had a couple of bigger ones here. Brian mentioned we just bought some stock back this last quarter. So we continue to look at the same thing. We invest in our business wherever we can find opportunities. That always provides the best return for us. We look at acquisitions if they make sense, and we'll buy stock back if we think it makes sense. You know, with Cook coming up and closing, we'll focus a little bit more of our energy and attention on paying down debt. We don't anticipate seeing leverage go even over three times, but having said that, we're up a little bit higher than we historically are, so we'll probably have a little bit greater focus in the nearer term, at least, of paying down debt and maybe looking at some stock buybacks than another larger acquisition.
spk12: Thank you. Once again, if you have a question at this time, please press star then one. And this does conclude the question and answer session of today's program. I'd like to hand the program back to Al White, President and Chief Executive Officer, for any further remarks.
spk08: Great. Thank you, everyone. I appreciate everyone's attention and for calling in. I know a lot of people have a lot of things going on right now. As we've discussed, we started the year off really well here, so we're really excited about it. where vision sits today and where surgical sits. And we've got good momentum. We think that's going to continue. So if anyone has any questions or follow-ups, certainly give us a call. Otherwise, we look forward to speaking with everyone on our next earnings call in early June. So thank you, Operator.
spk12: Thank you. And thank you, ladies, for your participation at today's conference. This does conclude the program. You may now disconnect. Good day.
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