Kim Duncan - VP, IR Bob Weiss - CEO Al White - CFO and CSO

Joanne Wuensch - BMO Capital Markets Jeff Johnson - Robert Baird Jon Block - Stifel Chris Pasquale - Guggenheim Anthony Petrone - Jefferies Andrew Brackmann - William Blair John Hsu - Raymond James Robbie Marcus - JPMorgan Matthew O'Brien - Piper Jaffray Matthew Mishan - KeyBanc Steve Willoughby - Cleveland Research Steven Lichtman - Oppenheimer Jeff Johnson - Robert W. Baird

Good day ladies and gentlemen and welcome to the Q4, 2017, The Cooper Companies Inc. Earnings Conference Call. At this time, all participants are in a listen-only-mode. Later we will conduct the Question-and-Answer Session and instructions will follow at that time. [Operator Instructions]. And as a reminder this conference call is being recorded. And now I would now like to introduce your host for today's conference. Ms. Kim Duncan, Vice President of Investor Relations. Ma'am, you may begin.

Good afternoon. And welcome to The Cooper Companies fourth quarter 2017 earnings conference call. During today's call, we will discuss the results included in the earnings release along with the updated guidance and then use the remaining time for Q&A. Our presenters on today's call are Bob Weiss, Chief Executive Officer; and Al White, Chief Financial Officer and Chief Strategy Officer. Before we begin, I would like to remind you that this call is contained 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 maybe incorrect or imprecise, and are subject to risks and uncertainties. Events that could cause our actual results and future actions of the Company to differ materially from those described in forward-looking statements are set forth under the caption Forward-Looking Statements in today's earnings release and are described in our SEC filings, including Cooper's Form 10-K, all of which are available on our website at cooperco.com. Should you have any additional questions following the call, please call our Investor line at 925-460-3663 or e-mail ir@cooperco.com. And now, I'll turn the call over to Bob for his opening remarks.

Thank you, Kim and good afternoon everyone. Welcome to the fourth quarter and full year 2017 conference call. This was an exciting year and we finished with record revenues, earnings per share and free cash flow. I'm proud of the team and the everything we've accomplished and believe were set for strong fiscal 2018. For the quarter we reported $552 million in consolidated revenue up 8% year-over-year, non-GAAP earnings per share was $2.65, up 16% and free cash flow was very strong $167 million. CooperVision posted fourth quarter revenues of $439 million up 7% as reported up 5% pro forma. Daily silicone hydrogel lenses drove growth up 37% in constant currency. CooperSurgical posted revenues of $123 million, up 15% as reported, up 7% pro forma. Fertility drove growth up 28% or up 7% pro forma. Moving to the details for CooperVision, this was a solid quarter given tough comps and some hurricane disruptions. By Geography the Americas grew 2%, EMEA grew 5% and Asia-Pacific grew 10% all pro forma. The Americas saw solid growth in August, followed by weakness in September and October. There was some negative impacts from the hurricanes during the time, which we estimate roughly at $2 million or 1%. Regardless our total share set in the Americas continued to be better than the revenue growth indicating we're taking [a lion's] share. Regarding EMEA and Asia-Pac, both have solid quarters especially considering the different comps and continue seeing share in both regions on diversified geographic basis, which bodes well for continued growth. Overall revenues continued driven by our silicone hydrogel lenses led by Clariti and MyDay in the daily space and Biofinity in the monthly space. Our tiered approach within the daily silicone hydrogel space continues prove successful, we are expanding our offerings geographically and have recently started exceeding the U.S. market with MyDay Toric setting sets with the full launch to come soon. MyDay Toric has been received incredibly well internationally due to a very [customable] design and we expect a similar response in the U.S. Our Clariti one-day products continued to perform extremely well as the only silicone hydrogel family with the sphere, Toric, and a multifocal offering. Moving to other products, our Biofinity and Avaira family of lenses combined to grow 7% pro forma. Biofinity continued to perform very well with diversified growth around the world, Avaira declined slightly as our focus remained on transitioning wearers to our upgraded Avaira Vitality lens which we anticipate completing by the end of this fiscal year. We did experience some Avaira disruption associated with the hurricane in Puerto Rico, but our team did a phenomenal job responding to that challenge and the impact with minimal. Turning to product categories, we remain the global leader in Torics which grew 7% pro forma driven by Clariti and Biofinity along with the rollout of MyDay Toric in Europe. We continue to believe, the Toric market will grow faster than the overall market and we will share in that growth given our strong portfolio in the addition of MyDay Toric in the U.S. Multifocals grew 4% pro forma with strength coming from Clariti and Biofinity. Turning to the global contact lens market, for calendar Q3 we grew 7% with the market also up 7%. This included growing faster than the market EMEA up 6% versus the market up 4% and Asia-Pacific up 15% versus the market up 9%. The Americas grew 4% with the market up 7%. By modality CooperVision grew single use lenses 15% versus market up 13% and finally CDI is not single use lenses grew 3%, while the market grew 1%. Overall, Q3 was good quarter for CooperVision and the market. Although, the market was against easy comps. In particular, at the top for the America more if it was especially EPS was down 3% last year third quarter. CooperVision had more difficult 3% comp. On a trailing 12-month basis, we took share throughout the world growing 8% versus the market up 5%. Going forward, we are still targeting 46% market growth driven by continuing shift to improve technology such as a wider use of silicone hydrogel lenses, the continuing trade-up to dailies and specialty lenses, geographic expansion and the expansion of the Avaira base. And given our strength in these areas, along with the broad private label offering, we expect to continue growing faster than the market. Regarding other CooperVision activity, we completed the acquisition of Paragon Vision Sciences on December 1st for approximately $80 million. Paragon has a specialty lens business with a particular focus on ortho-k contact lenses. This acquisition allows us -- follows our recent acquisition of Procornea, another specialty company that we acquired in August. In combination with our MiSight product, with the management of Myopia we have developed a nice specialty lens platform to ensure we remain well connected with opinion leaders and a technology leader in the space. Moving to CooperSurgical, we reported a strong quarter, with Q4 revenues of $123 million up 15% driven by organic growth and acquisitions. On a pro forma basis, we were 7% with Fertility leading the way up 28% or 12% pro forma. It was nice seeing the strength of Infertility as the integration disruptions are starting to get behind us. As I mentioned before, we are global leader in medical devices and genetic testing within the fertility space which is a global market with strong long-term growth dynamics. Our office and surgical business grew 2% for the quarter with the strength and [indices] our disposals hipster scope [ph] offset by weakness in other product lines. Regarding our CooperSurgical activity, we recently completed the acquisition of PARAGARD IUD from Teva, was closed on November 1, for approximately $1.1 billion. PARAGARD is the only IUD on the U.S. market that is hormone free long lasting and irreversible. The fact it's hormone free is especially important. As you may have heard there was a major story released yesterday in the New England Journal of Medicine showing women using birth control pills and IUDs that release hormones face a higher risk of breast cancer than women who have never used hormonal contraception. This study was completed over 10-year period following 1.8 million women. Using PARAGARD -- given PARAGARD is the only non-hormonal IUD option in the U.S., and CooperSurgical has the resources and experience to ensure millions of women across country are aware of this important distinction. I'm very excited about the growth potential here. I will now get into the financial details, but as you can tell, under I am very bullish about PARAGARD as a product and as a strategic fit within CooperSurgical. And finally, I want to express my appreciation to our employees for their hard work and dedication. We continue to post record results and this wouldn't possible without them. I'd like to especially thank employees in Puerto Rico whose dedication and perseverance through the hurricane Maria was something special. And with that I'll turn it over to Al.

Thank you, Bob 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. Bob covered revenues so let me focus on the rest of the financials and guidance. For the quarter consolidated gross margins were 65.9%, up nicely from 64.3% last year. CooperVision's gross margin was 67.7% up from 64.8% last year driven primarily by currency and product mix gains. CooperSurgical's gross margin was 59.6% down from 62.5% last year driven by lower genomic pricing and certain inventory write-offs and charges on legacy products. Also within CooperSurgical we recently purchased an existing manufacturing facility in Costa Rica to consolidate a significant portion of our global manufacturing. We made a lot of progress upgrading the facility and hiring key employees and plan to begin production of the Wallace Transfer Catheter in this near future. This should provide a very nice opportunity to reduce costs and improve margins in the coming years. Moving to expenses, consolidated operating expenses grew 7% in the quarter slightly less than revenue. Expense growth was driven by investments throughout the company including additions to the sales force and distribution. We continue to enhance our sales force by selectively hiring around the world, while also continuing to upgrade our infrastructure including distribution. Moving to operating income, we grew 17.2% with operating margins improving to 27.2% from 25.1% last year. Both businesses report strong operating margin improvement with CooperVision growing 14.7% to 31.1% driven by gross margin improvement. Well, CooperSurgical improved 15.4% to 22.4% driven by operating expense leverage. Below operating income, we reported 7.9 million of interest expense, a 1.5 million FX loss and an effective tax rate of 8.1%. Non-GAAP EPS was $2.65 with roughly 49.7 million average shares outstanding. We posted 167 million of free cash flow comprised of roughly 199 million of operating cash flow, I’ll step by 32 million of CapEx. Total debt decline roughly 41 million to 1.173 billion supported by cash flow generation and an increase in cash balances offset by our acquisition of Procornea in August and 25 million of stock buybacks in October. Regarding full year fiscal 2017 results, consolidated revenues were 2.139 billion, up 9% or 7% pro forma. CooperVision revenues were 1.674 billion, up 6% or 7% pro forma and CooperSurgical’s revenues were 464.9 million, up 19% or 4% pro forma. Non-GAAP EPS was $9.70, up 15% and free cash flow was very strong at 466 million. Before moving to guidance, let me quickly reminder that we announce our November 1st, a new $1.425 billion 5-year senior unsecured term loan, which matures November 1, 2022. The facility was used to fund the PARAGARD acquisition and reduce our revolver borrowing allowing greater flexibility for generate corporate purposes including the recent funding of the Paragon acquisition. Moving to fiscal 2018, we’re guiding the consolidated revenues of 2.48 billion to 2.53 billion, which is comprised of 1.83 billion to 1.87 billion at CooperVision or roughly 9% to 11% as reported growth 6% to 8% pro forma growth. And 650 million to 665 million at CooperSurgical or roughly 40% to 43% as reported growth 2% to 4% pro forma growth. CooperSurgical revenue guidance assumes roughly $170 million of PARAGARD, which is slightly lower than originally expected with a negative impact coming entirely in fiscal Q1 due to higher than expected channel inventory. We’re now providing detailed quarterly guidance, but the help model this. We expect Q1 revenues for consolidated CooperSurgical to be around 150 million with PARAGARD being roughly 34 million of that. This 34 million would be a year-over-year decline of roughly 25%. This unusual activity is related a price increase which resulted in significantly higher channel inventory in September, but that also unexpectedly in the month of October, the month before we closed the acquisition. Subsequent to Q1, we expect PARAGARD to do roughly $135 million to $138 million during Q2 to Q4 which equates to upper single digit growth driven by the price increase and underlying unit growth. Note, we have not included any potential upside from the new study Bob mentioned in the New England Journal of Medicine. We still expect to meet or exceed our targeted EPS accretion of $0.70 to $0.75 for PARAGARD for the full year and including PARAGARD on a consolidated basis, we expect non-GAAP earnings per share in the range of $11.35 to $11.65 up 17% to 20% based on 49.8 million shares outstanding. Moving to details within the P&L. We expect fiscal 2018 gross margins to improve to around 68%. Operating margins are expected to improve to around 28% and this includes a negative $3 million impact from the reintroduction of the 2.3% medical device excise tax beginning in January. This tax only impacts our domestic CooperSurgical business excluding Paragard, which is treated as pharmaceutical product. Interest expense is expected to be around $68 million, which includes the additional debt from the PARAGARD and Paragon acquisitions and the assumption of a 25-basis point rate increase this month. Regarding taxes, there is obviously a lot of activity with several bills pending at the House and Senate so let me add a caveat that my commentary is based on unfinished tax legislation that could change materially. Given our fiscal year end is in October, many of the proposed tax reform provisions will not be effective for us until fiscal 2019, so we're assuming an effective tax rate of 11% for our fiscal 2018 guidance. Having said that, the proposed tax reform does include a few provisions that would impact us in fiscal '18, with the most material being the mandatory repatriation of previously deferred earnings. That being said, we would exclude these types of one-time P&L charges from our non-GAAP EPS to allow clear comparability of year-over-year results. Repeating my disclaimer that there is still a lot of moving parts, we currently see risk to our effective tax rate in fiscal 2019 and beyond to the mid-teens from items such as the minimum tax on foreign income. Lastly on guidance, excluding any impact from unknown tax matters, we expect free cash flow to be similar to this year but with CapEx around $175 million. The higher CapEx is mostly due to carryover from fiscal 2017 due to lower than expected spending in Q4 as our manufacturing team dealt with the hurricane in Puerto Rico. With that, let me conclude by saying, we remain focused on expanding our businesses and gaining global market share while delivering consistent solid financial results. This quarter and this year were another step in that direction and we look forward to reporting results as we work through fiscal 2018. And with that I'll hand it back to the operator for questions.

[Operator Instructions]. Our first question comes from the line of Joanne Wuensch with BMO Capital Markets. Your line is now open.

I have to go back to taxes, sorry. Could you please walk us through how the impact of the potential lower tax rate for the corporate level would impact you? I think we have all over the years taken a look at your 8%, 9%, 10% type of corporate tax rate and don’t fully completely understand how that stays at that level. But walk through taxes just a little bit more please?

Yes. So, couple of comments on that. If we look at, first of all, if we look at this coming fiscal year, fiscal ’18 that we’re in right now most of the tax reform again won’t impact. So, if we look at fiscal 2019 and beyond that’s what you start look at and say okay, what is the impact of the full tax provision changes and that’s where we’re talking about somewhere in the mid-teens. So, let’s say ’15 just so we are working up a number. If we take a look at where we have been in the past and you had PARAGARD, which has fairly significant U.S. income associated with it, obviously higher U.S. taxes associated with that, that loses up towards the 11% this year. And then the other tax changes move us up to the 15% keeping in mind that under that scenario PARAGARD is actually a positive. Because the positive tax rate is a positive for PARAGARD and our CooperSurgical business. So that’s kind of the flow, I mean as you can imagine as you know there is a lot that goes into that. But at this point in time based on the measures that are out there, that’s where we see taxes coming up.

Okay. And as my follow-up question, you have acquired require Procornea and Paragon. Could you please give us a little bit of an idea of the revenue contribution from those two acquisitions for next year and what the strategy is with those products? Thank you.

Yes. So that’s part of our specialty lens business that we’re building up and it’s turning out to be very nice. If you combined those two businesses or around 30 million in revenues and if you roll those with my sight, it’s a very nice specialty lens business that is at least upper single-digit if not double-digit growing business. So, we’re pretty excited about that, it’s relatively small part of the business right now. But growing nicely, it can be very important in the coming years with myopia management becoming more important.

And our next question comes from the line of Larry Biegelsen with Wells Fargo. Your line is now open. Q - Larry Biegelsen: One on revenue and the Americas and then just one on FX and guidance. Just starting with the Americas, I think even if you adjust for whether the Americas was a little bit soft relative to the market and in calendar Q3. So, Bob any color what’s going on in the Americas and how much you think MyDay re-launching that, can help in the U.S.? And then just on the guidance. We estimate there is about $0.60 of FX benefit to EPS in fiscal 2018. Is that directionally accurate and why is that falling to the bottom-line? Thanks for taking the questions guys.

Yes. Larry, on the first one on the Americas looking soft. Yes, the answer to the question is the MyDay Toric coming out in the early part of 2018 is certainly going to be a plus for us. When we talk about comps, of course, the overall market was pretty strong due to easy comps including the Americas. So, 7% compared to the prior year, which was down 3% for us. Our prior year was a plus 3%. So, we went from 3% to 4% up a slight uptake. So, comp is a big part of it and then of course, we had during the period, we both had some implications of the hurricane and weather. And as I mentioned, we think overall that’s about 2 million although a good chunk of that 2 million probably rolled more into the October timeframe.

And on currency, when we reported earnings in September. We expected in currency in fiscal ‘18 to be around $0.60 positive Larry. As we got closer to this quarter, we’ve actually holding in there as you indicated when we just run the rates though, the positive impact from currency in fiscal ’18, we have a $0.38. So, it came back a decent amount. Now that includes a €1.17, ¥1.13, £1.34. So, although from September to today, we lost a good $0.20, a little bit more than $0.20, we still given guidance obviously for a low-double-digit even excluding PARAGARD.

And our next question comes from the line of Jeff Johnson with Robert Baird. Your line is now open.

So yes, one maybe following up on Larry’s question on the U.S. market. I think, a lot of us heard that maybe October wasn’t a real strong close to the quarter for you guys in the U.S. Just wondering, I know you don’t give monthly updates very often. But just what have you seen in the U.S. market both [help] of the market and maybe in your own business since Bob I think you referenced the weaker September and October, we were definitely hearing about that through some of your distributor sources in October itself. Just how is November and early part of December trending?

So obviously, we’ve looked at November, when we dealt our overall guidance that Al referenced it. So, we’re feeling good about of where we are, where we’re going. We also felt good about on eye even though, the market from the point of view of what we sold into the market was a little lighter. Then was the, on eye activity we felt based on what we saw on eye activity we were still gaining market share. So, whether or not you compare it to the 7% that the overall market give, which of course is kind of above the normal or the average growth of the market over a multi-year period. So, if we look at the market as growing 4 to 6 midpoints 5, the Americas should grow 4 to 6 probably midpoint 5 on average, the 7 is a little on the high side. We continue to gain market share, we have been growing north of 1.5 times the market. I still think the best way to look at the market is on a trailing 12-month basis or the market overall for the Americas was 4%, we were 6%. So, on average, we are kind of moving down the path, we planned on and of course, we’re excited about the MyDay Toric coming in the market.

Understood. And then I’ll maybe just one tax rate follow-up question, 11% tax rate in the guidance for this fiscal year going to 15% in fiscal ’19. Is that just U.S. tax rate reform driven or is there any kind of DPT UK tax rate change in there as well?

U.S. tax reform.

Okay. Anything you can say on the UK investigation at this point?

Nothing at this point, no. We’ll update you guys as soon as, as we have something that's firm to update you with.

Probably the only thing I would add to that there is a going forward rate impact it may end up onetime events. But going forward, of course that gets built into the way the mid-teens plays out. So, to the extent your rates offshore go up, they don't duplicate U.S. rate increase.

Thank you. And our next question comes from the line of Jon Block with Stifel. Your line is now open.

Great thanks good afternoon, guys. I'll ask both upfront. First just the single use growth of 8% in the fiscal quarter was single digits for the first time since I believe fiscal 2Q of '15. And then there is a lot going on with adverse weather and actually tough comp. But adding more color there Bob, that you can comment on. And then just second to shift your sales reps, and maybe if you can tell us where do you are with that initiative? How the returns been to date and Al is this initiative continuing into fiscal '18 with the given guidance. Thanks guys.

So, we've done good job of expanding our sales force so we'll continue to build on that. And we are seeing good results out of that. I think overall, the 8% growth is still being north of 1.5 times the market is indicative of that. And of course, we continue to do that expansion not only in the U.S. but worldwide, and of course that will now ripple into more aggressive expansion on the women's healthcare side. The 8% single use market growth across in the quarter once again one quarter does not a make a trend make. We had tougher comps up and down the line. So that's factor and then of course will be rolling out the MyDay Toric into really the biggest Toric market in the world. And in the sweet spot of that market, which is at OneDay which is driving the whole market. When you think about the whole market being up for the quarter, 15% and other being up 3% or more importantly for the year, the market gained up 12% in single using as and everything else is flat. We are the driver of the market growth in the all other bucket, and we continue to gain share in the single use buckets. So, a good profile and of course the catalyst to that is clarity in MyDay the silicon hydrogel OneDay products we have.

Thank you. And our next question comes from the line of Chris Pasquale, Guggenheim. Your line is now open.

Thanks. one clarification of course for Al and one for Bob. Al first, can you give us the currency impact in 4Q both the top and bottom lines. And then Bob, just looking at the underlying growth rates in your three major competitors. This was the first quarter in some time that all three were performing at pretty high level. And it certainly seems like the trend is towards a tougher competitive environment than Coopers had to deal with in several years. Can you just comment on how you are thinking about that and the potential for maybe the margin of outperformance that you've been accustomed to for some time could contract?

I'll jump on the latter question first and I will come back on the other. As far as looking at the competitors looking at the overall market. if the overall market does move up to the 7 plus arena, I'm not going to totally complain about that as long as we are growing. Basically, we’ve guided our midpoint 7% and we expect to continue to gain market share. There is, as I pointed out some easy comps the fact that, our competitors grew over the prior year when the prior year for example was only 1%, this year was 7%. We frequently follow the -- with many of the analysts used two years backing. So, if I look at two years backing 7 this year, 1 last year midpoint 8 overall the market has been growing 5 on a trailing 12 months that’s more indicative. So, there is a little bit of anomalous in the 7, but if the 7 stays because momentum going forward, we think, we’ll do well with that continue to gain market share.

And then currency quickly Q4 was basically net expectations, if you will, when we gave our guidance. The top-line impact was around $6 million and the positive EPS impact was around $0.18.

And our next question comes from the line of Anthony Petrone with Jefferies. Your line is now open.

Just two questions on my and one would be on pricing and maybe specifically on [stand] of discounting in the quarter. Where is that trending as you head into fiscal ’18. And then maybe just to give an update on where CooperVision is indexed in silicone hydrogel dailies versus the market. How long in that product cycle had to go before you reached sort of market level rates in that category? Thanks.

Sure. On discounting and pricing, of course the industry's been a master at trading up, trading up and trading up. And to overlay on that, we as an industry, there was a fair amount of price increases the last 12 months. On the flip side, there has been a lot of not so much discounting, but rebating. A lot of that is focused in on trying to get you to convert to one day. The strategy is working well as we can see from the growth as a one day being the drivers of the overall markets for the last four years in a row now and that will continue into the future. So, the fact that there are discounts to incentivize or rebates to incentivize to transition from a two-week space into the one-day space, which if there were oasis two-week, non-compliant going to oasis one-day that’s 800% trade up, there is a lot of room for rebating and incentives to get you to make the switch. Today trade up to one-day is still 400% to 600% step up in revenue at the manufacturing level. So, we trade up all day, even if we had to give rebates all day. And that, we now hit the flip point where, there is more revenue generated by one day and then there is revenue generated by non-one day. So, this last quarter $1.5 billion in revenue in single use and only 975 million in non-single use we are now past the 50% market. How is Cooper doing, we continue to be the driver of the one day, particularly within the phase of the silicone hydrogels so for example last 12 months were up 50% year-over-year, whereas the overall market is up 28% year-over-year for silicon hydrogel OneDay lenses. And of course, you’ve seen our overall numbers, market was up 13% single use and we were up 15% single use for the quarter. So, we think there’s a lot of legs left in it and the roll out of MyDay Toric will only further enhance that market share gains as well.

Thank you. And our next question comes from the line of Brian Weinstein with William Blair. Your line is now open.

Hi guys this is actually Andrew Brackmann on for Brian today. Al, I have got a question for you. On the Q3 cost you said that you guys are going to spend about $0.11 worth of EPS on investments. Can you give us a little status update of those and whether those in magnitude that you expected in the quarter? Thanks.

Yes, that would be in kind of the magnitude that we were expecting and to be clear to follow up on what Bob said we will continue those investments and we talked about that a little bit in the script through fiscal ‘18. So, when we look at the guidance that we give in respect to infrastructure investment, sales force expansion, we are doing what we said that we would do for several quarters and we will be doing that incremental investing if you will in the business through fiscal ‘18.

Thank you. And our next question comes from the line of John Hsu with Raymond James. Your line is now open.

Hey guys. Thanks for taking the question. Just a quick one on multifocals, it looks like growth has been a little bit choppy this year. Can you talk that up to competitive factors or what’s going on in the multifocal space?

Yes, that’s sort to say we had the target on our back. We were kind of the leading multifocals for many years that really date it back to the turn of the century when Alcon owned the market and then we came out with great multifocals and became the largest player in it. Now everyone has claimed a little catch up there so J&J and Alcon have respectable multifocals. So that’s the way it is we are still growing of course. It is a high growth area. We still have market share that is in around 30% market share worldwide in a growth market. But the long and the short of it is, others have played a little catch up in the market, it is still a small part of the market so when you look at the overall market, multifocals are 8% we are at 10% of our revenue in multifocals and the bigger action point is the Torics where the overall market is around 22% and we’re about one-third of that market. So Torics is a much bigger fish if you will and there we have a lot of good things going on. And that’s a lot more the barriers of entry in a broad Toric category are a lot tougher as there are so many more SKUs in the Toric area compared to multifocals.

Okay, great. And then just one follow up housekeeping. Al, I think you gave the FX on the top-line and EPS. What was the impact on gross margins?

We don’t get to that level of detail on adjusting everything with respect to FX.

And our next question comes from the line of Robbie Marcus with JPMorgan. Your line is now open.

Great, thanks for taking the question. Wanted to ask on CooperSurgical. Pro forma guidance 2% to 4% kind of the low trend for what you've been doing in 2017. So maybe you can talk through the impact of what's happening versus an acceleration next year?

Sure. If you look at the 2% to 4% guidance, what's kind a going on there is split of the two. We finished the year at 4% pro forma growth with a strong 7 to finish. And the guidance on that part of the business if you will is roughly 3% to 5% so more of the same. And then with respect to PARAGARD it's one that's bringing down the consolidated pro forma growth because that we're looking at kind a somewhere around at 1% pro forma growth because of the impact at Q1 that we mentioned.

Okay. Maybe a follow up, you've been getting outside of market has accelerated in 2017 in Asia-Pac and you've had pretty phenomenal growth there in the past two years in Vision. Can you maybe talk through some of the trends there and how you see that continuing?

Sure. We are underindexed in Asia-Pac so if I look at market share we're about 20% in the U.S., 31% approaching number one in Europe, but only 19% in the Asia-Pac area. So, we have a long way to go, part of that was we were later to the game in some regions, but we've had may good headway in Japan which has been a fairly flat market over the last 10 years, but we've been gaining and gaining share with our OneDay portfolio of products which includes MyDay making good progress there, which will continue as well as some of the headway we made in other regions of Asia-Pac be it Korea be it China where our franchise is developing very nice in China. But one of the other things that is starting to come into a selling [ph] in Asia-Pac that's started in the U.S. is our specialty lens both Torics and multifocals are early in the game and we have a good portfolio. And as I mentioned, we're essentially number one in the specialty lens space, so we'll continue to ride that way with a very broad product line. So, looking forward, I expect to see pretty good growth in Asia-Pac at the market, and continue to gain market share moving to a more respectful level of overall market share with our portfolio.

Thank you. And our next question comes from the line of Matthew O'Brien with Piper Jaffray. Your line is now open. Matthew O'Brien: Thanks so much for taking the questions. Two quick ones, first of all, on the Americas side again a little bit soft, there is some questions there. I'm curious if there is anything in the channel specifically, we know there has been some rebating from one of your bigger competitors to the big box chain. So, I'm wondering if there is any headwinds you're facing in a certain segment of the channel whereas elsewhere you're doing even better than your competitors. And if any of those pressures you may or may not be seeing that ease in the near term and then I have follow-up.

Yes. I don’t think, we’re, we have any challenges or undue challenges with the different channels. So particularly when it comes to -- I mentioned the on-eye activity is good. We did have tougher comps than the overall marketplace. We’re coming out with the new product MyDay Toric which will fit the need of that premium silicone hydrogel one-day market, which is a big evolving market. Private label is a big part of our strategy that has a key role not only in Europe, not only in Asia-Pac, but also in the Americas. So, I would say, we have a lot going forward. LensFerry which is facilitating our independent eye care professionals delivering to the home. So, we have a lot of tools and a lot of products and I don’t see a sting [ph] inhibited in any particular area. Matthew O'Brien: Okay. And then as a follow-up Bob can you touch on a little bit there. But just MyDay with Toric lens. Can you just provide a little bit more color as far as what kind of benefits you saw in Europe as you launched that, because I know most eye care professionals like to see both [sphere] and the Toric together before there are more broadly recommend products. So just any kind of color you can provide there will be helpful? Thank you.

Yes. You’re correct about that. Anytime, you have a sphere only compared to someone else sphere and Toric, you get the halo effect of having the combo. And in the case of MyDay very similar to the excitement over just how well, Biofinity has done for the last 10 years now. And Biofinity 10 years later, it’s a [indiscernible] product, a lot of that add to, with having a great sphere, a super Toric and then a good multifocals. So, we have a lot going for us in terms of MyDay being more analogous to some of the features of the Biofinity if you will.

And our next question comes from the line of Matthew Mishan with KeyBanc. Your line is now open.

I guess my first question given the success you’ve seen in Clariti and your competitors have been rounding out the premium end of the space. Are you expecting to see the competition in that mass market silicone hydrogel over the next couple of years and just still that barrier entry on manufacturing? And then I have a follow-up after that.

Yes. I think, if they had made substantial progress in reducing costs, you would eventually see some entrée into the mass market. Right now, they’re putting a lot behind basically not taking up oxygen and all the features that silicone hydrogel that apply to the non-one-day product. And they’re really riding the wave of but voice [ph] in the case J&J and daily MOIST in the case of Alcon. So, they have two big products. So, one of their dilemma is gee if you come into the market, are you competing with yourself or you’re putting someone in play that is hydrogel, they’re kind of between rock and a hard one spot. We have nothing to lose because we have two great products, premium and low cost. We are the only one with that cost structure that can price a silicone hydrogel comparable to a MOIST and a daily Clariti product and a complete product range. If they were going to come in to the market, would start with a fear if they got the cost down and then they would have to then piggyback on that eventually multifocal and a Toric to get comparable to Clariti. So, I still see Clariti has a long runway in front of it to ride.

Okay. And then on operating margins I think previously previous PARAGARD at least you had an operating margin target of 28 plus I think by 2021 and you are kind of there already. Do you have any thoughts on the long-term targets on the operating margin side?

I think we are working with all that in advance. You are correct that we -- my 28% operating target for 2021, we arrived three years early because our target is for next year. So, stay tuned as we dust off our thinking what our new operating target should be. So, if were to tell you on the phone I [indiscernible] five people around me.

Thank you. And your next question comes from the line of Steve Willoughby with Cleveland Research. Your line is now open.

Good evening everyone. Two questions for you. First Bob, I was wondering if you could provide us an update on, in the fourth quarter -- in past quarters you talked about what your daily disposable silicone hydrogel lenses grew in total versus your frequent replacement silicone hydrogel lenses and I believe you provided that in your prepared remarks? And then secondly Bob, could you just give us your opinion on the state of subscription offerings, I guess globally but also in the US as there’s been some M&A as it relates to that and I know you guys have your LensFerry products. So just wondering update on that? Thanks so much.

First of all, I think I mentioned on my remarks 37% for the growth of silicone hydrogel one day.

Okay sorry I just missed that.

It’s okay. State of subscription offering, of course we have LensFerry, you have companies out there Hubble and different things. We have been kind of leading the way with home delivery outside the US for many, many, many years. So highly experienced with that model and of course it’s an enhancer for the eye care professional. So, it’s not a bad model. From our perspective important to that model is having a couple of things. One is private labels, those that want to embark on their own design and model. Number two is having the broadest product portfolio of spheres, Torics and multifocals still makes it more attractive that you could do more things with it. I understand that companies and I will pick on Hubble for the moment like Hubble will continue to have a very narrow generic offering importing products from Taiwan so that’s only get so far at the end of the day eye care professionals, trying to tell eye care professional you all have to convert to writing script for generic here from Taiwan will only get you so far in terms of developing the model. You're going to need the breadth of products for a reasons doctors prescribed silicon hydrogel. There are recent doctors prescribe Toric, there are reasons they prescribe multifocals. And there are a lot more complicated to fit than just a generic model that is tempting to have the patient influence the eye care professional on what to prescribe. That's a tough model.

Thank you. And our next question comes from the line of Steven Lichtman with Oppenheimer. Your line is now open.

Thank you. Hi guys. Bob, I was wondering if you could give us your latest thoughts on the North America market, in the post-UPP world? As you look back now over the past several quarters with UPP gone, any update you can give us on what impact positive or negative if at all its removal has had on the market?

I never was much of a UPP guy day one and I still never got enamored by along the way. It was a method of marketing and like those on and there are other methods of marketing that have been used for 30 and 40 years. Clearly rebates have their role, but try it you like it is a big part of the game. So UPP was kind of the pass through and out of that pain in the neck event but we'll be on it.

Okay. And then, Al, the lower pricing in genetic testing that you mentioned, can you talk a little bit more about what that was and how we should think about that going forward?

Sure, we've experienced that more recently within genetic testing within the IVS space. And there are some competitors in that space, who are getting very aggressive with price interestingly companies who are losing significant amounts of money. And I guess as long as people are willing to give them money and their strategy is just to do as many tests as can be, we could continue to experience some pressure there. But we'll stay by our strategy of running a good profitable business and putting money in R&D and developing improved test and so forth. So, we'll see how that plays out, I think that we could face that a little bit more as we move through fiscal '18.

Thank you. And our next question comes from the line of Jeff Johnson with Robert Baird. Your line is now open.

Thank you, guys. Hey, just one follow up question. Al, you had mentioned that the incremental investments in the distribution center and maybe some above and beyond sales force investments things like that were $0.11 to the fiscal fourth quarter. How does that continue into 2018? I know you said those will continue, but if FX is a $0.38 tailwind, what are those investments offsetting. And then if PARAGARD is $0.70. Are there any other pluses and minuses we should be thinking about in the quarter or for the year, I'm sorry.

Sure, I'll give a little color on that. Because the guidance that we're giving here for fiscal '18 is clearly quite a bit stronger than what we indicated it would be back on our September call, meaning we're hurdling a good $0.20, $0.25 of FX, we're also hurdling the medical device tax that we talked about which is about $3 million. So, the numbers look pretty good. Now having said we are investing within sales and marketing distribution from other areas in the business we're going to continue to do that even though currency and so forth has moved against us. We have not got back on those investments. So, we're able to put up this guidance because of fundamental strength in the business itself be it operating margins and leveraging OpEx in some parts of the business, leveraging our improvements within cost of goods, things look pretty good kind of throughout the P&L. So, I will get you two specific and how much we’re going to spend each quarter. I guess, I probably just say that we’re investing in the business, we’re excited about it. We’re excited about growth. We’re excited about taking market share. There is a number of areas within CooperVision, they’re going really well that we want to continued invest in PARAGARD looks like there is a lot of upside in that. So, we’re pretty excited about that, we’re going to hire people there and invest in sales and marketing in that part of the business. So, it’s fair to say feeling pretty good and not stopping investing in the business to continue to drive top-line growth.

Thank you. And I’m showing no further questions at this time. So, I’d like to return the call to Mr. Bob Weiss for any closing remarks.

Well, I want to thank you for joining us today and I hopefully you’re excited about where we land it and more importantly where we’re going. There is nothing, I’ll look for earnings per share growth next year of upper teen is exciting. Its look very real, we talk about that. We look obviously thrilled about some of the news that has been up here and Paragon or on hormonal [indiscernible] the last couple of days makes it even more exciting. We look forward to updating you on the next conference call, which will be our first quarter earnings for fiscal year 2018 and I think that’s on the 8th of March and we look forward to set as report at that point. Thank you, operator, please conclude the call.

Ladies and gentlemen, thank you for participating in today’s call. This does conclude the program and you may all disconnect. Everyone have a great day.