Welcome to the Second Quarter 2021 Cooper Companies Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] It is now my pleasure to introduce Vice President, Investor Relations and Risk Management, Kim Duncan.

Good afternoon, and welcome to the Cooper Companies second quarter 2021 earnings conference call. During today's call, we will discuss the results and guidance included in the earnings release and then use the remaining time for 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 the 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 e-mail ir@cooperco.com. And now, I'll turn the call over to Al for his opening remarks.

Great. Thank you, Kim, and welcome, everyone to Cooper Companies fiscal second quarter conference call. I’m happy to report that CooperVision and CooperSurgical both posted all-time record quarterly revenues which drove record quarterly earnings. Our businesses have rebounded nicely from the COVID lows with silicone hydrogel lenses and myopia management leading CooperVision, and fertility and PARAGARD driving CooperSurgical. For the quarter, and reporting all percentages on a constant currency basis, consolidated revenues were $720 million with CooperVision at $523 million, up 25% and CooperSurgical at $197 million, up 58%. Non-GAAP earnings per share were $3.38. For CooperVision, the Americas grew 38% with Clarity, MyDay, and Biofinity leading the way. The U.S. was the strongest part of the region and it allowed us to rebound quickly and strongly, offsetting challenges from markets such as Canada, which were still facing significant COIVD restrictions. We’re still seeing nice momentum in the U.S. and we are looking forward to the back to school season. EMEA grew 15% in the quarter led by strength in MyDay and Biofinity. We’re the number one contact lens company in EMEA, so we are obviously over indexed in this region and the impact from COVID did temper the market’s performance, but we’re executing at very high level and taking share which is offsetting the challenges. This is the region where we have been a leader for quite some time and we’re getting stronger due to success with key accounts so we are really looking forward to a rebound in consumer activity as that will definitely benefit us. Lastly, Asia-Pac was up 19% led by strength in Clarity and MyDay. Asia-Pac is making progress rebounding from COVID, but is slow in many countries including Japan where we have a strong presence. Nevertheless, similar to EMEA, our teams are executing at a very high level and taking share, which is helping offset the market challenges. Overall, given our geographic mix, I'm extremely happy with our performance and expected to remain healthy as vaccines roll-out around the world and consumer activity improves. Moving to some details, silicone hydrogel dailies grew 31% with MyDay and Clarity both posting strong results. MyDay in particular is taking share lead by approving availability, especially for MyDay toric. From a market perspective, there's still roughly 2.4 billion in annual global sales of older daily hydrogels that we expect to be traded up to silicones in the coming years. This tailwind is a significant positive for us as we're under indexed in dailies, but are seeing great performance from Clarity and MyDay. Moving to our FRP portfolio, we saw solid growth around the world led by Biofinity. In particular, Biofinity Energys are unique and innovative lens that uses Digital Zone Optics to help alleviate eye fatigue from excessive screen time and our market leading Biofinity toric multifocal posted extremely strong results. We also just announced that we've doubled the number of prescription options for Biofinity toric and to provide contacts on how significant this is often, Biofinity toric is the most prescribed toric lens in the world and is now available in over 33,000 prescriptions. That's more options than all other monthly silicone hydrogel toric lenses combined. Regarding product launches, we remain incredibly active. Clarity and the MyDay second base curve sphere are being rolled out in Japan and MyDay toric, Biofinity toric multifocal, and our extended toric ranges for Clarity and Biofinity continue rolling out around the world. And I'm happy to now add MyDay multifocal to this launch list. We will start seeding select countries in the coming months with a full launch plan for late this calendar year. As part of our pre-launch activity, we completed product testing in eight countries with thousands of patients and I'm excited to say the responses have been absolutely fantastic. That's not a huge surprise given the extremely strong clinical data and the success of MyDay sphere and toric, but it's still great to say. The multifocal category is roughly 10% of the 8.5 billion global contact lens market and roughly half of that is in dailies. Given we're currently under indexed in the daily segment at roughly a 16% share, we believe the MyDay multifocal will be very successful. Moving to myopia management, our portfolio grew 122% this quarter to 14 million. Within this, MiSight grew 152% to 4 million and ortho-k grew 112% to 10 million. As a global leader in the myopia management space, our portfolio is the broadest in the industry comprised of MiSight, the only FDA approved myopia control product, our broad range of market leading ortho-k lenses, and our innovative SightGlass Vision spectacles. Given the strength we're seeing, we now expect this portfolio to reach 65 million in sales this year and exceed 100 million next year. Regarding MiSight, we've made fantastic progress with our key accounts and have entered into multiple new pilot programs with retailers and buying groups around the world. Our momentum has been accelerating, including in the U.S. where sales grew sequentially from 100,000 to 700,000 and we're about to launch in South Korea, which should be a great market. The only thing holding us back from growing MiSight even faster is COVID restrictions in several important countries such as Canada, Spain, Taiwan, and Singapore. Regardless, we're making tremendous progress and expect very strong growth moving forward. From a fitting perspective, the average age of a new MiSight wear remains 11 compared to a regular new contact lenswear of 17 showing this treatment is bringing kids into contact lenses at a much younger age. Additionally, multiple professional associations are now recommending myopia management as standard of care, including the World Council of Optometry, and more universities are adding educational training courses to their curriculums. Regarding ortho-k, we had a great quarter driven by our broad product portfolio, and from the halo effect we started seeing from MiSight. As the myopia management market develops, we're seeing the value of offering multiple options to eye care professionals, and this is helping our ortho-k franchise. We also believe it'll benefit our SightGlass myopia management spectacles, which are scheduled to be launched in multiple European markets prior to calendar year. With respect to SightGlass, we just received two-year clinical data and are in the process of submitting it to the FDA for approval as a myopia management treatment. It took three year data to get MiSight approval, but we're hoping to receive approval faster for SightGlass given the strong data, and that these are glasses rather than contact lenses. In the meantime, we're finishing the legal and regulatory work to close our joint venture with EssilorLuxottica and remain very excited about the potential of that partnership. To wrap up on myopia management, we're actively investing in sales and marketing, new launches regulatory approvals and R&D to keep driving success. Our focus remains on leading with clinical data and providing the best and broadest portfolio on the market. To conclude our vision, the rollout of vaccines is definitely benefiting us given the consumer nature of our business. We're seeing plenty of opportunity heading into what should be a strong back to school season, and we're gearing up for some great presentations and meetings at several upcoming eye care conferences. On a longer-term basis, the macro growth trends remain solid with roughly one-third of the world being myopic today, and that number expected to increase to 50% by 2050. Given our robust portfolio, new product launches, momentum with myopia management, and strong new fit data, we’re in great shape for long-term sustainable growth. Moving to CooperSurgical, this was an outstanding quarter with record revenues of 197 million and all three focus areas fertility, PARAGARD, and office and surgical medical devices outperforming. Starting with fertility, revenues grew 53% year-over-year to 84 million, easily becoming the best fertility quarter we've ever had. Strike was seen around the world and throughout the product portfolio. We’re taken share and we're well-positioned for future gains with improving traction in several markets. Our key account strategy is creating opportunities capitalizing on our market leading portfolio of products and services, which cover this full spectrum of clinics needs outside of pharma offerings. We're seeing strong growth from consumable products like media, and our eye witness, our proprietary automated lab management system that clinics implement to maximize safety and security by optimizing their lab practices, and we're benefiting from increased utilization of our artificial intelligence based genetic testing platform, which increases the doctors ability to select the best embryos for transfer and also from our capital equipment business with growth and products like incubators. From a market perspective, COVID is still negatively impacting patient flow in many countries, but the combination of share gains and healthy patient flow in the U.S. and parts of Europe is driving our results. Overall, increasing vaccination activity will continue supporting the recover the IVF industry as more patients are able to return to clinics, and increasing maternal age and better access to IVF treatments are trends that will continue supporting strong growth for many years to come. Within our office and surgical unit, we grew 62% with PARAGARD up 103% and office and surgical medical devices up 41%. PARAGARD performed really well as positive health and wellness trends continue driving patient activity. As the only 100% hormone free IUD on the U.S. market, the product offers fantastic long-lasting birth control that addresses the needs and interests of women looking for a healthy alternative. Within medical devices, several products performed well, including EndoSee Advance, our direct visualization system for evaluation of the endometrium and our portfolio of uterine manipulators. To conclude our CooperSurgical, this was an excellent quarter. Some of it was tied to reopening activity in capital equipment sales, which are tough to forecast, but you'll note in our guidance that we expect to continue delivering strong results. Similar to vision, we have powerful macro trends supporting our growth and our exposure to consumer activity is benefiting us as economies around the world reopen. To finish, let me add that we'll be releasing our new ESG report in a few weeks. For those of you like me, who are passionate about environmental sustainability, social responsibility and good governance, you'll see a great summary of where we stand today and insights into our future efforts. We're in an excellent ESG position and I look forward to continuing advancements and providing additional updates in the future. And with that, I'll turn the call over to Brian.

Thank you, Al and good afternoon everyone. Most of my commentary will be on a non-GAAP basis, so please refer to our earnings release for a reconciliation of GAAP to non-GAAP results. Our second quarter consolidated revenues increased 37% year-over-year or 32% in constant currency to 720 million. Consolidated gross margin increased year-over-year to 68.1%, up from 65.8%. Improvement was driven by strength in our higher margin CooperSurgical business led by PARAGARD and a nice improvement in our fertility margins where we're seeing the positive impact of transferring a significant amount of production to Costa Rica. CooperVision also posted improving margins driven by currency and product mix. Moving forward, we're in excellent shape to continue delivering solid gross margins. We've completed the largest parts of our capital expansion projects at both CooperVision and CooperSurgical and expect to receive the benefits of this over time as capacity utilization increases. OpEx is up 17% year-over-year as expenses naturally increased, with the rebound in revenues along with higher sales and marketing expenses associated with investments in areas such as myopia management. Having said that, expenses were kept under control, resulting in consolidated operating margins of 26.8%, up from 17.4% last year. Interest expense was $6.1 million due to lower interest rates and lower average debt levels. And the effective tax rate was 9.6%, driven by a 2.1% benefit from options exercises. Non-GAAP EPS was $3.38 with roughly 49.7 million shares – average shares outstanding. Free cash flow was very solid at $143 million, comprised of 193 million of operating cash flow offset by 50 million of CapEx. Net debt decreased to 1.6 billion and our adjusted leverage ratio decreased from 2.1 times to 1.8 times driven by lower debt and improving EBITDA. Before moving to guidance, it's worth noting we acquired two businesses since we last reported earnings. The first was No7 Contact Lens, a UK based contact lens manufacturer, primarily focused on specialty lenses, including ortho-k that has annual revenue of roughly 4.4 million, which we purchased for roughly 12 million. The second was obp Medical, a U.S. based medical device company that develops end-markets [a suite], a differentiated women's health medical devices with integrated LED illumination. obp Medical had roughly 10 million in annual revenues, and we purchased them for 60 million. Both deals are highly strategic and fit perfectly into CooperVision and CooperSurgical respectively. Moving guidance, we continue to monitor and evaluate the scope, duration, and impact of the ongoing COVID-19 pandemic on our operations and financial results. While we still view this as a risk factor, our visibility is sufficient to allow us to provide the following update to our fiscal 2021 guidance. Consolidated revenues are expected to range from 2.855 billion to 2.885 billion, up 14% to 15% in constant currency, with CooperVision revenues between 2.11 and 2.13 billion, up 11% to 12% in constant currency, and CooperSurgical revenues between 745 million and 755 million, up 25% to 27% in constant currency. Non-GAAP EPS is expected to range from $13.20 to $13.40. To provide color on this EPS range, our gross margin expectations are unchanged as we expect CooperVision’s improved manufacturing efficiencies to be offset by moderate margin pressure from growing dailies, and surgical continuing to post strong results. We expect the OpEx as a percent of revenues to track higher than the first half of the year, led by sales and marketing investments to support reopening activity and for the ongoing support of myopia management. Given a lower tax rate in Q2, we now expect our full-year tax rate to be around 11%. Lastly, FX has moved against us primarily due to the end, but we expect the tax improvement to offset this negative impact. And to wrap up on guidance, our business continues to strengthen and we now expect free cash flow to exceed 500 million this year. And with that, I'll hand it back to the operator for questions.

Thank you. [Operator Instructions] Our first question comes from the line of Matthew Mishan with KeyBanc.

Great, and thanks for taking the questions. First off, how should we think about phasing from here of the next couple of quarters? My sense is, sequentially we should see improvement in both CVI and CSI based on re-openings.

Yeah, Matt, hi. So, as far as facings go, obviously, you know, our guidance range for revenues is expecting consolidated revenues, obviously to wrap up in the second half of the year. CooperVision I would expect is going to be up sequentially, quarter-over-quarter as we work through the year. CooperSurgical is going to be, you know we had a really strong Q2. We talked – Al talked about the strength from markets reopening, but also the, sort of the one-time impact of some equipment sales in Q2. So, we still expect really strong results for surgical, maybe not quite as strong as Q2, but still improving, and then – on a consolidated basis, up sequentially, Q3 and Q4.

Okay, excellent. And then one of your competitors just launched an ortho-k product, just sort of a labeling thing, FDA approved for myopia management, what is the difference between approved for myopia management versus myopia progression control for you guys?

Yeah, so myopia control being much of a – I don't know how to put it, powerful claim. Myopia management being the more general term right? You'll hear people talk about ortho-k and other products being used for myopia management. I've talked about it in that context fairly frequently, frankly, historically, as a general term, myopia control being a much more specific term. So, to receive approval from the FDA, on a myopia control basis is much more powerful than general management, which you'll see, kind of all ortho-k products are used for that. You'll see the spectacles that are in the market, myopia management. So, much looser designation, if you will, talking about myopia management versus control.

Okay. Thank you very much.

Thank you. And our next question comes from the line of Jason Bednar with Piper Sandler.

Hi, good afternoon. Thanks for taking our questions and congrats on a nice quarter here. Al, hoping you’ll help us out with how consumers or behavior here, as society and the economy's reopen, we move back to more of a normal state. Are you seeing any change in eye exam behavior, contact lens consumption, a greater percentage of annual supplies being purchased? Just any color there?

Yeah, so that's a good question, right. It gets very regional dependent, would probably be the easiest way to say right, because if you look at the U.S. as an example, we've seen consumption come back up, a lot of activity returned to normal now. We're still not quite seeing the amount of new fed activity that we'd like to see. That's still down. So that's still impacting some of like, your new dailies. MiSight as an example, some of that kind of activity, but we're getting there and we're getting there quickly, right. So I'm pretty optimistic as we get to like the back to school season this year, you know, you're going to see that new fit activity and so forth in the U.S. As you move to somewhere like Europe, you know, the region from a contact lens perspective is continuing to move in the right direction, it almost feels, you know, like, it's like, four months, or five months or six months ago, where the U.S. was that. So, I hope that's the case. And I hope we see the continuing progress there as consumption as things pick up as you're seeing the vaccines roll out. Asia-Pac is a little different. Again, though, you probably even have to break that into markets, like we're weaker in China than we are in some of the other spots out there. You know, China is doing well, but some of the other markets like, even Japan is still, you know, in the single-digit when it comes to vaccination. So, I think you're seeing different levels of improvements, different levels of improving consumption activity, and so forth that trend mostly across the board is positive. I guess, I kind of give you that as like a high level overview.

Okay, that's super helpful. [Indiscernible] those of the original comments. Just as a follow-up, you [threw-out] that 100 million target for myopia management next year, I’m just curious if you could [indiscernible] the contributors there. I mean, does MiSight still account for 15 million of that or has that changed, just with the pace of reopening progression, and then, you know, within that 100 million, what's the right way to think about maybe SightGlass, contributing to that figure versus ortho-k? Thank you.

Yeah. So, I would still put MiSight in there at 50 million. Frankly, I think we have a chance to do better than 50. You know, we're running into a few challenges this year, it's COVID related. There's no question about that, because there’s demand out there and the interest is crazy strong. But I think at the rate we're going right now, I would still think we're 50 million plus when it comes to MiSight next year, the remaining portion, largely being worth ortho-k. We'll launch SightGlass this year, later this year, we'll get into some European market, start rolling around it has CE mark, so we'll get that product out there. And that will contribute, it will just be a question mark of how much it contributes. And by the way, Jason, just note that when it comes to SightGlass right now that's slowly rolling through our P&L. When we closed the joint venture with EssilorLuxottica that most likely will not show up in revenues, any gain or loss attributable to that joint venture will be below the line. So, I would envision, frankly, at the end of the day next year, you might not see any SightGlass revenue coming through our P&L.

Okay, makes sense. Thank you.

Yeah.

Thank you. And our next question comes from the line of Larry Biegelsen from Wells Fargo.

Hey, guys, congrats on the nice quarter. Thanks for taking the question. Just a couple Al on MiSight. I guess to follow up on the last one, is 25 million still the right way to think about 2021, are you – and are you making any tweaks to the business model? You know, I think right now it looks like going from three to four. Some people may be concerned about, you know, the pace to get to that 25 million and I have a follow-up?

Yeah, I think that's fair. I wouldn't take 25 million off the table right now. But I do think we're going to have a hard time getting there. We're going to need COVID to move in our favor, if you will in some of these markets, because I mean, we still have a significant portion of MiSight being outside the U.S. So, we've actually seen some of the markets take a step backwards, if you will, with COVID restrictions. And then obviously, other markets, you know, maintain COVID restrictions. So that's a challenge for us. I mean, it's probably a more, you know, attainable number would be something kind of in the low 20s. You know, 20 million, 21 million, something like that. Again, I don't think that's going to stop us from hitting 50 million next year, because I think the momentum and so forth, we have a strong enough to get there. When I look at like, the ramp up, we've seen a faster ramp than I was anticipating in terms of like, trialing piloting activity from retailers and from buying groups, and so forth. So that would take a little time, but we'll work through that. And I’m still crazy bullish on the product and I think we're going to be in great shape. I mean, when you look at tweaks to the business model right now, not really because of, kind of, if you will, the underlying success that we're seeing with respect to the product, and the interest that we're getting from some of the – what are ultimately going to be very, very large fitters of MiSight.

And just one follow-up on MiSight Al. So, China, you know, how are you feeling about approval there this year? And that retailer, large retailer in Europe, that you talked about in the last call, any update on that? Thanks for taking the questions.

Yeah. In China, we've had some more dialogue back and forth with them. All good. I would say, I guess since its regulatory base, as you just say, cautiously optimistic. I'm not going to change my stance on that. As a matter of fact, maybe I'm a little bit more cautiously optimistic. And I can't wait to get that approval and get that product into China, because that should be hugely successful there. Great response from the retailer, I mentioned last quarter. We've actually expanded that trialing activity. So things are going really well there. Maybe that's part of the reason we're seeing some other retailers and buying groups kind of jump in on that. People don't want to get left behind on that activity. So yeah, definitely taking steps forward there.

Thanks Al.

Yeah.

Thank you. And our next question comes from the line of Jeff Johnson with Baird.

Thank you. Good evening, guys. Al, look, I hate to keep focusing on myopia. I know it's such a big future growth driver, but it's a small part of business right now. But, you know, we're starting to see things like Essilor do, you know, they're seeing a 1,000 patients a day in China, with their Stellest lens, Hoya and Zeiss seem to be having decent success, at least Hoya does with their myopia glasses, things like that. So, you know, help us think about the next couple years, is SightGlass potentially as big or bigger than MiSight? Do you think my sight will still be the dominant product within your portfolio? Just, you know glasses versus soft contact lenses? I guess the first question, then maybe I have a follow-up on top of that.

Yeah, it's going to be really interesting to see how the market develops, because you're right. When it comes to the myopia glasses, Essilor is a great example. They're doing really well with that product. That’s a great company to start with, right, and great distribution network and so forth. But they're doing really well right now, a lot of attention going there by optometrists. So, SightGlass is a phenomenal product and I think once it gets in the market, it's going to do really well. And as we tie that together with EssilorLuxottica and with MiSight in a lot of markets, and even with ortho-k, I think we're going to be hugely successful. The question mark that I kind of have on that, ends up being a lot of optometrists have come back to us. And obviously, they like glasses, and they want to go with glasses, because it's an easy sell, but they also have commented back saying, hey, I think that MiSight contact lenses are going to be a lot more efficacious because we really want these kids wear them all the time, right? It's like metal braces. We want the kids wearing them all the time. And we know we'll get that from contact lenses. So, some of the feedback has been, hey, I want to get kids into a myopia management program like five or six years old, obviously, they're not going to put them in contacts there, right. So, what I'm hearing more is like, hey, from five to, you know, maybe 8, 9, 10 we're looking at a little bit more at glasses, and from 10, kind of onward, we're pushing and talking much more about contact lenses. So, it'll be interesting to see how it comes out. I'm just kind of happy we have both of them.

Yeah, no, I would agree with that. And then, I guess, I’ll forgo my other follow-up and just follow-up on something you said there on just the efficacy in there. I mean, we have seen now two-year data, three-year data out from Hoya from Essilor just in the last month or so, you know, showing those kind of 60%, 65% reductions in myopia progression, things like that. So, you know, as glasses do show to be as efficacious, does that change kind of your marketing message? Does that change price points, it looks like to me, you know, even some of the UK price points on myopia glasses around $750 a year versus, you know 1,500 per year for MiSight here in the U.S. How comfortable and I know markets are different, but how comfortable are you at the price point you're at with MiSight when glasses seem to be coming in at a less expensive option, at least in some of your international markets?

Yeah. A couple of things. You know, the price point on MiSight is lower outside of the U.S. So, when we talk about the U.S., right, FDA approval and running about 750, you know, you're getting outside of the U.S. Let me call the global range, more 500 to 750, and we're seeing a lot of the optometrists out there sell this as like a package offering. So that wouldn't surprise me, you know, moving forward that they kind of do that as, hey, regardless of what product you're getting, and how we're going to sell it, we're going to sell these together. So, maybe you get, you know, to your contact lenses, or it's two or three glasses, right? Because kids are going to lose their glasses or break them or need to update their script, that kind of stuff, right. So, I think that at the end of the day, my gut is that the pricing is probably in a pretty good place right now. Where I've seen the pricing on glasses lower as you're talking about, that's also for one pair of glasses, right. So, you end up saying, okay, well, you either kind of give them two glasses or three glasses, how you're going to look at that. It seems to be coming together at a pretty decent price point around where we're sitting at right now. So, then I think the next thing goes to saying two components of it, right is, yeah, they're both efficacious and they're being proven to be relatively similar at the end of the day in their success rates. So, then you go tom okay, is the kid going to really wear those glasses, right. Because they have to wear them all the time, right. 10 hours a day, every day. And that's where we're seeing optometrists push towards it and say, hey, they're both as efficacious, but one of them I'm guaranteeing the child's wearing contact lenses. The other one I'm not. That's why we're seeing more of the push from a lot of optometrists for kids who are 10 or older, moving them into contact lenses.

Okay. Got it. Thanks so much.

Yeah.

Thank you. Your next question comes from the line of Anthony Petrone with Jefferies.

Thanks, and congrats on the quarter. Al, I want to start with the overall calendar 1Q trends in contact lenses and kind of matching that to the fiscal quarter. So, what is your internal data telling you about where calendar one 1Q exited from, sort of a market data standpoint? Some competitors are saying that the global market was flattish with mixed performances by geography, the company put up 25% CVI growth, so when we look at that 25%, how much of that was actually the April trend? And how much of that was perhaps share gain?

Yeah, so, well, obviously, April was a massive growth number for us, right. If you kind of go back, I mean, this fiscal quarter, we grew in every region every single month. So, I can say that much. I do think that if you look at calendar Q1, it was you know, as an industry, it was flat. Maybe it was, you know, up 1% or 2%, something like that. I think you just saw, kind of improved through the quarter. I know, like we had a bunch of business. I know in March that we ended up shipping in April. So, we don't kind of maneuver too much around some of the month and stuff. But yeah, I guess at the end of the day, I would probably answer that. Maybe the easiest way to summarize it is to say, calendar Q1 was okay, you know, flat to up just a little bit. April was definitely a strong month. And we're continuing to see that performance, big differences regionally. No question about that, big differences, regionally. The U.S. was very strong. So, that's one of the things I was talking about, you know, Anthony, when I was saying, like, I'm really happy with our performance from a geographic perspective, you know, we're kind of under indexed in China. We're, frankly, a little under indexed so to speak here in the U.S., we're the number three contact lens company. So, yeah, I do believe if you look at it, and for the fiscal quarter, a decent chunk of it was us taking share and that includes in some markets like Europe and Asia-Pac.

That's helpful. A quick follow-up, I'll actually shift to surgical IVF and IUD both strong, so maybe a little bit, is their backlog still out there? If there is, you know, what is the tailwind linked to backlog in both IVF and IUD? Thanks again.

Yeah, I'd say, you know, we're going to post another really strong PARAGARD quarter because May of last year was pretty non-existent. So, we're going to have another really high growth rate in PARAGARD. I don't think there's anything out there with respect to channel inventory or the kind of backlog if you will. I think that's just kind of business as usual right now. Fertility is really strong. We're taking a lot of share, even with struggles in places like India as an example. I mean, it's really tough to see what's going on there. You know, that's a really nice market for us. We're stronger there than in some of the growth markets like China. The question really for fertility ends up being how much of that growth was tied to reopening and capital equipment activity that won't repeat itself. I'm probably more optimistic, maybe the most on that, because you're continuing to see fertility clinics open around the world. As they open, they stock up and so forth, you're continuing to see new fertility clinics get build or build out, and that's capital, equipment, purchases, and so forth. So, those things are always hard to forecast, but the backlog is pretty damn good within fertility.

Thank you.

Yeah.

Thank you. And our next question comes from the line of Chris Cooley with Stephens.

Good evening and thanks so much for taking the questions. Al I apologize, but let's go back and talk about myopia management a little bit more, I'm specifically interested in your comments in the prepared comments, where you talk about greater focus with kind of the mass account or the chain account, I've always thought of this product [indiscernible] more high touch, more of a kind of bespoke ECP type product. So, I'm just kind of curious, when we think about MiSight, should we think about its adoption being driven, much more like dailies in the early days from, you know, push more so from the chain? And then similarly, maybe as a second part to that question, little bit interested here, you have the broadest portfolio clearly, and been bulking up the ortho-k franchise, but kind of the one missing piece here is pharma, I’m curious if there is an appetite as well to maybe just compliment the spectacle in contact lens piece at that exact same call point with a pharma solution? I've just got a quick follow up on surgical.

Sure. I'll answer a quick one on the pharma piece, kind of [indiscernible] and so forth. We are doing work on that within R&D. I don't know if you'll see anything anytime soon on that. But that's an interesting kind of component of the myopia management business. So, yeah, we're keeping an eye on it, so to speak. When it comes to MiSight on the retail side, that is going to be one of the big drivers that's out there. You know the independence have grabbed a hold of this. Had a lot of people continue to get trained and start selling the product. Some of the bigger retailers are looking at this saying, okay, well, wait a minute, you know, I don't want to get left behind on this, this is clearly gaining some traction, you know, World Council of optometry going out and telling people that they should be standard of care and so forth is pushing things along relatively quickly. So, what you're seeing from the retailer's right now is really trying to figure it out, right? Say, should we have this in all of our stores or should we put this in certain stores, right? So, if we have a bunch of stores in London, should we select stores where we're going to drive all of our pediatric patients or should we have everybody get certified and kind of everybody said, MiSight, right? So, you're getting retailers, kind of trying to figure that strategy out. You've seen the same thing here in the U.S., frankly, with, you know, [Treehouse Eyes] and some different organizations becoming more focused on myopia management. So, this is still like such early stage in the marketplace. You know, we're really creating a brand new market here that - it makes it kind of exciting, right, but there's some there's some definite question marks out there. There thing I am happy about, and I was going to say is moving faster than I expected right now is the interest from some of those big retailers of kind of saying, hey, I don't want to get left behind here. I need to get moving and figure this out one way or another. So that's a key component. The other thing I would add just quickly, when it comes to retailers, is it's a little easier for an independent. They run their own store and so forth. How they want to price it? How they want to handle selling it, communicating it and so forth? You go to a retailer where they want to standardize that throughout their operations, that takes them a little while longer, right, figure out how we're going to price it, how we're going to sell it, all the different components that go into it. So a lot of work being done behind the scenes on that.

I appreciate all the color there and then just quickly for me on CooperSurgical, you mentioned obviously the strong growth in fertility, and also, continued lift with PARAGARD. With both of those categories having strong momentum do we think about kind of a structural lift here in the operating margin contribution going forward from CooperSurgical as we do have your planned capital expenditures, I believe, you said completed now.Is there more of a step-up that we should think about as we exit the fiscal year, just help us think about, kind of the margin contribution profile of that business unit going forward? Thanks so much.

Yeah. So that business certainly has higher gross margins. And we're continuing to see those trend in the right direction. The consolidation effort I've talked about over the last couple of years with respect to Costa Rica is starting to generate returns right now. Obviously, a product like PARAGARD has very high gross margins. We're probably still a little inefficient, if you will, with respect to that business model in total. So, as we continue to grow revenues, we'll be able to continue to leverage that basis. I mean, the fertility business is a global business as an example, with a global infrastructure, largely a global infrastructure. You're talking about a business, even if you annualize this quarter, right, that's a little over $300 million. So, we need to continue to grow that to leverage it, but long story short, the answer to that is, yes. We anticipate margins. Our operating margins continue to improve within the CooperSurgical business, and that'll obviously help the overall businesses as surgical continues to strengthen.

Thank you.

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

Thanks guys, good afternoon. Al, I'll start with you. I you know, I know, sure price call it's usually not a big driver in the lens market. ASPs are usually treated from call it material or modality, but in this oppose inflationary environment, is there more of an opportunity this year for price for you guys to take that? And Brian while I’m going down that same road, you know, for you are there any material cost to call out in your opinion, putting pressure on the supply chain or other areas of the business? And then I just got a follow up.

Yeah, on pricing, I would say yes. We've seen pricing trending higher. Matter of fact, we've just heard some stuff, which I haven't confirmed. It sounds like one of our competitors just recently here took list pricing up a little bit. But you have seen list pricing moving up a little bit, you've seen some rebate activity come down a little bit. I think when you look at the world that we're in today, right, with some of the inflationary pressures that we see out there, there's probably a little bit more ability to take price than there has been certainly over the last several years.

Hey, Jon, I'll take the other question. Nothing really to point to. We've got long term contracts with our suppliers. So, nothing to highlight really right now on inflationary, sort of raw materials or other costs.

Okay, great. And then a follow-up question is, sort of multiple parts on the MiSight row, but maybe just to our clarity, 50 million next year Al that is not including China is sort of the question there. And then maybe the 700,000 for MiSight this quarter that I think you referenced in the U.S., was that a clean number this quarter? And what I mean by that is, you know, is that sort of reflecting no free fittings? If so, Al maybe you can just comment on the utilization. I think everyone's just trying to sort of rectify a ton of docs trained, 700k in U.S. revenue. Is this somewhat maybe lower than anticipated utilization, a function of, you know, difficulty getting the kid into the optometrist office, or that optometrist wanting to fit one kid and watch him or her progress for I don't know, 6 or 12 months before starting kids two through five? Thanks.

Yeah. So, you do get some of that, where you're getting optometrists fit, you know, a couple kids, and then they might wait a little bit. Maybe the other point to make on that, Jon, that's probably important is, you know we recognize our activity, all of it upon shipment. One of the challenges that we've had with MiSight. Is shipping it on a quarterly basis or six months rather an annual supply. You've heard me talk historically more about hey, 750, right? We fit a care, we get 750 bucks. I guess mentally that's how I think of it. But in actuality, from an accounting perspective, depending upon what you're shipping, if you're shipping a full-year in the U.S., then yes, you would get 750 or if it's outside of the U.S., whatever – you would get whatever that price is, but certainly more than half of our sales on MiSight are shipped as six months or quarterly sales. So, I think maybe I haven't been as clear about that, right? Because the number of sittings that we're actually doing, the kids getting sitting is greater I think than what people think it is because we're not recognizing as much revenues. I think people maybe are thinking we are right away, right. That's one of the things that kind of gives me more comfort on the 50 million next year, frankly, is because I see the number of children actually being fit in the product. I know that revenue will come, right. It's a renewing cycle anyways, for the annual purchaser, but for all the kids who are not annual purchasers, six months or whatever, you know that that's going to continue to come. So, I think that's part of it, the 700,000 in the U.S. would be a true number, if you will, right. No free lenses being included in that. When it comes to China for 50 million for next year, I guess I think about it all together, right. It'll depend when we get approval for China, when we're able to get launched that product as to how much that's going to contribute, but that would be part of our 50 million plus, I think, to say it that way, in terms of MiSight numbers for next year.

Perfect. Thanks, guys.

Thank you. And our next question comes from the line of Issie Kirby with Redburn.

Hi, guys, thank you for taking my question. I have two on MiSight, and then one on surgical. Firstly, just on MiSight, just thinking about where you are with your investments into sales and marketing and whether or not that has changed, given the dynamic you've outlined in these larger retailers and you know what that really means for the margins of that product? And then following up on SightGlass, actually, and MiSight, just thinking about your partnership with EssilorLuxottica, obviously, they have a vast distribution network, just thinking about any potential to cross sell either technologies between the two companies outside of SightGlass? And then I'll follow up on surgical.

Yeah, I'll start with EssilorLuxottica because we have a great relationship with them. We're selling right now or we manufacture the Ray-Ban contact lenses here that they're selling, which is a great product that's doing really well. Yeah, I would love to grow and expand that relationship, because it's good now. They have a great team of people. I've gotten to know them better. Our team has gotten to know them better. If we can, kind of combine our efforts to improve things like myopia management and fantastic right, they distribute our ortho-k lenses in China. You know, if we can work something out, I'd love to see us kind of come together on a product like MiSight, that’s potential home run kind of opportunity there. So, we'll see how that builds up over time, right. We're having a lot of discussions with them right now and as you can kind of tell a lot of, like, positive good discussions. On the margin side, right now, with respect to the retailer's, that's not impacting anything, because the price point on that is, is what the price point is, if you will. I think that only ultimately be a question mark as to like, if someone becomes really large and starts doing a lot of volume, my guess based on history is that we would continue the price point that we're at, we would hold the price point or add if you will. It would be more in terms of like, hey, if you do that much volume we’ll give you a cross promotional activity for other products and services and that type of thing, more sales and marketing in a broader sense that it would be any discount activity associated with a product like MiSight.

That's very helpful. Thank you. And then on fertility, it'd be great if you could comment on some of the dynamics you're seeing in the end market, in the clinics, particularly around perhaps seeing any sort of acceleration in consolidation of clinics, whether or not this has, you know accelerated you to COVID, and how you guys at CooperSurgical are well positioned to service these larger accounts?

Yeah, so we have seen some of that. You know, we've heard a few things from competitors about like supply concerns and stuff. We have not had any of those. When you look at consolidation activity, which has increased, that is a positive for us, because one of the things we started investing in and you can tell that I'm a big fan of his key account activity. You know, we have a very broad – the broadest portfolio you're going to have. So, if you see consolidation activity, you naturally get clinics coming and saying, hey, we want to buy it on volume. We want all the products and we want to push those products in a standardized format through our clinics. We're clearly the number one option for that kind of activity, right? We can offer him everything and we can pull it together for him. So that consolidation activity is some of the bigger trends, if you will, in the fertility space are positive to us because of our current business model.

That's very helpful. Thank you and congratulations on the quarter.

Great, yeah, thank you.

Thank you. And our next question comes from the line of Joanne Wuensch with Citibank.

Good evening and nice quarter. A couple of little things at this stage of the call, was there any stocking in the quarter? What is your foreign exchange guidance for the year? And gross margins, you said that there was no change to your gross margin assumption for the year, despite the 68.1% in the quarter, so I'm just curious if you could reiterate what the assumptions are, and why would there be no change? Thanks.

Yeah, I'll take the first one and then I'll flip it to Brian. There was nothing to mention in terms of stocking with respect to vision or surgical, normal kind of activity there.

Hi Joanne. Yeah, so the – on the FX guide, FX, previously was a 3% tailwind to revenues, and an 8% tailwind to EPS. FX has moved against us, it's a margin – on the margin, just slightly worse on the revenue line, but still 3% tailwind. On the EPS it's about a 7% tailwind now. So, moved down about a percent. So, that's obviously factored into our guidance and the impact to FX in the second half of the year is offset by the effective tax rate reduction going from around 12.5 from last quarter to around 11% now with this new guidance. On the gross margin side, I said last quarter around 67.5% to 68% on a consolidated basis, and bouncing around kind of range bound. Yeah, we ended up at 68.1%. I still think you know we have a chance maybe to get to 68, but we're still going to kind of hold to the upper 67s. You know, I talked to my script about the push pull around higher dailies offset by better utilization or better efficiencies in our manufacturing plant with volumes, and then strong CooperSurgical growth margins. So, some of that's going to be driven by mix, but high 67s. And then on the operating margin line, that's really where we're saying, hey, there's just going to be a little bit more OpEx than what we were expecting, let's say last quarter. So, you know, all of the myopia management, product launches, just general market opening activity and back to school is going to result in slightly higher OpEx as a percentage of sales. And that's how you get to our EPS guidance.

Excellent. Thank you so much.

Thank you. And our next question comes from the line of Robbie Marcus with JPMorgan.

Oh, great. Thanks for taking the question. I'll add my congratulations on a good quarter. Maybe just to follow up on Joanne's question. Can you remind us what FX was in second quarter on the top and bottom line? And what acquisitions were in the quarter and what's in the guidance now versus last quarter?

Sure. On the FX to revenues is $24.5 million. FX to EPS was $0.21. In the guidance, we've got about $2 million for No7 lens and about 5 million from obp. Those are both, you know two quarters worth. And then in the M&A contribution in the quarter, you had about a million dollars from vision and about just a little bit under 3 million for CSI. So, a total of four.

Great. And, you know I know you don't break out segment margins anymore, I was wondering now if you could just give us, you know maybe a high level thought on Vision versus Surgical and how we should think about the gross and operating margin trends for each of businesses throughout the year? You talked a lot about spending in CooperVision, I just, you know any color you can give us to help with the split would be great. Thanks a lot.

Yeah, no problem. So, on CooperVision obviously I talked about earlier some of the – both of them were up, Vision and Surgical were up. Some of the trends that we're seeing are still playing out. We had some volume related absorption. That's starting to go away as volumes pick up, but that's being offset by higher sales of dailies. You know our daily silicone hydrogel suite of products, you know is not quite as high as our company-wide gross margins or CooperVision gross margins. So that's going to be a little bit of a push pull, but you know, we should see, we have a chance of seeing CooperVision margins trending a little bit upwards, but flattish and then on the CooperSurgical side, obviously stronger PARAGARD sales without high gross margin product, and fertility all of the work that we're doing to consolidate into Costa Rica all helps CooperSurgical gross margins. So, that's a positive trend that should continue. On the operating margin side, Al touched on CooperSurgical operating margins just a few minutes ago. On the Vision side, again, I think most of, you know most of what you're seeing as markets reopen and all the rebound activity that we're doing to see these markets to prepare for product launches, and really to put some need around myopia management make sure we're supporting the launches of all of our suite of myopia management products, you'll see some OpEx increases there, ahead of some of the revenues that you'll see down the road.

That's really helpful. Thanks a lot.

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

Thank you. Hi, guys. AL, in [si hy] dailies its sounds like MyDay continues to be very strong, and I assume the main driver, beyond the improved supplies and certainly new launches per MyDay, is there anything else that you're seeing in terms of broader patient preference trends? Is there a mixed toward a more premium lens that's surprising you? I guess overall, what's your view on the mix of Clarity versus MyDay looking ahead, and you know, the outlook for Clarity overall?

Yeah. So it's been interesting how it's played out. You know, both performing really well, both within our kind of segments, if you will. Clarity being more mass market. And we've seen good success from Clarity, kind of right through. I just hear toward multifocal all doing okay. MyDay sphere, doing well, but MyDay toric doing really well. So that products – once we got it in the marketplace, we knew it was going to be a hot product. And I can tell you, it's just continued to go. It is doing really, really well. So, that's probably been kind of the biggest driver or the biggest positive. That's one of the things that makes me kind of optimistic about MyDay multifocal, right. Like all our clinical testing, data feedback has been very similar to all that positive feedback and good stuff we were getting on MyDay toric. So, I'm pretty excited about the multifocal coming out.

Great. Thanks. And then just your outlook for PARAGARD overall, looking out over the next one to two years, how are you thinking about underlying growth potential? And given the health and wellness trends, you know, are you anticipating increasing DTC activity?

Not necessarily. I mean, we'll have a new campaign that'll come out and replace our old campaign. You saw some of the TV advertising and so forth. But no, we're continuing to get good results on that from the marketplace and a lot of interest and so forth. Given the momentum and interest that we have right now, I don't see the necessity to, kind of go blast out a DTC campaign or something above and beyond the activity we've been doing. Our PARAGARD team is really strong. We just moved a few people around there. So, we had a great team of people who ran it, great team of people who are currently running it all together, our insight into the IUD market, and PARAGARD in particular is incredibly strong. So, you'll continue to see DTC activity and targeted activity, but I wouldn't expect significant increases in cost associated with it, but I would continue to expect pretty good performance on the PARAGARD.

Great, thanks Al.

Thank you. And our next question comes from the line of Rob Cottrell with Cleveland Research.

Hi, good evening. Thanks for fitting me in here. Two quick questions for you. First, Al, you mentioned that new fit data is still lagging a bit and a bit soft, clearly, that's not impacting the quarter outlook yet. But, you know, wondering how you're thinking about the timeline for new fits to return to normal, and whether that is included in the outlook for this year? Do you think it can, it might stretch into 2022?

Yeah. It's so different by region. We're definitely seeing the improvements around the world. The U.S. continues to move in that right direction. And that's critical for us right now, because that's an important one for MiSight, especially in the back half of the year, but also for our dailies, right, because what we were seeing pre-COVID with respect to new fit data was that you were seeing a much higher percentage of people being fit in daily [silicone hydrogel’s] then you will or any other products. So, obviously, that's an area of strength for us. I'm making the assumption that when we look at the world that new fits, you're going to continue to see new fits trend in the right direction. I wouldn't anticipate like a big jump all of a sudden anywhere. I think it's just going to be a matter of vaccines rolling out, continuing to be successful, continuing to allow more foot traffic if you will, will improve new fit data. The other thing is like, I mean you get to California here, right. We still have restrictions June 15, we get to the point, finally, where we basically don't have restrictions, you know, that's going to allow a greater volume of patients going through optometry offices, and so forth. So, you know, there's some big markets out there, California being one of them that continue to take steps in the right direction. You go outside of the U.S., you look at markets, like the UK continue to move in the right direction, right. So, moderate positives, but I'm not anticipating like some massive big step up.

Got it. Okay, thank you, and then quickly on MiSight, you know you talked about revenue recognition and chipping out every six months. Curious, as you start to, you know, expand these pilots with retailers, is that something where you expect retailers and buying groups to stock inventories to where MiSight might be a little bit more lumpy in the future or will you still retain the shipping for patients?

Yeah. I would say, right now, there is no stocking on MiSight. So, that's a good point. Just to be clear, right? Everything that you're seeing, everything we're reporting is product being shipped out to patients [to where]. We'll see how that changes in the future. I would guess, certainly for the foreseeable future, it's going to continue to be managed the same way it is right now. It'll be shipped when the patient orders the product. And then it's just a matter of how the doc wants to do it. You know, a lot of them want to say, hey, I'll [get] a year’s supply because the child's eyesight is not going to change that much. So, let's get the product. Let's get it in our house. We're certainly as I said, over half of optometrists are saying, hey, I want to see the kid more frequently. I want them to come in for eye exams. So, I'm going to do a three month or I'm going to do a six month and then I'm going to do the eye exam. And then if there's a parameter change or tweak that needs to be made, I'll do it and send them new lenses. Otherwise, I'll continue to send them the original script. So, we'll kind of see how that plays out over time. My guess is though, that you're not going to have a lot of stocking on MiSight anytime in the near future.

Got it. Thanks so much.

Thank you. And our next question comes from the line of Chris Pasquale with Guggenheim.

Thanks. Al, can you give us an update on where you stand in the U.S. today with MiSight and physicians trained or the installed base maybe in the U.S. and globally?

I think we're around 4,000 certified eye care professionals in the U.S. right now. I don't have the number off top my head. I know it's larger than that outside of the U.S. To be honest with you, I've kind of stopped looking at it just because there's so much variability around, you know, fitting and how much people fit. You know, anyone who's really interested in myopia management has a tendency to fit a lot. And then we're getting a lot of eye care professionals come in that are kind of new, that are doing, you know one or two or just getting started. We're also starting to see people outside of the traditional optometrist, if you will, getting certified on that, you know, because you're getting some staff and some other people who are now responsible for the optometrist, it doesn't want to spend their time educating mom and dad on what myopia is and how it progresses and so forth. So, you kind of see a broadening of some of the training activity, but it continues to increase. I know we continue to get a pretty decent number of certifications coming through on a monthly basis.

About from an install base perspective, how many kids do you think you have to now?

That's a good – over 30,000. The numbers like started ratcheting way up. I started – I've been focusing on other stuff, but yeah, it's certainly over 30,000.

Okay. And then curious with the fertility business. Do you have much of a presence in China today? Any impact to you guys from the change in the child policy over there? There's something you're looking at as an opportunity. How do you think about that?

Yeah, boy, I wish we had a bigger presence there. We do not have a really large fertility presence in China. We do have a presence, we have a decent business there, we're working right now to try to get some of our products registered so we can sell them there. Some of our top products in different markets around the world are currently not registered in China. So, they're going through the process. I think the change in terms of the three kids is great for fertility in China, and that's going to help all of us in the fertility space who compete in that marketplace. We have much higher market share in other markets than we do in China. So, I look forward to getting some of those product registered and having some more success in that market.

Thanks.

Yeah.

Thank you. I will now turn the call back over to President and CEO, Al White for any closing remarks.

Great, fantastic. Well, thank you, everyone. I appreciate the time and the interest and so forth. Always happy to talk about all this stuff. As you can imagine, I spend a lot of my time with Dan talking about MiSight and the team and myopia management in general. So, happy to go through all this detail and it was a good quarter. So, happy to be and talking about it. So, thanks for the time and look forward to catching up with everybody in the coming weeks here and certainly in three months when we report in the beginning of September. Thank you, operator.

This concludes today's conference call. Thank you for participating and you may now disconnect.