Cooper Companies, Inc. Q3 FY2020 Earnings Call

Ladies and gentlemen, thank you for standing by, and welcome to The Cooper Companies Inc. Third Quarter 2020 Earnings Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to, Kim Duncan, Vice President, Investor Relations and Risk Management. Please go ahead.

Good afternoon, and welcome to The Cooper Companies’ third quarter 2020 earnings conference call. During today's call, we will discuss the results included in the earnings release and then use the remaining time for Q&A. Our presenters on today's call are Al White, President and Chief Executive Officer; and Brian Andrews, Chief Financial Officer and Treasurer. Before we begin, I'd like to remind you that this conference call contains forward-looking statements, including all revenue and earnings per share guidance and other statements regarding anticipated results of operations, market or regulatory conditions and integration of any acquisitions or their failure to achieve anticipated benefits. Forward-looking statements depend on assumptions, data, or methods that may be incorrect or imprecise and are subject to risks and uncertainties. Events that could cause our actual results and future actions of the Company to differ materially from those described in forward-looking statements are set forth under the caption Forward-Looking Statements in today's earnings release and are described in our SEC filings, including Cooper's Form 10-K and Form 10-Q filings, all of which are available on our website at coopercos.com. Should you have any additional questions following the call, please call our investor line at 925-460-3663 or e-mail ir@cooperco.com. And now, I'll turn the call over to Al for his opening remarks.

Thank you, Kim, and good afternoon, everyone. There are a number of things to cover on today's call, but let me start by saying our businesses are performing really well. They improved as we moved through the quarter, and that momentum continued in August. Before getting into the details, I want to first congratulate Dan McBride and the entire CVI organization for their performance during COVID. With our relatively strong June performance of down 3%, we hit key milestones, including increasing our global market share to 25% and becoming the number two contact lens company in the world. The team is executing at an incredibly high level right now, driving our key strategic initiatives of expanding key account relationships, launching new products, upgrading distribution capabilities, and expanding manufacturing. Combining this with our strong support of the independent optometrists, our extremely high customer service levels, and the recent U.S. launch of the most innovative contact lens in the world, MiSight, we remain in a great position to continue taking share. Moving to the numbers and reporting all percentages on a constant currency basis. We posted consolidated revenues of $578 million in Q3, with CooperVision revenues of $449 million, down 11%; and CooperSurgical revenues of $129 million, down 24%. Non-GAAP earnings per share were $2.28. These results were stronger than expected as both businesses bounced back nicely from COVID lows. Our strength continued in August, and we've incorporated that in our guidance, which Brian will cover later in the call. For CooperVision, all three regions posted improving performance as we progressed through the quarter with both June and July being down low single digits. For the full quarter, the Americas and Asia Pac were down 9%, while EMEA was down 15%. These results were better than expected as the strategic initiatives we've executed over the past couple of years show their value during these challenging times. We're also seeing a halo effect from our MiSight launch, bringing attention to our other products with positive activity in our daily silicone hydrogel and Biofinity franchises. Outside of CooperVision-specific drivers, we've seen consumption improve with consumers returning to more normal wearing habits as social activity picks up and as video conferencing gains traction. Looking ahead to the fall, including back-to-school activity, we believe the market will be stronger than we were previously expecting. Parents were concerned about their kids' screen time, and with online education increasing, they're proactively addressing their worries by scheduling eye exams for their kids. Digital eyestrain is an issue for a lot of children but also adults as screen time and video conferencing has increased significantly. This issue causes headaches and problems focusing and is therefore something we all need to be attentive to. In conjunction with the improving consumption, we're incredibly busy with product launches, including MyDay sphere and toric, which are being launched or relaunched around the world. MyDay has been in high demand for a long time, so it’s great to be selling these premium daily silicone hydrogel lens in an unconstrained manner. We're also successfully continuing our global launches of Biofinity toric multifocal and clariti's extended daily toric range. And lastly, MiSight is in launch mode, and I'll cover that in a minute. With all these activities going on and new offerings in the pipeline, we will remain extremely active for quite some time. Moving to some quarterly numbers, Biofinity and Avaira combined to be down 8% in the quarter, with strength noted in Biofinity toric and Energys. You may remember, Biofinity Energys is a very unique lens using digital zone optics to help alleviate eye fatigue from excessive screen time. It's a perfect fit in today's world, and it showed a nice pop, growing 4% in the quarter. Meanwhile, our silicone hydrogel dailies were down 11%, rebounding nicely as the quarter progressed, including growing in July, with notable strength in MyDay toric. With this activity, we've seen channel inventory rebound and expect to be back to pre-COVID levels by fiscal year-end. Moving to MiSight, the team has done an amazing job. As the only FDA-approved myopia management contact lens clinically proven to slow the progression of myopia in children, interest is incredibly high. We far outpaced our initial estimates with over 1,000 optometrists in the U.S. now certified to fit MiSight, with many more in process. With this success, we just launched an exciting multichannel direct-to-consumer advertising campaign, including partnering with well-known actress Sarah Michelle Gellar as our celebrity spokesperson. This initiative has already accelerated consumer interest in MiSight, and it's being received incredibly well by optometrists. What's most exciting is that we're creating a new category. Myopia management is in its infancy but is set to become a brand-new multibillion-dollar category, and we're at the forefront. Regarding the total addressable market, if we narrow the market to just 8- to 12-year-olds, which covers the FDA's approval for MiSight, we estimate the U.S. myopia management market to be around $1.5 billion from a manufacturer's perspective. The math behind this is pretty straightforward. In the U.S., roughly 40% of people are myopic, and we conservatively estimate the percentage of myopic children ages 8 to 12 to be 20% as many kids become myopic in their teenage years. There are roughly 20 million children between the ages of 8 and 12, so this equates to 4 million kids being myopic. All these kids would benefit from myopia management. However, based on household income and the current lack of insurance reimbursement, we estimate roughly half the kids are candidates. This creates a total addressable market of $1.5 billion in the U.S., assuming an annual price of $750 for a myopia management program such as Brilliant Futures, which includes the MiSight specialty lens and accompanying support, including training, geo-targeted marketing, and a dedicated myopia support specialist. Adding Europe and the rest of the Americas increases the total addressable market to roughly $2.5 billion, and adding Asia Pac, where the prevalence of myopia among young children is considerably higher, takes the total addressable global market well over $5 billion. These numbers do not include teenagers, so they may be conservative, but they appear reasonable for contact lens programs such as MiSight and ortho-k at this time. When looking at these estimates, you clearly get an appreciation for why we're so excited about creating this new category and why you're seeing optometrists now talk about pediatric optometry as a new market, similar to what you see with pediatric dentistry. And remember, everyone knows myopia needs to be corrected in order to be able to see, but more and more people are becoming aware that it needs to be treated to reduce the higher risk of serious eye diseases, including retinal detachment, cataracts, and glaucoma. Regarding sales, even with COVID challenges, our myopia management portfolio, including MiSight and ortho-k lenses, grew 15% this past quarter to $9 million. Within this, MiSight grew 35% to $1.6 million. With the U.S. MiSight launch now fully underway, we expect solid growth in Q4. One additional point to highlight regarding myopia management and specifically MiSight is the positive impact we're seeing from telemedicine. Myopia management consultations involve a lot of early-stage dialogue with parents that can easily be handled via virtual consultations, which is extra important today with COVID restrictions. These virtual consultations have been conveniently helping families understand what myopia is, how it progresses, and the critical need for treatment. To conclude on vision, let me touch on market data. For calendar Q2, the market felt the impact of COVID and was down 32%, while we were down 27%. With this outperformance, our global market share increased to 25%, and we posted record shares in all three regions, including strengthening our number one position in Europe. We also posted extremely strong New Fit Data, which bodes well for the future. This is a testament to the hard work of our team and the strong execution on our multiyear strategic investment plan. Regarding future market growth, the underlying dynamics driving our market remain in place and may actually be increasing with the macro trend of higher screen time. The key for our market remains myopia, where it's estimated roughly one-third of the world is now myopic with that number expected to increase to 50% by 2050. Combine this with the continuing shift to daily silicone hydrogel lenses, the trade-up from legacy hydrogel to silicone hydrogels, geographic expansion, and growth in torics and multifocals, and our industry has a bright future. Moving to CooperSurgical, we reported revenue of $129 million. Although down 24%, we solidly exceeded expectations in a challenging market environment. Even more encouraging, both the fertility and office and surgical business segments posted improving results as we proceeded through the quarter and into August. Within office and surgical, our flagship brand, PARAGARD, saw a strong rebound as offices steadily reopened. PARAGARD placement activity increased over the course of June and July, and we've seen that activity continue in August, so we expect a solid Q4. Elsewhere, we've seen deferred elective procedures steadily rescheduled, and our medical device sales rebounded nicely. In particular, our focus products are performing solidly, such as INSORB, our patented surgical skin closure device, and Endosee Advance, our direct visualization system for evaluation of the endometrium, looking for potential causes of abnormal uterine bleeding. These products were down only slightly for the quarter, and we expect stronger results moving forward, especially with Endosee Advance as it capitalizes on the trends of physicians and patients preferring an in-office setting to an OR visit. All this success is a testament to our R&D group's ability to continue developing innovative products and our hard-working sales teams. Moving to fertility. We were down 26% for the quarter, slightly better than expected. Fertility clinics have largely reopened around the world, and we're seeing some really positive trends. Patient flow is improving, and the market is starting to address pent-up demand, including through the use of telemedicine. With this, we believe we'll see IVF cycles return to normal in the U.S. and Europe by year-end, with Asia Pac following in Q1. Regarding products, we saw a nice rebound in our consumables such as media and pipettes as the quarter progressed, and our genomics business actually grew nicely in July. These trends continued in August, so this bodes well for our business to strengthen considerably in Q4. Moving forward, we'll continue to focus on in-office and virtual sales and marketing training sessions, adding sales personnel where appropriate, and expanding our product offerings. Fertility remains a long-term global growth business with very positive trends, so we'll continue investing in this space, supporting our market-leading position. In conclusion, our businesses are performing well, and we're optimistic we'll continue to see improvement, driven by our strong product portfolio, including some unique products like MiSight, Biofinity Energys, our ortho-k lenses, and Endosee Advance. With that, I'll turn the call over to Brian.

Thank you, Al, and good afternoon, everyone. Most of my commentary will be on a non-GAAP basis, so please refer to today's earnings release for a full reconciliation of GAAP to non-GAAP results. Our third-quarter consolidated revenues decreased 15% or 14% in constant currency to $578 million. Consolidated gross margin decreased year-over-year to 66.3% from 67.3%, primarily driven by lower PARAGARD sales and higher expenses associated with COVID, partially offset by positive product mix at CooperVision. CooperVision's gross margin decreased to 64.8% from 65.6%. CooperSurgical's gross margin was 71.5%, down from 72.4%. OpEx was down 5.8% year-over-year, resulting in consolidated operating margins of 23.2%, down from 28.4% last year. Despite the top-line pressures, our performance exceeded expectations as we effectively managed expenses, offsetting higher COVID-related costs. We did this while supporting our employees, funding higher MiSight and PARAGARD advertising programs, and maintaining investments in internal projects, such as upgrading our IT infrastructure. We will continue to closely monitor expenses, balancing the costs against investment opportunities. Interest expense for the quarter was $5.7 million, driven by lower interest rates. The effective tax rate was 14%, reflecting the geographic mix of income and lack of option activity. Non-GAAP EPS was $2.28 with roughly 49.5 million average shares outstanding. And the year-over-year FX impact for Q3 to revenue and EPS was a negative $3.3 million and a positive $0.03. Free cash flow was $68 million comprised of $113 million of operating cash flow, offset by $45 million of CapEx. Net debt decreased by $67 million to $1.75 billion, and our adjusted leverage ratio was 2.23 times. Given we're approaching the end of our multiyear capital expansion project, we remain very comfortable with our current and expected liquidity and leverage. Moving to guidance for Q4. We're guiding to consolidated revenues of $665 million to $693 million. This includes CooperVision at $500 million to $520 million, which is minus 2% to plus 2% on an as-reported basis or minus 4% to flat in constant currency. This incorporates our strong Q3 and tough comp from last year, which included 11% growth in Asia Pac from buy-in associated with the Japan VAT increase. For CooperSurgical, we're guiding to $165 million to $173 million, which is minus 9% to minus 5% as reported or minus 10% to minus 6% in constant currency. This also incorporates our strong Q3 and tough comp from last year, which included 12% fertility growth. Non-GAAP EPS is expected to be between $3 and $3.20. And with that, I'll hand it back to the operator for questions.

Our first question is from Larry Keusch from Raymond James. Please go ahead.

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

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

Okay, perfect. Just to follow up, can you discuss your current manufacturing capacity for MyDay toric? Additionally, there was about $22 million adjusted out of COGS for COVID this quarter, similar to what we saw in fiscal Q2. Does this suggest that the production lines remain idled? Where do you currently stand compared to our last call regarding when you expect those expenses to start decreasing in the fiscal fourth quarter?

Yes, certainly. From a production standpoint, we are in excellent shape at the moment. We are definitely doing well with MyDay, including MyDay toric. As mentioned, we have increased the number of production lines over the last few quarters, and production is progressing positively. We have maintained full production on MyDay and plan to continue at that level, as there is strong demand globally. Regarding the quarter's financial highlights, we did have some COVID-related expenses linked to actions we took when an employee was infected, which required us to respond accordingly. Additionally, we initiated a project for inventory control that required some production lines to be temporarily taken down, leading to some incurred costs. We do not expect to see similar costs in fiscal '21.

Our next question comes from Larry Biegelsen with Wells Fargo. Please go ahead.

Congratulations on a good quarter in a tough environment. Al, let me start with CVI. First, how much should restocking contribute to fiscal Q3? Do you expect that to continue in Q4? Will you provide us with the growth rates in July and August? I heard you mention that June and July were down low single digits, but could you provide specific monthly growth rates? Additionally, on the Q2 call, you indicated that you would be flat to slightly up for CVI in Q4. Now you're guiding to a decline of 4% to flat on a constant currency basis, despite the fact that you performed better in Q3 than expected. Why the slightly lower guidance for Q4? I’ll stop there given the multipart question.

Thank you, Larry. It was indeed a good quarter, and I appreciate that. Regarding the restocking, it's a bit challenging to assess when visiting doctors' offices. However, I believe it's accurate to say that we experienced around half of the restocking during this past fiscal quarter. For fiscal Q3, I anticipate recovering the remainder of the stocking we missed in Q2 during Q4. Looking at the months of June, July, and August, June was down 3% and July was down 2%. I won't provide specific monthly figures moving forward as I do not believe it's beneficial, especially after the COVID situation. However, I will mention that both CooperVision and CooperSurgical showed year-over-year growth in August on a constant currency basis, which is positive news. For the Q4 guidance related to CooperVision, my earlier comment about striving to return to flat remains. Our guidance suggests a decrease of 4% to flat on a constant currency basis, with a slight increase without currency effects as reported. This is partly because we've seen consumption rise, even faster than we anticipated, which is excellent news. This surge did lead to some channel inventory fill being pulled into Q3. So, while we initially estimated $5 million to $8 million for Q3, we actually ended up with an additional $10 million in channel fill that shifted from Q4 to Q3, making it harder to report a stronger Q4. Nonetheless, I welcome the increase in consumption and the overall improvement in the market.

Our next question comes from Matthew Mishan with KeyBanc. Please go ahead.

Al, I just want to get back to the ECPs. And I think you mentioned that parents were proactively scheduling eye time. Your performance seems to be outpacing the patient visits to the ECPs. Kind of what do you think the capacity for ECPs are at versus a pre-COVID level? And like down low single digits, it just seems like you're well ahead of where the ECPs are with visits.

I believe ECP offices are currently open, and the majority of them are operational. There are varying levels of patient engagement, with a significant number returning for new fittings, which is positive. While they may not be back to historical levels, the doors are open, patients are coming in, and new fittings are happening. Our performance is improving, largely due to market share gains, which we observed in calendar Q2 and continue to see. This improvement aligns with our strategies over the past couple of years. I understand some may have felt frustrated with my focus on distribution investments and product launches, but when you look at our achievements in enhancing key account relationships and improving our distribution capabilities to deliver products directly to customers' homes, along with expanded manufacturing, we are in a strong position. The market is rebounding, and we are gaining share. Our unique products, such as Biofinity Energys and ortho-k lenses, strengthen our position in this growing market. Additionally, we are launching MiSight and having many discussions with optometrists, which is generating a positive ripple effect, allowing us to discuss our other products as well.

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

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

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

So Al, I wanted to discuss your comment about August being slightly up for CVI, indicating a positive trend. I apologize for the barking dog interrupting my question. With August showing an increase, but the quarter projected to be flat to down by 4%, should we interpret this as a cautious outlook? Additionally, I'm intrigued by the Eyecare Business data that reported declines of 4% to 5% in June and July, followed by an even steeper decrease in August. Conversely, your numbers seem to defy that pattern. Is there any backlog from June and July contributing to this that might start to normalize over the next few months? I would like your thoughts on balancing backlog with normalized demand.

Yes, the backlog is providing some support since we noticed a reduction in inventory during Q2. With consumption increasing again, distributors and retailers are now ordering products to restock their shelves, so we haven't noticed a decrease in the marketplace at this time. In terms of new fittings related to our products, we are taking market share and it's ongoing. I can't comment on the broader marketplace, but things are moving positively for us. Looking ahead to Q4, I'm hesitant to be overly conservative for two reasons. First, COVID is still present, and we can expect potential disruptions globally. Second, we performed a 7% growth last quarter, which included some buy-in last September in Asia Pacific due to the VAT increase in Japan. We'll see how things unfold. I'd prefer to under-promise and over-deliver, but for now, I believe our guidance is reasonable.

Our next question is from Anthony Petrone with Jefferies. Please go ahead.

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

Sure, I'll take the first question and give my thoughts on the second, and Brian can chime in if he has anything to add. It's been challenging on the back-to-school front. A few months ago, we expected it to be nearly non-existent. However, back-to-school seems to have transitioned into more of a back-to-learning phase, where we are noticing an increase in online learning. Many kids are experiencing issues related to this, such as headaches and digital eye strain, prompting parents to reach out to optometrists for advice. The decline we anticipated didn't occur; in fact, things are better than we expected, and it appears to be stable, especially with parents concerned about their children's eyesight. Regarding margin expansion and expense management, I believe we executed well. Brian and the team did a commendable job of controlling expenses, both naturally and through deliberate measures. While I’m not sure there’s much more to be done in this area, we are in a solid position with our expense management. Brian can elaborate on that.

Yes. No, there's not much to add to that. I mean we were down $5 million sequentially, $53 million more revenues. We'll have some MiSight investments that will hit us in Q4. But I think we're in a good place and nothing really to add to Al.

Our next question is from Chris Cooley with Stephens. Please go ahead.

Congratulations on a solid third quarter. I would like to shift focus to CooperSurgical. Could you discuss the growth you've observed in PARAGARD for the quarter? Additionally, as we consider CSI as a whole and PARAGARD heading into the next fiscal year, is this growth in line with historical expectations? Are you noticing a natural increase? I'm interested in your thoughts on the long-term normalized growth rate for PARAGARD. Also, regarding CooperVision and following up on Matt's earlier question, Energys has been available for some time and is a great product. Should we anticipate increased marketing efforts to reintroduce it to practices? I’m curious about any additional insights into the heightened focus on Energys.

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

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

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

At the end of the day, I believe CooperVision is the most active company in the market today in terms of new products. I expect this level of activity to continue over the next several years. Regarding sales, we primarily focus on fitters rather than online retailers, particularly those not fitting products. Initially, we may have faced some challenges, but as the market rebounded in June and July, we saw growth with fitters, key accounts, and buying groups. We achieved record market share across all regions globally, driven by our strengths in fitting relationships, key accounts, and new product launches, which are more frequent and better than anyone else in the marketplace. Our distribution capabilities have improved significantly, allowing us to ship products directly to homes. We have also focused our resources more on manufacturing, which has benefited us post-COVID. All these strategic investments are now paying off and contributing to our market share gains, suggesting that our growth will be sustainable.

That's really helpful. Shifting over to MiSight, I understand we're in a COVID environment, but it seems like you might fall short of that $7 million to $8 million target you mentioned. I know everyone loves Sarah Michelle Gellar, but reaching $25 million from around $6 million seems like a big leap. I realize there's significant investment planned for Q4 as well, but what gives you confidence? What have you observed in some of those early accounts regarding uptake? And how do you foresee this progressing for the other 1,000 optometrists to ensure you can achieve that $25 million in 2021? Are you still confident about reaching $50 million in 2022?

When we project $25 million for next year, our expectations are grounded in the performance we've observed in other markets where we've successfully launched the product, such as Spain, the U.K., and Australia. While our advertising strategies differed in those locations, the growth rates we experienced there are what we're anticipating for the U.S., Canada, and beyond. I believe we have the potential to exceed that estimate due to our initiatives with Sarah and our direct-to-consumer programs, along with a notable increase in interest in new fits. However, our projection isn't based on extraordinary growth; it simply reflects a strategy that mimics what has worked in analogous markets. I can confidently affirm the $50 million target as we analyze the market size. As MiSight becomes a standard in optometry and more practices begin to explore pediatric optometry, we expect significant acceleration. While the market size might appear large to some, it's important to consider that our product is priced significantly higher than standard contact lenses, and opticians can benefit substantially from selling it. This marks the creation of a new category in optometry; unlike pediatric dentistry, where treatments like braces can sustain a practice, optometry has historically focused on glasses. However, with increasing awareness of myopia and the advent of solutions like MiSight and ortho-k, we can expect the emergence of successful pediatric optometry practices. This shift will contribute positively as we progress. Therefore, I am optimistic about the potential to achieve $25 million, with the possibility of reaching or surpassing the $50 million mark next year.

Our next question comes from Joanne Wuensch with Citibank. Please go ahead.

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

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

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

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

I wouldn't say it's an unusually tough comparison, but we did have the buy-in in Japan, which does make it a challenging comparison. More importantly, COVID is still a factor. It's still present, and there could be spikes and issues related to it. I don't want to imply that we're being overly cautious in our guidance, as that wouldn't be accurate. Nevertheless, a 7% growth is not an easy comparison. Looking at Q1, that's a different situation; Q4 is more of a normal and challenging comparison from last year. I don't want to overemphasize that, but it's one reason we aren't projecting growth in Q4.

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

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

And our last question comes from Steven Lichtman with Oppenheimer. Please go ahead.

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

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

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

Yes. Fertility is performing really well, and we're gaining significant market share in that area. Even though our numbers weren't great, we are still making good progress in fertility. The one challenge we face is in the Asia Pacific region, which hasn't rebounded as quickly as Europe and the Americas regarding the opening of fertility clinics and the volume of traffic. However, I'm optimistic about the Americas and Europe, where we have a clear view of clinics opening and increasing foot traffic, as well as our market share gains. In contrast, Asia Pacific seems to be lagging a bit. For instance, in India, where we generally see strong growth, only about 30% to 35% of IVF clinics are currently open. I believe that will change, and those clinics will eventually open, but I mentioned that it might take until Q1 before we see patient cycles return to pre-COVID levels.

And our last question comes from Robbie Marcus with JPMorgan. Please go ahead.

To start, could you clarify the PARAGARD growth for the quarter, the amount of destocking in fiscal 2Q, the dollar amount of stocking in this quarter, and what you expect for guidance in the fourth quarter?

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

For PARAGARD, yes, the PARAGARD number for Q3 was $34 million.

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

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

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

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

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

Thank you for joining us today. I'm pleased to see an uptick in consumption this quarter, which may differ from earlier expectations. We have several unique offerings that align with positive market trends. For instance, products like Biofinity Energys are tapping into the increased screen time trend. Additionally, MiSight addresses myopia management in children, alongside our ortho-k products and innovations like Endosee Advance. Furthermore, fertility is becoming an important trend that is moving forward positively. We currently have our products positioned well in the market, and I'm optimistic about our direction. We'll conclude here, and I wish everyone a wonderful Labor Day weekend. I look forward to our next earnings call in December.

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