The Cooper Companies, Inc. (COO) Q1 2018 Earnings Conference Call Transcript

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The Cooper Companies, Inc. (NYSE: COO)Q1 2018 Earnings Conference CallMarch 8, 2018, 5:00 p.m. ET

Contents:

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  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and welcome to the First Quarter 2018 The Cooper Companies Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct the question-and-answer session and instructions will follow at that time. If anyone should require assistance during the conference, please press * and then 0 on your touchtone telephone. And as a reminder, this conference call is being recorded.

I would now like to turn the call over to Ms. Kim Duncan, Vice President, Investor Relations. Please proceed.

Kim Duncan -- Vice President of Investor Relations

Good afternoon, and welcome to The Cooper Companies First Quarter 2018 Earnings Conference Call. During today's call, we will discuss the results included in the earnings release along with the updated guidance and then use the remaining time for Q&A. Our presenters on today's call are Robert Weiss, Chief Executive Officer; and Al White, Chief Financial Officer and Chief Strategy Officer.

Before we begin, I'd like to remind you that this call is contained forward-looking statements, including all revenue and earnings per share guidance, and other statements regarding anticipated results of operations, market, or regulatory conditions and integration of any acquisitions or their failure to achieve anticipated benefits.

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Forward-looking statements depend on assumptions, data, or methods that maybe incorrect or imprecise and are subject to risks and uncertainties. Events that could cause our actual results and future actions of the Company to differ materially from those described in forward-looking statements are set forth under the caption Forward-Looking Statements in today's earnings release and are described in our SEC filings, including Cooper's Form 10-K, all of which are available on our website at cooperco.com. Should you have any additional questions following the call, please call our investor line at 925-460-3663 or email ir@cooperco.com.

And now, I'll turn the call over to Bob for his opening remarks.

Robert Weiss -- Chief Executive Officer

Thank you, Kim and good afternoon everyone. Welcome to the 2018 First Quarter Conference Call. Before getting into the quarter, as we announced earlier today, I will retire as President and CEO on April 30th of this year while remaining on the Board of Directors. Al White, most of you know as our CFO, Chief Strategy Officer and CEO of CooperMedical, the holding company of CooperSurgical, will become the new President and CEO effective May 1st and I will work with him, transitioning the role through the end of the calendar year.

After a fantastic 40 years plus, The Cooper Company at Cooper Companies, the last ten years plus as CEO, it's time for me to spend more time with my family along with traveling and trying to get a little better at golf. As many of you know, I've spent a lot of time working on succession planning over the last ten years. My goal has been to train and prepare a deep leadership bench such that, when the time came to step down, you would be able to promote highly trained executives from within. I'm happy to say that Al fits this description and I have complete confidence that he is the right leader for the future of The Cooper Companies.

Over the past ten years, I've had the privilege of leading the best team in the medical device industry and building a great company. At CooperVision, we saw a trade-up to a new material called Silicon Hydrogel in all three of our modalities and acquired a little company called Soflon that helped put us on the map as the only company with a low-cost one-day silicon hydrogel family of products. At CooperSurgical, we expanded outside the United States and became the largest IVF player globally through the acquisition of Origio and continue to grow our offerings from there with several acquisitions around the world and we recently completed the PARAGARD acquisition. I am proud of our accomplishments and the passion of our employees so I want to thank them for their dedication and hard work and for a fantastic 40-plus years.

With that, let me turn to performance. For the quarter, we reported $590 million in consolidated revenues, up 18% year-over-year and non-GAAP earnings per share of $2.79, up 45% year-over-year. CooperVision posted Q1 revenues of $445 million, up 14% as reported, up 8% pro forma. The LE siliconized gel lenses drove growth up 38% pro forma, as did Biofinity and Avaira combined, up 9% pro forma. CooperSurgical posted revenues of $145 million, up 32% as reported, down 6% pro forma.

Moving to the details, this was a solid quarter for CooperVision with growth in all regions, including the Americas up 3%, EMEA up 9%, and AsiaPacific up 15%, all pro forma. As expected, growth in the Americas was in the low single-digits. However, we expect that to be stronger in Q2 and the remainder of the year. Regarding EMEA and AsiaPac, both had very good quarters and we continue gaining share in both regions.

Overall, revenues continued to be driven by our siliconized gel lenses, led by our Clarity and MyDay in the daily space and Biofinity in the monthly space. We are continuing to expand our offerings geographically, including the launch of MyDay Toric in the United States. The feedback has been very positive and we believe the launch will help accelerate the 1 Day Toric growth while also helping drive further adoption of MyDay Sphere. Our Clarity 1 Day products also continues to perform extremely well.

Moving to other products, our Biofinity and Avaira family of lenses combined to grow 9% pro forma. Biofinity continued to perform very well, with diversified growth around the world. Avaira declined slightly as our focus remained on transitioning wearers to our upgraded Avaira Vitality lenses, which we anticipate completing by the end of this year.

Turning to product categories, we remain global leaders in Toric, which grew 9% pro forma, driven by Biofinity, MyDay, and Clarity. We continue to believe that the Toric market will grow fastest in the overall market and we will share in that growth, given our strong portfolio and recent addition of MyDay Toric in the U.S. multifocal grew 5% pro forma, with strength coming from Biofinity and Clarity.

Turning to the global market, the soft contact lens market, for Calendar Q4, we grew 5% with the market up 5%. This included growing fastest in the market in AsiaPac, up 15% versus the market up 7% and EMEA up 10% versus the market up 6%. The Americas decline 3% with the market up 4% on a very difficult 12% comp for CooperVision versus 5% for the Americas market. Bimodality CooperVision grew single-use lenses 11% versus the market up 10%. And, finally, CooperVision non-single use lenses grew 3% while the market grew 1%. On a calendar-year basis, we continue taking share up 7% versus the market up 5%. Going forward, we are still targeting 4% to 6% market growth and we expect to continue growing faster than the market.

Moving to CooperSurgical, we reported revenue growth of 32% with revenues hitting an all-time high of $145 million driven by our acquisition of PARAGARD. On a pro forma basis, we declined 6%, mostly due to the expected year-over-year declines with PARAGARD, which we discussed last quarter. As a reminder, we purchased PARAGARD on November 1st, 2017 and inherited significant channel inventory, which was built prior to our acquisition. Inventory levels returned to normal during Q1 so future growth should now more closely follow market demand.

Further on PARAGARD, as you may recall from our prior conversations or discussions, there was no direct sales force supporting the product for approximately one year before we acquired it. We began hiring sales reps soon after the acquisition and we will have roughly 40 new direct-sales reps by the end of this month. Given this, we expect to see a full quarter of positive impact beginning in our fiscal third quarter. So, overall, we remain very positive on PARAGARD. It's the only non-hormonal IED or long-acting reversible form of birth control on the U.S. market and we continue to believe we will do well as we communicate the product's benefits.

Excluding PARAGARD, our office and surgical business grew 3% in line with expectations. Regarding fertility, the fertility solutions part of our business, which includes products like median medical devices continued performing well up 8%, but our genetic testing business declined 35%.

We entered the genetic testing markets several years ago and business was performing really well until we began experiencing significant competitive pricing pressure last year as discussed on our last earnings call regarding margins. As you know, we focus on sustainable business models, which has meant allowing some businesses to exit rather than matching highly unprofitable pricing. Having said that, genetic testing remains an important part of the genetic fertility process and we plan to remain a participant as it ties to our fertility solutions. Given our focus will remain on running a well-managed operation, our results in genetic testing will likely continue to drag on our fertility category through the end of this year. On the positive side, our fertility solutions continue to perform well and we believe our product portfolio, combined with the market trends, will continue to drive positive results.

In conclusion, I want to express my appreciation to our employees for their hard work and dedication. And, with that, I'll turn it over to Al.

Al White -- Chief Financial Officer and Chief Strategy Officer

Thank you, Bob, and thanks for the comments earlier. Before getting into the numbers, I'd like to share a couple thoughts on the CEO announcement. Needless to say, I'm extremely excited to take on this role. It's an extraordinary honor to succeed Bob and I'm grateful for the trust and confidence the Board of Directors has placed in me. Regarding Bob, he's been an incredibly important part of the success of Cooper for an amazing 40-plus years and an amazing mentor to me. He became CEO a little over ten years ago and, since that time, our revenue has increased from slightly under $1 billion to our current guidance for this year, exceeding $2.5 billion. Our stock has responded accordingly, with an annual return of roughly 18%. Those are obviously very impressive numbers and I'm also happy to add that Bob has built a very nice management team that I'm fortunate to inherit so I look forward to continued success.

With that, let me turn to some numbers. Most of my commentary will be on a non-GAAP basis, so please refer to today's earnings release for a full reconciliation of GAAP to non-GAAP results. Bob covered revenues so let me focus on the rest of the financials and guidance. This was a very strong quarter for gross margins with our consolidated gross margins improving to 67.5% up nicely from 62.9% last year. CooperVision's gross margin was a robust 67.1% up from 63.1% last year, with roughly half driven by currency and the other half favorable product mix and general manufacturing efficiency improvements. CooperSurgical's gross margin also improved significantly to 68.8% up from 62.2% last year driven primarily by the addition of PARAGARD.

Regarding expenses, consolidated operating expenses grew 18% in the quarter, slightly less than revenue. Expense growth was driven largely by the addition of PARAGARD along with sales and marketing investments throughout the company. We continue to enhance our sales force by selectively hiring around the world within both CooperVision and CooperSurgical. We also saw increased investments in distribution, where we continued to upgrade our infrastructure along with hire investments in R&D within CooperSurgical as we look to upgrade and enhance certain legacy products.

Moving to operating income, we grew an impressive 42.9% with operating margins improving to 27.6% from 22.8% last year. Both businesses reported strong operating margin improvement driven by gross margin improvements. Low operating income, we reported $16.7 million of interest expense, a $3.1 million FX gain and an effective tax rate of 7.3%. Regarding taxes, note that our GAAP results include a $202 million net charge primarily related to the U.S. transition tax as part of the recent enactment of the new U.S. tax legislation. Although fully accrued in this quarter, any actual tax payment will be made over the next eight years with a back-end loaded payment schedule. I should also add that we're very similar to most other multi-national companies in that we continue to analyze the new tax reform act and work through information such as the details around historical earnings, tax credits, and so forth to finalize our estimates. Please seen our 10-K and upcoming 10-Q for more information.

Non-GAAP EPS was $2.79 with roughly 49.6 million average shares outstanding. We posted $25.2 of negative free cash flow for the quarter with roughly $26.2 million of operating cash flow offset by $51.4 million of CapEx. Our cash flow was negatively impacted by $52.7 million from the PARAGARD acquisition, primarily associated with the initial bill of receivables which normalizes in Q2 and a payment to the U.K. Taxing Authority of $2 million associated with the ongoing dispute over the transfer evaluation of certain intellectual property associated with the Soflon acquisition. Total debt increased roughly $1.23 billion to $2.403 billion primarily due to acquisitions led by Paragard.

Moving to guidance, we're raising Fiscal 2018 consolidated revenues to $2.51 billion to $2.56 billion. This includes increasing CooperVision's revenue guidance to $1.865 billion to $1.9 billion or roughly 6% to 8% pro forma growth to reflect our Q1 performance and currency. CooperSurgical's revenue guidance is moving to $645 million to $660 million, which equates to roughly flat to 2% pro forma growth to reflect updated thinking on genetic testing which Bob highlighted earlier. Within office and surgical products, PARAGARD revenues were $33 million this past quarter, meeting expectations.

Revenues would have been $34 million if not for a reclassification of certain distribution expenses against revenues. This was just a reclassification and, thus, did not impact operating profits, but it did reduce revenues and will do so going forward. Updating our expectations with this in mind, we expect roughly $165 million in PARAGARD revenues for the year, which remains mid-to-upper single digit revenue growth from Q2 to Q4. That's driven by last year's price increase and our recent investments, including the new sales force.

Consolidating operating margins are now expected to be around 28.5% for the year, supported by strength in both businesses along with a more positive impact from PARAGARD than initially forecasted. Interest expense is expected to be much higher at around $80 million, which assumes three additional 25-basis-point rate hikes by fiscal year end. Regarding taxes, we're forecasting a range of 9% to 10% for the year, reflecting our current analysis incorporating the recently enacted tax reform.

On FX, we have seen an overall favorable move in currency since we last reported earnings. We're now forecasting a positive impact to revenues of roughly $72 million and a positive impact to non-GAAP EPS of $0.78, both on a year-over-year basis. Incorporating all these items, we're raising our non-GAAP EPS for Fiscal 2018 to $11.70 to $11.90 based on 49.8 million shares outstanding. Within this guidance regarding Q2, we expect strength and revenues to be offset by higher investment activity, especially with respect to PARAGARD and an effective tax rate in the 10% to 12% range, resulting in Q2 non-GAAP EPS being just slightly higher than Q1.

Lastly on guidance, we continue to expect strong free cash flow this year. As discussed, Q1 was low due to the U.K. tax payment and the one-time receivable billed from PARAGARD but we expect to hurdle the PARAGARD item and still expect free cash flow to be similar to last year, excluding the tax item.

With that, let me conclude by saying we remain focused on expanding our businesses and gaining global market share while delivering consistent solid financial results. This quarter was another step in that direction and we look forward to reporting results and we work through the rest of Fiscal 2018.

With that, I'll hand it back to the operator for questions.

Questions and Answers:

Operator

Thank you. Ladies and gentlemen, at this time, if have a question, please press the * and the number 1 key on your touchtone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the # key. And we do ask that you limit yourself to one question and one follow-up question.

Our first question is from the line of Larry Keusch of Raymond James. Your line is open.

Larry Keusch -- Raymond James -- Analyst

Thanks. Good evening, everyone, and congratulations, Al, and congratulations, Bob, on your retirement. So, I guess I just want to start, if we could, on Americas and maybe, Bob or Al, talk a little bit again about the dynamics that are impacting your business and, I guess, within that discussion, could you talk a little bit about what you guys are seeing and doing within the independent optometrist channel versus the private label channel? And then I have a follow-up.

Robert Weiss -- Chief Executive Officer

Sure, Larry. It comes back to we continue to be happy with the on-eye performance in the U.S. business. We're in the middle of just starting the launch and rollout of MyDay Toric, which will serve to, if you will, build more momentum with MyDay and our 1 Day show presence in the U.S. And, importantly, we had much tougher comps than the industry in the quarter with 12% in the prior year so, when we look at a two-year stacking basis, we feel good when we look at trailing 12 months, we feel pretty good about that, also -- 3% versus 4% for the industry. I'd be remiss to say that the gray market hasn't been a factor over the last couple years, particularly as the dollar was stronger and stronger and now, with the dollar starting to go the other way -- at least for the time being -- it serves as a minimizer of those companies that do reach internationally or outside the bounds of the United States for product. And I won't get into any more specifics but suffice it to say that's been a key factor in the reconciliation between our revenue out the door into the Americas and our on-eye performance and, therefore, we feel real good about that.

As far as the independents versus private label, private label has done very well for us -- independents are doing well. We have something for both sides of the aisle. Private label, we would expect to do even better as we complete a couple things -- the halo effect of MyDay so that there is a Toric to go along with the Sphere -- and the Avaira transition to Avaira Vitality, which we expect to pretty much wrap up by the end of the calendar year. So, those will afford us better catalysts going forward.

Larry Keusch -- Raymond James -- Analyst

Okay. Perfect. And then, second question, and correct me if I'm doing the math wrong here, but I think FX at the last point in time was $0.38 -- now it's $0.78 so that's a $0.40 delta and EPS guidance went up about $0.30. So, A.), is that correct and is that really just a function of really investing more in the business? Just trying to figure out the disconnect there. I would have thought EPS would have been up more.

Al White -- Chief Financial Officer and Chief Strategy Officer

Yeah, Larry, I'll take that one. You're correct -- so it was $0.38 up to $0.78 so it was a positive $0.40. About $0.11 of that was in Q1 so it was billed into those numbers. When you look at the back half of the year, you can reconcile in past guidance to current guidance. A couple things to keep in mind there: as you know, FX as a positive, there's a little bit the medical device taxes, as an example, the tax rate because it was low in Q1, it's a neutral if you will. Interest expense is one of the big negatives there so, if you look at we assumed here three additional rate increases, if you will, occurring here in March, June, September, so that had a pretty big negative impact taking our interest forecast guidance from $68 million up to $80 million. So, between that and some investments in the business and so forth is where you net out to the new mid-point.

Larry Keusch -- Raymond James -- Analyst

Okay. Perfect. Thanks, guys, appreciate it.

Operator

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

Larry Biegelsen -- Wells Fargo -- Senior Analyst

Hey, good afternoon, guys. Thanks for taking the question and I'll echo congratulations for both Bob and Al. Bob, we'll miss you. So, I guess I'll ask two high level questions. One, Bob, you and the board probably knew this was coming when you named Al the CFO a year ago so the question is why now the change? And just, second, Al, any early thoughts on how you might shape the strategic direction, your priorities? And just, lastly, Al, your feeling on keeping CSI and CVI together? Thanks for taking the questions.

Robert Weiss -- Chief Executive Officer

Well, Larry, to be honest with you, probably the single biggest factor was I held my executive meeting in Kona, Hawaii in January. I was not looking for a condo -- when I came back from there, I owned a condo. And I kind of like Hawaii -- I got married there almost 50 years and so we've always gone back and started reflecting on the fact that maybe it's time to take a victory lap and then enjoy a few places of the world. I like traveling. My golf game stinks -- I probably can't do much about the latter part -- but it's time to... I've had a lot of fun developing a solid bench and I'm highly confident that the players coming behind me are better than I am so why not upgrade?

Al White -- Chief Financial Officer and Chief Strategy Officer

Sure, Larry, a couple things. You look at priorities, obviously, I've been here 12 years and sat next to Bob almost that entire time so a lot of the activity we've done over the years, the two of us have done together -- at least been joined hip to hip. When I look at where we are today and where we're going forward, we have a great company, we have a great culture here -- definitely want to keep that going. I'd like to get out and see the employees and spend time with the employees and customers -- I have more of a sales background than Bob has so I'd like to get out and spend a little time with some of the customers and talk to people out there so I'll spend time doing that. But, at the end of the day, I want to make sure that we meet and beat the guidance that we provided today. We've positioned ourselves for a strong 2019 and for the future and stay laser-focused on delivering long-term shareholder value because that's what we've done in the past and that's certainly what we're going to do in the future.

So, that's the way I look at it. With respect to CooperVision and CooperSurgical, two great businesses -- I'm very fond of both of them, I've spent a lot of time in both of the businesses -- and I would certainly expect us to keep both businesses together and continue to drive consolidated success.

Larry Biegelsen -- Wells Fargo -- Senior Analyst

Thanks for taking the questions.

Operator

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

Jeffrey Johnson -- Robert W. Baird -- Senior Research Analyst

Thank you. Good afternoon, guys, and I guess I'll just echo the same exact thoughts. But, Bob, it's truly been a pleasure for the last 15 years that I've been in the business and the 10 years being CEO for you. It's been impressive what you've accomplished and I wish you nothing but the best. And maybe moving into just a couple questions. Congratulations to you as well, Al -- I didn't mean to leave you out on that. But, when I look at the CVI growth, 6% to 8% guidance for the year, you do 8% in the first quarter, the comps do get easier throughout the year, just wondering how you're thinking about CVI over the balance of the year? It seems like there could maybe even be some upside to that constant currency guidance. And the 8% you did this quarter, is that organic? I know you had a couple small deals in there -- I've been getting questions from people how much they contributed -- but I think they're less than 50 basis points. Any color you could provide there would be great.

Robert Weiss -- Chief Executive Officer

Yeah, that 8% is a pro forma, which is organic currency. And we came out of the gate very solid, exceeded our expectations so, yeah, there's some upside there. Of course, in our guidance, we've upticked it also which is reflective of foreign exchange. We're happy with the direction we're taking with the rollout of MyDay Toric into the U.S. and we're also very happy with the progress we're making in the transition from Avaira to Avaira Vitality which, of course, probably more a bottom line play and a gross margin play than it is a top line, but we've been on the top line in a flat mode with that transition from Avaira to Avaira Vitality so we're optimistic that we'll get some momentum as we complete that transition post-2018. That will serve better in the post-2018 period.

Al White -- Chief Financial Officer and Chief Strategy Officer

Yeah, and I'll just tack on a couple quick ones to Bob. 8% was a strong quarter. We did very well this quarter. The actual number was 7.6% so it rounded up to 8%. But, Jeff, on your point on the acquisitions, too, we acquired PARAGARD at the beginning of December so, if you look at our specialty blends business, if you will, which is comprised of those acquisitions you're referring to, it was only about $5.8 million in revenues. It did grow 13% so low double-digits but it had a very small impact on the overall CooperVision numbers -- those were very strong stand-alone organic growth numbers, if you will.

Jeffrey Johnson -- Robert W. Baird -- Senior Research Analyst

Okay, thank you. That's helpful. And then maybe one follow-up, a high level. The FTC workshop yesterday, would love to get maybe just high-level thoughts -- good, bad, indifferent -- that you heard in there? I did think one thing I heard on the private label side that was interesting was some of these retailers now using private label instead of a way to lock in, maybe, prescriptions in their own offices but now using it as a way to market a good product -- a Kirkland brand or something looks good for the Kirkland brand, for the Costco brand -- so how important is it? Is the importance of your private label business actually going up and should we look at private label as a little bit of a risk to you guys or still as a nice big opportunity over time? Thanks.

Robert Weiss -- Chief Executive Officer

Yeah, I think highly of our private label business and it's not something you could replicate easily. It is incredibly complex by way of skews and how you manage that so it is a barrier to entry. As companies become more global, we get tighter and tighter with partnership arrangement with large global players so it's extremely strategic. There's nothing that came through the FTC workshop that I see as particularly negative. A lot of it was the same repeat on the RX that the patient has the right to and that debate continues between certain retailers and the independents as anything.

As far as the large retailers, I think they love private label and they love the ability to put their own name on it. There's a lot of great names out there that are afforded because Cooper has a broad product line and is willing to private label the broad product line, whether or not it's top name brand like a Biofinity or Clarity or MyDay, it doesn't really matter -- there's a lot of retailers that think highly of their own names and taking a quality product into their own name. So, I think it's great barrier entry and a great key part of our story.

Operator

Thank you. Our next question comes from the line of John Block of Stifel. Your line is open.

Jon Block -- Stifel -- Managing Director

Great. Thanks, guys. Good afternoon. I've got two. Let me just ask the first one. I guess I just want to turn a focus on that competence in the U.S. rebounding. I believe some of that's the easing comps maybe a bit, the MyDay Toric launch, but anything else that you guys see out there in front of you that plays into your confidence that that CVI Americas growth rate accelerates in the coming quarters? And then I've got a quick follow-up.

Robert Weiss -- Chief Executive Officer

Yeah, there's no doubt that the comps, particularly after the second quarter -- there's still some degree of a comp in the second quarter -- but, post-second quarter, the comps are very neutralized. There's also no doubt that some of the gray market activity will create anomalies so part of my reason for being pretty bullish is we're going to have some pretty easy comps in the Americas in certain of the quarters post the second quarter so there are anomalously easy, if you will, compared to anomalously hard over the last two quarters so that plays into it. But I think the combination of the transition from Avaira to Avaira Vitality, which has been a sticking point, particularly in the middle of the retailers -- the private label part of the business -- the combination of the halo effect of MyDay and MyDay Toric rolling into the market and the skewing or evening out of the bumpiness brought about by the gray market. Those three leave us a lot more confident about the future.

Jon Block -- Stifel -- Managing Director

Got it. Very helpful. And then the second one, just to shift over to PARAGARD, Al, $161 million revs, not $170 -- I understand that's accounting but still lower -- and you also talked to investments with direct reps, yet you did allude to a more favorable, I believe, margin profile relative to initial expectations so what's allowing you to achieve that? In other words, that more favorable margin profile in light of the slightly lower revs and the investments you guys are making? Thanks, guys.

Al White -- Chief Financial Officer and Chief Strategy Officer

Yeah, on the revenue side, you're right -- it's really just an accounting adjustment. So, there were certain distribution expenses that were being accounted for historically within operating expenses, those moved to a contrarevenue account and they reduced the revenue so that did not impact the operating profits. So, from that perspective, if you look at it on the same basis from when we talked beforehand, very, very similar. At the end of the day, the profits on that business are very strong.

And we talked about that, we guided to certain numbers -- we guided conservatively is what we did, in retrospect -- so running that business as a business that we're going to invest in, that we're going to look to grow and so forth was part of our plans all along so there's nothing additional there. We have done a nice job in terms of hiring people. We're going to have 40 reps by the end of this month on the streets selling. Probably two-thirds of those reps are old PARAGARD reps so they're going to be able to get going fairly quickly. So, anticipating an OK second quarter, some acceleration improvement as we get Q3 and Q4 and that helping to drive additional bottom line profitability.

Operator

Thank you. Our next question comes from the line of Brian Weinstein of William Blair. Your line is open.

Brian Weinstein -- William Blair -- Principal

Hey, guys, thanks for taking the question. First, maybe we can start on APac and you talk about the strong growth there. You break that down by geography and product -- obviously, you've had some new product launches -- but can you give us a little bit of context around that and what we should be expecting from APac for the year?

Robert Weiss -- Chief Executive Officer

Yeah, APac has continued and will continue to perform well. A lot of that is we're hitting on all fours there or all cylinders there. In Japan, we're doing well with the whole MyDay family as well as some of our existing franchise products, Biofinity, and specialty Torics, if you will. I probably shouldn't use the word "specialty" when I talk about Torics and multi-focal anymore, but basically compared to Sphere, they're also viewed as specialty soft lenses.

The rest of AsiaPac, particularly China where we have a lot of momentum now, is the process of getting new products with the registration process that are coming onto that market with a lot of force behind them. So, we're putting up... Chinese market is a stellar market growing north of 16% and we're growing much faster than the market by multiples, if you will, so that's a catalyst. nd then private label, as we reach around the world, there's certain large global retailers that are also moving into the AsiaPac theater so a lot of good things going on and so I would expect solid numbers to continue.

Jon Block -- Stifel -- Managing Director

Okay, great. And then a follow-up, you've talked about the positive dynamics in the back half of the year in the Americas, but can you talk a little bit about the competitive landscape -- Bausch, seems like they've launched some new products recently, outcome stabilizing in both of those companies appear to be launching additional products later on this year -- so can you give us your thoughts on what that competitive situation looks like and how that factors into how you think about Americas growth for the rest of the year? Thanks.

Robert Weiss -- Chief Executive Officer

Yeah, the numbers that I saw from Bausch were underwhelming. Clearly, they showed three of their lead products totaling up to $139 million this year and last year and so that seemed to be a flat number to me. They've been working Ultra for a long time. Unless they have come up with a whole new manufacturing platform which I'm not aware of, I don't know how effectively they can take an Ultra, put a new name on it -- or do what J&J did which is just be honest and say it's Oasys, now it's Oasys 1 Day, Ultra, now it's Ultra 1 Day -- I don't know that they have the cost structure to do anything meaningful given the expensive equipment they're manufacturing product on with Ultras.

So, I think that's a major barrier that will continue to have to deal with. Alcon is tweaking a couple things, but they have a lot of mature products. They're immensely exposed in the one-day mass market with Daily Aqua Comfort Plus and, if they do in fact bring a silicon hydrogel into the mass market, we would love it. So, I'm hoping they do it because that will put a billion-dollar product in play and they'll have to start talking about the benefits of oxygen which we're firm believers in and then we won't be the only one trying to talk up the need for oxygen in the one-day market, if you will.

Operator

Thank you. Our next question comes from the line of Joanne Wuensch with BMO Capital Markets. Your line is open.

Joanne Wuensch -- BMO Capital Markets -- Managing Director

Good evening and I will also congratulate both Bob and Al on their future endeavors. Al, you're stuck with us a while longer. Anyway, can we spend a minute on gross margins, please, because it was a nice strong gross margin quarter -- what are the puts and takes that brought you to that number and could you give us a sense of how you see the remainder of the year rolling out, particularly with the shift in the British pound?

Al White -- Chief Financial Officer and Chief Strategy Officer

Yeah, so I'll comment a few things, Joanne. Obviously, we'll take the easy one first. CooperSurgical is driven pretty heavily by PARAGARD. If we exclude PARAGARD, the gross margins for Surgical were around 60% so pretty similar to what they were last year. PARAGARD's pulling that business up because it has gross margins in the 90s. If we look at CooperVision, the pound definitely helped so we had, in that range, with a 400-basis-point improvement, about half of that coming from the pound. And then you look at the remaining portion, about two-thirds of that was coming from product mix and that's a combination of things. It's obviously Biofinity, which is a great product -- continues to grow and has high margins for us.

The Avaira to Avaira Vitality transition, we've talked about that in the past and the magnitude that that delivers to gross margins -- we're starting to see that start to come through the P&L and there's more of that to come. And then general manufacturing efficiency improvements is what I call them. We spent some quarters over the last few years talking about things like inventory rideouts, or asset rideouts, idle equipment and so forth, some of those charges that go into our other cost of goods, and we talked about how we were going to move through those and it was going to result in improved gross margins in the future. Well, we're seeing that so it's the stuff that we've laid out in the past. So, a very nice quarter, we're anticipating gross margins continuing to be strong. As a matter of fact, we're looking at somewhere around 68% for this full-year so we'll get our usual ups and downs but the trend is pretty good for gross margins in both Vision and Surgical.

Robert Weiss -- Chief Executive Officer

I would just add one thing as we transition from Avaira to Avaira Vitality, that was the gross margin play and that was substantial gross margin play so, as each quarter goes by, we get more the benefits of that. And, a year ago, you'll also recall that Brexit timing played a little into Q1, particularly November/December which finally anniversary, post six months, if you will, in the end of December so a lot of where we are today is sustainable in that conversion to Avaira Vitality will continue to show positive effects.

Joanne Wuensch -- BMO Capital Markets -- Managing Director

As my follow-up question, CSI, the problem in the genetics business, how do you anticipate that being resolved and do you anticipate that the core business turns positive at any stage during this fiscal year? Thank you.

Al White -- Chief Financial Officer and Chief Strategy Officer

Yeah, so within fertility, there's really two pieces to that. There's the fertility solutions business, if you will, which is medical device products, media, variety of other products that would be more your traditional medical device products. That part of the business has been doing well for many years. It did well again in this quarter. The future certainly looks bright when it comes to that part of the business and all the demographics, the trends and so forth and, from a geographic perspective, things look good. So, feel good about that, feel good about the growth, and the margins, and so forth -- that piece of the business.

If we look at the genetic testing piece of the business, we started seeing some very significant competitive pricing pressure last summer and it continued and even became more aggressive. And I scratched my head over some of it, to be completely honest with you, and I don't really understand the thinking behind working to just increase testing volume -- it's like the old days of the internet of just trying to get more people to come to your website -- but that's the direction it's gone. Now, when we look at it, that's an important part of fertility -- it's used within IVF clinics -- we are going to maintain our genetic testing business. It's great with our fertility solutions piece.

Having said that, we are not going to sit here and run unprofitable businesses where we're looking at negative gross margins and so forth. So, we're going to run a good intelligent business. I think that's going to result, assuming everything holds true from a competitive perspective kind of result -- in some challenging numbers and Q2 will probably be the worst of it and then bad in Q3 and then better in Q4 because we started seeing some of that genetic pricing pressure in Q4. Then it annualizes and we'll move back to much better fertility numbers.

Joanne Wuensch -- BMO Capital Markets -- Managing Director

Thank you so much.

Operator

Thank you. Our next question comes from the line of Matthew O'Brien of Piper Jaffrey. Your line is open.

Matthew O'Brien -- Piper Jaffray -- Senior Research Analyst

Good afternoon. Thanks for taking the questions and best of luck, Bob, in your retirement. Just, as far as the commentary, I think, maybe Al, you were talking about -- or maybe Bob -- as far as the rate changes potentially using some of the ordering, O.U.S. and then brought back to the U.S. Did I understand that correctly and then, in the future, is there a way to close that loop so that your distributors can't be buying O.U.S. and thing bringing it back to the U.S. and potentially having a little bit of a margin headwind for you?

Robert Weiss -- Chief Executive Officer

Yeah, the real-world is, as long as we have foreign currency moving, you can't eliminate all of it. Having said that, we've spent a lot of time and energy building systems that quickly identify those outlets that are buying to basically support a retailer that's buying outside of the U.S. so, the sooner you close that off, the more you minimize that. So, our systems have gotten much better. The dollar's heading the right way, so that will affect minimization to begin with, even if you did nothing. And I'm optimistic it will be a little bit more stable even if foreign exchange rates move erratically in the future but I'd prefer a nice stable exchange rate than one that goes all over the map, quite frankly.

Matthew O'Brien -- Piper Jaffray -- Senior Research Analyst

Fair enough. And then, as the follow-up, just talking about the MyDay Toric launch, I'd love to hear a little bit more about how that went, how many of your customers have access to that at this point. And then there should be somewhat of a halo effect as you had with Toric, just opportunities to maybe open some new accounts now that you have Sphere and Toric with MyDay?

Robert Weiss -- Chief Executive Officer

Yeah, I won't get into all the specifics on how many accounts we've rolled out to, but we're really one month into it in January and, you're right, we're expecting and we're starting to see the halo effect ripple into the MyDay Sphere and particularly as we get into the premium part of the market -- since we're two-tiered, that is showing its effects so we're very optimistic. I would say we're early in the first inning is where we are.

Operator

Thank you. Our next question comes from the line of Chris Pasquale of Guggenheim. Your line is open.

Chris Pasquale -- Guggenheim -- Director, Equity Research

Thanks, and congrats, Al and Bob. One question on PARAGARD and another bigger picture topic. So, first, can you talk a little bit more about the go-to-market strategy for PARAGARD? I understand it's a large product, but I would have thought that part of the appeal of adding it to your existing portfolio would have been leveraging some of your existing sales resources and call points so why bill out a separate sales force dedicated just to that product and how big does that team ultimately need to be?

Al White -- Chief Financial Officer and Chief Strategy Officer

That's a great question, Chris. Yeah, you're absolutely right -- we acquired that product and we took a look at it and said, "We could sell that through our existing sales force which sells a lot of EndoSee, disposable hysteroscope and some other products we have. It looked like a pretty good natural fit and we went down that path initially. You'll remember The New England Journal of Medicine came out with a big study on hormonal contraceptives, there's some moves in a direction that certainly indicated that, if we take the right moves, and we invest properly and take the right actions, that we could improve our market share within the IUD space and that's a very profitable product, obviously, so anything we can do to drive growth there is very advantageous for us.

So, what we've done is we've taken a look at the market, we've added about the 40 salespeople we talked about. That does not cover the entire market, it covers, let's just call, half of the market, roughly. So, we're going to take a look and see how they do and what kind of performance, what kind of return we get from the salespeople and, hopefully, it's very strong and, hopefully, communicating the message is going to result in higher sales. And, if it does, we can look to add salespeople to that and I don't know if we'll add another 20, or 30, or something like that, but that's possible so we'll look at that. And, if it doesn't pan out, then maybe we won't. So, from that perspective, some of it's changing dynamics. Since we acquired that business, it's looking better -- the opportunities are looking better than when we first acquired it so we're not going to skimp on dollars here early. We're going to try to take advantage of that.

Chris Pasquale -- Guggenheim -- Director, Equity Research

Does that change at all the original accretion estimate and what you thought it could contribute this year?

Al White -- Chief Financial Officer and Chief Strategy Officer

No, I would say, from the estimates that we provided to you, the $0.70 to $0.75, we're looking to exceed those even with the investments.

Chris Pasquale -- Guggenheim -- Director, Equity Research

Okay. That's helpful. Thank you. And then you highlighted rising rates as a bit of an offset to some of the earnings tailwinds you had today versus when you first guided. Given what we're seeing with rates, broadly, any thought about capital structure and whether a floating rate debt is the right place for Cooper to be?

Al White -- Chief Financial Officer and Chief Strategy Officer

Yeah, we go back and forth on that. We've had fixed rate debt in the past and we've had floating rate debt. Right now -- and, actually, for many years now -- we've had floating rate debt so our strategy right now is to continue to keep it floating. We generate a lot of cash as a company. We'll look to invest that, if we can, in different opportunities. If not, then we always go to our default position which is to pay back debt, so we have a lot of cash to be able to pay that debt. So, the plan right now, continue to let it float and see if we can start knocking it down.

Operator

Thank you. Our next question is coming from the line of Matt Lichon of Keybanc. Your line is open.

Matt Michon -- Keybanc -- Research Analyst

Hey, guys, this is Brett standing in for Matt. Thanks a lot for taking the questions. First, I was hoping you could give us a little bit more color on the investment you made in the sales force last year, specifically how the investment was allocated geographically and if you're getting the kind of payback you expected so far from the U.S. reps? And then, if I could ask one more, if you could give us a sense of the size of Lensferry at this point -- if not a sales figure, maybe just the number of eyecare professionals that you're currently working with here? Alright, thanks very much.

Robert Weiss -- Chief Executive Officer

Sure. We started about 18 months ago the process of expanding our feet on the street and, prior to that, we had already started with some of our international locations like AsiaPac, where we've been getting a good return. We continued down the path on a global basis, so it's not only the U.S. -- it's also the European market as well as continuing in the Asian market -- and we believe the payback is solid. Overall, we look at it on a global basis, when we see the 7% trailing 12 months versus the 5%, the fact that we've been growing much faster than the market. Relative to the U.S., the U.S. is distorted in terms of results, in terms of the revenue reported for the reasons I just articulated on gray market and some of the tough comps. But, when we look through that, we're happy with the return we're getting. I'm not going to get into exact numbers other than to say we've grown our sales force about 24% since we started the activity in July of '16 so a substantial investment has been put in and we're happy with the return we're getting and we expect to continue to get that return going forward.

As far as Lensferry, I won't get into the details other than to say we are making good progress with that. There are a lot of independents that see the value of having a better alliance with their customer base. There obviously are a lot of consumers that like the concept so it's built a lot of momentum. And, with Lensferry, we're offering it to even our competitors so it isn't all about us locking in only our own business -- it's something that we're sponsoring our alliance with the independent eye professional and all professionals. It's certainly available to retailers, also.

Operator

Thank you. Our next question comes from the line of Robbie Marcus with JP Morgan. Your line is open.

Robbie Marcus -- JPMorgan -- Research Associate

Thanks, and, Al and Bob, I'll add the congratulations on your next chapters. This may be picking at the numbers a bit, but if I look at Americas pro forma growth up 3% and then down 3% on a calendar basis, is there anything to read into that with, maybe, stronger trends in the January month?

Robert Weiss -- Chief Executive Officer

Let's put it this way, a combination of the trendline in the sorting through gray market activity in the year-over-year comps, you're right, January was pretty robust and, therefore, deleting October and adding January was a real plus on the year-over-year basis.

Robbie Marcus -- JPMorgan -- Research Associate

Okay. And then, Al, as I think about the increased FX, can you help us, maybe, as it flows through the gross margin and then the EPS, the cadence through the year and anything that we should be aware of in terms of anomalies? Thanks.

Al White -- Chief Financial Officer and Chief Strategy Officer

Yeah, probably not too much. When you look at the models, it's interesting how it spread from what it was when we initially gave guidance to where it is today -- the improvement in currency flows through on a consistent basis, Q2, Q3, Q4. So, not a lot of change from the cadence we talked about in December, interestingly enough, so I wouldn't particularly highlight an anomaly associated with that, necessarily. I did make the comment on Q2 being a little bit closer to Q1 from an EPS perspective for a couple different factors -- maybe a little bit of strength on the EPS side in Q3 off that -- but nothing too major to highlight off that.

Robbie Marcus -- JPMorgan -- Research Associate

Alright. Thanks.

Operator

Thank you. Our next question comes from the line of Anthony Petrone of Jefferies. Your line is open.

Anthony Petrone -- Jefferies -- Vice President Equity Research

Thanks, and congratulations, Bob, and good luck with golf going forward and good luck, Al, on your new role. I wish you the best success. Two quick questions, just on monthlies, just an update there. The Biofinity family, specifically, you've expanded that with NRGS and XR and then, of course, you had competition from Vita. So, anything just on monthly as it looks to us that actually sequentially it improved from the levels in Fiscal 4Q? And then the follow-up question would be on the overall operating margin. And so, the presentation that you have out there -- the investor presentation -- still calls for 28% by Fiscal 2021 and we're approaching that in the first fiscal quarter of '18, so maybe just how do we think about margins just over the next three years just given where we are today? Thanks again.

Robert Weiss -- Chief Executive Officer

Well, I'll do the Biofinity a little and let Al defend the operating margin outlook. Biofinity, you're absolutely right, we've gotten momentum going on a global basis and it just is afforded a door opener, extended range, afforded more of a door opener. So, it's clear a lot of people were clearly being left out of a good product so, as you expand the Toric range, it really enhances what you have to offer and you then approach something Cooper used to do a lot of in the past, which is flat-out custom making a lens for a consumer, which a lot of eyecare professionals love the ability to service a much broader or their entire customer base. So, that's why Biofinity is doing great. It's a great lens -- the design's, particularly, the multi-focal and the Toric designs, are terrific. It's a great material so it has a lot going for us. Relative to operating margins, Al, you want to talk about them?

Al White -- Chief Financial Officer and Chief Strategy Officer

Yeah, operating margins should continue to improve. We're obviously guiding this year to the 28.5% range but anticipate continuing to have operating margin expansion for a number of different reasons. So, if I had to look at that -- and maybe we'll fine-tune some of it as we move forward here -- but, if I rolled that out five years to the 2022 timeframe that we talk about, for us to be in that 32% range, somewhere in there, is probably a pretty good way to look at it. We look at pretty solid, consistent operating margin improvements on an annual basis so I would anticipate that to continue.

Anthony Petrone -- Jefferies -- Vice President Equity Research

Thanks again and congratulations to you both.

Operator

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

Steve Willoughby -- Cleveland Research -- Senior Research Analyst

Hi. Good evening, guys. Bob, I just want to say it's been a pleasure working with you over the years and, Al, I wish you good luck in your new role. Two questions for you. First, I look at the numbers you provide as it relates to your growth in the market and on a calendar basis. It looks like your overall contact lens business has grown in-line with the market for two quarters in a row now. Just wondering if you could comment on that -- any thoughts on that? And then, secondly, Al, how much did FX benefit EPS here in the first quarter? Just trying to think through your guidance of, I think, $0.78 for the full-year -- just curious on how much that helps your first quarter and maybe how that compared to what you were expecting coming into the quarter?

Al White -- Chief Financial Officer and Chief Strategy Officer

Yeah, I'll answer that one and I'll let Bob take the other question on the market growth. So, Steve, on FX, it helped incremental $0.11, roughly, from when we gave guidance of the Q1. When we looked at it, it was about $0.33 in Q1 positive on a year-over-year basis -- it finished about $0.44 positive so that was the pickup, if you will, within Q1. If you look at it for the full-year, we talked about the $0.40 pickup, which would mean $0.29 in Q2 to Q4, spread evenly through those quarters.

Steve Willoughby -- Cleveland Research -- Senior Research Analyst

Perfect, thank you.

Robert Weiss -- Chief Executive Officer

Yeah. And, in terms of the 5% versus 5% and the 7% versus 7%, if you will, the last two quarters, one, is last quarter 7% was a pretty robust number for good reasons -- being led by J&J and some of what they're doing so they've stepped up the industry growth a bit. We've always emphasized that you should look at it on a trailing 12-month basis. On a one-quarter basis, we have some pretty tough comps with having put up double-digits for two quarters in a row last year in the fourth quarter of '16 and the first quarter of '17 were double-digit growth for Cooper so our comp is a little tougher, therein why the trailing 12 months is a more meaningful figure than the one quarter.

Steve Willoughby -- Cleveland Research -- Senior Research Analyst

Okay. Thanks, Bob.

Operator

Thank you. And, at this time, this does conclude the Q&A session. I'd like to turn the conference over to Robert Weiss for closing remarks.

Robert Weiss -- Chief Executive Officer

Well, I want to thank everyone for their thoughts and, certainly, support -- all of the expectations we have for the new incoming CEO, no pressure, Al. And we look forward to updating you on our second quarter results in June. The date is June 7th. On June 7th, we'll update you on the second quarter results and look forward to it. With that, that concludes the call.

Operator

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone, have a great day.

Duration: 64 minutes

Call participants:

Kim Duncan -- Vice President of Investor Relations

Robert Weiss -- Chief Executive Officer

Al White -- Chief Financial Officer and Chief Strategy Officer

Larry Keusch -- Raymond James -- Analyst

Larry Biegelsen -- Wells Fargo -- Senior Analyst

Jeffrey Johnson -- Robert W. Baird -- Senior Research Analyst

Jon Block -- Stifel -- Managing Director

Brian Weinstein -- William Blair -- Principal

Joanne Wuensch -- BMO Capital Markets -- Managing Director

Matthew O'Brien -- Piper Jaffray -- Senior Research Analyst

Chris Pasquale -- Guggenheim -- Director, Equity Research

Matt Michon -- Keybanc -- Research Analyst

Robbie Marcus -- JPMorgan -- Research Associate

Anthony Petrone -- Jefferies -- Vice President Equity Research

Steve Willoughby -- Cleveland Research -- Senior Research Analyst

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