The Cooper Companies, Inc.

Ladies and gentlemen, thank you for standing by, and welcome to the Q1 2020 Cooper Companies, Inc. Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. To ask a question during the session, you'll need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Kim Duncan, Vice President, Investor Relations and Administration. Please go ahead, ma'am.

Good afternoon, and welcome to the Cooper Company's first quarter 2020 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 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, 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 at cooperco.com. And now I'll turn the call over to Al for his opening remarks.

Great. Thank you, Kim, and good afternoon, everyone. Welcome to our first quarter 2020 conference call. This quarter met expectations and we're now well-positioned to deliver stronger results moving forward. This is especially true given recent operational improvements, including increased MiDay production. Having said that, there's the coronavirus impact and the obvious challenges it presents. Before getting into those details, let me walk through the quarter's performance. For Q1, consolidated revenues were $646 million, with Cooper Vision posting revenues of $485 million up 3% as reported or up 4% in constant currency, and Cooper Surgical posting revenues of $161 million, up 2% as reported and 2% in constant currency. Non-GAAP earnings per share were $2.69. For Cooper Vision, all on a constant currency basis, the Americas grew a healthy 8%, led by our daily silicone hydrogel franchises, where we continue to offer the broadest portfolio in the markets, with Mi-Day available on a sphere and torque and clarity in a sphere, torque, and multifocal. Both lens families performed exceptionally well, with torques posting particular strength. EMEA grew 3%, supported by our entire silicone hydrogel portfolio, and AsiaPak was down 1% due to Mi-Day capacity constraints as well as biofinity and avera vitality not rebounding as fast as expected from the destocking associated with the September VAT increase in Japan. Having said that, AsiaPak is already rebounding, and we expect growth in Q2, even in the face of the coronavirus. All three regions were led by our daily silicone hydrogel portfolio, which grew 19%, continuing to take share in the fastest-growing segment of the contact lens industry. This growth really demonstrates our strength with daily silicones, and it bodes well for the future as MyDay capacity is quickly improving. Meanwhile, our BioAffinity and Avera franchises grew 3%, a little softer than usual due to the destocking issue in Asia-Pac. Having said that, we expect better performance moving forward in Asia-Pac, along with an uptick from our launch of the recently approved BioAffinity TORQ multifocal in the U.S. with the rest of the world following shortly. TORQs grew 7% led by MyDay and Clarity, and multifocals grew 6% led by Clarity and BioAffinity. So in summary, a solid quarter. Given we expect Asia-Pac to return to stronger growth in Q2, the Americas to remain strong, and EMEA to start showing a rebound in Q3 as the comps get easier, we're optimistic about the remainder of the year. Before moving to my site, I want to cover some positive news on my day. As we discussed on last quarter's earnings call, the demand for my day is extremely strong, and we've produced great results, but we've been capacity constrained. As such, we've realigned significant resources to accelerate startup efforts on new lines, and I'm happy to report that activity is going exceptionally well. I want to commend our manufacturing team for their efforts and a truly fantastic job. Moving to my site, our innovative myopia management contact lens, sales this quarter were $1.5 million, up 87%, which was slightly above expectations and positions us well to achieve our objectives for the year. As a reminder, my site is our FDA-approved daily lens that has been clinically proven to slow the progression of myopia in children 8 to 12 years old. It has extensive five-year clinical data and experience has shown it's safe and easy for children to handle and wear. We're continuing to have success around the world, finishing February with over 17,000 kids wearing the product, up from 13,000 last quarter. And I'm happy to report this includes our first children in the U.S. Regarding U.S. activity, we completed our KOL launch in January, completed training of our U.S. sales reps in February, and and have now invited roughly 1,800 docs into the first round of the MySite program for education and certification happening in seven of the top optometry universities in the U.S. We're also continuing our sales, marketing, and educational activity around the rest of the world, along with continuing investments in clinical and regulatory work. With the U.S. launch underway, the product is now being sold as part of a holistic myopia management program called Brilliant Futures, where we provide the eye care practitioner the lenses, a suite of resources to help educate and connect with parents, and targeted marketing tools to assist the eye care practitioner in building their myopia management practice. The doctor can then incorporate all this into their own customized program, which could include eye exams and potentially other offerings such as OrthoK lenses, and then charge an appropriate price for their complete offering. The early feedback has been phenomenal. And it's really exciting to see the progress we're making with ECPs on the clinical benefits of MySight and why this treatment should be standard of care for young patients with myopia. It's important to remember that myopia, especially high levels of myopia, has been linked to severe eye conditions later in life, such as glaucoma, cataracts, and retinal detachment. So a product such as MySight that actually treats this condition is incredibly exciting. We believe MySight has the potential to be a true game changer in the optical industry. So we're happy and proud to be leading the way with this truly innovative product. Regarding financial expectations for MySite, we're still forecasting roughly $10 million in sales this year, including $2 million in the U.S., then $25 million in fiscal 2021, and around $50 million in fiscal 2022. MySite is a great growth driver for us as it's an entrance into a brand-new market, that being children, while also offering high margins as it's a ProClear-based lens produced on an existing platform. Additionally, it offers a strong halo effect on the rest of our portfolio and is already driving eye care practitioner interest in Cooper Vision's other products. Before concluding on Vision, let me remind everyone of the multiple growth drivers that underlie the 8.9 billion contact lens industry. It starts with myopia, where it's currently estimated that roughly one-third of the world's population is myopic, and this will increase to 50% in 2050. This obviously means a lot of visual correction, which is great for the entire optical industry. Additionally, and more specifically to contact lenses, there's the continuing trade-up from FRPs to dailies, the trade-up from legacy hydrogel dailies to silicone hydrogel dailies, geographic expansion, and growth in torques and multifocals. Within dailies, only 25% to 30% of wearers are in dailies today, and only 43% of current daily sales are in silicone hydrogel lenses. Our expectations, therefore, remain that this is a multibillion-dollar trade-up opportunity, which will occur over the next five to ten years. And all this continues to support market growth in the upper part of the 4% to 6% range for many years to come, with us taking share for the foreseeable future, led by our market-leading daily silicone hydrogel portfolio. And finally, I'm happy to report our new fit data was once again very strong this quarter, especially with respect to silicone hydrogel daily fits, which bodes well for our future. Moving to Cooper Surgical, we reported revenues of $161 million, up 2% in constant currency, with office and surgical up 3% and fertility up 1%. Within office and surgical, growth was driven by EndoC, our second-generation handheld office hysteroscope, and our surgical retractors. Paragard was flat for the quarter following Q4 where we had significant buy-in activity associated with a 9% price increase implemented during the quarter. On pricing, remember that increase is rolling over three years due to buy-in activity, contractual arrangements, and public market purchases such as Medicaid. For the year, we're still forecasting mid-single-digit growth for Paragard. Fertility was led by our device portfolio, which includes consumable products like IVF Media, and our market-leading Wallace embryo needles and transfer catheters. This was offset in part by our genomics business, but more so by shipment delays at quarter end, which moved to Q2. Given this, we expect a stronger Q2 from fertility, even with the impact of the coronavirus in Asia-Pac. Overall, for Cooper Surgical, we expected this quarter to be our most challenging due to the tough 8% count from a year ago and the Q4 paragraph buy-in, but we hit our expectations and remain confident in posting a strong year. Now, before concluding, let me cover the coronavirus and its impact. First and foremost, our thoughts are with our employees, their families, and the communities impacted by the virus. We've been fortunate in that we haven't had any employees infected by the virus that we're aware of. Our business in China is relatively small, only roughly 2.5% of our revenues, and we have no manufacturing or packaging located in the country, so that's obviously helped. We have been able to maintain our supply of product in China, which is sold through third-party distributors, so the impact has largely been around the parts of our business that sell into hospitals, that being fertility and our specialty lens business. We're also seeing a modest impact in other countries where there's heightened virus activity, but our businesses are proving to be relatively resistant. At this point, we're estimating the total revenue impact in Q2 will be roughly $15 million, comprised of $11 million in Cooper Vision and $4 million in Cooper Surgical. I believe we'll likely call some of this back as we move through the year, but we're not including that in guidance. Having said that, we're holding our full-year revenue guidance unchanged, driven by the improved MyDay production and new contracts we've won in our fertility business, which we expect to generate higher sales in Q3 and Q4. Underlying all this is the assumption our global operations largely return to normal in May, the beginning of our fiscal third quarter. Brian will provide additional numbers, but our expectations for a strong year remain intact. With that, let me conclude by saying we're taking share in the global contact lens market. My day capacity is ramping up nicely. The MySite launch is progressing well, and Cooper Surgical is well positioned to accelerate growth. We're also continuing to make positive strides with our ESG efforts, including expanding support of several community involvement efforts and my recent signing of the CEO Action for Diversity Inclusion Pledge, which is the world's largest CEO-driven initiative to advance diversity and inclusion within the workplace. And with that, I'll turn the call over to Brian.