The Cooper Companies, Inc.

Ladies and gentlemen, thank you for standing by, and welcome to the Cooper Companies Incorporated third quarter 2020 earnings call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during that portion of the call, you will need to press star 1 on your telephone. Please, the advice at today's conference is being recorded. I will now hand the conference over to Kim Duncan, Vice President, Investor Relations and Risk Management. Please go ahead.

Good afternoon, and welcome to the Cooper Company's 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 email ir at 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, MySite, 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 Cooper Vision revenues of $449 million, down 11%, and Cooper Surgical 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 Cooper Vision, 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 pack were down 9%, while EMEA was down 15%. These results were better than expected as the strategic initiatives we've executed on over the past couple years really show their value during these challenging times. We're also seeing a halo effect from our MySite launch, bringing attention to our other products with positive activity in our daily silicone hydrogel and bio-affinity 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 its 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 are 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 eye strain 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 it's therefore something we all need to be attentive to. In conjunction with improving consumption, we're incredibly busy with product launches, including My Day Sphere and Toric, which are being launched or relaunched around the world. My Day has been in high demand for a long time, so it's great to be selling this premium daily silicone hydrogel lens in an unconstrained manner. We're also successfully continuing our global launches of BioAffinity Toric Multifocal and and Clarity's extended daily TORC range. And lastly, my site is in launch mode, and I'll cover that in a minute. With all this going on, and with new offerings in the pipeline coming, we'll remain extremely active for quite some time. Moving to some quarterly numbers, BioAffinity and Avera combined to be down 8% in the quarter, with strength noted in BioAffinity TORC and Energist. You may remember BioAffinity Energet 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 my day torque. With this activity, we've seen channel inventory rebound and expect to be back to pre-COVID levels by fiscal year-end. Moving to MySite, 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 MySite with many more in process. With this success, we just launched an exciting multi-channel 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 my site and is 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 it's set to become a brand-new multi-billion-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 from my site, 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, but 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 MyFight 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, take 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 MySite and OrthoK 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 MySight and OrthoK lenses, grew 15% this past quarter to $9 million. Within this, MySite grew 35% to 1.6 million. With the U.S. MySite launch now fully underway, we expect solid growth in Q4. One additional point to highlight regarding myopia management, and specifically MySite, 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 multi-year 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 a continuing shift to daily silicone hydrogel lenses, the trade-off from legacy hydrogels and silicone hydrogels, geographic expansion, and growth in torch and multifocals, and our industry has a bright future. Moving to Cooper Surgical, 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 EndoC 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 EndoC 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 hardworking 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 pack following in Q1. Regarding products, we saw a nice rebound in our consumables, such as media and pipettes, as the quarter progressed, and our genomic 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 positions. 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 MySight, BioAffinity EnerGif, our OrthoK lenses, and EndoSee Advance. With that, I'll turn the call over to Brian.