The Cooper Companies CEO Discusses F3Q11 Results - Earnings Call Transcript

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The Cooper Companies Inc. (COO)

F3Q11 (Qtr End 07/31/2011) Earnings Call

August 31, 2011 5:00 pm ET

Executives

Kim Duncan - Director of IR

Bob Weiss - President and CEO

Gene Midlock - SVP and CFO

Al White - VP, IR, Treasurer and CSO

Analysts

Joanne Wuensch - BMO Capital Markets

Konstantin Tcherepachenets - Morgan Keegan

Chris Cooley - Stephens Incorporated

Jeff Johnson - Robert W. Baird

Steve Willoughby - Cleveland Research

Larry Biegelsen - Wells Fargo

Matthew O'Brien - William Blair

Kim Gailun - JPMorgan

Amit Bhalla - Citigroup

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the third quarter 2011 The Cooper Companies Incorporated earnings conference call. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes.

I would now like to hand the call over to Ms. Kim Duncan, Director of Investor Relations. Please proceed.

Kim Duncan

Good afternoon and welcome to The Cooper Companies third quarter 2011 earnings conference call. I'm Kim Duncan, Director of Investor Relations. Joining me on today's call are Bob Weiss, President and Chief Executive Officer; Gene Midlock, Senior Vice President and Chief Financial Officer; and Al White, Vice President, Investor Relations, Treasurer and Chief Strategic Officer.

Before we get started, I'd like to remind you that this conference call contains forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995, including all revenue and earnings per share guidance and other statements regarding anticipated results of operations, market conditions and integration of any acquisitions. Forward-looking statements necessarily 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 the business section of Cooper's Annual Report on Form 10-K. These are publicly available and on request from the company's Investor Relations department.

Now, before I turn the call over to Bob, let me comment on the agenda. Bob will begin by providing highlights on the quarter, followed by Gene who will then discuss the third quarter financial results. We will keep the formal presentation to roughly 30 minutes, then open up the call for questions. We expect the call to last approximately one hour.

We request that anyone asking questions please limit yourself to one question. Should you have any additional questions, please call our investor line at 925-460-3663 or e-mail IR at coopercos.com. As a reminder, this call is being webcast and a copy of the earnings release is available through the Investor Relations section of The Cooper Companies website.

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

Bob Weiss

Thank you, Kim, and good afternoon and evening everyone. Another great quarter the momentum continued. For the third fiscal quarter, we put solid topline growth up 19%, 12% in constant currency. We delivered $351 million in revenue. Excluding the Avaira Toric voluntary limited recall impact, our gross margin was 62%. Strong topline, solid margins, lower interest expense lifted our non-GAAP earnings per share 26% to $1.15.

GAAP earnings per share was $0.78 hurtling the recall, a $14 million charge and the acquisition accounting reversal, an entry of $6 million. I'll Gene get into that in a little bit. We had yet another outstanding cash flow quarter paying down $108 million of debt, supported by $68 million of free cash flow.

Key takeaways for today's call, we again put up great results with strong revenue growth, good margins, favorable impact of lowering interest expense and a great bottomline. Still early, the impact on revenue of our launch of Biofinity Multifocal in Japan has aided our double-digit growth.

Our $68 million of free cash flow was a strong contributor to reducing our debt-to-cap to below 20%. Today, our debt is $445 million. It is less than one-half of what it was two-and-a-half years ago. We've delivered all this, yet we continue to invest in our future, our pipeline, our plans and both valuable of our people.

For the quarter, our investment in sales force expansion and R&D saw increases for these expenses of 34% and 37% respectively above the prior year. Without giving away too much proprietary data, our sales force expansion activities are up 33% since the beginning of last year. Our R&D staff has grown 25% during the same period.

Our silicone hydrogel family, Biofinity and Avaira, is driving growth. During the third quarter, this family achieved $92 million in revenues. That's a 47% increase in constant currency year-over-year against the third quarter of last year. Sales are now 31% of CooperVision's revenue. Aside from the voluntary limited recall of Avaira Toric, all of our silicone hydrogels are performing well, Biofinity Sphere, Biofinity Toric, Biofinity Multifocal as well as Avaira Sphere.

Importantly, our silicone hydrogel revenues are just starting to reflect some of the impact of our launch into the $150 million silicone hydrogel multifocal market, which is about 50% of the total multifocal market as well as the $400 million Japanese silicone hydrogel market. Both launches happened mid in the third quarter.

Geographically, our foreign exchange played a positive role on a global scale. Excluding foreign exchange effect, we had very respectable growth in each region. Americas was up 6% constant currency; EMEA was up 11%; Asia Pac 24%; and worldwide 11% growth.

In constant currency, the regional drivers were: in the Americas, trading up silicone hydrogel lenses; and EMEA, growth in silicone hydrogel as well as solid growth of Toric; in Asia-Pac, growth related to the Aime acquisition done in the first quarter of this year as well as solid single-use particularly with Proclear 1 Day and while yet early in the game the Biofinity launch into Japan.

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