COO
#Thank you, <UNK>, and good afternoon everyone
Welcome to our third quarter 2017 conference call
This was another solid quarter with share gains, improving margins and strong cash flow
On a consolidated basis, we reported 556 million in revenue and non-GAAP earnings per share of $2.64. CooperVision posted another strong quarter with 7% as reported revenue growth or up 8% in constant currency
Daily silicone hydrogel lenses grew 47%, while Biofinity and Avaira combined to grow 10% both in constant currency
CooperSurgical posted revenue growth of 13% up 4% pro forma with Fertility up 26% or 6% pro forma
Moving to the details, CooperVision posted third quarter revenues of 437 million, up 8% in constant currency
By geography, the Americas grew 2%, EMEA grew 13%, and Asia-Pacific grew 13%, all in constant currency
The Americas stands out as it was soft, but based on market data the entire market was soft
We continue to see good data in the Americas so it appears this was an anomaly and we expect stronger growth in future quarters
Overall, revenues continue to be driven by our silicone hydrogel lenses led by MyDay and Clariti in daily space and Biofinity in the monthly space
Regarding daily, our two tier approach within the daily silicone hydrogel space allows doctors to offer premium in mass markets lenses with the latest materials
MyDay is our premium daily silicone hydrogel lens and is offered as a very high quality sphere and toric
Our Clariti products are sold on a mass-market basis and remain the only daily silicone hydrogel lenses family with the sphere, toric, and a multifocal offering
In addition, Clariti is competitively priced against several daily hydrogel products that we maintained a nice competitive advantage
Overall, we continue to believe where it deserves the healthiest modality compared with the highest quality, oxygen permeable materials to ensure the best health for the eye
This is done with daily lenses using silicone hydrogel lenses such as MyDay and Clariti
Moving to other products, Biofinity continues to perform extremely well all around the world
This includes the full product offering of spheres, torics, multifocals along with our expanded offerings of Biofinity Energys and Biofinity XR Toric
We continue to see diversified geographic strength from Biofinity and expect solid performance for many years to come
Within the two-week space, we're continuing to transition wearers to our upgraded Avaira Vitality lens from our legacy Avaira products
As we’ve discussed in the past, this is a large and time-consuming endeavor, but I'm happy to say our customers are receiving this upgrade very positively
Our timing remains the same which is to finish the transition by roughly the end of fiscal 2018. Turning to product categories, we remain the global leader in torics which grew a solid 11% in constant currency, primarily driven by Clariti one-day Toric and Biofinity Toric along with the rollout of MyDay Toric in Europe
We believe there's still a lot of room for growth in this category both by modality and by geography
Multifocals grew 7% in constant currency, we have a diversified set of products in this space and arguably the best multifocal design on the market with Biofinity multifocal and we expect continued growth
Turning to the global contact lens market, for calendar Q2 we grew 7% versus the market that was up 4%
This included growing faster than the market in each geography with the Americas growing 2% against the market, up 1%
EMEA growing 11% versus the market up 6% and Asia-Pacific growing 12% versus the market up 8%
By modality, single uses lenses continued driving growth with CDI up 14% and the market up 12%
And finally CDI's non-single use lenses grew 4% while the market declined 3%
On a trailing 12 month basis, CooperVision also reported very strong numbers growing 8% versus the market up 4%
Going forward, we are still targeting 4% to 6% market growth driven by the continuing shift to improve technology such as wider suite of silicone hydrogel lenses, the continuing trade up to dailies and to specialty lenses, geographic expansion and the expansion of the wearer base particularly outside the United States
And given our strength in these areas along with our broad private label offering, we expect to continue growing faster than the market
Turning to a different topic, we completed the acquisition of a small specialty contact lens company named Procornea in August
This added a leading ortho-k technology to our lens portfolio and increases access to several fast-growing myopia control markets
This acquisition supports our specialty lens strategy led by our MiSight products
Myopia control is currently in its infancy, but we are developing a nice specialty lens platform to remain a leader as this market starts taking shape
Note, the financial terms of this acquisition were not disclosed
Moving to CooperSurgical, we reported third quarter revenues of 119 million, up 13% driven by organic growth and acquisition
On a pro forma basis, we grew 4% in Fertility with Fertility leading the way up 26% or 6% pro forma
This quarter was an improvement over the last two quarters, and I believe Q4 will continue another step up in the right direction
With the IVF, we are continuing to work through integration matters, but we are making progress
We're also continuing to execute on our growth strategy as the global leader in medical devices and genetic testing within the Fertility space
The IVF space remains a global market with long-term, strong growth dynamics and we look forward to continuing our positive trends
Our office and surgical products business grew 1% for the quarter, with strength in our disposable hysteroscope EndoSee offset by weakness in the older product lines
Before turning it over to Al, I want to express my appreciation to our employees for their hard work and dedication
I also want to especially send our best wishes to those impacted by the storm in Texas including our employees located in that area
And now, I will turn it over to Al
Sure, <UNK>
Pricing gets a lot of questions and has historically got a lot of questions
It is true there are some competitors raising prices ---+ list prices
It's also true that as an industry we've been trading up, we've been more about trading up
So, 90% of the action of growth in the industry is trading up, less than 10% has anything to do with pricing and that's been that way forever for 30 years
So pricing sometimes is a tactic, it allows you to do things as you are shifting wares from a two week modality into a one day and a one month modality
So, you may do something with your list prices
At the end of the day, it's the net growth that matters, it's the trading up that matters
And I would say pricing is nothing more than a minor tactic in achieving whatever you're trying to do
The industry has done a phenomenal job of moving now people out of the two weeks space into the monthly, into the one day space
The growth of the industry the last four years plus has been the one day modality in the U.S
; and for the last 10 years, it's been the one day modality outside U.S
So, I'm not going to comment too much more on the granularity of pricing tactics
Yes, you're going to have to mute I think there is something because it is in the background, okay, that's good
Yes, the Americas, the North Americas, as I indicated was soft, we think the on eye activity is good
So, the throughput is good, the trading up is phenomenal going from two week to one day
So really some of the anomaly I think if we look at the last six quarters since J&J started their activity and whether it's the migration from UPP or whether it's consolidation of distribution whether it's some of the tactics that J&J has used in the marketplace by way changing distribution channels, there is a host of activities that could lead to tough comps and hard to figure out what's going on
Net, net, net over a multiyear period and I have to go multiyear even though our UC like to go 12-months, the market is very good
But I must admit it's been I'd say one quarter does not a trend make
This quarter clearly is not indicative of a trend nor do I think it's indicative of the market strength, which is fine on a ---+ clearly on our worldwide basis
Sorry, I don't have a better answer than that, but it's ---+ I would admit it's pretty squirrelly
I will deal with the first one
You are absolutely right
There is an acceleration of the two-week space shifting into the daily and to a lesser extent the monthly
We have been putting up pretty good Biofinity numbers
So yes some of them are waiting for the monthly category
I applaud the efforts that J&J has in that arena
They are about 90% of that market or a little more
So that's the wear base
And we want that wear base and they know it out of the two-week and to other spaces and primarily the one day modality
Since they have adopted that strategy, really when they came out with the one-week product and then the one day product meaning a one-week oasis and then a one day oasis, they have really accelerated the depth of that two-week space
And we find that, we are getting our fair share
Obviously, when you look at the Clariti and MyDay numbers 47% growth over a higher base, so year-after-year that base goes up and it continues to grow very impressively
And clearly the U.S
is a big part of that growth because of that shift from the two-week into the one day space
Okay, on the Americas
Our confidence really comes back to ---+ if we look at from a four year perspective the Americas has done well
More like 4% and we do have the acceleration of the trading up and keep in mind I've mentioned in the past that a trade up of an oasis non-compliant wear is 800% trade up to an oasis one-day compliant wear
So two week non-compliant referring it as a monthly and buying it in ---+ available in a two year supply because they buy a one year supply at two weeks which turns into a two year supply on a monthly basis
They then shift to buying 730 lenses and they're very compliant because they don't have lens care regimens and all that stuff
So, we're highly confident that once you get through the noise level of everything that's gone on including just how much J&J sells the pipeline in the third and fourth quarters of 2015 that kind of created anomalies throughout the next period
And to including some of the antics of going direct, trying to go around the middle man and to including some of the consolidation going on with partnerships of large retailers, so there's a lot of moving parts, but underlying that is the market that looks very healthy from a wearer perspective and a trading up perspective
So, we're highly confident, we'll see normalized correlation between that shift and the revenue line in the future
Yes, I think surgical price
The third part it was to touch weaker than certainly at least I was expecting it was going to be the Fertility business did okay there was still some integration activity and the probably linger to little bit longer than I thought it was going to
So I think it we will see a little bit stronger fourth quarter performance there
The base there is so, yes, there is a lot of legacy products there so, EndoSee, as Bob mentioned are disposable history to scope is doing really well and we're continuing to make a lot of progress there, but some of the base products are a little bit harder to get moving there
So I still think that business is more along wise of the 3% to 4%, 5% maybe kind of growth business that component that base business component of it
So that was a little bit lighter it's hard to get into the any individual quarter and pinpoint the specific issues associated with it, but I do think you'll see a little bit of improvement on that in Q4 also
On Procornea, we obviously haven’t given a lot of air time at this juncture
But you are correct that big part of their business is in fact in China
Relative to whether or not and to what degree that will allow us to accelerate, our overall franchise in China, I would assume yes there will be some benefits, but quite frankly a lot of what makes, what's okay and what Procornea is about and myopia control, it’s pretty much in the hands of a specialty area where people really focusing on what it takes to slow the progress of myopia particularly in younger generation, younger part of the generation
So I don't think there's a real lot of spill over there
We are tremendously excited about the space, but we also are realistic to say this can be a long haul development
Myopia's going up around the world significantly
It’s gone from you know basically 20% of the world and it will be approaching 50% of the population by 2050 and directionally, it's clearly headed that way
What's causing it very much is taking people off rural area the countryside, putting them in schools is one of the leading thoughts
Having less natural sunlight is a thought
Whatever the real reason is, it’s clear that myopia is going up around the world and that the world will need a better portfolio of products to address high myops which run into problem later in life with retinal detachments and various other forms of eye challenges, so we're excited about it but it’s not going to be immediate so we're looking beyond the next five years I think in terms of where it starts moving the needle
On the dynamics of toric and multifocals, we have a lot of activities going on around the world both as to products and as to geography
In terms of a lot of activities that's leading to solid growth in Asia-Pac with MyDay Toric continuing to roll out there and torics in general by far the most mature market in the world and that's a relative term not really mature is the Americas where Torics are far advanced compared to the rest of the world by a factor of more than 50%, meaning there's a lot more penetration
For example in Japan and Germany, there has been a history in the past of dealing with astigmatism by RGPs, big in Germany, big in Japan, but new ---+ the newer generation, the young adults are not getting RGPs
They are getting torics when they have astigmatism
So, tremendous growth opportunity is there
We're happy with the numbers we're putting up
We're happy with some of the progress we've made with MyDay Toric, which is early in the game in terms of rolling it out now into your and later next year in the U.S
We're happy with Biofinity extended range, the made to order
So a lot of good things that should keep a solid momentum in that specialty contact lens area
Well, I want to thank you for joining us today for an update on how the year is progressing
We have a lot of positive activities going on as you can see
We look forward to updating you as we approach and come out with our year-end numbers
and I believe that’s on December the 7th
And so, we look forward to giving you an update at that time
Thank you
