Good day, ladies and gentlemen. Welcome to the Third Quarter 2013 The Cooper Companies, Inc. Earnings Conference Call. My name is Cecilia, and I'll be your operator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Ms. Kim Duncan, Senior Director Investor Relations. Please proceed.

Good afternoon, and welcome to The Cooper Companies' Third Quarter 2013 Earnings Conference Call. I'm Kim Duncan, Senior Director of Investor Relations. And joining me today -- on today's call are Bob Weiss, Chief Executive Officer; Greg Matz, Chief Financial Officer; and Al White, Chief Strategy 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 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 the 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 for the call. Bob will begin by providing highlights on the quarter, followed by Greg, who will then discuss the third quarter financial results. We will keep the formal presentation to roughly 30 minutes, then open the call for questions. We expect the call to last approximately 1 hour. [Operator Instructions] Should you have any additional questions, please call our Investor line at (925) 460-3663 or email ir@cooperco.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.

Thank you, Kim. First of all, to some of you on the call, happy new year both to you and your families. Our apologies for having our release date the first date of -- first day of Rosh Hashanah. On to results. Another solid quarter, we march on: top line growth of 9%, GAAP earnings per share of $1.79, up 32% versus the prior year; non-GAAP earnings per share, $1.74, is up $0.29 or 20%; and free cash flow of $64.5 million means our trailing-12-month free cash flow was $245 million. Some highlights and key events. Our silicone hydrogel family of soft contact lenses continues to show strong growth with worldwide sales up 22% in constant currency, now accounting for 43% of CooperVision revenues. Additionally, I'm proud to announce that just this week, we have officially launched our branded daily silicone hydrogel lens, MyDay, in Europe. Demand is very strong for this lens, and we're very optimistic about the future. We also continue to see a lot of success in our entire silicone hydrogel family of products with Biofinity and Avaira. The combination of these products should continue our momentum for years to come. With the most recent calendar quarter, we grew 2x the market, which grew 4%. We achieved 23% operating income and even exceeded 20% in net income as a percent of revenues. We are very pleased with our IVF or fertility growth, which was 180%, and adjusting for acquisition comparability, grew 20% over the prior year comparable period. Our free cash flow delivery resulted in our debt-to-cap now moving to single digits. We have a very strong balance sheet, as well as a strong free cash flow. On the revenue results, during the third quarter, our silicone hydrogel family continued to drive our top line and our…

Thanks, Bob. And good afternoon, everyone. As Bob shared with you a pretty thorough review of the market and our revenue picture, let me start with gross margins. Looking at gross margins in Q3, the consolidated GAAP and non-GAAP gross margins were 65.1% compared with 63.5% for GAAP and non-GAAP in Q3 last year. We continue to see strong headwinds due to the impact of foreign exchange, predominantly the yen, on our revenue and the related direct impact on gross margins, which had approximately a 90-basis-point impact year-over-year. In addition, we continue to experience a negative mix impact due to Origio, which we purchased in July 2012. Despite these headwinds, we continue to run favorable margins due to a reduced CIBA royalty strong product mix led by Biofinity and increased manufacturing efficiencies. Looking sequentially, we saw our gross margin drop from a high of 66.2% to 65.1%. This is primarily attributable to our normal seasonality of manufacturing variances, including the impact of the December plant shutdown as that inventory turns, as well as FX. We saw the continued degradation of the yen, which add a 30-basis-point impact. For Q4, we're looking for gross margins to be in the range of 65.5% to 66%. CooperVision, on a GAAP and a non-GAAP basis, reported a gross margin of 65.4% versus 62.8% for GAAP and non-GAAP in Q3 last year. Factors driving the year-over-year gross margin improvement were the reduction of our royalty expense, product mix and manufacturing efficiencies. The major headwind on gross margin was FX, largely the weakening of the yen. CooperSurgical had a GAAP and a non-GAAP gross margin of 64.1%, which compares to Q3 '12 of 67.1%. As previously discussed, our margin is primarily attributable to our acquisition of Origio in July of 2012. Now looking at operating expenses.…

Operator, we're ready to open up the call for questions.

[Operator Instructions] The first question comes from the line of Kim Gailun, JPMorgan. Kimberly Weeks Gailun - JP Morgan Chase & Co, Research Division: So just 2 quick ones, the first is on gross margin. And as we look at it sequentially in the quarter, you were down just over 100 basis points and gave a lot of detail in the call, so thanks for that. And I think essentially, what you're saying was FX sequentially was about 30 bps worse. And most of the rest of that was manufacturing variances. So just hoping you could clarify that, was there any mix impact sequentially? And then the follow-up is just with the lower tax that we're seeing this year and how we should be thinking about earnings growth for next year. You had a bunch of different moving parts in the tax rate this year, and how we should think about that number as we get into '14?

Great. Yes, thanks. On the gross margin, I think you nailed it. We basically had that the yen go against this a little bit from our last guidance. So from a sequential standpoint, we did see about a 30-basis-point impact. And we do have, if you look back and I just have data for the last 5 or 6 years in front of me, and you can see that Q3 is always kind of our lowest gross margin quarter. We see that dip, it's normal. We have a number of manufacturing variances that come through, including we have traditionally shut down our plants in December in order to do some maintenance and get it prepared for the year, and that flows through naturally in the Q3 timeframe. On the tax side, we have had a lot of kind of one time items pop up this year. We're not in a position where we want to give guidance for next year. I did want to highlight that there are some things that are one time in nature, and that's kind of why I brought that out. On the other side, I did mention but you have a certain amount number of discrete items that reversed occasionally each year, and the size of those items are really -- we don't know those in advance, and so that has an impact that can actually raise the rates. So at this point, we're not going to go through and give yearly guidance for 2014 on the tax rate.

The next question comes from the line of Larry Biegelsen, Wells Fargo.

I wanted to focus on MyDay, if I could. So obviously, you just launched the product. Bob, you mentioned that demand is strong. Could you give us an update on pricing relative to DAILIES TOTAL1 and TruEye? Will you be able to meet capacity, meet demand -- do you have enough capacity to meet demand going forward in fiscal 2014? Any more color on the U.S. approval timing and the production plan? And just lastly, Bob, on MyDay. Could you just give us some reassurance that as you ramp up, we won't have production issues that we did with Biofinity?

All right. As far as the pricing of MyDay, I'm not going to get into all the details other than to say we're obviously not going to price at the high point at both TruEye and TOTAL 1 are, which is the reason that the market remains a niche market. So expect our pricing is not -- it's going clearly be below that sphere of -- in that tier of pricing. As far as demand, demand is going to be -- it's certainly exceeding our capacity throughout 2013, throughout 2014. And once again, that is purely a function of our ability to ramp up in long lead times on equipment that are 12 to 18 months, which really will push us out to 2015 and beyond. As far as the timing in U.S. and what we expect in the U.S., the approval to sell in the U.S., we expect within the next 12 months. Whether or not we immediately go-to-market once we get that approval will be a function of not overextending our reach. So if the demand is robust in Europe and we've committed to customers, we're going to honor those commitments first in Europe and then we'll take it from there as we ramp up. As far as the risk of not being able to ramp up, it's more about plugging -- getting the equipment, plugging it in, validating it. It is not novel equipment, it's equipment we have been using in the production of both Avaira, as well as the production of MyDay. So I think it's more execution, unlike Biofinity when that really got started way back when in 2006, '07 and '08. It was a material that was challenging to us and a huge learning curve, not only the equipment -- that the production equipment came into play, but also the material came into play. So I think we'll be on that.

The next question comes from the line of Matthew O'Brien, William Blair. Matthew O'Brien - William Blair & Company L.L.C., Research Division: To kind of follow up a little bit on Larry's question about MyDay. As I recall, the big market right now that's the big chunk of overall daily silicone hydrogel revenue is Japan. And I'm just curious, I think I get the strategy as far as going to Europe first, but when you've talked about some pretty big demand there, and I think that's a relatively small market. So is it fair to characterize that, that potential revenue opportunity is something along the lines of a few million dollars, maybe $10 million at the high end over the next 12 months or so? And then within there, as MyDay gets to be a bigger and bigger piece of the overall business, certainly, it's going to weigh on gross margins, but the absolute contribution on the revenue side may be much higher. So should we expect a higher level of share repurchases or a higher dividend rate to offset what may be going on throughout the P&L?

I kind of lost you some place along there, but let me comment on Japan. You're correct, Japan is the biggest 1 Day silicone hydrogel market. The gating of the 1 Day silicone hydrogel market and the rate limiter has much more to do with price points than it does whether or not demand is there for silicone hydrogel. So the reason we're not going straight to Japan has a lot to do with the approval process we are embarking on going down that path, and we'll get to Japan at some point in time. As far as is the product limited by way of revenue potential, I think, not. In the next couple of years, we're not worrying about can we sell the product. It's kind of where do we sell it in one order and how do we control the process so we don't offend people that can't get the product? So that's really the rate limiter. But in the perfect world, if Japan were available, who knows we might have that -- meaning we have the approval process, we might very well go there first, but that's theoretical. As far as I think some of those other questions you asked, you're going to have to maybe repeat them.

Buyback.

On the buyback.

Yes, I think, Matt, when you mentioned buyback, we just don't -- we don't really comment on that.

In other words, any buyback done by us, we have the approval to go into the market and we go into the market opportunistically, but we clearly do not define what that means or the parameters of that. I would view that as not linked with anything else we're doing. Maybe the only limiter would be use of cash in terms of investment opportunities and other things on our plate.

The next question comes from the line of Jeff Johnson, Robert Baird. Jeffrey D. Johnson - Robert W. Baird & Co. Incorporated, Research Division: Let me ask Bob one question and then I do have a follow-up after that. But it might be picky and you guys have good fourth quarter revenue guidance out there for CVI. But if I look at your fiscal third quarter growth of 9% constant currency for CVI and then your calendar 2Q was 10%, does that -- is it overreading to say July slowed down? Can you give us any kind of July or maybe kind of what you're seeing so far to start this quarter off, update on the CVI side?

I think it is, #1, July, of course, is in the reported period and I think you're doing a bifurcation of maybe the calendar data and the CLI data and... Jeffrey D. Johnson - Robert W. Baird & Co. Incorporated, Research Division: Exactly.

But relative to the guidance we're giving, I think it's pretty in sync with the run rate we had, both in the quarter ended June 30, which was the 10%, and the 3 months ended in July, which is the fiscal period, which was 9%. But quite frankly, that got weighted somewhat by a non-soft contact lens piece, the Aime products business, if you will. So I don't think you can read any slowing in the bifurcation or in our guidance. Jeffrey D. Johnson - Robert W. Baird & Co. Incorporated, Research Division: Okay, that's helpful. And then just another couple of questions here on MyDay. First, I just want to confirm, it doesn't sound like there is really any revenue or margin implications for MyDay in the quarter. And then, Bob, I'd like to hear -- in the quarter you just reported, sorry. And then, Bob, I'd like to hear kind of maybe your bigger-picture thought on MyDay. It sounds like you guys are probably going to come out at a $500 to $550 price point somewhere in there for MyDay. But long term, do you think we have to get that price point down into the $400, $450 range? Where do you think daily si-hy pricing has to settle out? If we look at traditionally kind of a 20% or 25% trade-up cost is what takes these lenses out of niche territory into more of a reasonable trade-up range, where do you think long term that pricing on daily silicone in general needs to go for users to really start taking it up faster?

Well, I think if we look way down the road, you're going to end up with products in different categories at that cost. As cost comes down over time, the -- it will start taking on a profile a lot more traditional albeit the strategy of the industry has always been trade-up and hold the premium, some premium. My only problem with TOTAL1 and TruEye is that there is a limit and you're -- what you're trying to hone in on is where is that limit? There's no doubt that moist establishes a good guideline of what is affordable, it's the biggest product in the category. And so you know the price point can be at least moist. And you know the price point since moist is not -- silicone hydrogel can be higher than moist. So I think that's one parameter of that we know works in the marketplace. There is -- the market is willing to pay a premium for silicone hydrogel above hydrogel, so it's some place above moist. But clearly, there's a point where it cuts off, and that's where the sharpening of the pencil comes into play, which is we're not going to get too far into the details on that.

Yes. And, Jeff, to your other question on margin. Obviously, MyDay has a margin well below our standard margin, but it's in the rounding based on the volume of the product at this point for the quarter.

Yes. So to your point, we did not -- it was not a contributor to the quarter and that the rollout of the MyDay itself is a fourth quarter event as we speak now in Europe.

The next question comes from the line of Steve Willoughby, Cleveland Research.

Just one follow-up question on a comment that was just made on MyDay first. And then I have a follow-up, too. If you could -- can you just give us an update on your progression in improving the yields and margins on MyDay and kind of where you stand? I think in the past, you've talked about maybe a 10% gross margin on that product. Just wondering where that is now.

Let's just say we're still early in the startup cycle, the production. And there are things on the new equipment as it comes in that will be more accommodating to the product. And you're right, the learning curve will continue to improve. We're well into the last meeting when we initially started the product and when we initially rolled it out as a private label. The private label product for the most part was a negative gross margin. The costs have come down so we're in positive territory, but we have a long way to go relative to where we expect to take it.

Okay, great. And then my next question is just on the competitive environment now that TOTAL1 is both in the U.S. and in Europe. I was just wondering, it looks like you guys are still obviously continuing to outgrow the market in overall in the dailies. I was just wondering about what your thoughts are maybe longer-term on some of your competitors start to launch new lenses, Sauflon gets FDA approval, things like that.

Well, I think as long as the price point is where it is on TOTAL1 and TruEye, this is the market that today is, let's say, something around or a little less than 5% of global market, or around that number, predicated mainly or targeted mainly at Japan. So it's, I would say, not all that much is happening in Europe and the U.S. in the extreme premium part of this market. As part as Sauflon is concerned and Clariti, it's my understanding they do have approval in the U.S. But having said that, I think they now have order for equipment, so I think like the other people in this space, everyone is in the process of ordering equipment, whether you're J&J or Alcon or Cooper or Sauflon, your -- there is a lead time on equipment in ramping up.

The next question comes from the line of Joanne Wuensch, BMO Capital Markets.

Can we turn for a second into CSI? What was the Origio contribution in the quarter?

The Origio, we had -- Greg, you want -- do you have that number?

Well, Origio was accretive. We've incorporated that into our business model, so we don't break that out separately.

Okay. And it looks as if in your guidance, you tightened the guidance range and looks like the CSI came down a little bit on the top end. Any particular reason for that?

I just think that's in sync with our run rate off the quarter. I think we brought it down $5 million at the top end, and that's a reflection that they're kind of marching more towards the middle of the range than towards the top of the range this time. I think the closure, as the year progressed, the closure device and our conversion there, which started a little in the third quarter in terms of the numbers we put up in the third quarter kind of ripple into the fourth quarter, and it's more whether or not you round it in the -- round it down in the third quarter.

Next question comes from the line of Chris Cooley, Stephens.

Just 2 quick ones. One, when I think about silicone hydrogel sales as a percentage of total CVI, just looking back over the last roughly 8 quarters, it's flat sequentially here in the 3Q. Should I think about that as greater growth obviously with ClearSight and Proclear in the dailies category? Or is there anything structural that we should be thinking about just in terms of your portfolio products in terms of what the ceiling may or may not be for silicone hydrogel as a percentage of total CVI revenue? And then just as a quick second one, any update on the immediate transaction there in terms of estimated time of closure, so I'm assuming we have to change that or make adjustments for that to the full year once that closes?

I think, Aime?

Yes, Aime.

Yes. So, Chris, on the Aime transaction, we're still working through that. Once we determine that it is definite and that we definitely have a deal at that point, we will book that and you will see that flow our -- through our earnings. We are hoping that's in Q4, but again, we have a couple of milestones that we're still working through at this point.

Chris, on the second comment on silicone hydrogel, as far as it being I think 43% in the second and third quarter, I think that's just your -- when does it round up to next level. Obviously, we're happy with the 22% growth on a much larger base, and so the constant currency contribution in growth is much higher than the total. And clearly, it continues to gain the size of our pot, if you will, as well as the market at a very respectable rate. So no, I don't read anything into the 43% and the 43%.

A question from the line of Jon Block, Stifel. Jonathan D. Block - Stifel, Nicolaus & Co., Inc., Research Division: The EPS growth is certainly very solid this year, and I guess you can make the argument adjusted for some of the FX headwinds. It looks like it could even be mid-20% growth year-over-year or higher. I know you quickly mentioned, Bob, low double-digit next year. And I'm not asking for detailed guidance, but just wondering at a high level if you can talk to some of the variables that may lead to the deceleration. I'm guessing one is a potentially higher tax rate, but just any other stuff to point to, is it investments getting rated for greater ramp in MyDay? Anything there would be helpful.

I guess I would just say, we continue to invest money in the company, both on geographic expansion, as well as R&D that is expanded more rapidly than the top line, meaning the emphasis to D, not the R. So it's only a matter of having time to digest that. And also keep in mind that as the yen has declined throughout the year, we still already have a hurdle to overcome first quarter next year as that will still take its toll. And those numbers have been pretty big. I think Greg pointed out the $0.17 for this quarter, $0.16 forecast for next quarter, which I think adds up to $0.54 for the year. So that's been a big hurdle and granted we've had some good things go that have minimized that this year from the point of view of the royalty and other factors in our cost of goods area. So when you put it all together, it's clearly too early to go beyond the guidance we're giving in our -- in my comment, if you will, that is going to be low double-digit.

Final question comes from the line of Amit Bhalla, Citi.

A question for Greg. If you look to the fourth quarter for the gross margin guidance, you're expecting a sequential ramp-up. Please correct me if I'm wrong, but I think that would assume that 1 Day degradation on gross margin is just really not going to happen. And so as you look to 2014, can you talk about the gross margin impact from the 1 Day rollout? And secondly, how do you think about 2014, Bob? Maybe you could talk a little bit about your expectations for market growth and maybe any comments on top line for the company.

Yes, I mean on the gross margin, I think if you look back in the last few years, and again, I mentioned that I have 5 years in front of me, that Q3 has always been the lowest gross margin of the year, and you will see our -- and you will see it go back up in Q4. So you've got a natural process and a lot of it is around manufacturing variances, a little bit more revenue in the quarter. All of that stuff contributes to a higher margin in Q4. And so from that perspective, we feel very comfortable with the guidance that we've given. Again, we're not going to give guidance in the next year. MyDay is still -- it's still a small product compared to our other product portfolios. So even though it has a lower-than-average gross margin, it's -- again, it's not going to drive our gross margins in the coming year just based on the volume.

Just a couple of comments on your questions. Piggybacking on what Greg just -- comment he just made that MyDay is not going to be a major influence next year. That is still predicated on timing of equipment. The equipment lead times are 12 to 18 months, you're only as fast as the longest piece of equipment it takes to get. So it is unlikely. Quite frankly, impossible to get the equipment in, get it plugged in, get it assembled, get it validated, make products and have the product make it out the door to any significance next year relative to any equipment we now have on order. So that is -- clearly, capacity is the governor in 2014. And therefore, MyDay is just not going to be a big factor in that process. Relative to market outlook, I would say that we're, there is no indicator I've seen that says the market should be outside of that range we've given in the past 4% to 6% in a kind of a post deep recession economy that we had. So we're now, in my opinion, at the 4% to 6% range and we've been running most recently towards the bottom end of that range at 4%. But I do think we'll start to accelerate a bit. As far as our guidance, our guidance would be eliminated at this point in time to say and we continue to expect to gain share. We're not saying we're going to match what we've done the last 1 to 2 years at 2x to 3x the market. We're going to gain share, by how much that is one we're not going to attempt to put a lot of color around right now.

With no further questions, we'll turn the call over to Mr. Bob Weiss for closing remarks. Please proceed, sir.

Well, I want to thank everyone for calling in today. And once again, for those of you that have New Year's activities, our apologies for the overlap and have a great happy New Year. For everyone, I look forward to updating you on our year-end results in December, I think it's December 5, very much like today, the 5th. So we look forward to giving you update on just how well 2013 went at that point in time. Thank you.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.