The Cooper Companies, Inc. (COO) Q3 2013 Earnings Report, Transcript and Summary

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 bottom line. Silicone hydrogel revenues were $143 million, the halo effect of Biofinity Toric in Japan continues. In Japan, Biofinity constant currency sales are up over 100% versus the prior year. The halo effect of Avaira Toric is contributing to solid growth of the Avaira 2-week family. As previously mentioned, we have launched MyDay, our branded single-use silicone into Europe this month. We expect this newest addition to our silicone hydrogel portfolio of soft contact lenses to help continue our silicone hydrogel revenue growth momentum for many years to come. I'm extremely happy to say that we believe we, once again this calendar quarter ended June 30, gained share across the board. All regions, all modalities, all lens types, sphere, torics and multifocal in both materials, silicone hydrogel and non-silicone hydrogel. This demonstrates the breadth of our reach and the product portfolio. Geographically, foreign exchange headwinds continue to reduce CooperVision revenues, down 4% in the quarter. Excluding foreign exchange, CVI constant currency growth was 9%. Last year, it was the euro and this year, it's the yen which is down 25% versus the third quarter of 2012. It was over $200 million of revenue in Japan. This is not only impacting our revenue, but is also negatively impacting our gross margin, as well as our operating income and bottom line, I might add. But even with this major nuisance on the strength of our product lines, we are putting up some solid numbers. From a revenue perspective regionally, we have put up solid constant currency growth in all locations: Americas up 9%; EMEA or Europe, 8%; Asia-Pac, 8%; and worldwide, 9%. Our growth drivers in the Americas: trading up Biofinity, including the halo effect of Biofinity multifocal with the entire family doing well. Also, while off a much smaller base, Proclear 1 Day and the Avaira Toric and family are a significant contributor. In Europe right now, currency is helping off at some of the yen. Driving our 8% constant currency growth in this region is the entire Biofinity family and 1 Day, including single-use silicone hydrogel. In Asia-Pac, while foreign exchange took its toll on revenue, our constant currency revenue is up 8%. Drivers include tremendous success of the Biofinity family, especially with the halo effect of Biofinity Toric and Proclear 1 Day. The worldwide soft contact lens market in the second quarter -- calendar quarter was up 4% in constant currency, while CooperVision was up 10%. For the trailing 12 months ended June 30, the soft contact lens market, now $7.2 billion worldwide, was up 4% in constant currency. CooperVision was up 11% on the strength of Biofinity, Proclear 1 Day and Avaira. For the calendar quarter, the market was up, growth was sponsored by 1 Day. While industry data is no longer available for silicone hydrogel material, most likely, this trade-up material remains a solid growth material. CooperVision was up 22% in constant currency in fiscal third quarter of 2013, and CooperVision silicone hydrogel now is 43% of our revenues. Soft contact lens market continues to be a trade-up market. This includes the premium products: silicone hydrogel lenses; torics and multifocals; and trade-up of a 1 Day disposable expands patient revenues by 400% to 600%. Even more important, the 1 Day wearer generates 300% to 500% more profit. Also, it is important to understand that torics and multifocals have a long way to go in capturing the market opportunity, especially outside the United States. Geographically, growth is reasonably balanced with the Americas and Europe up 4%, and Asia-Pac up 5% in the calendar quarter, second quarter. Drivers continue as 1 Days in silicone hydrogel trade-up. Also, we believe torics and multifocals continue to expand faster, off of a lower base outside the United States. CooperSurgical, our women's health care franchise, turned in $81.5 million in revenue, up 27% versus the prior year's third quarter on the strength of a $27 million contribution from our IVF business or fertility business, which now accounts for 1/3 of CooperSurgical revenues. Revenue growth of our fertility business was up 180%. And adjusting for acquisition comparability, the IVF product growth was 20% over the prior year's comparable period. And we're pleased to see our office and surgical procedures product lines achieve a breakeven following last quarter's declines. This reflects some returning momentum in the surgical procedure area in spite of continued softness with our closure device. And remember, we are in a transition mode with this product of Carter-Thomason CloseSure device as we roll out an upgrade of the product. This, in essence, results in lost revenues during a trial period -- trialing period. We continue working through this rollout and remain optimistic we'll see improvements over time. Adjusting for acquisition comparability, including the 20% for fertility, CooperSurgical growth was 6% above the prior year. In terms of guidance, we have taken our non-GAAP earnings per share range and have again taken up our bottom line end of our guidance range for revenue for fiscal year 2013. This results from the strength of our third quarter results, the bottom line brought about by solid top-line moderating foreign exchange movement, a 23% operating income margin and the third quarter and favorable tax movement. The favorable tax movement includes the effects of geographic mix, tax rate reduction, specifically in the U.K., and the effects of some positive discrete tax items. The yen took its toll with about a $13 million hit on revenue due to a 25% decline in the yen versus the prior year. In spite of this, we overcame it and its effects with our positive top line performance and the strength of our gross profit percent in prior year's comparable -- versus prior year's comparable periods. Our new guidance for non-GAAP earnings per share for the fiscal year is $6.23 to $6.28 versus our prior guidance of $6.15 to $6.25. This reflects the ongoing strength of our product portfolio, including Biofinity and the Proclear 1 Day, as well as the lower effective tax rate for this fiscal year. Importantly, in spite of increasing our guidance, we continue to invest in geographic expansion and R&D, with emphasis on D or product development. This D is what has accelerated our rollout of new products, like MyDay, our new branded 1 Day silicone hydrogel. This branded product is now launching in Europe this month. Regarding free cash flow guidance, we're increasing our free cash flow range to $180 million to $210 million, while reducing our CapEx to $180 million to $210 million. This mainly reflects the timing of CapEx or capital expenditure payments as we continue to aggressively manage our free cash flow. As a general comment on capital expenditures, our production plans remain on schedule. And I am pleased to say our manufacturing for MyDay and other products is meeting or beating our internal expectations. I might add one other thing, we are pleased with our -- how we're progressing with fiscal year 2013 and how it's shaping up, and are anticipating low double-digit earnings per share growth again next fiscal year. On strategy, we are continuing with our successful strategy, which I have frequently articulated in the past. We believe it is solid and it has delivered results. CooperSurgical is putting up solid results and is leveraging its infrastructure. This franchise was built with the solid understanding of the value of critical mass in the women's health care market, targeting the OB/GYNs. We follow the professional wherever they go, be it the office, the surgicenter, hospital or IVF centers. Although the call points are different for each, the leverage is considerable. CooperSurgical's third quarter gross profit percent was 64%, its operating margin was 20% and due to minimal capital requirements, CooperSurgical is a significant contributor to our free cash flow. We are dedicated to the strategy and will continue tuck-in acquisitions to leverage the CooperSurgical structure and products. At CooperVision, the strategy is more complex and is much more global in nature. The $7.2 billion soft contact lens industry, because of the uniqueness of our manufacturing platforms and product portfolio, we are the only participant that aggressively promotes silicone hydrogel and non-silicone hydrogel, that is the Proclear family. We emphasize branded and non-branded products. Note private label does not mean lower operating margins. We actively promote and specialize in custom lenses with a high gross profit, I might add. We support all modalities that the eye care professional prescribed for 1 Day, 2-week, as well as monthly lenses. And we support all type of lenses, spheres, torics and multifocals. With approximately 30% share in the high-growth specialty lens categories, torics and multifocals, it is acknowledged by eye care professionals that we're pretty good at specialty contact lenses. Few eye care professionals would challenge why the success of Biofinity Toric for astigmatism put a great design together with a great material and great things can happen. We happen -- we have seen similar successes for this same reason with Biofinity Multifocal, which shipped to market in the middle of calendar year 2011. On the capacity front, with the possible exception of Avaira Toric, we are ahead of plan to deliver considerably more product where we had previously been supply-constrained. The Biofinity family, Proclear 1 Day are all in good capacity shape. Our newest challenge will be to ramp up 1 Day silicone hydrogel as we -- as it is yet a niche market. On pricing, like the rest of the soft contact lens industry, we have a trade-up strategy. Our new wearers and existing wearers are targeted for silicone hydrogel lenses, the Proclear family and the 1 Day or our single-use lenses. Each creates more revenue per patient. A 1 Day modality, for example, results in 4x to 6x more revenue per patient. While this strategy sacrifices the gross profit margin, it generally creates 3 to 5x more profit per wearer. Of course, the strategy competes head on with the lens care space since we are shifting the wearers' resources from lens care to contact lenses only. Competing for lens care dollars is more of a problem for some of our competitors. In my opinion, we continue to be one of the most focused company in the industry lacking many distractions that some of our competitors are going through. I might add, with Biofinity, Avaira and Proclear, we have a lot to talk about with eye care professionals around the globe. As we look down the road over the next several years, we expect to continue improving operating margins and de-leveraging -- or delivering above-average shareholder returns. We expect to continue to average double-digit earnings per share growth while investing in geographic expansion and new product development. In today's market, we have a solid product portfolio to leverage in all modality, multiple materials, all lens types and we retain our expertise to emphasize customizing lenses for the 10% to 20% of those lens wearers requiring other than standard lens sizes and/or designs. We have a lot of work to do before we come anywhere close to having exploited our #1 contact lens family, Biofinity. This is particularly true when it comes to geographic expansion and fully developing the Biofinity family of Torics and Multifocals around the world. The same applies to Avaira, where the Avaira Sphere was anxiously awaiting the relaunch of Avaira Toric. This combination has now put us in a much better position to exploit the U.S. 2 week space owned by Johnson & Johnson and to also exploit our private label strategy more aggressively with this family. While we already have pretty respectable gross profit and operating margins, from a cost perspective, we have considerable upside yet to be fully developed. Upsides include the complete elimination of silicone hydrogel royalty, with the expiration of patents in September 2014 in the United States and in March 2016 in the rest of the world. The reduction of our manufacturing cost by, among other things, improving molding cycle times, increasing capacity utilization and improving yields in general. Each of these are key goals for us. As previously mentioned, our expansion plans include: a low-cost labor location in Costa Rica that is now being built. This is a multi-year project that will further help us minimize costs or manage our costs. Also, given the considerable amount of free cash flow we generate, we will continue to look for tuck-in acquisitions and geographic expansion opportunities like Origio in our 2 businesses. The key requirement, however, is that each acquisition must exceed our minimum investment hurdle rates. Each must achieve, over time, a hurdle rate that exceeds 10%. Additionally, the markets for both women's health care and soft contact lenses are much less developed outside the United States and we generate a considerable amount of cash offshore due in part to our level of manufacturing outside the United States. And as such, we will continue to be -- to aggressively invest in global expansion opportunities. With over 95% of the people on the planet outside the United States, we believe we will find opportunities to invest in other countries for decades to come, thereby sustaining our low effective tax rate indefinitely. And finally, we again this year demonstrated we are opportunistic when it comes to buying back our stock in order to enhance total shareholder return. In summary, before I turn it over to Greg, let me say how pleased I remain with our ongoing progress on many fronts. We continue to outperform the marketplace, most recently growing 2 to 3x the market rate of growth. Our top line growth in a so-so economy, a low inflationary economy remains solid, and I am very pleased at our upper single-digit organic constant currency growth at CooperVision during the quarter. Our family of products, Biofinity, Avaira, Proclear 1 Day and now 1 Day silicone hydrogel, MyDay, as well as women's health care, our global fertility products are all promising growth going forward. We continue to execute well and invest in geographic expansion in a new product pipeline. While we are still very early in our expansion programs in each of the BRIC countries and there are challenges in each, I am very pleased with our progress to date. Our women's health care franchise has now become more global with the Origio acquisition made 1 year ago. Our balance sheet is very strong. Our debt-to-cap, which was near 40% only a few years ago is now single digit at 9%. We remain keenly focused on delivering consistently improving results, mindful of our desire to invest and leverage prudently, thereby delivering a respectable total shareholder return. Lastly, as always, a reminder that at Cooper, our #1 asset is our employees. To them, a big thank you for consistently delivering great results. And now, I'll turn it to -- over to Greg to cover more financial highlights.

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. In the quarter on a GAAP basis, SG&A expenses increased by 6% from Q3 last year to $152.1 million, and were 37% of revenue versus 38% of revenue in the prior year. Part of this increase reflects CooperVision's continued investments in geographic expansion. Also remember that we acquired Origio in July 2012 and our current quarter has 3 months of expenses versus the 1 month in the prior year. On a non-GAAP basis SG&A grew 9% year-over-year. The difference is GAAP SG&A for Q3 '12 included $4 million of Origio deal costs, which was excluded to get to non-GAAP last year. SG&A was up 1% sequentially. As we discussed in the past, CooperSurgical was impacted by the medical device excise tax. And we had about 700k of medical device excise tax in the quarter that hit SG&A, we expect about $2.4 million in 2013. R&D expenses. As we look at R&D in Q3, R&D increased by approximately 13% year-over-year to $14.9 million, or up about $1.7 million. R&D was 3.6% of revenue, up from 3.5% in Q3 '12 and down from 3.8% sequentially. As we discussed in the prior quarter, we would expect that R&D will continue to grow slightly faster than sales in fiscal 2013. Depreciation, amortization. In Q3, depreciation was $23.4 million, up $1.5 million or 7% year-over-year; and amortization was $7.7 million, up $1.8 million or 31% year-over-year, for a total of $31.1 million. Origio amortization for the quarter was approximately $2.1 million. Moving to operating margins. For Q3, consolidated GAAP and non-GAAP operating income and margins were $93.6 million, or 22.7% of revenue, versus $77.3 and 20.4% of revenue for GAAP, and $81.3 million and 21.5% for non-GAAP in Q3 '12. This represents a 21% increase in operating income over Q3 '12 GAAP numbers and a 15% increase over non-GAAP. The increase in GAAP operating margins is due to a combination of improved gross margin and the elimination of the 2012 Origio deal cost and GAAP operating expenses. Interest expense was $2.3 million for the quarter, down 2% year-over-year. Looking at the effective tax rate, in Q3, the GAAP and the non-GAAP effective tax rate was 2.3% and 5%, respectively, versus Q2 -- I'm sorry, Q3 '12 GAAP and non-GAAP effective tax rate of 6.2% and 6.1%, respectively. As we discussed before and as Bob mentioned, the effective tax rate continues to be below the U.S. statutory rate as a majority of our income is earned in foreign jurisdictions with lower tax rates. In Q3, the single biggest factor impacting our effective tax rate was the drop in U.K. statutory rates from 23% to 20%, which was enacted in July. This had a favorable quarterly impacts of about 230 basis points, so our 5% non-GAAP rate would have been 7.3% without this. We now expect the full year GAAP effective tax rate to be in the range of 5.5% to 7%, and the non-GAAP effective tax range to be in the range of 7% to 8%. This will result in an estimated Q4 non-GAAP rate of 9.5% to 10.5%. When thinking about these ranges in our future effective tax rate, remember, there were some nonrecurring items so far this year, including the U.K. statutory rate reduction impact and our deferred tax liabilities I just mentioned, the favorable settlement of a foreign tax authority audit we mentioned in Q2 and the multiple years of R&D tax credit, which was renewed in Q1. These will amount to roughly 200-basis-point reduction effective tax rate this year. Another driver in the lower effective tax rate is the reduction of the CIBA royalty, which increased offshore profits, and which we will continue to see going forward. Earnings per share. Our Q3 earnings per share on a GAAP and non-GAAP basis were $1.79 and $1.74, respectively, versus $1.36 and $1.45 on a GAAP and non-GAAP basis in Q3 '12. Our earnings per share is up 32% and 20% on a GAAP and non-GAAP basis, respectively, versus the prior year. Touching on share repurchase. There was no share repurchase activity in Q3. There still remains $184.5 million available under this program. Regarding foreign exchange, currency continues to have a big impact on our business from a year-over-year perspective, and even some continued negativity since we gave guidance on our Q2 earnings call. From a year-over-year perspective, currency negatively impacted us by $0.17 and this was mainly driven by the yen, which was down 25% year-over-year. From our Q2 earnings call when we last gave guidance, currency negatively impacted Q3 EPS by $0.02 and is projected to negatively impact Q4 by an additional $0.02. As we look at the fourth quarter, we continue to see a significant negative impact on a year-over-year basis of around $0.16. This does include some favorable impact of seeing some of our lower cost pound inventory flow through the P&L in Q4. Regarding our Q4 guidance, we used roughly today's rates of euro being 1.32 and the yen at 100. Looking at the balance sheet and liquidity, in Q3, we had cash provided by operations of $103.1 million, capital expenditures of $38.6 million, resulting in $64.5 million of free cash flow. Inventories were basically flat at $340 million from last quarter. For the quarter, we're seeing months on hand at 7.1 months, up from months on hand to 6.6 months last year, and down from 7.8 months last quarter. AR continues to be well managed with DSOs at 53 days, up slightly from 52 days last year but down from 54 days at the end of last quarter. Before I turn it back to Kim, I wanted to touch on guidance for Q4. And Bob mentioned some of this, but just to reiterate it, total company revenue for Q4 is expected in the range of $410 million to $425 million for a year-over-year growth rate of 4% to 8%. We expect CooperVision's Q4 revenue to be in the range of $330 million to $340 million or a year-over-year growth rate of 4% to 7%. This equates to a constant currency growth rate for CooperVision of 8% to 11%. We expect CooperSurgical's revenue in the range of $80 million to $85 million with a year-over-year growth rate of 3% to 9%. We expect non-GAAP gross margin in Q4 to be in the range of 65.5% to 66%. Non-GAAP OpEx to be around 41.5%, non-GAAP operating margin to be in the range of 24% to 24.5%. As I mentioned earlier, we expect the Q4 non-GAAP effective tax rate to be 9.5% to 10.5%. Our Q4 GAAP earnings per share is estimated in the range of $1.76 to $1.81 and excludes the impact of the potential Aime transaction. Our Q4 non-GAAP earnings per share is also estimated in the range of $1.76 to $1.81. This being based on a diluted share count of 49.9 million shares. Finally, we expect capital expenditures for the year of $180 million to $210 million and free cash flow of $180 million to $210 million. With that, let me turn it back to Kim for the Q&A session.

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.