The Cooper Companies, Inc. (COO) Q1 2019 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Q1 2019 The Cooper Companies Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to introduce your host for today‘s call, Ms. Kim Duncan, Vice President, Investor Relations and Administration. Ms. Duncan, you may begin.

Good afternoon. And welcome to The Cooper Companies first quarter 2019 earnings conference call. During today’s call, we will discuss the results included in the earnings release, along with the updated guidance and then use the remaining time for Q&A. Our presenters on today’s call are Al White, President and Chief Executive Officer, Brian Andrews, Chief Financial Officer and Treasurer. And before we begin, I’d like to remind you that this conference call contains forward-looking statements, including all revenue and earnings per share guidance and other statements regarding anticipated results of operations, market or regulatory conditions, and integration of any acquisitions or their failure to achieve anticipated benefits. Forward-looking statements depend on assumptions, data or methods that may be incorrect or imprecise and are subject to risks and uncertainties. Events that could cause our actual results and future actions of the company to differ materially from those described in forward-looking statements are set forth under the caption Forward-Looking Statements in today’s earnings release, and are described in our SEC filings, including Cooper’s Form 10-K, all of which are available on our website at coopercos.com. Should you have any additional questions following the call, please call our investor line at 925-460-3663 or email ir@coopercos.com. And now I’ll turn the call over to Al for his opening remarks.

Thank you, Kim. Good afternoon, everyone. Welcome to our first quarter 2019 conference call. We’re off to a strong start this year, as we continue successfully implementing our strategic objectives such as investing in key accounts, increasing promotional activity and investing in infrastructure. These efforts are all tied to producing strong sustainable revenue growth and they are paying off. For the quarter, we reported $628 million in consolidated revenue, up 6% year-over-year, up 8% pro forma. Non-GAAP earnings per share were $2.88. CooperVision posted revenues of $470 million, up 6% as reported or up 8% pro forma. CooperSurgical posted revenues of $158 million, up 9% as reported or up 8% pro forma. I’m extremely pleased with these results, as our focus on increasing our strategic partnership activity and supporting our market leading products is producing strong results. For CooperVision, the strength was seen throughout the world. The Americas was up 4%, EMEA 9% and Asia Pac 13%, all pro forma. All three regions were led by continuing strength from our daily silicone hydrogel lenses, which grew 38% pro forma. The Americas in particular posted significant strength around daily silicones with both clariti and MyDay performing well. EMEA was very strong, led by daily silicones, torics and multifocals, while Asia-Pac posted another robust quarter led by daily silicones and Biofinity. So I’m happy to see strong and diverse growth around the world, driven by strong products and exemplary sales and service. Regarding product families, both our daily silicone hydrogel franchises clariti and MyDay are performing extremely well and our focus will remain on these product families as the global contact lens market continues to shift in this direction. Outside of dailies, Biofinity and Avaira Vitality continued performing well, combining the growth 7%. As a reminder, these two silicone hydrogel product families comprised our focus in the FRP or Frequent Replacement Product market which encompasses the two week and monthly modalities. Also included in this segment are unique products such as Biofinity Energys, which helps individuals deal with digital eye fatigue. We also saw strength in torics and multifocals this quarter with torics growing 9% and multifocals up 8%, both pro forma. Turning to the market, the global soft contact lens market grew 8% in calendar 2018 to roughly $8.7 billion. Within this we grew 10% and I’m extremely happy to report our market share increased to 24%, so we’re now tied with Alcon in the number two spot, while we estimated J&J share at 40%, B&L at 8%, and then a few small manufacturers making up the rest. The primary growth driver for the market continues to be daily lenses which grew 13% last year and now accounts for roughly $4.6 billion or 53% of the total market. Within the segment, silicone hydrogel lenses drove the growth up 34%. It’s important to note that although 53% of revenue dollars are in daily lenses, the percentage of actual wearers in dailies is much lower due to the price difference. We estimate daily wearers encompass somewhere in the low to mid 20% range of the overall market and thus offer a very significant long-term trade up opportunity for the entire contact lens industry. And regarding future market growth, you’ve heard me talk about the positive trends in the contact lens market and these remain in place, be it the increasing incidence of myopia around the world, the global transition to daily contact lenses, geographic expansion or growth in torics and multifocals, the future looks very bright for our industry. I’m not sure the market will continue growing 8% as it did this past year, but I could certainly see it growing 5% to 6% plus for several years in the future. Turning to our strategy, I want to mention a few important points around our growth initiatives and silicone hydrogel one day lenses, key accounts, and our efforts around customized product offerings. The shift to one day lenses from FRPs generates roughly two to three times more revenue per patient and within the one day market, the trade up from a traditional hydrogel to a silicone hydrogel generates an additional roughly 20% premium. This is great for the industry and I expect all contact lens manufacturers to continue sharing in this multi-year trade up trend as a rising tide should lift all boats. Having said that, what’s unique to Cooper is our current market share within dailies is only 18% compared to roughly 31% within the FRP space. This shows that if we can get our fair share of new daily fits, we should post strong growth for years to come and I’m confident we can do that based on our momentum, our strong product portfolio and the positive new fit data. Regarding key accounts, we’re continuing to strongly support these strategic partnerships with a focus on helping them grow and retain their customer base. These are extremely knowledgeable business people and they understand the growth potential for contact lenses and that it goes well beyond the shift to dailies. In particular, they appreciate the value of cross-selling contact lenses to their customers who wear glasses, working to reduce contact lens dropout rates, the value of fitting the best lenses for each situation such as torics and multifocals and the growth potential of expanding geographically. And we’re here to help them in each of these areas driving growth in their businesses. Regarding our customized product offerings, we’re making excellent advancements within distribution, labeling, and packaging to support our efforts around providing customers a diverse set of options to help them grow and retain their patient base. This includes opening new facilities, expanding others, upgrading systems and increasing our use of automation to become more efficient. All of this activity is very important in today’s world where customers expect premier behind the scene support. Finally, before moving to CooperSurgical just a quick note to say we completed the acquisition of Blanchard in January which is another specialty lens company with a strong position in scleral lenses. Although, this is a small market focused on providing contact lenses to patients with concern such as irregular corneas hard-to-fit eyes or people with severe dry eye problems this is another step in growing our specialty business, which we’re excited about. Moving to CooperSurgical. We reported revenues of $158 million, up 8% pro forma. Fertility posted strong results growing 9% as last quarter’s integration activity move behind us. We continue to believe the global fertility market has fantastic long-term growth potential and we are a market leader in the space. As a reminder, this part of our business includes products like media, IVF medical devices and genomics and these products are sold throughout the world. Outside of fertility, our office in surgical business grew 7% pro forma with strength noted in PARAGARD which is the only non-hormonal IUD or long-acting reversible contraceptive on the US market. This product grew 10% even off on an extremely strong fourth quarter and we continue to believe it will do well going forward. Supporting this growth as an active advertising campaign including TV ads and select geographies, print media and social media. Depending on the market that you would and you may have seen the TV ads, but if not check out PARAGARD.com where you can see the commercial. Although early in the campaign this promotional activity has generated significant interest and we’ve seen dramatic increases and visits to our website and much greater discussion on social media. In conjunction with this activity, we’ve also been investing heavily in physician training to support practitioners as request for PARAGARD from their patient’s increases. We’re closely monitoring these marketing efforts, evaluating the cost benefit, but early indications are very positive and we’ve thus accelerated promotional activity that was planned for later this year into Q2 to allow us to concentrate this activity and obtain a more effective understanding of its impact. After this quarter, we plan to return promotional activity to more normal levels to allow time to analyze the data and determine an appropriate go-forward marketing investment strategy. Given PARAGARD has only roughly 17% market share in the 1 billion US IUD market, we believe there exist significant opportunity for future growth, if we can effectively communicate the advantages of the product. Outside of PARAGARD, our office in surgical business grew a solid 5% pro forma. Lastly on CooperSurgical, we had two small business development items I want to quickly mention. First, we acquired a small company named Incisive Surgical in January which sells unique absorbable skin staple called INSORB. Second Utah Medical brought backed out their US distribution rights with the Filshie Clip. The impact on revenues going forward is minimal as they offset one another. So in conclusion, we’re having a strong start to this year and I continue to feel very positive about the direction of the company. I want to thank our employees for their hard work and dedication as that’s what’s driving our success. And I’ll now turn the call over to Brian.

Thank you, Al. And good afternoon, everyone. Most of my commentary will be on a non-GAAP basis, so please refer to today’s earnings release for a full reconciliation of GAAP to non-GAAP results. Al covered revenues, so I’ll focus on the rest of the financials and guidance. Consolidated gross margins in the quarter held steady at 67.5% year-over-year. CooperVision’s gross margin was 66%, down from 67.1% last year with the entire decline being attributable to currency. Outside of currency, operational positives such as product mix were offset by items such as rebates and temporarily higher secondary handling costs. CooperSurgical’s gross margin improved significantly to 70% to 72% from 68.8% last year driven by product mix including higher sales of PARAGARD and fertility products. Consolidated operating expenses grew 9.9% in the quarter driven by increased investing in sales and marketing in both CooperVision and CooperSurgical. This includes both businesses continuing to enhance their sales forces by selectively hiring around the world with a focus on key accounts. Within CooperVision, we also saw increased investments in distribution where we continue upgrading our infrastructure along with higher R&D, including continued activity around myopia management. Within CooperSurgical, operating expenses grew mainly associated to higher sales and marketing costs related to PARAGARD. Operating income improved year-over-year by roughly $2 million even in the face of currency headwinds and the operating margin for the quarter was 26.2%. Below operating income, we reported $18.2 million of interest expense and an effective tax rate of 2.6%. This low tax rate was driven by several factors including favorable internal restructuring activities, excess tax benefits received from the exercise of stock options and an audit settlement. Notably regarding the audit settlement, we reached a final agreement with the UK Tax Authorities associated with our dispute over the transfer valuation of certain intellectual properties associated with the SoftOne acquisition. The settlement resulted in a refund of $29 million from the $42 million we paid in Q1 of last year. Non-GAAP EPS for the quarter was $2.88 with roughly 49.9 million average shares outstanding. Free cash flow was $22.6 million, comprised of $101.8 million of operating cash flow offset by $79.2 million of CapEx. Net debt increased by $41 million to $1.989 billion. The increase is primarily attributable to the acquisitions of Incisive Surgical for $33 million and Blanchard for $31 million offset by operating cash flow. Moving to guidance. We are increasing our consolidated fiscal 2019 revenue guidance to 2.631 billion to 2.676 billion. This includes raising CooperVision to 6.5% to 8% pro forma growth or $1.968 billion to $1.995 billion reflecting the strength we saw in Q1 and our belief that the rest of the year should be strong even against hard comps in the back half of the year. CooperSurgical’s revenue guidance is also being increased slightly to a stronger 3% to 6% pro forma or $663 million to $681 million reflecting our strong Q1. Outside of revenue, we continue to expect gross and operating margins to improve slightly year-over-year. Interest expense is expected to be slightly lower as we’re now assuming only one additional 25 basis point rate hike which we model to occur later this month. As for taxes, we’re now expecting a full year effective tax rate around 11%, down from our previous expectation of around 14%. This reflects Q1 and our latest expectations for the remainder of the year. On FX, currency has moved slightly in our favor and we’re now forecasting a negative $0.47 of FX this year, $0. 08 better than our initial guidance provided in December. Having said that, this $0.08 is offset by the Filshie clip transaction which resulted in the receipt of $21 million of cash, but the loss of near term earnings. Incorporating all of this, we’re increasing our full year non-GAAP EPS guidance to $11.85 to $12.15, up $0.50 at the midpoint. This increase is roughly comprised of $0.40 from tax, $0.07 from operational improvements and $0.03 from lower interest expense. With respect to quarterly gating, as Al mentioned, we’re shifting marketing spend associated with PARAGARD from the end of this year into Q2 and now anticipate fiscal Q2 non-GAAP EPS in a range of $2.70 to $2.80. Q3 and Q4 now expected to be slightly stronger than initially expected due to this. And with that, I’ll hand it back to the operator for questions.

Thank you. [Operator Instructions] Our first question comes from Jeff Johnson with Baird.

Thank you. Good afternoon, guys. Can you hear me, okay?

Yes.

Hey, Jeff.

Great. Hi, Brian and hi, Al. How are you? So just wanted to start may be on CVI. On the European number, that number definitely came in a little bit better than we were expecting. I think, it stayed sequentially kind of stable at 9% versus where it had been a quarter before, but the comp was about 500 basis points tougher. So just wondering, is that kind of a sign of some of that big retail business, some of the kind of big account wins? And is that - is there some sustainability to that strength in Europe than even as comps get kind of tougher this year throughout the year? Thanks.

Yes. I would say yes to both of those. I mean, it is attributable to strengths we’re seeing in key accounts. We kind of talked generically or broadly about key accounts around the world as there are obviously key accounts in different regions and some span multiple regions. But when you look at the European region, there are a number of important key accounts there and we’ve had success there and we believe we’re going to have success going forward. Part of the reason that we took our guidance up to 6.5% to 8% for CooperVision was to one, reflect the success we have in the first quarter, but two, kind of just show the confidence we have in the CooperVision numbers in total, including Europe, even against the challenging comps in the back half of the year.

Yes, understood. And then maybe on PARAGARD, just as my follow up question. That 10% number, I know, is a good number. It did come in maybe a little light of what we were expecting and maybe we were just out of line with our expectations. But I thought you had some easy inventory comps there. So again, just want to do a reality check, where was the PARAGARD performance this quarter relative to your expectations? And how is that performing at the profitability line as well?

Yes. That’s fair point. Q1 was a pretty easy comp because of PARAGARD. We had all that noise last year, it seemed like almost in every corner, with respect to channel inventory and trying to settle things down. But at the end of the day, the 10% growth that we had in Q1 for PARAGARD was in line with our expectations. So that’s kind of the improvement. That product is, as you know, is a very profitable product for us, having said that, we are reinvesting a lot of those dollars. I touched on that a little bit. Brian actually quantified that to some degree in terms of some of the investment activity we’re pulling into the second quarter. So I won’t comment on direct profitability associated with it, other than to say it is indeed a highly profitable product and one that we really truly want to try to drive growth out of.

Thank you.

Thank you. And our next question comes from Larry Biegelsen with Wells Fargo.

Good afternoon. Thanks for taking the question and congrats on a really nice quarter Al. One geographic question, one tax/EPS question. So, EMEA was very strong at 9%, but Al, Americas did dip to 4% from 8% last quarter and actually the comp was a bit easier. So I mean, we did hear some anecdotal feedback that late in the year, the US market was a little soft. Can you provide any color on that and expectations going forward? And I have one follow-up.

Yes, I would agree with that. I think if you look at our results and the result of our competitors out there - with their numbers, it show some of the weakness that was in the US market. I don’t think that there’s anything particularly that needs to be pulled off out of that right like any true fundamental change in the business. I think it was just a little bit softer of a quarter and that’s okay. That happens sometimes and there’s not too much we can do about that. I mean, we grew 4%, so we obviously believe that we continue to take market share there and are happy with that number in terms of putting in the context of the overall market growth.

And then on EPS, Al, one, on the tax rate that 11%, how should we think about that going forward? And I know it’s early, but just wanted to hear from you if you feel like you can get back to double-digit EPS growth in fiscal 2020. It’s encouraging to see the guidance come up today for fiscal 2019 and how it’s about mid single digits at the mid point, but how should we think about looking forward a little bit? Thanks for taking the question.

Yes. I mean we have the low tax rate. There was a decent amount of activity this quarter that brought it down. I’m talking about Q1, Q2, 3, and 4 will be somewhat similar in the low teens is our expectation. If you look at next year, most of this activity is directly associated with this fiscal year, meaning, we would expect next year probably to be closer to a more normalized rate at 14%. Again, that wouldn’t include like stock option equity and some of that kind of stuff which could pull it lower. But I think we’ll can kind of go to that 14%-ish kind of rate that we talked about in the past. With respect to getting to double-digit EPS growth, I was pretty clear that I felt really strong about that that we can do that. Now, the effective tax rate coming in at 11% going to 14% next year means we need to hurdle that, but we’ll see what we can do on that. I don’t want to get into guidance yet for next fiscal year. But I continue to believe the fundamentals of the business are very strong, you can see that especially in the revenue growth. So I continue to be pretty optimistic about back half of the year and next year.

Thanks, Al.

Thank you. Our next question comes from Chris Cooley with Stephens.

Hey, thanks. Good afternoon. I appreciate taking the questions. Al, I just wanted to see if you can maybe give us a little bit of an update on MiSight and myopia [ph] control, a lot of interest in myopia control at SECO this past weekend on both the frame, as well as the contact lens front with very limited data so far. So could you just maybe give us an update on how that’s tracking from an R&D perspective? And when we could start to see that here in the states? And I’ve got one quick follow-up.

Yes, definitely a fair question. I mean, we’re excited about MiSight and the entire myopia management field here within CooperVision, there’s no question about that and we’re doing a lot of work on that internally. Some of that you obviously see in the R&D line and then some of it’s within our operating expense infrastructure right now. So, we’re excited about it. We believe in the future. We believe there’s actually significant upside there and I think that when you look at myopia management, you talk about getting kids into contact lenses, who are may be 8, 9, 10, 11, 12, 13 year old that type of thing that expands the market for contact lenses that are also obviously helps everyone with visual correction. Another interesting stat is the average contact lens where wears their lenses around seven years, but if they’re fit in a contact lens first as their first form of visual correction rather than glasses they wore contact lenses on average 14 years. So getting wear into contact lenses to start is a significant advantage for the contact lens industry. Having said all that, it’s still a little early. I’ve kind of held off a little bit of the myopia management side and MiSight and I’m excited as you could tell about it. But I don’t want to get too many details on it yet. We’re working through the approval process in the US market. We have the lens in the market in select countries around the world so we’re making progress at the right point in time. I’ll kind of get into that into more detail.

Appreciate the color. And then if I could just follow-up on Jeff’s earlier on questions on PARAGARD. I know in the past you’ve talked about the incremental spend at the marking effort and needing to see that requisite margin dropped through. Can you just give us may be some broad strokes around what you saw in those markets where you rolled out the dancing in the streets marketing initiative there what type of pull-through are you seeing at the OB/GYN level just kind of script conversion just trying to get an idea of some metrics that we see this incremental spend in the 2Q, what type of growth we should kind of model thereafter? Thanks so much.

Yes, Chris. That’s a great question. It’s kind of same question that I have right now. So what we’ve seen is we went into those markets, we did the TV commercials and the reaction has been very positive. We’ve seen a very significant increase in traffic on our sites and PARAGARD related sites, whether it’s blogs or anything along those lines in the social media side definitely much higher in those markets where we’ve done the TV advertising. How does that TV advertising in that significant increase in activity relate to or translate to actual product sales? That’s a little bit more of the question. So that’s what we’re doing right now and we’re going to continue the type of activity for several more months here. We ran it through February. We are in March, we are April those dollars are fairly large, but it’s really a matter right now saying okay, how does that translate. There is a lot of activities. There’s a lot of excitement. There’s a lot of positive energy and discussion around the positive attributes of PARAGARD. Does that translate to actual wearer in - the wear base increasing? So that’s a little bit of a question mark right now. I mean, we’re doing the work. We’re tracking it carefully. I think we’re doing everything right. I’ve 100% confidence in the team who is working on that. For now, we haven’t really changed our guidance with respect to PARAGARD. I think because of the comps PARAGARD has kind of a challenge back half of the year, but we’ll see maybe we can do little bit better. I’ll give you - I’ll be able to definitely give you more information on the next earnings calls to how some of that translate into actual sales though.

Thank you for taking the questions.

Thank you. Our next question comes from Steve Willoughby with Cleveland Research.

Hi. Good evening. Thanks for taking my question. One for Al and one for Brian. Maybe Brian, first if you could just provide a little more color on the tax audit that you broke out or the refund you broke out. Could you just clarify the $42 million charged a year ago and then the $29 million refund this year. It wasn’t clear to me in your P&L whether those were included or excluded in non-GAAP results in both periods? And then secondly for Al maybe Al if you could just provide a little more color as it relates to some of the strategic accounts what’s the customers are finding most interesting as you’re partnering with these people? Is it inventory, pricing, private label, distribution or kind of all of the above?

Sure. So Steve, I’ll handle the first one. As far as the DPT payment we made in Q1 of last year, in Q1 that impacted our free cash flow and took us down. The $29 million that we received as a result of the tax settlement actually was received - the cash was received in Q2. So it’ll improve our free cash flow in Q2, but the impact from the settlement resulted in our tax rate - well that was part of the one of the three reasons, the primary drivers of our tax rate going down at 2.6% in Q1.

If I could just follow up real quick on that Brian, so not the labor and tax question on the call, but so a year ago then was it the $42 million was that charge included or excluded in non-GAAP numbers?

That was included in Q1 of last year.

Okay. Thank you. Perfect.

On strategic accounts Steve, I can’t say, it’s all about the things that you mentioned. I think whether it’s the ability to offer customer brands kind of as we historically talked about is private label, like the ability to offer customer brands, the ability to shift direct in many cases, our willingness and ability to do customized labeling and packaging all of that stuff and you combine that with our desire and our willingness to offer better marketing and promotional support. And haven’t all that kind of be tied in supporting key account. Like it’s the key accounts relationship, we’re here to support that key account and help them grow their wearer base and retain their wearer base. That’s what we focus on and that’s key and that entire message is being received really well by key accounts. So I’m not sure I would necessarily call one thing, but I would say the whole gamut of what we’re offering from a customized solution perspective is what intrigues those key accounts.

Okay. Thanks, Al.

Thank you. Our next question comes from Jonathan Block with Stifel.

Thanks, guys. And apologize in advance if any question already asked. But maybe two for me. The first is, on some of the investments in CVI from a shipping perspective. Do you think those investments become leverageable so to say in 2020? Or do you believe there’s going to be sort of a long tail or a longer tail of that as a fulfillment remains a big priority for the company? And then I got a quick follow-up.

Yes, I don’t think where we are today that we’ll leverage those distribution items next fiscal year. My guess is the distribution expenses kind of grow in line with revenues, that’s what I would expect. I mean we’re doing a lot of distribution expansion right now, a lot of upgrade work and so forth and so the expenses are heightened. I think that gets better next year, again growing kind of equal to revenues. And then I would expect that we’ll probably see leverage from the distribution expense line in fiscal 2021.

Okay. And then if I can ask sort of a part B to that. Just goes throughout the P&L. I wouldn’t think that’s obviously a huge investment for you guys. Is there another ones either reps that you brought on, on CSI side specific to your initiatives are on PARAGARD. So is there a way to think about maybe that item, if the DTC initiatives are successful that that might be a more leverageable line item next year because you brought in the reps, you will have some success arguably with the TV initiatives and maybe that’s one where you start to see some leverage work, its way through the P&L next year?

Yes. I would absolutely agree with that. We have around 60 direct sales reps right now in PARAGARD, about 20 reps internally. We hired those individuals kind of over the last year or so. So as we annualize that, that makes life a little bit easier, right. But we get into next fiscal year, you’re absolutely correct, like, we’ll be able to leverage that some. I still believe that at some point in the future, we’ll be able to combine those sales reps to some degree with our existing sales infrastructure – or sales reps doing our in-office medical devices now. We’re not, obviously, doing that now, but we will in the future. So I do believe there’s some leverage opportunities within CooperSurgical. It’s just, now is not the time to do that. We’re really working on driving revenue growth in that business and we’ll continue to for the foreseeable future.

Okay. And I hate to borrow one here and based on Steve’s prior comments, I guess, I missed the color on the call. But maybe if you can just help me out, the tax rate going forward, does this dip down specific to fiscal 2019? It sounds like per your prior comments it may be, because there might have been a specific credit or refund? Or do we sort of, when we look out and I think many of us has assumed that 14-ish-percent tax rate was the new level set going forward. Does that still take hold or we do we lower it going forward as well? Thanks guys.

Yes. I think the 14% would be for now the correct way to look at next year. This activity was – will be – it was in Q1, it will all be within this fiscal year. So I think next year 14% will be the appropriate rate to use.

Okay. Thanks, guys.

Thank you. Our next question comes from Anthony Petrone with Jefferies.

Thanks. May be one on MiSight, one on PARAGARD, just to may be get an idea of market opportunities. Just on MiSight, is there anything you could share just on exactly what the opportunity is within the US for myopia control for pediatric patients, so that would be in dollars if you have that information. That’ll be the first question. And the second on PARAGARD would be, just do have any information on sort of the number of active prescribers today and sort of where you think that can go with the direct to consumer advertising campaign? Thanks.

Yes. Let me touch on PARAGARD. When we look at PARAGARD, some of the stuff that we’ve learned is that it’s important to get some brand awareness out in the marketplace. The physicians know the PARAGARD exists. It’s been out there for a little while. They know it exists and if a patient walks in the door and ask about it, or specifically ask for it, then the doc discusses it with them and frequently that’s the product that they walk away with. So the feedback that we’ve received from all the work that we’ve been doing is create and - including from the physicians is, create some brand awareness about this. Let’s talk about this, let’s have a discussion around in non-hormonal advantages associated with this product. That’s why you hear us talking more about the branding side and the advertising and social media marketing side of things. We are also doing the training with the doctor. A lot of that activity is more just a reminder to the doctor hey, this product was not being supported or was not being heavily supported, marketed and so forth. It’s still here, it still exists. As a company, we’re obviously dedicated to the space. It’s a very important space to us and we’re going to continue to support this. So as individuals come in and ask for this product, doc, let them know that it’s here and as a reminder do you hear the advantage of it - advantages of it. So that kind of gives a little bit of color around that. On MiSight or myopia management in general, I’m not going to get into any numbers yet. The only thing I would point you to on that is, myopia management really when we get into it is, you’re talking about kind of kids, let’s call it, eight years old to 13 years old, right? I mean children started going into contact lenses on their own around 13, 14 and it’s not myopia management lenses, but they’re still going - starting visual correction in the form of contact lenses. How big is that 8 to 13 year old marketplace? It could be pretty significant. I mean it could certainly be fairly significant in the US and it could be on a global basis also. But there’s still a lot of work to do there. So I don’t want to get over our SKUs here. There’s still a lot of work that we need to do and I don’t want to start quoting numbers yet.

Fair enough. Thanks, again.

Yes.

Thank you. Our next question comes from Matthew Mishan with KeyBanc.

Great. Thanks for taking the questions. Al I’m going to risk embarrassing myself with some poor math on the call here which is probably also why you moved away from these numbers giving them every quarter. But I have 8% pro forma growth for CooperVision last year for your 2018. I believe you said calendar year that growth was 10%. Does that mean that November and December would have been much stronger than January? Did I get that math right?

Yes. So you got two things that go in there. One is the fact that it’s calendar versus fiscal. The other is the market data that we quote ends up being manufacturer sales data. It’s our data, but it’s not a gross basis versus a net basis. So that’s one of the reasons we pulled that out is because it was a little confusing, right, so you have to look at it a little bit more in directional basis. That’s probably the easiest answer to give you on that. You’re exactly right, that’s what we pulled some of those numbers out because the market data is great directionally, but when you really peel specifically into the numbers, it gets a little more challenging.

Okay. Fair enough. And I’m just trying to understand the legs of the key account strategy you have. I realized the key account is a broad term, but how should I think about how many more are there to sign? Is it a matter of increasing penetration with them or may be them like taking share in the market and you kind of growing with them?

Yes, I think there’s a few different ways that we look at that in terms of opportunities. There’s no question that higher penetration rates within existing key account is very important. And we look at that from the context of saying we have a great relationship with someone we like to sell more lenses to that company. The other way to look at it is to say we have key accounts where we have strong relationships with them, whether the relationship is stronger on the FRP side, the two-week or the monthly side and we really want to expand that relationship to the daily side. Now that would be - you can look at that in terms of improved penetration rates also. But it’s really to say, hey, we have a great relationship with you. Guys we love you, you love us, we have a great strategic partnership, let’s expand that into daily silicone hydrogels as an example where in a lot of cases where we’re under-penetrated there. So you get that. And then you do get some situations where we do have either really low penetration or kind of minimal relationships with people as they grow. And we’re trying to get into door to ensure that we’re offering our full suite of products there. So, I think it’s depending upon how you look at it comes from a few different angles.

Okay. Thank you very much.

Yes.

Thank you. Our next question comes from Joanne Wuensch from BMO.

Thank you very much for taking the question. It looks like the market accelerated the growth rate at the end of 2018. What do you think drove it to that 8% versus the historical 4% to 6% range. And how do you think that that’s sustainable or not?

Yes. A lot of that growth -- and obviously, it’s always a little challenging by quarter, right. And you look at everyone’s performance and then you have to look at prior years and comps and so forth, but you’re right, there’s strength in the marketplace right now. A lot of that strength is getting driven by the factors that I was talking about, be it geographic expansion, be it growth in torics, multifocals and its heavily been driven by the shift to dailies. So within that sub-segment the silicone hydrogel daily component of the market. There is a lot of growth potential in my opinion with those areas for many years. I mean, I believe that the shift to daily silicone hydrogel themselves has five, six, seven years something like that in front of us a pretty solid trade up growth from that. And then, when I look at geographic expansion as an example, I mean, some markets like India are tiny almost non-existent. I mean, they offer fantastic growth potential, same with China and a number of other markets that are out there. And then when you look at markets wear that are more developed where you’re having fits for like torics and multifocals like the U.S. and some other developed market. The penetration rates of those types of lenses are significantly higher than they are more underdeveloped countries. And over the years, we’ve always seen as countries develop contact lens usage increases and the fitting of the correct lens or the proper lens increases. And so I really believe we have many, many years in front of us as strong growth in the contact lens industry.

My second question has to do with SG&A spend, which increased year-over-year. Some of it is going to PARAGARD campaign but some of it is going into the key account strategy. Is it 50, 50? I mean, how do I think about how you decide which lever to pull for which franchise? Thank you.

Yes. It varies by quarter. As Brian highlighted kind of at the end there, we are pulling some pretty decent promotional activity forward on CooperSurgical and that means that in Q2 you’re going to have heightened activity associated with PARAGARD and that’ll go back to normal. I would say at the end of the day like we’re investing in both of them. Like we’re not afraid investing in both of them obviously within CooperVision we’re doing everything we can. Our business is incredibly important to us so whether it’s investing in infrastructure, manufacturing capacity, key accounts salespeople and so forth we’re driving everything. We’re pulling every lever we believe we can that provides a good return by investing in that business. Within CooperSurgical from a key accounts perspective we’re also doing that, but as I discussed on PARAGARD we’re being a little bit more selective here as we look at the cost benefit of that and coming up with the correct strategy.

Thanks very much.

Thank you. Our next question comes with Matthew O’Brien with Piper Jaffray. Matthew O’Brien: Afternoon. Thanks for taking the question. I guess Al just for starters on the CVI performance. It’s been very, very good. Dailies is quite good. It seems like you’re pointing a lot towards the key accounts really driving a lot of that. Is there anything underlying in that business that’s also doing well that we’re not asking about? And then back on the key partnerships side I think is there any kind of meaningful competitive response that you’re seeing. I’m assuming that your bigger competitors are also targeting these accounts. I mean, how are they responding to what you’re doing and some of these account as you’re taking share so quickly there?

Yes. I think I kind of maybe answered both of those to some degree in the same way. I mean, we’re the only company out there with the full and broad daily silicone hydrogel offering, right, the broadest like. We have MyDay on the premium side, we have clariti in the mass-market side we have full sweat and clariti is geared toward multifocal. So we’re out there. The products are out there in the marketplace. Obviously, we have competitors who have some products out in the marketplace, but for now we need to capitalize on the fact that we have a great broad product portfolio and that’s what we’re doing and we’re outselling that hard right now. Now yes, competitors are going to come out with new products. Of course, they are. I mean, this is a highly competitive industry and it’s not like some of the medical devices with heart valves or something like that. I mean we’re 24% of the market. Alcon is J&J is, Bausch is, so people come out with new products all the time. We have new products in our back pockets and stuff that we’ll be launching over time. But for now the key on both of those is that, we have a great product portfolio and a highly energized team and that’s the key behind our success. So we’re anticipating competitors continuing to want to get back in and take share and we’re doing -- through new products and we’ll do the same through new products and we’ll move the market. Now one of the key points on this though and it’s important to remember is that, as of the market shift to daily silicone hydrogel the market growth improves. And that’s why I keep kind of going back to saying, this is not one guy wins one guy loses kind of thing. This is the shift to daily silicone hydrogel and this trade-up and this geographic expansion and so forth is lifting all competitors. Everybody is getting better numbers. I mean, the market grew 8% last year. I continue to believe we’re going to see strong growth in the marketplace. Everyone is going to grow as long as they’re acting intelligently within the marketplace. So I don’t view this as kind of win-loss with competitors. I view this as a win-win. I think that we have a better product offering and some better capabilities than our competitors in the areas that we’re focused on. We don’t do the heavy branding like J&J does. In the areas we’re focused on, we have a great product set and a great skill set and we’re executing and doing really well there so I think we’ll continue to but that does not kind of disparage of our competitors who I believe continue to put up pretty good numbers. Matthew O’Brien: That’s very helpful. As a follow-up, you started to touch on this a little bit. It’s just the Asia Pac growth continues to be very good. I’m assuming most of that is Japan at this point, but China was an area that you guys have been talking about for years now. Are we getting to any kind of an inflection point in that geography? And what kind of resource are you putting behind in that geography to deliver some outsized growth over the next couple of years?

Yes, you’re right. Japan is probably still around two-thirds of that market somewhere in that kind of range maybe it’s 60%, 65% of that market. So it’s an important driver there. The other countries that are there also important. Now that you mentioned China there’s also a number of other countries and there. So we are seeing diverse growth throughout the entire region. We’re under-indexed and there. There’s no question about that. So it’s incumbent upon us to invest there and we are investing there. We are putting a focus on key accounts and salespeople and marketing and advertising efforts and we need to continue to do that. That team has done a very, very nice job over there and they’ve done it for many years. And frankly we continue to believe they’ll do that for the foreseeable future. So I won’t get into necessarily in particulars on that, but I would say that that’s a very important region for us and we are investing dollars there and we will continue to invest dollars there. Matthew O’Brien: Very helpful. Thank you.

Thank you. Our next question comes from Brian Weinstein with William Blair.

This is Andrew Brackmann on for Brian. Al, maybe a strategic question for you, a lot of discussion has been sort of around the trade up in the dailies, but new wearers here sort of in developed markets how do you sort of grow that new wearer base in those markets? Does that still around key accounts? Is there anything else that you guys can do there? Thanks.

Yes. We are seeing some growth in new wearers on a global basis. It’s not much. Certainly low-single digits, but we are seeing some growth there. One of the things that we’ll talk to some of the big retailers about and our key accounts about in -- we talk to them. But I think this is true for the entire industry is we need to do a better job with dropouts. There is a lot of people that will go into contact lenses they’ll get fitted because they want them. They will get some free lenses, they will take them home, they will try them. Maybe they have a hard time inserting the lens, or there’s something that’s causing them a little bit of problem and then they don’t stick with the lenses. They go back to glasses, and we get too much drop out there within that first week or two weeks. So we’ve been talking about that with people and say, hey, we need to do better job with follow-up here, right? We fit somebody with contact lenses, let’s give them a text or give them a phone call, something where we reach out to them two days later or three days later, four days later. Hey, how it’s going? What can we help you with? How is the insertion going? How is the comfort going and so forth. I think, we needed to do a better job there. I mean, there are some interesting stats out there and they’re kind of big numbers. But if you look at, right now, there’s like 140 million contact lens wearers in the world and there’s like 200 million contact lens wearer dropouts. And that includes people who just initially started wearing them and dropped out and it could be people who have gotten older and stopped wearing them. But if we can just do a better job capturing the dropouts and working with these key accounts in these big retailers and reaching out to patients and saying, I know you want contact lenses, I know when you were in the store you like them and wanted to keep wearing them. Why aren’t you buying more of them? That’s a key way for us to grow this industry. I mean, we can literally double the size of the industry by just keeping people in contact lenses that want to be in contact lenses. So I think that’s an area where all of us can improve. I mean, we can improve on that, J&J and our friends at Alcon and Bausch and the big retailers. I mean, we can all do a better job of growing the wearer base.

Got it. Thank you. Very helpful. And then, Brian, may be a question for you. Could you maybe provide an update on where you’re at with daily silicone hydrogel margins here? I think you’re adding some capacity. So is it safe to assume that those might be under a little bit of margin pressure here in the near term versus long term? Thanks.

Yes. I mean, I’m not going to get into the specifics about where those margins are landing. But suffice it to say, the margins on our daily silicones are -- put a little pressure on our margins overall. But that being said, we said that gross margins are going to be up slightly year-over-year, operating margins up slightly. So we try to manage this business to the operating margin level, now, whether you’re talking about our key accounts or just our business in general and so we’ll work through it and as we get more volume to our plants and as we continued to improve our sales in those products, our cost premium goes down and our gross margin go up. So that’s been the story historically for Cooper.

Great. Thank you.

Thank you. Our next question comes from Chris Pasquale with Guggenheim.

Thanks. Al or maybe Brian, can you quantify the spending that you’re pulling forward into the second quarter. I just want to get a sense for the EPS impact, because you called that out as the reason for the below consensus guide in 2Q.

Yes. I mean, we had talked about kind of $2.70 to $2.80 in the quarter. And then, I know, everybody kind of had their expectations out there. For us, it’s a fairly decent pull forward as you can imagine. It will depend on a couple of different factors, but we’re certainly could be talking $5 million, $6 million, $7 million, in that type of range.

Thanks. That’s helpful. And then, Al, can you give us any color on the relative strength of your two daily silicone hydrogel franchises these days? Is MyDay still growing faster than clariti off of a smaller base or is that moderated now, given clariti is addressing maybe a larger market segment?

Yes. It’s still - that’s still the same. Both lenses are doing really well. Our both product families are doing really well. MyDay is growing faster than clariti, but it’s still a decent amount smaller than clariti.

Thanks.

Thank you. [Operator Instructions] Our next question comes from Robbie Marcus with JPMorgan.

Thanks. Appreciate the question. May be a housekeeping question, can you go through some of the pro forma adjustments in the quarter may be what FX was on the top and bottom line and how you’re thinking about FX for the year?

I’ll let Brian.

Okay. So, FX for the quarter was about $16 million negative, $0.20 detriment to EPS. For the year, we’ve got the detriment from revenue around $55 million and a $0.47 negative to EPS.

Were there any other pro forma adjustments that you could give us in the quarter?

There wasn’t really much - there wasn’t much Blanchard and we had Incisive, but both of those I think closed in January that was really no adjustment for that.

Really wasn’t much there, no.

Okay. Maybe and then Al just a follow-up on your comments before without getting all of those patients who have dropped out back into the system. Can you talk about may be the pathway to do that? Is that something you as Cooper and J& J have a database to do or is that going to have to be driven from the doctor level?

Yes, it has to be driven by someone so to speak. So, if I use my example that a patient comes in, says, hey I want to try contact lenses. The practitioners says here try clarity, it’s a great product, you’re going to love this and here’s five days’ worth of lenses. What needs to happen is at some point at least once during those five days, someone needs to reach out and it can be a text, right, it could be a phone call, but someone needs to reach out to the patient and say how is it going? You like those lenses? Everything okay with the visual acuity and the comfort and so forth? So, whether that’s coming from us or whether it’s coming from the practitioner themselves like it’s important to reach out. So, the idea; one, is obviously, it’s the practitioner or the practitioner’s office is reaching out, inquiring with the patient how things are going. But we can work with them on that. I mean automation itself is important. I mean when you think about some of the stuff that we do with EyeCare Prime and reaching out to patients and letting them know, hey, it’s time for you to come in and for your annual check-up and that kind of stuff. If we can link some of those IT platforms together where it says hey someone was a fitting lenses, let’s send them a quick text and how ask it how’s it going and so forth, that would be us a working to help the physician themselves. So, I think, however we do it as an industry, it’s something that we need to continue to focus on improving.

Thanks a lot.

Yes.

Thank you. And our next question comes from Steven Lichtman with Oppenheimer.

Thank you. Hi guys. In Asia-Pac, Al, obviously, Cooper results remain strong. You mentioned, of course, that you’re under-indexed there. So, what do you think the underlying market is growing in Asia-Pac? Just trying to tease out how much you’re growing ahead of the market probably in that region? Have you think about the sustainability of that market growth looking ahead?

Yes. I think that market is going to continue to grow nicely I believe that. I mean when you end up looking at the Asia part -- Asia-Pac market, if you will, for the last calendar year, it grew 7% and we grew 13%. I’m talking about calendar quarter data now, I’m going to market data. If you look at the fourth quarter, that market grew 9% and we grew 16%. So, I think you’re getting a number of different factors there. One as I was saying, we’re under-indexed. We’re hitting the market hard with some great products. So I think our chances of growing faster than the market are good. But the market itself is strong. The shift to dailies that we talked about is not as dramatic there because a larger percentage of population is already dailies but you are getting a shift to daily silicones. And then you’re getting the geographic expansion, the new wearer base that’s where you’re getting a lot of new wearers. So when I talk about low single-digit, let’s call it 1% globally of wearers that is a higher percentage in Asia Pac. So I think when you combine all of the things I talked about there the excitement around torics, multifocals, the excitement around geographic expansion that kind of stuff is driving the growth in Asia Pac and we’ll frankly for quite a while, I think that that region probably has the best, best long-term growth dynamics of the industry.

Got it. And then Brian apologies if I missed this, but I know you talked about some gross margin headwinds this year on the last call and some of the proactive work you’re doing on distribution center expansion some legacy product write-offs. Overall, any change in your thoughts in your impact there either way this year on gross margin?

Yes. I mean, as far as gross margins go what we said is gross margin will be up slightly year-over-year. I think when you look at the impact to FX I mean, you’ve got that headwind from FX really kind of impacting us mostly in Q1 in Q2.

He’s talking about the secondary handling.

My bad. Yes. So secondary handling that was a bit of a drag for us in Q1, but it was what we expected. We kind of gave a little bit of a range and built that into our guidance last quarter, no real change and update there. We certainly are going to have some elevated freight and secondary handling some inventory obsolescence that will flow through the year, but it’s baked into our guidance and expect some of that stuff to fall away as we get towards the end of the year and certainly into next year.

Got it. Thanks guys.

Thank you. And our next question comes from Isaac Ro with Goldman Sachs.

Good afternoon, guys. Two questions one on growth and one on margins. On the growth side, can you talk a little bit about your expectations in the Americas just given all your comments about global market growth that 4% number, I was interested if that was sort of new normal number you expect for the short to medium term?

No. I think that we saw some weakness kind of the marketplace in the Americas in the U.S. marketplace here, but there’s still a lot of positive underlying fundamentals especially the shift to dailies we talked about the ship to dailies and daily silicones, but both of those are happening in the U.S. market. So I would envision the U.S. market posting better numbers.

Okay. It’s helpful. And then on the margin question, there was some detail you guys gave us on the investments you made this quarter and then kind of what to expect on the pull forward. Can you just maybe quantify the incremental investments doing year-on-year that you guys made this quarter just to help reconcile the year-on-year margin performance, if we separate the investments versus FX and other items? Thank you.

Yes. We gave some numbers on that last quarter. I think in particular, we talked about like $0.14, if I’m remembering right from kind of an elevated inventory and secondary handling charges and so forth. And then, we build that in our guidance this year and we’re not going to break out any more numbers or detail on that. It’s already built in the number and I’d echo Brian’s comments that we did have heightened costs here. Those are reduced as we move through the year. We’ll still have some stuff probably within the inventory obsolescence depending upon how we move through things even into next year. But they’re all wrapped into the numbers.

Okay. Thanks.

Ladies and gentlemen, thank you for participating in today’s question-and-answer session. I would now like to turn the call back over to Mr. Al White for any closing remarks.

Thank you. I don’t really think I have much to add. A good solid quarter, appreciate the interest appreciate the questions and so forth. We’re continuing to execute to on our strategy and we look forward to reporting to everyone again when is our next earnings call. Its a little earlier than usual, I think it’s May 30th, is the day to mark for our next earnings call. So with that, thank you.

Ladies and gentlemen thank you for participating in today’s conference. This concludes the program. You may all disconnect and have a wonderful day.