Thank you for standing by, and welcome to The Cooper Companies First Quarter 2022 Earnings Conference Call. [Operator Instructions] As a reminder, today’s program is being recorded. And now I’d like to introduce your host for today’s program, Kim Duncan, Vice President, Investor Relations and Risk Management.

Good afternoon, and welcome to The Cooper Companies first quarter 2022 earnings conference call. During today’s call, we will discuss the results and guidance included in the earnings release and then use the remaining time for questions. Our presenters on today’s call are Al White, President and Chief Executive Officer and Brian Andrews, Chief Financial Officer and Treasurer. 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 acquisitions, integration of any acquisitions or their anticipated benefits. Forward-looking statements depend on assumptions, data or methods that maybe 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 and Form 10-Q filings, 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 e-mail ir@cooperco.com. And now I’ll turn the call over to Al for his opening remarks.

Great. Thank you, Kim and welcome everyone to Cooper Companies’ fiscal first quarter conference call. Before I turn to our business, let me say the escalation of the devastating crisis in Ukraine is top of mind. The event caused great concern for everyone in that region, including our employees, partners and their families. Our thoughts are with everyone who is being affected, and we certainly hope peace prevails soon. Moving to our business, I am pleased to report a strong start to the fiscal year, led by a fantastic quarter at CooperVision and another solid quarter at CooperSurgical. Within vision, our daily silicone hydrogel and myopia management portfolios continued posting strong results, leading to share gains around the world. Within surgical, our fertility business posted great numbers and the integration of Generate Life Sciences is going really well with that business off to a fast start as part of Cooper. We also recently announced the pending acquisition of Cook Medical’s reproductive health business, which will be a great addition to our surgical franchise. Regarding first quarter financial results, consolidated revenues were $787 million, with CooperVision at $561 million, up 11%; and CooperSurgical reaching a new all-time high of $226 million, up 30%. Non-GAAP earnings per share were $3.24. Moving to the details and reporting all percentages on an organic basis. Our CooperVision growth of 14% was strong and diversified. We grew nicely in all product categories, spheres, torics and multifocals, and all three regions posted great results, with the Americas up 8%, EMEA up 17% and Asia-Pac up 19%. This resulted in nice share gains, and we remain well positioned to capitalize on the reopening of economies around the world as COVID subsides. All of this is driven by our multifaceted commercial strategy that we began deploying years ago, which…

Thank you, Al, and good afternoon, everyone. Most of my commentary will be on a non-GAAP basis. So please refer to our earnings release for a reconciliation of GAAP to non-GAAP results. First quarter consolidated revenues were $787 million, up 16% and up 13% organically. Consolidated gross margin decreased year-over-year by 90 basis points to 66.9%, driven primarily by currency, but also lower sales of PARAGARD, partially offset by lower manufacturing costs at CooperVision. Operating expenses grew 19% to 42.3% of revenues with the addition of Generate and higher investment activity. Consolidated operating margins were 24.6%, down from 26.9% last year due to the negative impact of FX and higher investing. In addition, we did see higher freight, secondary handling and distribution costs within cost of goods and OpEx and expect this to continue, although price increases are helping to offset the impact. Interest expense was $6.6 million on higher average debt, partially offset by lower interest rates. The effective tax rate was 13.3%, higher primarily due to the Generate acquisition. Non-GAAP EPS was $3.24 with roughly 49.9 million average shares outstanding. FX negatively impacted us by $0.37 in the quarter, which was $0.02 worse than we forecasted at the time of our last earnings call. Free cash flow was solid at $109 million, comprised of $166 million of operating cash flow, offset by $57 million of CapEx. Net debt decreased by $1.6 billion to $3 billion, driven by the acquisition of Generate. And our adjusted leverage ratio increased to 2.71x. During the quarter, we repurchased roughly 191,200 shares of the company’s common stock for $78.5 million at an average purchase price of $410.41 per share, that’s $410.41. Roughly $256 million remains authorized for repurchase under our program. Moving to guidance. We’ve updated our numbers to reflect our outperformance in…

Certainly. [Operator Instructions] Our first question comes from the line of Matthew Mishan from KeyBanc. Your question please.

Hi, good afternoon, guys. Just first on the Cook acquisition, I mean, it’s a little bit difficult because you guys have been guiding right before closing an acquisition and then having an update, and we’re going to have to do the same thing again when Cook closes. Just first, can you give an update on when you think that might close? And then given $0.60 in year 1, that Cook is probably going to be half and half. How should we phase that first half of year 1 versus the second half of year 1?

Yes. No update on that. We’re working through the regulatory approval processes right now we have here in the U.S. and then some work councils and stuff in Europe. So no real update on that. With respect to the $0.60 when we do close, that should be pretty stable, if you will. Not a lot of seasonality in that business. So you could almost just say $0.15 a quarter is probably an easy way to look at it. But yes, we seem to be closing these in the middle of the quarter, which I appreciate, makes things a little bit more different – difficult.

Excellent. And then the second question is just on phasing of CooperVision. You really had an excellent quarter in the first quarter. But as I look at like previous history prior to COVID, the second quarter is usually above the first quarter, like seasonally speaking. Is there any reason why that shouldn’t be the case this year? And then if that – if 2Q is better than 1Q, what would be driving the second half deceleration in the growth?

Yes, that’s a good question. I think that Q2, if we look at CooperVision, it’s going to end up being fairly similar to Q1, which is different than it usually is because usually, Q2 is a little bit stronger. We did see a nice rebound in activity certainly in Europe and Asia Pac. We didn’t get stocking. It was just an increase in activity. So that was a good sign. We had some good trends going. The situation with Russia and the Ukraine and how that impacts Europe, it’s a little bit of a question mark right now. And then the impact of currency. I mean we’ve had a situation here where basically the dollar has strengthened against all currencies across the board. So that’s obviously taken a bite out of our earnings and out of our revenue. So we will see how that plays out. But I think that this quarter will be meaning – this quarter meaning fiscal Q2 will be somewhat similar from a revenue perspective for CooperVision as Q1.

I appreciate the color. Thank you.

Yes.

Thank you. Our next question comes from the line of Larry Biegelsen from Wells Fargo. Your question please.

Good afternoon. Thanks for taking the question and congrats on the strong quarter here. Al, just a follow-up on that last question, you grew – so CVI, the same question for CVI and CSI. So 14% organically in Q1, the guide implied like 5% to 7% for Q2 to Q4. The same thing for CSI, 9% growth organically and again, Q2 to Q4, it looks like implied about 5% to 7%. So math – Brian will correct me on the math. But obviously, it implies a pretty steep deceleration. So FX, that’s organic. So I guess my question is, how much are you baking in for Russia and Ukraine in both those businesses? And is there anything else that might be leading to that deceleration?

Yes. So the way I look at it ends up being more on a comp basis. I mean we’re starting to be in a situation here in 2022 where we’re comping against a more traditional, if you will, marketplace, where we didn’t have a lot of those – the COVID swings or the COVID weaker quarters. So when I look at, for instance, the contact lens market and I think about something in that maybe it’s 4% to 6% growth kind of range and we’re at the high end of that or should arguably go a little bit above that. But then I do ratchet it back and kind of think a little bit about what’s going on around the world with supply chain and trade disruptions and that type of activity and try to incorporate a little bit of that. So Brian and I were just talking about that. It’s tough, tough, tough timing with what’s going on, obviously, in the world right now to try to incorporate the guidance on that. So I certainly hope that we’re being a little conservative on that guidance. But for right now, I think it’s probably pretty reasonable. In other words, Larry, I mean, one kind of takeaway is I don’t want to imply in any way that our business isn’t strong, that there is not great momentum because there was. What we saw in Q1 was continuing in this quarter, and we feel pretty optimistic about things across the board. But a little bit more conservative, certainly based on what’s transpired over the last week.

And just for my follow-up, Al, maybe I’ll ask about SightGlass. What’s the timing on the approval or launch in China? And then in the U.S., what’s your expectation? How do you feel about approval in 2022? Thanks for taking the questions.

Sure. Yes. On SightGlass in the U.S., I think we’re in a situation here where we will just wait and we will give the 3-year data. So we’ve been having some conversations with the FDA about approval for that. But we’re closing in on a point where we will get the 3-year data in a couple of months, be able to pull that together and submit that to them. So I think I’m still optimistic that we will get something during 2022, but my guess is it’s probably more towards the latter part. With respect to China, TBD on the data that you don’t have the same regulatory restrictions there that you do here. So it’s a matter of working out the agreements with Essilor and lining up the distribution and so forth on that. So I do think that, that one happens, but I’ll hold back for right now, at least on the timing of that one.

Thanks, Al.

Yes.

Thank you. Our next question comes from the line of Jeff Johnson from Baird. Your question please.

Hi, thanks. Good afternoon, guys. Al, I just want to go back – so if we’re talking sequentially stable CVI revenue in the fiscal Q2 with Q1, you’d be talking probably a little north of double-digit organic growth for CVI in this quarter. Is that – you’re a month in, you obviously see what’s going on in your numbers that you feel good with that. Just want to make sure I understand that.

I’m looking at Brian on that. You’re talking about...

In Q2 organic growth?

The way my model works. If I go to $561 million CVI in the second quarter, that’s probably right around 10%, 10.5% organic CVI growth, I think, unless my model is screwy.

Yes, I think you’re right.

Yes, that’s about right.

Okay. It wasn’t a trick question. I just want to make sure my math is right. Okay. We good?

Yes. No, that’s right, Jeff. I just pulled the sheet out. You’re right.

Okay. And then just on the MyDay multifocal especially, I mean, obviously we’ve been getting good feedback here in the U.S. But just talk to us maybe where is that lens at from a global launch standpoint? Where are the tailwinds coming over the next few quarters from that launch? And just how to think about MyDay multifocal?

Yes. That’s a really good question because that product is doing really well. And as you know, there is some competitive products in the marketplace that have been launched. So we’ve been really happy with the reception of that. We obviously have it in the U.S. and still launching it. We did launch it in some other larger markets around the world. But there is still numerous markets to launch into, and we still have to finish launches, if you will, in a number of markets, including rolling out more fitting sets and so forth here in the U.S. So we’re going to continue to put up strong MyDay multifocal growth through the year. I would imagine every earnings call, you’ll have me making a statement around that based on the momentum that we have right now.

Understood. Thank you.

Yes.

Thank you. Our next question comes from the line of Chris Pasquale from Guggenheim. Your question please.

Yes. Thanks, guys. Congrats on a great start to the year. Al, what’s left to do before you transition to the full MiSight launch in China? And how are you thinking about the ramp there?

Yes. So there is a big conference at kind of in the end of March time frame, into the beginning of April. It’s just a big optical conference in China. So that’s really the target. So the product is available now. We’re starting to launch the product, get it into hospitals and so forth. Docs are getting their hands on it. Certainly, we’ve done seminars and other things. The true big launch, if you will, will be at that optical conference. So no delays, no problems, no issues, nothing along those lines. I just think that it will really get rolling towards the end of this fiscal quarter and then in the back half of our year.

Okay. And then I don’t think I heard a PARAGARD revenue number. Could you just give us how that performed in the quarter?

Yes, it was down 10%?

Yes.

Down 10%, yes.

And is that just related to some of the issues with getting patients into office, you think? Or was there something mechanical around purchasing?

No. I think it was foot traffic. We heard some of that commentary from some of our competitors, and I would agree with that. That’s what we’ve kind of seen because we haven’t seen anything else associated with that. Based on current trends here, when I look at just what’s going on, how January went and how February is and our expectations, I expect us to be back to posting growth here in Q2 on that one. But I do think that, that was due to two things. One was staffing shortages associated with COVID. And then the other was just some reduced foot traffic, if you will, due to Omicron-related issues.

Perfect. Thanks.

Thank you. Our next question comes from the line of Jon Block from Stifel. Your question please.

Great. Thanks, guys. Good afternoon. Maybe for CVI to start out, I think to kick off the year – your fiscal year, you were talking about market growth of 4% to 6%. You guys, CVI were going to grow 6% to 8%. Now I believe you’ve upped that to 7% to 9% for CVI. So would just love your thoughts on the underlying market? In other words, has that moved up as well? Or is it just sort of your share gains that have expanded? And when we think about the extra 100 bps for CVI, what do you attribute that to? How much of that is price that I believe you alluded to that you’re taking to help offset some of the FX movements? Thanks.

Yes. So basically, what we did there was took the 6% to 8% guidance that we had beforehand, we increased it to 7% to 9% to reflect the strong performance in Q1. We didn’t really move it outside of just incorporating that. If you look at the numbers, it’s almost like you can think out on an as-reported basis, we had a nice beat and then currency took the delta away there. So from that perspective, kind of our – holding our expectations where they are for Q2 to Q4, even in the face of some of the global uncertainty, if you will. A lot of that came from outperformance in Europe and in Asia Pac, where we’re over-indexed. We’re number one in Europe, and we have a really strong presence, for example, in Japan. So as we’ve seen those markets start to come back and get closer to where the U.S. is at, we have a tendency to outperform in those areas. So that’s what you saw. I mean, yes, there is a little bit of price. Everyone has taken a little bit of price, so that’s a little component of it. But I think it was more starting to see global economies, really economies outside of the U.S. start to return to normal. And as they did and they catch up to the U.S. contact lens market, if you will, we’re a greater recipient of that type of positive activity.

Got it. Helpful. And second question, I think on an earlier question, you mentioned Cook somewhat linear, if you would, when we think about the accretion of the $0.60. What about Generate? I don’t know if I missed it, Brian. But is Generate still, call it, $0.50 accretive in the first 12 months? And then you guided for, I guess roughly like 10.5 this fiscal year. How does that onboard, if you would and any commentary around the pace or the cadence of that, or from a linear perspective? Thanks guys.

Yes. So, you are exactly right. And we are heading towards the roughly $0.44-or-so that gets you to that 10.5 months of $0.50 that we guided to. So, definitely on track to hit that $0.50, but that’s kind of how you get there. And I would say the gating, if you will, is going to be fairly similar per quarter.

Thank you.

Thank you. Our next question comes from the line of Jason Bednar from Piper Sandler. Your question please.

Hi, good afternoon. Thanks for taking the questions. I wanted to ask a follow-up here on the contact lens pricing topic as well. Just maybe hoping you can help in interpreting some of the data that’s out there. I mean it looks like retail price points are showing something like mid-single digit increases. But I think a chunk of those are probably stemming from increases that are happening at the distributor or retail level to cover their own higher operating costs. So, maybe you can clarify for us like how you are handling price increases regionally or across the board globally. And should we be thinking about any load-in or stocking ahead of some of these additional increases that you are planning?

Yes. I don’t think there has really been any activity in terms of stocking or anything that I have really seen from our perspective associated with pricing. We are taking price increases, low-single digit kind of price increases. But you are exactly right, it’s very difficult to see because not only do you have the component of direct price from the manufacturer and list prices, you also have markups associated with distributors or anyone else, frankly, along the process as they look to take price to offset kind of inflationary pressures. Pricing is a little different around the world. There are some countries right now, even if we get to Russia in particular, right, where we are taking much larger price increases to offset currency moves. So, it’s a little bit all over the place right now. But I would say it’s positive. I mean everyone is kind of raising price to just varying degrees and then seeing how that plays through. And we have always been a little lower, for instance, if you look at rebate activities than some of our competitors have been. So, that’s another factor that you would have to take into consideration when looking at price.

Okay. Alright. That’s helpful. And maybe just as a follow-up. I know I asked you about this topic last quarter, but I will come back to it again. It does look like you just recently – you had CMS grant MiSight a level 2 code. I know may still be a ways off from seeing dedicated reimbursement for MiSight or myopia management contact lenses. But maybe can you talk about the significance or importance of what this code does for Cooper? Are there competitive advantages that it provides? And then how does this position the company to eventually seek elevated or dedicated payment levels for something like MiSight? Thanks.

Yes, sure. Absolutely. No, we received that code, it’s fantastic, and it’s a relatively specific related code, which is really good news. The ultimate question ends up on that is how much is the reimbursement amount associated with that? And that would be the reason where – I am excited about that, and I am optimistic about where things are going and so forth. But I will temper any enthusiasm until we get to a point where we are seeing what those reimbursement dollar amounts are. But overall, a clear positive and a clear step in the right direction, that’s for sure.

Great. Thank you.

Yes.

Thank you. Our next question comes from the line of Andrew Brackmann from William Blair. Your question please.

Hi guys. Good afternoon and thanks for taking the questions. Al, maybe I can just give some high-level thoughts around sort of MiSight here. I think we are coming up on the 2-year anniversary of the launch here in the U.S. So, maybe could you just sort of reflect on what you have read about this product in the domestic market specifically? And maybe how has that view changed one way or the other over that time? Thanks.

Yes. I think the clear learning on this that’s done over the last couple of years is it takes a little while to get traction. We were more optimistic, certainly, early on that as a physician got – as eye care practitioner got the product into their practice, they would start selling it to every pediatric patient who walked into the door. What we saw is they were pretty active right away, and they would choose a patient or two patients. But it wasn’t as sticky right upfront as we thought it was going to be. So, we have kind of altered some of our attention, some of our focus, if you will, to ensure that we are helping eye care practitioners build up their myopia management practice. Because if you really talk to optometrists right now and you dig into what’s going on in myopia management, so many of them are trying to figure out how to create a myopia management practice, because it’s something they want to do. They are excited about it. They see the value in it. Whether it’s Ortho-K, whether it’s MiSight, it’s something they want to do. But prescribing to kids and talking to parents and so forth is oftentimes a significant difference from what they are used to doing. So, helping them along that journey is proving to be really, really valuable for building a long-term relationship. But really recognizing that and understanding that and figuring out how to help eye care practitioners build a subset of their business, if you will, has been a big learning for us. And the team has done a really nice job on that. I feel like they pivoted quickly. They are understanding that. They are out there helping physicians and build practices and so forth. But I would say that’s our biggest learning is that this takes time. And I was really optimistic it was going to shoot up really, really fast. But it takes time. We are building a lot of traction. We are putting up good numbers. We are getting good growth, all that kind of stuff. It just takes a little bit of time.

That’s great. Appreciate that. And then maybe a follow-up for Brian, anything more that you can sort of tell us about what you saw related with the sort of inflationary pressures in the quarter? And then how should we be thinking about those factors sort of playing out throughout the year? Thanks guys.

Yes, sure. Thanks, Andrew. So yes, as I mentioned in my prepared remarks, we are definitely seeing inflationary pressures, and we are helping to offset some of those with price increases. That was obviously factored into our guidance last time and we factored into our guidance inflationary pressures this time around. I mean, obviously, it’s definitely a headwind. We are seeing – I mentioned also freight, secondary handling, distribution, so whether it’s cost of goods or OpEx. We have got some good guys offsetting that. But certainly, if things get worse and there is contagion as a result of the Ukraine crisis and fuel prices continue to increase and there is a knock-on effect, then that’s hard to factor in. But for now, we think we have got a pretty good handle on what we have seen so far and we think we factored into our guidance.

Thanks guys.

Thank you. Our next question comes from the line of Zach Weiner from Jefferies. Your question please.

Hey. Thanks for taking the question. Just want to continue on that last one on MiSight retention rates after the first couple of years of the launch. Just if you can give any color there. And then additionally, if you could give some color on new fits versus switch fits through the quarter, how that trended? And if there is any one particular lens that stands out as driving those new fits and switch fits level? Thanks.

Yes. MiSight retention rates have remained pretty high. So, they are still in the 85% to 90% kind of range, which is a really good sign, and it’s part of what’s supporting the business or the underlying growth of that business as we don’t have a lot of kids dropping out once they get into the product. New fits to switch fits, new fits are continuing to get better. We are seeing better foot traffic in optometry offices. We are seeing improvements in fit activity. That’s clearly benefiting ourselves, and frankly, the industry, but it’s benefiting us a little bit more, given a lot of our growth comes from new fit activity. I am not sure I would highlight anything too particular other than probably daily silicones, because we have talked about that in the past. That’s the driver of the market. When you are getting new fit activity and patients are coming in, that’s where the optometrist has the tendency to go as they grab one of the new daily silicone hydrogels in the marketplace. So, that’s a positive, obviously, for the entire industry. You saw it in our daily silicone numbers of 25% growth. So, really strong numbers that we are certainly capturing our fair share and more of new fit activity when it comes to that space.

Okay.

Thank you. Our next question comes from the line of Robert Marcus from JPMorgan. Your question please.

Hi. This is actually Lilia on for Robbie. Thanks for taking the question. Just another one on MiSight. Is there any way you can quantify how many physicians you have trained at this point? And what percent of the total opportunity that is?

I honestly don’t know that off the top of my head. I stopped looking at that number because we were training so many people, and then we were training office people also. It wasn’t just ECPs. So, it’s a pretty significant number. I think that there is definitely more room here for training in the U.S. But I would probably venture to say the bigger focus has shifted from getting more people trained to deeper relationships with existing accounts and with those who we know should be big accounts. So, certainly more focus there. I think there is still significant opportunity. I really truly believe that the myopia management space is going to be a multibillion dollar industry, and that will include glasses and contact lenses. But there is a massive amount of momentum out there in the optometry space right now, talking about myopia management, and I don’t see that changing. So, it’s more about deeper relationships and helping people grow that part of their business than it is getting them trained enough to speed on it.

Got it. That’s helpful. And then you have obviously been pretty active on the M&A front, not just with bigger deals like Cook and Generate, but a bunch of even smaller tuck-ins as well. So, do you still have an appetite for M&A right now? And where does M&A stand on your list of priorities for capital allocation? Thanks so much.

Sure. Yes. Yes, we do acquisitions. We have had a couple of bigger ones here. Brian mentioned, we just bought some stock back this last quarter. So, we continue to look at the same thing. We invest in our business wherever we can find opportunities. That always provides the best return for us. We look at acquisitions if they make sense, and we will buy stock back if we think it makes sense. With Cook coming up and closing, we will focus a little bit more of our energy and attention on paying down debt. We are not going to – we don’t anticipate seeing leverage go even over 3x, but having said that, we are up a little bit higher than we historically are. So, we will probably have a little bit greater focus in the near-term at least of paying down debt and maybe looking at some stock buybacks than another larger acquisition.

[Operator Instructions] And this does conclude the question-and-answer session of today’s program. I would like to hand the program back to Al White, President and Chief Executive Officer, for any further remarks.

Great. Thank you, everyone. I appreciate everyone’s attention and for calling in. I know a lot of people have a lot of things going on right now. As we have discussed, we started the year up really well here. So, we are really excited about where vision sits today and where surgical sits. And we have got good momentum. We think that’s going to continue. So, if anyone has any questions or follow-ups, certainly give us a call. Otherwise, we look forward to speaking with everyone on our next earnings call in early June. Thank you, operator.

Thank you. And thank you, ladies and gentlemen, for your participation in today’s conference. This does conclude the program. You may now disconnect. Good day.