酷柏 (COO) 2002 Q3 法說會逐字稿

Good afternoon and welcome to the Cooper company 3rd Quarter earnings results conference. At this time for opening remarks and introductions, I would like to turn the call over to Mr. Norris Baton, Investor Relations Vice President. Please go ahead, sir.

Thanks very much and good afternoon and welcome to everybody. Before we begin, I'd like to introduce you to Bob Weiss, who is our Executive Vice President and Chief Financial Officer and Tom Bender who is our Chairman and Chief Executive Officer. These gentlemen will be talking to you this afternoon and taking your questions.

And before we get started, we'd like to tell you this conference call contains forward-looking projections on the Company's results. Actual results could materially differ from these projections. Additional information concerning the factors that could cause material differences can be found in the Company's periodic filing with the SEC. These are available publicly and on request from the Company's Investor Relations department. With that, I'll turn the call over to Tom with opening remarks. Tom?

Thank you, Norris. I want to thank everybody for joining us today. I know it's a busy day, and this is a lot of fun, this quarter. I got to tell you, this is -- if not the best quarter, based upon our results versus expectations, it certainly ranks up as one of the better quarters that Cooper has had certainly over the last four or five years.

We're going to follow the same format that I've followed in the past. I will take you through the results. I will compare those results to the kind of guidance or the guidance that we gave all of you last quarter. I will then take you through, when I'm finished with that, I will give you some forward guidance for the 4th quarter next year as well as what we expect in the year 2003. After that, I will turn it over to Bob to get into some of the financial issues that I'm sure is on the top of your mind.

Anyway, getting started, let's talk about revenues. We came in a little over $90 million, $90.5 million. Breaking that down, it was about $20 million for CooperSurgical, right at $20 million and about at $70.5 million for CooperVision. If we break the CooperVision numbers down a little more tightly, we have close to $50 million for CooperVision, without Biocompatibles and if the Biocompatibles piece came in, right at about $22 million.

If you recall the guidance that we gave all of you in our last conference call, we said our revenues would be about in the mid-80s. We gave guidance between 19 and 20 for Biocompatible, between 65 and $66 million for CooperVision, and about 19 to $20 million for CooperSurgical.

I'll try to explain now where the delta is, the $5 million -- a little over $5 million, about $5.5 million -- that we exceeded our guidance. About $2 million of that we'll credit to currency. And, by the way, a lot of that is Biocompatibles. If you recall, about 70% of Biocompatibles' business is in Europe, and that's where a lot of the currency pickup was. About $1 million is the Biocompatible piece based upon what we expected, which indicates, again, that we're well ahead of where we think we would have been with the Biocompatibles implementation of our strategy of doling out business within CooperVision.

Another $2 million that, would finalize, I think $5 million or 2 to $2.5 million -- came from CooperVision. Most of that -- when I get into it, you will see where it is at -- is in our toric line. We had very strong torics again this quarter, and quite frankly all of our product lines did very well this quarter, not only here in the U.S., but also in Europe.

Let me now go on to talking a little bit about gross margins. One thing we -- we -- we -- our sales, by the way -- I know what I wanted to get into. Let me stick with revenue, because I did forget this. Revenues were up 54%, I believe, but in organic growth, we were up 14% in CooperVision. That would breakdown to about 11% for CooperVision without Biocompatibles, and Biocompatibles was up 22%, and that adds up to 14% organic growth in the quarter for CooperVision. In the U.S., the Biocompatibles business grew 36%. Organic growth 36%. CooperVision was up 11%. And all U.S. organic growth for the quarter was up 14%. In Europe, Biocompatibles organic growth was 16% for the quarter, CooperVision was 25%, and total was 19%.

If you want to know where the delta is here, because we grew our worldwide business 14%, as I stated, with CooperVision up 11, Biocompatibles up 22. U.S. was up 36 for bio, CooperVision, 11. 14 was the total and 19 for Europe. Our Latin America business was off 50% in the quarter. Much of that, as you can recall, is about the -- our Argentinean and Brazilian business. But the good news is, in the month of August we've certainly got that fixed, and our delta next quarter will be at least a half million dollars. In other words, we're going to be at least a half a million dollars above in the 4th quarter for Latin America businesses as we were in the 3rd quarter.

Now I think I can move into gross margins. Gross margins came in at 62% but you should know that we took the -- the culpascope writedown for our digital culpascope business, our surveillance business, about $1.9 million of that was impacted by the CooperSurgical -- or we took in the CooperSurgical gross margin. So instead of 44% it really would have come in around 54% gross margins for CooperSurgical. Overall gross margins would have been, without the one-time writedown of the culpascope product line, would have been around 64%, right at 64%.

CooperVision is the -- I think is the important message here. CooperVision's gross margins were 66%, exactly the same gross margins we had in the 3rd quarter last year. Of course, we had the Biocompatible piece this year. If we break the two pieces out, you 'll see that CooperVision without Biocompatibles had gross margins of 69% this quarter. Much of that improvement has to do with two factors: number one, the mix is very favorable. We're selling more, you know, specialty contact lenses versus our commodity lenses. Secondly, our efficiencies, especially in our U.K. operations, has also been a factor in those improved gross margins.

I think the important message here, though, is Biocompatibles. If you recall, we bought Biocompatibles at gross margins in the low 50s. Last quarter they were at about 57 or 58%. This quarter, they came in around 61%. If you recall that in the Biocompatibles conference call we had, Greg Filing, our Chief Operating Officer, stated that our objective was to get the Biocompatible gross margins in the mid -- I'm sorry -- around 65% by the end of 2003 and become equivalent to CooperVision by sometime early in 2004. Obviously, we're well ahead of that plan, and much of it has to do with favorable mix on the side of Biocompatible as well as efficiencies related to some of these synergies that have taken place in the manufacturing facilities.

Let's see if I can go now to torics. Let's talk a little bit about CooperVision. I know one of the concerns or one of the questions I continually have to answer -- it's getting old, by the way -- it started about 40 years ago when Bausch & Lomb got into our core business of torics and then later -- it was two years ago or two and a half years ago with J&J and then last year Ocular Science. We continue to have to answer the questions about what's going to happen to our toric business. Let me give you some of the results for the quarter.

Our toric business was up 55%. That's not organic. That obviously is an impact of some favorable sales from Biocompatibles, but let's look at the organic growth of our toric business. It was up 28%, worldwide, 9% in the U.S., and 100%-plus in Europe. We have worldwide share now of about 34%. Our sales for the quarter for all torics on a worldwide basis was $32 million. Obviously that's a run rate of well over $120 million. We believe this year, in our fiscal year, we will end up somewhere around $115 million.

In the U.S., we had almost -- we had a little over $19 million of sales of torics in the quarter. It's a run rate of pretty close to $80 million. We were going to be somewhere around $75 million for our year. And if I look at market share, I think it's pretty important to take a real hard look at this. Our worldwide share is approximately 34%. We believe the worldwide market for torics this year will be between 325 and 330. I think all of you know we have pretty good, solid industry data now from the Contact Lens Institute. So, we sort of know what's going on.

Take a hard look at the U.S. In the U.S. now, we have 34 -- a little over 34% share. Last year at this time, after six months of the year, we had 30.5 share points. We have increased our share in the U.S. by 3%, a little over 3% - 3.5%. Obviously, 1.5% of that comes from the Biocompatible acquisition. But the other 2% comes from our continuing increase of market share with our core CooperVision disposable plan replacement and conventional torics.

If I take a hard look at the organic growth of torics in this quarter, the Biocompatible torics on a worldwide basis was up 9% from 4.4 to $4.7 million. CooperVision torics had organic growth of over 30% from something around $20 million last year in the quarter to almost $27 million this quarter. Let me see if there is anything else I can say about the U.S. business.

From an international standpoint, which I think is interesting, too, our business for the year is going to run around $40 million. If I didn't say, by the way, the U.S. business is going to run -- I think I did say around $75 million for the year. Our international business is going to end up the fiscal year somewhere around $40 million out of, by the way, $110 million market. We actually have a run rate right now of our international business of about $50 million, if you look at the quarter. And we believe we have about a 37% share of the international toric business. In fact, our international market share for torics are higher than the U.S. And the reason for that is they're in some markets, such as Canada, the U.K., Spain and Scandinavia. We have, in some of these markets, well over 45% market share.

And if you want to take the last good look at the toric market and get a complete appreciation of what is going on, I'm going to break that market down for three pieces for you. When we look at the toric market, this is the way we look at it. The disposable market size for this year is about $130 million. Disposable torics are the torics that are marketed for two weeks. We will have about $25 million of business out of that 130 this year. And, by the way, for the quarter, our disposable two-week toric business was up 215% for the quarter, and we're up over 300% year-to-date.

The other segment, of course, is the plan replacement products. These are plan replacement torics used either monthly or quarterly. We believe it will end up the year about $130 million on a worldwide basis, and our sales will be something excess of $70 million. And for the quarter, by the way, our plan replacement torics were up a good, cool 22%.

The last segment, of course, is the declining segment. It's about $70 million on a worldwide basis. We have about $20 million of that market. That would add up to about 115 for us and about $330 million for the worldwide market. And our business was down in the quarter 20%, and that's just about what the market is. And, by the way, that -- that business, we think, will continue to decline at the expense of conventional -- I'm sorry, planned replacement or disposable products.

Let me now switch to multi-focal and give you an update on where we are with our multi-focal business. We are now in over 1,100 offices. We have a run rate pretty close of $3 million. If you recall at the first of the year, our objective was to get between 1.7 and $2 million of sales. We will definitely exceed that. We believe by the end of our fiscal year, October, we'll have our product in over 3,000 offices in the U.S. and probably 200 offices in selective international markets. Our objective, or our 'expectations' is a better word, is that we believe in two years this product has every reason to believe -- or we have every reason to believe it can reach at least $20 million in sales.

Moving now to our cosmetic business: We believe that our -- that the guidance that we gave in the last quarter were right on, around $17 million. For the year, we're up 122% over last year for the quarter. And for the year-to-date, we're up 137 -- 130%. So, we're doing very well in the cosmetic market. You should know that the NFL lens or the Crazy -- Crazy Eye lens product line which includes the NFL lens, is going to be handled by just about every major optical chain store in the U.S.; over 1500 Wal-Mart stores, over 1,000 Sears stores and we have now NFL lenses for all 32 teams. If you recall last year, we had them only for six teams.

The Roto update is that we -- Roto continues to believe that they're on track to getting [INAUDIBLE] approval, administrative health approval, sometime this month. We have been building inventory for them for the last three months. The guidance that I'm about to give you, by the way, will not include any expectation of any Roto sales, but we do believe that if they do get approval by sometime in September, that we then can make some shipments of their stocking order for their two-week products, and that will be the Frequency, the Spheric as well, as the Frequency toric product this year. So, we will keep you up to date on exactly where we're going with Roto and how well and when they do get approval.

I think -- before I move to CooperSurgical, there is an important message to send here. For those of you who follow this space, you can't be beligned on what's going on right now. We are in a contrarian-type of industry. This industry has grown in the last two years about 6% each year on a global basis, and as you recall in the U.S., the market has been, at best, stagnant. It hasn't grown much. But after six months of this year, the market in the U.S. is up over 6%. I think it is 6.2%, and that's the latest CLI data. We don't have the European data in yet. We only get that on a half-year basis, but it certainly looks pretty strong, because if you recall, there are five companies, all public, that dominate 99%. We control 99% of the soft lens market. And all of them are producing pretty good numbers with probable exception of SibaVision, which does not break their sales out very well, but their numbers don't look that well.

If we look at J&J, they have first six months they had an 8% increase in their global business. Bausch & Lomb was in the low-teens. Ocular Science was in the mid-teens. We are certainly in the high-teens. And there is no reason to believe that the contact lens industry is getting stronger rather than weaker when we look at a lot of the other economic conditions we're seeing around the world today. And that's what I mean by contrarian. We feel very optimistic about this industry, not this year, but going forward.

If you recall, there are three basic drivers in this business that I've been talking about, and I know some of my peer guys in the industry have been talking about. The number one youth market, the baby boom is important to us. And the impact of the favorable demographics of the baby boom are just now upon us.

Secondly, there's been another article that's been published in the last two months in the British Journal of Medicine, that you can get, by the way, by calling Mr. Baton; he'll be happy to send you a copy -- where they talk about the increase in the prevalence of myopia. If we don't have myopia, we're out of business. That is our industry, just like LASIK surgery, we live off of people that can't see things far away. And there is no doubt that there is an increase in the prevalence myopia around the world.

And lastly, very important, is this movement away in our industry away from conventional -- I'm sorry, not conventional, commodity-disposable lenses to either value-added or specialty lenses. All three of the drivers, these factors, I think has something to do with the kind of excellent results we're seeing in our industry for the first six months. Enough said on CooperVision.

Let me very quickly move into CooperSurgical and talk about the excellent quarter they had. Their sales were up 30% with organic growth of about 9.5% on their gynecology business. Now, remember that CooperSurgical's business, 90% of it is gynecology, 10% is old product lines in cryo, optomology and trial cardiology and some other old product lines. But 90% of their business is gynecology, and their gynecology business grew organically 9.5%.

Gross margins, I've already explained to you, 44% was the one-quarter anomaly that was driven by the writedown of the old surveillance culpascope product line. They really had gross margins of their business at 54%, just about what they had last quarter. And one more thing I think I want to point out about CooperSurgical that don't forget: that 85% of our business at CooperSurgical, are either disposables or hand-held instruments. Only 15% of our business is capital equipment. Therefore, even if there is an economic slow down or some economy issues that are affected by -- in the healthcare industry, we believe at CooperSurgical would be very minimal.

Let me give you some guidance that I think was included in the press release for the 4th quarter. Let me break it down for you a little bit. We're expecting revenues of about $20 million, again, for CooperSurgical. If you recall, last quarter I said that we felt we would do about $40 million in the last six months with CooperSurgical. We did 20 the 3rd quarter, we think we'll do about 20 in the 4th quarter. We're looking, without Roto, we're looking for CooperVision sales between 72 and $74 million, somewhere in that ballpark. We had, I must tell you, a very good August.