Good day, ladies and gentlemen, and welcome to the Third Quarter 2012 The Cooper Companies, Inc. Earnings Conference Call. My name is Keith, and I will be your operator for today. At this time, all participants are in a listen-only mode. Later on, we will be conducting a question-and-answer session. (Operator Instructions). As a reminder, today's event is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Ms. Kim Duncan, Senior Director of Investor Relations. Please go ahead.

Good afternoon, and welcome to The Cooper Companies' third quarter 2012 earnings conference call. I'm Kim Duncan, Senior Director of Investor Relations. Joining me on today's call are Bob Weiss, President and Chief Executive Officer; Greg Matz, Vice President and Chief Financial Officer; and Al White, Vice President, Investor Relations, Treasurer and Chief Strategic Officer. Before we get started, I'd like to remind you that this conference call contains forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995, including all revenue and earnings per share guidance, and other statements regarding anticipated results of operations, market conditions and integration of any acquisitions. Forward-looking statements depend on assumptions, data or methods that may be incorrect or imprecise and are subject to risks and uncertainties. Events that could cause our actual results and future actions of the company to differ materially from those described in forward-looking statements are set forth under the caption, forward-looking statements in today's earnings release, and are described in our SEC filings, including the business section of Cooper's annual report on Form 10-K. These are publicly available and on request from the company's Investor Relations department. Now, before I turn the call over to Bob, please let me comment on the agenda for the call. Bob will begin by providing highlights on the quarter followed by Greg, who will then discuss the third quarter financial results. We will keep the formal presentation to roughly 30 minutes then open up the call for questions. We expect the call to last approximately one hour. We request that anyone asking questions please limit yourself to one question. Should we have any additional questions, please call our Investor line at 925-460-3663, or e-mail ir@cooperco.com. As a reminder, this call is being webcast and a copy of the earnings release is available through the Investor Relations section of the Cooper Companies' website. With that, I'll turn the call over to Bob for his opening remarks.

Thank you, Kim, and good afternoon and evening to everyone. Well we're back on track with another great quarter. We're executing our strategy that has been in place for the past five years. We're accomplishing our long-term objectives, taking market share, posting gross margin expansion, delivering double-digit earnings per share growth and delivering free cash flow. For the quarter, we delivered revenue growth of 8%, 9% organic constant currency. For the quarter, we delivered GAAP earnings per share of $1.36, up 51% versus the prior year. For the quarter, we delivered non-GAAP earnings per share of $1.45, up 26% versus the prior year. Our non-GAAP trailing 12 months, earnings per share is now $5.15. For the quarter, we delivered free cash flow of $63 million and trailing 12-month free cash flow of $225 million. For the quarter, we accomplished our long-term objective by acquiring Origio an IVF company, reaching out beyond the U.S. for CooperSurgical and achieving the number one position in worldwide IVF marketplace. Some highlights and key events, during Q3 '12, we amended our credit agreement increasing it to a $1 billion line of credit, lowering our borrowing grid, eliminating our term loans and extending our line of credit to May of 2017 for an additional 16 months. We closed on the acquisition of Origio, an IVF or in-vitro fertilization company, which adds $60 million-plus in annualized revenue to CooperSurgical. We re-launched Avaira Toric, initiated the limited launch of a one-day silicone hydrogel into Europe and rolled out a novel one-day multifocal Proclear 1 day multifocal. Our silicone hydrogel continues to take significant share and now accounts for 38% of CooperVision's revenue achieving $118 million in revenue, and up 35% in constant currency versus the prior year. Leveraging our free cash flow and a weak stock, we took…

Thanks, Bob, and good afternoon, everyone. Bob has given you a pretty thorough overview of our revenue picture. As he mentioned, Origio is included in our Q3 results. Looking at gross margins, in Q3 the consolidated GAAP and non-GAAP gross margins were 63.5%, compared with 58% for GAAP and 62% non-GAAP in Q3, last year. Remember now, last year's third quarter gross margins were impacted by the Avaira Toric recall for $14.2 million, which included $13.7 million in cost of goods sold for inventory reserves and $500,000 for return provisions, which were excluded from the non-GAAP gross profit last year. As you can see, we had a solid gross margin quarter in line with our expectations. CooperVision on a GAAP and a non-GAAP basis, reported a gross margin just under 63% versus 56% for GAAP, and 61% for non-GAAP in Q3, last year. As I just mentioned, the difference between GAAP and non-GAAP was the impact of the Avaira Toric recall. CooperSurgical had a gross margin of 67%, which compares to Q3 '11 of 65%. The continued year-over-year improvements were mainly due to manufacturing efficiencies and favorable product mix, especially in the surgical space. Origio had about a negative 60-basis point impact on Q3 gross margins for CooperSurgical. From a guidance perspective, we are not changing our consolidated annual gross margin guidance of 63.5% to 64.5%, or 64%, but we would expect to be at the high end of the range. Now, looking at operating expenses, our SG&A in Q3 on a GAAP basis, SG&A expenses increased by 8% from Q3 last year to $143.8 million and were 38% of revenue, same as prior year. On a non-GAAP basis after excluding acquisition cost, primarily investment banking and legal fees for the Origio deal, SG&A expenses increased 5% from Q3 last…

Operator, I think, we are ready for some questions.

(Operator Instructions). Our first question today is from the line of Kim Gailun with JPMorgan. Please go ahead.

I guess if I am limited to one question, I'd like to pick up on the 2013 commentary that you made in your prepared comments Bob. You made a comment there expecting another year of low double-digit EPS growth and then you noted the Medtech Tax there for women's health, so I just wanted to clarify that you're talking about double-digit EPS growth despite the tax and currency headwinds.

That's correct.

Okay. Great. If I could squeeze in a follow-up, just curious with the new product launches in the quarter, so silicone hydrogel daily and then re-launch of Avaira Toric. Could you guys quantify the impact of those two in the quarter?

Yes. New products was fairly de minimis in terms of impacting top line growth. By de minimis, I mean, we got them up. We got products out the door. The impact on our third quarter was less than 1% in aggregate. 1% in the quarter.

Your next question is from the line of Lawrence Keusch with Raymond James. Please go ahead.

Hi. Good afternoon, everyone. I guess just quickly here. With the Origio deal now being closed, obviously, good strategic acquisition for you guys, you used OUS cash but I'd love to get any thoughts on how you are thinking about the EPS accretion for next year. Then the other quick one is, just given all the startup expenses for Avaira, getting that out and the one-day silicone, I'm just curious how that impacted your gross margin. I'm just trying to understand what sort of underlying gross margin level you are going at right now.

Yes. As far as the impact of the Origio acquisition on 2013, we are still expecting it to be marginally accretive next year and near a breakeven this year as far as its impact on this year. Relative to Avaira Toric re-launch and the single-use silicone given the revenue so small on the quarter had marginal impact our margins for this period of time. In the fourth quarter guidance as well as in our outlook for next year, assume that the re-launch of Avaira Toric, and the rollout of single-use silicone is going to be more certainly a negative in terms of margins since we are investing behind both, products. Since you may recall that Avaira Toric when we fixed the problem that led to the recall, it did result in a step back of efficiency of making that product ballpark 30%, so we do have to hurdle some of that going forward. Longer term, we expect like anything else, we'll get more and more efficient yet getting some of those costs back, but short-term meaning over the next year, year-and-a-half, we are going to have some waitings on that which is built into our 2012 guidance and built into the comments I made about expecting a low double-digit growth in earnings per share next year.

Your next question is from the line of Joanne Wuensch with BMO Capital Markets. Please go ahead.

Thanks. Can you please comment on the competitive landscape? There is a lot of noise into quarter regarding some of your competitor product launches?

Yes. The competitor product launches, I would say, one of our competitors came out with a non-silicone hydrogel lens that thus far we haven't heard any catching momentum in the marketplace. Silicone hydrogel lenses in the one-day modality still are what I would call [nichey], while they are getting a lot of our noise it is more noise than results in terms of how it's impacting the entire market, so I think we have collectively more going on with the Proclear 1 Day Multifocal, which is getting a fair amount of positive reviews and we certainly can see some of its impact on our multifocal numbers. While it's early with our rollout of Biofinity, I mentioned Biofinity Multifocal, I should have said Biofinity Toric going into the Japanese market, so we have a plenty of new product activity out there more so than any of our competitors.

If I can squeeze one in please? Origio, how much did that contributed in the quarter?

$5.6 million on the top line and negligible impact on the bottom line.

Your next question is from the line of Jeff Johnson with Robert Baird. Please go ahead.

Two quick questions here. One on the Biofinity product line, 35% constant currency growth for this quarter. If I back out the Avaira side of that business, what did Biofinity itself grow, or can you at least ballpark? It's still up in the good 20%-plus range? Two, is the blended margin on that product, on the Biofinity family, if I try to roll all that together, is that north of 65% at this point?

Relative to gross margins for Biofinity, which is a monthly and is in the premium category, suffice it to say north of 65%. Relative to the growth of Biofinity, when compared to the overall growth of the silicone hydrogel family which is 35% worldwide, suffice it to say Biofinity's growing a lot faster than 35%.

Okay. Great. Then, last question just on your daily disposables business was up 13% constant currency this quarter. Obviously, the competitive daily silicone lenses have been out in Europe for at least nine months at this point from CIBA. Obviously, a couple of years for J&J, so that's at least some proxy. I would think, the European daily market, some proxy for what we could expect a year or two from now in the U.S, so what was your daily disposable business in Europe? How did it do this quarter against some of those competitive products?

Daily disposables in Europe certainly performed and held there. See, before I jump on that one. We held our own group. Well, I know what I need to do. I was almost going to give you the fact that it was fairly flat year-over-year, but that was only a result of foreign exchange, the euro. In constant currency, we certainly had the same growth rate in, let's say, double-digit growth in Europe in constant currency, so it held its own, meaning Proclear 1 Day is doing well in the one-day market, not only rest of the world but also in Europe.

Your next question is from the line of Steve Willoughby, Cleveland Research. Please go ahead.

Hi, guys. Thanks for taking my question. Given the softer results you saw last quarter, I know you guys made the comments that you are going to tighten up expenses a little bit, which it looks like you guys did a good job of this quarter. I was just wondering what your thoughts were now that the revenue and organic growth came back this quarter. How are you guys are managing and how tight are you managing SG&A expenses?

We certainly, as the euro did its thing to our second quarter results, tightened our belt. To some degree, we tightened our belt, because we had been rapidly expanding our operating expenses investing in feet on the street, if you will, investing in R&D and investing in geographic expansion. Some of that we will continue to do. The things that we went slower on were those that were easier things to do that didn't impact the business such as, instead of always getting on a plane and flying and having a face-to-face meeting, more conference calls. When you have lot of people crisscrossing the globe, if you put a cap on what's crucial to be face-to-face and what's not you can save fair amount of money. Ultimately, you want people in front of people because they form better bonding and all that, so it is not you don't do forever, but you do that in short-term matters, if you will. I would say the things we did in the quarter by way of holding back expenses were easy to do as opposed to tough decisions in any reduction in force, if you will. Going forward, there are areas that we clearly are intent on putting resources behind. I would say we are building some momentum in, for example, China, where we've hired a few key critical people to manage that process, so that will lead in more investment opportunity in China as we've started to build the infrastructure. That's been going on all along. We did not slow that up, we in fact hired the key people we needed over the last six months. That will continue to allow us to grow more in that area and invest more in that area. We didn't want to get the carts in front of the horse and start hiring a bunch of people on feet on the street without having the management oversight. Relative to investment in new products and the re-launch of Avaira Toric, suffice it to say we will be over the next 12, 15 months investing fairly substantially in some of those areas, behind the new products.

Your next question is from the line of Matthew O'Brien, William Blair. Please go ahead.

Good afternoon. Thank you for taking the question. I was curious on the CVI guidance for Q4. When I look at the high end of the range, it imply the growth rate of around 5.5% which is basically what you just put up in fiscal Q3, even though the comparison gets a little bit easier here in Q4. I'm just curious why the caution into Q4 given the strong momentum you are seeing in the business?

Well, in our guidance obviously we had a fair amount of impact of foreign exchange in the third quarter $14 million and we expect substantially the same amount in the fourth quarter given year-over-year comp, so in organic constant currency, I think our guidance fits that range what we just delivered at the top end.

Your next question is from the line of Larry Biegelsen with Wells Fargo. Please go ahead.

On daily products, can you tell us a little bit about where the margins are? How the manufacturing is going? Is it still a drag on the margin? When you will get to stable margin there, and are you still capacity constrained for one-day. Then just lastly, for the Analyst Meeting next week, Bob, can you talk little bit about whether you give long-term financial goals and any other flavor? What we can expect from the meeting? Thanks.

As far as the gross margin of one-day's, in general, we've been doing a pretty good job of getting cost out. Keep in mind that the bulk of one-day product is essentially all non-silicone hydrogel, and that's a lot of Proclear 1 Day as well as some in Japan, for example, some products other than the Proclear material. In both cases, both materials, Proclear and non-Proclear, we've done a good job of offsetting which has led to what I would call improvingly respectable one-day margins, but keep in mind those margins will still have a hard time of ever achieving that of a two-week or monthly. There is no expectation they'll get that high. There will always be, I think I used 50s, 60s, 70s example. Typically the one-day will be in the 50s, some place and you're doing good if you're in the top half of the 50s. Some of our products there in the two-weeks, you should be in the 60s-some place, and in the monthly you should be in the upper 60s, into the 70s usually. In our case, Biofinity is the lead product, and we expect it to stay well north of the 70s, so the answer to that one-day, while it's becoming a bigger part of the overall mix, that's a negative on the positive. It is getting a better gross margin. We will step back relative to the rollout of the one-day silicone hydrogel. That is just not going to be a high gross margin product for the near future, if you will. Analyst Meeting, we will give some flavor where we are going directionally, but we will not get into giving more color on, let's say, guidance on 2013. Directionally, we will talk about why we expect operating ratios to continue to improve into the future and put some color behind that, but a lot of it we will focusing on putting a lot more meat and color behind what we talk about our businesses, what they look like in more greater detail.

Your next question is from the line of Chris Cooley with Stephens. Please go ahead.

Thank you and good evening for taking the questions. If you could Bob, could you tell us a little bit about the new product pipeline for Origio, products like EmbryoGen and EmbryoSure. Is that included in your guidance when you are thinking about the modest accretion for next year? Then just for clarification if I can squeeze two in like everybody else? You said in your prepared comments that you were ahead of plan in terms of your manufacturing capacity on all, but one product now. Could you maybe just remind us again where you are in terms of production capabilities? Thanks so much.

Yes. On the Origio, of course, we haven't given revenue guidance for next year. We did indicate that from a accretion point of view it's accretive. There is no change to that and there is, in our underlying assumptions, no major product launches in 2013, but of course Origio is actively working on to have a R&D pipeline, if you will, that anticipate some new products coming through it. We will add a little bit of color to not only Origio, but rest of surgical at the Analyst Presentation, so that may lend some more thoughts in that line of questioning. As far as the capacity, we are in good shape with capacity relative to most of our one-day line, axe silicone hydrogel. Meaning, the Proclear family as well as the other hydrogel families are not capacity constrained, Biofinity continues to ramp up nicely. We are not capacity constrained with Biofinity and we continue to endeavor to keep up with the growth curve, so when you have a business growing north of 35% constant currency, and you have lead capital requirements of 12 months-plus, then we stay on top of it from a CapEx point of view, which we are doing, so I don't anticipate that would, at this juncture catch us by surprise off of our product line with our silicone hydrogels doing north of $118 million, so now at a run rate of close to $500 million annualized. Assume that is predominately Biofinity gives you some gauge at the capacity we in that arena already. The products where we are constrained is, the Avaira line not only constrained on the Toric, but somewhat on the sphere side, partly because we stepped back and gave up some productivity when we had the recall episode. Aside from that, we are ramping up in those areas and we are ramping up in the one-day silicone hydrogel modality. I would assume both, Avaira Toric and the one-day silicone hydrogels will be somewhat constraint for at least the next 12 months in terms of our ability to sell all we can make, would be the case of the one-day silicone hydrogel more than 12 months.

Your next question is from the line of Anthony Petrone with Jefferies. Please go ahead.

Thanks for taking my question. Just going to sneak a couple in there. One quick for Greg. The 9% to 10% tax rate guided for the fourth quarter. Is that reflective of noticeable benefits from Origio given their overseas revenues, and is that sort of the rate we should be thinking about for '13? I think it's down from 10% to 11%. Then for Bob, just multifocals is a smaller portion of the overall business, but it's growing double the market based on the latest statistics of your businesses, is that mostly Biofinity related or Proclear related within the multifocal category? Thanks.

Yes. For the tax rate, one, we're not giving guidance for next year at this point for the effective tax rate. Origio, we obviously just purchased Origio, we are evaluating their structure. They do have a lot offshore, but at this point we don't see a strong difference or strong impact to our tax rate. Again, we still are looking and evaluating that with our tax professionals and their rates to what extent is included in the 9.5% to 10.5% for the fourth quarter guidance that Bob mentioned or I mentioned earlier.

As far as the multifocal growth of course the market for the quarter was 11%, in the calendar quarter we were 31%. On a trailing 12-month basis the market growth for multi-focal was 10%. We grew 21%, 2x. The driver clearly is Biofinity Multifocal, and we are just starting to build momentum in our rollout of Proclear 1 Day Multifocal. That would have had insignificant impact given fairly small size in the last quarter on any of those numbers, so assume that essentially the trailing 12-month number is essentially all the Biofinity impact driving.

Your next question is from the line of Amit Bhalla with Citi. Please go ahead.

Hi. Bob, I just had two quick ones. First on Origio. With the deal closing on July 11th, you booked $5.6 million in the last two weeks, so can you just explain how you booked that much in just two weeks? Second on fiscal '13, since you indicated that you probably won't be talking much about guidance at the analyst meeting. Can you at least put some context around how you are thinking about the top line growth for '13, either relative to the market or in absolute terms? Thanks.

Amit, I'll jump in and take the Origio question. This is Greg. The $5.6 million was booked for the entire month of July. We looked that, because of the fact that we were closing so quickly, their ability to be able to breakout the revenue for from the 11th forward, we ended up taking the whole month. Now in evaluating, we did an analysis evaluating the amount of difference in that seven business days, because they are more back-end loaded, so the 5.6 even though it's the whole month, we believe that there wasn't a whole lot. In fact, we were thinking of something around $1 million, $1.5 million difference between a whole month and that's the cutoff period.

As far as 2013 and going forward, how are we thinking about the market from a conceptual point of view is, we expect the market to continue to grow modestly in that range of 4% to 6%, still in a sluggish economy. Someday, I clearly expect that to accelerate beyond the recession. While we say we are recession-resistant, we are still somewhat impacted and when the global economy improves, I would expect the 4% to 6% to uptick higher than a midpoint of 5. In terms of how to think about our performance within the market, we'll continue to expect to gain share with the new products we offer with geographic expansion in our general existing portfolio products such as Biofinity, we will gain share. In the past, we've been gaining at 1.8 to 1.9, the market growth. Essentially all we are saying in the future is, we will gain share. Whether or not we achieve the same level, we're not going to, if you will, refine that thinking other than to say we'll continue to uptick and gain share in our view. I would emphasize that as a trailing 12-month basis as opposed to where we gain share in each and every quarter. One quarter a trend does not make, so I wouldn't get too hung upon any one quarter. I would get hung up, if we were losing share on a trailing 12-month basis. As far as surgical, CooperSurgical will be impacted by the annualization of Origio, which brings with it north of $60 million in revenue and we expect that to grow organically as well as contribute from the acquisition. Surgical has been growing axe Origio general in that 6% to 8% range, and we would expect it to continue to be mid to upper single-digit growth going forward.

With that we'll conclude today's Q&A session, and I would now like to turn the call over to Mr. Bob Weiss for some closing remarks.

Well, I want to thank everyone for joining us on this call, and we look forward to seeing many of you in New York, next week, and also reporting in December, on our year-end financial results. The year is certainly flying by. We're excited about the conclusion of the year and the execution this year and looking forward optimistically to 2013, so on that, have a good evening.

Ladies and gentlemen, that will conclude today's conference. Thank you very much for joining us and you may now disconnect. Everyone, have a great day.