Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2013 The Cooper Companies Earnings Conference Call. My name is Philip, and I will be your operator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Ms. Kim Duncan, Senior Director of Investor Relations. Please proceed, ma'am.

Good afternoon, and welcome to The Cooper Companies' Fourth Quarter and Full Year 2013 Earnings Conference Call. I'm Kim Duncan, Senior Director of Investor Relations. And joining me on today's call are Bob Weiss, Chief Executive Officer; Greg Matz, Chief Financial Officer; and Al White, Chief Strategy Officer. Before we get started, I'd like to remind you that this conference call contains forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995, including all revenue and earnings per share guidance and other statements regarding anticipated results of operations, market conditions and integration of any acquisitions. Forward-looking statements depend on assumptions, data or methods that may be incorrect or imprecise and are subject to risks and uncertainties. Events that could cause our actual results and future actions of the company to differ materially from those described in the forward-looking statements are set forth under the caption Forward-Looking Statements in today's earnings release and are described in our SEC filings, including the business section of Cooper's annual report on Form 10-K. These are publicly available and on request from the company's Investor Relations department. Now before I turn the call over to Bob, let me comment on the agenda for the call. Bob will begin by providing highlights on the quarter, followed by Greg, who will then discuss the fourth quarter and full year financial results. We will keep the formal presentation to roughly 30 minutes, and then open up the call for questions. We expect the call to last approximately 1 hour. [Operator Instructions] Should you have any additional questions, please call our Investor line at (925) 460-3663 or email ir@cooperco.com. As a reminder, this call is being webcast and a copy of the earnings release is available through the Investor Relations section of The Cooper Companies' website. And with that, I'll turn the call over to Bob for his opening remarks.

Thank you, Kim, and good afternoon, everyone. Welcome to our fiscal fourth quarter and our fiscal year 2013 conference call. Let me start by saying I'm very proud of the fiscal year and our accomplishments highlighted, our revenue growth of 10%, our non-GAAP earnings per share growth of 15%. Having said that, I know many of you are looking at our fourth quarter results versus our guidance. And I want to immediately provide some color on that. Let me start with revenue. As you will have noted on our earnings release, our consolidated revenue growth was significantly impacted by our CooperVision Americas growth of only 2%. This came in around 7% wider than we were expecting and it was driven by one key item, channel inventory. This came in $7 million lighter than we were expecting and it was driven by one key item, channel inventory. User demand has remained strong and we've seen no negative signals on that front. However, the largest 2 U.S. distributors merged and their efforts to consolidate operations and reduce inventory impacted us significantly in the month of October. This flows into gross margin as a larger portion of the lost sales would have been Biofinity to carry gross margin over 70%. On a positive note, CooperVision Americas revenue in November was up 18%, so we are beyond the year-end reduction in channel inventory, and we're entering fiscal 2014 off to a good base. Next, let me provide some additional color on gross margins. Cost of goods came in around $6 million higher-than-anticipated. The biggest reason for this was changes regarding the manufacturing of MyDay, our daily silicone hydrogel lens. We made a couple of important strategic moves at the end of our fiscal year to accelerate manufacturing and expand our parameter range. This was…

Thanks, Bob, and good afternoon, everyone. Bob shared with you a pretty through review of the market and our revenue picture. Bob also gave you the highlights of our Q4 gross margin and earnings per share versus our expectations we had shared in guidance on September 5. Let me start with gross margins looking at the full fiscal Q4 '13 versus Q4 '12. In Q4, the consolidated GAAP and non-GAAP gross margins were 64.1% compared with 63.8% for GAAP and non-GAAP in Q4 last year. We continue to see strong headwinds year-over-year due to the impact of foreign exchange, predominantly the yen, on our revenue and the related direct impact on gross margins, which had approximately a 95-basis-point impact year-over-year. We're seeing a large impact to margins of approximately 70 basis points due to MyDay and a combination of mix and start-up costs. As we discussed in the past, we've been fluctuating between low and no margins on this product, which is normal in the start-up phase where you're building capacity. Helping to offset the headwind has been favorable product mix, excluding the impact of MyDay and the CIBA royalty savings. On a full fiscal year basis, we finished at 64.7%, up 80 basis points from the prior year. CooperVision, on a GAAP and a non-GAAP basis, reported gross margin of 64% versus 63.7% for GAAP and non-GAAP in Q4 last year. Factors impacting gross margin in the quarter, as I mentioned, are the currency headwinds, MyDay and the CIBA royalty savings. For the full year, gross margins went from 63.4% in 2012 to 64.8% in 2013. CooperSurgical had a GAAP and a non-GAAP gross margin of 64.3%, which compares to Q4 '12 of 64.1%. Fertility with lower margins will continue to put pressure on our gross margin, but we…

Operator, we're now ready to take some questions.

[Operator Instructions] And your first question comes from the line of Jeff Johnson from Robert Baird. Jeffrey D. Johnson - Robert W. Baird & Co. Incorporated, Research Division: Bob, I just want to go back to your comments on the 25% operating margin in fiscal '18. And Greg, you laid out a plan here of maybe 130, 140 basis points of margin expansion in fiscal '14. So from fiscal '14 to fiscal '18, Bob, obviously, you're going to have a lot of moving parts as MyDay becomes an even bigger part of the mix. You obviously have some things coming off on the IP side and also on the amortization side. But wondering, as you paint the picture going from 20%, 20.5% this past year to 25%, is it up a pretty consistent 100, 150 basis points a year each of the next 5 years? Or when we get beyond fiscal '14, is there risk that we may be flat now that the margin line for year or 2 with MyDay has a bigger impact before then seeing a nice a kind of tick up from there?

Jeff, I think it's going to be -- I don't want to say smooth, but 2015 should be an okay year relative to 2014 and then when you move into 2016 likewise you have some favorable events. So as I see it, it's maybe not a straight line going up from 20% to 25%. But it shouldn't be a hockey stick, meaning we hang out at 21.5% to 22% until the last 2 years, that's not the way I see it. I see it improving somewhat every year.

And your next question comes from the line of Jon Block from Stifel. Jonathan D. Block - Stifel, Nicolaus & Co., Inc., Research Division: I guess, maybe I'll just try to wrap this up in one question. Can you just speak a little bit, Bob, to MyDay? It's been out there in Europe, the pricing. And then you talked a little bit about manufacturing. It seems like hitting the gas there, you now have approval in hand with the U.S., but you're seeing strong demand in Europe. So can you talk to -- is Europe pushing out the U.S. because you want to make sure that you're feeding those mouths? Or you're trying to hit the gas even come to the U.S. sooner?

Jon, we're obviously very pleased with the progress we're making in Europe, and following good military guidelines, you don't overextend yourself and then tick off everyone. So Europe is obviously in the queue first up. And suffice it to say, that means depending on how Europe is going will influence the timing in the U.S. Having said that, on the other front, on the supply end, we're doing everything we can do to accelerate within reason the production side, and obviously, because of the long lead times somewhat problematic to just kind of wish it all here to mark and it's just not going to happen. But Europe is doing very well. The gold award at the SILMO Conference, best product there, we gave it a better shot on the arm. One of the things we did do is deliberately round out the product portfolio, which means build out the plus powers, as well as the minus powers. And that obviously was done with the intent of giving the customer a better product line to pick from and it did cost us short-term in terms of yields, it cost us short-term in terms of cost of goods. We just think there is the right kind of decisions to make. But to answer your question about the timing into the U.S., we'll probably get here sometime next year. But at #1, it won’t be robust. #2, it is somewhat influenced by Europe.

Your next question comes from the line of Steve Willoughby from Cleveland Research.

Just a question on the MyDay, and what that product kind of looks like going forward. For gross margins to kind of get into the -- maybe let's just say 40% to 50% range where other 1 Day lenses are. Can you maybe walk through kind of what needs to happen there? Is it just a matter of increasing your capacity and volume for that product? Or do we need some sort of kind of break through the manufacturing process in order to get the margins up on that product?

Steve, I guess I would describe it this way. There are some easy fixes and easy improvements, getting the first -- getting to the right zone, so to speak. So we have a pretty good map of where we are going the next 3 or 4 years by way of improvements in the equipment. We're manufacturing improvements in the yields on the existing lines. When you then get down to the point where maybe you're approaching 40% margins, moving the next 10 gets a bit more challenging, and you have to find those ideas sooner rather than later if you're going to alter some of the equipment or modify the equipment. So it's very much like the description of 20% OI, going into 25, it's going to happen in steps along the way. But directionally, it will -- we'll get a good way down the path.

And your next question comes from the line of Kim Gailun from JPMorgan. Kimberly Weeks Gailun - JP Morgan Chase & Co, Research Division: Question on MyDay, at what revenue level do you think that MyDay becomes operating margin-neutral? Yes, you talked about some of the gross margin ramp that you're expecting in '14, but I also imagine you're going to be spending on sales and marketing behind the MyDay rollout. So at what level should we think about that becoming a product that's closer to kind of operating margin neutral relative to the corporate average?

Kim, many products that we roll out like this, be it Proclear 1 Day, be it Biofinity, quite frankly for several years, didn't make operating profit. And for sure today, it makes operating profit. We're going to look at how much muscle at any point in time we have by way of capacity and how many markets we have available to dictate that. So my expectation is that it is unlikely we will be making profits on MyDay the next several years with the intent of continuing to develop that franchise, continuing to drive down cost of goods, but we'll be putting a fair amount of muscle as the capacity increases behind the product once we come to the U.S. and then once we go into other markets around the world. So it isn't -- if we wanted to make money, clearly, we could kind of map out the European model, invest 1 year and start reaping profits as early as 2 years from now, but I don't think that's the right model and I truly hope that the product has more legs so that we have investment opportunities even post the 2-year period. So I don't want to assign any $1 amount and say, chief, if we get to $100 million, we arrive at profitability. Cost will be coming down, no doubt, as you ramp up and it's $100 million product line instead of a $25 million product line, but there are other valuables that we'll consider in drawing that line.

And your next question comes from the line of Matt O'Brien from William Blair.

It's Kaila in for Matt. First off, I was wondering to get a little bit more color on the channel inventory issues that occurred this quarter. And if you can just help us understand, what gives you the confidence that those issues won't linger into 2014?

Kaila, good question. The confidence we really have is, a year ago, some of you may remember we had a reduction in channel inventory, and that reduction was around 20% in the authorized distributors here in the United States. I'm talking principally about the U.S. now. And so we assume that, that probably would be where it would settle out. Then during the course of this year, the merger came along, off the 2 largest distributors, or certainly our 2 largest distributors in the United States. And we kind of knew maybe something would happen that would, they had different model and we weren't sure which model would preempt which and in what time frame and what the implication would be. So it turns out we found out at the end of the fourth quarter that those levels were going to come down to a pretty tight level. It's our best view that that's where it's going to settle out. That means that in 2013, we really lost arguably 1 to 2 weeks of sales to distributors in the year, and therefore, we quite frankly have slightly easier comp in 2014 than we do in 2013 as a result of that phenomena. But we think based on what we saw in November and month to date in December that we have a handle on the fact that they got it down to the level they want and its business as usual going forward.

Okay, that's helpful. And then just on MyDay, you've mentioned that $25 million estimate in 2014. Does that assume any sort of contribution from the U.S. next year?

No. Nominal.

The next question comes from the line of Larry Biegelsen from Wells Fargo.

I'm trying to understand if the items in the fourth quarter that hurt you by $0.30 on the EPS line, we should see them as onetime or not? And if they're onetime, then your EPS would have been about $6.26 for the year and the guidance for 2014, then the implied guidance will be 7% to 12% growth, not the low double digits that you said in the third quarter call. So if you could help me understand that, that would be helpful. And Bob, on the gross margin, I heard the 65% for 2014 in the guidance and then I heard obviously, your commentary earlier. Can you talk about what -- how is the gross margin progression looks over the next few years given some of the headwinds and tailwinds even directionally, do you think the gross margin can go up or should we kind of model it flat for the next few years?

As far as how much is reoccurring and how much is not reoccurring, clearly, things like the authorized distributor shrinkage in 2013 should not repeat and should be viewed as nonrecurring. So that's kind of a step up of be it -- in a $0.10-plus or minus. So that gets you, if you will, from $5.95 to $6.05. When it comes to those things surrounding MyDay, that is not black and white. Some of it was onetime, within that pot, such as taking a machine down and retooling it for the MyDay operation. Some of that will, if you will, once you get into production away. Having said that, some of that activity continues into 2014. So there will be some repeating of some of the events in the fourth quarter into 2014, which is built into our full year guidance. So I think the comp is not at either extreme, not at $5.95 compared to, let's say, the midpoint of $6.85, just to pick a number within that range, nor is it at the -- I add $0.30 to the $5.95 and then do the comps. It's some place in the middle of 30 and then 0. On the second question of gross margins, where did they go from here? There are a number of moving parts, there's no doubt the royalty, there's no doubt things like depreciation, there's no doubt MyDay. There is no doubt the remnants of foreign exchange, which have played havoc on us in the last 2 years. How you look forward, the 65 going down the road to 2018, some of that will be the more successful we are with MyDay, the more pressure we obviously put on that gross margin going forward. And I think I've indicated several times, I really don't care if it turns out to be 1 Day is 50% of our portfolio, our gross margin undoubtedly will be lower than 65%. And I kind of hope that happens because it obviously is good for our operating income line and not only the top line growth but the operating income growth. So I would assume that the 65 going forward has some potential pressure on it if we're extremely successful with MyDay. Beyond that, if it's kind of middle-of-the-road, we have a fair amount of good things going that may minimize some of the mix issues by MyDay. Whether or not that leads to 65 or some modestly lower, I don't know quite frankly.

Your next question comes from line of Joanne Wuensch from BMO Capital Markets.

The channel inventory situation, which segment of CVI did that impact the most? And do we assume that the entire rolloff that happened in the fourth quarter comes completely back on? And then my second question is, is the operating margin for CSI don't really seem to be recovering from the Origio acquisition. And can you talk about plans to help that move forward too?

First of all, on the channel inventory, which comes from CVI U.S., and I think we indicated that a fair amount what that distributor gets, which is the U.S. profile, if you will, of products, excluding the limited volume SKU for torics, for example, which we shipped direct and they don't go through the distributors. So our large distributor takes the entire breadth of the U.S. product line of CooperVision x the stock keeping units that don't make sense to carry at that level. As far as the impact, the impact was on the fourth quarter. We are expecting that, that level, that new level of inventory on hand will stay quarter-by-quarter hereafter, which is to say, no new collapse, no new comeback. It's not going to step up, it's not going to step down, it's going to stay steady-state, that's our underlying assumption. There is some modest tweaking that goes on within the quarterly cycles for cyclical reasons, but it is fairly modest, it's nothing like what we're talking about at year end. As far as the operating margins of CooperSurgical, will they rebound to where they were pre-Origio? Origio, number one, is a very global acquisition. And as you go global, building out that structure, it's going to operate a little less efficiently by nature than having a U.S.-centric business where make it in the U.S., ship it in the U.S., that's all there is. So that's one downward pressure. Second thing is, we continue to invest in Origio as it builds itself out globally, and grew 24% this last quarter. And as long as it's putting up good growth numbers, we will continue to invest and not try to reap the profits on that. The one thing we do have in mind, however, is ultimately fine-tuning its production process, I guess, in a sense of product mix and profitability on the gross margin line. And I would hope that as we look forward over the next several years, we improve somewhat on its gross margin.

And your next question comes from the line of Amit Bhalla from Citigroup.

Two quick ones for Greg. Greg, just number one, share count guidance for '14. And second on Aime. I just want to reconcile on a non-GAAP basis the charge and the impact on revenues into earnings to the fourth quarter based on Aime.

Okay, Amit. The first thing, the share count is 49.5. And so for Aime, if you look at Aime, there are a couple of pieces, one, the charge was, the $21.1 million we mentioned. It had for the fourth quarter, $0.28 impact. For the year, it's $0.26 and that difference is really around taxes. There was a tax true up in there so -- and you actually had some additional $0.05 of tax true up in the quarter. So if you look at the difference between GAAP and non-GAAP, you see $0.33 and that really is an additional $0.05 on top of the $0.28 Aime. Or it's a typical tax true-up at the end of the year. You estimate your rate throughout the year. Once you hit your end, finish your provision, you're able to go back in and exactly hit what your tax rate will be. So nothing unusual.

Ladies and gentlemen, does that conclude the question-and-answer portion of today's call. I'll now turn the call back over to Bob Weiss for closing remarks.

Well, thank you, everyone, for participating in today's call. We are obviously very excited as we look down the road to 2014. I think you can tell that from our guidance, we're feeling pretty bullish about what is going through the pipeline. We're very bullish about MyDay, and look forward to talking to you a lot more on our first quarter conference call about our progress in some of these areas as we go forward. With that, I think our next conference call is on March 6, if I have it right, of 2014, which is a Thursday. And we look forward to updating you at that point in time. Thank you.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation, and you may all now disconnect. Have a wonderful day.