REFINITIV STREETEVENTS

EDITED TRANSCRIPT

COO.N - Cooper Companies Inc at Wells Fargo Virtual Healthcare Conference

EVENT DATE/TIME: SEPTEMBER 10, 2021 / 5:20PM GMT

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SEPTEMBER 10, 2021 / 5:20PM, COO.N - Cooper Companies Inc at Wells Fargo Virtual Healthcare Conference

C O R P O R A T E P A R T I C I P A N T S

Albert G. White The Cooper Companies, Inc. - President, CEO & Non-Independent Director

C O N F E R E N C E C A L L P A R T I C I P A N T S

Lawrence H. Biegelsen Wells Fargo Securities, LLC, Research Division - Senior Medical Device Equity Research Analyst

P R E S E N T A T I O N

Unidentified Participant

Welcome to the Wells Fargo Healthcare Conference. Before we get started, if you are a member of the press or media, please disconnect at this time. This is a restricted line. Any unauthorized party in this meeting or any unauthorized use of the information communicated in this meeting is subject to prosecution to the fullest extent of the law. Any unauthorized person, including the media that is on the line at this time, please disconnect. Please note, today's call is being recorded.

Lawrence H. Biegelsen - Wells Fargo Securities, LLC, Research Division - Senior Medical Device Equity Research Analyst

Good afternoon. I'm Larry Biegelsen, the medical device analyst at Wells Fargo. It's my pleasure to host this session with the management team from CooperCompanies. With us, we have Al White, President and CEO. And I think Kim Duncan, Head of Investor Relations, is somewhere on the line. So, in terms of format, it's going to be a fireside chat. If anyone has a question they want me to ask on their behalf, please e-mail it to me. And I think we have one polling question here. So, Al, welcome and thanks again for participating in our conference.

Albert G. White - The Cooper Companies, Inc. - President, CEO & Non-Independent Director

Yes, absolutely. Great to be here, Larry.

Q U E S T I O N S A N D A N S W E R S

Lawrence H. Biegelsen - Wells Fargo Securities, LLC, Research Division - Senior Medical Device Equity Research Analyst

Great. Al, so let's start off with COVID and recovery trends and you talked about on the Q3 earnings call, which was just last week. You made some encouraging comments on the recovery, let's start with CVI and then go to CSI. What have you seen so far in contact lenses? What's the trend been in July and August and early September?

Albert G. White - The Cooper Companies, Inc. - President, CEO & Non-Independent Director

Yes. For contact lenses, we're continuing to see progress, is what I would probably say. It gets highly dependent on what region you're in because there's different activities. Here in the U.S., we have a lot of back-to-school activity, which is strong. I used the word robust earlier one of the calls. The one thing I would say about it is, where the demand is there, we still do hear from optometry offices that they're having staffing challenges. So, you're seeing appointments going out a lot farther maybe than what people thought. But getting everybody in who wants to get in today is a little bit of a challenge. So, I don't see a scenario where those sales get lost or there's that kind of problem and maybe it's not as bolbus as it is in one individual month, but continuing to see really good activity and a lot of patient flow and patient interest.

Europe continuing to get a little bit better and move in the right direction, even Asia Pac. I mean we're having some countries there, you look at Taiwan and Korea, Australia, where there's still some restrictions in place, and that's impacting us. But generally speaking, we're continuing to see things move in the right direction.

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SEPTEMBER 10, 2021 / 5:20PM, COO.N - Cooper Companies Inc at Wells Fargo Virtual Healthcare Conference

Lawrence H. Biegelsen - Wells Fargo Securities, LLC, Research Division - Senior Medical Device Equity Research Analyst

Including New Fits, Al, because you said on the Q3 call that that's still soft.

Albert G. White - The Cooper Companies, Inc. - President, CEO & Non-Independent Director

Yes. New Fits are soft, you'd almost have to break it down into 2 pieces. You get the fits of an existing contact lens wearer who's going in and just getting their script updated, that activity is definitely better. If you look at a market like right here in the U.S., that portion of the market is better, which is why you're seeing strength in the underlying contact lens market and us putting up the results that we're putting up.

If you look at the brand new wearer who's coming in, the 16-,17-year-old wearer who's coming in, that New Fit activity is still depressed. Getting a little bit better. We see it consistently getting a little bit better, but it still has a little ways to go to get to pre-COVID levels. That activity in general, is a little bit worse in Europe, a little bit worse in Asia Pac.

Lawrence H. Biegelsen - Wells Fargo Securities, LLC, Research Division - Senior Medical Device Equity Research Analyst

Japan is an important market for you. And it seems like they've had some fits and starts there with COVID. What are you seeing there?

Albert G. White - The Cooper Companies, Inc. - President, CEO & Non-Independent Director

Yes, you're right. Japan is an important market. We have a number of product launches there, and we have a strong presence in Japan. And you'll remember, pre-COVID, we put up double-digit growth in Japan. So, I've been excited about that market for a long time. There's a reason that we're launching those products, we've hired salespeople recently and we're expanding our sales force because I do think what we're going to see is what we started to see in Europe last quarter. As we saw Europe come on, our results accelerated off that. Japan is still moving pretty slow. I would say that it's moving in the right direction, but it's still moving pretty slow.

Lawrence H. Biegelsen - Wells Fargo Securities, LLC, Research Division - Senior Medical Device Equity Research Analyst

Okay. And CSI, what are you seeing with IVF and office and surgical procedures through early September?

Albert G. White - The Cooper Companies, Inc. - President, CEO & Non-Independent Director

Fertility continuing to remain strong. Great marketplace. You've seen our results on the fertility space are strong. We're continuing to do well in the fertility space. We don't have potentially some of the constraints that some competitors have around supply chain and some of the channel struggles. We've been able to weather through that. The demand has remained relatively strong within fertility. So happy, excited about that marketplace, as I've said before, great long-term growth characteristics. But even short term here, we're in pretty good shape. PARAGARD, we did the price increase. Did you want to jump in on that one?

Lawrence H. Biegelsen - Wells Fargo Securities, LLC, Research Division - Senior Medical Device Equity Research Analyst

No, no, no. Please go ahead.

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SEPTEMBER 10, 2021 / 5:20PM, COO.N - Cooper Companies Inc at Wells Fargo Virtual Healthcare Conference

Albert G. White - The Cooper Companies, Inc. - President, CEO & Non-Independent Director

Yes. So PARAGARD, we did the price increase. We pulled some in. We'll see some of the push. But PARAGARD is still mid-single-digit grower long term, half from price, half from units, not seeing much impact near term on anything there. The base medical device businesses are going fine. We try to put a little conservatism in there because of elective procedures or concerns about elective procedures. So, haven't seen too much there, but continue to be weary, about the impact of COVID, the Delta variant on elective procedures because that will negatively impact us a little bit on that part of our business. It's not a big part, but it's definitely part of our business.

Lawrence H. Biegelsen - Wells Fargo Securities, LLC, Research Division - Senior Medical Device Equity Research Analyst

So how did you approach the Q4 guidance for CVI and CSI? I mean for lack of a better word, how much conservatism they did due to the uncertainty from COVID?

Albert G. White - The Cooper Companies, Inc. - President, CEO & Non-Independent Director

Yes. Always hard to say. We assume when we look at the vision space, we would continue to see the marketplace get a little bit better, continue to move in the right direction. No inflection up, no inflection down. Just continue to move forward as vaccines continue to roll out. On the CooperSurgical side of things, we looked at it probably a little bit differently. We believe fertility will continue to be strong there. The one asterisk on fertility ends up being the capital side. We saw some good capital activity in the last couple of quarters. We're continuing to see clinics build out or even new clinics. You can get a little lumpiness when it comes to some of your capital equipment sales in there. And then as I mentioned, trying to take a look at the base medical device business and try to put a little conservatism in there. We'll see how that plays out. I don't know if that will be conservatism, or if it won't be. So, to me, those elective procedures historically have moved forward a little bit, if for some reason, something doesn't happen, we've had a tendency to pick all that activity back up in a later quarter. So that's a good sign. We'll just have to wait and see how that one plays out a little bit.

Lawrence H. Biegelsen - Wells Fargo Securities, LLC, Research Division - Senior Medical Device Equity Research Analyst

Okay. Al, I wanted to kind of touch on fiscal 2022 and then move on to myopia management. Fiscal 2022, you were asked about it on the call. You chose not to say a lot. But typically, Al, if there's a major disconnect, I think you guys would point that out. The one thing that maybe people are not contemplating is FX. By our math, it's, let's just say, 75 to 100 basis point headwind on the top line, maybe 300 basis points on the bottom line. Is that consistent with your thinking right now on currency?

Albert G. White - The Cooper Companies, Inc. - President, CEO & Non-Independent Director

Yes. I think that's correct. Currency is obviously moving all over the place. But that's generally correct. I would say, Based on where we were, at least when we gave guidance,that's spot on on the revenue side. It might even be a little light on the EPS side of things. It could be higher than that 300. Not material but...

Lawrence H. Biegelsen - Wells Fargo Securities, LLC, Research Division - Senior Medical Device Equity Research Analyst

I mean you look at consensus after the call -- sorry to interrupt you there. Sales are at $3.1 billion, 7% year-over-year growth. EPS $14.70, 10% year-over-year growth. We're a little lower on EPS because we're kind of assuming maybe 10% constant currency growth by operating income growth but maybe 300 basis point headwind to EPS or at about 7%. Any kind of reaction to our numbers, Street numbers?

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SEPTEMBER 10, 2021 / 5:20PM, COO.N - Cooper Companies Inc at Wells Fargo Virtual Healthcare Conference

Albert G. White - The Cooper Companies, Inc. - President, CEO & Non-Independent Director

Yes, I'll stay away from it largely. But generally speaking, we're very focused on revenue growth right now, and we have some great opportunities, whether it's myopia management or our core portfolio, which is very strong, and we're rolling out a lot of products. So, I see the potential for a strong year. I really do fiscal 2022 from a revenue perspective, just all the activity we have. The thing that concerns me is COVID. But if we continue to move in the right direction with vaccines, and we see Japan open a little bit more, we're well positioned to put up some strong numbers. So, I'm optimistic about that side of things, and I think that's fairly well captured.

As I go through the P&L, I look at EPS, there were a couple of analysts who raised their fiscal '22 numbers. So, I'm not sure if they weren't listening or didn't capture it or if they just said, "hey, the fundamentals of this business are so strong, the company is going to be able to drive all that performance through." But I've said this before, I said it on Q4, I'll say it right now, myopia management is going really well. We have a lot of powerful things moving in our direction. We have a lot of good things going with fertility. We have a lot of good things going with our base business. We're continuing to invest to take market share, and I think we're there. So, I'm not going to turn around and say, "Hey, everybody, hey, Dan or Holly, you need to cut back in your business to make up for currency." If people aren't taking that into consideration that would be a mistake on their part.

Lawrence H. Biegelsen - Wells Fargo Securities, LLC, Research Division - Senior Medical Device Equity Research Analyst

When we look at the operating margin pre-COVID in 2018 and '19, it was 27.6%. And this year, it's going to approach 27%. Is there any reason why you can't get close to that 2018, 2019 level of 26.5%, call it, next year? Or, do you still see kind of incremental investments for myopia management that could keep you below pre-COVID margins?

Albert G. White - The Cooper Companies, Inc. - President, CEO & Non-Independent Director

Yes. It's myopia management based. So, to be clear, the core business itself that we have in vision and surgical is very strong and can get us back to those margins and would put us on pace certainly to be in the 30s from an operating margin perspective as we progress forward. We are investing heavily in myopia management. You saw that in this last quarter, the OpEx has been elevated. You'll continue to see that. Now, as we go from $65 million in myopia management to $100 million, you get to the point where I have enough gross profit dollars, I can hurdle all that activity as we move through next year. And certainly, into the next year and the following year, your sales go up and your infrastructure base is already there. You don't need the incremental spend. So, the only thing that I look at when I talk about operating margin expansion and when it's going to happen and how fast it's going to come, is myopia management and frankly, COVID, on what's going to happen with that as that drives up and down.

But we have a lot going on in myopia management, a lot of clinical work going on in new products, expanding offerings that we have, launches in different countries. So, we set a pretty good base of spending there right now. You'll see that move up a little bit, move down a little bit depending upon sales and marketing and product launches. But fundamentally, if I pull that out, margins are kind of like what they used to be.

Lawrence H. Biegelsen - Wells Fargo Securities, LLC, Research Division - Senior Medical Device Equity Research Analyst

Okay. That's helpful. So, moving on to myopia management. Let's start with China, Al. It was just approved there, obviously. What are the next steps for the commercial rollout? Anything you can say on pricing? And obviously, I'm going to ask about this potential partnership with Essilor there. So, love to hear how to think about China.

Albert G. White - The Cooper Companies, Inc. - President, CEO & Non-Independent Director

Yes, I'll go right to that endpoint because I am happy to say from last week to today that we did sign the Essilor distribution agreement. So that's really good news for us. When we had the call last week, we're looking at it and saying, okay, are we going to have to build out our own sales force? Are we going to have to go with some different distributors? Are we going to wrap up the EssilorLuxottica distribution agreement? That's done. So really good news and a good real positive step forward in our relationship with EssilorLux and then also what we're going to be able to do in China.

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The Cooper Companies Inc. published this content on 23 September 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 06 October 2021 07:55:01 UTC.