03.06.2016, 06:35

The Cooper Companies Announces Second Quarter 2016 Results

OREANDA-NEWS. June 03, 2016. The Cooper Companies, Inc. (NYSE:COO) today announced financial results for the fiscal second quarter ended April 30, 2016.

Revenue increased 11% year-over-year to \\$483.8 million. CooperVision (CVI) revenue up 9% to \\$391.2 million. CooperSurgical (CSI) revenue up 23% to \\$92.6 million.
GAAP earnings per share (EPS) \\$1.52, up 29 cents or 24% from last year’s second quarter.
Non-GAAP EPS \\$2.05, up 33 cents or 19% from last year’s second quarter. See “Reconciliation of Non-GAAP Results to GAAP Results” below.

Commenting on the results, Robert S. Weiss, Cooper’s president and chief executive officer said, “This was a very solid quarter for us within both CooperVision and CooperSurgical. We remain optimistic about the back half of the fiscal year and that our strategies will continue to drive success in the coming years.”

Second Quarter GAAP Operating Highlights

Revenue \\$483.8 million, up 11% from last year’s second quarter, up 9% pro forma (defined as constant currency and including acquisitions in both periods).

Gross margin 62% compared with 62% in last year’s second quarter. On a non-GAAP basis, gross margin was 63%, in line with last year.
Operating margin 19% compared with 16% in last year’s second quarter. On a non-GAAP basis, operating margin was 24% vs. 22% last year. The increase was the result of leveraging operating expenses.
Depreciation \\$33.7 million, up 5% from last year’s second quarter. Amortization \\$14.3 million, up 16% from last year’s second quarter due to acquisitions.
Total debt increased \\$64.1 million from January 31, 2016, to \\$1,441.4 million, primarily due to higher cash balances and acquisitions, partially offset by operational cash flow generation.
Interest expense increased to \\$7.6 million compared with \\$4.7 million in last year’s second quarter primarily due to higher debt and interest rates.
Cash provided by operations \\$97.8 million and capital expenditures \\$41.1 million resulted in free cash flow of \\$56.7 million. Excluding integration costs of \\$9.0 million, adjusted free cash flow was \\$65.7 million.

Second Quarter CooperVision (CVI) GAAP Operating Highlights

Revenue \\$391.2 million, up 9% from last year’s second quarter, up 9% in constant currency.
Revenue by category:

									Constant Currency
	(In millions)		% of CVI Revenue			%chg			%chg
	2Q16		2Q16			y/y			y/y
Toric	\\$	120.5		31	%		13	%		13	%
Multifocal		42.5		11	%		12	%		13	%
Single-use sphere		97.6		25	%		15	%		14	%
Non single-use sphere, other		130.6		33	%		1	%		2	%
Total	\\$	391.2		100	%		9	%		9	%

Revenue by geography:

									Constant Currency
	(In millions)		% of CVI Revenue			%chg			%chg
	2Q16		2Q16			y/y			y/y
Americas	\\$	165.1		42	%		8	%		9	%
EMEA		148.8		38	%		4	%		5	%
Asia Pacific		77.3		20	%		21	%		18	%
Total	\\$	391.2		100	%		9	%		9	%

Gross margin 61% compared with 61% in last year’s second quarter. On a non-GAAP basis, gross margin was 63%, in line with last year.

Second Quarter CooperSurgical (CSI) GAAP Operating Highlights

Revenue \\$92.6 million, up 23% from last year’s second quarter, up 6% pro forma.
Revenue by category:

									Pro forma
	(In millions)		% of CSI Revenue			%chg			%chg
	2Q16		2Q16			y/y			y/y
Office and surgical products	\\$	52.3		56	%		5	%		5	%
Fertility		40.3		44	%		60	%		8	%
Total	\\$	92.6		100	%		23	%		6	%

Gross margin 64%, compared with 63% in last year’s second quarter. On a non-GAAP basis, gross margin was 65% vs. 64% last year. Gross margins were positively impacted by improving results in both the office and surgical space, and fertility.

Fiscal Year 2016 Guidance
The Company updated its fiscal year 2016 guidance. Non-GAAP earnings per share guidance for the full fiscal year excludes amortization of existing other intangible assets of approximately \\$59.6 million or \\$0.98 per share, and other costs including integration expenses which we would not have otherwise incurred as part of our continuing operations. Details are summarized as follows:

Total revenue of \\$1,929 - \\$1,960 million
- CVI revenue \\$1,545 - \\$1,567 million
- CSI revenue \\$384 - \\$393 million
Non-GAAP earnings per share of \\$8.20 - \\$8.50

With respect to the Company’s expectations above, the Company has not reconciled non-GAAP earnings per share guidance to GAAP earnings per share due to the inherent difficulty in forecasting acquisition-related, integration and restructuring charges and expenses, which are reconciling items between the non-GAAP and GAAP measure. Due to the unknown effect, timing and potential significance of such charges and expenses that impact GAAP earnings per share, the Company is not able to provide such guidance.

Reconciliation of GAAP to Non-GAAP Results
To supplement our financial results and guidance presented on a GAAP basis, we use non-GAAP measures that we believe are helpful in understanding our results. The non-GAAP measures exclude costs which we generally would not have otherwise incurred in the periods presented as a part of our continuing operations. These include costs related to acquisition and integration activities, severance and restructuring costs; costs associated with the start-up of new manufacturing facilities; as well as certain legal costs described below. Our non-GAAP financial results and guidance are not meant to be considered in isolation or as a substitute for comparable GAAP measures and should be read only in conjunction with our consolidated financial statements prepared in accordance with GAAP. Management uses supplemental non-GAAP financial measures internally to understand, manage and evaluate our business and make operating decisions. These non-GAAP measures are among the factors management uses in planning and forecasting for future periods. We believe it is useful for investors to understand the effects of these items on our consolidated operating results. Our non-GAAP financial measures include the following adjustments, along with the related income tax effects and changes in income attributable to noncontrolling interests:

We exclude the effect of amortization of intangible assets from our non-GAAP financial results. Amortization of intangible assets will recur in future periods; however, the amounts are affected by the timing and size of our acquisitions.
We exclude the effect of acquisition related and integration expenses and the effect of restructuring expenses from our non-GAAP financial results. Such expenses generally diminish over time with respect to past acquisitions; however, we generally will incur similar expenses in connection with any future acquisitions. We incurred significant expenses in connection with our acquisitions and also incurred certain other operating expenses or income, which we generally would not have otherwise incurred in the periods presented as a part of our continuing operations. Many of these costs relate to our acquisition of Sauflon Pharmaceuticals Ltd. that closed in our fiscal fourth quarter of 2014. Acquisition related and integration expenses include items such as personnel costs for transitional employees, other acquired employee related costs and integration related professional services. Restructuring expenses consist of employee severance, product rationalization, facility and other exit costs.
We exclude costs associated with the start-up of new manufacturing facilities. While these costs may recur for a period of time, we do not consider them as part of our continuing operations. These costs will be eliminated when the specific start-up activities have been completed.
We exclude certain legal costs related to third-party intellectual property claims and litigation filed against CooperVision such as Universal Pricing Policy (UPP) and related lobbying costs. While we may incur similar costs and charges, we do not consider them as part of our continuing operations.

We also report revenue growth using the non-GAAP financial measure of pro forma which includes constant currency revenue. Management presents and refers to constant currency information so that revenue results may be evaluated excluding the effect of foreign currency rate fluctuations. To present this information, current period revenue for entities reporting in currencies other than the United States dollar are converted into United States dollars at the average foreign exchange rates for the corresponding period in the prior year. To report pro forma revenue growth, we include revenue for the comparison period when we did not own recently acquired companies.

We define the non-GAAP measure of free cash flow as cash provided by operating activities less capital expenditures. We believe free cash flow is useful for investors as an additional measure of liquidity because it represents cash flows that are available for repayment of debt, repurchases of our common stock or to fund our strategic initiatives. Management uses free cash flow internally to understand, manage, make operating decisions and evaluate our business. In addition, we use free cash flow to help plan and forecast future periods.

We also provide the metric of adjusted free cash flow that we believe represents our operations ability to generate cash by adjusting cash flow from operations for capital expenditures that are part of our ongoing operations and for acquisition related and integration costs. We believe adjusted free cash flow is useful to investors as an additional measure of performance because it reports elements of our operating activities and excludes cash flow elements that we do not consider to be related to our ability to generate cash. As discussed above, we incur significant acquisition related and integration costs that will diminish over time with respect to past acquisitions; however, we will incur similar expenses in connection with any future acquisitions. We believe it is useful to investors to understand the effects of these costs on our adjusted free cash flow.

THE COOPER COMPANIES, INC. AND SUBSIDIARIES

Reconciliation of Selected GAAP Results to Non-GAAP Results

(In thousands, except per share amounts)

(Unaudited)

Three Months Ended April 30,

2016

2015

GAAP

Adjustment

Non-GAAP

GAAP

Adjustment

Non-GAAP

Cost of sales

\\$

185,295

\\$

(7,225

)

\\$

178,070

\\$

166,960

\\$

(7,746

)

\\$

159,214

Selling, general and administrative expense

\\$

177,659

\\$

(6,103

)

\\$

171,556

\\$

167,583

\\$

(5,434

)

\\$

162,149

Research and development expense

\\$

16,696

\\$

(95

)

\\$

16,601

\\$

16,819

\\$

(172

)

\\$

16,647

Amortization of intangibles

\\$

14,312

\\$

(14,312

)

\\$

12,316

\\$

(12,316

)

\\$

Other income, net

\\$

(418

)

\\$

(401

)

\\$

(819

)

\\$

(686

)

\\$

(686

)

Provision for income taxes

\\$

8,183

\\$

2,215

\\$

10,398

\\$

5,855

\\$

1,913

\\$

7,768

Diluted earnings per share attributable to Cooper stockholders

\\$

1.52

\\$

0.53

\\$

2.05

\\$

1.23

\\$

0.49

\\$

1.72

Our fiscal 2016 GAAP cost of sales includes \\$4.9 million of charges primarily for equipment and product rationalization and related integration costs, arising from the acquisition of Sauflon, and \\$1.4 million of facility start-up costs in CooperVision; and \\$0.9 million of integration costs in our CooperSurgical fertility business. Our fiscal 2015 GAAP cost of sales included \\$5.2 million of charges primarily for product and equipment rationalization, arising from the acquisition of Sauflon, and \\$2.5 million of facility start-up costs; and \\$0.1 million of integration costs in our CooperSurgical fertility business.

Our fiscal 2016 GAAP selling, general and administrative expense includes \\$6.1 million in costs primarily for CooperVision's integration and restructuring activities related to the acquisition of Sauflon and acquisition and integration costs in our CooperSurgical fertility business. Our fiscal 2015 GAAP selling, general and administrative expense included \\$5.4 million primarily for CooperVision's integration and restructuring activities related to the acquisition of Sauflon and severance costs in our CooperSurgical fertility business.

Our fiscal 2016 and 2015 GAAP research and development expense includes \\$0.1 million and \\$0.2 million, respectively, of integration costs.

Amortization expense was \\$14.3 million and \\$12.3 million for the fiscal 2016 and 2015 periods, respectively.

Our fiscal 2016 other income, net, includes costs related to debt extinguishment.

These amounts represent the increases in the provision for income taxes that arises from the impact of the above adjustments.

THE COOPER COMPANIES, INC. AND SUBSIDIARIES

Reconciliation of Selected GAAP Results to Non-GAAP Results

(In thousands, except per share amounts)

(Unaudited)

Six Months Ended April 30,

2016

2015

GAAP

Adjustment

Non-GAAP

GAAP

Adjustment

Non-GAAP

Cost of sales

\\$

372,971

\\$

(21,286

)

\\$

351,685

\\$

335,780

\\$

(17,189

)

\\$

318,591

Selling, general and administrative expense

\\$

351,263

\\$

(17,886

)

\\$

333,377

\\$

341,118

\\$

(11,794

)

\\$

329,324

Research and development expense

\\$

31,458

\\$

(23

)

\\$

31,435

\\$

32,932

\\$

(275

)

\\$

32,657

Amortization of intangibles

\\$

30,515

\\$

(30,515

)

\\$

25,911

\\$

(25,911

)

\\$

Other expense, net

\\$

972

\\$

(882

)

\\$

1,016

\\$

1,016

Provision for income taxes

\\$

7,172

\\$

6,870

\\$

14,042

\\$

11,571

\\$

6,691

\\$

18,262

Diluted earnings per share attributable to Cooper stockholders

\\$

2.57

\\$

1.30

\\$

3.87

\\$

2.48

\\$

0.99

\\$

3.47

Our fiscal 2016 GAAP cost of sales includes \\$16.2 million of charges primarily for equipment and product rationalization and related integration costs, arising from the acquisition of Sauflon, and \\$3.7 million of facility start-up costs in CooperVision; and \\$1.3 million of integration costs in our CooperSurgical fertility business. Our fiscal 2015 GAAP cost of sales included \\$14.4 million of charges primarily for product and equipment rationalization and \\$2.5 million of facility start-up costs in CooperVision; and \\$0.3 million of integration costs in our CooperSurgical fertility business.

Our fiscal 2016 GAAP selling, general and administrative expense includes \\$17.9 million in costs primarily for CooperVision's integration and restructuring activities related to the acquisition of Sauflon and acquisition and integration costs in our CooperSurgical fertility business. Our fiscal 2015 GAAP selling, general and administrative expense included \\$10.9 million for CooperVision's integration and restructuring activities related to the acquisition of Sauflon and severance costs in our CooperSurgical fertility business. Our fiscal 2015 GAAP selling, general and administrative expense also includes \\$0.9 million of legal costs, described above.

Our fiscal 2016 and 2015 GAAP research and development expense includes \\$0.1 million and \\$0.3 million, respectively, of integration costs.

Amortization expense was \\$30.5 million and \\$25.9 million for the fiscal 2016 and 2015 periods, respectively.

Our fiscal 2016 other expense, net, includes costs related to debt extinguishment and foreign exchange forward contracts related to an acquisition.

These amounts represent the increases in the provision for income taxes that arises from the impact of the above adjustments.

THE COOPER COMPANIES, INC. AND SUBSIDIARIES

Reconciliation of Selected GAAP Results to Non-GAAP Results

Free Cash Flow and Adjusted Free Cash Flow

(In thousands)

(Unaudited)

Three Months

Six Months

Ended April 30,

2016

Cash flow from operations

\\$

97,848

\\$

187,387

Capital expenditures

(41,176

)

(86,332

)

Free cash flow

\\$

56,672

\\$

101,055

Items not included in adjusted free cash flow:

Integration costs and other

9,035

21,362

Adjusted Free cash flow

\\$

65,707

\\$

122,417

Conference Call and Webcast
The Company will host a conference call today at 5:00 PM ET to discuss its fiscal second quarter 2016 financial results and current corporate developments. The live dial-in number for the call is 855-643-4430 (U.S.) / 707-294-1332 (International). The participant passcode for the call is "Cooper". A simultaneous webcast of the call will be available through the "Investor Relations" section of The Cooper Companies’ website at http://investor.coopercos.com and a transcript of the call will be archived on this site for a minimum of 12 months. A recording of the call will be available beginning at 8:00 PM ET on June 2, 2016 through June 9, 2016. To hear this recording, dial 855-859-2056 (U.S.) / 404-537-3406 (International) and enter code 266737 (Cooper).

About The Cooper Companies
The Cooper Companies, Inc. ("Cooper") is a global medical device company publicly traded on the NYSE (NYSE:COO). Cooper is dedicated to being A Quality of Life Company™ with a focus on delivering shareholder value. Cooper operates through two business units, CooperVision and CooperSurgical. CooperVision brings a refreshing perspective on vision care with a commitment to developing a wide range of high-quality products for contact lens wearers and providing focused practitioner support. CooperSurgical is committed to advancing the health of families with its diversified portfolio of products and services focusing on women’s health, fertility and diagnostics. Headquartered in Pleasanton, CA, Cooper has approximately 10,000 employees with products sold in over 100 countries. For more information, please visit www.coopercos.com.

Forward-Looking Statements
This news release contains "forward-looking statements" as defined by the Private Securities Litigation Reform Act of 1995. Statements relating to guidance, plans, prospects, goals, strategies, future actions, events or performance and other statements which are other than statements of historical fact, including our 2016 Guidance and all statements regarding acquisitions including the acquired companies’ financial position, market position, product development and business strategy, expected cost synergies, expected timing and benefits of the transaction, difficulties in integrating entities or operations, as well as estimates of our and the acquired entities’ future expenses, sales and earnings per share are forward looking. In addition, all statements regarding anticipated growth in our revenue, anticipated effects of any product recalls, anticipated market conditions, planned product launches and expected results of operations and integration of any acquisition are forward-looking. To identify these statements look for words like "believes," "expects," "may," "will," "should," "could," "seeks," "intends," "plans," "estimates" or "anticipates" and similar words or phrases. Forward-looking statements necessarily depend on assumptions, data or methods that may be incorrect or imprecise and are subject to risks and uncertainties.

Among the factors that could cause our actual results and future actions to differ materially from those described in forward-looking statements are: adverse changes in the global or regional general business, political and economic conditions, including the impact of continuing uncertainty and instability of certain countries that could adversely affect our global markets; foreign currency exchange rate and interest rate fluctuations including the risk of fluctuations in the value of foreign currencies that would decrease our revenues and earnings; acquisition-related adverse effects including the failure to successfully obtain the anticipated revenues, margins and earnings benefits of acquisitions, integration delays or costs and the requirement to record significant adjustments to the preliminary fair value of assets acquired and liabilities assumed within the measurement period, required regulatory approvals for an acquisition not being obtained or being delayed or subject to conditions that are not anticipated, adverse impacts of changes to accounting controls and reporting procedures, contingent liabilities or indemnification obligations, increased leverage and lack of access to available financing (including financing for the acquisition or refinancing of debt owed by us on a timely basis and on reasonable terms); Our indebtedness could adversely affect our financial health, prevent us from fulfilling our debt obligations or limit our ability to borrow additional funds; a major disruption in the operations of our manufacturing, research and development or distribution facilities, due to technological problems, including any related to our information systems maintenance, enhancements, or new system deployments and integrations, integration of acquisitions, natural disasters or other causes; disruptions in supplies of raw materials, particularly components used to manufacture our silicone hydrogel lenses; new U.S. and foreign government laws and regulations, and changes in existing tax laws, regulations and enforcement guidance, which affect the contact lens industry, specifically, or the medical device and the healthcare industries generally; compliance costs and potential liability in connection with U.S. and foreign healthcare regulations and federal and state laws pertaining to privacy and security of health information, including product recalls, warning letters, and data security breaches; legal costs, insurance expenses, settlement costs and the risk of an adverse decision, prohibitive injunction or settlement related to product liability, patent infringement or other litigation; changes in tax laws or their interpretation and changes in statutory tax rates; limitations on sales following product introductions due to poor market acceptance; new competitors, product innovations or technologies; reduced sales, loss of customers and costs and expenses related to recalls; failure to receive, or delays in receiving, U.S. or foreign regulatory approvals for products; failure of our customers and end users to obtain adequate coverage and reimbursement from third party payors for our products and services; the requirement to provide for a significant liability or to write off, or accelerate depreciation on, a significant asset, including goodwill; the success of our research and development activities and other start-up projects; dilution to earnings per share from acquisitions or issuing stock; changes in accounting principles or estimates; environmental risks; and other events described in our Securities and Exchange Commission filings, including the “Business” and “Risk Factors” sections in the Company’s Annual Report on Form 10-K for the fiscal year ended October 31, 2015, as such Risk Factors may be updated in quarterly filings.

We caution investors that forward-looking statements reflect our analysis only on their stated date. We disclaim any intent to update them except as required by law.


THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
(In thousands)
(Unaudited)

	April 30,		October 31,
	2016		2015

ASSETS
Current assets:
Cash and cash equivalents	\\$	44,464	\\$	16,426
Trade receivables, net		298,825		282,918
Inventories		433,596		419,692
Deferred tax assets		41,256		41,731
Other current assets		96,974		80,661
Total current assets		915,115		841,428
Property, plant and equipment, net		964,359		967,097
Goodwill		2,233,251		2,197,077
Other intangibles, net		437,005		411,090
Deferred tax assets		5,969		4,510
Other assets		45,554		38,662
	\\$	4,601,253	\\$	4,459,864

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:
Short-term debt	\\$	30,191	\\$	243,803
Other current liabilities		292,026		324,979
Total current liabilities		322,217		568,782
Long-term debt		1,411,182		1,105,408
Deferred tax liabilities		37,568		31,016
Other liabilities		85,505		80,754
Total liabilities		1,856,472		1,785,960
Total Cooper stockholders’ equity		2,738,076		2,667,509
Noncontrolling interests		6,705		6,395
Stockholders’ equity		2,744,781		2,673,904
	\\$	4,601,253	\\$	4,459,864

THE COOPER COMPANIES, INC. AND SUBSIDIARIES
Consolidated Statements of Income
(In thousands, except per share amounts)
(Unaudited)

	Three Months Ended						Six Months Ended
	April 30,						April 30,
	2016			2015			2016		2015
Net sales	\\$	483,793		\\$	434,676		\\$	933,433	\\$	879,847
Cost of sales		185,295			166,960			372,971		335,780
Gross profit		298,498			267,716			560,462		544,067
Selling, general and administrative expense		177,659			167,583			351,263		341,118
Research and development expense		16,696			16,819			31,458		32,932
Amortization of intangibles		14,312			12,316			30,515		25,911
Operating income		89,831			70,998			147,226		144,106
Interest expense		7,611			4,692			12,886		8,633
Other (income) expense, net		(418	)		(686	)		972		1,016
Income before income taxes		82,638			66,992			133,368		134,457
Provision for income taxes		8,183			5,855			7,172		11,571
Net income		74,455			61,137			126,196		122,886
Less: income attributable to noncontrolling interests		330			424			715		994
Net income attributable to Cooper stockholders	\\$	74,125		\\$	60,713		\\$	125,481	\\$	121,892

Diluted earnings per share attributable to Cooper stockholders	\\$	1.52		\\$	1.23		\\$	2.57	\\$	2.48

Number of shares used to compute earnings per share attributable to Cooper stockholders		48,853			49,163			48,838		49,139

Soft Contact Lens Revenue Update

Worldwide Manufacturers' Soft Contact Lens Revenue
(U.S. dollars in millions; constant currency; unaudited)

	Calendar 1Q16								Trailing Twelve Months 2016
			Market			CVI					Market			CVI
	Market		Change			Change			Market		Change			Change
Sales by Modality
Single-use	\\$	800		9	%		14	%	\\$	3,220		12	%		16	%
Other		975		-1	%		6	%	\\$	3,890		(0	%)		5	%
WW Soft Contact Lenses	\\$	1,775		3	%		9	%	\\$	7,110		5	%		8	%


Sales by Geography
Americas	\\$	780		0	%		9	%	\\$	3,095		4	%		6	%
EMEA		490		6	%		6	%		1,950		4	%		8	%
Asia Pacific		505		5	%		14	%		2,065		6	%		14	%
WW Soft Contact Lenses	\\$	1,775		3	%		9	%	\\$	7,110		5	%		8	%