Kim Duncan - VP, IR Bob Weiss - CEO Albert White - CFO & CSO

Jon Block - Stifel Larry Biegelsen - Wells Fargo Matt Mishan - KeyBanc Matthew O'Brien - Piper Jaffray Joanne Wuensch - BMO Capital Markets Steve Willoughby - Cleveland Research Lawrence Keusch - Raymond James Brian Weinstein - William Blair Steven Lichtman - Oppenheimer

Good day, ladies and gentlemen, and welcome to The Cooper Companies Incorporated Fourth Quarter 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to introduce your host for today's conference, Ms. Kim Duncan, Vice President. Ma'am, you may begin.

Good afternoon, and welcome to The Cooper Companies fourth quarter and full year 2016 earnings conference call. I'm Kim Duncan, Vice President of Investor Relations; and giving prepared remarks on today's call are Bob Weiss, Chief Executive Officer; and Al White, Chief Financial Officer and 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 or regulatory conditions and integration of any acquisitions or their failure to achieve anticipated benefits. 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. 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 Al, 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 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 you have any additional questions, please call our investor line at 925-460-3663 or email ir@cooperco.com. 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 the fourth quarter and full year 2016 conference call. Let me start by saying, I'm very proud of our accomplishments this quarter including record revenue in free cash flow. We also delivered a very strong fiscal year gaining share and the $7.2 billion contact lens industry continuing our portion to the one day silicone hydrogel space expanding Biofinity franchise and posting strong growth in our CooperSurgical business. We entered -- we enter fiscal 2017 with strong momentum and remain confident. We will gain -- we will see market share gains in both of our business for the foreseeable future. Let me highlight three key points for the quarter. First, I'm pleased to report another strong quarter with revenues over $500 million. This includes provisional reporting revenues over $400 million in CooperSurgical, reporting revenues over $100 million. This resulted in non-GAAP earnings per share of $2.28 and free cash flow of $158 million. Second CooperVision posted strong results in all key areas of its business resulting in 10% as reported and 11% constant currency revenue growth. This includes one day silicone hydrogel lenses growing 53% and two week and monthly silicone hydrogel lenses growing a combined 14%, both in constant currency. Third, CooperSurgical had another strong quarter posting revenue growth of 20% or 6% pro forma. Fertility was the highlight posting growth of 74% or 8% pro forma. Moving into details; CooperVision reported fourth quarter revenues of $412 million, up 10% as reported and 11% in constant currency. This is the fastest CooperVision has grown in 11 quarters. The Americas grew 8% in constant currency with strength in multiple categories including Biofinity and 1-day silicone hydrogel lenses. Biofinity continues to be our work horse and we began our launch of Biofinity Energys in mid-August to strong reviews. Our enhanced Clariti lens is also performing well and MyDay had another very strong quarter. EMEA posted a very strong quarter up 12% in constant currency. Growth was driven by Biofinity and our 1-day silicone hydrogel franchise. Asia-Pacific also had a very strong quarter, up 13% in constant currency. Growth was strong throughout the region driven by Biofinity and our 1-day silicone hydrogel franchise. Within Japan, our MyDay, Sphere, and Toric launch is progressing well, and while it's still early, we continue to believe MyDay can be a very successful premium offering in that market. Turning to product categories, Toric's grew healthy 14% and multi-focal's 10%, both in constant currency. We remain global leader in specialty lenses and our success with Biofinity and Clariti and both of these categories should continue to drive growth for many years to come. Looking at silicone hydrogel lenses, these products grew 21% in constant currency and now represents 62% of our sales. We expect this strong growth to continue given our product portfolio which includes Biofinity, Vitality, our new launched two-week product, and our diverse 1-day offering. And remember, the biggest driver in the contact lens market is the 1-day growth and we strongly believe we have the best product offering in the space as the only company selling premium in mass market silicone hydrogel lenses including a portfolio of Sphere, Toric and multi-focal lens. We also investing in sales and marketing to support our strong product portfolio forecasting new hires, that was challenging, especially when it's -- when you're evaluating opportunities around the world. But we believe CooperVision can add numerous sales reps and get a very nice return given our strong product platform or capacity in our growth opportunities that we see. We believe this initiative henceforth -- we begin this initiative in our fourth quarter and expect to continue through fiscal 2017, and possibly into 2008. For competitive reasons, I won't get into many details but suffice to say, we carefully evaluate all hiring and expect to realize a solid return from this activity. Now let me comment on our overall contact lens market, and remember, this information is on the last page of our earnings release. For calendar Q3 2016, we continued taking share and growing 6% with the market up 1%. Geographically, CooperVision grew 3% in the Americas while the market was down 3%. In the EMEA we were up 8% and the market was up 7% percent. In Asia Pacific, we grew 9% with the market up 3%. On a modality basis, single use lenses continue driving growth with CooperVision up 12% and the market up 8%. For non-single use lenses we grew 3% while the market declined 4%. As you can see, our growth remains diverse and strong. On a trailing 12-month basis, CooperVision grew 8% percent while the market grew 3%. Although the market remains choppy and hard to read at times, we continue to believe it will strengthen and grow 4% to 6% over the next five years driven by continuing shift to daily geographic expansion and an expansion of the where base. We expect continue to continue taking market share led by our strong portfolio of market-leading product. Moving to CooperSurgical we reported fourth quarter revenues use of $107 million, up 30% year-over-year driven by organic growth and acquisitions. On a pro forma basis, we grew 6%. Fertility led the way, up 74% or 8% percent pro forma. Within Fertility, we had growth throughout the business and continue to believe our market leading product portfolio which includes medical devices, genetic testing, and capital equipment is the broadest portfolio in the space and should continue to drive growth for more many years to come. Within our office and surgical category, growth was 5%. We're continuing to execute on several product launches including our disposable hipster scope [ph] endlessly, and we continue to the see success in this area. Regarding other activity, we announced on November 6 that we acquired a wallet portfolio from Smiths Medical for approximately $168 million. This is a great strategic fit and with our existing global IVF portfolio as it brings the gold standard of embryo transfer catheters along with several other premier products. Finally, CooperSurgical -- on CooperSurgical, we're busy integrating recent acquisitions but also executing on several initiatives which has significantly strengthened the business. These include transitioning to a global sales model, adding sales rep in under penetrated areas, launching products into new markets and increasing our focus on high growth areas such as IBF genetic tests. We have made a lot of progress in these areas over the past year, I expect to continue, eat or to even have more progress as we go forward. Now before I turn it over to Al, let me comment on a couple of other items. We another -- another strong year of revenue growth in 2017 including CooperVision growing 6% to 8% in constant currency and CooperSurgical growing 6% to 8% pro forma. We also remained bullish on our future and our updating our long-term objectives for operating margin of 28% and free cash flow generation of over $2 billion by 2021. In conclusion, I want to express my appreciation to our employees for all their hard work and dedication. And now I'll turn it over now to Al to cover the financial results.

Thank you, Bob, and good afternoon everyone. Bob did an excellent job covering revenues so I'll focus on the rest of our Q4 financial performance along with guidance. Most of my commentary will be on a non-GAAP basis and a whole reconciliation between our GAAP and non-GAAP results is included in today's earnings release. For the quarter gross margins were slightly over 64% with both, CooperVision and CooperSurgical up year-over-year. CooperVision improved roughly 50 basis points to 64.8% driven by factors such as currency and product mix while CooperSurgical grew roughly 30 basis points to 62.5% driven by cost reduction efforts. Operating expenses grew 11.7% in the quarter driven heavily by CooperSurgical's acquisition related activity. Within operating expenses sales and marketing grew 14% as both CooperVision and CooperSurgical executed on sales and marketing expansion plans to capitalize on strong product portfolios. Outside of sales and marketing, we drove leverage through general cost controls. Operating margins were 25.1%, up nicely from 24% last year driven by gross margin improvement and operating expense leverage. Moving to interest expense, we reported $5.3 million which was lower than our guidance as we had a true-up of roughly $1.5 million. This true-up was associated with an over allocation of commitment fees in Q2 and Q3 related to the refinancing of our credit facilities completed in Q2 of this year. What should have happened is Q2 interest expense should have been lower by $600,000 and Q3 should have been lower by $900,000. Our effective tax rate was 10.3% and the resulting non-GAAP EPS was $2.28 with roughly $49.3 million average shares outstanding. Total debt decreased this quarter by $110 million to roughly $1.33 billion driven by strong free cash flow of $158 million comprised of $193 million of operating cash flow and $35 million of CapEx. Regarding full year fiscal 2016 results, consolidated revenues were $1.967 billion, up 9.4% or 7.3% pro forma. CooperVision revenues were at $1.577 billion, up 6% or 7.5% in constant currency; and CooperSurgical's revenues were $390 million, up 26% or 6.3% pro forma. Non-GAAP EPS was $8.44, up 13%. Lastly, free cash flow was $357 million, so all in, a very strong year. Moving to fiscal 2017 guidance; let me start by commenting on currency which has moved significantly against this over the past month or so. For 2017, were estimating a negative year-over-year currency impact of revenues of approximately $57 million, and negative $0.10 to EPS. Incorporating this into our outlook, we expect fiscal 2017 consolidated revenues of $2.09 billion to $2.13 billion. This is comprised of $1.62 billion to $1.65 billion at CooperVision but equates to roughly 6% to 8% constant currency growth and $470 million to $480 million at CooperSurgical which equates to roughly 6% to 8% pro forma growth. We expect gross margins to improve to around 64.5% and operating margin to improve to 25%. Interest expense is expected to be around $28 million which includes the additional debt from the Wallace acquisition along with an assumption of 125 basis point rate increase. The effective tax rate is expected to be around 10%, this may be higher than many of you were expecting but it's based on our current forecast which include fewer discrete items and is thus more of a true run rate of our current operations. Non-GAAP EPS for fiscal 2017 is expected to be in the range of $9 to $9.30 based on 49.4 million outstanding. To provide color on this, the higher year-over-year tax rate will negatively impact earnings by roughly $0.20 and FX will negatively impact earnings by $0.10. We also anticipate continuing to invest in sales and marketing above and beyond our normal levels and this will likely be in excess of $10 million or $0.20 cents in fiscal 2017. Having said that we do have several positive such as accretion from our CSI acquisitions, plus ideal equipment and inventory charges, savings from manufacturing improvements and the royalty roll-up and these will help drive earnings growth. Regarding Q1 we anticipated revenues of $494 million to $508 million. This is comprised of $383 million to $393 million at CooperVision or roughly 7% to 10% constant currency growth; and $111 million to $115 million at CooperSurgical which equates to roughly 3% to 7% pro forma growth. For Q1 non-GAAP EPS we expected $1.78 to a $1.88 and note this assumes a 10% tax rate as compared to last year 3.9%. And with that, I'll hand it back to the operator for questions.

[Operator Instructions] And our first question comes from the line of Jon Block of Stifel. Your line is now open.

Okay, great. Thanks guys, and good afternoon. And maybe the first question, we're still working through some numbers, didn't really surprise us all too much on the fiscal '17 guide. You went through a lot of numbers, so lows on 1Q, is that just a function of -- you do have the pound benefit for fiscal '17 but again, it really takes effect come January. So you only have that for a slight stub [ph] of 1Q that could be causing an approximately to $0.20 discount -- sorry, $0.20 disconnect where you guided 1Q versus Q3, that's a specific number. And then Bob, maybe just to take a step back, just some market commentary; be down 3% U.S. is very surprising, we get your number up 3% per year release. J&J I think was up 5% in change U.S. So how could two-thirds of the market be up a weighted 5% and we see negative 3% in the market data? Thanks.

Yes, I'll answer the first one and then I'll let Bob get into the market data. Yes, I agree with you. I mean when you look at the pound move, most of that starts for us in January, so we get it for one month in the first quarter. So when you look at the incremental sales and marketing investments, and you look at the higher tax rate which is somewhere around $0.13 for Q1 combined with only getting the pound benefit really the month of January, I think that's probably where -- that probably comprises certainly the vast majority of the delta.

Yes, as far as the market, I think we've all scratched our head a little about kind of the results being reported by us and the -- and the various market players compared to some of the data we see and industry data. And probably the best way to think about it is that a year ago the Americans showed 11% growth and the entire market showed 8% growth worldwide, driven very heavily by the Americas. This year that kind of flipped to a negative of 3% for the Americas, and only 1% for worldwide. So you really have to look at five quarters or you know, better yet even, two rolling years because of what happened a year ago was -- all the activities by J&J as they rolled out new products, there were things going on with UPP, so channel sales -- so you end up with probably a D-link between the way data comes into CLI and the public company -- there is variances there too an including some of the activity associated with that. So when I think of the market, I kind of say, all right, just put the two together, last year's 11%, this year's negative 3%, that's 8% divide by two it, it looks more like 4% to me and in the interim, we had a fourth quarter 4%, a second quarter 4% and then a flat first quarter last year. So last year, my way of thinking last year ripples into the first quarter so that 11% third quarter showed up has a neutral first quarter. Long and short of it is it's probably that's a look at it as five the average of five quarters if you're going to make much sense out of.

Thank you, and our next question comes the line of Larry Biegelsen of Wells Fargo. Your line is now open.

Hey, guy, thanks for taking the questions. Hey Bob, I am sure to get out after this call, so I may as well ask about it, just any thoughts on corporate tax reform and how Cooper's view on this and how you think it could impact you guys. And then one other question just on the quarter itself the 11% obviously quite a strong, was there anything one time in the quarter, selling days, stocking etc. you know help to this quarter, thanks for taking the questions guys.

Well, I will do the second one first, which is the there's nothing unusual about the 11% we're obviously rolling out there are some new products. We had a slightly easier cop from year ago, particularly relative to the Europe Theater was going through consolidation last year with the soft one but by and large solid -- solid quarter as far as tax reform. Well, tax reform common sense talk about or ever. And I give you two theories on our you know, I just walk in on one thing that's being thrown around out here, is a 35% going to 15% sites to say that would not be bad for most anyone. It will serve as a neutralizer two degree on however it shakes out the rest of the world, there too many different debates going on out there. There is the fact that any meaningful change would require voters are 60% of that Senate to go along with it and that could be are tough for only come what a lot of compromise, so I think it would be way premature to know if it is a net plus or net minus but most people wouldn't complain about a huge reduction in the corporate tax rate.

Thank you. And our next question comes the line of Matt Mishan of KeyBanc. Your line is now open.

Hey, good after noon, thank you for taking questions. Could you go a little bit further into the investment you guys are making in SG&A and really around the cadence and even break out what the differences between the gross SG&A from the investment and but growth in SG&A from the acquisitions that you're making, so we can get a better sense for, you know, how to model this?

So the investment we're making in SG&A is Alpha marketing. We're leveraging the rest of the infrastructure. And in the area sales and marketing that is both on the vision side, heavily feet on the street we're under index compared to our competitors and as I indicated I'm not to start quoting numbers of that, in terms of number of salesforce we're adding. So I would say we are also are rolling out many new products, some of the more conceptually new like manages. So there will be a fair amount of energy also supporting those new products. In putting the two together, we will while we're giving you guidance at 6% to 8% topline growth for both surgical and vision. We will be say growing off our sales and marketing at a rate faster. Primarily in the area of both feet on the street and to a lesser extent, the marketing support beyond that. Beyond that we're not -- like I said we're not going to really get into how under index we are compared to our competitors and I would say it's many cases there will be not across the board, if you have a vacancy or you're under index in a geographic area, and I've always used an example of a city like Las Vegas, and said you know if you didn't have a sales person in Las Vegas it's a pretty big town, maybe I'd have a salesperson there if you have a lot of products to talk about. So in some cases is adding junior people to support senior people, and other places that will be having feet on the street where you're currently making telephone calls, and kind of piggybacking on that.

Then one quick comment on that, when you look at that breakdown between vision and surgical probably easiest way to think about it from a sales and marketing perspective as a sales and marketing each business is going to grow somewhat similar to what the revenues are. And they're as reported revenue, so if you look at that and CooperSurgical patients obviously it's quite higher percentage growth basis in Vision due to the acquisitions.

Thank you. And our next question comes from line of Matthew O'Brien of Piper Jaffray. Your line is now open. Matthew O'Brien: Good afternoon, thanks for taking the question. Just -- on the daily side, the performance in the quarter was slight acceleration of what we saw last quarter. Can you talk a little bit about where that came from -- be it MyDay, be it Clariti, you know, maybe MyDay in Japan. And then on top of that, just -- the two-year stack on the non-daily side, it appears to have decelerated, can you just talk a little bit about what's going on there, you've seen some severe impact. Thank you.

Yes, the -- on the daily side, there was some acceleration having said that, we cannot target it for basically some approaching 50% for the year, slight acceleration from the prior year, just the way we thought about it coming into this year. So it's kind of moving along those lines in the way it's moving -- it's obviously the more mature market is EMEA where these products started out both MyDay and Clariti. The least mature is Japan, and the Americas; so we're very early in this cycle in those two areas and rapidly expanding the offering even in Europe. So it's geographically across all -- all feeders and very much, we've now kind of did the redo of the -- first Clariti, that was out there and that's performing real well; so we're now expanding our attention into more than our own accounts. Initially we had to take care of our accounts that we had given the first generation if you will, products too. So a long way to go and we're very early in the cycle and obviously moving off of a larger base as we go forward. As far as the deceleration in the planned replacement area, the non 1-day; really that market if I -- if we look at it from a 2.5-year, 3-year perspective is in around breakeven with the growth all being driven by the 1-day, that's -- and pretty consistent over the last four years and we don't see that changing, actually it's been consistent a lot -- driver longer than four years but more so outside the U.S. and more recently inside the U.S. So don't see any changes there. There is activity in the planned replacement market, things like Biofinity obviously are still putting up terrific numbers, so there is room to grow and particularly, as we think about the geographic expansion, some of what goes in into China and into some of those theaters, maybe a little less weighted initially in the 1-day morality although that you can't make that statement about every country. So a lot of opportunities, even in the planned replacement arena and we're obviously continuing to grow that while the market may be not growing it if you will.

Thank you. And our next question comes from the line of Joanne Wuensch of BMO Capital Markets. Your line is now open.

Hi, good evening. Can you hear me OK?

I can hear you fine.

Wonderful. Two questions; the first one, is the new SG&A rate for 2017 -- should we think of that as the go-forward rate or do we think of that as a period of investment and then it should ease off? And then the second question, just talk about the tax issue, we're getting questions from investors regarding buying plan and what it means? You may or may not mean for Cooper, which manufacturer is it a fair bet outside of the United States generates, it's fair but if its revenue outside the United States? And I was curious if you have looked into that yet? Thank you.

SG&A, is it short-term or long-term, the sales and marketing; we plan on continuing to invest throughout 2017 and as I indicated in my commentary, to the extent it will open the 2018 where we're getting the top line growth we want. We will continue that modality. What the driver there is, if you have a lot of products to talk about and you have the capacity, then you should try selling the products and leverage the capacity. We know we have excess capacity and why not use it. So to the extent we're getting our payback which will include diminishing the ideal charges that we're incurring on cost of goods as a byproduct, we're going to do it and we obviously have an agenda of gaining market share and we've certainly done a good job with that last seven years and if I look at it over the last 12 months, it's been greater than 2% that we've grow in the market. We can't make much out of this quarter's numbers because we grew six on the market one, and I grew one, I'm not going to say we're growing six times the market obviously we are growing up in and around that 2X. Relative to the rest of operating costs, distribution, G&A, and even to a lesser extent R&D, we expect to get leverage out of those around the world. So it isn't to so that operating cost in total will keep going up as a percentage of revenue. As far as the Ryan plan, I'm not going to get too detailed into it because there are too many soft spots and too many assumptions you would have to make but I guess, I'd point one thing out which I think is very important. When we look at people think we're very oriented towards outside the U.S., the way we think. But the fact of the matter is our head count around the world is pretty balanced, U.S. and the rest of the world both after have to -- and asked to headcount. And that is after you count Porto Rico where will we make a billion lenses in Puerto Rico. That is the position of the United States and its part of U.S. So when we kind of think about this, every day that we're hearing about -- we -- the U.S. against the rest of the world, we the U.S. 5% compared to 95%. Of those outside the U.S. it as imbalanced in Cooper's model as some may think it is. Long answer to short of it is, I'm not -- I'm not going to overreact to any series that gets thrown around out there, and I'll react to legislation -- there hasn't and meaningful legislation since I think 1986. There has been a few things along the way that have come and gone but it would be very premature to over analyze it.

Thank you. And our next question comes from the line of Steve Willoughby of Cleveland Research. Your line is now open.

Hi, good afternoon and thanks for taking my questions. I guess first, Al, if we look back a month ago, as it relates to FX, what would you be thinking in terms of the impact from FX to the total company for 2017 at that point versus the $0.10 headwinds you're expecting now?

Yes, well Steve, tough to say it right because it depends what day you choose, when Trump was elected, so to speak, I mean that's when currency rates really started moving. So if you go back to that date or prior to that day, you know, we -- we at one point in time would have been $0.30, $0.40 positive, we went ahead and win their bat [ph], we probably ended up with them -- I don't know what the exact number are but it that wouldn't surprise me -- $0.50 cent swing from what it was to what it is today, maybe even a little bit more than that.

Okay. And then just a follow-up, you know, with the roughly 50% of 1-day silicone hydrogel growth this year, do you have any expectations for what that looks like next year?

Well, as I indicated, it's off of a larger base, so I wouldn't expect the 50% to be sustainable but I think in terms of whole dollars, that certainly should be some we would expect. We have so much opportunity and we have the capacity that all I'll say is, we'll put up solid numbers throughout 2017. But I'm not going to say it's any one -- any one particularly in percentage, let's put it that way.

Thank you. And our next question comes from the line of Larry Keusch of Raymond James. Your line is now open.

Thanks. Good afternoon guys, couple of questions here. Just -- Al, I'm wondering if you could talk a little bit about the FX assumptions that you are using for 2017 on the major currencies?

Sure. It's pretty much today's rates, I mean they are obviously bouncing around a lot but you hear about 1.06 -- again at 1.14 pound at 1.26, and -- I mean that's kind of similar to where they are today right, and then other currencies around the world would be pretty similar to that.

Okay, perfect. And then, two other ones quickly here. I know you mentioned the outlook for free cash flow generation in totality through 2021 but how are you thinking about free cash flow generation this year? And may be rapid to that CapEx? And then I guess the last thing is to struggling a little bit with the first quarter and out wide so well, I understand the tax rate -- obviously, there is a tough comparison but can you talk a little bit about perhaps a gating for the past spending of this incremental for sales and marketing and is it weighted towards the first quarter or is it sort of more readable through the year?

Yes, I'll hit cash and I'll let Bob go through it on the marketing side. For this year, we're probably going to be $400 million, should be north of $400 million of free cash, currencies certain as little bit right now but it should be somewhere in that $400 million range. CapEx, we'll see how that plays out, it looks like it's going to be somewhere around $150 million for the year. So if you work out those numbers, $400 million and $150 million, that's probably not a bad way to look at this year at this point in time.

Yes, and I think as far as the gating of the investment spend, and is it a drag on the first quarter, yet, it is a drag -- partly because of the fact that our first quarter is always the lightest on revenue basis -- from a revenue point of view which has always been the case and we started -- a lot of our investment started ramping in the fourth quarter or so, it's rolling into the first quarter; obviously it's part of the infrastructure already and we'll be somewhat of a drag. Some of our investments, if you will, that started in the first -- in the fourth quarter and worked its way through that first quarter will start yielding if you will as the year progresses and we start expecting a return from some of that towards the back half of the year.

Thank you. And our next question comes from the line of Andrew [ph] of JP Morgan. Your line is now open.

Thanks for taking the question. Al I just wanted to go back just through '17 guidance and just -- you know, it looks like it's extremely conservative, at least from what I can tell right this second. I think is the first time you've -- you've embedded an interest rate increase in the numbers and 100 -- you know, it's a 125 bips, so I was just wondering, you know, is that around -- is that impacting around $0.18? And then, you know, I'm just trying to get a better feel for FX, SG&A and the higher tax rate -- and what's driving the higher tax rate for the year?

Yes, a couple of comments. I mean if you look at their debt levels, $1.3 billion, acquired Wallace, obviously -- so a $100 million, another $150 million plus on that and it's pretty straightforward to do the math on the increase. We assume 1-Day 25 basis point rate increase happening with the fed moving here in the month of December, so we're kind of fully bacon [ph] that in for the year if you will. We could -- we're probably a little conservative on it, interest expense where we're at based on the amount of cash flow we're generating so forth and where we'll come out on that pricing grid but we'll see how that plays out. When you look at the tax rate itself, we've been running on a -- on a look-through basis if you will, somewhere around that 10%, we had a number of discrete items that have come through, we've had acquisition related activity and so forth that it allowed some write-offs and so forth that have pushed the tax rate down. Could it come in lower than 10%? It could, but I would tell you right now based on what we have today, we're looking at somewhere around that 10% with Q1, Q2, Q4, probably be somewhat similar and as usual Q3 be a little bit lighter, but not as dramatic as what you see in prior years where you would see a quarter that was 3% or 4% quarter as an example.

So I think one way of looking at that is our fourth quarter effective tax rate is 10.3%, that is excluding any discrete items. So that's kind of what the business runs, ex-discrete items we've had year after year but do not anticipate going forward.

Thank you. And our next question comes from the line of Jeff Johnson of Robert Baird. Your line is now open.

Thank you, good afternoon guys. Bob I wanted to start with you just on the sales force, so if I think about your sales force, I think it's about half to maybe 55% the size of your two larger competitors and your market share is kind of in that -- in that same range and so on the face of it seems like your sales force isn't overly undersized I guess. And then I think about your private label business, it's somewhere around 25% or 30% of revenue and I'd assume that's a lower touch business, so just wanted to understand why is the big focus on salesforce additions at this point? And what's really driving that? And then maybe, Al for you a follow-up question, you know, I think I agree your EPS guidance looks maybe like there is some levers of conservatism in there but 6% to 8% CBI growth in a fairly choppy market and maybe in a med-tech market, that's a little uncertain right now, it doesn't feel overly conservative to me, so maybe if you can address your thoughts on the 6% to 8% CBI growth for us '17 that would be helpful as well. Thanks.

Yes, Jeff on the size of our sales force compared to our competitors, I think if we can compare our 23% market share to Alcon's which is just dead above our -- it's suffice to say that the size their sales force compared to ours is nowhere comparable, and J&J if we're going to do allocations against market share there with their 40% market share or there in or about to our 23%, that would barely line-up. I think more importantly is -- it really is about -- if you have the products and we have the product portfolio and you have the capacity, something we have not had in the past, at least relative to clarity, my day and to a lesser extent even Biofinity, so if you have your -- the capacity you want, why wouldn't you test the water and see how good your products are? Why wouldn't you go after your competitor's accounts more aggressively? And we can't do it if we're under index on feet-on-the-street. So it's -- it's one thing if you are trying to growing methodically and you're confined with how much you can grow, it's another thing if you don't have those limitations which I'll call capacity.

Yes, and I'll comment a little bit on that growth rate as such. I mean if you look at CooperVision last year, they grew 7.5% in constant currency, 11% in Q4. So obviously a lot of momentum there. You look at the Q1 guidance, it's 7% to 10% and expecting that momentum to continue, and Jeff, I think where you're going with this to your point is if you look at 6% to 8% percent for the year and you know that Q1 and you would be talking about implied guidance if you will, so Q2 to Q4 for CooperVision in the upper sixes which would decelerating in the face of some decent investment. So I think that's a very fair question. I would tell you -- I think that giving a 6% to 8% range in today's world is prudent and a good way to look at the business but I don't think anybody would be very happy, let me put it you that way, if we were growing in the 6% to 7% range.

Thank you. And our next question comes from the Anthony [ph] of Jefferies. Your line is now open.

Maybe just one question on the sales investments and then one just on the competitive landscape to follow-up there. Just in terms of feet-on-the-street, I'm just wondering how much of the investment is focused on optometrists, that channel as opposed to other retail channels. And I guess the core of that is that we're under the impression that it's still the majority of sales for Cooper comes from optometrists. So just wondering if you're doubling down in that channel or expanding in other retail channels and then in terms of the competitive landscape that would just be great to get an update -- sort of where Alcon sits at this point, it looks like they are still in a position of giving up some share and similarly, Bausch and Lomb and J&J. Thanks.

Sure. You know our focus in terms of feet-on-the-street and whether it's independent ODs or ODs that are at the retail level is the OD wherever they are, and a lot of our super is very open as part of its strategy being -- could be branded, Biofinity or it could be private-label. So we're indifferent to what it's called but what we have learned in the past just because you send a bunch of your product whether it's private label or branded to a large retailer, if you don't work it, it's not going to work itself. You have to go to VOD whether they are under all of the retailer or not. So that has contrasted to maybe an online or some other mechanisms, we don't waste our time with that, if you don't write the prescription, you don't have our attention, and that will continue. Relative to the competitive landscape, yes, our competitors continue to be in various stages of disarray, Alcon, we know what that CEO and Chairman of Novartis basically said, they are restructuring that organization, there is disruption there, they have a tired product-line, BNL likewise is in a very disruptive environment, not to say the least, and, you know, J&J has done a pretty good job of marketing one product, Oasis, by any other name is Oasis. So it's all over, 1-day, 1-week, 2-week, 1-month called VITA [ph]. So of the three competitors, I would say J&J kind of has in fact together better than the other two but having said that they are obviously presenting some opportunities in their approach. Are they in UPP one day and then there are out of UPP the next day. UPP wholesale across all of their products and then they cased the entire thing come up with a different plan. So we we've been a pretty steady state in the way we're approaching the market. We have the product portfolio and we kind of feel good about our competitors.

Thank you. And our next question comes from the line of Brian Weinstein of William Blair. Your line is now open.

Thanks for taking the question. First one on margins, how you guys have targeted to improvement in MyDay by the end of the year and talked about clarity, getting north of corporate margins? Can you just comment kind of where the margins are on those products? And them Bob, for you, you had talked previously about 50% of the $10 billion market to be in the 1-day modality of that about somewhere between 20% and 77% to be in silicone hydrogel. In fact, maybe with middle of that made sense. With more experience now, how these products are rolling out, do you have more confidence that over the next few years that you're going to be churning more above that 50% of the market towards at 77%? Where do you think that that could be now by 2020? Thanks.

Yes, I think we're rapidly approaching the 50% mark for 1-days and within 1-day silicone hydrogel is continuing to make solid progress growing 20%-ish in that market. And therefore it's now -- I think over 20% of the -- close to 25% of the 1-day market. So I do believe the 1-days will be more than 50% of the -- let's say that target $10 billion down the road, 2021, and who knows foreign exchange keeps coming a long kind of putting a dent in some of that so assuming the dollar stabilizes, you know that -- we're directionally headed towards that $10 billion. 1-day will be greater than 50% and there is no doubt that silicone hydrogel 1-day will be much greater than 20% of that 1-day market. And will it be similar to the planned replacement where it's close to 80% -- 79%, 80% or a lot less. I think there are some reasons that it won't -- well, beyond the 50% barrier short-term because there is so much activity in the non-silicone hydrogel mass market space that that will be somewhat barrier. To answer your question about our cost coming down, MyDay is making good progress. We believe it's in the 30s now and we would expect that by 2018 sometime it will be homing in on that 50% target for 1-day gross margin, and Clariti because of its model approach to manufacturing and cost, will not be a drag and it's not a drag today on our gross margins. So the mix you see, it's holding its own within that mix and is a -- it's not a headwind on gross margin percentages.

Thank you. And our next question comes from the line of Steven Lichtman of Oppenheimer. Your line is now open.

Thank you. Hi guys, just a couple of P&L follow-ups. First in terms of the investment in sales and marketing; should we be thinking about that as solely sales force higher investments or is there any discrete marketing investments that are embedded in there? And then secondly, Al, on the ideal equipment charges, the enhanced charges we've seen owing to the efficiencies, how should we be thinking about those rolling of in 2017?

So on the sales and marketing, it's more than just feet-on-the-street, albeit the concentration and the focus is more so feet-on-the-street. But with the new products, with Energys, with conversion of -- from Aviara to Vitality, with the new Toric, you know, our new MyDay Toric, all that activity, there is certainly is and particularly upfront as you come out with the new products, some energy on the marketing side. Some of that will tell off and some of it will continue as we roll it our around the world. So nothing, so I would say nothing eminent where it's certainly in a -- non-investment mode over the next one to two years. The roll-off of ideal equipment is somewhat a function of the success of the growth of our various areas, whether it's Vitality, whether it's MyDay, whether it's Clariti, the growth in those products will form the basis of consuming some of that ideal equipment over the next one to two years. We indicated partly because of the continuing successes in cutting cost and getting better yields and getting better throughput. We're now talking about lines with north of 80 million unit production that two years ago we didn't have on the drawing board by way of a thought. So those kind of profound changes means we'll be able to continue to ramp up and continue to be ahead of the curve in terms of the demand side for quite a while in some of those areas, Clariti and MyDay. Al, I don't know what other -- how you want to…

Maybe just a quickly, that was exactly right, we quantify that just a little bit, we had talked last year about kind of $0.10 a quarter above and beyond for ideal equipment and some inventory charges. And we had that Q2, Q3, Q4 -- I would say that we're continuing to have that right now. Those ideal charges are mostly linked to daily side. So the growth the you're seeing is just absolutely fantastic for us, so continuing growth like that puts those lines to use and the ideal equipment goes down. So the expansion and the focus on sales and marketing to drive topline growth and driving single-use, the -- one of the nice benefit to that is it's going to put equipment to work, we obviously don't need to buy new equipment what helps free cash flow and we remove ideal equipment charges and put that into production. So I would say that we're still kind of looking at that $10 a quarter here to start the year but then depending upon our success, that will move down and hopefully move to zero by the end of this year but more likely we'll see those charges even move into 2018 a little bit.

Thank you. And I'm showing no further questions at this time. I would now like to turn the call over to Mr. Bob Weiss for closing remarks.

Well, I want to thank you for joining our call today and wish everyone the happiest of holidays coming up. And we look forward to updating you on the progress we're making and on our new product roll outs. On our call in March which I believe is going to be March 2, 2017. I'll look forward to talking to you then. Thank you, all. Thank you, that's it operator.

Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program. You may all disconnect. Everyone have a great day.