Cooper Cos Aktie

Thank you for standing by. My name is Janine, and I will be your conference operator for today. At this time, I would like to welcome everyone to The Cooper Companies Earnings Conference Call. [Operator Instructions]

I will now hand the call over to Kim Duncan, Vice President of Investor Relations and Risk Management. Please go ahead.

Good afternoon, and welcome to Cooper Companies Second Quarter 2026 Earnings Conference Call. Today's call we will discuss results and guidance concluded in the earnings release and then use the remaining time for questions. Presenters on today's call are Al White, President and Chief Executive Officer; and Brian Andrews, Chief Financial Officer and Treasurer.

Before we begin, I'd like to remind you that this conference call will contain forward-looking statements, including statements relating to revenues, EPS, cash flows, interest, FX and tax rates, tariffs and other financial guidance and expectations, strategic and operational initiatives, market conditions and trends and product launches and demand. 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 Cooper's Form 10-K and Form 10-Q filings, all of which are available on our website at cooperco.com.

Also as a reminder, the non-GAAP financial information we will provide on this call is provided as a supplement to our GAAP information. We encourage you to consider our results under GAAP as well as non-GAAP and refer to the reconciliations provided in our earnings release which is available on the Investor Relations section of our website under Quarterly Materials. Should you have any additional questions following the call, please e-mail [email protected].

And now I'll turn the call over to Al for his opening remarks.

Thank you, Kim, and welcome, everyone, to our Q2 Earnings Call. We delivered record revenue and non-GAAP earnings this quarter with revenues growing 8% to $1.08 billion and non-GAAP earnings per share increasing 26% to $1.21. This marks our tenth consecutive quarter of beating consensus earnings expectations, demonstrating the consistency and disciplined execution of our operating model. We also generated another quarter of robust free cash flow, reinforcing confidence in the strength and durability of our cash generation.

CooperVision reported a solid quarter with revenues increasing 8% or 4% organically driven by continued strength in the Americas and momentum in EMEA. CooperSurgical also performed well with revenues up 8% or 6% organically, led by our fertility business growing 13% or 10% organically. We also delivered meaningful operating margin expansion this quarter as back office consolidation and efficiency initiatives continue to deliver operating leverage, especially within CooperSurgical. Overall, our results reflect steady execution against our strategy of driving sustainable, profitable growth through innovation, new product introductions, leveraging our infrastructure, generating free cash flow and gaining market share.

Now before moving into the quarterly details, let me address 2 key topics. First is our strategic review. We initiated this process to evaluate opportunities to unlock long-term shareholder value across a range of potential outcomes. At the same time, we've been working through litigation related to a December 2023 embryo culture media recall in our fertility business. We've now reached settlements with substantially all of the claimants in this case as disclosed in the Form 8-K, which was filed this evening with our earnings release. With that done, we are now actively advancing discussions with multiple parties that have submitted significant indications of interest in CooperSurgical.

To summarize that activity, we've received robust interest in CooperSurgical and in conjunction with our Board and the assistance of our advisers, we're focused on identifying the optimal path forward to maximize shareholder value. CooperSurgical's strong performance, highlighted by record revenue and non-GAAP earnings this past quarter strengthens our confidence in the business and underscores our view that this is a very valuable asset. That said, we are working with speed and plan to provide a more definitive update to the market soon.

Second is an update on our capital allocation strategy. We remain focused on investing in high-return organic growth opportunities, maintaining balance sheet flexibility and repurchasing shares. While buybacks were limited this quarter, they remain a core part of our strategy, and we expect to be significantly more active moving forward.

With that, let's turn to our Q2 performance, starting with CooperVision. After achieving an 18th consecutive year of share gains in 2025, our focus is on extending that streak. We remain the #1 global contact lens company with roughly 1/3 of all wearers using CooperVision lenses and we expect this leadership position to continue serving as a key driver of revenue share gains as well as continued transitioning to daily silicone hydrogel lenses. Additionally, our leadership position in pediatric myopia control through MiSight will remain an important growth driver.

For the quarter, CooperVision delivered revenue of $724 million, driven by share gains in both the Americas and EMEA. The Americas grew 7%, supported by continued strength in premium lenses, while EMEA increased 6%. Fueled by strong demand for MyDay and MiSight, further reinforcing our #1 position in that region for both revenue and wearers. In Asia Pac, revenue declined 6% as we continue repositioning our portfolio including rationalizing legacy hydrogel products and managed through broader market softness across the region, including greater-than-expected weakness in Japan, which created additional headwinds and further pressured our results.

Turning to products. Daily silicone hydrogel lenses grew 8% with our flagship MyDay brand delivering double-digit growth driven by expanding customer partnerships and success with premium products. We also saw gains across both branded and private label channels with improvement across all regions and particular strength in multifocals and Energys. And both of these products remain key growth drivers as we continue rolling them out in new markets. The multifocal has excellent momentum supported by its next-generation optical design that enables an easy-to-fit lens with consistent performance across different lighting conditions, distances and patient profiles. And Energys continues to perform exceptionally well, benefiting from its innovative design that combines premium optics with advanced material technology designed specifically for maximum comfort in today's always on digital lifestyle.

With respect to clariti, we continue to upgrade the portfolio, including upcoming launches of our next-generation multifocal in EMEA and Asia Pac and the toric and multifocal launch in Japan.

Turning to our FRP portfolio. Biofinity delivered strong results, growing 5% organically. Growth was led by toric and multifocal lenses, including our market-leading extended ranges and made-to-order offerings. Parameter breadth continues to be a key driver for Biofinity supported by our highly innovative and flexible manufacturing platforms that offer more than 6x the prescription options than all other monthly brands combined. As a result, eye care practitioners can fit virtually any patient who walks through the door using just this one product family.

Turning to myopia control. MiSight delivered an excellent quarter, growing 24% to $32 million. Our newest market, Japan is exceeding expectations with strong and accelerating momentum. We recently hosted the sixth Annual Asia Pac Myopia management Summit in Tokyo, highlighting the clinical performance and patient benefits of MiSight and are seeing increased awareness and adoption following the event. Also, our recent launch of the highly innovative MyDay MiSight in Europe is performing extremely well as eye care practitioners absolutely love this product and we're seeing a similar reception as we expand availability globally. At the same time, we're increasing our consumer awareness activity during the high-demand back-to-school period by having multiple markets run national marketing campaigns to further build parent awareness. Overall, these initiatives spanning innovation, geographic expansion, customer partnerships and consumer activation reinforce our confidence and MiSight's continued robust growth.

Turning to CooperSurgical. Q2 revenue reached $358 million, reflecting growth of 8% or 6% on an organic basis. Within this fertility performed well, growing 10% organically to $144 million. Growth was driven by strength across our leading global portfolio of products and services, including capital equipment, where we saw strength in the U.S. and continued global momentum from witness, our highly successful automated lab tracking system. These capital sales provided a near-term lift while also positioning us for longer-term growth as they drive incremental consumable demand over time. Additionally, late quarter buy-in activity in the Middle East contributed to performance as distributors restock following the reopening of aerospace.

Geographically, results were led by EMEA, where we continue gaining share and solid performance in the Americas. Asia Pac was mixed with softness in China, offset by strength in other markets. By product category, growth was led by genomics, capital equipment and consumables supported by new clinic wins, expansion within existing accounts and continued adoption of recently launched products.

Looking ahead, underlying fertility trends remain healthy, and we anticipate continued strength in the back half of the year with fertility expected to grow in the mid-single-digit range. The long-term outlook also remains positive, supported by a strong innovation pipeline, particularly in our equipment portfolio.

Regarding the overall global fertility market, we continue to expect steady improvement supported by improving cycles and increasing investments in technology and workflow optimization by fertility clinics. The fundamental drivers of the industry also remain intact, including the ongoing trend of delayed childbirth and expanding access to care. This was recently highlighted in the U.S. with updated CDC data showing U.S. fertility rates fell in 2025 to a new annual low of 3.6 million births. Within this, women aged 30 and older, now comprise 53% of all births and for the first time in the U.S., more babies were born to women 40 and above than the women under 20.

In response to these trends, support for expanding IVF coverage is growing. For example, in California, starting in January this year, most large group health plans with over 100 employees are now required to cover IVF and infertility treatments, significantly increasing access to care.

Moving to Office and Surgical Products and Services, sales reached $214 million, up 4%. Medical Devices grew a healthy 6% as our surgical OB/GYN and specialty devices continued to deliver strong performance. In PARAGARD came in ahead of expectations, delivering flat revenue for the quarter.

Now before I turn the call over to Brian, let me conclude with a few comments on our revenue guidance. For CooperVision, we're guiding to full year organic growth of 3.5% to 4.5%. Similar to our peers, we expect market growth at the low end of the historical 4% to 6% range with Asia Pac weighing on the category, while EMEA and the Americas remain healthy. Importantly, this softness is regional, not global, and we view it as temporary as Asia Pac resets amid economic pressure, especially in China and Japan and to a lesser extent, Korea. Specifically for CooperVision, we now expect Asia Pac to decline in Q3 with pressure from both the market and our ongoing rationalization of legacy hydrogel products.

That said, we now have full regional leadership in place, including a new regional head and new country managers in Japan, Korea and China, and we're seeing strengthening execution and commercial discipline, including progress on MyDay contract wins and product launches. Outside of Asia Pac, demand remains solid for premium products, including daily silicone hydrogel lenses as well as torics and multifocals. For CooperSurgical, our guidance is unchanged at 4% to 5% organic growth.

And with that, I'll turn the call over to Brian.

Thank you, Al, and good afternoon, everyone. Most of my commentary will be on a non-GAAP basis, so please refer to today's earnings release for a reconciliation of GAAP to non-GAAP results.

For the second fiscal quarter, consolidated revenue was $1.08 billion, representing an 8% increase year-over-year or 5% on an organic basis. Gross margin of 68.1% was roughly flat year-over-year as positive currency offset higher costs, including tariffs. Operating expenses rose just 1% reflecting benefits from last year's reorganization that delivered efficiencies across the organization. This progress is particularly evident at CooperSurgical, where expenses declined year-over-year for the second consecutive quarter. Importantly, this significant operating leverage has been achieved while continuing to invest in key revenue growth initiatives.

Operating income increased [ 19% ], resulting in a 27.5% operating margin. Interest expense was $20.9 million and the effective tax rate was 15.4%. Non-GAAP EPS grew 26% to $1.21 with roughly 196 million average shares outstanding. Strong free cash flow of $96 million was used to reduce net debt to $2.3 billion and repurchased $13 million of stock.

Before moving to guidance, let me address the litigation charge we took this quarter. In December of 2023, CooperSurgical initiated a voluntary recall of one batch of embryo culture media consisting of 3 specific lots, which led to claims and lawsuits being filed across various jurisdictions, alleging damages associated with the use of the product. Between December 2023 and mid-March 2026 we resolved a significant number of claims and lawsuits through settlements, which were largely cut by insurance. From mid-March 2026, we identified developments, which resulted in a reassessment of our exposure. With this, we've proceeded with negotiations and reached settlement agreements covering over 95% of claimants.

Based on this, we concluded that a loss is probable and reasonably estimable, particularly with respect to potential exposure exceeding available insurance coverage. The net impact to resolve outstanding claims was $271.6 million, consisting of $324.1 million of accrued settlement, partially offset by $52.5 million of insurance recoveries. We have excluded this charge from our non-GAAP earnings. Additional information regarding this matter is provided in the Form 8-K filed today with the earnings release, and further accounting details will be included in our Form 10-Q, which we anticipate filing tomorrow, June 5.

Turning to the full year fiscal 2026 guidance. We've updated expectations with revenues expected to be roughly $4.28 billion to $4.32 billion, reflecting growth of 5% to 6% or organic growth of 3.5% to 4.5%. CooperVision revenue is expected to be in the range of roughly $2.88 billion to $2.91 billion, up 5% to 6% or 3.5% to 4.5% organically. And CooperSurgical remains [indiscernible] unchanged with a range of roughly $1.4 billion to $1.41 billion up 4% to 5% as reported and organically. Interest expense is expected to be around $85 million, and the effective tax rate is expected to be around 15.5%.

For earnings, we're maintaining guidance at $4.58 to $4.66 and we're increasing our 2026 free cash flow outlook to roughly $650 million, excluding any litigation payouts, the majority of which we do expect will be made during fiscal 2026. There are several key considerations underlying this guidance. As discussed on prior earnings calls, we continue to expect gross margins to decline year-over-year.

For the third quarter specifically, we expect gross margins of approximately 66%. This is primarily driven by unfavorable FX and certain higher costs, including tariffs, freight and the impact of lower production at CooperVision were success from our new AI-enhanced inventory control system is allowing us to reduce inventory levels. Importantly, while this inventory work will occur over time, it benefits free cash flow, reinforcing our confidence in our 2026 free cash flow objectives and in achieving $2.2 billion in free cash flow from 2026 through 2028.

Regarding tariffs, our guidance assumes approximately $22 million this fiscal year but does not include any potential tariff refunds. Should refunds materialize, they could be as much as [ $15 million ] and would provide meaningful upside. The guidance also does not include any accretion from share repurchases.

With that, I will turn it over to the operator for questions.

[Operator Instructions] Our first Question comes from the line of Jeff Johnson from Baird.

Thank you. Good afternoon, guys. Can you hear me okay?

Yes. Jeff.

So a couple of questions here. Let me just start first on APAC, expecting another quarter of declines. I think we're 4 quarters in a row now flat to down. You do swing from kind of a plus [ 5% ] comp that you came against this quarter when you did the minus [ 6% ] to a negative 5% comp if my model is correct. So how do you -- what are the drivers of that staying negative on top of a negative 5% comp? And just any progress you're making on getting through some of those older hydrogel and any other updates you can provide on what's going on in Asia Pac. And I have one MiSight follow-up question.

Sure. Yes, you're exactly right from a comp perspective on how we move from Q2 to Q3. I would say the difference in that market from what we've seen in prior quarters is softness in the market itself. That Asia Pac market, especially when we look at Japan and China is softer than we anticipated it was going to be. It looks like as we sit here, it's going to continue to be soft and talking about the market. So we're continuing to do what we're doing, which is executing on MyDay and repositioning the products and so forth and rationalizing the hydrogels but we're doing it in a market that's now considerably softer than when we started the process.

We still have a little ways to go on rationalizing the hydrogel products, and it's going to continue to put pressure on us for probably I don't know, maybe all through 2027 even. But we're starting to get it behind us. The numbers are starting to get smaller, so the impact is at least being reduced.

All right. Let me just pull on that thread and I'll just ask my MiSight question on the call back tonight. But just as you talk about that potentially consider continuing through 2027, should we think about APAC then? And I know it's hard to predict where the market goes, but especially for your part of the business on reducing some of that FRP exposure there or the hydrogel exposure. Should we think about Asia Pac being flat in -- as we get into 2027? Are we going to stay in negative territory for the next 6 quarters? And again, I know it's hard to predict and you don't guide by geography or product line, but just on that comment and sorry about the dog. But on that comment, if you can provide any color.

Yes, because it will be dependent largely on what that market does. I think we get to a point here probably even in Q4 here, not this quarter, next quarter, where we're going to be essentially in line with market. I think we'll probably grow in line with market as my guess in 2027 so it will end up being dependent on that market. Right now, I would probably argue that market is essentially flat. I mean, it might even be down a little bit, but flat down. So we'll see what the market does, but I think we'll at least be back in line with the market in Q4 of this year and through 2027.

Our next question comes from the line of Jon Block from Stifel.

Maybe I'll just start with the strategic review for CSI. I'm just curious as that interest that you cited from multiple parties, is that for the entire CSI business? Or is it, call it, different parties more looking for different pieces of the business? Any color that you can provide and sort of elaborate there?

Sure. Yes. We received -- I don't know how to say other than significant interest in the entire business and in pieces of the business, both. But I would say there's a sufficient number of parties that have given indications of interest that are on the entire business, that's how we're moving forward.

Okay. Fair enough. And then, Brian, I'll do some sort of real-time math, which is always dangerous. But the 1H EPS for the year is, I think, $2.31, if I've got that right, it's exactly 50% of the full year guidance at the midpoint. And for each of the past 3 years, 1H was closer to about 45% or 46%. So in other words, like that would sort of imply maybe some upside to the EPS guidance. I know you called out maybe those inventory dynamics with AI, better controlling the inventory. And so therefore, I guess, like less consumption. But is that everything? Or why wouldn't you have that delta relative to past years when it does seem like you guys are doing a really, really good job on the OpEx side of things?

Jon, yes, thanks for the question. I mean certainly, we are driving strong operational results, top to bottom, including stronger sales, margins, leverage. I think -- my guess is that there is a little bit of a mismatch really between how the Street and we modeled FX for the year. I gave an FX tailwind last quarter of 1% for the year. So what you saw in the first half was a pretty decent amount of FX favorability that flow through the bottom line. So the EPS growth that you saw in the 20s between Q1 year-over-year in Q2 certainly is a direct result of all the work we've done exiting Q4 to drive a stronger operating model.

But the FX favorability when I talked about the 1%, that was really a -- what you see in the second half of the year is really FX turning decently negative. And so that starts here in Q3 with an FX negative to Q3. And then again, here in Q4. So it's probably just a bit of a timing phenomenon, if you will. But if that continued strong operational delivery with, of course, the noise around tariffs and some of those other costs that I talked about.

Next question comes from the line of Jason Bednar from Piper Sandler.

I'll actually follow up real quick here on the guide. A couple of pieces here. Just really in the context of you beat consensus by $0.11. We're not touching the guide here for the rest of the year. Just is that a little bit of conservatism, a little bit of maybe some of the uncertainty around APAC demand on the CBI side. Just trying to juxtapose that against raising last quarter when you beat as well. So just is there something different here as we think about the philosophy?

And then on the $2.2 billion free cash flow figure, I just want to confirm that's more of an adjusted figure that doesn't account for the litigation outflow that we got over the settlement that we learned about today.

Sure. I'll take the second one first, and maybe I'll -- can jump in on the first one. On the $2.2 billion free cash flow, that is inclusive of our expected payouts related to litigation. So what I'm trying to convey here is we are delivering a strong operating results this year, and I expect that to continue. The work we're doing to optimize inventory through the use of our technology-enabled systems, our supply chain system that I mentioned in our prepared remarks, are helping us to drive better inventory balances. So while that's a little bit of a pressure on gross margins for the remainder of this year and next year, it is a positive -- it does have a positive impact on driving free cash flow. So the $2.2 billion is essentially an increase from where we were to start the year with respect to the litigation because we're hurdling that litigation and reiterating the $2.2 billion of free cash flow.

I guess, I'll just -- I'll start with the other question. I mean the first question on why the EPS guidance is remaining the same. I mean, I think it's basically, like I said earlier to Jon, the FX, as we modeled didn't change for Q2, the year-over-year impact for Q2 was $0.08, and we thought it was -- we expected it to be $0.08 when we exited Q1. So really, the delta is in just the impact of the FX unfavorability in the second half. So certainly, we are expecting some higher costs. I don't know -- I think it's a balanced guidance, and we've taken down CooperVision revenues a little bit. But I think the guidance is prudent where we've said it and believe that we're putting ourselves in a position to deliver.

All right. Helpful. Just maybe one follow-up here on the share repo strategy. Like the stock is as cheap as it's been in a long time. But obviously, this is a lower buyback activity period relative to what we saw last quarter. Were you blacked down at all from buying back stock in the quarter? Was U.S. free cash an issue? I'm just trying to figure out just how we think about the approach that you took here in the quarter. I hear what you're saying on being more active going forward. But was there something else that limited the activity here in the fiscal second quarter?

Yes, Jason, there was. So we started purchasing a few shares back a very small amount, essentially a few days after we reported earnings but then took a -- you could argue a conservative position if you wanted to on share buybacks given other activity. We do not have those restrictions now and would anticipate exiting this call being much more aggressive on share buybacks going forward.

Next question will be coming from Larry Biegelsen from Wells Fargo.

I'm actually going to ask 2 on the strategic review you talked about. I'll just ask the first one. And then after you answer, the second one. So historically, I think you've believed that it made sense to keep CVI and CSI together. What's changed for you? That's the first question.

Sure. Well, I mean the reason I like keeping them together was for flexibility, if you will, right? One had a good quarter, one didn't. It was able to move things around. We have a lot of cash flow as a combined business. And I always believe that we would be able to get significant back office synergies out of the business once we stop doing acquisitions and had a chance to do that, which we did, right? We stopped doing acquisitions been, what, 1.5 years or almost 2 years since we've done an acquisition. And you're seeing the leverage that we are able to drive through back office consolidation, deliver the earnings this quarter that we just had and the increase in cash flow. So I still like that piece of it.

But I also look at the market right now, and I look at where our valuation is today, which I believe is absurd, I look at the strength of the CooperSurgical business. And we're in a position right now, and we're probably not alone within the medical device industry where there's a good argument that private investors are willing to pay a premium price over the public markets. If that is the case, and it certainly appears that may be the case, then we're going to do what's best for our shareholders. And if what's best for our shareholders is to transact and that is what we're going to do.

Okay. And then second, I guess, do you expect to have an update before the next earnings call. You said soon? And is there any reason why a deal wouldn't happen for CSI based on the offers coming in?

It's a little tough to answer that one. We got the litigation stuff done. So we moved into, if you will, round 2 of the process, and we're going to work on that really fast right now and see what kind of progress we can make. If that happens to be before we report earnings in the beginning of September, we'll certainly get a release out there. If not by that at least. But we'll see. I mean, we're -- there's nothing now holding us back from being able to move very quickly.

Our next question comes from the line of Young Li from Jefferies.

All right. Great. I guess, to begin, I was curious if you can make some comments on fiscal 3Q or fiscal 4Q revenue split, if there's any color you can provide to help us model that out.

I'm not sure what you're asking, honestly, just like the revenue gating maybe, I'm not sure.

Just the revenue cadence for fiscal 3Q versus 4Q was the implied guidance for the second half of the year.

Well, I would probably say -- I just think about it kind of off the top of my head without numbers or anything. CooperVision will be okay in Q3 and be a little bit better in Q4 is what I would envision. That's kind of what we've been seeing and executing through. CooperSurgical is -- should have a decent Q3 and a decent Q4. I'm not sure, like we don't give quarterly guidance or specific numbers or ranges or anything. So probably directionally, that's what I would say.

All right. Great. That's really helpful. I guess just on the fertility business. It rebounded to double digits earlier than expected, hurt some of the positive comments from your prepared remarks. I guess, can you maybe talk a little bit more about what you're seeing in the market and how that can -- that progress can maybe continue through the rest of the year?

Yes. We went through a period within the fertility industry where we were seeing a lot of consolidation among fertility clinics. And we were seeing a much greater focus on clinics driving their own profitability. So we went through that period and depressed our results. it depressed the market's results for a while. And now we're working through that. We had a good quarter here from a capital equipment perspective, right? And when we're putting capital in, that's a really good sign for us. So yes, it pumps up like an individual quarter because capital can always be a little bit lumpy but it also gives us future consumable sales.

So you're seeing right now a market that's getting a little bit better. It's not going to shoot up, but it's going to continue to progress and get a little bit better. and you're seeing us taking a little bit of share in that space. And again, it might be a little lumpy with capital. But from a market perspective, we believe we're going to continue to see positive trends.

Next question is from Steve Lichtman with William Blair.

Thank you. I guess, first out, it sounds like you're seeing a firm end market in the U.S. in Europe. In the U.S., what are you seeing on price? I know you've been conservative on that, but do you see some opportunities given maybe inflation things stubbornly high here?

Yes. Yes, price is okay when it comes to the U.S. market. Okay. In EMEA, it's still a challenge in Asia Pac. When we look at inflation and we look at where pricing is and opportunities, I mean, we took pricing earlier this year, like we normally do. We've seen some competitors take pricing out there. I guess I would just say we'll continue to evaluate it.

The nice thing is when you look at most of the world outside of Asia Pac, there continues to be a lot of interest in premium products, higher-priced products, and there's not a pushback necessarily on some of the price increases or people just transitioning over to a higher-priced product. So I won't kind of commit to anything on that. But yes, inflation is kind of staying stubbornly high, so to speak. I mean, Brian mentioned we see some of the costs roll through our own P&L. So we'll continue to take a look at it.

Got it. And then just in Japan, have you launched clariti toric multifocal. I wasn't sure if that hit the market? And could that still help in that lower price environment that you've obviously been dealing with over the last few quarters?

Yes, that is launching soon. I am excited about that, by the way, because that does give us the full clariti family there to compete as we try to move hydrogel wearers over to a silicone hydrogel, be it our own wearers right now, a number of whom we're losing like. But as we get that launch in Japan, that's going to help us keep our own wearers transition from older products into that silicone hydrogel, and it's going to give us the opportunity to go after the market a little bit more. So that's coming. I don't think that will have much of an impact, honestly, in this fiscal year, but we'll probably get a little bit positive impact in Q4 and then more in 2027.

Next question is from Travis Steed of Bank of America.

I really wanted to ask about the lower revenue guidance, 100 basis points lower. Is that all APAC? And what exactly has changed versus 3 months ago in APAC? Is it more market, more execution? Is the market stuff new? I'm just trying to understand what's changed and why the lower guide?

Yes. It's Asia Pac and it's market-based. I mean that's just to be very succinct. That's what it is.

Okay. And what's the -- why has the market changed versus 3 months ago? Just want to make sure that's clear to everybody.

Consumer weakness. We really see that not in every market, but we see it in Japan, and we see it in China. Now China is not very large for us. So it's bigger in Japan where we've seen that just consumer softness. And those markets, keep in mind, a lot of those markets are more consumer markets, if you will, than medical devices, meaning you don't need a script to buy contact lenses. So in a lot of our markets around the world, including in Asia Pac, we definitely have a more of a consumer bent like almost a discretionary consumer event, if you will, than we do a medical device sale. And we're seeing some of that activity in that region right now. Some of the soft consumer activity in that region.

Yes. Got it. And then on -- if there is a CSIs, would assume the proceeds are used for buyback, I just want to make sure that's the right assumption.

That's correct. I would assume that the vast majority of them are certainly used for buybacks, yes. We'll have to look obviously at [ remainco ], if you will, balance sheet, and there will be a number of things we'll need to evaluate there. But a significant portion of it certainly will be used for share buybacks. That's right.

Next question from David Saxon of Needham & Company.

Great. Just wanted to follow up on the [ Apex ] or down [ 6 ]. I guess how much of that was the market and this consumer softness you've talked to versus rationalizing the legacy hydrogel part of the portfolio? And then just on that repositioning, like what inning are you in at this point?

Yes, it's always hard to parse that kind of stuff out. But I mean, the guide down was because of the market. I think it could have been like half of that 6 came, if you will, from the market. When I think about where we are from a hydrogel perspective, we're probably more than halfway but not much farther, right, fifth inning or something like that. We still have some work to do.

Okay. And then just on clariti. So I mean it sounds like there -- it was probably kind of in line with last quarter's growth. I guess what's the outlook for that products as you look out to the back half in '27?

Yes. Clariti was actually probably a little bit weaker this quarter than last quarter. MyDay was stronger and kind of more than made upward, if you will. I think that the big thing on clarity right now is that we do have to get it properly positioned in Asia Pac, which we're very actively doing, right? Get those products launched, get the multifocal out there, so we have the full set of products and start getting that product rolling again.

I mean the market is odd as it sounds, like the market continues to go to premium products, which is not where Clariti is positioned. Clariti is much more of a it's super easy handling. I mean, it's by far the easiest lens for someone to insert and remove. So if you're a new wearer like you're going to clariti all day long, but it's not positioned in being sold as a premium product, which oddly or interestingly enough, the market continues to gravitate towards. So I think that clariti is not in a bad space. It's still a pretty decent sized product for us. If we can get the other launches out, we can finish some of the repositioning, we can get it going again.

Next question from Mr. Anthony Petrone from Mizuho Group.

Maybe a couple just on strategic comments, CSI. Is there any major difference in the margin profile of office surgical and fertility just as we consider if it goes a piecemeal or as a whole? And if you sort of look ahead to a scenario where CVI stand-alone, maybe just an update on where the bulk of capital allocation would go what could you expect a stand-alone CVI to sort of look like operationally? And what is it the stand-alone effective tax rate looks like?

Yes. So I don't want to speculate too much on that. I would say that given where we are from a CapEx perspective in CooperVision, as a stand-alone entity, we'll generate decent free cash flow on CooperSurgical. And I would imagine a significant portion of that would go to a very consistent share buyback program. I'll hold off kind of providing more color until we have a little bit more visibility on a transaction.

On the margin question, I'm going to hold off answering that one, too. But I will say, just to be clear, like although we have received significant interest on the individual pieces of Surgical, we are proceeding as of today with the entire business because we have enough interest at high enough levels in the entire business that that's the way we're proceeding. That business is fairly integrated. So if you look at fertility and medical device, like we have co-located plants, co-located distribution facilities and so forth. I'm not saying that you can't split things like that up, but it becomes very difficult to do something like that. So right now, that's not where the focus is. The focus on the entire business.

Next question from Navann Ty from BNP Paribas.

On CVI, if you could discuss the contribution of the new launches. I know you mentioned the myopia control in Japan, the MyDay MiSight in Europe. So I would be interested to hear about the contribution in Q2 and for the rest of the year. And then on CooperSurgical, your closest competitor had called out improving market conditions and IVF cycles. So do you see similar trends as well continuing and also changes in our competitive landscape as the competitor has also called out market share gains?

And then just a quick one on the strategic review, thank you for the helpful color on the interest. Would you say that the litigation has slow down the review process by your quarter or so?

Yes, a couple there. So let me hit those. The last one is litigation slowed down the process. The answer to that was -- or is yes. However, the litigation is now done and settled and we're moving on from that and able to move quickly. So yes, it did, but it's behind us. So we needed to get that done and we did get that done.

If I look at fertility, yes, I would agree with our peers who have talked about a strengthening market. I mentioned that earlier. We are continuing to see strength in the market. I know we've had some peers come out and say that they're taking share. I guess, numbers or numbers, right? Like I don't know what to comment on other than look at the numbers. If you look at new launches within CooperVision, you're touching on my side, there's a push and pull going on in my side right now. So as glasses continue to enter the market, that is a negative to contact lens is short term. I continue to say that short term, we want more and more kids in myopia control products, we're seeing more and more kids go on myopia control products. Glasses are doing incredibly well around the world. But that is a short-term negative for us. It's kind of pulling our growth down.

The flip side is the positive reaction to MyDay. MiSight in Europe, which is great. MiSight in Japan, which is going really well. We have quite a bit in R&D and new products that we're developing and some new products that we're going to launch and I'm really excited about. So there's definitely a push and pull going on right now within that space. But that's why we did, what, 23% growth last quarter, 24%, did a little over $100 million last year in revenue. So it's a real product line that's continuing to grow. And I think as long as we can stay focused on it, which we will and we can drive performance and we can come out with new and innovative products, which we're going to, we're going to continue to see nice growth from our myopia control franchise.

The next question is from Joanne from Citigroup.

How are you doing today? I want to touch based on just 2 things and give an update on the manufacturing of your MyDay lenses. And also PARAGARD looks like it was flat sequentially or year-over-year might be the right answer, which is better than I think most expected. And if you could just give us a feel for what's going on there. That too would be great.

Joanne, yes, with PARAGARD, it was flat against this year remember from last year, a pretty hard comp, we were launching the single hand inserter last year. So yes, PARAGARD, we were expecting PARAGARD to be down. It was flat this quarter. So it's doing well. I mean, that product grew nicely last year. And right now, it's well positioned at single hand inserter is helping us. We're well positioned. Team is doing a really nice job selling it. So I continue to think that we've got a chance to put up good numbers in PARAGARD.

On the manufacturing of lenses, probably not too much to add there. We're continuing to crank along. I think the one thing that Brian highlighted, which is important is our inventory levels internally got a little high as we were supporting like MDR and supporting customers around the world through our logistics, which can get kind of complex with all the private labels and so forth, we do. We implemented a new AI-based inventory control system and the team has done just a really, really nice job with that. And that targeting and that work they're doing is allowing us to reduce our inventory levels and we're going to continue to do that. That's going to be an effort that's going to happen the rest of this year and all of next year. So that does have a negative that Brian mentioned in terms of less production, higher cost per unit, but it has a clear positive impact on cash flow.

So we'll give more color as that as we proceed through that and those details kind of come out. But yes, we're continuing to work through that process. I mean, ultimately, that is about a more efficient business. So to me, it's positive.

Next question is from Robbie Marcus from JPMorgan.

Great. Two for me. First, Al, sorry to come back to this. Just wanted to ask again on the Asia Pac market weakness, you said it's a bit Cooper-related, bit Cooper -- a bit market related. Is it that volumes are going down in the market? Is it that consumers are shifting to private label? Are they extending where more than usual? Are they trading back to glasses. Maybe just give us a little more flavor for what exactly is happening to cause the slowdown so we can get a better sense of how transient it might be.

Yes, yes. You're definitely getting some of what you were just talking about, Robbie, which is some changing in wearer behavior. We see that every once in a while in different markets. We're seeing that there. And whether -- it's always the to fine-tune that as to whether it's somebody wearing glasses or how often they're doing it or what they're doing with their contact lenses and so forth. But we are seeing that type of activity. When we've seen that in the past, that will happen for a year. and eventually, you annualize that. And eventually, by the way, it swings back the other way as people start wearing contact lenses more. So I think that's what we're seeing.

The other thing we're seeing there is a little bit more online purchase activity, meaning a little bit more e-commerce activity. That is not where we're strong. We're strong with the fitters. We're a little bit weaker when you talk about online activity. So there's been a little bit of shift over there, which is a little bit of a negative for us. But I think if you're talking about the market, it's largely tied to the dynamics you were talking about. And you don't have pricing over there. I mean that's the other thing is we're able to get positive pricing around the world and the shift of more premium products and in that market, you just don't really have any pricing.

Got it. Okay. Separate question, as we think about a potential separation of the women's health business, how should we think about the fully burdened margin -- operating margin for each of the companies and the free cash flow that each generates because you talked before about one of the strong rationales as you've integrated it well in the back office. So I'd imagine there's probably a good amount of dissynergies to stand that up if whatever acquirer doesn't have those back-office capabilities to stand it up with. And then I know there's some tax dissynergies as well, anything you could comment on that just as we think about maybe splitting them up and what a [ remainco ] might look like?

Yes. Yes. So a few different comments on that. There's definitely some back-office consolidation work that we've done. We did that in Q4 of last year. I think about that in the context of like HR, finance, IT and so forth. But CooperSurgical still has a full team of people like working on that. So yes, there is some dissynergies, if you will, but it's probably not as significant as you think. We don't have co-located facilities. That's probably the biggest thing, meaning that the manufacturing and distribution of CooperVision products is separate from CooperSurgical products. So from that perspective, that's a big one in terms of your ability to do something with the transition services agreement and everything else that comes along with it.

If I look at a couple of other things, cash flow like free cash flow on a per revenue basis per dollar revenue basis is higher at CooperSurgical than it is CooperVision. But I would say, I guess I would say the upside of future free cash flow is actually greater at CooperVision because our CapEx is just going to come down a lot, like still a little elevated this quarter may be same. But I mean, as you get to Q4, it's going to start coming down. It will be down a decent amount next year. So there is some upside coming from future free cash flow in CooperVision.

You'll see some of the details. When you look at the Q tomorrow, right, you'll see some of the improvements that we're really starting to see at CooperSurgical on a GAAP basis. Like we don't have nearly as many non-GAAP adjustments as we used to, and we're going to try to keep those to a minimum. So you'll see those improvements. But I won't go too much into the operating margins because I think if there is a transaction, Robbie, like as you know, like we're rolling up our sleeves, looking at things, and we need to drill through those numbers and get you guys some real information, which we will.

And tax?

Tax would be, I guess, a [ remainco ] CooperVision tax would probably be fairly similar to what it is today.

Next question from Brett Fishbin from KeyBanc Capital Markets.

Just going to shift gears a little bit back to operating margin in the quarter, which was definitely a bright spot. And I was interested if you could just provide some color or directional split on how much of the improvement was really driven by some of the durable changes in cost structure that you're taking versus other factors like FX or favorable mix with lower sales in APAC CPI this quarter?

I mean I'll comment quickly. Certainly, Brian knows numbers like the back of his head. CooperSurgical drove a decent amount of that operating margin upside just because of all the leverage that we're getting out of that from the consolidation, the back office stuff, I was just talking to Robbie about.

So I would say the bigger side was there. You've got some certainly in corporate where we were able to leverage expenses here also. That does not diminish vision, who's done a really nice job leveraging their P&L also. And then, yes, the FX is certainly a positive that Brian highlighted compared to right at the beginning of the year where FX is a nice positive to us in the back where it's a decent negative to us, it kind of flattens out for the year. But that's part of the win, does that help?

Yes. No, no, that's helpful. So it sounds like a combination of some of the underlying improvement and then maybe like split with some of the more temporary benefits like FX and product mix.

Correct. Yes.

All right. And then maybe just on a completely different topic. On the MiSight Japan launch, it did sound like momentum has picked up a little bit. I was wondering if you just had any new thoughts on the broader opportunity here around either the TAM or just overall contribution to the MiSight revenue story over the next, call it, 6 quarters?

Yes. The myopia control market, I've always been an optimist about that, and it was progressing a little slowly for a little while when we were basically the only company driving it. But now that you have spectacles out there, it is definitely accelerating. It's a really good market. I mean spectacles are doing well. You're seeing markets like China that have just exploded throughout Europe, you're seeing markets. I mean, we have a joint venture on one of those. The numbers are just really strong, and they can they continue to be strong, and we continue to see really nice growth on the spectacle side of things.

So I think that the myopia control market is going to be a big market. At the end of the day, it really truly is like almost every kid gets braces right now. Every kid who's got myopia should be wearing some form of myopia control products. So I feel good about where we're at. Japan is one of those markets where you have a lot of children that are myopic, this product is going to be fantastic for them. So I mean, we're actually looking at that right now from an investment perspective because as that market picks up and it's doing better, like I mean, we're challenging ourselves how to invest and where to invest and where to be more aggressive to ensure that we're capitalizing on our position. I mean we're the only contact lens company with an FDA-approved product out there. So we're doing well. I think we're going to continue to do well. And I feel good about that market in the near term and the long term.

Next question will be from Chris Pasquale from Nephron.

Al, I wanted to circle back to fertility. 10% growth this quarter, you talked about mid-singles in the back half of the year. Is the delta there really a bolus of capital sales that you got this quarter that we should view as kind of onetime in nature? Or are there other factors?

Yes. I kind of touched on that a little bit on the script. It's a great question, right? Because I think in the back half of the year, when we look at Q2 and Q3 fertility, it will probably be somewhere in the mid-single digits. So that delta that you were looking at was a combination of 2 things. One, it was capital. The other one was when the aerospace opened in the Middle East, we talked about that some last quarter. we had distributors there, buy some product from us and buy in advance in case the airspace shut down again. So we actually kind of had a couple of positives there that pushed us up to the 10%. So it was a great quarter. We did really well, right? But I don't want to act like we're going to -- we're not back yet around double digits. I think we did 14 out of 15 quarters stretch double digits. We're not back there yet, but we're at least back to mid-single-digit growth in fertility.

Okay. And then one quick one for Brian. Do you plan to seek refunds for prior tariff payments? And when do you expect to have clarity on whether you actually get those?

Yes. So we're in process of filing all those refunds. I mean I mentioned in my prepared remarks, we're expecting up to $15 million at this moment, sitting here today. A lot of those have been submitted though we're submitting some more. So we actually, I think, just got one refund recently, a small one. So that's not included in guidance. So to the extent that we get some of those refunds in the third and fourth quarter, then that's going to be upside to guidance.

Last question from David Roman of Goldman Sachs.

Yes. This is [ Marco ] on for David Roman. You touched a little bit on this, but I was hoping that you could clarify, as you think about retaining the earnings guidance with the top line reduction, can you talk a little bit about the interplay between protecting the P&L and sustaining growth investments?

Yes. I mean it's a good question, right? And we look at that very consistently. We are investing in growth opportunities. So we're leveraging the P&L through all that work that we've done in back office and so forth but we are continuing to invest in growth. We're launching products in different spots around the world, and we're supporting that launch. I mean that's one of the most important things to us. If you look at how strong we were in the Americas, how strong we were in Europe. We have to get going in Asia Pac. We made a lot of moves. We're doing a lot of things there.

So we are investing in growth. I mean, at the same time, we obviously want to put up with good numbers. And I guess I'd just say we've got a lot going on right now. I mean that's the other thing. There's a lot of activity in the company right now, no surprise. So you've got some risk around disruption in other areas as we come through hoops and do all the things that we're trying to do. So I think we're trying to balance all of that and I think, as Brian said, that guidance range is a good way to look at it. And that was to me, that was a prudent guidance range right now given everything that's going on.

Thank you. There are no further questions at this time. I will now hand the call back over to Al for closing remarks.

Great. Thank you, operator, and thank you, everyone, for being on the call today. I guess I'll just end by restating that, which there's a lot going on right now. We're working super hard. We're making a lot of progress in a lot of areas. We look forward to continuing to make a lot of progress into communicating that progress in the future. So with that, I thank everyone for the call and look forward to talking to you in the coming months.

This concludes today's conference call. Thank you for your participation. You may now disconnect.

Thank you for standing by. My name is Tina, and I will be your conference operator today. At this time, I would like to welcome everyone to the First Quarter 2026 Cooper Companies Earnings Conference Call. [Operator Instructions] it is now my pleasure to turn the call over to Kim Duncan, Vice President of Investor Relations and Risk Management. Please go ahead.

Good afternoon, and welcome to Cooper Companies First Quarter 2026 Earnings Conference Call. During today's call, we will discuss the results and guidance included in the earnings release and then use the remaining time for questions. Our presenters on today's call are Al Wright, President and Chief Executive Officer; and Brian Andrews, Chief Financial Officer and Treasurer. .

Before we begin, I'd like to remind you that this conference call will contain forward-looking statements, including statements relating to revenues, EPS, cash flows, interest, FX and tax rates, tariffs and other financial guidance and expectations, strategic and operational initiatives, market conditions and trends and product launches and demand.

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 Cooper's Form 10-K and Form 10-Q filings, all of which are available on our website at coopercos.com.

Also, as a reminder, the non-GAAP financial information we will provide on this call is provided as a supplement to our GAAP information. We encourage you to consider our results under GAAP as well as non-GAAP and refer to the reconciliations provided in our earnings release, which is available on the Investor Relations section of our website under quarterly materials. Should you have any additional questions following the call, please e-mail [email protected]. And now I'll turn the call over to Al for his opening remarks.

Thank you, Kim, and welcome, everyone. We're pleased to report a strong start to the fiscal year, highlighted by product launches, outstanding profitability and robust cash flow. These results reflect our disciplined execution, combined with the significant synergies we're realizing from last year's reorganization. For today's call, I'll begin with an update on the 3 key strategic priorities we outlined in December and then move to Q1 results and guidance.

First, we remain focused on delivering consistent market share gains for CooperVision. In calendar 2025, we gained share for an 18th consecutive year, and we enter 2026 with the intention of doing so once again. In our first fiscal quarter, we made meaningful progress with the global rollout of our premium MyDay daily silicone hydrogel portfolio, growing branded sales and executing on private label contracts.

Regionally, the Americas and EMEA strengthened and have excellent commercial momentum. Japan weighed on our Asia Pac results, but we're executing on product launches and investing to restore growth in the region. We're also incredibly excited about the early adoption of our MyDay MiSight launches in EMEA and MySight in Japan. At CooperSurgical, we're encouraged by improving trends in our fertility business and look forward to positive momentum continuing. Second, our commitment to delivering strong earnings and free cash flow through operational excellence was clearly evident this quarter.

The organizational changes and IT implementations we completed last year are generating meaningful synergies, providing us with the opportunity to invest in sales and marketing initiatives while still delivering outstanding financial performance. Q1 earnings exceeded the top end of our guidance range and those earnings translated into a healthy $159 million in free cash flow.

Given our strong start to the year, we're raising guidance for both earnings and free cash flow. Third, we continue to maintain a disciplined approach to capital allocation. We've entered a multiyear period of consistent earnings and free cash flow growth, and we're deploying capital to high-return opportunities. This starts with prioritizing internal investments that drive revenue growth, which we did this past quarter by increasing sales and marketing spend at CooperVision and CooperSurgical in support of product launches and key strategic initiatives across both businesses.

We also repurchased $92 million in stock during the quarter, reinforcing our commitment to consistent share repurchases as a core part of our long-term strategy to drive shareholder value. The remainder of our cash was used to reduce debt. Before reviewing the quarterly details, I want to address the strategic review we announced in December. We understand our strong investor interest in this process. While we're not in a position to provide an update today given where we are in the process, the review is progressing as planned with active engagement from our Board and advisers.

We will communicate outcomes if we have something definitive to share or when the process is complete. In the meantime, our Board and management remain highly focused on maximizing long-term shareholder value. This includes driving organic growth by winning new contracts and strengthening customer relationships, delivering strong earnings and cash flow by leveraging our infrastructure and deploying a consistent capital allocation strategy that includes share buybacks and debt paydown. With that, let's move to the Q1 results.

Consolidated revenues were $1.024 billion, up 6.2% or up 2.9% organically. CooperVision reported revenue of $695 million, up 7.6% or up 3.3% on organically. And CooperSurgical delivered revenue of $329 million, up 3.3% or up 2.2% organically. Operating margins improved meaningfully and non-GAAP earnings grew 20% to $1.10. For CooperVision, on an organic basis, torics and multifocals grew 6% and spheres grew 1%. Daily silicone hydrogel lenses grew 7%, led by double-digit growth in MyDay, while clariti was up slightly.

Biofinity and Avaira grew a combined 3% and MiSight continued its strong growth, up 23%. Regionally, the Americas grew 6%, led by strength in daily silicone hydrogel lenses and EMEA grew 4%, strengthening our #1 market position in that region. Asia Pac declined 4% as execution on new product launches was more than offset by softness in Japan, primarily tied to lower margin older hydrogel products. To accelerate APAC performance, we've upgraded several leadership roles, increased marketing investments and are ramping up our new regional distribution center, which is already enhancing customer service with faster fulfillment.

We've also recently launched MyDay toric in Taiwan, MiSight in Japan, MyDay MySight in Australia and New Zealand, and we're increasing regional availability of MyDay multifocal and MyDay toric expanded range. We also have private label launches underway in multiple markets. And in Japan, we'll be launching the full clariti family later this year with the addition of both the toric and multifocal providing a competitively priced [ old family ] silicone hydrogel upgrade path for the large base of hydrogel wearers in that market.

While we expect Asia Pac to remain down in Q2 due to declining legacy hydrogel sales, we are confident the region will return to growth in fiscal Q3 given all of our launch activity. Turning to products. Our daily silicone hydrogel portfolio continues to perform well. with MyDay leading the way through expanding customer partnerships, broader availability and ongoing launches, our premium priced offerings delivered its strongest performance led by MyDay multifocal, Energys and torics all growing over 15%.

Particular strength was seen with MyDay multifocal as its rollout continues to gain momentum. Our premium MyDay Energys also posted strong growth driven by its innovative digital boost technology designed to provide maximum comfort in today's heavy digital world. This product will be launched shortly in Europe, and we look forward to the boost that will provide in that region.

MyDay toric, which offers the broadest SKU range in the category and is powered by the same leading toric design in our Biofinity toric continued delivering exceptional growth. We also closed additional MyDay key customer contracts and private label partnerships this past quarter across all 3 regions.

For the clariti product family, it grew modestly led by the ongoing launch of our new multifocal in the Americas. This multifocal has the same next-generation optical design as MyDay, meaning an easy fit lens with consistent performance across different lighting conditions, distances and patient profiles. So we expect strong performance as we launch across EMEA and APAC later this year.

Turning to myopia control. MiSight grew 23% to [ 28 million ]. Momentum is building with our latest innovation MyDay MiSight launching in EMEA in January to an extremely positive reception, thanks to the combination of proven myopia control efficacy and the all-day comfort of a premium silicone hydrogel lens. We also launched MiSight in Japan in February and are seeing a similar enthusiastic response. Japan is one of the world's most significant vision care market and with an estimated 77% of elementary school children being myopic, it represents a substantial opportunity for MiSight.

We're supporting these launches with our most comprehensive professional engagement programs to date, highlighted by major conference engagement, high-impact regional launch events , extensive KOL education and media initiatives reaching tens of thousands of eye care professionals. These efforts are driving very strong clinician activation rates, reinforcing our confidence that our early momentum will continue as MyDay MiSight expands in EMEA across Asia Pac and into Canada.

MiSight remains the only FDA-approved contact lens for myopia control and the first and only loans approved for myopia control in both Japan and China. We're also continuing to invest heavy in myopia control R&D and have several exciting breakthrough innovations underway, which further supports our confidence in MiSight's ability to deliver consistent long-term robust growth. To conclude our CooperVision, let me highlight our performance relative to the market.

This is calendar quarter data, so apples-to-apples with our competitors. In calendar Q4, we grew 10% and the market grew 6%. For the full calendar year 2025, this translated into 6% CooperVision growth versus the market at 5%, marking our 18th consecutive year of market share gains.

Turning to CooperSurgical. We delivered quarterly revenue of $329 million, up 3% or up 2.2% organically. Fertility revenues were $127 million, up 3% organically. Growth was driven by strong global genomics performance, supported by continued commercial and operational execution across product launches, new clinical wins and expansions within existing accounts.

We also saw solid results in consumables, led by media, ZyMot, our sperm separation device that helps optimize fertility procedures and Witness, our automated lab tracking system. These gains were partially offset by softness in the Middle East and lower equipment installations. Importantly, we are now seeing early but clear signs of recovery in the fertility market. As we move through the first quarter, results steadily improved, supported by solid execution on contract wins and new product launches as well as strengthening underlying market trends. This momentum positions us well for continued improvement through the remainder of the year, though developments in the Middle East, where we hold a leading market position remain a source of uncertainty.

For the fertility market overall, the product and services segments that we operate in had delivered strong growth for many years before slowing in late 2024. While several factors contributed to the deceleration, the industry is now recovering, driven by renewed clinic interest in adopting new technologies, along with improving cycles in the U.S. and several European countries.

Although a rapid rebound is unlikely, we anticipate steady improvement as we annualize last year's pressures and underlying activity normalizes. Moving to Office and Surgical, sales were $202 million, up 2% organically. Medical Devices grew 6%, driven by strong performance in our surgical OB/GYN portfolio led by our uterine manipulators and related products and continued momentum in our specialty surgical products, including our innovative single-use lighted cordless surgical retractors. This was partially offset by softness in some legacy medical devices and PARAGARD declining 7%, which was expected against a difficult comp tied primarily to last year's launch of the new single hand inserter.

To conclude, I want to recognize and thank our Cooper team for their dedication to operational excellence investing in sales and marketing to drive organic growth while maintaining disciplined cost control and continuing to build a streamlined and technologically efficient companies, no easy task. So thank you to the entire team. And with that, I'll turn the call over to Brian.

Thank you, Al, and good afternoon, everyone. Most of my commentary will be on a non-GAAP basis, so please refer to today's earnings release for a reconciliation of GAAP to non-GAAP results. For our first fiscal quarter, consolidated revenue was $1.024 billion, up 6.2% year-over-year and up 2.9% organically. Gross margin was 68.1%, exceeding expectations driven primarily by a lighter mix of low-margin Asia Pac revenue at CooperVision. Excluding the impact of tariffs, gross margin would have been essentially flat.

Operating expenses rose only modestly and improved as a percentage of sales declining from 43.6% to 41.2% year-over-year, reflecting the benefits of the reorganization executed in fiscal Q4 of last year. These efficiencies stem from the structural changes we've made as we transition to a smaller, more efficient organization that leverages technology, including AI to automate work and optimize shared services.

The impact of these efforts was particularly evident at CooperSurgical, where expenses decreased year-over-year. Operating income increased a healthy 13.9%, resulting in a 26.9% margin. Interest expense was $22.4 million, and the effective tax rate was 15.1%. Non-GAAP EPS grew 20% to $1.10 with roughly 197 million average shares outstanding. Free cash flow was very strong at $159 million with CapEx of $102 million.

We deployed this cash by repurchasing 1.1 million shares of stock for $92 million, making the final $50 million payment related to our 2023 Cook acquisition and applying the remaining balance towards reducing net debt to $2.4 billion.

Lastly, in February, we addressed our $1.5 billion term loan maturing in December 2026. By amending and extending $950 million for another 5 years, to February 2031. The remaining $550 million will be repaid in December 2026 when it matures, using our strong free cash flow and ample revolver capacity.

Moving to full year fiscal 2026 guidance. Our revenue expectations are essentially unchanged with consolidated revenues of roughly $4.3 billion to $4.35 billion, reflecting organic growth of roughly 4.5% to 5.5%. CooperVision revenue is expected to be in the range of $2.9 billion to $2.93 billion up 4.5% to 5.5% organically. And CooperSurgical is expected to be in the range of $1.4 billion to $1.41 billion, up 4% to 5% organically.

For earnings, we're raising guidance to $4.58 to $4.66, reflecting our Q1 beat and stronger expected operational performance. Regarding tariffs, our estimate of approximately $24 million remains the same for the year. Our expectations on interest expense and tax remain unchanged with interest expense of around $85 million the effective tax rate between 15% and 16%.

Turning to cash flow. Our cash conversion rate continues to improve. And we're increasing our fiscal 2026 free cash flow outlook to $600 million to $625 million. For fiscal '26 through 2028, we continue to expect to generate more than $2.2 billion of free cash flow, driven by higher operating profits, improving working capital performance and lower CapEx.

From a capital deployment standpoint, our priorities remain unchanged. We're investing in growth and innovation, repurchasing shares and reducing debt. To conclude, I'm proud of the operational excellence we're seeing across the organization. We're optimizing and leveraging prior investments in numerous areas, including IT, distribution, HR and finance, and we're increasingly applying AI-enabled tools to streamline areas such as marketing, planning, forecasting and support functions.

Our reorganization efforts are delivering meaningful synergies and the results are evident. Looking ahead, we have additional opportunities to further optimize the way we work. With our multiyear CapEx cycle winding down, our manufacturing teams are now evaluating ways to capitalize on the next-generation production improvements developed over the past several years.

Early planning is underway, and while this work will take time, the results have the potential to be material. In the meantime, we'll continue driving efficiencies by leveraging technology while consistently investing in initiatives to support sustainable organic growth. And with that, I will turn the call over to the operator for questions.

[Operator Instructions] Our first question comes from the line of Jeff Johnson with Baird.

I guess the first question, let me just kind of back out and go more higher level. Al, I mean you reported a 10% calendar 4q number. I think over the last 3 quarters, you've been up 3%, 3.5% for CVI. So one, can you reconcile that 10% number versus the last few quarters [ at 3 ]? What's different in the number you're citing there versus what we see in your CVI organic growth results? And then 1 follow-up question.

Sure. Yes. We knew we're going to get that one. It's literally just a matter of months and shipment of product. So we had had a weak November and December of 2024, and we had a really strong January of 2025. So just when you comped against that, the way that the shipments worked, it resulted in a really strong calendar Q4 for us. .

All right. Fair enough. And I guess, again, maybe I'll go even further out and apologies for the feedback. But you've been talking about kind of getting back to market growth above market growth, at least as you report CVI. How is that plan going so far? Maybe update us on the MyDay -- Clariti to MyDay transition? Just in general, it still feels like your results are maybe lagging the market here a little bit relative to some of your peers. So how do you feel like you're doing kind of getting back up into above market over the next couple of quarters?

Yes. Great question, Jeff. I'll break that up a couple of different ways. I mean if I look at the Americas, we're doing well. The U.S. had a good quarter. We're gaining a lot of traction. We've got product launches and a lot of activity. The team is doing a fantastic job. So I would say we're in good shape with the Americas. When I look at EMEA, again, in good shape there.

We took a step forward this quarter against last one, but we've won a number of contracts there. We have a number of product launches going on. I would say our -- we have better visibility for that market right now to improving sales. So I feel pretty good about the momentum that we have in the Americas and the momentum that we have in EMEA right now associated with MyDay and clariti, frankly.

And then I go to Asia Pac as kind of the third one. And the results there, right, have been a little tough for us. And that's the area that we need to get figured out and get back to kind of our old traditional growth rates and we'll be in fantastic shape. As I mentioned, we're doing a lot of stuff to drive growth in Asia Pac.

We did see success kind of in a number of areas where we've had problems. We stabilized when it comes to a lot of the e-commerce stuff that we talked about. We stabilized the China business. We had a changeover number of some personnel, a number of leadership positions. So we're in good shape in a number of countries. The one that we kind of have left right now is Japan, and I can target that down to like Japan, older hydrogel products where some of our competitors are taking some share.

We have not cave down price or anything along those lines. So I think we're going to continue to have a little bit of pressure in Japan with traditional hydrogels, again, in the [ next to next ] quarter because I think that the region will probably be down because of it.

But then all of that success, the stuff that I'm talking about, all those product launches in Asia Pac, the success of executing on those private label contracts, all of that kind of stuff, the transition point on that happens in Q3 and you're going to have Asia Pac growing again. So another one where, I would say, we had a number of points over the last year and just a lot better, a lot clear visibility right now on where those challenges are and where the successes are going to come from. So I think Q2 fiscal Q2 ends up being a step up certainly from this quarter. And then as I've said all along, like we'll be back to rolling in Q3 and Q4

And from Wells Fargo, our next question is from the line of Larry Biegelsen

All right. That was a new pronunciation. AL, we heard your comments about Middle East in IVF. Maybe you could just level set us on what your exposure is there and how you're thinking of the war might impact your business? And I have 1 follow-up.

Sure. Yes, to put some numbers around that, kind of, for us, on a consolidated basis, the Middle East is about 2% of our sales. A lot of it is distributor. And obviously, the Middle East is a very large region. So it won't have that much of an impact on us other than it could impact fertility because there's a decent amount of fertility business.

We're #1 in that region. We have good [ stride ]there. So it's just a matter of us being able to get products there. I mean women are obviously still going through fertility treatment and so forth there we, have to be able to get product in. So if that situation extends for a period of time, it will be more challenging for us. Even With that, we're still -- we have a lot of good momentum in fertility, and I think we still will still improve quarter-over-quarter.

But that's kind of the 1 question mark. Otherwise, I'd even be more bullish on fertility.

And Brian, the margins were really strong in Q1. Just remind us how we should think about the phasing for the year, how you're thinking about -- I guess the tariffs, you said no change. But in light of the recent Supreme Court ruling effects, if that stood, would there be upside on tariffs?

Sure, Larry. I'll start with the second part of your question, at least as it relates to tariffs. We assumed $24 million in the year. That's what we assumed as of the last guidance. We're going to sit tight. Obviously, we capitalize and release the impact of tariffs 4 months later. So any change to tariff rules or guidelines or whatever takes effect won't impact us until later in the year. .

But a 10% tariff makes very little impact. It's pretty similar to the $24 million. So I'd assume that if it goes up to 15% that could be somewhere upwards of like $4 million. But for now, we're just -- we're -- the 10% is what it is, and that's what we factored in the guidance. As it relates to operating margins, yes, I mean it's the same story that we've been talking about from exiting last quarter. We're getting really durable savings from the synergies and the elimination of fixed costs from the reorganization that we talked about in Q4.

We're leveraging prior investment activity, and we're being really disciplined. We're scrutinizing all nonrevenue-generating expenses, particularly the back office, and we're investing in sales and marketing. So the drop-through in operating margins was good in Q1, and I would expect -- I would expect you're going to continue to see stronger operating performance, which is why, frankly, we raised our guidance $0.13 at the bottom end and $0.10 at the midpoint based on stronger operating performance. But I'm not going to get into gating at this moment.

Our next question comes from the line of Jason Bednar.

I actually want to pick up on the line of question that Jeff had, but as far as the competitive landscape as it stands today and your share position. Maybe talk about, AL, our new fit activity across the quarter. Just what are you seeing in the data when you look at your performance versus peers, if you can break it down dailies versus monthlies?

Sure. If I look at new fit activities, it probably hasn't really changed that much. At the end of the day, we're taking wearers. So the [ fit ] activity continues to put us in a good position. Now you have a whole lot of other variables that go into, I would say, but if I narrowed down to just new fit activity, whether it's dailies or FRPs, we are taking wearers in both of those as we did this past quarter. So I feel good about that as kind of continuing to be a good indicator of the future.

Okay. All right. And then as a follow-up, it really seems like industry pricing dynamics have come down, at least relative to where we were last year. It sounds like the latest round of increases here the last few months are sticking. It should be good for all the players out there. How are you thinking about future list price increases and managing these discussions, but with wholesalers and docs, especially if I think back we went through multiple increases in the past few years, usually like 2 increases a year, do you think the market can absorb more than 1 price increase a year without negatively affecting demand here going forward?

Yes. Well, I do because of the technology that's coming out. I mean we are launching -- as an industry, we're launching new products, really innovative products. We have some great ones ourselves. I mean there's nothing more innovative in the contact lens industry today, the MyDay MiSight that's launching out there. But the multifocals that we're launching are great products. Energys is a great product. I know some of our competitors have some products out there that they're launching a good price point.

So consumers are willing to pay for that high quality and contact lenses are not particularly expensive at the end of the day. So the positive pricing that you're picking up on, on your comment is true. I'm happy about or I feel positive about pricing in the marketplace right now. The only reason I put a little caveat on that is still in Asia Pac. There's definitely markets in Asia Pac where there's some pretty competitive pricing out there. But yes, generally speaking, I'd say pricing is positive right now, and it's appropriate given the technologies that are rolling into the marketplace.

From Stifel. Our next question comes from the line of John Block.

The CVI number, I think I heard you at [ 33 ] precisely. It was a bit below expectations, even the bottom end of the midpoint. But you gave that guidance, call it, first or second week in December. So maybe just talk to us, again, it was slightly below, but what deviated from expectations relative to when you gave it? And it would seem to suggest that maybe January was a little bit than you expect. So can you give us any color on how things trended into February. And yes, sorry for the awful feedback.

Yes. No, you're right, John, because we were looking at Asia Pac being essentially flat for the quarter, kind of similar to what we did in Q4, and that would have meant CooperVision consolidated growth would have been like 4.3% something like that. And you're right, it was 3.3%. So that delta was very specific and very targeted, if you will, to what happened in Japan on those legacy products.

I mean we started seeing it some in December, and then we definitely saw that activity in January. So that's what happened. That's where it picked up. I thought that, frankly, the momentum we have with all the product launches and activity and everything would overcome that. But yes, that was a decent hit for us as we rolled through December and January. You're right and that's why I said, I think Asia Pac will probably be down one more quarter before all the positive energy that we have kind of overwhelms that, if you will. .

Okay. Fair enough. And second one, [indiscernible] sort of the boring question. But Brian, when I look at the add-backs in the quarter, almost half of the add backs were from like a hit from natural causes and litigation, which is just a little uncommon, it didn't seem to be the case in the prior quarter. So any color on what you can give around the add-backs if you can elaborate a bit.

John, I think you're talking about just in the other category, where we break out, I think it was $6.7 million was related to other legal related matters. I mean we don't -- our stance is not typically to talk about what legal matters are going on. We obviously have insurance for a number of things, but there are some things that we don't have insurance on where we're defending ourselves or we're -- we've got some legal related matters that show up. So it was a little bit higher this quarter, but not too atypical from years past.

From Jefferies, our next question is from Young Lee.

Great. I guess to start, I was wondering if you could talk a little bit about there's an update on sort of how the supply dynamics have impacted your ability to win new contracts in the quarter?

Supply dynamics...

That impacted your...

First supply, you're probably referencing some of the MyDay capacity. We don't have those issues anymore. So I would say that when it comes to supply constraints, manufacturing or supply constraints or logistic challenges, I am very happy to say those are in the rearview window. Now we don't have those challenges anymore. So that's not impacting us.

Yes. Apologies for the sound quality. I don't think you heard the question fully, but I was just wondering if you were able to win more new contracts this quarter just given the improvement in supply.

I got you. I got you. The answer to that is yes. Yes. We did win a number of new contracts. As a matter of fact, we won them in all 3 regions, and they were definitely MyDay related. So we won a bunch kind of last year and as we were exiting last year, but we've continued to expand relationships and partnerships and win additional MyDay business. So yes, we have. .

Okay. Great. Very helpful. And then I guess to follow up, I wanted to get a little bit of color and update on PARAGARD. It's a high-margin business, although we know about the volume pricing dynamics. Are there any incremental updates on the competitive front, just given the potential for impact on the profitability side?

I would say no updates. As far as I'm aware of that licensing agreement that you referenced on the competitive side has not closed. So I don't have any updates or any details on any of that. I think for us, PARAGARD was minus 7% for the quarter. We're still expecting that to be flat to up a little bit for this fiscal year. And then we'll see how that plays. If that deal actually does happen, and we'll give some color on their launch plans and so forth. But right now, I don't want to speculate on any of that.

From Barclays. Our next question is coming from the line of Matt Miksic.

But One question just following up on the market. There was some kind of a neutral trajectory during last year in terms of the market. Based on your best guess and what you saw, I guess, during and exiting Q4 on a calendar basis, do you think that's improving now? Do you think we're stable? Any further color on what the ups and downs were from last year? And then I have 1 follow-up. .

Yes. I think I would say we're at least stable, if not improving a little bit. We did have, as a contact lens industry, a softer year last year. But it's at least stable. The reason I say improving, as I sit here thinking about it on the top of my head, right, is because of pricing that somebody asked about earlier. I'm trying to look at the market and say, "Hey about 1% is going to come from price, about 1% will come from wearers and then you'll have all the others, you have the shift to dailies and and so forth that's happening that will drive it. That 1% that's coming from price, I would certainly stand by that, and it could be potentially a little bit better than that.

So I do think the market is well positioned for a decent year. So I'd be like a rebound of what it was years ago, but it's going to be a better year, I think, in 2025 than it was in 2024.

Got it. And then just a follow-up on some of the dynamics [indiscernible] this next quarter and the quarter after, you mentioned Japan is down in this quarter, improving by the third fiscal quarter, I think. How do you -- how should we think about the impact of some of these -- the private label engagements that you announced and mentioned that you were able to close some more. When do those those coming in this year? Are they just kind of filter in and support sustainable growth. I mean how to think about it because it just seemed like there was quite a number of them that you signed. And I'm just wondering, if that's something we're going to notice as you get into the middle half of this year?

Yes. Good question. And yes, we are executing on those private label contracts and a number of branded contracts that we won, and you will see those as we progress through the year. They got masked this quarter because of what happened in Japan, as I was saying otherwise, we would have been kind of 4.3%, somewhere 4.4%, somewhere around there. But we are executing and doing well on those contracts.

So the way I see it playing out is we continue to execute on those contracts, and we have good visibility on that. That's going to result in a better Q2. But as I've said all along, it's going to be Q3 and Q4 is when all those contracts and those launches really start coming together for us. So I just think that we're kind of have one more quarter behind us of some of the challenges that we were dealing with, and we have one more quarter here in the quarter that we're in, where we have some residual challenges in Asia Pac still putting up a step in the right direction in Q4.

But then we get back to kind of the CooperVision of old and the more consistent solid revenue growth rates in Q3 moving forward.

Our next question comes from Bank of America from the line of Travis Steed.

I guess the first question I have is on kind of Q2 revenue, kind of where you want the Street to shake out and kind of the cadence of revenue growth for total company and CooperVision and CooperSurgical. We heard the comments on Japan other dynamics that you'd point to that we should model for Q2.

Well, I think if I look at it that way, I'd say we'll probably have another good quarter. I would expect in the Americas. I would expect EMEA to be a little bit better. than it was this quarter. And Asia Pac is the question mark to me. It will be down a little bit in total. So I would assume that the Q2 results are little bit better than what we did here. I would look at surgical pretty similar. Fertility should be a little bit better even with some Middle East risk out there.

And the rest of that business is humming along fairly well. So I would think CooperSurgical will post a little bit better sequential quarter than what they did in Q1.

On the second question, I wanted to ask on the strategic review. When do you expect that to be complete? What's the goal for the outcome? Anything else you could kind of say on the [indiscernible] would be helpful.

Sure. There's really not much else I can add on that. I mean we announced that we were doing that kind of $4 million, if you will, beginning of December and went through the holidays and so forth. And we're very active on it right now with our advisers and the Board and so forth. So I don't want to comment or say anything right now, it probably wouldn't be appropriate to go into any details until we get some concrete information. So I'll hold off on that one, but certainly provide updates when we can.

Our next question comes from Mizuho Group from the line of Anthony Petrone.

Maybe on private -- one on private label and then 1 on MyDay MiSight. So on private label, I don't know if you can share this, Alan or Brian, but what was the percent of private label exiting last fiscal year? And with the addition of these new private label contracts, where can that increase to? and Is that margin neutral? Is it a margin drag? Or can it be accretive to margins? I have the one quick follow-up on MiSight. .

Yes. So our private label was running for quite a while, about 1/3 of our revenues. It's a little bit higher than that. We don't break out the specific numbers. It's a little bit higher than that. And it's still kind of trending along there. We actually had a pretty good quarter with branded sales. And we're seeing a little bit more success now winning some contracts in business around branded sales.

So I wouldn't highlight too much with respect to that one. Margin wise, we have a tendency to look at things at an operating margin level, and I know the operating margin on those are fairly similar. So from that perspective, it doesn't make a big of a difference. It could make a little difference on gross margins. Those contracts come through, they'll put a little pressure on gross margins probably as we move to the back half of the year.

And then on MyDay MiSight, Japan, maybe can you size that in terms of the number of target practices you're going after, like how many sites are you looking to penetrate? And what is the market size and dollar for MiSight, in Japan.

Yes. So just to be clear on that one, Mike, the product that got launched in Japan was just MiSight, the regular MiSight because it took us like 3 years to get regulatory approval on that. So MyDay MiSight is in multiple European countries right now. We just launched it like Australia, New Zealand, South Africa I think but Japan is the kind of the traditional, if you will, MiSight. Yes, as I mentioned on the call, it's like 77% kids are myopic. So there's still a big opportunity there. It's really hard to gauge the size of that market and to put numbers out associated with it.

But I will say we are super aggressive there right now, and I'm crazy happy to say that the product is being received really well. That's an ophthalmology market rather than an optometrist. So you have a marketplace with doctors who look at clinical data and they understand clinical data. And when you have that kind of combination of a lot of myopic kids and professionals who understand clinical data, a product like MISight is going to do really well there. So I think that I talked about 20% to 25% growth from MISight this year. We did 23%. And I would certainly be comfortable saying 20% to 25% again or higher based on the success that we're seeing early indications on MyDay, MiSight and MiSight in Japan.

Our next question comes from the line of BNP Paribas from the line of Navann Ty.

One on CooperVision, if you could discuss MiSight, again, solid performance in light of the Stellest entering the market? And my second question is on the CooperSurgical, your fertility pure-play peer had supportive market comments. So what are you seeing in IVF cycles across the U.S. the impact.

Sure. I think that with -- I'll touch on the first one, which was the Stellas activity here in the U.S. that is going to turn out to be a positive for us. There is a lot more interest in myopia control, pediatric myopia issues -- and the education that's coming because of Stellest and the attention that the optical community is now putting on myopia control is quite a bit more than it was when it was just us pushing it.

So there's going to be some push and pull from that because obviously younger kids are going to move into glasses much quicker. But when you look at, especially 11 and 12 year olds who are in sports or any activities or anything else concerned about their looks or whatever, like we're seeing an increasing amount of fit activity when it comes to kids in that 10 to 12 age in the U.S. market.

So I think at the end of the day, that's going to be a positive for us long term. And I even think this year, it's not going to be detrimental to us where I thought that it might be at one point. So I'm happy that product's in the market. I'm happy with what they're doing, and I'm happy with promotional activity that's out there educating the marketplace. On the fertility side of things, Yes. As I mentioned, the -- I think the risk of the downside that was there and kind of that market continuing to trend down, I would take that off the table. because we are seeing positives in the fertility industry now.

We're seeing improving IVF cycles in the U.S. We're seeing improving IVF cycles in some of the European countries. We're seeing fertility clinics starting to look at upgrades and so forth as new technology comes out, new equipment comes out. So I would say that we're going to continue to see the fertility industry get a little bit better. I don't see like a fast, huge ramp-up or something like that. But I would say the downside has kind of taken off the table. And I would say, stabilization to improvement is what we're seeing right now.

Yes. from William Blair. Our next question comes from the line of Stephen Widman.

Al, you mentioned reinvestment in myopia control, and it sounds like on the R&D side, can you talk about the opportunities you see to build on the MiSight platform from an innovation perspective? And then I have a quick follow-up on free cash flow.

Sure. There's some really exciting stuff there. I mean, 1 is that we need to get a MyDay MiSight toric out into the marketplace. That is one of the products that the optical community really wants. So we're doing a lot of work on that right now. That's a positive. We have kind of like a MiSight, if you will, that we're working on to even get better efficacy. We've also got some really cool exciting stuff when you look at like combinations with atropine and so forth that are that have the potential to really, really help kids that are not reacting to kind of regular or traditional treatment. .

So yes, you're right. We're spending a decent amount of money in R&D on MISight or myopia control in general, and we're going to continue to spend that because this is a great market. I mean we have opportunity to have that product continuing to grow a solid 20% plus for like years and years and years and years. So yes, we're investing in that pretty decently.

Great. And then Brian, the upside you're seeing on free cash flow this year and the raised guidance. Is that coming from higher operating margin, better working capital management, maybe all of the above? What's exceeding your initial expectations heading into the fiscal year?

Yes, thanks for the question. Really, all of the above, we're seeing stronger operating performance, and I touched on that earlier. But we're collecting better. We're building inventory more smartly, I guess, smartly, that's a word, but we're building inventory in a more efficient manner. And FX is helping a little bit, but it's really just a combination of the operating performance and better working capital. Obviously, the lower CapEx helps, too. .

Our next question comes from the line of Joanne Wuensch sorry, from Citibank. .

Fundamental 1 and a bigger picture one, please. Foreign exchange, what are you dialing in with all of the shifting U.S. dollar given the macro environment? And then my second question, I'll just put it on right up front. How are you thinking about CSI revenue improving throughout the year? What are the drivers or levers that we can pull on that one? Or [indiscernible].

I'll answer the second one, and I'll let Brian answer the first one. So on the CSI side of things, we'll have like PARAGARD, which is down 7% to finish the year kind of flat to up a little bit. So I think Q2 will be another year because or another quarter because of the comp where it will probably be down a little bit, but then we'll have a good like back half of the year with that product.

When I think about like the medical devices, boy, our specialty surgical team is killer. Those guys are just do a fantastic job. So I think we'll continue to have strike there. And then as I was mentioned on fertility, just better visibility, more comfort in that, that market is and we stabilized and arguably trending up is going to put some improving growth rates on that. So I think Q2 is better. I think, frankly, Q3 is better than Q2 for CooperSurgical. So just kind of progressing along with improvement, probably somewhat similar to vision, where the best quarter will be the Q3, Q4.

I'll take the FX question. As we were exiting last week, we were sitting to more favorable relative to last guidance on FX. But obviously, with the Middle East conflict, the dollar strengthened. And so as we thought about and as we set the guidance ranges for this earnings call, we took out the revenue ranges by $6 million of Vision and $1 million in Surgical, reflecting FX. But really, we kept the rates pretty similar to the rates from last earnings call, it's a little bit conservative. So really, we're looking at a headwind -- or sorry, a tailwind to revenues of roughly 1% and also a tailwind to EPS of roughly 1%. So very, very similar to the last call. .

Our next question comes from JPMorgan from the line of Robby Marcus.

Two for me. First, Al, I wanted to get your thoughts. First quarter organic growth missed on CVI guiding overall. And it sounds like second quarter will still be maybe a little weaker than original expectations due to Asia Pac. You talked about third and fourth quarter and a lot of the private label drive in fourth quarter. And you didn't flow that all through in the original guidance. How are you thinking about sort of the conservatism of the guide now with the slower start to the year? And does the slower start maybe take some of the upside off the table as you left the guidance the same.

I would characterize that, honestly, the exact thing because where we had that softness in Japan, I talked about, I mean I can pinpoint that softness and talk about what happened there and we have good, good visibility around what happened and how we're correcting that. But we have more strength in the Americas and more strength in EMEA than I would have said back in December. So I guess -- I mean I net that out and say, yes, we came in below our range and where we wanted to come in, in fiscal Q1. But I would say that America is stronger than when we gave that guidance in December.

EMEA is stronger than when we gave that guidance in December, Asia Pac probably pretty similar to where we gave that guidance because of a net positive of contract execution and product launches [ and wins ] offset by kind of the negative of the stuff I talked about. So net-net, I would put the odds of us being able to post a good year and so forth and success in the back half pretty similar to what we had in December.

Great. I wanted to go back to the question on the PARAGARD competitor. I realize deal hasn't closed yet and you're not ready to talk about the competitiveness here. But I'm guessing that wasn't included in the guidance. So did you include any competitive threats like that in the guidance for the year? I guess that's the question as we think about it.

Yes. So when we gave initial guidance, I can't remember. I thought I mentioned it on the December call. But when we gave the initial guidance, we assumed a negative impact because of the competitive launch and that it would happen at the end of this year. It's probably more likely that we will not have a negative impact, meaning that was a little conservative. But we'll see. I don't know. I mean, that thing hasn't closed and we're in March already of our year. So we're working obviously well into our year at this point in time. So we'll see. But to confirm, yes, we had included that in the initial guidance of assuming kind of flat to up just a little bit.

From KeyBanc Capital Markets, our next question is from Brett Fishbin .

All right. Hopefully, there's not too much feedback. Just wanted to circle back on the 1Q operating margin performance, which I think you noted in the press release was better than expected and obviously is a top priority this year. I was just hoping you could unpack a little bit in terms of what went better than you thought and why you were able to call the operating margins as exceeding expectations.

[indiscernible] the financial details, of course. A big part of that was just good solid execution. I mean we did all that work in Q4. And we knew the team was going to do a good job with it and they have like organizationally, we've just done a really nice job. I would kind of highlight AI, and I hate to sound like one more person talking about it. The reality is that our organization has embraced it.

And this isn't our organization like all of a sudden right now getting on and training and everyone's going to train on it and so forth. Our organization embraced it last summer. And we started implementing that stuff as we were going through the year, and we're seeing positives come out of that type of work. The technology advancements at Cooper are are fantastic. I'm super happy. And we have a lot more to do. This isn't a 1-quarter thing. So we saw some of it certainly in Q4. We're seeing those improvements in Q1, and we're going to continue to see the use of technology and AI advancements being positive to us on our operating margins as we move through this year.

Yes. I guess not much to add to what AL just said. I mean we talked about in Q4, we grew OpEx, it was basically flat year-over-year. And then here again in Q1, OpEx was roughly flat year-over-year. So there's a lot that we're doing to drive synergies and efficiencies, leveraging prior investment activity, and we're just really being very disciplined about fixed costs in the back office. And so we want to leverage our [indiscernible]. We're doing that much, much more than ever before, as Al talked about. And this is just great operational execution. AL talked about it and I talked about it in our prepared remarks and I expect that to continue through the year.

All right. Great. And then most of my questions were asked. Maybe I'll just ask 1 more on some of the new product launches. You mentioned several incremental launches that are really phased throughout this year, including MiSight in Japan, MyDay MiSight Europe and in Asia, Energys, the toric multifocal. Are there 1 or 2 of these that you would call out as maybe the most exciting to you in terms of like just what they can do for company growth over the next year or 2 as they ramp?

You could kind of hear my excitement on MyDay in Japan and MyDay MiSight. I mean I just -- I still believe that there is a fantastic market out there in pediatric optometry in treating kids myopia progression. And we've had that product. We got to a little slower start than I would have liked on that, and China has turned out to be pretty small in the grand scheme of things.

But the rest of the world is gaining traction and doing well. And MiSight is back, and it is doing well. And with MyDay MiSight and the products that we have and the stuff in R&D and so forth, it's going to continue to do well for a number of years. So that's -- I'm really excited about that. On the MyDay side, is it's execution. I mean that's what it is. Like I said, we got full product availability last summer. We finally got out there. We're executing a contract win, branded, private label getting product launches done, all that stuff probably takes a little bit longer than you want it to take, but it's execution and that's what we're doing right now.

Next question comes from Nephron Research of Chris Pasquale.

And that was excellent pronunciation on that one. You nailed it. I had a couple of questions. One on fertility. You talked about improving cycles in the U.S. and Europe. You didn't mention China, which I think was a big piece of the weakness last year. So what are you seeing in that market? And are you still confident that it can bounce back to where it was historically?

I highlight kind of the Americas and Europe, but Asia Pac and China, in particular, is still continuing to be not the greatest market in the world. It's not -- I wouldn't say it's getting worse, but it's not -- we're not seeing the improvements that we are in other markets around the world. .

Okay. And then just on the capital allocation front, your debt leverage ratio is lower now than it's been in a few years. It's going to go down even further when you repay that portion of the term loan. As you think about your priorities and the pace of buybacks, is there a target leverage ratio that you think is appropriate for the business that would dictate kind of how quickly you go, you've still got, I think, close to $1 billion in authorization available?

Well, share buybacks are a high priority of ours right now, given where our stock is trading. So I would envision us to continue to do share buybacks. And depending upon what happens with the stock price over after this and the next quarter and so forth, especially with our belief, our visibility in the back half of the year, I think you could see us get quite a bit more aggressive on stock buybacks. .

From Redburn, our next question comes from the line of Issie Ivy Kirby.

You made an interesting comment at the end around looking at sort of next-generation manufacturing and production obviously appreciate it early, but would love any more color around that. Do you think this puts you really ahead of your peers in terms of manufacturing capabilities. And then is this factored in, I guess, to the CapEx and free cash flow guidance over the next few years?

world class. I mean, are best-in-class. They've been spending a lot of time and energy, especially in CooperVision over the last number of years, expanding facilities, starting new lines up and so forth. To be able to now take a breather and work with our great R&D team to look at next-generation work in deploying that and optimizing our infrastructure and so forth, like there's a lot of exciting stuff that we can do there. It takes time. But there's a lot of exciting stuff that we can do there as our CapEx comes down. And I think I'll turn it to Brian because I think that's all factored in and how we looked at free cash flow.

Yes, certainly. I mean we have -- we take -- we have a 3-year, 5-year, 10-year view on things. And so -- when we gave the free cash flow commentary and we reiterated again today over $2.2 billion. That factors that in. But we've talked about over the years as as we're building, building, building to support more supply and capacity. It's hard for us to work on continuous improvement in these optimization things. And now we've got a breather, and we can do that. But there's lots of great ideas and lots of opportunities to drive success into the future.

Great. And then just really quickly, if I may, on sight loss and the FDA approval. Any updates there? I know it seems to be performing well with Essilor in Asia. So I'd just love to hear SP-11 Thoughts on [indiscernible]? .

Yes. It's performing well. In Asia, you're exactly right. We still love that product, and it's doing really well in Asia and a number of other markets around the world. So we love it, and we think it's going to be a fantastic long term, no update so on an FDA approval .

Our final question comes from Goldman Sachs from the line of David Roman.

I'll keep it to one 1 here given where we are in the time of the call. Maybe I think in your prepared remarks, you talked about some of the specifics you were seeing on OpEx efficiency. And I think you called out operating expense declines in CSI, which I know we'll see when the Q comes out here. But can you maybe just help us think through how you are reflecting on some of the G&A savings that you're realizing here from the restructuring you announced last year, to what extent you're contemplating reinvesting that and whether that is showing up in the P&L now? And then in a scenario you did go down a path of reinvestment, where would you be looking to deploy those resources?

I mean we are doing that. We're doing that already. I was talking about how aggressively we're doing that certainly in the MiSight of things, and we certainly saw that in Q1. That's just putting dollars back into sales and marketing. That's where it's going. So leverage G&A, put dollars into sales and marketing, and we're getting enough savings through all of our work that we're able to do those reinvestments and still put up stronger than earnings than people were expecting. So the combination has kind of come together very, very nicely for us.

with no further questions in queue. I will turn the call back over to Al White for closing remarks.

Great. Thank you, operator, and thank you, everyone, for taking the time on today's call. We look forward to talking to everybody in 3 months and continuing to make progress and having a good call then. So thank you, and have a good night.

Thank you again for joining us today. This does conclude today's conference call. You may now disconnect.

Good afternoon, everyone. I'm Robbie Marcus, the med tech analyst at JPMorgan. Very happy to introduce CEO of Cooper Companies, Al White. Al will do a presentation followed by some Q&A. Al?

Great. Thank you, Robbie. We'll go ahead and jump into it here. So most of you I recognize or vast majority I recognize. For those I don't or for those who are new to the story, I'll just take a quick minute on this overview slide here. For those who don't know us, Cooper Companies, we were founded in 1958 and been on the S&P 500 since 2016. We operate really under two different business units, CooperVision and CooperSurgical. I'll touch on each of these as we go through the presentation. But CooperVision is one of the leading contact lens companies in the world. We're actually the #1 contact lens company in the world in terms of wearers and #2 in terms of revenue dollars. And then CooperSurgical is a fertility women's health care business. We're a leader in the fertility space for non-pharma, for medical device and so forth. And we've had that business for a long time operating very successfully.

We have over 15,000 employees around the world, and we have over 50 million people who are using our products between contact lenses and our women's health care and fertility products with about 42 million patients annually wearing our contact lenses. Our CooperVision business is about 2/3 of our consolidated revenues. And geographically, if you look at it, we're pretty geographically dispersed. We have a little bit over half of our revenues is in the Americas. Next biggest region is in Europe and then Asia Pac.

If we look at our historical performance, you could see this chart, kind of nice chart up into the right other than the COVID disruption. You could see the growth as we come along here for the last 10 years being 8.6%. On a consolidated basis, CooperSurgical almost 16% and CooperVision at just a touch over 6%. A lot of the CooperSurgical growth has been driven by acquisitions over the years. We've done during this period of time, I don't know how many, but a lot of acquisitions. We did our last CooperSurgical acquisition in August of '24. We haven't done one since then. But you can see, it's driven a lot of nice growth.

CooperVision comes from organic growth primarily. There's been a little bit of acquisition activity, but the contact lens market, I'll touch on it a little bit, but it's just a very consistent solid mid-single-digit growing industry. So that's delivered the 6.3%, and you can see the $4.1 billion in revenues. If I touch on a couple of the boxes there, two growing segments. Both of our industries are growing. Contact lenses mid-single digits, just very consistent year in and year out. Fertility was -- as an industry was growing upper single digits for many years. We had many years where we grew double digits. I'll touch on why we saw a pullback in that market, but it's still a nice growth market. The other comments are kind of self-explanatory here.

Touching on guidance. So we're an October year-end company. Our fiscal year-end is October. This was the guidance we gave back in December. You see the growth for CooperVision and for CooperSurgical and here the organic growth. And you could see a little bit lower in Q1 with a little bit of improvement as we move through the year. And I'll touch on that kind of as what's transpiring and why we're confident that we'll continue to see improvements as we progress through the year.

Non-GAAP EPS, $1.02 to $1.04 in Q1 and $4.45 to $4.60 for the full year. We've had double-digit non-GAAP EPS growth the last couple of years. This would be another year of double-digit growth. Free cash flow of $575 million to $625 million. We are kind of at an inflection point, if you will, when it comes to free cash flow. We had a number of years where we are investing very heavily in the business, especially on the CooperVision side. That included a pretty significant expansion associated with new manufacturing lines, new manufacturing buildings, distribution centers, packaging and labeling machines and so forth and even purchasing our own buildings that we hadn't done historically. That compressed our free cash flow for a number of years. This year -- that was kind of ending at the end of last fiscal year.

This fiscal year, you see the tail off in a lot of spending that we have and some of the final big investment activity, and you're going to see the improvements in operating cash flow and so forth, lift our free cash flow back up to a more respectable $600 million, if you will, at the midpoint. We have talked about $2.2 billion plus in free cash flow over the next fiscal year. So this would be the first year of that. The future is really going to come from less capital CapEx in terms of CooperVision and some improvements that we're going to get as we operate the business from a working capital perspective.

If I jump to this slide, I could probably talk about this slide for half an hour or something, but I won't go quite that long with it. But key strategic priorities when we look at the business before we jump into CooperVision and CooperSurgical. We are heavily focused right now on driving organic growth. We're in a position as a company, especially on CooperVision, where we invested for a number of years. That investment is now transitioning itself over to organic growth. And success with private label contracts and other type of business as we roll new products out around the world. Super excited about that and optimistic about the future that Cooper is back, if you will, to what we were producing for quite a long time. That organic revenue growth is important, but also is the operating income growth, the commitment to earnings and free cash flow.

We did a reorg in Q4. That's part of the EPS guidance that we gave for this year. That was a fairly large reorg for us. In order to accomplish that, we had to do a couple of different things. We had to stop doing acquisitions in CooperSurgical, which we did so that we could finish the integration activity. We also had to finish our ERP, our big IT implementations, and we did that. We put a new ERP in CooperSurgical, and we finished a lot of our ERP upgrade work at CooperVision. That happened in 2024 and into 2025. We were able to take a look at the business at that point in time really in Q4 and pull a lot of costs out of the business as we consolidated a lot of the back-office operations. And that pulled a lot of dollars out, a lot of synergies.

So I would kind of describe that almost as like a first step for us. It was a big step, but it was a first step. We have additional steps that will be taken to drive more efficiencies in the business. Everybody talks about AI. I could do the same thing. I mean the benefits of AI are spreading themselves through our business. We see that through our distribution channel with '09 and other areas where we're optimizing our inventory, but we also see it as just the general management of our business. And frankly, it's putting us in a position where we were able to reduce headcount. And on a go-forward basis, we'll be keeping headcount much lower, relatively flat compared to what we've done historically.

Disciplined capital allocation approach is another important one. So as I mentioned, for many years, we were doing acquisitions. We were also investing heavily, and we'll continue to invest heavily. But without the acquisitions, which we don't need to do right now, we spend about 2/3 of our free cash flow last year on share buybacks. We anticipate spending about 2/3 this year. I would say on a go-forward basis, we'll probably spend somewhere around 1/3 to 2/3 of our free cash flow and share repurchases on a fairly consistent basis. So -- that will not be opportunistic, so to speak, it will just be like on a consistent quarterly basis entering the market and buying stock back.

Our Board increased our share repurchase plan from $1 billion to $2 billion last year, and we have about -- we had about $1 billion of availability when we entered this quarter. So you can expect that to kind of be a consistent part of our capital allocation on a go-forward basis.

And then the culture and community. I'm super proud of our company, love our employees, and we have dedicated people. We went through a lot of the reorg and so forth, and the people worked incredibly hard to drive success for Cooper. They're very passionate about our business. I'm passionate about our business. So we really focus on that and we -- and a big part of that is promoting from within. We have so many promotions from within, and that's where we really, really focus and we believe that's incredibly important for us.

If I jump to the global soft contact lens market in total, and I look at it, the contact lens market grows somewhere around 4% to 6% every year. Now we'll get up and downs because of COVID and some other different things will happen. But at the end of the day, it's a 4% to 6% growth market, and there's almost -- it seems like nothing you can do about it. Kids everywhere looking at their phones and everybody in this room knows, you can go out to restaurants and all the kids are watching videos and everything else, right? All of that stuff is driving the myopia epidemic that we're dealing with right now. Somewhere around 1/3, 35% of the world is myopic today. It's estimated to be 50% in 2050. That's an amazing number. That -- all of those people are going to need some sort of correction, of visual correction. So whether that's glasses or contact lenses is going to drive the market forward. From a competitor perspective, you can see there's 3 leading companies. This is on a revenue basis. The market is about $11 billion. J&J is at the largest at about 36%. We're second largest at 27%, Alcon at 25%.

The market continues to move. I kind of put it in three baskets. One is price. If you look at price, last year, price was about 1% of the market's growth. Global net pricing was about 1%. I had said this year that I think global net pricing will be about 1%, that was at the beginning of December. I'm actually optimistic, I have to say, based on what I've seen from competitors and so forth that pricing will be at least 1% this year. Our pricing in two of our competitors have taken pricing that I've seen. One of our large competitors I haven't seen yet. But based on the pricing that I've seen, if everybody goes along those ways, we'll actually have stronger pricing this year. So fingers crossed on that one.

Growth on wearers. I just mentioned the growth of myopia in general. So we see about 1% market growth from wearers every single year. That was a little higher as we came out of COVID, but it's kind of settled at about 1%. Then the remaining portion of the growth in the market comes from daily lenses and daily silicone hydrogel lenses. So as the market has shifted, you go back a few years, people used to wear monthly lenses, right, or 2-week lenses and you take them out, you clean them every single day. Now the market shifted over to dailies. Put your lenses in like mine at the beginning of the day. At the end of the day, you take them out and you throw them away. That shift over to daily lens is a driver for market growth. As an industry, we get about 2.5x more revenue per patient for a daily were compared to a monthly or 2-week wear. So that's continuing to drive both.

There is a long tail on that. I mean we still probably have 10-plus years of transition over to daily wearers and the daily marketplace. We also have multifocals that are part of the growth of the industry right now. I mean I'm wearing them right now. But it used to be when somebody aged out, so to speak, and started wearing reading glasses, they didn't want to switch to multifocals. Because one eye would do distance and one eye would do reading, and it was hard to get comfortable with that. Today's new technology kind of mushes those together, if you will. So it's very, very easy to wear multifocals. Look up, see distance, immediately looked out and read like I'm doing. So you're seeing growth in multifocals because it's the technology advancements have been there. So a lot of different things that are driving the contact lens industry forward. And it's one of the reasons like I firmly believe we'll continue to see that mid-single-digit growth for a long time.

From an industry perspective, high barriers to entry. There's no question about that. These are all medical device products. We're talking about manufacturing billions and billions and billions of contact lenses to tight parameters. It's very expensive. The manufacturing lines are huge. So some pretty significant barriers to entry. And on top of all of that, you have technology, you have intellectual property and so forth. It's very difficult for someone to enter this marketplace. And I kind of walk through the favorable industry characteristics around this.

Recession-resistant is probably one to add on that. We've always seen the contact lens industry be recession-resistant. Once people start wearing contact lenses, you keep wearing them. Anyone who starts wearing contact lenses never switches out. I can speak to that for myself, right? Once you get over the hump and you realize that you can put them in and you can take them out pretty easily, you'll never wear glasses again, trust me on that one.

CooperVision, just quickly. I touched on this, right? We're the #1 contact lens company in the world in terms of wearers. 33%, 1/3 of people who wear contact lenses are wearing CooperVision contact lenses. We are under-indexed on dailies, the one part of the market I just talked about that we're excited about with our MyDay launch. If we can get our fair share of that part of the market, which we will. We've got some really nice growth in front of us.

This is our portfolio here, our core portfolio. You've got MyDay and the different offerings within MyDay, which is our daily -- premium daily silicone hydrogel lens, clariti and then MiSight. I'll touch on MiSight in a second. In our FRPs, Biofinity is the broadest SKU range by far of a contact lens. So that product family can basically fit anyone. 99.99% or something like that, a contact lens wearers can be fit in a Biofinity contact lens. We'll custom make them for anyone. So it's an amazing, amazing successful product and then Avaira Vitality.

If I look at the track record of CooperVision, half our business is fears, half is basically torics and multifocals, which I touched on multifocals. We're continuing to see torics grow. Toric is someone with an astigmatism that needs to be corrected. It's a little bit more of a difficult fit. But as technology advancements have come along, it's been much easier for optometrists to fit people in Toric lenses and give people truly the correct proper vision of wearing lenses. So we've seen growth in both of those, and we're market leaders when it comes to torics and multifocals. Right now, those two segments are about 40% of the overall market. You can see it's almost half of our business.

So this is similar to the prior slide, the 6.3% organic growth. And you can see over the last 10 years, our market share within the contact lens industry has increased from 22% to roughly 27% now.

I love this little slide here, performance meets potential, and this has like our new product launches on it. We have a product which is MiSight, and it reduces the progression of myopia. And something that's very, very important to mention is all contact lenses are myopia management. They're all FDA-approved myopia management products. Myopia control is different. Myopia control has myopia management. Yes, it corrects your vision, but it also has control. It reduces the progression of myopia. So it's for children to reduce their progression. It's an amazing product. The innovation around this is amazing. We're the only one who has an FDA-approved contact lens for this. Essilor now has an FDA-approved glasses for this was [ Stellest ] and they're launching that. And they're promoting that, and they're doing a great job like reinforcing that message and we are that no child should ever leave an optometry office without being in a myopia control product. Not myopia management, everything is myopia management. No child should ever leave an office and not be in a myopia control product, whether that's Essilor's Stellest here in the U.S. or whether that's our MiSight.

We're also launching MyDay MiSight, which is our market-leading daily silicone hydrogel lens that has MiSight technology in it. We're launching that in Europe. That's ahead of schedule. We're actually going to start shipments of that product on Monday. The marketplace is receiving that really well. There's great interest in that because: One, it's a silicone hydrogel, the latest technology as UV protection, which they want. And it also creates this continuum, where some child who's wearing this for the treatment to reduce their progression of myopia, as soon as they age out of that at about 17 or 18 years old, they can transition straight into a regular MyDay lens. So we're linking all that together very successfully. So I love this. I'm super excited about it. It's going on right now. We're also launching our MiSight product in Japan in Q2. We've got MyDay Energys, which we're launching in Q2 in Europe. Energys is a product that helps people who are on their devices a lot. It's basically think about it as a product that you can wear that enhances your visual acuity a little bit. So if you're reading all the time and you're looking at a phone all the time, rather than using a regular sphere, this innovative technology allows you to read that a little bit easier. So it's a really clever technology. It's very successful in the U.S. market, and we're finally launching that in Europe and EMEA in Q2.

MyDay MiSight, I mentioned, we're also going to be rolling that out by the end of the year in select countries in Asia. We're rolling MyDay multifocal throughout APAC right now. MyDay Toric expansion, which is the widest torque SKU range available on a daily SiHy. We're continuing to roll that out. And we have MyDay Toric multifocal, a little bit more of a specialty lens but excited about that and rolling that out at the end of this fiscal year. So a lot of activity. I will say this is just execution. We know how to do this stuff. We do it really well. We're rolling these products out. This is our next couple of years. We've had some other exciting stuff that's going to be in '27. We're going to roll these products out and be really successful with them.

If I move over to CooperSurgical for a minute here, you can see the 16% growth over the last 10 years. 39% of that business is fertility and the remaining part is office and surgical, which is a couple of different areas. I'll touch on as I jump through this section.

The fertility market, the fertility market was growing upper single digits for a number of years. We're talking about IVF here, and we were growing double digits. And we saw that come back pretty aggressively as fertility clinics last year, which are heavily owned by private equity, refocused from growth, growth, growth over to margin expansion and whether that was bringing some stuff in-house like some genetic testing or going through RFPs to consolidate their suppliers. We saw some of that activity have pulled the market growth down. We're starting to see green shoots on that some positivity coming out of that. But basically, you have a fertility market globally that's growing mid-single digits. We grow a little bit faster than that. The market is about $3 billion.

It's underpinned by the fact that 1 in 6 people will experience infertility at some point in their lives globally. So this is a market that's large, it's not going away and it's going to continue to grow. We see more and more, whether it's countries or states like California or even the current administration talking about the importance of reimbursement, insurance reimbursement and so forth to support fertility treatment. So a lot of really positive macro growth trends.

The first one I'll touch on here, which is women delaying childbirth. One of the things is that the later you wait to get pregnant, the harder it is to get pregnant. And the average age of a woman having a baby here in the U.S. is crept all the way up to 30 years. As you move into your 30s and anyone in this room or anyone who has tried to have children, as you get older, it gets challenging, that pushes the fertility market forward. So there are several things here that are driving the industry for, but we're going to continue to see a lot of long-term consistent growth out of the fertility marketplace.

A couple of highlights here, but innovation is another important part. We launched 3 new products here. You can see recently. We have a number of additional products that we have within our fertility R&D operation that we're going to launch. We spent a lot of money and a lot of time on acquisitions historically. As we transition here over the years and built that business out, it's going to be more important for us to generate next-generation products. So that's where our focus is. You'll continue to see that. And I look forward to every year updating the innovation and the products that we're bringing to market.

The other part of our business within CooperSurgical is office and surgical products, and you could kind of break that up 3 ways, if you will. A lot of it's medical devices, surgical medical devices, heavily focused on the OB/GYN. You have PARAGARD, which is a nonhormonal IUD, and you have stem cell storage, which is CBR. Many of you might know that if you stored your child's stem cells. Those 3 businesses make up the lion's share of the rest of our business. Good solid businesses. We have a real staple in some areas, real strength like in labor and delivery as an example. That's an area of the market where we're very strong in here in the U.S., and we're expanding labor and delivery into European market. So a lot of positives there. Things going well on our medical device side of our business.

Last slide here, I'll summarize and then take some questions. Kind of 5 key points here that I've touched on as we've gone through the presentation, right? First off, we're operating in growing markets, starting with contact lenses and the fundamentals that are driving the contact lens industry forward, and fertility as a core market of ours, good solid fundamentals. Both of the industries are growing mid-single digits. We expect to take a little bit of share in both of those, which is going to give us kind of good, consistent solid mid-single to mid- to upper single-digit revenue growth, and we'll be able to drive a lot of good earnings and free cash flow off that. So we love the underlying fundamentals of the businesses that we operate in.

Brand and private label leadership I didn't touch on private label, but it is an important component of our business. Within the contact lens industry, we're really the only player that does private label. Most of this is kind of an oxymoron, but it's kind of premium private label, if you will, like as an example, if you go to Costco and buy Kirkland contact lenses, you're buying CooperVision contact lenses. So as we roll products out around the world, we're fine rolling them out as private label products, and we're a clear, clear leader when it comes to private label around the world. And that's an important growth area for us right now. It's part of what we're working through is that first 6 months of last year, we had pretty solid growth. Next 6 months was disrupted. And right now, we -- during that 6 months, we won a whole bunch of private label contracts. This 6 months that we're in right now basically is executing on those private label contracts we've won, do what we know to do, do it well, execute on that. We're seeing that. We're having success on that as I stand here today. And then you'll get back in the back half of this year, the final 6 months seeing back to more traditional growth rates for CooperVision.

Leverage investments and drive operating performance. We've invested a lot in the business. We did a lot through COVID and after COVID, heavy IT investments and so forth. We have to leverage those. We are -- we saw that in fiscal Q4. We're going to see that here this year. It's built into our guidance. So good leveraging of our investments. Long-term focus and discipline on creating shareholder value, transitioning from a lot of that investment activity to -- back to executing, driving organic growth, delivering bottom line earnings. We're seeing the acceleration in free cash flow right now and then good capital allocation of that buying stock -- buying our own stock back, which is which is depressed right now. So it makes all the sense in the world where our stock is trading to be buying stock back.

And then a proven track record of delivering strong financial results. I mean we reported Q4. That was our eighth consecutive quarter of beating consensus earnings expectations. We also beat cash flow expectations. We raised expectations for this fiscal year for earnings. We raised expectations for free cash flow for this year. And we have a track record of doing that. We're going to continue to execute and deliver on earnings and free cash flow, much greater focus, as I mentioned, on organic revenue growth to ensure we're delivering that as we move through this year.

So with that, I kind of talked a bunch. Let me go ahead and pause. Robbie, I don't know if you have questions or if anyone in the audience has any questions.

Great presentation. With regard to the private label business, how do you win that business? Is it price? Is it quality? Like what's...

Yes. So when we think about private label, we're competing against branded because it's someone else who's offering a branded product. So we're going in and offering a private label product for them. The real core reason behind that is the same reason that anybody has private label, right? Retailers have private label because it's sticky. They want to get repeat customers, have them come back and stay in their products, wear their products. They want very high premium products in this space in medical devices and contact lenses. So they require premium products. And they require something that they're going to get good support around. And then they're going to make more money on it, right? They negotiate that, whereby they're able to say to us, "Hey, you don't have to provide the same marketing support and so forth. But take that marketing support that you're not doing and go ahead and give us a little bit of price on that," right? So we negotiate that deal out. But it gets driven heavily by all the retailers or buying groups around the world who want to create a product that brings people back.

The last thing you want to do is take your time and your energy and fit somebody in a product and a contact lens and have them turn around and just buy it online. You want them continuing to come back to you. So that's the core driver behind it.

Al, on the last earnings call, you announced a formal valuation to perform a strategic review to enhance shareholder value. Why now? What makes this the right time today versus in the past? And what can investors expect to see from Cooper as a result of this in 2026?

Sure. Yes, we announced with our December earnings call a strategic review, and it was a good time to do it. I mean, you can kind of tell from what I was talking about like an inflection or a transition in the business, if you will. We've completed the CooperSurgical build-out. That business is in a really good place right now. There's a lot of things that we can still do, and we're still very excited about it. But we had the same thing going on CooperVision. We completed a lot of work. So it was a good time to come out and just say, hey, everybody, we're doing a strategic review. We're looking at our business in total here and the vision side and the surgical side. What should these businesses be together? Should we continue to run on that? How should we think about it and go through that process?

So we announced that probably no surprise, right? We received a number of calls from strategic private equity and so forth with some interest. We're working through that process right now with Chuck Adams and his team from Citigroup and evaluating different alternatives and we'll see how things play out, if at all, and we'll announce something, we'll announce an update as much as we can in our next earnings call.

Maybe -- you've talked a lot in the past of why it made sense to keep the businesses together. So we'll see what the strategic review holds. But how should we think about the financial synergies between the two? Are there tax synergies? How well integrated are these businesses have separately run? And how is the different facilities are they as we think about maybe some of the permutations of what could happen?

Sure. I think we're probably pretty similar to a lot of companies, right? I mean because there are a lot of people who spin businesses to off sell businesses. I mean, when you look at it, it's core, what are you getting from businesses being together. You're getting synergies, which we have and we announced a bunch of those $50 million in synergies we announced that we're going to be getting this year from our recent reorg, right? That's a back office. So they're largely back office, HR, IT, legal, finance and so forth. You can pull all that in and consolidate that together. So synergies is a big component of it. Scale is another one, right, bigger company, you're able to negotiate with FedEx or UPS or anyone else. You also have diversification built within scale to allow your business to perform or report results a little bit more consistently.

And the last one, Robbie, you touched on, which is tax. A lot of the tax goes for everybody, us included, to cash taxes paid. So it's not so much necessarily the effective tax rate you see in the P&L as much as it is cash taxes paid, your ability to tie your profits to your expenses. In our case, CooperSurgical has a big profitable U.S. operation. We have expenses associated with corporate and vision, and we're able to tie those together to minimize our cash taxes paid.

So I would say kind of those are the 3 components when I look at it and say, all right, you have those 3 positives. If you were to split the business, probably same analysis other people have done. If you were to split the business and you have two stand-alones, you're saying, well, my forward PE on these two stand-alone businesses is going to go higher because investors are able to focus specifically on those businesses. Is the split in the separation and the higher PE that's assumed enough to make up for what you're giving up and synergy scale and taxes paid, that's the question mark. And I think similar to other people, we're going through that same exercise.

You're about 2/3 of the way through your 1-month offset from calendar quarters. Any comments on how you're trending so far in the quarter as you sit here today?

Sure. It's interesting. I had said in December on our earnings call. We had taken share 17 straight years in the contact lens market. And I know everybody was telling me we weren't going to take share this year that we were struggling. And yes, we had -- we stubbed our toes a couple of times. But based on how we finished the year, I believe that we took market share for the 18th consecutive year. We had a good finish in the calendar year. So I haven't seen the calendar year numbers for our competitors yet, I'll see them soon. But based on how we finish, I think we're in good shape. So -- yes, we're continuing to execute. I mean this is blocking and tackling for us. It's what we've done for a long time as a company. Execute, launch these products, be successful with private label, support our customers, do advance innovation like all the things that we do, just core stuff is what we're doing right now. It's not new distribution centers. It's not new ERP. It's none of that kind of stuff. So we're seeing right now success from what we do best, and that's what we envision we'll continue to see.

If we look at fiscal '26 guidance start lower at the beginning of the year, higher in the back end of the year. Obviously, there's 2 components. There is Vision and there is women's health. If you think about the two separately what gives you the confidence in the line of sight to go from the lower end up to the higher end to achieve the guidance range and hopefully exceed it.

Yes. I think that one thing I'd mention, which was if I look at the market in total, it was pricing, I'm a little bit more optimistic based on what I've seen on pricing that the market where I had assumed 4% to 5% probably has a much better chance to be, what, at least like 4.5 to 5% or something like that because I think pricing is going to be a little bit better. If I look at us, in particular, we won a number of private label contracts last year in the last 6 months of the year. We've been executing on those private label contracts. Just to kind of lay out quickly the time frame on that.

When you enter into a private label contract, you signed the deal with the customer, but they want their own packaging, their packaging and labeling and so forth. And then you're training their optometrists, bringing everyone up to speed, launching the product. That takes about 4 months on average before you have that product out and they're selling it. So when I look at the contracts that we've won the business in the last 6 months, that all starts transitioning into this year as we execute and we start picking up new wearers. We're winning new wearers right now. I've seen that in the most recent data, is that we're continuing to win new wearers. So when I look at winning new wearers, I look at the private label business that we've won, the execution on that, historical trends of how that plays out for us, like I have a lot of confidence that you're going to see -- Q1 do what it's going to do, it's going to be fine, right? Q2 be a little bit better and then Q3, as we're executing, we're really rolling things out. We're hitting on more cylinders, Q3, Q4 being stronger quarters.

I think you touched on the vision market pretty well in the presentation with volume and 1% pricing. How are you feeling about the global fertility market and the women's health market overall in 2026?

Yes. I think the fertility market -- the fertility market is going to be better in 2026 than it was in '25, right? We were running along really, really hot for a long time. You had fertility clinics, as I talked about, kind of pulled back. You had some of the things go on with the administration here and insurance coverage. You had some cultural things in Asia Pac. A lot of that has moved behind us. So as we move through this year, I think what we do is we start trending ourselves back to traditional historical growth rates, if you will, which are certainly mid-single digits. We were more conservative with that in our guidance because I do think that you start the year off slower, so it's probably low single digits for the fertility market starting the year off, kind of moving its way back up towards mid-single digit. Based on the wins that we have, the RFPs and some of the product launches that we have, I think we'll take a little bit of share above that. So nothing fantastic, but I do think we'll see consistent improvement.

Do you see any differences geographically, whether it's in the vision market or in the women's health fertility market where some regions are a lot better, some are weaker, just as we think about that?

Yes. Well, I certainly see it for us regionally when you think about CooperVision. If you look at the prior year, we grew 7% every quarter in Asia Pac. And then this past year, we bounced around a little bit. We were actually minus 5% in Q3 and flat in Q4. A lot of the contracts and the execution that I'm talking about is private label wins in that Asia Pac region for us. So we need to get that region going back, and I think we will. I'm confident that we will see improvements there. That would be the biggest one I would highlight. Outside of that, America is doing well. We're continuing to see pretty strong consumer behavior, frankly. Purchase activity continues to go to daily SiHys, more premium products, the torics and so forth and the newer product launches. Europe is doing well. We have a great European franchise for fertility and for our contact lenses. That's probably our best part of the world. It's EMEA for us on a company-wide basis, continuing to see good trends there. Asia Pac, I touched on, like, is a little choppier.

There have been some people that have tried to pitch publicly the idea that CooperVision either mergers or acquirers with another larger competitor. I won't ask you to comment on that specifically. But in general, do you think there's the ability for the large competitors in vision to do large acquisitions given the concentration? I know you're #1 by far in Europe in contact lenses. Do you think the regulators would tolerate large acquisitions of that size?

Yes. I mean I wouldn't say anything is impossible, right? You can push things through. I'd say it's very difficult, very difficult. I mean we are the #1 contact lens company in terms of revenues and wearers in Europe. We have a really strong position in a number of other countries around the world. So I think it'd be very difficult for us to do anything. J&J is a solid #1. Could Alcon buy Bausch an example, if they want, and those businesses completely overlap, maybe they could pull something like that off, I don't know. But I think it would be pretty difficult.

I think -- I feel like I'm your most avid free cash flow question asker on the earnings calls, and it's gotten a lot better over past few quarters. So it's great to see. And on the last earnings call, you went from $2 billion over the next 3 years to $2.2 billion already. So I guess, two-part question. One, what's driving the strong improvement of free cash flow? And then two, what gives you the confidence to raise it by 10% already before you even enter the time frame?

Yes. And I probably feel better about that as I stand here today. So if you go back when I was CFO before I became CEO, right? We had about 20% of our revenue converting into free cash flow. That number came way down as we invested very heavily to move into the daily silicone hydrogel space. And those -- that CapEx investment became dramatic. And layered on top of that was the fact we were buying a number of our buildings. So we had a lot of CapEx for a number of years, right? I mean -- and it's got up towards 10% of revenues. Now our maintenance and growth CapEx, kind of our core CapEx, if you will, that we're going to move to in '27, will be about 5% of revenues. So that drop alone is going to add a couple of hundred million dollars of free cash flow.

The other thing that we had is we renew a lot of these acquisitions I talked about. And we had a lot of integration-related activity that had a lot of cash charges associated with it. As I mentioned, we've wrapped up -- we wrapped the vast majority of that up. So our non-GAAP adjustments are going to go way down and the cash going out the door will go way down. This year, we'll still have some of it. We'll have severance associated with the reorg. We got a build out of a big CooperVision R&D facility. We got final payments on a lot of lines. But we have a lot of improvements coming from working capital and from operating improvement and lack of charges. And then if I go into next year, you get to a much more traditional lower CapEx level. We're going to -- we'll have a strong free cash flow year next year.

We're out of time, unfortunately. I appreciate a great discussion, and I appreciate everybody joining us today.

Thank you.

Ladies and gentlemen, thank you for standing by. At this time, I would like to welcome everyone to the Fourth Quarter 2025 Cooper Companies Earnings Conference Call.

[Operator Instructions]

I would now like to turn the conference over to Kim Duncan, VP of Investor Relations and Risk Management. You may begin.

Good afternoon, and welcome to Cooper Companies Fourth Quarter and Full Year 2025 Earnings Conference Call. During today's call, we will discuss the results and guidance included in the earnings release and then use the remaining time for questions.

Our presenters on today's call are Al White, President and Chief Executive Officer; and Brian Andrews, Chief Financial Officer and Treasurer.

Before we begin, I'd like to remind you that this conference call will contain forward-looking statements, including statements relating to revenue, EPS, cash flows, interest, FX and tax rates, tariffs and other financial guidance and expectations, strategic and operational initiatives, market conditions and trends and product launches and demand. Forward-looking statements depend on assumptions, data or methods that may be incorrect or precise and are subject to risks and uncertainties.

We 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 Cooper's Form 10-K and Form 10-Q filings, all of which are available on our website at coopercos.com.

Also as a reminder, the non-GAAP financial information we will provide on this call is provided as a supplement to our GAAP information. We encourage you to consider our results under GAAP as well as non-GAAP and refer to the reconciliations provided in our earnings release, which is available on the Investor Relations section of our website under quarterly materials. Should you have any additional questions following the call, please email [email protected]. And now I'll turn the call over to Al for his opening remarks.

Thank you, Kim, and welcome, everyone, to today's earnings call. I'll start by highlighting 3 key strategic priorities and then move into our quarterly results and guidance. Our first priority is to deliver consistent market share gains for CooperVision. We've accelerated the global rollout of our MyDay premium daily silicone hydrogel lens portfolio, and we're seeing momentum build. We're executing on numerous global private label contracts and winning new ones, and we're strengthening branded sales, especially among independent optometrists.

We're also looking forward to several upcoming product launches to further strengthen our positioning and ensure CooperVision delivers steady revenue growth throughout fiscal 2026 with the strongest performance expected in Q3 and Q4 and as MyDay achieves bold traction. Second is our continuing commitment to earnings and free cash flow. This quarter marked our eighth consecutive quarter of beating consensus earnings expectations and our fiscal 2026 earnings guidance exceeds current consensus expectations, driven by significant cost savings from our recent reorganization. Additionally, for the past 2 years, we've reported double-digit earnings growth, and we're targeting making it 3 years in a row. And importantly, these earnings are turning into cash with $150 million of free cash flow delivered in Q4, beating expectations. I'm also pleased to announce this momentum is continuing, and we're raising our fiscal 2026 to 2028 free cash flow target to more than $2.2 billion.

Our entire organization is aligned behind these efforts as free cash flow became a bonus metric in 2024 alongside revenue and earnings. Third is our attention to returning capital to shareholders. We repurchased nearly $200 million of stock in fiscal Q4, bringing our total fiscal year repurchases to almost $300 million or roughly 2/3 of our 2025 free cash flow. For fiscal 2026, we expect to allocate a similar percentage to share repurchases with the remaining portion targeted to debt pay down.

To support this effort and to reinforce our commitment to share repurchases being a core component of our long-term capital allocation strategy, the Board authorized an increase in our share repurchase plan to $2 billion in September. Before moving into the quarterly details, I want to emphasize that our Board and management team remain highly focused on driving long-term shareholder value. We've accelerated share repurchases. Insiders have bought stock. We've completed significant re-org and integration activity to increase profitability and cash flow, and we've been winning new contracts and solidifying long-term customer partnerships at CooperVision and CooperSurgical.

Additionally, we initiated an evaluation of strategic alternatives earlier this year and presented our initial findings to our Board in October, alongside ongoing governance discussions around the timing of our Chair's transition to retirement. Today, we have taken the next step by issuing a press release announcing a formal strategic review to ensure that we explore every opportunity to unlock long-term shareholder value. We also announced the transition of our Chair role from Bob Weiss to independent Board member, Colleen Jay. And finally, we're adding total shareholder return to our executive performance share plans to further align leadership incentives to our stock's performance.

With that, let's move to the Q4 results. Consolidated revenues were up 4.6% year-over-year or up 3.4% organically to a quarterly record $1.065 billion. Operating margins improved meaningfully and non-GAAP earnings grew 11% to $1.15. For CooperVision, we reported revenue of $710 million, up 4.9% or up 3.2% organically. These results were consistent with our guidance, driven by improved global availability of MyDay, partially offset by market softness in China in certain areas in EMEA. Overall, the global contact lens market continues to trend toward premium offerings, which is a positive for our MyDay portfolio, including our premium private label MyDay business, but it does create headwinds for clariti in our older hydrogel lenses.

On an organic basis, by category, torics and multifocals grew 5% and spears grew 2%. By modality, daily silicone hydrogel lenses grew 5% with double-digit growth in MyDay and declines in clariti. Our silicone hydrogel FRP lenses Biofinity and Avera grew 2% and and MiSight delivered strong growth of 37%. Regionally, the Americas grew 5%, led by strength in daily silicone hydrogel lenses, EMEA grew 3%, strengthening our #1 market position led by MyDay and Biofinity. This was slightly below expectations due to market weakness in a few countries but this doesn't appear to be tied to consumer activity, and we've already seen a pickup this quarter.

Asia Pac was flat as growth in MyDay was offset primarily by a 28% decline in China, driven by continued weakness in low-margin e-commerce channels where we're not chasing aggressive pricing activity.

Moving to products. MyDay delivered a strong quarter led by Torics and Energous. We're continuing to execute on the private label deals we won in Q3, and I'm pleased to report that we won quite a few more contracts in Q4, several of which are in the U.S. and Europe. So you'll see those in the coming months. Momentum is robust, and we're seeing increasing fitting activity with especially strong interest in our premium Comfort MyDay Energous lens featuring our innovative digital boost technology which we expect to launch in Europe in Q2 of this year.

From our MyDay multifocal, which continues to roll out in the APAC region and from our MyDay toric parameter expansion, which is expanding around the world. We'll also be launching MyDay MiSight and MyDay toric multifocal in 2026, and we expect those offerings to be received incredibly well. For clariti, we're progressing with repositioning the product family in Asia Pac, and we're seeing early positive signs with products such as clariti's new 3 ad multifocal launch, which delivered double-digit growth in the Americas.

Regarding FRPs, Biofinity delivered solid performance in the Americas and EMEA led by multifocals, Energous and our innovative made-to-order lenses, but remains soft in Asia Pac, especially outside of Japan. This was similar to last quarter with continued weakness in markets such as China.

Turning to myopia control. MiSight delivered strong growth of 37%, driven by robust performance in the Americas and another record-setting quarter in EMEA. Our back-to-school campaigns boosted fitting activity, while customer engagement initiatives and new pricing models supported higher purchase volumes. We expect this momentum to continue into fiscal 2026 with the upcoming launches of MiSight in Japan and MyDay MiSight across Europe, both scheduled for fiscal Q2.

Private label programs in Europe and other select markets are also proving highly successful, and we expect more deals to be signed this year. With MiSight growing 30% in fiscal 2025, reaching $104 million in sales, we expect growth of at least 20% to 25% for fiscal 2026 with further strength in 2027 as product launches gain traction.

To conclude on vision, let me share details of our performance relative to the market. This is calendar quarter data, so it's apples-to-apples with our competitors. In calendar Q3, we grew 5%, in line with the market. And on a year-to-date basis for the 3 calendar quarters of 2025, we've grown 4%, also in line with the market. CooperVision has gained share for 17 straight years, and we remain focused on achieving that goal for an 18th consecutive year in calendar 2025.

Turning to CooperSurgical. We delivered quarterly revenue of $356 million, up 4% or up 3.9% organically. This was at the high end of our guidance range, driven by solid execution. Within fertility, revenues were $141 million, up 1%, in line with expectations given last year's 13% comp. Growth was driven by market share gains in EMEA and strong global genomics performance, partially offset by softness in the U.S. As we enter fiscal 2026, we're optimistic that this will be a stronger year. We're seeing encouraging traction with new RFP wins from some major fertility clinics. We're receiving significant interest and witness our automated lab tracking system and our genomics portfolio is seeing an uptick in momentum following the recent launch of several new tests. For the overall fertility market, consumer spending remains tight, especially in Asia Pac, and clinics are continuing to manage spending carefully, but we are seeing some early positive signs, including improving cycle activity in the U.S. and growing global clinic interest in new technology.

We remain highly optimistic about the long-term outlook for fertility given the underlying fundamentals, supported by the estimate that 1 in 6 people globally are expected to experience in fertility at some point in their lives, underscoring the long-term significance and resilience of this market.

Moving to office and surgical, sales were $215 million, up 6% and up 6% organically. PARAGARD grew 16% following a softer Q3, driven by strong demand for our single hand inserter upgrade that was launched earlier this year. Medical Devices grew 3%, led by double-digit growth in our labor and delivery portfolio and a 35% increase in our OBP surgical line of innovative single-use lighted cordless surgical retractors. These gains were partially offset by softness in legacy products.

Moving to fiscal revenue guidance. For CooperVision, we're guiding fiscal Q1 to 3.5% to 4.5% organic growth as we continue to stair-stepping higher with execution around ongoing contract wins. For the full year, we're guiding to 4.5% to 5.5%, assuming the market grows 4% to 5%. Our expectation is that current momentum will result in strong share gains in Q3 and Q4, but we're maintaining conservatism to avoid having guidance be too back-end loaded. For CooperSurgical, we're guiding Q1 to 2% to 3% growth and full year to 4% to 5% growth. Within this, we're forecasting only a modest improvement in fertility, which we're optimistic will prove conservative given some of the recent market trends, along with much easier comps.

Before turning the call over to Brian, I want to thank the entire Cooper team for their outstanding execution this quarter, delivering strong results during a period of significant organizational change, reflects our team's commitment to building a more streamlined and efficient company, and it speaks volumes to the company's dedication to excellence. And with that, I'll turn the call over to Brian.

Thank you, Al, and good afternoon, everyone. Most of my commentary will be on a non-GAAP basis, so please refer to the earnings release for a reconciliation of GAAP to non-GAAP results.

For the fourth fiscal quarter, consolidated revenues were $1.065 billion, up 4.6% and up 3.4% organically. Gross margin declined marginally as expected, to 66.2% driven by tariffs and product mix, partially offset by positive foreign exchange. Operating expenses were flat, reflecting disciplined cost management and operating income increased a healthy 9% to a 27% margin. Interest expense was $23.7 million and the effective tax rate was 14.2%. Non-GAAP EPS grew 11% to $1.15 with 198 million average shares outstanding. Free cash flow was strong at $150 million with CapEx of $98 million and net debt was $2.4 billion, improving our bank-defined leverage ratio to 1.76x.

Lastly, we repurchased 2.9 million shares for $197.3 million, leaving approximately $1 billion of availability under our $2 billion repurchase plan. Before moving to guidance, let me recap the reorganization and integration work we completed in Q4. We began executing this effort in early Q3 and moved quickly with a clear focus on improving operational efficiency and reducing back office costs. By leveraging prior IT investments supported by AI capabilities, we integrated key support functions and are unlocking meaningful productivity gains.

At the same time, we completed significant acquisition-related integration work. From a financial perspective, we recorded approximately $89 million in charges associated with all of this activity and expect annual pretax savings to be roughly $50 million or $0.19 starting in fiscal 2026. Beyond operating margin expansion and free cash flow benefits, these savings strengthen our ability to invest in high-return opportunities, repurchase stock and pay down debt, fully aligned with our commitment to long-term value creation.

Moving to guidance and starting with Q1. We're guiding to consolidated revenues of $1.019 billion to $1.03 billion, representing roughly 3% to 4% consolidated organic growth. CooperVision's revenue is expected to be in the range of $693 million to $700 million, up 3.5% to 4.5% organically. And CooperSurgical's revenue is projected to be $327 million to $330 million, up 2% to 3% organically. For earnings, we're guiding to non-GAAP EPS of $1.02 to $1.04 with improving operating margins from strong operational leverage offset by lower gross margins due to tariffs and mix. Interest expense is expected to be around $24 million, and the effective tax rate to be in the range of 15% to 16%.

For the full year fiscal 2026, we're guiding to consolidated revenues of roughly $4.3 billion to $4.34 billion, reflecting 4.5% to 5.5% organic growth. CooperVision is expected to be in the range of $2.9 billion to $2.925 billion, up 4.5% to 5.5% organically. And CooperSurgical is expected to be in the range of $1.4 billion to $1.413 billion, up 4% to 5% organically.

For earnings, we're guiding to non-GAAP EPS of $4.45 to $4.60. This assumes another year of strong operating margin improvement driven by operating expense leverage, offset by lower gross margins due to tariffs and mix. Interest expense is expected to be around $85 million, assuming no share repurchases or changes in Fed policy. Note that if the Fed does lower rates next week by 0.25 point, interest expense would be reduced by roughly $2 million in fiscal 2026. The effective tax rate is expected to be in the range of 15% to 16%. Free cash flow for fiscal 2026 is expected to improve to $575 million to $625 million, driven by stronger operating cash flow from higher profits, working capital improvements and lower onetime costs. CapEx will also decline on an absolute basis as CooperVision's investment cycle winds down.

These positives will temporarily be somewhat offset by roughly $70 million tied to our reorg and final payments on building activity, including our new CooperVision R&D facility. From fiscal 2026 through 2028, we expect to generate over $2.2 billion in free cash flow. This outlook reflects 2 key drivers: First, consistent improvements in operating cash flow from higher profits, lower onetime items and tighter working capital management supported by a streamlined and AI-enabled operating structure; and second, CapEx normalizing in fiscal 2027 to roughly 5% of revenues, covering both maintenance and growth investments.

Lastly, on cash flow. At the divisional level, CooperSurgical generates more free cash flow per revenue dollar than CooperVision. But we expect that gap to narrow materially in 2027 as CooperVision's CapEx declines and free cash flow accelerates. From a capital deployment standpoint, we remain committed to investing in growth and innovation, repurchasing stock and reducing debt. Lastly, as you'll see in our 10-K tomorrow, we have successfully remediated the material weakness related to certain IT general control failures from fiscal 2024. And with that, I will turn it back to the operator for questions.

[Operator Instructions]

Our first question comes from Jeff Johnson from Baird.

Congratulations on the progress in the quarter. Al, I wanted to talk, I guess, first on clariti, obviously, a good MyDay number in the period. Did you give a number for how much clariti was down? And I think that's been about a $400 million annualized line for you guys. What is maybe the floor on that? And as that continues to come down and MyDay grows, do you see those MyDay gross margins eventually within the next year or 2 getting to clariti gross margin levels?

Yes. I'll let Brian comment on the gross margins because we made a lot of progress there. Yes, clariti was down a couple of percent this quarter, and it's approach -- it approached $400 million this year. So it's still a pretty sizable product line for us. We're doing a lot of work on it right now. We've got some new products that we're launching, we're excited about. The 3 ad multifocal in the U.S. is being received really well. But on the flip side of that, we're doing some repositioning in places like Asia Pac to put that lens family more in the entry-level space that we want it to be.

And so we're going to continue to have some push and pulls here, I think, over the next couple of quarters. But I do still think that there's a place for that lens and has the opportunity to be very successful. If there's ever a situation where the market moves a little bit more towards mass market or is a little bit more price conscious, I think you'll see that lens take off. But in the meantime, to hit on the start of your question, Jeff, yes, good quarter for MyDay. We are making a lot of progress there. We have a lot of really exciting stuff going on. You want to comment on the margins?

Yes, sure. Thanks for the question, Jeff. I won't comment on individual product line gross margins, but I will say that the gross margins for the family of products of daily silicone hydrogel lenses, is below CooperVision's gross margins. I talked about mix being part of the reason for the gross margin decline in Q4. It will be part of the reason for the gross margin decline year-over-year next year. And as we sell more daily silicone hydrogels, I would expect that we'll still have pressure on the gross margin line.

Now that being said, we do get more revenue per patient. When we sell daily si-hys, we get more gross profit dollars, and we get more operating income dollars. And so as we leverage our prior investment activity and a more streamlined organization, I would expect we'll be able to drive operating margin expansion and earnings growth despite some of the headwinds we'll be seeing from the gross margin line.

All right, Brian. And maybe just one quick follow-up. Just whenever you guys give calendar versus fiscal numbers, it always opens it up to a question like this. But if you did 5% growth in calendar 3Q, Al, and you did 3.2% in fiscal Q4, it would seem to imply a pretty weak October, I believe, if I'm thinking about that correctly. But just tell me why I'm wrong there or at least kind of help reconcile those 2, the 3.2% and the 5% number.

Yes. It was the flip side, Jeff. It was actually the beginning of the quarter. The overlap in the beginning of the quarter, not the end of the quarter. October was a good month.

Our next question comes from Lawrence Biegelsen from Wells Fargo.

Al, could you please talk about the strategic review? How long will it take? And what's your reaction to those who have advocated for splitting up CDI and CSI and adding new board members?

Sure. We announced a strategic review for those who haven't seen and we issued a press release concurrently with the earnings release. We're going to take a look at options out there because we do want to drive shareholder value, right? And we look at that. And we were doing that work proactively with our Board over the summer. We actually presented strategic analysis and a strategic review to them in the month of October, and we obviously put that out publicly.

We'll provide an update on any activity on our next earnings call, which is the beginning of March, that's our Q1 earnings call, unless something material happens beforehand. And if it does, obviously, we'll issue a press release or make a statement on that. So outside of that, I'm not going to comment too much on it, but yes, it's underway.

So Al, no comment on -- I mean just maybe your latest thoughts. Obviously, there's -- there are others out there now advocating for splitting up CDI and CSI. Has your position changed I just love to hear your latest thoughts on that. And I'll leave it at that.

Yes. My position has not changed on that. We discussed that actually, Larry, at your conference in September, you raised it, and I gave my opinion on that. And my opinion has not changed, which is our job is to drive long-term shareholder, if taking certain actions are beneficial for our long-term shareholders then we need to evaluate those. As I talked about in the September meeting that we did. I believe if we drive value in this business that will maximize long-term shareholder value. And that's what we're doing. That's what we did with the reorg. That's what we're doing with stock buybacks. That's what we're doing driving cash flow. That's what we're doing in a whole slew of different ways. But we're going to look at the value of this business and do what's best for our long-term shareholder -- long-term shareholders. That's our job as executives of a public company.

Our next question comes from Jon Block from Stifel.

Great. Al, I think your contact lens market growth expectations for 2026, I think you said for the market, 4% to 5%. Year-to-date, the market's 4% and I don't know, it just seems like industry pricing power is fading a bit. So just talk, if you don't mind, about sort of the market growth assumption or construct, like what's behind that assumption if we do finish this year 4 or even a tad below, what's responsible for market growth acceleration if pricing power is decelerating? And then I'll ask a follow-up.

Sure. Yes, Jon, I might go the other direction a little bit on that one. We grew -- as a market grew 4% in Q1, calendar Q1 and 4% in calendar Q2. The market grew 5% in calendar Q3. So it actually increased this last quarter. I do think that we're going to be in a 4% to 5% market growth for this year, I'd be really surprised if we're not. From a pricing perspective, I think global pricing for next year will end up being somewhere around that 1% on a true global net basis, so probably pretty similar, frankly, to what it was this year, which leads me to believe we'll probably be somewhere in that 4% to 5% range next year. I do think this quarter, which was 5 was probably a little bit better representation of where the market is. So I'd say 4% to 5%. But honestly, I think it will be closer to 5% next year.

Okay. Fair enough. And then just to shift gears, I take like a different approach in terms of going to CVI numbers for you guys rather than from like a product standpoint, just from a geography standpoint. I mean, APAC falling around 0% for fiscal '25. It was up [indiscernible] 7% in '24. And then at some point, this thing was growing 13%, 14% in the prior year. So for fiscal '26, is -- it seemed like more the same argument in Americas and EMEA for the most part, but we just see that APAC claw back a little bit closer to mid-single digits, a function of MyDay, but also a function of getting some of these quasi one-timers behind you. Just looking for any direction from a geographic perspective.

Yes, I think you're right, Jon. At the end of the day, we had some struggles in Asia Pac this year, it was heavily focused on the pure play e-commerce channel. That's where we lost share. I mentioned that China was down 28% in Q4. As you remember, it was down kind of mid-20s in Q1 and Q3. So our China business is quite a bit smaller this year than it was the year before and again, heavily focused on low-margin business. That's the reason that you've seen our revenues come down and be a little bit softer, but you haven't seen the impact on our profit.

Now we clearly do not chase revenues at all costs. We would never do that. And that's a great example of where we don't do it. We don't -- we're not chasing the market where we're seeing some participants with super aggressive pricing out there. We're maintaining fiscal responsibility and sensibility around how we operate. What I will say is as we move into fiscal '26 is these markets, like China and the pure-play e-commerce and some other markets have become a much smaller percent of our overall business. So we're not going to see the same detriment in '26 that we saw in '25.

Our next question comes from Robbie Marcus from JPMorgan.

This is Lily on for Robbie. The guide is a bit more back-end loaded from a revenue growth perspective. So what gives the confidence in growth stepping up over the course of the year? And what are some of the variables across Vision and Surgical that we should think about as improving over 2026.

Sure. Thanks, Lily. It's a little bit back-end loaded, but it's not that much back-end loaded. I mean we intentionally did not get overly aggressive on Q3 and Q4 so that we wouldn't have a situation where it was heavily back-end loaded. Even though, frankly, I'm pretty optimistic we're going to have a strong Q3 and Q4 given where MyDay is today and the momentum that we're seeing. But to answer your question, it ties to that. It ties to the MyDay sales that we have right now. The momentum that we're seeing out there, we won a number of additional private label contracts during Q4. As I mentioned, a number of those are in the U.S. and in Europe. So a number of people on the phone will start seeing some of those as we get into 2026.

So I'm excited about what's going on with MyDay and the progress that we're making. And that's going to be one of your biggest drivers that's going to push forward the CooperVision business. When it comes to CooperSurgical, we're forecasting a relatively similar year next year to this year, and that includes kind of being conservative on fertility. I mean I'm optimistic fertility picks up. And we certainly have easier comps that we're going to report against that's going to help us a little bit. But we want to stay a little conservative on fertility also in consumer spending. When I think about CooperSurgical, remember that we launched the single hand inserter for PARAGARD at the beginning of last year. So we had a really strong Q1. That's the reason that we're guiding a little bit softer here for Q1.

Having said that, PARAGARD just had a really strong Q4 and finish to the year. So we'll see how that plays out because frankly, guidance for CooperSurgical assumes flat to low single-digit growth in PARAGARD, and we did quite a bit better than that this year.

Great. That's helpful. And then just as a follow-up, I was hoping you could talk a bit more about the improved free cash flow outlook. What's driving that increase relative to the prior guide? And is any of that step-up coming from decreased investment in SG&A or R&D?

Sure. Yes. The way to think about free cash flow is it is not back-end loaded. It's just consistent performance, consistent execution. We'll step up nicely this year by continuing to do exactly what we've been doing. I mean, we just posted the $150 million in Q4, which was strong, and we're going to continue to post strong quarters here by delivering earnings growth by doing some of the working capital management that Brian mentioned. And then as we move into next year, you're going to see CooperVision's CapEx come down. Our maintenance and growth CapEx is about 5% of revenues. It's somewhere in that range, right? And we've been running upper single digits. So you're going to see that come down as we make final payments on our MyDay lines this year.

And then we're also completing some relatively significant business activity. And the last thing we really have this year is our new CooperVision R&D facility going up. So as those roll off and you continue to see profits grow, 2027 is going to be a nice free cash flow year. And then I think it's just more consistency in the next year. So we're saying over $2.2 billion now. Frankly, we feel pretty good about that number, the over on the $2.2 billion side of it.

Our next question comes from Jason Bednar from Piper Sandler.

I wanted to start first with -- I think I heard you right, there aren't any repurchases assumed in earnings guidance for fiscal '26. But I thought you referenced in the supplementary PR today that you're allocating free cash entirely to repurchases. So just how to reconcile that. Is that just conservatism? Or do I ask something incorrect there?

Yes. So we spent about 2/3 of our cash flow this past year on share repurchases, and we're targeting spending about 2/3 of our free cash flow on share repurchases in '26. That will be EPS accretive. We did not include that in the guidance range.

Okay. All right. Got it. And then as a follow-up, Al, good to see the TSR addition to the comp plans, I think a lot of us will be happy to see. That I did want to ask, just if you could discuss how you landed on Colleen as the next Chairman for the business. I know it's maybe a bit of a hot button issue right now, just given some of the items out there in the public domain. But if you could just discuss why that was the right move for the Board in the context of other options, whether currently on the Board or not on the Board?

Sure. We've been having conversations over the last year with Bob. And it's driven by Bob. I mean Bob is a great guy, right, he has a ton of value, but he's gotten to the point where he's saying, "hey, I want to go into full retirement. And it's that time for me." So we were talking about it in the context of transitioning the chair leadership over and how that should happen and when that should happen. And this was the right time to do that.

Colleen has been with us for a number of years. She's fantastic. She's super smart. She was a top executive over a Proctor & Gamble. She's got a global experience. She's had branding experience. She brings a lot to the table, and she just does a really nice job and she -- as I said, she adds a lot of value across the board, which is great. She was the one who probably 6 months ago, brought up the TSR and said, "Hey, we need to roll the TSR into here and look at shareholder returns and make sure we're aligning executive comp even closer to the stock's performance. And she brought that together with our consultants and so forth and put a plan together.

And yes, as I mentioned, we're going to be rolling that in. So I think she's the perfect perfect person to step in as the Chair. And Bob's going to -- Bob's plan is to continue to work with her and transition the roll over to her to ensure it's just -- it's a really smooth process.

Our next question comes from Travis Steed from Bank of America.

Just curious on what the strategic review, your willingness to take short-term dilution to create longer-term value and how you kind of balance the short term for the long term? And also how you think about consolidation in the contact lens space, are there potential synergies there or antitrust risk with actions like that.

Well, I think that -- I mean, you're always going to have some of those questions around short-term investments and short-term activity and the impact on the long term, be it across the board, right, product launches or product development or any number of moves that you can potentially make. So I think the important thing is what we said, which is, hey, we've done some work on a strategic review here. And people have asked the question about what does that mean? And actions can you take and so forth. And what I want to be clear about and that we issued the press release, is we've done a bunch of work on that. We're rolling up our sleeves to do more work on that. And we're taking a serious look at all the different alternatives that are out there be it a number of things, frankly, that we put in that press release. So I'm not going to go into all the details behind that other than to say, we are rolling up our sleeves. We're working with our advisers. We're looking at the different alternatives that are out there, and we want to ensure that we're driving long-term shareholder value, and that's our heavy, heavy focus.

Right. That's fair. And then gross margins down in [ some of these big ] [indiscernible]. Just trying to understand exactly how you're giving operating margin leverage. Is SG&A not growing on '26 and how much are you going to be cutting in the business.

Well, sure. I mean, I think when you look at it, you can just plug the numbers in, and you can see that OpEx itself or SG&A, if you will, is not going to grow very much because that's where we're set right now. So this is not additional cuts. This isn't like we need to go do things. We had this reorg activity planned out a while ago, and we completed it aggressively. And I think the team here did a fantastic job doing it aggressively and getting it done. And you can see that in the SG&A or in the OpEx, if you will, in our Q4 as reported results and you used to assume to continue to see that level of excellence in terms of spending, supporting the top line and driving leverage on a go-forward basis.

Our next question comes from Matt Miksic from Barclays.

So one follow-up on an earlier question around your sort of intention expectation of gaining share here in the fourth calendar quarter. Maybe just talk about where you see the various business lines impacting this is envisioned obviously. Just some color as to which catalysts do you think are kind of lifting off a little bit in the last month or so of the year. And then I have 1 follow-up.

Sure, Matt. That's a really good question. You'll remember last year in Q4, we did not have a particularly good quarter. We had some competitors launching product and they had a lot of activity going on, and it was one of the weaker quarters that we've had with respect to the market in a long time. So we are comping against that. And we are in a significantly better position in this calendar Q4 than we were in last calendar Q4. So what it comes down to is just weakness last year and strength this year, and a lot of that ties right to the topics we've been discussing starting with MyDay. So I do think we have an excellent opportunity to hear closest calendar year strong.

And when you compare that to last year's weakness, it should be a pretty good number. Well, I said it in the call, like we're 17 straight years of market share gains, and we have not given up on making that 18. So we'll see how things close out.

That's great. And then the follow-up, your question earlier on this as well, the sort of separation, you've talked about it, you've answered how you feel about it creating shareholder value. Given that it's been sort of -- it feels like these reporting lines and operating-wise feels like it has been running separately or independently in many ways and some might say ready to separate for some time. What -- if that's the case, if you looked at this before, what is changing now given sort of the new board involvement and new investor involvement that you think could make this possible now from a tax basis? Is it -- is the restructuring done and it's a tuned up upgraded portfolio that we think will get more interest? What would you say?

Well, I think that -- I mean, if you talk about a separation, it is a negative and that it will create dissynergies. It is a negative from a tax perspective. Having said that, you've seen a number of companies, whether it's in the med device space or med tech more broadly or even just more broadly just saying companies who have looked at their portfolios who have different businesses within their -- under their umbrella, so to speak. And they've looked at different ways to say, "hey, I want to try to unlock value. And I'm going to spin off my diabetes business or I'm going to spin this off or I'm going to spin that offer. I'm going to look at different strategic alternatives." I think that's good hygiene. I think that's important to do. And it now is an appropriate time for us to do that.

We made a ton of progress at CooperVision to position ourselves here to really get growing again and taking market share. And we made a ton of progress in CooperSurgical with our fertility business. And we're going to do great in fertility. So I think when you look at the businesses right now, it's just fair to ask the question, which is, are there strategic moves that we can make unlock shareholder value. And that's one of them. And I think it's important for us to roll up our sleeves and evaluate that, and that's what we're committed to do.

Our next question comes from David Saxon from Needham & Company.

Maybe I'll start with CSI just on PARAGARD. Al, I think you said flat to up low single digits for fiscal '26. It looks like the competitive IUD is going to launch in the first half of calendar '26. Is there anything embedded in that PARAGARD expectation as it relates to that launch? And then when you first acquired it, you talked about the margin profile really strong. Has there been any meaningful change to that margin profile? And then I have 1 follow-up.

Sure, David. A couple of things. Yes, there is the competitor product that was approved. I have no idea if it's going to launch or when it's going to launch or anything else about it. We did factor in some conservatism, if you will, into that -- into the -- my guidance of kind of flat to up a couple of percent, assuming that there is a competitive launch.

Now I'm forgetting off the top of my head, Brian will probably know. I think PARAGARD grew 7% this year. So I'm optimistic we'll have another good year. But yes, we did factor in a little conservatism around the potential for a competitor launch. I will say the margins have come down a little bit because of the single hand inserter launch, that activity. Nothing that I would classify as material. But yes, the gross margins are a little bit lower on that product.

Okay. Great. And then just on CVI. So the Asia Pac e-commerce dynamics, I mean it sounds like we'll lap that in the fiscal first quarter. But any residual impact from like the distributor channel inventory dynamics you talked about a couple of quarters ago or the private label conversion from clariti to MyDay. Just how we should think about those moving pieces as it relates to fiscal '26.

Yes. As we think about that from an Asia Pac perspective, I think you're still going to have a little bit of that noise, frankly in Q1, and we factored that into the guidance, right? We did 3.2 globally, and we factored in 3.5 to 4.5 as a company and we factored in continuing weakness in Asia Pac in Q1. So whether we see that or not or how much that changes like we'll see and we'll play that out. But you can see some of that, I think, as you continue to transition.

Our next question comes from Young Li from Jefferies.

Altra. I guess to start, maybe a question about the pipeline. I did hear that you're launching some new products that can't contribute to growth. But some of your competitors have been talking more and more about next-generation contact lenses and materials. I was wondering if you can comment sort of where you are with your program.

Sure. We have some great stuff going on in R&D. A couple of things that I'm not going to get into, but that I'm super excited about. We have some launches going on right now that I talked about. We have some stuff like MyDay, MiSight. I mean that is like market-leading innovation. First of all, we're the only contact lens company with an FDA-approved product for myopia control in my sight and now we're launching MiSight on the silicone hydrogel platform. We're 1 of the leading brands out there in MyDay. I mean you can't get much more exciting and innovative than that, and that's coming here in Q2. And we've got some other really cool innovation and stuff, including some material work and so forth that we're doing internally.

So I'm not going to start touting that right now. It's not the time to do that. But suffice it to say, we have some good exciting stuff going on ourselves, and we have some product launch activity that's pretty exciting right in front of us.

Okay. Great. So I guess the follow-up question just on the fertility business. Can you maybe go a little bit more into detail on the assumptions for growth next year, talking about the geographic variances between U.S. and its [indiscernible] impact from consumers?

Sure. Yes, I mean, at the end of the day, it's going to be interesting to see what happens with fertility. I happen to believe that fertility, by the end of the year, will end up growing mid-single digits, and I think we'll grow a little bit faster than that. I think some of that's going to come because of the easier comps. Some of that's going to become because consumers just levels off in Asia Pac, where it's been weaker, some of that's going to come because you have some pretty cool technology upgrades that are working their way through the system right now, including by us and you're going to see some clinics upgrading.

Having said that, that is not what we factored into our guidance for this year. We factored in a more conservative expectation around fertility because I just don't want to get ahead of ourselves there. So when we look at it from a guidance perspective, it's kind of a market more in the low single digits and us growing more in the mid-single digits.

Next question comes from Navann Ty from BNP Paribas.

On the MyDay momentum, can you discuss the revenue contribution of the MyDay product label contract in APAC throughout 2026 and 2027. And then on fertility, could you provide more details on the recently improving cycles you have called out and any changes in competitive landscape between you, Vitrolife and nextbring? And I don't know if you can give some details on the new technologies the clinics are interested in?

Sure. A number of things there. I'll answer your last one first because some of the new technology you may have just seen or if anyone follows it at ASRM, which is the big fertility conference here in the U.S. We just launched 3 new genomics tests that are being received incredibly well. And we have some other technology advancements that we're going to be launching this year within our genomics space and also within our capital space. And then we've got some super exciting stuff that we're working on in our R&D side that I'm excited to get out in the coming years. I'm going to step back to the MyDay momentum. I talked about that last quarter and that we were winning contracts, and we've been executing on those contracts.

A lot of that was tied to Asia Pac. As I mentioned, we're now seeing contract wins in EMEA and in the U.S., and you're going to see that momentum build as we move into Q3 and Q4. So that's a process that's going to happen. That's why I talk about step improvements because we have to manufacture the product, we have to label it and package it. We have to get it over into the hands of the retailer, the key account, whomever it is that selling that product, and we have to get it launched.

So it does take a little bit of time. We clearly took a step forward here in Q4, and we're going to take a step forward again, and then we're going to take another step forward as we execute on those contracts. This is not the first time we've done it. I've seen this many times over the years here at CooperVision and it's going to happen again this time. So I won't give you specific numbers on that, but I will just say that as you win those contracts and as you execute on those contracts, just over the quarter, you start picking up energy on that, and we see that momentum right now picking up from a fitting activity, and that's the key.

The first step is get product in people's hands, get the fitting activity increasing and so forth, then it transfers over to the sales and you see that momentum building, and that's what we're seeing and that's what I'm referencing. So I won't give you specific numbers on that, but hopefully, that gives you enough color to kind of didn't get comfortable with it.

Our next question comes from Joanne Wuensch from Citi.

This is Anthony on for Joanne. Could you just talk about your expectations for MiSight and the management portfolio for fiscal '26?

For my side for fiscal '26? Sure. We closed the year out well, right? We had a good solid quarter. I think we're going to have a good year next year. As I mentioned, I think we'll do at least 20%, 25% in fiscal '26. There's a lot of reasons to believe that we're going to be stronger than that. But we also have the tales launch that's happening here in the U.S. So we -- we're building a little conservatism in because of that. I mean right now, it's actually looking like it's a positive because you're just seeing so many people in the optical community talk about myopia control for children and how important it is and how it needs to be standard of care.

So in my mind, there's no question that long term, it's a significant positive and it's a significant positive for MiSight. If I look at just fiscal '26, could that impact our revenues here in the U.S. market a little bit? It could, right? And if it does, we factored that in. That was our assumption, which is if we get negatively impacted because it's the [ less ] in the very short term, the growth on MiSight might come down towards the 20% range. But there's a lot of reasons to be more optimistic. I mean MiSight launching in Japan. That should be a great market. It's not until Q2, but that's come in MyDay MiSight, as I mentioned, is arguably -- I'm going to argue the most innovative thing going on in the contact lens market, probably the most innovative thing by a wide margin going on in the contact lens market right now.

That product launch it in Europe, and we're going to hit a few other countries in Asia as we move through the year. So there's a lot of reasons to be excited about MiSight right now. We'll see how the year plays out.

Next question comes from Brett Fishbin from KeyBanc Capital Markets.

Just had a couple of follow-ups on some of the CVI assumptions for FY '26. You were just talking about MiSight, but maybe just drilling into the Japan launch, which I think you mentioned today is planned for 2Q. Was hoping you can maybe just touch on how you're thinking about the longer-term opportunity in that region. And then just coming back specifically to what's expected in the FY '26 guide as a result of that launch.

Sure. Well, let me just be clear because the launch is for MiSight in Japan. We have -- we obviously have MyDay there now, although to be fair, it's pretty new and a lot of the contracts are pretty new. So let me just bifurcate that quickly, right? Because I think that MiSight itself going into Japan for the very first time should be very successful. That's an ophthalmologist market a product like that, that relies on clinical data, and that's the key when it comes to MiSight. I mean there's other things you could do, but MiSight is the only lens with this really strong clinical data. that will go over really well in a country like Japan. So although it's a Q2 launch, it will gain traction as we move through the year, and I would envision that's going to be a really successful product towards the end of '26 and into '27. If I think about Japan on a broader basis, we just didn't have the amount of MyDay capacity that we wanted there. We weren't able to do a number of the private label contracts and so forth that we wanted to because we didn't have product.

As you remember, Brett, right, we stopped being capacity constrained over the summer. We were able to aggressively go into all of Asia Pac, including Japan and start winning the private label contracts. We've won a number of those. We're executing on those now. So the assumption is not anything herculean, it's just that we execute under the contracts that we have and continue to get the product into the marketplace. So relatively straightforward stuff. And that's one of the reasons that we put guidance, that 3.5% to 4.5% in Q1. We did a 3.2% this past quarter. We're not saying that we're going to get a hockey stick immediate ramp up. We're just saying we're going to continue to get consistent, solid, improving performance.

All right. And apologies if I misspoke, I meant to say MiSight. And then just circling back, one other question. You've talked about some of the distributor channel inventory dynamics in the Americas. I was hoping you could just update whether that had any impact on 4Q, either negative or if there was some positive reversion? And then if you're still assuming like a relatively neutral impact there for FY '26.

Sure. Yes, there was really nothing there. At the end of the day, from an inventory perspective, I didn't raise it because there was nothing to talk about.

Our next question comes from David Roman from Goldman Sachs.

I'll just ask two questions here quickly upfront. One is, can you give us just a little bit more detail on the nature of some of the reorganization efforts that you've undertaken here? And then what are some of the actions you're taking to ensure retention. Sometimes with these restructurings, they're unintended consequences of losing the right people, you need to execute the business on a go-forward basis. What are you putting in place to ensure you have the right people to achieve the forward strategic objectives?

Yes, David, good question. On the reorg, it was pretty much across the board with a heavy focus on kind of back office support. So we did look at all of our areas. CooperSurgical a little bit more so because we had some integration-related work and some sales force consolidation there. But there was a lot of leverage opportunity in our support function areas because of all the IT upgrades that we've done. And frankly, you hear people talk about AI all the time. Well, it is real. And when we looked at the AI that we've deployed and our opportunities to leverage it, there were some good opportunities there.

When I look at retention details, I mean, we have fantastic people here with great teams of people who are here and the one thing that we're pushing on our organization right now is that we want everyone to embrace AI continue to embrace it, continue to learn it, make AI your friends, so to speak. I mean, because we made the moves that we needed to make in Q4 and our teams know that. And right now, it's about staying focused on executing, leveraging our growth, making all the appropriate moves. But one of the things that we want to make sure we do here, we always try to do is, first and foremost, we promote from within. And that's just a key point.

I mean if I gave you the stats, you would be amazed at how many promotions we have from within. And we're going to continue to do that. We train our people, and we want our people promoted from within. We want everybody here being successful, making more money and get ahead because we're a growing organization. We just need to do it intelligently so that we can really truly leverage this revenue growth on a go-forward basis. And the company right now is so much more efficient than it was and less bureaucratic that we're in a great spot right now to just do our jobs and execute.

Our next question comes from Anthony Petrone from Mizuho Group.

And maybe one on CV -- I want a strategic review. Just on CVI, maybe a little bit on the private label business, how that trended in the fiscal year where there are bigger opportunities out there that the gain or loss, how is that going to set up for '26 as well just thinking of the private label trend? And then on strategic, maybe just to recap on historically, what are the synergies of having CSI and CVI under 1 umbrella. And then over the years, have you noticed any dissynergies? In other words, has capital allocation between those 2 businesses, has that been an issue that could be resolved if they were 2 separate entities?

Sure. On the private label trends, I would say -- I would probably point to the new private label contracts that we've won in the U.S. and in Europe. There's some exciting stuff there. I'm not going to go too far into it, but you'll see some of it because it will be hitting and making itself public in that in maybe even January, but February, March time frame. So I think that's going to set us up well for -- again, for Q3 and Q4 this year to be good quarters for us. So I like the momentum that we have in Asia Pac in some different areas, but I'm probably equally excited about some of the newer contracts that we've won and that we'll be rolling out. On the strategic synergies, I would say, from a capital perspective, we have always invested in CooperVision first and foremost. That's our main driver. We put our dollars there. You've seen that over the years in terms of new manufacturing lines and distribution center upgrades and IT upgrades and so forth. We've also done a number of deals, as you know, at CooperSurgical as we built that business out.

But the last one we did was over a year ago, we did a little tuck-in in August of last year. So it's been a little while there. We've got a great business there, right? [indiscernible] has pulled everything together and has a really much more efficient business today than it was a year or so ago.

And we -- because of that, we've been able to do that work and reallocate our capital, if you will, to share repurchases, and we're going to continue to focus in that area. So I would say that there's been no negative at all from a capital allocation perspective. The synergies that we have are back-office synergies largely. And I talked about that and how we're just doing all that stuff more intelligently, but it's still back-office-type synergies. Those businesses still to a great degree run separately.

That concludes the question-and-answer session. I would now like to turn the call back over to Al White for closing remarks.

Great. Thank you, operator, and thank you, everyone. As you could tell, we had an incredible amount of work that was completed in this last quarter. And I'm excited that we were able to get on the phone with everyone today and go through those details and present it. And we look forward to speaking with everyone over the coming weeks. Thank you. Thank you for your time.

This concludes today's conference call. You may now disconnect.

All right. Welcome back. I'm Larry Biegelsen, the Medical Device Analyst at Wells Fargo, and I am pleased to host the next fireside chat with the management team from The Cooper Companies. With us, we have Al White, President and CEO; Kim Duncan, Vice President, Investor Relations and Risk Management. The format is fireside chat, if you have a question, raise your hand, and we will come around -- we'll call on you.

So Al, thanks so much for being here.

Yes, absolutely.

You've been a big supporter of our conference. I appreciate it over the years.

Well, Boston.

I thought it was me.

And you. And you, of course.

Alright. So we've got to start with the Q3 earnings, and I wanted to give you a chance to explain the issues you highlighted in CVI because obviously, there's been some confusion since the quarter, organic growth, 2% versus your expectation of about 5% or Street expectation. Talked about the two issues that you saw in the quarter. I think people are still confused about what happened with the e-commerce in China and why people were trading up from MyDay or trading from MyDay to -- or trading up to MyDay from clariti. Just help us better understand what happened, please?

Sure. Yes. Let me cover a few dynamics and then catch me if I missed something here, you want to talk about. But if I look at this last fiscal quarter, we were moving along through the quarter, growing 5%, and things were looking pretty good because we obviously had good margins and we had good free cash flow. So we were feeling good as we proceeded through the quarter.

We started getting a lot more MyDay out into the marketplace, and I talked about that. And on the call, I put everything together when I talked about fitting sets and trial lenses and new contracts and so forth. But I should break those up into two pieces because I think it's important to describe it that way.

If we look at MyDay and we look at the fitting sets and the free lenses that we were putting out in the marketplace. And let's use an example. Those go to an optometrist in the U.S. That optometrist gets it, they fit a patient, fitting set, trial lenses here, take these home, try it, you'll like it and you'll buy it. That's all been very successful, right? And MyDay grew double digits this quarter. We had MyDay multifocal grew 20%. We had a good quarter, and we have good positive fitting data and good positive revenues for the MyDay product that we have that's in the market being sold. So that's kind of piece one.

If you look at the other side of it, this is the clariti piece, and this is the private label piece I was talking about. So when we agree to a private label contract, and let's just assume you go to Japan and we do a private label contract with somebody. From the time we signed that contract, where we negotiate the marketing activity, the launch activity, education activity, and importantly, and this is an important one, the packaging and labeling for that customer, that period to where we're delivering them product is somewhere in the 3- to 6-month time frame.

So when we go to them and we sign an agreement with them, and I talked about the 30-plus contracts that we've entered into and expansion of some other contracts. When we sign that, if you have a retailer who's out there who's currently fitting clariti, and knows that they're going to be fitting their private label product, they'll stop ordering clariti because they want to take their clariti inventory levels lower, right? And they're doing that because we won't take the inventory back. So they intentionally stop ordering. They pull that down because they know that's going to get replaced with private label inventory.

But we don't have anything to give them right now. We don't have -- we're not going to send them fitting sets. We're not sending them product because we have to package and label that product and get it all done so that we can send it to them. Now you don't see that activity normally because that would just happen during the quarter. Somebody orders less of one, they order more of another, and there's no impact, and there's no visibility to that.

But what we had happened this quarter was we were more successful than we thought we were going to be in terms of the contracts that we were winning and the magnitude of those contracts. When that happens and that happened faster than anticipated we pulled forward, if you will, into Q3, the drawdown of that clariti, and we had nothing to replace it with.

Now as you sit here today and you move forward, we anticipated that was going to happen. We knew that was going to happen as you go through into Q4 and as you go into Q1 and Q2 of next year, right? So what that does is put us in a little better position with respect to Q4, Q1 of next year because we don't have all that drawdown that's occurring there. That was the dynamic I was trying to explain. And I know I put those together and it got confusing for people, I know that, right? But that was a dynamic of what was negatively impacting the clariti inventory. That doesn't impact any of our competitors or anyone else or fit data that just impacts that dynamic that happened. So that's what happened with Q3.

And then when I look at Q4, we talked about Q4 and some of that is going to offset itself, right, in terms of we will start getting some of that private label inventory into the channel. We will get it to those customers. We will get them fitting sets and trial lenses and so forth, so they can start that activity and some revenue product that will happen there.

Now we looked at our guidance a little differently than we do historically, right? Because what we said for the Q4 quarter was, hey, if we have the same stuff happened in Q3, let's assume kind of this scenario where channel inventory comes down in clarity in Asia Pac and MyDay for some reason, doesn't get there in the private label side of things, and you have the e-commerce. What would we do under that scenario? And what we would do is a very similar quarter to what we just did this quarter. Now we believe, obviously, for a multitude of reasons, we can do better than that. But that's how we built the guidance in Q4.

And the e-commerce and China issue, you said -- I think you've said you started the year with like 6 months of inventory. It's down to 2. What exactly happened? And why 6 months sounds like -- just sounds high. I mean, I would say in the U.S., people we would think 2 months is normal. So it just sounds like you just -- inventory was just high -- too high coming into the year and that just flagged down, is it more complicated than that?

No. It's pretty straightforward. I mean you ended up with a situation where we were selling products through that channel. We have maintained our pricing or even increased our pricing around the world, including in that channel. And we lost business out of that channel. And you saw a 25% reduction in Q1. It was flattish in Q2. In Q3, it was China down a similar amount in some other countries that pulled that channel inventory down.

To me, that's fine, right? What channel -- what level of inventory do you need in that channel, call it, 3 months or something like that, it gets below that. But we're not going to go chase that back. If somebody wants to be more aggressive on pricing and so forth, they can be more aggressive on pricing on that. But we aren't going to have that happen again.

So I have to ask, if the inventory was higher than it should have been, somebody -- the obvious question is, well, it was inflated. Basically, the term people would use is they stopped the channel a year ago, right? So I just -- I feel compelled to ask that question. Would that be a fair...

No, no, no. Because I mean you have channel inventory go up and down and different channels have different amounts of inventory associated with it. So you will have like pure-play e-commerce channel. And keep in mind, that's what we're talking about, pure-play e-commerce over there. You'll have that inventory levels move up fairly high or come down there on a frequent basis. This would be the lowest, I think we've ever had it, but it would be higher than 6 months at times.

And you've alluded to price competition. Could you be more specific, please, what you're seeing there?

Yes. So for quite a while in the industry, we were seeing pricing that was lifting the industry -- and I'm talking about pure pricing here, not trade up over, but pure pricing that was running about 2% to 3%. And that was supporting contact lens growth that we were seeing at the time was closer to 7%, 8%, that kind of thing. You're still seeing pricing -- positive pricing on a global basis. So let's be clear about that. You're seeing positive pricing in the U.S., we've seen some price increases and so forth in an inflationary environment. But when you look at pricing outside of the U.S. and especially in Asia Pac, there is definitely situations where competitors are getting more aggressive on pricing. In some of those channels, like pricing is actually coming down where people are being really aggressive. We've seen that on that pure-play e-commerce side of the business.

So could we get a little bit more aggressive there if we wanted to? Of course, we could, right? But we've chosen not to do that.

And as I said on the call, by the way, just to finish that thought, right? That is low-margin business. So when you look at the quarters that we're reporting, right, the organic -- I get the organic growth, but our profitability has been sound. Our cash flow is improving, all that stuff is improving. That channel is not a particularly great or profitable channel. Now you can move some older inventory through there, and we all have older hydrogels and we all have products that we'd like to move down a little bit of inventory. So I don't begrudge anyone going in different ways and different strategies for that kind of stuff, but that's not really profitable business.

And you talked about the clariti issue bleeding into '26, a minute ago. The China e-commerce issues...

No, no, no, not in the '26, in the Q4.

Into Q4. The China issue, is that done? So in other words, you were down 25% in Q1, you're flat in Q2. You said you were down a similar amount in Q3 to Q1. And where are we now?

Yes. So I would say, whether some of that impacts Q4 here, maybe it does that we got down to 2 months right now, unless that goes to 0, unless we exit that market entirely, then yes, we're done with it. We're not going to exit the market entirely. So yes, we'll be done with it.

Okay. So taking a step back, you grew 2%. The two issues are you grew below market for the second time in 3 quarters, and we haven't seen that out for 10-plus years. And then the market slowed, to 4% from, to call it -- in the first half, to call it, 7% last year. Maybe help address, a, the confidence you're not losing share and b, the market is not challenged.

Yes. So let me break that into two pieces, right? Because I think if you look at the market from a share perspective, we have probably lost a little bit of share, where we don't have MyDay. I mean MyDAY is our premier product. It's the product that everybody wants. It's the product that we're successful in the daily space, right? That's the product that people want from us. Will they take clariti and do they fit clariti and so forth? Yes. And do people like clariti as an entry-level product? Yes. And it does well there. I mean, clariti grew in EMEA this quarter and clariti grew in the Americas this quarter, right?

But if we have a market where we don't have MyDay and we can't really compete like that's a share pressure market. I mean, at the end of the day, look at Europe, right? We reported EMEA under our numbers. If you look at EMEA, right? That's a market where we're pretty much operating with our full set of products, with our full capabilities. Now they don't have everything. They don't have MyDay, Energys, as an example, but they have pretty much everything, and they have it positioned that way. They have MyDay as a more premium product in private label. They have clariti as the entrance level product. And look at our growth rates in EMEA, look at the market where we're really doing well. If you get outside of that area where we've had less MyDAY to be able to sell, you get pressure on share, right?

I mean we have good competitors, good smart competitors do good job with good products, like and -- that's where we struggle or that's where we've been struggling, where we haven't had the MyDay capacity. So I think you have that piece.

When you talk about the market, market is in pretty good shape. I think I mentioned it on the last quarter's call, and I would kind of say there's been a little bit of consumer purchasing behavior and a little bit of movement there. But I don't put too much weight on that.

What is the change in consumer behavior you've seen?

Yes. It ends up going to purchase behavior. So where we haven't seen a change is when someone goes into the optometrist and the optometrist recommends or prescribes a more premium product, a silicone hydrogel daily, a toric or multifocal, we're continuing to see wearers purchase those products. So that's the good positive side of it. When you look at purchase behavior, does someone buy a year's supply or a 3-month supplier or some of that kind of activity, there's still a little bit of noise about that. Not a lot, but there's a little bit of noise about that.

And Al, maybe talk about the market growth drivers. You were asked about it on the Q3 call, but I'm looking for more specifics. So for example, where are we in the shift to dailies, where are we in the penetration of silicone hydrogel in both frequent replacement lenses and dailies? I'm trying to understand is kind of the trade-up those drivers, the dailies and silicone hydrogel have kind of plateaued.

Okay. Yes, from a market perspective...

You use to give that data right? You used to get some of that market color.

Yes, because there's a lot of numbers that can come out there and get confusing fast. Let me see if I could just give you some good numbers there.

If you look at the FRP market, probably about 90% of that is silicone hydrogels, right?

Dollars or volume?

Dollars. Yes, I'm trying to go dollars, I'll keep it in dollars, right? Because that's where it goes dollars to where it can get a little confusing...

Okay, just so we understand.

Yes. So if we do it that way, we say about 90% of that. If we look at the daily silicone hydrogels are about 65% of that market.

So frequent replacement...

90%.

Silicone hydrogel 90s. Dailies silicone hydrogel 65%.

65%.

Okay.

Right. And there's no reason to believe that, that 65% won't go to 90%. It's just a matter of time of how it's going to get there. That's probably the easiest way.

And what about the conversion to dailies? Like in the U.S. and major markets, is there still this conversion opportunity?

Absolutely. Yes, absolutely. Because you're seeing that in those numbers themselves. But you're also seeing it within dailies. Dailies continue to become a bigger part of the overall market, right? They just...

Any numbers you can share?

Well, you're probably -- not to try to confuse it, right, but you're probably about 40% of wearers are daily wearers right now, and that should clearly be 50% plus.

That's a U.S or global number?

That would be a global number.

Okay. I'm just trying to understand if the tailwinds are still there.

Yes, I absolutely think the tailwinds are still there. Like when it comes to -- I mean, if I looked at the market this year and I look at the market maybe even next year, where we sit today, I think you're probably going to get about 1% from pricing, from net price. That's what we saw pre-COVID was the market was running there. And I think we'll probably see that again moving forward because there is positive pricing in a number of markets.

If I look at wearers, we'll probably get 1% of the market growth will come from wearers, and we continue to see that. That was similar to pre-COVID number, right? And if we say 4% to 6% for the market, that remaining 2% to 4% will come because of trade up to dailies, daily silicones, torics, multifocals, all that kind of stuff. But I think that the days where we were growing 6%, 7%, 8% is a market, those are probably behind us because you pulled that pure pricing side out of that.

When you talk about the myopia opportunity globally, not myopia management, but just the explosion of myopia, why isn't -- why aren't wearers growing more than 1% globally for contact lenses?

Yes. I think it's just the slow progression of how it's working out, right? Because right now, you probably have about 34%, 35% of people around the world are myopic. The forecast is 50% of people will be myopic in the year 2050. So that's a big number that just continues to shift over time.

I don't see that changing. I mean, people seem to keep reinforcing those numbers. So could you see a greater number? You could. I mean, as we went through COVID and came out of COVID, we were talking about that was like 2%. But right now, it seems to be just a slow, consistent progression of people needing visual correction.

And the other thing I wanted to ask about is your share in the silicone hydrogel daily disposable market. Because really, when I've looked at the number, that's really -- that's driving a large part of the market growth, that subsegment, if you will. So you said you had a $1 billion total MyDay, clariti sales in fiscal '25 or you will, on the call. What -- like can you talk about your share position in silicone hydrogel dailies. I'm trying to understand if you're gaining or losing share?

So we're probably about 25% global market share in daily silicone hydrogels right now. We're about 21% share of dailies in total. So higher in daily silicones than in daily. So as the market continues to shift to daily silicone hydrogels, that's a clear positive for us, right? And we were better and growing faster for a number of years when we had the MyDay capacity. So I think we've held up fairly well in the grand scheme of things over the last year, 1.5 years with pretty limited MyDay relatively speaking.

But I think we probably have lost a little bit of share in the daily SiHy space over the last couple of years, and I think we'll be recouping it now. And I think these private label deals that we're doing right now are going to be the biggest driver that's going to pick back up.

One question I've gotten is, you've been spending a lot on CapEx. How can you not be in a good position on MyDAY supply yet?

Yes, so we are. So we are. But it was literally the month of May when we went out and told our sales people, hey, you can go sell MyDay now. You can sell it. You can -- we'll have fitting sets for you. We have trial lenses for you. You can win private label business. You can go out there. Now I'm sure our competition did the same thing I do. Like you hear somebody is constrained or somebody, you're out there going hard core doing everything you can against them. That's fine. We do the exact same thing. But we finally got in a position only a few months ago where we could go out there and aggressively sell that product.

So Al, on 2026, you got a lot of questions on the call, and we talked afterwards just to understand if I heard your comments correctly, you expect the core -- you expect the market to grow 4% to 6%, despite only growing 4% in the first half of the year.

Yes.

You expect CVI -- core CVI to grow in line with the market, 4% to 6%, plus 100 basis points from MiSight, which would be 5% to 7%. That's how I interpreted your comments on the Q3 call. My question is, a, well, just confirm that's the right way to think about it; and b, why not be more conservative right now?

Well, I think that -- so yes, I mean, directionally, I would agree with everything you said. Like when we get in the December call, which is our fiscal Q4, when we give guidance, we'll give the numbers and details behind it. But I do think the market is going to be fine. I think the market will grow 4% to 6%. And you're right, we've been 4% and 4% here to start this year out. But I think the -- there's enough underlying characteristics that are going to continue to drive the market mid-single digits. And I think it will be a little bit better than the 4%, we've been running at.

I think that we'll take share against that. I think if nothing else, candidly, we've had a couple of things here that are kind of -- maybe they're transitory, maybe they're not, however you want to define it, when you look at like some of the inventory pull downs but we're comping against that activity and we should be able to put up better growth rates comping against that activity.

Plus, plus and the thing I would say, most importantly, is MyDay capacity. I mean I've been talking, Larry, I think for years, I could go back and look at the transcript at this conference talking about being capacity constrained on MyDay and being able to sell it once we can make it like being capacity constrained has been a challenge for us for a number of years. I mean I feel really good sitting here for the first time in years saying that we can supply that product.

And you're going to see it because that's how we're going to finish up the CapEx payments. You pay for these big lines roughly 1/3 when you order it, right, 1/3 upon delivering 1/3 upon completion. And that's what we're paying right now is the completion orders and so forth. It's why Brian talked about the $2 billion of cash flow and so forth. Like I know it's been a tough process working through some of this, but I feel good where we are right now.

And I think we'll capitalize on that. And when I look at the MyDay growth that I referenced earlier, right, double-digit growth this quarter, like that's what -- that's a precursor, what's to come on a bigger number?

Switching gears, because there's a lot to cover. I mean I'd love to drill that on MiSight. Maybe we'll come back to it. So it's a lot to cover. So fertility, when does that market turn?

So that market is turning now. We're seeing it get a little bit better, right? There was probably three things that really were impacting that market a little bit, and it fell off relatively quickly and for anyone unaware, right? We reported double-digit revenue growth in fertility. I think it was 14 out of 15 quarters. It was a long time. And then in our growth as rates came way down.

So we've been seeing that underlying market starting to get a little bit better and starting to get a little bit healthier as the year of the snake and that stuff moves behind us and some cycle activity starts to pick up a little bit. So I think all of that is a positive. I mean we have a really hard comp in Q4, but I think you're going to see more single-digit growth starting to come from that market in the near future.

And you still think this is a high single-digit market long term?

I think it's at least a mid-single-digit market long term.

So that's a change. Is that fair? You used to think it was probably more of a high single-digit market.

I would not say that it can't get back up there, right? But look at what happened I mean you had Trump come back out in February and said, hey, we're going to cover IVF or we're going to require insurance companies to cover IVF. You had people wait for that. You've had people wait to go through that process because of that comment. Now obviously, that government is not covering it and reimbursing it and they probably won't, right? But you had some cycle activity softness because of that. You had some cycle activity softness in Asia Pac. You have some consumer concern there because unlike a lot of products, like if there's consumer concern about the -- whatever, the economy, right?

This isn't like you're buying something and you're stopping. When you go through a fertility process, you have a baby at the end of it, right, what you have to pay for and take care of and so forth. So there's a greater hit when it comes to any economic concern. So do I think fertility can get back up to the upper single digits. There's enough indications in the world around birth rates declining and so forth, that there's a lot of positive underlying fundamentals. But I would say, at least as we get in the near term here, saying it's a mid-single-digit grower is where it should return to.

Okay. As soon as next year?

Yes. Yes.

Okay. So while we're on CSI, I mean, let me ask -- I mean, the question I probably ask you every time we talk publicly, the reason to keep these two together, what's transpired the last few weeks or week make you rethink having these together. And the way I see it is, if I look back with the exception of the Sauflon acquisition, you've largely used like cash flow from CVI to do CSI deals. So a lot of people -- most people own the stock for CVI. Why not just -- if you separate these two, you could basically return cash. People own both these separately, you return cash to CVI shareholders. It's just different -- why keep them together?

Well, I mean, a couple of things. I mean, one, we have never held back on any CooperVision investment activity because of something that's happened in CooperSurgical. I mean we have always and will always invest in CooperVision first and foremost. So there's been non -- there's been nothing that's negatively impacted Vision because of that activity.

When I look at our stock, we were $110 or whatever a year ago roughly. And we had a forward multiple that was based off the success of the contact lens industry and the success of the fertility space, right? And that multiple was obviously in our entire earnings, and that was good, right? And we were plugging along just fine. You kind of fast forward a year later to today, and you've got like the negatives on both sides of that, right?

So as I sit here, I look at it and say, okay, I do believe very passionately that our contact lens market is going to be growing better, right? And we're going to -- we won't ratchet up in the snap of a finger. But are we going to take steps there as consistent improvement? Are you going to see better Q1, Q2, Q3? Yes. So as that plays out, we'll get the better forward multiples. People get more comfortable that yet, like this is in some strange weird dynamic. The fundamentals are still sound in the industry, and our position with the industry is still just as good as it's always been. That's going to play out.

I do believe fertility is going to get back to mid-single-digit growth, and we'll get strength on that side of things. And there's a few positives within our med device business. As we move that forward, I envision our multiple returning at least closer to normal levels or market levels, right? And everything kind of get pulls up. Where I would go is, if all that happens and we don't get that return, if the multiple doesn't happen, if there's something holding us back, it has not happened historically, but if it does, and it holds us back from our ability to get the maximum shareholder value, then yes, we would take a look at it. And we'd say, okay, maybe we do need to split these businesses.

There's dissynergies that happen when you split these two businesses, right? So -- and you have to have somebody that's interested in both assets at a slightly lower earnings rate. But we will make that move if we're not getting the valuation multiple we deserve.

Okay. Fair enough. I was going to ask you a follow-up question on that, and I forgot. I'm so interested in your answer to that one. I'm sure I'll think of it.

Okay. '26, I have like a long list of questions on kind of the P&L stuff you gave. But at the end of the day, the Street came out at about $4.43, implying 8% year-over-year reported growth. We took kind of all the pieces you've given and we got to call it $4.41, so pretty close. I guess before asking kind of all the specific questions on tariffs, et cetera, did the Street kind of -- is the Street properly calibrated based on the pieces that you gave for '26 on EPS?

Yes. I'm trying to avoid giving guidance for next year, but I think if you took all the components, and I'm sure you have all the components there, how we get there, I think you're probably looking at it fairly, like, I mean we need to get to the point where we give guidance and we look at current FX rates and taxes, tariffs, all the stuff that you kind of highlighted there.

The one I would probably add there that people don't really know yet, but it will be an important one, will be this reorganization work that we're doing, right? Brian mentioned it on this last call. So if you look at the CooperSurgical business, let's start there, right? We were doing probably 3 acquisitions a year. We probably did 30 or 40 acquisitions over 10 years. The last one we did was in August of last year, right? And we have done a lot of work in that business over the last year to finish the integration activity that we've been working on, right? We put a new ERP in there. We've automated a lot of stuff. That CooperSurgical business is not as efficient as it should be from an OI perspective, and we're doing a lot of work on that.

Now we also have other related corporate work that we're doing and so forth. But we have an inefficient structure there. We still have a good operating margin, certainly. We need to transfer it more to cash flow, but we also need to leverage our revenue growth to a greater degree. So we're spending quite a bit of time on that right now internally. There's a heavy focus. Brian is doing an amazing job on that and drilling down into those details to say, okay, what can we do? What makes sense? Not impacting revenues, right? But what makes sense.

Now the timing of this happens to coincide with what we're talking about, but this process was started quarters and quarters and quarters ago, right? This is all playing out under the strategy that we had envisioned right? But we have not given numbers or details associated with that other than I think Brian had made a comment like it would offset tariffs. But that's where that restructuring activity or reorg activity, what you want to call it, that's important for us right now because that's how we're going to leverage a lot of our earnings going forward.

Because when you look at next year, we've made some good improvements in gross margins, and we pulled our gross margins up higher everything we're talking about with MyDay and the daily growth pulls those gross margins down. That's pressure on gross margins. Now we've got improvements, manufacturing improvements and everything else to work hard to keep gross margins where they're at, but we need to do a better job leveraging the revenues that come through the P&L.

And that's what we're going to focus on. I mean we're still driving towards low double-digit constant currency OI growth every year. That's what we strive for, right? And we're still striving for that. In order to accomplish that, when you're looking at tariffs and what we said tariffs were $24 million or $25 million, something like that.

$24 million, yes.

$24 million, like to get over that and to hurdle that continue to put those numbers up, we need a better job running a little bit more efficiently. So we haven't given any numbers around that. That's why I was just saying that was the one pause factor on that.

But it sounds like you still expect to be double-digit constant currency OI growth, excluding tariffs. Is that there or not?

Well, that's...

Or I'm not giving guidance yet. This program we talked about make it difficult to achieve that excluding the tariffs.

Well, the program I'm talking about is a beneficial program, right? You take the earnings hit or you take the charge, but you get the benefits, right? So that provides upside to our results for next year. But I don't want to get into specific numbers or guidance around it yet. I guess I'd just say what the Street is looking at what you're looking at as we sit here today, is probably a fair way to look at it.

Okay. And free cash flow, I mean, by our math, your guidance, you're a little bit shy of $400 million this year for free cash flow. Is that fair? So the $2 billion over the next 3 years, apply $650 million a year. That's a lot. How do you get there?

It's not a lot today, to be honest with you. I mean you go back in time, I mean, we have generated, I think 1 year, we had 22% of revenues in free cash flow. We had many years in the upper teens and 20% as a free cash flow yield, if you look at it as a percentage of revenues. So we have been down for a number of different reasons, right? But we're in the uptrend on that right now. We're going to have CapEx come down. Our investment cycle has come in. We're at the very end of that. So you're going to have CapEx come down and you're going to have your operating cash flow continue to improve. We'll do -- we'll stay focused on working capital metrics and so forth.

But to me, that's a consistent improvement. That's not like some big bolus and then we stay flat. '25 will be a better free cash flow year than '24, '26 will be better, '27 will be better, right? We'll get a step improvement as we move over the coming years.

And so two follow-up questions. One, I remember my question before, the share -- the insider buying, we saw, I think, some yesterday, but not everyone bought. I don't think we saw -- you haven't bought. So why -- you talked about the start being depressed, the multiple being depressed, why not?

Well, that somebody bought yesterday. I've been -- I haven't had much time to stop. I flew here yesterday. So don't be surprised if you don't see something, but...

And what are you going to do with the free cash flow, with the increase?

Twofold. We've talked about paying down debt and we talked about stock buybacks. We did -- we didn't do stock buybacks for a number of years. We did a little bit in the first quarter, whatever we did in second quarter, I guess, our fiscal, we did a little bit more like 52% tip our hat, but no reason to me we won't be more aggressive on share repurchases. We're more comfortable with our free cash flow today than we've been over the last couple of years, right?

So as we look at that $2 billion of free cash flow, and I look at the multiple of the stock right now and where things sit, like the best return that we can get on our money right now is reinvesting in ourselves and that's returning money to shareholders through stock buybacks. So we'll likely be a little bit more active there.

And Al, we've got a little over a minute left. We covered a lot of ground. I know we skipped over MiSight, but you've talked to a lot of investors over the last week, I'm sure. What else? What do you want to highlight during this fireside chat that we didn't cover that you're hearing from investors.

Yes. Well, I definitely think we covered it. We covered the hot topics on it. I mean we have a good handle on our business, like -- and we run it well, and you see that from an EPS perspective, and you're seeing it from a cash flow perspective. Where we've fallen short here recently has been on the organic growth side, right? And I really firmly believe that we've corrected that with MyDay and you're going to see the improvements on that in the coming years and the upswing from that.

And the challenges that we've had here in Q3 and that we're finishing this year with will be in the rearview mirror in the very near future. It's like somebody said it to me yesterday or the day before, they were like, damn, the future is super bright. We just have to get there.

Okay. Good. Perfect way to end it. Thank you again for being here.

Yes. Absolutely. Thank you.

Ladies and gentlemen, thank you for standing by. My name is Dandarina. I will be your conference operator today. At this time, I would like to welcome everyone to the Q3 2025 Cooper Companies Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Kim Duncan, Vice President of Investor Relations and Risk Management. You may begin.

Good afternoon, and welcome to Cooper Companies Third Quarter 2025 Earnings Conference Call. During today's call, we will discuss the results and guidance included in the earnings release and then use the remaining time for questions. Our presenters on today's call are Al White, President and Chief of Officer; and Brian Andrews, Chief Financial Officer and Treasurer. Before we begin, I'd like to remind you that this conference call will contain forward-looking statements, including statements relating to revenues, EPS, cash flows, interest, FX and tax rates, tariffs and other financial guidance and expectations; strategic and operational initiatives, market conditions and trends and product launches in demand.

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 Cooper's Form 10-K and Form 10-Q filings, all of which are available on our website at coopercos.com.

Also as a reminder, the non-GAAP financial information we will provide on this call is provided as a supplement to our GAAP information. We encourage you to consider our results under GAAP as well as non-GAAP and refer to the reconciliations provided in our earnings release, which is available on the Investor Relations section of our website under quarterly materials. Should you have any additional questions following the call, please e-mail [email protected]. And now I'll turn the call over to Al for his opening remarks.

Thank you, Kim, and welcome, everyone, to our earnings call. In today's discussion, we'll cover our Q3 results, Q4 guidance and early thoughts on fiscal 2026. Starting with the numbers. Q3 consolidated revenues were up 5.7% year-over-year or up 2% organically to $1.06 billion. Margins improved and non-GAAP earnings grew double digits to $1.10, up 15% year-over-year. Free cash flow was strong at $165 million, and we repurchased $52 million of our stock during the quarter. While revenues were lower than expected, I'll speak to that in a minute. I'm pleased to report that we delivered strong margins, double-digit earnings growth and robust free cash flow, reflecting the operational excellence that remains central to our growth strategy. .

These results reflect disciplined execution and our ability to capitalize on prior investments to drive consistent operating performance across our business. And looking ahead, we expect this type of execution to continue as reflected in our updated earnings guidance and upcoming commentary on free cash flow.

For CooperVision, we reported revenues of $718 million for the quarter, reflecting 6.3% reported growth and 2.4% organic growth. These results came in below our expectations, driven primarily by 2 factors. First, Clariti declined globally, led by a noticeable drop in Asia Pac and a slowdown in the Americas and EMEA. As customers continue favoring premium daily lenses, the significant increase in MyDay fitting steps and trial lenses led to a faster-than-expected return to MyDay bidding activity. MyDay delivered double-digit growth this quarter and this bidding activity indicates the future is incredibly bright, this near-term activity meaningfully impacted Clariti orders.

Second, we saw greater-than-expected weakness within the pure-play e-commerce segment in Asia Pac, excluding Japan. This mirrored our experience in Q1 in China and was again most pronounced there, although it also affected several smaller regional markets. Despite the top line pressure from this activity, the impact on profitability was minimal as this region's pure-play e-commerce channel has very low margins. Regarding the regional results. Importantly, EMEA delivered a strong quarter, growing 14% or 6% organically, driven by continued strength across key markets. This performance reinforced our #1 position in the region and moved EMEA to being CooperVision's largest revenue region globally.

Additionally, early fit set and trial lens activity for MyDay is extremely strong in this region and we expect continued success moving forward. Meanwhile, the Americas grew 2% or 3% organically, navigating the distributor channel inventory dynamic that we discussed on last quarter's earnings call and Clariti softness that APAC grew but declined 5% organically, reflecting the pressure from Clariti, which was down double digits in Japan and China and the weakness in the e-commerce channel. Digging deeper into MyDay, we're encouraged by several positive developments surrounding this flagship product family. First and foremost, we successfully resolved the manufacturing constraints that previously limited our ability to fully compete. With full sales execution capabilities now in place, we're regaining momentum as we accelerate the global rollout of fitting sets and trial lenses. This marks a key turning point in our ability to deliver sustained growth and meet increasing demand across global markets. We've also recently renewed several large contracts and featured MyDay as a growth driver and we won several new private label agreements that offer significant MyDay growth opportunities. These wins are driving fit activity and increasing our confidence in accelerating growth as we move into fiscal '26.

Turning back to the quarterly details and reporting on an organic basis. Within categories, Torics and multifocals grew 6%, while spares were down 1%. Within modalities, our daily silicone hydrogel lenses, MyDay and Clariti grew 7%, and our silicone hydrogel frequent replacement lenses, Biofinity and Avaira were up 2%. MiSight grew 23%. Starting with MyDay and adding some additional color, MyDay grew double digits this quarter with our most innovative and premium price lenses, works, multifocals and Energys, all posting double-digit growth. In particular, MyDay multifocal grew 20% as this fantastic lens continues to perform extremely well. Importantly, the Volt family of MyDay products has considerable upside as we expand availability and deepen penetration within existing accounts and new customer segments around the world.

Supporting this, we have considerable activity with fitting sets and trial lenses but also launch activity. This includes MyDay Energous, featuring our premium digital boost technology designed for today's digital lifestyle, which we expect to launch in Europe in early fiscal 2026; MyDay multifocal, which we expect to launch in several major APAC markets soon, along with increasing availability in others; and our MyDay toric parameter expansion, which is actively being rolled out in multiple markets now.

Moving to Clariti. This was a challenging quarter as customers shifted focus to MyDay. However, looking ahead, we're confident that this high-quality value price lens will regain its footing with success from new launches such as 3 add multifocal which recently entered the U.S. market and grew double digits and from where it is focused on high quality at a reasonable price.

Turning to our frequent replacement lenses, our bioinstrumentation strong -- fitting activity across its broad portfolio -- while a reduction in channel inventory impacted spears, growth was supported by continuing strength in torics and multifocals. Additionally, our innovative made-to-order products such as the Toric multifocal and extended range spears and torics delivered healthy growth again this quarter. These offerings remain unmatched in the market, offering the broadest range of prescriptions available. Eye care professionals consistently value these products for enabling patients with complex vision needs the ability to wear contact lenses.

Turning to Myopia management. My side grew nicely, led by another record-setting quarter in EMEA. This performance was driven by increased fitting activity and robust customer engagement initiatives. The new pricing promotions we discussed last quarter are gaining traction and generating encouraging momentum, and we expect this to continue. In the Americas, MiSight delivered mixed results as we rolled out the new promotional structure. But our back-to-school campaign is well underway, and we're seeing positive trends in fits. We're also pleased to share that we just received final regulatory approval for MiSight to launch in Japan, and commercialization is planned for early 2026.

Additionally, we're actively preparing for the launch of MyDay MiSight across Europe and select Asia Pac countries in the first half of 2026. We remain well on our way to hitting our objective of a hundred million of MiSight sales this year and are confident that our momentum and upcoming launches will support continued success in fiscal 2026. To conclude our vision, let me share a few thoughts on the contact lens market. Overall market conditions remain healthy and continue to track to the mid-single-digit growth range we discussed on last quarter's earnings call. Consumption trends remained solid and the market continues to see a steady shift towards silicone hydrogel lenses and sustained interest in toric and multifocal products.

Looking ahead, we expect this level of market performance to continue with the key drivers remaining the ongoing transition to silicone hydrogel dailies, expand adoption of toric and multifocals and to a lesser extent, pricing and growth in wearers.

Moving to CooperSurgical. We posted quarterly revenues of $342 million, up 4.5% or up 2% organically. Within this, fertility revenues totaled $137 million, growing 6% or up 3% organically, led by strength in genomics and consumables where we gained market share in EMEA. However, we're still seeing signs of pressure on the market with clinics continuing to manage cash conservatively by delaying capital purchases and installations along with ongoing softness in cycles in Asia Pac. Despite these near-term headwinds, we remain highly optimistic about the long-term outlook for fertility. The underlying fundamentals are strong, supported by trends such as delayed childbirth, increasing access to treatment, rising patient awareness, expanded benefits coverage and continued innovation and technology. It's estimated that 1 in 6 people globally will experience infertility at some point in their lives, underscoring the significance and resilience of this market.

Moving to office and surgical, retails were at $205 million, up 3% year-over-year and up 1% organically. Growth in Medical Devices was driven by our labor and delivery portfolio of products, which grew double digit. And our specialty surgical device portfolio, which grew upper single digits. And with this portfolio, while not included in organic growth, we continue to see excellent performance from obp Surgical our most recent acquisition, featuring an innovative suite of single-use lighted cordless surgical retractors, which grew 23%. This was offset by a 10% decline in PARAGARD, following a strong start to this fiscal year, driven by advanced purchasing ahead of our price increase and the successful launch of our one-handed inserter.

Now before turning the call over to Brian, let me share our thoughts on our Q4 revenue expectations. For CooperVision, we expect continued headroom on Clariti. While trends from MyDay are very positive and may present upside, a significant portion of the activity is tied to fits and trial lenses, which typically take a couple of quarters to convert into revenue. As a result, we're guiding to 2% to 4% organic growth to avoid being overly optimistic about the ramp of MyDay. And this guidance also factors in risk with the pure-play e-commerce channel in Asia Pac as well as the potential for any further inventory contraction.

For CooperSurgical, we're also guiding to 2% to 4% organic growth as softness in fertility is expected to persist through Q4. Looking ahead to fiscal 2026, we remain confident in our ability to deliver sustainable revenue growth and gain market share. For CooperVision, as confidence is grounded in the strong momentum we're seeing with MyDay, the positive impact we'll receive from upcoming product launches and recent contract wins. We expect to outpace the contact lens market and fitting activity and to gain market share. For CooperSurgical, we expect improvements driven by a rebound in fertility market as the Asia Pac region returns to growing cycles and fertility clinics start investing again. Beyond the top line, we expect operating margin expansion as we lever prior investment activity and a more efficient organization.

And with that, I'll turn the call over to Brian.

Thank you, Al, and good everyone. Most of my commentary will be on a non-GAAP basis, so please refer to the earnings release for a reconciliation of GAAP to non-GAAP results. For the third fiscal quarter, consolidated revenues were $1.06 billion, up 5.7% as reported and up 2% organically. Gross margin improved by 70 basis points to 67.3%, driven by continued efficiency gains, mix and positive foreign exchange. Operating expenses grew in line with sales reflecting disciplined cost management.

Within this, we delivered targeted SG&A leverage while continuing to invest in R&D, which was up 11%. These R&D investments are consistent with our planned activity around product development at both CooperVision and CooperSurgical as we continue advancing several exciting development programs and support several regulatory initiatives. Operating income rose 8%, with operating margin expanding to 26.1%. Interest expense was $24.7 million, and the effective tax rate was 13.4%. Non-GAAP EPS was $1.10, up 15% based on approximately 200 million average shares outstanding. Free cash flow was $165 million with CapEx of $97 million. Net debt declined to $2.35 billion and our bank defined leverage ratio improved to 1.77x. Finally, we repurchased 724,000 shares of stock for $52.1 million, leaving approximately $164 million ability under our $1 billion board approved repurchase plan.

Moving to guidance. With just 1 quarter remaining in the fiscal year, I'll focus on our Q4 outlook and then share some preliminary thoughts on fiscal 2026. For the fourth quarter, consolidated revenue guidance is $1.049 billion to $1.069 billion, reverting 2% to 4% organic growth. CooperVision's revenue is expected to be in the range of $700 million to $713 million, up 2% to 4% organically, and CooperSurgical revenue is expected to be $350 million to $356 million, up 2% to 4% organically. For earnings, we're guiding to non-GAAP EPS of $1.10 to $1.14. And -- this assumes slightly lower year-over-year gross margins, primarily tariffs, offset by a solid operational execution, which we expect will result in better operating margins. Interest expense is expected to be around $21 million, and the effective tax rate is expected to be in the range of 14% to 15%. For free cash flow, we expect to generate roughly $100 million in Q4, bringing our full year total to roughly $385 million, which aligns with the -- upper part of our previously communicated guidance range. We'll continue to focus on debt paydown and share purchases with these proceeds.

Looking ahead to fiscal 2026, Al covered revenues, so I'll highlight a few additional items. Starting with tariffs. We've begun implementing mitigation strategies and now expect the impact to be approximately $24 million, lower than previously anticipated. While this will pressure gross margins, we plan to more than offset it through disciplined operating expense management. To support this, we're currently executing several productivity and efficiency initiatives to position ourselves for a strong 2026. These actions correlate with the significant progress we've made implementing IT upgrades and finishing integration activity. With this progress, we've been taking a fresh look at our entire organizational infrastructure to ensure we efficiently leverage future growth.

Although it's too early to quantify any related charges or P&L benefits, we expect them to be meaningful and will provide more detail on our next earnings call. And lastly, regarding free cash flow. With the completion of Coopers' large CapEx investment cycle, which significantly expanded our MyDay capacity, we expect much stronger free cash flow ahead. Operating margins remain healthy, and we're committed to further improvement. But just as important is our focus on converting those margins into free cash flow at a higher rate by executing on working capital initiatives, maximizing returns on investments and maintaining disciplined cost control. As a result of these efforts, we expect to generate approximately $2 billion in free cash flow over the next 3 fiscal years. From a capital deployment perspective, we'll continue investing in growth and innovation while also prioritizing debt reduction and share repurchases.

With that, I'll now hand it back to the operator for questions.

[Operator Instructions] And our first question comes from the line of Jon Block with Stifel.

Al, we back got the likely 100 basis points from my side growth contribution this year? I think your 2025 CVI growth is probably 3.5% at the midpoint. And that lagging market that I think you said is around mid-single digits this year. So just how do we think about CVI for fiscal '26? You gave some high-level commentary. But is your portfolio outside MiSight lagging market in line with market when we think about fiscal '26. And if you're talking about outgrowing industry next year, is that how we get there? In other words, like core CVI portfolio, call it, in line-ish with overall market and then a 100 basis point kicker from MiSight. And I know there's a lot of numbers. I kind of moved slowly, but hopefully that came across okay.

Yes, I got you. So if we look at the market in calendar Q1 and calendar Q2 of this year, the market grew 4% each quarter. In the first quarter, the market grew 4%, we grew 5% and in Q2 here, the market grew 4% and we grew 2%. So you are right, a little bit of share loss, if you will, through the first half of this year. I would say that our portfolio has been lagging the market. Where I look at it year-to-date and maybe even some went into last year, I'd say the portfolio was lagging because we didn't have full availability of MyDay, we were basically fighting with one hand tied behind our back because we just weren't able to provide the product everyone wanted. And I think our team did really well, and they did the best of their ability with what they had available to them. But that's changed. And it wasn't quite a snap of a finger, but it was pretty close.

And we have put out a significant number of fitting sets and trial lenses and so forth into the market to drive that success. So I think that when you say the portfolio is lagging, if you will, this year, significantly better from a fitting perspective as we exit the year and materially better next year from the perspective of daily SiHy. So I think that if I look at next year, we're at least at market based on a core portfolio, if you will, at least at market plus the share gains that come from MiSight. And I think we've got a chance to be above that depending upon how fast this fitting activity converts into actual revenues.

Okay. That was great. Maybe just a quick follow-up. And I don't know if I missed something, but why is MyDay's success arguably like disproportionately coming from Clariti? I think about Clariti is a really good cost effect -- to the portfolio, MyDay more of a premium. So when you talk about Myday, it's great to hear about the traction after the fitting set, why seemingly is it disproportionately coming from Clariti versus just competing SiHy dailies. And Brian, any maybe one-liner on how we think about margins Clariti versus MyDay.

Yes. So what we ended up seeing here that did surprise us is there are segments of the market, and it's definitely true in some geographies, such as Asia Pac, where we had people out there selling Clariti that wanted to sell MyDay. And they were almost viewed as somewhat similar type of products. There wasn't a clear differentiation between the 2 products. And you see that differentiation in some markets, and we didn't see much of an impact with all this MyDay activity there. But in some of those markets like Japan being one of them, where those were sold much more similar.

When we brought MyDay back in, the fitting sets and everything else, what you ended up having happened was a number of optometrists or ophthalmologists in some of these markets. saying, "Hey, I'm going to hold off for a little while on Clariti, and I'm basically going to tell everybody, hey, try this MyDay, see if you like it, I want to fit you in MyDay. And let's kind of like take a little bit of time here. We've got these lenses, fitting them, take them, see if you like them. Let's figure out if you like those better before we reorder clarity."

So that was a little surprising to us in terms of the magnitude of that. But it was pretty focused on a few markets where MyDay and Clariti are much closer than you think because your comment, Jon, is truly you'll see here in the Americas and you see it more in EMEA where there's almost like separate channels for MyDay and for Clariti. But as I mentioned, that's not exactly true everywhere.

Yes, Jon, on your question on margin, I won't get into the exact margins, but Clariti's margins are a little bit better than MyDay's.

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

Al, it looks like the contact lens market had slowed each year since 2021, and it slowed to, as you said, 4% growth in the first half of calendar 2025. So maybe just zoom out a little bit, why has the market slowed so much? And how confident are you there isn't something else going on here like some consumer softness? And I had one follow-up.

Yes. So you are right, Larry. I mean, the market grew 7% last year. It's grown 4% so far this year. I think there's a little bit of lightness in some areas where we had strength. One of those areas would be pricing where we saw higher pricing. We've seen higher pricing, and that started to lag, especially outside of the U.S. We saw some of that in particular with this pure-play e-channel stuff I was talking about in Asia Pac, where we maintained our pricing but some competitors got a little bit more aggressive to actually win share and take sales there. So I think that you're seeing some of the pricing come off the market a little bit. That's probably one of your key indicators. I think there could be a little bit with consumer activity. I talked about that on the call last quarter. But I wouldn't go too far with that, but I think you could see a little bit on the consumer side.

Okay. That's helpful. Brian, on fiscal '26, thanks for the preliminary color. Maybe a little bit just to push a little bit more. Consensus EPS growth at 9%, any reaction to that? And I heard about the operating margin leverage from Al, but I didn't hear the reiteration of double-digit constant currency operating income growth. And any of the other just walk us through, it sounds like tariffs are going to be completely offset, if I heard you correctly, FX looks like a tailwind? And then how do we think about tax. It looks like it's coming in at about 14% this year. Should we still think about 15.5%.

Larry, good questions. We did give some color. We gave some directional commentary on next year in our prepared remarks. We are always going to target driving low double-digit constant currency OI growth, especially over a multiyear period. There's a lot of moving parts, not the least of which tariffs. We're focused on tariff mitigation and driving solid operational execution. But really, we're going to provide more details in December on how that all translates to OI growth and EPS growth. I think the tax rate you've assumed is probably a fair estimate. But again, we'll update you in December. .

Next question comes from the line of Jeff Johnson with Baird.

Al, I'm still trying to reconcile a little bit maybe the Clariti and MyDay comments. I think -- as I think about it, especially from a top line perspective, you should, as trade outs happen from Clariti into MyDay, you should get some nice benefit from that, not pressures from that. And even if there's a little bit of timing uncertainty in those Clariti orders going down this quarter and just fitting activity on MyDay picking up, why does that not translate to then a nicer inflection in 4Q and instead kind of the 4Q CVI number coming down. It just seems like there's an extended period where we're not getting the MyDay benefit, but feeling the immediacy of the Clariti headwind.

Yes, you're spot on, Jeff. I mean -- and that question is something that we've been spending some considerable time here over at least the last couple of weeks is how does that transition happen? And does Clariti bounce back a little bit faster? Or does it not? Does the fitting activity translate to a faster uptake in terms of revenues of MyDay or does it not? Or do we get a situation where we have a similar quarter to this quarter where they kind of come together and it doesn't come to fruition. That's a question mark, right?

So I think that the guidance that we gave assumes a very similar quarter, if you will, Q3 to Q4. I mean, I'm pretty optimistic, as you know, I'm an optimistic guy in this kind of stuff. And when I look at that data, I feel pretty good about it. But we cannot get in front of ourselves. We've had a couple of quarters here where we got ahead of ourselves a little bit, and we wanted to ensure that we gave guidance that was certainly reasonable and something that we were going to be able to reach even if we do see a situation where Clariti orders continue to lag, and MyDay, all the MyDay fitting activity doesn't translate into the size of revenue orders that we're hoping to get.

All right. Fair enough. And then maybe just on the e-commerce side. Maybe you could flesh that out just a little bit more for us. Are you seeing that from some of your largest competitors, some of those pricing actions? Is that local competitors? Just help us out that Asia Pac market is a little harder for us to get intelligence on.

Yes. I think you go too much into competitor details and so forth. But yes, we are seeing some of that aggressiveness from some of our larger competitors. And again, like, we lose that business. China was down 25% in the first quarter. It was down similar this quarter. It has very little margin impact because it's such a low-margin business. We didn't want to lose it, but yes, we've seen some more aggressive pricing that's out there outside of the U.S. and certainly in the Asia Pac region. .

Next question comes from the line of Issie Kirby with RedBird.

I just wanted to touch upon the restructuring that was mentioned at the end of your prepared remarks. Sort of -- any more color you could give us on what particular areas you're looking at? Is it mainly in vision? Is it in surgical or more across the board? And what prompted you to take a look at this now? And then I have a follow-up.

Yes, I had a couple of comments. One is that we had done a number of acquisitions over many years. We haven't done an acquisition in a little while here, and we don't have any in the cards. We've done some really hard work on completing some of that integration activity, and we're now taking a fresh look at that and saying, okay, now that we've got some of that behind us, how does our organization set up and what can we do to make it as efficient as possible moving forward. .

We've also had some changes in CooperVision, that's in CooperSurgical and CooperVision over the years in terms of how we've grown coming out of COVID. And when we take a look at our IT implementations, a number of IT upgrades that we've done that have been very successful, it's a good time to take a look at that and say, "hey, we all talk about artificial intelligence, and we talk about IT and so forth. Let's look at our organization throughout our OpEx structure and with a heavy focus on kind of your G&A areas and can we leverage all those investments we've done. And it's a hard thing to do. You're seeing a lot of companies do it. We're doing the exact same thing right now. So we're going through that challenging period. of saying we have to drive more efficient long-term growth. And we've invested very considerably over the last several years to put us in a position where we can complete that analysis and take some appropriate action. So we're going through all that work literally right now.

Great. And then just on the Myopia business overall, I think MiSight actually holding up pretty well despite some of the potential cost impact. Is that really come from Europe? How is MiSight doing in Asia? And then do you have any update on the SightGlass approval and whether that's something we could see towards the back end of this year still.

Sure. Yes. MiSight, I would say, is performing really well in Europe. Some of the stuff I talked about last quarter is playing out successfully. We've got good momentum in that marketplace right now. We've got MyDay, MiSight coming next year in that market. That will include at some point, MyDay MiSight -- so we're going to continue to hit that market hard and we're doing really well there, including with some key strategic accounts.

I'd kind of say Asia Pac is doing okay. There is -- we kind of have our fits and starts there. but I'm excited about getting MiSight into Japan. That's going to be a pretty big market for us. That's over half our revenues in the Asia Pac region, and we don't have that product there. So we'll be launching that at the beginning of next year, and I think that will give us an extra kick. A little bit slower here in the Americas and in the U.S. Some of this promotional activity we talked about is coming into the marketplace now and there's been a little bit of confusion almost, if you will, around that as we roll that out and work to standardize that. So we'll get that going with the back-to-school work and so forth, but a little bit slower in the Americas. No data on SightGlass right now. It's with the FDA. I'll provide an update as soon as I can on that, but nothing new to add.

Next question comes from the line of Joanne Wuensch with Citibank.

I want to sort of press a little bit on the commentary about the market growing mid-single digits and the potential to grow at the market, and it all seems to be tied to MyDay. Maybe this is too broad of a description, but I'm really trying to understand how the CVl segment has slowed so much and how it's expected to reaccelerate.

Yes, Joanne, you're right. It is tied to MyDay. MyDay was very successful for a long time, growing well north of 20%. It still grew double digits this quarter because all the capacity that we have been bringing on over the last year or so, we've been producing product and selling product out into the marketplace. Now thankfully, we have a lot more capacity coming because we need that capacity based on all the fitting activity and everything we have going on right now. So we got into a situation where we just weren't able to get enough MyDay out to meet all the demand that was in the marketplace and we're there enough.

And based on all this activity, we're going to sell more of MyDay. I mean I can tell you right now, we have over 30 brand-new MyDay private label contracts and launches going on right now. We have almost 50% increase in our fitting sets that are out in the market year-over-year right now, and we have over a 300% increase in trial sets, trial lenses associated with those fitting sets. I mean those are -- they're pretty dramatic numbers out there that support the fact that we're going to do well with MyDay, and we're going to get MyDay going again. So I look at it and I say, "Hey, if we step back and we say, we're going to do somewhere around $1 billion in sales of daily silicone hydrogel lenses this year about. Let's call it, $600 million, a little bit over $600 million of that is associated with MyDay, right, somewhere around $400 million is Clariti."

The demand around the activity, the fitting sets, the trial lenses and so forth, these new contracts that we have like it's pretty exciting. And maybe it will convert a little bit faster as Jeff was asking about. I hope it does, maybe it doesn't. It takes a little while longer, but it's still there, and we're still going to be successful with it. I really truly believe that. So I do end up saying it's almost all tied to MyDay. And I think we'll be pretty d*** successful with it.

Our next question comes from the line of Jason Bednar with Piper Sandler.

I want to come at this MyDay Clariti discussion from a different angle. I'm sorry, to be a dead horse here. But this has been -- it's been a market of trade-ups over the last several years, a couple of decades, the old dynamic we're trading up to silicone hydrogels and then the dailies and then daily silicone hydrogels. I don't recall ever a situation like this where you wanted to -- like they expect to draw down in demand for one lens ahead of the buildup for other lenses. So kind of a similar track that Jeff was asking around, but can you talk about why the situation with Clariti and MyDay would be different from other trade up cycles that we've seen and how you're confident this is just an internal trade out that you're kind of going through the markets going through and digesting versus some competitive challenge you're running into?

Yes. Yes, absolutely, Jason. I'll take EMEA is a good example of a place where you didn't really see that activity. Did we see a little bit of softness in Clariti? Yes. But EMEA is still plugged along with a pretty good quarter. That would be a quarter where you kind of had a split almost, if you will, between MyDay and Clariti, much more similar to the way you're thinking about the marketplace. They were differentiated, so to speak. That's not necessarily as true in the Americas market, and that's where we saw some of the softness there. And it's definitely not true in some of those Asia Pac markets where they -- where those 2 products have kind of been on top of one another. One of the things that we're spending time on right now and that we need to do is ensure that we're properly positioning Clariti into the appropriate channels where it's successful. We've seen it have a lot of successes -- this high-quality, lower-priced entrant product and going into some of these bigger key accounts. That's where it's been successful. That's where it's going to be in the future. Because we never had enough MyDay, I've talked about this on prior calls, right? We've never had enough MyDay to meet the demand in Asia Pac, it's a lower margin region. We pushed a lot more Clariti into that region than we did MyDay over the years, right?

And put us in a situation where that region has a higher percentage of Clariti associated with it. And that's what we really saw that kind of surprised us and caught us off guard was that, that segment that's "supposed" to be MyDay that was Clariti took this kind of immediate hit. And we just we need to reposition a little bit, Clariti in Asia Pac, and we to attack the market in a little bit different of a way. So we're -- that's well underway with us. But that -- hopefully, that kind of explains it a little bit clearer.

Okay. All right. So it doesn't sound -- it sounds like you have a pretty good handle that it's not competitive. But as a follow-up question, building out some of the pricing comments earlier. It seems like the first time today where your knowledge pricing, industry pricing may be moderating ever so slightly. I guess where do you think we sit on a global basis as we look ahead and start thinking about our models here for '26 and go forward. Is this still a market where you think you can take price? I think you typically take price in the fall time period. Is that something you're looking to do again this year?

Yes. So I think you're still seeing some pricing in the Americas. Now that's mostly list pricing. There's a decent amount of discount activity that no one wants to talk about that comes off those list prices. But you're still seeing positive pricing in the Americas. When I look outside of the Americas, especially in Asia Pac, you are seeing more price pressure. And I'm not sure this coming year that you're actually going to see year-over-year pricing based on some of the activity I see from some competitors' region for market share or for sales. I'm not sure you're going to see pricing increase there. So I would say on a global basis, we're probably looking at somewhere for next year. It wouldn't surprise me if we were around 1% price increases, something like that, down to the 2% and 3% that we've been talking about. I think it just goes a little bit lighter. .

Next question comes from the line of David Saxon with Needham.

Maybe I'll switch over to some financials with Brian, just on the free cash flow comment, I think you talked about doing $2 billion over the next 3 years. I think you've been historically in the kind of mid- to upper teens from a free cash flow margin. What's that $2 billion imply on the margin? And how does that ramp over the 3-year period? .

Yes, David, thanks for the question. You're right. I think we've actually had free cash flow margin back in 2018, 2019 kind of in the low 20s or right around there. So we're now at a place where CapEx comes down, the operating margin improvements are converting to better, stronger operational profits, the actions we're taking attribute to that as well, the working capital initiative. So I would expect we're going to take a meaningful step forward next year. It's kind of a stair step. Like we took a stair step this year. We'll take another stair step next year, again the year after and again the year after. So we're not talking about any kind of hockey stick. This is a step forward consistently each and every year that gets us to that $2 billion. I feel pretty confident about that.

Okay. Great. And then maybe switching back to CVI. So last quarter, you talked about some distributor inventory dynamics. I guess, has that normalized? Or will there be any impact on the fiscal fourth quarter? And then everything about fiscal '26. Does any of that distributor inventory, the Clariti, the APAC e-commerce stuff. Does that -- does any of that spill into fiscal '26?

Sure. So we have some of that, I'll break it in kind of the 2 markets, right? We had some of that in the U.S. market here. We did factor into our guidance some additional channel inventory reductions in the U.S. market in Q4. We'll see if that happens or what degree. I don't see a scenario where we're talking about that when it comes to fiscal '26. If I look at kind of the pure-play channel over -- pure-play e-commerce channel over in Asia Pac, we had that happen in Q1 with China, we talked about it. We got the bounce back in Q2. We had another challenge here in Q3. I think we have a challenge with that again in Q4, but I think we just annualize that. Maybe there's a little bit of residual impact that happens there in a few markets, but that should be pretty small and should go away. So I don't see a lot. If there's anything, it would be like a modest amount in Q1, but I really -- I don't see very much.

Next question comes from the line of Navann Ty with BNP Paribas.

Infertility, could you please clarify the driver of the expected Q4 rebound? Is that driven by the upcoming year of the horse. Can you also comment on fertility in 2026, at least qualitatively.

Sure. So when we look at fertility, the market is getting a little bit better. It got a little bit better this quarter. We saw some improvements in some areas, genomics and consumables. We took some share eds in some spots in Europe and so forth. So I think we saw just a little bit of progression there. The year of the snake is behind us. I mentioned that last quarter. So we're seeing a little bit of improvement in Asia Pac, although we're still seeing cycle softness there.

When I look at us finishing the year out, we have a really, really hard comp of like 13% against last year. So I think we probably have another pressure quarter for ourselves here to finish up our fiscal year. But I think that you're going to have cycles coming back in Asia Pac. You're going to have fertility clinics that have been delaying for a while. We'll start doing some investing again. They're going to upgrade some equipment and so forth. So I think you're going to start seeing the fertility industry continue to improve from here. I think we're seeing improved a little bit right now, and I think we'll continue to see it improve over the coming quarters.

Next question comes from the line of Anthony Petrone with Mizuho.

You have Brad Bowers on for Anthony. First, I want to start with PARAGARD. It's kind of been a drag for a while on the volume side. You're able to cover it with pricing. But I kind of wanted to get an update on market situation, market share dynamics with the competing product launch and maybe any way to potentially stymie some of the revenue loss and allow the rest of the business to kind of show some of the growth.

Yes. So on PARAGARD, no competitive launch in the marketplace as of now. You are right, volumes are decreasing on that product. They have been for a while. The nonhormonal IUD space is seeing declining volume activities. As a matter of fact, you're seeing pressure on the entire IUD market from some alternative options. We have been able to offset that by pricing. We had a pretty good start to the beginning of this year. A single-hand inserter was part of that, which we launched that kind of put us on equal footing, if you will, with Mirena and some of the hormonal IUDs. So we had the softer quarter here. I think in Q4, we grew a little bit. So we get to the point where we end up with an okay year driven by those price increases. We'll see what next year holds. But as we sit here today, it will probably be similar, challenges on volumes and offset by pricing. .

Helpful. And then just if I could, on the margin side, obviously, tariff impact sounds like it's a little bit better. Also it sounds like some of the CapEx projects are behind us, so we might start to see some throughput improvement. So I just wanted to hear about some tailwinds to gross margin. And it sounds like on the operating margin side, a lot of the leverage might be coming -- or upside might come from gross margin, maybe some SG&A, but just how we should think through that.

Yes. I'll just quickly and then certainly let Brian jump in, he's the expert on this. From my perspective, at a high level, I talked a lot about the growth in MyDay, and we think that's going to be the big driver for us. As Brian mentioned earlier, gross margins are okay on that, and they're certainly improving as we increase capacity so much, but they're a little bit lighter than Clariti. So the product mix itself probably puts a little pressure on gross margins, and then you also get the pressure from the tariffs Brian mentioned. And then, yes, I mean, Brian can quantify it more. Well, he definitely quantified it on the Q4 call. But the restructuring activity in that work that we're looking to make the organization as efficient as possible should offset that. So we end up with year-over-year operating margin improvements and still deliver a good year. Anything to add?

Yes. I don't have much more to add there. I mean I think Al said it well. We'll give details on gross and gross margins and SG&A. I'd say we have an ethos here of continuous improvement. That's all the way through from manufacturing down through the organization. So you've got some puts and takes in gross margin about -- but certainly, the disciplined cost management that we discussed earlier along with some of the actions we're taking are going to help drive SG&A leverage more so next year to help offset some of those headwinds. .

Next question comes from the line of Robbie Marcus with JPMorgan.

First, Al, can you help us understand what happened between the last earnings call and this earnings call, there were 2 months -- the Street was saying that 5.7%, 5.8%, something like that. And there's a big gap between your expectations and the results. So help us just bridge exactly what happened in the 2 months from the last earnings call? And then I got a follow-up.

Sure. I would put it out on those 2 points, Rob, we were talking about earlier. One was an expectation that what had happened with the pure-play e-commerce channel in Asia Pac, especially China was behind us. We did not get that play out, right? So that was a hit to us. And then the other one was Clariti. Like we were getting a relatively consistent cadence of clearly orders and revenues from a number of customers and certainly some larger ones that did not transpire as we ended this quarter. So certainly, that activity was at the very -- at the latter end of this past quarter. .

And then we incorporated that into the guidance. I think maybe we were a little optimistic or whatever you want to call it, in terms of how fast some of this ramped activity would happen with MyDay and how everything would hold up. And I think that the guidance incorporates a reset of that to say that we believe at least that we fully incorporated all of this risk activity into the numbers.

Great. Maybe just a quick follow-up. Given some of the uncertainties here in the below market growth, how do you get comfortable with what the market will grow next year and your ability to grow at least with market.

Sure. So if we look at the contact lens market, it's grown forever it seems in the mid-single digits. And we had some, of course, some downtimes during COVID, and we had a strong rebound from that. But if you step back from that, you end up with kind of an oligopoly that's supported by this underlying factor that people need more visual correction. I mean right now, a little over 1/3 people are myopic, and half of people are going to be myopic by the year 2050. So you -- you have more people needing MiSight -- visual correction. .

At the same time, you have people and optometrists want the comfort and they want the ability to put lenses in every single day and be able to take those out. That's a great thing to be able to do. And everybody wants that, the cleanliness associated with that, the flexibility associated with that. So you're continuing to see this move over to dailies. You're seeing better fitting activity by optometrists around the world when it comes to torics. You're seeing much better lenses when it comes to multifocals. So you're seeing more people wear those. So you have kind of this underlying theme. I sometimes compare it to like your -- you can either be going down the river or you can be going up the river. It's nice when the tide's with you and helping you and the contact lens market is that way.

So does it end up growing 6% next year? Or does it grow 4% or somewhere in between. My belief is it will grow somewhere in there. And all the underlying fundamentals will end up pushing it in that direction. So I think that's where it will grow. And then when I look at how we fit in the marketplace right now, and I'd say what's been holding us back our ability to deliver all the product that's being demanded by our customers is what's held us back. Having the capacity finally to be able to get all that product out is a big, big swing for us. So that's why I think we'll be able to at least hit, if not exceed, market growth when you layer MiSight.

Next question comes from the line of Brett Fishbin with KeyBanc Capital Markets.

Just thinking about some of the points that you made on central drivers supporting improvement in growth in CVI in FY '26. You mentioned that you won some new private label agreements. And I was just curious if you could maybe expand a little bit on some of those wins where you are seeing them. I'm wondering if it's substantially all MyDay or across some of the different brands or some of the different -- your brands under the private labels? And then just like any way to think about like how much upside these opportunities could deliver next year?

Yes, I won't go too far out to that because a lot of that gets tied into customers. But these are MyDay private label launches that we're talking about. I made a comment of over 30 of them earlier, and that's what those are. Those are customers of ours who wanted MyDay products. They wanted a larger portfolio or they wanted to offer as a private label offering, and we have not been able to provide that product to them. So during this quarter, as we -- especially at the end of this quarter, we negotiated new contracts, a number of new contracts with people to give them that product and give them the availability. And we started getting fitting sets and trials out to them so that they could start all that activity.

And I think they'll be active with that throughout the fourth quarter, and I think that will translate into revenue. So I won't quantify it other than to say that it does -- it's the thing that gives me the most comfort. When I think about the number of fitting sets out there. When I think of the activation, meaning the number of trial lenses that are going out, try it, you'll like it. When I think about the number of contracts that we've signed and that we're already out there actively working on, it's that, that gives me confidence that we're going to be successful with MyDay, and it's going to ramp up. To me, it's a question of timing as to when it's going to be more so than if it's going to happen.

All right. That was helpful. And then just 1 other question on the CVI business. I think like last quarter, you were talking about implementing short-term promotions, I think you were saying 1 to 3 months of lenses to get people fitting with MiSight and potentially become like long-term users, but it sounded like the early results were mixed. So just curious where maybe you saw some initial success or lack of success driving that commentary. I'm curious if you're sticking with the same approach into the back-to-school season or if you're kind of going back and reevaluating if that's the right approach to the market.

Yes. Sure. Great question on that one. So where we saw success was in EMEA, where we initiated that program and have implemented that pricing. We've seen great fitting activity and frankly, we've already been seeing some sell-through on that as that fitting is converted into revenues. Where we did not have that standardized, we have had situations where we have people are saying, hey, is that coming this way, when am I going to get it? And should I wait and fit until we have that new pricing structure in place. What kind of promotional programs are there and so forth.

So that's where we got some of the mixed results. That was largely here in the U.S. market that we saw that. So we need to get all of that kind of activity resolved. We are. We're working on that very actively right now. And we'll get that resolved so we can kind of level set ourselves if you will correctly so that pricing is standardized around the world. But I would say that the early indications or the early returns on that kind of pricing model, which was basically to allow parents to take lenses home and see if their children can put the contacts in and take them out and would actually like them. That strategy is working. So we're going to continue to deploy that around the world.

Next question comes from the line of Chris Pasquale with Nephron Research.

I want to follow up on MiSight and then I had one for Brian as well. So Al, you talked about still being on track to do over $100 million from MiSight this year. I think the original goal for the year was 40% growth. And 3 quarters in by our math, you're maybe a little bit below 30%. So obviously, is still good, but not quite where you hoped. Just curious how you're thinking about where that goes from here. You've got a bunch of stuff heading into FY '26. Between the promotional pricing starting to have a positive impact with Japan launch, MyDay, MiSight. Can that drive an acceleration? Or should we expect further growth moderation just because the numbers are getting larger?

Yes. I think that it ends up being -- I hate to give anything for next year on that as some of this plays out. But I think that the growth ends up being more similar year-over-year than an acceleration just because the numbers are getting bigger. You're right, we took a little bit of a hit here because some of the pricing changes and the promotional activity but we're getting better fitting on that, and we do have all those launches coming. So we'll see. I'll give an update on that as we get to next quarter. But I will say that I feel pretty good about MiSight trying to get good growth next year it's certainly going to support the overall business driving our growth. .

Okay. And then, Brian, CapEx has obviously been really elevated over the past 3 years. The $2 billion free cash flow target seems to imply a pretty big step back. I would love you to put a finer point on what exactly you're thinking next year for CapEx? And then how do we think about how that grows relative to sales going forward. In the past, it's been hard for CVI to have both strong revenue growth and moderate that investment in CapEx kind of in 1 or the other. So is it different this time?

Yes. That's a great, great question, Chris. I would -- first of all, I'll just talk about next year in CapEx. CapEx is going to come down on a percentage basis and on an absolute dollar basis. We've been trending high as a percentage of revenues on CapEx. If you look back in time, we've been kind of -- we've been anywhere from like 7% to 10% of revenues for CapEx. So as we continue moving forward, we're still going to have to deploy capital for investments in new growth, and that's innovation in new lines and new equipment and new launches. So that will be a part of the number. but it's all of the other things that are happening around it with CapEx kind of starting to moderate and normalize and all those other elements that are driving it forward that allow us to continue to confidently now drive free cash flow higher similar to historical levels. .

So you're exactly right. I mean we're going to have to invest in the business. We have a lot of lines still that need to come in over the next couple of years, and those are on order, and that will continue to play out. But the peak level of CapEx that we've been seeing is now going to be normalizing. And that's what drives along with the other steps that we're taking will drive the free cash flow higher.

Our last question comes from the line of Patrick Wood with Morgan Stanley.

I'll keep it to one, just to keep things flowing. And it's probably a dumb question, but how do you guys know about the Clariti versus MyDay sort of dynamic? Was that feedback that came from like chatting with optometrists or is it in from the sales force? Or did you kind of back into it because you saw the really strong MyDay sort of promotional side of things. Like was it -- I'm just curious, how did you work it out? Because it's obviously a big market with a lot of different things happening, it can be hard to see. That's my -- question.

Yes, Patrick, it's pretty straightforward in that a lot of that activity was with larger accounts, and you know what their standard order cycles, if you will, when they order and how much they order. And when those orders did not happen, right, it's a pretty straightforward conversation with them of, hey, what's going on and getting what turned out to be a pretty straightforward response of, we're focusing our time and efforts and everything else on MyDay fitting activity right now and taking a little bit of a pause on Clariti and their feedback was we're going to make that move right now, and we'll see what happens. But we're doing, Cooper, what you've asked us to do and what we want to do.

So it was pretty straightforwardly enough to see that. I don't want to act like that was the entire thing because there's bits and pieces that go to optometrists and smaller shops and so on and so forth. But the biggest clearest point was pretty obvious visibility on some of the order patterns from some of the large accounts.

That concludes the question-and-answer session. I would like to turn the call back over to Albert White for closing remarks.

Thank you, everyone, and thank you for being on the call. I'm sure we'll have a lot of post-call conversations here and look forward to talking about going through the details and driving some continued success. So we can discuss that on our next earnings call. So thank you, everyone. I appreciate your time. .

Ladies and gentlemen, that concludes today's call. Thank you all for joining, and you may now disconnect.

All right. Good afternoon, everyone. Thank you for coming out and surviving and making it to the last meeting of the William Blair Growth Stock Conference. Really appreciate you guys all being here. My name is Margaret Kaczor Andrew. I am the analyst here at William Blair that covers Cooper Companies. I am required to inform you that you can find a complete list of research disclosures and conflicts of interest at williamblair.com.

With that, I'm going to turn it over to Brian, who's going to give a short background on the company, and then we'll probably make this more of a Q&A session for the rest of the time.

Thanks, Margaret. I recognize a lot of the faces in the room. I'm only going to go through a couple of slides of our investor deck, our investor deck is available on our website. I should probably grab that clicker, so as to leave enough time for Q&A.

A little bit about Cooper. We're a global medical device company. About 2/3 of our business is contact lenses, soft contact lenses. And then the other 1/3 is related to women's health primarily. We do a lot in fertility. We're a leader in fertility. About 40% of that Surgical business is fertility, the other 60% is a host of surgical products, primarily for the OB-GYN, though also used in specialty surgery. We've got a stem cell business and an IUD that's treated as a pharma that make up the other 60%.

So we've got 16,000 employees. We operate in over 130 countries. Our revenue mix is a little bit more than half of our revenues are based outside of the U.S. So when you look at that Americas part of the pie, that includes, obviously, Canada, Central and South America. But pretty diversified across geographies. And we operate in great industries that have great macro trends, great fundamentals, secular growth.

We're in the early stages of -- we're in the early innings of trading up wearers into daily silicones, more revenue per patient, healthier for the eyes. We've got a great portfolio, a differentiated portfolio where we offer unique products that our competition doesn't offer, and we also offer myopia control products that help reduce the progression of myopia in children, again, something that our competition doesn't have.

We also have a large branded and private label part of the portfolio. So we do a lot of customer brands for key accounts around the world, again, a point of differentiation. And then we offer a wide range of lenses that are torics, extended range torics, toric multifocals and so forth within the Vision business, which really differentiates us.

If we just kind of look at our performance over the years, I mean, this goes back 10 years, but you can go back 20 years and see the same kind of up and to the right. Our businesses always grow, except 2020 during COVID, you see up and to the right performance from Vision and Surgical, some of the CAGRs there. We're committed to growing faster than the market. We've been growing faster than the market in Vision for the 20 or so years I've been at Cooper, and we intend to continue to drive market share gains every year going forward.

We're committed to margin expansion, driving OI growth and free cash flow. And that's a big, big focus area for us right now.

If you look at our guidance, this is the last slide, and then we'll jump into Q&A. We have CooperVision growing 6% to 7% this year with a market that's expected to grow 4% to 6%. CooperSurgical growing 3.5% to 4.5%. And our non-GAAP EPS range is right there at $4.05 to $4.11. Embedded within the P&L is gross margin expansion, both on a constant currency and as-reported basis. Operating margin expansion, again, on a constant currency and as-reported basis.

FX has been a headwind for us. It will be -- it is this year for us. It has been since 2019. And but we're committed to driving operational improvements, operational efficiencies and OI growth this year, and that's our goal every year to drive low double-digit constant currency OI growth. With that, we'll allow the FX flow through to the bottom line. We'll talk about some of the -- probably some of the confusion around our guidance raise on EPS with a Q&A, but I expect to have a good year here.

Free cash flow of $350 million to $400 million. We're only at 9% of revenues. We can do a lot better than that. We're positioned to do better than that. We're going to grow free cash flow margin every year over the next coming years. It wasn't that long ago in 2018 when we were closer to 20% free cash flow margin. No reason why we can't get back to that place. It's just going to take a little bit of time, but we're going to be working our way towards that with the -- in the coming years.

So I guess with that, I'll move it to Margaret and Q&A.

Perfect. So maybe just let's start with the quarterly performance and some of the commentary you had talked about in regards to CVI and the guidance change. What struck that guidance change? What are you seeing in the market today that made you change it?

Yes. I mean I'd say that if we look at pre-COVID, we were seeing a market that was growing sort of in that 4% to 6% range. And when we look at right now, we exited last year with a market that grew 7%, and in the fourth quarter of last year, the market grew 9%. Now I don't think the market was as strong as 9% because you saw Q1 -- this year, calendar, quarter this year, grow 4%.

So you had J&J growing 2.7% and Alcon grew 4%. Those were not really the sell-through numbers. That's just reflective of probably some inventory that was in the channel last year, some overselling last year, some buying by distributors, key accounts, global retailers. So the 7% probably wasn't quite as strong as 7%. It was probably closer to 6% if you look through all of that.

And so our competition has been talking about mid-single digits growth in the contact lens industry. We agree with them. So we reflected -- we updated our expectations for market growth of 5% to 7% to 4% to 6%. With that, we took down our -- the midpoints of -- the midpoint of CooperVision by a point, and that's how we arrived at our updated guidance.

Okay. And so I think Dan (sic) [ Al ] called himself an optimist on the call. And that makes sense. You guys have been doing better, market obviously has been doing better. And so hopefully, there's some reversal to that. But maybe give us some context over how contact lenses have maybe ebbed and flowed in prior market downturns and why this may or may not be a good [indiscernible]

Yes. I mean if we look back in '08, '09, the market -- we had 1 quarter where the market grew 3%. I think that year, the market grew around -- '08, '09, the market grew somewhere around 3% to 4%, we grew 5% that year.

The market fundamentals haven't changed right now. I mean, you look at fitting activity and it's still really strong. You still have consumers that are preferring and going into premium products. Our MyDay portfolio is doing exceptionally well and the only limiter to its growth has been supply. And so now what we're saying to the Street is we are unencumbered. We have taken the handcuffs off. We are now getting fit sets out. We haven't given fit sets into markets in a long time, trial lenses. So that when a customer comes in and they need a toric and they're astigmatic or they're presbyopic and they want a multifocal. Now there's a lens that they can -- that a doctor can grab off the shelf, put it on eyes, send them home with some lenses to try, and that will turn into revenue.

So if we looked at what happened in '08, '09, there was definitely people stretching out their wear. But back then, you had FRP lenses, the monthly lenses or 2-week lenses, where the 2-week lens wearers were trying to stretch to a month, or a month wearer were trying to stretch to 45 days. Now that you've got more and more people wearing dailies, and people are already wearing their lenses kind of 5 days a week, maybe they're going to 4 days a week. Maybe -- what we're also seeing with consumers is where they were buying, let's say, a year's supply, maybe they're buying 6 months instead of a year or 3 months instead of 6 months, that's impacting some of the channel levels because if people are buying a little bit less, but they're utilizing still the same amount, you're still going to need a little bit of a correction in the channel.

And that's what we're seeing right now play out where there's just a little bit of correction that's happening in the industry. And for us, we think we're going to be through the channel noise once we get through Q3 and back to kind of a normal sort of state of affairs within the channel as we exit and get into Q4.

And so just on that point, right, you were talking a little bit of inventory, we're talking a little bit of new fits, new starts, new fit starts seem like they haven't really ebbed down in your view. So it is more inventory dynamics?

We haven't seen any change in fits. In fact, we're seeing some acceleration in fits just because we have more supply going out into the market. So again, the consumer is still buying premium products. You see our competition that have premium products, and those products doing well. Same is true for us. Fitting activity is still robust.

And so when we say, is there anything structurally different? No. Is there any fundamentals that have changed? I mean, you still have price as a tailwind for the market. Price is going to be 2% to 3% this year to help offset inflation. You got wearers growing roughly 1%. And then the balance related to the trade up to dailies and daily silicones because you still have a long way to go to move the market and to get more and more people into dailies that are otherwise in FRPs or on hydrogels or legacy daily -- dailies.

Okay. And maybe let's go to MyDay, and you talked about that seeing some really nice uplift. Can you provide a little bit more detail around torics, multifocals and kind of the new Energys offering as well?

Yes. So MyDay is a full family of products. We've got spheres, torics. We've got the widest range of torics in the market in that portfolio. We've got a phenomenal multifocal. We've got Energys, which provides a little bit of a digital boost for people who are just myopic sphere wearers, but it kind of gives them a little bit of plus power to be able to see their iPhone or see the screen. It's unique. It's unique to Cooper. No one else has a product like that.

So we just launched that in -- we launched Energys in Canada recently, and we'll be launching Energys in Europe next year, and that's due in large part because of the supply that we've had. We've been putting a lot of capital into production with great success. So that offers us an ability to go and push more torics out in the market, expand existing private label relationships that only had a certain SKU set, to expand their SKUs, to give them the multifocal, to enter into new private label agreements and key account agreements, to get MyDay into Asia Pac, where we've been really limiting the release of MyDay into that market.

And then it also allows us to launch a silicone hydrogel MiSight lens next year, which we'll do probably in the early part of next year into Europe. So you'll have MyDay, MiSight in Europe next year, which will help drive some MiSight growth.

Okay. And so there's a couple of concepts maybe to follow up on. You've got more of the capacity now that's leading to some of these more aggressive -- maybe not aggressive, but just normal marketing strategies. How does that differ versus the competition in the marketplace?

I would say that the competition is good. I mean, I think everybody's got -- everyone sort of has their respective lanes. You have a little bit of a battle going on in the sort of the 1-week, 2-week space between our competition, but we don't play in that space. We've got a monthly product in Biofinity that can fit 99.9% of wearers.

So if you're a key account and you're trying -- you want a private label and a phenomenal product and have a monthly product for your customers, Biofinity has always been and always will be a great option because we have the widest SKU range of torics, you've got the multifocal, you've got toric multifocals for those astigmatics that become presbyopic. You've got Energys, which provides that plus power.

So it's a product that there has been -- there was a launch last year by a competitor. And it's a fine product. It's a good product, but Biofinity continues to perform really, really well up against that product, not only because of comfort and fit and acuity but also just because it's a wide range.

So I think we all have our points of strength. Certainly for Cooper, we've got a myopia control franchise, the only FDA-approved product to reduce the progression of myopia. So when you look at our growth of 6.5% against the market midpoint of 5%, we're growing a little bit faster than the rest of the competition, and we will continue to do so in our core portfolio of contact lenses.

And then when you take -- when you add to that MiSight, which will be a $100 million product this year, growing -- just grew 35%, probably grows 25% to 30% in Q3. As we give more free lenses away and maybe you'll have some questions on that. And then probably exiting the year probably at growing 40%, I think we have a good chance of growing that product at least 30% next year, again, growing another point -- giving us another point of growth.

So beyond just the core portfolio, which is going to do well against the market, we also have that extra advantage of having a myopia control product, which gives us additional point of growth.

And so as we talk about that, that's one of the things you referenced on the next quarter is maybe growth kind of pulls back a little bit because you are going to give away some lenses to try to basically get that new start and then there's stream of revenue, hopefully, should they stick with the product. But why haven't you done that as aggressively in the past? Why is now the right moment?

Yes. I mean, I would say we've been challenging sort of what is -- what's been so -- what's been holding back MiSight? Because we know that it's effective. We know that when we put MiSight onto a child's eyes, and you have a small window within which you can influence the progression of myopia. You want to try to get as -- start as early as possible with a child because that window runs out in their late teens.

So what we found through a number of different trials and testing and -- is that if we try to discount the lens, it doesn't really move the needle much. And we tried various different discounting scenarios. But when we give 3 months free or give at least 1 month free of just say, hey, you know what -- the parent comes in with a child. Parent is a little concerned about, "Well, can I get contact lenses in my 10-year-old? Like is my 10-year-old going to be able to put this on? Are we sure that this is going to work? Like I don't know, and it's expensive." It's a barrier.

And it takes sometimes a year or 2 to get that parent convinced because when parent comes in with the 10-year-old and that child is a minus 1 and then they come in a year later and that child is a minus 2, it's another opportunity to have that conversation and say, "You know, you could have done something about it. You can't reverse it, but we should try it now." So that has been a slow and steady roll.

What's different now is we have Specsavers in Europe that was willing to really lean into myopia control across all of their stores and say, "You know what, every child that comes in here, we're going to treat them with a form of myopia control as standard of care." And whether that's glasses or its contacts, if it's contract, it's going to be MiSight.

And so what we did with them is we did a private label with Specsavers, it's their brand with MiSight technology, essentially the MiSight lens, and we said, hey, we -- when we trialed this in a number of their stores, we realized that if we can just give the child -- that we can let the parent go home with the child with 3 months free, and we can get them convinced that the child can put the contact lens in their eyes, they come back and they buy the lens.

And so we're really excited about it. We just started rolling that out now. It will result in a little bit of softness in Q3. But again, I still think we'll probably grow 25% -- in excess of 25% in Q3. But what it does do is it kind of -- it leads to stronger uptake in revenue growth in the fourth quarter as we get into next year.

And then if we look at MiSight in areas like Japan, right, that's still to be launched there. I think it's 2026. Maybe walk us through the go-to-market strategy and expectations.

Yes, we're excited about Japan because Japan has no myopia control products in that market. You have a lot of myopes, a lot of myopic children in Japan. So we've been going through doing clinicals and got some really good clinical data to support an approval there. We expect to get an approval later this year, and that would lead to a launch in Japan early next year.

So what we're doing right now is we're working with key account -- or KOLs in the market. We're talking to doctors who are going to be getting ready to fit that lens. We're educating the docs. We're educating our sales force. We're getting promotional materials ready, really so that once we get the approval, we can hit the ground running and launch that product in the early part of 2026.

And then as we think about SightGlass, every once in a while we get these questions as that is an opportunity. It does seem like it's a meaningful opportunity, but update us on where you are today.

Yes. So SightGlass is a 50-50 joint venture with EssilorLuxottica. It's a phenomenal product. It works. It's effective. We have it launched in a number of markets around the world. Where it's really taking off is in China. The results of that product or the efficacy of that product is good as long as the child is wearing the glasses 7 days a week, the majority of the day. And we're excited about it. I mean, we'd love to see spectacles get approved in the U.S. market. And so we'll see.

I mean, I think anywhere where we have spectacles in the market alongside MiSight, it's an opportunity for the doctor to start fitting a form of myopia control at an early age onto a child. And whether that's glasses or contacts, eventually that child is going to graduate and want to get into contact, or they're not going to be wearing their glasses long enough to get the efficacy, and that will be a conversation starter to get them into contacts.

So we want to see glasses in the market. We want to make it easy for optometrists to have that conversation. And SightGlass has got great technology that's different from other technologies that are out there, and we're bullish on it, but the FDA has been slow to move, unfortunately.

One of the common questions we've gotten even, frankly, this week and in the past has been around your capacity, the improvements in capacity, but then more importantly, kind of the free cash flow conversion of those investments. So maybe you can provide us some thoughts around that.

Yes. I mean there's been a very heavy investment cycle that we put into the CooperVision business. And when Al and I took over in our roles 7-plus years ago, we really decided to lean into our innovation and proficiency around torics and multifocals and the differentiation in our families between clariti and MyDay, and really lean into being a dailies powerhouse.

And historically, we've always been that specialty company that does a good job with torics and does a good job with FRPs, but we really wanted to invest in dailies. And so we've invested in manufacturing, packaging, labeling, automation, distribution because a lot of our key accounts expect that we're going to manage their inventory for them. We're going to handle their supply chain, and we're going to do customized solutions, and we're going to do different things with labeling and inserts and so forth.

So all of that took a lot of investment, and we've been putting that investment into our facilities all around the world. And we're now kind of in harvest mode. We're now actually starting to see the benefits, where we're putting volumes through our plants, we're putting volumes through our distribution centers. And where you're seeing leverage, when I talked about getting gross margin expansion and operating income growth and operating margin expansion, it is coming from leveraging that prior investment activity in manufacturing, packaging, distribution.

Beyond that, we're also just being mindful of, hey, we have two businesses at Vision and Surgical that have largely operated on their own. And Surgical has acquired a number of businesses. We're just wrapping up and finishing some really important integration activities that will continue to drive their expenses down and drive better margin expansion within Surgical. But on the whole, when you have more critical mass between both businesses and you had people in countries and in regions and at the divisional level around some of the support structures, finance, IT, legal, HR, it gives us -- it gives you an opportunity to really now think differently about how are you going to support those businesses.

So we're still investing in commercial. We're still investing in R&D because we want to see that consistent revenue growth. We want to still drive faster than our markets, that durable, consistent, sustainable growth. But we -- there's opportunities for us to continue to leverage that prior investment activity in the manufacturing and all of that capacity expansion we've been putting in, get better utilization from our plants, better cost per unit, drive better efficiencies there, but also go after some of the integration work and some of the centralization work, which will lead to some better SG&A savings this year and going forward.

We've got more questions on the P&L. I know we haven't gotten to CSI. But I guess just to wrap up the free cash flow and the capital usage, how do you look at the return to shareholders versus M&A as an argument versus CapEx?

Yes. So free cash flow is certainly a focus of ours right now. And I'd say capital priorities have shifted. We're definitely prioritizing our free cash flow towards debt paydown. If we can take our interest expense this year down from $90 million, that's immediately accretive and will help drive better free cash flow going forward.

We bought back some stock last quarter. We saw a dislocation in our stock price relative to our peers, and we saw an opportunity to buy back stock. So obviously, where we're trading today is, I would use a more inflammatory word than irritating if I wasn't in a public discourse. But it's something that we're going to -- we're evaluating because it -- we were obviously not clear enough about the strength of our business, the strength of our industry, how we're set up to drive success this year, into next year. And that's not only on the revenue side but also on driving double -- low double-digit constant currency OI growth. It's a target for this year. It's embedded in our guidance. It's going to be a goal for next year.

And any FX moves that are positive, and we're starting to finally here in Q3, get to a place of tailwind for the first time in as long as I can remember, since 2019, we're going to let that flow through to the bottom line, too, and it's a positive for next year. So again, I'm knocking on wood because I hate talking about FX, but hopefully, we're starting to see some benefits there.

I think the third piece of it is just free cash flow. I mean, we had a softer free cash flow quarter here in Q2. We've got some big tax payments that went out the door, bonus and IPP payments that went out the door in Q2 and some timing of some other payments. But we're still -- we're not backing off of $350 million to $400 million this year. But with CapEx starting to come down on a percentage basis next year, and in all likelihood coming down, not only on a percentage basis but on an absolute basis in 2027, and better, more focus on working capital initiatives, inventory, DSOs, DPOs, there's no reason why we can't drive free cash flow margin higher each and every year.

I expect we're going to do that. We're focused on it. It's a part of our comp and everyone's -- and we've got the whole organization aligned around it. So we know that free cash flow delivery is important and first started with the revenues then margins, now free cash flow and now we can -- we're lined up really well to be able to deliver on all three of those.

And just -- from a free cash flow perspective, as we look at '26, I hate to look for guidance or anything like that. But from a growth perspective, what are the moving pieces that can get you to a higher rate?

Yes. So I think if you just kind of look at the CooperVision business, I would say there's no reason why the contact lens market shouldn't grow 4% to 6%. Next year, and like I said earlier, Cooper growing faster than the market driven by a little bit better core performance and then MiSight. I still think MiSight should grow at least 30% next year.

I'd say on the Surgical side of things, there's no reason why we shouldn't be back to sort of mid-single-digit growth next year as we work through some of the channel stuff, some of the cycle noise in Asia Pac. You can only delay IVF for so long. If you're going to an IVF center and you're seeking treatment, you've probably run out of luck. You've tried IUI, you've tried to get pregnant in lots of different ways. And maybe now you're in your 30s. And so you can only delay so long before that window closes.

So we expect that the fertility market is still going to get back to sort of mid- to upper-single digits next year. We'll grow at least at that rate, maybe a touch higher. The rest of the Surgical business will do as it does with stem cell and PARAGARD will be sort of up and down. But at the end of the day, there's no reason why we can't deliver mid-single-digit growth.

If we look at the rest of the P&L, it's more of the same. It's kind of leveraging prior investment activity, driving OI growth and then letting FX fall through the bottom line and don't want to guide to next year, but we will give some more color on our Q3 call. I think there's enough good and enough that we're going to want to talk about just to kind of clear the air and calm the nerves that's probably worthwhile for us to talk about in Q3.

Okay. And realistically, free cash flow, I would imagine, grows even faster than that because of the debt paydowns, CapEx, leverage...

Thank you, yes. Yes, yes. So we will -- by the end of this year, we will have increased free cash flow this year versus last year by roughly $100 million. Next year, free cash flow margin will take another step higher because free cash flow is abating -- I'm sorry, CapEx is abating, moderating at least, interest expense coming down, tax will be probably pretty similar around a little bit similar -- nothing crazy, but nothing different about our tax rate materially and then just the higher revenues and hopefully, FX and operating improvements driving free cash flow higher.

Okay. We're just about out of time, at least for the public forum version of this. So unless you have any final statements, we might just switch to the breakout, which we're going to leave in this room since we're the last presentation.

I guess with that commentary about what's happening, like this isn't a onetime thing. So when I look at next year and I look at sort of earnings expectations for next year, we're not getting enough credit for the good that's happening sort of in the center of the P&L. And so I think that maybe was something that we didn't articulate that -- when we talked about the raise of $0.10 for EPS, I think a lot of people kind of came away from my commentary that it was mostly FX that drove the EPS increase. And that is not true.

If you look at revenues, we took down revenues by 1% and FX offset it by a little bit more, so we were able to raise by $7 million on a consolidated basis for revenues. If you look at EPS, that $41 million takedown in revenues was offset by FX of $0.10. So $0.10 down on revenues, $0.10 up because of FX. What you're left with is roughly $0.10 of operating efficiencies that led to the EPS raise by $0.10.

So I think that maybe was something that was maybe misunderstood that we could have articulated better. We tried to simplify the message and maybe it got missed. But that's a I think you've kind of...

Not me.

No, not you. That's for sure.

All right. Really appreciate it, Brian. Thank you.

Thank you.

I think we'll wrap that. Appreciate it.

Thank you for standing by. At this time, I like to welcome you to the Q2 2025 The Cooper Company's earnings conference call. [Operator Instructions] I would now like to turn the conference over to Kim Duncan, VP of Investor Relations and Risk Management. Please go ahead.

Good afternoon, and welcome to Cooper Companies Second Quarter 2025 Earnings Conference Call. During today's call, we will discuss the results and guidance included in the earnings release and then use the remaining time for questions. Our presenters on today's call are Al White, President and Chief Executive Officer; and Brian Andrews, Chief Financial Officer and Treasurer.

Before we begin, I'd like to remind you that this conference call will contain forward-looking statements, including statements relating to revenues, EPS, cash flows, FX and tax rates, tariffs and other financial guidance and expectations strategic and operational initiatives, market conditions and trends and product launches and demand. Forward-looking statements depend on assumptions, data or methods that may be incorrect or emphasized 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 Cooper's Form 10-K and Form 10-Q filings, all of which are available on our website at coopercos.com. Also, as a reminder, the non-GAAP financial information we will provide on this call is provided as a supplement to our GAAP information. We encourage you to consider our results under GAAP as well as non-GAAP and refer to the reconciliations provided in our earnings release which is available on the Investor Relations section of our website under quarterly materials. Should you have any additional questions following the call, please e-mail [email protected]. And now I'll turn the call over to Al for his opening remarks.

Thank you, Kim, and welcome, everyone, to today's fiscal Q2 earnings call. This was another solid quarter with consolidated organic revenue growth of 7%, led by double-digit growth in both our daily silicone hydrogel lenses at CooperVision and our office and surgical portfolio at CooperSurgical. We also continued executing at a high level, delivering operational improvements and OpEx leverage that drove double-digit non-GAAP earnings growth.

Similar to other companies, we're dealing with a more complex global operating environment. but we're controlling what we can by executing well, including taking share, delivering leverage, launching products and completing capacity expansion projects. And we'll cover all of that on today's call. Moving to the numbers. Consolidated revenues were $1.002 billion, up 6% year-over-year or up 7% organically. CooperVision reported quarterly revenues of $670 million, up 5% or up 7% organically. CooperSurgical posted quarterly revenues of $333 million, up 8% or up 7% organically. Margins improved nicely, and non-GAAP earnings were $0.96, up 14% year-over-year.

For CooperVision and reporting growth rates organically, the Americas grew 8%, EMEA 6% and Asia Pac 5%. Within categories, torics and multifocals grew 7%, and [indiscernible] were up 6%. Within modalities, our daily silicone hydrogel lenses, MyDay and clariti grew 10%, and our silicone hydrogel FRP lenses, Biofinity and Avaira were up 6%.

Our myopia management portfolio grew 19% with MiSight up 35%. Turning to products and starting with daily silicone hydrogel lenses, MyDay continued growing double digits with particular strength in torics, multifocals and our innovative Energys offerings. We remain very bullish on this product family as we increase availability in new markets and in new channels to capitalize on opportunities from greater penetration in existing accounts and with new customers. With improved capacity, we're back to being aggressive and that can be seen in a number of areas, including increasing availability of our multifocal and extended toric ranges, new launch activities such as MyDay Energys in Canada, and our upgraded Clarity 1-day spear with Wet Lock technology in Japan and expanded private label discussions. A lot of this activity is tied to increasing bidding sets and trial lenses. So we expect this to accelerate revenue growth starting in fiscal Q4, which is supported by the strong bidding activity we're seeing today.

To add a little more color, we just launched MyDay Energys with its innovative digital boost technology in Canada through a series of well-covered events and early feedback is extremely positive. We're receiving significant requests for fitting sets and initial orders are rolling in. Meanwhile, our MyDay toric parameter expansion, which provides eye care practitioners with a widest SKU range by far for a daily toric lens continues progressing well across North America and Europe, and we'll be launching the range expansion in targeted Asia Pac market soon. And lastly, MyDay Multifocals unique advanced 3 ad design paired with its easy fitting system is performing exceptionally well as market availability continues to increase.

Turning to Clarity. We posted solid results with this high-quality lower-priced lens portfolio, offering a great alternative to MyDay. The redesigned multifocal, which now mirrors MyDay design is a fantastic product and grew double digits this quarter. and I could speak to this product's great handling, comfort and visual acuity as I'm happily wearing them right now reading this script. Moving to frequent replacement lenses. Biofinity continues to strengthen its position as the #1 contact lens in the world, with more people wearing it than any other lens.

We're seeing nice growth throughout its full portfolio of market-leading prescription options, including spears, torics, multifocals, extended ranges, made-to-order products and Energous. Biofinity provides eye care practitioners the ability to fit an amazing 99.9% of all patients by far the widest offering of any contact lens family on the market.

Turning to MiSight. We saw growth in fitting activity to accelerate this quarter with revenue reaching $25 million, up 35%. The A key component to the improved bidding activity is the implementation of a new pricing model initiated following the conclusion of our global pricing review that confirm that the annual wearer cost is not a significant barrier to greater bidding activity. Price certainly matters in training eye care practitioners and educating parents on myopia is important, but the key driver is just getting kids into the lens.

Once kids begin wearing MiSight, they love it and with retention rates running around 90%, they stay in it. And when parents verify the benefits of the treatment with their ECPs, they're sold on the technology. With this data, our focus is now heavily on reducing upfront fitting barriers by offering promotions such as an initial 1 to 3 months free. This provides a no-risk opportunity for parents to get comfortable with their children wearing contact lenses and for kids and young adults to get comfortable wearing contacts for the first time.

With a broader rollout of this strategy, along with the launch of a large key account private label deal, we're already seeing a nice acceleration in fitting activity in EMEA, and we expect similar success in other markets. This new initial pre fitting period will result in a moderate headwind in Q3, but based on current bidding activity, we expect a considerably stronger Q4. And lastly, we're progressing well with our launch planning for MiSight in Japan, along with MyDay MiSight in EMEA, with both anticipated to occur in early 2026. Moving to CooperSurgical. We reported revenues of $333 million, up 8% or up 7% organically, the quarter was driven by success in our surgical medical devices, labor and delivery portfolio and PARAGARD. Fertility was a little softer than we were expecting, so let me start there.

For the quarter, fertility revenues were $127 million, up 3% and up 2% organically. Although supported by positive signs such as double-digit growth in our donor business, and in our witness system consumables that fertility labs use to track activity, overall growth was lower than expected due primarily to market softness. This was largely tied to Asia Pac where fertility cycles continue to decline year-over-year and from fertility clinics managing cash tighter, which is including delaying capital purchases and installments.

We expect this softness to continue and to put pressure on market growth and our growth. Having said that, cycle growth in EMEA and the Americas remained solid, which supports the market near term. and we remain incredibly bullish on the long-term prospects for fertility as the underlying growth fundamentals remain intact. -- including women delaying child birth, improving access to treatment, increasing patient awareness, increasing benefit coverage and improving technology.

Additionally, it's estimated that 1 in 6 people worldwide will experience in fertility at some point in their lives. So this is an issue that impacts a lot of people. And as a leader in the space, we will continue delivering innovation, launching new products and services, providing extensive clinical training and expanding geographically. Moving to office and surgical, we posted sales of $206 million, up 13% or up 10% organically.

As mentioned on our last earnings call, we expected a strong Q2, and we delivered. Performance was driven by strength in minimally invasive gynecological surgical devices such as our Ally uterine manipulator portfolio and within labor and delivery with products such as [indiscernible] and our cervical ripening balloon. Although not included in organic growth, we also saw considerable strength in OBP Surgical, our most recent acquisition of an innovative suite of single-use lighted cordless surgical retractors, which grew 31%. The PARAGARD grew 18% this quarter, supported primarily by the conclusion of buy-in activity before our May 1 price increase, but also due to continued interest in our new single hand inserter, which we launched earlier this year.

With PARAGARD now having grown 15% through the first 6 months of the year, heavily driven by channel fill, we now expect a mid-teens decline in fiscal Q3 before a flattish Q4, resulting in low to mid-single-digit growth for the full fiscal year. To conclude, let me comment on our revenue guidance, which we're tightening and raising at the midpoint. This incorporates our solid Q2 performance and the positive impact from updated currency rates, offset by lower organic growth rates that corresponds to a reduction in our market growth assumptions for contact lenses and fertility.

For contact lenses, the industry grew 4% in calendar Q1, so we're reducing growth expectations to the 4% to 6% range for the year, down from 5% to 7%. This new range matches the industry's historical growth range, which we saw for many years pre-COVID. With this change, we're adjusting CooperVision's organic growth expectations to 6% to 7%. To be fair, industry pricing remains solid and consumption remains healthy, so this may prove conservative depending on market conditions and channel inventory. For CooperSurgical, we're reducing market growth expectations for fertility to the low single digits, down from mid- to upper single digits and correspondingly reducing our fertility growth expectations. This is partially offset by the strength we've seen in PARAGARD but still reduces CooperSurgical's consolidated organic growth rate to the 3.5% to 4.5% range. Again, it's important to note, our commercial execution at CooperVision and CooperSurgical remains strong and we're taking share, but against an expectation for softer market growth. And with that, I'll turn the call over to Brian to cover our financial results in more detail, including our earnings guidance.

Thank you, Al, and good afternoon, everyone. Most of my commentary will be on a non-GAAP basis, so please refer to the earnings release for a reconciliation of GAAP to non-GAAP results. For the second fiscal quarter, consolidated revenues were $1.02 billion, up 6% as reported and up 7% organically. Consolidated gross margin was 68% and up from 67.3%, driven by continuing efficiency gains and mix. Operating expense increased 6%, but declined as a percent of revenue to 43.1% and driven by leverage in several functional areas as prior investment activity continues to yield positive returns. One line item worth highlighting this quarter is R&D where expenses increased 21%. Investments in this area were higher than historical levels for both CooperVision and CooperSurgical as development work continues on several exciting projects.

For competitive reasons, I won't get into the details, but we're certainly looking forward to launching these new products in future years. Consolidated operating income was up 11%, improving the operating margin to 24.9%.Below operating income, interest expense was $23.5 million, and the effective tax rate was 14.6%.

Non-GAAP EPS was $0.96, up 14% and with roughly 101 million average shares outstanding. Free cash flow was $18 million with CapEx of $78 million. Net debt increased slightly to $2.47 billion, while our bank-defined leverage ratio reduced to 1.9x. Lastly, we repurchased approximately 537,000 shares of stock back this quarter for roughly $40.6 million. This leaves $215.8 million of availability under our Board approved $1 billion repurchase plan. Moving to fiscal 2025 guidance.

We're adjusting our revenue guidance to incorporate Q2 improving FX rates and updated market assumptions. On a consolidated basis, this translates to revenues of roughly $4.11 billion to $4.15 billion, up roughly 5.5% to 6.5% or up 5% to 6% organically. Cover Vision's revenue guidance range is now $2.76 billion to $2.79 billion, up roughly 6% to 7% as reported and up 6% to 7% organically. CooperSurgical's range is $1.35 billion to $1.36 billion, up 5% to 6% as reported or up 3.5% to 4.5% organically.

Regarding gating for revenues, we expect organic growth in Q4 to be stronger than Q3 when considering year-over-year comps, the timing around the rollout of products at CooperVision and the gating impact of PARAGARD for CooperSurgical. For earnings, we're raising our non-GAAP EPS guidance to $4.05 to $4.11, which is growth of roughly 10% to 11.5% year-over-year. For free cash flow, are seasonally low Q2. After a seasonally low Q2, we expect sizable improvements in the back half of the fiscal year and continue to expect free cash flow to be in the range of $350 million to $400 million. We'll prioritize debt reduction with these proceeds, but also opportunistically evaluate share repurchases as we did in Q2.

Regarding tariffs, we expect a negative impact to cost of goods this year of roughly $4 million, which is built into our guidance. It's too early to guide to next fiscal year, but to help level set everyone. If tariffs remain as is, we expect a premitigation negative impact of roughly 3% to fiscal 2026 earnings. Once we have clarity on what the tariffs will be, we will implement mitigation actions to reduce this impact.

With respect to the impact of currency and revenues and earnings for fiscal 2025, we now expect a roughly 0.5% headwind to revenues and a roughly 1% headwind to earnings. This is down from roughly 1.5% and and 4% headwind to revenues and EPS, respectively, that was assumed in last quarter's guidance. There are a number of moving parts, but to summarize our updated guidance for earnings.

We're increasing the midpoint of guidance by $010, passing along the positive impact of currency and our Q2 beat, offset by tariffs. With that, I'll now hand it back to the operator for questions.

[Operator Instructions] Our first question comes from Jeff Johnson from Baird.

I was wondering if we can just start contact lens end market, sorry, if [indiscernible] making some noise there. I guess my question more than anything is quarter, you seem to be a decent amount below market or a point or 2 below market for CVI this quarter, 1 point or 2 above. It'd be interesting to hear kind of some of your online data, other independent industry data that you might have because it does seem like channel inventory has really been making it hard to compare to your growth rates versus others for the last couple of quarters when we just look at revenue reported from the different companies. So any one and/or other independent industry data you can share?

Yes, good question, fair question, certainly because the numbers are bouncing around for ourselves and for some of our competitors, right, as you see some of the channel inventory move around. And I think that's going to continue, frankly, because distributors, retailers, people are just a little bit tighter with their money than they have been historically. So a reduction in channel inventory is something that's probably going to continue to pressure us. When I look through for the FIT data, our FIT data remains strong. As a matter of fact, it's accelerating right now. So as we get more aggressive putting MyDay fitting sets out in the market, finally have some availability for trial lenses for people. We're starting to see a pickup in MyDay activity, which is great in a number of markets.

I touched on kind of my side, same thing that we're starting to see in my side was an acceleration of some fitting data. So I would say kind of behind the scenes, underneath the numbers, if you will, is some improvement in fitting activity.

Our next question comes from Issie Kirby from Redburn Atlantic.

I wanted to ask about the lower market growth assumption for Vision Care for this year. When do you think about the 4% to 6% versus where you're at earlier in the year is this lowering of the guide really more on perhaps softer pricing? Is it more on volume? Or is it really around mix as well? Just help us understand some of the puts and takes there.

Sure. Yes, the market for a long time was growing kind of in that 4% to 6% range, and it's been stronger than that post COVID. And I think at the end of the day, we're back to that kind of growth range. And I know a couple of our competitors more recently had said that. I'm pretty consistently an optimist when it comes to the market. But I do have to look at the market data, right? And you look at calendar Q1 and the industry grew 4%. And at the end of the day, the fitting activity is still pretty good out there. As I said, it's accelerating some for us. Pricing is still sound. I'm not seeing anything when it comes to discounts or any pricing activity. As a matter of fact, the rumblings in the market are there going to be some potential price increases here as we move forward. Volume is still good. The mix shift, as you've seen a mix shift over to dailies is driving a lot of the growth. torics, multifocals, the specialty lenses, that kind of stuff is still doing well. So I still remain optimistic about it. but I also have to be practical and say, hey, look at the numbers of where they came out, they came out of 4% for calendar Q1. If I look at the growth for this full year, it's probably more mid-single digits, probably historical ranges, and I think we'll take a little bit of share. So at the end of the day, I don't take back anything on what I've said about our business. We continue to do well. I continue to think we'll take share. But if the market is growing 4% to 6% and I'd say we're growing 6% to 7%. That's still decent market share gains, and I'm still comfortable with that. So it's more taken down the market just for kind of general softness, if you will, rather than a specific thing I'm pointing to.

That's helpful. I'm not sure if I can squeeze in a follow-up on the fertility and the IBS market that and just any more color about really what's driving the softness in Asia? And then any thoughts on really the consumer or the cyclical risks to IBS demand in the U.S.

Sure. I think there's 2 pieces to that. Asia Pac is -- yes, it's down on cycles. Now some of that goes to like the year of the snake in China, which is impacting some of the some of the cycles there where I think some women either move forward faster or have delayed IVF cycles a little bit to avoid having a child in the year of the snake. So my gut tells me it's a little bit more of a temporary thing for Asia Pac that we'll work our way out of as we move through this year. The consumer side of it, I do think that there's a little bit there on the consumer side. Now we became a large fertility player, frankly, #1 fertility player in the marketplace when you look at med device, probably starting 10, 11, 12 years ago. So this economic difficulty is something we haven't lived through, but I think there is a little bit of consumer pressure there. You're talking about a process that could cost somebody $15,000, $20,000, and a lot of that, all of that potentially is out of pocket. I think when you combine that with fertility clinics themselves just tightening up a little bit in terms of what they're doing with expansion activity and channel inventory, that kind of thing. I think when you put that together, you're getting a market that's growing a little bit softer. And last quarter, I was still very optimistic about that and thinking we would be able to work through that. I'm not sure that's the case right now. And again, I have to look at the market numbers. And when I look at the market numbers, our results, some results of our competitors and what I'm seeing from some clinic and cycle activity as much as I want to be an optimist and think it's going to be better, I think that fertility, the industry probably more is a low single-digit grower this year.

Our next question comes from Larry Biegelsen from Wells Fargo.

Al, can you hear me, okay?

Yes, I can hear you.

Okay. Good, good. So Al, back to the contact lens market, I think you said in fiscal calendar Q4, it grew 9%, calendar Q1, 4%. Obviously, a big deceleration. What changes are you seeing in the market at the distributor level? And what changes are you seeing from consumer behavior and in which geographies -- we've heard that just consumers -- you talked about fittings being strong. We heard consumers are just buying lower supplies. In other words, 3 months as opposed to 12 months. And any color on April and May trends. And I did have 1 follow-up.

Yes, Larry, I think you're spot on there. That's some of what we're seeing, which is when I talk about channel inventory, A lot of times, people think about that in the context of contact lenses at a distributor, but that does run through Obviously, distributors, retailers, individuals who are holding contact lenses in their medicine cabinet, so to speak. And if somebody is not buying a year of supply, but they're buying a 3-month or a 6-month supply or they're adjusting their wearing habits just a little bit and maybe stretching the lenses or something. All that stuff has an impact. So you end up in a situation where consumption or fitting activity and so forth continues to look good. but you get a little bit of softness in your revenues. And I think that's the situation that we're in right now.

April, May trend [indiscernible].

April, May trends, you go back. I think remembering right, April was the best month that we've had this year, may find -- certainly fine starting off this month. I mean it's just, I think, what we're talking about. I think there's just a little bit of general pressure over there. There's not like a big glaring thing that's coming out there that we can point to other. It's more just general market softness.

And Brian, Q3 versus Q4 in CDI [indiscernible] how much lower do you expect Q3 to be? I mean you expected Q3 to be for both in the range of the full year organic growth guidance?

Larry, thanks for the question. I guess -- what I would say is if you're trying to model Q3, I would think about those 2 Vision and Surgical being sort of below the bottom end of the guidance ranges and then looking at Q4 kind of conversely at above -- at or above the top end of the guidance ranges.

Our next question comes from Jon Block from Stifel.

I guess maybe just following up on a couple of questions here. So Al, where are we with inventory? Maybe if you want to break that apart amongst the distributors and the consumers in your view? And what's the company's expectations going forward, call it, for the rest of the year because seems like you're landing right around 6.5% or [indiscernible]. So somewhat 2 dissimilar 1H-2H when we look at a year ago. So curious what the assumption there is and just overall market growth in [indiscernible] sorry, the [indiscernible] the balance of the year.

Yes. I think that we're just going to continue to get pressure as we move through this year from inventory levels on a year-over-year basis. I wouldn't put my finger on one particular thing, again, I wouldn't come back and say, focus on distributors in the U.S. or focus on retailers in Europe or in Asia Pac or something. I would say just generally, I think as an industry, we're going to continue to have pressure on inventory levels on a year-over-year basis. as Larry said, somebody buying 3 months rather than a 6 month or 3 months rather than a year or something like that. I think that that's what we're going to see. Now I don't want to overdo that, by the way, because I mean you look at us, our midpoint of our guidance was 7.5% and now our midpoint of our guidance is 6.5%, right? And the market is just coming down a point. So I don't want to overdo this. right? But I do think that we're going to see kind of that consistent pressure as we move through this year. And then, I mean, we'll lap that, obviously, right? And inventory have reset itself down a little bit and probably lower than it should be. But I think we kind of just see that through the year. Not a dramatic shift in any individual quarter, but just a little bit softer all year long.

Okay. Maybe just a quick follow-up. It seems like just a change in tone fertility, right? You've always been relatively resilient consumer able to power through of different messaging this quarter in my view. And so how do we think about that over the next handful of quarters? Is it sort of -- this is the new trend line we're probably safe is extrapolating that out until we get better clarity from a macro perspective? Just again, the messaging seems a little bit different than maybe just a 1 quarter blip, the top equipment had been responsible for here and there before.

Yes. I mean we have a great, obviously, market-leading fertility team, and our team knows the industry and what they're doing at the back of their hand. And we grew, I believe, it was 14 out of 15 quarters double digit before we got into Q1 of this year, and we've had the softer Q1 and Q2 of this year. So I look at it right now and say, okay, with that level of consistent growth that we had, that level of excellence and so forth, and now you see the pullback to where it's at right now. I think you're getting some of this kind of temporary activity out there as concerns with the economy or whatever you want to call it, have tightened up activity in fertility clinics. To me, I think we probably swung that a little bit too far feels like. And I think the fertility industry and us also gets a little bit stronger here, and I would be really surprised if Q3 and Q4 don't show strength in comparison to the beginning of this year for the industry and for us. But I don't think right now that it jumps back up, I'm not confident like I was last quarter, it jumps back up to the mid or upper single digits. I think it's more low single digits for the market, maybe a little bit stronger us mid-single-digit kind of growth in Q3 and Q4.

Our next question comes from Robbie Marcus from JPMorgan.

[indiscernible] the point here. But as you think about the lowered guidance for the rest of the year, I guess I'm still a little unsure how much is from what you've actually seen in results so far because you did put up 7% on a really tough comp in CVI. How much is what you're expecting? How much is what you're seeing so far in fiscal 3Q? And maybe just walk us through if fits are so strong, is it changes in inventory or so on? Maybe just put all the pieces together.

Yes, Robbie, it's a great question, right? And you could certainly make an argument that we're being conservative here based on the underlying data and the survey data and so forth that's out there when you look at consumption and fit activity. And I sure is how I hope we are. But I also look at it and go, okay, well, what is reality, like we had a 4% quarter here. We are seeing some pressure from from the marketplace, if you will, in terms of channel inventory. We can't ignore that, right? So I hope I am being conservative, but I don't want to ignore that. And because of that, I'm not -- it's not a dramatic shift down, but it is a reduction. Now -- to be fair, obviously, and to be clear, right? I mean, currency moved in our favor. We passed all that along. Our actual midpoint of our revenue guidance on an as-reported basis is higher year-over-year. But again, to go back to just the organic growth of the industry itself. Yes, I think it's just a matter of not ignoring the fact that something is going on with the channel inventory, and it's coming down because the true -- the fitting data, consumption data, that type of activity, pretty much on a global basis, by the way, continues to be pretty good.

Okay. Great. Maybe just 1 on margins moving forward. You've shown good margin progression first quarter and second quarter here. As we think about the rest of the year, how should we think about the cadence of margins and where that will come from on the lower revenue guide.

Yes. Sure. Robbie, thanks for the question. Yes, the margin story is very much a continuation of what we've been seeing. -- we're getting efficiency gains, leveraging investment activity from prior investment activity. You saw gross margins up year-over-year again this quarter. I'd expect in the second half of the year, gross margins are up year-over-year for the second half. That will help drive operating margins higher. We're still getting leverage from investment activity -- prior investment activity in the OpEx line items, distribution being one of them, but certainly, across a number of the support [indiscernible] we are being very disciplined in managing our investment activity and being disciplined around cutting some costs where it makes sense so that we can drive leverage through the P&L. So I would expect that what you'll see in the back half of the year is a continuation of the story that you've been seeing which is better operating margins year-over-year.

Our next question comes from Craig Bijou from Bank of America.

I wanted to start with a follow-up just on not the contact lens market, but necessarily -- but your outperformance of the market. And I think the outperformance is still the same, even though you lowered the guidance. I think it's still 150 basis points above the market at the midpoint.

So maybe the moving quarters, some quarters beat some or a little bit below the market. Just what gives you the confidence that you can outperform the market for the rest of the year?

Sure. I think there's 2 things tied to that. One is we spent a lot of time over the last couple of years talking about MyDay and the demand in MyDay. It still remains strong out there. We're getting a lot of fitting sets and trial lenses out into the market so that more people can try that product. We're in active discussions right now, talking about expanding private label contracts that we have, deals that we have getting more MyDay into the channel. So when I look at it and I look at the fitting activity and the interest in that product right now that I see -- I feel pretty confident that MyDay is going to get going, it's going to accelerate some. Now I think it will take just a little bit, as Brian said, because a lot of it's going to, again, trials sets and free lenses that kind of thing. Right now, but the fitting activity is there. I see the fitting activity. We see the improvement in it. So I think we'll have a strong stronger Q4. The other thing when it comes to [indiscernible] market, and you're right, like the market right now, the midpoint of market, we're talking about is 5%, and we're 6.5%. So we are not backing away from taking share in this market. that has remained consistent. The other one, I would say, ends up being MiSight. MiSight is on a $100 million run rate. We'll do over $100 million in revenues for MiSight this year. Maybe it's not growing quite at the clip that I thought it was going to grow, but we still probably do 30%, 35% growth in my sight this year. And I think you're going to see an acceleration in myocyte activity that's going to be our strongest quarter because again, I can see a lot of fitting activity right now, and I see a lot of kids starting to wear that product. You see that especially true in Europe right now where we're seeing a pickup. We've got brand-new large private label contract we entered into, first, 1 like that, that's going out with [indiscernible] in Europe. We're seeing fitting activity associated with that. it's tied to free lenses upfront, try it, you'll like it and you'll keep it, but we're seeing that fitting activity right now with my side. So when I look at that, I think we've got an excellent opportunity to continue to take market share.

Maybe for Brian. Just on tariffs, can you just help us give a little bit of color on what's driving that $4 million that you have in your guidance for tariffs this year, which countries and how to think about that?

Sure, Craig. Yes. So similar to other companies, the way that we account for the activity and cost of goods, we often capitalize that and run that through the P&L 6 months later. So a lot of the activity that's impacting us this year is really impacting us in -- we do have -- a lot of our manufacturing really does support the markets in those regions. So we benefit from that activity. But where we are seeing tariff impact predominantly is from manufacturing out of Hungary and to a lesser extent, manufacturing out of the U.K. So that impact is impacting us this year. I talked about the 3% for next year. And that basically summarizes we're using basically today's expectations on tariffs.

Sorry, I said [indiscernible]

Hungary is actually -- let me correct that, actually. Costa Rica is the biggest impact to tariffs to us. Second is the U.K. Hungary is negligible. Hopefully, that's clear.

Our next question comes from Joanne Wuensch from Citi Bank.

I actually have to -- what I'm trying to get my head around is when you put the new guidance together, -- how much of this is reflective of this is what we're seeing in the market? How much of it is this is what others are reporting and how much of it is maybe conservatism? I'm trying to get my head around this because you did just beat the quarter. And then I have a follow-up question, please.

Yes, that's very fair, Joanne. And a part of it is, yes, what we've seen other people reporting. I was a little surprised by some of the numbers that came up. What we see reporting Q1 4%. What we've seen in the market, we are seeing some tightening of the market when it comes to the channel inventory that we've been talking about. And then I would say a portion of it to be fair, is conservatism. I think that we needed to reset our numbers. We -- our expectations were out there were a little bit high. We just had a good quarter. We just did 7%. We beat expectations for vision. We beat expectations for Surgical. -- we beat earnings expectations. I mean, frankly, we raised revenue guidance at the midpoint. We raised earnings guidance. So it's an across the board, raised on that. Having said that, right, you look through that organic growth rates, and I think it's just a prudent time to be a little bit more conservative.

And my follow-up question has to do with FX because FX has moved so dramatically since we all got together and talked less than 90 days ago. What are you dialing in for FX impact? And can you just remind us how to think about that as we go forward and the world continues to dance or shift?

Yes, I'll comment quickly, and then Brian, obviously knows this like the back of his hand. With respect to OpEx, the one thing I would say is I think people are probably underestimating the efficiencies that we're driving in the organization right now. Like there's a lot of moving parts here. but the operational efficiencies that we're delivering from our manufacturing team who's driving cost per units down on on the products and then the leverage that we're getting through the P&L that Brian talked about, right, in some of these areas like distribution is quite a bit more, I think, than people are thinking. We invested a lot of money for a couple of years there, and people saw that in terms of our investment activity and so forth. Those returns are now starting to work their way through the P&L. So there's a lot of noise with FX right, but it's operational efficiencies. And I'll turn it over to Brian because he's a big part of that, and he's one of the guys who's driving that throughout our entire organization. So he deserves credit, I should shut [indiscernible]

Yes. I mean I think, Al, you said it pretty well. I mean, we are -- it's a lot of really hard work being demonstrated by our operational leaders around packaging, labeling, manufacturing, shipping, that's all across Vision Surgical, working together, really grinding away and making sure that we get the leverage from that prior investment activity. And that's also true within OpEx. We all have to remain vigilant and disciplined during these uncertain times and making sure that we are thinking about and managing our expectation. Our expenses closely. So when you've got a big FX move, as we've done, when we took down the revenue ranges at the midpoint for organic growth, the operational efficiencies in cost of goods and OpEx really helped to offset all of that. And so what you're left with is FX really being a big part of the EPS raise along with the Q2 beat and the impact from tariffs. So that's how you get to the $0.10.

Our next question is [ Anthony Petrone ] from Jefferies.

I guess to start, I wanted to hear a little bit about the private label business growth, if you can provide any sort of the growth versus branded and if you can sort of in general, if there's any differences you're seeing between sort of the higher-priced products versus lower price products consumer seems to be a little bit [indiscernible]

Sure. So 2 things on that. I'd say private label bids for us at CooperVision growing a little bit faster than our branded business. No real surprise there kind of trends continuing. I think we probably -- we'll continue to see that activity based on what I'm seeing out there with contracts and sales and so forth. I think you'll see the private label business grow a little bit faster than the branded business. The high price, low price, if you will, that question, it's interesting. The high-priced products, when we talk about like MyDay, torics, multifocals and so forth, continue to outperform. They continue to do well. We haven't necessarily seen anyone moving to lower-priced products, but we've seen a shift in some of the purchasing behavior for some of those more expensive products. So we'll see what happens with that. Like is there ultimately a shift over to some of those where people say, hey, I want to make -- I want to wear my contact lenses every single day and I shift over to clarity or something? I don't know, we'll say. But as of right now, we're continuing to see pretty good demand and activity around the higher-priced products.

All right. Great. Very helpful. I guess to follow up once your competitors launched some briefly products. [indiscernible] early movement was pretty good. Wondering how much you're seeing that market and your, I guess, interest in that type of mortality, you were to try to get something out that's similar? How long would that [indiscernible]

Yes. That's a market. That's one that we don't really play in, which is kind of fun because it seems like we play in every market. But that would be a segment of the market that we're not really in, which is the weekly 2-week market. That's J&J and Alcon that are out there playing in that market right now. So that's not a market we're going to enter. Like we're in the daily side of things, and we're on the monthly side of things. So I'll leave it to those 2 guys to kind of battle out the winner of that space.

Our next question comes from Chris Pasquale from Nephron.

One, just on contact lens market and then Brian, a follow-up for you on tariffs. On the market. So Al, I think you used the word sound for contact lens pricing. The biggest difference between the last few years and the pre-COVID period, as far as we can tell, is that pricing has been above the historical trend. So is this downshift in market growth as simple as pricing trends returning to what we used to consider normal, and then you mentioned rumbling is about a new round of price increases to come. As you look at your own business, do you still see the same opportunities for price as what you had the last couple of years?

Yes, I do. I think that as an industry right now, and I'll speak for us, in particular, as we look at inflationary pressures, I think we have the ability to pass along price increases that tie to inflation. Not above and beyond that, but inflationary pricing, I think all people -- all companies can pass on. We can pass that along a retailer selling the product can pass that along. So I don't see much in terms of pricing. Yes, there are some rumblings out there from at least one competitor about a midyear price increase. tied to tariffs and so forth. We'll see how that stuff plays out. But I do think that pricing right now in the market is solid. I think future pricing is probably going to be a little bit higher than what it was pre-COVID. So I think this is probably more a period of challenges around channel inventory, that type of thing and purchasing and wearing behavior than it is anything to do with pricing.

Okay. That's helpful. And then, Brian, you talked about a 300 basis point headwind from tariffs next year, absent any mitigation efforts, if I heard you correctly, you guys seem to be perennially capacity constrained on manufacturing. So what abilities the company have to move things around if you need to get some of that production to different geographies to try and mitigate that impact.

Chris, yes, thanks for the question. There's a number of things that we could do. The first thing Al just talked about, it was considering additional price increases that's something that we don't have factored into our guidance for this year, but it's certainly something that we can consider that will help offset. Beyond that, I mean, it comes down to how do we -- what do we do with our supply chain flows how do we manage inventory differently and how do we adjust some of our manufacturing. We have the ability to do some of that, and we're evaluating some of those moves right now. It just seems like over the last 48 hours, we've heard different commentary about the impact of tariffs and what might happen and what not happening as of a few hours ago. So we are absolutely in the planning mode of what should we do, what's easier to do, what's harder to do, but there's a number of things that we can do to take action on, but we just want to make sure there's a little bit more clarity. And so that's why we're taking a bit of a wait-and-see approach before doing anything disruptive to our operations.

Our next question comes from Jason Bednar from Piper Sandler.

Al, I want to start on -- sorry to belabor this point. The [indiscernible] on the CVI guidance seems to be this channel inventory dynamic. But I'm having a hard time squaring that against the comment you made earlier that you posted your best month of the year in April. So where is the disconnect? Because you obviously didn't see it in April. Does this have to do with what you think is happening to channel inventory for others and you expect it to happen to your business? Or is this like visibility that you have to inventory adjustments that you think are coming in like the next few months?

Yes, Jason, I say this like it feels like every quarter, I'm like, you just have to be so careful in this industry. when you look at any month's performance because you talk about like a big April, well, you saw the numbers, that would mean that February and March were softer months, right? Like let's not read too much into any individual month because you have big shipments that go to key accounts. and channel inventory swings that are going from 1 month to the next month that can impact any month or any individual quarter. So I wouldn't read too much into that. I still think at the end of the day, when your year in the future and your turnaround and look back, right? You see big months and low months and so forth as shipments and so forth happen. But ultimately, what ended up happening for the year. That's where I get back to the 4% to 6% growth for the full year, and that's where I get back to -- at the end of the day, some channel inventory contraction that happens in the marketplace. .

Okay. All right. Fair enough. On the pricing side, just a follow-up there on some prior questions. I mean we've seen some of those pricing schedules from one of your peers. They do look like some large price increases. I guess I'm curious how you're thinking about your business in response to your price strategy and response, do you try to move forward in a similar fashion because you now have covered to take price as well? Or are you going to take an approach of wait and see how the market responds to these tariff-related increases and then proceed as such?

Yes. Right now, I'm not going to give any other color other than to say we're evaluating it. We'll see what's going on with the market, and we'll evaluate it. And if it's appropriate to to take price increases, we'll look to do that and we decide not to, we will. So the team is working on that right now.

Our next question comes from Brett FishbinFishman from KeyBanc Capital Markets.

Just wanted to ask if you could expand a little bit on what you're seeing around broader demand for toric and multifocals. It seems like we got into like a pretty steady cadence of double-digit growth from those categories for a pretty long time. Just like noting growth has come in a little bit, I think, 7% this quarter and a lot lower growth of the overall CBI portfolio. So I'm just wondering if there was any competitive dynamics to call out or anything else that might be driving that?

Yes. No, not too much. I mean I remember when I saw those numbers coming through this quarter, I asked that same question, right? But there's not too much to read into that. torics and multifocals continue to do well. you definitely get some activity associated with dailies. Now that, that marketplace has shifted more. It continues to shift more and more to dailies, you're getting some bigger swings in some of those kind of numbers. But no, the toric and multifocal markets continue to do well and our products continue to do well there. That got a little bit more tied to some of the bio affinity shipments that were going out there for those products. I wouldn't read too much into that.

All right. Very helpful. And then I'll just ask a really quick follow-up. I think last quarter, you mentioned that China was a decline year-over-year. Just curious if you're able to give any color on how China performed in CBI just this quarter as well.

Sure. Yes. China was down quite a bit last quarter. It was essentially flat this quarter for us. MiSight business was actually down a little bit. I mean we had 35% growth in MiSight on a global basis with China being just a little bit negative, but essentially a flat business in China for Q2.

Our next question comes from Steve Lichtman from Oppenheimer & Company.

I wanted to follow up on your comments on MiSight. I think you mentioned price isn't the headwind based on your analysis but you are instituting the free trial program. So what is driving you to start that program if price isn't a factor? .

Yes, Steve, 100%. So we did this work. We've done it for actually a decent period of time in a lot of different markets. Looking at the annual price of that and thinking, hey, that's the thing that's holding back greater adoption of this product. What we've really truly found out is it's not that it's the initial pricing. It's the initial activity. You have to get the parents comfortable that their child can wear contact lenses. You have to get the child comfortable that they can put the contact lenses in and take the contact lenses out. The parents are kind of saying,, listen, I don't want to go down that journey and pay all this money upfront when I don't think that my child is going to be able to wear them or [indiscernible] them or so forth. So I'm hesitant to even get started in my side because of that. once you go to them and say, hey, here's 3 months free. Go ahead and try this product, right? The daily lenses, here 3 months for you go ahead and [indiscernible] wear them, make sure that your kid can wear them, make sure that your kid is getting the treatment benefit that the eye care practitioner is saying they'll get. Once you give them that and the kid goes through the process of figuring out how to put lenses in and take them out, I mean, Ben, they get the visual correction associated with the lenses, the kids love it and want to stay in them once they get comfortable with it. The parents go back and say, "Wow, this treatment is actually working. I really like the fact that treatment has worked, and I want to continue to offer that to my child. Once you get over that hump, then you're in. That's where the [indiscernible] rate is like 90%. So what we've really found is it's not that annual cost, it's the cost of the initial purchase activity. You have to hook them, if you will, into the value of contact lenses and into the value of the treatment. Probably not a shocker. When you look at the massive success that you're seeing from spectacles, outside of the U.S., right, when you see it in China and European markets and so forth, right? I mean payers are very interested in if the hesitancy is tied to that initial cost. So that's what we're talking about with the free initial trial period.

Got it. And then just quickly on the fertility market commentary, you mentioned capital purchasing delays given the macro. Was that a comment for any particular region? Or are you seeing that globally? Any more color on that?

Yes, we're seeing that -- well, for us, that would be greater in Europe and India. But we're also seeing that some here in the Americas. It's prevalent in a number of locations right now. I don't think that's going away. I think it's more somebody a fertility clinic looking at stuff saying, hey, do I need new workstations do I need some of that kind of activity? Yes, I would like to upgrade. Do I have to upgrade today? No. I can delay this activity a little bit. It seems to be much more tied to that than anything else.

Our next question comes from David Saxon from Needham.

Maybe just a follow-up on [indiscernible] on the [indiscernible]. So you talked about the promo activity during the third quarter. Can you quantify the impact that you're expecting? And then for the myopia management portfolio, including [indiscernible] can you talk about the profitability of that portfolio? Is it profitable? And then longer term at scale, how should we think about the margin profile relative to kind of core CBI margins?

Sure. So yes, I was talking about my side, right? We're doing a lot of this activity. I guess I don't want to lead anyone down the wrong road. I mean my side in Q3 is still going to be a decent quarter. My guess is probably 25%, 30% growth, something like that. And then we'll see -- my expectation is we're over 40% growth in Q4. So if this goes the way I think it's going to go, solid quarter in Q3, maybe just a little bit lighter and good, strong Q4. Ortho K this quarter was roughly flat. When I look at those combined from a profitability perspective, gross margins are good on those kind of would fall in line with company-wide averages, if you will. Operating margins depending upon how you allocate costs, you can argue those are still lighter because we're still investing a lot of dollars. We're -- as you remember, we're integrating a lot of the sales activity into our regular commercial infrastructure. to be able to sell the product more efficiently and get better coverage. So I think that at the end of the day, long term, that is going to be a margin-accretive portfolio for us.

Our next question comes from Patrick Wood from Morgan Stanley.

I'll keep it just one. It's trying to keep you time efficient. I don't mean to believe the point, but the industry has taken probably cumulatively 10%, 15% gross pricing over the last couple of years. Is it the like mix of new fittings that's giving you confidence that you're not seeing any real beginnings of change in consumer behavior? Because I hear them destocking and holding less and I think a cumulative price increase. Just -- you can't help worry a little bit on our end. Anything you can kind of speak to confidence around how they've absorbed that aggregate total pricing. I'd love to hear anything.

Yes, Patrick. Something I didn't touch on that I probably should touch on here because I think it's a component of what's happening. And that's is some of the legacy products that are out there, legacy hydrogel products that are out there. That's still a decent portion of the market. There's still quite a bit of older legacy hydrogels that are out there that a lot of the industry are moving out -- we're moving out of like our traditional hydrogel sales declined pretty decent this quarter, right? The are masking our growth, if you will. And I think you're seeing some of that impact in the marketplace. So as you're seeing older traditional hydrogels continue to decline and people tighten up on what's out in the channel associated with those products as those products decline and go away because a lot of people are discontinuing those. I mean we are we discontinued. We had millions of dollars of discontinued sales this quarter from older products, right? So as we continue as a company as an industry to shift away from some of these legacy hydrogel products that puts pressure on channel inventory and puts pressure on our as reported growth rates. You flip over to the other side because Patrick, I get your point a little bit of a head scratcher here and you say, okay, price is there. We're not seeing a pushback on price, which we're not. We're continuing to see good growth in the specialty lenses and these higher-priced lenses and so forth. We're getting fitting activity, it's a little bit of how do I reconcile that? Like we shouldn't ignore the negative impact coming from some of these traditional hydrogel lenses because they are impacting industry growth. They're certainly impacting our growth because we're dealing with that. So that's an important component. I probably should have said that earlier.

Our next question comes from Navann Ty from BNP Paribas.

So back on fertility, there's a fact pharma company that reported a sluggish performance in China, but did not revise down their global fertility guidance. Some curious what is Cooper's original mix for fertility revenue? Maybe you see a difference between fertility consumables and therapeutics.

Yes. We do not have any fertility pharma products. So I would definitely split those 2, right? When you look at a fertility treatment, the largest cost associated with that treatment is on the pharma side. And we just don't have those products. So when I'm speaking about fertility growth, I'm talking about consumables, genetic testing, donor activity, capital equipment and so forth, but not pharma-based. So I definitely wouldn't automatically link any commentary or any pharma sales activity to our industry or our market, if you will.

There are no further questions at this time. I'll turn the call back over to Al White, President and Chief Executive Officer.

Great. Thank you, everyone. I appreciate the time. I know we had a lot to go through there, and hopefully, we were able to communicate all that clearly. Look forward to catching up with people during the quarter and certainly look forward to our next earnings call. Thank you. Thank you, operator.

This concludes the meeting. You may now disconnect.