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Date

Thursday, June 4, 2026 at 5 p.m. ET

Call participants

• President and Chief Executive Officer — Albert White
• Chief Financial Officer and Treasurer — Brian Andrews

Takeaways

• Total revenue -- $1.08 billion, up 8% year over year, or 5% organically, marking a record quarter for the company.
• Non-GAAP EPS -- $1.21, a 26% year-over-year increase, with average shares outstanding of roughly 196 million.
• Gross margin -- 68.1%, flat compared to the prior year, with positive currency effects offsetting higher costs, including tariffs.
• Operating expenses -- Increased 1%, benefiting from cost efficiencies and back office consolidation; CooperSurgical expenses declined year over year for the second consecutive quarter.
• Operating income -- Up 19%, resulting in a 27.5% operating margin.
• Free cash flow -- $96 million, with $13 million deployed for share repurchases and net debt reduced to $2.3 billion.
• Interest expense -- $20.9 million for the quarter.
• Tax rate -- Effective rate reported at 15.4% for the quarter.
• CooperVision revenue -- $724 million, rising 8%, or 4% organically, led by 7% growth in the Americas, 6% in EMEA, and a 6% decline in Asia Pacific.
• Asia Pacific headwinds -- Segment revenue declined 6% due to product rationalization and market weakness in Japan and China.
• Daily silicone hydrogel growth -- Up 8%, propelled by the MyDay brand achieving double-digit growth and rollout of premium offerings.
• Biofinity growth -- 5% organic increase, driven by toric and multifocal lenses, supported by wide prescription parameter offerings.
• MiSight myopia control -- Revenue rose 24% to $32 million, with strength in Japan and positive market response to new product launches in Europe.
• CooperSurgical revenue -- $358 million, up 8% reported and 6% organically; fertility subsegment delivered 13% reported and 10% organic growth to $144 million.
• Fertility capital equipment sales -- Contributed to the quarter’s growth, especially from U.S. demand and distributors in the Middle East restocking after airspace reopened.
• Office and surgical products revenue -- $214 million, up 4%; medical devices grew 6%, and Paragard revenue was flat against a difficult comparable.
• Litigation settlement impact -- $271.6 million charge related to CooperSurgical embryo culture media recall, comprised of $324.1 million accrued settlement and $52.5 million insurance recovery; excluded from non-GAAP earnings.
• Strategic review update -- “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.”
• Share buyback outlook -- Buyback activity was limited in the quarter due to “a conservative position given other activity”; management now expects a more aggressive approach moving forward.
• Fiscal 2026 revenue guidance -- Updated to $4.28 billion-$4.32 billion, representing 5%-6% reported growth and 3.5%-4.5% organic growth.
• Fiscal 2026 free cash flow guidance -- Increased to approximately $650 million, excluding litigation payouts; company reiterates $2.2 billion target from 2026 through 2028 including expected litigation payments.
• CooperVision fiscal 2026 guidance -- Revenue expected to be $2.88 billion-$2.91 billion, growth of 5%-6% (3.5%-4.5% organically); guidance lowered due to Asia Pacific softness.
• CooperSurgical fiscal 2026 guidance -- Revenue forecast unchanged at $1.4 billion-$1.41 billion, or 4%-5% growth as reported and organically.
• Gross margin outlook -- Full-year margins expected to decline, with Q3 margin targeted at approximately 66%, largely due to negative FX, tariff costs, and lower CooperVision production related to AI-led inventory optimization.
• Tariff costs -- Guidance incorporates $22 million of expected tariff expense for the year; potential refunds up to $15 million could represent undisclosed upside if realized.
• Asia Pacific restructuring -- New leadership and commercial efforts in Japan, China, and Korea reported as underway, with expectations of sequential APAC performance stabilization by Q4.

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Risks

• CooperSurgical took a $271.6 million litigation charge due to settlements relating to the December 2023 embryo culture media recall, with management stating, "a loss is probable and reasonably estimable, particularly with respect to potential exposure exceeding available insurance coverage."
• Asia Pacific market weakness and continued product rationalization are expected to weigh on revenue, with CEO White stating, "Consumer weakness. We really see that not in every market, but we see it in Japan, and we see it in China."
• Gross margins are projected to decline for the full year, driven by "unfavorable FX and certain higher costs, including tariffs, freight and the impact of lower production at CooperVision."
• CooperVision’s Asia Pacific business may remain under pressure into 2027, as management indicated rationalization of legacy hydrogel products is "going to continue to put pressure on us for probably I don't know, maybe all through 2027 even."

Summary

The Cooper Companies (COO +2.90%) reported record revenue and non-GAAP earnings for the quarter, supported by top-line growth across both CooperVision and CooperSurgical segments. Management disclosed robust third-party interest in acquiring CooperSurgical, accelerated following the near-completion of litigation settlements related to the 2023 embryo culture media recall. Strategic capital allocation priorities remain unchanged, with the company reaffirming increased free cash flow guidance and announcing intent to scale up share repurchases. Updated income guidance reflects reduced topline expectations for CooperVision, attributed mainly to pronounced consumer-driven market softness and ongoing restructuring in Asia Pacific. Litigation charges were substantial but largely covered by insurance, and the effect was excluded from non-GAAP results, with further detail pledged for future filings.

• Management stated, "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."
• White confirmed that, if a CooperSurgical sale occurs, "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." subject to assessment of the remaining company's balance sheet.
• Andrews explained that first-half EPS strength was partly due to the FX favorability: "when I talked about the 1%, that was really 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 and modeling phenomenon, if you will. But expect continued strong operational delivery with, of course, the noise around tariffs and some of those other costs that I talked about." with guidance holding steady due to expectation of FX turning decently negative in the second half.
• CooperVision continues to expect daily silicone hydrogel lenses and myopia control to drive future growth, supported by new market launches and increased consumer marketing activity.
• Fertility business capital sales and Middle East distributor restocking generated a one-time lift this quarter, with the run-rate expected to normalize to mid-single-digit growth going forward.
• New AI-driven inventory management systems at CooperVision are enabling inventory reduction, pressuring gross margins in the near term but expected to enhance cash flow through 2028.
• Tariff refunds, if received, would increase reported profitability, but are explicitly excluded from current guidance.
• Clariti and other non-premium products are underperforming relative to premium offerings; management attributed this to market preference shifts and positioning, especially in Asia Pacific.

Industry glossary

• MiSight: A daily disposable contact lens by CooperVision specifically designed for myopia control in children.
• Biofinity: CooperVision’s monthly replacement contact lens portfolio featuring broad prescription options.
• FRP: Frequent Replacement Products, contact lenses designed to be replaced on a regular cycle, typically monthly or biweekly.
• Paragard: A non-hormonal intrauterine device (IUD) manufactured by CooperSurgical for long-term birth control.

Full Conference Call Transcript

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 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.

Albert White: 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 two 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 wearers continue 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 airspace. 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 to 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.

And 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.

Brian Andrews: 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 covered 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 essentially 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, where 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: [Operator Instructions] Our first Question comes from the line of Jeff Johnson from Baird.

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

Albert White: Yes. Jeff.

Jeffrey Johnson: 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 hydrogels and any other updates you can provide on what's going on in Asia Pac. Then I have one MiSight follow-up question.

Albert White: 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.

Jeffrey Johnson: 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.

Albert White: 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 is 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.

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

Jonathan Block: 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?

Albert White: 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.

Jonathan Block: 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 would 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?

Brian Andrews: 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 and 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 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 and modeling phenomenon, if you will. But expect continued strong operational delivery with, of course, the noise around tariffs and some of those other costs that I talked about.

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

Jason Bednar: 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 CVI 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.

Brian Andrews: Sure. I'll take the second one first, and maybe I 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.

Jason Bednar: 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 out 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?

Albert White: 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.

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

Larry Biegelsen: I'm actually going to ask two 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.

Albert White: 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 -- We were 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. It's 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.

Larry Biegelsen: 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?

Albert White: 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 then at least, but we'll see. I mean, we're -- there's nothing now holding us back from being able to move very quickly.

Operator: Our next question comes from the line of Xuyang Li from Jefferies.

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

Albert White: I'm not sure what you're asking, honestly.

Brian Andrews: Just like the revenue gating maybe, I'm not sure.

Young Li: Just the revenue cadence for fiscal 3Q versus 4Q is the implied guidance for the second half of the year.

Albert White: Well, I would probably say, as 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.

Young Li: All right. Great. That's really helpful. I guess just on the fertility business. It rebounded to double digits earlier than expected. I heard 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?

Albert White: 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.

Operator: Next question is from Steve Lichtman with William Blair.

Steven Lichtman: I guess, first Al, it sounds like you're seeing a firm end market in the U.S. and 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 staying stubbornly high here?

Albert White: 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.

Steven Lichtman: Got it. And then just in Japan, have you launched clariti toric and 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 here in the last few quarters?

Albert White: 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 who we're losing like -- but as we get that launch in Japan, that's going to help us keep our own wearers transitioning 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.

Operator: Next question is from Travis Steed of Bank of America.

Travis Steed: I really wanted to ask about the lower revenue guidance, the 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?

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

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

Albert White: 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 event 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.

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

Albert White: 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.

Operator: Next question from David Saxon of Needham & Company.

David Saxon: Just wanted to follow up on the APAC, so 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?

Albert White: 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 further, right, fifth inning or something like that. We still have some work to do.

David Saxon: 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 product as you look out to the back half in '27?

Albert White: Yes. Clariti was actually probably a little bit weaker this quarter than last quarter. MyDay was stronger and kind of more than made up for it, if you will. I think that the big thing on clariti 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 state. 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.

Operator: Next question from Mr. Anthony Petrone from Mizuho Group.

Anthony Petrone: 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 does the stand-alone effective tax rate looks like?

Albert White: 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 (sic) [ CooperVision ]. 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'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.

Operator: Next question from Navann Ty from BNP Paribas.

Navann Ty Dietschi: 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 the 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 a quarter or so?

Albert White: Yes, a couple there. So let me hit those. The last one is litigation slowed down the process. The answer to that 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 are 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 MiSight, there's a push and pull going on in MiSight right now. So as glasses continue to enter the market, that is a negative to contact lenses, 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.

Operator: The next question is from Joanne from Citigroup.

Joanne Wuensch: I want to touch base on just two things and get 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.

Albert White: 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. That single-hand inserter is helping us. We're well positioned. The 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 on 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.

Operator: Next question is from Robbie Marcus from JPMorgan.

Robert Marcus: 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 wear 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.

Albert White: 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 tough 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 to more premium products and in that market, you just don't really have any pricing.

Robert Marcus: 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?

Albert White: 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 it's still a little elevated this quarter and go maybe 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.

Robert Marcus: And tax?

Albert White: Tax would be, I guess, a RemainCo CooperVision tax would probably be fairly similar to what it is today.

Operator: Next question from Brett Fishbin from KeyBanc Capital Markets.

Brett Fishbin: 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 CVI this quarter?

Albert White: I mean I'll comment quickly. Certainly, Brian knows numbers like the back of his hand. 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 swing, does that help?

Brett Fishbin: 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.

Albert White: Correct. Yes.

Brett Fishbin: 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?

Albert White: 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 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.

Operator: Next question will be from Chris Pasquale from Nephron.

Christopher Pasquale: Al, I wanted to circle back to fertility. 10% growth this quarter, but 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?

Albert White: 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 for fertility, it will probably be somewhere in the mid-single digits. So that delta that you were looking at was a combination of two things. One, it was capital. The other one was when the airspace 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 at throwing double digits. I think we did 14 out of 15 quarters at one stretch, double digits. We're not back there yet, but we're at least back to mid-single-digit growth in fertility.

Christopher Pasquale: 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?

Brian Andrews: 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.

Operator: Last question from David Roman of Goldman Sachs.

Marco Espaillat Bermejo: Yes. This is Marco Espaillat 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?

Albert White: 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 jump 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.

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

Albert White: 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.

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