Cooper Companies, Inc. Q1 FY2026 Earnings Call

Thank you for your patience. My name is Tina, and I will be your conference operator today. I would like to welcome everyone to the First Quarter 2026 Cooper Companies Earnings Conference Call. It is now my pleasure to turn the call over to Kim Duncan, Vice President of Investor Relations and Risk Management. Please continue.

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 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 ir@cooperco.com. 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 three 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 MiSight 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. And 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 there is 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% 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 MiSight 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 full 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, continues delivering exceptional growth. We also closed additional MyDay key customer contracts and private label partnerships this past quarter across all three 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 markets; 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 lens approved for myopia control in both Japan and China. We're also continuing to invest heavily in myopia control R&D and have several exciting breakthrough innovations underway, which further support our confidence in MiSight's ability to deliver consistent long-term robust growth. To conclude on 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 company is 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 around $85 million and 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.

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 Q4 number. I think over the last 3 quarters, you've been about 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 one follow-up question.

Sure. I knew we were going to get that one. It's literally just a matter of months and shipment of products. So we 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.

Fair enough. I'll go a bit further and apologize for the feedback, but you've mentioned your aim to return to market growth, ideally exceeding it as you report CVI. How is that plan progressing? Could you provide an update on the transition from MyDay to clariti? Generally, it seems your results are still somewhat behind the market compared to some of your competitors. How do you assess your progress in getting back to and exceeding market growth over the next few quarters?

Great question, Jeff. I'll break that down in a few ways. In the Americas, we're performing well. The U.S. had a strong quarter, and we're gaining traction with product launches and various activities. The team is excelling, so I would say we're in a good position there. In EMEA, we're also doing well. We've made progress this quarter compared to the last, winning several contracts and launching products. I feel more optimistic about sales growth in that market thanks to enhanced visibility. I'm pleased with the momentum in both the Americas and EMEA, particularly related to MyDay and clariti. Moving on to Asia Pac, the results have been challenging. This is an area where we need to improve to return to our traditional growth rates. We're actively working on driving growth in Asia Pac, and we've had some success in addressing past issues. We've stabilized our e-commerce efforts and the China business, although we've seen leadership changes in some positions. Many countries are in a good situation, but Japan remains a challenge, particularly with older hydrogel products where competitors are gaining share. We haven't compromised on pricing, but I anticipate continued pressure in Japan from traditional hydrogels in the next quarter, which might lead to a decline in that region. However, the achievements and product launches happening in Asia Pac, along with the success in executing private label contracts, should lead to growth in Q3. Overall, I believe we have a clearer understanding of the challenges and opportunities ahead. I expect fiscal Q2 to show an improvement over the current quarter, and as I've said before, we should be back on track in Q3 and Q4.

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

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

Sure. To provide some figures, the Middle East represents about 2% of our sales on a consolidated basis, primarily through distributors. It's a vast region, so it won't significantly affect us, although it could influence fertility since we have a solid presence there, being the market leader. Our main concern is ensuring we can deliver products, as women continue to undergo fertility treatments. If the current situation persists, it could pose challenges for us. Nevertheless, we still have strong momentum in fertility, and I believe we will see quarter-over-quarter improvements. However, that aspect remains uncertain, and without it, I would be even more optimistic about our fertility outlook.

Brian, the margins were really strong in Q1. Can you remind us how we should consider the phasing for the year, especially regarding the tariffs? You mentioned there was no change, but in light of the recent Supreme Court ruling, if that stays in place, would there be any potential upside on tariffs?

Sure, Larry. I'll begin with the second part of your question regarding tariffs. We have estimated $24 million for the year based on our last guidance. We're going to maintain our current position for now. Since we account for the impact of tariffs four months later, any changes to the tariff rules won’t affect us until later in the year. A 10% tariff has minimal impact, similar to the $24 million figure we’ve used. If it were to increase to 15%, it could go up by about $4 million. But for now, we're sticking with the 10% assumption, which is included in our guidance. Regarding operating margins, we're seeing continued benefits from the synergies and the reduction of fixed costs from our reorganization discussed in Q4. We are capitalizing on prior investments and being very disciplined in managing non-revenue-generating expenses, particularly in the back office, while also investing in sales and marketing. The increase in operating margins was positive in Q1, and I anticipate that you'll see continued strong operating performance, which is why we've raised our guidance by $0.13 at the lower end and $0.10 at the midpoint based on better operating results. However, I won't provide further details at this moment.

And from Piper Sandler, our next question comes from the line of Jason Bednar.

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, 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 it, 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.

All right. And then as a follow-up, it really seems like industry pricing dynamics have calmed 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 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, 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 than 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 at good price points. 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 region 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.

And from Stifel, our next question comes from the line of Jon Block.

Al, I believe you mentioned the CVI number is at 3.3%, which is slightly below expectations, even at the lower end of the midpoint you provided in early December. Could you explain what factors contributed to this deviation from your expectations? It seems that January may have been weaker than anticipated. Can you share any insights on how trends shaped up as we moved into February? And I apologize for any poor audio quality.

Yes. No, you're right, Jon, 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. For my second question, I apologize for the somewhat dull inquiry. Brian, I noticed that nearly half of the add backs this quarter were due to unusual expenses related to litigation, which is quite different from what we saw in the previous quarter. Could you provide more details about the add backs and elaborate a bit?

Jon, you're referring to the other category where we noted that $6.7 million was tied to various legal matters. Typically, we don't discuss ongoing legal issues. While we have insurance for many situations, there are certain instances where we are self-insured and actively defending ourselves, leading to some legal costs emerging. This quarter's figure was a bit higher, but it's not unusual compared to previous years.

From Jefferies, our next question is from Young Li.

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

Supply dynamics? For 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.

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. 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 three 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 then 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.

And from Barclays, our next question is coming from the line of Matt Miksic.

I hope this is coming through okay. But one question just following up on the market. There was some kind of unusual trajectory during last year in terms of the market dynamics. 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 one follow-up.

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 other stuff, the shift to dailies 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. That would 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 that are driving growth rate for next quarter and the quarter after. You mentioned Japan is down this quarter but expected to improve by the third fiscal quarter. How should we consider the impact of some of the private label engagements that you announced and that you were able to close more of? When are those expected to come in this year? Do they gradually contribute to supporting sustainable growth? It seems like there were quite a few of them that you signed, and I'm curious if that will be noticeable as we move into the middle and later part of this year.

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 kind of have 1 more quarter behind us of some of the challenges that we were dealing with, and we have 1 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 for revenue growth for total company and CooperVision and CooperSurgical. We heard the comments on Japan. I don't know if there's any 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 a 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 coming 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 strategic review 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 formally, if you will, beginning of December, 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 one on private label and then one on MyDay MiSight. So on private label, I don't know if you can share this, Al and/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 a one quick follow-up on MiSight.

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 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 and 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 too 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?

To clarify, the product launched in Japan was the regular MiSight, which we took three years to get regulatory approval for. MyDay MiSight is currently available in several European countries, and we just launched it in Australia, New Zealand, and South Africa. However, Japan features the traditional MiSight product. As I mentioned, around 77% of children are myopic, presenting a significant opportunity. It's challenging to assess the market size accurately, but we are very proactive in this area. I’m pleased to report that the product is being well received. This market pertains more to ophthalmology rather than optometry, involving doctors who focus on clinical data. The combination of a high number of myopic children and professionals familiar with clinical data will likely benefit MiSight’s performance in Japan. I previously discussed expecting a growth rate of 20% to 25% for MiSight this year, achieving 23%. I can confidently anticipate a similar or higher growth rate based on the promising early results from MyDay MiSight and MiSight in Japan.

Our next question comes from 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., EMEA, and APAC?

Sure. I'll touch on the first one, which was the Stellest 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 the promotional activity that's out there educating the marketplace. On the fertility side of things, yes, as I mentioned, 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.

From William Blair, our next question comes from the line of Steven Lichtman.

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, one 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 2, 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 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. So yes, we're investing in that pretty decently.

Great. And 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 Joanne Wuensch from Citibank.

I was fascinated to hear how my last name was going to get pronounced. A fundamental one 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 we can see you pull?

I'll address the second question, and then I'll let Brian respond to the first. Regarding CSI, we have Paragard, which is down 7%, but we expect it to finish the year flat or with slight growth. Q2 may see a slight decline due to comparisons, but we anticipate a strong performance in the latter half of the year for that product. In terms of medical devices, our specialty surgical team is performing exceptionally well. I believe we'll maintain strength in that area. As for fertility, we're seeing better visibility and more confidence, with the market stabilizing and potentially trending upwards, which should lead to improved growth rates. Therefore, I expect Q2 to be better, and I believe Q3 will surpass Q2 for CooperSurgical, with continued progress similar to Vision, where Q3 and Q4 will be the strongest quarters.

As we concluded last week, our situation in relation to the previous guidance on foreign exchange was more favorable. However, due to the conflict in the Middle East, the dollar has gained strength. When we established the revenue guidance for this earnings call, we reduced the revenue targets by $6 million for Vision and $1 million for Surgical, accounting for foreign exchange effects. We maintained the rates quite similar to those from the last earnings call, taking a slightly conservative approach. We anticipate a revenue tailwind of approximately 1% and an earnings per share tailwind of about 1%, which is very much aligned with what we communicated during the last call.

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

Two for me. First, Al, wanted to get your thoughts. First quarter organic growth missed on CVI guide and 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 driving 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 same because where we had that softness in Japan that 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 mean, I'd 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 Americas, stronger than when we gave that guidance in December. EMEA's 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.

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.

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 this quarter.

All 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. But 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 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 be a positive to us on our operating margins as we move through this year.

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 IT. 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.

Great. And then most of my questions were asked. Maybe I'll just ask one 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 in 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 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 I'm really excited about that. On the MyDay side, 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. We're getting product launches done. All that stuff probably takes a little bit longer than you wanted 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. 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 highlighted 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.

Share buybacks are currently a top priority for us given our stock's trading position. I expect us to continue with share buybacks, and depending on the stock price movements in the coming quarters, particularly as we gain more confidence in the latter half of the year, we could become significantly more aggressive with our stock buybacks.

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

You made an interesting comment at the end around looking at sort of next-generation manufacturing and production. Obviously appreciate it's 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?

Are just 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 on how he looked at free cash flow.

Yes, certainly. I mean 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 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.

Right. And then just really quickly, if I may, on SightGlass and the FDA approval. Any updates there? I know it seems to be performing well with Essilor in Asia. So I would just love to hear thoughts on SightGlass.

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 do fantastic long term. No update though on an FDA approval.

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

I'll keep it to one here given where we are in the time of the call. 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?

We are already implementing that strategy, especially on the MiSight side, which we clearly saw in Q1. The funds are being redirected back into sales and marketing. We're leveraging general and administrative expenses to reinvest in sales and marketing, and thanks to our efforts, we're achieving enough savings to support these reinvestments while still delivering stronger earnings than anticipated. This combination has come together very well 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.