Kim Duncan - Vice President, Investor Relations Bob Weiss - Chief Executive Officer Al White - Chief Financial Officer and CSO

Jeff Johnson - Robert W. Baird Matthew O'Brien - Piper Jaffray Joanne Wuensch - BMO Capital Markets Larry Biegelsen - Wells Fargo Anthony Petrone - Jefferies Larry Keusch - Raymond James Jon Block - Stifel Matthew Mishan - KeyBanc Andrew Hanover - JP Morgan Steve Willoughby - Cleveland Research Steven Lichtman - Oppenheimer

Good afternoon. And welcome to The Cooper Companies second quarter 2017 earnings conference call.

During today’s call, we will discuss the results included in the earnings release and then use the remaining time for Q&A. Our presenters on today’s call are Bob Weiss, Chief Executive Officer; and Al White, Chief Financial Officer and Chief Strategy Officer.

Before we begin, I would like to remind you that this conference call contains forward-looking statements, including all revenue and earnings per share guidance, and other statements regarding anticipated results of operations, market or regulatory conditions and integration of any acquisitions or their failure to achieve anticipated benefits. Forward-looking statements depend on assumptions, data or methods that maybe 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, all of which are available on our website at cooperco.com. Should you have any additional questions following the call, please call our Investor line at 925-460-3663 or e-mail [email protected].

And now I’ll turn the call over to Bob for his opening remarks.

Thank you, Kim, and good afternoon, everyone. Welcome to the second quarter 2017 conference call.

This was a strong quarter and we continue to feel confident about the remainder of this year and into the future for both CooperVision and CooperSurgical having a lot of momentum. On a consolidated basis, we reported $522 million in revenue on a non-GAAP and non-GAAP earnings per share of $2.50.

CooperVision posted another strong quarter in all key areas with 4% as reported or 7% constant currency revenue growth. Daily silicone hydrogel lenses grew 43%, while Biofinity and Avaira combined to grow 12% both in constant currency.

CooperSurgical posted revenue growth of 23% or 3% pro forma. Fertility posted growth of 52% or 5% pro forma.

Moving to the details, CooperVision posted second quarter revenues of $408 million, up 7% in constant currency. By geography, the Americas grew 4%, EMEA grew 10%, and Asia-Pacific grew 9%, all in constant currency.

CooperVision’s growth continues to be driven by a diverse portfolio of Clariti and MyDay in the daily space, Biofinity in the monthly space, and Avaira in the two-week space. Regarding daily lenses, our broad offering of silicone hydrogel lenses continues to drive growth.

The daily market is critical to our strategy of gaining share and we remained focused on driving success in this space. Our Clariti portfolio of spheres, torics, and multifocals leads the way as the mass-market offering.

We continue to see very nice growth in all three regions. Our MyDay spheres and torics are also doing very well in the premium space as we continue to rollout MyDay toric in Japan and various parts of Europe.

Biofinity, we continued seeing success around the world with strong growth in all regions. We also continued making progress rolling out our expanded offerings which include Biofinity Energys and Biofinity Toric XR.

These are products are available in a number of different markets and we’ll continue rolling them out over time. Within the two-week space, we successfully transitioned wearers to Avaira Vitality from our legacy Avaira product.

This is for both spheres and torics. Vitality is a nice upgrade and our customers are receiving this change well.

We expect this transition to occur through the remainder of the year and into next. Turning to our product -- to product categories, torics grew a solid 12% and multifocals grew 4% both in constant currency.

We are the global leader in these areas of lenses with a highly diversified product offering including both silicone hydrogel and traditional hydrogel lenses within the daily, two-week, and monthly modalities. Looking at just silicone hydrogel lenses, these products are 18% in constant currency and now represent 66% of total CooperVision sales.

These products are the drivers of our growth and we believe they are -- they have a bright and long future. Our product portfolio is the broadest in this space and I believe offers the best options.

This includes being the only offering premium and mass-market daily silicone hydrogel lenses including spheres, torics, and multifocal lenses. Turning to the overall contact lens market, in calendar Q1, we took share growing two times the market or 10% against the market growth of 5%.

Breaking it down geographically, we grew 8% in the Americas while the market grew 3%. We grew 10% in EMEA, while the market grew 7%.

And we grew 16% in Asia-Pacific, with the market up 7%. On a modality basis, single-use lenses continued driving growth, with CooperVision up 17% and the market up 13%.

For non-single use lenses, we grew 7%, with the market down 1%. For the trailing 12-month period, CooperVision grew 9% while the market grew 4%, so another strong year where we more than doubled the market.

Going forward, we are still targeting 4% to 6% market growth driven by the continuing shift to improve technologies such as a wider suite of silicone hydrogel lenses, the continuing trade-up of daily and specialty lenses such as torics and multifocals, geographic expansion and the expansion of Avaira base particularly outside the United States. And given our strength in these areas, along with the broad private label offering, we continue to grow faster than the market.

Moving to CooperSurgical, we reported second quarter revenues of $114 million, up 23% driven by organic growth and acquisitions. On a pro forma basis, we grew 3% with the fertility leading the way up 52% or 5% pro forma.

Within fertility, we experienced some disruption this quarter from aggressively consolidating distributors associated with past acquisitions. Having said that, we started seeing some upside from recent sales and marketing activity, so getting this activity transferred in-house is the right move.

Overall, within IVF, we’re continuing to execute on our growth strategy as a global leader in medical devices and genetic testing within the fertility space. Our fertility growth is driven by diversified portfolio of medical device products, capital equipment, and lab services, and we believe our portfolio is the broadest in this space.

Our office and surgical products business grew 1% for the quarter, similar to our IVF business we expect growth in Q3 and Q4 to improve based on our momentum with new product rollouts led by EndoSee, our disposable hysteroscope and new business that we've recently won. Finally on CooperSurgical, we are making a lot of progress integrating acquisitions, including having completed a significant portion of our distributor consolidations.

We broadly -- we probably have roughly another 12 months of integration activity in other parts of the business, but things are moving along well. Given this progress, we expect improve topline growth for CooperSurgical beginning in the third quarter.

Overall, I remain very excited about the future of CooperSurgical and we believe we are on the right path. With that, I want to express our appreciation to our employees for all their hard work and dedication.

They truly drive the success of our business. And now I will turn it over to Al.

Thank you, Bob, 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 full reconciliation of GAAP to non-GAAP results.

Bob covered revenues, so let me focus on the rest of the financials and guidance. For the quarter, consolidated gross margins were very strong at 66%, up from 63.2% last year.

CooperVision's gross margins were 67.1%, up from 62.8% last year, driven by the weakening of the pound due to Brexit last summer, product mix shift gains led by Biofinity, and manufacturing efficiency improvements. Regarding the pound, remember our inventory turns every six months, so this was the first quarter we experience the full quarter impact of Brexit.

On product mix the message remains the same. The shift to silicone hydrogel lenses especially Biofinity and now Avaira Vitality is having a positive impact on our overall gross margins.

Lastly, our manufacturing efficiencies, we've been seeing improvements within our manufacturing environment for some time and this quarter really illustrated that. We have discussed this activity in prior quarters including the negative impact from items such as inefficiencies with idle equipment and inventory write-offs, which have been negatively impacting us roughly $0.10 per quarter above normal.

This quarter showed a marked improvement with a negative impact of roughly $0.05, so this is a discussion topic we can now put behind us as we move back to normal operations. CooperSurgical's gross margins were 61.7%, down from 64.8% last year due to our genetic testing acquisitions, which carry lower gross margins.

Having said that, we’ve now annualize those acquisitions and we've been integrating them within our business so we expect stable to improving gross margins on a year-over-year basis moving forward. Consolidated operating expenses grew 8.8% in the quarter, slightly above our reported revenue growth of 8%.

This was driven by investments such as additional sales personnel, along with expenses layered in from acquisition. There's not much to highlight here, but it’s important to remind everyone we are continuing to invest in infrastructure in both of our businesses to support continued long-term growth.

We have made nice progress on the sales and marketing side, along with some key hires in other support areas so we are in fairly good shape, but we will continue to invest as we see opportunities. Operating income growth was very strong up 18.9% driven by our gross margin improvements.

Operating margins were 26.8% up from 24.3% last year. Moving to items below operating income, we reported $7.7 million of interest expense and our effective tax rate was 6.6%.

Non-GAAP EPS was $2.50 with roughly 49.5 million average shares outstanding. Regarding shares outstanding, we repurchased 150,000 shares in the second quarter at an average price of roughly $190 -- $197 per share, which totaled $29.5 million.

We believe share buybacks are an effective way to maximize long-term shareholder value and we will continue executing on them in an opportunistic manner. Moving to the balance sheet, total debt decreased $38 million in the quarter to approximately $1.39 billion.

This pay down was primarily driven by operational cash flow generation offset by share buybacks. Moving to free cash flow, we had a strong quarter posting $103 million of free cash comprise of roughly $132 million of operating cash flow offset by $29 million of CapEx.

Regarding guidance, we are raising fiscal 2017 consolidated revenue to $2.11 billion to $2.135 billion. This includes raising and tightening CooperVision's revenue guidance to $1.645 billion to $1.665 billion or roughly 7% to 8% constant currency growth, while lowering and tightening CooperSurgical's revenue to $465 million to $470 million, which equates to roughly 4.5% to 5.5% pro forma growth.

For CooperVision we expect growth to be driven by a diverse portfolio of products led by Biofinity, Avaira, Clariti and MyDay. Regarding CooperSurgical a significant portion of the integration activity which negatively impacted revenues is behind us and we expect improved growth in the second half of the year.

Operating margins are now expected to be around 25.5% for the year, supported by slightly stronger gross margins. Interest expenses to be slightly higher at around $31 million, which assumes an additional 25 basis point rate hike this month.

And the full year effective tax rate is forecasted to be around 8%. This rate is lower than prior guidance primarily due to the new accounting for employee stock-based compensation which we adopted in Q1.

Although, we forecast the positive impact to be much less in Q3 and Q4 due to the vesting schedules for the majority of our equity grants, the impact in the first half of the year is driving our full year tax rate lower by roughly 150 basis points. Regarding FX, we've seen an overall favorable move in currencies since we last reported earnings.

We are now forecasting a roughly neutral impact to EPS for this year versus last quarter's full year forecast of a negative $0.16. Regarding revenues, we are forecasting a negative impact of roughly $46 million for the full year, down from last quarter's full year forecasted impact of a negative $61 million.

Incorporating all this information, we are raising our non-GAAP EPS for fiscal 2017 to $9.50 to $9.65 assuming 49.4 million shares outstanding. One final comment for modeling purposes, we expect Q3 EPS to be slightly lower than Q4 due to lower sequential gross margin at CooperVision.

This Q3 reduction is fairly common for CVI as inventory turns every six months and production levels in December and January decline due to our annual manufacturing shutdowns to upgrade and retool our plants, which results in a slightly higher average cost per unit due to lower overhead absorption. This should be somewhat offset by our Q3 effective tax rate, which is normally lower than in Q4.

Lastly, we continue focusing on delivering consistent annual performance. We are forecasting over $400 million in free cash flow this year and north of $2 billion of cumulative free cash flow over the next five years, while targeting consistent improvement in operating margins to reach 28% or higher in 2021.

And with that, I will hand it back to the operator for questions.

Thank you. Good afternoon, guys.

Nice quarter. I was wondering if I could ask first on market, I guess, it will be a two-part question.

One, Bob, just looking at the independent industry data, looks like the market has picked up a couple points here the last couple quarters, just any commentary you can make there on what you're seeing out there? And then also when we look at the Clariti and MyDay rebates that you guys offer, it looks like they did go up on May 1st by decent amount with a healthy market and as you guys continue to do well, what's the rationale there and then maybe how do we think about the impact that could have on the topline as those rebate dollars maybe impact here over the next couple quarters?

Thanks.

Thank you, Jeff. The point on the market that 5% that’s perhaps a little bit more normalized than we've had over the last couple years, it’s been a little uneven started way back in September 2015 when J&J kind of went off UPP and did a lot of things with their product line that led to some pipeline so as they ruled out the new OASYS one-day modality.

So ever since then, it's been a little uneven. But on the trail trailing 12-month basis, 4% -- a solid 4% and clearly the most recent quarter at 5% with solid results in Asia and in Europe.

As far as Clariti, you're right, there's been some pricing changes that have occurred in the industry and not only has there been changes, but there's been the -- for the most part post UPP era, ex-Energys, our one new product, a novel product and what you're seeing in the industry not only in Cooper is we're really working hard to get new fits, everyone is doing it. We believe Clariti is well-positioned by way of rebates to convince more and more people to go to the Energys changing from one product to the other.

We are clearly winning the battle with Clariti on trading up from hydrogels to silicone hydrogels. We are winning the battle of new fits very well.

We need to work a little harder on converting others in the mass-market and some of our competitors have created an environment that makes that opportunity more ripe right now and we are seizing the moment. Obviously, Clariti has done very nicely and MyDay has done very nicely, up 43% for the quarter.

So we are putting up good numbers, but we want to do better yet.

Yeah. Thanks so much.

Thanks for taking the question. Just on the gross margin side, Al, you mentioned three different buckets that impacted the CVI number in the quarter.

Can you just breakdown a little bit where some of that improvement came from especially on the durability side, from manufacturing and mix? And then if I understand things right, I think, you are saying that the inventory impact – I think you had said, $0.30 for the year, is kind of behind you at this point, so that should be more of a tailwind on the bottomline for the full year, is that the right interpretation?

Yeah. So two pieces on that, the kind of $0.30 we were talking about which was $0.10 going down towards zero was, let’s call it $0.10 going down to $0.05 and maybe it's $0.03 or $0.02 next quarter something like that going down to $0.01 or whatever and then kind of disappearing, so definitely made a nice step in the right direction here in that, that positive move kind of impact even in the Q2 gross margins.

If you look at it, it's to some degree kind of half-and-half there, it's a little bit more than half is driven by the product mix and those efficiency improvements we are talking about and then a little bit less than half is coming from currency. When you look at this sustainability, it is there, I mean, there are some things that are moving around in terms of our production and so forth and currency as it flows through, the pound moves and so forth, but this was a pretty strong legitimate quarter and kind of shows what the business can do when it is sitting on mostly all cylinders.

Two questions, really, one is, at the end of last year you started more aggressively hiring and building at your sales force. Can you give us a little bit idea of where you are in terms of new sales people, but also what geographies they are going into?

And this relates to my second question, which is your EME and your Asia-Pacific sales growth was really quite strong? Is there anything in particular that's helping you out there?

Thank you.

So our hiring is global and it’s split in both divisions, so both Surgical and Vision. The emphasis in Vision is likewise global.

So you are seeing expansions in the geographic areas. Importantly, we wanted a lot of attention in the U.S.

market where we are immensely under index, and so we made good progress there. I won't cite exact numbers, but I will say that year-over-year, our sales force expansion feet on the street and in-house combination is up 16% in Vision, 15% overall.

So balance between the two units and good solid growth, I think, you are seeing some of the results of that in pretty strong U.S. and Americas performance, basically were the driver of the market growth in the Americas right now.

We are up 8% over the last 12 months. While the market is up 2% translated we are it.

So I think the feet on the street, the product portfolio we have is working very nicely. Since we are doing it in Asia-Pac and in Europe, you are likewise seeing solid numbers there also.

Hey, guys. Thanks for taking the question.

One on revenue, one on margins, so, Al, I think the implied second half topline growth is 6% to 7%, correct me if I'm wrong. But the question is, why would revenue growth slow in the second half, I think, it was about 8% in the first half?

And then on the margins, Al, two parts here, how much more room is left here on, currency, idle equipment mix? And the second part of the margin question is, I think, you did 27% this quarter.

Your goal I think is 28% in fiscal 2021, I believe. So you are almost there.

Do you -- are you -- when you are going to be in a position to update the new -- the long-term margin goals? Sorry for the long question.

Yeah. So a couple of comments, the 28% goal, we update those annually, so we’ll update that when we finish the fiscal year.

The only thing I would say to that is we did updated to some degree if you were -- will by being clear that it was 28% or higher. We are clearly on a trajectory to be north of 28% and feel comfortable with that but we do that once year.

So we will do that again here in the couple quarters. On the margin upside question, we are going to have gross margins a little bit north of 64.5% this year, so on a consolidated basis pretty strong.

We got -- we certainly have margin upside in CooperSurgical now that we reset to lift that higher. On a full year basis we are going to have margin upside in CooperVision also all else being equal, that will be driven by kind of the same thing, excluding currency, which will have some upside in currency as we move through this year.

But assuming currency holds steady. The manufacturing efficiencies that we have in place, cost reduction programs, product mix shift, which is a positive with items like we talked about of Avaira to Avaira Vitality, the conversion from traditional daily hydrogel to Clariti, all those are kind of positive.

So I won’t put any specific numbers out there. But we do have margin upside here in the coming years from both businesses.

When you look at revenue speaking, I think, you are speaking mainly of CooperVision, yeah, and we are kind of running in that 8% constant currency in the first half of the year, guiding to 7% to 8%, obviously, took the bottom of that way and pull the bottom end up up to 7% to 8%. We do have a challenging comp in Q4.

You will remember from last year or so. I think we feel good about revenues.

We are obviously put up a very strong Q1. We put up a strong Q2 against the tough comp.

We feel good about the back half of the year, but it’s prudent to remain in that 7% to 8% range and not get more aggressive.

Larry, the only I would add to Al’s comments is when you think of the 28%, you're comparing it to the second quarter. Keep in mind that, historically we will have a lighter operating margin in the first quarter and that -- as a result of that year-to-date our operating margin is more like 24.8%, 25%.

But having said that, Al is correct that there is a lot of tailwinds and we will refresh along the way.

Thanks. Maybe a couple of product questions and then just a general share within contact lenses, in terms of Biofinity Energys and the Toric XR, I am just wondering is there any supply constraints that are still out there or are you completely meeting market demand at this point?

And then for Avaira Vitality, I am just wondering, with the conversion tailwind for that product looks like? And then, Bob, just an update on shares with Cooper, J&J, Bausch & Lomb and Alcon that would be helpful?

Thanks.

Yeah. The supply constraint, as far as Biofinity, which is growing solidly, the combination of Biofinity and Avaira is up 12% with Biofinity being at the higher end and Avaira as it goes through the conversion lower end of those numbers of that number.

Energys is still early in the rollout around the world, so it just -- it made its entrée into the U.S. initially and it's gone into Europe now, but has a ways to go in that conversion and rollout, it’s not so much may be production capability as it is the mechanics of rolling out a product around the world.

As far as Biofinity Toric XR that is kind of a meet order. We do not stock that product.

So while we have reasonable capacity to support the orders that come in, it’s -- both of those products are performing extremely well in the U.S. and we believe that's a good indicator of how that will translate around the world as we go deeper.

As far as the conversion of Avaira to Vitality, its gone well I would say in the U.S. More than half the revenue now is coming in from Vitality, so it made some good progress and but still have the other half to go and that’s the sphere, the sphere part is the easy part, torics are lot more complicated.

So look for both of those to rollout as I indicated throughout this year and into next year and will be pretty much done as we get through next year with the conversion. As far as market share numbers, the J&J number included what they reported some of lens care that they picked up in the acquisition that they made of -- from Abbott.

So factoring in their number was a little less than the aggregate that they reported. But the share gainers with the market growing 5% and Cooper growing 2x the market pretty much assume that Alcon is not gaining share and there is not a data those buy that.

They don't talk about it at Novartis in terms of their frustration with Alcon overall. And so it's still a company that just recently is, I think, this morning the CEO indicated they are evaluating what they are going to do with Alcon in the middle of that.

J&J is holding its own clearly with its numbers and then B&L continues to loss. So pretty much we are closing the gap on number two which is Alcon to have a little ways to go but we would hope over the next couple years we will catch up with them and pass them.

Thank you.

Thanks. Good afternoon.

Bob, I wanted to just touch on the multifocal and perhaps my numbers right, I think, you guys were up 6% constant currency in the first half. Can you give us some sense of sort of what you think that category is growing and sort of your results relative to market?

Yes. Sure.

The category is growing nicely. There are a lot of new products coming in from all us as well as all our competitors and so that category has been growing basically double-digit, probably, about 12% to 14% worldwide over the last several years, turn down a little maybe the last quarter, but still close to double-digit.

We put up lesser numbers, as you indicated, 6%, I think, the important thing to remember with us is, we had some pretty tough comps, if you are looking at the numbers we had a year ago. It was like 13%.

So a solid prior year comp that we were hurdling if you will in this last quarter. Overall, the market is now 8% of the world market, so it continues to grow faster than the spherical market and almost -- and basically offers a small base it’s growing faster than the toric market, but still the toric market is three quarters of the specialty market.

So toric market is about 22% of the share of the contact lens market, multifocal is about 8%, all up 30% in specialty lenses where we’re number one and we think we have the right product portfolio.

Great. Thanks.

Thanks, guys. Good afternoon.

I have got two, I will ask both upfront, maybe just first, follow up on the reps and maybe you can talk about the investment this year. Is that take you to where you want to be, Bob.

In other word, can you give us a little bit more color on the return you are seeing or does the high in spend continue into fiscal ’18? And then, Al, just sort of two part on the gross margin, CVI was of our expectations, am I correct in thinking the stepped up level is sustainable in two region and sort of on the other side for CSI, I thought previously the trough was thought to be fiscal 2Q, but is it correct now start thinking that trough is fiscal 3Q?

Thanks, guys.

So, on the return the rep, other than to say that, we are still early in the game given how many people we have hired, but so far so good. We are so index -- under index against our two largest competitors that we will keep -- we will continue to hire what makes sense in the right area.

So it’s geographic specific and we are monitoring it and we are at the point now where a lot of these reps start becoming quite productive. But feet on the street in coverage where we were not covering a lot of accounts, obviously the feet on the street gives us the horsepower to get into more and more locations where our competitors show up and we don't and there is quite a few of those.

So we're not done yet. I would say we will continue to grow our sales and marketing faster than our revenue at least for the balance of this year and we will see about next year.

Yeah. On the margins that coming on both, I mean, our CooperVision gross margins, they are sustainable subject to our normal variability if you will by quarter.

So as I mentioned in Q3, we have the plant shutdowns what’s drives up our cost per unit back in the kind of December, January. You see that in the third quarter.

So it wouldn’t surprise me to see CooperVision’s gross margin as an example come back toward 65% in Q3. Q4 again should be a pretty good quarter, the pounds move back a little bit back up towards $1.30 that starts to flow through our P&L.

We also -- we are probably 66% or something like that in Q4, wouldn't surprise me. But the core basis there of sustainability through the mix shift and manufacturing efficiencies is indeed there.

There was nothing to highlight out of this quarter saying, hey, this was unique at one time that that was not the case is very strong gross margin quarter. If we look at CooperSurgical the trough is here and was here, I should say, in Q2.

So we accelerated some integration activity there. We pull forward some distributor consolidation and so forth into this quarter.

We got more aggressive on that based on some of the stuff we are seeing out there, some positive momentum that we are seeing. So I think what you will get now is, yeah, we took a hit in Q2 for CooperSurgical.

That's okay. It was done for integration related reasons and for long-term strategy.

You'll see the gross margin come back in Q3. You'll see the sales -- the pro forma revenue growth come back in Q3 and that will continue going forward now.

So that was more one-time in nature if you will have accelerated integration activity.

Hey. Good afternoon.

Thank you for taking the questions. I got two for you.

The first is on the difference between sort of the -- your fiscal year, which would be February through April where you did 4% growth in the Americas for CVI? And then the COI data which said you had did 8% for the calendar year, which would be January through March and I'm just curious did things dramatically tail off, did you start off the year like very strong in January and then see it tail off through April?

And then, I guess, what are the trends so far like past that in May?

Yeah. The -- it is not unusual.

We get into this kind of a discussion a lot to have 300 basis points or 400 basis points swing when you add a month and delete a month for whatever reason, having to do with either the prior year or the current year. So I think that’s the one reason we always shy a little from making much of an assessment on it and look at trailing 12 months when it comes to particularly the CLI data as a good indicator or a good secondary indicator.

So, I don't think I read anything into the comparison which I understand what you do in the fiscal and the calendar quarters. As far as, how May did.

May is built into our guidance and beyond that we won't get into the specifics of May other than it left us if you will bullish about where we are headed for the year as indicated by the step up in guidance.

All right. Thank you.

Thanks for taking my question. Al, I just want to start off with you real quick, just piecing the onion back a little bit on the lower tax rate.

It looks like it was a $0.10 difference versus where the street was expecting the 10% and the guidance you gave, so is that all just stock-based comp? And then, my second question is in terms of any color you can provide on consumer purchasing power trends and how this might compare to foot traffic through the ECP offices or retail chain?

Thank you.

Yeah. I will take that tax one first and let Bob answer the second one.

Yeah, for the second quarter about 200 basis points was the stock op, so excluding that we would have been about 8.5% versus 6.5%. And if we look at the full year Q3 usually a little bit lighter kind of always is a little bit lighter for couple different reasons and then Q4 moves back up, I would expect that to be somewhere again this year.

But as you know from other companies that stock-based comp has been a nice positive for us.

And can you repeat your other question?

Operator can we get Andrew Hanover back?

Can you all hear me?

Yes.

Okay. Bob I just wanted to understand a little bit of just consumer purchasing power trends versus foot traffic and what you all are seeing?

Okay. Yeah.

The consumer purchasing trend is yet remained solid. Of course the biggest driver in the marketplace continues to be the trading up, in other words taking the existing consumer base and moving it from the two-week modality into the primarily the one-day modality, but to lesser extent into the monthly modality.

But consumer purchasing is -- has been reasonably -- its fine if you will.

Hi. Good evening, guys.

Two things for you, first, Al, just wondering you guys bought back some stock this quarter, just want to make sure or clarify what assumed in your guidance as relates to future share repurchases and what is your appetite given the strong free cash flow here for future share repurchases still this year? And then, secondly, Bob, maybe just wondering, if you could comment on your thoughts regarding the importance of distributors in the industry as it relates to independent ODs and what given independent ODs are such a strong market for you guys?

Yeah. Stock buybacks there is nothing included right now in terms of our guidance.

I guess I won't comment on what we will do and when we will do or how much we will do. But as you know we are believers in stock buybacks to return value to long-term shareholders, so we will continue to evaluate, certainly it’s an opportunity and especially as you just highlighted we have some strong free cash flow coming in front of us.

So, from the point of view of distributors and their role in the equation, the independent distributors, there obviously has been debate by some over the years on their role and how much one would pay for that role that debate continues, some competitors taking more aggressive stance than others. Clearly there is a service they render, they render service by virtue the fact that most eye care, independent eye care professionals are ordering from all manufacturers and in so doing rather than having all these packages arrive every day from all these manufacturers there is a lot of opportunity to consolidate and there's an efficiency factor that the independent spring bring to the equation.

And that debate is existed forever and I'm sure will continue to be debated forevermore by all the various interested parties.

Thank you. Hi guys.

Bob two questions, first, just want to follow-up on your comment earlier on pricing changes in the industry post UPP, what are the types of changes that you're seeing? And then secondly in Surgical after being active last year less so this year, which certainly make sense, given integration needs, should we look you guys to be acquisitive again in Surgical ahead with most of the integration activity behind you guys?

Thanks.

Hey. First of all, first on the UPP or post-UPP era for the most part, there were some price changes made by some of our -- by the industry, not only some of our competitors, but price changes made in the post-UPP era.

There also was more activity if you will in rebates, so when you look at the price increases, obviously, yes, they were and they were fairly robust by the standards of norm what normally has been the case in the last 15year, 20 years in the industry. They -- anytime there was price changes that obviously create some opportunity by various players, including yours truly.

So we have been reactionary in some areas to what's going on in the industry. We happen to be have the only product that remains under UPP which is Energys, which is a novel product and we think so the purpose of UPP is well served by our product like that, a new products where there's a lot of cheer time and you are trying to incentivize a doctor to make a switch on the customer that maybe -- customer with current product they have.

But overall the pricing in the industry is favorable and rebates are favorable and rebates are very much geared to the world to try like it. I want to incentivize you for new fit.

I want to incentivize you to move someone from product A to product B and then from there you follow onto what hopefully is an annuity stream with less aggressive rebates for the new fit. Relative to surgical, it made seven or eight acquisitions over the last year and a half or close to two years now.

Will we make any more? We obviously generate a lot of cash.

We obviously are interested in continued geographic reach and tuck-in and we will do -- where deals make sense we will continue to do them.

Well, I want to thank everyone for joining us today. We are aware it’s near the school -- the end of the school year, so people have some priorities frequently this time a year dealing with graduating students, getting kids out of class, so we appreciate that everyone took time.

Hopefully you are pleased with the results as we are and are outlook and we look forward to updating you again in the end of August, I guess, August 31st is our next quarterly call and we look forward to it. Thank you.