Alcon Q4 2024 Earnings Call Transcript

Quartr
Provided by Quartr
February 26, 2025

There are 12 speakers on the call.

Operator

Greetings and welcome to the Alcon Fourth Quarter and twenty twenty four Earnings Call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Dan Cravens, VP of Investor Relations.

Operator

Thank you. You may begin.

Speaker 1

Welcome to Alcon's fourth quarter and full year twenty twenty four earnings conference call. Yesterday, we issued a press release, interim financial report, annual report and a supplemental slide presentation on our website to enhance today's call. You can find all these documents in the Investor Relations section of our website at investor.alcom.com. Joining me on today's call are David Endicott, our Chief Executive Officer Tim Stone and Tim Stonecipher, our Chief Financial Officer. Please note that our press release, presentation and discussion will include forward looking statements.

Speaker 1

We expressly disclaim any obligation to update forward looking statements as a result of new information or future developments, except as required by law. Our actual results may differ materially from those expressed or implied in our forward looking statements. And as such, you should not place undue reliance on any forward looking statements. Important factors that could cause our actual results to differ from those in our forward looking statements are included in our Form 20 F, earnings press release and interim financial report, which are all on file with the Securities and Exchange Commission and available on their Web site at sec.gov. Non IFRS financial measures used by the company may be calculated differently from and may not be comparable to similar measures used at other companies.

Speaker 1

These non IFRS financial measures should be considered along with, but not as alternatives to, the operating performance measures as prescribed for IFRS. Please see a reconciliation between our non IFRS measures with directly comparable measures presented in accordance with IFRS and our public filings. For discussion purposes, our comments on growth are expressed in constant currency. In a moment, David will begin by recapping highlights from the fourth quarter. After his remarks, Tim will discuss our performance and outlook for 2025.

Speaker 1

Then David will wrap up, and we will open the call for Q and A. With that, I will now turn the call over to our CEO, David Endotat.

Speaker 2

Thanks, Dan, and thanks, everyone, for joining us today. 2024 was another solid year for Alcon. We ended the year with sales of $9,800,000,000 and above market sales growth of 6%. We grew core diluted EPS by 16% to 3.05 and generated a record $1,600,000,000 of free cash flow. In 2024, we also continued to live out our purpose of helping people see brilliantly.

Speaker 2

Concretely, we helped improve the vision of more than 1,000,000 patients in low and middle income countries. Additionally, we screened over 31,000 children for refractive error and provided spectacles where required. None of these accomplishes would have been possible without the focus of our more than 25,000 associates who worked tirelessly to make a difference for our customers, their patients and the communities we serve. Equally important, we laid the groundwork in preparation to launch one of the richest product pipelines in Alcon's history. Additionally, we realigned our leadership team and organizational structure to increase our focus on innovation, operational excellence and speed to market.

Speaker 2

We'll talk about all of this and more at our upcoming Capital Markets Day. However, I'd like to share a bit of a preview with you now. In surgical, we will show you our upcoming equipment launches as well as our connected equipment ecosystem. We'll also provide an update on our IOL portfolio, including some insight on our accommodating programs. In Vision Care, we'll talk about our focus areas, including our innovation and specialty contact lenses.

Speaker 2

In Ocular Health, we'll discuss our strategy around accelerating growth with our over the counter assets such as Sustain as well as our pharmaceutical pipeline. And finally, we'll provide more color on our long term innovation as we attempt to tackle some of the most challenging problems in eye care. With all this coming in a month's time, today I'll highlight just a few of these innovations in my prepared remarks and start with surgical. We're particularly excited about Unity VCS, our upcoming FAIKO VIT device. Unity was designed with safety and efficiency in mind, and this is the most efficient piece of FACO equipment Alcon has ever created.

Speaker 2

In Cataract, this efficiency is enabled by FACO that is twice as fast as its predecessor, while using 40% less energy. Additionally, in Vitret, Unity VCS brings new innovation with vitreous cutting that is 1.5 times faster than Constellation. In both Cataract and Vitret, Unity also enables efficiency through streamlined setup and tear down, which directly supports rapid OR turn as well as intraoperative workflows. Importantly, this next generation console comes with next generation consumables. These include premium cassettes and less invasive instrumentation, which are designed to increase OR efficiency and improve the surgeon and patient experience.

Speaker 2

We received FDA clearance for UNITY VCS and the standalone cataract device CS in 2024. Additionally, we anticipate receiving CE mark in the coming weeks. And we're in the final stages of our user experience testing ahead of a full commercial launch expected in May. Next, I'll discuss Panoptic Pro, our latest PC IOL innovation. I'm pleased to announce that we're moving forward with a lens design improving patient outcomes, which includes reducing the incidence of visual disturbances.

Speaker 2

PanOptix Pro was designed with that outcome in mind and ingeniously uses more light with less scatter. I look forward to sharing more information on this product with you at CMD in March ahead of our commercial launch again in May. Now, I'll touch on the Voyager Direct Selective Laser Drabeculoplasty device, which is already available in certain EU markets and The U. S. Since introducing the Voyager into The U.

Speaker 2

S, we've received very positive feedback from doctors and have seen a strong initial demand. We're now focused on ramping up production of the device. Voyager offers a novel way of lowering interocular pressure by delivering laser energy to stimulate fluid outflow. This device leverages proprietary eye tracking technology for accurate automated treatment. Its streamlined workflow eliminates the need for a gonio lens or manual aiming, making it a patient and physician friendly solution, particularly when compared to manual SLT.

Speaker 2

SLT is already a well regarded procedure by glaucoma specialists and has well established reimbursement mechanisms in many markets. We're excited to bring the benefits of this procedure to even more patients. Now moving on to contact lenses, I'm pleased to announce that our latest innovation, PRECISION7, is now widely available throughout The U. S. Precision seven targets the reusable lens category, which we estimate is worth approximately $3,800,000,000 and where Alcon is under indexed.

Speaker 2

This market segment has been underserved by innovation for years. This lens is groundbreaking one week replacement modality offering sixteen hours of exceptional comfort and precise vision even on day seven. Precision7 delivers a breakthrough in comfort by utilizing our proprietary Active Flow System, which combines a moisturizing agent and a replenishing agent that continually releases moisture to the surface of the lens over a seven day period. Early doctor and wear feedback has been extremely positive. Wearers like the feel of the lens and eye care professionals appreciate its ease of fit and intuitive compliance, particularly when compared to a two week schedule.

Speaker 2

Now I'll turn to Ocular Health where we have several exciting developments. I'll start with Sustain, the world's leading over the counter artificial tier, which achieved its fourth year of double digit growth driven by our multi dose preservative free formulations. We're continuing to invest behind Sustain. We're bolstering the Sustain brand with the launch of Sustain Pro Preservative Free, our latest and longest lasting triple action formula that hydrates, restores and protects all types of dry eye. Sustain Pro is now available at retailers throughout The U.

Speaker 2

S. And we will continue to expand its availability throughout the year. This product incorporates nano sized lipids and hyaluronate to reduce tear evaporation and provide prolonged hydration. Turning to prescription eye drops, I continue to be pleased by the performance of Rocklatan, one of our glaucoma medications. In the fourth quarter, TRx for this product grew mid teens.

Speaker 2

Regarding AR-fifteen thousand five hundred and twelve, we continue to expect that we are preparing for a U. S. Launch in the second half of the year pending FDA approval. Looking toward the launch, I'm increasingly encouraged by the strength of The U. S.

Speaker 2

Prescription dry eye market, which we estimate is worth approximately $1,400,000,000 In particular, I'm pleased to see strong uptake of new branded RX products, which we think is a positive indicator for the potential of five twelve. More importantly, five twelve has some important differentiators from the currently marketed products, including Onset of Action. Finally, I'll briefly discuss market dynamics for the fourth quarter. In Cataract, we estimate that global procedures grew approximately mid single digits. Additionally, global ATI well penetration was up approximately 180 basis points year over year.

Speaker 2

In both cases, the main driver of growth was international markets. In The U. S, we saw another quarter of slower market growth with dynamics similar as Q3. We believe this was driven in part by competitive trialing and sampling, which are not captured in our third party data. In contact lenses, we estimate that the retail market was up mid single digits.

Speaker 2

This growth was mainly driven by pricing and lens trade up. And with that, I'll pass it to Tim who will take you through our financial results and discuss our outlook for the year.

Speaker 3

Thanks, David. We're pleased to report fourth quarter sales of $2,500,000,000 up 6% versus prior year. This growth was primarily driven by strength in our innovative contact lens portfolio and consumables. In our surgical franchise, revenue was up 5% year over year to $1,400,000,000 Implantable sales were $456,000,000 in the quarter, up 2% year over year. International uptake of our advanced technology IOLs continues to drive growth.

Speaker 3

In the quarter, growth was partially offset by the solar market conditions in The U. S. That David mentioned earlier, as well as competitive pressures. In consumables, our fourth quarter sales were up 7% to $738,000,000 driven by Vitret and Cataract consumables, including price increases. In equipment, sales of $229,000,000 were up 2% year over year, in line with our expectations.

Speaker 3

Turning to Vision Care, fourth quarter sales of $1,100,000,000 were up 7%. Contact lens sales were up 11% to $638,000,000 in the quarter. This growth was driven by our innovative lenses, including toric and multifocal modalities, which continue to win in the market. Additionally, we had another quarter with solid contribution from PRICE, which we expect to moderate going forward. In Ocular Health, fourth quarter sales of $416,000,000 were up 2% year over year.

Speaker 3

We saw strong performance in our portfolio of eye drops, including another quarter of solid growth from Sustained. This growth was partially offset by declines in contact lens care. We also saw approximately one point of pressure following the strategic transaction with ARPU MENTION in China, which we expect to continue through the third quarter. Now moving down the income statement. Fourth quarter core gross margin was 62.7%, up 70 basis points, reflecting favorable product mix and manufacturing efficiencies in Vision Care, partially offset by Surgical gross margin.

Speaker 3

Core operating margin was 20.1%, up 130 basis points year over year, driven by improved gross margin and improved operating leverage in SG and A from higher sales, partially offset by investment in R and D, particularly in surgical. Fourth quarter interest expense was $48,000,000 broadly in line with last year. Other financial income and expense was a net benefit of $9,000,000 also broadly in line with last year. The fourth quarter average core tax rate was 20.6% compared to 13.8% in the prior year period. For the full year, our average core tax rate was 19%.

Speaker 3

Core diluted earnings were $0.72 per share in the quarter, up 3% from last year. Turning to cash, on a year to date basis, free cash flow was a record $1,600,000,000 compared to $730,000,000 in 2023. This improvement was mainly driven by higher cash from operations and a decrease in capital expenditures. Now moving to the 2025 guidance. Our current outlook assumes that the aggregate global eye care market grows 4% to 5% and exchange rates as of the January hold through year end.

Speaker 3

Starting with sales, we expect our full year revenue to be between $10,200,000,000 and $10,400,000,000 which includes two points of foreign exchange headwind. On a constant currency basis, we expect our sales growth rate to be between 68%. In terms of phasing, given the timing of the new product launches, we continue to expect sales growth to accelerate in the second half of the year. Moving to operating expenses, as we continue to invest behind innovation, we've increased our targeted R and D investment range by one point and expect R and D expense to be at the midpoint of the range of 8% to 10% of sales. Turning to profitability, we expect our core operating margin to be between 2122%.

Speaker 3

As I've mentioned before, this reflects our planned investments behind new product launches throughout the year. These investments will be mainly front end loaded and as such, we expect to see operating leverage accelerate in the second half of the year. Moving down the income statement, we expect non operating income and expense to be between $200,000,000 and $220,000,000 This measure is new to our guidance and includes interest expense, other financial income and expense, as well as the impact of certain equity investments. Turning to tax, we expect our full year core average tax rate to be approximately 20%. Based on all these factors, we expect our core diluted earnings guidance range to be between $3.15 to $3.25 per share, which corresponds to 8% to 11% constant currency growth over 2024.

Speaker 3

This guidance reflects approximately $0.15 of foreign exchange pressure, most of which we expect in the first half of the year. Before I wrap up, I'm pleased to announce that our Board of Directors has proposed an increase in our dividend to 0.28 per share. This is in line with our payout policy of 10% of the previous year's core net income. Shareholders will vote on this proposal at our upcoming Annual General Meeting in May. Additionally, I'm pleased to report that our Board has also authorized a share repurchase program of up to $750,000,000 to be completed over the next three years.

Speaker 3

This program is designed to offset future dilution from associate equity based incentive plans. Our priority for capital allocation will continue to be investing for top line growth, both internally and externally. And finally, I'd like to thank the entire Alcon team for another great year. Their passion and dedication to

Speaker 2

our purpose is what differentiates Alcon from other companies. And with that, I'll turn it back over to David. So to wrap up, I'm proud of the significant progress we've made in 2024. Our strong financial performance bolstered by our strategic investments and operational efficiency underscores the bold action, thoughtful planning and solid execution by our talented teams across the globe. Looking forward, 2025 will be a pivotal year for Alcon.

Speaker 2

We are launching a wave of new products across each franchise that will continue to invest behind customer driven innovation, drive operational excellence and create value for our shareholders. Once again, thank you for your support. We look forward to giving another update at our Capital Markets Day in March. With that, let's open it up for Q and A.

Operator

Thank you. We will now be conducting a question and answer session. Please limit yourselves to one question and one follow-up. The first question is from David Saxon from Needham And Company. Please go ahead.

Speaker 4

Great. Good morning, David and Tim. Thanks for taking my questions and congrats on the quarter. I wanted to start on The U. S.

Speaker 4

ATUL business and getting some questions there on just some recent competitive launches. So can you talk about specifically how that business did in the quarter? Did it grow year on year? And then what do you see in terms of impact from competitive trialing and kind of what are your expectations for how that extends into 2025 as you launch Panopex Pro?

Speaker 2

Well, look, The U. S. ATIL market, I think, was had some small growth in it, yes. I think directionally though, there's a lot of noise in the data. And so I think what people are finding is that there was a lot of competitive trialing, some of that was sampled and so that affects some of the year on year change.

Speaker 2

If you look at our consumables business in The U. S, which is a pretty good indicator of procedural growth, we think it was a relatively normal quarter. It's maybe a little bit light, probably in the 2% to 3% range. So that said, I think directionally we've been very comfortable with the progress we've been making against competition. I think our total share in foldables grew and our ATI well business grew.

Speaker 2

It's just PanOptix Pro launch, we feel good about where we are and kind of as expected as I'd say it.

Speaker 4

And then maybe for Tim, just on the margin. So I heard the comments around operating margins should accelerate in the back half. If I look at the first half, I mean, do you expect to see expansion? I know the first quarter is kind of a tougher comp, but I mean, can you see expansion starting in the second quarter or should we think about that really just a second half dynamic? Thanks so much.

Speaker 3

Yes, I think we probably start to see a little bit of expansion in the back half of the first half, if that makes sense. To your point, Q1, we had a very strong Q1 in 2024. I wouldn't anticipate that expanding given the investments that we're making, but we should see expansion throughout the course of the year.

Operator

The next question is from Jeff Johnson from Baird. Please go ahead.

Speaker 5

Thank you. David, maybe I can push you just a little bit on your U. S. ATOL comments there. I think in the past you've given market shares on the PCIOL side.

Speaker 5

Is there anything you could update there? I mean, I think we've all assumed you're going to lose a little bit of share or maybe even a little more than a little bit of share here over the next few quarters until Pro launches. But any updates there on where you think that share potentially could trend down to over the next couple of quarters until Pro launches?

Speaker 2

Well, I think what you're seeing right now is a relatively stable share globally with the Chinese market, for example, doing quite well. We did we had a very significant share growth there and an offset in The U. S. Obviously. So we continue to see competition

Speaker 4

pricing in a way that makes

Speaker 2

it very attractive for people stability in the market globally. And I do think that the challenge in the financial piece is of course that the price in The U. S. Is higher than the price in China. So even though we're growing units globally, we're not getting as much price out of that.

Speaker 2

So that's really what I think most people are observing in the 2%. So good quarter for us generally in this area. And I think as we launch Pro, people are going to be excited about what we can do with that.

Speaker 5

All right. And then maybe just on top of that or a similar follow-up, just that 2% implantables number, I guess maybe for you, Tim, should we expect that as maybe competitive trialing goes up in The U. S. Over the next quarter or two, does that 2% potentially soften a little bit from there before we see it reaccelerate in the back half? Or do you think 2% is kind of the trough of growth in that segment?

Speaker 5

I know you don't guide by segment, but just generally speaking, how you think that segment could play out here over the next few quarters? Thanks.

Speaker 3

Yes. We're not really going to get into guiding by quarter or by segment. So to David's point, we're very excited about PanOptix Pro. And I think as we launch that, you're going to see those results in the revenue growth line or revenue growth.

Operator

The next question is from Ryan Zimmerman from BTIG. Please go ahead.

Speaker 4

Good morning. Thanks for taking the questions, David and Tim. I appreciate it. I'm going to avoid the ATIIO questions and talk a bit about price, if we could, in the quarter. And just a broader question for the industry, because I think price has been a meaningful driver on the top line.

Speaker 4

But when you adjust for price dynamics, can you comment more from a volume perspective? How would you characterize the growth, particularly in the contact lens segment of the business where price has been a meaningful driver?

Speaker 2

Yes. Thanks, Ryan. And I think the quarter for us I think directionally is pretty close to where the year was with about a third of our growth coming from price. So it is meaningful and we have had pricing power for the last several years. So I think if you cut it down into kind of segments, I would say the contact lens business has benefited a lot in the last year or so from price, but it always has.

Speaker 2

I mean historically, you see about a third of the value coming from trade up or mix and a third of the value coming from price and then a third coming from the unit growth. And so typically that's made a market of mid single digits. And so we would just think that that continues going forward. I don't know that it will be nearly as substantial as it was last year or the year before. And I think if that's where you're going, I think we are not optimistic necessarily about big price increases given where we are right now.

Speaker 2

We think it's pretty well priced and priced appropriately for the consumer.

Speaker 4

And then Tim, in the presentation, I think you called out some higher inventory build as just a headwind to gross margins in the fourth quarter. Given the product cycle that you have this year, would that continue? I mean, can you elaborate just on kind of whether that may or may not prohibit gross margin expansion specifically in 2025 relative to maybe the core operating margin expectations that you're calling out in guidance?

Speaker 3

Yes. I think gross margin for 'twenty five versus 'twenty four, we might see a slight improvement. You still have a little bit of the higher cost inventory flowing through into 2025. The other thing to think about is as we launch Unity and sell more equipment, that's going to be a little bit put a little bit of pressure on the gross margins. But I would plan it as gross margins flattish, little bit of an improvement.

Operator

The next question is from Larry Biegelsen from Wells Fargo. Please go ahead.

Speaker 4

Tim, I wanted to ask about the key assumptions in the 6% to 8% constant currency guidance. You talked about the phasing, the acceleration through the year. Could similar to margins, do you expect first half to be within that range or towards the low end or below it? And the second half of the year was about 6%, So the midpoint of the guidance implies an acceleration. What segment is this basically driven by an acceleration in equipment?

Speaker 4

And I have one follow-up.

Speaker 3

Yes. I would say from a phasing, if I think about the P and L, Larry, I think about a first half, second half. So if you look at revenue, a couple of things to think about. In surgical as an example, implantables, the market softness in The U. S, the competitive pressures that we've been talking about the last couple of quarters, we started to see those in kind of the MayJune timeframe of 2024.

Speaker 3

So that's going to be a tougher comp. If you look at contact lenses, as an example, on the revenue front, in 2024 in the first half, we had the benefit of a couple price increases just due to the timing of when we went out with those increases. So those won't repeat. You've got a bit of a structural change with Okkie mentioned, right? We announced that in the second half of 'twenty four.

Speaker 3

So you had revenue last year that you don't have this year. But on the upside, if you think about China VBP that came out in Q2 of twenty four. So we'll get a little bit of a benefit there as you think about the first half. So given all those dynamics, I would expect revenue to be around the low end of that guide in the first half and then I would expect it to be at the high end of the guide as you think about all the launches that David talked about in his prepared remarks as we see the as we go through the rest of the year.

Speaker 5

That's very helpful. I wanted to

Speaker 4

ask one on Uniti, David. Talk about the feedback so far and how we should think about the growth cadence in the equipment business through the year? Should we we've seen years where equipment sales, even when you didn't have a major launch like this, is over 10%, even just two years ago, it was over 10%. So should we think about equipment being outsized growth in that business? Thank you.

Speaker 2

Well, look, it's certainly going to be an increase year on year, Larry. I think the thing that's been exciting about the equipment business is we've done very well with biometry, we've done very well with microscopes. When you add Voyager into it, we think that adds some benefit to it. And then of course, we've got what is a generational change in FAKO and VIT. And so we feel like the equipment business will be very strong for us this year.

Speaker 2

I think we're launching Unity VCS really in May, let's say. So think about that really as a back half idea, because by the time we get it out there and get it trained into the ORs, you'll see a steady movement. But we're going to be patient with it. We don't see a huge need to be aggressive necessarily with that launch. What we want to do is make sure that the surgeons are trained efficiently to use and maximize the value of this.

Speaker 2

And if they do that if we do that right, we're going to see a lot of value that it moves into doing more cataracts in a day, doing more VITRAT procedures in a day, which creates value for the ASC, creates value for the surgeon and actually helps a lot of patients get to therapy faster. So we're excited about the back half in particular.

Operator

The next question is from Anthony Petrone from Mizuho Group. Please go ahead. Anthony Petrone, your line is open. We'll move on to the next question. The next question is from Julien Noire du from Bank of America.

Operator

Please go ahead.

Speaker 6

Thanks, good morning, everyone. So my first question is about China. Could you give us a bit more detail about the IOL market momentum you see in China? What kind of magnitude of share gains you will have at the moment and what do you expect for 2025? So any I mean, any qualitative comments about China VEP for 2025?

Speaker 6

It's super helpful. Thanks.

Speaker 2

Yes. Obviously, we expect China to do quite well this year. We had about a half a year of impact last year as that took off in the middle part of the year. We had not participated in the program in the past, so there was some inventory that was built in the second quarter. But I think in the first quarter wrap around, for example, and then even in the second quarter, you're going to see some benefit from China on the volume.

Speaker 2

I do think that the share has been very significant relative to where we were. You remember that I've said in the past we were in the low in the high single digits I think originally. We're significantly higher than that at this point and that was really with only about six months of effort. So I hesitate to give a share number because it's probably got a lot of noise in it. That data is not super great, but we're doing quite well.

Speaker 2

And I would just say that Panoptix in particular has just kind of gotten its feet under it and Vivity, which is really the one that's taken off in China for us, has been a very positive momentum gainer for us. I would just remind people though that the China pricing is European pricing. And so even though we're gaining units globally and our share is relatively stable globally, I think the value that you're seeing that comes through is a little bit less because the I wells in The U. S. Are very different price than they are in Europe and the rest of the world.

Speaker 2

So expect that we're going to do well in China, but also expect that that's largely a front half and then a stabilizing piece in the back half.

Speaker 6

Perfect. Thanks. And I just have a follow-up three, I'd like to squeeze in. Could you maybe comment about the margin for surgical this year given you're growing nicely in China and you have also like some product launches in equipment? I mean do you expect margin expansion in like in surgical as well?

Speaker 3

Yes, we'll see a little bit of expansion. I think one of the things that you have to take and I think Larry hit on this is there will be a little pressure given the fact that the equipment sales will be increasing. So we're excited about that launch. That will drive a lot of revenue growth in the back half, but that does put a little pressure on the margins. But we'll continue to get some operating leverage as well.

Speaker 3

So we feel very good about the surgical margins.

Speaker 6

Thank you very much.

Operator

The next question is from Patrick Wood from Morgan Stanley. Please go ahead.

Speaker 7

Beautiful. Thanks. I'll keep it to one and a slightly esoteric one. But I'm curious, is there any interest on your end within the Iowa market to go to the kind of drug delivery side using the haptics? Obviously, we've seen some on the private side going this pathway and glaucoma management and a bunch of areas feels like it could add a lot of value to the franchise over time going that way.

Speaker 7

I'm just curious if that's something you guys have discussed internally or thought about partnerships there? Thanks.

Speaker 2

Yes, Patrick, we've looked at those technologies and we're aware of them and I've explored them. But I would just say that we're probably a fast follower in that space. We'd like to see that market develop. And in particular, we'd like to see reimbursement stabilize in both of the I would say the intraocular drug delivery even in glaucoma. I think it will be interesting to see over time how that stabilizes.

Speaker 2

I would put that in the same category as the IOL delivery. So we'll likely watch this one for a while and we certainly can get into it very quickly if we needed to. So interesting idea for sure, but probably yet to be played out.

Operator

The next question is from David Adlington from JPMorgan.

Speaker 8

It's more or less a high level one. So revenue guidance is 6% to 8% is the same as it was this time last year, but you've got a number of new products launching and Chinese VBP. I just wondered how we should be thinking about the offsets on the downside. Is that entirely down to the softness in the IOL market or are there other things we should be thinking about?

Speaker 2

Well, I mean, look, I think the offsets to growth are really the legacy brands. And to a certain degree, what happens in the market will always be the one of the main points of the range. I think in truth, if you look at the global markets, they were relatively stable last year. I mean, the difference was The U. S.

Speaker 2

Didn't have a great implantable year, but international really did. And so when you look at the number globally, the unit volumes were solid for us and really what it was is a difference in pricing that you see between the international markets in The U. S. That's really what made the difference in value. So I think directionally, we would expect that to be continuing.

Speaker 2

I mean, I think The U. S. Is going to continue to be a little bit softer as it has been because there's a lot of new competitive activity expected this next year. And I think international will continue to be strong. But the only other offsets I can tell you would that sit in this market are really the how does the contact lens market develop and what happens in the equipment market or the capital purchasing markets, which again I don't think typically we're not really been affected by those.

Speaker 2

But I would point you towards general market conditions more than anything else.

Speaker 6

And then maybe one follow-up. As we get to

Speaker 8

this time next year, when we exit rate in the second half and as all those products start to ramp, you're expecting a faster growth rate in 2026 and 2025?

Speaker 2

Well, when we get through 'twenty five, we'll talk about 'twenty six. But it's what's the reason the range is a little bit wide, six to eight is because we're obviously very interested in how these new products take off. We're very optimistic about them. There's not a one of them that I'm not excited about actually. So we're hoping that of course your implied idea here is going to come true, but we don't know that.

Speaker 2

So we'll see how these ramp and how the market picks them up and we'll see what the markets do and we'll obviously comment on that as we get into late next year.

Operator

The next question is from Brett Fishman from KeyBanc Capital Markets. Please go ahead.

Speaker 9

Maybe a little bit of a follow-up to the last one, just a little bit more specific in the contact lens side. You talked a little bit about the recent launch of Precision seven Spire and Torek over the past two calls. I'm curious if you can just expand a little bit on some of the optometrists' reception to the launch and like how you're thinking I know you gave kind of a TAM opportunity, but maybe just take a little bit more on how you're thinking about like the ramp of that product and what it can contribute over the next couple of years? Thank you.

Speaker 2

Yes, it's an interesting one. And Brett, it was a product that we have had for a while and we've held partly because we had a lot of other stuff to sell and launch and we were testing it. We actually tested that product for almost a year before we put it in the market. And I'd tell you the reception has been really terrific. I just spoke with our U.

Speaker 2

S. Folks yesterday. And one of the things I heard which was exciting was that the we're getting more than half of our of this coming from the two week and other reusable market. So I think that's what we had hoped for. And I think that's exactly what we're looking at, which is the notion of a two week replacement is not intuitive, right?

Speaker 2

Patients forget, docs worry about that. And what happens in truth, I think is when their lenses get real gritty, they decide to replace them instead of doing something that's a little bit healthier for them. When you get into a much more intuitive replacement schedule every Monday, every Sunday, whatever it is, it becomes a much more reliable idea. And that is what they're reacting to because optometrists are principally concerned with the safety of these patients and how they handle the health of their eye. And so if you can get them on a schedule that's A, shorter, but B, still affordable and C, then rememberable, if you will, that is a very appealing idea to most optometrists.

Speaker 2

And I think that's what they're feeding back to us. So with that said, I did comment on the size of the market. It's meaningful. And we'll see how this takes shape. I mean, I am positively predisposed to believe this is a good product to launch and will give us a nice incremental contribution to the reusable space.

Operator

The next question is from Harry Shryves from Citi.

Speaker 4

Just back on The U. S. Dynamics in the ATI IL market. On the competitive sampling, so how long do you see this lasting? And is there anything you can do about the competitive sampling?

Speaker 4

Or do we just have to wait for the launch of the new PanelPlex product?

Speaker 2

Well, Harry, this has been going on for a while, right? I mean, we've known for some time that we weren't going to be the only ones in the ATI well space in The U. S. With meaningful products. So we saw this coming from Europe and other markets.

Speaker 2

And so as we said, I think probably for the last eighteen months or so, we expected to lose some share in The U. S. To good products that people would try. And so I think that's exactly what we expect to see again through this year. There are a number of products that we anticipate launching later this year.

Speaker 2

And I think the way that we believe this thing plays out is that when people are given the opportunity to try things particularly if they're free or very inexpensive, they're going to try them to see how they work. It's responsible to do that. So once they decide what they're going to do and decide to have to purchase it that becomes slightly different answer. So I think things will stabilize, but it is going to be a full year of next of this year that we deal with a couple of new competitors and more coming. So I feel good about our ability to put that off then with PanOptix Pro.

Speaker 2

I think nobody really has the profile we have with PanOptix And especially now that we squeeze out in front of it with this ability to really use 100% or not 100%, but the high percentage of the 90s of the light and limit the light scatter. That's a very different experience I think for patients and what you're going to see with some of the other products that are out there. So we're feeling pretty good about that. That product launch is only a couple of months away. So we're building the product now.

Speaker 2

We've made the choice. We've kind of walked everybody through how we did that, we studied it with a lot of surgeons, got very good feedback on this particular design and our teams have been trained on it. So we're ready to go, we just need to make it and get it out there now.

Speaker 4

Great. Thank you. And on your margin guidance of sort of 21% to 22% for next year, could you just break that down for us into sort of effects from gross margin and OpEx, please?

Speaker 3

Yes, we don't really break it down that way. But again, I think if you look at the margin expansion, the point I'd make is it will be more back half loaded just given the investments that we're making on these new product launches. But we expect to continue to see nice margin improvement.

Operator

The next question is from Tom Stefan from Stifel. Please go ahead.

Speaker 10

I'll start with Hydrus. David, can you remind us of the size of that business maybe in 2024 in your outlook here in The U. S, just given the LCD noise that has surfaced ugly? And then where do we stand with OUS expansion of Hydrus as well? And then the follow

Speaker 2

ups. Yes. We generally don't comment on the size of products. I'd just say it's a little under 100, but the product has done pretty well. And obviously, the LCD the combined use of products has been a preference to of surgeons.

Speaker 2

We look to help them reverse that. We'll see if that happens, but we hope that that is something that can take shape in the next couple of years. I don't know that it will, but even if it doesn't, I think what we're excited about with Hydrus is it has proven out I think for everybody who's used it to be the most effective way of treating if you're going to use a MIG, this is the one that really does work particularly well. And I think that's pretty well established with both the data, the long term visual field data and also what the experience with docs has been. So we feel like that if you're going to make a choice, that's the right choice to make.

Speaker 2

And so that's certainly where we're headed. Outside The U. S, we've got interesting opportunities in Japan, France, Spain, China. We'll see how that takes shape with reimbursement. So again, reimbursement is the main thing in these markets and that will be is still to be determined in a number of markets, but we look forward to trying to build that brand outside The U.

Speaker 2

S. As well.

Speaker 10

Got it. That's great. And then just on contact lenses to pivot a bit. For 2025 kind of end market growth, David, I think you talked about maybe price potentially moderating a bit. But can you just discuss your view on the trade up aspect of market growth?

Speaker 10

Sort of what do you think that looks like in 'twenty five versus 'twenty four, maybe just kind of that dailies versus reusables growth dynamic? Thanks.

Speaker 2

Yes. It's really steady. I mean, and if you look back over the years, it stays steady. And so I don't really believe it's going to change. I think people prefer a daily.

Speaker 2

And I think the dailies have gotten a little bit less expensive and there are different price points now for people who want to get into dailies. So we've got a value product in Precision One, which we get really excited about. It's probably the best value out there for a DAILIES brand. DAILIES Total One, if you really are you want the best comfort out there, that's a little bit more expensive, but a great product. And both of those draw the reusable patients in because they're more convenient to wear once a day and toss them and they're a lot more comfortable particularly at the end of the reusable wear cycle.

Speaker 2

So you're just getting a better product if you can afford it. Now we recognize not everybody can afford that and we make reusables as a consequence and we've obviously slipped P7 in between the T30 and our dailies lenses. But we aren't we don't anticipate that the amount of energy we're putting on reusables for example is going to have any real effect on the dailies trade up. In fact, we expect it to continue on while we take share in the reusables. So I would say continued steady trade up to dailies.

Speaker 2

And we'll still see some price in 'twenty five. I think it just won't be what it was in 'twenty four or 'twenty three.

Speaker 4

Great color. Thanks, David.

Operator

The next question is from Izzy Kirby from Redburn Atlantic. Please go ahead.

Speaker 11

Hi, guys. Thanks for taking my question. I just wanted to touch upon dry eye and some of the investments that you're making there. I was wondering if you could talk about the prescriber base here for dry eye and the extent to which you're already calling on that existing prescriber base with your broader product portfolio and how you can potentially leverage your broader over the counter offering to win here?

Speaker 2

Yes. It's a really interesting question. We spent a lot of time as of late thinking about the deployment for AR-five twelve. And I think there is a significant optometric audience here that we are intending to cover. And again, we will do that.

Speaker 2

But it is different than some of our other eye drops. So for example, Rocklatan much more of a traditional ophthalmology audience, some optometry, but not a lot. What you see with the high prescribers is there are some concentrated high prescribers in optometry that we will want to cover. And we are expanding our sales force to do that. So as I've said in the past, we were going to look at what's the optimum way to maximize the value here of our launch on 05/12.

Speaker 2

And we are adding a sales force to get coverage of not just ophthalmologists who are high prescribers, but also optometrists who will fit in that category as well. And that will give us room to continue to promote our glaucoma drops and some of our other eye drops that we have. And the leverage obviously comes from an ability to self sustain preservative free PATADA and a number of other OTC products. So your point on OTC is well made. We do have a lot of opportunity to kind of leverage that and help build the demand coming from the surgeon side or the doc side of this in addition to obviously continuing to build our consumer effort.

Speaker 2

So good question and we're headed that way.

Speaker 11

Great. Thanks for the color. And then just as a follow-up on contact lenses and as it relates to CapEx, just wondering how you're feeling from a capacity standpoint at the moment and how we should think about contact lens margins over the next few years? Thanks.

Speaker 2

Yes. CapEx for us continues to be kind of a mid single digit idea. We're going to try and stay in that range. I think that's the right level of recap and the right level of expansion. And I think that is relatively steady and consistent with what we've said in the past.

Speaker 2

In terms of capacity on contact lenses, I would tell you that we've done a really great job. Our manufacturing guys that we were just actually out in our German facility and they have done a tremendous job of improving our outputs on these lines. And so we're well past the original design speeds, which has contributed to a reduction in our need to add new lines. We're getting tremendous productivity and our flexibility in those lines has given us a lot of room, so we can make things like P7. We don't have to create a new line to do that.

Speaker 2

T30, Precision seven, Precision one, they all come off the same line. And as we're working forward, we're looking to create more products that come off those same lines, because between the manufacturing and our D teams, we figured out how to keep the capital really useful and repurpose lines if we need to. But generally, they're flexible enough to make different modalities, different finishes, different surfaces. So that's been particularly effective for efficiency of capital.

Operator

The next question is from Kavya Deshpande from UBS. Please go ahead.

Speaker 11

Hi. This is Kavya from UBS. Thanks for taking my question. I was just wondering about the Belkin Vision product and how significant you think this technology can be and how we should think about the ramp up here? Thank you.

Speaker 2

Yes, it's a really great question. The ramp is the tricky part, I think. I think we think this is probably in the kind of $75,000,000 to $150,000,000 range. I mean, I put it a wide range like that because there is an emerging consensus that SLT is the right place to start with almost every glaucoma patient. The challenge has been it's a difficult procedure to take on if you don't have something like Voyager.

Speaker 2

And so the gap that we're filling is the need to use a Gonyo lens, the need to physically aim this thing. And if you do traditional SLT, those are not easy and they take time and it's difficult for the patient and the doc to get that done. However, if you ask most ophthalmologists and most glaucoma specialists in particular, they will tell you that SLT is their preferred idea. They just typically don't do a lot of it. Now, the beauty of Voyager is we're making that a lot more friendly to the patient, a lot more friendly to the surgeon and the glaucomatologist who wants to do this, but I think has been reluctant.

Speaker 2

This makes it easier and I think we'll see how fast that moves up. So I think the desire is there, the market is there. It's obviously a big TAM for us. But I would just say the ramp on this will be the question and we'll have to see. But we are fully going at this right now.

Speaker 2

We've got a glaucoma team that does HYDRAIS and is also now working on this. So we are moving down a path of a what is we think the most current view of how you should be treating glaucoma patients, which is start with SLT, move into drops, think about MIGS and work your way through the life of that glaucoma patient. Let's keep them seeing as long as we can.

Speaker 11

Thank you.

Operator

The next question is from Jack Reynolds Clark from RBC Capital Markets. Please go ahead.

Speaker 8

Hi there. Thanks for taking the questions. I actually have another one on Voyager. I was just wondering kind of, I see, you appreciate your ramping in The U. S.

Speaker 8

First. Kind of how near term do you see the opportunity to ramp elsewhere, for example, in Europe? And then how should we think about the kind of the medium to longer term value prop here in terms of capital versus click fee?

Speaker 2

Well, yes, I mean, I think the idea, of course, would be long term, the click fee is the reusable element of this that we would see as the majority of the revenue. Once you buy one of these units, you should be able to use it quite some time. So we expect to place as many as is appropriate, but I think the click fee will be the value over the long haul and frankly great margin for us relative to the capital. So over the long haul, we think this becomes a profitable very nice business for us. On the European ramp, I would just say that this will largely be a function of how fast we can build product.

Speaker 2

This was a company that we had been partnering with for some time out of Israel. We've been in the process of working with them to manage the difficult situation that exists over there and also move that manufacturing into one of our facilities and augment their efforts. So as we get through that, we will bring more to Europe. But our primary objective right now is to launch in The U. S.

Speaker 2

And we'll send product as fast as we can into Europe. Europe has been approved for some time, has product available now. It just isn't going to be as aggressive a launch, I think, there as we'll see in The U. S. Where we'll go first.

Speaker 8

That's super clear. Thanks very much. And then a very quick follow-up. So my line dropped. So apologies if this question has already been asked.

Speaker 8

But just on international AT IOLs, can you give a bit of color on kind of which geographies were the major drivers and which modalities there? Was that kind of basically a function of China or were there other things going on as well?

Speaker 2

Well, we had a couple of very good markets. Southeast Asia, LatAm did really well, both of them. I think think China was the standout by far, both by ATIO penetration, it drove most of the global penetration gain. And also for us, it really held our unit share up in a very meaningful way. So I would say we like what's going on in China for us right now.

Speaker 2

It's pretty much as expected. I would say The U. S. Is also as expected and we're getting a little bit of a nice lift out of some, I would just call it, other markets. Latin America did pretty well, Japan has done pretty well recently and we feel pretty good about all that.

Operator

The next question is from Chris Pasquale from Nephron Research LLC. Please go ahead.

Speaker 2

Thanks. David, I wanted to follow-up

Speaker 5

on the comments about the contact lens market. If volume and trade offs are steady and price moderates that implies slower market growth, our sense is that the incremental price tailwinds over the past few years has probably added about two points of market growth relative to pre pandemic. So is your expectation that the market decelerates by that magnitude in 'twenty five versus

Speaker 2

Not really. No. I mean, our expectation is a mid single digit kind of growth, which is pretty much the normal growth we'd expect. So I know there are other estimates out there that that people talk about. We've been pretty consistent in the way we talk about the contact lens market.

Speaker 2

And I would I think it's kind of a four to six grower, which we call mid single digits. And so we'll see. But I think that's pretty much what it grew this year and pretty much what we expect to grow next year.

Speaker 5

Okay. And I'm curious why now in terms of the price tailwind monitoring has been strong over the last several years. It looks like this was another good quarter for both the market and your own business in 4Q. So are you picking up signs of pushback from patients or softness in the consumer environment more broadly? Just what drives the taking that '25 is different on that particular dynamic?

Speaker 2

Well, I think what you're going to see right now is there's a great deal of competition, particularly in The U. S. Market. And when you look at what's happening with competitors, they are beginning to respond to the success that our new products have had. And they're responding with price and they're responding with discounts.

Speaker 2

And so when those discounts aren't available and there was significant amount of discounting that went on in the fourth quarter from some of our competitors, it makes it a little bit trickier to handle. So I think we're not looking to raise price necessarily. We're looking to manage the consumer very carefully. And we feel like that's the appropriate thing to do. I would also say that as we were coming off of '23 and '24, we were trying to catch up and a lot of people were to the inflation that had happened in our core cost of goods.

Speaker 2

And I think that was kind of a one off, if you will, that most of us got through. The consumers largely accepted. And I think we should be sensitive to the notion that we want continued trade up and that's what we're getting. We think we've got it priced right.

Speaker 4

Thanks.

Operator

Next question is from Anthony Petrone from Mizuho Group. Please go ahead.

Speaker 3

Thanks. Sorry, just topping between earnings calls. Apologies for that. So one on when we look ahead to the Uniti launch, just wondering, Dave, when we think about the path to acquisition for these systems, whether it's an upgrade or outright purchase, will the company pursue like bundled deals? In other words, if they purchase the capital, can you actually gain share in consumables and IOLs into those cycles?

Speaker 3

And then really quickly on the follow-up, just a little bit on The U. S. Dry eye TAM, the latest numbers that you have there? And if you can, how five twelve will be differentiated versus what's out there on the market? Thanks.

Speaker 2

Yes. I mean, look, the idea that we have with Unity in particular is that this adds tremendous efficiency into the OR. And I think it will be interesting to see what the upgrade and what the new machines do because there is some real value I think in having a combined machine if you only have let's say you have a old Constellation which is really that's an aging fleet right now. Do you buy the joint unit? I think a lot of people will.

Speaker 2

And I do think that when we look at that, the consumables add a lot of value to that process. I think that's a standalone idea generally. And I think think directionally people will make choices at the ASC that really reflect how they see the value playing out. And that's what we're going to try and point to which is you can do more surgery in a week with our unit and our consumables. You can turn ORs faster with our unit and our consumables and you got less footprint to worry about because you got one unit instead of two.

Speaker 2

So I think there's a lot of value in just selling those things straight in and I think the customers are going to want it that way. On the dry ITAM, I think the it is a good market for us and we're excited to see some of the other products that have been launched recently do well with reimbursement. We think that's a positive sign that a product that works faster makes a material difference to the corneal surface and shows really significant improvement in patient signs, I think is a really exciting idea. There aren't many products who've been able to demonstrate what we've been able to demonstrate. And so we're encouraged about what the potential is for the product.

Speaker 2

And again, it will take us a little time. So I'm always cautious about we're in a mid year launch cycle, which will largely manifest in '26 revenue. So I'd be careful not to put too much in it on '25. But I would just say that we've got the right energy and we're getting really good feedback from payers and we're getting really good feedback from the clinical trial sites that have fed back to us what's happened with these patients. So we like this product and we're excited about it.

Operator

The next question is from Michael Sarcone from Jefferies. Please go ahead.

Speaker 3

Just one for me. Can you

Speaker 4

maybe talk about how you're thinking about potential tariff risk and whether there's anything you call out on the risk side around supply chain?

Speaker 2

Yes, Michael, it's certainly a very pertinent question these days. And the dynamic is hard to read. So I would just say that we're fortunate in many ways that we manufacture inside of the regions we deliver to mostly. That doesn't limit our supplier tariff risk. So, we do buy from markets all over the world supply for our products.

Speaker 2

We manufacture most of them in the markets. We manufacture most of U. S. In The U. S.

Speaker 2

We match most of Europe in Europe. We manufacture a lot of Asia product for us in Singapore. But I would just say that we'll have to play that one out and just see what happens. I do think we have identified those risks and created plans around if we needed to move things we could. We probably will wait and see how long these things last and obviously everybody is exposed to the same kind of deal, but maybe we're in a little bit better position than most because of the nature of the location of our facilities.

Speaker 2

I would also just say though that the beauty of one of our businesses is the diversity of markets and the diversity of products that we make. And so when you kind of cut through the broad strokes of our business, we've got countries all over the world that we can benefit from. So if one country increases tariffs, we may be able to make it up somewhere else. The same thing with our product lines. We got a little bit of implantable pressure in The U.

Speaker 2

S, but we're doing really well in China. So it is a matter of geographic diversity and category diversity that really drives our steady growth going forward.

Speaker 4

There

Operator

are no further questions at this time. I would like to turn the floor back over to Dan Cravens for closing comments.

Speaker 1

Thanks, everybody, again for joining us this morning. For any follow-up questions, certainly reach out to either Alan Trang or myself in Investor Relations. For media questions, feel free to reach out to our corporate communications team. Thanks again and have a great rest of your day. Thanks everyone.

Operator

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

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Alcon Q4 2024
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