Alcon Inc.

Greetings, and welcome to the Alcon second quarter 2025 earnings conference call and webcast. At this time, all participants are in listen-only mode. If anyone should require operator assistance, please press star zero on your telephone keypad. A question and answer session will follow the formal presentation, and you may be placed into question queue at any time by pressing star one on your telephone keypad. We do ask that you ask one question, one follow-up, then return to the queue. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Dan Cravens, Vice President, Global Head of Investor Relations. Please go ahead, sir.

Good morning. Welcome to Alcon's second quarter 2025 earnings conference call. Yesterday, we issued a press release, interim financial report, and presentation. You can find all these documents on our website at investor.alcon.com. Joining me on today's call are David Endicott, our Chief Executive Officer, and Tim Stonecipher, our Chief Financial Officer. Our press release, presentation, and discussion will include forward-looking statements, including statements about our future outlook. We undertake no obligation to update forward-looking statements, and as a result of new information or future developments, accept 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 materially from those in our forward-looking statements are included in our Form 20F, earnings press release, and interim financial report, which are all on file with the Securities Exchange Commission and available on their website 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. 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 in our press release. For discussion purposes, our comments on growth are expressed in constant currency. In a moment, David will begin by recapping highlights from the second quarter. After his remarks, Tim will discuss our performance and outlook for the remainder of 2025. Then David will wrap up and we'll open the call for Q&A. So with that, I'd like to turn the call over to our CEO, David Endicott.

Good morning, everyone, and thank you all for joining us today. We're entering an exciting phase at Alcon. Several major product launches are now underway and beginning to gain traction. Our innovation and commercial teams continue to deliver, reinforcing our leadership and eye care. and deepening our connection with patients and providers worldwide. While markets in the first half of the year were softer than anticipated, primarily in surgical, vision care remained solid. And although our second quarter results fell short of our expectations, we remain confident in the long-term durability of our end markets, the resilience of our customers, and our plan to accelerate growth. Looking ahead, we've never been better positioned for sustained growth. Our teams are executing with focus and agility. And as we discussed at our Capital Markets Day, our robust pipeline and strategic expansion gives us confidence in our growth trajectory into 2026 and beyond. I'll start my remarks today by discussing some of our recent business development and licensing transactions. At Alcon, our BD&L strategy is focused on acquiring transformative technologies in attractive white spaces that address unmet needs in eye care. In Glaucoma, we recently integrated the Voyager Direct Selective Laser Traveculoplasty device into our portfolio. This first non-contact laser therapy offers a streamlined, patient-friendly alternative to traditional SLT and positions us to accelerate global adoption of laser-first treatments. In refractive surgery, our agreement to acquire STAR will strengthen our offering with implantable columnar lenses, broadening our solution for high myopes. And in retina, we recently announced the acquisition of Lumathera and its Valeda light delivery system for early and intermediate dry age-related macular degeneration. Now, I'll take a few moments to discuss these last two transactions in a little more detail, starting with Star Surgical. As announced, we've entered into a definitive merger agreement to acquire Star and its market-leading Evo family of ICLs for vision correction. The boards of both companies have unanimously approved the transaction, which is valued at $1.5 billion. Upon closing, we expect the merger to be accretive to earnings in year two. ICLs represent one of the few sizable market segments in surgical vision correction in which Alcon does not currently have a presence. And STAR is the leader in this space, but remains underrepresented in several global markets. By combining forces, we can leverage Alcon's broader commercial infrastructure to accelerate adoption of the EVO-ICL platform. Furthermore, the EVO family expands our ability to address significant refractive errors because it can be used to treat high myopes Evo complements Alcon's laser vision correction platforms, which are typically used for patients requiring correction of six diopters or less. Importantly, this transaction brings Alcon a proven technology upon which to build. In longer term, our internal product development teams will collaborate with STARS experts to explore combining our advanced IOL optical designs with their columnar platform with the goal of developing a presbyopia correcting ICL. We expect this transaction to close in six to 12 months, subject to customary closing conditions, including regulatory approvals and Star's approval of shareholders. Until then, Alcon and Star will operate as independent companies. While EVO generates significant revenue in China, we remain confident in the long-term opportunity that that market presents. We recognize that there have been recent macroeconomic headwinds in China, but this transaction is about the future. Long term, we expect China to be the largest single eye care market in the world, and as the global leader in eye care, we expect to have a sizable presence there. Lastly, Evo's differentiated clinical profile positions us well to drive penetration and treat the myopia epidemic that's unfolding around the world. I'll now shift to our announced acquisition of Lumathera and the Valeda light delivery systems. We believe this product is a pivotal shift in the treatment of dry age-related macular degeneration, or AMD. Dry AMD is a progressive eye disease that leads to irreversible vision loss. It affects nearly 200 million people globally, and that number is expected to rise to over 280 million by 2040. Additionally, there are currently no widely adopted treatments for the early to intermediate stages of dry AMD, which is where the majority of patients sit today. The Valeta system is the first FDA-authorized medical device that uses a combination of light known as photobiomodulation to stimulate the retina's natural ability to heal and regenerate. It's a non-invasive, in-office therapy that has been shown in clinical trials to improve visual function and slow the progression of AMD. Most importantly, it's safe, scalable, and offers a completely new therapeutic option in an area with major unmet need. The pivotal LightSight 3 trial showed statistically significant improvements in best corrected visual acuity over a two-year period, and based on those results, the product received FDA de novo authorization in 2024, a key milestone that clears the path for U.S. market adoption. We also plan to pursue CMS reimbursement, and recent developments are favorable in terms of gaining coverage. If we're able to secure reimbursement and expand penetration, we estimate the peak recurring revenue could range between 100 to 150 million by 2030. As we continue to strengthen our portfolio through strategic acquisitions, we're equally focused on driving organic growth through our own innovation and execution. Our recent product launches reflect Alcon's commitment to delivering differentiated, high-performance technologies that meet the evolving needs of doctors and patients. I want to start with equipment where we're encouraged by the initial demand for Unity VCS, our next generation combined vitreo retinal cataract system. This device is the result of years of collaboration with surgeons worldwide. It's a fully integrated platform that unifies both anterior and posterior segment capabilities into a single intelligent console aimed at improving surgical workflow and efficiency. I'm pleased to report that the innovations like 40 FACO and the HyperVit 30K cutter are resonating well with both cataract and retina specialists. Unity has received regulatory approval in key markets, including the US, EU, Japan, Australia, and we began shipping in May. And while it's still early in the launch, our order book is strong. We're being deliberate with our installations. We're providing the best possible support to surgeons and clinicians as they adopt the latest advancements in FACO-Vit technology. Now turning to implantables, we're very pleased with the early market response to our latest innovation, Panoptix Pro. Building on the success of the original Panoptix, our latest advancement represents an important improvement in optical performance and patient outcomes. Panoptix Pro delivers 94% light utilization, which is the highest among trifocal IOLs. It also reduces light scatter by 50% compared to its predecessor. This translates to sharper, clear vision across all distances with enhanced contrast and reduced visual disturbances. Surgeon feedback has been highly encouraging, and we're seeing solid adoption trends in early launch markets. Importantly, Panoptix Pro is helping stabilize share in the U.S. premium IOL segment with a modest sequential improvement shown in the second quarter. This is a great example of how Alcon continues to leverage our innovation engine, global scale, and surgeon input to drive differentiated value-driven growth. Now, shifting to vision care, we continue to see solid performance in our contact lens portfolio fueled by innovation. During the quarter, we continue to advance Precision 7 sphere and toric lenses in the U.S. These lenses represent a significant step forward in our water innovations portfolio, designed to deliver all-day comfort and convenience for patients who prefer a weekly replacement schedule. Precision 7 is built on a novel silicone hydrogel material and features our proprietary active flow system. This unique technology embeds a water-loving moisturizing agent directly into the lens matrix and continuously replenishes that agent over seven days. We're seeing strong feedback from practitioners who appreciate the simplicity of the weekly schedule and the performance of the lens, especially for patients who may not be well-suited for daily disposable contact. Turning to ocular health, the headline in the second quarter was the FDA approval and subsequent launch of TripTier. our new prescription eye drop for the treatment of the signs and symptoms of dry eye disease. While most other dry eye treatments simply mask symptoms or supplement the tear film, Triptir addresses the root cause of dry eye. It's a first-in-class agonist neuromodulator that stimulates the eye's natural ability to produce tears. It's fast-acting and effective, with clinical trials showing meaningful improvement as early as day one. Triptir addresses a major unmet need. Despite over 35 million people in the U.S. suffering from dry eye, fewer than 10% are treated with a prescription product. We believe Triptir has the potential to expand the category, not just compete within it. Now, based on our strong clinical data and market dynamics, we estimate peak sales potentially of approximately 250 to 400 million. And while reimbursement timelines vary, we expect full reimbursement in about 18 months. We officially launched Triptir in the US in late July. While it's early days, we are encouraged by the initial feedback from physicians and patients. I look forward to sharing more details about the performance of this innovative therapy in the future. And finally, I'll briefly discuss market dynamics for the second quarter. In cataract, we saw a soft quarter for procedural growth with a modest improvement in the US. In total, we estimate that global cataract volumes grew approximately low single digits in the quarter and the first half of the year. For context, this compares to a historical average of approximately 4%. Additionally, global ATI oil penetration was up approximately 120 basis points year over year, equally balanced between the U.S. and international markets. In contact lenses, we estimate that the retail market grew mid-single digits. With that, I'll pass it to Tim. We'll take you through the financial results and discuss our outlook for the remainder of the year. Thanks, David.

Our second quarter sales of $2.6 billion were up 3% versus prior year. This growth was largely in line with our first quarter and doesn't reflect the full contribution from our recent product launches. In our surgical franchise, revenue was up 1% year over year to $1.5 billion. And planable sales were $456 million in the quarter, down 2% versus the prior year. This result reflects the soft market conditions David just mentioned, as well as competitive pressures. In consumables, second quarter sales of $777 million were up 4%. Growth was led by Vitret and Cataract consumables, as well as price increases. This growth also reflects the soft market conditions we've been discussing. In equipment, sales of $222 million were down slightly, as declines in legacy surgical equipment were partially offset by sales of the recently launched Unity VCS and Voyager DSLT systems. Turning to vision care, second quarter sales of $1.1 billion were up 5%. Contact lens sales were up 7% to $692 million in the quarter, primarily driven by product innovation as well as price increases. In ocular health, second quarter sales of $430 million were up 2% year over year. Growth was led by a portfolio of eye drops partially offset by declines in contact lens care. There was also pressure resulting from the divestment of certain eye drops to Aki mentioned in China, which we expect to continue through the third quarter. Now moving down the income statement. Second quarter core gross margin was 62.2%, broadly in line with the prior year. Core operating margin was 19.1%, down 100 basis points, primarily due to increased investment in R&D. Second quarter interest expense was $51 million, broadly in line with last year. Other financial income and expense was a net benefit of $4 million. The average core tax rate in the first half of the year was 17.7%, down from 21.2% in the prior year, due to discrete tax benefits in the current year compared to discrete tax expenses in the prior year. Core diluted earnings were 76 cents per share in the quarter, broadly in line with last year on a constant currency basis. Turning to cash, we generated $681 million of free cash flow in the first half of the year compared to $667 million in 2024. Our robust cash generation enabled us to return $287 million to shareholders during the quarter, comprised of $121 million in share repurchases and $166 million in dividend payments. Regarding tariffs, we incurred $27 million of tariff-related charges during the second quarter. Of this amount, $12 million was recognized in cost of sales, and $15 million was recorded on the balance sheet for product not yet sold. Based on tariff rates as of August 11th, we now expect a full-year impact of approximately $100 million to cost of sales. This represents an incremental headwind of approximately $20 million versus the tariff structure in May. Nevertheless, we continue to expect to fully offset the impact through a combination of foreign exchange and operational actions. Now, moving to our outlook for the remainder of the year. Our current guidance assumes that the aggregate global eye care market grows low single digits versus a historical average of mid-single digits. Exchange rates as of the end of July hold through year-end, and that the tariff structure I just described holds for the remainder of the year. Starting with sales, we are updating our full-year revenue guidance to $10.3 to $10.4 billion, which reflects the soft surgical market and recent moves in the U.S. dollar versus our basket of currencies. Additionally, given the soft surgical market, we are updating our sales growth rate guidance to between 4% and 5% in constant currency. In terms of phasing, we continue to expect sales growth to accelerate in the second half of the year, predominantly in the fourth quarter. We expect full-year R&D to come in at the top half of our 8% to 10% of sales range. Turning to profitability, we now expect full-year core operating margin to be between 19.5% and 20.5%, which reflects the updated sales outlook. Moving down the income statement, we continue to expect non-operating income and expense to be between $185 and $205 million. Turning to tax, we now expect our full-year core average tax rate to be approximately 18%. Based on all these factors, we are maintaining our core diluted earnings guidance range of between $3.05 to $3.15 per share. This range corresponds to a year-over-year change of between 0% and 2% in constant currency. We believe this updated guidance is prudent and reflects the current market conditions. We also remain confident and committed to the long-term goals we outlined at Capital Markets Day in March. Despite near-term softness, we believe favorable market megatrends will persist and enable healthy long-term market growth. And from an operational perspective, we will continue to invest behind innovation, we have a solid plan to grow sales faster than the market, and we will continue to be disciplined around cost. And as we've said in the past, these activities will drive strong operating leverage, and generate significant free cash flow. With that, I want to thank our associates for another quarter of hard work and dedication, and I'll now turn it back to David.

Thanks, Tim. To wrap up, we remain focused on executing with discipline, investing behind innovation, and supporting our customers and their patients. Most importantly, we've laid the groundwork for an exciting second half driven by numerous new product entries. These products are the result of years of collaboration with our customers and are a testament to our deep market knowledge and commitment to helping the world see brilliantly. Lastly, we're excited to expand our presence in white spaces like refractive surgery, glaucoma, and retina through acquisitions. Products like Evo, Voyager, and Valeda are each strategic moves in growing markets with unique technologies. Combining these products with Alcon's global reach and operational excellence, we're poised to accelerate growth, expand patient access, and deliver long-term value to our shareholders. Finally, I'd like to thank our talented teams across the globe for their dedication and passion. With that, I'll open the line for Q&A.

Thank you. And I'll be conducting a question and answer session. If you'd like to be placed in the question queue, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to move your question from the queue. As a reminder, we ask you please ask one question and one follow-up and return to the queue, and that's star one to be placed in the question queue. Our first question today is coming from Jeff Johnson from Baird. Your line is now live.

Thank you, guys. Can you hear me okay?

Yeah, we got you, Jeff.

All right, guys. Thank you. So I guess two questions for me. One, David, I want to understand, I think one of the encouraging points you brought up in the prepared remarks was that your share in PCIOLs was stable in the U.S. and maybe even ticked up sequentially a bit. Could you flesh that out a little bit more and maybe talk about your ACIOL share outside the U.S.? You seem to drop some commentary in your slide, Jack. from the first quarter about strength and ATIL outside the U.S. That was not included in your slide deck here in the second quarter. Thank you.

Yeah, Jeff, good question. Let me separate the two. The first one was, you know, obviously second quarter for us was sequentially better by about four share points. It was, you know, I think obviously Penn Optics Pro has been well received for all the reasons I mentioned in the remarks, and I'm pleased with the way that it's performing right now. There was obviously also a competitive outage during that period too. So, you know, you need to be thoughtful about, you know, what to attribute that to. But I would say that generally speaking, you know, we've done a really nice job getting the kind of the surgeons what they really want, which is, you know, less visual disturbance and more light to create contrast. So that's what the design element was. We took the time to kind of choose that element. It plays back really well for us right now. So we're optimistic about I think how that plays out with the U.S. market. There was pressure in the international markets, and I think you see some new products coming from competitors, particularly in Europe, where we did have some share loss, probably a little more than expected. And I do think that you're going to continue to see the IOL space pressured globally until you kind of see a stabilization of the number of new products entering. And so I think for a number of years now, we've been saying, look, we had a great run on our own in the U.S. for a while, but The world is complicated. There's lots of products out there, so we were never going to stay forever at an 80 share in the U.S. I think what we see now is a nice stabilization process coming forward, solid performance with new products, and we're starting to get a good sense for what competition is doing. So I think you're seeing the beginning of a stabilization process, but I'd still think that you're going to see some international pressure coming forward.

All right, fair enough. And Tim, maybe just one quick question for you. I know you're not providing 2026 guidance, and I'm sure you won't even fully address this question, but you guys have done, I think, $2.5 billion, maybe a little bit more than that in deals here in the last six to 12 months. You've got five to six new products. sizable new products here that you're launching and trying to build some new markets in dry eye and DSLT those kind of areas obviously you're going to be working to mitigate the tariff pressures just how do we think conceptually about how all that comes together through you know dis energy synergies maybe some dilution from some of those deals things like that just can next year be a good earnings growth year just how to think again not not putting us on a number for next year but just how to conceptually set up our models for 2026. Thank you.

Yeah, great question. Again, I'm a little hesitant to talk too much about 2026, but I would say this. We feel great about the deals that we've done. We feel like they add long-term strategic value. Keep in mind, the biggest deal obviously being Star, that doesn't close for six to 12 months. So that's probably going to have limited impact on next year, but it depends on when we close the deal. But With regards to the overall philosophy around synergies, obviously we're a global company. We have a large footprint. We have, you know, when you think about it from a functional perspective, we have the resources and services in place to support a lot of those activities. So we'll give you more color when we get to the guidance in 2026. Thank you.

Next question is coming from Jack Reynolds-Clark from RBC Capital Markets for Liners Now Live.

Hi there. Thank you for sticking the questions. So my first is just on the market weakness that you discuss and was a driver of the downgrade. What's driven that weakness? And what's the outlook for that? What gives you confidence it's going to return? And what kind of timeframes are you looking for for that?

That's the first one. Thanks for the question. Look, I mean, the world is aging. You know, cataract prevalence is growing. and treatment access is increasing. So underneath all of this, there is no shortage of cataracts. So I think the simplest way to think about it is there aren't fewer cataracts today or tomorrow. There's going to be only an increasing number. And if we look at our procedural volumes, that's what gives us confidence around the treatment in the end. Now, the reason we've been a little bit careful on this one is because, frankly, the historical surgical procedures volume has been about 4%. But it does have an oscillation around it. Over the last, let's call it 10, 15 years, if you look back, there's a plus or minus a couple of points on that. So if you look at our MAT right now, it's probably 2% on the 12-month, but it was closer to 1% last quarter. So that's a relatively normal oscillation, but on the low end of what the natural historical average should be. So again, I'm going to lean on the math, and I'm going to tell you that there's no reason to believe – From a fundamentals perspective, there's any fewer cataracts, and this is probably much more of a return to the norm or aversion to the mean that will happen. We've had a number of really good years that were above 4% globally, and I think what you're seeing right now is just kind of a normalization that's happening. So, look, we're going to give it a couple of quarters. We've obviously been careful about the next two, and then we'll give you some more guidance for next year as we see what happens in the next third and fourth quarter.

Okay, fair enough. Thank you. Then my second question is on Unity. So you mentioned that there's been some pretty good uptake since the launch at the end of May. Could you just give a bit more colour on your order book here? How much line of sight do you have on placements through the remainder of the year? What have placements been like so far in July and August? Any colour there would be great.

Yeah, sure. Look, we sold our first VCS, I think, late May. So, again, be careful about your timings on these. We've had probably 10 weeks or so, and in that 10 weeks, we've accumulated over 1,000 kind of qualified or quoted or contracted leads. So our funnel is very solid at this point. I think you need to remember, though, this launch is going to be deliberate, and it will be a ramp because we're starting principally with the combined console and And the most complicated surgeries, this is principally with the retina specialist because constellation is almost 17 years old. And to succeed here, we've got to train the staff. We've got to train the surgeon. We've got to ensure the settings transfers occur properly. And so we're moving deliberately and efficiently, but we're creating the experience that these surgeons expect. And these are the toughest surgeons in the world. So we're very comfortable with where we are. What we're trying to do is make sure that we handle this thing carefully and And as we launch this thing late, you know, like late this year, we get CS, the ramp will continue to build. And of course, this is a long game for us. You know, our replacement cycle is 10 years. We've got 30,000 consoles out there. And, you know, we are super confident that what we're seeing right now is an efficiency in this machine that we expect to make it, you know, a very, very significant part of what happens in the next decade.

Thank you, next question is coming from Veronica Dubiova from Citi, your line is now live. Veronica, perhaps your phone is on mute. Veronica, your line is now live. Our next question today is coming from Anthony Petrone from Azuho Group, your line is now live.

Thanks, and good morning, everyone. Maybe one on IOLs and one on the STAR transaction. IOLs, David, maybe just a little bit on, we've seen this now for a few quarters, converted to the low single-digit growth rate, talking about an end-market weakness on one hand, but also various different competitive responses here, whether it be now in the U.S. or U.S., What is the timing where you think, you know, IOLs in general stabilize, and what does that look like once we get into a stabilization phase on the follow-up on Star?

You know, I don't know. I'd have to be thoughtful about that one, and I'm not sure I'm able to kind of forecast what everybody's bringing right now. You know, I think the people that we know a lot about who we've seen around the world, you know, I think most of those products get into the market over the next, you know, 18 months. And I do think it'll, you know, almost every product takes about a year to kind of try it, see it, you know, stabilize and then kind of respond. And so I think, you know, there's always trial in these categories because it's easy to try these products and almost everybody wants to if you're, you know, so I think, you know, I guess the things from a visibility level that we have today, I would say it's kind of in that next 18, 24 months, it's going to be busy in this category. On the other hand, you know, we're also going to be busy in this category. So I would tell you we've got a couple of things coming, you know, certainly with pro around the world, and we've got a few other things that we'll talk more about later. But I think, you know, everybody's going to be busy in this category, and I do think that it will be competitive. So I'd give you kind of a non-answer there, I suppose, because I'm not 100% sure who's got what and what's coming next. And I do think that that's going to be busy.

Fair enough. Just quickly on Star, you know, you had a 12-month review period at the high end. why is that extended? And Dave, you mentioned the columnar material, presbyopia potentially, but is there a potential to leverage columnar for an intraocular lens?

Thanks again. Yeah, I think conceptually there is. I don't know that we would necessarily see that as a priority, whereas I think if you were doing a piggyback lens for, you know, a presbyope that's not ready for cataract surgery, let's call that a 45 to 60-year-old You know, that's a pretty interesting space. And so I think, you know, Star has worked on PCICL before and I think has got some good ideas. That material works really well as a secondary lens. And I think, you know, we've got a series of optical designs, I think, that we might be able to incorporate. So, again, that's a long-term project. I wouldn't get too, you know, too interested in it per se, but it is a great idea and I think, you know, gives us a long-term view that, you know, we can add some things into that portfolio. You know, on the duration of this, I think this is largely around international regulatory review. You know, in particular, China has a competitive review that we'll need to go through. We've not been through it before. So, again, it's a little bit of a guessing game for us as to how long it takes. But the advice we're getting, you know, is it could take that long. Hopefully not, but we'll see. Thank you.

Thank you. Next question is coming from Veronica Dubiova from City of Your Line is Now Live.

Let's see if you guys can hear me okay. Yeah, we got you, Veronica.

Yeah, we got you.

Excellent. Sorry about that. Not sure what happened earlier, but brilliant. Thank you so much, guys, for taking my questions. I'll keep it to two, please. The first one is just circling back on Unity, I guess, and I think even in the past we've talked about this idea of kind of 3,000 installations in a year. Can you maybe just give us a little bit of flavor of when you think we can get there and I guess maybe contextualize the 1,000 leads versus this idea of 3,000 placement? How should we think about it? And, you know, from where you guys sit, do you feel Unity's tracking ahead, behind, or kind of how do we think about that? So that's my first question. Then I'll have to follow up. Maybe we can get this one out of the way first.

Yeah, no, we're pretty much where we'd expect to be. I mean, I think, you know, we've been out there about 10 weeks, I think, something like that. You know, we've got a We've got all we can handle right now, and I think as we work our way through that and place the units and train the units, again, we'll continue to move. We'll get faster as we go forward, and again, that's a big part of the ramp of this. The reason I say ramp is these aren't iPhones that we're selling where they turn them on themselves and they fire up. We spent about a week or more in the office, in the OR working. And that's new for us, and it's new for them. And so what we're trying to do is make sure that everybody has a brilliant experience. And to the extent that we get that done, we move on. To the extent that we don't, we stay. And I think that's the thing we're learning about, and we're getting through it. So I think, as I said last time, the gating factor for this will be our installation capacity. And I think we're working on that right now. I don't believe that that's going to keep us from doing 3,000 at steady state a year. We may do a little bit more than that early on, a little bit less than that in the back piece of it. But I think we still believe that, you know, over the next decade, you know, we're going to see this whole console, you know, install base, you know, turn because we'll, you know, obviously we're going to end of life a lot of these things at some point and we'll push along the way. So in the near term, you know, we're a pretty good place, probably as expected in terms of demand. And, you know, we, you know, and again, there's not a lot to report here. I think the big thing is perhaps people misunderstood a little bit about when we had CS coming out and what the difference between the VCS is and the CS. Because CS really opens the cataract market to anybody who wants a cataract machine that's at a price point that's considerably lower than the VCS. And the VCS is really for retina specialists to replace constellations. So that's a very much more complicated world. than our cataract business at the core of it. So lots of opportunity here and lots of excitement on the ground.

Okay, that's really helpful. And then to just maybe follow up, do you think you can hit the 3,000 next year? And then, Tim, I don't know if you want to add any color on what you'd expect equipment to do in the back half of the year since it's been so hard for us to model from the outside in. Maybe that would be helpful. Thank you, guys.

I'm not going to get into the numbers exactly for next year. I think the way we've tried to guide everybody has been, look, we've got 30,000 units on the ground between Constellation and Centurion. Over the next 10 years, we'll replace that fleet. If you think about it as an even number across that, it should be a little faster in the front because people are excited about the thing. It'll be a little slower in the back because people will be waiting for the next one as they have in these last year or so. What you really see in the first and second quarter and late last year was a slowdown in equipment because people are waiting for this. So, you know, now it's just a matter of us getting the work done, and I think, you know, that's underway.

Yeah, I would just say, Ron, to give you some color on the new product launches, I mean, with the revenue guide of 4% to 5%, You know, that obviously would imply if you take the midpoint, that would imply call it 6% in the back half of the year. New product launches are going to be a significant driver of that. A big piece of that will be coming in the fourth quarter. And if you look at the new product launches, again, we've got six or seven launches coming out this year. Unity VCS is a big piece of that.

Thank you. Next question is coming from Richard Felton from Goldman Sachs. Your line is now live.

Thanks, guys. The first one is on Sustain. Are you interested to know how that's performing in the quarter? Some of the industry data that we get looks like the brand and the overall category slowed a little bit. So I'd be interested to hear if that's what you're seeing and why you think that is. That's the first one.

Yeah, Sustain and Sustain Pro were pretty good. I think it was kind of mid-single digits, high single-digit growth, somewhere in that zone. I think what you saw in the quarter, I think, and we saw it too, was a real pop-up in the category broadly because there's a significant amount of advertising by some competitors. And that's, I think, good for the category. So it certainly helped us and obviously helped them as well. We saw a little bit of a tick down in share, but actually the market size grew for us. So, you know, perfectly reasonable for us. I think what our category challenge in that area, really more about the OccuMention wraparound and some gel stuff that we, you know, had some supply issues around. So, you know, I would tell you that underlying this is pretty healthy growth and sustain all around the world.

Great. Thank you. And then the second one is on Starbucks. I'm interested to know how important the China piece is to the business case for that acquisition. And as you said, I think through the growth outlook in China, but also interested to hear your views on the local competitions in the ICL space in that market.

Well, look, I mean, I think, you know, we expect local competition. We know who they are. You know, we participate in that market in a very significant way. It's our second largest market or second or third, depending on, where the yen and the Chinese one is. I think the idea for us has been always, how do we expand the refractive options for patients? And LASIK for us is a good business. And we've got a big chunk of business around the world that is the LASIK business. But in China, actually, Smile has done very well. And if you look at our Wavelight Plus data right now, we've got 100% of patients came out of our Wavelight Plus at 20, 20 or better. And like 80% plus came out, you know, 2016. So, you know, nobody else can do that. And so we're looking to get critical mass in markets like China, where the demand for refractive surgery is very high. But that's the same in Korea. It's the same in Japan. It's the same as the rest of Southeast Asia. It's the rest in really in Europe and the US. So although I would say China matters a lot, it's not the long term. I mean, long term for us, we'll be there. We're going to be it's going to be a huge market for us. And we'll be there with both above six diopters for Evo and LASIK for below six diopters. But those two products together give us an offering now that I think is very competitive with what everybody else is going to bring and I think also allows us to move into other markets around the world with greater critical mass and greater effectiveness. So we see this myopia epidemic as a real opportunity to help patients This product is a really terrific product, and I think it just needs a little bit more pushing in new markets, and I think we give Star a bit of that critical mass. So that's what we're excited about.

Great. Thank you very much.

Thank you. Next question today is coming from Chris Pasquale from NFR Research. Your line is now live.

Hey, thanks. One on Star and then a follow-up on tariffs. how are you thinking about the sustainable revenue growth rate for the Evo ICL platform once all the noise in China calms down?

Yeah, we think it's solid in China and it's solid everywhere else. I mean, the penetration of Evo is so low relative to the high myops that it's just really, I think it's a matter of doc training, business model. You know, I think competition is real and I think it's going to, You know, I think on its own, I think it would have been a difficult road for Star in China in particular. I think, you know, with our critical mass, with our folks on the ground, and frankly, you know, as we look at the total offer we can bring to bear for some of these customers, I think we give, you know, a real opportunity to that brand. So, you know, I think that's, for us, you know, we see this as a very positive contribution, accretive to, you know, our normal growth rate.

Great. And then the increased tariff head when you're forecasting makes you a bit of an outlier. Most companies this quarter have been talking about less exposure than they had a few months ago. Is that specifically related to Switzerland and some of the recent developments there? And can you talk about what you're doing in terms of mitigation? Is the ability to offset this really the weak dollar, or are you guys actually making substantive changes to your supply chain and distribution channels?

Yeah, I would say for us, I can't talk to other companies, but if you think about the EU as an example, coming in at 15%, I think what we had at the May timeframe, folks were talking about the 10% kind of range. So I would say that's one of the key drivers of it. But the mitigation factors that we have in place, a vast majority right now is the dollar and is the currency. But we are continuing to look at things like moving manufacturing footprint, where it makes sense. Kind of I'll call it the non-regret type of things because, again, this is a very volatile environment. It takes a lot of thought, money, and effort to move manufacturing. So, you know, we're really looking for a stable policy before we start making some larger moves like that.

Thank you. Our next question today is coming from Ryan Zimmerman from BTIG. Your line is now live.

Good morning. Thanks for taking our questions, Dave and Tim. I want to talk about maybe some of the long-term targets that have been out there for some time since the capital markets day in the context of some of these new market growth rates. And you laid out a 5% growth rate kind of in line with market, and there's another 200 basis points of innovation, I think gets you about 7%. With the new market assumptions this year, does that step down over the long term to maybe 3% and 5% on that 200 basis points? Do the long-term targets hold in your view? I'm curious if you'd kind of give us your thoughts on that.

Yeah, I don't think we feel any differently about the long-term. Obviously, you know, we've called the market off, you know, three times now. So, I mean, we've missed the surgical market. That's just a fact. But, you know, that is not unusual in the context of 15 years. So, you know, if you really look at the market, you know, it's basically a 4% growth market in the surgical procedural growth area. And we don't see any reason why that should change, but I will tell you, there is a plus minus of 2% around it. So, you know, for it to be 2% right now is, you know, not where we thought it would be, but it's also not, it's all also within the range of normality. So, you know, our general view right now is to do nothing other than say, look, you know, there's no fewer cataracts today than there were yesterday. There's not, you know, we're graduating more surgeons around the world, particularly outside the U S than we have. I mean, the U S productivity needs to pick up a little bit, but I think at the end of the day, there's no reason to believe that anything other than increased productivity is going to be the answer. That's partly why VCS is so important because we see that it really does have the opportunity. If you were doing 19 cataracts in a day, you could probably do 20 now. Those are the kinds of efficiencies that private equity is looking for, the practices they're looking for that helps the procedural growth. But directionally, we don't expect anything other than normal markets in this and very similar to what's gone on for the last 10, 15 years. And I would also just remind you that we're talking often right now about the surgical procedure market, which is really cataract procedures. There's a lot more to our business in here than just that element. So remember, our contact lens business, for example, that market growth is typically mid-single digits, but on the high end of mid-single. We've typically seen that five to seven. And we don't see any real change in that. You know, you look at our OTC market, again, you know, the iDrops business has generally been kind of 4% to 5% grower. So we've got a lot of markets that are all pretty healthy. You know, and that's why, you know, even today, you know, we're basically growing with market. We'd like to be growing a little faster than that, but the markets are slow. So, you know, that's where we are. Yeah, I think also David's point that he alluded to.

Go ahead. Go ahead, Tim. Go ahead, Tim.

Yeah, you know, again, if you look at the megatrends that underpin when you look at the entire company, you know, the population continues to age. You know, the middle class continues to grow. You know, half the world is going to be myopic by 2050, and then the technologies continue to increase access, improve outcomes. So, you know, we don't see those trends really changing. And, again, when you're looking at the long-term goals, you're talking about sort of a five-year timeframe or so.

Yeah. Yeah. And sorry if I was being a little myopic, I guess, on surgical. So maybe just on the other kind of long-term target, which is, you know, Tim, you know, the impression I got out of the capital markets day was that you felt that margins, specifically your operating margins, were reaching a point where cash would kind of flow through the P&L back to shareholders. You know, you've done a lot of M&A now. But with the step back in our margins, does kind of how you think about cash flow and the rampant margins change at all? Because arguably, you know, the margin trajectory over the coming years is a bit more elongated. And, you know, I ask that also around, you know, with the perspective of, well, you've just done all these deals, and should we not expect maybe as much robust M&A activity given some of these changing factors? Thanks for taking the questions.

Yeah, I'd say a couple things. When you look at the margin profile, so if you look at this year, you take the midpoint, you know, that would imply or that would be a step back from where we were last year. But when you break that down, you know, this year, we're still going to get roughly 150 or so basis points of operating leverage. The challenge has been what's offsetting that is we've got tariff pressure when you look at the op margin line, and you've got the Orion pressure. So as you think about going forward into 26 and beyond, we should continue to get that same type of operating leverage, 150, 200 basis points, but we've gotten historically, and you won't have the Orion pressure. You'll still have a little bit of tariff pressure because some of that's hung up on the balance sheet. So The fact that the business can continue to generate significant operating leverage, we feel really good about. And when you do that, you obviously generate nice free cash flow. So we feel good about the free cash flow. Our capital allocation philosophy hasn't changed. And again, the balance sheet is very, very healthy. So we've got a lot of capacity, and that gives us a lot of financial flexibility.

The other thing, Ryan, I'd just add for what it's worth is you've got to think about these acquisitions as really product acquisitions. I recognize they're companies, but they're almost all one-product companies, right? So there's a tremendous amount of value in that. So if you think about Arion, that's a single-product company, despite the fact that it's got a lot of R&D in front of it. You know, Lumathera was Valeta. Lenzar is a flax machine. Star is Evo. And Belkin was the Voyager. So what we're getting is leverage off of our infrastructure, our sales force, You know, our manufacturing, you know, most all of this stuff has great leverage capability. So, you know, we actually benefit a great deal from it, and we can move those products faster than anybody else can. So that's, you know, that's obviously the idea here.

Thank you. Next question is coming from David Saxon from Neiman Company. Your line is now live.

Oh, great. Thanks, David and Tim, for taking my questions. Maybe one on trip tier and then I'll have a pipeline related question. So just on trip tier, can you talk about the launch strategy since you rolled it out in late July? What's the level of investments baked into guidance and how should we think about the revenue ramp to peak sales relative to getting to full coverage? I think you said at 18 months or so.

Yeah, I mean, I'd be careful about the revenue ramp in particular, because I think it's just going to depend on how the reimbursement process works. But let me talk to the launch strategy, because I think it's really interesting, and we're excited about it. I mean, this is one of our first core entries back into pharmaceuticals, where we've spent a lot of time over the years. We obviously have a good bit of pharmaceutical in the business, but this is a new product, and this is probably the first new launch we've done in a while. And I will tell you that You know, we've done a really nice job, you know, in the beginning of really working on professional education for the last year. Where it's appropriate, we've been talking to payers to make sure that they were, we understood their process, that we understood how and when we could get involved with the reimbursement process. I think we understand it pretty well. We've hired a new sales force. That sales force is working both on TripTier plus our Sustain Pro. So it's really a dry eye focus group. It's calling on a combination of optometry and ophthalmology, but all the highest-using folks who we have pretty good data on, so we've got pretty good targeting there. We have a comprehensive advertising and promotion program that I won't bore you with exactly, but I'll just say that going forward, we've got things like First Fill Free, which is a program that is, instead of sampling the product through the office, we're making it very easy for patients to get to the pharmacy with a without having to worry exactly about that reimbursement the first time around. That gets us going down the path a little bit faster. We've got a number of other clever ideas, I think, that are doing a nice job of helping us build this market. And I think we do see this as a blue ocean. I think what we really believe is there are a whole lot of patients in the office. And if you look at the visit data for ophthalmologists in particular, one of the most common, if not the most common, presenting patient is a dry eye patient. And Often, you know, that's a frustrated patient that, you know, the ophthalmologists want something new and different for. And I think this product is being received well. But it's early. You know, we'll see. And, you know, we're all about, you know, three or four or five weeks into this thing. So we're excited about it. We think it will take, you know, obviously 18 months, as I said, to get our full reimbursement in there. But directionally, very happy that we're off to the races.

Okay. That's great. And then I wanted to get an update on the PowerVision. power of vision trial. What have you seen in this study following the new protocols you talked about at the capital markets day? And then I guess, you know, what's the timing of when that could wrap up and, you know, when could we see data for that expanded trial? Thanks so much.

Yeah, you're welcome. The timing on that is end of the year. So we'll have some data. I don't know if we'll get it out in the fourth quarter or the third quarter call or whether we'll have it for the February call, but somewhere in that zone, we'll work through the date itself.

Thank you. Next question is coming from Larry Beagleson from Wells Fargo. Your line is now live.

Good morning. Thanks for taking the question. Tim, two for you. The implied second-half guidance declined from, you know, by our math over 9% to about 5% to 7%. How much of the reduction in the implied second-half guidance is due to slower market growth and other factors such as the slower ramp of new products? And I have one follow-up for you.

Yeah, I think a majority of it is really the market. Again, the ramps and the launches we feel pretty good about. There was some share loss in there, to be fair. So, you know, if you had to split it out, maybe call it two-thirds market, maybe some share in there.

That's helpful. Tim, I wanted – you got a couple questions today on 2026, partly because we see the street at 16% EPS growth, which, you know, is above your capital markets day goal of 12 to 15. I heard your comments earlier. about 150 to 200 basis points leverage underlying. Is there any way you could at least tell us kind of the aggregate dilution from the deals next year, incremental tariff impact and anything else we should contemplate when we kind of calibrate our models for next year?

Yeah, I really can't get too much into the deals, Larry, in 26, because, again, it really depends on when we close them, how we close them and all that. I can't give you a little help on tariffs. Again, you know, tariffs sort of hit to call it in the April time frame. A lot of that got or some of that's going to get hung up on the balance sheet. So as we roll into 2026, we'll have a full year impact. You know, I would guess maybe 50 basis points of pressure on the tariff piece, depending. Now, that's assuming that we don't offset it. So it depends on whether we offset it or not. But if you're looking at just gross tariff impact that's rolling off, that's probably a good number to start with.

Thank you. Next question today is coming from Graham Doyle from UBS. Your line is now live.

Thanks, guys. Just one on the kind of follow-up to Larry's question on the sort of mid-term guidance there, which effectively is I know you don't want to comment on 2026, but I think given you gave this guidance only a few months ago and it's been reiterated today, I think it's not unreasonable to ask the question, which is you're not going to do 12% to 15% EPS growth this year. It is a kegger over not that long a period. Is it reasonable to think that you do 12% to 15% growth next year

Again, I'm not going to get into 2026. We're sitting here in August and we're in a dynamic environment right now. Happy to give you plenty of color to throw all that out in February when we give the guide. But again, I'll just reiterate, you know, the guidance that we gave at Capital Markets Day. So that's 12 to 15 percent. That's a kegger over our long term goals. And we feel pretty good about that. We feel good that we're going to. Continue to invest in the business. The markets, again, the megatrends haven't changed, so we would assume that the markets come back. We're going to continue to drive operating margin improvement. And when you do that, that generates nice EPS. It generates good free cash flow. And from a long-term goal perspective, we feel pretty good about it.

Maybe I'll add this color, Graham, just for what it's worth. You know, the surgical market moving annual total was about 2%, all right? So, you know, that's the audited data. That should revert north of that, I would think. That's a belief that we have over the long haul. That should be somewhere around, you know, 4% over the long haul. You know, the vision care market moving annual right now is about 6%. It's typically been 5% to 7%, so you can pick a number in there. And if those markets hold like that, which is what they should do, And then you lay in VCS, CS, Panoptix Pro, TripTier, Voyager, Precision 7, Sustain Pro, Arion, Valeta, Lensar, Star. And, you know, we got lots of stuff going on that we think, you know, adds to our base core business. And so, look, you know, when you get all through this, we've got a tough, you know, we've got a tough moment here. But this has always been a backloaded year. We've been saying that from the beginning of the year. And next year looks really good to us.

Okay, super clear.

Thanks, guys.

Thank you. Next question is coming from EC Carby from Redburn. Your line is now live.

Hey, guys. Thanks for taking my question. I wanted to ask on the contact lens market dynamics that you're seeing. There were some concerns last quarter about a bit of a weaker demand environment within contact lenses. You put up a pretty decent number. So I was just wondering what you're seeing there and then how – is Precision 7 doing versus your expectations? Are you seeing any, I guess, positive cannibalization of some of your monthly wearers there? And I have a follow-up.

Yeah, on P7, yeah, you know, look, it's doing very well. It's doing what we expected. And obviously it is cannibalizing some of our product, but it also is kicking shares. So, you know, we expected it to work against the two-week market. It seems to be doing that. So we're pleased with that outcome. And I think, you know, as we expected, it's a high margin brand for us. So we like the mix shift to P7 to the extent that we get it from our old, you know, monthly lenses or from some of our lower cost daily lenses. You know, it's priced in a place which will, you know, help us on a margin basis. So I think, you know, even if we're trading some of our own product into this, you know, I think we're still doing pretty well with it. And then we are taking share with that particular brand in the reusable category. I would say on the other piece of this, the demand in the second quarter was a little bit more muted. It was on the low end of mid-single digits, but it's still mid-single digits. And as I just said a minute ago, this contact lens MAT, the 12-month number is about 6%. So I think what you're really seeing right now is a slightly lower amount of price into the market this year. We certainly took a little bit less than we took last year, and that's probably the only effect here. What we saw with the consumer was consistent mix up, You know, the price was still pretty solid. And we've, you know, and frankly, you know, the wearers are about flat, but they're usually flat. So I think we're in a pretty good place with Contact Lens Health.

Great. Thank you. And then just to follow up on Unity and how... Revenue is being recognized with this product. Should we think about Unity as really a capital placement? To what extent are you guys leasing or perhaps bundling with your broader portfolio? Just trying to get a sense of how these placements really hit the equipment line or if there's anything elsewhere within Surgical that we need to consider. Thanks.

Yeah, generally speaking, this is a capital purchase. I mean, I would assume that. I mean, some of our customers are going to lease, but they'll use external leasing agencies to do that. For us, it'll be largely a capital. We don't do any more leasing, I don't think. And there isn't any real volume discounting at this point. So we're early in the cycle. We've got a lot of demand, I think, from the market. So I think our ASPs are holding nicely kind of through this first 10 weeks or so, even though it's a bit early.

Thank you. Our final question today is coming from Susanna Ludwig from Bernstein. Your line is now live.

Hey, good afternoon and thanks for taking my question. Could you guys just go into a bit more granular detail on the lower growth in the consumables business, as this is one of the weakest quarters since the pandemic? You've been talking about for a couple quarters a softer market, but sort of sequentially which regions were worse and should we expect this more subdued growth to continue in consumables through the rest of H2? And then I guess, is there any difference in the price contribution in consumables in Q2 versus Q1?

Yeah, the last one, there's no real difference. I mean, our consumables market and our consumables number is a pretty good proxy for what's going on in the market because our shares are meaningful in that area. And what you did see is, I think, correctly identified as a slower market. And that happened both in the U.S. and the international markets. So I would say that, you know, around the world, it was a slow quarter for procedures. And I believe that to be kind of temporary. But, you know, again, we've called a little bit softer back half of the year, a little more consistent with the front half. And so I would expect, you know, similar numbers kind of going forward.

Thanks. Thank you. We reached the end of our question and answer session. I'd like to turn the floor back over to Dan for any further closing comments.

All right. Thanks, everybody. Thanks again for joining us. If you have any follow-up questions for investors, certainly reach out to Alan Trenger, myself, or for media, reach out to our corporate communications team. Appreciate your time. Thanks. Appreciate the interest. Thank you.

That does conclude today's teleconference and webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.