Alcon Inc.

Welcome to Alcon's fourth quarter 2025 earnings conference call. Yesterday, we issued our press release, interim financial report, and earnings presentation. We also published our annual report on Form 20F. All these documents are available 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. Before we begin, please note that our press release, presentation, and remarks today will include forward-looking statements, including statements regarding our future outlook. We undertake no obligation to update these statements as a result of new information or future events except as required by law. Actual results may differ materially from those expressed or implied in these forward-looking statements. Please do not place undue reliance on them. Important factors that could cause actual results to differ are included in our Form 20F, Earnings Press Release, and Interim Financial Report, each of which is on file with the SEC and available on their website at sec.gov. We will also discuss certain non-IFRS financial measures. These measures may be calculated differently from and may not be comparable to similar measures used by other companies. they should be considered in addition to and not as a substitute for IFRS prescribed performance measures. Reconciliations between our non-IFRS measures and the most directly comparable IFRS measures can be found in our earnings press release. For discussion purposes, our comments on growth rates are expressed in constant currency. In a moment, David will begin with highlights from the fourth quarter. After his remarks, Tim will walk through our financial performance and outlook for 2026. David will then return with closing comments before we open the line for Q&A. With that, I'd like to turn the call over to our CEO, David Endicott.

Good morning, everyone, and thank you for joining us. Before we begin, I want to express my appreciation to our more than 25,000 associates. Your commitment to customers, your passion for innovation, and your resilience continues to fuel our performance. Each advancement we'll discuss this morning begins with the work that you do every day. And while our full-year results reflect softer markets, the second half of 2025, and especially the fourth quarter, demonstrated the strength and momentum of our business. I'm going to start my remarks today with innovation, which is the engine behind our growth. Over the past 18 months, Alcon has entered one of the most productive launch cycles in our history. And today, I'll highlight a few of the most impactful advances. First, we're excited about the progress we're making with our Unity VCS and CS platforms. Unity VCS, our next-generation vitreo retinal and cataract combination system, was recognized recently by the Business Intelligence Group for outstanding technology achievements. This prestigious award recognizes companies, products, and leaders that are transforming industries through applied innovation, intelligent platforms, and measurable real-world impact. We're honored that Unity was selected as this year's overall winner. Surgeons have responded enthusiastically to Unity, highlighting its enhanced control, improved efficiency, and integrated user experience. Since launching in mid-2025, Unity VCS has been introduced across most major markets worldwide and continues to build momentum. In Unity CS, our standalone cataract system was designed to increase throughput while maintaining precision and safety. Early surgeon feedback has been encouraging, particularly regarding its seamless workflow and next-generation energy delivery, which helps optimize case efficiency without compromising outcomes. We launched CS late last year, and we will continue expanding its global availability throughout 2026. The Unity platform represents one of the largest upgrade opportunities in our surgical portfolio in more than a decade. And with its large installed base and compelling value proposition, we continue to expect this platform to be a steady contributor to growth through the coming decade. Now let me move to IOLs. In the coming years, we expect to launch a wave of new lenses that will expand our portfolio and strengthen our competitive position. I'll start with Panoptix Pro. Panoptix Pro is off to an excellent start and has meaningfully stabilized trifocal share in the US. Building on the proven performance of Panoptix, Pro reduces light scatter, a feature surgeons associate with an improved visual disturbance profile, and delivers even greater quality of vision. Adoption in the U.S. has exceeded our expectations, and we're now rolling out the lens in Japan and Australia, with more markets to follow pending regulatory approvals. Adding to the strong momentum of Panoptix Pro, we're expanding our portfolio with TruPlus, which recently received PMA approval from the FDA and is on track to launch at the ASCRS in April. Importantly, TruPlus strengthens our position in the monofocal plus segment, enabling us to more effectively convert competitive offerings while also defending and extending our clarion base among surgeons seeking an enhanced monofocal option. TruePlus is engineered to deliver enhanced intermediate vision compared to existing offers in this category without compromising the distance performance that surgeons expect from a monofocal. TruePlus will also launch with a toric option. Torque's availability is a meaningful lever to increase our ability to compete in the toric segment and grow ATI well share. And next, later this year, we also expect to receive regulatory approval on an upgraded version of Vividi. Vividi is already the most implanted EDOF lens in the world, and this advancement will build upon its success. This improvement is designed to enhance near vision while preserving the visual disturbance profile that surgeons expect from Vividi. We're excited to launch this innovation in most major markets in early 2027. Finally, we continue to advance our accommodating lens program. Last year, we extended the clinical program after seeing some refractive changes in a portion of patients in our early clinical work. As part of this extension, we amended the protocol to include changes in intraoperative and postoperative medications. Given these changes, we now expect to read out the complete data towards the middle part of 2026. Switching now to retina, Valeda, our photobiomodulation device, is showing encouraging adoption trends and it's helping deepen our engagement in the dry AMD space. Beleda uses three distinct wavelengths of light to improve mitochondrial activity and retinal health, giving clinicians a non-invasive treatment option they haven't had before. This is the first and only treatment clinically shown to maintain visual improvement in dry AMD patients. We're excited about its long-term potential as treatment is now being reimbursed by six of the seven MACs. Our team is continuing to build awareness and adoption within ophthalmology to complement our strong OR-based retina portfolio. Moving to vision care, reusable contact lenses continue to be a strategically important part of our portfolio, where we're under-indexed versus the market. More than half of new wearers start in a reusable lens, and this category offers long-term patient loyalty with attractive margins. Our growing reusable portfolio is anchored by Total 30, the industry's first and only monthly lens with water gradient technology. The Total30 family already includes sphere, toric, and multifocal lenses, and this month we expanded the family with the introduction of Total30 Multifocal for Astigmatism. This is Alcon's first multifocal toric lens and a key step in expanding our innovative monthly portfolio. It positions us to compete strongly in the multifocal category, the fastest growing segment in contact lenses, by addressing presbyopic patients with astigmatism, a group that historically has had limited options. Alongside the Total 30 family, Precision 7 provides an accessible, high-quality weekly option that broadens our reach within the reusable segment. Launched early last year, Precision 7 was designed to meet the needs of both eye care professionals and cost-conscious patients by delivering week-long comfort and consistent vision in spherical and toric modalities. Combined, these innovations help drive significant share gains in the reusable category in 2025. Finally, in ocular health, We continue to develop products that meet the needs of the expanding dry eye category. Dry eye remains one of the most prevalent and persistent ocular conditions worldwide, and our innovation continues to strengthen Alcon's leadership. I'll start with the over-the-counter Sustain family, where we saw a strong quarter of double-digit growth. This performance was supported by new formulations, such as Sustain Complete PF and our newest launch, Sustain Pro. In the fourth quarter, we also launched a direct-to-consumer advertising campaign on SustainPro to help broaden awareness and drive trial. SustainPro is our most advanced artificial tier. It's designed to hydrate, restore, and protect the ocular surface and deliver long-lasting relief. This multi-dose, preservative-free formulation fills an important need in the U.S. market by offering a premium artificial tier without preservatives, a feature that clinicians and patients increasingly value. The pharmaceutical space, TripTier, continues to perform exceptionally well. By year end, it had surpassed approximately 84,000 total prescriptions and achieved a 3% share of the U.S. market, which is a great result for a product only five months into its life cycle. Physicians appreciate its unique mechanism of action, which stimulates natural tear production as early as day one. Refill rates are high, signaling meaningful patient benefit and acceptance, as well as strong engagement from eye care professionals. We've also made great progress with reimbursement from commercial carriers like Express Scripts, Kaiser Permanente, and Highmark, and now have more than one third of commercial lives covered. In 2026, our focus will be expanding the prescriber base and improving coverage. We continue to expect to expand Medicare coverage in the next 18 months. SustainPro and TRIP2 represent significant innovation in the dry eye space, broadening our reach across the full spectrum of dry eye patients and reinforcing Alcon's leadership in this growing category. To bring this all together, Alcon is delivering sustained high-quality innovation across the company. We're advancing a portfolio of products across both of our segments, each with multi-year commercial potential. I'll close with a few observations on the market during the fourth quarter. In Cataract, we estimate the global procedural volumes grew approximately 3 percent. Additionally, ATI well penetration globally was up 90 basis points. In contact lenses, global market growth was approximately 4%, which is primarily driven by the strength within the U.S. With that, I'll turn it over to Tim, who will walk us through the financials.

Thanks, David. Our fourth quarter sales of $2.7 billion were up 7% versus prior year. In our surgical franchise, revenue was up 6% year over year to $1.5 billion. And plannable sales were $474 million in the quarter, up 2% versus the prior year period. As David mentioned, Panoptix Pro continues to perform well in the U.S., and we're in the early stages of launching it in select international markets. Even so, during the quarter, we continue to see an increasingly competitive IOL market. In consumables, fourth quarter sales of $794 million were up 5%, which reflects growth in cataract and vitreoretinal procedures, as well as price increases. In equipment, we saw another quarter of acceleration with sales of $277 million and growth of 18%, driven by the launch of Unity. Turning to vision care, fourth quarter sales of $1.2 billion were up 7%. Contact lens sales were up 4% to $683 million in the quarter, primarily driven by price increases and product innovation, partially offset by declines in legacy products where we have limited our promotional activity. Please recall that this quarter we faced particularly tough comparisons with double-digit sales growth in the fourth quarter of 2024. In ocular health, fourth quarter sales of $474 million were up 12%, led by continued strength of our dry eye portfolio, including TripTier and Sustain. As David mentioned, TripTier's launch is tracking ahead of expectations with strong early refill rates and broad prescriber enthusiasms. As access expands and awareness builds, we expect TripChair to be a meaningful growth driver in 2026. The same also had a great quarter with mid-teens revenue growth. Now, moving down the income statement. Fourth quarter core gross margin was 62.5 percent, down 50 basis points year-over-year, mainly driven by incremental tariffs, partially offset by price increases. Core operating margin was 19 percent, down 160 basis points, driven by lower gross margin, increased sales and marketing investments behind new product launches, and increased R&D investment. This was partially offset by favorability from lower annual incentive compensation compared to prior year. Fourth quarter interest expense was $53 million, and other financial income and expense was a net benefit of $6 million. The average core tax rate in 2025 was 17.5%, down from 19% in the prior year due to discrete tax benefits. Finally, core diluted earnings were 78 cents per share in the quarter. Turning to cash, we generated $1.7 billion of free cash flow in 2025, compared to $1.6 billion in 2024. In addition, in 2025, our free cash flow as a percentage of core net income was 114%, well ahead of our long-range goals. Our robust cash generation has enabled us to return $848 million to shareholders in 2025, comprised of $682 million in share repurchases and $166 million in dividend payments. Moreover, I'm pleased to report that in January, we completed the repurchase program and returned the full $750 million to shareholders more than two years ahead of schedule. Regarding tariffs, we incurred $91 million of tariff-related charges in 2025, of which $67 million was recognized in cost of sales. Now moving to our outlook. As I'm sure you've noticed, starting this year, we are updating the way we present guidance to more closely align with the framework we outlined at our last Capital Markets Day. Our outlook assumes that aggregate ICARE markets grow 3% to 4% for the year, that exchange rates as of the end of January hold through year end, And regarding tariffs, this outlook assumes an average tariff rate of approximately 15% for imports into the U.S. for the remainder of the year. Additionally, we've assumed that retaliatory tariffs remain unchanged. Starting with sales, we expect top-line growth of between 5% and 7%. We believe this outlook reflects a balanced view of market conditions complemented by the steady progress of recent product launches. Although we had a strong fourth quarter exit rate, We feel this guidance is prudent given the soft market conditions in 2025. Importantly, given our innovation pipeline and new product launches over the coming years, we remain committed to our long-range capital market stay goals. In terms of phasing, we expect sales growth to be relatively level-loaded throughout the year given the cadence of new product launches. Turning to gross margin, while we're not providing formal guidance, we currently expect 2026 to look broadly similar to 2025. Efficiency gains and the launch of trip tiers should continue to support margins, while headwinds from tariffs and the ramp of equipment launches largely offset those benefits. Moving to operating expenses, we expect SG&A leverage to be the primary driver of operating margin expansion. R&D expense is expected to be approximately 9 percent of sales. Additionally, as we've discussed previously, Over the past several years, we've made significant investments in operational improvements and system enhancements to drive efficiencies. Building on this progress, and as outlined in our earnings release, we've announced new efficiency measures to further optimize our cost structure and support long-term margin expansion. We expect approximately $100 million in annualized run rate savings, with about $50 million realized in 2026. This initiative is expected to cost approximately $150 million and be completed by year-end. So in aggregate, we expect full-year core operating margin to improve by approximately 70 to 170 basis points. Moving to the bottom line, we expect core diluted EPS to grow between 9 and 12 percent. And in terms of phasing, given the cadence of product launches and the run rate savings, we expect the second half of the year to benefit from higher profitability than the first half. Before I wrap up, I'm pleased to report that our Board has proposed a dividend of 28 Swiss cent teams for share. This is in line with our payout policy of approximately 10 percent of the previous year's core net income. Shareholders will vote on this proposal at the upcoming Annual General Meeting in April. And lastly, I too would like to extend my thanks to our more than 25,000 associates across the organization for their dedication and hard work. And with that, I'll turn it back to David.