Alcon Inc. (ALC) Earnings Call Transcript & Summary

Greetings. Welcome to Alcon Fourth Quarter 2025 Earnings Call. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to Dan Cravens, Vice President and Head of Investor Relations. Thank you. You may begin.

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 20-F. 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 Stonesifer, 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 materially are included in our Form 20-F 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. Now 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 vitreoretinal 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. And 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. And Unity CS, our stand-alone 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 U.S. 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 Truel+, which recently received PMA approval from the FDA and is on track to launch at the ASCRS in April. Importantly, Truel+ strengthens our position in the Monofocal Plus segment, enabling us to more effectively convert competitive offerings while also defending and extending our Clareon base amongst surgeons seeking an enhanced monofocal option. Truel+ 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. Truel+ will also launch with a toric option. Toric's availability is a meaningful lever to increase our ability to compete in the toric segment and grow AT-IOL share. Next, later this year, we also expect to receive regulatory approval on an upgraded version of Vivity. Vivity 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 Vivity. We're excited to launch this innovation in most major markets in early 2027. Finally, we continue to advance our accommodating LEMS 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 is helping deepen our engagement in the dry AMD space. Valeda, uses 3 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 6 of the 7 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 TOTAL30, 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. Now alongside the TOTAL30 family, PRECISION7 provides an accessible high-quality weekly option that broadens our reach within the reusable segment. Launched early last year, PRECISION7 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. And 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 Systane family, where we saw a strong quarter of double-digit growth. This performance was supported by new formulations such as Systane Complete PF and our newest launch, Systane Pro. In the fourth quarter, we also launched a direct-to-consumer advertising campaign on Systane Pro to help broaden awareness and drive trial. Systane Pro is our most advanced artificial tear. 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 tear without preservatives, a feature that clinicians and patients increasingly value. In the pharmaceutical space, Tryptyr continues to perform exceptionally well. By year-end, it 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 5 months into its life cycle. Physicians appreciate its unique mechanism of action, which stimulates natural tear production as early as day 1. 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 1/3 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. Systane Pro and Tryptyr 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. And 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 multiyear commercial potential. I'll close with a few observations on the market during the fourth quarter. In cataract, we estimate that global procedural volumes grew approximately 3%. Additionally, AT-IOL penetration globally was up 90 basis points. In contact lenses, global market growth was approximately 4%, which was primarily driven by the strength in 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. Implantables sales were $474 million in the quarter, up 2% versus the prior year period. As David mentioned, PanOptix Pro continued 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 Tryptyr and Systane. As David mentioned, Tryptyr's launch is tracking ahead of expectations with strong early refill rates and broad prescriber enthusiasm. As access expands and awareness builds, we expect Tryptyr to be a meaningful growth driver in 2026. Systane also had a great quarter with mid-teens revenue growth. Now moving down the income statement. Fourth quarter core gross margin was 62.5%, down 50 basis points year-over-year, mainly driven by incremental tariffs, partially offset by price increases. Core operating margin was 19%, 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 $0.78 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 goal. 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 2 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 eye care 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 Markets Day 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 Tryptyr 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% of sales. Additionally, as we've discussed previously, over the past several years, we 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% 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 CHF 0.28 per share 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.

Thanks, Tim. Before we open the line for questions, I want to briefly step back and summarize what we believe is most important. First, our fundamentals remain strong. We delivered solid fourth quarter performance, exited the year with momentum and continue to invest behind innovation that supports sustainable long-term growth. Our portfolio is broader, deeper and more differentiated than at any point in our history. Second, our innovation engine is working. Across Surgical, Vision Care, including Ocular health, we are advancing multiple platforms with multiyear commercial potential. This breadth matters. It gives us a broad portfolio of potential revenue opportunities that reinforces our confidence in consistently creating value for shareholders. Third, we remain disciplined. As Tim just outlined, our 2026 outlook reflects a balanced view of market conditions while preserving our commitment to margin expansion, strong cash generation and shareholder returns. We're investing where returns are highest while continuing to optimize our cost structure to support long-term performance. And finally, none of this happens without our people, and I want to thank our more than 25,000 associates again around the world for their dedication, resilience and focus on serving eye care professionals and their patients every day. With that, operator, please open the line for questions.

[Operator Instructions] Our first question is from Graham Doyle with UBS.

So the line is a little bit choppy, so I'm assuming you can hear me. Just a question on the guidance. So obviously, last year, we had a couple of missteps really around the market. Could you give us a sense as to how comfortable you are today in terms of visibility? Because when I look at sort of equipment and Tryptyr, it feels to me like you get halfway towards the midpoint of your guide already. And then to Tim's comments on phasing, it strikes me that you should -- you've got some relatively soft comps Q1, Q2, and you've obviously exited quite a strong rate. So should you be kind of in the middle or the upper end of the revenue guidance range when we think of the first half?

Graham, thanks for the question. Let me -- just on the markets, the markets improved in the fourth quarter. They were improving most of the year as we kind of indicated. But they aren't quite back to normal yet. And so I think the balanced view that we have right now is that we should call it about where it finished. And so when you look at this year, the way we see the market broadly is the Surgical market finished about 3. That's probably where we'll call it for next year. Vision Care was 4 and change. That's probably where we'll call it. So in aggregate, being in the 3% to 4% range for now makes a lot of sense to us. And maybe that's disciplined, but I think that's the right answer. So that's how we're thinking about the market for the year. And on the front.

I mean I would just say on the phasing, Graham, I think surgical, to your point, is going to be driving that first half growth if you think about PanOptix Pro equipment is continuing to do well. And then as you get in the back half, I think Vision Care is really going to be driving that. Tryptyr is really going to be building a lot of momentum. We're also going to see some nice growth in P7 and T30. So it should be relatively balanced for the year.

Our next question is from Larry Biegelsen with Wells Fargo.

Yes, I wanted to start with equipment, really strong growth, 18% in Q4. So any color on how much Unity contributed to equipment growth in Q4? If we look at year-over-year growth of about $48 million, was that mostly due to Unity? And how should we think about equipment growth in 2026? David, you've talked about 3,000 placements per year just on average. How should we think about that in '26? And I had one follow-up.

Yes, Larry, we had a great quarter on equipment. Obviously, we got CS out in the quarter as well. So -- but if you look at year-on-year, for example, Unity for Retina, or VCS, our revenue doubled in that category. Now that's not the way you should think about the going-forward number, but I would just say that we had really strong demand. We filled that demand pretty well in the fourth quarter, and we really didn't get CS out. So I would say we've got really good visibility to a funnel of contracts that are ready to go. We have visibility to the install rates. We feel really good about the number that we've given in the past. So I think if you're referring to the number we gave midyear last year, certainly on our -- exactly -- no change to that, I would just say. And I think the kind of the important part of it is the feedback we're getting on the product itself is positive. And a little bit of that I commented on relative to the award we won from the BIG thing. The customer really appreciates at this moment in time, in particular, being able to do more surgeries in a day in a very safe way. And that's kind of the core of the proposition. So we feel good about Unity right now, and it was a big part of the equipment growth.

That's helpful. And David, it looks like Tryptyr sales are actually tracking better than the IQVIA prescription data. I guess my question is, was there any stocking in Q4? And how should we think about Tryptyr in '26? Is $80 million to $100 million the right range? And are you still comfortable with that $250 million to $400 million peak sales?

Yes. Look, Tryptyr really has taken off nicely for us, and we're excited about the enthusiasm that I think the patients are describing, which is this kind of rapid onset and tolerance that we are kind of expected to see, but I think it's pleasing to see it. I think ophthalmologists and optometrists around the world, I think, are looking forward to this product. But I think in the U.S., where we see it now, it's exciting to watch. You can't track it in IQVIA because it's obviously flowing through a third party right now to kind of make sure that we handle reimbursement best. But we're very comfortable with peak sales right now. In fact, I would say we probably are edging towards the higher end of the range we've given, which is that $250 million to $400 million range.

Our next question is from Veronika Dubajova with Citi.

Congrats on a strong finish to 2025. Two things, please, if I can. One, just, David, I'd like to circle back to your comments around the Unity order book. And I don't know if you can describe how much visibility you have at this point in time. And I guess, sort of the demand CS versus VCS and how you kind of characterize your confidence in the sort of sustaining a healthy double-digit growth rate in equipment as we enter 2026. And then my second question is for Tim, please. I noticed that the guidance assumes 498 million of shares. Obviously, we finished the year at 488 million. Any kind of reasons for that and then sort of indications around desire to do more buybacks as we move through this year, given that maybe there is a bit less M&A in the pipeline than there might have been before?

Yes. Veronica, thanks for the question. I would just say the key is we do have kind of very detailed view of our funnel and the order book, as you will, everything from prospects through to installations. So we track contracts, we track shipped products and all the way through to installation and follow-up. So we're very confident in what we've got out there in terms of demand, and we expect the product to do really well this year.

Yes. And I would just say on the share buyback, the 498 million versus the 488 million, that's basically how the employee vesting is treated. So that's kind of the mechanics of the buyback. I would say, in general, on future buybacks, listen, our capital allocation philosophy hasn't changed. Our first priority is going to be investing in organic investments. Again, if you think about PanOptix Pro, Vivity, those types of things, those are doing very, very well. At the same time, we realize that we can't develop everything. So we will continue to be active in BD&L and M&A. And then obviously, the third leg of the stool is the returning cash to shareholders. So we review that every year with the Board when we do our strategic plan. So if we have any changes or any more buybacks, we'll certainly announce it as appropriate.

Our next question is from Matt Miksic with Barclays.

So I wanted to follow-up on some of the dynamics in the IOL market, the cataract market a little bit. If you could maybe elaborate on anything that you're seeing in market capacity, end market volumes, trends that could be improving there? And then anything in the pipeline, PanOptix Pro has been great and your market leadership is impressive. But anything that you think could help sort of either expand laterally or penetration or drive share in other geographies or pick-up the growth a little bit closer to some of the competitors in that segment?

Yes. Thanks, Matt. And let me just comment a little bit on the IOL market broadly. It's kind of a -- this quarter, fourth quarter itself was a bit of a kind of a very different market for the U.S. and for the international group. I would say the U.S. market was solid. The IOL market for us was very good. We had a very strong quarter in -- with PanOptix Pro kind of leading the way. And so we gained some share. AT-IOL penetration was high. And I think that is where I think the market will go. Look, there's going to be a continued competition in the [Technical Difficulty] for it. We've got Pro doing very well. We've got Truel+ coming right now. We've got Vivity 2.0 at the end of the year. And frankly, over the longer haul, we've got a number of ideas on how to continue to stay out in front of competition on this one. So we feel pretty good about the U.S. We've weathered a bit of a storm there. And at this point, I think we feel like we've kind of got it under control, if you will. Internationally, a little bit different, much more competitive. And I would just say we still haven't launched Pro, and we need to do that. We haven't got -- we will get Truel+ out, and we will get a new Vivity product late this year. But those products are yet to be seen into the market, and I think that's where we'll see a bit of turn there. The other dynamic in the market for international was international was soft in Japan and soft in Asia, in particular, partly because China ran into some trouble with their AT-IOL market. So they hit a bit of a cap in the VBP where they run out of money at a hospital level. Vivity had done so well during the year. They ended up using a lot of bifocal product towards the end of the year. And so we had a little bit of a challenge in the China market for us. That's a little bit different than the market per se, but the market, generally speaking, was soft. And generally speaking, China has made up a big part of that in terms of growth in AT-IOLs where it was soft. So if you look at that part of it, it needs to improve. But I think, generally speaking, we're well positioned.

Our next question is from Ryan Zimmerman with BTIG.

On the guidance, I want to ask a question. I think you kind of alluded to this, but I just want to be clear. Historically, we've thought about 200 basis points of innovation coming from Alcon on top of market growth. But if you look at the high end of the guide at 7% and given where you assume markets to be, that implies about 300 basis points. So it's a little bit higher than what we've historically thought of on top of your market growth rates. And so if you can kind of bridge that 100 basis point delta for us, David, is that mostly Tryptyr and Unity? Or is there anything embedded in that higher growth rate at the top end of the guide that we're not thinking about from a product standpoint?

Yes. Look, we've been disciplined about the guide here. And I think what we're trying to do here is say, look, we think the prudent thing to do at this moment is pick up the fourth quarter rate. We don't think that's the normalized rate. But at the same time, that is what we've seen for the last couple of quarters. So let's start there. To your point, we always say we got a couple of hundred basis points of new product flow, which should sit on top of that. So if you say 3% to 4%, which is where roughly the market was in the fourth quarter, then I think you add 200 basis points, and you're exactly right. We've added a little bit on the top because we don't really know what the new product flow is going to do. And I think, look, if it does well, we'll be on the upper end of that, if it does kind of what we expected or a little bit -- any other kind of concerns that show up, we'll see it in that range. So we've been, I think, disciplined about the way we think this went through.

Okay. And then, David, I'd like to ask maybe what is the strategy in refractive at this point? I know we went through the STAAR saga. There was a share buyback, obviously, on the back of that. But do you feel like -- and again, appreciating that it's not needed necessarily to achieve your growth targets, as you alluded to on the last call, but where do you stand on refractive? And what do you want to do at this point?

Well, I mean, first and foremost, we're excited about WaveLight. And WaveLight Plus, in particular, if you compare it to, for example, the competitive procedures, particularly the lenticular extraction procedure, we're getting a substantially better outcome. And I think our main objective right now is for 6 and unders these minus 6 patients, they should be getting LASIK. LASIK is a better procedure in our minds, and I think the data bears that out. I think we had almost 50% or 60% at 2014 postoperative 100% at 2020 and something like 80% at '20 -- what was it, 2018, I think. So it was -- I mean, we're getting tremendous results from this customized LASIK. We're going to keep moving down that path. We obviously would like to augment that with an ICL, whether that -- it doesn't look like it's going to be star at this point, but there's a lot of ICLs out there. And I think maybe the good news on this is we've got lots of other options out there. We're not in a hurry on refractive, but we are definitely moving down a path of committing to the refractive area, whether that's RLE, whether that's laser work, whether that's an ICL, there's a lot of options here that we are going to work at. But refractive is clearly one of a number of white spaces for us that we're interested in glaucoma as well. In the Vision Care business, we've got a lot. Pharmaceuticals, we're interested in. So we are looking broadly at white space. Refractive is certainly one of them.

Our next question is from Jack Reynolds-Clark with RBC Capital Markets.

My first one is on implantables. Could you just remind us what your expectations are around the time lines of the launch of PanOptix Pro outside the U.S. And just to kind of dig in a bit deeper here, at what point do you expect growth in this segment to grow in line with the market? Is it a 2027 thing? Is it '28 thing? And are launches sufficient to make that happen? Or is there something else that you think is needed to make that happen? And then sorry, just to ask again on the guidance. But it's a wide range on the revenue side for the year. Obviously, you've given the market growth range too. What is it that drives kind of revenues coming in at 5% constant currency growth versus the top end 7%.

Yes. The second one is pretty easy. Let me kind of give you where it is. I mean we basically are saying 3% to 4% with the market. If the market does better than that, that's -- or worse than that, that's the low and the high on the market. And then the new product flow trajectory, we've got 10 or actually more than that now, new products kind of in play that have variation around the mean. So we're obviously going to have some variable answers there. Some of them are going to do better, some may not do as well as we expect. But how that mixes will also give us a high and a low around the range. So think about it as both a market dynamic and then also a new product trajectory dynamic. On the implantables piece, look, we're launching PanOptix Pro in Japan right now in Australia right now. I think we're waiting on a regulatory approval in Europe. I think you're going to see Truel+ and Vivity 2.0, I think, late this year. So maybe it's early next year. But I would say that we've got lots coming ex-U.S. And I do think that, that will help a lot in our competitive fight out there. Because I would just say this Truel+ product, we've kind of ignored the Multifocal plus category for a while. We found a very clever way to do something. I don't think anybody else can do with our optical design on that. And so we're excited about, particularly internationally, the toric monofocal plus and the monofocal plus base lens are relatively good sized. And so we like our chances in that market with new products. So we'll see how those go.

Our next question is from Anthony Petrone with Mizuho Group.

I actually had a question on the U.S. IOL cataract market. David, you spoke in the past about how surgeon capacity was constrained for a good part of 2025. Timing on that was a little bit opaque. So wondering where U.S. surgeon capacity is on the cataract side as we enter 2026. And I'll have a quick follow-up on margins.

Yes, Anthony, it's a really good question. We've been working on this one for a while. And I do think that surgeon productivity is the main dynamic. We've got -- now when you look out and you see where the practice of cataract surgery or ophthalmology is going, there are some practices, for example, in the Midwest that we follow very carefully. And what they're doing is they're doing more surgery days right now by employing optometrists to do some of the pre-op work, some of the post-op work. They're using per professionals around the clinic days so that they've got more time to spend in the OR. And then to a large degree, in states where you don't need a certificate of need to get an ASC, there's a lot of ASC movement right now. And then I would say, in other states where you do need a certificate of need and where hospital time has been difficult to get because there's so much other demand, you see the societies and the surgeons looking for alternative ways to get OR time. And so I think the market is working it out, and it makes sense that they should because there's a lot of demand for cataract surgery right now. Days are actually going up in terms of wait time, not down. So there's a lot to be done out there and money to be made if the facilities can provide the time and the surgeons can provide the skill. And so I think you're going to see that normalize as we said it would. But again, we're playing that just a little bit more balanced than perhaps we have in the past just because we haven't seen it happen yet. We expect it to, but we'll see when it happens.

Great. And then just a follow-up on margins would be, when you look at the high end of the range here, 170 basis points. I know you called out the restructuring program, $50 million this year, $150 million total. But you also have some pretty good new product mix. Tryptyr is doing well. Unity is getting off and running. So I'm just wondering to what extent new products plus price is in that margin guide versus the $50 million cost-out program.

Yes. Again, I would say that we're going to continue to get price this year, probably not as much as we got last year, but we'll continue to get price. We're going to continue to get leverage out of the M&S. Again, think about -- we invested a lot in the new product launches last year. We're going to invest more this year. But when you look at it from a year-over-year comparison, we're not going to see as much pressure. And then the new product launches, yes, again, to David's point, it just depends how that flows. Tryptyr should be favorable. The more equipment we do puts pressure on the overall margin rates, but we feel comfortable with the range we provided.

Our next question is from Patrick Wood with Morgan Stanley.

Just 2 quick ones. First one around Voyager, how you guys are feeling about things are going there? How it fits into glaucoma treatment and how that's gone recently?

Yes. Look, Voyager, we're excited about Voyager. SLT is one of those things that if you ask surgeons or ophthalmologists, generally speaking, should you do SLT, they'll all -- 100% of them, I think, will say, yes, that's where we should start. And then you ask the second question, which is how many of you all are doing it. And you get a kind of a mixed bag. And that's because it is a tedious procedure to sit and click from the kind of the traditional laser systems that are in the office. So Voyager represents something that's very efficient, but really great for patients. And I think this is a move that is going to take some time, but I think the glaucoma community is definitely on board with this. We made a good move, I think, this year in the U.S., in particular, in consolidating Voyager with our Valeda product to improve our in-office coverage. So remember, this is an in-office equipment. This is a piece of equipment that sits in the office, not in the OR. And I think one of the challenges we had last year with Voyager was we were in the OR because of Hydrus, and we were struggling to get everybody covered properly. So I think you see a nice move on Voyager and Valeda, both of which I think sit in that kind of efficiency play for in-office equipment, which, again, in the U.S., we're doing a lot with, and we'll see how that goes. Obviously, internationally, there's some reimbursement challenges that we're going to continue to work through. But we're very excited about Voyager directionally.

Makes a ton of sense. And then just quickly as a follow-up, you guys touch the consumer in a whole bunch of different categories in different ways, whether it's contacts or whether it's the non-Rx business in OH. Like what do you think you're seeing? How do you think the consumer's health is? I know that's a very broad question, but is promotional activity going up on the retail side? I'm just curious, the big picture, how you think the consumer is doing based on the categories you guys are in.

Well, I think big picture, I'd say the U.S. is pretty okay for us. International, maybe a little bit more mixed. It's hard to tell. In the contact lens business, which is probably one of our -- if there was a sensitive business, it's probably that one. That particular business internationally has resisted price partly because it's chain dominant. So if you look at the Europe market, you've got a lot of big chains who basically are telling us, we're not going to take price from you. And that is really what's causing the kind of a big chunk of the challenge in market growth in the international business. I think the same is in Japan. Japan is a big contact lens market, and it has a lot of chains, which, frankly, just aren't going to take price right now. [Audio Gap] Business we had, I think, a 6% artificial tier growth in that market. That was a valuable market for us. And the promotional -- well, I would just say either the promotional efforts or the health of the consumer is driving AT-IOL penetration up significantly in the U.S. So U.S., I think, was up 100-and-some-odd basis points in promotion. So if there was really any consumer sensitivity, you'd see it in one of those categories in the U.S. and really hasn't appeared to us, at least in the data that's what's going on. A little bit more sensitive maybe outside the U.S., but I think that's -- again, none of our markets are terribly sensitive to the consumer. Eye care, as you know, is obviously a very kind of inelastic demand.

Our next question is from Issie Kirby with Redburn Atlantic.

I wanted to start on Unity and the cataract system in particular. I appreciate it's only a couple of months in relatively early within the launch. But what are you seeing in terms of your placement rates? I know with VCS, perhaps there were some difficulties in getting doctors trained up. Is that something you're seeing with the CS system? Just wondering about the momentum there. And then I have a follow-up on contact lenses.

Yes. Issie, like I said earlier, I would say the visibility to the order book is very high. And obviously, the cataract system is going to be the bigger of the systems. The VCS, which we spent most of last year on is really a retina system with, I think, some degree of -- actually, we sold a lot into mixed groups where there was a retina person and a cataract surgeon. So there was quite a little bit of that. But I do think the volume is going to be in the cataract system because that's just naturally where most of the volume is. So we have real good visibility to that. And I would just say that the response has been excellent. I mean I think we're working our way through as fast as we can, getting these things installed, but the demand is high right now.

Great. And then actually, as my follow-up, just sticking on cataracts. Are you seeing any benefit really to the broader portfolio within particularly the implantables business when you are placing a cataract system. I'm just wondering if there's any sort of real halo effect coming through with having an Alcon rep in the door ramping the system up.

Well, I mean, obviously, all these decisions are independent on a product basis. And I think, certainly, one of the beautiful things about having a really important piece of equipment is that you get to be in the OR a lot. So you do have opportunities to talk with the staff and the surgeons a little bit more than perhaps people who aren't there every day. But I do think that really what's driving our IOL share in the U.S. is PanOptix Pro. We had a really good quarter on Pro. Share was up and stabilized year-on-year. So I think we're feeling pretty good about the potential of that product around the international markets as we kind of get out there. So really, I think as we go forward, think about it mostly as discrete choice of is our lens better than their lens. And I think that's the fight we're really taking on most every day.

Our next question is from Tom Stephan with Stifel.

First one on cataract physician fee cuts just here in the U.S. David, maybe if you can talk about how you're seeing to date or expecting these dynamics to potentially impact different areas of the business like AT-IOLs, like capital equipment? And then I have a follow-up.

Yes. Oddly enough, I think cataract fee cuts, which, again, for the -- just for everybody who may not know this, physician fee came down, I think it's about $450 or something like that per procedure. Actually, facility fee went up 3%. So just to be clear, there wasn't a cut in the facility fee and the facility is generally who purchases the AT-IOL. So just -- that's an important distinction. What's interesting, though, is penetration in the U.S., for example, was up 130 basis points for AT-IOLs. And I do think there's -- look, there's some promotional effect going on here. But we've seen a couple of 3 quarters now where you're seeing very significant AT-IOL growth, but particularly in the fourth and first -- fourth quarter, we saw kind of a step-up in it. And I do think that people are aware that if they're going to do a limited amount of surgery and they're going to get paid $450 for it, they can make money getting the patient a better lens and kind of talking to them about what it looks like to invest a little bit more, but get them a better outcome. And that is, I think, what's driving some of this. And I think some of that is actually coming off of these fee cuts that has kind of moved people to say, "Hey, I could do something else here".

Got it. That's great. And then my follow-up is just on contact lenses grew about 5% this year. So probably still above market, but maybe a smaller delta than usual. So David, to stick with you, I mean, can you talk about just your confidence in growing above market? And more importantly, what are the kind of incremental drivers, I guess, T-30 and PRECISION7. But just curious if you can speak a bit to how we should think about growth next year relative to market.

Yes. Really important comment. And I think probably we haven't talked enough about it. Look, the market was pretty solid. I mean it remained on the low end of normal, but I think it was probably 5% globally last year. And I would just be careful with our fourth quarter because we're wrapping around an 11% number from the prior year, which involved our P7 launch and some inventory there. So again, I think if you normalize for all of that, we've been growing ahead of market most of the year. And you can see that we had a very good quarter in the fourth quarter in contact lenses. If you look at the audited data, our global share of contact lenses was up. Maybe we gained almost a full share point, like 70 basis points. Our global share of reusables was well over that. Our daily disposable SiHy was double digits. We had a really nice share growth in DAILIES and reusables in the fourth quarter. So I think we're feeling good about contact lenses. And it's really coming from, I think, a combination of our ability to focus on both reusables and DAILIES. So our -- obviously, our DAILIES TOTAL1 product, our P1 product, those are, we believe, really well positioned for both value and then premium markets. The reusable market is a very profitable and I think kind of underappreciated market because almost half of the patients are going into reusables. So we're gaining a good bit of share there by focusing on it. I don't know that a lot of other people are. And that's been very positive for us. So we're continuing to work on our multifocal toric, which is exciting to get into that. But I would just say that, that -- if there's one place we're a little bit soft, it's probably in that multifocal area where we've been losing a little bit of share. And I say all of that with the underlying belief that we have been letting go a little bit of our DACP product. So we've got some downward pressure from some of the older legacy brands that we trying to move away from and get them into the higher end, more profitable brands. So we had a good quarter in contact lens. Thanks for asking.

Our next question is from Susannah Ludwig with Bernstein.

I guess I wanted to follow-up in terms of international IOLs. You guys talked about China. Can you remind us what percentage of your implantables business, China is and what your expectations are for the upcoming VBP?

Yes. I don't think we break out -- we don't break it out at that level. I think China broadly is 5% or 6% of the total, and you can find that in the general financials of our total business. But -- and I would just also say that China is mostly a surgical business. Relative to the IOLs in China, what really went on, I think, was we had a really fast-growing business with Vivity that kind of hit a ceiling because there's a DRG level of reimbursement that comes to the hospital level -- the -- a lot of the hospitals ran up against and they kind of had to slow everybody down in the hospital. So they went to a lot of bifocal. So when you look into it, monofocal growth was pretty high. Foldable growth was pretty high, but it wasn't coming out of AT-IOLs. I think that was a valuable lesson for us. The VBP expectation going forward, it's going to be tough. We expect some price erosion here. We expect to get into this and kind of continue to be roughly year-on-year, I would say, roughly, we -- flat would be a good number for us. So I think we'll get volume, but we're going to have to give up some price, and that assumes we win. So again, all of those things are in play. Middle part of the year is the current expectations, but we'll see how that all plays out. It's an increasingly competitive market in China, but it's also a very big market. So we think volume will grow nicely and offset some of the pricing erosion. And again, prices are still pretty good in China actually. So when you look at it relative to Europe, they're pretty similar.

Okay. And then I guess just as a follow-up to that, how do you guys think about sort of long term? Would you ever sort of look at long-term moving production to China given their focus on local production?

Well, we'll look at that every year and see. Right now, we don't produce in China. We are manufacturing a couple of things in the equipment land that we're thinking about it moving there because for exactly the reason you indicate, which is there is a by China rule there for folks that are making product there. There is a small advantage depending on what product we're talking about. So we'll move a little bit of equipment there. But generally speaking, we're sourcing China out of other locations than the U.S. So I think we're trying to do that. There's obviously some challenge with that, particularly around equipment. But IOLs, I think we can move to a neutral location we're trying to avoid tariffs, if that's the purpose of your question. But in terms of long-term production in China, good question. Not sure we've discussed it in a broad sense for anything other than equipment.

Our next question is from David Saxon with Needham & Company.

Just a couple of quick ones. Maybe starting with Tim. You talked in the script, I believe, about Tryptyr starting to benefit margins in the back half. So can you talk about just the magnitude of the investments you're making behind that product? And once that does turn profitable, kind of the magnitude of the benefit you could see?

Yes. Again, we're not going to give product level margin analysis, but we're investing what we feel is appropriate to make sure that, that launch is successful. And as David said, right now, it's performing better than expectations.

Okay. Great. And then just on Unity, as it relates to consumables, I mean, how soon after unit is placed do you start to see those Unity consumables start flowing through? And if the market is growing 3%, I mean, can you get a couple or a few extra points from the Unity consumable pricing?

Yes. I mean I think, generally speaking, you can -- as I'll just call it a broad rule of thumb, and it depends on lots of things. But I would say we generally look at the market and say consumables will run a couple of points hotter than the market. That's generally what happens and has happened in the past. I would expect that to continue. I wouldn't really interpret the Unity placements as driving a lot of additional above that. I think a couple of points above market growth would be the right way to think about it.

Our next question is from Jeff Johnson with Baird.

I'll be quick here with just 2 questions. David, going back just on your Truel+ comment, I think you alluded to this, but I don't believe you've ever had a monofocal plus. Can you just, one, confirm that? Two, can you remind us monofocal versus monofocal plus kind of mix in the U.S., but especially in some of the international markets, how much monofocal plus share has been taken over the last, call it, couple of years or something or what the current mix is? And remind me if you do get a little pricing premium on a monofocal plus over a monofocal.

Yes, you do get a little bit of a price premium. Let me start by saying in the U.S., the monofocal business -- monofocal plus business hasn't been a huge phenomenon. It probably had a biggest effect on the toric business. And I would say, partly because you can -- in the ad collect space, you can -- for a toric patient, you can collect extra money from them for an advanced technology lens like this. And so they position the toric lens, I think, with an increased amount of intermediate vision, which is really nice. And it's better than the monofocal. But the impact has been really in the toric space. So we lost a fair bit of share in the U.S. over the last several years in toric. And I think to some degree, it was to the monofocal plus. So we're looking and specifically, that's the opportunity, I think, in the U.S. Internationally, a little bit different because they really, I think, had a price point challenge internationally and the monofocal plus did do a better job, I think, in the -- I just saw it somewhere between monofocal lenses and AT-IOL lenses. They carved out some space. I'm not sure what the size of that was, but it's meaningful. And I do think that when you really think about it, this world may just turn into being a -- the monofocal business turns into monofocal plus. I mean I think it comes with a little bit of a premium, and this is a better lens than our core lens because you get more intermediate, but you don't give up much distance. So I'm excited about the opportunity. It's a modest one, but I think important in terms of our share in toric.

Fair enough. And then, Tim, just one quick question on EPS gating. I heard your comments on second half profitability higher than first half profitability, but you also are guiding to a couple of hundred basis points of FX tailwind to earnings to EPS growth, I'm sorry, this year. So I just want to make sure I'm understanding. Gating of EPS because I think those currency tailwinds should be probably more first half weighted, should gating of EPS throughout the year be relatively flat or consistent even if profitability improves in the back half of the year?

Yes. Again, the EPS growth that we're talking about is in constant currency. But if you think about sort of phasing in general and profitability, I'll just go down the P&L. We talked about revenue. We talked about gross margin. Gross margin flat year-over-year. The only thing I would say there is the first half will be lighter than the second half, and that's because you have the impact of the tariffs coming through. But overall, they should be flat year-over-year. SG&A will be a similar profile as last year when you think about it on a percent of revenue basis. Again, as we've seen in the last 2 or 3 years, be a little careful with Q2. That's a heavy M&S spend for us from a back-to-school perspective. So I go back and look at the prior years and see how much it's $40 million or $50 million, probably more in Q2 versus Q1. The savings we talked about, that will be probably 60%, 70% back half loaded. So that's another driver why profitability is better and then you can work the rest of the P&L. But we feel pretty good about the guide, and we're going to continue to grow the business faster than the market. We're going to continue to expand margins, and that should drop through some nice free cash flow.

Our next question is from Steve Lichtman with William Blair.

Tim, maybe a couple for you. First, any color you can give on free cash flow outlook for this year? You gave some inputs with CapEx and it looks like a restructuring charge. But any other color you could provide on puts and takes and where you could end up would be great.

Yes. Again, I think as we continue to drive margin expansion and grow the business, that's going to drop through some nice free cash flow. So I would expect it to be similar to what we had last year. That would include the restructuring charges that we talked about, but we feel pretty good about the free cash flow this business can generate.

Okay. Got it. And then are you still expecting some incremental spend on Aurion this year? It looks like you're talking about getting some leverage on the R&D line. So any update on where you're at with that program and the incremental costs?

Yes. There's still probably 40 basis points as we talked about last time. That really hasn't changed from the Aurion perspective. But again, we've talked about over the last, call it, 12 to 18 months about some of the efficiency programs that we're working on. One of them is in the create to make space that we've talked about. Our internal goal there is about a 20% improvement of getting product to market faster. Now some of that is in these numbers, which is why you're seeing a little bit of the leverage, but certainly not all of it. But we feel pretty good about the R&D spend and the innovation pipeline that we have, and we feel like we're investing appropriately behind it.

We have reached the end of our question-and-answer session. I would like to turn the conference back over to Dan for closing remarks.

Great. Well, thank you, and thanks again for joining us this morning. For any follow-up questions from an investor standpoint, please reach out to either Allen Trang or myself. And for media, reach out to our corporate comm department. Thanks again. Have a good day.

Thank you. This will conclude today's conference. You may disconnect at this time. Thank you for your participation.