Alcon Inc. Q4 FY2025 earnings call

David Endicott highlighted innovation across segments. Unity VCS and CS platforms progress, PanOptix Pro performing well, new IOLs like TruPlus and Vivity upgrade, Valeda in retina, Vision Care contact lens innovations, Ocular Health dry eye products like Systane PRO and Truqtra. Also mentioned market trends in cataract and contact lenses

Fourth quarter sales were $2.7 billion, up 7% vs prior year. Surgical franchise revenue up 6% y/y to $1.5 billion. Implantable sales $474 million, up 2% y/y. Consumables sales $794 million, up 5% y/y. Equipment sales $77 million, up 18% y/y. Vision Care sales $1.2 billion, up 7% y/y. Ocular Health sales $474 million, up 12% y/y

Expect top-line growth 5%-7%, 2026 gross margin broadly similar to 2025, operating margin expansion via SG&A leverage, core diluted EPS growth 9%-12% with second half more profitable, Board proposed $0.28 per share dividend

Q: Greetings. Welcome to Alcon Inc. Fourth Quarter 2025 Earnings Call. At this time, we will follow the formal presentation. Please note this conference is being recorded. I will now turn the conference over to Daniel Cravens, Vice President and Head of Investor Relations. Thank you. You may begin.

A: Daniel Cravens welcomes to Alcon Inc.'s fourth quarter earnings conference call, introduces David Endicott and Timothy C. Stonesifer, mentions forward-looking statements and non-IFRS measures.

Q: Good morning, everyone, and thank you for joining us.

A: David Endicott appreciates associates, highlights innovation in segments, market trends in cataract and contact lenses.

Q: 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. Implantable 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 are in the early stages of launching it in select international markets. Even so, during the quarter, we continued 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 $77 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 2024. In Ocular Health, fourth quarter sales of $474 million were up 12%, led by continued strength of our dry eye portfolio, including Truqtra and Systane. As David mentioned, Truqtra’s launch is tracking ahead of expectations with strong early refill rates and broad prescriber enthusiasm. As access expands and awareness builds, we expect Truqtra 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, 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 am 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 am sure you have 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 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 have 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 targets. 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 are not providing formal guidance, we currently expect 2026 to look broadly similar to 2025. Efficiency gains and the launch of Truqtra 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 have discussed previously, over the past several years, we made significant investments in operational improvements and system enhancements to drive efficiencies. Building on this progress, as outlined in our earnings release, we have announced new efficiency measures to further optimize our cost 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 am pleased to report that our Board has proposed a dividend of $0.28 per share. This is in line with our payout policy of approximately 10% 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 will turn it back to David.

A: Timothy C. Stonesifer walks through financials, sales, segments performance, margins, cash flow, outlook including guidance on sales, margin, operating expenses, EPS, dividend.

Q: Thanks, guys. The line is a little bit choppy, so I am 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 some of the equipment and Truqtra, 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 have got some relatively soft comps Q1, Q2. You have obviously exited quite a strong rate. So should you be kind of in the middle or the upper end of the revenue guidance range, we think, for the half? Thanks a lot.

A: Graham Doyle's question on guidance visibility and phasing, David Endicott and Timothy C. Stonesifer respond on market visibility, phasing of growth from segments.

Q: Good morning. Thanks for taking the question. 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? You know, David, you have talked about, you know, 3,000 placements per year, just on average. How should we think about that in 2026? And I had one follow-up.

A: Lawrence H. Biegelsen's question on Equipment growth, David Endicott responds on Unity contribution, visibility of demand, Equipment growth outlook.

Q: Hey guys, thank you so much for taking my questions. Just two things please, if I can. One, just David, do want to circle back to your comments around the Unity order book? So I do not know if you can just 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 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, 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? Thank you, guys.

A: Veronika Dubajova's questions on Unity order book visibility, Equipment growth confidence, share buyback mechanics and future plans, David Endicott and Timothy C. Stonesifer respond.

Q: Hi, thanks for taking the question. So I wanted to follow up on some of the dynamics in the IOL market, cataract market a little bit. If you could maybe elaborate on anything that you are seeing in market capacity, in 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?

A: Matt Mitnick's question on IOL market dynamics, product pipeline, David Endicott responds.

Q: Thank you. Thanks for taking the question. On the guidance, I want to ask a question. And I think you kind of alluded to this, but I just want to be clear. Historically, we have thought about 200 basis points of innovation coming from Alcon Inc. 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 is a little bit higher than what we have 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 Truqtra and Unity? Or is there anything embedded in that, in that, you know, higher growth rate at the top end of the guide that we are not thinking about from a product standpoint.

A: Ryan Benjamin Zimmerman's question on guidance delta, David Endicott responds on guidance basis, market and product trajectory impact.

Q: Thank you, and good morning everyone. I actually had a question on the U.S. IOL cataract market. David, you spoke in the past about how surgeon capacity is 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 will have a quick follow-up on margins.

A: Anthony Charles Petrone's questions on U.S. surgeon capacity in cataract, margins, David Endicott and Timothy C. Stonesifer respond.

Q: Beautiful. Thank you so much for taking the questions. Just two quick ones. First one around Voyager, how you guys are feeling about things, how things are going there? How it fits into glaucoma treatment and how that has gone recently?

A: Patrick Wood's question on Voyager, David Endicott responds.

Q: Hi, guys. Thanks so much for taking my question. I wanted to start on Unity and the cataract system in particular. Appreciate it is only a couple of months and relatively early within the launch. But what are you seeing in terms of your placement rate? I know with VCS, perhaps there were some difficulties in getting trained up. Is that something you are seeing with the CS system? Just wondering about the momentum there. And then I have a follow-up on Contact Lenses.

A: Issie Kirby's questions on Unity placement rate, cataract system momentum, Contact Lenses, David Endicott responds.

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

A: Thomas Stephan's questions on cataract physician fee cuts impact, Contact Lenses growth, David Endicott responds.

Q: Good afternoon, and thanks for taking my questions. I guess I wanted to follow up in terms of International IOLs. You guys talked about China. Could you remind us what percentage of your Implantables business China is and what your expectations are for the upcoming VBP?

A: Susannah Ludwig's questions on International IOLs, China's percentage in Implantables business, VBP expectations, David Endicott responds.

Q: Great. Thanks, guys, for taking my questions. Just a couple of ones. Maybe starting with Tim, you talked in the script, I believe, about Truqtra starting to benefit margins in the back half. So can you talk about just the magnitude of the investments you are making behind that product? And once that does turn profitable, kind of the magnitude of the benefit you could see?

A: David Joshua Saxon's questions on Truqtra margin benefit, Unity Consumables flow, Timothy C. Stonesifer and David Endicott respond.

Q: Guys, good morning. Thanks for squeezing me in. I will be quick here with just two questions. David, going back just on your TruPlus comments, I think you alluded to this, but I do not believe you have 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 what the current mix is? And remind me if you do get a little pricing premium on a Monofocal Plus over a monofocal? Thanks.

A: Jeffrey D. Johnson's questions on TruPlus, Monofocal Plus mix and pricing, David Endicott responds.

Q: Thank you. Hi, guys. 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 you could provide on puts and takes and where you could end up would be great.

A: Steve Lichtman's questions on free cash flow outlook, Auryon program incremental costs, Timothy C. Stonesifer responds.

Q: Great. Well, thank you, and thanks again for joining us this morning. For any follow-up questions, from an investor standpoint, reach out to either Alan Tring or myself, and for media, reach out to our Corporate Communications department. Thanks again. Have a good day.

A: Daniel Cravens closes the call, provides contact information for follow-up questions