Q1 2020 Earnings Call
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Good day and welcome to the outcomes first quarter 2020, earning conference call. All participants will be a name listen only mode to do you need assistance. Please signal a conference specialist by pressing the star keep followed by zero.
After today's presentation, there will be an opportunity to ask questions. Please note. This event is being recorded I would now like to turn the conference over to Karen King SVP of Investor Relations. Please go ahead.
Welcome to outcome on first quarter earnings Conference call earlier, we issued a press release and interim financial report and posted a supplemental slide presentation to our website to enhance today's calls.
You can find all of these documents in the Investor Relations section of our website at Www Dot Investor Dot Al Con Dot com.
Joining me on today's call or David Endicott, or Chief Executive Officer, and Tim Stonesifer, Our Chief Financial Officer.
Our press release presentation and discussion will include forward looking statements.
We expressly disclaim any obligation to update forward looking statements as a result of new information or future developments, except as required by law.
Our actual results may vary materially from those expressed or implied in our forward looking statements. Accordingly, you should not place undue reliance on any forward looking statements.
Important factors that could cause our actual results to differ materially from those in our forward. Looking statements are included in Alcons form 20-F earnings press release and interim financial reports on file with the Securities and Exchange Commission and available on the Fccs website at.
You got FCC Dot Gov.
Included in this press release are selected non I FRS measures.
None I FRS financial measures used by the company may be calculated differently from and therefore may not be comparable to similarly titled measures used by other companies.
These non I FRS financial measures should be considered along with but not as alternatives to the operating performance as prescribed per I FRS.
Please review the financial tables provided in the press release and our filings that reconcile non IRS measures to directly comparable financial measures presented in accordance with IRS.
Our discussion purposes or comments on growth will be expressed in constant currency.
With that I'll now turn the call over to David.
Thanks, Karen Hello, everybody.
Hope Youre also seeing healthy safe and these challenging times and I wanted to take a moment to acknowledge the many sacrifices people are making every day the express our gratitude to all the health care professionals on the front lines serving their communities.
As Alcon navigates through this situation our number one priority is to keep our associates safe, while managing a complex supply chain that serves critical eye care needs and 140 countries.
Since emergence of coded 19, our crisis management team has been coordinating our global response to this healthcare crisis I want to recognize that team and the thousands of associates in our manufacturing plants warehouses and distribution centers, who are helping us maintain an uninterrupted flow of products to the patients who need the most.
Most of our office based associates are working from home and we've implemented new procedures in measures to enhance safety at all of our sites. Let me also acknowledge the many associates, who volunteered to apply their time and ingenuity in making much needed protective supplies such as hand, sanitizer, it's flashcards for our local communities.
That being said I'll start by providing a brief update over first quarter recent performance and overall market dynamics and the Tim will discuss our sales performance by business will provide additional color on April results and our outlook for recovery and then I'll wrap it up with closing comments and open up for QNX.
In the first quarter, we delivered sales growth of 4% and core operating margin of 16.6%, including an unfavorable impact of 50 basis points from foreign currency.
Core earnings were 45 cents per share with four cents of interest expense from financial debt. Overall, we saw double digit growth in implantables driven by strong demand for Panoptix and we saw double digit growth in ocular health driven by continued demand for sustain plus the successful launch pad today in the U.S.
This overall growth was offset by the impact of the pandemic on our end markets now turning to those end markets in surgical global cataract procedures declined in the high single digits. This quarter. After a mid single digit increase in the fourth quarter of 2019.
First quarter market data shows us gaining another 10 to share points in the us PC, Iowa category.
Putting our shared over 65%.
We're very pleased with the early success of Panoptix as evidenced by the rapid increase in market share and we look forward to continuing that momentum of this innovative product as markets reopened.
In vision care, the contact lens market was relatively flat in the first quarter versus up low single digits in fourth quarter 2019.
The fast growing part of the market is daily Sai high which continues to see strong growth at 22%.
We continue to gain share in this market on the strength of GT. One did you on multi focal and our newly launched precision one.
In an ocular health, we gained close to 10 share points in the quarter due to the contribution of patter day, putting us in a strong leadership position with over 40% of the us ODC ocular allergy market.
We're pleased with the launch pad today and attributed to initial success to wide product availability brand recognition and solid commercial execution. Despite retailer disruptions due to the coded 19.
Unfortunately coded 19 has had a substantial impact on our health system in the need for urgent care requires the prioritization of critical hospital resources for acute care.
This means for our business is with the exception of emergency procedures surgeries were either suspended or significantly restricted in most major markets around the globe.
At the end of February we were feeling very good about the quarter Panoptix was gaining share in the peace oil market precision one activity were both off to a great start and gaining momentum and we just launched pedal to otcs. So we ended February was strong global sales.
However, a surgery restrictions were enacted in most of our markets and optometry clinics closed cobot 19 began to negatively impacted demand for our products and quarterly results really by mid March.
It's important to remember that cataract don't get better so instead, they progress and vision deteriorates over time, which may compromise the ability of patients to live independently as such we're confident that there will be a solid rebound, albeit at different speeds in our markets depending on the health care system, the mix of public versus private facilities the cups.
Cassidy to ramp up surgeries, and importantly, Fisher confidence in returning to a health care facility.
Envisioned care our contact lens business also showed signs of slowing in late March as many independent odcs reduced working hours close clinics or move to telemedicine to support their existing customers, which means new fits have substantially slowed.
In addition channel mix shifted towards online consumption during the quarter.
Ocular health products, such as sustain and contact lens care. However benefited initially from the preemptive stocking of Odisi products by both retailers and consumers concerned about the availability of future supply.
So this coupled with strong demand for Pat a day resulted in a double digit growth for vision care during the quarter.
As we faced these new challenges were taking decisive action. So that we can weather the storm and be position to advance our long term initiatives. So what are we doing.
But we're spending significant time with our customers on virtual training and education through the outcome experience Academy local webinars and peer to peer forums to date, we've conducted where the 650 training sessions, reaching approximately 50000 customers just about every market we serve.
We are supporting our customers with measures such as credit extensions and mailing contact lenses directly to consumers.
We're refining our launch calendar as we believe product innovation will play an important role in helping doctors rebuild their practice.
In surgical we're off to a great start with panoptix as evidenced by a double digit growth and implantables in the first quarter and we'll continue to roll out the product in the us in Japan.
We received positive early feedback from our limited launch of dividends will broaden our launch access in Europe.
And we will pilot visiting with select care wells in the US later this year.
In a vision care, we're increasingly engaging our customers online through digital channels and supporting the robust demand at owned and third party E commerce platforms with inventory and new direct to consumer models.
Feedback for precision one has been favorable and we're prepared to reenergize promotional activities as optometrist re opened their doors.
We're also excited to expand our toric daily portfolio with the introduction of precision one and daily totals one toric lenses later this year early into next year.
We're moving forward with our contact lens manufacturing expansion of both Germany in Singapore and of use this downtime to build inventory of some of our key products as we prepare to rebuild our momentum post crisis.
We're also implementing significant cost control measures, while staying on course with our separation transformation and other investment priorities and we're taking a number of steps to preserve financial flexibility and Tim will discuss these actions in detail in his comments.
Lastly, because we believe these conditions are transitory, we're not making structural changes to our operational costs that would impede our ability to fully ramp up when all geographic markets recover.
Now before I turn the call over to Tim I want to step back for a moment and just add a little bit of long term perspective.
Hi care is a large and growing market and we've defined it as a 25 billion dollar market, which has historically grown at around 4% to 5%.
Driven by an aging population improved access to care and the explosion of myopia.
I care is incredibly important principally because 80% of what we perceive is through the eyes cataract don't go away or improve on their own and while most patients can delay surgery for some period of time and uncorrected cataract oppose health risks compromised mobility and ultimately lead to blindness.
In addition, myopia is accelerating at alarming rate children are spending less time, playing and exercising outdoor which is believed to be an important factor in developing distance vision.
People are spending more time on their handheld devices and by 2050 current projections show that half the world will be nearsighted.
So while there is definitively some short term challenges to work through keep in mind that the long term fundamentals remain strong.
We're the leader in these large and growing markets and we'll continue to innovate for our customers in patients need.
And with that I'll turn it over to Tim Who'll review, our financial results of provide more color on our outlook.
Thanks, David we're pleased to report a solid 4% topline growth and the first quarter.
Surgical sales were flat with double digit growth and implantables offsetting lower sales in the consumables and equipment other categories.
And plan will sales of $310 million increased by 10% primarily due to strong gains on recent launch of Panoptix in Japan, and the U.S. and continued strong performance in APAC offset by decline and monosyllables.
Consumable sales of $519 million decreased by 4%, reflecting the temporary slowdown of surgical procedures.
Sales from the equipment and other category of $155 million also declined by 3% versus prior year.
Lower sales of equipment also due to decline in surgical procedures and unfavorable comparisons and procedural eyedrops due to a competitor outage last year offset higher service revenues.
Vision care sales were up 10% and the first quarter, primarily as a result of favorable performance and our health.
Contact lens sales were $502 million up 2% over last year, primarily driven by the continued demand for our leading products dailies total one and contribution from the initial launch of precision one in the us.
This was partially offset by declines in other lenses.
I'm going to health sales of $336 million increased by 23% this quarter with approximately nine points related to pre kovats stocking activity, which should normalize over the next three quarters.
Excluding the effect of stocking activity ocular health sales grew by 14% driven by the launch of Patted day and continued strong demand for sustain.
Our successful launch hepatic day in the us and advances spring allergy season positioned to alcan as a strong leader in the us ocular allergy category.
We're pleased to be able to bring this product to the 66 million Americans suffering from high allergies.
Now moving down the income statement.
Core gross margin was 62.2% this quarter down 30 basis points year over year, primarily driven by higher sales mix from vision care.
Core operating margin was 16.6% this quarter, a 110 basis points lower versus prior year and down 60 basis points, excluding the negative impact from foreign exchange.
The margin decline was due to unfavorable mix incremental R&D investments and some provisions related to covert 19.
First quarter interest expense was $31 million up from $9 million last year.
Mainly due to higher interest expense, reflecting an increase in third party debt following the spin off.
This was slightly offset by our continued efforts to pay down some of our high interest debt and local jurisdictions.
The core effective tax rate was 16.1% this quarter compared to 16.8% last year.
The decrease in the tax rate was primarily due to a favorable geographic mix of pre tax income and discrete items, which are not expected to continue going forward.
Excluding these discrete items, our core effective tax rate would have been approximately 19%.
Core earnings per share were 45 cents down six cents from prior year, which includes an incremental four cents from interest on financial debt.
Now before I move to a discussion of April results I'll touch on a couple of cash flow and other related items.
Free cash flow for the quarter was negative $60 million compared to negative $69 million last year.
This 9 million dollar improvement is primarily related to decline in capital spending as cash flow from operations remain consistent with the first quarter last year.
Separation costs this quarter were inline with expectations of $71 million, primarily driven by investments. We expect is substantially complete our separation process. This year.
Transformation costs this quarter were $7 million, primarily related to third party consulting fees and restructuring.
As we communicated previously due to the continuing challenges of forecasting the direction of the current crisis, we have suspended our 2020 full year guidance.
Although we don't think it's prudent to try and predict the future and these uncertain times. We do appreciate the value of transparency. So I'll give you a few data points to help you frame up the second quarter.
From the demand side global sales in April were approximately 50% of internal expectations, we set at the start of the year.
With the us achieving roughly 40% and international roughly 65% of internal expectations.
The impact in the USA is greater due to widespread restrictions on cataract and refractive surgeries.
Our international business held up better due to the varying states of disruption and recovery in different countries.
From a product mix perspective about 40% of our business in April was related to surgical and approximately 60% to vision care.
We believe April will be the low point for the quarter and expect to see modest improvement in May and June assuming governments around the world continue to relax restrictions.
We are taking a variety of short term actions to help offset some of the pressures, we're seeing and the current environment.
First we are aggressively addressing our cost base, we've implemented a hiring freeze across the company and eliminated almost all travel meetings and consulting staff.
We have also eliminated a meaningful amount of sales and marketing spend.
These initiatives will result in approximately $200 million of savings in the quarter.
Second we're aligning our production schedules to help us reduce some of our raw materials and labor costs. However, given the dramatic decline in revenues in April and the fixed nature of some of our manufacturing infrastructure. We expect Q2 gross margins to be approximately 10 points lower than our internal expectations.
We also expect this to improve as revenue increases.
And third we've cut some capex projects in Q2, and we face some spend to the back half of the year and into next year.
Looking at the future, we're still committed to the long term strategic initiatives, we discussed at our capital markets day in late 2018.
We are implementing our separation activities.
We are investing in our multiyear transformation journey.
We are investing in innovation and R&D.
And we are investing in the installation of our new vision care manufacturing lines.
Like every company, we're closely monitoring our liquidity considering the current environment.
We had $745 million and cash at the end of April and a $1 billion available in our revolving credit facility.
We do not have any major maturities before 2024, and we do not have financial covenants or a material adverse change clause on either the revolver or the outstanding debt.
However, given the dynamic environment short term pressure and working capital and back end loaded strategic investments, we will continue to evaluate all of our liquidity options and assess market opportunities as they arise.
We believe that this will ensure we have the financial flexibility to keep our associates safe.
Invest on our strategic initiatives and strengthen our balance sheet as we whether these headwinds as we think about the future and a potential rebound in the markets. There are few things I'd like you to consider.
As David mentioned, we expect the path to reopening will vary based on country state and local levels.
Front health care infrastructures will also influenced the pace of market normalization.
We expect markets like the us where the majority of the surgical procedures are performed and private ambulatory surgical centers to recover faster due to the ability to flex their hours and make changes within the outpatient setting.
Other geographies like Italy, or the UK, where procedures are primarily performed in public hospitals may take longer to recover due to capacity constraints.
As such we anticipate third quarter will improve from second quarters depressed levels and by the ended the year, we will see more normalized rates in most of our geographic locations, assuming there's not another wave of a pandemic.
Fundamentally we believe vision correction is an essential need for patients and consumers of all ages and that patients cannot skip treatment without increasing potential health risks.
So to summarize Q1 was another strong quarter for Alcan as we continue to launch new innovation and demonstrated our ability to deliver sustainable growth.
As we navigate unchartered waters that moved quickly and dramatically we're laser focused on what we can control and our decisively implementing actions that protect our employees and optimize our resources, which will position us well post covert 19.
With that ill turn the call over to David for some final comments.
Thanks, Tim.
In closing I want to take a moment to thank all of our shareholders for their interest in engagement in our first annual general meeting last week.
Well, we had to alter the format of the meeting due to covert 19, we were pleased that over 70% of shares entitled to vote were represented an all board proposals were approved.
In this uncertain environment, our customer relationships decades long experience financial resources, and the unparalleled commitment of our associates give us confidence in our ability to weather today's challenges.
So I mentioned in my opening comments, we enjoy tremendously positive market fundamentals in this business I.
I don't know whether the shape of this recovery will be V shaped or U shaped or w. shaped, but what I do know is that at some point. This will end, we want to make sure that when we look back at the challenges. We overcame we can say that we did our very best to protect our ability to serve the millions of doctors patients customers and associates, who depend upon us.
By doing so we get back to doing what we do best creating products that help people see brilliantly.
Now, let's open up for questions.
Thank you we will now begin the question and answer session. You ask your question you May Press Star then one on your Touchtone phone. If you are using a speakerphone. Please pick up your handset before pressing the key to withdraw your question. Please press Star then to you.
As a reminder, please limit yourself to one question and one follow up if you have additional question you may reenter the question Q.
First question today comes from Ryan Zimmerman of BTI Ji. Please go ahead.
Thank you. Thanks for taking the question I want to ask for a couple of segments.
First on offshore holiday, 9% on stocking.
Hughes talk a little bit about the sort of impact of pattern, there and what the new normalized growth rate of this segment, maybe just considering its historical performance. It certainly was well ahead of anything you know many people's expectations.
Yes, Thanks, Ryan Let me, let me take a shot at it I think the way to think about.
Our ocular health business broadly is that we think that market, which is made up of both the tier segment and the allergy segment and basically everything at the at the Otcs shelf in the retail which includes actually contact lens care.
We think that is growing roughly in that kind of 6% range five 6% contact lens care growing net negative.
So I think we believe we're gaining share with patter day, we think we've gained a fair bit a share in this first quarter I think will.
Think about the way to think about it is it's.
Growing roughly at that 6%. Therefore, if we gain share we should grow a little bit faster than that so that's probably the best way to to kind of work through it.
Okay. That's helpful and then turn into our business Panoptix continues to be highly successful, but you did you did call manifolds declining this quarter, so I'd love to effectiveness help us understand.
Was that the result of markets moving away from monarch vocals, or do you think thats more related to the pandemic at the tail end of margin and just how to think about the model focal business in general as anything about it going forward.
Yeah, well I think the amount of focal business is a pretty good proxy for the procedures and so I think the way to think about it is as we see the data through the first quarter. We believe there was a high single digit decline in procedures.
And I think reasonably said model focal lenses would probably parallel that pretty close I think thats, what we see in the data.
There has been.
For us we over index on AI wells. So we had the benefit of two things going on one was we have a little bit less exposure than some people do to modify locals.
And the H. I will price point is so much more significant than model focals that as we grow and as we develop share in the panoptix with panoptix in the HL market, it's substantially offset any decline in the model focal business. So on a revenue basis.
No. It was quite substantial even on a unit basis I would say we grew nicely against a.
A market the declined.
As I said kind of in that high single digits.
The next question today comes from Anthony Petrone of Jefferies. Please go ahead.
Mr. Brown your line is open.
I apologize for that I was on mute.
Everyone's doing healthy and thank you for all the information.
A couple on iOS falls in and won contact lenses and you just a better flesh out.
How to think about the blended 50% in April.
Okay, all businesses specifically.
Hi, wells and contact lenses.
Through April and May be modeling out the rest of two Q and then high level in terms of.
The recovery I guess in terms of no second wave scenario.
Between for Q on Q on Q.
How much of the delta or recapture of procedures in new fits we expect to pull back in before the end of the year.
And I'll have one quick follow up thanks, well, let me let me try the second one first and then the first when there is little bit trickier.
I think our current thinking is that markets should normalize or come close to it kind of ended this year early next year and I think.
The surgical market I think we feel more confident than the vision care market doing that I think the the notion of recapturing new fits loss could take us a little longer just to kind of get out. So I think the the likely answer that again I don't think any of us knows of the caveat that way, but I would say our our current thinking is that surgical procedures will kind of get back to me.
Market sizes, we've seen historically as I said go towards the end of this year on the contact lens site. It may just take a little longer because again there is a big question on consumer confidence and frankly throughput and productivity of the independent OTI offices, depending on what is required to get people into them.
And so again I don't know the answer which is why we're a little bit cautious about it but I would say just slightly a little bit slower and maybe not quite to where we would expect it to be towards end of year may take a little longer than that.
The first one on the mix of.
Well as and contact lenses, you're typically our business is pretty well split between surgical and contact lenses, it's a little bit bigger in it is in surgical than contact lens, but I would just say that the.
The go forward for the rest of the year, we anticipate the surgical business to bounce back a little faster as I said.
And the cutting Leds versus maybe to be just a little bit shallower in its and its decline, but a little bit slower coming back.
And so maybe that gives you some direction around how we think about that the other color I'd give you is that this is happening very differently in different markets and I'm sure you know that.
But what you see in markets, where we are largely surgical say, China very different from what you'd see in Japan, which we have a more balanced business and hasn't been affected vary that much up until recently, so just the rate of.
Of reopening.
The capacity of ours the efficiency of those are ours, how fast they can turn a room and what the productivity metrics are going to be of how many surgery. You can do per day will matter a lot and then I think importantly, how how confident consumers are going back into the office going back to surgical facilities will.
Ultimately be kind of the core driver of each business, but I do think they're different I think you're going to see in the very near term a lot of patients who had been scheduled for surgery come back I think the question is is will they refill behind that and ons contact lens care are cutting Leds is I think you're going to see a little bit more of a a softer return much closer to what.
Just a normal consumer market looks like.
I'll get back in queue. Thanks, a lot.
Your next question comes from Larry Biegelsen of Wells Fargo. Please go ahead.
Good morning, Thanks for taking the question one on China, one on kind of the long term goals that you called out in the slides the first on China, David What can you talk about what you're seeing there in terms of the recovery and is that a reasonable read through to the U.S. and Europe and I had one follow up.
Yes, Hey, Larry this is Tim.
Listen as you'll recall in the and last call, though we had we said that we were at roughly 10% of internal expectations in February we assume that would carry through in March.
With steady state into Q and beyond we also assumed that we weren't going to recover any any loss sales as you fast forward now kind of three months and what we're seeing I would you say that Q1 was better than we thought.
But the recovery is taking longer than we had anticipated so.
As far as a proxy similar to what David said earlier each country is very unique really depends on what the governments are doing it depends on the private sector public sector mix how quickly people return so.
I'm not so sure I would use China as a proxy.
But like we said earlier in the statements, we saw 50% of internal expectations and globally.
And we would expect some modest improvements in in May and June.
Thanks, and then for my follow up in the slide deck, where the press release Im sorry touched about preserving the ability to pursue long term goals out could you talk about what you meant by that and as a coated push the timeline out for those long term goals. Thanks for taking the questions.
Yeah.
Larry Good question look as we've indicated it's tough to predict this year right now what we're going to what we're going to be doing kind of for this year, let alone over the longer term. So I think maybe the thing I can tell you about our longer term view is.
You know our fundamentals are strong and we've got good strong belief that cataract are not going away that those are going to come back. It's just a matter kind of when and at what pace.
And similarly myopia is is a massive epidemic right now so there's just the application being that there's going to be a lot of room long term for continued increase in contact lens, where.
The other things are really important to that as we got very good product flow. So we feel very comfortable with what the products are that we are creating and what we've got in the market, we're gaining share with those products and there's no real reason to to believe that we would stop gaining share I think at this point.
So we're also continuing to invest that I would say that look we think this is a transient situation. We think these markets will return at some point and so we're continuing to spend into R&D in the separation of the transformation to get those things done so that we basically come out of this in a very strong position to capitalize on the product flow. So look we'll we'll read.
Look at our strategic plan this summer in concert with our board as we always do.
Our intention next year is to have a capital markets day and revisit the assumptions we gave out in the original.
Discussion of our long term objectives, and if theres any update at that point will give a tier but we'll certainly tell you where we are with new products and alike. Yes. The only thing I would add to that is again, we're focused on on things that we control as well and still get to some of that preservation that you mentioned.
Our taking out costs that we thank our our prudent to take out so we're going to take out $200 million in Q2, but again not making any structural changes because we think this whole path. It's just a matter of one doesnt pass and maybe Doug just at build on that I think we.
We're going to watch this closely right. So what we're doing really is we're working this thing month by month quarter by quarter and just see with this goes because we really don't know and we'll make adjustments to it as we see it.
But we we generally believe it leads to the operating it's the operating assumption level.
At this as we said should.
Not normality end market should return roughly in that kind of end of year early next.
Thank you. There next question comes from Scott Bardo Berenberg. Please go ahead.
Yes, thanks, very much taking the questions.
Yeah, just to understand a little bit the April dynamic.
I think one of the will come pets. This call is less meditech I know, it's a slightly different business in Columbus drops, but saw something like 20, 30% revenue declines in April.
Pulling out 50%. So I wonder if you can just commented a little bit about what the difference is all that I might be just remind us how much of your contact lens business.
Based on the subscription model, whether there's anything that confirms some degree of stability to that business. If you can help us with.
So thanks, a lot on the second question just relates to thinking about.
The recovery in particularly the sensitivity.
To economic factors would you anticipate any trading down all of premium intraocular lenses more towards among the focal winner and that's going to economic environment. Thanks.
Yes, Thanks, Scott, let me try and take these on here couple of things first of all on the.
On the comparison as I wouldn't want to get to close to guessing what their business reflects.
In that particular month, because I'm just not sure I would say that we believe that we've done a pretty good job of managing this but.
The cataract business, which we have a very significant share in United States really basically shut down in April.
And so if you don't have a big exposure to the United States, which I think some of our competitors do not and you're you're more internationally base you can see the differences in our international business and the United States in the numbers. We've given you I think what you'll see is that thats, probably the bigger exposure was the United States, but again I am guessing a little bit at.
What the implication there is I don't think Theres a mix.
The big mix issue for US I think the really issue is that they're a little more narrowly focused on some different markets I.
I think on the second piece that we don't have a big subscription model.
Built into our business, although our customers do and so I would say that for people to some of our largest customers the change in particular.
Some of the online groups and some large offices they do have subscription models and they do I think.
Try and get product out to the patients and I do think thats the way the resiliency you're seeing in the in the vision care contact lens part of our business is much more about this is 80%.
Refill and 20% roughly newpark new starts I think the new starts of basically dried up during this period, particularly in April one the offices shut around the world, but I think thats the mix.
Of kind of refill to starting business that you're going to see be problematic for a while until people are willing to come back in.
And again I think there was probably a little bit of.
Yes early purchase of contact lenses and lens care in the first quarter that pulled some inventory into that piece as well that we've tried to adjust for that but I think that's what you're seeing around the market.
The the last one on the on the model focal versus eight Joe I think maybe it's quite the quite the opposite as my guess.
We've always been of the mine the consumer is willing to pay a lot more than most people think and we've done quite a little bit work with.
Seniors and what they are willing to pay for a lens that does what we said does which is give you kind of near intermediate and distance vision here. If you believe that I think that there's something on the order in our data, 50% to 60% of patients who would be willing to pay the amount of of.
Premium that is required and we know that the penetration rate globalia somewhere close to 10% a little bit less than that maybe 9% a higher in the us at 14, but the but that what that means is there's a lot of headroom for consumers to come back and pay and be willing to pay for NHL. So I I think that.
Surveying plus the notion of of.
Surgeons wanting to get back to business and try to rebuild their practices and the economics of their practices. I think gives a I think a positive opportunity for surgeons to really get involved in HR wells and obviously.
That's a high interest of ours, because we as we booked panoptix out there. We think that gives people an ideal situation, where they can see near intermediate and distance, which is a much much better outcome than that amount of local.
Your next question comes from Matt Miksic Credit Suisse. Please go ahead.
Good morning, Thanks, so much we're taking your questions.
Just to cut one on sort of the the near term trends and one on the sort of economic and sensitivity or what you're seeing maybe in terms of.
The mix of products or would you expect in terms of Mexico.
You mentioned improvements in make expected and improvements in June.
Could you talk a little bit about against any evidence that you're seeing to support that or.
Any differences, particularly in the US that then we might see regionally or.
Even though the vast majority say, but it is let's just go to 100% of these procedures are done and an outpatient setting.
The facilities themselves range from sort of Standalone centers to those tied to act academic centers in different Tetra region. So any color around any evidence or any regional variation you are seeing would be helpful and I have one follow up.
Yes, Matt let me try and give you what we're looking at to try and get to how we see the rates I mean were you'll have set right theres a lot of variables in this and that's why we're careful not to say it. Some it's got to be specifically this or that I do think it is a.
A country by country and in fact in United States State by state.
Experience, but the variables that we're continuing to look at our the rate at which elective surgery has been allowed so thats come back in most places, but not yet in some European countries for example.
The the depth of the of the shelter in place efforts that are going on in various countries. So you'll see some countries in Asia moving forward.
And some of them recently, just recently kind of having a little bit of a wobble. So I think we're we're looking at that and then looking at the U.S. and by state by state to say what is the opening rate what does the elective surgery allowed at that point.
I think that coupled with the capacity and the ownership structures of of these oh ours matters a lot because sofas. What you are to or is some of the most of the hospital systems I would say publicly owned hospital systems have less capacity as a generalization then price.
Currently held SCS, who may be operating two days, a week or three days a week, but not five days. We again if you. If you think about that they can add extra days if they choose to the other variable that you've got to remember here on particularly the surgical side is it is it's not easy under the new guidelines that are being published to turn a room. So.
I used to be able to turn a surgical suite to for the next patient clean it up move the patient out you can do it in 10 minutes 15 minutes now it could be 30 minutes to get everything cleaned out sterilized and bring another patient and if you. If that's the kind of productivity loss, we get again, we're not sure how fast that that room can turn.
And that's an issue and so we're thinking through that variable as its announced in each country and they're different market to market and then on the vision care side. What we are up the observation I think is is twofold. One is theres definitely as we start up.
Hey.
You know a procedural change for how practices are handling patients coming in the door there, they're sitting out there waiting rooms, they're taking patients slower and they are using less staff at the beginning it's taking longer and remember ophthalmology is a kind of a face to face business Optometry is right up in somebody's phase to look at their eyes.
So theres a lot of screens that are being put in place to do that theres a lot of of process change I would you say, that's going on and optometry and we're trying to try to mix that depending on the market with consumer confidence in vision care, because we kind of believe.
A lot this is going to depend on.
The consumer confidence that is.
The patient coming back to get a new new prescription is I think the existing cut Douglas, whereas come back pretty quickly, they're getting lenses largely now anyway.
We have it opens a figure out way to get lenses, nobody likes where they are glasses, when they've got to mask on because it they fog up so I think you'll find your way back for most of those patients really question is new fits and that bears significantly on precision one for example.
That's helpful and then on the and the mix side.
Yes, given that.
Due to major product launches that we look at anyway on the on the Implanter consumable side and precision one and Panoptix are both in situations is sort of share gains.
Into large kind of profitable markets in the U.S. I guess.
Is that you get similar and trying to understand is the patient mix change.
Do you get it more more 80, I welcome oriented patient or less in this environment do you think.
Does that matter.
Given that you're gaining share in that market not necessarily growing at market in 18, I often in the same kind of question.
On on precision one side and the dailies segment in the us.
The middle mid segment daily shipments in the U.S., where you're gaining share.
I guess, how should we think about any fluctuation in end markets. The appetite for deals in this environment and whether or not that affect you. Just because you are more of a share gainer and then again growing in that market segment.
Yeah, I would say that.
You know you're exactly right to both of these are share plays really for us and.
I do think that the markets are solid but.
If we take him wanted to time Panoptix to the point I made earlier I think I don't really see a big change long term in the size of the market or the growth rate of the market.
I think it's taking a little time off right now while we had sir we have centers closed and it may come back a little bit solely as those centers reopen and adjust to that the the new procedures, they're going to put in place, but I just think thats coming back as cataracts as I said Correctional go away and I feel like we're we're going to be fine with that and Panoptix, particularly United States, where it's gaining share or.
And where it's gaining share.
Is just doing terrific and I think we feel real comfortable with.
The 10 Sharepoint gain that we got in the first quarter over the fourth quarter, which was quite substantial when you look at it we did that kind of a couple of months. So right now that part of our business feel good about up precision one I look daily is broadly speaking I think gets a little bit of a boost from this it's a healthier product generally speaking people want to possible.
Way reusing lenses I think is is always been a bit of a hassle and I think optometrist generally speaking would rather have people.
With better oxygen permeability and tossing out lenses getting a fresh lens everyday so I think thats directionally right.
And that market as you know sorry, Mark as we said in this in the script. It was really largely 22% growth I mean, that's a heck of a fast growing market. So we're entering we've got a great product and GT. One we're entering precision went into that market feel good about that the the the fundamental problem with with the launch in the timing of few one is that we launched it.
Right into the teeth of this.
Of this pandemic. So there's I think we had hoped that we'd see the second quarter really take off on us and we were really well positioned for that I think coming into March when really things began to get fairly fairly slowed down and with the offices close now for couple of months, we're going to have to go back and regain that momentum so.
I do think it's going to take us a little bit longer to realize share growth in precision one that we had originally thought that is obviously.
An opportunity for us as well as we get back at it I think people will want this product, but we all get people back in the office and work on it last point I'd just make just for completeness on the cut to Glens businesses.
We're getting beat up pretty good right now on the toric business and the again that that is really much more about our inability to make those products. We've got them approved where the process of manufacturing on that we have not slowed down any of that during this this bit. So what I would say is that precision one will benefit from a toric and its near term horizon and dailies total one which.
I think is.
As a well known product well known for its material, which is fit comfort.
We're going to have a toric out by the end of the year on that one so we feel like Thats, a real opportunity for share growth as well.
Your next question comes from Veronika Dubajova of Goldman Sachs. Please go ahead.
Yes, good I'm. Good morning. Good afternoon. Thank you for taking my questions I will keep at the tail.
First I want to just follow up on the Implantables performance in the first quarter ended and David Correct Me. If my math is in cracks that.
Seems to me like you saw some pretty significant in excess of 20% growth in January and February for the Iowa franchise.
Great to understand kind of where that is coming from from a geographic perspective as well as proud activity can can share. Some initial feedback if any.
And maybe how you think that's going to be positioned going received as well as we go from here that would be helpful. I'll. That's my first question and then I have a follow up after that.
Yes Veronica.
You're not way off on the numbers there in January February we were doing quite well and we as I think the way to think about it as we were gaining we gained 10 share points in a couple two to two and a half months.
Which on an increment basis from the fourth quarter. The first quarter. So I think we ended somewhere in the U.S. around 65, I think we weren't way off of that.
In Japan, the growth is coming from Japan and us. So when you look at our geographic splits on those are markets, where we have had panoptix in for about six months and we continue to benefit should benefit until we start wrapping around on the on the numbers. So.
I think thats been the the real opportunity for US is to continue to build share in those markets.
Relative to vividly.
I think the Liberty product has been.
A positive.
Response from almost everybody Who's tried it we've we're going carefully with this one because there's been a lot of efforts made at non diffract of lenses are supposed to non refractive lenses.
And we want to make sure that we know and understand this lens really well what we're seeing is kind of what we'd hope to see which is there really isn't a significant change from model focal in.
Robert light and or kind of visual disturbances, so thats very exciting.
Most of what docs tell us as the first objection to using NHL is I don't want halos in glare and I think this looks like we've got something that gives us a model focal like profile that way.
I think its second thing that we're excited about activity is that it seems to have a pretty good.
Opportunity to make it a little simpler then a.
Some of the other PCIA wells that have been.
Got a position to as as extended up the focus I think this lens in particular has a wider landing zone or gives you a little bit more it's a little more forgiving is the way to say it means you can push it forward a little bit back maybe almost a half of diopter distance.
And you'll still get a really good 2020 distance vision and so we know the intermediate vision is excellent we have been positively impressed with the near vision.
We still need to just see a little bit more from a from the markets as to how this performance before we get real excited about it but right now I think it's an interesting product that is moving nicely with its feedback, but we again, we'll try to nurture. This one carefully because we think it as a good long term potential.
That's wrong, how corporate data and then second question I think we stayed a little prepared remarks that you might be rethinking some of the launch plan could you add back or that we should be aware I think youre looking further out anywhere I think the 2021, where the timeline with like the idling, calling on moving back.
Well, we may flip some things around in the vision care business just in terms of giving everything a fair shot I mean, we're very keen on understanding and making sure. We're a success in the U.S. with PD one so our precision one product we may decide.
To concentrate our mines in the us on that product and we May for example, launched dailies total one toric, we may launch that in Europe first when they flip that around from U.S. to Europe is pretty much a geographic split of where we're going to launch things more than anything else because frankly starting over.
Just as optometry starts up.
With precision one may not be our best positioning right there.
I think we're going to look for trying to help these practices get back on their fee and using our best product and particularly.
Where they can access 30% of the patients that they haven't been able to access right away and with something that they really do know how to use that becomes a lot more intriguing I think it a little easier as a launch trajectory.
I'd say in the us.
We're just going to concentrate our minds really on continuing the momentum of the things. We've got started but obviously precision one we've taken a little bit of a time out on consumer advertising. For example, we'll try and re reenergize that as we see it to be effective.
Importantly, we'll come back hard with precision Sarnia with the Panoptix because weve genuinely believe this is as it continues to have share growth potential in it it will want to make sure that we are a.
Getting everything we can't out of that product before we do anything else.
Thank you as a reminder, we ask that you. Please limit yourself to one question and one follow up. The next question comes from David Lewis of Morgan Stanley. Please go ahead.
Good morning, Thanks for taking the questions.
Yes, just a couple from me here, David or the just sticking to the online trencher contact lenses I wanted to share with us just.
Your online share shifts versus peers and sort of what are the implications of a market that moves increasingly online, which is sort of highly likely in a in a post coven world that a quick follow up.
Yes look where.
The online business has as definitely grown.
It's gotten significantly bigger.
During this stretch.
And you know not surprisingly.
So I would say that the online business before the co. Good thing really was pretty stable of it hadn't really grown a ton in United States, it's grown a little bit more internationally, but again I would just say was relatively stable.
So it may grow to a new level or it may fall back and I'm not 100% sure what's going to happen I do think that the.
There is going to be overtime, a significant growth of direct delivered a patient I just don't know whether thats Doc driven change driven.
Sure on online players.
Or how the manufacturers are going to play in that and we obviously are following this very closely we're trying to figure out what we want to do with this but.
I would say that I think directionally you're correct. This is going to get is bigger now we'll likely stay bigger.
I think the implication of that for US is we have historically been reluctant in in this space, particularly.
We are particularly sensitive to the independent Odysseys, who are who make a lot of revenue from the the contact lens refills and we are and they're very sensitive to the online business. So.
But I think in an Omnichannel world, which we really believe exists out there. We're just going to have to do business with everybody.
I think we will continue to think about how we do better on the E. Commerce side. So short version of that is we're a little bit under indexed in share online and the online business is growing so I think it's a concern of ours, we're paying attention to it.
And we're going to figure out what we're going to next to over the coming months.
Okay very helpful. Then David just to the conceals business, a little weaker relative to our expectations that may just be because volumes were down into it and benefit from the implantables mix, but is there any destocking to think given the consumables business and I Wonder if you just talk quickly about.
The equipment businesses and how you can be fair here on recovery. Thanks, so much.
Yes, I mean, I kind of read the conceal business is slightly different than that I mean, I would say that the.
If you look at our consumables business it should run largely with the procedures rate. If you think procedures were roughly in that down high single digits.
Globally than we were a little bit better than that I think we were down little bit in that kind of four or 5% range.
So I feel like you know we're hanging in there I think our accounts of probably we tend to be a little bit over indexed in large account. So I think that may have made a difference for us.
But I don't think theres anything to think about other than covered right. There where there is really a shutdown in it. So I think thats. The main thing going on with the consumables on the equipment side, a very different I don't know the answer to your question we've talked a lot about this one.
And it's a really good one there here's to competing theories that I can share with you and I I, just don't know which one's going to win.
I think theres no doubt that hospitals, particularly public hospitals are are going to be shorter cash. So there's not going to be a real appetite for new equipment. If they can survive on what they've got so on that one in that kind of segment I suspect that there is a negative effect on.
Business on the other hand, what we've seen in the privately owned surgery centers is that we've had kind of an influx of calls about outfitting new ours. So if you think about the o., our situation and productivity to try to get back to the number of cataracts you used to do.
And you have an o. are there is not being used parts being partially used or you just need outfit.
And the U.S. is dominantly in that situation. There is an interesting phenomenon that may occur where people are interested in trying to get their volumes back so they're going to outfit a new are so we're we're following both of those trends I don't know, which one is going to be the more dominant one I'm I'm tempted to be a little bit more skeptical of of the second one it may just be a near term phenomenon.
Be durable and I'm pretty sure that we understand the economics of the hospitals. So we'll see overtime, how that looks but I think it's a little bit tricky to to forecast right. Now so my apologies for not having a better answered now but that gives you at least the trends.
This does conclude our question and answer session I would like to turn the conference back over to David and the cost for any closing remarks.
Okay.
Yes, well listen I think.
We're really appreciate the.
Shareholders for all their interest in engagement in our first annual General meeting last weekend, we we had all to the format of the meeting due to covert 19.
But yeah, we're pleased that over 70% of the shares entitled to vote were represented and all the board proposals were approved so appreciate all the the support from from the shareholders.
In this uncertain environment, our customer relationships.
Our.
Our decades long experience in our financial resources, I think you've given us a real opportunity I think you make the most of this this experience. So what I would kind of close with is we think this is a transient situation we think that.
This will rebound and a late this year early next year, we think that cataract and our Okcular surgery business is is not a thing that you could put off indefinitely and that our contact lens business in particular.
That will be a little bit more durable, we'll come back a little bit more slowly really dependent upon new fits getting back into the office and if you believe all that I think then what you believe is our long term prospects are very solid so I want to thank everybody for their interest in will close there.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.