Q2 2023 Alcon Inc Earnings Call

Speaker 1: Greetings. Welcome to Alcon's second quarter 2023 earnings call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad.

Speaker 1: Please note this conference is being recorded. I will now turn the conference over to Dan Cravens, Vice President of Investor Relations. Thank you. You may begin. Welcome to Alcon's second quarter 2023 earnings conference call. Yesterday we issued a press release and interim financial report.

Speaker 2: and posted a supplemental slide presentation on our website to enhance today's call. You can find all these documents in the investor relations section of our website at investor.alcon.com.

Speaker 2: Joining me on today's call are David Endicott, our Chief Executive Officer, and Tim Stone-Sipher, our Chief Financial Officer. Thank you for joining us today.

Speaker 2: 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.

Speaker 2: 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 OCCON's Form 20F and our earnings press release and interim financial report.

Speaker 2: on file with the Securities Exchange Commission and available on the SEC's website at sec.gov. Non-IFRS measures used by the company may be calculated differently from and therefore may not be comparable to similarly titled measures used in other companies.

Speaker 2: These non-IFRS measures should be considered along with, but not as alternatives to the operating performance measures as prescribed for IFRS. Police see a reconciliation between our non-IFRS measures with directly comparable measures presented in accordance with IFRS and our public final.

Speaker 2: For discussion purposes, our comments on growth are expressing constant currency. In a moment, David will begin by recapping highlights from the second quarter. After his remarks, Tim will discuss our performance in Alex for the remainder of the year. Then David will wrap up and we will open the call for Q&A. With that, I will now turn the call over to our CEO , David Enicot.

Speaker 3: Thanks, Dan. Welcome to Outcomes Second Quarter, 2023 Earnings Call.

Speaker 3: Please report that we had another strong quarter with double digit sales growth of 12% for operating margin of 19.9% and cord eluded earnings of $0.69 per share.

Speaker 3: These outstanding results were driven by our competitive product portfolio, favorable market conditions, strong commercial execution, and select price increases.

Speaker 3: We also saw strong performance in Asia markets, particularly in China.

Speaker 3: And surgical are diverse portfolio and incremental innovation to deliver strong growth in a healthy market.

Speaker 3: In a planable similar to last quarter, we saw the tail end of the Korea PCI well reimbursement change, which increased out-of-pocket expenses for many Korean patients. If we exclude this impact, total in planable sales were up 5%.

Speaker 3: We have now fully lapped the reimbursement change and expect more normalized comparisons going forward.

Speaker 3: During the quarter, we introduced Viviti to select international markets, including to Canada.

Speaker 3: Feedback for surgeons has been extremely positive and we're excited to bring our patented non-difractive technology into these important markets. As a reminder, vividly, the first of its kind, Presbyopia Correcting IOL that provides patients with monofocal quality distance.

Speaker 3: but excellent intermediate and functional near vision, all with low levels of visual disturbances.

Speaker 3: With Vividi of Panoptics, we continue to lead the ATL category in the US and international.

Speaker 3: Importantly, we remain encouraged by the resilience of global HI well penetration, which was up 80 basis points versus prior year, and up 60 basis points sequentially. This growth was primarily driven by strength in international markets. As anticipated, we're starting to see more entrance in the US Iowa market, which will naturally have some impact on us given our significant share position. However, in China, where our Iowa business is under indexed, we're preparing to launch Vividi later this year, which we believe will help accelerate our share in this important market as it returns to significant growth. In the monofocus space, our Clareon material is helping us defend our market leading position. Clareon is the latest material advancement in our 20 plus year history of continuous innovation in IOLs. As the name suggests, Clareon provides exceptional clarity allowing surgeons to deliver long lasting refractive outcomes.

Speaker 3: Autonomy is designed with advancements intended to benefit most surgeons and patients. Its automated delivery mechanism and ergonomic design allow precise and simplified single-handed control of IOL placement. Now turning to equipment, we are continuing to place Centurion and Legion devices in international markets as we work through the upgrade cycle of legacy, infinity, and other machines. Centurion with ActiveCentury is designed with advanced technology to help enhance surgeon confidence with lower interocular pressure and enhanced chamber stability.

Speaker 3: Importantly, active cetry helps maintain stability in the eye by adjusting for fluctuations in interocular pressure. Our success and equipment also drives growth for consumables in three important ways. First,

Speaker 3: are growing share of the active equipment installed base naturally drives higher consumables demand. Second, a surge in productivity increase so does consumption of consumables. And third, as we install higher value machines, there's a natural ASP uplift that drives consumables value.

Speaker 3: So all these factors along with select price increases have contributed nicely to our consumables growth. Now closely linked with equipment is our world class service offering, which we believe is one of the core strengths.

Speaker 3: Service is a critical component of our portfolio and is often a key factor for healthcare professionals when selecting technology for their practices.

Speaker 3: Our ability to offer market leading technology supported by best-in-class services allows customers to fully realize the potential of Alcon's products, helping them deliver the best outcomes for their patients.

Speaker 3: Additionally, we're continuing to roll out Smart Cataract and New Practices. Smart Cataract is the first of our digital health solutions that empowers surgical practices to work more efficiently while delivering optimal outcomes for patients. Smart Cataract is the first of our digital health solutions that empowers surgical practices to work more efficiently while delivering optimal outcomes for patients.

Speaker 3: We specifically designed Smart Cataract with Ophthalmology in mind.

Speaker 3: It seamlessly connects data systems, diagnostic devices, and surgical equipment from the clinic to the operating room.

Speaker 3: This enables surgeons to make optimized recommendations that we believe will help lead to better patient outcomes. Real-world data has indicated substantial time savings and efficiencies for cataract surgery planned with Smart Cataract. We're excited to bring this technology to more practices.

Speaker 3: Now I'll turn to vision care where I continue to be pleased with our strong performance in contact lenses and ocular health. I'm going to turn to vision care where I continue to be pleased with our strong performance in contact lenses and ocular health.

Speaker 3: In contact lenses, our strategy of investing behind fast growing market segments or where we have significant share opportunities working out well.

Speaker 3: As a result, we're outpacing market growth in every category where he had launched new products.

Speaker 3: Now start with reusable lenses where our latest products are total 30 and total 30 for astigmatism.

Speaker 3: Since launching Total 30 TOREC earlier this year, we've seen an acceleration in the adoption of the Total 30 family, which is now available in the US and Europe .

Speaker 3: Later this year, we'll launch this Innovative Lens in Japan.

Speaker 3: Additionally, we'll further expand the total 30 family in the US and Europe with the launch of our multifocal modality.

Speaker 3: The reusable water gradient design of Total Therry is made possible by the introduction of our proprietary celligent technology.

Speaker 3: Selleigent mimics the oculous surface to help resist bacteria and lipid deposits.

Speaker 3: This is what enables Total 30 to provide a premium wearer experience.

Speaker 3: Similar to Davey's total one, but on a monthly platform.

Speaker 3: Now turning to daily lenses where we saw another quarter of double-digit growth, in particular I continue to be impressed by the farce-artoric lenses, including Precision One and Daily's Total One Torec.

Speaker 3: The Daily's Torque segment is the fastest growing segment of the market, as it estimated approximately one third of contact lens wears had a stigmatism, but only 10% wear Torque lenses.

Speaker 3: Together, a Precision One and Daily's Total One TORQ address the mainstream and premium market segments.

Speaker 3: A recent clinical study evaluated the performance of daily total one sphere with where it's have previously dropped out of contact lenses due to issues of comfort or dryness.

Speaker 3: This study found that approximately 90% of participants were likely to continue to wear daily total one on a daily basis. It's important because preventing wearer dropout by improving the wearer experience represents an important patient feature as well as a sizeable opportunity to conduct lens value capture for our customers.

Speaker 3: Now, turning to ocular health, we continue to see strong retail, consumer and physician interest in our portfolio of eyedrops.

Speaker 3: I'll start with sustaining our family and our official tears. A recent study examined the quality of life of high digital device users who are treated with sustained, complete, preservative free. This study found a 40% reduction in dryness symptoms and treated patients.

Speaker 3: And now with these options available in the United States, we're bringing the benefits of preservative reformulations.

Speaker 3: to even more consumers at a more accessible price point.

Speaker 3: Moving to Pat today, our family of ocular allergy drops encouragingly we're seeing more consumers appropriately select ocular allergy drops to correctly treat their allergy symptoms as a result of our direct to consumer educational efforts in the US.

Speaker 3: And in our pharmaceutical hydrops, we're continuing to build momentum behind Rocklatin and repressor with ophthalmologists and optometrists.

Speaker 3: We're seeing positive uptake of these first in class therapies with low teens total prescription volume growth in the second quarter.

Speaker 3: Finally, I'm pleased report that we're making solid progress towards resolving the supply chain challenges in Catech Lenscare.

Speaker 3: Recall that these pressures started in the second quarter of last year, so we're wrapping around on an easier comparison.

Speaker 3: And we expect the situation to continue to recover throughout the back half of the year.

Speaker 3: Now let me provide an update on our end markets.

Speaker 3: As I mentioned earlier, global ATI well penetration was up 80 basis points versus prior year and 60 basis points versus prior quarter. Notably, we're starting to see surge in productivity improve, which when combined with a patient backlog, should be an important driver of procedural growth.

Speaker 3: We continue to monitor penetration trends closely and are leveraging programs that digitally and conveniently educate patients about their lens options early in their cataract journey. We continue to monitor their lens options early in their cataract journey.

Speaker 3: On our May earnings call, we indicated that we were planning for a potential slowdown in market growth in the back half of the year.

Speaker 3: Throughout the first half of the year, global HI well-painteration was solid and contact lens trade-ups and price chapter were both robust.

Speaker 3: Given these results, we've updated our outlook for the remainder of the year and currently assume that markets grow at or above historical trends. Now with that, I'll turn over to Tim, who'll take you through our financial results and provide more color on our updated outlook.

Speaker 2: Thanks David, we're pleased to report second quarter sales of $2.4 billion, up 12% versus prior year. This growth is primarily driven by continued strength and demand for our products, including two points of contribution from acquired products, as well as solid commercial execution.

Speaker 2: particularly in international markets as we upgrade and expand our install base. In the quarter, we also saw higher revenues from equipment service. I continue to be extremely impressed by how well our manufacturing and procurement teams have navigated the ongoing supply chain challenges. Thanks to their hard work and expert teeth, we've been able to manufacture, sell, and support surgical equipment worldwide. Given the remaining install base of legacy FACO devices and our strong competitive performance, we expect solid equipment growth in the remainder of the year.

Speaker 2: During division care, second quarter sales of $1 billion were up 15%. Contact lens sales were up 10% to $594 million in the quarter. Contact lens growth was driven by our new innovations with meaningful contributions from our recent Si-high launches, including precision one sphere and torque.

Speaker 2: Total 30 sphere and torque and daily total one torque. We also saw strong contribution from price. In our regular health, second quarter sales of $426 million were up 22% year over year.

Speaker 2: And despite this pressure, we're raising our core deluded EPS guidance to $2.70 to $2.80 per share. So to summarize, I'm very pleased with our momentum in the second quarter. We continue to execute well in robust markets. And going forward, we'll remain focused on accelerating innovation, delivering above market sales growth, and driving operating leverage. Finally, I'd like to thank the entire Alcon team for another great quarter. With that, I'll turn it back to David.

Speaker 3: And again, people are going to try those lenses. They'll experiment with them. And then I suspect what they'll find over time is that the performance of our lenses do quite well. So directionally, I think we feel very good about what we've assumed. There's really a performance that is better than expected from our perspective going on right now. And you will see some trial out there, but I think after that, we should see continued steady growth in our business going forward. I do think that when you start forward on this, you want to talk and think about the penetration rates more than share. And I think for us, penetration, when you hold this much of the market matters a lot. It's probably three to one more valuable than a SharePoint.

Speaker 3: So we were very encouraged by the global penetration rate, which was up 80 basis points year over prior year and 60 sequentially. So a lot of that came out of international, most of it did, but I would just say that the volume of procedures in the US looked pretty good in the second quarter, so we feel pretty good about the prospects going forward.

Speaker 4: Excellent. Just to confirm then, David, the way we should be thinking about a bit of the softness in Q2 is really you think there's some trialing going on, but you don't see the fundamental competitive pressure in USPC-IOL. Is that fair?

Speaker 3: that we get onto a lens gives us usually four or five years on average of value. So we are really pleased with the performance of contact lenses. I think we've made some good choices around where we've entered products and the sequencing of entering products. We feel very good about our manufacturing capability right now in our ability to deliver continuously lenses in these spaces. And so...

Speaker 3: I would say we don't see anything but kind of open water in front of us. I think our view is that contact lenses, we've got two or three really unique ideas. We've got more Torix now than we've ever had. Those Torix are doing very well pulling the family of products along. So think about that as total 30 Torix pulling. Photobooth confirmed that the Kat Magic has already been replaced from May Workday.

Speaker 3: the sphere of Total30 along. Think of it as, you know, Daley's Total1 growing, you know, the sphere growing in its 10th year growing share and really because the Tauric is pulling it along and then P1 has been a terrific responder for us, continues to grow really well. So, you know, I think that plus thinking through, you know, we still have more new product flow coming in this area over the next.

Speaker 1: Our next question is from Graham Doyle with UBS. Please proceed.

Speaker 3: And are we seeing any sort of pull forward of stuff? And then just a quick follow-up back up, please. Thank you. Well, yeah, Graham, thanks for the question. We obviously are excited about our equipment business right now. It's doing really well. I think internationally, we have done a good bit better than we expected against competition. And I would say that we still have some upgrades to finish, but we're also excited about next generation equipment, which will give us a whole other era of product to revise from, which will give us some ASP uplift. It'll give some really interesting opportunities for efficiencies to the surgeons. And I think that will.

Speaker 3: drive some real value for them and for us. The white space for us really is, I would say, microscopes, biometry, and I think importantly the what we've loosely called kind of this digital movement or ecosystem where you're moving data and helping surgeons plan more efficiently

Speaker 3: from the in-office environment where you take a lot of different diagnostic tests, you put them into a planner, you move that information into the OR, and then you come back and recalculate your surgeon constant, to try and keep improving the outcomes for patients. I think the real magic in what we're going to do is integrate all of that and do it in a way that

Speaker 3: five years. So very excited about what we're doing next in equipment, but also I would just say really great quarter for us in equipment and we've had a couple years of good equipment. So you know really nice for consumables going forward. Great thanks and hope it's a quick follow-up on them on dry ion comet 2.

Speaker 5: It looks like that primary completion is sort of mid-July and typically these types of trials it could be a couple of months of data cleaning before you would have that in-house. Do you guys have to show that to us once you get it? Typically with other companies and similar phase two trials that has been the case.

Speaker 3: I know you've kind of insinuated it would be more like a Q124 data sharing with the markets. Can you just give us an update on that, please? Yeah, we have actually three studies going on right now, and they're all kind of sequentially finishing over the next, I would say, six months or five months, let's just say. Most of that data, I think, finishes late this year, maybe early next year.

Speaker 3: And once we have it in hand and can look at it, we'll obviously report out what we've got.

Speaker 3: in hand and can look at it, we'll obviously report out what we've got. Thanks a lot guys.

Speaker 6: Good morning and thanks for taking the question, David and Tim, and congrats on the results. Just want to ask a couple following up on the ATiOL space. You guys have laid out and showed investors what you're working on in adjustables and accommodative lenses in the market, or excuse me, what you're working on. Given what we're seeing in the market in the U.S., David, I'm wondering, what are you seeing in the market in the U.S.?

Speaker 3: Yeah, we're not in a position right now where we want to lay out exactly when we're coming with adjustable and accommodative. As we said at Capital Markets Day, it's late in the plan, it's just slightly outside the plan. So it's going to be a while for us to get what we think is a market ready product. And I would say, the view we have, of course, is that we've got some terrific lenses with Penop.

Speaker 3: that are kind of working through some of these similar kind of adjustability ideas. But as you know, we haven't really figured out whether those are really kind of just niche ideas or whether they're really durable. My sense of it is that we'll find that out over the next coming years. But directionally, nobody's really working on the combination of a combative and adjustable like we are.

Speaker 3: And I think we've probably got the right idea, but it's going to take some time I think over over the next I would say three or four years the real magic is going to be in Getting the diagnostics and getting the procedure You know tuned in a way that really performs And I think that's very likely to happen with our equipment and our lenses. I think we've got a very good combination of

Speaker 6: of things that will move the market along in the PCIOL area. Okay, fair enough. And then on guidance for Tim, you know, first half revenue and guidance implies essentially no growth in second half 23 despite seasonality. And then at the midpoint, it'd be a little bit of a decline, I believe.

Speaker 2: on revenue and so Tim, just wondering kind of what your thoughts are there, you know, if you look at sort of the first half.

Speaker 2: Asia ran a little bit hot, particularly China. So we'll see how that plays out over the course of the year. But we're tracking pretty close to those historical trends. So I would plan on that. And as we gave the guidance, I think we're treading towards the higher end.

Speaker 5: Our next question is from Daniel Bootea with ZKB. Please proceed. Yes, thank you very much. Maybe the first question on margin-facing, or simply, you would like to give a bit of an update on what to expect.

Speaker 5: If we say for the second half now, I mean, if I understood you correctly, at the top line level then for the rest of the year should be relatively neutral. Finally, after one and a half painful years is desired to assume also then for margins that FX is not a headwind anymore. And how is it with other cost items like R&D, like marketing spend and other topics like that? And then maybe the second,

Speaker 5: high announcements or can we expect this to fade off for the rest of the year and then 2024 only a minimal spillover effect on the pricing side. Thank you very much.

Speaker 2: yeah uh... i'll handle the margin one of the past of the pricing to david uh... as far as margins go in the second half uh... they will be a little bit depressed and that's primarily driven by gross margin uh... so as we said the prepared remarks uh... our second half gross margin will be a little bit lower than first half and that's primarily driven by the fact

Speaker 2: that we are going to be having higher cost inventory flow through the P&L. So when you think about the cycle from when we buy the inventory versus when it runs through the P&L, it takes about six months. So we had inflationary pressures obviously towards the end of last year, beginning of this year. That inventory will start flowing through in the second half.

Speaker 2: We're going to continue to get SQ&A leverage. We're going to continue to invest in R&D. You're going to see that heavier spend related to the area acquisition that you saw in the first half. So, but overall, we would expect gross margins to be higher year over year.

Speaker 2: And we feel very comfortable with the 19 and a half, the 20 and a half percent margin rate that we guided at the beginning of the year. And Dan is just on price increases. Yeah, we had announced a price increase, I think in May, June . And that's where we are right now. I think going forward will evaluate what price looks like and what inflation looks like.

Speaker 1: Our next question is from Antideed Pichron with Mazevo Group. Please proceed.

Speaker 7: Thanks for taking a question and good morning. Let me start off with Dave, just on the surgical backlog you mentioned in the prepared remarks. Just wondering how deep or how extensive that is as we sit here today and can it be a driver well into...

Speaker 7: 2024 and a quick follow up there would be just on not necessarily competition But the patient choice between monofocal and premium are there any kind of You know changing characteristics just from a spend level from those patients and I'll have one quick margin follow up for Tim

Speaker 3: Yeah, I think, um, directionally, you know, it is interesting to watch the surgical backlog. You know, we, we've talked about it for a number of years now, just because of the COVID, you know, miss. And there was, you know, you know, millions of procedures X, XUS, there's probably a million plus in the US that were either delayed or avoided. I think it's been our view and it continues to be, you know, our view that.

Speaker 3: you know a view that you know you can you know whatever the historical growth right was let's call it you know uh... three-ish percent two to three percent the u.s. you're gonna see something a little bit warmer than that you know for an extended period of time because there isn't really capacity to bring up a whole bunch of people through in one bowl this or something it's really gonna be you know getting patients back in the office getting the surgery centers up and running

Speaker 3: outfitting additional hours getting staff trained uh... and moving that way that's really uh... i think a durable idea of you know probably for several years i think between model of premium you know we continue to believe that that if given the right understanding the headroom in this is quite large you know we think there's you know kind of in that thirty to forty percent of patients you know should be

Speaker 3: you know, interested in or are interested in at a price and advanced technology lens because it gives them, you know, freedom from spectacles, it gives them reading, gives them really good intermediate. And our lens is obviously the preferred choice and continue to be in the US. So we're very comfortable that that is gonna continue on. I do think that what's nice to see is

Speaker 3: Some of the staffing in the offices is improving. And so in the back half of the year, we're hopeful that we'll see long-term penetration continue to move forward. And I would just say 50 basis points in the US would be a good number. That's certainly what we think about. Outside the US, I think it could do a little better than that, because it starts from...

Speaker 3: you know, lower level at, you know, kind of 12%. But again, you know, we benefit a great deal from the penetration moving up. And we again, we're encouraged by what we see.

Speaker 7: And just quick, for Kim, an update on the DSM flex lines, just when will those be complete? And any thoughts on a margin uplift over time from that effort? Thanks again.

Speaker 2: Yeah, nothing really different from what we talked about at Capital Market today. We've got some more lines going in next year. I'd say next year is sort of our next our last kind of big installation phase, if you will. And then as you get to the kind of the 25, 26 time frame.

Speaker 2: It's more of just kind of keeping pace with what we think the expected demand would be. But no significant changes from what we talked about at Capital Market today. Thank you. Our next question is from Larry Pagelsen with Wells Fargo, please proceed.

Speaker 8: Good morning, thanks for taking the question. Quick one for Tim, and then I had to follow up. On the operating margins, Tim were higher in Q3, than Q4, in both 2021 and 2022. Should we expect a similar dynamic this year, and I had one follow up. Thank you.

Speaker 2: Yeah, like I said, we're gonna have a little different dynamic than what we've had historically because of that inflation. So it takes six months to work that inventory through. So, you know, I would just take your first half actuals and peg whatever you think you were gonna be in that 19 and a half to 20 and a half range and I sort of model it that way. Got it.

Speaker 8: And then David on, on Aerie, it looks like, you know, it's 100% clear, but it looks like revenues were down, quarter over quarter. I heard you talk about the teams, I think total prescription growth. Could you give us an update on how Aerie's doing, kind of the revenues on a year-to-year basis, and just an update on your appetite for M&A, and if you're still focused on, you know, far more. Thank you.

Speaker 3: Yeah, actually, now I raised up year over year and TRX is up year over year and shares doing pretty much exactly what we thought. So we feel very good about what's going on there. I think if you look to the TRX's in particular, that's probably your best indicator of how we're doing and that's all of the data you can find.

Speaker 3: I think, directionally, we continue to be interested in it, but we're not anxious about it. We'll be very disciplined going forward about RX, but I do think I drop as a business that we know well. We're good at and we'll continue to kind of, overtime, add things into that portfolio, either internally or externally through, our own efforts with the ARID group, which we're excited about. For example, AR512, we'll see how that does.

Speaker 3: But I think, directly beyond that, we can come up with some other good ideas that I think adds some real value, both, I guess, organically and externally.

Speaker 3: Thanks very much for taking the questions. I know it's a little late in the call, but just wanted to ask at a high level, if you could walk through a couple of the factors that led to a change in your view of what the market looks like going into the second half, what really changed incrementally in a three-month period that gives you more confidence that recent trends can be sustained for the rest of the year? Well, Matt, I think it's really just the underlying fundamentals on, for example, productivity per machine that we're seeing in surgical. We keep a pretty good eye on what the throughput in ORs is, and we can see that pretty visibly because we have a...

Speaker 3: a very large share of the cataract equipment. And so we saw more, we certainly have been growing our footprints. We're growing equipment share on the ground. But we're also, we monitor how many procedures per machine is going on. And we're seeing an uplift in that metric. And so directionally, I think what you're seeing is what we had hoped for, which was staffing improving. And I think directionally ORs.

Speaker 3: getting back to work and that has been, you know, what we've been kind of counting on. I think we see a little bit of that on the surgical side. And on the consumer side, you know, we've seen a steady movement of a mix return. I think our underlying demand by patient volumes is solid. And, you know, we were worried in the first half, you know, if you go back a ways, we didn't see, you know, kind of through the...

Speaker 3: that you know probably anything that happens even if it was a macro change is manageable inside of the guidance we just gave you. So you know we're trending towards a high end of it and you know assuming that things kind of continue on you know we should be in a really nice spot. So I think I don't really see anything right now on the horizon that we should be particularly concerned about affecting demand.

Speaker 2: at the market level. Great. And then just as one quick follow up on contact lenses, just curious if you could provide a brief update on how you're currently thinking about the launch of Precision 7. And maybe just touch on some of the feedback you've gotten from Optometrist ahead of that product launch. Thanks very much.

Speaker 3: Yeah, thanks. You know, we'll get more into Precision 7 probably next year. We're certainly not going to launch it this year. We're trying to give room for the success that we're having with the existing products. So of course we've got a sales force is all over the world right now promoting a lot of products and so there is a bit of a capacity and timing question around this one.

Speaker 3: By capacity, I only mean Salesforce capacity. We can make plenty of this. But I do think the basic proposition is really interesting, which is a lot of optometrist tell us that a one-week regimen is a more intuitive regimen than a one-month regimen because people forget that they're overware, they do a number of things. But

Speaker 3: getting a clean lens once a week on a Monday, you know, just makes a whole lot of difference, I think, in the way people wear this lens and also the comfort of a reusable lens. So, there's a combination of price point, which is a little bit better than your daily's product and a little bit, you know, more expensive than a monthly, but way more intuitive and way better for you in a...

Speaker 3: and a more comfortable feel. So I think the proposition of Precision7 will be nicely positioned, I think, between dailies lenses and monthly lenses. And we know that really still 50% or more, almost 60% of the patients are still in reusable wear. So they're in a monthly or two week lens. And so we're trying to access that volume.

Speaker 3: by bringing precision seven to market. So we're very excited about the product. We're continuing to collect data on it to make sure that we have a data package that will be compelling. But I think, think about this as a kind of next year idea, maybe late next year. We haven't really settled in yet on what our timing looks like.

Speaker 1: Our next question is from Jeff Johnson with Baird, please proceed.

Speaker 7: Thank you, good morning guys. And David, I wanted to go back to maybe the first question of Q&A just on the IOL comment you made on the US market. You know, I think Veronica asked, I'm PCIOLs. You kind of answered on TORC IOLs. We get in a dress, monopopalial IOLs. So maybe across those three categories. Can I just make sure I'm understanding what you're saying on kind of the new market entrance and kind of where you're seeing stability or not in your share across PCIOLs TORC.

Speaker 3: Yeah, well share was, you know, was off a little bit, but PCI well share was pretty stable. So most of the action was in TORIC. And, you know, again, there's a couple of new entrants, three actually, I think, if you think about it, you're on year in that space. And, you know, people are gonna try those lenses. You know, one of them has got a very low price point. You know, one of them is making claims, you know, that I think are, will bear out to be, you know, a little more complicated than said.

Speaker 3: And then another one is kind of a, I think, a niche product for complicated patients. And so I think that will bear out over time, but you know, you got to live with these things as we try and go into markets all the time. You know, we knew there'd be some pressure here, but directionally, we're holding up really well.

Speaker 7: Yeah, now that's very clear and very helpful. Thank you. And then just on China, it seems like there's maybe a little clarity starting to emerge on VBP for next year. I know you get that question a ton and you're probably tired of that question. But just kind of how should we be thinking about the early year versus maybe the volume recovery and back half of next year, just any kind of early phase in earth boss we should be thinking about China VBP next year on here in Plano. Well, there's no thanks.

Speaker 3: Yeah, look, I mean we sat out VBP, you know, really the last time through, so we did not, you know, VBP for China is going to be IOLs and OVD, and so the opportunity for us is to participate. I don't know whether we will or not. We'll find out as we kind of get closer to this as to...

Speaker 3: how we see it, but it really isn't a big deal to us because we didn't participate last time. So there is really no downside to us. There is, we see kind of trying to really as an equipment opportunity, durably, if we can get our consumables business growing, there remember, consumables are our biggest business by a lot. And so, we see consumables,

Speaker 3: as the way through China equipment in particular is a real strength of ours there. Those are not gonna be in VBP. So I think the way to think about China is, A, it's 4% of our business, so relatively small versus some other people's B, our IOLs are not in the VBP win column right now. So we don't have much to lose in terms of pricing or volume there.

Speaker 3: and see we're kind of thinking a lot about equipment and how we move forward in

Speaker 3: You know, obviously, when you kind of look at the ATI well business broadly, penetration is growing globally. We think that's a big deal. Because, you know, I think 80 basis points up this year, mostly internationally, is a good sign around the economy. And I think directionally, the US is, you got to remember the US, you know, grew from I think 14 to 19 over about three or four years. So it really has accelerated quickly. We did a lot of that work with Panoptix and Viviti. So those are really what's driving those two brands are what's driving the ATI market right now. And, you know, so if it takes a little breather during this, you know, kind of COVID hangover, we're not super surprised about that. We've been talking about it for a while.

Speaker 3: I suspect it will come back into what's a much more normal frame historically 50 basis points a year, that kind of thing in the US. And look for international to really be the driver of HIL penetration because it's starting right now, you know, around 12. It probably has got a lot more room to grow. And there are some really interesting markets. We talked about China and the prepared remarks because it's a fairly low penetration rate and we're just getting in there now with the right products. So.

Speaker 3: We'll see how that takes shape on this next year. Thanks very much. Our final question is from Chris Hitler with Credence List. Please proceed. Thank you operator. Hi, David. I'm Tim.

Speaker 9: driven by the improved market assessment and to what degree is it to you know outcome specific factors and then related to that you know um you know why was there no um increase in margin guidance given you know the stronger top line one obviously would have expected you know um some leverage with these higher season could you maybe discuss that quickly thank you

Speaker 3: and contact lenses as you look at well and frankly our our eye drops business those have all been over performing relative to expectations for us you know I think implantable is right on pretty much what we expected so I think directionally we're doing better in you know all cases you know for our business than expected but the market is also improved so

Speaker 3: You know, I think we had concerns in the beginning of the year, as everyone did really, about what was going to happen with the consumer. The consumer has been relatively robust in most markets. And I think as we look out through the remainder of this year, I think we can confidently say there's probably not much that's going to happen, you know, timing-wise for us to is interesting.

Speaker 2: have for the rest this year that's going to affect us much more. So markets look solid, a little bit better than expected, performance a little bit better than expected. Yeah and as far as the margin rate, it's really driven by FX. I mean if you look at the rates as of the end of July and compare them to when we last spoke, the dollar has continued to appreciate.

Speaker 2: So that's really what's driving the pressure on the margin rate, which is why we didn't increase it. But again, we're still comfortable with that 19.5 to 20.5 range.

Speaker 9: Okay, and then on the follow-up, you know, on China, you broke out about the four percentage point contribution in consumables, you know, from China. Is that, you know, kind of just, you know, COVID recovery effect or would you expect, you know, kind of a more of a structural kind of element to that as the year progresses?

Speaker 3: Thank you for taking the questions. Well, the 4% for 4% points just to be clear is it the revenue percentage of our total revenue just to kind of size China for you. So many companies have much larger exposure to China than we do. So it's reason to give you that number. I think directionally China is an opportunity for us. We see it that way.

Speaker 3: But largely as a matter of equipment and consumables going forward, we certainly sell implantables there and we see an opportunity there. But directionally, we're very interested in what's happening in the market. The market itself is wrapping around a pretty big COVID number. So I think to your point, we had a big growth in China this particular quarter because

Speaker 3: It was a pretty soft year last year. So I think a combination of what picked up in, really picked up in China, started in kind of late February , really March, April , May, has been very solid for us. We hope that continues. Okay, yeah, I was more referring to the

Speaker 9: 4% contribution to consumable sales growth from China, as you mentioned on your earnings release. But I guess you're covering it for some reason. Thanks.

We have reached the end of our question and answer session. I would like to turn the conference back over to Dan Crevens for closing remarks. Great. Thanks, everybody, for joining us this morning. If you have any follow-up questions, certainly reach out to either Alan or myself in investor relations.

Part 8