Alcon Inc Q3 FY2023 Earnings Call

Greetings and welcome to the Alcon Third Quarter 2023 Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Dan Cravens, Vice President and Global Head, Investor Relations. Thank you, Dan. You may begin.

Welcome to Alcon's third quarter 2023 earnings conference call. Yesterday, we issued a press release and interim financial report 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. Joining me on today's call are David Endicott, our 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 Alcon’s Form 20-F and our earnings press release and interim financial report on file with the SEC and available on the SEC's website at sec.gov. Non-IFRS financial measures used by the company may be calculated differently from and therefore may not be comparable to similarly titled measures used in other companies. These non-IFRS financial measures should be considered along with but not as alternatives to the operating performance measures as prescribed by IFRS. Please see a reconciliation between our non-IFRS measures with directly comparable measures presented in accordance with IFRS in our public filings. For discussion purposes, our comments on growth are expressed in constant currency. In a moment, David will begin by recapping highlights from the third quarter. After his remarks, Tim will discuss our performance and outlook for the remainder of the year. Then David will wrap up and we'll open a call for Q&A. With that, I will now turn the call over to our CEO, David Endicott.

Thanks, Dan. Welcome to Alcon's third quarter 2023 earnings call. I'm pleased to report another strong quarter with sales growth of 9%, core operating margin of 19.5%, and core diluted earnings of $0.66 per share. These great results were driven by international markets in Surgical and global strength across the portfolio of Vision Care as we continue to outgrow our markets. As we look across the industry, we're beginning to see market growth rates return to historical levels of mid-single digits, and Alcon continues to outpace the market in nearly every category. Let me start with Surgical. Implantables, our technology continues to lead the market. Globally, one out of every three IOLs implanted is done with an Alcon lens. In premium lenses, the statistic is even more impressive with one out of two ATIOLs being an Alcon product. Our flagship lenses, Vivity and PanOptix continue to lead the category in the US and around the world. Additionally, we're continuing to expand in areas where we have opportunities to grow share, such as China. We continue to be encouraged by the resilience of ATI well penetration. Notably, global penetration was up 120 basis points versus prior year and up 30 basis points sequentially driven by international markets and in particular China where we are under-indexed, which accounted for almost half of the growth year-over-year. In surgical glaucoma, our customers continue to be impressed by the Hydrus Microstent. Hydrus is the first and only MIGS device to report significant outcomes from a pivotal trial at five years. These results show that Hydrus offers long-term glaucoma medication reduction, reduction of secondary surgery, and reduction of intraocular pressure. These are important factors for both quality of life and payer economics. And in the US, after reductions in reimbursement for other glaucoma procedures, reimbursement for Hydrus remains favorable. Now I'll discuss our expanding equipment footprint. Similar to the last few quarters, we're continuing to see strong demand for our CENTURION and LEGION phaco machines in international markets as we work through the upgrade cycle. In the US, which has already gone through the upgrade cycle and is largely on the CENTURION platform, we continue to see strong interest for innovations like ACTIVE SENTRY handpiece. Additionally, we continue to see success in consumables. Consumables are a large and important part of our business as they represent a durable and recurring stream of cash flows. From dedicated items like our Fluidics Management System to our Custom Paks, Alcon consumables have an important role throughout the procedural journey. Additionally, as Custom Paks are individually customized by practice, procedure, surgeon, and sequence, they drive efficiencies in the clinic and the operating room. We're enhancing our equipment offering with digital innovation to create a connected ecosystem. At the recent American Academy of Ophthalmology conference, we announced US commercial availability of SMARTCataract. With SMARTCataract, practices can link data systems and diagnostic devices in the clinic with equipment in the OR. SMARTCataract has demonstrated significant time savings during the cataract workflow with almost 14 minutes per case saved versus traditional methods for certain patients. We continue to receive positive surgeon feedback as the product has started its official rollout. Now I’ll turn to Vision Care where we had another quarter of strong performance in both contact lenses and ocular health. In contact lenses, we're seeing strong interest for our specialty lenses, including multifocals and torics. These are large, fast-growing markets that have historically been underserved by innovation. We've launched several new products in these categories, which are quickly becoming a favorite of eye care professionals and their patients. Our most recent launch is Total30 multifocal, which we introduced early in the fourth quarter of this year. Multifocals represent an important opportunity for us as many wearers drop out of contact lenses after the age of 40 due to dry eye, discomfort, and visual acuity issues. The multifocal market is valued at over a billion dollars globally and growing double digits. This lens is uniquely positioned as it offers our premium water gradient innovation at a more accessible price point. It's also the first and only monthly water gradient multifocal lens that provides excellent visual acuity at all distances. For eye care professionals, this lens leverages Alcon's proven Precision profile design, which delivers a 96% fit success. The multifocal modality completes the expanding Total30 family, which also includes a sphere and toric lens. Now, we're also seeing strong uptake of our specialty daily lenses, including DAILIES Total1 Toric, DAILIES Total1 Multifocal, and Precision1 Toric. Even after more than a decade in the market, the DAILIES Total1 family remains the gold standard in wearer comfort. Clinical studies showcased at the recent American Academy of Optometry meeting illustrated the performance of the DAILIES Total1 family. In particular, these studies showed that most contact lens dropouts who are refit into DAILIES Total1 could become successful contact lens wearers and that comfort was improved in astigmatic patients who switched to DAILIES Total1 Toric. Now let me move to Precision1, which is our fastest-growing contact lens brand. As a reminder, Precision1 was designed to address wearer dropout by providing precise vision, long-lasting comfort, and ease of handling. Precision1 Toric brings these benefits to mainstream astigmatic wearers. And for eye care professionals, clinical studies show that the lens settles in less than 60 seconds for a 99% first-fit success rate. These types of innovations are a testament to our dedication to helping eye care professionals modernize their practices with leading technology to better serve the needs of their patients. Now, as we look to our ocular health business, we continue to see strong demand for our portfolio of eye drops. Driven by our multi-dose preservative-free formulations, SYSTANE continues to grow globally. Since 2021, we've launched the MDPF in more than 40 markets, and we continue to see favorable customer response. In the US, only about 25% of the fast-growing artificial tears market is in the preservative-free category compared to more than 50% in some European markets. With multi-dose formulations, we're seeing the US preservative-free category expand, where 1 point of growth represents almost $9 million of revenue for Alcon. Moving to ocular allergies, we continue to see strong retail and consumer interest in our Pataday brand family, especially Pataday Extra Strength. The convenience of a prescription strength allergy product available over the counter is appealing to consumers. In our pharmaceutical eye drops business, we continue to be pleased with Rocklatan and Rhopressa. In particular, Rocklatan continues to perform well with low teens total RX growth year to date. Lastly, in contact lens care, I'm pleased to report that the recovery of supply is largely complete. While we still have work to do to fully recapture lost customers, we're happy that this issue is behind us. Now I'll provide an update on our end markets. In Surgical, global cataract procedures were up approximately mid-single digits in the third quarter versus prior year. In contact lenses, retail market value was also up mid-single digits. Similar to last quarter, we saw a steady wearer trade-up and meaningful contribution from price. For the year, we continue to expect eye care markets to grow at or above historical levels. Now, before I pass it to Tim, I want to comment on how saddened we were by the recent passing of Matt Mishan, who covered Alcon at Keybanc. Matt was an asset to his organization, a pleasure to work with him, and our thoughts and sympathies go out to his loved ones. With that, I'll turn it over to Tim, who will take you through our financial results and provide more color on our outlook.

Thanks, David. We're pleased to report third quarter sales of $2.3 billion, up 9% versus prior year, including approximately 2 points of contribution from products acquired in 2022. We also saw favorable pricing in the quarter. Our third quarter US dollar sales growth included approximately 100 basis points of pressure from foreign currency. In our Surgical franchise, revenue was up 6% year-over-year to $1.3 billion. Implantable sales were $401 million in the quarter, up 5% year-over-year, mainly driven by demand for Vivity, our non-diffractive advanced technology IOL, in international markets. In consumables, our third quarter sales were up 7% to $661 million. In the quarter, we saw strong demand for cataract and vitrectomy consumables, particularly in international markets, as well as price increases. In equipment, sales of $214 million were up 5% year-over-year and reflect growth over a strong base due to the strength of equipment sales last year. Sales were driven by double-digit growth in international markets due to the ongoing upgrade cycle that we've seen all year. Sales in the US were broadly in line with the prior year as most surgical centers are already on the CENTURION platform. Given the remaining installed base of legacy phaco machines in international markets and our strong competitive performance, we continue to expect solid global equipment growth for the full year. Turning to Vision Care, third quarter sales of $1 billion were up 13%. Contact lens sales were up 9% to $612 million in the quarter. As David mentioned, our product innovation, including our toric lenses, continues to win in the market. In the quarter, we saw solid growth contribution from Precision1, Total30, and DAILIES Total1 for astigmatism, which were partially offset by declines in legacy contact lens brands. We also saw a strong contribution from price increases. In ocular health, third quarter sales of $415 million were up 20% year-over-year. This growth was driven by our portfolio of eye drops and price increases. Approximately 11 points of ocular health growth in the quarter were from products acquired in 2022, including Rocklatan and Rhopressa. Now moving down the income statement. Third quarter core gross margin was 63.4%, up 210 basis points. This improvement was driven by higher sales, price, and manufacturing efficiencies from higher volumes. This growth was partially offset by inflationary pressures. We continue to expect gross margin to be pressured in the coming quarters as we sell inventory that was manufactured at a higher cost base due to inflation. For full year 2023, we continue to expect gross margin to improve versus last year. Core operating margin was 19.5%, up 350 basis points. The growth was mainly driven by higher gross margin and improved underlying operating leverage from higher sales, partially offset by higher investment in R&D, including higher spend following the acquisition of Aerie. Third quarter interest expense was $47 million, compared to $34 million last year, driven by higher debt following the funding of the Aerie acquisition and less favorable interest rates. The third quarter average core tax rate was 17.2% compared to 19.2% last year. The lower tax rate in the third quarter of 2023 is primarily due to the mix of pre-tax income across tax jurisdictions and the impact of discrete tax items. Core diluted earnings were $0.66 per share in the quarter, up 41% from last year. These strong results are another proof point that we are able to drive continued earnings growth through sustained operating leverage. Before I touch on our outlook for the remainder of the year, I'll discuss a few cash flow and other related items. Free cash flow for the first nine months of the year was $592 million compared to $475 million for the first nine months of 2022. The improvement versus 2022 reflects an increase in cash flows from operations and lower capital expenditures. Similar to prior years, we expect to see a significant increase in CapEx in the fourth quarter. Transformation costs were $30 million in the quarter and $370 million to date. I'm proud of how well the team has executed this program. We've exceeded our savings target, which has enabled us to invest into R&D, grow the top line, and expand margins through operating leverage. We continue to expect to wrap up the entire program on budget and on time by the end of the year. Now moving to the 2023 guidance. Our current outlook assumes that markets grow at or above historical averages for the year. Exchange rates as of the end of October hold through year-end. And inflation and supply chain challenges continue. Based on the strong results in the quarter and first nine months of the year, we are tightening our year-over-year constant currency sales growth guidance to 10% to 11% for the year. This growth was partially offset by the continuing appreciation of the US dollar against our basket of currencies, which we expect to pressure our 2023 sales growth by approximately 200 basis points. Due to this increased pressure, we are updating our US dollar net sales guidance range for 2023 of $9.3 billion to $9.4 billion. Moving to core operating margin, we are maintaining the range of our full-year outlook of 19.5% to 20.5% despite approximately 120 basis points of FX headwind versus prior year. We now expect interest and other financial expense to be between $215 million and $225 million. We are maintaining our core effective tax rate guidance of 17% to 19%. And finally, we're raising our core diluted EPS constant currency growth outlook to 31% to 33% due to the strong performance in the first nine months of the year. This growth was offset by approximately $0.25 of FX headwind versus prior year, which represents an incremental $0.07 since our last earnings call. Due to this pressure, we're also updating our full-year core diluted earnings guidance range to $2.70 to $2.75 per share. And finally, while we don't speculate on currency movements, using exchange rates as of the end of October would yield approximately $0.20 of year-over-year pressure on 2024 core diluted EPS. To wrap up, I continue to be very pleased with the strong operational performance by our team. We're ending the year with great momentum and look forward to the year ahead.

Thanks, Tim. To conclude my remarks, we're pleased with our strong results for the third quarter. And as I sit here in November, I'm proud of all that the team has accomplished. Year to date, we've grown faster than the market in nearly every category. We've expanded core operating margin by 250 basis points. We've generated approximately $600 million in free cash flow, and we've grown core diluted earnings per share by approximately 20%, all while navigating significant foreign exchange, inflation, and a challenging geopolitical environment. And we have a lot of momentum as we move into 2024, and we're excited about the future. We remain focused on accelerating innovation and continuing to grow sales faster than the market and driving earnings through operating leverage. We're confident that our strategy will position us to deliver long-term growth and create significant value for shareholders. Finally, I want to thank our teams around the world for their commitment to our customers and their patience and dedication to helping the world see brilliantly. With that, operator, let's open up the call for Q&A.

Thank you. We'll now be conducting a question-and-answer session. Our first question is from Patrick Wood with Morgan Stanley. Please proceed with your question.

Amazing. Thank you so much for taking the questions. So the first one, a bit of a specific one that I'm curious, your ORA system, ORA, how well spread out is that, do you think, amongst clinics, whether it's in the US or outside the US, how much more growth is there to go there? And given the pricing structure of that and how that's connected to IOLs, how much do you think that helps you protect your market share across all IOL modalities over time, given the cost to clinics if they end up switching?

Thank you for the question. The ORA system is primarily used in the US, though we have a small presence in Japan. We offer a variety of services with our equipment, which appeals to ophthalmologists and surgeons. We have access to the ORA that others may not have. However, I don't believe there's anything significant preventing our products from being utilized there. The ORA is an excellent outcome system, particularly for intraoperative aberrometry, which is crucial for achieving better results, and that’s how we present it.

That makes complete sense. Then a quick follow-up, please. On Hydrus, you obviously touched on the reimbursement challenges that I guess some of your peers face in the US. How should we think from your perspective going forward about how that market evolves when we think about MIGS and the share of the relevant players? Thanks.

Well, we continue to grow share in the MIGS space as we look at it. I think the stent business in particular has been very stable in reimbursement, and I think in this particular moment, that has been a comfort to surgeons, because I think they can predictably understand what they're going to get reimbursed and how that's going to play. I do think the big story here is that five years of data is very powerful and I don't think there's anybody else who's been able to show the kind of differences that we've shown in visual field loss and also in preventing visual field loss, in IOP reduction, in saving medications or preventing additional surgeries. What we're trying to get around the world really is a reimbursement understanding of how powerful that is and how much money we're saving the system. So work to be done there for sure. But I do think that we have some really exciting data that has been presented, continues to be well understood, and we're seeing nice progress there.

Thank you. Our next question is from Veronika Dubajova with Citi. Please proceed with your question.

Excellent. Hey guys, good morning and thank you for taking my questions. I also have two. First, I'm hoping that you could comment on the sort of volume dynamics in the cataract phase. I think, David, when you reported CT, you had expressed some hope and optimism that we might see some continued efficiency and throughput gains among surgeons, in particular in the US. It was notably absent from your prepared remarks this morning. I noticed in the press release you called out strength in international and surgical, but not really in the US. Just curious what happened in the US market in the third quarter from a sort of surgical perspective? And maybe if you can also briefly comment on those competitive pressures you were seeing in toric, ATIOLs and whether those have persisted? That's my first question, please.

Thank you, Veronika. Overall, the markets have shown resilience, maintaining mid-single digit growth. It was 4% globally and 2% in the US, which confirms your assessment. International markets performed better, while the US faced a challenging comparison coming off a strong third quarter last year, resulting in 2% growth. We were particularly pleased with our performance in implantables; our total market share in the US increased compared to last year, as did our shares in monofocal and PCIOL products. Although our sequential toric share is still under development, it decreased slightly year-over-year. Personally, I believe we are moving past the initial trial phase that often accompanies new product launches and are approaching a more stable environment focused on increasing our US ATI well penetration. On that note, ATI well penetration remains relatively flat, which we anticipated after several years of growth followed by a pause that has lasted most of this year. We project a 50 basis point improvement from the US. However, internationally, we experienced a strong growth of over 120 basis points, with more than half coming from China, driven largely by emerging markets. To sum it up, the US showed solid share performance this quarter, although the market was somewhat softer than anticipated. Nevertheless, we are optimistic that the market will grow slightly above historical rates, which have been around 3% in the US, and we expect even better performance internationally. I hope this provides the clarity you were looking for.

No, that's very helpful. Thanks, David. And then my second one is for Tim. And Tim, thank you for the $0.20 FX headwind for fiscal '24. Super helpful for us as we anchor our expectations. Just curious if I kind of move operationally, installations obviously come down significantly. I'm just curious how you feel about your ability to drive that roughly 150 basis point margin improvement that consensus has in numbers at this point in time, and any sort of tailwinds and headwinds you'd call out to that at this point in time? Thanks, guys.

We'll provide formal guidance in February, but I appreciate you updating your model. Regarding foreign exchange, we want to ensure it's clearly understood. Assuming October rates remain stable, it's important to consider that approximately 75 to 80% of the pressure from dollar appreciation will occur in the first half of 2024. As you adjust your models, keep this in mind. In terms of profit and loss, I believe revenue will continue to grow faster than the market. We are committed to investing in research and development and enhancing our innovation pipeline, which is crucial for revenue growth alongside effective commercial execution. We have indicated that a spending range of 7% to 9% for R&D is appropriate, and we aim to be at the high end of that range, depending on our project pipeline. We will maintain cost discipline in selling, general, and administrative expenses, optimizing that cost envelope to align with inflation levels, while prioritizing investments in customer-facing activities to drive revenue growth. If we succeed in this area, it should result in significant operating leverage. We've demonstrated our ability to achieve operating leverage and margin expansion, even though FX has complicated things somewhat. In 2022, we grew margins by 240 basis points in constant currency compared to 2021, and year-to-date in 2023, we have seen an increase of 250 basis points in constant currency. We expect this trend to continue through investments in revenue and careful cost management. Lastly, on the tax side, consider the impact of pillar two, which, if implemented in 2024, could affect our effective tax rate by about 2 percentage points. That’s how I view next year, and we remain confident in the long-term goals we have outlined.

Good morning. Thanks for taking the question. Two for me. One for you, Tim, on price. How much did price contribute to the ex-FX growth of 9% in Q3, and how do you see price in 2024 versus 2023? And I have one follow-up.

Yeah, price is a little bit choppy, as you know, Larry. It's driven by, when we go out with the price increases, what the realization rate is. So I would look at it on a year-to-date basis. And if you look at year-to-date, it's about a third of our revenue growth. As far as 2024, we're going to continue to monitor the market, see what competitors are doing, see what inflation is doing, and we would expect to continue to toggle that price with inflation as we see that impacting the marketplace.

We believe there is significant opportunity in international markets right now. When you consider penetration, which is the main focus, we've primarily seen implantables in the international market. There's not much new entering the US, except for perhaps one or two items. We anticipate that penetration will remain a major driver for us, aiming for around 50 basis points of growth per year, although we would prefer even better results. In this quarter, international penetration increased by 120 basis points, which is encouraging and occurred in markets with substantial opportunities. We're particularly under-indexed in China and India, as well as in emerging markets in Southeast Asia. As we look globally, the opportunity in implantables lies in international markets, and we also see potential for steady performance in the US. Some next-generation products are still a bit further out, but our viewpoint remains consistent with what we shared at Capital Markets Day. It's important to note that we have various growth avenues. The potential of Hydrus, along with our torics, multifocal, and reusable contact lenses, is considerable. We have a lot happening with equipment and consumables expected over the next 12 to 24 months. Our multi-dose preservative-free eyedrop business is growing well, and contact lens care is back on track, while RX continues to perform nicely. It's essential to provide a comprehensive perspective on how we plan to grow, as we believe we can outpace the market in almost all these categories. Overall, we feel positive about market growth and our performance within it.

Thank you. Our next question is from Daniel Buchta with ZKB. Please proceed with your question.

Yes, thank you very much. Hello gents. Maybe the first question just to follow up a bit on the surgical performance and thanks for the comment on how the market has done. But I mean, at least compared to what consensus was expecting for today's result, I mean the performance in surgical was probably a notch weaker. Is this purely the market or do you see any product innovation from competitors? Are there seasonal factors that have influenced your organic growth momentum a little bit in this business? So, I mean, yeah, because I think we would have all expected a little bit of a strong momentum in surgical. And then the second question, maybe an update on China VBP. Do you have an idea already on the timeline when it should concrete, how it may look like, and then ultimately, of course, the question on how it may affect you in 2024 and maybe in 2025, if it's rather a bit slower, the implementation? Thank you very much.

I want to emphasize that the growth number reflects the market conditions. In the second quarter, we experienced a 7% procedural growth, which was quite high and not typical, similar to the unusually high number in the first quarter. Returning to 4% globally in the third quarter is more representative of a normal rate, and we anticipate the market will stabilize to mid-single digit growth over time. This is what we're aiming to convey—that normalized procedural growth will likely be in the low to mid-single digits, depending on various factors. We might see slightly better performance due to backlog and productivity improvements, but the third quarter's growth stood at 2%. It's worth noting that we outpaced the market in Surgical across nearly all categories. My perspective is that the current softness in the market, particularly in the U.S., is mainly a comparison to last year's significant rebound. Looking ahead, I believe we will achieve steady mid-single digit growth. Regarding China, we are positioned to capitalize on opportunities there in the future. We did not engage with the VBPs previously, which included some outdated products, leaving us uncertain about their impact on private markets. However, our strategy was effective as we navigated this situation, and we are currently assessing the upcoming VBP expected at the end of the first quarter or early second quarter. Overall, I see China and other developing markets as opportunities for both increased penetration and share growth, alongside our efforts in Europe and the U.S. That summarizes our outlook on growth opportunities.

Thank you. Our next question is from Ryan Zimmerman with BTIG. Please proceed with your question.

Good morning. Thanks for taking the question, and I appreciate the update. Just, some of your peers have called out, particularly in MedTech, and this is more for Tim, that supply chain inflationary numbers have been easing. I know you're still factoring into your guidance. We got a pretty good CPI print yesterday. So I'm just kind of wondering what you expect from here into 2024 from an inflationary or supply perspective, appreciating that freight costs have come down, energy costs have come down, et cetera.

Yeah, I think if you read the prints, we would expect inflation to come down. The one thing that's really important to understand is how that inflation works its way through the P&L. So I'm sure you know this, but we are still working through it. It takes for us, it takes anywhere between six to eight months for inventory to work its way through the P&L. So you may be seeing deflation or lower inflation today. That's not going to hit the P&L today because you've got like six months of inventory or whatever it may be that still has to work its way through the P&L. So we saw a little bit of that in Q3. In the prepared remarks, you'll notice that we would expect to continue to see that kind of in Q4 and Q1 probably. I think Q2 will be more of a normalized view from an inflationary perspective. So you just need to keep in mind there's a bit of a lag between what you're reading about versus what's been purchased and working its way through the P&L.

Ryan, regarding the supply chain, everything appears to be going well at the moment, but it can change suddenly. The positive news is that we have addressed some of our issues. However, the supply chain remains somewhat delicate, with occasional outages in component parts. We must approach our production strategy carefully moving forward. Our manufacturing teams have done an excellent job keeping us stocked, but we remain at risk of challenges from just one supplier.

Very helpful. And then just to follow up, next year, you called out equipment as benefiting from an upgrade cycle, David. And I'm just wondering if you can kind of speak to where we're at from an outside US perspective if you can put it at a penetration level. It sounds like most of the US market's been upgraded, but how long can that upgrade cycle persist beyond, say, the next few quarters? And is that kind of how to think about maybe one of the key drivers for growth next year for 2024? Thanks for taking the question.

In 2024, I don't anticipate that equipment demand will be particularly strong. We will likely introduce a lot of new equipment next year, which we will be testing for part of the year. This is expected to impact us more in 2025 than in 2024. However, the international markets continue to make upgrades, and we saw strong equipment numbers internationally in the third quarter. You're correct that we're currently selling a lot of equipment in the US, but since we had a strong year last year, sales in the US are normalizing now. Directionally, we plan to sell biometers, visualization equipment, and handpieces in the US, and we'll also be selling a significant number of CENTURION systems internationally by the end of next year as we phase out our Infiniti units. Following that, we will enter a new cycle where we will upgrade old CENTURION units. Most of our phaco machines typically last about eight to twelve years, meaning we should see around ten percent of the installed base upgrading each year. We will manage this across the lifecycle of our next generation products. Ultimately, we expect to see better growth in 2025 when our new products are fully launched, but we believe we will have solid performance for consumables and equipment as we progress in our long-term planning, given the opportunities for improving efficiencies with the new equipment.

Thanks, and good morning. Maybe one for Dave and one for Tim. Dave, maybe just an update, I think when we look at the EMV deck earlier a couple of weeks ago, just a reminder on COMET-3, it looks like you could get a headline readout on COMET-3 before the end of the year. And if that's the case, would a mid-2024 NDA submission for dry eye still be on the table? And then the follow-up for Tim would be on earnings next year. Just when we sort of try to think about the FX headwind here, there's still, I think, a little bit of a delay in contact lens manufacturing margin gains. And then we have some mixed outlook for IOLs and just how that plays out. The street is sort of looking for about 12% earnings growth. So maybe just kind of putting all of those inputs into earnings as we think about 2024. Thanks.

Anthony, regarding 512, you're absolutely correct that we will have a couple of trial readouts. Don't forget, we have a third observational trial that will mature by the end of the first quarter. We should have some data available to analyze, and if the results are positive, it will likely take us four to five months to prepare it for submission, which would mean around mid-2024. So you’re on the right track. We'll need to evaluate the data carefully. Additionally, on earnings for next year, we'll provide more details in February. However, we anticipate growing faster than the market as we discussed. I expect to see margin expansion in Vision Care, partly due to the installation of the DSM flex lines, which now represent a larger portion of our manufacturing footprint. This leads to incremental improvements. If we achieve revenue growth and manage our costs effectively, we should continue to see margin expansion, which will contribute to our earnings growth. We will share more details in February.

Thank you. Our next question is from Steven Lichtman with Oppenheimer & Company. Please proceed with your question.

Hi, guys. This is Ron on for Steve. I wanted to ask if you guys can talk a little bit about the capital equipment environment you saw during the quarter? Comps were slightly tougher in 3Q versus 2Q. But anything else to note in terms of customer readiness to invest in capital? And then I've got a short follow-up. Thanks.

Yeah, Steve, I think on the capital, it is a little bit tougher, I think, in the US, but I think really the bigger picture is in the US capital equipment for us is more of an upgrade cycle phenomenon. So I think we see steady purchasing of equipment still, and we are selling a lot of biometers. We're selling a lot of visualization in the US. Internationally, we had a very robust quarter. I would have said that we might have expected a little bit more of a slowdown. We didn't see it. Some of that is that we're gaining share. Some of it is that we've got some very compelling equipment. And I do think we've been remarkably successful with our new diagnostic, our new visualization equipment, and a number of our other pieces of equipment and the handpieces and the like. So still solid for us, but I would say the US is a little bit slower than international.

That's great. Thanks. And then just a short call up, maybe you guys can give us an update on Precision7.

We are currently working on Precision7 and building the product, but we have not set a launch date yet. The focus is on maximizing our current product offerings in the market. We recently launched our Total30 multifocal lens, which we are excited about. About a year ago, we introduced the DailiesTotal1 Toric, which has been anticipated for some time. Both DailiesTotal1 Toric and Sphere are performing well after more than ten years, as mentioned in our prepared remarks. P1 continues to grow, with the toric currently being the most popular choice for new fittings. We have several projects underway, including T30, T30 Toric, T30 Multifocal, and Precision1 Toric, along with the DailiesTotal1 Toric. There is a lot on our plate, and I am optimistic about our performance, especially in the US and Japan, where we are seeing strong adoption and solid market share growth. Overall, we feel confident about the growth potential of our Vision Care business.

Thank you. Our next question is from Jeff Johnson with Baird. Please proceed with your question.

Thank you. Good morning, guys. David, maybe I can follow up just on all the toric multifocal comments you were just making. That 9% contact lens number, obviously a solid number. It's been solid here for a few quarters running. How much of that was price? I know Larry asked price overall on company, but how much of that was price? And how much is mixed, just given the good cycle you're going through on all the specialty sides of those product families? Thanks.

Yes, Jeff, you’re correct. The global market grew by 6%, while we experienced a growth of 9%. I believe there's a portion of that growth coming from market share, pricing, and product mix. I'd estimate that about one-third of our growth can be attributed to price. Overall, we feel this is a strong starting point. The shift in our product mix, especially towards Dailies, is contributing positively, with our Dailies toric providing a significant boost in both price and mix. Overall, I feel we are making great progress here.

Yeah, and I guess follow up just on the contact lens business, outside of ATIOLs, it's rather kind of consumer facing, I guess, some of your OTC stuff as well. But just your outlook with what we've seen of the consumer here over the last couple of months, your outlook for kind of consumption of contact lenses, any trade downs, any kind of pause, anything you're seeing there? I guess that's it. I thought I had one other part, but I’ll just leave it at that. Thanks.

Yeah, I mean, contact lens, the patients looked like it was pretty normal. I mean, I would say the US was a little bit better than international. I think unit movement on what we call EQ basis, a number of patients getting lenses looked like it was very normal for historical rates, kind of roughly up 1%. I do think that internationally it was a little bit softer. I think it was down 1%. So kind of flat overall. That's very normal historically. Remember that most of this business is about trade-up and trade-up was exactly where we would have expected it. And again, I think with a little bit of price, a little bit of trade-up and then for us it was a little bit of share.

Hi everyone, thank you for taking my questions. I have a quick one and then a slightly longer one. First, could you confirm that we heard correctly that the US IOLs market grew by 2% and that you've either been gaining or at least maintaining market share in Q3, showing a sequential improvement from Q2? For my second question, Tim, regarding the guidance range for this year in terms of core EBIT margin, it seems quite wide as we approach the final quarter. Is this unusual range a reflection of a stronger contact lens margin or Vision Care margin in Q4, suggesting there may be a different mix than usual? Does this give you some optimism for potential upside based on our current position? Thank you.

Yeah, Graham, total procedures in the market grew roughly 3%, 2%, depending on how you want to round it. Internationally, it grew a little faster than that, and the globe grew about 4%, But most of the international growth was in emerging markets, I would just tell you. So again, and relative to our performance in market in the US, we saw monofocal share grow, we saw PCIOL share grow, we saw torque decline, those are all year-over-year, but sequentially torics improved. So I would just say overall our total share grew and again I think in the US we had a pretty solid performance and pretty much as expected. I just remind you, people try things in this market because it's a discrete opportunity to do that, but they generally come back to the products that they think are the best performing products.

Yeah, and then I would just say on the margin, it's really going to be volume driven and mix to your point. It really just depends on, we've always said that we sort of pick the midpoint, so I'd probably stick with that. But it could be plus or minus depending on what the final revenue and volume numbers look like.

Thank you. There are no further questions at this time. I'd like to hand the floor back over to Dan Cravens for any closing comments.

Well, thanks, everybody, for joining us. If you have any follow-up questions, certainly feel free to reach out to Allen Trang and myself in Investor Relations or for media, reach out to our Media Relations team. Thanks again. Have a great day.

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