Greetings, and welcome to the Alcon First Quarter 2025 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, VP of Investor Relations. Thank you. You may begin.

Welcome to Alcon's first quarter 2025 earnings conference call. Yesterday, we issued a press release, interim financial report, and presentation. You can find all these documents on our website at investor.alcon.com. Please note that starting this quarter, in order to streamline our reporting, the interim financial report and other filings will be limited to information required by regulations. Non-IFRS results, including constant currency growth and core items, will only be presented in the press release and presentation. 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 differ materially from those expressed or implied in our forward-looking statements, and as such, 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 our Form 20-F, earnings press release, and interim financial report, which are all on file with the Securities and Exchange Commission and available on their website at sec.gov. Non-IFRS financial measures used by the company may be calculated differently from and may not be comparable to similar measures used at other companies. These non-IFRS financial measures should be considered along with, but not as alternatives to, the operating performance measures as prescribed for IFRS. Please see a reconciliation between our non-IFRS measures with directly comparable measures presented in accordance with IFRS in our press release. For discussion purposes, our comments on growth are expressed in constant currency. In a moment, David will begin by recapping highlights from the first quarter. After his remarks, Tim will discuss our performance and outlook for 2025. Then, David will wrap up, and we will open the call for Q&A. With that, I'll now turn the call over to our CEO, David Endicott.

Thanks, Dan, and thanks everybody for joining us today. As we sit here in mid-May, it is remarkable to reflect on how dynamic this year has been so far. First, we've begun a cascade of product launches that will grow our business for years to come, punctuated by the launch of Unity VCS in both Japan and the U.S. Second, we acquired a majority position in a great long-term asset in Aurion Biotech with the potential to change the standard of care in corneal transplantation. And third, there's been an obvious disruption in the global trade environment. And yet, at Alcon, I remain encouraged by the strength and resilience of our underlying business performance. So, while the current tariff structure introduces new headwinds, our global network of 17 manufacturing sites and decades of operational experience position us well to implement mitigating strategies. In most cases, we make products in region for region and have the ability to transfer production across sites. However, our existing manufacturing footprint is optimized for a predominantly free trade environment. Shifting production across sites requires stable trade policy, along with time and capital. We'll adapt to whatever final policy decisions are made, but in the meantime, we continue to work with AdvaMed, MedTech Europe, and our local Chinese affiliate to advocate for a medtech exemption or a zero-for-zero tariff regime. We remain deeply committed to access to eye care. The zero-for-zero tariff structure supports uninterrupted care by ensuring patients and providers can receive the products they need when they need them. In a few minutes, Tim will walk you through our thinking on the current tariff environment. Now, I'll shift to discussing the first quarter. We delivered sales of $2.5 billion and sales growth of 3%. We also delivered a core operating margin of 20.8% and core diluted earnings of $0.73 per share. Despite another soft quarter in the US surgical market, these results are a testament to the breadth of our geographic footprint and product portfolio, as well as the commitment of our talented teams across the globe. I'm pleased to report that at the recent American Society of Cataract and Refractive Surgery Conference, we officially launched Unity VCS and PanOptix Pro. The Unity launch is the culmination of more than 10 years of work by our R&D and engineering teams, informed by invaluable input from key opinion leaders around the world. I'd like to take the opportunity to thank all of our teams who've been involved in this transformational change in ophthalmic surgery. Unity VCS is a combined console for both vitreoretinal and cataract surgery, while Unity CS is a standalone cataract system that will be available toward the end of the year. The platform is designed to deliver superior efficiency for both types of procedures while continuing to deliver exceptional outcomes and safety. The system features many first-to-market technologies designed to deliver transformative surgical innovation. For example, 4D Phaco delivers twice as fast lens removal with 41% lower energy delivered to the eye. Additionally, HYPERVIT 30K is the world's fastest vitrector and is 1.5 times faster than the existing best-in-class. Lastly, Unity Intelligent Fluidics creates greater stability and control at each procedural step. Unity VCS has received CE mark and regulatory approvals in Australia, Japan, and the US, and we will begin delivering new units later this month. Now, I'll turn to implantables, where we recently launched PanOptix Pro. We believe this next-generation technology builds on our market-leading position and keeps us on the forefront of innovation. This lens builds upon the success of the world's most implanted trifocal PCIOL by reducing the amount of light scatter by 50%. Our surgeon research suggests that light scatter is a key driver of dysphotopsias such as halos and glare, which is why we're so excited about PanOptix Pro. This lens is now available in the U.S. and initial surgeon and patient feedback has been excellent. We look forward to bringing it to select international markets later this year. Now, shifting to vision care, starting with contact lenses. I've been extremely pleased by the performance of all of our innovative lenses built upon our water gradient technology. Our major recent innovations, including PRECISION1 family, the TOTAL30 family, and DAILIES TOTAL1 for astigmatism grew double digits in the first quarter. We launched PRECISION7 at the start of this year, and it's gaining traction with both doctors and patients. Wearers benefit from 16 hours of outstanding comfort even on day seven, due in part to our ACTIV-FLO system, which keeps lenses moist by leveraging a moisturizing agent in the lens with a replenishing agent. Additionally, wearers appreciate the intuitive seven-day replacement schedule, which enhances patient compliance and satisfaction, offering a great choice if a daily disposable SiHy lens is not an option. For eye care professionals, this lens allows them to meet diverse patient needs with a lens that balances innovation, comfort, and cost-effectiveness. As a reminder, PRECISION7 targets a reusable lens category, which we estimate is worth approximately $3.8 billion and where Alcon is under-indexed. Now I'll turn to ocular health, where I'll start with Systane Pro. Systane Pro is the only triple-action, multi-dose, preservative-free formulation for all types of dry eye. The unique formulation includes hyaluronate and offers patients up to 12 hours of relief. Additionally, the moisture technology helps reduce friction on the eye surface, providing both comfort and protection while blinking. This can be a meaningful improvement for patients who experience irritation or discomfort with their current drops. Systane Pro has been available in the U.S. since February, and we're continuing to expand its rollout to major retailers nationwide. Next, I'll comment on Acoltremon, our dry eye pharmaceutical candidate. We continue to expect an FDA response to our filing at the end of May, in line with the PDUFA date that we received last year. Our team has been working hard ahead of the launch. We've expanded our eye drop sales force in the U.S. We now have a group dedicated to glaucoma and a separate group dedicated to dry eye. Additionally, we continue to engage with payers where appropriate. Now, turning to BD&L activity, we have two recent exciting developments. First, I'm pleased to report that we acquired the majority interest in Aurion Biotech. Aurion is at the forefront of regenerative medicine. The company's flagship therapeutic candidate, AURN001, has received Breakthrough Therapy and Regenerative Medicine Advanced Therapy designations from the FDA. It could represent a paradigm shift in the treatment of corneal endothelial dysfunction, which is a condition leading to corneal edema, vision loss, and potential blindness. AURN001 is an allogeneic cell therapy comprised of corneal endothelial cells derived from healthy donors and a rho kinase inhibitor that enhances cell survival and integration. AURN001 is administered as a single intracameral injection following a surgical intervention on the corneal endothelium. This therapy offers a minimally invasive alternative to traditional corneal transplants, which are limited by donor availability and surgeon complexity. AURN001 is currently approved in Japan under the trade name Vyznova. In the U.S., we plan to launch Phase 3 clinical trial activities late this year, and we aim to bring the product to market in mid to late 2028. Given the scale of the unmet need, we expect peak sales of $0.5 billion or greater. Now, we also entered into a definitive merger agreement to acquire LENSAR. The acquisition includes the ALLY Robotic Cataract Laser Treatment System. We intend for this next-generation technology to ultimately succeed LenSx as our femtosecond laser-assisted cataract surgery platform. We're excited for the opportunity to bring LENSAR's unique next-generation technologies into our innovative equipment portfolio. The transaction is anticipated to close in mid to late 2025, subject to customary closing conditions, including regulatory approval. Finally, I'll briefly discuss market dynamics for the first quarter. In cataract, we estimate that global procedures grew low-single-digits. Additionally, global ATIOL penetration was up approximately 200 basis points year-over-year. In both cases, the main growth driver was international markets. In contact lens, the retail market remained solid in the first quarter. We estimate that it grew approximately mid-single-digits, in line with historical trends. Now with that, I'll pass it to Tim, who'll take you through our financial results and discuss our outlook.

Thanks, David. Our first quarter sales of $2.5 billion were up 3% versus prior year. This growth is slightly lower than recent trends and reflects approximately 1 point of headwind from our divestiture and out-licensing of eye drops to OcuMension in China in the fourth quarter of 2024. In our surgical franchise, revenue was up 2% year-over-year to $1.3 billion. Implantables sales were $420 million in the quarter, in line with the prior period. We saw another quarter of strong growth in advanced technology IOLs in China and other international markets. This was offset by soft market conditions in the U.S. that David mentioned earlier, as well as competitive pressures. In consumables, our first quarter sales were up 6% to $712 million, driven by vitret and cataract consumables, particularly in international markets, and price increases. In equipment, sales of $199 million were down 6% year-over-year. Following the recent launch of Unity VCS, we continue to expect equipment sales to meaningfully accelerate through the second half of the year. Turning to vision care, first quarter sales of $1.1 billion were up 3%. Contact lens sales were up 4% to $688 million in the quarter, primarily due to product innovation as well as price increases. As David mentioned, we continue to see strong growth across the PRECISION1 and TOTAL30 families, as well as DAILIES TOTAL1 for astigmatism. This growth was partially offset by declines in legacy products, where we have limited our promotional efforts. We also faced a strong prior-year quarter, mainly driven by the timing of price increases. In ocular health, first quarter sales of $432 million were up 2% year-over-year. Growth was primarily driven by the sustained family of artificial tears as well as price. There was also approximately 3 points of pressure resulting from the divestment of certain eye drops to OcuMension in China that I mentioned previously. Now, moving down the income statement. First quarter core gross margin was 63.2%, broadly in line with the prior year. Core operating margin was 20.8%, down 40 basis points, primarily due to increased investment in R&D. First quarter interest expense was $49 million, broadly in line with last year. Other financial income and expense was a net benefit of $9 million, also broadly in line with last year. The first quarter average core tax rate was 21% compared to 23.2% in the prior-year period, as last year included a net expense from discrete items. Core diluted earnings were $0.73 per share in the quarter, in line with last year on a constant currency basis. Turning to cash, we generated $278 million of free cash flow in the first quarter compared to $229 million in 2024 due to higher cash from operations. Before turning to the outlook, I want to take a few moments to address tariffs. As we think about the tariff impact, we're providing our best estimate based on a set of assumptions and an evolving environment. As David mentioned, our global manufacturing footprint was built and optimized for a free trade environment. In most, but not all, markets, we're fortunate to manufacture in region for region. However, while we're able to relocate manufacturing, shifting production intelligently requires a stable trade environment. We've completed a thorough assessment of the current tariffs and mitigation strategies available to us. These strategies include supplier diversification, optimizing our manufacturing network, managing discretionary spend, and implementing selective price actions. As of today, we estimate that the gross impact from these tariffs will pressure cost of sales by approximately $80 million for the full year versus our outlook in February. As the cost of tariffs are capitalized in the inventory and then flow into the income statement as goods are sold, we expect to see nearly all of the gross impact in the second half of the year. We expect to fully offset the tariff pressure through operational actions and currency tailwinds. Importantly, these estimates do not reflect any potential impact related to future tariffs and trade policy changes. Now, moving to our outlook for the remainder of the year. Our current guidance assumes that the aggregate global eye care market grows approximately 4%, that exchange rates as of mid-May hold through year-end, and that the tariff rates and exemptions announced as of May 12 persist through the end of the year. Now, starting with sales, we are updating our full-year revenue guidance to $10.4 billion to $10.5 billion, which reflects the favorable foreign exchange environment. Additionally, given the soft U.S. surgical market, we are updating our sales growth rate guidance to between 6% and 7% in constant currency. In terms of phasing, we continue to expect sales growth to meaningfully accelerate in the second half of the year, given the timing of the new product launches. Moving to operating expenses, we expect incremental R&D expense following our recent BD&L activity. However, we expect to remain within our range of 8% to 10% of sales. Additionally, we expect SG&A to step up in the remainder of the year. We expect the highest spend in the second quarter due to normal seasonality and the timing of new launches. Turning to profitability, we now expect full-year core operating margin to be between 20% and 21%. This updated range reflects approximately 80 basis points of pressure from recent BD&L activity versus our February outlook. Moving down the income statement, following the consolidation of Aurion, we now expect non-operating income and expense to be between $185 million and $205 million. Turning to tax, we continue to expect our full-year core average tax rate to be approximately 20%. Based on all these factors, we now expect our core diluted earnings guidance range to be between $3.05 and $3.15 per share. This updated range reflects a $0.10 of impact from recent BD&L activity. This range corresponds to year-over-year growth of between 2% and 5% in constant currency. Before I wrap up, I'm pleased to announce that at our Annual General Meeting last week, shareholders approved a dividend of CHF0.28 per share, in line with our payout policy of 10% of the previous year's core net income. I want to thank our shareholders for their continued support. And finally, I want to take a moment to thank our associates across all levels of the organization. Your dedication and focus continue to drive our performance and position us for long-term success.

So, to conclude, we remain confident in the long-term fundamentals of the eye care market and our business. 2025 is a watershed year for us. We're bringing a wave of groundbreaking products to market, each designed to help improve sight and set new standards of care. These launches reflect the strength of our pipeline, our deep understanding of customer needs, and our commitment to shaping the future of eye care. Our continued investment in research and development, along with strategic acquisitions, further fuels our innovation engine and expands our capabilities. And we're excited about what's ahead and confident in our ability to drive long-term growth through purposeful market-leading innovation. We appreciate your continued support and look forward to updating you on our progress next quarter. So with that, let's open the line for Q&A.

Thank you. We will now be conducting a question-and-answer session. The first question is from Veronika Dubajova from Citi. Please go ahead.

Hi, guys. Good afternoon, and thank you for taking my questions. I have two, please. The first one is just on the shape of the organic growth rate through the remainder of the year. Tim, I can push you a little bit more on sort of how do we get from the 3% to the 6% to 7%. Could you give us a bit of flavor on where you expect the second quarter to land, and just how much faster the growth in the back half of the year is going to be and kind of what is the biggest moving part or two related to that growth acceleration and your degree of confidence in those? And then, if I can squeeze in a follow-up here...

Yeah.

Go ahead, Tim. Actually, I'll do my follow-up afterwards. Go for it.

Yeah. Well, first of all, welcome back, Veronika.

Thank you.

Yeah. So again, this plan has always been based on growth acceleration in the back half of the year, driven by the cadence and the timing of the product launches. So, I'm not going to give Q2 guidance, but what we do feel very comfortable with is this, we will see, call it, high-single-digit revenue growth in the back half of the year. And what's going to drive that, Unity VCS, we're very excited about PanOptix Pro, you look at PRECISION7, Systane Pro. So, as we've talked about in the past, a lot of these launches are coming out in the back half of the year, and we expect that to take us to the 6% to 7% revenue growth for the total year.

Got it. That's helpful. And then, my follow-up, probably more for David, but one of the sort of growing investor concerns out there that we hear a lot in our conversation is just the U.S. cataract market continuing to be so subdued. And are you confident this is just a market issue or is this also a competition issue? So, I'd love to get your thoughts, David, why are we not seeing a better growth rate here? And sort of how comfortable are you with the assumption that you can maintain your sort of competitive advantage, in particular, in the premium lens space? Thanks.

Thank you, Veronika, and it’s great to be back. Regarding the share, we're feeling quite positive and are aligning with our expectations. However, the market has been somewhat unexpectedly soft in the first quarter, which has been evident in the third and fourth quarters as well. We had hoped to avoid this trend in the first quarter, but we've adjusted our market outlook to about 4% growth for the year accordingly. As we look back at last year, we anticipate a significantly better growth rate moving forward. At the heart of the matter is a productivity surge issue, as many cataract procedures are not being performed. We’ve noticed that wait lists are increasing and many of the busiest surgeons, who are often targeted by private equity firms, are stepping back or retiring. This transition takes time as newer surgeons need to build their skills and patient volumes. While we're improving efficiency for surgeons, it hasn’t fully returned to previous levels yet. Fortunately, with the launch of Unity VCS, we are positioned to encourage people to optimize their surgery volumes, whether it’s vitrectomy or cataract procedures. I believe the cataract market will stabilize over time, and historically, we have seen consistent 3% growth in the U.S., which I expect will return by the end of this year.

Excellent. Thanks, guys.

The next question is from Jack Reynolds-Clark from RBC Capital Markets. Please go ahead.

Hi there. Thanks for taking the questions. The first one I had was on contact lenses. I was wondering if you could break down the impact of the kind of the timing differences on pricing versus kind of legacy product declines in the quarter, and then what that means for the exit rate coming out of Q1, and what you've seen so far in Q2.

I won't comment extensively on Q2, but regarding our performance in contact lenses for the quarter, the global audited data shows a very healthy market, which should be reassuring for everyone as consumer activity remains strong. In the U.S., we experienced unit growth, some mixed trade up, and pricing improvement, resulting in approximately 7% market growth. We continue to see mid-single-digit growth globally and anticipate this trend to carry on throughout the year. Last year, we achieved around 11% growth, and our sequential growth from the fourth quarter to the first was also 11%, reflecting a 4% increase. When we assess the average changes in pricing and volume that accommodate these price rises, we did see some fluctuations last quarter as we adjusted our pull-in strategy. Overall, I view this as a normalization process that continues to exceed market growth expectations, which we believe will remain in the mid-single-digits range.

That's great. Super clear. Thank you. And then, I had a couple on Aurion. So, the new guidance implies a fairly substantial EBIT loss from Aurion. I was wondering if you could give a breakdown of what is comprised within that cost, i.e., kind of the breakdown of clinical trials versus R&D versus kind of more standard OpEx. And then what your expectations are for clinical trial costs in 2026 through to 2028 when the product launches?

I believe you have the numbers correct. It's about 80 basis points this year. Most of this is focused on R&D, so consider it as R&D in progress. We typically do not separate our clinical activities from our core R&D efforts, so I would refrain from doing that today regarding this topic. However, I can share that we are excited about our program, which we plan to bring into the clinic late this year, and we appreciate the feedback we've received from the FDA about the trial progress. I feel we have strong alignment with the FDA at this point and have excellent people managing this program. We're really enthusiastic about the team and the initiatives, as they have the potential to significantly benefit patients. This is particularly important for individuals needing corneal transplants, as they might not have access to this treatment globally unless our product succeeds. We are excited about the program and the team involved.

And then, Jack, to assist you for 2025, I recommend that if you're reviewing your models, you should allocate that into your R&D and distribute it evenly across the second, third, and fourth quarters.

Okay, understood. And should we expect an uplift next year?

We'll give you guidance next year on it. It'll be part of a blended R&D program. We won't break out the program specifically. We generally don't do that.

Understood. Thanks very much.

The next question is from Graham Doyle from UBS. Please go ahead.

Good morning. Thanks, guys. Thanks for taking my questions. Just kind of follow up on Veronika's question. I know you don't love to do a quarterly guidance, but I think it's not unfair to ask it, given we've had a downgrade on revenue guidance of Q3 and we've had it now on the back of a Capital Markets Day and a recent guidance. Just trying to understand the things that give you confidence on this acceleration, right? Presumably, we're looking at a 5% or something in Q2 and then a 7%, 8% or something as we go through the rest of the year. So, is it that you've got a really strong order book already for Unity? Are you seeing great traction with PanOptix Pro? Just to give us some, like, concrete pieces that underpin your assumptions would be super helpful, please.

Let me begin by discussing the market. The reason for narrowing the range is that we feel comfortable with our projections, especially considering it was the first quarter. Essentially, the U.S. market was sluggish in the fourth quarter, and realistically, it's unlikely we'll achieve an 8% acceleration. However, we are optimistic about a growth range of 6% to 7%, and there’s potential to exceed that, though there is still considerable variability in the new product flow. For the second quarter, we anticipate it to be a normal period with growth slightly better than the market average. As we move into the second half of the year, we expect to see a steady and significant acceleration in growth through the third and fourth quarters. It’s important to note that we haven't started shipping PanOptix Pro until this month, nor did we ship Unity VCS until the end of this month, and much of the PanOptix Pro hasn't reached retailers until late in the first quarter. So, besides P7 and a bit of Systane Pro, there hasn’t been much new product flow. As we advance, we anticipate a substantial shift in our trajectory due to the strong reception of Unity VCS, Voyager, and the positive feedback from ASCRS regarding PanOptix Pro. We have received pre-orders for Unity VCS in Japan, which gives us confidence. While we have many pre-orders to fulfill, our main challenge will be ensuring timely installation, proper use, and maximizing the benefits of this outstanding machine. Additionally, we are launching several new products, possibly more than seven when considering the smaller items. There is a lot happening, and I believe we will see the impact more in the latter half of the year.

I believe we have previously mentioned that there are approximately 30,000 units available, which have a lifespan of 10 years. We expect to integrate about 3,000 units annually, with the initial years likely seeing a slightly higher number and the latter years a bit lower. By doing this calculation and considering it for the latter part of the year, we anticipate a positive revenue outlook. If you perform that calculation, you will notice that we expect significant revenue growth.

That's really helpful. Just a quick question, do you have any insights on the pre-orders and how they are progressing? Are there early signs that provide you with confidence for Q3 and Q4? Is the indication of interest at a reasonable level that gives you that assurance?

Yes.

Super clear. All right, thanks a lot. I'll jump back in the queue.

That was a cheeky answer to a cheeky question.

Yeah. Thanks, Graham.

Good morning or good afternoon. Thanks for taking our questions. When we think about the components of guidance, the market obviously is down 50 basis points from your prior assumptions. But embedded within that 6% or 7% is about 250 basis points from innovation new products. And within those 250 basis points, I assume is some price impact. So, I'm wondering, David, if you can kind of parse out in terms of how you think about price versus new product contributions within that incremental 250 basis points for the year. And then, I have a follow-up.

I view the year overall as achieving our typical pricing, which is usually a couple of points of price increase each year. If we manage to keep pace with inflation, we're satisfied with that, and it's generally our goal. I see this in relation to unit growth and the trade-up initiative. New products are filling the gap, and there is significant excitement surrounding them right now. I recently participated in two major meetings, one in Japan and one in Los Angeles, which hosted the largest surgeon gathering in the world for the U.S. The enthusiasm around our current product range is substantial, and while we have a lot of work ahead of us, I feel optimistic about our position for the remainder of the year.

There are three factors to consider in the Q2 comment. First, looking at seasonality, we typically see a significant amount of advertising and promotions, especially in the DTC area. If we compare the average incremental spending from Q1 to Q2 over the years 2022, 2023, and 2024, it's around $40 million. This is a normal seasonal trend that I expect to see again in Q2 of this year. The second factor is that we experienced some phasing from Q1 to Q2. We had some unexpected favorability in Q1, and those costs will be reflected in Q2, likely around $15 million. Lastly, we are making significant investments in product launches. We discussed last year how much we plan to invest in our products to drive revenue growth, and you will start to see the effects of this in Q2. Moving into Q3 and Q4, as we account for the DTC aspect, things should begin to normalize.

Okay. Thank you.

Good morning. I appreciate you taking my questions. I have two product-related inquiries. First, regarding the PanOptix Pro launch, how do you see it in light of your competitor's recall and subsequent relaunch? Has that created any significant opportunities? Also, considering the current state of the U.S. market...

So, look, David, on PanOptix Pro, we are obviously excited about that. One of the things I said in the opening remarks was, the big thing in ATIOL, particularly trifocals, has been halos and glare. It's something that we have been working on for a while. PanOptix Pro has 50% less scatter, which is really the source of halos and glare. So, we expect to see a really important uptake as a function of using more light in the lens, and I think that's been a really exciting thing. It's been well received. Certainly, it was well received in Los Angeles, and I think we expect surgeons are going to try it. Relative to other recalls, I really wouldn't comment on that. I think they are back in business. They are going to be a fierce competitor no matter what and we are obviously excited about what we have got.

Okay, great. Thanks for that. And then, the second one is just on the PDUFA date coming up in a couple of weeks now. I guess, once you hear on that or get the response, what is left to do before the launch? Can you get that out in late second quarter here in a limited fashion at least, or would that fall into third quarter? And then, I mean, I'm assuming all that investment is baked into guidance, but anything to call out other than, Tim, what you just said around SG&A for the second half? Thanks so much for taking my questions.

Sure. You are correct about the additional investment. The expansion of our sales force is a significant aspect of that investment. We will also have a delayed investment related to 512, which will support its launch. We anticipate that the launch will likely occur in the late third quarter. We need to complete the manufacturing process and finalize the principal investigators and labeling. We cannot proceed with these steps until we receive the final confirmation and agreement from the FDA regarding the labeling. Therefore, expect that late in the third quarter there will be a limited impact this year.

Good morning. Thanks for taking the question. Guys, this is the latest in the call that a tariff question I think has come up in Q1 earnings. So, here's the tariff question, Tim. The quarterly cadence, I assume it ramps through '25. So, will Q4 be the highest impact and lowest gross margin in the year? And how should we think about the annual impact for 2025? Can you still grow margins year-over-year given the tariff impact? And I had one follow-up.

The gross impact of the tariffs will primarily be felt in the third and fourth quarters. When tariffs are incurred, they are amortized, which means it takes time to reflect in the profit and loss statement. We mentioned that we plan to offset this in 2025, so we expect margins to remain close to our initial guidance for the year. As we move into 2026, we will provide more details. If the tariffs remain in place for the entire year, there will be an annualized effect, leading to increased gross pressure. However, we plan to implement more mitigation strategies, such as adjusting pricing and manufacturing adjustments. We need a stable environment to make these changes effectively.

All right. And, Tim, you gave some long-term goals at the Capital Markets Day a few months ago. How does the change in the macro environment, including the tariffs, affect the outlook especially the 12% to 15% ex FX core diluted EPS growth? Thanks for taking the question.

We remain confident in our long-term objectives, which are set over a five-year timeframe. The current environment is quite dynamic and differs from last quarter, and it may change again next quarter. Overall, we are optimistic about the business fundamentals moving forward. We will keep investing in innovation, and we believe this will allow us to grow faster than the market, regardless of the market rate. Historically, we have effectively managed our costs and will continue to do so responsibly. When we achieve faster growth than the market while managing costs well, it results in margin expansion that contributes to free cash flow. We are very positive about this outlook.

Thank you for the insights. I want to focus on one area. I appreciated the commentary on contact lenses and the consumer trends. I'm interested in exploring the differences between cataract and contact lenses across various regions. Specifically, how is the mix of new fittings looking? You shared data for the U.S., but what is the situation like in EMEA? Additionally, regarding the IOL side, how should we view the marginal mix? Are we seeing a shift towards mono plus a femto, or is that not occurring? I'm eager to hear any information on consumer behavior and the marginal volume mix. Thank you.

The international markets have been quite strong throughout last year and into the first quarter. Generally, performance has been solid across various regions. However, we have noticed a softening in the contact lens market in Japan, which has been relatively low. Conversely, the United States and several other markets have shown real growth. Interestingly, the consumer appears to be fairly well-positioned right now. Firstly, our mix of contact lens units and unit volumes in the first quarter were both up, indicating a healthy demand from consumers in the U.S. and internationally. This suggests that once people start wearing contacts, they tend to stick with them, reflecting the market's resilience. Secondly, regarding the ATIOLs, there's often been some uncertainty about the growth in their adoption. In the first quarter, we witnessed a 200 basis point increase in ATIOL usage globally, demonstrating that more people are opting for these over monofocal lenses, which is a positive trend. In the U.S., there was an increase of over 100 basis points, with even higher growth internationally, particularly in China, which has been a significant contributor. Overall, the European market and several others have also performed well in this regard. While we have observed some productivity challenges in the U.S. market, we believe the fundamentals remain strong overall. We are facing a transition among surgeons, which will require newer surgeons to enhance their skills, and we are eager to support them. Our tools, including Voyager for productivity and Unity VCS to enhance office efficiency, are valuable assets that will aid in this effort.

Thanks. Maybe two product questions here. Just a little bit on P7, we're doing optometrist checks, and they're actually coming back quite positive on P7. So, maybe just where that product is tracking in terms of expectations for 2025? And then, the second product question would be on AR-15512 just in terms of dry eye. Maybe just a recap on, David, how that product is differentiated versus competition? And when you look at that overall TAM opportunity in the United States, couple of years out, what do you think a reasonable share expectation could be for that product in U.S. dry eye? Thanks.

Thank you, Anthony, for conducting the channel checks. We appreciate it and I believe it reflects the positive sentiment you’re observing. We’ve engaged with many individuals regarding P7 and conducted extensive pre-launch work. As you may recall, this product received approval about a year before we introduced it because we needed to ensure there was a genuine market. We are seeing that positivity now. It's more straightforward for doctors to recommend, saying, "Use this on Monday and it will be effective all week, then replace it the following Monday." This approach feels more manageable for them compared to a two-week lens, where patients may forget details about usage or duration, making it less convenient. Furthermore, the pricing is appealing, making a significant impact for patients. If a patient can’t switch to daily lenses, which is the ultimate goal as many prefer a silicone hydrogel daily lens, this product is a suitable alternative that is well-priced and beneficial. It’s notable that while a significant portion of revenue comes from daily lenses, a large percentage of patients still use reusable lenses, and this market is an area where we're underrepresented. We see this as a significant opportunity for growth. Regarding 512, this is a distinct product that stands out from those currently available because it isn’t anti-inflammatory nor a supplement. Instead, it acts as an agonist for natural tear production. This product promotes natural tears quickly upon application, which we find very promising. By addressing the core issue, there’s less need for anti-inflammatories or supplements since it tackles tear deficiencies directly. We’re generating substantial data to support our confidence in this opportunity. The market in the U.S. is considerable, and seeing our branded products perform well among competitors indicates a viable reimbursable market for us. Therefore, my outlook remains unchanged; I still estimate a range of 250 to 400, leaning toward the higher end now. We'll monitor its performance in the market and provide updates as we move forward.

Great. Hey, guys. First question on contact lenses. David, you sound confident in the end markets holding solid. The legacy lenses seem to be, I think, one of the incremental headwinds in the quarter. Can you just help us with how we should think about that part of your portfolio rest of the year? And for contact lenses more broadly, are there any factors besides P7 that can help drive a reacceleration? And I have a follow-up.

I wouldn’t read too much into the first quarter contact lens numbers. There are some comparison issues and pricing overlaps that have affected the results differently than what’s actually happening in the market. Your question is great because we are seeing significant growth from our new products. We are gaining market share with daily silicone hydrogel spheres, daily silicone hydrogel torics, and reusable lenses. This is leading to a decline in the hemo market, particularly with our DACP and somewhat with our AIR OPTIX legacy brands. This transition has been in progress since we started, where we expected the older brands to diminish and new brands to take over. It's important to note that the legacy brands, especially the reusables, contribute to our margins. If you look at our segment margins, you'll see an improvement in gross margins. This is a positive sign because we’re shifting from older products with declining volumes and increasing costs to new brands with rising volumes and lower costs. We are effectively managing this transition, though there will always be some drag until the legacy brands phase out, which typically takes a long time in this industry. Despite this, we expect to consistently outperform the market going forward, projected at mid-single-digit growth. I believe I mentioned earlier that we currently hold two-thirds of the U.S. PCIOL market, even after facing competition from various global players over the past 18 to 24 months. What you might notice is that products like PanOptix and Vivity are very resilient and competitive, even though many competitors offer items that are $100 to $200 cheaper. There will always be a demand for less expensive options. Right now, we're seeing consumers trying out different lenses, with some choosing to stick with them because they're good products. However, we believe we can offer superior options. Our track record of millions of successfully implanted lenses and consistently positive outcomes, enhanced with Pro, helps us maintain customer loyalty. Additionally, our prominent presence in the surgical market is significant. In operating rooms, our equipment is widely visible, as are our representatives and efforts, which fosters a strong allegiance to our brand. This is likely why we retain our market share better than many competitors. Of course, we have experienced some loss in market share, as we were once at about 85%, so a decline was expected to some degree; it was simply a matter of extent and pace. Surprisingly, our international growth has been quite robust, especially in regions like China. Overall, our market share remains relatively stable as we exchange international share for U.S. share, but this transition is not beneficial from a pricing perspective. Essentially, we are experiencing growth in one market while facing a decline in another, as one market was self-starting while the other was already competitive. This color around the situation explains why we view the outcomes as expected.

Hey, guys. Thanks for taking the questions. I think most of mine have been asked, so I'll ask a little bit of a nitty-gritty question here. Just noticed that in the guidance revision, the 80-basis-point headwind was attributed to both business development activities and licensing. So, it sounds like the Aurion development costs is a good portion of that. Just curious if there was like another element on the licensing side or anything else that was going into that like broader headwind. Thank you very much.

Yeah, it's mostly Aurion. I think the vast majority is Aurion, but we also acquired an asset called Cylite during the quarter. You can find that in the notes. And we had a little bit of licensing work in there as well.

The next question is from Young Li from Jefferies. Please go ahead.

Great. Thanks for taking my question. I guess maybe one more just on U.S. ATIOL. Just on the competitive trialing dynamics, how much are you still seeing currently? How long do you expect that to persist in '25? And then, are you going to be trialing PanOptix Pro as well to support the launch?

We are still observing sampling, which tends to come in waves. When new products are introduced, it typically takes three to six months for interested individuals to go through the trial process. We're seeing a series of products entering the U.S. market, with around four or five currently available, each accompanied by samples. We anticipate this trend to continue, and we expect another Johnson & Johnson launch next year, along with more trialing activities later this year. However, I believe this will become a diminishing factor over the next 12 months.

All right. Great. Very helpful. And then, I guess our Voyager checks at ASCRS were really positive, solid demo, and the efficiency really jumps out for both the doc and the staffing. I think you're scaling manufacturer for it now, but what's your thoughts on the pathway to making it the standard of care?

Great question. I believe SLTs alone are the standard of care. The real challenge is ensuring that it happens at the rate people expect. That's where Voyager comes in as we start to implement it. There is a growing agreement that SLT should be the first treatment option because it reduces reliance on drops, is easier to manage, and is a good starting point for both patients and doctors. As more people use and experience this product, and as they gain confidence in its effectiveness in lowering pressure, I think we will see an increase in the adoption of this standard. A new publication about this product should be coming out soon, which will be beneficial as it shows similar results to the core SLT but is more efficient for surgeons, glaucomatologists, or general ophthalmologists. We anticipate a lot of positive developments regarding this product. We are currently manufacturing it in Israel and will also be moving production to the U.S., creating dual manufacturing locations. We are excited to see this progress.

Thank you. Good morning, guys. I guess, Tim, one question for you just on the implantables business. Can you remind us where we are in the phasing of the VVP tailwinds that you've been getting? I know they've been very helpful the last couple of quarters. When do those start to moderate versus the PanOptix Pro tailwind starting to kick in? Do you feel like the 0% implantable number we saw in the first quarter, are we at the trough? Should we see some sequential improvement in those year-over-year growth rates over the next few quarters? And then, I have one follow-up. Thanks.

I believe the implant numbers are primarily affected by a very suppressed U.S. market, which has had a significant impact. Looking ahead, I expect that the VVP will benefit from favorable conditions through the middle of next year, assuming everything proceeds as scheduled. However, we've seen instances where the national VVPs in China have experienced delays. The current timeline suggests we should expect developments around the middle of the year, and we'll have to see how that unfolds.

But I think, Jeff, if your question was about this quarter and the timing related to a VVP, if you'll recall, Q2 of last year is when we began stocking the distributors. So, when you compare year-over-year in '25 versus '24, I think it starts to stabilize in Q2.

Yeah, that's kind of how I headed to my model, and my concern is, do we think implantables could dip even from this level before we start back on a recovery as PanOptix Pro builds throughout this year? Or are we kind of near a trough at this point?

I'd have to look at that in some specificity. I think directionally, we continue to grow share in kind of year on prior year. So, the actual consumption would be a tailwind for sure, I think, year-over-year. The question is as you wrap around on the loading of inventory, there may be a temporary number that we have to worry about, probably mostly in the Q2 frame. I'm going to avoid answering your question directly because I don't want to disclose our plans to our competitors. You're absolutely correct that we have some flexibility in this area. We believe in both of these products. Another approach could be to position Pro as a premium product. We'll observe how this develops in the market, but it certainly provides us with considerable flexibility. Let me stop there.

Hi, guys. Thanks for the question. And I'm sorry, but we're going to return to tariffs, please. Just on the $80 million tariff, I just wondered, geographically where that was derived from, is that U.S. to China, U.S. into Europe, just to help us think about where that might go? And then, just a clarity that $80 million gross headwind, is that rate as of now? If we return to prescribed rates following the 90-day suspension, what would that impact be for this year and then potentially annualized into 2026?

The $80 million is primarily related to China and also includes exports to China. Our import levels from China are relatively small. We decided to maintain a rate of 10% throughout the year without making further adjustments. This decision was made because we're uncertain about the tariff rate effective on August 15. Some reports suggest it could return to $125 million, while others indicate that most tariffs announced after Liberation Day have been lifted, potentially lowering it to 34%. Rather than speculate on the future, we treated this like foreign exchange and based our assumptions on a specific point in time. If the rate is indeed $125 million as of August 15, it would significantly affect four months of cost of goods sold in China. However, much of this will be reflected on the balance sheet initially, taking time to impact the profit and loss statement, but it could also affect 2026 significantly. If this scenario were to happen over the long term, we would consider different strategic responses, such as revising our pricing strategies, tax strategies, and manufacturing locations. While I don’t want to predict what will happen in 2026, this is the way we have approached the situation.

Perfect. And then maybe just one follow-up. Are you potentially seeing any tailwinds from some of your competition potentially more exposed to tariffs, particularly on the equipment side?

No. I believe we are all in a similar situation. Many people have a solid business in China, and we have a large operation in both China and Japan, where we primarily import from the U.S. This is an important factor to consider. Most of our competitors do the same. However, we are closely examining the market to assess our pricing potential and whether we can benefit from our own situation or someone else's. We will evaluate market conditions carefully. Currently, we hope that a rational approach will emerge, allowing for a balanced perspective on this matter. As previously mentioned, AdvaMed representatives and the Chinese authorities would agree that there isn't a trade imbalance in medtech products between China and the U.S. This suggests that there is no justification for the current situation apart from the complexities of ongoing negotiations. Our stance on our overall business is to navigate this carefully. We want to be strategic and ensure that we invest wisely in research and development and maintain our new product pipeline. We believe that our new products will help us through the end of the year. This aligns with where we began the year, and we are focused on regaining our growth momentum, which we are currently achieving.

This concludes the question-and-answer session. I'd like to turn the floor back over to Dan Cravens for closing comments.

All right, everybody, thanks for your time this morning and afternoon. If you have any other follow-up questions, certainly feel free, for media, reach out to our corporate communications team, and investors, feel free to reach out to either Allen Trang or myself. Thanks again.

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