Greetings, and welcome to the Alcon Second Quarter 2025 Earnings Conference Call and Webcast. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Dan Cravens, Vice President, Global Head of Investor Relations. Please go ahead, sir.

Good morning. Welcome to Alcon's Second 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. 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, including statements about our future outlook. We undertake no 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 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 by 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 second quarter. After his remarks, Tim will discuss our performance and outlook for the remainder of 2025. Then David will wrap up and we'll open the call for Q&A. So with that, I'd like to turn the call over to our CEO, David Endicott.

Good morning, everyone, and thank you all for joining us today. We are entering an exciting phase at Alcon. Several major product launches are now underway and beginning to gain traction. Our innovation and commercial teams continue to deliver, reinforcing our leadership in eye care and deepening our connection with patients and providers worldwide. While markets in the first half of the year were softer than anticipated, primarily in Surgical, Vision Care remains solid. And although our second quarter results fell short of our expectations, we remain confident in the long-term durability of our end markets, the resilience of our customers and our plan to accelerate growth. Looking ahead, we've never been better positioned for sustained growth. Our teams are executing with focus and agility. And as we discussed at our Capital Markets Day, our robust pipeline and strategic expansion gives us confidence in our growth trajectory into 2026 and beyond. I'll start my remarks today by discussing some of our recent business development and licensing transactions. At Alcon, our BD&L strategy is focused on acquiring transformative technologies in attractive white spaces that address unmet needs in eye care. In glaucoma, we recently integrated the Voyager Direct selective laser trabeculoplasty device into our portfolio. This first noncontact laser therapy offers a streamlined, patient-friendly alternative to traditional SLT and positions us to accelerate global adoption of laser-first treatments. In refractive surgery, our agreement to acquire STAAR will strengthen our offering with implantable collamer lenses, broadening our solution for high myopes. And in retina, we recently announced the acquisition of LumiThera and its Valeda Light Delivery System for early and intermediate dry age-related macular degeneration. Now I'll take a few moments to discuss these last two transactions in a little more detail, starting with STAAR Surgical. As announced, we've entered into a definitive merger agreement to acquire STAAR and its market-leading EVO family of ICLs for vision correction. The boards of both companies have unanimously approved the transaction, which is valued at $1.5 billion. Upon closing, we expect the merger to be accretive to earnings in year two. ICLs represent one of the few sizable market segments in surgical vision correction in which Alcon does not currently have a presence. And STAAR is the leader in this space, but remains underrepresented in several global markets. By combining forces, we can leverage Alcon's broader commercial infrastructure to accelerate adoption of the EVO ICL platform. Furthermore, the EVO family expands our ability to address significant refractive errors because it can be used to treat high myopes. Importantly, this transaction brings Alcon a proven technology upon which to build, and longer term, our internal product development teams will collaborate with STAAR's experts to explore combining our advanced IOL optical designs with their collamer platform with the goal of developing a presbyopia correcting ICL. We expect this transaction to close in six to twelve months, subject to customary closing conditions, including regulatory approvals and STAAR's approval of shareholders. Until then, Alcon and STAAR will operate as independent companies. While EVO generates significant revenue in China, we remain confident in the long-term opportunity that that market presents. We recognize that there have been recent macroeconomic headwinds in China, but this transaction is about the future. Long term, we expect China to be the largest single eye care market in the world. And as the global leader in eye care, we expect to have a sizable presence there. Lastly, EVO's differentiated clinical profile positions us well to drive penetration and treat the myopia epidemic that's unfolding around the world. I'll now shift to our announced acquisition of LumiThera and the Valeda Light Delivery System. We believe this product is a pivotal shift in the treatment of dry age-related macular degeneration or AMD. Dry AMD is a progressive eye disease that leads to irreversible vision loss. It affects nearly 200 million people globally and that number is expected to rise to over 280 million by 2040. Additionally, there are currently no widely adopted treatments for the early to intermediate stages of dry AMD, which is where the majority of patients sit today. The Valeda system is the first FDA authorized medical device that uses a combination of light known as photobiomodulation to stimulate the retina's natural ability to heal and regenerate. It's a noninvasive in-office therapy that has been shown in clinical trials to improve visual function and slow the progression of AMD. Most importantly, it's safe, scalable and offers a completely new therapeutic option in an area with major unmet need. The pivotal LIGHTSITE III trial showed statistically significant improvements in best corrected visual acuity over a two-year period. And based on those results, the product received FDA de novo authorization in 2024, a key milestone that clears the path for U.S. market adoption. We also plan to pursue CMS reimbursement. And recent developments are favorable in terms of gaining coverage. If we're able to secure reimbursement and expand penetration, we estimate the peak recurring revenue could range between $100 million to $150 million by 2030. As we continue to strengthen our portfolio through strategic acquisitions, we're equally focused on driving organic growth through our own innovation and execution. Our recent product launches reflect Alcon's commitment to delivering differentiated high-performance technologies that meet the evolving needs of doctors and patients. I want to start with equipment where we're encouraged by the initial demand for Unity VCS, our next-generation combined vitreoretinal cataract system. This device is the result of years of collaboration with surgeons worldwide. It's a fully integrated platform that unifies both anterior and posterior segment capabilities into a single intelligent console aimed at improving surgical workflow and efficiency. I'm pleased to report that the innovations like 4D Phaco and the Hypervit 30K cutter are resonating well with both cataract and retina specialists. Unity has received regulatory approval in key markets, including the U.S., EU, Japan and Australia, and we began shipping in May. And while it's still early in their launch, our order book is strong. We're being deliberate with our installations. We're providing the best possible support to surgeons and clinicians as they adopt the latest advancements in Phacovit technology. Now turning to implantables. We're very pleased with the early market response to our latest innovation, PanOptix Pro. Building on the success of the original PanOptix, our latest advancement represents an important improvement in optical performance and patient outcomes. PanOptix Pro delivers 94% light utilization, which is the highest among trifocal IOLs. It also reduces light scatter by 50% compared to its predecessor. This translates to sharper, clearer vision across all distances with enhanced contrast and reduced visual disturbances, and surgeon feedback has been highly encouraging. We're seeing solid adoption trends in early launch markets. Importantly, PanOptix Pro is helping stabilize share in the U.S. premium IOL segment with a modest sequential improvement shown in the second quarter. This is a great example of how Alcon continues to leverage our innovation engine, global scale and surgeon input to drive differentiated value-driven growth. Now shifting to Vision Care. We continue to see solid performance in our contact lens portfolio fueled by innovation. During the quarter, we continued to advance Precision7 sphere and toric lenses in the U.S. These lenses represent a significant step forward in our water innovations portfolio, designed to deliver all-day comfort and convenience for patients who prefer a weekly replacement schedule. Precision7 is built on a novel silicone hydrogel material and features our proprietary active flow system. This unique technology embeds a water-loving moisturizing agent directly into the lens matrix and continuously replenishes that agent over seven days. We're seeing strong feedback from practitioners who appreciate the simplicity of the weekly schedule and the performance of the lens, especially for patients who may not be well suited for a daily disposable contact. Turning to ocular health. The headline in the second quarter was the FDA approval and subsequent launch of Tryptyr, our new prescription eye drop for the treatment of the signs and symptoms of dry eye disease. While most other dry eye treatments simply mask symptoms or supplement the tear film, Tryptyr addresses the root cause of dry eye. It's a first-in-class agonist neuromodulator that stimulates the eye's natural ability to produce tears. It's fast acting and effective, with clinical trials showing meaningful improvement as early as day one. Tryptyr addresses a major unmet need. Despite over 35 million people in the U.S. suffering from dry eye, fewer than 10% are treated with a prescription product. We believe Tryptyr has the potential to expand the category, not just compete within it. Now based on our strong clinical data and market dynamics, we estimate peak sales potentially of approximately $250 million to $400 million. And while reimbursement timelines vary, we expect full reimbursement in about 18 months. We officially launched Tryptyr in the U.S. in late July. While it's early days, we are encouraged by the initial feedback from physicians and patients. I look forward to sharing more details about the performance of this innovative therapy in the future. And finally, I'll briefly discuss market dynamics for the second quarter. In cataract, we saw a soft quarter for procedural growth with a modest improvement in the U.S. In total, we estimate that global cataract volumes grew approximately low single digits in the quarter and the first half of the year. For context, this compares to a historical average of approximately 4%. Additionally, global AT-IOL penetration was up approximately 120 basis points year-over-year, equally balanced between the U.S. and international markets. In contact lenses, we estimate that the retail market grew mid-single digits. With that, I'll pass it to Tim who will take you through the financial results and discuss our outlook for the remainder of the year.

Thanks, David. Our second quarter sales of $2.6 billion were up 3% versus prior year. This growth was largely in line with our first quarter and doesn't reflect the full contribution from our recent product launches. In our surgical franchise, revenue was up 1% year-over-year to $1.5 billion. Implantable sales were $456 million in the quarter, down 2% versus the prior year. This result reflects soft market conditions David just mentioned as well as competitive pressures. In consumables, second quarter sales of $777 million were up 4%. Growth was led by vitreoretinal and cataract consumables as well as price increases. This growth also reflects the soft market conditions we've been discussing. In equipment, sales of $222 million were down slightly as declines in legacy surgical equipment were partially offset by sales of the recently launched Unity VCS and Voyager DSLT systems. Turning to Vision Care. Second quarter sales of $1.1 billion were up 5%. Contact lens sales were up 7% to $692 million in the quarter, primarily driven by product innovation as well as price increases. In ocular health, second quarter sales of $430 million were up 2% year-over-year. Growth was led by our portfolio of eye drops, partially offset by declines in contact lens care. There was also some pressure resulting from the divestment of certain eye drops to OcuMension in China, which we expect to continue through the third quarter. Now moving down the income statement. Second quarter core gross margin was 62.2%, broadly in line with the prior year. Core operating margin was 19.1%, down 100 basis points, primarily due to increased investment in R&D. Second quarter interest expense was $51 million, broadly in line with last year. Other financial income and expense was a net benefit of $4 million. The average core tax rate in the first half of the year was 17.7%, down from 21.2% in the prior year due to discrete tax benefits in the current year compared to discrete tax expenses in the prior year. Core diluted earnings were $0.76 per share in the quarter, broadly in line with last year on a constant currency basis. Turning to cash. We generated $681 million of free cash flow in the first half of the year compared to $667 million in 2024. Our robust cash generation enabled us to return $287 million to shareholders during the quarter, comprised of $121 million in share repurchases and $166 million in dividend payments. Regarding tariffs, we incurred $27 million of tariff-related charges during the second quarter. Of this amount, $12 million was recognized in cost of sales and $15 million was recorded on the balance sheet for product not yet sold. Based on tariff rates as of August 11, we now expect a full year impact of approximately $100 million to cost of sales. This represents an incremental headwind of approximately $20 million versus the tariff structure in May. Nevertheless, we continue to expect to fully offset the impact through a combination of foreign exchange and operational actions. Now moving to our outlook for the remainder of the year. Our current guidance assumes that the aggregate global eye care market grows low single digits versus a historical average of mid-single digits. Exchange rates as of the end of July hold through year-end, and that the tariff structure I just described holds for the remainder of the year. Starting with sales, we are updating our full year revenue guidance to $10.3 billion to $10.4 billion, which reflects a soft surgical market and recent moves in the U.S. dollar versus our basket of currencies. Additionally, given the soft surgical market, we are updating our sales growth rate guidance to between 4% and 5% in constant currency. In terms of phasing, we continue to expect sales growth to accelerate in the second half of the year, predominantly in the fourth quarter. We expect full year R&D coming in at the top half of our 8% to 10% of sales range. Turning to profitability. We now expect full year core operating margin to be between 19.5% and 20.5%, which reflects the updated sales outlook. Moving down the income statement. We continue to expect non-operating income and expense to be between $185 million and $205 million. Turning to tax. We now expect our full year core average tax rate to be approximately 18%. Based on all these factors, we are maintaining our core diluted earnings guidance range of between $3.05 to $3.15 per share. This range corresponds to a year-over-year change of between 0% and 2% in constant currency. We believe this updated guidance is prudent and reflects the current market conditions. We also remain confident and committed to the long-term goals we outlined at Capital Markets Day in March. Despite near-term softness, we believe favorable market megatrends will persist and enable healthy long-term market growth. And from an operational perspective, we will continue to invest behind innovation, we have a solid plan to grow sales faster than the market and we will continue to be disciplined around costs. And as we've said in the past, these activities will drive strong operating leverage and generate significant free cash flow.

With that, I want to thank our associates for another quarter of hard work and dedication, and I'll now turn it back to David. Thanks, Tim. To wrap up, we remain focused on executing with discipline, investing behind innovation and supporting our customers and their patients. Most importantly, we've laid the groundwork for an exciting second half driven by numerous new product entries. These products are the result of years of collaboration with our customers and are a testament to our deep market knowledge and commitment to helping the world see brilliantly. Lastly, we're excited to expand our presence in white spaces like refractive surgery, glaucoma and retina through acquisitions. Products like EVO, Voyager and Valeda are each strategic moves in growing markets with unique technologies. Combining these products with Alcon's global reach and operational excellence, we're poised to accelerate growth, expand patient access and deliver long-term value to our shareholders. Finally, I'd like to thank our talented teams across the globe for their dedication and passion. With that, I'll open the line for Q&A.

Our first question today is coming from Jeff Johnson from Baird.

All right. So I guess two questions for me. One, David, I want to understand, I think one of the encouraging points you brought up in the prepared remarks was that your share in PC-IOL was stable in the U.S. and maybe even ticked up sequentially a bit. Could you flesh that out a little bit more and maybe talk about your AT-IOL share outside the U.S.? You seem to drop some commentary in your slide deck from the first quarter about strength in AT-IOLs outside the U.S. that was not included in your slide deck here in the second quarter.

Yes, Jeff, that's a good question. Let me break it down. In the second quarter, we saw a sequential improvement of about four share points. PanOptix Pro has been well received for the reasons I mentioned earlier, and I’m pleased with its current performance. There was also a competitive outage during that time, so we need to consider that when evaluating the situation. Overall, we’ve successfully provided surgeons with what they want, which is less visual disturbance and increased light for better contrast. This design element has been effective for us, and we are optimistic about its impact on the U.S. market. However, there have been pressures in international markets, particularly in Europe, where we experienced more share loss than we anticipated due to new products from competitors. The IOL market will likely remain under pressure globally until we see a stabilization in the number of new product launches. For several years, we’ve acknowledged that while we had great success in the U.S., the global market is complex with many products. We knew we wouldn't maintain an 80% market share in the U.S. indefinitely. Currently, we’re experiencing a stabilization process with solid performance from new products, and we have a better understanding of the competition. While we see signs of stabilization, I still expect ongoing international pressures.

All right. Fair enough. Tim, I have a quick question for you. I know you're not providing guidance for 2026 and may not fully address this, but you’ve completed around $2.5 billion in deals over the past 6 to 12 months and are launching 5 to 6 sizable new products in the dry eye and DSLT markets. You’ll also be working to manage tariff pressures. How should we conceptually understand how all of this fits together in terms of dis-synergies, synergies, and potential dilution from these deals? Can we expect a good earnings growth year next year? Again, not asking for a specific number for next year, but how should we set up our models for 2026?

Yes, that's a great question. I'm a bit cautious about discussing 2026 too much. However, we are very positive about the deals we've made, as they provide significant long-term strategic value. The most notable deal is with STAAR, which won't finalize for 6 to 12 months, so its impact on next year will be limited and will also depend on when we close it. Regarding our philosophy on synergies, we are a global company with a wide reach. We have the necessary resources and shared services in place to support many of these activities. We will provide more details when we discuss guidance for 2026.

Next question is coming from Jack Reynolds-Clark from RBC Capital Markets.

So my first is just on the market weakness that you discussed and was a driver of the downgrade. What's driven that weakness? And what's the outlook for that? What gives you confidence it's going to return? And kind of what kind of timeframes are you looking for that? That's the first one.

Yes. Thanks for the question. Look, I mean, the world is aging, cataract prevalence is growing and treatment access is increasing. So underneath all of this, there is no shortage of cataracts. So I think the simplest way to think about it is there aren't fewer cataracts today or tomorrow, there's going to be only an increasing number. And if you look at our procedural volumes, that's what gives us confidence around the treatment in the end. Now the reason we've been a little bit careful on this one is because, frankly, the historical surgical procedure volume has been about 4%, but it does have an oscillation around it. Over the last, let's call it, 10, 15 years, if you look back, there's a plus or minus a couple of points on that. So if you look at our MAT right now, it's probably 2% on the 12 months, but it was closer to 1% last quarter. So that's a relatively normal oscillation but on the low end of what the natural historical average should be. So again, I'm going to lean on the math, and I'm going to tell you that there's no reason to believe from a fundamentals perspective, there's any fewer cataracts, and this is probably much more of a return to the norm or a version of the mean that will happen. We've had a number of really good years that were above 4% globally. And I think what you're seeing right now is just kind of a normalization that's happening. So look, we're going to give it a couple of quarters. We've obviously been careful about the next two, and then we'll give you some more guidance for next year as we see what happens in the next third and fourth quarter.

Okay. Fair enough. Then my second question is on Unity. So you mentioned there's been some kind of pretty good kind of uptake since the launch at the end of May. Could you just give a bit more color on your order book here? Kind of how much line of sight do you have on placements through the remainder of the year? And kind of what placement has been like so far in July and August? Kind of just any color there would be great.

Yes, we sold our first VCS in late May. We've had about 10 weeks since then and during this time, we've gathered over 1,000 qualified leads. Our sales funnel is strong. It's important to note that this launch will be intentional and gradual as we begin with the combined console for more complex surgeries, primarily targeting retina specialists. Since Constellation has been around for almost 17 years, we need to ensure proper training for both the staff and the surgeons, as well as verify that the settings transfer correctly. We are proceeding carefully to create the expected experience for these highly skilled surgeons. We're confident in our current position and aim to manage this launch prudently. As we introduce this product towards the end of this year, we anticipate continued growth. This is a long-term strategy for us, as our replacement cycle spans 10 years, and with 30,000 consoles already in circulation, we are optimistic that the efficiency we are observing now will lead to significant advancements in the next decade.

Your next question is coming from Veronika Dubajova from Citi.

Let's see if you guys can hear me okay.

Yes, we got you.

Sorry about that. I'm not sure what happened earlier. I'll keep it to two please. The first one is just circling back on Unity, I guess. I think, David, in the past, you've talked about this idea kind of 3,000 installations in a year. Can you maybe just give us a little bit of flavor of when you think we can get there? And I guess, maybe contextualize the 1,000 leads versus this idea of 3,000 placements? How should we think about it? And from where you guys sit, do you feel Unity is tracking ahead, behind? Or kind of how do we think about that? So that's my first question. Then I'll have a follow-up. Maybe we can get this one out of the way first.

Yes, we're generally where we expected to be. We've been operational for about 10 weeks and are currently managing our capacity. As we continue to place and train the units, we'll improve our efficiency over time. It's important to note that this process is different from selling consumer electronics, as we need to spend significant time in the office and operating room to ensure everyone has a positive experience. If we succeed in that, we can move forward; if not, we need to stay longer. The main challenge we face is our installation capacity, but I don’t see that preventing us from reaching 3,000 installations annually. We might exceed that in the early part of the year and fall a little short later on, but over the next decade, we anticipate a significant transition in our console installation base. Currently, we're in a good position with demand as expected. I believe there has been some misunderstanding about the differences between our CS and VCS offerings. The CS product opens the cataract market to a wider range of customers at a lower price, while the VCS is specifically designed for retina specialists. This creates a complex landscape compared to our core cataract business. There’s a lot of opportunity and excitement in the market.

Okay. That's really helpful. And then just maybe a follow-up. Do you think you can hit the 3,000 next year? And then, Tim, I don't know if you want to add any color on what you'd expect equipment to do in the back half of the year since it's been so hard for us to model from the outside, and maybe that would be helpful.

I'm not going to specify the numbers for next year. However, we have 30,000 units operating between Constellation and Centurion, and over the next decade, we will replace that fleet. Generally, if you consider it evenly over that time, we might see a bit more activity in the earlier part as there's enthusiasm, while the later part might be slower as some may wait for the next version, as we've observed this past year. What we've noticed in the first and second quarters, as well as late last year, was a slowdown in equipment because people were anticipating this change. Now it's simply a matter of completing our work, and I believe that process is already in motion.

Yes. I would just say, Veronika, to give you some color on the new product launches. I mean, with the revenue guide of 4% to 5%, that obviously would imply if you take the midpoint, that would imply, call it, 6% in the back half of the year. New product launches are going to be a significant driver of that. A big piece of that will be coming in the fourth quarter. And if you look at the new product launches, again, we've got 6 or 7 launches coming out this year. Unity VCS is a big piece of that.

The next question is coming from Richard Felton from Goldman Sachs.

The first one is on Systane. I'm interested to know how that's performing in the quarter. Some of the industry data that we get looks like the brand and the overall category slowed a little bit. So I'd be interested to hear if that's what you're seeing and why you think that is? That's the first one.

Yes. Systane and Systane Pro were pretty good. I mean I think it was kind of mid-single digits, high single-digit growth, somewhere in that zone. I think what you saw in the quarter, I think, and we saw it, too, was a real pop up in the category broadly because there's a significant amount of advertising by some competitors. And that's, I think, good for the category. So it certainly helped us and obviously helped them as well. So we saw a little bit of a tick down in share, but actually, the market size grew for us, so perfectly reasonable for us. I think what our category challenge in that area is really more about the OcuMension wraparound and some gel stuff that we had some supply issues around. So I would tell you that underlying this is pretty healthy growth in Systane all around the world.

Great. And then the second one is on STAAR. I was interested to know how important the China piece is to the business case for that acquisition. And as you sort of think through the growth outlook in China, we are also interested to hear your views on local competitions in the ICL space in that market.

We anticipate local competition and are aware of who they are. We have a significant presence in that market, which is our second largest or possibly third, depending on the currency values. Our goal has always been to broaden the refractive options available to patients. The Lasik business is strong for us, with a substantial global presence. In China, the Smile procedure has performed exceptionally well. Currently, our WaveLight Plus data shows that all patients achieved 20/20 vision or better, and over 80% reached 20/16 vision, which is unmatched by others. We aim to establish critical mass in markets like China, where there is a high demand for refractive surgery, and the same applies to Korea, Japan, and various parts of Southeast Asia, as well as Europe and the U.S. Although China is very important, it is not our sole focus for the long term. We will be significant in that market, particularly with our offerings for both above 6 diopters with EVO and Lasik for below 6 diopters. These two products combined create a competitive range against what others will offer, enabling us to expand into additional markets worldwide effectively. We view the myopia epidemic as a major opportunity to assist patients. This product is excellent, and with a little more effort to enter new markets, we believe STAAR can achieve the necessary critical mass, which excites us.

Your next question today is coming from Chris Pasquale from Nephron Research.

One on STAAR and then I had a follow-up on tariffs. So how are you thinking about the sustainable revenue growth rate for the EVO ICL platform once all the noise in China calms down?

Yes, we believe it's strong in China and in other markets as well. The penetration of EVO is very low compared to the high myopes, and it really seems to hinge on training and the business model. While competition is indeed a factor, it would have been a challenging journey for STAAR in China by itself. However, with our established presence and the overall value we bring to our customers, we believe we create significant opportunities for that brand. Overall, we view this as a very favorable contribution that enhances our typical growth rate.

Great. And then the increased tariff headwind you're forecasting makes you a bit of an outlier. Most companies this quarter have been talking about less exposure than they had a few months ago. Is that specifically related to Switzerland and some of the recent developments there? And then can you talk about what you're doing in terms of mitigation? Is the ability to offset this really the weak dollar? Or are you guys actually making substantive changes to your supply chain and distribution channel?

Yes, I would say for us, I can't talk to other companies, but if you think about the EU as an example, coming in at 15%, I think what we had at the May time frame, folks were talking about the 10% kind of range. So I would say that's one of the key drivers of it. But the mitigation factors that we have in place, a vast majority right now is dollar and is the currency. But we are continuing to look at things like moving manufacturing footprint where it makes sense, kind of, I'll call it, the non-regret type of things because again, this is a very volatile environment. It takes a lot of thought, money and effort to move manufacturing. So we're really looking for a stable policy before we start making some larger moves like that.

Our next question today is coming from Ryan Zimmerman from BTIG.

I want to talk about maybe some of the long-term targets that have been out there for some time since the Capital Markets Day in the context of some of these new market growth rates. And you laid out a 5% growth rate kind of in line with market, and there's another 200 basis points of innovation, I think, gets you about 7%. With the new market assumptions this year, does that step down over the long term to maybe 3% and 5% on that 200 basis points? Does the long-term targets hold in your view? I'm curious if you could kind of give us your thoughts on that.

Yes, we still have a positive outlook for the long term. We've adjusted our market forecasts three times now, and it's a fact that we missed out on the surgical market. However, this isn't unusual considering the past 15 years. Looking closely at the market, it reflects approximately 4% growth in the surgical procedural area, and we don't anticipate any significant changes. There's typically a variance of plus or minus 2%, so while the current growth is 2%, it remains within this expected range. Overall, there's no decrease in the number of cataracts, and we're training more surgeons globally, especially outside the U.S. Productivity in the U.S. does need to improve somewhat, but ultimately we believe that increased productivity will be crucial. That's a key reason why VCS is significant, as it presents the chance for efficiencies. If you were doing 19 cataract surgeries a day, you could likely increase that to 20. These efficiencies are what private equity looks for in practices to support procedural growth. We don't foresee any drastic changes in the market, similar to trends over the past 10 to 15 years. It’s important to note that while we often discuss the surgical procedure market focused on cataracts, our business encompasses much more. For instance, the contact lens market typically grows at mid-single digits, often between 5% and 7%, and we don't expect major changes there. Similarly, our OTC market, particularly eye drops, generally sees growth of about 4% to 5%. Overall, we’re currently growing in line with the market; ideally, we would like to grow slightly faster, but given the market conditions, this is our current status.

Yes. I also think to David's point that I mentioned earlier.

Go ahead, Tim.

Yes. If you consider the major trends influencing the entire company, the population is aging, the middle class is expanding, and by 2050, half the world's population is expected to be myopic. Additionally, technology continues to enhance access and improve outcomes. We do not anticipate these trends changing significantly. When examining the long-term objectives, we are looking at a time frame of about five years.

Yes, I apologize if I was too narrow in my focus regarding Surgical. On another note about the long-term targets, I gathered from the Capital Markets Day that you believe your operating margins are nearing a level where cash can start flowing back to shareholders. Given the recent M&A activity, how do you view cash flow and margin improvement, especially with the decline in operating margins? It seems that the trajectory for margins in the coming years might be extended. I also wonder about M&A activity moving forward; given these changes, should we anticipate a slowdown in robust acquisition efforts?

Yes. I'd say a couple of things. When you look at the margin profile, so if you look at this year, you take the midpoint, that would imply or that would be a step back from where we were last year. But when you break that down, this year, we're still going to get roughly 150 or so basis points of operating leverage. The challenge has been, what's offsetting that is we've got tariff pressure when you look at the op margin line and you've got the Aurion pressure. So as you think about going forward into '26 and beyond, we should continue to get that same type of operating leverage 150, 200 basis points, what we've gotten historically. And you won't have the Aurion pressure. You still have a little bit of tariff pressure because some of that's hung up on the balance sheet. So the fact that the business can continue to generate significant operating leverage, we feel really good about. And when you do that, you obviously generate nice free cash flow. So we feel good about the free cash flow. Our capital allocation philosophy hasn't changed. And again, the balance sheet is very, very healthy. So we've got a lot of capacity, and that gives us a lot of financial flexibility.

I want to emphasize that we should view these acquisitions primarily as product acquisitions. While they are companies, most of them focus on a single product. This presents significant value. For example, Aurion is a one-product company, despite its extensive R&D. LumiThera was Valeda, LENSAR is a FLACS machine, STAAR is EVO, and Belkin was the Voyager. Our strength lies in leveraging our infrastructure, sales force, and manufacturing capabilities, allowing us to move these products faster than our competitors. That is clearly our strategy.

Our next question is coming from David Saxon from Needham & Company.

Could you discuss the launch strategy for Tryptyr since its rollout in late July? What level of investment is included in your guidance? Additionally, how should we anticipate the revenue growth in relation to reaching peak sales and achieving full coverage, which I believe you noted would take around 18 months?

I would advise caution regarding the revenue ramp, as it will largely depend on the reimbursement process. However, I want to discuss our launch strategy, which I find quite compelling and we are very enthusiastic about. This marks one of our initial core entries back into pharmaceuticals, a sector we've invested significant time in over the years. While we have a substantial pharmaceutical presence, this is a new product and represents our first new launch in a considerable time. We've made great strides over the last year in professional education. We've also engaged with payers to ensure we comprehend their processes and how we can integrate into the reimbursement process effectively. I believe we've gained a solid understanding of it. Additionally, we've assembled a new sales team that is focused on both Tryptyr and our Systane Pro, specifically targeting dry eye. This team is reaching out to optometrists and ophthalmologists who are heavy users, and we have good data to support our targeting. Our advertising and promotion strategy is quite comprehensive; while I won't delve into the specifics, one initiative involves a program called first fill free, allowing patients to easily obtain their prescription at the pharmacy without concerns about reimbursement during their initial visit. This should accelerate our market entry. We also have several innovative strategies in place to help us develop this market, which we view as an untapped opportunity. We believe there are many patients in need, particularly as dry eye patients are among the most frequently presented cases to ophthalmologists, often seeking new and different solutions. Early feedback on the product has been positive, although it's still early days, as we are only about three to five weeks into this launch. We're optimistic and anticipate that it will take approximately 18 months to achieve full reimbursement, but we are pleased with our progress so far.

Okay. That's great. And then I wanted to get an update on the Power Vision trial. What have you seen in the study following the new protocol as you talked about at the Capital Markets Day? And then I guess, what's the timing of when that could wrap up? And when could we see data for that expanded trial?

Yes, you're welcome. The timing on that is at the end of the year. We will have some data, but I am uncertain if we will present it in the fourth quarter call or during the February call. However, we will be addressing the data within that timeframe.

Next question is coming from Larry Biegelsen from Wells Fargo.

Tim, I have two questions for you. The implied guidance for the second half has decreased by more than 9% to around 5% to 7%. How much of this reduction is due to slower market growth and other factors like the delayed ramp-up of new products? I also have a follow-up question for you.

Yes. I think a majority of it is really the market. Again, the ramps and the launches, we feel pretty good about. There was some share loss in there, to be fair. So if you had to split it out, maybe, call it, 2/3 market, maybe some share in there?

That's helpful. Tim, I wanted to ask you about a couple of questions today regarding 2026, particularly since we see the Street projecting 16% EPS growth, which exceeds your Capital Markets Day goal of 12% to 15%. I noted your earlier comments about 150 to 200 basis points leverage underlying. Could you provide some insight into the total dilution from the deals next year, any incremental tariff impact, and anything else we should consider as we adjust our models for next year?

Yes. I can't go into detail about the deals in 2026 because it really depends on the timing and execution of those deals. Regarding tariffs, they should start impacting us around April, and some of that will affect our balance sheet. As we head into 2026, we can expect a full year of impact. I would estimate a pressure of about 50 basis points from tariffs, assuming there are no offsets. So if you're just considering the gross impact of tariffs that are rolling off, that would be a reasonable starting point.

Next question today is coming from Graham Doyle from UBS.

Just one on the kind of a follow-up to Larry's question on the sort of midterm guidance there, which effectively is, I know you don't want to comment on 2026, but I think even you gave this guidance only a few months ago, and is being reiterated today. I think it's not unreasonable to ask the question, which is you're not going to do 12% to 15% EPS growth this year. It is a CAGR over not that long period. Is it reasonable to think that you do 12% to 15% growth next year?

Yes. Again, I'm not going to get into 2026. We're sitting here in August, and we're in a dynamic environment right now. Happy to give you plenty of color to throw all that out in February when we give the guide. But again, I'll just reiterate the guidance that we gave at Capital Markets Day, so that 12% to 15%, that's a CAGR over our long-term goals, and we feel pretty good about that. We feel good that we're going to continue to invest in the business. The markets, again, the mega trends haven't changed, so we would assume that the markets come back. We're going to continue to drive operating margin improvement. And when you do that, that generates nice EPS. It generates good free cash flow. And from a long-term goal perspective, we feel pretty good about it.

I want to add some context, Graham. The annual total for the surgical market was around 2%. This is the audited data, and we expect it to improve to about 4% over the long term. The Vision Care market is currently around 6%, which usually ranges from 5% to 7%. If these markets maintain their performance, and considering our products like VCS, CS, PanOptix Pro, Tryptyr, Voyager, Precision7, Systane Pro, Aurion, Valeda, LENSAR, and STAAR, we have many initiatives that we believe will strengthen our core business. Despite the current challenges, we anticipate a stronger finish this year, as we have mentioned before, and next year looks promising to us.

Your next question is coming from Issie Kirby from Redburn.

I wanted to ask on the contact lens market dynamics that you're seeing. There were some concerns last quarter about a bit of a weaker demand environment within contact lenses. You put up a pretty decent number. So I was just wondering what you're seeing there? And then how is Precision7 doing versus your expectations? Are you seeing any, I guess, positive cannibalization of some of your monthly wearers there? And I have a follow-up.

Yes, P7 is performing very well and meeting our expectations. It is indeed affecting some of our existing products, but it is also capturing market share. We anticipated that it would perform well in the two-week market, and it appears to be doing just that. Overall, we are satisfied with the results. As we had hoped, it is a high-margin brand for us, and we appreciate the shift from our older monthly lenses and lower-cost daily lenses to P7. Its pricing supports our margin goals, so even if we are trading from our own products into this one, we are still in a strong position. Additionally, we are gaining market share in the reusable category with this brand. On another note, demand in the second quarter was somewhat subdued, landing on the low end of mid-single digits, but it remains in that range. The contact lens Market Activation Trend shows a 12-month growth rate of about 6%. Currently, the market is experiencing slightly lower price levels compared to last year, and we have opted for a smaller price increase than we did last year, likely influencing this trend. Consumer behavior showed a consistent mix and stable pricing, with a flat number of wearers, which is typical. Overall, I think we are in a good position with the health of the contact lens market.

Great. And then just a follow-up on Unity and how revenue is being recognized with this product. Should we think about Unity as really a capital placement? To what extent are you guys leasing or perhaps bundling with your broader portfolio? Just trying to get a sense of how these placements really hit the equipment line or if there's anything elsewhere within Surgical that we need to consider?

Yes. Generally speaking, this is a capital purchase. I would assume that some of our customers will choose to lease, using external leasing agencies for that. For us, it will mainly be capital. I don't believe we are doing much leasing anymore. Additionally, there isn't any significant volume discounting at this time. We are still early in the cycle and there is considerable demand from the market. I believe our average selling prices are holding up well during these first 10 weeks, despite being a bit early in the process.

Our final question today is coming from Susannah Ludwig from Bernstein.

Could you guys just go into a bit more granular detail on the lower growth in the consumables business as this is one of the weakest quarters since the pandemic. You've been talking about for a couple of quarters, a softer market, but sort of sequentially, which regions were worse? And should we expect this more subdued growth to continuing consumables through the rest of H2? And then I guess is there any difference in the price contribution in consumables in Q2 versus Q1?

Yes, there isn't any significant difference. Our consumables market and the corresponding figures serve as a reliable indicator of market conditions since we hold a substantial share in that sector. As you've noted, we experienced a slower market, both in the U.S. and internationally. Overall, it was a slow quarter for procedures worldwide, but I believe this is likely a temporary situation. We've indicated a slightly softer performance for the latter half of the year, which aligns more closely with the first half. Therefore, I anticipate similar numbers moving forward.

We reached the end of our question-and-answer session. I'd like to turn the floor back over to Dan for any further closing comments.

All right. Thanks, everybody. Thanks again for joining us. If you have any follow-up questions for investors, certainly reach out to Allen Treng or myself or for media, reach out to our corporate communications team. Appreciate your time. Thanks.

Appreciate the interest.

Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.