Earnings Call: Q2 2021

Aug 18, 2021

Hello, and welcome to Alcon's Second Quarter 2021 Earnings Call and Webcast. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Karen King, Senior Vice President, Investor Relations and Corporate Affairs. Karen, please go ahead. Welcome to Alcon's Q2 2021 earnings conference call. Yesterday, we issued a press release and interim financial reports and posted a supplemental slide presentation on our website to enhance today's call. You can find all of these documents in the Investor Relations section of our website at investors. Alcon.com. Joining me on today's call are David Endicott, our Chief Executive Officer and Tim Stonecypher, our Chief Financial Officer. Our press release, presentation and discussion will include forward looking statements. We expressly disclaim any obligation to date forward looking statements as a result of new information on future developments, except as required by law. Our actual results may vary materially from those expressed or implied in our forward looking statements. Accordingly, You should not place undue reliance on any forward looking statements. Important factors that could cause our actual results to differ materially from those in our forward looking statements are included in Alcon's Form 20 F and our earnings press release and interim financial report on file with the Securities and Exchange Commission and available on the SEC's website atsec.gov. Non IFRS financial measures used by the company may be calculated differently from and therefore may not be comparable to similarly titled measures used in other companies. These non IFRS financial measures should be considered along with, but not as alternatives to, the operating performance measures as prescribed per IFRS. Please see a reconciliation between our non IFRS measures with directly comparable measures presented in accordance with IFRS in our Q2 earnings presentation, which can be found on our Investor Relations website. For discussion purposes, we are providing comparisons of 2021 versus 2019 unless otherwise noted. While you need to take into account a 2 year period, we believe the comparison versus 2019 is more operationally meaningful since our results were significantly impacted in the Q2 of 2020 by the pandemic. You will find a summary of results comparing 2021, 2020 2019 in our slide presentation and a comparison of 2021 versus 2020 in our press release and interim financials. As usual, our comments on growth are expressed in constant currency. With that, I will now turn the call over to David. Thanks, Karen, and good afternoon, everyone. Welcome to our 2nd quarter earnings call. I'll begin by providing a brief update on our Q2, overall market dynamics and recent performance. After my comments, Tim will discuss our Q2 performance and our updated outlook for the full year, then I'll wrap up with some closing remarks and we'll open the call for Q and A. Now We had a very strong Q2 with the highest quarterly sales and earnings since our spin off. This was driven primarily by demand for new product innovation and solid commercial with increases across all sales categories in Surgical and Vision Care. Core operating margin improved 18.2% And core diluted earnings per share improved to $0.56 Overall, our surgical franchise continues to outperform the market. We're growing share with our latest advanced technology IOLs, consumables have returned to growth in line with the recovery in procedural volumes, and we continue to see strong demand for our equipment. Our Vision Care franchise also returned to growth over 2019. Our new product launches are gaining momentum and expanding our market share despite variable recovery in international markets. PrecisionOne continues to be our leading brand for new and switch fits, even though new fits are still down globally. Consumer demand for PATADA Extra Strength has been better than expected and our Sustain brand family is posting strong growth aided by our newest products, Sustain Ultra and Hydration Multi Dose Preservative Free. Moving to our end markets by franchise. In surgical, the global cataract surgery market was down versus 2019 with the U. S. Showing solid growth over 2019 and international markets below the 2019 levels. That's primarily due to suppressed markets like Japan and India. Against these market conditions, We are gaining PCI oil share and outperforming the market driven by our strong U. S. Performance. In Vision Care, the contact lens market was up slightly versus the Q2 of 2019. And similar to surgical, the U. S. Market has returned to growth, while the international markets have not yet returned to 2019 levels. Nonetheless, we are gaining global contact lens share and outperforming the market driven by our strong U. S. Performance. Moving to innovation and investments, in PCILs, we remain the market leader and our share continues to grow with over 55% of global share and over 80% share in the United States. The continued adoption of Vivity at PanOptix is driving ATIOL penetration above its historical rates. Furthermore, Vivity is exceeding our expectations in launch markets and is largely incremental to PanOptix sales. The growth in ATI wells is driven by both existing surgeons increasing their use of advanced technology lenses and the conversion of new surgeons who traditionally preferred monofocals and torics, but are now implanting Vivity. While we do expect surgeons to try new competitive lenses, we're confident that the superior performance of our products as supported by a growing body of clinical evidence will sustain our market leadership. At the recent ASCRS conference, both PanOptix and Vivity earned a significant share of voice at the podium with many surgeons discussing the incredible quality of vision from both lenses. Now moving to our equipment business, we are piloting our comprehensive cloud based digital health solutions platform or SmartSuite, which is designed to help ophthalmology practices streamline and create efficiencies in the cataract workflow. At the center of our equipment ecosystem is our cloud based smart cataract application. This platform seamlessly connects the clinic to the OR, enabling surgeons to improve productivity and patient outcomes. We showcased our current platform recently at ASCRS We'll begin to expand the additional accounts at the American Academy of Ophthalmology in November. In Vision Care, PrecisionOne, our newest daily SiHi lens continues to gain momentum. PrecisionOne Sphere and Toric are now available in the U. S. And Europe and we've introduced PrecisionOne Sphere in Japan. We're excited to see our share gains in Sphere and Toric continue to drive our global market share, which has increased for the Q2 in a row. In DAILIESciHI, the fastest growing contact lens category, we estimate we've gained approximately 5 share points globally since 2019 as a result of our new product flow. Additionally, we will begin introducing DAILIES TOTAL 1 for astigmatism to select accounts in the U. S. This fall and are planning for a broader launch early 'twenty two. We expect this launch will reinforce the leadership of DAILIES TotalOne as the industry gold standard and bring more customers to the DAILIES family. We've also begun to introduce Total 30, which we expect to launch commercially in the U. S. And select European markets later this year. This product builds on the brand promise of DAILIES TOTAL 1 by delivering premium comfort to reusable wearers who account for 2 thirds of the lens wearing population. The reusable market is approximately $4,000,000,000 and our market share is currently in the high teens. So given our low share and the positive early feedback from our key accounts, we're confident we can expand our In Ocular Health, we saw strong retail and consumer interest for our Pataday Allergy Drop portfolio, led by the successful introduction of Pataday Extra Strength during a particularly strong allergy season this year. The convenience of the prescription Allergy product available over the counter is very appealing to consumers and we are excited to offer this premium patent protected product to a wider customer base. In dry eye, SUSTAIN sales continue to grow globally, reinforcing its leadership in artificial tears. We launched SUSTAIN hydration multi dose preservative During the Q2 in the United States, with our continued investment innovation, we believe there's a significant opportunity to increase preservative free penetration in the U. S. And grow our MDPF share internationally. As part of our strategy to grow our eye drops business in ophthalmic channel, We've begun building a dedicated sales force for ophthalmology in the United States. This team will also sell Pataday and SYMBRINZA, a prescription glaucoma eyedrop. We closed the acquisition of U. S. Commercial rights for SYMBREZA in June and the product is now contributing to net sales. So overall, our Q2 performance demonstrates the strength of our businesses and focused execution of our strategic priorities. Strong commercial execution behind our new product launches drove continued share gains despite a more challenging international environment. As markets return to growth, we believe the benefit of these share gains will manifest in continued top line growth. In manufacturing, we're installing more contact lens lines to keep up with demand and deliver steady product flow as we expand our portfolio and our market reach. Finally, We continue to invest in R and D to deepen our new product pipeline with exciting eye care innovation for the coming years. Now with that, let me pass it to Tim who will take you through our financial results and provide our updated outlook for 'twenty one. Thanks, David. We're pleased to report 2nd quarter sales of $2,100,000,000 up 11% versus 2019, driven by 14% growth in the surgical business and 8% growth in Vision Care and broad based growth across all sales categories. Year to date sales were up 9% versus the first half of twenty nineteen with surgical up 11% and vision care up 7%. Implantable continue to reach new highs driven by momentum from our new product launches. Sales were $387,000,000 in the 2nd quarter, an increase of 29% versus 2019. Panoptix and Vivity continue to take share and strong adoption is driving encouraging penetration rates. On a year to date basis, implantable sales were up 25% versus the first half of twenty nineteen. Consumable sales of $620,000,000 in the 2nd quarter increased by 4% versus 2019. We're pleased to see sales growth across Cataract, Vitret and Refractive Consumables. On a year to date basis, consumable sales were flat versus the first half of twenty nineteen. Equipment and other sales were $199,000,000 in the quarter, up 23% versus 2019 due to several reasons. First, our FAICO equipment continues to benefit from innovation and strong commercial execution. In Europe, We've been focused on actively upgrading customers from legacy Infinity devices to our newest generation Centurion machine. We've also seen healthy demand for innovation like the Active Sentry handpiece. 2nd, given the significant backlog of procedures, we're seeing some accounts expand capacity into new operating rooms or alternate sites of care, which is driving demand for new equipment in the interim. And third, Refractive has continued its trend of strong demand, which accounted for about half of the equipment growth. While we're enjoying the benefits of higher consumer discretionary income and increased focus on health and wellness, we don't expect to sustain the favorable trend in refractive over a longer period. On a year to date basis, equipment and other sales were up 22% versus the first half of twenty nineteen. Now turning to Vision Care. 2nd quarter sales of $888,000,000 grew 8% versus 2019. Contact lens sales were $535,000,000 in the quarter, up 6% versus 2019. Our new product launches drove double digit growth in the U. S, which more than offset a slight decline in international markets, where COVID headwinds are more pronounced. PrecisionOne continues to gain share in the daily sci high category and with the strong uptake of PrecisionOne for astigmatism, we're driving share gains in the fastest growing daily SiHy Toric category for the first time. With favorable share gains and account conversions, We will continue to accelerate the ramp up of our contact lens manufacturing lines. On a year to date basis, contact lens sales were up 4% versus the first half of 2019. Ocular health sales of $353,000,000 in the quarter increased by 11% versus 2019. This was driven by momentum in Sustain, aided by our new launches of Sustain Ultra and hydration multi dose preservative free and better than expected demand for our newest allergy eye drop, PATA Day. We launched PATA Day Extra Strength, which provides a full 24 hours of allergy release this spring and demand has exceeded our expectations. The favorable patent life of Pataday Extra Strength gives the brand significant runway for future growth. On a year to date basis, ocular health sales were up 13% versus the first half of twenty nineteen. Now moving down the income statement. 2nd quarter core gross margin was 64.4%, down slightly versus 2019. While we've seen some inflationary pressures, we've been able to mitigate the impact through cost containment. Core operating margin was 18.2% in the quarter, up 160 basis points versus 2019, primarily driven by operating leverage and reduced investments in COVID impacted markets. 2nd quarter interest expense was $30,000,000 down from $35,000,000 in 2019. While we've taken on incremental debt, We benefited from lower variable interest rates and have refinanced some of our higher cost local debt. The core effective tax rate was 19.2% in the quarter compared to 13.5% in the Q2 of 2019. The difference can be explained by the impact of the Swiss tax reform in 2020, which increased the corporate tax rate for Alcon by approximately 300 basis points, along with a more favorable geographical mix in the Q2 of 2019. The core effective tax rate was 19.9% for the last 6 months. Core diluted earnings per share in the Q2 of 2021 were $0.56 up $0.09 versus the Q2 of 2019, driven primarily by higher sales and better operating leverage. Now before I discuss our 2021 outlook, I'll touch on a couple of cash flow and balance sheet items. Free cash flow year to date was $320,000,000 compared to $95,000,000 for the same period in 2019. Higher core operating income and lower separation spend were partially offset by increases in inventory to support new product launches and upcoming demand. CapEx was $222,000,000 for the first half of the year with the increase driven by our contact lens manufacturing expansion. We expect higher capital spending in the back half of the year due to the timing of line installations. We closed the acquisition of the U. S. Commercial rights to SYMBRINZA for $355,000,000 this quarter, and we paid our first dividend of $54,000,000 in the quarter. Transformation costs were $15,000,000 for the 2nd quarter and $126,000,000 life to date. Now moving to 2021 guidance. Given the strong performance in the first half of the year, we are raising our full year sales and earnings outlook. While the economic recovery is underway in many of our markets, we anticipate that customers in some geographies will continue to face COVID-nineteen challenges, including the rising cases from the Delta variant. Against this backdrop, our 2021 guidance also assumes that Global markets return to 2019 levels by the end of the year. U. S. Markets will continue to grow above 2019 in the second half of the year, And international markets will reach 2019 levels early next year with countries such as India and Japan remaining subdued. Accordingly, we now expect full year net sales of $8,000,000,000 to $8,200,000,000 This is an improvement from our previous guidance $7,800,000,000 to $8,000,000,000 last quarter. We also improved our outlook for core operating margin from approximately 17% to approximately 17.5%, driven primarily by higher sales and operating leverage. Although we've been pleased with our margin improvement to date, We do expect to see incremental margin pressure in the second half of the year, primarily due to product mix and timing of spend. As markets continue to recover, we will increase our investment behind innovation, our new product launches and some of our commercial activities. We're also observing some challenges with suppliers and inflationary pressure in areas like raw materials and freight. We now expect core diluted earnings per share to be in the range of $2 to $2.10 as compared to our previous outlook of $1.85 to 1 0.95 per share. This assumes a core effective tax rate of approximately 20% for the full year. Now I'll turn it back to David for some closing remarks. Thanks, Tim. Before we open it up for Q and A, I want to thank all of our associates for a great quarter. Our results today demonstrate what we can achieve with great innovation, commercial execution and manufacturing excellence, pleased with our ability to deliver growth and outpace the market. Our share gains are remarkable considering current conditions and we're confident that we're well positioned to capture an outsized benefit as the global markets recover. Until then, we remain laser focused on supporting doctors and patients, while we deliver long term value to shareholders. So with that, let me open it up for quick Q and A. Thank you. We'll now be conducting a question and answer session. Then return to the queue. Our first question today is coming from Michael Zukin from UBS. Your line is now live. Thank A quick question on your comments around capacity expansion in some of your key accounts. Does that come with some Inventory fill that would suggest that maybe some of the surgical growth we've seen in the Q2, we shouldn't translate into the 3rd quarter and further. And then the second question, just as we see the Delta variant increase and have Some impact in the U. S. You made it very clear what your assumptions are with your outlook for the international markets in Europe. But it sounds like you're not worried about The U. S. At this point in time, is that a fair interpretation of your comments? Thank you very much. Well, on the second one, Michael, I think we are comfortable that we understand where we are right now, but again, the Delta variant is moving around the U. S. Quite quickly and I think We have a trajectory on it. We kind of have a view of it. I don't know that anybody really knows what's going to happen there. So It's baked into our thinking for sure, but I would just say that there's no certainty around what's going to happen. The capacity expansion, I'm not sure I understood your question precisely because if it's referring to our surgical growth and are we expanding For surgical, that's not really where we're adding capacity right now. We have plenty of capacity in our surgical business right now to manage key accounts and or Expansion around the surgical business. Our capacity expansion is going on principally to kind of keep up with demand in the vision care. That's our principal expansion effort. And again, our expansion is related really to our interpretation of demand. Right now demand has been better than we expected, but We're going to keep a close eye on it, evaluate capacity as we go forward. Thank you. Our next question today is coming from Veronika Dubajova from Goldman Sachs. Your line is now live. Hi, guys. Good morning and thank you for taking my questions. I will also keep it to 2. 1, just would love to understand, David, kind of The type of momentum that you saw as you move through the quarter, obviously very strong performance. I'm kind of trying to see was it weighted more towards May June and has that continued into July or was that kind of growth momentum that you saw pretty steady throughout Q2 and just maybe kind of Try to push you a bit more on this delta variant. Have you seen any deceleration in the U. S. Since you've reported Q2? Just to give us a sense Where you are? And then big picture question just on Vivity and Panoptix. Where do you think we are with ATIOL penetration? And now that we've seen Continued uptake here, are you more confident in seeing a step change here in momentum as you look forward? Thanks guys. Hey, Veronica. Thanks for the questions. Let me try and give a little bit of color on the quarter itself. I think inside the quarter, we had pretty steady Momentum, it wasn't choppy. I think what was happening really was the U. S. Was doing really well coming back through April, May, June, kind of consistently. And again, it was is relatively consistent month to month in terms of its growth. I don't know that we have seen any real signs of deceleration in the U. S. Around delta. I would say outside the U. S. In the Q2, we actually saw a little bit of improvement in Europe, but obviously some real challenges in India and Japan. And so the international markets broadly are quite complicated to describe, but I would just say that we think it's going to take a fair bit longer for the international markets to get back 2019 levels, we said kind of early 2020 sorry, they'll get back to 2019 levels early next year, which is 2022. U. S. Should grow. Our assumption is U. S. Is going to grow through the rest of the year. And again, the rate of that growth is kind of hard to know based On the Delta variant, but the only thing we've seen really is few hospitals here and there, where they've shut down some elective procedures, but in the U. S. Our business is dominantly in the ASCs And those ASCs are not shut. So again, we haven't really seen any material impact on surgical procedure volume in the U. S. Internationally, again, it just depends on what market we're talking about, and I think that's going to be more of a slow grind. On the second one on penetration, Vivity looks like it's adding about 300 basis points over the last 3 years, or I should say 300 basis points has been the improvement over the last 3 years, which is higher than the typical 50 points I think I've said to you before. Now what's really hard to know about that is whether or not that's just the mix of Public hospitals who dominantly do monofocal business. So if you take India, a lot of the numbers will quote against 2019, Exclude India because it's a massive amount of procedures and a massive number of local manufactured monofocal lenses. So If you look at the world market right now, it's down quite a lot. If you exclude India, it's still down probably mid single digits in surgical procedures. What we're seeing is a clear movement towards AT IOLs by about 300 basis points over the last years, so let's call that 100 basis points a year. That's mostly that's principally the U. S, right? So that's taking us now to 17% in the 2nd quarter from what was roughly 14% several years ago. So again better than expected, but hard to know if that isn't just mix. I will tell you, we're a little bit optimistic about it every quarter. I get a little bit more willing to say, we're seeing better penetration than expected. But I would just wait until we get to a normal really kind of a normal setting when monofocals are back as much as I thought. But Look, the more people that come in and talk about ATI wells in the U. S, the better. And I think we're going to continue to see growth on the back of Vivity, because it's turning out to be quite a useful product. Very clear. Thanks. Thank you. Next question today is coming from Larry Biegelsen from Wells Fargo. Your line is now live. Good morning. Thanks for taking the question and congrats on a nice quarter here. One for you, David, one for Tim, so I'll ask them both here. David, do you think Q2 benefited from catch up procedures and you expect that to continue for a few quarters? I know you talked about Potentially cataract procedures, for example, running hot, to use your words, coming out of the pandemic. And then, Tim, one thing that big picture that was interesting to me is we've seen the surgical margin increase about 700 basis points Since 2018 to 27%, but the Vision Care margin has actually decreased by 200 to 300 basis points over that time. Why has the Vision Care margin eroded and what's the outlook for each? Thanks for taking the questions guys. Thanks, Larry. On this on 2Q for surgical procedures, our understanding of the market at this point was that it was up mid single digits. If you do that over 2019 mid single digits, let's just cut it in half for each year, that would be pretty much the normal procedural growth that we would have expected to have seen during that period of time. So given that there really wasn't any last year, there must have been some made up. But what I would say is that the capacity to make up a lot of this in the United States is relatively small. Most ORs are running, We think in the kind of 85% to 90% capacity or sorry of their capacity. And so that really only gives them, let's just call it 10% 15% of additional makeup. So if you figure we lost a 1,000,000 cataracts over the last year or so, maybe a 1,000,001, It's going to take us a while, given that we do what 4,500,000 of procedures a year, 10% would only get you through if everybody in the system worked at Nearly 100% capacity, it would take you a couple of years to get through it. That's how we're doing the math right now. That could change. We are seeing a little bit of additional capacity being added. Some of the equipment volume you see in our business right now is a function of additional people adding additional ORs, not a lot of it, but a little bit of it. So we're cautiously optimistic. But I think what you're going to see is kind of Slightly warmer than normal, we would normally call procedural growth 3%. I think it's going to be a little better than that going forward for several years. Yes. And then on the Vision Care lines, I would just say this, if you take to your point, if you go back, I'll just take 2019, the end of 2019, I think the Vision Care margins were around 18%. We just reported obviously 16.4% in Q2. So there has been some pressure. Again, that is primarily driven by the Vision Care lines and the installation of those lines. So if you go back to that Capital Markets Day presentation and you look at The lines that we have put in, you'll see that there were a bunch of lines put in 'nineteen, even more so in 'twenty and we continue to put lines in, In 'twenty one and we'll continue to meet demand as we go forward. So that pressure is really driven by the fact that it takes anywhere between 18 to 24 months to get those things fully up and running. So we've got sort of a pressure point up right now as we talked about it at the Capital Markets Day. Again, I think what our plans are is you'll start to see that those margins pick up probably in the 2022, 2023 timeframe as we get through this sort of catch up phase on the CapEx front. Thank you. Thank you. Our next question today is coming from Scott Barbell from Berenberg. Your line is now live. Yes. Thanks very much for taking the questions. I have 2. David, I wonder if you could give us some sense of The relative share then of your presbyopia correcting business, can you split that roughly now between Panoptix and Viviti and other monofocus, just give us a sense really of how Viviti is taking up? And furthermore, can you perhaps discuss a little bit then how DAILIES TOTAL 1 is trending amid the PRECISION 1 launch? That would be helpful. And follow-up question please. Obviously, Michael, on the check has gone on to pastures new. I just wondered if you could talk a little bit about The global business innovation position and what your stance is in terms of filling that management capacity? Thanks. Sure. Let me start with the first one. Directionally, we continue to gain unit share globally in the PCI wells, particularly it's really on the U. S. Vivity and PanOptics have done really well and obviously in value we get a real benefit from that particularly when we upgrade toric patients or monofocal. So as the penetration has gone up, we've done well. And I think we said our share in the United States is 80 plus and I think Our global share is somewhere around 50 plus. So we've been a little bit coy below that saying what Vivity and PO split the PanOptix split was. But I think directionally, you can assume that PanOptix is the majority of it right now and Vivity is relatively new. So it's gaining share nicely. And as we said, a lot of that share seems to be additive, which is what we think is kind of driving the opportunity to kind of see penetration grow a little bit more. DT1 is trending fine. It's down a little bit relative to P1 launch, just as we had expected. I think we We always knew there'd be a little bit of cannibalization in both DAILIES AquaComfort Plus and DAILIES TotalOne, but PRECISION 1 has done so well. I think that it's A lot of the new patients that would normally come in and reach for DAILIES TOTAL 1, maybe don't want to spend that with as good a product we have at this price point. Do think that's one of the reasons we're going to launch our DAILIES Total 1 Toric and we're excited about that. Given the experience with Precision 1 Toric and its positive impact on our Sphere, We think it's a good time now in this Q4 to get to begin to get that launch out. So we're going to build inventory and make that available principally next year in the U. S. But I think we'll See some of that effect coming into the 4th quarter, which is really around giving this DAILIES Total 1 the benefit of Atorik, which has been long awaited by Most optometrists and I think this will put a gold standard Toric now for comfort in a Toric Out on the market and we think that will help both brands, but directionally not different than what we expected, but we are seeing now a time where we can grow Total dailies, which is really what we're after, nicely. And again, we saw great in total daily share, globally, we are we again, we gained, I think, a full share point or so on the quarter. So pretty good all in result. And then just on the GBI position, big role for us. Obviously, it is the core The business is our innovation position and really pleased that Ian Bell has taken the role. Ian has a long history in ophthalmology, knows a lot about what it looks like to be Successful products and customers and knows a ton about ophthalmology. So as we kind of move into what is largely a customer informed Innovation process, Ian brings with him, I think, a lot of very practical customer experience and knowledge of KOLs around the world, given his substantial international experience. So we're really excited about that add and it will kind of continue on, I think, quite successfully under his leadership. Thanks a lot. Thank you. Our next question today comes from Celia Furlong from Morgan Stanley. Your line is now live. Great. Thank you for taking the questions and I'll ask both upfront. But Just on the recent capital equipment strength, could you provide some more color around your outlook for the second half following the recent strength? And then Just on Total 30, the outlook for 2021 or is this really more of a 2022 dynamic in terms of contributing to contact sales? Thank you. Yes, let me start with the equipment business. We had a good quarter. We were up 23% over 20 which is unusually warm really for what we would normally expect. I think historically we've said, if we can grow in that mid single digits that would be terrific. So this is A good bit better than what we expected. Now half of that growth was from our refractive equipment, which was up 90% over 2019. So We continue to see an accelerated demand for LASIK, which continues to be the world's most popular procedure. And obviously, our WaveLight platform continues to be the world's leading equipment. As a function of that, we are pleased with the refractive performance, but we've been careful around refractive not to portray it as a durable idea because again, We got pretty spooked about this in 2,009 and at the last recession, there is a lot of economics and patient momentum tied up in this. I hope for a long term sustainability. I wouldn't plan it that way necessarily because I think we're cautiously thinking about what's happened in the past. So we're very careful on that one. The other half of the growth is really from our core cataract business, which has been kind of a combination of Centurion, which Remains the most advanced fluidics platform in the world, helped by ActiveCentury, which is giving the Centurion an upgrade Decision that's super easy for customers right now. So if you've got an older machine, it's a this is still the best machine on the market. There's Number of competitors coming in right now, we are seeing tremendous response regardless of any of that to both our Centurion and its active Century piece. So That along with some new stuff, Argos and Revalu, which are really doing well. Our Argos Biometer I think has been a very nice platform. It's faster, a little bit easier to use, Particularly with dense cataracts. So I think that is doing well against competition. And fundamentally, we are Excited about bringing forward our new smart cataract suite. So as we go forward into the next years, the way I think about it is, we're in a good place right now. There should be, I think, just based on the momentum in these early years, some wraparound headwind because I don't think durability of capital equipment is going to stay like that. I do think that over time it will settle back into a more normal pattern which looks a little bit closer to that mid single digit pattern we've seen, which is slightly ahead of procedural volume, which makes a lot more intuitive sense. So we'll see how that takes shape. On the other one, which was the T30 piece, We haven't really indicated what we thought the outlook was going to be. It's not really a 'twenty one effect. I think there'll be a nominal amount of sales we're getting going right now. It is more of a 2022 contribution, but I would say the excitement of this product for us is it's the 1st serious innovation for reusable contact lens in many years. 2 3rds of the wears out there are actually reusable wears and we have a high teens share, which is kind of under indexed for us. So if you Think about the size of that market and you think about where our position in that market is, we're really excited about what the R and D guys have created here, which It's a material that's uniquely designed to last 30 days, but yet it feels like nothing on your eye at day 30. That is a super compelling consumer idea, Because it's this kind of innovation that bridges the durable material with our proprietary water gradient technology, it gives patients something that They're going to have all month, which is comfort. That's what people have been missing. That's what they really want in the reusable, something they've kind of learned to live with unfortunately, But that's something that we look to try and improve on. So we're excited about Total30, principally a 2022 outlook idea. Great. Thank you. Thank you. Our next question today is coming from Rich Newitter from SVB Leerink. Your line is now live. Hi. Thank you for taking the questions. Just maybe a little bit on the comments you made in the back half Margin outlook implied by your guidance. I think you bucketed a couple of things that would weigh on The margin including product mix, spend timing and inflationary pressures. Can you maybe just Calibrate us a little bit on how much each of those buckets will weigh and which dominates? And then how do we think about those items as we look ahead into 2022? Thanks. Yes. So obviously, if you take the first half, we're at about 18% from a margin rate perspective. That would Implied 17% in the second half to get you to the approximately 17.5%. So to your point, the 3 components are investments, Some inflationary pressure and mix. I'd say the investments are roughly half of that pressure point. And that's primarily driven by the fact that we're going to continue to invest behind our new launches. So if you think about to David's point, T30, SPHER and toric in the U. S, we got DT1 toric in the U. S. And Europe, PRECISION 1 in Europe and Japan. So we still have quite a few launches in the second half that we're going to continue to invest behind. I'd say the other half is probably a fifty-fifty split, inflation being part of that. Again, we did see some inflation in particularly in Q2, We were able to mitigate that. We'd expect to see continued inflation in the second half. If you think about raw materials, Wages, freight, we plan on offsetting some of that, but probably won't be able to offset all of it. And then the other component is mix and it's really a combination of geographic mix and some product mix. So Those are kind of the components and the breakdowns. As far as 2022, again, we would expect to see continued margin progression. We'll give you more color on the 'twenty two, But we're still on track, obviously, for that low 20s in 2023 and then the guidance we gave at the Capital Markets Day. Thank you. Our next question today is coming from David Adlington from JPMorgan. Your line is now live. The first one, just interested to get your thoughts on the impact of J and J's largest synergy in the U. S. And how that's impacted the dynamics, competitive dynamics there? And then secondly, just a follow-up on that second half margin question. Just wondered how much of that cost base you can flex in response to either the higher sales coming in better or slightly worse than expected? In particular, if you're coming better, will you be able to spend enough to keep the margins down as low as 17%? Thanks. Okay, let me take the first one. On the J and J Synergy launch, we've again, we saw that one coming. We obviously know that product pretty well from Europe. And again, it is a diffractive lens. I think it's a combination of a diffractive lens and EDOF. So it doesn't really do much to improve the halos and glare. And I think some of those visual disturbances are what has kept people from using ATI wells in the past. So We're very comfortable that Vivity is a very good alternative to complement PanOptix, which is going to give you I think a profile that in of itself has very low disturbances, but has very sharp focal points at near intermediate and distance. And so I think we've got kind of the best of both worlds kind of triangulating the best in, if you want near vision very sharp, intermediate very sharpened And obviously distance, that's the PanOptix lens, which again will be kind of uncompromised or unbeaten on the gut level. And then if you really are concerned or the patient is concerned about visual disturbances, you really do need to use something like Vivity because the competitive lenses that are diffractive are not going to help you. So I think we're comfortable with it. People are going to try these lenses. In the Q2, as I said, we grew share in the United States against that launch, And we were up over 80%. So I think we feel like we've planned for and expect competitive intrusion, but nothing that we don't expect. Yes. And as far as the flexing on the cost base, again, if you just take the midpoint, and I think we've talked about this before, We feel like we have the right cost envelope. Our cost envelope is about the right size if you think about G and A and all that type of stuff. So obviously, as you get more revenue, you get more leverage. If you have less revenue, you have less leverage. So the flexing piece, we haven't really broken it out. But think about you've got commissions in there that would go up or down with revenue. You've got advertising and promotion, particularly in the contact lens business where that's a heavy component of driving incremental growth and then you have samples as well as you launch stuff. So I think about those as the flexing pieces. That's great. Thank you. Thank you. Our next question is coming from Matthew Mishan from KeyBanc. My first is on the Concentration of the number of surgeons that are doing the ATO IL procedures. I mean, I imagine that There was a larger concentration of surgeons that were performing those procedures making up that 14% penetration rate. Are you seeing just an expansion of in the high propensity surgeons that are doing it? And or is that 14% to 17%, 18% change in penetration, are you guys actually expanding out significantly the number of surgeons that are doing these procedures? It's a really good question and I can't answer it exactly because I haven't looked at it lately. But The question we often ask is, are we getting obviously, are we bringing more surgeons into HILs because you're exactly right. A A portion of the a relatively small portion of the surgical community do most of the ATOLs. And Again, that's largely because historically, if you needed to fix something at the end and you didn't have access to a refractive laser, Then it was unlikely that you would really want to get after this because even the best surgeons are now again going to have to fix something and what they do to fix it usually is they'll do a small correction with a LASIK laser. So it has been limited to certain surgeons. We have seen some surgeons coming back That are new. We have a number of one off surgeons we talked to. I just came back from the American Academy of And it was a terrific meeting and I probably heard a dozen or more surgeons, but that's it's very anecdotal what I'm telling you. I think there's more surgeons for sure. I don't think there's less. I just don't know if that's a meaningful number in the real scheme of things. What I do know is that the existing surgeons are They're using ATI wells are very excited about adding patients into the portfolio of patients that they would offer I'll answer you, because it's very much the case that if they see somebody who does a lot of night driving or that they feel like Would be concerned about a halo or a glare that they don't think would accommodate or they're very particular and they make a judgment About those lenses, they generally haven't kept put them in and that was usually like 3 or 10, 3 out of 10 that would be in that zone. So we think we're adding Some of those patients into the pool and that's really what's driving the majority of it right now. I do think over time you're going to see more surgeons jumping in Because I think the Vivity upgrade, particularly from if you're doing a Toric right now, doing Vivity Toric is to me a really obvious Next step, it gives patients the opportunity for considerably better, really good intermediate vision And a pretty good chance you're not going to have to wear reading glasses. So I feel like that's the rich part of the curve right now is the Toric using Kind of non PCIOL user, but that is again, that would only move the penetration a little bit, but I think it's a rich part of the market. Good question though. Thank you. And then next and then moving to contact lenses. I think last quarter you were talking about new fits being more difficult in this environment. Have you seen that change in 2Q, which is allowing More of the trade up into PRECISION 1? Well, let me give you a couple of data points and then I I'll try and answer best I can. The short version of that is I don't know. What we are using right now are some data that is survey data from optometrists. If you look at where optometrists are right now in the U. S. At least, roughly They're generating about the same number of visits they're reporting as they did in 2019. So visits are roughly back. What they're also saying, however, is revenue is back, but they're using about 25% telehealth. And so I think there may be a lot of Singwares that are being refilled through a telehealth, telemedicine kind of scenario. I don't know that for sure. I think that's kind of directionally correct. What I do think is the case is that outside the United States, the international business is a higher chain penetration and slower recovery of foot traffic. So They're having throughput issues in these offices. And again, that's going to reduce, I think, directionally the number of new fits internationally. So we're a little slower internationally with new product uptake and I do believe that's new fits. In the U. S, it doesn't appear to be holding us back much. So I think the U. S. Right now, the market grew was up high single digits in contact lenses. And obviously, we grew 17% against that. So we feel really good about what happened in the United States. International, did a little better than market and we're broadly in line with the market, but it was down mid single digits. So that's kind of the current story on contact lenses. Thank you very much. Thank you. Our next question is coming from Chris Cooley from Stephens. Your line is now live. Good morning and congratulations On the very strong quarter there, I appreciate you taking the questions. Just two quickly for me. If we think about the U. S. Cataract market opportunity, Help us kind of frame the way that you're contemplating Aetna's recent decision to require pre authorization. I realize it caused Basically a temporal kind of disruption there from a scheduling perspective, but some overtones there about Clear Lens Exchange getting cut down over time and some scheduling issues there. So I'm just curious if you think others will follow suit and if that as a result Makes this a more protracted ramp back up as you recoup those lost procedures from COVID? And then I've got a quick follow-up. Yes, I think we had a look at that. I think the best estimate on it was that they were affecting maybe 10000 to 20000 patients a month in the That's a slow up. It's a difficult thing for the surgeons in particular because it creates an administrative burden. Patients with cataracts are going to pass and they are going to go through. Aetna's decision to kind of make it more difficult for them, I think is Broadly not appreciated by either the associations or the surgeons or us. I think There's very if their rationale was clear lens extraction and again I haven't read the rationale, but if that's it, I think that's highly Suspect because there just isn't that much of that going on. If they have a standard they want to enforce, which is a 2,100 cataract or something, they should come out and say that. But I think what we Believe right now is that that will over time be a poor decision for reapplying New patients because that's the kind of supply demand issue that causes real problems with patients that are enrolling in these plans, particularly seniors. Thank you. I appreciate that additional color. And then just as my follow-up, Wanted to stay on Cataract and just similarly ask, at ASCRS, a lot of new technology when we look at the premium lens category. Just curious how you're thinking about additional efforts to grow the category because if you're already a little bit north of 80% share here in the U. S, Just over half of share when we think about this category globally and seeing a little bit more of an inflationary environment right now. Just curious what you think you have to do to keep driving that share or that category growth over time because it's Hard to accelerate growth when you already have 80% market share without growing the category. Yes, that's 80 in the U. S. And I always like to say to my the sales team, 80 means we got 20 left. But in truth, you are 100% right, which is We've got penetration as a primary idea now going forward in the United States. And so we are working very carefully on how do we get more patients involved What is the best outcome? And I actually think broadly speaking, increased innovation is good for market growth. And so we welcome competitors in this space on ATI Wells because it increases the amount of discussion around it, increases people's choices. And I think that brings more patients into it. And there's plenty of room here. The real money is in moving penetration up in this category and more surgeons in. And so if you were Going to trade something, you'd definitely trade a share point for a point of penetration, because the share point is worth a lot less than one share point of penetration, especially as we carry kind of 50 plus share around the world. I'll also say though that there are markets plenty of them that where we have share opportunities. We don't have Vivity in China. We don't have Vivity in Japan. We don't have a couple of other markets that are still left to go for that product and it's Toric. We We don't have Panoptix Toric in China. So we're still working on opportunities where we have lower than Our U. S. Share and there are many, our European share is going nicely up, but I would say directionally There is still a lot of opportunity in the international markets for ATILs, particularly the portfolio that we have. Thank you and congrats on a great quarter. Thank you. Our next question today is coming from Anthony Petrone from Jefferies. Your line is now live. Thanks and congratulations on a strong quarter all around. I'll stick with AT IOLs and maybe just a recap on pricing trends When you consider that there is more competition in the space and some reimbursement pressures for monofocals in the U. S, How are pricing trends for ATOLs? And if they are stable, what is the recap on the premium relative to, say, a monofocal? And then the follow-up would be on SYMPRINCZA. I think that was a $50,000,000 run rate that's coming in this quarter. Maybe just remind us what is the growth profile And maybe sort of the views on the glaucoma space going forward in terms of expansion, will we see more products added in pharma devices or a combination? Thanks. Yes, Anthony, thanks for the questions. Pricing looks pretty stable right now around the world. I mean, I think there are I would say internationally, it's more difficult than the United States. The pricing against the monofocal, monofocals tend to run around $100 plus or minus probably $20 The pricing around our ATILs, our PCILs in particular is roughly 800 to 1000. So obviously, we're very keen I'm watching the pricing around that. We've been pretty good about discipline in the U. S. So far. And I think what my observation historically has been is that if you've got a Similar lens to if the lenses are similar, the surgeons are very interested in pricing. If the lenses are significantly different, Surgeons are very interested in providing the absolute best care they can to their patients. And most of the time, that's really what's driving the behavior. So I think we're in a Pretty good place relative to ATIIO pricing. But in general, pricing in this category, as you know, over the years, will always come down a little bit and we always plan for that. So I would expect to see some pricing pressure in every market every year And we apply a little bit of that to our planning every year. On the glaucoma market, I think what we've seen is The device category is a very interesting device category too. We think it's going to be $1,000,000,000 plus category. We're still thinking How to get into it, we're watching it carefully as you probably know. There have been some reimbursement changes in that space. So we're continuing to think about what it looks like to get in there and how we might do that. I do think that we're very patient, very disciplined financial company. So I think we're going to be I do think that in the HEI Well business or sorry the SYMBRINZA business, That really is a relatively low growth product. I mean the category grows nicely kind of in that low single digits and I think what we're Of the mind of is that that is an add to really drive our preservative free multi dose line, which is really our Sustained products and then also continue to build on our Pattern Day products. So what we have when the rep goes in now is a proper Ophthalmic portfolio of eye drops for the ophthalmologist who uses a lot of eye drops for tears, which is our multi dose preservative free. We think that Is a $500,000,000 market opportunity for us in the United States. So the opportunity around the world is substantial. We're getting that going, but you have to be able to get to where people make those recommendations I think to be effective. Pataday the same thing. We certainly get a lot done with optometry and in the consumer world, but There's still plenty of that that was prescribed by ophthalmologists. We think we can contribute there. And importantly, I think as we go forward, we'll look to add eye drops into that portfolio. I've said in the past, we'll be thoughtful about the Rx business. Right now, this was a principal way of getting a sales force on the ground and give us An opportunity to go into any number of categories, glaucoma might be 1, but dry eye and retinal disorders are obviously other big categories in this space that we would look at. So broadly speaking, it's not our first priority, but it is something we're going to look at over the years. Lastly on this one, I do think that for us over time, the opportunity to kind of bring Broad stroke ophthalmic products to light is a really important idea. So we're going to be carefully looking at every white space we can because we think that we have a particularly good commercial platform and that people that around the world, there are a lot of companies right now with Interesting exciting products, but may not have the commercial skill we have or the commercial leverage we have around the world and we're excited to try and find those opportunities. I think that's how we leverage our We've reached the end of our question and answer session. Ladies and gentlemen, that does conclude today's teleconference and webcast. You may disconnect your lines at this time and have a wonderful day. We thank you for your participation today.