Earnings Call: Q1 2020

May 13, 2020

Good day, and welcome to the Alcon's First Quarter 2020 Earnings Conference Call. All participants will be in a listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Karen King, SVP of Investor Relations. Please go ahead. Welcome to Alcon's Q1 earnings conference call. Earlier, we issued a press release and interim financial report and posted a supplemental slide presentation to our website to enhance today's call. You can find all of these documents in the Investor Relations section of our website at www.investor. 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 update forward looking statements as a result of new information or future developments, except as required by law. Our actual results may vary materially from those expressed or implied in our forward looking statements. Accordingly, you should not place undue reliance on any forward looking statements. Important factors that could cause our actual results to differ materially from those in our forward looking statements are included in Alcon's Form 20 F, earnings press release and interim financial report on file with the Securities and Exchange Commission and available on the SEC's website at www.sec.gov. Included in this press release are selected non IFRS measures. Non IFRS financial measures used by the company may be calculated differently from, and therefore, may not be comparable to similarly titled measures used by other companies. These non IFRS financial measures should be considered along with, but not as alternatives to, the operating performance as prescribed per IFRS. Please review the financial tables provided in the press release and our filings that reconcile non IFRS measures to directly comparable financial measures presented in accordance with IFRS. For discussion purposes, our comments on growth will be expressed in constant currency. With that, I'll now turn the call over to David. Thanks, Karen. Hello, everybody. I hope you are all staying healthy and safe in these challenging times, and I wanted to take a moment to acknowledge the many sacrifices people are making every day and to express our gratitude to all the healthcare professionals on the front lines serving their communities. As Alcon navigates through this situation, our number one priority is to keep our associates safe while managing a complex supply chain that serves critical eye care needs in 140 countries. Since the emergence of COVID-nineteen, our crisis management team has been coordinating our global response to this healthcare crisis. I want to recognize that team and the thousands of associates in our manufacturing plants, warehouses and distribution centers who are helping us maintain an uninterrupted flow of products to the patients who need the most. Most of our office based associates many associates who volunteered to apply their time and ingenuity in making much needed protective supplies such as hand sanitizer and splash guards for our local communities. Now that being said, I'll start by providing a brief update of our Q1 recent performance and overall market dynamics. And then Tim will discuss our sales performance by business and provide additional color on April results and our outlook for recovery. And then I'll wrap it up with closing comments and open up for Q and A. In the Q1, we delivered sales growth of 4% and core operating margin of 16.6%, including an unfavorable impact of 50 basis points from foreign currency. Core earnings were $0.45 per share with $0.04 of interest expense from financial debt. Overall, we saw double digit growth in implantables driven by strong demand for PanOptix and we saw double digit growth in ocular health driven by continued demand for plus the successful launch of PATADA in the U. S. This overall growth was offset by the impact of the pandemic on our end markets. Now turning to those end markets, in surgical, global cataract procedures declined in the high single digits this quarter after a mid single digit increase in the Q4 of 2019. 1st quarter market data shows us gaining another 10 share points in the U. S. PC IOL category, putting our share over 65%. We're very pleased with the early success of PanOptics as evidenced by the rapid increase in market share and we look forward to continuing that momentum of this innovative product as markets reopen. In Vision Care, the contact lens market was relatively flat in the Q1 versus up low single digits in Q4 2019. The fast growing part of the market is daily SiHy, which continues to see strong growth at 22%. We continue to gain share in this market on the strength of DT1, DT1 Multifocal and our newly launched PRECISION 1. And in ocular health, we gained close to 10 share points in the quarter due to the contribution of PATADAI, putting us in a strong leadership position with over 40% of the U. S. OTC ocular allergy market. We're pleased with the launch of Pataday and attribute its initial success to wide product availability, brand recognition and solid commercial execution despite retailer disruptions due to COVID-nineteen. Unfortunately, COVID-nineteen has had a substantial impact on our health system and the need for urgent care requires the prioritization of critical hospital resources for acute care. What this means for our business is that with the exception of emergency procedures, surgeries were either suspended or significantly restricted in most major markets around the globe. At the end of February, we were feeling very good about the quarter. Panoptix was gaining share in the PCIOL market, PRECISION 1 and VIVITY were both off to a great start and gaining momentum and we just launched PATADA OTC. So we ended February with strong global sales. However, as surgery restrictions were enacted in most of our markets and optometry clinics closed, COVID-nineteen began to negatively impact the demand for our products and quarterly results really by mid March. It's important to remember that cataracts don't get better. So instead they progress and vision deteriorates over time, which may compromise the ability of patients to live independently. As such, we're confident that there will be a solid rebound, albeit at different speeds in our markets depending on the healthcare system, the mix of public versus private facilities, the capacity to ramp up surgeries and importantly, patient confidence in returning to a healthcare facility. In Vision Care, our contact lens business also showed signs of slowing in late March as many independent ODs reduced working hours, closed clinics or moved to telemedicine to support their existing customers, which means new fits have substantially slowed. In addition, channel mix shifted towards online consumption during the quarter. Ocular health products such as Sustain and contact lens care, however, benefited initially from the preemptive stocking of OTC products by both retailers and consumers concerned about the availability of future supply. This coupled with strong demand for Pataday resulted in the double digit growth for Vision Care during the quarter. As we face these new challenges, we're taking decisive actions so that we can weather the storm and be positioned to advance our long term initiatives. So what are we doing? We're spending significant time with our customers on virtual training and education through the Alcon Experience Academy, local webinars and peer to peer forums. To date, we've conducted more than 650 training sessions reaching approximately 50,000 customers in just about every market we serve. We're supporting our customers with measures such as credit extensions and mailing contact lenses directly to consumers. We're refining our launch calendar as we believe product innovation will play an important role in helping doctors rebuild their practice. In surgical, we're off to a great start with PanOptix as evidenced by a double digit growth in implantables in the Q1 and we'll continue to roll out the product in the U. S. And Japan. We received positive early feedback from our limited launch of Vivity and will broaden our launch access in Europe. And we will pilot Vivity with supporting the robust demand at owned and third party e commerce platforms with inventory and new direct to consumer models. Feedback for PrecisionOne has been favorable and we're prepared to re energize promotional activities as optometrists reopen their doors. We're also excited to expand our Toric daily portfolio with the introduction of PRECISION 1 and DAILIES Totals 1 Toric lenses later this year or early into next year. We're moving forward with our contact lens manufacturing expansion in both Germany and Singapore and have used this downtime to build inventory of some of our key products as we prepare to rebuild our momentum post crisis. We're also implementing significant cost control measures while staying on course with our separation, transformation and other investment priorities. And we're taking a number of steps to preserve financial flexibility. Tim will discuss these actions in detail in his comments. Lastly, because we believe these conditions are transitory, we're not making structural changes to our operational costs that would impede our ability to fully ramp up when all geographic markets recover. Now before I turn the call over to Tim, I want to step back for a moment and just add a little bit of long term perspective. Eye care is a large and growing market and we've defined it as a $25,000,000,000 market, which has historically grown at around 4% to 5%, driven by an aging population, improved access to care and the explosion of myopia. Eye care is incredibly important, principally because 80% of what we perceive is through the eyes. Cataracts don't go away or improve on their own. While most patients can delay surgery for some period of time, an uncorrected cataract pose health risks, compromise mobility and ultimately lead to blindness. In addition, myopia is accelerating at alarming rate. Children are spending less time playing and exercising outdoor, which is believed to be an important factor in developing distance vision. People are spending more time on their handheld devices. And by 2,050, current projections show that half the world will be nearsighted. So while there's definitively some short term challenges to work through, keep in mind that the long term fundamentals remain strong. We're the leader in these large and growing markets and we'll continue to innovate for our customers and patients need. And with that, I'll turn it over to Tim who will review our financial results and provide more color on our outlook. Thanks, David. We're pleased to report a solid 4% top line growth in the Q1. Surgical sales were flat with double digit growth in implantables offsetting lower sales in the consumables and equipment other categories. Implantable sales of $310,000,000 increased by 10%, primarily due to strong gains from the recent launch of PanOptix in Japan and the U. S. And continued strong performance in APAC, offset by decline in monofocals. Consumable sales of $519,000,000 decreased by 4%, reflecting the temporary slowdown of surgical procedures. Sales from the equipment and other category of $155,000,000 also declined by 3% versus prior year. Lower sales of equipment also due to the decline in surgical procedures and unfavorable comparisons in procedural eye drops due to a competitor outage last year offset higher service revenues. Vision Care sales were up 10% in the first quarter, primarily as a result of favorable primarily driven by the continued demand for our leading product DAILIES Total 1 and contribution from the initial launch of PRECISION 1 in the U. S. This was partially offset by declines in other lenses. Ocular Health sales of $336,000,000 increased by 23% this quarter with approximately 9 points related to pre COVID stocking activity, which should normalize over the next three quarters. Excluding the effect of stocking activity, ocular health sales grew by 14% driven by the launch of PATADA and continued strong demand for SUSTAIN. Our successful launch of PATADAI in the U. S. In advance of spring allergy season positions Alcon as a strong leader in the U. S. Ocular allergy category. We are pleased to be able to bring this product to the 66,000,000 Americans suffering from eye allergies. Now moving down the income statement. Core gross margin was 62.2% this quarter, down 30 basis points year over year, primarily driven by higher sales mix from Vision Care. Core operating margin was 16.6 percent this quarter, 110 basis points lower versus prior year and down basis points excluding the negative impact from foreign exchange. The margin decline was due to unfavorable mix, incremental R and D investments and some provisions related to COVID-nineteen. 1st quarter interest expense was $31,000,000 up from $9,000,000 last year, primarily due to higher interest expense reflecting an increase in 3rd party debt following the spin off. This was slightly offset by our continued efforts to pay down some of our high interest debt in local jurisdictions. The core effective tax rate was 16.1% this quarter compared to 16.8% last year. The decrease in the tax rate was primarily due to a favorable geographic mix of pre tax income and discrete items, which are not expected to continue going forward. Excluding these discrete items, our core effective tax rate would have been approximately 19%. Core earnings per share were $0.45 down $0.06 from prior year, which includes an incremental $0.04 from interest on financial debt. Now before I move to a discussion of April results, I'll touch on a couple of cash flow and other related items. Free cash flow for the quarter was negative $60,000,000 compared to negative $69,000,000 last year. This $9,000,000 improvement is primarily related to a decline in capital spending as cash flow from operations remain consistent with the Q1 last year. Separation costs this quarter were in line with expectations of $71,000,000 primarily driven by IT Investments. We expect to substantially complete our separation process this year. Transformation costs this quarter were $7,000,000 primarily related to 3rd party consulting fees and restructuring. As we communicated previously, due to the continuing challenges of forecasting the direction of the current crisis, we have suspended our 2020 full year guidance. Although we don't think it's prudent to try and predict the future in these uncertain times, we do appreciate the value of transparency. So I'll give you a few data points to help you frame up the Q2. From the demand side, global sales in April were approximately 50% of internal expectations we set at the start of the year with the U. S. Achieving roughly 40% and international roughly 65% of internal expectations. The impact in the U. S. Was greater due to widespread restrictions on cataract and refractive surgeries. Our international business held up better due to the varying states of disruption and recovery in different countries. From a product mix perspective, about 40% of our business in April was related to surgical and approximately 60% to vision care. We believe April will be the low point for the quarter and expect to see modest improvement in May June assuming governments around the world continue to relax restrictions. We are taking a variety of short term actions to help offset some of the pressures we're seeing in the current environment. First, we are aggressively addressing our cost base. We've implemented a hiring freeze across the company and eliminated almost all travel, meetings and consulting spend. We have also eliminated a meaningful amount of sales and marketing spend. These initiatives will result in approximately $200,000,000 of savings in the quarter. 2nd, we're aligning our production schedules to help us reduce some of our raw materials and labor costs. However, given the dramatic decline in revenues in April and the fixed nature of some of our manufacturing infrastructure, we expect Q2 gross margins to be approximately 10 points lower than our internal expectations. We also expect this to improve as revenue increases. And third, we've cut some CapEx projects in Q2 and rephased some spend to the back half of the year and into next year. Looking at the future, we're still committed to the long term strategic initiatives we discussed at our Capital Markets Day in late 2018. We are implementing our separation activities. We are investing in our multi year transformation journey. We are investing in innovation and R and D and we are investing in the installation of our new vision care manufacturing lines. Like every company, we are closely monitoring our liquidity considering the current environment. We had $745,000,000 in cash at the end of April and a $1,000,000,000 available in our revolving credit facility. We do not have any major maturities before 2024 and we do not have financial covenants or a material adverse change clause on either the revolver or the outstanding debt. However, given the dynamic environment, short term pressure in working capital and back end loaded strategic investments, we will continue to evaluate invest in invest in our strategic initiatives and strengthen our balance sheet as we weather these headwinds. As we think about the future and a potential rebound in the markets, there are a few things I'd like you to consider. As David mentioned, we expect the path to reopening will vary based on country, state and local levels. Different healthcare infrastructures will also influence the pace of market normalization. We expect markets like the U. S. Where the majority of the surgical procedures are performed in private ambulatory surgical centers to recover faster due to the ability to flex their hours and make changes within the outpatient setting. Other geographies like Italy or the UK where procedures are primarily performed in public hospitals may take longer to recover due to capacity constraints. As such, we anticipate Q3 will improve from 2nd quarter's depressed levels and by the end of the year we will see more normalized rates in most of our geographic locations, assuming there's not another wave of the pandemic. Fundamentally, we believe vision correction is an essential need for patients and consumers of all ages and that patients cannot skip treatment without increasing potential health risks. So to summarize, Q1 was another strong quarter for Alcon as we continue to launch new innovation and demonstrated our ability to deliver sustainable growth. As we navigate uncharted waters that move quickly and dramatically, we're laser focused on what we can control and are decisively implementing actions that protect our employees and optimize our resources, which will position us well post COVID-nineteen. With that, I'll turn the call over to David for some final comments. Thanks, Tim. In closing, I want to take a moment to thank all of our shareholders for their interest and engagement in our 1st Annual General Meeting last week. While we had to alter the format of the meeting due to COVID-nineteen, we pleased that over 70% of the shares entitled to vote were represented and all board proposals were approved. In this uncertain environment, our customer relationships, decades long experience, financial resources and the unparalleled commitment of our associates give us confidence in our ability to weather today's challenges. As I mentioned in my opening comments, we enjoy tremendously positive market fundamentals in this business. I don't know whether the shape of this recovery will be V shaped or U shaped or W shaped. But what I do know is that at some point this will end. We want to make sure that when we look back at the challenges we overcame, we can say that we did our very best to protect our ability to serve the millions of doctors, patients, customers and associates who depend upon us. By doing so, we get back to doing what we do best, creating products that help people see brilliantly. Now let's open up for questions. Thank you. We will now begin the question and answer session. The first question today comes from Ryan Zimmerman of BTIG. Please go ahead. Thank you. Thanks for taking the question. I want to ask about a couple of segments. First on ocular health, 9% was stocking. Can you just talk a little bit about the specific impact of Pataday there and what the new normalized growth rate of this segment may be just considering its historical performance? It certainly was well ahead of I think many people's expectations. Yes. Thanks, Ryan. Let me take a shot at it. I think the way to think about our ocular health business broadly is that we think that market which is made up of both the tier segment and the allergy segment and basically everything that's at the OTC shelf in the retail which includes actually contact lens care. We think that is growing roughly in that kind of 6% range, 5%, 6% contact lens care growing net negative. So I think we believe we're gaining share with Pataday. We think we've gained a fair bit of share in this Q1. I think we'll think about I think the way to think about it is that it's growing roughly at that 6%. Therefore, if we gain share, we should be growing a little bit faster than that. So that's probably the best way to kind of work through it. Okay. That's helpful. And then turning to the IOL business, PanOptix continues to be highly successful. But you did call monofocals declining this quarter. And so I'd love if you could just help us understand, was that the result of markets moving away from monofocals? Or do you think that's more related to the pandemic at the tail end of March? And just how to think about the monofocal business in general as we think about it going forward? Yes. Well, I think the monofocal business is a pretty good proxy for the procedures. And so I think the way to think about it is, as we see the data through the Q1, we believe there was a high single digit decline in procedures. And I think reasonably said, monofocal lenses would probably parallel that pretty close. I think that's what we see in the data. There has been for us, we over index on AT IOLs. So we had the benefit of 2 things going on. 1 was we have a little bit less exposure than some people do to monofocals. And the ATIOL price point is so much more significant than monofocals that as we grow and as we develop share in the Panoptix with Panoptix in the ATIO market, it substantially offset any decline in the monofocal business. So on a revenue basis, it was quite substantial. Even on a unit basis, I would say, we grew nicely against a market that declined, as I said, kind of in that high single digits. The next question today comes from Anthony Petrone of Jefferies. Please go ahead. Mr. Petrone, your line is open. I apologize for that. I was on mute. Hope everyone is doing healthy and thank you for all the information. A couple on IOLs and one on contact lenses. Maybe just a better flesh out how to think about the blended 50% in April across the businesses, specifically IOLs and contact lenses through April and maybe modeling out the rest of 2Q? And then high level in terms of the recovery, I guess, in terms of a no second wave scenario between 4Q and 2Q, how much of a delta or recapture of procedures and new fits do you expect to pull back in before the end of the year? And I'll have one quick follow-up. Thanks. Well, let me try the second one first and then the first one maybe is a little bit trickier. I think our current thinking is that markets should normalize or come close to it kind of end of this year, early next year. And I think the surgical market, I think we feel more confident than the vision care market doing that. I think the notion of recapturing new fits lost could take us a little longer just to kind of get out. So I think the likely answer that again, I don't think any of us know, so let me caveat that way. But I would say our current thinking is that surgical procedures will kind of get back to market sizes we've seen historically, as I said, kind of towards the end of this year. On the contact lens side, it may just take a little longer because again there's a big question on consumer confidence and frankly throughput and productivity of the independent OD offices depending on what's required to get people into them. And so again, I don't know the answer, which is why we're a little bit cautious about it. But I would say just slightly a little bit slower and maybe not quite to where we would expect it to be towards the end of the year, may take a little longer than that. On the first one, on the mix of IOLs and contact lenses, typically our business is pretty well split between surgical and contact lenses. It's a little bit bigger in surgical than contact lens. But I would just say that the go forward for the rest of the year, we anticipate the surgical business to bounce back a little faster as I said, and the contact lens business maybe to be just a little bit shallower in its decline, but a little bit slower coming back. And so maybe that gives you some direction around how we think about that. The other color I'd give you is that this is happening very differently in different markets and I'm sure you know that. But what you see in markets where we're largely surgical say China very different from what you'd see in Japan, which we have a more balanced business and hasn't been affected very that much up until recently. So just the rate of reopening the capacity of ORs, the efficiency of those ORs, how fast they could turn a room and what the productivity metrics are going to be of how many surgeries you can do per day will matter a lot. And then I think importantly, how confident consumers are going back into the OD office, going back to surgical facilities will ultimately be kind of the core driver of each business. And I do think they're different. I think you're going to see in the very near term a lot of patients who had been scheduled for surgery come back. I think the question is, will they refill behind that? And on CUTIC lens care, our CUTIC lenses, I think you're going to see a little bit more of a softer return much closer to what just the normal consumer market looks like. I'll get back in queue. Thanks a lot. The next question comes from Larry Biegelsen of Wells Fargo. Please go ahead. Good morning. Thanks for taking the question. One on China, one on kind of the long term goals that you called out in the slides. So first on China, David, what can you talk about what you're seeing there in terms of the recovery? And is that a reasonable read through to the U. S. And Europe? And I had one follow-up. Yes. Hey, Larry, this is Tim. Listen, as you'll recall in the last call that we had, we said that we were at roughly 10% of internal expectations in February. We assume that would carry through in March with steady state in 2Q and beyond. We also assumed that we weren't going to recover any lost sales. As you fast forward now kind of 3 months and what we're seeing, I would just say that Q1 was better than we thought, but the recovery is taking longer than we had anticipated. So as far as the proxy similar to what David said earlier, each country is very unique. It really depends on what the governments are doing. It depends on the private sector, public sector mix, how quickly people return. So I'm not so sure I would use China as a proxy. But like we said earlier and in the statements, we saw percent of internal expectations globally, and we would expect some modest improvements in May and June. Thanks. And then for my follow-up, in the slide deck or the press release, I'm sorry, it talks about preserving the ability to pursue long term goals. Could you talk about what you meant by that? And does COVID push the timeline out for those long term goals? Thanks for taking the questions. Yes. Larry, good question. Look, as we've indicated, it's tough to predict this year right now what we're going to be doing kind of for this year, let alone over the longer term. So I think maybe the thing I could tell you about our longer term view is, our fundamentals are strong. We've got good strong belief that cataracts are not going away, that those are going to come back. It's just a matter of kind of when and at what pace. And similarly, myopia is a massive epidemic right now. So there's just the implication being that there's going to be a lot of room long term for continued increase in contact lens wear. The other things that are really important to that is we've got very good product flow. So we feel very comfortable with what the products are that we're creating and what we've got in the market. We're gaining share with those products and there's no real reason to believe that we would stop gaining share, I think at this point. So we're also continuing to invest and I would say that look, we think this is a transient situation. We think these markets will return at some point. And so we're continuing to spend into R and D, into separation, into transformation to get those things done so that we basically come out of this in a very strong position to capitalize on the product flow. So look, we'll relook at our strategic plan this summer in concert with our Board as we always do. Our intention next year is to have a Capital Markets Day and revisit the assumptions we gave out in the original discussion of our long term objectives. And if there's any update at that point, we'll give it to you. But we'll certainly tell you where we are with new products and the like. Yes. The only thing I would add to that is, again, we're focused on things that we control as well and to get to some of that preservation that you mentioned. We are taking out costs that we think are prudent to take out. So we're going to take out $200,000,000 in Q2, but again, not making any structural changes because we think this will pass. It's just a matter of when does it pass. And maybe just to build on that, I think we're going to watch this closely, right. So what we're doing really is we're working this thing month by month, quarter by quarter and just see where this goes because we really don't know and we'll make adjustments to it as we see it. But we generally believe at least at the operating assumption level that this as we said should normality in market should return roughly in that kind of end of year early next. Thank you. The next question comes from Scott Bardo of Berenberg. Please go ahead. Yes. Thanks very much for taking the questions. Yes, just to understand a little bit the April dynamic. I think one of your competitors, Carl Zeiss Meditech, I know it's a slightly different business in construct, but saw something like 20%, 30% revenue declines in April. You're pulling out 50%. So I wonder if you can just comment a little bit about what the differences are there. And maybe just remind us how much of your contact lens business is based on a subscription model, whether there's anything that confers some degree of stability to that business, if you can help with. So thanks for that. The second question just relates to thinking about the recovery and particularly the sensitivity to economic factors, would you anticipate any trading down of premium intraocular lenses more towards a monofocal in a tighter economic environment? Thanks. Yes. Thanks, Scott. Let me try and take these on here. A couple of things. First of all, on the comparison to Zeiss, I wouldn't want to get too close to guessing what their business reflects in that particular month because I'm just not sure. I would say that we believe that we have done a pretty good job of managing this. But the cataract business, which we have a very significant share in, United States really basically shut down in April. And so if you don't have a big exposure to the United States, which I think some of our competitors do not and you're more internationally based, you can see the difference bigger exposure was the United States. But again, I'm guessing a little bit at what the implication there is. I don't think there's a mix, a big mix issue for us. I think the real issue is that they're a little more narrowly focused on some different markets. I think on the second piece that we don't have a big subscription model built into our business, although our customers do. And so I would say that for people, some of our largest customers, the chains in particular, some of the online groups and some large offices, They do have subscription models and they do I think try and get product out to the patients. And I do think that's the resiliency you're seeing in the vision care contact lens part of our business is much more about this is 80% refill and 20% roughly new starts. I think the new starts have basically dried up during this period, particularly in April when the office is shut around the world. But I think that's the mix of kind of refill to starting business that you're going to see be problematic for a while until people are willing to come back in. And again, I think there was probably a little bit of early purchase of contact lenses and lens care in the Q1 that pulled some inventory into that piece as well that we've tried to adjust for that, but I think that's what you're seeing around the market. The last one on the monofocal versus ATO, I think maybe it's quite the opposite is my guess. We've always been of the mind that the consumer is willing to pay a lot more than most people think and we've done quite a little bit work with seniors and what they're willing to pay for a lens that does what we say it does, which is give you kind of near intermediate and distance vision. Now if you believe that, I think that there's something on the order in our data, 50% to 60 percent of patients who would be willing to pay the amount of premium that is required. And we know that the penetration rate globally is somewhere close to 10%, a little bit less than that, maybe 9%, higher in the U. S. At 14%. But what that means is there's a lot of headroom for consumers to come back and pay and be willing to pay for an ATI well. So I think that observation plus the notion of surgeons wanting to get back to business and try to rebuild their practices and the economics of their practices, I think gives a positive opportunity for surgeons to really get involved in ATI wells. And obviously, that's a high interest of ours because we as we put Panoptix out there, we think that gives people an ideal situation where they can see near, intermediate and distance, which is a much, much better outcome than a monofocal. The next question comes from Matt Miksic of Credit Suisse. Please go ahead. Good morning. Thanks so much for taking our questions. Just one on sort of the near term trends and one on the sort of economic sensitivity or what you're seeing maybe in terms of the mix of products or what you expect in terms of mix. So you mentioned improvements in May, expected improvements in June. Could you talk a little bit about, I guess, any evidence that you're seeing to support that or any differences, particularly in the U. S. That we might see regionally or even though the vast majority say, let's just call it 100% of these procedures are done in an outpatient setting. The facilities themselves range from sort of standalone centers to those type academic centers in different types of regions. So any color around any evidence or any regional variation you're seeing would be helpful. And then I have one follow-up. Yes, Matt, let me try and give you what we're looking at to try and get to how we see the rates. I mean, you're 100% right. There's a lot of variables in this and that's why we're careful not to say it's going to be specifically this or that. I do think it is a country by country and in fact, the United States state by state experience. But the variables that we are continuing to look at are the rate at which elective surgery has been allowed. So that's come back in most places, but not yet in some European countries, for example. The depth of the shelter in place efforts that are going on in various countries. So you see some countries in Asia moving forward and some of them just recently kind of having a little bit of a wobble. So I think we're looking at that and then looking at the U. S. And by state by state to say, what is the opening rate and what is the elective surgery allowed at that point. I think that coupled with the capacity and the ownership structures of these ORs matters a lot because what you are to OR is some of the most of the hospital systems, I would say publicly owned hospital systems have less capacity as a generalization than privately held ASCs who may be operating 2 days a week or 3 days a week, but not 5 days a week. And if you think about that, they can add extra days if they choose to. The other variable that you got to remember here on the surgical side is, it's not easy under the new guidelines that are being published to turn a room. So it used to be able to turn a surgical suite for the next patient clean it up, move the patient out. You could do it in 10 minutes, 15 minutes. Now it could be 30 minutes to get everything cleaned out, sterilized and then bring another patient in. If that's the kind of productivity loss we get, again, we're not sure how fast that room can turn. That's an issue. And so we're thinking through that variable as it's announced in each country and they're different market to market. And then on the Vision Care side, what we're up the observation, I think is twofold. One is, there's definitely as we start up a procedural change for how practices are handling patients coming in the door. They're thinning out their waiting rooms. They're taking patients slower in. They're using less staff at the beginning. It's taking longer. And remember, ophthalmology is a kind of a face to face business. Optometry is right up in somebody's face to look at their eyes. So there's a lot of screens that are being put in place to do that. There's a lot of process change, I would just say, that's going on in optometry. And we're trying to mix that depending on the market with consumer confidence in vision care because we kind of believe a lot of this is going to depend on the consumer confidence that is the patient coming back to get a new prescription because I think the existing contact lens wearers come back pretty quickly. They're getting lenses largely now anyway. If it opens, they'll figure out a way to get lenses. Nobody likes wearing their glasses when they've got a mask on because they fog up. So I think you'll find your way back for most of those patients. The real question is new fits and that bears significantly on PRECISION 1 for example. That's helpful. And then on the mix side, I guess given that the 2 major product launches that we look at anyway on the implant or consumable side, PrecisionOne and PanOptix are both in situations of sort of share gains into large kind of profitable markets in the U. S. I guess, is that I guess, what I'm trying to understand is, is the patient mix change, do we get a more, more ATI oriented patient or less in this environment do you think? Does that matter given that you're gaining share in that market, not necessarily growing at market in in AT IOLs? And then the same kind of question on on the PRECISION 1 side, you know, in the dailies segment in the US, the middle mid segment dailies in the US where you're gaining share. You know, I guess, how should we think about any fluctuation in that market that the appetite for dailies in this environment and whether or not that affects you just because you are more of a share gainer than again growing in that market segment? Yes. I would say that you're exactly right that both of these are share plays really for us. And I do think that the markets are solid, but if we take them one at a time PanOptix to the point I made earlier, I think I don't really see a big change long term in the size of the market or the growth rate of the market. I think it's taking a little time off right now while we had where we have centers closed and it may come back a little bit slowly as those centers reopen and adjust to the new procedures they're going to need to put in place. But I just think it's coming back as cataracts as I said cataracts don't go away and I feel like we're going to be fine with that. And PanOptix particularly in the United States where it's gaining share or Japan where it's gaining share is just doing terrific. And I think we feel real comfortable with the 10 SharePoint game that we got in the Q1 over the Q4, which was quite substantial. When you look at it, we did that in kind of a couple of months. So right now that part of our business feel good about. PrecisionOne, look, DAILIES broadly speaking, I think gets a little bit of a boost from this. It's a healthier product generally speaking. People want to toss them away reusing lenses, I think is always been a bit of a hassle. And I think optometrists generally speaking would rather have people with better oxygen permeability and tossing out lenses, getting a fresh lens every day. So I think that's directionally right. And that market as you know, sci high market as we said in the script was really largely 22% growth. I mean that's a heck of a fast growing market. So we're entering we've got a great product in DT1 and we're entering PRECISION1 into that market. We feel good about that. The fundamental problem with the launch and the timing of P1 is that we launched it right into the teeth of this pandemic. So there's I think we had hoped that we'd see the Q2 really take off on us and we were really well positioned for that. I think coming into March when really things began to get fairly slowed down. And with the offices closed now for a couple of months, we're going to have to go back and regain that momentum. So I do think it's going to take us a little bit longer to realize share growth in PrecisionOne than we had originally thought. And that is obviously an opportunity for us as well as we get back at it. I think people will want this product, but we got to get people back in the office and work on it. Last point I just make just for completeness on the contact lens businesses. We're getting beat up pretty good right now on the Toric business. And again, that is really much more about our inability to make those products. We've got them approved. We're in the process of manufacturing them and we have not slowed down any of that during this bit. So what I would say is that PrecisionOne will benefit from Toric in its near term horizon. And DAILIES TOTAL1 which again I think is a well known product, well known for its material, its fit, its comfort. We're going to have a torque out by the end of the year on that one. So we feel like that's a real opportunity for share growth as well. The next question comes from Veronika Dubajova of Goldman Sachs. Please go ahead. Yes. Good morning, good afternoon. Thank you for taking my questions. I will keep it to 2. First, I want to just follow-up on the implantable performance in the Q1. And David, correct me if my math is incorrect, but it seems to me like you saw some pretty from a from a geographic perspective as well as product. And if you can share some initial feedback on Vivity, and maybe how you think that's going to be positioned and received as we go from here, that would be really helpful. That's my first question and then I have a follow-up after that. Yes. Veronica, you're not way off on the numbers there in January, February. We were doing quite well. And we as I think the way to think about it is we were gaining we gained 10 share points in a couple to kind of 2.5 months, which on an increment basis from the Q4 to Q1. So I think we ended somewhere in the U. S. Around 65. I think we went way off of that in Japan. The growth is coming from Japan and the U. S. So when you look at our geographic splits, those are markets where we have had Panoptix in for about 6 months and we continue to benefit and should benefit until we start wrapping around on the numbers. So I think that's been the real opportunity for us is to continue to build share in those markets. Relative to Vivity, I think the Vivity product has been a positive response from almost everybody who's tried it. We're going carefully with this one because there's been a lot of efforts made at non diffractive lenses or supposed non diffractive lenses. And we want to make sure that we know and understand this lens really well. What we are seeing is kind of what we'd hope to see, which is there really isn't a significant change from monofocal in aberrant light and or kind of visual disturbances. So that's very exciting. Most of what docs tell us is the first objection to using an HIL is, I don't want halos and glare. And I think this looks like we've got something that gives us a monofocal like profile that way. I think the second thing that we're excited about on Vivity is that it seems to have a pretty good opportunity to make it a little simpler than some of the other PCIOLs that have been kind of positioned as extended depth of focus. I think this lens in particular has a wider landing zone or it gives you a little bit more it's a little more forgiving is the way to say it. It means you can push it forward or a little bit back, maybe almost a half a diopteran distance and you'll still get a really good 2020 distance vision. And so we know the intermediate vision is excellent. We've been positively impressed with the near vision, and we still need to just see a little bit more from the markets as to how this performs before we get real excited about it. But right now, I think it's an interesting product that is moving nicely with its feedback. But we again, we'll try and nurture this one carefully because we think it has good long term potential. That's really helpful. Thanks, David. And then just a second question, I think you stated in your prepared remarks that you might be rethinking some of the launch plans as you have them. Anything meaningful that we should be aware of as you're looking through the rest of the year and into 2021 where the timelines might be either moving forward or moving back? Well, we may flip some things around in the Vision Care business just in terms of giving everything a fair shot. I mean, we're very keen on understanding and making sure we're a success in the U. S. With P1. So our PRECISION 1 product, we may decide to concentrate our minds in the U. S. On that product. And we may, for example, launch DAILIES TOTAL 1, Toric, we may launch that in Europe first. We may flip that around from U. S. To Europe. It's pretty much a geographic split of where we're going to launch things more than anything else because frankly starting over just as optometry starts up with PRECISION 1 may not be our best positioning right there. I think we're going to look for trying to help these practices get back on their feet and using our best product and particularly where they can access 30% of the patients that they haven't been able to access right away with something that they really do know how to use that becomes a lot more intriguing, I think, and a little easier as a launch trajectory. I'd say in the are just going to concentrate our minds really on continuing the momentum of the things we've got started. But obviously, Precision 1, we've taken a little bit of a time out on consumer advertising, for example. We'll try and reenergize that as we see it to be effective. And importantly, we'll come back hard with precision sorry with the PanOptix because we genuinely believe this is continues to have share growth potential in it. And we'll want to make sure that we are getting everything we can out of that product before we do anything else. Thank you. The next question comes from David Lewis of Morgan Stanley. Please go ahead. Good morning. Thanks for taking the questions. Just a couple from me here. David, just thinking about the online trends for contact lenses, I wonder if you share with us just what your online share shifts versus peers and sort of what are the implications of a market that moves increasingly online, which is sort of highly likely in a post COVID world? And then I have a quick follow-up. Yes. Look, we're the online business has definitely grown. It's gotten significantly bigger during this stretch. And not surprisingly, so I would say that the online business before the COVID thing really was pretty stable. It hadn't really grown a ton in the United States. It's grown a little bit more internationally. But again, I would just say it was relatively stable. So it may grow to a new level or it may fall back and I'm not 100% sure what's going to happen. I do think that the there's going to be over time a significant growth of direct delivery to patient. I just don't know whether that's doc driven, chain driven, pure online players or how the manufacturers are going to play in that. And we obviously are following this very closely. We're trying to figure out what we want to do with this. But I would say that I think directionally you're correct. This is going to get is bigger now, will likely stay bigger. I think the implication of it for us is we have historically been reluctant in this space, particularly we're particularly sensitive to the independent ODs who make a lot of revenue from the contact lens refills and we are and they're very sensitive to the online business. So, but I think in an omnichannel world which we really believe exists out there, we're just going to have to do business with everybody. And I think we will continue to think about how we do better on the e commerce side. So short version of that is we're a little bit under indexed in share online and that online business is growing. So I think it's a concern of ours. We're paying attention to it and we're going to figure out what we're going to do next over the coming months. Okay, very helpful. And David, just here, the consumables business is a little weaker relative to our expectations. That may just be because volumes were down and they didn't benefit from the implantables mix. But was there any destocking to think of in the consumables business? And I wonder if you could just talk quickly about the equipment businesses and how you think they fare here on recovery? Thanks so much. Yes. I mean, I kind of read the consumer business is slightly different than that. I mean, I would say that the if you look at our consumables business, it should run largely with the procedures rate. If you think procedures were roughly in that down high single digits globally, then we were a little better than that. I think we were down a little bit in that kind of 4% or 5% range. So I feel like we're hanging in there. I think our accounts have probably we tend to be a little bit over indexed in large accounts. So I think that may have made a difference for us. But I don't think there's anything to think about other than COVID right there where there's really a shutdown. And so I think that's the main thing going on with the consumables. On the equipment side, a very different I don't know the answer to your question. We've talked a lot about this one. And it's a really good one. Here's 2 competing theories that I can share with you and I just don't know which one is going to win. I think there is no doubt that hospitals, particularly public hospitals are going to be short of cash. So there's not going to be a real appetite for new equipment if they can survive on what they've got. So on that one in that kind of segment, I suspect that there is a negative effect on the equipment business. On the other hand, what we've seen in the privately owned surgery centers is that we've had kind of an influx of calls about outfitting new ORs. So if you think about the OR situation and productivity, if you're trying to get back to the number of cataracts you used to do, and you have an OR that's not being used or it's being partially used or you just need to outfit it. And the U. S. Is dominantly in that situation. There's an interesting phenomenon that may occur where people are interested in trying to get their volumes back, so they're going out fit a new ORR. So we're following both of those trends. I don't know which one is going to be the more dominant one. I'm tempted to be a little bit more skeptical of the second one. It may just be a near term phenomenon and it may not be durable. And I'm pretty sure that we understand the economics of the hospital. So we'll see over time how that looks, but I think it's a little bit tricky to forecast right now. So my apologies for not having a better answer than that, but that gives you at least the trends. This does conclude our question and answer session. I would like to turn the conference back over to David Endicott for any closing remarks. Yes. Well, listen, I think we really appreciate the shareholders for all their interest and engagement in our 1st annual general meeting last week. And we had altered the format of the meeting due to COVID-nineteen. But we're pleased that over 70% of the shares entitled to vote were represented and all the Board proposals were approved. So appreciate all the support from the shareholders. In this uncertain environment, our customer relationships are decades long experience in our financial resources, I think have given us a real opportunity, I think to make the most of this experience. So what I would kind of close with is, we think this is a transient situation. We think that this will rebound kind of late this year, early next year. We think that cataracts and our ocular surgery business is not a thing that you could put off indefinitely. And then our contact lens business in particular will be a little bit more durable, will come back a little bit more slowly really dependent upon new fits getting back into the office. And if you believe all that, I think then what you believe is our long term prospects are very solid. So I want to thank everybody for their interest and we'll close there. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.