Good day. Welcome to Alcon's first quarter 2019 trading update conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may please press star and then one on a touch-tone phone. To withdraw your question, please press star and then two. Please note this event is being recorded. I would like to now turn the conference over to Karen King, Senior Vice President, Investor Relations and Communications. Please go ahead.
Hello, everyone. We're very excited to be able to host our first conference call as an independent public company. For those of you that are new to Alcon, we were owned by Novartis during the first quarter of 2019. On April 9th, we completed our spin-out under the ALC ticker with our stock trading on both the SIX Swiss Exchange and the New York Stock Exchange. Today, we release select financial results for our first quarter 2019 trading update, which includes sales by business and core operating margins, as well as quarterly financials for full year 2018. You have a historical reference of Alcon's performance. As a foreign private issuer, or FPI, we will be providing a semiannual report with more financial details on our second quarter call. Joining me on today's call are David Endicott, our Chief Executive Officer, and Tim Stonesifer, our Chief Financial Officer.
This morning's press release, slide presentation, and conference call include forward-looking statements. We're under no obligation to and expressly disclaim any obligation to update any forward-looking statements as a result of new information or future events or 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 the Alcon Form 20-F registration statement filed with the Securities and Exchange Commission and available on the SEC's website at www.sec.gov. Included in the press release today are selected non-IFRS operating results. Management has disclosed financial measurements that present financial information not necessarily in accordance with International Financial Reporting Standards.
Company management uses these measurements as aids in monitoring the company's ongoing financial performance from quarter to quarter and from year to year on a regular basis and for benchmarking purposes. 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 measures as prescribed per IFRS. Please review the financial tables provided in the press release and presentation that reconcile such non-IFRS measures to directly comparable financial measures presented in accordance with IFRS. To enhance the call, we have posted a supplemental slide presentation to our website that summarizes the points of today's call. You can find the presentation in the investor relations section of our website at www.investor.alcon.com under Financials and then Quarterly Results.
In just a few moments, David will be discussing net sales results for the quarter. In our press release, we provide a table that shows both reported net sales growth and constant currency growth so you can see the impact of foreign currency fluctuations. Our comments on net sales growth during our opening remarks will be expressed in constant currency. With that, I'll now turn the call over to David.
Welcome to our first quarter 2019 trading update. As Karen mentioned, we're excited to host our first call as a standalone company. So for those of you who aren't familiar with Alcon, we are the global medical device leader in eye care device. We're over $7 billion in sales and participate in a large and growing $23 billion market. This marketplace is driven by great megatrends, certainly the aging population being one of them. The front edge of baby boomers is now hitting their early 70s, which is prime age for cataract surgery, and emerging markets are getting greater access to healthcare. It's estimated that half of the world will be myopic by 2050. We are generally number one or number two in the markets we participate, described by our two business segments, Surgical and Vision Care. This gives us great opportunities to cross-market our products.
It gives us a large and robust innovation pipeline. It gives us the global scale to reach into 140 countries around the world. As many of you know, our plan is simple. It's pretty straightforward. First, several key organic products will drive a good portion of our near-term growth, so we're focused on commercial execution of our new and existing product flow. Second, the organization is focused on accelerating our product innovation. We have a robust pipeline in both Surgical and Vision Care, and delivering these products to market is a core priority. Third, we'll continue to invest in external technology aligned with our current portfolio, such as our recent deal with PowerVision. Fourth, we're working on new business models to further support our customers and create value for their patients. Last but not least, we'll expand the operating margins by growing our top line and leveraging our significant infrastructure.
Now that I've given you some background on the company, I want to spend a few minutes on our transition to independence. I'll walk you through the sales progress, and then provide an innovation update. After my comments, Tim will go through more details on sales by category and discuss financials and full year 2019 guidance. I'll then wrap it up with some closing comments, and we'll open up for questions. First, with a little more than a month of being independent, we feel pretty good about our progress. While we've been preparing for the spin-off for some time, the first quarter was a major transition period. We stood up new corporate functions like treasury, tax, internal audit, investor relations, and they're now fully operational. We are also two-thirds of the way through our SAP implementation and have recently moved to our next round of European countries.
We believe our new ERP system will allow us to standardize processes, and over time, reduce operational costs through improved efficiencies. Our new board of directors is in place, and we had our first post-spin meeting last month in Geneva. We're excited about our new governance model and our ability to prioritize capital allocation decisions, such as investing installation of our new contact lens manufacturing lines. Our more than 20,000 associates around the world remain focused on delivering innovation, high-quality products to our customers, and creating shareholder value by helping patients around the world see brilliantly. Now turning to our net sales results for the quarter. Our net sales were up 4%, driven primarily by strength in our surgical business. Surgical sales were $1 billion, up 7% from the first quarter of 2018.
We're pleased with the quarter performance, showing strong growth in all categories, that being implantables, consumables, and equipment. Vision care sales were $777 million, up 1% versus the first quarter of 2017. While we've lost some share due to lack of product flow, our legacy portfolio of lenses is holding up as expected, and our core growth drivers, TOTAL1 and SYSTANE COMPLETE, continue to rejuvenate the product portfolio with sustainable growth. Now turning to market fundamentals. In surgical, implantables have increased slightly higher than the market growth of around 5%. This is primarily due to strong demand for PanOptix, our new trifocal advanced intraocular lens in certain international markets. In vision care, the contact lens market is growing at about 4%, with dailies growing about 7% based on GfK data.
While our contact lens growth is slower than the market due to lack of product flow, we're seeing strong performance in our premium dailies TOTAL1, and our reusable portfolio has stabilized. We also continue to advance our innovation agenda. In March, we announced the acquisition of PowerVision. As the industry leader in cataract surgery, we're eager to accelerate development of this potential breakthrough accommodating lens technology for patients who are seeking spectacle independence. Now, this is a fluid-filled lens that allows the patient to use his or her natural muscles to actively focus on objects, just as your natural lens does in a youthful eye. Commercial availability of PowerVision intraocular technology will be determined following additional significant development in the coming years. At the end of last year, we made some other focused investments in external technology.
We invested in iLux and NGENUITY, which add to our dry eye treatments and visualization portfolios, respectively. iLux is a device used to treat meibomian gland dysfunction, which is a leading cause of dry eye. NGENUITY is a 3D heads-up display, a digital visualization system, which ultimately could eliminate the need to use a traditional microscope by expanding the field of surgical vision. Both of these products are in markets that need further development, but we have the opportunity to grow nicely with these in the long run. Now turning to new product launches. In vision care, we launched PRECISION1, our new mass-market silicone hydrogel or SiHy lens last month in Australia, and we're building inventory in preparation for our U.S. launch late this year or early next.
This contact lens was specifically designed for the bulk of contact lens-wearing market who want better lens performance but at a lower price than our premium lens line. PRECISION1 is a unique surface-treated SiHy lens that provides precise vision and outstanding end-of-day comfort. We're ramping up our capacity with new contact lens manufacturing lines, which we expect will provide greater throughput and productivity in the long run. Within surgical, we submitted our dossier in the first quarter to the FDA for PanOptix approval. We believe this will be the first trifocal lens available in the U.S. and anticipate approval by the end of 2019 or early 2020. Last month, we attended the American Society of Cataract and Refractive Surgery, or the ASCRS Congress in San Diego. We were very encouraged by the positive response we received from our customers to Alcon's new independence. Customers are highly supportive of what we're doing.
They're excited about our new product portfolio. During the meeting, we showcased data on the performance of our products and signaled our renewed commitment to ensuring a high level of scientific engagement with the ophthalmic community. I'll now turn the call over to Tim, and we'll then provide some closing comments. Tim?
Thanks, David. It's been a very exciting month since I joined Alcon, and I'm very pleased to be part of this great company. My transition has been seamless, and I focused my efforts over the past month on associates, customers, and patients, and learning about the business. I've been impressed with the deep knowledge of our associates, and I'm pleased to hear how energized our customers are about the new Alcon. I came to Alcon because I share a passion for serving customers and delivering innovative products that will continue to shape the industry while driving profitable growth. Having been through a spin-off in the past, I appreciate both the pressures and challenges of setting up a new public company, along with the opportunities that independence provides, such as speed, agility, and focus.
I'm happy to be here and look forward to meeting all of you. I'm also looking forward to working in a sector with sustainable growth prospects. I like the durability of our business model, facilitated by a nice balance of cash pay and government reimbursed products. Many of our patients self-pay for their products because they value the benefits of improved vision our portfolio can offer. Governments around the world recognize the benefits of improving eye care and the value it creates for patients, their families, and the surrounding communities. From a business perspective, as David highlighted earlier, total net sales grew 4%, surgical sales were up 7%, and vision care was up 1%. Starting with surgical. Implantable sales were $285 million in the quarter, up 8% year-over-year.
Demand for PanOptix in certain international markets and strong sales of other IOLs were the major contributors to favorable performance in the quarter. Consumable sales were $551 million in the quarter, up 6% year-over-year. Customer conversion to our newest cataract and vitreoretinal equipment drove pull-through demand for dedicated consumables. In addition, we've been developing smaller gauge instrumentation to improve accuracy and efficiency of surgical procedures, which has resonated with customers and resulted in strong growth. Equipment and other sales were $164 million in the quarter, up 9% year-over-year. While our core capital equipment grew generally in line with the market, our strong performance was driven by growth in our equipment services and other lines of business. Let's turn to vision care. Contacts line sales were $498 million in the quarter, up 1% year-over-year.
We continue to see strong double-digit growth in our premium TOTAL1 lenses. This was partially offset by a year-over-year decline in our legacy lens business. We continue to invest in a number of new manufacturing lines to support our growing product pipeline. We anticipate that vision care sales will grow modestly until we're able to commercialize some of our innovation, starting with PRECISION1, which is now FDA approved and slated to launch in the U.S. at the end of this year or early 2020. Ocular health sales were $279 million in the quarter, flat versus last year. We're pleased with the progress of SYSTANE COMPLETE, which treats multiple types of dry eye. We delivered double-digit growth in the U.S. and will continue to roll out the product across our international regions throughout the year. In our contacts lens care business, we experienced declines in line with the market.
Moving to the income statement. Core operating income was $314 million, down $28 million versus the first quarter of last year. The decline was primarily driven by planned costs associated with the SAP implementation, along with increased investments in R&D as we continue to drive our innovation agenda. Core operating margin was 17.7%, in line with expectations and down 150 basis points versus last year. Turning to 2019 full year guidance. We expect net sales to grow in 2019 between 3%-5% on a constant currency basis, in line with the market and consistent with our Capital Markets Day presentation. While we're not guiding revenue by business, we expect the momentum in surgical to deliver above-market growth, and in vision care, we expect to grow slightly below the market until new product flow is available.
We expect our core operating margin for 2019 to improve from last year to a range between 17%-18%. We anticipate second quarter to be a heavier quarter in terms of customer-facing spend as we continue to invest behind new product flow. Overall, we expect to see margin expansion in 2019 as we continue to grow sales and manage our cost base. Our core effective tax rate for 2019 is expected to be in the range of 17%-19%. The increase from full-year core effective tax rate in 2018 of 16% is primarily driven by loss of certain tax benefits in the U.S. due to the spin-off. Overall, I'm pleased with the performance in the quarter, and I'm looking forward to delivering on our full-year commitments. With that, I'll turn the call back to David for some final comments.
Thanks, Tim. As I mentioned in my initial comments, we started out the year with a solid quarter showing top-line growth and solid core operating margins. Our independence is enabling us to increase our focus on business, accelerate innovation, and build on near-term product opportunities that we expect to fuel our long-term growth. These are really TOTAL1, PanOptix, SYSTANE, and our vitreoretinal business. Our investments are delivering an exciting new product pipeline, commercial activities, and improved product flows. The entire organization is very excited to become independent once again and increase our commitment to this incredible mission of helping people see brilliantly. We believe the markets we're in, our scale, and our unparalleled expertise in ophthalmology will enable us to deliver sustained long-term earnings and cash flow. We look forward to updating you on our continued progress and delivering on our commitments to drive shareholder values.
With that, operator, we're ready for questions.
We will now begin the question and answer session. To ask a question, you may press star and then one on your touch tone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star and then two. To ensure our analysts have a chance to ask a question, we would appreciate it if everyone could limit themselves to one question. If we have time at the end of the call, please feel free to queue up again, and we will be happy to take the second and third part of your questions. At this time, we will pause momentarily to assemble our roster. The first question comes from David Lewis with Morgan Stanley. Please go ahead.
Good morning. Congratulations on a solid start here. I guess, with my one question, maybe I'll focus on revenue. Obviously, guys, revenue growth was 4% in the first quarter. You're guiding to 3%-5% for the year, but most of your divisions are anniversarying their hardest comp this quarter, and as you mentioned, you've got some product contributions potentially with PRECISION1 and PanOptix later in the year. I guess 3%-5% looks pretty risk-adjusted from our perspective. Are there any headwinds that we're not thinking about into the balance of the year?
I'll take that one. David, listen, I think we're in a pretty good place. I don't think there's any unanticipated headwinds. I think there are obviously continued competitive pressures in Vision Care until we get product flow, and we need to be thoughtful about that. I think importantly, right now, we feel good about the surgical business as AT-IOLs are doing well. But again, we'll wrap around on some of that AT-IOL growth as well as PanOptix anniversaries come around for the international market. Nothing in particular that I would describe as headwinds that aren't anticipated, but directionally, I think we're pretty good where we are.
The next question comes from Larry Biegelsen with Wells Fargo. Please go ahead.
Morning. Thanks for taking the question. I'll focus mine on financial. I know you're not giving EPS, but can you directionally talk about consensus is about $1.92 this year. Any color on whether you feel comfortable with that number? It looks like maybe given the tax rate being a little bit higher than expected, maybe consensus is about $0.05 too high. Any additional color on the tax rate, why it's higher this year, and any thoughts on Swiss tax reform, how we should think about that beyond, I know the vote's coming up in a couple of days, how we should think about that going forward? Thanks for taking my questions.
Sure. First thing to note, I think is, as a foreign private issuer, as you all know, we have different filing requirements versus a U.S. GAAP filer. We need to provide more financial detail in the second quarter, which will basically be kind of balance sheet financial statements, cash flow, and then a year-end annual report. There's really no specific requirements in Q1 or Q3. Obviously, being a new company, me being new in the role as well, we wanted to be more transparent, which is why we had the call in a relatively short period of time after the spin. We thought it would be helpful to give you guys some color on the quarter, as well as give some preliminary guidance for the year.
In 2Q, we'll be providing a semi-annual report, which will have more of that financial detail that I spoke about, and at that point, as we solicit more input, we'll consider other metrics, whether it be EPS, free cash flow, or what have you. This is a new process for us. We understand the value of transparency, and we're going to continue to work towards that. As far as the tax question you had in there, the guide 17%-19% for 2019, this is a 2019 call. There's no impact in there for the tax reform. If the tax reform does hit, we still feel comfortable with the range that we provided at the Capital Markets Day of the high teens.
The only additional color I'll give you as far as 2019 is if reform does pass, there will be a material one-time non-cash adjustment in 2019, and that's to revalue the Swiss deferred tax liabilities, which all companies will have to do. If it does pass, you'll see that adjustment coming through probably in Q2.
Thanks for taking the question.
The next question comes from Anthony Petrone with Jefferies. Please go ahead.
Thanks, and congratulations as well on a strong start here and all the heavy lifting on the spin. I'll focus my question on just the pipeline, the updates on PanOptix. The language around late 2019, early 2020, I think sounds a little bit earlier than the messaging at the Capital Markets Day. Just any details there on the regulatory path in the U.S. for PanOptix and just how that launch will trend. Is it going to be limited release initially and then full market release, say, later in the year? Appreciate that. Thanks.
Yeah. Thanks, Anthony. I'll take that one. I think the way to think about this is it's kind of on track to what we'd expected. We submitted last quarter, and that will process its way through FDA. We expect it to kind of do a normal process. It could come out late this year, it could come out next year, just depends on the level of questioning we get and the interactions we have with the agency. We're generally pretty optimistic that this product will do well. We know the product well. It's been out in a number of different markets. Certainly, it's performed well in a number of different markets. We think Brazil has done well, Canada has done well. A number of markets around the world, in Asia have done well. We anticipate it doing pretty well in the United States as well.
I think in terms of availability, I would say there is no, in our mind, no real restriction on it right now. I don't think there's a capacity concern at all. We think we can make what we need here for the U.S. to kind of launch, full launch, once we have an approval.
Thanks again. I'll get back in queue.
The next question comes from Veronika Dubajova with Goldman Sachs. Please go ahead.
Thank you for taking my question. I would like to understand a little bit more about the strength in equipment that you saw this quarter. Help us understand to what extent this is sustainable. I noted your comment about service and other growth. I think it'd be helpful for us to get some guidance on that throughout the rest of the year. Thank you.
Yeah. Thanks, Veronika. Let us try and guide you that way. I think the equipment business, we spent the last three years working on our equipment business, particularly the service element of it. I think when we got here, it was not a particularly favorable part of our business. We've spent a lot of time and energy. Sorry?
Do you want me to-
Sorry, I think we got kind of crossed up there. I'm going to continue on. Veronika, the answer kind of to your surgical element of this is that the equipment itself, we spent quite a little bit of time really working on the service revenue, and we've done a nice job, I think, of building that service revenue around the world. Obviously, one of the things we think long term is beneficial with the equipment install base we have is to really kind of think about what the ongoing revenues can be from surgical equipment. The business model, to some degree, we've been trying to emphasize, is the service element of it. We're seeing some nice lift in service revenues.
We also have, as you probably know, we have some diagnostic pharmaceuticals around the surgical business that are in this particular other category, we've benefited a little bit in the first quarter from some outages from other folks. We had a little bit of a one-time positive there. I think the way to think about the underlying equipment business is that we're roughly growing at market rate. We believe we're holding share, and growing roughly at that kind of market level.
That's very helpful. Thank you.
The next question comes from Bob Hopkins of Bank of America Merrill Lynch. Please go ahead.
Oh, thank you. Thank you, and good morning. Just a quick question on vision care, with the lens business up 1%. Just curious, was that in line with what you expected this quarter? Just curious if the 1% result was maybe a function of share loss or just a little bit of a weaker market. Just wanted to kind of help understand the vision care result and the lens result a little bit better in the first quarter. Thank you.
Yeah. Thanks, Bob. Let me try and get the vision care thing at a high level. Look, the short answer is that DT1 had a really nice quarter, so did SYSTANE COMPLETE. The things that we've expected to be driving our business are doing a nice job. Obviously, we had anticipated that we would have a significant amount of competitive pressure, particularly in the dailies business, as you see so many new folks coming in here. Our DAILIES AquaComfort Plus business, our legacy business, if you will, has struggled a little bit there and certainly has not done well relative to share. I think you look at the rest of our business, it looks pretty good. We had anticipated reusables roughly flat, and that's really where they were, both the market and our business.
I think if you kind of work it through, we feel pretty good about where we are. It's kind of about where we expected to be. I think what is going forward is really the key to this business is getting more product flow. The only other color I might add to this is I think, again, you had a bit of a mix in the ocular health business that I think is important to remember, which is we have a big exposure to our contact lens care business that, in this particular quarter, was off a little bit. I think the decline in that business was interesting, and we declined with it. I would say, relative to what we expected, it was a little bit steeper than we expected. That offset some of our growth in our dry eye area.
Again, not unexpected in many ways because that business has always been declining, but we see a reusable trend that's kind of stabilizing. Our view has been that contact lens care will kind of go with reusables, and as a consequence, it should, I think as an early indicator, kind of stabilize going forward. That's really what was going on, I think, in the vision care business.
Great. Thanks for the color.
The next question comes from Scott Bardo with Berenberg. Please go ahead.
Thanks very much for taking my questions. This is Scott Bardo, Berenberg here. Question just relates to the new product launches, please. Pleasing to see Precision1 FDA approval, but some six months, seven months lag before you start to ship. I wonder if you can talk a little bit about the degree of capacities that you'll have exiting the year and how much that can contribute to growth to full vision care into 2020. Perhaps following on with PanOptix, are you very confident that there'll be no ad com in the North American market for approval? Could perhaps share some thoughts as to when the Toric PanOptix product gains U.S. approval as well? Thanks.
Okay. Let me take those. Scott, let me just start with capacity on Precision1. I think through the Capital Markets Day presentations and other meetings we've had, I think we've been pretty transparent about the timing of the investments on capital. We were late to the game in getting money invested into manufacturing lines. As a consequence of that, we're still bringing those lines up. We'll be doing that all of this year and all of next year. The rate at which we do that is not exactly known. We're not really trying to be so clever. We just simply don't know the rate at which we'll successfully build inventory. We think that's late this year, early next for the U.S. launch, and depending on how successful we are, we would evaluate as soon as we can, launching other markets.
I think the way to think about revenue on PRECISION1 is modest, if anything that's meaningful this year, and then I think, affecting revenue next year, really beginning to accelerate substantially the following year. You asked about the PanOptix product as well, and I would say on PanOptix, there really isn't a constraint there. It really is a timing of whether we do or do not have a panel. At this point, we haven't got any information from the FDA indicating one way or the other. Again, part of the room we're giving on this launch has a lot to do with how this proceeds. We don't anticipate we should need one, but at the same time, that will be the FDA's choice. We're working through that.
The last part of that question was on Toric, I think we will have a Toric available with PanOptix relatively quickly, as we often do.
Thank you very much.
The next question comes from Matt Miksic with Credit Suisse. Please go ahead.
Good morning. This is Vik in for Matt. I just want to have a couple of follow-up questions on PanOptix. I guess, what kind of steps are you guys taking to reengage cataract surgeons in the U.S. in advance of the PanOptix launch? Can you help us understand what you're expecting in terms of the process of trialing, purchasing, and adoption, and what that might look like? Thank you.
Yeah, thanks, Vik. Let me try and give a little bit of color on it. We just started really the beginning of a pre-launch effort. We're trying to publish as much data. ASCRS was our first opportunity to kind of make available to the scientific community some of the results we've seen in Europe and around the world. I think that went really well, and I would just say that the level of energy from the kind of feedback from the presentations, I think in the scientific sessions, was very positive. I think we expect to get a nice response from the surgeon community. Remember that a lot of these guys know their Canadian colleagues pretty well, and the Canadians have had a pretty good run at PanOptix now for 18 or 24 months.
I think they have got pretty good understanding of how it's going to work and what it does. As a consequence, I think this isn't going to be kind of a big awareness challenge or a big data challenge for us to kind of move the market. I think it is going to be a matter of people trying it appropriately, seeing how it works in their particular practice. I think there'll be a relatively straightforward launch process. In terms of that launch process itself, we'll obviously try and bring consignments into folks, particularly folks who've been with us for a long time, as fast as we can. We'll have our sales force out working on that just as soon as we get the green light from FDA. We are anticipating launching with a significant amount of consignments.
Again, I think if people are concerned about the timing of the PanOptix inventory, we don't really have any constraints around the inventory process at this moment. I think we feel pretty good about our ability to get up the curve on this one.
The next question comes from Daniel Buchta with Vontobel. Please go ahead.
Yeah. Thank you very much, gentlemen, for taking my question, and congrats to the first results, and the successful spin-off. I have a question on, I know it's not reported, but on segmental margins and how they have developed in Q1. Maybe you can answer qualitatively how surgical has done, especially vision care, because we have seen that vision care last year, also in the second half, was struggling a little bit, and maybe you can elaborate in a little bit more detail what the problems are here. Is it that you still have to invest meaningfully in marketing expenses? Is it also your capacity ramp-ups especially weighing on profitability here, and how can we expect that to progress going forward? Thank you very much.
Yeah, sure. We're not going to guide specific product margins, but I'll give you a little bit of color to help you fill out your models. I would just start out in total, as we talked about earlier, our year-over-year op margins were down 150 basis points, that was really driven by two things. One was the incremental SAP cost, which came in line with what we expected. Obviously when you look at it from a year-over-year perspective, that applies a little bit of pressure. Secondly, as we've been saying, we're going to continue to invest in R&D to support our innovation pipeline. Now, as I think about 2019 and how we progress, we feel very good that margins will be accretive versus 2018. We guided the 17%-18%. As you know, margins in surgical are a little bit higher than vision care.
We disclosed that in the 20-F. I'd say both of those are trending in the right direction. Again, if you think about it, as we continue to leverage our cost base through revenue growth, that's going to create some margin expansion. As we continue to
sell more AT-IOLs as an example. As that becomes a bigger piece of the overall portfolio, that gives us a natural mix lift. Then we're going to continue to drive manufacturing efficiency. I would say on both sides of the house, margins are moving in the right direction. We have not seen anything that we haven't anticipated, and we feel good about it.
Thank you very much. Very helpful.
The next question comes from Chris Pasquale with Guggenheim. Please go ahead.
Yeah, thanks. Following on that last question about margins, if I do the math here, it looks like R&D spending was up about 10% year-over-year in dollar terms. You mentioned the desire to continue to invest in the innovation pipeline. Is that the level of investment we should expect over the balance of the year? Then on the SAP implementation, could you just give us a timeline of when you expect that to be completed, when that starts to become less of a drag?
Yeah, let me take the R&D piece, and we can figure out the SAP piece. The R&D piece, I think we are intending to continue to invest assertively in R&D. We've indicated kind of this eight-10 range, and I think that's really where we'd like to be. I think right now the levels are about where we want to be for this year. We'll again reevaluate it as we bring in new technologies. I think seven-nine over the long haul is what we've indicated at the Capital Markets area days, and I think we'll be consistent over the long haul with that view. I think in the near term, we may spend a little bit more than we see over the long haul. A lot of it depends on what we bring in. As you see, recently we brought in PowerVision.
That will add a little bit. We brought in iLux, that'll bring in a little bit. We brought in NGENUITY, which again has brought in a little bit of additional R&D costs as we build those products out. Relative to SAP, you want to comment on-
Yeah, I mean, I think SAP, it's probably about two-thirds complete. I think we just went live in Q1 in Italy and Benelux. We continue to make progress. Again, this has been a major investment for us, it's been going very well and will be very helpful as we continue, as you think longer term, as we want to drive some of those efficiencies, the SAP implementation will facilitate a lot of that.
Thanks.
The next question comes from Jeff Johnson with Baird. Please go ahead.
Thank you. Good afternoon, guys. Just wanted to ask a competitive question. We've seen J&J launch a new kind of intermediate-focused lens in Europe just in the last couple of months at a lower price point. Are you seeing any initial impact from that lens, number one, and I guess more importantly, with that lower price point in that, what does that do to the sustainability of your European IOL growth as we think about the strength that's been there for the last couple of years now with PanOptix? How is the sustainability of that play out relative to waiting for PanOptix to launch in the U.S.? Thanks.
Yeah, listen, I think we're intrigued by it. I think there's a lot of people with interesting ideas on this extended depth of focus, really kind of in a non-diffractive way. We obviously have a program in that area as well. We really don't have a lot of information on it. We've been watching it with interest. We'll see how it does. I don't think anybody believes it's had an immediate substantial impact. I think the question is just kind of over time, as we really sort out what that is and surgeons become more comfortable with it, what is the real impact of it, and I just don't know.
I do think over the long haul that PanOptix is a unique lens. The difference between these is, it's one thing to have a lower price point, but patients are going to pay for the ability to see well at distance for sure, but also to be able to not have to choose between near and intermediate. That's a real opportunity for a trifocal lens. I think the trifocals generally have done pretty well in Europe, and I think they'll continue to. One of the things that we would observe is that the patient elasticity of demand, if you will, the patient's cost sensitivity isn't that high. Perhaps the surgeons may want the revenue value, but I think the opportunity really is to give patients more what they want, and I think they'll pay for a trifocal.
Generally speaking, we feel pretty good about where we are. Again, we're very sensitive to what's going on in the marketplace and watching that lens in particular.
Thank you.
The next question comes from Anthony Petrone with Jefferies. Please go ahead.
Anthony, I'm not sure we've got you on. You might be on mute.
Oh, thanks. Apologies for that. Thanks for taking a second question here, though. Second question would be on PowerVision, maybe just an update on the contribution in the quarter, but more importantly, the development program for the presbyopia IOL. Any details you can give there on timing as well as the estimate on market size would be helpful. Thanks.
Sure. PowerVision, we're excited about this acquisition. I think when you think about our IOL portfolio broadly, we have probably four shots on goal that we think really highly of, PowerVision being one of them. PowerVision really is a long-term play for us. It really isn't going to contribute revenue until late in our long-term plan. I think the way to think about it is, we felt like we had gotten to a place with the prototype, or the PowerVision folks had gotten to a place with the prototype that we could bring it in and add value in the development cycle. There is quite a little bit of manufacturing work that needs to be done on this one. It's not a traditional lens. It's a fluid-filled lens, as I indicated earlier.
It has some very unique characteristics that we're excited about, both in its ability to accommodate, but also to tune. I think we're very excited about what we have. I will tell you, this is going to be a long development cycle, so I wouldn't anticipate anything other really than R&D burn on this one for a while. When you get to the end of this, if in fact this works as kind of it is proposed to work, then what you have is something that can do both accommodation in a kind of natural extended depth of vision seamlessly, not focal points, rather kind of continuous focal points. That's a very, very different idea than picking a couple of focal points near and intermediate.
Secondly, that if you can do something around tuning where post-operatively you can adjust this lens, that would be a pretty powerful idea as well. We're excited about the potential. These are obviously high-risk programs, and this is way out in our plan. It's really a development program that we're bringing in now at a stage where we think we could contribute more.
Thanks.
The next question comes from Steve Willoughby from Cleveland Research. Please go ahead.
Hi, good morning. Two quick things for you. First, I was just wondering if you could comment at all about your implantable growth in the U.S. versus OUS. Secondly, the 3%-5% constant currency guidance for 2019. Just wanted to see if that included any sort of M&A contribution at all. Thank you.
In the implantables growth, U.S. versus OUS, I'm not sure we've broken it out that way. I'll just say it this way. The implantable growth for us was fairly strong on unit growth, as well as a little bit of mix to price. I feel like we are gaining a little bit of share. We're probably growing a little bit faster than market, but we've got a combination of solid unit performance and then a little bit of price lift from mix. On the basis of the M&A piece, I think the revenue outlook for this year does not include any new M&A that isn't already in the plan. It does include a little bit of contribution from iLux and a little bit of contribution from NGENUITY, both of which we had done kind of late last year. Those are in.
Great. Thank you.
The next question comes from Joanne Wuensch from BMO Capital Markets. Please go ahead.
Good morning, everybody. Thank you so much for taking the question. I was just curious if we could just spend a moment talking about emerging markets, particularly China, and your view on potential tariff impact to your business.
Sure, Joanne. Thanks for the question. The emerging markets, we're really pleased with the exposure we have there right now. We have a little bit over 25% of our revenue coming through emerging markets. It's growing well above our average growth rate. I think we feel good about that element of it. China has been a particularly good market for us. It's our third largest market after Japan and the U.S. Again, we have significant exposure to China, particularly in our surgical business. We spent some time on the China tariffs. I would tell you that it's not an enormous problem for us right now. We have seen the most recent proposal on the changes in the tariffs, again, it affects our contact lens business, our vision care business a little bit more than surgical, in truth.
We have multiple locations from which we can source. From a long-term potential problem, we think we could manage it. In the near term, it's pretty small. I think we'll absorb it in the normal course of business. Again, I don't think this is a big problem for us, but again, you never know what's going to happen here. We're watching it carefully.
Thank you very much.
The next question comes from Larry Biegelsen with Wells Fargo. Please go ahead.
Hey, Larry, you might be on mute.
Hey, sorry about that. Thanks for taking the follow-up question. Hey, I didn't hear David an update on DAILIES TOTAL1 Toric, the timing there for the launch. On PRECISION1, I know it's early in Australia and New Zealand, but any initial feedback? Is it the cannibalization in line with your expectations? Thanks for taking the follow-up question.
Yeah, sure. First on PRECISION1, I wouldn't read too much into the Australian launch. It's a small thing for us. We're kind of playing with a number of ideas. It is really a pilot effort for us to try and see what the response is, what the pricing might look like. So I would caution people to read too much into that particular effort. I do think the general response from optometry is very strong, so we feel good about what the product does. I think the approach to market, the pricing, a lot of the things that I think people will be interested in as we approach the U.S. market, again, we're playing with a number of things. Back on the DT1 Toric, one of the good problems I suppose we have is, Larry, is we're selling a lot of Sphere right now.
We continue to be excited about that, but it has slowed our ability to get a Toric out of the market because, of course, we have to keep putting in lines for Sphere. Every time we think we're putting one in for Toric, it seems to run Sphere for us because we run up against more demand. Right now, we haven't been definitive about it, but I would not think about it as anything that's going to be meaningful for this year or next in the DT1 Toric. Perhaps late next year or the following, depending upon demand on Sphere. That's kind of what we've been guiding around.
Thank you very much, guys.
The next question comes from Veronika Dubajova. Please go ahead.
Thank you for taking my follow-up. I actually had a question for Tim. Tim, any thoughts on, I know you were not part of the business when we got the medium-term plan, but just curious, have you had a chance to go through everything, review it? Any kind of high-level impressions that you have? On the corporate standalone costs, is Q1 a good representation of what we should be thinking about for the remainder of the year, or are you anticipating any incremental costs rolling in as it gets to Q3? Thank you.
I'll start out with the overall plan. I have had an opportunity to take a look at it, and I feel pretty good about it. When you look at the markets we're playing in and the mid- to high single-digit growth, I think that's achievable. I think that's going to be heavily dependent on the product launches. As you can see, we're spending a lot of time and money on our innovation pipeline. I feel pretty good about that. When you look at the margin expansion, it really comes from a couple of fronts. About a third of that is driven by gross margin, and again, similar to what we'll see in 2019. As we continue to sell higher margin products, example, AT-IOLs, and that becomes a bigger part of the overall portfolio, we'll get that mix lift.
We should also continue to get some manufacturing efficiencies, particularly as we get the Vision Care lines up and running. On the operating leverage, the plan right now is we're going to grow SG&A sort of in line with inflation. When you get that revenue growth, that really drives a lot of leverage. Now, when we look at SG&A over the course of time, and as we implement SAP and look at the efficiencies of being a standalone company, we'll continue to optimize those efficiencies, but probably just reallocate it more towards marketing and sales, as an example, to make sure that we can deliver that revenue growth. I'd say overall, I think it's a reasonable plan, and I feel good about it.
As far as the corporate standalone costs, I think Q1's probably going to be a little bit lighter, only because if you think about things like audit fees and other types of expenses that tend to be sort of in the second half of the year. I'd say Q1's probably a little light.
That's great. Thank you.
The next question comes from David Lewis with Morgan Stanley. Please go ahead.
You might be on mute, David.
Can you hear me now?
Yeah, got you.
Okay. Sorry about that. Just a quick follow-up on margins. Tim, the discontinued operations number we got a couple of weeks ago out of $350 million number, obviously reporting $314 this morning. Can you just sort of bridge us the gap between those two numbers? Sort of related to that, you've given a margin profile through the LRP through 2023. How should we think about that margin profile? Should we think of it as sort of ratable across the years, or is it more likely we see acute margin expansion in the periods where you have the most significant product growth, albeit 2020 into a greater extent, 2021? Thanks so much.
Yeah. As far as what was reported from Novartis, your $350 number to $314, there's really two components to that. You have to add about $30 million into our expense base for depreciation and amortization of software, because obviously, as an ongoing business, you need to reflect those expenses on our P&L. There's probably about $8 million or so associated with the corporate standalone costs that we talked about before. If you combine those two things, that gets you close to that $314 number. When you look at the margin expansion, I think there is a little bit more of a lift in the back half as you introduce these new products, as well as when you get the benefits of the Vision Care lines. Because that takes a little bit of time to sort of work through and get the optimal efficiency.
That's how I think about it.
This concludes our question and answer session. I would like to turn the conference back over to Karen King for any closing remarks.
Thank you. We just want to thank you all for being on our first call today. We appreciate you all dialing in, and we hope you have a great rest of your day. Thank you so much.
Thanks a lot.
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.