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Alcon, Inc.

Q3 2021 Results - Earnings Call

November 9, 2021

Presenters

David Endicott - Chief Executive Officer

Tim Stonesifer - Chief Financial Officer

Karen King - Senior Vice President, Head of Global Corporate Affairs and IR

Q&A Participants

Ryan Zimmerman - BTIG

Julien Dormois - BNP Paribas

Scott Bardo - Berenberg

Veronika Dubajova - Goldman Sachs

Larry Biegelsen - Wells Fargo

Daniel Vouchda - ZKV

Cecilia Furlong - Morgan Stanley

Jeffrey Johnson - Baird

Operator

Greetings, welcome to Alcon's Third Quarter 2021 earnings call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation.

If anyone should require operator assistance during the conference, please press "*", "0" on your telephone keypad. Please note this conference is being recorded.

I will now turn the conference over to your host, Karen King, Senior Vice President, Head of Global Corporate Affairs and IR. You may begin.

Karen King

Welcome to Alcon's Third Quarter 2021, earnings conference call. Yesterday, we issued a press release and interim financial report and posted a supplemental slide presentation on our website to enhance today's call. You can find all of these documents in the Investor Relations section of our website at Investor.Alcon.com.

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Joining me on today's call are David Endicott, our Chief Executive Officer, and Tim Stonesifer, our Chief Financial Officer.

Our press release, presentation and discussion will include forward-looking statements. We expressly disclaim any obligation to update forward-looking statements, as a result of new information or future developments, except as required by law.

Our actual results may vary, materially, from those expressed or implied in our forward-looking statements. Accordingly, you should not place undue reliance on any forward-looking statements.

Important factors that could cause our actual results to differ, materially, from those in our forward-looking statements are included in Alcon's Form 20-F and our earnings press release and interim financial report, on file with the Securities and Exchange Commission and available on the SEC's website at sec.gov.

Non-IFRS financial measures used by the company may be calculated differently from and therefore, may not be comparable to similarly titled measures used in other companies. These non IFRS financial measures should be considered along with, but not as alternatives to, the operating performance measures, as prescribed for IFRS.

Please see our reconciliation between our non-IFRS measures with directly comparable measures presented in accordance with IFRS in our third quarter earnings presentation, which can be found on the Investor Relations website.

As a reminder, for discussion purposes, we are providing comparisons of 2021 versus 2019, unless otherwise noted, as we believe this is more operationally meaningful, since our results were impacted by the pandemic in 2020. We will continue this practice through the end of the year.

You will find a summary of results comparing 2021, 2020, and 2019 in our slide presentation, and a comparison of 2021 versus 2020 in our press release and interim financials.

As usual, our comments on growth are expressed in constant currency. And with that, I'll now turn the call over to David.

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David Endicott

Welcome to Alcon's third quarter 2021, earnings call. I'll begin by providing a brief update on our third quarter, overall market dynamics, and our new innovative products. After my comments, Tim will discuss our third quarter performance and our outlook for the full year. Then I will wrap up with some closing remarks and we'll open it up for our Q&A.

And we're pleased to announce we had another strong quarter, despite markets that are still recovering.

Similar to the second quarter, this was driven, primarily, by demand for new product innovation, solid commercial execution, and strong market recovery in the United States.

Recovery in our international markets remains mixed, although we're encouraged to see signs of recovery in select European markets late in the quarter. Other countries like Japan, which is our second largest market, continue to be impacted by the pandemic.

Third quarter sales of $2.1 billion were up 13 % versus 2019, with increases across all sales categories in Surgical and Vision Care. Core operating margin was 17.7% and core diluted earnings per share was $0.54.

Customer interest and need for our new products are driving above-market growth. And in surgical, our portfolio of advanced technology intraocular lenses is driving increased penetration rates of AT-IOLs, and we continue to see strong demand for cataract refractive equipment.

In Vision Care, our new contact lenses are winning in the market and our sustained brand family is posting strong double-digit growth in all regions.

Now moving to our end markets by franchise.

In Surgical, the global cataract surgery market was relatively consistent with last quarter. Excluding India, the global market was down mid-single digits versus 2019.

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While the U.S. showed solid mid-single digit growth over 2019, the international markets remained down high-single digits, primarily due to emerging markets in Japan, which continue to be suppressed. Against this backdrop, our Implantables business continued to outpace the market driven by our strong AT-IOL performance.

In Vision Care, the contact lens market was flat to slightly up versus the third quarter of 2019.

Similar to Surgical, the U.S. market has returned to growth, while international markets are approaching 2019 levels. Our contact lens business grew significantly faster than the market, driven by the strong performance of PRECISION1.

Now moving to innovation in Surgical, we maintained our strong market share in PC-IOL, solidifying our position as the market leader.

This is driven by strong demand for our new innovative products, PanOptix and Vivity, despite new market entrants. We continue to see AT-IOL penetration rates increasing, sequentially, as existing surgeons increase their use of advanced technologies and as surgeons who traditionally preferred Monofocals and Torics, are now implanting Vivity.

Vivity is the first and only PC-IOL with wave front-shaping technology and a clinically proven exceptionally low rate of visual disturbances. Surgeons appreciate the consistency of patient outcome, without the worry of halos and glare.

In our equipment business, our products and innovations remain a favorite of surgeons; including our market-leading phaco equipment are ACTIVE SENTRY hand- piece, the LuxOr Revalia Microscope, and the ARGOS Biometer.

Earlier this week, we unveiled the latest evolution of cataract connectivity with Smart Cataract. Designed specifically for ophthalmology, this new cloud-based application delivers planning, connectivity, and analysis to improve cataract surgery efficiency, reliability, and accuracy.

This is the next step in the evolution of our equipment ecosystem and further enhances the value of our new innovations.

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Installations of our first application, SMART Cataract, are under way with select customers in the United States.

In Vision Care, we're expanding our contact lens offerings to the premium and middle market segments by launching a steady stream of new Silicone Hydrogel daily and reusable products. In the premium segment, we're building out our total brand with a complete portfolio of design options.

In addition to our existing DAILIES TOTAL1 sphere and multi-focal lenses, we're now adding DAILIES TOTAL1 for astigmatism to capture the premium Toric market. And also TOTAL30, to capture the premium reusable market. DAILIES TOTAL1 for astigmatism has been eagerly anticipated by eye care professionals for years.

This lens provides a significant opportunity in a fast-growing segment where only one in four astigmatic patients are wearing Toric lenses.

Select customers in the U.S. are already fitting the lens, early feedback has been very positive, and we're excited for the broader commercial launch early next year.

The TOTAL30 addresses the large $4 billion reusable market, which hasn't seen any significant innovation in years. TOTAL30 is now available to wearers in the U.S. and Europe, and early reception has been strong.

This lens brings the water gradient feature of DAILIES TOTAL1 into a monthly lens, creating a comfortable lens, which feels like nothing on day one and on day 30.

Now moving to the middle market segment, the strong performance of PRECISION1 and PRECISION1 for astigmatism continues to drive our above-market growth in the total DAILIES market.

Both the sphere and Toric designs are currently available in the U.S. and Europe, and PRECISION1 sphere is available in Japan. As more international markets recover, we believe we are well-positioned to drive steady growth with PRECISION1.

Finally, at Ocular Health, we're building out our eye-drop portfolio. Sustained sales continue to grow globally, reinforcing our leadership in artificial tears.

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