Alcon Inc. (ALC) Earnings

Management highlights

### New Product Innovation & Commercial Performance - UNITY VCS (vitreoretinal/cataract surgical platform) saw robust demand with average selling prices exceeding management expectations, with a strong sales funnel and clear visibility into second half 2026 placements. Alcon has gained modest market share in the surgical equipment segment with the UNITY platform. - Discontinued the PowerVision accommodative IOL program after clinical data showed unpredictable postoperative vision shifts that could not be resolved. Insights from the program will inform future accommodative lens development. - PanOptix Pro IOL has exceeded adoption expectations in the U.S., with ~90% of legacy PanOptix implants converted to PanOptix Pro, driven by strong surgeon feedback on improved visual performance and reduced light scatter. International launches are proceeding well, with early positive reception in Japan, Canada, Australia, and Europe. - TruPlus monofocal plus IOL has received CE Mark approval for Europe and entered KOL launch in the U.S. Vivity Pro, a next-generation extended depth-of-focus lens, is expected to launch via KOLs late 2026, designed to add one additional line of near vision while maintaining Vivity's existing low disturbance profile. - Valeda, the first-of-its-kind light-based treatment for dry AMD, saw accelerating adoption in the quarter, with ongoing progress on Medicare reimbursement. Management projects long-term peak sales of $100 million to $150 million for Valeda. - Contact lens innovation delivered strong results: TOTAL1 and PRECISION1 continue to gain share in the daily disposable segment, TOTAL30 multifocal for astigmatism expanded access to an underserved segment, and PRECISION7 weekly replacement sales more than doubled year-over-year. - TRYPTYR, the novel prescription dry eye treatment, has captured ~5% market share less than one year post-launch, with access covering ~2/3 of commercial lives and 20% of Medicare lives (including the recent addition of Humana Medicare Part D). Refill rates indicate strong patient satisfaction. - Systane OTC artificial tears delivered another quarter of double-digit growth and share gains, with the multi-dose preservative-free portfolio growing over 40% in the quarter. Management remains on track to grow Systane to a $1 billion brand. - Alcon has completed its first sale of the new UNITY M microscope and is beginning commercial ramp. UNITY DX pre-op OCT is expected to launch in pilot form late 2026, with revenue contribution expected to start mid-2027. A new OTC eye whitener product is expected to launch in 2027. ### Market & Portfolio Dynamics - Alcon's served aggregate eye care markets grew 3% to 4% in Q2 2026. Global cataract procedure volumes grew low single digits, with U.S. volumes flat (a sequential improvement from Q1). AT-IOL penetration increased 110 bps globally and 180 bps in the U.S. - Global contact lens market grew mid-single digits in Q2, led by U.S. strength, with slower price-driven growth in international markets. Alcon achieved a record global contact lens market share in the quarter. - Alcon entered an early-stage collaboration with RxSight to develop a next-generation adjustable IOL, combining Alcon's optical expertise with RxSight's adjustability platform. ### Financial Performance - Core gross margin reached 64.7% in Q2, up 250 bps year-over-year, driven by price increases, manufacturing efficiencies, and $15 million in one-time other revenue from a licensee. The prior year period had elevated inventory-related costs. - Core operating income was $574 million (20.6% of sales), up 160 bps year-over-year in constant currency, reflecting strong top-line performance net of targeted growth investments. - Core diluted earnings per share were $0.84, up 9% year-over-year. Alcon generated $693 million in free cash flow in the first half of 2026, returning $538 million to shareholders via dividends and share repurchases.

Guidance

Management maintained and upgraded select elements of its 2026 full-year guidance, with the following key forward-looking statements: - Maintained the constant currency total sales growth guidance range of 5% to 7%, assuming aggregate eye care markets grow 3% to 4% for the full year, current exchange rates hold through year-end, and existing U.S. import tariffs of 10% to 12.5% remain in effect. - Upgraded core operating margin expansion guidance to 90 to 190 basis points in constant currency, reflecting stronger than expected first half operating performance. The $60 million expected third quarter U.S. tariff refund will support gross margin for the full year. - Management plans to reinvest approximately two-thirds ($40 million) of the tariff refund back into the business to support growth initiatives, with second half 2026 SG&A as a percentage of sales expected to be consistent with 2025 levels. - Upgraded core diluted EPS growth guidance to 12% to 15% in constant currency, reflecting strong operational performance and the positive impact of the company's share repurchase program. - Management expects tougher year-over-year comparisons for equipment sales in the second half, offset by easier comparisons for contact lenses (particularly in Q4 2026). Contribution from recent launches (TRYPTYR, Valeda, UNITY CS, PanOptix Pro in Europe) is expected to become more meaningful in the second half.

Segment performance

Alcon reported total second quarter 2026 sales of $2.8 billion, representing 7% year-over-year growth in constant currency. **Surgical Franchise (total: $1.6 billion, up 7% YoY, 57.1% of total revenue):** - Implantables: $466 million, up 1% YoY, 16.6% of total revenue. IOL sales grew 2%, offset by lower surgical glaucoma sales. - Consumables: $825 million, up 5% YoY, 29.5% of total revenue. Growth was driven by strong vitreoretinal trends and healthy international cataract volumes, partially offset by softer U.S. cataract procedure volumes. - Equipment: $279 million, up 25% YoY, 10.0% of total revenue. Strong growth was led by robust adoption of the new UNITY VCS platform. **Vision Care Franchise (total: $1.2 billion, up 7% YoY, 42.9% of total revenue):** - Contact Lenses: $726 million, up 5% YoY, 25.9% of total revenue. Growth from innovative platforms, share gains, and pricing was partially offset by declines in legacy products. Alcon achieved a record global market share for contact lenses in the quarter. - Ocular Health: $486 million, up 12% YoY, 17.4% of total revenue. Double-digit growth was driven by strong performance from both newly launched prescription TRYPTYR and the established Systane over-the-counter brand.

Risks & headwinds

- Discontinuation of the PowerVision IOL program after failing to meet clinical performance standards, which eliminated a potential high-growth pipeline product, though management noted valuable development insights were gained. - Intense competitive pressure in the premium IOL market, with new competitive launches pressuring share and growth. Multiple new competitors have entered the AT-IOL space, creating ongoing share volatility. - Unfavorable reimbursement changes for surgical glaucoma stents have materially reduced demand for Hydrus, limiting growth in the surgical glaucoma franchise. Management expects this reimbursement dynamic to remain unchanged for the foreseeable future. - Flatter than historical growth in the U.S. cataract procedure market driven by ongoing surgeon retirement trends and a lag in productivity from new, younger surgeons. Management expects this dynamic to continue through 2026, with recovery to historical growth rates taking time. - Slower price growth in international contact lens markets relative to the U.S. has moderated overall contact segment growth. - Decline of legacy contact lens products continues to offset a portion of growth from new innovative platforms. - Actual results may differ materially from forward-looking guidance due to regulatory, competitive, macroeconomic, and operational factors, as detailed in Alcon's SEC filings.

Analyst Q&A

• Q: What is the expected adoption timeline for UNITY VCS across the installed base of 30,000 eligible units, and what is the 2027 outlook for IOL growth amid ongoing competitive pressure? /

  A: UNITY VCS adoption is on track with prior guidance. Management expects slightly higher uptake in the first two years of launch, followed by a steady annual replacement cadence over the 10-year upgrade cycle. For IOLs, PanOptix Pro has achieved 90% conversion of legacy PanOptix accounts in the U.S. within one year, driven by its superior light performance. AT-IOL penetration has risen 180 bps in the U.S. for two consecutive quarters, supporting growth even as share stabilizes following competitive entry. Management expects continued share stabilization as new product launches (Vivity Pro, TruPlus) hit the market.

• Q: Why did Alcon discontinue the PowerVision IOL program, and what is the strategic goal of the RxSight collaboration? /

  A: Alcon still views adjustable accommodative lenses as the long-term end goal for IOL innovation, but the PowerVision technology could not resolve unpredictable postoperative vision shifts. The RxSight collaboration is an intermediate step to develop improved tunable lenses leveraging Alcon's optical design expertise and RxSight's adjustability platform. Insights from PowerVision have better informed Alcon's development of future accommodative lens technologies, and the company continues to evaluate new approaches to this space.

• Q: Is the 5% to 7% full year sales growth guidance achievable, and when will all three new IOLs (PanOptix Pro, Vivity Pro, TruPlus) be approved in the U.S. and Europe? /

  A: Management maintains the 5% to 7% range, with performance expected to balance tougher second half equipment comps against growing contributions from newer launches including TRYPTYR, Valeda, and UNITY CS. PanOptix Pro is already approved in both regions, with European ramping ongoing in the second half. Vivity Pro has been submitted to both regulators and is expected to launch late 2026 or early 2027. TruPlus has CE Mark approval, but its rollout is being paced to avoid disrupting priority launches of PanOptix Pro and Vivity Pro.

• Q: What are the key drivers of strong UNITY adoption, and how does the platform create value for surgeon customers? /

  A: Early adoption has been led by conversion for retina procedures, where UNITY delivers 20% to 30% time savings per procedure, improved safety, and higher throughput that lets surgeons add an extra case per day. For cataract surgery, the 4D phaco technology delivers improved fluidics, more stable nuclei positioning, and faster procedure times, shortening payback period for the new equipment. The combined VCS platform also eliminates the need to move separate machines for cataract and retina procedures in shared OR environments, particularly valuable for international markets. Alcon has gained modest incremental market share with the new platform, matching early expectations.