Alcon - Q4 2025

Transcript

Operator (participant)

Greetings. Welcome to Alcon fourth quarter 2025 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 star zero on your telephone keypad. Please note, this conference is being recorded. I will now turn the conference over to Dan Cravens, Vice President and Head of Investor Relations. Thank you. You may begin.

Dan Cravens (VP and Head of Investor Relations)

Welcome to Alcon's fourth quarter 2025 earnings conference call. Yesterday, we issued our press release, interim financial report, and earnings presentation. We also published our annual report on Form 20-F. All these documents are available on our website at investor.alcon.com. Joining me on today's call are David Endicott, our Chief Executive Officer, and Tim Stonesifer, our Chief Financial Officer. Before we begin, please note that our press release, presentation, and remarks today will include forward-looking statements, including statements regarding our future outlook. We undertake no obligation to update these statements as a result of new information or future events, except as required by law. Actual results may differ materially from those expressed or implied in these forward-looking statements. Please do not place undue reliance on them.

Important factors that could cause actual results to differ materially are included in our Form 20-F, earnings press release, and interim financial report, each of which is on file with the SEC and available on their website at sec.gov. We will also discuss certain non-IFRS financial measures. These measures may be calculated differently from, and may not be comparable to, similar measures used by other companies. They should be considered in addition to, and not as a substitute for, IFRS prescribed performance measures. Reconciliations between our non-IFRS measures and the most directly comparable IFRS measures can be found in our earnings press release. For discussion purposes, our comments on growth rates are expressed in constant currency. In a moment, David will begin with highlights from the fourth quarter. After his remarks, Tim will walk through our financial performance and outlook for 2026.

David will return with closing comments before we open the line for Q&A. With that, I'd like to turn the call over to our CEO, David Endicott.

David Endicott (CEO)

Good morning, everyone. Thank you for joining us. Before we begin, I want to express my appreciation to our more than 25,000 associates. Your commitment to customers, your passion for innovation, and your resilience continues to fuel our performance. Each advancement we'll discuss this morning begins with the work that you do every day. While our full year results reflect softer markets, the second half of 2025, and especially the fourth quarter, demonstrated the strength and momentum of our business. I'm going to start my remarks today with innovation, which is the engine behind our growth. Over the past 18 months, Alcon has entered one of the most productive launch cycles in our history, and today I'll highlight a few of the most impactful advances. First, we're excited about the progress we're making with our Unity VCS and CS platforms.

Unity VCS, our next-generation Vitreoretinal and cataract combination system, was recognized recently by the Business Intelligence Group for outstanding technology achievements. This prestigious award recognizes companies, products, and leaders that are transforming industries through applied innovation, intelligent platforms, and measurable real-world impact. We're honored that Unity was selected as this year's overall winner. Surgeons have responded enthusiastically to Unity, highlighting its enhanced control, improved efficiency, and integrated user experience. Since launching in mid-2025, Unity VCS has been introduced across most major markets worldwide and continues to build momentum. Unity C S, our standalone cataract system, was designed to increase throughput while maintaining precision and safety. Early surgeon feedback has been encouraging, particularly regarding its seamless workflow and next-generation energy delivery, which helps optimize case efficiency without compromising outcomes. We launched CS late last year, and we will continue expanding its global availability throughout 2026.

The Unity platform represents one of the largest upgrade opportunities in our surgical portfolio in more than a decade. With its large installed base and compelling value proposition, we continue to expect this platform to be a steady contributor to growth through the coming decade. Let me move to IOLs. In the coming years, we expect to launch a wave of new lenses that will expand our portfolio and strengthen our competitive position. I'll start with PanOptix Pro. PanOptix Pro is off to an excellent start and has meaningfully stabilized trifocal share in the U.S. Building on the proven performance of PanOptix, Pro reduces light scatter, a feature surgeons associate with an improved visual disturbance profile and delivers even greater quality of vision.

Adoption in the U.S. has exceeded our expectations, and we're now rolling out the lens in Japan and Australia, with more markets to follow, pending regulatory approvals. Adding to the strong momentum of PanOptix Pro, we're expanding our portfolio with TruPlus, which recently received PMA approval from the FDA and is on track to launch at the ASCRS in April. Importantly, TruPlus strengthens our position in the Monofocal plus segment, enabling us to more effectively convert competitive offerings while also defending and extending our Clareon base among surgeons seeking an enhanced Monofocal option. TruPlus is engineered to deliver enhanced intermediate vision compared to existing offers in this category, without compromising the distance performance that surgeons expect from a Monofocal. TruPlus will also launch with a Toric option. Toric's availability is a meaningful lever to increase our ability to compete in the Toric segment and grow AT-IOL share.

Next, later this year, we also expect to receive regulatory approval on an upgraded version of Vivity. Vivity is already the most implanted EDOF lens in the world. This advancement will build upon its success. This improvement is designed to enhance near vision while preserving the visual disturbance profile that surgeons expect from Vivity. We're excited to launch this innovation in most major markets in early 2027. Finally, we continue to advance our accommodating lens program. Last year, we extended the clinical program after seeing some refractive changes in a portion of patients in our early clinical work. As part of this extension, we amended the protocol to include changes in intraoperative and postoperative medications. Given these changes, we now expect to read out the complete data towards the middle part of 2026. Switching now to Retina.

Valeda, our Photobiomodulation device, is showing encouraging adoption trends and is helping deepen our engagement in the dry AMD space. Valeda uses 3 distinct wavelengths of light to improve mitochondrial activity and retinal health, giving clinicians a non-invasive treatment option they haven't had before. This is the first and only treatment clinically shown to maintain visual improvement in dry AMD patients. We're excited about its long-term potential as treatment is now being reimbursed by 6 of the 7 MACs. Our team is continuing to build awareness and adoption within ophthalmology to complement our strong OR-based retina portfolio. Moving to vision care, reusable contact lenses continue to be a strategically important part of our portfolio, where we're under-indexed versus the market. More than half of new wearers start in a reusable lens, and this category offers long-term patient loyalty with attractive margins.

Our growing reusable portfolio is anchored by TOTAL30, the industry's first and only monthly lens with water gradient technology. The TOTAL30 family already includes sphere, Toric, and multifocal lenses, and this month we expanded the family with the introduction of TOTAL30 Multifocal for Astigmatism. This is Alcon's first multifocal Toric lens and a key step in expanding our innovative monthly portfolio. It positions us to compete strongly in the multifocal category, the fastest growing segment in contact lenses, by addressing Presbyopic patients with astigmatism, a group that historically has had limited options. Alongside the TOTAL30 family, PRECISION7 provides an accessible, high-quality, weekly option that broadens our reach within the reusable segment. Launched early last year, PRECISION7 was designed to meet the needs of both eye care professionals and cost-conscious patients by delivering week-long comfort and consistent vision in spherical and Toric modalities.

Combined, these innovations help drive significant share gains in the reusable category in 2025. Finally, in ocular health, we continue to develop products that meet the needs of the expanding dry eye category. Dry eye remains one of the most prevalent and persistent ocular conditions worldwide. Our innovation continues to strengthen Alcon's leadership. I'll start with the over-the-counter Systane family, where we saw a strong quarter of double-digit growth. This performance was supported by new formulations such as Systane Complete PF and our newest launch, Systane Pro. In the fourth quarter, we also launched a direct-to-consumer advertising campaign on Systane Pro to help broaden awareness and drive trial. Systane Pro is our most advanced artificial tear. It's designed to hydrate, restore, and protect the ocular surface and deliver long-lasting relief.

This multi-dose, preservative-free formulation fills an important need in the U.S. market by offering a premium artificial tear without preservatives, a feature that clinicians and patients increasingly value. In the pharmaceutical space, Tryptyr continues to perform exceptionally well. By year-end, it had surpassed approximately 84,000 total prescriptions and achieved 3% share of the U.S. market, which is a great result for a product only five months into its life cycle. Physicians appreciate its unique mechanism of action, which stimulates natural tear production as early as day one. Refill rates are high, signaling meaningful patient benefit and acceptance, as well as strong engagement from eye care professionals. We've also made great progress with reimbursement from commercial carriers like Express Scripts, Kaiser Permanente, and Highmark, and now have more than 1/3 of commercial lives covered. In 2026, our focus will be expanding the prescriber base and improving coverage.

We continue to expect to expand Medicare coverage in the next 18 months. SYSTANE PRO and Tryptyr represent significant innovation in the dry eye space, broadening our reach across the full spectrum of dry eye patients and reinforcing Alcon's leadership in this growing category. To bring this all together, Alcon is delivering sustained, high-quality innovation across the company. We're advancing a portfolio of products across both of our segments, each with multiyear commercial potential. I'll close with a few observations on the market during the fourth quarter. In cataract, we estimate the global procedural volumes grew approximately 3%. Additionally, AT-IOL penetration globally was up 90 bps. In contact lenses, global market growth was approximately 4%, which is primarily driven by the strength within the U.S. With that, I'll turn it over to Tim, who will walk us through the financials.

Tim Stonesifer (CFO)

Thanks, David. Our fourth quarter sales of $2.7 billion were up 7% versus prior year. In our surgical franchise, revenue was up 6% year-over-year to $1.5 billion. Implantable sales were $474 million in the quarter, up 2% versus the prior year period. As David mentioned, PanOptix Pro continued to perform well in the U.S., we're in the early stages of launching it in select international markets. Even so, during the quarter, we continued to see an increasingly competitive IOL market. In consumables, fourth quarter sales of $794 million were up 5%, which reflects growth in cataract and Vitreoretinal procedures, as well as price increases....

In equipment, we saw another quarter of acceleration with sales of $277 million and growth of 18%, driven by the launch of Unity. Turning to Vision Care, fourth quarter sales of $1.2 billion were up 7%. Contact lens sales were up 4% to $683 million in the quarter, primarily driven by price increases and product innovation, partially offset by declines in legacy products where we have limited our promotional activity. Please recall that this quarter, we faced particularly tough comparisons with double-digit sales growth in the fourth quarter of 2024. In Ocular Health, fourth quarter sales of $474 million were up 12%, led by continued strength of our dry eye portfolio, including Tryptyr and Systane.

As David mentioned, Tryptyr's launch is tracking ahead of expectations with strong early refill rates and broad prescriber enthusiasm. As access expands and awareness builds, we expect Tryptyr to be a meaningful growth driver in 2026. Systane also had a great quarter with mid-teens revenue growth. Moving down the income statement. Fourth quarter core gross margin was 62.5%, down 50 bps year-over-year, mainly driven by incremental tariffs, partially offset by price increases. Core operating margin was 19%, down 160 bps, driven by lower gross margin, increased sales and marketing investments behind new product launches, and increased R&D investment. This was partially offset by favorability from lower annual incentive compensation compared to prior year. Fourth quarter interest expense was $53 million, and other financial income and expense was a net benefit of $6 million.

The average core tax rate in 2025 was 17.5%, down from 19% in the prior year due to discrete tax benefits. Finally, core diluted earnings were $0.78 per share in the quarter. Turning to cash, we generated $1.7 billion of free cash flow in 2025, compared to $1.6 billion in 2024. In addition, in 2025, our free cash flow as a percentage of core net income was 114%, well ahead of our long-range goal. Our robust cash generation has enabled us to return $848 million to shareholders in 2025, comprised of $682 million in share repurchases and $166 million in dividend payments.

Moreover, I'm pleased to report that in January, we completed the repurchase program and returned the full $750 million to shareholders, more than two years ahead of schedule. Regarding tariffs, we incurred $91 million of tariff-related charges in 2025, of which $67 million was recognized in cost of sales. Moving to our outlook. As I'm sure you've noticed, starting this year, we are updating the way we present guidance to more closely align with the framework we outlined at our last Capital Markets Day. Our outlook assumes that aggregate eye care markets grow 3%-4% for the year, that exchange rates as of the end of January hold through year-end, and regarding tariffs, this outlook assumes an average tariff rate of approximately 15% for imports into the U.S. for the remainder of the year.

Additionally, we've assumed that retaliatory tariffs remain unchanged. Starting with sales, we expect top-line growth of between 5% and 7%. We believe this outlook reflects a balanced view of market conditions, complemented by the steady progress of recent product launches. Although we had a strong fourth quarter exit rate, we feel this guidance is prudent given the soft market conditions in 2025. Importantly, given our innovation pipeline and new product launches over the coming years, we remain committed to our long-range Capital Markets Day goals. In terms of phasing, we expect sales growth to be relatively level-loaded throughout the year, given the cadence of new product launches. Turning to gross margin, while we're not providing formal guidance, we currently expect 2026 to look broadly similar to 2025.

Efficiency gains and the launch of Tryptyr should continue to support margins, while headwinds from tariffs and the ramp of equipment launches largely offset those benefits. Moving to operating expenses, we expect SG&A leverage to be the primary driver of operating margin expansion. R&D expense is expected to be approximately 9% of sales. Additionally, as we've discussed previously, over the past several years, we've made significant investments in operational improvements and system enhancements to drive efficiencies. Building on this progress, and as outlined in our earnings release, we've announced new efficiency measures to further optimize our cost structure and support long-term margin expansion. We expect approximately $100 million in annualized run rate savings, with about $50 million realized in 2026. This initiative is expected to cost approximately $150 million and be completed by year-end.

In aggregate, we expect full-year core operating margin to improve by approximately 70 to 170 bps. Moving to the bottom line, we expect core diluted EPS to grow between 9% and 12%. In terms of phasing, given the cadence of product launches and the run rate savings, we expect the second half of the year to benefit from higher profitability than the first half. Before I wrap up, I'm pleased to report that our board has proposed a dividend of 28 Swiss centimes for share. This is in line with our payout policy of approximately 10% of the previous year's core net income. Shareholders will vote on this proposal at the upcoming annual general meeting in April.

Lastly, I too would like to extend my thanks to our more than 25,000 associates across the organization for their dedication and hard work. With that, I'll turn it back to David.

David Endicott (CEO)

Thanks, Tim. Before we open the line for questions, I want to briefly step back and summarize what we believe is most important. First, our fundamentals remain strong. We delivered solid fourth quarter performance, exited the year with momentum, and continued to invest behind innovation that supports sustainable long-term growth. Our portfolio is broader, deeper, and more differentiated than at any point in our history. Second, our innovation engine is working. Across surgical vision care, including ocular health, we are advancing multiple platforms with multi-year commercial potential. This breadth matters. It gives us a broad portfolio of potential revenue opportunities that reinforces our confidence in consistently creating value for shareholders. Third, we remain disciplined. As Tim just outlined, our 2026 outlook reflects a balanced view of market conditions while preserving our commitment to margin expansion, strong cash generation, and shareholder returns.

We're investing where returns are highest, while continuing to optimize our cost structure to support long-term performance. Finally, none of this happens without our people, and I want to thank our more than 25,000 associates again around the world for their dedication, resilience, and focus on serving eye care professionals and their patients every day. With that, operator, please open the line for questions.

Operator (participant)

Thank you. We will now be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. We ask that you please limit to one question and one follow-up question. Our first question is from Graham Doyle with UBS. Please proceed.

Graham Doyle (Executive Director and Head of European MedTech)

Thanks, guys. The line's a little bit choppy, so I'm assuming you can hear me. Just a question on the guidance. Obviously last year we had a couple of missteps and really around the market. Could you give us a sense as to how comfortable you are today in terms of visibility? Because when I look at some of the equipment and Tryptyr, it feels to me like you get halfway towards the midpoint of your guide already. To Tim's comments on phasing, it strikes me that you've got some relatively soft comps, Q1, Q2, and you've obviously exited at quite a strong rate. Should you be kind of in the middle or the upper end of the revenue guidance range when we think of the first half? Thanks a lot.

David Endicott (CEO)

Graham, thanks for the question. Just on the markets, you know, the markets improved in the fourth quarter. You know, they were improving most of the year as we kind of indicated, but they aren't quite back to normal yet. I think, you know, the balanced view that we, that we have right now is that we should call it about where, you know, it finished. When you look at this year, you know, the way we see the market broadly is the surgical market finished about 3%. That's probably where we'll call it for next year. Vision care was 4% and change, you know, that's probably where we'll call it.

In aggregate, you know, being in the 3 to 4 range for now makes a lot of sense to us, and I, you know, maybe that's disciplined, but I think that's the right answer. That's how we're thinking about the market for the year. On the front of the back half.

Tim Stonesifer (CFO)

I mean, I would just say on the phasing, Graham, you know, I think surgicals, to your point, is going to be driving that first half growth, if you think about PanOptix Pro equipment continuing to do well. Then as you get in the back half, I think vision care is really going to be driving that. Tryptyr is really going to be building a lot of momentum. We're also going to see some nice growth in P 7 and T 30. It should be relatively balanced for the year.

Graham Doyle (Executive Director and Head of European MedTech)

Awesome. Okay, thanks a lot, guys. Appreciate it.

Operator (participant)

Our next question is from Larry Biegelsen with Wells Fargo. Please proceed.

Larry Biegelsen (Managing Director and Senior Equity Research Analyst)

Good morning. Thanks for this, thanks for taking the question. I wanted to start with equipment, you know, really strong growth, 18% in Q4. Any color on how much Unity contributed to equipment growth in Q4? You know, if we look at, you know, year-over-year growth of about $48 million, was that mostly due to Unity, and how should we think about equipment growth in 2026? You know, David, you've talked about, you know, 3,000 placements per year, just on average. You know, how should we think about that in 2026? I had one follow-up.

David Endicott (CEO)

Yeah, Larry, we had a, you know, we had a great quarter on equipment. Obviously, you know, we got Unity C S out in the quarter as well. If you look at year-on-year, for example, Unity for Retina, our Unity VCS, you know, our revenue doubled in that category. Now, that's not, you know, what you should think about the going forward number, but I would just say that we had really strong demand. We filled that demand pretty well in the fourth quarter, and we really didn't get Unity C S out. I would say, you know, we've got really good visibility to a funnel of contracts that, you know, are ready to go. We have visibility to the install rates. We feel really good about the number that we've given in the past.

I think if you're referring to the number we gave mid-year last year, you know, certainly with, you know, exactly, you know, no change to that, I would just say. I think, you know, the kind of the important part of it is the feedback we're getting on the product itself is positive. A little bit of that I commented on relative to the award we won from the BIG thing. That the customer really appreciates at this moment in time, in particular, being able to do more surgeries in a day in a very safe way, and that's kind of the core of the proposition. We feel good about Unity right now, and it was a big part of the equipment growth.

Larry Biegelsen (Managing Director and Senior Equity Research Analyst)

... helpful. David, it looks like Tryptyr sales are actually tracking better than the IQVIA prescription data. You know, I guess my question is, was there any stocking in Q4, and how should we think about Tryptyr in 2026? You know, is $80 million-$100 million the right range? Are you know, still comfortable with that $250 million-$400 million peak sales? Thank you.

David Endicott (CEO)

Yeah, you know, look, we Tryptyr really is taking off nicely for us, we're, you know, we're excited about the enthusiasm that I think the patients are describing, which is this kind of rapid onset and, you know, tolerance that we are kind of expected to see, I think it's pleasing to see it. I think ophthalmologists and optometrists around the world, I think, are looking forward to this product. I think in the U.S., where we see it now, it's exciting to watch. You can't track it in IQVIA because it's obviously flowing through a third party right now to kind of make sure that we handle reimbursement best. We're very comfortable with peak sales right now.

In fact, I would say we probably are edging towards the higher end of the range we've given, which is that 250-400 range.

Larry Biegelsen (Managing Director and Senior Equity Research Analyst)

All right. Thanks so much.

Operator (participant)

Our next question is from Veronika Dubajova with Citi. Please proceed.

Veronika Dubajova (Managing Director)

Hey, guys, thank you so much for taking my questions. Congrats on a strong finish to 2025. Two things, please, if I can. One, just David, let's just circle back to your comments around the Unity order book. I don't know if you can describe how much visibility you have at this point in time, and I guess, you know, sort of the demand CS versus VCS and how you kind of characterize your confidence in sustaining a healthy double-digit growth rate in equipment as we enter 2026. My second question is for Tim, please. I noticed that the guidance assumes 498 of shares. Obviously, we finished the year at 488.

Any kind of reason for that, and then sort of indications around desire to do more buybacks as we move through this year, given that maybe there's a bit less M&A in the top pipeline than there might have been before? Thank you, guys.

David Endicott (CEO)

Yeah, Veronika, thanks for the question. I would just say the, you know, the key is, you know, we do have kind of very detailed view of our funnel, you know, the order book, as you will. Everything from prospects through to installations. You know, we track contracts, we track, you know, shipped products and all the way through to installation and follow-up. We're very confident in what we've got out there in terms of demand, and, you know, we expect the product to do really well this year.

Tim Stonesifer (CFO)

I would just say on the share buyback, you know, the 498 versus the 488, that's basically how the employee vesting is treated, so that's kind of the mechanics of the buyback. I would say, in general, on future buybacks, listen, our capital allocation philosophy hasn't changed. Our first priority is going to be investing in organic investments. Again, if you think about PanOptix Pro, Vivity, those types of things, those are doing very, very well. At the same time, we realize that we can't develop everything, so we will continue to be active in BD&L and M&A, and then obviously the third leg of the stool is the returning cash to shareholders. You know, we review that every year with the board when we do our strategic plan.

If we have any changes or any more buybacks, we'll certainly announce it as appropriate.

Operator (participant)

Our next question is from Matt Miksic with Barclays. Please proceed.

Matt Miksic (Managing Director and Senior Equity Research Analyst)

Hi, thanks for taking the question. I wanted to follow up on some of the dynamics in the IOL market, the cataract market, a little bit. If you could, maybe, elaborate on, you know, anything that you're seeing in market capacity and market volumes, you know, trends that could be improving there. Then anything in the pipeline, PanOptix Pro has been great, and your market leadership is impressive, but anything that you think, could help sort of, either expand, you know, laterally or penetration or drive share in other geographies or pick up the growth a little bit closer to some of the competitors in that segment? Thanks.

David Endicott (CEO)

Yeah. Thanks, Matt. Let me just comment a little bit on the IOL market broadly. You know, it's kind of this quarter, fourth quarter itself, was a bit of a kind of a very different market for the U.S. and for the international group. I would say the U.S. market was solid. The IOL market for us was very good. We had a very strong quarter in with PanOptix Pro kind of leading the way, so we gained some share. We, you know, ATIOL penetration was high. I think that is where I think the market will go. You know, look, there's going to be a continued competition in the year for it. You know, we've got Pro doing very well. We've got TRU Plus coming right now.

We've got Vivity 2.0 at the end of the year. Frankly, over the longer haul, we've got a number of ideas, you know, on how to, you know, continue to stay out in front of competition on this one. We feel pretty good about the U.S. We weathered a bit of a storm there, and at this point, I think we feel like we've kind of got it under control, if you will. Internationally, a little bit different, much more competitive, I would just say, we still haven't launched Pro, and we need to do that. We will get TRU Plus out, and we will get a new Vivity product late this year.

Those products are yet to be seen into the market, and I think that's where we'll see a bit of turn there. The other dynamic in the market for international was international was soft in Japan and soft in Asia, in particular, partly because China ran into some trouble with their ATIOL market. They hit a bit of a cap in the VVP, where they run out of money at a hospital level. Vivity had done so well during the year, they ended up using a lot of bifocal product, you know, towards the end of the year. You know, we had a little bit of a challenge in the China market for us.

That's a little bit different than the market per se, but the market, generally speaking, was soft, and generally speaking, China has made up a big part of that in terms of growth in IOLs, where it was soft. If you look at that part of it needs to improve, but I think generally speaking, we're well-positioned.

Operator (participant)

Our next question is from Ryan Zimmerman with BTIG. Please proceed.

Ryan Zimmerman (Managing Director and Medical Technology Analyst)

Thank you. Thanks for taking the question. You know, on the guidance, I want to ask a question, and I think you kind of alluded to this, but I just want to be clear. HisTorically, we've thought about 200 bps of innovation coming from Alcon on top of market growth. If you look at the high end of the guide, at 7%, and given where you assume markets to be, that implies about 300 bps. It's a little bit higher than what, you know, we've hisTorically thought of, you know, on top of your market growth rates.

If you can kind of bridge that 100 bp delta for us, David, is that mostly Tryptyr Unity, or is there anything embedded in that, you know, higher growth rate at the top end of the guide that we're not thinking about from a product standpoint?

David Endicott (CEO)

Look, we've been disciplined about the guide here, I think, you know, what we're trying to do here is say, look, we think the prudent thing to do at this moment is pick up the fourth quarter rate. We don't think that's the normalized rate, at the same time, that is what we've seen for the last couple of quarters, let's start there. To your point, we always say we got a couple of 100 bps of new product flow, which should sit on top of that. If you say 3%-4%, which is where roughly the market was, you know, in the fourth quarter, I think you add 200 bps, you're exactly right.

We've added a little bit on the top because we don't really know what, you know, the new product flow is gonna do. I think, look, if it, if it does well, we'll be on, you know, on the upper end of that. If it, you know, does kind of what we expected or a little bit, you know, any other kind of concerns that show up, you know, we'll see it, you know, in that range. We've been, I think, disciplined about the way we think this one through.

Ryan Zimmerman (Managing Director and Medical Technology Analyst)

David, I, you know, I'd like to ask maybe, what is the strategy in refractive at this point? I know we went through the STAAR saga. You know, there was a share buyback, obviously, on the back of that. You know, do you feel like... And again, appreciating that it's not needed necessarily to achieve your growth targets, as you alluded to on the last call, but where do you stand on refractive, and what do you want to do at this point?

David Endicott (CEO)

Well, I mean, first and foremost, you know, we're excited about WaveLight and WaveLight plus, in particular. You know, if you compare it to, for example, the competitive procedures, particularly the, you know, the lenticule extraction procedure, we're getting a substantially better outcome. I think we're, you know, our main objective right now is for six and unders, you know, these minus six patients, they should be getting LASIK. LASIK is a better procedure in our minds, and I think the data bears that out. You know, I think we had almost 50% or 60% at 2014, you know, postoperative, 100% at 2020, and something like 80% at 2018, I think. It was.

I mean, we're getting tremendous results from this customized LASIK. We're gonna keep moving down that path. We obviously would like to augment that with an ICL. Whether that, you know, it doesn't look like it's going to be STAAR at this point, there's a lot of ICLs out there. I think, you know, maybe the good news on this is, you know, we've got lots of other options out there. We're not in a hurry on refractive, we are definitely moving down a path of committing to the refractive area, whether that's RLE, whether that's laser work, whether that's an ICL. You know, there's a lot of options here that we are going to work at, refractive is clearly one of a number of white spaces for us that we're interested in. Glaucoma as well.

You know, in the vision care business, we've got a lot, pharmaceuticals we're interested in. We are looking broadly at white space. Refractive is certainly one of them.

Ryan Zimmerman (Managing Director and Medical Technology Analyst)

Thank you.

Operator (participant)

Our next question is from Jack Reynolds-Clark with RBC Capital Markets. Please proceed.

Jack Reynolds-Clark (VP and Senior Equity Research Analyst)

Hi there. Thank you for taking the questions. My first one is on implantables. Could you just remind us what your expectations are around the timelines of the launch of PanOptix Pro outside the U.S.? Just to kind of dig in a bit deeper here, what point do you expect growth in this segment to grow in line with the market? Is it 2017, or is it 2018? Are launches sufficient to make that happen, or is there something else that you think is needed to make that happen? Sorry, just to ask again on the guidance, it's a wide range on the revenue side for the year. Obviously, you've given the market growth range, too.

What is it that drives kind of revenues coming in at 5% constant currency growth versus the top end 7%? Thank you.

David Endicott (CEO)

The second one's pretty easy. Let me kind of give you where it is. I mean, you know, we basically are saying 3%-4% with the market. If the market does better than that's or worse than that's the low and the high on the market. The new product flow trajectory. We've got 10 or actually more than that now, new products kind of in play that have variation around the mean. You know, we're obviously gonna have some variable answers there. Some of them are gonna do better, some of them may not do as well as we expect, but how that mixes will also give us a high and a low around the range.

Think about it as a as both a market dynamic and then also a new product trajectory dynamic. On the implantables piece, look, you know, we're launching PanOptix Pro in Japan right now, in Australia right now. I think we're waiting on a regulatory approval in Europe. I think you're gonna see Tryptyr and Vivity 2.0, I think late this year, so maybe it's early next year, but I would say that, you know, we've got lots coming ex-U.S. And I do think that that will help a lot in our competitive fight out there, because, you know, I would just say this Tryptyr product is, you know, we've kind of ignored the multifocal plus category for a while.

We found a very clever way to do something I don't think anybody else can do with our optical design on that. We're excited about, particularly internationally, the Toric Monofocal plus and the Monofocal plus base lens are relatively good sized. We like our chances in that market with this new product. We'll see how those go.

Patrick Wood (Managing Director and Head of the U.S. Medical Technology Equity Research Team)

That's great. Thank you.

Operator (participant)

Our next question is from Anthony Petrone with Mizuho Group. Please proceed.

Anthony Petrone (Managing Director and Senior Equity Research Analyst)

Thank you, good morning, everyone. I actually had a question on the U.S. IOL cataract market. David, you spoke in the past about how surgeon capacity, you know, is constrained for a good part of 2025. You know, timing on that was a little bit opaque. Wondering where U.S. surgeon capacity is on the cataract side as we enter 2026. I'll have a quick follow-up on margins.

David Endicott (CEO)

Anthony, it's a really good question. You know, we've been working on this one for a while, and I do think that surgeon productivity is the main dynamic. You know, we've got. You know, when you look out and you see where the practice of cataract surgery or ophthalmology is going, you know, there are some practices, for example, in the Midwest, that we follow very carefully, and, you know, what they're doing is they're doing more surgery days right now by employing optometrists to do some of the pre-op work, some of the post-op work. They're using paraprofessionals around the clinic days so that they've got more time to spend in the OR.

You know, to a large degree, in states where you don't need a certificate or need to get an ASC, there's a lot of ASC movement right now. I would say, in other states, you know, where you do need a certificate of need and where hospital time has been difficult to get because there's so much other demand, you know, you see the societies and the surgeons looking for alternative ways to get OR time. I think the market is working it out, and it makes sense that they should, because there's a lot of demand for cataract surgery right now. Days are actually going up in terms of wait time, not down.

There's a lot to be done out there and money to be made if, you know, the facilities can provide the time and the surgeons can provide the skill. I think you're going to see that normalize as we said it would, but, you know, again, we're playing that just a little bit more balanced than perhaps we have in the past, just because it, you know, we haven't seen it happen yet. We expect it to, but we'll see when it happens.

Anthony Petrone (Managing Director and Senior Equity Research Analyst)

Great. Just follow up on margins would be, you know, when you look at the high end of the range here, 170 bps, I know you called out the restructuring program, $50 million this year, $150 million total, but you also have some pretty good new product mix. Tryptyr is doing well, Unity is getting off and running. I'm just wondering to what extent new products plus price is in that margin guide versus the $50 million cost out program. Thanks.

Tim Stonesifer (CFO)

Yeah, again, we're, I would say that we're going to continue to get price this year, probably not as much as we got last year, but we'll continue to get price. We're going to continue to get leverage out of the M&S. Think about, you know, we invested a lot in the new product launches last year. We're going to invest more this year, when you look at it from a year-over-year comparison, we're not going to see as much pressure. The new product launches. Again, to David's point, it just depends how that flows. Tryptyr should be favorable. You know, the more equipment we do puts pressure on the overall margin rates, we feel comfortable with the range we provided.

Operator (participant)

Our next question is from Patrick Wood with Morgan Stanley. Please proceed.

Patrick Wood (Managing Director and Head of the U.S. Medical Technology Equity Research Team)

Beautiful. Thank you, so much for taking the questions. Just two quick ones. First one around Voyager. How are you guys feeling about things are going there? You know, how it fits into glaucoma treatment and how that's gone recently?

David Endicott (CEO)

Yeah, look, Voyager, you know, we're excited about Voyager. You know, SLT is one of those things that, if you, if you ask surgeons, or ophthalmologists, generally speaking, should you do SLT? They'll all, 100% of them, I think, will say, "Yes, that's where we should start." You ask them a second question, which is, you know, how many of y'all are doing it? You know, you get a kind of a mixed bag, and that's because it is a tedious procedure, to sit and click from the kind of the traditional, you know, laser systems that are in the office. Voyager represents something that's very efficient, but really great for patients.

You know, I think this is a move that is going to take some time, but I think the glaucoma community is definitely on board with this. You know, we made a good move, I think, this year in the U.S., in particular, in consolidating Voyager with our Valeda product to improve our in-office coverage. Remember, this is an in-office equipment. This is a piece of equipment that sits in the office, not in the OR. I think one of the challenges we had last year with Voyager was we were in the OR because of Hydrus, and we were struggling to get everybody covered properly.

I think you see, you know, a nice move on Voyager and Valeda, both of which I think, you know, sit in that kind of efficiency play for, you know, in-office equipment, which again, in the U.S., we're doing a lot with, and we'll see how that goes. Obviously, internationally, there's some reimbursement challenges that we're going to continue to work through, but we're very excited about Voyager directionally.

Patrick Wood (Managing Director and Head of the U.S. Medical Technology Equity Research Team)

Makes a ton of sense. Just quickly, as a follow-up, you know, you guys touch the consumer in a whole bunch of different categories in different ways. You know, whether it's contacts or whether it's the non-RX business in OTC. Like, what do you think you're seeing? How do you think the consumer's health is? I know that's a very broad question, but is promotional activity going up on the retail side? I'm just curious, the big picture, how you think the consumer is doing based on the categories you guys are in.

David Endicott (CEO)

Well, I think big picture, I'd say the U.S. is pretty okay for us. International, maybe a little bit more mixed. You know, it's hard to tell. You know, in the contact lens business, which is probably one of our, you know, if there was a sensitive business, it's probably that one. That particular business internationally has resisted price, partly because it's chain dominant. If you look at the Europe market, you've got a lot of big chains who basically are telling us, "We're not gonna take price from you." That, and that is really what's causing the kind of a big chunk of the challenge in market growth in the international business. I think the same as in Japan.

You know, Japan is a big contact lens market, and it has a lot of chains which, you know, frankly, just aren't gonna take price right now. For a number of years, we took price pretty easily. That has slowed down. Certainly last year it did. I think, you know, generally speaking, the U.S. was very healthy, and I think we're 6% or 7% growth in the U.S. I think, you know, the U.S. Also, if you look at the consumer, if you think about sensitivities that would matter to us, our OTC business, shoot, we had, I think, a 6% artificial tear growth in that market. That was a valuable market for us.

The promotional, well, I would just say either the promotional efforts or the health of the consumer, you know, is driving AT-IOL penetration up significantly in the U.S. U.S., I think, was up 100 and some odd bps in promotion. If there was really any consumer sensitivity, you'd see it in one of those categories in the U.S., and really hasn't appeared to us, at least in the data, that that's what's going on. A little bit more sensitive, maybe outside the U.S., but I think that's. You know, again, none of our markets are terribly sensitive to the consumer. Eye care, as you know, is obviously a very kind of inelastic demand.

Patrick Wood (Managing Director and Head of the U.S. Medical Technology Equity Research Team)

Got it. Thanks for the details, David.

Operator (participant)

Our next question is from Issie Kirby with Redburn Atlantic. Please proceed.

Issie Kirby (VP of Equity Research)

Hi, guys. Thanks so much for taking my question. I wanted to start on Unity and the Cataract System in particular. Appreciate it's only a couple months in, relatively early within the launch, but what are you seeing in terms of your placement rates? I know with VCS, perhaps there were some difficulties in getting doctors trained up. Is that something you're seeing with the CS System? Just wondering about the momentum there, and then I have a follow-up on contact lenses?

David Endicott (CEO)

Issie, like I said earlier, I would say the visibility to the order book is very high, and obviously, the cataract system is going to be the bigger of the systems. The VCS, which we spent most of last year on, is really a retina system with, you know, I think some degree of... Actually, we sold a lot into mixed groups where there was a retina person and a cataract surgeon, so there was quite a little bit of that. I do think the volume is going to be in the cataract system because that's just naturally where most of the volume is. We have real good visibility to that, and I would just say that the response has been excellent.

I mean, I think we're working our way through, you know, as fast as we can, getting these things installed, but the demand is high right now.

Issie Kirby (VP of Equity Research)

Great, thanks. As my follow-up, just sticking on cataracts, are you seeing any benefit really to the broader portfolio within particularly the implantables business when you are placing a cataract system? I'm just wondering if there's any sort of real halo effect coming through with having an Alcon rep in the door, ramping it, ramping the system up?

David Endicott (CEO)

You know, I mean, obviously, all these decisions are independent on a product basis, and I think, you know, certainly one of the beautiful things about having a, a really important piece of equipment is that you get to be in the OR a lot, so you do have opportunities to talk with the staff and the surgeons a little bit more than perhaps people who aren't there every day. I do think that really what's driving our IOL share in the U.S. is PanOptix Pro. We had a really good quarter on Pro. Share was up, you know, stabilized, you know, year on year. I think we're feeling pretty good about the potential of that product around the international markets as we kind of get out there.

Really, I think as we go forward, you know, think about it mostly as discrete choice of, is our lens better than their lens? I think that's the fight we're really taking on most every day.

Issie Kirby (VP of Equity Research)

Great. Thank you.

Operator (participant)

Our next question is from Tom Stephan with Stifel. Please proceed.

Tom Stephan (VP of Healthcare Equity Research)

Great. Hey, guys. Good morning. Appreciate you taking the questions. First one on cataract physician fee cuts just here in the U.S. David, maybe if you can talk about how you're seeing to date or expecting these dynamics to potentially impact different areas of the business, like AT-IOLs, like capital equipment. I have a follow-up.

David Endicott (CEO)

You know, oddly enough, I think cataract fee cuts, which, you know, again, for just for everybody who may not know this, a physician fee came down, I think it's about $450 or something like that, per procedure. Actually, facility fee went up 3%. Just to be clear, there wasn't a cut in the facility fee, and the facility is generally who purchases the ATIOL. Just, you know, that's a, that's an important distinction. What's interesting, though, is, you know, penetration in the U.S., for example, was up 130 bps, for AT IOLs. I, and I do think there's some promotional effect going on here, but we've seen a couple, three quarters now, where you're seeing very significant...

ATIOL growth, but particularly in the 4th and 1st quarter, or, you know, 4th quarter, we saw a kind of a step up in it. I do think that people are aware that if they're gonna do a limited amount of surgery, they're gonna get paid $450 for it, you know, they can make money, you know, getting the patient a better lens and kind of talking to them about what it looks like to invest a little bit more, but get them a better outcome. That is, I think, what's driving some of this. I think some of that is actually coming off of these fee cuts, that, you know, has kinda moved people to say, "Hey, you know, I could do something else here.

Tom Stephan (VP of Healthcare Equity Research)

Got it. That's great. My follow-up is just on contact lenses, grew about 5% this year. Probably still above market, but maybe a smaller delta than usual. David, to stick with you, I mean, can you talk about just your confidence in growing above market? And more importantly, what are the kind of incremental drivers, I guess, P-30 and PRECISION7? I'm just curious if you can, you know, speak a bit to, you know, how we should think about growth next year relative to market. Thanks.

David Endicott (CEO)

Yeah, you know, really important, you know, comment, and I think, you know, probably we haven't talked enough about it. You know, look, the market was pretty solid. I mean, it remained on the low end of normal, but I think, you know, it was probably 5% globally last year. I would just be careful with our fourth quarter because, you know, we're wrapping around an 11% number from the prior year, which involved our P-seven launch and some inventory there. You know, again, I think if you normalize for all of that, you know, we've been growing ahead of market most of the year. You can see that we had a very good quarter in the fourth quarter in contact lenses.

If you look at the audited data, you know, our global share of contact lenses was up. Maybe we gained, you know, almost a full share point, like 70 bps. You know, our global share of reusables was well over that. You know, our daily disposable SiHy was double digits. You know, we had a really nice share growth in dailies and reusables in the fourth quarter. I think, you know, we're feeling good about contact lenses, and it's really coming from, I think, a combination of our ability to focus on both reusables and dailies. You know, obviously, our Dailies TOTAL1 product, our P-one product, you know, those are, we believe, you know, really well positioned for both value and then premium markets.

The reusable market is a very profitable and I think kind of underappreciated market, 'cause almost half of the patients are going into reusables. We're gaining a good bit of share there by focusing on it. I don't know that a lot of other people are. That's been very positive for us. You know, we're continuing to work on, you know, our multifocal Toric, which is, you know, exciting to get into that. I would just say that if there's one place we're a little bit soft, it's probably in that multifocal area where we've been losing a little bit of share. I say all of that with the underlying belief that, you know, we have been letting go a little bit of our DACP product.

You know, we've got some downward pressure from some of the older, legacy brands that we, you know, trying to move away from and get them into the higher end, you know, more profitable brands. You know, we had a good quarter in contact lens. Thanks for asking.

Operator (participant)

Our next question is from Susannah Ludwig with Bernstein. Please proceed.

Susannah Ludwig (European Research Analyst and Director)

Good afternoon. Thanks for taking my questions. I guess I wanted to follow up in terms of international IOLs. You guys talked about China. Could you remind us what % of your implantables business China is, and what your expectations are for the upcoming VBP?

David Endicott (CEO)

Yeah, I don't think we don't break it out at that level. I think China broadly is 5% or 6% of the total, and you can find that in the general financials of our total business. You know, and I would just also say that China is mostly a surgical business. Relative to the IOLs in China, what really went on, I think, was, we had a really fast-growing business with Vivity that kind of hit a ceiling because there's a DRG level of reimbursement that comes to the hospital level, that they, a lot of the hospitals ran up against, and they kinda had to slow everybody down in the hospital, so they went to a lot of bifocals.

When you look into it, Monofocal growth was pretty high, foldable growth was pretty high, but it wasn't coming out of ATIOL, so I think that was a valuable lesson for us. The VBP expectation going forward, you know, it's gonna be tough. We expect some price erosion here. We expect to get into this and kind of continue to be roughly year-on-year, I would say, you know, roughly. Flat would be a good number for us. I think we'll get volume, but we're gonna have to give up some price, and that assumes we win. Again, all of those things are in play. Middle part of the year is the current expectations, but we'll see how that all plays out.

It's, you know, it's an increasingly competitive market in China, but it's also a very big market. You know, we think volume will grow nicely and offset some of the pricing erosion. Again, prices are still pretty good in China, actually. When you look at it relative to Europe, you know, they're pretty similar.

Susannah Ludwig (European Research Analyst and Director)

Okay, I guess just as a follow-up to that, how do you guys think about sort of long term? Would you ever sort of look at long-term moving production to China, given their focus on local production?

David Endicott (CEO)

Well, we'll look at that every year and see. Right now, we don't produce in China. We are manufacturing a couple of things in the equipment land that we're thinking about moving there because for exactly your, the reason you indicate, which is there is a buy China rule there for folks that, you know, are making product there. There is a small advantage, depending on what product we're talking about. We'll move a little bit of equipment there, but generally speaking, we're sourcing China out of other locations than the U.S. I think we're trying to do that. There's obviously some challenge with that, particularly around equipment.

You know, IOLs, I think we can move to a neutral location if we're trying to avoid tariffs, if that's the purpose of your question. In terms of long-term production in China, good question. Not sure we've discussed it in a broad sense for anything other than equipment.

Susannah Ludwig (European Research Analyst and Director)

Great, thanks.

Operator (participant)

Our next question is from David Saxon with Needham & Company. Please proceed.

David Saxon (Managing Director and Senior Research Analyst)

Great. Thanks, guys, for taking my questions. Just a couple of quick ones. Maybe starting with Tim, you talked in the script, I believe, about Tryptyr starting to benefit margins in the back half. Can you talk about just the magnitude of the investments you're making behind that product, and once that does turn profitable, kind of the magnitude of the benefit you could see?

David Endicott (CEO)

Yeah, again, we're not going to give product level, a margin analysis, but we're investing, what we feel is appropriate to make sure that that launch is successful. As David said, right now, it's performing better than expectations.

David Saxon (Managing Director and Senior Research Analyst)

Okay, great. Then just on Unity, as it relates to consumables, I mean, how soon after a unit is placed, do you start to see those Unity consumables start flowing through? If the market's growing 3%, I mean, can you get a couple or a few extra points from the Unity consumable pricing? Thanks so much.

David Endicott (CEO)

Yeah, I mean, I think, generally speaking, you know, as I'll just call it, a broad rule of thumb, and, you know, depends on, you know, lots of things. I would say, we generally look at the market and say, consumables will run a couple of points hotter than the market. That's generally what happens and has happened in the past. I would expect that to continue. I wouldn't really interpret the Unity placements as driving a lot of additional, but above that, I think, you know, a couple of points above market growth would be the right way to think about it.

David Saxon (Managing Director and Senior Research Analyst)

Great, thanks.

Operator (participant)

Our next question is from Jeff Johnson with Baird. Please proceed.

Jeff Johnson (Senior Research Analyst)

Guys, good morning. Thanks for squeezing me in. I'll be quick here with just two questions. David, going back just on your Tryptyr comment, I think you alluded to this, but I don't believe you've ever had a Monofocal plus. Can you just, you know, 1, confirm that? 2, can you remind us Monofocal versus Monofocal plus kind of mix in the U.S., but especially in some of the international markets, how much Monofocal plus share has been taken over the last couple of years or so, what the current mix is? And remind me if you do get a little pricing premium on a Monofocal plus over a Monofocal. Thanks.

David Endicott (CEO)

Yeah, you do get a little bit of a price premium. Let me, let me start by saying, you know, the, in the U.S., the Monofocal business, Monofocal plus business, hasn't been a huge phenomenon. It probably had a biggest effect on the Toric business. I would say, you know, partly because you can, you know, in the add-collect space, you can, for a Toric patient, you can collect extra money from them for an advanced technology lens like this. They position the Toric lens, I think, with an increased amount of intermediate vision, which is really nice, and it's better than the Monofocal. You know, the impact has been really in the Toric space.

You know, we lost a fair bit of share in the U.S. over the last several years in Toric. You know, I think to some degree it was to the Monofocal plus. We're looking in specifically, that's the opportunity, I think, in the U.S. Internationally, a little bit different because they really, you know, I think, had a price point challenge internationally, and the Monofocal plus did do a better job. I think in the, I just saw it somewhere between Monofocal lenses and AT-IOL lenses, they carved out some space. I'm not sure what the size of that was, but it's meaningful. I do think that, you know, when you really think about it, this world may just turn into being a, you know, the Monofocal business turns into Monofocal plus.

I mean, I think it comes with a little bit of a premium. You know, this is a better lens than our core lens because you get more intermediate, but you don't give up much distance. I'm excited about the opportunity. It's a modest one, but I think important, in terms of our share in Toric.

Jeff Johnson (Senior Research Analyst)

Fair enough. Then, Tim, just 1 quick question on EPS gating. I've heard your comments on second half profitability higher than first half profitability, but you also are guiding to a couple hundred bps of FX tailwind to earnings, to EPS growth, I'm sorry, this year. I just want to make sure I'm understanding. Gating of EPS, because I think those currency tailwinds should be probably more first half-weighted, should gating of EPS throughout the year be relatively flat or consistent, even if profitability improves in the back half of the year?

Tim Stonesifer (CFO)

The EPS growth that we're talking about is in constant currency. You know, if you think about, you know, sort of phasing in general and profitability, I'll just go down the PNL. We talked about revenue, we talked about gross margin, you know, gross margin flat year-over-year. The only thing I would say there is the first half will be lighter than the second half, and that's because you have the impact of the tariffs coming through. Overall, they should be flat year-over-year. You know, SG&A will be a similar profile as last year when you think about it on a % of revenue basis. As you've seen in the last two or three years, you know, be a little careful with Q2. That's a heavy M&S spend for us from a back-to-school perspective.

I go back and look at the prior years and see how much it's, you know, it's $40 million-$50 million, probably more in Q2 versus Q1. The savings we talked about, that'll be probably 60%-70% back half loaded, so that's another driver why profitability is better, and then you can work the rest of the PNL. You know, we feel pretty good about the guide, and, you know, we're going to continue to grow the business faster than the market. We're going to continue to expand margins, and, you know, that should drop through some nice free cash flow.

Jeff Johnson (Senior Research Analyst)

Thank you.

Operator (participant)

Our next question is from Steven Lichtman with William Blair. Please proceed.

Steve Lichtman (Research Analyst)

Thank you. Hi, guys. Tim, maybe a couple for you. First, any color you can give on free cash flow outlook for this year? You gave some inputs with CapEx, and, you know, it's like a restructuring charge, but any other color you can provide on puts and takes and where you could end up would be great.

Tim Stonesifer (CFO)

Yeah, again, I think as we continue to drive margin expansion and grow the business, that's going to drop through some nice free cash flow. You know, I would expect it to be similar to what we had last year. That would include the restructuring charges that we talked about, but we feel pretty good about the free cash flows this business can generate.

Steve Lichtman (Research Analyst)

Okay, got it. Are you still expecting some incremental spend on Orion this year? It looks like you're talking about getting some leverage on the R&D line. Any update on where you're at with that program and the incremental costs? Thanks.

Tim Stonesifer (CFO)

Yeah, there's still probably 40 bps, as we talked about last time. Again, we've talked about over the last call, you know, 12 -18 months about some of the efficiency programs that we're working on. One of them is in the create to make space that we've talked about. You know, our internal goal there is about a 20% improvement of getting, you know, product to market faster. Some of that is in these numbers, which is why you're seeing a little bit of the leverage, but certainly not all of it. We feel pretty good about the R&D spend and the innovation pipeline that we have, and we feel like we're investing appropriately behind it.

Steve Lichtman (Research Analyst)

Got it. Thanks, Tim.

Operator (participant)

We have reached the end of our question-and-answer session. I would like to turn the conference back over to Dan for closing remarks.

Dan Cravens (VP and Head of Investor Relations)

Great. Well, thank you, thanks again for joining us this morning. For any follow-up questions, from an investor standpoint, please reach out to either Allen Trang or myself, for media, reach out to our corporate comm department. Thanks again. Have a good day.

Operator (participant)

Thank you. This will conclude today's conference.

Steve Lichtman (Research Analyst)

Thank you for your thoughts.

Operator (participant)

You may disconnect at this time. Thank you for your participation.