Alcon (ALC) Q4 2025 Earnings Call Transcript

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DATE

Wednesday, Feb. 25, 2026 at 8:00 a.m. ET

CALL PARTICIPANTS

• Chief Executive Officer — David J. Endicott
• Chief Financial Officer — Timothy C. Stonesifer
• Head of Investor Relations — Daniel Cravens

TAKEAWAYS

• Total Sales -- $2.7 billion, up 7% in constant currency, driven by product launches across Surgical and Vision Care segments.
• Surgical Revenue -- $1.5 billion, increased 6% year over year, supported by growth in cataract and vitreoretinal procedures and equipment placements.
• Implantable Sales -- $474 million, up 2%, with PanOptix Pro stabilizing trifocal share in the U.S and initial launches in Japan and Australia.
• Consumables Sales -- $794 million, up 5% year over year, reflecting higher procedure volumes and price increases.
• Equipment Sales -- $77 million, representing 18% year-on-year growth, primarily attributable to Unity platform launches.
• Vision Care Revenue -- $1.2 billion, up 7% year over year, with reusable contact lenses and new product launches delivering share gains.
• Contact Lens Sales -- $683 million, up 4%, driven by innovation and price increases, partially offset by softness in legacy brands.
• Ocular Health Sales -- $474 million, up 12%, led by the Truqtyr launch and double-digit Systane growth.
• Core Gross Margin -- 62.5%, down 50 basis points, mainly due to higher tariffs; partially offset by price actions.
• Core Operating Margin -- 19%, declining 160 basis points, reflecting gross margin pressure and incremental investments in sales, marketing, and R&D.
• Diluted EPS -- $0.78 per share for the quarter.
• Full-Year Free Cash Flow -- $1.7 billion, exceeding the prior year's $1.6 billion, representing 114% of core net income.
• Shareholder Returns -- $848 million returned through $682 million in share repurchases and $166 million in dividend payments; repurchase program completed ahead of schedule at $750 million.
• Tariff-Related Charges -- $91 million in 2025, with $67 million recognized in cost of sales.
• 2026 Sales Guidance -- 5%-7% constant currency growth, assuming eye care markets expand 3%-4% and no major FX/tariff changes.
• 2026 Core Operating Margin Guidance -- Improvement of 70-170 basis points expected, supported by approximately $100 million in annualized savings from new efficiency measures ($50 million realized in 2026).
• 2026 Core Diluted EPS Guidance -- Anticipated growth of 9%-12%, with profitability weighted toward the back half of the year.
• Proposed Dividend -- $0.28 per share, maintaining a 10% payout ratio relative to prior-year core net income.
• Unity Platform Rollout -- VCS and CS systems delivered worldwide expansion, with high demand visibility and strong surgeon adoption feedback.
• Truqtyr Launch Trajectory -- Surpassed 84,000 total prescriptions, reached 3% U.S. market share within five months, and demonstrated high refill rates; commercial coverage exceeded one third of U.S. lives.
• Product Pipeline Developments -- Notable launches include PanOptix Pro, TruPlus (FDA-approved, launch at ASCRS in April), and anticipation of upgraded Vivity regulatory approval by year end.
• Systane Pro Performance -- Generated double-digit sales growth and successfully rolled out a direct-to-consumer campaign, supported by new preservative-free formulations.
• Reusable Contact Lens Segment -- Share gains driven by Total30 family and Precision7, with the launch of Total30 Multifocal for Astigmatism addressing historically underserved patients.

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RISKS

• Core gross margin decreased by 50 basis points, mainly due to incremental tariffs, with $91 million in tariff-related charges impacting results.
• "we continued to see an increasingly competitive IOL market," indicating ongoing pricing and share pressures in Implantables.
• International IOL growth was constrained by "softness in Japan and," with China Surgical performance affected by hospital budget caps and anticipated price erosion from upcoming VBP policy.
• Fees for U.S. cataract surgeons were reduced by about $4.50 per procedure, which could impact procedure economics despite facility fees rising 3%.

SUMMARY

Alcon(NYSE:ALC) concluded the quarter with strong year-over-year revenue growth and momentum across key franchises. Capital allocation included the early completion of the $750 million share repurchase program and an increased free cash flow, enabling higher shareholder returns. The company’s rollout of new products, such as Unity surgical systems, PanOptix Pro, TruPlus, and Truqtyr, contributed to both top-line expansion and strategic differentiation. Enhanced visibility over equipment and lens order pipelines reinforces management’s confidence in sustained performance, while ongoing efficiency initiatives target meaningful operating margin gains. The 2026 outlook incorporates margin expansion and innovation-driven growth, yet remains calibrated to current market softness and global healthcare dynamics.

• Management confirmed high demand visibility in the Unity platform order book, tracking installations from contracts to deployment and follow-up.
• PanOptix Pro stabilized U.S. trifocal market share and is being rolled out internationally, pending further regulatory approvals.
• Truqtyr achieved rapid adoption, with management stating it is "edging towards the higher end" of peak sales guidance of $250 million–$400 million.
• Global AT-IOL penetration increased 90 basis points, with the U.S. up 130 basis points, reflecting promotional efforts and patient willingness to consider advanced lenses post fee-cuts.
• Reusable and daily contact lens global market share increased, driven by focus on higher-margin, innovative products and strategic shift away from legacy brands.
• China comprises about 5%-6% of total company sales, with Surgical as the primary focus; the company anticipates flat year-over-year IOL performance due to competition and pricing pressure from VBP.
• New efficiency programs target $100 million in annualized run-rate savings, with $50 million expected within 2026, to drive long-term cost optimization and margin expansion.
• Commercial coverage for Truqtyr expanded to more than one third of U.S. lives, with plans to extend Medicare coverage within 18 months.
• Management characterized international contact lens price increases as challenging, particularly in chain-dominated geographies such as Europe and Japan, unlike continued gains in the U.S.

INDUSTRY GLOSSARY

• AT-IOL: Advanced technology intraocular lenses, offering features beyond standard monofocal lenses such as multifocal or extended depth-of-focus optics.
• VCS/CS: Unity Vitreoretinal and Cataract System / Unity Cataract System—Alcon's new integrated platforms for retina and cataract surgeries, respectively.
• VBP: Volume-based procurement—China's centralized purchasing policy that imposes price caps to maximize hospital cost efficiencies.
• Truqtyr: Prescribed pharmaceutical for dry eye, with a unique mechanism stimulating natural tear production.
• Systane: Brand family of over-the-counter artificial tears and dry eye products.
• Total30: Monthly contact lens line featuring water gradient technology, available in sphere, toric, and multifocal designs.
• PanOptix Pro: Alcon's advanced trifocal intraocular lens, reducing light scatter and enhancing vision quality.
• EDOF: Extended depth-of-focus intraocular lens, designed to provide improved range of focus and minimize visual disturbances.
• Monofocal Plus: Enhanced monofocal intraocular lens providing greater intermediate vision compared to standard monofocal lenses.
• P7 (Precision7): Weekly contact lens option under the Precision1 product family.
• Vivity 2.0: Next-generation EDOF lens, pending approval, designed to further enhance near vision without added visual disturbances.

Full Conference Call Transcript

David J. Endicott, our Chief Executive Officer, and Timothy C. 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. Dave will then return with closing comments before we open the line for Q&A. With that, I would like to turn the call over to our CEO, David J. Endicott. Good morning, everyone, and thank you for joining us.

David J. Endicott: 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 continue to fuel our performance. Each advancement we will discuss this morning begins with the work that you do every day. And while our full year results reflect softer markets, 2025, and especially the fourth quarter, demonstrated the strength and momentum of our business. Let's start my remarks today with innovation, which is the engine behind our growth. Over the past 18 months, Alcon Inc. has entered one of the most productive launch cycles in our history, and today, I will highlight a few of the most impactful advances.

First, we are excited about the progress we are 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 are 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 CS, our standalone cataract system, was designed to increase throughput while maintaining precision and safety. 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, and 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. Now 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 will 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 are 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 are 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 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.

And 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, and this advancement builds upon its success. This improvement is designed to enhance near vision while preserving the visual disturbance profile that surgeons expect from Vivity. We are 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 three distinct wavelengths of light to improve mitochondrial activity and retinal health, giving clinicians a noninvasive treatment option they have not had before. This is the first and only treatment clinically shown to maintain visual improvement in dry AMD patients. We are excited about its long-term potential, as treatment is now being reimbursed by six of the seven 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 are 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 Inc.'s first multifocal toric lens, 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, Precision1 for Astigmatism Weekly (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 helped drive significant share gains in the reusable category in 2025.

And 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, and our innovation continues to strengthen Alcon Inc.'s leadership. I will 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 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 is designed to hydrate, restore, and protect the ocular surface and deliver long-lasting relief.

This multidose 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, Truqtyr 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 also made great progress with reimbursement from commercial carriers like Express Scripts, Kaiser Permanente, and Highmark, and now have more than one third 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 Truqtyr represent significant innovation in the dry eye space, broadening our reach across the full spectrum of dry eye patients and reinforcing Alcon Inc.'s leadership in this growing category. And to bring this all together, we are advancing a portfolio of products across both of our segments, each with multi-year commercial potential.

I will close with a few observations on the market during the fourth quarter. In cataract, we estimate that global procedural volumes grew approximately 3%. Additionally, AT-IOL penetration globally was up 90 basis points. In contact lenses, global market growth was approximately 4%, which was primarily driven by the strength within the U.S. With that, I will turn it over to Tim, who will walk us through the financials.

Daniel Cravens: Thanks, David.

Timothy C. Stonesifer: 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., and we are 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 $77 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 2024. In Ocular Health, fourth quarter sales of $474 million were up 12%, led by continued strength of our dry eye portfolio, including Truqtyr and Systane.

As David mentioned, Truqtyr’s launch is tracking ahead of expectations, with strong early refill rates and broad prescriber enthusiasm. As access expands and awareness builds, we expect Truqtyr to be a meaningful growth driver in 2026. Systane also had a great quarter with mid-teens revenue growth. Now moving down the income statement, fourth quarter core gross margin was 62.5%, down 50 basis points year over year, mainly driven by incremental tariffs, partially offset by price increases. Core operating margin was 19%, down 160 basis points, 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, 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 am 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. Now moving to our outlook. As I am sure you have 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% to 4% for the year, that exchange rates as 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 have 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 tables. 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 are not providing formal guidance, we currently expect 2026 to look broadly similar to 2025. Efficiency gains and the launch of Truqtyr 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 have discussed previously, over the past several years, we made significant investments in operational improvements and system enhancements to drive efficiencies. Building on this progress, as outlined in our earnings release, we have announced new efficiency measures to further optimize our cost 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. So in aggregate, we expect full-year core operating margin to improve by approximately 70 to 170 basis points. Moving to the bottom line, we expect core diluted EPS to grow between 9% and 12%.

And 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 am pleased to report that our Board has proposed a dividend of $0.28 per 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. And 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. And with that, I will turn it back to David.

David J. Endicott: 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 are investing where returns are highest, while continuing to optimize our cost structure to support long-term performance. And 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: Thank you. We will now be conducting a question and answer session. You may press 2 if you would like to remove your question from the queue. Our first question is from Graham Doyle with UBS. Please proceed.

Graham Doyle: Thanks, guys. The line is a little bit choppy, so I am assuming you can hear me. Just a question on the guidance. So, obviously, last year we had a couple of missteps 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 Truqtyr, it feels to me like you get halfway towards the midpoint of your guide already. And then to Tim’s comments on phasing, it strikes me that you have some relatively soft comps in Q1 and Q2. You have obviously exited at quite a strong rate.

So should you be kind of in the middle or the upper end of the revenue guidance range as we think of the half? Thanks a lot.

David J. Endicott: Graham, thanks for the question. Let me just, on the markets, the markets improved in the fourth quarter. They were improving most of the year as we kind of indicated, but they are not quite back to normal yet. So I think the balanced view that we have right now is that we should call it about where it finished. And so when you look at this year, the way we see the market broadly is the Surgical market finished about 3%. That is probably where we will call it for next year. Vision Care was 4% and change. That is probably where we will call it.

So in aggregate, being in the 3% to 4% range for now makes a lot of sense to us. And maybe that is discipline, but I think that is the right answer. So that is how we are thinking about the market for the year. And on the front and back half I mean, I would—

Timothy C. Stonesifer: Say on the phasing, Graham, I think Surgical, to your point, is going to be driving that first-half growth if you think about PanOptix Pro, Equipment continuing to do well. And then as you get in the back half, I think Vision Care is really going to be driving that. Truqtyr is really going to be building a lot of momentum. We are also going to see some nice growth in P7 and T30. So it should be relatively balanced for the year.

Graham Doyle: Awesome. Okay. Thanks a lot, guys. Appreciate it.

Operator: Our next question is from Lawrence H. Biegelsen with Wells Fargo. Please proceed.

Lawrence H. Biegelsen: Good morning. Thanks for taking the question. I wanted to start with Equipment, really strong growth of 18% in Q4. So any color on how much Unity contributed to Equipment growth in Q4? If we look at year-over-year growth of about $48 million, was that mostly due to Unity? And how should we think about Equipment growth in 2026? David, you have talked about 3,000 placements per year on average. How should we think about that in 2026? And I had one follow-up.

David J. Endicott: Yes, Larry, a great quarter on Equipment. Obviously, we have got CS out in the quarter as well. But if you look at year-on-year, for example, Unity for retina, our VCS, our revenue doubled in that category. Now, it is not what you should think about as 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 did not get CS out. So I would say we have got really good visibility to a funnel of contracts that are ready to go. We have visibility to the install rates.

We feel really good about the number that we have given in the past, so I think if you are referring to the number we gave mid-year last year, no change to that, I would just say. And I think the important part of it is the feedback we are getting on the product itself is positive, and a little bit that I commented on relative to the award we won from the BIG thing. 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 is kind of the core of the proposition.

So we feel good about Unity right now, and it was a big part of the Equipment growth.

Lawrence H. Biegelsen: That is helpful. And David, it looks like Truqtyr sales are actually tracking better than the IQVIA prescription data. I guess my question is, was there any stocking in Q4? How should we think about Truqtyr in 2026? Is $80 million to $100 million the right range? And still comfortable with that $250 million to $400 million peak sales? Thank you.

David J. Endicott: Yes. Look, Truqtyr really has taken off nicely for us, and we are excited about the enthusiasm that I think the patients are describing, which is this kind of rapid onset and tolerance that we expected to see, but I think it is pleasing to see. I think ophthalmologists and optometrists around the world, I think, are looking forward to this product. But I think in the U.S., where we see it now, it is exciting to watch. You cannot track it in IQVIA because it is obviously flowing through a third party right now to make sure that we handle reimbursement best, but we are very comfortable with peak sales right now.

In fact, I would say we probably are edging towards the higher end of the range we have given, which is that $250 million to $400 million range.

Lawrence H. Biegelsen: All right. Thanks so much.

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

Veronika Dubajova: Hey, guys, thank you so much for taking my questions. Congrats on a strong finish to 2025. Two things, please, if I can. One, David, I want to circle back to your comments around the Unity order book. Can you describe how much visibility you have at this point in time, and the demand for CS versus VCS, and how you would characterize your confidence in sustaining a healthy double-digit growth rate in Equipment as we enter 2026? And then my second question is for Tim, please. I noticed that the guidance assumes 498 million shares. Obviously, we finished the year at 488 million.

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

David J. Endicott: Veronika, thanks for the question. I would just say the key is we do have a very detailed view of our funnel, the order book, if you will. Everything from prospects through to installations. So we track contracts, we track shipped products, and all the way through to installation and follow-up. So we are very confident in what we have got out there in terms of demand, and we expect the product to do really well this year.

Timothy C. Stonesifer: Yes, and I would just say on the share buyback, the 498 million versus the 488 million, that is basically how the employee vesting is treated. So that is kind of the mechanics of the buyback. I would say in general, on future buybacks, our capital allocation philosophy has not 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 cannot 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 returning cash to shareholders.

So we review that every year with the Board when we do our strategic plan. If we have any changes or any more buybacks, we will certainly announce it as appropriate.

Operator: Our next question is from Matt Mitnick with Barclays. Please proceed.

Matt Mitnick: Hi, thanks for taking the question. So I wanted to follow up on some of the dynamics in the IOL market, cataract market a little bit. If you could maybe elaborate on anything that you are seeing in market capacity, in market volumes, trends that could be improving there? And then anything in the pipeline, PanOptix Pro has been great, and your market leadership is impressive, but anything that you think could help either expand 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 J. Endicott: Yes. Thanks, Matt. Let me just comment a little bit on the IOL market broadly. This quarter, or fourth quarter itself, was a little bit of a very different market quarter with PanOptix Pro kind of leading the way. And so we gained some share. AT-IOL penetration was high. And I think that did very well. We have got TruPlus coming right now. We have got Vivity 2.0 at the end of the year. And, frankly, over the longer haul, we have got a number of ideas on how to continue to stay out in front of competition on this one. So 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 have kind of got it under control, if you will. Internationally, a little bit different. Much more competitive. And I would just say, we still have not launched Pro and we need to do that. We will get TruPlus out, and we will get a new Vivity product late this year. But those products are yet to be seen in the market, and I think that is where we will see a bit of a turn there.

The other dynamic in the market for international was softness in Japan and softness in Asia in particular, partly because China ran into some trouble with their AT-IOL market. They hit a bit of a cap in the VBP where they ran out of money at a hospital level. Vivity had done so well during the year, they ended up using a lot of bifocal product towards the end of the year, and so we had a little bit of a challenge in the China market for us. That is a little bit different than the market per se, but the market generally speaking was soft.

Generally speaking, China has made up a big part of that in terms of growth in AT-IOLs, where it was soft. So if you look at that part of it, it needs to improve, but I think generally speaking, we are well positioned.

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

Ryan Benjamin Zimmerman: Thank you. Thanks for taking the question. 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 have thought about 200 basis points of innovation coming from Alcon Inc. on top of market growth. But if you look at the high end of the guide at 7% and given where you assume markets to be, that implies about 300 basis points. So it is a little bit higher than what we have historically thought of on top of your market growth rates. Can you bridge that 100 basis point delta for us, David? Is that mostly Truqtyr and Unity?

Or is there anything embedded in that higher growth rate at the top end of the guide that we are not thinking about from a product standpoint?

David J. Endicott: Yes. Look, we have been disciplined about the guide here. I think what we are trying to do is say we think the prudent thing to do at this moment is pick up the fourth quarter rate. We do not think that is the normalized rate, but at the same time, that is what we have seen for the last couple quarters. So let us start there. To your point, we always say we have got a couple of hundred basis points of new product flow which should sit on top of that.

So if you say 3% to 4%, which is where roughly the market was in the fourth quarter, then I think you add 200 basis points, and you are exactly right, we have a little bit on the top because we do not really know what the new product flow is going to do. And I think, if it does well, we will be on the upper end of that. If it does kind of what we expected, or a little bit of any other concerns that show up, we will see it in that range. So we have been, I think, disciplined about the way we think this one through.

Ryan Benjamin Zimmerman: Okay. And then, David, I would like to ask maybe what is the strategy in refractive at this point? I know we went through the STAAR saga. There was a share buyback, obviously, on the back of that. But do you feel like, and again, appreciating that it is not needed necessarily to achieve your growth targets as you alluded to on the last call, where do you stand on refractive and what do you want to do at this point?

David J. Endicott: Well, I mean, first and foremost, we are excited about WaveLight, and WaveLight Plus in particular. If you compare it to, for example, the competitive procedures, particularly the lenticular extraction procedure, we are getting a substantially better outcome. And I think our main objective right now is for six and unders, 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. I think we had almost 50% or 60% at 20/14 post-operative, and 100% at 20/20, and something like 80% at 20/30—what was it—20/38, I think. So we are getting tremendous results from this customized LASIK. We will keep moving down that path.

We obviously would like to augment that with an ICL. It does not look like it is going to be STAAR at this point, but there are a lot of ICLs out there. Maybe the good news on this is we have got lots of other options out there. We are not in a hurry on refractive, but we are definitely moving down a path of committing to refractive, whether that is RLE, whether that is laser work, whether that is an ICL. There are a lot of options here that we are going to work at. But refractive is clearly one of a number of white spaces for us that we are interested in. Glaucoma as well.

In the Vision Care business, we have got a lot of pharmaceuticals we are interested in. So we are looking broadly at white space; refractive is certainly one of them.

Ryan Benjamin Zimmerman: Thank you.

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

Jack Reynolds-Clark: My first one is on Implantables. Could you remind us what your expectations are around timelines of the launch of PanOptix Pro outside the U.S.? And just to dig in a bit deeper here, at what point do you expect growth in this segment to grow in line with the market? Is it 2027? Is it 2028? And are launches sufficient to make that happen, or is there something else that you think is needed to make that happen? And then, sorry, just to ask again on the guidance, but it is a wide range on the revenue side for the year, obviously, given the market growth range too.

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

David J. Endicott: Yes. The second one is pretty easy. Let me give you where it is. We basically are saying 3% to 4% with the market. If the market does better than that or worse than that, that is the low and the high on the market. And then the new product flow trajectory—we have got 10 or actually more than that now—new products kind of in play that have variation around the mean. Some of them are going to do better, some of them may not do as well as we expect, but how that mix is will also give us a high and a low around the range.

So think about it as both a market dynamic and then also new product trajectory dynamic. On the Implantables piece, we are launching PanOptix Pro in Japan right now and Australia right now. I think we are waiting on a regulatory approval in Europe. I think you are going to see TruPlus and Vivity 2.0, I think late this year, maybe it is early next year, but I would say that we have got lots coming ex-U.S. And I do think that will help a lot in our competitive fight there because I would just say this TruPlus product, we have kind of ignored the Monofocal Plus category for a while.

We found a very clever way to do something I do not think anybody else can do with our optical design on that. So we are excited about, particularly internationally, the toric Monofocal Plus and the Monofocal Plus base lens. Those are relatively good-sized, and so we like our chances in that market with new products. So we will see how those go.

Jack Reynolds-Clark: That is great. Thank you.

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

Anthony Charles Petrone: Thank you, and 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 was constrained for a good part of 2025. Timing on that was a little bit opaque. So, wondering where U.S. surgeon capacity is on the cataract side as we enter 2026? And I will have a quick follow-up on margins.

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

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

There is a lot to be done out there and money to be made if the facilities can provide the time and the surgeons can provide the skill. And so I think you are going to see that normalize as we said it would. But again, we are playing that just a little bit more balanced than perhaps we have in the past, just because we have not seen it happen yet. We expect it to, but we will see when it happens.

Anthony Charles Petrone: Great. And then just a follow-up on margins would be: when you look at the high end of the range here, 170 basis points, 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. Truqtyr is doing well. Unity is getting off and running. I am just wondering to what extent new products plus price is in that margin guide versus the $50 million cost-out program? Thanks.

Timothy C. Stonesifer: Yes. Again, I would say that we are going to continue to get price this year, probably not as much as we got last year, but we will continue to get price. We are going to continue to get leverage out of the M&S. Think about, we invested a lot in the new product launches last year. We are going to invest more this year, but when you look at it from a year-over-year comparison, we are not going to see as much pressure. And then the new product launches, again, to David’s point, it just depends how that flows. Truqtyr should be favorable.

The more Equipment we do puts pressure on the overall margin rates, but we feel comfortable with the range we provided.

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

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

David J. Endicott: Yes, look, Voyager—we are excited about Voyager. SLT is one of those things that if you ask surgeons, or ophthalmologists generally speaking, should you do SLT, 100% of them, I think, will say yes. That is where we should start. And then you ask them a second question, which is, how many of you are doing it? And you get a kind of a mixed bag. And that is because it is a tedious procedure to sit and click from the traditional laser systems that are in the office. So Voyager represents something that is very efficient, but really great for patients.

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. 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 in-office equipment. This is equipment that sits in the office, not the OR. One of the challenges we had last year with Voyager—we were in the OR because of Hydrus—we were struggling to get everybody covered properly.

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

Patrick Wood: Makes a ton of sense. And then just quickly as a follow-up, you guys touch the consumer in a whole bunch of different categories in different ways, whether it is contacts or whether it is the non-Rx business. What do you think you are seeing? How do you think the consumer’s health is? I know that is a very broad question, but is promotional activity going up at the retail side? And just curious, big picture, how you think the consumer is doing based on the categories you guys are in?

David J. Endicott: Well, big picture, I would say the U.S. is pretty okay for us. International maybe a little bit more mixed. It is hard to tell. In the contact lens business, which is probably one of our—if there was a sensitive business, it is probably that one—that particular business internationally has resisted price, partly because it is chain dominant. So if you look at the Europe market, you have got a lot of big chains who basically are telling us we are not going to take price from you, and that is really what is causing a big chunk of the challenge in market growth in the international business. I think the same is in Japan.

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

And the promotional efforts or the health of the consumer is driving AT-IOL penetration up significantly in the U.S. The U.S., I think, was up 100 and some odd basis points in penetration. So if there was really any consumer sensitivity, you would see it in one of those categories in the U.S., and it really has not appeared to us, at least in the data. That is what is going on. A little bit more sensitive maybe outside the U.S., but I think that is, again, none of our markets are terribly sensitive to the consumer. Eye care, as you know, is obviously a very inelastic demand.

Patrick Wood: Thanks for the details, David.

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

Issie Kirby: Hi, guys. Thanks so much for taking my question. I wanted to start on Unity and the cataract system in particular. I appreciate it is only a couple of months and relatively early within the launch, but what are you seeing in terms of your placement rate? I know with VCS, perhaps there were some difficulties in getting trained up. Is that something you are seeing with the CS system? Just wondering about the momentum there. And then I have a follow-up on contact lenses.

David J. Endicott: Yes, 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, I think, some degree of mixed placements—we actually 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. But I do think the volume is going to be in the cataract system because that is just naturally where most of the volume is. So we have real good visibility to that.

I would just say that the response has been excellent. We are working our way through as fast as we can getting these things installed, but the demand is high right now.

Issie Kirby: Great, thanks. And then actually 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 am just wondering if there is any sort of real halo effect coming through with having an Alcon Inc. rep in the door, ramping the system up.

David J. Endicott: Well, all these decisions are independent on a product basis. One of the beautiful things about having 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, perhaps, than people who are not there every day. But I do think that what is really driving our IOL share in the U.S. is PanOptix Pro. We had a really good quarter on Pro, share was up and stabilized year on year. So I think we are feeling pretty good about the potential of that product around the international markets as we get out there.

So really, as we go forward, think about it mostly as a discrete choice of “is our lens better than their lens,” and I think that is the fight we are really taking on most every day.

Operator: Our next question is from Thomas Stephan with Stifel. Please proceed.

Thomas Stephan: Great. Hey, guys. Good morning. First one on cataract physician fee cuts here in the U.S. David, maybe if you can talk about how you are seeing, to date, or expecting these dynamics to potentially impact different areas of the business like AT-IOLs and capital equipment? And then I have a follow-up.

David J. Endicott: Yes. You know, oddly enough, I think cataract fee cuts—which, again for everybody who may not know this, physician fee came down, I think it is about $4.50 or something like that per procedure—actually, facility fee went up 3%. So just to be clear, there was not a cut in the facility fee, and the facility is generally who purchases the AT-IOL. So that is an important distinction. What is interesting, though, is penetration in the U.S., for example, was up 130 basis points for AT-IOLs. I do think there is some promotional effect going on here, but we have seen a couple of quarters now where you are seeing very significant AT-IOL growth, but particularly in the fourth quarter.

We saw a step up in it. I do think that people are aware that if they are going to do a limited amount of surgery, and they are going to get paid $4.50 for it, they can make money getting the patient a better lens, 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 is driving some of this. I think some of that is actually coming off of these fee cuts. That is going to move people to say, hey, I could do something else here.

Thomas Stephan: Got it. That is great. And then my follow-up is just on contact lenses—grew about 5% this year—so probably still above market, but maybe a smaller delta than usual. So, David, to stick with you, can you talk about your confidence in growing above market, and more importantly, what are the incremental drivers—T30 and Precision7? Just curious if you can speak a bit to how we should think about growth next year relative to market? Thanks.

David J. Endicott: Yes, really important comment, and I think probably we have not talked enough about it. The market was pretty solid. It remained on the low end of normal, but I think it was probably 5% globally last year, and I would just be careful with our fourth quarter because we are wrapping around an 11% number from the prior year which involved our P7 launch and some inventory there. So, again, I think if you normalize for all of that, we have 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, our global share of contact lenses was up—we gained almost a full share point, like 70 basis points. Our global share of reusable was well over that. Our daily disposable SiHy was double digits. We had really nice share growth in dailies and reusables in the fourth quarter. So we are feeling good about contact lenses, and it is really coming from, I think, a combination of our ability to focus on both reusables and daily. Our daily is TOTAL1 product and P1 product. Those are, we believe, really well positioned for both value and premium markets.

The reusable market is a very profitable, and I think kind of underappreciated, market because almost half of the patients are going into reusables. So we are gaining a good bit of share there by focusing on it. I do not know that a lot of other people are, and that has been very positive for us. We are continuing to work on our multifocal toric, which is exciting to get into that. But I would just say that if there is one place we are a little bit soft, it is probably in that multifocal area where we have been losing a little bit of share.

I say all of that with the underlying belief that we have been letting go a little bit of our DHPC product. So we have got some downward pressure from some of the older legacy brands that we try to move away from and get them into the higher-end, more profitable brands. So we had a good quarter in Contact Lens. Thanks for asking.

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

Susannah Ludwig: Good afternoon, and thanks for taking my questions. I wanted to follow up in terms of international IOLs. You guys talked about China. Could you remind us what percentage of your Implantables business China is and what your expectations are for the upcoming VBP?

David J. Endicott: Yes. I do not think we 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. I would 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 is a DRG level of reimbursement that comes to the hospital level that a lot of the hospitals ran up against, and they 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 was not coming out of AT-IOLs. I think that was a valuable lesson for us. The VBP expectation going forward—it is going to 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 flat would be a good number for us. So I think we will get volume, but we are going to have to give up some price, and that assumes we win. All of those things are in play.

Middle part of the year is the current expectation, but we will see how that all plays out. It is an increasingly competitive market in China, but it is also a very big market. We think volume will grow nicely and offset some of the pricing erosion. And again, prices are still pretty good in China actually. So if you look at it relative to Europe, they are pretty similar.

Susannah Ludwig: Okay. And then as a follow-up, how do you guys think about long term? Would you ever look at moving production to China given their focus on local production?

David J. Endicott: We will look at that every year and see. Right now, we do not produce in China. We are manufacturing a couple of things in Equipment that we are thinking about moving there because of exactly the reason you indicate, which is there is a “buy China” rule there for folks that are making product there. There is a small advantage depending on what product we are talking about. So we will move a little bit of Equipment there. But generally speaking, we are sourcing China out of other locations than the U.S. I think we are trying to do that. There is obviously some challenge with that, particularly around Equipment.

But for IOLs, I think we can move to a neutral location to try to avoid tariffs, if that is the purpose of your question. But in terms of long-term production in China—good question. Not sure we have discussed it in a broad sense for anything other than Equipment.

Operator: Great. Thanks. Our next question is from David Joshua Saxon with Needham & Company. Please proceed.

David Joshua Saxon: Great. Thanks, guys, for taking my questions. Just a couple. Maybe starting with Tim, you talked in the script, I believe, about Truqtyr starting to benefit margins in the back half. Can you talk about the magnitude of the investments you are making behind that product, and once that does turn profitable, the magnitude of the benefit you could see?

Timothy C. Stonesifer: Yes. Again, we are not going to give product-level margin analysis, but we are investing what we feel is appropriate to make sure that the launch is successful. And as David said, right now, it is performing better than expectations.

David Joshua Saxon: Okay. Great. And then just on Unity, as it relates to Consumables, how soon after a unit is placed do you start to see those Unity consumables start flowing through? And if the market is growing 3%, can you get a couple extra points from the Unity consumable pricing? Thanks so much.

David J. Endicott: Yes. I think, generally speaking, as a broad rule of thumb—and it depends on lots of things—but we generally look at the market and say Consumables will run a couple of points hotter than the market. That is generally what happens and has happened in the past. I would expect that to continue. I would not really interpret the Unity placements as driving a lot of additional above that. I think a couple of points above market growth would be the right way to think about it.

Operator: Our next question is from Jeffrey D. Johnson with Baird. Please proceed.

Jeffrey D. Johnson: Guys, good morning. Thanks for squeezing me in. I will be quick here with just two questions. David, going back to your TruPlus comments, I think you alluded to this, but I do not believe you have ever had a Monofocal Plus. Can you, one, confirm that? Two, can you remind us monofocal versus Monofocal Plus 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 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 J. Endicott: Yes, you do get a little bit of a price premium. Let me start by saying in the U.S., the monofocal business—Monofocal Plus business—has not been a huge phenomenon. It probably had its biggest effect on the toric business. I would say, partly because in the add-collect space you can, for a toric patient, collect extra money from them for an advanced technology lens like this. They positioned the toric lens with an increased amount of intermediate vision, which is really nice, and it is better than the monofocal. The impact has been really in the toric space. We lost a fair bit of share in the U.S. over the last several years in toric.

I think to some degree it was to the Monofocal Plus, so we are looking—specifically, that is the opportunity in the U.S. Internationally, a little bit different because they really had a price point challenge internationally, and Monofocal Plus did do a better job in the, I will just call it, somewhere between monofocal lenses and AT-IOL lenses. They carved out some space. I am not sure what size that was, but it is meaningful. I do think that when you really think about it, this world may just turn into the monofocal business turning into Monofocal Plus.

It comes with a little bit of a premium, and this is a better lens than our core lens because you get more intermediate, but you do not give up much distance. So I am excited about the opportunity. It is a modest one, but important in terms of our share in toric.

Jeffrey D. Johnson: Fair enough. And then just one quick question on EPS gating. I heard your comments on second-half profitability higher than first-half profitability, but you also are guiding a couple of hundred basis points of FX tailwind to EPS growth this year. So I just want to make sure I am 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?

Timothy C. Stonesifer: Yes. Again, the EPS growth that we are talking about is in constant currency. But if you think about sort of phasing in general and profitability, just go down the P&L. We talked about revenue. We talked about gross margin. 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 is because you have the impact of the tariffs coming through. But overall, they should be flat year over year. SG&A will be a similar profile as last year when you think about it on a percent of revenue basis.

Again, as we have seen in the last two or three years, be a little careful with Q2. That is a heavy M&S spend for us from a back-to-school perspective. So go back and look at the prior years and see how much—it is $40 million or $50 million probably more in Q2 versus Q1. The savings we talked about—that will be probably 60% to 70% back-half loaded. So that is another driver why the back half is better, and then you can work the rest of the P&L. But we feel pretty good about the guide, and we are going to continue to grow the business faster than the market.

We are going to continue to expand margins, and that should drop through some nice free cash flow.

Operator: Our next question is from Steve Lichtman with William Blair. Please proceed.

Steve Lichtman: Thank you. Hi, guys. 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 it looks like a restructuring charge. But any other you could provide on puts and takes and where you could end up would be great.

Timothy C. Stonesifer: Yes. Again, I think as we continue to drive margin expansion and grow the business, that is going to drop through some nice free cash flow. So 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 flow this business can generate.

Steve Lichtman: Okay. Got it. And then are you still expecting some incremental spend on AURYON this year? Looks like you are talking about getting some leverage on the R&D line. So any update on where you are at with that program and the incremental costs? Thanks.

Timothy C. Stonesifer: Yes. There is still probably 40 basis points, as we talked about last time. That really has not changed from the AURYON perspective. But again, we have talked over the last, call it, 12 to 18 months, about some of the efficiency programs that we are working on. One of them is in the create-to-make space that we have talked about. Our internal goal there is about a 20% improvement of getting product to market faster. Some of that is in these numbers, which is why you are 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 are investing appropriately behind it.

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

Daniel Cravens: Great. Well, thank you, and thanks again for joining us this morning. For any follow-up questions, from an investor standpoint, reach out to either Alan Tring or myself, and for media, reach out to our Corporate Communications department. Thanks again. Have a good day.

Operator: Thank you. This will conclude today's conference. You may disconnect at this time. Thank you for your participation.

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