Alcon : Third Quarter 2023 Earnings Conference Call Regulatory Filing

ALCON INC. INTERIM FINANCIAL REPORT

INDEX	Page
Operating Performance	2
Liquidity and Capital Resources	11
Condensed Consolidated Interim Financial Statements of Alcon Inc. (unaudited)
Consolidated Income Statement	14
Consolidated Statement of Comprehensive Income	15
Consolidated Balance Sheet	16
Consolidated Statement of Changes in Equity	17
Consolidated Statement of Cash Flows	18
Notes to Condensed Consolidated Interim Financial Statements of Alcon Inc.	19
Supplementary Information - Definitions and Reconciliations of Non-IFRS Measures
Non-IFRS Measures as Defined by the Company	34
Reconciliation of IFRS Results to Core Results (non-IFRS measure)	36
EBITDA (non-IFRS measure)	39
Cash Flow and Net (Debt)/Liquidity (non-IFRS measure)	39
Net (Debt)/Liquidity (non-IFRS measure)	40
Free Cash Flow (non-IFRS measure)	40
Disclaimer	41

1

OPERATING PERFORMANCE

Key figures

	Three months ended September 30		Nine months ended September 30
			Change %				Change %
				cc(1)					cc(1)
($ millions unless indicated otherwise)	2023	2022	$	(non-IFRS	2023	2022	$	(non-IFRS
measure)	measure)
Net sales to third parties	2,303	2,124	8	9	7,038	6,499	8	11
Gross profit	1,289	1,166	11	12	3,957	3,578	11	14
Operating income	293	205	43	57	831	651	28	45
Operating margin (%)	12.7	9.7			11.8	10.0
Net income	204	116	76	98	547	432	27	48
Basic earnings per share ($)(2)	0.41	0.24	71	97	1.11	0.88	26	48
Diluted earnings per share ($)(2)	0.41	0.23	78	97	1.10	0.87	26	48
Core results (non-IFRS measure)(1)
Core operating income	450	365	23	31	1,409	1,218	16	25
Core operating margin (%)	19.5	17.2			20.0	18.7
Core net income	327	248	32	42	1,015	899	13	23
Core basic earnings per share ($)(2)	0.66	0.50	32	41	2.06	1.83	13	23
Core diluted earnings per share ($)(2)	0.66	0.50	32	41	2.05	1.82	13	23

1. Core results and constant currencies (cc) as presented in this table are non-IFRS measures. Alcon uses certain non-IFRS metrics when measuring performance, including when measuring current period results against prior periods. Refer to the 'Supplementary Information' section for additional information and reconciliation tables.
2. Per share amounts may not add across quarters due to rounding.

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Net sales by segment

	Three months ended September 30		Nine months ended September 30
			Change %				Change %
				cc(1)					cc(1)
($ millions unless indicated otherwise)	2023	2022	$	(non-IFRS	2023	2022	$	(non-IFRS
measure)	measure)
Surgical
Implantables	401	392	2	5	1,265	1,291	(2)	1
Consumables	661	618	7	7	2,031	1,863	9	11
Equipment/other	214	206	4	5	666	617	8	11
Total Surgical	1,276	1,216	5	6	3,962	3,771	5	8
Vision Care
Contact lenses	612	558	10	9	1,821	1,662	10	11
Ocular health	415	350	19	20	1,255	1,066	18	20
Total Vision Care	1,027	908	13	13	3,076	2,728	13	15
Net sales to third parties	2,303	2,124	8	9	7,038	6,499	8	11

(1) Constant currencies is a non-IFRS measure. Refer to the 'Supplementary Information' section for additional information.

Third quarter

Surgical

Surgical net sales were $1.3 billion, an increase of 5%. Excluding unfavorable currency impacts of 1%, Surgical net sales increased 6% in constant currencies.

• Implantables net sales were $401 million, an increase of 2%, led by demand for advanced technology intraocular lenses in international markets, partially offset by unfavorable currency impacts of 3%. Implantables net sales increased 5% in constant currencies.
• Consumables net sales were $661 million, an increase of 7%, reflecting demand for cataract and vitreoretinal consumables, particularly in international markets, and price increases. Consumables net sales increased 7% in constant currencies.
• Equipment/other net sales were $214 million, an increase of 4%, reflecting growth compared with the strong prior year period. Growth was driven by demand for cataract equipment in international markets, partially offset by unfavorable currency impacts of 1%. Equipment/other net sales increased 5% in constant currencies.

Vision Care

Vision Care net sales were $1.0 billion, an increase of 13%, including 4% from products acquired in 2022.

• Contact lenses net sales were $612 million, an increase of 10%, driven by product innovation, including toric modalities of Precision1, Total30 and Dailies Total1, outpacing declines in legacy lenses. Growth also included price increases and favorable currency impacts of 1%. Contact lenses net sales increased 9% in constant currencies.
• Ocular health net sales were $415 million, an increase of 19%, primarily driven by the portfolio of eye drops, including acquired ophthalmic pharmaceutical products, and price increases. Growth was partially offset by unfavorable currency impacts of 1%. Ocular health net sales increased 20% in constant currencies, including 11% from products acquired in 2022.

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Nine months

Surgical

Surgical net sales were $4.0 billion, an increase of 5%. Excluding unfavorable currency impacts of 3%, Surgical net sales increased 8% in constant currencies.

• Implantables net sales were $1.3 billion, a decrease of 2%. Implantables net sales increased 6% excluding negative impacts of 3% from currency and 5% from the impact of an insurance reimbursement change in South Korea that took effect April 1, 2022. Growth in constant currencies was driven by intraocular lenses in other international markets. Implantables net sales increased 1% in constant currencies.
• Consumables net sales were $2.0 billion, an increase of 9%, reflecting favorable market conditions across geographies and price increases. Growth was partially offset by unfavorable currency impacts of 2%. Consumables net sales increased 11% in constant currencies.
• Equipment/other net sales were $666 million, an increase of 8%, driven by strong demand for cataract equipment in international markets and higher service revenues. Growth was partially offset by unfavorable currency impacts of 3%. Equipment/other net sales increased 11% in constant currencies.

Vision Care

Vision Care net sales were $3.1 billion, an increase of 13%, including 4% from products acquired in 2022. Excluding unfavorable currency impacts of 2%, Vision Care net sales increased 15% in constant currencies.

• Contact lenses net sales were $1.8 billion, an increase of 10%, driven by product innovation, including toric modalities of Precision1, Total30 and Dailies Total1, outpacing declines in legacy lenses, and price increases. Growth was partially offset by unfavorable currency impacts of 1%. Contact lenses net sales increased 11% in constant currencies.
• Ocular health net sales were $1.3 billion, an increase of 18%, primarily driven by the portfolio of eye drops, including acquired ophthalmic pharmaceutical products, price increases and ongoing recovery from supply chain challenges in contact lens care. Growth was partially offset by unfavorable currency impacts of 2%. Ocular health net sales increased 20% in constant currencies, including 11% from products acquired in 2022.

4

Operating income

	Three months ended September 30		Nine months ended September 30
			Change %				Change %
				cc(1)					cc(1)
($ millions unless indicated otherwise)	2023	2022	$	(non-IFRS	2023	2022	$	(non-IFRS
measure)	measure)
Gross profit	1,289	1,166	11	12	3,957	3,578	11	14
Selling, general & administration	(798)	(762)	(5)	(4)	(2,415)	(2,306)	(5)	(6)
Research & development	(201)	(159)	(26)	(26)	(620)	(506)	(23)	(23)
Other income	64	5	nm	nm	74	17	nm	nm
Other expense	(61)	(45)	(36)	(34)	(165)	(132)	(25)	(26)
Operating income	293	205	43	57	831	651	28	45
Operating margin (%)	12.7	9.7			11.8	10.0
Core results (non-IFRS measure)(1)
Core gross profit	1,459	1,310	11	13	4,469	4,059	10	13
Core operating income	450	365	23	31	1,409	1,218	16	25
Core operating margin (%)	19.5	17.2			20.0	18.7

nm = not meaningful

1. Core results and constant currencies are non-IFRS measures. Refer to the 'Supplementary Information' section for additional information and reconciliation tables.

Third quarter

Operating income was $293 million (+43%, +57% cc), compared to $205 million in the prior year period. Operating margin increased 3.0 percentage points, reflecting improved underlying operating leverage from higher sales and manufacturing efficiencies. The current year period also included a $58 million benefit from the release of a contingent liability related to a recent acquisition. Operating margin benefits were partially offset by increased inflationary impacts, increased investment in research and development, including spend following the acquisition of Aerie Pharmaceuticals, Inc. ("Aerie"), higher amortization for intangible assets due to recent acquisitions and a negative 1.2 percentage point impact from currency. Operating margin increased 4.2 percentage points on a constant currencies basis.

Adjustments to arrive at core operating income in the current year period were $157 million, mainly due to $167 million of amortization and $30 million of transformation costs, partially offset by a $58 million benefit from the release of a contingent liability related to a recent acquisition. Adjustments to arrive at core operating income in the prior year period were $160 million, mainly due to $145 million of amortization.

Core operating income was $450 million (+23%, +31% cc), compared to $365 million in the prior year period. Core operating margin increased 2.3 percentage points, reflecting improved underlying operating leverage from higher sales and manufacturing efficiencies. Core operating margin benefits were partially offset by increased inflationary impacts, increased investment in research and development, including spend following the acquisition of Aerie, and a negative 1.2 percentage point impact from currency. Core operating margin increased 3.5 percentage points on a constant currencies basis.

Nine months

Operating income was $831 million (+28%, +45% cc), compared to $651 million in the prior year period. Operating margin increased 1.8 percentage points, reflecting improved underlying operating leverage from higher sales and manufacturing efficiencies. The current year period also included a $58 million benefit from the release of a contingent liability related to a recent acquisition. The prior year period was impacted by intangible asset impairments of $61 million and a $20 million legal settlement. Operating margin benefits were partially offset by increased investment in research and development, including spend following the acquisition of Aerie, increased inflationary impacts, higher amortization for intangible assets due to recent acquisitions, a shift in product mix in Surgical, including the impact from South Korea, increased transformation costs and a negative 1.3 percentage point impact from currency. Operating margin increased 3.1 percentage points on a constant currencies basis.

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Adjustments to arrive at core operating income in the current year period were $578 million, mainly due to $508 million of amortization and $82 million of transformation costs, partially offset by a $58 million benefit from the release of a contingent liability related to a recent acquisition. Adjustments to arrive at core operating income in the prior year period were $567 million, mainly due to $437 million of amortization, $61 million in impairments of intangible assets and a $20 million legal settlement.

Core operating income was $1.4 billion (+16%, +25% cc), compared to $1.2 billion in the prior year period. Core operating margin increased 1.3 percentage points, reflecting improved underlying operating leverage from higher sales and manufacturing efficiencies. Core operating margin benefits were partially offset by increased investment in research and development, including spend following the acquisition of Aerie, increased inflationary impacts, a shift in product mix in Surgical, including the impact from South Korea, and a negative 1.2 percentage point impact from currency. Core operating margin increased 2.5 percentage points on a constant currencies basis.

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Segment contribution

For additional information regarding segment contribution, please refer to Note 3 to the Condensed Consolidated Interim Financial Statements.

	Three months ended September 30		Nine months ended September 30
			Change %				Change %
				cc(1)					cc(1)
($ millions unless indicated otherwise)	2023	2022	$	(non-IFRS	2023	2022	$	(non-IFRS
measure)	measure)
Surgical segment contribution	322	304	6	14	1,110	1,024	8	17
As % of net sales	25.2	25.0			28.0	27.2
Vision Care segment contribution	216	154	40	43	589	471	25	32
As % of net sales	21.0	17.0			19.1	17.3
Not allocated to segments	(245)	(253)	3	3	(868)	(844)	(3)	(3)
Operating income	293	205	43	57	831	651	28	45
Core adjustments (non-IFRS	157	160			578	567
measure)(1)
Core operating income (non-IFRS	450	365	23	31	1,409	1,218	16	25
measure)(1)

1. Core results and constant currencies are non-IFRS measures. Refer to the 'Supplementary Information' section for additional information and reconciliation tables.

Third quarter

Surgical

Surgical segment contribution was $322 million (+6%, +14% cc), compared to $304 million in the prior year period. Segment contribution margin increased 0.2 percentage points, as improvements in underlying operating leverage from higher sales and manufacturing efficiencies were partially offset by increased investment in research and development and a negative 1.6 percentage point impact from currency. Segment contribution margin increased 1.8 percentage points on a constant currencies basis.

Vision Care

Vision Care segment contribution was $216 million (+40%, +43% cc), compared to $154 million in the prior year period. Segment contribution margin increased 4.0 percentage points, with improved underlying operating leverage from higher sales and manufacturing efficiencies, partially offset by increased investment in research and development following the acquisition of Aerie and increased inflationary impacts. Segment contribution margin benefits from higher margin ophthalmic pharmaceutical products following the acquisition of Aerie were offset by unfavorable product mix from launches of new silicone hydrogel daily contact lenses. There was also a negative 0.4 percentage point impact from currency. Segment contribution margin increased 4.4 percentage points on a constant currencies basis.

Not allocated to segments

Operating loss not allocated to segments totaled $245 million (+3%, +3% cc), compared to $253 million in the prior year period. The decrease in amounts not allocated was primarily driven by a $58 million benefit from the release of a contingent liability related to a recent acquisition, partially offset by higher amortization for intangible assets due to acquisitions and higher transformation costs.

Nine months

Surgical

Surgical segment contribution was $1.1 billion (+8%, +17% cc), compared to $1.0 billion in the prior year period. Segment contribution margin increased 0.8 percentage points, as improved underlying operating leverage from higher sales and manufacturing efficiencies was partially offset by a shift in product mix, including the impact from South Korea, increased investment in research and development and a negative 1.5 percentage point impact from currency. Segment contribution margin increased 2.3 percentage points on a constant currencies basis.

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Vision Care

Vision Care segment contribution was $589 million (+25%, +32% cc), compared to $471 million in the prior year period. Segment contribution margin increased 1.8 percentage points, with improved underlying operating leverage from higher sales and manufacturing efficiencies, partially offset by increased investment in research and development following the acquisition of Aerie and increased inflationary impacts. Segment contribution margin benefits from higher margin ophthalmic pharmaceutical products following the acquisition of Aerie were offset by unfavorable product mix from launches of new silicone hydrogel daily contact lenses. There was also a negative 0.8 percentage point impact from currency. Segment contribution margin increased 2.6 percentage points on a constant currencies basis.

Not allocated to segments

Operating loss not allocated to segments totaled $868 million (-3%,-3% cc), compared to $844 million in the prior year period. The increase in amounts not allocated was primarily driven by higher amortization for intangible assets due to acquisitions, higher transformation costs and other items, partially offset by a $58 million benefit from the release of a contingent liability related to a recent acquisition. The prior year period included impairments of intangible assets and a legal settlement.

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Non-operating income & expense

	Three months ended September 30		Nine months ended September 30
			Change %				Change %
				cc(1)					cc(1)
($ millions unless indicated otherwise)	2023	2022	$	(non-IFRS	2023	2022	$	(non-IFRS
measure)	measure)
Operating income	293	205	43	57	831	651	28	45
Interest expense	(47)	(34)	(38)	(35)	(142)	(94)	(51)	(51)
Other financial income & expense	(8)	(24)	67	67	(25)	(63)	60	60
Income before taxes	238	147	62	82	664	494	34	58
Taxes	(34)	(31)	(10)	(21)	(117)	(62)	(89)	(123)
Net income	204	116	76	98	547	432	27	48
Basic earnings per share ($)(2)	0.41	0.24	71	97	1.11	0.88	26	48
Diluted earnings per share ($)(2)	0.41	0.23	78	97	1.10	0.87	26	48
Core results (non-IFRS measure)(1)
Core taxes	(68)	(59)	(15)	(25)	(227)	(162)	(40)	(54)
Core net income	327	248	32	42	1,015	899	13	23
Core basic earnings per share ($)(2)	0.66	0.50	32	41	2.06	1.83	13	23
Core diluted earnings per share ($)(2)	0.66	0.50	32	41	2.05	1.82	13	23

1. Core results and constant currencies are non-IFRS measures. Refer to the 'Supplementary Information' section for additional information and reconciliation tables.
2. Per share amounts may not add across quarters due to rounding.

Third quarter

Interest expense

Interest expense was $47 million, compared to $34 million in the prior year period. The current year period had increased financial debts following the funding of the Aerie acquisition in November 2022 and less favorable interest rates.

Other financial income & expense

Other financial income & expense was a net expense of $8 million, compared to $24 million in the prior year period, primarily due to a reduction in foreign currency exchange losses and an increase in interest income.

Taxes

Tax expense was $34 million, compared to $31 million in the prior year period. The average tax rate was 14.3%, compared to 21.1% in the prior year period. The decrease in the average tax rate is primarily due to the mix of pre-tax income/(loss) across geographical jurisdictions and discrete tax benefits in the current year period, partially offset by a discrete tax benefit for the deductibility of a statutory expense for Switzerland federal tax in the third quarter of 2022.

Adjustments to arrive at core tax expense in the current year period were $34 million, compared to $28 million in the prior year period, for the tax effect associated with operating income core adjustments.

Core tax expense was $68 million, compared to $59 million in the prior year period. The average core tax rate was 17.2%, compared to 19.2% in the prior year period, primarily due to the mix of pre-tax income/(loss) across geographical tax jurisdictions and discrete tax benefits in the current year period, partially offset by a discrete tax benefit for the deductibility of a statutory expense for Switzerland federal tax in the third quarter of 2022.

Net income and earnings per share

Net income was $204 million, compared to $116 million in the prior year period, primarily due to higher operating income and lower other financial income & expense, partially offset by increases in interest expense. The associated basic and

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diluted earnings per share were $0.41, compared to basic and diluted earnings per share of $0.24 and $0.23, respectively, in the prior year period.

Core net income was $327 million, compared to $248 million in the prior year period, primarily due to higher core operating income and lower other financial income & expense, partially offset by increases in interest expense and core tax expense. The associated core basic and diluted earnings per share were $0.66, compared to core basic and diluted earnings per share of $0.50 in the prior year period.

Nine months

Interest expense

Interest expense was $142 million, compared to $94 million in the prior year period. The current year period had increased financial debts following the funding of the Aerie acquisition in November 2022 and less favorable interest rates.

Other financial income & expense

Other financial income & expense was a net expense of $25 million, compared to $63 million in the prior year period, primarily due to an increase in interest income and a reduction in foreign currency exchange losses.

Taxes

Tax expense was $117 million, compared to $62 million in the prior year period. The average tax rate was 17.6%, compared to 12.6% in the prior year period. The increase in the average tax rate is primarily due to the mix of pre-tax income/(loss) across geographical jurisdictions and a discrete tax benefit for the deductibility of a statutory expense for Switzerland federal tax in the third quarter of 2022, partially offset by discrete tax benefits in the current year period.

Adjustments to arrive at core tax expense in the current year period were $110 million for the tax effect associated with operating income core adjustments. Adjustments to arrive at core tax expense in the prior year period were $100 million, primarily for the tax effect associated with operating income core adjustments.

Core tax expense was $227 million, compared to $162 million in the prior year period. The average core tax rate was 18.3%, compared to 15.3% in the prior year period, primarily due to the mix of pre-tax income/(loss) across geographical tax jurisdictions and a discrete tax benefit for the deductibility of a statutory expense for Switzerland federal tax in the third quarter of 2022, partially offset by discrete tax benefits in the current year period.

Net income and earnings per share

Net income was $547 million, compared to $432 million in the prior year period, primarily due to higher operating income and lower other financial income & expense, partially offset by increases in interest expense and tax expense. The associated basic and diluted earnings per share were $1.11 and $1.10, respectively, compared to basic and diluted earnings per share of $0.88 and $0.87, respectively, in the prior year period.

Core net income was $1.0 billion, compared to $899 million in the prior year period, primarily due to higher core operating income and lower other financial income & expense, partially offset by increases in interest expense and core tax expense. The associated core basic and diluted earnings per share were $2.06 and $2.05, respectively, compared to $1.83 and $1.82, respectively, in the prior year period.

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