Bausch + Lomb Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 1, 2023

There are 11 speakers on the call.

Operator

Good morning, and welcome to the Bausch and Lomb Third Quarter 2023 Earnings Call. All participants will be in a listen only mode. Please note, this event is being recorded. I would now like to turn the conference over to George Kowski, Vice President of Investor Relations and Business Insights. Please go ahead.

Speaker 1

Thank you. Officer, Mr. Brent Saunders and Chief Financial Officer, Mr. Sam Eldosaki. In addition to this live webcast, A copy of today's slide presentation and a replay of this conference call will be available on our website under the Investor Relations section.

Speaker 1

Before we begin, I would like to remind you that our presentation today contains forward looking information. We would ask that you take a moment to read the This presentation contains non GAAP financial measures and ratios. For more information about these measures and ratios, please refer to slide 1 of the presentation. Non GAAP reconciliations can be found in the appendix to the presentation posted on our website. Finally, the financial guidance in this presentation is effective as of today only.

Speaker 1

It is our policy to generally not update guidance until the following quarter unless required by law and not to update or With that, it's my pleasure to turn the call over to Brian.

Speaker 2

Thank you, George, and thank you everyone for joining us today. I'll start by providing highlights from the quarter And after Sam does a deeper dive on financials and updates guidance, I'll share how we'll continue to drive profitable growth for the remainder I'm going to start with 3 things that define the quarter, which we expect will be familiar themes going forward. First, we are growing revenue at or above market, thanks to the strength of established and emerging brands that cover the entire spectrum of IHEL. We're excited about our trajectory as we enter 2024, which we expect will be one of the most active launch years in the 170 year history of our company. 2nd, we're equipping our sales work with the tools, training and the product portfolio they need to turn our market leadership potential into reality.

Speaker 2

Look no further than our powerhouse dry eye disease portfolio and the outsized opportunity in that area. Bringing Mybo to market and reinvigorating the Xiidra brand comes at a crucial time as 96 Percent of estimated U. S. Popular disease is not treated with a prescription product. Finally, We're focused on addressing the supply chain challenges we faced.

Speaker 2

We're nearing the finish line on upgrades to our Lynchburg distribution facility And our new Chief Supply Chain and Operations Officer is establishing a multi year blueprint for turning our scale and global manufacturing footprint into a competitive advantage. As made clear when I introduced the roadmap to accelerate growth on my first earnings call this May, This is a multi year journey that will fundamentally change how we operate. Rewiring the company is no easy lift, But I'm proud of our ongoing progress in Phase 1. Our leadership team, which has been almost entirely remade since my arrival earlier this year, Has largely completed the process of flattening the respective organization to improve efficiency. But rethinking how we work goes much deeper We're making life easier for our sales representatives to strategically investing in digital capabilities.

Speaker 2

We're maximizing our potential by focusing on what matters most. And critically, we have buy in from While early in the process, changing how we operate is already helping improve our performance. We had another quarter of solid revenue growth, up 8% year over year on a constant currency basis. That growth is being driven across key franchises, which speaks to our holistic strength. Performance from consumer brands like LUMIFY continues to exceed expectations, While premium IOL offerings in surgical represent a high growth, high margin opportunity, Promoted pharmaceutical products like Vysalta, which saw revenue growth of 54% year over year on a constant currency basis, Health offset issues with contract manufacturers for 2 mature non promoted products.

Speaker 2

Dynamics in the Q4 and beyond Well, obviously, change with the focus on Mibo and Xiidra. Before turning things over to Sam, I'd like to acknowledge his team's work in securing favorable financing terms for the Xiidra transaction, one of the biggest in our history. Our focus and his in particular now turns to deleveraging. Sam?

Speaker 3

Thank you, Brent, and good morning, everyone. Before we begin, as I noted in our last earnings call, most of my comments today will be focused on growth expressed on a constant currency basis. Turning now to our financial results on Slide 7. In the Q3, we saw strong revenue growth across our key product franchises. Store Company revenue of $1,007,000,000 for the quarter reflects growth of 8% on a constant currency basis And 7% on a reported basis compared to the prior year.

Speaker 3

Market demand remains strong and our strategic focus continues to be on investing in the business to drive growth. We're committed to executing this strategy as we look forward to launching more new products in 2023 2024. In the quarter, we achieved 2 major milestones with the launch of MIBO and the closing of the Zadra acquisition. It is still early, but we believe we have a significant opportunity with these products, which combined with our OTC offering, Give us a leading position in the dry eye disease category. While we have made solid progress in the quarter and market demand remains healthy, We fully recognize there's more work to be done.

Speaker 3

Supply remains a work in progress. As I will discuss further, We're implementing mitigating steps and have seen improvements, but it will take time to reach a point where we are fully confident we can supply products to meet our business demand on a consistent basis. Volatility in our currency mix, including the strength of the U. S. Dollar, Led to foreign currency headwinds of approximately $10,000,000 to revenue and approximately $14,000,000 to adjusted EBITDA in the 3rd quarter.

Speaker 3

While the currency headwinds are not as sizable as we saw last year, the impact on our results continue to be driven by our geographic footprint and currency mix. Our China business was down 1% on a constant currency basis relative to strong comp in the prior year quarter. As a reminder, the market in China saw a recovery in the second half of twenty twenty two after the shutdown in last year's Q2. As we lap the 2022 stop and go progression, we remain confident that our business in China will return to stable and consistent growth over time. Notably, year to date constant currency growth in China has been 6%.

Speaker 3

Now let's discuss the results in each of our segments. Vision Care revenue of $648,000,000 increased by 11% on a constant currency basis, driven by growth in both the consumer and contact lens portfolios. The consumer business grew by 14% on a constant currency basis led by our LUMIFY, iVitamin and Artelec franchises. LUMIFY revenue grew by 47% globally compared to the prior year and achieved a record $44,000,000 of revenue in the 3rd quarter. LUMIFY has continued its strong momentum in the U.

Speaker 3

S. Where it has a leading market share of approximately 50% and has built substantial brand equity. In the quarter, we launched the LUMIFY eye illuminations to leverage the brand platform and expand into the eye beauty category. Revenue from our iVitamin franchise, Preservision Occupied, grew by 6% on a constant currency basis. PrezaVision continues to be the market leader with 90% plus market share in the U.

Speaker 3

S. The launch of IQOSORB has helped And the franchise and PrezorVision continues to demonstrate the ability to drive growth in the AMD market. In our international consumer business, Artelec has continued to perform well and grew by 11% on a constant currency basis in the quarter. Arthelec is one of the brands in our consumer dry eye portfolio. The dry eye portfolio is continuing to expand and reach approximately 78,000,000 of revenue in the quarter with 9% organic growth.

Speaker 3

Finally, our Lens Care portfolio grew 8% on a constant currency basis. We have continued to see strong demand in our consumer business. Our strategy is to maintain focus on our key franchises and continue investing in product launches. In the lens business, we saw 5% constant currency growth in the 3rd quarter. Reported revenue from our daily SiHod lenses grew by 79% in the quarter.

Speaker 3

We recently expanded the daily SiHi family with the launch of the multifocal in the U. S. We've also recently rolled out the daily SiHai in China. We continue to see strong demand in the daily SiHai category. As Brent discussed, revenue in the Lens portfolio was negatively impacted by disruptions at our Lynchburg distribution facility.

Speaker 3

We have made progress in the quarter and we expect to reach an optimized level of order processing at Lynchburg in Q1 2024. Excluding the impact of the disruptions, Global Lens constant currency revenue growth was 7% in the quarter. On a constant currency basis, our value oriented daily brand soft lens grew by 9% in the quarter. Viator was down 3% and Ultra was up 10%. Moving now to the Surgical segment.

Speaker 3

3rd quarter revenue was $185,000,000 an increase of 6% on a constant currency basis. The consumables portfolio, our largest category in the surgical business grew by 8% on a constant currency basis, mainly driven by Cataract packs. Implantables declined by 2% on a constant currency basis. Our premium IOL portfolio continues to expand and was up 33% in constant currency in the quarter. As I mentioned last quarter, Our standard IC1 IOL continues to be impacted by the product hold issued by our partner earlier this year, which offset the strong growth in our premium IOL portfolio in the Q3.

Speaker 3

Excluding the impact of IC1, the implantables portfolio grew 10% in constant currency. We anticipate IC1 to impact the remainder of the year. We're focused on expanding our implantables portfolio And have recently announced the launch of our Invista Aspire Lens. We expect the Invista platform to continue to expand with future launches Our surgical business has a number of new product launches Scheduled in 2024, especially in the premium end of the market. We intend to invest behind these launches as we see this as an important area to drive future margin expansion.

Speaker 3

Revenue from equipment was up 10% versus Q3 2022 on a constant currency basis, mainly driven by Solar System Sales. We continue to see a strong market demand in our surgical business and we're taking steps to improve our ability to consistently supply products to our customers. We're implementing various mitigating measures, including strategic spot buying of components And securing multiple supply sources. As we progress through the remainder of the year, we anticipate that supply will remain vital And that supply constraints will continue to lead to a buildup of higher cost of inventory and pressure on margins. Lastly, revenue in the Pharma segment was $174,000,000 which represents constant currency growth of 1%.

Speaker 3

VYZULTA grew by 54% at quarter on a constant currency basis with TRxs in the U. S. Up 19%. We also saw growth in our international pharma business, offset by supply impact on non promoted mature brands in the U. S.

Speaker 3

We are pleased to have recently launched MIGO. The early performance and feedback from eye care professions have been strong, which Brent will talk about more. In the quarter, we made investments in the MIGO launch and we're committed to continuing to invest over the next 18 months to 24 months to position MIGO for success. Our acquisition of Xiidra closed at the end of September, and we're excited to bring Xiidra and MIGO together in one portfolio. This closing date was earlier than our initial estimate for the end of the year.

Speaker 3

We expect the remainder of the year to be a transition period for Xiidra as we continue our efforts to successfully integrate it into our portfolio. We believe our investment in the re launch of Xiidra It's an important step in unlocking Xiidra's full potential. The acquisition of Xiidra's transformative to our pharma business And Zyda and Mybo together provide us with the leadership in dry eye disease. Now that we have covered revenues for each of the segments, Let me walk through some of the key non GAAP line items on Slide 8. Adjusted gross margin for the quarter was 61.3%, which was up 80 basis points compared to Q3 2022.

Speaker 3

The gross margin improvement reflects a mix of factors. Product mix was favorable driven by higher growth in our consumer business. This is balanced by pressure on the gross margin driven by the higher inventory cost in our Surgical business. In the Q3, we invested RMB81 1,000,000 for approximately 8% of revenue. Our spend in the Q3 reflects our investments behind key products, including the MIBO launch.

Speaker 3

We're committed to investing in our product launches in the remainder of this year and in 2024. 3rd quarter adjusted EBITDA was 187,000,000 It was negatively impacted by currency headwinds of approximately $14,000,000 and Ligeberg related disruption of 7,000,000 Excluding the impact of currency, adjusted EBITDA grew 7% compared to last year. Net interest expense run rate for was approximately $56,000,000 excluding a one time upfront financing commitment cost of $60,000,000 related to the Xiidra acquisition. The adjusted tax rate in the 3rd quarter was 6%, which is in line with our expectation for the full year 2023. Adjusted EPS for the quarter was $0.22 Adjusted cash flow from operations was $66,000,000 in the 3rd quarter and CapEx was 33,000,000 Year to date, cash flow from operations include a strategic inventory build of approximately $150,000,000 mainly related to the surgical business.

Speaker 3

It also includes an investment in working capital to support new launches and growing sales. As part of the Xiidra transaction, We raised $1,900,000,000 financing at the end of the quarter. This consists of a $500,000,000 term loan and $1,400,000,000 secured notes. Xiidra is a highly cash generative asset and we believe that we have a path to delevering over the next 24 months. Turning now to our 2023 guidance on Slide 11.

Speaker 3

We're raising our revenue guidance for to a range of $4,035,000,000 to $4,085,000,000 This reflects a constant currency growth rate of approximately 9.5% to 10.5%, which represents an increase of 300 basis points from our previous guidance. Based on current exchange rates, we expect currency headwinds to have a negative impact on revenue of approximately $85,000,000 for the full year, which is about $35,000,000 unfavorable from our previous estimate. In the Q4, we expect Xiidra to generate $80,000,000 to $90,000,000 of revenue. Our constant currency revenue guidance raise of 300 basis points takes into consideration the 2 25 basis points contribution from With the remainder of the 75 basis points raise or $30,000,000 reflecting the strong performance in our base business. We're increasing our adjusted EBITDA guidance for 2023 to a range of 710,000,000 $760,000,000 This includes full year currency headwinds of approximately $55,000,000 the market demand remains healthy, we're balancing our performance with the investments in launches including MIBO, the transition required to integrate and re launch Xiidra And the work in progress in supply chain.

Speaker 3

Also our adjusted EBITDA guidance includes the negative impact related to Lynchburg, which has been approximately $20,000,000 year to date. We expect our 2023 adjusted gross margin to increase by approximately 50 basis points to 60.5%. In terms of the other key assumptions underlying our guidance, We anticipate investments in R and D to be approximately 8% of revenue and interest expense to be approximately $270,000,000 for the full year. The increase in the interest expense reflect the recent financing related to the Xiidra acquisition. Our adjusted tax rate is expected to be roughly 6% and full year CapEx is approximately $175,000,000 As a reminder, Keep in mind that the comparability between 20222023 results for the full year will be impacted by the May 2022 timing of our IPO.

Speaker 3

I recognize that many of you are currently focused on updating your models for next year. Looking forward, I want to provide some initial considerations for 2024. We expect the fundamentals of the eye care market to remain strong And the overall market growth to be about mid single digits. We anticipate 2024 to be one of the most active launch years in our company's history. We expect to launch products across our entire portfolio, including in high margin, fast growing areas of the market.

Speaker 3

We also expect to strengthen our leadership in dry eye disease with the recent launch of MIBO and a full year contribution from Xiidra. We're excited about the Xiidar market opportunity under our ownership and our holistic approach to dry eye disease treatment. As we have previously mentioned, once relaunched, we believe Xiidra has the potential to be a mid single digit growth asset. We expect to have an opportunity for margin improvement, driven by the addition of Xiidra and the performance of our base business, while also recognizing the need to invest in all of our launches including MIBO. As we invest during the Xiidra relaunch period, We expect the Xiidra contribution to margin to increase as we progress throughout the year.

Speaker 3

The re launch is a key priority And we are encouraged by the recent TRx trends in the past few weeks, but we anticipate that it will take some time for us to see the full benefit of our investments. In our base business, we believe our supply chain will continue to strengthen, but we recognize there's more work to be done. Pressure on margins related to supply challenges and the mitigation efforts I mentioned earlier, such as spot buying will continue to be a factor in the short term. To be clear, our priority will remain to invest in our product launches. While it's still early, MIBO is off to a great start.

Speaker 3

We will monitor the MIBO performance over the coming months and evaluate the need to accelerate investment to maximize the strong performance trajectory. Based on current rates, we estimate currency headwinds to revenue of approximately $100,000,000 in 2024. This is our current estimate and we will continue to monitor and update it as we approach the end of this year. We expect the LOE for our brand Proenza to occur in Q4 of this We estimate Proenza to be approximately $50,000,000 revenue. We don't expect the LOE to have a material impact on our 2023 results, But we do expect to see the full year impact in 2024.

Speaker 3

We anticipate investments in R and D will continue to be a focus As we advance our product pipeline and bring new products to market. Our tax rate is expected to be approximately 15%. As previously mentioned, this is in line with our expectation and it takes into consideration an estimate of the impact of the OECD's TD's Pillar 2 minuteimum tax rules, which are expected to be implemented in certain EU countries and Canada in 2024. We expect interest expense to increase in 2024 due to incremental debt related to the Xiidra financing And a higher interest rate environment for the variable rate portion of our debt. As we continue the momentum in our current portfolio and launch new products, We have an opportunity to continue to deliver atorabovemarketgrowth and leverage our platform for longer term margin expansion.

Speaker 3

And now, I'll turn the call back to Brent.

Speaker 2

Thanks, Sam. I'd like to spend some time talking more about where we are investing to drive growth. Months ago, I described our 2nd quarter as being defined by performance and progress. The same holds true for Q3, but I'd like to introduce a 3rd descriptor when it comes to our supply chain, practicality. We have a significant global manufacturing and distribution network that relies on thousands and thousands of inputs.

Speaker 2

Look no further than surgical where some equipment has more than 1,000 components. With any operation of this size, If you don't have a consistent supply of those components and dependability when it comes to pushing your products out the door, You're not going to realize your full potential. There's no quick fix when it comes to addressing supply chain issues. And it's not a question of just throwing money out of Pravo. We've made nearly $900,000,000 in capital investments toward improving and expanding our facilities over just the past 5 years.

Speaker 2

Instead, we are taking a practical approach to supply chain. We started by bringing in a respected industry veteran who has been making complex systems run smoothly for more than 25 years. He has taken the reins on addressing our Lynchburg issues and is systematically working to improve surgical component availability. Bigger picture is creating a thoughtful and staged game plan for supply chain success that will keep up with demand for new and existing products. Being practical requires patience with the understanding that we're going to do it right.

Speaker 2

Let's turn to one of the biggest events of the quarter and a serious source of pride for our employees, the launch of Mibo. Well LaunchPad is just one input when it comes to a product success. In the case of Mivo, early returns are truly impressive. TRx performance since our mid September launch shows a steady rise in prescription volume. What's driving that uptake?

Speaker 2

Two things. First, our sales force. I attended the Mibo kickoff meeting in early September And was immediately impressed by the team. They believe in what they're selling and we're making it easier for them to do their jobs. They recognize the promise of Mibo, both medically and commercially.

Speaker 2

2nd, excitement among eye care professionals. We brought Mibo to market because there was a real need for a medicine that targets tear evaporation. Physicians believe in what they're prescribing And are thrilled to have a new and differentiated treatment option for millions of patients suffering from dry eye disease. Enthusiasm among the MIVO sales force is shared by the Xiidra team that we onboarded just 2 weeks ago. When I met with them at orientation, it was clear that they felt reinvigorated.

Speaker 2

Most, if not all, have never been part of a company solely dedicated to I Health. Why does that matter? Because we have the existing infrastructure to hit the ground running And it's mission critical we make Xiidra central to our strategy. Recent lack of investment in Xiidra sales ends now. The team we brought over went from selling a medication that wasn't deemed a priority by its former owner To representing the biggest product in our portfolio by revenue.

Speaker 2

It's time for a rebirth as we leverage Xiidra's brand equity and increasing importance in the dry eye category. MIBOR on its own represents a significant opportunity for Bausch plus Lomb, But the acquisition of Xiidra gives us a formidable 12 punch. As made clear, when we first announced our acquisition of Xiidra, These are complementary medications that target distinct elements of dry eye disease. Being able to offer both means We can treat the disease holistically and more fully address a staggering unmet need. How do our products become the primary option for Approximately 36,000,000 Americans suffering from dry eye disease, not currently on prescription medication.

Speaker 2

It starts with raising disease awareness For consumers and physicians, for the latter, we'll rely heavily on a combined sales force that will be the largest in the dry eye category and one of the most impressive in IHO. While we spent a fair amount of time highlighting MIVO and Xiidra Over the past few quarters, it's important to understand that pharmaceuticals account for roughly a quarter of our revenue. In other words, We're much more than a handful of prescription medications for a single category. Highlights from other areas include LUMIFY, which continues to impress with exponential revenue growth. We built on that success through the upcoming full launch of LUMIFY I Illuminations In the U.

Speaker 2

S, a perfect example of capitalizing on a product that has quickly built a significant and loyal following. Dailey SciHi continues to be an emerging force in our contact lines business with 3rd quarter revenue growth of nearly 80% year over year. Ongoing brand extensions mean even more opportunity on a global scale. In surgical, high margin premium IOLs continue to outperform. After debuting IC8 EpThera earlier this year, We soft launched an Avista Aspire just weeks ago and expanded Avista offerings are planned for 2024 and beyond.

Speaker 2

This slide may look familiar, but that doesn't make it any less impressive. With so many launches across our businesses on the horizon, You can see why we're focused on selling excellence and improving our supply chain. Getting those right means getting more products to people who need them. It's the key to everything for us. I returned to Fashion LOM because I saw a company with incredible potential.

Speaker 2

8 months in, I can tell you that I sold us short. The opportunity we have is even more transformative Than I initially thought. We have the products, people and plan to shape up an industry that continues to evolve and grow. This Friday is the official enterprise of start up mentality to build 170 year legacy. We're rekindling that entrepreneurial spirit as we redefine the company and create lasting value in the process.

Speaker 2

Operator, let's open.

Operator

Thank you very much. We will now begin the question and answer session. The first question comes from Patrick Wood of Morgan Stanley. Patrick, your line is live.

Speaker 4

Amazing. Thank you very much for taking the question. I'll keep it to 1. I'd love to drill down a little bit into Mibo given the launch. I'm just curious How you're getting the feedback?

Speaker 4

How it's coming through from the docs a little bit? Prescription trends rather than the numbers, but The kinds of patients that you think are typically being treated at this stage and how you feel about I think it was a €350,000,000 Opportunity longer term. I know it's very early days, but really curious to see how you're feeling about that longer term given the launch? Thanks.

Speaker 2

Yes, Great. Thanks, Patrick. Great question. Obviously, Mibo is a big focus of mine and of our teams. As you said early days and so early feedback.

Speaker 2

I don't want to overstate The meaning of a few weeks of data. But that being said, I feel really, really good about where we are. The market reaction, The market being physicians or ECPs is incredibly strong. And in fact, when you look at the data in IQVIA, It's significantly underreported. IQVIA will be doing an update, I think, November 17th, And then you'll get to see the real data.

Speaker 2

So there were some reporting issues in IQVIA. But suffice it to say, it's doing much better than Perhaps you guys even think or the outside world thinks given the reporting issues. What we're hearing from what I'm hearing from ECP is I'm going to the American Academy of Ophthalmology this weekend in San Francisco. We're going to be doing a lot of Mibo and Xiidra events and programming there as well, but It's incredible enthusiasm. They're seeing great patient response.

Speaker 2

We're starting to see refills already. So Everything, knock on wood, everything is going better than expectations and expectations, at least for me, were pretty high And they're doing better than that. But again, I want to caution us early days, early data. I'll feel much more confident when we have several months of data, but The team is doing a great job.

Speaker 4

Love it. Thanks for taking the question. Yes.

Operator

Thank you very much. Your next question is coming from Larry Biegelsen of Wells Fargo. Larry, your line is live.

Speaker 5

Good morning. Thanks for taking the question. Congrats on a nice print here. I'll try to get 2 in here. One for Sam on margins next year, You sum all this up, I think at our conference, Brent talked about 200 basis point margin benefit from Xiidra plus some underlying margin expansion.

Speaker 5

Does that still hold? And I had one follow-up.

Speaker 3

Sure. Good morning, Larry. And we When you step back and you look at sort of what we've done in 20 gs and how we're thinking about 2024, we do expect to see margin improvements came From our base business and also the addition of Xiidra. But you also have to balance this with a couple of factors here. 1 is The level of investments that we will need to make in Xiidra, Brent talked about Xiidra and sort of our expectation as especially now that's in our hands.

Speaker 3

And we've previously talked about that this brand and not only this brand, but the dry eye market in general is very responsive to promotional investment. So we need to be able to allow and allocate the right level of investment to get Zaida to the level of expectation that we would like it to be and We recognize the value of that. So there will be an element of investment going behind Xiidra, behind Xiidra going into Starting from Q4 and going into the early part of next year and going forward into 2024. The other part which I would want to also talk about would be The early reads that we're seeing from MIVA were very positive. We're excited about it and we're very encouraged.

Speaker 3

And But it's still early, and I think we will need to see a couple more data points to be able to make that trend solid for us. And based on that, I think we will We're thinking about the decision in terms of you accelerate investment behind Mibo to be able and We'll increment the investment to be able to accelerate growth into the future years. So again, MIBU for us is not just a 1 year Brandon, we're thinking about this is a long game here. So we're thinking about it's not only 2024, but 2024, 2025 and beyond. So that's going to be a very critical decision, but we will need to see a

Speaker 5

That's helpful. Just one follow-up on Xiidra and MIBOS sales next year. Xiidra, the guidance, it declined 40% in Q3 Revenue, the guidance here that you gave implies another 40% decline, so 3.35% for the year at the midpoint. What's your expectation And on my vote, the prescription data you gave us today implies it's annualizing at over $100,000,000 in sales already. Do you think it could be $100,000,000 product in 2024?

Speaker 5

Thank you.

Speaker 2

Yes. So maybe I'll just start and then Sam can jump in. Look, I think the sales number for Novartis in Q3 is not an accurate picture of performance of the brand. There were some accounting charges that Novartis Took there. And so I think that's distorted and probably not a true picture.

Speaker 2

Clearly, it was underinvested in their hands And we saw that. We've had it for essentially 2 weeks and actually was with the Novartis team, 97% of the team Sales team came over and joined us. We're super excited to have them. I spent some time with them 2 weeks ago here in New Jersey, And they are super motivated. And again, very early data, but we're starting to see stabilization In the script trends, which is really important.

Speaker 2

I do think the Q4 here is about clearly about stabilizing. And then as Sam mentioned in his remarks, the Q1 and going into the Q2 is going to be about Recharging that brand and reenergizing that brand given that we have roughly 9, 10 years of Exclusivity to stand behind that brand. So super excited About that. I think when you look at sales for next for 2024, we're not giving guidance for 24, we're just trying to give you some direction. We'll certainly provide that in due course.

Speaker 2

But Sam, anything else you want Do you want to add to this?

Speaker 3

Yes. I think, as we think about Zadir based on the remarks we've made thus far, we want to make sure we invest behind the brand. I think the comments I made in my prepared remarks was as we think about Xyto, once it balances out, it probably will be still a 5, I would call So mid single digit growth asset and that's been our thinking around Xiidra.

Operator

Jefferies. Your line is live.

Speaker 6

All right, great. Thanks so much for taking our questions. Maybe pivoting a little bit to contact lenses. Wanted to hear a little bit on the health of the U. S.

Speaker 6

Consumer. Is there still a lot more demand than for the industry, so the daily SiHi adoption trends seems very favorable and very strong growth. But are you seeing any signs of consumers trading down or extending their wear? And any high level thoughts on that might happen in 2024?

Speaker 2

Yes. Great question and thank you for that. Across our businesses globally, We don't see any pullback from the consumer, whether that be in lenses or in our consumer business. And in fact, Some interesting data perhaps out of the consumer business, not exactly what you asked was we're seeing strong drive of consumption in our consumer products. So another data point that shows that the consumer In the U.

Speaker 2

S. And frankly globally is still pretty active. In fact, when you look at GDP data, I think we saw consumer drive most of the GDP growth in the U. S. In the Q3, so a healthy consumer.

Speaker 2

Our lens business in the U. S, the market was up around 7%, 8%. Sam can give us the exact number, but I think we're seeing really healthy trend. Daily SiHy for up was up about 80% growth in the quarter. So I think our issues there have been just distribution and being able to ship and that is solving itself this quarter We're starting to move into a good spot.

Speaker 2

But overall, the market I think is robust. It's big. It's growing. And we finally have a good Product portfolio, we just need to be able to ship to customers on a more consistent basis.

Speaker 6

All right, great. Very helpful. And I guess for my follow-up. So of China Business, minus 1% due to tough comps Year to date, 6%. I guess, I was wondering if maybe you can a little bit about what you're seeing on the ground currently.

Speaker 6

It's high single digit percent of your business. We read all the macroeconomic and consumer consumption headlines. There's also some anti corruption campaign color that doesn't really impact For the contact lens business in the near term, what indicators are you more closely tracking? Are there noticeable differences in the different tiered cities?

Speaker 2

Yes, it's a great question. So First, I'd just talk take a step back and look at the opportunity in China. It's a massive market. We have A tremendous opportunity to grow into that market, unlike perhaps one of our competitors that has more market share. I think our opportunity is to take share in a growing market is pretty strong.

Speaker 2

And we're just really getting started there with the daily SiHi launch just happened a quarter ago. So we still have to bring the multifocal and other modalities into China. The other thing is our team in China was over there not that long ago. We have a really strong team. I was very impressed by the P and L colleagues in China.

Speaker 2

And in fact, this quarter they stood up a DTC model That was quite impressive. So we'll see how that works out, but they did a lot of really good work with a Strong entrepreneurial spirit. So I'm excited about China. I think when we look at the consumer in China, they're resilient, perhaps a little less resilient in the Tier 2 or 3 cities Versus the one, but still strong. I think our opportunity is clearly in this Tier 1 and Tier 2 cities.

Speaker 2

So We're participating in the market where the consumer is strong. And again, I think we're going to be less focused on the macro environment versus the opportunity we have to grow within a massive market. Sam, any color you'd want to add?

Speaker 3

Yes. I think when you think about this year, I think when you look at the year to date data, it's Probably more meaningful than looking at any specific quarter. So year to date, we're 6% constant currency. If you remember last year, We had the first half was pretty much shut down, so you've seen the comps are sort of not really a good proxy. So for example, last quarter, we Reported 25% constant currency growth in China.

Speaker 3

So that flows down to a minus 1%. This quarter is just reflecting the rebound that happened last year With a stronger comp and people just sort of coming out of a shutdown. So for this year, I will encourage you to Probably look more of a year to date on China data. That's probably will be more meaningful.

Speaker 2

All right. Thank you very much.

Operator

Your next question is coming from Craig Bijou of Bank of America. Craig, your line is live.

Speaker 7

Good morning, guys, and congrats on a strong quarter and closing the Xiidra deal. I wanted to start with a follow-up On a follow-up to Larry's question on Xiidra EBITDA. So if I look at your implied guidance or your guidance for the year and The EBITDA margin for Xiidra is about 35%. So given your comments on investment in Xiidra, What I understand is, is that 35% margin a jumping off point, right? So should we think about you can Improve upon that throughout sequentially throughout 2024?

Speaker 7

Or how else should we think about that?

Speaker 3

Good morning, Craig. So I would think about it as 35 as a baseline. When you think about 35 for Q4 And as you start now progressing into 2024, we should expect that 35% in terms of margin to continue to expand as you go forward. So my comments to me was highlighting on the fact of the investment in Xiidra. We're starting in Q4.

Speaker 3

We do expect that will take a couple of quarters to be able to get to the level that will meet our expectations. So that will be just a phasing as you go into 2024.

Speaker 7

Got it. That's helpful, Sam. And then just as a follow-up, wanted to ask on the Lynchburg facility. So it looked like the revenue impact Was less in Q3 than it was in Q2. Appreciate your comments that you expect to be back to a more normalization in Q1, but wanted to understand how should we think about any revenue and EBITDA impact In Q4 and even Q1?

Speaker 3

So year to date, we're having roughly about 20,000,000 Impact and that's on the EBITDA. And I made that comment as we were talking about the guidance showing that the guidance that we Have updated to quarter absorb that $20,000,000 year to date. We do expect to see some of that coming into Q4, but we will or More of that coming into Q4, but that's already factored into our guidance ranges that we provided. When you think about next year, I think, Ryan, it's too early to be able to talk about any impact of Lynchburg for next year. But what I can tell you is we're making progress and we are actually Looking as we get to Q1 of 2024, we believe this will be getting to a level that reaching, I'll call it, level of optimization That we will be expecting from that facility with all the upgrades that we put in.

Speaker 2

Yes. Look, I mean, I think, yes. Go ahead. We're good.

Operator

Okay. Thank you very much. Your next question is coming from Joanne Wuensch from Citi. Joanne, Your line is live.

Speaker 8

Good morning and thank you for the question and nice quarter. 2 of them and I'll put them both out upfront. The Rx portfolio grew about 1% off of a somewhat tougher comp. Obviously, this Before you're really layering in Xiidra and Myebo, but I want to make sure that I understand if there are any one time headwinds, etcetera, that I need Thank you, and then my second question is, in the lay press, the FDA warned against certain eye drops. Bausch wasn't on that list, but I was curious if you have a view on how that might create market opportunity for you?

Speaker 8

Thank you.

Speaker 2

Yes, sure. So with respect to Rx growth in the quarter 1%, The key metric I track there is the promoted products, which was anchored by Vysalta, Which was up 54%, I think in the quarter. And so the sales team and what we focus on saw good growth In the quarter, we did have 2 older non promoted products that had supply constraints in the quarter. If you Help those out, pharma would have been up around 4% versus the 1%. But I think the dynamics and the There will change dramatically in the next quarter when we have Meibor and Xiidra in there.

Speaker 2

I think as you look to next year, We have a ProLENZA LOE, and we've talked about that quite a bit. But outside of that, that's the only puts and takes And I think there's more puts with Xiidra and Mybo going in than takeouts, Joanna. Hopefully that clarifies that for you. On the FDA recall, it doesn't in and of itself present any kind of specific Opportunity for us, but I think it underscores the importance of quality control in manufacturing and supply. I think it what I've seen from the ECPs is a lot of promotion on staying with the branded companies in this category, whether it be us or our competitors being mentioned as alternatives.

Speaker 2

And I think lastly, it shows how hard it is to make these products in a sterile environment and provide high quality supply. So All in all, our focus and our absolute commitment is to supply high quality products. And to the extent there is an opportunity perhaps Retailers take some of these drops off the shelf and give us more shelf space for our products, whether it be LUMIFY or BLINK or Any of the other products in the reset that will happen as a result of these SKUs coming off shelf. So small opportunity, but I think more importantly underscoring the importance of high quality supply.

Speaker 8

Thank you.

Operator

Your next question is coming from Vijay Kumar from Evercore Vijay, your line is live.

Speaker 9

Hey, guys. Thanks for taking my question. I had two questions, maybe Brent. First one for you on revenues here. Some of your comments you made here on fiscal 2024 were helpful.

Speaker 9

The Lynchburg disruption, can you quantify the revenue impact in fiscal 'twenty three? Are they lost revenue? Should they come back in fiscal 'twenty four? And I think you did touch upon consumer strength. How should we think about consumer business in a recessionary environment?

Speaker 2

Yes. So on Lynchburg, we've made a lot of progress in the last month or 2. And Lynchburg in this quarter, the Q4, I think is starting to ship particularly domestically on time. And so we're getting we're pretty close. Clearly, we need a little bit more time to get the optimization out of Lynchburg, but we're making progress.

Speaker 2

We still have some Pickups in international orders, but all in all, it's a big improvement in the Q4. The revenues in 'twenty three are roughly $20,000,000 Impact and to be fair that's revenue lost. The patients who get fit with lenses That's it with other lenses versus the ones we couldn't provide. So it's more or less revenue lost. We will come back.

Speaker 2

There's good demand for our products. So we will see a return to our product line and we're seeing that happening. We're seeing green shoots of that right now in the Q4. But that's It's an unfortunate situation and why I continuously talk about the need for strategic and thoughtful leadership in our Well, we'll supply operations because at the end of the day, what matters most is getting your products to patients and consumers. And That's how you actually create a robust business as practically as that sounds.

Speaker 2

The consumer business in a recessionary environment, I think clearly if there was a if we saw a consumer recession, we would Have to be thoughtful about that and we would feel some impact. But at the end of the day, people Don't stop treating their eyes in a consumer recession. So I think we have somewhat of a protection in our business from that. Would people trade down? Perhaps.

Speaker 2

But as we just talked about with Joanne, some of the lower cost providers of eye drops as an example have quality issues. So It's a tough thing to trade down on price for treating your eyes, not that some won't do it, but we have, I think, some immunity From a potential consumer recession. That being said, we don't see that. We don't see that in any of our businesses anywhere in the world and we don't see that In any of the data we track as well. So, yes.

Speaker 9

Understood. Helpful comments, Brent. Sam, one for you on margins here. I think you mentioned FX $100,000,000 headwind on was it a revenue impact? What's the drop down here on EBITDA?

Speaker 9

Should that be at similar to fiscal 2023 where it's in it? It sounds like there's some incremental investments To support new product launches, should we be thinking of that as incremental versus where we were 3 months ago?

Speaker 3

Vijay, I was thinking about let me take the currency first. It's hard to predict currency, right? So I'm giving the $100,000,000 as of today based on the rates of today. Probably the best, I'll call, direction I'll provide would be You can use the proxy of what we've seen in 2023 as sort of a flow through that will give you a directional How we're thinking about the currency as we stand, but this is something I'll have to come back to you and update it as we end this year and we give guidance for full 2024 I'll update you on the currency and sort of truly the flow through. In terms of the investment, the launches, I think I'll break it up into 2 parts.

Speaker 3

I think Brent showed a slide that shows all the launches that are coming into 2024. This is our Largest number of launches that we have in a single year in the company's history as we recall. So that's definitely going to be an investment that we will have to think about And we'll be able to make sure we dedicate the right resources behind it. I called out MIGO specifically because I think it's a large Asset for us is a large brand. When you think about the early data that we're seeing on MIBEL, it's very encouraging and very positive.

Speaker 3

We want to see that trend continue. And as that trend continues, I think we will have the decision to be able to do we want to Spend and invest incremental dollars behind it and accelerate growth. Again, it's a long game for us And that decision will have to come in and we'll update more of it as we give the full year guidance for 2024.

Speaker 2

Yes, but perhaps said in another way, We have a big opportunity with Mivo and Xiidra and other launches across the portfolio in 24. Many of those launches lead us to higher margin product mix for the long term. And so being successful in those Are really an investment in improving margins. That being said, making that investment impacts margins to the negative in 2024. And What we want to do is be thoughtful about that.

Speaker 2

We are committed to margin improvement, but we want to make data driven decisions. When we look at early data on MIBONE, you See a clearer picture when IQVIA comes out and you'll see what we're seeing on November 17, you'll understand why we're pausing and saying, Could we do more with MIVO? Could it be more than $350,000,000 in peak sales? Could we steepen the curve and get there faster? So we're going to make investments based on data, based on KPIs and see what we're going to do.

Speaker 2

That being said, we're committed to margin improvement, but we wanted it to be sustainable and we wanted margin improvement for the long term. And so that's the balancing act That we would normally make in these decisions.

Speaker 9

Helpful comments. Thanks guys.

Operator

The next question is coming from Doug Mehm from RBC Capital Markets. Doug, your line is live.

Speaker 10

The company now, how long do you believe it's going to get to that mid single digit growth And then my second question just has to do with the success of LUMIFY. Maybe you could delineate in a little bit greater detail. We've had a number of launches, but What seems to be resonating with people? And how soon can we expect the other products Within that LumaPhyel pipeline to come to market. Thank you.

Speaker 2

Sure. So, Xiidra, it's we assumed it would happen, what happened in The prior owners' hands, but it happened a bit more severely, right? They really did neglect this drug. And as I said to the sales reps that came over 2 weeks ago, Xiidra is finally home. It's in a company that's a dedicated eye care company.

Speaker 2

It becomes among our most, if not most important product and they become arguably our most important field force Versus an afterthought in the company they were at. And that's highly motivating to them. The other thing I would point out is the dry eye Category is incredibly promotionally sensitive. And I know that I remember when Xiidra launched and I was at Allergan we had Restasis. Many on the sell side thought that RESTASIS would go into decline and it didn't.

Speaker 2

The market expanded To adapt to Xiidra, because of the increased promotion from Xiidra and RESTASIS at the time, we saw tremendous market growth And both brands grew through the launch and beyond. And so I think that dynamic sets up well for us. We will have a very strong share of voice Between Xiidra and Mybo, we really do have a 1, 2 punch to treat the disease holistically. And we have an opportunity to really Work with the ECP community to drive more of the untreated roughly 38,000,000 patients in for treatment And with a better option to treat whichever aspect of the disease they have with Xiidra and MYVA. So huge opportunity.

Speaker 2

That being said, Xiidra comes in a little wounded, right, a little neglected. As I said in the earlier, 4th quarter is about stabilization and 2024 is about restoring it to growth. I can't give you the exact date that will happen, but I do That to happen in the back half of twenty twenty four. I do think you'll see that growth start to really come through. I'm very confident.

Speaker 2

I think we have the right team, the right setup, the right market, and now we just have to execute. With LUMIFY, Really great performance, 47% growth compared to prior year. Record I think what Sam said in his remarks, record revenue of $44,000,000 in the quarter. So really exciting To see that brand continue to drive growth, right now we're in the retail launch of iLuminations And you'll see the consumer launch in the Q1 and other launch in 2024 as we keep talking about. So you start to see the consumer Paying an advertising and promotion in the Q1 on that product, but a real opportunity for us.

Speaker 2

The interest in an area I have a lot of experience We need to position LUMIFY less as an OTC drug and more as a beauty product. And When you can make your eye look beautiful, your face looks more beautiful. And I know there are trends from my days in the aesthetics world Around the importance of facial aesthetics and having brands like Botox and Juvederm in the past, LUMIFY is a really important part of that regimen. And so we're still just breaking through that market. I don't know where the top is because we just keep putting up record growth, But we're going to keep investing behind it and I think we have the best product to make your eye look beautiful.

Speaker 2

We're now going to surround that with other products. We have the preservative free coming next and then we're looking at some combinations as well as improvements in the formulation. So I think that was our last question or we have one more.

Operator

No, that appears to be the end of the question and answer session.

Speaker 2

Yes. Thank you, operator. Well, again, thanks everyone for joining us this morning. We remain very committed to focusing on Driving our roadmap to accelerate growth. The quarter was another great, great testament to our teams around the world Focused on execution and driving growth, and we look forward to keeping you updated as we progress and certainly excited for our future.

Operator

Thank you very much,

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Key Takeaways

  • Bausch + Lomb reported 8 percent constant-currency revenue growth (7 percent reported) in Q3, driven by strong performance across Vision Care, Surgical and Pharma segments, and raised its full-year revenue guidance to $4.035 billion–$4.085 billion.
  • The company launched Mibo in mid-September and closed the Xiidra acquisition in Q3, creating a combined dry-eye prescription portfolio that management expects to fuel holistic category growth and mid-single-digit expansion for Xiidra under its ownership.
  • Supply-chain disruptions at the Lynchburg distribution facility cost roughly $20 million in revenue and EBITDA year-to-date; upgrades are nearing completion and are expected to normalize performance by Q1 2024.
  • Bausch + Lomb secured $1.9 billion in debt financing for the Xiidra deal, expects net interest expense near $270 million in 2023, and plans to deleverage over the next 24 months as Xiidra generates strong cash flow.
  • Foreign exchange headwinds trimmed about $10 million from Q3 revenue and $14 million from adjusted EBITDA, and remain a drag of approximately $85 million on full-year sales and $55 million on EBITDA, though adjusted gross margin expanded 80 basis points to 61.3 percent in Q3.
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Earnings Conference Call
Bausch + Lomb Q3 2023
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