Bausch + Lomb Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 2, 2023

There are 11 speakers on the call.

Operator

Greetings. Welcome to the Bausch and Lomb Second Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. Please note this conference is being recorded.

Operator

I will now turn the conference over to your host, George Getkowski, sir, the floor is yours.

Speaker 1

Thank you. Good morning, everyone, and welcome to our Quarter 2023 Financial Results Conference Call. Participating on today's call are Chairman and Chief Executive Officer, Mr. Brent Saunders and Chief Financial Officer, Mr. 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 forward looking legend at the beginning of our presentation as it contains important information. 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.

Speaker 1

Finally, the financial guidance in this presentation is effective as of It is our policy to generally not update guidance until the following quarter unless required by law and not to update or affirm guidance other than through broadly disseminated public disclosure. With that, it's my pleasure to turn the call over to Brent.

Speaker 2

Thank you, George, And thank you everyone for joining us today. My remarks will focus on 2 themes that define the quarter performance and progress. Let's jump right in on Slide 3. Since our last update, I spent significant time on the road hearing directly from customers. No matter the country, no matter the specialty, one theme was consistent.

Speaker 2

People are rooting for us and want to see Bausch Alarm as an industry leader once again. Two areas for improvement were also made clear and speak directly to challenges we covered during our call last quarter. First, we need to bring a steady supply of new products to market. 2nd, we need to ensure customers have access to a consistent supply of products across our entire portfolio, which means upgrading our global supply chain. Here's the good news.

Speaker 2

We know what needs fixing. As I've said before, we have a large global infrastructure and an expansive commercial footprint. We offer products that address all eye care needs. There are approximately 13,000 Bausch and Lomb employees motivated every day by our mission of helping Think of our challenge like a restaurant with great food and service, loyal clientele and an ideal location, But it fails to get food orders right and on time. The question is, how do you streamline the dining experience without losing any of what customers love?

Speaker 2

Let's take a look at our progress. Last quarter, I unveiled the roadmap to accelerate growth. Our multi year plan to realize Fashelump's full potential. We're early in the process, but I am encouraged by what we've been able to In just a few months, highlights include flattening the organization to free up resources and focus on new capabilities we're building, including next generation digital and data competencies. We launched an employee driven initiative aimed at reducing inefficiencies An administrative burden with a focus on our sales team, we put quick wins on the board in several areas, including expense reporting, Meeting protocols and IT support in the field.

Speaker 2

I also solidified our leadership team, bringing in new talent and creating new roles Aligned to our strategy. Complex change projects like our roadmap tend to ask a lot of employees, But we have a talented and motivated team that gets it. They understand what needs to be fixed and want to be part of the solution. And amidst all this change, they delivered a very solid quarter. 12% revenue growth on a constant currency basis, Outperformance across all segments and increasing demand in key markets would make NECL happy, especially in my 1st full quarter.

Speaker 2

And to be perfectly clear, I am proud of our performance and encouraged by several trends that will influence future growth. But my focus is on what's holding us back. To put it simply, we need to improve how we make and deliver our products to customers and consumers. I'll use our Lynchburg, Virginia contact lines distribution center as an example. We were forced to upgrade that facility given significant growth in the business, A good problem to have.

Speaker 2

I'll spare you the details that essentially we needed to move from a 30 year old manual system to a new digitized way of working. The problem is we didn't execute and technical issues led to the facility quickly falling behind in process and orders. We expect to have things sorted out by the end of the year. Thanks to the tireless efforts of our Lynchburg employees. We did experience a self imposed negative financial impact to our business.

Speaker 2

What happened in Lynchburg is the most prominent supply chain issue we faced in the last quarter, but certainly not the only one. While some things may be outside of our control, We need to eliminate self inflected negative impacts to our business. Despite the ongoing supply challenges, I'm very pleased with our Q2, which Sam will go deeper on.

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 8. In the Q2, we saw strong revenue growth across all three of our segments. Total company revenue $1,035,000,000 for the quarter reflects growth of 12% on a constant currency basis and 10% on a reported basis compared to the prior year.

Speaker 3

Our strategy is to continue to invest in the business. The investments we're making are driving the strong revenue growth performance. We will continue to execute on this strategy as we look forward to launching new products and reaching our full potential. As Brent mentioned, supply remains a challenge for us, specifically in the surgical and lens portfolios. As I will discuss further, we're taking mitigating steps, but this remains a work in progress.

Speaker 3

On the positive side, Market demand remains strong. As we improve our supply, we expect the robust demand to continue to drive growth. In the quarter, Foreign currency headwinds were approximately $18,000,000 to revenue $25,000,000 to adjusted EBITDA. We're seeing currency headwinds having a larger impact on adjusted EBITDA, which is driven by our geographic footprint and the resulting currency mix. Regarding China, we're seeing tangible signs of recovery.

Speaker 3

In the quarter, our China business grew 24% on a constant currency basis Relative to a soft comparable in the prior year quarter that was negatively impacted by COVID restrictions, China contributed approximately 200 basis and remain confident that our business in China will return to stable and consistent growth over time. Now let's discuss the results in each of our segments. Vision Care revenue of $646,000,000 increased by 12% on a constant currency basis, driven by growth in both our consumer and lens portfolios. The consumer business grew by 17% on a constant currency basis, led by our Lumify, iVitamin and Artelec franchises. Lumify revenue grew by 23% globally compared to the prior year and achieved a record $43,000,000 of revenue in the Q2 of 2023.

Speaker 3

LUMIFY has continued its strong momentum in the U. S, where it has a leading market share of approximately 50%. We're also building the successful launch of LUMIFY in Canada, And we're leveraging the brand equity to launch the LUMIFY eye illuminations beauty line. Revenue from our eye vitamin franchise, Preservision and Ocuvai grew by 12% on a constant currency basis. Preservision continues to be the market leader with 90% plus market share in the U.

Speaker 3

S. Our recent launches of Akisorb and Preservision Plus CoQ10 continued to expand the franchise. Our international consumer portfolio revenue grew by 22% on a constant currency basis. Revenue from Artilac, a key brand in our dry eye franchise, grew by 24% on a constant currency basis, mainly driven by higher demand in Europe. We have continued to drive growth in our consumer portfolio.

Speaker 3

To sustain the growth momentum, we will focus on investments to support launches, including in the second half of the year. In July, we announced the strategic acquisition of Blink to further expand our OTC eye drop portfolio. While we're excited about the strategic fit, we don't expect Blank to have a meaningful impact in our 2023 financial results. In the lens portfolio, we saw 4% constant currency growth in the 2nd quarter. Reported revenue We recently launched the Dailiesi High multifocal lens in the U.

Speaker 3

S. And also rolled out Dailiesi High in China, which is a large and important market for us. We also saw broad based growth across the Dailies portfolio. On a constant currency basis, ViTru delivered 3% growth And our legacy brand Soft Lens Daily grew by 10%. As Brent discussed, revenue in the U.

Speaker 3

S. Lens portfolio Was negatively impacted by implementation disruptions related to a new warehouse management system upgrade at our Lynchburg facility. This mainly impacted our Ultra Lens family, which declined in revenue in the quarter. Excluding the impact of the disruptions, Global Lens constant currency revenue growth would have been approximately 10% in the quarter. We're taking steps to resolve the Moving now to the Surgical segment.

Speaker 3

2nd quarter revenue was $195,000,000 an increase of 7% on a constant currency basis. The consumables portfolio, our largest category grew by 11% in constant currency compared to Q222, mainly driven by surgical packs. Implantables declined by 4% on a constant currency basis. Strong growth in the high margin premium IOL portfolio, which was up 33% in constant currency, was offset by the impact of a product hold issued By our partners on the IC1 standard iWell. We anticipate the product hold to continue in the second half of the year.

Speaker 3

We're also executing our phased U. S. Launch of the IT8 premium IOL, which has generated strong interest in the market. We're continuing to make investments to support the launch, including training associates and onboarding surgeons. Revenue from equipment was up 10% versus Q2 2022 on a constant currency basis, driven by a recovery in China as well as contributions from the instruments portfolio.

Speaker 3

While market demand of our surgical portfolio continues to be strong, our ability to supply remains a work in progress. Our team continues to implement various mitigating measures, including strategic spot buying of components, which has led to higher cost inventory and pressure on margins. We anticipate the supply will remain volatile as we progress throughout the year. Lastly, Revenues in the Pharma segment were $194,000,000 representing constant currency growth of 16% With strong performance across all three portfolios and all major markets. In our U.

Speaker 3

S. Rx business, VYZULTA revenue grew by 25% in the quarter with TRxs up 26%. U. S. Generics revenue grew by 10% as we continue to actively capitalize on supply challenges faced by our competitors.

Speaker 3

The international portfolio saw strong performance across all major markets, leading to 20% constant currency growth in the quarter. Growth in the international portfolio was broad based across all major markets, including China. We're pleased to have received FDA approval for MIBO. As we prepare to launch this innovative dry eye product in the Q3, we expect to make additional investments. As you have heard me say before, It takes approximately 18 months to 24 months to ensure new launches are well positioned in the marketplace.

Speaker 3

Now that we have covered revenues for each of our segments, let me walk through some of the key non GAAP line items on Slide 9. As a reminder, The Bausch and Lomb IPO occurred in May 2022 and our Q2 2022 results did not fully reflect run rate stand alone costs. Along the same lines, the basis of interest expense and taxes reported in Q2 2022 results Also does not fully reflect our operations as a standalone entity. As we have previously mentioned, This impacts the comparability between 20222023 results. Adjusted gross margin for the quarter was 59.7%, which was flat compared to Q2 2022.

Speaker 3

2nd core adjusted EBITDA of $179,000,000 was impacted by currency headwinds Approximately $25,000,000 Adjusted EBITDA also reflects standalone costs that were not fully reflected in the prior year quarter given the May 22 timing of the Bausch and Lomb IPO. We'll continue to focus our strategy on increasing investments to support product launches and R and D. In the Q2, we invested an additional $10,000,000 in R and D compared to Q222. We're committed to investing in our upcoming launches in 2023 2024 to ensure they are reaching their full potential. Additionally, Our 2nd quarter margins were negatively impacted by supply chain challenges, particularly in our surgical and lens portfolios.

Speaker 3

In the surgical business, The limited availability of components has led to higher costs. In the lens business, the system upgrade disruption at our Lynchburg facility impacted a normal level of order processing. Net interest expense for the quarter was approximately $53,000,000 reflecting the current interest rate environment. For comparability purposes, The lower net interest expense of approximately $43,000,000 in Q2 2022 did not fully reflect our standalone capital structure. The adjusted tax rate in the 2nd quarter was 6%, which is in line with our expectations for the full year 2023.

Speaker 3

Adjusted EPS for the quarter was $0.18 Adjusted cash flow used by operations was $14,000,000 in the 2nd quarter. This is mainly driven by strategic inventory build to mitigate potential supply disruptions and an investment in working capital to support launches and growing sales. Year to date, the strategic inventory build has been approximately $82,000,000 Adjusted cash flow was also impacted by higher interest expense and the timing of payments. 2nd quarter CapEx was $27,000,000 Turning now to our 2023 guidance On slide 12, we're raising our revenue guidance for 2023 to a range of $3,950,000,000 to 4,000,000,000 which reflects a constant currency growth rate of approximately 6.5% to 7.5%. Based on current exchange rates, we expect the currency headwinds to have a negative impact on revenue of approximately $50,000,000 for the full year.

Speaker 3

While we're very pleased with the strong performance in the first half of the year, our guidance reflects a responsible perspective on the remainder of the year. We are balancing their strong performance and the market demand with a work in progress of resolving our supply chain challenges and the potential volatility this creates. As mentioned, we have taken action to address supply challenges, particularly in our surgical and lens portfolios. We recognize there is more work to be done to provide consistent level of supply to our customers and patients. It is also important to note that as we are seeing signs of recovery in China, the Q2, 2023 level of growth benefited from softer performance in the prior year.

Speaker 3

While we're excited to further enhance our consumer portfolio product line with the July acquisition of Blank, we do not expect the acquisition to have a meaningful impact And our overall financial results for 2023. I would also like to note that the Xiidra transaction we announced at the end of June subject to regulatory approvals and customary closing conditions and is expected to close by the end of 2023. Our guidance does not reflect any anticipated impact of the transaction and the related financing. We are maintaining our adjusted EBITDA guidance for 2023 in a range of $700,000,000 to $750,000,000 The adjusted EBITDA guidance absorbs the supply chain pressure incurred in the Q2 and reflects our commitment to continue to invest in our product launches. We expect full year currency headwinds to adjusted EBITDA of approximately $35,000,000 On a rounded basis, We continue to expect our 2023 adjusted gross margin to be approximately 60%, although there is some slight unfavorability driven by the In terms of 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 $225,000,000 for the full year.

Speaker 3

Our adjusted tax rate is expected to be roughly 6% and full year CapEx is approximately 200,000,000 As I already mentioned, keep in mind that the comparability between 2022 and 2023 results for the full year We'll also be impacted by the May 2022 timing of the P and L IPO. Overall, we're pleased with the strong growth across All of our segments in the first half of twenty twenty three and we're excited to continue enhancing our portfolio. We recognize there's more work to be done in the back Our 2023 guidance reflects our strategy to increase investments in the business to support launches that we expect will become important drivers of profitable growth. And now, I will turn the call back to you, Brent.

Speaker 2

Thanks, Sam. Let's talk about what's on the horizon. With our recently announced acquisition of Xiidra and Blinnk, we've been asked if we're focused exclusively on pharmaceuticals. That couldn't be farther from the truth. While we are committed to growing our pharma business, we're focused on being the best eye care company from surgical equipment to contact lenses and everything in between.

Speaker 2

The products you see here represent all of our businesses. Some are significant, while others will be steady contributors. But the point is they all matter and support our approach to Holistik Eye Health. The timing of these product launch matters as well. Recent and upcoming 20 In the 170 year history of Fashion Nova, while there's typically an 18 to 24 month launch cycle To realize full economic potential from new products, we're excited about the trajectory and industry positioning and our ability to innovate for patients.

Speaker 2

How we're bringing these products to market is critical and something we expect to significantly improve on. Let's take a look at how we're rolling out what we expect to be an important contributor for years to come. The Mibo launch later this quarter will be an exciting event for the company and the teams that work so hard to bring this product to market. It's also an opportunity to truly leverage our infrastructure and apply what we've learned from past launches. The critical success factors for Mibo's introduction aren't nice to have, they're imperatives and we will help establish a blueprint The timing for refresh go to market approach couldn't be better as the dry eye disease category is ripe for innovation and new treatment options.

Speaker 2

Dry eye disease is under diagnosed and undertreated, representing a significant opportunity. This is especially true when you consider we have an aging population and more time is being spent staring at phones and tablets. The data is jarring. An estimated 96% of the U. S.

Speaker 2

Population that suffers from dry eye disease is not using a prescription treatment. Dry eye disease is also multifactorial, which means different treatment options are needed. MIBO is the 1st and only FDA approved treatment for dry eye disease that directly targets tear evaporation. Xiidra and other similar medicines focus on inflammation associated with RIOT. In other words, these are different medicines treating different needs.

Speaker 2

Our acquisition of Xiidra, which is subject to regulatory approval and other customary closing conditions, We'll complement our existing DRiV portfolio and provide prescribers with different treatment options based on unique patient needs. Moving to our Vision Care business, despite supply chain challenges from our Lynchburg distribution center, Our silicon hydrogel lens performance was exceptional, continuing a growth theme. We launched multifocal in the U. S. Last quarter And our single vision spherical launch in China means we now have presence in all major markets.

Speaker 2

As an aside, I had a chance to visit China this June, I'm excited about the investment we made in Talent there and our market potential. Rounding out our business highlights, We continue to strategically expand consumer offerings and provide more OTC options in more places. LUMIFY saw its highest ever quarterly revenue with 23% year over year growth on a reported and constant currency basis. We saw similar numbers for Ardelec and have growth plans for both franchises with a goal of creating truly international brands. In surgical, product demand remains strong, but component availability continues to be an issue impacting our supply chain.

Speaker 2

We're working with 3rd parties to address these challenges while providing more options in a growth market. I highlighted our impressive company wide launch calendar earlier, but it's worth pointing out surgical launch contributions well into 2024, including several new products In the high margin premium IOL category, I spent a lot of time highlighting the challenges we face and are planned to overcome them. But I'll reiterate the two themes that define the 2nd quarter, performance And progress. Despite ongoing supply chain issues, we put several wins on the board, which speaks to the resiliency of our employees. That's clearly reflected in our 12% constant currency revenue growth and other financial metrics.

Speaker 2

But I'm more interested in the progress we've made in our ambitious plans to reshape Bausch and Lomb and realize our full potential. Actions speak louder than words and I'm encouraged by the level of commitment I've already seen. Change is hard, but the reward is worth it. Operator, let's open the line for questions.

Operator

Certainly, at this time, we will be conducting a question and answer session. Your first question for today is coming from Joanne Wuensch

Speaker 4

Good morning and thank you for the question. I have a couple, I'll narrow it down. Supply challenges in surgical and lenses, is there a way to quantify the impact of that and the timing to resolution? And then I'll pass my second one on. Daily soap and hydrogels up 42% is pretty impressive.

Speaker 4

What do you think is going on there? And how much of that growth is Maybe market share or cannibalization or market expansion?

Speaker 2

Great. Thanks, Joan. So, let's deal with the first question on supply challenges. First, I'd probably say, look, I'm a tough grader and I do think that We can improve our ability to supply customers and patients with our products across all of our businesses. Yesterday, I announced we're bringing in a very experienced new head of our supply chain.

Speaker 2

And I suspect it will take us a year or 2 to get to a place where I feel Very confident in our ability to execute in the supply chain. That being said, we don't have regulatory issues, FDA issues, other health authority issues. This is more about delivery of products and componentry and supply. And so that is a fixable Situation and one that we're very focused on solving. So it will take some time, but absolutely solvable.

Speaker 2

In terms of quantifying, Sam, do you want to?

Speaker 3

Sure. And Joanne, good morning. I will break the supply chain into the 2 parts that you mentioned, surgical and the lens business, Because they are different. So when you think about surgical, what we are talking about is the availability of components. And what we've been doing is we've been working through trying to validate 2nd vendors to be able to find the supply, sufficient supply that will Support the demand that we're seeing in the marketplace, in the surgical business.

Speaker 3

And we're also been doing what I refer to as a spot buy. And the spot buy is basically acquiring whatever supply we find in the market, but acquiring at a higher cost, which is putting pressure on the margin and I highlighted that in the first Quarter and I highlighted again this quarter. So you'll see the impact of that as we go through the year as the inventory comes in and you see the impact on the margin pressure. The second issue, which is the Lynchburg that Brent mentioned, we discussed earlier in our prepared remarks, That's raised to the distribution center and the upgrade that we've done in the distribution center in the U. S.

Speaker 3

The impact of that I quantified in my prepared remarks about 600 basis Point for the Lens business. So we've seen the growth in our Lens business at 4%, that would have been 10%, excluding that. So it's about 600 basis points. We absorbed the impact of then our EBITDA, which was roughly about $10,000,000 that we absorbed in this quarter and our results as well.

Speaker 2

Yes. And with respect to the daily SiHi or mFuse product line, obviously, I think what's most important is we have a very good product there. And we're seeing great support from ODs and patients to the lens. When you look at volume there, We see that about 60% is being sourced from new fits and the rest from switches. I do think that when we get deeper into the data, we see about a third of patients are switching from other Modalities or other consumers coming into our infused products.

Speaker 2

So there obviously is some cannibalization anytime you launch a new Really well received product in the marketplace. But I do think the overall big picture is we have a great product. We've launched it now in all the major markets around the world and now we're moving into the higher margin specialty versions like the multifocal, which just launched in the U. S. And We'll have the Torex following next year as well.

Speaker 2

So those will take a little bit to roll out around the world, but I think the entire portfolio there is a very strong competitive offering.

Speaker 4

Thank you.

Speaker 2

Next question, operator?

Operator

Your next question for today is coming from Douglas Mein at RBC Capital Markets.

Speaker 5

Thank you And good morning. My question and I know this is out of your hands at the moment and we're not expecting a close of the Xiidra deal Until later this year, but I do have a question around the performance of that product down around 20%. And I know that they're trying to garner more market share, but we're not seeing a pickup in prescription rates. And We are probably dealing with a disengaged sales force. So first question is, are you hearing about any turnover in that sales And then secondly, if we are starting from a base of $400,000,000 in revenue as we exit 2023, when you talked originally about 5% growth, were you talking from $500,000,000 or from Whatever 2023 ended up being?

Speaker 2

Yes. So thanks for the question. Look, Clearly, it is the product is owned by Novartis and is subject to the normal customary closing Conditions and we do expect that to close towards the end of the year. That being said, I think you have to look at the history of this product in the category. So this was a drug launched by Shire, sold to Takeda, sold to Novartis, and Somewhat openly held for sale for the last several months.

Speaker 2

So look, I think human nature, any sales force Looks at something like this and probably there is a little bit lack of energy or enthusiasm in that group. That's just human nature. And so we are excited to get it in get the deal closed and look for better ways to Talk about the therapeutic benefits to doctors. We know it is a promotionally sensitive category. I put some data up Related to the category, there are roughly 38,000,000 people in the United States diagnosed with dry eye disease and yet only 1,400,000 patients Treating with a prescription solution.

Speaker 2

And so when I look at those dynamics, we're very excited to have Differentiated treatment option for physicians to complement what we're bringing with FIVO. And then lastly, I'll just go along with it. The most important metric I'm tracking while Novartis still is in Ownership of the brand is TRx and we saw about 4% TRx growth. And To me, that is the most important metric till we close to track and I think they're doing a solid job there. Thank you.

Operator

Your next question is coming from Larry Biegelsen at Wells Fargo.

Speaker 6

Good morning. Thanks for taking the question and congrats on a nice quarter here, Brent and Sam. 2 from me, 1 on Mibo, 1 on 2024. So just to start on Mibo, Brent, what would success Look like, I mean, we've looked at the Xiidra launch as a benchmark. What are some of the puts and takes in your view of how adoption could be stronger or weaker?

Speaker 6

And would you be happy to say, MiVo's ramp was about 50% of Xiidra same time post launch? I mean, Xiidra has been a successful product at about $500,000,000 peak. So that's my first question. Just kind of how are you thinking about The ramp of Mybo, and then I had a follow-up for Sam.

Speaker 2

Sure. So, as we look at Mybo, I think looking at the Xiidra launch is perhaps a little informative, but Probably not right on. These are different products in different markets for dry eye disease. Xiidra launched into what we would call the inflammatory Associated dry eye category, that's a very competitive category. You had when it launched, you had a very strong Restasis and since launch, you've had Several other new entries and new products in late stage development for inflammatory dry eye.

Speaker 2

Meibro, on the other hand, is in a different Part of the market for different patients and a different treatment modality, a tear evaporation, and we are the only drug for tear evaporation. Most dry eye sufferers have tear evaporation related issues. And so I do think we have an opportunity to be Quite successful with this launch and we're very excited about it. In round numbers, I would say, I would be very disappointed if we didn't see Peak sales exceeding $350,000,000 over time. But ramps take longer, managed care access takes longer to work through.

Speaker 2

But I think we're in a very good position with a great product.

Speaker 6

That's super helpful. Sam, obviously, you're not giving guidance for 2024, but there are a lot of moving parts. And I'm just wondering if you could maybe provide a framework How to think about 2024, what are some of the things to consider Xiidra, dollars 4,000,000 to $500,000,000 in revenues? I think you've talked about That being about 10% accretive, I just want to confirm if that's still true. You have Blink revenues, the Myboe launch, the Proenza Loss of exclusivity.

Speaker 6

And just to sum it up, The Street's modeling about $1 in EPS right now next year versus call it $0.75 to $0.80 this year. Does that seem about right with all the moving parts? Is there anything you would highlight? I mean, obviously, valuation is primarily based on 24. So just hoping you could provide some framework there.

Speaker 6

Thank you.

Speaker 3

Good morning, Laddie. And there's a lot to unpack in this one question. So let me step back and maybe just think about from a big picture framework. And I will start by, I'm not going to give guidance in 2024 today. I think we're still early to do that.

Speaker 3

But there's a couple of factors you have to think about the fundamentals of our business. And I will probably start or anchor in what we've seen here in the Q2. We've seen strong performance in the business across all three segments. We've seen the demand and our portfolio is significant. So we are very excited about that.

Speaker 3

And I would expect that momentum of that strong demand We'll continue with us as we go forward into 2024. We're also seeing that with the acquisition, we mentioned BLINK and Xiidra. Zyzer, Blink is not going to be a material impact for us this year. But if you look at the data that's available, we'll suggest that Blink is run rate anywhere between 30,000,000 to Consumer teams hand, which I'm confident that they will do great things with, we expect that to continue to start growing from there. Zadra, we talked about So our expectations are on, I'll call it, mid single digits, starting from the point once we own the brand and the franchise.

Speaker 3

So we'll be able to work through that. So that's all on the positive side in terms of how we will think building the portfolio as we go forward. I have to balance that with the supply chain elements that we've been talking about because we've seen the surgical supply chain. I talked about it from putting Pressure on the margin because of the spot buy and qualifying different vendors and we're seeing the work that's happening within the Lens business. I believe that's all fixable, It was not going to be fixable.

Speaker 3

In 1 quarter, it will take some time to be able to get to a steady state at a consistent supply. So just that also being factored into the thinking here as we go forward. So when you look at those components and put them together, that's How I would sort of break your model or think about 2024 at this point based on what we know today. Thanks so much.

Speaker 2

Thanks, Mark.

Operator

Your next question is coming from Matt Miksic at Barclays.

Speaker 7

Hey, thanks so much for taking the questions and congrats on a really impressive beat here on top line. I wanted to Sam or Brett wanted to talk a little bit about, if you could maybe provide some color around The level of investment that you're making behind some of the new product launches that you talked about, so maybe where And the slate of new launches,

Speaker 2

do you

Speaker 7

find sort of the heaviest spend initially Over the next 6 to 12 months or so. And then which of those products do you think you'll be in a position, say, Early to mid next year to start driving leverage out of those launches, if that's the right timing. And then one follow-up.

Speaker 2

Sure. So maybe I'll start and turn it over to Sam. Clearly, the 2 biggest investments we'll be making are In Mibo and in our daily SiHi and SKUs launch globally. So clearly Mibo, We intend to launch the product in this quarter, Q3. So we're very excited about that.

Speaker 2

Clearly, in any significant pharmaceutical launch, you're in an investment cycle for, let's call it 18 months, 24 months, something in that order of magnitude. And then, IMPHUSE has been globally launching and now we're launching the multifocal here in the United States. We're seeing really good response from optometrists and patients. So very encouraged there. And that Generally follows the same kind of investment cycle as a pharmaceutical product.

Speaker 2

So those are the 2 big ones. Sam, any Other color or commentary on launches?

Speaker 3

No, I think you covered it. I think definitely MIGO will be a very important one. And Matt, I would sort of refer you back to Slide 14 that we included in the deck because it nicely outlined all the product Launches as we see for 2023 2024 and 2024 and we'll see the sort of the those launches will be investing behind those launches And they're across all three segments. And just as I referenced in my prepared remarks that I've said it before, it's like when you think about the launch, It takes probably anywhere between 18 to 24 months until that launch start getting its potential. So that's where the investment period As we think about it for any of those launches.

Speaker 7

Great. And so just the read through I'm hearing and other folks I'm sure We also picked up on this, is that leverage next year, we shouldn't be looking for any sort of Significant leverage in the middle of the P and L just because these costs growth may be terrific, continue to outperform, But leverage is something that we should expect to be a bit more muted. Is that a fair way to think about 2024 even though you're not guiding obviously for 2024 right now?

Speaker 2

Yes. So great point. Look, we're very focused on leverage or margin expansion. Clearly, a goal is a significant goal, a primary goal of ours is to have sustainable margin expansion in the business and we think that is achievable in time. And so maybe Sam you want to provide some color around our thinking there?

Speaker 3

Yes. And margin expansion is a very important fact for us and we understand and appreciate that We want to continue to provide progression within the margin expansion. And as Brent said, We're focused on it from a sustainable margin expansion, and that's really where our goal here is to accelerate, our growth And actually expand our power portfolio and you start to see many of the actions we're taking today is to build on the fundamentals of the business, Such as the consumer brand where we talked about Lumify and expanded the growth of Lumify, which is a pretty good product for us And combining that with as well, putting in launches and shifting the portfolio to more of a premium type of products. And we're seeing that in the surgical side, we're shifting more into more of the premium category, which that will end Mibu, which is more of higher margin Product because of the pharmaceutical. So we expect that we'll continue to provide Positive impact on the margin as we move forward.

Speaker 3

My comments here now in terms of the expectation with the investment is Because it's not just one side, it's both sides. So we're actually we'll be seeing the margin expansion, but you're not going to see the full margin expansion Potential until you start going through this investment cycle.

Speaker 2

Right. It's kind of like a funnel, right. We've got to invest to get to the products that provide the greater margin. But we have to be aware that we need to continue to have a focus on margin. So it's front of mind and something we're very focused on.

Speaker 7

That's super helpful. And then just the one follow-up on dry eye and is that market is A variety of different ways that clinicians and manufacturers are coming at providing solutions. And one is a device Strategy, that some of these kind of sells against drops and things like that, as I'm sure you're aware. Any can you talk about bridging what now is a pretty solid portfolio on the therapeutic side with efforts on the sort of like device solutions that some of your competitors are rolling out To the clinic

Speaker 2

as well. Yes. Look, we obviously want to make sure there's stream of innovation in the category for physicians and patients. And we keep and I particularly keep a very close eye on those innovations. On the device side, I think there are some interesting technologies that are emerging and could be effective solutions for patients, But none yet that I think rise to a level that are super impressive or perhaps more in the niche Category for severe sufferers or the like.

Speaker 2

And so, we do keep an eye on it, but I think the mainstay will be The variety of options in the pharmaceutical side for most patients. And There you see a lot of innovation coming on the inflammatory side of the spectrum. And that's quite a competitive marketplace and we're excited that we could have potentially a treatment option for both evaporative and inflammatory disease. Different markets, different products, but providing options for physicians and patients, I think is important.

Speaker 7

Thanks so much for the color.

Operator

Your next question is coming from Robbie Marcus at JPMorgan.

Speaker 8

Great. Thanks for taking the question. Congrats on a good quarter. 2 for me. Maybe first one.

Speaker 8

Brent, you made the comment before, I forget exactly what it was, but something along the lines of we're not just a pharma company. But most of the growth in the quarter is Coming from pharma, a lot of your pipeline launches where there is incremental revenue is from pharma and you did just do a big deal on the pharma side. So maybe just Kind of give us your thoughts on how you're thinking about managing the company, your view on what is Bausch and Lomb And how you're spending your R and D between the 2 and thinking about future investments?

Speaker 2

Yes. Thanks, Robbie, for the question. Yes. So Clearly, I don't view us as a pharmaceutical company. I view us as an eye care company.

Speaker 2

And we want to plan our heritage of being the best eye Health company. And that means having a strong pharmaceutical business, but also a strong vision care business, a strong surgical business, a strong consumer business. And I think when all four businesses are innovating and driving growth, margin expansion, I think then we can start to get into the To the realm of being the most profitable, I mean, the best eye health company. When you think about pharma, I get why people say that because we just did A big deal in pharma, but even when that closes, the pharmaceutical business would still be roughly about a quarter of Our business of 75% will be non pharma. And so it's important that we do that.

Speaker 2

When we look at the potential for solving unmet need In the eye health space, it's very strong in places like vision care. Myopia perhaps is a huge issue around the world. Surgical, I think moving into accommodating or adjustable ILLs or premium ILLs is really important to give patients Great vision near and far and everywhere in between. And so there's a lot of opportunity, I think, for innovation. There's a lot of For bringing solutions.

Speaker 2

With respect to R and D, to be fair, I think the only real Deep R and D expertise we have from a true research perspective is in Vision Care. It's in contact lenses, Solutions and drops, it's not in pharmaceuticals. In pharmaceuticals, we're more of a development house. And in surgical, we're more of a development house. So look, I think our idea is To look at the most impactful innovations across our business, but focused on eye care.

Speaker 2

And that's the kind of Organizing principle is eye health, not necessarily pharma, surgical or vision care.

Speaker 8

Thanks. Very helpful. And maybe a follow-up for me. Clearly, lots of different moving pieces in the businesses, but How should we think about growth in volumes versus pricing in the OTC business versus pharma versus Gold versus lenses. Thanks a lot.

Speaker 2

Yes, it's absolutely a great question. Look, that's something I look at very closely. I think Q2 was really impressive for me from our consumer team. The majority of the growth in Q2 was from volume, not price. I think historically, the last few quarters, we've seen a lot of price As a result of inflation, I think obviously that's moderating and I think the ability to take price will moderate For the foreseeable future.

Speaker 2

And so to be healthy, we need to see volume and that's what we're starting to really see. Kudos to the consumer team here. They did a great job on driving volume this quarter.

Speaker 7

Thanks a lot.

Operator

Your next question for today is coming from Craig Bijou at Bank of America.

Speaker 9

Good morning, guys. Thanks for taking the questions and congrats on a strong quarter. I have just, I guess, a couple of topics Somewhat related that I'll just ask the questions upfront. So how should we think about the impact of the supply chain challenges in the second half? I guess what's assumed in guidance?

Speaker 9

And is there an expectation that those challenges get better or worse? And then related, Brent, with your comments on improving quality and bringing in a new supply chain leader, Are there other facilities that may need a significant upgrade or update, like the Lynchburg facility That we should be aware of or that you're contemplating that could potentially have a similar impact or I guess put that risk out there?

Speaker 2

Sure. So, I'm going to start with something I said earlier. I'm a tough grader. And the way I think about our business is level of confidence. And so for example, I have very high level of confidence in our ability To execute in the sales force, I have very high confidence in our ability to execute in our R and D and clinical capabilities.

Speaker 2

When it comes to supply chain, we have a really good team working very hard. But I don't have the Confidence that we can deliver our products on time and at the right cost levels, right? So as Sam said, For example, in surgical, we're out spot buying lots of componentry at much higher prices than we would otherwise. Now the issue isn't necessarily because we have an issue in one of our plants. We have an issue in a 3rd party supplier that can't make a microchip.

Speaker 2

And so this isn't about us upgrading our facilities or investing capital. It's about qualifying multiple vendors or multiple supplies, so We don't get stuck or held hostage by 1 supplier. And so that is a lot of our issues. The Lynchburg facility was a self inflicted wound, right? We tried to upgrade a system.

Speaker 2

It wasn't capital intensive necessarily, but when the system goes down and you have boxes Stacking up and you can't ship to customers, that's a foul, right? And it had an impact on the business, particularly the business, which Sam quantified at about 600 basis points of growth that didn't materialize in the quarter. So when you add up all those things, it becomes an issue I'm just not satisfied with and I think we need to fix it. It's not at the level of we're talking about massive need of invested capital, but or capital And to the plants, this is more about process. It's about managing third party suppliers.

Speaker 2

It's having qualifying additional third party suppliers. It's about Getting things right. And that will take a year or 2 to fix completely, but we're well on our way. We've got a fresh look coming with a very senior experienced leader. And we're going to roll up our sleeves and tackle the problem.

Speaker 2

I don't know Sam, any other color?

Speaker 3

No. And Craig, to your question about how we're thinking about it in terms of guidance, a couple of things I will highlight here for you. One is, In my prepared remarks, I talked about our gross margin. I said our gross margin still holding around approximately 60%. I also commented that the fact that we're seeing some pressure on that 60%.

Speaker 3

So it might have been a very strong 60% or There might be a little bit of a rounding down that's coming out because of that 60. So there's a pressure that we're seeing and that's coming out Of what we talked about on the surgical side. In terms of just when you step back and you think about what we're doing from the supply chain, I think there's It's not lost on us that it is taking time to be able to work through this and there's multiple outcomes and ranges of outcomes that will potentially Come out in terms of the work in supply chain. And we factored those ranges of outcome in our thinking within the guidance range of the 700 750. So that was baked into again, it's hard to pinpoint the specific one scenario that can play out.

Speaker 3

There's multiple scenarios and we try to think through Those scenarios as we're thinking through the range, so that's been already baked into we're thinking in terms of our guidance range.

Speaker 9

Great. Thanks, guys.

Operator

We have time for one more question. Your next question is coming from Patrick Wood at Morgan Stanley.

Speaker 10

Amazing. Thank you very much. I'll keep it to 1 given time running out. Quite a specific one, but the IC8, the Aptera lens, I know it's very early stage, but As quite a unique asset, given an EDOF lens and the partial, I guess, astigmatic coverage, how is the initial feedback going there? How do you feel about that launch in general, and the capacity to potentially take a little bit of share within that sort of premium ATIOL market?

Speaker 10

Thanks.

Speaker 2

Yes. Thanks, Patrick. I'm glad you asked about it because I do think it's a very important product for us And for patients and for surgeons. I was just at a major surgical conference with some of the top U. S.

Speaker 2

KOLs. And I can tell you that the physicians or surgeons that have been trained and have implanted the lens Have phenomenal feedback, very enthusiastic positive response. Small end, right? It's a small group of surgeons and a small group of patients, but Very impressive early start. The key is getting surgeons trained and comfortable with the lens.

Speaker 2

But I do think there is a real segment of the market for patients who perhaps need a More middle of the road economic solution to an EDOF outcome that IC8 is the perfect fit and early, But incredibly exciting initial days and outcomes. So I remain Pretty optimistic and bullish on the product. We're just in the U. S. Launch, it will be a phased launch to the rest of the world.

Speaker 2

But I think in a year or 2, this could be a really significant product in our surgical portfolio. So thanks for the question. I'm pretty excited about that particular launch.

Speaker 10

Amazing. Thank you.

Speaker 2

Great. Well, operator, maybe I'll just say a few closing words. Thanks everyone for attending and thank you for your questions. I do think we put up a very strong quarter this year this quarter, I mean. 12% constant currency revenue growth is I think quite a testament to our team who has worked so hard in the quarter to deliver.

Speaker 2

And as I mentioned, certainly the highlight is performance and progress as we continue against our roadmap and to create the best eye health company in the world. So again, thank you for your time and we look forward to keeping you updated.

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Key Takeaways

  • Bausch + Lomb delivered 12% constant-currency revenue growth in Q2 2023, with outperformance across Vision Care, Surgical and Pharma segments and a notable 24% rebound in China.
  • The company is tackling ongoing supply chain challenges—from a botched Lynchburg DC upgrade to component shortages driving spot-buy costs—and has recruited a new head of supply chain, expecting full fixes within 12–24 months.
  • Key pipeline events include the Q3 launch of Mibo (the first FDA-approved dry-eye therapy targeting tear evaporation), the anticipated Xiidra acquisition by year-end and the Blink OTC eye-drop deal to bolster consumer offerings.
  • For 2023 Bausch + Lomb raised revenue guidance to $3.95–4.00 billion (6.5–7.5% growth) while holding adjusted EBITDA at $700–750 million, absorbing currency headwinds and increased R&D spend (~8% of sales).
  • Under a multi-year roadmap, the company has flattened its organization, cut administrative inefficiencies, built digital/data capabilities and installed new leadership roles to accelerate innovation and reclaim industry leadership.
A.I. generated. May contain errors.
Earnings Conference Call
Bausch + Lomb Q2 2023
00:00 / 00:00