Bausch + Lomb Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
February 21, 2024

There are 10 speakers on the call.

Operator

Good morning, and welcome to the Bausch and Lomb's 4th Quarter and Full Year 2023 Earnings Call. All participants will be in listen only mode. Please note this event is being recorded. I would now like to turn the conference over to George Getkowski, Vice President of Investor Relations and Business Insights. Please go ahead.

Speaker 1

Thank you. Good morning, everyone, and welcome to our Q4 and full year 2023 financial results conference call. Participating on today's call are Chairman and Chief Executive Officer, Mr. Brent Saunders and Chief Financial Officer, Mr. Sam Aldousuke.

Speaker 1

In addition to this live webcast, a copy of today's live presentation and a replay of this conference call will be available on our website under the Investor Relations section. 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.

Speaker 1

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. 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. We're going to follow a familiar format. I'll cover highlights from the Q4 full year, And Sam will dive deeper on financials and provide 2024 guidance. I'll close by reviewing growth drivers and then we'll take your questions. The first of our 3 key takeaways speaks for itself.

Speaker 2

Revenue growth in 2023 and in the Q4 in particular exceeded our expectations and set the tone for 2024. Double digit growth is always impressive, but even more so when you consider how we got there. Our quality of growth is what helps set us apart from others and that will be enhanced as we've entered one of the most active launch years in our company's history. You've heard me talk about selling and operational excellence quite a bit. It's central to any discussion I have on company strategy and will dictate our success going forward.

Speaker 2

Here's the good news. We're making solid progress in both areas. Our dry eye franchise is a perfect example. The combined Mibo and Xiidra sales force is the largest and I would argue most sophisticated in eye health. And when it comes to operations, our mindset hasn't changed.

Speaker 2

We're taking a methodical approach to addressing the challenges we face with the expectation that our supply chain will become a competitive advantage in time. Hasty climbers have sudden falls as the saying goes, which means we won't lose sight of our long term goals for short term gains. The last takeaway is focused on innovation, which has been the driving force throughout Bausch and Lomb's 170 year history. We've made no secret of our desire to put innovation at the forefront once again, and we're doing that in 2 ways. First, we're expanding our internal R and D capabilities across our entire portfolio.

Speaker 2

From prescriptions to IOLs, we can and should explore all possibilities when it comes to building on the success of existing brands. 2nd, we're reloading our pipeline with a focus on areas of unmet need. Our reinvigorated business development function will play a key role there as we cast a wide net for potential game changers. The roadmap slide has become a fixture in earnings presentations and the roadmap itself continues to guide our strategic decision making as we unlock the company's full potential in a thoughtful and phased approach. Each quarter, our progress indicator shifts steadily to the right as we move closer to Phase 2.

Speaker 2

Let's take a look at how we delivered against Phase 1 goals in 2023, a report card of sorts with an understanding that I'm a tough grader. We've already touched on top line performance last year, but I'm happy to bring it up every chance I get. 12% constant currency revenue growth would earn the highest grade on its own, But again, I'm more impressed with how we did it. When it comes to selling excellence, we made significant strides in 2023 with a focus on high priority areas like dry eye. But with the number of planned launches in 2024, there's even more of an urgency to build on that work with a balanced approach across all categories.

Speaker 2

Business development is a function that has matured in short order last year. The most obvious example is our acquisition of Novartis' front of the eye assets, in addition to our acquisition of Blink eye drops from Johnson and Johnson. Equally as important, the growing business development team has laid a groundwork for strategic deal making this year and beyond with an eye towards sustainable growth. I'll group the last two items together. While they appear to have the lowest mark, a single check mark, It's really more of an incomplete or too new to rate.

Speaker 2

Building leading digital capabilities in core areas and enhancing agility and innovation or broad organizational competencies that required discipline and time. That said, progress in those areas introducing the roadmap has certainly had an impact on margin expansion. We've covered revenue. My only add there would be that this is our 3rd straight quarter of more than $1,000,000,000 in sales, our new normal. When it comes to individual segments, there is no lag.

Speaker 2

In fact, I only see opportunity as both Vision Care and Surgical, in particular, felt the effects of operational challenges, some self inflicted, others out of our control, yet both delivered impressive year over year growth. Now let's address individual product performance and I'll stick with the opportunity theme. Despite an average growth of more than 25% among the key franchises highlighted, they haven't realized their full potential, not by a long shot. Additional geographic expansion, new ways of reaching customers, including direct to consumer engagement, and a persistent focus on providing the best customer experience possible will propel these products and others to new heights. Before I turn things over to Sam, I'd like to thank my 13,000 colleagues for their performance in 2023.

Speaker 2

And it's not just execution I'm grateful for, it's their belief in our potential and commitment to doing what it takes to get there. Sam?

Speaker 3

Thank you, Brent, and good morning, everyone. Before we begin, please note that 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 Q4, we once again saw strong revenue growth across each of our segments and key product franchises. We're pleased with how we ended the year and our performance for the full year in 2023.

Speaker 3

Our business demonstrated growth in revenue and adjusted EBITDA with revenue exceeding our full year guidance. We are excited by the momentum we have heading into 2024, which as Brent mentioned, we expect will be one of the most active launch years in our history. Total company revenue of $1,173,000,000 for Q4 reflects growth of 19% on a constant currency basis. For the full year, total company revenue of $4,146,000,000 reflects growth of 12% on a constant currency basis. This was the 1st full quarter following the launch of MIBO and the closing of the Xiidra acquisition.

Speaker 3

I'll be discussing the impact of these key dry eye franchises more throughout the call. But the headline is that we are highly encouraged by what we're seeing so far. Touching briefly on supply, we have continued to make improvements to strengthen our supply chain in 2023, and we're pleased with the progress. While there's still work to be done, we feel confident about the path forward. As Brent will discuss, we expect to continue our efforts to implement efficiency measures throughout 2024, which we expect will be an important factor to drive sustainable margin expansion.

Speaker 3

While 13 hour currency mix moderated in the 4th quarter and did not have a material impact on the results for the quarter. For the full year, currency was a headwind of $68,000,000 to revenue and $51,000,000 to adjusted EBITDA. While the currency headwinds are not as sizable as we saw last year, the impact on our results continues to be driven by our geographic footprint and the currency mix. Now let's discuss the results in each of our segments. Vision Care 4th quarter revenue of $662,000,000 increased by 8% on a constant currency basis, driven by growth in both the consumer and lens portfolios.

Speaker 3

For the full year, Vision Care revenue was 2,543,000,000 dollars and increased by 10% on a constant currency basis. The consumer business again demonstrated strong performance both in the U. S. And internationally, with growth of 11% on a constant currency basis in Q4. We continue to see growth across our key franchises, including eye vitamins, which grew by 7% in the quarter and LUMIFY, which grew by 17% in the quarter.

Speaker 3

Our consumer dry eye portfolio delivered $88,000,000 revenue in the quarter, representing 12% organic revenue growth. Reported revenue from Deity SiHi Lenses grew by 31% in the quarter. As we discussed in our last earnings call, we recently expanded the Deity SiHi family with the launch of the multifocal lens in the U. S. And the rollout of Deity Si Hai in China.

Speaker 3

We continue to see strong demand globally in the Deity Si Hai category. Revenue in the Lens portfolio was negatively impacted throughout 2023 by disruptions at our Lynchburg distribution facility. Excluding the impact of these disruptions, Global Lens constant currency revenue growth was 9% in the quarter and 10% for the full year. Moving now to the Surgical segment. 4th quarter revenue was 204,000,000 dollars an increase of 7% on a constant currency basis.

Speaker 3

For the full year, growth was also 7% on a constant currency basis. The consumables portfolio, our largest category in the surgical business, grew in the quarter by 7% on a constant currency basis, mainly driven by cataract packs. Implantables were flat for the quarter on a constant currency basis. Our premium IOL portfolio continues to expand and was up 30% in constant currency in the quarter. As I mentioned last quarter, our standard IC1 IOL continues to be impacted by the product recall issued by our partner in 2023, which offset the strong growth in our premium IOL portfolio.

Speaker 3

Excluding the impact of IC1, the implantables portfolio grew 12% in constant currency in Q4. Revenue from equipment was up 13% versus Q4 'twenty two on a constant currency basis, mainly driven by Solar System sales. We have recently launched a number of products in our surgical business and will continue to launch new products in 2024 and beyond, including the higher margin premium end of the market. We intend to continue to invest behind these launches as this is an important area to drive value and margin expansion. Lastly, revenue in the Pharma segment was $307,000,000 for the quarter, which represents constant currency growth of 66%.

Speaker 3

For the full year, revenue in the Pharma segment was $836,000,000 which represents constant currency growth of 24%. Xiidra delivered $106,000,000 revenue in the 4th quarter, exceeding our previous guidance range of $80,000,000 to 90,000,000 dollars Following the re launch of Xyder in Q4, we saw TRx stabilize throughout the quarter. Additionally, in the quarter, we had a one time benefit of $8,000,000 due to lower than expected rebate charges for Xiidra. As I said before, Xiidra will continue to be a primary focus for us in 2024. To date, we're also very pleased with what we have seen from the MIGO launch.

Speaker 3

The early performance and feedback from eye care professionals have been incredibly positive and we're committed to continuing to invest behind this launch. Together, Zydra and MIBO provide us with clear leadership in dry eye disease and we're excited about reaching their full future potential. Now let me walk through some of the key non GAAP line items. Adjusted gross margin for the Q4 was 62.5%, which was up 4 70 basis points compared to Q4 'twenty two. For the full year, adjusted gross margin was 61%, which was up 130 basis points compared to last year.

Speaker 3

The gross margin improvement was mainly driven by favorable product mix, including Xiidra. This was balanced by pressure on the gross margin driven by the higher inventory costs in our surgical business. In the 4th quarter, we invested $79,000,000 in adjusted R and D or approximately 7% of revenue. 4th quarter adjusted EBITDA was 231,000,000 dollars which represents 28% growth versus the Q4 2022. For the full year, adjusted EBITDA was $738,000,000 Full year 2023 adjusted EBITDA was negatively impacted by currency headwinds of $51,000,000 and Lindsberg related disruptions of $30,000,000 Excluding the impact of currency, adjusted EBITDA grew 10% compared to last year.

Speaker 3

Net interest expense for the quarter was approximately 96,000,000 dollars 252,000,000 for the full year, excluding the one time upfront financing costs directly related to the Xiidra acquisition. The full year 2023 adjusted tax rate was 4%, which is slightly lower than our previous guidance of approximately 6%. The lower tax rate was mainly driven by the geographic mix of our earnings. Adjusted EPS for the quarter was 0 point 24 $0.73 for the full year 2023. Adjusted cash flow from operations was $28,000,000 in the 4th quarter and CapEx was $84,000,000 Turning now to our 2024 guidance on Slide 15.

Speaker 3

We're setting 2024 revenue guidance at a range of $4,600,000,000 to $4,700,000,000 This reflects expected constant currency growth of approximately 12% to 14%. We expect the fundamentals of the eye care market to remain strong, and we expect each of our segments to deliver growth in 2024. Along with solid momentum in our base business, the recent and upcoming product launches will be an important driver. Following the re launch of Xiidra in the 4th quarter, we expect to build on the performance throughout 2024. For the full year 2024, we expect Xiidra to generate approximately 400,000,000 dollars in revenue.

Speaker 3

As I noted earlier, the MIBO launch is off to a great start. MIBO has been the strongest launch in dry eye disease in recent years. We expect the positive momentum to continue in 2024 and we plan to invest to position the brand to reach its full potential. We expect MIBO to contribute approximately $95,000,000 of revenue in 2024. We've continued to see currency headwinds moderate.

Speaker 3

Based on current exchange rates, we estimate currency headwinds to have a negative impact on revenue of approximately $40,000,000 for the full year. Shifting to adjusted EBITDA. We are setting our adjusted EBITDA guidance for 2024 to a range of $840,000,000 to 890,000,000 dollars At the midpoint of the guidance range, this reflects margin expansion of approximately 80 basis points compared to full year 2023. The margin expansion is driven by a number of factors, including our strategy to shift mix to high margin products, our efforts to continue to drive operational excellence and our focus on maintaining cost discipline. As we continue to make investments to fully capture the value potential ahead of us, we expect to sustainably build on the margin expansion in 2024 over multiple years with the growth of our recent and upcoming launches.

Speaker 3

I told you in the past and I will continue to remind you that there is natural seasonality in our business. We expect 2024 phasing to follow a similar trend as we saw in 2023, with the Q1 being the lowest and the 4th quarter being the highest. As we continue to drive pipeline innovation, we may enter into collaborations with external partners. It should be noted that our adjusted EBITDA guidance does not reflect any one time upfront payments that may be made as part of such arrangements. In terms of the other key assumptions underlying our guidance, we expect gross margin to be approximately 62%.

Speaker 3

We anticipate investments in R and D to be approximately 7% to 8% of revenue and interest expense to be approximately $385,000,000 for the full year. Our adjusted tax rate is expected to be roughly 15%, which takes into consideration our tax geographic mix and the Pillar 2 minuteimum tax rules. Full year CapEx is expected to be approximately $250,000,000 We are pleased with our financial performance in 2023 and the solid momentum entering 2024, As we continue to drive growth in our current portfolio and the launch of new products, we have a clear strategy to deliver strong growth and drive sustainable margin expansion. And now, I'll turn the call back to Brent.

Speaker 2

Thanks, Sam. Let's focus on what we need to do to win in 2024. Recent and upcoming launches have us positioned for success in each of our businesses. But the only way we fully take advantage of those opportunities is by reaching more customers and consumers and separating ourselves from the pack with how we sell. As Sam outlined, we're off to a great start with MIVO.

Speaker 2

Eye care professionals are prescribing and consumers are coming back for more. Post launch excitement hasn't waned. In fact, it continues to build. We need to harness that momentum in 2024 and ensure Mivo becomes the category altering medication it has the potential to be, which means continuing to invest in sales and marketing. In concert with our Mivo push, we need to not only keep working to restore Xiidra to its place as a category leader, but unlock its full potential.

Speaker 2

It's important to remember that Xiidra's sales and marketing operation we inherited was not in the same condition when at its peak. I'm a dog lover, so I'll use an abandoned pet analogy. We took it in and are nursing it back to health so it can thrive once again. Sam also pointed to daily SiHi success. There is growing demand for these lenses, which is why we're expanding our offerings, including the launch of a multifocal in the U.

Speaker 2

S. Demand is also a theme in dry eye as we've made clear. And while the focus is often on prescription medications, we've built a formidable stable OTC dry eye brands on a global scale, most notably, Ardelac. That stable expanded with the acquisition of Blink, which we expect will be a steady and growing contributor for years to come. Finally, premium ILLs continue to represent our biggest opportunity in surgical, where sales are influenced by relationships 1st and foremost.

Speaker 2

As we prepare to push deeper into higher margin offerings, including expansion of our Invista product line, it's incumbent on our sales force to turn their deep relationships into conversions. Last quarter, we stressed a practical approach to supply chain. That hasn't changed and won't. What has changed is my comfort level and how the challenges we faced are being addressed. We brought Al Waterhouse to Bausch and Lomb with a simple yet incredibly complex remit.

Speaker 2

Take a full accounting of our global manufacturing and distribution network, put a comprehensive plan in place to turn that network into a competitive advantage and execute with the understanding that we won't cut corners ever. It's early days, but I'm very pleased with initial returns and more importantly, the path forward. In 2024, our focus will continue to be on reducing complexity while streamlining how we put product in the hands of customers and consumers, with DTC efforts in China being the most prominent example. We'll also continue to digitize operations using lessons learned from our distribution center in Lynchburg, Virginia. Remediation is near complete and we've turned our attention to gaining efficiency over the next few quarters.

Speaker 2

Optimizing our supply chain will take time. Incremental improvements will be reflected in margin expansion and long term success will be foundational for a future proof Bausch and Lomb. Talk of R and D investment is often taken with a grain of salt and for good reason. Some companies invest because they think they have to or need to hit a self imposed minimum. We invest because innovation has been the lifeblood of Bausch and Lomb for 170 years.

Speaker 2

In 2023, we invested more than $300,000,000 in a new look, older and better R and D department. And we've infused it with talent. In the last 2 years, we grew the team by more than a third, including hiring top scientists who want to be part of what we're building here. But money and talent only get used so far. We've refocused the team to better support a reloaded robust pipeline that cuts across every business.

Speaker 2

While in house capabilities are non negotiable, we can't do it all ourselves. As previously mentioned, our business development team has been working hand in hand with R and D leadership to identify and vet potential products and therapies that would benefit from our scale and know how. As long as we keep adding products, we'll keep showcasing our launch slide. There's a nod to what we accomplished in 2023 and a preview of what's to come this year. This view best represents the opportunity in front of us.

Speaker 2

Innovation provides new offerings, Operational and selling excellence leads to revenue growth and margin expansion Sam highlighted. It's not a terribly complicated formula, but one that requires a relentless focus on doing the small things incredibly well. In my regular conversations with eye care professionals and visits to industry meetings, there are 2 consistent themes around Bausch and Lomb, excitement and anticipation. That's echoed within our company walls. My travels take me all over the globe and from Berlin to Bridgewater.

Speaker 2

Colleagues are anxious to make 2024 a defining year in our company's history. I look forward to keeping you updated on our progress. One quick note, I'm still on the mend from rotator cuff surgery just a few days ago. So take it easy on me in the Q and A. Operator, let's open the line for questions.

Operator

Certainly. We will now begin the question and answer session. Your first question for today is coming from Matt Miksic with Barclays.

Speaker 4

Hey, good morning. Thanks so much for taking the questions. And congrats on really strong finish year to 2023. I have one question if I could on Xiidra. I think you did a pretty great job last year of sort of framing out expectations for Xiidra and Mibo and how they would kind of interplay and ended up finishing, as you mentioned, a bit stronger out of the gate.

Speaker 4

Could you maybe talk a little bit about how the how we should maybe recalibrate the trajectory of what we were expecting from Xiidra, assuming you're still going to invest behind it, as you mentioned. But is that just a quarter or 2 ahead of plan here? Or is there some kind of ups and downs we should expect in the coming quarters? And I have one follow-up.

Speaker 2

Sure. Thanks, Matt. So look, Xiidra is an incredibly important focus for us in 'twenty four. I have to give a nod to our sales team in the Q4, right? We got a product that had been kind of left behind.

Speaker 2

And what's interesting, when you look at the 4th quarter, there's some seasonality there. 4th quarter is always the best for chronic prescription demand because of deductibles and the like. But when you look at what happened was in the Q4, we brought the Novartis sales team in, made them a Bausch alarm sales team, and they really we just focused on basic execution. And you saw what happens, right? We saw really good performance in the Q4.

Speaker 2

I think that that should give us optimism for what can be done. In early January, we actually integrated the field force. And they're actually in their sales meeting, their annual sales meeting as we speak this week in Orlando. And so I'm pretty optimistic. When you look at tactics and when you look at execution on the ground and couple that now with reinvesting in marketing, right, we're back on TV as of mid January.

Speaker 2

So we've been on TV for a couple of weeks with Xiidra. I'm pretty optimistic that this can be a growth driver. So if you think about it just in basic terms, Novartis in the quarters they had, they did about $250,000,000 We did $106,000,000 in the 4th quarter. So you've got a performance of $355,000,000 Sam, in his comments, guided to $400,000,000 That's a 13% growth if we pull that off. When we bought it and we announced the deal model, we talked about mid single digit growth.

Speaker 2

So we feel like we can get back on track and make this a real growth driver. Now in All Dry, including MIMO, there is seasonality. The Q1 because of deductibles is always the weakest and the Q4 is always the strongest. But so I wouldn't just divide the 400 by 4 and look for it that way. But you'll see a nice steady build as we execute and we drive marketing and the seasonality that is a factor, I think we're going to set ourselves up for a very nice year in Xiidra.

Speaker 4

That's great. And then one other area that was you had a pretty strong finish, important category within surgical is around IOLs. And I know you have a pipeline of new products you've talked about planned out for this year on the AT IOL side. But some of the sort of just underlying growth of that business was quite strong in Q4. And just wondering if you could comment on whether that was a market phenomenon, whether you feel like your some of the products in the market currently are gaining momentum and how sustainable that is?

Speaker 4

Thanks.

Speaker 2

Yes. So you're right. We did see some strong demand for IOLs in the quarter and throughout the year. I think it really is a foreshadowing of what we want this business to look like. So premium IOLs were up 30%, Sam, about 30% in the Q4.

Speaker 2

I think it's off a small number, right? And what we need to transition to, if you look at surgical for the year, packs were up about 9% for the year, equipment was up about 11% for the year. So better we're taking market share, we're growing faster than the market. What we need to do in 'twenty four and really in 'twenty five and 'twenty six is drive that IOL mix and drive it towards the premium side of the IOL. That actually is the way you run a surgical business and has a tremendous benefit of driving margin improvement.

Speaker 2

And so when we talk about margin improvement, mix is critical and one of our most important strategies is to drive from the lower margin packs and equipment to pull through the higher margin IOLs. So really good foreshadowing. I see that the new launches, we have the Aspire that we launched. We have the IC8, which we're still launching. We have a trifocal getting approved at the back end of the year.

Speaker 2

And then we have our EDOF lens hopefully getting approved in later 'twenty five. So the setup there is really nice for constant new product, new innovation and higher margin products to drive through that business. And that's my reason I get excited about Surgical is pulling that up, but it is going to take 2 years to get there.

Operator

Your next question is from Patrick Wood with Morgan Stanley.

Speaker 5

Amazing. Thank you for taking the questions. I've got one and then a quick follow-up. I guess for the first one, sort of a bit more high level. Obviously, on the consumer side and then the pharma business, you've got meaty scale now.

Speaker 5

And so I guess how are you thinking about things going forward? You mentioned the BD team a bunch of times, but organically and inorganically, how are you splitting your energy between the segments? And going forward, where do you think the biggest opportunities are? You obviously talked a little bit about premium IOLs. There's other areas like custom packs, cloud cover.

Speaker 5

It's a big market, right? How do you see the direction strategically and where you feel the biggest gaps that you might like to bulk up in are?

Speaker 2

Yes. So great question. So a little different than how we report the way I think about the business is for business units, right? We have the pharmaceutical, consumer, vision care and surgical. And when you look at it, 2 are in really good shape, right?

Speaker 2

Consumer, we are the leader in eye care. We have demonstrated great growth in the consumer business, up 11%. And what's interesting, a lot of that is volume, where in the past years, a lot of that was price. And so really healthy performance there. We have some new products coming in consumer.

Speaker 2

We have some new incremental innovations coming. We have packaging innovation coming. So pretty excited about the consumer business combined with just a great team, We have a really strong team at B plus L on consumer. Pharma, you know the story, right? We're really investing, particularly in the U.

Speaker 2

S. We have Miva, we have Xiidra, we have IZULTA, we have on the hunt for other things to add to the bag, but we have a lot of strength and a lot of growth for several years to come in pharma and lots of opportunities to add innovation. Vision Care, a very strong performance if you normalize for Lynchburg. And we look at Vision Care as very strategic, but still a work in progress, right? We've got to drive growth.

Speaker 2

Daily SciHi, Infuse, as an example, is up 46% for the year. That's our fastest growing product and a great contact lens. And so our job there is simply execution. Surgical, still a work in progress, as I mentioned. And there, it's a 2 to 3 year program to drive towards IOLs and premium IOLs becoming a larger contributor with much higher margins.

Speaker 2

And so to summarize, I'd say we have 2 of our businesses in really good shape and 2 that are focused on execution and delivery. That being said, you're right. How do you split your time between the 4? For me, it's quite simple. You got to build great teams, and we've done that.

Speaker 2

You've got to focus on execution, and then you have to work with R and D to drive innovation. And we've organized ourselves to do that, and I think we can pull it off.

Speaker 5

And then that's super handy. And then obviously, Aspires looks like it's done very well in the U. S. I think it's like almost 14,000 units just in the 4Q right off the bat. But I think I see it, I think from memory, you guys still have some production challenges there.

Speaker 5

I think you're probably only like 1,000 units or so. That seems like a very differentiated lens. Going forward, is there an opportunity to kind of push that on the production side and get the volumes up a little bit faster?

Speaker 2

Yes, absolutely. So you're right. And this Aspire was launched, we brought about 100 days into the launch, give or take. We've had about 350 surgeons actually implant the Aspire or the Aspire Toric. And what we're hearing anecdotally and what we're hearing from our field force is great results by the doctors and absolutely great outcomes from the patients.

Speaker 2

Now that lens is positioned as a monofocal plus to compete against the J and J eye hands. And I think our team is doing a great job there. And there's a really big opportunity. The IC8 or a Thera lens, you're absolutely on the money. We our 3rd party manufacturing there is struggling.

Speaker 2

Al Waterhouse knows that well because it came from Athera before coming from J and J, the AML. The issue there is driving production capability and that is in place, but it will take a few quarters to get to where we want to get to. And so, again, great outcomes, great patient and satisfaction, Surgeons who have implanted it love it, but we don't want to roll it out to all surgeons. A, you have to train them and, 2, you have to have supply. And so that is a work in progress, without a doubt.

Speaker 2

But I think that sets us up. If you look at the team's performance on Aspire, it really gets you excited for the potential for the pipeline that's going to pull through later this year and next year.

Speaker 5

Super helpful. Thank you. And hope the shoulder gets better soon.

Speaker 2

Yes. Thank you. It's my right shoulder. I'm right handed. So it's even turning pages here, left hand is clunky.

Operator

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

Speaker 6

Good morning, guys. Thanks for taking the questions. Congrats on a strong finish. I wanted to talk about the margin opportunity for you guys in 'twenty four and maybe beyond, given the strength of Xyedro LiveWell, excuse me. The margin expansion that you're guiding to is in line with some of your comments from earlier in the year.

Speaker 6

So just wanted to understand, as you're in this investment mode, to the extent that Xiidra and MIBO and maybe the rest of the business outperform, how should we think about you either dropping some of that benefit or outperformance to margin improvement or are you going to reinvest that to drive even more growth?

Speaker 2

Yes. No, it's a great question. So margin expansion is a critical part of our long term strategy, right? We want to deliver sustained margin improvement for the next several years. And I think we're set up to do just exactly that.

Speaker 2

But as you mentioned, right, product mix is a big part of improving margins. The operational excellence we've been talking about for the last few quarters is critical and obviously cost discipline. When you think about 2024, remember, it is our largest launch year in the history of the company. And so let's just take the example you mentioned Mibo, right? Sam got it for around $95,000,000 in sales of Mibo.

Speaker 2

Our investment is significantly higher than the $95,000,000 Significant. And so as that pharmaceutical, you tend to invest around 2 to 3 years, and then they become vastly profitable. So we have a direct line of sight of extensive margin improvement over the next few years, but you got to set up these products to realize their potential. Now directly to your question, Craig, if we have upside, would we drop it through? I think we would like to do that.

Speaker 2

The only hesitation I have there is, if we believe we can change the trajectory of the curve on a product like Mybo, you'd probably want to do that as an investor. You'd probably want to set that up for higher peak sales because we have it for a long time. And it can drive massive growth and profitability with the right investment. That being said, I think we've made a massive investment. We have a great plan.

Speaker 2

We're tracking KPIs on a daily, weekly, monthly and quarterly basis. We make the investment decisions based on performance. We don't just turn over that investment and say good luck. It's gated and it's done with stage gates based on hitting KPIs. So we're going to watch that carefully.

Speaker 2

But yes, I think all things being equal, we would try to drop greater performance all the way through the P and L.

Speaker 6

Great. Thanks for that, Brent. And maybe as a follow-up on some of your comments on the contact lenses in that business. Just wanted to get your perspective on what seems like a pretty strong underlying market and there may be comments on how pricing looks there in 2024 and your position within that market and just any other trends that you're seeing there?

Speaker 2

Yes. So you're right. The contact lens market globally is very healthy, growing around 7%, 8%. So really good trends, good demographics, a lot of tailwinds in that business and a lot of reason to like contact lens as a category. I think if you look at our performance and you try to normalize for Lynchburg, we're growing slightly faster than market.

Speaker 2

And I already gave you the great performance on Infuse or Ultra Daily or Daily SiHy. And there's a lot to be excited about in that category. Now the trends there remain the same, a big shift to daily silicon hydrogels. As we complete the rollout of the full line of Infuse, we have the multifocal in several key markets. We've got to continue launching that around the world.

Speaker 2

We have the Toric coming and then we have the multifocal Toric coming. So a lot of work, a lot of new launches within that brand over the next, let's say, 12, 18 months. So feel pretty good about it. Pricing, look, I think there are pricing opportunities in that market. When you look at the Q4, there was a lot of rebating by our competitors.

Speaker 2

We did not participate in that given our Lynchburg situation and the launch mode of Impuse. But we look at it very closely. We look at all the trends and we do make strategic pricing decisions, particularly on perhaps some of the older products. But the new products right now is about building share, pricing appropriately and building share. And I think we have a very strong strategy there.

Speaker 2

So we're thoughtful about it, in other words.

Operator

The next question is from Larry Biegelsen with Wells Fargo.

Speaker 7

Good morning. Thanks for taking the question and congratulations on a strong finish to the year here. Brent and Sam, love to start with Mibo. Brandon, could you talk about the adoption so far? What's going well?

Speaker 7

Where do you see opportunities to improve such as payer coverage? And how are you feeling about the peak sales of $350,000,000 that you laid out recently? Could you exceed that? And I have one follow-up.

Speaker 2

Sure. So I think when you look at Mybo, what you like is the initial target, as you would in any launch, was against high prescribing dry eye ECPs, right, eye care professionals. And I think the team did a really good job and the excitement among that community was strong and remains strong. And their experience with Mibo with patients has been excellent, right? And the reason you know that is you look at refill rates, which are trending way above dry eye category refill rates.

Speaker 2

So that means early KPIs are the experienced dry eye ECPs love the product and their patients love it even more in Refill. So that's part of the thesis of why you're going to make such a massive investment in MIMO in 'twenty four is because there's a lot to light there. I think when you think about what has to happen in 'twenty four, there's 2 probably key activities that our team has to execute against. 1 is to drive adoption more broadly by ECPs. We have order of magnitude tens of thousands of new targets that the team has to reach this year and drive adoption of Mibo.

Speaker 2

And that's the theme of what they're talking about in Orlando today. The whole field force has been there this week. And that's one of the key themes. And the second, Larry, you hit it right on the nail on the head is to drive managed care adoption. That is a big priority for 2024.

Speaker 2

Just the normal cycle, remember, this is a new drug and new drugs take some time. But given the demand we've seen in the market, managed care is much more open to working with us than they were just a quarter ago. So really positive momentum there. I suspect by the back half of 'twenty four, commercial coverage will be really, really strong. There'll be more work to do in 'twenty five, but 'twenty four will be ahead of our expectations on commercial coverage.

Speaker 2

Now Medicare is has the longest lead time or lag time to drive coverage, But I'm optimistic we'll do a strong performance in 'twenty four, but 'twenty five it will catch up to commercial coverage. And so I think those two areas are really important for execution. And when I look at that, the 350 peak number, I'm actually pretty optimistic we can exceed that. I think given the investment we're making in the early KPIs, I think we do better than that.

Speaker 7

That's awesome. Thanks. Hey, just a quick one for Sam. The margin cadence, any help on the phasing of margins in 2024? Thanks for taking the question.

Speaker 3

Good morning, Larry. It's a good question. Cezinas is a very important part of our business, and that's why I highlighted in my prepared remarks. So if you think about 'twenty four, for us, we'll follow a similar trend as we saw in 2023 with our Q1 being the lowest in terms of contribution and Q4 is the highest. So I'll just use that as an example.

Speaker 3

Last year in Q1 last year, 2023, in Q1, for revenue, we contributed roughly about 22% of the full year results. And for EBITDA, it was contribution roughly about 19% of the full year EBITDA numbers that we had for 2023. So if you follow a similar trend and use the midpoint of our guidance that we provided this morning, that should give you a pretty good sense of our phasing as we think about it in 2024, and it builds on from Q1 onwards as you go through to Q4.

Speaker 7

Thank you.

Speaker 2

Thanks, Larry.

Operator

Your next question for today is coming from Robbie Marcus with JPMorgan.

Speaker 8

Great. Thanks for taking the questions and Maybe to follow-up on Larry's question, Xiidra, I wanted to spend a minute here. You talked about $400,000,000 for the year. That's basically if you back out the one time in 4th quarter, it's basically just roughly $100,000,000 a quarter and I realize there's seasonality. So maybe just speak to why $400,000,000 given such a strong 4th quarter here and how we think about what Xiidra is adding down the P and L in terms of adjusted EBITDA?

Speaker 2

Yes. So, great question, Robbie. Unfortunately, you can't just take the 400 and divide by 4. As I said earlier, there's a lot of seasonality in prescription coverage, right, and particularly in this category. I think putting up about 13% growth on Xiidra in 2024, which is what we're guiding towards, would be a very impressive performance by our team, particularly when we announced the deal, we said it was going to be a mid single digit grower.

Speaker 2

So this is more than doubling our expected growth. Now some of that is just returning Xiidrug back to where it belong through tactical execution. And keep in mind, I've said this multiple times, dry eye is a very promotionally sensitive category, right? And so, in fairness, in 2024, we're investing a little bit more in Xiidra than we would have if it hadn't been given to us in a bit of a kind of left behind or neglected state from Novartis. But we're very confident that Xiidra, once we get it back on path, can be a very strong contributor on margin via product mix.

Speaker 2

And so, yes, we're making a stronger investment, but I think it's the data from Q4 proves that it's a smart investment for us. We're tracking the KPIs on this one very closely as well and investing only when we hit certain stage gates of performance. But right now, there's a lot of reasons to believe our team can execute against it. And keep in mind, having Xiidra with Mivo, right, we've integrated the field force is a win win. It is absolutely 1 plus 1 equals something greater than 3, right?

Speaker 2

Having our field force be able to promote 2 differentiated, mechanistically different drugs for dry eye therapy really positions us as the company in dry eye and our representatives with the greatest portfolio of the best products. And so I'm really optimistic on Xiidra that perhaps we can do better than 400. We'll have to see. It's February mid February. And the team's at their sales meeting right now.

Speaker 2

I think there'll be a lot of momentum coming out of this week and throughout the year as seasonality builds, as the investment in marketing builds and the focus on execution in the field.

Speaker 8

Great. I appreciate that. And maybe just as a follow-up on free cash flow generation in 2024, I realize you have a lot of integration activities here. But how should we think about free cash flow in 'twenty four and any phasing through the year we should consider? Thanks.

Speaker 3

Sure. Ravi, it's a good question. When you think about cash, listen, cash is very important element for us. It's part of our DNA. So we call it cash's culture, right?

Speaker 3

So it's something we spend a lot of time talking about it. We're focused on it. So when you think about that, and maybe before I talk to 24, I want to step back and just talk to 23 because it's just a base for how we think about 2024. So when you think about 2023, cash paid out exactly as we anticipated. The first half of the year, we were in a growth mood with our top line and gaining market share, and that was a use on working capital, and we see that in the first half of the year, expecting that will turn positive in the second half of the year.

Speaker 3

So when you think about second half cash flow for us in the year, it was generally roughly about 95 $1,000,000 in Q3 and Q4. Keep in mind that was all happening as we were building up inventory. So we built roughly about $250,000,000 of inventory throughout 'twenty three that helped us as we were working through our supply chain challenges that we've talked about. So that's a very important background for us to set the stage on for 'twenty three. Now when you reflect to 'twenty four, we expect cash to we don't expect the level of inventory buildup that we've seen in 2020 does not repeat again into 2024 at that same level.

Speaker 3

So we expect that to be more of a short term element. We'll stay probably at a higher elevated level, but we don't expect to step up in inventory again. So with that, I expect our cash for 2024 to be roughly about conversion rate from EBITDA to midpoint of guidance, roughly about anywhere between 30 percent to 35% conversion rate for our cash flow. The phasing will follow a similar phasing as we think about the P and L. So the phasing that I highlighted to Larry, that will probably will be something you will have to keep in mind as well as you think about from our cash flow generation throughout the year.

Speaker 3

We start low and we'll build up high as we get into Q4.

Speaker 8

Great. I appreciate the color.

Speaker 2

Thank you.

Operator

Your next question is from Vijay Kumar with Evercore ISI.

Speaker 9

Hey, guys. Congrats on the nice print here and thanks for taking my question. I guess my first one here, Brent, I just want to clarify. Did you say the investments in Mibo are well above the $95,000,000 So how much of a drag is Mibo in margins right now? And I'm curious when do you think this margins will be accretive to corporate?

Speaker 2

Yes. So I did say it is significant and I chose the word significant on purpose, more than the $95,000,000 right? And that is very typical of the 1st year of a very promising pharmaceutical launch. In fact, when you look at the history of pharmaceutical launches, you tend to see the 1st 2 to 3 years in investment mode. And so I see this being a margin contributor in a more meaningful way in 'twenty six and becoming a significant contributor in 'twenty seven and for years to come.

Speaker 2

And so that's the right way to launch a drug. And as I said earlier to Larry, I do think we can exceed our targets on peak sales. I'm not ready to set a number on it. We need more experience. But I'm very optimistic.

Speaker 2

This is a great drug and the acceptance is great. We need to execute. We need to expand the prescribers. We need to get the managed care coverage, a lot of work to do. But we are our team is killing it, and we are set up for what could become a very promising product and margin contributor on a significant basis over the mid to long term.

Speaker 2

Sam, any commentary?

Speaker 3

Yes. And Vijay, it's a similar sort of comment that we made before. When you think about the launches and especially Mybo being one of the most important launches for us, we're playing the long game here in terms of the investment. And when I think about it from a margin contribution, I would probably step back and look at everything we put on the table from sort of a P and L to P and L. So when you think about our guidance for 2024, we expect margin to expand anywhere between 50 basis points to up to 110 basis points.

Speaker 3

If you take the midpoint of that of our guidance, that's about 80 basis points of expansion. While we're still investing for the long term benefit by investing behind Michael and other launches as well. Just keep in mind that next year is one of our highest launches number of launches that we're seeing. This year, 2024. Yes, sorry, 2024.

Speaker 2

Yes. I mean, look, I think, Vijay, we have been and I said this at JPMorgan when I was interviewed by Robbie, I think that we've been very deliberate, right? We want to drive margin expansion, but we want it to be sustainable margin expansion. And we have said countless amount of times, 2024 was a massive investment year in the launches. Despite that and despite the fact that we are investing heavily in MIBO and pretty heavily in Xiidra as well as several other launches like Infuse globally and Aspire, we are still going to drive margin improvement in 'twenty four.

Speaker 2

We hope it's towards the top end of that range, as we talked about upside earlier. But in 'twenty five, we're going to have margin improvement, 'twenty six, we're going to have nice margin improvement, 'twenty seven is going to be even greater. We are really committed to driving long term margin improvement. And if you look at it over the next 3 to 5 years, it will be meaningful. But it's going to take time because the way to get there is to do the right thing in investing in these very important launches.

Speaker 9

That's helpful, Brent. If I may, one follow-up. To MIGO $95,000,000 that contributes 200 basis points to organic. Just, yes, given your comments, your bullishness on this product, is that a sustainable number, this contribution to growth when you look at 25%, 26%, could Mybo continue to add in like 50,000,000 to 100,000,000 dollars range? And what is the guide assuming for PROLENSA loss of exclusivity in fiscal 'twenty four?

Speaker 2

Yes. So yes, I mean, I think you could see MIVO continuing to be a very nice contributor. We had mentioned $350,000,000 peak sales. You tend to hit your peak sales in year 4 or 5 on a product like this. And so if you model that out and then I did put in some optimism that we could do better than that, not ready to call the number yet, but I did put in some optimism.

Speaker 2

So that's what we're going to watch very carefully this year. As we see execution, we'll guide appropriately based on performance, which is the responsible way to do it. But again, a lot of optimism there. ProLENZA did go generic. The generics entered in January.

Speaker 2

The impact is around $40,000,000 to $50,000,000 this year. That's a very high margin product. End of life product is a very high margin. And so when you think about you didn't ask this question, but I'll just use the opportunity. When you think about our guidance for 'twenty four, we're covering a significant amount of headwind and despite that still having really nice guidance.

Speaker 2

You're covering 50 ish million in Proenza. You're covering currency. And I think I mentioned this at the JPMorgan conference on the webcast, we're covering another $40,000,000 $50,000,000 of SKU reduction that we did and are doing this year to focus on the higher margin products. So there's a lot of headwind there that's meaningful to us, and we're jumping right over that and still growing very nicely. So that's why I have a lot of optimism for the business in 'twenty four, but start to get really excited in the coming years as we finish the hard work that we're doing here to reorganize the company, to simplify the company and to invest in strategic areas that will drive growth.

Speaker 2

I think we'll take one more question, Holly.

Operator

Your final question for today is from Joanne Wuensch with Citibank. Thank you for taking the question and good morning. And I'll say upfront, I hope your shoulder heals quickly. Two quick questions. What percentage of your contact lenses are silicone hydrogel today versus a year ago?

Operator

And I'll toss my second one in now. Where are you feeling or how are you feeling about M and A at this stage? Thank you.

Speaker 2

Yes. So let me take the second part first and then Sam will give you some guidance on the first part. When I think about M and A, I've said this when we did the Xiidra, our priority is to digest and delever the Novartis assets, mainly Xiidra. That is our plan for 'twenty four. That being said, I mentioned in the prepared remarks investing in R and D capabilities and BD capabilities.

Speaker 2

We are actively involved in numerous discussions around smaller products, R and D assets and the like. And I expect us to use 24 to build our pipeline in pharma and surgical and consumer and the like. And there's some really exciting science and there's some really exciting early stage products that could be meaningful contributors to us if we make the investment. So long winded way to say nothing significant in 'twenty four for us, but look for us to be very strategic adding smaller products or mid- to late stage R and D products for all of our businesses. Sam, you want to take that?

Speaker 3

Yes. And Joanne, in terms of the site high, it's sitting right now as we think about 23, it's roughly about 10%, but it is growing fast. So we've seen it growing really fast between 'twenty two into 'twenty three. And as we as Brent mentioned, it's growing in the high single it's growing in the double digits. So, we saw Q4 was about 31% growth just in SiHy.

Speaker 2

Thanks, Joanna, and thanks for asking about the shoulder. So, Haile, let me just conclude with some remarks, if that's okay.

Operator

Sure.

Speaker 9

Great.

Speaker 2

So thank you all for joining the call. Reflecting on 2023 for just 30 seconds, I just hit my 1 year mark here. It was a very busy year. I think the team management team. We did a complete reorganization of our organization.

Speaker 2

We invested in big capabilities around selling excellence and digital. We started our strategic planning on supply chain. And I'm really proud of the team and what they accomplished in 'twenty three. And I think our performance was very strong. What gets me really excited as I think about '24 and beyond.

Speaker 2

And I hope as we continue to interact with all of you in 2024, you'll see a strong focus on execution and driving this company to reach its potential in the years to come. So very excited outlook, and I look forward to keeping you all updated. Thank you so much.

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

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Key Takeaways

  • In 2023 Bausch + Lomb delivered 12% constant currency revenue growth for the full year and 19% growth in Q4, marking the third consecutive quarter of over $1 billion in sales.
  • The company has established dry eye leadership with the launch of Mibo (guiding to $95 million in 2024) and the relaunch of Xiidra (targeting $400 million), backed by an integrated sales force and renewed marketing efforts.
  • 2024 is set to be the most active launch year in company history, featuring new premium IOLs (e.g., Aspire, IC8), expanded SiHy contact lens offerings, and multiple pipeline products that will drive future growth.
  • A methodical supply chain remediation led by new operations leadership is underway to reduce complexity, improve distribution efficiency, and turn Bausch + Lomb’s global network into a long-term competitive advantage.
  • The company’s 2024 guidance calls for $4.6–4.7 billion in revenue (+12–14% constant currency) and $840–890 million in adjusted EBITDA (≈80 bps margin expansion), while maintaining R&D investment at 7–8% of sales.
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Earnings Conference Call
Bausch + Lomb Q4 2023
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