Bausch + Lomb Corporation (NYSE:BLCO) Q1 2024 Earnings Call Transcript May 1, 2024
Bausch + Lomb Corporation misses on earnings expectations. Reported EPS is $0.07 EPS, expectations were $0.09. Bausch + Lomb Corporation isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good morning, and welcome to the Bausch + Lomb’s First Quarter 2024 Earnings Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to George Gadkowski, Vice President of Investor Relations and Business Insights. Please go ahead.
George Gadkowski: Thank you. Good morning, everyone, and welcome to our first quarter 2024 financial results conference call. Participating on today’s call are Chairman and Chief Executive Officer, Mr. Brent Saunders; and Chief Financial Officer, Mr. Osama Eldessouky. 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. 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. 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 to broadly disseminated public disclosure. With that, it’s my pleasure to turn the call over to Brent.
Brent Saunders: Thank you, George, and thank you, everyone, for joining us. Today marks nearly 1-year since my first earnings call following my return to Bausch + Lomb. We’ve accomplished quite a bit in that time frame, which we’ll cover as we review first quarter performance and highlight growth drivers for the remainder of the year. These areas of focus are familiar to you by now. and continue to drive our strategy. Let’s start with revenue. We saw 20% top line growth on a constant currency basis for the quarter, thanks to outperformance from each of our business units. Our quality of growth isn’t limited to reporting segments, as we delivered solid results across geographies. In other words, we’re in an enviable position of not being reliant on 1 business or region as drivers of our performance.
Our methodical approach to improving how we make and sell things is bearing fruit. Our renewed focus on launch excellence is reflected in early returns for Vivo and ongoing expansion of our latest daily SiHy contact lens offerings. Operationally, we’re making strides on improving service levels within our own network. And while contract manufacturing continues to present a challenge, we have plans in motion to lessen our reliance on third parties over time. Finally, our relentless focus on returning to our roots by prioritizing innovation is producing tangible results. Our enVista Aspire IOL has made a strong market entry, and we have a steady stream of premium IOL launches planned for 2026. Last quarter, I mentioned a talent infusion for our R&D team, and that hasn’t let up.
We continue to make prominent hires throughout 2024. The scientific community recognizes our pivot and people want to be part of what we’re building. The main takeaway from our roadmap slide is the progress indicator. While caution against assuming every Phase 1 box has been checked. After an exhaustive effort to rethink how we work, the rewiring process is largely complete. That means we’re gearing up for Phase 2, Innovate & Execute. I’d like to acknowledge the human aspect of an undertaking like this. Stating the obvious roadmaps only work if people follow them. When I rejoined Bausch + Lomb, I made it very clear that in order for the company to achieve its full potential, we needed to make some tough decisions, while operating at a speed some weren’t accustomed to.
Instead of shying away from a break with the status quo, colleagues around the world embraced it. Under the direction of a refreshed leadership team, our workforce of 13,000 has met every challenge along the way and remain focused on the opportunity in front of us. I prefer always looking forward, but sometimes it’s important to look back. Last May, in the same setting, I was clear about the challenges we faced. Underutilization was holding us back. We had a robust global commercial network and supply chain, but not enough product flow. That led to inefficiencies and jeopardize some of our customer relationships we’ve built over decades. We needed to reinvent our company in a thoughtful, but urgent way. I’m proud of what we’ve been able to accomplish in the 363 days since.
We addressed our supply chain issues head on, with the understanding that turning our manufacturing and distribution network into a competitive advantage would take years, not months. As a result, we now have a more stable supply of products. We’ve also augmented our supply with the introduction of new and in the case of Xiidra and Blink acquired products. These offerings address some of the most blaring needs in eye health, demonstrate our commitment to innovation and position us for sustained growth and category leadership. Our reinvention is resonating with our most important audience, the eye care professionals who use prescribe and recommend our products. On my Listening & Learning Tour 1-year ago, supply concerns and lack of awareness around our priorities often came to the forefront.
My experience at the recent American Society of Cataract and Refractive Surgery Annual Meeting was the exact opposite. In nearly every interaction, customer shared an appreciation of our efforts to predictively deliver the products and services they’ve come to rely on, and recognized our increasingly important role in bringing new solutions to market. Their excitement about what the future holds for Bausch + Lomb was clear. I’ll give a brief overview of the financials before Sam gets into specifics. Our 20% constant currency revenue growth is shown here, which, as previously noted, was driven by our holistic strength, that’s reflected in our business segment performance, with 8% constant currency revenue growth for Surgical, 11% for Vision Care and 66% for Pharmaceuticals.
As inside our revenue, Pharmaceuticals still showed impressive organic revenue growth on a year-over-year basis at 18%. Our key franchises continue to outperform and drive home the holistic theme given the spread across business units. INFUSE 1-day lenses are increasingly a preferred option for optometrists and our enVista family of IOL as surgeons excited for expansion in that category. Brands that have demonstrated consistent growth in areas of ongoing opportunity, most notably, Lumify and PreserVision, our high-margin performers that bolster the top and bottom line. Now let me turn it over to Sam.
Sam Eldessouky: Thank you, Brent, and good morning, everyone. Before we begin, please note that most of my comments today will be focused on growth expressed in constant currency basis. Turning now to our financial results on Slide 8. We’re pleased to report another quarter of solid revenue growth across each of our segments and key product franchises. Our business has continued the momentum coming out of 2023, and we’re off to a strong start in 2024. Total company revenue of $1.099 billion for the quarter, reflects growth of 20% on a constant currency basis. As I have previously discussed and as Brent also mentioned, we’re excited about the opportunity ahead of us in 2024 with the growth of recent launches and new and upcoming products.
We’re continuing to make improvements in our supply chain and we remain focused on executing our strategy to drive revenue growth and sustainable margin expansion. For the first quarter, currency was a headwind of $20 million to revenue. Despite the higher-than-expected currency headwinds, we delivered more than $1 billion in revenue in the quarter. Now let’s discuss the results in each of our segments. Vision Care first quarter revenue of $635 million increased by 11% on a constant currency basis, driven by growth in both the consumer and contact lens portfolios. The consumer business again demonstrated strong performance, both in the U.S. and internationally, with growth of 15% on a constant currency basis in Q1. We continue to see growth across our key franchises, including eye vitamins, which grew by 7% in the quarter and Lumify, which grew by 16% in the quarter, both expressed in constant currency.
Our consumer dry eye portfolio delivered $82 million in revenue in the quarter, representing 25% organic growth. The contact lens constant currency revenue growth was 6%. The reported revenue from our Daily SiHy lenses grew by 68% in the quarter and 73% on a constant currency basis. Our Daily SiHy multifocal lens has now been launched in the U.S. and Japan, and has added to the solid performance of the Daily SiHy sphere. We’re excited by the growth of this franchise as we continue the global rollout and further expand the family with the upcoming launch of the Daily SiHy toric. Moving now to the Surgical segment. First quarter revenue was $197 million, an increase of 8% on a constant currency basis. The consumables portfolio grew in the quarter by 9% on a constant currency basis.
The growth was mainly driven by surgical packs, where we continue to see solid demand. Implantables grew 9% for the quarter on a constant currency basis with our premium IOL portfolio up 30% in constant currency. The IOL portfolio continues to expand with the recent U.S. launch of enVista Aspire, which has made a strong market entry along with the growth of the LuxSmart EDOF lens in Europe and the phased launch of ICH, which has been limited by supply constraints. Revenue from equipment was up 5% on a constant currency basis, mainly driven by Stellaris system sales. We continue to focus our strategy on retailing upcoming product launches and higher-margin premium categories. We expect to see a steady stream of these launches over the next number of years, which we anticipate will drive revenue growth and sustainable margin expansion.
Lastly, revenue in the Pharma segment was $267 million for the quarter, which represents constant currency growth of 66%. Miebo delivered $28 million of revenue in the quarter. The launch performance remains incredibly positive, and we’re committed to making the investments to drive the stronger adoption. Xiidra delivered $79 million in revenue in the first quarter. We continue to make progress in executing our strategy to reestablish Xiidra as a market leader. The Xiidra field force was realigned in the quarter, and we have turned the direct-to-consumer marketing investment back on. Although not material to the company’s overall results, it’s worth noting that the performance of Xiidra was negatively impacted by the disruptions resulting from the cyber attack at Change Healthcare.
However, we saw an improvement in scripts, as we exited the quarter and transition to other vendors. Brent will elaborate on this, but I want to stress that. Xiidra and Miebo together position us as a leader in dry eye disease, and we’re excited about delivering on their full potential. Beyond Miebo and Xiidra, we saw strong growth across other parts of the pharma portfolio. On a constant currency basis, the U.S. generics business grew by 10% and international pharma grew by 7%. As expected, Prolensa declined due to a generic entry into the market during the quarter. Now let me walk through some of the key non-GAAP line items. Adjusted gross margin for the first quarter was 63.2%, which was up 320 basis points compared to Q1 ’23. The adjusted gross margin improvement was mainly driven by favorable product mix, including Xiidra.
This was balanced by pressure driven by the higher inventory costs in our Surgical business. In the first quarter, we invested $81 million in adjusted R&D or approximately 7% of revenue. First quarter adjusted EBITDA was $180 million, which represents 28% growth versus the first quarter of 2023. Net interest expense for the quarter was approximately $96 million. Adjusted EPS for the quarter was $0.07. Adjusted cash flow from operations was $48 million in the first quarter, and CapEx was $67 million. The effective tax rate for the quarter was 15%. Turning now to our 2024 guidance on Slide 12. We are raising our full year constant currency revenue growth guidance from a range of approximately 12% to 14%, to a range of 30% to 50%. The raise reflects the broad-based strength of our business and the momentum we have seen in the first quarter.
Our 2024 revenue guidance remains in the range of $4.6 billion to $4.7 billion. This range now absorbs incremental currency headwinds of approximately $50 million relative to our previous guidance. For the full year, we estimate currency headwinds to be approximately $90 million. We are maintaining our guidance for Xiidra to generate approximately $400 million in revenue. Our guidance for Miebo continues to be approximately $95 million of revenue in 2024. Shifting to adjusted EBITDA. We are maintaining our adjusted EBITDA guidance for 2024 in the range of $840 million to $890 million, while absorbing approximately $10 million of currency headwinds. Our focus continues to remain on sustainable margin expansion. We expect the expansion to be mainly driven by 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. Our Q1 results reflects the phasing we noted during our last earnings call. And I would once again emphasize that there is natural seasonality in our business. We expect our business to build throughout the remainder of the year, with Q4 results expected to be the highest. As I mentioned during our last earnings call, 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 onetime upfront payments that may be made as part of such arrangements.
In terms of other key assumptions underlying our guidance, as noted in the last quarter, we expect adjusted gross margin to be approximately 62%. We anticipate investment in R&D to be approximately 7% to 8% of revenue, and interest expense to be approximately $385 million for the full year. That said, we will continue to monitor Fed actions on interest rates for the remainder of 2024. We continue to expect our adjusted tax rate to be roughly 15% and full year CapEx is expected to be approximately $250 million. To summarize, the business delivered solid results in the quarter, and we’re off to a strong start in 2024. We remain committed to our strategy to drive growth and sustainable margin expansion. And now I’ll turn the call back to Brent.
Brent Saunders: Thanks, Sam. Let’s highlight some 2024 growth drivers, including the upcoming launch of a new and differentiated OTC offering. As Sam mentioned, Miebo has shown significant promise with Q1 revenues of $28 million. Just last week, we learned that 2 of the top 3 Medicare providers will begin covering Miebo, 1 starting today, the other July 1, that’s approximately 2 quarters sooner than anticipated, and means coverage will jump to roughly 50% by midyear for this population. While we’re in early innings, excitement around this medication is real and we expect Miebo will become a cornerstone of our dry eye franchise for years to come. Sam also touched on how to interpret Xiidra performance in Q1, which I’ll add some color too.
There are 3 contributing factors to consider. First, we realized our entire field force with new territories established in early February. While most prescribers were seeing new faces, we expect the developing relationships will pay dividends going forward. Second, patients faced the highest deductibles in the first quarter, which naturally results in fewer prescriptions, a cycle you’re all familiar with. Third, while the incident involved in Change Healthcare did not have a material impact on Bausch + Lomb, there was a nonquantifiable effect given patient access to Xiidra was disrupted. All that said, there are encouraging signs as we continue to rehabilitate and reenergize the brand. Our commitment to making Miebo and Xiidra, the most prescribed options for evaporative and inflammatory dry eye disease has a labor.
We’ve made a significant investment in the comprehensive sales approach that will increase in prominence as the year progresses and as more dry eye sufferers seek treatment for chronically underdiagnosed condition. For the 1 million suffering from dry eyes, who might not require pharmaceutical intervention, we’re excited to introduce a new and different treatment option, Blink NutriTears, which is a daily nutritional supplement formulated to address the symptoms of dry eyes and as little as 2 to 4 weeks. For those who prefers to eye drops, or already taking daily supplements, NutriTears could be a convenient solution. While supplements are often unproven, NutriTears is grounded in data. Last week, we announced the results of a clinical study evaluating the safety and efficacy of NutriTears.
The study met both primary endpoints in addition to secondary endpoints, which shouldn’t come as a surprise. We’re a company that relies on science when bringing new options to consumers. NutriTears, which we anticipate will launch in the next few months will be the latest addition to our growing nutraceutical franchise, which is anchored by PreserVision. With the addition of NutriTears, we’re clearly not resting on our laurels when considering the future of our industry-leading dry eye platform, like the opposite. Given the market potential, if there is repeating that will soon have something for everyone when it comes to treating a common, but not commonly addressed issue. Simply put, our blend of prescription and OTC offerings separates us from the dry eye pack, and it’s not even close.
Keeping with the theme of new products, we’re on the precipice of a meaningful entry into premium IOLs. We anticipate that these high-margin offerings will strengthen our surgical portfolio that is increasingly focused on cutting-edge technology and responsive to the evolving needs of ophthalmic surgeons. Our enVista Envy trifocal is expected to be available in the U.S. later this year. And in Europe, we plan to launch LuxLife brand in 2025. We started enrolling a clinical study for enVista Beyond and extended depth of focus IOL with an expected U.S. launch in 2026. Our fourth coming premium IOL offerings are reflected on our familiar launch slide, which continues to widen as our renewed commitment to innovation takes hold. Just last week, we announced FDA approval for Lumify Preservative Free, a prime example of harnessing a brand’s momentum by extending its reach.
The optimism around our future is warranted, we’re heading in the right direction. Significant work remains, but the path burn continues to be validated by our results stakeholder feedback and buy-in from 13,000 colleagues around the world. Operator let’s open the line for questions.
Operator: [Operator Instructions] The first question comes from Patrick Wood with Morgan Stanley.
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