Bausch & Lomb Corp quarterly report, Q1 FY2023

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Bausch + Lomb Corporation — Q1 2023 Form 10-Q

Reporting period: Three months ended March 31, 2023; compared with the three months ended March 31, 2022. Amounts are in U.S. dollars unless stated otherwise. Bausch + Lomb is a global eye-health company with Vision Care, Ophthalmic Pharmaceuticals and Surgical segments. Parent Bausch Health Companies Inc. (BHC) owned approximately 88.6% of its shares as of April 28, 2023.

Financial performance and position

MetricQ1 2023Q1 2022 / comparison
Revenue$931 million$889 million; up 5% reported and 8% at constant currency
Operating income (loss)$(2) million$54 million
Net income (loss) attributable to Bausch + Lomb$(90) million; $(0.26) per share$20 million; $0.06 per share
Operating cash flow$(56) million$3 million
Cash and cash equivalents at quarter-end$346 million$354 million at December 31, 2022; restricted cash was $12 million
Debt at quarter-end$2.533 billion carrying value: $2.508 billion long-term and $25 million current$2.436 billion at December 31, 2022, using the same balance-sheet categories
  • Reported revenue increased $42 million. Management attributed the change to higher volume ($42 million), pricing ($31 million) and acquisitions ($2 million), partly offset by foreign exchange ($31 million) and divestitures/discontinuations ($2 million).
  • Segment revenue: Vision Care $587 million, up 5%; Ophthalmic Pharmaceuticals $161 million, up 4%; Surgical $183 million, up 5%. Segment profit was $154 million, $46 million and $11 million, respectively; total segment profit was $211 million versus $214 million.
  • Cost of goods sold was $371 million, or 40.0% of product sales, compared with $346 million, or 39.2%. Reported operating margin was negative; the filing does not present a single consolidated gross-margin figure in the cited results.
  • Interest expense rose to $50 million from $20 million, primarily reflecting the post-IPO term loan. The term facility’s stated rate was 8.46% at March 31; weighted-average stated interest on outstanding debt was 8.40%.
  • Operating cash use reflected increased interest payments, standalone-company dis-synergies and higher inventory. Investing cash use was $64 million, including $31 million paid toward the AcuFocus acquisition. Financing provided $91 million, including $100 million of revolver borrowings.
  • Current assets were $2.184 billion and current liabilities $1.254 billion. The $500 million revolving facility had $100 million drawn, $24 million of letters of credit and $376 million of remaining availability. The company reported compliance with its debt financial covenant.

Material changes and management commentary

  • Net loss worsened by $110 million year over year, principally due to a $56 million decline in operating results, $30 million higher interest expense and $27 million higher income-tax provision. The $33 million tax provision included discrete effects, including a Canadian deferred-tax valuation allowance; the allowance increased to $120 million from $54 million at year-end.
  • SG&A rose $75 million to $418 million, citing standalone-company dis-synergies, higher professional and business-transformation costs, and higher selling, warehousing and distribution costs. R&D remained $77 million.
  • Management said inflation and supply-chain challenges were expected to continue through 2023, with duration and impact uncertain. Constraints had particularly affected Surgical demand fulfillment. Inventory increased to $697 million from $628 million as the company built stock to mitigate supply risk and support launches.
  • China revenue was $74 million versus $82 million, with management citing foreign exchange as the primary driver. The company expected gradual improvement following the end of lockdowns but gave no quantified forecast.

Outlook, risks and unusual items

  • The filing provides no specific full-year revenue or earnings guidance. Management expected available cash, customer collections and financing sources to meet liquidity needs for the next 12 months, while cautioning that future financing and liquidity were not assured.
  • For April–December 2023, management expected approximately $161 million of interest payments, $19 million of mandatory debt amortization, $160 million of capital expenditures and $6 million of pension and postretirement payments. A further $45 million payment related to the NOV03 licensing agreement was expected upon U.S. approval and launch.
  • NOV03, an investigational dry-eye treatment, had an FDA decision date of June 28, 2023; management anticipated a U.S. launch in the second half of 2023 if approved. Product launches and pipeline execution remain subject to regulatory and commercial uncertainty.
  • The proposed full separation from BHC remained conditional on targeted debt leverage ratios and required approvals. BHC continued to evaluate factors affecting timing, including litigation relating to Norwich’s Xifaxan generic application and BHC’s ability to appeal the court decision. No assurance was given that the separation would occur.
  • Other risks include floating-rate debt and rising interest costs, foreign exchange, pricing and reimbursement pressure, generic competition, product and regulatory matters, supply-chain disruption, and litigation. Prolensa was identified as expected to begin facing loss of exclusivity in the second half of 2023; it represented approximately 1% of 2022 revenue.
  • The filing reports ongoing generic-pricing, intellectual-property, product-liability and other litigation. It recorded $2 million of accrued current loss contingencies for matters considered probable and estimable; potential outcomes for other matters were not reasonably estimable. Shower to Shower claims are subject to Johnson & Johnson indemnification, but related bankruptcy proceedings and injunctions were changing.
  • The January 2023 AcuFocus acquisition had an upfront price of $35 million, with $31 million paid during the quarter, plus potential sales-based milestone payments. The company recorded $5 million of contingent consideration for the acquisition.

Most important facts for investors to verify

  • Whether revenue growth translates into improved operating profitability and cash generation as standalone costs, inflation and launch-related spending continue.
  • Debt repayment capacity, floating-rate exposure, covenant headroom and progress toward the leverage targets required for the BHC separation.
  • Regulatory outcome and launch economics for NOV03, alongside the expected $45 million payment if approved and launched.
  • Developments in the Norwich/Xifaxan matter and other proceedings that could affect the separation, costs or indemnification recoveries.
  • Inventory levels, Surgical supply constraints, pricing and chargebacks: sales deductions were 27.4% of gross product sales versus 26.6% a year earlier.