Bausch + Lomb Corporation — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. Amounts are U.S. dollars. The company is a global eye-health business operating through Vision Care, Pharmaceuticals and Surgical segments; Bausch Health Companies Inc. (BHC) owned approximately 88.5% as of October 27, 2023.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $1.007B | $942M | $2.973B | $2.772B |
| Operating income | $40M | $46M | $81M | $156M |
| Net income (loss) attributable to Bausch + Lomb | ($84M) | ($18M) | ($206M) | $7M |
| Diluted EPS | ($0.24) | ($0.05) | ($0.59) | $0.02 |
- Q3 revenue rose 7% year over year; nine-month revenue rose 7% (9% at constant currency, a non-GAAP measure). Growth reflected higher volumes and pricing, partly offset by foreign exchange and product discontinuations.
- Q3 segment revenue: Vision Care $648M (+9%); Pharmaceuticals $174M (+1%); Surgical $185M (+8%). Nine-month segment revenue was $1.881B, $529M and $563M, respectively.
- Gross margin on product sales, calculated as product sales less cost of goods sold, was approximately 61.1% in Q3 versus 60.5%; for nine months it was approximately 60.2% versus 60.3%. Operating margin was approximately 4.0% in Q3 versus 4.9%, and 2.7% for nine months versus 5.6%.
- Interest expense rose to $76M in Q3 from $35M and to $184M for nine months from $99M. Higher debt-related costs, acquisition financing costs and revolver interest contributed to the increase. The nine-month loss also reflected lower operating income, unfavorable foreign exchange and higher income-tax expense.
- Nine-month operating cash flow was negative $32M versus positive $186M. Investing cash flow was negative $1.974B, including acquisition spending; financing cash flow was positive $1.992B. Cash and restricted cash totaled $360M at September 30.
- Current assets were $2.464B and current liabilities $1.386B. Long-term debt was $4.435B, with $30M current; total debt principal was $4.544B. Debt was $2.488B at December 31, 2022. The weighted average stated interest rate increased to 8.66% from 7.84%.
Material changes and notable items
- On September 29, the company completed its $1.75B XIIDRA acquisition and related ophthalmology assets purchase, financed principally with a $1.4B issue of 8.375% secured notes and a new $500M term facility. Potential future XIIDRA and pipeline-product milestones total up to $750M; acquired operations contributed no material revenue through quarter-end.
- Other 2023 acquisitions included the Blink eye-drop product line for $107M and AcuFocus for an upfront $35M. Acquisition spending contributed to higher intangible assets, which reached $3.662B.
- SG&A increased 10% in Q3 and 15% for nine months, reflecting standalone-company dis-synergies, transformation and professional costs, inflation, distribution expense and product-launch marketing. Other expense was $28M in Q3 and $54M for nine months, including restructuring, acquisition and litigation-related costs.
- Inventory increased to $754M from $628M. Management cited strategic inventory increases and supply constraints; operating cash flow was also affected by receivables growth and working-capital timing.
- In May 2023, the FDA approved MIEBO; the product launched in the U.S. in September. The company accrued a $45M milestone payable under its Novaliq agreement.
Outlook, risks and contingencies
- No numerical revenue or earnings guidance is provided in the supplied filing text. Management said it expects liquidity to meet needs for the next 12 months and expects to remain compliant with debt covenants and meet debt service obligations over that period; these are forward-looking statements.
- Management expects supply-chain challenges to continue through the remainder of 2023 and into 2024, with possible margin pressure. A distribution-system upgrade at Lynchburg delayed contact-lens order processing; the company expects substantial resolution in Q1 2024.
- The proposed separation from BHC remains conditional, including on targeted leverage ratios and required approvals. BHC was evaluating the distribution structure; completion and timing are not assured. The filing notes litigation and other uncertainties that could affect the separation.
- Key risks include high and partly floating-rate debt, refinancing and covenant requirements, inflation, foreign exchange, generic competition, product launches and acquisition integration, regulatory and intellectual-property matters, and geopolitical disruption. A 100-basis-point rate change was estimated to affect annualized pretax earnings and cash flows by about $31M on current variable-rate debt.
- The company disclosed a preliminary German tax assessment it intends to contest and believes any resulting liability would be indemnified by BHC. It also reported ongoing litigation and $6M of accrued current loss contingencies; ultimate outcomes for other proceedings generally could not be estimated clearly.
- Management reported no material change to previously disclosed risk factors. Disclosure controls were considered effective as of September 30, 2023.
Important facts for investors to verify
- Whether revenue growth translates into improved operating profit and positive operating cash flow, given higher standalone expenses and working-capital needs.
- XI(I)DRA’s commercial contribution, integration progress and any contingent milestone obligations; also the expected returns from the Blink and AcuFocus acquisitions.
- Debt balances, interest rates, available revolver capacity, covenant compliance and the company’s ability to service debt while pursuing the BHC separation.
- Progress in resolving Lynchburg distribution disruption and supply constraints, and their effects on sales, inventory and margins.
- Updates on the BHC separation structure, targeted leverage conditions, approvals and litigation-related delays, as well as material legal and tax developments.