Bausch + Lomb Corporation — FY 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This filing reports full-year results; it does not provide a clear standalone Q4 income statement or cash-flow summary. Amounts are U.S. dollars unless noted.
Business context
Bausch + Lomb is a global eye-health company operating in Vision Care, Ophthalmic Pharmaceuticals and Surgical, with products sold in approximately 100 countries. It completed its IPO in May 2022, but remained controlled by Bausch Health Companies Inc. (BHC), which held approximately 88.7% of its shares as of February 17, 2023. IPO shares were sold by BHC; Bausch + Lomb did not receive the net proceeds.
Financial results and liquidity
| Metric ($ millions, except per-share data) | 2022 | 2021 |
|---|---|---|
| Revenue | $3,768 | $3,765 |
| Operating income | $207 | $329 |
| Net income attributable to Bausch + Lomb | $6 | $182 |
| Diluted earnings per share | $0.02 | $0.52 |
| Net cash from operating activities | $345 | $873 |
| Cash and restricted cash at year-end | $380 | $177 |
- Reported revenue was essentially flat year over year; organic revenue growth was 5% (non-GAAP), reflecting $197 million of growth after adjustments for currency and divestitures/discontinuations.
- Operating margin was approximately 5.5%, versus 8.7% in 2021; net margin attributable to the company was approximately 0.2%, versus 4.8%. These are calculated from reported figures.
- Cost of goods sold was 40.3% of product sales, up from 39.0%. Management cited inflation, manufacturing variances and ramp-up costs for daily silicone-hydrogel lenses. Total segment profit was $881 million, down 7%, with a 23% margin versus 25%.
- Operating cash flow fell $528 million, principally due to lower operating results, a $206 million change in deferred income taxes and working-capital changes, including strategic inventory growth. Capital expenditures were $175 million.
- Current assets were $2,137 million and current liabilities $1,296 million. Cash plus restricted cash was $380 million. Working capital was approximately $841 million, calculated from those balance-sheet amounts.
- Year-end term-loan principal was $2,488 million ($2,436 million net of issuance costs); the loan carried a stated 7.84% rate. The $500 million revolving facility had $476 million available after $24 million of letters of credit. Debt is secured by substantially all company assets, subject to exceptions.
Material changes versus 2021
- Revenue performance diverged by segment: Vision Care rose 1% to $2,373 million; Ophthalmic Pharmaceuticals fell 4% to $677 million; Surgical was flat at $718 million.
- Operating income declined $122 million. Higher SG&A and R&D, lower contribution, and increased interest expense contributed. Interest expense was $146 million in 2022, primarily associated with the new term facility and BHC purchase debt; the latter was repaid in May 2022.
- Net income attributable to the company declined $176 million to $6 million. Operating income was lower and interest expense increased, partly offset by lower income-tax provision and more favorable foreign exchange and other results.
- Cash from operations declined to $345 million from $873 million. Inventory increased to $628 million from $572 million.
- Foreign currency reduced revenue by $184 million. Pricing and volume gains partly offset currency headwinds and weaker China demand.
Outlook, risks and unusual items
- Outlook: No formal revenue or earnings guidance is provided in the supplied filing text. Management expected inflationary and supply-chain challenges to continue through 2023, with uncertain duration and impact, and stated that available liquidity sources should meet needs for the next 12 months; this is not assured.
- Expected 2023 cash requirements included approximately $215 million of interest, $25 million of mandatory debt amortization, $200 million of capital expenditures and $7 million of pension and postretirement payments. A $45 million NOV03 milestone payment was expected if the product received approval and launched as anticipated. The filing gave a June 28, 2023 FDA action date for NOV03.
- The planned full separation from BHC was conditional on targeted debt leverage, market conditions and required approvals. BHC could change or abandon the distribution; the arrangement agreement’s outside date was December 31, 2024, unless extended by agreement. Separation-related costs and standalone dis-synergies may continue.
- Key risks include floating-rate debt and covenant compliance, foreign-exchange exposure, inflation and supply constraints, generic competition and patent challenges, product and regulatory matters, litigation, and COVID-related disruption. China lockdowns contributed to a $47 million year-over-year decline in China revenue; Russia accounted for about 4% of 2022 revenue. The company said the war had not yet materially affected operations but anticipated ongoing regional disruption.
- Prolensa, representing approximately 1% of 2022 revenue, was expected to begin facing loss of exclusivity in the second half of 2023. PreserVision represented approximately 7% of 2022 revenue; its formulation patent expired in 2021, while a method-of-use patent was described as continuing into 2026.
- Legal matters include a challenge to the proposed separation alleging voidable transfers, generic-pricing antitrust litigation involving BHC subsidiaries, and product-liability matters. The filing accrued $2 million for probable and estimable current legal loss contingencies; it stated that losses for many other matters could not be reasonably predicted or estimated. Certain Shower to Shower claims are subject to Johnson & Johnson indemnification.
- Unusual financial-statement disclosure: the company recorded an immaterial out-of-period correction relating to pension/postretirement tax effects, including a $10 million adjustment in 2022 comprehensive loss. The auditors issued an unqualified opinion; goodwill impairment testing was identified as a critical audit matter, and no goodwill impairment was recorded.
- The board announced Brent Saunders would become CEO and chair effective March 6, 2023. The company did not expect to pay dividends in the foreseeable future.
Important facts for investors to verify
- Whether BHC’s separation conditions and approvals are met, and how separation timing, costs, legal challenges and BHC’s controlling ownership evolve.
- Debt-service capacity and covenant headroom as interest rates, cash flow and capital spending change; confirm the stated debt rate, facility availability and 2023 cash requirements in subsequent filings.
- Whether operating cash flow stabilizes after the 2022 decline and whether inventory growth converts into sales without write-downs or supply interruptions.
- Revenue and margin trends by segment, including the effects of currency, pricing, China demand, inflation and generic competition.
- Regulatory and commercial progress for NOV03 and other pipeline products, and outcomes of patent, antitrust, separation and product-liability proceedings.