Bausch + Lomb Corporation

Good morning and welcome to the Bosch and LOMS first quarter 2024 earnings call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone. To withdraw your question, please press star then two. 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.

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. Sam Aldasuki. 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 through broadly disseminated public disclosure. With that, it's my pleasure to turn the call over to Brent.

Thank you, George, and thank you everyone for joining us. Today marks nearly one year since my first earnings call following my return to Bausch & Lomb. We've accomplished quite a bit in that timeframe, 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 one business or region as drivers of our performance. Our methodical approach to improving how we make and sell things is bearing fruit. A renewed focus on launch excellence is reflected in early returns for my boat and ongoing expansion of our latest daily side high 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, a relentless focus on returning to our roots by prioritizing innovation is producing tangible results. Our Invista Aspire IOL has made a strong market entry, and we have a steady stream of premium IOL launches planned through 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. Why caution against assuming every phase one 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 two, innovate and 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 remained 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 jeopardized some of our customer relationships we'd 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 Zydra and Blink, acquired products. These offerings address some of the most glaring 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 and learning tour one 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, customers shared an appreciation of our efforts to predictably 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. Absence of 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. Infused one-day lenses are increasingly a preferred option for optometrists, and our Vista family of IOLs had surgeons excited for expansion in that category. Brands that have demonstrated consistent growth in areas of ongoing opportunity, most notably Lumify and Prezavision, are high margin performers that bolster the top and bottom line. Now let me turn it over to Sam.

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 concept currency basis. Turning now to our financial results on slide eight. 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. VisionCare first scored 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 demonstrates 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 iVitamins, 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 plant's constant currency revenue growth was 6%. Reported revenue from our DailySight High lenses grew by 68% in the quarter and 73% on a constant currency basis. Our DailySight High multifocal lens has now been launched in the U.S. and Japan and has added to the solid performance of the DailySight High sphere. We're excited about the growth of this franchise as we continue the global rollout and further expand the family with the upcoming launch of the DailySight High Toric. Moving now to the surgical segments. 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 Invista Aspire, which has made a strong market entry, along with the growth of the Luxmark 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 Solaris system sales. We continue to focus our strategy on recent and upcoming product launches in 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 of the pharma segment was $267 million for the quarter, which represents constant currency growth of 66%. MyBoot delivered $28 million in revenue in the quarter. The launch performance remains incredibly positive, and we're committed to making the investments to drive the strong adoption. Zydra delivered $79 million in revenue in the first quarter. We continue to make progress in executing our strategy to re-establish Zydra as a market leader. The Zydra 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 Zydra 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 transitioned to other vendors. Brent will elaborate on this, but I want to stress that Zydra and Maibo together position us as a leader in dry eye disease, and we're excited about delivering on their full potential. Beyond Maibo and Zydra, we saw strong growth across other parts of the pharma portfolio. On a concert currency basis, the U.S. genetics business grew by 10%, and international pharma grew by 7%. As expected, ProLanza 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 Zydra. 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 for 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 13% to 15%. 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 a 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 Zydra to generate approximately $400 million in revenue, our guidance for Michael continues to be approximately $95 million of revenue in 2024. Shifting to adjusted EBITDA, we are maintaining our adjusted EBITDA guidance for 2024 in a 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 reflect the facing 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 one-time upfront payments that may be made as part of such arrangements. In terms of other key assumptions underlying our guidance, As noted 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.

Thanks, Sam. Let's highlight some 2024 growth drivers, including the upcoming launch of a new and differentiated OTC offering. As Sam mentioned, MIBO has shown significant promise with Q1 revenues of $28 million. Just last week, we learned that two of the top three Medicare providers will begin covering MIBO, one starting today, the other July 1st. That's approximately two 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 MIBO will become a cornerstone of our dry eye franchise for years to come. Sam also touched on how to interpret ZYDE performance in Q1, which I'll add some color to. There are three contributing factors to consider. First, we realigned 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 face the highest deductibles in the first quarter, which naturally results in fewer prescriptions, a cycle you're all familiar with. Third, while the incident involving Change Healthcare did not have a material impact on Bausch & Lomb, there was a non-quantifiable effect given patient access to Zydra was disrupted. All that said, there are encouraging signs as we continue to rehabilitate and re-energize the brand. Our commitment to making Mibo and Zydra 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 under-diagnosed conditions. For the millions 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 in as little as two to four weeks. For those averse to eye drops who are already taking daily supplements, NutriTears could be a convenient solution. While supplements are often unproven, Nutrateers is grounded in data. Last week, we announced the results of a clinical study evaluating the safety and efficacy of Nutrateers. 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. Nutrateers, which we anticipate will launch in the next few months, will be the latest addition to our grown nutraceutical franchise, which is anchored by Preservision. With the addition of nutriteers, we're clearly not resting on our laurels when considering the future of our industry-leading dry eye platform. Quite the opposite. Given the market potential, it bears repeating that we'll 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 ILLs. 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 INVISTA NV 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 INVISTA Beyond, an extended depth of focus IOL, with an expected U.S. launch in 2026. Our forthcoming 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 we're on 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.

We will now begin the question and answer session. To ask a question, you may press star then 1 on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. The first question comes from Patrick Wood with Morgan Stanley.

Amazing. Thank you very much for taking the question. I just got a couple. So I guess the thing that sort of has jumped out over the last couple certainly a few quarters, has been the breadth of the growth across all the different divisions rather than like one. I guess, is that a composition that you expect going forward, i.e. share gains kind of across the bulk of the different sublines and geographies? That sounds like the message. Am I right, Matt?

Yes. So, Patrick, it's Brent. Thank you and good morning. Yeah, I think you hit on a theme. I think when I joined, you know, over a year ago and had our first earnings call about a year ago. I talked about re-energizing and refocusing the organization while we also invested in innovation and got ready for probably the most robust new product launch cycle. And so let me just give you some numbers if you look at the performance this quarter. Consumer, these are all constant currency. Consumer, plus 15. Contact lenses, plus 6. Surgical, plus 8. Pharma, plus 66. Excluding Zydra, plus 18. Geographies, Asia plus seven, Europe plus nine, Latin America plus 17, and the U.S. plus 33. So I think that's pretty broad, high-quality growth across the world, across all our businesses around the world. And the way you do that is you make the most of everything. You figure out how to reinvest in product and promotion, how to put the customer at the center of your universe, how to make your sales forces the most important people in the company, and to really focus on execution. And so that's what we're doing in our re-energized company, and we expect that to continue.

Amazing. And then just a second one, Mibo. I mean, really strong start to the year. I'm just curious, there's a lot of noise when you first launch a product between refill rates and things like that, but I'm thinking at the start of the year relative to the guide,

know is there a little bit of conservatism um or is there any reason that we shouldn't see a continued pickup and sequential growth as you move through the quarters of this year for my bow yeah so i i patrick you're right look i just want to remind just you didn't ask it this way but let me try to to answer it you know when you think about where we are with my bow and even zydra right we've had about two quarters of both products in the market So it's really early, right? We're in the first quarter of the year as well. And I think we're off to an amazing start with MIBO. CIDRA is still a work in progress. But, you know, I think as you look at our focus on execution, just by the numbers I just gave you, right, I think we have a lot of confidence that we can execute and we can deliver. And so maybe there's some conservatism there, but I think it's too early to call it up just yet, right? It's just the first quarter. We have a brand new field for us. We have new technology. We have reps with new call patterns, seeing new positions. So there's a lot to like, but there's a lot to focus on on an execution basis before you get too excited.

Love it.

I hope the shoulder feels better. Yeah, thank you. It is. It's much better. I appreciate it.

The next question is from Larry Beagleson with Wells Fargo.

Hi, good morning. It's Leigh calling in for Larry. Thanks for taking the question and congrats on a good start to the year. Just two questions. One on Zydra and Brent touched on this just briefly. You kept your guidance at 400 million and talked about kind of the pieces that affect Q1 sales. What gives you the confidence that you get to 400 million? How do you get there? And what should we look for in prescription trends? I think previously you talked about maybe stabilizing those prescription volume in the first half and returning that to growth in second half? How do we see that play out?

Yeah, so, Leigh, I appreciate the question. And, you know, as I was just mentioning to Patrick, you know, I think we're super excited about the MIBO performance in the first quarter. And, you know, as I said, Zydra is still a work in progress. And as I said in the script, you know, we had – Zydra is the only product, because of the TSAs with Novartis that were still in effect, that used Change Healthcare to manage copay cards and administration at pharmacy. And as you know, Change went down, right? And if you look at the weeklies, as soon as Change went down, you see the significant impact on script trends for Zydra. My book does not use Change. We use Blink. We quickly moved and the team worked very hard to transition away from change, but that took a few weeks. It frustrated doctors when patients went to pharmacy and couldn't and had to pay full load or full list price. And it was an administrative mess for patients and for physicians. And so couple that with a brand new field force with new territories and new call patterns, And then first quarter seasonality, you know, Zyder had a difficult going in the first quarter. We do expect to see that come back in the second quarter. And so, yes, I guess you could look at the $400 million guidance and say, you know, that looks a little aggressive at this point. But we're not ready to call it down. I think our team is absolutely focused on meeting their commitment. And we want to continue to invest to do that. So we have a lot of good things happening with Zyder in the second quarter. And I think you'll see a sequential improvement as we go into the third and fourth quarter. So I get it. I get why people may ask that question. But first quarter of the year, we're not willing to take my ball up and we don't want to take Zydra down. We want to hold our feet to the fire and really focus on execution. But we'll update you in the next quarter and give you some better color once we've seen clean performance, you know, apps and change and Salesforce realignment.

Okay, that's super helpful. My second question is on the guidance. Our math implies that in Q1, your organic sales growth was somewhere in the low double digits. Your guidance seems to imply that organic growth would slow a bit for the rest of the year, maybe closer to mid or mid to high single digit. So one, can you just confirm that math? And two, what slows from Q1 to the rest of the year? Thank you.

Good morning, it's Sam. And on the organic growth end, really I'm going to focus on Zydra here. So as we said, Zydra was about $79 million. Brent already touched on it from a pharma business. When you think about constant currency growth of 66, that gets you to about 18%. When you look at our overall performance for this quarter, we put up 20% constant currency. Zydra was about 800 basis points. contribution to that. So that gets you about roughly about 12% when you take Zydra out. And if you look at the full year guidance, now with our increasing guidance of 13 to 15, if you take the midpoint of that guidance of 14% and you do the math on Zydra, that suggests roughly about 8% organic for the full year. So really seeing the momentum, we're carrying the momentum forward throughout the, there's puts and takes as any year, but still early in the year, and we're carrying the momentum with us for the next three quarters.

Okay, so it sounds like there's perhaps some conservatism going from 12% organic growth in Q1 to 8% for the full year.

Well, as Brent said, we're excited about what we're seeing in the MIBO. We're excited about what we're seeing in our base business. Just Brent went through how we're seeing the performance across all four businesses and the regions. But, again, we're just really balanced here in terms of how we're thinking about the rest of the year, given the fact we're still early in the year.

Yeah, I think, you know, stay tuned. Let's see where we are in the second quarter, and then we may adjust.

But let's execute first. Thanks so much.

Your next question for today is from Young Lee with Jefferies.

All right, great. Thanks for taking our questions. Maybe one more on pharma. You know, good to see the early outperformance from Michael and heard the Zydra comments has changed. But, you know, you have an integrated sales force now between the two. It's the largest for dry eye. I wanted to hear a little bit about the potential cross-selling impacts in 24. You know, how much of that $495 million combined revenue number is coming from the benefits of the integrated sales force?

Yeah, it's a great question, Young.

I think, you know, the integrated field force, and as you mentioned, the largest field force in the dry eye category by a long shot, is a key component of our strategy to win in the market. And when you look at, you know, how this market has evolved, it's really evaporative dry, where Mibo is the only option, and inflammatory dry, where it's Zydra versus a sea of cyclosporins, including Restasis and some branded reformulated. And the goal for us is to win. We have the best option for both types of patients, for either type of dry eye. And so Zydra really has to compete in winning in the inflammatory space. And the competition there is the cyclosporine sea of products. And I think we have the best product there. And then we're the only game in town for inflammatory. And so Our field reps were trained in late February. They've been in the field for just a few weeks. But early results are anecdotal. Some data are very promising. So I think we have to see it play out in the second, third, and fourth quarter of the year. But I'm very encouraged. I think we have a great strategy, and the team is executing.

All right, great. That's very helpful. Maybe turning to contact, are there still any lingering Lynchburg distribution impacts on contact lens growth in the first quarter? Any more impacts for the rest of the year? And, you know, if you can make some general comments on pricing and supply dynamics and contact lenses for the industry. You know, when does supply catch up relative to demand, especially for daily SIGHI?

Yeah, so thanks for the question. Look, I think, well, let me start with Lynchburg. Lynchburg is resolved. It is shipping all the orders. Now, in fairness, we're back to par on Lynchburg. Now, we did make an investment in new technology there. We do need to get that efficiency, and hopefully we see that pull through in the remainder of the year. But Lynchburg is not a drag on supply at this point. So that's the good news there. You know, as we look at performance, you know, on a constant currency basis, our dailies were up 73% in the quarter. So really impressive performance. And we're seeing that really broad-based wherever we launch. And to be fair, we're still launching modalities. We still have multifocal launches, you know, starting to spread across the world. And we're gearing up for the TORIC launch in the U.S. and then the rest of the world. So A lot to like there, a lot of great performance, and a lot of launches still coming within that family of products. I think the third thing I would say is that is probably the best lens in the category, particularly the multifocal. We are hearing tremendous positive feedback from both consumers and the optometry community. So I think we have a real winner in terms of the quality of that product particular product. With respect to pricing, you know, I think as we look, you know, we're trying to hold pricing relatively stable, very modest price increases around the world. And that's because, you know, we have been in a supply constraint environment. And so for us, it's about, it's not about taking a price on customers. It's about winning accounts, taking market share. I think we've seen some discounting by others, but that's because they have a lot of inventory in the trade. Unfortunately, because of Lynchburg, or for not the reasons we like, we don't have a lot of inventory. So everything we can ship, we can sell. Everything we sell, we ship. And so I think we're in a pretty solid position, and I'm excited to see what happens as we continue to take share and grow that part of our business.

Thank you.

Your next question is from Robbie Marcus with JP Morgan.

Oh, great. Good morning and thank you for taking the questions. Two financial ones for me. Maybe first, I was hoping you could give us the inside look at how the Zydra integration is going. How did that compare versus your plan and any way you could tease out what underlying versus reported margins were?

Yes, I'll take the first part, and maybe Sam can address the second. So the integration is complete. As I mentioned earlier, we fully integrated and realigned the field forces at the end of February. So that happened just a few weeks ago, and that went, I think, incredibly well, and the team is energized and excited. I've met with many of them, and they are really happy to be in a dedicated eye care company and have you know, multiple treatment options for physicians to treat patients. And so I think that as well, we are now, you know, focused on improving our call points, our technologies. We've got the DTC back online and moving. We have a lot of speaker programs happening. And so, you know, there's a lot of energy, a lot of focus, and a lot of excitement from the sales force and from customers. I hear it quite regularly. So, I think, you know, we have to see how it performs because it's just a few weeks since it's all happened, but that's good. But remember, we were in TSAs with Novartis, and so, you know, we had to stick with change. We had lots of things that perhaps if we didn't have those TSAs, we would move more quickly or faster or with more sense of urgency, but that is now behind us. So we now control our own destiny, and we can focus on execution.

Sam, you want to? And, Ravi, on your second part of your question, when you think about Zydro, is Really, it was part of our overall strategy to start shifting the mix in our products to higher margins. So you see that play out in our financials this quarter with the gross margin beat of the 63%, the 320 basis point that I referenced earlier. Almost half of that is coming out because of the Zydra mix. So you'll see that benefit here in the gross margin. In terms of overall margins on Zydra, the way I think about it, I disclosed in the past that it's roughly about... Mid-30s, I think that's still the same number, and that will be probably as we progress throughout the year, that should expand to about high 30s.

Great. And just one more on free cash flow. It came in negative in the quarter. How do we think about free cash flow generation throughout 24 and then any guidance on full-year free cash flow? Thanks.

Yes. So cash for the quarter was roughly about $48 million. That's adjusted cash from operations, so it was positive. I think a couple of things to keep in mind. One is the timing of capital expenditure is a little bit tricky, so I will probably just guide you to probably think about it more of a full year when you think about capital expenditure. We spent roughly about $67 or so in the quarter of CapEx, so there was a little bit heavier than our usual run rate in terms of CapEx for Q1. That being said, I think we started with a positive cash flow from operations in Q1. We are continuing to manage working capital, especially with the inventory. Right now, we're just over a billion dollars, to be specific. $1.73 billion in terms of inventory. And just to keep in mind, there's two elements here. There's the strategic buildup of that inventory coming in in terms of what we're doing in our surgical business, and we're going to see that come down as we wrap up 24 into 25. But there's also a step up in our inventory because of the acquisition of Zydra.

Great. Thank you.

Your next question is from Joanne Wunsch with Citi.

Good morning, and thank you for taking the question. Could you please contact – I already gave away what I wanted to ask. Contact. The contact lens market, how are you viewing that? How are you viewing where Bausch & Lomb's market share may be going and maybe a state of the union on the silicone one-day lens market and your products there? Thank you.

Yeah, so, you know, I think as you look at our performance in the market, as I said earlier, you know, we are in a pretty strong spot with 73% constant currency growth in our daily franchise. And as I mentioned, I think important is a lot of momentum there because we have, you know, the sphere is launched globally now. but we have to continue to launch the multifocal around the world, and now we're preparing for the Twerk launch in the U.S. So, you know, as you look at the market, you're looking at mid-single-digit growth, and I expect that we should be able to do better than that and gain share. And so we have a long way to go to gain share, given our current market position, but, you know, I think we have a great product. We have a great mix of products. We have great relationships with the ECPs around the world. We have a great brand in Bausch & Lomb and a lot of heritage. So a lot to like, but a real focus on execution and particularly on launching the other modalities around our daily CI, you know, infused in the U.S. and ultra daily is how it's branded outside the U.S. And that's a real focus. And I'm proud in the first quarter to say the team delivered 73% growth. So let's hope they can stay focused on their customer and execution and continue to deliver that momentum.

Thank you.

The next question is from Vijay Kumar with Evercore ISI.

Hey guys, thanks for taking my question. I guess two sort of Martin related questions. First up, maybe Sam, on Gross-Martin's alcohol farmers in Q1, I think the annual guidance implies a step down. Is that the, Is that a function of the FX, or what causes the gross margin to step down in the back half? I think you mentioned something about 10 million FX headwinds with an incremental gross margin impact.

Good morning, Vijay. So it's two parts. So the first part is we're seeing an improvement in gross margin because of the product mix with the higher margins, and we've seen that play out in Q1. one of the elements that you have to keep in mind as you think about um the rest of the year is the inventory balance that i referred to earlier but call it a billion uh 75 that's sitting on the inventory that number have a component of it same for surgical so if you recall in the last number of course we've been talking about our spot buy where we've been buying components to be able to ensure that we have sufficient supply on our surgical business you're seeing that in the in the growth of 8%, but also you're seeing that in a higher cost of the inventory, and that will take time to bleed through the P&L. So that will be an element here that will be offsetting some of the benefits that we're seeing from a product mix. That's why we stayed around that 62% gross margin for the full year.

Yeah, and I would add, if I could, Sam, we made a very intentional decision here to build inventory specifically as it relates to product supply for surgical. As you know, you can't leave a surgeon hanging before surgery. And so one of the things that Sam and I decided when I arrived is we were going to prioritize customer relationships and supply to customers wherever possible to regain confidence in our surgical business. That is paying off with respect to sales and relationships, but it is hurting cash. and margin. And so that is something we hope to resolve over time, but it was an intentional decision to prioritize customers.

And Vijay, on your second part of your question in terms of the currency headwind, we've seen improvement or performance in EBITDA. That was offset by an incremental $10 million of currency headwind that was not in our initial guidance. So in essence, really, we absorbed the strength and the performance of EBITDA with that $10 million headwind.

That's helpful, Sam. Brent, one for you. I think in the past you've said the spend on MIBO is well above the $95 million revenue guidance. How much of this is sort of one-timer marketing-related, launch-related spend? And should we expect those spend levels to go down and start seeing leverage and margin contribution in fiscal 25?

Yeah, so great question. Look, I think it's too early to figure out how we're going to invest behind MIBO in 25 until we see some more performance. That being said, traditionally, you do invest behind new drug launches for two or three years. We do expect to see improving margins around MIBO and profitability around MIBO improve over time. And so 2024 is the low point. 2025, we'll see improvement. And as we get into 26 and 27, you're going to see real margin contribution. And look, we have MIBLE for a long time. And so it can become a really significant margin and profitability contributor to the company over the long term. And so that's what we're building towards. You only get one chance to launch a drug. You only get one chance to set a curve. You know, you see the struggles that we have in re- rehabilitating Zydra, we don't want to put Mibo in that position ever, right? We want a very strong curve of adoption and profitability in Mibo. And I think we're really off to a good start, better than we had even hoped. And so, you know, sometimes in pharmaceutical launches, I've said this before, I'll say it again, When you see smoke on a fire, you pour gasoline on it because that's how you build the biggest and highest peak sale and profitability over time.

That's helpful. Thanks, guys.

Your next question is from Matt Mixick with Barclays.

Hey, Matt. Matt, your line is live.

Hi, thanks so much. Sorry about that.

Thanks for taking the questions. Just one on maybe strategic investment, if you would. I know last year investing in in Zydra and making the decision to kind of push out your plans for driving leverage lower post the spin was kind of an important strategic decision that seems to be paying off. And, of course, there's lots of other things you could be investing in across the businesses that you have strategically. Just wondering what's the appetite at this time or in the next 12 or 18 months for that kind of activity. And I have one follow-up if I could.

Yeah, so you're right, Matt. We did make a big bet on Zydra. And I have to say, while we still have work to do on Zydra, the actual investment goes beyond just the product TRXs and sales. It goes to establishing our presence in Zydra. And things like Mibo have clearly benefited from having Zydra. As we launch into more OTC options, that will also benefit because of our market position because of Zydra. We have a very loud share of voice in the category, and we want to be a driver of innovation and more solutions for patients. So strategically, a lot to like. On execution with actual Zydra, a lot of work to do. That's how I think about it. You know, I think as we look at investing in the business, the top priority right now is investing behind the launches. You know, really important launches, you know, continuing to support our contact lens business. as I mentioned a few times. We haven't spoken a lot, but surgical IOLs are really important. Aspire, Invista Aspire, which is our monofocal plus, which launched at the very end of last year, is really into full launch mode right now and something we're investing behind. We've got roughly 600 surgeons trained in implanting lenses, and the feedback has been tremendous. As we're doing that, we're getting ready to launch the LUX upgrades around Europe. We have the trifocal, which is Aspire Envy, launching in perhaps roughly close to the fourth quarter or thereabout. And so that is going to be a great lens, and we're investing in the studies for Invista beyond our extended depth of focus. A lot to do there as well. So all of our businesses, including consumer, contact lenses, pharma, surgical, all have a really robust new product cycle coming over the next few years. And we want to have launch excellence and really have these products be the future of B&L. And by the way, across the board, they're all higher margin products, which will continue to support our sustained margin improvement as a company for years to come. That being said, what are we investing in? We're investing in innovation. We're doing relatively smaller partnerships, R&D collaborations, technology investments to continue the stream of new product launches beyond the cycle we have today. And that is how you create organizational health in a company like Bausch & Lomb is to have a steady stream of innovation and launches year after year, decade after decade. And we see the results of taking a pause for 10 years and what we're dealing with. And we have to look at the past to make sure we never repeat it. And so that's our key focus and priority for the short term.

That's super helpful. You had another question, Matt?

Yeah.

Yeah, you touched on some of the things I had to follow up on here, just on the surgical side. I know that that is a, um, it seems to be kind of a longer ramp to sort of get, um, to move, to move the needle to where you want it to be state and the surgical space competitively. Um, and I just, uh, you've had some launches, you have some coming in the back half of this year, you know, if you were to sort of give us a roadmap for the next 12, 18 months, you know, should we start to think of that business meaningfully lifting as you exit this year, you know, meaningfully lifting in the next couple of quarters, or is that a bit more of a 12 or 18-month build to sort of show the results of the investments and the new products that you talked about there? Thanks.

Yeah, I think you're right. It's more of a 12, 18, 24-month build, particularly as we move to the offering, you know, the more of the premium IOLs to complete the portfolio. Yeah. But look, if you look in the quarter, you saw implants up 9%. These are constant currency numbers. Packs up 9% and equipment up 5%. And so really nice tactical execution by our team. But that being said, you know, I think there's two things to consider as we look at particularly margins and profitability of surgical. One is we're still working through expensive inventory, as Sam mentioned. and that will take some time to work through. At the same time, our supply chain team is working at improving our manufacturing and distribution capabilities to get to better margins. And then, as I mentioned, mix. As we transition and offer a full range of ILLs, including premiums, they come with a much higher margin. And so, I think over the next, as you said, 18, 24 months, you'll see a steady improvement in that business, and we're going to become much more competitive over time. So I'm excited about it, but it's not going to be an overnight sensation. It's a lot of hard work and a lot of dedication, but I think we're on the right track. We're early, but we're on the right track.

That's great. Thank you.

We have time for one last question, and your question comes from Doug Meem with RBC.

Thanks very much. My question has to do with MIBO. Brent, you mentioned that I think the three top Medicare providers are going to be covering the drug, but I'm wondering, on the commercial side, how are things looking there in terms of getting on formularies and that sort of thing. And then as a follow-up, just wondering, do you have the manufacturing capability to, you know, provide for what looks like it's going to be a very, very strong Mibo launch here, given the outperformance in Q1? Thanks.

Yeah, so great question. So just to correct you, two of the of the top Medicare plans will begin covering MIBO over the next month or so. And so that will give us about 50% Medicare coverage going into the second half of the year. Just to clarify, that doesn't flip a switch and change overnight. It takes some time to build as local carriers and policies get implemented, but we're really ahead of schedule on getting Medicare coverage. The team did a great job there. And so a lot to like there. On commercial, we're about 50% as well, and that should continue to improve throughout the year. And so, you know, two quarters into a launch, that's, you know, I don't want to say it's unprecedented, but it's really a great outcome to have that broad-based coverage. But, you know, we do want to see that get to 70%, 80% coverage in both categories until we feel good about it. So some work to do there, but a great start. In terms of manufacturing capability for MIBO, MIBO is made at a third-party supplier. We have been working with them to improve coverage. We are going to transition to our own facilities. In fact, packaging is being transitioned as we speak to our Tampa facility. And over the next 12, 18 months, we'll start to ramp up our own ability to produce. So we'll have two sources of supply, which is really what you want to be for an important product like Mibo. The other thing I would mention is we've been, I think the team has done a great job with the Mibo launch without a sample. There was no sample planned prior to my arrival. And so, you know, we've been working hard to get a sample and we should have that in the back half of the year as well. So, you know, as I think about Mibo, it was, you know, the key success factors for us on an execution front were The Salesforce, that was done late February, and so they're off and running. It was getting coverage. We've made good progress. We have about 50-50 commercial Medicare going into the back half of the year. Still some work to do, but a big check there. And then it was about getting the sample and getting trial, and so that's coming too. So great performance and, you know, $28 million in the first quarter. But a lot to like and get excited about as we continue to invest and build the franchise.

Thank you. So thanks, Doug.

So I'll just conclude by thanking everyone for joining us. We do feel really good about the first quarter performance and the broad-based nature of the performance, all businesses, all geographies. And we look forward to keeping you updated as we continue to stay absolutely focused on our customers and execution and driving our business forward.

Thank you so much.

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