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spk01: Good morning and welcome to Bausch and Alhamb's second quarter 2024 earnings call. All participants will be in a 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 Gatkowski, Vice President of Investor Relations and Business Insights. Please go ahead.
spk05: Thank you. Good morning everyone and welcome to our second 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 Aldesuki. In addition to this live webcast, a copy of today's live 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 one 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.
spk06: Thank you George and thank you everyone for joining today's call. I hope you're enjoying the summer. I'm going to provide a high level overview of another successful quarter of execution. Sam will do a deeper dive on our performance and I'll close with my favorite part, highlighting the innovations that will help separate us from the pack and keep us on a path to sustainable long-term profitable growth. There's no change for three areas of focus and there won't be. This is our formula for success. Our constant currency revenue growth progression over the past year has been remarkable. 8% in Q3 2023, 19% in Q4 2023, 20% in Q1 2024, and 20% in the second quarter. What makes it more impressive is our growth continues to come from all businesses and geographies. We're not a one-trick pony beholden to a certain product or category. We continue to refine what we're selling and where. SKU rationalization is an ongoing process that will pay dividends slowly but surely. Something that's undoubtedly helping fuel that consistent revenue growth is our relentless focus on selling and operational excellence. We're talking about building those capabilities but we have now hit a point where it feels like a cultural norm within our walls. Colleagues around the world know that our success is inextricably linked to how we make or source our products and get them in the hands of eye care professionals, patients, and consumers. They also know that selling and operational excellence is a long game and if you're not continuously improving, you're falling behind. Look no further than the second quarter milestones as proof of our ongoing commitment to innovation. In May, Health Canada approved the InVista NV Intra-Acular Lens, the first premium IOL on the InVista platform and another meaningful step towards being a significant player in the high margin premium IOL space. In June, we launched Blink NutriTears, a clinically proven nutritional supplement for dry eyes. Just one week later, we announced the US introduction of Bausch & Laman Fuse for Stigmatism, daily disposable contact lenses. Three innovative products across three distinct businesses announced over 12 days. When it comes to being an innovation company, we're walking the walk and doing so with urgency and purpose. The roadmap slide of main standard earnings presentations has been given a facelift to coincide with our move into phase two, innovate and execute. That's not to say parts of phase one won't continue, but the majority of our focus is on the five elements of phase two. These include new product launches with a flurry of activity expected in the second half of the year and into 2025. Sales execution is another critical component which we continue to heavily invest in. A prime example is Glimpse, a new proprietary digital sales platform that uses AI and machine learning to provide tailor-made guidance for engaging eye care professionals. We recently trained the US pharma sales force on Glimpse to ensure they're bringing the right message to the right doctor at the right time, and early results are encouraging. Investing in innovation means investing in our people. I mentioned a steady stream of impressive new hires last quarter, which has accelerated. We recently fielded our first colleague engagement survey since 2022, and the results buoyed our belief that we're on the right path. Buy-in from leadership teams is one thing. Buy-in from 13,000 people around the world is what drives results. The last item I'd flag is the lease flashy, driving operational efficiencies and margin expansion. One leads to another, and we're leaving no stone unturned as we streamline operations to improve the bottom line. A prime example is our Tampa manufacturing site successfully rolling out a secondary packaging process from MiBo that can be completed in a few shifts as opposed to roughly six days at our contract manufacturing. At the risk of stealing Sam's thunder, I'll cover a few of the financial highlights. It's a good problem to have when you feel like you're repeating yourself each quarter. Once again, impressive -over-year constant currency revenue growth was driven by our holistic strength. Look no further than our business segment performance, with 9 percent constant currency revenue growth for surgical, 11 percent for vision care, and 61 percent for medical care. And the same for pharmaceuticals. Absent Zyder revenue, pharmaceuticals still exceeded expectations with 16 percent organic revenue growth. Key franchises across our business continue to drive that growth. Three takeaways from the list of products shown. It's a global mix. Prescription, OTC, contact lens, and surgical products are represented. And we've made clear our intention to invest in each of these products given opportunities for future growth. I'll now turn it over to Sam who will provide additional context.
spk11: Thank you, Brent, and good morning, everyone. Before we begin, please know that all my comments today will be focused on growth expressed on constant currency basis, unless specifically indicated otherwise. Turning now to our financial results on slide seven. We are pleased to report another quarter of solid revenue growth across all of our segments, geographies, and key product franchises. We are seeing the broad-based growth momentum in our business continue. Total company revenue of 1.216 billion for the quarter reflects growth of 20 percent. As Brent mentioned, we're executing our strategy and our focus remains on driving selling and operational excellence and prioritizing innovation. The steady stream of product launches continues to drive growth, and we're excited about the opportunity ahead of us in the second half of 2024. For the second quarter, currency was a headwind of 27 million to revenue. Now let's discuss the results in each of our segments. VisionCare's second quarter revenue of 697 million increased by 11 percent, driven by solid growth in both the consumer and contact lens businesses. The consumer business again demonstrated strong performance with growth of 9 percent in Q2. We continue to see growth across our key consumer franchises. In the quarter, eye vitamins were up 8 percent, lumify grew by 12 percent, and the consumer dry eye delivered 94 million revenue, an organic growth of 10 percent. Contact lens revenue growth was 14 percent, with strong performance across key brands and geographies. In the quarter, we saw solid growth in both the daily and FRP portfolios, with our daily Psi-Hi leading the way. We are continuing to see strong momentum in the daily Psi-Hi, with 72 percent growth in the quarter. The daily Psi-Hi multifocal launch is off to a strong start, and as Brent mentioned, we have recently announced the launch of the daily Psi-Hi network to expand the product family. Contact lens revenue growth was broad-based across markets. With the U.S. up 18 percent in the quarter and international up 12 percent. We have resumed a solid growth trajectory in the U.S. with Lynchburg system upgraded now behind us. Outside the U.S., we saw solid performance across all the regions which contribute to the strong international revenue growth in Q2. We're also seeing early positive results from our -to-consumer initiative in China, which we recently launched. Moving now to the surgical segment, second quarter revenue was 209 million, an increase of 9 percent. In Q2, we saw broad-based performance with growth in each of our three surgical product categories. Consumables, our largest product category, grew in the quarter by 7 percent. Implantables grew 9 percent in the quarter, with our standard IOLs up 3 percent and our premium IOLs up 36 percent. Our InVista IOL platform is continuing to perform well, with the InVista Aspire lens making a strong early market entry. We expect the cadence of IOL launches to continue with the recent approval of the InVista Envy trifocal lens in Canada. Revenue from equipment was up 15 percent, mainly driven by Stellaris system sales. Our strategy in the surgical business remains the same. We are delivering growth by focusing on a consistent supply of products to our customers, despite absorbing some margin pressure in the near term due to the spot bias which we previously discussed. We're also continuing to launch premium products with higher margins. We expect a steady stream of these launches over the next number of years to continue to drive revenue growth and sustainable margin expansion. Lastly, revenue in the pharma segment was 310 million for the quarter. Which represents growth of 61 percent or 16 percent organically. MIBO delivered 42 million in revenue in the quarter. We are pleased with the MIBO TRX growth and we continue to work with IQVIA to address some of the variability in the TRX data. MIBO has continued its exceptional launch performance and we remain committed to make investments to drive the strong growth. We continue to build market access with commercial coverage at about 50 percent and Medicare is approximately 30 percent. Zyder delivered 89 million revenue in the second quarter. We continue to make steady progress in executing our strategy with investments in direct to consumer marketing campaigns and the field force realignment earlier in the year. We have seen improving Zyder TRX trends following the sales force realignment and a change in healthcare cyber attack in the first quarter. Zyder and MIBO together position us as a leader in dry eye disease. As Brent will highlight, our strategy includes key building blocks to expand our leading position and drive long-term growth. Beyond MIBO and Zyder, we also saw strong growth across other parts of the pharma business. Both U.S. generics and international pharma grew by 11 percent. As expected, Burlanza continued to decline due to a generic entry in Q1 of this year. Now let me walk through some of the key non-gapline items on slide 8. Adjusted gross margin for the second quarter was 51.9 percent, which was up 220 basis points compared to Q2-23. The increase in adjusted gross margin was mainly driven by product mix as we continue our strategy to transition to higher margin products. We also saw strong production output in our contact lens business contributing to margin efficiencies. This was balanced by pressure driven by the higher inventory cost in surgical. In the second quarter, we invested 84 million in adjusted R&D for approximately 7 percent of revenue. Second quarter adjusted EBITDA was 209 million, which represents 20 percent growth versus Q2-23. Net interest expense for the quarter was 99 million, and adjusted cash flow from operations was 24 million. Adjusted EPS for the quarter was 13 cents, and finally CAPEX was 72 million. Turning now to our 2024 guidance on slide 11. We are raising our full year revenue and adjusted EBITDA guidance to reflect the strong and broad based momentum we're seeing in the business. We are raising our full year revenue guidance from a range of 4.6 to 4.7 billion to a range of 4.7 to 4.8 billion. The updated revenue guidance reflects a raise of full year constant currency growth to a range of approximately 16 to 18 percent. In our dry eye portfolio, we are raising our guidance for full year MIBIL revenue from 95 million to a range of 150 to 160 million, which reflects a strong launch performance. We are updating our previous guidance for ZYDRA revenue from approximately 400 million to 355 to 365 million. Our revised ZYDRA guidance reflects the field force realignment and the impact of the change healthcare cyber attack earlier in the year. More recently, we have seen an improvement in ZYDRA TRX trends. We continue to see the growth prospects and the synergistic benefits of having MIBIL and ZYDRA in one portfolio. As we head into 2025, two factors on ZYDRA that we'll be watching closely. First, are the potential headwind impact of the Inflation Reduction Act, though it's too early to quantify it this time. And second, balancing our strategy to drive TRX growth while ensuring we have access to coverage through health plans for as many patients as possible. For the full year, we'll continue to expect currency headwinds of approximately 90 million to revenue. Shifting to adjusted EBITDA, we are raising our full year adjusted EBITDA guidance from a range of 840 to 890 million to a range of 850 to 900 million. To reflect the strong business performance. We have made significant investments across our portfolio and in our product launches. The strategy is paying off and the business continues to deliver robust and broad-based growth. As Brent has previously highlighted, the investments we're making today will maximize the potential of our portfolio in the future. Our launch products, including MIBIL, have a long runway and we expect it will be an important driver of sustainable growth and margin expansion for many years to come. In terms of the other key assumptions underlying our guidance, as noted last quarter, we are raising our expectation for adjusted gross margin to a range of 62 to .5% compared to our previous guidance of 62%. And we continue to expect investments in R&D to be about 7 to 8% of revenue. As we have previously discussed, we expect to enter into collaboration agreements with external partners to drive pipeline innovation. In the quarter, we absorbed in our adjusted EBITDA approximately 3 million of IPR&D charges related to such agreements. As we look forward, we anticipate entering into additional agreements in the second half of 2024. It should be noted, as I previously mentioned, that any IPR&D charges related to these agreements are not included in our adjusted EBITDA guidance. We continue to expect interest expense to be approximately $385 million for the full year. We will continue to monitor Fed actions on interest rates for the remainder of 2024. We expect our adjusted tax rate to be roughly 15%. And full year CAPEX is expected to be approximately $215 million. To summarize, we are very pleased with the performance in the quarter. The business continues to deliver strong and broad-based growth. We expect the momentum to drive solid performance in the second half of 2024. And position the business for a strong year of revenue growth and future margin expansion. And now I'll turn the call back to Brent.
spk06: Thanks, Sam. Now let's focus on the future. We recently launched an unbranded dry eye education campaign in the U.S. to help drive awareness of massively underdiagnosed and under-treated condition, which continues to worsen based on environmental factors and an aging population. In fact, approximately 150 million U.S. adults experience occasional or frequent symptoms of dry and around 38 million are living with dry eye disease. The goal of the campaign is to help facilitate discussions with eye care professionals who can recommend treatment options from OTC solutions to pharmaceutical interventions as appropriate. No company offers more of these options than Bausch & Lomb, and it's not up for debate. We continue to expand those offerings, the most recent example being the June launch of Blink Nutri-Tears. While it's too early to report consumer uptake, the reaction from eye care professionals speaks volumes. They're excited to have a new clinically proven treatment option that could be particularly appealing for patients who may be adverse to eye drops. MyBolinsEyeDraw are the flagship products in our dry eye portfolio, and understandably generate quite a bit of interest. Sam covered second quarter performance and updated expectations for both, but let me highlight a few building blocks for long-term growth. New -to-consumer campaigns for both medications will be underway soon, which will drive awareness and action, especially when coupled with our unbranded efforts. We shared our willingness to invest in marketing these products, which you'll see reflected in the quality and reach of each campaign. Perhaps more important than reaching consumers is continuing to show prescribers why MyBolinsEyeDraw are the preferred treatment options for evaporative and inflammatory dry eye disease, respectively. With our sales force as the primary vehicle, we'll tout new data in creative and engaging ways as we turn conversions and new starts into greater market share. As dry eye awareness increases, so does our leading position in the category seemingly unlimited potential. We've branded out our infused product line with the recent launch of a Toric lens in the US, and we will continue to expand our daily Sci-Hi offerings globally at a steady foot. As an infused wearer, I've told anyone who will listen how comfortable these lenses are, and how quickly you notice a difference from other options. But don't take my word for it. Instead, look at the numbers. In the last year, we've averaged approximately 60% revenue growth in our daily Sci-Hi portfolio, including 67% in the second quarter, or 72% on a constant currency basis. We're making believers out of customers and patients with each fitting, and that's clearly reflected in our performance. That performance isn't solely relying on daily Sci-Hi uptake, however, not by a long shot. We've maintained steady growth in our frequent replacement lens business as well, which helped fuel 14% constant currency growth in our overall lens portfolio. And continuing that theme, growth is spread around the globe with 18% constant currency revenue growth in the US, and 12% internationally. We expect that growth will be augmented with the fall launch of Opal, our new digital marketplace for eye care professionals and their patients that make it easier to access vision care products in the United States. Death, taxes, and consistent revenue growth from our consumer business. While there are certainly no guarantees when it comes to sales, we plan to maintain our industry leadership in this category by staying on offense to address evolving consumer needs. While established products like Lumify continue to outperform expectations, we've leveraged brand awareness and popularity with an eye toward the future. A prime example is the upcoming launch of Lumify preservative-free eyedrops, which we believe will appeal to an important subset of consumers. Where we sell is another critical component of maintaining our current trajectory in the consumer business. Steady growth products like Artifact continue geographic expansion in Europe and the Middle East, and there are pending approvals to introduce Lumify in additional countries around the world. When Dr. Adam Buschak implanted the first InVista lens in Canada on June 5th, it was the latest step in a critical transition for our surgical business. I've spoken about the importance of being a player in the high margin premium IOL category, and that June milestone served as an important reminder of our intent. I've shared our rollout cadence previously, but it's worth repeating. We expect Envy to be available in the U.S. later this year. That's a question I frequently get at industry meetings. An anxious ophthalmologist is a positive sign, from a business perspective, at least. In 2025, we plan to launch Lux Life brand in Europe, and we're nearing first patient status in a clinical study for InVista Beyond, an extended depth of focus IOL, with an expected U.S. launch in 2026. We're planning to win in the premium IOL space, and we will invest accordingly in product development, manufacturing, and sales. We close with the launch slide to drive home the point we've been making. Over the past year, we've had a steady drumbeat of new product launches that not only cut across our businesses, but also align with where iHealth is heading. In other words, these aren't launches for the sake of filling shelves or pharmacy inventory. Rather, we're addressing unmet needs and improving products that eye care professionals, patients, and consumers have come to rely on. That steady drumbeat continues in the second half of the year and into 2025, which is why excitement about our future continues to build, both internally and externally. Significant work remains to realize our full potential, but the path forward is clear. Operator, let's open the line for questions.
spk01: Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your touchtone phone. If you were using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. And the first question today is coming from Young Lee from Jefferies. Young, your line is live.
spk02: All right, great. Morning, everyone, and thanks for taking our questions. I guess I'll start a bit high level, maybe for Brent. The quarter was strong all around, beats on the top line, but you also called out, really brought strength across segments, geographies, key products. You've been CEO for a perspective of how this, I hate to call it a turnaround, but maybe rejuvenation has been versus expectations when you joined. What's going better than expected? What can still use some more attention? Your thoughts on the sustainability of this broad-based growth, and can you maintain the double-digit growth profile in 2025?
spk06: Yeah, so thank you for the question. So you're right. I think there is a turnaround or slash rejuvenation happening inside our company. I've commented on this before, but I do think that where we are today, our strategy is absolutely working. We are focused on, relentlessly, I think is the word I'd like to use, on execution, sales execution and sales excellence, launch excellence, and operational excellence. Both of those are paying huge dividends. When you get 13,000 people around the world all moving in the same direction with enthusiasm and motivation, with clear direction, really good things happen. I think that that's a testament. As you said, it's holistic. So just some constant currency numbers. I'll just rattle off as a proof point here. Overall, constant currency, top line 20% growth. Lens up 14, consumer up 9, surgical up 9, pharma up 61, organic 16. In terms of regions, US up 31, Asia up 7, Europe up 10, Turkey, Middle East, Africa up 29, Latam up 31, and Canada up 16. I think it's a proof point that you see the focus on execution around the globe and in every business unit we have. From my point of view, where we stand today, it's absolutely sustainable. Once you create a culture of executional excellence and you continue to work at it and reinforce it, I think in my career it's proven that that can be a real driver for the future. As we move into this next phase of our strategy of building innovation and continuing to support the new product launches, there's a long tail on these products. These are products that in some cases have a decade of patent protection. In other cases, they're consumer brands that last forever or contact lens brands that have a great holding power for decades or more. There's a lot of durability in the portfolio and I'm excited for the future. Again, I think we have a great strategy and our team around the world is executing and that's a great combination to have.
spk02: We appreciate that. I guess for the sequential growth, fairly above our expectations. We started to see a noticeable uptick in weekly scripts in June. It's impressive during the summer while some of the other recently launched eye drugs were impacted by the summer seasonality. Our ECP checks have been really positive on my vote. Can you maybe talk a little bit about the performance in the second quarter? Is it increased? Maybe talk a little bit about trends and refills and how the integrated sales team is doing?
spk06: Sure. As I mentioned, in the first quarter, we integrated the field force. Then just a few weeks ago, we launched Glimpse, our new AI-based tool for the US pharma field force. Honestly, a lot of credit to the team. I think really strong execution in our pharmaceutical team in the United States. Very proud of what they're doing. But my vote, I think, has a great potential for the long term for us. We called up, obviously, significantly our revenue forecast for the year. I would say we can call up peak sales as well. I see this now three quarters into the launch. It's hard to call an exact peak sales, but I would see it well over $500 million at this point, peak sales. I'm very excited about that. Look, we're just starting three quarters in. We still have to gain more managed care access. The team is making great progress in three quarters to have roughly 50% commercial coverage and about 32% Medicare coverage. It's pretty impressive for three quarters. I suspect those numbers to climb next year. We'll continue to focus on execution. So I think a long runway here and a great product and great ECP support
spk08: behind it. Thank you very much.
spk01: Thank you. The next question is coming from Patrick Wood from Morgan Stanley. Patrick, your line is live.
spk04: Amazing. Thank you so much for taking it. It's a busy morning, so I'll keep it to one holistically, which is, obviously, launch is going very well. The pipeline for H2 and 25 sounds pretty stocked. The guide implies slightly, very good, but slightly slower growth in the second half. A, is that just a function of prudence? There's a lot of unknowns in the world, etc., etc., given the build of the innovation. B, just maybe slightly more strategically, on the launches, what have been some of your key learnings you've had from the first wave, the stuff that's stuck out that's going to make you approach what are you going to change in the market approach for the next wave in the second half in 25 or just more of the same?
spk06: Yes. Let me answer the second part of the question. I'll turn it over to Sam for the first part, Patrick. Look, I think we're in a constant learning mode and adjusting techniques and the different levers to pull. I think with some of these launches, we're so early that there's a lot yet to do. Let's take a big one like MIBO. The team's been working on some really, I think, impressive creative ads. We plan to launch that somewhere closer to the fourth quarter. Turning on DTC for MIBO will be a big lever. When I look at Blink NutriTeers, we're just in the phase of stocking at retailers. A lot of excitement among the retail community, the ECP community, as we get the data out. Here's a great learning. We're using our medical affairs team and also our pharma dry-eye sales force to make sure that ECPs are aware of the clinically proven formula that we have in Blink NutriTeers. Now we've got to turn it over to the consumer teams to drive consumption. That technique of working across businesses is something that hasn't happened at Bausch & Lomb in a long time. People here are really embracing it. There's a lot of cross-learning between consumer and pharma, pharma and surgical, pharma and vision care. There's just a lot of great work being done. I'm very proud of the team. Constantly learning and improving as we go. Sam, you want to take the first part? Sure. Good morning,
spk11: Patrick. When you think about Q2 for us, constant currency was about 20%. You think about organically for Q2, that was about 10%. Then you think about our guidance that we did this morning and what does that imply for the second half. If you take midpoint of the guidance to the high end of the range of the guidance, that suggests anywhere between 9% to 10% for the second half in terms of implied. Again, we're seeing the momentum that we've seen in Q2 that continues with us on balance. As you know, the guidance have multiple outcomes and we're balanced with our view in terms of the
spk08: guidance between first half and second half. I love it. Thanks for the questions, guys. Thank you. The next question is coming from
spk01: Craig Bichoux from Bank of America. Craig, your line is live. Good
spk03: morning, guys. Thanks for taking the question. I guess I want to start with maybe just some of the strong performance in the contact lens business and the equipment business, specifically on the surgical side and maybe some of the drivers there and specifically on contact lenses. Can you just talk about the market growth, what you're seeing with some of the new launches, daily size and how are you taking new fit share there?
spk06: Yeah. I'm very impressed with the team's execution on the contact lens. Really, strong growth on a constancy basis, 18% in the US and 12% internationally. We see it across all regions. When you look at lens growth, you see SciHi up 72%, the FRP portfolio up 13%. Great execution in a balanced way across the portfolio. The way I see it is as we focus on execution, we start taking share. You're talking about a market that's still growing in the mid single digits. We're growing faster than the market and so we are taking share. It's hard to pinpoint exactly where that share is coming from, but you see it happening. I think the good news is when you have a product like Infuse and you continue to launch the modalities around the world, we're just launching, for example, in the US the TORQ and the reception is truly outstanding. An easy fit, it fits on the eye really quick, it saves time for the ECP and the chair and then great vision outcomes. Exactly what you want to hear and that's exciting. Even more exciting for me in contact lenses is R&D. It's an area where we have great strength in internal R&D and we're working on multiple projects or on multiple new platforms for the future. So I see a very bright future for us in contact lenses and it's a combination of great products, great execution and continued innovation and that's the formula for success for us.
spk03: Great. If I can also ask, you updated or you raised your EBITDA guidance slightly along with the revenue guidance, but I think the implied margin may be a little bit lower than what you saw or what you guided to previously. So can you just help us understand the EBITDA margin opportunity that you have for the rest of the year, potential upside and maybe even any comments on 25 would be great. Thank you.
spk06: Yeah, so let me start and then I'll turn it over to Sam, but I think one thing I would just remind you of, we have consistently said that 24 and 25 are years of launches and we're going to invest behind the launches, particularly with so many of these products having long durable lives ahead of them to make sure that they get off on the right trajectory. So when you look at the big launches like MIBO, you see great execution and when you see fire, you want to put gasoline on it to continue to bend the curve upward. We're seeing great uptake of infuse around the world. We continue to invest behind new modality launches and continued execution. We're investing in a huge new DTC platform that we're going to launch in September in the US called Opal, really best in class consumer ECP portal. It will really be, I think, a great addition to our team there. Glimpse, our new tool for the pharma team that potentially could be rolled out to other businesses as we execute around it. And so a lot of investment behind products, even Blink NutriTears wasn't in plan. We went from concept to launch in about six months and we see a huge potential in Blink NutriTears as well. So a lot of investment in launches and the payoff comes in the out years and I think that's the right thing to do for this business. But Sam? And Craig, maybe
spk11: I'll start just repeating a bit of what Brent said because it's very important to reflect on it, which is from the beginning of 2024, we outlined what's our strategy and the theme of 24 for us, which is really building up on sustainable growth because we're playing the long game here. So we're thinking about how you take the launches, the products that we have, they have a long runway ahead of them and how you invest in them to be able to drive the top line growth and drive margin as we go forward and that margin to be a sustainable margin. So when you now reflect on what we have done with our guidance, when you think about our guidance right now, midpoint and I'll focus on midpoint, so just roughly about .4% even our margin. That's relatively compared to what we had before, roughly about 18.5, 18.6. So I call it still within the range of about sort of the same range of how we're still thinking. So we're in the grand scheme of things and a larger view, we're still holding what our strategy and what our view is from top line and
spk08: even on margin for 24.
spk01: Thank you. The next question will come from Joanne Wench from Citibank. Joanne, your line is live.
spk10: Excuse me. Hey, good morning. This is Anthony Onford from Canoe Bears Henry. Yes. Awesome. I want to start with just the Zydra launch and guidance. Can you just maybe talk about how the Zydra launch is rolling out and then I saw you lowered Zydra guidance. Can you maybe just go into a little bit more detail into what your expectations are in the second half and is any of the lower guidance potentially cannibalization from the launch of MIBO?
spk06: Yes. So great question. Look, Zydra is a very important part of our leadership in dry eye. I think strategically having both MIBO and Zydra is incredibly important and drives a lot of the early success of MIBO of having the established player like Zydra across the board. That being said, we did have a kind of a stop start situation in the first quarter with the change healthcare and that's an environmental, outside of our control situation. I think the team did a great job in getting new co-pay and vendors on board very quickly within about two weeks or so and getting back to focus and we're recovering from that reset that happened in the first quarter. If you look at what happened in the second quarter, I saw great stabilization of scripts. TRX, you see growth starting if you follow the IQVIA data. July was a good -over-year growth month and we expect that to continue in the third quarter. Zydra, our goal is TRX growth. I think when we did the deal, we talked about mid-signal digit growth. I think that's right on a TRX basis and as you look forward, we have to continue to think about some unknowns like the inflation reduction act in 25 and continued pressure for managed care. That being said, I see a long runway for TRX growth. In terms of cannibalization, I don't think that's an issue. What you see happening since MIBO launched is the market is expanding, about 10% expansion of the market and that's exactly what we wanted to see. We think that market has a lot of opportunity to continue to grow. We already gave you the numbers. It's a massive market of very under-treated penetration and as the leader across prescription options and OTC options, we are uniquely positioned to really kind of push and drive market expansion. I talked DTC, that's one great tool to do it, you're going to see new and improved DTC from Zydra starting in about a month. Then you're going to see DTC for MIBO starting in the early fourth quarter. Then of course, we're considering continuing pushing OTC. We have blink on air and then maybe potentially even blink-neutrature tears. I think we have a lot of opportunity to hit a lot of different consumers and patients where they consume and pay attention to media across the spectrum. Strategically, I don't think we could be positioned any better to really drive market growth here.
spk10: Very helpful. Second, can you just talk about your expectations for margin cadence in the back half of the year, gross and operator?
spk11: I think we're going to be, as you think about, again, look at what we performed in the first half. The first half roughly our margins are about just shy of 17 percent. As you think about the second half with the guidance and the midpoint, that suggests we have an escalation of margin. The fact that I would talk about is probably seasonality and just as a good reminder of everyone for seasonality because we talked through that before and we talked about it in the last session. Previous calls, we start low in the beginning of the year. Q1 is our lowest. Q4 is our highest. As you think about it for this year specifically, with how we're actually lining up our launches and the investments behind launches, we're probably going to see a much more emphasized Q4 as you're thinking about Q3 and Q4 for the second half for us. You always have to, I'll have you start with 2023 as the starting point of the decadence. Got it. Thank you.
spk01: Thank you. The next question is coming from Robbie Marcus from JP Morgan. Robbie, your line is live.
spk09: Oh great. Nice quarter. Thanks for taking the questions. Brent, I wanted to circle back to your comments you just made about margin and the heavy investment ahead. Should our expectation after that be that much of the top line upside you'll be delivering in 2024 and 2025 is going to be reinvested into this heavy investment period or is there a commitment to be able to absorb the investment and let the top line upside drop through the bottom line? I have a follow-up.
spk06: Thanks. Yeah, great question. No, the plan is not to put all the upside into reinvestment. It's to have a steady cadence of improved margins as we continue to appropriately invest behind each of these launches. Every investment that we make, Sam and I do a careful ROI analysis. We look at each one in great detail and spend a considerable amount of time thinking through the return. My view is we run this company for our stakeholders, particularly our shareholders, and so we want to make sure every investment is done appropriately with the right point of view and the right metrics and KPIs around each one. Absolutely, we're committed to margin improvement over time. A very important part of our strategy is both revenue growth and margin expansion on a sustainable basis for the long term. And so, absolutely want to make sure that we do that the right way. And Robbie, if I may add
spk11: to what just Brent said also is you think about our margin, again, it's back to how we set up 24. We set up 24 with a focus on ensuring that we have a sustainable top line growth and a steady margin improvement as we go forward. And if you reflect back in 23 to 24, we have a steady improvement in terms of margin year over year. I think that's going to be the same philosophy as we start thinking through this in terms of making sure, especially given the fact that many of the assets that we're investing in have a long runway ahead of them. So maximizing the value of those assets is a key driver for us to making sure that we continue to drive the value of those assets and maintain that steady growth and margin.
spk09: Great. And maybe as a follow up to that, free cash flow was minus 48 million in the quarter. How do we think about cash flow for the full year here and any color on what we should expect in terms of free cash flow conversion into next year? Thanks.
spk11: Yeah, so as I mentioned before, when you think about our results for the quarter and especially the first half, we're in growth mode. And usually when you're in growth mode, you tend to be more of a use of working capital rather than a source of a working capital. Those are what benefits are a cash flow. So just to give you as a reference, since December to June, our working capital is a consumption of roughly about 350 million. That's contemplates all accounts of working capital. And that's really feeding the growth. So that's one element that we have to keep in mind. The other part is the inventory. Inventory is also an area where we use as a lever to be able to manage through supply challenges that we talked about through 23. And the inventory right now, we're seeing roughly about a billion dollar of inventory. That's a little bit higher than what we would like it to be. But I think that again, it's the lever that we're using to be able to make sure that we have a steady supply of our products. So when you think about overall, from that, you're right, when you think about cash flow, we, year to date, was roughly about 72 million. We're running from a free cash flow perspective, we're running at this point on a negative. When I think about it for the full year, we're probably going to be a break even to a slight negative. One of the key things that we're also doing is accelerating our thinking around capex. You've seen the growth that we're talking about in the daily side high and in our lens business. And we're accelerating that growth to continue to think about our capacity and what we will need for 28 and beyond. So we're doing those investments as we speak here today. So I think that's going to have a level of impact on the cash flow for this year.
spk06: I could just add, Robbie, I think on strategy, we talked about earlier in the call, whether this is a turnaround or rejuvenation, but one of the most important tenants we put in place was to make sure we could serve as our customers. Right? Eye care professionals around the world rely on us. And particularly, you know, and I'll point out surgical, where we had the most work to do. Right? If you're a cataract surgeon and you're expecting to do surgery in the morning, and we can't deliver you the product, or we can't make the tools that you need to do that surgery, you can lose that customer forever and break that trust. And so we intentionally chose to pick in the short term, servicing our customer first and build inventory to make sure we can get products in our customers' hands. And as we work through that, that was a use of cash, right? As we work through that, we expect that to abate over time. But it was absolutely the right thing to do because you can see the growth in the surgical business finally pulling through. And I'm really proud of what the team's been able to do now that we're not dealing with, you know, daily out of stocks or unavailable products. And so unlocking that was important. It was, you know, detrimental to cash, but it's short term and we should come out of that, you know, in a year or two.
spk08: Very helpful. Thanks a lot.
spk01: Thank you. The next question is coming from Douglas Mime from RBC Capital Markets. Douglas, your line is live.
spk12: Thanks very much. Just want to circle back to MAibo. A couple things there. I believe it was mentioned that you're keeping an eye on IQVN. I just want to know, given, you know, some of the strengths that we've seen in early July, where there's been a significant pickup, when you talked about potential readjustment, are you suggesting that those numbers may be a little ahead of themselves and maybe could expand on that? And the second thing with respect to MAibo was just, is there any update on potential sampling that you're contemplating for the drug as part of that DTC contribution or introduction in Q4?
spk06: Yes, so thank you. Let me answer the second part of the question. The sample was finally approved by the FDA. A little delay there. They asked for a little extension and, well, they didn't ask. They told us they needed an extension, but we did finally get it approved and we expect that to roll out this fall. So good news on the sample. With respect to IQVN, I think there are some adjustments to be made on MAibo. I think Zyder, they're pretty good, but on MAibo, they're still working out how to best track it, and I expect there'll be some adjustments there. But, Sam, you want to cover that in a little more detail?
spk11: Good morning, Doug. And let me add a little bit more color here. In general, you always get a little bit of variability, but when you, overall, what we've been seeing in MAibo, and you're also tracking this, you're seeing a positive trend for the MAibo TRX since launch. And if you go back to the beginning of this year, even going back to Q4 last year, we're about averaging about 6,000 TRX per week. You've seen that in Q1 go up to about 10.8, and Q2 is about 15,000. When you think about what we have seen recently, my comments and my prepared remarks was focused mainly on the last couple of weeks. What we've seen is a sharp increase on the TRXs for IQVN, and we know that there's a little bit of sort of variability there. I think that the team is still working through the IQVN to be able to just reconcile and work out the differences. But as we've seen the trending, we always tend to trend sort of without a follow-up steady positive growth. What we've seen in the last couple of weeks, which you noticed as well, is a very sharp increase in IQVN that we're still trying to work through.
spk12: Okay, excellent. Maybe as a follow-up, this is more a philosophical question for Brent. When you think about the company having an 11% float right now and trading at a fairly material discount, and especially given the quality of the execution this year, especially with MIBO and a few other things, what can you talk to us about the opportunity for there ultimately being, you know, 100% float in this company at some point?
spk06: Yeah, great question. You know, I say this to our team on a regular basis here is let's focus on what we can control, and what we can control is our own execution. And so, you know, I think you, I'm not going to read numbers to you. I think it's this quarter, first quarter, second quarter, I think clearly demonstrate that the team is heeding that advice and focusing on execution. Clearly when you look at the float and the operation, it is frustrating, but I try not to spend much time thinking about something out of my control. And, you know, my expectation is that we will see that happen, but I can't pinpoint a timeline for when it will happen, but I'm confident it will.
spk01: Thank you. Thank you. The next question is coming from Matt Mixitch from Barclays. Matt, your line is live.
spk08: Great. Thanks so much. Can you hear me okay? Let's go ahead. Yes.
spk07: Now, terrific. Thank you. So a couple of follow-ups. First on contact lenses, I guess just maybe to try to get an update on just where you are in terms of dailies, in terms of mix or market penetration, or you know, how long this can run. And then one follow-up.
spk06: Thanks. Yeah, so you know, I mentioned before the daily, well, I think it was in the data, the daily portfolio was up about 16% in the quarter. You know, the key driver of growth for us in dailies is the SciHi and Pugh's or Ultra One Day outside the US. And I think, to be fair, we're still in very early innings. If it were a baseball game, maybe we're in the launching the modalities around the world. The US is the lead market for that product. And we're just launching the torque literally in the last few days. And we still have, you know, another modality to go, which is the multifocal torque. But what we see is just tremendous enthusiasm for that lens from both consumers and ECPs. You know, we still have, you know, a huge long runway to launch these modalities around the world. We continue to invest behind our execution. We did a tremendous investment in China around a new direct to consumer portal and ability to sell in that country. And it's the team there has done an amazing job, but very proud of our China team. We're about to launch our DTC ECP portal, Opal, in the US in just a few weeks. And I previewed it. It is an absolute, you know, slick, beautiful consumer interface, super simple. And we've tested it with ECPs. We designed by purpose with customers and sales reps working together. And it's going to be a really exciting launch. So long way of saying super early innings and a long runway to go and a lot of growth to come.
spk07: That's super helpful. And then maybe on surgical, you know, you had a pretty steady product flow there and, you know, plan for getting deeper into advanced technology lenses. Maybe if you could talk about what other types of strategies you can employ, whether it's on the enabling technology side or, you know, in terms of the portfolio to sort of amp up, you know, the ramp to higher growth and, you know, sort of greater share position in some of those key parts of the surgical market. Thanks so much.
spk06: Yeah, absolutely. Surgical is a real priority. I think when you look at execution in the quarter, a constant currency basis, equipment up 15, implantables up nine and consumables up seven. But, you know, the real basic strategy is to build relationships around placing equipment and then drive through implantables and consumables. And what has hindered us in the past has been perhaps, you know, not being able to place equipment because of part shortages and others. And we've solved that. And so now we can get equipment out the door. We're continuing to innovate, particularly around Stellaris. And we have a lot of really important work and innovation happening there and more features and functionality for surgeons, which is really important. And so seeing that equipment grow gives me great hope that the second part of the strategy is going to work which is moving from monofocal lenses to premium IOLs. And we saw great growth of the premium IOLs. In the quarter of SEM, the number was in premium like 36 percent growth. You know, when you look at ASPIRE, which is our monofocal plus, when it's a monofocal, great reception, early adoption just launched. The TORC, which is premium, is being incredibly well received. Our LUX platform outside the US is off to a really strong early start. Our trifocal was just approved in Canada, and we're waiting for approval very soon here in the US in this half of the year. And the EDOF lenses is the study is just beginning when we expect that launch in 26. So we're lining up all the right aspects to service our surgical customers around the world with great innovation on the come. And so I see that business as really important. We continue to look at other areas of innovation across the surgical platform to drive future growth. And I remain pretty excited about the business.
spk07: Well, great. Thank you for taking the questions.
spk08: Thank you. That's all. So I'm going to believe that was the last one. Yes, that's correct. Over to you, Brent, for closing remarks.
spk06: Great. Well, thank you all for participating in the call. Another quick call out to our team around the world for a great delivery of great execution, great focus and great service to our customers around the world. And we look forward to continuing to drive momentum in this business and keep you all updated as we proceed. Thank you.
spk01: Thank you. This conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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