Q3 2023 La-Z-Boy Inc Earnings Call
Back at 2022, we are pleased to report, 46% reported revenue growth compared to 2021, including 85% reported revenue growth in the fourth quarter compared to the fourth quarter 2021, due to a great work by our supply chain to increase output from our manufacturing line.
Importantly, the growth we are seeing is not resulting in significant cannibalization is 70% of the spherical learner starts in the U S are sourced from competitive lenses.
I'd like to spend a minute on the recent enhancement of our surgical portfolio through the acquisition of accurate focus first on slide 21 active focus ICA app. There interact airlines is a breakthrough and small aperture <unk> technology.
<unk> was approved by the FDA in July of 2022, as the first and only small aperture non tour extended depth of focus Io for certain cataract patients who have as much as one five <unk> of corneal astigmatism and wish to address presbyopia at the same time. This innovative premium <unk> is available in select markets across.
Europe , as well as Australia, and New Zealand, Singapore and is now launching in the U S. From our perspective. This acquisition is a synergistic fit for being out first.
Fills a gap in our portfolio by providing us with our first eat off Glen and the U S second to fit strategically within our current infrastructure without requiring a lot of additional resources and finally, it's the first Iot type used for Aberrate corneas, which brings additional doctors and their patients to our platform.
On slide 22, we show the breakthrough design of the embedded filtering component, which delivers high optical quality light to the retina and filters out distorted low optical quality light, providing a clear continuous range of vision, we see a substantial market opportunity for this innovative design the global premium cat.
Eric <unk> market is projected to grow at a 13% CAGR between 2022 and 2027.
On slide 23, we show the ongoing geographic expansion of our whole portfolio and the expected timing of the upcoming premium.
Launches our near term focus is on launching these premium <unk> in North America, and the EU followed by the Asia Pacific Region. In addition to the U S launch of the ICA at their Io, which is ongoing we are preparing for the anticipated 2023 launch of the <unk> aspire invest extended range mono focal, Iowa and U S.
In Canada, followed by the EU launch expected in 2024, we are also planning for the anticipated 2020 for launch.
<unk> NV and Vista, Trifocal, Iowa in United States, Canada, and EU as we further our strategy to grow the higher margin categories.
Turning now to slide 24, as we mentioned earlier, we now have a June 2023, <unk> date for <unk> III a potential first in class treatment for dry eye disease associated with my <unk> gland dysfunction, if approved by the FDA, we expect to launch Novo III in the second half of 2023.
We also plan to file in Canada in the first quarter of 2023 dry eye disease is one of the most common ocular surface disorders and while it affects approximately 36 million Americans on about half are diagnosed all about $1 2 million patients are treated with a prescription medication novoa III.
As expected to address adapter dry eye, which is unmet need and approximately 90% of dry eye disease sufferers.
This is a fast growing market with unmet patient needs of 2016 to 21 U S. Prescription dry eye market grew at a compound annual growth rate of approximately 24% and expect double digit growth from 2021% to 2027.
Given the current market for dry eye disease treatment as a result of the two phase III studies, we believe that <unk> three has the potential to be a major future growth driver for our business.
On slide 25, we have outlined the opportunities we have a high growth high margin categories first in vision care, we are adding to our well known product lines and pursuing a geo expansion opportunity for our key product franchises and the <unk> Rx business, we are launching and expanding the launches of high margin pharmaceutical products like <unk> <unk>.
After and number three and the surgical <unk>.
Shifting our portfolio to premium categories, and our investments in premium ILS and technological advances are poised to grow that portfolio. All of this work is supported by our M&A strategy, which we've deployed to strategically enhance our portfolio and fill gaps since our IPO in May 2022, we've completed six acquisitions.
And licensing transactions to enhance our pipeline and thanks to the efforts of our R&D and business development teams, we expect to launch more than 15 products in 2023.
Slide 26 outlines the three main areas of our strategic focus for the year ahead.
One continuing the momentum in our current portfolio number two investing in categories that are growing faster than the overall market and number three expanding into brand new product categories to highlight a few.
We're expecting another year of organic revenue growth in fiscal year 'twenty three driven by continued strong performance in key franchises Geo expansion and line extension opportunities and market share gains.
We continue to invest in innovation and anticipate more than 15 launches at high growth markets in the coming year.
These include the continued rollout of our <unk> daily lenses and expected launch of Novo <unk> III and lastly.
Expanding to new categories, with our new loan byproducts premium LLS and <unk>, Microsoft and <unk> platform.
To wrap up on slide number 27, our fourth quarter and full year 2022 results demonstrate that our business is continuing to deliver strong performance.
Our team remains focused on continuing to generate momentum in our key products investing in fast growing categories and expanding into new product categories.
Looking ahead.
Continue to believe that <unk> is well positioned for success as a standalone pure play <unk> company and finally, I am grateful that I'm, leaving the company in the hands of an incredible leader and I wish Brett our senior leadership team and the 12000 plus employees of <unk> all the best in the future with that operator.
Let's open up the line for questions.
Thank you very much we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
If youre using a speakerphone please pick up your handset before pressing the keys to withdraw your question. Please press Star then Kane.
We will be taking one question at a time to allow for everyone to have the chance to ask questions. At this time, we will pause momentarily to assemble our roster.
Thank you. Your first question is coming from Craig Bijou of Bank of America, Greg Your line is live.
Okay.
Hi, Good morning, guys. Thanks, Thanks for taking the questions.
Let me I guess I wanted to ask about EBITDA margin in 2020, and obviously you had some headwinds in Q4, but and youre not providing guidance for the full year.
Maybe you can walk through some of the some of the puts and takes.
That are going to effect, the EBITDA margin kind of looking at the headwinds the macro headwinds that youre seeing if theyre going to get better.
And then do you still have an ability to expand.
Margin in 'twenty, three relative to where you ended 2002.
Alright. Good morning, So let me take the question in different parts here and maybe stepping back and just looking at what we have done through 'twenty, two and what we have communicated as we got P&L standalone. After the IPO was we outlined a roadmap of how we think about our business.
And one of our immediate steps was to continue to drive topline growth.
And a consistent durable way and you've seen that and I highlighted that in my remarks. This morning.
We've seen seven consecutive quarters of organic growth.
Ill also highlight that Q4 was the second consecutive quarter that we've seen all of our three segments growing and Thats an important factor here because now you are.
Seeing that our businesses, especially the opto business have pivoted from or moved from discussions around low to focus more on growth and positioning them for what is coming next in 'twenty wishes.
Duva of Noah III and the launch of <unk> III.
Now Theres number of levers when you think about where we think about our margin and how margin progresses for us as we go forward first one was really the shift of our portfolio to more of a premium category.
Really very pronounced in our surgical business, we have seen the steps that we've taken in 2002 to be able to introduce Len smart.
In Europe , it's a premium Iowa, we also completed the acquisition of vacuum focus, which we're very excited about will give us the opportunity to be able to go forward with yet another <unk> <unk> in the U S. And also we spent more in 'twenty two behind R&D.
To be able to expedite our pipeline and bring our own goal, which we expect to come in in 2024.
And also the other lever that we talked about quite a bit was the.
Our scale and our lens business and building up that scale and we've seen the steps that we've taken through 'twenty, two with our daily Si Hy and although we did have the outflow challenges days spoke to at the last earnings call in November we actually did well.
Our focus and spend behind it to be able to get the output to where we want it to be so we are seeing that nice improvement and up 46% sequential output growth that we've seen between Q.
Three in Q4, that's really something very encouraging and Thats meeting our end market demand. So we are seeing desktop moving forward and position us very well for 'twenty three as we think about building up the scale for infused and subsequently the launch of multifocal in the U S. And then the last part is on the <unk> switch.
<unk>.
I did already talk about sort of pivoting to the growth by Novo III is a critical part of our story for the pharmaceutical business and we're very excited too.
<unk> for a launch in the second half of 'twenty. Three we think we will invest behind that launch and we'll be able to.
Have a successful position for <unk> as we go forward in terms of couple of things between Q4 and I highlighted in Q1, we've seen I'll call. It a short term pressure on gross margin and part of that is we've seen inflation play a factor for us throughout 'twenty two both on the cost of labor cost of shipping.
And utility costs, and we've seen that work its way through 'twenty. Two we've built a fair amount of inventory to be able to secure against supply chain constraints and we will have to just let that inventory will work its way through which we expected to be in the Q1 <unk>.
May be a spillover into Q2 of 'twenty, three but that will have a short term pressure on the gross margin as we go forward.
That three I just wanted to give you all the different pieces of how we think about the margin maybe.
I agree with absolutely everything you said I think maybe I'd add too just on that last point.
The positive is that over time, the operational efficiency of our teams like on Si Hy dailies. We believe will improve simple examples of supply chain team has installed all of our sites.
Equipment, they validated that ramping it up but we know that output and yield we will get better over time in year, one of any new piece of equipment like that E.
You may only get a 60% yield out of it by year, two and three of those 70%, 80% and then at some point above 80%. So that will also add to the comments that Sam has in terms of the operational efficiency over time, not not I'm not trying to suggest right now but over time that will also help us to your question of 'twenty three and beyond.
Yes.
Following up on that guys.
Ken Ken some of those positives offset some of the negatives of the pressures.
The positives in the second half offset some of the negatives and maybe the first half.
So that we see expansion for the full full year.
Yes, and Craig will have more to say on this in the first quarter when we.
Give guidance for the full year 'twenty three but the way I would think about those levers that I spoke to it's important to keep in mind that they are not all linear.
Terms of how they will actually play out so I think they will pass over time as we said in the past I think the other part that I would just point you to is.
Again back to the Novo <unk> <unk> is an important launch that you did make comments on it.
My remarks. This morning that we are going to be making sure that we spend behind number three in terms of the launch and we will see that accelerate as we go forward into 'twenty three okay.
Our next thanks for all the color.
Thank you Sasha.
Operator next question.
Your next question is coming from Cecilia furlong of Morgan Stanley . Your line is live.
Hey, good morning, and thank you for taking my questions I wanted to ask just.
Underlying assumptions for Q1 and stated expectations to grow in line with the market. If you could talk just about how youre thinking about China recovery surgical.
Surgical any impact from some of the backlog from <unk> and then also just what youre thinking about the daily Si Hy growth.
We signed 22, how youre thinking about your relative growth versus.
So overall, sorry high market and 23 in the first quarter.
So Seth let me take the first part of your question as we think about the market growth. We always think about our the market growth is roughly about mid single digits. So that's how we think about it from our perspective, I think theres different data points that we look at probably the same data points that everyone looks at as well.
So we think that mid single digits is probably a good way to think about it in terms of China.
Very pleased with what we've seen in China, thus far in terms of reopening and we.
We think it's a very positive step as you move forward.
However, when you step back and you look at how sort of that.
Process in China shifted from a complete lockdown restrictions to a full opening.
Probably have to look to places like the U S or other parts in Europe, you see as a proxy of how actually the reopening after COVID-19, we took place at <unk>.
<unk> in terms of understanding the rise in the cases of.
And that would result in.
More quarantine time also it does.
Result in potential shortages in labor as well as potential impacts on the health care system within China.
So we will expect that to be a short term pressure that we will probably we start to see some of that in Q4.
<unk> point of view, we expect that will be a spill over into 'twenty three at least in the early part that we expect also a gradual improvement in China as we go forward. So overall long term, we think it's very positive.
<unk> in terms of where China is heading.
I'll take the backlog portion for cataract Youre, absolutely correct. Its there it exist.
It goes back to Covid I think many of the centers that are doing cataract around the world have attempted to try to catch up they've had some staffing shortages, but just order of magnitude.
United States 4 million cataract procedures, we lost probably about 15% of the procedures. We are clearly making up for that and we are seeing as Sam was saying the opportunity for a cataract surgery implantable Io growing somewhere in that almost double digit range. It leaves us with the external sources are saying.
And we're certainly looking at.
That opportunity in terms of what we're seeing there. So again that gives you kind of our view on the on the backlog one of the things.
A related question.
<unk> looked historically at what happens in potential times of recession, and we have not seen any any real.
Kurt.
Impact on the recessionary times, so I don't know what exactly will happen with that but certainly we think that the need for cataract surgeries will continue going forward.
I think there is a second part of your question was about the Psi high growth versus the market.
In the first quarter 'twenty three.
As Sam said during his comments, we absolutely see growth continuing in terms of.
That kind of growth that not only that we saw last year, we talked about what we saw with our infuse.
The revenue was up 46% versus 2021, and our fourth quarter, we had about 85% growth versus the fourth quarter of 'twenty. One so we continue to see.
Tremendous demand for Si Hy dailies, and especially our new infused based on what we've been able to do with infused by putting asthma protectors and electrolyte into the formulation.
Giving patients all day comfort, we expect to see continued strong demand for our infuse and for the entire Sino daily market.
Operator, Thank you for taking my question.
Operator next question please.
Next question is coming from Matt <unk> of Barclays. Your line is live.
Hi, Thanks, so much for taking the question.
Just a question on how youre thinking about outlook. This year understanding you're only providing color on Q1 and then.
Bit of a longer term question on.
On the outlook.
Wondering if you could give us a sense of.
Sure.
What sort of variables do you see as your thinking about the full year guide.
In terms of top line or cadence of the topline that.
That's a consideration or I assume that some of the headwinds in componentry.
<unk> costs are part of part of this part of this constructing of the new <unk>.
For the year, but just maybe some of the puts and takes on top and bottom line and then I had one follow up.
Let me just I'll just hit the first part.
Why we're going to wait until May and then Tim you can take some of the variables, obviously I hope everyone understand that as we announced Brent Saunders.
Joining the company.
Last week and then obviously it started to CEO on March six we really want to get right.
Answer really.
Good.
The numbers and all the things that we are putting forth in terms of our process. So it gives them a chance to do that we will have a chance to talk more in may but we currently believe Brent with the right person to take on this role and importantly, it comes both with the knowledge of working with other companies, but also we're very much beneficial is that he is the past history it would be.
So we think clearly the right person and wanted to talk a little bit more about the outlook some of the.
Puts and takes on that sure.
Good morning, Matt I'll, maybe I'll start with the top line and just think about it from the all three different segments here. When you think about our vision care segment that I think a big part of our vision care segment is within our consumer business and we've seen a really good progress in terms of what the growth rates that we've seen in both the consumer brands.
And.
Expectation of what we will do from line extensions as well as Geo expansion.
In the consumer business, so you'll see that we've got <unk> present vision was growing very nicely throughout 2022, we've seen also <unk>.
<unk> demonstrated very nice growth in 2022, and you expect that momentum to carry forward with us as we go into 'twenty three.
From a lending perspective, I think the probably the highlight is we talked a lot about daily Si Hy, but we're also seeing nice growth in both ultra.
And by a true and they are.
They are the best brands as well so we're seeing growth on both all three different brands or families that we have with our <unk> business and we think about the Si Hy side of it.
6% sequential growth I really highlighted that because its an important factor.
How do you start thinking about 2023, because youre seeing that where we did have the challenge with the output and meeting the end market demand in the second half of 2022 we're able to really do a nice job with the supply chain team has done a fantastic job to be able to get us back to where we need to be and we are.
Right now, we're actually ramping up that demand and position us very well for 'twenty three as we go forward.
On the surgical front really when do you think about surgical about.
I will call it.
70% over the portfolio of staying between Implantables on iOS in those two parts has been growing very nicely in 'twenty, two and we expect with the comments that Joe made earlier regarding the backlog and the surgical procedures that we will continue on.
On the equipment front, we've seen down in 'twenty, two but I think we are working through.
The number of that supply constraint I highlighted in my remarks, I think that will continue to gradually improve as we go forward. So just on balance you'll see between the two of them you'll see that overall, we expect the surgical business to continue to perform very well and then the last one the ophthalmology is.
It's really a very good story in terms of pivoting from the OEM again, it is going to be an investment year for ophthalmology.
Sure.
We launched the IPO last year.
Now expanding it means the IPR and by Solta on a geo expansion and we're focused to push forward more on expanding beyond that.
Number three launch in the second half of 'twenty three.
That's super helpful. Just a follow up on.
On surgical.
Some of the launches that you've talked about.
Premium IOL towards the end of the year I guess.
As we think about the.
Cadence.
The impact.
Growth, but also importantly margins.
Yes.
Two things I guess, one is how do you see how do you see yourselves.
Positioning.
Just sort of take share in a market that.
You've been a little bit behind in relative to your to your large competitors in the U S. In particular, what's your what's the edge of the strategy and the product differentiation to do that in particular, and then is that a yes.
Mid 'twenty four late 'twenty four we started to see some of the margin benefit of these things coming through through mix or what's the cadence of the margin lift that you hope to achieve through these products.
Yes, I'll start and Tim can add in.
Diluted left out, but I think it comes down to a couple of things number one.
We launched these premium OLS, we clearly believe that were coming forward with new innovation. The easy Easy example is what we just did with Macquarie.
Acquiring the accu focus we're taking very specific.
Technology that we will have that we will bring to the marketplace and at least as we see so far very early.
Caveat that but we've seen great response from the physicians the kols that are.
Implanted the lenders, but I think Thats certainly one simple example, I'll remind you we've done the same thing with our look smart for our wealth platform predominantly that's around the world, but we put that forth outside the U S to Western Europe Central Europe .
Israel and then continue to add it into Latin America, Russia, Iran lots of things that we're doing there.
In terms of our Lux Smart portfolio I think we're in 20 countries or thereabout also clearly I think a part of this in terms of the margin.
Thank you realize that the.
We will sell a mono focal.
For somewhere in the 100 to $150 per lens, whereas the premium lenses are somewhere in the let's call. It $751000 per line and the cost of goods is not that dramatically different. So that's obviously going to help that that margin opportunity for the long term, but to the slide that I had in the deck.
If the exact patriot.
Really is a focus there of what we're thinking about in terms of.
Doing some things starting in 2023 bolting on these additional assets.
Like the <unk> focus and then 24 and 25 will be.
Continue to delivery on the platform of our view is this integrated strategy, we have at Bausch <unk> lomb the reputation that Bausch <unk> Lomb has will help us as we go forward with what we believe our quality lenses <unk> for patients and I think that those relationships with doctors will really help us over the long term.
Yes, and Matt just wanted to maybe remind you.
Comments I made previously is when you think about launches as well it's important to think about how that launch translates between topline.
At the time of launch to the margin on average depending on where you what products you are launching and where youre launching that product.
Anywhere between 18 to 24 months before you start seeing that sort of the impact of that launch start to translate to a meaningful impact on that margin because you're investing behind that launch as you prepare for a new go forward with it.
Great Super helpful. Thank you.
Operator next question please.
Certainly your next question is coming from Vijay Kumar of Evercore ISI P. J. Your line is live.
Hey, guys. Thanks for taking my question.
I had two Parker and I'll ask them upfront.
First on margins here.
Your Q1 gross margins Thats, a pretty big sequential step up from Q4.
What drives that Q1, what are you assuming for pricing and inflation.
And my second.
Below the line items when I look at interest expense.
<unk> losses is that something that's.
Expecting a sustained here or.
Or any changes below the line. Thank you.
Yes.
Let me take the first part of your question first.
When I think about the margins as we think about Q1 234, I think I did highlight is where.
So a couple of things on the margin is.
Youre seeing the the inventory working its way through that was built in the second half of 'twenty, two youre seeing that working its way through the P&L and because of just the way inflation played out we've seen inflation ramp up.
Throughout <unk> to start to moderate towards the end by USD at a higher rate. So you are building up inventory with higher costs in Europe .
Working that inventory through the P&L and that will give you an impact on the margin.
In Q1.
As you start thinking through it from that perspective, there is other elements, obviously, you'll see the top line, we talked about the market growth in Q1. So we expect that and we expect also the fact that we're ramping up the benefits of the data side with the ramp up and scale, that's going to flip side of the margin pressure in giving an opportune.
As you go forward in 'twenty three.
And the second part of your question regarding below the line.
Most notable item, though we've seen a little bit.
Below the line in Q4 was the $18 million of currency headwinds that was something does it really impact us in the later part of Q4 and what we saw in currency throughout.
<unk> 22 was really the volatility of the currency and hitting the peak in the second half of 2022 one unique factor. We saw was that all currencies were relatively moving in the same direction with a USD.
But then we start to see also the with the USD.
So weakening towards the end of the year, we start to see movement in currencies.
Happening and now all of the same magnitude now on the same direction. So we've seen different currencies move in as I reminded you in the past.
Naturally hedge and certain currencies within our P&L. So when you start seeing some movements cross currencies that does have an impact for us in the P&L that will be more pronounced in the EBITDA than on the topline that's why ACO at the bottom line.
I would add Vijay as you asked about pricing and I did want to just comment that similar to 2022, we did take mid single digit price increases in selected market specifically for the <unk> Rx business, our contact lens business and our consumer business.
Mostly we looked at those markets that were impacted most by inflation as we go through and make decisions on our pricing, but we did take.
When I refer to as mid single digit price increase now please realize that.
For example, in our auto business, if we take a mid single digit.
This increase not all of that drops to the bottom line some of that of course does not.
I think about whatever price increase I take I, usually get in the auto side something about half of that that goes to the bottom line. So just to give you some sense on that part of the question of pricing.
Operator, we have time, maybe for one more question.
Okay no problem.
Next question is coming from Joanne Wuensch of city Jo Ann Your line is live.
Thank you very much and good morning.
And that one three gets a lot of attention.
And I appreciate that you have a date in June and the launch at the end of the year and a large market opportunity, but how do you think about it ramping and contributing to <unk>.
In the early days as well as how it will launch.
And I'm looking for an idea penetration rate and.
Salespeople that may or may not be needed and is it just a switch that flips on transco.
So I think let me start with the first part of your question. We are very excited about <unk>, we think that the opportunity here for novo three to help.
<unk> of Americans, who have dry eye disease, especially now that we have some data that shows.
The impact on the <unk> gland dysfunction for dry eye disease, we think very exciting so if we get approved by the FDA.
Really excited about what that opportunity will be for us as it would relate to the question of ramping I think as you know with new product launches as always.
Formulary process that we will go through we've already started that process of working with the market access and.
And managed care teams to think through the opportunity. We do believe this myeloma I'm glad dysfunction is an important part of that question simply because at this time, there's no other product that have that specific pharmaceutical application of the evaporative type of dry eye disease.
We believe somewhere about as I said in the call.
Today about 90% of patients have the evaporative dry eye disease. So we do think there's a big opportunity. We will also state, though that we will need to work through market access.
Managed care to key that formulary position, but we think the data is compelling the data says that the product works.
Two phase III clinical trials.
Working it's early as day 15, we think thats important to patients. So we're excited about that relative to the <unk>.
Actual part of the question you asked with the actual.
The number of sales reps and we feel good about the number we have today, we will reallocate them of course from other products, but we do feel very good about our capabilities and the team have been building up.
Sales rep capabilities, but also working with key opinion leaders working on this my <unk> gland dysfunction in terms of a concept with the kols. So a lot of activity.
We're excited about it it will take a while to ramp up but long term, we see it as being a very important product for us.
Thank you very much.
Everyone that concludes our call today. Thank you very much for your interest in Bausch and Lomb and look forward to talking to you over the next several days and weeks ahead have a great day everyone.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Okay.