Q2 2023 Bausch + Lomb Corp Earnings Call
[music].
Greetings and welcome to the Bausch and Lomb second quarter 2023 earnings Conference call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the call.
France, Please press star zero on your telephone keypad.
Please note. This conference is being recorded I will now turn the conference over to your host George get Koski.
Sir the floor is yours.
Thank you good morning, everyone and welcome to our second quarter 2023 financial results Conference call participating on today's call are chairman and Chief Executive Officer, Mr. Brent Saunders and Chief Financial Officer, Mr. Sam Elder Suki. In addition to this live webcast a copy of today's slide presentation and a replay of this conference call.
It 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.
Could I 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.
Finally, 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 Brian .
Thank you George and thank you everyone for joining us today.
My remarks will focus on Tuesday is that the bind the quarter performance and progress.
Right in on slide three.
Since our last update I spent significant time on the road hearing directly from customers there.
A matter of the country no matter the specialty one theme was consistent.
People are rooting for us and want to see Bausch <unk> lomb as an industry leader once again.
Two areas for improvement will also made clear and speak directly to challenges we covered during our call last quarter.
We need to bring a steady supply of new products to market.
Here's the good news, we know what needs fixing.
As I've said before we have a large global infrastructure and an expansive commercial footprint.
We offer products that address all I care needs.
There were approximately 13000, bausch and lomb employees motivated every day by our mission of helping people see better to live better.
But scale is a competitive advantage only when it's sufficient.
Think of our challenge like a restaurant with great food and service loyal clientele and ideal location.
But it fails to get food orders right and on time.
It is how did you streamline the dining experience without losing any of what customers love.
Let's take a look at our progress.
Last quarter I unveiled the road map to accelerate growth or more.
Multi year plan to realize spousal loves full potential.
We're early in the process, but I am encouraged by what we've been able to accomplish in just a few months.
Highlights include flattening the organization to free up resources and focus on new capabilities We're building.
<unk> next generation digital and data competencies.
We launched an employee driven initiatives aimed at reducing inefficiencies and administrative burden with a focus on our sales team.
We put quick wins on the board in several areas, including expense reporting meeting protocols and support in the field.
I also solidified our leadership team, bringing in new talent and creating new roles align to our strategy.
Complex change projects like our roadmap tend to ask a lot of employees, but.
We have a talented and motivated team that gets it.
They understand what needs to be fixed and want to be part of the solution.
And in the midst all of this changed they delivered a very solid quarter.
12% revenue growth on a constant currency basis outperformance across all segments and increasing demand in key markets would make any C O happy, especially in my first full quarter.
And to be perfectly clear I am proud of our performance and encouraged by several trends that will influence future growth.
But my focus is on what's holding us back.
To put it simply we need to improve how we make and deliver our products to customers and consumers.
I'll use our Lynchburg, Virginia contact lens distribution center as an example.
We were forced to upgrade that facility given significant growth in the business a good problem to have.
I'll spare you the details, but essentially we needed to move from that 30 year old manual system to a new digitized way of working.
The problem is we didn't execute and technical issues led to the facility quickly falling behind in process and borders.
Well, we expect to have things sorted out by the end of year. Thanks to the tireless efforts of our Lynchburg employees, we did experience a self imposed negative financial impact to our business.
What happened in Lynchburg is the most prominent supply chain issue, we faced in the last quarter, but.
But it's certainly not the only one well some things may be outside of our control we need to eliminate self inflicted in negative impacts to our business.
Despite the ongoing supply challenges I'm very pleased with our second quarter, which Sam will go deeper on.
Thank you, Brian and good morning, everyone before we begin as I noted on our last earnings call. Most of my comments today will be focused on growth expressed on constant currency basis.
Turning now to our financial results on slide eight.
The second quarter, we saw strong revenue growth across all three of our segments total company revenue one point of view with three 5 billion for the quarter reflects growth of 12% on a constant currency basis, and 10% on a reported basis compared to the prior year.
Our strategy is to continue to invest in the business.
The investments, we're making are driving strong revenue growth performance.
Continuing to execute on this strategy as we look forward to launching new products and reaching our full potential.
As Brent mentioned.
<unk> remains a challenge for us specifically in the surgical and less portfolios.
I will discuss further were taking mitigating steps, but this remains a work in progress.
On the positive side market demand remains strong.
As we improve our supply we expect robust demand to continue to drive growth.
In the quarter.
Foreign currency headwinds were approximately 18 million to revenue and 25 million to adjusted EBITDA.
We're seeing currency headwinds, having a larger impact on adjusted EBITDA, which is driven by our geographic footprint and the resulting currency mix.
Regarding China, we're seeing tangible signs of recovery in the quarter, our China business grew 24% on a constant currency basis relative to a soft comparable in the prior year quarter that was negatively impacted by COVID-19 restrictions.
China contributed approximately 200 basis points to the 12% overall second quarter constant currency growth.
We will continue to monitor the progress and remain confident in our business in China, where it tends to stable and consistent growth over time.
Now, let's discuss the results in each of our segments.
Vision care revenue of $646 million increased by 12% on a constant currency basis, driven by growth in both our consumer and <unk> portfolios.
The consumer business grew by 17% on a constant currency basis led by our <unk> eye vitamin and Arthur like franchises.
<unk> revenue grew by 23% globally compared to the prior year and achieved a record $43 million of revenue in the second quarter of 2023.
As a leading market share of approximately 50%.
We're also building the successful launch of <unk> in Canada.
And we're leveraging their brand equity to launch the <unk> eye Illuminations beauty line.
Revenue from our eye vitamins franchise preservation and occupied grew by 12% on a constant currency basis.
President vision continues to be the market leader with 90% plus market share in the U S.
Recent launches of Arkansas, and preservation plus co Q10 continued to expand the franchise.
Our international consumer portfolio revenue grew by 22% on a constant currency basis.
Revenue from our to lack a key brand in our dry eye franchise grew by 24% on a constant currency basis, mainly driven by higher demand in Europe .
We have continued to drive growth in our consumer portfolio.
To sustain the growth momentum, we will focus on investments to support launches, including in the second half of the year.
In July we announced the strategic acquisition of length to further expand our OTC eye drop portfolio.
While we're excited about the strategic fit we don't expect to have a meaningful impact in our 'twenty to 'twenty three financial results.
And the lens portfolio, we saw 4% constant currency growth in the second quarter.
Reported revenue from our daily Si Hy lenders grew by 42% in the quarter driven by strong demand as we continue to expand the daily Si Hy family.
We recently launched a daily Si Hy multifocal lens into the U S. And also rolled out did you say high in China, which is a large and important market for us.
We also saw broad based growth across the portfolio on.
On a constant currency basis by true delivered 3% growth in AUM.
Our legacy brand soft lines daily grew by 10%.
As Brent discussed revenue in the U S land portfolio was negatively impacted by implementation disruptions related to our new warehouse management system upgrade the star Lynchburg facility.
This mainly impacted our ultra lens family, which declined in revenue in the quarter excluding.
Excluding the impact of the disruptions global lens constant currency revenue growth would have been approximately 10% in the quarter.
We're taking steps to resolve the disruptions and resume a normal level of order processing. We anticipate there will be a continued impact into the second half of the year as we work through the implementation.
Moving now to the surgical segment.
Second quarter revenue was 195 million, an increase of 7% on a constant currency basis.
The consumables portfolio, our largest category grew by 11% in constant currency compared to Q2, 'twenty, two mainly driven by surgical packs.
Implantables declined by 4% on a constant currency basis.
Strong growth in the high margin premium I O portfolio, which was up 33% in constant currency was offset by the impact of a product hold issued by our partners on the ICU one standard I O L.
We anticipate the product for it to continue into the second half of the year.
We're also executing on our fifth U S launch of the I T. A premium I O L, which has generated strong interest in the market, we're continuing to make investments to support the launch including training associates and Onboarding surgeons.
Revenue from equipment was up 10% versus Q2 22 on a constant currency basis, driven by a recovery in China as well as contributions from the instruments portfolio.
While market demand in our surgical portfolio continues to be strong our ability to supply remains a work in progress.
Our team continues to implement various mitigating measures, including strategic spot buying of components, which has led to higher cost inventory on pressure on margins.
We anticipate the supply will remain volatile as we progress throughout the year.
Lastly revenues in the pharma segment were 194 million representing constant currency growth of 16%.
With strong performance across all three portfolios and all major markets.
And our U S Rx business by Solta revenue grew by 25% in the quarter with your Rx is up 26%.
U S. Generics revenue grew by 10% as we continue to actively capitalize and supply challenges faced by our competitors.
The international portfolio is so strong performance across all major markets, leading to 20% constant currency growth in the quarter.
Growth in the international portfolio was broad based across all major markets, including China.
We're pleased to have received FDA approval for Michael.
As we prepared to launch this innovative dry eye product in the third quarter, we expect to make additional investments.
As you have heard me say before it takes approximately 18 to 24 months to ensure new launches are well positioned in the marketplace.
Now that we have covered revenues for each of our segments. Let me walk through some of the key non-GAAP line items on slide nine.
As a reminder, the bausch and Lomb IPO occurred in May 2022, and our second quarter 2022 results did not fully reflect run rates stand alone costs.
Along the same lines the bases of interest expense and taxes reported in Q2 'twenty. Two results also does not fully reflect our operations as a standalone entity.
As we have previously you mentioned.
This impact that compatibility between 'twenty to 'twenty, two and 2022 results.
Adjusted gross margin for the quarter was 59, 7%, which was flat compared to Q2 'twenty two.
Second quarter adjusted EBITDA of 179 million was impacted by currency headwinds of approximately $25 million.
Adjusted EBITDA also reflects standalone costs that were not fully reflected in the prior year quarter, given the may 22 timing of the Bausch and Lomb IPO.
We'll continue to focus our strategy on increasing investments to support product launches and R&D.
In the second quarter, we embedded an additional $10 million in R&D compared to Q2 'twenty two.
We're committed to investing in our upcoming launches in 'twenty three 'twenty four to ensure they are reaching their full potential.
Additionally.
In the surgical business the limited availability of components has led to higher costs and the lens business. The system upgrade disruption at our Lynchburg facility impacted our normal level of order processing.
Net interest expense for the quarter was approximately $53 million, reflecting the current interest rate environment.
For comparability purposes, the lower net interest expense of approximately $43 million in Q2, 'twenty two did not fully reflect our standalone capital structure.
The adjusted tax rate in the second quarter was 6%, which is in line with our expectations for the full year 'twenty three.
Adjusted EPS for the quarter was 18.
Adjusted cash flow used by operations was $14 million in the second quarter.
This is mainly driven by a strategic inventory build to mitigate potential supply disruptions and then an investment in working capital to support launches and growing sales.
Year to date, the strategic inventory build has been approximately $82 million.
Adjusted cash flow was also impacted by higher interest expense and the timing of payments.
Second quarter Capex was 27 million.
Turning now to our 2023 guidance on slide 12.
We're raising our revenue guidance for 2023 to a range of $3 95 billion to 4 billion, which reflects our constant currency growth rate of approximately six 5% to seven 5%.
Okay.
Based on current exchange rates, we expect currency headwinds to have a negative impact on revenue of approximately $50 million for the full year.
While I'm very pleased with the strong performance in the first half of the year our guidance reflects a responsible perspective on the remainder of the year.
We are balancing their strong performance and the market demand with a work in progress of resolving our supply chain challenges and the potential volatility this creates.
As mentioned, we have taken action to address supply challenges, particularly in our surgical and <unk> portfolios were.
We recognize there's more work to be done to provide consistent level of supply to our customers and patients.
It is also important to note that as we are seeing signs of recovery in China. The Q2, 'twenty three level growth benefited from softer performance in the prior year.
While we're excited to further enhance our consumer portfolio product line with the July acquisition of blank. We then.
Not expect the acquisition to have a meaningful impact on our overall financial results for 2023.
I would also like to note that designer transaction, we announced at the end of June subject to regulatory approvals and customary closing conditions and is it.
Expected to close by the end of 2023.
Our guidance does not reflect any anticipated impact of the transaction and the related financing.
We are maintaining our adjusted EBITDA guidance for 2023, and a range of 700 million to $750 million.
The adjusted EBITDA guidance absorbs the supply chain pressure incurred in the second quarter and reflects our commitment to continue to invest in our product launches.
We expect full year currency headwinds adjusted EBITDA of approximately $35 million.
On a rounded basis, we continue to expect our 2023 adjusted gross margin to be approximately 60%.
Although there is some slight favorability is driven by the supply chain pressures that I've already discussed.
In terms of other key assumptions underlying our guidance.
We anticipate investments in R&D to be approximately 8% of revenue.
And interest expense to be approximately 225 million for the full year.
Our adjusted tax rate is expected to be roughly 6% and full year Capex is approximately $200 million.
As I already mentioned keep in mind that that comparability between 'twenty to 'twenty, two and 2023 results for the full year will also be impacted by the May 22 timing of the IPO.
Overall, we're pleased with the strong growth across all of our segments in the first half of 2023, and we're excited to continue enhancing our portfolio.
We recognize there's more work to be done in the back half of the year to overcome the volatility related to supply challenges and to deliver consistent performance.
Our 2023 guidance reflects our strategy to increase investments in the business to support launches that we expect will become important drivers of profitable growth.
And now.
I will turn the call back to you Brent.
Thanks Sam.
Let's talk about what's on the horizon.
With our recently announced acquisition of <unk>, we've been asked if we're focused exclusively on pharmaceuticals.
That couldn't be farther from the truth.
We are committed to growing our pharma business.
We're focused on being named best Eye care company from surgical equipment, the contact lenses and everything in between.
Products you see here represents all of our businesses.
Some of our significant while others will be steady contributors, but the point is they all matter and support our approach to holistic eye health.
The timing of these product launch matters as well.
Recent and upcoming 2023 launches will serve as a catalyst for 2024, which we expect will be one of the most active launch years in the 170 year history of bathroom law.
While there's typically an 18 to 24 months launch cycle to realize full economic potential from new products. We're excited about the trajectory and industry positioning and our ability to innovate for patients.
How we're bringing these products to market is critical and something we expect to significantly improve on.
Let's take a look at how we're rolling out what we expect to be an important contributor for years to come.
The my boat launch later this quarter will be an exciting event for the company and the teams that worked so hard to bring this product to market.
It's also an opportunity to truly leverage our infrastructure and apply what we've learned from past launches.
The critical success factors for my bus introduction art nice to haves. They are imperatives, and we will help establish a blueprint for launch excellence going forward.
This is especially true when it comes to fill preparedness and setting the team up for success.
The timing for refresh go to market approach could it be better as the dry eye disease category is ripe for innovation and new treatment options.
Dry eye disease is underdiagnosed and Undertreated.
Representing a significant opportunity.
This is especially true when you consider we have an aging population and more time is being spent staring at phones and tablets.
Data is jarring.
The estimated 96% of the U S population that suffers from dry eye disease is not using a prescription treatment.
Dry eye disease is also a multifactorial, which means different treatment options are needed.
My vote is the first and only FDA approved treatment for dry eye disease that directly targets tier evaporation.
I dress and other similar medicines focused on inflammation associated with dry it in other words these are different medicines treating different needs.
Our acquisition of Zebra, which is subject to regulatory approval and other customary closing conditions will complement our existing drive portfolio and provide prescribers with different treatment options based on unique patient needs.
Moving to our vision care business, despite supply chain challenges from our Lynchburg distribution center, our silicone hydrogel lens performance was exceptional continue on a growth theme, we watched multifocal in the U S last quarter and our single vision spherical watch in China means we now have presence.
And all major markets.
As an aside I had a chance to visit China. This June .
I'm excited about the investment we made in talent, there and our market potential.
Rounding out our business highlights we continue to strategically expand consumer offerings and provide more OTC options in more places.
<unk> saw its highest ever quarterly revenue with 23% year over year growth on a reported and constant currency basis. We.
We saw similar numbers for Ottawa and have growth plans for both franchises with a goal of creating a truly international brands.
In surgical product demand remains strong, but component availability continues to be an issue impacting our supply chain.
We're working with third parties to address these challenges, while providing more options and a growth market.
For questions.
Certainly at this time, we will be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.
Confirmation tone will indicate your line is in the question queue. You May press start to if you would like to remove your question from the queue.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys, one moment, while we poll for questions.
Your first question for today is coming from Joanne Wench at city.
Good morning, and thank you for the question I have a couple American around supply challenges in surgical and lenses is there a way to quantify the impact of that and the timing to resolution and I'm Gonna pass My second one on daily So can hydrogels up 42% is pretty <unk>.
<unk> what do you think is going on there and how much of that growth is maybe market share or cannibalization or market expansion.
[noise] great. Thanks, Jones, so let's deal with the first question on supply challenges.
First I, I'd, probably say well I'm, a I'm, a tough grader and and you know I do think that.
We can improve our ability to supply customers in patients with our products across all of our businesses.
Yesterday, I announced for bringing in a very experienced new head of our supply chain.
And I suspect that will take us a year or two to get to a place where I feel very confident in our ability to execute in the supply chain that being said, we don't have regulatory issues FDA issues. Other health authority issues. This is more about delivery of products and componentry and supply.
That is a fixable.
Situation and one that we're very focused on solving so it will take some time, but but absolutely solvable in terms of quantifying Sam do you Wanna join good morning.
I will break the supply chain to parse that you mentioned surgical and the lengths business because they are different. So when you think about surgical wait while we were talking about is the availability of components and what we've been doing is we've been working through trying to validate second vendors to be able to find the supply sufficient.
<unk> that will support the demand that we're seeing in the marketplace and the surgical business.
And we're also been doing what I refer to as a spot by and the Spotify is basically acquiring waiver supply we find in the market, but it's acquiring at a higher cost which is putting pressure on the margin and are highlighted that in the first quarter.
Again this quarter, so you'll see the impact of that as we go through the the year as the inventory comes in as to the impact on the margin pressure there.
The second issue is the Lynchburg that Brent mentioned, we discussed earlier and are prepared remarks that relates to the distribution center and to upgrade that we've done in the distribution center in the U S.
The impact of diet quantified in my prepared remarks about 600 basis points, where the lines business. So we've seen the growth in our lens businesses, 4% that would have been 10% excluding that starts about.
600 basis points, we absorb the impact of than our EBITDA, which was roughly about $10 million that we absorbed in this quarter.
Results as well.
Yeah, and with respect to the daily Sigh high or M fused product line obviously.
What's most important is we have a very good product there and we're seeing we're seeing great support from <unk> and patience.
Words, when you look at a volume there.
We see that about 60% as being sourced from from new fits it and the rest from switches.
I do think that when we get deeper into the data we see about a third of patients or switching from from other modalities or other consumers coming into our infuse products. So there are obviously is some cannibalization anytime you launch a new really well received product in the marketplace.
But I do think the overall big picture is we have a great product we have launched it now and all the major markets around the world and now we're moving into the higher margin specialty versions like the multifocal, which just launched in the U S. And then we'll have the multi the torque following next year as well so those will take a.
A little bit to roll out around the world, but but.
I think the entire portfolio there is very strong competitive offer.
Thank you.
Next question offer.
Your next question for today's coming from Douglas mean at RBC capital markets.
Yeah. Thank you and good morning, My question and I know this is out of your hands at the moment and we're not expecting it close and decide rid deal.
Until later this year, but.
I do have a question around the performance of that product down around 20% and I know that they're trying to garner more market share, but we're not seeing a pickup in prescription rates.
We have probably dealing with a disengaged sales force. So first question is.
Are you hearing about any turnover and that sales force and.
Secondly, if we are starting from a base of $400 million in revenue as we exit.
2023, when you talk to originally a boat.
5% growth were you talking from $500 million from whatever 2023 ended up being.
Yeah. So so thanks for the question look clear.
Clearly it is.
The product is owned by Novartis and is subject to the normal customary closing.
Conditions, and we do expect that closed towards the end of the year.
That being said I think you have to look at the history of this product in the category. So so this was a drug launched by Shire salted Takeda sold to Novartis.
And then.
Somewhat openly held for sale for the last several months, so look I think human nature any salesforce.
Looks at something like this and probably there is a little bit lack of energy or enthusiasm in that group, that's just human nature.
And so we are excited to get it and get the deal closed.
And look for better ways to.
Talk about the therapeutic benefits to doctors, we know it is a promotionally sensitive category I put some data up related to the category.
Roughly 38 million people in the United States diagnosed with dry disease, and yet only 1.4 million patients treating with a prescription.
Solution and so.
When I look at those dynamics, we're very excited to have a.
Differentiated treatment option.
Physicians to complement what we're bringing with fiber.
And then lastly, I'll just.
A little long winded, the most important metric I'm tracking wall novartis still as in.
Ownership of the brand is Trs and we saw about 4% here X growth and so to me that is the most important metrics till we close to track and I think they are doing a solid job there.
Thank you.
Your next question is coming from Larry Wilson at Wells Fargo.
Good morning, Thanks for taking the question and congrats on a nice quarter here.
And Sam.
Two from me.
One of my ball.
One on 2024.
So just to start off <unk> brand what would success look like I mean, we've looked at the launch as a benchmark.
What are some of the puts and takes in your view of how adoption could be stronger or weaker and would you be happy if a <unk> ramp was about 50% of XI dry.
Jim time post launch I mean, <unk> been a successful product at about $500 million peak.
So that's my first question just kind of how you're thinking about you know.
The ramp of my about and.
And then I had a follow up for Sam.
Sure so.
As we we look at my boat I think.
I said walking at at the Zeiger launches perhaps.
A little informative, but probably not right on these are different products and different markets for dry eye disease.
<unk> launched into what we would call the inflammatory associated dry category. That's a very competitive category you had when it launched you had a very strong restasis since launch you've had several other new entries and new products in late stage development for inflammatory dry my bow on.
The other hand is in a in a different part of the market for different patients in a different treatment modality tier evaporation and we are the only drug.
Procure evaporation, most dry suffers have tier evaporation related issues and so I do think we have an opportunity to be.
[noise] quite successful with this launch and we're very excited about it and.
In round numbers I would say I would be very disappointed if we didn't see peak sales exceeding $350 million.
Over time.
Ramps take longer managed care access takes longer to work through.
But I think we're in a very good position with a great product.
That's super helpful. Sam I, obviously, you're not giving guidance for 2024, but there are a lot of moving parts and I'm. Just wondering if you could maybe provide a framework for how to think about 2024, what are some of the things to consider zebra $4 million to $500 million in revenues I think you've talked about that being about 10% accretive.
Just want to confirm if that's still true yeah, Blink revenues, but my boat launch.
<unk>.
Loss of exclusivity and just summing up the streets modeling about a dollar in EPS right now next year versus call at 75 to 80 cents this year.
Does that seem about right with all the moving parts is there any.
Anything you would highlight I mean, obviously valuation is primarily based on on 24. So just hoping you could provide some framework there. Thank you.
Hi, Good morning, Larry and there's a lot to unpack and this one question. So let me step back and maybe you just think about from a big picture framework and I will start by I'm not gonna give guidance in 2000 2000 for today I think we're still early to do that but there's a couple of factors you have to think about the fundamentals of our business and I will probably.
And our anchor and what we've seen here in the second quarter with seeing strong performance in the business across all three segments, we've seen that demand.
Portfolio is significant so we are very excited over then I would expect that momentum of the strong demand will continue with us as we go forward into 2024.
We're also seeing that with the acquisition, we mentioned Blink and Dierdra.
A blanket is not going to be a material impact for us.
This year, but if you look at the data available will suggest that Blink is run races anywhere between 30 to 40 million top line. So as we start getting portfolio brand folded in our portfolio important or.
Consumer teams hand, which I'm confident that it will do great things with we expect that to continue to start growing from there.
We talked about sort of our expectations are and I'll call. It mid single digits starting from the point once we owned the the brand and the franchise. So we'll we'll be able to work through that so that's all on the positive side in terms of how we will stinky building the portfolio as we go forward I have to balance that with the supply chain.
<unk> <unk>.
Element that we've been talking about because we've seen the surgical supply chain talked about from putting pressure on the margin because of the spot by in qualifying different vendors and we're seeing the work that's happening within the lens business I believe that's all fixable.
It was not going to be fixable, and one quarter will be it will take some time to be able to get to a steady state and a consistent supply. So just that also being factored into thinking.
Thinking here as we go forward. So when you look at those components in and put them together.
How I would sort of.
Break your model or thinking about 2000 2000 for it.
At this point based on what we know today.
Thanks, so much.
Fr.
Your next question is coming from my sick at Barclays.
Hey, Thanks, so much for taking my question Congrats on a really impressive b here are the top line.
I wanted to use sandwich bread wanted to talk a little bit about if you could.
Maybe it provides some color around.
The level of investment that you're making the highest of the new product launches that you talked about so maybe we're in this in this line of new new launches.
<unk> sort of the heaviest.
Spend.
Initially.
612.
12 months or so and then.
Which which of those which of those products do you think you'll be in a position say.
Early to mid next year to start driving leverage adverb launches if that's the right, but that's the right timing.
Sure. So maybe I'll start a turn it over to Sam clearly that the two biggest investments will be making our and my bow in our daily Sigh high accused launch globally. So.
Clearly <unk> we.
We intend to launch the product and the and the.
And this quarter the third quarter so.
So we're very excited about that currently in any any significant pharmaceutical launch your in an investment cycle for it.
But it's call at 18 months 24 months something in that order of magnitude.
And then infuse has been Ah.
Tom interest in patients so very encouraged there and that generally follows the same kind of investment cycle is a pharmaceutical product.
So those are two big ones that Sam any any other color commentary on launches.
You're covered I think definitely my will be very important one in math.
I would.
Refer you back to slide 14 that we included in the deck because it nicely outlined all the product launches as receive 422 and 2004.
And we will see the sort of the <unk>.
Those lunches will be investing behind those lunches and they're across all three segments and just as a reference and my preferred remarks that.
Before like when you think about the launch it takes probably anywhere between 18 to 24 months until that launched started getting.
Potential suit that's worth the investment period.
As we think about it for any of those launches.
Great until the read through I'm hearing and other folks I'm sure.
Picked up on this.
Is that leverage.
Next year, we shouldn't be looking for any sort of <unk>.
Significant leverage in the middle of the P&L just because it's because these these girls growth may be terrific continue to outperform.
But leverage is something that we should expect to be a bit more muted is that a fair way to take about 24, even though you're not guiding obviously preclinical right now.
Yeah, So so great great point.
Very focused on on leverage our margin expansion it.
Clearly a goal is a significant galore primary goal of ours is to have sustainable margin expansion.
In the business and we think that is achievable and time and so maybe it's Samuel provide some color around our thinking there yeah and.
<unk> is very important.
Thanks for Us and we're we understand and appreciate that we will want to continue to provide proof.
Progression within the margin expansion and his friends had where folks on it from a sustainable margin expansion and that's really where our goal here is to accelerate.
Our growth and exited and expand our product portfolio and you start to see many of the actions were taken today is to build on the fundamentals of the business such as the consumer brands, where we talked about Lumify expanded a growth lumify, which is.
Pretty good product for us and combining dealt with as well.
Putting in launches and shifting the portfolio to more of a premium type of products and we're seeing that in the surgical side, we're shifting more into more of the premium category wished I will end my bill, which is more of a higher margin products because of the pharmaceutical. So we expect that we will continue to provide.
Positive impact on the margin as we move forward, while my comments here Mount in terms of the expectation with the investment is because it's not just one sided as both sides. So we're actually we'll be seeing the margin expansion, but you're not going to see the full margin expansion potential until you start going through this invest.
Non cycle right, it's kind of like a final right, we've got to invest to get to the products that provide the greater margin.
But we have to be aware that we need to continue to have have a focus on market. So it is front of mind and stuff and we're very focused on.
Oh, that's super helpful. And then just one follow up on on dry and.
Is that is that market is a variety of different ways that clinicians and.
Manufacturers are coming at providing solutions and one is a device strategy assemblies.
Assemblies kind of sales against.
Against drops and things like that as I'm sure you're aware.
Any any can you talk about.
Bridging bridging what now is a pretty solid portfolio on the therapeutic side with.
With efforts on on these sort of like device solutions that some of your competitors are rolling out to the to the clinic as well.
Yeah, we.
We obviously want to want to make sure. There is a steady stream of innovation in the category for physicians and patients and we keep an eye, particularly keep a very close eye on on those innovations and on the device side. I think there are some some interesting technologies that are emerging and could be effective solutions for patients, but none yet.
That I think rise to a level that that are super impressive or perhaps more more in the niche category for severe suffers or the like and so we do keep an eye on it but I think I think the mainstay will be a variety of options and the pharmaceutical.
Side for most patients.
There you see a lot of a lot of innovation coming on the inflammatory side of the spectrum.
That's quite a competitive marketplace and we're excited that we could have potentially a treatment option for both of the operative and inflammatory disease.
Markets different products, but.
Providing options for physicians and patients I think is important.
Thanks, so much for the color.
Yep.
Your next question is coming from Robbie Marcus at J P. Morgan.
Oh, great. Thanks for taking the question congrats on a good quarter.
Two for me, maybe first one friend you made the comment before.
I forget exactly what it was but something along the lines of we're not just pharma company.
Most of the growth in the quarter is coming from farm a lot of your pipeline launches, where there is incremental revenues from farm.
And you did just do a big deal on the farm aside some maybe just kind of give us your thoughts on how you're thinking about managing the company <unk>.
What what is baoqing loan and how you're spending your R&D between the two and think about future investments.
Yeah. Thanks for Ivy for the question, Yeah. So clearly I don't view us as a pharmaceutical company I view us as in Eyecare company.
And we want we want to plan our heritage of being the best Iheart Health company and that means having a strong pharmaceutical business, but also a strong vision care business, a strong surgical business, a strong consumer business and I think when all for businesses are innovating and driving growth.
Margin expansion I think then we can start to get into the to the realm of being the most profitable I mean, the best IHOP company. When do you think about farm or I get why people say that because we just did.
A big deal and pharma.
But even when that closes the pharmaceutical business would still be roughly about a quarter of of our business of 75% will be non pharma.
The potential for solving unmet need in the IHOP space, It's very strong in places like vision care myopia, perhaps is a huge issue around the world.
Surgical I think moving into accommodating are adjustable IL l's or premium.
Is really important to give patients.
Great vision near and far and everywhere in between and so there's a lot of opportunity I think for innovation, there's a lot of opportunity for for bringing.
Solutions with respect to R&D.
A true.
It's not in pharmaceuticals, and pharmaceuticals for more of a development.
House.
And and then surgical we're more of a development house. So broke I think I think are.
Our ideas to to look at the most impactful innovations.
Across our business, but focused on eyecare and that's the kind of organizing principle as IL, not not necessarily farmers surgery or or vision care.
Thanks, very helpful and maybe a follow up for me.
Clearly lots of different moving pieces in the businesses, but how should we think of doubt growth in volumes versus pricing and the.
The OTC business versus pharma vs surgical versus lenses. Thanks a lot.
Absolutely.
Great question.
That's something I look at very closely I think Q2 was was really impressive to me from our consumer team <unk>.
The majority of the growth in Q2.
<unk> from volume.
Price I think historically last few quarters, we've seen a lot of price.
As a result of it.
<unk>.
I think obviously, that's moderating in I think the ability to take price will moderate for the foreseeable future and so to be healthy we need to see volume and and that's what we're starting to really see it.
Kudos to the consumer team here they did a great job on driving volume this quarter.
Thanks, a lot.
Your next question for today is coming from Craig C U at Bank of America.
Good morning, guys. Thanks for taking questions and congrats on on a strong quarter.
Just I guess a couple of topics somewhat related that I'll just ask the questions upfront so.
How should we think about the impact of the supply chain challenges in the second half I guess, what's what's assumed and guidance and visit or an expectation that those challenges get better or worse.
And then related front.
<unk> with your comments on improving quality and bringing in a new supply chain.
Leader.
Are there other facilities that.
May need a significant upgrade or update like to Lynchburg facility that that we should be aware of or that you're contemplating that could potentially.
Have a similar impact or I guess put at risk out there.
Sure so.
I'm going to start with something I said earlier.
Greater.
And the way I think about our business is level of confidence and so for example have very high level of confidence in our ability to execute in the sales force.
Hi.
Confidence in our ability to execute and our R&D in clinical capabilities.
When it comes to supply chain of we have a really good team working very hard for him, but I don't have the confidence that we can deliver our products on time, and and and and at the right cost levels right. So is Sam said for example in surgical we're out spot buying lots of component.
<unk> at much higher prices than we would otherwise now the issue isn't necessarily because we have a issue with one of our plants. We have an issue and a third party supplier that can't make a microchip.
So this isn't about upgrading our our facilities are investing capital, it's about qualifying multiple vendors or multiple supply. So we don't we don't get stuck or held hostage by one supplier.
And so that is a lot of our issues. The Lynchburg facility was a self inflicted wound right. We we tried to upgrade a system.
Wasn't capital intensive necessarily but one that system goes down and you have boxes stacking up and you can't ship the customers that that's about right and had an impact on the business, particularly the U S contact lines business, which Sam quantified in about 600 basis points.
Of growth that that that didn't materialize in the quarter. So when you add up all those things it becomes.
An issue I'd, just not satisfied with it I think we need to fix it it's.
It's not the level of we're talking about massive need.
Need of invested capital.
Or capital.
Into the plants. This is more about process, it's about managing third party suppliers, a turban qualifying additional third party suppliers, it's about getting things right and that will take a year or two to fix completely but we're well on our way we've got a fresh look coming with a very senior experienced leader.
And we're going to raw press leaves and tackle the problem I dunno, Sam any other color.
No.
Craig to your to your question about how we think about it in terms of guidance a couple of things that will highlight here for you one is it.
My prepared remarks that talks about our gross margin I said, our gross margin so holding around approx.
Approximately 60% by also commented that the fact that we're seeing some pressure on on that 60%. So.
Might have been a very strong 60, or there might be a little bit of a rounding down that's coming up because of the.
60, so there's a pressure that we're seeing and thats coming off of what we talked about on the surgical site in terms of just when you step back and you think about.
What we're doing from the supply chain I think there's.
It's not lost on us that it is taking time to be able to work through this and there's multiple outcomes and ranges of outcomes that will <unk> come out in terms of.
The work and supply chain, and we factored dose ranges of outcome and are thinking within the guidance range of the 700 to 750. So that was vacant again it it's hard to pinpoint a specific one scenario that can play out there's multiple scenarios and we try to think through those dinners as was take you through the range. So.
That's been already baked into or thinking in terms of our guidance range.
Great. Thanks, guys.
We have time for one more question. Your next question is coming from Patrick.
Morgan Stanley .
Amazing. Thank you very much I'll keep it to one given time running out.
Quite a specific one but the ICA ethiop Sarah lens.
I know, it's very early stage that is quite a unique asset given in <unk> in the partial I guess astigmatic coverage.
How's the initial feedback going that how do you feel about that launch in general.
The capacity to potentially take a little bit of chablis and that sort of premium HCI market. Thanks.
Yeah. Thanks, Patrick I'm glad you asked about it because I do think it's.
Very important <unk>.
Product for us.
And for patients resurgence and I was just add a a major surgical conference with with some of the top U S. Kols and I can tell you that the the.
Physicians are surgeons that had been trained to have implanted the lens have phenomenal feedback on a very enthusiastic positive response small and Ryan. It's a small group of surgeons and a small group of patients, but very impressive early early start the key is getting <unk>.
<unk> trained and comfortable with the lens, but.
But I do think there is a real.
<unk> of the market for.
For patients, who perhaps need a more middle of the road economic solution to an <unk>.
Outcome.
That that is the perfect fit in early.
But incredibly exciting.
Initial days and outcomes so I remain.
Pretty optimistic and bullish on on the product.
Just in the U S launch will be a phase to launch to the rest of the world but.
I think in a year or two this could be a really significant product and our surgical portfolio. So thanks for the question I'm I'm pretty excited about that particular launch.
Amazing Thank you.
Great well, operator, maybe I'll, just say a few closing words.
Thanks, everyone for attending and thank you for your questions I do think we put up a very strong quarter. This year.
This quarter I mean 12.
12% constant currency revenue growth is I think quite a testament to our team who has worked so hard in the quarter to deliver.
As I.
As I mentioned certainly the highlight his performance in progress as we continued to execute against our roadmap and to create the best Health company in the World. So again. Thank you for your time and we look forward to keeping updated.
This concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.