Bausch + Lomb (BLCO) - 2023 Q2 - Quarterly Report

Introductory Note and Forward-Looking Statements This section defines key terms and outlines forward-looking statements, including associated risks and uncertainties - The report defines 'Company' as Bausch + Lomb Corporation, with all currency in U.S. dollars and data as of June 30, 2023[204] - Forward-looking statements relate to business strategy, product pipeline, acquisitions, and the anticipated separation from Bausch Health Companies Inc (BHC)[192][193][205] - Key risks include adverse economic conditions, challenges post-B+L IPO, the proposed BHC separation, litigation, and regulatory actions[93][94][95][96][97][116][118][120][121][206][207][208][209][210][211][212][213][214][215][222][223][224][225][226][227][228] PART I. FINANCIAL INFORMATION Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements for the periods ended June 30, 2023 Condensed Consolidated Balance Sheets (as of June 30, 2023 vs. December 31, 2022) | Assets/Liabilities/Equity | June 30, 2023 (millions) | December 31, 2022 (millions) | |:--------------------------|:-------------------------|:-----------------------------| | Assets: | | | | Total current assets | $2,315 | $2,137 | | Property, plant & equip, net | $1,294 | $1,300 | | Intangible assets, net | $2,021 | $2,058 | | Goodwill | $4,540 | $4,507 | | Deferred tax assets, net | $938 | $927 | | Other non-current assets | $207 | $215 | | Total assets | $11,315 | $11,144 | | Liabilities: | | | | Total current liabilities | $1,325 | $1,296 | | Deferred tax liabilities, net | $14 | $7 | | Other non-current liabilities | $342 | $329 | | Long-term debt | $2,604 | $2,411 | | Total liabilities | $4,285 | $4,043 | | Equity: | | | | Total Bausch + Lomb Corporation shareholders' equity | $6,958 | $7,033 | | Noncontrolling interest | $72 | $68 | | Total equity | $7,030 | $7,101 | Condensed Consolidated Statements of Operations (Three and Six Months Ended June 30) | Metric (in millions) | 3 Months 2023 | 3 Months 2022 | 6 Months 2023 | 6 Months 2022 | |:---------------------|:--------------|:--------------|:--------------|:--------------| | Revenues | $1,035 | $941 | $1,966 | $1,830 | | Cost of goods sold | $417 | $377 | $788 | $723 | | SG&A | $417 | $368 | $835 | $711 | | R&D | $85 | $75 | $162 | $152 | | Amortization of intangible assets | $56 | $64 | $113 | $129 | | Other expense (income), net | $17 | $(1) | $26 | $1 | | Operating income | $43 | $56 | $41 | $110 | | Interest expense | $(58) | $(44) | $(108) | $(64) | | Foreign exchange and other | $(9) | $14 | $(15) | $9 | | Provision for income taxes | $(10) | $(20) | $(43) | $(26) | | Net (loss) income attributable to Bausch + Lomb Corporation | $(32) | $5 | $(122) | $25 | | Basic and diluted (loss) income per share | $(0.09) | $0.01 | $(0.35) | $0.07 | Condensed Consolidated Statements of Cash Flows (Six Months Ended June 30) | Cash Flow Activity (in millions) | 2023 | 2022 | |:---------------------------------|:------|:------| | Net cash (used in) provided by operating activities | $(80) | $159 | | Net cash used in investing activities | $(92) | $(76) | | Net cash provided by financing activities | $181 | $197 | | Effect of exchange rate changes | $3 | $(11) | | Net increase in cash and cash equivalents | $12 | $269 | | Cash and cash equivalents, beginning of period | $380 | $177 | | Cash and cash equivalents, end of period | $392 | $446 | Notes to the Condensed Consolidated Financial Statements These notes provide detailed explanations for the condensed consolidated financial statements 1. Description of Business Bausch + Lomb is a global eye health company operating in three segments and is a subsidiary of Bausch Health Companies Inc - Bausch + Lomb operates in three reportable segments: Vision Care, Pharmaceuticals, and Surgical[238] - BHC holds approximately 88.5% of Bausch + Lomb's common shares as of July 28, 2023[238][267] - The B+L IPO was declared effective on May 5, 2022, with the full separation from BHC contingent on achieving targeted debt leverage ratios and necessary approvals[239][267] 2. Significant Accounting Policies This section details the basis of presentation for the unaudited financial statements in accordance with U.S. GAAP - The financial statements are prepared in U.S. dollars under U.S. GAAP for interim reporting, consistent with policies used for the 2022 annual statements[269] - Management relies on estimates and assumptions for various financial items, including product returns, useful lives of assets, impairment evaluations, and income taxes[243][270][271][619] - No new accounting standards were adopted during the three months ended June 30, 2023[273] 3. Revenue Recognition Revenue is primarily generated from product sales across four eye health categories and is recognized when customers gain control of products - Primary revenue sources are product sales in eye health: branded prescription, generic prescription, OTC vitamins/supplements, and medical devices[12][274] - Revenue is recognized when the customer obtains control of products, generally upon shipment or customer receipt[275][276] Product Sales Provisions (Six Months Ended June 30) | Provision Type (in millions) | 2023 Amount | 2022 Amount | |:-----------------------------|:------------|:------------| | Discounts and allowances | $180 | $160 | | Returns | $36 | $35 | | Rebates | $280 | $270 | | Chargebacks | $268 | $211 | | Distribution fees | $11 | $11 | | Total provisions | $775 | $687 | | Net product sales | $1,959 | $1,818 | 4. Related Parties This section details transactions and agreements between Bausch + Lomb and its parent company, BHC - Prior to May 10, 2022, Bausch + Lomb was allocated $76 million in corporate and shared costs from BHC for services provided[310] - Key agreements with BHC post-IPO include the Transition Services Agreement (TSA), Tax Matters Agreement, and Employee Matters Agreement[41][287][314][315][316] Net Transfers to BHC (Six Months Ended June 30) | Item (in millions) | 2023 Amount | 2022 Amount | |:-------------------|:------------|:------------| | Cash pooling and general financing activities | $0 | $(229) | | Corporate allocations | $0 | $76 | | Benefit from income taxes | $0 | $66 | | Total net transfers to BHC (Equity) | $0 | $(87) | | Payment of BHC Purchase Debt | $0 | $(2,200) | | Share-based compensation | $0 | $(16) | | Other, net | $0 | $32 | | Net transfers to BHC (Cash Flows) | $0 | $(2,271)| 5. Acquisitions and Licensing Agreements Bausch + Lomb actively pursues strategic acquisitions and licensing agreements to expand its product portfolio - On June 30, 2023, Bausch + Lomb agreed to acquire XIIDRA and other ophthalmology assets from Novartis for an upfront cash payment of $1,750 million[318][593] - In July 2023, the company acquired the Blink product line from Johnson & Johnson Vision for an upfront cash payment of $107 million[42][292][319] - In January 2023, Bausch + Lomb acquired AcuFocus, Inc for $35 million to gain breakthrough small aperture intraocular technology[53][294][320][608] - Other strategic moves in 2022 included an exclusive European distribution agreement for Sanoculis' MIMS product and the acquisition of Total Titanium Inc[296][321][517][519][520] 6. Fair Value Measurements This section outlines the company's fair value measurements for financial assets and liabilities - Fair value measurements are categorized into Level 1 (quoted prices), Level 2 (observable inputs), and Level 3 (unobservable inputs)[43][298][299][323][625] - The company uses cross-currency swaps with an aggregate notional value of $1,000 million to mitigate foreign exchange exposure on euro-denominated net investments[327][357] - Acquisition-related contingent consideration is measured at fair value using Level 3 inputs, with risk-adjusted discount rates ranging from 14% to 28%[303][331] Fair Value of Financial Assets and Liabilities (June 30, 2023) | Item (in millions) | Carrying Value | Level 1 | Level 2 | Level 3 | |:-------------------|:---------------|:--------|:--------|:--------| | Assets: | | | | | | Cash equivalents | $57 | $49 | $8 | $— | | Foreign currency exchange contracts | $2 | $— | $2 | $— | | Liabilities: | | | | | | Acquisition-related contingent consideration | $10 | $— | $— | $10 | | Foreign currency exchange contracts | $1 | $— | $1 | $— | | Cross-currency swaps | $62 | $— | $62 | $— | 7. Inventories This section provides a breakdown of the company's net inventories Inventories, Net (as of June 30, 2023 vs. December 31, 2022) | Category (in millions) | June 30, 2023 | December 31, 2022 | |:-----------------------|:--------------|:------------------| | Raw materials | $191 | $163 | | Work in process | $55 | $44 | | Finished goods | $453 | $421 | | Total Inventories, net | $699 | $628 | 8. Intangible Assets and Goodwill This section details the company's intangible assets and goodwill, which is tested for impairment annually - Goodwill is tested for impairment annually as of October 1st, with the last assessment concluding no impairment[338][339] Estimated Amortization Expense of Finite-Lived Intangible Assets (in millions) | Period | Amount | |:----------------|:-------| | Remainder of 2023 | $77 | | 2024 | $97 | | 2025 | $51 | | 2026 | $18 | | 2027 | $17 | | 2028 | $17 | | Thereafter | $46 | | Total | $323 | Goodwill Carrying Amounts by Segment (in millions) | Segment | January 1, 2022 | December 31, 2022 | June 30, 2023 | |:----------------|:----------------|:------------------|:--------------| | Vision Care | $3,596 | $3,549 | $3,555 | | Pharmaceuticals | $675 | $645 | $661 | | Surgical | $315 | $313 | $324 | | Total | $4,586 | $4,507 | $4,540 | 9. Accrued and Other Current Liabilities This section provides a breakdown of the company's accrued and other current liabilities - A $45 million milestone payment for MIEBO approval by the FDA was accrued as of June 30, 2023[367] Accrued and Other Current Liabilities (as of June 30, 2023 vs. December 31, 2022) | Category (in millions) | June 30, 2023 | December 31, 2022 | |:-----------------------|:--------------|:------------------| | Employee compensation and benefit costs | $191 | $196 | | Product rebates | $145 | $153 | | Discounts and allowances | $82 | $85 | | Professional fees | $70 | $66 | | Product returns | $63 | $59 | | Other | $401 | $342 | | Total | $952 | $901 | 10. Credit Facilities This section details Bausch + Lomb's credit facilities, interest rates, and covenant compliance - The company has a $2,500 million Term Facility and a $500 million Revolving Credit Facility, secured by substantially all company assets[368][600] - As of June 30, 2023, the principal outstanding on the Term Facility was $2,475 million, and $200 million on the Revolving Credit Facility[368][600] - The weighted average stated interest rate for outstanding debt was 8.51% at June 30, 2023[343][369][371][599][602][632][633] - The company was in compliance with its financial covenants as of June 30, 2023, and expects to remain compliant for the next twelve months[630] 11. Share-Based Compensation This section describes Bausch + Lomb's share-based compensation plans, including stock options, RSUs, and PSUs - Bausch + Lomb established the 2022 Omnibus Incentive Plan post-IPO, with 38,000,000 common shares authorized for issuance[375] - Awards include stock options, RSUs, and PSUs, with PSUs vesting based on Total Shareholder Return (TSR) and Organic Revenue Growth targets[350][377][631] - As of June 30, 2023, unrecognized compensation expenses totaled $111 million, to be amortized over a weighted-average period of 2.30 years[379] Share-Based Compensation Expense (Three and Six Months Ended June 30) | Category (in millions) | 3 Months 2023 | 3 Months 2022 | 6 Months 2023 | 6 Months 2022 | |:-----------------------|:--------------|:--------------|:--------------|:--------------| | Stock options | $2 | $1 | $6 | $2 | | PSUs/RSUs | $16 | $10 | $36 | $19 | | Total Share-based compensation expense | $18 | $11 | $42 | $21 | | R&D expenses | $3 | $2 | $4 | $4 | | SG&A expenses | $15 | $9 | $38 | $17 | 12. Accumulated Other Comprehensive Loss This section details the components of accumulated other comprehensive loss Accumulated Other Comprehensive Loss (as of June 30, 2023 vs. December 31, 2022) | Component (in millions) | June 30, 2023 | December 31, 2022 | |:------------------------|:--------------|:------------------| | Foreign currency translation adjustment | $(1,219) | $(1,231) | | Pension adjustment, net of tax | $(28) | $(27) | | Total | $(1,247) | $(1,258) | 13. Research and Development This section outlines the composition of research and development (R&D) expenses - R&D expenses include costs for product development (employee compensation, clinical trials) and quality assurance programs[609] Research and Development Expenses (Three and Six Months Ended June 30) | Category (in millions) | 3 Months 2023 | 3 Months 2022 | 6 Months 2023 | 6 Months 2022 | |:-----------------------|:--------------|:--------------|:--------------|:--------------| | Product related research and development | $79 | $69 | $151 | $141 | | Quality assurance | $6 | $6 | $11 | $11 | | Total Research and development | $85 | $75 | $162 | $152 | 14. Other Expense (Income), Net This section details the components of other expense (income), net, including restructuring and acquisition-related costs - Restructuring and integration costs increased to $22 million for the six months ended June 30, 2023, primarily due to employee severance costs[382] - Separation costs directly related to the B+L IPO were $0 for the six months ended June 30, 2023, compared to $3 million in 2022[409] Other Expense (Income), Net (Three and Six Months Ended June 30) | Category (in millions) | 3 Months 2023 | 3 Months 2022 | 6 Months 2023 | 6 Months 2022 | |:-----------------------|:--------------|:--------------|:--------------|:--------------| | Restructuring, integration and separation costs | $14 | $4 | $22 | $6 | | Acquisition-related costs | $2 | $0 | $3 | $0 | | Acquisition-related contingent consideration | $1 | $(5) | $1 | $(5) | | Total Other expense (income), net | $17 | $(1) | $26 | $1 | 15. Income Taxes This section details the provision for income taxes and changes in the valuation allowance against deferred tax assets - Provision for income taxes increased to $43 million for the six months ended June 30, 2023, from $26 million in 2022[160][384][385] - The valuation allowance against deferred tax assets increased to $132 million at June 30, 2023, from $54 million at December 31, 2022[386] - Unrecognized tax benefits totaled $70 million at June 30, 2023, with $62 million potentially reducing the effective tax rate if recognized[414] 16. Earnings Per Share This section presents the basic and diluted (loss) income per share attributable to Bausch + Lomb Corporation - For the three and six months ended June 30, 2023, approximately 3.2 million and 4.4 million potential common shares, respectively, were excluded from diluted EPS calculations due to their anti-dilutive effect[388][417] Basic and Diluted (Loss) Income Per Share (Three and Six Months Ended June 30) | Metric (in millions, except per share) | 3 Months 2023 | 3 Months 2022 | 6 Months 2023 | 6 Months 2022 | |:---------------------------------------|:--------------|:--------------|:--------------|:--------------| | Net (loss) income attributable to Bausch + Lomb Corporation | $(32) | $5 | $(122) | $25 | | Basic and Diluted weighted-average common shares outstanding | 350.5 | 350.0 | 350.3 | 350.0 | | Basic and Diluted (Loss) Earnings per share | $(0.09) | $0.01 | $(0.35) | $0.07 | 17. Legal Proceedings Bausch + Lomb is involved in various legal proceedings, including antitrust, product liability, and intellectual property lawsuits - The company faces multidistrict antitrust litigation regarding generic pharmaceutical pricing, with costs and potential liabilities to be split with BHC[392][393][421] - Product liability lawsuits related to Shower to Shower body powder are ongoing, with indemnification from Johnson & Johnson for potential liabilities[397][399][426][455][457] - Patent infringement proceedings are ongoing for PreserVision and Lumify products against multiple defendants[435][436][437][463][464][465][466][467][468] - As of June 30, 2023, accrued current loss contingencies related to probable and estimable matters totaled $4 million[420] 18. Segment Information This section provides detailed financial information for Bausch + Lomb's three reportable segments - The three reportable segments are Vision Care, Pharmaceuticals, and Surgical[441][442][469] Segment Revenues and Profit (Three Months Ended June 30) | Segment (in millions) | 2023 Revenues | 2022 Revenues | 2023 Profit | 2022 Profit | |:----------------------|:--------------|:--------------|:------------|:------------| | Vision Care | $646 | $588 | $167 | $145 | | Pharmaceuticals | $194 | $169 | $68 | $52 | | Surgical | $195 | $184 | $9 | $11 | | Total | $1,035 | $941 | $244 | $208 | Segment Revenues and Profit (Six Months Ended June 30) | Segment (in millions) | 2023 Revenues | 2022 Revenues | 2023 Profit | 2022 Profit | |:----------------------|:--------------|:--------------|:------------|:------------| | Vision Care | $1,233 | $1,148 | $321 | $304 | | Pharmaceuticals | $355 | $324 | $114 | $92 | | Surgical | $378 | $358 | $20 | $26 | | Total | $1,966 | $1,830 | $455 | $422 | Revenues by Geographic Region (Six Months Ended June 30, 2023) | Region | Amount (in millions) | |:--------------------|:---------------------| | U.S. and Puerto Rico | $870 | | China | $163 | | France | $118 | | Japan | $94 | | Germany | $82 | | United Kingdom | $58 | | Canada | $53 | | Russia | $50 | | Spain | $44 | | Italy | $42 | | Mexico | $31 | | Poland | $26 | | South Korea | $23 | | Australia | $21 | | Other | $291 | | Total | $1,966 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Introduction This section clarifies the scope of the Management's Discussion and Analysis and directs readers to the financial statements - The 'Management's Discussion and Analysis' section is updated through August 2, 2023, and should be read with the unaudited interim Condensed Consolidated Financial Statements[450] - All currency amounts are expressed in U.S. dollars, and the section contains forward-looking statements[450][504] Overview Bausch + Lomb is a leading global eye health company and a subsidiary of BHC, operating in approximately 100 countries - Bausch + Lomb is a leading global eye health company, a subsidiary of BHC (approximately 88.5% ownership as of July 28, 2023)[451] - The company's mission is 'helping you see better, to live better,' with a portfolio of over 400 products marketed in approximately 100 countries[451][505] - The business is structured into three operating and reportable segments: Vision Care, Pharmaceuticals, and Surgical[452][506] Reportable Segments The company's business is divided into three reportable segments: Vision Care, Pharmaceuticals, and Surgical - The Vision Care segment includes contact lenses (e.g., INFUSE, Biotrue ONEday) and consumer eye care products (e.g., PreserVision, LUMIFY)[453][479][480][507] - The Pharmaceuticals segment offers proprietary and generic products for various eye conditions (e.g., VYZULTA, Lotemax)[454] - The Surgical segment provides medical devices and technologies for eye surgeries (e.g., IOLs, phacoemulsification equipment)[480] Initial Public Offering and Separation of the Bausch + Lomb Eye Health Business Bausch + Lomb completed its IPO in May 2022 as part of BHC's plan to separate its eye health business - BHC announced its plan to separate Bausch + Lomb into an independent publicly traded company on August 6, 2020[480] - The B+L IPO was declared effective on May 5, 2022, with common shares trading on NYSE and TSX from May 6, 2022[480][642] - As of July 28, 2023, BHC directly or indirectly held approximately 88.5% of Bausch + Lomb's issued and outstanding common shares[480][642] - The full separation is subject to achieving targeted debt leverage ratios, shareholder and other necessary approvals, and various risk factors[480][482] Positioning for Growth The company is focused on growth through internal development, strategic licensing, and acquisitions - The company continuously seeks new product opportunities through internal development, strategic licensing agreements, and acquisitions[483] - Bausch + Lomb has a global pipeline of over 60 projects, with significant R&D investment in key near-term products[484][512][513] - Key pipeline products include SiHy Daily disposable contact lenses, expanded Biotrue brand products, and LUMIFY line extensions[485][486][514] - MIEBO (perfluorohexyloctane) for dry eye disease received FDA approval on May 18, 2023, and is anticipated to launch in the U.S. in Q3 2023[487][515] Strategic Acquisitions and Licensing Agreements The company continues to augment its product portfolio through strategic acquisitions and licensing agreements - On June 30, 2023, the company announced an agreement to acquire XIIDRA and other ophthalmology assets from Novartis[517][593] - In July 2023, Bausch + Lomb acquired the Blink product line of eye and contact lens drops from Johnson & Johnson Vision[489][638] - In January 2023, AcuFocus, Inc. was acquired for its breakthrough small aperture intraocular technology, including the FDA-approved IC-8 Apthera™ IOL[517] - Other agreements include an exclusive European distribution agreement for Sanoculis' MIMS product and the acquisition of Total Titanium Inc[517][518][519][520] Investment in Our Manufacturing Facilities The company is making strategic investments in its manufacturing infrastructure to support growth and enhance efficiency - Strategic investments are being made in manufacturing facilities in Waterford (Ireland), Rochester (New York), Lynchburg (Virginia), and other international locations[493] - These investments are intended to support product launches, increase capacity, and improve supply chain and distribution capabilities[493] Business Trends This section discusses various business trends impacting the company, including geopolitical conflicts, macroeconomic conditions, and regulatory changes Russia-Ukraine War The Russia-Ukraine War has led to sanctions impacting product distribution, though the material impact on operations has been limited - U.S. and EU sanctions against Russia and Belarus impact the distribution of U.S.-manufactured contact lenses and surgical products[2] - Bausch + Lomb is applying for licenses with the U.S. Department of Commerce's BIS to resume sales of sanctioned products[2] - Revenues from Russia, Ukraine, and Belarus were approximately 3% of total revenues for the six months ended June 30, 2023[2][495] Impacts of COVID-19 Pandemic The COVID-19 pandemic, particularly lockdowns in China, impacted demand and created supply chain issues, with gradual recovery underway - COVID-19 lockdowns in China during 2022 impacted demand for contact lens and consumer eye care products and caused distribution and sourcing challenges[3] - The reopening of China in March 2023 led to a $5 million increase in revenues in China for the six months ended June 30, 2023, compared to 2022[3][555] - The company continues to monitor the impacts of COVID-19, expecting gradual improvements in China revenues[555] Inflation and Supply Chain Global inflation and supply chain constraints have increased costs and caused disruptions, impacting revenues and margins - Inflationary pressures and supply chain challenges have increased costs and caused disruptions in product availability and shipping[497][556] - These challenges are most notable in the contact lens and surgical businesses, leading to difficulties in meeting end market demand[497] - The company is implementing strategic pricing actions, but price control restrictions on prescription products limit its ability to fully offset inflation[556][558] Global Minimum Corporate Tax Rate The implementation of a 15% global minimum corporate tax rate in 2024 could materially affect the company's tax liability - The OECD/G20 Inclusive Framework agreed on a 15% global minimum corporate tax rate for companies with revenue above €750 million, effective in 2024[5] - The EU adopted a directive on December 15, 2022, to implement Pillar Two rules, with certain elements effective on or after December 31, 2023[5] - Implementation of the global minimum corporate tax rate could materially affect Bausch + Lomb's corporate tax liability and consolidated effective tax rate[498] Health Care Reform Ongoing U.S. healthcare reform efforts focused on cost containment could lead to pricing pressures on the company's products - U.S. federal and state governments are proposing legislation for healthcare cost containment, which could result in pricing pressures[499] - Legislative and regulatory changes from the Biden administration and Congress may negatively impact Bausch + Lomb's businesses[34][499] Generic Competition and Loss of Exclusivity The company faces generic competition and loss of exclusivity (LOE) for its products, which it mitigates through pipeline management - The PreserVision U.S. formulation patent expired in March 2021, but a method-of-use patent remains in force until 2026[8] - Prolensa is expected to face LOE in the second half of 2023, which accounted for approximately 1% of total revenues in 2022[559] - The company actively manages its pipeline and defends patents to mitigate the impact of generic competition[9][529] Regulatory Matters The company's products and facilities are subject to ongoing regulatory oversight and are in compliance with global health authorities - All global operations and facilities hold relevant good manufacturing practices certificates and comply with global health authorities[562] - All FDA-jurisdiction sites are rated as 'No Action Indicated' or 'Voluntary Action Indicated,' with company responses accepted for any observations[562] Results of Operations This section provides a detailed analysis of financial performance for the three and six months ended June 30, 2023 Three Months Ended June 30, 2023 Compared to the Three Months Ended June 30, 2022 Total revenues increased by 10%, while operating income decreased by 23% and the company reported a net loss of $32 million Revenues Total revenues increased by 10% to $1,035 million, driven by increased volumes and pricing Total Revenues (Three Months Ended June 30) | Metric (in millions) | 2023 Amount | 2022 Amount | Change Amount | Pct. Change | |:---------------------|:------------|:------------|:--------------|:------------| | Total revenues | $1,035 | $941 | $94 | 10% | - Revenue increase was driven by: (i) increased volumes ($84 million), (ii) increased net realized pricing ($28 million), and (iii) incremental sales from acquisitions ($2 million)[565] - Offsetting factors included: (i) unfavorable foreign currencies ($18 million) and (ii) impact of divestitures and discontinuations ($2 million)[565] Segment Revenues (Three Months Ended June 30) | Segment (in millions) | 2023 Amount | 2022 Amount | Pct. of Total 2023 | Pct. of Total 2022 | Change Amount | Pct. Change | |:----------------------|:------------|:------------|:-------------------|:-------------------|:--------------|:------------| | Vision Care | $646 | $588 | 62% | 62% | $58 | 10% | | Pharmaceuticals | $194 | $169 | 19% | 18% | $25 | 15% | | Surgical | $195 | $184 | 19% | 20% | $11 | 6% | Constant Currency Revenue Growth (Three Months Ended June 30) | Segment (in millions) | 2023 Reported | FX Impact | 2023 Constant Currency | 2022 Reported | Constant Currency Change | Pct. Change | |:----------------------|:--------------|:----------|:-----------------------|:--------------|:-------------------------|:------------| | Vision Care | $646 | $15 | $661 | $588 | $73 | 12% | | Pharmaceuticals | $194 | $2 | $196 | $169 | $27 | 16% | | Surgical | $195 | $1 | $196 | $184 | $12 | 7% | | Total | $1,035 | $18 | $1,053 | $941 | $112 | 12% | - Vision Care revenue increased by $58 million (10%), driven by higher volumes and net pricing across consumer eye care and contact lenses[537] - Pharmaceuticals revenue increased by $25 million (15%), primarily due to a $27 million increase in volumes from competitor supply issues and China's COVID-19 recovery[538] - Surgical revenue increased by $11 million (6%), driven by volume, pricing, and acquisitions[571] - Provisions as a percentage of gross product sales increased by 0.9 percentage points to 29.1%, mainly due to a $37 million increase in chargebacks[541] Operating Expenses Operating expenses increased by $107 million, driven by higher cost of goods sold and SG&A expenses Operating Expenses (Three Months Ended June 30) | Expense (in millions) | 2023 Amount | 2022 Amount | Change Amount | Pct. Change | |:----------------------|:------------|:------------|:--------------|:------------| | Cost of goods sold | $417 | $377 | $40 | 11% | | SG&A expenses | $417 | $368 | $49 | 13% | | R&D expenses | $85 | $75 | $10 | 13% | | Amortization of intangible assets | $56 | $64 | $(8) | (13)% | | Other expense (income), net | $17 | $(1) | $18 | N/A | - Cost of goods sold increased by $40 million (11%), primarily due to higher volumes, supply shortages, and manufacturing ramp-up costs[21][542] - SG&A expenses increased by $49 million (13%), mainly from higher compensation, professional fees, and warehousing/distribution costs[544][577] - R&D expenses increased by $10 million (13%) due to certain products in development, while amortization of intangible assets decreased by $8 million (13%)[24][545][610] Operating income Operating income decreased by 23% to $43 million, reflecting higher SG&A and Other expense Operating Income (Three Months Ended June 30) | Metric (in millions) | 2023 Amount | 2022 Amount | Change Amount | Pct. Change | |:---------------------|:------------|:------------|:--------------|:------------| | Operating income | $43 | $56 | $(13) | (23)% | - The decrease in operating income was primarily due to increased SG&A and Other expense, partially offset by increased contribution[580] Segment Profit Total segment profit increased by 17% to $244 million, driven by Vision Care and Pharmaceuticals Segment Profits (Three Months Ended June 30) | Segment (in millions) | 2023 Amount | 2022 Amount | Pct. of Segment Revenues 2023 | Pct. of Segment Revenues 2022 | Change Amount | Pct. Change | |:----------------------|:------------|:------------|:------------------------------|:------------------------------|:--------------|:------------| | Vision Care | $167 | $145 | 26% | 25% | $22 | 15% | | Pharmaceuticals | $68 | $52 | 35% | 31% | $16 | 31% | | Surgical | $9 | $11 | 5% | 6% | $(2) | (18)% | | Total segment profits | $244 | $208 | 24% | 22% | $36 | 17% | - Vision Care segment profit increased by $22 million (15%), driven by increased contribution from volume and pricing[28][612] - Pharmaceuticals segment profit increased by $16 million (31%), primarily due to increased contribution from volume[59][582] - Surgical segment profit decreased by $2 million (18%), driven by higher advertising, promotional, and G&A expenses[549][613] Non-Operating Income and Expense Interest expense increased by $14 million, while foreign exchange resulted in a net loss of $9 million - Interest expense increased by $14 million to $58 million, primarily due to the Term Facility and Revolving Credit Facility[550][583][614] - Foreign exchange and other resulted in a net loss of $9 million, an unfavorable change of $23 million from a net gain of $14 million in the prior year[30][584] - Provision for income taxes decreased by $10 million to $10 million, mainly due to changes in jurisdictional mix of earnings and discrete tax effects[551][585][615] Net (loss) income attributable to Bausch + Lomb Corporation The company reported a net loss of $32 million, a $37 million decrease from the prior year's net income Net (Loss) Income Attributable to Bausch + Lomb Corporation (Three Months Ended June 30) | Metric (in millions) | 2023 Amount | 2022 Amount | Change Amount | |:---------------------|:------------|:------------|:--------------| | Net (loss) income attributable to Bausch + Lomb Corporation | $(32) | $5 | $(37) | - The $37 million decrease was primarily due to: (i) unfavorable net change in Foreign exchange and other ($23 million), (ii) an increase in interest expense ($14 million), and (iii) a decrease in operating results ($13 million)[32] Six Months Ended June 30, 2023 Compared to the Six Months Ended June 30, 2022 Total revenues increased by 7%, while operating income decreased by 63% and the company reported a net loss of $122 million Revenues Total revenues increased by 7% to $1,966 million, driven by increased volumes and pricing Total Revenues (Six Months Ended June 30) | Metric (in millions) | 2023 Amount | 2022 Amount | Change Amount | Pct. Change | |:---------------------|:------------|:------------|:--------------|:------------| | Total revenues | $1,966 | $1,830 | $136 | 7% | - Revenue increase was driven by: (i) increased volumes ($126 million), (ii) increased net realized pricing ($59 million), and (iii) incremental sales from acquisitions ($4 million)[617] - Offsetting factors included: (i) unfavorable foreign currencies ($49 million) and (ii) impact of divestitures and discontinuations ($4 million)[617] Segment Revenues (Six Months Ended June 30) | Segment (in millions) | 2023 Amount | 2022 Amount | Pct. of Total 2023 | Pct. of Total 2022 | Change Amount | Pct. Change | |:----------------------|:------------|:------------|:-------------------|:-------------------|:--------------|:------------| | Vision Care | $1,233 | $1,148 | 63% | 63% | $85 | 7% | | Pharmaceuticals | $355 | $324 | 18% | 18% | $31 | 10% | | Surgical | $378 | $358 | 19% | 19% | $20 | 6% | Constant Currency Revenue Growth (Six Months Ended June 30) | Segment (in millions) | 2023 Reported | FX Impact | 2023 Constant Currency | 2022 Reported | Constant Currency Change | Pct. Change | |:----------------------|:--------------|:----------|:-----------------------|:--------------|:-------------------------|:------------| | Vision Care | $1,233 | $35 | $1,268 | $1,148 | $120 | 10% | | Pharmaceuticals | $355 | $7 | $362 | $324 | $38 | 12% | | Surgical | $378 | $7 | $385 | $358 | $27 | 8% | | Total | $1,966 | $49 | $2,015 | $1,830 | $185 | 10% | - Vision Care revenue increased by $85 million (7%), driven by volume and pricing across consumer eye care and contact lenses[56] - Pharmaceuticals revenue increased by $31 million (10%), driven by volume and pricing[173] - Surgical revenue increased by $20 million (6%), driven by volume, pricing, and acquisitions[174] - Provisions as a percentage of gross product sales increased by 0.9 percentage points to 28.3%, mainly due to a $57 million increase in chargebacks[175] Operating Expenses Operating expenses increased by $205 million, driven by higher cost of goods sold and SG&A expenses Operating Expenses (Six Months Ended June 30) | Expense (in millions) | 2023 Amount | 2022 Amount | Change Amount | Pct. Change | |:----------------------|:------------|:------------|:--------------|:------------| | Cost of goods sold | $788 | $723 | $65 | 9% | | SG&A expenses | $835 | $711 | $124 | 17% | | R&D expenses | $162 | $152 | $10 | 7% | | Amortization of intangible assets | $113 | $129 | $(16) | (12)% | | Other expense, net | $26 | $1 | $25 | N/A | - Cost of goods sold increased by $65 million (9%), primarily due to inflationary pressures, supply shortages, and manufacturing ramp-up costs[177] - SG&A expenses increased by $124 million (17%), mainly from higher compensation, professional fees, and warehousing/distribution costs[180] - R&D expenses increased by $10 million (7%) due to certain products in development, while amortization of intangible assets decreased by $16 million (12%)[181][182] Operating Income Operating income decreased by 63% to $41 million, reflecting higher SG&A and Other expense Operating Income (Six Months Ended June 30) | Metric (in millions) | 2023 Amount | 2022 Amount | Change Amount | Pct. Change | |:---------------------|:------------|:------------|:--------------|:------------| | Operating income | $41 | $110 | $(69) | (63)% | - The decrease in operating income primarily reflects the increase in SG&A and Other expense, partially offset by the increase in contribution[185] Segment Profit Total segment profit increased by 8% to $455 million, driven by Vision Care and Pharmaceuticals Segment Profits (Six Months Ended June 30) | Segment (in millions) | 2023 Amount | 2022 Amount | Pct. of Segment Revenues 2023 | Pct. of Segment Revenues 2022 | Change Amount | Pct. Change | |:----------------------|:------------|:------------|:------------------------------|:------------------------------|:--------------|:------------| | Vision Care | $321 | $304 | 26% | 26% | $17 | 6% | | Pharmaceuticals | $114 | $92 | 32% | 28% | $22 | 24% | | Surgical | $20 | $26 | 5% | 7% | $(6) | (23)% | | Total segment profits | $455 | $422 | 23% | 23% | $33 | 8% | - Vision Care segment profit increased by $17 million (6%), driven by increased contribution from revenues[155] - Pharmaceuticals segment profit increased by $22 million (24%), primarily due to increased contribution from volume[156] - Surgical segment profit decreased by $6 million (23%), driven by higher selling and G&A expenses[157] Non-Operating Income and Expense Interest expense increased by $44 million, while foreign exchange resulted in a net loss of $15 million - Interest expense increased by $44 million to $108 million, primarily due to the Term Facility and Revolving Credit Facility[158] - Foreign exchange and other resulted in a net loss of $15 million, an unfavorable change of $24 million from a net gain of $9 million in the prior year[159] - Provision for income taxes increased by $17 million to $43 million, mainly due to changes in jurisdictional mix of earnings and discrete tax effects[160] Net (loss) income attributable to Bausch + Lomb Corporation The company reported a net loss of $122 million, a $147 million decrease from the prior year's net income Net (Loss) Income Attributable to Bausch + Lomb Corporation (Six Months Ended June 30) | Metric (in millions) | 2023 Amount | 2022 Amount | Change Amount | |:---------------------|:------------|:------------|:--------------| | Net (loss) income attributable to Bausch + Lomb Corporation | $(122) | $25 | $(147) | - The $147 million decrease was primarily due to: (i) decrease in operating results ($69 million), (ii) increase in interest expense ($44 million), (iii) unfavorable net change in Foreign exchange and other ($24 million), and (iv) increase in Provision for income taxes ($17 million)[163] Liquidity and Capital Resources This section discusses cash flow activities, future liquidity sources, and debt structure Cash Flows Net cash used in operating activities was $80 million, a significant decrease from the prior year's cash provided Cash Flows (Six Months Ended June 30) | Cash Flow Activity (in millions) | 2023 | 2022 | Change | |:---------------------------------|:------|:------|:-------| | Net cash (used in) provided by operating activities | $(80) | $159 | $(239) | | Net cash used in investing activities | $(92) | $(76) | $(16) | | Net cash provided by financing activities | $181 | $197 | $(16) | - Net cash used in operating activities was $80 million, a $239 million decrease from the prior year, primarily due to growth in trade receivables, timing of payments, and a strategic increase in inventories[44] - Net cash used in investing activities increased by $16 million to $92 million, mainly driven by $31 million in payments for the AcuFocus acquisition[45] - Net cash provided by financing activities decreased by $16 million to $181 million, reflecting different borrowing and intercompany transaction levels year-over-year[51] Future Sources of Liquidity Primary liquidity sources are expected to be cash, customer collections, and the Revolving Credit Facility - Primary liquidity sources are cash and cash equivalents, cash from customers, the Revolving Credit Facility, and issuances of long-term debt and equity[46] - The company believes these sources will be sufficient for current and future cash needs but acknowledges market volatility could impact future financing[46][75] Liquidity and Debt This section details the company's debt structure, including its Term Facility and Revolving Credit Facility - Bausch + Lomb's debt includes a $2,500 million Term Facility and a $500 million Revolving Credit Facility, secured by company assets[600] - As of August 2, 2023, the company had $250 million outstanding borrowings under its Revolving Credit Facility, with $225 million remaining availability[50][373] - The weighted average stated interest rate for outstanding debt was 8.51% at June 30, 2023, up from 7.84% at December 31, 2022[80][345][371][634] Credit Ratings (as of August 2, 2023) | Rating Agency | Corporate Rating | Senior Secured Rating | Outlook | |:----------------|:-----------------|:----------------------|:----------------------| | Moody's | B1 | B1 | Negative | | Standard & Poor's | B- | B- | Positive | | Fitch | B- | BB- | Rating Watch Evolving | OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL OBLIGATIONS The company has no material off-balance sheet arrangements - The company has no material off-balance sheet arrangements that have a material current or reasonably likely future effect on its financial condition or results[635] Other Future Cash Requirements Future cash requirements include debt payments, acquisition costs, and capital expenditures - Expected cash requirements for the remainder of 2023 include $122 million for debt interest payments and $13 million for mandatory debt amortization[636] - A $45 million milestone payment for MIEBO approval is anticipated upon its U.S. launch in Q3 2023[607] - The company expects to make a $1,750 million upfront cash payment for the XIIDRA acquisition by the end of 2023, to be financed with new debt[607] - Other cash requirements include $130 million for capital expenditures and potential costs for separation, cost savings programs, and future litigation[83][105][109][110][111][606][639][640][641] Outstanding Share Data As of July 28, 2023, the company had 350,701,026 common shares issued and outstanding - As of July 28, 2023, Bausch + Lomb had 350,701,026 common shares issued and outstanding[89][111][202] - Outstanding equity awards included approximately 8.3 million stock options, 5.6 million RSUs, and 1.3 million performance-based RSUs[89] - BHC directly or indirectly held 310,449,643 common shares, representing approximately 88.5% of Bausch + Lomb's outstanding common shares as of July 28, 2023[111] Critical Accounting Policies and Estimates There were no significant changes to critical accounting policies and estimates during the six months ended June 30, 2023 - Management reassessed critical accounting policies and estimates and found no significant changes during the six months ended June 30, 2023[113] New Accounting Standards No new accounting standards were adopted during the reporting period - No new accounting standards were adopted during the reporting period[114] Forward-Looking Statements This section reiterates the nature of forward-looking statements and the risks and uncertainties involved - Forward-looking statements cover business strategy, product pipeline, acquisitions (XIIDRA), financial performance, and the anticipated separation from BHC[115][205] - These statements are based on current expectations but involve risks and uncertainties, and actual results may differ materially[92][116][193][206] - Important factors causing divergence include adverse economic conditions, challenges post-B+L IPO, risks of BHC separation, litigation, and regulatory actions[93][94][95][96][97][116][118][120][121][206][207][208][209][210][211][212][213][214][215][222][223][224][225][226][227][228] Item 3. Quantitative and Qualitative Disclosures About Market Risk There have been no material changes to the company's assessment of its sensitivity to market risks - No material changes to the company's assessment of market risk sensitivity have occurred since the Annual Report[144][165] Item 4. Controls and Procedures Disclosure Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2023 - Management, with CEO and CFO participation, concluded that disclosure controls and procedures were effective as of June 30, 2023[145][165] - Disclosure controls are designed to ensure information required for SEC reports is accumulated and communicated to management for timely disclosure decisions[130] Changes in Internal Control Over Financial Reporting There were no material changes in the company's internal controls over financial reporting during the quarter - No material changes in internal controls over financial reporting occurred during the three months ended June 30, 2023[146][166] PART II. OTHER INFORMATION Item 1. Legal Proceedings The ultimate resolution of known legal proceedings is not expected to have a material adverse effect on the company - The company is involved in legal proceedings in the ordinary course of business[132][147] - Based on current information and reserves, the ultimate resolution of known legal proceedings is not expected to have a material adverse effect on financial position, liquidity, or results of operations[132] - However, adverse results in certain legal proceedings could have a material adverse effect[132] Item 1A. Risk Factors This section highlights material changes to risk factors, specifically focusing on the acquisition of XIIDRA - No material changes to risk factors were disclosed, except for those related to the XIIDRA acquisition[133][148] - Risks for the XIIDRA acquisition include uncertainty of consummation, potential regulatory conditions, and the possibility of a $100 million reverse termination fee[148][169] - Failure to realize anticipated benefits from the XIIDRA acquisition is a risk, dependent on successful integration and potential business disruption[134][135][149][150][151][170][172] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds There were no unregistered sales of equity securities during the three months ended June 30, 2023 - No unregistered sales of equity securities occurred during the three months ended June 30, 2023[648] Item 3. Defaults Upon Senior Securities There were no defaults upon senior securities during the reporting period - No defaults upon senior securities occurred during the reporting period[649] Item 4. Mine Safety Disclosures There are no mine safety disclosures to report - No mine safety disclosures are reported[650] Item 5. Other Information There is no other information to report - No other information is reported[651] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q - Exhibits include the Stock and Asset Purchase Agreement for the XIIDRA acquisition, Amended Articles and By-laws, and CEO/CFO certifications[644][646][652] Signatures This section contains the signatures of the registrant's principal executive and financial officers - The report is signed by Brenton L. Saunders, Chairman of the Board and Chief Executive Officer, and Sam Eldessouky, Executive Vice President and Chief Financial Officer, on August 2, 2023[654][655][657]