Good morning, and welcome to Bausch + Lomb's First Quarter 2023 Earnings Call. All participants will be in listen-only mode. Please note this event is being recorded. I would now like to turn the conference over to Allison Ryan. Please go ahead.

Thank you. Good morning, everyone, and welcome to our first 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 Eldessouky. In addition to this live webcast, a copy of today's slide presentation and a replay of this conference call will be available on our website under the Investor Relations section. Before we begin, I would like to remind you that our presentation today contains forward-looking information. We would ask that you take a moment to read the forward-looking legend at the beginning of our presentation as it contains important information. This presentation contains non-GAAP financial measures and ratios. For more information about these measures and ratios, please refer to Slide 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 to not update or affirm guidance other than through broadly disseminated public disclosure. With that, it is my pleasure to turn the call over to Brent.

Thank you, Allison, and thank you, everyone, for joining us today. It's great to be here. I'll start off by sharing some high-level comments about my first 50 days as Chairman and CEO of Bausch + Lomb and briefly discuss the first quarter financial highlights. I will then turn the call over to Sam, our CFO, to review the first quarter financial results in detail and discuss our 2023 guidance. Finally, I'll cover our key franchises and a few upcoming catalysts before opening the line for questions. Beginning with Slide three. I've been involved in eye health for the better part of my career. It's a dynamic industry that is always evolving, full of innovation and collaboration and with many talented practitioners, surgeons, ophthalmologists, optometrists and significant unmet needs for millions of people. It is an area that I care deeply about and have continued to stay close to. Having an opportunity to work in this great industry again was an important factor in my decision to rejoin Bausch + Lomb. The eye health industry operates an attractive part of the health care space with a large addressable market and growth driven by demographic trends and lifestyle changes that create significant unmet needs. Companies that can meet these needs are rewarded for innovation in a favorable competitive environment with significant barriers to entry. There are many other reasons why I returned to Bausch + Lomb, an iconic brand; 170 years in the making, a broad, diverse commercial platform, products that touch patients throughout their lives, a massive global infrastructure, and a competitive landscape where we have the most comprehensive footprint; and most importantly, a team of talented and dedicated colleagues who are passionate about making Bausch + Lomb the best eye health company in the world. My first 50 days here reaffirm all of this. Our challenge and opportunity is to reach our company's full potential. To possibly oversimplify our situation, our biggest issue as a company is underutilization. We have a very broad commercial structure and supply chain touching almost every eye health professional in the world, but not enough product to utilize it efficiently. Historically, we have invested significant resources into building a global infrastructure. But due to inadequate sales volumes, our infrastructure is not being utilized to its full potential, resulting in inefficiencies and wasted resources. Given this, the best plan for a sustainable future for our company, although easy to say but hard to do, is to focus on driving profitable growth. I'll discuss our path forward to doing just that in a moment. After careful thought, I have developed a plan with input from the executive team designed to take Bausch + Lomb to the next level. We're calling it the roadmap to accelerate growth. This is a multiyear plan with three phases, all with measurable clear objectives. Let me give you some of the details. Let's start with a deeper dive into Phase 1 of the roadmap. If we do all the following things correctly, we would advance to our next phase, Innovate & Execute. First, grow revenue at or above market, which we achieved in the first quarter 2023. Clearly, this is foundational to our plan. We're growing, but we need to do this consistently. Next is a focus on our frontline sales teams with a view toward achieving selling excellence by building enduring bonds with our customers. Our sales teams are a talented and dedicated group. When customers think of Bausch + Lomb, it's our sales reps that come immediately to mind. They are our face to our customers. But the infrastructure around them needs to be improved by giving them the best tools, training, and support that we can. I cannot understate it; our sales teams are crucial to our success. We are pivoting to making them the priority for our entire company, creating an environment that is viewed throughout the industry as the best place for sales representatives to work. Third, build an industry-leading business development platform. This is a tremendously dynamic industry with countless opportunities for growth and innovation. We need to build best-in-industry capabilities to seek out and evaluate the right opportunities and collaborate with smart, thoughtful partners. I want Bausch + Lomb to be known industry-wide as the best partner. Next, we need to enhance the use of technology and build leading digital capabilities across our company from marketing to manufacturing that support the business and enable it to run more efficiently and effectively, ultimately becoming a competitive advantage for our company. This investment will pay off by increasing our efficiency, improving our customer experience, and expanding our market reach. The final part of the roadmap's first phase is to make work easier, eliminate bureaucracy, and increase accountability. We will reduce complexity and promote clear accountability. Empowering our colleagues with accountability not only increases their sense of ownership and pride in their work but also fosters a culture of trust, responsibility, and continuous improvement. As we fold these capabilities into Bausch + Lomb, we look to build on our legacy and establish ourselves as the best eye health company in the world. Turning now to the quarterly results on Slide seven. I'm going to talk about our numbers in constant currency, as Sam will explain in more detail. The year is off to a good start with first quarter revenue of $931 million, up 8% year-over-year on a constant currency basis. Adjusted EBITDA of $141 million was impacted by $14 million in currency-related headwinds and higher levels of commercial investment to support key product launches, which we believe will be the future growth drivers. Importantly, we saw continued high-quality growth across all three reporting segments and in most significant geographies. Revenue from Vision Care was up 8% on a constant currency basis, driven by growth in key franchises, including LUMIFY, Daily SiHy, Biotrue ONEday, and ULTRA. Increased demand, improving supply, and expansion in the premium IOL portfolio drove the surgical segment's 9% constant currency growth. The Ophthalmic Pharmaceuticals segment grew by 7% on a constant currency basis, driven by U.S. generic execution and international portfolio growth. Achieving growth across so many areas of our business in the face of continued headwinds underscores the strength of the Bausch + Lomb platform brand and team. My focus going forward will be to build on this foundation and execute the roadmap to accelerate growth that will enable the company to move into its next stage of growth. I will now turn the call over to Sam to cover the first quarter results in more detail.

Thank you, Brent, and good morning, everyone. Before we begin, I would like to point out that most of my comments today and in the future will be focused on growth expressed on a constant currency basis. This is consistent with how we operate the business, and we believe it helps more closely align our reporting to a broader group of comparable companies. Turning now to our financial results on Slide 8. Our first quarter results demonstrated strong growth, and the business is continuing to build a solid track record of durable revenue performance. Total company revenue of $931 million for the quarter reflects an 8% growth on a constant currency basis and a 5% growth on a reported basis compared to the prior year quarter. As Brent mentioned, revenue growth was broad-based and spanned across all three of our reporting segments: Vision Care, Surgical and Opto Rx. Consistent with the expectations noted in our last earnings call, while we saw gradual improvement in China in the quarter, we continue to be cautiously optimistic about the pace of the recovery. We remain confident that our business in China is well-positioned to return to stable growth over time. We'll continue to monitor the economic activity given the stop and go recovery we saw last year. In the quarter, foreign currency headwinds were approximately $31 million to revenue and approximately $14 million to adjusted EBITDA. As mentioned on our last call, we expect that these currency headwinds to persist in the first half of 2023 before improving in the second half of the year. Now let's discuss the results in each of our segments. Vision Care revenue of $587 million increased by 8% on a constant currency basis, driven by both the consumer and contact lens portfolios. The consumer business grew by 8% on a constant currency basis, and our strategic brands, LUMIFY, PreserVision, and Biotrue multipurpose solution continue to hold market-leading positions. LUMIFY revenue grew by 23% globally compared to the prior year and achieved a record revenue of $38 million in the quarter. The brand has continued its momentum in the U.S. where it reached a market share of 50% in the redness reliever category. The launch in Canada has also been very successful. To leverage the brand platform and continue to expand the franchise, we are now in the early stages of launching the LUMIFY Eye Illuminations beauty line. Revenue from Artelac, a key brand in our dry eye franchise in Europe grew by 29% on a constant currency basis in the quarter. The growth was mainly driven by increased demand. First quarter revenue from our eye vitamins, PreserVision and Ocuvite was flat on a reported basis and up low single digits on a constant currency basis. We expect our recent launches of PreserVision with OCUSorb and PreserVision + CoQ10 to continue to drive the growth. From a broader macroeconomic perspective, we are encouraged by inflation levels trending lower and will continue to balance the price and volume dynamics as we progress through the year. We're committed to making the appropriate investments to support launches and drive consumption as we believe consumers will continue to reward our trusted brands and innovation. In the lens portfolio, we saw a 10% constant currency growth in the quarter with strong performance in our key franchises. Reported revenue from our Daily SiHy grew by 38% in the first quarter, driven by strong market demand. We continue to anticipate the U.S. launch of the Daily SiHy multifocal lens in the second quarter, which would expand the product family and provide a catalyst for continued growth. The lens growth in the quarter was broad-based across the major product families. On a constant currency basis, Ultra grew by 18%; Biotrue delivered 8% growth, and our legacy brand, SofLens daily, grew by 15%. Moving now to the Surgical segment, first quarter revenue was $183 million, an increase of 9% on a constant currency basis. Implantables grew by 2% on a constant currency basis driven by strong performance in the high-margin premium IOL portfolio, which was up 32% in constant currency. We continue to see momentum in our investor franchise, which includes both the monofocal and toric IOLs. On a constant currency basis, the enVista franchise grew by 26% in the quarter. We're also in the early stages of the U.S. launch of the Apthera IC-8 premium IOL, which has generated strong interest and has received very positive feedback. We expect to make further investments to support the phased launch process as we continue to train our associates and onboard surgeons. The consumables portfolio grew by 13% in constant currency compared to the first quarter of 2022 with higher demand for Stellaris and custom packs. Revenue from equipment was up 7% versus Q1 '22 on a constant currency basis, mainly driven by demand for our Stellaris system. While market demand in our Surgical business continues to be strong, the availability of supply has not yet fully recovered. Our team continues to implement various mitigating measures, including pursuing components from secondary vendors at spot prices. We anticipate that supply will remain volatile as we progress through the year. At a broader level, we continue to believe demand for B&L Surgical products will remain strong, driven by the need for cataract procedures across the various markets. In Q1, we saw strong demand in the U.S. and parts of Europe, impacted by a revenue decline in China, which is continuing to recover. We're also pleased to announce the early launch of the SeeLuma visualization platform in the U.S. and in Europe. This platform adds to our many product launches in 2023, and we plan to make the appropriate investments to support the commercial execution. Lastly, revenue in the Opto Rx segment were $161 million, representing constant currency growth of 7% with strong performance across all major markets. U.S. generics grew by 16% as we continue to actively capitalize on challenges faced by our competitors. 5% constant currency growth in the international portfolio was mainly driven by 14% constant currency growth in the Minims franchise. VYZULTA reported revenue grew by 25% in the first quarter. In the U.S., TRx by 25% compared to the prior year. As a reminder, we have a June 28, 2022, PDUFA date for NOV03 and are anticipating a launch in the second half of the year. Our prelaunch activities are ongoing, and we continue to expect the level of investment to increase as we progress through the year. Now that we have covered revenues for each of the segments, let me walk through some of the key non-GAAP line items on Slide 9. As a reminder, the 2022 first quarter financial statements were prepared prior to the B&L IPO in May 2022 and do not fully reflect run rate stand-alone costs. Along the same lines, the basis of interest expense and taxes reported in Q1 2022 financial statements also do not fully reflect B&L operations as a stand-alone entity. As we have previously mentioned, this impacts the comparability between 2022 and 2023 results. Adjusted gross margin for the quarter was 60%, a decrease of 90 basis points compared to Q1 2022. The change in gross margin was mainly driven by higher cost of inventory, product mix and pockets of supply challenges mainly in our Surgical business. As we noted in our Q4 earnings call, we expect the higher cost of inventory we built in 2022 to increase pressure on gross margin as it flows through the P&L, mainly in the first half of 2023. First quarter adjusted EBITDA was $141 million. The adjusted EBITDA in Q1 was impacted by currency headwinds of approximately $14 million, which we previously estimated to be approximately $10 million in the outlook communicated in our Q4 earnings call. Adjusted EBITDA was also impacted by an incremental $17 million of stand-alone costs relative to the prior year. Additionally, adjusted EBITDA was impacted by inflation, higher cost of shipping and distribution, and investment related to supporting product launches. In the quarter, the investment in R&D was approximately 8% of revenue. Interest expense for the quarter was approximately $47 million, reflecting the rising interest rate environment. For comparability purposes, the lower interest expense in Q1 2022 did not fully reflect B&L's stand-alone capital structure. The adjusted tax rate in the first quarter was approximately 6%, which is in line with our expectations for the full year 2023. Lastly, adjusted EPS for the quarter was $0.10. Adjusted cash flow used by operations was $24 million in the first quarter. Cash from operations was mainly impacted by approximately $70 million of strategic inventory built to mitigate potential future supply disruptions and to ensure sufficient inventory levels related to product launches. First quarter CapEx was $37 million, mainly driven by investments in the Vision Care segment. Turning now to our 2023 guidance on Slide 12. Our revenue guidance for 2023 is a range of $3.9 billion to $3.95 billion, which reflects a constant currency growth rate of 5% to 6%. Based on current exchange rates, we anticipate currency headwinds to revenue in Q2, followed by tailwinds in the back half of the year. We expect the net impact to be a $50 million headwind for the full year. While we are pleased with the strong Q1 2023 revenue growth performance, we remain cautiously optimistic for the remainder of the year. We have taken a number of mitigating steps to improve the stability of supply in the Surgical business and believe it remains a work in progress. We also monitor the pace of the recovery in China and the potential impact of broader macroeconomic uncertainties. While we saw an improvement in consumer activity in China in the latter part of the quarter, we will assess additional data points over the coming months to determine the sustainability of the pace of the recovery and impact on the full year. In the meantime, we believe we are well positioned to capture the market opportunity, and we're optimistic that the market will return to stable growth over time. Overall, our 2023 revenue guidance reflects our expectation that the business will continue to grow in line with the market for the balance of the year. Our adjusted EBITDA guidance for 2023 is a range of $700 million to $750 million. We expect full-year currency headwinds to adjusted EBITDA of approximately $35 million. Excluding the impact of currency, the midpoint of our adjusted EBITDA guidance is $760 million. With a number of recent and upcoming launches in 2023, we remain committed to prioritizing investments to drive revenue growth. As we mentioned on our last call, the quarterly phasing will be an important consideration. We expect adjusted EBITDA to increase as we progress throughout the year. This is mainly driven by a number of factors, including the natural phasing of our businesses and the timing of our investments to support launches. We are fully committed to disciplined cost management, and we will prioritize our spending and optimize our cost structure to drive operating leverage and accelerate growth. We expect our 2023 adjusted gross margin to be approximately 60%. This represents a moderate margin improvement relative to full year 2022. While we have increased production output and efficiencies related to our Daily SiHy lenses, we expect gross margin to be impacted by the higher cost of inventory we built in 2022, supply availability in our Surgical portfolio, as well as potential variability driven by product mix. In terms of the other key assumptions underlying our guidance, we anticipate investment in R&D to be approximately 8% of revenue. We accelerated the level of R&D spend in 2022, and we'll continue to prioritize R&D investment to enhance our pipeline opportunities. Consistent with our previous communications, we expect interest expense to be approximately $250 million for the full year. The interest expense reflects our current interim capital structure, which is based on variable rate debt at SOFR plus 3.25%. As a reminder, we plan to transition to the longer-term capital structure upon full submission from BHC. We expect our adjusted tax rate to be roughly 6%, and we expect full-year CapEx to be approximately $200 million. As I already mentioned, keep in mind that comparability between 2022 and 2023 results for the full year will be impacted by the timing of the B&L IPO. Overall, we're pleased with our first-quarter performance and continued growth across our segments. Our 2023 guidance reflects our strategy to increase investment in the business to support product launches that we expect to become important drivers of profitable growth. And now I'll turn the call back to Brent.

Thank you, Sam. Let's spend a few minutes on a few of our key franchises and some upcoming catalysts we expect to drive business results. On Slide 14, given the prevalence of dry eye disease and the size of the market, we believe our dry eye disease platform will be a key driver of future growth and is a good example of the benefits of an integrated platform and addressing a large market with unmet need. We can reach patients and consumers through multiple access points, leveraging long-standing relationships with the eye health professionals as well as key retailers and e-commerce channels that reach a broad consumer base. The franchises on this platform, primarily Artelac, Biotrue, and Soothe generate approximately $250 million in annual sales on a combined basis. In addition to a number of line extensions for our consumer products, we are looking forward to NOV03's PDUFA date on June 28 as the next potential catalyst to further advance this platform with the addition of a pharmaceutical product. More specifically, this is a category that has long been defined by treatments that work along the inflammatory pathway, and we have an opportunity to launch a potential first treatment for evaporative dry eye in a large and growing market, which is currently estimated to be approximately $2 billion in the United States. Our LUMIFY franchise on Slide 15 is another example of the power of a fully integrated eye care platform to launch, promote and drive the performance of our products. Today, LUMIFY is a $125 million franchise with approximately 50% market share in the redness reliever category and the number one doctor-recommended brand. Our strategy is to build on this success by expanding into new geographies and adjacent categories. We recently acquired the rights to market LUMIFY in 18 additional countries. This year, we will launch LUMIFY Eye Illuminations, a line of hyper-allergenic eye care, scientifically developed for the sensitive eye area. Finally, we are working on a single-dose preservative-free eye drops and a combination product with ketotifen for allergy symptom control. Moving to Slide 16, the eye vitamin franchise, Ocuvite and PreserVision, is Bausch + Lomb's largest brand with more than $350 million of annual reported revenue and more than 90% share of the AREDS category. This franchise has a global footprint with products available in 40 countries and a wide variety of formulations to address unique patient needs. Our strategic focus is on growing the franchise and driving consumer demand with innovative new product and category expansions. We are working on launching new products that help support eye and heart health, are more easily absorbed and help to support healthy cell function. The good news is that despite our leading position in this market, we have a lot of room to expand. Approximately 70% of households with moderate to advanced AMD are not treated with AREDS2 products. Moving to Surgical segment on Slide 17. I have been impressed with the Surgical team's ability to deliver results while dealing with significant supply constraints. In addition to creative problem solving, this agile resourceful team is demonstrating selling and marketing excellence and building trusted relationships with eye surgeons that can be a model for our broader organization. On this slide, we showed the evolution of the IOL portfolio towards premium higher-margin offerings to give surgeons a wide variety of lenses to address their patient's eye health needs, including trifocal and extended depth of focus lenses. We are also entering new categories in fast-growing markets like glaucoma procedures and focusing on digital interconnectivity with SeeLuma 3D microscope and the Eyetelligence digital platform. In closing, we stand here today with a durable foundation, a powerful, globally recognized brand, established products, a talented and dedicated team of colleagues, and we operate in an attractive part of the health care market. At the same time, we clearly understand what our issues are: underutilization of our global infrastructure, challenges to our supply chain and gaps in our innovation cycle. While we have our work in front of us, we now have a plan in place to overcome these obstacles, the roadmap to accelerate growth. I have faced similar situations in my career, and I have led similar efforts. I know from those experiences that with the support of our colleagues around the world, we can turn this plan into reality. You cannot underestimate the collective power of 13,000 colleagues who are aligned, focused, and motivated. Our roadmap to accelerate growth will be my focus, along with that of all of our colleagues around the world. Although change can be daunting, I am confident that we will come together and accomplish great things with hard work, dedication, a commitment to excellence. And to our mission of helping people see better to live better, our company has the potential to thrive and succeed in the years to come. I'm excited about the days ahead, and we'll continue to keep you apprised of our progress as we execute against our roadmap. Thank you. And with that, operator, let's open the line for questions.

Your first question is coming from Vijay Kumar at Evercore ISI.

Guys, congrats. I guess my first one is on the organic performance in the guidance. 8% was a pretty big number. We've seen utilization come strong across the group. Was that 8% a clean number? Were there any catch-up one-off items? And I think the guide implies back half of mid-single digits, and I'm curious why the 8% perhaps wouldn't sustain given comps don't seem to be too hard.

Yes. Great. Well, thank you for the question. Yes, it was a good quarter, and I think we're off to a good start for the year. I think specifically to answer your question, I'll turn it over to Sam on any one-offs. I don't think there were, but go ahead.

Good morning, Vijay. We don't have anything outside of the normal course of business to discuss. However, I want to remind you that in our first quarter, we are benefiting from the timing of our pricing. We are lapping a full year of the new pricing. As a reminder, we adjusted our pricing last year and again this year, which has had an impact. You will see this effect more prominently in the Vision Care segment, particularly on the consumer side, as it helps to mitigate inflation. This is an important point to highlight: the timing of the pricing is providing a positive impact. Thank you, Vijay.

Brent, I have a follow-up regarding the second half. You mentioned a key catalyst over the next three years. What would a positive outcome look like to you, and what might be considered a suboptimal outcome? Also, how should we view the contribution from this product in focus?

Yes, that's a great question. We're looking forward to the potential approval at the end of June, as we have a PDUFA date coming up. Throughout my career, I have always approached the possibility of FDA approval with optimism, while recognizing that these outcomes are not guaranteed. We feel confident about this one and are excited about it. I've only been here for 50 days and we've recently appointed a new leader for our pharmaceutical segment. Our main objective is to launch NOV03 effectively. We see a significant opportunity here. As mentioned earlier, all currently approved treatments in the U.S. for the pharmaceutical segment relate to inflammatory dry eye disease, and we are introducing a potentially first-in-class product for evaporative dry eye. This is a substantial market valued at $2 billion, projected to grow to around $3 billion by 2025. We truly believe we can capture considerable market share. We are meticulously developing our launch plans right now, and we should have more information to share on our next call. This represents a significant opportunity for us.

Your next question is coming from Robbie Marcus at JPMorgan.

Great. Thanks for taking the questions. Good morning. I have two questions. I'll just ask them both upfront here. First, there's a lot of moving pieces down the P&L, and I appreciate the EBITDA guidance. But where do you want people to kind of fall out on EPS? And what are you trying to imply in the guidance? And then part two, wanted to talk about the remaining organic sales growth that's implied in 2Q through 4Q. The comps last year looked pretty similar to first quarter. So with new product launches, China improving, why the deceleration versus the first quarter? Thanks a lot.

Yes. So let me take a high-level stab at both, and then give it to Sam for some more detail. Look, I think as you look at the bottom line, EBITDA or EPS, long term, obviously, we absolutely want to see leverage in the P&L. We want to see margin expansion or improvement. And we want to see, as I mentioned, real utilization of this massive infrastructure we have built over years at Bausch + Lomb, which truly is a competitive advantage if, and I stress if, utilized well. Tremendous opportunity in the medium to long term to create that leverage. In the short term, I think we need to see improvement. We have some challenges and some investments that need to be made throughout the year. On the challenge side, I would put supply chain being here 50 days. We still have some unknowns there, and I need some more time to really get comfortable and understand what's happening there. I think we have to make investments in important launches like NOV03 and continue to support LUMIFY as a top growth driver for a long period of time. So we're just balancing those two things and probably have more clarity as we move forward. On organic growth, I would say the same thing. I'm not sure we'll see deceleration, again, 50 days in. This is the guidance I'm comfortable with. I think we still have supply issues throughout all the businesses. Some of them are hangovers from COVID. Some are just new technologies or tough technologies or third-party suppliers that we're working to grab. It's quite complex. So I think we're trying to put out guidance that's realistic based on what we know today or what I feel comfortable with today, but that will evolve as I get my feet firmly on the ground here. But let me give it to Sam for some more color.

Thanks, Brent. Good morning, Robbie. Let me take it in two parts here. The first one on EPS. As you know, we don't guide EPS. But when you think about just EPS and the dynamics of it, one big factor we spoke about quite a bit is the currency, and we've seen the currency headwind year-over-year. We're estimating for full-year 2023, that's about $35 million, which we saw about $14 million of that come through in Q1. The other big factor you have to keep in mind is interest expense. We've seen quite a rise in the interest expense. Just as a reminder, our debt and capital structure today, we're sitting with a variable capital structure SOFR plus 3.25%. So we're all seeing what's happened with Feds and sort of the impact on the interest expense that we're seeing that we're guiding for roughly about $250 million. That's versus that roughly $150 million of last year. So that incremental element does provide headwind on EPS for us as we go through 2023. Keep in mind that we also, on the capital structure, we did talk about this is an interim structure that we will transition out of at the time of the separation. So just putting all these different pieces together will give you a sense of how we're thinking about EPS. In terms of just the organic growth, and Brent covered it pretty well, and maybe I'll take a step back. For Q1, we're very pleased with what we performed in Q1. There are a lot of data points in Q1 that we're excited about, and we're pleased for the good start of the year. That's one quarter. And as you start evaluating for the rest of the year, we start thinking about all the puts and takes that you have for the rest of the year. When you factor all those items and bake into your guidance, you have to be balanced and prudent to think through what the level of uncertainties are. You touched on China. China, we saw China recover. To be very clear, I didn't really see that data point of recovery until March. So the first part of our Q1 was not that strong in China. We need to see that level repeat of the steadiness of the recovery before we can call it fully recovered just given the nature of what we saw last year with the stop and go nature of the China market. Supply chain is an area where Brent touched on. We highlighted in our past remarks, and I think in probably a couple of areas here, I'll go a little bit deeper. When you think about our supply chain surrounding our Surgical business, that's an area we had a good quarter, Q1 for Surgical. We have demand in our product, but we also are not where we want to be with our supply chain and availability of a steady supply for us in the Surgical business. That's an area we kept in mind as we thought about our guidance. Same as for SiHy, we've done a very nice output improvement, but that's still work in progress for us. So factoring all those items, plus the macro market conditions and just the uncertainties that come in with inflation, that's all played into our thinking as we thought it was guidance to make it a balanced guidance as we think for the rest of the year.

Your next question for today is coming from Joanne Wuensch at Citigroup.

Good morning. And nice start to the year. Two questions. The first one is, I mean, if you could just sort of give us a lay of the land on the contact lens market, where you are in thinking about taking share and the difference between price, volume, and mix? And then I'll throw the second question out there. Ask is coming up this weekend. What can we expect from Bausch + Lomb there?

Great. On the contact lens market, I believe we are in a strong competitive position globally. Our Daily SiHy or INFUSE lens is high-quality and competitive, and we are in the process of ramping up. Importantly, we have SPHERE launching worldwide, and a multifocal lens is set to launch later in the first half of this year in the United States. We are also working on the toric lens, which we hope to release next year. It performed well, with a 38% increase in the quarter, largely driven by new users, with the remaining portion primarily coming from Biotrue. Our focus needs to be on manufacturing more, as we can sell everything we produce. The teams in Rochester and Waterford are doing a great job improving yield, which will enhance profitability. However, we need to address the current trade-off between higher margin and lower margin products. There is a significant opportunity, but some challenges remain. I will be heading to San Diego for the meeting tomorrow and I'm looking forward to it. We expect to issue a press release, and I hope you'll see a team ready to make an impact at the meeting, which is one of the year's most important gatherings in our industry. How we engage with customers and showcase our products and future is crucial. More releases will be coming, and you'll see them in the Newswire as they are made. Is there anything else you would like to add?

Joanne, just to add, in terms of the price-volume mix here of contact lenses, the growth this quarter was mainly in the contact lens side was mainly volume. So seeing the volume being the majority of the growth. We've seen a little bit of price, but the majority of the growth was volume. Just Brent covered it pretty well on Daily SiHy and where the growth is coming from. One thing I would just also highlight is when you look at the rest of the portfolio of the lenses, we've seen also nice growth in the other parts of the brands such as ULTRA. I called it out this morning; it's growing at 18% and Biotrue at 8%. The SofLens daily, which is a legacy brand outside of the U.S., is growing nicely at 15%. The team is doing a good job managing the Daily SiHy as well as sort of along in the tail on the other brands as well.

Yes. And I should reiterate, that's really important because the way to success is by not having a leaky bucket. This quarter, I think was a good example of exactly that. So real kudos to our team for managing across all these different platforms.

Your next question is coming from Larry Biegelsen at Wells Fargo.

Good morning. Thanks for taking the question. Brent, welcome back. One question for you, Brent. One question for Sam. Look, I'll start with the Sam question. The EBITDA margin, I think implied is about 18.5% for the year. Can you talk a little bit about the cadence from Q2 to Q4 and the drivers over the improvement in Q1, which was about 15.1%? It looks like actually SG&A needs to decline from Q1 in dollar terms. Maybe I'm not looking at that right. But if you could just level set us on the cadence and the drivers, that would be helpful. Brent, you talked about underutilization of infrastructure a few times. I guess I'd love to hear you flesh that out a little bit more. I mean you could reduce your footprint or you could add products. I assume you're talking about adding more products to the bag. So how do you do that? Is that through more M&A, licensing? I'd love to hear about how you do that and your areas of focus. Thanks for taking the questions.

So since you asked Sam first, go ahead, Sam.

Good morning, Larry. That's a great question. Phasing plays a crucial role, and it was a key point in my comments this morning. When considering our phasing, especially between the first quarter and the remainder of the year, it’s an important aspect to keep in mind for 2023. Reflecting on last year’s phasing, our business typically experiences its lowest point in the first quarter, with the peak occurring at the end of the year. Generally, the second half is much stronger than the first half. This year, we’re seeing a similar natural phasing, but it’s more pronounced for a couple of reasons that need to be considered. In the first half, currency adjustments are significant. We anticipate about $14 million in EBITDA headwinds from currency in Q1, and we have guided for a full-year structure adjustment of $35 million, with most of that affecting the first half. We expect currency to provide a tailwind or be less of a factor in the second half, effectively reversing the scenario. Another point I mentioned was gross margin, which is impacted by the higher inventory levels capitalized at the end of 2022. As this inventory moves through the P&L, it presents a gross margin headwind that we don't anticipate in the second half. Some of this impact was felt in Q1 and will also occur in Q2. Additionally, we are making higher investments in product launches. We're preparing for the launch of NOV03, along with several other initiatives across the business. Most of this investment will be realized in the second quarter. Taking all these factors into account, along with the expected revenue increase in the second half and its effect on the P&L, you’ll notice that phasing is heavily concentrated towards the latter part of the year, specifically in Q3 and Q4. Looking at Q1, it was the lowest point, and we expect an improvement of about 1 to 1.5 points as we move into Q2. Following that, we anticipate a ramp-up in the second half of the year.

Great. So Larry, I'll address what you mentioned with only utilization. To be clear, I think we have tremendous opportunities, but we have three challenges that I mentioned: underutilization of our infrastructure, challenges in our supply chain and gaps in our innovation, and they're all kind of somewhat related. As you think about underutilization, think of the opportunity here. It's a very favorable competitive environment, and Bausch + Lomb itself is probably the most integrated and comprehensive portfolio or focused on this industry, right, touching all four areas in a meaningful way. We have operations in virtually every country, a massive supply chain and distribution center, relationships with almost every eye care professional in the world, and we've been doing it for 170 years. But we don't have any big blockbuster brands. We don't have big, high-margin products. We do it. We're kind of a workhorse. We do it with a big portfolio, lots of SKUs, and we do that well considering the complexity of that. That being said, the easiest thing to solve here is to put more sales through that channel. We can do a lot without adding a whole lot of additional cost by leveraging our distribution and sales relationships. We want to do more, we want to sell more. This starts with making the most of the things you have, right? Launch great products like INFUSE, our Daily SiHy, keep LUMIFY chugging along, keep PreserVision moving forward, right, doing great things with the things that are already in the market, like IOLs and the like. The second thing we do is we launch well, right, launch excellence. We have important launches we've discussed that will hopefully take place in the second half of this year like NOV03. The third thing is we source innovation from outside, right? We need more people seeking and searching. We need more people connected to the innovation centers around the world in eye care. We need to be really best-in-class at doing that to bring more product flow into our business. You're right; the second part of that is trimming that infrastructure. We are going to take a hard look at that as well. But to be fair, it was built over a long period of time, and it is a huge competitive advantage. Are there markets or countries or product lines that are unprofitable and don't have a path to profitability? Yes, likely so, but that's going to be small cuts around the corners, not necessarily the way to win. We have to do all those things. They're all equally important. That's what I mean by solving the underutilization problem. Hopefully, that gives you some clarity, Larry.

It does. Thank you.

Your next question for today is coming from Cecilia Furlong at Morgan Stanley.

I wanted to turn just to some of the supply chain comments that you talked about, really what you're seeing from the demand side on the Surgical or equipment side versus your capacity today to meet it and how you're thinking about that in your guidance range just in terms of being able to meet capacity through the balance of the year.

Yes. No, it's a great question. And this is true in a lot of our product lines. We can sell almost everything we make. If you think about Stellaris, we have a backorder of demand, if you will. Every machine we can make, we sell. Our issue there is a third-party supplier of microchips. We're working incredibly hard to source those chips from the vendor and look for alternative supplies as well as qualify and innovate to build the next generation that doesn't rely on those specific chips. That's the type of issue we’re dealing with when I say we have supply challenges around the world. If we had most of those solved, I think we would have a lot more confidence in our ability to put up a stronger guidance as well. Anything else you'd add, Sam?

No, I think you covered it well, Brent. I would just add that when considering the supply chain, our team is actively working on securing inventory through targeted purchases. This effort explains the 7% growth in equipment we saw in Q1, but the spot buying introduces some volatility in how we are managing demand and backlog.

The positive news is there's strong demand for our products. It goes beyond Surgical. We have to solve for these issues, and that's also the opportunity. It's complex, but we're working through it, and I'm very focused on it.

Great. If I could follow up as well, just some of the comments you talked about just around supporting product launches. Can you speak to what in Q1 was reflected around NOV03, how you're thinking about that through the balance of the year in terms of the investment side and really how we should think about launch cadence, whether it's reimbursement, getting on formularies, assuming a positive decision in June?

Yes. So look, I think there was some expense clearly in the first quarter. I think it starts to ramp really in the second and continue into the year. The PDUFA dates at the end of June. The real launch of this product will probably be early fall. It's not easy to launch any product in any space in the dead of summer. You want doctors and ophthalmologists to be around. It's more about September, October for the full launch of the product given the PDUFA date. But it's a huge opportunity for us. I don't know; do you want to talk anything else about it, Sam?

No, I think that's true. It will increase in the first half of the year in preparation for June, but there will also be spending afterwards. Once we launch, the commercial team will continue to support it. Our main focus right now is ensuring a successful launch. We're making the necessary investments to ensure that it is successful.

We have time for one last question, and it comes from Craig Bijou at Bank of America.

Good morning, guys. Thanks for taking the question. I wanted to start along with Daily SiHy, prior management kind of highlighted premium IOLs as a growth area or a potential for opportunity. So Brent, as you step in, would love to hear how you think Bausch + Lomb is positioned in that market specifically and then the opportunities that you see there over the next couple of years. And then I do have a follow-up on EBITDA.

Yes. So the cataract market is a great market, right? It will continue to grow. It's a disease of aging for many. It's inevitable. The demographics are quite favorable over the next several years or a decade or more. It's an area that is important to the success of Bausch + Lomb and more specifically our Surgical business. When you look at our offerings there, we have a really strong set of offerings, and this is a great platform, particularly as we continue to expand the offering across that line. When you look at the premium side, we just did a deal to bring in some new technology. We need to ramp our ability to manufacture and supply those lenses. Early reception from customers is incredibly positive. I think we're moving in the right direction. We need to continue focusing on creating trifocals, extended depth of focus lenses, and the like. But the innovation is in process. A lot of innovation is externally available as well. We just have to keep our heads down and focused on it. The premium IOL portfolio was up about 32% in constant currencies in the quarter. I think that's a proof point that we can do it. We just need to drive it harder and with more product look. Sam, anything you'd add to that?

On EBITDA, I appreciate your comments on profitable growth and leveraging the infrastructure. The question is, while I know you're not providing guidance for '24 or the following years, how should we consider your ability to drive margin expansion in those future years? Additionally, in relation to the messaging from the past year, has there been any change in that perspective?

Yes. Look, I can tell you, as you guys get reacquainted with me at this business, I'm pretty much a straight shooter about this stuff. I think we have a massive opportunity for out-year margin expansion. That being said, 50 days in, I wanted to ensure we had good guidance for this year. I'm not sure I'm ready to give you guidance for next year just yet. Give me a little bit more time to get my feet on the ground. That being said, the easiest way to think about it and the way I really look at this is all the massive investment in building out infrastructure has been made, right? We have a presence everywhere. We have a global field force across four different unique businesses. We have relationships around the world with every ECP imaginable, right? So the significant investments were made. The question is how do you put more through this channel, right, that we call Bausch + Lomb to get expansion, right? That's the key. We've got to get more product flow through this. If you do that, margins should expand very quickly and very naturally. That's the massive opportunity. This is such a dynamic industry. We'll have multiple choices on how to seize those opportunities; we just have to do it smartly.

Thanks.

I believe, operator, that concludes the remarks or the Q&A. I would just add a closing comment of thanking everyone for joining us. I'm super excited to be here. As I just mentioned to Craig, the opportunities are real and exciting. But just give me some time to get my feet on the ground, and we will be, hopefully, keeping you updated as we go. I look forward to staying in touch and getting to know those that I haven't interacted with better over time. Thank you again for your time this morning.

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