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Bausch + Lomb IPO: BLCO begins US IPO process to raise $100 million

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A brief look at the Bausch + Lomb Corporation

Bausch + Lomb Corporation (BLCO) has applied to raise $100 million in an initial public offering of its common stock, according to an S-1 registration statement.

The company sells contact lenses and related eye care products worldwide.

BLCO has rebounded strongly after a pandemic-related contraction and is producing strong growth and free cash flow.

I will provide a final opinion when we hear more about the IPO from management.

Bausch + Lomb and its technologies

Based in Vaughan, Canada, Bausch + Lomb was founded to manufacture the first mass-produced soft contact lenses and to develop additional eye care products for various eye conditions.

Management is led by Chairman and CEO Joseph C. Papa, who has been with the company since May 2016 and was previously CEO of Perrigo Company and has a long history of holding senior positions in both private and public healthcare companies.

Below is a short overview video of the highlights of 2021:

(Source)

The main business areas of the company are:

Bausch + Lomb has received at least $10.345 billion in equity investments from investors including parent company Bausch Health Companies.

Bausch + Lomb – customer acquisition

The company has a portfolio of over 400 products and serves a number of key market segments primarily through consumer channels and direct sales or distribution channels.

BLCO has over 100 projects in its R&D pipeline and operates or markets in more than 100 countries worldwide.

Selling, general and administrative expenses as a percentage of total revenue increased slightly as revenue fluctuated, as shown in the following figures:

Sale, G&A

Expenses vs. Income

Period

percentage

Nine Mo. Ended September 30, 2021

37.0%

2020

36.7%

2019

36.6%

(Source)

The Sales, G&A Efficiency Rate, defined as the amount of incremental new revenue in dollars generated by each Sales, G&A dollar spent, has returned to positive territory over the most recent reporting period, as shown in the table below:

Sale, G&A

efficiency rate

Period

Several

Nine Mo. Ended September 30, 2021

0.3

2020

-0.3

(Source – SEC filing)

Bausch + Lomb market and competition

According to a 2019 Fortune Business Insights market research report, the global ophthalmic market was estimated at $125 billion in 2018 and is projected to surpass $192 billion by 2026.

This represents a projected CAGR of 5.6% from 2019 to 2026.

The main drivers for this expected growth are an increasing incidence of eye diseases combined with better access and availability of a variety of eye care options for patients.

Also, the following is a historical and forecast future market trend for eye care products and services in North America:

Bausch + Lomb IPO – market for vision aids in North America

Insights into the Fortune business

Key contestants or other industry participants include:

  • allergy

  • Alcon

  • Cooper vision

  • JNJ Vision

  • Santen

  • Vistakon

  • Novartis

  • Pfizer

  • Roche

  • Aerie Pharmaceuticals

  • Thea Laboratories

  • MASTER

  • Carl Zeiss

  • generics

Financial performance of Bausch + Lomb

The company’s recent financial results can be summarized as follows:

  • Sales growth recovery after the 2020 pandemic

  • Gross profit up so far in 2021 but reduced gross margin

  • Fluctuating but significant operating result

  • Variable cash flow from operations

The following are relevant financial results arising from the company’s registration statement:

total revenue

Period

total revenue

% variance vs. before

Nine Mo. Ended September 30, 2021

$2,764,000,000

12.0%

2020

$3,412,000,000

-9.7%

2019

$3,778,000,000

gross profit (loss)

Period

gross profit (loss)

% variance vs. before

Nine Mo. Ended September 30, 2021

$1,700,000,000

9.5%

2020

$2,127,000,000

-13.2%

2019

$2,451,000,000

gross margin

Period

gross margin

Nine Mo. Ended September 30, 2021

61.51%

2020

62.34%

2019

64.88%

Operating Profit (Loss)

Period

Operating Profit (Loss)

operating margin

Nine Mo. Ended September 30, 2021

$237,000,000

8.6%

2020

$260,000,000

7.6%

2019

$396,000,000

10.5%

net income (loss)

Period

net income (loss)

net margin

Nine Mo. Ended September 30, 2021

$131,000,000

4.7%

2020

$(18,000,000)

-0.7%

2019

$298,000,000

10.8%

Cash flow from operations

Period

Cash flow from operations

Nine Mo. Ended September 30, 2021

$711,000,000

2020

$522,000,000

2019

$799,000,000

(Glossary of terms)

(Source – SEC filing)

As of September 30, 2021, Bausch + Lomb had $130 million in cash and $1.6 billion in total debt.

Free cash flow for the twelve months ended September 30, 2021 was $639 million.

Bausch + Lomb Corporation IPO details

Bausch + Lomb intends to raise $100 million in gross proceeds from an IPO of its common stock, although the final figure is likely to be significantly higher.

No existing shareholder has expressed an interest in buying shares at the IPO price.

BLCO plans to list its shares simultaneously on the NYSE and the Toronto Stock Exchange.

The company will not receive any proceeds from the IPO. All proceeds are paid to the parent company Bausch Health Companies via another subsidiary.

The management’s presentation for the company’s roadshow is not yet available.

With respect to pending lawsuits, management believes that the resolution of known lawsuits would not have a material adverse effect on its financial condition or operations, but cannot be certain.

The listed bookrunners of the IPO are Morgan Stanley, Goldman Sachs, Citigroup and other investment banks.

Commentary on the Bausch + Lomb IPO

BLCO is targeting an IPO as it begins the process of separating from its parent company, Bausch Health Companies.

The company’s financials showed rebounding revenue growth after a dip during the 2020 pandemic, growing gross profit in 2021 but lower gross margin, variable operating profit and choppy cash flow from operations.

Free cash flow for the twelve months ended September 30, 2021 was an impressive $639 million.

The Company does not currently plan to pay a dividend on its common stock and anticipates that all earnings will be reinvested in its growth initiatives and working capital.

Selling, general and administrative expenses as a percentage of total sales increased slightly as sales fluctuated; its Sales, G&A efficiency rate has returned to positive territory over the last nine-month period.

The market opportunity for providing eye health products to consumers is large and is expected to grow significantly in the coming years as the world population ages and eye diseases become more prevalent.

Morgan Stanley is the leading underwriter and the IPOs the firm has managed over the past 12 months have generated an average negative return (17.5%) since going public. This is a lower performance for all major underwriters over the period.

The main risk to the company’s outlook is a continuation of the COVID-19 pandemic and related variants, which could reduce ophthalmologist visits and thus have a dampening effect on revenue growth.

However, the IPO should be well underwritten, assuming general market conditions are favorable as the company is generating significant earnings and free cash flow.

I’ll provide a final opinion when we learn more about the IPO.

Estimated IPO Price Date: To be announced.

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